Comments on: Chasing the Dragon http://emergentfool.com/2009/02/24/chasing-the-dragon/ ...explorations in complex adaptive systems... Thu, 09 Sep 2010 12:29:42 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Stability Through Instability « The Emergent Fool http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1773 Stability Through Instability « The Emergent Fool Sun, 26 Apr 2009 16:10:05 +0000 http://emergentfool.com/?p=1087#comment-1773 [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...] [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...]

]]> By: Complexity Economics « The Emergent Fool http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1772 Complexity Economics « The Emergent Fool Sun, 01 Mar 2009 05:34:14 +0000 http://emergentfool.com/?p=1087#comment-1772 [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...] [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...]

]]> By: rafefurst http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1778 rafefurst Wed, 25 Feb 2009 19:33:38 +0000 http://emergentfool.com/?p=1087#comment-1778 I would be interested in seeing the research you refer to. [ps, I fixed the reference error.] I would be interested in seeing the research you refer to.

[ps, I fixed the reference error.]

]]> By: kevindick http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1777 kevindick Wed, 25 Feb 2009 18:28:30 +0000 http://emergentfool.com/?p=1087#comment-1777 We already have a pretty good framework of liability, banking, and securities laws to prevent this. I'd rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There's been some research to show that this works. This typically means you have "spirit of the law" rather than "letter of the law" regulations. We already have a pretty good framework of liability, banking, and securities laws to prevent this.

I’d rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There’s been some research to show that this works. This typically means you have “spirit of the law” rather than “letter of the law” regulations.

]]> By: rafefurst http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1776 rafefurst Wed, 25 Feb 2009 08:21:37 +0000 http://emergentfool.com/?p=1087#comment-1776 I like the countercyclical concept, but I wonder if the certainty doesn't lead it open to gaming ipso facto. For instance, under the above regime, it doesn't make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it. This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though. I like the countercyclical concept, but I wonder if the certainty doesn’t lead it open to gaming ipso facto.

For instance, under the above regime, it doesn’t make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it.

This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though.

]]> By: kevindick http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1775 kevindick Wed, 25 Feb 2009 03:57:59 +0000 http://emergentfool.com/?p=1087#comment-1775 Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article. As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology. IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It's important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people's expectations that just makes things worse. For example: - We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don't bother asking. Goodbye. - For, financial institutions, here's what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you. - Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero). - Here is the schedule by which we extend unemployment benefits in response to the unemployment rate. - If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction. Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article.

As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology.

IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It’s important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people’s expectations that just makes things worse.

For example:

- We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don’t bother asking. Goodbye.

- For, financial institutions, here’s what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you.

- Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero).

- Here is the schedule by which we extend unemployment benefits in response to the unemployment rate.

- If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction.

]]> By: Jill B. http://emergentfool.com/2009/02/24/chasing-the-dragon/ ...explorations in complex adaptive systems... Thu, 09 Sep 2010 12:29:42 +0000 http://wordpress.org/?v=2.9.2 hourly 1 Comments on: Chasing the Dragon http://emergentfool.com/2009/02/24/chasing-the-dragon/ ...explorations in complex adaptive systems... Thu, 09 Sep 2010 12:29:42 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Stability Through Instability « The Emergent Fool http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1773 Stability Through Instability « The Emergent Fool Sun, 26 Apr 2009 16:10:05 +0000 http://emergentfool.com/?p=1087#comment-1773 [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...] [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...]

]]> By: Complexity Economics « The Emergent Fool http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1772 Complexity Economics « The Emergent Fool Sun, 01 Mar 2009 05:34:14 +0000 http://emergentfool.com/?p=1087#comment-1772 [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...] [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...]

]]> By: rafefurst http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1778 rafefurst Wed, 25 Feb 2009 19:33:38 +0000 http://emergentfool.com/?p=1087#comment-1778 I would be interested in seeing the research you refer to. [ps, I fixed the reference error.] I would be interested in seeing the research you refer to.

[ps, I fixed the reference error.]

