by Gail Hauswirth, guest commentator
Saturday, June 12, 2021
I have a penchant for structure. I like knowing “if this, then that.” In my mind, predictability is the bedrock of morality and a functioning society. Equal justice means we all adhere to the same laws, and when we transgress, we face the same punishments.
Some laws are codified and some are inherent in the functioning of our society. Some of our laws are simply cause and effect, which then become axioms. If I eat too much, I will become fat. Or, we eat healthy foods first because dessert will spoil our appetite.
Most of us are taught such laws and rules of conduct as we grow up. This helps us navigate life with minimal embarrassment or conflict. Even most of our sciences are based on proven or accepted laws. Our progress has depended upon accepting what our previous generations had proven true and building upon those foundations. I find all of this comforting and rational.
Even the dismal science of economics is replete with laws: supply and demand, time value of money, marginal utility, to name a few. All rely on a predictable relationship by which we make sense of our economic system. And because money drives so much behavior, economic rules bleed into behavioral norms as well, so it’s not just the money which is at stake.
I understand traditional finance rules, and have based my own investing and saving on these rules. I relied on predictable outcomes for my financial decisions. While the free market has long been nipped and tucked by government intervention, I believed that the central architecture of our capitalistic system was both structured and highly predictable.
I am now at an age when my earning years are at an end, and I just rely on the savings accumulated over a lifetime of working and savings. But now, suddenly I am told that being a “saver” is of no value. Negative interest rates say, “Sucker. You should be a gambler…that is where the rate of return is.”
I remember the days when it was lamented that our savings rate was too low, and we were told that we should look at market fundamentals before investing ANYTHING in the stock market. Now, however, we are told we don’t need to understand the fundamentals. The analyst has a “pick” that is a sure winner. Book value, price/earnings ratios, and income statements all suddenly seem superfluous. Have we lost our way in the greed of the moment, or have our system’s axioms been a cruel hoax from the beginning?
I do not have answers to these questions. I do not know if rationality will return to the market, or if our economic system will ever be rational again. Perhaps this Monte Carlo will endure, and we will continue seeing prices soar based on emotions and the belief that this auction is never over.
How does this ever unwind? If it doesn’t, everything ever taught about the economy’s rules must be rewritten. But if by some chance, the old, rational rules reassert themselves, a terrible price will be exacted. Human suffering will be immense.
It must then be asked why we ever thought we could escape the inevitable, inexorable, invisible hand of the market.