Archive | November, 2014

Markets Again – Meaning and Simplicity

7 Nov

There is rarely a need to use the word ‘market’ when referring to economic arrangements.  My early posts (and the name of this blog) argue that there’s really no such thing as ‘the market’ and that what we call ‘market’ mechanisms are usually inaccurate abstractions of real situations.  It’s therefore better, if you’re trying to understand something, to look at the thing you wish to understand – rather than the stories you have been sold about it.

That’s all very well.

But I didn’t go quite far enough.

I failed to point out the layers of unnecessary complexity (and inconsistency and out-and-out bullshit) that come from the myth that you can usefully place the word ‘market’ anywhere you like.  It’s everywhere, but today I’ll sample a bit of the British media.

Consider this article by the economics correspondent of the Daily Telegraph.  It is written by, about and for people who believe themselves to be economically literate.  I’ll italic unnecessary uses of the term ‘market’:

Dramatic shifts in the financial landscape mean that a return to normal market conditions “could be bumpy”, Mark Carney, the Bank of England’s Governor has said.

There’s no need for any word there at all, is there?  It would be a surprise if he was making high-profile predictions on anything except economics, given his job.  And in that instance the rightful focus might be on his truant from Threadneedle Street.

Speaking at the International Symposium of the Banque de France in Paris, he discussed a shift in the form of corporate financing, away from traditional bank lending and towards instruments such as corporate bonds.

The Governor said that an increased reliance on these market-based forms of financing…

Oops.  This is a different meaning of ‘market’ than the headline led us to expect. The headline implied the total systemic stability of the global economy as it was prior to the collapses of 2008 onwards. But things that are ‘market-based’ are only a part of that – a part subject to greater speculation and inherent unreliability.  Even ‘traditional bank lending’ is suddenly not market-based.  To be fair, however, he’s only repeating Carney’s communicative awkwardness.

… has put a premium on increasing the resilience of markets.

And we are into the territory of meaningless nonsense after only three sentences. Now the plural ‘markets’ has the same function as the singular ‘market’ of the headline, for no reason the journalist feels like explaining.  My guess is that ‘cos it’s only six years since that singular global ‘market’ went into drunken sky-dive no-parachute freefall and had to be rescued by the Telegraph’s arch-enemy, the State.  That’s about as far from resilience as a lemming in a Disney movie. So the market has been made multiple – surely some of them must be resilient?

This being the Telegraph, it gets worse.  To whit:

The present “low volatility environment” – reflecting a lack of uncertainty in markets – will change as central banks begin to unwind unconventional policy and raise rates, the Governor suggested.

A ‘lack of uncertainty in markets’ is a bit of an odd idea.  Probably because it’s a bit like a stupidly pretentious version of ‘economic stability’, which is a lot simpler.  And is also exactly the same as the pretentious, but genuinely meaningful “low volatility environment” quoted at the start of the sentence.  In fact, you could put the sentence, and the meaningful bit of the article, like this:

“Mark Carney says economic stability depends on central banks retaining serious spending power and keeping interest rates down – or at least comes as close as he can whilst keeping his job in a nation where everybody’s obsessed with using the word ‘market’ every six seconds.”

While increases in interest rates will be gradual in nature, Mr Carney stressed, a bumpy ride may be inevitable – which in turn would affect the pace of those rate hikes.

Separately, Janet Yellen, chair of the US Federal Reserve, warned that as central bank policy moves back to its pre-crisis state, this “could lead to some heightened financial volatility”.

“As employment, economic activity and inflation rates return to normal, monetary policy will eventually need to normalise too”, Ms Yellen said.

The US Federal Reserve ended its quantitative easing scheme last month, unlike the Bank of England, which maintains a £375bn asset purchase programme. Neither have hiked their interest rates since the financial crisis.

nb.  I’ve never heard any European use the work ‘hike’ in this sense in real life. Not even people who read the Telegraph because they like to read about ‘markets’. This is because the correct word is ‘raise’. Use of the term ‘hike’ in economic discussion indicates that the speaker is sceptical about the meaningful existence of countries outside the USA and considers the price increase in question to be both evil and vast.

You can’t, for example, “hike” petroleum prices just a tiny bit for perfectly good reasons. It’s just not grammatically possible. Even if it would save the planet.

When rate rises do come, they will be a sign that the US economy is “finally emerging from the shadow of the Great Recession”, the Fed chair said.

The Bank’s Governor said that the shift from bank lending to more market-based finance had not been accidental, and was in fact a structural and “positive thing”.

Finally.  After five sentences without that word.  And here it actually means something…  It means, on one hand, that bigger banks are being more tightly regulated and need (lots) more money in reserve to be permitted to act independently, along with much more careful risk assessment.  And, on the other hand, the central banks are going to act as guarantors for another bunch of cowboy financial whizzkids pretending not to need proper State regulation until all their loans go tits up, there’s a crisis, and they have to come running to the Nanny State they despise so much when it feeds the poor.

Obviously, that’s not quite what Carney said.  But in the next sentence he gets even closer:

As a result, the Bank has moved to work as a backstop not just for traditional banks, but also with others – broker-dealers and central counterparties – as it is “prepared to be a market maker of last resort in extremis to support smooth market functioning at all times”.

Let me translate.

“Market maker of last resort” = Lender of last resort.  This is the traditional function of the Central Bank (or State) in capitalism, especially for governments that recognise Keynes’ insight into the necessity for direct State intervention in economics…  Except next time it’s going to be worse and governments will still be pretending they can’t interfere with ‘the market’, so Central Banks will have to remake the global financial system from scratch.

“Smooth market functioning” = stopping the plebs from revolting because there’s no bread at the market. The actual market, that is.

Naturally, it’s not in all governments’ interests that economists explain things this simply.  But it is in the interest of their citizens. And it’s even in the interest of Telegraph readers if their economics correspondents are capable of actually interpreting a keynote speech by the Governor of the Bank of England.  Instead of cutting, pasting, adding some more meaningless repetitions of ‘market’, and sending.

nnb.  We don’t have ‘backstops’ in British sports, except rounders.  This is like a shite version of baseball that no-one plays after they leave school.  If America must appoint England’s central banker, couldn’t they get someone who at least speaks the language?