[What went wrong with the economy? from Marginal Revolution by Tyler Cowen
On Wednesday David Leonhardt posed the question, here is part of my answer: Starting in the 1920s, Ludwig von Mises, the leader of the so-called Austrian School of Economics, charged that socialism was unable to engage in rational economic calculation. Without market prices, he reasoned, no one knows how much economic resources are worth.
The subsequent poor performance of planned economies bore out his point...The irony is that the supercharged capital markets of the American economy are now — at least temporarily — in a somewhat comparable position. Starting in August, many asset markets lost their liquidity, as trading in many kinds of junk bonds, mortgage-backed securities and auction-rate securities has virtually vanished.
Market prices have been drained of their informational value and thus don’t much reflect the “wisdom of crowds,” as they would under normal circumstances. Investors are instead flocking to the safest of assets, like Treasury bills. The absence of trading is a big problem.]
On Wednesday David Leonhardt posed the question, here is part of my answer: Starting in the 1920s, Ludwig von Mises, the leader of the so-called Austrian School of Economics, charged that socialism was unable to engage in rational economic calculation. Without market prices, he reasoned, no one knows how much economic resources are worth.
The subsequent poor performance of planned economies bore out his point...The irony is that the supercharged capital markets of the American economy are now — at least temporarily — in a somewhat comparable position. Starting in August, many asset markets lost their liquidity, as trading in many kinds of junk bonds, mortgage-backed securities and auction-rate securities has virtually vanished.
Market prices have been drained of their informational value and thus don’t much reflect the “wisdom of crowds,” as they would under normal circumstances. Investors are instead flocking to the safest of assets, like Treasury bills. The absence of trading is a big problem.]
Considering the size of the market in India the “wisdom of crowds” turns out to be the “wisdom of a coterie,” and consequently, the “market prices” are as skewed as in a socialist economy. Temperamental reasons forbid vast sections of the population from trading, and such socio-cultural factors apply substantial pressure on the commercial growth. As we are a continuous civilization, the “gatherer” mentality prevails instead of the “hunter's” attitude (to make a killing) obtaining in societies formed largely of migrant population. [TNM]
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