Re: Median voter thm. Elementary question

2002-12-05 Thread AdmrlLocke

In a message dated 12/5/02 12:56:07 AM, [EMAIL PROTECTED] writes:

 Howdy,

I've never really studied the Median Voter Theorem. 
Recently I read where someone claimed that the U.S.
political system was designed to keep the two parties
nearly identical by keeping other parties out.  I
assumed that the reason they Dems  Reps seem so close
may be because of the MVT--they want the middle guy's
vote.  So then I thought, suppose a third party were
let into the race, does the MVT still hold w/ for 3 or
more candidates?  Does it weaken as more candidates
are added, or do they all bunch toward the center for
for any n2, where n is the number of candidates? 
Does anybody know of a good discussion of it online?

-jsh 

Well look at the 1992 presidential race.  You had Bob Dole, the tax-collector 
for the welfare state who never met a tax hike he didn't like and the 
architect of affirmative action, Bill second-biggest tax hike in history, and 
Ross let's fix what's broke by raising taxes Perot.  You essentially had 
three mushy-moderate statist candidates running for office, and nobody openly 
advocating either mainstream conservatism or mainstream liberalism (if there 
is still such a thing).  We needed Perot's brand of mushy-moderate statism 
like Al-Queda needs a new form of explosive.

John Anderson in 1980 likewise offered fiscal conservatism and social 
moderation, in other words, warmed over Jimmy Carter, although since Reagan 
won, and would have won even had Carter gotten all of Anderson's votes 
(unlikely in the extreme based on exit-polling) it would seem we had two 
candidates rather far from the media voter.

Still, most third party candidates in America (and perhaps in some of the 
parliamentary democracies) seem to offer platforms that are determinedly away 
from the median voter's squishy preferences.  I think of candidates like 
Strom Thurmond, who probably captured the median white voter in the South, 
but fared poorly with most other voters.  Green Party and Libertarian Party 
candidates, offering platforms well away from the median voter, fare even 
more poorly, at least in all but small local races.  (I recall a bar owner in 
Denver, registered as a Libertarian, getting elected to the Denver Election 
Commission while I lived out there.)

From the little I know about the MVT--and it's little indeed--it seems to 
assume that the candidates have no ability to influence the median voter, so 
as to move it more or less in one direction or the other.  If so I'd have to 
say that it makes a more-than-heroic assumption.  I think few people would 
have guessed that during what appeared to be the heyday of unabashed 
statist-liberalism and in the wake of Watergate that a strongly-conservative 
Republican candidate would win by a large majority in 1980.  It's remarkable 
how quickly attitudes appeared to shift on a wide variety of issues from 
busing to taxes, to welfare programs to abortion to defense.  

While it's undoubtedly true that many people secretly agreed with Ronald 
Reagan's positions throughout the 1970s but feared to admit it to avoid 
social condemnation, it must also be true that Reagan and his supporters 
persuaded others who had not previously agreed, thus shifting the median 
voters toward the right across a spectrum of issues.  By focusing on the 
median voter, the MVT seems to give credence to the mushy moderate's election 
creed--pander to me or lose when I vote for your opponent--but oftentimes, 
as we've seen in recent elections with Libertarians pulling votes from 
Republicans and Greens pulling votes from Democrats that not pandering to the 
extremes loses elections too.

Indeed, it's not clear that the median voter theorem actually describes the 
process by which candidates typically win in highly-publicized elections.  
Presidents don't typically win by persuading all the mushy moderates, who 
tend to break both ways and can't generally be relied upon by a major party 
no matter what it does, but rather by building coalitions of voters 
highly-motivated  by various issues.  Put together a coalition of blacks, 
Jews, Northern WASP elites and labor union members and you can win even if 
you're too liberal (or too statist) for the median voter.  Put together a 
coalition of defense hawks, right-to-bear-arms advocates, tax-cutters, 
budget-balancers, welfare-cutters, deregulators and pro-life advocates and 
again you can win without appealing too much to that mushy moderate in the 
middle.

