12 Nov 2013


Chicago School, Climate Change, Efficient Markets Hypothesis, Eugene Fama, Health Legislation, Inflation, Potpourri, Shameless Self-Promotion 31 Comments

==> Oh my gosh, a peer-reviewed publication cited my doctoral dissertation. I am still in shock. Topan and Paun–like me–think Mises makes an invalid argument to establish the apodictic preference for satisfaction sooner rather than later. Jeff Herbener responds.

==> This guy literally lives in the NYU library.

==> Pat Michaels and Chip Knappenberger show that the “consensus” climate models are arguably wrong with 95% confidence. (It’s hard to phrase it accurately; go look at what I’m talking about. The point is, we’re taking into account the “uncertainty zone” in the model runs.)

==> Silas Barta thinks the economics of climate change is too important to be left to the generals. I plan on doing a follow-up post for IER on this. (I am still not sure that Silas’ point [1] is necessary for his argument, and on top of that, I’m not sure he’s actually crystallized what’s going on with the tax interaction effect. I know he didn’t like my statement in the comments–which he quotes with amusement–but the problem is that the result pops out of a general equilibrium model. It’s hard to give intuition on something like that, and in fact various authors have given different intuitions to explain the result.)

==> I’ll be spamming you more in the future about it, but next week I have a new Mises Academy class on ObamaCare.

==> Look, I realize it sounds like I’m just pouting and making excuses, but COME ON: the paper products these days are cutting corners. (HT2 von Pepe) Do you know how fast I go through a roll of paper towels now, compared to five years ago? I’m being serious.

==> I can’t remember whoKen B. sent me this Economist article on trouble in the (experimental) sciences, but anyway, here ya go.

==> JP Koning wrote the best Fama vs. Shiller piece I had seen, when they were big in the news. You know how I like to say that the most hardcore proponents of the EMH believe it as a matter of faith, not empirical evidence? Here’s Koning describing how Fama and Shiller responded after the 1987 crash:

Eugene Fama, who along with Shiller and Lars Hansen shared the Nobel Prize this week, had very different reaction to the event than Shiller. In an essay penned not long after the crash, Fama, a true believer in the efficient market hypothesis, did his best to square the event with theory. The crash, wrote Fama,

[FAMA:] has the look of an adjustment to a change in fundamental values. In this view, the market moved with breathtaking quickness to its new equilibrium, and its performance during this period of hyperactive trading is to be applauded. [Perspectives on October 1987, or What Did We Learn From the Crash? 1988]

[BACK TO JP KONING’s COMMENTARY:] Fama’s effort to justify the crash as a rational response to economic news falls flat. A 22.6% decline requires something cataclysmic, but no significant events preceded the crash. Sure, there was a skirmish in the Persian Gulf with an Iranian oil station, a new tax proposal in the House, and a sell signal from guru Robert Prechter, but none of these events were capable of moving markets more than a few points.

Robert Shiller, on the other hand, gathered data. The day after the crash, he sent out questionnaires to hundreds of investors.

31 Responses to “Potpourri”

  1. valueprax says:


    Not going to dig up references to support this but that guy living in Bobst seems to be part of a long, august tradition going back decades. Though this guy seems to have found a semi-legitimate way to do it. I remember hearing a story about a guy about eight or nine years ago who was really just kind of sleeping on the floor and down on his luck in a disheveled kind of a way. Not as a “protest against the high cost of living in the area” kind of way.

  2. Matt Tanous says:

    “Topan and Paun–like me–think Mises makes an invalid argument to establish the apodictic preference for satisfaction sooner rather than later.”

    Bob, I’m less than familiar with your dissertation, and unfortunately don’t have time to read it now. But precisely what part of time preference do you find to be less than apodictic? I know Walter Block (in my view, erroneously) claims that there is no logical law relating increasing wealth to lower time preference (on the contrary, I’d say that this is a necessary consequence of diminishing marginal utility). But what is it that you think Mises did wrong here?

    • Bob Murphy says:

      Sorry Matt, I can’t summarize it. Just start reading from page 91 (according to the pagination printed at the bottom of the pages, not necessarily what Adobe says) of my dissertation. It’s only a few pages to get my point.

      • Matt Tanous says:

        Ah, thanks for narrowing down where in your dissertation that particular point was made, though. I’m a bit busy with work today, so I can’t examine it to in depth, but initially it looks to me like you are separating time preference and other reasons for time preference.

        In particular, you say that one can have negative time preference and then still consume because they “have to eat or they will starve”. But in this case, they are still preferring to consume food now as opposed to waiting. I’ve never considered time preference as separate from other causes of disutility in waiting – and I didn’t get that impression from Mises or Rothbard.

        Time preference, as I understand it, was simply a concept that in ordinal rankings, having something now is ranked as greater than having something later. That is different than other statements of preference. For instance, this ranking:

        1) $500 now.
        2) New video game console now.
        3) New video game console after Christmas.
        4) $500 after Christmas.

