There are markets... and markets...

John Kay makes a very good point -- that the ideology and rhetoric surrounding the allegedly wonderful properties of markets has taken us a long way from where we ought to be. We need a more balanced perspective on what markets do well and what they do not do well, where they are useful and where they are not:

A semantic confusion leads us to use the word market to describe both the process which puts food on our table and the activity of gambling in credit default swaps. That confusion has enabled people to claim the virtues of the former for the latter.

 In his book Extreme Money, Satyajit Das makes a closely related point which, I'm sure, many economists and finance people will probably find incomprehensible:

Banks are utilities matching borrowers and savers, providing payment services, facilitating hedging etc. The value added comes from reducing the cost of doing so. Paul Volcker questioned the role of finance: “I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence. US financial services increased its share of value added from 2% to 6.5% but Is that a reflection of your financial innovation, or just a reflection of what you’re paid?”

The idea of financial services as a driver of economic growth is absurd – it’s a bit like looking at a car’s gearbox as the basis for propulsion. But financiers don’t necessarily agree with this assessment, unsurprisingly.