Speculators were blamed for rising oil prices a few months back, but not for recent falling oil prices. Short-selling speculators were recently blamed for falling stock prices, and actually banned for a few weeks, but no one proposed banning buying speculators two years ago when stocks were rising. Now Steven Pearlstein of the
I don't think we're being careful enough with the word "tyranny." We would both probably agree that being able to write what you want in a newspaper is a basic right, that it would take a very compelling public interest to justify supressing that right, and that suppressing it without such a compelling interest would in-and-of-itself constitute tyranny. You (I think) would say the same about being able to bet how you want. I would disagree (though not completely), but let's grant the point for argument's sake. Then there is the futher issue that suppression of free speech is extra bad because it is particularly dangerous, because it can bring about Hitler/ Stalin style tyranny, which is much worse than the suppression of free speech itself. My claim is that supression of betting rights is not correspondingly dangerous, and therefore does not deserve the same level of protection.
I don't get the thing about the web posts. That clearly is just a contemporary version of a newspaper.
David, tyrants have and continue to limit the topics on which we can bet. And the fact that Hitler and Stalin did not ban web posts seems a poor reason to be unconcerned about web post bans now.
I think this is just a case where the obvious answer is the right one. There are many examples where real tyranny has advanced itself by doing things like placing restrictions on what you're allowed to write in a newspaper, so we are (rightly) particularly sensitive to that in a way that we're not to other things.
David, you've only talked about deep reasons for "free speech". In order to explain why we should ban speculative trading but still allow newspapers, we need reasons why the first is not, but the second is, "free speech." After all, both are primarily news institutions. Why protect some forms of news but not others?
Robin, the "deep reasons" are merely the standard (but good) ones. A core principle of liberal society is that individual self-expression is both a fundamental right and a key element of limiting governmental abuse. So we've put up a high fence around that principle, making it very hard for the government to get away with saying "we need to suppress free speech for a little while, just until things settle down." And rightly so, even though it may occasionally help a bad situation, we forbid it anyway because we see how easily it could be abused and made into an excuse for plain old governmental control of information. No such core principle is at stake in the operation of financial markets.
"All that self-fulfilling prophecy stuff could, in principle, be a good reason for shutting down financial markets for a short time."
No. Historically, shutting the market seems to have only made things worse when it re-opened. For an example we all remember, take the market shutdown after 9-11. There the market closed for a shocking week, supposedly to prevent panic. Yet when the market re-opened, the panic happened anyway: the market dove 7.13% on Sept. 17, 2001.
Further in this case since the situation is/was global, wouldn't all major markets have had to shut down at the same time to prevent "panic shift?" Such a co-ordinated shut-down perhaps would make sense only in the context of, say, a united G8 announcement on a unified restructuring or unified regulations.
Extraordinary measures like closing the market only makes people think things must be much worse than they know, because the market carries so much information. When people suddenly are cut off from information, that's what's paralyzing and frightening. Without information people can't plan, and when they can't plan, they feel like they don't have control - that's what causes fear.
All that self-fulfilling prophecy stuff could, in principle, be a good reason for shutting down financial markets for a short time (I"m not saying that is the case here). Robin seems to suggest that believing this requires one also to believe that it would be good to shut down newspapers. This does not follow: we have a lot of deep reasons why the government shouldn't be allowed to shut down newspapers, even during an emergency, that don't apply to shutting down the financial markets.
I'm no banker, but... it seems to me that any asset, the primary value of which is expected buy-in by third parties (and not any intrinsic earning potential), is a pyramid scheme. You can pretty it up and tangle it in fancy talk, but in the end the first guys get rich and the last guys get screwed, and then the whole thing blows up.
So why is selling them legal?
Because it's turtles all the way down.
Just try to come up with an asset, *any* asset, that at it's core isn't based on what people will pay/trade you for it (or something it is based on).
That's the fundamental definition of value.
"fundamentals" of securities are still generally fiat money numbers which could become worthless in the event of hyperinflation. Earnings which can evaporate under bad business conditions. And what are bad business conditions? Merely conditions where what people will pay for your service has fallen. It's all ultimately about whether the asset is worth something, there is no ontological market value.
Banking and finance should be boring and effective. If they become the subject of electrifying news stories and all-night emergency meetings high officials, something is wrong.
radish, would you even consider censoring newspapers on the medication-blocking-pain analogy?
In practice, no. But only because I agree wholeheartedly with this part:
But I see no authority we could trust to ban or overrule news on this basis...
I assume that it applies to me as well as to anyone, and look forward to ruling the world, so I can confirm my own benevolence...
However, for purposes of the argument I'm making, it doesn't matter whether somebody makes that decision as supreme ruler or the market makes that "decision" by not buying newspapers. I was simply pointing out that your disagreement with Pearlstein is a disagreement about cost, not about principle. It's true that he might not "get it" at all, but he might also "get it" perfectly well and still disagree with you.
