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Ep. 423: Angus Deaton Interview With Michael Covel on Trend Following Radio

Angus Deaton
Angus Deaton

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Today on Trend Following Radio Michael Covel interviews Angus Deaton. Angus is a British American economist. In 2015 he was awarded the Nobel Memorial Prize for his work in economic sciences on his analysis on consumption, poverty and welfare. Those topics go into one of the most hotly discussed issues in America right now, inequality. He brings some great data driven insights and angles to the discussion.

Michael starts the podcast off discussing the benefits of winning a Nobel Prize and how it opens up debate and reshapes topics. Angus agrees that the Nobel Prize does get conversations going and as an academic, it allows him able to reach a broader audience. Michael and Angus move right into discussing inequality. Angus says that in periods where there has been the most innovation, this is typically when there is the most inequality. Angus also quotes a famed economist saying, “Data is like meatballs. I won’t eat them when I’m out because I don’t know what is in them and I won’t eat them when I’m home because I do know what is in them.” When going through data from places like India, where about 1/3 of all global poverty resides, it is hard to tell whether the data is correct. For example, although there is a rapid rate of growth, the poverty level has not raised. Are poverty levels not moving because the aid money is going straight to the 1% or is it because the data is not correct? Angus says the data is easily skewed so it is hard to really get a read on what is going on.

Next, Michael and Angus discuss how arbitrary the idea of “the poverty line” is. It is hard to classify what poverty truly is. Angus likes to look at the subject as if everybody is poor, but some are just much poorer than others. Measuring poverty across time and place is an impossible thing to do. Poverty data can be skewed by various factors such as if the area being studied has government healthcare or public school systems. Michael brings up the emotional side of poverty next. Angus says that it is very possible to be happy and sad at the same time. Emotion isn’t cut and dry. He has found that not having enough money does have a large impact on your happiness. However, most day-to-day emotional happiness comes from having contact with other people and friends, not money. Money starts to affect your day-to-day interactions if you are so poor that you are not able to do certain things that allow you to spend time with friends and family.

In this episode of Trend Following Radio:

  • Unemployment
  • Minimum Wage
  • Poverty
  • Economics
  • Money and happiness
  • The birth lottery

“In periods where there has been a tremendous amount of innovation, there is typically a very large increase in inequality.” – Angus Deaton

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Ep. 235: Harry Markowitz Interview with Michael Covel on Trend Following Radio

Harry Markowitz
Harry Markowitz

Today on the podcast Michael Covel talks with Harry Markowitz, the founder of modern finance and Nobel Prize winner. Markowitz also appeared in Covel’s documentary film a few years back, “Broke: The New American Dream”. Covel and Markowitz talk about Justin Fox and “The Myth Of The Rational Market”; Markowitz’s beginnings, and the Nobel Prize; Markowitz’s 1952 paper; how Markowitz felt about some of his prescriptions and ideas being interpreted into dogma; why Wall Street was not interested in Markowitz’s theories at one time; diversification for the right reason; Markowitz’s new four-volume book; advice on maintaining mental acuity at an advanced age and sounding like you’re 35 when you’re 86 years young; Markowitz’s attraction to the philosopher Hume; if it was fifty years later, if Markowitz would be a quant running a hedge fund today; Markowitz’s legacy; on being comfortable vs. being rich; the leveraged long-only hedge fund industry and being coaxed into putting your money into these institutions; Long Term Capital Management and portfolio theory. What a life!

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Fascinating Insights From Nobel Prize-Winner Robert Shiller

Jim Byers passes along:

On why so many experts missed the 2008 financial crisis: “Experts have always missed big events like this. If you look at the record of statistical forecasting models, they tend to get to the recession when it’s starting to come. A casual observer might start to worry about it. Forecasting it years out, they don’t get; in particular, if you look at the Great Depression of the 1930s, nobody forecasted that. Zero. Nobody. Now there were, of course, some guys who were saying the stock market is overpriced and it would come down, but if you look at what they said, did that mean a depression is coming? A decade-long depression? That was never said.”

On short-term thinking: “I think that there’s too much faith in analysis of short-term data. You see some pattern, and you can do a statistical test and prove that will prove that it is significant or passes the smell test to a statistician. But the problem is, the world is always changing. It’s not a stable thing. The underlying human parameters may be stable, but you can see that there is institutional and cultural evolution, and it’s not something that you can quantify.”

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