Before dismissing sunspots

Before science can deal with sunspots, science has to know how long the sun has been sporting the 11 year cycle.  A billion years of a very weak sunspot cycle would accumulate a consistent but subtle period process in the biosphere, or ocean currents; equivalent to the effect of a million years of cycles with stronger magnitudes. Information theory only requires the effect be informative. Look for the dual process, look for earth processes that may be slight but strongly periodic with the cycle. It is rate*size, not just size.

If Matrix theory is correct, then it is precision, there would be no other absolute measure in physics. Particles and frequency appear only to the extent that they determine the most precise set of bounded functions. The physical constant to look for is a constant precision, the bounded, finite functions being just precise enough to define an expansion constant. A fixed precision that is scale invariant, always finding sufficient effects to measure.

In economics, we would be concerned that the economy measures sunspots, not whether sunspots are strong.

Hercules, CA is a confusing mess

Evidently the city council agreed to pay Red Barn $12 million to work on a project involving Red Barn's property, and all of the $12 million was spent on expenses for Red barn executives and no construction.

Tom Lochnar at Contra Cost Times reports. Red Barn did generate some pretty drawings. Something's wrong.

Sarkozy tells nation leaving euro would be 'madness'

But dumping Sarkozy might be a breath of fresh air.

My hometown on strike

Unemployment, the ninth highest in the nation: Fresno, CA 15.7%.

Requantizing the government channel

Amid the recent selloff in the municipal-bond market, investors are increasingly differentiating between state and local governments with strong finances and those facing big fiscal woes.

That trend could have significant implications for holders of bonds issued by weaker state and local governments, some of which are already paying higher interest rates and have seen the prices of their bonds decline in value.

WSJ

Continuing:

The hardest-hit borrowers generally have been those seen as in the most dire fiscal shape. The market typically punishes creditors perceived as riskier by demanding higher yields. Some analysts anticipate yields paid by the most troubled municipal borrowers will only continue to widen next year in comparison with the broader market.

My take:

Bond holders reduce transaction costs by categorizing and grouping.  The government bond market approaches the debt horizon, time and space dilates, the rank drops, a smaller set of bounded functions describes the market.  Government is entangled, and the process requants from the federal level to the municipalities.  Some municipalities survive, others go under state management.  Enentually we end if with one huge PowWow in Congress, and even then we move up to chain to a Brent Woods PowWow.

When that fails, bond holders begin synchronizing to Sun Spots.  This process stops when we have a general revolt of the consumer.

A retail sales expert speaks

And Zero Hedge has high praise, making the look worth it.

Rewriting the general relativity in terms of a Shannon-Hartley channel

I won't do it, but the approach would be to take the time dilation factor, Td in
http://en.wikipedia.org/wiki/Gravitational_time_dilation and convert that euler equation into a Gibbs separation that becomes the SNR value in the Shannon channel rate formula in
http://en.wikipedia.org/wiki/Shannon%E2%80%93Hartley_theorem

But what is the interpretation?  The channel rate is the realized quant rate relative to the rate a standard vacuum can equalize entropy, ending up with timeless ratio.

Look at this computer

See the full story or CastingOutNines. A mechanical computer from 150 BC.

Why not a simple queuing model

We suppose three channels flowing apples, oranges and wages. Think of apple farms, apple whosellers and apple retailers, for example. When the channel for apples is coherent with the channel for wages, and the orange channel less coherent to wages; then the line to trade wages for apples is shorter than the line to trade wages for oranges.  Define coherency as the mis-alignment of the apple quant arrival and the wage quant arrival.

This model is equivalent to  Nick Rowe's substitution effects.

With the channel model, we consider a channel at maximum entropy to match desire or demand, so we can actually eliminate the supply/demand charts all together.

New York property

The stated reason for the divergence is that owners — both individuals and developers — think that prices are too low, right now, and would rather rent out their apartments for the time being, waiting for a more auspicious time to sell. Which implies that even in Manhattan there’s a significant “shadow inventory” of apartments at the top of the market which aren’t officially on the market but which the owners would still like to sell.

Our favorite New Yorker speaking.

A perceived shortage of real estate five years ago is being requantized by adding liquidity in the transactions of rentals relative to the transactions of sales. The shadow inventory implies higher sales sizes and lower sales rates. Is this effect a short path to equilibrium in new York? Dunno, measure the total entropy of grocery delivery with the total entropy of housing delivery. Or use the smooth approximation and compare housing and food budgets over time. Another measure is the entropy of wages vs the entropy of rentals, that gives coherence of the two channels under the assumption that both are reasonably equilibriated.

Why not just fire these guys today

Three dozen of the University of California's highest-paid executives are threatening to sue unless UC agrees to spend tens of millions of dollars to dramatically increase retirement benefits for employees earning more than $245,000.

