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Edward Prescott, Idiot

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Robert Vienneau

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Oct 27, 2004, 5:24:42 AM10/27/04
to

"It's easy to get over $200,000 in income with two wage earners in a
household."
-- Edward Prescott
<http://www.azcentral.com/arizonarepublic/business/articles/1019Prescott1
9.html>

--
Mostly economics: <http://www.dreamscape.com/rvien/#PublicationsForFun>
r c
v s a Whether strength of body or of mind, or wisdom, or
i m p virtue, are found in proportion to the power or wealth
e a e of a man is a question fit perhaps to be discussed by
n e . slaves in the hearing of their masters, but highly
@ r c m unbecoming to reasonable and free men in search of
d o the truth. -- Rousseau

sinister

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Oct 27, 2004, 7:07:47 AM10/27/04
to

"Robert Vienneau" <rv...@see.sig.com> wrote in message
news:rvien-C00412....@news.dreamscape.com...

>
> "It's easy to get over $200,000 in income with two wage earners in a
> household."
> -- Edward Prescott
> <http://www.azcentral.com/arizonarepublic/business/articles/1019Prescott1
> 9.html>

Did you see the thread I started, "Fine work by our new Nobelist"?

Igor

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Oct 27, 2004, 2:09:25 PM10/27/04
to
sinister wrote:

> "Robert Vienneau" <rv...@see.sig.com> wrote in message
> news:rvien-C00412....@news.dreamscape.com...
>
>> "It's easy to get over $200,000 in income with two wage earners in a
>> household."
>> -- Edward Prescott
>><http://www.azcentral.com/arizonarepublic/business/articles/1019Prescott1
>>9.html>
>
>
> Did you see the thread I started, "Fine work by our new Nobelist"?
>

I did and it was it obvious you never read the paper you were attacking.
You were asking question clearly answered in the paper.

Igor

unread,
Oct 27, 2004, 2:10:15 PM10/27/04
to
Robert Vienneau wrote:

> "It's easy to get over $200,000 in income with two wage earners in a
> household."
> -- Edward Prescott
> <http://www.azcentral.com/arizonarepublic/business/articles/1019Prescott1
> 9.html>
>

Interesting the page can not be found. Did he really say this?

ro...@telus.net

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Oct 27, 2004, 2:19:38 PM10/27/04
to
On Wed, 27 Oct 2004 18:09:25 GMT, Igor <jjwea...@houston.rr.com>
wrote:

Yes, and I showed, in our exchange, that the answers were idiotic.

-- Roy L

MS

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Oct 27, 2004, 2:33:57 PM10/27/04
to

Igor

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Oct 27, 2004, 4:33:56 PM10/27/04
to
ro...@telus.net wrote:

Only if you do not understand the concept and really believe that labor
and land are the only resources. If you believe that mud pies have the
same cost as apple pies because labor is paid is the same and they are
made on the same land then anything seems idiotic. If you understand
there are other inputs then you have the beginnings of understanding the
concepts.

sinister

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Oct 27, 2004, 9:14:52 PM10/27/04
to

"Igor" <jjwea...@houston.rr.com> wrote in message
news:pvRfd.3090$EI6....@fe2.texas.rr.com...

Roy showed in his argument with you---in which you were utterly
destroyed---that the paper is incoherent.

And why should we take any of your posts seriously, given that you once
wrote, "There is a limit interest compounds exponentially while GDP grows in
a linear fashion." ?? (Link at
http://groups.google.com/groups?q=g:thl1955457383d&dq=&hl=en&lr=&c2coff=1&selm=4xGcd.16172%24Rf4.14720%40fe2.texas.rr.com&rnum=2
)


sinister

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Oct 27, 2004, 9:14:52 PM10/27/04
to

"Igor" <jjwea...@houston.rr.com> wrote in message
news:bwRfd.3091$EI6...@fe2.texas.rr.com...

Apparently you're not any better with using the web than with understanding
economics. The page is there, and according to the newspaper he did say it.
Extended excerpt:
---------------------------------------------
Bush's campaign on Monday released a letter signed by Prescott and five
other Nobel laureates critical of Kerry's proposal to roll back tax
reductions for families earning $200,000 or more.

In The Republic interview, he said such a policy would discourage people
from working.

"It's easy to get over $200,000 in income with two wage earners in a

household," Prescott said. "We want those highly educated, talented people
to work."


Robert Vienneau

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Oct 28, 2004, 12:06:19 AM10/28/04
to
In article <7kLfd.6791$LT1.5725@trnddc09>, "sinister"
<sini...@nospam.invalid> wrote:

> "Robert Vienneau" <rv...@see.sig.com> wrote in message
> news:rvien-C00412....@news.dreamscape.com...
> >
> > "It's easy to get over $200,000 in income with two wage earners in a
> > household."
> > -- Edward Prescott
> > <http://www.azcentral.com/arizonarepublic/business/articles/1019Prescott
> > 1
> > 9.html>

> Did you see the thread I started, "Fine work by our new Nobelist"?

Yes. It was about another dubious statement by Prescott.

Igor

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Oct 28, 2004, 1:48:54 AM10/28/04
to
sinister wrote:

> "Igor" <jjwea...@houston.rr.com> wrote in message
> news:bwRfd.3091$EI6...@fe2.texas.rr.com...
>
>>Robert Vienneau wrote:
>>
>>
>>> "It's easy to get over $200,000 in income with two wage earners in a
>>> household."
>>> -- Edward Prescott
>>><http://www.azcentral.com/arizonarepublic/business/articles/1019Prescott1
>>>9.html>
>>>
>>Interesting the page can not be found. Did he really say this?
>
>
> Apparently you're not any better with using the web than with understanding
> economics.

Oh part of the link was not placed in the html code. Something with
Mozilla cut some of the code. Now look at what he says "We want those
highly educated, talented people
to work.".

He means it is easy for highly educated talent people to make over
200000 in a two earner household. The truth is that it is easy given
what he said. He did not say it was easy for every two income family to
make 20000+.

The point is that Labor economist have estimated married women to have
the highest income elasticities. The second earner is much more
sensitive to wages when deciding to work. This is especially true when
the primary earner has a high income level. Presscot is simply talking
about the disincentive for these people to work. You raise their taxes
and they will work less.

There is nothing wrong or stupid about this statement. Rob cut the
qualification on the quotation to make Presscot sound as though he was
speaking of the general population. He was being deceptive and dishonest.

Igor

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Oct 28, 2004, 1:52:51 AM10/28/04
to
sinister wrote:

> "Igor" <jjwea...@houston.rr.com> wrote in message
> news:pvRfd.3090$EI6....@fe2.texas.rr.com...
>
>>sinister wrote:
>>
>>
>>>"Robert Vienneau" <rv...@see.sig.com> wrote in message
>>>news:rvien-C00412....@news.dreamscape.com...
>>>
>>>
>>>>"It's easy to get over $200,000 in income with two wage earners in a
>>>>household."
>>>> -- Edward Prescott
>>>><http://www.azcentral.com/arizonarepublic/business/articles/1019Prescott1
>>>>9.html>
>>>
>>>
>>>Did you see the thread I started, "Fine work by our new Nobelist"?
>>>
>>
>>I did and it was it obvious you never read the paper you were attacking.
>>You were asking question clearly answered in the paper.
>
>
> Roy showed in his argument with you---in which you were utterly
> destroyed---that the paper is incoherent.
>

It is incoherent to Roy because he thinks resources are only land and
labor. To any trained economist the paper is very coherent. If you
really think Roy made sense then you really seriously are biased against
any mainstream economic theory, like Rob, or you just do not understand
what is being said.


