## Monday, February 28, 2011

Facing a \$25 billion state budget shortfall, Gov. Jerry Brown has proposed to cut hundreds of thousands of parents and their children from the welfare rolls on July 1. Additionally, law enforcement officials say the governor’s proposal to transfer thousands of convicted felons and parolees to county jails and oversight will “wreak havoc” on the criminal justice system.

“I don’t think there is any question the day of reckoning has arrived,” said Paul McIntosh, executive director of the California State Association of Counties, which has devoted a special section of its Web site — “Counties in Fiscal Crisis” — to educate officials about the situation. Calwatch
The poor would be better served if we break up the state.

### Check out this video of a Solar Eruption

Here, taken by NASA

### This author speaks my language

Most importantly, these thinkers refined the very definition of information, purifying the concept just as earlier generations of scientists had purified the meaning of "mass" and "energy". But whereas the crisp new definitions of mass and energy restricted the words' use to technical contexts, information's new definition, one based on bits and entropy (I = -∑pi log2 pi, to be precise) widened its applicability. Information theory soon colonised economics, genetics, thermodynamics and other fields. Today some physicists even argue that information is more fundamental than both mass and energy - that it may be the very bedrock of reality.
New Scientist has the review

James Gleick's The Information

### Looks like kazzillions of federal jobs.

The U.S. government has 15 different agencies overseeing food-safety laws, more than 20 separate programs to help the homeless and 80 programs for economic development.

These are a few of the findings in a massive study of overlapping and duplicative programs that cost taxpayers billions of dollars each year, according to the Government Accountability Office.

A report from the nonpartisan GAO, to be released Tuesday, compiles a list of redundant and potentially ineffective federal programs, and it could serve as a template for lawmakers in both parties as they move to cut federal spending and consolidate programs to reduce the deficit. Sen. Tom Coburn (R., Okla.), who pushed for the report, estimated it identifies between \$100 billion and \$200 billion in duplicative spending. The GAO didn't put a specific figure on the spending overlap. WSJ
Nice work Tom Coburn. Most of that is a result of my dingbat Senator, Babs Boxer.

### Reserve currency

What is it? Lets do what Mish does and go with the Investopeida definition:
"A foreign currency held by central banks and other major financial institutions as a means to pay off international debt obligations, or to influence their domestic exchange rate."
There are two parts, liquid and stable makes a reserve currency. The stable currencies are liquid over the largest domain, normally that is the US. By having the largest, liquid economy, the Dollar changes its relative value the slowest and remains liquid. So central banks do not have to constantly trade currencies over the global domain, they get a good representation value.

The world is changing, however, in one respect. Robots can do the trading for us. So liquidity and a measure of uncertainty are the two things we need to hold currencies over time. We need to measure entropy so the robots can propery trade currencies and get a measure of the global economy, no longer relying on a single large economy.

It is relativly simple to measure entropy if the robot has access to transaction data and can run the equivalent of a Huffman encoder. In the new world we have robots distributed to each of the central bankers, and these robots constantly measure the amount of mutual entropy among the currencies, and make trades to maintain minimal redundancy. As simple as that.

What makes this work is relatively transparant trade of goods, intra and inter national trade. China does not have that, the US does, Japan does, Europe does, Brazil does. There are no more reserve currencies, they are gone. There is simply the measure of transparancy in  the various economies. Gold really doesn't work, it is too heavy to trade, and so there is always a paper trail between the gold and the trades.

You cannot beat the robots as long as you can gather good trading sets.

If you need a measure of mutual entropy, follow my blog and I will dig it out. Basically my approach is to constantly measure the combined real yield curve of all currencies by mutual quantization, a multi-variate Huffman encoder. Then the central bank need only trade to make the holdings a close match to the measured yield curve. Probably the best way to do this is the same method I do with the SP100 trades. I put them all into a group and encode them as one. Individual currency trades, then matched to the cobine curve generate trading vectors, directional trades. In fact, there will exist the ideal yield curve for all currencies, treated as if they we a single channel. That ideal curve will be the matching fibnacci set, just rrade each currency against the ideal.

Now, what can I use for the trading values. Probably the price of oil, copper, gold, wheat, and other internationally taded commodities would be a good start. Any graduate students out there? Let's see, I need my SQLite to hold trading sets, my R Project and SQL interface, and my Huffman encoder. Check, now I just need more data.

### There are always zero interest rates

The curve does not extend to infinity. Sumner makes the usual canard about zero interest rates.

When economists talk about Zero Interest rates, they mean a yield curve that would cause some bonds to go belly up because the borrower is belly up. He is really back to the Great Exogenous, some government bond god that insures no defaults can happen to the Lords favorite lenders.

Iceland didn't bother with the Great Exogenous, they just let the bond holders go belly up, and more power to them.  My county here in Fresno is about to go belly up, and some existing lenders will realize losses, unless we can pass the losses on up Congress.  Anybody in the Tea Party want to cover a billion in potential bond haircuts?

### Bill Gates still hasn't discovered the Internet

What should policymakers do? One approach is to get more students in front of top teachers by identifying the top 25 percent of teachers and asking them to take on four or five more students. Part of the savings could then be used to give the top teachers a raise. (In a 2008 survey funded by the Gates Foundation, 83 percent of teachers said they would be happy to teach more students for more pay.) The rest of the savings could go toward improving teacher support and evaluation systems, to help more teachers become great. He says.
That should say: "Get students in from of Lap Top teachers." The modern issue is to distinguish between teachers and baby sitters.

### Billy Kristol might just start a trillion dollar war

The Pentagon is deploying naval and air forces around Libya as the US and UK governments consider tougher measures to force Muammer Gaddafi from power, including the possible establishment of a no-fly zone.

“We must not tolerate this regime using military force against its own people,” David Cameron, UK prime minister, said. “In that context I have asked the Ministry of Defence and the Chief of the Defence Staff to work with our allies on plans for a military no-fly zone.”FT

California is not paying for this one.

### Cops starting the Civil War

Pajama media has the story about Cops now taking sides in the various protests. We have a real worry about that in Fresno County as we approach bankruptcy, here the cops and protesters are quick to grab the gun.

### I take a shot at Brad's puzzle

And yet, even though politicians who fail to safeguard economic growth and high employment tend to lose the next election, leaders in Europe and the US are clamoring to enact policies that would reduce output and employment in the short run.
He s going through the Great Exogenous mantra again.

What Brad wants are local policies adjusted to local conditions. Our unemployment levels are quite low and demand quite high relative to previous trading partners. In order for locality to reign, we have to decouple, that is, import much less goods and export much less socialized banking.

Our economy is now a smaller part of global distribution. Increasing central government spending yesterday made a smaller dent in a larger domain. Increasing spending today just makes central government huge relative to a smaller, local domain. Foreigners no longer fund our entitlements, nor to they fund municipal pension bonds.

The yield curve is low relative to equilibrium, but we do not yet have visibility about how to reach equilibrium. In the smaller domain, a central government that consumes 14% of GDP seems to be equilibrium.

### Model the revisions

Stolen chart from Calculaed Risk

Why are the revisions growing?  Data is skewed because the global economy is still undergoing adaption. What we see is the still winding up of the gobal commodities shortages. We take the minimal number of steps to make adjustments to inventory levels. This occurs mainly in oil, and food. In the peripheral area of the supply chains, the future estimate of commodities demand is not determined until the shortage hits. At that point, we discover who is short and who is not, so we readjust orders to compenstate. It is a step by step process.

The normal macro estimates are way off, and it takes longer and longer to get accurate estimates of where things stand. The whole excercize in monetary and fiscal policy becomes unstable bullshit, quite frankly, they make a measurements on a time scale that was valid three years ago and expect the same time scale to be valid in the middle of the restructuring.

This makes nonsense of the paradox of thrift delusion which is still floating around. Government planning becomes absurd because we elect Congress from the periphery which is out of whack relative to macro measurements coming into DC. It means that the pipe Ben thinks he is filling with money is a different pipe than is being filled, so he doesn't get feed back until the bounce back.

### There must be two Moodys

Also, the acknowledgment by Moody's of a possible review and downgrade comes barely a month after analysts at both Moody's and Standard & Poor's Ratings Services warned that the U.S. could be downgraded if it doesn't make progress in shrinking its elevated debt levels. Moody's said in January that if the U.S. doesn't act in the next two years, the likelihood of a negative outlook on its rating would increase.

