"FALL ST." is the headline splashed across the front page of the New York Post this morning. "Plunge sparks recession fear". OK, maybe Tuesday was a bit of a slow news day. But check out the causality there: it’s the stock-market plunge causing recession fears, not the other way around.
Justin Fox should take note: he’s writing a book about the efficient markets theory which, although the Post’s headline writers might not know it, underpins this headline. The idea is that the stock market is so efficient, any broadly-based fall must be a sign that the crowds, in all their wisdom, are fearful that the broader economy is moving into recession. Quite a heavy conclusion to hang on a day of pretty normal stock-market volatility.