Sunday, January 31, 2010

Charts that reveal



Two charts I come back to; the Baltic Dry Index (lower) and price of oil (top). A side note, I try to convert goods prices to goods flow in my head.

Fuel price is not the sole driver of shipping costs, but energy costs are a big driver of shipping customers, and their customers down the line. My take away is that retail customers, when sensitive to oil prices, give a useful clue to shippers.

My other take away is the double dip in the BDI, late 2007 and mid 2008. When shipping gets the double whammy, via oil, it becomes so volatile the marginal costs approached shipping price.

Another take are the dates, late 2007 it starts. The shipping markets makes a connection, it finds a coincidence, and codes a trade. By mid 2008, the shipping market is gonna jump all over the next oil peak. Markets code the events as repeatable, the economy attempts to respond to repeatable events with a multi-stage production line. Markets build encoders, they restore a flat noise channel after a distortion is revealed.

Look at the moving average line, 200 day, red line, on the BDI. That moving average matches one on the oil price chart, probably a 200 day also. Normally this tells me that an oil flow change in the retail sector will equilibriate out to the manufactures shipping flow in about 200 days. In both series, the data was collected on that day, by phone calls. That adjustment time is closely related to Ramsey theory, it concerns finding best approximations of a graph after reduction.

We became more efficient at shutting down transportation at or near oil price peaks the more often we practice, bad.


On a slightly related note, look at one of Mish's latest about municipal bankruptcies.

"As soon as a couple major cities declare bankruptcy to end burdensome union contracts and ridiculous pension promises, the stigma will be off and more cities will do it. Indeed, there will be a mad rush to do so, if the first few instances work out as well as I suspect."

Says Mish. He wants us to establish some efficiencies of scale regarding municipal bankruptcy.

Libertarians, free speech and elections

Libertarians would recognize the duty of the legislature to arbitrate between free elections and free speech, we would have no bias of the two rights. It would all be gray areas in public access facilities, and limited broadcast network, and the courts would grant some latitude for the political process to sort the conflict. Public disclosure rules in paid political ads, keep out regions around the polls, black out periods on restricted media would be OK.

When these rights are in conflict on private property between consenting adults, the legislature has no interest.

Libertarians recognize socialism is legal, by vote, though not recommended. Once owned, the legislature should operate a property effectively, as is customary. In that capacity, the legislature can engage voluntary rights restrictions in transactions.

Libertarians would be aghast at the recent ruling because a custom was elevated in stature by government fiat. The system, as it was, fit into our model, and their was no need to stir up ambiguous issues.

Saturday, January 30, 2010

A Kelley Trade in action

Important quote from this article about Brazilian tax policy.

"Brazil’s success in curbing the rally in the real by imposing a tax on foreigners’ purchases of stocks and bonds is a “scary” and “dangerous” precedent, said Citigroup Inc. equity strategist Geoffrey Dennis.
...
“Part of the success of the tax comes about because there’s an implicit threat by the government to actually increase the tax if the currency continues to appreciate,” Tony Volpon, a Latin America strategist for Nomura Holdings Inc., said at the conference. “The government has had a surprising success in putting the fear in the carry-trade community.”

So, the government has guaranteed, in some uncertain future, a bottleneck in Brazilian assets. So the market develops a trade that adds measurement precision between today and the day when assets are blocked. A set of hedges.
HT DeLong

Friday, January 29, 2010

This deal with spike trains and entropy

Markets, how we perceive them, is based on how often, how much. What tunes the brain is that the how often, how much, generates maximum entropy spike trains. This is the coincidence detector method of perception. The brain, ultimately, likes to generate in sync coincidence detectors. Up to eight in depth, I hear. There is no variance minimizers in the brain.

We go through life and normally, we plan for 1 out of 9 failures. And much outside of that boundary, the spike trains become way out of sync.
This is important for markets: If a supply chain is inflating, we know the maximum entropy estimate for its yield curve, and this gives us the finite (N+1) set of transaction rates and lot sizes.

So, a company like Wal Mart may want to inflate. Its goal is to expand its supply chain such that all parties, from customers to manufacturing, will use the N+1 set of lot size and rates. Each participant human being in the chain will end up with a spike train that can't find a specific inventory 1 out of 9 times.

Looking at the entire Wal Mart chain, each transaction will deliver the same amount of novelty in the exchange, 1/9 being the basic unit of economic information.

What this means to macro is that we actually measure distributions in our heads to the eighth dimension. So consumers got the change in distribution from the oil peak, they deflated because they knew the maximum entropy relations between driving and walking to the store; car pooling, hiring a gardener; all these have a relations ship, they come together and fire the coincidence detectors. When we deflate, we know pretty much how to do it in short order.

This can happen up and down the supply chain, deflation faster than inflation, because we are going back to the past, to known maximum entropy relations.

The related topic is the stock market. In information theory, the EMH says that if given the minimum variance yield curve, then for any given N, maximum entropy can give the optimum Vol time rate allocations for each of N trade terms. The hedge fund manager looks for trade patterns that are out of one of the terms, and tries a counter trade to generate a known, more maximum entropy in the market. Converting to price, the trader wants to add market precision where he sees insufficient price variation allocated to adjacent terms in the monetary yield curve. When the curve is steep, he wants to intermediate and add price variation.

Kling is bolder than I

"It has gotten to the point where one often hears that saving jobs requires supporting state and local governments. (Note that sometimes the solemn pronouncements that aid to states is a compelling public need are made by professors on the salary of state governments.)"

An idea I feared to express, but he comes right out in a discussion of the public union takeover of government.

Here come the Political Corporations

Tea party has filed as a profit, private corporation. So how do these political corporations work?

Well, there seems to be no limit in how much a stockholder can invest, first. Second the political corporation has the right to buy political advertisements without restriction. Third, depending upon the location of the corporation, there seems to be no disclosure as to the identity stockholders.

So Hot Air informs us of a false flag operation, run by public sector unions. Lee Doren cracked the case using opensecrets.org. Open Secrets used public disclosure laws to find the original funders, at the bottom is this little tidbit:

This data is based on records released by the Internal Revenue Service on Tuesday, January 19, 2010.

The little tidbit of a disclosure avenue goes away with the Supremes and their rule.

Citizens United won its case and conservatives can never again chase down shareholders in political corporations. In fact, there is no reason why local public sector unions wouldn't simply form a limited corporation, completely disguising their investors under immunity. Explain why Alioto can say "Not True"

It would seem to me that county governments will eventually be run by one of two corporations, a Republican political corporation or a Democratic one. In either case, these for profit corporations will not need to disclose the political investors in the companies.

It is true that public service organizations are racketeering groups within local government, and generally we have business groups engaging in the same racketeering. The Supremes have simply put the racketeering behind a firewall, guaranteed to privacy by the new rights granted.

I suppose a libertarian might make the case that political campaigns can be managed in secret, not even disclosing the name of the candidate they espouse. A libertarian might make the case that political corporations should sponsor the whole slate for a particular jurisdiction. Why not offer shares to voters, let them share in any profits. But, I doubt libertarians will take kindly to the idea. What are libertarians saying?

Here come the Choo Choo trains


As Obama freezes the budget by spending more on HSR.

As for California, here is a UC Berkeley symposium on the problems and challenges. UC transportation professors make some claims:

"Horvath’s life-cycle analysis of the three modes suggests that high-speed rail will produce some 10 million metric tons of CO2 per year during construction. Furthermore, electricity to run the trains must be generated from coal-fired plants, leading to additional greenhouse gas emissions once HSR is operational.

