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I largely agree with Dave's comments about the negative impacts of
short-term trading strategies. The day trader need only think that "people
seem to be interested in stock X. I will buy some". She need not know or
believe that the company is actually worth anything. In my opinion, this
largely explains the dot.com boom (and subsequent bust). Tech stocks became
"hot", so people started buying them, without truly investigating whether
the company had a good product. Then, at some point, people finally realized
that many of these companies weren't making money, and the then the bust
started to happen, which to some extent led the country into a recession. I
will make a plug here for "The Tipping Point", by Malcolm Gladwell. He
discusses such trends, e.g. how plagues start and such, and they allow
follow this classic bell-shaped curve. First there is small growth, then at
some point (the tipping point), there is rapid growth, then a plateau, then
a fall. It is often not immediately apparent what exactly causes the change,
and can often be very subtle. So I guess one question to ask would be
whether implementing some of Dave's market-slowing ideas would have changed
the dot.com boom and bust into the dot.com "steady gradual increase", and if
so, whether we would be better off as a society had that happened. As
another example of the importance of long-term planning, let's think of
NASA. NASA, as a government agency, has the freedom to set goals 10 or 20
years in the future. Would this be possible for a publicly-traded company? I
would say no.
I also agree with Kevin that taxing estates makes sense. Growing up in a
wealthy family (as most of us on this list have done) is a huge advantage,
so it is not the case that people create wealth based solely on their talent
or effort. We should not tax income so much as to encourage people not to
make money, but we should not give incentives to the children of wealthy
people to ride on their parents' coattails either.
I also agree with the point Eugene made about social welfare. If we give
poor people some money for doing nothing, it tends to decrease crime and
make everyone's lives more enjoyable, and is probably cheaper in the long
run than not giving them anything, them turning into criminals, and then
having to erect more jails. Theoretically, it is wrong to give people money
for nothing, but practically, it seems like the better alternative.
One other point I would like to make in regards to CEOs. Frequently when
CEOs do a bad job, they get fired, but with gigantic severance packages.
When Joe Schmo at the factory gets fired, he is simply told to "leave the
building within 20 minutes", accompanied by a security guard. If CEOs are so
valuable, then it is right to reward them fittingly. But why don't CEOs get
appropriately punished when they do bad jobs?
Rob
On 8/23/07, Kevin Lochner wrote:
>
> but you're forgetting my point, which was that even if some companies are
> getting "screwed over", said screwing may benefit society on the whole.
>
>
> On Thu, 23 Aug 2007, Dave Morris wrote:
>
> > It is falsifiable, just not easily, as too many lazy scientists crave.
> :-)
> > The experimental test is to implement change in the stock market and see
> if
> > by somehow removing the easy incentive for leaders of companies to get
> rich
> > by screwing the company over, the number of companies getting thus
> screwed
> > over goes down. It would be a very difficult experiment spanning at
> least a
> > decade maybe more. The control variables are a huge pain in the ass
> since so
> > many other effects would take place over that span of time. You might
> have
> > to run many experiments testing many variables to definitively disprove
> it.
> > But it is conceivable that you could test the theory and prove it false,
> or
> > by not proving it false increase your confidence that it may be true.
> And
> > just because it's not easy doesn't mean it isn't right. :-)
> >
> > Dave
> >
> >
> > On Aug 23, 2007, at 2:51 AM, Daniel Reeves wrote:
> >
> >> But then you have an unfalsifiable theory, Dave! [1]
> >>
> >> Also, as they say, the plural of anecdote is not data.
> >>
> >>
> >> [1] For the nonscientists, and I hope this isn't already obvious, but
> >> unfalsifiable = bad. It's a theory with no predictive power, ie, not
> >> scientific, ie, useless!
> >>
> >> --- \/ FROM Dave Morris AT 07.08.22 23:16 (Today) \/ ---
> >>
> >>> Not being a private investigator, or the FBI, and given that they have
> >>> been unable to identify such things in advance, I'm not willing to bet
> on
> >>> it. Some stock rises are good. Others are based on short term
> thinking.
> >>> And 1 year may not be long enough, it may be 5 or 10 years before a
> >>> company that was good for 25 years finally is destroyed. Or the
> company
> >>> may be bought out by other companies such that it ceases to exist as
> such
> >>> and thus becomes impossible to track. You only really find out through
> >>> hindsight- when you have friends who've worked there and described in
> >>> person what happened. Or when CEOs retire as multi-billionaires at the
> end
> >>> of 50 years of this and reveal what they did 25 years ago.
> >>>
> >>> So I don't think betting on it is the right way to resolve the matter.
> :-)
> >>>
> >>> How much do you have in the stock market these days? How do you choose
> who
> >>> you invest it in? How long term do you think?
