Paul Samuelson

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Samuelson Friedman: The Battle Over the Free Market by Nicholas Wapshott

2021 United States Capitol attack, Alan Greenspan, bank run, basic income, battle of ideas, Bear Stearns, Berlin Wall, Bretton Woods, business cycle, California gold rush, collective bargaining, coronavirus, corporate governance, COVID-19, creative destruction, David Ricardo: comparative advantage, Donald Trump, double helix, en.wikipedia.org, fiat currency, financial engineering, fixed income, floating exchange rates, full employment, God and Mammon, greed is good, Gunnar Myrdal, income inequality, indoor plumbing, invisible hand, John von Neumann, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, light touch regulation, liquidity trap, lockdown, low interest rates, Machinery of Freedom by David Friedman, market bubble, market clearing, mass immigration, military-industrial complex, Money creation, money market fund, Mont Pelerin Society, moral hazard, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, paradox of thrift, Paul Samuelson, Philip Mirowski, Phillips curve, price mechanism, price stability, public intellectual, pushing on a string, quantitative easing, rent control, road to serfdom, Robert Bork, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, seminal paper, Simon Kuznets, social distancing, Tax Reform Act of 1986, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, too big to fail, trickle-down economics, universal basic income, upwardly mobile, urban renewal, War on Poverty, We are all Keynesians now, Works Progress Administration, zero-sum game

Barnett, University of Kansas, December 23, 2003. 2.Massachusetts Institute of Technology (MIT) 150 Oral History project, July 19, 2007. https://infinitehistory.mit.edu/video/paul-samuelson. 3.As first cousins, they were obliged to move from Chicago, where the marriage of first cousins was illegal, first to Wisconsin, then Indiana, where it wasn’t. 4.MIT 150 Oral History project, July 19, 2007. https://infinitehistory.mit.edu/video/paul-samuelson. 5.Ibid. 6.MIT150 Oral History project. https://infinitehistory.mit.edu/video/paul-samuelson. 7.Karen Ilse Horn, Roads to Wisdom, Conversations with Ten Nobel Laureates in Economics (Edward Elgar, Cheltenham, England, 2009), p. 43. 8.MIT150 Oral History project. https://infinitehistory.mit.edu/video/paul-samuelson. 9.Ibid. 10.His father owned a set of Harvard Classics—the most important books in the Western canon—included one of the founding works of economics, Adam Smith’s Wealth of Nations, but young Samuelson failed to read it. 11.Thomas Robert Malthus (February 13, 1766–December 29, 1834), English cleric who studied the influence of demographics on economics. 12.MIT 150 Oral History project. https://infinitehistory.mit.edu/video/paul-samuelson. 13.Aaron Director (September 21, 1901–September 11, 2004), a professor at the University of Chicago Law School who played a central role in the founding of the Chicago School of economics.

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Barnett, University of Kansas, December 23, 2003. 2.Massachusetts Institute of Technology (MIT) 150 Oral History project, July 19, 2007. https://infinitehistory.mit.edu/video/paul-samuelson. 3.As first cousins, they were obliged to move from Chicago, where the marriage of first cousins was illegal, first to Wisconsin, then Indiana, where it wasn’t. 4.MIT 150 Oral History project, July 19, 2007. https://infinitehistory.mit.edu/video/paul-samuelson. 5.Ibid. 6.MIT150 Oral History project. https://infinitehistory.mit.edu/video/paul-samuelson. 7.Karen Ilse Horn, Roads to Wisdom, Conversations with Ten Nobel Laureates in Economics (Edward Elgar, Cheltenham, England, 2009), p. 43. 8.MIT150 Oral History project. https://infinitehistory.mit.edu/video/paul-samuelson. 9.Ibid. 10.His father owned a set of Harvard Classics—the most important books in the Western canon—included one of the founding works of economics, Adam Smith’s Wealth of Nations, but young Samuelson failed to read it. 11.Thomas Robert Malthus (February 13, 1766–December 29, 1834), English cleric who studied the influence of demographics on economics. 12.MIT 150 Oral History project. https://infinitehistory.mit.edu/video/paul-samuelson. 13.Aaron Director (September 21, 1901–September 11, 2004), a professor at the University of Chicago Law School who played a central role in the founding of the Chicago School of economics.

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It was Kaldor who, while at the London School of Economics in 1931, had, on Lionel Robbins’s instruction, helped Hayek with his use of English in the duel-by-learned-journal against Keynes. 58.MIT Oral History project. https://infinitehistory.mit.edu/video/paul-samuelson. file:///Users/nicholaswapshott/Downloads/Paul%20A.%20Samuelson.pdf. 59.Lawrence Henry “Larry” Summers (November 30, 1954–), whose father, Robert Summers, (who changed his name from Samuelson to Summers) is Paul Samuelson’s brother. President Emeritus and Charles W. Eliot University Professor of Harvard University. Former chief economist of the World Bank (1991–1993); Undersecretary of the Treasury for International Affairs (1993–1995); Deputy Secretary of the Treasury (1995–1999); Secretary of the Treasury (1999–2001); President of Harvard University (2001–2006) Director of the National Economic Council (2009–2010). 60.MIT memorial service for Samuelson, April 10, 2010. http://news.mit.edu/2010/samuelson-memorial-0412. 61.Samuelson personal correspondence, 2004.

Phil Thornton by The Great Economists Ten Economists whose thinking changed the way we live-FT Publishing International (2014)

Alan Greenspan, availability heuristic, behavioural economics, Berlin Wall, bitcoin, Bretton Woods, British Empire, business cycle, business process, call centre, capital controls, Cass Sunstein, choice architecture, cognitive bias, collapse of Lehman Brothers, Corn Laws, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, double helix, endogenous growth, endowment effect, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, fixed income, Ford Model T, full employment, hindsight bias, income inequality, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Kenneth Arrow, Kenneth Rogoff, Kickstarter, liquidity trap, loss aversion, mass immigration, means of production, mental accounting, Myron Scholes, paradox of thrift, Pareto efficiency, Paul Samuelson, Post-Keynesian economics, price mechanism, pushing on a string, quantitative easing, Richard Thaler, road to serfdom, Ronald Coase, Ronald Reagan, school vouchers, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, Toyota Production System, trade route, transaction costs, unorthodox policies, Vilfredo Pareto, women in the workforce

Only time will tell what impact that debate will have on Samuelson’s long-term reputation. Further reading K. Puttaswamaiah, Paul Samuelson and the Foundations of Modern Economics (Transaction Publishers, 2001). Paul Samuelson, Foundations of Economic Analysis (1947). Paul A. Samuelson, Economics: an introductory analysis (1948). Paul A. Samuelson, Collected Scientific Papers (1966). Paul Samuelson (ed.), Inside the Economist’s Mind (2007). Mark Skousen, ‘The Perseverance of Paul Samuelson’s Economics’, Journal of Economic Perspectives, Vol. 11(2) (1997), pp. 137–52. E. Cary Soloki and Robert M. Brown (eds), Paul Samuelson and Modern Economics Theory (McGraw-Hill, 1983).

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Chapter 7 • Milton Friedman165 Abraham Hirsch and Neil de Marchi, Milton Friedman (University of Michigan Press, 1991). William Ruger, Milton Friedman (Continuum, 2011). CHAPTER 8 Paul Samuelson– the neoclassical synthesist 167 168 The Great Economists ‘I don’t care who writes a nation’s laws – or crafts its advanced treaties – if I can write its economics textbooks.’ Paul Samuelson, Foreword to The Principles of Economics Course: A Handbook for Instructors, 1990 In the official speech awarding the Nobel Prize in economic sciences to Paul Samuelson in 1970, Professor Assar Lindbeck, of the Stockholm School of Economics, said that more than any other contemporary economist, the new laureate had contributed to raising the general analytical and methodological level in economic science.

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In the meantime firms produce an output by employing the labour supplied by those young workers, but also by using the capital that has been made available by those workers’ savings (such as pension funds taking large shareholdings in businesses). 6. W. Nordhaus, ‘Paul Samuelson and Global Public Goods: a commemorative essay for Paul Samuelson’ (5 May 2005) http://www.econ.yale. edu/~nordhaus/homepage/PASandGPG.pdf Chapter 8 • Paul Samuelson179 While Samuelson’s theory was purposefully model-based and made assumptions that did not always equate with real life, the framework of the model provided the basis for future research.

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

"Friedman doctrine" OR "shareholder theory", Abraham Wald, activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, Andrei Shleifer, AOL-Time Warner, asset allocation, asset-backed security, bank run, beat the dealer, behavioural economics, Benoit Mandelbrot, Big Tech, Black Monday: stock market crash in 1987, Black-Scholes formula, book value, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, card file, Carl Icahn, Cass Sunstein, collateralized debt obligation, compensation consultant, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, democratizing finance, Dennis Tito, discovery of the americas, diversification, diversified portfolio, Dr. Strangelove, Edward Glaeser, Edward Thorp, endowment effect, equity risk premium, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Glass-Steagall Act, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Bogle, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, market bubble, market design, Michael Milken, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, power law, prediction markets, proprietary trading, prudent man rule, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Bork, Robert Shiller, rolodex, Ronald Reagan, seminal paper, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, Skinner box, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, stocks for the long run, tech worker, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, Two Sigma, Tyler Cowen, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

It was also because most finance scholars had ceased to care about the hard work of making judgments about risk and return in the stock market. Who needed judgment, after all, when everybody knew that stock price movements were completely random? CHAPTER 4 A RANDOM WALK FROM PAUL SAMUELSON TO PAUL SAMUELSON The proposition that stock movements are mostly unpredictable goes from intellectual curiosity to centerpiece of an academic movement. WHEN PAUL SAMUELSON ARRIVED AT the Massachusetts Institute of Technology in 1940, allowed to slip away from Harvard by an economics department chairman who valued neither math geeks nor Jews, the engineering-dominated school didn’t even offer a Ph.D. in economics.

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And the whole saga is laid out in vastly more detail in William Poundstone, Fortune’s Formula (New York: Hill and Wang, 2005), esp. 192–97. 25. As recalled by Mark Rubinstein. CHAPTER 4: A RANDOM WALK FROM PAUL SAMUELSON TO PAUL SAMUELSON 1. Jürg Niehans, A History of Economic Theory: Classic Contributions 1720–1980 (Baltimore: Johns Hopkins University Press, 1990). 2. Paul A. Samuelson, Economics: An Introductory Analysis (New York: McGraw-Hill, 1948), 570, 573. 3. Michael Szenberg, Aron Gottesman, and Lall Ramrattan, Paul Samuelson: On Being an Economist (New York: Jorge Pinto Books, 2005), 85. 4. The student, Richard Kruizenga, was chiefly interested in describing the securities and sketching their history.

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A Random Walk from Fred Macaulay to Holbrook Working Statistics and mathematics begin to find their way into the economic mainstream in the 1930s, setting the stage for big changes to come. The Rise of the Rational Market 3. Harry Markowitz Brings Statistical Man to the Stock Market The modern quantitative approach to investing is assembled out of equal parts poker strategy and World War II gunnery experience. 4. A Random Walk from Paul Samuelson to Paul Samuelson The proposition that stock movements are mostly unpredictable goes from intellectual curiosity to centerpiece of an academic movement. 5. Modigliani and Miller Arrive at a Simplifying Assumption Finance, the business school version of economics, is transformed from a field of empirical research and rules of thumb to one ruled by theory. 6.

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems by Linda Yueh

3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bike sharing, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, export processing zone, Fall of the Berlin Wall, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, general purpose technology, Gini coefficient, Glass-Steagall Act, global supply chain, Great Leap Forward, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low interest rates, low-wage service sector, manufacturing employment, market bubble, means of production, middle-income trap, mittelstand, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, technological determinism, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

Rebecca Lai, 2016, ‘Election 2016: Exit Polls’, The New York Times, 8 November; www.nytimes.com/interactive/2016/11/08/us/politics/election-exit-polls.html 3.    Derek Thompson, 2009, ‘An Interview with Paul Samuelson, Part One’, The Atlantic, 17 June; www.theatlantic.com/business/archive/2009/06/an-interview-with-paul-samuelson-part-one/19586/ 4.    John Cassidy, 2009, ‘Postscript: Paul Samuelson’, The New Yorker, 14 December. 5.    Thompson, ‘An Interview with Paul Samuelson’. 6.    David C. Colander and Harry Landreth, 1996, The Coming of Keynesianism to America: Conversations with the Founders of Keynesian Economics, Cheltenham: Edward Elgar, p. 28. 7.    

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The sentiment would be even stronger for their intellectual followers who have lived through the extraordinary period of globalization since the end of the Cold War in the early 1990s and incorporated such insights into their research. There are many who have benefited from the pioneering research of the Great Economists, but MIT’s Paul Samuelson stands out. His theories embody the synthesis of Keynesian and neoclassical ideas that characterize economics today. Samuelson helped develop the ‘neoclassical synthesis’ approach, which is the basic framework for modern macroeconomics, discussed in the Keynes chapter. In addition, Paul Samuelson’s seminal work furthered David Ricardo’s model and has become the standard set of theories for analysing the impact of international trade on the economies of trading nations.

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Samuelson’s research explained how trade boosted growth, but at the same time unevenly affected workers. His work can help us think about the ‘losers’ from international trade. So, the ideas of this great economist can point to how to address the backlash against globalization. Paul Samuelson, ‘the last of the great general economists’ Paul Samuelson was born in 1915 and came of age in the 1930s, when the rise of protectionism worsened the US economy. Samuelson was the leading Keynesian in America after the Second World War, although he described himself as a ‘cafeteria Keynesian’ as he merely selected the parts that he liked.3 He adopted Keynesianism after being taught by top neoclassical economists at the University of Chicago, where he enrolled at the age of sixteen, after which he obtained his PhD at Harvard University and joined MIT in 1940.

The Great Economists: How Their Ideas Can Help Us Today by Linda Yueh

3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bike sharing, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, export processing zone, Fall of the Berlin Wall, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, general purpose technology, Gini coefficient, Glass-Steagall Act, global supply chain, Great Leap Forward, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low interest rates, manufacturing employment, market bubble, means of production, middle-income trap, mittelstand, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, technological determinism, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

Rebecca Lai, 2016, ‘Election 2016: Exit Polls’, The New York Times, 8 November; www.nytimes.com/interactive/2016/11/08/us/politics/election-exit-polls.html 3. Derek Thompson, 2009, ‘An Interview with Paul Samuelson, Part One’, The Atlantic, 17 June; www.theatlantic.com/business/archive/2009/06/an-interview-with-paul-samuelson-part-one/19586/ 4. John Cassidy, 2009, ‘Postscript: Paul Samuelson’, The New Yorker, 14 December. 5. Thompson, ‘An Interview with Paul Samuelson’. 6. David C. Colander and Harry Landreth, 1996, The Coming of Keynesianism to America: Conversations with the Founders of Keynesian Economics, Cheltenham: Edward Elgar, p. 28. 7.

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The sentiment would be even stronger for their intellectual followers who have lived through the extraordinary period of globalization since the end of the Cold War in the early 1990s and incorporated such insights into their research. There are many who have benefited from the pioneering research of the Great Economists, but MIT’s Paul Samuelson stands out. His theories embody the synthesis of Keynesian and neoclassical ideas that characterize economics today. Samuelson helped develop the ‘neoclassical synthesis’ approach, which is the basic framework for modern macroeconomics, discussed in the Keynes chapter. In addition, Paul Samuelson’s seminal work furthered David Ricardo’s model and has become the standard set of theories for analysing the impact of international trade on the economies of trading nations.

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Samuelson’s research explained how trade boosted growth, but at the same time unevenly affected workers. His work can help us think about the ‘losers’ from international trade. So, the ideas of this great economist can point to how to address the backlash against globalization. Paul Samuelson, ‘the last of the great general economists’ Paul Samuelson was born in 1915 and came of age in the 1930s, when the rise of protectionism worsened the US economy. Samuelson was the leading Keynesian in America after the Second World War, although he described himself as a ‘cafeteria Keynesian’ as he merely selected the parts that he liked.3 He adopted Keynesianism after being taught by top neoclassical economists at the University of Chicago, where he enrolled at the age of sixteen, after which he obtained his PhD at Harvard University and joined MIT in 1940.

Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes by Mark Skousen

Albert Einstein, banking crisis, behavioural economics, Berlin Wall, Bretton Woods, business climate, business cycle, creative destruction, David Ricardo: comparative advantage, delayed gratification, experimental economics, financial independence, Financial Instability Hypothesis, foreign exchange controls, full employment, Hernando de Soto, housing crisis, Hyman Minsky, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, liberation theology, liquidity trap, low interest rates, means of production, Meghnad Desai, microcredit, minimum wage unemployment, money market fund, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, Phillips curve, Post-Keynesian economics, price stability, pushing on a string, rent control, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Solow, rolodex, Ronald Coase, Ronald Reagan, school choice, secular stagnation, Simon Kuznets, The Chicago School, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, Tragedy of the Commons, unorthodox policies, Vilfredo Pareto, zero-sum game

Government expenditures on goods and services, which had been running at under 15 percent of GNP during the 1930s, jumped to 46 percent by 1944, while unemployment reached the incredible low of 1.2 percent of the civilian labor force" (Lipsey, Steiner, and Purvis 1987, 573). Paul Samuelson Raises the Keynesian Cross As noted earlier, Keynes died in 1946, right after the war. It would be left to his disciples to lead the charge and create a "new economics." Fortunately for Keynes, a young wunderkind was ready to till his shoes. His name was Paul Samuelson, and he would write a textbook that would dominate the profession for more than an entire generation. The year was 1948, one of those watershed years that occasionally crops up in economics.

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Marx protested the evils of exploitation in the capitalist system, and yet, according to one biographer, he "exploited everyone around him—his wife, his children, his mistress and his friends—with a ruthlessness which was all the more terrible because it was deliberate and calculating" (Payne 1968, 12). Paul Samuelson adds, "Marx was a gentle father and husband; he was also a prickly, brusque, egotistical boor" (Samuelson 1967b, 616). In sum, Marx ranted about the inner contradictions of capitalism, yet he himself was constantly beset by inner dissension. Marx's Christian Faith The most surprising irony is that Karl Marx—considered one of the most vicious opponents of religion—was brought up a Christian though many of his ancestors were rabbis.

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Under capitalism, the rate of profit has failed to decline, even while more and more capital has been accumulated over the centuries. 2. The working class has not fallen into greater and greater misery. Wages have risen substantially above the subsistence level. The industrial nations have seen a dramatic rise in the standard of living of the average worker. The middle class has not disappeared, but expanded. As Paul Samuelson concludes, "The immiserization of the working class . . . simply never took place. As a prophet Marx was colossally unlucky and his system colossally useless" (1967, 622). 3. There is little evidence of increased concentration of industries in advanced capitalist societies, especially with global competition. 4.

Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street by William Poundstone

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Albert Einstein, anti-communist, asset allocation, Bear Stearns, beat the dealer, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bletchley Park, Brownian motion, buy and hold, buy low sell high, capital asset pricing model, Claude Shannon: information theory, computer age, correlation coefficient, diversified portfolio, Edward Thorp, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, Henry Singleton, high net worth, index fund, interest rate swap, Isaac Newton, Johann Wolfgang von Goethe, John Meriwether, John von Neumann, junk bonds, Kenneth Arrow, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Michael Milken, Myron Scholes, New Journalism, Norbert Wiener, offshore financial centre, Paul Samuelson, publish or perish, quantitative trading / quantitative finance, random walk, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Ronald Reagan, Rubik’s Cube, short selling, speech recognition, statistical arbitrage, Teledyne, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, traveling salesman, value at risk, zero-coupon bond, zero-sum game

Moments later, he slumped to the sidewalk. He was dead of a brain hemorrhage at the age of forty-one. Kelly would thereafter be known for an incidental connection to a movie he never saw—and for the gambling formula that would carry his name on to posterity. PART THREE Arbitrage Paul Samuelson PAUL SAMUELSON LOVED HARVARD. The love was not entirely requited. By the age of twenty-five, Samuelson had published more journal articles than his age. This distinction seemed to count little at Harvard, where Samuelson was boxed into a low-paying post as an economics instructor. Tenure was a remote prospect.

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• Private Wire • Minus Sign PART TWO: BLACKJACK Pearl Necklace • Reno • Wheel of Fortune • More Trouble Than an $18 Whore • The Kelly Criterion, Under the Hood • Las Vegas • The First Sure Winner in History • Deuce-Dealing Dottie • Bicycle Built for Two PART THREE: ARBITRAGE Paul Samuelson • The Random Walk Cosa Nostra • This Is Not the Time to Buy Stocks • IPO • Bet Your Beliefs • Beat the Market • James Regan • Resorts International • Michael Milken • Robert C. Merton • Man vs. Machine • Why Money Managers Are No Good • Enemies List • Widows and Orphans PART FOUR: ST. PETERSBURG WAGER Daniel Bernoulli • Nature’s Admonition to Avoid the Dice • Henry Latané • The Trouble with Markowitz • Shannon’s Demon • The Feud • Pinball Machine • It’s a Free Country • Keeping Up with the Kellys • Though Years to Act Are Long • All Gambles Are Alike • A Tout in a Bad Suit • My Alien Cousin PART FIVE: RICO Ivan Boesky • Rudolph Giuliani • With Tommy Guns Blazing • The Parking Lot • Welcome to the World of Sleaze • Ultimatum • Princeton-Newport Partners, 1969–88 • Terminator • The Only Guy on Wall Street Who’s Not a Rat PART SIX: BLOWING UP Martingale Man • Kicking and Screaming • I’ve Got a Bad Feeling About This • Thieves’ World • Fat Tails and Frankenstein • Survival Motive • Eternal Luck • Life’s Rich Emotional Experiences PART SEVEN: SIGNAL AND NOISE Shannon’s Portfolio • Egotistical Orangutans • Indicators Project • Hong Kong Syndicate • The Dark Side of Infinity Notes Bibliography Acknowledgments Prologue: The Wire Service THE STORY STARTS with a corrupt telegraph operator.

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“And he gave beautiful talks—when he gave a talk. But he hated to do it.” In 1958 Shannon accepted a permanent appointment as professor of communication sciences and mathematics at MIT. Almost from his arrival, “Shannon became less active in appearances and in announcing new results,” recalled MIT’s famed economist Paul Samuelson. In fact Shannon taught at MIT for only a few semesters. “Claude’s vision of teaching was to give a series of talks on research that no one else knew about,” explained MIT information theorist Peter Elias. “But that pace was very demanding; in effect, he was coming up with a research paper every week.”

Milton Friedman: A Biography by Lanny Ebenstein

Abraham Wald, affirmative action, Alan Greenspan, banking crisis, Berlin Wall, Bretton Woods, business cycle, classic study, Deng Xiaoping, Fall of the Berlin Wall, fiat currency, floating exchange rates, Francis Fukuyama: the end of history, full employment, Hernando de Soto, hiring and firing, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Arrow, Lao Tzu, liquidity trap, means of production, Modern Monetary Theory, Mont Pelerin Society, Myron Scholes, Pareto efficiency, Paul Samuelson, Phillips curve, Ponzi scheme, price stability, public intellectual, rent control, road to serfdom, Robert Bork, Robert Solow, Ronald Coase, Ronald Reagan, Sam Peltzman, school choice, school vouchers, secular stagnation, Simon Kuznets, stem cell, The Chicago School, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thorstein Veblen, zero-sum game

I also had the opportunity to meet David’s wife, Elizabeth, and to have a telephone conversation with Milton’s nephew Alan Porter. Friedman’s longtime secretary, Gloria Valentine, was encouraging and helpful. Others who gave interviews include Gary Becker, Anna Jacobson Schwartz, Lester Telser, Larry Sjaastad, Thomas Sowell, Sam Peltzman, Stephen Stigler, Larry Wimmer, John Turner, and the late D. Gale Johnson. Paul Samuelson sent a useful letter with reactions to some questions. For my biography of Hayek, I had the opportunity to interview W. Allen Wallis, Edwin Meese, and Ronald Coase, among others, and to talk briefly on the phone with Aaron Director. I also thank in particular J. Daniel Hammond, Robert Leeson, and William Frazer for their work on Friedman; the University of California at Santa Barbara for use of its library and interlibrary loan program; the Hoover Institution on War, Revolution and Peace for use of its Friedman archive; the Intercollegiate Studies Institute and Young America’s Foundation for participation in conferences on Friedman; the Liberty Fund for participation in a conference on Frank Knight; Walter Mead for encouragement and assistance; Tom Schrock for continuing advice; Mark Skousen for calling various articles to my attention; Joe Atwill and Curtis Ridling, and Cyndy x Phillips for reviewing the manuscript; and Nik Schiffmann and Lee Gientke for research contributions.

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If prices go down, the opposite will occur. Prices are an informationbestowing mechanism. Theoretically, Viner influenced Friedman more than anyone else, and it was from Viner that Friedman learned microeconomics. Stories of Viner’s toughness and even ferocity as a teacher were and remain legion. Paul Samuelson, an economics undergraduate at Chicago at the same time that Friedman was a graduate student and who received the Nobel Prize in Economics in 1971, recalls Viner’s “famous” 301 course in economic theory. During it, students “sat tensely around the table.”3 If Viner called on a student three times and the student could not provide satisfactory answers, the student was out of the class.

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According to the economic historian William Frazer, “Recalling Friedman’s Chicago year 1934–35 with Henry Schultz, Martin Bronfenbrenner [another Chicago student of the era] remembered Friedman mainly as a statistician rather than an economist, and Abba Lerner . . . recalled Friedman as being non-political in 1937.”12 According to Leonard Silk, who has also written on Friedman, early in his career Friedman seemed “more eager to be known as a first-class technician and objective social scientist than as a political crusader.”13 Paul Samuelson remembers Friedman as a grad student as “not primarily a macroeconomist. Just a really smart guy ready to be into anything,” noting that Friedman’s Chicago teachers were “macroeconomists.”14 Friedman expressed these views as late as a 1946 pamphlet with George Stigler opposing rent control: “For those, like us, who would like even more equality than there is at present . . . , it is surely better to attack directly existing inequalities in income and wealth at their source than to ration each of the hundreds of commodities and services that compose our standard of living.”15 In a 1948 article, Friedman wrote that among his long-run objectives was “substantial equality of economic power....

Capital Ideas: The Improbable Origins of Modern Wall Street by Peter L. Bernstein

Albert Einstein, asset allocation, backtesting, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bonfire of the Vanities, Brownian motion, business cycle, buy and hold, buy low sell high, capital asset pricing model, corporate raider, debt deflation, diversified portfolio, Eugene Fama: efficient market hypothesis, financial innovation, financial intermediation, fixed income, full employment, Glass-Steagall Act, Great Leap Forward, guns versus butter model, implied volatility, index arbitrage, index fund, interest rate swap, invisible hand, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Arrow, law of one price, linear programming, Louis Bachelier, mandelbrot fractal, martingale, means of production, Michael Milken, money market fund, Myron Scholes, new economy, New Journalism, Paul Samuelson, Performance of Mutual Funds in the Period, profit maximization, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk free rate, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, stochastic process, Thales and the olive presses, the market place, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, transfer pricing, zero-coupon bond, zero-sum game

“Theory of Rational Option Pricing.” Bell Journal of Economics and Management Science, Vol. 4 (Spring), pp. 141–183. Merton, Robert C. 1974. “On the Pricing of Corporate Debt: the Risk Structure of Interest Rates.” Journal of Finance, Vol. XXIX, No. 2 (May), pp. 449–470. Merton, Robert C. 1983. “Paul Samuelson’s Financial Economics.” In Paul Samuelson and Modern Economic Theory, Cary E. Brown and Robert M. Solow, eds. New York: McGraw-Hill Book Company. Merton, Robert C. 1988. Personal statement (unpublished manuscript). Merton, Robert C. 1989. “On the Application of the Continuous-Time Theory of Finance to Financial Intermediation and Insurance.”

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I have been unusually fortunate in having had such generous and essential assistance from the people named below. The book could never have taken shape without the participation of the people whose work it describes: Fischer Black, Eugene Fama, William Fouse, Hayne Leland, Harry Markowitz, John McQuown, Robert C. Merton, Merton Miller, Franco Modigliani, Barr Rosenberg, Mark Rubinstein, Paul Samuelson, Myron Scholes, William Sharpe, James Tobin, Jack Treynor, and James Vertin. Each of them spent long periods of time with me in interviews, and most of them engaged in voluminous correspondence and telephone conversations as well. All of them read drafts of the chapters in which their work is discussed and gave me important criticisms and suggestions that enrich virtually every page of the book.

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All of them read drafts of the chapters in which their work is discussed and gave me important criticisms and suggestions that enrich virtually every page of the book. Most of them also provided their photographs. Each in his own way contributed to my understanding of the subject matter well beyond the chapters that were their immediate concern. In this regard, I hope I may be forgiven if I single out Paul Samuelson, my friend of more than fifty years. He served uncomplainingly as my mentor, inspiration, and inexhaustible research associate from the very beginning; the accumulation of handwritten wisdom that passed from his fax to my fax is a treasure in itself. And my thanks as well to Janice Murray, who made our communication so easy and rewarding.

