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Let's take that to its logical conclusion

Arnold Kling writes...

Reread the last sentence in the quote. When you read "that logic," what is meant is the law of supply and demand. It's a good thing that Congress doesn't vote on whether to accept the logic of gravity. response to a quote about Democrats' implied disbelief about the laws of supply and demand.

Let's take that to its logical conclusion: why are we (meaning our congresscritters) voting on any question about facts? Reality determines facts, and facts should be left to science, not voting. We can no more vote upon the truth of comparative advantage than we can vote on gravity.

Only in America

The local news had some advice on what to do if you're caught in a stampede while shopping Friday. I don't know whether to be proud or disgusted.

Stock Market Efficiency, part 2

Let me see if I can restate my question.

A) If it were known that historically, the market rises 10%, on average, in the first week of December, people would begin to buy stocks well in advance of December. This would push prices up. By the time the first week of December came around, there would be no 10% rise left in the market; that 10% rise has already happened.

B) Let's say that a PE ratio of 10 is a "good" value. Company A is priced at a PE ratio of 10 and is forecasted to grow earnings at 10% per year. Company B is priced at a PE ratio of 10 and is forecasted to grow earnings at 50% a year. Which company would you buy? Clearly company B. The "E" for company B is going to rise much faster than that of company A, and hence, the "P" should also rise faster. Well in advance of those higher earnings actually materializing, the "P" will rise to account for expected future earnings growth. This is why faster growing companies demand higher PEs.

So, to restate my question, if it is known that the stock market returns 10% a year, why don't prices rise in advance to account for this expected return, thus negating the expected 10% return?

Patri says I am just restating the equity premium puzzle. Am I? The equity premium puzzle asks, "Why do stocks return a higher rate than risk-free instruments?" whereas I believe I am asking a different question, "Why doesn't the stock market discount its future expected returns?"

Or if the stock market does discount its future expected returns, then, "Isn't it true that people shouldn't expect 10% returns?"

Stock Market Efficiency

I've been thinking a lot about stock market efficiency lately. When I say "efficiency" I mean the ability of the stock market to factor in information relevant to the price of stocks very quickly. One related aphorism is, "Buy the rumor, sell the news." In other words, well before any announcement is made by a company, the stock price will have increased based on the diffusion of that coming information through society. This leads to some interesting questions. Consider a hypothetical conversation that I'm sure has taken place innumerable times in American history.

Alice: I have some money saved up. What should I invest in?
Bob: Stock market. Index fund.
Alice: Why?
Bob: Because the stock market has historically returned 10% per year for over a hundred years.

Clearly, there's something wrong with Bob's statement. There's nothing factually wrong with his statement; the stock market has indeed return around 10% per year. Rather, what's wrong is Bob's implication: that the stock market will keep returning 10% a year into the future.

If the stock market is truly efficient, those expected returns should be factored into prices already. There should be a premium in prices that takes into account the expected 10% returns. Am I correct?

TSA search rules changed

Remember the incident in which airport security questioned someone for carrying a lot of cash and he recorded the conversation on his iPhone? Looks like the TSA has changed its rules as a result.

The new rules, issuedin September and October, tell officers "screening may not be conducted to detect evidence of crimes unrelated to transportation security" and that large amounts of cash don't qualify as suspicious for purposes of safety.


That second directive tells screeners that "traveling with large amounts of currency is not illegal," and that to the extent bulk quantities of cash warrant searching, it is only to further security objectives, the ACLU said.

Steve Bierfeldt is a hero.

Belichick: genius or madman?

The talk around the NFL is about New England Patriots' head coach Bill Belichick's decision on Monday night. For those who haven't heard, his team was up by 6 points with about two minutes left in the game. It was 4th and 2 from their own 30 yard line. In other words, almost everyone making the decision would have punted. But Belichick decided to go for it. He is either being accused of being arrogant for taking the risk or of not having confidence in his defense.

The play came up about 6 inches short (officially), Peyton Manning and the Indianapolis Colts got the ball back, and proceeded to score a touchdown with 13 seconds left to clinch the win.

Immediately after the game, the reaction on various internet forums that I visit was 99% against Belichick; I was one of the few sympathetic souls. Over the last 24 hours since the game ended, a few more people are coming to his defense.

The reason I believe very few people support Belichick's decision is that most people are not very good at probabilistic thinking. Hindsight is 20/20. As I see it, the decision is as follows:

A) Punt the ball. Colts get the ball around their own 30 or 40, and Peyton Manning has to go 60 or 70 yards in 2 minutes. I'd rate the chances of the Patriots stopping him at about 70%.

B) Go for the 4th down conversion. I'd give the chances of success better than even, say, 60%. If they get the first down, Patriots win. On the 40% chance that they don't get the first down, Peyton Manning has to go 30 yards in 2 minutes. I'd give the chances of the Patriots stopping him in that situation 30%.

Note that choice A yields a 70% chance of winning. Choice B yields at least a 60% of winning (converting the fourth down), and probably more (stopping Manning even if they don't convert the fourth down).

Now, I have no problem with anyone who agrees with all this and still thinks the right decision was punting, or anyone who thinks my percentages are off. Heck, I probably would have punted. But my points are:

1) It was a calculated risk.
2) Whether the decision was the correct one is evaluated regardless of the outcome. The correct decision often results in failure.

Roissy, put down that thesaurus!


