Strawman/Steelman

[Marcus G. Daniels]

What if the Ratchet is, overall, a good thing?  Harnessing and controlling volatile individual passions into larger self-interested collectives that are, in general, behaving in more intelligent ways?     Some or even many of these ratchets are corrupt, like in the case of Putin.   But that forces the population under him to create better ratcheting systems; market forces create inequities which are inefficiencies for the society to sort out, but some of them are unavoidable and even good.

 

From: Friam <[hidden email]> On Behalf Of Merle Lefkoff
Sent: Saturday, January 30, 2021 10:37 AM
To: The Friday Morning Applied Complexity Coffee Group <[hidden email]>
Subject: Re: [FRIAM] Strawman/Steelman

 

Thank you Steve, and especially Eric.  As I study new economic models for the real economy, such as the "circular economy" and the "doughnut economy", I am also paying more attention to the financial economy and especially the wild and wooly stock market.  I know it's unsustainable, but my hopes are constantly dashed every time I think it's going to crash and it demonstrates its robustness once more.

 

On Sat, Jan 30, 2021 at 10:56 AM Steve Smith <[hidden email]> wrote:

Eric -

You lay this out so well. 

Some random observations.

1. Minsky's Ratchet is very compelling as an explanation.  As we know I'm a sucker for understanding by analogy with mechanical technology as a common source domain.  I *think* Minsky's Ratchet is a correlate of what you later call game-of-chicken gambling?   It was the first applied (discrete) math problem I remember being offered at college...   that among the myriad "rich-get-richer" mechanisms, the "empty pockets ratchet" is a big one...  a fair game generates a random walk which ultimately ends when one players pockets are empty... the smaller pockets (esp. by orders of magnitude) almost always go empty first.  "It's ratchets, levers, wheels, and connecting rods all the way down?"  
2. I was caught off guard by your coining "an oligopoly of little fish", my usual binding of oligopoly to "a small number", but your point of course, and the crux of the event, is that the "little fish" schooled effectively, as if an apex predator-shark wandered too far up the Amazon and encountered a school of pirahna.  The culture-war story, of course is a combination of the "underdog" and the caution of the potential of "collective action"...   as you point out, this one encounter may indicate that a few sharks may yet get stripped of flesh by schools of tiny fish, but there is no indication that they will lose their niche in the oceans and reefs to such.
3. Your tentative analysis of EW and AOC also really struck me as I (contingently) hold them both up as culture-war heroes to the underdogs I regularly cheer for.  I don't feel I have my own dog in either of their fights, but the larger culture I want to live within (with various forms of assertive equality and equanimity) is the one I try to support as best I can.  I am more implicated as a cause of their causes than a victim.  Understanding EW and AOC more better seems to me to be important in pursuing my aspirations to undermine my own undue advantages.   I suppose I "expect more" of EW as a veteran, as a scholar, as a senior statesperson, and I accept AOC's decision to play to her strengths (emotional appeals in the culture war) but also appreciate her having a little deeper intellectual stake (BA in Econ?) than her affect/appearance suggests.   I understand (but do not sympathize with) the olde guarde in congress being acutely skeered of getting double teamed by AOC and Katy Porter.   I look forward to more of those "wild kingdom" takedowns on CSPAN.   I don't think badly of EW's role/position, just disappointed that she might not be achieving her full potential?
4. Your practical description of the "pyramid scheme" and "exhaustion" are a very good thumbnail for where I think this is going myself.   I suppose there IS a chance that a new species of oligopolist will emerge in the form of swarms (school, flock, pack, ...), but I don't think we are at the edge of a phase change yet.  I'm not sure if all significant radiation events are paired with extinction events?  
5. Someone made a slightly different correlation than the COVID stay-at-home free-time-to-conspire on Reddit with a COVID stimulus-check-in-hand free energy(cash) one.   Anecdotal at best I'd guess.

'nuff for now,

 -Steve

On 1/30/21 4:19 AM, David Eric Smith wrote:

So I have been watching this, and it looks just like one more wealth-concentrator on the long term, with smaller shifts in the short term that people get caught up looking at because they involve personality conflicts.

Will somebody tell me where I am wrong in the following?

1. We start with the usual state of affairs, in which hedge funds of various sizes take short positions; in what and how much depends on the capital they hold to cover the short, relative to their other options.  They are “big” actors, in the sense that decisions of individual firms can involve moderately large amounts of money.  They assume they are the full landscape of big actors, and although they act with cognizance of each other, since they are all using similar research, they do much the same thing.

2. A new “oligopolistic actor” comes in that changes the landscape of participants, which is a group of Reddit-coordinated little fish.  They can put a short squeeze on the hedge funds.  Those that took too large a position either with too little capital to cover the squeeze until it bursts, or with too little interest in this stock to be willing to take much of a loss on it, will sell off at a loss, and the various little fish will make a little money each, but it will look like a decent chunk when you take them together.  The smaller or medium-sized hedge funds that can’t wait this out could be forced into low enough overall returns that their clients will want to withdraw from them, putting them in further trouble, perhaps driving some of them out of business.

3. Meanwhile: the oligopoly move is an ordinary pyramid scheme, and it only works as long as the pool of new buyers remains large enough to pay off the earlier buyers surfing the bubble.  Considering that relief and unemployment checks amounted to many hundreds of billions of dollars, if even a modest amount of this is in the hands of the young men who were gamers and are now stuck at home, it can look as if that bubble can continue to inflate for a while.  We might even be able to estimate, however, from the overall amount of free money spent into the system, and the part of the public that this young-male demographic accounts for, what the potential size of total gambling capital is for this thing.

4. While attention is on the oligopoly of small fish, and the unprepared mid-sized or small hedge funds that might go bankrupt, there are always larger actors who are well capitalized and can wait out bubbles.  They may not have taken positions in this before, when it wasn’t all that interesting, but now seeing that there is a bubble afoot, they had a reason to get in and go short early.  They can outlast the short squeeze, and have a reason to do so because of point 5 (next):

5. The pyramid will end when the new buyers are exhausted, and that will be the end of any power for the little-fish oligopoly.  At that point everybody who is leveraged will be underwater.  Because a lot of this money was in options, the unwinding will be very fast, much faster than if it were just driven by a sell-off of the underlying.  The last wave of buyers in will lose essentially whatever they spent.  Whichever little fish happened to get out of the bubble before that will collect some of the money from that last wave, and the larger hedge funds who were waiting out the short squeeze will then collect the rest.

So, when the dust settles, the net effect?  Some money will have changed hands in a quasi-random way, from many small fish who gambled the rent and couldn’t afford to lose it, to a smaller number of other small fish who will collect at varying multiples, but still not enough to meaningfully alter their life trajectories.  The Reddit board-makers might collect enough to happily go on to the next scam, but they will not be breaking into any Forbes lists.  However, in the net, there will have been a flow of money out of both the oligopoly of small fish and the small or mid-sized hedge funds that didn’t see it coming, and into the wealth of the large funds.  In addition to the direct winnings of the large players, because their returns to their clients will go up, they will collect new clients that jumped ship from the hedge funds that bought back out of the short squeeze at a loss.  

So the macro-thing that will happen is the macro-thing that happens through every other mechanism: whoever has the most capital can wait out the largest spectrum of risks, and will on average gain more capital.  This is the ratchet that works through everything.  It is not a Fama-French efficient market mechanism, because it works through differential action of constraints, not through Arrow-Debreu “complete” price systems.  It is not quite the same, but still related to, the bubble-bailout cycles that I have termed Minsky’s Ratchet, from the arguments made by Hyman Minsky in Stabilizing an Unstable Economy.

https://www.amazon.com/Stabilizing-Unstable-Economy-Hyman-Minsky/dp/0071592997

For AOC to be seeking media attention, when there was an early trading freeze, to criticize the hedge funds for looking for protection against the oligopoly doesn’t surprise me, because this is a culture-war thing and responding in the moment to that is what she does.  But for Warren (Elizabeth, not Buffett) to allow that to be her caught-on-camera moment surprises me, and seems regrettable.  Yes, EW is as motivated as AOC to criticize the use of access by the hedge funds to seek protection when they get beat at their own game, and both are right to mock them and welcome them to go under.  But EW’s career has been about how the ratchet of unequal capital constraints moves capital from the small to the large, and if what I said above is correct, I would assume this would be the biggest picture in her view.  In the long term, the people who will get hurt mainly are just the people she has made a profession of trying to protect.  I would think she would want her on-camera moment to be about not getting distracted from that, and worrying that, yes, market regulations and taxation that encourage game-of-chicken gambling are The Urgent — and structural — Problem.  Whether some gambling hedge funds get caught and go under is a sideshow.  AOC, too, of course is plenty smart to understand all this (if what I have said above is not wrong), and I expect she probably does.  (She was an econ major in college, right?). But her media incentives are a bit different, so for her to mostly emphasize the culture-war thing doesn’t seem strange.

So is the above roughly correct?  Or do I misunderstand the structure badly enough that I am drawing the wrong macro-conclusion?

Eric

On Jan 29, 2021, at 6:45 PM, uǝlƃ ↙↙↙ [hidden email] wrote:

Yep. I've logged into my TD Ameritrade account several times to see if they've limited purchases of GME. Supposedly Robinhood did limit purchases. It looked like I could always buy on TDA... but I'm not sure. I would never actually buy GME, *except* to screw The Man. 8^D

On 1/29/21 3:41 PM, Merle Lefkoff wrote:

Has anyone been watching what's happening in the stock market with GameStop?

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Center for Emergent Diplomacy
emergentdiplomacy.org

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mobile:  [phone]
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[Steve Smith]

Marcus -

In lieu of my usual longwinded diatribe, maybe a good summary of what your point evokes in me might be:

The first rule of RuggedIndividualistsAnonymous is - "Admit that your Rugged Individualism is a problem to you and your loved ones and trust in the Emergent Collective".

This path toward collective consciousness we are on *might* turn out to be more like Her than Lawnmower Man or Virtuosity.

Do we individual members of any such self-organizing collective have anything to say about it looks like on the other side of such a phase transition (do fatty acids know anything about a lipid membrane before they find themselves part of one?)

With the December 37th 2020 Capitol Riots as evidence, I'm not sure how to apply such abstractions to current event...

- SteveS

What if the Ratchet is, overall, a good thing?  Harnessing and controlling volatile individual passions into larger self-interested collectives that are, in general, behaving in more intelligent ways?     Some or even many of these ratchets are corrupt, like in the case of Putin.   But that forces the population under him to create better ratcheting systems; market forces create inequities which are inefficiencies for the society to sort out, but some of them are unavoidable and even good.

 

From: Friam [hidden email] On Behalf Of Merle Lefkoff
Sent: Saturday, January 30, 2021 10:37 AM
To: The Friday Morning Applied Complexity Coffee Group [hidden email]
Subject: Re: [FRIAM] Strawman/Steelman

 

Thank you Steve, and especially Eric.  As I study new economic models for the real economy, such as the "circular economy" and the "doughnut economy", I am also paying more attention to the financial economy and especially the wild and wooly stock market.  I know it's unsustainable, but my hopes are constantly dashed every time I think it's going to crash and it demonstrates its robustness once more.

 

On Sat, Jan 30, 2021 at 10:56 AM Steve Smith <[hidden email]> wrote:

Eric -

You lay this out so well. 

Some random observations.

1. Minsky's Ratchet is very compelling as an explanation.  As we know I'm a sucker for understanding by analogy with mechanical technology as a common source domain.  I *think* Minsky's Ratchet is a correlate of what you later call game-of-chicken gambling?   It was the first applied (discrete) math problem I remember being offered at college...   that among the myriad "rich-get-richer" mechanisms, the "empty pockets ratchet" is a big one...  a fair game generates a random walk which ultimately ends when one players pockets are empty... the smaller pockets (esp. by orders of magnitude) almost always go empty first.  "It's ratchets, levers, wheels, and connecting rods all the way down?"  
2. I was caught off guard by your coining "an oligopoly of little fish", my usual binding of oligopoly to "a small number", but your point of course, and the crux of the event, is that the "little fish" schooled effectively, as if an apex predator-shark wandered too far up the Amazon and encountered a school of pirahna.  The culture-war story, of course is a combination of the "underdog" and the caution of the potential of "collective action"...   as you point out, this one encounter may indicate that a few sharks may yet get stripped of flesh by schools of tiny fish, but there is no indication that they will lose their niche in the oceans and reefs to such.
3. Your tentative analysis of EW and AOC also really struck me as I (contingently) hold them both up as culture-war heroes to the underdogs I regularly cheer for.  I don't feel I have my own dog in either of their fights, but the larger culture I want to live within (with various forms of assertive equality and equanimity) is the one I try to support as best I can.  I am more implicated as a cause of their causes than a victim.  Understanding EW and AOC more better seems to me to be important in pursuing my aspirations to undermine my own undue advantages.   I suppose I "expect more" of EW as a veteran, as a scholar, as a senior statesperson, and I accept AOC's decision to play to her strengths (emotional appeals in the culture war) but also appreciate her having a little deeper intellectual stake (BA in Econ?) than her affect/appearance suggests.   I understand (but do not sympathize with) the olde guarde in congress being acutely skeered of getting double teamed by AOC and Katy Porter.   I look forward to more of those "wild kingdom" takedowns on CSPAN.   I don't think badly of EW's role/position, just disappointed that she might not be achieving her full potential?
4. Your practical description of the "pyramid scheme" and "exhaustion" are a very good thumbnail for where I think this is going myself.   I suppose there IS a chance that a new species of oligopolist will emerge in the form of swarms (school, flock, pack, ...), but I don't think we are at the edge of a phase change yet.  I'm not sure if all significant radiation events are paired with extinction events?  
5. Someone made a slightly different correlation than the COVID stay-at-home free-time-to-conspire on Reddit with a COVID stimulus-check-in-hand free energy(cash) one.   Anecdotal at best I'd guess.

