The iq2us website is rather horrible, all flash-based and white-on-black and lacking permalinks, but tonight’s debate was well worth attending all the same. The motion was “Obama’s economic policies are working effectively”, and the interesting thing about it was that it wasn’t a left vs right thing at all.

Proposing the motion we had old-fashioned lefty Larry Mishel, who was joined by Steve Rattner and Mark Zandi. Opposing it were the even more interesting bedfellows of Jamie Galbraith, Eliot Spitzer, and, of all people, Allan Meltzer. An interesting debate was pretty much guaranteed.

The voting was interesting too. At the beginning of the debate, 32% of the audience supported the motion, 29% opposed it, and a very large 39% were undecided. By the end, the undecideds had shrunk to just 12%, the proponents were up to 46%, and the opposition was up to 42%. With an increase of 14 percentage points compared to the opposition’s 13 percentage points, the proposers were named the winners. But it was a very close-run thing, and in my view it was actually the opposition which clearly won the debate, not least because they had by far the best two debaters, in Galbraith and Spitzer.

The arguments for the motion were predictable: things aren’t as bad as they were a year ago, the Obama administration did everything that was politically within its power, and although things are certainly pretty gruesome now, they would be much worse were it not for the administration’s legislation.

The opposition was surprisingly cohesive, given that I can’t imagine Jamie Galbraith and Allan Meltzer ever agreeing on anything. The bailout was an attempt to recreate, at vast expense, the broken status quo ante which got us all into this mess to begin with. Yes, the stimulus and other Obama administration policies were necessary, but they were far from sufficient. And they have overwhelmingly helped the financial-services industry, rather than real Americans, who are still losing jobs at a rate of 200,000 a month.

The revelation was Eliot Spitzer, who was impassioned, fluent, compelling, and clearly enjoying himself. He made some very good points: how come Tim Geithner has managed to get away without ever being forced to justify the decision to pay all of AIG’s counterparties at 100 cents on the dollar? How come no one in the White House seriously pushed for judges to be able to modify mortgages in bankruptcy? How come more effort hasn’t been spent on preventing manufacturing jobs from disappearing, given that once such jobs go, they never come back?

In general, the proponents came across as weak and dry statistics-spewers suffering from a failure of imagination: they couldn’t even conceive of persuading the Democratic Congress to pass anything truly ambitious, even as the opponents were citing precedents from FDR to Reagan. That then prompted Steve Rattner to channel Rahm Emanuel, and accuse Eliot Spitzer, of all people, of being the kind of person who thinks up bright ideas while sitting in the shade at the Aspen Institute.

What’s more, the motion wasn’t whether the current economic policy was the best we could hope for given political realities, it was whether it’s working effectively. And if you’d asked Larry Summers when the stimulus bill was being passed what kind of year-end 2009 unemployment rate would indicate that his policies weren’t working effectively, he would have given a figure much lower than 10.2%. I think we should take him at his hypothesized and counterfactual word. The administration has tried its best, and done some necessary-but-not-sufficient things, but it hasn’t succeeded in its stated aims.

Joe Brancatelli reports on airline fliers’ stubborn refusal to pay even a nominal sum for wifi:

Passengers “want to be connected, [but] they want it to be free,” Doug Murri, Southwest Airlines senior manager of technologies, told a group of airline and entertainment executives this past summer. Alaska Airlines, testing the same satellite-based WiFi system as Southwest, reports that passenger usage plummets when it charges a fee. The higher the fee, the faster the decline. “Even when we charge $1—and we did try $1—we see a drop-off in people willing to pay,” Alaska Airlines executive Craig Chase recently told the Wall Street Journal.

There’s a lesson here for anybody wanting to put a paywall around their website. Fliers are perfectly happy to pay $7 for a copy of the Economist to read on the plane, or even $4 for a copy of People magazine. And I’m sure if they spent their flight on the internet they would claim to value that experience at least as much as the experience of reading a single magazine. But getting them over the hump of paying anything at all for web content is still turning out to be all but impossible.

I’m surprised to see this coming from Ryan Avent:

If everyone is certain that crises are going to be bigger and more frequent, and if everyone is certain that governments won’t be able to afford to bail everyone out the next time around, then shouldn’t everyone be busy limiting their exposure to risk? And shouldn’t that then reduce the likelihood, frequency, and cost of future crises?

