Tuesday, 8 June 2010

Servants or masters? Neither

At the end of an otherwise decent article in the Guardian, George Irvin trips over one of the oldest cliches in the left-wing rhetorical manual:
Most important, we have not begun to question seriously whether placating the financial markets by means of such cuts is unavoidable. Perhaps it's time to start thinking the unthinkable: namely, that financial markets should be our servants, not our masters.
This is a stupid distinction to draw, because markets are neither servant nor master of anybody. They are a place where people (or countries) can choose to go, and where we can each decide on our own participation within the structures available.

Greece (more precisely, the people who run its exchequer) can choose whether to borrow money on the international markets. If it wants to, it enters into a two-sided arrangement with consenting investors on terms that both are happy with.

If it then wants to default, it does have that option. Exercising that option will bring consequences.

So much for the borrower. Are markets the servants or the masters of the lender? If someone wants to invest in sovereign bonds they bring their money to the market and can invest it on terms that are agreeable to the borrower country. Once those terms are worked out and signed, the investor has a new set of choices available, each with its own consequences.

Each interaction that I make will remove some choices I previously had, and open up some others. There is nothing special about markets - all choices in life have this character.

If anything is the master of Greece, it is the choices Greeks have made in the past. If anything is the servant of Greece, it's the future path of its history. Markets are just another structure, another tool that the universe makes available to us. What's more, markets are made up of just a bunch of people. Are those people servants or masters of Greece? Of course not.

It's cheap, lazy rhetoric, it tries to simplify a subtle relationship into a crude caricature, and it spoils an otherwise useful piece of writing.

3 comments:

PunditusMaximus said...

The "financial market" is a shorthand for the community of persons who are thoroughly involved in Big Finance.

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Min said...

Pundit Maximus is right. "Financial market" is a figure of speech, referring not to the market itself, but to the traders in that market. Perhaps this earlier quote makes that clear:

"A central lesson of all this is that unless protective action is taken early, a country can rapidly be overpowered by the financial markets. Once traders start betting against a country's bonds or its currency, the herd instinct takes over."

It is the traders, not the market per se, that may overpower a country such as Greece.

And there are fears of those traders, so-called "bond vigilantes", that cause policy makers to kowtow to "the bond market" (sic), even on the false belief that their governments depend on those traders for financing. Countries such as the U. S., Argentina, Japan, and Great Britain, which have their own fiat currencies, need have no such fear.