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Wednesday, December 24, 2008

This Has Been a Long, Long Month

After putting more nearly $40,000,000 into the project and having fully tooled production units, our robot vacuum cleaner partner decided to cancel their participation in the project, citing deteriorating economic conditions as one of the primary reasons. There goes that future royalty stream (unless we manage to scrounge up another partner).

After working day and night on a robotic grape vine pruner demo, the investors, though suitably impressed by the demo, are in no hurry to invest more money to help bring the project closer to production, citing - you guessed it - deteriorating economic conditions.

So far, we haven't let go any employees (only consultants). However, unless things change soon, I predict deteriorating economic conditions for at least some of my employees by the end of next year. Perhaps even deteriorating economic conditions for me (I'll probably take unpaid leave before letting employees go)!

The problem with Obama holding back on raising taxes until economic conditions improve is that it still doesn't provide an incentive for investors to invest. If the economy stays crappy, they'll lose their money. If the economy does well, then Obama will raise taxes and they'll have their gains taxed away. Those who have invested in my company so far are telling me they see no point in making any investments in any company, especially risky ones, under such circumstances.

Oh well. On the other hand, my family and I are healthy, live in a nice place, have enough savings to get by, and I've really enjoyed the robotics work even if it doesn't look like I'll end up making much money from it, so I really can't complain.

I hope you all are well and have a Happy Holidays!

Thursday, November 13, 2008

Everyday Economics - The Children's Laundry

This story is one of incremental policy change and evolutionary optimization of the extended order. This is the story of unintended and unforeseen consequences. This is the story of capitalism versus socialism. This is the story of incentives, both conscious and unconscious.

This is the story of my children's laundry.

We have two daughters who, in the past, generated a truly impressive amount of dirty laundry. As an example, on a not untypical day, the younger daughter would change from pajamas to an outfit after waking up and getting out of bed, then change into soccer clothes for soccer practice. After soccer, she would come home, take a shower and then lounge about in another pair of pajamas for a while, and then change into yet another outfit to go out to dinner in. Finally, she would change back to another fresh pair of pajamas for bed. Our daughters would manage to sneak all of these clothes into the dirty laundry hamper, usually after being worn just once.

Oh, and did I mention towels? It sure is nice to have a fresh towel for every bath, isn't it? Especially if the towels magically appear clean, dry, and folded whenever they're needed. After all, there was no cost of generating dirty clothes or towels for the children.

Up until about six months ago, my wife did the vast majority of the laundry, including washing, drying, folding, and putting away. My wife implored the children to generate less dirty laundry, trying to appeal to their noble natures that they should help her, even trying to get them to be good world citizens by not wasting energy and water for cleaning more dirty clothes than necessary. However, the amount of laundry kept increasing. The washer and dryer were operating several hours per day. It was driving my wife crazy and I was beginning to fear for her mental health.

You may wonder, in this age of gender equality, why was my wife was doing the laundry instead of me? That's because my wife has a plethora of incredibly complex and non-obvious (to me) rules about how laundry ought to be done that I can never seem to remember and/or get right. Certain clothes aren't supposed to be washed with other clothes. Certain clothes are to be pulled out of the dryer after certain numbers of hours (or was that minutes?). All clothes are to be removed from the dryer as soon as the dryer cycle is finished. Things like that.

I, on the other hand, just stuff any old pile of dirty clothes into the washer and then the dryer, wait until they are all completely done drying, and then, usually within a day or two, remove the clothes from the dryer and work towards getting them folded. Granted, the clothes are a little more wrinkly than when my wife does the laundry and my shirts and underwear that used to be white now have a pinkish, bluish, greenish, brownish, grayish tinge, but it doesn't bother me and I don't understand why it bothers my wife. But it did bother her so she wouldn't let me touch the laundry. Heck, she wouldn't even let the maids touch the laundry!

However, I insisted on taking over the laundry. I decided to exert my authority and I said, "I'm the man of the house and I'm going to do the laundry!" Or something like that.

So I started doing laundry.

Last century saw socialism versus capitalism experiments on a massive scale and at least the extreme versions of socialism did quite poorly. However, there are typically gazillions of tiny socialism versus capitalism experiments happening across the world each and every moment. These experiments take shape in the realm of family dynamics.

My wife's approach to laundry was basically socialism. From each according to her abilities, to each according to their needs. My wife was, according to her, the only person with the ability to wash the clothes and my children feigned incompetence for all aspects of the laundry process - especially the folding and putting away part of the process. So therefore, under the rules of socialism, my wife ended up doing it all.

Just as my wife's approach was basically socialism, my approach to the whole problem is more like capitalism. I wash and dry my children's clothes, but I don't fold them. Instead, I leave them in the basket and tell the children to fold and put away their own clothes. They were a little slow at first to get to it, but once they realized that their clothes were going to just sit there forever, and as they started to consistently run out of stuff to wear, they started folding their clothes when asked.

And lo and behold - the number of loads of dirty laundry per week plummeted! Amazingly, the children, of their own volition, started avoiding changing clothes multiple times per day, started re-using outfits and pajamas, and kept clothes off of the floor so they'd stay clean longer. Just because they don't like folding clothes!

Incentives are an amazing thing!

I doubt the change in behavior was conscious on their part. I'm confident that they never really thought it through. I think that over time they subconsciously made the association that every bit of laundry they put in the hamper became a bit of laundry they had to fold. And that every time they pulled out a new outfit instead of wearing the one they left draped on a chair became a bit of laundry that ended up in the hamper. It was all an incremental, evolutionary and unconscious optimization.

This result was also completely unforeseen by me. I was surprised as could be. Indeed, it was only because of the stunningly obvious reduction in laundry that I even noticed.

Remember, my only goal was to relieve my wife of a hassle. It takes me almost no time to load the washer and dryer. I really don't care how many loads I do. So my wife was freed from laundry slavery and I didn't mind my part so I didn't think it through beyond that point.

Unintended and unforeseen consequences are often negative, but not always. In this case, they were extremely positive. Not only did we help save the planet (and some hard earned money) by reducing the number of loads of laundry and the resources required to do them, but my children have learned to be responsible citizens of the household and have developed good habits.

This is yet another example of incremental improvements that are being continuously made by people everywhere when not hampered by outside interference that move civilization forward.

Wednesday, November 12, 2008

The Paradox of Thrift

Are you feeling a bit poorer right now? Did your portfolio get a haircut lately (or a massive defoliation from head to toe)? Does the future suddenly not look as rosy to you? Are you thinking of saving more in the coming months and years (and centuries) to try and make up for recent losses?

Yeah, me too. Join the crowd.

Unfortunately, savings is inherently selfish. It's only good for the saver, not for the economy as a whole. Even worse, in a recession due to weak demand, the more we try to save in aggregate, the less we'll all end up saving. This is known as the Paradox of Thrift (or Paradox of Saving):
[It] is a paradox of economics propounded by John Maynard Keynes. The paradox states that if everyone saves more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population. One can argue that if everyone saves, then there is a decrease in consumption which leads to a fall in aggregate demand and thus leads to a fall in economic growth.
The extreme case is easy to see. If we all decide to buy and consume absolutely nothing at all (i.e., save everything we make), then there would be no reason to produce anything, therefore no reason for employers to employ and pay anybody, and therefore no one would have a job or any money to save. We'd all ending up starving in the dirt.

Applying The Paradox of Thrift to the current situation, Bob McTeer, who was the President of the Federal Reserve Bank of Dallas, writes:
The problem for the economy is this: consumption makes up about 70 percent of total spending, and consumption has been supporting the economy for years even though the personal saving rate is close to zero. The reason is that individual consumers who have experienced capital gains in their homes and in their stock or mutual fund portfolios (including those in their pension funds, 401Ks, IRAs, and the like) have thought of those capital gains as saving and thus have been willing to consume virtually all of their current income. (This is legit for individuals, but not for the nation as a whole since resources aren't being made available by capital gains.)
His conclusion (which I agree with), isn't a happy one:

I've recently heard economists say that, if saving increases, it will reduce consumption; but they imply that the result will be just a reduced growth rate. Perhaps. However, if saving increases on a broad scale, as it should, based on individual circumstances, the outcome could be a severe recession. [...]

