22 January 2010
Wall Street Votes
The stock market has fallen by more than 400 points in the last two days and has been dropping since the Republican victory in the Massachusetts senatorial election. The decline is partly attributable to anxiety over China's reported curtailment on loans by its banks, but the real provocation seems to be the President's proposed re-regulation on American bank practices. Some observers are inclined to see the daily market stats as a vote of confidence or no-confidence in the administration's economic policies, while others take the stock market as an objective measure of the nation's economic health. Inevitably, some people will conclude that, merely by proposing regulations, Obama has hurt the American economy. But if you're inclined to think that way it's not much more of a stretch to assume that Wall Street is playing chicken with the administration, expressing its disapproval of the proposed regulations by inciting a small panic in the hope that the tactic will panic the administration into backing off. If that seems too conspiratorial to believe, you should be willing to concede that Wall Street is no objective judge of policies that will probably influence their earnings in the future. If the President's proposal was a case before a court, and Wall Street the judge, Wall Street would have to recuse itself. But for some observers interest will look more like expertise, and the assumption will be that Wall Street knows better than the government what the rules should be for banks. But the present sell-off is no more reliable an indicator of the merits for the country as a whole of the President's proposal than the weekend box-office grosses are indicators of the quality of movies as works of art. Anyone who takes the market's recent behavior alone as proof that Obama should change course is letting the market do his thinking for him, and I don't think anyone really means for capitalism to go that far.