“They Can Make Everything for Less”: Woody Brock on Why Productivity is Mismeasured and Understated

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Has productivity growth slowed in the U.S. and around the world, as conventional measurements suggest? Or is that just an illusion, caused by the difficulty of measuring the quality improvements (instead of quantity improvements) that now constitute the bulk of productivity growth? In a provocative interview, Horace (“Woody”) Brock, an economist, strategist and consultant to many of the world’s leading …

The Equity Risk Premium: A Contextual Literature Review

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The equity risk premium (ERP), or equity premium, is the difference in expected or realized return between an equity index and a reference asset, where the latter is usually a bond or bill portfolio considered to be “riskless.” In the modern literature and in investment management practice, ERP usually means “expected ERP” and we will stick to that convention, reserving …

Woody Brock: Global Growth is Mismeasured and Understated

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Has productivity growth slowed in the U.S. and around the world, as is the conventional wisdom? Or is that just an illusion, caused by the difficulty of measuring the quality improvements (instead of quantity improvements) that constitute the bulk of productivity growth? In a provocative interview, Horace (“Woody”) Brock, an economist, strategist and consultant to many of the world’s leading …

Fire Marshal in a Nightclub: Richard Bookstaber Explains Financial Risk Management

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Richard Bookstaber has authored two superbly written and thoughtfully argued books on the flaws of the financial system. His first, A Demon of Our Own Design (2007), was focused on the system’s complexity and foresaw the global financial crisis of 2007-2009. His latest book, The End of Theory, argues that economics as currently understood is poorly designed to understand the …

Index Fund Silliness: Indexing Doesn’t Distort Anything

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In a burst of silliness, index funds have recently been compared to Communism, called un-American, and regarded as proof of our essentially lazy nature. But those are softballs. In a harder-edged attack, cash flows into index funds have been blamed for pushing the prices of a few favored stocks up to astronomical levels, distorting markets and making indefensible capital allocation …

The Age of Experts: A Review of Marc Levinson’s An Extraordinary Time

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How good were the good old days? Was the post-World War II economic boom in the United States and other developed countries a truly special period, one that we cannot expect to repeat, even over centuries-long time frames? Where did those exceptional growth rates come from, and what — if anything — can we do to bring them back? In …

Value Investing: Robots versus People

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Who is better at value investing: robots or people? How have robots — the quantitatively-driven passive funds that hold, for example, low price-to-book stocks — fared against actively managed value mutual funds? A provocative paper forthcoming in the Financial Analysts Journal, “Facts About Formulaic Value Investing,” by U-Wen Kok, Jason Ribando, and Richard Sloan, argues that robots are poor value …

Disruption – Conference Roundup

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Jimmy Wales, founder of Wikipedia, and Jack Bogle, founder of Vanguard, were among the distinguished speakers at the 2017 Morningstar Investment Conference in Chicago. Both men’s accomplishments have disrupted existing practices in ways that have almost uncountable benefits for mankind. As I’ll demonstrate, each of them has been responsible for two major disruptions. Wales set as his objective the dissemination …

To Hell in a Handbasket? No Way, Says Johan Norberg

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Is the world going to hell in a handbasket? Are most people getting poorer while the rich get richer? Have we destroyed the planet? In a sparkling — and delightfully short — new contribution to the econo-optimist genre, Johan Norberg, author of Progress: Ten Reasons to Look Forward to the Future, emphatically answers “no.” Consider the following:In 1981, “extreme” poverty …

What We Can Learn from Andrew Lo’s Adaptive Markets

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Is the market efficient? Of course not – not exactly, or not even close, depending on your point of view. However, the efficient market hypothesis (EMH), while self-evidently not quite correct, has remained surprisingly resistant to overturning. The reason is that, as MIT professor Andrew W. Lo says repeatedly in his new book, Adaptive Markets, “it takes a theory to …

Value Investing: Robots versus People

Laurence Articles

Who is better at value investing: robots or people? How have robots – the quantitatively-driven passive funds that hold, for example, low price-to-book stocks – fared against actively managed value mutual funds? A provocative paper forthcoming in the Financial Analysts Journal, “Facts About Formulaic Value Investing,” by U-Wen Kok, Jason Ribando, and Richard Sloan, argues that robots are poor value …

Floods and Deserts: Why the Dream of a Secure Pension for Everyone Is Still Unattained

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Why have defined benefit (DB) pension plans, arguably the most elegantly engineered financial service ever created, stumbled so badly? Less than 50 years after achieving wide acceptance and providing predictable and secure benefits to their participants, many DB plans have been terminated, and others struggle to attain adequate funding levels. Many of the terminated DB plans have been replaced with …

A Nation of Slugs?

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Have we all gone lazy? Are Americans no longer the restless go-getters they once were? Has our culture changed in ways that impede economic progress instead of naturally promoting it? In his new book, The Complacent Class, Tyler Cowen, one of the most eclectic and inventive of today’s authors on economic issues, says yes to all of these. Not so …

Tyler Cowen and the Fallacy of American Laziness

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Have we all gone lazy? Are Americans no longer the restless go-getters they once were? Has our culture changed in ways that impede economic progress instead of naturally promoting it? In his new book, The Complacent Class, Tyler Cowen, one of the most eclectic and inventive authors on economic issues, says yes to all of these questions. Not so fast, …

Five Mysteries Surrounding Low and Negative Interest Rates

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Zero and negative nominal interest rates are something new under the sun. In 3,800 years of history, we’ve only observed near-zero rates a few times, and almost never negative ones. Of course, real rates have been negative for extended periods, but this is different. There is much that we do know about the relationship between nominal interest rates, inflation, real …

Middle-Class Wage Stagnation Is a First-World Problem – The World is Getting Richer

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A common lament during the presidential campaign was middle-class income stagnation and the wealth of the top 1%. But are most people getting poorer while the rich get richer? In a sparkling – and delightfully short – new contribution to the econo-optimist genre, Johan Norberg, author of Progress: Ten Reasons to Look Forward to the Future, emphatically answers “no.” Consider …

The Bromance that Turned Economics Upside Down

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Who would guess that the modern sciences of behavioral economics and the psychology of decision-making owe their origin to a love affair (no, not sexual) between two men born early in the last century and so different that one could barely imagine them speaking to each other? Yet that is the story chronicled by the extraordinary nonfiction writer Michael Lewis …