> And why should we take any of your posts seriously, given that you once
> wrote, "There is a limit interest compounds exponentially while GDP grows in
> a linear fashion." ?? (Link at
> http://groups.google.com/groups?q=g:thl1955457383d&dq=&hl=en&lr=&c2coff=1&selm=4xGcd.16172%24Rf4.14720%40fe2.texas.rr.com&rnum=2
> )
>
>

Because this is true. GDP growths are mean reverting meaning they are
close to be constant in the long run. The misunderstanding is that
economist would never do time series analysis without taking logs. That
is why it is trend stationary. I forget sometimes that people do not
know that. The statement is true. I even showed the formulas that back
up the point that there are limits to deficits.

Igor

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Oct 28, 2004, 1:55:20 AM10/28/04
to
Robert Vienneau wrote:

> In article <7kLfd.6791$LT1.5725@trnddc09>, "sinister"
> <sini...@nospam.invalid> wrote:
>
>
>>"Robert Vienneau" <rv...@see.sig.com> wrote in message
>>news:rvien-C00412....@news.dreamscape.com...
>>
>>> "It's easy to get over $200,000 in income with two wage earners in a
>>> household."
>>> -- Edward Prescott
>>><http://www.azcentral.com/arizonarepublic/business/articles/1019Prescott
>>>1
>>>9.html>
>
>
>
>>Did you see the thread I started, "Fine work by our new Nobelist"?
>
>
> Yes. It was about another dubious statement by Prescott.
>

A "dubious" statement supported by data. A "dubious" statement that was
robust to different measurements. The statement surprised me but the
data supported it when Fisher did his analysis and Prescott's analysis
supported the statement as well.

If you want to still call statements backed by data dubious then I can
understand why you often can not see the obvious.

Robert Vienneau

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Oct 28, 2004, 3:17:26 AM10/28/04
to
In article <gKXfd.4574$jD4.1943@trnddc06>, "sinister"
<sini...@nospam.invalid> wrote:

> "Igor" <jjwea...@houston.rr.com> wrote in message
> news:pvRfd.3090$EI6....@fe2.texas.rr.com...

> And why should we take any of your posts seriously, given that you once

> wrote, "There is a limit interest compounds exponentially while GDP grows
> in
> a linear fashion." ?? (Link at
> http://groups.google.com/groups?q=g:thl1955457383d&dq=&hl=en&lr=&c2coff=1&
> selm=4xGcd.16172%24Rf4.14720%40fe2.texas.rr.com&rnum=2
> )

I've added a page to my "Immortal Fumbles" list. See:

<http://www.dreamscape.com/rvien/Fumbles/GDPGrowthIsLinear.html>

Igor

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Oct 28, 2004, 3:40:23 AM10/28/04
to
Robert Vienneau wrote:

> In article <gKXfd.4574$jD4.1943@trnddc06>, "sinister"
> <sini...@nospam.invalid> wrote:
>
>
>>"Igor" <jjwea...@houston.rr.com> wrote in message
>>news:pvRfd.3090$EI6....@fe2.texas.rr.com...
>
>
>>And why should we take any of your posts seriously, given that you once
>>wrote, "There is a limit interest compounds exponentially while GDP grows
>>in
>>a linear fashion." ?? (Link at
>>http://groups.google.com/groups?q=g:thl1955457383d&dq=&hl=en&lr=&c2coff=1&
>>selm=4xGcd.16172%24Rf4.14720%40fe2.texas.rr.com&rnum=2
>> )
>
>
> I've added a page to my "Immortal Fumbles" list. See:
>
> <http://www.dreamscape.com/rvien/Fumbles/GDPGrowthIsLinear.html>
>

Oh no I have to hang my head in shame now. The statement is correct.
REAL GPD Growth per capita is mean reverting. It averages 1% - 2% a
year. REAL GDP GROWTH IS MEAN REVERTING. Most time series methods used
shows a linear trend. I say most because some older methods can not
reject the unit root hypothesis. It is well known that GDP for the US is
trend stationary with a break. THE CONFUSION IS THAT TIME SERIES
ANALYSIS ALWAYS ANALYZES GDP IN LOGS. THAT MEANS THE TREND IS LINEAR.
The statement is correct.

Again you are being deceptive and dishonest because you know this is the
case. Any economist reading that statement knows it too.

Robert Vienneau

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Oct 28, 2004, 5:49:25 AM10/28/04
to
In article <Hn1gd.6962$EI6...@fe2.texas.rr.com>, Igor
<jjwea...@houston.rr.com> wrote:

> Robert Vienneau wrote:

> > In article <gKXfd.4574$jD4.1943@trnddc06>, "sinister"
> > <sini...@nospam.invalid> wrote:

> >>And why should we take any of your posts seriously, given that you once
> >>wrote, "There is a limit interest compounds exponentially while GDP
> >>grows
> >>in
> >>a linear fashion." ??

> > I've added a page to my "Immortal Fumbles" list. See:


> >
> > <http://www.dreamscape.com/rvien/Fumbles/GDPGrowthIsLinear.html>

> Oh no I have to hang my head in shame now. The statement is correct.
> REAL GPD Growth per capita is mean reverting. It averages 1% - 2% a
> year. REAL GDP GROWTH IS MEAN REVERTING. Most time series methods used
> shows a linear trend. I say most because some older methods can not
> reject the unit root hypothesis. It is well known that GDP for the US is
> trend stationary with a break. THE CONFUSION IS THAT TIME SERIES
> ANALYSIS ALWAYS ANALYZES GDP IN LOGS. THAT MEANS THE TREND IS LINEAR.
> The statement is correct.

Anybody want to explain to this idiot with a PhD - or perhaps ABD -
some simple high school mathematics?



> Again you are being deceptive and dishonest because you know this is the
> case. Any economist reading that statement knows it too.

I know Mr. Weatherby is ignorant, illiterate, and innumerate.

Igor

unread,
Oct 28, 2004, 6:09:51 AM10/28/04
to
Robert Vienneau wrote:

> In article <Hn1gd.6962$EI6...@fe2.texas.rr.com>, Igor
> <jjwea...@houston.rr.com> wrote:
>
>
>>Robert Vienneau wrote:
>
>
>
>>>In article <gKXfd.4574$jD4.1943@trnddc06>, "sinister"
>>><sini...@nospam.invalid> wrote:
>
>
>>>>And why should we take any of your posts seriously, given that you once
>>>>wrote, "There is a limit interest compounds exponentially while GDP
>>>>grows
>>>>in
>>>>a linear fashion." ??
>
>
>>>I've added a page to my "Immortal Fumbles" list. See:
>>>
>>> <http://www.dreamscape.com/rvien/Fumbles/GDPGrowthIsLinear.html>
>
>
>
>>Oh no I have to hang my head in shame now. The statement is correct.
>>REAL GPD Growth per capita is mean reverting. It averages 1% - 2% a
>>year. REAL GDP GROWTH IS MEAN REVERTING. Most time series methods used
>>shows a linear trend. I say most because some older methods can not
>>reject the unit root hypothesis. It is well known that GDP for the US is
>>trend stationary with a break. THE CONFUSION IS THAT TIME SERIES
>>ANALYSIS ALWAYS ANALYZES GDP IN LOGS. THAT MEANS THE TREND IS LINEAR.
>>The statement is correct.
>
>
> Anybody want to explain to this idiot with a PhD - or perhaps ABD -
> some simple high school mathematics?
>

It is not a misunderstanding of mathematics. It is loose language.
Whenever GDP is plotted by an economist or analyzed as a time series the
logarithm is used. It is a simple miscommunication that occurs between
people who actually work with data and people who do not work with data.

>
>>Again you are being deceptive and dishonest because you know this is the
>>case. Any economist reading that statement knows it too.
>
>
> I know Mr. Weatherby is ignorant, illiterate, and innumerate.
>

Typical Rob fashion when he knows a criticism is true he reverts to
insults. Oh come now Rob, I did not insult you when I showed that your
understanding of minimum wage analysis by mainstream economist was
wrong. I did state the fact that you were ignorant of the long run
prediction that being exactly what you argued. I did not insult you though.

