Paul Krugman: The Myth of the Rational Market Isn’t Going Away Soon

By on August 11, 2009

Paul Krugman reviews a new book by Justin Fox, The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street, saying it, “brilliantly tells the story of how that edifice was built — and why so few were willing to acknowledge that it was a house built on sand.” He adds the book is, “a must-read for anyone who wants to understand the mess we’re in.”

Krugman and Fox generally tear down the efficient-market hypothesis and the professors who promulgated and profited from it at the expense of the world economy. A nice jab is taken at Alan Greenspan who either dumbly or disingenuously placed too much faith in, “the best and the brightest.”

SMA Comment: Some of the tenets of the efficient-market hypothesis are valid, however, when the looters on Wall Street have no downside risk for making bad bets, the underpinnings of the economy become wildly unstable and inefficient.


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