Economists who adhere to rational-expectations models of the world will never admit it, but a lot of what happens in markets is driven by pure stupidity - or, rather, inattention, misinformation about fundamentals, and an exaggerated focus on currently circulating stories.
Interpretation
Market behavior is often influenced by irrational factors, including misinformation and inattention.
In this quote, Robert J. Shiller emphasizes that despite the rational theories often cited by economists, the reality of market dynamics is frequently driven by irrational behaviors. He points out that factors such as misinformation, distraction from fundamental values, and a fixation on prevailing narratives significantly influence market outcomes, highlighting a contrast between theoretical models and the actual psychology of market participants.
In practice
In a discussion about stock market fluctuations during a presentation.
Those on the downside of rising economic inequality generally do not want government policies that look like handouts. They typically do not want the government to make the tax system more progressive, to impose punishing taxes on the rich, in order to give the money to them. Redistribution feels demeaning. It feels like being labeled a failure.
Speculative markets have always been vulnerable to illusion. But seeing the folly in markets provides no clear advantage in forecasting outcomes, because changes in the force of the illusion are difficult to predict.
That's the world we live in: when it comes to economics, people have emotions; it's not like chemistry or physics.
Money management has been a profession involving a lot of fakery - people saying they can beat the market, and they really can't.
We should not be focusing on quick solutions. The really important concern for policymakers everywhere is to prevent disasters - that is, the outlier events that matter the most.
If we wait until income inequality is much more severe, we will have a whole class of new superrich who will probably feel entitled to their wealth and will have the means to defend their interest. That's already gone far enough. We shouldn't let it become more extreme.
The public firm can nowhere maintain itself in free competition with the private firm; it is possible today only where it has a monopoly that excludes competition. Even that alone is evidence of its lesser economic productivity.
Passive commerce . . . should thus . . . [compel us] to content ourselves with the first price of our commodities, and to see the profits of our trade snatched from us, to enrich our enemies and persecutors. That unequalled spirit of enterprise . . . an inexhaustible mine of national wealth, would be stifled and lost; and poverty and disgrace would overspread a country, which, with wisdom, might make herself the admiration and envy of the world.
The consumer, so it is said, is the king each is a voter who uses his money as votes to get the things done that he wants done.
The problem is this. The spread of markets outpaces the ability of societies and their political systems to adjust to them, let alone to guide the course they take
After the 1929 crash, the Federal Reserve mistakenly focused its policies on preserving the gold value of the dollar rather than on stabilizing the domestic economy.
There can be no rise in the value of labour without a fall of profits.
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