How can I be illiterate? I was able to read your message. I can not be
fully illiterate. Oh yes that is the charge given when you have been
shown to be exageratting, dishonest, deceptive or just completely wrong.

sinister

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Oct 28, 2004, 6:25:45 AM10/28/04
to

"Igor" <jjwea...@houston.rr.com> wrote in message
news:TO%fd.10534$186....@fe1.texas.rr.com...

> sinister wrote:
>
>> "Igor" <jjwea...@houston.rr.com> wrote in message
>> news:pvRfd.3090$EI6....@fe2.texas.rr.com...
>>
>>>sinister wrote:
>>>
>>>
>>>>"Robert Vienneau" <rv...@see.sig.com> wrote in message
>>>>news:rvien-C00412....@news.dreamscape.com...
>>>>
>>>>
>>>>>"It's easy to get over $200,000 in income with two wage earners in a
>>>>>household."
>>>>> -- Edward Prescott
>>>>><http://www.azcentral.com/arizonarepublic/business/articles/1019Prescott1
>>>>>9.html>
>>>>
>>>>
>>>>Did you see the thread I started, "Fine work by our new Nobelist"?
>>>>
>>>
>>>I did and it was it obvious you never read the paper you were attacking.
>>>You were asking question clearly answered in the paper.
>>
>>
>> Roy showed in his argument with you---in which you were utterly
>> destroyed---that the paper is incoherent.
>>
>
> It is incoherent to Roy because he thinks resources are only land and
> labor. To any trained economist the paper is very coherent. If you

No, like anyone familiar with the classical liberals, Roy knows there are
three factor of production: land, labor, and capital.

> really think Roy made sense then you really seriously are biased against
> any mainstream economic theory, like Rob, or you just do not understand
> what is being said.

Nope. It's just that Roy---and I---are biased against the idea that the
proper way to value a firm is to add up its resource value or whatever name
Prescott has given to this concept.

>
>
>> And why should we take any of your posts seriously, given that you once
>> wrote, "There is a limit interest compounds exponentially while GDP grows
>> in a linear fashion." ?? (Link at
>> http://groups.google.com/groups?q=g:thl1955457383d&dq=&hl=en&lr=&c2coff=1&selm=4xGcd.16172%24Rf4.14720%40fe2.texas.rr.com&rnum=2
>> )
>>
>>
>
> Because this is true. GDP growths are mean reverting meaning they are
> close to be constant in the long run. The misunderstanding is that
> economist would never do time series analysis without taking logs. That is
> why it is trend stationary. I forget sometimes that people do not know
> that. The statement is true. I even showed the formulas that back up the
> point that there are limits to deficits.

Either
(a) you're an idiot when it comes to economics, as GDP growth is exponential
(i.e., geometric), or
(b) you're an idiot when it comes to language.


Igor

unread,
Oct 28, 2004, 6:45:07 AM10/28/04
to
sinister wrote:


>>
>>It is incoherent to Roy because he thinks resources are only land and
>>labor. To any trained economist the paper is very coherent. If you
>
>
> No, like anyone familiar with the classical liberals, Roy knows there are
> three factor of production: land, labor, and capital.
>
>

This is a simplification for models. In any empirical work you have to
add raw materials and energy. You can not ignore these resources or
their cost. Under a competitive market price is equal to marginal cost.
That means P= the extra cost of producing the last unit. That cost
includes raw materials and energy. This means the resource cost is the
price for paid for the good.

So empirically you add up all the costs of the good (which equals price
paid) and account for deprecation to find the stock. It does not make
sense to you because you do not understand what resource means. Once you
understand that you can understand the model.

All of this would be painfully clear if you actually read the paper
instead of criticizing the abstract. It is clearly explained before any
equation is written that these resource cost represent replacement cost.
That means how much it cost to replace the asset. Roy did not even
understand that the equations represent a return nor do you.

The equations used in the robustness check for Fisher's result are
simple and clear. It says your profits equal your after tax returns on
your investment. That is why taxes come into play. Plain and simple.

Roy still does not understand that the equation iK + (i-g)C does not
have to be negative if g > i. That is just simple algebra. That is where
his big misconception of the "stupidity" of the model came from.

> Nope. It's just that Roy---and I---are biased against the idea that the
> proper way to value a firm is to add up its resource value or whatever name
> Prescott has given to this concept.
>

The value is the discounted sum of returns. This means you have to value
the assets to find the returns. You can't see this simple concept
because you do not believe that a price in competitive market is equal
to the marginal cost of the last good made and that cost includes raw
materials and energy not just labor, land, and capital.

>
>>
>>>And why should we take any of your posts seriously, given that you once
>>>wrote, "There is a limit interest compounds exponentially while GDP grows
>>>in a linear fashion." ?? (Link at
>>>http://groups.google.com/groups?q=g:thl1955457383d&dq=&hl=en&lr=&c2coff=1&selm=4xGcd.16172%24Rf4.14720%40fe2.texas.rr.com&rnum=2
>>> )
>>>
>>>
>>
>>Because this is true. GDP growths are mean reverting meaning they are
>>close to be constant in the long run. The misunderstanding is that
>>economist would never do time series analysis without taking logs. That is
>>why it is trend stationary. I forget sometimes that people do not know
>>that. The statement is true. I even showed the formulas that back up the
>>point that there are limits to deficits.
>
>
> Either
> (a) you're an idiot when it comes to economics, as GDP growth is exponential
> (i.e., geometric), or
> (b) you're an idiot when it comes to language.
>

I would not go as far to say I am an idiot with language but perhaps
loose with language. Economist always use the logs of GDP when doing
analysis such as time series. It is so common that I forget not everyone
does this. You plot the log of GDP versus time and the trend is linear.
It is trend stationary with a break. The statement is correct but the
language was loose.

>

Andy F

unread,
Oct 28, 2004, 6:58:22 AM10/28/04
to
Igor wrote:

>Oh no I have to hang my head in shame now. The statement is correct.
>REAL GPD Growth per capita is mean reverting. It averages 1% - 2% a
>year. REAL GDP GROWTH IS MEAN REVERTING. Most time series methods used
>shows a linear trend. I say most because some older methods can not
>reject the unit root hypothesis. It is well known that GDP for the US is
>trend stationary with a break. THE CONFUSION IS THAT TIME SERIES
>ANALYSIS ALWAYS ANALYZES GDP IN LOGS. THAT MEANS THE TREND IS LINEAR.
>The statement is correct.
>
>Again you are being deceptive and dishonest because you know this is the
>case. Any economist reading that statement knows it too.
>

So when you said

"There is a limit interest compounds exponentially while GDP grows in a linear
fashion."

what you really meant was

"interest compounds exponentially while GDP grows in a linear fashion on a
logarithmic scale"

If you put the compounding interest on a log scale, wouldn't that also be
linear?


sinister

unread,
Oct 28, 2004, 9:13:42 AM10/28/04
to

"Igor" <jjwea...@houston.rr.com> wrote in message
news:Pz3gd.11901$186....@fe1.texas.rr.com...

> Robert Vienneau wrote:
>
>> In article <Hn1gd.6962$EI6...@fe2.texas.rr.com>, Igor
>> <jjwea...@houston.rr.com> wrote:
>>
>>
>>>Robert Vienneau wrote:
>>
>>
>>>>In article <gKXfd.4574$jD4.1943@trnddc06>, "sinister"
>>>><sini...@nospam.invalid> wrote:
>>
>>
>>>>>And why should we take any of your posts seriously, given that you once
>>>>>wrote, "There is a limit interest compounds exponentially while GDP
>>>>>grows in a linear fashion." ??
>>
>>
>>>>I've added a page to my "Immortal Fumbles" list. See:
>>>>
>>>> <http://www.dreamscape.com/rvien/Fumbles/GDPGrowthIsLinear.html>
>>
>>
>>>Oh no I have to hang my head in shame now. The statement is correct. REAL
>>>GPD Growth per capita is mean reverting. It averages 1% - 2% a year.
>>>REAL GDP GROWTH IS MEAN REVERTING. Most time series methods used shows a
>>>linear trend. I say most because some older methods can not reject the
>>>unit root hypothesis. It is well known that GDP for the US is trend
>>>stationary with a break. THE CONFUSION IS THAT TIME SERIES ANALYSIS
>>>ALWAYS ANALYZES GDP IN LOGS. THAT MEANS THE TREND IS LINEAR. The
>>>statement is correct.
>>
>>
>> Anybody want to explain to this idiot with a PhD - or perhaps ABD -
>> some simple high school mathematics?
>>
>
> It is not a misunderstanding of mathematics. It is loose language.