I hope I'm wrong, but this is not just a curiosity. Consumer spending is key to a recovery from the recession. A sharp decline in consumer spending would only make the recession worse even though-individually-it is the right thing to do. We are in a pickle.

Apparently, he doesn't like pickles.

So if you really want to help the country, don't save! Instead, consume till you drop!

Monday, November 10, 2008

Reactive Versus Predictive

Conservatives and Republicans have been relatively calm about Obama's victory. Numerous conservative pundits have called for measured responses. For example, Pajamas Media's NeoNeocon advises:

But I suggest that everyone stand back, take a deep breath, and wait. Wait, and observe. ... The goal of each of us should be to react only to evidence, not fear.

Unfortunately, some of us are not in a position to just wait, observe, and react. Those of us who are attempting to build companies actually need to do some predictin' along with our reactin'. We don't have the luxury of only reacting to events as they unfold.

We've got to guess what sort of capital will be available as we grow. We've got to foresee new and onerous regulations (like the devastating Sarbanes-Oxley). We have to forecast demand for our goods and services.

The less we can do that, the more risk there is in every decision. And there's a lot of risk and guess work in the best of situations.

This is not the best of situations. And I'm not even talking about the financial fiasco, credit crunch, market meltdown, or whatever.

Obama won the election as a blank slate. That means I have no idea what he's going to do. Is he really going to raise tax rates for the "rich"? Is he really going to increase the capital gains rates? Is he really going to spend (literally) untold sums on massive new government programs requiring huge government borrowing?

If so, I'm screwed. Plain and simple. Because while leviathan companies like IBM, GE, Microsoft, etc. might be somewhat inconvenienced by higher real costs of financing, small companies like mine, at the margin, are the first to lose access to capital. Only the rich invest in speculative startups like mine. It's actually illegal for non-rich people to invest (or, more accurately, illegal for me to knowingly accept investments from the non-rich). So if the rich decide that, due to taxes, they're better off with tax-free municipal bonds instead of riskier, speculative investments, I'm out-of-luck. So are my suppliers, my employees, their families, etc.

Even worse (or at least as bad), I have no choice but to assume the worst, because I have no idea what Obama and Congress are going to do. Since many of the decisions that I need to make are long term, it's not even good enough to guess what's going to happen next year. I need to have an idea of the tax and regulation trends for the next three to five years.

I guess for people who have steady jobs, it is possible just to sit back and react to whatever comes like NeoNeocon suggests. But for those of us trying to build viable companies, that just won't work.

High Finance

The financial problems continue to be of great interest to me so I'm continuing to investigate it in my slow and plodding manner (hey, it's mostly just a hobby for me these days so it gets a low priority). Someday, I may be able to actually draw some solid conclusions about it with some confidence. I'll be sure to report back when and if that happens.

In the meantime, I grow more and more convinced that the government should have just let the financial institutions fail and then compensated by having the Fed pump liquidity into the system at a much higher rate. Don Luskin's recent National Review article identifies problems so far with the bailout which illustrates just how fiendishly difficult it is for a central agency to plan and execute such things:

When the Fed sets the precedent that it will, on a weekend when normal market processes aren’t available, hand over a troubled bank to a competitor at a price well below its market value—below even its value in bankruptcy—there’s no incentive to remain a shareholder at all. Long-term shareholders, who ought to be incentivized to stick with banks that run into difficulty, instead receive the message that they should flee at the first sign of trouble lest they be wiped out by the “rescue.” Stronger banks, sovereign-wealth funds, and other private investors that might profitably help a troubled bank by investing in it learn instead to wait for trouble to boil over into crisis, at which time the Fed will practically give the bank away on a Sunday night.

What’s worse, speculators get the message that they can push banks over the brink by shorting their stocks and spreading rumors, driving share prices so low that it becomes prohibitively costly to raise new capital—assuming anyone would dare invest new capital—and the Fed or some other regulator then has no choice but to step in and put them out of their misery. Such speculative attacks work on any bank the government deems “systemically important”—the new way of saying “too big to fail.”

The other thing I've noticed while investigating the subject, is that the ratio of profits in the financial industry versus all other industries has been steadily rising. Forty years ago (1967), about $1 in $7 of total profits in the United States was made by a firm in the financial industry. Twenty years ago (1987) it was about $1 in $4. Last year (2007), it was almost $1 in $3.

Both the trend (which is pretty smooth) and the direction are worrying to me. The financial industry is an enabler of production, but doesn't actually produce anything of value itself, so to absorb that much of the entire economy's profit incentive seems like a distortion. There may be perfectly good reasons for the trend. For example, the total profit relative to the global economy has probably not increased as much, and the United States does have an oversized share of the global finance business. But still, bailing out the most profitable sector is a bit tough to swallow.

Tuesday, November 04, 2008

Amazing contrast

Over at Maggie's Farm

One quote from Obama on the Constitution:

(It )"says what the states can’t do to you. Says what the Federal government can’t do to you, but doesn’t say what the Federal government or State government must do on your behalf, and that hasn’t shifted and one of the, I think, tragedies of the civil rights movement was, um, because the civil rights movement became so court focused I think there was a tendency to lose track of the political and community organizing and activities on the ground that are able to put together the actual coalition of powers through which you bring about redistributive change. In some ways we still suffer from that.”

The community organizing? Are you joking? More at Surber. I do not think that he understands the concept of freedom at all. That concerns me. I think the Constitution is quite clear about the role, and mainly the limits of the Federal government. They knew all about power-seeking. It's one of the things that makes us unique.

OJ presents this from Bill Kristol and the enduring Reagan Revolution:

It's interesting that Barack Obama keeps talking about spreading the wealth, and yet sometimes he comes across as an elitist.

He is very much a product of Harvard Law School…and that's fine. But I do think he believes that if he gets the really smart guys in a room in Washington or New York, they can sort of retool the American economy. I don't think he has that fundamental, I would call it a Hayekian belief—after Friedrich Hayek, the great Austrian economist—in the limits of central planning, the limits of very smart people's abilities to figure things out. I do think Obama is instinctively very much a government-knows-best guy.

I can't help but contrast the Obama view with that of Maggie Thatcher:

There is a great story of Margaret Thatcher, after being urged to be more moderate at a political meeting, reaching into her handbag for a book which she then held up for all to see. Throwing this book down on the table she proclaimed, "this is what we believe."

The book was Hayek's The Constitution of Liberty. What a truly amazing contrast.

Monday, November 03, 2008

I'm Grateful

I think that the United States is going through a realignment towards socialism right now and that realignment will continue regardless who wins the election tomorrow. I think that's unfortunate for the United States in general and for me in particular.

However, at the same time, I'm thanking my lucky stars that I was born in the right place at the right time. Reagan was elected when I was 21 and I've gotten 28 years of entrepreneur friendly administrations and witnessed an explosion in the technologies that I find interesting. In a few more years my career will probably start to wind down anyway as I get older, so socialism won't have nearly the negative impact on me now as it would have when I was young.

Before the positive career implications of the Reagan tax cuts occurred to me, I was pretty wild and unpredictable. I would work a couple of months as a programmer, then take off several months to party. I motorcycled across the country twice, crewed on a sailboat for many weeks, and generally goofed off.

That was a really fun, if somewhat austere, life. I was in some sense homeless for awhile. Sure, I had places I could go if I so chose. But for weeks on end it was just me and my motorcycle. I had no mailing address, no phone (this was before cell phones), and there was no way to get hold of me. I slept on the ground and I would go swimming in lakes with my clothes on to get me and my clothes clean at the same time (I didn't have anything else to wear so I couldn't go to a laundromat). I lived on less than ten dollars a day. But, I was really, really, really free.

Several of my friends discussed starting companies while we were in college (and some of them actually did so), but I figured that taxes were so high that there didn't seem to be much point in putting in all the effort. I figured it was much better to be free and party.

