Finally, The Guardian gives us the explanation for current day socialism

Why bad ideas refuse to die
They may have been disproved by science or dismissed as ridiculous, but some beliefs, such as that socialism works, endure. In theory they should wither away – but it’s not that simple

Full on state socialism and planning having been empirically disproved by that great experiment we call the 20th century. But still it persists. Odd, eh?

One clue is provided by economics. It turns out that the marketplace of economic ideas itself is infested with zombies. After the 2008 financial crisis had struck, the Australian economist John Quiggin published an illuminating work called Zombie Economics, describing theories that still somehow shambled around even though they were clearly dead, having been refuted by actual events in the world. An example is the notorious efficient markets hypothesis, which holds, in its strongest form, that “financial markets are the best possible guide to the value of economic assets and therefore to decisions about investment and production”. That, Quiggin argues, simply can’t be right. Not only was the efficient markets hypothesis refuted by the global meltdown of 2007–8, in Quiggin’s view it actually caused it in the first place: the idea “justified, and indeed demanded, financial deregulation, the removal of controls on international capital flows, and a massive expansion of the financial sector. These developments ultimately produced the global financial crisis.”

Except, of course, that’s not what the EMH does state. Quiggin takes too strong a version to refute. And interestingly since the book was published (weirdly, a book which thanks me for my contribution to it) The Nobel was awarded to three economists for the EMH. The most interesting of whom was Shiller, whose point was that yes, the EMH is true but only in certain circumstances, the most important of which is that markets must be complete. That is, the housing crisis was caused by a lack of speculation, not an excess.

Not quite a zombie idea then.

That only markets, all markets nothing but markets is the right way to run the world is obviously an incorrect idea. But then that’s not what the EMH does actually state.

Even so, an idea will have a good chance of hanging around as a zombie if it benefits some influential group of people. The efficient markets hypothesis is financially beneficial for bankers who want to make deals unencumbered by regulation. A similar point can be made about the privatisation of state-owned industry: it is seldom good for citizens, but is always a cash bonanza for those directly involved.

Nope and nope. The EMH has absolutely nothing at all to say about prudential regulation. It really just does say that markets are efficient at processing the information about what prices should be in a market. And that the very strongest statement of this (the “strong EMH”) looks to be not quite so true while the weak and the semi-strong look to be true really tells us nothing at all about whether BT is better now in the private sector than it was in the public.

That we get better service from a public sector organisation is rather one of those zombie ideas, isn’t it?

10 thoughts on “Finally, The Guardian gives us the explanation for current day socialism”

  1. Witchsmeller Pursuivant

    What? No ragging on Ritchie today? Come on, his piece in the Guardian is comedy gold.

    In my opinion Corbyn has been guilty of three things. First, he has not grown into the job in the way John McDonnell has into his: after nine months he still feels like the reluctant leader who cannot do up his tie when necessary, and I hate to say it, but such messages are important….

    “I am on record that I was not spoken to for months, despite apparently being “on side”. What of those who felt “off side” and needed persuasion? I suspect that the necessary effort to relate to them was not made. The backlash now is the result of that.”

    Puffed up, popmous prig. Taking the Blairite shilling from the Guardian to knife Corbyn in the back. Wanker.

  2. Actually, the long-standing Socialist proposals to alter the EU’s arrangements to allow more State investment, collective bargaining, Keynesian reflation etc , rechanneled by Bob Crow’s
    NO2EU European election campaign , are the only policies that can save us in a situation where good old English fascists have voted to leave a huge free trade area because they don’t like foreigners coming over here.And this is after Oswald Mosley’s Union Movement popularised Italian corporatist ideas for the EU which involved replacing West Indian and Irish migrant labour, which was doing all the post-war reconstruction, with good continental stock. But English knot-heads couldn’t stand the Europeans either : more fascist than Mosley! Still they’re your allies!

  3. DBC Reed: A prick like you –who is entirely comfortable with the vast death and casualty list of socialism has no business commenting on the supposed evil of others.

    You lost EU sucker. Be glad you are not up for the kind of retaliation dealt out by the forces of socialism on those occasions in history where your gang won.

  4. Quiggin, they quote that useless C*nt. He’s only an economist if you extend the definition further than the legendary fat lady’s knickers. If you see his name on something you can be absolutely certain it’s pure shite.

  5. That is NOT the Efficient Markets Hypothesis. I am on record as rubbishing Modern Portfolio Theory but I am too honest to lie about the EMH when I am arguing that MPT is rubbish.
    Firstly, EMH is a HYPOTHESIS, not a theory. Secondly, EMH assumes that market prices reflect all that is known about the current and potential future value of a security, NOT “financial markets are the best possible guide to the value of economic assets and therefore to decisions about investment and production”. Financial markets price securities not factories.

  6. As you’re aware, I cover all the different versions of EMH in my book. Steven Poole makes this clear to readers and states that he is reporting my description of the strongest version.

    The conclusion of the book is that neither the strong nor the semi-strong versions stand up to scrutiny. Do you disagree?

    Replying to “Financial markets price securities not factories.” So much the worse for financial markets. The implication is that investments that maximize the market value of firm’s securities won’t maximize the economic value of the firm’s assets. If so, then financial markets are actively harmful.

  7. I tend to run with the semi-strong along the Shiller lines. Not that that is what Shiller says, but using his qualification. If the market is complete that is. An example I noted just last week – pound started falling as private exit polling results of the referendum hit the City and trades were placed, not when public results came out.

    And no, Poole really doesn’t make it clear that he’s only talking about the strong version.

  8. Poole “An example is the notorious efficient markets hypothesis, which holds, in its strongest form” (emphasis added)

  9. @ John Quiggin
    Are you the real one or a spoof?
    ““Financial markets price securities not factories.” So much the worse for financial markets. The implication is that investments that maximize the market value of firm’s securities won’t maximize the economic value of the firm’s assets.” is utter nonsense.
    You might as well complain that the weekly fruit and vegetable market in the town centre doesn’t put a price on cattle which are bought and sold in the cattle market on the edge of town on a different day.
    You seem to be unaware that the securities issued by a firm are not the sum total of its liabilities and SHF. There are such things as creditors – money owed to suppliers, employees, the government (tax), pension funds.
    Secondly: have you read “…describing theories that still somehow shambled around even though they were clearly dead, having been refuted by actual events in the world. An example is the notorious efficient markets hypothesis,” The EMH is NOT a theory, and it does NOT say ““financial markets are the best possible guide to the value of economic assets and therefore to decisions about investment and production””. It just doesn’t. So the whole paragraph is utter bullshit.

    if you want to know what the EMH does say, read Fama “”An ‘efficient’ market is defined as a market where there are large numbers of rational, profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants. In an efficient market, competition among the many intelligent participants leads to a situation where, at any point in time, actual prices of individual securities already reflect the effects of information based both on events that have already occurred and on events which, as of now, the market expects to take place in the future.”
    That hypothesis is the foundation stone for “Modern Portfolio Theory” which says that “if a market is “efficient” then …”

    It would add to your credibility if you avoided making schoolboy howlers such as describing EMH as a “Theory” or alleging that it claims ““financial markets are the best possible guide to the value of economic assets and therefore to decisions about investment and production””. The most it claims to do put a price on shares in a company (or a debenture issued by a company) which will reflect the expected net earnings from all (not one) of its assets and liabilities.

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