> >>>
> >>> I've got about $16k, though I'm planning to pull that out soon and put
> it
> >>> in my house instead once the account vests (my EDA retirement is
> basically
> >>> an online stock trading account). Most of it is in FedEx and UPS,
> since I
> >>> heard on NPR that their stock was way down due to gas prices, and I
> >>> thought to myself "I use them every day in my company and they do a
> great
> >>> job, that doesn't make sense, they'll bounce back". So far I've been
> >>> right, but only about 5-6% on average, not too exciting.
> >>>
> >>> The next time I invest in the stock market will probably be to support
> a
> >>> small company trying to get started. I may be the one starting it. :-)
> >>>
> >>> Dave
> >>>
> >>>
> >>> On Aug 22, 2007, at 9:35 PM, Daniel Reeves wrote:
> >>>
> >>>> Not sure if this was clear but I meant to propose this as an actual
> >>>> wager. I think disagreements are much more interesting when the
> >>>> participants can quantify their confidence in their positions.
> >>>> (I also have the ulterior motive that we're working on adding new
> >>>> betting mechanisms, and decision/prediction mechanisms, into
> yootles.)
> >>>> Any other ways we can turn this disagreement into a prediction about
> >>>> some measurable future thing? My position is that Dave only appears
> >>>> right through the power of hindsight.
> >>>> On 8/22/07, Daniel Reeves wrote:
> >>>>> Dave, if you pick a stock that surges up on some short-term news
> I'll
> >>>>> bet
> >>>>> you a large amount of money that it will still be up, say, 1 year
> later.
> >>>>> (Does that pin down the heart of what we disagree about?)
> >>>>> --- \/ FROM Dave Morris AT 07.08.22 09:57 (Today) \/ ---
> >>>>>> You point out some potential benefits, and others have pointed out
> >>>>>> specific
> >>>>>> examples. I agree with these, but my argument is not that the stock
> >>>>>> market
> >>>>>> should be abolished. It does provide value. My argument is that
> it's
> >>>>>> got
> >>>>>> flaws that are getting worse, and thus should be recognized.
> >>>>>> What of examples like Enron where executives obfuscated the
> records,
> >>>>>> made
> >>>>>> millions to billions, then screwed everyone else when it collapsed?
> Or
> >>>>>> the
> >>>>>> CEOs who inflate the value, cash out in the stock market, then
> leave
> >>>>>> before
> >>>>>> the company collapses into ruins in a series of buyouts? In these
> cases
> >>>>>> the
> >>>>>> stock market and the traders and the collective wisdom are easily
> >>>>>> fooled, and
> >>>>>> get fooled over and over again, at least in the short run. But the
> way
> >>>>>> the
> >>>>>> stock market works incentivizes these short term illusions because
> it
> >>>>>> creates
> >>>>>> the ability to get really rich because of them. As stocks trade
> faster
> >>>>>> and
> >>>>>> easier and information becomes more distant from the traders this
> will
> >>>>>> become
> >>>>>> more prevalent, or so I believe.
> >>>>>> How do we fix that without removing the collective wisdom
> evaluation of
> >>>>>> corporate strategies? Though additionally I'll put my faith in a
> >>>>>> handful of
> >>>>>> experts over the collective wisdom any day. I think the collective
> >>>>>> wisdom
> >>>>>> lags and follows those who really understand the companies and
> >>>>>> technology
> >>>>>> anyway.
> >>>>>> As far as short-selling companies who are pursuing the above
> >>>>>> strategies, I
> >>>>>> think that is a good strategy, and I'm sure there are some who do
> make
> >>>>>> a
> >>>>>> profit doing that... but it requires longer term thinking and
> longer
> >>>>>> term
> >>>>>> strategies to do so, and the fact that we're moving away that as a
> >>>>>> society
> >>>>>> means that such strategies won't counterbalance the problem.
> Though
> >>>>>> again
> >>>>>> the stock market alone isn't the only cause of short term thinking.
> I
> >>>>>> just
> >>>>>> think it's one piece of the issue, and perhaps one that could be
> >>>>>> adjusted to
> >>>>>> help improve it.
> >>>>>> Dave
> >>>>>> On Aug 21, 2007, at 8:44 PM, 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-p...
