KVNUFTP

Hillyard did it again.

In the “Budget Review” posted at The Senate Site yesterday, Hillyard stated:

The fall of confidence in the Stock Market tells me that the quick fix pill being offered by the Federal Government won’t work.

Really, Senator?

Saying what I’ve tried to explain before much better than I would, 538.com’s Nate Silver with “Sun Rises, Markets Fall”:

One of the more unapologetically idiotic notions being advanced by certain conservative commentators is the idea that the poor performance of the stock markets represents a negative reaction to Barack Obama’s stimulus package.

For one thing, the trading markets aren’t gauges of overall economic health. They are gauges of future anticipated profits for the large corporations that make up their components. In the long run, certainly, these two things should be correlated. But they needn’t be perfectly so: an oil price shock, for instance, is possibly good for the profitability of Exxon, while being damaging to the economy at large. Likewise, the announcement of a plan to take over and turnaround Citigroup, perhaps a necessary evil for economic recovery, would certainly not be good for Citigroup’s shareholders, who would probably get wiped out in the process.

That’s not the the basis of my critique, however. Rather, it’s that this line of argumentation often cites “evidence” that flies in the face of Finance 101.

Robust markets like major stock indicies are fairly good at incorporating information. They don’t literally have to see an event occur in order to “price in” its effects. On Wednesday, for example, Barack Obama signed the stimulus package into law. Once this occurred, the prospects for the passage of the stimulus rose to 100%. But what had been the probability of the stimulus bill passing the very second before Obama put pen to paper? Probably about 99.999999%, accounting for the small probability of a hostile takeover by space aliens in the intervening moments. The performance of the market in reaction to such events tells us no more about how it feels about them than it does to the rising of the sun.

What Silver explains is that even if you put aside the lack of relation between trading markets and successful policy (or even the potential for success), there still remains the fact that for these traders, the passage of the stimulus was not breaking news. Using Hillyard’s reasoning, one could argue that the markets were disappointed the stimulus bill wasn’t larger, or that there were not enough pictures of puppies in the drafted legislation and have just as much credibility.

The downturn of the markets has more relation to bank shareholder futures (which aren’t bright, you might have noticed) and even how many traders came to work with a cold that day than it does the potential effectiveness of the Recovery Act.

Hillyard knows this, and it’s disappointing to see him repeat the tripe rather than rise above it.

I’ve always expected more from him.