Tape 156 - Cheerful food outlook; how European funds perform
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- | Welcome once again as MIT professor Paul Samuelson | 0:02 |
discusses the current economic scene. | 0:05 | |
This series is produced | 0:07 | |
by Instructional Dynamics Incorporated. | 0:08 | |
This program was recorded June 24th. | 0:10 | |
- | Some of you will remember the old advertisement | 0:16 |
make your wife a more interesting conversationalist | 0:20 | |
by buying her a subscription to the Wall Street Journal. | 0:23 | |
The point of the story is we live today | 0:27 | |
in such a materialistic society | 0:30 | |
that an awful lot of the most interesting things | 0:33 | |
that one can talk about and can contemplate | 0:37 | |
fall in the realm of economics and business. | 0:40 | |
And I've been struck just by sampling my one day's mail | 0:45 | |
at how much of interest modern economics | 0:52 | |
really has to offer on a great variety of topics. | 0:56 | |
So I'd like today to propose to discuss | 1:01 | |
just some of those topics. | 1:04 | |
The first one comes from a paper which reached my desk, | 1:07 | |
it's written by a very distinguished economist, | 1:12 | |
Professor Theodore W. Schultz, | 1:15 | |
who's now emeritus for the University of Chicago | 1:17 | |
he was a long time chairman of the Department | 1:20 | |
of Economics there. | 1:23 | |
Earlier he had been chairmen of the Department of Economics | 1:24 | |
at Iowa State University. | 1:28 | |
But this a draft of a lecture for the public lecture series | 1:30 | |
sponsored by NASA, I guess that's the space administration, | 1:34 | |
in particular the Ames Research Center. | 1:37 | |
It's provocative lecture, and I want to share it with you. | 1:42 | |
The title of it is | 1:46 | |
The Food Alternatives Before Us: An Economic Perspective. | 1:47 | |
And Dr. Schultz starts out by saying | 1:52 | |
there are two wholly inconsistent views | 1:55 | |
of the future availability of food. | 1:58 | |
First there's the natural earth view | 2:00 | |
it's one of limited space, of depletion of our energy, | 2:03 | |
of a virtually fixed land area suitable | 2:08 | |
for growing food crops, that will make it impossible | 2:10 | |
to feed the ever increasing world population. | 2:13 | |
No room in the sun, or limited space before the sun, | 2:17 | |
might epitomize that view. | 2:21 | |
And Dr. Schultz contrasts that | 2:26 | |
with what he calls the social economic view | 2:28 | |
which is based on the ability and the intelligence of man | 2:31 | |
to lessen his dependence on crop land | 2:34 | |
and on traditional agriculture | 2:37 | |
and thereby to reduce the real costs of producing food, | 2:39 | |
even in spite of the current population growth. | 2:43 | |
And he asks whether it's possible | 2:47 | |
to resolve this extraordinary consistency. | 2:48 | |
Now he says don't tune me off, | 2:51 | |
but just listen to the actual effects | 2:55 | |
and he lists a considerable number of facts. | 2:57 | |
For example there have always been periodic droughts | 3:01 | |
and when you read an article in Fortune Magazine | 3:06 | |
about the change in the weather, | 3:09 | |
you wanna remember that similar articles | 3:11 | |
were written in earlier times | 3:14 | |
with the same impressive amount of evidence | 3:16 | |
but their message was exactly the opposite of that | 3:19 | |
which you are now reading. | 3:23 | |
A not completely felicitous comparison by Schultz | 3:26 | |
is that in his recent visit to the Sahara region, | 3:30 | |
Senegal for example, | 3:36 | |
he found that they had three very dry years in a row. | 3:37 | |
But he says that's not as bad as the drought years | 3:40 | |
in South Dakota in the early 1930s. | 3:43 | |
Schultz himself grew up as a teenager on a farm | 3:46 | |
in South Dakota. | 3:50 | |
Well, perhaps that's not a very apt comparison | 3:52 | |
