Regressive Conservatism
23 April 2009
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Monetary Policy
20 April 2009
Economic Theory
25 April 2009
Lifestyle Economics
15 November 2024
Phillip Blond is director of the Progressive Conservatism project at Demos and it is suggested that his ideas are getting a lot of exposure within the Conservative Party. His thoughts are certainly conservative but they are definitely not progressive, harking back as they do to a long tradition. Blond’s ideas often seem to involve posing straw men founded upon do-it-yourself economics, and then knocking them down. This was very clear in his recent article in the FT on 13th April.
In that article he shows a lack of understanding of the liberal arguments for a market economy. Worryingly, he claims support from George Osborne. Firstly, he argues that neo-liberalism’s foundational premise is the efficient markets hypothesis and then suggests that this is not valid. This hypothesis may be the model taught in some finance faculties of business schools but it does not provide the neo-liberal justification for markets. The neo-liberal justification for markets is underpinned by the recognition of the role of market participants in uncovering information about the best way to use economic resources – a process that is quite consistent with so-called mis-pricing in markets (including financial markets). Indeed, without “mis-pricing” there would be no entrepreneurs and, indeed, no markets. Interestingly, though, what has happened in recent years is that REGULATORS have imposed on financial institutions models of regulation and solvency provisioning that assume that the efficient markets hypothesis is true.
Secondly, he argues that “too-big-to-fail” institutions are an inevitable product of the market. This is nonsense. In fact, many market mechanisms that stopped the development of such institutions have been ripped up by the state (for example private stock exchanges that took responsibility both for regulation of trading and of the corporate form of the entities that traded on the exchange). Also, if the government guarantees that big institutions will not fail then their evolution is inevitable – but this is not a consequence of free markets. It is interesting, also, that Blond does not mention the biggest monopolies of all: those in health and education.
Blond seems to want local provision to replace multinational monopolies (he cites Wal-Mart frequently). This really is bizarre. Wal-Mart is a product of competition and it would disappear as quickly as it has grown if it started to exploit consumers. In fact, Blond misses an elementary point. Wal-Mart is a multi-national company that does not have a monopoly. If we have local provision we may have millions of firms throughout the world but each could be a local monopoly. Some of us remember going shopping with our parents in the early 1970s, trudging from one over-priced, inefficient, unimaginative local monopoly to another over-priced, inefficient, unimaginative local monopoly. Indeed, before I went to school, I have the impression that this tedious activity took up almost every morning.
In general, Blond seems to want markets to pursue moral objectives through state regulation. Gordon Brown may be a “son of the manse” but he is not God. Though it is always desirable for market participants to behave ethically, markets cannot be made moral simply by the action of state regulators as they are themselves neither omniscient nor perfectible.
In that article he shows a lack of understanding of the liberal arguments for a market economy. Worryingly, he claims support from George Osborne. Firstly, he argues that neo-liberalism’s foundational premise is the efficient markets hypothesis and then suggests that this is not valid. This hypothesis may be the model taught in some finance faculties of business schools but it does not provide the neo-liberal justification for markets. The neo-liberal justification for markets is underpinned by the recognition of the role of market participants in uncovering information about the best way to use economic resources – a process that is quite consistent with so-called mis-pricing in markets (including financial markets). Indeed, without “mis-pricing” there would be no entrepreneurs and, indeed, no markets. Interestingly, though, what has happened in recent years is that REGULATORS have imposed on financial institutions models of regulation and solvency provisioning that assume that the efficient markets hypothesis is true.
Secondly, he argues that “too-big-to-fail” institutions are an inevitable product of the market. This is nonsense. In fact, many market mechanisms that stopped the development of such institutions have been ripped up by the state (for example private stock exchanges that took responsibility both for regulation of trading and of the corporate form of the entities that traded on the exchange). Also, if the government guarantees that big institutions will not fail then their evolution is inevitable – but this is not a consequence of free markets. It is interesting, also, that Blond does not mention the biggest monopolies of all: those in health and education.
