The Treasury Department’s report to Congress on the exchange-rate policies of major trading partners called on policy makers “to use the full set of policy tools at their disposal.”Not since the last semi-annual currency report has so much "reasoning from a price change" been used to say so little with such authority. Some observers believe that central banks don't have that much influence over inflation. I disagree with that. But, I can see how it could seem true, or be true. We could give Treasury officials and central bank officials around the world big computer terminals with a lot of buttons and levers, but not connect them to anything, just have random colors and numbers flash on the screen as they pull and push on them. Then we could occasionally tell them what a great job they are doing, or chastise them for pulling too many levers. It wouldn't look much different than the world we have today. What's the difference between trying to describe a web of exchanges we can't begin to understand and just making stuff up?
“Not only has global growth failed to accelerate, but there is worry that the composition of global output is increasingly unbalanced,” it said. “The global economy should not again rely on the U.S. to be the only engine of demand.”
The first line of the article:
The Obama administration chastised Europe and Japan for excessive reliance on monetary policy to revive stagnant growth....This seems like strong form IMH.
Maybe Office Space is a better place for this scene than Gulliver's Travels.
"Um...Yeah...So, Germany, we're going to need you to work over the weekend to get those TPS reports in. M'kay?"
On the topic of EMH and IMH, here is a Harvard Business Review article that discusses recent research that shows inside information can lead to worse decisions. This doesn't surprise me. I have always thought that the difference between weak form efficient markets and strong form efficient markets was less stark than it is generally perceived.
We tend to think in terms of clear episodes, like a bio-tech firm getting FDA approval for a new drug, or something like that. But, the vast, vast majority of investment information and decisions are bathed in a complex set of factors that make simple information very difficult to value in isolation. Insiders are frequently very poor traders.
Financial speculation depends greatly on discipline and perspective. And the denominator in the valuation of perpetual streams of cash flows is very important, even while it is wholly unknowable. If you haven't honed those things carefully, gaining new information can very easily lead you to give more weight to incorrect perceptions.
I used to think this was limited to the nooks and crannies of the investment space - little microcaps that just didn't get enough attention for markets to work out efficient expectations. But, even in something as big as the money supply and the housing market, it is interesting how if one begins in 2006 with two very different ideas about what is happening (a "bubble" where prices are unrelated to underlying value vs. a rise in nominal intrinsic values coming from high demand for low risk savings vehicles as a hedge against a quickly evolving global economy), then practically all of the new information one would have seen since then (assisted by ever-present confirmation bias) would seem to serve to confirm your narrative. You would become more confident in either narrative as time passes.
One of Robin Hanson's general themes is that we have a biological predisposition to be sincerely the most confident about things that are the most incorrect, if we are socially primed to believe them. So, the good news is that it isn't such a disadvantage to lack inside information. The bad news is that we are all equipped with our own very powerful miscalculator.