Voters  tend to vote based on how they feel about candidates rather than what 
they think about candidates.  The highly-ideological voter bases that feeling 
on the candidates' position on issues.  But the mushy moderate median voter 
(that has a nice assonance to it, doesn't it?) based that feeling on things 
like how well-spoken the candidates seem, or whether the candidate came to 
the voter's house for the Iowa Caucus or has a funny accent made from a Texas 
accent overlaid on a Georgian 

Fw: Median voter theorem

2002-12-05 Thread Alypius Skinner
But perhaps third parties don't siphon off more votes because they're
undercapitalized.  It's hard for an upstart domestic auto company to
challenge General Motors, or other established automakers.  Remember
DeLorean? He was a third party automaker.  Democratic politics appear to
be (inherently?) oligopolistic.
(Funny, I just remembered that the Soviet political system was often
described by western observers as an oligopoly--although they described
themselves as a democracy.  More support for my pet theory that
differences between Communism and social democracy, while they do exist, are
in many ways less striking than the parallels.)

~Alypius Skinner


 I've never really studied the Median Voter Theorem.
 Recently I read where someone claimed that the U.S.
 political system was designed to keep the two parties
 nearly identical by keeping other parties out.  I
 assumed that the reason they Dems  Reps seem so close
 may be because of the MVT--they want the middle guy's
 vote.  So then I thought, suppose a third party were
 let into the race, does the MVT still hold w/ for 3 or
 more candidates?  Does it weaken as more candidates
 are added, or do they all bunch toward the center for
 for any n2, where n is the number of candidates?
 Does anybody know of a good discussion of it online?



Well look at the 1992 presidential race.  You had Bob Dole, the
tax-collector
 for the welfare state who never met a tax hike he didn't like and the
 architect of affirmative action, Bill second-biggest tax hike in history,
and
 Ross let's fix what's broke by raising taxes Perot.  You essentially had
 three mushy-moderate statist candidates running for office, and nobody
openly
 advocating either mainstream conservatism or mainstream liberalism (if
there
 is still such a thing).  We needed Perot's brand of mushy-moderate statism
 like Al-Queda needs a new form of explosive.

 John Anderson in 1980 likewise offered fiscal conservatism and social
 moderation, in other words, warmed over Jimmy Carter, although since
Reagan
 won, and would have won even had Carter gotten all of Anderson's votes
 (unlikely in the extreme based on exit-polling) it would seem we had two
 candidates rather far from the media voter.

 Still, most third party candidates in America (and perhaps in some of the
 parliamentary democracies) seem to offer platforms that are determinedly
away
 from the median voter's squishy preferences.  I think of candidates like
 Strom Thurmond, who probably captured the median white voter in the South,
 but fared poorly with most other voters.  Green Party and Libertarian
Party
 candidates, offering platforms well away from the median voter, fare even
 more poorly, at least in all but small local races.  (I recall a bar owner
in
 Denver, registered as a Libertarian, getting elected to the Denver
Election
 Commission while I lived out there.)

 From the little I know about the MVT--and it's little indeed--it seems to
 assume that the candidates have no ability to influence the median voter,
so
 as to move it more or less in one direction or the other.  If so I'd have
to
 say that it makes a more-than-heroic assumption.  I think few people would
 have guessed that during what appeared to be the heyday of unabashed
 statist-liberalism and in the wake of Watergate that a
strongly-conservative
 Republican candidate would win by a large majority in 1980.  It's
remarkable
 how quickly attitudes appeared to shift on a wide variety of issues from
 busing to taxes, to welfare programs to abortion to defense.

 While it's undoubtedly true that many people secretly agreed with Ronald
 Reagan's positions throughout the 1970s but feared to admit it to avoid
 social condemnation, it must also be true that Reagan and his supporters
 persuaded others who had not previously agreed, thus shifting the median
 voters toward the right across a spectrum of issues.  By focusing on the
 median voter, the MVT seems to give credence to the mushy moderate's
election
 creed--pander to me or lose when I vote for your opponent--but
oftentimes,
 as we've seen in recent elections with Libertarians pulling votes from
 Republicans and Greens pulling votes from Democrats that not pandering to
the
 extremes loses elections too.

