Monday, October 03, 2011

The Economist Rends A Hole In the Very Fabric of the Space-Time-Economic Continuum

There's an old joke about the economist who walks over the $20 bill on the sidewalk without picking it up because, if the $20 were really there, someone else would have already picked it up, so therefore, the $20 bill does not really exist, Q.E.D.

Here's a more detailed explanation of the joke if you don't get it, but don't worry too much about it, as it is not funny. Instead of calling it a joke it might be better to call it a basic illustration of the Efficient Market Hypothesis, one of the cornerstones of classical economics.

Just like classical economics itself, the Efficient Market Hypothesis is really more of a gross oversimplification that makes messy economics easier for the dimwitted than something you'd actually want to apply to real life, lest you end up denying the existence of free money lying on the ground. Nevertheless, some poor saps do take it seriously.

One of the places I've seen the Efficient Market Hypothesis occasionally spouted as a real-world Theory is in the Economist, where you'll still find, every now and then, a journalist whose undergraduate econ coursework resurfaces in ill-advised editorializing on behalf of Classical economic silliness.

So, here's a question for the remaining acolytes of Milton Friedman who remain at large in the newsroom of my favorite weekly newspaper:

SIR - Please explain how these two separate subscription offers came to be delivered to the exact same address (mine) on the exact same day from your enterprise, which, like all enterprises, must be classically efficient?

Because, SIR, to me it looks as though The Economist has simultaneously entreated me to buy the same product for $51 or $69 - my choice. Which is kind like finding an unexpected $18 in my mailbox.

And yet, according to the Efficient Market Hypothesis, that $18 couldn't possibly exist there because if it did, The Economist would have picked it up and pocketed it before the ink was even dry on the mailing label, and saved itself the postage to boot. Or, conversely, if it actually wanted me to have the $18, it would have saved itself the trouble of sending me the second mailing, right?

It would appear that The Economist has inadvertently created a dangerous paradox - A PARADOX THAT MAY WELL THREATEN THE VERY FABRIC OF THE ECONOMIC SYSTEM. I hope they'll stop diddling around with the Euro crisis long enough to address this urgent matter.

Footnote: It's funny how the "BEST RATE" renewal offer kind of pales next to the less-impressive-sounding "RETURNING SUBSCRIBER DISCOUNT". Economist subscribers, take note: it pays to let your subscriptions lapse, and make them beg to take you back.


Lockwood said...

Another old econ joke: Three economists go hunting. They spot a rabbit, and the first one fires, hitting the ground ten feet too far in front of it. The second fires, and hits the ground ten feet short of it. The third crows "Got him! Rabbit for dinner!"

So obviously The Economist is closing in on the ideal subscription price of $60.

Turbo said...

The only (and, by far, best possible) use I have found for the paltry thousand or so frequent flier miles I accumulate in an average year is the trade them for yet another Economist subscription.

Anonymous said...

My guess is that the two simultaneos offers is a standard marketing trick. The higher offer is simply a ploy to make the lower offer look like a great deal.