Tag: sunday

Losing your religion – EMH Edition

The efficient-markets debate is really a competition between two theories. The efficient marketeers, led by Eugene Fama and Kenneth French, see the market as rational and calculating. Value investors, exemplified by Benjamin Graham and Warren Buffett, see it as a bipolar creature, either ecstatic or depressed.

Losing My Religion: How I Unlearned Efficient Markets Folly

The Finance brain-drain

Based on a sample of 13 countries observed over the period 1980-2005, financial liberalization is associated with skill-upgrading in the financial sector. Also, financial liberalization decreases labour productivity, total factor productivity and value added growth disproportionally in industries which rely strongly on skilled labour. This is consistent with the idea that financial liberalization hurts non-financial sectors via a brain-drain effect.

Finance as a Magnet for the Best and Brightest: Implications for the Real Economy

Natural prices and marginal costs

The marginal cost of a good is the cost of producing one more of the good in question. Thus, in the case of the iPhone, for example, the marginal cost is how much it costs to produce one more iPhone, which, according to iSuppli, is $199 for the iPhone 5S. The floor for price cutting is called the “natural price,” and is equal to the marginal cost of the good.

What makes the software market so fascinating from an economic perspective is that the marginal cost of software is $0.

Open Source Apps

The link between an original mind and a troubled one

Creativity and mental illness share a process called “cognitive disinhibition.” Essentially cognitive disinhibition describes a failure to keep useless data, images, or ideas out of conscious awareness. This failure may make schizotypal personalities more prone to delusional thoughts or mental confusion; on the flipside, it could make creative minds more fertile.

What Neuroscience Says About The Link Between Creativity And Madness

The Only Way to Grow Huge

All companies that grow really big do so in only one way: people recommend the product or service to other people. The only way to generate sustained exponential growth is to make whatever you’re making sufficiently good.

The Only Way to Grow Huge

5 most common regrets of the dying

When you are on your deathbed, what others think of you is a long way from your mind. Life is a choice. It is YOUR life. Choose consciously, choose wisely, choose honestly. Choose happiness.

Regrets of the dying

Creativity is just connecting things

Mark Twain:

When a great orator makes a great speech you are listening to ten centuries and ten thousand men — but we call it his speech, and really some exceedingly small portion of it is his.

Salvador Dalí:

Those who do not want to imitate anything, produce nothing.

Mark Twain on Plagiarism and Originality: “All Ideas Are Second-Hand”

The Persistence of Poverty

Not only does poverty make it difficult to focus the mind on multiple pressing issues and distort the process by which we prioritise them; but also the very nature and quantity of these issues reduce the motivation to even start trying.

One conclusion I think can be soundly drawn from these ideas: any traditional notion of “tough love” or “getting tough” on lazy poor people that blames them for their lots in life while downplaying their socioeconomic context is, to a first and second and third approximation, bullshit.

Poor Choices

Poverty Thoughts

Poverty is bleak and cuts off your long-term brain.

I will never not be poor. It’s not like the sacrifice will result in improved circumstances; the thing holding me back isn’t that I blow five bucks at Wendy’s. It’s that now that I have proven that I am a Poor Person that is all that I am or ever will be. It is not worth it to me to live a bleak life devoid of small pleasures so that one day I can make a single large purchase. I will never have large pleasures to hold on to.

Why I Make Terrible Decisions, or, poverty thoughts

America: The swing of the pendulum between Capital and Labour

1974 would mark a fundamental breakpoint in American economic history. Productivity has increased by 80%, but median compensation (wages plus benefits) has risen by just 11% during that time. The middle-income jobs of the nation’s postwar boom years have disproportionately vanished. Low-wage jobs have disproportionately burgeoned. Employment has become less secure. Benefits have been cut.

The 40-year slump

The Wolf of Wall Street

Meet Jordan Belfort: a white-collar crook who duped innocent investors to finance an insatiable greed. Belfort was convicted of scamming more than $100 million throughout the nineties to finance a hedonistic paradise.

After all, it wasn’t every firm that sported hookers in the basement, drug dealers in the parking lot, exotic animals in the boardroom, and midget-tossing competitions on Fridays.

The Wolf of Wall Street Can’t Sleep

Could hangovers soon be a thing of the past?

Imagine an alcohol substitute that removes all negative effects associated with drinking, intoxication, and even the dreaded morning after. “So in theory we can make an alcohol surrogate that makes people feel relaxed and sociable and remove the unwanted effects, such as aggression and addictiveness.”

The wet cure

Has democracy actually done more harm than good?

Meet the neoreactionaries: mostly former libertarians who decided that freedom and democracy were incompatible. “Demotist systems, that is, systems ruled by the ‘People,’ such as Democracy and Communism, are predictably less financially stable than aristocratic systems. On average, they undergo more recessions and hold more debt. They are more susceptible to market crashes. They waste more resources. Each dollar goes further towards improving standard of living for the average person in an aristocratic system than in a Democratic one.”

