Added to the list of political fallacies I've started...well.. I am starting, right now: the market mover fallacy. Check out this rant by CNBC's Rick Santelli, who is outraged at President Obama's mortgage subsidization plan. That's perfectly reasonable. But the context surrounding his discontent, at least as posted by Matt Drudge, seems to be the news that the equity markets hated the plan. (Check out the reaction of his live audience). Therefore, the plan must be bad.
The underpinning attempt at logic is both formal and cultural; as the
markets are supposed to reflect current knowledge and anylysis from a
wide range of actors, then the market acts as an appropriate sifting
mechanism for policy. For the past 15 years, the government and
business and, indeed, all of us, assumed that the market was working
properly and that the collective wisdom of private bankers and brokers
could be substituted for the wisdom of the public sector and policy
But I think it is always a fallacy to use, as evidence, the up and down movements of the stock market to price out a policy decision, as the number associated with a particular market at close is the sum of so many individual decisions that incorporate, or, indeed, rely on, probabilities and the intuition of mammals.
Television news anchors have used the following formulation in their
newscasts: "On news that the XXXX, the Dow dropped XX points today in
heavy trading." Or -- "Wall Street is reacting to...." That's OK and
less offensive to logic, although their words usually come from the
brain of an analyst who is assessing millions of decisions with one
The general idea is: our experience should tell us that what's good for Wall Street isn't necessarily what's good for the economy; often it is, but in important ways, it's not; the political culture should not fetishize the market's response.