Beijing arts update

Shanghai is universally regarded as “the New York of China.”  So I had naturally assumed that its arts scene was more sophisticated than that of  “the Washington DC of China.”  Just the reverse.

A few nights ago my wife and I heard a folk singer named Wang Juan perform at a small club in Beijing called “D-22.”  If I compared her to Faye Wang, it would be primarily because Faye Wong is the only other Chinese folk singer that I know (and in my view her greatest claim to fame is not her music, but rather her performances in the sublime Wong Kar Wai films Chungking Express and 2046.)

D-22 is a tiny, rundown, dark club like the sort I used to frequent in college.  Almost every chair was taken, as the club can only seat about 25 patrons.  It seems nothing special.  But then consider the following list of the top ten classical performances of 2008, compiled by the noted New Yorker music critic Alex Ross.  Right there amidst all the Mozart and Schubert performances by American and European orchestras, is this cryptic line;

Zhang Shouwang, solo improvisation, D22, Beijing (March 27th).

I should back up and explain how I found out about this club.  My Beijing guidebook mentioned that a Beijing University economics professor named Michael Pettis also was highly involved in the local independent rock scene, and ran the club D22.  (Foreign ownership in China is difficult and complex, but he has some sort of complicated stake in the operation, which involves an option to buy.)  The name sounded familiar, and then I realized that I had recently read his blog, which discusses the Chinese economy.  (BTW, the blog is very good.)  I immediately decided that this was someone I needed to talk to, and he graciously agree to meet my wife and I at the Starbucks near his music company office.

We had a long fruitful conversation in which we found out that we were both fans of the Chinese economist Yasheng Huang.  The difference is that Michael and Professor Huang are more pessimistic about China, and I am an optimist.  (And he knows far more than I do about the country.)  Michael came across as handsome, confident and un-neurotic—in other words pretty much the opposite of the typical nerdy economics professor (but then he used to write for the Village Voice, and he also worked in investment banking, so his background is hardly typical.)  Michael also talked about the music scene in China.  The biggest selling acts are the highly polished but bland “Mandopop” groups.  He has helped nurture Beijing’s small alternative rock sub-culture.  Some of these bands have been influenced by western groups like The Velvet Underground, Joy Division and Sonic Youth.  Another influence is minimalism, people like Steve Reich and Glenn Branca.

Michael was most excited about a group called “The Carsick Cars,” which is led by the same Zhang Shouwang that Alex Ross put on his top ten list.  Michael discovered Zhang playing a guitar on the street, and introduced him to some western music.  Unfortunately, I will miss their performance on September 19th, but I did hear one of the songs on the internet, and it does sound a bit like the Velvet Underground.  Michael plans to take the Carsick Cars and several other Chinese bands to NYC, and is looking for venues to play in the northeast—especially colleges.  So if any readers of this blog are interested in bringing this act to their campus, I’m sure Michael would be happy to hear from you.  There is something kind of exciting about the small but growing alternative rock scene in Beijing—Michael said it reminded him of the US during the late 1950s.  Most college students in China have fairly conservative lifestyles, so those into the alternative music scene standout much like the beatniks in the 1950s.

We also visited the famous 798 art district on the outskirts of Beijing.  When last there in 2006 I was able to visit well-known Chinese artists like the Guo brothers right in their studios.  But as these things always go, the artists have mostly moved out leaving expensive galleries, restaurants, etc.  The spaces are quite interesting, old concrete factory buildings with a sort of Bauhaus aesthetic.  (I think they were designed by East Germans.)  The most impressive exhibit was two arrays of roughly 20 large gray flags each in a huge, high-ceiling room.  The flags were painted with the large faces of orphans and forced air kept them billowing.  The ends of the room were painted with faint grey landscapes.  It blew away (literally) everything else we saw, with one exception.  There was a gallery selling digital reproductions of old Chinese paintings from the Palace Museum.   They cost about $2000 each, which is a lot in a country where reproductions of Western CDs sell for as little as 50 cents.  But visual images are far harder to reproduce accurately, and the quality was very impressive.