because when there are bad years in South Dakota, | 3:57 | |
you get in debt to the bank | 4:00 | |
and you lose some tractors through foreclosure. | 4:01 | |
But when there are bad years in the Sahara, | 4:06 | |
then your cattle die off and your children develop rickets | 4:08 | |
and bloated stomachs | 4:14 | |
and many of you die from really quite minor diseases. | 4:15 | |
Nevertheless, the point is made. | 4:21 | |
What Schultz points out is, | 4:25 | |
that an ever decreasing fraction of the population | 4:27 | |
lives on the land these day, | 4:33 | |
because now, one man in 40 can feed the American people | 4:36 | |
and feed them very well, | 4:44 | |
and in part provide for exports all over the globe, | 4:46 | |
whereas in colonial times | 4:50 | |
or in more underdeveloped countries, you typically have | 4:51 | |
that it takes perhaps three people in agriculture | 4:57 | |
to feed four people. | 5:02 | |
That means that only one person can be spared | 5:04 | |
to go into industry. | 5:07 | |
And if it were true that we are approaching doomsday | 5:10 | |
as some of the more cosmic ecologists believe, | 5:16 | |
this ought to show itself economically in an increase share | 5:23 | |
of the national product going for land rent. | 5:28 | |
Going for natural resources, | 5:34 | |
going for what is called pure-Ricardian rent, | 5:36 | |
it's the return to the original, | 5:39 | |
well it used to be said inexhaustible gift of nature. | 5:42 | |
This is raw land. | 5:47 | |
Where as most land, | 5:49 | |
and most payments for land are consistent improved land | 5:51 | |
a lot of that is a capital return | 5:55 | |
not unlike any other return. | 5:58 | |
So let's turn to the economic history facts. | 6:02 | |
Is it the case as Ricardo suspected in 1820 | 6:09 | |
that an increasing fraction of the national product | 6:17 | |
will go to land rent? | 6:22 | |
I may say that Ricardo was a very good economist | 6:24 | |
for his time, but he didn't know all the tools | 6:27 | |
of modern economics and he could be forgiven | 6:29 | |
if he momentarily lapses or seems to lapse into the view | 6:34 | |
that the relative share of land rent must go up | 6:39 | |
as result of increase in population and inventive activity. | 6:43 | |
Actually we know that is not at all a necessity, | 6:49 | |
and as a matter of fact, | 6:52 | |
the share of land rent in the national income | 6:54 | |
has been going progressively downward. | 6:57 | |
As I remember it some of the best numbers | 7:00 | |
to check on this point | 7:04 | |
are those of Edward Denison, | 7:10 | |
done for originally | 7:14 | |
for the Committee for Economic Development | 7:16 | |
and more recently for the Brookings Institution. | 7:19 | |
Denison tries to trace into it's various causal elements | 7:23 | |
the growth of the United States since 1910. | 7:28 | |
And he finds that the amount | 7:33 | |
which has to be attributed to pure land rent | 7:35 | |
is actually going down all the time, | 7:38 | |
it was once 10%, it has gone down to 5%, | 7:42 | |
it is even less than that. | 7:46 | |
And so Schultz is able to give further independent numbers | 7:48 | |
showing that the percentage spent on food | 7:53 | |
by the populous goes down | 7:58 | |
as the populous becomes more prosperous through time. | 8:01 | |
For example, in countries | 8:07 | |
where the median incomes per capita are $1000 or more, | 8:10 | |
only 26% gets spent on food, | 8:14 | |
whereas if you're down to $200 or less, | 8:17 | |
46-55% is spent on food. | 8:19 | |
This is actually just a modern Kuznets verification | 8:23 | |
of one of the best tested laws in economics, | 8:29 | |
the so called Engel's laws of budgetary expenditure | 8:33 | |
by the Prussian statistician Ernst Engel, | 8:37 | |
not Frederick Engel, the friend of Karl Marx, | 8:42 | |
whose first law of budgetary behavior was | 8:46 | |
