I would say the fall of 2008 was pretty close to optimal, especially in terms of what Heyek would predict.
That is not to say it was good for the population, but it was a reasonably efficient reaction to the information the market had about the state of affairs. Note that it didn't fully reflect the entire state of affairs because the market did not have sufficient information, and still doesn't. (I think if it did, the S&P 500 would be about half where it is now.)
The thing that makes me listen to people like Mises and Heyek is that other people who follow their teachings were telling me in 2001 that there would be a housing boom and bubble, and that it would crash eventually due to the inevitable excesses of a bubble. I researched this hypothesis and decided I agreed with it. This made it very easy for me to watch housing prices go up, profit from it, notice when things were ready to change, and then profit from the change.
I think the question of whether markets are efficient or not is one that is placed in a vacuum and thus meaninglesss. Is the market more efficient than government? Yes, always. (It is impossible for a central planner to have sufficient information to set prices correctly.)
Were there people who had the same information as I did, but lacked the economic perspective that I did and thus made bad investments? Yes there were. This is happening today, in fact. We have politicians saying a lot of economically silly things, and the market reacts to this "information".
The question of market efficiency ignores the issue of perspective. You can talk about information asymmetry, and people can debate the amount to which it exists, but I'm absolutely certain that there is perspective asymmetry. I'm going to make a killing in the markets simply because so many people's perspective of economics comes from people like Krugman.
Is that efficient? Maybe-- the markets reflect the perspective of most people, even though they are wrong. But I don't really care.
I'd love it if I couldn't profit from this perspective asymmetry... the benefits to society would far outweigh the profits I'd loose from not being able to bet on these sure things. But so long as people will continue to roll their eyes when an austrian is mentioned, I'll take my profits as a consolation prize.
I voted you back up because I don't think you deserve to be negative.
But I'd challenge your claim that you can actually profit from the general economic ignorance. The reason I'm so skeptical is because the market is so good at working around inefficiencies that even when we think something's got to collapse, it finds a way to keep going. (if you'll excuse me for anthropomorphizing)
The anthropomorphizing is appropriate because it illustrates a very real phenomena, and the only thing I can say to that is you cannot predict the timing of events (or at least I can't) as well as you can recognize the fundamentals.
Buffett's approach is to invest based on the fundamentals, and then just wait for the timing to prove him right. And he can wait a long time.
I view all the people keeping the price down (or up) when the fundamentals say otherwise as contributing to market inefficiency. (to the extent that the market doesn't shoe the "perfect objective" price) I agree that the market may be very efficient at showing the balance of the demand from people who think the fundamentals are one way, vs, those who think the opposite. In fact, I think that's what makes for the "inefficiencies" I'm talking about.
EG: Many say gold is in a bubble, while others say gold is under priced. I would say the market is reasonably accurate at putting the gold price at the equilibrium of these two views, but that the fundamentals makes one of these views right and the other wrong.
That is not to say it was good for the population, but it was a reasonably efficient reaction to the information the market had about the state of affairs. Note that it didn't fully reflect the entire state of affairs because the market did not have sufficient information, and still doesn't. (I think if it did, the S&P 500 would be about half where it is now.)
The thing that makes me listen to people like Mises and Heyek is that other people who follow their teachings were telling me in 2001 that there would be a housing boom and bubble, and that it would crash eventually due to the inevitable excesses of a bubble. I researched this hypothesis and decided I agreed with it. This made it very easy for me to watch housing prices go up, profit from it, notice when things were ready to change, and then profit from the change.
I think the question of whether markets are efficient or not is one that is placed in a vacuum and thus meaninglesss. Is the market more efficient than government? Yes, always. (It is impossible for a central planner to have sufficient information to set prices correctly.)
Were there people who had the same information as I did, but lacked the economic perspective that I did and thus made bad investments? Yes there were. This is happening today, in fact. We have politicians saying a lot of economically silly things, and the market reacts to this "information".
The question of market efficiency ignores the issue of perspective. You can talk about information asymmetry, and people can debate the amount to which it exists, but I'm absolutely certain that there is perspective asymmetry. I'm going to make a killing in the markets simply because so many people's perspective of economics comes from people like Krugman.
Is that efficient? Maybe-- the markets reflect the perspective of most people, even though they are wrong. But I don't really care.
I'd love it if I couldn't profit from this perspective asymmetry... the benefits to society would far outweigh the profits I'd loose from not being able to bet on these sure things. But so long as people will continue to roll their eyes when an austrian is mentioned, I'll take my profits as a consolation prize.