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Capitalism 3.0: A groundless retreat from globalisation?

Capitalism 3.0: A groundless retreat from globalisation? post image

Warning: This is a long post, and it’s as much to do with politics as investing. Read at your peril!

There’s no doubt the financial crisis has cheered up anti-globalisation campaigners who had been getting dismayed with how much their countrymen enjoyed cheaper consumer goods, and how China and India seemed to be doing very well while being ‘exploited’ by the West.

The downturn has even put on a smile on the face of old, blind and illiterate idealists who’d love to dig up the corpse of communism.

I haven’t got much to say to the latter (except: get a job) but I got an interesting glimpse into the former when I attended a lecture at the London School of Economics on Tuesday to hear Professor Dani Rodrik of Harvard University.

Rodrik is a Professor of International Political Economy, and is widely considered to be a big thinker in the realm of markets, institutions and capitalism. (Click here for Rodrik’s full bio).

As I’ll discuss below, he gave some interesting insights into the problems of regulating the global economy.

But his talk also highlighted how people with an anti-free-trade agenda are going to try to hijack the financial crisis as their force majeure.

Why does this matter to you as an investor?

Well, financial regulation is on the agenda in a way that would have been unthinkable two or three years ago, as governments in the UK, Europe and the US seek their pound of flesh for the assistance they’ve given to the financial system.

More constructively, governments also hope (vainly in my view) to regulate away the chances of a crisis happening again.

President Obama is outlining his financial regulations for the US, while the UK government is locked in battle with Europe to try to stop financial regulation from crippling London. UK Chancellor Alastair Darling has his own plans for curbing bankers.

If policy makers get regulation wrong, we could see a rise in protectionism, a pointless curtailment in global trade, and terrible consequences for shares and the markets (and for economies and people, rich and poor).

Capitalism 3.0: A talking shop?

Professor Rodrik began his lecture with an apology for the cute Capitalism 3.0 moniker, but then went on to use it anyway as a framework in explaining how we got to where we are today. He outlined:

  • Capitalism 1.0 – The discovery of the “the miracle of the market” as an economic engine. In the 19th Century this was allied to the idea that the State must be minimally involved to enable the market to work efficiently, with Governments providing merely “night watchman” services such as property rights, national defense, and justice.
  • Capitalism 2.0 – The discovery (notably in the 1930s) that “markets are not self-creating, self-regulating, self-stabilising or self-legitimising”. This led to institutional underpinnings, and new State bodies responsible for monetary policy, redistribution, conflict management and so on. Basically Keynes and the Welfare State in Western Europe post-World War 2, along with a watered down version in the US.

The key problem with Capitalism 2.0 in Rodrik’s view was that it was all about national regulatory and oversight institutions rather than taking a global view, despite global trade being a reality.

To make international trade work, the much-vaunted Bretton Woods system ‘threw sand in the wheels’ of international trade, Rodrik argues, with capital controls and a highly permissive GATT agreement doing minor heavy lifting.

Developing countries were left outside of the club, in Rodrik’s view, while he said developed ones were “in many ways free to do what they want”.

As global trade multiplied, we got to:

  • Capitalism 2.1 – Which Rodrik described as post-1990s financial deregulation allied to two “neo-liberal” errors of thinking: Namely that you can push integration of world markets and let institutions catch up, and that deep economic integration has no (or mostly benign) affects on national intsitutions. (If developing country’s institutions were rubbish to begin with, says Rodrik, then the neo-liberal agenda was they were better dead anyway).

Capitalism 2.1 caused the credit crisis, says Dani Rodrik

Blink and you’d miss it, but Rodrik then claimed this system was responsible for the credit crisis.

The professor cited…

  • financial globalisation and deep integration under the WTO
  • the erosion of the legitimacy of the trade system
  • weak financial regulation
  • poorly managed integration of US and Chinese style capitalism
  • global macro imbalances that resulted from the above that enabled the US to go on a borrowing binge, and China to go on a savings binge

…as leading to a system that was “unstable” and “didn’t work”.

Rodrik said the resulting fundamental problem of the world economy was an imbalance between the reach of markets (increasingly global) and the scope of regulation governance (still mostly national).

What’s your problem?

Are you convinced by Dani Rodrik’s thesis? If so, you would have loved being in the audience at LSE. They lapped this stuff up.

But from where I was sitting it didn’t have much to do with the causes of the financial crisis.

