Saturday, April 25, 2015

Potential output, yet another bogus variable from the MIT basket Weavers

I had another of those shocks that economists give from time to time. This one from Krugman complaining aboout the IMF calculation of potential output. Now I used it when I was talking about spectral decomposition in  DSGE. Now I have to rethink that some more.

What is the problem with potential output as definined? Here is the definition from WIki:
In economics, potential output (also referred to as "natural gross domestic product") refers to the highest level of real Gross Domestic Product output that can be sustained over the long term. The existence of a limit is due to natural and institutional constraints.

OK, institutions are 40 years long, the long bond is thirty years. It has to be measured over that time span.  The IMF measures it over the recession cycle, about eight years. What are they measuring? The ability of economies to adapt to the American recession cycle.  Is that a good idea? Well, the US has dominated the world economy, so I guess so. But what a dreary proposition, and it makes the measure useless for much of anything endogenous to the native economy.

Is my method of DSGE spectral decomposition any better? Sure, a bit to the extent it is locally accurate.  Spectral decomposition under the adiabatic assumption tells us the relative risk to each component of the DSGE when the economy slows., because it tells which component restructures first, in all  probability.

The Web is virtual money

What is it when a medium size company negotiates airline and hotel discounts based on volume? Those discounts go onto the company books and are used over time, just like a savings account.  In 1985, medium sized companies could not do this easily, searching for the proper set of discounts was costly in the Peter Diamond sense. So the travel budget was real money, sitting in a real bank deposit. Today negotiating and setting a large deposits of hotel discounts is a few clicks on the web, maybe a phone call. All companies do it.  That is lost business for the standard banks.

Banks want that business back, so banks need to have those discount points tradable. Banks need to get into the discount point business, and they need smart cards and banker bots.  Banker Bot is especially useful if a trusted bank like, Bank of America can offer a no arbitrage savings and loan business on frequent flyer miles.  That is a big win for everyone, the bank, the airlines and the flyer. Banker bot can create networks of discount points, so the correlation between hotel discounts and airline discounts match, then everyone wins to the extent that hotels and airlines share customers. If the banker bots trade, then tourist industries can buy and sell both discounts, adjust their capacity, another win.

Now we make this capabilit7 available to consumers via the smart card. The smart card can purchase in the optimally matched price of dollars plus discounts.  This is all a must win business for traditional banks.  All of these banks need to jump in with both feet and push the smart card and banker bot technology as far out into commerce as they can.

Housing boom in 2015 says Goldman Sachs? Not so.

The chart on the right explains GS assumptions of a 2.8% GDP growth in 2015. The main  driver is a 6.8% growth in residential investment, in the right side of the chart. Currently Q1 is showing a 4.8%  decline, YoY, in existing sales, the Q3 2014 levels.  And new home sales dropped 11% in March. But that drop was from a previous high.

This is annual rate of housing permits, seasonally adjusted. Can GS get a 6.8% jump in these numbers?  The market has levelled off. Where are the new buyers going to come from?  Job growth has leveled off, and we have a low growth Q1. New buyers need at least one quarter to become a bit more confident, so that puts all the growth back into summer home season. 

I do not think so.

Friday, April 24, 2015

Jerry Dumps the Environmentalists

CalWatch: Gov. Jerry Brown’s administration has decided to scrap a key environmental commitment and forge ahead with a controversial, costly plan to build two massive water tunnels under California’s San Joaquin River Delta region.
The unpalatable choice underscored both Brown’s resolve to see the project through and the daunting challenges he still faces in trying to secure enough political support to do so. Without the tunnel plan, Brown would have to go back to square one in his ambition to secure adequate water resources for Southern California over the long term.

Few options

As the San Jose Mercury News reported, the $25 billion tunnel project contained $7.8 billion earmarked for preservation and restoration efforts affecting some 100,000 acres of wetlands and targeted areas. Throwing that sum into doubt, Brown has walked way from the centerpiece of the environmental plan — a so-called “50-year guarantee” to environmentally safeguard the Delta.
Although the surprise change has not yet been finalized, Brown’s choice appeared to be cemented by a lack of federal regulatory support for the commitment. According to CBS San Francisco, “biologists at the U.S. Fish and Wildlife Service and other federal agencies told the state they won’t issue permits for the environmental plan because the state cannot prove it will restore salmon, smelt and other wildlife.”
Now, as water resources officials told the San Francisco Chronicle, Brown hopes “to use $17 billion from state water contractors just to build and operate the tunnels. That would allow habitat restoration work on the delta and surrounding waterways to begin immediately regardless of what happens with the tunnel project,” according to Bay Delta Conservation Plan spokesman Richard Stapler. But the Chronicle noted that “large water contractors footing the bill have said they aren’t willing to pay for the plan if they don’t have long-term water guarantees.”

