X-Spam-Status: No, score=-2.6 required=5.0 tests=BAYES_00 autolearn=unavailable version=3.2.2 Sender: -2.6 (spamval) -- NONE Return-Path: Received: from newman.eecs.umich.edu (newman.eecs.umich.edu [141.213.4.11]) by boston.eecs.umich.edu (8.12.10/8.13.0) with ESMTP id l7MJ4Vnd008265 (version=TLSv1/SSLv3 cipher=DHE-RSA-AES256-SHA bits=256 verify=FAIL) for ; Wed, 22 Aug 2007 15:04:32 -0400 Received: from anniehall.mr.itd.umich.edu (mx.umich.edu [141.211.176.130]) by newman.eecs.umich.edu (8.14.1/8.14.1) with ESMTP id l7MJ461r011862 for ; Wed, 22 Aug 2007 15:04:10 -0400 Received: FROM newman.eecs.umich.edu (newman.eecs.umich.edu [141.213.4.11]) BY anniehall.mr.itd.umich.edu ID 46CC88A5.E7EAB.8311 ; 22 Aug 2007 15:04:06 -0400 Received: from boston.eecs.umich.edu (boston.eecs.umich.edu [141.213.4.61]) by newman.eecs.umich.edu (8.14.1/8.14.1) with ESMTP id l7MJ3SfY011649 (version=TLSv1/SSLv3 cipher=DHE-RSA-AES256-SHA bits=256 verify=FAIL); Wed, 22 Aug 2007 15:03:28 -0400 Received: from boston.eecs.umich.edu (localhost.eecs.umich.edu [127.0.0.1]) by boston.eecs.umich.edu (8.12.10/8.13.0) with ESMTP id l7MJ3lnd008237 (version=TLSv1/SSLv3 cipher=DHE-RSA-AES256-SHA bits=256 verify=NO); Wed, 22 Aug 2007 15:03:48 -0400 Received: from localhost (dreeves Æ localhost) by boston.eecs.umich.edu (8.12.10/8.12.9/Submit) with ESMTP id l7MJ3l4s008234; Wed, 22 Aug 2007 15:03:47 -0400 X-Authentication-Warning: boston.eecs.umich.edu: dreeves owned process doing -bs X-X-Sender: dreeves Æ boston.eecs.umich.edu In-Reply-To: Message-ID: References: <93EC811F-946D-4EA2-ADE3-5D43B46EA65E Æ umich.edu> <4CE28F9E-2B6E-4834-B3FA-1C3FBF2E7341 Æ umich.edu> MIME-Version: 1.0 Content-Type: TEXT/PLAIN; charset=US-ASCII; format=flowed X-Spam-Checker-Version: SpamAssassin 3.2.2 (2007-07-23) on newman.eecs.umich.edu X-Virus-Scanned: ClamAV version 0.91.1, clamav-milter version 0.91.1 on newman.eecs.umich.edu X-Virus-Scanned: ClamAV version 0.91.1, clamav-milter version 0.91.1 on newman.eecs.umich.edu X-Virus-Status: Clean Date: Wed, 22 Aug 2007 15:03:47 -0400 (EDT) To: Yevgeniy Vorobeychik cc: improvetheworld Æ umich.edu, steven Æ aptigi.com, reeves-hayos Æ umich.edu, reeves-kalkman Æ umich.edu From: Daniel Reeves Subject: Re: mind the gap Status: O X-Status: X-Keywords: X-UID: 1040 Uh oh, according to Godwin's Law [1], Eugene has officially ended this thread! :) [1] http://en.wikipedia.org/wiki/Godwin's_law --- \/ FROM Yevgeniy Vorobeychik AT 07.08.22 09:39 (Today) \/ --- >>> Eugene's Starving Artist is an interesting example of a possible market >>> failure. That might be explained in terms of externalities (positive this >>> time) if the art was of a kind that couldn't be charged for by usage >>> (public sculpture perhaps). In other words, you have free-riders. > > My example was actually not about externalities at all -- it was about the > inherent unfairness in the distribution of talent. Some people are born with > money-making skills (i.e., skills highly valuable in their economy), others > aren't. So this is not a of market failure; rather, it is the case, if you > will, of gene-failure. My point was really to highlight that wealth is not > all a society does (and should) care about. If it did, then there would be > no reason not to kill off all those unfortunate enough to be a social burden: > anyone with Down's or other genetic deseases would certainly have to go (does > this sound familiar?). > > This really is a common isunderstanding Adam Smith, who, besides "The Wealth > of Nations" also wrote "The Theory of Moral Sentiments" -- a great work on > moral philosophy. In the latter, he extensively discusses the notion of > "fellow-feeling". Indeed, he begins it with > > 'How selfish soever man may be supposed, there are evidently some principles > in his nature, which interest him in the fortune of others, and render their > happiness necessary to him, though he derives nothing from it except the > pleasure of seeing it.' > >>> Eugene's Down On Their Luck example I believe is an argument for risk >>> pooling, one form of which is the "social safety