This is because there is no cut-and-dried, a priori argument for (e.g.) keeping markets (or newspapers) open when the information flowing from them is redundant or highly compressible. The argument for keeping the markets open can be made, but it cannot be made a priori. It can only be based on cost and made in context.
The question I'm proposing is basically the one Grant asks:
The same should be true of market signals, but how can we know when they cease to be useful?
And my answer is that we can't really know that. Not only that we can't know as members of a polity, but that the polity itself can't "know" even if we stipulate that it has agency. The polity (or market) can only guess, and decide, just as an individual guesses that the signal of the pounding headache is safe to treat as noise because it's important to get some work done, and therefore decides to take some aspirin. In the case of an individual there's a presumption of unitary agency that conceals a lot of messy neurological and philosophical questions. In the case of a polity, even the question of who "we" are is open to debate, and the decision isn't a conscious one in any practical sense, so the guts of thye mechanism are visible in all their glory. But the underlying problem, information theory-wise, is essentially the same.
Even though you can (mathematically) distinguish between noise per se and signal per se there is no a priori way to predict the "relevance" of a given signal. The only way to assess the relevance of a signal is to extract it from background noise and actually process it.
But the cost of processing can easily exceed the value of the signal itself, particularly if it's repetitive and compressible. Absent unlimited processing power there is always going to be more information than you can process, and you deal with this by selective attention. By dropping certain signals that you know are signals, without processing them. This is a fundamental problem of information processing, and it matters long before politics or economics enter the picture.
Sure, why not? Or rather I would create different institutions with different rules (news/bloggers/markets ) and see which gave the most informative news.
If markets are supposed to be news institutions, why did it take them so long to communicate that over-leveraging on CDSes and depending on ever escalating housing prices were bad things? It's clear that some investors (e.g. Warren Buffet) knew this already years ago. Why wasn't there some way for these investors to profit from that knowledge in a way that brought bank and insurance stocks down sooner and more gradually?
Also it is insufficient to say that markets preformed poorly must also show that some other method does better, I do not see evidence of that especially when you examine regulation and Government.
We can say with hindsight after bubbles and the like that the markets weren't doing well at providing news. This could inspire us to find *better* as yet unknown ways of getting news. Perhaps this will entail an altered market rules, or minimal training in financial analysis or human biases which cause inaccuracies in markets before being allowed to trade in that market.
Also it is insufficient to say that markets preformed poorly must also show that some other method does better, I do not see evidence of that especially when you examine regulation and Government.
I don't think we're being careful enough with the word "tyranny." We would both probably agree that being able to write what you want in a newspaper is a basic right, that it would take a very compelling public interest to justify supressing that right, and that suppressing it without such a compelling interest would in-and-of-itself constitute tyranny. You (I think) would say the same about being able to bet how you want. I would disagree (though not completely), but let's grant the point for argument's sake. Then there is the futher issue that suppression of free speech is extra bad because it is particularly dangerous, because it can bring about Hitler/ Stalin style tyranny, which is much worse than the suppression of free speech itself. My claim is that supression of betting rights is not correspondingly dangerous, and therefore does not deserve the same level of protection.
I don't get the thing about the web posts. That clearly is just a contemporary version of a newspaper.
David, tyrants have and continue to limit the topics on which we can bet. And the fact that Hitler and Stalin did not ban web posts seems a poor reason to be unconcerned about web post bans now.
I think this is just a case where the obvious answer is the right one. There are many examples where real tyranny has advanced itself by doing things like placing restrictions on what you're allowed to write in a newspaper, so we are (rightly) particularly sensitive to that in a way that we're not to other things.
David, you've only talked about deep reasons for "free speech". In order to explain why we should ban speculative trading but still allow newspapers, we need reasons why the first is not, but the second is, "free speech." After all, both are primarily news institutions. Why protect some forms of news but not others?
Robin, the "deep reasons" are merely the standard (but good) ones. A core principle of liberal society is that individual self-expression is both a fundamental right and a key element of limiting governmental abuse. So we've put up a high fence around that principle, making it very hard for the government to get away with saying "we need to suppress free speech for a little while, just until things settle down." And rightly so, even though it may occasionally help a bad situation, we forbid it anyway because we see how easily it could be abused and made into an excuse for plain old governmental control of information. No such core principle is at stake in the operation of financial markets.
@David
"All that self-fulfilling prophecy stuff could, in principle, be a good reason for shutting down financial markets for a short time."
No. Historically, shutting the market seems to have only made things worse when it re-opened. For an example we all remember, take the market shutdown after 9-11. There the market closed for a shocking week, supposedly to prevent panic. Yet when the market re-opened, the panic happened anyway: the market dove 7.13% on Sept. 17, 2001.
Further in this case since the situation is/was global, wouldn't all major markets have had to shut down at the same time to prevent "panic shift?" Such a co-ordinated shut-down perhaps would make sense only in the context of, say, a united G8 announcement on a unified restructuring or unified regulations.