The U.S. is grappling with a national debt of about \$14 trillion and rising. Its debt is 66% of gross domestic product and is projected to hit 85% by 2015, the International Monetary Fund expects. WSJ
Then we have another Moody's:
The report, by Moody's Analytics chief economist Mark Zandi, offers fresh ammunition to Democrats seeking block the Republican plan, which would terminate dozens of programs and slash federal appropriations by \$61 billion over the next seven months.

Zandi, an architect of the 2009 stimulus package who has advised both political parties, predicts that the GOP package would reduce economic growth by 0.5 percentage points this year, and by 0.2 percentage points in 2012, resulting in 700,000 fewer jobs by the end of next year. WA Post

What is going on?
There is a plot afoot. The schophrenia has more to do with Moodys keeping their clients satisfied than telling the truth. They have, on the one hand, a number of big finance, like Goldman Sachs, who make a living selling Treasury paper, and want insurance on muncipal debt. On the other hand,... Wait, there is no other hand. If Treasury goes down, so does Moodys. If Big Finance goes down, so does Moodys, Moodys itself is so embedded in the government economy that is cannot escape.

Ben, Obama, Tim and Big finance have worked a scheme for QE3 and Amercan world socialist banking. But, the game is nearing the end, emerging markets have caught on, with an economy contracted, there is no path for the money. Getting close to default.

### Budgeting week by week seems fine to me

“We want to make sure that this continuing resolution that is worked out allows enough time for the negotiations that need to take place to produce a continuing resolution that takes us through the whole fiscal year, because what we believe is that if we keep returning to this process every couple of weeks that will be bad for the economy because of the uncertainty it creates and the tension around that,” Mr. Carney said.
WSJ

The Senate got us into this problem, so I say, keep them working 24/7 and manage the budget week by week. The economy remans in a contracted condition, that means we are all bunched around the short end of the curve. Overall, the transaction rates are lower, but the focus is on the short end. Congress has two choices, reform or focus on the short end.

### Th Great Exogenizers

Two-thirds of respondents–including majorities of Democrats, Republicans and independents–said that improving transportation infrastructure is “important.” And 80% agreed that federal funding to improve and modernize transportation systems would boost local economies and create jobs.

But only 27% said that raising the federal gasoline tax would be an “acceptable” way to provide more highway funding. The 18.4-cent federal tax on a gallon of gasoline provides most funding for transportation projects, and many groups, including the Chamber of Commerce, have called for raising the gas tax. WSJ

Politicians like Pauk Ryan cause this problem. They spread ignorance and lies. The solution is simple, you want to fix a bidge, get the money locally. Cut entitlements and use earnarks, another solution.

### Now Drum is passing around the bogus chart

The one Dean Baker issued, one that claims that eventually we will get to our eqilibrium rate of growth. Yes, we will gt there, but a whole lot of public sector workers will be laid off before we can achieve our natural rate once again.

This is the same scam big finance started when they issued their report on lower local government spending. It starts with a very bad analysis then progresses among the various supporters. It is Progressives and Oligarchs in a collusion.

The fact is public sector unions are holding us back from equilibrium rate of growth, the economy is waiting for that sector to reform. Kevin Drum is effectively pushing for local government default and restructuring. Fine, then say it. Otherwise Kevin is just an ingeniously repeating the line his funders give him, just like the Tea Party.

Go read Kevin Williamson from NRO,he gets it right.

### Billy Kristol touts the Communist line

The politician most responsible for the debt crisis will unite the Republicans?  This is Billy Kristol, advocate for mammouth federal government, chief of oligarchs spouting the socialist line.

Billy has a problem, his Big Government solutions will eventually default, in the same manner that the progressives will eventually default.  There is an implicit unity between the Paul Ryan, debt fueled spending and the progressive debt fueled spending. Both are based on transfering corporate expenses onto the central government.

### Bruce Bartlett on the money

Hatch did not address the fact that following the 1993 tax increase, which he and every other Republican in Congress opposed, federal spending fell from 21.4 percent of GDP to 18.3 percent in 2000. And, contrary to starve-the-beast theory, when Republicans slashed taxes during the George W. Bush administration, it did not put any downward pressure whatsoever on spending, which rose to 20.7 percent of GDP in Bush’s last year Here.
He is pointing to the Big Government element in the Tea Party. The danger here is that the Tea Party ultimately will opt to strangle their own constituents with more bailouts. Basically the Tea Party should be aware that their funders are pushing for socialism, for the oligarchs. That means shifting more corporate expenses onto the taxpayer.

The Tea Party needs to make up their mind, do they want an early default by Congress, or do they want more Big Government subsidies for their funders. If they chose the former, then an orderly restructuring of federal government is great news, but they should say so. Right now they are looking more and more like fools.

### Behind the scenes on the Goldman Sachs report

Eventually, Obama could also come under pressure from state officials and the financial industry to provide emergency aid to states and municipalities if they can't pay off their debts. Wash Post

Goldman Sachs issued a report on lower GDP due to lower state and local spending. The report was deliberately ingenious for a reason. Big finance wants more insurance from the Great Exogenous for its failure on due diligence. Public sector advocates picked the report up and ran with it, it appeared in hundreds of local newspaper op eds.

Its the game, finance uses our dependency on the government economy to force more Congressional bailouts of finance. Many economists are both part of the plot and the target of the plot. But the intention was to transfer taxpayer money to big finance. The plot is uncovered. The way to stop these delusions is to raise the progressive rates at the federal level.

### Look at revision history to estimate changes in growth

Tim Duy, and others, are using minimum variance estimates to get changes in GDP growth due to supply shocks. But the method assumes the economy is capable of infintesimal changes in inventory cycles and quant levels.  A better estimate is to look at revision history, for the time being. Run the normal  minimum variance estimate, then take the near term predicted growth and revise it down by the recent revision percentage. That should give you a lower bound for the near term, but it does not tell you how long we stay in the lowered condition.  But I would expect  something like 2.7% growth for the next quarter.

Supply chains will shorten for the next slowdown, however, I think poducers in the middle of the curve know this, and plan an orderly consolidation. Also, emerging markets have figured much of this out, they won't be caught off guard this time around. The real problem is going to be goverment adjustments here at home.

### Negative interest rates

The best way to achieve them is via bankruptcy. My county in Freasno will go bankrupt, and the people most responsible for that, Judy Case and Henry Perea are in the county supervisors office today sweating out how he will explain all this. It is hard to imagine a more loathsome bunch of corrupt liars then the Fesno Country supervisors.

You can look at the whole group here. They have basically been operatives of the local public sector unions, an have systematically robbed the county of wealth.  All of them should be hauled before a grand jury and indicted.  The problems go back even farther, but most of this bunch were part of the billion dollar theft when they secretly signed on to another billion dollars in pension giveaways to the public sector unions. Fresno County will be the next county in California to implement negative interest rates.

Speaking of negative interest rates, Tim Duy reports that we have to do some of that at the Federal level as a result of the ongoing oil shortages.  If Ben wants to implement negative interest rates then he should be the state bankruptcy arbiter. His best approach would be to manage a break up of the Dollar currency zone, working with Illinois, California, Texas, Florida and New York to build their own cantral banks while negotiating haircuts for federal bond holders.

### Game changing in foreign currency markets

Emerging markets figure out the currency game.
As recently as last month, governments of emerging economies from South Africa to Brazil warned that competitive devaluations might be needed to keep their strengthening currencies from stifling economic growth.

Now, talk of currency controls is being abandoned and interest rates are rising as record food prices and oil at \$100 a barrel make inflation the bigger threat. That means developing nations will keep outperforming in the foreign-exchange market, according to Morgan Stanley.
They have discovered that American finance goes to their markets because they have the growth, we don't. So what does this mean for Sumner and his NGDP growth theoory? That if he wants near term accuracy, then his macro model better include more emerging markets and less domestic American markets.

It also means that America had better adapt products to emerging markets, not domestic markets. M1V will be dropping faster as we downgrade our consumer sector. It also means that foreign markets will build up their entitlement systems and quit loaning money to us.