that as incomes rise less | 8:49 | |
and less gets spent upon the necessity of food. | 8:51 | |
Moreover this understates the phenomenon | 8:54 | |
because when we consider how much people spend on food | 8:58 | |
you have to realize | 9:01 | |
that an ever smaller fraction of the dollar | 9:02 | |
that I spend on food goes to the farmer | 9:06 | |
and goes for land rent and goes as the necessary payment | 9:09 | |
for the scarcity of natural resources. | 9:15 | |
You may jump to the conclusion | 9:19 | |
that this means that somebody is robbing the farmer, | 9:20 | |
and robbing me the consumer. | 9:23 | |
Because an ever larger wedge | 9:25 | |
is being put between what the farmer gets | 9:27 | |
and what I have to pay, but what you must realize is, | 9:30 | |
that the natural instinct to blame the railroad, | 9:34 | |
to blame the supermarket to blame the middle man, | 9:37 | |
is often a uninformed view | 9:41 | |
and actually the food distribution trade | 9:45 | |
is one of the more competitive trades. | 9:48 | |
I just wish that other aspects of American life approximated | 9:50 | |
as closely as the vertically integrated food industry does. | 9:55 | |
The economist model of perfect competition. | 10:00 | |
To be sure it's not a perfect fit, | 10:03 | |
but it is a very good fit indeed. | 10:07 | |
The simple truth is that the food which I buy is more | 10:10 | |
and more processed, as Schultz says, | 10:15 | |
when he was a teenager on a Dakota farm, | 10:18 | |
I suppose this was back in the 1920s, | 10:20 | |
almost everything that they ate came from the farm itself. | 10:23 | |
But now on a similar Dakota farm, | 10:28 | |
you'd have to eat raw wheat if you were to make a living | 10:30 | |
from what's grown there, almost everything is bought, | 10:34 | |
the bread, the tobacco, and all the rest, | 10:38 | |
these are all cash crops. | 10:41 | |
Now the point is that these crops | 10:43 | |
are increasingly fabricated. | 10:47 | |
I had for breakfast this morning some Kellogg's 19, | 10:51 | |
this came in a little box with lots of aluminum foil. | 10:57 | |
The cost of the cereal in it | 11:03 | |
was only a fraction of the total cost, | 11:05 | |
what of course I was buying was made-service, | 11:09 | |
that's what I and my wife were buying. | 11:14 | |
We were getting our vitamins, | 11:17 | |
we were getting everything packaged, | 11:20 | |
it was the convenience of food | 11:21 | |
and everybody knows that if real wages were to rise | 11:24 | |
then the value added in food processing | 11:28 | |
must become an ever larger fraction. | 11:34 | |
And as a corollary that, the amount going to the land rent | 11:37 | |
and going to the farmer becomes a smaller fraction. | 11:42 | |
Now Schultz points out one other very surprising thing, | 11:45 | |
at least surprising to most people, | 11:48 | |
surprising to me even though I've followed the effects | 11:50 | |
rather closely, we all know that food prices | 11:54 | |
are very high now in comparison with a few years ago. | 11:58 | |
You just have to make a trip to the local supermarket | 12:01 | |
to realize that fact. | 12:06 | |
Yet it is not the case, it is not the case I repeat | 12:09 | |
that the percentage of our disposable income | 12:13 | |
which is going to food is higher than that percentage was | 12:15 | |
a few years ago. | 12:20 | |
So Schultz is documenting | 12:21 | |
what has happened in history. | 12:26 | |
Now you may say that's history | 12:27 | |
and all history is ancient history, ancient bunk, | 12:31 | |
and that this morning we grew up into a new world | 12:35 | |
with a new future. | 12:40 | |
However, if you had made similar decisions on everyday | 12:41 | |
for the last million days you of course would be wrong | 12:49 | |
because the history of history is the history of continuity | 12:53 | |
and although things do change, they change gradually | 12:57 | |