net", ie, welfare. It >>> seems that participation should be optional though. > > Precisely. However, optional participation is a bad idea, as it would result > in adverse selection, commonly observed, for example, in health insurance. > Basically, the only people who would pool their money would be those likely > to need it. Thus, the pool would have perpetually insufficient funds or > require enormous premiums. And a brilliant dude with poor luck would never > invest in the pool, since he is very unlikely to need it (even incorporating > risk aversion), so he'll still starve if his gamble backfires. Again, if all > you care about is social wealth, this may be fine. But if you have any > fellow-feeling, it seems suboptimal. > > Eugene > > On Tue, 21 Aug 2007, Daniel Reeves wrote: > >> Not only do I disagree with Dave, I'll go so far as to claim he disagrees >> with his own position. If not, Dave, why not make a killing shorting stock >> of the next company to do a round of layoffs for the sake of a short term >> boost in stock price? The market is smarter than we think. >> >> Nor do I have a beef with day traders. Either they're providing valuable >> information to the market or they're going to get smacked hard. (In >> expectation at least.) In any case, they're paying a fair rate for the >> money they borrow and no matter how little time they own a stock they are, >> in aggregate, contributing to the investment in those companies. (And >> short-selling is just borrowing stock, later buying it to pay back the >> loan, so nothing slimy about that, contrary to popular conception.) >> >> I used to be like Dave, pointing to a litany of "obvious" flaws in the >> market (stock market or "the market" more generally, like microsoft being >> sucky (for me) yet rich). But the market had a habit of being smarter than >> me and I've learned some humility in this regard. >> >> As for Dave's specific allegation (the stock market focuses on short term >> gains), I don't think that's true. The stock price estimates (the >> per-share net present value of) the cumulative future cash flow of the >> company. The stock market estimates that better than any other known >> mechanism. It is of course prone to fits of hysteria but when it does it's >> taking a very *long term* (fantasy) view. >> >> That said, there are cases where markets fail and that is in the face of >> externalities. A classic example of an externality is the Tragedy of the >> Commons in which a bunch of farmers ruin a common grazing field because no >> one person has incentive to ration their use of it if no one else is. It's >> analogous to traffic congestion which is one of several reasons we need >> higher taxes (gas, roads) on driving. [1] >> >> The need to tax pollution is another classic example. >> >> Eugene's Starving Artist is an interesting example of a possible market >> failure. That might be explained in terms of externalities (positive this >> time) if the art was of a kind that couldn't be charged for by usage >> (public sculpture perhaps). In other words, you have free-riders. >> >> Eugene's Down On Their Luck example I believe is an argument for risk >> pooling, one form of which is the "social safety net", ie, welfare. It >> seems that participation should be optional though. >> >> Clare's Parasite CEO example I'm still thinking about... >> >> Danny >> >> [1] See: >> http://freakonomics.blogs.nytimes.com/2007/06/18/hurray-for-high-gas-prices/ >> and add to the list that cars are dangerous to cyclists and skaters! >> >> >> --- \/ FROM Dave Morris AT 07.08.20 15:21 (Yesterday) \/ --- >> >>> I'll rephrase my claim: >>> "Playing the stock market with the objective of short term gains does not >>> contribute to society, and in fact actively harms it." >>> But I do think that is true. The stock market has some benefits, and there >>> are good reasons to have such a thing around, but ours needs help. >>> >>> Stock prices can be a measurement of a companies performance, but it can >>> too easily be influenced in the short term for short term reasons. I feel >>> like it has become