In August 2008, Olivier Blanchard came out with a working paper saying that “The state of macro is good.”
His upbeat view of the stock market was posted on February 1st. In less than two weeks since then, the S&P is down about 5 percent.
I can forgive him for having poor timing on the stock market. My own view is that the stock market is not rational, and in fact this very irrationality makes the market difficult to beat.
But I find his smugness about MIT macroeconomics much more difficult to swallow. He would now say that there were problems with the consensus of a decade ago, but he still champions the MIT mystique.
I hope you don’t mind my self-reference. I have thought about this rationality issue before, too. I call it the Inefficient Markets Hypothesis. I agree with you that the general advice to invest passively isn’t that dependent on efficiency.
Here was the first of two posts I did on the idea:
http://idiosyncraticwhisk.blogspot.com/2014/12/you-should-invest-passively-because.html
Why do economists never learn to leave the stock market alone?