No, moron.

You originally wrote, "There is a limit interest compounds exponentially


while GDP grows in a linear fashion."

Clearly you're saying GDP grows linearly *in contradistinction* to another
quantity that grows exponentially.

Robert Vienneau

unread,
Oct 28, 2004, 2:33:59 PM10/28/04
to
In article <Pz3gd.11901$186....@fe1.texas.rr.com>, Igor
<jjwea...@houston.rr.com> wrote:

> Robert Vienneau wrote:
>
> > In article <Hn1gd.6962$EI6...@fe2.texas.rr.com>, Igor
> > <jjwea...@houston.rr.com> wrote:

> >>Again you are being deceptive and dishonest because you know this is
> >>the
> >>case. Any economist reading that statement knows it too.

> ...Oh come now Rob, I did not insult you...
> [ Rehashing of Mr. Weatherby's nonsense from a previous thread - ]
> [ deleted. ]

Robert Vienneau

unread,
Oct 28, 2004, 2:33:53 PM10/28/04
to
In article <aL%fd.6521$EI6....@fe2.texas.rr.com>, Igor
<jjwea...@houston.rr.com> wrote:

> sinister wrote:
>
> > "Igor" <jjwea...@houston.rr.com> wrote in message
> > news:bwRfd.3091$EI6...@fe2.texas.rr.com...

> >>Robert Vienneau wrote:

> >>> "It's easy to get over $200,000 in income with two wage earners in a
> >>> household."

"We want those highly educated, talented people to work."

> >>> -- Edward Prescott
> >>><http://www.azcentral.com/arizonarepublic/business/articles/1019Prescott19.html>

> [A poor carpenter blaming his tools - deleted. ]


> Now look at what he says "We want those
> highly educated, talented people
> to work.".

> He means it is easy for highly educated talent people to make over
> 200000 in a two earner household. The truth is that it is easy given
> what he said.

The above statement, like Prescott's, is that of an idiot.

> He did not say it was easy for every two income family to
> make 20000+.

> There is nothing wrong or stupid about this statement. Rob cut the

> qualification on the quotation to make Presscot sound as though he was
> speaking of the general population. He was being deceptive and dishonest.

It is not my fault that the fake Nobel prize was awarded this year
for mistaken work by idiot savants.

Igor

unread,
Oct 28, 2004, 4:57:16 PM10/28/04
to
Robert Vienneau wrote:

> In article <Pz3gd.11901$186....@fe1.texas.rr.com>, Igor
> <jjwea...@houston.rr.com> wrote:
>
>
>>Robert Vienneau wrote:
>>
>>
>>>In article <Hn1gd.6962$EI6...@fe2.texas.rr.com>, Igor
>>><jjwea...@houston.rr.com> wrote:
>
>
>>>>Again you are being deceptive and dishonest because you know this is
>>>>the
>>>>case. Any economist reading that statement knows it too.
>
>
>>...Oh come now Rob, I did not insult you...
>>[ Rehashing of Mr. Weatherby's nonsense from a previous thread - ]
>>[ deleted. ]
>
>

Did you think this deleted the post from the server? Obviously you have
nothing to say about the fact that your model is long run AND PREDICTS
THE SAME THING GE DOES IN THE LONG RUN. You still want to hang on to the
thread of a notion that you are proving nobel laurates and educated
people wrong when you are not. Nice analysis to call someone who
disagrees with the statement an idiot. Many highly educated two income
households make over 200,000. These are the people with the most elastic
labor supply and will work less when taxes are raised. Why? Because
unlike the guys making 20,000 a year they can.

ro...@telus.net

unread,
Oct 28, 2004, 5:29:37 PM10/28/04
to
On Wed, 27 Oct 2004 20:33:56 GMT, Igor <jjwea...@houston.rr.com>
wrote:

>ro...@telus.net wrote:
>
>> On Wed, 27 Oct 2004 18:09:25 GMT, Igor <jjwea...@houston.rr.com>
>> wrote:
>>
>>>sinister wrote:
>>>
>>>>Did you see the thread I started, "Fine work by our new Nobelist"?
>>>
>>>I did and it was it obvious you never read the paper you were attacking.
>>>You were asking question clearly answered in the paper.
>>
>> Yes, and I showed, in our exchange, that the answers were idiotic.
>

>Only if you do not understand the concept and really believe that labor
>and land are the only resources.

I have said no such thing, and that is in any case irrelevant to
Prescott's fundamental conceptual error of identifying cost with
value. It is you who does not understand that concept.

>If you believe that mud pies have the
>same cost as apple pies because labor is paid is the same and they are
>made on the same land then anything seems idiotic.

<sigh> I can spend $1K to make apple pies, or mud pies. That makes
their resource costs identical. Their values are not identical. You
(and Prescott) stand refuted.

>If you understand
>there are other inputs then you have the beginnings of understanding the
>concepts.

The other inputs are irrelevant to Prescott's error, as demonstrated
above.

-- Roy L

ro...@telus.net

unread,
Oct 28, 2004, 5:37:01 PM10/28/04
to
On Thu, 28 Oct 2004 05:52:51 GMT, Igor <jjwea...@houston.rr.com>
wrote:

>sinister wrote:
>
>> "Igor" <jjwea...@houston.rr.com> wrote in message
>> news:pvRfd.3090$EI6....@fe2.texas.rr.com...
>>
>>>sinister wrote:
>>>
>>>>"Robert Vienneau" <rv...@see.sig.com> wrote in message
>>>>news:rvien-C00412....@news.dreamscape.com...
>>>>
>>>>>"It's easy to get over $200,000 in income with two wage earners in a
>>>>>household."
>>>>> -- Edward Prescott
>>>>><http://www.azcentral.com/arizonarepublic/business/articles/1019Prescott1
>>>>>9.html>
>>>>
>>>>Did you see the thread I started, "Fine work by our new Nobelist"?
>>>
>>>I did and it was it obvious you never read the paper you were attacking.
>>>You were asking question clearly answered in the paper.
>>
>> Roy showed in his argument with you---in which you were utterly
>> destroyed---that the paper is incoherent.
>
>It is incoherent to Roy because he thinks resources are only land and
>labor.

That is a lie; and even if it were true, it is irrelevant to
Prescott's errors.

>To any trained economist the paper is very coherent.

Garbage. Any trained economist should know that the Labor Theory of
Value fails for precisely the same reason as Prescott's paper: cost is
not value.

>If you
>really think Roy made sense then you really seriously are biased against
>any mainstream economic theory, like Rob, or you just do not understand
>what is being said.

More garbage. Identifying cost with value is not mainstream economic
theory in any place I have ever heard of.

>> And why should we take any of your posts seriously, given that you once
>> wrote, "There is a limit interest compounds exponentially while GDP grows in
>> a linear fashion." ?? (Link at
>> http://groups.google.com/groups?q=g:thl1955457383d&dq=&hl=en&lr=&c2coff=1&selm=4xGcd.16172%24Rf4.14720%40fe2.texas.rr.com&rnum=2
>

>Because this is true. GDP growths are mean reverting meaning they are
>close to be constant in the long run. The misunderstanding is that
>economist would never do time series analysis without taking logs. That
>is why it is trend stationary. I forget sometimes that people do not
>know that.

