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MikeL
Social climber
Seattle, WA
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Jul 23, 2015 - 07:34am PT
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It’s interesting that people refer to the same economic ideas but then come to so many different conclusions. Either the theories are wrong, unhelpful, or they are being improperly understood and applied.
One might think that so many smart and clever people who have been educated in the best schools in the world and trained in some of the most highly paid positions could make money the old fashioned way (earn it through keen predictions and management). But that’s not what one finds historically.
How about something seemingly simple . . . like the price of wheat. Say how to predict that with accuracy.
(I think Werner could say something typically appropriate here.)
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climbski2
Mountain climber
Anchorage AK, Reno NV
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Jul 23, 2015 - 07:34am PT
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Markets will ALWAYS achieve efficiency unless
restricted by meddlesome governments.
Not a true statement..in fact it's almost always false. Market Efficiency is not the best thing for a businesses profit. Efficiency in the economic sense anyway.
This is much more accurate and fairly true. Competitive markets with at least a moderate market business entry barrier will generally become efficient. (ie good for the consumer).
This however does not describe most markets over much of their lifetimes.
I had an excellent conservative republican macro economics professor. I challenged him occasionally learned a great deal, greatly enjoyed and aced the course.
Perfect information does not an efficient marketplace make..nor for that matter even a good marketplace. Lookup Monopoly/oligopoly..I deal with google on a daily..hell many days hourly basis.
Their system is corrupt, and it has gotten worse in the last year. I expect their profits to skyrocket however because of that
..I have excellent information and I use it for my best interest..I am well aware how much bullshit they try to feed their customers.. but hey..I still make a profit from their service so I am willing to put up with their bullsh#t. Just wish they would simply state ..we will charge you whatever we feel like, it will is not based on consumer usage and you will take it up the a*# and like it.
Would be a lot more honest of them..and I probably wouldn't grin as much when bad things happen to their VPs... Karma is a bitch motherf*#kers
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Reilly
Mountain climber
The Other Monrovia- CA
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Jul 23, 2015 - 07:42am PT
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Market Efficiency is not the best thing for a businesses profit.
Nicolas Maduro loves you, bra! And I hope you didn't cite "businesses profit" in the
econ course you aced! ;-)
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Ed Hartouni
Trad climber
Livermore, CA
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Jul 23, 2015 - 07:52am PT
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if only Economics were taught within its proper setting, human ecology...
but aside from that... look at the interesting article in the OpEd page of the NYTimes today:
http://www.nytimes.com/2015/07/23/opinion/socialism-american-style.html
where it is pointed out that Alaska, Texas and Wyoming all have government control over productive capital (and the Tennessee Valley Authority is also thrown in there too).
In spite of the very conservative politics of those areas, there is not a move in those states to divest that control to private enterprise. When the USG floated an idea to privatize the TVA, the regional governments successfully opposed it.
Perhaps I've read the OpEd piece wrong, but I'd be interested in the discussion.
Certainly makes one pause in believing that any of the public discussion of governments, markets, private sector are so much BS... and you'd expect it to be so since we are ruled by ecology...
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Ed Hartouni
Trad climber
Livermore, CA
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Jul 23, 2015 - 07:53am PT
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like the price of wheat. Say how to predict that with accuracy.
like most (all) things, calculate the amount of energy used in the production...
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MikeL
Social climber
Seattle, WA
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Jul 23, 2015 - 07:58am PT
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Try it.
Goldman, Solomon Brothers, Morgan Stanley, and other investment banks hired a gaggle of Ph.D.s in the 80s trying to model the noise in the markets, and they gave each a mini computer to work with. At best, it was the start of program trading, but still. . . folks could not predict the price of anything. All they could do is come up with stochastic models that indicated when their probabilities would be great enough to make a bet. They traded on the smallest of margins.
The point of asking anyone how they come to the price of wheat is to simply notice just how immensely complex, non-linear, and unpredictable the problem is. Relying on typical economic theories do so very little as to be almost useless. But they are certainly worth talking about: it's fun.
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climbski2
Mountain climber
Anchorage AK, Reno NV
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Jul 23, 2015 - 08:03am PT
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Reilly , this is not a hard concept to understand at all. It's not even controversial econ..it's basic stuff supported by simple econ 101-2 charts.
If you are a business owner the last thing you want if you wish to make high profits is market efficiency for your product.
There are many strategies businesses use (if allowed) to avoid market efficiency when they can. Monopoly, price fixing, Patents and copy writes, even lobbying for regulations that wipe out competitors.
