John Kay

Bookreview:   Choice, by Renata Salecl
Salecl is interested in the application of the modern Freudian psychoanalysis of the French philosopher Jacques Lacan: Our perception of the available choices and the ways we make them is the product of the social and institutional context.

Irrationality lies not in failing to conform to some preconceived notion of how we should behave, but in persisting with a course of action that does not work.

The housing market is like other financial markets: price expectations create momentum that drives prices arising from normal affordability ratios. But they must eventually return to these norms through “mean reversion”, creating the endemic booms and busts of cycles.

The distinction between the creation and the appropriation of wealth is vital, if not always clear. But our ability to recognise it will determine, not just the fate of individuals, but the future of modern capitalism.

Activities that are good in themselves are good for the economy, and activities that are bad in themselves are bad for the economy. The only intelligible meaning of “benefit to the economy” is the contribution – direct or indirect – the activity makes to the welfare of ordinary citizens.

At the medieval courts Shakespeare described, the exercise of power was not a means to an end, it was itself the end. The political and economic environment has been transformed. But human nature has not, and the factors that drive powerful men today are little different from those that drove them five centuries ago.

Shamefully, the purpose of current stress tests in the financial sector is not to ensure that depositors’ money is safe or that taxpayers will not be called on again, but to reassure banks and their shareholders that they will not be required to provide significant additional capital.

Wherever there is uncertainty, market prices reflect the beliefs of those who are more than averagely sanguine. The result is a reserve of illusory value, constantly depleted by events and replenished by fresh uncertainties.

John reviews Capitalism 4.0: The Birth of a New Economy by Anatole Kaletsky – a provocative review of many current political and economic controversies, which includes a substantial section on the failures of economic theory.

Anonymity is often the most effective means of telling truth to power: and sometimes the only one.