DOT fact finding on congestion pricing

Grush Hour reports on a fact finding tour (taxpayer funded junket) by leading DOT officials. Among the issues was this:

Something new that I learned from the Webinar: “Singapore estimates that the gas tax would need to be raised by $3 to achieve the same traffic reduction results as a $1 increase in their electronic road pricing system due to transparency of the charge.”

The transparency means more precision. Drivers can pick among more than one congestion option, each additional option inflates the production system generating more matches to the travel requirements of the drivers. The transaction costs of delivering more basic congestion options from a larger single option is minimal, subdivision is lanes over periods is simply software.

The Information Shocks

The upheaval caused by generation advances in information tech since 1820. The big one was the sudden appearance of broadcast radio in 1926. Television was a bit more nuanced in economic effect, most of the damage being done by radio.

TV let production and consumption agree into precisely measured tribal associations, as in McLuhan. The consumer demographic agrees to join a tribe and gets to share in the economies of scale. So, if the young sect agreed a sports car was a Mustang, then the cost of Mustangs came way down. The medium of agreement being TV.

The web breaks the mold again. The web commercializes the last mile, I think, unavoidably. Transportation will seek huge gains by pushing the web into its vehicles and cargo, driven by consumer enhance knowledge of where the goods are.

Let me update this post with a side note about radio in the early 20s. The first economic impact was felt in agriculture as the amateur radio became an essential tool for broadcasting crop rices. Information about crop inventories now arrive three days earlier, allowing the fine tuning iof harvest, But that, in turn, put pressure on farm transportation which now favored farmer owned trucks. Agriculture became more capital intensive because the farm could use transportation more timely.

The second note here is that the first amateur radios used Morse code, which all the farm operators learned. Yet again communications technology compounding n the electrical revolution. One can trace a very clear development path from Samuel Morse to the Internet web.

Peaches and economics

Am I allowed to just move pics around the web?

Anyway, the subject is the distribution of peaches and why that should be viewed as a Shannon information problem. I start by assuming that peaches, as they move from orchard to consumer, is a minimum spanning tree over some geography. It is a finite stage, directed graph

So, under what conditions and how can the research model peach distribution as an information channel?

First, the how. View the entire production of peaches as a series of transactions of the form rate*volume. When viewing the whole channel, each transaction from orchard down, all transactions should be equally surprising.

The why is because any predictable change in some type of transaction would be noticed as a low entropy event, a free lunch, and soon disappear. For example, if I notice that peach jam is over stocked two years after a warm Georgian winter, then I would play the peach jam futures.

So, in the smooth world of variances, cyles would not exist. The EMH would say that noticeable cycles on goods flow would soon be corrected by inventory flow adjustments. The yield curve, the inventory growth of the production line, as the distribution of rates, should be Gaussian, right?, because that is the maximum variance container.

So we say that the peach network is computing the maximum entropy yield curve estimate of a drunkards walk. We also say it is a Gaussian noise Shannon channel.
But to human agents in the process it is best view as a Huffman encoder. The reason for the last is information rate over time wants to be minimized, moving stuff is expensive. So, the lower the precision, the sparser the spanning tree, so total information rate, the rate of one quant of information per time, is lowest.

When peaches are combined with the rest of the economy, they use the same size semi-trailer as other fruits. The food processors making jam, re-distributors, and all the rest, share equipment standards, energy systems, government, and money with each other. But if the economy is at all efficient, even these should be workable with cross entropy information type analysis. Say, oil. If the aggregate economy was working with finite low entropy, then most of the "bit allocations" would be in energy distribution. So, total dimensional should still be small enough for analysis.

Distorted channels have quantum restrictions, there is a minimum shelf space for most fruits at the grocer. Or the total shelf space changes with the season. These limits reduce precision, but they limit the dimensionality of the problem. Generally what that means is that peach distribution is smooth within a certain range; but a shock, like a cold winter, has non-linear effects. These enforced low entropy restriction appear on the spanning tree as unbalances. These cause variance estimations to suffer from non-smooth distributions.