The Rise of the Quants: Marschak, Sharpe, Black, Scholes and Merton by Colin Read

Abraham Wald, Albert Einstein, Bayesian statistics, Bear Stearns, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, capital asset pricing model, collateralized debt obligation, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, discovery of penicillin, discrete time, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, fixed income, floating exchange rates, full employment, Henri Poincaré, implied volatility, index fund, Isaac Newton, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Long Term Capital Management, Louis Bachelier, margin call, market clearing, martingale, means of production, moral hazard, Myron Scholes, Paul Samuelson, price stability, principal–agent problem, quantitative trading / quantitative finance, RAND corporation, random walk, risk free rate, risk tolerance, risk/return, Robert Solow, Ronald Reagan, shareholder value, Sharpe ratio, short selling, stochastic process, Thales and the olive presses, Thales of Miletus, The Chicago School, the scientific method, too big to fail, transaction costs, tulip mania, Works Progress Administration, yield curve

There is now a much greater volume of trading in these derivatives, in commodities futures and in options markets, in credit default swaps and mortgage-backed securities, in foreign exchange futures and bond futures than in the traditional market for corporate securities. Yet, before the publication of the theory from the great minds Fischer Black and Myron Scholes, we knew little about how to price such financial derivatives. Meanwhile, Robert Merton, a disciple of the great mind Paul Samuelson, was rapidly extending the relatively static models of finance to a dynamic context that more effectively included time. In creating dynamic models of finance, he was able to more fully describe the evolution of markets over time. The techniques he developed, originally with the market for options in mind, even more clearly delineated finance from economics.

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By all accounts, Harvard was impressed with Lintner. Upon receipt of his PhD, he was asked to remain at the university under a three-year paid membership to the Harvard Society of Fellows to pursue a research agenda as he saw fit. As a Harvard fellow, he followed in the footsteps The Early Years 51 of the great mind Paul Samuelson, who is documented in the fourth book of this series. Following his fellowship, Lintner was offered an assistant professorship in business administration at Harvard Business School in 1946, an associate professorship in 1951, a full professorship in 1956, and the George Gund Professor of Economics and Business Administration from 1964 until his untimely death in 1983.

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However, there remained little options activity until the Chicago Board Options Exchange (CBOE) created a much broader and more liquid forum for their exchange that would lower transactions costs and ease trading. In fact, warrants, or company-issued options, originally played a relatively larger role in futures securities trading vis-à-vis options than they do today. This explains why pioneering work by scholars such as the great mind Paul Samuelson initially studied warrants rather than options in the mid-1960s. A new exchange The Chicago Board of Trade (CBOT) is the world’s oldest futures exchange. It was created in 1848 to satisfy the need for farmers to secure buyers The Times 101 of the bounty of the US Midwest breadbasket and for merchants and processors to ensure a steady supply at a predictable price.

Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth

"Friedman doctrine" OR "shareholder theory", 3D printing, Alan Greenspan, Alvin Toffler, Anthropocene, Asian financial crisis, bank run, basic income, battle of ideas, behavioural economics, benefit corporation, Berlin Wall, biodiversity loss, bitcoin, blockchain, Branko Milanovic, Bretton Woods, Buckminster Fuller, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Cass Sunstein, choice architecture, circular economy, clean water, cognitive bias, collapse of Lehman Brothers, complexity theory, creative destruction, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, degrowth, dematerialisation, disruptive innovation, Douglas Engelbart, Douglas Engelbart, Easter island, en.wikipedia.org, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, Eugene Fama: efficient market hypothesis, experimental economics, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, Financial Instability Hypothesis, full employment, Future Shock, Garrett Hardin, Glass-Steagall Act, global supply chain, global village, Henri Poincaré, hiring and firing, Howard Zinn, Hyman Minsky, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, Isaac Newton, it is difficult to get a man to understand something, when his salary depends on his not understanding it, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, land reform, land value tax, Landlord’s Game, loss aversion, low interest rates, low skilled workers, M-Pesa, Mahatma Gandhi, market fundamentalism, Martin Wolf, means of production, megacity, Minsky moment, mobile money, Money creation, Mont Pelerin Society, Myron Scholes, neoliberal agenda, Network effects, Occupy movement, ocean acidification, off grid, offshore financial centre, oil shale / tar sands, out of africa, Paul Samuelson, peer-to-peer, planetary scale, price mechanism, quantitative easing, randomized controlled trial, retail therapy, Richard Thaler, Robert Solow, Ronald Reagan, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, smart cities, smart meter, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, Steve Ballmer, systems thinking, TED Talk, The Chicago School, The Great Moderation, the map is not the territory, the market place, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, Torches of Freedom, Tragedy of the Commons, trickle-down economics, ultimatum game, universal basic income, Upton Sinclair, Vilfredo Pareto, wikimedia commons

‘The argument in the text is never dependent upon them; and they may be omitted,’ he wrote, ‘but experience seems to show that they give a firmer grasp of many important principles than can be got without their aid; and that there are many problems of pure theory, which no one who has once learnt to use diagrams will willingly handle in any other way.’29 It was Paul Samuelson, however, who decisively placed imagery at the heart of economic thought in the second half of the twentieth century. Known as the father of modern economics, Samuelson spent his seven-decade career at the Massachusetts Institute of Technology (MIT) and on his death in 2009 he was heralded as ‘one of the giants on whose shoulders every contemporary economist stands’.30 He was enamoured of equations and diagrams, and he profoundly influenced the use of both in economic theory and teaching.

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Published in 1947, it was aimed at the hard-core theorist, and was unapologetically mathematical: equations, he believed, should be the mother tongue of professional economists, serving to cut through muddled thinking and replace it with scientific precision. He wrote his second book, however, for an utterly different audience, and only thanks to a twist of fate. Paul Samuelson: the man who drew economics. At the end of the Second World War, US college enrolments ballooned as hundreds of thousands of ex-servicemen returned home in search of the education that they had missed and the jobs that they desperately needed. Many opted to study engineering – essential for post-war construction – and were required to learn a little economics along the way.

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‘I don’t care who writes a nation’s laws – or crafts its advanced treatises – so long as I can write its economics textbooks,’ he declared in later years, ‘The first lick is the privileged one, impinging on the beginner’s tabula rasa at its most impressionable state.’34 Samuelson’s 1948 Circular Flow diagram, which depicted income flowing round the economy as if it were water flowing round plumbed pipes. A long struggle of escape Paul Samuelson was not alone in appreciating the extraordinary influence wielded by those who determine how we begin. His teacher and mentor, Joseph Schumpeter, also realised that the ideas handed down to us can be very hard to shake off, but he was determined to do so, to make way for his own insights. As Schumpeter wrote in his 1954 History of Economic Analysis, In practice we all start our own research from the work of our predecessors, that is, we hardly ever start from scratch.

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society by Binyamin Appelbaum

90 percent rule, airline deregulation, Alan Greenspan, Alvin Roth, Andrei Shleifer, anti-communist, battle of ideas, Benoit Mandelbrot, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, Celtic Tiger, central bank independence, clean water, collective bargaining, Corn Laws, correlation does not imply causation, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, desegregation, Diane Coyle, Donald Trump, Dr. Strangelove, ending welfare as we know it, financial deregulation, financial engineering, financial innovation, fixed income, flag carrier, floating exchange rates, full employment, George Akerlof, George Gilder, Gini coefficient, greed is good, Greenspan put, Growth in a Time of Debt, Ida Tarbell, income inequality, income per capita, index fund, inflation targeting, invisible hand, Isaac Newton, It's morning again in America, Jean Tirole, John Markoff, Kenneth Arrow, Kenneth Rogoff, land reform, Les Trente Glorieuses, long and variable lags, Long Term Capital Management, low cost airline, low interest rates, manufacturing employment, means of production, Menlo Park, minimum wage unemployment, Mohammed Bouazizi, money market fund, Mont Pelerin Society, Network effects, new economy, Nixon triggered the end of the Bretton Woods system, oil shock, Paul Samuelson, Philip Mirowski, Phillips curve, plutocrats, precautionary principle, price stability, profit motive, public intellectual, Ralph Nader, RAND corporation, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Bork, Robert Gordon, Robert Solow, Ronald Coase, Ronald Reagan, Sam Peltzman, Savings and loan crisis, Silicon Valley, Simon Kuznets, starchitect, Steve Bannon, Steve Jobs, supply-chain management, The Chicago School, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, trickle-down economics, ultimatum game, Unsafe at Any Speed, urban renewal, War on Poverty, Washington Consensus, We are all Keynesians now

A visiting journalist narrated one of the professor’s performances: “Racing up and down in front of the fascinated judges, Alchian cried, ‘I’m trying to change your view of the world, to show you that what you thought was bad really may not be.’ ”54 Milton Friedman addressed the judges after receiving the Nobel Prize in 1976. Paul Samuelson also was a frequent speaker. After one of Samuelson’s speeches, some of the judges asked Manne to explain the difference between the liberal and conservative economists “since Paul Samuelson seemed to be teaching the same economics as Armen Alchian.”55 By 1980, almost 20 percent of federal judges had attended Manne’s program; by 1990, the figure was 40 percent. An examination of judges’ rulings before and after attendance found a significant shift toward trust-the-market rulings.56 A.

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Stigler, Production and Distribution Theories: The Formative Period (New York: Macmillan, 1941). 20. Interview with George Shultz, April 19, 2018. 21. I first encountered the letter on the Twitter feed of the economic historian Beatrice Cherrier, who was kind enough to send me a digital copy. The original source is Robert Solow to Paul Samuelson, n.d., Paul Samuelson Papers, box 70, folder “Solow, 46-2007,” Rubinstein Library, Duke University, Durham, N.C. 22. Claire Friedland, “On Stigler and Stiglerisms,” Journal of Political Economy 101, no. 5 (October 1993): 780–83. 23. Stigler’s public comments on the influence of economists were maddeningly inconsistent.

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This is the story of what happened when nations decided to take both hands off the wheel. PART I Chapter One Markets in Everything To keep the fish that they carried on long journeys lively and fresh, sea captains used to introduce an eel into the barrel. In the economics profession, Milton Friedman is that eel. — Paul Samuelson (1969)1 In late 1966, Martin Anderson, a young Columbia University economics professor with libertarian leanings, found himself seated at a dinner party next to a lawyer from Richard Nixon’s law firm. Nixon had joined the New York firm after announcing his first retirement from politics, telling reporters, “You don’t have Nixon to kick around anymore.”

Keynes Hayek: The Clash That Defined Modern Economics by Nicholas Wapshott

airport security, Alan Greenspan, banking crisis, Bear Stearns, Bretton Woods, British Empire, business cycle, collective bargaining, complexity theory, creative destruction, cuban missile crisis, Francis Fukuyama: the end of history, full employment, Gordon Gekko, greed is good, Gunnar Myrdal, if you build it, they will come, Isaac Newton, Joseph Schumpeter, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, means of production, military-industrial complex, Mont Pelerin Society, mortgage debt, New Journalism, Nixon triggered the end of the Bretton Woods system, Northern Rock, Paul Samuelson, Philip Mirowski, Phillips curve, price mechanism, public intellectual, pushing on a string, road to serfdom, Robert Bork, Robert Solow, Ronald Reagan, Simon Kuznets, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Malthus, trickle-down economics, Tyler Cowen, War on Poverty, We are all Keynesians now, Yom Kippur War

He accommodated counterarguments posed by friends and collaborators, and attempted to anticipate objections from classical economists. As simple as he tried to make his case, however, much of his reasoning remained beyond the reach of the lay reader. As he explained, “I cannot achieve my object of persuading economists to re-examine critically certain of their basic assumptions except by a highly abstract argument.”20 Paul Samuelson,21 the Massachusetts Institute of Technology economist who was to become Keynes’s greatest evangelizer, summed up the accomplishment of The General Theory: “It is a badly written book, poorly organized,” he wrote. “It is arrogant, bad-tempered, polemical, and not overly generous in its acknowledgements.

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“The truth would make us free, and fully employed too.”45 Such was the sense of excitement and expectation in the winter of 1935 when The General Theory was about to be published in Britain that Harvard undergraduates arranged for special consignments to be dispatched across the Atlantic the minute it was available. As soon as the boxes of books arrived, they pounced on them to be among the first to read the revolutionary ideas revealed in the text. As Tobin recalled, “Harvard was becoming the beachhead for the Keynesian invasion of the New World.”46 Paul Samuelson, described by Galbraith as “almost from the outset . . . the acknowledged leader of the younger Keynesian community,”47 recorded the spirit of feverish exhilaration that surrounded the arrival of Keynes’s masterwork in Harvard in February 1936. “The General Theory caught most economists under the age of thirty-five with the unexpected virulence of a disease first attacking and decimating an isolated tribe of South Sea islanders,” he recalled.

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Harris, was another late convert to Keynes and rivalled Hansen in his prodigious output of books, as both author and editor, spreading the new Keynesian credo. He used to open his lectures with, “I am Seymour Harris, Professor of Economics at Harvard University and author of 33 books,” all of which were about Keynes. But for all Hansen and Harris’s industry on behalf of the Keynesian cause, they did not trump Paul Samuelson’s best-selling Keynesian primer, Economics: An Introductory Analysis, published in 1948, which was instantly to become the most influential economic textbook since Principles of Economics, Alfred Marshall’s definitive exposition of the classical economic case. Thus in the course of just a few years, Keynes captured the hearts and minds of many young American economists.

Capital Ideas Evolving by Peter L. Bernstein

Albert Einstein, algorithmic trading, Andrei Shleifer, asset allocation, behavioural economics, Black Monday: stock market crash in 1987, Bob Litterman, book value, business cycle, buy and hold, buy low sell high, capital asset pricing model, commodity trading advisor, computerized trading, creative destruction, currency risk, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, diversification, diversified portfolio, endowment effect, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, fixed income, high net worth, hiring and firing, index fund, invisible hand, Isaac Newton, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Arrow, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, market bubble, mental accounting, money market fund, Myron Scholes, paper trading, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, price anchoring, price stability, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, seminal paper, Sharpe ratio, short selling, short squeeze, Silicon Valley, South Sea Bubble, statistical model, survivorship bias, systematic trading, tail risk, technology bubble, The Wealth of Nations by Adam Smith, transaction costs, yield curve, Yogi Berra, zero-sum game

The investors of 1952 thought the same thoughts and talked the same language as the investors of 1873, although the active topics of conversation may have changed from concerns about def lation to worries about inf lation. The revolution unleashed by Capital Ideas created an entirely new way of thinking about the nature of financial markets, the theory of investing, and the role of an uncertain future in all investment decisions. Paul Samuelson has used colorful language to describe this process: “Markowitz-Sharpe-Tobin quadratic programming in terms of portfolio means and variances is a powerful approximation that has captured real-world converts the way that smallpox used to infect once-isolated aborigines.”4 Risk was at the core of all these ideas.

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Finally, the proliferation of products, strategies, and innovation stemming from the options pricing model—what Eugene Fama has called “the biggest idea in economics of the century”—has been explosive, and may still have a long way to go.6 As just one example, the total notional amount of derivatives outstanding at the end of 2006 was $370 trillion, a number to make one’s head spin.* The book begins by facing up front the attack on Capital Ideas by the proponents of Behavioral Finance—and especially on the idea of the Efficient Market Hypothesis. The next chapter describes the current views of Paul Samuelson, one of the great sages about market behavior and portfolio formation. Samuelson takes a dim view of efforts to outperform the returns of the market as a whole or, in a more practical sense, to outperform mutual funds indexed to some primary benchmark like the S&P 500. Later pages offer the views of other well-known academics, all of whom, in one way or another, are involved in developing practical applications for the core ideas of finance theory in new and exciting * Cited in International Strategy & Investment Group’s publication, ISI Reports, December 11, 2006.

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bern_c02.qxd 3/23/07 8:53 AM Page 25 The Strange Paradox of Behavioral Finance 25 Treynor is a kind of lone wolf operator and prefers what he calls “slow ideas”—ideas that will take time to bear fruit and therefore have no attraction for most investors. In the more general case, where time horizons are much shorter, skilled investors often act so rapidly that they spoil the situation for one another as opportunities disappear almost instantly. As Paul Samuelson has put it, “No easy pickings, no sure-thing gains.” That is why Fuller & Thaler seek opportunity in the smaller-capitalizations. Pickings are easier and the gains are surer, while the huge composite of large growth mutual funds can barely squeak through with something resembling outperformance before taxes and fees.

In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest by Andrew W. Lo, Stephen R. Foerster

Alan Greenspan, Albert Einstein, AOL-Time Warner, asset allocation, backtesting, behavioural economics, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, Charles Babbage, Charles Lindbergh, compound rate of return, corporate governance, COVID-19, credit crunch, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, Edward Glaeser, equity premium, equity risk premium, estate planning, Eugene Fama: efficient market hypothesis, fake news, family office, fear index, fiat currency, financial engineering, financial innovation, financial intermediation, fixed income, hiring and firing, Hyman Minsky, implied volatility, index fund, interest rate swap, Internet Archive, invention of the wheel, Isaac Newton, Jim Simons, John Bogle, John Meriwether, John von Neumann, joint-stock company, junk bonds, Kenneth Arrow, linear programming, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, managed futures, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, new economy, New Journalism, Own Your Own Home, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, prediction markets, price stability, profit maximization, quantitative trading / quantitative finance, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, selection bias, seminal paper, shareholder value, Sharpe ratio, short selling, South Sea Bubble, stochastic process, stocks for the long run, survivorship bias, tail risk, Thales and the olive presses, Thales of Miletus, The Myth of the Rational Market, The Wisdom of Crowds, Thomas Bayes, time value of money, transaction costs, transfer pricing, tulip mania, Vanguard fund, yield curve, zero-coupon bond, zero-sum game

We readily acknowledge the investment success of Buffett, John Templeton, Peter Lynch, David Shaw, Jim Simons, George Soros, and many other great investors whose styles and approaches to investment aren’t easily replicated. However, the academic financial research by Markowitz as well as his fellow Nobel laureates such as James Tobin, Paul Samuelson, Bill Sharpe, Myron Scholes, Bob Merton, Gene Fama, and Bob Shiller and by other exceptional researchers has created a framework and repeatable process for investors that has led to the democratization of investment management. This book is about their contributions to portfolio management. Is there a Perfect Portfolio of assets for investors, one that offers the ideal mix of risk and reward?

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On March 29, 1900, a French postgraduate student, Louis Bachelier, successfully defended his dissertation, “The Theory of Speculation,” in which he proposed a model of Brownian motion to explain a similarly random movement but in security prices rather than dust grains—five years before Albert Einstein famously determined the cause of Brown’s observations, providing evidence that atoms and molecules existed.2 Bachelier’s research was largely forgotten for half a century until it was rediscovered by University of Chicago mathematician Leonard Jimmie Savage, who translated the work and brought it to the attention of Paul Samuelson, the first American recipient of the Nobel Prize in Economics. The translation was published in 1964 in a book by economist Paul Cootner, The Random Character of Stock Market Prices, along with other empirical studies on that topic. The following year, Fama published his dissertation showing the randomness of stock price changes.

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In fact, Princeton economics professor Burton Malkiel mused that Bogle’s cost matters hypothesis by itself made him deserving of tenure.1 The Vanguard Group rose dramatically from the ashes of a failed merger of funds. Bogle was inspired by one of the greatest financial economists of all time, Paul Samuelson, whose Journal of Portfolio Management article challenged practitioners to create a low-cost fund that replicated an index such as the S&P 500. Bogle answered that challenge and helped to create more wealth than perhaps almost any other manager. For example, comparing Vanguard’s expense ratio to the average fees charged by U.S. mutual funds, it’s been estimated that Vanguard’s lower fees saved investors $20 billion in 2018 alone.2 Bogle has been referred to as “the greatest investor advocate ever to grace the fund industry”3 and has made his case for the inclusion of index funds as part of any Perfect Portfolio.

What's Wrong With Economics: A Primer for the Perplexed by Robert Skidelsky

additive manufacturing, agricultural Revolution, behavioural economics, Black Swan, Bretton Woods, business cycle, carbon tax, Cass Sunstein, central bank independence, cognitive bias, conceptual framework, Corn Laws, corporate social responsibility, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, degrowth, disruptive innovation, Donald Trump, Dr. Strangelove, full employment, George Akerlof, George Santayana, global supply chain, global village, Gunnar Myrdal, happiness index / gross national happiness, hindsight bias, Hyman Minsky, income inequality, index fund, inflation targeting, information asymmetry, Internet Archive, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labour market flexibility, loss aversion, Mahbub ul Haq, Mark Zuckerberg, market clearing, market friction, market fundamentalism, Martin Wolf, means of production, Modern Monetary Theory, moral hazard, paradox of thrift, Pareto efficiency, Paul Samuelson, Philip Mirowski, Phillips curve, precariat, price anchoring, principal–agent problem, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, shareholder value, Silicon Valley, Simon Kuznets, sunk-cost fallacy, survivorship bias, technoutopianism, The Chicago School, The Market for Lemons, The Nature of the Firm, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, Tragedy of the Commons, transaction costs, transfer pricing, Vilfredo Pareto, Washington Consensus, Wolfgang Streeck, zero-sum game

We now learn that, with a bit of uncertainty, ‘multiple equilibria’ can be ‘endogenously’ generated. But there was no ‘uncertainty’ before the crash, only insurable risk. So, this book aims to discover why the most influential discipline for making public policy is so often cut off from reality. Economists usually scorn the study of methodology. ‘Those who can, do science’, said Paul Samuelson (1915–2009), ‘Those who can’t, prattle on about methodology.’2 Frank Hahn (1925–2013) similarly claimed, ‘I want to advise the young to avoid spending too much time and thought on methodology. As for them learning philosophy, what next?’3 In other words, these eminent economists didn’t see the need for students of economics to think about what they were doing.

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But by failing to distinguish between needs and wants, and by taking wants as ‘given’, economics has powerfully reinforced the ethical blindness which threatens the human species with extinction. Insatiability in face of climate change is not rationality, but madness. 3 ECONOMIC GROWTH If theories, like girls, could win beauty contests, comparative advantage would certainly rate high. Paul Samuelson, Economics The only defensible purpose of economics is to help abolish poverty, opening up a more spacious life for humanity. Beyond that it has no obvious purpose, and should leave the stage to others. Abolition of poverty was the improvement in the human condition offered by the first economists.

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Portugal, said Ricardo, should concentrate on producing wine, leaving cloth production to England, because though it can produce both wine and cloth cheaper than the English, it can produce wine at lower cost than cloth. In this way, the gains of both partners will be maximised.5 The theory of comparative advantage has been the most influential doctrine in the whole of economics. It has turned even the most hard-nosed of economists dewy-eyed; Paul Samuelson described it as ‘beautiful’. As with the Malthusian population theory, Ricardo’s comparative advantage theory is a classic example of deductive reasoning: formalising an intuition, and then deducing its consequences. Committed to the long view, Ricardo ignored any disruptive effects on Portugal in surrendering the production of cloth to England.

Sabotage: The Financial System's Nasty Business by Anastasia Nesvetailova, Ronen Palan

Alan Greenspan, algorithmic trading, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Bernie Sanders, big-box store, bitcoin, Black-Scholes formula, blockchain, Blythe Masters, bonus culture, Bretton Woods, business process, collateralized debt obligation, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, critique of consumerism, cryptocurrency, currency risk, democratizing finance, digital capitalism, distributed ledger, diversification, Double Irish / Dutch Sandwich, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, gig economy, Glass-Steagall Act, global macro, Gordon Gekko, high net worth, Hyman Minsky, independent contractor, information asymmetry, initial coin offering, interest rate derivative, interest rate swap, Joseph Schumpeter, junk bonds, Kenneth Arrow, litecoin, London Interbank Offered Rate, London Whale, Long Term Capital Management, margin call, market fundamentalism, Michael Milken, mortgage debt, new economy, Northern Rock, offshore financial centre, Paul Samuelson, peer-to-peer lending, plutocrats, Ponzi scheme, Post-Keynesian economics, price mechanism, regulatory arbitrage, rent-seeking, reserve currency, Ross Ulbricht, shareholder value, short selling, smart contracts, sovereign wealth fund, Thorstein Veblen, too big to fail

But working hard or being smart is not good enough in today’s financial markets. Finance is a fiercely dynamic and competitive industry, with capital markets being among the closest to what academics call the ‘efficient market hypothesis (EMH)’. Proposed by, among others, two Nobel laureates, Paul Samuelson and Eugene Fama, EMH is often misunderstood. It tends to be simplified to imply that ‘markets know best’. The theory appears to suggest that markets allocate resources so efficiently and quickly that no outside intervention by governments or regulators is ever needed. EMH can be, and has been, easily ridiculed any time the market fails, as, for instance, during a financial crisis.

…

There is no way, EMH tells us, that anyone can make profits consistently over time just trading by the rules of the market. EHM prompts us to move away from the idea that financial and banking institutions have superior skills at reading economic data and financial trends and are able to understand the future better than anyone else. As Paul Samuelson wrote: ‘Perhaps there really are managers who can outperform the market consistently – logic would suggest that they exist. But they are remarkably well hidden.’7 In finance there seems to be a unique concentration of very smart people who work very hard to make money, and very often succeed.

…

Since credit is not allocated but generated against futures, a highly sophisticated, if delicately balanced, economic system has emerged. It appears to be at least one size bigger than it should be: always running ahead of itself, speculating against futures that may never come. It is an economy that critics often describe as unreal, artificial, fictitious and even parasitic. Paul Samuelson addressed the enigma of the economy of futurity. Consideration of a few simple and logical cases, he argued, ‘raises doubt that there is anything much in celestial a priori reasoning from the axiom that what can be perceived about the future must already be “discounted” in current price quotations’.19 Samuelson is correct.

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever by Robin Wigglesworth

Albert Einstein, algorithmic trading, asset allocation, Bear Stearns, behavioural economics, Benoit Mandelbrot, Big Tech, Black Monday: stock market crash in 1987, Blitzscaling, Brownian motion, buy and hold, California gold rush, capital asset pricing model, Carl Icahn, cloud computing, commoditize, coronavirus, corporate governance, corporate raider, COVID-19, data science, diversification, diversified portfolio, Donald Trump, Elon Musk, Eugene Fama: efficient market hypothesis, fear index, financial engineering, fixed income, Glass-Steagall Act, Henri Poincaré, index fund, industrial robot, invention of the wheel, Japanese asset price bubble, Jeff Bezos, Johannes Kepler, John Bogle, John von Neumann, Kenneth Arrow, lockdown, Louis Bachelier, machine readable, money market fund, Myron Scholes, New Journalism, passive investing, Paul Samuelson, Paul Volcker talking about ATMs, Performance of Mutual Funds in the Period, Peter Thiel, pre–internet, RAND corporation, random walk, risk-adjusted returns, road to serfdom, Robert Shiller, rolodex, seminal paper, Sharpe ratio, short selling, Silicon Valley, sovereign wealth fund, subprime mortgage crisis, the scientific method, transaction costs, uptick rule, Upton Sinclair, Vanguard fund

Jack Bogle, “Born in Strife,” Philadelphia Inquirer, September 24, 2014. 8. Bogle, Character Counts, 7. 9. Paul Samuelson, “Challenge to Judgment,” Journal of Portfolio Management, Fall 1974. 10. Bogle, Stay the Course, 39. 11. Bogle, Stay the Course, 189. 12. Charles Ellis, “The Loser’s Game,” Financial Analysts Journal, July/August 1975. 13. Bogle, Stay the Course, 44. 14. Bogle, Stay the Course, 41. 15. Bogle, Stay the Course, 45. 16. Paul Samuelson, “Index-Fund Investing,” Fortune, June 1976, 66. 17. Bogle, Stay the Course, 47. 18. Richard Phalon, “Beating the Market or ‘Indexing’ It?

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Chapter 2 THE GODFATHER LEONARD “JIMMIE” SAVAGE, a University of Chicago statistics professor with Coke-bottle glasses and an eclectic, brilliant mind, was rummaging through the university library in 1954 when he made a discovery: a book by a little-known turn-of-the-twentieth-century French mathematician named Louis Bachelier with ideas astonishingly far ahead of their time. Savage sent postcards lauding the work to some of his friends and asked if they had “ever heard of this guy?”1 One of the recipients was Paul Samuelson, a rock-star economist who would go on to become the first American to win a Nobel Prize in the field. Samuelson could not find a copy of the book in MIT’s library, but he did locate Bachelier’s French PhD thesis. That proved enough to whet his interest. He had it quickly translated and spread the word among his economist colleagues, remarking, “Bachelier seems to have had something of a one-track mind.

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“It seems unlikely that the public will ever embrace buying the averages in this way, since individuals usually seek dramatic gains, not a market-linked performance many equate with mediocrity,” the industry magazine wrote.39 Fouse later jokingly quoted the Nazi propagandist Joseph Goebbels to explain why the general public was slow to cotton on: “Only small secrets need protection. Big secrets are protected by the public’s incredulity.”40 That this secret would burst free into the public domain was the hope of Paul Samuelson, the doyen of American economics. In a 1976 column for Newsweek, he noted that pension funds could finally choose “prudent, across-the-board market index investing,” but lamented the dearth of similar products for ordinary investors.41 “As yet, there exists no convenient . . . fund that apes the whole market, requires no load, and that keeps commission, turnover and management fees to the feasible minimum.