When we visited the Great Wall for two days we stayed at The Commune by the Great Wall, a collection of modernist villas designed by distinguished architects.  Our room was in a newer and less prestigious building.  (The rooms can be very expensive but on the internet we found a nice suite for $155 dollars a night, not bad for a five star hotel.)  I wasn’t that impressed by the architecture, but I later had a thought that I’d like to get your reaction to, at least any readers with an interest in installation art.  Here’s my idea; what the Taj Mahal is to architecture, what Las Meninas is to painting, what Vertigo is to film, the Great Wall is to installation art.  The hotel we stayed at was near an “unrestored” portion of the Wall, blissfully free of tourists.  Go anytime of year.  See it in winter covered in snow, or in an early morning mist, or (as we did) on a clear day with the late afternoon sun, and it is a fantastic experience.  Snaking over green hills to the left, then twisting right, then disappearing, only to appear even further away on more distant hills.  And just when you think you can’t see any more of it, you catch a glimse of a still more distant section lit up by the setting sun.  It would be no great aesthetic loss if the Spiral Jetty or The Gates had never been built, but try to imagine China without the Great Wall.

You are probably thinking, but is it (installation) art?  Wikipedia defines installation art as:

An artistic genre of site-specific, three-dimensional works designed to transform the perception of space.

I’d say it was designed to transform the invading Mongol armies’ perception of space.  But was it intended to be art?  Go to the Great Wall at Simitai where it climbs up and over soaring vertical cliffs and ask yourself if its designers were motivated merely by utilitarian concerns.  Even without a wall, I can’t imagine the Mongol horses riding up and over near vertical cliffs hundreds of feet high.  (BTW, contrary to conventional wisdom, the wall was a quite effective defensive structure–which helped repel several Mongol invasions in the 16th century.  And it cannot be seen from space.)

When I first arrived in Beijing in 1994 the architecture was pretty ugly.  The communist architecture was just drab gray blocks, and the early commercial architecture was an awful mixture of the East and West.  Unfortunately, some of it is still there on Beijing’s main street, which separates the Forbidden city from Tiannanmen square.  But since about 2003 the city has been absolutely transformed.  I have no idea how they were able to do this so quickly, not so much in terms of the construction, but rather the dramatic increase in sophistication.  We recently ate at an innovative North Asian restaurant in a new hotel in the fashionable Sanlitan district (I think the hotel was called “The Opposite House.”)  It was as sophisticated as anything you’d see in NYC, Paris, or London.  The city of Beijing now has a lot of architecture designed by famous Western architects, such as Rem Koolhaus’s CCTV tower, the world second largest building in terms of floor space, and unlike the largest (the Pentagon) it is very tall and very unusual.  I believe some Chinese claim it looks like a pair of pants.  We also plan to soon visit “the egg” a huge performing arts center under a bubble and surrounded by a moat of water—with no apparent way in.  (You actually enter through a tunnel with a glass ceiling right under the water.)

And of course we went to the Olympic Park.  Between the “Bird’s Nest” and the “Water Cube” is a huge granite plaza.  It continues an axis that starts at the Temple of Heaven, continues through Tiannanmen, the Forbidden city, Beihai Park, and right through the middle of the Olympic Park.  I suppose all this grandiose order sounds a bit fascist (and it was even designed by Albert Speer Jr.)  But at dusk it is actually very delightful.  Like the Japanese, the Chinese like lots of colorful lights at night.  Stand in the sweet spot between the Birds Nest, Water Cube, and a triangular light tower, and you will enjoy an amazing view.   I’m no feng shui expert, but I noticed the Bird’s Nest glows red, the Water Cube is blue, and the light tower is often green (it changes color.)  The Birds Nest is a round shape, but is criss-crossed by lots of straight lines, whereas the Water Cube is obviously rectangular, but is softened by dozens of bubbles.  There will be thousands of other Chinese tourists there (mostly outsiders visiting Beijing) but it doesn’t seem crowded because the space is so vast.