 Indeed, it's not clear that the median voter theorem actually describes
the
 process by which candidates typically win in highly-publicized elections.
 Presidents don't typically win by persuading all the mushy moderates, who
 tend to break both ways and can't generally be relied upon by a major
party
 no matter what it does, but rather by building coalitions of voters
 highly-motivated  by various issues.  Put together a coalition of blacks,
 Jews, Northern WASP elites and labor union members and you can win even if
 you're too liberal (or too statist) for the median voter.  Put together a
 coalition of defense hawks, right-to-bear-arms advocates, tax-cutters,
 

U of Cal scientists question efficient market hypothesis

2002-12-05 Thread Alypius Skinner




http://www.newscientist.com/news/news.jsp?id=ns3124



  
  

  Statistical physics predicts stock market 
  gloom 
  

  
11:5902December02
  

  
NewScientist.com news service
  

  

  A statistical physics model is predicting that the US stock market 
  recovery suggested by recent rises will only last until spring next year, 
  before tumbling yet further. 
  Physicists Didier Sornette and Wei-Xing Zhou at the University of 
  California in Los Angeles claim to have identified an "anti-bubble" in the 
  Standard and Poor's 500 stock market index. Their model also describes a 
  similar anti-bubble in the Japanese Nikkei index in the early 1990s, which 
  preceded a decade of decline.
  However, Neil Shephard, an economist at the University of Oxford, UK, 
  is sceptical. "Firstly, the track record of empirical prediction isn't 
  very good and secondly, economic theory says it shouldn't work," he told 
  New Scientist. This is because traders act on new information about 
  the market by buying or selling shares, making it impossible to make a 
  prediction without it affecting the outcome.
  But the physicists' predictions are in line with those of some others. 
  Haydn Carrington, a dealer at spread betting firm City Index in London, 
  also believes the US market is in a long decline, but that a short term 
  rally is likely: "The Americans are optimistic about recovery, so that 
  will probably happen."
  Herding behaviour 
  Bubbles and anti-bubbles are traits of herding and imitative behaviour, 
  Sornette says. Investors and traders constantly exchange opinions and 
  information, generating a feedback loop that can drive the performance of 
  the market.
  A bubble, or bull market, occurs when optimism spreads, pushing the 
  market value artificially high. The bubble may then burst in a dramatic 
  crash, but if not, a slow period of downwards adjustment will follow - a 
  bear market, which Sornette calls the anti-bubble phase.
  An anti-bubble market has two key characteristics. The value slides 
  inevitably downwards, but oscillates as it does so. The value of the 
  SP 500 has been riding this rollercoaster since August 2000.
  Sornette says that the "up" seen now is just one of the oscillations, 
  and that hopes of a recovery will be dashed by a "down" in mid 2003. And 
  the trough that it sinks into may be deeper than this year's low, he says. 
  
  Failure mechanisms 
  


  

  

  

  

Related Stories 

  

  
Pound and euro behave as if they are the same 
currency 5 December 2001 

  

  

  
For more related stories search 
the print edition Archive 


  

  

  

  

Weblinks 

  

  
Didier 
Sornette, UCLA 

  

  
City Index 

  

  
Quantitative Finance 

  

  
SP 
500 

  

  

  
  The model used to make this prediction describes "crowd" behaviour of 
  the type Sornette expects from traders and investors. It consists of a set 
  of three equations that describe feedback processes. 
  He developed the equations when studying failure mechanisms in 
  materials - the way that cracks develop and cause damage is similar to the 
  way that information seeps through the market and changes opinion, he 
  believes.
  The model requires the input of two constants: one quantifies the 
  overall trend (down in an anti-bubble), the other the frequency of 
  oscillation. He chose constants such that the model matched the SP 
  data from the past few years - and then extended the model to 2004.
  Journal reference: Quantitative Finance (vol 2, p 468) 

  

  

  Jenny Hogan
  

  This story is from NewScientist.com's news service - for more exclusive 
  news and expert analysis every week subscribe 
  to New Scientist print edition.
  