A Beautiful Mind by Sylvia Nasar

Al Roth, Albert Einstein, Andrew Wiles, Bletchley Park, book value, Brownian motion, business cycle, cognitive dissonance, Columbine, Dr. Strangelove, experimental economics, fear of failure, Gunnar Myrdal, Henri Poincaré, Herman Kahn, invisible hand, Isaac Newton, John Conway, John Nash: game theory, John von Neumann, Kenneth Arrow, Kenneth Rogoff, linear programming, lone genius, longitudinal study, market design, medical residency, Nash equilibrium, Norbert Wiener, Paul Erdős, Paul Samuelson, prisoner's dilemma, RAND corporation, Robert Solow, Ronald Coase, second-price auction, seminal paper, Silicon Valley, Simon Singh, spectrum auction, Suez canal 1869, The Wealth of Nations by Adam Smith, Thorstein Veblen, upwardly mobile, zero-sum game

Whether or not this was true, Birkhoff’s bias had prevented him from taking advantage of the emigration of the brilliant Jewish mathematicians from Nazi Germany.27 Indeed, Harvard also had ignored Norbert Wiener, the most brilliant American-born mathematician of his generation, the father of cybernetics and inventor of the rigorous mathematics of Brownian motion. Wiener happened to be a Jew and, like Paul Samuelson, the future Nobel Laureate in economics, he sought refuge at the far end of Cambridge at MIT, then little more than an engineering school on a par with the Carnegie Institute of Technology.28 William James, the preeminent American philosopher and older brother of the novelist Henry James, once wrote of a critical mass of geniuses causing a whole civilization to “vibrate and shake.”29 But the man in the street didn’t feel the tremors emanating from Princeton until World War II was practically over and these odd men with their funny accents, peculiar dress, and passion for obscure scientific theories became national heroes.

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By the time Nash arrived, a “trust” of game theory research had grown up at RAND including such game theorists as Lloyd S. Shapley, J. C. McKinsey, N. Dalkey, F. B. Thompson, and H. F. Bohnenblust, such pure mathematicians as John Milnor, statisticians David Blackwell, Sam Karlin, and Abraham Girschick, and economists Paul Samuelson, Kenneth Arrow, and Herbert Simon.13 Most of the RAND military applications of game theory concerned tactics. Air battles between fighters and bombers were modeled as duels.14 The strategic problem in a duel is one of timing. For each opponent, having the first shot maximizes the chance of a miss.

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The military, as well as industry, loomed awfully large, so large that MIT’s armed, plainclothes campus security force existed solely for the purpose of guarding the half-dozen “classified” sites scattered around the campus and preventing those without proper security clearances and identification from wandering in. ROTC and courses in military science were required of all MIT’s two-thousand-plus undergraduate men.6 The academic departments like mathematics and economics existed pretty much to cater to the engineering student — in Paul Samuelson’s words, “a pretty crude animal.”7 All counted as “service departments,” gas stations where engineers pulled up to get their tanks filled with obligatory doses of fairly elementary mathematics, physics, and chemistry.8 Economics, for example, had no graduate program at all until the war.9 Physics had no Nobel Laureates on its faculty at the time.10 Teaching loads were heavy — sixteen hours a week was not uncommon for senior faculty — and were weighted toward large introductory courses like calculus, statistics, and linear algebra.11 Its faculty were younger, less well known, and less credentialed than Harvard’s, Yale’s, or Princeton’s.

How Markets Fail: The Logic of Economic Calamities by John Cassidy

Abraham Wald, Alan Greenspan, Albert Einstein, An Inconvenient Truth, Andrei Shleifer, anti-communist, AOL-Time Warner, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black-Scholes formula, Blythe Masters, book value, Bretton Woods, British Empire, business cycle, capital asset pricing model, carbon tax, Carl Icahn, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, different worldview, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, Garrett Hardin, George Akerlof, Glass-Steagall Act, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kickstarter, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Nixon triggered the end of the Bretton Woods system, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Phillips curve, Ponzi scheme, precautionary principle, price discrimination, price stability, principal–agent problem, profit maximization, proprietary trading, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, subprime mortgage crisis, tail risk, Tax Reform Act of 1986, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, transaction costs, Two Sigma, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

In 1954 or 1955, nobody seems to recall for sure, Jimmy Savage, a statistician at the University of Chicago who had coauthored several important papers about risk with Milton Friedman, happened across a book that Bachelier had written in 1914. He sent a note to a number of people he knew, including Paul Samuelson, the famous MIT economist, asking if they had heard of the Frenchman. Samuelson dug a copy of Bachelier’s thesis out of the MIT library, and it impressed him. The coin-tossing model was resurrected: by the early 1960s, Samuelson and a number of other economists were publishing papers claiming that stock prices followed a random walk.

…

After spending a year as a graduate student in the history department at Berkeley, he moved back to Chicago and enrolled in the Ph.D. program in economics. In preparation for his classes with Friedman and his colleague George Stigler, whom Chicago students knew as “Mr. Macro” and “Mr. Micro,” Lucas read Paul Samuelson’s Foundations of Economic Analysis, which had first appeared in 1947, and which presented economics as a branch of applied mathematics. “I loved the Foundations,” Lucas later recalled. “Like so many others in my cohort, I internalized its view that if I couldn’t formulate a problem in economic theory mathematically, I didn’t know what I was doing.

…

Akerlof was a bright and studious kid. In high school, he later recalled, “I belonged to a small group of students, who in today’s terminology would be called nerds . . . Socially, I was a misfit. I failed to understand why my classmates spent the typical free afternoon watching American Bandstand.” At MIT, Akerlof studied under Paul Samuelson and Robert Solow, two of the leading figures of postwar economics. By the early 1960s, the subject had been divided into several mutually antagonistic camps. The high theorists were busy debating the intricacies of general equilibrium and game theory. Out in Chicago, Friedman and his followers were pursuing their own libertarian path.

Stocks for the Long Run 5/E: the Definitive Guide to Financial Market Returns & Long-Term Investment Strategies by Jeremy Siegel

Alan Greenspan, AOL-Time Warner, Asian financial crisis, asset allocation, backtesting, banking crisis, Bear Stearns, behavioural economics, Black Monday: stock market crash in 1987, Black-Scholes formula, book value, break the buck, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, capital asset pricing model, carried interest, central bank independence, cognitive dissonance, compound rate of return, computer age, computerized trading, corporate governance, correlation coefficient, Credit Default Swap, currency risk, Daniel Kahneman / Amos Tversky, Deng Xiaoping, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Financial Instability Hypothesis, fixed income, Flash crash, forward guidance, fundamental attribution error, Glass-Steagall Act, housing crisis, Hyman Minsky, implied volatility, income inequality, index arbitrage, index fund, indoor plumbing, inflation targeting, invention of the printing press, Isaac Newton, it's over 9,000, John Bogle, joint-stock company, London Interbank Offered Rate, Long Term Capital Management, loss aversion, machine readable, market bubble, mental accounting, Minsky moment, Money creation, money market fund, mortgage debt, Myron Scholes, new economy, Northern Rock, oil shock, passive investing, Paul Samuelson, Peter Thiel, Ponzi scheme, prediction markets, price anchoring, price stability, proprietary trading, purchasing power parity, quantitative easing, random walk, Richard Thaler, risk free rate, risk tolerance, risk/return, Robert Gordon, Robert Shiller, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, stocks for the long run, survivorship bias, technology bubble, The Great Moderation, the payments system, The Wisdom of Crowds, transaction costs, tulip mania, Tyler Cowen, Tyler Cowen: Great Stagnation, uptick rule, Vanguard fund

Campbell, Strategic Asset Allocation: Portfolio Choice for Long-Term Investors, New York: Oxford University Press, 2002. Also see Nicholas Barberis, “Investing for the Long Run When Returns Are Predictable,” Journal of Finance, vol. 55 (2000), pp. 225-264. Paul Samuelson has shown that mean reversion will increase equity holdings if investors have a risk-aversion coefficient greater than unity, which most researchers find is the case. See Paul Samuelson, “Long-Run Risk Tolerance When Equity Returns Are Mean Regressing: Pseudoparadoxes and Vindications of ‘Businessmen’s Risk,’” in W. C. Brainard, W. D. Nordhaus, and H. W. Watts, eds., Money, Macroeconomics, and Public Policy, Cambridge, MA: MIT Press, 1991, pp. 181-200.

…

But the risk and return on stocks and bonds are not physical constants, like the speed of light or gravitational force, waiting to be discovered in the natural world. Investors cannot, as in the physical sciences, run repeated controlled experiments, holding all other factors constant, and home in on the “true” value of each variable. As Nobel laureate Paul Samuelson was fond of saying, “We have but one sample of history.” This means that despite the overwhelming quantity of historical data, one can never be certain that the underlying factors that generate asset prices have remained unchanged. Indeed we saw in Chapter 3 that the correlations between assets classes change substantially over time Yet one must start by analyzing the past in order to plan for the future.

…

Fortunately for investors, central bankers around the world are committed to keeping inflation low, and they have largely succeeded. But if inflation again rears its head, investors will do much better in stocks than in bonds. 15 * * * Stocks and the Business Cycle The stock market has predicted nine out of the last five recessions. —PAUL SAMUELSON, 19661 I’d love to be able to predict markets and anticipate recessions, but since that’s impossible, I’m as satisfied to search out profitable companies as Buffett is. —PETER LYNCH, 19892 A well-respected economist is about to address a large group of financial analysts, investment advisors, and stockbrokers.

The Classical School by Callum Williams

"Friedman doctrine" OR "shareholder theory", bank run, banking crisis, basic income, Brexit referendum, British Empire, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Charles Babbage, complexity theory, Corn Laws, David Ricardo: comparative advantage, death from overwork, deindustrialization, Donald Trump, double entry bookkeeping, falling living standards, Fellow of the Royal Society, full employment, Gini coefficient, Gordon Gekko, greed is good, helicopter parent, income inequality, invisible hand, Jevons paradox, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, land reform, low skilled workers, Mahatma Gandhi, Martin Wolf, means of production, Meghnad Desai, minimum wage unemployment, Modern Monetary Theory, new economy, New Journalism, non-tariff barriers, Paul Samuelson, Post-Keynesian economics, purchasing power parity, Ronald Coase, secular stagnation, Silicon Valley, spinning jenny, The Wealth of Nations by Adam Smith, Thomas Malthus, universal basic income

This is as we should expect from environmental conditions that were unlikely to produce either a demand for or supply of general treatises.” Even in the 19th century America did not produce many economists, and those that it did, such as Henry George, tended to borrow ideas from the European classical economists. No Americans featured in the “family tree of economics” which was introduced in the 1958 edition of Paul Samuelson’s famous textbook, Economics. It was not until the 20th century that American economists began to dominate the discipline as a whole.5 You, and you… Why does the title of this book refer to a “classical school”? To be sure, the people profiled here had very different ideas about how the world worked.

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They were philosophers more than they were hard scientists. The book ends with Alfred Marshall largely because in his work you start to see a break with the classical way of doing things: Marshall loved his equations, and he fumbled his way towards testing his theories with empirical data. After Marshall came John Maynard Keynes, Paul Samuelson, Milton Friedman–and the emergence of modern economics. Some histories of economic thought read more like hagiographies than critical examinations. But I will show that most of the people in this book made big intellectual mistakes. Historians generally caution against using the benefit of hindsight to judge the people of the past.

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Empirical research does not find much evidence that trade unions result in wages going up one year, but then down the next. And if you paid workers more, they might work harder, thereby leading to both higher wages and higher profits. These days most people seem bemused that the wage-fund doctrine was ever taken seriously. The great Paul Samuelson confessed himself shocked by the “falseness and emptiness of the wage fund doctrine”. James Bonar, a Scottish political economist, argued that the theory “is the crowning instance of an untrue abstraction… and it has probably done more injury to the reputation of economic theory than any other generalisation ever received into economics textbooks”.

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown by Philip Mirowski

"there is no alternative" (TINA), Adam Curtis, Alan Greenspan, Alvin Roth, An Inconvenient Truth, Andrei Shleifer, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, blue-collar work, bond market vigilante , bread and circuses, Bretton Woods, Brownian motion, business cycle, capital controls, carbon credits, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, democratizing finance, disinformation, do-ocracy, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, Flash crash, full employment, George Akerlof, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Greenspan put, Hernando de Soto, housing crisis, Hyman Minsky, illegal immigration, income inequality, incomplete markets, information asymmetry, invisible hand, Jean Tirole, joint-stock company, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kickstarter, knowledge economy, l'esprit de l'escalier, labor-force participation, liberal capitalism, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, Pareto efficiency, Paul Samuelson, payday loans, Philip Mirowski, Phillips curve, Ponzi scheme, Post-Keynesian economics, precariat, prediction markets, price mechanism, profit motive, public intellectual, quantitative easing, race to the bottom, random walk, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, savings glut, school choice, sealed-bid auction, search costs, Silicon Valley, South Sea Bubble, Steven Levy, subprime mortgage crisis, tail risk, technoutopianism, The Chicago School, The Great Moderation, the map is not the territory, The Myth of the Rational Market, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, Tobin tax, tontine, too big to fail, transaction costs, Tyler Cowen, vertical integration, Vilfredo Pareto, War on Poverty, Washington Consensus, We are the 99%, working poor

The footnote (*) to the text reads: “I guess the big exception to this is if you want to discard methodological individualism altogether, but the theoretical enterprises that took this route (such as structuralism) don’t seem to me to be prospering.” 28 Quiggin, Zombie Economics, p. 83, 129, 121, 87. 29 Paul Krugman blog, http://krugman.blogs.nytimes.com/2010/11/26/the-instability-of-moderation/#more-14713, November 26, 2010. 30 See, for instance, the letter of Paul Samuelson to Assar Lindbeck, February 14, 1977, in Box 4, Folder “Nobel Nominating Committee,” Paul Samuelson Papers, Perkins Library, Duke University. 31 This literature became so prevalent that this footnote offers just a representative sampling: Backhouse, The Puzzle of Modern Economics; Brock and Colander, “Complexity, Pedagogy, and the Economics of Muddling Through”; Colander, “The Death of Neoclassical Economics”; Colander, Holt, and Rosser, “Live and Dead Issues in the Methodology of Economics” and “The Changing Face of Economics”; J.

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This is itself a pungent symptom of zombie thought, and is widely found across the board of the “legitimate left” of the economics profession, from Paul Krugman to Joseph Stiglitz to Adair Turner to Amartya Sen to Simon Johnson. Paul Krugman, feeling secure in his status, has conveniently confessed to the derangement: The brand of economics I use in my daily work—the brand that I still consider by far the most reasonable approach out there—was largely established by Paul Samuelson back in 1948, when he published the first edition of his classic textbook. It’s an approach that combines the grand tradition of microeconomics, with its emphasis on how the invisible hand leads to generally desirable outcomes, with Keynesian macroeconomics, which emphasizes the way the economy can develop magneto trouble, requiring policy intervention.

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Nor do they simply expel the proponents of one side of the theory in order to maintain doctrinal purity, as happened with the rational-expectations movement and its epigones. During the Cold War, the economics profession was growing more exclusive, but was not completely intransigently intolerant of rival doctrines, for reasons of ideological appearances. For instance, evidence from the Paul Samuelson archives suggests he really did nominate Joan Robinson for the Bank of Sweden economics “Nobel.”30 Things really ratcheted upward in terms of imposed conformity only after the Fall of the Wall, for equally obvious political reasons. However, the apogee of denial of divergent thought occurred during the Great Bubble.

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One by Meghnad Desai

3D printing, Alan Greenspan, bank run, banking crisis, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, correlation coefficient, correlation does not imply causation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, German hyperinflation, Glass-Steagall Act, Gunnar Myrdal, Home mortgage interest deduction, imperial preference, income inequality, inflation targeting, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, market bubble, market clearing, means of production, Meghnad Desai, Mexican peso crisis / tequila crisis, mortgage debt, Myron Scholes, negative equity, Northern Rock, oil shale / tar sands, oil shock, open economy, Paul Samuelson, Phillips curve, Post-Keynesian economics, price stability, purchasing power parity, pushing on a string, quantitative easing, reserve currency, rising living standards, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, savings glut, secular stagnation, seigniorage, Silicon Valley, Simon Kuznets, subprime mortgage crisis, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, women in the workforce

The idea was that business people added to their capital stock if they had experienced or expected a rise in their sales. At the aggregate level, this was translated into change in GDP, actual or expected. As a consequence, the role of interest rates was completely downgraded. The Keynesian model was simplified to a multiplier-accelerator model by Paul Samuelson, the first economist to so christen the model when he explored the possibility of cycles using Keynesian logic.3 As to Keynes’s monetary theory, followers concluded that monetary policy would be ineffective as a tool for recovery. They also took seriously Keynes’s idea that in the long run it would be necessary to drive the interest rate to zero.

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The cure for the Great Depression, much of which had ended before 1936, was perhaps more due to international exchange rate depreciation, and in Britain a loose monetary policy. Renewal of Attack on Keynesian Economics The postwar hegemony of Keynesian economics was complete in universities. At Harvard, Alvin Hansen became the proselytizer for Keynesian ideas. His students Paul Samuelson, James Tobin, James Duesenberry, and Lloyd Metzler went on to dominate postwar economics teaching in the US. Hansen stripped any subtlety from Keynes’s theory even more than had Hicks. His famous Keynesian Cross diagram concentrated on the multiplier and tried to show how total expenditure – consumption determined by income and investment (taken to be given) – determined output.

…

Innovations such as the consumption function, while they spoke of individual behavior, were macroeconomic and were not related to microeconomic concepts such as demand curves or the utility functions of consumers. The marginal efficiency of capital was argued in terms of a single investor, but somehow aggregated for the economy as a whole. Paul Samuelson (1915–2009), as the High Priest of economics (albeit at a very young age, being not yet 40 by 1950), cut through the Gordian knot and opined that Keynesian economics at a macro level gave us the tools to achieve full employment, which allowed micro economics come into its full play. This dichotomous, some would say schizophrenic, compromise was called the neoclassical-Keynesian synthesis.

The Inner Lives of Markets: How People Shape Them—And They Shape Us by Tim Sullivan

Abraham Wald, Airbnb, airport security, Al Roth, Alvin Roth, Andrei Shleifer, attribution theory, autonomous vehicles, barriers to entry, behavioural economics, Brownian motion, business cycle, buy and hold, centralized clearinghouse, Chuck Templeton: OpenTable:, classic study, clean water, conceptual framework, congestion pricing, constrained optimization, continuous double auction, creative destruction, data science, deferred acceptance, Donald Trump, Dutch auction, Edward Glaeser, experimental subject, first-price auction, framing effect, frictionless, fundamental attribution error, George Akerlof, Goldman Sachs: Vampire Squid, Gunnar Myrdal, helicopter parent, information asymmetry, Internet of things, invisible hand, Isaac Newton, iterative process, Jean Tirole, Jeff Bezos, Johann Wolfgang von Goethe, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, late fees, linear programming, Lyft, market clearing, market design, market friction, medical residency, multi-sided market, mutually assured destruction, Nash equilibrium, Occupy movement, opioid epidemic / opioid crisis, Pareto efficiency, Paul Samuelson, Peter Thiel, pets.com, pez dispenser, power law, pre–internet, price mechanism, price stability, prisoner's dilemma, profit motive, proxy bid, RAND corporation, ride hailing / ride sharing, Robert Shiller, Robert Solow, Ronald Coase, school choice, school vouchers, scientific management, sealed-bid auction, second-price auction, second-price sealed-bid, sharing economy, Silicon Valley, spectrum auction, Steve Jobs, Tacoma Narrows Bridge, techno-determinism, technoutopianism, telemarketer, The Market for Lemons, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, two-sided market, uber lyft, uranium enrichment, Vickrey auction, Vilfredo Pareto, WarGames: Global Thermonuclear War, winner-take-all economy

The men who follow in the rest of this chapter were some of the main protagonists in the early days of this history, but by no means the only ones. To tell the complete story would require a book of its own. What we’re after is, instead, the broader path that economics took to become a pristine, mathematical discipline. “Let Me Write the Textbooks” Economics’ postwar trajectory is captured, in a sense, by following the career of Paul Samuelson, one of the preeminent economists of the twentieth century. He’s credited with not only helping economics develop a common language but also exposing this new language to the wider world. His economics textbook sold over four million copies during its decades-long reign as the bible for introductory economics courses worldwide.

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He seems, to the best of our observation, content pondering big questions in the relaxed and unhurried manner that’s defined his career: when we e-mailed him to ask if he would talk to us about his classic paper on asymmetric information, “The Market for ‘Lemons,’” he responded, “Sure, happy to talk whenever is good for you.”5 In explaining how he came to do the work that ultimately won him a Nobel Prize, the Berkeley economist recalled his experiences as a PhD student at MIT in the 1960s (in the economics department built by Paul Samuelson). He arrived at graduate school just as economists were starting to get past the extreme abstraction that had ruled the profession in earlier decades. When initially confronted with the question of what inspired him to write about the used car market in the paper that made him famous, Akerlof didn’t talk first about unemployment (a failure of standard models that has troubled Akerlof throughout four decades as an economist), or 1960s economics counterculture, or any other economic phenomenon.

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You can only confront these questions if you consider the strategic choices companies like Microsoft or Coke might make to try to ensure they’re the only game in town, and the regulatory decisions an enlightened government might choose to make sure they aren’t. Tirole’s Theory of Industrial Organization remains the standard reference on the topic, despite being published nearly three decades ago. (It also has more than thirteen thousand citations on Google Scholar, which is extremely unusual for a textbook; it’s about twice as many citations as Paul Samuelson’s classic Economics text, even though the latter is fifty years older.11) Tirole’s Nobel is emblematic of the postwar trend in economics—begun by George Akerlof’s market for lemons paper and continued by the many applied theorists that followed—toward tailoring models to circumstance. As a result, it’s hard to boil his opus down to media-friendly sound bites.

Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik

airline deregulation, Alan Greenspan, Albert Einstein, bank run, barriers to entry, behavioural economics, Bretton Woods, business cycle, butterfly effect, capital controls, carbon tax, Carmen Reinhart, central bank independence, collective bargaining, congestion pricing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Donald Davies, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, Fellow of the Royal Society, financial deregulation, financial innovation, floating exchange rates, fudge factor, full employment, George Akerlof, Gini coefficient, Growth in a Time of Debt, income inequality, inflation targeting, informal economy, information asymmetry, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, Pareto efficiency, Paul Samuelson, price elasticity of demand, price stability, prisoner's dilemma, profit maximization, public intellectual, quantitative easing, randomized controlled trial, rent control, rent-seeking, Richard Thaler, risk/return, Robert Shiller, school vouchers, South Sea Bubble, spectrum auction, The Market for Lemons, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, trade route, ultimatum game, University of East Anglia, unorthodox policies, Vilfredo Pareto, Washington Consensus, white flight

We still have endless debates today about what Karl Marx, John Maynard Keynes, or Joseph Schumpeter really meant. Even though all three are giants of the economics profession, they formulated their models largely (but not exclusively) in verbal form. By contrast, no ink has ever been spilled over what Paul Samuelson, Joe Stiglitz, or Ken Arrow had in mind when they developed the theories that won them their Nobel. Mathematical models require that all the t’s be crossed and the i’s be dotted. The second virtue of mathematics is that it ensures the internal consistency of a model—simply put, that the conclusions follow from the assumptions.

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But no one could deny that, thanks to it and the literature it has spawned, we understand much better than we ever did the circumstances under which Adam Smith’s Invisible Hand does and does not do its job.‡ Let’s turn now to another important example of how economic modeling helps clarify arguments that may be somewhat counterintuitive. In 1938, a young Paul Samuelson was challenged by Stanislaw Ulam, the Polish-American mathematician, to state one proposition in the social sciences that is both true and nontrivial. Samuelson’s answer was David Ricardo’s Principle of Comparative Advantage. “Using four numbers, as if by magic, it shows that there is indeed a free lunch—a free lunch that comes with international trade.”5 Ricardo’s demonstration, back in 1817, that specialization according to comparative advantage produces economic gains for all countries was as simple as it is powerful.6 The nontrivial nature of the principle is obvious by how often it is misunderstood, even among sophisticated commentators.

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The big theories in the end deliver less than what they promise. They are shallow approaches that identify the proximate causes but need to be backed up with considerable detail, necessarily specific to context. As I’ve highlighted, they are best thought of as a scaffolding. The Theory of Business Cycles and Unemployment Ever since Paul Samuelson’s doctoral dissertation, published in 1947 as Foundations of Economic Analysis, economics has been split between microeconomics and macroeconomics. The domain of microeconomics is price theory, the ideas covered in the previous section. Macroeconomics deals with the behavior of economic aggregates—inflation, total output, and employment, in particular.

The Clash of the Cultures by John C. Bogle

Alan Greenspan, asset allocation, buy and hold, collateralized debt obligation, commoditize, compensation consultant, corporate governance, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, diversified portfolio, estate planning, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, financial intermediation, fixed income, Flash crash, Glass-Steagall Act, Hyman Minsky, income inequality, index fund, interest rate swap, invention of the wheel, John Bogle, junk bonds, low interest rates, market bubble, market clearing, military-industrial complex, money market fund, mortgage debt, new economy, Occupy movement, passive investing, Paul Samuelson, Paul Volcker talking about ATMs, Ponzi scheme, post-work, principal–agent problem, profit motive, proprietary trading, prudent man rule, random walk, rent-seeking, risk tolerance, risk-adjusted returns, Robert Shiller, seminal paper, shareholder value, short selling, South Sea Bubble, statistical arbitrage, stock buybacks, survivorship bias, The Wealth of Nations by Adam Smith, transaction costs, two and twenty, Vanguard fund, William of Occam, zero-sum game

(When we talk money rather than basis points measured in hundredths of 1 percent, we get a far better picture of the staggering profit in fund management.) Owning a mutual fund management company has often proved rewarding beyond the dreams of avarice—owning mutual funds, far less so. Back in 1967, Paul Samuelson hit the proverbial nail on the head when he told a Congressional hearing that, “there was only one place to make money in the mutual fund business—as there is only one place for a temperate man to be in a saloon—behind the bar and not in front of it . . . so I invested in a management company.”

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When the underwriters brought me the news of the failure, they suggested that we just call the whole thing off and cancel the deal. I remember saying: “Oh, no we won’t. Don’t you realize that we now have the world’s first index fund?” The Professor, the Student, and the Index Fund Nobel Laureate economist Paul Samuelson played a major role in the creation of the first index fund. More than 25 years earlier, I’d hinted at the idea of an index fund in my 1951 Princeton University senior thesis, titled “The Economic Role of the Investment Company.” I had always loved contrarian ideas that challenged the status quo, and was often inspired to take the road less traveled by.

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, I graduated magna cum laude in Economics. On July 5, 1951, I entered the mutual fund industry, joining Walter Morgan’s pioneering Wellington Management organization. A Priceless Endorsement From that lowly beginning in 1948, and then through his support for that first index mutual fund in 1975, my association with Paul Samuelson grew ever closer and warmer. In 1993, I asked him to endorse my first book—Bogle on Mutual Funds. He demurred. But to my utter astonishment he told me that he would prefer to write the foreword. Some excerpts: The same surgeon general who required cigarette packages to say: “Warning, this product may be dangerous to your health” ought to require that 99 out of 100 books written on personal finance carry that same label.

The Bitcoin Standard: The Decentralized Alternative to Central Banking by Saifedean Ammous

"World Economic Forum" Davos, Airbnb, Alan Greenspan, altcoin, bank run, banks create money, bitcoin, Black Swan, blockchain, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, Charles Babbage, conceptual framework, creative destruction, cryptocurrency, currency manipulation / currency intervention, currency peg, delayed gratification, disintermediation, distributed ledger, Elisha Otis, Ethereum, ethereum blockchain, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, George Gilder, Glass-Steagall Act, global reserve currency, high net worth, initial coin offering, invention of the telegraph, Isaac Newton, iterative process, jimmy wales, Joseph Schumpeter, low interest rates, market bubble, market clearing, means of production, military-industrial complex, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, Paul Samuelson, peer-to-peer, Peter Thiel, price mechanism, price stability, profit motive, QR code, quantum cryptography, ransomware, reserve currency, Richard Feynman, risk tolerance, Satoshi Nakamoto, scientific management, secular stagnation, smart contracts, special drawing rights, Stanford marshmallow experiment, The Nature of the Firm, the payments system, too big to fail, transaction costs, Walter Mischel, We are all Keynesians now, zero-sum game

Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy (1962). 22 Mark Skousen, “The Perseverance of Paul Samuelson's Economics,” Journal of Economic Perspectives, vol. 11, no. 2 (1997): 137–152. 23 David Levy and Sandra Peart, “Soviet Growth and American Textbooks: An Endogenous Past,” Journal of Economic Behavior & Organization, vol. 78, issues 1–2 (April 2011): 110–125. 24 Mark Skousen, “The Perseverance of Paul Samuelson's Economics,” Journal of Economic Perspectives, vol. 11, no. 2 (1997): 137–152. 25 Paul Krugman, “Secular Stagnation, Coalmines, Bubbles, and Larry Summers,” New York Times, November 16, 2003. 26 For a formal modeling of this statement, see D.

