here is a book 'review on AMZN - by one of the Authors:
The author answers the questions below, November 28, 2005
Reviewer: Louis V. Gave "LouisGave" (Hong Kong) - See all my reviews
"Please discount the five star rating-since i wrote the book, I am obviously biased!
I first want to thank Dave and Orson for their kind and generous reviews, and their complimentary words about our research. And now, to answer Orson's points:
1) On protectionism: it is very true that the entire "platform company" concept relies on free trade. Should protectionism carry the day, then obviously we would live in a very different world in which nearly everyone would be a loser. But who would be the bigger losers? The Asian or Eastern European manufacturers? Or the platform companies able to expand, or shrink, their balance sheets as business requires? Even in a protectionist world, it is likely that the platform company model will manage to thrive; granted, not as much as in a free trade world. But platform companies will still do OK. meanwhile, emerging market manufacturers, and western consumers/voters, will be the biggest losers.
2) Why does the data we use only go back to 1980 or 1960? For most data series, we do not have reliable History going back to the 1900s... so we need to use what we have. But even beyond that, we are not fussed about using data starting in 1980 for the whole premise to book is to show that, starting around the mid 1990s, something changed in the structure of our economies. Our starting point is, very immodestly, the end of Alfin Toffler's book called The Third Wave.
Alvin Toffler described three types of societies, based on the concept of 'waves' - where each wave pushes the older societies and cultures aside. The `First Wave' was the society that followed the agrarian revolution and replaced the first hunter-gatherer cultures. The `Second Wave' was based on industrial mass production, mass distribution, mass consumption, mass education, mass media, mass recreation, mass entertainment, and weapons of mass destruction. The `Third Wave' is the post-industrial society.
Today, all the above seems pretty evident. But what is quite impressive is that Toffler wrote Future Shock in 1970 and The Third Wave in 1980. What is depressing, however, is that economics has yet to adjust to the world of the third wave. Indeed, wherever you care to look, economists are talking about industrial production numbers, inventory levels, trade balances ... When all these measures, for third wave economies, are increasingly becoming irrelevant.
In a sense, economists today are the mirror image of the very first economists: the physiocrats. Back in the late XVIIIth century, the physiocrats (Quesnay, Dupont de Nemours ...) explained how value-added could only come from agriculture (you planted a seed, and got a plant). They were `first-wave' economists completely blind to the entire economic re-organisation of the industrial revolution taking off in front of their eyes. They could easily see that agriculture created value, but could not see that the value created by industry would dwarf that of agriculture.
Today, as the physiocrats before them, too many market participants are stuck in previous-wave thinking mode and miss the current social and economic revolution. As Toffler had predicted, successful companies no longer operate on the business models used a generation ago. Relationships between countries have evolved. Social structures are transforming themselves at a rapid pace.
In short, the world has changed. So shouldn't our way of analysing it evolve as well? Why should we shy away from exclaiming that `things are different this time'? And if so, is data from the early XXth century, second wave economies that relevant?
3) On Housing: Our assertion is more that housing is a very long dated asset and that, in places like the US or the UK, housing has behaved exactly like other very long dated assets, i.e.: a twenty year zero coupon. What we show in the book is that over the past twenty years, the returns on housing and the returns on a twenty year zero have been exactly the same! So, in essence, to be bearish on housing, one needs to be massively bearish on bonds. Which we are not...
4) When we focused on bubbles, we focused on assets that reached prices that they will likely NEVER see again (i.e.: tulips in holland, railways in Britain, land in tokyo...). Equities are a more specific case since, after a while (which can be a very long while: i.e.: 1929-1954 in the US), new highs are usually reached...
5) What if the US government prevents take-overs: granted. that would be very bad news. And note that the US$ weakend during the whole month of the Unocal fiasco.
6) I think we use the Vix as one of many examples of the slowdown in volatility. But yes: we believe that in recent years, this platform company phenomenon has really picked up its pace. After all, was it not surprising to see the Vix barely move higher when Refco went bust?
7) I am not sure I get this one- I don't think we argue for the eventual rise of inflation? Our argument there is that, as more companies adopt the platform model, they will base themselves in tax havens (i.e.: hedge funds, Electronic Arts, Tyco...). This means that income tax based systems will no longer be able to take their pound of flesh from either companies or high net worth individuals. Instead, tax revenue will have to be based on a) property, and b) sales taxes. Countries such as Hk are already thinking about making this switch...
8) Very true-cyclically, a period of deflationary bust might be in the cards. But the very long term trend of capitalism remains the deflationary boom!
Thanks for your input and taking the time to write a review-glad to hear you liked the book."
