Efficient Financial Markets Aren't Efficient

Moneybox
A blog about business and economics.
April 11 2013 12:33 PM

Efficient Financial Markets Aren't Efficient

166307471
BERLIN, GERMANY - APRIL 11: The bitcoin website is shown on the computer of the proprietor of a shop selling vinyl records and that accepts bitcoins for payment on April 11, 2013 in Berlin, Germany.

Photo by Sean Gallup/Getty Images

As Scott Sumner argues the extreme instability of the price of Bitcoins should be understood as a confirmation of the efficient markets hypothesis (EMH) not a refutation of it. But that in turn is just another illustration of the extent to which the use of the English language word "efficient" as an economics term of art can get confusing.

After all, there's nothing particularly efficient about the kind of wild gyrations that are often associated with efficient financial markets. There isn't, as of yet, much of a Bitcoin economy. But if there were basing long-term investment decisions on these wacky market fluctuations would be a terrible idea. Efficient markets just exhibit a level of instability that's highly undesirable from the standpoint of normal people trying to run a real economy.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Culturebox

The Ebola Story

How our minds build narratives out of disaster.

The Budget Disaster That Completely Sabotaged the WHO’s Response to Ebola

PowerPoint Is the Worst, and Now It’s the Latest Way to Hack Into Your Computer

The Shooting Tragedies That Forged Canada’s Gun Politics

A Highly Unscientific Ranking of Crazy-Old German Beers

Education

Welcome to 13th Grade!

Some high schools are offering a fifth year. That’s a great idea.

Culturebox

The Actual World

“Mount Thoreau” and the naming of things in the wilderness.

Want Kids to Delay Sex? Let Planned Parenthood Teach Them Sex Ed.

Would You Trust Walmart to Provide Your Health Care? (You Should.)

  News & Politics
Politics
Oct. 22 2014 9:42 PM Landslide Landrieu Can the Louisiana Democrat use the powers of incumbency to save herself one more time?
  Business
Continuously Operating
Oct. 22 2014 2:38 PM Crack Open an Old One A highly unscientific evaluation of Germany’s oldest breweries.
  Life
Dear Prudence
Oct. 23 2014 6:00 AM Monster Kids from poorer neighborhoods keep coming to trick-or-treat in mine. Do I have to give them candy?
  Double X
The XX Factor
Oct. 23 2014 8:51 AM The Male-Dominated Culture of Business in Tech Is Not Great for Women
  Slate Plus
Tv Club
Oct. 22 2014 5:27 PM The Slate Walking Dead Podcast A spoiler-filled discussion of Episodes 1 and 2.
  Arts
Brow Beat
Oct. 23 2014 9:00 AM Exclusive Premiere: Key & Peele Imagines the Dark Side of the Make-A-Wish Program
  Technology
Future Tense
Oct. 22 2014 5:33 PM One More Reason Not to Use PowerPoint: It’s The Gateway for a Serious Windows Vulnerability
  Health & Science
Bad Astronomy
Oct. 23 2014 7:30 AM Our Solar System and Galaxy … Seen by an Astronaut
  Sports
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.