> >>>>>>> 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
> >>>>>> Dave Morris
> >>>>>> cell: 734-476-8769
> >>>>>> http://www-personal.umich.edu/~thecat/
> >>>>> --
> >>>>> http://ai.eecs.umich.edu/people/dreeves - - search://"Daniel
> Reeves"
> >>>>> "Backup not found. (A)bort (R)etry (T)ake down the entire network:"
> >>>> --
> >>>> http://ai.eecs.umich.edu/people/dreeves - - search://"Daniel
> Reeves"
> >>>
> >>> Dave Morris
> >>> cell: 734-476-8769
> >>> http://www-personal.umich.edu/~thecat/
> >>>
> >>>
> >>
> >> --
> >> 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
> >>
> >>
> >>
> >
> > Dave Morris
> > cell: 734-476-8769
> > http://www-personal.umich.edu/~thecat/
> >
> >
>
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I largely agree with Dave s comments about the negative impacts of short-term
trading strategies. The day trader need only think that "people seem to be
interested in stock X. I will buy some". She need not know or believe that the
company is actually worth anything. In my opinion, this largely explains the
dot.com boom (and subsequent bust). Tech stocks became "hot", so people
started buying them, without truly investigating whether the company had a good
product. Then, at some point, people finally realized that many of these
companies weren t making money, and the then the bust started to happen, which
to some extent led the country into a recession. I will make a plug here for
"The Tipping Point", by Malcolm Gladwell. He discusses such trends,
e.g. how plagues start and such, and they allow follow this classic bell-shaped
curve. First there is small growth, then at some point (the tipping point),
there is rapid growth, then a plateau, then a fall. It is often not immediately
apparent what exactly causes the change, and can often be very subtle. So I
guess one question to ask would be whether implementing some of Dave s
market-slowing ideas would have changed the
dot.com boom and bust into the dot.com "steady gradual increase", and if
so, whether we would be better off as a society had that happened. As another
example of the importance of long-term planning, let s think of NASA. NASA, as
a government agency, has the freedom to set goals 10 or 20 years in the future.
Would this be possible for a publicly-traded company? I would say no.
I also agree with Kevin that taxing estates makes sense. Growing up in a
wealthy family (as most of us on this list have done) is a huge advantage, so
it is not the case that people create wealth based solely on their talent or
effort. We should not tax income so much as to encourage people not to make
money, but we should not give incentives to the children of wealthy people to
ride on their parents coattails either.
I also agree with the point Eugene made about social welfare. If we give poor
people some money for doing nothing, it tends to decrease crime and make
everyone s lives more enjoyable, and is probably cheaper in the long run than
not giving them anything, them turning into criminals, and then having to erect
more jails. Theoretically, it is wrong to give people money for nothing, but
practically, it seems like the better alternative.
One other point I would like to make in regards to CEOs. Frequently when CEOs
do a bad job, they get fired, but with gigantic severance packages. When Joe
Schmo at the factory gets fired, he is simply told to "leave the building
within 20 minutes", accompanied by a security guard. If CEOs are so valuable,
then it is right to reward them fittingly. But why don t CEOs get appropriately
punished when they do bad jobs?
Rob On 8/23/07, Kevin Lochner < klochner Æ eecs.umich.edu >
wrote:
but you re forgetting my point, which was that even if some companies are
getting "screwed over", said screwing may benefit society on the whole. On
Thu, 23 Aug 2007, Dave Morris wrote:
> It is falsifiable, just not easily, as too many lazy scientists crave. :-)
> The experimental test is to implement change in the stock market and see
if > by somehow removing the easy incentive for leaders of companies to get
rich
> by screwing the company over, the number of companies getting thus
screwed > over goes down. It would be a very difficult experiment spanning
at least a > decade maybe more. The control variables are a huge pain in the
ass since so
> many other effects would take place over that span of time. You might
have > to run many experiments testing many variables to definitively
disprove it. > But it is conceivable that you could test the theory and
prove it false, or
> by not proving it false increase your confidence that it may be true.
And > just because it s not easy doesn t mean it isn t right. :-) > >
Dave > > > On Aug 23, 2007, at 2:51 AM, Daniel Reeves wrote:
> >> But then you have an unfalsifiable theory, Dave! [1] >>
>> Also, as they say, the plural of anecdote is not data. >>
>> >> [1] For the nonscientists, and I hope this isn t already
obvious, but
>> unfalsifiable = bad. It s a theory with no predictive power, ie, not
>> scientific, ie, useless! >> >> --- \/ FROM Dave Morris
AT 07.08.22 23:16 (Today) \/ --- >>
>>> Not being a private investigator, or the FBI, and given that they
have >>> been unable to identify such things in advance, I m not
willing to bet on >>> it. Some stock rises are good. Others are based
on short term thinking.
>>> And 1 year may not be long enough, it may be 5 or 10 years before
a >>> company that was good for 25 years finally is destroyed. Or the
company >>> may be bought out by other companies such that it ceases
to exist as such
>>> and thus becomes impossible to track. You only really find out
through >>> hindsight- when you have friends who ve worked there and
described in >>> person what happened. Or when CEOs retire as
multi-billionaires at the end
>>> of 50 years of this and reveal what they did 25 years ago.