'nuff for now,

 -Steve

On 1/30/21 4:19 AM, David Eric Smith wrote:

So I have been watching this, and it looks just like one more wealth-concentrator on the long term, with smaller shifts in the short term that people get caught up looking at because they involve personality conflicts.

Will somebody tell me where I am wrong in the following?

1. We start with the usual state of affairs, in which hedge funds of various sizes take short positions; in what and how much depends on the capital they hold to cover the short, relative to their other options.  They are “big” actors, in the sense that decisions of individual firms can involve moderately large amounts of money.  They assume they are the full landscape of big actors, and although they act with cognizance of each other, since they are all using similar research, they do much the same thing.

2. A new “oligopolistic actor” comes in that changes the landscape of participants, which is a group of Reddit-coordinated little fish.  They can put a short squeeze on the hedge funds.  Those that took too large a position either with too little capital to cover the squeeze until it bursts, or with too little interest in this stock to be willing to take much of a loss on it, will sell off at a loss, and the various little fish will make a little money each, but it will look like a decent chunk when you take them together.  The smaller or medium-sized hedge funds that can’t wait this out could be forced into low enough overall returns that their clients will want to withdraw from them, putting them in further trouble, perhaps driving some of them out of business.

3. Meanwhile: the oligopoly move is an ordinary pyramid scheme, and it only works as long as the pool of new buyers remains large enough to pay off the earlier buyers surfing the bubble.  Considering that relief and unemployment checks amounted to many hundreds of billions of dollars, if even a modest amount of this is in the hands of the young men who were gamers and are now stuck at home, it can look as if that bubble can continue to inflate for a while.  We might even be able to estimate, however, from the overall amount of free money spent into the system, and the part of the public that this young-male demographic accounts for, what the potential size of total gambling capital is for this thing.

4. While attention is on the oligopoly of small fish, and the unprepared mid-sized or small hedge funds that might go bankrupt, there are always larger actors who are well capitalized and can wait out bubbles.  They may not have taken positions in this before, when it wasn’t all that interesting, but now seeing that there is a bubble afoot, they had a reason to get in and go short early.  They can outlast the short squeeze, and have a reason to do so because of point 5 (next):

5. The pyramid will end when the new buyers are exhausted, and that will be the end of any power for the little-fish oligopoly.  At that point everybody who is leveraged will be underwater.  Because a lot of this money was in options, the unwinding will be very fast, much faster than if it were just driven by a sell-off of the underlying.  The last wave of buyers in will lose essentially whatever they spent.  Whichever little fish happened to get out of the bubble before that will collect some of the money from that last wave, and the larger hedge funds who were waiting out the short squeeze will then collect the rest.

So, when the dust settles, the net effect?  Some money will have changed hands in a quasi-random way, from many small fish who gambled the rent and couldn’t afford to lose it, to a smaller number of other small fish who will collect at varying multiples, but still not enough to meaningfully alter their life trajectories.  The Reddit board-makers might collect enough to happily go on to the next scam, but they will not be breaking into any Forbes lists.  However, in the net, there will have been a flow of money out of both the oligopoly of small fish and the small or mid-sized hedge funds that didn’t see it coming, and into the wealth of the large funds.  In addition to the direct winnings of the large players, because their returns to their clients will go up, they will collect new clients that jumped ship from the hedge funds that bought back out of the short squeeze at a loss.  

So the macro-thing that will happen is the macro-thing that happens through every other mechanism: whoever has the most capital can wait out the largest spectrum of risks, and will on average gain more capital.  This is the ratchet that works through everything.  It is not a Fama-French efficient market mechanism, because it works through differential action of constraints, not through Arrow-Debreu “complete” price systems.  It is not quite the same, but still related to, the bubble-bailout cycles that I have termed Minsky’s Ratchet, from the arguments made by Hyman Minsky in Stabilizing an Unstable Economy.

https://www.amazon.com/Stabilizing-Unstable-Economy-Hyman-Minsky/dp/0071592997

For AOC to be seeking media attention, when there was an early trading freeze, to criticize the hedge funds for looking for protection against the oligopoly doesn’t surprise me, because this is a culture-war thing and responding in the moment to that is what she does.  But for Warren (Elizabeth, not Buffett) to allow that to be her caught-on-camera moment surprises me, and seems regrettable.  Yes, EW is as motivated as AOC to criticize the use of access by the hedge funds to seek protection when they get beat at their own game, and both are right to mock them and welcome them to go under.  But EW’s career has been about how the ratchet of unequal capital constraints moves capital from the small to the large, and if what I said above is correct, I would assume this would be the biggest picture in her view.  In the long term, the people who will get hurt mainly are just the people she has made a profession of trying to protect.  I would think she would want her on-camera moment to be about not getting distracted from that, and worrying that, yes, market regulations and taxation that encourage game-of-chicken gambling are The Urgent — and structural — Problem.  Whether some gambling hedge funds get caught and go under is a sideshow.  AOC, too, of course is plenty smart to understand all this (if what I have said above is not wrong), and I expect she probably does.  (She was an econ major in college, right?). But her media incentives are a bit different, so for her to mostly emphasize the culture-war thing doesn’t seem strange.

So is the above roughly correct?  Or do I misunderstand the structure badly enough that I am drawing the wrong macro-conclusion?

Eric

On Jan 29, 2021, at 6:45 PM, uǝlƃ ↙↙↙ [hidden email] wrote:

Yep. I've logged into my TD Ameritrade account several times to see if they've limited purchases of GME. Supposedly Robinhood did limit purchases. It looked like I could always buy on TDA... but I'm not sure. I would never actually buy GME, *except* to screw The Man. 8^D

On 1/29/21 3:41 PM, Merle Lefkoff wrote:

Has anyone been watching what's happening in the stock market with GameStop?

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Merle Lefkoff, Ph.D.
Center for Emergent Diplomacy
emergentdiplomacy.org

Santa Fe, New Mexico, USA

mobile:  [phone]
skype:  merle.lelfkoff2

twitter: @merle110

 

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[Marcus G. Daniels]

Steve writes:

< Do we individual members of any such self-organizing collective have anything to say about it looks like on the other side of such a phase transition (do fatty acids know anything about a lipid membrane before they find themselves part of one? >

One way I’d say people gain insight from that is from switching jobs.   Out in my parts people do that a lot.  Retiring as an expat is another way.   People that are self-employed get a different perspective, keeping a step away from the emergent collectives but nonetheless being forced to recon with them.    But I’d guess if you work for GM for 30 years on an assembly line, maybe not so much insight is gained.

Marcus

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[David Eric Smith]

On Jan 30, 2021, at 1:48 PM, Marcus Daniels <[hidden email]> wrote:

What if the Ratchet is, overall, a good thing?  Harnessing and controlling volatile individual passions into larger self-interested collectives that are, in general, behaving in more intelligent ways?     Some or even many of these ratchets are corrupt, like in the case of Putin.   But that forces the population under him to create better ratcheting systems; market forces create inequities which are inefficiencies for the society to sort out, but some of them are unavoidable and even good.

I think I would separate, here, a mechanism that indefinitely concentrates wealth, from mechanisms that overall produce a non-flat distribution of wealth.  The former being inherently destabilizing, the latter being perhaps compatible with steady states that are to some degree smooth.

(It is an aside to the few lines I will write below, but (perhaps in a side-reply to Steve’s post)  the thing I mean by Minsky’s Ratchet is actually not the same as the wealth-concentrating effects of unequal capital constraints.  There is a wonderful precise institutional instantiation of the Minsky Ratchet that one could build from the interaction of CDOs (Collateralized Debt Obligations) working together with Mark-to-market collateral pricing, as functioned in the 2007 mortgage-backed securities unwinding, but since nobody will ever care I have no way to justify the time writing it up.  It interests me because there is an economic entropy effect behind it that I would enjoy making explicit.  But its role is somewhat different from a sort of python-squeeze of capital concentration, which I take to be the focus of work like Piketty’s Capital in the 21st Century.  The Minsky Ratchet could be a mechanism in the python squeeze, but I think the latter involves further dimensions of social structure.)

This is a good time (historically speaking) to discuss the role of wealth concentration, because we can see its effects both for risk-taking and for the exercise of power in this pandemic year.  These days development of a new drug costs a capital outlay of about 2 billion dollars (a number I got from an insider maybe 4 years ago, but have seen in print somewhere since then).  When Pfizer didn’t feel like being on a leash to the corrupt trump government, they declined its money and went into development of a CoV-2 vaccine on their own capital.  If they did not have that enormous cash pile, they might have been unwilling to undergo the venture.  That is not to say that they will lose that money this time — it looks like they will profit very well over time — but rather that if they couldn’t have afforded to lose it, they might not have entered the effort at all.  I do tend to think that these very long-tailed wealth distributions have a role in enabling _somebody_ in a society to take risks that otherwise would be off-limits to the society at all.  There probably are other examples that are current just now: Google’s large investments in quantum computing, certain aspects of the implementation of AI, and things of that sort.  On the other side of it, one has the power problems of Amazon, Facebook, and the others, coupled to their providing services that people are choosing to use notwithstanding the side-effects.

The mechanics by which wealth skews place a spectrum of bets within or out of reach, and then the value judgments of the specific bets particular actors take, are both things to be understood.  I find arguments frustrating in which one tries to get a clear picture of the mechanics, and suddenly the conversation gets overwrought about valuations, as if the two were the same topic.  Of course they must both be seen, and together they inform what one might want from the society, but it seems to me necessary to recognize that they are distinct questions to be able to think in an orderly way about either of them.  Related to that distinction, there is a distinction between the _actions_ that wealth concentration enables, and the notion of how wealth concentration is expressed as power in the hands of one or another decision-maker (which could be an agent of many different possible types).

I can imagine trying to retain the capacity for big projects, but to contain abuses of power, by limiting wealth concentration under conventional “private property” conventions.  However, that would seem to require some notion of “nimble capital” that could rapidly aggregate around risky bets like quick development of an mRNA vaccine, or an initiative in quantum computing, or whatever.  We can certainly see instances in which governments have done versions of that, on fairly large scale (space programs, the US nuclear weapons push, in which Richard Rhodes argues that showing one could get past the economic/engineering threshold was a more important opening of the door than any difficulty of science), and others in which it was thwarted on much smaller scales (Obama administration efforts to invest in renewables, a strategy that our colleague Jessika Trancik argues from data about “cost-learning-curves” is very beneficial in the long term).  The willingness to risk big losses seems more common for rich individuals or even firms, than for social institutions, so nimble capital looks challenging to realize as a persistent capability.  There are precedents, at the level of analogy, to this sort of organization in biological phenomena like immune-system function, but it is not clear how well that analogy ports to the social realm.

I realize, too, that yesterday I broke our posting-hygiene rule.  So to fill in:

AOC = Alexandria Ocasio-Cortez

Eric

 

From: Friam <[hidden email]> On Behalf Of Merle Lefkoff
Sent: Saturday, January 30, 2021 10:37 AM
To: The Friday Morning Applied Complexity Coffee Group <[hidden email]>
Subject: Re: [FRIAM] Strawman/Steelman

 

Thank you Steve, and especially Eric.  As I study new economic models for the real economy, such as the "circular economy" and the "doughnut economy", I am also paying more attention to the financial economy and especially the wild and wooly stock market.  I know it's unsustainable, but my hopes are constantly dashed every time I think it's going to crash and it demonstrates its robustness once more.

 

On Sat, Jan 30, 2021 at 10:56 AM Steve Smith <[hidden email]> wrote:

Eric -

You lay this out so well.  

Some random observations.

