Anthony Rowley

Macroscope | Time to see ‘marketplace magic’ as the voodoo economics it really is

The apparent inability of markets to see more than one step ahead is alarming at a time when stocks are surging and markets chase quick profits above all

Multiple underlying problems are being overlooked, and a market failure to comprehend the fundamental causes of rising costs could spell financial disaster

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A customer shops for food at a grocery store in San Rafael, California, on March 12. According to a report by the US Bureau of Labour and Statistics, consumer inflation rose by 3.2 per cent for the 12 months ended in February, up slightly from January’s annual reading of 3.1 per cent. Photo: AFP

Anthony Rowley

Published: 9:30am, 17 Mar 2024Updated: 11:01am, 17 Mar 2024

Former US president Ronald Reagan spoke glowingly in the 1980s of the “magic of the marketplace” while former British prime minister Margaret Thatcher waxed lyrical about a “shareholder democracy”. Neither really knew what they were talking about.

This might seem a rather harsh judgment on two undoubtedly charismatic leaders, but neither Reagan’s talent as a Hollywood actor nor Thatcher’s as a popular orator really qualified them to pronounce upon economic and financial matters.

It seems more appropriate to speak of the myopia of the marketplace at a time when stocks are heading up, up and away from real problems and when we have a shareholder kleptocracy where markets are chasing quick profits instead of addressing terrestrial challenges.

Even allowing for the long-standing tendency towards excess on the part of stock investors – which has all too often resulted in boom-and-bust cycles – the apparent inability of markets to see more than one step ahead is alarming. The latest manifestation of this is a failure to hear or heed the warning that price signals are flashing, such as the news that US consumer price inflation unexpectedly rose by 3.2 per cent last month.

Likewise, the danger of another supply chain shock as global conflicts and trade disputes intensify and as business’ logistics costs rise is being overlooked. There will be no dramatic entry by China this time to counter global inflation with a new wave of cheap goods.

Inflation rates naturally vary from month to month. However, with trillions of US dollars in portfolio investment hanging on every word uttered by the US Federal Reserve nowadays, a market failure to comprehend the fundamental causes of rising costs could spell financial disaster.