Sure enough, in the next Bloomberg article.
Consumer spending in the U.S. probably rose at a slower pace in January as food and fuel prices climbed, economists said before a report today.

Americans’ purchases, which account for about 70 percent of the economy, rose 0.4 percent after a 0.7 percent gain in December, according to the median estimate of 59 economists surveyed by Bloomberg News. Other figures may show manufacturing continued to expand and home sales dropped.

I have been noting for some time that M1V has been on a downward trajectory for some time. Heterskedactic effects make is unobservable in macro summations, but not any more.

## Sunday, February 27, 2011

### I call it the Canadian Interpretation

The finding that inflation is not forecastable over the Great Moderation period is consistent with the predictions of the DSGE model given the strong monetary policy rule estimated for this period. Specifically, since under this rule the policymaker will alter the interest rate to counter forecastable deviations of inflation from the target, the rule will eliminate forecastable movements in inflation and leave only unforecastable shocks to drive fluctuations.  Say Edge and Gurkaynak
In this study they find they central banks set interest rates by correcting their past errors. I call it the Canadian Interpretation because Nick Rowe mentioned is as part of his New Keynesian model. This is comparable to the Copehnagen interpretation of quantum physics.

What does it mean?
As my hords of readers should readily tell us, it means that the bankers yield curve are the variances in a Fibonacci sequence that matches the channel bandwidth to the signal to noise ratio of the bankers involved. It is the basis of the information theory, and implies that minimal redundancy is the norm to use. As we all know by now, I have said for three years the economy is based on a fixed uncertainty constant determined biologically.

I also implies that DSGE models are only valid for a short term look ahead and that heteroskedacity is not an artifact but a fundamental process of adjustment.   I think this validates the Levine model and the Hidalgo-Hausmann model, ultimately.  It certainly validates my model, and the trader's model of Fibonacci matching (Elliot Waves). It also should validate the Geoffrey West study of cities. It validates the Snap Back theorem, Schumpeter Creative Destruction. But more importantly, it tells us that information revolutions cause major disruptions because we are forced to requantize. It likely validates the idea of Fibonacci counters in our brains.

I think implies that we should be moving faster toward automated transportation, because we will quantize the Roadbots and adapt to them very fast. And, don't forget the theory of minimal government, which implies progressve tax  rates on central gvernment, and redistricting of state boundaries.

Welcome aboard!

### Tom Juravich gets it wrong on public sector unions

He points out, correctly, that Gov Walker is  sap for business and gave away a bunch of goodies causing a deficit.  OK, granted, he guy is strategically stupid. He also points out that currently Wisconsis public workers , through their unions, have close to parity in wages.

Neither of these two issues touch upon the basic problem, public sector unions have received collective bargaining rights that take away from voter choicess, especially in education. Agreements between buyers of services and sellers of services needs to be done between those two groups, without some formal mandate from high government authority. This problem is espcially acute in the relationship between information technoogy and education. We have a situation where collective bagaining is forcing students into classrooms that have lost their utility, being replaced by information technlogy. Teachers, in the classroom, no longer earn the Risk Free Return, mainly because of technology. Educution is being broken up. dismemebered, and reassembled into smaller, specializes processes.

I presume this is about the Wisconsin equivalent of the Dills Act. If Gov Walker is a dunce, then recall the guy or vote him out of office.  But that is no reason to retain an outmoded version of the Dills Act.

### Working on theory

The next step in Channel theory is mutual entropy, or how does on sector know it is safe to expand distribution. Looking back at the post on contraction, what we want is knowledge of the conditions that let all the various sectors move from the contracted yield curve to the expanded yield curve.  We will find simplification in the problem because we know we have a constant value of signal to noise ratio at equilibrium.

It seems the mathematicians are hard at work on the problem.  And it has become a big issue in Internet searching, how does one search trust the links established by previous searches, and how fast to a set of search links converge.  In  economics, it has to do with finding an agreement between the arrival of wages and the arrival of goods. When should a producer change delivery quants in order to short the queue waiting to buy goods. If he changes to much, then wages go down to far.  it is not just price discovery, but quant discovery also.  This is what distinguishes channel theory from the Keyesian and monetarists.

Example:  When does a collection of taders at the corner become a market?  When the mean their distribution over the variance reaches a sufficient value, we will create a matching function, in our heads, and forever quantize that place as the market.

Looking at Mutual Entropy definiton we need to estimat the mutual probability of arrivals in the first equation. If the merchant cannot get that right, then he invests a lot and gets no customers.

The mathematicians read my blog, they will help us out.

### Let's do a standard Krugman correction

In this case, Krugman is passing along the Baker analysis of returns on public pensions. In it, Krugman refers to the Risk Free Rate of return. What he means is the shape of the yield curve under equilbrium conditions. Behind this assumption is that distribution has minimized redundancy, and all economic components are operating with standard uncertainty. The value is constant because standard uncertainty is biologically determined.

Unfortunalely, and Krugman knows this, the public sector is one of the components that has to reach equilibrium to get the risk free return, and public sector unions  are not at equilibrium..

Public sector unions are keeping us from equilibrium. How do I know? Because they consume 80% of the public taxes in California, California on the edge of bankruptcy and has been for quite some time. California, acording to our elected Governor, cannot reach equilibrium unitl we lay off a whole bunch of public sector unions employees. California is due to pay 15% of the DC debt, and cannot do so until it reaches equilibrium.

Krugman is playing  the expectations game. The idea is to convince us that Public Sector Unions earn their risk free rate, and once convinced, then he can go ahead and update the national accounts and say all is well, it must be somebody else's fault.  We also call this the Great Exogenous religion.

This is theory of economics based on deception.  If public sector unions could always get the risk free rate, then why do they need the Dills Act?

### Restructure the political system and save entitlements

Seriously, accept that DC has reached its limits, and start to split up the liabilities and assets.  Rather than than continue the delusions of the Great Exogenous. This nation is going nowhere by sending batches of economists to DC with various magical potions, none of which work.

There are half a dozen ways to get a restructuring.

Regional nullification, starting with California. California needs to default, default on the Dills Act, default on our part of the DC debt, simply declare that the time has come.

Central Bank rebellion. Why doesn't Ben propose a break up of the dollar into regional currencies. It won't be the first time.

Abolish the Senate. Start an amendment process to simply do away with the Senate completely.

City States: Large metropolitan cities should vote on their own statehood.

Do all of these, we have the Internet, we can sort a lot of it out in real time. We will have a lot of hysteria from the Great Exogenizers, but hysteria lasts a short time. Once they see the energy and enthusiasm of escaping from DC they will all be on board, an they can create their own, new Exogenous.

### NYT editorial says nothing about entitlements

TThe NYT editors go into a rant about Republicans and the need to trim the budget.  Yet, the biggest budget busters are the ones supported by the Times, entitlements, about which the Times says nothing.  The lack of leadership is at the NYT.  The Times insructs us to follow Obama policies, the same Obama who just gat a FICA tax cut, I guess intending to reduce the impact of Social Security.  If Obama wants to reduce Social Secuirty, then put it in his plan, and reduce it.

Best solution? Quit reading the new York Times, they only confuse the issue.  There is much better analysis on the web, and we can fact check the web in real time.

### My home county, making the headlines

Fresno County leads the state with 35% of taxes going to pension obligations. Heaadlines in local Fresno Bee. Whokudanode? We all knew for ten years, Davis, Brown, local voters, unions, the Gubinator, we all knew.  We were just picking the appropriate crash point is all. Our UC system which educates teachers knew, including Romer. The Dills Act, good for one generation only.

## Saturday, February 26, 2011

### The mathematics of a contraction

The economy operates with minimal redundancy, resulting in rank reduction, as I point out so many times. The result is that the yield curve takes discrete jumps from position to position. So, consider an economy that attempts to maintain goods flow under two different rank settings.  I used a 7 and 6 length Fibonacci series.  But in the N=6 case, I have to equalize goods flow goods flow. Let jump below the graph and look at the yield curve equation

Tis si the standard aggregate generalized yield curve, I have added vi in the numerator to sum over all ecomponents operating at rates v.  Remember that the cargo size, -log(vi) is always uniformly dirstibuted modulo one, and the economy always works integers.  The value -vi*log(vi) is always one to the nearest integer, as in R:

Here is the scaled, rank seven F series:  0.038 0.038 0.077 0.115 0.192 0.308 0.500
My fastest transationrate is .5, the spectra is normalized to 1.0, meaning the Beta in the eqution is 1.0.

