Bob is far too diplomatic to be blunt, so I will do it for him: Economics failed. The entire profession took a theory that had some value to it, and extrapolated it to the point of magical thinking. How badly did the economics profession, academics and market pros alike, fail? Classic economic belief systems could not appropriately anticipate in advance or even identify in real time what was happening with the Residential RE/Housing market. They failed to see the Great Recession coming or even the market collapse. The basis for this failure was the erroneous belief that “efficient markets formed by people holding rational expectations could explain virtually all economic activity.” That thesis has now been thoroughly discredited. It is still taught in colleges and business schools, which is why I find most MBAs not worth hiring. Frequently, they can be worse than clueless — they are steeped in the bad ideas of long dead economists, and in my profession, that is not a formula for making money. As history has revealed over and over again, the popular extreme version of EMH is bollocks.
Markets can and do generate lots and lots of useful information and price discovery. But their strength derives from the inputs of the crowd. That strength is also their weakness when that crowd turns into a panicky mob.
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