$10,000 bounty for theorem refutation
I offer $10,000 to the first person to refute a supposed theorem—judgment of refutation to be by vote on Less Wrong, one month (to allow ample time for discussion) after either party affirms that in their view real proof has been presented and further debate would be pointless.
The theorem:
It is inferable from common knowledge that Jerome Powell, Mark Carney, Warren Buffet and Jamie Dimon do not understand what the unreal part of nominal interest is (because if they did, they would insist on not charging it)
Those interested in attempting refutation will find useful links by exploring my presence here. Attempted refutations may be submitted as replies to this post; date of reply establishes priority.
This post will gradually expand into a history lesson, extending at least four centuries into the past.
The purpose of the maneuver is to deliver news, urgently needed by the world, for which no other channel exists. My Medium page (linked in Mortgage post) describes various earlier attempts, including one in 1995 which involved recruiting the leaders of physics to announce a catastrophic failure of the supposed science of economics which proved it to be a counterfeit science.
First few comments suggest I should point out: my mortgage post shows the effect of indexing on borrowing power over the past 75 years: roughly a 50% increase. That’s inferable from common knowledge: just plug the earned real rate into a mortgage calculator, and compare it to the result with the nominal rate. Real fact. Shocking, if you think about it. Not just mortgages: business finance, utilities. Long term finance in general has been crippled by thoughtless use of a shrinking ruler.
Let’s break it down: indexing would increase borrowing power by about half. Dispute that if you think you can; otherwise there’s a genuine mystery here: why hasn’t it been done?
“Thumbs up from 3 Nobelists”: that’s real, the quotes are there. Not saying you should trust them; but so far you’re just ignoring it. It’s discordant data. You should be baffled, but seeing a mystery—not nonsense.
Any upvotes for this comment should be counted as votes against the “theorem”. If the OP decides to give me the money, I will give it for the further maintenance of Less Wrong.
I’m gonna summarize the negative case: This guy acts like someone who thinks “theorems” can be settled by voting or “recruiting the leaders of physics”. Further, his “theorem” claims that four people who are famous in the field of money, have made a fundamental error in the correct way to lend money. I suggest that instead, it is the “theorem” which is incorrect.
I also quote three Nobelists—two of whom I’ve corresponded with—in the mortgage post, saying that indexing was proper. At the mortgage post, you’ll find a link to a Medium site which documents the physics bypass attempt. It really happened, and Philip Morrison gave me a letter of introduction to Steven Weinberg. That says there is something real here. Morrison and I both held Weinberg in the highest regard.
You’ll get the money if you refute the theorem. That involves elaboration of rationale by me, until you recognize soundness or point out an error. At the moment what’s on the table is:
-indexing is the costless correction of an inherited accounting defect that eliminates inflationary effects
-the benefit is on average around a 50% increase in long-term borrowing power
-the 4 financiers I named are we’ll presume decent, not sociopaths; they wish their nations and fellow citizens well. Ergo—the conclusion. (Then you’re free to say you doubt some premise, which I’ll then expand.)
You likely doubt that those financiers have an inherited superstition. You can challenge that as a premise, and I’ll start walking you through 400 years of quite interesting history. Even Copernicus is in the story.
I knew Philip Morrison, he was a friend of mine. I had dinner at his house many times. He was a kindly and generous man who would provide a letter of introduction for all sorts of people who might be right. He was not an economist. So his slight endorsement in 1995 doesn’t cut much ice with me.
You’re arguing that indexed loans are better for both borrowers and lender, right? If that were true, people would have noticed, and they would be standard. I’m not aware of any legal or practical restriction on them. Inflation-adjusted treasury bills have been available for years, and are only a minor part of the market. So I can follow Bayes’ Rule: if you were right, things would be different, so you’re wrong. I don’t have to spot the exact place where your argument goes wrong to know it’s wrong somewhere.
I liked Morrison; only met him twice. His small television was fringed with orange pop-poms like a Hindu shrine; I wondered it that was a satirical comment.