But with Reagan's tax cuts, the equation changed and my laziness lost out to my greed and I've averaged more than 60 hours of work per week since I was 23. As much as I liked the "free spirit" portion of my life, the working portion of my life has turned out to be significantly more fulfilling - especially when considering the wife and kids thrown in as an added bonus. I haven't made all that much money, but I've had the opportunity to start interesting companies and work with interesting people doing interesting things. I've had every chance that one could hope for and a large part of that chance and opportunity was the low tax, pro-market environment created by Reagan and mostly maintained by his successors (so far).

For that I am grateful. I will vote my conscience tomorrow, but I will fully accept the decision of the majority, and if that involves a change in the direction of the country going forward toward socialism, so be it. I will keep doing the best that I can.

Wednesday, October 29, 2008

Where Did I Put That Book?

I had some technical algorithm work to do at home, so I took my copy of "Numerical Recipes in C" home with me. When the time came to use it, I couldn't find it anywhere. It wasn't in the car, wasn't anywhere in the house that I could see, it wasn't at work (I thought that maybe I'd forgotten to bring it home). It seemed to have disappeared from the face of the earth.

I asked my wife about it:
Me: Have you seen a big, red reference book anywhere?

Her: No. What's the name of it?

Me: Numerical Recipes in C.

Her: Have you looked in the cupboard where we keep the cookbooks?
Sure enough, there it was. It turns out that the student who watches our kids after school had been tidying up and "recipes" was the only word she recognized in the title so she put it with the cookbooks.

What impressed me most, though, was the fact that my wife immediately knew where it was when I told her the title.

Aspects of markets and a free market system

In discussions over various ideas about political economy people bring a variety of notions and observations to the table. I try to look at history, data, and theory as they relate to events and the actions of individuals and groups. One of the mental models that I keep in mind in light of this is based upon the concept of complexity. A comment on this post made me think about it again:
Unsupervised markets always crash.
That is not a particularly shocking observation to my mind. The implication might be that supervised markets don't crash. My thought is that they just take longer to get to a point of criticality. Complex systems tend to exhibit a behavior called self-organized criticality.

Ming the Mechanic offers this:
We might over-simplify things for our purposes and say that there are three kinds of states of a system:

- equilibrium
- criticality
- chaos

If you poke at a system that is in equilibrium, nothing much happens. Or, if something happens to it, it would tend to go back to the same state as before.

If you poke at a system that is in chaos, something random will happen. If you poke at a system that's bordering on chaos, obviously something very random and chaotic might happen.

If you poke at a system that is complex, in particular one that is self-organized criticality, something is likely to happen. Probably something small, but maybe something big.

Despite that we've talked about avalanches and earthquakes, it should be stressed that the critical state is not chaos. It is not just some random catastrophe. It is ordered, although not in a way that's very transparent to us humans.

The critical state is also robust. It is always on the edge, but the edge is stable, although changing.

That might be hard to wrap one's mind around. Think about a wave in the ocean. It is neither in equilibrium nor is it chaotic. It is critical. It is the edge. There are small waves and big waves. They're all connected. If you watch a particular wave, it is moving, but it remains coherent as a wave, at least until it eventually crashes on the beach. If you're a surfer, you can catch a good wave and ride on it. When you're done with it, you can catch another. Waves are not random, they don't just come out of nowhere. You might not understand exactly how a wave came about, but you can learn to have a sense of whether one is coming, and you can catch it.

Social networks seem to self-organize towards criticality. They follow power laws. There are many small events and few big events. All sorts of frequencies are mixed together. There's a relatively pleasing pink noise. The network dynamically self-organizes itself into the most efficient state it could, without anybody being in charge. Many relationships have formed. The many actions of many individuals have woven a web of complexity. The network has over time become wound up in many ways.

So, in a complex social network, if you do something, something might happen. Something is more likely to happen than if all connections were random, or if it was neatly ordered in some very balanced way. Mostly small things happen, but there's an opportunity for big things to happen. You drop a message to somebody else, and if it is the right kind of message at the right time, the network is ready to allow a chain reaction to happen. Millions of people might be talking about it tomorrow. No guarantees, but the network is ready for you.

We ought to understand all of this better, of course. It seems to be a human tendency to try to fight against it. Central banks try to keep the economy in a perpetual equilibrium. Industrialized farming tries to grow just the crops we think we want, and nothing else. We try to organize things so that nothing bad ever happens. But we might at the same time be sabotaging the mechanisms that allow great things to happen.

We might need to learn to surf on the edge of the wave of complex change, rather than seek in vain the safety between the waves.
Technically, the region between equilibrium(very simple order) and chaos is called complexity and a point just before a major change is called critical, otherwise not a bad take.

Per Bak gives us this

There are reasons to suggest that socio-economic systems might organise themselves into a critical state with avalanches of change at all sizes via which dissipation mostly works itself out. This is a proposition to be tested but already statistical data like that found by Mandelbrot, Moss and Lux suggest that some variables change via avalanches of all sizes and that the power law distribution describes behaviour for some of these variables. Avalanches may serve, for instance, as a means of dissipation for the internal forces in markets.

A socio-economic system might become catastrophically unstable if the system were manipulated and forced to attain a certain optimal state interfering with its natural dissipation process. This has been observed in centrally controlled economies like that in Russia. However, it does not mean that any external control or influence generates this kind of 'negative' consequence. If an economy were a critically self-organised system, it might be controlled in such a way as to take advantages of its SOC properties. For example, it might be the case that in a weak economy (highly dependent on foreign markets), such as those in developing countries, some controls to protect the country from variations in the markets would help in changing towards or remaining on a 'good' development path. Better understanding of the dynamics of self-organised systems might allow to enhance those factors that minimise the number of large avalanches by channelling system dissipation through more frequent avalanches of small size.

FYI, Mandelbrot on finance , more and a good interview plus John Tierney gives mention.

We are quite likely dealing with an evolved system of fractal dimension in financial markets, the economy and the broader society. If so, rules, regulations and institutions oriented towards resilience and adaptation might serve better than those focused so intently just upon stability and they will need changes to keep up with an evolving world.

Tuesday, October 28, 2008

That's Worrisome

Art Laffer, known for the Laffer Curve, predicts The End of Prosperity:

About a year ago Stephen Moore, Peter Tanous and I set about writing a book about our vision for the future entitled "The End of Prosperity." Little did we know then how appropriate its release would be earlier this month.

Financial panics, if left alone, rarely cause much damage to the real economy, output, employment or production. Asset values fall sharply and wipe out those who borrowed and lent too much, thereby redistributing wealth from the foolish to the prudent. This process is the topic of Nassim Nicholas Taleb's book "Fooled by Randomness."

When markets are free, asset values are supposed to go up and down, and competition opens up opportunities for profits and losses. Profits and stock appreciation are not rights, but rewards for insight mixed with a willingness to take risk. People who buy homes and the banks who give them mortgages are no different, in principle, than investors in the stock market, commodity speculators or shop owners. Good decisions should be rewarded and bad decisions should be punished. The market does just that with its profits and losses. [...]

Now enter the government and the prospects of a kinder and gentler economy. To alleviate the obvious hardships to both homeowners and banks, the government commits to buy mortgages and inject capital into banks, which on the face of it seems like a very nice thing to do. But unfortunately in this world there is no tooth fairy. And the government doesn't create anything; it just redistributes. Whenever the government bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least $130 billion in taxes, where the $30 billion extra is the cost of getting government involved.

If you don't believe me, just watch how Congress and Barney Frank run the banks. If you thought they did a bad job running the post office, Amtrak, Fannie Mae, Freddie Mac and the military, just wait till you see what they'll do with Wall Street. [...]

Giving more money to people when they fail and taking more money away from people when they work doesn't increase work. And the stock market knows it.

The stock market is forward looking, reflecting the current value of future expected after-tax profits. An improving economy carries with it the prospects of enhanced profitability as well as higher employment, higher wages, more productivity and more output. Just look at the era beginning with President Reagan's tax cuts, Paul Volcker's sound money, and all the other pro-growth, supply-side policies. [...]