Geeks for Monarchy: The Rise of the Neoreactionaries

Kill The Aid Industry

Donated clothes decimate local textile industries. Shells of buildings, silted dams, and unfinished “pilot projects” dot the African landscape. Young white people flock to expensive hotels for useless “conferences” that amount to paid exotic vacations. Peace Corps yahoos are flown out at great cost to teach Western hairdressing […] But aid’s worst consequence is the continuation, and amplification, of the attitude that change must always come from outside.

Let’s Kill The Aid Industry

The basic income movement

With globalisation, the share going to labour has withered everywhere, in countries as diverse as China, India, the UK, USA and Norway. In the future, the only way those relying on labour could raise their living standards will be by sharing the rental income gained by finance and capital investment in the global economy. We must imagine a new system of distribution, in which the whole of society receives a share of the rental income currently being taken wholly by financial capital.

The precariat needs a basic income

Are markets ever rational?

For markets to be efficient, we need to enable all 3 types of market participants:

1. Fundamental/value investors
2. Relative value investors or arbitrageurs
3. Speculators

Each of these investor type plays a different and necessary role in ensuring that a well-functioning market is able keep the cost of capital low, absorb financial risks, and allocate capital efficiently to its more productive use. A well-balanced market is relatively stable and allocates capital in an efficient way that maximizes long-term economic growth.

When are markets ‘rational’?

How can God be sure that this no Super-God?

There’s a strong instinct to abdicate that responsibility – to look at things like global warming, poverty, environmental destruction, human misery in all its forms and say “God will take care of that.” The truth is, whether you like it or not, it’s all on you. The responsibility for those weaker than yourself is not on God’s or the free market’s or history’s or evolution’s head, it’s on your head.

Noah Smith: God and SuperGod

Privatization of Natural Monopolies

Textbook arguments in favor of privatization: Lower prices. Better service. Greater simplicity. Increased investment in infrastructure. More consumer choice.

Reality: The Average Russian, as opposed to the 135 oligarchs controlling 40% of Russia’s wealth, would have been better off had The Party remained in power.

So, the next time somebody tries to convince you of the benefits of privatizing your natural monopoly, remember that, adapting Frank Zappa’s apt words, there is a big difference between kneeling down before the altar of privatization and bending over.

Freedom To Choose (…to be buggered)

German vs. Swedish approach to prostitution

Germany: enacted a law to remove the stigma from sex work by giving prostitutes full rights to health insurance, pensions and other benefits. Employing sex-workers and providing them with a venue became legal. The idea was that responsible employers running safe and clean brothels would drive pimps out of the market.

Sweden: made it criminal to pay for sex (pimping was already a crime). By stigmatising not the prostitutes but the men who paid them, even putting them in jail, the Swedes hoped to come close to eliminating prostitution.

A giant Teutonic brothel

America: A case of secular stagnation?

During the period 1960-85, when the U.S. economy seemed able to achieve full employment without bubbles, our labor force grew an average 2.1% annually. In part this reflected the maturing of the baby boomers, in part the move of women into the labor force.

Now look forward. The Census projects that the population aged 18 to 64 will grow at an annual rate of only 0.2% between 2015 and 2025. Unless labor force participation not only stops declining but starts rising rapidly again, this means a slower-growth economy, and thanks to the accelerator effect, lower investment demand.

Secular Stagnation, Coalmines, Bubbles, and Larry Summers

The 8 Qualities of Cultured People

What is needed is constant work, day and night, constant reading, study, will… Every hour is precious for it.

Anton Chekhov on the 8 Qualities of Cultured People

The Fundamentals of Market Tops

1. The Investor Base Becomes Momentum-Driven
2. Valuation-sensitive investors accumulate cash
3. The quality of IPOs declines
4. There is a high degree of visible and/or hidden leverage
5. Elements of accounting seem compromised

The Fundamentals of Market Tops

Three Steps to Effective Decision Making

1. Understand causality
2. Improve forecast – inside vs. outside view
3. Sorting relevance – integrate new information

How do you increase luck?

1. Monitor the environment for new uses for your existing resources
2. Experiment with resources at hand
3. Ask for more than you can reasonably expect
4. Network to increase serendipitous connections

Stroke of Luck

The ghettoization of China’s new towns

The idea:
Consolidate the villages into one new town that would take up less than one square mile, versus the three square miles that the dozen villages had occupied. A portion of the remaining 59 square miles could be sold to developers to pay for construction costs, meaning the new buildings would cost farmers and the government nothing. The rest of the land would stay agricultural, but worked by a few remaining farmers using modern methods.

Reality:
The villagers ended up with less than the space they were living in previously and they found themselves unqualified for the jobs around where they lived. Shoddy construction means that the apartments are barely habitable. One term that residents repeatedly use is “biesi” — “stifled to death” in the new towers.

New China Cities: Shoddy Homes, Broken Hope