Firstly, everyone isn’t certain that crises are going to be bigger and more frequent. To the contrary, there’s a strong urge among a large swathe of the markets to dismiss this most recent crisis as a once-in-a-century event and embrace the notion that we’re getting “back to normal”.

But more to the point, as I’ve said many times in the past, the most recent crisis was in many ways a consequence of precisely what Avent is talking about here — everybody being busy limiting their exposure to risk at the same time. The crisis wasn’t a function of too many people taking on too much risk and then coming a cropper — it was much more a function of too many people being incredibly overcautious and demanding limitless quantities of risk-free triple-A-rated paper.

The fact is that if the rest of the world is out there taking risks, then it’s quite easy for an individual investor to limit their risk exposure and be safe. But if everybody tries to be safe at the same time, that creates the biggest risks of all — and yes will increase the severity of any crisis.

Besides, there really isn’t an easy or obvious way for an investor to be highly risk-averse in this market, not when one of the biggest tail risks that people want to protect themselves against is inflation. Big investors can try taking the Taleb approach of buying large numbers of out-of-the-money options and reckoning that a bunch of them will pay off when the next crisis hits, but that’s not a strategy available to most of us. There’s only downside and no upside in lending money to the US government or your local bank at near-zero interest rates, and buying gold at $1,100 an ounce looks like a crazy speculative momentum play more than a flight to safety.

Personally, I’m quite glad that there’s no obvious safe haven these days: it forces investors to come to terms with the fact that investing, by its very nature, must and should involve taking calculated risks. When people try to flee to safety, markets fail.

I had a very interesting conversation with Bob Pozen yesterday evening; his new book is out now, and I highly recommend it. It’s the first crisis book to make a detailed series of specific recommendations about what needs to be done going forwards — or, in the words of the book’s subtitle, “how to fix the US financial system”.

These recommendations are sprinkled liberally throughout the book, and are helpfully presented in bold type. Whenever I came across one, I scribbled the page number on the back flap of my copy, in one of four columns. The first column was recommendations I agreed with, or which were at least a step in the right direction; the next two columns were for recommendations I thought didn’t make complete sense or were questionable, and the final column was for recommendations I thought were bad ideas. The final tally looked like this:

As you can see, Pozen seems to be right (or at least in broad agreement with me) the overwhelming majority of the time. And as you can also see, he makes a lot of recommendations, on everything from accounting standards to insurance regulation. Tyler Cowen is quite right to give the book a rave review.

I’m not in agreement with Pozen on everything: he thinks, for instance, that it’s crucially important to get the securitization market up and running again — complete with tranche structures which require sophisticated modelling — while I think that securitization is inevitably going to be used to shove risk into tails and appeal to investors who don’t fully comprehend what they’re buying.

I’m also not fully convinced by one of Pozen’s big ideas, which is that banks should have small and professional super-boards which, rather than simply rubber-stamping the decisions of the CEO, take a much more active interest in the way the bank is run; Pozen has in mind here the governance structures at companies owned by private-equity shops. (Indeed, he wants to encourage more private equity companies to own and invest in banks.)

My view is that the rates of return targeted and required by private-equity investors are far too high for banking, which should be a boring industry, and that even if safeguards are put in place to stop PE-owned banks from lending to sister companies, management at such institutions will try as hard as they can to bend the rules to maximize leverage and profits. And that they will be positively encouraged to do so by their small super-boards.

Pozen, on the other hand, is fundamentally bearish on the business of banking, telling me that “if all you do is make traditional loans, you will lose money and you will go bankrupt”. I don’t think that’s true, but insofar as it is true of banks, it’s also true of investors who buy securitized loans originated by banks — so securitization is not really a solution to the problem. More generally, I don’t like the idea of creating a banking system where banks run around trying to make money on clever innovations because they’re losing money on their core loan products. It sounds like a recipe for disaster to me.

Some of Pozen’s other ideas are really good, though, like capping FDIC guarantees on bank debt at 90%. He also thinks that AIG Financial Products should declare bankruptcy, perhaps along with the parent company, which would give its counterparties a lot of incentive to settle their claims at say 70 or 80 cents on the dollar.

What’s pretty obvious though is that most of Pozen’s recommendations will not be enacted. Which raises the obvious question: if we don’t do this, what’s going to happen to the financial system and the economy? Pozen’s answer: we will have more crises, they will be increasingly severe, and they will be increasingly frequent. I agree.

