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“An Inefficient Truth”

In the fitful debate about the role of the market in the financial crisis, the efficient-market hypothesis looms as a sort of loyalty test. If you’re a conservative, free-market type—a Randian, Austrian, Milton Friedman-meets-Ronald-Reagan Chicagoan with a supply side streak—you view the notion of market efficiency as broadly correct; the market really can process available information “efficiently,” certainly better than cartoon bureaucrats in Washington can, and thus produce roughly “correct” prices (this is also one explanation for why the market is so hard to beat). 

If you’re more distrustful of the market, brought up short by Stiglitzean ma