Why Investing Debates are Different . . .

We live in an age of disagreement.

There is no theory you can float, no idea you can casually tweet, no claim you can make, that will not engender a strong and immediate challenge.

Despite the noisy and annoying background hum this creates, it is actually a good thing. Every idea receives close scrutiny. It is difficult to float a poorly conceived concept, much less an outright falsehood, without being questioned. This should, at least in theory, help us as a society get much closer to objective truth than would otherwise be the case.

This is important, and not just for academic reasons. Understanding actual events and their causes has enormous ramifications for policy issues, taxes, spending and regulation.

However, not all debates are created equal. There is a spectrum of debate and truth-seeking. On one extreme is what has been termed “agnotology,”which has been defined as “culturally constructed ignorance, purposefully created by special interest groups working hard to create confusion and suppress the truth.” “Smoking doesn’t cause cancer,” “Fannie Mae caused the financial crisis,” “global warming is a hoax” are all examples of false memes pushed by financially interested parties.

On the opposite end of the spectrum are disagreements about investing, trading and markets. These are very easily resolved, usually quickly, by the markets themselves. Returns don’t lie; debates are settled with actual dollars.

I find investing debates to be the most satisfying, as they are settled cleanly without much ambiguity. Save the complicated nuance for economic debates (see below).

Either stocks are undervalued and will rise or they are expensive and will fall (eventually) — or the market is fairly valued and won’t move much in one direction or another. Gold goes higher or it doesn’t; it outperforms other assets or it doesn’t. Is Valeant Pharmaceuticals a great value play or wildly expensive? You will get the only answer that matters, perhaps in the next few quarters. Sometimes it takes even longer, as we have seen with Herbalife and the debate about whether the company is a pyramid scheme or a legitimate seller of nutritional supplements. But someday it will be resolved.

Less satisfying are the economic debates, mainly because they aren’t subject to quick resolutions. They are somewhere between market discussions and agnotology, though occasionally they can veer into either extreme. Reasonable people of good faith can and do have disagreements about current economic conditions or the impact of policy shifts. It is a challenge to measure any specific issue; with so many variables playing out over an extended period it is often difficult to draw bright-line conclusions.

It is hard to create a testable counterfactual — we don’t often have nations acting as economic labs or control groups to test an economic thesis. Examples such as Kansas’ failed tax experiment are unusual. Even when we have a relatively clean set of results, it elicits a cognitive dissonance response from true believers not wishing to admit error.

Consider the push to raise the minimum wage — there have been lots of arguments, pro and con. (See thisthisthisthisthisthis, andthis). Nuance gets lost in the debate. San Francisco and Seattle are in the process of raising their minimums a lot, but spread out over several years. Whether there are lessons for the rest of the country from the experience of such prosperous cities is in question. Yet, the increase has given rise to a cottage industry that specializes in forecasts of disaster, none of which have come to pass. Seattle is now flirting with record-low unemployment, and despite the minimum wage increase, restaurant job openings have soared. I believe it is premature to draw any conclusions, but the initial wave of hysteria seems to be just that.

False statements, myths and outright scams are rarer than they used to be; when they do occur, they receive intense media coverage. In the marketplace of ideas, we eventually find our way to the truth. We just seem to get there sooner in markets where there is money to be made or lost.

Published as: Arguments About Valeant and Herbalife Are So Satisfying


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  1. DeDude commented on Oct 26

    One of the problems with economics questions, as opposed to investments, is that the questions are not about the outcomes but about what was the cause of the outcome. It is very easy to determine whether gold has gone up to $5000 within x years (the investment question). But if it did go to $5000 was that because the Fed printed money, or did something else drive changes in supply and demand (the economics question). Another example is the stimulus package where some people will claim it failed because it didn’t produce full employment, and others will claim it was a success because it stopped the drop off a cliff. There is no direct comparison of outcomes from both doing and not doing stimulus so without hard data we are left with models to determine the actual outcome of stimulus.

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