Comments on: Parable of the Multiplier Hole http://www.overcomingbias.com/2010/03/parable-of-the-multiplier-hole.html Overcoming Bias is economist Robin Hanson’s blog, on honesty, signaling, disagreement, forecasting, and the far future. Sun, 12 Feb 2012 04:20:14 +0000 hourly 1 http://wordpress.org/?v=3.1.3 By: Overcoming Bias : Let Us Give To Future http://www.overcomingbias.com/2010/03/parable-of-the-multiplier-hole.html#comment-506407 Overcoming Bias : Let Us Give To Future Mon, 19 Sep 2011 22:37:17 +0000 http://www.overcomingbias.com/?p=22190#comment-506407 [...] 18 months ago I wondered: [...] [...] 18 months ago I wondered: [...]

]]> By: gwern http://www.overcomingbias.com/2010/03/parable-of-the-multiplier-hole.html#comment-505468 gwern Sun, 18 Sep 2011 19:49:28 +0000 http://www.overcomingbias.com/?p=22190#comment-505468 Looks like things may be changing: http://www.laphamsquarterly.org/essays/trust-issues.php?page=all Looks like things may be changing: http://www.laphamsquarterly.org/essays/trust-issues.php?page=all

]]> By: Tribsantos http://www.overcomingbias.com/2010/03/parable-of-the-multiplier-hole.html#comment-444298 Tribsantos Tue, 16 Mar 2010 20:35:32 +0000 http://www.overcomingbias.com/?p=22190#comment-444298 Professor, The failure is in the rationality of the person that assumes the obligation to honor the interest rate. You hypotheses is based on the assumption that F*(your gift) so far in the future is a lot better than spending it now. If you didn't think so, there would be no point in renouncing comsumption for such a distant person. Let's assume that people live forever. So I lend you X dollars today, to collect in a thousand years. If it is obvious that the value I will get after interest rates is many times better than the value of spending it today, I have to be tricking you. Professor,
The failure is in the rationality of the person that assumes the obligation to honor the interest rate. You hypotheses is based on the assumption that F*(your gift) so far in the future is a lot better than spending it now. If you didn’t think so, there would be no point in renouncing comsumption for such a distant person.
Let’s assume that people live forever. So I lend you X dollars today, to collect in a thousand years. If it is obvious that the value I will get after interest rates is many times better than the value of spending it today, I have to be tricking you.

]]> By: Doug S. http://www.overcomingbias.com/2010/03/parable-of-the-multiplier-hole.html#comment-444217 Doug S. Mon, 15 Mar 2010 04:52:16 +0000 http://www.overcomingbias.com/?p=22190#comment-444217 Some interesting trivia: At his richest, John D. Rockefeller had more money than the annual budget of the U.S. federal government. Some interesting trivia: At his richest, John D. Rockefeller had more money than the annual budget of the U.S. federal government.

]]> By: cournot http://www.overcomingbias.com/2010/03/parable-of-the-multiplier-hole.html#comment-444195 cournot Sun, 14 Mar 2010 21:26:17 +0000 http://www.overcomingbias.com/?p=22190#comment-444195 You may also be using the wrong deflators. If you use standard CPI or other price indices, it does seem to be a lot of money. But if you think about it in terms of relative wealth you get a different figure [and standard price adjustments aren't great for looking far back in the past]. I think a pound was about 5 dollars. So if we assume that 1000 pounds = 5000 nominal dollars and we use the Econ History's price deflators http://www.measuringworth.com/uscompare/ we find that this comes to over $2M if we use the unskilled wage and about $5M if we use nominal GDP. As a relative share of GDP, this figure would have been an enormous $380M or so. The latter is not an irrelevant calculation. Given how wealthy someone had to be (relative to the poor in the 18th century) to fork over a thousand pounds in Franklin's time, he might have done more good with it then than you could do with 2 to 5 million bucks today. You may also be using the wrong deflators. If you use standard CPI or other price indices, it does seem to be a lot of money. But if you think about it in terms of relative wealth you get a different figure [and standard price adjustments aren't great for looking far back in the past]. I think a pound was about 5 dollars. So if we assume that 1000 pounds = 5000 nominal dollars and we use the Econ History’s price deflators http://www.measuringworth.com/uscompare/
we find that this comes to over $2M if we use the unskilled wage and about $5M if we use nominal GDP. As a relative share of GDP, this figure would have been an enormous $380M or so. The latter is not an irrelevant calculation.

Given how wealthy someone had to be (relative to the poor in the 18th century) to fork over a thousand pounds in Franklin’s time, he might have done more good with it then than you could do with 2 to 5 million bucks today.

]]> By: Doug S. http://www.overcomingbias.com/2010/03/parable-of-the-multiplier-hole.html#comment-444184 Doug S. Sun, 14 Mar 2010 17:58:27 +0000 http://www.overcomingbias.com/?p=22190#comment-444184 Indeed. Wouldn't throwing *cash* through our magic multiplier hole just cause inflation on the other side? Indeed. Wouldn’t throwing *cash* through our magic multiplier hole just cause inflation on the other side?

