We live by appearances and as we pretend that all things are getting better and that debts do not matter we are becoming villains perpetuating a culture of Pyrrhonism[1] where isostheneia (a situation of equal strength) implants and imputes in us a mentality of etatism[2] which in turn will allow us to claim that we are victims. The fact that such mentality has prevailed is evident in the rise of passive investing and the wrong-headed efficient market hypothesis.
We ignore the fundamentals, and as we are slouching from one central bank put to another, our illiberal thinking finds comfort in QEs, which accommodate and are consistent with our trajectory of collective liberalism. Institutional arrangements are weakening because tribalism is now part of our political DNA, and hence the virtues of public liberties are no longer conditioned. The result has been that finance crowned itself the Queen of the game apart from the King, namely economics and the moral philosophy it represents. How could we be ruled by a Queen without understanding the social embodiment that her reign represents? The answer is that in a meta-ethical marketplace where emotivism reigns supreme, truth is irrelevant and actually offensive to the subjectivism advanced by illiberal minds who are trained but not educated. Illiberal education leads to illiberal democracies which then die from within.
Over the course of the last 250 years we can discern a dichotomy. During periods when societies and their leadership sought after freedom, self-determination and human rights, autocratic and destructive governments were replaced by vibrant democracies, wealth was created, technological improvements significantly advanced the standards of living, and an epoch of great artistic and literary achievements paved the road for the abolition of slavery, torture, inquisition, serfdom and all the other remnants of the dark ages. During those times finance was subservient to economics and intrinsic values guided valuations and monetary affairs.
However, in periods when illiberalism marched triumphant, populism infatuated people’s minds to the point that they saw forces of coercion as liberating. It does not necessarily need to be a period of statolatry for disintegration forces to be at work. Excessive credit can do it. To illiberal minds, credit overextension is merely prosperity bought on credit. During those times fundamentals and intrinsic values diverge so much from actual market values that either a radical correction is needed (to be followed by a severe recession or even depression) or war needs to become the engine of finance.
We certainly hope that we can reverse course and find the right route for an awakening. However, because realism should prevail, our position is that our current trajectory points to a future where projected returns may be lower, and hence proper asset allocation is needed so that risks are reduced in diversified portfolios with uncorrelated classes that avoid sailing the troubled waters of Pyrrhonism.
[1] Pyrrho’s work – which was advanced by Sextus Empiricus – claims that the reasons in a favor of a belief are never better than those against (isostheneia), and thus the only possible response is ataraxia i.e. to live by the appearances. It’s a coincidence that Pyrrhonism is so close phonetically to Peronism!
[2] I prefer to use von Mises term etatism to statism since it reflects the origin of the latter.
Market Isosthenia in a World of Etatism: The Triumph of Illiberalism
Author : John E. Charalambakis
Date : May 2, 2018
We live by appearances and as we pretend that all things are getting better and that debts do not matter we are becoming villains perpetuating a culture of Pyrrhonism[1] where isostheneia (a situation of equal strength) implants and imputes in us a mentality of etatism[2] which in turn will allow us to claim that we are victims. The fact that such mentality has prevailed is evident in the rise of passive investing and the wrong-headed efficient market hypothesis.
We ignore the fundamentals, and as we are slouching from one central bank put to another, our illiberal thinking finds comfort in QEs, which accommodate and are consistent with our trajectory of collective liberalism. Institutional arrangements are weakening because tribalism is now part of our political DNA, and hence the virtues of public liberties are no longer conditioned. The result has been that finance crowned itself the Queen of the game apart from the King, namely economics and the moral philosophy it represents. How could we be ruled by a Queen without understanding the social embodiment that her reign represents? The answer is that in a meta-ethical marketplace where emotivism reigns supreme, truth is irrelevant and actually offensive to the subjectivism advanced by illiberal minds who are trained but not educated. Illiberal education leads to illiberal democracies which then die from within.
Over the course of the last 250 years we can discern a dichotomy. During periods when societies and their leadership sought after freedom, self-determination and human rights, autocratic and destructive governments were replaced by vibrant democracies, wealth was created, technological improvements significantly advanced the standards of living, and an epoch of great artistic and literary achievements paved the road for the abolition of slavery, torture, inquisition, serfdom and all the other remnants of the dark ages. During those times finance was subservient to economics and intrinsic values guided valuations and monetary affairs.
However, in periods when illiberalism marched triumphant, populism infatuated people’s minds to the point that they saw forces of coercion as liberating. It does not necessarily need to be a period of statolatry for disintegration forces to be at work. Excessive credit can do it. To illiberal minds, credit overextension is merely prosperity bought on credit. During those times fundamentals and intrinsic values diverge so much from actual market values that either a radical correction is needed (to be followed by a severe recession or even depression) or war needs to become the engine of finance.
We certainly hope that we can reverse course and find the right route for an awakening. However, because realism should prevail, our position is that our current trajectory points to a future where projected returns may be lower, and hence proper asset allocation is needed so that risks are reduced in diversified portfolios with uncorrelated classes that avoid sailing the troubled waters of Pyrrhonism.
[1] Pyrrho’s work – which was advanced by Sextus Empiricus – claims that the reasons in a favor of a belief are never better than those against (isostheneia), and thus the only possible response is ataraxia i.e. to live by the appearances. It’s a coincidence that Pyrrhonism is so close phonetically to Peronism!
[2] I prefer to use von Mises term etatism to statism since it reflects the origin of the latter.