Darrel Steinberg will drive California to a near term bankruptcy

The Orange County Register discusses his numbskull theory:

"When asked by radio host Ronn Owens, "Why not make benefits less generous," Mr. Steinberg was quick to defend working for the state as one of the "last bastions of middle-class employment." He said California shouldn't lower public employees' pay but, instead, create an economy where everyone has a good retirement."

In other words, Mr. Steinberg will drive the economy to bankruptcy if necessary, to protect his campaign funds.

Tea partiers are another bunch of government expanding Communists

Though more polite, Andrew Sullivan makes the case.

These groups are simply deficit expanding Cheney activists who want to revive and expand government nanny power. Typical members of the Repulican Communist Party. Every one of their compaints wants to be solved with government activism, never a hint at the libertarian view of small government.

Connecting sovereign risk and oil prices

Dian Chu does it for us in Economic Forecasts and Opinions.

A steep drop in crude-oil prices triggered declines across the commodities spectrum, as investors nervous about the pace of the economic recovery gravitated back to the dollar. Crude oil tumbled to a seven-week low of $71.19 a barrel last Friday, down 14% since the 2010 high of $83.18 reached on Jan. 6.

Investors’ fled for safety drove the U.S. dollar near a nine-month high against the euro. Emerging market currencies also weakened in Asia, while U.S. stocks fell a fourth straight week, the longest streak since July.

The Goldman, Bush, Paulson, Geithner fraud

Summarized by the Washington Independent.

The key points copied:

• The people at Goldman Sachs invested in mortgage-backed securities they expected to decline in value in order to make money off the insurance claims.
• Due to a long-standing relationship, they went to AIG for a kind of insurance — credit default swaps — which were not regulated.
• They then used other companies, including Société Générale, to purchase more of the unregulated insurance that AIG might not have otherwise underwritten in order to manage its own risk.
• When Goldman’s investments declined, they submitted insurance claims for the losses, but insisted on determining the amount of their damages on their own, without any input from AIG, any auditor or the market.
• After Goldman got as much money out of AIG as they thought they could, their stock analysts issued a report about how AIG was bleeding cash and their creditors wouldn’t negotiate, without mentioning that AIG was bleeding cash because of them and that Goldman was the creditor that wouldn’t negotiate. AIG’s stock tanked.
• The government stepped in, took an 80 percent share in AIG and then paid Goldman and the other creditors all the money they’d asked AIG for at the start of the negotiations in 2007, without using their power to force AIG’s creditors to negotiate.

HT Yglesias

Let us go through the timeline, 2006. Bush reopens the long bond sales to leverage more deficit, Feb. Hank Paulson nominated for Treasury Chief, May. Goldman Sachs starting shorting and dumping Mortgage Backed Securities. The economy overheats and the yield curve goes inverted, the recession is on nine months later.

In mid 2006, Bush knew the deficit machine had run its course, Paulson takes the job supported by old friends in the Bush administration. Now GS has an insider, better to time the exit strategy. GS still trades on insider news from the Obama administration.

Shorts

A "for example" on congestiion pricing and the consumer

The consumer of a business item in Manhattan will know the arrival time of any cargo to much greater accuracy under congestion pricing. So there is this great reduction om transaction costs due to inventory mismatches. These efficiency gains come in the first generation, with no driver automation. Congestion pricing tends to choreograph traffic, accidents are much reduced and insurance can be bought by the tracked mile. Car rental risks drop.

Insurance wants a low cost set of sensors and warnings, congestion wants increased control of cruise control and steering. As the driver becomes redundant, his elimination brings huge cost savings for the poor man, who obtains the services of DeliverBot. A great mass of jobs are created as reduced transaction costs at the last mile make local value added an opportunity.

Consumers are made whole as the technology follows the goods all the way home. There is a cultural norm identified in Brad's electrical revolution. Since 1820, we have been listening to electrons, and soon learned that accuracy of the listeners increases without increasing marginal costs. Moore's Law has been known since 1870.