]]> By: Doug S. http://www.overcomingbias.com/2010/03/parable-of-the-multiplier-hole.html#comment-444183 Doug S. Sun, 14 Mar 2010 17:53:13 +0000 http://www.overcomingbias.com/?p=22190#comment-444183 If they don't invest it, then don't they give it to someone else by spending it? Not that much money sits around as cash in people's mattresses these days, but I'll admit that it may very well end up in a checking account that gets little or no interest. And money sitting around in a checking account gets turned into bank loans anyway. As far as I can tell, letting money sit in bank accounts for 200 years doesn't increase the growth of the overall economy. Compound interest only produces money, not wealth. If they don’t invest it, then don’t they give it to someone else by spending it? Not that much money sits around as cash in people’s mattresses these days, but I’ll admit that it may very well end up in a checking account that gets little or no interest. And money sitting around in a checking account gets turned into bank loans anyway. As far as I can tell, letting money sit in bank accounts for 200 years doesn’t increase the growth of the overall economy. Compound interest only produces money, not wealth.

]]> By: jsalvatier http://www.overcomingbias.com/2010/03/parable-of-the-multiplier-hole.html#comment-444182 jsalvatier Sun, 14 Mar 2010 17:39:26 +0000 http://www.overcomingbias.com/?p=22190#comment-444182 Addendum: The most obvious real mechanism someone could have in mind is that production is mostly capital constrained as opposed to technology constrained. If we have not run into significant declining marginal productivity of capital then saving more real resources now gives the future a lot more productivity. However, it seems fairly clear to me that we are mostly technology constrained, so I don't think saving now gives the future a lot more productivity. Addendum:

The most obvious real mechanism someone could have in mind is that production is mostly capital constrained as opposed to technology constrained. If we have not run into significant declining marginal productivity of capital then saving more real resources now gives the future a lot more productivity. However, it seems fairly clear to me that we are mostly technology constrained, so I don’t think saving now gives the future a lot more productivity.

]]> By: jsalvatier http://www.overcomingbias.com/2010/03/parable-of-the-multiplier-hole.html#comment-444181 jsalvatier Sun, 14 Mar 2010 17:23:04 +0000 http://www.overcomingbias.com/?p=22190#comment-444181 I think that Robin and some others are getting somewhat tripped up by monetary economics. I think it would be useful for Robin to try to reformulate his argument in a strictly barter economy. The reason is this: if an estate saves money, it demands money if it spends money it demands less money. So if an estate had a large amount of cash (relative to the economy as a whole) and then decided to spend it one day, it would cause a large drop in total money demand. One of two things can happen: if the central bank does nothing you get a large rise in the price level which reduces the activities of everyone; if the central bank offsets the change in money demand, by reducing the money supply. This later action reduces the economic activities of everyone else (not the estate). Simply saving cash does not move real resources into the future. In order to move resources into the future you need a non-financial phenomena that does it. Perhaps Robin has one in mind, but he hasn't made it clear. It's useful to think of money as giving you control over a fraction of economic activity at a particular time, not giving you control over an *amount* of economic activity. I think that Robin and some others are getting somewhat tripped up by monetary economics. I think it would be useful for Robin to try to reformulate his argument in a strictly barter economy.

The reason is this: if an estate saves money, it demands money if it spends money it demands less money. So if an estate had a large amount of cash (relative to the economy as a whole) and then decided to spend it one day, it would cause a large drop in total money demand. One of two things can happen: if the central bank does nothing you get a large rise in the price level which reduces the activities of everyone; if the central bank offsets the change in money demand, by reducing the money supply. This later action reduces the economic activities of everyone else (not the estate).

Simply saving cash does not move real resources into the future. In order to move resources into the future you need a non-financial phenomena that does it. Perhaps Robin has one in mind, but he hasn’t made it clear.

It’s useful to think of money as giving you control over a fraction of economic activity at a particular time, not giving you control over an *amount* of economic activity.

]]> By: Jess Riedel http://www.overcomingbias.com/2010/03/parable-of-the-multiplier-hole.html#comment-444175 Jess Riedel Sun, 14 Mar 2010 15:57:35 +0000 http://www.overcomingbias.com/?p=22190#comment-444175 Yes, but that's the <em>far</em> far future, not "a few centuries". Not only is exponential economic growth unlikely for the same reasons that exponential population growth cannot continue, but the likelihood that I can help anyone I would want to help given the extreme environment seems vanishingly small. At this point, the argument really seems like Pascal's wager. Yes, but that’s the far far future, not “a few centuries”. Not only is exponential economic growth unlikely for the same reasons that exponential population growth cannot continue, but the likelihood that I can help anyone I would want to help given the extreme environment seems vanishingly small. At this point, the argument really seems like Pascal’s wager.

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