  
  


Re: reaganomics--elementary question

2002-12-05 Thread William Sjostrom
 Did Reaganomics essentially hinge on the Laffer
 Curve (i.e. the elasticity of tax receipts w/ respect
 to tax rate [?]), and its implications regarding tax
 revenue?  Or was there alot more to it than that?

Paul Craig Roberts has a fascinating book about economic policy in the early
years of the Reagan administration, titled Supply-Side Revolution (Harvard,
1984).  A few years ago, Roberts and Blinder were involved in an acrimonious
and rather nasty exchange about whether the Laffer curve was part of
official policy.  Essentially, as a I recall it, Blinder claimed
administration policy was based on the Laffer curve, Roberts said it was not
and dared Blinder to offer some evidence.  Blinder's response was to say
something like it was well known at the time but not offer any actual
evidence, and the exchange went downhill from there.

Bill Sjostrom


+
William Sjostrom
Senior Lecturer
Department of Economics
National University of Ireland, Cork
Cork, Ireland

+353-21-490-2091 (work)
+353-21-427-3920 (fax)
+353-21-463-4056 (home)
[EMAIL PROTECTED]
[EMAIL PROTECTED]
www.ucc.ie/~sjostrom/





Re: U of Cal scientists question efficient market hypothesis

2002-12-05 Thread Fred Foldvary
--- Alypius Skinner [EMAIL PROTECTED] wrote:
   A statistical physics model is predicting that the US stock market
 recovery suggested by recent rises will only last until spring next year,
 before tumbling yet further. 

Why would this contradict efficient markets?

The efficient-market proposition does not imply any absence of
fluctuations, nor does it imply any limitation on the rise and fall of
asset prices.  It states that prices take into account public beliefs.  If
the expectation is that others will buy the assets at higher prices, then
why would it be inefficient for the price to rise?

It seems to me that efficient markets is a micro phenomenon on specific
assets at some moment ex ante, not a proposition about the whole financial
market over the long term ex post.

Fred Foldvary


=
[EMAIL PROTECTED]




Re: Median voter thm. Elementary question

2002-12-05 Thread Fred Foldvary
--- john hull [EMAIL PROTECTED] wrote:
 ...  So then I thought, suppose a third party were
 let into the race, does the MVT still hold w/ for 3 or
 more candidates? 

MVT posits a bell-shaped distribution of political views, and the parties
respond to that.  Think of hot-dog vendors at a beach.  Two vendors will
position themselves at the middle, each getting half the business.

Comes a third vendor.  If he is in the center, each now gets 1/3 the sales.
 If one vendor moves just a bit away, he gets 1/2 while the others get 1/4.
 So a second vendor too moves a bit the other way.  The middle vendor, left
with little share, now moves a bit further towards one end than one of the
other 2.  The equilibrium will be that they will spread themselves so that
each gets 1/3 of the sales, 1/6 on either side.  

So, for politic parties, expect a left, right, and middle party.  The
equilibrium might be unstable sometimes as the left or right party goes to
the middle to get a greater share, but if political positions are flexible,
the middle party will then move to the other side of that party, and if
they learn that moving around does not gain anything in the long run, the
equilibrium will hold.  In reality, a political party may not be able to
change its doctrine so easily, so we can see unequal shares for a while,
but over the long run, except for ideologically driven parties, they will
move towards equal shares, or more likely, two of the parties will merge,
and they will return to a 50/50 split at the middle.  The reason for the
merger is that two parties are more stable than three parties, since once
in a while there will be an ideologically driven candidate (e.g. Goldwater)
who will move towards one end and reduce the party's share.  That can
happen with two parties (again, Goldwater) but less often, since the middle
position is less ideology-driven.

Fred Foldvary

Fred Foldvary

=
[EMAIL PROTECTED]




RE: Median voter thm. Elementary question

2002-12-05 Thread Robson, Alex
Fred Foldvary wrote: 

 MVT posits a bell-shaped distribution of political views.  

