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In Santa Fe

1. I heard Justin Fox on TV one night, author of The Myth of Efficient Markets, and I was impressed by his grasp of the subtleties of financial models. He understood what models are good for, despite their limitations, and he understood that behavioral finance is overrated — he said that it was good for understanding consumer behavior, but didn’t have much to say about markets as a whole.

2. There is a fierce attack on the state of economics and on many of his named fellow economists of the Chicago school by Paul Krugman at

How Did Economists Get It So Wrong?

But even Krugman’s dreams as someone trained in economics won’t quite die. Somewhere in there he says

“? they (economists) will have to acknowledge the importance of irrational and often unpredictable behavior, face up to the often idiosyncratic imperfections of markets and accept that an elegant economic ?theory of everything? is a long way off.”

A long way off? Why not just say impossible?

3. Efficient Markets, Physics, Biology

The revulsion against efficient market theory continues, and some people propose replacing physics-inspired models by evolutionary-style models. But efficient-market models, though they use the language of physics, do in fact bear some kind of resemblance to the social-darwinism models of the past couple of decades.

According to the EMH God is in his heaven and all is right with the stockmarket world, because prices incorporate all known information. Evolutionary models say we are the way we are, people and social institutions, because that’s the way it had to be for us to get here — kind of anthropic-y. The parallel with biology is already there. The key thing about physics (not cosmology) is that it projects into the future, and God knows it works. These other disciplines look backwards rather than forwards, and try to explain the present.

4. I bought an Egg McMuffin at the McDonalds in Santa Fe this morning and I couldn’t help noticing that the people who populate McDonalds at 9 a.m. quite clearly come from a very different racial (and of course social) segment of the population than the people in the Plaza. Not surprising, but the difference is much more noticeable than in New York.


Noam Chomsky in the Boston Review on our myopic view of “The Crisis”:

One way to enter this morass is offered by the June 11 issue of the New York Review of Books. The front-cover headline reads ?How to Deal With the Crisis?; the issue features a symposium of specialists on how to do so. It is very much worth reading, but with attention to the definite article. For the West the phrase ?the crisis? has a clear enough meaning: the financial crisis that hit the rich countries with great impact, and is therefore of supreme importance. But even for the rich and privileged that is by no means the only crisis, nor even the most severe. And others see the world quite differently. For example, in the October 26, 2008^ edition of the Bangladeshi newspaper The New Nation, we read:

It?s very telling that trillions have already been spent to patch up leading world financial institutions, while out of the comparatively small sum of $12.3 billion pledged in Rome earlier this year, to offset the food crisis, only $1 billion has been delivered. The hope that at least extreme poverty can be eradicated by the end of 2015, as stipulated in the UN?s Millennium Development Goals, seems as unrealistic as ever, not due to lack of resources but a lack of true concern for the world?s poor.

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