Showing posts with label market. Show all posts
Showing posts with label market. Show all posts
Tuesday, August 23, 2011
Market Rallies After Earthquake Leads to Evacuation of Capitol
Sunday, September 26, 2010
It's a Jungle Out There!
The left – environmentalists in particular – have long had an affinity for the jungle. The majesty and biodiversity of unmolested nature have inspired generations on the left to protect the jungle from man’s adulterous hands. In response, the right has often scorned such appreciation as the sentiment of mere hippies and tree-huggers. The jungle becomes a battleground between conservationists and capitalists.
But while the left claims the ‘righteous path’ of stewardship of the jungle, there is a lesson found in there that offers profound support to the beliefs of the right. If one spends a small quantum of time in a jungle, it becomes apparent that it is a prime metaphor for capitalism.
At first this may seem contradictory. After all, the common understanding the jungle is the epitome of nature, while the market is the embodiment of man’s conquest of nature. However, the fact often overlooked is that the market-system is nature. Men, in their hubris, often try to separate the world of mankind from the natural, forgetting that although humankind certainly has an inordinate power to alter his landscape, it still operates within the system of nature.
The beauty and biodiversity of the jungle arise from the same source that fosters the market-system – competition. Every actor in the jungle, whether plant or animal, is operating in its own self-interest, for its own survival. And while many environmentalists attempt to hang their hats on the concept of balance-of-nature, what is missed is that this balance comes spontaneously and is in no way planned. The panther is not a noble creature that consciously oversees the inner workings of jungle, but a selfish individual that takes what he can to provide for his own survival. If he fails, he dies; if he succeeds, someone else dies. There is no concept of justice, simply a self-correcting balance.
This leads to a high level of competition and subsequently specialization. This becomes abundantly clear if one looks at the profusion of wildlife and the niche roles that each species plays in the jungle system. Not only does competition develop this specialization, but it leads to a tangible wealth. The wealth of the jungle is a rich mosaic of life, of colors and of activity. In practice, the world of Charles Darwin is not that far from the market system of competition as elucidated by Adam Smith.
What is striking is that so many environmentalists stand against the notions of capitalism and never realize that they grow from the same source. This does not mean to disregard the natural competition in which environmentalists and capitalists engage over the use (or lack of use) of natural resources – which obviously puts them at odds. However, what is significant is that many can recognize the beauty of this natural, competitive process in the environment, while simultaneously dismissing it in the human environs of the world. In truth, those that appreciate this magnificence in nature should, at least in a philosophical sense, fall closer to the capitalists of the right, than the socialist planners of the left.
But while the left claims the ‘righteous path’ of stewardship of the jungle, there is a lesson found in there that offers profound support to the beliefs of the right. If one spends a small quantum of time in a jungle, it becomes apparent that it is a prime metaphor for capitalism.
At first this may seem contradictory. After all, the common understanding the jungle is the epitome of nature, while the market is the embodiment of man’s conquest of nature. However, the fact often overlooked is that the market-system is nature. Men, in their hubris, often try to separate the world of mankind from the natural, forgetting that although humankind certainly has an inordinate power to alter his landscape, it still operates within the system of nature.
The beauty and biodiversity of the jungle arise from the same source that fosters the market-system – competition. Every actor in the jungle, whether plant or animal, is operating in its own self-interest, for its own survival. And while many environmentalists attempt to hang their hats on the concept of balance-of-nature, what is missed is that this balance comes spontaneously and is in no way planned. The panther is not a noble creature that consciously oversees the inner workings of jungle, but a selfish individual that takes what he can to provide for his own survival. If he fails, he dies; if he succeeds, someone else dies. There is no concept of justice, simply a self-correcting balance.
This leads to a high level of competition and subsequently specialization. This becomes abundantly clear if one looks at the profusion of wildlife and the niche roles that each species plays in the jungle system. Not only does competition develop this specialization, but it leads to a tangible wealth. The wealth of the jungle is a rich mosaic of life, of colors and of activity. In practice, the world of Charles Darwin is not that far from the market system of competition as elucidated by Adam Smith.
