Re: poly: Why interest rates may stay low

From: Perry E. Metzger <>
Date: Sat Feb 28 1998 - 15:32:06 PST

Robin Hanson writes:
> 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.

Why do you assume I'm picking a fight?

Think of me more as a skeptical inquisitor. I'm here to make you think
about what you are saying, and to think a bit about what you're
saying, too. Hopefully at the end, we'll both have learned something.

> 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

What is "the interest rate" these days, anyway?

Are we refering to the money market rate? If so, are we talking the
N.Y. Interbank Rate? The LIBOR? The post-inflation rate of U.S. bonds?
The prime rate in New York? The discount rate? If we are basing this
on treasury securities, do we mean the 90 day securities? The five
year securities? The thirty year securities? The implied interest rate
on gold futures [a personal favorite of mine, I might add]?

If we are asking about historical rates of return, how do we measure
*those*? After all, in 1900, the bonds offered by the U.S. Government
had very different properties. They were gold bonds, for instance, and
not offered for the same terms.

If we are measuring the rate of the stock market, are we counting
small indices like the Dow or broader market indexes like the Russell
2000? Or are we measuring ALL stocks? If so, how do we measure them?

Furthermore, I will point out that the rate of return on equities and
the rate of return on fixed income securities have been very
disparate, both in the short term and measured over ten, thirty and
fifty years. When we are averaging all money invested, how are we
measuring the rate of return?

Received on Sat Feb 28 23:36:12 1998

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