The stock market is obviously no fan of second-term George W. Bush, Nancy Pelosi, Harry Reid, Ben Bernanke, Barack Obama or John McCain, and again for good reasons.

These issues aren't Republican or Democrat, left or right, liberal or conservative. They are simply economics, and wish as you might, bad economics will sink any economy no matter how much they believe this time things are different. They aren't. [...]

There are many more examples [of disastrous government interventions], but none hold a candle to what's happening right now. Twenty-five years down the line, what this administration and Congress have done will be viewed in much the same light as what Herbert Hoover did in the years 1929 through 1932. Whenever people make decisions when they are panicked, the consequences are rarely pretty. We are now witnessing the end of prosperity.

Laffer is certainly partisan, presents oversimplified concepts, and has been ridiculed extensively. However, his actual predictions over his long career haven't always been all that far off. I hope this is one of his bad predictions, but I do agree that the government has made a big mistake meddling here, so I'm worried.

Thursday, October 23, 2008

Fooling Themselves

Arnold Kling on the financial Crisis:
Economists ought to admit that we do not know much about what is going on today. Neither do the Fed Chairman and the Treasury Secretary. Of course, the market demand is for "strong" leaders and for "strong" economists, who can fool the public into believing that they have great knowledge. The ones who do this best are those who have fooled themselves.
My guess is still that if the bailout "works" it probably wasn't needed. If it doesn't work - well, then it was a total waste of effort. But we'll never know and we have our "strong" leaders instead. Oh joy!

Plain old fun




bottom to top:

The right tools

Wealth Spread, "Made with 100% taxpayer sweat."

Obama Says Tire Pressure Is the Key to Energy Independence

3 little dandies!

Tuesday, October 21, 2008

Sometimes the mask slips

No thanks to the mainstream media, we are finally getting a sense of who Barack Obama is:
Strip away Obama's deep-timbred voice and his puffball platitudes, and what remains is nothing more than an academic radical using Chicago machine politics to grab a power base and using smoke-and-mirrors to project a pleasing image. The way to break through this "Obama Effect" is to focus on substance, and let the people decide.
The candidates response to Joe the plumber along with the sliming that followed were very revealing and are a slipping of the mask. Bret has made his attitude known.

Neoneocon calls Obama a soft socialist: see here

Bookworm has a piece at American Thinker in which she makes the point that it might be more instructive to divide ourselves on a continuum of Statists vs. Individualists rather than Liberals vs. Conservatives.

Obama, of course, would be a statist, of the “soft socialism” type. Look to Europe for the template. And look to the British or Canadian health care systems for a preview of just how well it works (hint: anyone with any money goes outside the system for treatment because of the unconscionable waits and the substandard care).

I think it’s even worse than that, however: I’ve noticed Obama showing signs of being at least somewhat simpatico with hard socialism, of the Hugo Chavez type. We don’t know for sure (and I sincerely hope I am incorrect!), because we don’t really know what Obama is made of inside. His record is sparse, but what we see of it is far more to the hard Left than his current rhetoric would indicate. His worrisome propensity for blocking speech that is critical of him is troubling. And of course there are his myriad associations with those whom Steve Diamond has termed the authoritarian Left.


Sol Stern delves into Ayers here
Calling Bill Ayers a school reformer is a bit like calling Joseph Stalin an agricultural reformer. (If you find the metaphor strained, consider that Walter Duranty, the infamous New York Times reporter covering the Soviet Union in the 1930s, did, in fact, depict Stalin as a great land reformer who created happy, productive collective farms.) For instance, at a November 2006 education forum in Caracas, Venezuela, with President Hugo Chávez at his side, Ayers proclaimed his support for “the profound educational reforms under way here in Venezuela under the leadership of President Chávez. We share the belief that education is the motor-force of revolution. . . . I look forward to seeing how you continue to overcome the failings of capitalist education as you seek to create something truly new and deeply humane.” Ayers concluded his speech by declaring that “Venezuela is poised to offer the world a new model of education—a humanizing and revolutionary model whose twin missions are enlightenment and liberation,” and then, as in days of old, raised his fist and chanted: “Viva Presidente Chávez! Viva la Revolucion Bolivariana! Hasta la Victoria Siempre!”

Melanie Phillips enlightens us further with this
The contrast between, on the one hand, the huge amount of material about Obama’s radical associations that has been published in on-line journals and in a few brave newspapers, and on the other the refusal by big media to address it and to vilify those who do, becomes more astounding by the day. The Obamaniacs are spinning the relationship between Obama and William Ayers, former of Weather Undergound Terrorism Inc, as of no consequence because this was supposedly a chance acquaintance and because the educational project they worked on, the Annenberg Challenge, was a worthy one.

Stanley Kurtz now nails that canard by showing how, through the Annenberg Challenge, Obama and Ayers channelled funds to extremist anti-American Afrocentric ‘educational’ programmes which were a carbon-copy of the world view of Pastor Jeremiah Wright, Obama’s black racist mentor who, under pressure, Obama was forced to repudiate. These programmes promoted, amongst other radical ideas, the ‘rites of passage’ philosophy which attempted to create a ‘virtually separate and intensely anti-American black social world’ in order to ‘counter the potentially detrimental effects of a Eurocentrically oriented society.’

As Kurtz wrote:

So it would appear that Obama’s own writings solve the mystery of why he stayed at Trinity for 20 years. Obama’s long-held and decidedly audacious hope has been to spread Wright’s radical spirit by linking it to a viable, left-leaning political program, with Obama himself at the center. The revolutionizing power of a politically awakened black church is not some side issue, or merely a personal matter, but has been the signature theme of Obama’s grand political strategy.


You have to pinch yourself – a Marxisant radical who all his life has been mentored by, sat at the feet of, worshipped with, befriended, endorsed the philosophy of, funded and been in turn funded, politically promoted and supported by a nexus comprising black power anti-white racists, Jew-haters, revolutionary Marxists, unrepentant former terrorists and Chicago mobsters, is on the verge of becoming President of the United States. And apparently it’s considered impolite to say so.

Obama is perhaps less embittered than the typical radical academic leftist. He certainly understands that a moderate front must be presented to the public to get elected to high office in America.

As comedian Yakov Smirnoff says, "what a country."

Fighting Against the Current

Economics is pretty complicated, but there are a few fundamental rules that are nearly universally true. One of those is that if you want less of something, tax it (or increase the taxes on it).

Therefore, if you increase the taxes on working, you will get less work (i.e., people will work fewer hours). If people work fewer hours, fewer goods and services will be produced. If fewer goods and services are produced, our country will be less wealthy overall.

Can a poorer country make the poor better off? It's at best tricky because you have to give the poor an even larger slice of the smaller pie to do that. It's like swimming upstream and fighting against the current. It may be possible to funnel enough of the limited extra taxes efficiently enough to the poor to make them better off, but it's a bad bet in my opinion.

A Three Letter Word

According to an article in the Boston Herald, "Sen. Biden ... recently told supporters that Obama’s highest priority “is a three-letter word: Jobs! J-O-B-S.”

Unfortunately, Biden may have the math right. If Obama gets elected, his policies might mean that the number of new jobs created may well be singular. There might only be one job created during his whole term: "Job! J-O-B," a three letter word, just like he said.

Sunday, October 19, 2008

Joe the Plumber

Nothing in politics has ever made me angrier than the MSM's treatment of Joe the Plumber after his recent conversation with Obama. In the past, I was taken aback by the attacks on Palin, but she, at least, is a public figure. I was even more taken aback by the massive attacks (many of which are untrue) on Palin's family, and I considered that to be beyond the pale since they aren't really public figures. But the attacks on Joe the Plumber represent a whole new level of Media malfeasance. They are a massive and unwarranted intrusion into the life of a private citizen that has dredged up a few minor skeletons in his closet that have the potential of to cause severe negative consequences for him.