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The death of the populist and powerful FDR and his replacement by the meeker and less iconic Truman, coming up against a Congress controlled by Republicans, created political deadlock that prevented the renewal of the statutes of the New Deal. All of these factors together, when analyzed by Keynesian economists, would point to impending disaster, as Paul Samuelson, the man who literally wrote the textbooks for economic education in the postwar era, wrote in 1943: The final conclusion to be drawn from our experience at the end of the last war is inescapable—were the war to end suddenly within the next 6 months, were we again planlessly to wind up our war effort in the greatest haste, to demobilize our armed forces, to liquidate price controls, to shift from astronomical deficits to even the large deficits of the thirties—then there would be ushered in the greatest period of unemployment and industrial dislocation which any economy has ever faced.10 The end of World War II and the dismantling of the New Deal meant the U.S. government cut its spending by an astonishing 75% between 1944 and 1948, and it also removed most price controls for good measure.

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Source: George Hall, “Exchange Rates and Casualties During the First World War,” Journal of Monetary Economics. 5 Friedrich Hayek, Monetary Nationalism and International Stability (Fairfield, NJ: Augustus Kelley, 1989 [1937]). 6 A thorough accounting of Hoover's interventionist policies can be found in Murray Rothbard's America's Great Depression. 7 Quoted in Henry Hazlitt, The Failure of the New Economics. p. 277. 8 Otto Mallery, Economic Union and Durable Peace (Harper and Brothers, 1943), p. 10. 9 Robert Higgs, “World War II and the Triumph of Keynesianism” (2001), Independent Institute research article. Available at http://www.independent.org/publications/article.asp?id=317 10 Paul Samuelson, “Full Employment after the War,” in Seymour Harris, Postwar Economic Problems (New York: McGraw‐Hill, 1943). 11 After being investigated and testifying in front of Congress, White suffered two heart attacks and died from an overdose of medication, which may have been suicide. A good treatment of this episode can be found in Benn Steil's The Battle of Bretton Woods, which pushes the view that White was a Soviet spy.

Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies by Jeremy J. Siegel

addicted to oil, Alan Greenspan, asset allocation, backtesting, behavioural economics, Black-Scholes formula, book value, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, capital asset pricing model, cognitive dissonance, compound rate of return, correlation coefficient, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, Everybody Ought to Be Rich, fixed income, German hyperinflation, implied volatility, index arbitrage, index fund, Isaac Newton, it's over 9,000, John Bogle, joint-stock company, Long Term Capital Management, loss aversion, machine readable, market bubble, mental accounting, Money creation, Myron Scholes, new economy, oil shock, passive investing, Paul Samuelson, popular capitalism, prediction markets, price anchoring, price stability, proprietary trading, purchasing power parity, random walk, Richard Thaler, risk free rate, risk tolerance, risk/return, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, stock buybacks, stocks for the long run, subprime mortgage crisis, survivorship bias, technology bubble, The Great Moderation, The Wisdom of Crowds, transaction costs, tulip mania, uptick rule, Vanguard fund, vertical integration

Campbell, Strategic Asset Allocation: Portfolio Choice for Long-Term Investors, New York: Oxford University Press, 2002. Also see Nicholas Barberis, “Investing for the Long Run When Returns Are Predictable,” Journal of Finance, vol. 55 (2000), pp. 225–264. Paul Samuelson has shown that mean reversion will increase equity holdings if investors have a risk aversion coefficient greater than unity, which most researchers find is the case. See Paul Samuelson, “Long-Run Risk Tolerance When Equity Returns Are Mean Regressing: Pseudoparadoxes and Vindications of ‘Businessmen’s Risk’” in W. C. Brainard, W. D. Nordhaus, and H. W. Watts, eds., Money, Macroeconomics, and Public Policy, Cambridge: MIT Press, 1991, pp. 181–200.

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Despite the overwhelming quantity of historical data, one can never be certain that the underlying factors that generate asset prices have remained unchanged. One cannot, as in the physical sciences, run repeated controlled experiments, holding all other factors constant while estimating the value of the parameter in question. As Nobel laureate Paul Samuelson is fond of saying, “We have but one sample of history.” Yet one must start by analyzing the past in order to understand the future. The first chapter showed that not only have fixed-income returns lagged substantially behind those on equities but, because of the uncertainty of inflation, bonds can be quite risky for long-term investors.

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The audience wants to know if the economy is really going to do well enough to support these high stock prices. This chapter is an adaptation of my paper “Does It Pay Stock Investors to Forecast the Business Cycle?” in Journal of Portfolio Management, vol. 18 (Fall 1991), pp. 27–34. The material benefited significantly from discussions with Professor Paul Samuelson. 1 “Science and Stocks,” Newsweek, September 19, 1966, p. 92. 2 Peter Lynch, One Up on Wall Street, New York: Penguin Books, 1989, p. 14. 207 Copyright © 2008, 2002, 1998, 1994 by Jeremy J. Siegel. Click here for terms of use. 208 PART 3 How the Economic Environment Impacts Stocks The economist’s address is highly optimistic.

Termites of the State: Why Complexity Leads to Inequality by Vito Tanzi

accounting loophole / creative accounting, Affordable Care Act / Obamacare, Alan Greenspan, Andrei Shleifer, Andrew Keen, Asian financial crisis, asset allocation, barriers to entry, basic income, behavioural economics, bitcoin, Black Swan, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, clean water, crony capitalism, David Graeber, David Ricardo: comparative advantage, deindustrialization, Donald Trump, Double Irish / Dutch Sandwich, experimental economics, financial engineering, financial repression, full employment, George Akerlof, Gini coefficient, Gunnar Myrdal, high net worth, hiring and firing, illegal immigration, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labor-force participation, libertarian paternalism, Long Term Capital Management, low interest rates, market fundamentalism, means of production, military-industrial complex, moral hazard, Naomi Klein, New Urbanism, obamacare, offshore financial centre, open economy, Pareto efficiency, Paul Samuelson, Phillips curve, price stability, principal–agent problem, profit maximization, pushing on a string, quantitative easing, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Second Machine Age, secular stagnation, self-driving car, Silicon Valley, Simon Kuznets, synthetic biology, The Chicago School, The Great Moderation, The Market for Lemons, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, Tyler Cowen: Great Stagnation, universal basic income, unorthodox policies, urban planning, very high income, Vilfredo Pareto, War on Poverty, Washington Consensus, women in the workforce

I had also spent another two years working for a CongressionalPresidential Commission (the Outdoor Recreation Resources Review Commission) that was tasked with determining the optimal use for the extensive public land owned by the US federal government. This commission produced several reports that set the stage for the future use of public land. During the years I spent at Harvard, in the first half of the 1960s, some of the leading economists of the time – Paul Samuelson, Robert Solow, Simon Kuznets, Kenneth Arrow, Franco Modigliani, Wassily Leontief, Kenneth Galbraith, Robert Dorfman, Alvin Hansen, Otto Eckstein, James Duesenberry, and several others – were in the Boston area, either at Harvard or at MIT. Richard Musgrave, who was then considered the leading public finance economist in the United States, would come to Harvard a little later and would be the second reader of my doctoral dissertation; I thus completed my public finance preparation under a third refugee from Nazi Germany.

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He was widely known to the public, and, when he discussed economic policies, he spoke in a language that normal citizens could understand. The Council of Economic Advisers, which had prepared the Report, included among its staff two future Nobel Prize winners in economics (James Tobin and Robert Solow) and had also relied on consultants that included two other future Nobel Prize winners (Kenneth Arrow and Paul Samuelson). The Report would attract the kind of attention that could only be dreamed of by the authors of recent reports. The 1962 Report was a clear example of the extent to which the Keynesian Revolution and trust in the government to be able to make policy changes assumed to be beneficial to the citizens had reached their apotheosis, while economists had reached the peak of their prestige.

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Some discussions, promoted especially by James Buchanan and his collaborators, and, to some extent, independently by Mancur Olson (1965), were initiated in the 1960s on the role of fiscal institutions in determining policy outcomes, and on the need for rules that would reduce the policy discretion that policymakers have when they make policy decisions. This, to some extent, is the problem of dealing with “soft budgets.” As mentioned earlier, the need to have some rules had been recognized for a long time by writers including David Hume, Max Weber., and others. Keynesian economists, including, prominently, Paul Samuelson, had considered discretion an important asset for policymakers to have in the pursuit of countercyclical policy, because it allowed them to react quickly, easily, and sufficiently to economic crises. The proposal mentioned earlier, made in the 1962 Economic Report of the President, to give the president of the United States the discretion to change, at his own initiative, the tax rates, or the public spending on capital projects, was a manifestation of the merit attributed to discretion by Keynesian economists.

Adaptive Markets: Financial Evolution at the Speed of Thought by Andrew W. Lo

Alan Greenspan, Albert Einstein, Alfred Russel Wallace, algorithmic trading, Andrei Shleifer, Arthur Eddington, Asian financial crisis, asset allocation, asset-backed security, backtesting, bank run, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, bitcoin, Bob Litterman, Bonfire of the Vanities, bonus culture, break the buck, Brexit referendum, Brownian motion, business cycle, business process, butterfly effect, buy and hold, capital asset pricing model, Captain Sullenberger Hudson, carbon tax, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computerized trading, confounding variable, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, Daniel Kahneman / Amos Tversky, delayed gratification, democratizing finance, Diane Coyle, diversification, diversified portfolio, do well by doing good, double helix, easy for humans, difficult for computers, equity risk premium, Ernest Rutherford, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, Flash crash, Fractional reserve banking, framing effect, Glass-Steagall Act, global macro, Gordon Gekko, greed is good, Hans Rosling, Henri Poincaré, high net worth, housing crisis, incomplete markets, index fund, information security, interest rate derivative, invention of the telegraph, Isaac Newton, it's over 9,000, James Watt: steam engine, Jeff Hawkins, Jim Simons, job satisfaction, John Bogle, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, language acquisition, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, Louis Pasteur, mandelbrot fractal, margin call, Mark Zuckerberg, market fundamentalism, martingale, megaproject, merger arbitrage, meta-analysis, Milgram experiment, mirror neurons, money market fund, moral hazard, Myron Scholes, Neil Armstrong, Nick Leeson, old-boy network, One Laptop per Child (OLPC), out of africa, p-value, PalmPilot, paper trading, passive investing, Paul Lévy, Paul Samuelson, Paul Volcker talking about ATMs, Phillips curve, Ponzi scheme, predatory finance, prediction markets, price discovery process, profit maximization, profit motive, proprietary trading, public intellectual, quantitative hedge fund, quantitative trading / quantitative finance, RAND corporation, random walk, randomized controlled trial, Renaissance Technologies, Richard Feynman, Richard Feynman: Challenger O-ring, risk tolerance, Robert Shiller, Robert Solow, Sam Peltzman, Savings and loan crisis, seminal paper, Shai Danziger, short selling, sovereign wealth fund, Stanford marshmallow experiment, Stanford prison experiment, statistical arbitrage, Steven Pinker, stochastic process, stocks for the long run, subprime mortgage crisis, survivorship bias, systematic bias, Thales and the olive presses, The Great Moderation, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Triangle Shirtwaist Factory, ultimatum game, uptick rule, Upton Sinclair, US Airways Flight 1549, Walter Mischel, Watson beat the top human players on Jeopardy!, WikiLeaks, Yogi Berra, zero-sum game

The free market Chicago School of economics is usually associated with its most eloquent champion, Milton Friedman, but the Efficient Markets Hypothesis has become at least as prominent a hallmark, thanks to Gene Fama. EFFICIENT MARKETS UNPACKED Two economists with very dissimilar styles of thought, Paul Samuelson and Eugene Fama, reached the same conclusion about efficient markets. Fama’s fascination with computers, data, and statistical analysis led him down a very different intellectual path to the Efficient Markets Hypothesis than Samuelson’s elegant, simpleminded, physics-inspired version. But both men’s versions of the Efficient Markets Hypothesis have the same Zenlike, counterintuitive flavor: the more efficient the market, the more random the sequence of price changes in the market.

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If just one of them is contradicted by the data, the theory can and should be rejected, and the field moves on to the next theory (and as long as there are assistant professors out there trying to get tenure, there’s always a next theory). Because science is a human endeavor, some scientists can be difficult to convince, especially if they played a role in creating or upholding an earlier theory. However, like evolution, science itself is an ongoing process also subject to natural selection. Paul Samuelson often remarked, “Science progresses funeral by funeral,” paraphrasing the great physicist Max Planck with a pithy if somewhat morbid characterization of the process of scientific discovery. In the end, the better theory has the last laugh, and scientific knowledge accumulates slowly but surely, one prediction at a time.

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In 1947, the seeds of an alternate theory were planted by an unassuming graduate student working on a topic that most economists would have dismissed as irrelevant to their field. These ideas were eventually pushed out of the economic mainstream by true believers in market rationality. In that year, Herbert Simon published his Ph.D. thesis, Administrative Behavior. It appeared, ironically enough, the same year as Paul Samuelson’s Ph.D. thesis, Foundations of Economic Analysis. Administrative Behavior was a remarkably underwhelming title for a classic that would become the Magna Carta of the field of organizational behavior and, like Samuelson’s Foundations, is still in print today. SIMON SAYS SATISFICE Herbert Alexander Simon was an outsider to economics: his primary background wasn’t in mathematics or physics, but in what we would today call management science.

A Splendid Exchange: How Trade Shaped the World by William J. Bernstein

Admiral Zheng, asset allocation, bank run, Benoit Mandelbrot, British Empire, call centre, clean water, Columbian Exchange, Corn Laws, cotton gin, David Ricardo: comparative advantage, death from overwork, deindustrialization, Doha Development Round, domestication of the camel, double entry bookkeeping, Easter island, Eratosthenes, financial innovation, flying shuttle, Gini coefficient, God and Mammon, high-speed rail, ice-free Arctic, imperial preference, income inequality, intermodal, James Hargreaves, John Harrison: Longitude, Khyber Pass, low skilled workers, non-tariff barriers, Paul Samuelson, placebo effect, Port of Oakland, refrigerator car, Silicon Valley, South China Sea, South Sea Bubble, spice trade, spinning jenny, Steven Pinker, Suez canal 1869, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade liberalization, trade route, transatlantic slave trade, transcontinental railway, two and twenty, upwardly mobile, working poor, zero-sum game

As so famously put by Keynes: Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.21 Trade's modern scribblers-David Ricardo, Richard Cobden, Eli Heckscher, Bertil Ohlin, Wolfgang Stolper, and Paul Samuelson-will help us to understand the massive upheavals seen in our ever more integrated global system. Although the structure of this book is chronological, its many interwoven narratives will supersede the flow of mere dates and events. For example, two closely related stories, the south Arabian incense trade and the domestication of the camel, both span thousands of years.

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Cordell Hull, the longestserving American secretary of state, clearly discerned the damage to world security done by the tariff wars of the early twentieth century and laid the groundwork for the GATT and WTO. By courtesy of the United States House of Representatives. This photograph of economists Wolfgang Stolper (left) and Paul Samuelson (right) was taken fifty years after they developed a theorem that explained who wins, and who loses, with free trade. BY courtesy of the University of Michigan Press. On December 13, 1577, a five-vessel flotilla under the command of Francis Drake left Plymouth, England. Drake's secret charge from Queen Elizabeth was threefold: to repeat Magellan's circumnavigation, to establish trade with the Spice Islands, and to plunder Iberian shipping.

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The great premodern thinkers in the field-Henry Martyn, Adam Smith, and David Ricardo-described the overall benefits of free trade. They understood but largely ignored the fact that a significant minority of inno cent people were usually harmed. Their twentieth-century descendants- Bertil Ohlin, Eli Heckscher, Paul Samuelson, and Wolfgang Stolper- provided a framework that identifies who wins, who loses, and how they react. By 1860, northern Europe, basking in the warm glow of the repeal of the Corn Law, the signing of the Cobden-Chevalier Treaty, and the "tariff disarmament" that followed, seemed firmly on the road to free trade.

Radical Uncertainty: Decision-Making for an Unknowable Future by Mervyn King, John Kay

Airbus A320, Alan Greenspan, Albert Einstein, Albert Michelson, algorithmic trading, anti-fragile, Antoine Gombaud: Chevalier de Méré, Arthur Eddington, autonomous vehicles, availability heuristic, banking crisis, Barry Marshall: ulcers, battle of ideas, Bear Stearns, behavioural economics, Benoit Mandelbrot, bitcoin, Black Swan, Boeing 737 MAX, Bonfire of the Vanities, Brexit referendum, Brownian motion, business cycle, business process, capital asset pricing model, central bank independence, collapse of Lehman Brothers, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, DeepMind, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, Donald Trump, Dutch auction, easy for humans, difficult for computers, eat what you kill, Eddington experiment, Edmond Halley, Edward Lloyd's coffeehouse, Edward Thorp, Elon Musk, Ethereum, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, fear of failure, feminist movement, financial deregulation, George Akerlof, germ theory of disease, Goodhart's law, Hans Rosling, Helicobacter pylori, high-speed rail, Ignaz Semmelweis: hand washing, income per capita, incomplete markets, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Jeff Bezos, Jim Simons, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, John von Neumann, Kenneth Arrow, Kōnosuke Matsushita, Linda problem, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, military-industrial complex, Money creation, Moneyball by Michael Lewis explains big data, Monty Hall problem, Nash equilibrium, Nate Silver, new economy, Nick Leeson, Northern Rock, nudge theory, oil shock, PalmPilot, Paul Samuelson, peak oil, Peter Thiel, Philip Mirowski, Phillips curve, Pierre-Simon Laplace, popular electronics, power law, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, railway mania, RAND corporation, reality distortion field, rent-seeking, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Solow, Ronald Coase, sealed-bid auction, shareholder value, Silicon Valley, Simon Kuznets, Socratic dialogue, South Sea Bubble, spectrum auction, Steve Ballmer, Steve Jobs, Steve Wozniak, Suez crisis 1956, Tacoma Narrows Bridge, Thales and the olive presses, Thales of Miletus, The Chicago School, the map is not the territory, The Market for Lemons, The Nature of the Firm, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Thomas Malthus, Toyota Production System, transaction costs, ultimatum game, urban planning, value at risk, world market for maybe five computers, World Values Survey, Yom Kippur War, zero-sum game

Honest and capable executives and politicians, of which there are many, try instead to make incremental decisions which they think will improve their business, or make the world a better place. And happy households are places where family members work together to ensure that tomorrow is at least as good as today. Most economists would readily acknowledge that no one actually engages in the kinds of calculation which are described in economic models. But since the work of Paul Samuelson, economists have relied on the claim that if people observed certain axioms which constituted ‘rationality’ they would – unconsciously – be optimising, rather as Molière’s M. Jourdain had been talking prose for forty years without knowing it. And when this axiomatic approach is applied to consumer behaviour, as it was by Samuelson, the method is more fruitful than the sceptical observer might expect.

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It is easy to understand why economists and statisticians, in search of clear and comprehensive solutions, have sought wide extension of the scope of probabilistic reasoning. The underlying mathematics has a certain simplicity and beauty, and in practice can be applied by those who have acquired the requisite modest technical skill. Arguably the two most brilliant economists of the post-war period, Paul Samuelson and Robert Solow, occupied adjoining offices at MIT for over half a century. As Samuelson relates, ‘When young he [Solow] would say, if you don’t regard probability theory as the most interesting subject in the world, then I feel sorry for you. I always agreed with that.’ 9 The appeal of probability theory is understandable.

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The two-envelope problem is a striking illustration of the difficulty of applying probabilistic reasoning when the range of possible outcomes is not known completely, i.e., when there is radical uncertainty. And there are other good reasons why decision-makers might not focus on expected value. Paul Samuelson posed to a colleague the wager which offered a 50% chance of winning $200 and a 50% chance of losing $100. The colleague replied that he would not take the bet, but would be interested if Samuelson promised to repeat the offer one hundred times. From the perspective of expected value, this response is a mistake – the colleague is turning down a wager with an expected value of $50.

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof, Robert J. Shiller

affirmative action, Andrei Shleifer, asset-backed security, bank run, banking crisis, Bear Stearns, behavioural economics, business cycle, buy and hold, collateralized debt obligation, conceptual framework, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, Deng Xiaoping, Donald Trump, Edward Glaeser, en.wikipedia.org, experimental subject, financial innovation, full employment, Future Shock, George Akerlof, George Santayana, housing crisis, Hyman Minsky, income per capita, inflation targeting, invisible hand, Isaac Newton, Jane Jacobs, Jean Tirole, job satisfaction, Joseph Schumpeter, junk bonds, Long Term Capital Management, loss aversion, market bubble, market clearing, mental accounting, Michael Milken, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, new economy, New Urbanism, Paul Samuelson, Phillips curve, plutocrats, Post-Keynesian economics, price stability, profit maximization, public intellectual, purchasing power parity, random walk, Richard Thaler, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, seminal paper, South Sea Bubble, The Chicago School, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, W. E. B. Du Bois, We are all Keynesians now, working-age population, Y2K, Yom Kippur War

He was taking a class on monetary theory given by Paul Samuelson at MIT in the spring of 1964. Samuelson related that a member of President Dwight Eisenhower’s Council of Economic Advisers, Raymond Saulnier, had proposed the following idea. It might be possible to attain low unemployment in the short run, at the cost of high inflation. But as that inflation occurred, expectations about inflation would increase, so that maintenance of the low level of unemployment would entail higher inflation. That argument should sound familiar—although in this class it was related by Paul Samuelson, not Milton Friedman. But the ending of the argument does not remind us of Milton Friedman.

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But recessions do have at least one silver lining: the cut they take into economic life reveals how capitalist societies really work. To give one example, Keynes’ General Theory, written in the heart of the Great Depression, gave us for the first time an understanding of how macro economies really behave. That is why it was so inspiring, prompting Paul Samuelson to say, in 1946, that the Keynesian revolution, which appeared during the Great Depression, has infected the thinking of virtually every economist. But as the memory of the Great Depression has faded, so too has an appreciation and understanding of Keynesian theory. For the past year we have been seeing a great deal of excellent reportage on how we got into the current mess.

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It is indicative how important it is to macroeconomics that just four years later, James Tobin, an arch foe of Milton Friedman, would declare in his own presidential address to the American Economic Association that “an economic theorist can, of course, commit no greater crime than to assume money illusion.”11 Tobin failed to mention that money illusion had been standard fare just four years earlier. It lay at the heart of the views on macroeconomics of some of the century’s leading economists, including Keynes, Paul Samuelson, Robert Solow, Irving Fisher, Franco Modigliani, and Tobin himself. Presumption We see Fisher’s and Keynes’ unadulterated money illusion as a remarkably naïve belief. It was in need of serious revision. But that does not mean that one should jump to the opposite extreme. It is not necessarily true that, on the contrary, there is no money illusion at all.

Misbehaving: The Making of Behavioral Economics by Richard H. Thaler

3Com Palm IPO, Alan Greenspan, Albert Einstein, Alvin Roth, Amazon Mechanical Turk, Andrei Shleifer, Apple's 1984 Super Bowl advert, Atul Gawande, behavioural economics, Berlin Wall, Bernie Madoff, Black-Scholes formula, book value, business cycle, capital asset pricing model, Cass Sunstein, Checklist Manifesto, choice architecture, clean water, cognitive dissonance, conceptual framework, constrained optimization, Daniel Kahneman / Amos Tversky, delayed gratification, diversification, diversified portfolio, Edward Glaeser, endowment effect, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, George Akerlof, hindsight bias, Home mortgage interest deduction, impulse control, index fund, information asymmetry, invisible hand, Jean Tirole, John Nash: game theory, John von Neumann, Kenneth Arrow, Kickstarter, late fees, law of one price, libertarian paternalism, Long Term Capital Management, loss aversion, low interest rates, market clearing, Mason jar, mental accounting, meta-analysis, money market fund, More Guns, Less Crime, mortgage debt, Myron Scholes, Nash equilibrium, Nate Silver, New Journalism, nudge unit, PalmPilot, Paul Samuelson, payday loans, Ponzi scheme, Post-Keynesian economics, presumed consent, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, random walk, randomized controlled trial, Richard Thaler, risk free rate, Robert Shiller, Robert Solow, Ronald Coase, Silicon Valley, South Sea Bubble, Stanford marshmallow experiment, statistical model, Steve Jobs, sunk-cost fallacy, Supply of New York City Cabdrivers, systematic bias, technology bubble, The Chicago School, The Myth of the Rational Market, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, ultimatum game, Vilfredo Pareto, Walter Mischel, zero-sum game

Briefly stated, the argument is that even if people are not capable of actually solving the complex problems that economists assume they can handle, they behave “as if” they can. To understand the “as if” critique, it is helpful to look back a bit into the history of economics. The discipline underwent something of a revolution after World War II. Economists led by Kenneth Arrow, John Hicks, and Paul Samuelson accelerated an ongoing trend of making economic theory more mathematically formal. The two central concepts of economics remained the same—namely, that agents optimize and markets reach a stable equilibrium—but economists became more sophisticated in their ability to characterize the optimal solutions to problems as well as to determine the conditions under which a market will reach an equilibrium.

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And he frowned upon “those working men who, before prohibition, could not resist the lure of the saloon on the way home Saturday night,” which was then payday. Quite evidently, from Adam Smith in 1776 to Irving Fisher in 1930, economists were thinking about intertemporal choice with Humans in plain sight. Econs began to creep in around the time of Fisher, as he started on the theory of how Econs should behave, but it fell to a twenty-two-year-old Paul Samuelson, then in graduate school, to finish the job. Samuelson, whom many consider to be the greatest economist of the twentieth century, was a prodigy who set out to give economics a proper mathematical foundation. He enrolled at the University of Chicago at age sixteen and soon went off to Harvard for graduate school.

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Yet when this game is played in the laboratory, 40–50% of the players cooperate, which means that about half the players either do not understand the logic of the game or feel that cooperating is the just the right thing to do, or possibly both. The Prisoner’s Dilemma comes with a great story, but most of us don’t get arrested very often. What are the implications of this game for normal life? Consider a related game called the Public Goods Game. To understand the economic significance of this game, we turn back to the great Paul Samuelson, who formalized the concept of a public good in a three-page paper published in 1954. The guy did not belabor things. A public good is one that everyone can consume without diminishing the consumption of anyone else, and it is impossible to exclude anyone from consuming it. A fireworks display is a classic example.

Obliquity: Why Our Goals Are Best Achieved Indirectly by John Kay

Andrew Wiles, Asian financial crisis, Bear Stearns, behavioural economics, Berlin Wall, Boeing 747, bonus culture, British Empire, business process, Cass Sunstein, computer age, corporate raider, credit crunch, Daniel Kahneman / Amos Tversky, discounted cash flows, discovery of penicillin, diversification, Donald Trump, Fall of the Berlin Wall, financial innovation, Goodhart's law, Gordon Gekko, greed is good, invention of the telephone, invisible hand, Jane Jacobs, junk bonds, lateral thinking, Long Term Capital Management, long term incentive plan, Louis Pasteur, market fundamentalism, Myron Scholes, Nash equilibrium, pattern recognition, Paul Samuelson, purchasing power parity, RAND corporation, regulatory arbitrage, shareholder value, Simon Singh, Steve Jobs, Suez canal 1869, tacit knowledge, Thales of Miletus, The Death and Life of Great American Cities, The Predators' Ball, The Wealth of Nations by Adam Smith, ultimatum game, urban planning, value at risk

Byrne, The Whiz Kids: The Founding Fathers of American Business—and the Legacy They Left Us (New York: Bantam Doubleday Dell, 1993). 3 Friedrich von Hayek, Law, Legislation and Liberty, (Chicago: University of Chicago Press, 1973), vol. 1, “Rules and Order,” p. 49. 4 Ibid. 5 Adam Ferguson, An Essay on the History of Civil Society (1767; reprint, Edinburgh: Edinburgh University Press, 1966), p. 122. 6 David Hume, Essays: Moral, Political, Literary (1777; reprint, ed. Eugene F. Miller, Indianapolis: Liberty Classics, 1985), book II, chapter XII. Chapter 19: Very Well Then, I Contradict Myself—How It Is More Important to Be Right Than to Be Consistent 1 Paul Samuelson, Foundations of Economic Analysis (1947; reprint, Cambridge, MA: Harvard University Press, 1966). 2 Paul Samuelson, “Altruism as a Problem Involving Group Versus Individual Selection in Economics and Biology,” American Economic Review 83, no. 2 (May 1998), pp. 143–8. 3 Francis M. Cornford, Microcosmographia Academica (Cambridge: Bowes & Bowes, 1908), chapter VII. 4 Walt Whitman, “Song of Myself,” in Leaves of Grass (1855; reprint, Hertfordshire, UK: Wordsworth Editions, 2006), p. 69. 5 F.

