It is very rare that I pick up issues with the arguments put forward by my co-author Gulzar Natarajan. I check out his blog regularly. We cover different issues. He reads ‘The Economist’ and I do not. I was quite surprised to find a blog post from January 25 this year whose tone was strident and content passionate, if not angry.
I was struck by this particular portion:
- The Economist, the conscience keeper of free market capitalism, commenting on the effusive response of stock markets and investors to the rise of protectionism and industrial policy that will “cosset losers” (instead of “pick winners”) under right-wing leaders in UK and US, lets this slip,
Imagine the reaction of investors if left-wing leaders were in charge. If President Bernie Sanders were berating American companies on Twitter, or Jeremy Corbyn was pledging unquantified British government support to manufacturers, markets would be plunging.
This is profound. It simply means that equity markets and investors are biased against non-right wing governments. So much so that right-wing governments can adopt completely non-right policies and still get support from investors and the market. Quite simply, the remorseless march of free market capitalism has dramatically shrunk the space available for political action.
I am a cheerleader for any argument on financial markets’ myopia. I still hold that view. The markets are myopic. Period. They did not mind rising inequality, rising worker anxiety and insecurity and threats to social stability. They basked in the conditions of the last twenty or thirty years when all social fissures and pressures were building up. So, when did they suddenly become pro-Right wing and anti-Left wing? They are not left-wing myopia and right-wing hyperopia.
They had always narrowly interpreted developments that were in their favour, regardless of the long-term consequences whether such policies came from a Clinton or a Blair or a Bush or a Obama. The last one did come up with too many regulations but was compensated by an extraordinarily loose monetary policy.
U.S. stocks went up during the Obama years when business regulations piled up more than they did at any time during the Presidencies of Bill Clinton or George Bush. They were propelled by loose monetary policies and share buybacks and some corporate earnings recovery, yes.
Now, President Trump comes along and promises de-regulation and lower taxes while no one knows if his so-called anti-free trade anti-free immigration are going to hurt their earnings except for some technology companies in the case of the latter. [In fact, perhaps, this outcome is pro-competition and hence pro-market because, in another post, Gulzar contrasts American tech. giants and Chinese upstarts who give them a run for their money. Is the American technology sector really consistent with a competitive market economy?]
Still supported by liquidity from the European Central Bank and Bank of Japan, American stocks continue to levitate at high levels and even make newer highs. These policy promises certainly do not hurt. It is hard to know right now. May be, they are even positive, overall, interpreted narrowly, for stocks and capital.
Buttonwood laments in the end that stock markets would have reacted negatively to a Corbyn or Sanders. That is a give-away. His problem is not with markets’ myopia but with the market not passing an adverse judgement of President Trump already. In accusing the market of bias, he is merely revealing his (flawed) bias. That is a different story. This is part of the mindset of the so-called Liberals which would not mind seeing the world destroyed just so that it would be vindicated in its judgement of Trump.
Of course, yes, stock prices would react negatively to a Corbyn or Sanders because they would be a far more interventionist version of President Obama with more regulation, more taxes and higher costs. Regardless of whether such policies would be socially desirable, again, financial markets would be reacting myopically but negatively this time.
In other words, we can and should question the stock markets’ collective judgement but one cannot accuse them of inconsistency. They have been consistently myopic.