It turns out that Joe doesn't have a plumber's license. I don't have a plumber's license either. I've done plumbing in my house and in friends' and neighbors' houses. I'm not sure whether or not my plumbing without a license was illegal, but it certainly shouldn't be. As of this writing, it's not clear whether or not Joe's plumbing without a license was illegal (since he was working for a licensed plumber), but it certainly shouldn't be.

The MSM managed to dredge up some other problems, and I can relate to all of them. He's had driver's license problems, I've had driver's problems (due to petty out-of-state bureaucrats jerking me around). He has a tax problem, I've been audited four times by the IRS (though I only ended up owing money once and that was for only a few hundred dollars). He may have overestimated the revenue of the plumbing company that he works for, I've been known to overestimate some revenue projections for my companies (as my investors are sometimes quick to note). What it comes down to is that I could not possibly withstand the severe media scrutiny that Joe has had to endure and my bet is that very few people could.

That's the first part of what makes me so angry: the MSM can ruin anybody's life if it wants to, and apparently it will if it suits its purpose. And it gets to decide if and when ruining lives suits its purpose.

The second part of what makes me angry is that Joe's background has no bearing on his conversation with Obama. That's because it's immaterial who asked Obama the questions. It doesn't matter if the private citizen who asked the questions has a plumbing license or has overestimated the revenue of the company he's currently working for during an impromptu conversation. The only news of importance is Obama's responses to those questions and his responses are his responses regardless of who asked the questions.

And what was wrong with Obama's responses? Is it really any surprise that Obama wants to "spread the wealth around?" That he wants to "make sure that everybody who is behind [Joe], that they've got a chance at success, too?" Indeed, wouldn't Obama's supporters, including the MSM, be unhappy if Obama didn't want to do those things? Doesn't it even seem like a rather nice exchange highlighting Obama's compassion for the little guy?

So why destroy Joe? I've seen few theories that make any sense to me. The only one that makes some sense to me and fits some of the facts is the scariest: the MSM was hoping to hide Obama's true beliefs until after the election, making him a blank slate upon which each individual voter would project his or her own beliefs such that they would trust and then vote for Obama; Joe, because of his innocent questions, elicited one of the few defining responses ever from Obama; As a result, at least some potential swing voters might vote against Obama because there is now something written on the previously blank slate that they don't like; So the MSM, instead of trying to inform the public, has instead tried to keep information from the public and are livid that Joe the Plumber has ruined their plans by writing on Obama's blank slate and are taking revenge.

I hope that's not it, but whatever the reason, the fear of being raked over the coals like Joe the Plumber is not going to help public discourse in this democracy of ours.

Thursday, October 16, 2008

Bernanke's an Idiot

Deflation in August, no inflation in September.

He's not injecting liquidity nearly fast enough.

Wednesday, October 15, 2008

John Galt

Dr. Helen (who's Instapundit's wife) asks:

Do you ever wonder after dealing with all that is going on with the economy and the upcoming election if it’s getting to be time to “go John Galt”? For those of you who have never read Ayn Rand’s Atlas Shrugged, the basic theme is that John Galt and his allies take actions that include withdrawing their talents, “stopping the motor of the world,” and leading the “strikers” (those who refuse to be exploited) against the “looters” (the exploiters, backed by the government).
I don't think that there's any need for a "John Galt" to lead the productive to "strike". Individuals will review their situations and make decisions to cut back or stop working altogether depending on Obama's new tax and regulatory regimes and their own personal preferences and needs. The result may look like a John Galt organized them, but it will instead be a great example of Adam Smith's "Invisible Finger"1 (the middle one, of course) causing such people to self organize into a group that decides that it's no longer worth their while to work as much any more.

Also, even though I am personally fairly likely to close down my business and stop working if and when Obama's new taxes take effect, I don't see any benefit whatsoever to trying to convince others to do so. The more productive others are, the better off I am. If they want to continue to work hard and don't mind the high taxes so much, why would I possibly want to discourage them? Indeed, after I close my business, I'll be pretty poor and will greatly enjoy the goods and services and handouts that they make possible.

Notes:
1 My co-blogger Howard alerted me to the phrase "Invisible Middle Finger".

Sunday, October 12, 2008

My Confidence is Shaken

In a post last month, I wrote, "I'm confident that the country will survive just fine regardless of who's elected."

However, after doing a little bit of research1, I'm not so confident about that anymore. There are a number of things that I find disconcerting about Obama's background. There are also gaps in the record, or blank areas (and I also find that disconcerting).

The bottom line is that many of Obama's past supporters were radical socialists and/or anti-American activists and seemed to think that Obama was one of them. While there is no proof (as far as I can tell) that Obama was (or is) in fact a radical socialist and/or anti-American activist, there is also no proof that he was not, and I think that's a problem.

Usually, I would give the benefit of the doubt to a candidate. After all, it's quite difficult to get anywhere in politics without being exposed to some unsavory characters. Corruption and greed run rampant in all political systems. Corruption and greed I can handle. Hypocrisy? No big deal, especially when it's clearly just to win an election.

Radical ideologies and anti-Americanism? Those worry me. In the wrong hands, those characteristics have the potential to inflict a tremendous amount of damage. The president of the United States certainly qualifies as having the wrong hands to be trusted with such characteristics.

There are three associations in particular that I find disconcerting. None of the three is enough in itself, in my opinion, to reject Obama. But taken together, I'm worried.

First is the Rev. Jeremiah Wright. The following is an excerpt from ABC News in March, 2008 regarding Wright and Obama:

Sen. Barack Obama's pastor says blacks should not sing "God Bless America" but "God damn America."

The Rev. Jeremiah Wright, Obama's pastor for the last 20 years at the Trinity United Church of Christ on Chicago's south side, has a long history of what even Obama's campaign aides concede is "inflammatory rhetoric," including the assertion that the United States brought on the 9/11 attacks with its own "terrorism."

In a campaign appearance earlier this month, Sen. Obama said, "I don't think my church is actually particularly controversial." [...]

Rev. Wright married Obama and his wife Michelle, baptized their two daughters and is credited by Obama for the title of his book, "The Audacity of Hope."

Obama belonged to Wright's church for many years and was impressed enough with Wright that he used material from Wright's sermons as the title for one of his books. In addition, Obama doesn't think that the church was "particularly controversial."

Many of the articles written about Wright seem to dismiss him as a bit of a kook. In other words, they admit he has said some "controversial" things, but that's only because he's a little bit nutty.

But that explanation, I believe, is clearly wrong. Wright's church preaches Black Liberation Theology which is completely compatible with what Wright has preached according to numerous criticisms:
Theologians such as theology scholar Dr. Robert A. Morley take a dim view of black theology. Morley's paper "The Goals Of Black Liberal Theology" is one widely quoted paper citing specific criticisms of black theology. He states that black theology turns religion into sociology, and Jesus into a black Marxist rebel. [...]

Anthony Bradley of the Christian Post interprets that the language of "economic parity" and references to "mal-distribution" as nothing more than channeling the views of Karl Marx.

He believes James Cone and Cornel West have worked to incorporate Marxist thought into the black church, forming an ethical framework predicated on a system of oppressor class versus a victim much like Marxism.[23]

Stanley Kurtz of the National Review criticizes black liberation theology, saying, "A scarcely concealed, Marxist-inspired indictment of American capitalism pervades contemporary 'black-liberation theology'...The black intellectual's goal, says Cone, is to "aid in the destruction of America as he knows it." Such destruction requires both black anger and white guilt. The black-power theologian's goal is to tell the story of American oppression so powerfully and precisely that white men will "tremble, curse, and go mad, because they will be drenched with the filth of their evil."
In other words, Obama belonged to a church for many years that was essentially Marxist and which Obama did not find controversial.