No, you forgot that like GDP, compound interest is also linear on a
log graph.

>The statement is true. I even showed the formulas that back
>up the point that there are limits to deficits.

Please, Igor. Robert only has so many gigabytes of space in his
fumbles file.

-- Roy L

ro...@telus.net

unread,
Oct 28, 2004, 5:39:24 PM10/28/04
to
On Thu, 28 Oct 2004 05:55:20 GMT, Igor <jjwea...@houston.rr.com>
wrote:

>Robert Vienneau wrote:
>
>> In article <7kLfd.6791$LT1.5725@trnddc09>, "sinister"
>> <sini...@nospam.invalid> wrote:
>>
>>>"Robert Vienneau" <rv...@see.sig.com> wrote in message
>>>news:rvien-C00412....@news.dreamscape.com...
>>>
>>>> "It's easy to get over $200,000 in income with two wage earners in a
>>>> household."
>>>> -- Edward Prescott
>>>><http://www.azcentral.com/arizonarepublic/business/articles/1019Prescott
>>>>1
>>>>9.html>
>>
>>>Did you see the thread I started, "Fine work by our new Nobelist"?
>>
>> Yes. It was about another dubious statement by Prescott.
>
>A "dubious" statement supported by data.

No, it wasn't. The value data were simply fabricated.

>A "dubious" statement that was
>robust to different measurements.

Except the facts of history.

>The statement surprised me but the
>data supported it when Fisher did his analysis and Prescott's analysis
>supported the statement as well.

Except that history proved them both laughably wrong.

>If you want to still call statements backed by data dubious then I can
>understand why you often can not see the obvious.

As they say in Japan, "It's mirror time!"

-- Roy L

sinister

unread,
Oct 28, 2004, 9:23:42 PM10/28/04
to

"Andy F" <aft...@aol.com> wrote in message
news:20041028065822...@mb-m18.aol.com...

> Igor wrote:
>
>>Oh no I have to hang my head in shame now. The statement is correct.
>>REAL GPD Growth per capita is mean reverting. It averages 1% - 2% a
>>year. REAL GDP GROWTH IS MEAN REVERTING. Most time series methods used
>>shows a linear trend. I say most because some older methods can not
>>reject the unit root hypothesis. It is well known that GDP for the US is
>>trend stationary with a break. THE CONFUSION IS THAT TIME SERIES
>>ANALYSIS ALWAYS ANALYZES GDP IN LOGS. THAT MEANS THE TREND IS LINEAR.
>>The statement is correct.
>>
>>Again you are being deceptive and dishonest because you know this is the
>>case. Any economist reading that statement knows it too.
>>
> So when you said
>
> "There is a limit interest compounds exponentially while GDP grows in a
> linear
> fashion."
>
> what you really meant was

If you engage Igor, you're find yourself thinking, "well, if I'm charitable,
what he really meant was..." repeatedly.

>
> "interest compounds exponentially while GDP grows in a linear fashion on a
> logarithmic scale"
>
> If you put the compounding interest on a log scale, wouldn't that also be
> linear?

Shhh! You're going to confuse him!

>
>


Igor

unread,
Oct 28, 2004, 9:39:29 PM10/28/04
to
ro...@telus.net wrote:

> On Wed, 27 Oct 2004 20:33:56 GMT, Igor <jjwea...@houston.rr.com>
> wrote:
>
>
>>ro...@telus.net wrote:
>>
>>
>>>On Wed, 27 Oct 2004 18:09:25 GMT, Igor <jjwea...@houston.rr.com>
>>>wrote:
>>>
>>>
>>>>sinister wrote:
>>>>
>>>>
>>>>>Did you see the thread I started, "Fine work by our new Nobelist"?
>>>>
>>>>I did and it was it obvious you never read the paper you were attacking.
>>>>You were asking question clearly answered in the paper.
>>>
>>>Yes, and I showed, in our exchange, that the answers were idiotic.
>>
>>Only if you do not understand the concept and really believe that labor
>>and land are the only resources.
>
>
> I have said no such thing, and that is in any case irrelevant to
> Prescott's fundamental conceptual error of identifying cost with
> value. It is you who does not understand that concept.
>
>
>>If you believe that mud pies have the
>>same cost as apple pies because labor is paid is the same and they are
>>made on the same land then anything seems idiotic.
>
>
> <sigh> I can spend $1K to make apple pies, or mud pies. That makes
> their resource costs identical. Their values are not identical. You
> (and Prescott) stand refuted.
>

No it does not make them the same. How do you think that capital should
be empirically measured. It is measured by real replacement cost. That
means you adjust for inflation to get a measure in real units. How do
you suggest to do that other than add up investment( what was paid for
the capital) and subtract depreciation. I hate to break it to you but
accountants value assets in the same way!! So how do you propose it
should be measured?

Igor

unread,
Oct 28, 2004, 9:45:33 PM10/28/04
to
ro...@telus.net wrote:

A Labor theory of value does not say that cost is value. It says that
value is given because labor is added to it. It does not say that it is
reflected by the wages. In fact, Smith argues that if takes twice as
much labor to kill a deer than a rabbit then deer meat cost twice as
much not that the value is twice as much. This is where you
misunderstand what a labor theory is.

Objective prices in a competitive market says that PRICE = MC. That
means price is the COST OF THE LAST UNIT PRODUCED. This is not a labor
theory. It is quite the contrary. So first you have to understand what a
theory of value is and how a labor theory differs from objective value
to understand what is being argued.

>
>>If you
>>really think Roy made sense then you really seriously are biased against
>>any mainstream economic theory, like Rob, or you just do not understand
>>what is being said.
>
>
> More garbage. Identifying cost with value is not mainstream economic
> theory in any place I have ever heard of.
>

P = MC in a competitive market. IF YOU HAVE NOT HEARD OF THAT YOU HAVE
NEVER TAKEN A SINGLE COLLEGE COURSE IN MAINSTREAM ECONOMICS.


>>The statement is true. I even showed the formulas that back
>>up the point that there are limits to deficits.
>
>
> Please, Igor. Robert only has so many gigabytes of space in his
> fumbles file.
>

The statement is true. There are limits on deficits. Interest rates grow
faster than GDP growth this is almost always the case. That means if you
run primary deficits and continue to finance the interest then the DEBT
IS GROWING FASTER THAN GDP at some point interest payments will exceed
GDP. This is another simple concept you can not grasp.

> -- Roy L

Igor

unread,
Oct 28, 2004, 9:49:18 PM10/28/04
to
ro...@telus.net wrote:

> On Thu, 28 Oct 2004 05:55:20 GMT, Igor <jjwea...@houston.rr.com>
> wrote:
>
>
>>Robert Vienneau wrote:
>>
>>
>>>In article <7kLfd.6791$LT1.5725@trnddc09>, "sinister"
>>><sini...@nospam.invalid> wrote:
>>>
>>>
>>>>"Robert Vienneau" <rv...@see.sig.com> wrote in message
>>>>news:rvien-C00412....@news.dreamscape.com...
>>>>
>>>>
>>>>>"It's easy to get over $200,000 in income with two wage earners in a
>>>>>household."
>>>>> -- Edward Prescott
>>>>><http://www.azcentral.com/arizonarepublic/business/articles/1019Prescott
>>>>>1
>>>>>9.html>
>>>
>>>>Did you see the thread I started, "Fine work by our new Nobelist"?
>>>
>>>Yes. It was about another dubious statement by Prescott.
>>
>>A "dubious" statement supported by data.
>
>
> No, it wasn't. The value data were simply fabricated.
>

Sorry this should be listed on alt.conspiracy now. The data come from
credible stockmarket data nothing is fabricated. In the first section
the equations you do not understand and think are stupid ARE NOT USED.
RTFM.