No, it doesn't.  A uniform distribution works just as well.  

Comes a third vendor.  If he is in the center, each now gets 1/3 the sales.
If one vendor moves just a bit away, he gets 1/2 while the others get 1/4.
So a second vendor too moves a bit the other way.  The middle vendor, left
with little share, now moves a bit further towards one end than one of the
other 2.  The equilibrium will be that they will spread themselves so that
each gets 1/3 of the sales, 1/6 on either side.  


This is incorrect.  There is no pure strategy equilibrium with three players.  [See, 
for example, Gibbons A Course in Game Theory, or Mas-Colell, Whinston and Green 
Microeconomic Theory]  There is, of course, a mixed strategy equilibrium.  

Alex Robson
ANU






RE: Median voter thm

2002-12-05 Thread Fred Foldvary
--- Robson, Alex [EMAIL PROTECTED] wrote:
 A uniform distribution works just as well.  

Of course MVT does not require a bell-shaped distribution of political
views, but empirically that is what is found in most populations.
 
 There is, of course, a mixed strategy equilibrium.  

which is what I described.  I did not say there would be a Nash equilibrium
in pure non-cooperative strategies.  The two players nearest the edges move
towards the middle player, as I stated.  The third player then moves around
to get almost half the share.  Another player can then jump over to be
closest to the edge.  The equilibrium for non-cooperative players is indeed
a mixed probabilistic strategy.

But players who play a cooperative game could agree that since they will
over the long run get 1/3 shares, being equal in all characteristics, they
may as well settle in one equilibrium.  In that case, I don't see why this
would not be at the 1/6, 3/6, 5/6 positions.

I included the possibility of merging two of the parties into one party. 
When the Republican Party became a successful 3rd party in 1860, the US
quickly reverted to two parties.  I don't see why this would not be a pure
strategy.  If there is no ideological drive, the three parties are better
off being two parties.  One could then ask why the two parties do not merge
into one party.  The answer is that in reality, parties operate in more
than one dimension.

The hot-dog vender analogy works with proportional representation, where
each party gets a share of the vote like hot-dog vendors getting a share of
the sales, but of course does not apply to winner-take-all plurality
voting.

With two hot-dog vendors, consumers are best off if the vendors locate at
the the 1/4 and 3/4 points, and the vendors are no worse off than if they
are both at 1/2.  So why could there not be a cooperative outcome where two
political parties agree to be at 1/4, 3/4?  That would also reduce the
threat of minor-parties arising at the edges.  That might account for the
differences we do see between Republicans and Democrats.  In the real
world, rivalry does not exclude cooperation.  Since empirically there does
seem to be a bell-shaped political distribution in the USA, the 1/4 and 3/4
points refer to population, so the difference in ideology would not be
large, but not tiny either.

Fred Foldvary

=
[EMAIL PROTECTED]




Re: A Short Review of *Hard Heads, Soft Hearts*

2002-12-05 Thread Fred Foldvary
--- john hull [EMAIL PROTECTED] wrote:
 Aren't payments in kind worth less than payments in
 cash, when the value is a significant portion of one's
 income, because they impose the consumption decision
 (for lack of a better term) on the individual?

Yes, assuming no tax difference.
Many payments are made in kind today because the employee does not have to
pay an income tax on it, or because it is tax deductible for the employer
but not for the employee.

Note, however, that psychic income is paid in kind.

  If that is true, then maybe taxes
 in kind may be analogous?  Just a guess.

Yes, taxes in cash are in general preferred to taxes in kind, such as to be
drafted into the military or serve on a jury.  There is an economic
difference, but no moral difference in terms of being coercive.

The tax of restrictive regulations is paid in kind.

Fred Foldvary

=
[EMAIL PROTECTED]




Re: U of Cal scientists question efficient market hypothesis

2002-12-05 Thread Alypius Skinner


 --- Alypius Skinner [EMAIL PROTECTED] wrote:
A statistical physics model is predicting that the US stock market
  recovery suggested by recent rises will only last until spring next
year,
  before tumbling yet further.

