A New Kind of Free Speech





While the political posses are out rounding up the usual suspects for causing the stock market slide, it is time to wonder whether we aren't looking in the wrong places for the wrong things. The fact is that today's world markets are fundamentally different from yesterday's. Technology has made them so.

It was 30 years ago that we awoke to learn that the Soviet Union had orbited a satellite called Sputnik. Rear Admiral Rawson Bennett said in a television interview that Sputnik was "a hunk of iron almost anyone could launch," but most people knew that our world had changed, even though the shape, severity or direction of that change was unknown. Breakthrough technology always alters societies.

Our seeming inability to isolate what went wrong in the stock market and elsewhere in our financial system—and what to do about it—rests on this mismatch between technological progress and political understanding. Today's international financial system was not built by finance ministers or central bankers or economists: It was built by technology. The marriage of computers and telecommunications has constructed an electronic infrastructure that melds the world into one global market for ideas, data and capital, all moving at almost the speed of light to any part of this planet. There are few comparable events in history. Such a global network simply has not existed. While many people talk about global markets, the financial and political reality has not yet gotten through.

Today there are more than 200,000 computer screens in hundreds of trading rooms, in dozens of countries, which light up to display an unending flow of news. It takes about two minutes between the time the President or prime minister reads a statement and the time traders buy or sell currency, stocks or bonds based on their evaluation of the effect of that policy on the market. This system, which operates on the information standard, is far more draconian than one using the gold standard or the Bretton Woods agreement.

It is more draconian because no government can opt out of it. If a government did not like the effect on its country of the operation of the gold standard, the political leader called a press conference and resigned from the arrangement. History is replete with examples. Now, no matter what action is taken in an effort to leave the system, the 200,000 screens will continue to light up, traders will buy or sell and currencies will rise and fall.

U.S. politicians accept universal suffrage as the final determinant of who holds office and who does not, but they have not yet fully understood that the continual global referendum on a nation's economic policies is the final determinant of the value of its currency. Just as we learn from TV the winner of our presidential election weeks before the Electoral College even assembles, so also we learn instantly from the foreign exchange markets what the world thinks of our announced economic policies even before they are implemented.

Since all technological advances are an attack on the power structure, the information standard has not been greeted with great enthusiasm by the establishment. Journalists write or speak about the government's "letting the dollar fall," as if government intervention in exchange markets was not already doomed to expensive failure. The size and the speed of the market has long since overwhelmed the resources of central banks. The new global electronic infrastructure has doomed the effectiveness of a cosmetic political fix.

Global markets are a kind of economic free speech, and many governments don't like what they are saying.

There is good in all this. In the end the major powers will have to coordinate their economic policies. The danger is too great and the world too intertwined to do anything else.

Getting to this point will not be easy. The cooperation that will be forced by the information standard will alter the traditional concept of sovereignty. This attacks the very core of national power. Some may wish they could turn back the clock, but it is too late. The technology on which the market is based will not go away—indeed it will get even faster, less expensive and more sophisticated.

National borders have already become porous—news, data and capital move across them on fiber-optic cables, satellite transponders and via channels all across the electromagnetic spectrum.

Whether we like it or not, every government in the world is filing a kind of continually updated global 10-K about the economic health of its country. The market knows that there are no miracle drugs that can replace sound fiscal and monetary policy—there never were, but today there is no place to hide. If this is true, perhaps the old political maxim "If all else fails, do the right thing" will save us all. That is the real reason for optimism.