Ignorance is economic bliss

Yesterday Guardian2 ran a big article on just how few people understand about what's going on in the world's financial markets. Stephen Moss sums up the ignorance by asking "is a hedge fund something to do with agriculture?"

This is a timely piece for journalists – myself included - who cover this. We tend to presume we've been over this stuff so many times everyone has to understand it by now. We then sagely predict people's behaviour and get it quite wrong because many still don't have the faintest idea of what's going on. It's like poker - it's very difficult to play against amateurs because you can’t predict their behaviour.

Once we leave our business bubble (a bubble occupied by people so sure of themselves it will never burst) you find people "in the real economy" who have either tried to understand what's going on and given up or just not started in the first place. This is why retail sales were unexpectedly high in February, and why sellers continue to put their houses on the market at prices that are just short of record highs.

At first I thought this is a terrible state of affairs. People need to know what’s going on and how this could affect them. Then I thought perhaps ignorance is bliss - despite the media's best attempts to talk the UK into a recession (that few experts actually think is coming) with scaremongering headlines, many people are merrily going about their lives as before - and good for them.
 
This confidence - however misplaced – could play a key role in the UK weathering the financial storm. As we've seen time and again confidence is everything - the brief run on HBOS shares is a perfect example. If everyone battens down the hatches and goes into financial hibernation then we will be in trouble. If the panic that is enveloping the financial markets can be avoided by the public at large then all the better.

So we come to a new economic theory – Millarism, or ‘Enlightened Ignorance’.
It’s a very British fiscal approach of recognising something’s not quite right but that panicking isn’t going to help anybody.