One of the tragedies of the current crisis is that far too many people consider it to be an anomaly, a once-in-a-century event. It isn’t. The recipe for this crisis — a complex global financial system with large imbalances and inadequate controls — remains in place today. And financial crises are common things: even if you exclude emerging markets, there’s generally one somewhere in the world every year or two.

We can’t afford the trillions of dollars it would cost to rescue the world from the next crisis — yet at the same time we’re doing very little to minimize its effects or the probability of it happening. It’s a very risky game that we’re playing, and it’s liable to end in tears. Which is one reason why I’m so keen on Paul Volcker’s idea that we should eliminate the tax-deductibility of debt interest. That’s a big one: so big, indeed, that Pozen doesn’t dare even consider it in his book. But that’s the kind of ambition that we need to have if we’re going to seriously curtail crisis risk in the global economy.

Update: Pozen writes to say that he thinks some of his proposals — like regulating hedge funds and derivatives, as well as reforming loan securitization — will indeed happen. He also adds:

I was exaggerating when I said that traditional commercial loans would lead to bankruptcy as a way to driving home my point that traditional unsecured loans have a terrible risk-return relationship — with no upside and a lot of downside.

Still, if that’s true of the loans, it’s true of the securities made from them, too. So it’s hard to see how securitization is the great solution that Pozen thinks it is.

At least between, say, $3 and $6 per bottle:

Supplying wine to sell at $5, $4, $3 or even two bucks per bottle is not that difficult once you set out to do it. Cheap surplus grapes, cheap surplus wines, low-cost winemaking processes and economies of scale all contribute to extreme value supply. Nope, supply is easy. The challenge, until recently at least, has been selling the stuff.

Studies have repeatedly shown that wine drinkers are influenced by price – but not in the way you learned in Econ 101. A lower price does not always produce more sales because insecure buyers infer quality from price. They assume that higher price means better wine.

I’d like to see some empirical data here, but intuitively it’s at least possible that raising a wine from $3 to $6 per bottle might increase rather than decrease sales. That seems to be changing, as Mike Veseth explains in the rest of the article. But let’s say it holds true here, or once did. This isn’t a case of Veblen goods: drinking a $6 bottle of wine hardly counts as conspicuous consumption. Is there a name for this phenomenon? And is it found elsewhere?

Update: “Fred Engels“, in the comments, makes the excellent point that there’s another place this phenomenon is often found: the stock market, where demand often rises as the price of a stock goes up.

Mohamed El-Erian, the CEO of Pimco, sent me a note this morning which sums up the dire straits of the economy, as revealed in today’s employment report, in one sentence:

The problem is that very few people in DC are thinking of this as a structural challenge. Until they do, there is little basis for the sketch of a potential solution.

Here’s the issue: unemployment is at 10.2%, and broader underemployment is at 17.5%. For the foreseeable future, both of them are going to be extremely high — it doesn’t really make much difference, at the margin, whether they’re going up or down. Financial markets are used to looking at first derivatives, but in this case it’s the absolute level which is important.

When you’re unemployed, you don’t spend. So long as unemployment remains high consumer demand will be depressed. That’s going to be true even if the savings rate starts dropping, thanks largely to the enormous debt burden that US consumers have already placed upon themselves. That’s important for the US economy, and it’s also a major sea-change for the global economy. As El-Erian says in today’s FT:

There is one public good that needs to be replaced: the key role that the US has played as the engine of global growth. This role is now constrained by the debt of US households.

The implications of this are huge. If the US no longer drives the global economy, then the rest of the world will be much less inclined to fund its twin deficits to the tune of trillions of dollars per year. Meanwhile, the high unemployment rate means that the Fed is going to keep the Fed funds rate at or near zero, which bodes ill for the dollar. These are huge forces, acting in an extremely complex global financial system, and you don’t need to be Nassim Taleb to know that the end result of such a state of affairs is likely to be large, unpredictable, and potentially catastrophic.

Which brings me back to Washington. Here’s El-Erian again:

The best defence against these outcomes is early recognition and coordinated action. Key economic powers must shape their expectations and policy strategies to the changed contours of the global economy. They must also actively manage policy changes at the national and multilateral level in a way that broadens the provision of global public goods.

