The Efficient Markets Hypothesis is one of John
Quiggins Zombie ideas – intellectually discredited, yet still alive. And yet,
this doesn’t mean that Quiggins is right about EMH, because he deals with it as
though it were a model developed in a laboratory, which is the way economists
regularly see themselves. I would state the case much differently. EMH – the idea
that at any moment, the market collectively embodies more information than any
one subject within it could have, and so is ultimately unriggable by any one
subject – or, as it is more commonly put, the market can’t be beat - is actually the belated justification for the
speculative structure that sprang up in the financial community after the
progressive wave at the beginning of the twentieth century ebbed. The ebbing of
that wave was too bad. Roosevelt Republicans - partly just to bedevil Taft, but
partly driven by the brain trust that had helped design the income tax and the
laws governing interstate commerce - put up an agenda that would have:
centralized the incorporation of interstate companies with the Commerce Department
(still a vital reform - one of the great drivers of regulatory laxity in the
U.S. is the ability of corporations to, in effect, choose their jurisdictions
and rules, thus carving out practical 'offshore' havens in the U.S.
(notoriously, Delaware); and put strict controls on stock trading by making it
impossible to water stocks (a phrase that has now become antique, since it
describes our entire speculative structure nowadays), again giving the Commerce
department the power to order companies to reduce exaggerated market valuation
- in essence, the market valuation should be at parity with the Commerce
Department determined real value of the company. The best account that I know
of is given in Lawrence Mitchel's The Speculation Economy, in the chapter entitled
Transcendental Value. Modern speculation began as a commercial practice, not an
economic model - and when models were finally found to 'explain' and justify
it, it was already established, on the foundation of the defeat of the
progressive movement. As is mostly the case, an economic model is not a
prescription for how to do things, but an adjunct to the struggle between
practices already in play. Whether you accept EMH or behaviorialist accounts,
it doesn't really matter. The model is an epiphenomena. If economists had
existed in pharaonic times, they would surely have produced efficiency and
behavioral models of pyramid building. Putting to death EMH is like striking
the totem resemblence of an animal instead of the animal itself. It doesn't
really matter until you buy into the system of magic of which it is a part
“I’m so bored. I hate my life.” - Britney Spears
Das Langweilige ist interessant geworden, weil das Interessante angefangen hat langweilig zu werden. – Thomas Mann
"Never for money/always for love" - The Talking Heads
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