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.
Trade and commerce, if they were not made of Indian rubber, would never manage to bounce over the obstacles which legislators are continually putting in their way.
The real source of market promise is not the wealthy few in the developing world, or even the3 emerging middle-income consumers. It is the billions of aspiring poor who are joining the market economy for the first time.
For most Americans, economic growth is a spectator sport.
I've never been on Wall Street. And I care about Wall Street for one reason and one reason only because what happens on Wall Street matters to Main Street.
Regulation has gone astray. . . . Either because they have become captives of regulated industries or captains of outmoded administrative agencies, regulators all too often encourage or approve unreasonably high prices, inadequate service, and anticompetitive behavior. The cost of this regulation is always passed on to the consumer. And that cost is astronomical.
I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible. ... because I believe the big problem is not taxes, the big problem is spending.
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