From the book

He’s missed what we mean by markets being efficient:

If markets are to be efficient in the way that economists have described — and as those who suggest they provide optimal solutions profess to believe they operate — then there must be the highest-quality information available to all market participants so that they can act rationally, allocating resources to the person who is best able to use them to maximize return, and who exposes the provider of capital to the lowest risk in that process. Very obviously, tax havens undermine these principles. They are in fact designed to deny market participants the information they need to act rationally, allocate resources efficiently and minimize risk. … If risk is increased, then the required rate of return within marketplaces also increases. This means that the number of projects that can be invested in is reduced, so that the amount of capital committed is diminished. As a consequence, productivity declines, and along with it growth, output, wages and profits

But that’s not what we mean by market efficiency. Rather, we mean that markets are efficient at processing information. It’s entirely opposite. It’s not that markets are efficient thus we must make sure markets have lots of information. It’s that because markets are efficient everything that people know will be efficiently incorporated into prices.

For people trade on what they know. Thus some people knowing something means they trade, that knowledge is then in post-trade prices.

He’s simply got the idea of efficiency entirely the wrong way around.

20 comments on “From the book

  1. There’s no getting away from it: Professor Murphy is a pioneer of ideas which challenge received wisdom and the orthodoxy of much current political and economic thought. He is a substantial figure in the development of complex monetary theory and enjoys a preemminent position at the intersection of economics and astrology.

    Today he explains how all the money that flows to Liechtenstein is lavished on expensive lawyers’ offices and confidential letter boxes rather than circulate back to traditional investments in other jurisdictions.

  2. I don’t understand how he gets employed at a ‘University’.

    This is like a physics ‘professor’ misunderstanding Newton’s laws.

    Really embarrassing for City. You have to wonder what they are doing as an institution

  3. “He’s simply got the idea of efficiency entirely the wrong way around.”

    Maybe we should call him Dups.

  4. Even taking him at face value I don’t get his point. Company uses a tax haven… er… so what?

  5. There is no requirement that free exchange be ‘efficient.’

    It’s the statist’s view that it is their right and duty to improve/fix life.

  6. His prose reveals his insecurities and his dogmatism.

    “Very obviously, tax havens undermine these principles.”

    “Very obviously” is unnecessarily emphatic; and it just asserts that his conclusion, however muddled, is self-evident – to him, at least – so supplementary argumentation would be quite superfluous.

    “They are in fact designed to deny market participants the information they need to act rationally, allocate resources efficiently and minimize risk.”

    “In fact”? Then give us the facts about who designed them and about their intentions…

  7. Even if we accept his premise the question is surely not whether all market participants have ALL information, but whether they collectively have more information upon which to base their decisions than a very small group in government.

    Because even if the fullest picture is not very full………..it’s still the fullest, right?

    Crowds may not be that wise, but civil servants are less so.

    Or does Murphy believe a single civil servant is more able to guess accurately the needs of a million consumers than………………..the million consumers?

  8. Quite so.

    Efficiency = maximum output for minimum input.

    Markets are efficient because that is what they do.

    There are those who believe ‘more out’ can only be obtained because of ‘more in’ … hence better public services must require more spending.

    The converse applies, ‘less in’ must mean ‘less out’… thus austerity will kill the poor, the weak, the sick, etc.

  9. “Or does Murphy believe a single civil servant is more able to guess accurately the needs of a million consumers than………………..the million consumers?”

    Yes.

  10. Statists couldn’t care less about efficiency.

    C, getting involved with a deal between A and B is going to be more efficient? Really?

    Statists like Murphy want control. They use capitalists’ words to get them to accept control.

  11. Glen D, the two opinions attributed to him on that Twitter, er, page, are not mutually exclusive.

    But sure, if Widmerpool is being more widely exposed, in all senses of the word, then good.

  12. Yet another excruciating occasion where Ritchie is not even wrong.

    You could fill a book with such howlers. In fact, he has.

    This is, however, a rather fine example in which he not only completely misunderstands the nature of free markets as a means for crystalising in a discovered price an infinity of disparate information, diversity of preference and availability of alternatives (not to mention the endless experimentation following the profit incentive), but then follows with a complete non sequitur concerning tax havens.

    All the evidence suggests that Ritchie is – indeed, must be – another Godfrey Elfwick; writing trollish pieces so indistinguishable from uninformed, ignorant bar-stool bull-shittery that it obtains the level of art.

    The question is, how did City University allow itself to get trolled.

  13. I would love to sit Murphy down, possibly at gun-point, and make him wade through a book on modern investment theory. I wonder how long it would be before he cracked? I imagine being presented with e.g. something about the minimum variance set being hyperbolic or parabolic depending on which space you were working in would completely do him in.

  14. To be fair though, BiCR, a great deal of modern investment theory is on a par with the writings of CJ Murphy

  15. The question is, how did City University allow itself to get trolled

    This is the (former?) haunt of Connie St Louis, so were they trolled or do they deliberately recruit these people?

  16. Ritchie is employed by City because he can suck in EU grants and because his conclusions for any funded project can be assumed to be what is desired before it is started. See history with Christian Aid, PCS, etc.

    His fee to recalculate his tax gap figures was 40K. I jokingly offered to fund it to find out what it would be.

  17. Does he explain what information lies hidden away in these tax havens, unreported by the financial statements of corporations? I might be naive but I though the point of tax havens was to reduce tax liabilities rather than hide money or profits….

Leave a Reply

Name and email are required. Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.