Small serving of some econ pasta

Are we in a bubble?

Two economists won the Nobel prize together (in 2013) for their work on market bubbles. They did not win the award working in a team, far from it—they have quite the opposite views on bubbles. Yet they did.

I learned about this in a recent Planet Money podcast: What's A Bubble? It's a good listen. The hosts interview both the recipients to tease out their idea of a bubble and grill them with arguments raised from the other side.

My main takeaway was how economics is not like other pure sciences where you can categorically disprove or prove something. Economics is an evolving shared understanding of how things work. It welcomes surprises and differing opinions. Partly because it studies systems borne out of the mind of humans (and there are no right answers).

History in making

In other news, some policy decisions made in light of the pandemic will remain in place long after the pandemic ends. For example, California is considering changing the law that prohibits restaurants from serving cocktails to go. This was supposed to be a temporary change trialed last spring to help restaurants. And for what it’s worth, it has worked out pretty well.

What I find so interesting about this is how weird it might feel to some scholar 50 years down the road researching the history of this law. The pandemic will be long forgotten so the context would be lost and people would find it hard to understand the reasoning behind such a change.

By the way, that's how us software developers feel about some really old code in our codebases. And by really old, I mean maybe like 3 years old.

Stocks keep going up

Another story covered by Planet Money last year (they did a follow-up recently) was about Hertz. Hertz declared bankruptcy last spring at the start of the pandemic but people kept buying its stocks. That is generally a very bad idea. The stock is worthless and the shareholders will likely lose all the money since the company does not have enough to pay everyone (and the retail stockholders are last in line).

But, something else happened. Hertz was bought by some other company at very favourable terms. It was a perfect storm. This happened due to many things coming together at the right time like vaccines arriving earlier than expected and the demand for rental cars skyrocketing due to pent-up consumer demand. The supply chain being backed up for new cars also must have helped the company. In the end, shareholders did great and made money rather than losing.

This story and the California one before that were covered by Planet Money in The Rest Of The Story episode for summer 2021.

Putting it all in Dog money

Elsewhere, Robinhood dropped their S-1. It’s fair to say that Robinhood has changed the norm when it comes to investing such that it’s worth reconsidering your investing strategy. The meme stocks are here and they are here to stay. Their S-1 talks about how 17% of their Q1 revenue came from Dogecoin transactions. And it was not even a great quarter for Dogecoin.