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Dame Helen Gardner included some poems in her anthology and left out countless others. Accountants have to report on whether a measure of profit reflects a true and fair view. If we are consistent in our choices, then we are maximizing our utility—or at least we are maximizing something. This idea, first clearly articulated in Paul Samuelson’s Foundations of Economic Analysis1 sixty years ago, rescued economics from a muddle born of nineteenth-century utilitarianism and enabled the subject to become queen of the social sciences. The theory of rational choice dominates economic thinking today, and its influence has spread to politics, psychology and sociology.

The Accidental Theorist: And Other Dispatches From the Dismal Science by Paul Krugman

"World Economic Forum" Davos, Alan Greenspan, Bonfire of the Vanities, Bretton Woods, business cycle, carbon tax, clean water, collective bargaining, computerized trading, corporate raider, declining real wages, floating exchange rates, full employment, George Akerlof, George Gilder, Home mortgage interest deduction, income inequality, indoor plumbing, informal economy, invisible hand, It's morning again in America, Kenneth Arrow, knowledge economy, life extension, new economy, Nick Leeson, paradox of thrift, Paul Samuelson, plutocrats, price stability, rent control, Robert Solow, Ronald Reagan, Silicon Valley, trade route, very high income, working poor, zero-sum game

Yet the kind of economics covered in the textbooks is a technical subject that many people find hard to follow. How reassuring, then, to be told that it is all irrelevant—that all you really need to know are a few simple ideas! Quite a few supply-siders have created for themselves a wonderful alternative intellectual history in which John Maynard Keynes was a fraud, Paul Samuelson and even Milton Friedman are fools, and the true line of deep economic thought runs from Adam Smith through obscure turn-of-the-century Austrians straight to them. And so it doesn’t really matter whether supply-side economics makes any sense, or even whether it goes down to a crushing electoral defeat.

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You must be prepared to work through little models before you can use the big words—in fact, it is usually a good idea to try to avoid the big words altogether. If you balk at this task—if you think that you are too grown-up for this sort of thing—then you may sound impressive and sophisticated, but you will have no idea what you are talking about. A Good Word for Inflation Many years ago, Paul Samuelson memorably cautioned against basing economic policy on “shibboleths,” by which he meant slogans that take the place of hard thinking. Strictly speaking, this was an incorrect use of the word: The OED defines a shibboleth as “A catchword or formula adopted by a party or sect, by which their adherents or followers may be discerned, or those not their followers may be excluded.”

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However, if the firm pays for coal but not for the use of clean water, it is to be expected that management will be economical in its use of coal and wasteful in its use of water.” In other words, when it comes to the environment, we do not expect the free market to get it right. So what should be done? Going all the way back to Paul Samuelson’s first edition in 1948, every economics textbook I know of has argued that the government should intervene in the market to discourage activities that damage the environment. The usual recommendation is to do so either by charging fees for the right to engage in such nasty activities—a.k.a. “pollution taxes”—or by auctioning off rights to pollute.

Investment: A History by Norton Reamer, Jesse Downing

activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, book value, break the buck, Brownian motion, business cycle, buttonwood tree, buy and hold, California gold rush, capital asset pricing model, Carmen Reinhart, carried interest, colonial rule, Cornelius Vanderbilt, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, debt deflation, discounted cash flows, diversified portfolio, dogs of the Dow, equity premium, estate planning, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, family office, Fellow of the Royal Society, financial innovation, fixed income, flying shuttle, Glass-Steagall Act, Gordon Gekko, Henri Poincaré, Henry Singleton, high net worth, impact investing, index fund, information asymmetry, interest rate swap, invention of the telegraph, James Hargreaves, James Watt: steam engine, John Bogle, joint-stock company, Kenneth Rogoff, labor-force participation, land tenure, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, managed futures, margin call, means of production, Menlo Park, merger arbitrage, Michael Milken, money market fund, moral hazard, mortgage debt, Myron Scholes, negative equity, Network effects, new economy, Nick Leeson, Own Your Own Home, Paul Samuelson, pension reform, Performance of Mutual Funds in the Period, Ponzi scheme, Post-Keynesian economics, price mechanism, principal–agent problem, profit maximization, proprietary trading, quantitative easing, RAND corporation, random walk, Renaissance Technologies, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Sand Hill Road, Savings and loan crisis, seminal paper, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spinning jenny, statistical arbitrage, survivorship bias, tail risk, technology bubble, Teledyne, The Wealth of Nations by Adam Smith, time value of money, tontine, too big to fail, transaction costs, two and twenty, underbanked, Vanguard fund, working poor, yield curve

This was not an obvious result before its publication, and it ultimately generated a flurry of literature in the field of corporate finance on the role of capital structure and its interaction with asset pricing. Paul Samuelson and Bridging the Gap in Derivatives Theory We now come full circle within the discussion of the evolution of asset pricing theory and return to the pricing of derivatives. The man who, in a sense, connected the earlier work of Louis Bachelier to that of Black and Scholes, described later, was Paul Samuelson. Samuelson made a stunning breadth of contributions to economics until the end of his life at the age of ninety-four. Hailing from Gary, Indiana, he studied at the University of Chicago in the early 1930s, taking several classes alongside such distinguished classmates as Milton Friedman.

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John Maynard Keynes, perhaps the most influential economist of the period, if not of the last century, saw much of both his own savings and the endowment assets of King’s College he helped manage lost in the Crash. Irving Fisher, too, suffered from the crisis. Not only was he bullish before the Crash, he published in 1930 after the events of October of the previous year saying that much of the manufacturing sector was undervalued. Paul Samuelson, too, conducted his own retrospective game in which he covered up the dates and looked at only the fundamentals at the time to see if he would have bought or sold. He has said, “I discovered that I would have been caught by the 1929 debacle.”17 Even the apparent market wizard Jesse Lauriston Livermore, the Great Bear of Wall Street, who had called the top and who made substantial sums shorting stocks ahead of both the Panic of 1907 and the Crash of 1929, would see his fortune wiped out some five years later from ill-fated speculative plays.

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The mathematical underpinnings of this description of randomness could be applied not only to the motions of small particles but also to the movements of markets. Bachelier’s work did not seem to have an immediate and profound influence on those markets, however. Though it did have some effect, as it showed up in applied probability books and in some prestigious journals, it was really when Paul Samuelson came across Bachelier’s work decades later that this contribution was appropriately appreciated by the financial community.3 Bachelier, though not as lauded as he may have deserved to be among the financial community of his day, was the father of modern mathematical finance. The Emergence of Investment Theory 231 Irving Fisher: Net Present Value Whereas Bachelier employed advanced mathematics to think about the price of a derivative, Irving Fisher used mathematics in an approach to a more fundamental question: how does one value the price of the underlying asset (that is, an asset that is not a derivative)?

More Money Than God: Hedge Funds and the Making of a New Elite by Sebastian Mallaby

Alan Greenspan, Andrei Shleifer, Asian financial crisis, asset-backed security, automated trading system, bank run, barriers to entry, Bear Stearns, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, book value, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, currency peg, deal flow, do well by doing good, Elliott wave, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, full employment, German hyperinflation, High speed trading, index fund, Jim Simons, John Bogle, John Meriwether, junk bonds, Kenneth Rogoff, Kickstarter, Long Term Capital Management, low interest rates, machine translation, margin call, market bubble, market clearing, market fundamentalism, Market Wizards by Jack D. Schwager, Mary Meeker, merger arbitrage, Michael Milken, money market fund, moral hazard, Myron Scholes, natural language processing, Network effects, new economy, Nikolai Kondratiev, operational security, pattern recognition, Paul Samuelson, pre–internet, proprietary trading, public intellectual, quantitative hedge fund, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, Robert Mercer, rolodex, Savings and loan crisis, Sharpe ratio, short selling, short squeeze, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical arbitrage, statistical model, survivorship bias, tail risk, technology bubble, The Great Moderation, The Myth of the Rational Market, the new new thing, too big to fail, transaction costs, two and twenty, uptick rule

Some said he might be leaving for good, but others had their doubts; “there’s as much chance of Michael giving up Wall Street for a year as there is of Vladimir Horowitz giving up the piano permanently,” one friend insisted.49 As it turned out, Steinhardt managed to stay away from trading until the fall of the following year. Then he stormed back, broke up with his partners, and marched into the 1980s. 3 PAUL SAMUELSON’S SECRET In famous congressional testimony in 1967, the great economist Paul Samuelson delivered his verdict on the money-management industry. Citing a recent dissertation by a PhD candidate at Yale, he suggested that randomly chosen stock portfolios tended to beat professionally managed mutual funds. When the House banking committee chairman sounded incredulous, the professor stood his ground.

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p. cm. Includes bibliographical references. ISBN: 1-101-45721-X 1. Hedge funds. 2. Investment advisors. I. Title. HG4530.M249 2010 332.64'524—dc22 2009053253 To my parents, Christopher and Pascale CONTENTS Introduction: The Alpha Game 1. BIG DADDY 2. THE BLOCK TRADER 3. PAUL SAMUELSON’S SECRET 4. THE ALCHEMIST 5. TOP CAT 6. ROCK-AND-ROLL COWBOY 7. WHITE WEDNESDAY 8. HURRICANE GREENSPAN 9. SOROS VERSUS SOROS 10. THE ENEMY IS US 11. THE DOT-COM DOUBLE 12. THE YALE MEN 13. THE CODE BREAKERS 14. PREMONITIONS OF A CRISIS 15. RIDING THE STORM 16. “HOW COULD THEY DO THIS?”

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After the debacle of the corn blight, Weymar began to allocate more capital to the Technical Computer System, and the human traders developed a fresh respect for the program’s decisions. Indeed, the new risk-control system gave them little choice: It prohibited traders from committing more than a tenth of their capital in betting against a trend, and the trends used in implementing the controls were the ones identified by Vannerson’s program. Even Paul Samuelson was won over to the new approach. He stumped up a fresh chunk of capital to be invested by the TCS, even though trend following had little standing within academia and none within his own research. IN 1974 A YOUNG RECRUIT NAMED MICHAEL MARCUS joined the team at Commodities Corporation. He was far removed from Weymar’s original conception of the model trader.

The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics by Rod Hill, Anthony Myatt

American ideology, Andrei Shleifer, Asian financial crisis, bank run, barriers to entry, behavioural economics, Bernie Madoff, biodiversity loss, business cycle, cognitive dissonance, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, different worldview, electricity market, endogenous growth, equal pay for equal work, Eugene Fama: efficient market hypothesis, experimental economics, failed state, financial innovation, full employment, gender pay gap, Gini coefficient, Glass-Steagall Act, Gunnar Myrdal, happiness index / gross national happiness, Home mortgage interest deduction, Howard Zinn, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, liberal capitalism, low interest rates, low skilled workers, market bubble, market clearing, market fundamentalism, Martin Wolf, medical malpractice, military-industrial complex, minimum wage unemployment, moral hazard, Paradox of Choice, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, positional goods, prediction markets, price discrimination, price elasticity of demand, principal–agent problem, profit maximization, profit motive, publication bias, purchasing power parity, race to the bottom, Ralph Nader, random walk, rent control, rent-seeking, Richard Thaler, Ronald Reagan, search costs, shareholder value, sugar pill, The Myth of the Rational Market, the payments system, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, union organizing, working-age population, World Values Survey, Yogi Berra

One common term used to describe this phenomenon is offshoring. The neoclassical consensus – until recently – was that this did not disturb the ‘result’ that free trade was beneficial to all. But that consensus has been disturbed by recent arguments by Gomory and Baumol (2000) and Paul Samuelson (2004) that offshoring could produce net economic losses. This created quite a stir, because Paul Samuelson is not your average econ­ omist. Winner of the Nobel Prize in economics in 1970, he wrote much of the canon of neoclassical theory. Samuelson called the view that the long-run gains from all forms of international trade must more than offset the losses a ‘popular polemical untruth’.

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What would happen if they just remained unemployed? 3 Didn’t the United States, Canada and Germany industrialize behind high tariff walls? Isn’t it a little hypocritical to now oppose other countries doing the same? 4 Must the long-run gains from all forms of international trade more than offset the losses? Paul Samuelson recently described this view as a ‘popular polemical untruth’. Why? Suggestions for further reading Take a look at ‘Appendix A: The limits of dissent’ in Marglin (2008, pp. 265–98). This has an especially good section on whether comparative advantage justifies free trade (pp. 274–82). On methodology and the minimum wage controversy, a very good source is Card and Krueger’s 1995 book, Myth and Measurement: The new economics of the minimum wage.

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According to Akerlof and Shiller (2009: 131): ‘No one has ever made rational sense of the wild gyrations in financial prices, such as stock prices. … The question is not just how to forecast these events before they occur. … No one can even explain why these events rationally ought to have happened even after they have happened.’ iv Micro near-efficiency and macro inefficiency Paul Samuelson (1998) often remarked that while the stock market is mostly micro efficient, it is macro inefficient. The behavioural research (discussed in Section 2 of this addendum) that has shown the existence of market anomalies and predictable price movements undermines the notion that asset markets are micro efficient.

Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein

Alan Greenspan, Albert Einstein, Alvin Roth, Andrew Wiles, Antoine Gombaud: Chevalier de Méré, Bayesian statistics, behavioural economics, Big bang: deregulation of the City of London, Bretton Woods, business cycle, buttonwood tree, buy and hold, capital asset pricing model, cognitive dissonance, computerized trading, Daniel Kahneman / Amos Tversky, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Lloyd's coffeehouse, endowment effect, experimental economics, fear of failure, Fellow of the Royal Society, Fermat's Last Theorem, financial deregulation, financial engineering, financial innovation, full employment, Great Leap Forward, index fund, invention of movable type, Isaac Newton, John Nash: game theory, John von Neumann, Kenneth Arrow, linear programming, loss aversion, Louis Bachelier, mental accounting, moral hazard, Myron Scholes, Nash equilibrium, Norman Macrae, Paul Samuelson, Philip Mirowski, Post-Keynesian economics, probability theory / Blaise Pascal / Pierre de Fermat, prudent man rule, random walk, Richard Thaler, Robert Shiller, Robert Solow, spectrum auction, statistical model, stocks for the long run, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thomas Bayes, trade route, transaction costs, tulip mania, Vanguard fund, zero-sum game

The following people also made significant contributions to my work and warrant my deepest appreciation: Kenneth Arrow, Gilbert Bassett, William Baumol, Zalmon Bernstein, Doris Bullard, Paul Davidson, Donald Dewey, David Durand, Barbara Fotinatos, James Fraser, Greg Hayt, Roger Hertog, Victor Howe, Bertrand Jacquillat, Daniel Kahneman, Mary Kentouris, Mario Laserna, Dean LeBaron, Michelle Lee, Harry Markowitz, Morton Meyers, James Norris, Todd Petzel, Paul Samuelson, Robert Shiller, Charles Smithson, Robert Solow, Meir Statman, Marta Steele, Richard Thaler, James Tinsley, Frank Trainer, Amos Tversky,* and Marina von N. Whitman. Eight people generously undertook to read the manuscript in its entirety and to give me the benefit of their expert criticisms and suggestions.

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No one, he insisted, can know what everybody else is going to do at any given moment: "Unlimited foresight and economic equilibrium are thus irreconcilable with each other."' This conclusion drew high praise from Frank Knight and an offer by Knight to translate this paper by Morgenstern from German into English. Morgenstern appears to have been short on charm. Nobel Laureate Paul Samuelson, the author of the long-run best-selling textbook in economics, once described him as "Napoleonic.... [A]lways invoking the authority of some physical scientists or other."*' Another contemporary recalls that the Princeton economics department `just hated Oskar."9 Morgenstern himself complained about the lack of attention his beloved masterpiece received from others.

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This `can get' [the winnings he can expect] is, of course, presumed to be a minimum; he may get more if others make mistakes (behave irrationall y)."19 This stipulation has posed a major problem for critics, including distinguished behavioral psychologists like Daniel Ellsberg and Richard Thaler, whom we will meet later. In a highly critical paper published in 1991, the historian Philip Mirowski asserted, "All is not well in the House of Game Theory-in every dreamhouse a heartache-and signs of pathology can no longer be ignored."20 He cites criticisms by Nobel Prize winners Henry Simon, Kenneth Arrow, and Paul Samuelson. He claims that game theory would never have amounted to anything had von Neumann not sold it to the military; he even goes so far as to speculate, "Some laid the blame for the escalation of nuclear weaponry directly at the door of game theory."21 Indeed, Mirowski claims that Morgenstern was a "godsend" to von Neumann because he proposed economists as an audience for game theory when no one else was interested.

Pivotal Decade: How the United States Traded Factories for Finance in the Seventies by Judith Stein

1960s counterculture, accelerated depreciation, activist lawyer, affirmative action, airline deregulation, Alan Greenspan, anti-communist, Ayatollah Khomeini, barriers to entry, Berlin Wall, blue-collar work, Bretton Woods, business cycle, capital controls, centre right, collective bargaining, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, desegregation, do well by doing good, Dr. Strangelove, energy security, Fall of the Berlin Wall, falling living standards, feminist movement, financial deregulation, floating exchange rates, full employment, Glass-Steagall Act, Gunnar Myrdal, guns versus butter model, Ida Tarbell, income inequality, income per capita, intermodal, invisible hand, knowledge worker, laissez-faire capitalism, Les Trente Glorieuses, liberal capitalism, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, Martin Wolf, new economy, Nixon triggered the end of the Bretton Woods system, oil shale / tar sands, oil shock, open economy, Paul Samuelson, payday loans, post-industrial society, post-oil, price mechanism, price stability, Ralph Nader, RAND corporation, reserve currency, Robert Gordon, Robert Solow, Ronald Reagan, Savings and loan crisis, Simon Kuznets, strikebreaker, three-martini lunch, trade liberalization, union organizing, urban planning, urban renewal, War on Poverty, Washington Consensus, working poor, Yom Kippur War

.’ … People have accepted the fact that government has got to plan as well as individuals in this country.”9 Keynesianism was in its heyday in the United States in the 1960s when Presidents John Kennedy and Lyndon Johnson cut taxes by $11.6 billion to increase aggregate demand and investment. (Spending on military items for the war in Vietnam helped, too.) The resulting investment rates of 16 and 17 percent, as a percentage of GDP, equaled those of the boom of the mid-1950s. Paul Samuelson proclaimed, with the hubris of the era, “By the proper choice of monetary and fiscal policy we as the artists, mixing the colors of our palette, can have the capital formation and rate of current consumption that we desire.”10 Governments could choose tax, spending, and monetary policies to produce full employment.

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Returning from a trip to Japan in November, Connally remarked that monetary uncertainty could continue for “an almost indefinite period” and that the United States would not suffer if it did.92 These words produced hysteria among the foreign policy elites. Hormats warned Kissinger that Europe would become hostile and the United States would become a “scapegoat” for Europe’s economic woes.93 Leading economists across the spectrum, from Milton Friedman to Paul Samuelson, predicted a trade war if things were not settled soon.94 Amplified by daily warnings from foreign embassies that the sky was falling, Shultz concluded at the end of October that now that “we have their attention” it was time to move on negotiations.95Connally and Shultz got down to work. Nixon’s economic package attempted to alter exchange rates and open up European and Japanese markets in order to restore U.S. affluence in 1971.

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Economist Wassily Leontief, Nobel Prize winner in 1973, proposed to do just that. Leontief asserted that keeping the American “economy in good working order required more than just watching a few major statistics and making changes in the budget and money supply,” the main tools of Keynes. Recall Paul Samuelson’s comment twenty years earlier: “Whatever rate of capital formation the American people want to have, the American system can, by proper choice of fiscal and monetary program contrive to do.”70 It did not seem to be true. Walter Heller, who had helped make Keynesianism the state religion of the 1960S, confessed to fellow economists at the end of 1973 that “the energy crisis caught us with our parameters down.

The Globalization Paradox: Democracy and the Future of the World Economy by Dani Rodrik

"World Economic Forum" Davos, affirmative action, Alan Greenspan, Asian financial crisis, bank run, banking crisis, Bear Stearns, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, central bank independence, classic study, collective bargaining, colonial rule, Corn Laws, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, Doha Development Round, en.wikipedia.org, endogenous growth, eurozone crisis, export processing zone, financial deregulation, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, George Akerlof, guest worker program, Hernando de Soto, immigration reform, income inequality, income per capita, industrial cluster, information asymmetry, joint-stock company, Kenneth Rogoff, land reform, liberal capitalism, light touch regulation, Long Term Capital Management, low interest rates, low skilled workers, margin call, market bubble, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, microcredit, Monroe Doctrine, moral hazard, Multi Fibre Arrangement, night-watchman state, non-tariff barriers, offshore financial centre, oil shock, open borders, open economy, Paul Samuelson, precautionary principle, price stability, profit maximization, race to the bottom, regulatory arbitrage, Savings and loan crisis, savings glut, Silicon Valley, special drawing rights, special economic zone, subprime mortgage crisis, The Wealth of Nations by Adam Smith, Thomas L Friedman, Tobin tax, too big to fail, trade liberalization, trade route, transaction costs, tulip mania, Washington Consensus, World Values Survey

The proportion of respondents in an NBC/Wall Street Journal poll saying globalization has been good for the U.S. economy has fallen precipitously, from 42 percent in June 2007 to 25 percent in March 2008. And surprisingly, the dismay has also begun to show up in an expanding list of mainstream economists who now question globalization’s supposedly unmitigated virtues. So we have the late Paul Samuelson, the author of the postwar era’s landmark economics textbook, reminding his fellow economists that China’s gains in globalization may well come at the expense of the United States; Paul Krugman, the 2008 Nobelist in Economics, arguing that trade with low-income countries is no longer too small to have an effect on inequality in rich nations; Alan Blinder, a former U.S.

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India need only be not as bad in textiles as it is in other manufactures. What creates comparative advantage is differences across nations in comparative costs, not in absolute costs. This is a powerful argument and one that critics of free trade often fail to fully digest before taking it on. As Paul Samuelson once suggested in response to a challenge by a mathematician with little respect for the social sciences, it is probably the only proposition in economics that is at once true and non-trivial. “That it is logically true need not be argued before a mathematician,” Samuelson said; “that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them.”4 Fallacious reasoning often substitutes for intelligent commentary on trade.

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In a famous but apocryphal quote attributed to Abraham Lincoln, the Great Emancipator is supposed to have said, I do not know much about the tariff, but I know this much, when we buy manufactured goods abroad, we get the goods and the foreigner gets the money. When we buy the manufactured goods at home, we get both the goods and the money.5 Of course this is exactly the kind of mercantilist fallacy that Martyn (and Adam Smith, David Ricardo, and Paul Samuelson after him) wanted to refute. The true cost of consuming a good is the labor and other scarce resources we have to employ to obtain it, not the money that facilitates the transaction. Public Skepticism on Trade Such fallacies tend to make economists impatient with objections to free trade and dismissive of those who would want to interfere with it.

Gaming the Vote: Why Elections Aren't Fair (And What We Can Do About It) by William Poundstone

affirmative action, Albert Einstein, book value, business cycle, Debian, democratizing finance, desegregation, Donald Trump, en.wikipedia.org, Everything should be made as simple as possible, global village, guest worker program, guns versus butter model, hiring and firing, illegal immigration, invisible hand, jimmy wales, John Nash: game theory, John von Neumann, Kenneth Arrow, manufacturing employment, Nash equilibrium, Paul Samuelson, Pierre-Simon Laplace, prisoner's dilemma, Ralph Nader, RAND corporation, Ronald Reagan, Silicon Valley, slashdot, the map is not the territory, Thomas Bayes, Tragedy of the Commons, transcontinental railway, Unsafe at Any Speed, Y2K

Afterward, he and almost everyone else reverted to the more accurate-and dismal-name. The audacious nihilism of Arrow's proof was quickly compared to Coders. "The search of the great minds of recorded history for the perfect democracy, it turns out, is the search for a chimera, for logical self-contradiction," wrote MIT economist Paul Samuelson in 1952. "New scholars all over the world-in mathematics, politics, philosophy, and economics-are trying to salvage what can be salvaged from Arrow's devastating discovery that is to mathematical politics what Kurt Coders 1931 impossibility-of-proving-consistency theorem is to mathematical logic." 51 GAMING THE VOTE No century before the twentieth could have been shocked by the revelation that the social contract is founded on as flimsy a foundation as mathematics itself.

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To look at it another way, Arrow's theorem says that election outcomes can be decided by quirks of procedure as much as the voters' authentic wishes. That better recalls a remark, probably apocryphal, attributed to Joseph Stalin: 'Those who cast the votes decide nothing. Those who count the votes decide everything," Upon the 1972 announcement of Arrow's Nobel Prize, Paul Samuelson supplied the now-standard journalist's gloss: "What Kenneth Arrow proved once and for all is that there cannot possibly be ... an ideal voting scheme," To some extent, Arrow's theorem refutes the notion of a "will of the people." We all believe in a public will, envisioning it in our own political image-that is to say, as decisive and self-consistent.

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What Arrow's x, y, and z really demonstrate is that strategic voting can change the outcome of a range vote. This observation is equally true of ranked systems, of course. Arrow conceded that "the above result appears to depend on the particular method of choosing the units 255 GAMING THE VOTE of utility. But this is not true, although the paradox is not so obvious in other cases." Paul Samuelson echoed this thought in a 1967 symposium, saying, in effect, that an Arrow-style impossibility theorem can be proved for range voting. Samuelson must have been thinking of a proof involving Arrow's original, ranking version of irrelevant alternatives. That said, it's easy to show that range voting meets all of Arrow's conditions with the reasonable tweak I just mentioned.

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned? by Steve Keen

accounting loophole / creative accounting, Alan Greenspan, banking crisis, banks create money, barriers to entry, behavioural economics, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, book value, business cycle, butterfly effect, capital asset pricing model, cellular automata, central bank independence, citizen journalism, clockwork universe, collective bargaining, complexity theory, correlation coefficient, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, diversification, double entry bookkeeping, en.wikipedia.org, equity risk premium, Eugene Fama: efficient market hypothesis, experimental subject, Financial Instability Hypothesis, fixed income, Fractional reserve banking, full employment, Glass-Steagall Act, Greenspan put, Henri Poincaré, housing crisis, Hyman Minsky, income inequality, information asymmetry, invisible hand, iterative process, John von Neumann, Kickstarter, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, market microstructure, means of production, minimum wage unemployment, Money creation, money market fund, open economy, Pareto efficiency, Paul Samuelson, Phillips curve, place-making, Ponzi scheme, Post-Keynesian economics, power law, profit maximization, quantitative easing, RAND corporation, random walk, risk free rate, risk tolerance, risk/return, Robert Shiller, Robert Solow, Ronald Coase, Savings and loan crisis, Schrödinger's Cat, scientific mainstream, seigniorage, six sigma, South Sea Bubble, stochastic process, The Great Moderation, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, total factor productivity, tulip mania, wage slave, zero-sum game

Yet after several exchanges, the leading bishop of the true believers had conceded that the heretics were substantially correct. Summing up the conflict in 1966, Paul Samuelson observed that the heretics ‘merit our gratitude’ for pointing out that the simple homilies of economic theory are not in general true. He concluded that ‘If all this causes headaches for those nostalgic for the old time parables of neoclassical writing, we must remind ourselves that scholars are not born to live an easy existence. We must respect, and appraise, the facts of life’ (Samuelson 1966: 583). One might hope that such a definitive capitulation by as significant an economist as Paul Samuelson would have signaled a major change in the evolution of economics.

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These contours were therefore christened ‘indifference curves.’ 3.5 Indifference curves: the contours of the ‘utility hill’ shown in two dimensions Since indifference curves were supposed to represent the innate preferences of a rational utility-maximizing consumer, economists turned their minds to what properties these curves could have if the consumer could be said to exhibit truly rational behavior – as neoclassical economists perceived it. In 1948, Paul Samuelson codified these into four principles: Completeness: If presented with a choice between two different combinations of goods, a consumer can decide which he prefers (or can decide that he gets the same degree of satisfaction from them, in which case he is said to be indifferent between them).

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In doing so however, it should never be forgotten that a given wealth distribution rule [imposed by the ‘benevolent central authority’] is being adhered to and that the ‘level of wealth’ should always be understood as the ‘optimally distributed level of wealth.’ (Ibid.: 118; emphasis added) These high-level texts, though, are at least honest that there is a problem in aggregating from the individual consumer to the market demand curve. Undergraduate students instead are reassured that there is no problem. Paul Samuelson’s iconic undergraduate textbook makes the following didactic statement about how a market demand curve is derived, and whether it obeys the ‘Law of Demand,’ which flatly contradicts the SMD results: The market demand curve is found by adding together the quantities demanded by all individuals at each price.

