Neoliberalism and Communism

One of the most annoying aspects of running a popular Facebook page about politics and economic is the sheer number of politically and economically illiterate comments that people leave. I believe that the standard of debate on my page is often quite high bearing in mind the usual standard of debate on Facebook, however many comments bear the hallmarks of lazy political tribalism and brazen economic illiteracy.

Wading through the rubbish to find the more thoughtful, intelligent and inspirational comments is a mind-numbing chore, made all the more difficult by my unwillingness to simply let lies and misrepresentations pass without rebuttal. I waste far too much of my time replying to idiotic comments; time that could obviously be better spent writing articles, designing images, spending time with my family or just watering the plants. Every so often though, a comment appears that is so utterly wrong-headed that it it is genuinely enlightening. A comment that serves to illustrate exactly how completely wrong it is possible to be: An exemplar of idiocy.

Here's one such comment about Margaret Thatcher from a post on the Another Angry Voice Facebook Page:

"Her economic policy [was] based on the evil ideas of Freedman economics by the Jewish communist Milton Freedman of Chicago."

Now, a normal person, with the slightest clue about who Milton Friedman actually was, and a reasonably accurate definition of communism would probably have a laugh about the sheer scale of ignorance and perhaps leave a short comment to point out how exactly how utterly wrong it is. However, I'm not a normal person by any stretch of the imagination and I find myself almost duty bound to conduct further analysis in order to marvel at the exceptional stupidity of such a comment.

Firstly I'll consider how it was even possible that such a remarkably stupid comment could have been devised in the first place before going on to examine what makes it so remarkably wrong.

The author was clearly using the word "communist" as an insult, without any consideration for the actual meaning, the way that Teabaggers in the United States describe Obama as a communist, demonstrating both the fact that they don't even know the definition of the word (see this video) and their shocking ignorance of who Obama actually is. That Obama is the most right-wing leader of the Democrats in living memory, with a steadfast commitment to capitalism is unquestionable. To people that have actually paid attention to Obama's political appointments it is remarkably clear that Obama should actually be known to all as "The Wall Street President". You only need to look at the source of his political donations to realise that anything but a Presidency with an absolute dedication towards serving the interests of Wall Street and of American corporate power is actually an impossibility.

But I digress. It is clear that our contributor is using "communist" as a derogatory term in the same way that he is using "Jew" as an insult. The two are often seen in combination in far right politics. The extreme right recognise communism as the enemy economic philosophy, so it is natural for them to work it into "the Jewish conspiracy" that they are always so fanatically preoccupied with. It doesn't matter that the Jewish state of Israel has been part of the anti-communist alliance since the foundation of the state, nor that there are countless examples of Jewish anti-communists..

The idea that the concept of communism is Jewish is as simple minded and wrong headed as the idea that the concept of Television is Scottish. Yes some Jews have engaged with and promoted the communist ideology, however there are countless examples of other Jews that haven't. Probably the most famous example of a non-communist Jewish person is the aforementioned Milton Friedman. In fact Milton Friedman is almost synonymous with the ideology he spent his lifetime promoting, the ideology of neoliberalism. Friedman was the ideologue at the heart of the University of Chicago school of economics that was at the very epicentre of American neoliberalism. Just as Vienna is the Mecca of Austrian school of economics, Chicago is the spiritual capital of neoliberalism.

Now onto analysis of just how wrong the conflation of Milton Friedman's ideology of neoliberalism and the communist philosophy actually is. Apologies if you are familiar with the definitions of these two socio-economic theories, but for clarification I'm going to describe these ideologies in terms of economic power, property rights and freedoms. I'll try to keep it as brief and informative as possible, since I'm sure a hefty proportion of my audience are already familiar with meaning of both communism and neoliberalism.

Communism
Under communism, all economic power is in theory, supposed to be controlled by the state, which in turn is controlled by the people. Ownership of property and the means of productivity are transferred to the state, which means individual property rights must be curtailed. The state then exploits the means of productivity to provide for the populace, which means that the populace loses the freedom to economically exploit one another in return for the freedom from exploitation.

The problem with communist theory is that it's never really been tried in practice because the power of the communist state is simply usurped by totalitarians like Stalin, Mao or the Kim dynasty in order to erect absurd totalitarian personality cults.

Not only is the model of absolute state power over the economy prone to usurpation it is also often prone to inefficiency (because individuals are often capable of making more efficient decisions that the secondary party of "the state" making those decisions on their behalf). Purely applied communist theory is an impossibility, because like all economic systems it is prone to subversion (all economic regimes are subject to black markets, corruption and fraud). "Pure communism" has never existed, and will never exist.

The main practical problem with the communism based economies that have existed hasn't actually arisen out of the huge potential for inefficiency within vast state bureaucracies, it has arisen out from the revocation of individual freedoms.

Take the Soviet space programme for example. Even the most hard line critic of communism would struggle to take the stance that the Soviet Space programme never produced monumental achievements. Just think of the launch of the first communications satellite in 1957 (only 12 years after the concept of the communications satellite was actually devised by the Englishman Arthur C. Clarke) and then only a few years later the first manned space flights.

Another undeniable example of impressive communist efficiency is the Cuban health system. Not only do they have a health system with outcomes to rival any capitalist country, they've achieved it despite the continuous exodus of thousands of medical professionals a year in search of better pay and greater economic freedoms in capitalist countries. This exodus is illustrative of both the potential efficiency of communist economies (because the Cuban health system continues to function incredibly well despite this constant loss of skilled labour) but also the practical problem of the individual desire for economic freedom.

It is my view that the Soviet Union fell not because of economic inefficiency, but because of the social demand for greater social and economic freedoms. The denial of freedoms to the citizens of the Soviet Block caused the massive uprisings against the Soviet regime. The people of the Soviet block wanted the freedom to read what they choose, to associate with whomever they like, to buy luxury items, to watch MTV and to eat at Pizza Hut. In my view it was the denial of these social and economic freedoms that led to the eventual fall of Soviet style communism.

Neoliberalism
Neoliberalism is a form of militant capitalist anarchism where the state is to have no function but to dismantle itself and assume the minimal executive power of protecting property rights. The two core principles of neoliberal economic theory are deregulation and privatisation.

Under neoliberalism theory, in order to improve economic efficiency to the maximum level possible, virtually all economic power must be removed from the state and distributed to the populace. Essentially a government that embraces the concept of neoliberalism must strive to reduce the interventions of the state. A hard line neoliberal government is duty bound to dismantle itself from within.

