Economics and similar, for the sleep-deprived
Does anyone have any idea what might be done about the pointless blob of white space above this paragraph? It seems to be resistant to all my efforts. Update haha, it succumbed.
Wednesday, August 06, 2003
Ham shanks, Sherman tanks and Jodrell Bank
One of the interesting things about joining something like Crooked Timber is that you find out that people whose judgement you take seriously, rate the ideas of people who you consider to be hilarious. One such is Amitai Etzioni who (as well as having a name which looks like the Scrabble hand from hell) is a political philosopher who achieved some minor fame a couple of years ago when he got a namecheck from Tony Blair on Desert Island Discs. Thinking about it, I may have him confused with the MOR band (and 13-point word score) Ezio, but the fact remains that Etzioni's "communitarian" philosophy was big with the Blair crowd in the early days of the Third Way. (That's the Blairite Third Way, btw, not the fascist movement of the same name, and astute readers will perceive here a man battling for his life against the forces of digression).
I seem to remember from university days that "communitarianism" as set out in Mulhall and Swift's textbook "Liberals and Communitarians", was sort of a last gasp of the academic soft left at preserving a space for a normal welfare state from the attacks of Nozickian libertarians on one flank and the Scruton-Taylor-MacIntyre axis of conservatism on the other. It was sort of appealing to me then in a faut de mieux kind of way. But I was always suspicious of it, not least because I happened to grow up in one of the small idealised in-and-out-of-each-others'-doors "communities" that the communitarian theorists went on about, and thus knew that it was bloody horrible. Communitarianism always had a nasty authoritarian streak (lots of people would consider Macintyre and Taylor to be communitarians) and in Etzioni, that illiberality seems to reach a point of equilibrium.
Which is not to say he's an actual authoritarian; that's not true. But he's in favour of "civil liberties" which roughly translates as a staunch defender of the freedom to live an utterly conventional life. Someone who appears to regard the warnings against the stifling effect on liberty of social stigma in Mill's "On Liberty" as an instruction manual. Basically, if you think of a headmaster's lecture on how he's not angry, but very disappointed, at the way in which some unruly elements have chosen to take advantage of his good nature and spoil it for everyone? Etzioni has turned that into a political philosophy. He's certainly not evil, just extremely irritating, and far, far too keen on telling other people what they ought to be doing. A perfect model for the Reverend Blair, then.
Here's a prize extract. It's about sex education, and communitarian parents' rights (very nearly duties) to opt their kids out of it if it's too near the knucle, so to speak. Specifically, it's a ringing condemnation of some program or other that teaches children about masturbation. I must confess that I came near to swallowing my dentures when I heard that the Sexuality Information and Education Council of the United States recommends telling kids in middle school that "told �a few boys engage in a very dangerous and sometimes fatal form of masturbation that involves limiting their air supply.�, but the context seems to make it clear that Etzioni regards the whole topic of masturbation as a hot-button issue, and thinks that it is entirely acceptable and normal enforcement of community standards of decency to convince impressionable young people that there is something icky and sinful about touching their own hairy parts.
In search of any information about why anyone might consider the case pro or con masturbation to be a political issue, I followed the provided link to the "communitarian position paper on Education for Interpersonal Relations, Family Life and Intimacy". This means sex, by the way, for anyone who wasn't paying attention. The "position paper" is itself enough to make a cat laugh. As a piece of tap-dancing between a basically religious "sex is bad" position and the need to make it not look too churchy, it's worthy of Sammy Davis Jr. And someone really ought to be awarded a medal for the jaw-dropping conclusion that
"Children need to be taught that the use of alcohol and drugs lowers a persons ability to deal with urges in ways that are socially constructive and morally responsible. They need to learn--and above all experience--the joy of living up to their moral values and social commitment by engaging in acts such as community service, peer mentoring, sports, successful completion of taxing assignments and sharing in the household duties"
which appears to be suggesting that for the average teenager, doing the washing up if presented correctly, can be an acceptable substitute for drunken sexual intercourse. Say what you like about these communitarians, they're not scared of a difficult selling proposition.