What is striking is that so many environmentalists stand against the notions of capitalism and never realize that they grow from the same source. This does not mean to disregard the natural competition in which environmentalists and capitalists engage over the use (or lack of use) of natural resources – which obviously puts them at odds. However, what is significant is that many can recognize the beauty of this natural, competitive process in the environment, while simultaneously dismissing it in the human environs of the world. In truth, those that appreciate this magnificence in nature should, at least in a philosophical sense, fall closer to the capitalists of the right, than the socialist planners of the left.
Wednesday, April 28, 2010
The Goldman Sachs Witch-Hunt
It is no shock that Goldman Sachs’s hearing before a Senate subcommittee yesterday was an episode in subterfuge and political posturing. However, the level of bipartisan vitriol and populist grandstanding was inexcusable.
The subcommittee, chaired by Senator Carl Levin (D-MI), hounded a number of Goldman Sachs executives for the better part of the day. This was no exercise in fact finding, but a brutal cross-examination by a biased plaintiff. Nearly every Senator (except at rare moments Tom Coburn (R-OK)) came with a pre-planned agenda to portray Goldman Sachs as an epitome of a rampant Wall Street-gone-bad that wrecked havoc on the poor innocent investor and America’s economy. The Senators repeatedly waved sensational, but otherwise meaningless, documents in the air, simplifying the extremely complex issues until they were a digestible, but un-nutritious mush ready to be consumed by the populist masses.
These politicians are not stupid. While their understanding of the financial markets is clearly limited, they obviously comprehend the intellectual dishonesty that they exhibited. It is hard to believe that such a display, coupled with the recent bogus charges brought against Goldman Sachs by the SEC (a decision which in relatively rare form was controversially split), was anything but motivated by the desire to force through a regulatory reform package. Even the Republicans, such as John McCain (R-AZ), who is in a tough reelection battle, walked to the ‘bash Wall Street’ drumbeat.
The fact of the matter is that there is little evidence that Goldman did anything wrong. While to the uninitiated it may be difficult to understand the market and readily easy to misconstrue it as misguided, this does not stand as evidence of wrongdoing.
To begin, Senator Levin attempted to cast Goldman as the bad guy for making a profit. It is ironic that those that realized the housing bubble was inflated (and thus helped to mitigate its wanton expansion), are now being chastised for being ahead of the curve. The Washington Post says it best,
Besides the criticism of profit-via-short, the committee also bashed Goldman for selling, what was termed in one of the infamous documents, a “shitty” product. Needless to say, the definition of “shitty” is subjective and quite unscientific, but even if a product could be objectively proven to be “shitty” is it wrong for a company to sell it? How many less-than-stellar consumer products are sold on a daily basis? It is up to the consumer – and in this case they were quite sophisticated investors – to evaluate their purchases. Ultimately, Goldman’s knowledge about how the product was constructed has no bearing on the ability of an individual investor to assess its quality.
Now to be clear, there were a myriad of mistakes made at all levels of the economy; however, the targeted witch-hunt is unfair. It misguides popular attention from the real issues. As a result simplistic solutions are proposed to solve non-existent problems, while the real issues are ignored. The characteristic problem is the desire to find the causation of bad outcomes in practices which only look odious with hindsight. This is poor logic. Fraud must be distinguished from both bad business and good business that had bad luck. Every decision relies upon an analysis of the probability of certain outcomes. Even if the analysis is done correctly sometimes that low-probability outcome will occur. Politicians inability to address this non-sound-bit ready fact and instead chose to bash Goldman Sachs is quite unfortunate.
The subcommittee, chaired by Senator Carl Levin (D-MI), hounded a number of Goldman Sachs executives for the better part of the day. This was no exercise in fact finding, but a brutal cross-examination by a biased plaintiff. Nearly every Senator (except at rare moments Tom Coburn (R-OK)) came with a pre-planned agenda to portray Goldman Sachs as an epitome of a rampant Wall Street-gone-bad that wrecked havoc on the poor innocent investor and America’s economy. The Senators repeatedly waved sensational, but otherwise meaningless, documents in the air, simplifying the extremely complex issues until they were a digestible, but un-nutritious mush ready to be consumed by the populist masses.