Is the Bayesian proof dented by the fact that Chile exists? Robert Shiller, in a 2009 advocacy piece aimed at the British public entitled The Case for a Basket, says
The UF is used in Chile for nearly all mortgages, car loans, and long-term government securities. All taxes are expressed in UFs. Pension payments are automatically tied to the UF. Executive stock options sometimes have strike prices denominated in UFs. The UF is widely used for rent payments. Alimony and child support payments are often denominated in UFs. Office properties for sale are usually quoted in UFs. Houses for sale are often quoted in UFs, though pesos are also used
Did you read “Thumbs up from 3 Nobelists” in the mortgage post? That’s a phenomenon that demands an explanation.
The pom-poms were part of a puppet-stage proscenium with curtains that his wife Phyllis built, and placed around the TV. The curtains could be drawn when the TV was off so they didn’t have to look at it. Phyllis was a great person; full of wisdom, lively interest and wacky schemes. Like a grown-up manic pixie dream girl.
That they’re common in Chile is even more evidence that you’re wrong that inflation-indexed loans are a good idea in America. Chileans have lots of experience with them, and that experience would easily move between the countries if there were a market for it here in America. So there must be some difference in economic conditions between the countries that makes them undesirable here. The motion that they are not used here because nobody is aware of them becomes even more absurd.
Sorry, I’ll believe millions of people in the loan business before I’ll believe cherry-picked quotations from three Nobel prize winners. If it was a good idea it would be more common.
All it would take is one good argument at the level of mechanism: what is good—nay, better—about a ruler that shrinks by a factor of 6 in 50 years? Mechanism—not faith that someone else must know about mechanism. An actual grounded reason.
Also—what is better about reducing borrowing power by a third? Check out my 75-year graph. Simple concept: borrowing power with and without indexing. Generate your own graph, if you doubt mine; it’s not very hard. Mechanism, not hearsay. Argument from reputation is the opposite of science.
So you’re saying my observation of facts is insufficient, I need an abstract argument to convince you? Fortunately, I’m not trying to convince you. I’m trying to convince the audience.
Argument from reputation is the opposite of science.
But an appropriate response to someone who relies on it.
The theorem is straightforwardly false as stated because it says the fact is inferable from common knowledge, but it’s not even understandable from common knowledge:
The average person would not be able to tell you who all four of those people even are. Maybe a few, but not all four.
Nominal interest, and the unreal part thereof, are not terms/concepts present in common knowledge.
If a claim cannot be understood by common knowledge, it certainly cannot be proven using only common knowledge.
QED.
Maybe this sounds cheap, but I don’t think it is. I think it’s a real and valid refutation of your theorem. If you had stated it otherwise, then maybe it wouldn’t be, but you didn’t.
What is inferable is not necessarily instantly obvious. Pythagoras’s theorem is inferable from common knowledge; so is the theory of evolution. The definition of inflation is common knowledge. It doesn’t take much more than that.
I will grant you that Pythagoras’s theorem and the theory of evolution are inferable from common knowledge. You don’t need “nominal interest” sitting in common knowledge as a finished concept. That could be inferred from scratch as part of a chain of inference.
However, no inference from common knowledge will tell me who Jamie Dimon is. Your theorem is not an economics theorem. It’s about the internal understanding of four men, and that cannot be inferred from common knowledge. First of all, I don’t think the existence of someone like Jamie Dimon can reasonably be called common knowledge. I just asked someone next to me, and they only knew two out of the four people (exactly the two I predicted they’d know: Mark Carney and Warren Buffet).
Even if the existence of these people was common knowledge, I think inferring their internal mental state/understanding from their behaviour would be very hard, but if you don’t know who these people are, then you definitely can’t do it.
The mental-state argument is simple: only a sociopath would keep this immense boon, this huge boost to prosperity, from people. People die on waiting lists, and so on; prosperity saves lives. And none of the 4 is a sociopath, and any one of them could be a planetary hero by bursting this lingering bubble of ignorance.
You are not addressing my primary argument.