Money and Government: The Past and Future of Economics by Robert Skidelsky

"Friedman doctrine" OR "shareholder theory", Alan Greenspan, anti-globalists, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Basel III, basic income, Bear Stearns, behavioural economics, Ben Bernanke: helicopter money, Big bang: deregulation of the City of London, book value, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, constrained optimization, Corn Laws, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Graeber, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, Donald Trump, Eugene Fama: efficient market hypothesis, eurozone crisis, fake news, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, forward guidance, Fractional reserve banking, full employment, Gini coefficient, Glass-Steagall Act, Goodhart's law, Growth in a Time of Debt, guns versus butter model, Hyman Minsky, income inequality, incomplete markets, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, Kondratiev cycle, labour market flexibility, labour mobility, land bank, law of one price, liberal capitalism, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, long and variable lags, low interest rates, market clearing, market friction, Martin Wolf, means of production, Meghnad Desai, Mexican peso crisis / tequila crisis, mobile money, Modern Monetary Theory, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, new economy, Nick Leeson, North Sea oil, Northern Rock, nudge theory, offshore financial centre, oil shock, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, Phillips curve, placebo effect, post-war consensus, price stability, profit maximization, proprietary trading, public intellectual, quantitative easing, random walk, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, rising living standards, risk/return, road to serfdom, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, shareholder value, short selling, Simon Kuznets, structural adjustment programs, technological determinism, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, tontine, too big to fail, trade liberalization, value at risk, Washington Consensus, yield curve, zero-sum game

The most famous economic theory of cycles is the Kondratiev cycle, a long wave of forty or fifty years, which starts with a cluster of new technologies and exhausts itself when they have been used up. Schumpeter drew on this idea in his depiction of capitalism’s cycles of creation and destruction. Within the long cycles are shorter cycles of boom and bust, lasting eight to ten years. Lacking proper scientific explanation (Paul Samuelson called cycle theories ‘science fiction’), cycles have nevertheless had a great influence on macroeconomic policy. Typical macroeconomic constructions, such as the ‘cyclically adjusted budget deficit’, refer explicitly to short cycles of definite duration, which oscillate round some ‘normal’ or ‘long-run’ situation. 14 I n t roduc t ion Historical cycles refer to disturbances of a moral/social, rather than technological, equilibrium.

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The essence of this fable is that though it was convenient to make contracts in money, behind the veil of the contracts were real things being traded for each other at their real (i.e. barter) prices. The theory of the bartering savage is heavily indebted to the classical anthropology of Adam Smith’s day, at the heart of which is the figure of homo economicus, who pursues his self-interest in isolation from society. That this still underlies neo-classical psychology is made clear in Paul Samuelson’s famous textbook, where we read: ‘A great debt of gratitude is owed to the first two ape-men who suddenly perceived that each could be made better off by giving up some of one good in exchange for some of another.’5 Most economists have favoured the bartering savage story, because it leaves out society and government.

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Having set these rates, leave them alone unless there is some major change in national policy or condition of national life.’14 A rise in the full employment budget surplus would indicate that the actual budget was too restrictive. American policy laid great stress on the automatic stabilizers. As Paul Samuelson pointed out in what became economics’ standard textbook: ‘the modern fiscal system has great inherent automatic stabilizing properties’. This is largely because of the much greater role of fiscal transfers as compared to before the war. When the economy turns down, government tax receipts fall and spending on unemployment benefits and other transfers rise, creating an automatic deficit that mitigates the fall in private spending.

An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy by Marc Levinson

affirmative action, airline deregulation, Alan Greenspan, banking crisis, Big bang: deregulation of the City of London, Boycotts of Israel, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, car-free, Carmen Reinhart, central bank independence, centre right, clean water, deindustrialization, endogenous growth, falling living standards, financial deregulation, flag carrier, floating exchange rates, full employment, George Gilder, Gini coefficient, global supply chain, Great Leap Forward, guns versus butter model, high-speed rail, income inequality, income per capita, indoor plumbing, informal economy, intermodal, inverted yield curve, invisible hand, It's morning again in America, Kenneth Rogoff, knowledge economy, late capitalism, Les Trente Glorieuses, linear programming, low interest rates, manufacturing employment, Multi Fibre Arrangement, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, North Sea oil, oil shock, Paul Samuelson, pension reform, Phillips curve, price stability, purchasing power parity, refrigerator car, Right to Buy, rising living standards, Robert Gordon, rolodex, Ronald Coase, Ronald Reagan, Simon Kuznets, statistical model, strikebreaker, structural adjustment programs, The Rise and Fall of American Growth, Thomas Malthus, total factor productivity, unorthodox policies, upwardly mobile, War on Poverty, Washington Consensus, Winter of Discontent, Wolfgang Streeck, women in the workforce, working-age population, yield curve, Yom Kippur War, zero-sum game

Shortly after New Year’s Day of 1973, stock prices began a long and painful decline around the world. From Great Britain to the United States to Hong Kong and Japan, more than half the value of investors’ holdings of corporate shares would be wiped out within two years.3 Economic forecasters simply closed their eyes to the stock market’s decline, taking comfort in the American economist Paul Samuelson’s quip that “Wall Street indexes predicted nine of the last five recessions.” In the early weeks of 1973, the market’s message of impending collapse was not only unwanted but completely unbelievable. Things were simply too good. January 1973 was the second-busiest month ever for US home-builders, and home prices were rising smartly in Great Britain and Japan.

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The asset price bubble that decimated Japanese households’ finances in the 1990s; the thousands of bank failures in the United States between 1980 and 1994; the deep downturn, fed by excessive lending to unqualified borrowers, that began in Europe and the United States in 2008, bringing painfully high unemployment and threatening the very survival of the European Union—all can be traced to political efforts to make economies grow faster than productivity advances would allow. It was a fool’s errand. The American economist Paul Samuelson put it well: “The third quarter of the Twentieth Century was a golden age of economic progress. It surpassed any reasoned expectations. And we are not likely to see its equivalent soon again.”20 Acknowledgments This book, I suppose, began with my own personal history. I was a student in West Germany at the time of the 1973 oil crisis, and I experienced both the euphoria of car-free Sundays and the queues of ill-tempered drivers desperate for gasoline.

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The Guardian, December 21, 1972; David Gumpert, “Rise in Demand Causes Shortage of a Variety of Materials, Parts,” Wall Street Journal, December 8, 1972; President’s Council of Economic Advisers, Economic Report of the President, 1973, 82; Bank of Japan, Monthly Economic Review, January 1973, 1; “Commentary,” Bank of England Quarterly Bulletin 13 (March 1973): 6; John L. Hess, “Forecasters’ Word Is ‘Boom,’” New York Times, January 7, 1973; Charles Reeder, The Sobering Seventies (Wilmington, DE: DuPont, 1980), 101. 3. E. Philip Davis, “Comparing Bear Markets—1973 and 2000,” National Institute Economic Review 183 (2003): 78–89. 4. Paul Samuelson, “Science and Stocks,” Newsweek, September 19, 1966; memo from Dr. Ranz, BMWi, to various cabinet ministers, “Angepasste mittelfristige Zielprojektion bis 1976,” March 20, 1973, BA, B 102/248423; Don Oberdorfer, “Japanese Economy Is Booming Again,” Washington Post, January 14, 1973. 5. OECD Economic Outlook 13 (June 1973): 102. 6.

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel

accounting loophole / creative accounting, Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, backtesting, Bear Stearns, beat the dealer, Bernie Madoff, book value, BRICs, butter production in bangladesh, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial engineering, financial innovation, fixed income, framing effect, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Japanese asset price bubble, John Bogle, junk bonds, Long Term Capital Management, loss aversion, low interest rates, margin call, market bubble, Mary Meeker, money market fund, mortgage tax deduction, new economy, Own Your Own Home, PalmPilot, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, stock buybacks, stocks for the long run, sugar pill, survivorship bias, The Myth of the Rational Market, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond

But today, the information superhighway carries news far more swiftly than carrier pigeons. And Regulation FD (Fair Disclosure) requires companies to make prompt public announcements of any material news items that may affect the price of their stock. Moreover, insiders who do profit from trading on the basis of nonpublic information are breaking the law. The Nobel laureate Paul Samuelson summed up the situation as follows: If intelligent people are constantly shopping around for good value, selling those stocks they think will turn out to be overvalued and buying those they expect are now undervalued, the result of this action by intelligent investors will be to have existing stock prices already have discounted in them an allowance for their future prospects.

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Finding inconsistencies in the efficient-market theory became such a cottage industry during the 1990s and early 2000s that I will devote an entire chapter (chapter 11) to the market anomalies and so-called predictable patterns that have been uncovered. Moreover, I worry about accepting all the tenets of the efficient-market theory. As the quote from Paul Samuelson indicates, the theory holds that, at any time, stocks sell at the best estimates of their intrinsic values. Thus, uninformed investors buying at the existing prices are really getting full value for their money, whatever securities they purchase. This line of reasoning is uncomfortably close to that of the “greater fool” theory.

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Two issues remain: First, it is clear that such skill is very rare; and second, there appears to be no effective way to find such skill before it has been demonstrated. As I indicated in chapter 7, the best-performing funds in one period of time are not the best performers in the next period. The top performers of the 1990s had dreadful returns in the first decade of the 2000s. Paul Samuelson summed up the difficulty in the following parable. Suppose it was demonstrated that one out of twenty alcoholics could learn to become a moderate social drinker. The experienced clinician would answer, “Even if true, act as if it were false, for you will never identify that one in twenty, and in the attempt five in twenty will be ruined.”

Heads I Win, Tails I Win by Spencer Jakab

Alan Greenspan, Asian financial crisis, asset allocation, backtesting, Bear Stearns, behavioural economics, Black Monday: stock market crash in 1987, book value, business cycle, buy and hold, collapse of Lehman Brothers, correlation coefficient, crowdsourcing, Daniel Kahneman / Amos Tversky, diversification, dividend-yielding stocks, dogs of the Dow, Elliott wave, equity risk premium, estate planning, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, fear index, fixed income, geopolitical risk, government statistician, index fund, Isaac Newton, John Bogle, John Meriwether, Long Term Capital Management, low interest rates, Market Wizards by Jack D. Schwager, Mexican peso crisis / tequila crisis, money market fund, Myron Scholes, PalmPilot, passive investing, Paul Samuelson, pets.com, price anchoring, proprietary trading, Ralph Nelson Elliott, random walk, Reminiscences of a Stock Operator, risk tolerance, risk-adjusted returns, Robert Shiller, robo advisor, Savings and loan crisis, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, statistical model, Steve Jobs, subprime mortgage crisis, survivorship bias, technology bubble, transaction costs, two and twenty, VA Linux, Vanguard fund, zero-coupon bond, zero-sum game

A missing decimal place or some other mental slip happens every once in a while, and it’s an awful feeling, even when the subject of the error is nice about it. Robert J. Samuelson, the Washington Post business columnist, was exceedingly gracious when I used his name in front of a quote by the eminent economist Paul Samuelson, telling me that it’s happened before. “Once, the New York Times had me winning Paul Samuelson’s Nobel Prize. I kept waiting for the $1 million check to arrive, but it never did.” So naturally a reporter like me can be a real pedant when people bring up a quote that “everyone” knows someone made. For example, Willie Sutton never said that he robbed banks because that’s where the money is, Ben Franklin’s famous dictum about thrift wasn’t “A penny saved is a penny earned,” and P.

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Take the October 1987 crash, the stock market’s worst ever single-day decline in percentage terms, which led to widespread but unfounded speculation that it would mark the start of a recession or something even worse. After all, the less severe Black Tuesday in 1929 is popularly seen as the cause of the Great Depression, even though the story is actually far more complicated. Such head fakes led economist Paul Samuelson to quip that “Wall Street indexes predicted nine of the last five recessions.” Be that as it may, the stock market seems almost clairvoyant sometimes—sort of like a fortune-teller with some smudges on her crystal ball. I’ll admit that up until this point in the book, I haven’t encouraged you to pay its gyrations much heed.

How I Became a Quant: Insights From 25 of Wall Street's Elite by Richard R. Lindsey, Barry Schachter

Albert Einstein, algorithmic trading, Andrew Wiles, Antoine Gombaud: Chevalier de Méré, asset allocation, asset-backed security, backtesting, bank run, banking crisis, Bear Stearns, Black-Scholes formula, Bob Litterman, Bonfire of the Vanities, book value, Bretton Woods, Brownian motion, business cycle, business process, butter production in bangladesh, buy and hold, buy low sell high, capital asset pricing model, centre right, collateralized debt obligation, commoditize, computerized markets, corporate governance, correlation coefficient, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency risk, discounted cash flows, disintermediation, diversification, Donald Knuth, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, fixed income, full employment, George Akerlof, global macro, Gordon Gekko, hiring and firing, implied volatility, index fund, interest rate derivative, interest rate swap, Ivan Sutherland, John Bogle, John von Neumann, junk bonds, linear programming, Loma Prieta earthquake, Long Term Capital Management, machine readable, margin call, market friction, market microstructure, martingale, merger arbitrage, Michael Milken, Myron Scholes, Nick Leeson, P = NP, pattern recognition, Paul Samuelson, pensions crisis, performance metric, prediction markets, profit maximization, proprietary trading, purchasing power parity, quantitative trading / quantitative finance, QWERTY keyboard, RAND corporation, random walk, Ray Kurzweil, Reminiscences of a Stock Operator, Richard Feynman, Richard Stallman, risk free rate, risk-adjusted returns, risk/return, seminal paper, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, sorting algorithm, statistical arbitrage, statistical model, stem cell, Steven Levy, stochastic process, subscription business, systematic trading, technology bubble, The Great Moderation, the scientific method, too big to fail, trade route, transaction costs, transfer pricing, value at risk, volatility smile, Wiener process, yield curve, young professional

I learned once again that I was not suited for work in a large organization. Mark Hoffman and I moved on to establish Upstream Technologies in late 1999. The goal of Upstream was to apply the tools, discipline, and quality control that quants had developed for institutional use to individual accounts, even the very small ones. We recruited Paul Samuelson, previously chief investment officer at Panagora, and a set of talented youngsters. It was clear that for the taxable investor individually managed accounts dominate mutual funds. Mutual funds generate taxable distributions (often including short-term capital gains), and investors are unable to take advantage of the unrealized losses in the fund’s underlying portfolio.

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The paper we wrote about within-horizon risk won a Graham and Dodd Award, and our within-horizon risk measures are now widely used throughout the industry.4 Full-Scale Optimization. A couple of years ago, I wrote a short piece for Peter Bernstein in which I showed the mathematical equivalence of portable alpha strategies with currency overlay strategies. Soon after publication, I received a note from Paul Samuelson critiquing my approach and mean-variance analysis in general. He argued that computational power now enables us to maximize plausible utility functions numerically, based on the entire distribution of returns, not just the first JWPR007-Lindsey May 7, 2007 17:15 Mark Kritzman 257 two moments.

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However, utility functions that incorporated kinks or inflection points proved problematic for mean-variance analysis. Given the growing popularity of hedge funds and the concern for thresholds that many investors had, I worked with my colleagues, Tim Adler, Jan-Hein Cremers, and Sébastien Page to develop a robust full-scale optimization algorithm.5 As a consequence of Paul Samuelson’s critique and my eagerness to understand it, we introduced an entirely new way of constructing portfolios that easily addresses nonnormality and a wide range of utility functions. Efficient Trading. Institutional investors often reallocate their portfolios to shift their asset mixes or to shuffle their investment managers.

The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson, Andrew McAfee

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, access to a mobile phone, additive manufacturing, Airbnb, Alan Greenspan, Albert Einstein, Amazon Mechanical Turk, Amazon Web Services, American Society of Civil Engineers: Report Card, Any sufficiently advanced technology is indistinguishable from magic, autonomous vehicles, barriers to entry, basic income, Baxter: Rethink Robotics, Boston Dynamics, British Empire, business cycle, business intelligence, business process, call centre, carbon tax, Charles Lindbergh, Chuck Templeton: OpenTable:, clean water, combinatorial explosion, computer age, computer vision, congestion charging, congestion pricing, corporate governance, cotton gin, creative destruction, crowdsourcing, data science, David Ricardo: comparative advantage, digital map, driverless car, employer provided health coverage, en.wikipedia.org, Erik Brynjolfsson, factory automation, Fairchild Semiconductor, falling living standards, Filter Bubble, first square of the chessboard / second half of the chessboard, Frank Levy and Richard Murnane: The New Division of Labor, Freestyle chess, full employment, G4S, game design, general purpose technology, global village, GPS: selective availability, Hans Moravec, happiness index / gross national happiness, illegal immigration, immigration reform, income inequality, income per capita, indoor plumbing, industrial robot, informal economy, intangible asset, inventory management, James Watt: steam engine, Jeff Bezos, Jevons paradox, jimmy wales, job automation, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kevin Kelly, Khan Academy, Kiva Systems, knowledge worker, Kodak vs Instagram, law of one price, low skilled workers, Lyft, Mahatma Gandhi, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Mars Rover, mass immigration, means of production, Narrative Science, Nate Silver, natural language processing, Network effects, new economy, New Urbanism, Nicholas Carr, Occupy movement, oil shale / tar sands, oil shock, One Laptop per Child (OLPC), pattern recognition, Paul Samuelson, payday loans, post-work, power law, price stability, Productivity paradox, profit maximization, Ralph Nader, Ray Kurzweil, recommendation engine, Report Card for America’s Infrastructure, Robert Gordon, Robert Solow, Rodney Brooks, Ronald Reagan, search costs, Second Machine Age, self-driving car, sharing economy, Silicon Valley, Simon Kuznets, six sigma, Skype, software patent, sovereign wealth fund, speech recognition, statistical model, Steve Jobs, Steven Pinker, Stuxnet, supply-chain management, TaskRabbit, technological singularity, telepresence, The Bell Curve by Richard Herrnstein and Charles Murray, the Cathedral and the Bazaar, the long tail, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, total factor productivity, transaction costs, Tyler Cowen, Tyler Cowen: Great Stagnation, Vernor Vinge, warehouse robotics, Watson beat the top human players on Jeopardy!, winner-take-all economy, Y2K

For instance, the new satellite accounts created by the Bureau of Economic Analysis estimate that investment in R&D capital accounted for about 2.9 percent of GDP and has increased economic growth by about 0.2 percent per year between 1995 and 2004.26 It’s hard to say exactly how large the bias is from miscounting all the types of intangible assets, but we are reasonably confident the official data underestimate their contribution.* New Metrics Are Needed for the Second Machine Age It’s a fundamental principle of management: what gets measured gets done. Modern GDP accounting was certainly a huge step forward for economic progress. As Paul Samuelson and Bill Nordhaus put it, “While the GDP and the rest of the national income accounts may seem to be arcane concepts, they are truly among the great inventions of the twentieth century.”27 But the rise in digital business innovation means we need innovation in our economic metrics. If we are looking at the wrong gauges, we will make the wrong decisions and get the wrong outputs.

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Disagreements over these questions often seem so entrenched that there can be no common ground. But there’s actually quite a bit of it. Whether you study from the best-selling introductory textbooks Principles of Economics, written by Harvard’s Greg Mankiw, a conservative economist who advised George Bush and Mitt Romney, or Economics: An Introductory Analysis, written by MIT’s Paul Samuelson, a liberal advisor to John Kennedy and Lyndon B. Johnson, you’ll learn many of the same things.* Across good Econ 101 textbooks, and across good economists, there’s far more agreement about government’s role in promoting economic growth than you might expect from the more vitriolic public debates in the media.

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., who wrote in 1967, “I am now convinced that the simplest approach will prove to be the most effective—the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.”3 Many economists on both the left and the right have agreed with King. Liberals including James Tobin, Paul Samuelson, and John Kenneth Galbraith and conservatives like Milton Friedman and Friedrich Hayek have all advocated income guarantees in one form or another, and in 1968 more than 1,200 economists signed a letter in support of the concept addressed to the U.S. Congress.4 The president elected that year, Republican Richard Nixon, tried throughout his first term in office to enact it into law.

More From Less: The Surprising Story of How We Learned to Prosper Using Fewer Resources – and What Happens Next by Andrew McAfee

back-to-the-land, Bartolomé de las Casas, Berlin Wall, bitcoin, Blitzscaling, Branko Milanovic, British Empire, Buckminster Fuller, call centre, carbon credits, carbon footprint, carbon tax, Charles Babbage, clean tech, clean water, cloud computing, congestion pricing, Corn Laws, creative destruction, crony capitalism, data science, David Ricardo: comparative advantage, decarbonisation, DeepMind, degrowth, dematerialisation, Demis Hassabis, Deng Xiaoping, do well by doing good, Donald Trump, Edward Glaeser, en.wikipedia.org, energy transition, Erik Brynjolfsson, failed state, fake news, Fall of the Berlin Wall, Garrett Hardin, Great Leap Forward, Haber-Bosch Process, Hans Rosling, humanitarian revolution, hydraulic fracturing, income inequality, indoor plumbing, intangible asset, James Watt: steam engine, Jeff Bezos, job automation, John Snow's cholera map, joint-stock company, Joseph Schumpeter, Khan Academy, Landlord’s Game, Louis Pasteur, Lyft, Marc Andreessen, Marc Benioff, market fundamentalism, means of production, Michael Shellenberger, Mikhail Gorbachev, ocean acidification, oil shale / tar sands, opioid epidemic / opioid crisis, Paul Samuelson, peak oil, precision agriculture, price elasticity of demand, profit maximization, profit motive, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, Salesforce, Scramble for Africa, Second Machine Age, Silicon Valley, Steve Jobs, Steven Pinker, Stewart Brand, Ted Nordhaus, TED Talk, telepresence, The Wealth of Nations by Adam Smith, Thomas Davenport, Thomas Malthus, Thorstein Veblen, total factor productivity, Tragedy of the Commons, Uber and Lyft, uber lyft, Veblen good, War on Poverty, We are as Gods, Whole Earth Catalog, World Values Survey

“Comparative advantage” is the counterintuitive idea that even if country A is more efficient at producing both of two products than country B, the best thing is for it to produce only one of those products—the one where its comparative advantage in efficiency is bigger—and trade for the other one with country B. This arrangement is in the self-interest of both countries and leaves them both better off. Comparative advantage was first described by the English political economist David Ricardo in 1817. The Nobel Prize–winning economist Paul Samuelson tells the story that he was once asked by the mathematician Stanislaw Ulam to “name me one proposition in all of the social sciences which is both true and non-trivial.” Samuelson’s answer, which he only thought of years later, was comparative advantage. As he wrote, “That it is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them.”

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Both of these sources are conservative, but this does not mean that they are misrepresenting the mood of Earth Day. V. Foxfire is a term for bioluminescence caused by fungi that live in decaying wood. VI. The check was not accompanied by any note. CHAPTER 5 The Dematerialization Surprise Well, when events change, I change my mind. What do you do? —Paul Samuelson, on Meet the Press, 1970I Unlike Julian Simon and Paul Ehrlich, environmental scientist Jesse Ausubel didn’t spend much time thinking about resource prices. But as the Simon-Ehrlich bet was coming to its final years, he started to take a keen interest in resource quantities—how much material of different kinds we humans were using as we went about building our economies and lives.

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., “The Corn Laws,” Britain Express, accessed February 28, 2019, https://www.britainexpress.com/History/victorian/corn-laws.htm. Samuelson tells the story: Paul A. Samuelson, “The Way of an Economist,” in International Economic Relations: Proceedings of the Third Congress of the International Economic Association, ed. Paul Samuelson (London: Macmillan, 1969), 1–11. 8 percent of Europe’s iron… 60 percent: Stephen Broadberry, Rainer Fremdling, and Peter Solar, “Chapter 7: Industry, 1700–1870” (unpublished manuscript, n.d.), 34–35, table 7.6, fig. 7.2. two-thirds of the world’s coal: Gregory Clark, “The British Industrial Revolution, 1760–1860” (unpublished manuscript, Course Readings ECN 110B, Spring 2005), 1.

Concentrated Investing by Allen C. Benello

activist fund / activist shareholder / activist investor, asset allocation, barriers to entry, beat the dealer, Benoit Mandelbrot, Bob Noyce, Boeing 747, book value, business cycle, buy and hold, carried interest, Claude Shannon: information theory, corporate governance, corporate raider, delta neutral, discounted cash flows, diversification, diversified portfolio, Dutch auction, Edward Thorp, family office, fixed income, Henry Singleton, high net worth, index fund, John Bogle, John von Neumann, junk bonds, Louis Bachelier, margin call, merger arbitrage, Paul Samuelson, performance metric, prudent man rule, random walk, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, shareholder value, Sharpe ratio, short selling, survivorship bias, technology bubble, Teledyne, transaction costs, zero-sum game

Wasik, Keynes’s Way to Wealth: Timeless Investment Lessons from the Great Economist (New York: McGraw‐Hill, 2014). 49. David Chambers, Elroy Dimson, and Justin Foo, “Keynes the Stock Market Investor: A Quantitative Analysis,” Journal of Financial and Quantitative Analysis 50 (2015): 843–868. doi:10.1017/S0022109015000186. 50. Ibid. 51. Ibid. 52. Paul Samuelson, “The Keynes Centenary,” The Economist 287 (1983). 53. David Chambers, Elroy Dimson, and Justin Foo, “Keynes the Stock Market Investor: A Quantitative Analysis,” Journal of Financial and Quantitative Analysis 50 (2015): 843–868. doi:10.1017/S0022109015000186. 54. Ibid. 55. Jess H. Chua and Richard S.

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In one of his earlier flights of fancy, Shannon had begun an intensive study of the stock market in the late 1950s.6 He wanted to know if his information theory could help him decode the market’s random walk. His research led him to fill three library shelves with books, including Adam Smith’s Wealth of Nations, John von Neumann and Oskar Morgenstern’s Theory of Games and Economic Behavior, Paul Samuelson’s Economics, and Fred Schwed’s Where Are the Customer’s Yachts? In a notebook Shannon recorded a varied list of thinkers, including French mathematician Louis Bachelier, Benjamin 74 Concentrated Investing Graham, and Benoit Mandelbrot. He took notes about margin trading; short selling; stop‐loss orders; the effects of market panics; capital gains taxes and transaction costs.

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When the details of the trade leaked out—a former math professor who had been a professional blackjack player used convertible arbitrage to make a riskless profit—Thorp became a mini‐celebrity for the second time, and the Kelly Criterion finally got its day in the sun. Not everyone was enamored of the criterion. Economist Paul Samuelson, the first American to win the Nobel Memorial Prize in Economic Sciences, and considered by the New York Times the foremost American economist of the twentieth century, was so maddened with the idea that he wrote a paper seeking to refute it. The paper, “Why We Should Not Make Mean Log of Wealth Big Though Years To Act Are Long,” appeared in a 1979 edition of the Journal of Banking and Finance.

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John C. Bogle

asset allocation, backtesting, buy and hold, creative destruction, currency risk, diversification, diversified portfolio, financial intermediation, fixed income, index fund, invention of the wheel, Isaac Newton, John Bogle, junk bonds, low interest rates, new economy, passive investing, Paul Samuelson, random walk, risk tolerance, risk-adjusted returns, Sharpe ratio, stocks for the long run, survivorship bias, transaction costs, Upton Sinclair, Vanguard fund, William of Occam, yield management, zero-sum game

Rather than selecting an actively managed mutual fund with a superior record, he directed the trustees to invest 90 percent of the assets in the trust in a “very low-cost S&P 500 index fund. (I suggest Vanguard’s.)” It is reasonable to assume that Mr. Buffett considered “looking for the needle.” But he finally decided to “buy the haystack.” * * * Need more advice? With his customary wisdom, the late Paul Samuelson summed up the difficulty of selecting superior managers in this parable. “Suppose it was demonstrated that one out of twenty alcoholics could learn to become a moderate social drinker. The experienced clinician would answer, ‘Even if true, act as if it were false, for you will never identify that one in twenty, and in the attempt five in twenty will be ruined.’

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Little can change the fact that current expected returns on a broad set of asset classes are low versus history. Stick to the basics with discipline.” * * * The simple ideas in this book really work. I believe the classic index fund must be the core of such a winning strategy. But even I would not have had the temerity to say what the late Dr. Paul Samuelson of MIT said in a speech to the Boston Society of Security Analysts in the autumn of 2005: “The creation of the first index fund by John Bogle was the equivalent of the invention of the wheel, the alphabet, and wine and cheese.” Those essentials of our existence that we have come to take for granted have stood the test of time.

The Man Who Knew: The Life and Times of Alan Greenspan by Sebastian Mallaby

airline deregulation, airport security, Alan Greenspan, Alvin Toffler, Andrei Shleifer, anti-communist, Asian financial crisis, balance sheet recession, bank run, barriers to entry, Bear Stearns, behavioural economics, Benoit Mandelbrot, Black Monday: stock market crash in 1987, bond market vigilante , book value, Bretton Woods, business cycle, central bank independence, centralized clearinghouse, classic study, collateralized debt obligation, conceptual framework, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, Dr. Strangelove, energy security, equity premium, fiat currency, financial deregulation, financial engineering, financial innovation, fixed income, Flash crash, forward guidance, full employment, Future Shock, Glass-Steagall Act, Greenspan put, Hyman Minsky, inflation targeting, information asymmetry, interest rate swap, inventory management, invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", junk bonds, Kenneth Rogoff, Kickstarter, Kitchen Debate, laissez-faire capitalism, Lewis Mumford, Long Term Capital Management, low interest rates, low skilled workers, market bubble, market clearing, Martin Wolf, Money creation, money market fund, moral hazard, mortgage debt, Myron Scholes, Neil Armstrong, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, Northern Rock, paper trading, paradox of thrift, Paul Samuelson, Phillips curve, plutocrats, popular capitalism, price stability, RAND corporation, Reminiscences of a Stock Operator, rent-seeking, Robert Shiller, Robert Solow, rolodex, Ronald Reagan, Saturday Night Live, Savings and loan crisis, savings glut, secular stagnation, short selling, stock buybacks, subprime mortgage crisis, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Tipper Gore, too big to fail, trade liberalization, unorthodox policies, upwardly mobile, We are all Keynesians now, WikiLeaks, women in the workforce, Y2K, yield curve, zero-sum game

In 1945, Ira Mosher, the leader of the National Association of Manufacturers, denounced the “unmitigated warfare that has been waged for a decade against the free competitive enterprise system.”10 Perhaps a little of that sentiment may have filtered into the School of Commerce, despite the generally pro-government outlook of Greenspan’s generation. Besides, university economics faculties were caught in a sort of time warp. By 1945, John Maynard Keynes’s ideas had been embraced by New Dealers in Washington, but they did not yet dominate the undergraduate curriculum the way they did after 1948, the year in which Paul Samuelson, the self-described “brash whippersnapper go-getter” at the Massachusetts Institute of Technology, published his classic introductory textbook, Economics.11 Samuelson’s text cemented in the minds of undergraduates the case for a mixed economy, and if Greenspan had been exposed to it at the start of his studies, it is at least conceivable that he might have developed differently.

