Markets and casinos shouldn't be the same thing

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Here’s a statement that some might be surprised at me making: Markets work. As a way of matching buyers and sellers, or capital with investment opportunities, markets are an effective and efficient method, better than anything else humanity has managed to devise thus far. There are, however, two caveats.

The first is that there is no such thing as a completely ‘free’ market. All markets have rules by which they operate. One of the reasons for that is that the assumptions used by theoretical economists when considering markets – that all participants have equal power and that all have perfect knowledge of what is happening – are blatantly inaccurate. Markets can only work effectively if those (and other defects) are corrected, so we have rules which must be followed. There will always be disagreements about what those rules should be, but the key issues are who makes the rules and in whose interests they operate. Those arguing for completely ‘free’ markets are invariably arguing for markets which are slanted in favour of those with the most power and the most knowledge. No surprise there.

The second caveat is that a real market is about those basics mentioned above, such as matching real buyers with real sellers, exchanging real things. Yet, when it comes to the world’s financial markets, most trading is nothing to do with that; it is, instead about gambling and speculation, with people trying to leverage large trades for very small profit margins on a day-by-day or even hour-by-hour basis. And in some cases, what is being ‘traded’ (i.e. being bet on) isn’t even something with any real existence beyond acting as a gambling chip. Crypto currency is a case in point. It has no real ‘value’ and its price fluctuates wildly. As a means of winning (or losing) a fortune in  short time, it’s ideal, but its value as any sort of ‘investment’ is doubtful, to say the least. Yet, lured by the improbable apparent ‘value’ of these ethereal ‘assets’, some governments are trying to pretend that they are real enough to be treated as investments by the man or woman in the street.

It's perhaps obvious why Trump would wish to do this – he has after all issued his own bit of crypto, from which he’s made a lot of money at the expense of his cult followers. It’s less obvious why the UK Chancellor would be considering anything similar. There’s nothing wrong with seeking to regulate crypto currencies as such (although the whole point of some of them is to set them up in such a way that they are very difficult to regulate effectively, not least in order to facilitate tax evasion), just as other types of gambling are regulated, including for the safety and protection of the punters. Seeking to regulate them as though they were ‘investments’, however (which is what she seems to have in mind) is dangerous, and risks creating the impression that an inherently risky proposition has somehow been rendered safe. It’s a bad message to be giving out.