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Betting That the S&P 500 Will Drop Over 30 Percent (i.e. Below 3029)

(One of my comments from LessWrong)

If we were to see inflation going back to levels expected by the Fed (2-3% I suppose?) how would that change your forecast?

Great question. So my view is that there could be a few potential triggers for a sell-off cascade (via some combination of margin calls and panic selling), leading to a large drop. There’s also a few triggers for increasing interest rates, not just inflation: The Fed doesn’t have a monopoly on rates. When they buy fewer bonds, they shift the demand curve left, decreasing the price, leading to higher effective interest rates. I’m kind of baffled that they speak about “tapering” as if it’s possible to do so without increasing interest rates.

The particular problem with persistent inflation is that the Fed is less able to increase the cash supply in the event of a large crash. So while I think that inflation isn’t necessary for a 30 percent drop (I’d say it’s over half of my credence), I expect it to magnify the downside if it is higher than normal right before a crash.

Interestingly, the Fed itself was (and probably still is) concerned about the current high valuations.

When you wrote “The main thing I’m worried about is increased savings” did you mean what you described in the previous paragraph (e.g. zero-NPV assets investing and alike), or was it something else?

When I say zero-NPV assets, I mean anything that doesn’t pay out future cash flows to investors, like gold, silver, bitcoin, and NTFs. Certain stocks are being traded as if they were these assets too (AMC, GameStop). I think investment in these things is indicative of mania.

I’m worried that the Fed has flooded the market with so much cash that the new normal for the CAPE ratio and PS ratio are close to what they are now. If it is, then margin-debt-to-GDP isn’t the relevant ratio anymore, margin-debt-to-total-market-cap is, which is not at as high of a level as margin-to-GDP. Basically, supposing we have a smooth exponential curve for the S&P 500, I’m worried about a one-off discontinuity in the graph. I’m also worried about people investing more of their income and net worth, which would have the same effect.

Betting That the S&P 500 Will Drop Over 30 Percent (i.e. Below 3029)

I’m thinking that you might be able to bet against experienced bettors who think that you’re the victim of confirmation bias (which you might be)

I’d say I’m neutral (though so would anyone who has confirmation bias). I’ve given reasons why these indicators may have lost their predictive value. My main concern is increased savings (and investment of those savings). But hey, we don’t get better at prediction until we actually make predictions.

I’m just looking for market odds. I’d prefer to read the other side that you mention before I size my bets, but I listened to Chairman Powell’s reasoning every time he gives it. Watching Bloomberg’s videos. Listened to Buffett explain why he’s still holding stocks (low interest rates). Let me know if I should be listening to something else. I’m very happy to read the other side if someone is giving their credences.

I’m not quite sure about my bet structure. I’ve got my probability distribution, and I want to bet it against the market’s implied probability distribution in such a way that I’m maximizing long-run growth. Not sure how to do that other than run simulations. If there’s a formula, please let me know.

Should We Have More Expansive Laws as an Alternative to Cancel Culture?

That’s a fair question. Culture is extremely important (e.g. certain cultural norms facilitate corruption and cronyism, which leads to slower annual increases in quality of life indices), but whether cancelling, specifically, is a big problem, I’m not sure.

Government demonstrably changes culture. At a minor level, drink-driving laws and advertising campaigns have changed something that was a cultural norm into a serious crime. At a broader level, you have things like communist governments making religion illegal and creating a culture where everyone snitches on everyone else to the police.

If we can influence government policy, which I think we can, we can influence culture. It’s probably much easier when most people aren’t questioning a norm (drink-driving, again, being a good example), but I think you’re right in this case: Since cancelling is fairly common to talk about, it’s probably much harder to change the general discourse (and the laws).

Should We Have More Expansive Laws as an Alternative to Cancel Culture?

Thanks for the link; I should read Overcoming Bias more. I liked Hanson’s Futarchy idea, specifically the idea of replacing the Fed with financial instruments (which I can no longer seem to find anywhere). (Though I think the idea of tying returns of a policy’s implementation to GDP+ is doomed for several technical reasons, including getting stuck at local maxima and a good policy choice being a losing bet because of unrelated policy failures). I think he probably influenced my prison and immigration idea, and really my whole methodology (along with Alvin Roth’s Who Gets What and Why).

For a few of the reasons you outlined, I wrote, “[people would also be fined] for the offence of participating in an online pile on”. Which, quite possibly, is not technically feasible (at least not without requiring the major platforms to verify real-life identity). But making pile-ons illegal doesn’t fix your last point (i.e. how to agree upon the rules especially without throwing mud at each other).

I don’t think expansive laws will ever solve the whole problem. But something like adultery, for instance, is seen almost universally as morally wrong, but there’s no fine associated with it (in fact, there can actually financial benefit if you’re not the main breadwinner).