"We believe it is the University's legal, moral and ethical obligation" to increase the benefits, the executives wrote the Board of Regents in a Dec. 9 letter and position paper obtained by The Chronicle.

Read more if you dare

Here are these idiots, in the information age, not even aware that they are the laughing stock of the whole pension problem.

Oil pricing seems a little smoother

I am surprised and expected it to crash soon.
Holiday effect?

Beckworth!

He posts about the great liquidity demand shock.

Yes, we suffered a demand for liquidity. What evidence do you have that the demand for liquid money was greater than the demand for liquid oil tankers? Nor do I think Nick Rowe necessarily thinks the demand for liquidity was all about money.

In 2008 we discovered that the flows of stuff was misaligned, incoherent. A misaligned flow will ultimately shows as liquidity demand in shoelaces, ships, and money.

I thought we were copying them?

Resolving the black-hole information paradox by treating time on an equal footing with space
http://lanl.arxiv.org/abs/0905.0538
From 2009!

And yes, the Euro situation looks an awful lot like a black hole with an event horizon arriving soon. And yield curves look an awful lot like Black Body radiation.

What entanglement do we have with solar radiation that connects us to the Matrix? Go talk to economists who study sun spot correlations!

The point is, time does not exist, the only existence is the transaction rate of one series of events relative to another. So new the relativity says that two observers see the same 'speed' of light, but with different quantization error.

Fixing Europe

The plan I would develop during the requantization of Europe.

1) The unicameral European parliament of 735 representatives should be proportionally allocated by district based on a five year census.
7) Each member of parliament is required to spend half of the parliament budget on earmarks for their districts.
2) Each newly elected member of the parliament could bring up to 25% of its district's GDP to the parliament treasury in the form of debt relief, or receive money equivalent if the district has less debt.
3) Bond holders take a 25% haircut from total Euro government debt.
4) The remaining debt remains in place.
5) The Euro parliament collects revenue by claiming the right to tax the highest incomes.
6) The Euro parliament is required to maintain a debt equal to 25% of Euro GDP, and can only change that amount by 3% per electorial period.

This program is similar to the Split Government program I propose for the USA. It follows the same theme, seeking accuracy in government.

Euro bond trading

So what about the European Union’s bail-out umbrella? The European financial stability facility (EFSF) is lending money to Ireland at an interest rate of about 6 per cent, which is higher than the country’s nominal growth rate is likely to be for many years. While the loan solves Ireland’s funding problems, it actually exacerbates the country’s underlying solvency problem.

Then this:

The EFSF will expire in 2013, at which point a new, tougher crisis regime will kick in. The EU has chosen this particular two-step construction for mainly political reasons, but from a funding perspective it is a nightmare. All existing bondholders will be protected until 2013.

Munchau says:

This year, Europe’s political leaders pledged to do “whatever it takes” to save the euro. They never answered the question of what that meant. My central prediction for 2011 and beyond is that we will find out.

I say:

Go back to the Canadian interpretation, what forecasting error was made that can be quantized in two years?  Over the past ten years, Euro zone probably erred by multiple trillions.
The Euro bond market will become dilated and drop rank until they are at ground state. Europe is maneuvering itself into a single, huge trade that is going to occur sometime around 2013. They are planning the impossible, a vertical yield curve.

Better suggestion, Euro citizens on all sides of this issue should revolt today, form the Default Party, a Euro wide party. Use the Internet to organize.

The matrix is real?

Gravity Emerges from Quantum Information, Say Physicists
Instapundit wants us to pursue this, but I have too much homework already.

Local town defaults

The city of Chowchilla is in a state of fiscal crisis as officials wind down their list of options to remain solvent. The city has already cut personnel by as much as one-third in the last 18 months and reportedly all options are being considered, including disincorporation as a last resort. City council members no longer receive pay for their work, furloughs have been instituted for all personnel (except police), and as stated, layoffs have hit the city’s workforce. The city’s financial troubles stem from poor revenues, poor decisions by former officials, and the housing crisis, according to officials. Also worth noting is that Chowchilla had to default on a $5.9 million bond that was used to build its City Hall.

J Brown reporting at Cal City News.

Conspicuous production!

Frances Woolley from the Canadian. That research group is looking at the end points of distribution, the household and the mining sector, essentially.

Hayek's spontaneous order deals with Uncle Milts snap back. This is theoretically simple in the middle of the distribution chain.  The real research is at the end points, mostly in the household sector.  At the end of distribution, production does not stop, just money, so we have to deal with a gift economy.  The gift economy is a trace of a very old economy, pre-monetary economy, captured in our holidays full of legends of benevolent kings, harvest festivals and so on.  I would start looking at the intervals between holidays and how that has changed over historical periods.

As they work the issue I will be clicking on that web site more often than not. 