Once this process of privatisation and market deregulation sets in, the theory tells us that a mystical force which is often referred to as the "invisible hand of the market" or as "market forces" supposedly guides the economy towards maximum efficiency. This existence of this self-regulatory effect is believed with such fervour that the idea that "the invisible hand" creates economic efficiency seems self evident to neoliberal adherents. It is believed so strongly that "market forces" lead to "economic efficiency" that the two concepts actually become inextricably merged to create the fallacy of capitalist efficiency.

One of the most fundamental problems with neoliberalism of course is that God-like phenomena of the "invisible hand" doesn't exist. It is clear from analysis of any complex system (human society being perhaps the most complex system known to mankind himself), that the arbitrary removal of rules (deregulation) invariably leads to chaos.

The reason that market chaos is inevitable if ideologically driven neoliberals are given free rein to tear up the economic rule book, is that many of the rules exist to prevent economic inefficiency by outlawing anti-competitive practices. If market competition creates efficiency, then the ideological destruction of rules that have been designed to prevent anti-competitive practices will inevitably result in an increase in anti-competitive practices.

It is undeniable that activities (such as monopoly formation, oligopoly formation, corruption, insider trading, taxation asymmetry, fraud, price-fixing, dumping, frontrunning, refusal to trade, tying, punitive intellectual property laws, cartel formation, information asymmetry, bribery and political patronage) reduce genuine competition and create market inefficiency. If the rules that prevent such anti-competitive practices are scrapped, it is inevitable that self-interested individuals will take advantage of their new found freedoms to engage in anti-competitive practices and in so doing, undermine market efficiency.

Privatisation, the other ideological foundation of neoliberalism, is no less prone to poor outcomes than deregulation. The great problem with privatisation of state assets and infrastructure is that those with the most capital to invest get the lion's share of the assets being disbursed by the self-dismantling state. In effect this means that economic power to exploit productivity of the populace is distributed to the capital rich (corporations and the super-rich) rather than to the population as a whole.

What makes this process so much worse is that like all economic processes, privatisation is open to corruption. Those with closest links to the neoliberalising government end up with huge swathes of formerly state owned infrastructure at bargain basement prices.

Another major problem with privatisation is that many services simply don't generate profit, necessitating vast subsidies and lucrative outsourcing contracts in order to entice private interests into providing these economically necessary services. These enticements often become a bigger burden on the taxpayer than the entire cost of running the services as a state monopoly! The privatisation of British Rail is one of the classic examples of runaway subsidisation, where the cost of current subsidies is significantly more than twice the cost of running the entire network back in 1994 (adjusted for inflation). Not only has the burden on the taxpayer risen, the burden on the passenger has too, with inflation busting price rises every single year in return for usage of an ever more overcrowded network.

Privatisation allows private interests to exploit infrastructure and services that are simply too-important-to-fail. This puts them in the position where they can demand ever greater taxpayer funded subsidies and charge ever increasing prices, safe in the knowledge that the state or the individual consumer will tolerate this rent seeking behavior and cough up incrementally greater amounts, rather than suffer the much greater economic shock of having their rail network or health service declare bankruptcy and shut itself down, or the greater personal shock of having their water or electricity supply shut off due to non payment of bills.

One of the indicators of capitalist inefficiency is the phenomena of market bubbles. Bubbles represent phases of economic inefficiency, of wasted productivity. Instead of capital being put to the most efficient use possible, vast amounts flow into the inflation of asset values until a loss in market confidence is triggered, causing massive asset depreciation and capital losses.

The more deregulated markets have become, the larger the bubbles of inefficient investment. At the time the 1987-88 Savings and Loans crisis in the United States caused by the Reagan deregulations was seemingly enormous, but in hindsight it dwindles in comparison with the devastating consequences of subsequent neoliberal crises such as the Asian contagion, the Argentine neoliberal meltdown and default, the dotcom bubble, and the 2007-08 global neoliberal meltdown.

The ongoing financial crisis is a result of market deregulation. (anyone that denies this fact in favour of facile tribalist "blame Labour" narratives is such a fact averse revisionist that the cognitive dissonance will probably have prevented them from even managing to read this far). Wave after wave of neoliberal  financial sector deregulations led to reckless speculation on all kinds of junk. Unimaginable flows of capital was invested in hopeless stuff like AAA rated Collateralised Debt Obligations, Credit Default Swaps, Greek government bonds, Irish bank bonds, Spanish property investments and all kinds of tangible but massively overvalued assets, worthless paper and mindbogglingly stupid derivative contracts.

What happened after the market lost confidence in so many of these hopeless investments at once was the absolute refutation of neoliberal economic theory. Financial institutions and investors ran to the governments of the world demanding the largest state interventions in history in order to stave off bankruptcy.

Countless institutions have exploited their "too-big-to-fail" status to demand unprecedented taxpayer funded bailouts in order to stave off systemic collapse. In essence, the players in the neoliberal market gambled themselves into such a predicament that their only salvation was recourse to the state, which under their own beloved theories, should never, ever intervene in the market.

Without these vast state interventions, the neoliberal market would have collapsed into insolvency and chaos. To put the scale of the bailouts into perspective. The UK financial sector interventions and Quantitative Easing injections (new money invention schemes) amount to more than an entire year worth of national output.

Imagine the productive potential of dividing up this massive investment and injecting that much capital directly into several areas of the economy. Imagine the increases in employment, skills, personal wealth, disposable income, aggregate demand and national productivity had such sums been found to invest tranches of £250 billion into five areas of the economy:

• National infrastructure improvements
• Schools, universities and technical training schemes
• Scientific and technological research
• Health research and service provision
• Business development loans.

Instead of this kind of targeted investment, what the UK public witnessed was more than £1 trillion worth of state investment simply poured into the black holes of financial sector debt in order to stave off the systemic collapse of the failed neoliberal ideology.

The principal selling point of the neoliberal ideology is that it legitimises, and in fact glorifies self-interest, the pursuit of profit and personal greed. I'm not original in saying this, the French philosopher and economist Frédéric Bastiat wrote in 1848 that:

"When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it"

It is absolutely clear that neoliberal economists have managed to find support for their ideology amongst the wealthy and powerful precisely because neoliberalism tells these people exactly what they want to hear. It tells them that greed and self-interest are not actually socially and economically destructive vices that must be counteracted, but actually virtues to be promoted and lauded!

