Misinformation causes markets to crash in many ways. The most obvious way stems from unrealistic expectations of growth. But there are checks and balances to our economic system just as there are with our political system. For the obvious problem of growth misinformation to have much impact there lies behind it a more insidious problem of misinformation that, in essence, allows the fox into the henhouse disguised as a chicken.
It begins with the continuum economic textbooks outline for us with free markets on one end and command markets on the other. If you want to anchor free markets on one end of this continuum, then the other end should represent both government intervention and private coercion. The perfect representation of the free market end of the continuum is a simple barter system. People exchange the products of their own labors with complete knowledge of who they are dealing with and what they are getting.
On the other end of the continuum would be a system that requires government intervention merely to exist, more government intervention to thrive, presents an anonymous face, distorts and hides information in order to influence exchange, and diverts some of the value of market exchange away from the labor of production. Hmm. Is there anything in our own economic system that fits that description?
Add to this more accurate continuum of free to “unfree” the reality that government plays a role in any economic system. If we were to revert to a simple barter system tomorrow, it could only happen through the blessings of government. The best that we can hope for in a large nation such as ours is that the blessings of government reflects the blessings of the people. In reality, the blessings of the people likely would call for a system that falls somewhere between free and “unfree” markets, rather than go to either extreme of a barter system or anarcho-capitalism.
When an economic problem and/or solution is proposed, viewing it along a free and command market continuum is an insidious form of misinformation. The problem and/or solution will automatically include government in some form, and the real consideration is whether government intervention moves market exchange more towards the free or “unfree” end of the continuum.
Puppet Libertarians and the Powell Cabal have identified the housing market crash as purely a problem of government. In a sense that is absolutely correct. Government has steered us more towards the “unfree” end of the market continuum, which means they have been entirely too accomodating of corporate coercions of the market. Subprime lending is a “coercion” that induces people to borrow when they should not be.
This coercion of markets has been a common affliction over the past thirty years as our economy has unswervingly trended towards laissez faire. We have trended this way because the public has been convinced that any “government problem” involves a “corporate solution.” All economic problems are a government problem in some form, just as all economic solutions involve a government solution. The question is do we move the “solution” in a direction where large, anonymous institutions propped up by government are in control of market exchange, hiding and distorting information while doing so? Or does government act to move markets towards a more free state, thereby reducing the role of such institutions?
Regulations often serve to move us away from the “unfree” end of the market continuum, minimizing the amounts of misinformation and wage diversions done by large, anonymous entities. The free market solution to a problem like the housing market is not to remove the government as a regulatory influence, thus allowing the corporate foxes into the henhouse, but to make sure the job is done. That has become tough to do when corporate media serves the interests of Puppet Libertarians and the Powell Cabal, creating a mass culture in favor of “unfree” markets disguised as free markets.
This addresses the question of how financial institutions and corporations do financially dumb things only in part. The other part lies with why misinformation works so well, fooling people into thinking that a corporate solution is a free market solution. It’s apparent that even some economic scholars who belong to the laissez faire cult actually believe what they say. The final piece of the puzzle for why markets crash is to explore the basis for this gullibility.
Tags: Economic Misinformation, Interest Groups, Middle Class Economics