But any road up, the point I was wanting to make is that this position paper is a massive game of bait and switch. The entire position paper is about women having children at too young an age, sexually transmitted diseases, "intimacy", "commitment" and so on and so forth at length. None of these topics are remotely relevant to the question of masturbation, with or without auto-asphyxiation. The word "masturbation" does not appear even once in the whole document. (While playing around with the Find command, I discovered that it appears five times on my C: drive, but I'm not sure where).
So, what is the communitarian position on masturbation? Any fans of Etzioni want to help me on this one?
(posted on D2D rather than CT for fairly obvious reasons)
posted by the management 8/06/2003 09:21:00 AM
Friday, July 25, 2003
DeLong and the shorts
Schopenhauer correctly pointed out that "Buying books would be a good thing if one could also buy the time to read them in: but as a rule the purchase of books is mistaken for the appropriation of their contents". If you're wondering why the book reviews promised "tomorrow", several days ago, aren't here, that's why. I am working on a solution to this problem, which will be posted soon.
But in the meantime, I started reading my own archives, and was impressed by two things. First, how good my comments section is (no really, I love you guys, sob), and second, how much better this weblog was when I used to stick to the rubric and write more stuff about economics than anything else. The shift wasn't really a matter of policy; it's just that the economics stuff takes rather a while to write and I have less spare time than I did a year ago. So I'm going to try and keep this short; if it is too dense and incomprehensible as a result, say so in comments and I'll have another go. I've posted it here rather than Crooked Timber because I think it fits better.
The question I'd like to address is one that Brad DeLong asked a while ago with respect to the dot com bubble. Now, Brad actually wrote one of the seminal papers on how it is that markets can get so wildly out of control without someone coming in a turning a profit by taking the other half of all the suckers' trades and waiting them out until they run out of money ("Noise Trader Risk", or something it's called and it's a goody). But he confessed on his weblog to still being a bit surprised that the DeLong/Shleifer1/Summers1 effect seemed to dominate so completely. The question he asked was "Why are there no rational, well-financed players to come in and bring the market back to its senses?"
My answer to this question is that the reason there are none is that it is logically impossible for the kind of market participant Brad is thinking of to exist.
Consider the very simplest model of a stock market bubble there could be. (I have a mathematical version of this first bit on paper, so either it definitely works (10% chance) or I have made a mathematical error and maybe it works (90% chance)). There are two players; "the crowd", who are noise traders, and one single player (call him "Soros") who is rational and has access to unlimited investable capital. The crowd have the normal Blanchard-style bubble dynamics (non economists; basically, every day, the market has to either crash, or rise by enough to compensate the crowd for bearing the risk of a crash). On any given day, unless a crash has already happened, Soros can decide to commit his capital to short positions. If he does this, he sucks up all the excess demand for stock and a crash is inevitable on the next day.
So, in this model, when does Soros decide to pop the bubble? Well, think about it this way. Number the days 0, 1, 2, ..n, and call P(t) the profit for Soros from the strategy "Wait until day T and then pop". Call B(t) the level which the market has reached by day T as long as the bubble is still going (one can read this out of the standard bubbles model) and R(t) the probability of a spontaneous collapse on day t conditional on no collapse before t. I'll use cum(R(t)) to refer to the cumulated version of R(t), ie the unconditional probability as of T=0 that the market has collapsed before T. Clear as mud? Thought so.
Anyway we can say the following things about P(t) as a function of t:
P(t) is equal to B(t) conditional on no collapse before t and 0 otherwise. Therefore:
- As B(t) is assumed a monotonically positive function of t, for every day that passes, Soros can commit more capital to the market when he decides to pop, and earns a greater return on every unit of capital committed. This would tend to make P(t) increase with respect to t.
- Since cum(R(t)) is also a monotonically positive function of t, every further day also increases the risk that the eventual profit will be zero.
- Whatever happens, Soros can't lose money in this deal, because he is assumed to have perfect information that the market is in fact overvalued. Therefore there is an option-like structure here, meaning that there is a positive reward to waiting. Note that there is no "noise trader risk" in this model.