Been a while since I looked at this stuff but here is a nice non controversial basic econ chart and discussion of some of the implications. It goes into more detail about exactly what I was talking about among other things.
http://www.economicshelp.org/microessays/essays/increase-market-concentration-efficiency/
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rottingjohnny
Sport climber
mammoth lakes ca
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Jul 23, 2015 - 08:26am PT
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It's all about supply and demand...There are too many monkeys and not enough bowling balls...
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jonnyrig
climber
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Jul 23, 2015 - 09:15am PT
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Yawn. Boy is he long-winded.
Make something, or provide a service. If nobody likes it, you fail. If people like it, you thrive or someone copies it and you fail.
We're losing our edge in the world market, 'cause we're dumbing down and getting lazy, while they're up-and-coming superstars. Best get on it, 'Murika.
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Jan
Mountain climber
Colorado, Nepal & Okinawa
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Jul 23, 2015 - 09:44am PT
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Ed's right. Economics is based on human ecology and what nature can support. This truth is well disguised in the complex modern market until nature intervenes with a drought, early freeze, hurricane etc. At the moment we dismiss these as anomalies and carry on as though the fossil fuel supply was infinite and as though the chemicals we spray on our food are harmless. Bees dying by the millions, the rate of autism in America up 78% in ten years, just anomalies it seems, until we reach the point of collapse.
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JEleazarian
Trad climber
Fresno CA
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Jul 23, 2015 - 10:33am PT
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One might think that so many smart and clever people who have been educated in the best schools in the world and trained in some of the most highly paid positions could make money the old fashioned way (earn it through keen predictions and management). But that’s not what one finds historically.
How about something seemingly simple . . . like the price of wheat. Say how to predict that with accuracy.
When I was in grad school in economics, we used to joke that if all the economists in the world were lined up end-to-end, they'd still be pointing in different directions. We also would say, though, that the efficient market theory suggests that the best prediction for the price of wheat is a random walk. As I like to tell my clients when they want my short-term prediciton for interest rate movements, if I really knew that, why would I need to work?
Economists (or, if they're like me, econometricians) can tell what a given change in circumstances is likely to do, all other things being equal (or in econospeak, ceteris paribus), but that just shifts the forecasting problem from forecasting the price of wheat to forecasting weather in every worldwide wheat growing area, government policies in every worldwide wheat growing area, population changes in wheat consuming areas, dietary preferences, etc. Economic forecasting is helpful only if the client understands its limits and legitimate uses.
As for the price of wheat, Ed, you have only part of the problem in calculating the energy used. Without some way of determining where else we could use all of the inputs into producing wheat (not just energy, but labor, land, water, and entrepreneurial direction and allocation of risk, among many other things), we have no meaningful way of determining what we're foregoing to produce that wheat.
Economics defines the cost of a commodity as the highest valued opportunity foregone to obtain that commodity. Value, being subjective, defies easy scientific determination. Money is the best surrogate we have for determining the opportunity foregone, but I don't think the price of anything, measured in money, reflects the amount of any single input.
John
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MikeL
Social climber
Seattle, WA
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Jul 23, 2015 - 03:49pm PT
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Thanks, John, for your thoughtful response. No disrespect was intended toward economists or econometricians. Loved Burton Malkiel’s book, and it set me on a path to the investment industry (for a while, anyway). An ex-wife got a Ph.D. in economics, and her work was mysterious and indecipherable to me sometimes. Very mathematical.
I’ve found economists are often very smart people.
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Ed Hartouni
Trad climber
Livermore, CA
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Jul 23, 2015 - 06:10pm PT
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As for the price of wheat, Ed, you have only part of the problem in calculating the energy used. Without some way of determining where else we could use all of the inputs into producing wheat (not just energy, but labor, land, water, and entrepreneurial direction and allocation of risk, among many other things), we have no meaningful way of determining what we're foregoing to produce that wheat.
put a tax on carbon and watch the price change through all your complicated calculations...
labor = energy
water = energy
"entrepreneurial direction and allocation of risk" = energy
turn off the energy, what happens?
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JEleazarian
Trad climber
Fresno CA
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Jul 24, 2015 - 12:03pm PT
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put a tax on carbon and watch the price change through all your complicated calculations...
No disagreement there, Ed, but the price change also depends on the demand for the commodity, and that's where all the other options for use of that energy play their part.
John
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