In the day job, I endorse Paul Samuelson's dictum that stock markets are "micro efficient" but "macro inefficient". This isn't to say that they are wholly efficient at the micro level: there are some anomalies and I prefer to think of markets as adaptive. But for practical purposes, investors should act as if the market were micro efficient and hold tracker funds.

Theories don't have to be wholly true to be useful, and only the most Casaubonish pedant thinks otherwise.

But here's the thing. The idea of markets as "micro efficient" but "macro inefficient" might be one of the few ideas in the social sciences that generalizes. Keynes, for example, certainly thought this was true of labour markets:

I see no reason to suppose that the existing system seriously misemploys the factors of production which are in use...When 9,000,000 men are employed out of 10,000,000 willing and able to work, there is no evidence that the labour of these 9,000,000 men is misdirected. The complaint against the present system is not that these 9,000,000 men ought to be employed on different tasks, but that tasks should be available for the remaining 1,000,000 men. It is in determining the volume, not the direction, of actual employment that the existing system has broken down.

One might add that Marxists' main complaint against capitalism is that it is macro inefficient rather than micro inefficient. Their beef isn't so much that capitalism produces too much of one one good and not enough of another, but rather that it had a tendency towards crises; that it is exploitative and alienating; and that it has unpleasant cultural effects, for example by leading us to regard others with greed or fear which, Cohen says (pdf), "are horrible ways of seeing other people." These are all macro problems, not micro ones.

Again, this is not to claim that capitalism is wholly micro efficient; leftists believe that markets over-supply finance, weapons and pollution and under-supply more caring occupations - though whether these are state failures or market failures is moot.

All this poses a question. What sort of economic system does the idea of micro efficiency but macro inefficiency lead to?

We can discount the social democratic option. We know now - as Keynes did not - that macroeconomic policy within market capitalism is not sufficient to create full employment, perhaps for reasons identified by Kalecki or perhaps because capitalists capture the state; still less does it solve the faults alleged by Marxists. Nor am I attracted to the participatory planning of the sort advocated by Robin Hahnel; it seems like using a sledgehammer to crack a nut. This leaves some form (pdf) of market socialism and economic democracy.