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Archive for the ‘Markets’ Category

The two economists that have most informed my view of the current macroeconomy are Arnold Kling and Scott Sumner. In both cases, their models and explanations make sense to me.  They use solid reasoning and evidence; I don’t feel I’m getting a lot of hand waving. Unfortunately, at first glance, their views seem mutually exclusive.  Kling believes business cycles are the result of many planning errors by individual agents (for example, this recent post and this follow up).  Sumner believes business cycles are the result of contractionary monetary policy by the central bank (for example, this recent post and this one).

How can they both be right? I think they are operating at different levels. Yes, individual agents make their particular planning decisions.  In aggregate, these decisions drive monetary variables like interest rates, exchange rates, liquidity demand, etc.  However, these variables then feed back into the next round of planning decisions.  Moreover, at least some of these plans take into account the effect of the agent’s actions on the monetary variables.  So you get classic chaotic/complex behavior with temporarily stable attractors, perturbations, and establishing new regimes. There may even be aspects of synchronized chaos. I think the monetary variables are the key emergent phenomena here.  They are like “meta prices” that provide a shared signal across just about every modern economic endeavor.

Food for thought.  I’m going to keep this in mind when processing future articles on the economy and see if it helps my thinking.

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The following quotes are from a book describing a real set of events:

[The incident] is an extraordinary example of what happens when you get… a dozen people with an average IQ of 160… working in a field in which they collectively have 250 years of experience… employing a ton of leverage.

It’s hard to overstate the significance of a [government-led] rescues of a private [corporation].  If a [company], however large was too big to fail, then what large [company] would ever be allowed to collapse?  The government risked becoming the margin of safety.  No serious consequences had come about in the end from the… near-meltdown.

Was the incident:

a) The savings and loan scandal

b) The collapse of Enron

c) The sub-prime mortgage meltdown

d) none of the above

First correct answer gets to invest in an exciting new bridge project I’m involved with in New York!

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I’ve been having a serious discussion with two colleagues of mine about closing the gap that exists between two groups:

  1. People of my generation (40 and older) who have capital they want to invest in innovation but only know the VC for-profit-only value model and don’t have any true view into or understanding of social entrepreneurship business models;
  2. People coming out of college today (27 and younger) who are actually creating untold value for the world without taking on investors because they don’t (a) know how to attract them, and (b) have heard too many horror stories

Jay and I fall into category 1 and Michael falls into category 2.  All three of us agree that the gap above exists — due in part to rapidly declining startup costs — and represents a very real (and lucrative) investment opportunity if it can be closed properly. (more…)

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Specifying a Climate Bet

As I mentioned in the comments on this post, I am currently in the process of negotiating a bet on Anthropogenic Global Warming (AGW) with another blogger. The challenges are interesting, so I thought I’d give you a peek inside the sausage factory.

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Everyone seems to have an opinion on the future prospects of Facebook and Twitter. Some of us even feel strongly enough to want to bet on it. Unfortunately, the companies are privately held, and unavailable to be bet on in the traditional way, via the stock market. It is not just household names like Facebook and Twitter that people might want to bet on, but also smaller companies like Weebly, or the Universal Record Database (URDB.)

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The Freakonomics guys have been on this rant for years, and until recently, I agreed with their logic.  But the mounting evidence (in my mind) is starting to swing the other way.

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I have been having a 140 character discussion with Ciarán Brewster (@macbruski) via twitter.  And while it’s kind of interesting to force complex subject matter into very few characters, it is limiting the discussion, so I will summarize it so far here and hopefully others can weigh in too.

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