The only way to recover the environmental costs of this mega project is to assure a high passenger load from the start; otherwise, the carbon footprint of air travel would be significantly less. “Fewer people taking the train in the first couple of years counts heavily against HSR in terms of emissions,” Horvath concluded."

Translation, HSR is likely to consume more energy then the equivalent airlines in California. So, if we get Capntrade, then expect a global warming premium for HSR, above that for air travel. We will need Barney to give us emission slips.

"Even if high-speed rail attracted everyone who drove and flew between the Los Angeles basin and the San Francisco Bay Area during the year 2007, it would amount to only eight million passengers per year, nowhere near the numbers projected by the California High Speed Rail Authority, explained CEE professor Mark Hansen. But even that estimate is optimistic. HSR would be extremely unlikely to capture most current air travelers due to lack of transportation connectivity in most California cities and regions."

Translation: The HSR is likely to be underutilized because of local access problem, which will take ten years to adjust.

“If it is built, it will be the largest infrastructure transportation project in the U.S. since the Interstate was constructed beginning more than a half century ago,” Madanat said. “It is a complex endeavor and requires a complex understanding of the engineering, economic and environmental issues.”

Translation: Expect a construction cost of around $100 billion plus.

Another perspective on costs:

"In January 2008, the rail authority told the California Senate Transportation Committee (as reported on page 16 of the committee’s staff report) that the $33 to $37 billion estimate was still valid “as of October 2007.” Yet construction costs have climbed rapidly since September, 2003, when the EIS estimates were made. Denver’s FasTracks cost of $4.7 billion was considered firm in 2004; since then, cost estimates have risen by 68 percent."

Translation: Cost will be more than $100 billion.

Where is California going to get the money? Every dollar of federal taxes from California yield about 95 cents in return.

Translation: Cost will be $110 billion plus, for California.

For a ten year construction schedule, the financing costs will be near $8 billion a year, considering California's poor credit rating. California currently runs a $15 uillion/yr deficit.

Translation: California's deficit will soar to $30 billion dollars a year, which will be about half of the State's budget. Prediction, this project will result in a series of vu grafs, which will cost about $1 billion to generate, and the project will be cancelled.


And this report that California will once again run out of cash in April, meaning the HSR should be cancelled today.

I would like an economist who knows California's political economy to explain why this has any realism to it.

Obama continues to break his own budget freeze

In this tripling of a discretionary fund:

"President Barack Obama, acting on a pledge to support nuclear power, will propose tripling loan guarantees for new reactors to more than $54 billion, two people familiar with the plan said.

The additional loan guarantees in Obama’s budget, which will be released Feb. 1, are part of an effort to bolster nuclear-power production after the president called for doing so in his State of the Union address Jan. 27. Today, the Energy Department plans to announce creation of a panel to find a solution to storing the waste generated by nuclear plants."


I am not sure this guy looks far enough to see his own contradictions. I am reminded of Carter, not Clinton (Bill).

One more time with Althouse

In remarking about Alioto mouthing words, she says:

"Uh, yeah, which is why Obama's words were such an affront. Obama called the Citizens United case a "wrong," that is, a legal outrage of some sort, but, obviously, Alito's position is that the Court decided the case according to the law, that it said what the First Amendment means, and that its legal expertise is entitled to respect."

Except it was a 5-4 decision, very tenuous and subject to revision. Is this good law? Well, every time a justice goes before the nominating committee in Congress, there will be a litmus test, will that justice overturn the rule. In giving the Corporate Charter inherent rights, the inch will become a mile via an unending string of litigation.

I have shot down every argument for this nonsense, as did the 4 dissenters. The implication of the ruling go so far that Congress has no choice but to seek its overturn at the soonest possible moment. In the meantime, as I have pointed out many times, the effect of this ruling was to kill the corporate charter at its very foundation. Until it is overturned, we will be stuck in limbo, waiting for legislatures across the country or Congress, to define the corporate charter around its new found rights, or simply do away with it.

I suggest to Althouse that she focus on the efforts of Congress to repair the corporate charter, and understand the economic cost this whole episode will cost us.

Thursday, January 28, 2010

And George Will naturally defends the Supremes

Mr. Will brings up a number of topics relating to the FEC:

First, the Sierra Club case in which they were fined for passing out campaign literature regarding candidates for office. This is a case in which the Sierra Club had the same rights as news media. Both are able to express their opinion on the election through their normal channels. Neither was allowed to pass out pamphlets funded by thier corporate treasuries. Either would have been fined, there was no exemption for a media corporation.

Is printing and selling new paper like pamphlet? No, the news paper is sold as part of the normal news business, and the law cannot prevent publishers from organizing as corporations. The Sierra Club could also, and they do, print a magazine in which their normal readers are free to read Sierra Club endorsements. Neither could take their corporate monies and set out to pass around election pamphlets. The Sierra Club with is associated media outlets is as close to a media company as they claim, yet had no exemption from direct electioneering. The media exemption Congress allows is moot and simply represents the limited intelligence of the Congressional body.

George points out the the FEC regulations are complicated and messy. All federal law is, that is why we always want less of it. But complicated and messy is not unconstitutional.

Then he reprints this remark:

"Cleta Mitchell, Washington's preeminent campaign finance attorney, rightly says that few for-profit corporations will jeopardize their commercial interests by engaging in partisan politics"

OK, then we change constitutional law because of what Cleta thinks? Completely irrelevant.

The George mentions:

"Undaunted, advocates of government control of political speech want Congress to enact public financing of congressional campaigns,..."

This case was not about undaunted regulators of political speech, it was about undaunted regulators of the corporate treasury, a regulation of which is by common consent between the stockholders and the legislature. Corporations engage legislatures and submit to regulations of the corporate treasury for the specific reason of attracting stockholders. It is all voluntary, and Citizens United did not have to incorporate, they could have remained a PAC, hence Citizens United agreed apriori, to regulation of their corporate treasury.

George is only a moderately smart man.

Pelosi wants to include defense in the freeze

She speaks:

"She stressed the entire defense budget "should not be exempted," as President Barack Obama proposed in his State of the Union address Wednesday night, because the Pentagon too suffers from costly, wasteful programs that could produce savings."

I suppose, therefore, that entitlements should not be exempted.

But the book lives on


J.D. Salinger has died.

But our hero, Holden Caufield, opines on issues of war and peace:

Anyway, I'm sort of glad they've got the atomic bomb invented. If there's ever another war, I'm going to sit right the hell on top of it. I'll volunteer for it, I swear to God I will. ~J.D. Salinger, The Catcher in the Rye, Chapter 18

Yeglesias getting closer to the problem

He is talking about infinitesimal subdivisions of debt, when he says:

"The idea of a profitable investment is a purely relative one. Lending money for a risky endeavor with an expected return of 0.3 percent doesn’t look so good when the Fed is offering a guaranteed return of 0.25 percent. But reduce that to a guaranteed return of zero percent or to a guaranteed loss of 0.5 percent and suddenly things look different."

The problem is obvious. In order to justify transaction costs for relative differences in returns of .25%; then the debt sold be very large indeed. The only place to get those economies of scale are the Federal Government. So, we end up with a system in which Congress extracts small payments from taxpayers in order to sell huge lots of debt. Unfortunately it is the taxpayers who do not have the yield to generate those interest payments.

Greenhouse sticks out her neck for the Supremes

She says:

"The law that Congress enacted in the populist days of the early 20th century prohibited direct corporate contributions to political campaigns. That law was not at issue in the Citizens United case, and is still on the books. Rather, the court struck down a more complicated statute that barred corporations and unions from spending money directly from their treasuries — as opposed to their political action committees — on television advertising to urge a vote for or against a federal candidate in the period immediately before the election."

