The Parable of the Ox: podcast explains the disastrous separation of financial markets from the real economy

An excellent recent episode of the BBC Radio 4 math/current affairs show "More or Less" dramatized "The Parable of the Ox," a short article by John Kay originally published in the Financial Times (paywalled, alas, or I'd link to it available from Kay's site). Fans of James Surowiecki's Wisdom of the Crowds will know the first part of this story -- wherein the average of several guesses about the weight of an ox was more accurate than the guesses of any of the experts in the crowd. What this podcast and the article adds is a coda about how the use of "guesses" (or stock trades) as a way of weighing the ox quickly departed from guesses about the weight of the ox (or the value of a firm) and turned into guesses about other peoples' guesses about other peoples' guesses -- a financialized system that soon has no connection to the real economy or the real ox. And it ends, predictably enough, when the ox dies.

The Parable of the Ox [More or Less]

MP3

The parable of the ox [John Kay]

• [Boundegar]

  After the ox dies, its weight shows a marked downward trend, and short sellers should win the day.

• [MrJM]

  It’s up to us: We must kill the ox.

• [Removalslondon24]

  When the ox dies then sellers will be in bad fate.

• [Stefan Czerniawski]

  John Kay’s articles usually appear on his own site as well as behind the FT paywall – the parable of the ox is at http://www.johnkay.com/2012/07/25/the-parable-of-the-ox

• [johnrynne]

  There is also the classic “How Enron works” based on Afghan Mule Futures.  http://old.nationalreview.com/comment/comment-briggsprint012202.html

• [Deidzoeb]

  Cool. I think I get most of it. Is there an objective measure of real companies or economies that would be analogous to the scale talked about in the parable? Public disclosure of each company’s accounting records?

• [Chris Waigl]

  OMG it’s not an ox, it’s a musk ox (Ovibos moschatus), of the caprid sub-family.