Re: poly: Why interest rates may stay low

From: Robin Hanson <>
Date: Fri Feb 27 1998 - 16:03:42 PST

Perry writes:
>> A single example of a company making a giant ROE does not even weakly
>> discredit claims about the expected ex-ante ROE.
>You forget that this isn't some random company. Cisco Systems is one
>of the largest companies in the world, ...
>It legitimately *is* better than its competitors. ...
>Microsoft is operating substantially out of the normal ballpark, ...
>Companies and people aren't a giant liquid slurry that can be measured
>in graduated cylinders. They are "lumpy". They are not fungible. Math
>designed with lots of simplifying assumptions doesn't work very well
>for them. ...
>You are implicitly claiming here that Soros' returns are explained by
>random chance. ... George Soros didn't make
>his money on one bet -- he made it on a long series. ...
>I find the "efficient market" theory very seductive in a theoretical
>sense, but as a scientifically minded individual I cannot allow myself
>to ignore the overwhelming evidence that it isn't true. ...
>perfectly efficient markets require
>perfect and instant dissemination of information.

Perry, you are attributing to me lots and lots of claims I am not making.
I have said nothing to imply that there aren't differences between
companies, that Soros is rich via dumb luck, that markets are perfectly
efficient, or that info is perfectly fastly spread around. Go pick your
fight with people who've said those things.

What I want to say in this context is that if you look far enough back
in time before investments pay off, before there are property rights
like copyright and patents, etc., before CISCO got rich, before Gates got
rich with Microsoft, before Soros made his millions, most money that
gets invested is by people who can't tell which of these will pay off.
They didn't expect CISCO to get rich, Gates to take over, or Soros to
be so good at what he does. If you average over all the money invested,
you get roughly the advertized marginal rate of return, i.e. the interest rate.

Robin Hanson
RWJF Health Policy Scholar, Sch. of Public Health 510-643-1884
140 Warren Hall, UC Berkeley, CA 94720-7360 FAX: 510-643-8614
Received on Sat Feb 28 00:07:53 1998

This archive was generated by hypermail 2.1.8 : Tue Mar 07 2006 - 14:45:30 PST