>
>>A "dubious" statement that was
>>robust to different measurements.
>
>
> Except the facts of history.
>

What facts are those that the stock market crashed due to excessive
margin calls not bad news about profits?

>
>>The statement surprised me but the
>>data supported it when Fisher did his analysis and Prescott's analysis
>>supported the statement as well.
>
>
> Except that history proved them both laughably wrong.
>

How? Why do think that after looking at the data. Just because the
market crashed due to margin calls not being met does not mean that the
stocks analyzed were not undervalued. Profits were high at that period
of time. On the day the market crashed conditions were good. Labor
disputes had been settled. It was subsequent events that caused the
economy to tank. You think it is silly because you have the silly notion
that the economy and not the stock market crashed on particular day.


ro...@telus.net

unread,
Oct 29, 2004, 5:57:05 PM10/29/04
to
On Thu, 28 Oct 2004 10:45:07 GMT, Igor <jjwea...@houston.rr.com>
wrote:

>sinister wrote:
>
>>>It is incoherent to Roy because he thinks resources are only land and
>>>labor. To any trained economist the paper is very coherent. If you
>>
>> No, like anyone familiar with the classical liberals, Roy knows there are
>> three factor of production: land, labor, and capital.
>
>This is a simplification for models.

No, it is not.

>In any empirical work you have to
>add raw materials and energy.

Which are in turn products of land, labor and capital. You seem to
have no understanding of economics whatever.

>You can not ignore these resources or
>their cost.

Nobody is.

>Under a competitive market price is equal to marginal cost.

Only under certain ideal conditions which are very remote from the
conditions under which corporate assets are typically acquired and
owned.

>That means P= the extra cost of producing the last unit. That cost
>includes raw materials and energy. This means the resource cost is the
>price for paid for the good.

All of which has _zero_ to do with valuation of corporate assets.

>So empirically you add up all the costs of the good (which equals price
>paid) and account for deprecation to find the stock.

That is not an empirical measure of value. It is a priori.

>It does not make
>sense to you because you do not understand what resource means. Once you
>understand that you can understand the model.

Garbage. I understand the model fine. It is just nonsensical.

>All of this would be painfully clear if you actually read the paper
>instead of criticizing the abstract. It is clearly explained before any
>equation is written that these resource cost represent replacement cost.

Replacement cost is not value. Take a new car. Pay someone $10 to
hit it with a sledgehammer for an hour. How much is it worth? How
much would it cost to replace it?

_Get_it_??



>That means how much it cost to replace the asset. Roy did not even
>understand that the equations represent a return nor do you.

ROTFL!! The equations were vastly at variance with the returns
actually being made. That's what _you_ don't seem able to understand.

>The equations used in the robustness check for Fisher's result are
>simple and clear. It says your profits equal your after tax returns on
>your investment. That is why taxes come into play. Plain and simple.

You cannot calculate profits by means of equations that equate them
with expenses. You can only calculate profits by _subtracting_
expenses from revenues. Prescott has it completely backwards.
Companies don't make profits by increasing costs, but by reducing them
below revenues.

>Roy still does not understand that the equation iK + (i-g)C does not
>have to be negative if g > i.

<sigh> For the third time, I said no such thing. I said it can
_only_ be negative if g > i (assuming all variables are positive).

>That is just simple algebra.

It is simple logic, which you obviously cannot understand.

>That is where
>his big misconception of the "stupidity" of the model came from.

The model is stupid even without that nonsensical element.

>> Nope. It's just that Roy---and I---are biased against the idea that the
>> proper way to value a firm is to add up its resource value or whatever name
>> Prescott has given to this concept.
>
>The value is the discounted sum of returns.

In fact, Prescott ignores the returns _actually_being_made_.

>This means you have to value
>the assets to find the returns.

ROTFL!! You value assets by the _estimated_ returns, not vice versa.
That is the whole point.

>You can't see this simple concept
>because you do not believe that a price in competitive market is equal
>to the marginal cost of the last good made

Corporate assets are not "the last goods made."

>and that cost includes raw
>materials and energy not just labor, land, and capital.

Incredible.



>> Either
>> (a) you're an idiot when it comes to economics, as GDP growth is exponential
>> (i.e., geometric), or
>> (b) you're an idiot when it comes to language.
>
>I would not go as far to say I am an idiot with language but perhaps
>loose with language.

Don't be so modest. You can be an idiot with both language and
economics. In fact, you are.

>Economist always use the logs of GDP when doing
>analysis such as time series. It is so common that I forget not everyone
>does this. You plot the log of GDP versus time and the trend is linear.

As is the sum of compound interest.

>It is trend stationary with a break. The statement is correct but the
>language was loose.

The statement is false.

-- Roy L

ro...@telus.net

unread,
Oct 29, 2004, 5:58:50 PM10/29/04
to

Don't look at the man behind the curtain!

-- Roy L

ro...@telus.net

unread,
Oct 30, 2004, 12:43:16 AM10/30/04
to
On Fri, 29 Oct 2004 01:39:29 GMT, Igor <jjwea...@houston.rr.com>
wrote:

>ro...@telus.net wrote:
>
>> On Wed, 27 Oct 2004 20:33:56 GMT, Igor <jjwea...@houston.rr.com>
>> wrote:
>>
>>>If you believe that mud pies have the
>>>same cost as apple pies because labor is paid is the same and they are
>>>made on the same land then anything seems idiotic.
>>
>> <sigh> I can spend $1K to make apple pies, or mud pies. That makes
>> their resource costs identical. Their values are not identical. You
>> (and Prescott) stand refuted.
>
>No it does not make them the same.

Yes, it does. $1K = $1K. I am not sure how you prevent yourself from
knowing such facts, but it is clear that you manage to do it somehow.

>How do you think that capital should
>be empirically measured.

Depends on the purpose. In any case, book value is not the same as
ability to generate profits.

>It is measured by real replacement cost.

Sounds OK for insurance purposes.

>That
>means you adjust for inflation to get a measure in real units. How do
>you suggest to do that other than add up investment( what was paid for
>the capital) and subtract depreciation.

Market value would be better. Having paid $1K for something does not
make it worth $1K, and most certainly does not mean it will generate
equivalent profits. Market value at least indicates a collective
judgment of the profit stream an asset can be expected to yield.

>I hate to break it to you but
>accountants value assets in the same way!!

Yes, well, accountants aren't economists. Accountants told us that
Enron was a brilliant success.

>So how do you propose it
>should be measured?

The problem with trying to measure capital for economic purposes is
that it is not homogenous, and different kinds of capital are not
commensurable except by converting them to money. So if you want to
estimate the value of capital, market liquidation value is probably
the closest you can get.

-- Roy L

ro...@telus.net

unread,
Oct 30, 2004, 1:14:52 AM10/30/04
to
On Fri, 29 Oct 2004 01:45:33 GMT, Igor <jjwea...@houston.rr.com>
wrote:

>ro...@telus.net wrote:
>
>> On Thu, 28 Oct 2004 05:52:51 GMT, Igor <jjwea...@houston.rr.com>
>> wrote:
>>
>>>To any trained economist the paper is very coherent.
>>
>> Garbage. Any trained economist should know that the Labor Theory of
>> Value fails for precisely the same reason as Prescott's paper: cost is
>> not value.
>
>A Labor theory of value does not say that cost is value. It says that
>value is given because labor is added to it.

Same mistake, different words.

>It does not say that it is
>reflected by the wages. In fact, Smith argues that if takes twice as
>much labor to kill a deer than a rabbit then deer meat cost twice as
>much not that the value is twice as much. This is where you
>misunderstand what a labor theory is.

Labor is a cost; it doesn't matter if the wage is high or low, labor
expended is a real cost. But it may or may not add value.

>Objective prices in a competitive market says that PRICE = MC.

That is merely a theoretical limit. It is not reality.

>That means price is the COST OF THE LAST UNIT PRODUCED.

But in reality, it isn't.