This was no crisis of international trade. There was no huge problem caused by Brazilian banks investing in German securities without oversight from the Brazilian government, let alone a crisis caused by a shoe factory in Nepal or deforestation in Sumatra.

The credit crisis was caused by Wall Street bankers selling toxic, opaque and unexpectedly risky and correlated assets under the nose of US supervisors to other Wall Street firms, as well as those in Western Europe. (See this video explaining the credit crunch for a reminder).

Rodrik’s only really convincing point to this end was that Chinese buying of US Treasuries drove down yields and encouraged financial actors to look for better yields elsewhere, but it’s hard to see how regulation would have addressed this.

To get rid of such imbalances, you’d have to get rid of the cheap cars, trainers, TVs, iPods and everything else the US has exchanged for its assets that the Chinese have been hoarding.

Rodrik was tilting at windmills.

What would Capitalism 3.0 look like?

Having failed to make the case for globalisation causing the financial crisis, Professor Rodrik then set about describing how he’d fix it.

He made a much better fist of explaining why a truly universal, global system of trade regulation won’t work.

At the limit, to be legitimate it would require global standards, a global safety net, and eventually a global government. This won’t be practical anytime soon – just look at the problems Europe is having, and there cultures are broadly similar, at least compared to say South East Asia.

Rodrik also had a principle-based objection, which was that different countries have different needs to others: Developing countries with young populations trying to achieve a structural transformation have very different aims to Western countries overloaded with retiring baby boomers.

There are thus all kinds of problems that emerge from trying to impose global standards and a level playing field.

Rodrik himself pointed out as an example (to a stony silence from the audience) that a developing country may want to allow child labour that we wouldn’t consider acceptable in the developed world.

Why should it want to do this? Because the alternative is worse. Raising the country’s GDP brings in the money that could eventually pay for schools and a higher standard of living – it doesn’t work the other way around.

You could list any number of different examples, taking in environmental issues, redistribution, health and safety, financial assets and more.

Some of these issues are very valid (I’m most worried about the degradation of the environment) but realistically, we live in a heterogenous world of national states with national interests, and such issues will be decided at a domestic level, not through agreeing via global trade regulation.

A global regulatory framework isn’t desirable and won’t work anyway.

The solution: Traffic rules and space for discussion

Having won me back with his pragmatism, Professor Rodrik then lost me again with his solution.

He said any new approach should accept the following guidelines:

  • Markets need to be deeply embedded in systems of governance to work well
  • Understand we live in nation states
  • There is no “one way” – domestic preferences and needs will play a role, even in developed countries
  • Countries have a right to protect their own social arrangements and institutitions…
  • …but not to impose them on others
  • International economic arrangements should be of the maximum ‘thickness’ that is consistent with maintaining a space for domestic institutions (in other words, allow the like-minded to integrate)
  • Where this doesn’t work, we should fall back on ‘traffic rules’

Central to his concept are these ‘New Traffic Rules‘ that would govern international trade.

The WTO already enables countries to impose tarrifs in certain conditions, but Professor Rodrik wanted to see much more of this. He wants to see “negotiated opt-outs” with “procedural constraints”.

The idea, stripped of academic language, is that when two countries come into conflict, everyone gets in a room and hammers out why it’s a problem, including (to Rodrik’s credit) those who’ll benefit from trade on both sides of the fence. It’s all meant to happen out in the open, to provoke a domestic debate.

If it can be shown that the complaining country has a more legitimate gripe than just that some aspect of the other country’s practices pisses off a few left-wing students, then “safeguards” would be called into play via a judicial hearing.

So what it all boils down to is Bretton Woods with even more sand in the wheels, combined with an optimistic view that more citizens will play a democratic role in understanding and caring about the micro-issues involved in steel production or kumquat farming, and so energize what is today a rather remote debate.

Yet GATT and other comprehensive(-ish) trade agreements are already bogged down – Rodrik’s proposed system would surely create even more friction and probably become unworkable in short order.

A little more conversation, a little less action

As far as I could see, Professor Rodrik would like globalisation to be curtailed for reasons unrelated to mortgage-backed securities, derivatives, or excessive risk-taking by financial companies.

There might be valid reasons for this viewpoint – he alluded to how India and China were able to develop their industry and institutions before opening the door to Western competition – but they have little or nothing to do with the credit crisis.

Rather, the financial status quo has been knocked off its feet, and not-so-liberal economists see the chance to get the boot in.

The follow-up questions with the audience made the anti-globalisation agenda even clearer.

