Tech Bulls v Bears


The stock prices of Facebook and Amazon seem to be tanking.

In just over two weeks, Facebook stock price lost 13% on account of (alleged) careless privacy ethics.

And every Amazon-obsessed Trump tweet comes with a significant down on share price.

Stock prices movements are predominantly discussed by asset managers in buy v sell terms.

But asset prices also disguise a question of policy interest: can policymakers forbear in light of financial market correction?

Or put differently: can we socially delegate to financial markets the dirty job of disciplining bad players?

As much as I am a believer in economic freedom and open markets, my answer at this stage is no.

In capital market theory, asset prices are just a reflection of expected cash flows. When asset prices go down, this is because investors anticipate less profits.

If, like me, you dont believe in the success of #DeleteFacebook, the share price decrease of Facebook and Amazon can plausibly be imputed to investors’ expectations of stricter privacy regulation or antitrust intervention.

Remove such threats, and the stock price will go up again.

In brief, a credible threat of regulatory intervention is part of the disciplining (bear) effect of financial markets.

In contrast, an institutionalized policy of forbearance would turn the market in the other sense (bull).


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