>This is not a labor
>theory. It is quite the contrary.

It is just a more complicated version of the same fallacy.

>So first you have to understand what a
>theory of value is and how a labor theory differs from objective value
>to understand what is being argued.

Objective value is _market_price_, and _not_ the result of some
equation.



>>>If you
>>>really think Roy made sense then you really seriously are biased against
>>>any mainstream economic theory, like Rob, or you just do not understand
>>>what is being said.
>>
>> More garbage. Identifying cost with value is not mainstream economic
>> theory in any place I have ever heard of.
>
>P = MC in a competitive market.

That equation is a falsehood, and corporate assets do not trade in a
competitive market in any case. The purpose of a corporation is to
construct a profit-making _system_ that yields greater returns than
just selling off its assets.

>IF YOU HAVE NOT HEARD OF THAT YOU HAVE
>NEVER TAKEN A SINGLE COLLEGE COURSE IN MAINSTREAM ECONOMICS.

I guess it takes more than one course to unlearn that equation...

>>>The statement is true. I even showed the formulas that back
>>>up the point that there are limits to deficits.
>>
>> Please, Igor. Robert only has so many gigabytes of space in his
>> fumbles file.
>
>The statement is true.

No, it is not.

>There are limits on deficits.

Yes, but political ones, not the ones described by your formulas.

>Interest rates grow
>faster than GDP growth this is almost always the case.

True. Average growth through history has been much lower than average
interest rates. But growth doesn't go broke and reset to zero every
so often, which might help explain the fact that average interest
rates are so much higher than average growth.

>That means if you
>run primary deficits and continue to finance the interest then the DEBT
>IS GROWING FASTER THAN GDP at some point interest payments will exceed
>GDP.

The average interest rate on US government debt has been less than
average US GDP growth. If interest ever becomes too politically
burdensome, the Treasury can just print more money, resetting the
nominal GDP growth rate to more than the interest rate on the debt.

-- Roy L

ro...@telus.net

unread,
Oct 30, 2004, 1:34:59 AM10/30/04
to
On Fri, 29 Oct 2004 01:49:18 GMT, Igor <jjwea...@houston.rr.com>
wrote:

>ro...@telus.net wrote:
>
>> On Thu, 28 Oct 2004 05:55:20 GMT, Igor <jjwea...@houston.rr.com>
>> wrote:
>>
>>>Robert Vienneau wrote:
>>>
>>>>In article <7kLfd.6791$LT1.5725@trnddc09>, "sinister"
>>>><sini...@nospam.invalid> wrote:
>>>>
>>>>>"Robert Vienneau" <rv...@see.sig.com> wrote in message
>>>>>news:rvien-C00412....@news.dreamscape.com...
>>>>>
>>>>>>"It's easy to get over $200,000 in income with two wage earners in a
>>>>>>household."
>>>>>> -- Edward Prescott
>>>>>><http://www.azcentral.com/arizonarepublic/business/articles/1019Prescott
>>>>>>1
>>>>>>9.html>
>>>>
>>>>>Did you see the thread I started, "Fine work by our new Nobelist"?
>>>>
>>>>Yes. It was about another dubious statement by Prescott.
>>>
>>>A "dubious" statement supported by data.
>>
>> No, it wasn't. The value data were simply fabricated.
>
>Sorry this should be listed on alt.conspiracy now. The data come from
>credible stockmarket data nothing is fabricated.

The valuation formulas you gave were just a way of generating numbers,
with little relation to actual market value.

>In the first section
>the equations you do not understand and think are stupid ARE NOT USED.

Then why did you say they were?



>>>A "dubious" statement that was
>>>robust to different measurements.
>>
>> Except the facts of history.
>
>What facts are those that the stock market crashed due to excessive
>margin calls not bad news about profits?

It crashed because the profits weren't going to be there to support
the prices, because the money the corporations had spent on their
capital (resource cost) was not all spent wisely, given changing
market conditions. Margin calls were just the trigger, not the cause.



>>>The statement surprised me but the
>>>data supported it when Fisher did his analysis and Prescott's analysis
>>>supported the statement as well.
>>
>> Except that history proved them both laughably wrong.
>
>How?

By seeing stock prices collapse.

>Why do think that after looking at the data. Just because the
>market crashed due to margin calls not being met does not mean that the
>stocks analyzed were not undervalued.

Yes, it does. You say P = MC in a competitive market, but then
proceed to claim the real-life price verdict of a real-life
competitive market was somehow not valid. Like Prescott, you are
throwing out the facts that disprove your theory on its own terms.

>Profits were high at that period of time.

They weren't going to stay high.

>On the day the market crashed conditions were good. Labor
>disputes had been settled. It was subsequent events that caused the
>economy to tank.

Nope. Money supply growth was already being reversed.

>You think it is silly because you have the silly notion
>that the economy and not the stock market crashed on particular day.

The particular day is irrelevant. Profits based on rapid money supply
growth were not going continue without it.

-- Roy L

Igor

unread,
Oct 30, 2004, 3:06:15 AM10/30/04
to
ro...@telus.net wrote:

> On Fri, 29 Oct 2004 01:39:29 GMT, Igor <jjwea...@houston.rr.com>
> wrote:
>
>
>>ro...@telus.net wrote:
>>
>>
>>>On Wed, 27 Oct 2004 20:33:56 GMT, Igor <jjwea...@houston.rr.com>
>>>wrote:
>>>
>>>
>>>>If you believe that mud pies have the
>>>>same cost as apple pies because labor is paid is the same and they are
>>>>made on the same land then anything seems idiotic.
>>>
>>><sigh> I can spend $1K to make apple pies, or mud pies. That makes
>>>their resource costs identical. Their values are not identical. You
>>>(and Prescott) stand refuted.
>>
>>No it does not make them the same.
>
>
> Yes, it does. $1K = $1K. I am not sure how you prevent yourself from
> knowing such facts, but it is clear that you manage to do it somehow.
>

1K of machines is not equal to one 1K of mud. You get a lot fewer
machines and they are more productive. That is what real measures are
used to isolate the effects of inflation. This puts the analysis is
units not dollars. You forget that the price deflators on these goods
will be different. So 1K of spending to buy a computer a year will not
have the same real valuation of 1k spent on a truck last year.

>
>>How do you think that capital should
>>be empirically measured.
>
>
> Depends on the purpose. In any case, book value is not the same as
> ability to generate profits.
>

Nice way to dodge the question. So you have no alternative to how the
measure the stock we wish to get a return on. In other words you just
want to complain not offer a solution.

>>That
>>means you adjust for inflation to get a measure in real units. How do
>>you suggest to do that other than add up investment( what was paid for
>>the capital) and subtract depreciation.
>
>
> Market value would be better.

How do you determine that if the goods are not being sold. A year old
machine with wear and tear is not going to sell for the same price as a
brand new machine.

> Having paid $1K for something does not
> make it worth $1K,

Yes it does if you are using an objective value. If the good sales for
1K it is worth 1K. Unless you are coming for a labor theory of value or
some other archaic obfusicated theory of value which says sale price is
not equal to the value.

> and most certainly does not mean it will generate
> equivalent profits.

Why not? The willingness to pay for the good is based on the
producitivity the capital brings. Willingnes to sell is based on cost.
The market will agree on a price that says Cost = Value or Price =
expected discounted return on the good. Price determines the amount
paid. Therefore resource cost, a fancy way of saying what was paid for
it, will reflect the value to buyer and the cost to the seller.

> Market value at least indicates a collective
> judgment of the profit stream an asset can be expected to yield.
>

How do you calculate this. If you spent 1K buying the goods on the
market then how can say that was not market value. Are you seriously
saying that would try to estimate the resell price on every single piece
of equiptment a firm given age, wear and tear, etc to estimate a stock.
I hate to tell but that DATA DOES NOT EXIST.


