Yes, you can guess who this is from:
I wrote about short selling and the danger it causes a few days ago and the right wing blogosphere – blinkered to a man (are there any right wing women?) – led by Tom Worstall (as usual) responded with the usual clkaims that a) I had no clue on the issue b) there was no problem c) there were no consequences.
They are, of course, completely wrong. If you assume markets are efficient and allocate resources perfectly – as these bloggers do – then of course the outcome is always perfect. The reality is that markets are hopelessly inefficient much of the time – because they work on imperfect and not perfect information – and as a result the damage caused is substantial.
Dear Lord Almighty. Is there nothing this man cannot misunderstand?
The assumption that markets are efficient is not that they allocate resources perfectly. It is that markets process the information about what prices should be in markets efficiently.
Further, no one at all argues that markets work upon perfect information. Indeed, the assumption is precisely the opposite, that of necessity everyone always works upon imperfect information. \’Coz we\’re talkin\’ about the future, see? Which is inherently unknowable.
Indeed, if perfect knowledge of the present were possible then central planning would work. But, as has been pointed out in the socialist calculation problem, perfect information, perfect knowledge, even of the present is not possible.
So we do not, at any point assume perfect information: we assume exactly the opposite, imperfect information…and then go on to ponder what is the best method of processing that imperfect information to get as good a view of reality as we can….which turns out to be markets for they are efficient at processing such information as we do have.