Thursday, August 30, 2007
Efficient Markets are Definitionally Suboptimal Resource Allocators
by Ken Houghton
As Spencer notes in comments:
Mark Thoma demonstrates that this is necessarily true in basic economic theory, using "bubbles" as an example.
As Spencer notes in comments:
The problem is that this is the way the economy really works-- overshooting in one direction and over correcting in the other.
The problem is economic theory that never builds this into the mainstream models.
We teach the cob-web function in one lecture in intro-economics and then forget it. But the cob-web does a better job of explaining the system than the mainstream theory that academics teach.
It also implies that free markets are inherently much more wasteful than most economist like to believe.
Labels: Economics, free trade, Optimal Resources, teaching