Then covers her ass with:

"It is true, though, that the majority wrote so broadly about corporate free speech rights as to call into question other limitations as well — although not necessarily the existing ban on direct contributions."

Who exactly incurred restrictions on the use of the corporate treasury? Stockholders incurred those restrictions. But stockholders had no essential rights as stockholders, except those defined in the corporate charter. Stockholders only exist because of a voluntary contract they entered into with the state. The effect of the ruling is to ban certain types of corporate charters, namely charters which restrict political use of the corporate treasury. The Supremes have told legislators that if they cannot limit the extent of these charters, then these charters cannot stand.

Handing human rights to corporate charters is the inevitable result, for it is the only path that Kennedy had available to him. Any other path would have constitutionally restricted the rights of legislatures to enter into contracts. Consider a private contract between two parties that includes a non-disclosure, a restriction on free speech. Legislatures would no longer engage in these contracts, unless corporations had some "human rights" exemptions that make them unique.

And Bradely Smith wipes out foreign stockholders

I knew the National Review was a Communist organization, but not until now did they explicitly wipe out the property rights of foreign shareholders:

He claims:

"The Court held that 2 U.S.C. Section 441a, which prohibits all corporate political spending, is unconstitutional. Foreign nationals, specifically defined to include foreign corporations, are prohibiting from making "a contribution or donation of money or other thing of value, or to make an express or implied promise to make a contribution or donation, in connection with a Federal, State or local election" under 2 U.S.C. Section 441e, which was not at issue in the case. Foreign corporations are also prohibited, under 2 U.S.C. 441e, from making any contribution or donation to any committee of any political party, and they prohibited from making any "expenditure, independent expenditure, or disbursement for an electioneering communication... ."

The hell it wasn't an issue in this case. The recent decision makes it perfectly legal for foreign shareholders to invest in political corporations. Foreign stockholders are anonymous, that is one of the effects of the corporate charter, that is why these are corporations, the limited immunity the anonymity. The new ruling gives any shareholder of Citizens Unitied exactly the right to invest in political ads. The previous ruling was for foreign people, not shareholders. Congress never restricted foreign shareholders, because it never occurred to Congress that the corporate charter extended the rights of shareholders beyond the original contract.

How badly does Volokh read the Supremes

He makes his argument on the Supremes by referring to the age old right to print stuff:

"None of these cases [guaranteeing the right to publish], of course, involved corporations. But they do show that “liberty of the press” was seen as a right to publish to the world at large using the technology of the “press” (including by using others’ presses, whether for pay or because they liked what you wrote), not as a right that belonged to members a particular industry. The institutional media and other people are on par for purposes of “the freedom of speech, or of the press.” The constitutional protections offered to the institutional media are no greater than those offered to others. And thus if ordinary business corporations lack First Amendment rights, so do those business corporations that we call media corporations."

What liberties did the NY Times have that Citizens United did not have? The right to print stuff, whether movies or paper? They both have that right, as does Coca Cola. All three are barred from purchasing news political ads in a third party media, except as individuals.

The ruling on the Supreme Court was not about whether newspaper exemptions in the FEC rules we needed, they are not. When stripped of the unnecessary exemptions, the FEC rules were quite simple. If you publish political ads, outside of the corporation's normal function, then that exercise must be by individuals representing themselves as exercisers of free speech.

In other words, the FEC rules we legislated specifically to defend only the individual right to free speech. It was an attempt by Congress to tell the court that if these corporate charters are treated as people, then these corporate charters will be "dead letter". Justice Kennedy effectively killed the plantiff by ruling in its favor.

Wednesday, January 27, 2010

Pttchforks at the ready

As the various mobs take a position in the government restructuring.

Let's dump Ben

Bloomberg:

Federal Reserve Chairman Ben S. Bernanke had conversations with 18 of the 23 legislators on the Senate Banking Committee prior to their 16-7 vote this month to recommend that the full Senate confirm him to a second term.

“In all my years of doing this, and I have been doing this since 1996, I have never seen a Fed chairman put a full court press on Congress, especially on the Senate Banking Committee,” said Ken Thomas, a lecturer in finance at the University of Pennsylvania’s Wharton School who routinely reviews the daybooks of Fed chairmen.

“This is unprecedented political contact for a Fed chairman in such a short period,” Thomas said, “especially considering Bernanke’s vow before his first Senate confirmation hearing that ‘I will be strictly independent of all political influences.’”

I take on some questions from economists.

Nick Rowe asks:

Does the rise of barter indicate unmet demand for the medium of exchange?

The short answer is no, debt always seeks a constant and finite level of precision. When we plan far into the future, or far back into the production lines, we reduce precision at the retail level. The economy has only so much price variation is can distribute, and allocates precision at the point of production where bottlenecks are occurring.

Barter works via supply line deflation. We really do not barter apples and bananas in his example, what we do is combine apple and banana inventories between otherwise separate producers. Collateral swaps are another form of this type of barter. In both cases, some interfacing markets have gone away, replaced by larger purchase and fewer trips to the market. So we see the phenomena of pooling limited funds and sharing a trip to the wholesale grocer. We car pool more often. Sharecropping in its various forms resurface, where the landlord takes a take of the profits. Construction companies form joint ventures on project where previously they would compete in the market. Quid pro quo trade deals become normal between nations. Children move back home, bartering rent. Deflation reduces the stages of production, obtaining larger lot sizes for each of fewer transactions. In the end, each firm or household settle on larger inventory sizes internally and fewer market transactions.

Kling wants an opinion of why we maintain unsustainable budgets in government. The essential question of voters is, if experts tell us this government will crash, then why don't we fix it now?

The answer is that the moment of the restructuring is still too uncertain. The private sector has to deflate enough that the balance sheet effect of excess government reaches observability for the economy. Considering both the election of Brown and the tax increase in Oregon, both instances demonstrate that the next trade with Obama and Pelosi cost more than the gain. Hence, the moment of restructuring the Obama plan is upon us.

Tuesday, January 26, 2010

Julian Sanchez has questions about paid political advertising

Yet again another defender of the recent Supremes decision. Two questions Julian asks, why does Congress want restrictions on political ad purchases by corporations? And second, why would established media be exempt.

Taking the second first. Established media, I guess, refers to media that generally reports news and opinion about politics. They are not really exempt, the specific exemptions by the FEC are really moot. As I pointed out, the NY Times is not allowed violate the restrictions on political ad purchases, they are equally restricted, as any other corporation, in their purchase of Washington Post ad space under FEC rules. They are allowed to conduct their normal business of reporting political news and giving opinion on their own media, that is their function. Their function is preserved under Due Process contract law, they do not need a rights case to be protected. A Due Process ruling would state that no particular type of business can be unduly restricted in their use of the Corporate Charter.

The first question, why political ads? Because in a limited time span with limited resources, the FEC wants to prevent the political ad space from being filled up by a few dominant organizations. Note that no restrictions for corporations using their own media for their normal activities, simply a restriction on clogging up the commercial media channels.

Why corporations only? Because corporations do have limited liability behind what they say in purchased ad space. In contrast, individuals, who have retained their right of free speech have kept their ultimate liability about who they are.

If Citizens United had a complaint that the Corporate Charter discriminates against makers of political documentaries, then they should have resolve it in contract law, I say over and over again.

The Volkswagon five year plan with Stanford and more

Says VW Buzz:

"The initial focus for VAIL will be vehicle safety, mobility and environmental performance," said Plummer. "Already signed up for space in the facility are the research groups of computer science and electrical engineering Professor Sebastian Thrun, leader of the Stanford Racing Team that fielded Junior and Stanley; mechanical engineering Associate Professor Chris Gerdes, whose research group is studying cleaner combustion and advanced vehicle dynamics control; and communication department Professor Clifford Nass, whose research studies the psychology of making cars safer and more enjoyable."

