The Free Hand of the Market Watch 0

Rowenna Davis, reviewing an ebook called The Crash in the Guardian, argues that most lefties don’t understand financial markets.

She has a point. Indeed, I think most persons don’t understand the markets. Yet, as is daily proven, the markets are important, not just for those who frequent them.

How many persons actually listen to the business news or read the business section in the paper? For most, that’s eyes-glaze-over territory filled with impenetrable double-talk and inane trivialities like “Jane Tribble just got promoted to Second Assistant Director of Beanie Babies.”

There’s a reason the business news comes at the end of the newscast or in the last section of the paper; only the dedicated pay attention to them.

By “understanding the markets,” I do not refer to deciphering day-to-day fluctuations in indices such as the Dow; as Mr. Obama rightly said, those are like tracking polls which often reflect irrationalities of the moment, rather than trends of substance (quarter-to-quarter and year-to-year fluctuations may carry more meaning, but they don’t get the juice in the short attention span “OMG Britney’s not wearing any panties” world of contemporary reportage). Rather, I refer to understanding the logic and mechanics of how markets work.

I know I don’t, despite having somewhat more than a casual background in economics, though I understand markets better than I did before Raymond pointed me to MarketWatch and gave me the first coherent explanation I have ever gotten of how short-selling actually works.

Without understanding them, we cannot spot and prevent fraud and misconduct. And fraud and misconduct in the markets affect everyone, everywhere. Just look around.

Duncan is fond pointing out that, despite the claims that “nobody could have predicted” this panic/depression/recession, many persons did. But no one stopped it. The audience that understood what they were saying was so small that it had no political traction.

Not understanding or attending to the markets leaves persons unable to talk coherently about them.

Furthermore, I think there is a tendency amongst many of my fellow lefties to see the markets as some big gray undifferentiated blob

and then go back to worrying about more traditional American leftie concerns such as social and economic justice, rather than economic functioning (European lefties tend to be more oriented towards economic functioning as leading to social and economic justice).

The capacity of a society to provide for social and economic justice, though, is intimately tied with its capacity to provide a sound economic system. The latter provides the resources for the former.

Ms. Davis cites two criticisms and a consequence in her column (emphasis added):

First, the book’s contributors are not clear whether the left has a problem with markets full stop, or the way governments have handled those markets. The writers slip between blaming a lack of regulation and blaming “pro-market forces” as a whole. This is understandable – the left is worried that any kind of market defence would alienate its more radical supporters – but not spelling out this subtlety is misleading. Fundamentally, what the authors of this report are advocating – as other credible leftist advocates like Martin Jacques, Neal Lawson and John Harris already have – is for change within the market system.

(snip)

This leads to the left’s second mistake: a failure to make the economic case for a fairer, more equal society. In the wake of the financial crisis, the left has inherited the economic high ground, but we are failing to capitalise on it. Take, for example, the fight for social housing. If the US had instituted a proper system of state support, less well-off Americans wouldn’t have had to rely on dodgy private loans as the only way to get a roof over their heads. No bad loans would have meant no subprime crisis. Yet, despite strong emotional pleas for more social housing in The Crash, this argument isn’t highlighted.

These two problems – the failure to frame the problems and the solutions of the financial crisis through credible economic analysis – leads to a third. A lack of coherence in the left’s agenda.