Why should we reassure markets?

Paul Krugman asks: does fiscal austerity reassure markets?. Well, maybe it does, maybe it doesn’t (For Krugman, it pretty much doesn’t). But why should we reassure markets? And what sort of reassurance should we give? I can’t give a very full or convincing argument by way of answering this question, but I’ll sketch out the way I think an argument might go.

For a start, it’s possible that ‘the markets’ aren’t part of our community: that is, there’s room for doubt as to whether they are or whether they aren’t. I’d suggest that it’s our coming to terms with this possibility that’s largely contributory to the sense of social obligation that we’ll develop with respect to ‘the markets’. So how do things work with this ‘coming to terms’?

On the way to answering this, we need to give ‘community’ itself some definition. What counts as a community? G. A. Cohen suggests that a characteristic of community is that ‘comprehensive justification’ can be applied to the policies of that community. Comprehensive justification takes all points of view into account: it’s a condition where any member of the community is able to defend a policy in the sight of any other member of that community. This seems to be a good fit for our intuition. Consider, says Cohen, a case where someone kidnaps your child. The police may say that it makes sense for you to pay the kidnapper, because then they’ll return your child. The police may be right; it may be sensible to pay up. But if the kidnapper were to say that it made sense for you to pay them, then, even though they too may be right – that is, it would be sensible to pay up – it’s very unlikely that we’d accept their claim as justification, with the result that we felt we ought to pay them. The only obligation you’d feel is the obligation – there all along, most likely – to try to do right by your children. There can’t be a comprehensive justification of the kidnapper’s demands; kidnap (fairly obviously) doesn’t make for community.

And this is where the notion of foreign-ness comes in. Apart from anything else, we might consider a kidnapper to be foreign to our community, simply in virtue of the fact that they’re prepared to do what they do. Now, take ‘the markets’. Harold Wilson (as Cohen reminds us) called them the ‘gnomes of Zurich’. I see three ways things might go.

(1) We assume that the gnomes are not part of our community (in Wilson’s view, the gnomes were clearly foreign). We may take account of what the gnomes say – it might be prudent to do this – but we won’t look to what they say as justificatory and we won’t feel obliged to them.

(2) We aren’t sure whether or not the gnomes are part of our community. Then, since we may believe (with Cohen) that comprehensive justification is indicative of community, we’ll look to see whether what they advocate is defensible when said by any member of our community. If it is, our belief that the gnomes are part of our community will be reinforced.

(3) Finally, let’s say we fully believe that the gnomes do belong to our community. In this situation, we’ll expect them to say things that are comprehensively justified. Further, since comprehensive justification is reflexive (in the social sense), membership of our community obliges them to engage principally in advocacy of this sort.

Needless to say, I don’t see these three situations as absolute: I think we can assume that, most of the time, we have a mix of (1) through (3).

That then, gives us one way to answer the question: why should we reassure ‘the markets’? Above and beyond simple prudence – which might, note, involve no reassurance – we should reassure them to the extent that we understand them to be part of our community, and not foreign. This understanding will be driven by the kinds of demands that are made. What would partial reassurance look like? I don’t know. I don’t have any recommendations for how to go about rationing out reassurance.

Perhaps this is all too simple to need saying. But I think it’s worth spelling out, since there are plenty of commentators on this issue (that is, politicians and a spread of pundits) who are guilty of exploiting an ambiguity. On the one hand, they’re exhorting us ‘to take account of what the markets say’ because ‘the markets’ are not foreign; on the contrary – we’re told – they form a key industry, a critical part of us. And so we’re obliged. On the other hand, they’re pleading with us ‘to take account of what the markets say’ because they are foreign; there’s no stopping them; they must be placated. They’re the gnomes of Zurich.

However, as I’ve said, if ‘the markets’ are part of us, there are standards that apply. We can expect certain things of them. If not, it doesn’t matter to us what happens to them. Given that we are capable of articulating the difference, I think it’s reasonable to expect a politician who talks ambiguously of ‘the markets’ to be able to resolve that ambiguity: they should be able to tell us which view of ‘the markets’ they intend. In default of that, feel free to ignore.

2 thoughts on “Why should we reassure markets?

  1. This all discussion has gone to far. The fact is – due to severe EUR devaluation the competitiviness of Eurozone has increased. Plain and simple.

    There is nothing behind this, nor will Germany keep its advantage if EUR will rise.

  2. What IS “markets”? And how much of our welfare do they create?

    Next please answer whether we should reassure them.

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