[ExI] Greed + Incompetence + A Belief in Market Efficiency = Disaster

[Stefano Vaj]

On Sat, Jan 31, 2009 at 3:17 AM, Stathis Papaioannou <stathisp at gmail.com> wrote:
> 2009/1/30 BillK <pharos at gmail.com>:
> Please note that there are two possible meanings for "efficient market
> theory". The more common one in economics is the idea that the market
> prices a security to reflect all the information available, so that it
> is in general not possible for a speculator to beat the market unless
> he has special information:

Yes. In this sense, markets remain "efficient", in market terms, even
in the worst possible economic downturn. The fact is that efficiency
in this sense has nothing to do with wealth in any practical sense.
Markets are perfectly compatible, e.g., with free trade generating
poverty or famine, rather than wealth, in a given country. In fact,
"marketwide", this may be an efficient development.

> The article cited is talking about something quite different: the idea
> that if markets are left free from government interference that will
> always be for the better. This has come to be accepted as indisputable
> fact by neocons since the early 1980's, with Reagan and Thatcher its
> most influential proponents. The result has been a 25 year debt
> bubble, so that the US economy came to consist largely of retail and
> financial services. The bubble has now well and truly burst and it
> looks like there is no escaping years of relative poverty for both
> debtor and creditor nations ahead.

One wonders however *why* this should be the case, when this is a
purely financial outcome having nothing to do with available labour,
natural resources and industrial capacity. Here, a modicum of bold,
lateral re-thinking might be in order.

As Ezra Pound used to say, "the idea that a government cannot build
highways because there is not enough money is akin to the idea that it
cannot build them because there are not enough kilometers". Even
though I am far from persuades by their messianic trust in impersonal
mechanisms, at least radical libertarians try to think
"out-of-the-box" - something which cannot really be said, also thank
to their being conditioned by conservative vested interests, of most
governments.

-- 
Stefano Vaj