Extraordinary measures like closing the market only makes people think things must be much worse than they know, because the market carries so much information. When people suddenly are cut off from information, that's what's paralyzing and frightening. Without information people can't plan, and when they can't plan, they feel like they don't have control - that's what causes fear.
David, that would have been an opportune time to mention the "lot of deep reasons."
All that self-fulfilling prophecy stuff could, in principle, be a good reason for shutting down financial markets for a short time (I"m not saying that is the case here). Robin seems to suggest that believing this requires one also to believe that it would be good to shut down newspapers. This does not follow: we have a lot of deep reasons why the government shouldn't be allowed to shut down newspapers, even during an emergency, that don't apply to shutting down the financial markets.
I'm no banker, but... it seems to me that any asset, the primary value of which is expected buy-in by third parties (and not any intrinsic earning potential), is a pyramid scheme. You can pretty it up and tangle it in fancy talk, but in the end the first guys get rich and the last guys get screwed, and then the whole thing blows up.
So why is selling them legal?
Because it's turtles all the way down.
Just try to come up with an asset, *any* asset, that at it's core isn't based on what people will pay/trade you for it (or something it is based on).
That's the fundamental definition of value.
"fundamentals" of securities are still generally fiat money numbers which could become worthless in the event of hyperinflation. Earnings which can evaporate under bad business conditions. And what are bad business conditions? Merely conditions where what people will pay for your service has fallen. It's all ultimately about whether the asset is worth something, there is no ontological market value.
Banking and finance should be boring and effective. If they become the subject of electrifying news stories and all-night emergency meetings high officials, something is wrong.
radish, would you even consider censoring newspapers on the medication-blocking-pain analogy?
In practice, no. But only because I agree wholeheartedly with this part:
But I see no authority we could trust to ban or overrule news on this basis...
I assume that it applies to me as well as to anyone, and look forward to ruling the world, so I can confirm my own benevolence...
However, for purposes of the argument I'm making, it doesn't matter whether somebody makes that decision as supreme ruler or the market makes that "decision" by not buying newspapers. I was simply pointing out that your disagreement with Pearlstein is a disagreement about cost, not about principle. It's true that he might not "get it" at all, but he might also "get it" perfectly well and still disagree with you.
This is because there is no cut-and-dried, a priori argument for (e.g.) keeping markets (or newspapers) open when the information flowing from them is redundant or highly compressible. The argument for keeping the markets open can be made, but it cannot be made a priori. It can only be based on cost and made in context.
The question I'm proposing is basically the one Grant asks:
The same should be true of market signals, but how can we know when they cease to be useful?
And my answer is that we can't really know that. Not only that we can't know as members of a polity, but that the polity itself can't "know" even if we stipulate that it has agency. The polity (or market) can only guess, and decide, just as an individual guesses that the signal of the pounding headache is safe to treat as noise because it's important to get some work done, and therefore decides to take some aspirin. In the case of an individual there's a presumption of unitary agency that conceals a lot of messy neurological and philosophical questions. In the case of a polity, even the question of who "we" are is open to debate, and the decision isn't a conscious one in any practical sense, so the guts of thye mechanism are visible in all their glory. But the underlying problem, information theory-wise, is essentially the same.
Even though you can (mathematically) distinguish between noise per se and signal per se there is no a priori way to predict the "relevance" of a given signal. The only way to assess the relevance of a signal is to extract it from background noise and actually process it.
But the cost of processing can easily exceed the value of the signal itself, particularly if it's repetitive and compressible. Absent unlimited processing power there is always going to be more information than you can process, and you deal with this by selective attention. By dropping certain signals that you know are signals, without processing them. This is a fundamental problem of information processing, and it matters long before politics or economics enter the picture.
Sure, why not? Or rather I would create different institutions with different rules (news/bloggers/markets ) and see which gave the most informative news.
Will, shall we also consider alternating newspaper rules?
LeBleu, what other news institution did a better job?
Robin,
If markets are supposed to be news institutions, why did it take them so long to communicate that over-leveraging on CDSes and depending on ever escalating housing prices were bad things? It's clear that some investors (e.g. Warren Buffet) knew this already years ago. Why wasn't there some way for these investors to profit from that knowledge in a way that brought bank and insurance stocks down sooner and more gradually?
Also it is insufficient to say that markets preformed poorly must also show that some other method does better, I do not see evidence of that especially when you examine regulation and Government.
We can say with hindsight after bubbles and the like that the markets weren't doing well at providing news. This could inspire us to find *better* as yet unknown ways of getting news. Perhaps this will entail an altered market rules, or minimal training in financial analysis or human biases which cause inaccuracies in markets before being allowed to trade in that market.
Also it is insufficient to say that markets preformed poorly must also show that some other method does better, I do not see evidence of that especially when you examine regulation and Government.