Given the fact that neoliberalism provides a wonderful pseuco-economic justification for rapacious greed and self-interest, is is absolutely no surprise that neoliberal economists have found no problem in attracting financial support from the wealthy and powerful for their university departments and pseudo-economic research projects.

The problem with neoliberalism is of course that it doesn't matter how many billionaires pour funding into the promotion of the neoliberal ideology, it is, and will always remain economically illiterate stuff that relies on the deliberate ignorance of the inefficiencies created by anti-competitive practices. If the rules that prevent anti-competitive practices are deregulated out of existence, the whole narrative of capitalist market efficiency is destroyed. Efficiency can't be achieved by the complete abandonment of the rule book just as it can't be enforced by a billion rules and regulations enforced by a vast totalitarian state bureaucracy.

Real market efficiency is achieved through optimisation of market regualtions, rather than through ideologically driven attacks on the whole concept of market regulation. It seems stunningly obvious to me that the idea of maximised efficiency through free market capitalism is dependent on effective regulation to prevent anti-competitive practices and outright fraud. Essentially, in order to create a competitive "free market", it is first necessary to create a "fair market". What neoliberalism achieves through ideological attacks on the concept of market regulation is the entrenchment of crony capitalism. The establishment of a corrupt and inefficient system where the capital rich minority are free to put their vast wealth to hopelessly inefficient uses, whilst the majority suffer ever greater encroachments on their economic freedoms through impoverishment, debt, unemployment and low wages. Neoliberalism is a recipe for economic inefficiency and systemic collapse.

Comparison
If we consider the three main themes I've covered (the economic power of the state, property rights and individual freedoms) it turns out that communism and neoliberalism are exact opposites. The communist believes that the state must command total power over the economy, the neoliberal believes in the complete revocation of state control over the economy. The communist believes that it is the role of the state to revoke property rights in order to communalise property, the neoliberal believes that the only role of the state should be to protect property rights. The communist believes in the revocation of freedoms in order to protect the populace from exploitation, whilst the neoliberal believes in protection of the freedom of the wealthy to to exploit others in the pursuit of profit.

In my view communism is a militant ideology of practical impossibility. The state cannot possibly regulate every aspect of the economy, and attempts to establish communism to date have descended into totalitarian regimes and often into the development of absurd personality cultism.

In my view neoliberalism is even worse. It seems to be built on the absurd foundation that because communism is, lets say, undesirable or anti-American, the exact opposite must therefore be desirable. Noeliberalism is in fact a reactionary position born of the anti-communist mindset. It is based on the ridiculous assumption that the opposite of what is undesirable, must therefore be desirable.


Conclusion
I've demonstrated that communism and neoliberalism are not just completely different ideologies, but that neoliberalism actually seems to be a reactionary reworking of free-market capitalist theory, born of the post-war anti-communist fervour in the United States, to make it the intentional opposite of communism. Where communists believe in the power of the state, neoliberals believe in the abolition of the state. Where communists believe in the abolition of private property rights, neoliberals place the protection of property rights at the pinnacle of their ideology: And where communists believe that rights must be revoked in order to provide freedom from exploitation, neoliberals believe in protection of the right to exploit.

Anyone that could conclude that communism and neoliberalism are the same thing must be so fanatical in their hatred of Jews and Judaism that they'd willingly conflate two opposite economic ideologies on the basis that the most famous proponents of both ideologies (Karl Marx and Milton Friedman) both happened to come from Jewish families.

Whatever the motivation behind such a ridiculous conflation, the fact is that it led me to write this comparison between these two ideologies, serves as a demonstration of the fact that, given the right kind of circumstances, the consequence of even the most grotesquely ignorant statement can be the exploration of interesting themes: That even the most idiotic statement can lead to something interesting.

Given that I've subjected both ideologies to severe criticism, I believe that you'd be entitled to ask what my favoured economic ideology actually is.

My view is that neither of these extreme ideologies are capable of maximising efficiency. Efficiency can't be enforced through the creation of millions of ruthlessly enforced rules and regulations, just as it can't be stimulated through complete abandonment of the rule book either. As I mentioned in my critique of ideological neoliberalism, the neoliberal dream of a "free market" becomes impossible once the rules preventing the development of anti-competitive practices come under ideological attack.

My view is that the rules of the market should be designed and rigorously applied with the principal aim of promoting economic efficiency, through the exclusion of anti-competitive and economically inefficient practices. Communists would criticise me because I believe in individual property rights and the efficiency of capitalist production, but neoliberals would criticise me because I believe in a strong democratic state with the power to intervene in the market to prevent anti-competitive practices, which means seizing the control of natural monopolies and economically vital infrastructure.

A truly productive economic system must not allow a minority of individuals and institutions to gamble vast amounts of capital on a shadow derivatives casino that is more than 15 times the size of the real productive economy of the entire world or into the inflation of vast bubbles of economically inefficient investment. A truly productive economy must ensure that the greatest number of individuals have the ability to improve their productive capabilities, through education, training, innovation, access to healthcare and finance.

I believe that the toxic effects of capitalistic parasitism (rent seeking behavior, capital hoarding, taxation, anti-competitive practices...) can be mitigated through the development of  robust legislation to promote competition and economic efficiency, and through democratic control over natural monopolies and vital infrastructure. I don't like to label myself as an adherent of one formal ideology or another, but for the sake of clarity I'll say that the two of commonly recognised ideologies that most closely match my own views are Social Democracy and Left-Libertarianism.

More articles from
ANOTHER ANGRY VOICE

What is ... Neoliberalism?

The Great Neoliberal Lie

The "unpatriotic left" fallacy
 
The Argentine neoliberal meltdown

What is ... A Credit Default Swap?

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What is ... Quantitative Easing?

Why I blame the left for the economic crisis
  

Another Angry Voice is a not-for-profit page which generates absolutely no revenue from advertising and accepts no money from corporate or political interests. The only source of revenue for Another Angry Voice is the  PayPal  donations box (which can be found in the right hand column, fairly near the top of the page). If you could afford to make a donation to help keep this site going, it would be massively appreciated.

Derivatives and Economic parasitism

Did you know that the untaxed and unregulated global derivatives market is many times larger than the GDP of the entire world?

There are several estimates for the size of this untaxed and unregulated derivatives market. Some estimates range as high as $1.5 quadrillion ($1,500,000,000,000,000) which is around 18 times the size of the entire productive output of the world. The IMF are more conservative with their estimates, but they still conclude that the global derivatives market has remained, on average, over 8 times the size of world GDP since the economic crisis of 2007-08.

