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"It's the markets, stupid" - By Kitty Miv, Editor

Kitty Miv, Editor
08 December, 2011

Ronald Reagan didn't say: "It's the economy, stupid", at least not in my hearing; but he might have done, and that's when the saying originated, meaning that the conduct and health of the economy had come to be the overwhelming preoccupation of government, and seen as such by the citizenry, marking a change from national military prowess as the leading indicator of a potent state. Before that, states didn't really exist, but you could say that religion was the main deal during the Middle Ages.

So, God (for 5,000 years), followed by firepower (for 500 years), followed by money (for 200 years). What next, then? (Everything happens more quickly nowadays.) Information, someone will say; and that's not wrong, exactly. I'm going to say: "It's the markets, stupid", and they are based on information, obviously.

Doubt me? Here is the French Finance Minister, desperate to assert his nation's economic strength in the face of a threatened downgrade by Standard & Poor's. And here are France and Germany agreeing a fiscal union for the same reason.

The countries of Europe are not going to swallow a millennium of pride and enmity because of some deeply-felt sense of European community; they are going to do it because the markets won't let them do anything else. The member states have spent the last twenty-five years throwing sand in the gears of the beautiful Euro-machine so lovingly constructed in Brussels; now their little game has to stop.

The writing was on the wall when George Soros made a billion somethings out of the UK's irrational obstinacy (arrogance?) in 1992. Now the inadequacy of the competing-nations economic model is plain for all to see.

It's debt wot's dun it. Globalization, marketization, securitization and all the other lovely zations were tailor-made to help nations to splurge during the good times, and even (how ironic) to buy the very institutions that had been lending them money when the bad times came. Now the nations have given away their power and they are never going to get it back again.

The debt orgy may have hastened the process, but globalization had made it inevitable anyway, since the finance industry raced away at making itself international while the nations hunkered down behind their borders. Investors meanwhile have internationalized themselves almost as quickly as the intermediaries (the banks, insurance companies and investment funds).

So the game is up for the nations, financially speaking. They have no choice but to follow the rules of best practice laid down for them by the markets. Maastricht rules will do as well as any: not more than 3% deficit, and not more than 60% of debt. It is amusing now to watch the process of taming going on: your parliament fails to vote for a 'technocratic' package of spending cuts and your 10-year bond yield spikes at 8%; you say the right things, and a week later the yield is back down to 6%. Nothing has changed, objectively speaking, you are still just as bust as before, but the markets are teaching you how to behave.

I see it as being roughly equivalent to the 'Age of Rationality' in the 18th century when evidence-based scientific practice supplanted alchemy. Now a rational understanding of economic mechanisms is supplanting financial witch-doctory. Sensible financial practitioners have understood for hundreds of years, if not thousands, what the rules were, but they had no weapon against the bigotry of what was called, tellingly, 'political economy'.

Human nature won't change, though, at least not until we start re-engineering the brain, which won't be just yet, so the irrationalities which enlivened, bestialized or humanized each of religion, empire-building and wealth-creation in turn will still be with us as we map out our brave new information-driven world.

I'll still vote for you, if you vote for me!

Ciao, Kitty

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About the Author


Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net

 

 

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