What is my equivalent to the economic quantity eqution? It is -log(g7) cargos, transacted g7 times over the longest inventory cycle, which becomes:

> round(-g7*log(g7)+.5)
[1] 1 1 1 1 1 1 1

All ones. In the completely normalized case, this is the quantity of total goods at each transaction rate, and the total good transacted is 7, over the longest inventory cycle in the distribution chain.

What happens if I drop rank?  The good transacted has to increase, I have fewer transactions over all. So the gamma in the exponent of the yield curve must go to 7/6, to preserve quantity, as in the economic standard:

From Wiki. Except of course, in channel theroy we are smart enough to eliminate money.  We would replace the equation above with the mutual entropy operator between two yield curves.

But, the point is, when we drop rank, we ship larger cargos and we have a total (sum but not mean) reduced transaction rate.  That is we have to adopt economies of scale.  Inside the firm or household we will see larger inventory levels.  The curve is not as steep, so gains from specialization are lower. Variance in inventory levels reduce, we are safer. But less focused on the long term.

But, bottom line, there are only so many discrete solutions. When oil gets too expensive, we will suddenly contract farther than any one really expects, unless they understand channel theory.

Why did I increase gamma in the yield curve eqution?  That goes back to the shannon theory:

C/B = log(1 + SNR)  The C is the number of cargos I can carry in B trucks. -log(g6) is the information carraige, I have essentially multiplied all my cargo sizes by 7/6, and it is factored out of the maximum entrpy formu;a -g6*log(g6) which you ill see in the Huffman encoder. I grew my bit size over all symbols.

### Dean Baker is wrong on the Social Security wage tax

Dean Baker claims Fact Check is wrong for treating Social Secutity taxes like any other tax on income.

Dean baker is of the Great Exogeneous, so he looks into the bible and finds the words "designated" ragarding the Social Secutiry deducton from wages. Unfortunately FICA tax law is written by Congress, who also write the bible for income taxes. It is that same wage channel they tax to cover debt service. The Supremes have already ruled that Congress will treat SS taxes like any other income tax.

Here, from the 2010 tax relief:

§ Reduces the employee Social Security tax rate for wages paid in 2011 from 6.2% to 4.2%; the employer rate remains at 6.2% How did Congress do that if the tax was designated?

Tell that idiot to go read the bill. And tell that idiot we have the internet, the era in which he can spout bullshit and get away with it is gone. We know these economists are not scientists, we now fact check their claims

Remember, this is the same person who missed the great oil shortage.

### So what about this NGDP growth thingy of Sumner's?

He wants more money poured down the pipe. The money will seek the shortest path toward liquidity. Congress can easily spend it, and Congress is borrowing most of it. The second biggest chunk is going overseas, and will for a while as long as bond holders feel Treasury bills remain liquid. Little of it goes into the American domestic sector because we are still jammed up, dealing with state bankruptcies, oil shortages, and sticky wages.

But Congress doesn't seem to be turning a profit, see the Crowding Out post. And the IRS has no authority to collect taxes over seas, nor are investors likely to return overseas profits back to the US any time soon.

So Scott Sumner does have to worry about output distribution, he has to worry about whether the money path corresponds to the macro economy he is measuring. If he is measuing national accounts in the US but much of the money flows to Eastern Asia, then he has a problem, he will continually advocate NGDP growth unit the results are not showing up on national acounts, as higher oil pirces

Have no fear, however, bond holders are much smarter. They will shut off the flow with crunching interest rates long before.

### The CBO does crowding out

Here in a projected baseline of GDP into the future.  Crowding out means that Congress has more demand on future resources and the private sector must shrink (or go underground).  Open it up, it has crowding out starting now, today right now.

It is a bit confusing. The letter is dated Aug 2010, the Pelosi Congress. If the Pelosi Congress intended to turn a profit, there would be no crowding out, and a bigger federal government would have a higher multiplier. Pelosi and the CBO disagree about this, I think.

Another problem. Romer was doing the business planning for Obama at the time, yet Romer still thinks the Pelosi Congress was profitable, Romer kept insisting on high multiplers throughout, and still does, even with the Tea Party Congress.

Somebody is runnng a scam here, maybe it is the same people running the Choo Choo scam.

### I still like earmarks

But Carl Hulse watches them go away. They are great for Congressional districts, and I much prefer them to entitlements.  They meet the Hidalgo-hausmann test of great variability over smaller domains at faster transaction rates.  I blame California Senators Barb and Diane, and NY Schumer and Illinois Durbin  for their demise.

### Ms Romer wants a bit of hyperinflation

Chris Romer talking from the NYT explaining to us what determines the yield curve. . True,as she pointed out, defaulting on our gold promises in 1933 allowed us a bit of hyperinflation.  She would like to repeat a partial default, how can we help in her cause?

Helping Ms Romer find some hyperinflation:

We need to shrink the domain over which dollars flow and prevent dollars from entering new monetary domains, then she gets her inflation in the residual domains, mainly DC.

We can adopt our own money here in California and the West. Can California citizens find a way to renounce our obligation toward the \$15 trillion? If we Californians can do that, then most of the dollars return to the East Coast where they become illiquid and hyperinflationary.

Sounds like a plan to me. I would first upgrade the Lockyer Laser Printer. The next step would be a declaration that California only accepts California Laserbacks for taxes.  Our California Assembly  mght be a bit of a problem, they still dream of the Great Exogenous.  But they are discovering the Obama comes bearing tax bills and Choo Choo scams, not money. The idea of a Western money, complete free of the DC, would be an attraction to other Western states, and Texas could pursue a similar plan. we can upgrade the Casadian Nation in the Northwest. let Alaska join Canada.

The Internet can help:

Continue to refuse sale taxes for on-line sales. Help Facebook advance their concept of digital money. Use the Internet for exchanges of goods by barter. Spend more time on the Internet and less time in commerce. Use the internet to help build secessionist movements. Organize on-line tax revolts in the three largest states that subsidize DC.

If Ms. Romer was really serious then we have a more direct path.  Just have Congress refuse to pay interest on the debt while Ben continues to credit Treasury with digital money.

### Yes, that is the plan

Gov. Scott Walker, a Tea Party-tinged Republican, is the advance guard of a new GOP push to dismantle public-sector unions as an electoral force. Says Fineman
The questionn is why does Fineman need to write about news that has been public knowledge for ten years. Why not remove a legally entrenched force preventing local voter from making local decisions.   It is true that Gov Walker wants to put his own legally entrenched forces into national power, but the solution to all the mumbo jumbo is to reduce national political power and put power back to local voters.

### Public Sector Unon mandates, take another hit

Bipartison pension commission has bad news for public sector unions, and good news for voters. They find current taxpyars have no intention of paying off promises made a generation ago. Anothe fail for the Great Exogenous

### Here's a problem set

You go to the open air market, and see three people in line to buy a carton of eggs. Take out your watch and compute the interest rate of a 30 year mortgage. We know it is possible with a stable queuing network to do this, we have the tools. But, you say, I would have a terrible error. Would you?

Consider the second case. You go to the supermarket in a small town and meet a maid doing the grocery shopping for the mistriess. Can you guess the relative value of the mistress' home? Very likely you could, and you may even have a good guess of the neighborhood that the mistress lives in.

The two problems are closely related queueing problems in the economy. The arrangement of houses, towns, eggs and maids is easily understood in our heads, we do graph algebra in our heads, and the economic network executes our graph algebra.

### The fallacy of composition and graph algebras.

We run across economists who claim two things, one, the sum is not always equal to the whole, and two we can measure the sum in macro economics. Seems like a contradiction? The math the economy uses is not the same math the macroeconomists use.

If a business reports output-input = surplus, it is not the case that surplus + input = output. The later computation is invalid because the economy cannot do that, in general. We cannot take a car apart and return the parts into inventory, no general invertability. The second problem is the change of units accountants tend to use. Rather than count carburators in inventory, they report that number in units of carburator prices, which may have changed considerably. The other problem is round off error, units are always rounded to the nearest integer in inventory management. Probably all three fallacies are related.

