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September 08, 2005
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When Batman and Superman fight, only evil wins*
"It is always very difficult to strike the right balance, particularly in exchange rate management, between withholding key information for the purpose of retaining some constructive ambiguity on the one hand, and transparency that theoretically enhances efficiency and credibility on the other.That's Joseph Yam, head of the Hong Kong Monetary Authority. Jake van der Kamp in today's SCMP discusses the quote and why it is wrong, as well as the potential for another Asia crisis (see below the jump). But I need to quibble with something more fundamental: the nature of markets.
A market is nothing but a collection of buyers and sellers. Each agent makes decisions as to what to buy/sell, in what quantity and at what price. If a buyer finds the right product at the right price in the right amount, they buy it from a seller who has the right product at the right price at the right amount. It is simple and ingenious. My Yam has made a common mistake. A market is not an entity in itself. It has no morals. It never acts in the public interest. This was the key insight of Adam Smith:
It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.If each agent pursues their own self-interest, we are all better off. The market is the aggregation of all these individual self-interests. The market doesn't prioritise public interest. It is, by definition, the public interest.
What Mr. Yam means is the free market does not always go how the HKMA would like it. That's a very different thing. He's not alone. Any time you hear or read someone bleating about the evils of "the market" and how it acts contrary to "public interest", be clear what both those terms really mean.
On the subject of dysfunctional markets...
Jake also notes in general the 1997 Asia crisis was survived, rather than dealt with:
...government policy muddles once again threaten to unsettle monetary affairs in Asia. The last time they did so the result was the Asian financial crisis of 1997. On that occasion it was exchange rate rigging in Thailand that set things off. At present it is fuel price subsidies in Indonesia that have come unstuck because of higher oil prices. This has led to rupiah interest rates soaring and the rupiah plunging.
* I should note, the title has absolutely nothing to do with this post. But it's a good one. Thanks, Tom.
Sun-bin translates more on Joseph Yam and the RMB basket.posted by Simon on 09.08.05 at 10:44 AM in the Hong Kong category.
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I thought your title meant yam said, "batman+superman=US and China govt and evil=speculators"...:)
anyway, i guess there are two separte issues here
what yam/tsang did in 1998 was neither of these 2, maybe a bit of 2nd point. "the referee took side in the soccer game" was what they did. IMHO these 2 issues are more debatable than 1998, especially 1. although i incline to agree with you and Jake on the 2nd issue. (malaysia is still something we cannot fully explain)
so he might have a point.
also, "the free market does not always give priority to public interest" is a correct statement, because the 2 have no neccessary correlation at all. (although we do not trust the bureaucrats either, so maybe there is no better way than relying on the market)