>>So how do you propose it
>>should be measured?
>
>
> The problem with trying to measure capital for economic purposes is
> that it is not homogenous, and different kinds of capital are not
> commensurable except by converting them to money. So if you want to
> estimate the value of capital, market liquidation value is probably
> the closest you can get.
>

How do you obtain that data when no firm keeps it? Book value may not be
the best way. In fact it is rarely used. The way economist construct
capital stocks is a little complicated. You have to use IO tables a
series of deflators for investment and it takes a lot of time and
effort. Saying that you add the prices paid for the good and subtract
deprication is the basic idea but actual methods are more complicated.
To get a sense of how it is done you can look up the NBER productivity
panel. The paper that documents the data has some descriptions of how
the measurements are made in practice. The potential problems and how
they have solved for some them.

If you are arguing the measure used is not perfect I have to agree.
However, there is not much better unless firms start keeping books much
differently than they do now.

Igor

unread,
Oct 30, 2004, 3:13:53 AM10/30/04
to
ro...@telus.net wrote:


>
> True. Average growth through history has been much lower than average
> interest rates. But growth doesn't go broke and reset to zero every
> so often, which might help explain the fact that average interest
> rates are so much higher than average growth.
>

What are you arguing. It is simple take two equations.

1. GDP(t+1) = (1+x)GDP(t)
2. Debt(t+1) = (1+i) debt(t)

It does not take rocket science to figure out that if i>x then debt is
growing faster than GDP. That means at some point it will converge to
GDP and become higher than GDP. Interest payment would eventaully be
higher than GDP. At this point you can not tax or borrow enough to pay
interest.

The analysis does assume the deficit occurs before interest payments are
made. Therefore, all interest is financed.


> The average interest rate on US government debt has been less than
> average US GDP growth. If interest ever becomes too politically
> burdensome, the Treasury can just print more money, resetting the
> nominal GDP growth rate to more than the interest rate on the debt.
>

No. The FED can print more money if it wishes. Congress can not force
the Fed to do anything. They would have to legislate the Fed out of
existance to do this. THE TREASURY CAN NOT PRINT MONEY. That is the
Fed's responsibility to control the money supply.

Interest rates are typically higher than growth rates of GDP.

Igor

unread,
Oct 30, 2004, 3:32:29 AM10/30/04
to
ro...@telus.net wrote:

I did not say there were used in the first cut of estimation. There are
two approaches to estimation used and reported. Again this is explained
IN THE PAPER. You have to read past the abstract. The equations are used
in the second estimation. Presscot uses data similar to Fisher for the
first section. I may be wrong but I think he uses values generated from
stock market data in the first section. I do not remember how exactly he
did it but he followed Fisher's method.

The second section takes into intangibles. The equations are way to find
out how much the intangibles are worth. That is the reason for equating
profits to returns. Capital stocks and there return can be measured. So
if you subtract capital returns from profits what is left is returns
from intangibles. In that section, the model is used as a way to
estimate the value of the unobserved intangible capital assets.

Again I do not have the paper in front of me but I believe the second
method was a robustness check to see if the Fisher results could be
obtained using a different method.


>>What facts are those that the stock market crashed due to excessive
>>margin calls not bad news about profits?
>
>
> It crashed because the profits weren't going to be there to support
> the prices, because the money the corporations had spent on their
> capital (resource cost) was not all spent wisely, given changing
> market conditions. Margin calls were just the trigger, not the cause.
>

Wrong. There was no reason to believe that. Fisher's point was there no
indications and no breaking news that caused expectations to drop. If
you take a freeze frame at that point in time there is absolutely no
indication the recession is about to begin. The dip in profits and the
recession that FED and Roosevelt would turn into the great depression
had not occurred yet. At the moment of the crash stocks were
undervalued. Where they undervalued 2 days later maybe not. Where they
undervalued a year later? Most likely not. The captial stocks may have
dropped or by the formulation intangibles may have dropped.

You arguing that because you know from hindsight a recession was coming
that at THAT moment stocks were undervalued. This is in correct. They
were not Over valued until later.


>
>>>>The statement surprised me but the
>>>>data supported it when Fisher did his analysis and Prescott's analysis
>>>>supported the statement as well.
>>>
>>>Except that history proved them both laughably wrong.
>>
>>How?
>
>
> By seeing stock prices collapse.
>

Stock prices can collaspe while the market is undervalued. Look at 1986.
Undervalued does not mean that the market will immediately jump or that
they are permenantly undervalued. The standard terms means a lower P/E
ratio. Prices are low compared to profits (earnings). At the time of the
crash data shows prices were still low related to the value of the firm.

It does not say one month or one year after the crash that stocks were
still under valued.

>
>>Why do think that after looking at the data. Just because the
>>market crashed due to margin calls not being met does not mean that the
>>stocks analyzed were not undervalued.
>
>
> Yes, it does. You say P = MC in a competitive market, but then
> proceed to claim the real-life price verdict of a real-life
> competitive market was somehow not valid.

That is because stocks do not have marginal cost. They are not a
produced good. Expected profits of the firm drives prices. If expected
profits are high then demand is rising and supply is decreasing. People
want to buy and few want to sell. Prices are high. This is not the same
concept as marginal cost. Stocks are not produced goods and what
determines supply and demand are different. P=MC does not make sense for
stocks because there are no marginal cost. They are an investment that
expect to gain returns.

Capital goods are produced products so if the market is competitive
supply represents MC. Demand represents value to the buyer. P wil equal MC.

>>Profits were high at that period of time.
>
>
> They weren't going to stay high.
>

This does not mean at that one point in time that stocks were
undervalued. Even after the crash profits were high for some period.

>
>>On the day the market crashed conditions were good. Labor
>>disputes had been settled. It was subsequent events that caused the
>>economy to tank.
>
>
> Nope. Money supply growth was already being reversed.
>
>

Yes but it had not taken effect yet. A reversal in policy does not fully
take effect over night. It takes time for the policy to "move through"
the system and have full effect. Freidman estimated at least 9 months
before monetary policy affects aggregate variables. In the 1920's it
actually took a little longer.


ro...@telus.net

unread,
Oct 30, 2004, 4:57:40 AM10/30/04
to
On Sat, 30 Oct 2004 07:13:53 GMT, Igor <jjwea...@houston.rr.com>
wrote:

>ro...@telus.net wrote:
>
>> True. Average growth through history has been much lower than average
>> interest rates. But growth doesn't go broke and reset to zero every
>> so often, which might help explain the fact that average interest
>> rates are so much higher than average growth.
>
>What are you arguing. It is simple take two equations.
>
>1. GDP(t+1) = (1+x)GDP(t)
>2. Debt(t+1) = (1+i) debt(t)
>
>It does not take rocket science to figure out that if i>x then debt is
>growing faster than GDP. That means at some point it will converge to
>GDP and become higher than GDP. Interest payment would eventaully be
>higher than GDP. At this point you can not tax or borrow enough to pay
>interest.

You seem intent on ignoring the fact that in reality, that just can't
happen.

>> The average interest rate on US government debt has been less than
>> average US GDP growth. If interest ever becomes too politically
>> burdensome, the Treasury can just print more money, resetting the
>> nominal GDP growth rate to more than the interest rate on the debt.
>
>No.

Yes.

>The FED can print more money if it wishes. Congress can not force
>the Fed to do anything.

<sigh> I suspect Hummel can correct your ignorance on that score.
Congress can easily force the Fed to print more money, by just
spending without taxing.

>They would have to legislate the Fed out of
>existance to do this.

They legislated it into existence, didn't they?

>THE TREASURY CAN NOT PRINT MONEY. That is the
>Fed's responsibility to control the money supply.

And Congress can easily make it impossible for the Fed to refuse to
print money.

>Interest rates are typically higher than growth rates of GDP.

Not average interest rates on US government debt over the country's
whole history.

-- Roy L

Robert Vienneau

unread,
Oct 30, 2004, 5:35:57 AM10/30/04