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View Diary: Nobel Prize for Economics = neo-liberal swinefest UPDATED (197 comments)

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  •  I'll take door number 4, Ed (2+ / 0-)
    Recommended by:
    NBBooks, katiec

    All of the above, when elevated to dogma, as I clearly stated. If this were just pure speculation about possible behavior of idealized theoretical markets that remained in an academic petri dish, it would be harmless academic simplification, like the spherical cow in a vacuum used by physics students. Alas, the term and expansions of the very limited theory have taken on a life of their own, and morphed into the idea that 'markets are efficient' and thus a self-regulating way of finding an optimal solution. I don't need to lecture anyone on the deadly results of that fallacy. Nor, I think, is it necessary to point out that real stock prices are driven by irrational behavior, disinformation, front-running, and fundamental-free algorithmic trading that merely uses price dynamics to drive price dynamics in a tightly coupled feedback loop that scientists studying dynamical systems recognize as inherently destabilizing, even without flash crashes to measure.

    •  Here's the problem (1+ / 0-)
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      Ed Gein

      If the marketplace is as messy and irrational as you say it is, how can individual humans in the government do it any better?

      Is gas too expensive or not expensive enough?
      Are rents too high or too low?
      Etc

      With a market, individuals make their own decisions.

      If the government does it, a few people do it and might be wrong, but their choices are inflicted on the population anyway.

      I'm not saying there's no role for the government anywhere, but I think the government should be biased toward not interfering with things unless it's clear it has to. Social and economic freedom.

      (-5.50,-6.67): Left Libertarian
      Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

      by Sparhawk on Thu Oct 17, 2013 at 04:49:21 PM PDT

      [ Parent ]

      •  I'm sorry, what? (2+ / 0-)
        Recommended by:
        Selphinea, Sandino
        If the marketplace is as messy and irrational as you say it is, how can individual humans in the government do it any better?
        So let me get this straight: your assertion is that

        a) If the EMH is correct (which of course it self-evidently isn't, so let's say 'more or less correct') then it is impossible for humans to outguess the market, ipso facto, qed.

        b) If markets are too noisy and have too much noise and chaos for the EMH to be a reasonable hypothesis, than human beings can't possibly understand them and so therefore the market will always outperform human beings, ipso facto, qed.

        That's awfully... nice... don't you think?

        In reality, of course, the government often can and frequently should price things more rationally. For example, 'rational', market-based pricing of a material (say oil) that is in finite supply will keep it ridiculously low in price until that commodity starts becoming significantly more difficult to produce, at which time the price will shoot up by an order of magnitude. If the economy, which of course is perfectly rational at all times, has become dependent upon it, then we discover that it is perfectly rational for the economy to crater and millions of people to starve to death.

        Which brings up another point about the EMH: human suffering is actually extremely efficient.

        I'm not saying there's no role for the government anywhere, but I think the government should be biased toward not interfering with things unless it's clear it has to. Social and economic freedom.
        Which is a lovely statement because it means nothing whatsoever. Is it 'clear' that the government has to 'interfere' with 'things' when someone is starving to death? How about a hundred someones? Do you think the ACA is bad, because it 'interferes', or good, because it doesn't 'interfere' nearly as much as a sensible solution would?
        •  This is silly almost beyond words (0+ / 0-)
          For example, 'rational', market-based pricing of a material (say oil) that is in finite supply will keep it ridiculously low in price until that commodity starts becoming significantly more difficult to produce, at which time the price will shoot up by an order of magnitude. If the economy, which of course is perfectly rational at all times, has become dependent upon it, then we discover that it is perfectly rational for the economy to crater and millions of people to starve to death.
          So let's say you own a patch of land with 1 million barrels of oil under it with an extraction cost of $9 / barrel.

          You can extract and sell the oil today, at $10 per barrel, getting $1 million.  Or you can wait a few decades until the price hits $50 / barrel, and get $41 million.  Well, 41x return on waiting.  You wait.

          Of course, if you have some other land with oil with an extraction cost of $5 / barrel you may pump it today - waiting a few decades for just a 9x return isn't worth it.

          This means a lot of oil stays in the ground at the $10 price.  That means the price will increase.  In general, the price will increase until it makes economic sense to extract enough oil now at that price instead of waiting for the price to increase to match demand at that price.

          Very simple and self regulating.

          Mind explaining how the government's algorithm to set oil prices should work and why it would be better?

    •  I think door number 4 is "I totally don't (0+ / 0-)

      understand this stuff."

      Alas, the term and expansions of the very limited theory have taken on a life of their own, and morphed into the idea that 'markets are efficient' and thus a self-regulating way of finding an optimal solution.
      There's nothing "optimal" in any of Fama's work that I've read and pretty much nothing about "solutions".  (In fact, first question - an "optimal solution" to what problem?)

      The closest you could come to twisting these words into Fama's theory is to suggest that efficient markets find the "optimal solution" to the problem of setting asset prices so expected risk adjusted returns based on public information is the same for all assets.

      I would love to hear you explain the "deadly results of that fallacy" or even why you think it is a fallacy.

      Nor, I think, is it necessary to point out that real stock prices are driven by irrational behavior, disinformation, front-running, and fundamental-free algorithmic trading that merely uses price dynamics to drive price dynamics in a tightly coupled feedback loop
      Can you explain why any of this invalidates the EMH?
      in a tightly coupled feedback loop that scientists studying dynamical systems recognize as inherently destabilizing, even without flash crashes to measure.
      Now, that's interesting.  Somehow I've missed that in the literature.  Can you provide a cite?

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