1. Minsky's Ratchet is very compelling as an explanation.  As we know I'm a sucker for understanding by analogy with mechanical technology as a common source domain.  I *think* Minsky's Ratchet is a correlate of what you later call game-of-chicken gambling?   It was the first applied (discrete) math problem I remember being offered at college...   that among the myriad "rich-get-richer" mechanisms, the "empty pockets ratchet" is a big one...  a fair game generates a random walk which ultimately ends when one players pockets are empty... the smaller pockets (esp. by orders of magnitude) almost always go empty first.  "It's ratchets, levers, wheels, and connecting rods all the way down?"  
2. I was caught off guard by your coining "an oligopoly of little fish", my usual binding of oligopoly to "a small number", but your point of course, and the crux of the event, is that the "little fish" schooled effectively, as if an apex predator-shark wandered too far up the Amazon and encountered a school of pirahna.  The culture-war story, of course is a combination of the "underdog" and the caution of the potential of "collective action"...   as you point out, this one encounter may indicate that a few sharks may yet get stripped of flesh by schools of tiny fish, but there is no indication that they will lose their niche in the oceans and reefs to such.
3. Your tentative analysis of EW and AOC also really struck me as I (contingently) hold them both up as culture-war heroes to the underdogs I regularly cheer for.  I don't feel I have my own dog in either of their fights, but the larger culture I want to live within (with various forms of assertive equality and equanimity) is the one I try to support as best I can.  I am more implicated as a cause of their causes than a victim.  Understanding EW and AOC more better seems to me to be important in pursuing my aspirations to undermine my own undue advantages.   I suppose I "expect more" of EW as a veteran, as a scholar, as a senior statesperson, and I accept AOC's decision to play to her strengths (emotional appeals in the culture war) but also appreciate her having a little deeper intellectual stake (BA in Econ?) than her affect/appearance suggests.   I understand (but do not sympathize with) the olde guarde in congress being acutely skeered of getting double teamed by AOC and Katy Porter.   I look forward to more of those "wild kingdom" takedowns on CSPAN.   I don't think badly of EW's role/position, just disappointed that she might not be achieving her full potential?
4. Your practical description of the "pyramid scheme" and "exhaustion" are a very good thumbnail for where I think this is going myself.   I suppose there IS a chance that a new species of oligopolist will emerge in the form of swarms (school, flock, pack, ...), but I don't think we are at the edge of a phase change yet.  I'm not sure if all significant radiation events are paired with extinction events?  
5. Someone made a slightly different correlation than the COVID stay-at-home free-time-to-conspire on Reddit with a COVID stimulus-check-in-hand free energy(cash) one.   Anecdotal at best I'd guess.

'nuff for now,

 -Steve

On 1/30/21 4:19 AM, David Eric Smith wrote:

So I have been watching this, and it looks just like one more wealth-concentrator on the long term, with smaller shifts in the short term that people get caught up looking at because they involve personality conflicts.

Will somebody tell me where I am wrong in the following?

1. We start with the usual state of affairs, in which hedge funds of various sizes take short positions; in what and how much depends on the capital they hold to cover the short, relative to their other options.  They are “big” actors, in the sense that decisions of individual firms can involve moderately large amounts of money.  They assume they are the full landscape of big actors, and although they act with cognizance of each other, since they are all using similar research, they do much the same thing.

2. A new “oligopolistic actor” comes in that changes the landscape of participants, which is a group of Reddit-coordinated little fish.  They can put a short squeeze on the hedge funds.  Those that took too large a position either with too little capital to cover the squeeze until it bursts, or with too little interest in this stock to be willing to take much of a loss on it, will sell off at a loss, and the various little fish will make a little money each, but it will look like a decent chunk when you take them together.  The smaller or medium-sized hedge funds that can’t wait this out could be forced into low enough overall returns that their clients will want to withdraw from them, putting them in further trouble, perhaps driving some of them out of business.

3. Meanwhile: the oligopoly move is an ordinary pyramid scheme, and it only works as long as the pool of new buyers remains large enough to pay off the earlier buyers surfing the bubble.  Considering that relief and unemployment checks amounted to many hundreds of billions of dollars, if even a modest amount of this is in the hands of the young men who were gamers and are now stuck at home, it can look as if that bubble can continue to inflate for a while.  We might even be able to estimate, however, from the overall amount of free money spent into the system, and the part of the public that this young-male demographic accounts for, what the potential size of total gambling capital is for this thing.

4. While attention is on the oligopoly of small fish, and the unprepared mid-sized or small hedge funds that might go bankrupt, there are always larger actors who are well capitalized and can wait out bubbles.  They may not have taken positions in this before, when it wasn’t all that interesting, but now seeing that there is a bubble afoot, they had a reason to get in and go short early.  They can outlast the short squeeze, and have a reason to do so because of point 5 (next):

5. The pyramid will end when the new buyers are exhausted, and that will be the end of any power for the little-fish oligopoly.  At that point everybody who is leveraged will be underwater.  Because a lot of this money was in options, the unwinding will be very fast, much faster than if it were just driven by a sell-off of the underlying.  The last wave of buyers in will lose essentially whatever they spent.  Whichever little fish happened to get out of the bubble before that will collect some of the money from that last wave, and the larger hedge funds who were waiting out the short squeeze will then collect the rest.

So, when the dust settles, the net effect?  Some money will have changed hands in a quasi-random way, from many small fish who gambled the rent and couldn’t afford to lose it, to a smaller number of other small fish who will collect at varying multiples, but still not enough to meaningfully alter their life trajectories.  The Reddit board-makers might collect enough to happily go on to the next scam, but they will not be breaking into any Forbes lists.  However, in the net, there will have been a flow of money out of both the oligopoly of small fish and the small or mid-sized hedge funds that didn’t see it coming, and into the wealth of the large funds.  In addition to the direct winnings of the large players, because their returns to their clients will go up, they will collect new clients that jumped ship from the hedge funds that bought back out of the short squeeze at a loss.  

So the macro-thing that will happen is the macro-thing that happens through every other mechanism: whoever has the most capital can wait out the largest spectrum of risks, and will on average gain more capital.  This is the ratchet that works through everything.  It is not a Fama-French efficient market mechanism, because it works through differential action of constraints, not through Arrow-Debreu “complete” price systems.  It is not quite the same, but still related to, the bubble-bailout cycles that I have termed Minsky’s Ratchet, from the arguments made by Hyman Minsky in Stabilizing an Unstable Economy.

https://www.amazon.com/Stabilizing-Unstable-Economy-Hyman-Minsky/dp/0071592997

For AOC to be seeking media attention, when there was an early trading freeze, to criticize the hedge funds for looking for protection against the oligopoly doesn’t surprise me, because this is a culture-war thing and responding in the moment to that is what she does.  But for Warren (Elizabeth, not Buffett) to allow that to be her caught-on-camera moment surprises me, and seems regrettable.  Yes, EW is as motivated as AOC to criticize the use of access by the hedge funds to seek protection when they get beat at their own game, and both are right to mock them and welcome them to go under.  But EW’s career has been about how the ratchet of unequal capital constraints moves capital from the small to the large, and if what I said above is correct, I would assume this would be the biggest picture in her view.  In the long term, the people who will get hurt mainly are just the people she has made a profession of trying to protect.  I would think she would want her on-camera moment to be about not getting distracted from that, and worrying that, yes, market regulations and taxation that encourage game-of-chicken gambling are The Urgent — and structural — Problem.  Whether some gambling hedge funds get caught and go under is a sideshow.  AOC, too, of course is plenty smart to understand all this (if what I have said above is not wrong), and I expect she probably does.  (She was an econ major in college, right?). But her media incentives are a bit different, so for her to mostly emphasize the culture-war thing doesn’t seem strange.

So is the above roughly correct?  Or do I misunderstand the structure badly enough that I am drawing the wrong macro-conclusion?

Eric

On Jan 29, 2021, at 6:45 PM, uǝlƃ ↙↙↙ [hidden email] wrote:

Yep. I've logged into my TD Ameritrade account several times to see if they've limited purchases of GME. Supposedly Robinhood did limit purchases. It looked like I could always buy on TDA... but I'm not sure. I would never actually buy GME, *except* to screw The Man. 8^D

On 1/29/21 3:41 PM, Merle Lefkoff wrote:

Has anyone been watching what's happening in the stock market with GameStop?

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[David Eric Smith]

Merle, 

Are you or any others on this list receiving missives from John Komlos?  And if so, what do you think?  I think there is a new online textbook that Sam Bowles is somehow involved with, but I am forgetting details.  I think Komlos advocates for that one, though he is more a peer of Sam’s group than a member.  There is a similarity in their style of argument about what economics has been willfully ignoring, and should start to incorporate.

Best,

Eric

On Jan 30, 2021, at 1:36 PM, Merle Lefkoff <[hidden email]> wrote:

Thank you Steve, and especially Eric.  As I study new economic models for the real economy, such as the "circular economy" and the "doughnut economy", I am also paying more attention to the financial economy and especially the wild and wooly stock market.  I know it's unsustainable, but my hopes are constantly dashed every time I think it's going to crash and it demonstrates its robustness once more.

On Sat, Jan 30, 2021 at 10:56 AM Steve Smith <[hidden email]> wrote:

Eric -

You lay this out so well. 

Some random observations.

1. Minsky's Ratchet is very compelling as an explanation.  As we know I'm a sucker for understanding by analogy with mechanical technology as a common source domain.  I *think* Minsky's Ratchet is a correlate of what you later call game-of-chicken gambling?   It was the first applied (discrete) math problem I remember being offered at college...   that among the myriad "rich-get-richer" mechanisms, the "empty pockets ratchet" is a big one...  a fair game generates a random walk which ultimately ends when one players pockets are empty... the smaller pockets (esp. by orders of magnitude) almost always go empty first.  "It's ratchets, levers, wheels, and connecting rods all the way down?"  
   
2. I was caught off guard by your coining "an oligopoly of little fish", my usual binding of oligopoly to "a small number", but your point of course, and the crux of the event, is that the "little fish" schooled effectively, as if an apex predator-shark wandered too far up the Amazon and encountered a school of pirahna.  The culture-war story, of course is a combination of the "underdog" and the caution of the potential of "collective action"...   as you point out, this one encounter may indicate that a few sharks may yet get stripped of flesh by schools of tiny fish, but there is no indication that they will lose their niche in the oceans and reefs to such.
3. Your tentative analysis of EW and AOC also really struck me as I (contingently) hold them both up as culture-war heroes to the underdogs I regularly cheer for.  I don't feel I have my own dog in either of their fights, but the larger culture I want to live within (with various forms of assertive equality and equanimity) is the one I try to support as best I can.  I am more implicated as a cause of their causes than a victim.  Understanding EW and AOC more better seems to me to be important in pursuing my aspirations to undermine my own undue advantages.   I suppose I "expect more" of EW as a veteran, as a scholar, as a senior statesperson, and I accept AOC's decision to play to her strengths (emotional appeals in the culture war) but also appreciate her having a little deeper intellectual stake (BA in Econ?) than her affect/appearance suggests.   I understand (but do not sympathize with) the olde guarde in congress being acutely skeered of getting double teamed by AOC and Katy Porter.   I look forward to more of those "wild kingdom" takedowns on CSPAN.   I don't think badly of EW's role/position, just disappointed that she might not be achieving her full potential?
4. Your practical description of the "pyramid scheme" and "exhaustion" are a very good thumbnail for where I think this is going myself.   I suppose there IS a chance that a new species of oligopolist will emerge in the form of swarms (school, flock, pack, ...), but I don't think we are at the edge of a phase change yet.  I'm not sure if all significant radiation events are paired with extinction events?  
   
5. Someone made a slightly different correlation than the COVID stay-at-home free-time-to-conspire on Reddit with a COVID stimulus-check-in-hand free energy(cash) one.   Anecdotal at best I'd guess.

'nuff for now,

 -Steve

On 1/30/21 4:19 AM, David Eric Smith wrote:

So I have been watching this, and it looks just like one more wealth-concentrator on the long term, with smaller shifts in the short term that people get caught up looking at because they involve personality conflicts.

Will somebody tell me where I am wrong in the following?

1. We start with the usual state of affairs, in which hedge funds of various sizes take short positions; in what and how much depends on the capital they hold to cover the short, relative to their other options.  They are “big” actors, in the sense that decisions of individual firms can involve moderately large amounts of money.  They assume they are the full landscape of big actors, and although they act with cognizance of each other, since they are all using similar research, they do much the same thing.

2. A new “oligopolistic actor” comes in that changes the landscape of participants, which is a group of Reddit-coordinated little fish.  They can put a short squeeze on the hedge funds.  Those that took too large a position either with too little capital to cover the squeeze until it bursts, or with too little interest in this stock to be willing to take much of a loss on it, will sell off at a loss, and the various little fish will make a little money each, but it will look like a decent chunk when you take them together.  The smaller or medium-sized hedge funds that can’t wait this out could be forced into low enough overall returns that their clients will want to withdraw from them, putting them in further trouble, perhaps driving some of them out of business.

3. Meanwhile: the oligopoly move is an ordinary pyramid scheme, and it only works as long as the pool of new buyers remains large enough to pay off the earlier buyers surfing the bubble.  Considering that relief and unemployment checks amounted to many hundreds of billions of dollars, if even a modest amount of this is in the hands of the young men who were gamers and are now stuck at home, it can look as if that bubble can continue to inflate for a while.  We might even be able to estimate, however, from the overall amount of free money spent into the system, and the part of the public that this young-male demographic accounts for, what the potential size of total gambling capital is for this thing.