        Given this ranking scale (and the assumption that there is nothing else whatsoever), I would wait now (preferring the $500), and buy the game console after Christmas. But it is actually impossible for me to prefer to postpone ANYTHING. Such would not only require that I not consume now, but that I seek no satisfaction – that I not even ACT. The idea of a non-acting actor is a contradiction in terms. A human being, even in choosing to do nothing at all, must necessarily act.

      • Bob Roddis says:

        Wow. I had not seen that part of your dissertation. Human beings as automatons is also one of my pet peeves about the writings of the Austrian masters. I guess if you don’t believe in automatons, you just don’t understand Austrian price theory.

        • Rick Hull says:

          > Wow. I had not seen that part of your dissertation.

          Should we laugh or cry? Open, honest question.

  3. Matt Tanous says:

    “Do you know how fast I go through a roll of paper towels now, compared to five years ago? I’m being serious.”

    Inflation reduces packaging sizes to try to keep prices down. It’s a marketing ploy. I don’t think the vast majority of people are unaware that suddenly they are getting 10% less for the same price, but still…

    • Silas Barta says:

      Exactly. Any time someone points out that the BLS/BEA has tracked it and ruled out the presence of inflation, just ask where their product testing labs are located so they can properly discount for product debasement — I mean, they’ve *got* to be doing that, since they discount for product improvements … right?

    • Ken B says:

      Nonsense! The are “managed portions”!

  4. Blackadder says:

    You know how I like to say that the most hardcore proponents of the EMH believe it as a matter of faith, not empirical evidence?

    You say that like it’s a bad thing.

    • skylien says:

      Bob just reminds them of their own methodology…

      • Ken B says:

        Imitation is the sincerest form of reminding.

        • skylien says:

          It can be quite taunting as well. Whatever, I know what BA tried to do, but there is just no indication that Bob forgot about his own methodology.

    • Bob Murphy says:

      Hey Blackadder and Ken B., here is the concluding paragraph of THE VERY PIECE I LINKED:

      “There’s nothing wrong with using a priori mental frameworks to parse economic reality; indeed that is one of the defining characteristics of Misesian praxeology . However, as the quotes show, many of the EMH apologists think they’re independently confirming the EMH, when, in fact, their goggles simply force all evidence into conformity with their presuppositions.”

      Whenever your smartassedness really annoys me, I just remind myself that Scott Sumner must view my own “gotchas” on his blog in exactly the same way. Serenity now.

      • Matt Tanous says:

        Scott Sumner’s policy proposals to deal with recessions amount to, in essence, “don’t have any”. Heck, that’s the Keynesian proposal in a nutshell. GDP dropping? Let’s make it not do that. By the magic of assuming that idle resources exist, and we can make them not be idle.

      • Ken B says:

        Blackadder, Bob is serene. We must work harder!

  5. Major_Freedom says:

    “Man sometimes prefers future satisfaction/consumption”

    Yes, this is the correct form of negation of the general statement “Man always prefers satisfaction/consumption sooner.”

    As Topan and Paun allude to, “all else equal” never actually holds in the external world (but does “happen” in the realm of concrete ideas…this point is crucial to Mises’ Kantian epistemology). Thus, the “sometimes” never actually holds either. Ceteris paribus is a tool of mental thought only, because we can imagine all else being equal, but never the external world. Making distinctions like this is crucial to understanding both concepts. In order to understand fluidity in the external world, we have to think rigidly, and vice versa.

    Of course it would be possible for me to prefer a slice of pizza tomorrow instead of today, if all else is not equal, that is, if I happen to be full right now and would prefer to eat it tomorrow when I expect to not be full, but hungry. But, if all else is in fact held equal, that is, if we go to the realm of ideas, where Kantian epistemology is grounded, then given I will be full tomorrow and given I will be full today, and given external reality and the reality of my biology will be the same today as it will be tomorrow, then I would in fact rather have the pizza sooner than later. I would rather have it sooner because given everything about my body and the world is exactly the same over time, it is better to have something external than want something external, and it is better to have a good than want a good. Wanting a good presupposes that having the good is better, all else equal. But having the good can only take place in the present.

    Let’s go further:

    Even if I tried to imagine wanting the pizza tomorrow instead of today, and even if I tried to find a good reason why I would want the pizza tomorrow, I would invariably be creating a new, indeed different set of scenarios where all else equal is again not equal. Moreoever, even if I tried to think that I actually want the good tomorrow versus today, given everything about my biology remains the same and given the external world remains exactly the same, then I would actually be thinking that I would rather want a good than have a good. But that’s preposterous. For an actor, wanting a good presupposes that having the good is better than not having the good, or else we would not want any goods. So it’s always the case, ceteris paribus, that consuming sooner rather than later is preferable. Remember, in the immediate moment, our future consumption remains only wants, whereas present consumption the want is praxeologically satisfied. The want ceases. Wants only exist because it’s better to have (present consumption) than not have (future consumption).