]]> By: kevindick http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1777 kevindick Wed, 25 Feb 2009 18:28:30 +0000 http://emergentfool.com/?p=1087#comment-1777 We already have a pretty good framework of liability, banking, and securities laws to prevent this. I'd rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There's been some research to show that this works. This typically means you have "spirit of the law" rather than "letter of the law" regulations. We already have a pretty good framework of liability, banking, and securities laws to prevent this.

I’d rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There’s been some research to show that this works. This typically means you have “spirit of the law” rather than “letter of the law” regulations.

]]> By: rafefurst http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1776 rafefurst Wed, 25 Feb 2009 08:21:37 +0000 http://emergentfool.com/?p=1087#comment-1776 I like the countercyclical concept, but I wonder if the certainty doesn't lead it open to gaming ipso facto. For instance, under the above regime, it doesn't make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it. This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though. I like the countercyclical concept, but I wonder if the certainty doesn’t lead it open to gaming ipso facto.

For instance, under the above regime, it doesn’t make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it.

This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though.

]]> By: kevindick http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1775 kevindick Wed, 25 Feb 2009 03:57:59 +0000 http://emergentfool.com/?p=1087#comment-1775 Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article. As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology. IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It's important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people's expectations that just makes things worse. For example: - We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don't bother asking. Goodbye. - For, financial institutions, here's what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you. - Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero). - Here is the schedule by which we extend unemployment benefits in response to the unemployment rate. - If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction. Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article.

As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology.

IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It’s important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people’s expectations that just makes things worse.

For example:

- We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don’t bother asking. Goodbye.

- For, financial institutions, here’s what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you.

- Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero).

- Here is the schedule by which we extend unemployment benefits in response to the unemployment rate.

- If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction.

]]> By: Jill B. http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1773 Stability Through Instability « The Emergent Fool Sun, 26 Apr 2009 16:10:05 +0000 http://emergentfool.com/?p=1087#comment-1773 [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...] [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...]

]]> Comments on: Chasing the Dragon http://emergentfool.com/2009/02/24/chasing-the-dragon/ ...explorations in complex adaptive systems... Thu, 09 Sep 2010 12:29:42 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Stability Through Instability « The Emergent Fool http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1773 Stability Through Instability « The Emergent Fool Sun, 26 Apr 2009 16:10:05 +0000 http://emergentfool.com/?p=1087#comment-1773 [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...] [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...]

]]> By: Complexity Economics « The Emergent Fool http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1772 Complexity Economics « The Emergent Fool Sun, 01 Mar 2009 05:34:14 +0000 http://emergentfool.com/?p=1087#comment-1772 [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...] [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...]

]]> By: rafefurst http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1778 rafefurst Wed, 25 Feb 2009 19:33:38 +0000 http://emergentfool.com/?p=1087#comment-1778 I would be interested in seeing the research you refer to. [ps, I fixed the reference error.] I would be interested in seeing the research you refer to.

[ps, I fixed the reference error.]

]]> By: kevindick http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1777 kevindick Wed, 25 Feb 2009 18:28:30 +0000 http://emergentfool.com/?p=1087#comment-1777 We already have a pretty good framework of liability, banking, and securities laws to prevent this. I'd rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There's been some research to show that this works. This typically means you have "spirit of the law" rather than "letter of the law" regulations. We already have a pretty good framework of liability, banking, and securities laws to prevent this.

I’d rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There’s been some research to show that this works. This typically means you have “spirit of the law” rather than “letter of the law” regulations.

]]> By: rafefurst http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1776 rafefurst Wed, 25 Feb 2009 08:21:37 +0000 http://emergentfool.com/?p=1087#comment-1776 I like the countercyclical concept, but I wonder if the certainty doesn't lead it open to gaming ipso facto. For instance, under the above regime, it doesn't make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it. This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though. I like the countercyclical concept, but I wonder if the certainty doesn’t lead it open to gaming ipso facto.

For instance, under the above regime, it doesn’t make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it.

This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though.

]]> By: kevindick http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1775 kevindick Wed, 25 Feb 2009 03:57:59 +0000 http://emergentfool.com/?p=1087#comment-1775 Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article. As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology. IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It's important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people's expectations that just makes things worse. For example: - We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don't bother asking. Goodbye. - For, financial institutions, here's what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you. - Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero). - Here is the schedule by which we extend unemployment benefits in response to the unemployment rate. - If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction. Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article.

