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True- any change should be implemented only incrementally, with
concrete metrics to measure progress or not, and metrics of other
effects which may not have been intended as well. This would be
hard to experiment with, as many other factors influence things as well.
But what do you think of the change which recently occurred- moving
to computer based trading instead of paper trading, which essentially
sped things up. They now have in place mechanisms which detect rapid
drops in the market, caused by computer agents responding to each
other causing crashes faster than humans could intervene, and now an
automated system puts a pause in place when this starts to occur. So
we have already slowed down the stock market in one regard.
What do you think the impact would be if we slowed it down a little
bit more? Required stock ownership for a day? A month? A year?
What other mechanisms besides requiring that you hold a stock for a
specified amount of time would work? It seems like it would be
difficult to limit volume of trading with large investment companies
trading for millions of people as they do.
If you had to invest for at least a year, I imagine that it would
slow things down considerably. Stock values wouldn't change as
quickly, and the market would be slower to understand/figure out
failures in companies. On the one hand this would remove short term
response/motivation to company leaders when the market disapproved of
their strategies, which could be devastating if the market really is
driving CEOs to decide how to run things on that scale. But then it
might also be wiser about short term strategies versus long term
gains and force CEOs to think a year or two in advance instead of
just about the next quarter. I wonder what the real impact would be.
Dave
On Aug 22, 2007, at 12:18 PM, Kevin Lochner wrote:
> As daniel has pointed out, the market is not perfect. A tempting
> conclusion to draw from that observation is "ok, let's fix it". I
> think there is reason for restraint.
>
> As the other students of economics should agree, there are cases
> where you can't explicitly determine the outcome of production &
> allocation and simultaneously have proper incentives for everyone
> in society. This doesn't necessarily preclude a "fix" to markets,
> but it indicates that getting to a "better" outcome is possibly
> harder than we imagine. So maybe you come up with a rule that
> "fixes" the instances of small company buyouts, but maybe that
> imposes other costs on the market and society that outweigh the
> gains. By analogy, I don't like getting dust in my eye, but that
> doesn't motivate me to wear protective goggles all day.
>
> It's easy to measure the tradeoff for such mundane cases, but the
> issue is much more subtle in the context of the global economy.
> Given that each new regulation imposes some cost with respect to
> compliance while inherently limiting individual freedom, my
> position is that we should err on the side of free markets (and
> more generally, freedom) unless the case for regulation is
> compelling. Examples of regulation gone awry include our disaster
> of a tax code and the
> criminalization of drug use. Once imposed, such regulation is not
> quickly nor easily revoked.
>
> - k
>
>
> On Wed, 22 Aug 2007, Dave Morris wrote:
>
>> That's a good point- if it's already criminal, we've done what we
>> can to correct it, which ideally solves the Enron case.
>>
>> The real problem is in the case where what the evil CEO is doing
>> is legal. Like taking a small not for profit company for profit
>> and making a ton off the stock sales selling it to a big company
>> that wrecks it. The small company looks good on the stock market
>> temporarily, and the big company looks good temporarily for buying
>> it, but when the big company strategy ruins the value of the small
>> company everything is lost in the long run. But that happens 5
>> years later, so short selling over that period is impractical, or
>> just not the norm, for most investors, so the market doesn't seem
>> to correct for it.
>>
>> Any suggestions or counter arguments for that example?
>>
>>
>> On Aug 22, 2007, at 10:31 AM, Yevgeniy Vorobeychik wrote:
>>
>>> I think the argument to the "evil CEO" examples would run as
>>> follows. Suppose that CEO does something that he knows will cause
>>> the company's imminent collapse. Naturally, he's the only one
>>> who knows this. The problem with the reasoning below is the
>>> implicit assumption that the CEO will not play the stock market.
>>> But in theory, the CEO should short cell shares until the price
>>> comes down to roughly what he/she expects it to be. In the end,
>>> he'll make additional billions of dollars, while the market price
>>> will accurately forcast imminent collapse. That would be the
>>> theory. In reality, something seems to prevent a CEO from doing
>>> just that (at least conspicuously). One would be the laws
>>> against insider trading. Another would be that he is in effect
>>> giving evidence to his own wrongdoing. There is also the issue
>>> of transaction costs, but that's probably more minor here.
>>> I think the problem of "evil CEO" is really entirely separate
>>> from that of stock market inaccuracy. If the CEO is indeed evil,
>>> you certainly to want to create additional incentives for
>>> wrongdoing by creating another opportunity for them to cash in.
>>> The issue may be insufficient enforcement of accounting crimes,
>>> etc. on the part of company executives. That's where the
>>> incentives really need to be to "behave".
>>> On Wed, 22 Aug 2007, Dave Morris wrote:
>>>> 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-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
>>>> Dave Morris
>>>> cell: 734-476-8769
>>>> http://www-personal.umich.edu/~thecat/
>>
>> Dave Morris
>> cell: 734-476-8769
>> http://www-personal.umich.edu/~thecat/
>>
>>
>
>
Dave Morris
cell: 734-476-8769
http://www-personal.umich.edu/~thecat/
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True- any change should be implemented only incrementally, with concrete
metrics to measure progress or not, and metrics of other effects which may not
have been intended as well.=A0 =A0This would be hard to experiment with, as
many other factors influence things as well. But what do you think of the
change which recently occurred- moving to computer based trading instead of
paper trading, which essentially sped things up. They now have in place
mechanisms which detect rapid drops in the market, caused by computer agents
responding to each other causing crashes faster than humans could intervene,
and now an automated system puts a pause in place when this starts to occur.