    Going even deeper: Assume the possibility that one might actually want something versus having something, and we again hold all else equal. Here, the wanting itself is the satisfaction that we must consider. Here, it would be better to want something now than want something later on. It is better to have ideas than not have ideas, because if we didn’t have ideas, we wouldn’t be acting. So given we are acting, given we have ideas, it means having ideas sooner rather than later is preferable by virtue of action, and as a consequence, the idea of consumption/satisfaction sooner is preferable to the idea of consumption/satisfaction later, and thus finally, the act of consuming sooner is always preferable to the act of consuming later.

    Mises is from a Kantian background. Topan and Paun have a good start with their discussion of the problems with “conscious non-action”. It shows they understand the ground of Mises’ argument of time preference. They know it’s a category of thought, which of course is action.

  6. Ken B says:

    “I can’t remember who sent me this Economist article on trouble in the (experimental) sciences…”

    That was Ken B

    • skylien says:

      Never ever speak of yourself in the third person form. People might think there are some points missing in your continuous function.


      • Ken B says:

        Remus thanks you.

    • Tel says:

      That’s an interesting article; agreed about the funding bodies and their negative attitude toward negative results, with the obvious peverse incentives this creates. That’s kind of the problem with the concept of research for the sake of research itself, which ends up translating to research for no particular reason, or just research that consumes budgets.

      I think Feinman explained something similar in his famous but not famous enough “Cargo Cult Science”. Mind you they use Psychology as an example, which always has been a bit sketchy.

      Anyone who believes in Evolution will not worry about Science itself… all the useful bits will survive simply because they are useful, even if it gets forgotten for a while it will be rediscovered. In the meantime a lot of people might end up going home disappointed, but I guess they can ponder ways to capture the learning.

      • Ken B says:

        Michael Crichton had some good stuff on how to fix funding problems. I confess that when I read the ideas 10 years ago I thought he making a mountain out of a molehill, but he wasn’t.

        • Rick Hull says:

          Visionaries rarely satisfy pedants.

      • Rick Hull says:

        tch… Feynman

  7. Silas Barta says:

    Bob, at the very least, I think that my post gives an *additional* mechanism by which you get the result that a (revenue neutral) green tax shift could be welfare-worsening.

    But I think what’s going on is that I’ve view the general equilibrium effects from a different angle, which doesn’t contradict your broad attribution of the effect, but says how it happens.

    In no case do I think the result works without the assumption that “taxes have deadweight loss disproportional to their rate”, or some assumption that implies it.

    Incidentally, I really wish you would be a lot careful about claiming you can’t explain something without spitting out the whole theory. Like I mentioned before, you used to think that about insurance, until I pointed out that diminishing marginal utility (via increasing marginal disutility) drives the result.

  8. Andrew_FL says:

    It seems to me there is less daylight between you and most advocates of the EMH than there is between them and their left-critics. Would you, to clarify, agree or disagree with the statement that one cannot *consistently* outsmart the market *indefinitely*? I don’t like how this is described as “being lucky” either but I think it makes sense to say that you can’t clearly *distinguish* it from luck.

    In fact wasn’t that one of Mises points in the economic calculation debate? That the planners could not out perform a capital market? Isn’t the fact that the EMH is a serious threat to economic planning why so many left critics a vitriolically unhinged in their attacks on it?

  9. Rick Hull says:

    > http://jpkoning.blogspot.com/2013/10/fama-vs-shiller-on-1987-stock-market.html

    They start to talk about “analog charts”. Quite interesting to me, my first job was working for a shop that paid attention to (and went to great lengths and expense to generate) analog charts. It was a very early part of my real-world education in the overfitting of data (and the related uselessness of such results). I did not realize until now that “analog charts” were an actual fad and not just an epistemological dead-end that I was directed to explore.

    • Rick Hull says:

      er, referred to in the article as “analog models”

    • Rick Hull says:

      While I have the chance, I would like to respin the following:

      > In 1987, a psychological “worm-hole” linked to an event fifty-eight years prior seems to have emerged, leading to the greatest one-day drop in market history. It was a mistake, a mental glitch, or a wrinkle in time.

      The greatest mispricing in history (arguably, work with me here) was in fact a massive opportunity to anyone *not* invested in the status quo. This includes the vast majority of people the Left purports to represent, defend, and care for.

      In the same vein, flash crashes should be applauded by anyone who wants to democratize financial markets. HFT-gone-wild is a phenomenon to be applauded and exploited.

  10. Bharat says:

    Thinking about conscious non-action makes my head hurt.

  11. JP Koning says:

    Thanks for the props, Bob.

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