Bill Easterly gives this response to the Queen of England’s question to British economists why they could not predict the current crisis.
“First, Your Majesty, economists did something even better than predict the crisis. We correctly predicted that we would not be able to predict it. The most important part of the much-maligned Efficient Markets Hypothesis (EMH) is that nobody can systematically beat the stock market. Which implies nobody can predict a market crash, because if you could, then you would obviously beat the market.”
When I first read this response it kind of blew my mind and I really liked. I still really like it, but it got me thinking about a conversation I was having recently about time travel (yes, bear with me on this one). The what if game was suppose you were transported back to a certain year with all your current knowledge and abilities. What would you do?
So let's suppose Bill Easterly and I are transported back in time with all of our current knowledge to January 1st 2006. We know there is a financial crisis coming. With our perfect knowledge of the crisis, how do we stop things. I don’t think we can. Sure we can sell all of our stock and maybe try to short a bunch of stock. One issue is that we could be capital constrained, we likely couldn’t get a hold of enough money to really make a difference in the market.
So not only would a person have to have perfect knowledge, but also the ability to change things. That’s asking a lot.
But I’m sure Bill and I would have one most excellent adventure.