I think you can solve this model for the optimal value of t in P(t), and that this value could be quite large. The idea is that even for a rational well-financed arbitrageur, it is actually rational to see if a bubble gets bigger so that you get more bang for your buck when popping it (this is the flipside of the noise trader risk in Brad's paper; there, the danger was that it would get bigger and bust smaller arbitrageurs).
So anyway, we've established that a Soros-type investor - a monopolist in the provision of arbitrage - will not pop bubbles but will allow them to get bigger. But a single large monopolist of capital is not the typical way in which we think about stock markets. Typically, we assume that there is a very large number of investors on an equal footing. And obviously, if there is an infinity of Soroses, things are very different. If we call the optimum bubble-popping day for the monopolist T*, then if there is a second Soros in the market, he knows that he can get a smaller return, but take it all for himself by popping on T*-1. But a third Soros could pop on T*-3 and so on, until we get the standard Steve Ross view of the world in which the Soroses are competing with each other tooth and nail, and are content to scalp the tiny return they can get by jumping on the market the moment it gets even a tiny bit out of line with fundamentals.
But hang on ... isn't there something a bit funny about assuming an infinite number of Soroses? Well yes. What we're being asked to believe here, is something akin to the "small firm assumption" of perfect competition; that each individual Soros is so small relative to the total community of Soroses that he can't influence the price (can't prop up the market on T*-1 so as to ensure he can be the one to pop it on T*). But this assumption is indefensible. The Soroses are part of the market. It is not consistent to both assume that any given Soros is large enough to be a price maker with respect to the whole market (a necessary condition for him to be a Soros in this model), but simultaneously small enough to be a price taker with respect to a subset of the market (Soroses). This is the logical inconsistency above; if an arbitrageur is big enough to pop bubbles, he won't do so until he's good and ready. And if he doesn't have the liberty to wait until he's good and ready, then he may call himself an arbitrageur, but he's actually part of the crowd.
There is a lot more to this; particularly, I have to deal with the cases where there is neither a monopoly nor a continuum of Soroses, but rather a small number of them interacting strategically. But I am afraid that, Fermat-like, I have to just say that the solution to that problem is truly marvellous, but is slightly to long for the 45 minutes (1321 words, yo JQ) I have allocated to this post.
1Imagine me booing and hissing like the crowd at a pantomime at the mention of these two names ....
posted by the management 7/25/2003 06:50:00 AM
Tuesday, July 15, 2003
Heavy paratroopers
There was a bit of a kerfuffle in the comments section on this matter not so long ago. My dad has now weighed in:
"I know its old stuff now but here's my two pennyworth on falling parachuters. Large persons do indeed fall faster than small ones, but on account of their size rather than their weight. Terminal velocity is reached when the air resistance force becomes equal to the weight. Approximating a person to a sphere of radius a (more appropriate with some than others [yes yes dad you could stand losing a few pounds yourself -- d^2] ) the person's weight is proportional to a-cubed, whereas the air resistance is proportional to a (Stokes Law). As a result, the terminal velocity becomes proportional to a-squared."
This is, as far as I am concerned, the official view of the physics community on the subject. Any physicist wanting to disagree, go ahead, but please be aware that you are disagreeing with Mr Davies Sr and therefore wrong. I am treating the paragraph above as the definitive truth on heavy versus light paratroopers and their rates of descent. If anyone who reads this site is a paratroop or ex-paratroop and remembers falling more quickly than their heavier comrades-in-arms, I might revise this view, but not otherwise (recreational skydivers, keep your views to yourselves).
In semi-related news, I'd be interested in anyone's opinion on the subject of which is more of a stretch; to assume that a person is a rational utility-maximiser, or to assume that he's a sphere of radius a. Actually, from now on, it is probably official policy of this site that homo economicus is spherical, except in contexts where we have to work on the economics of overcrowding, in which case we'll assume he's a cuboid or other tessellating polyhedron.
posted by the management 7/15/2003 09:59:00 AM
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