4. While attention is on the oligopoly of small fish, and the unprepared mid-sized or small hedge funds that might go bankrupt, there are always larger actors who are well capitalized and can wait out bubbles.  They may not have taken positions in this before, when it wasn’t all that interesting, but now seeing that there is a bubble afoot, they had a reason to get in and go short early.  They can outlast the short squeeze, and have a reason to do so because of point 5 (next):

5. The pyramid will end when the new buyers are exhausted, and that will be the end of any power for the little-fish oligopoly.  At that point everybody who is leveraged will be underwater.  Because a lot of this money was in options, the unwinding will be very fast, much faster than if it were just driven by a sell-off of the underlying.  The last wave of buyers in will lose essentially whatever they spent.  Whichever little fish happened to get out of the bubble before that will collect some of the money from that last wave, and the larger hedge funds who were waiting out the short squeeze will then collect the rest.


So, when the dust settles, the net effect?  Some money will have changed hands in a quasi-random way, from many small fish who gambled the rent and couldn’t afford to lose it, to a smaller number of other small fish who will collect at varying multiples, but still not enough to meaningfully alter their life trajectories.  The Reddit board-makers might collect enough to happily go on to the next scam, but they will not be breaking into any Forbes lists.  However, in the net, there will have been a flow of money out of both the oligopoly of small fish and the small or mid-sized hedge funds that didn’t see it coming, and into the wealth of the large funds.  In addition to the direct winnings of the large players, because their returns to their clients will go up, they will collect new clients that jumped ship from the hedge funds that bought back out of the short squeeze at a loss.  

So the macro-thing that will happen is the macro-thing that happens through every other mechanism: whoever has the most capital can wait out the largest spectrum of risks, and will on average gain more capital.  This is the ratchet that works through everything.  It is not a Fama-French efficient market mechanism, because it works through differential action of constraints, not through Arrow-Debreu “complete” price systems.  It is not quite the same, but still related to, the bubble-bailout cycles that I have termed Minsky’s Ratchet, from the arguments made by Hyman Minsky in Stabilizing an Unstable Economy.
https://www.amazon.com/Stabilizing-Unstable-Economy-Hyman-Minsky/dp/0071592997


For AOC to be seeking media attention, when there was an early trading freeze, to criticize the hedge funds for looking for protection against the oligopoly doesn’t surprise me, because this is a culture-war thing and responding in the moment to that is what she does.  But for Warren (Elizabeth, not Buffett) to allow that to be her caught-on-camera moment surprises me, and seems regrettable.  Yes, EW is as motivated as AOC to criticize the use of access by the hedge funds to seek protection when they get beat at their own game, and both are right to mock them and welcome them to go under.  But EW’s career has been about how the ratchet of unequal capital constraints moves capital from the small to the large, and if what I said above is correct, I would assume this would be the biggest picture in her view.  In the long term, the people who will get hurt mainly are just the people she has made a profession of trying to protect.  I would think she would want her on-camera moment to be about not getting distracted from that, and worrying that, yes, market regulations and taxation that encourage game-of-chicken gambling are The Urgent — and structural — Problem.  Whether some gambling hedge funds get caught and go under is a sideshow.  AOC, too, of course is plenty smart to understand all this (if what I have said above is not wrong), and I expect she probably does.  (She was an econ major in college, right?). But her media incentives are a bit different, so for her to mostly emphasize the culture-war thing doesn’t seem strange.

So is the above roughly correct?  Or do I misunderstand the structure badly enough that I am drawing the wrong macro-conclusion?

Eric

On Jan 29, 2021, at 6:45 PM, uǝlƃ ↙↙↙ [hidden email] wrote:

Yep. I've logged into my TD Ameritrade account several times to see if they've limited purchases of GME. Supposedly Robinhood did limit purchases. It looked like I could always buy on TDA... but I'm not sure. I would never actually buy GME, *except* to screw The Man. 8^D

On 1/29/21 3:41 PM, Merle Lefkoff wrote:

Has anyone been watching what's happening in the stock market with GameStop?

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Center for Emergent Diplomacy
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[thompnickson2]

Oh God what’s happening to me!  I am agreeing with Marcus again.  A Bumpy surface, but no volcanoes.

 

The psychological problem is this:  people who are in the bumps on the surface, think they have gotten there because they are DESERVING of their fortune, and they look down on the people in the little valleys around them, as they too are DESERVING, deserving of their misfortune.  They thus use the power their fortune conveys them to increase the size of the bump they are on. Thus from little pimples, volcanoes grow.  Cf, afore mentioned, TYRANNY OF MERIT.

 

N

 

 

 

Nick Thompson

[hidden email]

https://wordpress.clarku.edu/nthompson/

 

From: Friam <[hidden email]> On Behalf Of David Eric Smith
Sent: Sunday, January 31, 2021 7:23 AM
To: The Friday Morning Applied Complexity Coffee Group <[hidden email]>
Subject: Re: [FRIAM] Strawman/Steelman

 

On Jan 30, 2021, at 1:48 PM, Marcus Daniels <[hidden email]> wrote:

 

What if the Ratchet is, overall, a good thing?  Harnessing and controlling volatile individual passions into larger self-interested collectives that are, in general, behaving in more intelligent ways?     Some or even many of these ratchets are corrupt, like in the case of Putin.   But that forces the population under him to create better ratcheting systems; market forces create inequities which are inefficiencies for the society to sort out, but some of them are unavoidable and even good.

 

I think I would separate, here, a mechanism that indefinitely concentrates wealth, from mechanisms that overall produce a non-flat distribution of wealth.  The former being inherently destabilizing, the latter being perhaps compatible with steady states that are to some degree smooth.

 

(It is an aside to the few lines I will write below, but (perhaps in a side-reply to Steve’s post)  the thing I mean by Minsky’s Ratchet is actually not the same as the wealth-concentrating effects of unequal capital constraints.  There is a wonderful precise institutional instantiation of the Minsky Ratchet that one could build from the interaction of CDOs (Collateralized Debt Obligations) working together with Mark-to-market collateral pricing, as functioned in the 2007 mortgage-backed securities unwinding, but since nobody will ever care I have no way to justify the time writing it up.  It interests me because there is an economic entropy effect behind it that I would enjoy making explicit.  But its role is somewhat different from a sort of python-squeeze of capital concentration, which I take to be the focus of work like Piketty’s Capital in the 21st Century.  The Minsky Ratchet could be a mechanism in the python squeeze, but I think the latter involves further dimensions of social structure.)

 

This is a good time (historically speaking) to discuss the role of wealth concentration, because we can see its effects both for risk-taking and for the exercise of power in this pandemic year.  These days development of a new drug costs a capital outlay of about 2 billion dollars (a number I got from an insider maybe 4 years ago, but have seen in print somewhere since then).  When Pfizer didn’t feel like being on a leash to the corrupt trump government, they declined its money and went into development of a CoV-2 vaccine on their own capital.  If they did not have that enormous cash pile, they might have been unwilling to undergo the venture.  That is not to say that they will lose that money this time — it looks like they will profit very well over time — but rather that if they couldn’t have afforded to lose it, they might not have entered the effort at all.  I do tend to think that these very long-tailed wealth distributions have a role in enabling _somebody_ in a society to take risks that otherwise would be off-limits to the society at all.  There probably are other examples that are current just now: Google’s large investments in quantum computing, certain aspects of the implementation of AI, and things of that sort.  On the other side of it, one has the power problems of Amazon, Facebook, and the others, coupled to their providing services that people are choosing to use notwithstanding the side-effects.

 

The mechanics by which wealth skews place a spectrum of bets within or out of reach, and then the value judgments of the specific bets particular actors take, are both things to be understood.  I find arguments frustrating in which one tries to get a clear picture of the mechanics, and suddenly the conversation gets overwrought about valuations, as if the two were the same topic.  Of course they must both be seen, and together they inform what one might want from the society, but it seems to me necessary to recognize that they are distinct questions to be able to think in an orderly way about either of them.  Related to that distinction, there is a distinction between the _actions_ that wealth concentration enables, and the notion of how wealth concentration is expressed as power in the hands of one or another decision-maker (which could be an agent of many different possible types).

 

I can imagine trying to retain the capacity for big projects, but to contain abuses of power, by limiting wealth concentration under conventional “private property” conventions.  However, that would seem to require some notion of “nimble capital” that could rapidly aggregate around risky bets like quick development of an mRNA vaccine, or an initiative in quantum computing, or whatever.  We can certainly see instances in which governments have done versions of that, on fairly large scale (space programs, the US nuclear weapons push, in which Richard Rhodes argues that showing one could get past the economic/engineering threshold was a more important opening of the door than any difficulty of science), and others in which it was thwarted on much smaller scales (Obama administration efforts to invest in renewables, a strategy that our colleague Jessika Trancik argues from data about “cost-learning-curves” is very beneficial in the long term).  The willingness to risk big losses seems more common for rich individuals or even firms, than for social institutions, so nimble capital looks challenging to realize as a persistent capability.  There are precedents, at the level of analogy, to this sort of organization in biological phenomena like immune-system function, but it is not clear how well that analogy ports to the social realm.

 

 

I realize, too, that yesterday I broke our posting-hygiene rule.  So to fill in:

 

AOC = Alexandria Ocasio-Cortez

 

Eric

 

 

 

 

From: Friam <[hidden email]> On Behalf Of Merle Lefkoff
Sent: Saturday, January 30, 2021 10:37 AM
To: The Friday Morning Applied Complexity Coffee Group <[hidden email]>
Subject: Re: [FRIAM] Strawman/Steelman

 

Thank you Steve, and especially Eric.  As I study new economic models for the real economy, such as the "circular economy" and the "doughnut economy", I am also paying more attention to the financial economy and especially the wild and wooly stock market.  I know it's unsustainable, but my hopes are constantly dashed every time I think it's going to crash and it demonstrates its robustness once more.

 

On Sat, Jan 30, 2021 at 10:56 AM Steve Smith <[hidden email]> wrote:

Eric -

You lay this out so well.  

Some random observations.

1. Minsky's Ratchet is very compelling as an explanation.  As we know I'm a sucker for understanding by analogy with mechanical technology as a common source domain.  I *think* Minsky's Ratchet is a correlate of what you later call game-of-chicken gambling?   It was the first applied (discrete) math problem I remember being offered at college...   that among the myriad "rich-get-richer" mechanisms, the "empty pockets ratchet" is a big one...  a fair game generates a random walk which ultimately ends when one players pockets are empty... the smaller pockets (esp. by orders of magnitude) almost always go empty first.  "It's ratchets, levers, wheels, and connecting rods all the way down?"  
2. I was caught off guard by your coining "an oligopoly of little fish", my usual binding of oligopoly to "a small number", but your point of course, and the crux of the event, is that the "little fish" schooled effectively, as if an apex predator-shark wandered too far up the Amazon and encountered a school of pirahna.  The culture-war story, of course is a combination of the "underdog" and the caution of the potential of "collective action"...   as you point out, this one encounter may indicate that a few sharks may yet get stripped of flesh by schools of tiny fish, but there is no indication that they will lose their niche in the oceans and reefs to such.
3. Your tentative analysis of EW and AOC also really struck me as I (contingently) hold them both up as culture-war heroes to the underdogs I regularly cheer for.  I don't feel I have my own dog in either of their fights, but the larger culture I want to live within (with various forms of assertive equality and equanimity) is the one I try to support as best I can.  I am more implicated as a cause of their causes than a victim.  Understanding EW and AOC more better seems to me to be important in pursuing my aspirations to undermine my own undue advantages.   I suppose I "expect more" of EW as a veteran, as a scholar, as a senior statesperson, and I accept AOC's decision to play to her strengths (emotional appeals in the culture war) but also appreciate her having a little deeper intellectual stake (BA in Econ?) than her affect/appearance suggests.   I understand (but do not sympathize with) the olde guarde in congress being acutely skeered of getting double teamed by AOC and Katy Porter.   I look forward to more of those "wild kingdom" takedowns on CSPAN.   I don't think badly of EW's role/position, just disappointed that she might not be achieving her full potential?
4. Your practical description of the "pyramid scheme" and "exhaustion" are a very good thumbnail for where I think this is going myself.   I suppose there IS a chance that a new species of oligopolist will emerge in the form of swarms (school, flock, pack, ...), but I don't think we are at the edge of a phase change yet.  I'm not sure if all significant radiation events are paired with extinction events?  
5. Someone made a slightly different correlation than the COVID stay-at-home free-time-to-conspire on Reddit with a COVID stimulus-check-in-hand free energy(cash) one.   Anecdotal at best I'd guess.

'nuff for now,

 -Steve

On 1/30/21 4:19 AM, David Eric Smith wrote:

So I have been watching this, and it looks just like one more wealth-concentrator on the long term, with smaller shifts in the short term that people get caught up looking at because they involve personality conflicts.

Will somebody tell me where I am wrong in the following?

1. We start with the usual state of affairs, in which hedge funds of various sizes take short positions; in what and how much depends on the capital they hold to cover the short, relative to their other options.  They are “big” actors, in the sense that decisions of individual firms can involve moderately large amounts of money.  They assume they are the full landscape of big actors, and although they act with cognizance of each other, since they are all using similar research, they do much the same thing.

