Paul Krugman: The Market Speaks

Conservatives have been warning about disasters ahead such as high inflation and interest rate spikes -- none of which have actually happened -- as a way of blocking policies they don't approve or, or to provide a basis to implement policies that accord with their ideological preferences. That is, they are "simply projecting their own preferences onto the alleged mind of the market," or worse, consciously constructing arguments about the "mind of the market" that they may or may not believe to support their ideological preferences:

The Market Speaks, by Paul Krugman, Commentary, NY Times: Four years ago, as a newly elected president began his efforts to rescue the economy and strengthen the social safety net, conservative economic pundits — people who claimed to understand markets and know how to satisfy them — warned of imminent financial disaster. Stocks, they declared, would plunge, while interest rates would soar. Even a casual trawl through the headlines of the time turns up one dire pronouncement after another. ...

Sure enough, this week the Dow Jones industrial average has been hitting all-time highs, while the current yield on 10-year U.S. government bonds is roughly half what it was...

O.K., everyone makes a bad prediction now and then. But ... the important point ... is that they came from people who constantly invoke the potential wrath of the markets as a reason we must follow their policy advice. Don’t try to cover America’s uninsured, they told us; if you do, you will undermine business confidence and the stock market will tank. Don’t try to reform Wall Street, or even criticize its abuses; you’ll hurt the plutocrats’ feelings, and that will lead to plunging markets. Don’t try to fight unemployment with higher government spending; if you do, interest rates will skyrocket.

And, of course, do slash Social Security, Medicare and Medicaid right away, or the markets will punish you...

So what the bad predictions tell us is that we are, in effect, dealing with priests who demand human sacrifices to appease their angry gods — but who actually have no insight whatsoever into what those gods actually want, and are simply projecting their own preferences onto the alleged mind of the market.

What, then, are the markets actually telling us? ... Those low interest rates are the sign of an economy that is nowhere near ... full recovery... Under these conditions, of course, the government should ... ramp up spending to support the economy. Unfortunately, policy makers have been intimidated by those false priests, who have convinced them that they must pursue austerity or face the wrath of the invisible market gods. ...

So the message from the markets is by no means a happy one. What the markets are clearly saying, however, is that the fears and prejudices that have dominated Washington discussion for years are entirely misguided. And they’re also telling us that the people who have been feeding those fears and peddling those prejudices don’t have a clue about how the economy actually works.