onsdag 21 juli 2010

Rodrik om "marknadens förtroende"

"A specter is haunting Europe – the specter of 'market confidence.'

It may have been fear of communism that agitated governments when Karl Marx penned the opening line of his famous manifesto in 1848, but today it is the dread that market sentiment will turn against them and drive up the spreads on their bonds. Governments all over are being forced into premature fiscal retrenchment, even though unemployment remains very high and private demand shows few signs of life. Many are driven to undertake structural reforms that they don’t really believe in – just because it would look bad to markets to do otherwise.
if economic logic were clear-cut, governments wouldn’t have to justify what they do on the basis of market confidence. It would be evident which policies work and which do not, and pursuing the 'right' policies would be the surest way to restore confidence. The pursuit of market confidence would be superfluous.

So, if market confidence has a meaning, it must be something that is not pinned down simply by economic fundamentals. But what is it?

In his Communist Manifesto, Marx went on to say that it is 'high time that Communists should openly, in the face of the whole world, publish their views, their aims, their tendencies, and meet this nursery tale of the specter of Communism with a Manifesto of the party itself.' Similarly, it would be nice if markets would clarify what they mean by 'confidence' so that we would all know what we are really dealing with.

Of course, 'markets' are unlikely to do any such thing. This is not just because markets comprise a multitude of investors and speculators who are unlikely ever to get together to publish a 'party program,' but more fundamentally because markets have little clue themselves.

A government’s capacity and willingness to service its debt depend on an almost infinite number of present and future contingencies. They depend not just on its tax and spending plans but also on the state of the economy, the external conjuncture, and the political context. All of these are highly uncertain, and require many assumptions to reach some form of judgment about creditworthiness.

Today, markets seem to think that large fiscal deficits are the greatest threat to government solvency. Tomorrow they may think the real problem is low growth, and rue the tight fiscal policies that helped produce it.

Today, they worry about spineless governments unable to take the tough actions needed to deal with the crisis. Perhaps tomorrow they will lose sleep over the mass demonstrations and social conflicts that tough economic policies have spawned.

Few can predict which way market sentiment will move, least of all market participants themselves. Even with hindsight, it is sometimes not clear why markets go one way and not the other. Similar policies will produce different market reactions depending on the prevailing story, or fad of the moment. That is why steering the economy by the dictates of market confidence is a fool’s errand.

The silver lining in all this is that, unlike economists and politicians, markets have no ideology. As long as they make money they do not care if they have to eat their words. They simply want whatever 'works'—whatever will produce a stable, healthy economic environment conducive to debt repayment. When circumstances become dire enough, they will even condone debt restructuring—if the alternative is chaos and the prospect of a greater loss.

This opens up some room for governments to maneuver. It permits self-confident political leaders to take charge of their own future. It allows them to shape the narrative that underpins market confidence, rather than play catch-up.

But to make good use of this maneuvering room, policymakers need to articulate a coherent, consistent, and credible account of what they are doing, based on both good economics and good politics. They have to say: 'we are doing this not because the markets demand it, but because it is good for us and here is why.'"
Dani Rodrik, "The market confidence bugaboo", Project Syndicate 12 juli

Jfr Dino Viscovi, Marknaden som mönster och monster (avhandling, 2006).

Uppdatering 17 april 2012
"If I wanted to be unkind, I might suggest that these [market] pundits want to appear like high priests, with a unique ability to understand the mysterious mind of the market. As high priests have discovered over and over again, if you can convince people that you have a direct line to an otherwise mysterious but powerful deity, you can do rather well for yourself. And sometimes financial markets can appear a bit like vengeful gods, capable of sudden acts of destructive anger that appear to come from nowhere.
If I wanted to ratchet up the unkindness I could go on as follows. It is in the priest’s interest to tell the faithful that the god is indeed quite fickle in its mood, and while placid at the moment, it could turn nasty at the slightest provocation. Keep those offerings coming, to make sure that the god stays happy (and don’t think about where those offerings go). If you are particularly generous, the priest will promise to give you the heads up if any changes in mood are imminent. If you cannot be a priest yourself, you can always set up as an advisor (HT DeLong), who will tell people which priests have a better line to the financial market god. /.../ 
The importance of confidence can be overdone, as it is often a symptom rather than a prime cause. To treat financial markets or the economy as a whole as always behaving like a vengeful god whose mood and confidence can ebb and flow at the slightest provocation is not the way to make good policy. " 
Simon Wren-Lewis, "The Financial Market as a Vengeful God", 12 april

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