The New Party, an offshoot of the Democratic Socialists of America, claimed Obama as one of their candidates in 1996, only 12 years ago, and worked actively to help him get elected. The following is an excerpt from a 1996 New Party Internet Newsletter2:
Illinois: Three NP-members won Democratic primaries last Spring and face off against Republican opponents on election day: Danny Davis (U.S. House), Barack Obama (State Senate) and Patricia Martin (Cook County Judiciary).
Here is an excerpt from a Democratic Socialists of America newsletter from the same year:
Barack Obama, victor in the 13th State Senate District, encouraged NPers to join in his task forces on Voter Education and Voter Registration.
Obama may not have considered himself a member of either the Democratic Socialists of America or of its offshoot, the New Party, but they sure considered that he was one of them and were quite happy that he won the election. In other words, they thought he was a socialist, and Obama has not repudiated those alliances. Once again, in and of itself, it's no big deal. As part of pattern, I think it should be taken more seriously.

Then there Obama's relationship with Bill Ayers and his wife Bernardine Dohrn, leaders of the violent, far left, anti-American group, The Weather Underground. This group is so well known, and so visciously evil, that I find it well beyond the pale for anyone to have even a casual relationship with leaders of such a group. If political expediency absolutely requires it, then you need to thoroughly condemn the actions and beliefs of such people whenever the subject comes up. Obama has not done that.

Just a few statements and actions by these people that I think are the most appalling:
"Dig it! First they killed those pigs and then they put a fork in their bellies. Wild!" Bernardine Dohrn regarding the Charles Manson led Tate-LaBianca murders in 1969.
"Kill all the rich people. Break up their cars and apartments. Bring the revolution home, kill your parents — that's where it's really at." Bill Ayers describing the Weather Underground's philosophy in 1969.
"Guilty as hell, free as a bird—America is a great country." Bill Ayers after government misconduct caused the case against him to be dismissed in 1980.
The last statement is indicative of how little responsibility he felt for his actions and his complete lack of contrition and regret. He and his group waged war against the United States and are proud of it. Obama's response to all this? None, other than Ayers was just a guy in the neighborhood.

The extent of Obama's relationship with Ayers and Dohrn is unclear, but at a minimum (according to the NY Times):
Their paths have crossed sporadically since then, at a coffee Mr. Ayers hosted for Mr. Obama’s first run for office, on the schools project and a charitable board, and in casual encounters as Hyde Park neighbors.
While the crossing of their paths may have been sporadic, I believe their paths crossed numerous times. According to Victor David Hanson:

He [Obama] did not just know a Wright or Rezko, but knew them quite well for quite a long time. And in the case of Ayers, Obama has sorely misled: he apparently still emailed and communicated with him after 9/11, when Ayers, on his Fugitive Justice book tour, grandly announced that he regretted only that he had not bombed enough. At that point any further communication was indefensible, since the New York Times had widely circulated Ayers’ views. Yet Obama was emailing him at least until 2005!

The problem with these associations is not necessarily the associations themselves. It's a combination of the pattern and pervasiveness of the associations coupled with the fact that Obama has not made it clear that he doesn't agree with those associates. Any repudiation of his associates' viewpoints has come late and under severe pressure for him to do so and has been quite mild.

While I have not taken strong sides in past elections, I believe that Obama is by far the most radical left-wing socialist candidate for President (from a serious political party) that this country has ever seen and with the support of one of the more left-wing Congresses that we've had in quite some time, could actually spell disaster for this country.

I sure hope I'm wrong. Looks like we'll find out.

Notes:
1 Unlike the MSM, I haven't done a great deal of fact checking so any of the claims in the post could be completely wrong - do your own damn fact checking!
2 The page isn't still available on the New Party website but has been archived by archive.org.

Saturday, October 11, 2008

Wait and See

The likelihood of Obama becoming president is inversely correlated with the price of the S&P 500 stock market index. The correlation coefficient is only about -0.4, which isn't a particularly strong correlation, and correlation certainly doesn't prove causation. However, I believe that the correlation is valid and I believe there is a mechanism for causation. In other words, I believe that the increasing likelihood of Obama becoming president is a cause for the cratering of the stock market that we are currently experiencing.

It seems clear that the drop in the stock market has been at least partially caused by the credit contraction, which has been at least partially caused by the mortgage securities problem, which has been at least partially caused by falling house prices. This is a train wreck that's been waiting to happen for more than a decade. The questions are why now, and why so severe?

My answers to those questions are based on my observations and my observations are based on my perspective. My perspective is that of an entrepreneur/businessman/technologist who has co-founded companies that have created jobs for and employed 100+ people over the last 25+ years.

Starting and running businesses is risky. Indeed, I would personally have been far, far better off if I had just taken a job that someone else created rather than building these companies.

The potential for change increases risk. The riskiest point in the political cycle is when there will be a change in administration and the new administration's political affiliation is likely to align with the party that controls Congress. This is further exacerbated (from my point of view) when the incoming Administration's mantra is "Change" and that change is promised to be higher taxes and more regulation, both of which increase the risk to businesses.

As a result, I personally have stopped investing in my company for several months now. I have stopped trying to grow the business. I have stopped trying to hire people. I'm now in a "wait and see" mode. The pain of growing and hiring new people only to have to retrench and lay them off is very, very painful and not something I'm willing to do except as a very last resort.

I hang out with other entrepreneurs1 and they tell me they're in the same boat. Let's wait and see, let's just wait and see.

Well, you don't really need all that many employers waiting and seeing before it has an adverse effect on at least parts of the economy. I think the housing markets softness was exacerbated by the softer job market which was exacerbated by waiting and seeing. The credit crunch and stock market drops are also exacerbated by waiting and seeing.

So I do think that Obama's successful candidacy has contributed to the precipitation and depth of the stock market plunge. Once elected, things will likely stabilize, since the waiting and seeing part will be over and I, and others, will reformulate our strategies based on the new rules of the game. Obama will then, of course, get credit for stabilizing the economy, in what I will consider to be the greatest irony of all.

Notes:
1 Though I'm not actually a CEO, just a business owner who hired a CEO to take care of all the administrative BS that I don't like to do anyway, it looks like a solid majority of CEOs feel the way I and the other entrepreneurs that I know do about the election

Friday, October 10, 2008

A Competent Response

There's been a lot of discussion lately about FDR and whether or not his policies prolonged the depression.

But whether or not his policies helped or hurt, my opinion is that his response was very, very competent. There is no doubt that his policies achieved the following:
1. He made himself far more powerful;
2. He made his party far more powerful (they controlled the country for generations); and
3. He made government far more powerful.

These are signs of a very, very competent politician.

Prolonging the economic misery of tens of millions of Americans, laying part of the groundwork that precipitated a world war that killed tens of millions and laid two continents to waste, and stifling the economic development of the United States for generations seems a small price to pay for the political accomplishments listed above.

To those who are wishing that the next Administration responds "competently" to the economic situation, I say, "Be very careful what you wish for!"

Tuesday, October 07, 2008

Not that far from the Truth

Paulson to Congress: You’re Mine Now, Suckas

It's funny because it's frighteningly close to reality. Do not drink hot liquids while reading it.

Fuel to the Fire

The intrade.com odds of Obama becoming President is inversely correlated (-.4) with the stock market. In other words, as it has becoming more likely that Obama will be President, the stock market has done worse and worse.

The common narrative on the stock market is that plummeting housing prices triggered a financial crisis which has pummeled the stock markets. Therefore, plummeting housing prices are the root cause.

But I think that the root cause is deeper.

As a businessman/entrepreneur who is running a small robotics technology company, I can tell you that for the last two years, with Pelosi and Reid running congress, and the increasing likelihood of a far left President, I've been very hesitant at pursuing any expansion plans given the additional taxes and regulations that are going to be imposed on businesses during the coming administration(s). I know that many of my associates who run other businesses feel the same way.

The result is reduced investment, reduced expansion, reduced hiring, reduced employment, and reduced wealth creation. Reduced wealth means that most assets like houses are going to have lower prices. That is the root cause of the plummeting housing prices which has caused the financial turmoil.

The great irony is that once Obama finally takes office, the damage will already be complete. The anticipated taxes and regulations will be put in place and the economy will resume growth (though at a slower rate and from a lower level) and Obama will be given credit for "fixing" the economy and Bush will continue to be vilified for having mismanaged it and most of us will learn the wrong lessons and make the same bad decisions in the future.

Thursday, October 02, 2008

Oroborous Wins!

