News & Analysis
Madness of Markets
Romney Is Unwise to Believe in Wisdom of Markets ... Judging from the preponderance of his utterances, presidential candidate Mitt Romney has a classic Republican approach to financial regulation: Get government out of the way, because markets are inherently wise. If only it were right. – Bloomberg
Dominant Social Theme: Free markets do not exist.
Free-Market Analysis: Almost everything that appears on Bloomberg supports the idea of market failure. The animating perspective of Western mainstream media is that markets need "supervision." But rarely do we find this meme so bluntly presented as in this article excerpted above. It is written by Mark Buchanan and his bio is also included as follows:
"Mark Buchanan, a theoretical physicist, is the author of 'The Social Atom: Why the Rich Get Richer, Cheaters Get Caught and Your Neighbor Usually Looks Like You' and two other science books. A former editor of Nature and now a columnist for Nature Physics, Buchanan writes about efforts to use physics concepts to understand dynamics of biology and the social sciences, and is at work on a new book about the physics of finance."
Exactly what in all this qualifies Buchanan to provide an analysis of economics and politics is hard to figure. Obviously, he is an intelligent person and as an individual who covers complex topics, he can be presented as someone who sees clearly the ins and outs of the West's socio-political system.
Here's some more from the article:
It's hardly surprising to see Romney repeating the wisdom-of-markets mantra. His chief economic adviser is R. Glenn Hubbard, dean of the Columbia University Graduate School of Business. Eight years ago, Hubbard co-wrote a paper – paid for by Goldman Sachs (GS) – proclaiming the arrival of a veritable heaven on Earth through market expansion and deregulation ...
Given the central role such thinking played in the financial crisis, it's a wonder that Romney can support it and poll at more than 15 percent. Where did such fantasy-based policies come from, and why are they so alluring? ...
Now let's think again about whether markets know best about anything. It's hard to imagine a more socially influenced environment than modern finance, with rumors flying through the business press and corporate boardrooms, fund managers herding like cattle to fashionable investments, financial analysts mostly making the same predictions as other financial analysts. We have a host of reasons to expect very little wisdom in the verdict of the crowd as expressed in the market.
Whoever wins the presidential election, the market will react. If we have to give it a personal spirit, it will "render its verdict." It won't be inherently wise or anything else. Up, down, left, right or inside out, the result won't tell us much about the wisdom of current policies. It's just the market, not a miraculous machine for good governance.
Wow. The argument made here is that because people are irrational, markets are, too. But this is a truly crazy argument. PEOPLE do not determine the efficacy of markets – competition does.
Over time, people's crazy, biased choices are winnowed by markets themselves. This is why markets "work." They are NOT dependent on individual biases but on what is profitable. Profit is all that is left in the long run.
If something is unprofitable it will not last long – or at least, not long within the scheme of things. It can be subsidized but eventually subsidies wither away. This is, in fact, why countries fail in the long term. As wealth confiscation continues, countries themselves become dysfunctional. The same will happen with world government if it ever arrives. Over time it will fail.
Now, one could question within this context whether an intergenerational power elite can long survive. But as long as government in one form or another survives, so will elites.
Elites profit from mercantilism, the usage of public power for private purposes. This is why the bought-and-paid-for mainstream media constantly advances the government-is-necessary meme.
What is certainly true in this era of what we call the Internet Reformation is that the powers-that-be are worried about a diminishment of government credibility.
Conclusion: The dominant social theme that they rely upon above all others – central banking – is losing its hold. The result will almost inevitability be a loss of Money Power. You see ... the elites themselves are not immune to the power of the markets ...
Posted by Sam Glasser on 10/10/12 02:49 PM
Buchanan conveniently omitted the ~99% of people outside his "crowd": those who make all kinds of economic choices every day. What his rhetoric amounts to is a war on "freedom of choice", AKA "free markets".
Posted by kktemecula on 10/10/12 10:01 PM
I gleen from Mr. Buchanan's comments a distrust and distaste for the fundamentals of human action. His expertice in empirical science as a physicist has caused him to peer at the irrational world through a different looking glass than the one that economists use.
Perhaps he "CLEP"ped his social science courses in college. Adam Smith should be required reading for incoming freshman.
Posted by Danny B on 10/10/12 10:17 PM
"proclaiming the arrival of a veritable heaven on Earth through market expansion"
Ahh yes, grasshopper. "market expansion".
What about productivity and consumption?
The markets expanded only because credit [debt] expanded. What happens when debt can no longer expand? What happens when consumption is forced to be commensurate with ACTUAL earnings? It's quite a BIG pile of debt.
Click to view link
Somebody is going to get the short straw.
Posted by agnosticanarchist on 10/11/12 04:47 AM
Another PhD in the natural sciences arguing for tighter government controls? File tis one under "Saw it coming a mile away". Keep up the good fight, Daily Bell. Your work is much appreciated.
Reply from The Daily Bell
Posted by Dilence Sogwood on 10/11/12 03:43 PM
Bloomberg TOP has a heavy hand lately. Peter Orzag has been very prominent, yet no one questions his work on Fannie/Freddie - possibly the worst investment analysis of all time.
Posted by DrBryant on 10/12/12 11:37 AM
Mark Buchanan = "Sheldon" of "Big Bang Theory"... Click to view linkpletely self-absorbed, totally dismissive of other opinion, and completely out-of-touch with the reality of anyone else.
Sidebar: The most worrisome group in the USA is the so-called "undecided voter"... ..are they such because they live in a dark and damp basement and only come out when a pollster unlocks the chain on the door??
Posted by DrBryant on 10/12/12 11:41 AM
"completely"... sorry, don't know why it displayed differently