common for companies to trim benefits packages, switch >>> CEOs, cut R&D, and do other things which provide a benefit the company for >>> one quarter, and thus make the stock market evaluation bounce when their >>> profits look good for a moment, but which have serious long term costs. >>> The CEOs in charge, and the investors, like this strategy because they can >>> profit from it, then get out before the stock goes down again in the long >>> run. >>> >>> >>> Many people lose from this- not only those holding the stocks when the >>> company goes down in general, but the employees of the company, and those >>> using the services of the company. The stock market encourages short term >>> thinking for short term gain and our country has become swept up in this. >>> I personally know people who have had their companies destroyed this way. >>> I feel like people invest not so much with an idea for building long term >>> stability and high probability of reasonable returns, but as more of a get >>> rich quick theme. And furthermore computer trading and other features have >>> made it easier to trade shorter and shorter term with little understanding >>> or analysis of the companies involved. So stock values become influenced >>> by more trivial surface things, because that's all these day traders have >>> time to see. So now companies are making trivial surface changes to >>> satisfy the whim of short term investors, at long term cost. >>> >>> There was a big discussion on NPR about hedge funds, stock market trading >>> of mortgages, and how it led to the creation of, and current bursting of, >>> the housing market bubble. Part of the problem was that stock market >>> investing had become too disassociated from the things being invested in >>> and the real long term values thereof. >>> >>> Meanwhile most people, who work for the companies thus traded, suffer. >>> Ironically it's their own investment in stock market based IRAs that helps >>> drive the process. >>> >>> So I would argue that the system needs to change. Not that we need to get >>> rid of the stock market entirely, but that we need to shift the way it >>> works to put the focus back on valuing companies that have good long term >>> strategies, and less on valuing get rich quick schemes. What if you had to >>> own a stock for at least a month before you could resell it? Or a week? Or >>> a year? I'm not sure where the right number would be, but it really seems >>> to me that traders who sign on in the morning, borrow $10M from a bank, >>> trade all day back and forth, return the $10M at the end of the day having >>> made $100k, they aren't really helping society, and could be actually >>> harming it in some real and significant ways. >>> >>> Of course part of this also is changing the attitudes of people and >>> whether they should be looking to get rich quick at any expense, or >>> whether they should be looking to help themselves, and incidentally also >>> society, in the long run. But from a top down approach at least we can put >>> in mechanisms that are designed to encourage the latter instead of the >>> former. We can't force anything, and I wouldn't want that level of >>> government control, but right now I feel like we strong encouragements to >>> the opposite of what we want. >>> >>> In the meantime I'll make sure that my company is never publicly traded so >>> I don't have to worry about it. :-) >>> >>> Dave >>> >>> >>> >>> >>> On Aug 20, 2007, at 1:29 PM, Kevin Lochner wrote: >>> >>>> >>>> I have to take issue with Dave Morris re: "Playing the stock market does >>>> not contribute to society." >>>> >>>> Not only does a company's stock price influence its access to capital, >>>> but the respective stock prices of all companies provide information >>>> about the state of the economy that a ceo or entrepeneur may use in >>>> making strategic corporate decisions. Stock prices are determined >>>> primarily by people who are "playing the stock market". >>>> >>>> >>>> >>>> Investing in new companies does. It's a fine line, but >>>>> I think we've gotten too much