Friday, January 13, 2006

More Friedman

Friedman continues to annoy, but he does get all excited about how you can turn anything into a financial instrument (specific examples: movie receipts and personal talent (see David Bowie and Korn)). Implicitely he's arguing (perhaps without knowing it) that we are moving closer to the world of general equilibrium theory where it is possible to buy insurance against all possible contingencies. If you think about, however, such a world is not only not our own world but can never happen because the set of all possible future worlds is infinite, so all existing and future humans could never write down insurance for all possible contingencies. Even if financial markets become more developed, it is impossible for them to become perfect.

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