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EFFICIENT MARKETS April 25, 2010

Posted by wmmbb in Australian Politics, US Politics.
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So what are markets anyway?

Transactions take place in a social context. There has to be ingredients such as trust and recognized rules for fair dealing, including recognized weights and measures, otherwise markets as social institutions will seize up. By definition what is traded must be alienable, and how it is done must serve the common good. It seems to me there is a problem when what is being traded is labor as distinct from natural products – if such a distinction can be made.

Sometimes the reason we do not understand what is going on is that we are trapped in a cultural box, whose assumptions we are blind or blinded to. We cannot see, for example, the foolishness of having an transport system based on individual ownership of motor vehicles. Therefore we do not consider alternatives, or more accurately ranges of alternatives to meet different contingent needs. The implication, I suspect, is that the environmental crisis is caused more by culture than science as expressed in technology.

Natural systems are, I imagine without exception both effective and efficient, and therefore from the perspective of calculation beneficent. Thus destructive and violent competition is good because that is how nature works. Natural systems and markets are self correcting.

For The New York Times, Louis Uchitelle reviews 13 Bankers – The Wall Street Takeover and the Next Financial Meltdown by Simon Johnson and James Kwak. He argues there are systemic reasons why bankers and financiers have a tendency to create “destructive panics and recessions”, most notably the global financial crisis. Reagan and following US Administrations dismantled the safest banking system known in American History from the 1930’s to the 1970’s.

The efficient market hypothesis is the notion that markets do not require regulation. Louis Uchitelle observes:

To put it bluntly, as this book does: the efficient-market hypothesis does not work. It never has. Markets are not self-correcting. Left to their own devices, bankers at the biggest institutions can’t seem to stop themselves from speculating with borrowed money until they inevitably crash the system.

The operation of market systems cannot be seen in isolation from the underlying cultural premise from which they arise, the sociology of their operation, including structural inequalities that entrench and perpetrate, and the exercise of political power and influence. On the later point, it is interesting to observe for me as a person who knows nothing about these things how manufacturing has been outsourced to countries run authoritarian Communist governments.

In the US it is the financiers and bankers who fund the political parties and the presidential candidates, whereas in NSW it is property developers.

ELSEWHERE:

Bill Moyers interviewed the authors of 13 Bankers for NPR, via Alternet.

John Quiggin seems to have consigned the “efficient market hypothesis” to “Zombie Economics”.

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