2. A new “oligopolistic actor” comes in that changes the landscape of participants, which is a group of Reddit-coordinated little fish.  They can put a short squeeze on the hedge funds.  Those that took too large a position either with too little capital to cover the squeeze until it bursts, or with too little interest in this stock to be willing to take much of a loss on it, will sell off at a loss, and the various little fish will make a little money each, but it will look like a decent chunk when you take them together.  The smaller or medium-sized hedge funds that can’t wait this out could be forced into low enough overall returns that their clients will want to withdraw from them, putting them in further trouble, perhaps driving some of them out of business.

3. Meanwhile: the oligopoly move is an ordinary pyramid scheme, and it only works as long as the pool of new buyers remains large enough to pay off the earlier buyers surfing the bubble.  Considering that relief and unemployment checks amounted to many hundreds of billions of dollars, if even a modest amount of this is in the hands of the young men who were gamers and are now stuck at home, it can look as if that bubble can continue to inflate for a while.  We might even be able to estimate, however, from the overall amount of free money spent into the system, and the part of the public that this young-male demographic accounts for, what the potential size of total gambling capital is for this thing.

4. While attention is on the oligopoly of small fish, and the unprepared mid-sized or small hedge funds that might go bankrupt, there are always larger actors who are well capitalized and can wait out bubbles.  They may not have taken positions in this before, when it wasn’t all that interesting, but now seeing that there is a bubble afoot, they had a reason to get in and go short early.  They can outlast the short squeeze, and have a reason to do so because of point 5 (next):

5. The pyramid will end when the new buyers are exhausted, and that will be the end of any power for the little-fish oligopoly.  At that point everybody who is leveraged will be underwater.  Because a lot of this money was in options, the unwinding will be very fast, much faster than if it were just driven by a sell-off of the underlying.  The last wave of buyers in will lose essentially whatever they spent.  Whichever little fish happened to get out of the bubble before that will collect some of the money from that last wave, and the larger hedge funds who were waiting out the short squeeze will then collect the rest.

So, when the dust settles, the net effect?  Some money will have changed hands in a quasi-random way, from many small fish who gambled the rent and couldn’t afford to lose it, to a smaller number of other small fish who will collect at varying multiples, but still not enough to meaningfully alter their life trajectories.  The Reddit board-makers might collect enough to happily go on to the next scam, but they will not be breaking into any Forbes lists.  However, in the net, there will have been a flow of money out of both the oligopoly of small fish and the small or mid-sized hedge funds that didn’t see it coming, and into the wealth of the large funds.  In addition to the direct winnings of the large players, because their returns to their clients will go up, they will collect new clients that jumped ship from the hedge funds that bought back out of the short squeeze at a loss.  

So the macro-thing that will happen is the macro-thing that happens through every other mechanism: whoever has the most capital can wait out the largest spectrum of risks, and will on average gain more capital.  This is the ratchet that works through everything.  It is not a Fama-French efficient market mechanism, because it works through differential action of constraints, not through Arrow-Debreu “complete” price systems.  It is not quite the same, but still related to, the bubble-bailout cycles that I have termed Minsky’s Ratchet, from the arguments made by Hyman Minsky in Stabilizing an Unstable Economy.

https://www.amazon.com/Stabilizing-Unstable-Economy-Hyman-Minsky/dp/0071592997

For AOC to be seeking media attention, when there was an early trading freeze, to criticize the hedge funds for looking for protection against the oligopoly doesn’t surprise me, because this is a culture-war thing and responding in the moment to that is what she does.  But for Warren (Elizabeth, not Buffett) to allow that to be her caught-on-camera moment surprises me, and seems regrettable.  Yes, EW is as motivated as AOC to criticize the use of access by the hedge funds to seek protection when they get beat at their own game, and both are right to mock them and welcome them to go under.  But EW’s career has been about how the ratchet of unequal capital constraints moves capital from the small to the large, and if what I said above is correct, I would assume this would be the biggest picture in her view.  In the long term, the people who will get hurt mainly are just the people she has made a profession of trying to protect.  I would think she would want her on-camera moment to be about not getting distracted from that, and worrying that, yes, market regulations and taxation that encourage game-of-chicken gambling are The Urgent — and structural — Problem.  Whether some gambling hedge funds get caught and go under is a sideshow.  AOC, too, of course is plenty smart to understand all this (if what I have said above is not wrong), and I expect she probably does.  (She was an econ major in college, right?). But her media incentives are a bit different, so for her to mostly emphasize the culture-war thing doesn’t seem strange.

So is the above roughly correct?  Or do I misunderstand the structure badly enough that I am drawing the wrong macro-conclusion?

Eric

On Jan 29, 2021, at 6:45 PM, uǝlƃ ↙↙↙ [hidden email] wrote:

Yep. I've logged into my TD Ameritrade account several times to see if they've limited purchases of GME. Supposedly Robinhood did limit purchases. It looked like I could always buy on TDA... but I'm not sure. I would never actually buy GME, *except* to screw The Man. 8^D

On 1/29/21 3:41 PM, Merle Lefkoff wrote:

Has anyone been watching what's happening in the stock market with GameStop?

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↙↙↙ uǝlƃ

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Center for Emergent Diplomacy
emergentdiplomacy.org

Santa Fe, New Mexico, USA

mobile:  [phone]
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twitter: @merle110

 

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[thompnickson2]

Eric,

 

Do you mean perhaps the radical idea that economic individuals are capable of making collective decisions?   That there are higher order interactions amongst economic particles?  Gosh.  What a thought! 

 

Doesn’t the whole weight of economic theory collapse if we let that idea in? 

 

Can you give us a slightly firmer push toward Komlos  … a paper you have liked, perhaps.  I stipulate that I am lazy.

 

Nick

 

Nick Thompson

[hidden email]

https://wordpress.clarku.edu/nthompson/

 

From: Friam <[hidden email]> On Behalf Of David Eric Smith
Sent: Sunday, January 31, 2021 7:30 AM
To: The Friday Morning Applied Complexity Coffee Group <[hidden email]>
Subject: Re: [FRIAM] Strawman/Steelman

 

Merle, 

 

Are you or any others on this list receiving missives from John Komlos?  And if so, what do you think?  I think there is a new online textbook that Sam Bowles is somehow involved with, but I am forgetting details.  I think Komlos advocates for that one, though he is more a peer of Sam’s group than a member.  There is a similarity in their style of argument about what economics has been willfully ignoring, and should start to incorporate.

 

Best,

 

Eric

 

On Jan 30, 2021, at 1:36 PM, Merle Lefkoff <[hidden email]> wrote:

 

Thank you Steve, and especially Eric.  As I study new economic models for the real economy, such as the "circular economy" and the "doughnut economy", I am also paying more attention to the financial economy and especially the wild and wooly stock market.  I know it's unsustainable, but my hopes are constantly dashed every time I think it's going to crash and it demonstrates its robustness once more.

 

On Sat, Jan 30, 2021 at 10:56 AM Steve Smith <[hidden email]> wrote:

Eric -

You lay this out so well. 

Some random observations.

1. Minsky's Ratchet is very compelling as an explanation.  As we know I'm a sucker for understanding by analogy with mechanical technology as a common source domain.  I *think* Minsky's Ratchet is a correlate of what you later call game-of-chicken gambling?   It was the first applied (discrete) math problem I remember being offered at college...   that among the myriad "rich-get-richer" mechanisms, the "empty pockets ratchet" is a big one...  a fair game generates a random walk which ultimately ends when one players pockets are empty... the smaller pockets (esp. by orders of magnitude) almost always go empty first.  "It's ratchets, levers, wheels, and connecting rods all the way down?"  
2. I was caught off guard by your coining "an oligopoly of little fish", my usual binding of oligopoly to "a small number", but your point of course, and the crux of the event, is that the "little fish" schooled effectively, as if an apex predator-shark wandered too far up the Amazon and encountered a school of pirahna.  The culture-war story, of course is a combination of the "underdog" and the caution of the potential of "collective action"...   as you point out, this one encounter may indicate that a few sharks may yet get stripped of flesh by schools of tiny fish, but there is no indication that they will lose their niche in the oceans and reefs to such.
3. Your tentative analysis of EW and AOC also really struck me as I (contingently) hold them both up as culture-war heroes to the underdogs I regularly cheer for.  I don't feel I have my own dog in either of their fights, but the larger culture I want to live within (with various forms of assertive equality and equanimity) is the one I try to support as best I can.  I am more implicated as a cause of their causes than a victim.  Understanding EW and AOC more better seems to me to be important in pursuing my aspirations to undermine my own undue advantages.   I suppose I "expect more" of EW as a veteran, as a scholar, as a senior statesperson, and I accept AOC's decision to play to her strengths (emotional appeals in the culture war) but also appreciate her having a little deeper intellectual stake (BA in Econ?) than her affect/appearance suggests.   I understand (but do not sympathize with) the olde guarde in congress being acutely skeered of getting double teamed by AOC and Katy Porter.   I look forward to more of those "wild kingdom" takedowns on CSPAN.   I don't think badly of EW's role/position, just disappointed that she might not be achieving her full potential?
4. Your practical description of the "pyramid scheme" and "exhaustion" are a very good thumbnail for where I think this is going myself.   I suppose there IS a chance that a new species of oligopolist will emerge in the form of swarms (school, flock, pack, ...), but I don't think we are at the edge of a phase change yet.  I'm not sure if all significant radiation events are paired with extinction events?  
5. Someone made a slightly different correlation than the COVID stay-at-home free-time-to-conspire on Reddit with a COVID stimulus-check-in-hand free energy(cash) one.   Anecdotal at best I'd guess.

'nuff for now,

 -Steve

On 1/30/21 4:19 AM, David Eric Smith wrote:

So I have been watching this, and it looks just like one more wealth-concentrator on the long term, with smaller shifts in the short term that people get caught up looking at because they involve personality conflicts.

Will somebody tell me where I am wrong in the following?

1. We start with the usual state of affairs, in which hedge funds of various sizes take short positions; in what and how much depends on the capital they hold to cover the short, relative to their other options.  They are “big” actors, in the sense that decisions of individual firms can involve moderately large amounts of money.  They assume they are the full landscape of big actors, and although they act with cognizance of each other, since they are all using similar research, they do much the same thing.

2. A new “oligopolistic actor” comes in that changes the landscape of participants, which is a group of Reddit-coordinated little fish.  They can put a short squeeze on the hedge funds.  Those that took too large a position either with too little capital to cover the squeeze until it bursts, or with too little interest in this stock to be willing to take much of a loss on it, will sell off at a loss, and the various little fish will make a little money each, but it will look like a decent chunk when you take them together.  The smaller or medium-sized hedge funds that can’t wait this out could be forced into low enough overall returns that their clients will want to withdraw from them, putting them in further trouble, perhaps driving some of them out of business.

3. Meanwhile: the oligopoly move is an ordinary pyramid scheme, and it only works as long as the pool of new buyers remains large enough to pay off the earlier buyers surfing the bubble.  Considering that relief and unemployment checks amounted to many hundreds of billions of dollars, if even a modest amount of this is in the hands of the young men who were gamers and are now stuck at home, it can look as if that bubble can continue to inflate for a while.  We might even be able to estimate, however, from the overall amount of free money spent into the system, and the part of the public that this young-male demographic accounts for, what the potential size of total gambling capital is for this thing.

4. While attention is on the oligopoly of small fish, and the unprepared mid-sized or small hedge funds that might go bankrupt, there are always larger actors who are well capitalized and can wait out bubbles.  They may not have taken positions in this before, when it wasn’t all that interesting, but now seeing that there is a bubble afoot, they had a reason to get in and go short early.  They can outlast the short squeeze, and have a reason to do so because of point 5 (next):

5. The pyramid will end when the new buyers are exhausted, and that will be the end of any power for the little-fish oligopoly.  At that point everybody who is leveraged will be underwater.  Because a lot of this money was in options, the unwinding will be very fast, much faster than if it were just driven by a sell-off of the underlying.  The last wave of buyers in will lose essentially whatever they spent.  Whichever little fish happened to get out of the bubble before that will collect some of the money from that last wave, and the larger hedge funds who were waiting out the short squeeze will then collect the rest.

So, when the dust settles, the net effect?  Some money will have changed hands in a quasi-random way, from many small fish who gambled the rent and couldn’t afford to lose it, to a smaller number of other small fish who will collect at varying multiples, but still not enough to meaningfully alter their life trajectories.  The Reddit board-makers might collect enough to happily go on to the next scam, but they will not be breaking into any Forbes lists.  However, in the net, there will have been a flow of money out of both the oligopoly of small fish and the small or mid-sized hedge funds that didn’t see it coming, and into the wealth of the large funds.  In addition to the direct winnings of the large players, because their returns to their clients will go up, they will collect new clients that jumped ship from the hedge funds that bought back out of the short squeeze at a loss.  

