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It appears that Sam Gyimah doesn’t understand markets

Summary:
The Conservative MP for East Surrey tells us that the falling pound is a very bad thing.As our currency plummeted last week, politicians were remarkably quiet. In normal times, a catastrophic slide in the pound would send a shockwave through Westminster. An emergency cabinet meeting might have been called. The chancellor might have made an announcement, calming markets and reassuring the public.That is to rather miss an important point. When we agree to fix the price of the pound then the pound’s price not being fixed is a problem. So, whether it’s called Bretton Woods, the EMS, the Snake, whatever, a fixed currency rate regime will be most uncomfortable with changes in the rate. The solution to which is to do as we now do, allow the price to move in a free market. At which point there is

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The Conservative MP for East Surrey tells us that the falling pound is a very bad thing.

As our currency plummeted last week, politicians were remarkably quiet. In normal times, a catastrophic slide in the pound would send a shockwave through Westminster. An emergency cabinet meeting might have been called. The chancellor might have made an announcement, calming markets and reassuring the public.

That is to rather miss an important point. When we agree to fix the price of the pound then the pound’s price not being fixed is a problem. So, whether it’s called Bretton Woods, the EMS, the Snake, whatever, a fixed currency rate regime will be most uncomfortable with changes in the rate. The solution to which is to do as we now do, allow the price to move in a free market. At which point there is no problem for without the price fixing the balance of payments will, by definition, balance.

Markets solve so many things.

But sadly it becomes worse:

The sheer drop in sterling since 2016 is only a taste of what’s to come if we continue down the destructive route of a no-deal Brexit. Instead of continuing the ideological race to the cliff edge, we have a duty to consider the interests of ordinary people. Leaving people worse off financially is a Brexit outcome nobody supports, whether they voted leave or remain.

That is why it is time to think again. A fresh democratic mandate is key to this big decision, now that the circumstances have changed so much. This is why we must hand the choice back to the British people in a referendum.

This is to be remarkably ignorant of the efficient markets hypothesis. The EMH not saying that markets are the efficient method of organising everything, nor that we cannot improve market efficiency. Rather, that markets are efficient at processing the information of what prices should be in a market.

The insight coming in three forms, weak, semi-strong and strong. We haver between the last two definitions ourselves, all publicly known information is already in prices to all even privately known is. But the weak version, all generally known information is, is so obvious that even critics of it can only dismiss it as a tautology, an obviousness.

It is generally known that Britain voted to leave the EU, that Article 50 has been invoked, that October 31 is the currently listed departure date. It is all this that has dropped the pound that 15%.

That is, markets are forward looking and have already incorporated much to possibly even all of the likely fall in sterling from our leaving the European Union. Which is really a pretty big thing for a Tory MP to miss when discussing markets, isn’t it?

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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