Peter Favaloro

34Joined Dec 2020

Comments
8

The reason sophisticated entities like e.g. hedge funds hold bonds isn't so they can collect a cash flow 10 years from now. It's because they think bond prices will go up tomorrow, or next year. 

The big entities that hold bonds for the future cash flows are e.g. pension funds. It would be very surprising and (I think) borderline illegal if the pension funds ever started reasoning, "I guess I don't need to worry about cash flows after 2045, since the world will probably end before then. So I'll just hold shorter-term assets."

I think this adds up to, no big investors can directly profit from the final outcome here. Though as everyone seems to agree, anyone could profit by being short bonds (or underweight bonds) while the market started to price in substantial probability of AGI.

Thanks a ton for this clarification! Very helpful.

Thanks for this! I oversee the Macroeconomic Stabilization grant portfolio at Open Phil. We’ve been reevaluating this issue area in light of the current macroeconomic conditions and policy landscape, and we’re planning to write more about our own perspective on this in the future -- so I won’t reply line by line here. But we're always eager for substantive external critique, so I wanted to flag that we'd seen this and appreciate you sharing!

One clarifying question: are you suggesting that we could reduce inflation risks without running higher unemployment in expectation? From my perspective, a dovish macroeconomic policy framework has both costs and benefits. We're generally going to face too-high inflation at one part of the business cycle and too-high unemployment at another part of the cycle. A philanthropist could push for a more dovish framework in order to minimize the UE overshoot at the expense of risking more inflation overshoot. I see those two risks as trading off against each other -- curious if you agree.

Thanks for this! I oversee the Macroeconomic Stabilization grant portfolio at Open Phil. We very much appreciate the thoughtful critique, and the reactions here. We don't do detailed reactions by default, but wanted to flag that we'd seen and appreciate you sharing. 


The risks you describe here are certainly worth considering, and we've tried to consider them whenever we make grants in this area. Historically, we didn't think they outweighed the benefits of more expansionary macro policy. But we've been reevaluating this issue area in light of the current macroeconomic conditions and policy landscape -- we might have more to say on that in the coming months.

If I were you, I'd try to reach out to people like the former Tory whip you quoted, and say, "We've got some money and some energized people, what are the other ingredients to make a difference on this? Who should we talk to, how do we plug into some existing infrastructure, etc."