…just as in Japan, the US, and Europe, there can be no mistaking what prompted China’s manipulation: the perils of outsize asset bubbles. Time and again, regulators and policymakers – to say nothing of political leaders – have been asleep at the switch in condoning market excesses. In a globalized world where labor income is under constant pressure, the siren song of asset markets as a growth elixir is far too tempting for the body politic to resist.Speculative bubbles are the visible manifestation of that temptation. As the bubbles burst – and they always do – false prosperity is exposed and the defensive tactics of market manipulation become both urgent and seemingly logical.Therein lies the great irony of manipulation: The more we depend on markets, the less we trust them. Needless to say, that is a far cry from the “invisible hand” on which the efficacy of markets rests. We claim, as Adam Smith did, that impersonal markets ensure the most efficient allocation of scarce capital; but what we really want are markets that operate only on our terms.
This excerpt is from Stephen S. Roach's Market Manipulation Goes Global published at the Project Syndicate. Mr Roach is former Chairman and chief economist of Morgan Stanley Asia and the firm's chief economist, a senior fellow at Yale University's Jackson Institute of Global Affairs, a senior lecturer at Yale's School of Management and author.
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