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TheMoneyIllusion货币幻觉

美国本特利大学经济学教授斯科特·萨姆纳(Scott Sumner)

 
 
 

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美国本特利大学经济学教授

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理论家VS.真实世界本质  

2009-05-24 00:11:57|  分类: 默认分类 |  标签: |举报 |字号 订阅

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Eggheads vs. “real world nitty-gritty”

I am getting burned out dealing with endless complaints about the way I think about markets.  Thus I thought it might be useful to compare my views to what I hear from those down in the trenches.  Those who actually know how auction-style markets work.  Bob supplied a typical complaint:

The financial instability caused a huge demand for commodities as investment - just look at the USO holdings of futures contracts last spring. Airlines don’t buy ETFs to get their oil.

I’m increasingly coming to the conclusion that academic economists have pretty close to 0 comprehension of how commodity futures markets actually function (this is really not even directed at you Scott). They don’t even understand the theory of futures pricing, let alone the real world nitty-gritty.

OK, so us academic economists are idiots.  That’s pretty much what I been saying about my fellow economists during this crisis, so I won’t get defensive here.  But where do I go for enlightenment?  Perhaps I should listen to those in the trenches.  So I turn on one of the Wall Street shows, and this is what I hear:

“There’s lot’s of cash on the side lines, waiting to go into the market”

I have a question; when tourists visit the NYSE do they get to see the room where they keep all the cash that investors put “into” the stock market?

Next I hear explanations for why stocks fell 1.8% on a given day:

“A selling wave hit the market in late afternoon, driving stocks sharply lower.”

Well thanks for clearing that up.

Before people accuse me of sarcasm, let me admit I make the same mistakes on occasion.  It’s human nature.  Sometimes humor makes a point more forcefully.  (BTW, Bob had a much longer comment, and made well have been correct.)  Of course I know what people “really mean” by the remarks I made up, and I certainly don’t think either economists or real world traders are idiots.  Often we simply use different language.  So the following is in my language.  Feel free to agree or disagree.

Let’s start with the selling wave on Wall Street.  Presumably what the trader meant is that at the previous price, more investors wanted to sell than buy.  Of course actual sales equal actual purchases, so on days when a selling wave hits Wall Street, a buying wave also hits Wall Street.  One might refer to types of buyers and sellers (specialists, market-makers, or whatever they call them) but even that is not really an explanation.  Stocks can fall sharply on massive volume with (at the end of the day) no change in the net holdings of any particular group.  What matters is price.  Indeed in the days before 24 hour trading the stock market would often crash without a single share being sold.  It would crash when the market was closed, and reopen the next day with the very first share being sold at much lower prices.  So my first claim is this:

1.  The fact that speculators “poured money” into a particular market tells us absolutely nothing about price movements.  Correct me if I am wrong, but the decision of investors to pour $100s of trillions into oil futures, would not make oil futures prices go up one cent.  This is because as fast as the money poured into the markets it would pour right out again.  (Every transaction is a purchase and sale.)

2.  Of course speculation can change the price of spot oil.  This can occur in several ways:

a.  It may lead producers to think that future production will be more profitable than current production.  Thus higher futures prices might cause suppliers to produce less.

b.  Consumers of oil may decide to burn less oil and store more oil, again in anticipation that future consumption will be more beneficial than current consumption.  There could be many reasons for this, but the most obvious would be expectations of higher future oil prices.

So I do understand that expectations of higher future oil prices can increase current oil prices.  I’m just not convinced that that was the key factor behind the 2007-08 oil price run-up.  I don’t see any reason why oil prices could not have stayed high if the world economy had not crashed in the second half of 2008.  Markets deal with enormous amounts of uncertainty.  Obviously when major unexpected shifts in the business cycle come along, prices will change dramatically.  And the pre-crash prices will look foolish in retrospect.

The data suggests world oil production rose slightly between 2007 and 2008.  I also believe that inventories were slightly lower in 2007 and didn’t change much in 2008.  Thus I don’t see evidence that speculators caused high prices.  If anything speculators seem to have held prices down in 2007, as oil stocks were shrinking, and been roughly neutral in 2008.  Here is the data I looked at:

World oil production, consumption and inventories

I freely admit that I may have misinterpreted the data.  It is possible that speculators played a major role in the oil price run-up.  Maybe oil production would have risen even more without speculation.  But I don’t see any evidence for that hypothesis.  And I don’t consider the fact that people bought and sold lots of oil futures to be evidence of anything.

There is a very deep human instinct to try to explain things that seem mysterious, but on closer examination don’t need any explanation.  In politics that shows up as conspiracy theories:

1.  The trilateral commission.

2.  Who really shot JFK?

3.  Who was behind 9/11?

4.  Where are those Iraqi WMD?

5.  The NBA draft lottery.

etc.

In economics it tends to show up in theories that mischievous speculators are causing undesirable price changes.  Speculators get a bad rap.  They are simply trying to make money—doing the best they can.  If they buy oil, it’s because they think oil will be higher in the future, and they want to conserve some today for when it will be more valuable to society.  (Of course that’s not what they are thinking, rather it’s what Adam Smith’s invisible hand is encouraging them to do.)  Sometimes they are right and sometimes they are wrong.  That’s all one can really say.

I know this seems to contradict my monetarist “excess cash balance” transmission mechanism.  But that is different.  In that case the money market itself is in disequilibrium, but it doesn’t cause any particular price bubble.  In a flexible price world, a 10% increase in the money supply should, ceteris paribus, raise all prices by 10%.  If prices are sticky it may have real effects, and cyclically sensitive prices may rise more.  But in the first half of 2008 the U.S was in a mild recession.  So I don’t see how monetary policy could have raised real oil prices through the normal monetary mechanisms (QTM or cyclical effects.)  And thus I don’t see why oil would go up because of easy money.  Why not equities?  If you say because the oil market was “hot,” my response is it was hot because of real factors–like rising demand in LDCs.  Note OECD demand was falling but LDC demand was rising, and not just in China.

OK. Fire away.  Tell me how I don’t know anything about markets.  I’m not thin-skinned.

PS.  A Chinese language version of this blog was just set up by Netease (which I believe is roughly the Yahoo of China.)  Someone told me that my picture was also on Netease’s finance and economics page.  Given the Chinese interest in stocks, that means probably about 100 times more people have now seen my face than in the previous 53 years of my existence.  Interestingly, I am going to China later this year.  Here is the site–notice all the pictures.  I plan a post on the Chinese yuan this weekend, to welcome the new visitors from China.

Disclaimer:  I have no control over this new site, and am not responsible for translations or choice of pictures, etc.

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