6 ms·

So the efficient market hypothesis is wrong?

by warshinder 2mo ago

rayiner 2mo ago
How is the efficient market hypothesis applicable here?
- inigyou 2mo ago
  The efficient market hypothesis, read loosely, says that capitalism is the best system. Yet here it is being thoroughly pwned by a series of 5-year plans.
  - s1artibartfast 2mo ago
    exactly zero serious people draw that connection, and it suggests that you either dont know what the term means or are constructing a strawman. Most of the economic literature for the last 150 has explored the constraints on markets and their function. The efficient market hypothesis TM is a very narrow theory about price information, it says nothing about Economic Development or Direction. It is a theoretical extreme that can be used to compare real world Systems. Further, China's success relies heavily on market processes
  - rayiner 2mo ago
    You're correct that China today is not fully capitalist, but you're using the term "5 year plan" in a way that overstates the difference with the U.S. The term "5-year plan" means different things pre- and post-Deng Xiaoping. Classic central planning was a disaster in China. In 1990, after 78 years of communist rule, China's per-capita income was comparable to India and Bangladesh. In the 1980s, Deng Xiaoping undertook market reforms which, over the next decades, turned China into an authoritarian state-capitalist country. It was widely known at the time the classic model had failed and that China was trying something different. Here's Singapore's Lee Kuan Yew talking about it early on: https://www.youtube.com/shorts/jw8wI9risfI https://www.youtube.com/shorts/jw8wI9risfI The modern Chinese system embraces Econ 101 "capitalism" in the sense that it relies on markets for price discovery. Today, the "5 year plans" are more like what we would call "industrial policy" in the west. That's different than pure capitalism, but so is the American system. Alexander Hamilton and Abraham Lincoln both advocated strong federal intervention in the economy in service of industrial policy: https://emergingamerica.org/blog/alexander-hamilton-founder-american-system https://emergingamerica.org/blog/alexander-hamilton-founder-... ("Hamilton’s plan involved the following aspects: 1) the creation of a Federally backed source of credit, the First Bank of the United States; 2) a system of tariffs, bounties, and other financial incentives or penalties to support the “essential” sectors of the U.S. economy; and 3) Federal support for developing manufactures by helping fund physical infrastructure ( transportation, in particular), regulating quality standards, and creating an institution to promote 'the prosecution and introduction of useful discoveries, inventions and improvements.'").
- warshinder 2mo ago
  Your point that “people will be gobsmacked” suggests you think you know something that the broad market does not. In a loose way, that implies the market has enough information to anticipate this but is not pricing assets accordingly. Asked another way, why not just short American assets if you are convinced of your hypothesis? Why live here, assuming you do?
  - rayiner 2mo ago
    Gotcha. I was talking about American "people" generally; I don't know enough about the financial world to know if assets are appropriately priced or not. If you're talking about investment into China versus the U.S., I assume it reflects expropriation risk.
sm-silversight 2mo ago
What do you mean, I don't follow. Also, yes, often.
baq 2mo ago
This isn’t even controversial assuming you’re talking about the real world, economists freely admit that. It only holds for spherical markets in a vacuum.

So the efficient market hypothesis is wrong?

rayiner 2mo ago

How is the efficient market hypothesis applicable here?

inigyou 2mo ago
The efficient market hypothesis, read loosely, says that capitalism is the best system. Yet here it is being thoroughly pwned by a series of 5-year plans.
- s1artibartfast 2mo ago
  exactly zero serious people draw that connection, and it suggests that you either dont know what the term means or are constructing a strawman. Most of the economic literature for the last 150 has explored the constraints on markets and their function. The efficient market hypothesis TM is a very narrow theory about price information, it says nothing about Economic Development or Direction. It is a theoretical extreme that can be used to compare real world Systems. Further, China's success relies heavily on market processes
- rayiner 2mo ago
  You're correct that China today is not fully capitalist, but you're using the term "5 year plan" in a way that overstates the difference with the U.S. The term "5-year plan" means different things pre- and post-Deng Xiaoping. Classic central planning was a disaster in China. In 1990, after 78 years of communist rule, China's per-capita income was comparable to India and Bangladesh. In the 1980s, Deng Xiaoping undertook market reforms which, over the next decades, turned China into an authoritarian state-capitalist country. It was widely known at the time the classic model had failed and that China was trying something different. Here's Singapore's Lee Kuan Yew talking about it early on: https://www.youtube.com/shorts/jw8wI9risfI https://www.youtube.com/shorts/jw8wI9risfI The modern Chinese system embraces Econ 101 "capitalism" in the sense that it relies on markets for price discovery. Today, the "5 year plans" are more like what we would call "industrial policy" in the west. That's different than pure capitalism, but so is the American system. Alexander Hamilton and Abraham Lincoln both advocated strong federal intervention in the economy in service of industrial policy: https://emergingamerica.org/blog/alexander-hamilton-founder-american-system https://emergingamerica.org/blog/alexander-hamilton-founder-... ("Hamilton’s plan involved the following aspects: 1) the creation of a Federally backed source of credit, the First Bank of the United States; 2) a system of tariffs, bounties, and other financial incentives or penalties to support the “essential” sectors of the U.S. economy; and 3) Federal support for developing manufactures by helping fund physical infrastructure ( transportation, in particular), regulating quality standards, and creating an institution to promote 'the prosecution and introduction of useful discoveries, inventions and improvements.'").
warshinder 2mo ago
Your point that “people will be gobsmacked” suggests you think you know something that the broad market does not. In a loose way, that implies the market has enough information to anticipate this but is not pricing assets accordingly. Asked another way, why not just short American assets if you are convinced of your hypothesis? Why live here, assuming you do?
- rayiner 2mo ago
  Gotcha. I was talking about American "people" generally; I don't know enough about the financial world to know if assets are appropriately priced or not. If you're talking about investment into China versus the U.S., I assume it reflects expropriation risk.

sm-silversight 2mo ago

What do you mean, I don't follow. Also, yes, often.

baq 2mo ago

This isn’t even controversial assuming you’re talking about the real world, economists freely admit that. It only holds for spherical markets in a vacuum.