Fantasy from the IPA

Only an ideological puritan from the IPA could argue that the volatility in equity and other markets is all the fault of Governments.

The item notes

There is also international empirical evidence to suggest that share markets returns are lower and volatility is higher when legislatures are in session, which is not altogether surprising given the role of taxation and regulatory policies on the economic climate for private sector activity.

and

Economic growth, be it at a national or global level, can only be led from the front by a private sector unencumbered by the unsustainable debts, uncompetitive tax regimes and onerous regulations of big governments.

A fascinating read really that completely fails to address the actual problem, which is that markets have two means of valuing assets, and that one of them can result in incorrect movements. What I didn't say is that at heart the conditions identified by Keynes for creation of a depression is a case of just the same kind. When consumers think prices will decline in the future or their income is insecure they stop spending thus fulfilling the expectation. Such cycles are not broken by natural market forces.

The reported comment of Kevin Rudd that "the global economy as a 'wild beast,' and that the task of policymakers is to 'tame the beast to the greatest extent we can.'" can be read two ways. One - what I think is the intended one - is to act to ensure market rules are established so that markets work. The other would be to assume it means replace markets with something else. As all totalitarian regimes have found you can't replace markets, merely drive them underground.

It would be nice if fans of markets were to talk about real markets and real people.

Novae Meridianae Demetae Dexter delenda est

The IPA and Economic Libertarianism

The extreme form of advocation of market capitalism that in the 80s was associated with "economic dries" and in the 90s promoted the title "economic rationalism" is a variant I refer to as "economic libertarianism". David McKnight calls it neo-liberalism, which I think does a discredit to the word "liberal" - which in the US sense is associated with the idea that Government has a valid economic role.

A variant of it can be seen in today's AFR by John Roskam in an article on CSR. I don't have time for the full critique now - suffice to say the article fails to recognise the consequences of the corporation having achieved the status pf "natural person". It also fails to acknowledge that in the real world "the firm" draws on a number of inputs - all of which expect compensation. The shareholders do not deserve to get all the "upside" over and above the return they expected.

The focus on "shareholder value" has resulted in a degree of managing in the short run that makes it easier for management to externalise costs.

But the most telling point is how his two concluding paragraphs are self-contradictory. He first claims that firms need to confront the underlying assumption that without regulation companies will ignore social, environmental and ethical consequences - but then that the second task is to re-establish the principle that the single best contribution a firm can make is to be profitable (i.e. in a choice between profit and the environment, profit must win).

The IPA item can be found here http://www.ipa.org.au/files/news_1081.html