Markets vs People

One of the dividing lines between Conservative thoughts and Liberal thoughts can be seen in their attitudes towards markets and people.

I've heard it described as Conservatives think that markets are good and people are bad. Liberals think that people are good and markets are bad.

This rather succinct description is disturbingly accurate. If you were to put that caption underneath a broadcast of a politician's speech it would be so obvious.

The so-called "cultural conservatives" are a good example of the former. They will espouse a philosophy that calls for deregulation or the more evocative "cutting the red tape." At the same time they will pound away at moral decay and family breakdown. They will lecture ordinary people that they are not living their lives right. They believe that free markets are inherently good and any restrictions on the operations of a free market are inherently bad. On the other hand, people are inherently bad and must be admonished. These "conservatives" favour small government in fiscal matters but big government (with lots of laws and prohibitions) in personal matters.

The liberals will talk about "putting people first" and will strenuously oppose any attempt to legislate moral values. They want the government out of the bedrooms of the nation as they typically believe in unfettered personal freedom. At the same time they will lecture the corporations and markets for behaving badly. They favour small, limited government in personal matters but an expansive government that taxes, regulates and enforces good behaviour on the part of markets.

They are both wrong. They are wrong because they forget one important fact: The markets are an extension of human behaviour. Markets often behave irrationally because it is the reaction of people behind the market. When "markets" panic, it is in fact "people" who are panicking. The only expression of panic or optimism that markets have is the investment or withdrawal of money. This money belongs to people....in many cases, ordinary, middle income people who collectively pool their money into mutual funds or pension funds.

As a trader who deals with markets, I have had many occasions to discuss markets with others. The term "market" has become so abstract that people often think of it as some mystical force that doesn't follow norms of behaviour.

A market is simply a place where like minded people can meet to buy/sell something. It can fruits, textiles or financial instruments. In all cases, a market is a place where someone tries to sell something a higher price while someone else tries to buy it at a lower price.

Recently the Greek sovereign debt crisis has spawned numerous headlines that declare that "market" does/doesn't like a proposal and reacts negatively. In truth, it is really people who are reacting and not some abstract living entity called the market.

Both conservatives and liberals are ultimately wrong about "markets vs people.' Both human behaviour and market behaviour should be subject to some regulation and neither should be seen as inherently good or bad. It can never be either since it is composed of many people. People are inherently good but there are some definite bad apples. The same could be aid about markets