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Market truths or obscured views?

from Peter Radford

This is meant as a friendly gentle nudge:

As we all know markets are heavenly creations of exquisite perfection. Free and impersonal markets that is. We just know this. It just is. Free impersonal markets are what have delivered us all from the abominations of servitude and the darkest poverty. They have enlightened us. The have illuminated us. They are what have enabled us to discover what we now know. Our literature, our arts, our politics, our cultures, our very beings are due entirely to the ability of free impersonal markets to grab hold of the tyrannical state and demolish its suffocating grip.

Markets said free, and they were free.

That in a democracy we the people are the state and so apparently have our own hands on our own throats is of no consequence. That ‘we the people’ stuff is just a veil behind which lurks the monster of the state waiting to bash us with another calamitous and inevitably doomed policy. Even if that policy was conceived with the best intentions.

Beware: unintended consequences are everywhere. Except in free impersonal markets.

This is because free and impersonal markets are just awesome.

So surrender to the impersonal. Float away atop the surf of free markets. No matter where they take you, no matter the consequences, no matter anything at all: it is better than anything the nasty horrible state could ever deliver to you.

Stop. I just caught myself making a silly error. Learn this important lesson: it cannot be ‘no matter what the consequences’. No, not in free impersonal markets. The consequences in a market are always just. They are always right. They are always optimal. They are never unintended. No, those consequences are the best.

Free markets are always right. This is indisputable.

So last Friday the stock markets were absolutely correct. And this morning they are absolutely correct again. They were prescient and all-knowing Friday. They are prescient and all knowing today. The gulf in stock valuations that has opened up in the interim is simply a recognition of the new information the non-persons agents who comprise the impersonality of the impersonal market absorbed over the weekend.

Note: this new information was not due to uncertainty. No, not at all. There is no uncertainty. Just calculation and recalculation. Actually not recalculation because that might imply error in the first calculation. So we won’t call it recalculation , we will call it new calculation. Phew.

It’s all part of the mystery of market magic. Sorry, not magic, nor mystery. It’s all part of the super-calculating optimizing machinery that is so impersonal and free that it only looks like a mystery or magical. Actually it’s a cold hard fact.

What to you and me look like wild gyrations are simply the ever so smooth and infinitely smart manifestations of the transparent bargaining between completely equal and well informed non-persons agents. These agents rise above all emotion and trade, not with each other, but in an entirely impersonal and open manner and are simply expressing a purity of valuation that the rest of us can only be in awe of.

The reason why you and I probably misunderstand these swift and precise re-valuations and see them as bizarre or manic panic stricken emotional outbursts is because you and I are not sufficiently impersonal. We do not quite comprehend the axioms mysteries workings of the free and impersonal markets. We are not yet suitably enlightened.

So it ought be no surprise that when asked the public thinks hedge fund managers or CEO’s are overpaid and that unskilled workers in factories are underpaid. Clearly the public has no clue about the magic precise and accurate workings of marginalism. All those people are paid exactly what they are worth. It’s just a fact. A cold hard artifact of nature. An actual fact. It is a product of the free and impersonal marketplace in which such things are decided.

That it is this same clueless public that then transforms into super agents in order to participate in impersonal free markets is of no matter. If you can’t keep up with the theories of markets, then that’s your problem.

If, for instance, you can’t grasp that the buffoons who are so easily befuddled at election time by the evils of the government they elect are the self-same agents who then rationally organize their lives in order not to be take on by that same trickery in the marketplace, then you are just dumb. Or confused. Or both.

You see, it is the workings of markets that does this liberating. A person who is stupid enough to vote for evil state policies at election time is actually cleansed of this stupidity when confronted with those exact policies within the market. As long as the market is impersonal of course, but you knew that.

Yes you knew that. But the public doesn’t.

Which is why only 27% of the silly dears we know as the general public want to live in a society in which government pays the minimalist role our libertarian economist friends who espouse the magic liberating workings of free impersonal markets advocate. This is according to a 2012 paper by professors Page, Bartels, and Seawright, who, being political scientists probably don’t realize how silly they are by even compiling data so affronting to the magic smooth workings of markets.

This is the point: there are many economists who believe so devoutly in market magic that they sometimes say things they ought not, they sometimes attribute supreme powers that don’t exist to their fanciful markets, and they sometimes ignore vast swathes of social and political history in order to keep close to the pure faith that markets are just right. They don’t admit to market failures, they don’t admit to the multiplicity of institutional richness around us, and they certainly don’t admit to the existence of something called society into which the economy can be subsumed.

Something, that is, that is bigger and more important to our historical trajectory than simply the free and impersonal market that they theorize about.

This is more than a mistake. It is misleading. Especially when you know that they don’t actually believe as devoutly as they sometimes pretend.

 


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  1. graccibros
    August 28, 2015 at 2:58 pm

    Peter: Have you been reading “Candide?”

  2. Tom Welsh
    August 28, 2015 at 7:17 pm

    It seems to me that people who believe in perfect markets are begging the question. They start by hypothesizing (perhaps) that markets MAY work in such a way that everything always infallibly works out for the best. But as far as I know no one has ever proved this – or even tried to prove it. Could that be because it can’t possibly be proved?

    But the whole business reminds me very strongly of some other situations. There were Ancel Keys and his colleagues, who starting the 1960s realized that everything previously known about human nutrition was wrong; that animal fat would kill you; and that everyone needed to eat more healthy whole grains. They realized this so deeply that they felt no need to prove it, and persuaded governments – which then went about persuading citizens – and within a generation we got an epidemic of obesity, diabetes, heart failure, strokes, and cancer. They considered all possible causes except that their own treasured theory. Yet when, after decades, the results of their massive surveys came in, it turned out that there was absolutely no scientific validity at all in their theory. Ho hum.

    Then there were the people who decided that human beings were generating too much polluting gas, and worked out that it should cause a greenhouse effect. Next thing, governments were persuading citizens that they had to do without electric power, heating, air conditioning, and industrial products in general because ANTHROPOGENIC CLIMATE CHANGE. Yet the experiments gave mixed results, the measurements could be interpreted in different ways…

  3. antireifier
    August 29, 2015 at 1:52 am

    Perfect Market functioning is a reified theory. I was warned against reifying theories as an undergrad in 1969! But that was a psychology class. Ooops.

  4. macroambiente
    September 1, 2015 at 1:14 pm

    Yes, neoclassical economics is a misleading doctrine; its purpose is to convince people that inflation is always bad and that the only cause of inflation is money emission by government. Preventing government money emission is not necessary; it is a sine qua non condition for the prevailing political power in democratic countries. The misleading strategy has been 99.99% successful for non-mainstream researchers do believe that Supply and Demand should be dismissed. Thus, neoclassical economists will never change their minds and economics will never explain the real world or, what produces the same result, there will be n economic theories. So, what we must do is to forget neoclassicals and look at the real life where people are always buying and selling stuffs. This is what is done in Supply and Demand is Not a Neoclassical Concern (http://mpra.ub.uni-muenchen.de/63135/).

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