How Dave and I Learned about Efficient Markets

Markets, especially political markets, really are efficient. I happened to be in downtown Chicago yesterday, Ground Zero of what was shaping up to be—hours before the polls had even closed—an Obama victory celebration unlike anything American politics has ever seen.

And the most striking thing about it was you could feel what was coming in the air. A sort of magnetic pull seemed to be carrying people towards Grant Park from every neighborhood in the city. People wearing Obama buttons and Obama hats and Obama shirts with “I Voted” stickers on them walked in pairs, in groups and in long lines. And they were lining up at barriers in the park, to wait in the unusually warm afternoon sunlight for whatever it was they seemed to know was coming.

I’d seen this before—this anticipation of something coming, something already in the air before anything was officially declared settled. Only it was on the losing side of a political campaign.

The politician was Massachusetts Senator Edward Brooke, the first African-American Senator elected since Reconstruction. Immensely popular until a bitter divorce, Brooke had been struggling to hang on for a third term in the Senate.

His challenger was a bright, attractive Congressman named Paul Tsongas, who would later run unsuccessfully for President and die an untimely death from cancer. For reasons not entirely clear even thirty years later, Brooke’s campaign was largely entrusted to a bunch of recent college graduates—including a guy named Dave, and yours truly—whose main talents tended towards pretty much anything except what a well-run campaign needed.

And so, Brooke lost. In truth, he’d lost weeks before the campaign ended, but not one of us had figured that out. So come election night, Dave and I stood around the badly-named Victory Party watching returns coming in on a TV monitor, wondering where everybody else was.

‘Everybody else’ was at the Tsongas party.

And that’s when Dave and I learned how efficient markets—and politics—can be. The crowd knew it before we knew it, before the networks knew it, before Brooke himself conceded.

[Minor historical footnote: thanks to Barbara Walters’ shameless book-plugging, we now know that she was having an affair with Brooke during his campaign, so perhaps the blame for his defeat does not accrue entirely to David and me alone. Perhaps.]

Walking towards Grant Park yesterday took me back thirty years, almost to the day of that realization. Markets—especially political markets—are extremely efficient.

Whichever way you voted, it was kind of cool. Jeff Matthews I Am Not Making This Up © 2008 NotMakingThisUp, LLC

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