A New Twist on an Old Joke

Economists aren’t very funny people, but an old joke shows us something:

Two economists are walking down the street. The first one says, “Look, there’s a $20 bill! Let’s pick it up.” To which the second replies, “Don’t bother. If it really were a $20 bill, someone would have picked it up by now.”

The story illustrates something about economics and academics. Economists often discuss markets and profit in the context of efficiency: when markets yield extremely high profits, new competitors come in and exploit those profits until they go away. The joke gets to the point that academics can take their theories too far.

Certainly, some people do get rich exploiting market opportunities. Hedge funds, new businesses, entrepreneurs all respond to opportunities created by distorted prices. And prices do adjust to reflect the conditions of the time. But it’s hard to make a career of finding money on sidewalks. You would need to figure out how to find it before everyone else does.

Sometimes, though, the opportunities last for a while. For example, high corn prices have encouraged Iowa farmers to plant more corn. Farm prices have risen as a result. At the margin, more folks will go into farming, and businesses like John Deere or Kubota will sell more tractors and pay more in dividends to their investors. Over the past five years, John Deere’s stock has almost doubled while the market has languished.

Nothing lasts forever, and eventually every $20 bill does get picked up. But the lesson here is that as long as you’re walking to your destination, you can find opportunities if you keep your eyes open.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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