If You Sit Down By the River Bank

by Dave Schuler on April 20, 2012

and wait long enough, you will see the bodies of your enemies float by.

{ 11 comments… read them below or add one }

Drew April 20, 2012 at 11:55 am

If it hasn’t become obvious to commenters, I’ll make it clear right now. I got my business graduate degree at The University of Chicago. As such, I’ve read so many of these type of papers over the years it makes my head spin. Gee, let’s see what Gene Fama and Ken French have statistically proved about the price of securities in front of an imminent asteroid shower.

They are all nice, but they generally prove what a reasonably observant and worldly person observes, ahem, “anecdotally.”when intimately involved in the business world. The engineer in me understands the need to go through the analytical process, but really….

So what does this paper really suggest, when you boil it down to the essential elements?

1. The ultra, ultra rich will always be, well, ultra, ultra rich, and survive difficult environments just fine.

2. Those in the top, say 10 to 15, but not top 1 % demonstrate that they can thrive in positive environments based upon their personal merits, but that when the environment goes south, their upside is truncated.

3. Those who I call the “little guy” or the “Average Joe” in my comments fare the worst when the environment goes south.

Well, as they say, “duh.”

It’s attributed to Lincoln, although I don’t think he said it, the point – my point – stands. You can’t help the poor by hurting the rich. This infuses almost all my economic commentary here despite wild claims of nihilism etc. All you can do is provide a humanitarian safety net for the really helpless, and provide a positive economic environment for the Average Joe to make his or her way the best they can.

You want to effectively double the cap gains rate with the Buffet Rule? You may t hink you just stuck it to the man; You just hosed the Average Joe. You want to attack carried interest tax treatment? You just hosed the Average Joe.

Endeth the sermon. A point was made recently that the election won’t matter. I completely disagree. We can’t get rid of this Obama/Reid/Pelosi mindset soon enough. Deleveraging recessions are hard enough to recover from without placing devastating headwinds into place.

Icepick April 20, 2012 at 1:22 pm

All you can do is provide a humanitarian safety net for the really helpless….

The problem is that you think almost no one is really helpless, and that if I just swung a golf club for 10,000 hours I’d be JUST AS GOOD as Tiger Woods.

Icepick April 20, 2012 at 1:23 pm

Also, I really need some river-front property….

Janis Gore April 20, 2012 at 10:21 pm

… an African Grey will eventually ask you “What you doin’, Sweet Baby?”

Ben Wolf April 21, 2012 at 4:22 am

This is why economics isn’t a science. After eighty years of data keeping the field still debates things like “Do recessions hurt the poor more than the wealthy?”.

And Mankiw, bless his sclerotic little brain, thinks of it as a major leap forward for . . . something.

Janis Gore April 21, 2012 at 9:14 am

All right. I went through the study picking up what I could with my paucity of mathematics. What is the significance if the left-skewness? How does that translate into English and behavior?

Janis Gore April 21, 2012 at 12:05 pm

How does that resolve the equity premium puzzle? Drew?

Janis Gore April 21, 2012 at 12:06 pm

What is the equity premium puzzle?

Ben Wolf April 21, 2012 at 1:54 pm

The equity premium is the return simeone expects before they’ll risk their money in an investment. The equity premium puzzle is a standard neo-liberal myth which holds that people must have enormous risk aversion, otherwise no one would ever buy government bonds which give lower returns than equities. The problem is that equities don’t perform better over periods of thirty years or greater: U.S. bonds do, at least for people who understand the bond market and know when to sell on the secondary market.

Ben Wolf April 21, 2012 at 3:17 pm

What the paper really reveals is that mysteries in economics are things which our political ideologies can’t explain. You can smack Mankiw in the face with a mountain of evidence and he’d only say it can’t be right because it doesn’t confirm what he believes.

Janis Gore April 22, 2012 at 5:00 pm

Taking a cynical view, are we to surmise that that there will always be a few people with too much money who invest in the next best thing their good friends tell them? And that their friends will be stone liars because it’s good to have an old house in Connecticut?

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