Socialism in a broad sense? I don't think so. To refresh your memory, here is a quote from you in defense of a central command economy structure: And furthermore, you went so far as to argue that the soviet model didn't qualify as a failure- even more ludicrous, if possible, than your fellow academic Glassman's assertion that there was no stockmarket bubble: Vlad, with all due respect, when it comes to economics, I don't care if you have tenure at Princeton, I would rather listen to the guy who changes my oil at Walmart than you.
With all due respect, I don't how a single thing I said up there in what you quote is wrong! I have lived about 3 fifth of my life in one system a fifth in a mixture of both and a fifth here in the US. Don't you think I'm better positioned to make such judgements??? Of course, being born here and feeling all proud of being "made in the USA" and feeling how American is the best, I can tell how you would feel that what you have here is the absofuckinglutely best system. The truth is all the economists I have spoken to so far agree that if socialism is done appropriately, it's a better system. But nothing I say here will probably persuade you or anyone else here. At least not until you go and live somewhere where there's a bigger emphasis on socialism, like Switzerland or Autria. Go to a public school or a public hospital in Autria and then visit a local US public school or HMO. But again, no need to reignite that dispute here.
Yes, couldn't agree with you more on that one and have been taught some myself. I just happen to believe that a general exposure to the basic ideas behind the Efficient Markets Hypothesis is not one of them At least not until a superior all-embracing model is put forth.
Please explain, what does it mean "appropriately"? I've also lived in socialism (Poland). Hmmm now it's a country with 50% socialism and 50% capitalism... I can tell you what many of us already know: capitalism is the best system created so far. Because the stronger, more intelligent, effective will always win, and the weaker, less intelligent, less-effective will always have to lose. That's how the nature (and real markets) work and you can't cheat the Nature.
There is a fantastic book by Shefrin called "Beyond Greed and Fear". He's a behavioural finance guy and he takes delight in sparring with Fama and his groupies. In that book you'll find a bakers dozen of "irregularities" that the Chicago gang just can't explain. It is obvious that they have been on the defensive ever since they put out the theory. It has been assailed from every side with studies that punch holes in it wide enough for a freight train to pass through. The EMT reminds me of Hume's black swan story. With apologies to Hume, one could paraphrase: No matter how much "efficiency" you see, it will not prove that the market is "efficient". Yet, spot one "inefficiency" and you can no longer call it an "efficient" market. Fascinating debate! I hope that it continues and that people continue to have differing opinions. That is what makes it so exciting. A few points in the previous dialogue that I wanted to comment on: -there is no Nobel Prize for Economics (not technically anyway). What they give out was never part of that great man's Will and Testament. It was added on later. -the greatest proponents and champions of the EMT theory were the 'brains' behind LTCM. The irony is somehow lost on people that the same persons who gained fame and fortune for "proving" that theory, later went on to found a hedge fund that was based on exactly the actionable "inefficiencies" of the market!! To the very bitter end they fought (and still do to this day!) that their actions (based on their theories) were "correct" and that the market had gone bonkers....therefore it was not their fault!! To this day, they view the collapse of LTCM and the dangerous precipice it nudge us close to, to be the fault of everyone but them!! Tis true that intelligence and common sense rarely are given to the same persons.
vlad... While you seemed to have made a case for socialism/soviet systems there were economists in Wash. D.C. a few years before the collapse of the USSR that briefed congress with thick books detailing and I mean detailing how completely inefficient the soviet command economy was. ( I know I ended the sentence improperly) I had a professor who put out parts of and edited 300 - 500 pages of documents for Congress on this subject every year. He was smart a guy and in the papers he was allowed to pass out to the class he predicted exactly what was going to happen and how it would happen. It was one of the most amazing experiences I ever had--- watching what this guy said would happen, happen. You can not argue that any aspect of their economy was efficient from what I read. They had resources all spread out-- people in one place, food in another, minerals in another, and they could not command that economy to work. For background I graduated from George Washing Univ in 1986, in case you want to look my professor's work up. By the way aren't you a little concerned that while professors get to pursue knowledge ( perhaps an underpaid career) they expect others to work for a government wage so things are more equitable. Now for EMH- If you trade large enough amounts you can't do better than the market. No kidding. I have been fascinated by this EMH thought for years as it was beaten into me by my socialist econ professors in the early eighties. You must admit what you are professing now is significantly different from what my professors were stating then. Also, what I rarely see is how people account for the following: X percent of institutions underperform the market and probably an even higher percentage of individuals underperform the market. The market is not efficient it is actually more difficult than efficient or random. When people start to understand this fact they can start to make a living via trading. The pit and the others making markets are living adapting mechanisms by their nature forced to destroy repetitive non adapting systematic exploitation of the market. On a side note I refer to an article by an academic who works for the Fed. She was interviewed in Stocks and Commodities magazine about a year ago. She used what she called boot strapped statistics and stated rather clearly that the currency market was not efficient because it reacted differently to different price levels relative to how the market was quoted. I.E. you would find price bounces that were outside random occurrences when you looked at round numbers based on say the normal market quotation of dollar yen but you would not see the same kind of actions around the same number for yen dollar. The article fairly convincingly questioned the merit of any kind of emh theory.
jem, re socialism/communism (or any type of planned economy) von Mises wrote/predicted the demise of it decades (40's) earlier. www.mises.org Now what I still don't understand is if it has been proven that no group of smart people with scads of info can set the price of potatoes....then how in the world can a bunch of old men pretend to know what they are doing when they set the price of money?