To the economic layman it is pretty difficult to envisage how the derivatives market can be so many times bigger than the actual economy. The question that is raised is how all of these derivative trades exist outside the "real economy" of the world.

The answer is not a simple one, but for the sake of brevity I'll simplify it. Let's think of the GDP of the world as all of the actual goods produced and all of the services provided in the world in a year (the "real economy"). The derivatives market is like an untaxed, unregulated betting shop, where financial sector players can put bets on which of these "real economy" trades and transactions will succeed and which will fail.

As part of the financial sector deregulations inspired by the Randian neoliberal brigade, derivatives were exempted from regulation and taxation by the US authorities by the Commodity Futures Modernization Act of 2000. This legislation was like removing all regulation from the betting shop, allowing punters to have unlimited credit, allowing the bookies to rig the markets and to provide odds that they have absolutely no possibility of paying out on, then to top it all off, exempting the whole lot from taxation.

Following this deregulation the derivatives market boomed and rapidly grew to many times the size of the "real economy" of the world. In 2001 the derivatives market was around 9 times the size of the entire US economy, by 2008 it was more than 40 times as large.

Derivatives (like Collateralised Debt Obligations and Credit Default Swaps) were at the very epicentre of the global financial sector meltdown, yet since 2007-08 virtually nothing has been done to re-regulate the market, which has continued to grow faster than the real economy of the world.

To put the size of the derivatives market into perspective, if derivatives were included in the GDP of the world, banking activity would make up somewhere between 88%-98% of all the trade in the world. This means that in terms of cash flow, a few banks on Wall Street and in the City of London do many multiples of the economic activity of every factory, power station, hospital, school, army base, retail outlet, mining operation, hotel, farm and public transport operation in the entire world combined.

The idea that a few banks are more financially productive than the rest of world economy is just ludicrous.

Ever since the global financial sector meltdown of 2007-08 it has been abundantly clear to anyone that takes an interest in such things, that the banks have driven themselves into insolvency through the ridiculous scale of their gambling. But instead of letting these institutions die (as neoliberal, free-market capitalism actually dictates) the governments of the world have decided to provide the largest state subsidies in human history to keep them afloat (and set about spreading the Great Neoliberal Lie: that the crisis was caused by excessive spending rather than financial sector speculation). 

The UK handed their financial sector over 90% of UK GDP in bailouts, Ireland, Greece, Portugal and Spain subsumed the vast debts of private banks onto their public debts, the European Central Bank has handed out over €1 trillion in ultra-low interest loans to the European financial sector, the US, UK and Japan have been printing money like mad to flood it into the financial sector, yet the banks steadfastly refuse to lend out any of these unprecedented state subsidies, because they need virtually all of it to cover their mind boggling gambling losses.

The fact that the ordinary citizens of the world are being made to pay the price of keeping these hopelessly insolvent financial sector institutions afloat (through austerity, sequesters, cash grabs, hidden inflation and the devaluation of currencies, pension funds, wages and savings) is a clear example of economic parasitism.

The banking sector is now like a gigantic cuckoo chick, relying on the tiny reed warbler (the real economy) to make enormous sacrifices to continue providing it sustenance. The reed warbler does all of the actual work, whilst the cuckoo chick takes all of the rewards.

The difference of course, is that the reed warbler doesn't recognise that the cuckoo chick it is raising as it's own offspring for the parasite that it is. However, more and more people are realising that the financial sector institutions that caused the economic crisis are now nothing more than financial parasites, feeding off, and weakening the "real economy" of the world in order to keep themselves alive.

 Another Angry Voice is a not-for-profit page which generates absolutely no revenue from advertising and accepts no money from corporate or political interests. The only source of revenue for Another Angry Voice is the  PayPal  donations box (which can be found in the right hand column, fairly near the top of the page). If you could afford to make a donation to help keep this site going, it would be massively appreciated.

More articles from
ANOTHER ANGRY VOICE   
                 
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The golden hammer of neoliberalism

David Cameron's "economic war"

On 19th November 2012 the Prime Minister David Cameron gave a nauseating speech at the CBI annual conference.

For those that don't know, the CBI are a powerful right-wing business lobby group that claim to represent "British business" and boast about having 240,000 members. In essence they are a kind of trade union for business owners, corporate executives and the like.

Cameron started off his speech to the CBI with some ingratiating audience acknowledgements, singling out particular business folk in the crowd for attention and adding some tripe about what a great job he has been doing hawking military hardware to despotic regimes in the middle-east during Remembrance week.

Cameron began by talking up his business credentials and connections as if he were a cross between the compare at Live at the Apollo and a talentless graduate at a job interview shamelessly name-dropping people he's met because he's got nothing by the way of skills or experience to offer. After this he moved smoothy into inaccurate Tory bragging mode.

He claimed the the government have been "Reforming welfare so that it pays to work", which is a brazenly absurd claim, given that one of the Tory flagship policies is the Workfare mandatory unpaid labour scheme that ensures that it actually doesn't pay to work.

Even if the Tories hadn't pushed 100,000s of people into economically illiterate mandatory unpaid labour schemes, the idea that work can be made to pay through attacks on welfare entitlements alone is still transparently wrong. Surely the best way to ensure that it pays to work is to make sure that companies pay their staff a living wage, which would have the double benefit of increasing consumer demand and reducing the amount of tax that needs to be redistributed (via schemes like housing benefit and tax credits) to employees as a kind of taxpayer funded state subsidy to companies that refuse to pay reasonable wages to their employees. Cameron is hardly likely to tell assorted business people that they need to pull their weight and remove the burden on the taxpayer they are inflicting by paying poverty wages though is he?

The next claim that I've singled out for attention is nothing short of an egregious lie. Cameron claimed that the government have "protected the science budget". It doesn't matter how much Cameron lies about this one, the evidence is there that the Tory led government have been ruthlessly slashing investment in science. Even the extremely right-wing Daily Telegraph have noted that cuts to the science budget will have disastrous effects on the economy. Not only have the government overseen a huge cut to the science budget resulting in the abandonment of numerous cutting edge science programmes and provoking strong criticism from high profile science commentators such as Brian Cox (who said that the bankers' bailout was worth more money than the UK had spent on Science since Jesus), they have also been slashing funding to science charities and to university science departments across the country. That the Prime Minister is able to lie like this is a shocking indictement of accountability in British politics.