Oroborous and I made a bet in September, 2007. I bet that the SP500 wouldn't close below 1131 between then and the end of September, 2008. That price was picked as the level that would demarcate random market fluctuations (my side of the bet) from the prediction that the market price in September, 2007 was predictably overpriced because of falling housing prices and mortgage problems (the side of the bet Oroborous signed up to).

Well, the price did close below 1131 on September 29, 2008, with less than 30 hours left in the bet. While that was a close call, I'll certainly admit that much of the price action is due to housing and mortgage related issues, so Oroborous won both the spirit and letter of the bet.

I now owe Oroborous up to $100 of books, CDs, or DVDs.

Oroborous, please leave your email in the comments so we can make arrangements.

Tuesday, September 30, 2008

Or Not

On Tuesday the stock market had a big rally after the plunge on Monday.  The headlines everywhere were more or less, "Markets Rally Because of Renewed Optimism That Bailout Plan Will Eventually Pass".

So, how does the Main Stream Media know that for the hundreds of millions of shares that traded, the price was driven up because of buyers' renewed hope that some bailout plan would pass?  Why didn't they have at least some of that optimism on Monday?

If I was left to make up the headline, I would have guessed something more like, "Markets Rally Because Everyone Came to Their Senses and Realized That the Bailout Plan Wasn't Really Particularly Great After All" or, "Markets Rally Because Dollar Surges Against Foreign Currencies".  Or, how about, "Markets Rally Because Fed Continues to Inject Huge Amounts of Liquidity Into System Along with Planning to Reduce Reserve and Capitalization Requirements"?

It could be renewed excitement about the Bailout.  Or not.

Monday, September 29, 2008

Something for Everyone

The beauty of the financial situation is that there's something for
everyone. It was a real team effort by multitudes of players.

If you want to blame evil capitalist lenders and banks, there was
certainly plenty of greed and fraud to point your finger at.

If you want to blame big government, the CRA and Freddie and Fannie
give lots of opportunity for that sort of thing.

Hate mark-to-market regulations? Go ahead and blame that. Hate short
selling? Sure, why not blame that? Sarbanes-Oxley is even fair game
if you don't mind stretching a bit.

You think Bush and/or Congress suck? Certainly plenty of ammo for
blame there.

That's the wonderful thing. No matter what your ideology, there's
someone for you to blame!!! And that blame proves beyond a shadow of
a doubt that your ideology has been perfectly flawless all these
years!!! What could be better than that?

I haven't seen so many people so happy ever!!!

Friday, September 26, 2008

Great Depression History

In tonight's presidential debate, Obama said:
"Even if we get all $700 billion back, let's assume the markets recover, we' holding assets long enough that eventually taxpayers get it back and that happened during the Great Depression when Roosevelt purchased a whole bunch of homes, over time, home values went back up and in fact government made a profit."
Can somebody point me to a link that describes the Roosevelt Administration's profitable home purchasing program? I missed that part of the history of the great depression and I'm having trouble finding information about it with Google.

Friday, September 12, 2008

A more comprehensive perspective

Recently, Alan Blinder wrote a column appearing in NYT espousing the superiority of Democrat economic policy. I was a bit embarrassed for Mr. Blinder given the obvious weakness of the case he presented. Russ Roberts picked apart the claims here offering several points including:
I learned from my textbook (Samuelson) the fallacy of post hoc, ergo propter hoc. After this, therefore because of this. Alan Blinder commits this fallacy...

Most economists will also tell you that Presidents don't even control fiscal policy. Here in the United States we have three branches of government. The Presidency is one of them. Then there is what is called the Congress. They have a say, too. Then there are external events besides fiscal policy and monetary policy and oil prices that affect the economy and that are beyond the President's control. Demographics. Cultural trends. Technology. None of these are controlled by the President.

Statistical regularities are stubborn things? No they're not. They are dominated by randomness almost by definition. That's why they're called regularities. They reveal a pattern in the data. Nothing more. Nothing less. Without a theory (and saying Democratic presidents are better at running the economy than Republican presidents is not a theory) it's just a regularity.
Don Luskin makes his contribution with DIVIDED GOVERNMENT IS BEST FOR THE MARKET:(read the whole article)
Let's get something settled once and for all. Have the stock markets and the economy historically done better under Democrats or Republicans?

I've run the numbers myself. Superficially at least, the Democratic claims are true: Since 1948, the Standard & Poor's 500 total return (capital gains plus dividends) has averaged 15.6% when a Democrat was in the White House and only 11.1% when a Republican was in the White House.

You get a similar result if you look at growth in real gross domestic product. Under Democratic presidents, the average since 1948 has been 4.2%. Under Republican presidents it has been only 2.8%.

But it's not so simple when you study that "study." First, not all Democrats act like Democrats, and not all Republicans act like Republicans. John F. Kennedy, for example, was an enthusiastic supply-side tax cutter, and George H.W. Bush raised taxes. Bill Clinton promoted free trade, and Richard Nixon imposed wage and price controls.

If you assign those four presidents to the opposite party based on that -- make the two Democrats into Republicans and the two Republicans into Democrats -- the numbers completely reverse. Now stocks average 14.7% under Republicans and only 10.5% under Democrats.

In fact, it turns out that if you do just one single switch -- if you make Richard Nixon into a Democrat -- it's enough to reverse the numbers. Then stocks average 14% under Republicans and only 12.1% under Democrats. This fact discredits this whole study more than it does Republicans, or even Richard Nixon himself. Any analysis that can be undone by omitting or changing a single data point isn't very robust.

By the way, as fond as Democrats are of saying how poorly stocks have performed under George W. Bush, here's a sobering fact: Stocks averaged 14.1% return in those Bush years when Republicans controlled Congress -- and when Democrats got in there and mucked things up, the average has been a loss of 8.9%. That's not even including 2008 year-to-date, which doesn't look so pretty.

If the electorate were really smart, it would elect a Democratic president and a Republican Congress. Under that deal, stocks have averaged a 20.2% total return, and real GDP averaged 4%. That tells us that economic and stock market success isn't really about partisan politics at all. Sadly, nobody has a political incentive to conduct a study about that.

The role of Nixon's economic record is rather interesting. I have long been amused that the left is so angry with RMN for nailing their boy Alger Hiss. If they really knew any economics they would have a better appreciation for how his economic policies set off an economic stink bomb that nobody knew how to defuse until Ronald Reagan came along. That would really get them worked up.

Also, did you make note of this?: Any analysis that can be undone by omitting or changing a single data point isn't very robust. Failure to grasp the significance of this point is yet another wonderful example of what Richard Feynman called fragile knowledge.

Finally, I'm a pretty big fan of divided government, Bret is an even bigger fan. Pretty smart guy that Bret!

global what?

Top Russian scientist: global cooling coming
For the remainder of this century, it will be global cooling we'll have to worry about, according to highly credentialed Russian scientist, Dr. Oleg Sorokhtin.

The high standing of Dr. Sorkhtin and the inherent plausibility of his argument that climate will continue to follow the same basic causal factor, solar activity, make this another heavy blow to the heavy breathing of the global warming alarmists, who insist there is no argument at all.
We shall see. Meanwhile, we have this:

There has not been a public debate about the causes of global warming and most of the public and our decision makers are not aware of the most basic salient facts:

1. The greenhouse signature is missing. We have been looking and measuring for years, and cannot find it.

Each possible cause of global warming has a different pattern of where in the planet the warming occurs first and the most. The signature of an increased greenhouse effect is a hot spot about 10km up in the atmosphere over the tropics. We have been measuring the atmosphere for decades using radiosondes: weather balloons with thermometers that radio back the temperature as the balloon ascends through the atmosphere. They show no hot spot. Whatsoever.

2. There is no evidence to support the idea that carbon emissions cause significant global warming. None. There is plenty of evidence that global warming has occurred, and theory suggests that carbon emissions should raise temperatures (though by how much is hotly disputed) but there are no observations by anyone that implicate carbon emissions as a significant cause of the recent global warming.

