Economic Crisis

Leave It to the Markets

May 12, 2010

Multiple Pages
Leave It to the Markets

If the Dow plunges a thousand points in 10 minutes, what should we do about it? Other than scrape that brown stuff off the insides of our underpants as we contemplate the wreckage of our retirement plans?

How about this as a truly radical suggestion? Let’s do nothing about it. Bupkiss, sweet FA.

Some would say what we should do depends upon what the cause was. Perhaps it was fragmented markets and circuit breakers as those who know what they’re talking about suggest? Or perhaps, as those who don’t know what they’re talking about, like Senator Chris Dodd, we should have more of what the senator always says is the solution to everything: “Mr. Dodd [added] that he had called for hearings on the matter.”  More of Senator Dodd that is. Yes, more grandstanding by the ignorant, just what we need.

“We absolutely never will create a system to manage anything, whether it be food delivery, financial markets, or the provision of a suitable number of orgasms which will work as advertised, each and every time.”


This does require, I agree, actually thinking about the problem, behavior not all that common in today’s world. But if we do think about it, we’ll see that doing nothing is almost certainly the correct answer. We’re humans, you see, and as innumerable religions (and wives) have tried to point out to us over the years, that means that we’re fallible: so is anything that we try to create. We absolutely never will create a system to manage anything, whether it be food delivery, financial markets, or the provision of a suitable number of orgasms which will work as advertised, each and every time.

So what we actually want to try and do is find systems which are good, yes, as good as we can make them, sure, but what we really want is a system that recovers from failure as quickly as possible: thus the invention of Viagra for that last of our trio there. With financial markets the clue is already there in that word “markets”.

Yes, the Dow dropped a thousand points, computer trading programs shut down across the nation, IRAs, 401(k)s, and the like took a beating, and there are tens of thousands of bureaucrats who would love to know why today. But note also what happened. Twenty minutes later the whole thing had blown over, markets were open and trading quite happily and prices were back to roughly where they had been. Can any of us think of any system at all which would solve such a problem as quickly as this one got solved?

This is the point about markets, markets in their wider sense, which is so under appreciated. Sure they go kablooie at times, nothing ever made or designed by human beings doesn’t. But markets also contain their own solutions to such kablooieness as we’ve just seen.

Don’t forget, when the first intimations that Enron’s accounting wasn’t entirely kosher came out the markets closed them down and sent them into bankruptcy before the first bureaucrat had even managed to sharpen his pencil. And the SEC ignored Harry Markoupolis over Madoff for how many years was it? Five? When he’d actually provided them with the detailed description of exactly what was going on and even how they could prove it?

Leaving things to markets is the very definition of neo-liberal: sure, that’s unpopular right now. But when markets do actually work, do actually right themselves, shouldn’t we carry on being neo-liberal? It does, after all, seem to work, which is more than can be said of either Senator Dodd or his ideas.

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