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.
Government control of the economy, no matter in whose behalf, has been the source of all the evils in our industrial society -- and the solution is laissez-faire capitalism, i.e., the abolition of any and all forms of intervention in production and trade, the separation of State and Economics, in the same way and for the same reasons as the separation of Church and State.
When the economic well-being of their nation demanded a strong and creative response, my colleagues at the Federal Reserve... mustered the moral courage to do what was necessary.
Inflation is the fiscal complement of statism and arbitrary government. It is a cog in the complex of policies and institutions which gradually lead toward totalitarianism .
All wealth consists of desirable things; that is, things which satisfy human wants directly or indirectly: but not all desirable things are reckoned as wealth.
Zoning laws making housing more expensive? That's less of a problem with a universal basic income and more of a reason to put money directly into people's hands.
Today, if you look at financial systems around the globe, more than half the population of the world - out of six billion people, more than three billion - do not qualify to take out a loan from a bank. This is a shame.
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