As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology.

IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It’s important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people’s expectations that just makes things worse.

For example:

- We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don’t bother asking. Goodbye.

- For, financial institutions, here’s what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you.

- Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero).

- Here is the schedule by which we extend unemployment benefits in response to the unemployment rate.

- If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction.

]]> By: Jill B. http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1772 Complexity Economics « The Emergent Fool Sun, 01 Mar 2009 05:34:14 +0000 http://emergentfool.com/?p=1087#comment-1772 [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...] [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...]

]]> Comments on: Chasing the Dragon http://emergentfool.com/2009/02/24/chasing-the-dragon/ ...explorations in complex adaptive systems... Thu, 09 Sep 2010 12:29:42 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Stability Through Instability « The Emergent Fool http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1773 Stability Through Instability « The Emergent Fool Sun, 26 Apr 2009 16:10:05 +0000 http://emergentfool.com/?p=1087#comment-1773 [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...] [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...]

]]> By: Complexity Economics « The Emergent Fool http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1772 Complexity Economics « The Emergent Fool Sun, 01 Mar 2009 05:34:14 +0000 http://emergentfool.com/?p=1087#comment-1772 [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...] [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...]

]]> By: rafefurst http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1778 rafefurst Wed, 25 Feb 2009 19:33:38 +0000 http://emergentfool.com/?p=1087#comment-1778 I would be interested in seeing the research you refer to. [ps, I fixed the reference error.] I would be interested in seeing the research you refer to.

[ps, I fixed the reference error.]

]]> By: kevindick http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1777 kevindick Wed, 25 Feb 2009 18:28:30 +0000 http://emergentfool.com/?p=1087#comment-1777 We already have a pretty good framework of liability, banking, and securities laws to prevent this. I'd rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There's been some research to show that this works. This typically means you have "spirit of the law" rather than "letter of the law" regulations. We already have a pretty good framework of liability, banking, and securities laws to prevent this.

I’d rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There’s been some research to show that this works. This typically means you have “spirit of the law” rather than “letter of the law” regulations.

]]> By: rafefurst http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1776 rafefurst Wed, 25 Feb 2009 08:21:37 +0000 http://emergentfool.com/?p=1087#comment-1776 I like the countercyclical concept, but I wonder if the certainty doesn't lead it open to gaming ipso facto. For instance, under the above regime, it doesn't make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it. This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though. I like the countercyclical concept, but I wonder if the certainty doesn’t lead it open to gaming ipso facto.

For instance, under the above regime, it doesn’t make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it.

This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though.

]]> By: kevindick http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1775 kevindick Wed, 25 Feb 2009 03:57:59 +0000 http://emergentfool.com/?p=1087#comment-1775 Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article. As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology. IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It's important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people's expectations that just makes things worse. For example: - We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don't bother asking. Goodbye. - For, financial institutions, here's what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you. - Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero). - Here is the schedule by which we extend unemployment benefits in response to the unemployment rate. - If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction. Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article.

As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology.

IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It’s important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people’s expectations that just makes things worse.

For example:

- We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don’t bother asking. Goodbye.

- For, financial institutions, here’s what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you.

- Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero).

- Here is the schedule by which we extend unemployment benefits in response to the unemployment rate.

- If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction.

]]> By: Jill B. http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1778 rafefurst Wed, 25 Feb 2009 19:33:38 +0000 http://emergentfool.com/?p=1087#comment-1778 I would be interested in seeing the research you refer to. [ps, I fixed the reference error.] I would be interested in seeing the research you refer to.

[ps, I fixed the reference error.]

]]> Comments on: Chasing the Dragon http://emergentfool.com/2009/02/24/chasing-the-dragon/ ...explorations in complex adaptive systems... Thu, 09 Sep 2010 12:29:42 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Stability Through Instability « The Emergent Fool http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1773 Stability Through Instability « The Emergent Fool Sun, 26 Apr 2009 16:10:05 +0000 http://emergentfool.com/?p=1087#comment-1773 [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...] [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...]