and slowly and they grow in a natural way | 13:00 | |
out of what went before. | 13:04 | |
Still, you may say, | 13:07 | |
that's talking about the advanced countries, | 13:09 | |
what about the developing countries, | 13:12 | |
the underdeveloped countries, | 13:14 | |
don't we all know what a tough time | 13:15 | |
they are having in these days | 13:18 | |
when for example the monsoons are unfavorable, | 13:20 | |
when the fertilizer needed for the new miracle grains | 13:25 | |
is in short supply because of the energy boycott | 13:29 | |
and so forth and so forth. | 13:35 | |
Well, let's look to life expectancies at birth. | 13:37 | |
Admittedly, this is just one measure of biological | 13:43 | |
and psychological wellbeing. | 13:48 | |
But I think that somebody who lives to a ripe old age | 13:51 | |
in good health whatever the philosophers say, | 13:54 | |
will be deemed by a jury of plain people | 13:59 | |
to be better off than somebody | 14:04 | |
who lives a miserable fever ridden life | 14:06 | |
of malarial chills, | 14:13 | |
fevers, who has rickets, who has a bloated stomach, | 14:17 | |
who has internal pests, tapeworms and so forth. | 14:22 | |
But that when we have to remind ourselves | 14:28 | |
is the natural condition of the human race | 14:31 | |
in most of the years of recorded history, in most places. | 14:34 | |
And of course for unrecorded history, | 14:40 | |
that presumably was pretty much the steady state. | 14:43 | |
However I want to remind myself a little later | 14:47 | |
to comment on that particular problem, | 14:49 | |
whether primitive man was miserable | 14:51 | |
at the Malthusian margin of existence or not. | 14:55 | |
I'm looking now at table three though | 15:02 | |
in the lecture by Dr. Schultz, | 15:03 | |
and he has gathered together conveniently | 15:08 | |
from a 1974 report on population and family planning | 15:10 | |
put out by the Population Council of New York. | 15:17 | |
It's by Bernard Berelson's staff | 15:20 | |
and it's entitled World Population Status Report 1974. | 15:22 | |
Now what that gives is the life expectancy at birth | 15:26 | |
around the year 1950 and in recent years, 1970 to 1975. | 15:31 | |
And it breaks this down to the developing countries | 15:38 | |
and the developed countries. | 15:41 | |
And as you would expect, | 15:43 | |
there's an advantage for the developed countries | 15:46 | |
over the developing countries. | 15:48 | |
They say you can't buy love with money, | 15:49 | |
you can't buy happiness with money, | 15:52 | |
you can't buy good health with money, | 15:54 | |
well not so sure about the love and the happiness, | 15:56 | |
but as far as the good health is concerned, | 15:59 | |
by and large economies and societies do buy better health | 16:01 | |
and longer life expectancy with material affluence. | 16:06 | |
And so there was a 70% advantage in 1950 | 16:12 | |
in life expectancy at birth of the developed countries | 16:16 | |
over the developing countries. | 16:20 | |
How did that work itself out? | 16:22 | |
Well in the developed countries, | 16:24 | |
the life expectancy was somewhere between 62 and 65 years. | 16:26 | |
This is life expectancy at birth. | 16:34 | |
That means if you took all the babies born alive | 16:36 | |
at one instant and then worked out the average age | 16:39 | |
at which they died, then roughly speaking, | 16:44 | |
half of them lived beyond 63, | 16:47 | |
it's not quite the biblical three score and 10, | 16:51 | |
and half below, course it's not a symmetric distribution, | 16:53 | |
but on the average, they lived to be about 63 or 64 in 1950. | 16:57 | |
Course we did a bit better than that | 17:04 | |
in the United States in 1950, | 17:05 | |
but a country like Japan, did worse than that in 1950. | 17:08 | |
The average for all the developed countries | 17:17 | |
was about 64 let's say. | 17:19 | |
Well how did things fare in the developing countries? | 17:21 | |