separation of rich and poor in our society >>>>> because of the way our stock market currently operates, and that could >>>>> use some correction. I agree that inheritance taxes are good as well, >>>>> to help prevent too many generations of people staying rich for free. >>>>> But we should try to reign in the various tricks which exist to leverage >>>>> large sums of cash into even larger sums via short term tricks in >>>>> business and stocks without actually contributing anything. Not only >>>>> do they take funds from people with less, they hurt the country overall. >>>>> >>>>> But he is also correct- there's a wide variance of skill and motivation >>>>> in people, so there should be a wide variance in income levels. I'd >>>>> accept a factor of 100 variance from top to bottom in salary as a >>>>> reasonable maximum in relative value to society that a person could be. >>>>> Some people bust their asses continuously to help the world. Some people >>>>> actively try to live off of others without contributing anything. I >>>>> do have a problem with the factor of 1000 or 10000 variances that >>>>> sometimes occur, but those are obvious flaws that are difficult to >>>>> correct. >>>>> >>>>> Interesting to consider. :-) >>>>> >>>>> Dave >>>>> >>>>> On Aug 20, 2007, at 10:16 AM, Daniel Reeves wrote: >>>>> >>>>>> We've been debating this essay >>>>>> http://www.paulgraham.com/gap.html >>>>>> and I thought I'd move it to improvetheworld... >>>>>> I'll start: Graham is so right! The income gap between the rich and >>>>>> the poor is wonderful! >>>>>> Actually it started more as a debate about the nature of capitalism and >>>>>> interest ("why should money 'grow'?"). Here was the gist: >>>>>> * [the economy] is a zero-sum game, isn't it? >>>>>> - no >>>>>> * those earning money are taking it away, even if only indirectly, from >>>>>> other people, no? >>>>>> - no, not if you think in terms of wealth (wealth = stuff you want, >>>>>> money = way to transfer wealth) >>>>>> * Or am I totally simplifying the haves vs. the have-nots with my pie >>>>>> metaphor? >>>>>> - yes, that's precisely the Daddy Model of Wealth! >>>>>> * Is it THEORETICALLY possible for no one to owe any money at all in >>>>>> this >>>>>> world, i.e., that everyone just has money that "grows"? Or does money >>>>>> only grow if it is taken away from others? >>>>>> - You're right, not possible, but for the opposite reason of what you >>>>>> seem >>>>>> to be suggesting. You grow money by giving it to someone (lending it), >>>>>> not by taking it away. >>>>>> It even got a bit heated, along the lines of "Trixie, I don't think >>>>>> it's right for you to lash out against capitalistic/yootlicious ideas >>>>>> without grokking the answers to your questions [above]". >>>>>> Oh, and I offered a yootle to the first person who could answer the >>>>>> quasiphilosophical question why money *should* grow, with the hint that >>>>>> it has to do with human mortality. I believe that's the only reason >>>>>> that holds in all circumstances. >>>>>> In any case, Trixie wanted to resume the debate and this is clearly the >>>>>> place to do it! >>>>>> DO NOT CHANGE THE SUBJECT LINE WHEN YOU REPLY (so it's easy for those >>>>>> not interested in this debate to delete the whole thread). >>>>>> Ok, go! >>>>>> Danny >>>>>> -- >>>>>> http://ai.eecs.umich.edu/people/dreeves - - search://"Daniel Reeves" >>>>>> "Everything that can be invented has been invented." >>>>>> -- Charles H. Duell, Commissioner, U.S. Office of Patents, 1899. >>>>> >>>>> Dave Morris >>>>> cell: 734-476-8769 >>>>> http://www-personal.umich.edu/~thecat/ >>>>> >>>>> >>>> >>>> >>> >>> Dave Morris >>> cell: 734-476-8769 >>> http://www-personal.umich.edu/~thecat/ >>> >>> >> >> -- >> http://ai.eecs.umich.edu/people/dreeves - - search://"Daniel Reeves" >> >> "Try identifying the problem and then solving it." >> -- suggestion from Dilbert's boss >> >> >> >> > -- http://ai.eecs.umich.edu/people/dreeves - - search://"Daniel Reeves" "We're kind of being trained to be warriors, only in a much funner way." -- Jesus Camp participant, age ~9