>>> >>> So I don t think betting on it is the right way to
resolve the matter. :-) >>> >>> How much do you have in the
stock market these days? How do you choose who
>>> you invest it in? How long term do you think? >>>
>>> I ve got about $16k, though I m planning to pull that out soon and
put it >>> in my house instead once the account vests (my EDA
retirement is basically
>>> an online stock trading account). Most of it is in FedEx and UPS,
since I >>> heard on NPR that their stock was way down due to gas
prices, and I >>> thought to myself "I use them every day in my
company and they do a great
>>> job, that doesn t make sense, they ll bounce back". So far I ve
been >>> right, but only about 5-6% on average, not too exciting.
>>> >>> The next time I invest in the stock market will
probably be to support a
>>> small company trying to get started. I may be the one starting
it. :-) >>> >>> Dave >>> >>> >>>
On Aug 22, 2007, at 9:35 PM, Daniel Reeves wrote:
>>> >>>> Not sure if this was clear but I meant to
propose this as an actual >>>> wager. I think disagreements are
much more interesting when the >>>> participants can quantify their
confidence in their positions.
>>>> (I also have the ulterior motive that we re working on adding
new >>>> betting mechanisms, and decision/prediction mechanisms,
into yootles.) >>>> Any other ways we can turn this disagreement
into a prediction about
>>>> some measurable future thing? My position is that Dave only
appears >>>> right through the power of hindsight. >>>>
On 8/22/07, Daniel Reeves <
dreeves Æ umich.edu > wrote: >>>>> Dave, if you pick a
stock that surges up on some short-term news I ll >>>>> bet
>>>>> you a large amount of money that it will still be up, say,
1 year later.
>>>>> (Does that pin down the heart of what we disagree
about?) >>>>> --- \/ FROM Dave Morris AT 07.08.22 09:57
(Today) \/ --- >>>>>> You point out some potential
benefits, and others have pointed out
>>>>>> specific >>>>>> examples. I agree
with these, but my argument is not that the stock >>>>>>
market >>>>>> should be abolished. It does provide value. My
argument is that it s
>>>>>> got >>>>>> flaws that are getting
worse, and thus should be recognized. >>>>>> What of examples
like Enron where executives obfuscated the records,
>>>>>> made >>>>>> millions to billions,
then screwed everyone else when it collapsed? Or >>>>>> the
>>>>>> CEOs who inflate the value, cash out in the stock
market, then leave
>>>>>> before >>>>>> the company collapses
into ruins in a series of buyouts? In these cases >>>>>> the
>>>>>> stock market and the traders and the collective wisdom
are easily
>>>>>> fooled, and >>>>>> get fooled over
and over again, at least in the short run. But the way >>>>>>
the >>>>>> stock market works incentivizes these short term
illusions because it
>>>>>> creates >>>>>> the ability to get
really rich because of them. As stocks trade faster >>>>>>
and >>>>>> easier and information becomes more distant from
the traders this will
>>>>>> become >>>>>> more prevalent, or so
I believe. >>>>>> How do we fix that without removing the
collective wisdom evaluation of >>>>>> corporate strategies?
Though additionally I ll put my faith in a
>>>>>> handful of >>>>>> experts over the
collective wisdom any day. I think the collective >>>>>>
wisdom >>>>>> lags and follows those who really understand
the companies and
>>>>>> technology >>>>>> anyway.
>>>>>> As far as short-selling companies who are pursuing the
above >>>>>> strategies, I >>>>>> think
that is a good strategy, and I m sure there are some who do make
>>>>>> a >>>>>> profit doing that... but
it requires longer term thinking and longer >>>>>> term
>>>>>> strategies to do so, and the fact that we re moving
away that as a
>>>>>> society >>>>>> means that such
strategies won t counterbalance the problem. Though >>>>>>
again >>>>>> the stock market alone isn t the only cause of
short term thinking. I
>>>>>> just >>>>>> think it s one piece of
the issue, and perhaps one that could be >>>>>> adjusted to
>>>>>> help improve it. >>>>>> Dave
>>>>>> On Aug 21, 2007, at 8:44 PM, 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-p...
>>>>>>> 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
>>>>>> Dave Morris >>>>>> cell:
734-476-8769 >>>>>> http://www-personal.umich.edu/~thecat/
>>>>> --
>>>>> http://ai.eecs.umich.edu/people/dreeves - -
search://"Daniel Reeves" >>>>> "Backup not found. (A)bort
(R)etry (T)ake down the entire network:"
>>>> -- >>>> http://ai.eecs.umich.edu/people/dreeves
- - search://"Daniel Reeves" >>> >>> Dave Morris
>>> cell: 734-476-8769 >>>
http://www-personal.umich.edu/~thecat/ >>> >>> >>
>> -- >>
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
>> >> >> > > Dave Morris > cell: 734-476-8769 >
http://www-personal.umich.edu/~thecat/ > >
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