The New World Order

2 December 2008 at 11:23 pm 4 comments

| Peter Klein |

Jim Surowiecki at the New Yorker:

When news broke that Timothy Geithner was Barack Obama’s pick for Secretary of the Treasury, the stock market jumped more than six per cent in the space of an hour. Obviously, this was a good thing, but there was also something weird about the spectacle of the Street’s once fearless free marketeers exulting over a government appointment, as if they were nomenklatura members cheering a new Politburo chief. It showed just how central a few government officials have become to the well-being not just of the markets but of the economy as a whole. For better or worse, we now live in a world in which the Treasury Secretary controls hundreds of billions of dollars in spending and shapes the fate of some of the nation’s biggest companies. That’s quite a job to ask someone to do.

I think Surowiecki overstates the newness of all this — government has been heavily involved in running Wall Street since at least the 1930s, and I don’t know how many of the Street’s big players were ever “fearless free marketeers” — but the point is well taken.

Entry filed under: - Klein -, Bailout / Financial Crisis, Public Policy / Political Economy.

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4 Comments Add your own

  • 1. David Hoopes  |  2 December 2008 at 11:43 pm

    I’m afraid Mr. Surowiecki’s logic is idiotically flawed. Wall Street’s reaction means that the Treasury Secretary pick was better than expected. His inference that this means everyone wants centralized control of markets in moronic (isn’t that what our brilliant reporter really wants to say?).

    I think it is scary that people in the press think of themselves as being soooo smart while they continually show little grasp of the most elementary concepts (in economics for example).

  • 2. Peter Klein  |  2 December 2008 at 11:56 pm

    David, I see your point, but I don’t think that’s exactly what Surowiecki is saying. Perhaps I’m reading him too charitably, but I take him to be saying simply that the market cares more about this appointment than about past Treasury Secretary appointments. (Of course, he doesn’t demonstrate this empirically, but you could do it.) The sensitivity of stock-market performance to the announcement is the issue, not the interpretation of this particular announcement effect. Of course, in my ideal world, the Treasury Secretary would have so little power that Wall Street wouldn’t give a damn one way or another.

  • 3. Barbar  |  3 December 2008 at 2:02 am

    The stock market has had something like 20 day-movements of 5% or greater in the past 2 months. Isn’t it likely that the 6% increase was due to something else other than the Obama pick? Who were they expecting really?

    According to my paper the market plunged 8% yesterday because… people realized we were in a recession. Or was it because Obama officially announced Clinton as Sec of State? Let’s be honest, no one has a clue.

  • 4. David Hoopes  |  6 December 2008 at 11:22 pm

    Peter: I think you are being very charitable. On the other hand, maybe I’m just a mean old crank (quite possible).

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