what markets want

| No Comments | No TrackBacks

Paul Krugman gets my Quote of the Day when he asks, "do those invoking the will of the market really know what markets want?"

We have been told repeatedly that governments must cease and desist from their efforts to mitigate economic pain, lest their excessive compassion be punished by the financial gods, but the markets themselves have never seemed to agree that these human sacrifices are actually necessary. Investors were supposed to be terrified by budget deficits, fearing that we were about to turn into Greece -- Greece I tell you -- but year after year, interest rates stayed low. The Fed's efforts to boost the economy were supposed to backfire as markets reacted to the prospect of runaway inflation, but market measures of expected inflation similarly stayed low.

How have policy crusaders responded to the failure of their dire predictions? Mainly with denial, occasionally with exasperation. For example, Alan Greenspan once declared the failure of interest rates and inflation to spike "regrettable, because it is fostering a false sense of complacency." But that was more than four years ago; maybe the sense of complacency wasn't all that false?

All in all, it's hard to escape the conclusion that people like Mr. Greenspan knew as much about what the market wanted as medieval crusaders knew about God's plan -- that is, nothing.

In fact, if you look closely, the real message from the market seems to be that we should be running bigger deficits and printing more money. And that message has gotten a lot stronger in the past few days.

He concludes by observing that "the truth is that when people talk about what markets demand, what they're really doing is trying to bully us into doing what they themselves want."

No TrackBacks

TrackBack URL: http://www.cognitivedissident.org/mt/mt-tb.cgi/2886

Leave a comment

About this Entry

This page contains a single entry by cognitivedissident published on October 17, 2014 12:28 PM.

Gates on Piketty, Baker on Gates was the previous entry in this blog.

multiple languages is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.

Monthly Archives

Pages

  • About
  • Contact
OpenID accepted here Learn more about OpenID
Powered by Movable Type 5.031