Thurow is just good enough to play the econ theory game so that you are fooled into believing he knows something, but the problem is that he starts with a priori prejudices which came from J.K. Galbraith. No matter what they say in the final analysis they perceive their job to be one of pulling down corporations to make the world fair. Both of them think the universities, the church of the Age, should be economic tsar. They hate free markets no matter what they claim.
That's what comes through the excerpt you provided. It's a snide comment about free markets though it is conciliatory. They admit markets are critical but they want markets controlled, so they want to embrace a contradiction. This is exactly what the FED is doing. Most of the FED denizens come from these schools dominated by guys like Thurow.
There is no connection categorical or otherwise between prices and information. There is no conversion constants, no units in common, so the snide regard of this expressed portrayal is absurd from its conception. The financial markets have no function to smooth fluctuations. They have the function to reflect whatever people believe balances supply and demand. That could be square well Sierpinski discontinuous. His demand management school likes NYSE circuit breakers and closing markets when they get tempestuous, so how is it that these "remedies" achieve smooth? They achieve greater fluctuations. It's called pretense to knowledge.
In the article he says, "In practice, foreign exchange markets seem to do exactly the opposite of what they should do. They take in smooth inflows of new information and send out erratic fluctuations in currency prices." That assumes they should do what he thinks. They shouldn't do that and they don't. Upon what criteria is the judgement that markets take in "smooth inflows of new information" based? What defines smooth information? How can that notion be made rigorous without evaporating? Are the concepts even categorical? Further, who says the currency markets are erratic? By what criterion is this conclusion reached? If you do a standard deviation, time series, or other statistical analysis on the dollar, yen, any currency, appropriately corrected for log % change you'll find the degree of erratic by any elaborate measures independent of time or era. I assert the markets are doing exactly what they should be doing and that is varying sufficiently to reflect the beliefs of masses of individuals.
He makes a common error among demand management schoolists in his comments: "America's next recession is already buried in the structure of its economy. American families currently have a negative savings rate. At some point the American family will have to lower its consumption to restore a positive savings rate." His own school claims savings equals investment. That is, one form that savings takes is investment. There has been quite a lot of investment going on, so if you factor that back into nominal savings you'll find that savings are growing at a rate commensurate to that of real output. What else could it be? Get something for nothing like his school has tried to believe is possible since Keynes?
But he isn't finished. Somehow the savings scenario has to bleed into a recession: "This spells recession unless at exactly the same time the United States is curing its balance of payments deficit by exporting more and importing less." The US isn't doing this. We're importing more and exporting less and this has little to do with economic circumstances here. Both Teitmeyer and Greenspan have correctly said the the circumstances of economy are unique to each economy and its monetary policy. We have been on an economic boom and we have been importing tremendously with consequence of an exploding deficit. It has to do with the low cost of foreign labor, not on the savings rate.
But the corker is this triple confusion: "But how is this to happen if a falling value of the dollar does not lead to either fewer imports or more exports?" None of these factors are necessarily related as history has shown. The dollar can fall or rise and we can have a deficit or a surplus. Imports and exports can rise or fall and we can have deficit and surplus with or without a rising or falling dollar. You have 3 factors, 3^2 = 9 states, and so there are 9 possibilities which may or may not be causally connected. You can't reach any conclusion based on this kind of assessment.
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