Blond seems to want local provision to replace multinational monopolies (he cites Wal-Mart frequently). This really is bizarre. Wal-Mart is a product of competition and it would disappear as quickly as it has grown if it started to exploit consumers. In fact, Blond misses an elementary point. Wal-Mart is a multi-national company that does not have a monopoly. If we have local provision we may have millions of firms throughout the world but each could be a local monopoly. Some of us remember going shopping with our parents in the early 1970s, trudging from one over-priced, inefficient, unimaginative local monopoly to another over-priced, inefficient, unimaginative local monopoly. Indeed, before I went to school, I have the impression that this tedious activity took up almost every morning.
In general, Blond seems to want markets to pursue moral objectives through state regulation. Gordon Brown may be a “son of the manse” but he is not God. Though it is always desirable for market participants to behave ethically, markets cannot be made moral simply by the action of state regulators as they are themselves neither omniscient nor perfectible.
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The straw-man attacks on the efficient markets hypothesis sort of overlook the fact that there are (at least) three kinds of markets:
1. Markets for actual goods and services, which ARE efficient, i.e. bad businesses go bankrupt and new businesses flourish and super-returns are competed away over time.
2. Meta-markets, like the Stock Exchange or bond markets which are all over the place, with irrational exuberance and irrational pessimism. But so what? Nobody is forced to buy shares or bonds.
3. Natural or state-imposed monopolies, like land and property, but also airport landing slots etc, where bubbles are most likely to form. This goes in tandem with item two.
The straw-man attacks on the efficient markets hypothesis sort of overlook the fact that there are (at least) three kinds of markets:
1. Markets for actual goods and services, which ARE efficient, i.e. bad businesses go bankrupt and new businesses flourish and super-returns are competed away over time.
2. Meta-markets, like the Stock Exchange or bond markets which are all over the place, with irrational exuberance and irrational pessimism. But so what? Nobody is forced to buy shares or bonds.
3. Natural or state-imposed monopolies, like land and property, but also airport landing slots etc, where bubbles are most likely to form. This goes in tandem with item two.
‘Progressive conservatism’ is a similar project to what we now know as ‘New Labour’. It is the tendency to want to appear radical and new by denigrating one’s own side and seeking to incorporate the views of your opponents with your core beliefs. Apparently this is a sign of sophistication.
In practice, of course, it is merely an excuse not to think, in that all one is doing is creating a consensus based on other people’s ideas.
‘Progressive conservatism’ is a similar project to what we now know as ‘New Labour’. It is the tendency to want to appear radical and new by denigrating one’s own side and seeking to incorporate the views of your opponents with your core beliefs. Apparently this is a sign of sophistication.
In practice, of course, it is merely an excuse not to think, in that all one is doing is creating a consensus based on other people’s ideas.
In the town where I grew up, older people sometimes complain that in their youth, the town had 4 breweries, which have since all been put out of business by big trans-regional ones. Big corporations eliminate local diversity!
However, in those days, local consumers had access to little more than those 4 brands. Today, there’s hundreds of beer brands to choose from. Yes, there probably was a larger total number of breweries in the country. But any single consumer only had access to a handful of them.
What happened is simply that 60 years ago, beer could not be stored and transported as easily as today, so localised small-scale production was efficient then. It no longer is so why preserve it
In the town where I grew up, older people sometimes complain that in their youth, the town had 4 breweries, which have since all been put out of business by big trans-regional ones. Big corporations eliminate local diversity!
However, in those days, local consumers had access to little more than those 4 brands. Today, there’s hundreds of beer brands to choose from. Yes, there probably was a larger total number of breweries in the country. But any single consumer only had access to a handful of them.
What happened is simply that 60 years ago, beer could not be stored and transported as easily as today, so localised small-scale production was efficient then. It no longer is so why preserve it
Hi Phil,
You ripped him a new one. I read the article and was quite surprised– their must be a party election underway in the conservative party. Where the nuttier you sound, the more the base appreciates your mode of thinking.
In any event, thank you for the contribution.
Best,
Yourihttp://globalviewtoday.blogspot.com/
Hi Phil,
You ripped him a new one. I read the article and was quite surprised– their must be a party election underway in the conservative party. Where the nuttier you sound, the more the base appreciates your mode of thinking.
In any event, thank you for the contribution.
Best,
Yourihttp://globalviewtoday.blogspot.com/
[…] blogged before on Phillip Blond – I am not just jumping on the bandwagon after the launch of ResPublica. But it is interesting […]
[…] blogged before on Phillip Blond – I am not just jumping on the bandwagon after the launch of ResPublica. But it is interesting […]