Oil breaks a support level downward

Says the teaser from a gated WSJ article:

(Dow Jones)--Crude oil futures fell sharply for the second day in a row Friday after breaking through a key support level that traders had been watching for a sign of whether the energy markets would continue to trend lower. The drop in crude prices spurred losses for other commodities, which worsened as the U.S. dollar gained strength.

Crude futures, which had been little changed throughout the morning after the release of anxiously awaited U.S. jobs data, fell below their January low of $72.43, which triggered further selling that pushed the benchmark March contract below $70 for the first time since ...

Imported oil, as a percent of consumer expenses is growing toward the 6% mark. But, the economy is tuning to that problem. This is our third go around since mid 2007, and the consumer is getting better at it. Each time gas hits that magic point, some large chunk of consumer redeploys the household in a deflated state, discounting the personal auto. They are aided by increasing information technology. Transportation needs to be planned farther out in time and space, it is constrained.

The new technology consumer increasingly commercializes personal freight. This is different than from the previous oil shocks fro the 1970s, in which engine and transmission changes did the trick. In the same way that the telegraph drove the development of railroad, these consumers push technology into transportation. As the technology invades transportation, efficiency soars because transportation and information are matched.

Cascading bankruptcies

Angry Bear has the rundown. Sort of like piling on.

NYC income from congestion pricing

Absent any research, I am computing the annual income from Manhattan congestion pricing to be around $200 to $300 million/year. Basically I am assuming the use of the dashboard device and a mix of traffic based on the typical commuter. If the most important commuters can save $100 per day, they split with the city. Then adding in bus convoys, freight, and blocks of company commuters, congestion purchases approach those numbers.

The technology is paid for within months, management fees remain.

Menzie's Graph of debt over time.

This chart is public debt, not including internal government to government borrowings. The graph tells me that the costs of government expansion for the Bush period were hidden, buried, not to see the light of day until the debt crunch came. This is typical war behavior by heads of state.

Brian asks fun questions.

Brian asks:

Of course the most popular stuff sells out first.” But that’s a feeble explanation. After all, if X is ten times more popular than Y, then you’d expect stores to simply carry ten times as much X as Y. Why would X sell out faster in a blizzard if stores have already taken its greater popularity into account?

Modeled Behavior tackles the issue in terms of shelf space. The question arose when Brian noticed the pattern of gocery shortages when customers stocked up for the Eastern seaboard storm.

I tackle the problem from the distribution network. When one of two equivalent products in is high demand, it is distributed in larger lots without the middleman. The grocery chain codes for the demand differences with lot size adjustments. Equivalent products with less demand are handled by an intermediate warehouse which can keep larger lots, then deliver smaller lots of less demanded good in combination with other goods having the same low demand.

This lack of precision implies that supply and demand have linear adaption only within a small range. Larger lot sizes tend to be delivered less frequently, and assume large shelving space by the grocer. When sudden changes in demand occur, there is no nearby warehouse to draw extra supply.

What should the Fed do?

If the economy is a signal processor, then the Fed's job is to compute the lower end of the yield curve such that the total curve is most like Normal, Zero mean. It computes the lower end of the curve with open market operations. The economy, because of finite precision, presents to the Fed a higher or lower basic sampling rate, at the low end. The Fed must assume a deflated or inflated economy, thus selecting the shortest sampling period, or highest sampling rate. It should deliberately sample at twice that rate, approximately.

Distribute a finite set of terms over an ex-post banker yield curve, allocating precision using Shannon. Then look at the optimum set, select the shortest of the terms, and shoot for that. The implicit assumption is that the bankers are doing maximum entropy spectral analysis along the axis in time.

What does that mean? At each term, the banker is trying to determine the "how often and how much", over a specific time period. Business plans compute that in predicted cash flow. The whole banking channel, wholesale, retail, and intermediates, in totality, should be considered an information channel. There should be some N independent terms along the banker yield, N the precision. The terms allocated so as to equalize the information flow for each bank loan. So, the steep portions of the curve will have more independent terms.

I would say to the Fed, target two year rates to be 1.5%, do this by trading in one year notes. Leave the long stuff alone. But I just eyeball the Treasury curve from my Universal Economic Calculator.