Next he wheeled out the timeworn "our fiscal polices are working because interest rates are at record lows" fallacy, which is an obvious conflation of fiscal policy with monetary outcomes. By which I mean, he is trying to claim that low interest rates and low bond yields have nothing to do with the Bank of England holding the base rate at an all time historic low since 2009 and "magicking up" £375 billion to manipulate the government bond market and everything to do with George Osborne's ideologically driven fiscal austerity agenda.

I've already torpedoed this lame fallacy in this article about Tory economic illiteracy. If this fallacy isn't considered a full on lie, it must at least be considered as either a demonstration of Cameron's economic illiteracy, or a demonstration of his assumption that everyone else, including his audience of successful business people, are so economically illiterate they wont even notice this conflation of fiscal policy and monetary outcomes.

Cameron's next boast was about exports being "up dramatically". Again, this is a stunning bit of revisionism that people at the CBI really should be capable of spotting. The trade deficit reached an all time record high in June 2012 of £4.4 billion and peaked again in August 2012 at £4.2 billion. Perhaps exports may have risen slightly, but they are still being monstrously dwarfed by imports. Even if the claim that exports are up were true, it would be yet another example of a Tory politician brazenly cherry-picking data, however the actual evidence is that exports are down. Here's a report (again from the right-wing Daily Telegraph) detailing "a worrying drop in export demand from Asia and the Eurozone" and providing evidence that manufacturing output fell for the sixth consecutive month in October 2012. Again Cameron is either outright lying about this rise in exports, or he's found some speck of data that he can cherry-pick and present in isolation to create the misleading narrative that British industry is thriving. The business leaders who have actually experienced these worrying declines in productivity should surely have reacted angrily to this attempt to mislead.

His next step was to begin bragging about Michael Gove's great school give-away, where taxpayer built and maintained schools are handed over for free to be run by private interests at the taxpayers' expense. The give-away of so many £billions worth of taxpayer funded property is concerning enough, but the abject lack of oversight and accountability is even worse. Cameron bragged that his party have forced 200 primary schools to privatise themselves this year and intends to force the same process upon 400 more next year. One could see how the privatisation of the education system might appeal to some business leaders, perhaps hopeful of getting in on the taxpayer funded schools free-for-all themselves, however one lesson that they must overlook entirely to approve of the education privatisation agenda is another Tory mandated school privatisation catastrophe. Cameron actually indirectly referred to this privatisation disaster in his speech by making reference to the oft heard business claim that school leavers are just not up to scratch.

This catastrophic privatisation can be traced back to the introduction of the national curriculum by the Tory education minister Norman Baker in 1988 which saw private companies "compete" to provide curricula and exam packages to schools. Obviously the only real element of competition was in which exam boards provided the easiest curricula. Schools have an obvious incentive to pick the curricula that give their kids the best chance of passing, thus the exam boards have an incentive to produce simpler curricula and easier exams, causing a race-to-the-bottom which resulted in 29 consecutive years of improved exam results at the national level. Yet each year's improved exam results met with a chorus of business leader complaining that school leavers are severely lacking in basic numeracy and literacy, devoid of critical thinking skills and unable to think for themselves. The Tories hasty efforts to further privatise the education system will certainly create yet more disastrous consequences, especially if they allow lunatic creationist groups to teach their anti-scientific mumbo-jumbo to generations of British school kids.

Next Cameron began to present his policy of "cutting red tape" to "speed up" the processes of implementing reforms and building infrastructure. In this section he made an absolutely shameless claim that it should be left to "smart people in Whitehall" to consider "equalities issues" and economic consequences whilst making policy. This is frankly absurd from a government of over-promoted millionaires that have shown absolute disregard for the adverse impact of their economic polices on the poorest and most vulnerable in society. It is also a ridiculous claim because of the catastrophic failure of their ideological austerity agenda.

Remember that George Osborne and his pet project at the OBR predicted 2.5% growth for 2012, well the actual rate of growth has been minus 0.117% over the course of the last year. The "smart people" in Whitehall have overseen a vast transference of wealth from poor and ordinary people to the super rich elite and tanked the UK economy in the process. What is needed is not less regulation and oversight to "hinder them" but more regulation and oversight to prevent them from implementing catastrophic ideologically driven nonsense. What British politics needs is more evidence based analysis, not less.

As supporting "evidence" for this agenda Cameron cited a pathetic anecdote and a rubbish analogy. The first being the facile claim that "if Cristopher Columbus had an advisory committee, he would probably still be in the dock" and then the even more feeble-minded analogy about roadbuilding. He said:

"In the 1950s it took 8 years to design and build the first 50 miles of the M1. Today it can take that long just to widen a stretch of motorway"

This statement tells us absolutely nothing about the burden of "red tape" and everything about Cameron's breathtaking ignorance of road engineering. It is obviously much easier to build a stretch of brand new motorway through the countryside than it is to upgrade a stretch of motorway that is in constant use by 100,000s of vehicles every day. The constant traffic flow presents a massive problem to engineers and construction workers, but so too does the pre-existing infrastructure. Anyone that travelled on the A1 during the lengthy upgrade process would have noticed the sheer number of bridges that needed to be widened, service stations that needed to be demolished and relocated, slip roads than needed to be completely redesigned, all without breaking the (economically vital) flow of 100,000s of vehicles a day. That the Prime Minister is prepared to make such an ignorat comparison is truly breathtaking demonstration that the man really doesn't have a clue about infrastructure development.

Cameron then invoked the "war spirit" by stating that:

"When Britain was at war in the 1940s Whitehall underwent a revolution, Normal rules were circumvented and convention was thrown out. Well this country is in the economic equivalent of war today - and we need the same spirit"

It is noticeable that Cameron didn't even bother to explain who the UK is supposed to be at "economic war" with. I'd like to make a suggestion that the UK economy is currently under economic attack from tax-dodging multinational corporations, that siphon £billions out of the UK economy without paying their fair share of tax, leaving ordinary people and small and medium sized British businesses (SMEs) to carry some of the extra burden whilst the government brutally slashes investment and services and engages in deficit spending to make up the rest of the shortfall.

The problem is of course, that Cameron and Osborne are blatantly serving the interests of these tax-dodging corporate parasites, have nothing but empty rhetoric about tax-dodging and hypocritical statements to offer and have even deliberately opened up more tax-loopholes to help multinational corporations avoid even more tax.

If Britain is at "economic war", Cameron and Osborne are traitors working for the other side.

