Everything for Sale: The Virtues and Limits of Markets.

• Author: Lee, Susan

Anyone reading Robert Kuttner's Everything for Sale: The Virtues and Limits of Markets will probably be left with one burning question: Who put the huge bee in his bonnet?

This book is as ill-natured as any I have read in a long time. Despite the title, Kuttner finds little virtue in the market and none in the economists who admire it. Indeed, he dismisses some who have won Nobel prizes as stupid, banal, and extreme. Like the verdicts in the O. J. Simpson trials, the function of the market is not, apparently, a topic which sensible people can debate amicably.

Kuttner is a columnist for Business Week and co-editor of The American Prospect. I used to read him when he wrote for The New Republic and while I hadn't read him in a long while, I seem to remember his work as good-natured lefty stuff; I certainly don't remember (and this I would definitely recall) his pretending to know anything about economics. Yet here he is, bloviating like mad. Trouble is, he still hasn't learned any economics. As anybody who has had the remotest connection with a basic economics course knows, most concepts have rather precise meanings. Unfortunately, those meanings have nothing to do with the meanings Kuttner thinks they have.

Take the fifth chapter, on "Money Markets and the Corporation." The first sentence - "Financial markets are the very essence of capitalism" - is fine. But the very next sentence throws up a mighty fog: "They are markets whose product is money itself." Well, no. Actually, the product of the financial markets is credit. Not a difficult concept, either: Financial markets link up lenders with borrowers; they bring together those with money to spare and those who need some cash, but they do not create money. The chapter also harbors an utterly fuddled discussion of the Efficient Market Theory. Here Kuttner seems ignorant of the central concept that stock prices reflect available information at a point in time and change with new information; he seems to think the Efficient Market Theory argues that stock prices are "accurate."

Hence, Kuttner takes the stock market crash of October 1987 as proof positive that the EMT is wrong. How can prices be accurate one minute and not the next? Especially when, he writes, the market crashed even though there was "scant change in the prospects of the underlying assets represented by the stocks." I hope Kuttner doesn't manage his own portfolio. There were indeed plenty of reasons to change one's mind about the...