Notes on my blogging

I write a post interactively, starting with an idea and finding related stuff on the webosphere which I add after, often going through three or four revision, even more.  Also I am very sign dyslexic, and readers should beware that signs are often backwards. Often a theme gets added to a post through the night, so sorry to all who end up with two or three versions. I will try and prevent  that.

The economy has to obey a triangle inequality

Let there be two polynomials, Pr is a bounded set that defines the delivery rate for the most constrained resource. Then any other polynomial that increases efficiency will result in a new production function Pr * Px; but |Pr|*|Px|  > |Pr*Px| So, increasing energy efficiency results in more ways to use energy, but the total amount of energy used cannot exceed the original constraint. The issue came up in Brad's blog:

Rebound Redux: Have we moved past Jevons on efficiency? – The Great Energy Challenge
Getting a bit more wonkish, this applies regardless of the norm about which the calculus is built.  So also does a fixed point theorem, meaning regardless of the Norm used, there will always be a Golden Rule, a prime basis set which best represents the underlying manifold. If our norm results in bounded functionals, then we will revert to the prime basis set that best contains a constrained delivery channel, and appears as a sudden mean reversion.

Consider this Slate article by Annie Lowrey.  She claims that municipal bankruptcies will be passed on up to the state level.  Actual, the government channel reverts to a lower rank, and it appears to us that the balance sheet is passed up the chain. Entanglement insures that the balance sheet problem of municipal bankruptcies will be covered by a lower rate government channel, effecting all levels of government.

A Gubinator in action

The state of Illinois elected a Keynesian nutcase of epic magnitude in Governor Quinn. Quinn's latest brainstorm is to borrow $15 billion to "stabilize things".

We should all recognize Mish by now.

Lower transaction rates, higher inventory levels

Census Bureau data released in September showed that the number of multifamily households jumped 11.7 percent from 2008 to 2010, reaching 15.5 million, or 13.2 percent of all households. It is the highest proportion since at least 1968, accounting for 54 million people.

Calculated Risk is reporting.
This is rank reduction in action.

Never bet on the long term price of a constrained resource

One has to bet the flows of the good.  Money will always flow so as to retain its utility relative to the constrained resource. Money flows have to equalize the channel such that all goods flow are defined with the same coherency. One channel can be a rate multiple of another, but the fundamental prime channel rate matches the constraints. John Tierney wins a sure thing.

Define the prime constraint as flowing according to some minimal polynomial, Pr.  Other goods can contain as a polynomial of the form Pr * Px, where the second polynomial has smaller rank; and that only happens if the bankers offer cheap services,  multiplies are costly.

How I see tunneling

An example at the retail sector.  The supply chain has a store barely making a profit, transaction costs getting higher than the gains from specialization.  A longer queue of customers builds up.  Suddenly a box of goods appear outside the store. Usually we see this with a sudden rank reduction that often leaves a quantum of goods badly packaged for an emerging market, stranded inventory.

Ending the Fed, part by part

John B. Taylor  has a photograph of the proposal to eliminate part one.

Longer term yields rising

According to the Canadian interpretation, the bond market saw a shortage in long term real inventories in the recent past entanglement, it is correcting a forecasting error.

Originally, contango was defined as a fee paid by a stock buyer to the seller in order to postpone the delivery of the stock to a future date.^[6] The etymology of the word is not clear, but is assumed to be a corruption or mis-pronunciation of the word "continue

From MarketsWiki.  This should be corrected, the eytomology is from entangle:

tangle

mid-14c., nasalized variant of tagilen "to involve in a difficult situation, entangle," from a Scandinavian source (cf. dialectal Swed. taggla "to disorder," O.N. þongull "seaweed"). In reference to material things, from c.1500. The noun is first recorded 1610s, "a tangled condition." 

Contango was likely coined by a Swede. The banker's yield curve is indirectly forcing order in the supply lines. Or, mathematically, it is adjusting the coefficients of the bounded functionals to minimize entanglement.

Digging even deeper, the economy is adjusting the spectral lines on the production spectral curve, these spectral lines need a 15% overlap. In the digital world this is a phase lock system, and is generating the 'rate counters' for supply delivery. The economy wants to keep the Gibbs phenomena separated. (Remember Gibbs, Paul Samuelson's good friend?)
Maximizing the Gibbs separation will minimize traffic congestion, that thing that happens to arrival times when the commuter and the supply truck end up together on a congested street. Or when the five year bond trader and the seven year bond trader target the same customer.

Quants are semi-Austrian

Kling clarifies for us.
Can we quantify institutions by channel flows?  I think so, I think we are full blown Austrians.  Take the CapnTrade vs VAT arbitrage I posted a few days ago. Or look at the flow of entitlement payments vs private sector wages.  I think we can go right into the San Francisco city council and track the flow of labor favoritism vs transaction costs of regulated city contracts, look at pension payments vs business formation in small municipals and predict bankruptcy very accurately. Measuring a Krugman agglomeration around Washington DC we can predict state bankruptcies.  Check out the research on city growth .

