2016 : WHAT DO YOU CONSIDER THE MOST INTERESTING RECENT [SCIENTIFIC] NEWS? WHAT MAKES IT IMPORTANT? [1]

michael_vassar's picture [5]
Co-founder and Chief Science Officer, MetaMed Research
Broke People Ignoring $20 Bills On The Sidewalk

It's not every year that Edge echoes South Park. I guess everyone's trying to figure out what's real right now. The 2015 South Park season revolved around people losing the ability to distinguish between news and advertising. One day, they wake up broke, at war, and unable to easily distinguish friend from foe. News, as a concept, is gone. Science, as a concept, is gone. In information warfare, the assumption that reliable, low-context communication is even possible recedes into fantasy, taking with it both news and science and replacing them with politics and marketing. I think that the real news, viewed from behind the new, extra-strength Veil of Maya, is what you think you see with your own eyes AND have checked out against the analytic parts of the scholarly literature. Here's what I've got.

Last November, I was visiting Francisco Marroquin University in Guatemala (UFM), which is known primarily for being the most Libertarian University in the world. While there, on the floor of the economics department, my co-conspirator found local currency worth almost exactly twenty US dollars. Technically, the money wasn't visible from the sidewalk, but the signs announcing gasoline prices clearly are. In the last few years, I have observed those prices decoupling, both from the price of oil and from one another, whether across town or even across the street. Growing up, I always noticed whether the gas prices on opposite sides of the road differed by one, two, or sometimes even three cents. Today, such prices typically differ by more like twenty cents. I recently saw two stations across the street from one another with prices differing by $.36/gallon and two stations a mile apart charging respectively $2.49/gallon and $3.86/gallon. For a median American driver, $.20/gallon, invested at historically normal rates of return, would add up to about $1500 over the next decade. Median retirement savings for families aged 55-64 is only $15,000, and for families with retirement accounts, median savings are still only $150,000.

I'm OK with people not behaving like Homo Economicus, but if broke people are becoming less economically rational with time, this suggests that people don't feel that they can predict the future in basic respects. That they aren't relying on savings to provide for their basic needs. Who can blame them for financial recklessness? Theory, as well as practice, tells us that their leaders have been setting an ever worse example for generations.

Financial economics provides the analytic literature on economic caution and risk. In 1987, Larry Summers & Brad DeLong showed that given a risk premium, a standard assumption in financial economics, irrational noise traders crowd out rational actors over time. When Peter Thiel talks about the shift from "concrete optimism" to "abstract optimism”; I think that he is characterizing the pattern that is selected for by this dynamic. This shift towards noise trading inflates equity prices, concentrates wealth, and causes more speculative assets to command higher prices each decade than similarly speculative assets would have commanded in the previous decade. With 84 percent of corporate valuations now taking the form of intangibles, up from 16 percent forty years ago—that sounds like the world I see around me. The overall divergence of map from territory in economic settings ultimately means the annihilation of strategy as we know it for most people, making apparent economic prudence a predictably loosing strategy, which means that in the long run, if we can’t figure out a better way to aggregate local economic information, we won’t have the patience to effectively use that information.