When not praising his speech as offering a ‘magisterial framework’ for a new way of doing international business, staff and others asked things like:

  • How would it allow ordinary people to get back at the bankers?
  • How would the framework tackle US power?
  • Why should lecturers lose their jobs due to banking bailouts? (This was said by a lecturer. At a school of economics.)

Thankfully, when it came to the very last question of day, an off-message member of the audience asked the crucial one: Would this framework have stopped the financial crisis, and if not then what’s the point?

Rodrik admitted it wouldn’t have, and said something about how he envisaged financial systems being much more ‘segmented’ then they are today.

All very well, but absent from his lecture.

We need risk and fear, not regulation

Like cuts to public services (inevitable and not before time), the normally arcane area of regulation is going to be making headlines for months to come.

Rather than learning the wrong lessons, or worse still using the financial crisis as an excuse to settle old grudges or score points, policymakers and voters need to decide:

  • What they want regulation to achieve
  • How much, if anything, regulation really can achieve.

I’m very much of the Minsky school that says you can’t regulate away risk (if only because the more seemingly stable you make a system, the more risky it actually is, since people stop evaluating risk properly).

Instead I’d prefer to see more preparations made (and money set aside for) dealing with problems when they arise, as well as curbs on unearned riches made by unjustified short-term risk-taking – if only on the grounds of social justice.

Transparency is almost always helpful, and forcing loan originators to retain some of their risk seems sensible.

But we’re still going to eventually get another instance of market participants failing to understand the risks they are taking simply because it has become the normal way of doing things, and everyone else is at it.

If you do favour radical regulation, at least George Soros’ proposals in the FT the other day addressed the causes of the financial crisis.

Soros offered three principles to guide financial reform:

First, since markets are bubble-prone, regulators must accept responsibility for preventing bubbles from growing too big. […]

Second, to control asset bubbles it is not enough to control the money supply; we must also control the availability of credit. This cannot be done with monetary tools alone – we must also use credit controls such as margin requirements and minimum capital requirements. [..]

Third, we must reconceptualise the meaning of market risk. […] The efficient market hypothesis is unrealistic. Markets are subject to imbalances that individual participants may ignore if they think they can liquidate their positions. Regulators cannot ignore these imbalances.

What’s clear is Soros understands the financial system that created the crisis, and thus might have something insightful to say about improving it.

A clear connect between the problem and the solution should be the litmus test for any new financial regulations.

Note: While everyone loves angry bloggers, I should say I liked Professor Rodrik’s talk and attitude, even when I didn’t agree with him. The fact he was linking his agenda to the financial meltdown was the most telling aspect of the evening, and overshadowed his actual ideas. But I enjoyed hearing them.

Update: Dani Rodrik has linked to this article from his weblog, as well as to another review of his lecture. If you’re keen on learning more, you might want to check out Professor Rodrik’s blog for more links to these alternative views as they emerge.

{ 10 comments… add one }
  • 1 Niklas Smith June 19, 2009, 9:38 am

    An excellent post. It is decidedly worrying that intelligent people think the credit crunch is an indictment of “neo-liberal” globalisation. After all, the massive financial imbalance between China and the USA was not the product of trade, but the result of China’s policy of keeping the value of its currency artificially low. In other words, government intervention rather than the free market caused the excessively low long-term dollar interest rates.

    I agree with Soros that regulators need to take responsibility for preventing asset bubbles, at least where they cause a systemic threat. Housing and property bubbles threaten the financial system because property is used as security for a great deal of lending – if the security is significantly overvalued it can make investors take on more risk than they thought they were. If banks have to reclassify the risk rating of mortgages they can face a sudden increase in their capital requirement. So a market-based warning system for property bubbles is needed; the best is rent yields (as you have argued for the last couple of years this was the canary in the British mine). However, for this to work rents need to be decontrolled in places where they are not set by the market, such as New York City and Sweden. So, shockingly enough, in order to deal with the financial crisis we need to deregulate at least in places.

    But it is not just regulation that needs reforming. The assumption that dangerous banking practices were driven by the need for profits is an oversimplification. The Nordic bank that customarily delivers the highest return on equity is Handelsbanken, which has a decidedly conservative approach to lending: http://www.economist.com/specialreports/displaystory.cfm?story_id=13606241 (the comments thread on the article is interesting too).