Volkswagon going to be in the poles peak climb? Yes, says Steve Darden at the Seeker Blog

"Volkswagen is very serious about driverless vehicle technology. The TT-S in the photo above is being prepared to enter the Pike’s Peak International Hill Climb in August (yes, I said driverless!). Here is a fun VW video made to publicize the venture with Stanford."

One of the research algorithms from MIT:


"The system handles roads with complex geometries and makes no assumptions about the position and orientation of the vehicle with respect to the roadway. Early versions of these algorithms successfully guided a fully autonomous Land Rover LR3 through the 2007 DARPA Urban Challenge, a 90 km urban race course, at speeds up to 40 km/h amidst moving traffic."

A software tool kit to define autonomous vehicle communication protocols.

This research defines the traffic rules so computers can obey them:

"In this paper we present a dynamic task analysis and use it to develop a computational model of driving in traffic. This model has been implemented in a driving program called Ulysses as part of our research program in robot vehicle development. Ulysses encodes legal, safe and practical driving rules as constraints on acceleration and lane selection. "

More later.

Where I depart

from the debt cycle theory. We are, underneath, suffering from DeLong's generational leapfrogging with the electrical revolution of 1870. The advance of electrical communications, each generation has doubled our knowledge farther out in space and time. But we have limited precision, and we blend our knowledge of the short to gain economies. The bankers yield curve is always forced to steepen, reflecting increasing short term constraints that appear with long term knowledge. The constraints appear in transportation.

The solution has always been using communications as guide ways to improved transportation. Transportation technology employs the best of information technology, and precision is allocated. Ever since the horse it has been telegraph line, power line, electric tram, telephone, and roads; enter-twining solutions to produce technology shocks. The results are always great productivity booms. Since the electrical revolution. That is going to continue.

Technology tells us not only where something is now, to the centimeter, but where it will be 20 minutes from now, to the centimeter. Information now controls the future of transportation.

Our stage in this, Yet Another Leap, the new technology tells us enough about the real good that it will move the good directly.

So, you are at an empty intersection in your car, and your cell phone knows more about current traffic is than any of the four idle cars. Well, then put a cell phone up on the light and in all the idle cars. They can have a conversation, just like texting, When that conversation happens, then intersections are seldom idle, but optimally used. Travel times drop, gas efficiency rises.

Geithner fails Econ 101

And the purpose of price discovery? Says Elana Schor and the Washington Independent

“We have no option now to selectively diminish the value of those claims without taking risks that you would have a default,” he told Sen. Chris Dodd (D-Conn.). Rep. Jo Ann Emerson (R-Mo.) was told that “you can’t selectively allow the institutions to default on particular types of creditors without risk that the whole thing comes unwound.”
Which Geithner claims somewhere along his drunkard's walk.

I should get back to transportation and leave this up to Mish.

Government spending


I stole this chart, what does it say exactly?

It says to me that government spending, as a share of the economy, had stabilized under Bill Clinton, but lil Bush Bush, using fraud, printed debt to pay for the wars. The debt has been discovered, and is now due, hence the spike in 2010. We now have more debt then we were told to expect.

The chart also tells me that Republicans grow government with debt and sensible Democrats shrink government. If progressives want to increase debt, then why are they voting Democratic?

Horse manure

A great Horseshit story from the New Yorker, please go read it here.

"In the eighteen-sixties, the quickest, or at least the most popular, way to get around New York was in a horse-drawn streetcar. The horsecars, which operated on iron rails, offered a smoother ride than the horse-drawn omnibuses they replaced. (The Herald described the experience of travelling by omnibus as a form of “modern martyrdom.”) New Yorkers made some thirty-five million horsecar trips a year at the start of the decade. By 1870, that figure had tripled.

The standard horsecar, which seated twenty, was drawn by a pair of roans and ran sixteen hours a day. Each horse could work only a four-hour shift, so operating a single car required at least eight animals. Additional horses were needed if the route ran up a grade, or if the weather was hot. Horses were also employed to transport goods; as the amount of freight arriving at the city’s railroad terminals increased, so, too, did the number of horses needed to distribute it along local streets. By 1880, there were at least a hundred and fifty thousand horses living in New York, and probably a great many more. Each one relieved itself of, on average, twenty-two pounds of manure a day, meaning that the city’s production of horse droppings ran to at least forty-five thousand tons a month. George Waring, Jr., who served as the city’s Street Cleaning Commissioner, described Manhattan as stinking “with the emanations of putrefying organic matter.” Another observer wrote that the streets were “literally carpeted with a warm, brown matting . . . smelling to heaven.” In the early part of the century, farmers in the surrounding counties had been happy to pay for the city’s manure, which could be converted into rich fertilizer, but by the later part the market was so glutted that stable owners had to pay to have the stuff removed, with the result that it often accumulated in vacant lots, providing breeding grounds for flies.

The problem just kept piling up until, in the eighteen-nineties, it seemed virtually insurmountable. One commentator predicted that by 1930 horse manure would reach the level of Manhattan’s third-story windows. New York’s troubles were not New York’s alone; in 1894, the Times of London forecast that by the middle of the following century every street in the city would be buried under nine feet of manure. It was understood that flies were a transmission vector for disease, and a public-health crisis seemed imminent. When the world’s first international urban-planning conference was held, in 1898, it was dominated by discussion of the manure situation. Unable to agree upon any solutions—or to imagine cities without horses—the delegates broke up the meeting, which had been scheduled to last a week and a half, after just three days.

Then, almost overnight, the crisis passed. This was not brought about by regulation or by government policy. Instead, it was technological innovation that made the difference. With electrification and the development of the internal-combustion engine, there were new ways to move people and goods around. By 1912, autos in New York outnumbered horses, and in 1917 the city’s last horse-drawn streetcar made its final run. All the anxieties about a metropolis inundated by ordure had been misplaced."

Are investment bankers psychotic?

According to Paul Volker they might be. They claim that their algorithms are worth the 7 and 8 figure bonuses, but their algorithms tell us that they are over paid. The game was to have Greenspan print the debt, and bankers foist it on the unsuspecting. The game now is to have Bernanke print the debt and foist it onto the the suspecting. One is fraud, one is payoff for discovered fraud.

Like an economist in love with the public sector, we need to take these protestations by bankers as nonsense. More power to Volker.

1930, not 1937

Economists who claim that Obama might repeat the mistakes of 1937 should go back and ask where are Obama's 1930 to 1937. Those years have not yet happened in this recession, so how in the hell can Obama be at 1937 already? Further, where is Obama's pivotal 1936, the year of the fascist uprising in Europe?

This is batshit crazy, these are mainly economists who live and breath the public sector. The election of Brown is not yet a Fascist uprising, only a threat to return to Republican expansion of government and fraud. That Obama nips it in the bud would be a miracle, but there is no reason to try and pacify the masses with more Rahm Doctrine. Absent the missing 6 years, we have to find another model for Obama, and that model is Bill Clintion, 1994, not 1937.

Economists have gotten much wrong, but when they are wrong on purpose, then they should leave the profession.

Monday, January 25, 2010

Obama to overrule his new policy

Obama to propose a spending freeze, except he immediately plans to violate the proposal.

ABC NewsRick Klein Reports: House Minority Leader John Boehner, R-Ohio, reacted to the rise in unemployment today by calling for a federal government spending freeze.

