Brian Milner is a “a senior economics writer and global markets columnist” at Canada’s largest and arguably most highly respected newspaper, the Globe and Mail. Milner doesn’t understand what economists mean by the word “efficient,” doesn’t understand the elements of the efficient markets hypothesis (EMH), and, worst, uncritically repeats nonsense from David Orrell, whose awful anti-scientific screed I reviewed here. Why oh why, as Brad DeLong likes to say, can’t we have a better press corps?
Yesterday Milner wrote a piece titled “Why `efficient markets’ are merely wishful thinking.” The first half consists of an argument that austerity measures in Europe have been harmful. Then it goes off the rails: there’s a jarring segue, starting with the claim that austerity measures somehow show “how hard it can be to kill off a bad idea in the world of economics,” into an interview with Orrell centred on the EMH and Orrell’s belief that economists believe markets are perfect, which “provides a defence for stratospheric CEO salaries and widening income inequalities.”
It took me three reads to figure out how Milner thinks the first and second half of his article fit together: Milner isn’t aware that “efficient” markets in the sense of the EMH is not the same as “efficient” in the more common Pareto sense (which itself doesn’t imply laissez faire policy, but I digress). Milner proceeds to repeat Orrell’s brutal misunderstanding of the EMH as implying “the only time natural market efficiency is seriously threatened is when heavy-handed governments meddle in the process.” Which is apparently something economists think because “that’s the perfect theory for the 1 per cent”—recall Orrell thinks academic economics is a “a giant global conspiracy” to enrich autocrats.
Is it true that financial economics takes the EMH as sacrosanct, never challenging it empirically due its beauty and/or its alleged ability to further the interests of rich people? Of course not. Finance folks have spent the last four decades writing thousands of empirical papers studying aspects of efficient markets hypotheses—note the plural, neither Orrell nor Milner seem to be aware that the hypothesis comes in flavours other than its strong form. No one takes the strong form as empirically viable (“Since there are surely positive information and trading costs, the extreme version of the market efficiency hypothesis is surely false,” Eugene frickin’ Fama, 1991). Extensive empirical evidence in mainstream journals documents when and how prices violate the weak form of the EMH, see for example Lin and Brooks (2010). On the other hand, it empirically well-documented that the weak version is a good enough approximation that investors can’t exploit violations to systematically beat the market, and I am not aware of anyone, including serious critics of mainstream economics, who doubts that.
On Milner’s repetition of Orrell’s claim that economists ignore income inequality: There is a vast literature in mainstream economics on the causes and consequences of income inequality. Economists do not ignore income inequality, or labor market outcomes more generally—we actually have a whole field obscurely called “labor economics” focused on such phenomena!
Milner thinks it’s hard to kill a bad idea in the world of economics. He should consider how hard it is to kill a bad idea—the idea that economists think markets are invariably perfect—in the world of ill-informed economics journalism.