Why China’s overall economy may benefit from more market volatility
China’s leadership prizes stability. Its economic growth always seems to hit the government’s target and its currency, the yuan, seldom fluctuated.
Until now. After years of going only up, gradually, the yuan has become unpredictable and volatile. In the short run, this has given global markets indigestion. In the long run, though, it’s a good thing. When investors take economic or currency stability for granted, they take on too much risk in the belief nothing will change. (See also: The damage done when many believed U.S. home prices would never go down.)
That’s a lesson China has yet to take on board for the overall economy. Yet its long-term health would benefit from less state-directed stability and more market-driven volatility.
Volatility raises awareness of risk, something that can actually enhance safety, and not just in finance. Football, for example, is a rough sport, which is why players wear helmets and padding. But helmets can also make players feel so protected that they hit harder, leading to concussions and other head injuries.
Erik Swartz of the University of New Hampshire and six fellow researchers asked a group of college players in 2014 to undertake regular drills without helmets or shoulder pads. When they donned helmets for regular practices and games, they experienced 28% fewer head hits than a control group that didn’t do helmetless drills, according to the study published last month in the Journal of Athletic Training. Learning to tackle without a helmet apparently encouraged them to protect their heads better.
