James Surowiecki warns of political risk in global markets and or the spectre of sovereign capital:
Political risk is hard to manage because so much comes down to the personal choices of policymakers, whether prime ministers or heads of central banks. And these choices aren’t always going to be economically rational–witness [Angela] Merkel’s recent tergiversations.
Yet political choices are as rational as economic ones. Merkel’s posturing on the Greek bailout was calculated. She sought to spend the least “political capital” and gain the greatest return (electoral wins.)
That market models have previously neglected poltical and/or social dynamics is their weakness. The world has always been complex: we’re just growing more attuned to it and betting larger sums on our ability to exploit this knowledge.
Related: Marc Ambinder on how models used in NYC urban planning are failing because they exclude human experience; model makers failed to interview principal actors.