So we have already slowed down the stock market in one regard. What do you
think the impact would be if we slowed it down a little bit more? Required
stock ownership for a day? A month? A year? =A0 =A0What other mechanisms
besides requiring that you hold a stock for a specified amount of time would
work? It seems like it would be difficult to limit volume of trading with
large investment companies trading for millions of people as they do.
If you had to invest for at least a year, I imagine that it would slow things
down considerably. Stock values wouldn't change as quickly, and the market
would be slower to understand/figure out failures in companies. =A0On the one
hand this would remove short term response/motivation to company leaders when
the market disapproved of their strategies, which could be devastating if the
market really is driving CEOs to decide how to run things on that scale .=A0
=A0But then it might also be wiser about short term strategies versus long
term gains and force CEOs to think a year or two in advance instead of just
about the next quarter. =A0 =A0I wonder what the real impact would be.
Dave On Aug 22, 2007, at 12:18 PM, Kevin Lochner wrote: As daniel has
pointed out, the market is not perfect . =A0 A tempting conclusion to draw
from that observation is "ok, let's fix it". =A0 I think there is reason for
restraint . As the other students of economics should agree, there are
cases where you can't explicitly determine the outcome of production &
allocation and simultaneously have proper incentives for everyone in society.
=A0 This doesn't necessarily preclude a "fix" to markets, but it indicates
that getting to a "better" outcome is possibly harder than we imagine . =A0 So
maybe you come up with a rule that "fixes" the instances of small company
buyouts, but maybe that imposes other costs on the market and society that
outweigh the gains. =A0 By analogy , I don't like getting dust in my eye, but
that doesn't motivate me to wear protective goggles all day. It's easy to
measure the tradeoff for such mundane cases, but the issue is much more subtle
in the context of the global economy. =A0 Given that each new regulation
imposes some cost with respect to compliance while inherently limiting
individual freedom, my position is that we should err on the side of free
markets (and more generally, freedom) unless the case for regulation is
compelling. =A0 Examples of regulation gone awry include our disaster of a
tax code and the criminalization of drug use . =A0 Once imposed, such
regulation is not quickly nor easily revoked. - k On Wed, Aug
2007, Dave Morris wrote: That's a good point- if it's already criminal,
we've done what we can to correct it , which ideally solves the Enron case.
The real problem is in the case where what the evil CEO is doing is legal.
Like taking a small not for profit company for profit and making a ton off the
stock sales selling it to a big company that wrecks it. The small company
looks good on the stock market temporarily, and the big company looks good
temporarily for buying it, but when the big company strategy ruins the value
of the small company everything is lost in the long run. But that happens 5
years later, so short selling over that period is impractical , or just not the
norm, for most investors, so the market doesn 't seem to correct for it.
Any suggestions or counter arguments for that example? On Aug 22, 2007,
at 10:31 AM, Yevgeniy Vorobeychik wrote : I think the argument to the
"evil CEO" examples would run as follows. Suppose that CEO does something that
he knows will cause the company's imminent collapse. =A0 Naturally, he's the
only one who knows this. =A0 The problem with the reasoning below is the
implicit assumption that the CEO will not play the stock market. =A0 But in
theory, the CEO should short cell shares until the price comes down to roughly
what he/she expects it to be. In the end, he'll make additional billions of
dollars, while the market price will accurately forcast imminent collapse. =A0
That would be the theory. In reality , something seems to prevent a CEO from
doing just that (at least conspicuously ). =A0 One would be the laws against
insider trading. Another would be that he is in effect giving evidence to his
own wrongdoing. =A0 There is also the issue of transaction costs, but that's
probably more minor here. I think the problem of "evil CEO" is really entirely
separate from that of stock market inaccuracy. =A0 If the CEO is indeed evil,
you certainly to want to create additional incentives for wrongdoing by
creating another opportunity for them to cash in. =A0 The issue may be
insufficient enforcement of accounting crimes, etc. on the part of company
executives . That's where the incentives really need to be to "behave". On
Wed, 22 Aug 2007, Dave Morris wrote : 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
? =A0 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. =A0 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 . =A0 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? =A0 The market is smarter than we think . Nor do I have a beef
with day traders . =A0 Either they're providing valuable information to the
market or they're going to get smacked hard. =A0 (In expectation at least.)
=A0 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). =A0 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. =A0 The stock price estimates (the
per-share net present value of) the cumulative future cash flow of the
company. =A0 The stock market estimates that better than any other known
mechanism . =A0 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. =A0 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). =A0
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. =A0 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! --- \/ =A0 FROM Dave Morris AT .08.20 15:21 (Yesterday) =A0 \/
--- 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. =A0 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 . =A0 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.
=A0 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. =A0 =A0 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, 07, 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: =A0 Graham is so right! =A0 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'?"). =A0 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
=3D stuff you want, money =3D 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. =A0 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. =A0 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 -- =A0 http://ai.eecs.umich.edu/people /dreeves =A0 -
- =A0 search://"Daniel Reeves " "Everything that can be invented has been
invented." -- Charles H. Duell, Commissioner , U.S. Office of Patents, 1899.
Dave Morris cell: 4-476-8769 http://www-personal.umich.edu /~thecat/
Dave Morris cell: 734-476-8769 http://www-personal.umich.edu /~thecat/
-- =A0 http://ai.eecs.umich.edu/people /dreeves =A0 - - =A0
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/ Dave Morris cell:
734-476-8769 http://www-personal.umich.edu /~thecat/
Dave Morris cell: 734-476-8769 http://www-personal.umich.edu /~thecat/
--Apple-Mail-34--957714809--
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