Governments and Markets

Investors should consider that there seems to be an increase in the belief that the markets are getting it wrong and official oversight is essential to the national well being.  This can lead to problems for those who rely on the efficiency of markets in making investment decisions.

Thomas Sowell, in his book “The Vision of the Anointed”, was particularly erudite in describing the well-intentioned social engineers who always know what needs to be done to improve the wellbeing of the downtrodden.  He called them “the anointed” and explains how, in his opinion, their reasoning always evolves in the same three stages.

1)  They identify a problem, which may or may not exist.  But whether it is real or not, they always insist the problem is caused by market failures.

2)  They propose a solution, which inevitably involves a greater role for the State—and for themselves as its high priests (high priests do not work except within the Temple).

3)  When the solution fails (as it invariably does), they don’t reexamine their thinking, but just complain that it has been implemented with insufficient vigor.  Needless to say, they put forward a new improved plan they insist will work better next time.

In considering the above, investors should remember that markets generally operate under rigorous cost/benefit assessments, while “the anointed” only look at their belief in “benefit”.

It should be noted that self anointment is a bipartisan activity and, regardless of position on the political spectrum, represents a real threat to investment returns.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA