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FT.com / Markets / Insight - The flawed wisdom of crowds
The conventional wisdom of academic investment theorists is taking a terrible beating in the post-bubble era. Rightly so, in the case of the efficient market theory, which now gives rise to growing scepticism.
The notion that stocks follow a random walk and all available information is in the price has always looked suspect in the light of history, which repeatedly tells us that Homo economicus is not the rational man of the economists’ musings and that markets are prone to periodic bubbles. In its strongest form it even attributes the success of investors such as Warren Buffett and Fidelity’s Anthony Bolton to pure luck, which to my mind is too strong by half.
FT.com / Comment / Opinion - Economists clash on shifting sands
That economics is not a natural science is clear from the inconclusive engagements that have punctuated its own history. A hundred years ago the classical theory reigned supreme. This “proved” that free markets were automatically self-adjusting to full employment. They were either continually at full employment or, if disturbed by an outside shock, rapidly returned to it. The only thing capable of wrecking the workings of the market’s invisible hand was the visible hand of government interference.
Then along came the Great Depression of 1929-32 and John Maynard Keynes. Keynes “proved” that markets had no automatic tendency to full employment. This failing of the invisible hand justified government policies to maintain full employment.
For 30 years or so Keynesianism ruled the roost of economics
Escape from the Price Spiral by Dane Stangler, City Journal 31 December 2008
Escape from the Price Spiral
Robert Samuelson’s history of postwar inflation belongs on Obama’s bookshelf.
FT.com / UK - The worst market crisis in 60 years | Soros
Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable. The ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves.
OTHER PEOPLE'S MONEY by Louis D. Brandeis | The Louis D. Brandeis Collection
In 1912, Woodrow Wilson campaigned for President using many Progressive ideas about strengthening the economy: banking reform, tariff reduction and the elimination of monopolies and trusts. The consolidation of these ideas became known as the New Freedom.
SparkNotes: Money: Quantity theory of money
The velocity of money equation represents the heart of the quantity theory of money. By understanding how velocity mitigates the actions of the Fed in the long run and in the short run, we can gain a thorough understanding of the value of money and inflation.
Econbrowser: Federal Reserve balance sheet - how it works
Let me begin by reviewing some first principles of what the Fed is all about. How did the cash currently in your wallet get there?
Globalization And Its Discontents: Joseph Stiglitz: Amazon.ca: Books
"One should not see unemployment as just a statistic, an economic "body count," the unintended casualties in the fight against inflation or to ensure that Western banks get repaid. The unemployed are people, with families, whose lives are affected—sometimes devastated—by the economic policies that outsiders recommend, and, in the case of the IMF, effectively impose. Modern high-tech warfare is designed to remove physical contact: dropping bombs from 50,000 feet ensures that one does not 'feel' what one does. Modern economic management is similar: from one's luxury hotel, one can callously impose policies about which one would think twice if one knew the people whose lives one was destroying.
The Reckoning - Chinese Savings Helped Inflate American Bubble - Series - NYTimes.com
To be sure, there were few ready remedies. Some critics argue that the United States could have pushed Beijing harder to abandon its policy of keeping the value of its currency weak — a policy that made its exports less expensive and helped turn it into the world’s leading manufacturing power. If China had allowed its currency to float according to market demand in the past decade, its export growth probably would have moderated. And it would not have acquired the same vast hoard of dollars to invest abroad.
Others say the Federal Reserve and the Treasury Department should have seen the Chinese lending for what it was: a giant stimulus to the American economy, not unlike interest rate cuts by the Fed. These critics say the Fed under Alan Greenspan contributed to the creation of the housing bubble by leaving interest rates too low for too long, even as Chinese investment further stoked an easy-money economy. The Fed should have cut interest rates less in the middle of this decade, they say, and started raising them sooner, to help reduce speculation in real estate.
Discover It: Keynes vs. Friedman
In an excellent article, Bradford Delong, the renowned Professor of Economics of the University of California at Berkeley, had brought out the differences – straight and subtle – between the theories and view points of the Economists John Maynard Kenes and Milton Friedman; both of whom are considered the greatest of the economic thinkers of the previous century.
Keynes vs Friedman - Value Research: The Complete Guide to Mutual Funds
I shall always remember Keynes with his pipe and files marked 'secret' but it is Friedman whose week-long association in a Sussex village that I value more.
TheStar.com | Business | A Keynes insight into free markets
Keynes, who died in 1946, said market forces don't necessarily come into equilibrium on their own. In such circumstances, governments should increase spending to boost demand and help return the economy to full employment.
That idea spread around the world in subsequent decades, said Smith, "and it came to be widely believed that one of the roles of government was to prevent business cycles and stabilize the economy as a whole, and that the government could do that in part by following what's sometimes called a counter-cyclical fiscal policy where they would spend more in recessions and less in booms."
reportonbusiness.com: Low rates, high spending? It could just be a recipe for more economic woe
“Obama's a poker player,” Prof. Navarro said. “Here we've got a new president coming in who is basically going to bet the entire administration on a fiscal stimulus hand that is at best two jacks.”
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