Efficient Markets Hypothesis

There have been a couple of blog posts about the Efficient Markets Hypothesis in the past week:

How To Dis EMH By Robin Hanson January 9, 2010 11:15 am on Overcoming Bias

Then The Efficient Markets Hypothesis by Steve Sailer, Friday, January 15, 2010 on his blog.

According to the Efficient Markets Hypothesis markets reflect ALL relevant information, not just public, since any purchase or sale in a market, even that based entirely on private information is reflected in the price. And if someone has private information but does not act on it, by buying or selling, then it is not relevant as it does not affect the market price.

Two, collapses and delayed effects are PART of the EMH. No one who wasn't out of touch with reality has ever claimed that markets instantly reflect all possible information. I am sure someone, probably an academic somewhere, has made that claim.

Three, the biggest claim is obviously true, that there is NOTHING that produces more accurate prices and hence more efficient exchanges than the market. It's not some magic wand, just there is no humanly better alternative.

Markets are in a way a set of "distributed algorithms" for establishing and managing exchanges. But instead of being established across computers which are much to slow and weak, they work across human minds. Each mind only deals with a small fraction of the available information and outputs its decisions in the form of buy or don't buy or sell decisions; that is a decision as to whether the "market price" is lower, close to, or higher than their evaluation of value.

When we have "minds" more powerful than our own, markets may become obsolete, like in the "Economics 2.0" of Charles Stross's novel Accelerando (Singularity).

But until then there is no viable alternative for humans either to markets or to crippled command-type economies. The so-called "mixed economies" are not stable; special interests, especially the interests of government bureaucrats and politicians in increasing their power, inevitably leads to growth of the command side of the economy at the expense of the market.

Substantially edited to correct poor wording, 1:15 PM.

Rules Destroys Intelligence

Size alone does not a bureaucracy make, though it always helps (or hurts, looking at it from a rational perspective). Rules exist in the first place to benefit the group and its production. A bureaucrat is someone who has forgotten that simple fact, and worships the rules as ends in themselves, rather than means to getting the job done. This is one reason large organizations are more bureaucratic than smaller ones, the distance of most workers from the actual job.

The ultimate in rule-bound work is automated work.


A Web example:

On September 30 I was reading a well-established post on a web site I generally like, that already had lots of comments. Since it has a [reply] button, I naturally replied to comments that warranted it. I didn't even realize how many I had posted until I had gone back to the homepage and found I had 9 of the top 10 comments. I knew from a discussion a year before that the site owners "would prefer" people not post more than 3 of the latest 10 comments - but that was before one of them left and before the reply button, so I didn't know if it would be a problem, and it really didn't even occur to me as I was replying to those comments.

Apparently it did. On October 11, I tried to comment on a new post, my first comment since the 30th, and got an error page with "You are posting comments too quickly. Slow down." Outstanding stupidity on the part of the web site. What an outstandingly stupid contradiction between the site's name and action.

Toleration

Toleration means putting up with, not using force against others for their beliefs or actions that do not directly threaten me.

It does not imply approval, just acceptance that it is their business and not harming me. Too many people try to leverage toleration to mean approval - Leftists in their continuing attack on any standards in their continuing attempt to destroy civilization, especially industrial civilization, and Conservatives in their continuing attempt to destroy freedom of expression in their continuing attempt to homogenize culture into their mindless morass of Judeo-Christian faith.

The Austrian Method

Based on Economic Science and the Austrian Method by Hans-Hermann Hoppe.

This book is very dry and difficult reading, as bad as Mises "Human Action", though thankfully much shorter, or I never would have read it, as I never finished "Human Action".

The Austrians try to base everything on fundamental ideas, what they call "synthetic a priori" after Kant; I have never read Kant so I can't tell you whether their claim that their ideas are Kant's "synthetic a priori" or not; but they are the same types of ideas I have been calling for years "undefinable primitives". These ideas that they try to base everything on, "action", "value", "cause and effect" aren't some mystical information from nowhere, which is what earlier reading about Kant had suggested he thought - I think they are ideas absorbed from observation of reality and how humans act (and, unfortunately, what people have absorbed through reading and stories, which is why so much "intuition" on larger issues where people don't have direct experience is often so irrational), but they are so basic that they are hard even to discuss intelligibly, much less define.

A second part of the Austrians' disagreement with conventional economics is based on the supposed differences between human motivations and interests and the natural world - "the impossiblity of causal predictions in the field of human knowledge and actions" (p.43). Human preditions must be based on actions and goals, and what the particular human knows at the time he chooses his actions and goals. The particualrity of what a human knows is another reason they dislike and distrust statistical knowledge, like the GDP, it loses too much necessary information.

"... empirical knowledge which is based on understanding - just as according to our intuitions economic propositions claim to be based on understanding - rather than on observations." (p.57) Actually, as I suggested above, our intuitions and understanding are based on internalized observations and knowledge received from others.

"In explicitly understanding knowledge as displayed in argumentation as a peculiar category of action, it becomes clear immediately why the perennial rationalist claim that the laws of logic - ... - are a priori true propositions about reality and not mere verbal stipulations regarding the transformation rules of arbitrarily chosen signs, as empiricist-formalists would have it, is indeed correct." (p.71)

A part of Hoppe's argument in the book is a misguided (in my opinion) attack on a sort of naive empiricism that I have never actually encountered. I haven't read much technical economics literature, so it's possible some economists are making these sort of shallow mistakes, but what I have read in economics suggests this is unlikely.

Another part of his argument is an attack on historicism in economics, I think this is even more misguided, without historical knowledge Austrian economics could not have been developed. Also, some of the best economic reading I have done has been by Thomas Sowell, an economic historian. Another good economics writer is David D Friedman, a non-economist.

The best part of Austrian economics is that they give a clear rational account of the few things nearly all economists agree on: minimum wages increase unemployment, wage and price and rent controls cause other (non-price) forms of rationing, and so on.

Cautions when Dealing with Others

Caution is needed in dealing with others because they often don't know what is in their best interests; they only know what they want. And what has been "promised" them by politicians and their media allies.

Worse, the intelligent tend to overestimate the intelligence of those they have casual dealings with and the ethical tend to overestimate others' ethics.

A Declaration of Separation

Bravo. Except for that line about god.

A Declaration of Separation

Maybe it's time to go Galt.