Once again, markets are crashing and taxpayers are bailing out wealthy insiders. It’s time we reform this perverse social contract.
At a time of coronavirus-induced panic in the financial markets, there are two wrong ideas about supporting the economy in a downturn that still haunt us. One possible upside of the current crisis is that these two ideas may finally be buried for good. And when they are, we might use this rare moment of clarity to fundamentally rethink who these markets, and their perennial bailouts, benefit in the first place.
The first of these ideas is that investors, when they decide to buy or sell their assets, are responding rationally to information. That is, markets are “efficient,” and therefore the best way to organize how a society chooses to invest. This idea is challenged by what we have seen in the financial markets over the past two weeks. Panicking investors are responding to uncertainty, not information. Central banks around the world have rightly intervened to try to stabilize markets that have been anything but efficient.Continue reading “This Time, Can We Finally Turn a Financial Crisis Into an Opportunity?”