The Navigational Shortcomings of Efficient Market Theory
Efficient market theory, in its various forms, has been a cornerstone of economic thought for decades. However, its practical implementations have raised significant concerns over the years. From fundamentalist neoliberalism to more nuanced egalitarian forms, each government that has embraced the theory has attempted to reconcile ideology with reality. The need for these adjustments often stems from the inherent shortcomings of the theory itself.
Measuring the 'Failures' of Efficient Market Theory
To fully understand the limitations of efficient market theory, one only needs to look at the inefficiencies and imperfections observable in the freest markets. These often require legal frameworks designed to address the inherent problems. Notably, such legal solutions are best exemplified in Northern Europe, specifically the Scandinavian countries, and the European Union, which was founded on free market principles. Similarly, Anglophone Pacific countries have also developed comparable laws with common aims and purposes: to address the disadvantages and suffering caused by the free market.
One term often used to describe these efforts is 'welfare.' The very concept of welfare challenges the inherent ideology of free market theory, which celebrates winners and theoretical win-win scenarios without including its victims in the equation. Under the tenets of efficient market theory, the economy is presumed to be self-regulating, leading to an equal sharing of wealth and resources. In reality, however, only a few individuals or entities dominate, leaving the majority at a disadvantage.
Exponential Wealth Distribution
The most glaring issue with efficient market theory is the exponential concentration of wealth. As wealth distribution curves show, the final bar often represents a dominant winner whose wealth significantly outweighs the rest. This contrast is stark when compared to the Gaussian bell curve of normal distribution, illustrating the stark imbalance prevalent in the real world.
The theory's foundational belief in competition ensures that there is only one ultimate winner. However, this model overlooks the inevitability of losers and the concentration of power in the hands of a few. This concentration of wealth and power can lead to a loss of freedom and an unchecked accumulation, much like flotsam in ocean bays and estuaries. This phenomenon is a natural consequence of the unfettered free market, where power, being a limited resource, inevitably leads to a power struggle between the wealthy and the less privileged.
Information Control and Neo-Monopolies
Another major challenge is the issue of free information within the market. Efficient market theory demands universal free and true information, but in practice, information control often leads to monopolistic practices. Despite advances over the years, this problem persists, reinforcing and strengthening the overall tendencies of wealth and power concentration.
Despite these shortcomings, the theory continues to persist. Even purist defenders assert that the theory would 'work' if implemented 'properly.' A recent example of this ideology in action can be seen in the tenure of Liz Truss, the UK's most short-lived Prime Minister. Over several centuries, the theory has yet to be proven effective, even with such strong proponents and attempts at implementation.
Conclusion
The efficient market theory, while theoretically appealing, has many practical shortcomings that need to be addressed. Its inherent focus on competition and the exclusion of losers often contributes to an unequal distribution of wealth and resources. Furthermore, issues related to information control and the reinforcement of monopolistic practices highlight the need for a more balanced economic framework. While the theory continues to influence policy and economic thought, it is crucial to acknowledge and address these limitations for a more equitable economic future.