Tuesday, October 18, 2011

The Short List - October 18, 2011




Bret said...

because markets decentralize information. even if you assume the five big investment banks created and distributed all of the information in the market (which clearly isn't true, as the oft vilified short-sellers will attest), isn't that better than one firm doing so? clearly large firms attempt to establish monopolies so they can exploit information asymmetries, and there is a legitimate role for the state in breaking monopolies for that reason. But we shouldn't discount the mechanism of the market for getting information (and the ability to produce and signal information) into the hands of tremendous numbers of people.

i'll also take this opportunity to shamelessly plug a book from a professor I work for, on the political economy of trust. it has an excellent review of the literature on the role of trust in the economy.


Colin said...

First off, I am not sure we should just trust all markets. Some markets are more trustworthy than others. I have a lot more faith in the new car market than the used car market, where information asymmetries are greater.

The case for markets is that they work better than any alternative. This is similar to democracy, which I think suffers from any number of flaws, but is better than any other form of government. Markets aren't perfect, but they work better than anything else out there.

The better question to ask here is how markets can be improved. One way would be to legalize insider trading.