[OPE] The myth of market confidence

Jerry,

Well, in my posts since about 2003 I have indicated how I think things will go, and why. I don't think anything that has happened recently contradicts my interpretation, except that I think I underestimated the amount of panic.

Technically the world economy is now already in a recession (a slowdown of growth in real GDP) and I expect it to last longer than the average of previous recessions; whether this recession would transform into a genuine depression (sustained negative growth of real GDP) depends a lot on how the power struggles of the financial institutions and the governments are actually resolved - it looks to me that the rentier class is winning, so far. But as I have also said repeatedly, contrary to Marxist and bourgeois economists, I do not think GDP describes "the whole economy" since it refers only to the annual gross value added, and excludes all kinds of other expenditure and income unrelated to gross value added. How employment and investment levels are related to fluctuations in GDP growth is now different from how it used to be.

The New Marxist Exploiting Class is always prophesying the capitalist collapse, they have been doing it since the time of the Second International. If they make a hundred prophecies, and the economy collapses just once, they see the one collapse as "proof" of their analytical acuity and intellectual rigor, and just ignore the 99 times they got it wrong. I don't want to have anything to do with that.

As I have said, the reason why there is much talk of "confidence" and "trust" is because there is a refusal to buy and sell capital, products and assets. Markets cannot function if people refuse to trade - if they don't trade, there is no market, which has big economic repercussions. Therefore, the aggregate propensity to buy and sell, influenced by factors such as confidence, trust and perceptions, has a big effect on economic outcomes. That is simply a fact, and I think whether that is a "mainstream" view or not, is irrelevant. The theoretical differences begin to show up when we try to explain why people refuse to trade, or what would motivate them te resume trade.

Jurriaan

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Received on Sun Oct 12 11:28:36 2008