There are reasons people’s empathy fails to trigger besides sociopathy. Maybe they just don’t think about it, and their lives are working great so far, so there’s little reason for them to analzye further.
Your primary argument takes me by surprise. The word “common” in that context doesn’t mean universal, and I think it’s fair to say that the inferring would start from the theorem itself, which includes the names. Anyhow—if at the end of the day Less Wrong votes that the theorem is refuted on this technicality, I will pay up.
Including the names is fine, but including any details about who those people are would be going beyond common knowledge, I think, even though common does not imply universal.
I’m also not sure it’s as much of a technicality as you think. Your claim isn’t “this is true about economics”, but “this is so obvious even a normal person could figure it out without any special knowledge”, and I think my argument shows that it’s not as obvious as you think.
It reminds me a bit of this XKCD
Am I correct that the boon in question, boils down to being able to borrow money more cheaply? I seem to remember that the global financial crisis of 2008 took place under conditions of easy money for everyone...
It isn’t cheaper; it’s that the amount you can borrow is unaffected by inflation, because the mortgage rate is unaffected by inflation.
Clawback is a real thing: the value of unindexed principal shrinks; lenders need to get that back, and they tack it on the interest rate. Indexed principal doesn’t shrink.
I’m still studying this from various angles, and trying to get a sense of the issues. Some thoughts:
If the aim is to increase “prosperity”, and we aren’t talking about things that directly create net wealth, why focus on increasing borrowing power, rather than on direct redistribution of wealth?
The most emphatic arguments for creation of inflation-indexed accounting units, seem to apply in times of high inflation. Is there some extra ingredient to your own argument (you mention “the tax part” in another comment) that makes this urgently relevant even under current conditions?
There seem to be a large number of inflation-indexed financial instruments already in existence, and alongside a policy of inflation-indexing interest rates, in theory you could also do the same for wages, prices, and so on. Is there a reason why the existing financial instruments are not enough? Is there a reason to index home loans but not other cashflows?
I promise to patiently answer every question you have in the end, but I think it may help for orientation to state a big simple fact: faith in the propriety of traditional accounting is something of a type we all know about—it’s a superstition. People brought up in a superstition feel sure that it’s right. Irving Fisher almost said this, not quite clearly enough, calling it “money illusion.” All economists think they understand money illusion, but a blind spot lingers in finance. It’s particularly pernicious because modest inflation of say 4% can easily increase nominal interest rates by 100% - from 4 to 8. I would liken it to say asbestos insulation: inherited practice, damage recognized later.
re 3rd paragraph: yes it’s urgent now: the difference between 6.5% and 1.2% interest And it’s not just housing: utilities, business investment—anything that relies on long-term finance. (More than finance, too: the first indexing ever happened in 1707, because rules at Oxford written in 1440 were still in force & deprived students of fellowships if their income was more than 5 pounds per year; one of them begged for help from Bishop Fleetwood, and he wrote a book tracing value of money & showed that it had gone down by a factor of 6; Oxford changed the rule.) “Tax part” happens because clawback is taxed as lender income. Most economists aren’t aware of that; it was pointed out to me by Prof John Bossons—I worked with him apropos of an indexed mortgage proposal he co-wrote for Canadian Minister of Finance (1982 White Paper)
4th P: as mentioned, finance is particularly vulnerable because small changes in value become large changes in interest rates. No, home loans aren’t special.
It might help your case if you were able to state e.g. that if Canada (or the nation of your choice) had used inflation indexing for loans over a particular period, the amount of capital available for investment would have been x% larger and so economic growth would have been y% greater. Something like this would make your claim very concrete…
If that’s a theorem, what are the axioms and permitted inference rules?
Strict formal logic might struggle to infer that those people even exist, let alone anything about the unobservable contents of their minds.
But I assume there’s no $10k on offer for generic skepticism, so the question becomes “What would be deemed valid and satisfying by the person posing the problem?”—which is a futile tarpit if they’re motivated to disagree.
No, the promise is $10,000 if Less Wrong so votes; not my judgment. There is an education process involved.