    The secret to Handelsbanken’s success and stability is that decisionmaking is heavily decentralised, with the Head Office unable to force branch managers to lend against their will. Because of this philosophy Handelsbanken does not have sales targets, instead concentrating on meeting the demands of its consumers and making sure that every part of the business is profitable – no cross-subsidising here. (I have my Swedish bank account with them so I have experienced their service at first hand.)

    If all retail banks were run this way they would probably still be in reasonable shape, but hubris caused RBS and HBOS to overstretch themselves in risky lending – and caused Lloyds TSB to jump into bed with HBOS (which was always about as sensible as sleeping with someone who has told you that they are waiting for HIV test results…). The stupid thing was that they wouldn’t have sacrificed profits by being run like Handelsbanken.

  • 2 Niklas Smith June 19, 2009, 9:39 am

    On the topic of trade, “infant industry” arguments and the justification of protectionism as “safeguarding” society in some way stem from misuse of history and collectivism respectively. It is true that many countries industrialised behind high trade barriers, and only then opened themselves to competition. But this does not prove that they could only have industrialised that way. They may well have developed in spite of protectionism, not because of it. Typical historical examples used to justify “infant industry” protectionism are France and Germany. But there are other examples of countries that industrialised without high trade barriers, such as Sweden and Denmark. Also, the German Zollverein started out with a low-tarriff policy and was a member of the European free trade area created by the Cobden-Chevalier treaty. The Zollverein’s tarriffs were so low that the Austrian Empire was discouraged from joining because they feared they were not competitive enough (preventing Austria from joining the Zollverein was one reason Prussia pushed the free trade policy). Bismarck’s famous “iron and rye” policy was only implemented after German unification and was a reversal of previous policy.

    As for trade barriers to “safeguard” society, this shows the confusion of free trade with unregulated markets. The most powerful moral argument for free trade is that it is non-discriminatory. People should not be penalised for choosing to buy imported goods or services, but VAT (for example) is perfectly acceptable as a tax because it falls equally on all consumption. All arguments that tarriffs are needed to protect people from “evil market forces” are based on the assumption that individuals cannot be trusted to make decisions in their own interest. Protectionist arguments are debunked much more effectively than I can do here in Johan Norberg’s book In Defence of Global Capitalism: http://tinyurl.com/indefence

    Sorry about the length of my comments but your post was very thought-provoking!

  • 3 The Investor June 20, 2009, 10:21 am

    No need to apologize for your very interesting comments Niklas – thanks for taking the time to share!

    Re: Safeguarding via trade barriers, the whole subject gets even murkier when you consider the extension to ‘safeguard’ people/workers in the producing country, rather than the consumer country.

    Besides the dubious morality/paternalism of this approach and the issues Rodrik to his credit did raise (i.e. two different country’s populations having different needs), alleged problems occurring ‘out of sight’ are even more hijack-able by domestic special interest groups, weird alliances of well-meaning students worried about social/environmental harm with rigidly conformist unions wanting to ratchet down the status quo, and so on.

    I’d like to see all such special interest lobbying required to product a bill of cost to the producing country of boycotting their produce as part of any serious campaign.

    To be clear I’m not arguing here for a world based around six-year olds in developing countries losing limbs in stitching machines so we can have cheap trainers. I understand how lucky we are and I’d prefer they were, too. I’m partly arguing as to what ends that world soonest – and for me that’s such countries getting rich enough for their populations to afford to have the choice. It also happens to benefit world output best (Ricardo etc).

    The Nordic bank is interesting – will read The Economist when I get some time.

  • 4 Espen June 20, 2009, 1:51 pm

    I think you completely missed the point in regards to the trade imbalances. To explain it in a very basic manner: if a country is running a deficit they have to either facilitate for that in the public sector (fiscal deficit) or the private sector (Household and firm deficit).

    If the external deficit remains constant (or rises) and the fiscal deficit falls, there must be an offsetting increase in private indebtedness. In other words, normal people take upon increasing amount of risk. The problem is that the majority of these loans does not increase assets, but rather facilitate for increased consumption or pay for (and get lost in) bubbles. The financial crisis is thus a consequence of a bigger and more systemic flaw in the system.

  • 5 Espen June 20, 2009, 2:17 pm

    Niklas: In regards to trade, if you read Ha-Joon Chang’s book “Kicking Away the Ladder” you will get a very detailed historical overview of how countries “became rich”. Sweden as you used as an example utilized strong protective tariff laws and even banned import and export of certain items after the Napoleonic wars. It is true that Sweden had low tariffs from about 1830 until about 1875 when Sweden had the lowest tariff rates of the major economies. But from around 1880, Sweden started using extensive tariffs in attempts to protect their agricultural sector from the newly emerging American competitor. After 1892, they also started using infant industry protection policies in the form of high tariffs and subsidies, for example in the energy sector.