These politicians are not stupid. While their understanding of the financial markets is clearly limited, they obviously comprehend the intellectual dishonesty that they exhibited. It is hard to believe that such a display, coupled with the recent bogus charges brought against Goldman Sachs by the SEC (a decision which in relatively rare form was controversially split), was anything but motivated by the desire to force through a regulatory reform package. Even the Republicans, such as John McCain (R-AZ), who is in a tough reelection battle, walked to the ‘bash Wall Street’ drumbeat.The fact of the matter is that there is little evidence that Goldman did anything wrong. While to the uninitiated it may be difficult to understand the market and readily easy to misconstrue it as misguided, this does not stand as evidence of wrongdoing.
To begin, Senator Levin attempted to cast Goldman as the bad guy for making a profit. It is ironic that those that realized the housing bubble was inflated (and thus helped to mitigate its wanton expansion), are now being chastised for being ahead of the curve. The Washington Post says it best,
[If Goldman did not bet against the market as early as it did t]he firm would have lost billions, and it might have wound up needing an even bigger bailout by U.S. taxpayers than it actually got. It could have ended up like Citigroup, which tried to ride the bubble until it was too late and had to be propped up with hundreds of billions of dollars in federal cash and credit guarantees.There is nothing wrong with this behavior. It is done all the time and is, in fact, what keeps the markets going. Short sales are necessary and proper in markets – even if against a long-position controlled by the same entity. This sort of hedging protects institutions and the economy in the long-run. If the world of finance is too complicated in this regard, one only needs to look to that of farming or commodities to see the same practice. Farmers, for instance, will bet against agriculture to insure against the risk of crop failure.
Besides the criticism of profit-via-short, the committee also bashed Goldman for selling, what was termed in one of the infamous documents, a “shitty” product. Needless to say, the definition of “shitty” is subjective and quite unscientific, but even if a product could be objectively proven to be “shitty” is it wrong for a company to sell it? How many less-than-stellar consumer products are sold on a daily basis? It is up to the consumer – and in this case they were quite sophisticated investors – to evaluate their purchases. Ultimately, Goldman’s knowledge about how the product was constructed has no bearing on the ability of an individual investor to assess its quality.
Now to be clear, there were a myriad of mistakes made at all levels of the economy; however, the targeted witch-hunt is unfair. It misguides popular attention from the real issues. As a result simplistic solutions are proposed to solve non-existent problems, while the real issues are ignored. The characteristic problem is the desire to find the causation of bad outcomes in practices which only look odious with hindsight. This is poor logic. Fraud must be distinguished from both bad business and good business that had bad luck. Every decision relies upon an analysis of the probability of certain outcomes. Even if the analysis is done correctly sometimes that low-probability outcome will occur. Politicians inability to address this non-sound-bit ready fact and instead chose to bash Goldman Sachs is quite unfortunate.
Thursday, March 18, 2010
Pro-Market versus Pro-Business
Within political arenas, there is a distinction that is far too often overlooked: pro-market vs. pro-business. Republicans, at least the fiscal conservatives, tend to call themselves pro-market. They speak in terms of supporting the market, free-trade, competition, and business. Democrats, in turn, disparage the concept of being pro-market and criticize Republicans for really being bosom buddies with Big Business.
The difference between the two concepts is often muddled, but is in reality very simple. Being pro-market is expressing a commitment to the economic principles of a free-market and competition. It represents the support of an economic system that allows Adam Smith’s “invisible hand” to perform the majority (certainly more modern economics allow for greater government interaction) of economic production and distribution. The principles accept that truly free-markets operate best with minimal government interference and maximum individual liberty.
In contrast, being pro-business is an expression of support for one type of player with the market. The interests of these players sometimes coincide with the interests of the market and sometimes do not. Rather than supporting a principle or idea, those who are pro-business are indebted to partisan interests.
As most are aware, the majority of Democrats are neither pro-market nor pro-business. Instead, generally they correctly criticize the concept of pro-business and incorrectly, although quietly, eschew the concept of pro-market. Many Democrats chose to follow policies that fit a more socialist (in the ideological not the disparaging sense of the far right) economic model. In other words, they prefer active government management of parts of the economy in terms of both production and distribution of wealth.
