Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.
Topic: Robert Shiller
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October 14, 2013 at 11:33 AM
If you are invested in an index fund, you can thank Eugene Fama of the University of Chicago, one of the three Americans to win the Nobel Prize in economics. Fama’s research indicated that trying to time the market or pick stocks was a fool’s errand. Instead, asset prices already reflect all the information known. This important piece of “efficient markets theory” gave rise to index funds.
But even Nobel laureates can’t get it right all the time (President Obama, Nobel Peace Prize winner, recently wanted to bomb Syria). Brad DeLong of UC, Berkeley posted an astonishing interview of Fama by the New Yorker’s John Cassidy, in which the new Nobel laureate pretty much denies that bubbles happen and claims that the housing crash could only be seen in hindsight.
And even if the crash caused the recession, which Fama denies, it was because of people getting Fannie and Freddie loans, not because of a fundamental failure in the market driven by private-sector greed, leverage and risk-taking. Even your humble economics columnist called the housing crash, so c’mon. The “free market” hothouse of Chicago grows exotic flowers.
But wait. Another winner is the estimable Robert Shiller of Yale, who did pioneering research into how markets can be very inefficient. Chris Dillow does a good job of sorting out their positions and how they can be reconciled. (Lars Peter Hansen, also of Chicago, was the third winner announced today).