I’ve posted Entry #211 to my weekly Valuation-Informed Indexing column at the Value Walk site. it’s called Fama Acknowledges That We Don’t Know What Caused the Great Depression.
Juicy Excerpt: What is the first thing that comes to mind when you think of the Great Depression? It’s the Great Stock Crash of 1929. People’s fortunes being lost. People jumping out of windows. People selling pencils and apples on the street corner. That sort of thing.
Every sensible person connects those two events in his or her mind. It’s only one group of people that doesn’t — Economists. And how sensible are they? Seriously, there is an obvious connection between the two events. The only reason why it is not conventional wisdom that the Great Crash caused the Great Depression is that economists generally have not connected the two.
I have been saying that it was the popping of the stock bubble of the late 1990s that caused the economic crisis that we are struggling through today (which will likely bring on the Second Great Depression if Shiller is right that we have another price crash in our not-too-distant future). The only argument that people who disagree with me have been able to come up with is that that is not what the economists say. But Fama is now spilling the beans and acknowledging that the economists do not know.