In order to counter these economic attacks, Cameron proposes slashing consultations, rights to appeal and judicial reviews, while the real "red tape" that is actually inflicting severe damage on the UK economy is the convoluted 12,000 page UK tax code that allows large companies and rich individuals to dodge paying their fair share of tax. A simplification of the tax code to explicitly prevent tax avoidance schemes and a change of Whitehall policy to only allow companies that pay their fair share of tax to obtain government funds (subsidies, grants, loans, PFI deals, outsourcing contracts, supply contracts...) would be a great place to start on cutting harmful "red tape". However Cameron and the Tories have absolutely no intention of removing the kind of "red tape" that directly benefits giant multinational corporations at the expense of the wider UK economy. He is only interested in removing the kind of "red tape" that protects the wider UK economy from the interests of the multinationals.

Cameron's proposals are not a war on "red tape", they are a war on accountability. What he is actually proposing is that stakeholders in the UK economy (including small and medium enterprises) should be shut out from policy making by cutting back on consultations; that processes should be sped up by cutting impact assessments and evidence based analysis, which obviously increases the probability of making disastrous mistakes; and that accountability should be eliminated by stamping out appeals and stymieing judicial reviews.

Cameron's agenda is to increase the ability for the government to implement ideological policy, kneejerk reforms and to steamroller through developments that benefit multinational corporations at the expense of the local economy.

What is most astonishing about Cameron's agenda is that it runs counter to the principle of small-government the Tories claim they stand for. In essence Cameron is saying that government knows best, and that he plans to make it much easier for them to hammer through their favoured ideological policies regardless of the actual socio-economic impact and to reduce the ability for local people to appeal against barmy decisions or to seek redress when the whole thing turns out to be a poorly conceived catastrophic mistake.

This breakdown of Cameron's speech demonstrates that he is prepared to lie and mislead in order to make his case; he is all pally with the business leaders he addresses, but he assumes that they are idiots that can be taken in by his lies and misrepresentations; he relies on anecdotes and absurdly ill informed comparisons to build his case; he knows nothing about the practicalities of infrastructure development; he has absolute contempt for the concepts of evidence based policy and accountability; and that he is only interested in furthering the government's ability to inflict poorly devised ideologically driven policy on the UK economy.

The CBI represent thousands of small and medium businesses across the nation and they should have at least questioned Cameron's bizarrely misleading claims about the health of the economy and his brazen lie about protecting the science budget. After two and a half years of Tory ideologically driven policy driving the UK economy into recession and crushing the manufacturing and construction sectors, they should also have raised the question of why on earth would anyone want to see the Tories award themselves the ability to inflict even more poorly conceived, ideologically driven, top-down nonsense and to remove any vestiges of accountability? Another key question they failed to ask is what Cameron intends to do about the sheer scale of tax-dodging, that is leading to terrible tax asymmetry between Small and Medium enterprises and the global tax-dodging corporate kleptocracy.

The response of the CBI obviously contained no critical analysis at all. The Director General of the CBI, John Cridland stated that "Difficult times demand difficult approaches - we welcome government’s renewed push to get things done" as part of his glowing review of the speech. Given that the CBI boasts that it represents the interests of many of the FTSE100 companies (98% of which are tax dodgers) it is hardly surprising that the CBI didn't mention tax asymmetry between SMEs and the corporate tax-dodging giants. In fact, given Cridland's glowing review of the speech, you could say that, just like Cameron and Osborne, he too is playing the role of traitor in the economic war being fought between the multi-national tax-dodging corporate brigade and the real economy of the UK that are left carrying the burden of increased taxation, slashed services and investment, counter-productive attacks on the education system and a soaring national debt.

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Information asymmetry explained

Information asymmetry has a fairly self-explanatory name. It is term used to describe a situation in which two counterparts have differing quantities or qualities of information. When one counterpart to a transaction has far more information about the trade or has a superior quality of information, they are at a price advantage. Understanding information asymmetry is important in understanding market manipulation.

Further explanation

Information asymmetry usually works in favour of the seller, because the seller normally has more knowledge about the product than the buyer. However it can also work in favour of the buyer. An example of buyer advantage could be a situation in which a buyer agent deliberately distorts a market on a temporary basis in order to purchase assets at a lower price, which then rises after the market manipulation exercise is terminated, creating profits for the buyer.

Information asymmetry usually works in favour of the seller, because in many circumstances the buyer can be seen as a complete novice, buying products on a Unique Single Transaction (UST) basis. UST sales account for much of the consumer market.

The purchase of a car would be a UST, because one does not often need an identical make and model of car in the short term, and the model is likely to have been superseded in the long-term, whilst buying a favoured brand of orange juice would be a Regular Transaction, where the product quality is known to be of a specific standard. An example of an Unique Single Transaction in the financial market could be the creation of a pension fund with a fund manager, (another could be the taking out of a mortgage, we'll come back to mortgages later). Once the transaction has been agreed, the average consumer rarely changes their pension provider (or their mortgage provider) and the buyer then has little incentive to do more research such as enquiring into the specific investments being made by the fund manager. The evidence shows that the majority of buyers have little inclination to ever switch their pension (or mortgage) provider. In cases where people are successfully encouraged to switch financial products, it is normally achieved with simple price enticement such as the provision of more favourable interest rates. The vast majority of pension savers (or mortgage holders) switch for price, very few people undertake a comprehensive risk analysis of their financial services provider, they simply put their in trust "the market" and the regulatory authorities.

Signaling and screening

Joseph Stiglitz and Michael Spence did pioneering work in asymmetric theory for which they were awarded the 2001 Nobel Prize in economics. They described it in terms of signalling an screening. In perfect market conditions one would expect the seller to give accurate price signals and the buyer to carry out diligent screening (risk assessment) in the investments they make. In a perfectly operating market one would also expect the seller to screen the wider market before setting a price and the seller on some occasions to signal an intention to buy so that price negotiation can happen fairly.

The problem is of course that reality has not, does not, and will never experience perfect market conditions. One cannot expect each and every seller to signal the price honestly or for each buyer to complete a comprehensive risk review before every transaction, therefore it is necessary to have regulation of the market and risk mitigation practices in order to prevent agents from corruptly taking advantage of information asymmetry.

In functional markets it is necessary to have regulatory powers to prevent agents from defrauding the market by propagating false information or by concealing valuable information. Risk mitigation practices such as regular auditing of company finances (via the big four financial audit oligopoly) , internal compliance policies (self-regulation) or investment specifications that the investment group (your pension fund, your mortgage holder) must only invest in products that have been rated "low risk" (by the Credit Ratings Agency oligopoly).