There the average life expectancy at birth was between 35 | 17:24 | |
and 40 years. | 17:29 | |
That means say 37 and a half. | 17:30 | |
Now you're not to think that most people died at 37 | 17:33 | |
and a half because what happened, I'm sure, | 17:36 | |
in the developing countries was that one or two | 17:38 | |
out of 10 babies died before the first year. | 17:42 | |
And that meant they had an average life expectancy, | 17:46 | |
average life duration of less than a year. | 17:49 | |
When you average all of them in | 17:53 | |
with those who lived to be 70 or 80, | 17:55 | |
and we all know, any of us | 17:58 | |
who have ever visited a developing country | 17:59 | |
that are a lot of I shouldn't say a lot, | 18:01 | |
but there are certainly some old people | 18:03 | |
there who live to very old ages. | 18:06 | |
The average of 37 and a half is representative | 18:08 | |
of the fact that so many people die of nutritional | 18:15 | |
and infectious diseases very young. | 18:19 | |
Well, that's where the 70% advantage came, 64 over 37. | 18:23 | |
70% advantage for the developing countries. | 18:29 | |
We hear a great deal about the widening gap | 18:33 | |
between the developed world and the underdeveloped world | 18:37 | |
and it is a cause for concern | 18:42 | |
that that gap is not narrowing, | 18:44 | |
certainly not narrowing as fast as one would like, | 18:48 | |
whether it's still widening or not is, | 18:52 | |
I can assure you as a reviser of textbooks, | 18:55 | |
a much more delicate question | 18:58 | |
and the evidence pattern is by no means conclusive | 19:00 | |
on one side or the other. | 19:06 | |
But if we use life expectancy as our criterion, | 19:08 | |
we find and this is Schultz's point | 19:11 | |
that the developing countries have not had an increase | 19:14 | |
in life expectancy, I'm sorry, | 19:18 | |
the developed countries have not had as great an increment | 19:20 | |
of life expectancy as the developing countries have. | 19:23 | |
The advantage now has halved, it's only 35%. | 19:27 | |
The developing countries now have a life expectancy | 19:31 | |
of no less than 52 years. | 19:36 | |
Whereas the developed countries | 19:39 | |
have a life expectancy of only 71. | 19:40 | |
Now naturally, you would expect that. | 19:43 | |
There's been a 40% improvement | 19:47 | |
in the developing countries life expectancy, | 19:49 | |
and only a 12% improvement in the developed countries. | 19:51 | |
And after all, how good can you get | 19:54 | |
once you get almost everybody living beyond | 19:57 | |
the age of infancy, beyond the age of puberty, | 20:03 | |
beyond the age of youth and into the middle ages and beyond, | 20:07 | |
then since people have to die sometime, | 20:13 | |
you can't go on having the same improvements. | 20:15 | |
It's like perfection in arithmetic. | 20:21 | |
If you're very lousy in arithmetic you can improve very much | 20:23 | |
and you can get that bronze medal in the class | 20:27 | |
for the most improved dunce in the class. | 20:31 | |
Whereas if you've rapidly gone to about 100, | 20:35 | |
well you can't do much better than a 100. | 20:39 | |
So part of this is inevitable, | 20:42 | |
but the only point that's being made is that | 20:46 | |
there has not been an actual deterioration | 20:49 | |
of life expectancy. | 20:51 | |
Now I suspect that much of this is due to DDT, | 20:53 | |
much of it is due to malarial control, | 20:56 | |
and much of it is due to penicillin. | 20:59 | |
The easy things which can keep children | 21:01 | |
from dying of an earache which develops into a mastoid, | 21:05 | |
or having as people who visit near east can testify, | 21:10 | |
kids with festering eyes and flies around them | 21:16 | |
and blindness at a very early age. | 21:21 | |
To be sure, there's some problems here | 21:26 | |
because the spectre has been raised in our minds | 21:28 | |