So the macro-thing that will happen is the macro-thing that happens through every other mechanism: whoever has the most capital can wait out the largest spectrum of risks, and will on average gain more capital.  This is the ratchet that works through everything.  It is not a Fama-French efficient market mechanism, because it works through differential action of constraints, not through Arrow-Debreu “complete” price systems.  It is not quite the same, but still related to, the bubble-bailout cycles that I have termed Minsky’s Ratchet, from the arguments made by Hyman Minsky in Stabilizing an Unstable Economy.

https://www.amazon.com/Stabilizing-Unstable-Economy-Hyman-Minsky/dp/0071592997

For AOC to be seeking media attention, when there was an early trading freeze, to criticize the hedge funds for looking for protection against the oligopoly doesn’t surprise me, because this is a culture-war thing and responding in the moment to that is what she does.  But for Warren (Elizabeth, not Buffett) to allow that to be her caught-on-camera moment surprises me, and seems regrettable.  Yes, EW is as motivated as AOC to criticize the use of access by the hedge funds to seek protection when they get beat at their own game, and both are right to mock them and welcome them to go under.  But EW’s career has been about how the ratchet of unequal capital constraints moves capital from the small to the large, and if what I said above is correct, I would assume this would be the biggest picture in her view.  In the long term, the people who will get hurt mainly are just the people she has made a profession of trying to protect.  I would think she would want her on-camera moment to be about not getting distracted from that, and worrying that, yes, market regulations and taxation that encourage game-of-chicken gambling are The Urgent — and structural — Problem.  Whether some gambling hedge funds get caught and go under is a sideshow.  AOC, too, of course is plenty smart to understand all this (if what I have said above is not wrong), and I expect she probably does.  (She was an econ major in college, right?). But her media incentives are a bit different, so for her to mostly emphasize the culture-war thing doesn’t seem strange.

So is the above roughly correct?  Or do I misunderstand the structure badly enough that I am drawing the wrong macro-conclusion?

Eric

On Jan 29, 2021, at 6:45 PM, uǝlƃ ↙↙↙ [hidden email] wrote:

Yep. I've logged into my TD Ameritrade account several times to see if they've limited purchases of GME. Supposedly Robinhood did limit purchases. It looked like I could always buy on TDA... but I'm not sure. I would never actually buy GME, *except* to screw The Man. 8^D

On 1/29/21 3:41 PM, Merle Lefkoff wrote:

Has anyone been watching what's happening in the stock market with GameStop?

-- 

↙↙↙ uǝlƃ

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Merle Lefkoff, Ph.D.
Center for Emergent Diplomacy
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Santa Fe, New Mexico, USA

mobile:  [phone]
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[Marcus G. Daniels]

Eric writes:

 

< The mechanics by which wealth skews place a spectrum of bets within or out of reach, and then the value judgments of the specific bets particular actors take, are both things to be understood.  I find arguments frustrating in which one tries to get a clear picture of the mechanics, and suddenly the conversation gets overwrought about valuations, as if the two were the same topic.  >

 

One could imagine making the discretionary spending by the NIH opt-in on taxes.   Since many pharmaceutical patents build on research funded by the NIH, the government could insist on a better rate on drugs than those that did not opt-in to that taxation.   Patents could be blocked without a convincing examination of supporting research.    “Oh I see you opted-out on NIH research on your 1040, your chimeric antigen receptor treatment bill will be $500k.  Here is a CareCredit application.”  (Sadly that’s the situation for most people, now.)

 

If a large fraction of people don’t to even want to acknowledge the need for collective investments, it should be no surprise when the rest take matters in to their own hands, or use it as leverage to profit. 

 

Marcus

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[Roger Critchlow-2]

But companies and mutual funds are collective investments.  Hedge funds are collectives.  They don't think of themselves that way, but even Elon Musk is a huge collective if you take into account everyone who holds some kind of stake in Tesla, Spacex, Boring, and so on.

Or are you invoking the collective than which none can be more collective?

Although the argument is made endlessly in terms of individuals versus collectives, isn't it really a battle by existing collectives to prevent the formation and growth of competitive collectives?  The assertion that certain forms of "natural" collectives should be more privileged under the law and protected from competition from "unnatural" collectives?

-- rec --

On Sun, Jan 31, 2021 at 12:43 PM Marcus Daniels <[hidden email]> wrote:

Eric writes:

 

< The mechanics by which wealth skews place a spectrum of bets within or out of reach, and then the value judgments of the specific bets particular actors take, are both things to be understood.  I find arguments frustrating in which one tries to get a clear picture of the mechanics, and suddenly the conversation gets overwrought about valuations, as if the two were the same topic.  >

 

One could imagine making the discretionary spending by the NIH opt-in on taxes.   Since many pharmaceutical patents build on research funded by the NIH, the government could insist on a better rate on drugs than those that did not opt-in to that taxation.   Patents could be blocked without a convincing examination of supporting research.    “Oh I see you opted-out on NIH research on your 1040, your chimeric antigen receptor treatment bill will be $500k.  Here is a CareCredit application.”  (Sadly that’s the situation for most people, now.)

 

If a large fraction of people don’t to even want to acknowledge the need for collective investments, it should be no surprise when the rest take matters in to their own hands, or use it as leverage to profit. 

 

Marcus

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[Marcus G. Daniels]

As long as there are outsiders, all collectives are competitive.  Even universal collectives like governments are competitive.  A problem in the U.S. is that the commons is taken for granted and its benefits aren’t recognized by everyone.   Public-funded research gives long term benefits, not short term financial returns.   The kind of person that is worried about insurance for nursing home costs ought to be as worried about NIH investments.  “Will there be a treatment for my cancer that I can afford?”    It’s true that some collectives have powers that others do not, but when Walmart and CVS stand up with Trump in the Rose Garden to combat the pandemic, what I see is a universal collective that is quite dependent on the smaller competitive collectives.   So the proposal is to deconstruct the universal collective into a set of optional services.  Toll roads, the whole thing.

 

From: Friam <[hidden email]> On Behalf Of Roger Critchlow
Sent: Sunday, January 31, 2021 10:15 AM
To: The Friday Morning Applied Complexity Coffee Group <[hidden email]>
Subject: Re: [FRIAM] Strawman/Steelman

 

But companies and mutual funds are collective investments.  Hedge funds are collectives.  They don't think of themselves that way, but even Elon Musk is a huge collective if you take into account everyone who holds some kind of stake in Tesla, Spacex, Boring, and so on.

 

Or are you invoking the collective than which none can be more collective?

 

Although the argument is made endlessly in terms of individuals versus collectives, isn't it really a battle by existing collectives to prevent the formation and growth of competitive collectives?  The assertion that certain forms of "natural" collectives should be more privileged under the law and protected from competition from "unnatural" collectives?

 

-- rec --

 

 

On Sun, Jan 31, 2021 at 12:43 PM Marcus Daniels <[hidden email]> wrote:

Eric writes:

 

< The mechanics by which wealth skews place a spectrum of bets within or out of reach, and then the value judgments of the specific bets particular actors take, are both things to be understood.  I find arguments frustrating in which one tries to get a clear picture of the mechanics, and suddenly the conversation gets overwrought about valuations, as if the two were the same topic.  >

 

One could imagine making the discretionary spending by the NIH opt-in on taxes.   Since many pharmaceutical patents build on research funded by the NIH, the government could insist on a better rate on drugs than those that did not opt-in to that taxation.   Patents could be blocked without a convincing examination of supporting research.    “Oh I see you opted-out on NIH research on your 1040, your chimeric antigen receptor treatment bill will be $500k.  Here is a CareCredit application.”  (Sadly that’s the situation for most people, now.)

 

If a large fraction of people don’t to even want to acknowledge the need for collective investments, it should be no surprise when the rest take matters in to their own hands, or use it as leverage to profit. 

 

Marcus

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[Frank Wimberly-2]

Yes, certain kinds of speculative and manipulative trading are prohibited except for entities that have traditionally done it.

I am trying to take advantage of the Gamestop example by buying a small amount of stock in a similarly positioned firm.  It's kind of a lottery ticket.

On Sun, Jan 31, 2021, 11:15 AM Roger Critchlow <[hidden email]> wrote:

But companies and mutual funds are collective investments.  Hedge funds are collectives.  They don't think of themselves that way, but even Elon Musk is a huge collective if you take into account everyone who holds some kind of stake in Tesla, Spacex, Boring, and so on.

Or are you invoking the collective than which none can be more collective?

Although the argument is made endlessly in terms of individuals versus collectives, isn't it really a battle by existing collectives to prevent the formation and growth of competitive collectives?  The assertion that certain forms of "natural" collectives should be more privileged under the law and protected from competition from "unnatural" collectives?

-- rec --

On Sun, Jan 31, 2021 at 12:43 PM Marcus Daniels <[hidden email]> wrote:

Eric writes:

 

< The mechanics by which wealth skews place a spectrum of bets within or out of reach, and then the value judgments of the specific bets particular actors take, are both things to be understood.  I find arguments frustrating in which one tries to get a clear picture of the mechanics, and suddenly the conversation gets overwrought about valuations, as if the two were the same topic.  >

 

One could imagine making the discretionary spending by the NIH opt-in on taxes.   Since many pharmaceutical patents build on research funded by the NIH, the government could insist on a better rate on drugs than those that did not opt-in to that taxation.   Patents could be blocked without a convincing examination of supporting research.    “Oh I see you opted-out on NIH research on your 1040, your chimeric antigen receptor treatment bill will be $500k.  Here is a CareCredit application.”  (Sadly that’s the situation for most people, now.)

 

If a large fraction of people don’t to even want to acknowledge the need for collective investments, it should be no surprise when the rest take matters in to their own hands, or use it as leverage to profit. 

 

Marcus

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[David Eric Smith]

Nick, hi,

With apologies, it will require more of a dig than I can do soon.  A computer file system becomes meaningless when there are so many primary categories that every file is sui generis.  

That was why I was curious whether Komlos had come up on anyone else’s radar, and they found value in him.  I have a sense that he discusses applied problems of the sort we hear rendered well to the public by people like Robert Reich or Elizabeth Warren, though he has his own style and topics.  I think he recently wrote a textbook to serve as an alternative for Econ 101; more phenomenological and application-oriented, and less siloed within General Equilibrium paradigms.  More street, and less priesthood.  Me llaman Calle en mi noblessa….

Apologies that I am not able to do better today,

Eric

On Jan 31, 2021, at 12:34 PM, <[hidden email]> <[hidden email]> wrote:

Eric,

 

Do you mean perhaps the radical idea that economic individuals are capable of making collective decisions?   That there are higher order interactions amongst economic particles?  Gosh.  What a thought! 

 

Doesn’t the whole weight of economic theory collapse if we let that idea in? 

 

Can you give us a slightly firmer push toward Komlos  … a paper you have liked, perhaps.  I stipulate that I am lazy.

 

Nick

 

Nick Thompson

[hidden email]

https://wordpress.clarku.edu/nthompson/

 

From: Friam <[hidden email]> On Behalf Of David Eric Smith
Sent: Sunday, January 31, 2021 7:30 AM
To: The Friday Morning Applied Complexity Coffee Group <[hidden email]>
Subject: Re: [FRIAM] Strawman/Steelman

 

Merle, 

 

Are you or any others on this list receiving missives from John Komlos?  And if so, what do you think?  I think there is a new online textbook that Sam Bowles is somehow involved with, but I am forgetting details.  I think Komlos advocates for that one, though he is more a peer of Sam’s group than a member.  There is a similarity in their style of argument about what economics has been willfully ignoring, and should start to incorporate.

 

Best,

 

Eric

 

On Jan 30, 2021, at 1:36 PM, Merle Lefkoff <[hidden email]> wrote:

 

Thank you Steve, and especially Eric.  As I study new economic models for the real economy, such as the "circular economy" and the "doughnut economy", I am also paying more attention to the financial economy and especially the wild and wooly stock market.  I know it's unsustainable, but my hopes are constantly dashed every time I think it's going to crash and it demonstrates its robustness once more.

 

On Sat, Jan 30, 2021 at 10:56 AM Steve Smith <[hidden email]> wrote:

Eric -

You lay this out so well. 

Some random observations.

1. Minsky's Ratchet is very compelling as an explanation.  As we know I'm a sucker for understanding by analogy with mechanical technology as a common source domain.  I *think* Minsky's Ratchet is a correlate of what you later call game-of-chicken gambling?   It was the first applied (discrete) math problem I remember being offered at college...   that among the myriad "rich-get-richer" mechanisms, the "empty pockets ratchet" is a big one...  a fair game generates a random walk which ultimately ends when one players pockets are empty... the smaller pockets (esp. by orders of magnitude) almost always go empty first.  "It's ratchets, levers, wheels, and connecting rods all the way down?"  
2. I was caught off guard by your coining "an oligopoly of little fish", my usual binding of oligopoly to "a small number", but your point of course, and the crux of the event, is that the "little fish" schooled effectively, as if an apex predator-shark wandered too far up the Amazon and encountered a school of pirahna.  The culture-war story, of course is a combination of the "underdog" and the caution of the potential of "collective action"...   as you point out, this one encounter may indicate that a few sharks may yet get stripped of flesh by schools of tiny fish, but there is no indication that they will lose their niche in the oceans and reefs to such.
3. Your tentative analysis of EW and AOC also really struck me as I (contingently) hold them both up as culture-war heroes to the underdogs I regularly cheer for.  I don't feel I have my own dog in either of their fights, but the larger culture I want to live within (with various forms of assertive equality and equanimity) is the one I try to support as best I can.  I am more implicated as a cause of their causes than a victim.  Understanding EW and AOC more better seems to me to be important in pursuing my aspirations to undermine my own undue advantages.   I suppose I "expect more" of EW as a veteran, as a scholar, as a senior statesperson, and I accept AOC's decision to play to her strengths (emotional appeals in the culture war) but also appreciate her having a little deeper intellectual stake (BA in Econ?) than her affect/appearance suggests.   I understand (but do not sympathize with) the olde guarde in congress being acutely skeered of getting double teamed by AOC and Katy Porter.   I look forward to more of those "wild kingdom" takedowns on CSPAN.   I don't think badly of EW's role/position, just disappointed that she might not be achieving her full potential?
4. Your practical description of the "pyramid scheme" and "exhaustion" are a very good thumbnail for where I think this is going myself.   I suppose there IS a chance that a new species of oligopolist will emerge in the form of swarms (school, flock, pack, ...), but I don't think we are at the edge of a phase change yet.  I'm not sure if all significant radiation events are paired with extinction events?  
5. Someone made a slightly different correlation than the COVID stay-at-home free-time-to-conspire on Reddit with a COVID stimulus-check-in-hand free energy(cash) one.   Anecdotal at best I'd guess.