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But most economists believed that other factors mattered more than interest rates: shifts in workers’ negotiating power, gains in productivity by companies, new opportunities to sell abroad—any of these could have a more pronounced effect on prices.3 “Today few economists regard Federal Reserve monetary policy as a panacea for controlling the business cycle,” Paul Samuelson declared in the first edition of his famous textbook, published in 1948.4 In the words of the monetary historian Robert Hetzel, “After World War II, monetary policy was an orphan.”5 On the last day of January 1951, Truman impressed upon the Fed’s leaders the gravity of the Korean crisis. He summoned the entire membership of the Fed’s interest-rate-setting body, the Federal Open Market Committee (FOMC), over to the White House and did his best to frighten them.

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Keynes had taught how to combat economic slowdowns by running a government budget deficit, and neo-Keynesians had grasped how slumps could be averted by the central bank as well: low interest rates, hitherto regarded principally as a means of helping the government to borrow, were now understood as a tool of economic management.2 “The supply of money, its availability to investor borrowers, and the interest cost of such borrowings can have important effects on [GNP],” Paul Samuelson instructed in the 1961 edition of his bestselling textbook, revising the dismissal of monetary policy in his 1948 edition.3 “The worst consequences of the business cycle . . . are probably a thing of the past,” Samuelson wrote confidently, and conservative economists agreed.4 At the end of 1959, Greenspan’s mentor Arthur Burns proclaimed, “The business cycle is unlikely to be as disturbing or troublesome to our children as it was to us and our fathers.”5 It was not just that economists understood how to prevent recessions.

Reset: How to Restart Your Life and Get F.U. Money: The Unconventional Early Retirement Plan for Midlife Careerists Who Want to Be Happy by David Sawyer

"World Economic Forum" Davos, Abraham Maslow, Airbnb, Albert Einstein, asset allocation, beat the dealer, bitcoin, Black Monday: stock market crash in 1987, Cal Newport, cloud computing, cognitive dissonance, content marketing, crowdsourcing, cryptocurrency, currency risk, David Attenborough, David Heinemeier Hansson, Desert Island Discs, diversification, diversified portfolio, Edward Thorp, Elon Musk, fake it until you make it, fake news, financial independence, follow your passion, gig economy, Great Leap Forward, hiring and firing, imposter syndrome, index card, index fund, invention of the wheel, John Bogle, knowledge worker, loadsamoney, low skilled workers, Mahatma Gandhi, Mark Zuckerberg, meta-analysis, mortgage debt, Mr. Money Mustache, passive income, passive investing, Paul Samuelson, pension reform, risk tolerance, Robert Shiller, Ronald Reagan, Silicon Valley, Skype, smart meter, Snapchat, stakhanovite, Steve Jobs, sunk-cost fallacy, TED Talk, The 4% rule, Tim Cook: Apple, Vanguard fund, William Bengen, work culture , Y Combinator

Something new under the sun In 1974, John (known affectionately as Jack) Bogle was fired from his position as chairman of fund management firm Wellington after approving a disastrous company merger. In that same year the late Nobel prize-winning Massachusetts Institute of Technology (MIT) academic Paul Samuelson – seen by many as the most influential economist of the late 20th century[358] – published a paper in The Journal of Portfolio Management called “A Challenge to Judgment[359]”. In it, he challenged the performance of the active fund management business that had sprung up in the ’50s and ’60s and said: “At the least, some large foundation should set up an in-house portfolio that tracks the S&P 500 Index – if only for the purpose of setting up a naïve model against which their in-house gunslingers can measure their prowess.”

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If you choose the actively managed fund route, you could be one of the lucky 18% and beat the index, but, as we’ve discovered, there’s a four in five chance you won’t be. Leading proponents We’re not talking a ragbag of back-bedroom bloggers. Proponents of index funds count among them some of the finest minds on the planet: Warren Buffett; Paul Samuelson; Eugene Fama; Jack Bogle; Pete Adeney; JL Collins; Harold Pollack; ex-star fund manager at Magellan, Peter Lynch; and Douglas Dial, ex-portfolio manager of the US’s largest pension fund. Here’s their two-penneth. Buffett said, in his annual shareholder letter of 2013: “[When he dies] my advice to the trustee [of his estate, his wife] couldn’t be simpler: Put 10% of the cash in short-term government bonds and 90% in a low-cost S&P 500 index fund.

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Simply put, ETFs are often slightly cheaper than equivalent OEICs, cover more obscure indexes (eg, global small-cap and value), and sometimes come with small initial charges – watch for them in the small print – as well as the ongoing charges figure (OCF). [358] most important economist of the late 20th century: “Paul Samuelson – Wikipedia.” toreset.me/358. [359] “A Challenge to Judgment”: “The inspiration for John Bogle’s great invention – MarketWatch.” 5 Mar. 2014, toreset.me/359. [360] $403bn: “VFINX - Vanguard 500 Index Fund Investor Shares | Vanguard.” toreset.me/360. [361] 29% of the entire US market: “Index funds to surpass active fund assets in U.S. by 2024: Moody’s.” 2 Feb. 2017, toreset.me/361

The Scandal of Money by George Gilder

Affordable Care Act / Obamacare, Alan Greenspan, bank run, behavioural economics, Bernie Sanders, bitcoin, blockchain, borderless world, Bretton Woods, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, Claude Shannon: information theory, Clayton Christensen, cloud computing, corporate governance, cryptocurrency, currency manipulation / currency intervention, currency risk, Daniel Kahneman / Amos Tversky, decentralized internet, Deng Xiaoping, disintermediation, Donald Trump, fiat currency, financial innovation, Fractional reserve banking, full employment, George Gilder, glass ceiling, guns versus butter model, Home mortgage interest deduction, impact investing, index fund, indoor plumbing, industrial robot, inflation targeting, informal economy, Innovator's Dilemma, Internet of things, invisible hand, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jeff Bezos, John Bogle, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, Law of Accelerating Returns, low interest rates, Marc Andreessen, Mark Spitznagel, Mark Zuckerberg, Menlo Park, Metcalfe’s law, Money creation, money: store of value / unit of account / medium of exchange, mortgage tax deduction, Nixon triggered the end of the Bretton Woods system, obamacare, OSI model, Paul Samuelson, Peter Thiel, Ponzi scheme, price stability, Productivity paradox, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, reality distortion field, reserve currency, road to serfdom, Robert Gordon, Robert Metcalfe, Ronald Reagan, Sand Hill Road, Satoshi Nakamoto, Search for Extraterrestrial Intelligence, secular stagnation, seigniorage, Silicon Valley, Skinner box, smart grid, Solyndra, South China Sea, special drawing rights, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Tim Cook: Apple, time value of money, too big to fail, transaction costs, trickle-down economics, Turing machine, winner-take-all economy, yield curve, zero-sum game

Contemplating the 1970s without mentioning this epochal event could be justified only if it had as little effect as Nixon promised at the time. Nixon’s announcement was full of reassurances that leaving the gold standard would “strengthen” or “stabilize” the dollar. Milton Friedman, who urged Nixon to make the move, predicted that it would have little effect on the worth of the currency. Paul Samuelson led a parade of eminent figures forecasting a sharp decline in the price of gold. That gold in fact quadrupled over the next three years and rose by a factor of twenty-three before a correction at the end of the decade illustrated the blindness of both the economic profession and the politicians in charge to the metrics and dynamics of money.

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The economist Arnold Kling of the Cato Institute observes that “as a percentage of GDP the decrease in government purchases was larger than would result from the total elimination of government today.”2 Some 150,000 government regulators were laid off, along with perhaps a million other civilian employees of government. Disbanded were such managerial agencies as the War Production Board, the War Labor Board, and the Office of Price Administration, beloved of John Kenneth Galbraith. Every Keynesian and socialist economist confidently predicted doom. In 1945, Paul Samuelson—sounding like his Nobel laureate successor Paul Krugman crying for trillions in new “stimulus,” or Larry Summers predicting “secular stagnation,” or Thomas Piketty and Robert Gordon envisioning an end to growth—prophesied “the greatest period of unemployment and dislocation which any economy has ever faced.”

Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School by Andrew Hallam

Albert Einstein, asset allocation, Bernie Madoff, buy and hold, diversified portfolio, financial independence, George Gilder, index fund, John Bogle, junk bonds, Long Term Capital Management, low interest rates, Mary Meeker, new economy, passive investing, Paul Samuelson, Ponzi scheme, pre–internet, price stability, random walk, risk tolerance, Silicon Valley, South China Sea, stocks for the long run, survivorship bias, transaction costs, Vanguard fund, yield curve

I just don’t want to be giving away hundreds of thousands of dollars during my investment lifetime to a slick talker in a salesperson’s cloak. And I don’t think you should either. What would a nobel prize-winning economist suggest? The most efficient way to diversify a stock portfolio is with a low fee index fund.3 Paul Samuelson, 1970 Nobel Prize in Economics Arguably the most famous economist of our time, the late Paul Samuelson was the first American to win a Nobel Prize in Economics. It’s fair to say that he knew a heck of a lot more about money than the brokers suffering from conflicts of interest at your neighborhood Merrill Lynch, Edward Jones, or Raymond James offices.

Toward Rational Exuberance: The Evolution of the Modern Stock Market by B. Mark Smith

Alan Greenspan, bank run, banking crisis, book value, business climate, business cycle, buy and hold, capital asset pricing model, compound rate of return, computerized trading, Cornelius Vanderbilt, credit crunch, cuban missile crisis, discounted cash flows, diversified portfolio, Donald Trump, equity risk premium, Eugene Fama: efficient market hypothesis, financial independence, financial innovation, fixed income, full employment, Glass-Steagall Act, income inequality, index arbitrage, index fund, joint-stock company, junk bonds, locking in a profit, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market clearing, merger arbitrage, Michael Milken, money market fund, Myron Scholes, Paul Samuelson, price stability, prudent man rule, random walk, Richard Thaler, risk free rate, risk tolerance, Robert Bork, Robert Shiller, Ronald Reagan, scientific management, shareholder value, short selling, stocks for the long run, the market place, transaction costs

Writing in the 1950s, John Kenneth Galbraith declared, “On Jan. 1, 1929, as a matter of simple probability, it was most likely that the [stock market] boom would end before the year was out.” Of course, Galbraith had the benefit of twenty-twenty hindsight. Other scholars have not claimed such prescience. Economist Paul Samuelson wrote in 1979 that “playing as I often do the experiment of studying price profiles with their dates concealed, I discovered that I would have been caught in the 1929 debacle … The collapse from 1929 to 1933 was neither foreseeable nor inevitable.”1 Samuelson was not alone. Noted economist John Maynard Keynes lost heavily in the crash, as did other leading members of the academic community.

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In 1934, one year after Cowles published his research, a paper by Stanford University professor Holbrook Working appeared in the Journal of the American Statistical Association. Working was unfamiliar with Cowles and had had little prior interest in the financial markets. As later described by economist Paul Samuelson, Working was “a dry stick … not a sparkling expositor.” He was extremely thin and “old looking.” Samuelson believed that Working’s research would have received more attention had he been associated with Harvard or the University of Chicago; as Samuelson put it, Stanford at the time was considered to be “in the boondocks.”24 Working’s article carried a title only a statistician could love: “A Random Difference Series for Use in the Analysis of Time Series.”

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Conceptually, the act of hitting a pitched ball with a bat is “simple.” But only a tiny fraction of the population can perform this simple task well enough to play in the major leagues, and only a small fraction of those can manage to do it successfully even 30% of the time (a .300 hitter). Nobel Prize—winning economist Paul Samuelson has been a passionate defender of the idea that the market is efficient. But even he concedes that it is at least theoretically possible that a few individuals can consistently earn above-market returns, properly adjusted for risk. As he puts it, “People differ in their heights, pulchritude and acidity, why not in their P.Q., or performance quotient?”

Arguing With Zombies: Economics, Politics, and the Fight for a Better Future by Paul Krugman

affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, Andrei Shleifer, antiwork, Asian financial crisis, bank run, banking crisis, basic income, behavioural economics, benefit corporation, Berlin Wall, Bernie Madoff, bitcoin, blockchain, bond market vigilante , Bonfire of the Vanities, business cycle, capital asset pricing model, carbon footprint, carbon tax, Carmen Reinhart, central bank independence, centre right, Climategate, cognitive dissonance, cryptocurrency, David Ricardo: comparative advantage, different worldview, Donald Trump, Edward Glaeser, employer provided health coverage, Eugene Fama: efficient market hypothesis, fake news, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, frictionless, frictionless market, fudge factor, full employment, green new deal, Growth in a Time of Debt, hiring and firing, illegal immigration, income inequality, index fund, indoor plumbing, invisible hand, it is difficult to get a man to understand something, when his salary depends on his not understanding it, job automation, John Snow's cholera map, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, large denomination, liquidity trap, London Whale, low interest rates, market bubble, market clearing, market fundamentalism, means of production, Modern Monetary Theory, New Urbanism, obamacare, oil shock, open borders, Paul Samuelson, plutocrats, Ponzi scheme, post-truth, price stability, public intellectual, quantitative easing, road to serfdom, Robert Gordon, Robert Shiller, Ronald Reagan, secular stagnation, Seymour Hersh, stock buybacks, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, universal basic income, very high income, We are all Keynesians now, working-age population

Slumps could be fought with appropriate government policies: low interest rates for relatively mild recessions, deficit spending for deeper downturns. And given these policies, much of the rest of the economy could be left up to markets. Indeed, this position—call it free-market Keynesianism—became more or less the standard view of U.S. economists, especially after the publication of Paul Samuelson’s groundbreaking textbook in 1948. Conservatives, however, weren’t happy with this formulation. They viewed Keynesian economics as the thin end of the wedge: Once you accepted a government role in fighting recessions, you might adopt a more expansive view of government in general. During the forties and fifties they fought a rear-guard action, trying to prevent the teaching of Keynesian economics in universities.

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The downside of this strategy is, of course, that many of your colleagues will tend to assume that an insight that can be expressed in a cute little model must be trivial and obvious—it takes some sophistication to realize that simplicity may be the result of years of hard thinking. I have heard the story that when Joseph Stiglitz was being considered for tenure at Yale, one of his senior colleagues belittled his work, saying that it consisted mostly of little models rather than deep theorems. Another colleague then asked, “But couldn’t you say the same about Paul Samuelson”? “Yes, I could,” replied Joe’s opponent. I have heard the same reaction to my own work. Luckily, there are enough sophisticated economists around that in the end intellectual justice is usually served. And there is a special delight in managing not only to boldly go where no economist has gone before, but to do so in a way that seems after the fact to be almost child’s play.

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By “unstable” I don’t just mean Minsky-type financial instability, although that’s part of it. Equally crucial are the regime’s intellectual and political instability. INTELLECTUAL INSTABILITY The brand of economics I use in my daily work—the brand that I still consider by far the most reasonable approach out there—was largely established by Paul Samuelson back in 1948, when he published the first edition of his classic textbook. It’s an approach that combines the grand tradition of microeconomics, with its emphasis on how the invisible hand leads to generally desirable outcomes, with Keynesian macroeconomics, which emphasizes the way the economy can develop magneto trouble, requiring policy intervention.

Utopia for Realists: The Case for a Universal Basic Income, Open Borders, and a 15-Hour Workweek by Rutger Bregman

"World Economic Forum" Davos, Alan Greenspan, autonomous vehicles, banking crisis, Bartolomé de las Casas, basic income, Berlin Wall, Bertrand Russell: In Praise of Idleness, Branko Milanovic, cognitive dissonance, computer age, conceptual framework, credit crunch, David Graeber, Diane Coyle, driverless car, Erik Brynjolfsson, everywhere but in the productivity statistics, Fall of the Berlin Wall, Ford Model T, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, George Gilder, George Santayana, happiness index / gross national happiness, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, income inequality, invention of gunpowder, James Watt: steam engine, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Kevin Kelly, Kickstarter, knowledge economy, knowledge worker, Kodak vs Instagram, low skilled workers, means of production, megacity, meta-analysis, microcredit, minimum wage unemployment, Mont Pelerin Society, Nathan Meyer Rothschild: antibiotics, Occupy movement, offshore financial centre, Paul Samuelson, Peter Thiel, post-industrial society, precariat, public intellectual, radical decentralization, RAND corporation, randomized controlled trial, Ray Kurzweil, Ronald Reagan, Rutger Bregman, Second Machine Age, Silicon Valley, Simon Kuznets, Skype, stem cell, Steven Pinker, TED Talk, telemarketer, The future is already here, The Future of Employment, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tyler Cowen, Tyler Cowen: Great Stagnation, universal basic income, wage slave, War on Poverty, We wanted flying cars, instead we got 140 characters, wikimedia commons, women in the workforce, working poor, World Values Survey

“We’re now self-sufficient, income-earning artists,” she told the researchers.36 Among youth included in the experiment, almost all the hours not spent on paid work went into more education. Among the New Jersey subjects, the rate of high school graduations rose 30%.37 And thus, in the revolutionary year of 1968, when young demonstrators the world over were taking to the streets, five famous economists – John Kenneth Galbraith, Harold Watts, James Tobin, Paul Samuelson, and Robert Lampman – wrote an open letter to Congress. “The country will not have met its responsibility until everyone in the nation is assured an income no less than the officially recognized definition of poverty,” they said in an article published on the front page of The New York Times.

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The Ultimate Yardstick From the wreckage of depression and war, the GDP emerged as the ultimate yardstick of progress – the crystal ball of nations, the number to trump all others. And this time, its job was not to bolster the war effort, but to anchor the consumer society. “Much like a satellite in space can survey the weather across an entire continent so can the GDP give an overall picture of the state of the economy,” economist Paul Samuelson wrote in his bestselling textbook Economics. “Without measures of economic aggregates like GDP, policymakers would be adrift in a sea of unorganized data,” he continued. “The GDP and related data are like beacons that help policymakers steer the economy toward the key economic objectives.”21 At the start of the 20th century the U.S. government employed a grand total of one economist; more accurately, an “economic ornithologist,” whose job was to study birds.

End This Depression Now! by Paul Krugman

airline deregulation, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, bond market vigilante , Bretton Woods, business cycle, capital asset pricing model, Carmen Reinhart, centre right, correlation does not imply causation, credit crunch, Credit Default Swap, currency manipulation / currency intervention, debt deflation, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, full employment, German hyperinflation, Glass-Steagall Act, Gordon Gekko, high-speed rail, Hyman Minsky, income inequality, inflation targeting, invisible hand, it is difficult to get a man to understand something, when his salary depends on his not understanding it, It's morning again in America, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Joseph Schumpeter, junk bonds, Kenneth Rogoff, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low interest rates, low skilled workers, Mark Zuckerberg, Minsky moment, Money creation, money market fund, moral hazard, mortgage debt, negative equity, paradox of thrift, Paul Samuelson, price stability, quantitative easing, rent-seeking, Robert Gordon, Ronald Reagan, Savings and loan crisis, Upton Sinclair, We are all Keynesians now, We are the 99%, working poor, Works Progress Administration

And to be honest, Minsky’s heterodoxy wasn’t the only reason he was ignored by the mainstream. His books are not, to say the least, user-friendly; nuggets of brilliant insight are strewn thinly across acres of turgid prose and unnecessary algebra. And he also cried wolf too often; to paraphrase an old joke by Paul Samuelson, he predicted around nine of the last three major financial crises. Yet these days many economists, yours truly very much included, recognize the importance of Minsky’s “financial instability hypothesis.” And those of us, again like yours truly, who were relative latecomers to Minsky’s work wish that we had read it much earlier.

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Keynes himself described his theory as “moderately conservative in its implications,” consistent with an economy run on the principles of private enterprise. From the beginning, however, political conservatives—especially those most concerned with defending the position of the wealthy—fiercely opposed Keynesian ideas. And I mean fiercely. Paul Samuelson’s textbook Economics, whose first edition was published in 1948, is widely credited with bringing Keynesian economics to American colleges. But it was actually the second entry. A previous book, by the Canadian economist Lorie Tarshis, was effectively blackballed by right-wing opposition, including an organized campaign that successfully induced many universities to drop the book.

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Eleventh Edition) by Burton G. Malkiel

accounting loophole / creative accounting, Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, beat the dealer, Bernie Madoff, bitcoin, book value, butter production in bangladesh, buttonwood tree, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, Detroit bankruptcy, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, equity risk premium, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial engineering, financial innovation, financial repression, fixed income, framing effect, George Santayana, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Japanese asset price bubble, John Bogle, junk bonds, Long Term Capital Management, loss aversion, low interest rates, margin call, market bubble, Mary Meeker, money market fund, mortgage tax deduction, new economy, Own Your Own Home, PalmPilot, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Salesforce, short selling, Silicon Valley, South Sea Bubble, stock buybacks, stocks for the long run, sugar pill, survivorship bias, Teledyne, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond, zero-sum game

But today, the information superhighway carries news far more swiftly than carrier pigeons. And Regulation FD (Fair Disclosure) requires companies to make prompt public announcements of any material news items that may affect the price of their stock. Moreover, insiders who do profit from trading on the basis of nonpublic information are breaking the law. The Nobel laureate Paul Samuelson summed up the situation as follows: If intelligent people are constantly shopping around for good value, selling those stocks they think will turn out to be overvalued and buying those they expect are now undervalued, the result of this action by intelligent investors will be to have existing stock prices already have discounted in them an allowance for their future prospects.

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If you find yourself at age eighty, withdrawing 4 percent each year and with a growing portfolio, either you have profound faith that medical science has finally discovered the Fountain of Youth, or you should consider loosening the purse strings. *Technically, the finding that risk is reduced by longer holding periods depends on the reversion-to-the-mean phenomenon described in Chapter 11. The interested reader is referred to Paul Samuelson’s article “The Judgment of Economic Science on Rational Portfolio Management” in the Journal of Portfolio Management (Fall 1989). †I assume that the savings can be made in an IRA or other tax-favored savings vehicle, so income taxes on interest earnings are ignored. ‡In the ninth edition of this book, I recommended a 4½ percent rule because bond yields were considerably higher than they were in 2014.

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Two issues remain: First, it is clear that such skill is very rare; and second, there appears to be no effective way to find such skill before it has been demonstrated. As I indicated in chapter 7, the best-performing funds in one period of time are not the best performers in the next period. The top performers of the 1990s had dreadful returns in the first decade of the 2000s. Paul Samuelson summed up the difficulty in the following parable. Suppose it was demonstrated that one out of twenty alcoholics could learn to become a moderate social drinker. The experienced clinician would answer, “Even if true, act as if it were false, for you will never identify that one in twenty, and in the attempt five in twenty will be ruined.”

Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", "there is no alternative" (TINA), "World Economic Forum" Davos, affirmative action, Alan Greenspan, Albert Einstein, algorithmic trading, Andy Kessler, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, book value, Bretton Woods, BRICs, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, carbon credits, Carl Icahn, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, Daniel Kahneman / Amos Tversky, deal flow, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Dr. Strangelove, Dutch auction, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial engineering, financial independence, financial innovation, financial thriller, fixed income, foreign exchange controls, full employment, Glass-Steagall Act, global reserve currency, Goldman Sachs: Vampire Squid, Goodhart's law, Gordon Gekko, greed is good, Greenspan put, happiness index / gross national happiness, haute cuisine, Herman Kahn, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", job automation, Johann Wolfgang von Goethe, John Bogle, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Michael Milken, Mikhail Gorbachev, Milgram experiment, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, Phillips curve, planned obsolescence, plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, proprietary trading, public intellectual, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, Reminiscences of a Stock Operator, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Thaler, Right to Buy, risk free rate, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, short squeeze, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, stock buybacks, survivorship bias, tail risk, Teledyne, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, two and twenty, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

In his doctoral dissertation, he laid out the argument that stock prices were random, reflecting all available information relevant to its value. Prices followed a random walk and market participants could not systematically profit from market inefficiencies. The EMH does not require market price to be always accurate. Investors force the price to fluctuate randomly around its real value. As economist Paul Samuelson put it: “if one could be sure that a price will rise, it would already have risen.”6 The EMH was the finance version of The Price Is Right, the corollary of Chicago’s belief in free markets. Reviewing Markowitz’s work, David Durand observed that the “argument rests on the concept of the Rational Man.”

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If the stock price goes up then the value of the call option increases but you suffer a loss on the shares, as you have to buy them back at the higher price. By adjusting the ratio of options to the shares, you can construct a portfolio where the changes in the value of the options and shares exactly offset, at least, for small movements in the stock price. Working as research assistant to Paul Samuelson, Robert Merton was also working on option pricing. Merton introduced an idea—continuous time mathematics. Black and Scholes assumed that the portfolio would be rebalanced to keep it free of risk by changing the number of shares held at discrete time intervals. Merton forced the time intervals into infinitely small fragments of time, effectively allowing continuous and instantaneous rebalancing.

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Her stifling worldview encompassed politics, interior design, and dancing. Despite a failure to create a lasting legacy or political movement, Rand remains an influence on conservative thinking. The New York Times dubbed Rand the “novelist Laureate” of the Reagan administration, citing her influence on Greenspan.13 Paul Samuelson, the economist, recalled that: The trouble is that [Greenspan] had been an Ayn Rander. You can take the boy out of the cult but you can’t take the cult out of the boy. He actually had instructions, probably pinned on the wall: “Nothing from this office should go forth which discredits the capitalist system.

Transport for Humans: Are We Nearly There Yet? by Pete Dyson, Rory Sutherland

Abraham Maslow, Alan Greenspan, autonomous vehicles, barriers to entry, behavioural economics, bitcoin, Black Swan, Boeing 747, BRICs, butterfly effect, car-free, carbon footprint, Charles Babbage, choice architecture, cognitive bias, cognitive load, coronavirus, COVID-19, Crossrail, Daniel Kahneman / Amos Tversky, decarbonisation, demand response, Diane Coyle, digital map, driverless car, Dunning–Kruger effect, Elon Musk, fake news, functional fixedness, gender pay gap, George Akerlof, gig economy, global supply chain, Goodhart's law, Greta Thunberg, Gödel, Escher, Bach, high-speed rail, hive mind, Hyperloop, Induced demand, informal economy, Isaac Newton, Jane Jacobs, lockdown, longitudinal study, loss aversion, low cost airline, Lyft, megaproject, meta-analysis, Network effects, nudge unit, Ocado, overview effect, Paul Samuelson, performance metric, pneumatic tube, RAND corporation, randomized controlled trial, remote working, ride hailing / ride sharing, risk tolerance, Rory Sutherland, Sapir-Whorf hypothesis, selection bias, Skype, smart transportation, social distancing, South Sea Bubble, systems thinking, TED Talk, the map is not the territory, The Market for Lemons, the scientific method, The Wisdom of Crowds, Thomas Malthus, Uber and Lyft, uber lyft, urban planning, Veblen good, When a measure becomes a target, yield management, zero-sum game

Unfortunately, when sat at the base of the ‘S’, many optimists and myopics are vulnerable to the lure of extrapolating that midway exponential growth, drawing an inexorable and fanciful line upwards. Physical transport technologies such as driverless cars and Hyperloop trains attract huge amounts of funding when the economy is strong – almost $750 billion in 2018 and 201926 – but the revolution always seems to lie just around the corner. To paraphrase the twentieth-century economist Paul Samuelson, technologists correctly predicted nine of the last five transport revolutions. Governments and politicians have a different problem: they predicted perhaps only two of them.27 Who remembers the Segway: one of those transport revolutions that never quite happened? Like the whirring gyroscopes that kept it upright, it was hyped at dizzying speed as a vision for the new millennium.

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but rather ‘Wouldn’t we be more profitable (and less risky) if we could get Concorde passengers to fly first class on our flat-bed service?’ And so the lifeblood of Concorde began to drain away. * * * 26 OliverWyman. 2020. Decreased investments in mobility startups. Report, June (https://owy.mn/3vVHhbV). 27 In 1966, four years before winning his Nobel Memorial Prize in Economic Sciences, Paul Samuelson quipped that declines in US stock prices had correctly predicted nine of the last five American recessions. 28 C. Wolmar. 2018. Driverless Cars: On a Road to Nowhere. London: London Publishing Partnership. 29 It was an Achilles heel, not a freak accident, that led to disaster in July 2000. 30 History of Advertising Trust. 1977.