They must, yes. But will they? I fear — and clearly Mohamed fears too — that the answer is no. So far I’ve heard nothing out of Washington which says to me that the White House has a plan for addressing long-term structural problems in terms of unemployment, capital flows, and interest rates. A lot of these problems have been around for many years, and most of them have been diagnosed sharply at one point or another by Larry Summers. So it’s not like Washington is oblivious to what’s going on. But we’re at the limits of what monetary policy is able to achieve, and the nation cannot afford to repeat the monster hit to the US fisc which we’ve seen over the past couple of years.

Maybe, then, there simply isn’t a solution: the problem is just too big, too complex, and too intractable. It’s a depressing conclusion, but also a pretty compelling one.

John Quelch reports:

Legal immigrants to the US who are resident for five years (or three years for those who marry a US citizen) can apply for US citizenship. Currently, citizenship application and processing fees in the US are $675 per person, up from $60 two decades ago. These fees, which exclude the costs of individual legal assistance or private citizenship classes, were increased by 69% in July 2007…

The number of US citizenship applications from legal residents dropped by 50 percent in the two years after the price increase. As a result, the Federal agency handling citizenship applications still runs a budget deficit, suggesting to some bureaucrats that the price needs to be raised again!

Quelch then disappears into some weird fantasty world where citizenship costs $30,000, minus “an income tax deduction of value-based citizenship fees over five years,” whatever that’s supposed to be. But the fact is that we’re talking about the marginal value of citizenship over permanent residence here, and that marginal value is very low indeed.

Quelch has the upside right, and it’s limited:

New citizens get to vote, apply for federal jobs, and bring their families to the US.

For some people, the last of these is very valuable indeed. For most people, none of them is worth much at all. For one of my relations, there were tax reasons for becoming a US citizen, which I never really understood. For me, the biggest upside to becoming a US citizen would simply be the reduction in airport risk. Dahlia Lithwick explains:

I am in this country on a green card. You should also know that over my almost 20-year residence in this country, I have been told by more than one INS official that I have absolutely no rights here and that, visa or no visa, my residence here can be terminated at their discretion.

On the other hand, Quelch doesn’t mention the downsides of citizenship at all. The most obvious is jury service: if you’re not a citizen, you get an automatic get-out-of-jury-service-free card, and it’s valid for life. Nice. And then there’s taxes. If a permanent resident leaves the country and stops being a US resident for tax purposes, she doesn’t need to pay any US taxes at all. A US citizen, by contrast, needs to pay US taxes on her global income for her entire life, no matter where she lives. On top of that, many countries require that if you become a US citizen, you need to give up your initial citizenship. Which is a major decision indeed. Finally, there’s the fact that if you travel on your US passport, you run a slightly greater chance of being hated on by the people in whose lands you’re travelling.

So it comes as little surprise that as the price of citizenship increases, the demand for it falls, to the point at which the overwhelming majority of citizenship-eligible permanent residents already decline to apply for it.

The thing which confuses me is why the US would encourage a system which creates a weird not-quite-citizen class of permanent residents who don’t get to vote but who otherwise walk and quack like any other first-generation American. If my American wife wanted to live and work in the UK, we’d simply apply for her to get a UK passport. Why doesn’t the US system work the same way?

I’ve had a vague sense of late that there’s a connection between the weak dollar, on the one hand, and rising asset prices, on the other. But I took some comfort in that: prices aren’t really going up as much as they look, it’s just that the dollar’s going down, so everything looks good in dollar terms.

Now, along comes Nouriel Roubini to burst my bubble. This isn’t a case of the weak dollar making asset prices look good; in fact, it’s the “mother of all carry trades”, setting up “the biggest co-ordinated asset bust ever”.

I believe him.

Nouriel’s analysis is quite compelling, given the way the carry trade works. In its most harmless form, people borrow at low rates in a funding currency and then invest the proceeds in a higher-yielding target currency. When that trade starts becoming crowded, the flow of money into the target currency causes that currency to rise, which makes the carry trade even more profitable — you not only pocket the spread between the two interest rates, but you also get a capital gain on the fx trade.

But this carry trade is even stronger still: not only are the target currencies rising, but the funding currency — the dollar — is falling. Players are making money on three different legs at once, and that means they can start investing not only in foreign currencies and local interest rates, but rather in a whole panoply of other asset classes, including commodities, energy, junk bonds, even equities. These assets might not yield much, but they don’t need to, if the funding currency is falling fast:

Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates – as low as negative 10 or 20 per cent annualised – as the fall in the US dollar leads to massive capital gains on short dollar positions.

