Welcome to Miami
In September I was generously sponsored by the Atlas Network to attend their Liberty Forum in Miami, US. The Liberty Forum is an annual gathering of leaders of the world’s liberty community and I came back with a long list of new projects and ideas, as well as new partners for our scholarship program – I’m excited to announce that the Centre for Indonesian Policy Studies in Jakarta and the Austrian Economics Center in Vienna will be among the 21 think tanks hosting Mannkal scholars over the coming semester break.
I hate to break it to our students, but business travel and holidays are two very different things – I spent more time travelling than I did actually in Miami, but I got to stick my head out of the conference hotel on a couple of brief occasions. Miami doesn’t show signs of the fragile US economy; in fact, the number of supercars around the city was astounding and reminiscent of Monte Carlo. I’m told that Miami has become a refuge for wealthy South Americans fleeing political turmoil, with Argentines and Venezuelans prominent among those seeking a bolt-hole, similar to Chinese buying property in Sydney or London. The practice is to buy an apartment and then an expensive car, and apparently many have made it a more long-term move. Miami thus seems to be flush with wealth and spending, welcomed by both my Uber driver and a bartender – the service industries have done well indeed. The city has done well by being open to foreign capital and the movement of economically valuable individuals. It may need all it can get as they have made a similar mistake to the Barnett government in Perth –a huge stadium was built at taxpayer expense for the Marlins baseball team and looks to never make an economic return.
Should we trust the markets?
Sir David Attenborough recently called for the Brexit referendum to be discarded and the decision to Leave or Remain left up to “experts” allegedly “wiser than we are”. Similarly, “the markets” are often breathlessly quoted by the press during elections – “Brexit spooks markets” or “Markets tumble on Trump rise”. Should we heed the high finance oracles of London and New York?
In short, the answer is no. We should not treat financial markets and the large institutions that dominate them as an independent, considered barometer of the virtues of an issue or the abilities and temperaments of political candidates. Market participants are as self-interested as anyone, such as a friend of mine, Emily, who works for a “too big to fail” bank that was bailed out by the US government after the financial crisis. Emily opposed Brexit on the basis it would affect “certainty and stability”. I often argued the merits but she had no interest in reform – change leading to lack of certainty was the biggest risk to her making money. A lovely and smart lady, motivated purely by self-interest.
In the US election, as with Brexit, traders cling to their beloved “certainty”, even if it is the certainty of the grave for the broader economy. We might accuse them of being part of the problem of a remote and self-interested cultural/economic elite. Traders would have been content for British growth to continue to stagnate as part of the EU, its borders and welfare state plundered by third world migrants and its laws subsumed by unaccountable bureaucrats in Brussels. Similarly, the weak US economy relying on a dislocated system of irrationally low interest rates is not a “stability” that works for the vast majority of the population, as Trump and Sanders supporters have made abundantly clear. But as long as the game doesn’t change and its players can make money off it, many traders are happy. It makes no differences to them if the wider economy is stagnant (or worse) – and therein lies the problem. It is a perfect example of Public Choice Theory: do they participate in a system that works in favour of minority interests – Washington politicians, lobbyists and lawyers and New York financiers – at the expense, and without the consent, of the broad American public?
My purpose is not to attack the finance sector, nor to support a particular US Presidential candidate (my ideal was Rand Paul, who failed to excite and dropped out long ago) but to point out the “argumentum ad verecundiam”, or “argument from authority”, fallacy in the idea of deferring to some authority of markets on political issues. Indeed, I don’t believe the markets are authoritative on politics. I note that US dollar traders have reacted negatively to Donald Trump’s revived fortunes, yet his protectionist tendencies are likely to lead to decreased domestic demand for foreign currency, rising US production/export and thus a rise in the USD. As with the 9% drop in Sterling yet rising UK growth following Brexit, the short-term market reactions may diverge from economic reality and create profitable buying opportunities.
In short, let’s make up our own minds, rather than being told to forfeit our democratic participation to those purportedly “wiser than we are”.