of modern science coming in and with the magic wand, | 21:32 | |
removing malaria. | 21:36 | |
Therefore, you have people living longer, | 21:38 | |
therefore you have in a family of seven children, | 21:41 | |
perhaps five children living to maturity | 21:45 | |
instead of one or two, | 21:48 | |
therefore you unleash the Malthusian spectre in bogey, | 21:50 | |
of the law of diminishing returns and starvation, | 21:57 | |
and I think this is a real problem, | 21:58 | |
and nobody, least of all Theodore Schultz | 22:00 | |
wants to shrug off the problem of Bangladesh | 22:04 | |
and Pakistan, southeast Asia generally, | 22:10 | |
and India and so forth. | 22:13 | |
Let me quote one of the most striking | 22:18 | |
of Dr. Schultz's findings, he's emphasizing the point | 22:23 | |
that agriculture was invented | 22:27 | |
and agriculture uses less of nature's scarce land | 22:29 | |
than did hunting. | 22:34 | |
And intensive cultivation uses still less. | 22:36 | |
And so it is gone all throughout history. | 22:39 | |
He points out that the original soils of western Europe | 22:42 | |
I'm reading now, except for the Pole Valley | 22:44 | |
and some part of France | 22:46 | |
were in general very poor in quality. | 22:48 | |
They are now highly productive. | 22:50 | |
The original soils of Finland were less productive | 22:52 | |
than most of the nearby western parts of the Soviet Union, | 22:55 | |
yet today the croplands of Finland are far superior. | 22:58 | |
This perhaps tells us something | 23:02 | |
about the collective agriculture of the Soviet Union. | 23:03 | |
The original croplands of Japan were vastly inferior | 23:06 | |
to those of northern India. | 23:10 | |
Presently the difference between them | 23:12 | |
is greatly in favor of Japan, | 23:14 | |
and now here's the most striking point he's making, | 23:15 | |
there are estimates | 23:20 | |
that the plains of the river Ganges of India | 23:21 | |
could, with appropriate investments, produce enough food | 23:27 | |
for a billion people. | 23:30 | |
The potential productivity of the soils of the Congo | 23:33 | |
are also rated high. | 23:35 | |
Well so it goes, as a result | 23:37 | |
if we have an advance of scientific progress, | 23:41 | |
it is Schultz's view that without minimizing the problem | 23:45 | |
of population growth and without minimizing the problem, | 23:52 | |
at the rate at which natural resources | 23:55 | |
are exhausted by the affluent GNPs of the modern world, | 23:58 | |
that there will continue to be land saving inventions | 24:05 | |
which will make it possible to preserve | 24:09 | |
and improve and increase the life expectancies | 24:14 | |
of people all over the globe. | 24:18 | |
Well, that's one point, | 24:22 | |
but just to show the diversity | 24:25 | |
of the interesting problems thrown up by modern economics, | 24:30 | |
let me shift gears and turn to something entirely different. | 24:33 | |
I have here a paper from Belgium, | 24:39 | |
which arrived in the same mail, | 24:41 | |
it's from the Center for Operations Research | 24:44 | |
and Econometrics at the University of Louvain in Brussels | 24:46 | |
It has to do with international mutual funds. | 24:53 | |
It's by Dr. Andre L. Farber who's a staff member there. | 25:00 | |
Now he points out that in the United States, | 25:06 | |
there has been for a long time a study | 25:09 | |
of the efficiency of money managers | 25:12 | |
for the best pension funds for the best trust funds | 25:16 | |
for the best open-end mutual funds. | 25:20 | |
And these studies have arrived at the rather surprising | 25:24 | |
but negative conclusion | 25:28 | |
that the managers do not realize a higher return | 25:30 | |
than a naive investor would if he combined a riskless asset | 25:35 | |
like putting his money out overnight | 25:41 | |
or in treasury bills at interest and combining that | 25:44 | |