Destined for War: America, China, and Thucydides's Trap by Graham Allison

9 dash line, anti-communist, Berlin Wall, borderless world, Bretton Woods, British Empire, capital controls, Carmen Reinhart, conceptual framework, cuban missile crisis, currency manipulation / currency intervention, Deng Xiaoping, disruptive innovation, Donald Trump, Dr. Strangelove, escalation ladder, facts on the ground, false flag, Flash crash, Francis Fukuyama: the end of history, game design, George Santayana, Great Leap Forward, guns versus butter model, Haber-Bosch Process, Herman Kahn, high-speed rail, industrial robot, Internet of things, Kenneth Rogoff, liberal world order, long peace, Mark Zuckerberg, megacity, megaproject, middle-income trap, Mikhail Gorbachev, Monroe Doctrine, mutually assured destruction, Nelson Mandela, one-China policy, Paul Samuelson, Peace of Westphalia, public intellectual, purchasing power parity, RAND corporation, Ronald Reagan, Scramble for Africa, selection bias, Silicon Valley, Silicon Valley startup, South China Sea, special economic zone, spice trade, Suez canal 1869, synthetic biology, TED Talk, the rule of 72, The Wealth of Nations by Adam Smith, too big to fail, trade route, UNCLOS, Washington Consensus, zero-sum game

Communism as an ideology that people could voluntarily embrace has been consigned to the dustbin of history. Command-and-control economics and politics have repeatedly shown that they do not work. Students at Harvard are thus confounded when I make them read a chapter from the most popular economics textbook of the mid-twentieth century, Paul Samuelson’s Economics: An Introductory Analysis, published in 1964. It foresaw Soviet GNP overtaking that of the US by the mid-1980s.41 The twentieth century was defined by a cascade of world wars: the First, the Second, and the specter of a Third that could well have been the last. In that final contest, the adversaries believed the stakes were so high that each was prepared to risk the death of hundreds of millions of its own citizens to defeat the other.

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The Soviet economy, meanwhile, had begun to surge. Industrial production increased 173 percent over prewar levels by 1950, and annual economic growth (at least as officially reported) averaged 7 percent between 1950 and 1970,149 prompting fears that the Soviet Union might rival and even surpass the US economically.150 Paul Samuelson’s best-selling 1960s textbook, Economics: An Introductory Analysis, projected that Soviet GNP would overtake that of the US by the mid-1980s.151 Though Samuelson’s prediction never came to pass, the USSR did overtake the US in two key areas: military spending and production of iron and steel, both in the early 1970s.152 Responding to the challenge, the United States employed all of the traditional instruments of warfare short of bombs and bullets, and many untraditional instruments as well.

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May and Hong, “A Power Transition and Its Effects,” 11–17. [back] 39. Ibid., 14–17. [back] 40. George Will, “America’s Lost Ally,” Washington Post, August 17, 2011, https://www.washingtonpost.com/opinions/americas-lost-ally/2011/08/16/gIQAYxy8LJ_story.html?utm_term=.3188d2889da3. [back] 41. Paul Samuelson, Economics: An Introductory Analysis, 6th ed. (New York: McGraw-Hill, 1964), 807. [back] 42. Churchill, The Second World War, vol. 3: The Grand Alliance (Boston: Houghton Mifflin, 1950), 331. [back] 43. James Forrestal letter to Homer Ferguson, May 14, 1945. See Walter Millis, ed., The Forrestal Diaries (New York: Viking Press, 1951), 57.

Makers and Takers: The Rise of Finance and the Fall of American Business by Rana Foroohar

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, additive manufacturing, Airbnb, Alan Greenspan, algorithmic trading, Alvin Roth, Asian financial crisis, asset allocation, bank run, Basel III, Bear Stearns, behavioural economics, Big Tech, bonus culture, Bretton Woods, British Empire, business cycle, buy and hold, call centre, Capital in the Twenty-First Century by Thomas Piketty, Carl Icahn, Carmen Reinhart, carried interest, centralized clearinghouse, clean water, collateralized debt obligation, commoditize, computerized trading, corporate governance, corporate raider, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, crowdsourcing, data science, David Graeber, deskilling, Detroit bankruptcy, diversification, Double Irish / Dutch Sandwich, electricity market, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial intermediation, Ford Model T, Frederick Winslow Taylor, George Akerlof, gig economy, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Greenspan put, guns versus butter model, High speed trading, Home mortgage interest deduction, housing crisis, Howard Rheingold, Hyman Minsky, income inequality, index fund, information asymmetry, interest rate derivative, interest rate swap, Internet of things, invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", John Bogle, John Markoff, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, London Whale, Long Term Capital Management, low interest rates, manufacturing employment, market design, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, new economy, non-tariff barriers, offshore financial centre, oil shock, passive investing, Paul Samuelson, pensions crisis, Ponzi scheme, principal–agent problem, proprietary trading, quantitative easing, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, Rana Plaza, RAND corporation, random walk, rent control, Robert Shiller, Ronald Reagan, Satyajit Das, Savings and loan crisis, scientific management, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, Snapchat, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, Steve Jobs, stock buybacks, subprime mortgage crisis, technology bubble, TED Talk, The Chicago School, the new new thing, The Spirit Level, The Wealth of Nations by Adam Smith, Tim Cook: Apple, Tobin tax, too big to fail, Tragedy of the Commons, trickle-down economics, Tyler Cowen: Great Stagnation, Vanguard fund, vertical integration, zero-sum game

The Ford and Carnegie foundations in particular, but also others like the Walgreen Foundation (established by the communist-hating drugstore titan Charles Walgreen), began giving donations to support an approach to business that would make it seem more serious and weighty, a “real science” to be contended with. Business and economics education began to develop a notion of itself as a hard science. One of the watershed moments for this new school of thought was the publication in 1947 of economist Paul Samuelson’s Foundations of Economic Analysis, which laid out the case for a new approach to economic thinking—one that resembled the abstract, hyperrational field of physics much more than the messy reality of the social sciences. Indeed, the language of the time makes it clear that the elites were a bit embarrassed about any ties that business education might have to actual factory floors.

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But despite a more than doubling of the industry’s asset base, fees have actually risen, too, by a whopping 81 percent—from $48 billion to $87 billion.22 “The staggering economies of scale that characterize money management have been largely arrogated by fund managers to themselves, rather than shared with their fund shareholders,” concludes Bogle. Or, as the great economist Paul Samuelson put it presciently in 1967, “I decided that there was only one place to make money in the mutual fund business—as there is only one place for a temperate man to be in a saloon, behind the bar and not in front of the bar. And I invested in…[a] management company.”23 In lieu of pouring all your money into Fidelity or BlackRock, there are any number of studies that tell us how much better off we are investing the Vanguard way, in low- or no-fee index funds.

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Ameriprise Financial, “Ameriprise Financial Completes Columbia Management Acquisition,” news release, May 3, 2010. 19. Bogle, The Clash of the Cultures, 117–18. 20. Rana Foroohar, “Why Some Men Are Big Losers,” Time, June 10, 2013. 21. Bogle, “Big Money in Boston,” 138. 22. Bogle Senate testimony, September 16, 2014. 23. Paul Samuelson, Institute Professor, Massachusetts Institute of Technology, statement before the hearing on Mutual Fund Legislation of 1967 by US Senate Committee on Banking and Currency, August 2, 1967. 24. Author interview with Buffett for this book. 25. “Against the Odds: The Costs of Actively Managed Funds Are Higher than Most Investors Realise,” Economist, February 20, 2014. 26.

Crisis Economics: A Crash Course in the Future of Finance by Nouriel Roubini, Stephen Mihm

Alan Greenspan, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, bond market vigilante , bonus culture, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, central bank independence, centralized clearinghouse, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, dark matter, David Ricardo: comparative advantage, debt deflation, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, Glass-Steagall Act, global pandemic, global reserve currency, Gordon Gekko, Greenspan put, Growth in a Time of Debt, housing crisis, Hyman Minsky, information asymmetry, interest rate swap, invisible hand, Joseph Schumpeter, junk bonds, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, market fundamentalism, Martin Wolf, means of production, Minsky moment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, new economy, Northern Rock, offshore financial centre, oil shock, Paradox of Choice, paradox of thrift, Paul Samuelson, Ponzi scheme, price stability, principal–agent problem, private sector deleveraging, proprietary trading, pushing on a string, quantitative easing, quantitative trading / quantitative finance, race to the bottom, random walk, regulatory arbitrage, reserve currency, risk tolerance, Robert Shiller, Satyajit Das, Savings and loan crisis, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, subprime mortgage crisis, Suez crisis 1956, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, too big to fail, tulip mania, Tyler Cowen, unorthodox policies, value at risk, We are all Keynesians now, Works Progress Administration, yield curve, Yom Kippur War

., Companion to History of Economic Thought, 262-77, 445-53. 54 Schumpeter’s worldview: Joseph Alois Schumpeter, Capitalism, Socialism, and Democracy (London: Routledge, 2006), 81-86. 55 According to some Austrian economists: See, for example, Murray Rothbard, America’s Great Depression (New York: New York University Press, 1973). 56 “Greenspan put”: Peronet Despeignes, “Greenspan Put May Be Encouraging Complacency,” Financial Times, December 8, 2000; Marcus Miller, Paul Weller, and Lei Zhang, “Moral Hazard and the US Stock Market: Analysing the ‘Greenspan Put,’ ” Economic Journal 112 (2002): C171-86. 57 the road that Japan paved in the 1990s: See, for example, Benjamin Powell, “Explaining Japan’s Recession,” Quarterly Journal of Austrian Economics 5 (2002): 35-50. 57 Economists who swear fealty to Keynes: Krugman, Return of Depression Economics, 74-77; Charles Yuji Horioka, “The Causes of Japan’s ‘Lost Decade’: The Role of Household Consumption,” Japan and the World Economy 18 (2006): 378-400. 59 “economists set themselves . . .”: John Maynard Keynes, A Tract on Monetary Reform (London: Macmillan, 1923), 80. 59 “Well, . . . this is probably a change . . .”: Conor Clarke, “An Interview with Paul Samuelson, Part Two,” Atlantic, June 18, 2009, online at http://correspondents.theatlantic.com/conor_clarke/2009/06/an_interview_with_paul_samuelson_part_two.php. 60 Scottish journalist: Charles Mackay, Memoirs of Extraordinary Popular Delusions and the Madness of Crowds (London: National Illustrated Library, 1852). This expanded edition replaced the original work published in 1841.

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In facing these challenges, it’s worth adding one more arrow to the quiver of crisis economics. The study of crises cannot be confined to economic theories alone. A final perspective is necessary, one that is not easily distilled to a school of thought, a model, or an equation: the study of the past. The Uses of History In June 2009 the legendary economist Paul Samuelson sat down with an interviewer. Samuelson, who remained as productive as ever into his nineties, is widely considered the greatest economist of the last half century. A founder and codifier of the neoclassical school, he oversaw his profession’s embrace of esoteric mathematical models as a way of describing timeless economic phenomena.

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right by George R. Tyler

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 8-hour work day, active measures, activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, benefit corporation, Black Swan, blood diamond, blue-collar work, Bolshevik threat, bonus culture, British Empire, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, carried interest, cognitive dissonance, collateralized debt obligation, collective bargaining, commoditize, company town, compensation consultant, corporate governance, corporate personhood, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, crowdsourcing, currency manipulation / currency intervention, David Brooks, David Graeber, David Ricardo: comparative advantage, declining real wages, deindustrialization, Diane Coyle, disruptive innovation, Double Irish / Dutch Sandwich, eurozone crisis, financial deregulation, financial engineering, financial innovation, fixed income, Ford Model T, Francis Fukuyama: the end of history, full employment, George Akerlof, George Gilder, Gini coefficient, Glass-Steagall Act, Gordon Gekko, Greenspan put, hiring and firing, Ida Tarbell, income inequality, independent contractor, invisible hand, job satisfaction, John Markoff, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, lake wobegon effect, light touch regulation, Long Term Capital Management, low interest rates, manufacturing employment, market clearing, market fundamentalism, Martin Wolf, minimum wage unemployment, mittelstand, Money creation, moral hazard, Myron Scholes, Naomi Klein, Northern Rock, obamacare, offshore financial centre, Paul Samuelson, Paul Volcker talking about ATMs, pension reform, performance metric, Pershing Square Capital Management, pirate software, plutocrats, Ponzi scheme, precariat, price stability, profit maximization, profit motive, prosperity theology / prosperity gospel / gospel of success, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, reshoring, Richard Thaler, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, rolling blackouts, Ronald Reagan, Sand Hill Road, Savings and loan crisis, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Ballmer, Steve Jobs, stock buybacks, subprime mortgage crisis, The Chicago School, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transcontinental railway, transfer pricing, trickle-down economics, tulip mania, Tyler Cowen, Tyler Cowen: Great Stagnation, union organizing, Upton Sinclair, upwardly mobile, women in the workforce, working poor, zero-sum game

Protectionism was avoided and even aggressively attacked when identified abroad. These nations didn’t experience an American-style stagnation of wages and offshoring of jobs. Instead, Australia and northern Europe pursued policies informed by the best and brightest trade economists of our age. Drawing on the theories of David Ricardo, for example, economists Paul Samuelson and Wolfgang F. Stolper had concluded as early as 1941 that international trade creates long-term losers as well as winners. So leaders abroad crafted remediation: a balance of clever mechanisms maximizing the gains from globalization and broadcasting those gains to families, while minimizing its harm to jobs and wages.

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Central banks attract criticism for two main reasons: First, they create credit, which always raises the risk of credit bubbles, deep recessions and inflation; that’s why conservatives with the Austrian School endorse the discipline of the gold standard. Milton Friedman disagreed with them, placing his faith in robotic monetary growth targets administered by the Fed, rejecting fears of the Austrian School’s Henry Hazlitt. President Nixon ignored the Austrians (and also the advice of Nobel Laureate Paul Samuelson) in favor of Friedman when he abandoned gold in mid-August 1971. Unlike the Austrians, President Nixon and his successors like President Reagan and Alan Greenspan perhaps never read the most famous fable of the German literary giant, Johann Wolfgang Goethe. It’s right there in Faust: the creation of paper money is mere alchemy.23 History has proven Hazlitt, Samuelson, and Goethe right and Friedman wrong.24 Second, as mentioned, conservatives like Hayek believe that central banks are too easily captured by the business community, with monetary policies adopted for political ends.

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We will return to this evidence of European economic prowess in a moment. Unsurprisingly, as we see in Table 4, American and European workers in relatively unskilled, labor-intensive sectors fared less well. That’s consistent with the famous conclusion reached in 1941 by Wolfgang F. Stolper and Paul Samuelson, which is the source of the received wisdom among economists that freer trade permanently harms some employees in rich democracies.8 The IMF analysts concluded that the unskilled worker share of total wages fell somewhat sharply in both America and Europe. The Impact of Technology Progress and Globalization on Unskilled Labor 1980 2003 Labor’s income share in unskilled sectors1 United States 25% 18% Europe2 34% 24% Index of unskilled employment United States 100% 121% Europe 100% 86% Table 4. 1 Measured as share of economy-wide value added. 2 Includes: Austria, Belgium, Denmark, Finland, France, Germany, Italy, Norway, Portugal, and Sweden.

Race Against the Machine: How the Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy by Erik Brynjolfsson

Abraham Maslow, Amazon Mechanical Turk, Any sufficiently advanced technology is indistinguishable from magic, autonomous vehicles, business cycle, business process, call centre, combinatorial explosion, corporate governance, creative destruction, crowdsourcing, David Ricardo: comparative advantage, driverless car, easy for humans, difficult for computers, Erik Brynjolfsson, factory automation, first square of the chessboard, first square of the chessboard / second half of the chessboard, Frank Levy and Richard Murnane: The New Division of Labor, general purpose technology, hiring and firing, income inequality, intangible asset, job automation, John Markoff, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Khan Academy, Kickstarter, knowledge worker, Loebner Prize, low skilled workers, machine translation, minimum wage unemployment, patent troll, pattern recognition, Paul Samuelson, Ray Kurzweil, rising living standards, Robert Gordon, Robert Solow, self-driving car, shareholder value, Skype, the long tail, too big to fail, Turing test, Tyler Cowen, Tyler Cowen: Great Stagnation, Watson beat the top human players on Jeopardy!, wealth creators, winner-take-all economy, zero-sum game

They understand that some human workers may lose out in the race against the machine. Ironically, the best-educated economists are often the most resistant to this idea, as the standard models of economic growth implicitly assume that economic growth benefits all residents of a country. However, just as Nobel Prize-winning economist Paul Samuelson showed that outsourcing and offshoring do not necessarily increase the welfare of all workers, it is also true that technological progress is not a rising tide that automatically raises all incomes. Even as overall wealth increases, there can be, and usually will be, winners and losers. And the losers are not necessarily some small segment of the labor force like buggy whip manufacturers.

Skin in the Game: Hidden Asymmetries in Daily Life by Nassim Nicholas Taleb

anti-fragile, availability heuristic, behavioural economics, Benoit Mandelbrot, Bernie Madoff, Black Swan, Brownian motion, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, cellular automata, Claude Shannon: information theory, cognitive dissonance, complexity theory, data science, David Graeber, disintermediation, Donald Trump, Edward Thorp, equity premium, fake news, financial independence, information asymmetry, invisible hand, knowledge economy, loss aversion, mandelbrot fractal, Mark Spitznagel, mental accounting, microbiome, mirror neurons, moral hazard, Murray Gell-Mann, offshore financial centre, p-value, Paradox of Choice, Paul Samuelson, Ponzi scheme, power law, precautionary principle, price mechanism, principal–agent problem, public intellectual, Ralph Nader, random walk, rent-seeking, Richard Feynman, Richard Thaler, Ronald Coase, Ronald Reagan, Rory Sutherland, Rupert Read, Silicon Valley, Social Justice Warrior, Steven Pinker, stochastic process, survivorship bias, systematic bias, tail risk, TED Talk, The Nature of the Firm, Tragedy of the Commons, transaction costs, urban planning, Yogi Berra

Before explaining the concept, consider the following three maxims: Judging people by their beliefs is not scientific. There is no such thing as the “rationality” of a belief, there is rationality of action. The rationality of an action can be judged only in terms of evolutionary considerations. The axiom of revelation of preferences (originating with Paul Samuelson, or possibly the Semitic gods), as you recall, states the following: you will not have an idea about what people really think, what predicts people’s actions, merely by asking them—they themselves don’t necessarily know. What matters, in the end, is what they pay for goods, not what they say they “think” about them, or the various possible reasons they give you or themselves for that.

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Glossary Rent Seeking: trying to use protective regulations or “rights” to derive income without adding anything to economic activity, without increasing the wealth of others. As Fat Tony would define it, it is like being forced to pay protection money to the Mafia without getting the economic benefits of protection. Revelation of Preferences: the theory, originating with Paul Samuelson (initially in the context of choice of public goods), that agents do not have full access to the reasoning behind their actions; actions are observables, while thought is not, which prevents the latter from being used for rigorous scientific investigation. In economics, experiments require an actual expenditure by the agent.

Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King

"World Economic Forum" Davos, Admiral Zheng, Alan Greenspan, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Celtic Tiger, central bank independence, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, demographic dividend, demographic transition, Deng Xiaoping, Diane Coyle, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, foreign exchange controls, Francis Fukuyama: the end of history, full employment, G4S, George Akerlof, German hyperinflation, Gini coefficient, Great Leap Forward, guns versus butter model, hiring and firing, income inequality, income per capita, inflation targeting, invisible hand, Isaac Newton, junk bonds, knowledge economy, labour market flexibility, labour mobility, liberal capitalism, low interest rates, low skilled workers, market clearing, Martin Wolf, mass immigration, Meghnad Desai, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, old age dependency ratio, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, rent-seeking, reserve currency, rising living standards, Ronald Reagan, Savings and loan crisis, savings glut, Silicon Valley, Simon Kuznets, sovereign wealth fund, spice trade, statistical model, technology bubble, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, Washington Consensus, We are all Keynesians now, women in the workforce, working-age population, Y2K, Yom Kippur War

He named it California after a sixteenth-century Spanish novel (The Exploits of Explanadían) in which there was a reference to a mythical island of that name ruled by Calafía, a pagan queen. California properly fell into Spanish hands in 1769 following the establishment of a number of missions up and down the land. Mexico gained its independence from the Spanish in 1821. 6. See, for example, Paul Samuelson’s article ‘Where Ricardo and Mill rebut and confirm arguments of mainstream economists supporting globalization’, Journal of Economic Perspectives, 18.3 (2004), pp. 135–46. 7. See, for example, Alan G. Ahearne; Joseph E. Gagnon; Jane Haltmaier; Steven B. Kamin, Preventing Deflation: Lessons From Japan’s Experience in the 1990s. published by the Federal Reserve in 2002 and available at http://www.federalreserve.gov/pubs/ifdp/ 2002/729/ifdp729.pdf. 8.

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Countries and regions that, at the time of writing, still had an explicit dollar peg included the Caribbean nations, Cuba, the Democratic Republic of Congo, Ecuador, Equatorial Guinea, Hong Kong, Liberia, Malaysia, Nigeria, Oman, Panama, Saudi Arabia, Singapore, Syria and the United Arab Emirates (source: Bloomberg). 15. Bela Balassa, ‘The purchasing power parity doctrine: a reappraisal’, Journal of Political Economy, 72 (1964), pp. 584–96; Paul Samuelson, ‘Theoretical notes on trade problems’, Review of Economics and Statistics, 23 (1964), pp. 145–54. 16. The minutes and transcripts of FOMC meetings can be found at http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm. CHAPTER 6: HAVES AND HAVE-NOTS 1. Remarks made in Heber Springs, Arkansas, at the dedication of Greers Ferry Dam, 3 October 1963 2.

The Power of Gold: The History of an Obsession by Peter L. Bernstein

Alan Greenspan, Albert Einstein, Atahualpa, bread and circuses, Bretton Woods, British Empire, business cycle, California gold rush, central bank independence, double entry bookkeeping, Edward Glaeser, Everybody Ought to Be Rich, falling living standards, financial innovation, floating exchange rates, Francisco Pizarro, German hyperinflation, Hernando de Soto, Isaac Newton, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, large denomination, liquidity trap, long peace, low interest rates, Money creation, money: store of value / unit of account / medium of exchange, old-boy network, Paul Samuelson, price stability, profit motive, proprietary trading, random walk, rising living standards, Ronald Reagan, seigniorage, the market place, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade route

The following people also provided significant assistance along the way and deserve my warmest thanks: Barbara Boehm, Ulla BuchnerHoward, Mike Clowes, Barclay Douglas, Hans Falkena, Rob Ferguson, Benjamin Friedman, Milton Friedman, Alan Greenspan, James Howell, Henry Hu, Steve Jones, Dwight Keating, Leora Klapper, Benjamin Levene, Richard Rogalski, Paul Samuelson, Ronald Sobel, and Gentaro Yura. Convention dictates that the author relieves all of the above from any responsibility for errors that may remain in the manuscript. Charlie Kindleberger decries this convention, pointing out that the author, after all, depended on the authority of these individuals in preparing the work and should not be expected to check out the accuracy of their suggestions.

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The time has come for exchange rates to be set straight.... There is no longer any need for the United States to compete with one hand behind its back.... We are not about to ease up and lose the economic leadership of the world.6 "They've really shot both barrels," observed the President of Bankers Trust Company on Monday morning. Paul Samuelson, the Nobel Prize-winning economist, asserted in an article for the New York Times that "The President had no real choice. His hand was forced by the massive hemorrhage of dollar reserves of recent weeks.... For more than a decade the American dollar has been an overvalued currency.... [The new policy] also helps Japan ... since it is foolish for Japan to give away goods without being repaid for them in equivalent goods."

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*Knox, Secretary of War during World War II, was famous for his remark about the Japanese when he put his arm around the shoulder of T. V. Tsoong, the Chinese Ambassador: "Don't worry, T. V., we'll lick those yellow bastards yet." *1 heard this story as a Harvard undergraduate in the late 1930s; Professor Paul Samuelson of MIT was good enough to confirm it in personal correspondence. *Leffingwell regularly sent Norman food packages during World War II and carried on an active correspondence with his old friend. `Both men died before they could see the product of their work in full flower, Keynes in April 1946 and White in August 1948.

Wealth and Poverty: A New Edition for the Twenty-First Century by George Gilder

accelerated depreciation, affirmative action, Albert Einstein, Bear Stearns, Bernie Madoff, book value, British Empire, business cycle, capital controls, clean tech, cloud computing, collateralized debt obligation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, deindustrialization, diversified portfolio, Donald Trump, equal pay for equal work, floating exchange rates, full employment, gentrification, George Gilder, Gunnar Myrdal, Home mortgage interest deduction, Howard Zinn, income inequality, independent contractor, inverted yield curve, invisible hand, Jane Jacobs, Jeff Bezos, job automation, job-hopping, Joseph Schumpeter, junk bonds, knowledge economy, labor-force participation, longitudinal study, low interest rates, margin call, Mark Zuckerberg, means of production, medical malpractice, Michael Milken, minimum wage unemployment, Money creation, money market fund, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, moral hazard, mortgage debt, non-fiction novel, North Sea oil, paradox of thrift, Paul Samuelson, plutocrats, Ponzi scheme, post-industrial society, power law, price stability, Ralph Nader, rent control, Robert Gordon, Robert Solow, Ronald Reagan, San Francisco homelessness, scientific management, Silicon Valley, Simon Kuznets, Skinner box, skunkworks, Solyndra, Steve Jobs, The Wealth of Nations by Adam Smith, Thomas L Friedman, upwardly mobile, urban renewal, volatility arbitrage, War on Poverty, women in the workforce, working poor, working-age population, yield curve, zero-sum game

A negative income tax was to be established, distributing money to perhaps one-third of all Americans as automatically and comprehensively as the IRS takes it from the rest of us. Poverty was to be abolished by redistribution. Endorsed on various occasions by such diverse voices as Richard Nixon, Milton Friedman, George McGovern, Paul Samuelson, and—above all in eloquent persistence—Daniel Patrick Moynihan, it was an idea whose time had apparently come. But no sooner had the consensus prevailed, so it seemed, than it collapsed. Senator Moynihan announced, with great courage and simplicity, “I was wrong.” Books and articles poured forth, declaring that the present welfare system, for all its manifest faults, was, as it were, “our welfare system, right or wrong,” an almost geological feature, one expert described it, with rocks and rills and purpled hills like America itself.

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Disbanded were such managerial agencies as the War Production Board, the War Labor Board, and the Office of Price Administration beloved of John Kenneth Galbraith. Confidently predicting doom was every Keynesian economist. Sounding exactly like his Nobel laureate successor Paul Krugman supporting trillions in new “stimulus” in 2010, Paul Samuelson in 1945 prophesied “the greatest period of unemployment and dislocation which any economy has ever faced.” In an account of these events, CATO economist Arnold Kling observed that “as a percentage of GDP the decrease in government purchases was larger than would result from the total elimination of government today.”

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This policy is leading to capital losses, real estate depreciation, disinvestment, capital flight, skilled emigration, and contraction of private employment. Obama administration policy was so drastically negative toward the creations of the private economy that change could release huge positive energies. Once again discredited will be Keynesian pessimists. As dramatically as the post-war recovery of the 1950s confounded Paul Samuelson’s jeremiad, the responses of U.S. entrepreneurs can again galvanize an American century. We just need to adopt a full supply-side solution. ACKNOWLEDGMENTSb WEALTH AND POVERTY ARE the prime concerns of economics, but they are subjects too vast and vital to be left to economists alone. Although economists have provided me with some of my most valued counsel—and I will be acknowledging them in numbers—this book is in part an essay on the limitations of contemporary economics in analyzing the sources of creativity and progress in all economies.

The State and the Stork: The Population Debate and Policy Making in US History by Derek S. Hoff

affirmative action, Alan Greenspan, Alfred Russel Wallace, back-to-the-land, British Empire, business cycle, classic study, clean water, creative destruction, David Ricardo: comparative advantage, demographic transition, desegregation, Edward Glaeser, feminist movement, full employment, garden city movement, Garrett Hardin, George Gilder, Gregor Mendel, Gunnar Myrdal, guns versus butter model, Herman Kahn, immigration reform, income inequality, income per capita, invisible hand, It's morning again in America, Jane Jacobs, John Maynard Keynes: technological unemployment, Joseph Schumpeter, labor-force participation, Lewis Mumford, manufacturing employment, mass immigration, New Economic Geography, new economy, old age dependency ratio, open immigration, Paul Samuelson, peak oil, pensions crisis, profit motive, public intellectual, Ralph Waldo Emerson, road to serfdom, Robert Solow, Ronald Reagan, scientific management, Scientific racism, secular stagnation, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, Thorstein Veblen, Tragedy of the Commons, trickle-down economics, urban planning, urban sprawl, W. E. B. Du Bois, wage slave, War on Poverty, white flight, zero-sum game