 Why would this contradict efficient markets?

I originally called this message physicists discover anti-bubble; just in
case that was one the two possible reasons the message did not appear on the
list, I retitled it to be obviously pertinent to economics.  (But I also
cross-posted the first time, so maybe that was the problem.)  Of course,
that is not my complete answer to your question.


 The efficient-market proposition does not imply any absence of
 fluctuations, nor does it imply any limitation on the rise and fall of
 asset prices.  It states that prices take into account public beliefs.  If
 the expectation is that others will buy the assets at higher prices, then
 why would it be inefficient for the price to rise?

It has always seemed to me that the greater fool theory is incompatible
with market efficiency.  If prices really are going up for a period of time
solely on expectation that someone else will always be willing to pay prices
even more unjustified by business fundamentals than the price the previous
buyer paid, then it would be possible to predict that the overbid stocks
will inevitably move downward by a large amount.   That sort of extreme
price distortion  should not be possible in a highly efficient market.
After all, all stock purchases are made in expectation that the price will
go up in the future (which can only be because other buyers will be willing
to pay more for them).  If that is what you mean by an efficient market
then to say that securities markets are efficient becomes a tautology rather
than a theory.


 It seems to me that efficient markets is a micro phenomenon on specific
 assets at some moment ex ante, not a proposition about the whole financial
 market over the long term ex post.

 Fred Foldvary

So are you saying that the market pricing of some stocks are efficient, but
not the pricing of others? If the pricing of all (or nearly all) individual
assets are efficient, then the market as a whole for these assets must be
efficient.  If a large number of securities are irrationally priced (based
on business fundamentals) at any given time, then one can not speak of an
efficient market, because the market average as a whole will become
distorted by the large number of mispriced securities.

Also, if the market (or the vast majority of its individual components, if
one wishes to focus on the individual trees rather than the forest) are
efficiently priced from, say, day to day, then the whole financial market
over the long term must be efficient.  The whole market cannot be
inefficient over the long term if its individual component assets are
efficiently valued at any given moment in time.

Of course, an economist or historian may say, In the long run, markets will
rise (or an astronmer or geologist may say, Over the long run, the markets
will go to zero) for fundamental reasons without contradicting the
efficient market hypothesis--but one should not be able to use a statistical
analysis to correctly predict the ups and downs of market averages if the
efficient market hypothesis is correct.

The markets may or may not be efficient, but the term must be defined in
some way that has enough objective meaning to be analyzed and tested.

~Alypius Skinner



 =
 [EMAIL PROTECTED]






Re: reaganomics--elementary question

2002-12-05 Thread AdmrlLocke

In a message dated 12/5/02 10:04:34 PM, [EMAIL PROTECTED] writes:

 As a historical note abou the Laffer curve, it's interesting to see that

the phenomenon was already described by Bastiat in his 1847-02-21 article

Curieux phénomène économique (a peculiar economical phenomenon), itself

inspired from actual experience gathered in Great Britain before that time.

http://bastiat.org/fr/cpe.html

The phenomenon is also discussed in his latter essay

Paix et liberté ou le budget républicain (not yet digitized,

but available as scanned photos of the original french text).


Re-reading his Economic Harmonies (the whole of which are available in

English from econlib.org), I can but marvel at how he was more than just

a precursor of von Mises -- he did have a deeper and clearer understanding

of economic mechanisms than is even possible nowadays, with so ma 

For that matter Alexander Hamilton makes a supply-side argument in The 
Federalist, some 60 years before Bastiat, when he talks about how exise taxes 
tend to be self-limiting: if you make the rate too high, you get less 
revenue.  The man known as the greatest Secretary of the Treasury since 
Alexander Hamilton, Andrew Mellon, also used supply-side rational in arguing 
for his tax cut package, which resembled Reagan's initial proposals in a 
large number of ways.  In the book Mellon wrote pushing his tax cut proposal, 
Mellon quoted Adam Smith, so I believe there's something in Wealth of Nations 
that uses supply-side rational.

David Levenstam