But in one way Fama was right: the movement in the individual prices of stocks and bonds is “extremely hard to predict over short horizons.” And prices do move quickly (and efficiently?) to absorb any ability of investors to take advantage of others and make profit (as long as the market is not rigged, of course!). His Efficient Markets Hypothesis (EMH) basically asserts, in the words of the economist Burton Malkiel, that “a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.”
[…]
As neoclassical economist John Cochrane put it: “The central prediction of the EMH is precisely that nobody can tell where markets are going – neither benevolent government bureaucrats nor crafty hedge fund managers, nor ivory tower academics. This is the best tested proposition in all the social sciences”.
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But for society as a whole, the question is whether financial markets are useful and efficient at all. That is a different question and one on which Fama has nothing to say. His EMH implies that if markets are left to themselves and market agents have enough information, then an economy will perform efficiently and without disruption. Well, after the Great Recession, he was asked what went wrong. He replied casually, “We don’t know what causes recessions. I’m not a macroeconomist, so I don’t feel bad about that! We’ve never known. Debates go on to this day about what caused the Great Depression. Economics is not very good at explaining swings in economic activity”.
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Shiller and Akerlof are supporters of what is fashionably called ‘behavioural economics’ i.e. the changes in a capitalist economy can be best explained by changes in the unpredictable behaviour of consumers and investors. That sets off a chain of connections for the demand for money, in investment decisions and in spending. This is the inherent flaw in a modern economy: uncertainty and psychology. It’s not the drive for profit versus social need, but the psychological perceptions of individuals. Thus the US home price collapse came about because consumers’ ‘animal spirits’ gave way to a bias towards precaution and savings as debt mounted – just like that.
(Emphasis added.)
Most economists are economists in name only. I forget exactly who said this, but “economists” are just neoliberal bootlickers that are more like priests than actual scientists or behavioral experts.