Signalling is also "outsourced" to agents, the most obvious example being the multi-trillion Dollar advertising sector, which is essentially a vast information signalling market. Other examples of outsourced information signalling include Public Relations, stories planted in the mainstream media, and political patronage.

Bounded rationality

Bounded rationality is the idea that in decision making, the rationality of the agent is limited by the quantity and quality of information that they have, their own cognitive limitations and the amount of time they have to make the decision. Information asymmetry is unavoidable in a market comprised of individuals of varying intelligence, with varying amounts and qualities of information and varying time limitations on their decisions.

Market manipulation

The idea of artificial price manipulation is as old as economics itself. Traditional false signalling methods include the creation of artificial scarcity, artificial gluts and price-fixing operations, which are all used in order to manipulate prices or to stimulate desired market activities. Some market manipulation is considered entirely acceptable, such as the advertising industry or government subsidisation of research, however there is also a great deal of corrupt market manipulation. The more complex a market becomes, and the more opportunities for market manipulation are presented and the more opportunities for asymmetric corruption are created too.

Misinformation

Market manipulation is often reliant upon the propagation of false information in order to create information asymmetry. Misinformation based asymmetry can create favourable conditions for market manipulators to generate profits by either creating false market confidence or false market pessimism.

False and misleading advertising
False advertising is probably the most familiar example of asymmetrical market manipulation, in which advertisers create a false incentive to buy via the process of spreading false claims about the value of the product. Back in the 1930s and '40s tobacco companies actually spread claims that smoking was good for the health, even though there was a growing body of scientific evidence (including the work of the Argentine scientist Ángel Roffo) that smoking causes cancer. Other more modern examples of false advertising include the trend for cosmetics and "health food" adverts to dress up additives to their products in bogus pseudo-scientific names ("Pro-retensifier smoothease" in face cream or "L. Casei Healthitas" in a yoghurt) or to conduct sham surveys in which 91% of women agreed that our product is "great" (based on a survey of just 11 women, who all received free samples of the expensive product). These kinds of misleading claim create information asymmetry, in that the buyer is led to believe that the product has better properties than the seller knows that it has in reality.

False claims
Although false advertising depends heavily upon the making of false claims, there is another component in falsely incentivising the buyer to purchase a product through the making of false claims, which is deliberate misselling. A familiar example to most British people is the Payment Protection Insurance (PPI) misselling fraud, where high street banks told customers that they could only take out loans if they also took out PPI policies on the loan. This was nothing short of fraudulent inducement to buy unwanted and unneeded products. The banks have been made to pay back customers who had been taken in by the PPI scam, however UK financial sector regulators refuse to treat the PPI scandal as the large scale fraud that it clearly was. The misselling of financial products like PPI policies relies on information asymmetry because the consumer is led to believe that they must buy the product, whilst the seller knows that the consumer doesn't actually need the product in order to take out a loan, and furthermore that it is actually illegal to make claims that they do need it.

False statements
Another way to profit from information asymmetry is through the practice of direct market manipulation through the dissemination of false information. There are many examples of how false information can be presented in order to boost short-term profits, from a multi-national oil company wilfully overestimating their oil reserves to boost their share price, to a corporation using creative accounting to hide the scale of their debts (Enron). If false financial statements are made, then information asymmetry is created because agents in the "general market" are duped into a false sense of confidence.

Rumours
Rumours are often a key component in market manipulation. False rumours can be spread by potential buyers in order to drive down an asset price, in order that the shares can be purchased at an artificially lowered price, or by a seller in order to sell at an artificially high price. The dissemination of true rumours that are not known to the wider market is known as insider trading.

Insider trading
The trading of insider-information is one of the most recognisable forms of manipulating markets with asymmetrical information. Insider trading relies upon the ability of one agent to provide specific information that exists outside the "general market", so that the recipient can make strategic investments on high probability outcomes that the "general market" are unaware of. Insider trading is heavily reliant on the circulation of rumours. Knowing and trusting the rumour source is vital, since it can be just as easy, and just as profitable to circulate false rumours as it is to share true ones.

High Frequency Trading
Since the 1980s an ever increasing proportion of stock market trades have been carried out by computer programmes rather than by human stockbrokers. Recent research has shown that 84% of stock trades by volume in the United States are done by computers rather than humans.

It is easy to imagine how High Frequency Trading can be used to create false price signals to distort the market. One example is Wash Trading where huge volumes of simultaneous buy and sell orders are created at below market value in order to drive the market price lower so that stocks can be bought at an artificially lowered price, which then generates profit for the buyer when the wash trades are terminated and the stock values return to their higher level.

Another example of how High Frequency Trading can be used to generate asymmetrical profits can be seen on the New York Stock Exchange, where from 2008 "preferred investors" were allowed to buy access to the NYSE proprietary feed of stock market information, a process that is called "frontrunning" the market. This access to restricted data gave the preferred investors up to several seconds information advantage over the general market, which is plenty of time for computer algorithms to take advantage of  information asymmetry to create trades in anticipation of movements that are likely to happen once the information reached the general market. The SEC fined the NYSE just £5 million for allowing this institutionalised information asymmetry abuse.

Information asymmetry and free-market theory

Free market theories are built upon the foundation of agents who's behaviour is determined by rational self-interest. There are many problems with this foundational assumption, not least the fact that not all humans are selfish egoists. If "the invisible hand" of the free market relies upon a society composed of rational self-serving individuals, groups like socialists, environmental protesters, charities and religious organisations must essentially be eradicated, since their behaviour defies the idea that self-interest is the only true virtue and that all other so-called virtues (social concern, environmental concern, charity, patriotism, empathy, religious beliefs...) are heresy.

The idea that mankind's essentially co-operative nature must be eliminated in order to create an Utopian free-market, guided by the "invisible hand" sounds completely crazy, but this is essentially the central philosophy of free-market economics.

That there are more gaping flaws in such a barmy ideology is hardly surprising. One of the most obvious (and relevant) ones is the problem of bounded rationality. If the individual is limited by the bounds of their own rationality it is impossible for them to achieve information symmetry, therefore it is impossible for the individual to behave in their own rational self-interest, only in their subjective self-interest, which may actually be against their rational self-interest.

This problem of bounded rationality leads to the situation where signalling and screening operations are outsourced to intermediaries such as advertisers, PR firms, accountancy firms and credit rating agencies. When signalling and screening are done on an industrial scale, greater information symmetry is achieved within the market. Agents tend to rely upon things like advertised benefits of buying a particular product, the health of company accounts and the ratings given by the credit ratings agencies in order to make their investment decisions.