And it’s actually worse still:

The perceived riskiness of individual asset classes is declining as volatility is diminished due to the Fed’s policy of buying everything in sight… By effectively reducing the volatility of individual asset classes, making them behave the same way, there is now little diversification across markets.

We’ve seen this movie before, in 2006, and I, for one, have no desire to relive it. A market where everything is rising is not an efficient market: it’s a market which is failing to do its job of allocating capital efficiently to where it can be put to best use, and away from areas where it can cause big problems. But no one cares about that these days — not even Nouriel’s own chief strategist, Arnab Das:

Emerging markets are poised to extend their biggest rally in a decade as investors borrow dollars to buy stocks, bonds and currencies in the world’s fastest growing economies, according to Arnab Das of Roubini Global Economics.

Investors should take “overweight” positions in developing-nation assets, said Das, the London-based head of market research and strategy at RGE, the research and advisory firm founded by economist Nouriel Roubini. While emerging markets will have “occasional corrections,” the surge in asset prices “has many legs to go,” Das said in an interview.

Das, here, isn’t contradicting his boss. (Although having worked at RGE myself, I know that Nouriel doesn’t mind at all when that happens, and indeed encourages a wide range of views within the organization.) Nouriel isn’t saying when the current bubble is going to burst — and if history is any guide, it’s probably going to be a long time before the inevitable happens. Of course, the longer that a bubble continues to inflate, the more painful the subsequent bust.

In that sense, every move upwards in US stocks or gold or the Aussie dollar or junk-bond indices is another step in exactly the wrong direction: it’s a step towards yet another massive crash. And it’s all being turbo-charged by Fed policy. If there’s a painless way out of this situation, I can’t see it.

In light of all the controversy over the war against environmental science being waged by Superfreakonomics, I’ll add only that this comes as no surprise to me, since something similar (albeit on a much smaller scale) can be found in the first book. I actually did some reporting on this when Freakonomics first came out, but since it was buried in a 4,400-word review on a little-read personal website, it’s hardly surprising that nobody saw it. So I’ll resuscitate it here. The upshot is that the Freakonomists have a history of misrepresenting environmental science:

Levitt and Dubner like to get holier-than-thou when others make mistakes. At one point, they eviscerate a homeless advocate named Mitch Snyder, for saying that there were 3 million homeless Americans:

When Snyder was pressed on his figure of 3 million homeless, he admitted that it was a fabrication… It may be sad but not surprising to learn that experts like Snyder can be self-interested to the point of deceit. But they cannot deceive on their own. Journalists need experts as much badly as experts need journalists… Working together, journalists and experts are the architects of much conventional wisdom.

So what happens when Dubner and Levitt – a classic pairing of a journalist and an expert – get together? It may be sad but not surprising to learn that even they can come up with decidedly dodgy numbers. Here’s one:

Economists have a curious habit of affixing numbers to complicated transactions. Consider the effort to save the northern spotted owl from extinction. One economic study found that in order to protect roughly five thousand owls, the opportunity costs – that is, the income surrendered by the logging industry and others – would be $46 billion, or just over $9 million per owl.

When alarmist figures in the billions start getting quoted, I immediately start getting suspicious. So I went to the footnotes, which cited a paper by Jason Shogren from which, I believe, this is extracted. Here’s what Shogren actually writes:

Opportunity costs have been estimated for a few high-profile, regional ESA conflicts such as the northern spotted owl. One study estimated that an owl recovery plan that increased the survival odds to 91 percent for a population of about 1,600 to 2,400 owl pairs would decrease economic welfare by $33 billion (1990 dollars), with a disproportionate share of the losses borne by the regional producers of intermediate wood products, a relatively small segment of the population (Montgomery et al. 1994). If the recovery plan tried to push a goal of 95 percent survival odds, costs increased to $46 billion. Another study estimated the short-run and long-run opportunity costs to Washington and Oregon of owl protection at $1.2 billion and $450 million (Rubin et al. 1991).

In other words, Levitt and Dubner have taken the very highest estimate from Shogren’s paper, one which Shogren didn’t even come up with himself, and used it uncritically. They could have used the $1.2 billion and $450 million estimates instead, of course, but chose not to for reasons we can only guess at.

I also sent Shogren an email, asking him what he thought of this use of his number. He said that the $46 billion was “an outside estimate,” and added:

We used the number to illustrate what little we do know about costs of the Endangered Species Act. Other numbers we cite in the paper say that the ESA is more about transfers of wealth (from agricultural to recreation) than about the loss of wealth.