]]> By: Complexity Economics « The Emergent Fool http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1772 Complexity Economics « The Emergent Fool Sun, 01 Mar 2009 05:34:14 +0000 http://emergentfool.com/?p=1087#comment-1772 [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...] [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...]

]]> By: rafefurst http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1778 rafefurst Wed, 25 Feb 2009 19:33:38 +0000 http://emergentfool.com/?p=1087#comment-1778 I would be interested in seeing the research you refer to. [ps, I fixed the reference error.] I would be interested in seeing the research you refer to.

[ps, I fixed the reference error.]

]]> By: kevindick http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1777 kevindick Wed, 25 Feb 2009 18:28:30 +0000 http://emergentfool.com/?p=1087#comment-1777 We already have a pretty good framework of liability, banking, and securities laws to prevent this. I'd rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There's been some research to show that this works. This typically means you have "spirit of the law" rather than "letter of the law" regulations. We already have a pretty good framework of liability, banking, and securities laws to prevent this.

I’d rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There’s been some research to show that this works. This typically means you have “spirit of the law” rather than “letter of the law” regulations.

]]> By: rafefurst http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1776 rafefurst Wed, 25 Feb 2009 08:21:37 +0000 http://emergentfool.com/?p=1087#comment-1776 I like the countercyclical concept, but I wonder if the certainty doesn't lead it open to gaming ipso facto. For instance, under the above regime, it doesn't make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it. This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though. I like the countercyclical concept, but I wonder if the certainty doesn’t lead it open to gaming ipso facto.

For instance, under the above regime, it doesn’t make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it.

This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though.

]]> By: kevindick http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1775 kevindick Wed, 25 Feb 2009 03:57:59 +0000 http://emergentfool.com/?p=1087#comment-1775 Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article. As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology. IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It's important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people's expectations that just makes things worse. For example: - We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don't bother asking. Goodbye. - For, financial institutions, here's what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you. - Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero). - Here is the schedule by which we extend unemployment benefits in response to the unemployment rate. - If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction. Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article.

As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology.

IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It’s important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people’s expectations that just makes things worse.

For example:

- We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don’t bother asking. Goodbye.

- For, financial institutions, here’s what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you.

- Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero).

- Here is the schedule by which we extend unemployment benefits in response to the unemployment rate.

- If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction.

]]> By: Jill B. http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1777 kevindick Wed, 25 Feb 2009 18:28:30 +0000 http://emergentfool.com/?p=1087#comment-1777 We already have a pretty good framework of liability, banking, and securities laws to prevent this. I'd rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There's been some research to show that this works. This typically means you have "spirit of the law" rather than "letter of the law" regulations. We already have a pretty good framework of liability, banking, and securities laws to prevent this.

I’d rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There’s been some research to show that this works. This typically means you have “spirit of the law” rather than “letter of the law” regulations.

]]> Comments on: Chasing the Dragon http://emergentfool.com/2009/02/24/chasing-the-dragon/ ...explorations in complex adaptive systems... Thu, 09 Sep 2010 12:29:42 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Stability Through Instability « The Emergent Fool http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1773 Stability Through Instability « The Emergent Fool Sun, 26 Apr 2009 16:10:05 +0000 http://emergentfool.com/?p=1087#comment-1773 [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...] [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...]

]]> By: Complexity Economics « The Emergent Fool http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1772 Complexity Economics « The Emergent Fool Sun, 01 Mar 2009 05:34:14 +0000 http://emergentfool.com/?p=1087#comment-1772 [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...] [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...]

]]> By: rafefurst http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1778 rafefurst Wed, 25 Feb 2009 19:33:38 +0000 http://emergentfool.com/?p=1087#comment-1778 I would be interested in seeing the research you refer to. [ps, I fixed the reference error.] I would be interested in seeing the research you refer to.

[ps, I fixed the reference error.]

]]> By: kevindick http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1777 kevindick Wed, 25 Feb 2009 18:28:30 +0000 http://emergentfool.com/?p=1087#comment-1777 We already have a pretty good framework of liability, banking, and securities laws to prevent this. I'd rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There's been some research to show that this works. This typically means you have "spirit of the law" rather than "letter of the law" regulations. We already have a pretty good framework of liability, banking, and securities laws to prevent this.

