Word: stockely
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Irving Fisher lives on in American economic history mainly as a laughingstock. He was, after all, the ninny who declared on Oct. 15, 1929, that stock prices had reached "what looks like a permanently high plateau." Two weeks later, stocks plunged off that plateau--not to return to their 1929 level for a quarter-century...
Emboldened by this work, economists began to apply their number-crunching skills to the postwar market. Chicago graduate student Harry Markowitz devised a model for picking stocks that was, in Friedman's estimation, "identical" to his artillery-shell-fragmentation trade-off. And in the late 1950s, scholars at Chicago and the Massachusetts Institute of Technology became enamored of the idea that stock-market movements were, like many physical phenomena, random...
...random one. But Samuelson didn't share Friedman's political views, and he never claimed that actual markets met this ideal. It was at Chicago that a group of students and young faculty members influenced by Friedman's ideas began to make the case that the U.S. stock market, at least, was what they called "efficient...
...Eugene Fama, a young professor at Chicago's business school, tied all this together in 1969 into what he dubbed the efficient-market hypothesis. "A market in which prices always 'fully reflect' available information is called 'efficient,'" he wrote--and the evidence that such conditions prevailed in the U.S. stock market was "extensive, and (somewhat uniquely in economics) contradictory evidence is sparse...
...Samuelson's MIT, to start pointing out the problems. Samuelson protégé Joseph Stiglitz showed that a perfectly efficient market was impossible, because in such a market, nobody would have any incentive to gather the information needed to make markets efficient. Another Samuelson student, Robert Shiller, documented that stock prices jumped around a lot more than corporate fundamentals did. Samuelson's nephew Lawrence Summers demonstrated that it was impossible (without a thousand years of data) to tell a rationally random market from an irrational...