“Washington Democrats seem more determined than ever to continue pursuing tax hikes and pork-barrel spending increases that are only proving to make matters worse,” said Boehner, R-Ohio, in a statement.

“President Obama campaigned against wasteful spending last year and has renewed commitment to fight it now that he is in office. I hope he will follow through on that promise by vetoing this legislation if it passes the Senate and working with House Republicans to enact a spending freeze for the remainder of this fiscal year.”

The move come as Senate Democrats scramble to find the votes to pass a $410 billion spending bill to cover federal expenditures through the rest of this fiscal year. The bill increases so-called “discretionary” spending by about 8 percent -- and includes some 8,500 earmarked special projects inserted by lawmakers.

The president has said he will sign the bill regardless of criticisms from Republicans and some Democrats. But it’s developing into yet another rallying point for an opposition party that’s finding its way to a new identity under the Obama administration."

Obama is caught between the Rahm Doctrine (Never let a crisis go to waste) and the Republican doctrine (Defraud China and the Arabs).

Why is the Fed laundering debt?

First, the how from Hussman Funds:


"How to spend $1.5 trillion without Congressional approval

Step 1: Federal Reserve purchases $1.5 trillion in Fannie Mae and Freddie Mac securities, creating $1.5 trillion of monetary base to pay for these purchases.

Step 2: U.S. Treasury quietly announces unlimited support for Fannie Mae and Freddie Mac on December 24, 2009, exploiting a loophole in a 2008 law that was originally written to insure a maximum of $300 billion in total mortgage principal (not losses, but principal).

Step 3: Over the next several quarters, the U.S. Treasury issues $1.5 trillion in new Treasury debt to the public, taking in the $1.5 trillion in base money created by the Fed in Step 1.

Step 4: U.S. Treasury hands that $1.5 trillion in proceeds from the new debt issuance to Fannie Mae and Freddie Mac.

Step 5: Fannie Mae and Freddie Mac use the proceeds to redeem the $1.5 trillion in mortgage securities held by the Fed, thus reversing the Fed's transactions in Step 1, without the need for any other "unwinding" transactions (watch). The base money created by the Fed comes back to the Fed, and the mortgage securities purchased by the Fed disappear, by burdening the American public with a new, equivalent obligation in the form of U.S. government debt."

The why? We, the USA, got caught in mortgage fraud. We have to pay off the foreign banks that were defrauded.

This is the Republican fraud machine, and likely to rear its ugly head after the mid-term elections.

HT Zero Hedge, the nations forensic accounting blog.

Distorting the economic channel


Cafe Hayek points us toward the involvement of Congress in economic affairs, a CATO study.

Key line:

"Most people are aware that federal spending is soaring, but the federal government is also increasing the scope of its activities, intervening in many areas that used to be left to state governments, businesses, charities, and individuals."

There is no Keynesian math that allows me to pay for subsidies way beyond my means. Hence, the only Keynesian math is wishful thinking about the future.

3 of 4 thinks the stimulus was a waste!

In this CNN poll. Well, Americans are smarter than Yglesias believes, but that is a low barrier.

My personal experience is that the ARRA causes paranoia, because when they are outside on my street digging things up, I have the fear they will knock on my door for a paycheck. You see, here in Fresno California, in this neighborhood, about 2 out of 3 households rely on a government check. I know, I keep count, and we all see the aggressive and desperate nature of public employee unions.

Senator Reid wants a quid pro quo from the Fed before Ben gets his vote. The states want a federal handout to stave off bankruptcy, of which over half are at risk. Goldman Sachs has developed a production system to pass around excess short term debt, while Ben promises to keep negative interest rates to generate raw material.

The Republicans are no help, they just want to run up long term debt to even higher levels.

DeLong thinks we can still separate the near future from the far future, explaining that we can afford higher short term deficits. Unfortunately, the elections upcoming have combined the near and far term. The debt issue is today.

Obama, Reid and Pelosi cannot get the message, they are blocked from it. The future repeats itself, and the message becomes clear when the alternative is a big spending Republican Congress.

What is a poor citizen to do when the socialists comes knocking for their paycheck? I don't have the money, and if I had it, I would have hid it long ago. I am given the choice between Socialists hunting me down for paychecks, and Communists foisting bad paper on foreigners. The temptation will be for voters to try to sneak the Republican fraud machine into Congress, for a little breathing space. Foreign investors are a bit smarter about not repeating the past than Barak, and I fear a return to Republican deficit spending will cause collapse.

Maybe the best bet is to stay on the knife edge of political uncertainty.

Sunday, January 24, 2010

Business Insider finds a Smoking Gun


Courtesy of Mish, naturally, here is the Business Insider post. We have fewer goods producing workers paying the salaries of government employers, who generally earn more. What about services? Well, who pays the service providers?

EMH and the Grossman Stiglitz paper

Adam Ozimek and Nick Rowe are considering the issue of stock market efficiency, do stock prices represent all the information available.

Grossman and Stiglitz lay out their argument that the Efficient Market Hypothesis cannot be true. The capsule version of my take on the paper is the the stock market reaches a max level of information efficiency when the cost of the additional piece of information is greater than the gains from trade. Hence, uncertainty remains, even in the face of certain information.

I would second Stiglitz to the point that a finite uncertainty level is necessary for markets to operate, the uncertainty level is a natural constant If there is a noise floor, then the market can reach the level of efficiency up to that floor. But not all company information is available to traders.

America has too many women?

This post claims Chinese over save because they have relatively fewer women to spend money on. The implication for deficit countries, like the USA, is that we blow too much money on women.

Iyi Somin says we did it to preserve newspaper corporations

In the latest Volokh post regarding Just Roberts and the Supremes.

Corporations all have public media, new releases, editorials and the like in their own media outlets. Bill Gross publishes to his customers in the PIMCO newsletter, no different than the NYT publishes editorials to its customers. The FEC had no reason, initially, to have the media exemptions.

Newspapers and media deliver news to its customers, Bill Gross delivers bond investment advice. Neither outlet is to be denied the ability to use its own media as part of its own business.

Both the newspaper and the media are prohibited, under a voluntary charter, from breaking FEC rules. Both PIMCO and the NTY have restrictions placing corporate political ads in the Washington Post. Both have the right to issue editorials to their customers.

The proper case that Citizens United needed to bring was whether corporations can be restricted access to general media outlets in reaching their customers. If they had claimed that the FEC laws were especially oppressive to corporations in the business of making political documentaries, then they may have won, in contract law court. There they could have made the appeal that the FEC laws distort due process in corporate law.

Iyi also points out that there are many state created entities. He is correct, and that is the problem. All of these state created entities exist because members voluntary give up some rights in creating them. The Roberts decision has place a risk on all these voluntary contracts, they no longer exist in legal fact unless each and every entity provides a specific manner of dealing with rights we can no longer abrogate.

And FrontPage magazine gets it wrong, quoting Shapiro at CATO:

"No one is saying that corporations are human beings. But corporations are groups of private individuals who have legal rights."

Shareholders hold a set of rights they have chosen, limitations accepted based upon a grant of limited liability received in their exercise of shareholder duty. They are not acting as just another "group of individuals".

We cannot run an economy in which CATO has every individual exercising every human right at all times. Libertarians do allow for voluntary, limited restrictions on rights.

Saturday, January 23, 2010

Bankers flow with the credit

Felix wonders why we have to have big, and global banks.

I think bankers flow outward with American deficit dollars, they are hired away by foreigners to manage the store of value we promise. Simultaneously, banks follow the money to Washington DC. Bankers have to follow, and adjust to the flow of constrained goods, they do this that they adapt faster.

