Re: ECON: Market efficiency: good or bad?
Thu, 1 Jul 1999 05:04:18 -0700 (PDT)

Eliezer S. Yudkowsky [] wrote:
>Yep. You've got people buying a stock because they think other people
>will buy the stock because other people... it doesn't ground. You've
>got massive, volatile, pointless movements materializing out of nowhere.

As far as I'm concerned, speculators are a symptom, not the problem. The problem with the stock market is that it's far from a free market; for example:

  1. Insider trading laws prevent the spread of accurate information required for sane investment choices.
  2. Capital gains tax means that many people stay in a stock well after they would otherwise have dumped it, in order to avoid tax.
  3. Various laws encourage people to invest money in the stock market which, in a free market, they'd have put elsewhere.

So all these restrictions encourage continual increases in stock prices and, not surprisingly, speculators jump in and take advantage of that. And politicians can use this to claim the economy is wonderful, all the while just creating a hideous bubble which will eventually collapse.