I’d rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There’s been some research to show that this works. This typically means you have “spirit of the law” rather than “letter of the law” regulations.

]]> By: rafefurst http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1776 rafefurst Wed, 25 Feb 2009 08:21:37 +0000 http://emergentfool.com/?p=1087#comment-1776 I like the countercyclical concept, but I wonder if the certainty doesn't lead it open to gaming ipso facto. For instance, under the above regime, it doesn't make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it. This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though. I like the countercyclical concept, but I wonder if the certainty doesn’t lead it open to gaming ipso facto.

For instance, under the above regime, it doesn’t make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it.

This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though.

]]> By: kevindick http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1775 kevindick Wed, 25 Feb 2009 03:57:59 +0000 http://emergentfool.com/?p=1087#comment-1775 Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article. As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology. IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It's important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people's expectations that just makes things worse. For example: - We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don't bother asking. Goodbye. - For, financial institutions, here's what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you. - Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero). - Here is the schedule by which we extend unemployment benefits in response to the unemployment rate. - If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction. Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article.

As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology.

IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It’s important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people’s expectations that just makes things worse.

For example:

- We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don’t bother asking. Goodbye.

- For, financial institutions, here’s what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you.

- Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero).

- Here is the schedule by which we extend unemployment benefits in response to the unemployment rate.

- If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction.

]]> By: Jill B. http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1776 rafefurst Wed, 25 Feb 2009 08:21:37 +0000 http://emergentfool.com/?p=1087#comment-1776 I like the countercyclical concept, but I wonder if the certainty doesn't lead it open to gaming ipso facto. For instance, under the above regime, it doesn't make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it. This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though. I like the countercyclical concept, but I wonder if the certainty doesn’t lead it open to gaming ipso facto.

For instance, under the above regime, it doesn’t make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it.

This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though.

]]> Comments on: Chasing the Dragon http://emergentfool.com/2009/02/24/chasing-the-dragon/ ...explorations in complex adaptive systems... Thu, 09 Sep 2010 12:29:42 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Stability Through Instability « The Emergent Fool http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1773 Stability Through Instability « The Emergent Fool Sun, 26 Apr 2009 16:10:05 +0000 http://emergentfool.com/?p=1087#comment-1773 [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...] [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...]

]]> By: Complexity Economics « The Emergent Fool http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1772 Complexity Economics « The Emergent Fool Sun, 01 Mar 2009 05:34:14 +0000 http://emergentfool.com/?p=1087#comment-1772 [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...] [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...]

]]> By: rafefurst http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1778 rafefurst Wed, 25 Feb 2009 19:33:38 +0000 http://emergentfool.com/?p=1087#comment-1778 I would be interested in seeing the research you refer to. [ps, I fixed the reference error.] I would be interested in seeing the research you refer to.

[ps, I fixed the reference error.]

]]> By: kevindick http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1777 kevindick Wed, 25 Feb 2009 18:28:30 +0000 http://emergentfool.com/?p=1087#comment-1777 We already have a pretty good framework of liability, banking, and securities laws to prevent this. I'd rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There's been some research to show that this works. This typically means you have "spirit of the law" rather than "letter of the law" regulations. We already have a pretty good framework of liability, banking, and securities laws to prevent this.

I’d rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There’s been some research to show that this works. This typically means you have “spirit of the law” rather than “letter of the law” regulations.

]]> By: rafefurst http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1776 rafefurst Wed, 25 Feb 2009 08:21:37 +0000 http://emergentfool.com/?p=1087#comment-1776 I like the countercyclical concept, but I wonder if the certainty doesn't lead it open to gaming ipso facto. For instance, under the above regime, it doesn't make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it. This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though. I like the countercyclical concept, but I wonder if the certainty doesn’t lead it open to gaming ipso facto.

For instance, under the above regime, it doesn’t make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it.

This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though.