If the fallacy of composition relates more to macroeconomists using the wrong rules of computation, then what should macroeconomists count? Units of goods moved over a specified cycle of exchanges, the count of inventory exchanges from the slowest transaction rate to the fastest. This composition works, it makes no assumptions about asymmetry of trade, it deals with integer units, and insures mass flow is consistent.

A lot of economists get this, mainly sector economists. They count the flow of automobiles to the consumer, and compare car sales totals from one business cycle to the next. Calculated risk does this all the time. I see it done with volumes flows for the stock market.

If we count the flows of money, we can add it up and compare it to flows of money from a similar business cycle.  If we compute on a business cycle that is one generation long, that is the longest inventory cycle is a generation then we have to wait one generation before we get an accurate measure of NGDP.  I see historical economists compute real gdp based on hundred year cycles.

Lets call NGDP(i) the measure of integer flows of money up to some cycle i.

The ensembale of inventory cycles is an integer set. So it is perfectly reasonable to estimate nominal gdp relative to a specified maximum cycle and cycles less than. So we have GDP relative to the yearly cycle and the quarterly cycle. If I have the data, I can get real time NGDP on a daily cycle, and the number is accurate, to the daily cycle, as long as I measure short enough to avoid inerference with the next integer inventory cycle up stream, and as long as I measure unit flows. But I can always capture the sum components down stream, because they have smaller inventory cycle.

What is real GDP then?  It is total GDP measured in money using a complete algebra, it is remotely related to NGDP.  Take a NGDP measure accurate to a specified inventory cycle, NGDP(i).  Estimate the discount rate from the selected inventory cycle, i ,  out to a maximum known cycle, and apply that estimate to convert to  RGDP.

So, when Scott Sumner wants to increase NGDP he really means he wants to increase the rank of money distribution,  he wants to extend NGDP out to the next cyle.

## Friday, February 25, 2011

### Unfair restrictions on voters by public sector unions in California

From the Dill Act:
a) The state shall grant exclusive recognition to employee organizations designated or selected pursuant to rules established by the board for employees of the state or an appropriate unit thereof, subject to the right of an employee to represent himself.
Translated, in California voters are not allowed to hire and fire individuals, but are manadated to deal with public sector unions. This seems a clear violation of proportional representation to me. This debate seems to be about anti-democratic processes written into law by Jerry the Younger, and voters are well advised to terminate the Dill act, if they value democracy. The rights to assembly are not denied to public sector unions, indeed the SUpremes would not allow it.  Voters have given up certain rights, and voters have the right to recover them with the democratic process.

In the case of Wisconsin it seems that voters have decide to recover their rights,  a very good judgment in my opinion.

### The rise in bond yields was due to what?

A top Federal Reserve official said Friday long-term bond yields may have risen in the wake of the launch of the central bank’s bond-buying program because market participants expected more purchases than were ultimately announced. Says Yellen

It was no secret that the Fed wanted dollar inflation. From the time the Fed announced the word was, go buy foreign, before the dollar inflates. So the last quarter, as the Fed started, domestic private investment dropped and foreign dollar inestments started. Any change in monetary policy requires an adjustment period. Since the announcement, the trade weighted dollar is down 3 points, and the adjustment is likely finished.

### Economists still don't get forecasting right

"We had every reason to believe the U.S. economy will do extremely well this year," said Bernard Baumohl, chief global economist for the Economic Outlook Group. "Now we have to go back to the drawing boards."
Wa Post

No, you don't have to go back to the drawing board, all you have to do is follow Mish.

Or you could follow M1V, which has never stopped droping since the crash. The Problem Mr. Baumohl has is that he has been hired to lie, to say things about which he has no knowledge.

The same article says local budget cuts in government hurt the economy, failing to point out the central government borrowing has stuck the three major funding states with a \$200 billion dollar debt service costs, due in four year. The \$3 trillion that Krygman, DeLong, and Thoma decided should be borrowed by Obama are paid for by Illinois, New York, and California, three states who have had severe budget problems since before the crash. How are these states going to cover the DC borrowing costs? By cutting the local government work force.

The Post fails to point out that we had severe oil problems in July, 2008, the exact date of the crash, but the Obama government never once considered that the oil shortage caused the crash in the first place. Nor evidently did Mr. Baumol figure out that we crased on the day oil peaked at \$140.

### Dave Cay Johnson tries the old scam, with Thoma's help

Thus, state workers are not being asked to simply "contribute more" to Wisconsin' s retirement system (or as the argument goes, "pay their fair share" of retirement costs as do employees in Wisconsin' s private sector who still have pensions and health insurance). They are being asked to accept a cut in their salaries so that the state of Wisconsin can use the money to fill the hole left by tax cuts and reduced audits of corporations in Wisconsin.

He talks about the fact that public unions want future taxpayers to cover expenses private sector workers handle with current savings.

No one is asking public union anything accept to bargain based on current wages and do the saving for future events themselves.   He fails the sanity test.  What is the loss if public sector workers handle their own future costs?  None, according to his calculations, so he argues for Gov Walker, have public sector employees handle their own benefits.

His hidden claim is that Wisconsin intends to stiff the teachers and putting benefits back  into the individuals hands is a scam.  Wrong again, he is pulling the scam.  Teachers have every right to bagain for current wages, there is such a thing as a Due Process requirement.  Notice that Krugman and Thoma help Dave in trying out this new scam.

The semantic trick is Krugman, Thoma and Johnson.  Let's take Johnson at his word: Tell teachers to cover their own benefits and bargain for increased wages. If teachers do not get the increased wages they think they need, then they can go work elsewhere. After all, according to Johnson, this method works just fine for the private sector.

### Try printing the abstract

We use state and county level variation to examine the impact of the American Recovery and Reinvestment Act on employment. A cross state analysis suggests that one additional job was created by each \$170,000 in stimulus spending. Time series analysis at the state level suggests a smaller response with a per job cost of about \$400,000. These results imply Keynesian multipliers between 0.5 and 1.0, somewhat lower than those assumed by the administration. However, the overall results mask considerable variation for different types of spending. Grants to states for education do not appear to have created any additional jobs. Support programs for low income households and infrastructure spending are found to be highly expansionary. Estimates excluding education spending suggest fiscal policy multipliers of about 2.0 with per job cost of under \$100,000.
So what the study says, if you eliminate Romer and her allegiance to teachers unions, then the stimulus could have done a much better job. Which begs the question, how do we eliminate Romer?

Oh yes, we apply a government economic model, the election, where we see Gov Walker doing a good job of eliminating the Romer policy and thus raising state government multipliers.

Thank you Krugman and Baker for pointing out what Thoma tries to hide from us, public unions have very low multipliers.

But, key, Krugman is getting into Hidalgo-hausmann in Small is Beautiful. The real issue behind low density states having low unemployment is hat low density staes have less income spread. Large dense cities support lengthy production chains so in a recession a reduction in chain length implies a much larger layoff rate, the employment reduction goes as NlogN, the same as the spread on the minimal spanning tree of distribution. The more dense the economy, the larger the rank, N, and the greater the NlogN.

### Stumbling and Mumbling gets oil correct

He talks about how high oil prices cause unemployment, a subject keynesians prohibited in their censourship for three years. What does tell you about Keynes?  He prefered socialism even if it meant unemployment, as in the first stimulus which caused a rise in oil immports and today's rise in unemployment.  His post is a good read, and an indirect indictment against Romer and Obama. Implicit in his post is an affirmation of channel theory, rather then Keynes. He implies much of what I have said about oil prices causing a producer collapse.

### The Tea Party is part of the economy

Stan Collender, idiot extraordinaire.  The man is too goddamned stupid to understand any real model of the economy, so it is he who creates a delusional religion of the great Exogenous, putting government outside the economy.  Then when his idiotic model doesn't hold up to reality, he blames the Democratic process and implicitly demands Keynesian dictatorship.

Let me axplain to the bozo that the model of the Tea Party was predicted four years ago, during the primaries, predicated on the typical results we get, as in Clinton's mid term elections?  But bozos like Stan sit in a delusion,. and when the model becomes reality claim, "Oh No, this cannot happen, it is agains my religion of the Great Exogenous"

George Lakoff??? If you cannot explain the delusions of Stan Collender then why the hell do you study the brain?

