by Miriam Ronzoni on February 3, 2021
This is a tribute for Waheed Hussain, who passed away on January 30th, 2021, by the Members of the Economic Ethics Network, of which some CT-ers are part.
Waheed Hussain was a political philosopher whose work addressed some of the central questions faced by citizens living in contemporary capitalist societies. He thought and wrote about a wide range of topics at the intersection of moral and political philosophy, economics and business ethics, developing insightful work on issues from the ethics of consumption and competition to the nature and justification of the corporation. Across all of the rich and nuanced work that he produced was an underlying concern to address one fundamental question: how best can people live free, autonomous lives, relating on fair terms with their fellow democratic citizens, given the mystifications and constraints generated by a market economy? [click to continue…]
by John Q on February 3, 2021
It’s been hard to miss the chaos that’s arisen from a bunch of Reddit users (on sub-reddit WallStreetBets) getting together to squeeze shortsellers on stocks including GameStop and AMC Theatres. Most of the attention has been confined to the stockmarket action, but I was struck by this piece in The Bulwark[1], making the point that the process has enabled AMC to issue high-priced shares, repay debt and thereby stave off impending bankruptcy.
I don’t have a view on whether AMC should go bankrupt or not, but this is the kind of decision about capital allocation that is driven, in large measure by stockmarkets. The efficient markets hypothesis says that stockmarkets do the best possible job of estimating the value of assets, and thereby guides the allocation of capital. In the absence of the WallStreetBets push, it appeared that the market judgement was that it would be better to steer capital away from AMC, and into some other activity. Now, it’s the opposite.
One possible response is that WallStreetBets is an episode of craziness that will soon pass. But once you strip away newsworthy bits like the role of Reddit and the scale of the price movement, this kind of squeeze (or conversely, short-selling raid) is available, and potentially profitable, to any group of traders who can mobilize the necessary few billion (using options, those billions can be magnified a fair way). That’s part of the reason why stock prices are far more volatile than would seem justified by the arrival of new information relative to future earnings.
If stock prices are more volatile than underlying value, the two must differ most of the time. That undermines the claim that financial markets do a better job of allocating investment capital than would, for example, a central planning board. Even if you don’t want to go that far, there’s no obvious reason why limiting stock trading to (say) once a week would impair the allocation of capital to an extent that would outweigh the savings from cutting the financial down to a small fraction of its present size.
fn1. A Never-Trump website, well worth a look.