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Saturday 18 October 2008

Market Responsibility

At last, I am beginning to hear the argument regarding the failure of the market mechanism begin to turn full circle.

On reflection everyone from the bankers, regulators, politicians hedge fund managers, etc. have been blamed, but returning to the opening paragraph, you will notice that I put juxtaposed two word, namely market mechanism.

It is crucial that we understand the fact that in the turmoil surrounding us, reporters, the media and even experts start confusing the technical language of economics with the layman’s utilization of words and phrases.

But the point that is beginning to come across is that for a market to function properly, it has to have willing and able participants. However, the one of the key ingredients for the market mechanism to function properly is responsibility.

You might argue that responsibility is the main duty of the regulator to enforce, however, I would argue that as a libertarian one of the fundamental principles of the philosophy is ‘personal responsibility’.

Now the problem with this is that personal responsibility is also an excuse for some form of moral crusade being waged, as it is very easy on reflection to espouse the idea and say we should all be taking ‘personal responsibility’ for our actions, yet we do not have the practical mechanisms in place to bring the concept of ‘personal responsibility’ to fruition.

As social beings, our learning is conducted in many forms, but most of us learn by observation and participation. And participation is one of the key drivers of the market mechanism.

So the argument is really to be willing, able and informed participants in the market. Yet another driver or key tenet of a functioning market is information asymmetry, this being defined as: “the study of decisions in transactions where one party has more or better information than the other. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry.” [Wikipedia]

And there we go, I trust that this has again been a simple construction of logic, albeit an incomplete chain of logic…

I have not answered or fully addressed the title of this article, namely Market Responsibility, but in the future I shall attempt to define and build the argument for what I believe the concept should possibly address.

But maybe we shall start with education and other forms of learning in the follow up to this opening gambit.