### An economist making the Keynesian error

In both cases, the fiscal and monetary authorities should be asking themselves whether they've overestimated the performance of these economies and their ability to handle big, and largely unnecessary, short-term budget cuts. Ryan Avent of Free Exchange
He is talking about the downward revision of GDP that was just released in which fourth quarter GDP is now 2.8%, a meager showing. The revisions reflect quantization error, we cannot measure things with the same accuracy as before because the network rank is reduced, we have a smaller set of transaction rates. Hence, no successful search to sustainable patterns of trade (Kling), less netork density (Hidalfo-hausmann), lower precision (me)

The cause of the quantization error is exactly Ryan Avents solution, central government is not adapting and  is holding the economy in a reduced rank position. Going back to Hidalgo and Hausman, once again, what do they say? GDP growth is based on the ability of the economy to expand variability in products. Channel theory tells us that the economy cannot raise rank because some major component of the economy is stuck in reduced rank, mainly central government. minimal redundancy is an apation toward channel coherence. Ryan's solution makes things worse, not better.

Note: One of the major causes of the downward revision was... local governments are going broke. The govenrment channel is top heavy, and local govenrments cannot find solutions.

We see these continual downward revisions because the Keynesians are measuring the aggregate and ignoring the heteroskedacity. As in Leonhardt, measuring total government employment and calling is small, then what happens?  When the revisions come out and examine the dispersion and notice less variability in the retail end of government.

Catherine Rampell and Leonhardt are repeating this error today an will repeat it tomorrow.  Keynesians are unable to correct their curricula. Keynes gave them a pretend theory that allows fake socialism.

### More on Fibonnacci

When I want a finite set of quants to work with I select a Fibonacci series as a set of transaction rates, scaled such that the fastest rate is .5, like this: g = 0.015 0.029 0.044 0.074 0.118 0.191 0.309 0.500
Scaling my quants put
Taken from this: f = 1 2 3 5 8 13 21 34 by dividing by 68.

The plot of log(g) is uniform in the plot. Within an integer, the spread of log(g) is even across the series.
I cal the series log(g) the quants of a maximum entropy distribution which are delivered at rate g, so that:
-g*log(g)  is the entropy measured over the whole network at rate g. It is also the total quantity of -log(g) delivered over the network.

This simple model  would result from perfect encoding out of my Huffman encoder, and the distribution of quantity sizes would be uniform, hence this sequence defines a maximum entropy distribution network of rank 8, the number of quants in my series.

Looking at -g*log(g): 0.029 0.050 0.069 0.100 0.139 0.191 0.252 0.316 0.363 0.347
where I have increased the rank by two.  The values are all within an integer of being equal.
round(-g*log(g)+.5), rounding g to the nearest integer, yields 1 1 1 1 1 1 1 1 1 1.

When I talk about maximum entropy, I also mean minimum redundancy, which is more intituitive in economics.  It would be natural from the sense of Hayek that we would find sustainable patterns of trade by looking to remove redundancy. Integer soltions arrise naturally because of transaction costs, for us to entertain an infinite variety of transaction sizes would imply that there is no cost in a trip to the store for even the smallest item.

How do we find the proper price of an item? On the micro level we generally know only -log(g), not g itself. But we get an estimate of g by looking at the number of people in line to buy a -log(g).  Computing the price of items over the whole economy involves estimating the yield curve of money with a discount rate.

Comparing the variance of money to the variaince of a good, in the minimum vaiance world, is equivalent to finding the mutual entropy between money and a good in the minimum redundancy world.  Hidalgo and Hausmann compute conditional variance in the product space of final demand. But I suspect the entire economics profession will eventually adopt minimum redundancy.

Anyway,  the result here is that the generalized yield curve can have either -g*log(g) in the numerator, or -log(g) in the numerator depending upon when one is working on the macro or micro level.  The effort is always to find the approximate measure of the yield curve in some local space that is a mix of macro and micro, because that is the measure of heteroskedacity entrepreneurs look for, heteroskedacity is a measure of excess redundancy.

### I'm getting a new computer

My 15 year old computer with Windows 2000 is not up to snuff and crashes when I have to much web, especially Adobe Flash. I need speed to run my data research. I had this on the farm, it has a layer of dirt and grime, the fan doesn't cool well, I lost the cover, and it is a mishmash of old and new disk drives.  My internet connetion is an old 40 year old twisted pair running along the ceiling in the basement, through a worm hole, into the garage and out to the roof edge where it competes in open space with a tree.  One time I shook my keyboard and got half a joint. I have two CD drives and a small floppy which I have never used. Behind the thing is a huge knot of wires, the thing no longer plays video at all, and I can run Pandora for about an hour and it crashes with memory leaks.  Someone put on a Netflix virus that crashes every so often. I put out the word, its gonna be replaced. Probably buy a much better five year old computer for a hundred bucks, technology is cheap.

### Japanese parents flip coin with child to get spare bedroom

Mish talking about the change in Japanese demographics and pension bonds. I am not too concerned, this is an issue with a country in export surplus in which most of the lending is between parents and children. Parents quit saving, children quit borrowing.  The younger take the job and master bedroom, the older takes the spare bedroom and plays video games. They have enough export surplus to manage. The real problem is getting the children to invest in grandchldren, and with mom and dad hanging around to pester them into sex, they just might solve the demographics.

### Germany's secret to success

Michael Schuman is going to tell us in the next issue of time.

Why not repeat the Hidalgo-Hausmann research. Highly dense variable networks that allow entrepreneurs the ability to find Kling Sustainable patterns of trade. Hidalgo and Hausmann actually went into the maize and calculated probabilities of PSST discovery.  Another way of stating it that Germans are able to find the maximum number os useful channel components in a restricted bandwidth channel, while reducing transaction intervals to increase total channel capacity. Or they mnimize the Levine chain risk while maximizing the Levine chain length. Also look at Geoffrey West's work on cities. It's all related.

## Thursday, February 24, 2011

### The efficiency of exchange

It is a fundamental method of reducing neuronal excitement in our heads, quite frankly. The work of trade is the work of quantization, we accept the shared quantization of a good, and that quant allos us to move things around with minimal redundancy.

If we were neurology scientists, we would look at minimal neuronal spike trains in our heads while trading, and neurologists do exactly that. If we were matheticians we would look for quantization relationships that define the minimal number of steps to move goods through a network, and mathematicians do just that. If we were information scientists we would look for the minimum number of channels to transmit the maximum amount of information, and we information scientists do just that. If we were physicists, ditto; stock traders ditto, babies with toys, ditto, fish in the sea, ditto. Minimizing redundancy, the fundamental process of nature.

### They went home

House lawmakers stayed until 4:41 a.m. Saturday to finish up a spending bill to keep the government open, and sent it over to the Senate — only to be met with an empty chamber. Senators had closed up shop two days before and went home for a 10-day break to honor George Washington's birthday.

“We will do our work, but where is the Senate? They’re on vacation,” said Rep. Denny Rehberg, a Montana Republican and member of the House Appropriations Committee who ran part of the floor debate over cutting spending for the new health care law. “Here we are knocking up against a March 4 deadline and they’re missing the deadline again.”
Washington Times

We get this problem beacuse the channel is skewed, the Senate does not have economies of scale when their disparate representation gives them no common ground. What they have in common is a Constitutional delusion, not strong enough to finsh the work of government. (George Lakoff, it the entropy maximization that we do in our heads)

I am beginning to think the channel coherance will dominate, we get a synchroous default from DC, Illinois and California, an unconscious desire from all parties to fix the problem.

### We know where Congress gets its paper

The red line is Congress borrowing the blue is Ben lending. So if Ben is lending, and Congress is borrowing, then Congress pays this back, right?   Ben can't just forgive this debt because he wants the Treasuries to be tradable, and he has already traded much of them. So the Treasury bonds have to collect a debt service fees to be tradable.  Hence, Obama has to schedule \$300 billion.year  in debt service within five years.  Any ideas?

