Baffled

Word reached me via the Herons Farm grapevine yesterday that Sir Martin Sorrell has instructed WPP companies to tear up any employment contracts that may have been issued but not yet signed.

I'm glad I'm not having to work in that sort of atmosphere any more. Indeed I am generally overjoyed that I saw it coming and made all the right changes in my life long enough in advance.

It seemed all too obvious what was going to happen from the Autumn of 2007. And yet there are there are significant voices out there who still claim to find it all rather baffling.

I was recently reclining in this Belizean hammock listening to a radio interview given by Steven Levitt to Simon Mayo. The Freakonomics co-author excused himself from any intuitive expertise in macroeconomics before suggesting that he could not understand why American blue-chips such as Wal-Mart had shed so much value in October.

According to Levitt, a few investment banks that "were not very important to the American economy" had made some very bad bets, but there was no particular reason why the retail banking system should be punished for this. He cited Iceland's banks in particular, whose only fault he felt, was that their assets had vastly exceeded the local GDP, which petrified the kind of investor who favours government bail-outs as the ultimate safety net for savers.

A welcome antidote to the likes of Nouriel Roubini perhaps, but parts of the 'rogue' economist's message struck me as deliberately disingenuous. To say that the stock market is essentially "a high-end gambling system that bears little relation to the real economy" is really little more than a restatement of the problem. And it's not just a high-end gambling system, frankly. Gamblers who place bets on horses are creating brand new financial risks where none existed before. Stock market speculators, on the other hand, are assuming risks that were already embedded in the wider capitalist system. (In this model it is the entrepreneur who is the gambler!)

Levitt also took some flak from estate agents, about whom the data suggests they wait longer and get a better price for their own homes than they do for the clients. One of the thus accused rang in to say that it is the sellers' inexperience and general anxiety that prompts them to accept the first goodish offer, not bullying from the realtors's profession. I think I'm still with Levitt on that one...

A new Freakonomics book is in the pipeline it seems.