Intellectual Inbreeding: Corporate Free Traders

Here's an example of intellectual inbreeding. Although not the point, Wall Street and Bernanke by Dave Lindorff illustrates the flawed thinking of the corporate free trader crowd. Just like Marxists, this bunch began believing its own B.S. Its feedback did nothing but reinforce a flawed ideology of economic internationalism. It's interesting to note that both Marxist and "free trade" reacted similar: both grasped the remedies of its flawed rival.

Excerpt:

The same kind of analytical brilliance has been routinely ascribed by economic pundits to investors when it comes to business decisions--particularly mergers and acquisitions, or divestments and breakups. If Bank of America announces that it is going to buy the foundering Merrill Lynch and shares of B of A fall, then the merger is a bad idea. If the shares rise, it's a good idea. And so it goes.

The whole idea that a bunch of people who sit around at computer screens betting on stocks and eating cheese doodles all day really know much of anything, or that taking their herd responses collectively as some kind of delphic oracle has always seemed the height of folly to me. But if you really wanted proof that investors taken collectively are idiots, you could simply look at today's stock market. Yesterday, every index plunged by about 4%, pulling the overall market to lows not seen in 12 years, because of concerns that the recession was deepening, that the big banks were toast, and that the government's economic stimulus plan was not going to help much.

There was every reason to expect the downward trend to continue, but up stepped Federal Reserve Chair Ben Bernanke, and, in a statement presented in Congress, said that in his considered view, the current recession could be over by the end of this year.

Relieved investors jumped back into the market and bought stocks, pushing the Dow and the S&P indexes back up by almost as much as they'd lost the day before.

But wait a minute! Isn't Ben Bernanke the same guy who was chair of the Fed last year and the year before? The same chair who completely failed to see the coming credit crisis and global financial collapse? And if that's the case, why on earth would investors take seriously anything he says about the future direction of the economy?

Why indeed? Maybe they're smoking a little too much hope?

The herd mentality can never be more than mediocre, and probably less. Anyone believing in its wisdom is a tool.

See also How the Economy was Lost by Paul Craig Roberts.