Friday, January 22, 2010

Michael Walsh screws it up also

He says:

"That principled defense of the First Amendment in Citizens United v. Federal Election Commission naturally sent the left into high orbit. President Obama promised a “forceful response” — how many divisions does the Supreme Court have, anyway? — while New York Senator Chuck “Schemer” Schumer called the decision “un-American,” announced he would hold hearings and vowed to whip up some new laws in time for the fall elections to… to… whatever."

The "whatever" for Mike Walsh is the restriction this ruling gives Congress. This ruling says the right to Due Process cannot be given away, Congress is henceforth unable to make block grants if limited immunity, even when voters unanimously approve. Kennedy and the Conservatives in their haste to make new law from old court cases forget that the voluntary abrogation of rights by prior consent with Congress is now illegal, they cannot make it illegal just for one right.

So Mike and this ignorant court have mainly severely weakened the corporation, not strengthened it. Both Conservatives and Progressives will forever use this ruling in their Communist attempts at micromanaging.

Keep throwing these bozo opinions on your web sit, Instapundit. The more you cite, the stupider this decision looks for everyone, left, right and libertarian.

Ann Althouse gets it wrong

Ann quotes Kennedy again:

"When word concerning the plot of the movie Mr. Smith Goes to Washington reached the circles of Government, some officials sought, by persuasion, to discourage its distribution.... Under Austin [the case the Court overrules], though, officials could have done more than discourage its distribution—they could have banned the film. After all, it, like Hillary, was speech funded by a corporation that was critical of Members of Congress. Mr. Smith Goes to Washington may be fiction and caricature; but fiction and caricature can be a powerful force."

That movie was funded by a corporation in the business of making movies. The type of business that gains from incorporation is irrelevant, if they produce shoelaces or if they produce movies, they are subject to apriori electioneering rules according to the voluntary contract. The movie business still retains its ability to run it s business under the corporate contract.

A corporation that is in the business of making specific political movies and documentaries still retains due process to conduct that business. They are not uniquely prohibited by electioneering law more than any other corporation. The fact that Citizens United engaged in a business that incurred particular restrictions during election time is no different than the black out time required before a corporation issues public stock. In the later case there is no restriction on other individuals and analysts from comment on the public stock offering, in the former, there is no restriction against a political movie company from selling movies during the election black out period. Both agreements contained voluntary restrictions apriori.

These apriori agreements exist for national security information, insider information management, and many other purposes. They are there specifically because of the right of shareholder anonymity inherent in the limited immunity grant. Everything ties back to the special privileges granted by Congress under a corporate charter.

And Justice Kennedy gets it wrong

As Matt Welch reports, wrongly:

"As Justice Anthony Kennedy wrote in his majority opinion, "The law before us is an outright ban, backed by criminal sanctions. Section 441b makes it a felony for all corporations -- including nonprofit advocacy corporations -- either to expressly advocate the election or defeat of candidates or to broadcast electioneering communications within 30 days of a primary election and 60 days of a general election. ... If the First Amendment has any force, it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech."

The question is did Congress and the Corporation agree to the criminal ban prior to incorporation? Was that contractual clause devoid of Due Process? Dunno, send it back to business law to find out. The question is does Congress have the right to impose criminal penalties in contract law. I address that later.

But no one person was preventing from using their own funds to have that movie broadcast. What was missing was the unwillingness of any single person to buy that film from Citizens United, or the unwillingness of Citizens United to sell the movie.

Can Congress impose criminal penalties for breach of contract? Maybe not, that seems a violation of Due Process, in Business law, under Due process statutes. But what about anti trust and insider trading law? These are criminal, and they reflect apriori bans on certain forms of assembly.

However go back to the original contract, shareholders get some limited immunity, and in response it seems a requirement that at least civil penalties be imposed for restrictions on that civil immunity. If corporations have some limits on criminally liability, then Congress has to explicitly describe restrictions, as Criminal violations. But the issue was not ruled on.

I mean, all HT to Instapundit, but each argument Glenn puts up will be shot down. This is a tautological contradiction, an impossibility of a ruling.

Ramsey, Information rate and economic coding

If we look at a term structure, a yield curve, we are looking at a distribution of inventory growth at various frequencies. There is also the distribution of inventory growth at various lot sizes. These distributions are exactly the production structure of some good.

If we look at the production chain as a channel encoder, then we observe the direct sum of all transactions along the network, a series of symbols arriving in time sequence. When those symbols are properly coded by the supply chain, lot sizes and rates reach equilibrium, then the symbols arriving appear as a constant rate arrive of information units, each having a value dLdT, a fixed quanta of uncertainty equal to the product of uncertain arrival and uncertain lot size. That uncertainty is the SNR of a gaussian noise channel, the production line converts a skewed, lognormal channel into the gaussian white arrive of information units. Each inventory along the production chain converges to the constant variation of a normal distribution.

Highly skewed production chains have long term constraints, so more price variation is needed for long term investment and the problem has to be broken up into more liong term stages; each stage processing a chunk of the lot size reduction.

There is a valid reason for the finite uncertainty. it keeps a small correlation among distinct supply chains. The egg producer competes with the commuter and retail grocery shopper on the roadway. It is that unmeasurable interference that makes the adjustment process work. We deliberately leave unsolved problems to the hidden hand, as a temptation to find better solutions.

Ramsey Search in action


PQ=MV sends us to this report on hamburgers. This is a problem in adjusting lot sizes. In the inflated state, the distribution chain for hamburgers accumulates round off losses on the basic quant, the hamburger. In the deflated state, the system would sell more hamburgers in each of fewer transactions with a sparser distribution network having less integer rank. In the deflated state they would accumulate quantization gain.

So, hamburger chains are making a Recalculation about when and where to deflate. Some part of the chain will drop out, customers drive a little longer, buy for more people, in more crowded households, and so on as the lot sizes adjust and rate stabilize throughout.

How do beat the Supremes

The Supremes, at most five of nine, say we cannot give up basic rights by voluntary contracts. Hence, Congress cannot give up rights to shareholders with voluntary contracts. Hence five of the Supremes have declared themselves Moot in one decision! A record.

This law professor can't be right

The Volokh Conspiracy goes into the Supremes and Corporations.

"[T]he dichotomy between personal liberties and property rights is a false one. Property does not have rights. People have rights. The right to enjoy property without unlawful deprivation, no less than the right to speak or the right to travel, is in truth a “personal” right.... In fact, a fundamental interdependence exists between the personal right to liberty and the personal right in property."

The prof does not get that Corporations are artificial property, they are voluntary contracts generated between legislators with shareholders. If either party ceases to like the contractual terms, they can voluntarily severe it. Corporations have property values only to the extent that both parties conclude an extension to the contract.

The Prof might understand that every trade we do creates value, hence property. The apple grower and apple buyer, agree for money today and apples tommorow. The finite existence of that trade is now subject to political risk that one or the other party will use gains from trade to target the other in legislative action.

So, in effect, the prof has applauded the complete dismantlement of corporations and placed new costs of trade on the economy, a property destruction mechanism. There was nothing native in trade contracts.

Update, update:
I cannot stand the lunacy. The very value of a futures contract is the ability of either party to give up basic rights in the interm. The Apple grower and Apple buyer, by prior abrogation of rights, make the Apple market work. The Apple market measures the relative value of Apples in isolation, that is its value, that makes it property. The professor says that can no longer exist.

Here is another. What makes a lecture hall, a classroom, a concert hall, a legislative chamber work? What gives these places value? A prior agreement by ad hoc large groups to give up free speech for specific periods and places.