]]> By: kevindick http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1775 kevindick Wed, 25 Feb 2009 03:57:59 +0000 http://emergentfool.com/?p=1087#comment-1775 Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article. As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology. IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It's important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people's expectations that just makes things worse. For example: - We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don't bother asking. Goodbye. - For, financial institutions, here's what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you. - Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero). - Here is the schedule by which we extend unemployment benefits in response to the unemployment rate. - If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction. Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article.

As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology.

IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It’s important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people’s expectations that just makes things worse.

For example:

- We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don’t bother asking. Goodbye.

- For, financial institutions, here’s what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you.

- Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero).

- Here is the schedule by which we extend unemployment benefits in response to the unemployment rate.

- If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction.

]]> By: Jill B. http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1775 kevindick Wed, 25 Feb 2009 03:57:59 +0000 http://emergentfool.com/?p=1087#comment-1775 Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article. As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology. IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It's important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people's expectations that just makes things worse. For example: - We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don't bother asking. Goodbye. - For, financial institutions, here's what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you. - Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero). - Here is the schedule by which we extend unemployment benefits in response to the unemployment rate. - If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction. Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article.

As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology.

IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It’s important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people’s expectations that just makes things worse.

For example:

- We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don’t bother asking. Goodbye.

- For, financial institutions, here’s what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you.

- Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero).

- Here is the schedule by which we extend unemployment benefits in response to the unemployment rate.

- If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction.

]]> Comments on: Chasing the Dragon http://emergentfool.com/2009/02/24/chasing-the-dragon/ ...explorations in complex adaptive systems... Thu, 09 Sep 2010 12:29:42 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Stability Through Instability « The Emergent Fool http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1773 Stability Through Instability « The Emergent Fool Sun, 26 Apr 2009 16:10:05 +0000 http://emergentfool.com/?p=1087#comment-1773 [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...] [...] This would suggest that any intervention which increases the stability/certainty of the system’s internal representation of itself — i.e. the beliefs of the market participants about the market — actually has the opposite effect as its intent.  Instead, it would be a better approach to induce uncertainty whenever the system seems to be settling into a “quiet” period.  This could be accomplished either by gratuitously creating a limited amount of market volatility, or by obfuscating market-related data.  Given the increasing difficulty with the latter due to technology (not to mention the fairness issues it entails), the former seems preferable.  What would this look like?  It could take many forms, including ones that appear in the comments here. [...]

]]> By: Complexity Economics « The Emergent Fool http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1772 Complexity Economics « The Emergent Fool Sun, 01 Mar 2009 05:34:14 +0000 http://emergentfool.com/?p=1087#comment-1772 [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...] [...] 28, 2009 by rafefurst In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic [...]

]]> By: rafefurst http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1778 rafefurst Wed, 25 Feb 2009 19:33:38 +0000 http://emergentfool.com/?p=1087#comment-1778 I would be interested in seeing the research you refer to. [ps, I fixed the reference error.] I would be interested in seeing the research you refer to.

[ps, I fixed the reference error.]

]]> By: kevindick http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1777 kevindick Wed, 25 Feb 2009 18:28:30 +0000 http://emergentfool.com/?p=1087#comment-1777 We already have a pretty good framework of liability, banking, and securities laws to prevent this. I'd rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There's been some research to show that this works. This typically means you have "spirit of the law" rather than "letter of the law" regulations. We already have a pretty good framework of liability, banking, and securities laws to prevent this.

I’d rather see the uncertainty put in the day-to-day regulatory regime than the bubble response regime. There’s been some research to show that this works. This typically means you have “spirit of the law” rather than “letter of the law” regulations.

]]> By: rafefurst http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1776 rafefurst Wed, 25 Feb 2009 08:21:37 +0000 http://emergentfool.com/?p=1087#comment-1776 I like the countercyclical concept, but I wonder if the certainty doesn't lead it open to gaming ipso facto. For instance, under the above regime, it doesn't make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it. This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though. I like the countercyclical concept, but I wonder if the certainty doesn’t lead it open to gaming ipso facto.