PS,  After I met Michael Pettis I had the thought that he was one of the few people with whom I would like to switch places.  (Along with Patrick Leigh Fermor and Tyler Cowen.)   But then I started to wonder what it would actually mean to become someone else.  Presumably this would also involve adopting their consciousness and memories.  I think when we wish we were someone else we subconsciously assume that we would retain the same set of preferences.  But of course that other person has a completely different set of preferences.  Suppose the happiest person in the world is a 15-year old girl that watches the movie Titanic over and over again, thrilling to each note of Celine Dion’s singing.  If I’m a utilitarian, shouldn’t I want to be that person, regardless of how I might currently view that lifestyle?

I know nothing about reincarnation, but perhaps someone can tell me what it means for “me” to be reincarnated?  I might refer to “my body,” “my soul,” “my consciouness,” or “my 401k plan,” as things I possess.  To whom or what does the term ‘my’ refer to in the preceding sentence?  Presumably if I was reincarnated as someone else, I would then possess their body, soul, consciousness and 401k plan.  So what exactly is the “me” that gets reincarnated?  Perhaps someone who has studied reincarnation can answer these questions for me.

The more I think about the concept of a personal identity, the more I tend to agree with radical skeptics like Schopenhauer and Borges.  How could such a thing exist?  While reading Pessoa yesterday I came across this interesting passage:

It was just a brief moment, and already it’s over.  Once more I see the furniture all around me, the pattern on the old wallpaper, and the sun through the dusty panes.  I saw the truth for a moment.  For a moment I was consciously what great men are their entire lives.  I recall their words and deeds and wonder if they were also successfully tempted by the Demon of Reality.  To know nothing about yourself is to live.  To know yourself badly is to think.  To know yourself in a flash, as I did in this moment, is to have a fleeting notion of the intimate monad, the soul’s magic word.  But that sudden light scorches everything, consumes everything.  It strips us naked of even ourselves.


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22 Responses to “Beijing arts update”

  1. Gravatar of Bob Murphy Bob Murphy
    2. September 2009 at 07:08

    I would derive a large amount of utility if Tyler Cowen were forced to watch Titanic over and over.

  2. Gravatar of Ben Casnocha Ben Casnocha
    2. September 2009 at 08:23

    Scott,

    I also heard Michael Pettis speak (as part of a small group) in Beijing a few weeks ago. He mentioned his club. I posted my notes from Beijing, including a mention of Pettis, here:

    http://ben.casnocha.com/2009/08/lessons-and-impressions-from-china.html

    It’s blocked in China, but accessible via vtunnel.com.

  3. Gravatar of happyjuggler0 happyjuggler0
    2. September 2009 at 08:41

    Michael Pettis’ blog is China Financial Markets.

  4. Gravatar of ssumner ssumner
    2. September 2009 at 16:52

    Bob, I have argued that economies do poorly when people derive utility from the suffering of others. I hope your preferences aren’t too widespread. 🙂

    Ben and Happyjuggler0, Thanks for the info.

  5. Gravatar of calieconomist calieconomist
    4. September 2009 at 21:11

    More NGDP please! 😀

    Economists seem to abhor philosophy in my experience, and the lack of interest in this post is no exception.

  6. Gravatar of ssumner ssumner
    7. September 2009 at 17:41

    calieconomist, Shame on me for thinking I could be another Tyler Cowen. Actually, some of the commenters do know more about philosophy than I do. Greg and Current come to mind, and I’m sure there are lots of others I can’t recall at this moment.

  7. Gravatar of bil. A. bil. A.
    14. September 2009 at 09:59

    I would point out that the illusory nature of personal identity can be seen as one of the core Buddhist insights.
    In that, as well as many other traditions, it is the ‘conditioned self’ (or ‘ego’ in some terminologies) that is reincarnated (the accretions of phenomenal existence), not the true source of being (or being/nonbeing for the monists out there).
    Some forms of koan practice/question-and-answer sessions in zen/ch’an involve relentlessly and mercilessly challenging every justification for the sense of self that one’s brain produces, and have been known to lead to moments of kensho such as described in your Pessoa quote.