with a market portfolio of everything that there is, | 25:50 | |
and did this in such proportions | 25:54 | |
that he would come out with the same level of riskiness | 25:56 | |
and volatility as the managed portfolio. | 26:00 | |
In other words, a money manager | 26:03 | |
may get a higher rate of return, | 26:05 | |
but it will turn out that he gets that | 26:06 | |
because he's investing in very risky | 26:08 | |
and very volatile items. | 26:11 | |
And so if somebody just bought everything on the marketplace | 26:14 | |
and achieved the same amount of risk | 26:17 | |
as he did by say leveraging through borrowing, | 26:20 | |
it would turn out that he would do better | 26:23 | |
than the money manager. | 26:27 | |
Now that's been the result that has been found | 26:28 | |
by a great number of different people in 1965, | 26:31 | |
Trainer found that to be the result, | 26:36 | |
Sharp of Stanford Business School in 1966 found that result. | 26:38 | |
Jensen in 1968 and 69 | 26:44 | |
and all this has been interpreted | 26:47 | |
by Professor Fom of the University of Chicago in 1970, | 26:49 | |
as a test of the efficient market. | 26:53 | |
This shows that quote all information available | 26:56 | |
is fully reflected in prices in the sense | 27:00 | |
that no individual has higher expected trading profits | 27:02 | |
than others because he has monopolistic access | 27:05 | |
to some information. | 27:07 | |
This is a very humbling thought to anyone who believes | 27:09 | |
that he has a knack of doing better than the crowd. | 27:12 | |
Now what Dr. Farber wants to test | 27:16 | |
is whether the same thing is true abroad. | 27:18 | |
Whether it's true in the international mutual funds | 27:21 | |
and so he takes mutual funds from Belgium, from London, | 27:25 | |
from still other countries | 27:30 | |
and he applies the same analysis there, | 27:34 | |
and as you might suspect, | 27:38 | |
he comes out with pretty much the same results. | 27:40 | |
The money managers abroad do not, | 27:45 | |
once we control for the amount of riskiness, | 27:48 | |
which is implicit in the portfolios | 27:50 | |
which they actually select, | 27:53 | |
they do not do better than you could do as a naive investor, | 27:54 | |
if you were able just to take a blend of a riskless asset | 27:59 | |
and all the stocks that there are. | 28:05 | |
Now he does find that for the Brussels market, | 28:08 | |
there are a whole group of stocks for which this isn't true, | 28:11 | |
but they turn out to be the, | 28:16 | |
not the big, widely traded stocks | 28:18 | |
which a mutual fund pretty much is forced | 28:22 | |
by the reason of it's size to invest in, | 28:27 | |
it's the smaller stocks. | 28:30 | |
And so the results that we have | 28:32 | |
are not only factually interesting but they also agree | 28:35 | |
with economic theory. | 28:40 | |
Economic theory says that this couldn't happen | 28:44 | |
as a result of a law of nature, | 28:47 | |
it happens because you have organized markets | 28:48 | |
in which a lot of people are trading | 28:51 | |
and bringing all the information they have to the market | 28:56 | |
and serving thereby as arbitrageurs, | 28:58 | |
but in doing so of course | 29:01 | |
they make it difficult for themselves, | 29:02 | |
for any one of them to do better | 29:05 | |
than all of them can do together. | 29:06 | |
Well it's a very interesting finding | 29:09 | |
and I think between these two examples that I've given you, | 29:10 | |
an illustration of the tremendous breadth | 29:14 | |
of modern research findings | 29:17 | |
which are coming out everyday in modern economics. | 29:19 | |
- | If you have any comments | 29:24 |
or questions for Professor Samuelson, | 29:26 | |
address them to Instructional Dynamics Incorporated. | 29:28 | |
450 East Ohio Street, Chicago, Illinois 60611. | 29:31 |
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