I think to be fair, I can see where the efficient market theorists are getting at least some of their claims. For example, 99% of the news stories across the wires are almost immediately factored into the stock price. Reading about news stories the next day for example won't get you anywhere. Perhaps if you had something like a Bloomberg terminal and a lightning quick order entry system, you could make some money. But the key flaw in the arguement is assuming all information is equal and will be seen by everyone the same way. I mentioned that in the first post. You could give market participants a way to beat the market by looking at historical action (i.e. buying during major panics...using sentiment indicators to gauge it and sell during euphoria). Buying when a bear market makes the cover of Time or NewsWeek for example. Selling when everyone and their brother is talking about stocks. To think that buying during panics and selling during euphoria is of no value to the average investor is a joke. Or using more complicated technical ways of making money. The bottom line is that people may be aware of these ways of making money, but they don't stick to the plan!! Most TA oriented traders can tell you that. You can have a great profitable methodology, but how many actually follow it exactly, each and every day? Ahhhhh. The EMT guys assume investors are almost like robots. They will automatically use successful methods to make money. Some methods do fail (The January effect, Dogs of the DOW). But people use their own judgement when looking at methods. If a method does get popular enough, it's profitability will shrink over time. Supply and Demand catch up to each other. Another thing I objected to was instantly categorizing all TA as nonsense. Unless they've tested each method, I don't know how they can make such broad generalizations (and there are almost an infinite number of rules with TA that you can use to make money). Just because alot of people fail with TA, doesn't mean TA isn't useful. Hell, 90% of people fail in regular business. People successful in regular business aren't just lucky. Hard work, dedication, determination, a good bankroll, good money management, keeping your emotions in check,.....well what do you know, those qualities make a great trader as well. If you read books like the Market Wizards, I have a hard time believing they are all lucky. The Efficient market guys are smart. I don't doubt that. But I just don't see why they keep teaching it.
RE: vladiator asked, "are you saying that some self-trained college dropout or a 50 year old sit at home mom who saw an E-trade commercial and decided to trade is capable of finding really profitable niches that Goldman and others aren't able to find???" No, that is why the joke is on everyone. That some traders make so much money in the markets some of the time should not be construed as evidence that everyone can get rich in the markets all of the time. Part of the problem is that most people have no clue what it takes to find and exploit the evolving pattern of inefficiencies in the markets. They see the markets as "free" money just lying around. They see a stock go up 10% one day and imagine that they could have picked it that morning and made a bundle. In contrast, very few people who watch the Olympics think "That's easy -- I could of won that gold medal." Its blatantly obvious that Olympic athletes require massive amounts of skill, stamina, and strength. Its not obvious that trading requires anything special (Hey, even Hillary Clinton made a bundle in the futures market, right?). I suspect that we agree that it would be better for most people to believe in EMH, even if it is not exactly true. It's a separate, and thornier issue as to whether university professors should teach "the truth" vs. teaching falsehoods that encourage behavior that leads to greater personal and societal good. RE: vladiator said, "although I don't think it's necessary for efficiency to have all investors as profit/utility maximizers." I disagree. I do think that uniformity of the utility function of investors is a prerequisite for true market efficiency. At issue is the difference between a utility-efficient market and a price-efficient market. If all market participants have the same utility function, then they will indeed remove all the inefficiencies with respect to that utility function. In such as situation, no one can create additional market beating utility. But in a utility-efficient market, there will be trading actions that have zero or negative utility, but positive risk-adjusted profit expectation (or positive utility with respect to a different utility function). A diversity of stable utility functions implies a diversity of stable inefficiencies -- the magnitude of the inefficiencies being proportional to the capital wielded by adherents of each utility function and the pair-wise overlap of the utility functions. RE: vladiator said, "One of my co-authors presented one of our papers at Goldman last year. It showed very robust evidence of big returns on a number of strategies. They didn't care beyond a few comments b/c it wasn't scalable enough for them..." See, this is exactly my point. Goldman's utility function does not equal my utility function. The result is that the market may be "efficient" to Goldman, even in the presence of blatant inefficiencies. There are pockets of inefficiencies in the market that are big enough for a smart smaller trader. My point: Inefficiency is in the eye of the beholder. RE: central command economies: BTW, that Goldman considered some inefficiencies beneath its threshold is further evidence of the inferiority of central command economies. Big organizations have a predilection for focusing on big problems. They become incapable of dealing with or solving the many small problems that occur in real economies. They also have an arrogance to them, tending to lock on to a single "big" solution as "the plan." The power of capitalism is that some of its much maligned inefficiency comes from the creation of new solutions on a smaller scale. Some of this wasted competitive effort turns out to be the correct solution for an unknown and unknowable future. The bureaucracies of command economies tend to squash this type of small-scale creativity because they believe that the center knows best and that uniform execution of the plan is "more efficient" than allowing different people to try different alternatives. If the center's plan is correct, then everything works out for the best. Unfortunately, the single central plan is too often wrong. Worse, this unpleasant reality is compounded by inertia and dogma that create tall barriers to correcting the oft erroneous central plan. Cheers, vladiator, Traden4Alpha