I'm reading Justin Fox's The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street, which is on many "To Read" lists because of its topical relevance. I think it is especially illuminating when examined in light of another work, Toward Rational Exuberance: The Evolution of the Modern Stock Market by B. Mark Smith. As made clear by the title Fox's stance is generally skeptical of the efficient-market hypothesis (though Fox does often distinguish between weak and strong forms of the hypothesis, and is naturally not as hostile to the former as the latter). In contrast, Smith's work was written right after the .com boom in the early 2000s, and though it is not particularly explicit about its theoretical presuppositions, he clearly believes that the efficient-market hypothesis is the culmination of a century of Wall Street insight. The two books basically take the same history, and flesh out the same figures, but toward fundamentally different ends in terms of big-picture insight (reading Just Fox's book I started having flashback's to Smith's narrative because the chronology forces a similar sequence to both works). There's no point in reading "both sides" when it comes to many natural sciences, but when it comes to financial history I do think you learn a lot more with this sort of binocular inspection.
Addendum: Benoit Mandelbrot's The Misbehavior of Markets: A Fractal View of Financial Turbulence is also very interesting, though naturally somewhat narrower focus.
- Log in to post comments
I suppose you also read < a href="http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?_r=1">Krugman's piece that was all over the internet recently. An interesting read for sure. I was dumbfounded to learn that some economics profs have invested so much mindshare into the efficient market hypothesis that they deny the very possibility of bubbles.
OTOH I also noticed a few glaring omissions - like the fact that Keynesian economics could not explain the stagflation of the 70s. Now I don't know whether this "fact" has been confirmed or debunked, but it's one of the first things that non-specialists like myslef learn about the recent history of economic thought. So a mention would have been nice.
I suppose this reinforces your point about the need for "binocularity" in these matters.
like the fact that Keynesian economics could not explain the stagflation of the 70s. Now I don't know whether this "fact" has been confirmed or debunked, but it's one of the first things that non-specialists like myslef learn about the recent history of economic thought.
krugman discusses this at length in peddling prosperity.
As I remember, when Keynsians failed to figure out stagflation (before 1980), the Chicago School took over and went ahead to make their own mistakes.
I've been saying for years that economics is an ill-formed science -- a lot of partial theories that are good within their limits, but which have not been joined into a single theory. Thus economics is more like a bag of tricks or a collection or wise sayings than it's like a science.
There are lots of reasons (Mandelbrot gives some) why it is unreasonable to hope for economics to become a "real science" that gives unique, precise, certain answers the way physics does -- much less to claim that it already is such a science. And it's equally unreasonable to blame economics for not being a science of that kind, because it can't be that and and never will be.