    One could see one of the overall functions of the brain as projecting a highly biased, but coherent (and false) sense of identity roughly analogous to one’s personal genetic code – filling in gaps and generating typically ‘self-serving’ narratives.

  8. Gravatar of ssumner ssumner
    16. September 2009 at 04:19

    bil, That makes a lot of sense. But I don’t quite understand the reincarnation idea. Is there supposed to be memory of the previous life? If not, in what sense are accretions of phenomanal experience actually being reincarnated? This may be a stupid question, as I have never studied Buddhism

  9. Gravatar of bil. A. bil. A.
    20. September 2009 at 08:05

    Well I should have started out saying that there are different traditions with differing conceptions of reincarnation. I am most familiar with Buddhism, especially Ch’an/Zen (which makes the most sense to me), so there is a good chance I may be mischaracterizing some of the other versions.

    My understanding is that in much of Hinduism, the personal soul/true self (Atman) is reincarnated, but this is distinct from one’s consciousness/ego/personality. Spiritual progress is the refining/purification of one’s ego until liberation (moksha) is achieved, which may take many lifetimes. So, I’m guessing the idea here is that the soul ‘keeps score’ somehow from one lifetime to the next of virtues attained or lost, but that personal identity/ego/consciousness dies with each body. Aldous Huxley was quite into this stuff.

    The little reading I’ve done about some of the Gnostic traditions suggests a concept of reincarnation more like the popular idea – at death the soul and the personal identity split up but both persist, with the soul acquiring a new personal identity when reborn. However, supposedly a soul can reunite with previous personal identities that are floating around out there, and one can remember being Cleopatra or whatever.

    Now in Buddhism, which developed from Hinduism, there is no enduring personal identity or soul. Reincarnation refers to states of mind, conscious and unconscious, which propagate from moment to moment, both within individuals and across individuals (like waves on the sea). Buddha’s last words included something like “all conditioned things perish”.

    One thing to keep in mind about Buddhism, is that at its core it is a fundamentally pragmatic tradition. Buddha espoused “Upaya” – skillful means, or basically “whatever works” – to encourage enlightenment. The actual “truthfulness” of any particular dogma, concept, or practice is less important than the effects it has on leading to enlightenment (ultimately) and/or also arguably the reduction of suffering (proximately). This is why the Buddhist tradition tends to easily adapt and fuse with other local religions/philosophies. The personal reincarnation of lamas you hear about in the Tibetan Buddhist traditions, for example, are a more of a holdover from the shamanistic, animistic Bon religion of pre-Buddhist Tibet, I believe. I myself see the Taoist-Buddhist fusion that resulted in Ch’an (in China) and Zen (in Japan) to be “better” overall, as it strongly de-emphasizes dogma and scripture, focusing on personal experience.

    I’m not sure that clarifies things much, but I hope it helps. I’ve been studying Buddhism casually for more than 20 years, but I don’t think the concept of reincarnation is very important, so I haven’t spent very much time delving into the subtleties.
    Enjoy your trip to GMU, I’m sorry to say I just moved away from Fairfax a couple of months ago, I wish you had visited earlier.

  10. Gravatar of ssumner ssumner
    26. September 2009 at 12:33

    bil A., Thanks, that does help. I guess I do like the Buddhist idea of no enduring personal identity. The waves metaphor is nice.

  11. Gravatar of rob rob
    26. September 2009 at 13:21

    I’ve never understood what the meaningful distinction is between being reincarnated in another life vs. being reincarnated one moment from now in my same body that is a moment older. Am I really the same being as the one a moment ago? Aren’t I different mentally and physically? Only slightly different, sure, but does that imply I am mainly the same being, but not quite? Yes, I share many memories with the person that was in my body a moment ago (but not all of them!), but why is the continuity of memory so key in terms of defining me as the same being? If I suffer amnesia am I the same being? Or what if my memory has been implanted a la Blade Runner? I suppose I have the same genetic code, but so would an identical twin or a clone. And ten, twenty years from now, won’t I be a very different being? Won’t my personal identity be very different?