'nuff for now,

 -Steve

On 1/30/21 4:19 AM, David Eric Smith wrote:

So I have been watching this, and it looks just like one more wealth-concentrator on the long term, with smaller shifts in the short term that people get caught up looking at because they involve personality conflicts.

Will somebody tell me where I am wrong in the following?

1. We start with the usual state of affairs, in which hedge funds of various sizes take short positions; in what and how much depends on the capital they hold to cover the short, relative to their other options.  They are “big” actors, in the sense that decisions of individual firms can involve moderately large amounts of money.  They assume they are the full landscape of big actors, and although they act with cognizance of each other, since they are all using similar research, they do much the same thing.

2. A new “oligopolistic actor” comes in that changes the landscape of participants, which is a group of Reddit-coordinated little fish.  They can put a short squeeze on the hedge funds.  Those that took too large a position either with too little capital to cover the squeeze until it bursts, or with too little interest in this stock to be willing to take much of a loss on it, will sell off at a loss, and the various little fish will make a little money each, but it will look like a decent chunk when you take them together.  The smaller or medium-sized hedge funds that can’t wait this out could be forced into low enough overall returns that their clients will want to withdraw from them, putting them in further trouble, perhaps driving some of them out of business.

3. Meanwhile: the oligopoly move is an ordinary pyramid scheme, and it only works as long as the pool of new buyers remains large enough to pay off the earlier buyers surfing the bubble.  Considering that relief and unemployment checks amounted to many hundreds of billions of dollars, if even a modest amount of this is in the hands of the young men who were gamers and are now stuck at home, it can look as if that bubble can continue to inflate for a while.  We might even be able to estimate, however, from the overall amount of free money spent into the system, and the part of the public that this young-male demographic accounts for, what the potential size of total gambling capital is for this thing.

4. While attention is on the oligopoly of small fish, and the unprepared mid-sized or small hedge funds that might go bankrupt, there are always larger actors who are well capitalized and can wait out bubbles.  They may not have taken positions in this before, when it wasn’t all that interesting, but now seeing that there is a bubble afoot, they had a reason to get in and go short early.  They can outlast the short squeeze, and have a reason to do so because of point 5 (next):

5. The pyramid will end when the new buyers are exhausted, and that will be the end of any power for the little-fish oligopoly.  At that point everybody who is leveraged will be underwater.  Because a lot of this money was in options, the unwinding will be very fast, much faster than if it were just driven by a sell-off of the underlying.  The last wave of buyers in will lose essentially whatever they spent.  Whichever little fish happened to get out of the bubble before that will collect some of the money from that last wave, and the larger hedge funds who were waiting out the short squeeze will then collect the rest.

So, when the dust settles, the net effect?  Some money will have changed hands in a quasi-random way, from many small fish who gambled the rent and couldn’t afford to lose it, to a smaller number of other small fish who will collect at varying multiples, but still not enough to meaningfully alter their life trajectories.  The Reddit board-makers might collect enough to happily go on to the next scam, but they will not be breaking into any Forbes lists.  However, in the net, there will have been a flow of money out of both the oligopoly of small fish and the small or mid-sized hedge funds that didn’t see it coming, and into the wealth of the large funds.  In addition to the direct winnings of the large players, because their returns to their clients will go up, they will collect new clients that jumped ship from the hedge funds that bought back out of the short squeeze at a loss.  

So the macro-thing that will happen is the macro-thing that happens through every other mechanism: whoever has the most capital can wait out the largest spectrum of risks, and will on average gain more capital.  This is the ratchet that works through everything.  It is not a Fama-French efficient market mechanism, because it works through differential action of constraints, not through Arrow-Debreu “complete” price systems.  It is not quite the same, but still related to, the bubble-bailout cycles that I have termed Minsky’s Ratchet, from the arguments made by Hyman Minsky in Stabilizing an Unstable Economy.

https://www.amazon.com/Stabilizing-Unstable-Economy-Hyman-Minsky/dp/0071592997

For AOC to be seeking media attention, when there was an early trading freeze, to criticize the hedge funds for looking for protection against the oligopoly doesn’t surprise me, because this is a culture-war thing and responding in the moment to that is what she does.  But for Warren (Elizabeth, not Buffett) to allow that to be her caught-on-camera moment surprises me, and seems regrettable.  Yes, EW is as motivated as AOC to criticize the use of access by the hedge funds to seek protection when they get beat at their own game, and both are right to mock them and welcome them to go under.  But EW’s career has been about how the ratchet of unequal capital constraints moves capital from the small to the large, and if what I said above is correct, I would assume this would be the biggest picture in her view.  In the long term, the people who will get hurt mainly are just the people she has made a profession of trying to protect.  I would think she would want her on-camera moment to be about not getting distracted from that, and worrying that, yes, market regulations and taxation that encourage game-of-chicken gambling are The Urgent — and structural — Problem.  Whether some gambling hedge funds get caught and go under is a sideshow.  AOC, too, of course is plenty smart to understand all this (if what I have said above is not wrong), and I expect she probably does.  (She was an econ major in college, right?). But her media incentives are a bit different, so for her to mostly emphasize the culture-war thing doesn’t seem strange.

So is the above roughly correct?  Or do I misunderstand the structure badly enough that I am drawing the wrong macro-conclusion?

Eric

On Jan 29, 2021, at 6:45 PM, uǝlƃ ↙↙↙ [hidden email] wrote:

Yep. I've logged into my TD Ameritrade account several times to see if they've limited purchases of GME. Supposedly Robinhood did limit purchases. It looked like I could always buy on TDA... but I'm not sure. I would never actually buy GME, *except* to screw The Man. 8^D

On 1/29/21 3:41 PM, Merle Lefkoff wrote:

Has anyone been watching what's happening in the stock market with GameStop?

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[thompnickson2]

Eric,

 

Thus I will have to behave like the scholar I supposedly am. 

 

Ugh.  I hate when that happens.

 

Thanks for your provocative probe.  Perhaps others will bail us out.

 

Nick

 

Nick Thompson

[hidden email]

https://wordpress.clarku.edu/nthompson/

 

From: Friam <[hidden email]> On Behalf Of David Eric Smith
Sent: Sunday, January 31, 2021 2:13 PM
To: The Friday Morning Applied Complexity Coffee Group <[hidden email]>
Subject: Re: [FRIAM] Strawman/Steelman

 

Nick, hi,

 

With apologies, it will require more of a dig than I can do soon.  A computer file system becomes meaningless when there are so many primary categories that every file is sui generis.  

 

That was why I was curious whether Komlos had come up on anyone else’s radar, and they found value in him.  I have a sense that he discusses applied problems of the sort we hear rendered well to the public by people like Robert Reich or Elizabeth Warren, though he has his own style and topics.  I think he recently wrote a textbook to serve as an alternative for Econ 101; more phenomenological and application-oriented, and less siloed within General Equilibrium paradigms.  More street, and less priesthood.  Me llaman Calle en mi noblessa….

 

Apologies that I am not able to do better today,

 

Eric

 

On Jan 31, 2021, at 12:34 PM, <[hidden email]> <[hidden email]> wrote:

 

Eric,

 

Do you mean perhaps the radical idea that economic individuals are capable of making collective decisions?   That there are higher order interactions amongst economic particles?  Gosh.  What a thought! 

 

Doesn’t the whole weight of economic theory collapse if we let that idea in? 

 

Can you give us a slightly firmer push toward Komlos  … a paper you have liked, perhaps.  I stipulate that I am lazy.

 

Nick

 

Nick Thompson

[hidden email]

https://wordpress.clarku.edu/nthompson/

 

From: Friam <[hidden email]> On Behalf Of David Eric Smith
Sent: Sunday, January 31, 2021 7:30 AM
To: The Friday Morning Applied Complexity Coffee Group <[hidden email]>
Subject: Re: [FRIAM] Strawman/Steelman

 

Merle, 

 

Are you or any others on this list receiving missives from John Komlos?  And if so, what do you think?  I think there is a new online textbook that Sam Bowles is somehow involved with, but I am forgetting details.  I think Komlos advocates for that one, though he is more a peer of Sam’s group than a member.  There is a similarity in their style of argument about what economics has been willfully ignoring, and should start to incorporate.

 

Best,

 

Eric

 

On Jan 30, 2021, at 1:36 PM, Merle Lefkoff <[hidden email]> wrote:

 

Thank you Steve, and especially Eric.  As I study new economic models for the real economy, such as the "circular economy" and the "doughnut economy", I am also paying more attention to the financial economy and especially the wild and wooly stock market.  I know it's unsustainable, but my hopes are constantly dashed every time I think it's going to crash and it demonstrates its robustness once more.

 

On Sat, Jan 30, 2021 at 10:56 AM Steve Smith <[hidden email]> wrote:

Eric -

You lay this out so well. 

Some random observations.

1. Minsky's Ratchet is very compelling as an explanation.  As we know I'm a sucker for understanding by analogy with mechanical technology as a common source domain.  I *think* Minsky's Ratchet is a correlate of what you later call game-of-chicken gambling?   It was the first applied (discrete) math problem I remember being offered at college...   that among the myriad "rich-get-richer" mechanisms, the "empty pockets ratchet" is a big one...  a fair game generates a random walk which ultimately ends when one players pockets are empty... the smaller pockets (esp. by orders of magnitude) almost always go empty first.  "It's ratchets, levers, wheels, and connecting rods all the way down?"  
2. I was caught off guard by your coining "an oligopoly of little fish", my usual binding of oligopoly to "a small number", but your point of course, and the crux of the event, is that the "little fish" schooled effectively, as if an apex predator-shark wandered too far up the Amazon and encountered a school of pirahna.  The culture-war story, of course is a combination of the "underdog" and the caution of the potential of "collective action"...   as you point out, this one encounter may indicate that a few sharks may yet get stripped of flesh by schools of tiny fish, but there is no indication that they will lose their niche in the oceans and reefs to such.
3. Your tentative analysis of EW and AOC also really struck me as I (contingently) hold them both up as culture-war heroes to the underdogs I regularly cheer for.  I don't feel I have my own dog in either of their fights, but the larger culture I want to live within (with various forms of assertive equality and equanimity) is the one I try to support as best I can.  I am more implicated as a cause of their causes than a victim.  Understanding EW and AOC more better seems to me to be important in pursuing my aspirations to undermine my own undue advantages.   I suppose I "expect more" of EW as a veteran, as a scholar, as a senior statesperson, and I accept AOC's decision to play to her strengths (emotional appeals in the culture war) but also appreciate her having a little deeper intellectual stake (BA in Econ?) than her affect/appearance suggests.   I understand (but do not sympathize with) the olde guarde in congress being acutely skeered of getting double teamed by AOC and Katy Porter.   I look forward to more of those "wild kingdom" takedowns on CSPAN.   I don't think badly of EW's role/position, just disappointed that she might not be achieving her full potential?
4. Your practical description of the "pyramid scheme" and "exhaustion" are a very good thumbnail for where I think this is going myself.   I suppose there IS a chance that a new species of oligopolist will emerge in the form of swarms (school, flock, pack, ...), but I don't think we are at the edge of a phase change yet.  I'm not sure if all significant radiation events are paired with extinction events?  
5. Someone made a slightly different correlation than the COVID stay-at-home free-time-to-conspire on Reddit with a COVID stimulus-check-in-hand free energy(cash) one.   Anecdotal at best I'd guess.

'nuff for now,

 -Steve

On 1/30/21 4:19 AM, David Eric Smith wrote:

So I have been watching this, and it looks just like one more wealth-concentrator on the long term, with smaller shifts in the short term that people get caught up looking at because they involve personality conflicts.

Will somebody tell me where I am wrong in the following?

1. We start with the usual state of affairs, in which hedge funds of various sizes take short positions; in what and how much depends on the capital they hold to cover the short, relative to their other options.  They are “big” actors, in the sense that decisions of individual firms can involve moderately large amounts of money.  They assume they are the full landscape of big actors, and although they act with cognizance of each other, since they are all using similar research, they do much the same thing.

