There is a huge assumption that capital markets are efficient, but considering the existence of things like bubbles I don't think that's peculiarly true. The existence of 'brand' marking on the demand side demonstrates that the demand side of the equation is not efficient. And the distortions inherent in things like the home mortgage tax credit and farming subsidies demonstrate systemic distortions.
Further, people are far weather now than at any point in the past. So, even if capital markets where less efficient than ancient princes at distributing wealth, the inefficiency would be less obvious.
>"There is a huge assumption that capital markets are efficient, but considering the existence of things like bubbles I don't think that's peculiarly true"
Most bubbles are capital allocation errors made by humans.
There is a huge assumption that capital markets are efficient, but considering the existence of things like bubbles I don't think that's peculiarly true.
Bubbles don't invalidate Efficient Market Hypothesis (which is, in any case, only known to be approximately true). EMH, roughly speaking, says that prices correspond to expected values of future values. That doesn't specify a timeframe (which is one of the problems with EMH; it's demonstrably false over very short time frames in which arbitrage occurs, and also over very long timeframes) but it's not incompatible with bubbles. Over the course of a bubble with a short timeframe (which is a reasonable assumption for something highly liquid) the expected value of the price is actually increasing (even if the very long term expected value is lower; in the long run, we are all dead).
Markets favor availability over consistency. You can trade at a price. That price might be a couple percent higher or lower tomorrow. That's called "volatility", and we model it as Brownian motion (although it's more fat-tailed than a normal distribution). The inconsistency exists because no one really knows what the true fair value of equity is, but the market can deliver a price that usually represents the expected value of the thing in the future. Markets don't do a perfect job of pricing these things, but no one has ever been able to do a better job.
The best argument for financiers as "the good guys" is that, from about 1950 to 2007, financial markets have become riskier and more volatile while the real economy has become less so. There's an argument to be made that these markets have taken risk out of the economy and transfered it into markets that can crash without wiping people out. There's also an argument to be made that the ongoing collapse of the middle class has something to do with "activist" investors (PEtards) and that this evil more than cancels out the good. Not going to form a strong opinion on that one.
Then there was 2008. That one got blamed on the quants, but it's actually people on the business side, especially the ones involved in real estate (and industry that has about as much integrity as Hitler's scrotum). Yes, finance has scumbags like every other industry, and the 2008 crash was horrible and showed how disgusting a lot of powerful people are willing to be.
I don't know what to believe. I'll say this, though: the people I meet in finance are much better than people at the higher levels of VC-istan. I've met $1-million-per-year traders who are really great people, while most startup founders and executives I've met are pretty goddamn slimy. (I'm sure counterexamples exist, but in my VC-istan experience, fundraising ability and decency are correlated at about -1.0.) VC-istan is, after all, funded by private equity guys rather than quants, so what the fuck else would one expect?
I have no idea if it's true, but the argument can be (and has been) made.
Activist investors in the 1980s took over a lot of companies and laid people off. I don't think that was necessarily a bad thing, because corporate inefficiency was pretty extreme in that time.
What I think is killing the middle class is upper-class corruption, rampant inequality, generational malfeasance, and political chicanery. "Activist investors" probably don't belong on the top 10.
The argument you would have to make is that the influence of activist investors led to the cutthroat corporate cultures of the 1980s and onward, with "rank-and-yank" becoming normal. But I don't know if that's the case. I will say that the argument can be made.
The argument can also be made that, since what's killing the middle-class is back-scratching, self-dealing, and corruption among a well-connected and entrenched upper class, that investor activism has been fighting against the enemy. I have no idea whether that's true either.
Further, people are far weather now than at any point in the past. So, even if capital markets where less efficient than ancient princes at distributing wealth, the inefficiency would be less obvious.