### Whoops on municipal bonds

AIG said that “several” issuers of bonds it holds have been downgraded, amid budget pressures. As of Dec. 31, the company had more than \$700 million of state general-obligation bonds from California, which has the lowest Standard & Poor’s credit rating of any U.S. state. It also held more than \$200 million in the bonds from Illinois.Bloomberg
Had you asked me when these bonds were issued by Fresno, I would have told you we had no intention or money to cover the billion in debt costs.  Much of this pension debt was concluded behind closed doors, fraudently, and hidden from voters.   Look here, the grand jury  investigated, found fault.  Gov Davis ordered the pension increases rescinded, and the County supervisors went ahead and ordered them through.  Likely a class action suit from Fresno taxpayers would win, and put AIG on the hook for our billion in losses. There is no way property taxpayers in Fresno should be bound to cover these costs, this was clearly fraud on the part of Fresno County sups, aided and abetted by bond insurers.

If the US Treasury wants to prosecute, go after this man, Henry Perea,  as near as I can tell he was the crook in charge.  This same man was also involved in the Ray LaHood Choo Choo scam during the last election, which resulted in the fraudulent election of Jim Costa for Congress.

### And he deliberately excluded dispersion

State vs Federal ,contractors, as well as military personell when Leonhardt produced this report.  I tried to get the number of contractors employed by DC, it was no where to be seen in the BLS data banks.

Nor does this graph, reposted by Kevin Drum, include dispersion, by which I mean fewer government paychecks in California and more in Washington DC.  A better measure is comparative housing.

Looking closely what to we see Kevin?  Your town, Los Angeles gave up 10% of its housing wealth to Washington DC.  Los Vegas is in the dumps.  In other words, because Kevin don't do due dilligence, you make bad policy taking money from LA and giving it to Washington DC, hence the 25% preimum we pay on DC Delusional policy. San Diego is a loser here, as is Portland.

So, ask Leonhardt the following:  If the better equilibrium is more industry in Washington DC,  then why to Federal deficits rise faster the closer we get to that equilibrium?

Federal spending cuts deserve the most attention. They are the most likely of these issues to occur, and could have the largest magnitude. The assumption we incorporated into our recently revised budget estimates—discretionary spending cuts of \$25bn and \$50bn below the CBO baseline for FY2011 and FY2012 respectively—would shave nearly one percentage point off of the annualized rate of real GDP growth in Q2, but would fade quickly with a negligible effect on growth by year-end.
This is what the Gololdman Sachs report said, not what you implied.

Alec Phillips, the author of the report is simply calculating the adjustment cost as money is shifted out of the government sector and into the private sector.  The entire gist of the report if one clicks into the link is that it will be business as usual because Republicans love big government just as much as Democrats.  Goldman's entire bonus system is built on the continuing idea that Washington DC will somehow get California, Illinois and New York to cover the debt service fees.

It is the Internet, Yglesias readers may not follow through, but plenty of others will follow the links.

### Illinois you have a problem

A review of the document suggests a gap of more than \$3 billion between income and expenses in the coming year. On top of that, the state owes about \$8.7 billion to groups that provide services on government’s behalf, to corporations waiting for tax refunds and to the program that provides medical care for government employees.

So the total deficit could top \$12 billion. That’s one-third of state government’s total spending from general funds.
The 2005 tax foundation report has your state paying 25 cent premium on federal taxes. Who are your Senators? Why Senator Durbin, one of the men most responsible for moving Illinois taxes to DC where it is spread out to Republican states! Well, Illinois voted for your bankruptcy.

### The Volokh Conspiracy says what about the Republican party!!

The Libertarian Origins of the Republican Party

I don't read this guy, but I have news. We entered the civil war when John Fremont and Abe Lincoln proposed using federal subsidies for Manifest Destiny. Far from Libertarian, these two were big government stalinists. They were about government funding of railroads and canals. The South rebelled because slaves were excluded from Lincoln's big government subsidy plan.

He talks a lot about the 14th, and I might remind our readers that the 14th came about after a Big Government civil war, not the libertarian nonesense he parades.

Remind me not to click on his page again, this guy is about Big Government, of the Weekly Standard variety, as is Instapundit, the blogger who decides a trillion dollar war in Libya is fine and dandy!

### Internet search statistics

West Coast independence and secession generates 115,000 results.  Let's watch this number, see how it moves as he debt debacle in DC continues.

During the search, by the way, I found plenty of formal intergovernmental management groups between Oerogn and Washignton State and Canada.  One of these is actually a democraticaly operated forum, much like the EU.
While international boundaries continue to play an important role in Cascadia, studies have shown that citizens in the Pacific Northwest are the most likely in the United States and Canada to believe that international borders hinder progress, do not protect national interests and should be further eroded.[citation needed] Cascadia already leads the way in binational and regional cooperation, governing bodies as well as crossborder NGO's, and continues to strengthen these ties through the establishment of a crossborder state ID card in 2006, the 'Pacific Coast Collaboration' agreement (PCC) signed by the governors of California, Oregon, Washington and Alaska and the premier of British Columbia in 2008, the bioregional 'Cascadia Mayors Council' founded in 1996 and the establishment of the Pacific Northwest Economic Region in 1991, a regional U.S.-Canadian forum in which all legislative members and governors are voting members, along with a consortium of the regions most powerful non-profit, public and private sector companies.

We would like to see a group like this offer a script, discounted, but recognized as money by the participants, many of which are part of the Cascadia group and offer essential goods and services. This should easily be possilbe if they use Internet based accounting. A possible venture opportunity? A way to avoid the Dollar payments on federal debt?

Facebook runs a money center for their gaming operators. NGO's and business within this Cascadia group could adopt the same prninciple. The concpet could be extended among private groups in Fresno, CA easily. The relative cost of Inernet money is small and maps well to loosely assembled commercial exchange. What the Internet needs is a common money software protocol, one that can be adapted to different regions and groups wanting a money mapped to their particular ecology.

### Brown on the budget

"I want to make one thing clear, and that's another reason I came here: If we don't get the tax extensions, I am not going to sign a budget that is not an all-cuts budget," Brown said.
"And it's going to be turbulent," the governor added. "Because I don't want to be here four years and play games or evasion, and everything just erodes. I think we got to meet the moment of truth now. And it's either the tax extensions and the \$12 billion. Or it's \$25 billion or as close to that as we're going to get. And if we can't do that, then maybe we don't get a budget."
Brown is going to let nature take its course, and more power to him and more power to California. The last thing we need is a bunch of government dependents pushing and shoving at every corner, like  Davis or the Gubinator.

### A independent California gains much more from immigrants

Brian Caplan promotes immigration for California. Lets look at the chart Brian posts from an NBER study:

Younger immigrants help California, great news.  Now, remove the Federal premium California pays for the DC Delusionals.  The gain from immmigrants go up, California tax income rising by 4-5%, an increase that puts our budget into the black and gets California out of the depreession.

What about our part of the \$15 trillion in DC debt?  Well, California would likely get a fairly good deal in negotiations, since we hold a good chunk of potential debt service costs. Ignorant bond holders will need to take a haircut, of course, another bonus. California could take many of the Western states with us, the scale gains from independence multiply.   Under that scenario, then fine, let the immigrants role in.

A West Coast move toward independence starts with a California default, we need to go on stike within the current DC dominated system.

### Economists deliberately avoid a government model

John Goodman on Government Failure:
Why is our perspective so different from so many other health policy analysts? I think the answer is: the vast majority of people in health policy do not understand the concept of “government failure.”
It is worse than John explains. Economists of the Keynesian variety deliberatly promote anti-democratic models, it is built in. There model presupposes that elites run around the nation discouraging the democratic process.   Keynesians have deliberately taken advantage of the undemocratic Senate, look no further than the trashing of Nevada by Senator Reid, or the huge bills heaped upon Californian counties by larger government actors.  Keynes whole principle was monarchy by the elite. They seek programs that prevent the adative adjustments in government structures, they cause depression and war.

Fortunately they have been caught in their scam. We now have network models that predict the damage and wars caused by Keynes and the elitists. e can hold them back for a while,  but they always resurge and require constant vigilence.

HT Econoblog

### European economists want bond guarantees dropped

A lasting assurance of the EU that would guarantee the solvency of apparently only illiquid but in fact insolvent states via community credits would have extremely negative consequences. Favourable credit conditions and the liability of the European community of states would give over-indebted countries a powerful incentive to repeat the mistakes of the past and to continue a policy of indebtedness at the expense of their EU partners.EU Vox
These economists are smart, they do not want EU funds used to guarantee bad lending by big finance, as doing that causes bad lending. The idea is to keep borowing rates high enough, up front, to cover any losses by the PIIGS in the future. The alternative is the fiasco of bond holders having to go political to get their losses covered.