It is obvious that the activities of these market intermediaries should be carefully regulated. The scope for corrupt market manipulation would be enormous if advertisers were allowed to lie, accountancy firms were allowed to present false audits and credit ratings agencies were allowed to give the highest possible ratings to complete junk.

The problem is of course that since the rise of neoliberalism in the 1970s,  neoliberal free-market economists have demanded ever more deregulation, which has allowed ever greater possibilities for corruption.

The simplistic "deregulation is always good" mantra, relies on neglecting the impact of anti-competitive practices such as the creation of monopolies and oligopolies as well as ignoring the negative impact of increased information asymmetry in the market.

Another aspect of human behaviour that the free-market fundamentalists deliberately neglect when calling for ever more deregulation is the very self-interest that underpins their economic ideology. If barriers to corruption are removed, regulatory authorities are castrated so badly that corrupt agents never face punishment for their market corrupting activities, and financial sector institutions are allowed to become too big to fail, creating moral hazard; it obviously becomes the rational self-interest of financial sector agents to act corruptly in order to maximise their profits.

Information asymmetry and the economic crisis

If we take a closer look at the causes of the neoliberal economic crisis it becomes obvious that information asymmetry played a huge part in creating the economic meltdown. Information asymmetry can be seen at every step of the "securitisation food chain" that caused the sub-prime crisis, the Wall Street meltdown and the "credit crunch".

At the first level, self-certification mortgages allowed people to make up lies about their income (an unemployed person with no assets claiming to earn $140,000 a year as an IT consultant for example) in order to obtain a mortgage. This deliberate failure to determine risk levels at mortgage brokers like Countrywide, Washington Mutual and New Century led to the creation of information asymmetry.

Once mortgages had been sold on to the investment banks to be packaged up into Collateralized Debt Obligations, they paid the Credit Rating Agencies oligopoly to stamp these products with the highest grade AAA ratings. When traders within a financial sector organisation are selling AAA rated financial products that they describe in internal emails as "sacks of shit" or "shitbreathers" and then the very organisations that created them take out Credit Default Swap insurance on the products they have just sold in order to cash in when the financial product fails, these are absolutely clear examples of profiting from information asymmetry.

Another layer of information asymmetry can be seen in the bankruptcy and bailout of the insurance giant AIG. Had they known that the financial products they were insuring were described as "sacks of shit" by the traders that were selling them, it is highly unlikely that they would have created a multi-billion dollar market in insuring these products.

From the self-certification mortgage applicants right up to the credit ratings oligopoly, the entire securitisation system was riddled with false price signals. It was clearly information asymmetry in the form of false price signals that caused the global economic meltdown and the credit crunch.

Trust and risk 

It is absolutely clear that lack of scrutiny and excessively risky behaviour caused the neoliberal economic crisis. Investors put far too much trust in outsourced intermediaries such as the credit ratings agencies oligopoly and the big four audit firms. Had institutions conducted their own risk assessments instead of relying on the AAA ratings, they could have easily discovered that the financial products they were buying were nothing more than the highest risk mortgages packaged up into complex financial instruments.

Once it became clear that the financial sector had been flooded with toxic sub-prime junk dressed up as low risk financial products, and that many financial sector institutions had recklessly over-exposed themselves to buy up such products, there was a complete failure of trust within the market. Financial sector institutions stopped lending to each other in order to invest in safer, lower yield assets such as government bonds.

It is quite clear that allowing financial sector organisations to create information asymmetry by marketing extremely high-risk products as the safest grade of investment is what caused the economic crisis, and that the failure to punish them for this market manipulation has created an extremely risky financial sector environment, since there is little or no disincentive to stop them from doing it again.

If the regulatory authorities rufuse to punish institutions that engaged in asymmetric market manipulation, the continuation of self-interested asymmetric market manipulation practices is certain, and aversion towards investment in the financial sector obvious consequence.

Information asymmetry and technology

As I was researching this article I came across this laughable assertion about information asymmetry from Investopedia, which claims that:

"With increased advancements in technology, asymmetric information has been on the decline as a result of more and more people being able to easily access all types of information."

That such a ridiculous assertion can be found on a website like Investopedia is actually quite worrying. The statement conflates two fundamentally distinct phenomena (information quality and information volume) and neglects the obvious fact that the more information there is, the more work is needed to get a complete understanding of the product and the quality of the market conditions (the limitations of bounded rationality). These are both big flaws but the biggest gaping flaw in the assertion is that it actually makes an unsubstantiated claim that information asymmetry "has been on the decline" when I believe that I have made a strong case that the opposite is true and that information asymmetry is now more prevalent than ever and that it can be seen as the root cause of the global economic meltdown.

The rise of technology hasn't just improved the capacity of the individual to access valid information, it has also massively increased the capacity for agents to produce deliberately asymmetrical information (using high-frequency trading or other market manipulation techniques). It is this rise in asymmetrical information, created by the neoliberal deregulation mania, high frequency trading and the vested interests of market agents, that drove the global financial sector off a cliff in 2007-08.

Conclusion

Once the neoliberal economic meltdown is perceived in terms of information asymmetry, the austerity vs stimulus debate is rendered meaningless. If nothing is done to reduce information asymmetry in the market, it doesn't matter what the fiscal growth strategy may be, the market will continue to be undermined by factors that cause market instability (market manipulation, insider trading, price fixing).

Another factor is that once the majority of agents in the market understand that the lax regulation regime and the timidity of the legal authorities has created market conditions where false price signals are abundant, if not the norm, it becomes the agents' rational self-interest to either participate in the fraud or to carefully shun speculative investments. Speculative investments are the engine of technological advancement and of economic growth, if investors are incentivised to favour investment in products that are perceived to be safe (government bonds, precious metals...) due to risk aversion, economic growth is stymied.

Recklessly under-regulated markets where information asymmetry was abundant, created the economic crisis. And the failure to react with prosecutions and re-regulation has created the risk averse "credit crunch" scenario which is maintaining the economic stagnation that looks set to continue almost  indefinitely unless serious market reforms are undertaken to deal with the problem of information asymmetry.

 

Read more articles in the "What is...." series

SEE ALSO
 

What is... a justificiation narrative?

What is... Neoliberalism?  


 What is... Confirmation bias?

What is... Fiscal Multiplication?

The Great Neoliberal Lie