Belief System Vs. Reality

Fascinating interview with Eugene Fama on the New Yorker website. It's a study in how a man holds on to his beleaguered belief system for dear life, the same way he would to a life raft. He basically denies the existence of bubbles, the role of the financial crisis in the recession (he thinks the economic recession caused the financial crash and not the other way around). He believes that at no point during the past 2 years did the financial markets cease to be anything but rational and efficient, that the government is 100% responsible for 100% of the financial markets' woes. The private sector on the other hand has been, according to him, its usual rational, efficient self throughout.

Naturally, he thinks the government should have let all the weak financial institutions fail (emphasis mine):

The experiment we never ran is, suppose the government stepped aside and let these institutions fail. How long would it have taken to have unscrambled everything and figured everything out? My guess is that we are talking a week or two. But the problems that were generated by the government stepping in—those are going to be with us for the foreseeable future. Now, maybe it would have been horrendous if the government didn’t step in, but we’ll never know. I think we could have figured it out in a week or two.

The only problem with this is: we did run the experiment, it's called the Great Depression and we all know how that worked out. A week or two for things to spontaneously fix themselves? Try a decade or two and a world war for good measure.

The closest Eugene Fama ever gets to admitting some sort of doubt in his theories is this (emphasis mine):

When all this (the financial crisis) started, I joined the debate. Then I stepped back and said, I’m really not comfortable with my insights into what the best way of proceeding is. Let me sit back and listen to people. So I listened to all the experts, local and otherwise. After a while, I came to the conclusion that I don’t know what the best thing to do it, and I don’t think they do either. (Laughs) I don’t think there is a good prescription. So I went back and started doing my own research.

But there's one person whom he never listened to and never will even (and especially) if he says things that make sense and that person is Paul Krugman:

My attitude is this: if you are getting attacked by Krugman, you must be doing something right.