The father swiveled his head and made eye contact with me, presumably in search of proximate allies, but I didn’t give him the satisfaction of laughing with him. Instead, I curled my mouth downward and narrowed my eyes, making sure my disgust for him and his Morlockian broodclan was obvious. My eyes swooped slowly over all four of them — a white family from out of town, judging by the faint hillbilly accent I heard. There was the father with close-set eyes and a face wider than it was tall, the sweaty stringy-haired fat pig mother who wheezed with each labored breath, the little boy (a rapscallion in training no doubt), and the little girl. I sneered one word, audible enough for them to hear: “class”. There was a still moment when it seemed as if he and his wife were registering my reaction and deciding what to do about it. The father’s smile dropped and he turned back around.

Fortunately for him, he did nothing. Maybe he could read the seething contempt on my face and sensed the lurid scenario playing itself out in my mind, the visceral desire I had, given the slightest pretext, to shove his filthy loser face into the escalator machinery, ripping his eyes and mouth and flesh and sinew off the bone and kicking the fat brood sow so hard in her bloated belly she is rendered infertile, as her children mewl helplessly nearby. Yes, he made the right decision to shut his trap. He knew, on some deep level, I was his better, and he would get no succor from me.

Mewl? Succor?

Commercial of Note

The 2010 Cadillac SRX commercial features Phoenix's "1901".

On the same geographic theme, here's Kings of Leon's "Arizona".

I was just standing there naked in my kitchen and the next thing you know, I'm in handcuffs

This is one of those stories that's so ridiculous that either the cops are complete idiots or we're missing some of the facts. I'd say either is just as likely as the other.

A Virginia man was busted for indecent exposure after he was caught in the buff. In his own home. Alone.

Eric Williamson, 29, got up at 5:30 a.m. Monday and went to the kitchen to make some coffee. He was naked, but he was alone in the Springfield house, so he didn't think it mattered.


A woman and a 7-year-old boy were cutting through Williamson's front yard from a nearby path, according to WTTG-TV, Channel 5 in Washington. Through his front window, they saw Williamson having coffee in his birthday suit.

Fairfax County police showed up and arrested him. Williamson said he had no idea anyone could see him, but police said they believed he wanted to be seen by the public, said WTTG, a Fox station.

If convicted, Williamson could face one year in jail and a $2,000 fine. He plans to fight the charge.

"If I stood and seemed comfortable in my kitchen, it's natural. It's my kitchen," he told the station.

Storm-chasing, Wife-swapping, Self-promoting, Media-hoaxing

It now appears that criminal charges are going to be filed against the Heene family.

After I posted on Thursday about the missing boy, Falcon Heene, I ran into the following video on a message board.

I edited my original post to include the video with the added speculation that a father who makes a video like this with his sons is more likely to plan a publicity stunt, and that the whole incident might be a hoax. I quickly re-edited my post and removed the video and added commentary for fear of appearing in bad taste should the boy be found dead.

The most suspicious aspect of the aftermath was when Falcon said, "We did it for the show," when asked why he didn't answer his parents' screams while hiding.

The Heene family released a video of the launch which incriminates more than absolves: there's no box, no Falcon in sight, and plenty of bad acting.

Criminal masterminds, these people are not. My unscientific polling of friends reveals a near-universal belief that the incident was a hoax.

Where's Waldo?

In case you haven't heard yet, an experimental hot-air balloon got free and was initially thought to have a 6-year old boy inside. The balloon landed but the boy didn't turn up inside. Nobody knows where the boy is, whether he's alive somewhere or dead. And all this is unfolding live on TV.

Paul: The Prize is about Internationalism, not Peace

Ron Paul gets it right:

I support not pissing off our European allies when it's in the long term interests of Americans. At the same time, I'm wary of multi-nation coalitions becoming too powerful in the future.

For the first time ever (and probably the last time), I saw an interesting comment on Youtube. It's the one which states that if the US pulled its troops from around the world, it would be difficult for European countries to have large welfare states since they would have to spend their own money on defense.

Is this true? Seems unlikely to me because the US spends a relatively small percentage of government revenues on the military, only a fraction of which would go toward maintaining presence in other countries. In other words, my conjecture is that, for European countries, defense is probably much cheaper than welfare.

I say he gets an Oscar next

Or maybe a Grammy.

My interpretation:

"We despised the prior president so much that we'll give his replacement our award."

Seateading Con

I had a good time at The Seasteading Institute's annual conference. I got to hang out with Patri, Mike Gibson, Sean Lynch, and Will Chamberlain (not to be confused with Wilt Chamberlain; similar height and prowess with women), briefly spoke to David Friedman, Michael Strong, James Hogan, and Erwin Strauss, and also talked to Saurabh, Marc, Eelco (who was fascinated by my blonde curls), Eric, Tim, Jeff, and a bunch of people I can't remember.

My impressions are as follows:

  • It's actually happening. There are a bunch of smart, ambitious people from all over the world trying to make this work. Kudos to Patri for putting a dream into motion.
  • I think I 'get' TSI's role. It's a non-profit organization that simply provides information, guidance, and advocacy. The profits will have to be sought by other institutions.
  • The profit-seeking entities are in their infancy. There's still a lot of work to do.
  • The vast majority of people there were libertarians. I made it a point to ask people what their interest was in Seasteading. Almost everyone was in it for the freedom aspects (except Will who was in it for the babes). Almost nobody I spoke to was in it for the engineering or ocean-loving, or even to stake out their progressive utopia on the ocean.
  • The view of San Francisco from the Bay is incredible.

Recession Mentality

From the Freakonomics Blog:

If you’re wondering how the recession is affecting today’s young adults, a new paper (abstract only) by Paola Giuliano and Antonio Spilimbergo may have the answer. The authors found that people who grew up during a recession “tend to believe that success in life depends more on luck than on effort, support more government redistribution, but are less confident in public institutions.”