    Why should I care more or less about my future “self” than I care about anyone or anything else, since it won’t really be “me” in the future anyway?

    It seems to me that if there is a soul it must exist in everything at once. What we define as a biological life is merely a social convention.

    Scott, I expect a strictly economic response. Use your inner (as in eso-) economist.

  12. Gravatar of rob rob
    26. September 2009 at 15:00

    Nabokov pointed out how horrible the English translation is of Proust’s In Search of Time Lost into Rememberance of things past. The work has nothing to do with the past. It captures the narrators identity in the present moment only.

  13. Gravatar of Current Current
    26. September 2009 at 18:17

    The case of “In Search of Lost Time” is quite well known.

    It’s interesting the words we have in English to describe these things. I can say “I was with my friends” or I can say “I have been with my friends”. The first sentence is in the true past tense, the past progressive. The second is in the present perfect progressive.

    In the first case the person speaks as though the past is real. In the second they speak as though they only have memory of the past which is imprinted on them.

    In English it is only possible to use the second of these forms for the future. I must says “I will be with my friends”. It must be an act. I cannot give it a true tense the word “will” is necessary. Once that word is used only the person can be spoken about, the past can’t be abstract. I can say “In three hours I will have been with my friends”, but that is the only really permissible form.

    One of my friends who is a SF writer once wrote a story using the most awkward tense possible, the future second person: “You will have been”. This was mostly to annoy another writer.

    I quite like these properties of English. They are very like the idea in Austrian Economics that the past is fundamentally different from the future because of knowledge. Time is irreversible, as it passes possibilities are solidified into actuality. No amount of money can be paid to reverse it. Some have said that Capitalist ideas are embedded in the English language, I certainly believe that they are, and this is an example. (The other chief example is that the possession words can be used so generally).

    What I don’t like though is that only some words make it into the simple past tense. I can say “I worked” or “I loved” but these abstractions slightly are cut off from the process of which they are a part. For other concepts I can’t do that. Dying is different from going to El Paso, one must say “I went to El Paso” which is in the past progressive, a concrete process.

    Now, rob, if you really believe what you wrote above, do you think that Shackle is right about economics?

  14. Gravatar of ssumner ssumner
    27. September 2009 at 10:37

    rob and current, This is all way over my head. I did read the Nabokov essay, but even if the Remembrance title is wrong, doesn’t it sound better? BTW, I share rob’s confusion about what reincarnation really means. Especially for people who don’t believe in souls. Borges said that in a sense each man is all men.

    Personal identity is something I don’t begin to understand, but my hunch is that no one else does either. We are much to close to it to make any sort of objective evaluation. Even if we never understand it, it’s fun to read the speculation of people like Pessoa.

    Grammar isn’t my strong point, so I’ll differ to your view Current. In any case, both of your comments were interesting to me.

  15. Gravatar of rob rob
    27. September 2009 at 11:39

    Current,

    I assume you are referring to my statement: “Why should I care more or less about my future “self” than I care about anyone or anything else, since it won’t really be “me” in the future anyway?”

    The question “Why should I care..” doesn’t address whether I am CAPABLE of not caring more or less about X. Probably I am not capable, because it would require a constant awareness of what I’ll call, for lack of a better term: The Matrix. I’m not living in a zen monastery, after all! The illusion of individual continuity of self will guide most all of my behavior. But when I get philosophical, I will argue that I shouldn’t care more about my future “self” than anyone else. It isn’t rational. But it is hard to live life and stay aware of a bigger picture at the same time. I don’t believe in free will either, but live as if I thought I did.

    As to Shackle, understand that I don’t know much at all about economic history. I just looked up Shackle and found an interview in the Austrian Economics Newsletter from 1983. I can’t say I have a great feel for what he might be most famous for, but I found myself agreeing wholeheartedly with a lot of his statements. For instance:

    “…I ended with the conclusion that expectations are far too elusive and subtle to find out any principles or rules to explain their emergence. They’re based on suggestions and you get suggestions from any mortal thing that happens–that you happen to read, that you happen to hear. You get suggestions from anywhere. No mortal person can say where they come from. That, you see, is the trouble. Economics started as an attempt to imitate physics, Newtonian physics, and I think in doing so, it got off on the wrong foot.”

