>I am glad you reposted this. In view of the volume of correspondence on
>LBO-talk I think there is often a role for the issues to be discussed on a
>specifically marxism list. And unlike Louis Proyect, you and Bill do not
>censor the debate.
>But at this stage just a question please. What is moral hazard, and is
>there a marxist equivalent for it?
The way Doug tells it (or rather, the way I read Doug telling it), it's all
about a dangerously poor fit between likely pay-off and possible downside.
If, as in the 'melt-up' scenario described in the article, 'investors' come
to think the stock market bubble has got so big that the US government would
simply pay any price to avoid a major 'correction' (for fear of a massive
credit crunch and an ensuing depression), they'd feel safe in throwing money
at the markets regardless of productivity trends and profit projections
('coz public funds would always be there to bail the markets out - so,
costs/risks are socialised, and profits nicely privatised).
So 'the price mechanism' values stuff way wrong, signals are way off, we
have a market failure on our hands, huge sectoral distortions, and perpetual
danger of ever bigger crisis. The neoliberal would blame government for
such a market-distorting role, I s'pose - but then we'd be right to ask 'em,
'isn't government interfering precisely because the unregulated 'hidden
hand' did not eventuate in a rational valuation in the first place?'
I guess this can happen with very large corporations, too. I mean, d'you
reckon the Justice Department would force an uncompensated divestiture order
on Microsoft? And wouldn't you factor your suspicions that they wouldn't
into your 'investment' decisions? The DJI seems to have done this, coz MS
has bounced back well from its original little hiccough after the
provisional monopoly call.
I'd argue that the same is true of large privatisations: government would
be politically motivated to protect the profitability of all those new
stock-holders it has produced, and institutional investors would invest
accrodingly. Any good that's supposed to come out of untrammelled
competition is thus obviated. Predictably so - but short-term national
accounts and blind anti-public sector ideology are the focus at
privatisation time, not long-term sectoral health in an environment of
entrenched behemoths, unequal government oversight and natural monopoly
As for a Marxist reading of all this (beyond the standard socialisation of
costs and risk stuff) might also critique the idea of moral hazard itself.
In my innocence, I read it as a very neoliberal sort of invention. The
unspoken assumption being that if there were such a thing as a completely
undistorted market (which any political economist of any stripe would tell
you there is not, else they wouldn't be a POLITICAL economist), values would
settle precisely where likely pay-offs and risks are balanced. Marshall's
supply-demand curve joins Smith's 'invisible hand' and Hayek's 'rational
signals' in perfect equilibrium. I guess we'd counter that none of this
would ever seem so without capital's executive committee providing
stabilising 'certainty' for the individual at the cost of the many.
Stand by for Doug's necessary corrections ...
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