Everyone is kicking the poor EMH now that it’s down, some of them quite eloquently and hard. But I’m always on the side of the poor underdog.

I wasn’t around, thank God, when the EMH became popular. I’ve never found much real use for CAPM in what I do, which is mostly what Summers in one of his better moments called ketchup economics, the economics of relative value rather than absolute value. Unfortunately, absolute value theories don’t work very well in economics. I learned finance bottom up, and found options theory much more useful, though much less ambitious, than CAPM and mean-variance.

But the EMH, if you don’t take it too literally and get carried away about axiomatically defining strong, weak and other kinds of efficiency as though you were dealing with axiomatic quantum field theory, does recognize one true thing: that it’s #$&^ing difficult or well-nigh impossible to systematically predict what’s going to happen. You may think you know you’re in a bubble, but you still can’t tell whether things are going up or down the next day. The EMH was a kind of jiu-jitsu response on the part of economists to turn weakness into strength. “I can’t figure out how things work, so I’ll make that a principle.”

It reminds me a bit of the anthropic principle: “I can’t explain why the fine structure constant is 1/137 so I’ll just say that if it weren’t I wouldn’t be here.”