The really weird thing is that the factoid aboout the spotted owl seems to have been dropped into the book utterly randomly: it’s there only to illustrate the broader point that economists try to measure all manner of different things. But why would Levitt and Dubner concentrate only on the costs of saving the spotted owl, while ignoring the benefits? And why would they pick a number which seems designed to shock, rather than a much more reliable number which is less shocking, like the cost per life saved of installing various safety features on roads or subways? The broader context, after all, is that of abortion, and whether it’s possible to quantify the costs and benefits of abortion, after taking into account its role in lowering the crime rate. Saved lives, in this context, seem far more germane than saved owls.

Update: John Berry writes in with more:

Back in the ’90s I spent a week reporting on the economics of the spotted owl court injunction that had halted timber sales in the northwest. My best source was a guy named Stub Stewart, who had just retired as CEO of a privately owned lumber company based in Eugene, Ore. He introduced me to a former plywood mill manager who had become a consultant after his plant shut down. The consultant had a data base that covered the whole forest products industry in the region. Their joint conclusion was that the owl hadn’t cost a single job.

The key was that the industry had pretty well exhausted its resource base. First, the privately owned timber was cut and as that source of stumpage dwindled, the Forest Service and the BLM gradually increased the allowable cut on public lands. But that too was finite and timber sales began to fall. Meanwhile, productivity grew rapidly in the industry. Stewart flew us in his helicopter out to a sale site in the Oregon Cascades his company was cutting. The entire operation was being performed by a contractor with a crew of only three using about $1.5 million worth of equipment, including a small crane. Productivity was also going up in newer plywood mills. All of the job loss up to that point which was being blamed on the owl was due to the diminished resource base and the productivity gains. I haven’t revisited the issue since I wrote the story for the Washington Post. But that $46 billion figure has got to be far, far too high. I led my story with the fact that the Georgia Pacific Company, among the largest forest products companies, had just moved its corporate headquarters from Portland to Atlanta because that’s where the new softwood resource base was located–on privately owned land in the Southeast.

Isn’t it ironic that Eugene Fama didn’t win the Nobel prize in economics? No, actually, it isn’t, and I’d like to give a special Alanis Morissette award to anybody who thinks it is. (Barry Ritholtz and Dan Gross, I’m looking at you. And you too, Peter.)

The ostensible irony here is that Fama invented the efficient markets theory — but the markets which predicted his win were wrong! Except that’s not what happened. Barry is completely wrong when he says that Fama was the “odds on favorite” to win the prize — in fact, as he himself noted yesterday, Fama had 2-to-1 odds against him winning, implying that the probability of Fama winning was about one in three. The Ladbrokes odds actually implied that Fama would not win, and in that sense they were absolutely right.

But the prize ended up going to Elinor Ostrom and Oliver Williamson, and the odds on their winning were even longer. Doesn’t that prove that the bookies were wrong? Well, it would if Ostrom and Williamson were more likely to win the prize than Fama. But they weren’t. The thing about the Economics Nobel is that it has an absolutely enormous number of possible winners, which means that most winners are long-shots. It’s not at all unusual that the winner had 50-1 odds against them: if anything it’s unusual that either of them were on the list at all. (In the Harvard betting pool, none of the 149 entrants bet on Ostrom.)

What’s more, a list of Ladbrokes odds is emphatically not a prediction market, since there’s no two-way market in prices. (You can’t bet against Fama winning the prize at 2-to-1 odds, you can only bet on it.) There was a real prediction market in the economics Nobel over at InTrade, but it only featured three names: Fama, Paul Romer, and Ernst Fehr. And total volume in all three names was exactly zero, which means that not a single price (or extrapolated probability) came out of the market. Even Eugene Fama wouldn’t claim efficiency for a non-clearing market with no prices.

The simple fact is that the long tail of possible winners provided the actual winner — just like it normally does with this particular prize. The favorite (who was not an odds-on favorite) did not get the prize. There’s nothing unexpected about that outcome, and certainly nothing ironic.

Update: I’ll add this quickly, before the inevitable comments start appearing: yes, I know that it’s the Swedish Central Bank Prize for Economics in Honor of Alfred Nobel and not an original-issue Nobel Prize. But if nobelprize.org considers it a Nobel Prize, then so do I. It’s not fake, Matt, it’s real.