Against my better judgement, I've started reading the newspaper again. On the one hand, it is sort of interesting to know what is happening in the world on a day to day basis, but on the other hand, what is happening in the world on a day to day basis tends to be depressing. I also tend to get totally enraged upon reading about current events when I see bad logic and poor arguments being paraded around as sound reasons for making important decisions. Here's one of them-

Recently, in New York City, a large group of mostly young people have started a protest called 'Occupy Wall Street' which has received a lot of coverage. In the photo I saw, people dressed up like zombies shove money in their orifices- which I take to mean they think that Wall Streeters are souless and only love money. Criticisms of the protest have focused on the fact that the protesters are not taking any cohesive strategy of civil disobedience, have not articulate any goals for policy change, and are just generally showing dissastisfaction with Wall Street but not presenting any constructive alternative. (It's totally possible I messed up some of this description, but this is the sense I get from the papers)

This protest exemplifies to me what I think is a popular and wrong position right now among (very loosely) average Americans. They seem to think a few things: 1) Wall Street was responsible for the Financial Crash, 2) Wall Street is bad and should be abolished/changed/heavily regulated/at least some smart person should figure out a way so that those moneygrubbing Wall Streeters cannot create another crisis, 3) Investing is good or at least permissable.

It's my contention that 1 is wrong, or at least simplistic enough that it lacks any real explanatory punch (although I could be wrong about this, I'm certainly not an expert), that 2 might be right or wrong and that 3 might be right or wrong. The key point here is that both 2 and 3 cannot both be true at once and therefore the intuitions/opinions of average enraged Americans involve contradiction.

To simplify matters, I'll take a simpler position which assumes 1 is true. P: Institutional investing should be abolished (Wall Street) and personal investing should be permissable. P isn't a reasonable position however, in that the vast majority of personal investing is mediated by institutions - eg pension funds, mutual funds etc. So then we have to say something like P*: The bad institutions should be regulated/made illegal. However, that doesn't quite work either. In the case of the crash of 2008, many, many "good" institutions bought credit default swaps and the like. They just happened to be horribly wrong about the value of said swaps, and ended up losing their shirts. That leaves then P**: a bad institution is one that is able to profit off of complex and volatile financial derivatives (and the like). And we should illegalize/regulate those! But P** is pretty clearly tantamount to saying that "If someone is smarter than me and beats me in a game of skill for money, I/we are justified in banning them from the playing field." To draw a common analogy, it's as if all the fish in the poker world woke up one morning and said: "Hey guys, poker is pretty friggin' complicated. These poker pros have access to forums and databases and tracking software and HUDS and quantitative software and devote tons of time to the game and are just generally smarter than us fish. That means we can't win! So we should ban pros from playing poker." There are two problems with this view or any view of this kind, 1) It's unjust and 2) It leads to a regress, as if the winners in a game are banned, then as winners are banned some set of losers will become winners who will in turn be the target of the same winner-banning policy and so on ...

However, I did draw the distinction at the top of the previous paragraph (that between solo and institutional investors) in order to show a possible non-contradictory way in which both 2 and 3 can be true. This is Q Institutional investing should be banned (or regulated) in all cases and non institutional investing (this can obviously be definied in various ways: eg exactly one person, set of persons < N, set of capital < N, etc) should remain legal/regulated as is. But I don't think Q is what most people are thinking of when they set out to Occupy Wall Street. I think they want their mutual funds/pension plans/various investments to deliver consistent and positive returns outperforming treasuries/interest rates and they also want it to be impossible for smart people to make a fortune in the markets. They can't fairly have both.

I'll trot out one more pretty speculative account of what might be the motivation for the inconsistent "common sense" view argued against above. It seems to me that people have a mistaken view of what investing is, and that this mistaken view leads to bad intuitions about policy. I think that when people hear "investing" they think of a practice which is guaranteed to have positive returns in the long run, subject to some short term fluctuations up and down. (a funny consequence of this view might be that people holding it have the intuition that shorting something is somehow morally reprehensible.) A possible reason they might think this is that over the past 60 years, which coincides with just about everyone currently investing's lifetimes, the American stock market has had extremely positive returns fairly consistently. However, there is absolutely no reason why this trend has to necessarily continue- past trends do not determine the future: this is the problem of induction. I think people think that Wall Street has somehow "rigged the game" and deprived their investments of the positive returns which are their just due. But an investment (in a stock, for example, not going to talk about derivatives) is just that, owning a very small part of a company. If the company does well, the investment likely produces positive returns, if the company does poorly (for whatever reason) the investment is likely to produce negative returns. Poker players know how to define that situation with a better term than "investment", we prefer to call it a bet.

Btw, this is all stream of consciousness, so not going to edit for content or grammar, there are likely to be errors. Let me know if you like this style of blog!