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It's simply easier to dismiss the potential legitimacy of actions which challenge one's existing notions than to reconsider those notions. What's interesting i

by ethn 6y ago

It's simply easier to dismiss the potential legitimacy of actions which challenge one's existing notions than to reconsider those notions. What's interesting is that "markets are irrational" cannot be a failure of the market but a failure of the rational theory being used to interpret markets. That is, current economic theory is squalid by its attempts to explain market phenomenon; and that is to the extent the market is irrational, the degree it disagrees with the theory. It was for this reason Von Neumann readily decided to eschew economic theory. Quite contrary to common belief, "rationality" has nothing to do with knowledge nor degree of skill in achieving some objective measure. For instance, one with perfect pitch has an ability which is irrational but one could hardly call it invalid. Rationality is merely the quality of propounding some intellectual framework of which others can subscribe to in sharing of that understanding based on the framework of symbols and their operations embedded in our global culture. A thing is said to be rational when it can be interpreted completely into one of these pre-existing frameworks which claim to circumscribe the phenomenal sphere of that thing.

TheOtherHobbes 6y ago
It's simultaneously not that complicated and more complicated. The idea that "markets are rational" is an extension of the idea that "economic self-interest is rational." That's a political and moral position - essentially equivalent to "greed is good" - and not an empirical argument. You can certainly argue strongly against it, and many people have. The second-order question is whether markets are genuinely rational in the sense of fulfilling the contract implied by ideas like rational price discovery, accurate predictions of future prospect ("pricing in", etc), and so on. You can agree with the first position and still argue strongly against the second. For markets to be "rational" in the sense that's usually meant, both positions have to be true. IMO this is simply nonsense. There's no empirical evidence that markets behave any more rationally or are any better at predicting the future than a herd of animals or a school of fish is, and plenty of evidence - not least regular crashes - that markets are actually very bad at fortune-telling. The third order question is whether markets are "rational" in the sense that they create a political and economic reality distortion field which benefits their own interests at the expense of the wider economy. This is another political position, but it implies agency - almost a form of sentience - which predicts national and international policy because it influences it - rather than being influenced by it. IMO this third position is closest to truth. Markets are politics by other means, and the successes come from having access to political and economic leverage that other classes don't have. The idea that markets are "wise" or even good at price discovery is questionable at best. But market morality is clearly a very influential thing, and it's easier to look like a winner when you have your fingers on the scales. I think the current market rally is an example of this effect. "Markets" are hoping they have enough influence with the Fed and Trump's government to keep a privileged position above the carnage that's going to spread through the rest of the economy. And this is what has really been "priced in." We'll see if that's what happens.

by ethn 6y ago

TheOtherHobbes 6y ago

It's simultaneously not that complicated and more complicated. The idea that "markets are rational" is an extension of the idea that "economic self-interest is rational." That's a political and moral position - essentially equivalent to "greed is good" - and not an empirical argument. You can certainly argue strongly against it, and many people have. The second-order question is whether markets are genuinely rational in the sense of fulfilling the contract implied by ideas like rational price discovery, accurate predictions of future prospect ("pricing in", etc), and so on. You can agree with the first position and still argue strongly against the second. For markets to be "rational" in the sense that's usually meant, both positions have to be true. IMO this is simply nonsense. There's no empirical evidence that markets behave any more rationally or are any better at predicting the future than a herd of animals or a school of fish is, and plenty of evidence - not least regular crashes - that markets are actually very bad at fortune-telling. The third order question is whether markets are "rational" in the sense that they create a political and economic reality distortion field which benefits their own interests at the expense of the wider economy. This is another political position, but it implies agency - almost a form of sentience - which predicts national and international policy because it influences it - rather than being influenced by it. IMO this third position is closest to truth. Markets are politics by other means, and the successes come from having access to political and economic leverage that other classes don't have. The idea that markets are "wise" or even good at price discovery is questionable at best. But market morality is clearly a very influential thing, and it's easier to look like a winner when you have your fingers on the scales. I think the current market rally is an example of this effect. "Markets" are hoping they have enough influence with the Fed and Trump's government to keep a privileged position above the carnage that's going to spread through the rest of the economy. And this is what has really been "priced in." We'll see if that's what happens.