    I’m not sure what this has to do with what I wrote above, but you seem to have correctly inferred the sort of thinking that appeals to my mind! If you’ve made other references to Shackle on this blog, please give me the links. I might have glossed over them.

    The concept borrowed from physics I think most inapplicable to economics is the concept of equilibrium. I don’t believe prices ever achieve something analogous to an equilibrium, and I don’t believe it precisely for the reasons Shackle says above about expectations. They are too much a product of fleeting whim.

    Take for example that a company’s stock price is a function of expected future earnings. Who comes up with those expected future earnings? Stock analysts? And what do they know? Management? My management is always asking me what our revenues will be, and I know what my inabilities are. For a short period, I performed small business valuations. I kept asking others I worked with where they got their assumptions to plug into the CAPM. Nobody ever responded out loud. Most would blink like it was a stupid question, but sometimes someone would make a gesture with a hand reaching beneath their seat in a pulling motion.

  16. Gravatar of Current Current
    27. September 2009 at 13:02

    Scott, I think you probably know more about this sort of thing than me. I haven’t read Nabokov’s essay or any Proust. That’s why I started talking about language.

    rob: “I assume you are referring to my statement: “Why should I care more or less about my future “self” than I care about anyone or anything else, since it won’t really be “me” in the future anyway?”

    The question “Why should I care..” doesn’t address whether I am CAPABLE of not caring more or less about X. Probably I am not capable, because it would require a constant awareness of what I’ll call, for lack of a better term: The Matrix. I’m not living in a zen monastery, after all! The illusion of individual continuity of self will guide most all of my behavior. But when I get philosophical, I will argue that I shouldn’t care more about my future “self” than anyone else. It isn’t rational. But it is hard to live life and stay aware of a bigger picture at the same time. I don’t believe in free will either, but live as if I thought I did.”

    I think that you are forgetting what you are. Surely “you” is, to some extent, a process. Consider some part of a thought at the back of your brain. It will take some time to reach the front. The brain that sent this message isn’t the same as the brain that received it. But the transmission and reception of the message are a part of the construction of thought (if your a physical materialist, I am). You are a four dimensional being, existing in space and time.

    I agree with you about equilibrium, most other Austrian Economists would too.

    I don’t agree with Shackle though. He claims that outcomes are more-or-less determined by expectations. I can’t explain why I disagree very briefly though.

    If you want to learn more about this read Mario Rizzo and Gerald O’Driscoll’s book “The Economics of Time and Ignorance”.

    http://books.google.ie/books?id=5YtYsNxyVnYC&pg=PR14&lpg=PR14&dq=the+economics+of+time+and+ignorance&source=bl&ots=IPvJ7TRaRG&sig=lhH9-7pK2r0l08NH_JHIxuFJNVo&hl=en&ei=Xty_StiyEdirjAeu5Zkg&sa=X&oi=book_result&ct=result&resnum=3#v=onepage&q=&f=false

    I must admit, I have only read some of this book. But, I think you’ll love it.

  17. Gravatar of Current Current
    27. September 2009 at 13:41

    This very critical review of that book is quite interesting too….

    http://mises.org/journals/rae/pdf/RAE1_1_11.pdf

  18. Gravatar of ssumner ssumner
    28. September 2009 at 07:05

    rob, I agree about the elusiveness of personal identity, but disagree about equilibrium. My research has convinced me that market responses are highly rational, and highly informative of the shocks hitting the market. The equilibrium price is sort of the mean forecast of the optimal price—given current information.

  19. Gravatar of Current Current
    28. September 2009 at 07:48

    Prices may be very informative and still not an equilibrium. I think this is the situation.

    This all depends on which concept of equilibrium we are criticizing. The idea that at some times demand and supply equate is true. The problem is the other more general concepts of equilibrium.

