Abstract

Analysts such as Steven Horwitz, with strong prior beliefs, are seldom impressed by mere fact and tend to explain away empirical deviations from their theories. The belief that markets are moved only by fundamentals and not by occasional faddism and overshooting rests on the assumption that market participants form their opinions independently, when in fact they are from time to time driven by emulation. The belief that markets are rational and well?informed but government officials and central bankers incompetent is implausible on its face. The period since 1970 has seen bubble after bubble, some of which seemed likely to lead to financial crisis had it not been for the Federal Reserve.