A difficult calculus

Contractors have become skittish over the plan’s budget for complex reasons. The half-century guarantee Brown has decided to jettison didn’t just provide environmentalists with a predictable framework. It helped water agencies manage their own expectations as well. “The agricultural and urban water districts that are the major drivers of the long-planned project were betting that a 50-year permit would stabilize delta deliveries that have been restricted by increasingly stringent protections for endangered fish,” the Los Angeles Times reported.
Since a narrower time frame would open up the possibility of changes in permitting rules, water districts and contractors grew concerned that it was becoming too hard to determine if the high cost of the tunnels would pay off.

Longstanding concerns

Brown’s move confirmed fears state environmental groups have harbored for years. As early as 2013, environmentalists went public with criticism of the tunnel plan. In a sign of how strongly they opposed Brown on the issue, some policy activists used the divisiveness of Brown’s other cherished high-stakes project — high-speed rail — to amplify skepticism for the tunnels.

Simple ideas on non linear DSGE

We want to keep it simple.  We assume households, firms and government are adapted, that is they transact goods at the proper size and frequency such that the two period model is met, they are adiabatic.  How do we find the number of goods that can be moved for some given, short period?

Assume perfect linearity and measure real growth rate level and variance of growth rate over some stable period.  The variance is the power deviation from linearity. It is a measure of the value of e in the limit and the value of e in actual use, where e is Eulers number. That variance should be small, equal to the variation in prices. 

The signal in this case is e, everyone is trying to keep up. The noise is the variance from trend. So the signal to noise ratio is high, the variation in the checkout counter is not that bad.  How much value can be transacted in aggregate? 

We get C/(2*B) from the Shannon condition, value rate over potential transaction rate if everyone knew e. Of the total bandwidth, 2*B, 2*B-C is the clock rate of the economy, the speed at which the check out counter can work the register.

Now I used value instead of good because when the economy is adapted, packing occurs, and value it the -iLog(i), not i alone.

Now we know then the economy is two period adapted, then there is an index that can be uniquely assigned to each transaction.  That index is:

2^(C/2*B)-1.  C/B is large, and let's just take it up to the next integer. Then we get a two bit counter which assigns a two bit number to each good. The checkout person takes the good package and runs it through a decoder selecting the proper index.

Now we go back to our linear DSGE model and go a ahead and solve it, getting a short series sum like e^(at) + e^(bt) + e^(ct), for example, the sum computing the real GDP growth over time. But t counts from 1 to 2*B. The a,b andc are ordered and diagonal. The number to clock ticks they get is proportional to their covariance (or deviation, see note below), and the bits in their index  proportion to the coefficient,a,b,c. So from there we get the relative transaction value and probability of occurence.

Non linear effects occur with the number of agents, N in each group.   Or a slow down in transaction rate, real GDP growth variance changes. Quantization requires one agent per transaction. Check for the probability that some agents will crowd the checkout counter.

Note of caution!

The two period model implies the agents can plan two periods ahead, an handle that determine whether you divide spectrum by the covariation of the sectors or the square root of covariance.  So you have to keep that straight. that is where the checkout count samples a trice the rate of purchases.

Count me as puzzled by this transgender thing

BOSTON (CBS) – A Massachusetts couple knew their child wasn’t happy. So they made the courageous and difficult decision to raise their daughter as a boy at his own request.
As he showed off his collection of rocks and dead bugs in his bedroom, Jacob Lemay also said how he hated his old name. “Cause it was the stupidest name ever,” Jacob said.
He’s talking about the name ‘Mia,’ which was scrapped last June, when his parents and family therapy team concluded the then four-year old was transgender — a little girl wired as a little boy.
“That’s the kind of psychological burden that I don’t think anyone should have to deal with, especially not my child,” Jacob’s mother Mimi said.
They say this wasn’t tomboy stuff or some passing phase.
Mia began verbalizing it at age two, triggering a long family struggle with the subject, as the little girl grew increasingly unhappy and withdrawn — stuck with a gender she did not embrace.

Now, don't get me too wrong, but  the child is being raised as a normal kid, and how many normal girls really want to spend the rest of their lives if dresses that are no fun, hair that is a pain in the ass, ill fitting shoes,  stupid dolls and learning color coordination? 

How exactly does a girl dress like a boy? Blue jeans and a shirt?  For crying out loud, all girls and boys dress like that, that is the standard uniform.  It is some other bizarre culture that creates the dolled up look as we know it.

And what is a boys name?  OK, 'Buck', I give you that.  Naming a kid after a dog is definitely a male thing.

Market regulators arrested the wrong Bot

Zero Hedge complaining about Bot inequality
Nav Sarao gets arrested because his bot was smarter than the HFT bots. The regulators somehow have decided that some High Frequency Trading bots should get some sort of affirmative action while others are too 'white' I guess.  One of those things. 

