tag:blogger.com,1999:blog-7905515.post7145423959598021973..comments2024-03-14T11:09:32.759-05:00Comments on Falkenblog: 2008 Re-Invigorates Macro?Eric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-7905515.post-23937151213007664902009-10-07T08:00:21.430-05:002009-10-07T08:00:21.430-05:00I address this at more length in my book, finding ...I address this at more length in my book, finding Alpha, and discuss it more at http://www.defprob.com/video/chap6/chap6.html<br /><br />But, fundamentally, I see profits as a return on equity capital, and this has been about the risk free rate when all the costs are added up. Marx thought profits were going to zero. Why take risk for the same return? The Search for Alpha, people looking for their comparative advantage.Eric Falkensteinhttps://www.blogger.com/profile/07243687157322033496noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-61331713378104357142009-10-07T07:02:33.322-05:002009-10-07T07:02:33.322-05:00Eric,
not being into finance, there is though som...Eric,<br /><br />not being into finance, there is though something about the equity premium puzzle that puzzles me. Looking at it from the point of view of a businessman, not an investor, if the equity premium were zero, why would I have my capital invested in a business? I would expect that the aggregate equity premium for all companies in US must be positive, otherwise there would be no incentives to have a business. <br /><br />Even stronger, is it obvious that a zero-equity-premium is compatible with GDP growth? The 6% of GDP that corporate after-tax profits represent is suspiciously similar to the 6% average GDP growth in the past century. How correct is it to say no profits, not growth without premium?<br /><br />Again, I may be missing something critical, but stocks are not pieces of paper, they represent pieces of a business. I would describe the premium as an ownership premium, if you wish. Didn't even Marx notice the importance of profits for capitalism? After all, the common statement that they yield more because they are risky does not apply to options. As you have said in the past, being even more risky, they should yield even more. But of course, there is such a thing, and options are not the claim to the ownership of anything.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-19576289704985015652009-10-06T22:59:45.892-05:002009-10-06T22:59:45.892-05:00Eric,
What of curiosity what do you think are the...Eric,<br /><br />What of curiosity what do you think are the important questions that economists should be addressing?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-54520491853921104362009-10-06T22:29:05.404-05:002009-10-06T22:29:05.404-05:00Eric,
You're talking about the question(s) of...Eric,<br /><br />You're talking about the question(s) of why bubbles form, which is of course very important.<br /><br />But I think there is another, related question for macroeconomists to answer: How do endogenous financial effects (like bubbles) affect the real economy? And can policy exert any degree of control over that transmission mechanism? That seem to me to be a question that economists, more than finance people, are in a position to tackle.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.com