Saturday, June 06, 2009
'The incredibly inaccurate efficient market theory'
Reader No. 1 sends in two truly 'thoughtful and thought provoking' articles: "Joe Nocera on Jeremy Grantham on the inefficiencies of efficient markets. Holman Jenkins in Policy Review on why the current response to such inefficiencies is likely to make matters worse." ... By coincidence, Eric Rosengren, head of the Federal Reserve Bank of Boston, yesterday was also touching on what we've learned about the markets:
Reader No. 1 sends in two truly 'thoughtful and thought provoking' articles: "Joe Nocera on Jeremy Grantham on the inefficiencies of efficient markets. Holman Jenkins in Policy Review on why the current response to such inefficiencies is likely to make matters worse." ... By coincidence, Eric Rosengren, head of the Federal Reserve Bank of Boston, yesterday was also touching on what we've learned about the markets:
Before the crisis, economists didn’t have as firm a grasp as they thought on the connection between financial markets and the general economy, Rosengren said.Though I disagree with some of Jenkins's anti-government points (and blame), he's right to caution about the Obama administration's optimistic assumptions about running auto companies and a health-care system, etc. When it comes to the markets, a lot of humility is in order.
“The financial links to the real economy are, in my view, only crudely incorporated into most macroeconomic modeling,” said Rosegren in prepared remarks.
“Indeed, most forecasters did not recognize we were in a recession in the spring of 2008,” even though economists now pin the start of the recession to December 2007, he said.