    I must admit that I get slightly provoked when you refer to people’s intelligence and clearly need to read up on these topics yourself. I would rather appreciate it if you could welcome that people are questioning the behavior of the herd and approach things from a different perspective, it was in fact the herd that got us into this mess in the first place.

    In regards to the trade imbalances issue, many of the leading economist and commentators, such as Rodrik, Wade, and even Financial Times’ own Martin Wolf argue that the trade imbalances are the root to this mess, so I assume that it is a point you should at least take seriously.

    I am not criticizing you for taking a different perspective, in fact, I think that it is healthy, I just think that you could have spare us for the intelligence comment and rather ask yourself why “intelligent people think the credit crunch is an indictment of “neo-liberal” globalization”.

  • 6 Niklas Smith June 21, 2009, 10:46 am

    @Espen: I never meant to suggest that people who are against globalisation are stupid – no one can say that Dani Rodrik is unintelligent! You are right that my comment was unnecessary and I apologise.

    On trade imbalances, I entirely agree with your points. Borrowing to consume rather than invest is always economically unhealthy. What I was arguing is that the trade deficit would have been smaller had China allowed its currency to appreciate. In fact, the problems caused by trade imbalances are one very good reason to retain floating currencies rather than listen to the hardcore libertarians (like Ayn Rand) and Austrian economists who advocate a return to the gold standard.

    On the history of protectionism, I do know that Sweden was very mercantilist in the eighteenth and early nineteenth centuries, as I have read up on this (which was why I used Sweden as an example). The point is that Sweden remained a poor country until tariffs were cut. Large countries like Germany and the USA could get away with protectionism because they had large domestic markets that allowed industries to develop sufficient scale; smaller countries such as Sweden could only industrialise by being open to the global market. If you look at Angus Maddison’s growth figures it is striking that the Nordic countries were the great economic success story of Europe from the second half of the nineteenth century.

    It is true that Sweden introduced agricultural tariffs in the 1880s (though my dissertation research indicates that they did little to stop rural emigration, and farmers still struggled economically). But by that point industrialisation had taken hold, so Sweden’s industrial “infancy” happened in the context of a free trade policy. Denmark resisted the European trend towards agricultural protectionism and managed to do very well out of specialisation (bacon and butter), which in turn stimulated much of Denmark’s early industrialisation through food processing – as well as the development of the financial sector with rural credit cooperatives.

    I have heard of Ha-Joon Chang’s book – one of my lecturers praised it – but I’m sceptical of his conclusions for the simple reason that he only shows correlation between protectionist policies and industrialisation. Moreover, protectionism was the norm for centuries without contributing notably to economic development. In many ways the (re-)introduction of tariffs in the late nineteenth century was a reaction to falling transaction costs, most dramatically in transatlantic shipping. Niall Ferguson has argued that the fall in transport costs outweighed or at least equalled the increase in transaction costs caused by tariffs.

  • 7 Niklas Smith June 21, 2009, 11:17 am

    @Espen again: In terms of the causes of the credit crunch, I agree with you that herd mentality is a serious problem. Having an overvalued currency didn’t stop Britain from having a balance of payments deficit because our banks borrowed money from abroad to lend to us so that we could play the property market – an invitation that far too many people took up.

    I think the behaviour of the “masters of the universe” is a timely reminder that humans are not solely motivated by money. People like Dick Fuld lost most of their fortunes when their banks collapsed, but their overinvestment in their own shares did not stop them from taking stupid risks. (If only they had listened to Monevator’s advice and put their money in index funds!) From my reading on the crisis I get a feeling that there was a risk-enhancing culture in financial markets, partly because investment bankers developed an obsession with league tables. This caused too many people to throw themselves into (for example) subprime mortgages or structured products simply so that they would not lose face in front of their competitors. The idea that they could run a highly profitable business by specialising in their areas of expertise seems to have eluded them.

    (The book that especially brought this home to me was Johan Norberg’s A Perfect Storm, which I have read in Swedish and is coming out in English shortly. Norberg is very critical of this culture of irresponsibility but also points out how state intervention worsened the speculation on the American mortgage market. I recommend this book, not least because the author does not claim to have all the answers to prevent the next crisis.)

