And yet what is on display in this seemingly nonsensical rise of 10 percent in the value of the Dow over the past few weeks? Nothing more than speculation that certain numbers look promising going forward. In other words, what we have here is a case of the “efficient markets hypothesis” working for the benefit of a Democratic politician, in that the collective wisdom of the market has it that the economy is going to grow at some point relatively soon and that the time to buy is now, so that stocks don’t get more expensive later.
This from John Podhoretz, explaining why it's grossly unfair that liberal economists get to bash conservative, "efficient market hypothesis"-believing economists and take credit for the rising Dow for their man, Obama. Two things:
1. What Podhoretz described isn't the efficient market hypothesis. The "Let's buy now before things get pricier because other people are going to buy now" is a rational response to an inefficient, irrational market -- i.e. one in which you expect crowds of people to stampede in and drive up share prices, even if the underlying assets haven't increased in value. In an efficient market hypothesis world, markets go up because we're getting more information about the underlying assets -- they're making lots of money, and the market prospects are looking good. But we're not hearing uniformly good news. Citi's being dragged down by credit losses; consumers are still stretched thin; unemployment's still going up. All in all, signs are mixed at best. Which is why folks like Robert Reich thinks this is an irrational market movement, not evidence of "efficient markets." So Podhoretz is incoherent.
2. Podhoretz admits that Krugman, whose article about the battles in macroeconomics, won't be taking credit for the market gains. Neither is Robert Reich. So two leading liberal economists who criticize efficient markets aren't taking credit for the market gain. Who is Podhoretz talking about?
So, this isn't evidence of efficient markets, and liberal economists aren't taking credit for it. Why did Podhoretz bother writing all this?
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