You need to specify the voting procedure. Should have done it at the beginning, but now is better than never. As it stands, you could avoid payout by saying we didn’t follow procedures properly (because we don’t know them).
We’ll get there. Did you know Francis Amasa Walker was an indexing proponent? President of MIT, 1881-1897. Another was Simon Newcomb—astronomer, economist, so illustrious in his day that he was identified by H.G. Wells as the theorist behind the time machine. Alfred Marshall… I could go on; actually I will—they’ll all be in my 400-year timeline post; I’m in the 1830s at the moment.
I am a complete novice to this topic, having simply skimmed your resources and some other relevant materials during the past hour. But there are two claims in your proposition: Powell et al are unfamiliar with a particular economic concept, and if they were familiar with the concept, they would favor a different policy.
It seems very possible that they don’t know the concept, as it seems to be a very particular perspective on an issue which is known in economics (whether one could and should strive to remove the effects of inflation from interest rates?) but has never managed to be a central policy option. But the part that seems most open to “refutation”, is the claim that if they understood this concept, they would insist on different policy. From what I see in your materials, there are already examples of debate in the economics literature, in which the kind of indexation favored by you (and by others including some eminent names) was rejected by eminent economic thinkers, e.g. Walter Bagehot. So it seems possible to understand the concept and not embrace its implications.
Walter Bagehot never understood the concept. It’s a central, tragic event—part of the history to be explained so that anyone can understand it as a human story. We’ll get there.
It’s unfortunate that this challenge has had such a bad initial reception (-21 net downvotes right now). There is obviously a real question of economics here, and none of the other answers have even bothered to engage with it. They’re all trying to win on the cheap by focusing on your use or misuse of the word “theorem”. I would have thought that the prospect of $10,000 would inspire more serious replies.
As for the topic itself… As you point out, Chile is already implementing what you recommend, with its “unit of wealth” accounting for long-term loans (and it seems Mexico and Uruguay may also do something similar?). However, this was first implemented under conditions of hyperinflation, and Milton Friedman’s essay in favor of Indexation of interest payments was written in the context of the high American interest rates of the early 1980s. AI tells me that western countries don’t currently need this because they have price stability (relatively low inflation), and that they instead rely on financial markets (in particular, Treasury Inflation-Protected Securities or TIPS) to hedge against inflation risk.
I think the way the question was posed is part of why it has a bad reception. The theorem presented was not an economics theorem at all, but a theorem about the internal mental state of four people. Presumably this was intentional, and it basically precludes a discussion of economics, as the economics are not remotely the strongest reason the theorem is false.
The other reasons for the poor reception:
I find it unlikely this person will ever pay $10,000 as a result of this post
The resolution criteria suck. Is whoever gets the most votes in this post going to get the money? What if it’s Carl Feynman, who makes a general meta-argument that the theorem is absurd, without attacking the theorem directly? What if it’s someone whose argument is considered invalid by Bruce Middleton, perhaps because they don’t address the economic question? Or will there be a vote at a later date? “after either party affirms that in their view real proof has been presented and further debate would be pointless” So what if the best answer doesn’t have the person say “this is a real proof and further debate is pointless”? Is that answer no longer eligible for the $10,000? This is really poorly framed and makes me doubt this will ever resolve.
The general vibe of “I know more about wealth than the ninth richest man on Earth” without any real justification for that position, and the crackpot vibes that come with “so and so famous person signed off on my ideas”, again without justification in this post.
I would have probably just preferred a nice explainer post of Bruce’s position. I lack the economics knowledge to follow his mortgage rates post.
AI will generate language, which may or may not make sense, if you don’t push it. That AI answer does not hold water: you’re telling me I don’t need more borrowing power because TIPS bonds exist? Non-sequitur; next question: presume I want to buy a house. Won’t indexing give me the power to spend more? AI: yes.
Meta: Does anyone feel like the post is written in an uncanny style? It’s not exactly LLM-slop, but the transitions between successive sentences are a bit of a jump in many cases.