Thursday, January 21, 2010

What our Supremes have wrought

Dan Greenwood has the proper response:

"Any corporate decision or expenditure that might affect the American political process, or the rules governing corporate behavior, which is made in this State or would affect the political process in this State, must be approved by a majority vote of every human corporate stakeholder who is a US citizen and might be affected by the decision or expenditure, including directors, managers, employees, human investors (or the human beneficiaries of institutional investors), customers, suppliers and taxpayers who might have to pay additional taxes to replace taxes corporate taxpayers avoid or to clean up messes that such decision might allow. The human beings involved may delegate this decision to elected representatives, including the board of directors of a corporation, so long as the elections of those representatives are held on a fair basis according to democratic norms including one human one vote, limited terms of office, and enfranchisement of all adult humans who are seriously affected by the representatives' actions."

In other words, since the Supremes have granted legislative powers to Corporations, Corporations must now operate as standard legislators.

Prof. Greenwood is having us go back and restructure corporate limited immunity.

The Ultimate Transportation Virus

Felix Salmon reports on the Cube that resells itself. This box is the basic Quant of consumer good, one standard box. its only purpose is to move around and test the cost of transportation over space and time. By having a dozen of these roam around the economy, we have a consistent measure of the cost of transportation.

Cable Cars and E traffic


They mix.

A little chronology of the San Francisco cable car, at this site. Notice the rapid deployment and immediate productivity gains in replacing the horse in San Francisco.

But, the Intelligent version of the cable car can travel 300 feet autonomously. Then, cities can put more cables in, more cheaply, in a more ad hoc fashion. The cable car that works can cable hop.

So, these cable trolleys, that hop between separate "in ground" cable pulls, have the ability to travel 300 feet, under wire control. Then they can match velocities with the cable, eliminating mechanical stress, they can pull over easily, get through intersections with minimal capital investment. Advanced cable technology should be able to pull a car 50 MPH, sort of fling the thing. Total mass flung is minimized.

Which brings us to the Airport Connector in Oakland. Use in ground cable, street level along the route. Then the problem reduces to one equivalent to the laying of sewer pipe. Or develop suspended cable pull technology, the cable car reaching up to grab a mechanical pull. Then the problem reduces to one of stringing power line. Using great cable pull technology, one then develops E Cable, the intelligent cable hopping using standard E traffic products.

Wednesday, January 20, 2010

On the CATO conference about transportation

Is there a web site?

My quick vision of car automation. The thing has four lights on the dash board, stop, go, left, right. In your car, in Manhattan, you sit at a stop light. The dash light turns green and you slam on the accelerator, to the floor, and approximately steer to your destination. Twenty minutes later you arrive, safely.

Simple, really, just a little software. communications, and some control by wire.

Congestion pricing and driver's licenses for robots.

This thing with credit.

What makes finance different as a production line? It has the least asymmetry, and fastest adaption times. Households save and borrow. So retail credit, cash, will average average retail inventories, across a heterogeneous agents. Makes a great measuring tool.

So, the credit system is viewed by the agent, its great utility, as a random walk, constant mean. It makes accounting and predictions simple. But the bankers yield curve as Gaussian white, attempts an average of heterogeneous inventories of log normals, which can be considered as a log normally shaped production line.

Reals goods tend to log normal, as production lines, as they become more asymmetric.

But, credit still has traces of asymmetry. The trace left is equal to the price we won't pay for accuracy. Right now, retail inventories are dropping and short term rates down. Potential higher yields, and high inventory growth at the ten year term. So, in a sense, credit inventory is backing up, as are real goods. Hence credit wasn't Gaussian white, mean zero, for a year or so, mainly because of supply chain interference in real goods.

So, when things are stable, everyone, everywhere can adjust their inventories to interest rates.

Wouldn't QM say that the variance of money to its mean is fixed by nature.

I missed these subjects on transportation technology

CATO has an interesting conference:

"While transportation planners debate investing in highway capacity or building rail transit and high-speed rail, another alternative may make more sense. As discussed in O'Toole's recently published book Gridlock, new technologies can cost-effectively increase the capacity of existing highways to move people faster and safer while using less energy. Many of these innovations are already available, ranging from adaptive cruise control now being sold on many cars up to completely automated vehicles. The main obstacles to more widespread deployment are not technical but institutional and bureaucratic. Please join O'Toole and Huhnke to find out how transportation could be transformed in just a few years."

Tomorrow, Rayburn office building, Washington DC.

I guess CATO is not as much of a Communist organization as I originally believed.

Here is a little about Randy O'Toole and his research:

"Far from protecting the environment, most rail transit lines use more energy per passenger mile, and many generate more greenhouse gases, than the average passenger automobile. Rail transit provides no guarantee that a city will save energy or meet greenhouse gas targets.

While most rail transit uses less energy than buses, rail transit does not operate in a vacuum: transit agencies supplement it with extensive feeder bus operations. Those feeder buses tend to have low ridership, so they have high energy costs and greenhouse gas emissions per passenger mile. The result is that, when new rail transit lines open, the transit systems as a whole can end up consuming more energy, per passenger mile, than they did before."

Maybe CATO will see the problem as one of liberating our roads for automation.


And this (85 days ago):

"Last weekend, Volkswagen Group of America and Stanford University's School of Engineering hosted a dedication ceremony on the Stanford campus for the new Volkswagen Automotive Innovation Laboratory (VAIL) that included the "first ever" autonomous parking demonstration by a driverless car."


And this:

"The San Francisco BART board voted on December 12 to award a joint venture of Flatiron and Parsons a contract to build a 5·2 km cable-hauled people mover linking Coliseum BART station with Oakland International Airport."

Cable cars coming to Oakland! What about that.

I type in search terms so you don't have to!

Heterogeneous agents and leverage cycles.

Lot of discussion on the topic, and references to come, But here is my take:

What should happen to the yield curve when the economy finds business opportunities that yield major gains over six years? In a homogeneous environment, agents would allocate most of their investment at the six year point, the yield curve would peak at 6 year term and decline at 20-30 year term.

In a heterogeneous environment, some agents continue to invest in housing, say, rather then the 6 year opportunity. However, finance cannot suffer a interest loss on 20 year housing investment when the real gains are at 6 years. Hence, long term investments suffer with higher interest costs due to the pull effect.

Steve Keen and Mish talk about Credit money, Kling talks about profits leading us. Both these viewpoints dismiss the multiplier effect of "fractional reserve" lending. Thoma has more on the subject, referencing this paper.

In QM Theory, using our queuing model for production we call this supply chain interference. For example, restructuring to solve the energy crisis result in shorter supply chains for energy but the longer supply chain for housing does not match. Finance has to intermediate between the two, finance expenses go way up.

Monday, January 18, 2010

Racing to be the first bankrupt state

Mish makes the case for Illinois. Whether California or Illinois, the first bankruptcy will be difficult. The second will go much more efficiently. As a Californian, I want to be second.

A bit of Quant Analysis from Le Monde

Capital Chronicle has the story. International Living magazine collected the numbers.

"According to our calculations, Paris-based traders of French banks, as well as those employed by the French subsidiaries of foreign banks, are set, this March, to enjoy bonus payouts of between €900m et €1bn. It is the equivalent of what 62,000 minimum-wage earners make in a year."

Using quant analysis, we see that it takes 12 bits of precision to define a banker salary and just one bit of precision to define a minimum wage. However, looking at the debt market, say the French yield curve, that market is likely not more accurate than a 7 bits.

This means that the economic production system has a very long chain of production simply devoted to bankers talking to each other. About 7 bits of precision to run finance, and an additional 5 bits of precision for bankers jacking off. Either bank executives are incredibly stupid, or something is keeping banks out of balance.