For instance, under the above regime, it doesn’t make sense to become an institution. Rather, you find a front man to aggregate all the capital and cut side agreements on how profits are split (i.e. simulate equity participation). Then you hide behind personal bankruptcy laws. This may not be the right way to game it, but the point is there will be lots of pressure and a clear target with infinite time to game it.

This is why I think that uncertainty is our friend here. We could insist that all stochastic policy changes be countercyclical in nature though.

]]> By: kevindick http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1775 kevindick Wed, 25 Feb 2009 03:57:59 +0000 http://emergentfool.com/?p=1087#comment-1775 Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article. As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology. IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It's important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people's expectations that just makes things worse. For example: - We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don't bother asking. Goodbye. - For, financial institutions, here's what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you. - Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero). - Here is the schedule by which we extend unemployment benefits in response to the unemployment rate. - If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction. Actually, the article is by Felix Salmon, not Tyler Cowen. Tyler was just the person who pointed me to the article.

As for boom and bust cycles, I certainly agree that they are inevitable in a market economy at anything near our current level of technology.

IMHO, the best thing to do is commit to a generic countercyclical plan then really stick to that plan. It’s important that it be generic and you not make case-by-case exceptions. Otherwise, you create uncertainty in people’s expectations that just makes things worse.

For example:

- We will never bail out any non financial institution. You become insolvent, you go bankrupt. Period. Full stop. Don’t bother asking. Goodbye.

- For, financial institutions, here’s what we do if you become insolvent. We wipe out all your stockholders. We convert all your bondholders to stockholders. We put you in receivership and guarantee your counterparty obligations. If you become solvent again within X amount of time and stay solvent for Y amount of time, you come our of receivership. If not, we assume your counterparty obligations and liquidate you.

- Here is the schedule by which we adjust payroll taxes in response to the GDP growth rate (far enough negative and they become zero).

- Here is the schedule by which we extend unemployment benefits in response to the unemployment rate.

- If you believe in a Keynesian multiplier on government expenditures of > 1, here is the schedule by which we increase deficit spending in respond to GDP contraction.

]]> By: Jill B. http://emergentfool.com/2009/02/24/chasing-the-dragon/#comment-1774 Jill B. Wed, 25 Feb 2009 02:52:48 +0000 http://emergentfool.com/?p=1087#comment-1774 Hi Rafe, Just noticed your blog full of interesting ideas. I think you're right about changing up the rules. I've probably already mentioned this to you, but I'll risk repetition. My gut (so far my best economic advisor) says that after the 2001 downturn was when monetary policy got out of whack with excessive monkeying around with interest rates. The interest rate lever became a reflex action, rather than a thoughtful approach to economic stability. With traditional safe haven instruments unable to produce adequate returns, the race was on for instruments that could. Credit default swaps were a natural outcome with "theoretically" low risk and good returns. From my experience, Wall Street loves to embrace theories. It's like their religion. They can't seem to really accept the randomness of financial systems (and human behavior), even though they say they believe in efficient markets. It's like an atheist with rosary beads. The market loves to put things into black box models that make sense. Before they were called quants, they were called "chartists"--those with the belief that history essentially repeats itself, trying to create order out of chaos. Life and economic systems are messy and unpredictable. That's a message that doesn't sell financial products. Hi Rafe,

Just noticed your blog full of interesting ideas. I think you’re right about changing up the rules. I’ve probably already mentioned this to you, but I’ll risk repetition. My gut (so far my best economic advisor) says that after the 2001 downturn was when monetary policy got out of whack with excessive monkeying around with interest rates. The interest rate lever became a reflex action, rather than a thoughtful approach to economic stability. With traditional safe haven instruments unable to produce adequate returns, the race was on for instruments that could. Credit default swaps were a natural outcome with “theoretically” low risk and good returns.

From my experience, Wall Street loves to embrace theories. It’s like their religion. They can’t seem to really accept the randomness of financial systems (and human behavior), even though they say they believe in efficient markets. It’s like an atheist with rosary beads.

The market loves to put things into black box models that make sense. Before they were called quants, they were called “chartists”–those with the belief that history essentially repeats itself, trying to create order out of chaos. Life and economic systems are messy and unpredictable. That’s a message that doesn’t sell financial products.

]]>