Zero Hedge has been bitching about this for some time. And when some HFT bots lose money, the regulators have turned back time and reverse the trades. But when Nav's bot does well, he gets arrested!

That x thing in Brownian motion

See it? That x^2 thing? What is it? It is the solvent. Einstein and company are, yet again, assuming the vacant space in which Newton's Grammar can be written. That is not so, the X thing are particles, just like the thing that is doing the D, for diffusion.  There are two, and X^2/D is a power ratio, otherwise known as a spectrum ratio.

What we are looking at is more than likely e^[-(tanh)^2].  You can't get completely there by assuming the solving is a flat property, there is a covariant viscosity between the two materials. This is a power spectral distribution between to adapted systems. T is just Ito's calculus counter which tells you the order in which things must fit into the differential. It is really a sequential quant number.  N is the additive number which generates the rational approximation to Pi and e.  It will look like, ak/aj; where the k and j go as: a1 +2*a2 or a1+a2, depending upon the Lagrange.

I checked this out, that hyperbolic angle 3/2*ln(Phi) comes out as something like log(Phi+2), so at that half angle the second Lagrange is taking over, and Phi will be something like F16/F17, making it the log of (F16+2*F17)/F17. The silver ratio takes over at the barrier where probability his highest and the first Lagrange cannot get any more accurate. So that N and the Pi thing will cancel, e becomes a rational ratio and p(x,t) will end up being -tanh*log(tanh) or tanh*tanh', one of those, I am sure.

Hyperbolics does this with the Horwitz rational approximation and additive sequence. I mean, the graph guys are using a similar scheme to make 'greedy' links and nodes which work just like the rational approximation sequence. It is time to dump the Greek letters. Newton is the limit as Ito's index gets large, nothing more than that. When the index gets larger, the sequential Ito counter's,t, become dense, that is all that is happening.

Thursday, April 23, 2015

Smart Cards, the modern way to hoard cash

Bankers think cash is inefficient. Citi’s Willem Buiter looks at the inefficiency of cash hoarding and is looking for better hoarding technology.

What do we need?

  • We need trusted exchangers that use no arbitrage banker bot technology.
  • We need to use the public key encryption technology so we can always verify that a set of digits was encoded by a trusted exchanger.
  • We need counterfeit proof smart cards that contain out faces in photo and digital form.

With these we can hoard valuable, secure digit sequences all we want.If the connection between the banker bot spreadsheet and the digit encryption is secure, then there is no way any banker of money exchanger can cheat the system. The banker bot can verify the digits using its own private key, then match block counts, and then put the digits into the cell labeled "savings balance" with its uncertain term length and posted rate, as I have mentioned here. The weak link is the trusted borrower, Banker Bot runs a savings and loan ratio business. I guarantees that all the digits it produces will collectively comprise a cotangent/tangent group. So it needs trusted members who will try and 'out fox' banker bot, and have fun doing so; so as to keep the ratio function up to date and accurate. But as long as merchants like secure digits then there should be a stable set of connected merchants to perform the member bank function.

What Banker Bot really does is ensure that all customers buying stuff will be a unit variance Gaussian distribution of arrival rates at the check out counter..  If they are crowding in line then the merchant has assurance that a price hike will restore equilibrium. And for customers, Banker Bot guarantees that when the line is crowded, they will be better off shopping less and putting money in the savings account. Neutral prices are discovered by the queue length. Merchants are all enthused about this, Banker Bot guarantees it, this will be very popular, safe and secure money.

How does the customer trade digits for tax dollars? Easy, the merchant knows the price he pays for a can of beans, in tax dollars. His register can always invert the price and get tax dollars per digit, since he sells beans for digits.  The merchant is simply adding money transactions to the list of products. Since the digits are always a gaussian distribution there should be no problem, except with the tax dollar. If the tax dollar has an uncertain distribution, then raise the price of the exchange.

Consider my little community here in the Tower District of Fesno.

It is a pedestrian community with about 50 shops, restaurants and clubs.  All this community needs to do is have about 10% of prices paid in Tower points, like discount coupons.  That is enough to stabilize the foot traffic. They get a 30% boost in inventory efficiency, and the cost is nearly nothing, once the smart cards are in place. Our local Bank of America could easily run the system, providing a secure place for Banker Bot. The new smart cards would be compatible with exiting terminal and ATM systems.  The bank web site could sell local advertising. Every merchant in the are would join because the digits are targeted to the local customer base. Digits and customers having the same probability distribution around the community.

Where is the problem?

Texas might want to rejoin the secession movement

Courtesy Zero Hedge
Not a pretty sight on the Texas job report. This is mostly about oil prices.

Jerry Brown says welcome aboard the Southwest Independent Federation of Nations