2. A new “oligopolistic actor” comes in that changes the landscape of participants, which is a group of Reddit-coordinated little fish.  They can put a short squeeze on the hedge funds.  Those that took too large a position either with too little capital to cover the squeeze until it bursts, or with too little interest in this stock to be willing to take much of a loss on it, will sell off at a loss, and the various little fish will make a little money each, but it will look like a decent chunk when you take them together.  The smaller or medium-sized hedge funds that can’t wait this out could be forced into low enough overall returns that their clients will want to withdraw from them, putting them in further trouble, perhaps driving some of them out of business.

3. Meanwhile: the oligopoly move is an ordinary pyramid scheme, and it only works as long as the pool of new buyers remains large enough to pay off the earlier buyers surfing the bubble.  Considering that relief and unemployment checks amounted to many hundreds of billions of dollars, if even a modest amount of this is in the hands of the young men who were gamers and are now stuck at home, it can look as if that bubble can continue to inflate for a while.  We might even be able to estimate, however, from the overall amount of free money spent into the system, and the part of the public that this young-male demographic accounts for, what the potential size of total gambling capital is for this thing.

4. While attention is on the oligopoly of small fish, and the unprepared mid-sized or small hedge funds that might go bankrupt, there are always larger actors who are well capitalized and can wait out bubbles.  They may not have taken positions in this before, when it wasn’t all that interesting, but now seeing that there is a bubble afoot, they had a reason to get in and go short early.  They can outlast the short squeeze, and have a reason to do so because of point 5 (next):

5. The pyramid will end when the new buyers are exhausted, and that will be the end of any power for the little-fish oligopoly.  At that point everybody who is leveraged will be underwater.  Because a lot of this money was in options, the unwinding will be very fast, much faster than if it were just driven by a sell-off of the underlying.  The last wave of buyers in will lose essentially whatever they spent.  Whichever little fish happened to get out of the bubble before that will collect some of the money from that last wave, and the larger hedge funds who were waiting out the short squeeze will then collect the rest.

So, when the dust settles, the net effect?  Some money will have changed hands in a quasi-random way, from many small fish who gambled the rent and couldn’t afford to lose it, to a smaller number of other small fish who will collect at varying multiples, but still not enough to meaningfully alter their life trajectories.  The Reddit board-makers might collect enough to happily go on to the next scam, but they will not be breaking into any Forbes lists.  However, in the net, there will have been a flow of money out of both the oligopoly of small fish and the small or mid-sized hedge funds that didn’t see it coming, and into the wealth of the large funds.  In addition to the direct winnings of the large players, because their returns to their clients will go up, they will collect new clients that jumped ship from the hedge funds that bought back out of the short squeeze at a loss.  

So the macro-thing that will happen is the macro-thing that happens through every other mechanism: whoever has the most capital can wait out the largest spectrum of risks, and will on average gain more capital.  This is the ratchet that works through everything.  It is not a Fama-French efficient market mechanism, because it works through differential action of constraints, not through Arrow-Debreu “complete” price systems.  It is not quite the same, but still related to, the bubble-bailout cycles that I have termed Minsky’s Ratchet, from the arguments made by Hyman Minsky in Stabilizing an Unstable Economy.

https://www.amazon.com/Stabilizing-Unstable-Economy-Hyman-Minsky/dp/0071592997

For AOC to be seeking media attention, when there was an early trading freeze, to criticize the hedge funds for looking for protection against the oligopoly doesn’t surprise me, because this is a culture-war thing and responding in the moment to that is what she does.  But for Warren (Elizabeth, not Buffett) to allow that to be her caught-on-camera moment surprises me, and seems regrettable.  Yes, EW is as motivated as AOC to criticize the use of access by the hedge funds to seek protection when they get beat at their own game, and both are right to mock them and welcome them to go under.  But EW’s career has been about how the ratchet of unequal capital constraints moves capital from the small to the large, and if what I said above is correct, I would assume this would be the biggest picture in her view.  In the long term, the people who will get hurt mainly are just the people she has made a profession of trying to protect.  I would think she would want her on-camera moment to be about not getting distracted from that, and worrying that, yes, market regulations and taxation that encourage game-of-chicken gambling are The Urgent — and structural — Problem.  Whether some gambling hedge funds get caught and go under is a sideshow.  AOC, too, of course is plenty smart to understand all this (if what I have said above is not wrong), and I expect she probably does.  (She was an econ major in college, right?). But her media incentives are a bit different, so for her to mostly emphasize the culture-war thing doesn’t seem strange.

So is the above roughly correct?  Or do I misunderstand the structure badly enough that I am drawing the wrong macro-conclusion?

Eric

On Jan 29, 2021, at 6:45 PM, uǝlƃ ↙↙↙ [hidden email] wrote:

Yep. I've logged into my TD Ameritrade account several times to see if they've limited purchases of GME. Supposedly Robinhood did limit purchases. It looked like I could always buy on TDA... but I'm not sure. I would never actually buy GME, *except* to screw The Man. 8^D

On 1/29/21 3:41 PM, Merle Lefkoff wrote:

Has anyone been watching what's happening in the stock market with GameStop?

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mobile:  [phone]
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[Stephen Guerin-5]

"Me llaman calle es mi nobleza." Dig it :-)
https://www.youtube.com/watch?v=2j7G4vxoDF8

On Sun, Jan 31, 2021 at 1:13 PM David Eric Smith <[hidden email]> wrote:

Nick, hi,

With apologies, it will require more of a dig than I can do soon.  A computer file system becomes meaningless when there are so many primary categories that every file is sui generis.  

That was why I was curious whether Komlos had come up on anyone else’s radar, and they found value in him.  I have a sense that he discusses applied problems of the sort we hear rendered well to the public by people like Robert Reich or Elizabeth Warren, though he has his own style and topics.  I think he recently wrote a textbook to serve as an alternative for Econ 101; more phenomenological and application-oriented, and less siloed within General Equilibrium paradigms.  More street, and less priesthood.  Me llaman Calle en mi noblessa….

Apologies that I am not able to do better today,

Eric

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[David Eric Smith]

Yes, thanks SteveG.

If there is ever a post from me that is not rife with errors of spelling and memory, you will know I have been replaced by an imposter.

E

On Jan 31, 2021, at 3:46 PM, Stephen Guerin <[hidden email]> wrote:

"Me llaman calle es mi nobleza." Dig it :-)
https://www.youtube.com/watch?v=2j7G4vxoDF8

On Sun, Jan 31, 2021 at 1:13 PM David Eric Smith <[hidden email]> wrote:

Nick, hi,

With apologies, it will require more of a dig than I can do soon.  A computer file system becomes meaningless when there are so many primary categories that every file is sui generis.  

That was why I was curious whether Komlos had come up on anyone else’s radar, and they found value in him.  I have a sense that he discusses applied problems of the sort we hear rendered well to the public by people like Robert Reich or Elizabeth Warren, though he has his own style and topics.  I think he recently wrote a textbook to serve as an alternative for Econ 101; more phenomenological and application-oriented, and less siloed within General Equilibrium paradigms.  More street, and less priesthood.  Me llaman Calle en mi noblessa….

Apologies that I am not able to do better today,

Eric

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[Stephen Guerin-5]

On Sun, Jan 31, 2021 at 2:04 PM David Eric Smith <[hidden email]> wrote:

Yes, thanks SteveG.

If there is ever a post from me that is not rife with errors of spelling and memory, you will know I have been replaced by an imposter.

E

Impostor! 

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[Steve Smith]

Tres Malegria!

On Sun, Jan 31, 2021 at 2:04 PM David Eric Smith <[hidden email]> wrote:

Yes, thanks SteveG.

If there is ever a post from me that is not rife with errors of spelling and memory, you will know I have been replaced by an imposter.

E

Impostor! 

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[Marcus G. Daniels]

It’s a serious problem!   In addition to tagging all of the subject lines with 8 digit alphanumeric codes to inform the reader particular changes in tone and content, I think there really is no excuse for not having complete bibtex references and HTML rendering with tex4ht.   I think MathML generation is even possible through lualatex now!   (I suspect EricS secretly feels guilty he doesn’t do something like this for each and every post.)

 

From: Friam <[hidden email]> On Behalf Of David Eric Smith
Sent: Sunday, January 31, 2021 1:05 PM
To: The Friday Morning Applied Complexity Coffee Group <[hidden email]>
Subject: Re: [FRIAM] Song of the Day: Manu Chao - Me Llaman Calle Re: Strawman/Steelman

 

Yes, thanks SteveG.

 

If there is ever a post from me that is not rife with errors of spelling and memory, you will know I have been replaced by an imposter.

 

E

 

On Jan 31, 2021, at 3:46 PM, Stephen Guerin <[hidden email]> wrote:

 

"Me llaman calle es mi nobleza." Dig it :-)
https://www.youtube.com/watch?v=2j7G4vxoDF8

 

 

 

On Sun, Jan 31, 2021 at 1:13 PM David Eric Smith <[hidden email]> wrote:

Nick, hi,

 

With apologies, it will require more of a dig than I can do soon.  A computer file system becomes meaningless when there are so many primary categories that every file is sui generis.  

 

That was why I was curious whether Komlos had come up on anyone else’s radar, and they found value in him.  I have a sense that he discusses applied problems of the sort we hear rendered well to the public by people like Robert Reich or Elizabeth Warren, though he has his own style and topics.  I think he recently wrote a textbook to serve as an alternative for Econ 101; more phenomenological and application-oriented, and less siloed within General Equilibrium paradigms.  More street, and less priesthood.  Me llaman Calle en mi noblessa….

 

Apologies that I am not able to do better today,

 

Eric

 

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[gepr]

Whew! What a firehose. I do think there's a couple of fundamentals that are missed in your summary. It's touched on later in SteveS', Marcus', Roger's, and your own replies. But it isn't highlighted. So, I'd like to do that.

What *I* care about, here, is the thing Robinhood (even if backed by the hyper-elite Citadel) explicitly targets, access (and insight in-) to the playing field by the populace. This episode demonstrates that social media (for all the issues we have with it like American Insurrection and QAnon) is a participant. It's trivial for a moron like me to toss some extra cash into my Roth and play around with it. What's not so trivial is grokking the various technologies involved. If nothing else, this episode cracks open relatively mysterious things like the DTCC. (Or any of the details laid out in the thread.)

I think it's a bit hyperbolic to assert that rhetoric from people like AOC and EW is limited to "culture war". Sure, they rely on tribal identity. But they, literally, cannot speak and act like objective scientists. Its not what we pay them to do. That's not where their skills lie. (Maybe Warren a little more, but she's still a politician... is paid as a politician... was hired as a politician.) As politicians, they're coming at it, as they should.

Interpersonally, the whole thread (except maybe for the later part about opting out of NIH research and competitive collectives) seems to *assume* the only reason someone would purchase stock is to make a profit. And that's interesting, to me, because I've never bought stock to make a profit. I view it as loaning the company (my) money. The companies I think are doing good things get my money. The ones that aren't do not. [⛧] I'm privileged to do this because I don't have enough money for it to matter, at all. I briefly entertained buying GME, fully knowing I would be throwing that cash in the trash. But I don't care enough about the company and what it does.

Those 2 things seem to be missing from the thread, which is probably dead now, anyway. But the 1st is more important. Robinhood, especially by limiting trades and the Melvin bailout by Citadel, has shed a little light on the bureaucratic machinery involved. And that's a good thing, no matter which perspective you take. Those boils need some popping.


[⛧] Well, I also loan money to Evil corps so that they mail me their annual reports and I can attend their shareholder meetings. But, again, it's not an investment.

On 1/30/21 3:19 AM, David Eric Smith wrote:
> So is the above roughly correct?  Or do I misunderstand the structure badly enough that I am drawing the wrong macro-conclusion?

--
↙↙↙ uǝlƃ

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[jon zingale]

I don't have much to contribute here as finance has always eluded me. A
couple of years ago, a researcher friend of mine turned me on to
Quantopian[$]. I had always meant to get involved because their model seemed
interesting. One develops a trading algorithm, Quantopian paper trades using
the algorithm for some amount of time, if the algorithm makes a profit then
trade goes live, the author making some percentage of the profit. It seemed
like a pretty cool setup for analysts to develop theories and algorithms. It
is funny to me that they were recently purchased by Robinhood.

My conspiratorial homunculus cannot help but wonder whether the instigators
on Reddit were not part of such an organization in the first place. Even if
not, perhaps it will be a useful strategy for the biggest guys in the
future. As EricS points out, the strategy ultimately benefits the biggest of
the big guys. A couple of years ago, Seth Lloyd gave a pretty cool Ulam
Lecture on related mechanics. The metaphor seemed to connect the transfer of
wealth between institutions to the transfer of matter between celestial
bodies[₤].

"We are the dollars and cents, the pounds and pence. We're going to crack
your little souls, crack your little souls." - Thom Yorke

[$] https://en.wikipedia.org/wiki/Quantopian
[₤] https://www.youtube.com/watch?v=5He7bYM7beM&ab_channel=SantaFeInstitute



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