Re: poly: Re: Why interest rates may stay low

From: Perry E. Metzger <>
Date: Tue Mar 24 1998 - 15:38:15 PST

Robin Hanson writes:
> >A payoff of a large fraction of the universe some centuries down the road
> >doesn't have much appeal to people who'll be dead within the next one.
> Though they rarely do, it is feasible for corporations to outlive
> any of their employees or owners.

In practice, this does not matter. Corporations do not behave like
organisms -- they behave like collections of organisms each seeking
their self interest.

In practice, stockholders will kill you if they don't see substantial
return during THEIR lifetime.

I suppose none of this should really be shocking. After all, for the
most part, they are trying to fund THEIR retirement, not their great
grandchildren's, and besides, extreme long term investments go beyond
speculative into the rangee of the impractical.

If economic theorists were right, given a 1% shot at a millionfold
return, people would allocate some of their long term capital
investment to the 1% shot. The problem is, of course, that no one can
measure the difference between a 5% shot and a 1% shot and a 0% shot
accurately -- we have no mechanisms to do such predictions. The result
is that people stick to stuff where the odds of success are
sufficiently high that being off by a lot doesn't matter.

If an investment starts showing returns in a few years, you aren't
going to have to worry much about the business tanking, but stuff that
will show no return for a century is just too hard to predict.

> People buy bonds that pay off in 50 years now without a problem;
> they expect to sell them to someone else long before maturity.

And bonds have coupons, and bonds are (shall we say this in chorus?)
PREDICTABLE. Bonds have highly quantified risk.

> It seems there are just two explainations for investors apparently passing on
> projects to grab the universe:
> 1) Investors don't think its likely the rate of return will ever be huge.
> 2) There aren't targeted property rights one could own now that would give a
> big advantage to future grab projects.

How about

3) Few people make investments on behalf of distant descenants
4) Few enterprises last if they don't make any return on investment in
their early years.
5) Few people are able to measure the risk of investments that don't
pay off for a millenium.

The whole thing is blindingly obvious to me. I suppose, though, that
once one gets used to quantifying everything it is no longer obvious.

Received on Tue Mar 24 23:39:03 1998

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