But yes, I do not think making laws more expansive is a good solution at all. I’m trying to signal my level of confidence by separating ideas into posts (proposals that I’ve thought about a lot and considered many alternatives) and questions (proposals that I’ve just loosely considered, and I’m asking for better alternatives).

Should Grants Fund EA Projects Retrospectively?

Well now I'm definitely glad I wrote "is not a new idea". I didn't know so many people had discussed similar proposals. Thank you all for the reading material. It'll be interesting to hear some downsides to funding retrospectively.

I mentioned the Future of Life Institute which, for those who haven't checked it out yet, does the "Future of Life" award. (Although, now that I think about it, all awards are retrospective.) They also do a podcast, which I haven't listened to in a while but, when I was listening, they had some really interesting discussions.

Politics is far too meta

It's not that any criticism is bad, it's that people who agree with an idea (when political considerations are ignored) are snuffing it out based on questionable predictions of political feasibility. I just don't think people are good at predicting political feasibility. How many people said Trump would never be president (despite FiveThirtyEight warning there was a 30 percent chance)?

Rather than the only disagreement being political feasibility, I would actually prefer someone to be against a policy and criticise it based on something more substantive (like pointing out an error in my reasoning). Criticism needs to come in the right order for any policy discussion to be productive. Maybe this:

  1. Given the assumptions of the argument, does the policy satisfy its specified goals?
  2. Are the goals of the policy good? Is there a better goalset we could satisfy?
  3. Is the policy technically feasible to implement? (Are the assumptions of the initial argument reasonable? Can we steelman the argument to make a similar conclusion from better assumptions?)
  4. Is the policy politically feasible to implement?

I think talking about political feasibility should never ever be the first thing we bring up when debating new ideas. And if someone does give a prediction on political feasibility, they should either show that they do produce good predictions on such things, or significantly lower their confidence in their political feasibility claims.

Politics is far too meta

saying that it's unfeasible will tend to make it more unfeasible

Thank you for saying this. It's frustrating to have people who agree with you bat for the other team. I'd like to see how accurate people are for their infeasibility predictions: Take a list of policies that passed, a list that failed to pass, mix them together, and see how much better you can unscramble them than random chance. Your "I'm not going to talk about political feasibility in this post" idea is a good one that I'll use in future.

Poor meta-arguments I've noticed on the Forum:

  • Using a general reference class when you have a better, more specific class available (e.g. taking an IQ test, having the results in your hand, and refusing to look at them because "I probably got 100 points, because that's the average.")
  • Bringing up common knowledge, i.e. things that are true, but everyone in the conversation already knows and applies that information. (E.g. "Logical arguments can be wrong in subtle ways, so just because your argument looks airtight, doesn't mean it is". A much better contribution is to actually point out the weaknesses in the specific argument that's in front of you.)
  • And, as you say, predictions of infeasibility.
Good v. Optimal Futures

within some small number

In terms of cardinal utility? I think drawing any line in the sand has problems when things are continuous because it falls right into a slippery slope (if doesn't make a real difference, what about drawing the line at , and then what about ?).

But I think of our actions as discrete. Even if we design a system with some continuous parameter, the actual implementation of that system is going to be in discrete human actions. So I don't think we can get arbitrarily small differences in utility. Then maximalism (i.e. going for only ideal outcomes) makes sense when it comes to designing long-lasting institutions, since the small (but non-infinitesimal) differences add up across many people and over a long time.

Good v. Optimal Futures

I think he's saying "optimal future = best possible future", which necessarily has a non-zero probability.

How to Fix Private Prisons and Immigration

Agreed, but at least in theory, a model that takes into account inmate's welfare at the proper level will, all else being equal, do better under utilitarian lights than a model that does not take into account inmate welfare.

What if the laws forced prisons to treat inmates in a particular way, and the legal treatment of inmates coincided with putting each inmate's wellbeing at the right level? Then the funding function could completely ignore the inmate's wellbeing, and the prisons' bids would drop to account for any extra cost to support the inmate's wellbeing or loss to societal contribution. That's what I was trying to do by saying the goal was to "maximize the total societal contribution of any given set of inmates within the limits of the law". There definitely should be limits on how a prison can treat its inmates, even if it were to serve the rest of society's interests.

But the more I think about it, the more I like the idea of having the inmate's welfare as part of the funding function. It would avoid having to go through the process of developing the right laws to make the prison system function as intended, and it's better at self-correcting when compared to laws (i.e. the prisons that are better at supporting inmate welfare will outcompete the prisons that are bad at it). And it would probably reduce the number of people who think that supporters of this policy change don't care about what happens to inmates, which is nice.

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