Tyler Cowen: belief

Transcript context

…Here’s another quote from Keynes. “Investment based on genuine long-term expectation is so difficult as to be scarcely practicable. He who attempts it must surely lead much more laborious days and run greater risks than he who tries to guess better than the crowd how the crowd will behave.” So one way to look at this is like, oh, he just doesn’t understand the efficient market hypothesis. It’s like before random walks or something. But there are things you can see in the market today. Where are the prospects for future dividends so much higher after Covid than they were immediately after the crash? How much of market behavior can be explained by these sorts of claims from Keynes? I think Keynes had the view that for his time, you could be a short-run speculator and in fact beat the markets. And he believed that he did so, and at least he did for some periods of his life. That may have been luck, or maybe he did have special insight. It probably wasn’t true in general, though we don’t really know. Did efficient markets hold during Britain at that time? Maybe there just were profit opportunities for smarter than average people. So that’s a view. I’m inclined not to believe it. But again, I don’t think it’s absurd. Keynes is saying, for people who want money, this is biased toward the short term. You can get your profits and get out. And that’s damaging long-term investment, which in fact, he wanted to socialize. So he’s being led to a very bad place by the argument. But again, we shouldn’t dismiss it out of hand. Why is it not easy to retrospectively study how efficient markets were back then, in the same way we can study it now? You look at the price-to-earnings ratios, and then what were the dividends afterwards over the coming decades for those companies based on their stock price or something?…

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