Tim  Geithner, on the other hand, believes it perfectly reasonable to go globe trotting for Congressional funding while guaranteeing that California, flat on its back with no say in the matter, will somehow generate the debt service funds.  Bond holders beware, when Obama comes calling on California we will likely pay off the debt with Laser Money.

### NY Congressman pushes Choo Choo

Rep. Nadler is pushing full steam ahead on a \$53 billion spending spree for High Speed Rail projects. This of course is after the 8 billion spent on High Speed Rail in the stimulus bill. Both barely begin to cover the estimated \$500 billion dollars required for the plan, which many state governments have already rejected due to the massive cost.

Congratulations Rep. Nadler, you are Citizens Against Government Waste’s Porkers of the Month for February, 2011!
New York ciizens will pay a 20 cent premium to rural states for every dollar of bondogle this guy orders up.

### Smart Citizens don't listen to Instapundit

Americans are wary of the current chaotic political situation in several Arab countries including Libya but strongly believe the United States should stay out of the picture. Rasmussen
That would be 67% of citizen's think the Welfare Queen from Alaska spouts her mouth off without thinking.

### Good news from the MiddleEast

The reason why Bahrain is very important is because in any negotiation you have to have some give-and-take, and it’s likely that the Bahraini monarchy will have to give some concession to the opposition. And once that happens, it will lead to an empowerment of the opposition, 70 percent of which is Shia — 70 percent of the population of the country is Shia — and that has very large-scale implications for the region, particularly for Saudi Arabia and Kuwait.Stratfor

The Shia religion has a lesser inclination to belt bomb, throw rocks and rape Western women than Arab Sunni men. Anything that advances Shia culture over Sunni is very good news for human civilization.

HT Zero Hedge

### Jeff Frankels is right about Republicans

Look no further than the hypocrisy if  Keith Hennessey.  It is the failure of far away government, and is the reason I predict the fragmetation of government.  We do not have democaracy in theSenate, and the problem is getting worse.  Ultimately one of the big subsidizing states will collapse, most likely  California.  Until California escapes, problems will get nothing but worse in DC.  Rural Senatros will always run California dry, it matters little what their politics are.

### Obama sure imported too much oil with the stimulus

A reminder. that little peak in oil imports in 2010, cash to Arab dictators and a drain on current accounts, was the work of Obama and the Keynesian math challenged.  If you all recall, Obama drove up the price of oil and we had a mini-crash about that time.

Now we have Kevin Drum begging for a repeat, and Berkely professors support this nonesene with oil now at \$110 per barrel?  Isn''t this what got us into trouble in mid 2008, too much Bush stimulus driving up oil imports?

Has anyone noticed that the financial crisis committe when looking at 22 potential causes of the crash conveniently left out the oil price peak which occured exactly at the crash point?  This is the delusional thinking that comes from Keynesian worship, the idea of skipping the  obvious for fear the Great Exogenous might suffer embarrassment.  I should remind Kevin that his policy ran up another \$300 billion in debt service, due from the very poor lining the streeets of LA.

How long did Krugman insist, after the crash,  that we had surplus oil, needing to be used with stimulus?  A wierd philosophy from an economist who just prior to the crash was warning us of oil shortages.  Is the contradictory nonsense worth the worship?  People, we import this stuff, it is not a surplus laying around the nation.

Let me helpd out my readers with a chart from Econobrowser.:

Event Date Lost output
Suez Crisis Nov 1956 10%
OPEC embargo Nov 1973 7.5%
Iranian revolution Nov 1978 7%
Iran-Iraq War Oct 1980 6%
Persian Gulf War I Aug 1990 9%
Venezuela and Persian Gulf War II Dec 2002 4%

This is a list of oil disruptions and the subsequent drop in GDP that resulted.  This chart was disallowed by the financial crisis committee.  But Jim collets the data, and thank him for it.  Yglesias do you get it?  Oil is imported, when we waste it, we crash, people become unemployed.   Even Brad will admit that Keynesian policies do not work under shortages of essential goods.  Where is the Drum/Yglesias evidence that more oil consumption by central government helps the unemployment problem?  How does Krugman think the Congress can figure out some wedge between a sligtly less oil shortage in a recession and a severe shortages in post recession?  How does Ray LaHood running around with Choo Choo scams during elections help?

### California flat on its back

California economy, 4% growth, cumulative growth since the recession.
"Our Index's November reading reinforced the unimpressive pattern of recovery in California over the course of 2010," said Dana Johnson, Chief Economist at Comerica Bank. "The state's recovery in 2010 has been uneven and inconsistent across sectors, creating choppiness in our Index. Looking ahead, California should make modest gains in 2011 against a background of a gradually accelerating national economy."
"Our Index's November reading reinforced the unimpressive pattern of recovery in California over the course of 2010," said Dana Johnson, Chief Economist at Comerica Bank. "The state's recovery in 2010 has been uneven and inconsistent across sectors, creating choppiness in our Index. Looking ahead, California should make modest gains in 2011 against a background of a gradually accelerating national economy."
The economic index is pegged to 2008, and is a three month average. Here is the unemployment rate:

Gee, I wonder what Obama will say to a state expected cover 13% of the federal debt service, growing to an additional \$300 billion by 2016. California, not growing at all, is expected to come up with another \$13 plus the 25% premium, or \$18 billion per year in federal taxes when our own budget is short by \$25 billion this year. Even if California could borrow or Laser Prints that money, it still does not cover the fact that Obama wants the additional \$18 billion in federal debt debt service. We are likely to grow at this rate, 1.5% per year for a number of years with our increasing pension crisis coming due, mainly in the cities where no one sees the problem.

Where is Tim going to find foreign investors willing to loan money when the largest state is unable to cover debt service. Somebody, likely the Keynesians, doesn't follow the trail down from the top to the bottom.  With California on its back, then Nevada is in dire straights, and they pay a 30% premium price for federal borrowing.

The politicians responsible for this mess?  Jerry brown the younger and Gray Davis, and Pete Wilson; with special mention for Karen Bass and incompetent County Supervisers in the Central Valley.  Special mention to Boxer and Fenstein for bringing home a huge debt service from DC.

### Yglesias deliberately lies to his delusional collective

Boehner, for all his faults, has delivered a budget to the Senate.  Where is the Senate response budget?
I think it’s pretty clear that we’re looking toward a scenario in which John Boehner shuts the government down in the near future. Yglesias, the Keynesian is anti-democratic.
The point he misses is that many of us want the government shutdown precisely because Obama is delusional enough to believe the Keynesians nonsense.  Let me repeat the history.  The Tea Party, regardless of their big government inclinations, was elected into the House.  Reid is only elected because Obama ran the Choo Choo scam;  proposing a train from Mojave to somewhere, a train which was never going anywhere.  Citizens of Nevada have figured out they were scammed, they have become Tea Party supporters.  Reid represents only three Congressional districts and he charges Nevadans a whopping 30% premium cost for more government concentration .

The complaint today, for example, is that Chris Christie is becoming soft in comparison to Gov Walker. The calls in California to shut down the unions are stronger, not weaker. Fewer foreign investors will be inclined to invest in Geithner's socialist banking because they know Americans have no intention of paying the insurance settlements. And I might remind Yglesias supporters that investors always make them pay for money they borrow via government, and Obama plans to take \$300 billion from Ygesias' supporters to pay  debt service to the wealthy by 2016, a result Yglesias approves.

The Internet watchers are not neary as stupid as Yglesias' fans, we get the anti-democratic forces in Berkeley and the unions. The Tea party is becoming more powerful because of  the desire of Berkeley professors to skirt the democratic process. We are bypassing the Keynesians, we know they cannot change, that their science never was.

### No Ms Bachmann, I won't support your Traditional Marriage ideas.

The Tea party is on the edge of becoming yet another Big Government swamp, and I suggest you get your members focused on their local constituents and getting out of central government moraility.  Dunno if you are aware, but you are close to becoming yet another entitlement maven.

### Union of Concerned Scientists caught in a Scientific Fraud?

This posting from Next Big Future claims so. They seem to have a case,