3. The satellites that measure the world's temperature all say that the warming trend ended in 2001, and that the temperature has dropped about 0.6C in the past year (to the temperature of 1980).

4. The new ice cores show that in the past six global warmings over the past half a million years, the temperature rises occurred on average 800 years before the accompanying rise in atmospheric carbon. Which says something important about which was cause and which was effect.

None of these points are controversial. The alarmist scientists agree with them, though they would dispute their relevance.

The world has spent $50 billion on global warming since 1990, and we have not found any actual evidence that carbon emissions cause global warming. Evidence consists of observations made by someone at some time that supports the idea that carbon emissions cause global warming. Computer models and theoretical calculations are not evidence, they are just theory.

It will be fun to watch this play out in the public arena.

Thursday, September 04, 2008

I Must've Seen a Different Speech

The reviews of Sarah Palin's VP nomination acceptance speech seem to be overwhelmingly positive, at least those reviews from conservative pundits: "The start of something truly big", "A star was born last night"; "She has star quality"; etc.

I watched her speak and I thought it was a pretty decent delivery of a somewhat marginal speech. The crowd stepped on a lot of her lines with applause, she made a lot of references to Obama's foibles that people who aren't political junkies probably didn't get, and while she was trying to stress her relevant experience, she still looks pretty green to me.

On the other hand, looking at the faces at the convention while she was speaking, and also noticing the rapt look on my daughters (ages 12 and 9) and wife's faces, she is clearly a mesmerizing speaker for many people. Just like Obama. Now each ticket has their very own hypnotist. I'm not surprised that Obama hypnotizes people. His cadence and tone sound somewhat hypnotic to me. I'm a little more surprised that Palin has this effect since she has a much different speaking style. However, I'm pretty convinced that a lot of the crowd was hypnotized.

This could be a serious problem. This election, like the previous two presidential elections, might also be close. Hypnotized followers can be incited to do very extreme things. Hitler was such a speaker and leader and his leadership didn't turn out too well for the world. I'm not saying that either Obama or Palin (McCain) would take us in a direction even vaguely similar to Hitler. What I am saying is that the side that loses this election, being hypnotized, may be even more irrational in dealing with their disappointment than in previous elections. And the losers were already pretty scary in those previous elections.

My wife and I have made a strict rule that we're not going to talk about politics at all with friends, family, co-workers, or anybody in person until well after the election. Many of our friends are already hypnotized by one side or the other and are clearly extremely emotional when politics is even mentioned. Emotional to the point of visibly shaking. Emotional to the point of being completely irrational. Emotional to the point of talking about moving out of the country if their candidate loses. And these are generally intelligent and balanced people. I'm finding it very scary.

Fortunately, I can still spout off about politics here in the safety of the blogosphere. If I piss y'all off, at least I won't suffer any significant harm.

Ultimately, I'm confident that the country will survive just fine regardless of who's elected. Everybody needs to splash some cold water on their faces, wake up, take a deep breath, and get a grip.

Tuesday, September 02, 2008

A Heartbeat Away

On the face of it, one of the stronger arguments against McCain/Palin is that McCain is older than dirt and will likely keel over any second now, and that Palin is too inexperienced to take over when that happens.

So what is the likelihood that McCain does indeed shuffle off this mortal coil shortly after being elected? I'm surprised that I haven't seen this probability published in any of the dozens of articles that I've read that have made the above argument.

I looked up the relevant probabilities in the Social Security Administrations Actuarial Life Table. I don't think there is any information regarding McCain that would allow us to do better than these tables. Yes, he's had skin cancer and his ancestors have died somewhat younger than average. On the other hand, he looks reasonably fit, healthy, and vibrant, and I think that pushes him back towards having typical life expectancy. Maybe not, but it's still an interesting exercise to consider life expectancies for typical men of McCain's age.

From the tables, McCain has close to 97% probability of surviving the first year and better than 85% chance of surviving all four years. So no, he's not all that likely to kick the bucket during the next presidential term.

Another way of looking at it is this. If experience is critically important, and you consider McCain to be adequately experienced, but Obama only to be 80% likely to be adequately experienced for situations that might come up in the next four years, you'd be better off voting for McCain, even if you think that Palin certainly does not have adequate experience.

Friday, August 29, 2008

Everything Else Palin' by Comparison

Wow!

I'm finding the buzz around McCain's VP pick astounding. I've seen more email and blog traffic on this subject than on anything other topic for months. I've gotten emails from left wing friends that I haven't heard from in eons (they hate her, of course). A fairly left wing egroup that I subscribe to (another group of friends) had dozens of posts regarding Palin (yes, they hate her too, but there was no way they were going to vote for McCain anyway). Compare this to the complete lack of interest in Joe Biden.

She's not my type (for example, she thinks Creationism should be taught in schools, which is a bit beyond the palin for me), but there's no doubt in my mind that McCain's campaign is getting huge publicity from his surprising pick, and as a result, I think it was an impressively good roll-of-the-dice. It may not work in the end, but hey, it's worth the shot.

Friday, August 01, 2008

The power of beliefs and ideas

Beliefs are a powerful motivator of human action. We are at the core moral believing animals. Our beliefs shape the culture and the culture shapes our beliefs. People will believe in something, sometimes anything. Bret Stephen offers us this :

None of this seems to trouble Mr. Gore. He thinks that simply by declaring an emergency he can help achieve Stakhanovite results. He might recall what the Stakhanovite myth (about the man who mined 14 times his quota of coal in six hours) actually did to the Soviet economy.

A more interesting question is why Mr. Gore remains believable. Perhaps people think that facts ought not to count against a man whose task is to raise our sights, or play Cassandra to unbelieving mortals.

Or maybe he is believed simply because people want something in which to believe. "The readiness for self-sacrifice," wrote Eric Hoffer in "The True Believer," "is contingent on an imperviousness to the realities of life. . . . All active mass movements strive, therefore, to interpose a fact-proof screen between the faithful and the realities of the world. They do this by claiming that the ultimate and absolute truth is already embodied in their doctrine and that there is no truth nor certitude outside it. . . . To rely on the evidence of the senses and of reason is heresy and treason. It is startling to realize how much unbelief is necessary to make belief possible."

Sometimes reconsidered ideas and notions allow us to adjust our beliefs as suggested in this :

Of the farm's whole New Age mission, Tim remarks: "The error was, I think, imagining that there was somewhere new to go, someone new to be. It became increasingly clear that a closed system of myth did not jibe with the world as it really was." Looking later at the outside world, Tim saw "a system formed less from malice than from a kind of natural order, less from inordinate greed than from longings much like our own for privacy, comfort, individual freedom, and one's familiar or chosen way of life."
A nice insight that would be helpful to many people!

Herb Meyer reminds us that sometimes the distortions provided by existing notions and beliefs totally disable our ability to perceive things realistically:
Now, imagine that half of you were looking at me through a prism - one of those long, triangular bars of glass. A prism refracts and disperses light, so everything you see through a prism is distorted. Those of you looking at me through a prism might see a tall man with purple skin. My sports jacket might look green instead of brown, and my shirt might look red instead of white. In short, if you're looking at me through a prism you'll get everything wrong.

Well, just as there are real prisms -- those long, triangular bars of glass - there are intellectual prisms, in our minds. And if you're looking at the world through an intellectual prism, you'll also get everything wrong.
He applies this idea to an observation:
Let me put this as starkly as I can: What's going on today in our country isn't normal politics. In normal politics honorable people will disagree, sometimes fiercely, about how best to deal with the issues that confront us - national security, border control, healthcare, education, energy, the environment, and all the rest. What's going on today is a kind of domestic Cold War -- a seemingly endless standoff, with the occasional hard skirmish -- between those of us who see the US for what it really is, and those of us who are seeing the US through a prism. And remember, unlike real prisms these intellectual prisms -- or, if you prefer, these political prisms -- are invisible. If you're looking at the US through a political prism, you don't know you're seeing through a prism and you won't believe anyone who tries to tell you that you are.

This is why Americans who see our country and the world through a prism are impervious to facts.