I do not believe that financial markets make the economy more efficient. The analogy I use is Earth. If it were reduced to the size of a basketball, it would be smoother than a billiard ball. However, at a human scale, there are mountains and oceans we can exploit….
The guy talking about making markets more efficient is thinking of something like rolling rocks down a mountain to power useful work. This indeed makes the Earth smoother, wearing down mountains and filling in oceans. But … [that] bears no resemblance to what people really do. They’re more likely to build a hydroelectric dam that holds water back, that is it keeps the system farther from equilibrium, not moves it closer.
The guy talking about making markets more efficient is thinking of something like rolling rocks down a mountain to power useful work. This indeed makes the Earth smoother, wearing down mountains and filling in oceans. But … [that] bears no resemblance to what people really do. They’re more likely to build a hydroelectric dam that holds water back, that is it keeps the system farther from equilibrium, not moves it closer.