    This is why I think financiers should “get back to basics” and focus relentlessly on profitability in all units of their business and not jump into products that they don’t understand. British banks, to their shame, cross-subsidised consumer credit by ripping their customers off with expensive and unnecessary payment protection insurance (PPI), an abuse which the regulators were too slow in stopping. The latest wheeze is apparently for compulsory payment holidays on personal loans so that interest accumulates and the loan costs more than the APR indicates (sounds just like some of those American subprime mortgages…will no one ever learn?).

    If some beneficial fear is to be instilled in the banks, shareholders must lose their shirts if their bank fails to remain solvent. Governments around the world have been too quick to mollycoddle failed banks; there should be more Northern Rocks (outright nationalisation at a very low share price) and fewer HBOSs (government brokering rescue mergers while ignoring competition law, so dragging down otherwise healthy banks). In this case nationalisation is the best way of imposing market discipline, because allowing a significant bank to go bankrupt would cause unacceptable collateral damage.

    Beyond this (and a regulatory action against asset bubbles) I don’t have any ideas for how to deal with the cultural problems and herd mentality of the financial markets, so I am open to suggestions.

  • 8 Espen June 23, 2009, 11:20 am

    In regards to trade imbalances: you are absolutely right about China, but we do not know if other countries would just have picked up the slack if China floated their currency or not, allowing the US to still run a massive deficit.

    It is good that we both (who seemingly are relatively intelligent people) agree with Rodrik about trade imbalances, and that it is the solution that we may disagree about 😛

    I am unsure if I am a very big fan of “just floating exchange rates” as they are prone to volatility. Many large multinationals have enormous funds that can crash small economies if they are rapidly withdrawn, I know there were other problems but look for example at the East Asian Crisis. You also have to remember that the post Bretton woods system with free capital movements have created more financial crisis than any other system (Keynes actually thought about this which is why he suggested the international clearing union and tax on large deficits and surpluses).

    In regards to Sweden, I am willing to listen to the alternative, but I am unsure if you can blatantly argue that Sweden developed under free trade when they used extensive protectionism and subsidies (for example in R&D) prior to opening their markets. The entire notion behind infant industry protection is to protect the industry until it is able to compete and then open up, so the fact that some Swedish industries did well might have been as a consequence of the strategies utilized before. It is like arguing that attending University does not add value to your level of salary because you don’t earn anything until after you left university.

    The argument that it did not work in some industries (like agriculture) may be absolutely correct. Empirical evidence show that many infant industry strategies fail, but the argument is that very few countries have developed without it. How many countries have developed lately based on completely free trade? You cannot use countries such as China, South Korea, Taiwan, etc as they all have used extensive protectionist strategies.

    In regards to the herd effect and profit seeking, the entire notion of capitalism is that it is driven of self-interest and profits. You will always get people who attempt to exploit the system, which is why regulation is so difficult, look at for example Basel II or Sarbanes Oxley. The energy scandal in California, Enron, and the housing bubble are all excellent examples of people exploiting the system. The problem is that people always find innovative ways of exploiting the system, and it is almost impossible for regulators to keep track, and if you ever get to the point where you have regulated every single hole in the system, the industry is so full of regulations that it gets extremely inefficient. The argument loses its strength as efficiency is the entire argument supporting free trade/markets

    I worked for one of the biggest investment banks in the world, and it was a mess to get around all the regulation with Sarbanes Oxley (for example), very few in management knew what it was really about and it was extremely inefficient when you tried to comply with the regulation. These are market failures that make the market extremely inefficient, why not look at the systemic reasons for these failures rather than trying to patch it over?

    In regards to information asymmetries: One of the biggest problems with the stock market is that it is based upon what people think a company is worth, not what it is actually worth. Information asymmetries and imperfect information is a huge problem, which we will never be able to alleviate, so people make judgments on imperfect information.

    But, it seems like we are not so far off after all, I was just a little provoked by your intelligence comment so I had to respond.

  • 9 Andrew Smith June 26, 2009, 12:25 am

    I must have arrived at the talk later than Monevator … as I ended up in overflow room … but at least I was spared the breathless enthusiasm of the audience in the main room – we were much more sceptical !

    btw, here’s a report on a different LSE talk

  • 10 Bobbo August 25, 2011, 9:31 am

    Keep these articles coming as they’ve opened many new doors for me.

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