What the Market Wants


Ezra Klein writes about the Independent Payment Advisory Board, a group created by the healthcare reform law that’s charged with getting Medicare costs under control and is independent of congressional dysfunction and gridlock:

You’d think people who worry about the market’s confidence in our ability to control spending would be shouting about this from the rooftops. The IPAB is the single most significant cost control we’ve ever imposed on the single most fiscally dangerous program in our budget. But Republicans are specifically targeting it for repeal, even as they praise Bernanke’s remarks. Meanwhile, I wonder whether [Ben] Bernanke even knows IPAB is in there.

We have a system where it seems like it would be in everyone’s interest to praise and support this reform, but instead, it’s mainly been attacked, dismissed or ignored. Republicans would prefer to win the next election than increase the market’s confidence in our ability to balance our books. Frankly, if I were the market, this would make me worry.

Well now, that depends on what “the market” is truly interested in. Is the market (a) worried about future deficits and eager to support cost cutting measures, or is it (b) worried about its paycheck and eager to elect a party that’s good for rich people? I would say there’s scant evidence for (a) and overwhelming evidence for (b). Paul Krugman has endlessly presented evidence that the financial market has demonstrated its lack of concern about deficits by driving down long-term interest rates to historic lows. Meanwhile, political scientists have presented endless evidence that “the market” (with quotes, meaning that I’m now talking about the actual men and women who make trades and run companies) cares mostly about how much money they personally make and is able to make its preferences on this score crystal clear to the political class. That’s two different “markets,” not one, and if you look at it that way the behavior of the market(s) makes perfect sense.

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