Canada house prices overvalued?

The Globe and Mail recently came out with an article comparing different studies of Canada’s housing market. What was striking was how different the results are. According to Deutsche Bank, houses are 60 percent too expensive, while according to economist Will Dunning they are actually undervalued by 9 percent. Here are all seven estimates:

Deutsche Bank: +60 percent

Fitch (rating agency): +24 percent

Bank of Canada: +20 percent

IMF: +11 percent

TD Bank: +11 percent

CMHC: +3 percent

Dunning: -9 percent

How can they be so different? One reason is that they used different valuation metrics. But a more simple explanation is that the answers depend on the particular stance of the forecaster, and the message they are trying to give.

Fitch (at +24 percent) is sending a warning.

The Bank of Canada (+20) is sending a warning but trying not to be alarmist.

The IMF (+11) is playing it safe.

TD Bank (+11) is also trying to play it safe, since it is exposed to the housing market but mostly protected against declines by government insurance programs.

CMHC (+3) has a lot to lose since they are on the hook for insurance. Safe bet that they will never predict a decline.

Will Dunning (-9) works as chief economist for the Canadian Association of Accredited Mortgage Professionals.

And Deutsche Bank (+60)? Maybe they’re just genuinely worried.

Kick It Over – reforming economics

“Despite its enormous failings in the face of the financial crash, the mainstream of the profession has by and large failed to embrace self-criticism or open itself up to different approaches.”

Keith Harrington from the activist group Kick It Over. Sounds like economists in denial.

Money is the Message – 2015 McLuhan Lecture

McLuhan lecture video, from Transmediale in Berlin

Funding other universes

Peter Woit has written an interesting post responding to the response by Matthew Kleban (and my reply to his response) to my review of the recent Unger/Smolin book.

It’s not often I get drawn into a discussion about the number of universes in existence (a question about which I have no strong opinion, only having seen a small part of one), but what worries me about multiverse theory is that it appears to be driven more by aesthetics and a desire for a unified theory than anything else.

Woit points out another factor, which is the role of the Templeton Foundation. Funded by the estate of the investment manager John Templeton, it pays out grants worth over $100 million per year, with a significant portion going towards supporters of string theory and multiverse theory.

Seems like investment managers (or their foundations) are buying up scientific theories the same way they buy art, thus distorting the market. A smaller example is Winton Capital’s funding of an investigation into Dark Matter.

Time will tell if they are as successful at picking winners in science as they are in finance. Or maybe it won’t, since the debate about the number of universes has been running since at least the Middle Ages and shows no signs of stopping any time soon.

As Woit observes, multiverse theory and string theory have a symbiotic relationship. Together they perform a similar function as the Efficient Market Hypothesis in economics, which is to provide a perfect excuse for the failure to make any useful predictions.

String theory provides not one set of physical laws which govern the universe, but instead an entire “landscape” of possibilities. The fact that we live in one which actually works is supposed to be because there are multiple universes running different versions, and we got lucky. So while we don’t have proof of multiverse theory (barring any future discovery of a hidden portal to a parallel universe) it can be inferred from string theory. But if the particular version of string theory assumed to govern our universe is just a random choice, then that makes it inherently untestable as well.

Perfect example of the Science Games, now sponsored by fund managers.

An Imperfect Truth

Review of The Singular Universe and the Reality of Time, by  Roberto Unger and Lee Smolin

When the Perimeter Institute—a physics research institute in Waterloo, Ontario—decided several years ago to build an extension, they asked the architects “to provide the optimal environment for the human mind to conceive of the universe.” Clearly the results were effective. One of the founding faculty members, Lee Smolin, and the Harvard philosopher Roberto Mangabeira Unger have conceived of the universe, and have come to a number of conclusions about it, including that a) there is only one of it, and b) time is real, so all things change, mutate and get old.

To non-scientists, these main points, summed up in the book’s title, might seem unremarkable. We only have experience of one universe, so would it not be presumptuous to assert that there are more? Time is clearly real enough (just ask an editor). And Heraclitus pointed out a long time ago that “everything flows.” So how can the authors assert that the admittance of mutability “is astonishing in the reach of its implications”?

The reason for this lofty claim is that, when time is taken seriously, we need to relax the commonly held assumption that the universe is governed by strict mathematical rules based on immutable symmetries. This mathematical version of reality—the product of generations of scientists—is only “a proxy for our world, a counterfeit version of it, a simulacrum.”

Read the rest of the article at the Literary Review of Canada.

What exactly is money?

Money shapes our lives, yet we rarely reflect on where it came from

According to the authors Lipsey and Ragan of Canadian textbook Economics, money emerged as a replacement for barter: “If there were no money, goods would have to be exchanged by barter… The major difficulty with barter is that each transaction requires a double coincidence of wants… The use of money as a medium of exchange solves this problem.”

Fortunately the book was free, so in this case neither barter nor money were required. The authors went on: “All sorts of commodities have been used as money at one time or another, but gold and silver proved to have great advantages… The invention of coinage eliminated the need to weigh the metal at each transaction, but it created an important role for an authority, usually a monarch, who made the coins and affixed his or her seal, guaranteeing the amount of precious metal that the coin contained.”

This seemed clear enough. Commodity money emerged from barter. The best commodities, for various reasons, were gold and silver. The only role of government was to come along at the end and put its stamp on the coins. I had seen the same argument made before, with minor variations, by 19th-century economists such as William Stanley Jevons and Carl Menger, and by Adam Smith in the 18th century. But to check it out, I decided to go right to the source, the origin of origin stories: the philosopher himself.

Read the rest of the article at World Finance.

Profile at Catalysta.org

Profile at Catalysta.org