Nothing like a good financial mess to underscore just how little anyone really understands the “economy”. By which I probably mean the financial system. I think. There’s also nothing like a good financial mess to slaughter in cold blood any chance I ever had of convincing anyone that economics is not the same as finance.
Fortunately, the economics behind everything from risk trading to bailouts is very simple, even as the financial system manages to be opaque enough to make a lot of people look confused and silly. Even better, pretty much everyone understands that economics: for example, ‘moral hazard’ can mean something as simple as ‘if the government is willing to bail out a bank when it’s in trouble, risks for that bank are less risky so they might be willing to take more risks’. Of course, then you might well ask ‘more than what?’ or ‘how risky?’, but the idea is solid. Even the trading of risk is not especially difficult to grasp, because we’re all familiar with the concept of insurance, and it’s in exactly the same spirit, perhaps with a bit of hot potato thrown in as the risk gets chopped up and passed around.
But the system? I think that’s pretty confusing. The BBC has valiantly compiled a little glossary of some of the jargon, but we’re already in very, very deep; too deep for that glossary to be helpful. Sure, it might turn some otherwise baffling sentences into plain English, but what if I don’t know, say, what the stock market is, what is does, what it means? What good is a passage like this one to me:
Not far behind was Royal Bank of Scotland, whose shares ended down 10.2% at 189.1p. Barclays fared better, its shares closed down 2.53% at 308p.
Hell, what good is that to anyone? What is it saying? For those of us who know what the stock market does, maybe because we’ve studied finance, were simply interested or just have that little piece of information in our heads, it means something, but how many people is that? It’s just as bad as using the word ‘economics’, which I’ve already argued is usually meaningless.
It must be hell to try to write about a financial crisis for a lay audience. There’s a perfect parallel between the entanglement of the institutions themselves and the contortions of language needed to explain it. Of course, personally, and I realize this is a terrible thing to admit, I’m experiencing delightful schadenfreude over the whole affair, so I admit to being less sympathetic than curious.