In contrast, Republicans often claim to be pro-market. While often successful in this pursuit, unfortunately many Republicans devolve into the realm of pro-business. This is most clearly represented when Big Business or cronies of certain senators get market-distorting tax incentives or other perks of their position (E.g. antitrust exemptions).
In truth, it is difficult for a politician to be truly pro-market. Commitment to a principle is always complicated when faced with electoral constraints. Politicians need money and voter support and thus need to give incentives, whether in the form of providing money or perks, to their supporters. This causes elected officials, who are inclined to support an ideology, to compromise their beliefs when the electoral rewards are greatest. The most committed pro-market candidate can quickly devolve into a pro-business shill when he realizes the realities of Washington.
This is true because, aside from a few academics and bloggers, the market has no real constituency. Being pro-market means that and individual must sometimes support business, sometimes support labor, sometimes support consumers, and sometimes just sit back and do nothing. Pro-market leaders will inevitably be forced to make decisions that upset either their financial or electoral supporters – a politically unwise proposition.
Despite the obvious difficulties, the pro-market framework is truly what is best for America. Being pro-market reduces the role of government to one that simply ensures that markets operate efficiently and competitively. It means that when one player, be it government, union, or company, gains too much power it is prevented from abusing its position. In practice this means supporting policies that prevent consolidation of power (anti-union and anti-monopolization) and facilitating the free flow of information.
At the end of the day this not only minimizes the size and cost of government but allows each player within the market to pursue its self-interest in a fashion that maximizes its own and societies worth. In contrast, the pro-business mentality artificially distorts the market by giving special privileges to some members of society. While potentially difficult to implement, pro-market policies should be the foundation of the Republican platform.
The difference between the two concepts is often muddled, but is in reality very simple. Being pro-market is expressing a commitment to the economic principles of a free-market and competition. It represents the support of an economic system that allows Adam Smith’s “invisible hand” to perform the majority (certainly more modern economics allow for greater government interaction) of economic production and distribution. The principles accept that truly free-markets operate best with minimal government interference and maximum individual liberty.
In contrast, being pro-business is an expression of support for one type of player with the market. The interests of these players sometimes coincide with the interests of the market and sometimes do not. Rather than supporting a principle or idea, those who are pro-business are indebted to partisan interests.
As most are aware, the majority of Democrats are neither pro-market nor pro-business. Instead, generally they correctly criticize the concept of pro-business and incorrectly, although quietly, eschew the concept of pro-market. Many Democrats chose to follow policies that fit a more socialist (in the ideological not the disparaging sense of the far right) economic model. In other words, they prefer active government management of parts of the economy in terms of both production and distribution of wealth.
In contrast, Republicans often claim to be pro-market. While often successful in this pursuit, unfortunately many Republicans devolve into the realm of pro-business. This is most clearly represented when Big Business or cronies of certain senators get market-distorting tax incentives or other perks of their position (E.g. antitrust exemptions).
In truth, it is difficult for a politician to be truly pro-market. Commitment to a principle is always complicated when faced with electoral constraints. Politicians need money and voter support and thus need to give incentives, whether in the form of providing money or perks, to their supporters. This causes elected officials, who are inclined to support an ideology, to compromise their beliefs when the electoral rewards are greatest. The most committed pro-market candidate can quickly devolve into a pro-business shill when he realizes the realities of Washington.
This is true because, aside from a few academics and bloggers, the market has no real constituency. Being pro-market means that and individual must sometimes support business, sometimes support labor, sometimes support consumers, and sometimes just sit back and do nothing. Pro-market leaders will inevitably be forced to make decisions that upset either their financial or electoral supporters – a politically unwise proposition.
Despite the obvious difficulties, the pro-market framework is truly what is best for America. Being pro-market reduces the role of government to one that simply ensures that markets operate efficiently and competitively. It means that when one player, be it government, union, or company, gains too much power it is prevented from abusing its position. In practice this means supporting policies that prevent consolidation of power (anti-union and anti-monopolization) and facilitating the free flow of information.
At the end of the day this not only minimizes the size and cost of government but allows each player within the market to pursue its self-interest in a fashion that maximizes its own and societies worth. In contrast, the pro-business mentality artificially distorts the market by giving special privileges to some members of society. While potentially difficult to implement, pro-market policies should be the foundation of the Republican platform.
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