There have been a couple of blog posts about the Efficient Markets Hypothesis in the past week:
How To Dis EMH By Robin Hanson January 9, 2010 11:15 am on Overcoming Bias
Then The Efficient Markets Hypothesis by Steve Sailer, Friday, January 15, 2010 on his blog.
According to the Efficient Markets Hypothesis markets reflect ALL relevant information, not just public, since any purchase or sale in a market, even that based entirely on private information is reflected in the price. And if someone has private information but does not act on it, by buying or selling, then it is not relevant as it does not affect the market price.
Two, collapses and delayed effects are PART of the EMH. No one who wasn't out of touch with reality has ever claimed that markets instantly reflect all possible information. I am sure someone, probably an academic somewhere, has made that claim.
Three, the biggest claim is obviously true, that there is NOTHING that produces more accurate prices and hence more efficient exchanges than the market. It's not some magic wand, just there is no humanly better alternative.
Markets are in a way a set of "distributed algorithms" for establishing and managing exchanges. But instead of being established across computers which are much to slow and weak, they work across human minds. Each mind only deals with a small fraction of the available information and outputs its decisions in the form of buy or don't buy or sell decisions; that is a decision as to whether the "market price" is lower, close to, or higher than their evaluation of value.
When we have "minds" more powerful than our own, markets may become obsolete, like in the "Economics 2.0" of Charles Stross's novel Accelerando (Singularity).
But until then there is no viable alternative for humans either to markets or to crippled command-type economies. The so-called "mixed economies" are not stable; special interests, especially the interests of government bureaucrats and politicians in increasing their power, inevitably leads to growth of the command side of the economy at the expense of the market.
Substantially edited to correct poor wording, 1:15 PM.