I seem to have upset the proprietor of Blognor Regis lately. Apparently I “was wetting myself over David Carr’s prehistoric Band Aid rant“. I think the figure of speech he was looking for was “taking the piss out of“. Taking the piss is a traditional British craft that some of the Beavis and Butthead types who post at Samizdata (my friend Claire excepted) need to work on before they practise it successfully.
Now I am stating “the bleedin’ obvious” by citing an article in the FT questioning the wisdom of markets. The article contains three well-documented examples of supposedly intelligent and respected people disagreeing with said bleedin’ obviousness. He further claims that “markets are whatever people want to make of them”. This is so silly that I might have to set the Anonymous Economist on him. I know too well that (s)he delights in using techniques acquired doing his/her Harvard PhD to humiliate ‘Bloggers who think they understand economics. Tim Worstall, with whom I have disagreed over a related question in the past, responds in a more considered way. Perhaps one day we’ll find a means of coupling the wills of informed and rational agents, via money, to an efficient system of exchange, but in the meantime we’ll have to make do with Ebay—a beautiful example of how savvy regulation and peer review can turn naked capitalism into something that actually works. Where else would a true believer be able to realise the full value of a cheese toastie?
Every time there’s an asset bubble of some kind, it vibrates to the tune of “experts” in the media confusing an “is” with an “ought” and touting the latest craze as an example of a new paradigm—because the market really must have some collective knowledge to have set such high prices. Isn’t that lovely?: ideologues hoping to spray rigour onto their idols by misapplying a misapprehension of the nature of science. Here’s just one of the many loonies currently encouraging the young and fearful to squander their savings by buying a depreciating asset on margin—I mean by investing soundly in the prevailing insights of the UK property “market”.
There are plenty of people who not only believe that markets are rational, but build businesses, cults, and recessions on this error. The record shows that there are many things that markets do well and many others that they don’t. When they work it is often because, to borrow Blognor’s accurate words, “really clever people” … “organise them on behalf of us fools who keeping screwing things up”. When they don’t it’s often because people have been left to their own devices. Even in the absence of endemic ignorance, inequality, and corruption, without supervision, humans will do all they can to wrench any system of buying and selling away from the textbook ideal—because real competition is bloody hard work and humans are lazy.
I am glad, for example, that I live in a country where pure pyramid schemes are banned, rather than, say, liberalised Albania. When many (if not most) adults in the UK have no grasp of the difference between nominal and real interest rates, it’s the job of those clever enough to know—at the Bank of England and the Treasury, perhaps—to prevent this innumeracy from destroying lives. Recently many Britons have taken out “low-interest” loans secured on their homes, loans that ultimately they will be unable to repay. When they bleed equity and thrash around in panic the sharks will come for them, but, in an interdependent economy like ours, some of their more sensible neighbours will also be dragged under during the frenzy. It doesn’t help that those pimping products designed to uncouple the victims’ incomes from their purchasing power (interest-only loans, self-cert mortgages) have fallen for the money illusion themselves.
Dear Reader, please return to this page throughout 2005 for more of the bleedin’ obvious. I predict that I will be pointing out again that sentimentality does no useful work, that Bush≠Hitler, that Marx was wrong, that we did not wink into existence within the last 10 000 years at the whim of a benevolent creator, and that pricing mechanisms are (usually) no such thing. Why? Because there are millions of people out there who still believe in media emotionalism, cartoon relativism, unreconstructed Marxism, literal creationism, and in deriving policy imperatives from neoliberal economic theories—people who are willing to interfere negatively in the lives of others who don’t share their delusions. I can’t stop them, but I can tell them in public that they are wrong and that they should leave me alone to get on with my sad little existence. That it’s unwise to walk under ladders is, however, a superstition with a sound empirical basis. In the absence of further data, I promise to leave it unchallenged for the next twelve months.