[extropy-chat] When will the equity risk premium flip?

[Robin Hanson]

At 09:19 AM 2/26/2006, Robert Bradbury wrote:
>The perception of government security explains why government bonds 
>are yielding ~4.5% while corporate bonds are in the 5+% range. ...
>So let us setup a scenario.  One day we have robust 
>nanotechnology.  People spend $5.00 and buy their 10 kg of 
>nanorobots and start them building their Sapphire Mansion.  Since 
>they don't have to work they aren't paying any income 
>taxes.  Government income tax revenue rapidly falls.  So there is 
>some quick reengineering of the tax code and all the governments 
>shift to VATs.  But there isn't much worth buying because the raw 
>materials for food, the mansion, etc. are as free as "air", "dirt", 
>and "seawater".
>The point being that governments in general have little that can be 
>used as a revenue source other than perhaps a real estate tax or a 
>head tax.  People avoid those by constructing and moving to their 
>own personal yacht in international waters.  ... government backed 
>bonds become essentially worthless.  ...
>1) When will the equity risk premium "flip" ...
>2) Are there "idea futures" on when this will happen?
>3) When will politicians begin selling themselves based on these concepts? ...

I expect that, like me, most investors place a very low probability 
on this scenario, and so this scenario has very little influence on 
current financial market prices.   So if in fact this scenario came 
to occur, the main question would be when does information came out 
revealing this to be a probable scenario.


Robin Hanson  rhanson at gmu.edu  http://hanson.gmu.edu
Associate Professor of Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030-4444
703-993-2326  FAX: 703-993-2323