Re: Fundamentals

["John M. Legge" <jlegge@xxxxxxxxxxxxxx>]

John V,

are you saying that an economy is not part of the universe?  or that people
are not subject to physical laws? or that a supernova is a trivial event
compared to a decline in share prices on Wall Street?

JML

> -----Original Message-----
> From: pkt-owner@xxxxxxxxxxxxxxxx [mailto:pkt-owner@xxxxxxxxxxxxxxxx]On
> Behalf Of John Vertegaal
> Sent: Wednesday, 28 March 2001 12:53 AM
> To: POST KEYNESIAN THOUGHT
> Subject: Re: Fundamentals
>
>
>
> What in heaven's name do fundamental particles in the universe
> have to do with the values _we_ have put on existing economic
> assets?  Are you serious; playing me for dumb; or perhaps a
> bit confused and trying to apply the math of an evolving
> physical system on a path from here to there, to a self-
> resolving system of accounts?
>
> Our universe doesn't relinquish huge segments of its being
> just because we are unable to calculate trajectories.
> But the economy is no doubt subject to total collapse when,
> because of plain ignorance about how returns materialize, our
> economic values get far enough out of whack.  To equate the
> two is absurd.
>
> By all means though, keep your faith in the micro foundations
> that underlie capital values, you've got plenty of company
> and apparently it's written in the stars that you are right.
>
> John V
>
>
> John M. Legge wrote:
>
> >John V,
>
> >In the sense that every fundamental particle in the universe
> has a spin,
> >charge, position and velocity determinate to the level permitted by
> >Heisenberg the point of departure for any real process (and
> if you accept
> >the idea of a material brain, every imaginary one too) is
> determinate.
>
> >It would require, however, a computer of complexity of the
> order of N^N^N
> >(where N is the number of fundamental particles in the universe, not
> >forgetting photons) to make long term predictions of the
> trajectory of the
> >universe or any non-trivial subset of it.  The trajectory of
> the universe
> >and all non-trivial subsets of it is incalculable to any
> agent limited to
> >using a computer no bigger than the universe itself: "the
> universe is its
> >own best predictor".
>
> >Fundamentals, in the sense that you describe them, may exist
> but limitations
> >on our knowledge and our computing ability mean that any
> predictions that we
> >make should be expected to deviate from emerging reality at
> an exponential
> >rate (the Lyapunov exponent).  Since our knowledge of
> today's fundamentals
> >can be no better than approximate, our predictions will be
> subject to a
> >wider margin of error than our current knowledge is, and
> this error will
> >grow with time.
>
> >If you use the term "fundamental" in a less fundamental way,
> as I do, and
> >apply it to the problem of determining what a reasonable person might
> >reasonably pay for an income-generating asset, when not influenced by
> >speculative or beauty contest motives, the Dixit and Pindyck
> approach, or
> >any other approach based on uncertainty increasing with the
> time from now to
> >the expected event, produces a pragmatically acceptable result.
>
> >Such approaches also suggest a rational liquidity preference
> and offer
> >micro-level support to Keynes as distinct from Marshall and
> the finance
> >textbooks which suggest that investments with an
> infinitesimally positive
> >interest rate are to be preferred to holding cash.
>
> >Note to Steve K if you have got this far: the payback method
> of project
> >valuation is reasonably valid for investments where the
> opportunity is
> >available to all members of the relevant industry and the
> returns commence
> >without delay.  Such investments are typically associated with cost
> >reductions.  (Working through the required combination of
> diffusion and
> >uncertain investment models consistently suggests hurdle
> rates consistent
> >with approximately a three year payback.)  D&P style augmented NPV
> >calculations are needed when the investment phase itself will take a
> >significant amount of time, such as the development and
> testing of a new
> >product.
>
> >JML
>
>
>