  20. Gravatar of rob rob
    28. September 2009 at 15:42

    How do you know when a market is at an equilibrium? You say in your NGDP futures targeting post:

    “Trading would continue until the market reached equilibrium. This would occur when the monetary base had settled at a level where there was no longer any demand for trades.”

    This quote shocks me. Why would demand for trades ever dry up? You don’t see demand for corn futures dry up in the middle of a trading session. The volume might slacken, but it never dries up, even — and I think this is key — without any apparent new information. Time itself changes expectations. Minute changes in the contract price changes expectations. Retrospectively, the market may have consolidated around a certain price for a while — but this is retrospective only. The mean forecast of the optimal price will change from one moment to the next; it will never rest. Traders will abandon losing positions. New forecasts will emerge.

    I think you underestimate how many speculators use strategies which trade in the direction of the price momentum. They might be counteracted by those with strategies which fade price momentum, but their timing will rarely work out to be exactly the same. So whereas I could see an equilibrium occurring if every potential buyer only buys after a down move and ever potential seller only sells after an up move, it doesn’t work this way. It doesn’t work this way in corn futures so I don’t see why it would work this way in NGDP futures.

    Traders will not give up believing that they have some special insight into the market that says “OK, right NOW is the time to pull the trigger on that order…” It might be because it is 2:00 pm and the morning price action convinced the trader, based upon analysis of how the contract has traded over the past 50 days, that 2:00 is the time to buy this contract because there is a 55% chance it will rally until 2:10. In other words, there are all these traders lining up ready to pull the trigger at certain price/time pairs — you can’t see them (unless perhaps you have Goldman’s software), but they are there and the demand for contracts is never-ending. Every market move by one participant reveals more information and causes reevaluation of expectations by other market participants.

    It is with all this in mind that I can’t understand the concept of what a market equilibrium could be.

  21. Gravatar of rob rob
    28. September 2009 at 19:49

    So I don’t sound too stupid: I do realize that for every buyer there is a seller, but there are also market makers who will take the other side of anything for the sake of volume: in this case the Fed would act as market maker. So my point “if every potential buyer only buys after a down move and ever potential seller only sells after an up move…” of course refers to speculators, not market makers.

    Moreover, I don’t think my example above of the way one speculator might trade should be written off as merely a day-trader who is scalping the market who wouldn’t materially affect bigger market moves. Aren’t the big market moves merely the summation of all the smaller ones? True, my example doesn’t use someone who is trying to predict NGDP one year out, but consider this: (I wish I had the story to link to.) There are a few mathematicians who got extremely rich playing the horses in Hong Kong over the past decade, because the horses there race often enough, under similar enough conditions that it was possible to compile enough data to effectively handicap these horses with computers crunching the numbers (despite the house having a 20% vig). They took about a year to tweak their system. One of the tweaks they made at the end was to adjust their handicaps after the statistical analysis by about 50% with regards to the actual track odds on the horses. In other words, even after crunching all the data, they still accounted for the value the market put on these horses. My analogy is this: say you are trading corn (or NGDP) futures, you perform fundamental analysis on the supply and demand numbers and then look at the market price and assess whether the market price is above or below what your analysis says it should be. If you are experienced, you are rarely going to assume the market price is way off, because you know that the market always knows something you don’t. My point being that the current price of the contract itself will influence the expectations of what the final price of the contract will be. The mean forecast of the optimal price will change with each price change — more often than not in the direction of that price change. Again, this behavior will not necessarily tend toward an equilibrium price.

  22. Gravatar of ssumner ssumner
    30. September 2009 at 03:02

    current and rob, Another approach I took to NGDP futures was to offer a number of conditional contracts at various setting of the monetary instrument. So you could ask traders to fill out a form as to how many NGDP futures they’d want to buy or sell at various settings of the monetary base. Tell them the only contracts that will actually be executed are those that most closely equilibrate the net long and short positions. This determines the monetary base setting that is expected to produce on-target NGDP growth, and it also correctly identifies the market equilibrium on that day.

    Of course no one would deny that the equilibrium shifts over time, as new information becomes available.

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