Sunday, January 17, 2010

Old predictions from 2004 and later

In 2004, I was trying to get a property sold ASAP because the housing market was about to collapse. Here are some other quotes from 2004:

The normally circumspect former Treasury Secretary [Robert Rubin] is accusing Congress and the Bush administration of creating "truly horrendous fiscal conditions" that, left unchecked, will lead to higher interest rates, fewer jobs and a lower standard of living. "We face the high probability of a very serious day of reckoning," Rubin told a friendly (Democratic-leaning) crowd at New York City's 92nd Street Y in November.

And PIMCO's Bill Gross:

"We're trying to do too much, borrow too much, spend too much," Gross wrote in a September commentary. "We are a country in the beginning stages of what can be aptly described as hegemonic decay."

Frpm the same article:

Three out of four U.S. investors believe that the federal budget deficit is hurting the investment climate, according to a recent Gallup poll.

Her Gross talks about our favorite Communist, lil Bush:

Gross maintains that the reason the dollar is now falling is because foreign creditors prefer bonds of countries with "budgetary disciplines resembling that of an adult as opposed to a neurotic teenager with a credit card." He contends that the only reason there hasn't been an economic crisis is that China and the other Asian countries with which we're running huge trade deficits are using our dollars to buy Treasuries.

Ben in 2006:
This adverse effect of budget deficits on economic growth is probably the most important cost of deficits, and a major reason why economists advise governments to minimize their deficits.

Here is Mankiw, then working for the Communist explaining short term fiscal stimulus in 2003:

He added that Bush had chosen to place more emphasis in the short term on creating jobs and that in the medium term he aimed to bring the deficit down with higher growth and by restraining government spending.


Here is a liar, the former Bush director of the budget in early 2008:

Mr. Portman called the country's fiscal health "relatively strong" and said the president has left a solid base for "the next president and the next Congress to deal with the real problem, which is the unsustainable growth in mandatory spending."

And:

"Ronald Reagan proved that deficits don't matter," snapped Vice President Richard Cheney to about-to-be-fired Treasury Secretary Paul O'Neill a little over a year ago."

Note, many of these quotes are coming from DeLong, the master deficit hawk in the run-up.

Dumping on Mark Thoma once again

His theory:

"In any case, natural monopolies or not, over time these markets appear to tend toward concentration rather than competition, and inherent and important market failures do not appear to self-correct..."

First, Mark Thoma is a tireless advocate of expanding the natural monopoly of Congress even though Congress takes 10 to 15 years to correct.
Second, the article is from Maxine Udall who complains that bankers are clueless. The bankers who appear before Congress are not clueless, they are talking to their major customer, the group that asks bankers to pass a $trillion/year in paper.

On what world does Thoma or Maxine believe that bankers are going to say anything else to their major customer? The bankers job has been to pass bad paper issued by Congress and they did their job to perfection. Bankers were even willing to engage in Fraud to serve Congress. They are not clueless, they get paid vast sums to appear before Congress and pretend there is no Fraud, the best pretense is ignorance. Congress members become millionaires by issuing bad paper, bankers earn millions by pretending the paper is good.

Bad paper results in Crashes, yes, we know that. But if Congress wants to issue bad paper, bankers will take us through the Crash.

Technology News




The UK government technology office reports:

"The Sartre (Safe Road Trains for the Environment) pilot scheme, co-ordinated by a UK company, uses innovative navigation systems to form ‘roadtrain’ convoys that are led by a lead vehicle, such as a bus or taxi, which pursuing cars then follow."

The Spirit of Berlin, another RoboCar from Germany with video.
I Shovel, a robotic snow shovel, also pictured above.
And a Scientific American article on multi-legged robots, with a neat video.

Wage analysis and progressive taxes

Where are we going when we look at the Skew of wages toward the top? Regardless of the type of analysis, Entropy yields lognormal, variance yields normal, the skew effect will show up dramatically. What does this skew in wages toward the top imply?

When I started looking at economics I was looking at the supply and demand for government goods. Under Clinton, the demand for government goods dropped when progressive taxes were raised, the share of government in the overall economy dropped and the economic maintained vigorous growth.

I do believe that analysis will show the necessity of progressive taxes to keep both government and industry liquid. Not a libertarian position, but a position that is supported by the data. My thesis will be simple. When progressive taxes are low, it is advantageous for industry to shift more wages onto government in the form of benefits. The result being that lower scale workers have less wage adjustment done by industry and more done by Congress. In other words, excessive progressive policies support a two tier structure, the very wealthy and the rest.

More later.

Saturday, January 16, 2010

For the Wonks

Who is John Parker Burg? He did: J. P. Burg, "Maximum entropy spectral analysis," Ph.D. thesis, located here.

He is important because his algorithm is essentially what the economy performs. Using maximum entropy methods at each market in the production chain, the economy computes a maximum entropy spectral analysis of the economy, generating the yield curve.

The paper was fundamental, and based on Shannon information theory. But is contains the essential ingredients, namely a finite but variable number of system coefficients, the order of which is determined by the best trade-off between total residual and number of system variable.

I will be getting into this as I think the number of citations of this paper by the economics profession might increase.

Friday, January 15, 2010

Was Martha Coakley part of the Janet Reno child molestation ring?

You know, that ring of prosecutors who would harass little children until they made up bizarre stories of rape and mutilation? Dorothy Rabinowtz says quite probably. Here is the story of Janet Reno's role in these capers. It is a horrid story, prosecutorial dictatorship that ruined the lives of many innocent school teachers and parents.

The choice in Massachusetts is lousy, and I suggest Massachusetts would be better served by leaving the seat vacant. No, let me update that. The nation would be better off if Massachusetts left the seat vacant. The opposition, Brown, is simply another Republican Communist, likely to run up devastating deficits and massive government expansion, like lil Bush.

So, tell me I am not a Union of One

"The 40 percent excise tax on what have come to be called "Cadillac" health-care plans would exempt collective-bargaining contracts covering government employees and other union members until Jan. 1, 2018."

Recalculation, and more

Kling's latest post on Recalculation and the debate over EMH and Bubble prediction requires a response.

Kling:

"However, I would suggest that explaining the depth of the recession is a challenge for just about any macroeconomist. There is no well-established theory that can explain how we got to 10 percent unemployment."

I go with James Hamilton on the global oil readjustment. Energy is highly correlated, the actual core, of transaction costs. Which Kling mentions later:

"Tightness in the oil market means that we have to convert to less oil-intensive patterns of consumption growth and productions. Just as in the 1970's, this creates big adjustment problems."

Another issue in the Blogs are the interviews between the Economist and the Chicago School about bubbles and EMH. The Coordination Blog has a post on that. Can we predict bubbles? Absolutely, if one is on the inside of the fraud as was Goldman Sachs. A related issue is whether price signals can predict bubbles. No, not necessarily because price is simply the approximate estimate of inventories by finance, a variance estimate. The estimate is only valid during relative smooth economic times, the real market norm being entropy.

Can entropy measures predict bubbles? Yes, better than price signals. Look at divergence measures, however the timing is difficult to predict.

Another point, was innovation stopped by a barrier? Kling:

"The recent innovation slump was disguised by the housing boom. That is, if you take away the housing boom, you would have seen a steady increase in unemployment, due to the lack of new business formation."

Yes, true in fact. If one followed the innovation bubble, it moved through the economy, in each turn attacking a constraint on transaction costs. The innovation moved from producer to household, then was stopped at transportation. It stopped at transportation for one simple reason, Robots are not allowed drivers' licenses, a government problem.

In other words, government prohibits the application of innovation to public goods.