There is an implied game theory, Bootleggers and Baptists, Public Choice etc that is part of Austrians and channel analyis is going to crack those cases also.

Kling says we are just barely beyond freedom indices. I say we are closer than that.

We have one danger, I should point out.  The ability to combine the new analysis with new information technology can easily predict a frightened national leader into war.  North Korea comes to mind.  The new econometrics must certainly frighten China's leaders, look at their struggles with Google.

VendoBot

A big bot that strolls up to a corner of the neighborhood.  It is a van sized vending machine of Dollar Tree items, people hang around it in a two dimensional queue, grabbing dollar stuff.  It says Beep Beep, and goes to get a refill.  I gotta patent that.

In California, Dollar Tree would likely dominate the VendoBots, running huge vending robots through the neighborhoods, using existing stores as giant warehouse. So, how hard is it to build one of these?  What, just download the software into a garden tractor, and pull this 30 foot vending machine around.

Dollar Tree would likely find its customers  have an extra $200 over a six transaction series, since expenses for personal transportation drop 95%, consumption energy cost dropping by 85%.  The only burden is a four hour interval between arrivals of DollarBot.

E mail me and order a bunch of these. If you send me serious enquiries, I can get this funded, and I will pick the cream of the Internet crop to run the company. I can have them built in Utah, we can reduce oil imports by 30% while increasing consumption.

DollarBots can even have a special money,why not?  What type of money would be good for Dollar stuff, a finger print! You press this thing that looks like a button, and your stuff drops out.  I claim that patent too.

Bingo

This is an NGRAM, HT  Felix Salmon, good eye.

This is a velocity indicator, as is the Ceridian for example.  Transportation, trips are highly correlated to retail velocity.  This is an early indicator.   I mean, it is a different world, economics done differently.

This tells me the shoppers are walking more and driving less.  I am looking for fewer trips but larger purchase sizes, and the drive indicator gives me that.

However!! important, the shopper may have found a higher frequency bounded function, a new rank, above where we normally see the highest spectral line.  This is something we haven't talked about, the the consumer will adjust technology eventually, changing the underlying manifold in novel ways.  If so, this is great news, actually, via entanglement it leads us down a path of innovation, lowering the transaction costs for this new 'Eigenfunction'

Quantums will discover this and call it tunneling:

Quantum tunnelling refers to the quantum mechanical phenomenon where a particle tunnels through a barrier that it classically could not surmount because its total mechanical energy is lower than the potential energy of the barrier.

Yeglesias would say this is a rational adaption going back to a previous era, he is partially right. But something more is going on, technology will grab onto this and adapt goods delivery to the pedestrian. We are getting very close to Deliverbot.

Great lecture series, free!

From Brad, I recommend his historical economy lecture.  There has to be a way of selling his stuff to a wider audience for something other than free.  Google? Fix this.

Small banks don't like steep yield curves

98 American banks that received $4.2 billion in bailout money are teetering on the edge of collapse, according to the Wall Street Journal.
In Q2 the number of unsound banks numbered 86; the increase to almost 100 institutions - most of which are smallish banks with about $439 million in assets - comes as a result of decreasing capital and more bad loans.


Read more: http://www.businessinsider.com/bailed-out-banks-failing-tarp-december-27-2010-12#ixzz19NcXme2O

The economy has down shifted, growth will be 15% below previous estimates, small banks will merge. Soon the lower growth will be showing up in lower M1V, as it to drops by 15%. Oil and commodities are not going up, they are going down. The economy is more dilated.
A less precise economy will start knocking off the indebted Munis, score one for Meridith and Mish.

Crust

The Indigo Olives link is following this research. It is an entropy based mapper of topological surfaces. Sounds familiar.  The idea is to capture each portion of the pig with the same resolution, adjusting sample size to equalize quantization noise over underlying variability. They will add variable time dilation when they map moving objects, I am sure.  What they really compute are the bounded maximum entropy functions in use over the region.

Want to use this math for early indicators?  Take a surface characteristic, like road density,  light emissions (infrared or visible), people density, sewer density, oil tanker density, shipping lane density; and perform the same operation.  A great tool for economic geography, and done over time we get the regional yield curves of production.

IndigoOlives will get into that, and you can bet Google is all over this.  This is done at PARC, Palo Alto with Google up the road.

And, least I forget, this method will be popular in computer vision.

He is out there somewhere

The Median Voter Supports The Affordable Care Act

If you know his whereabouts, Yglesias is looking for him.

Mises: Human Action

Reading the synopsis from Wiki:

Mises sees economic calculation as the most fundamental problem in economics. The economic problem to Mises is that of action. Man acts to dispel feelings of uneasiness, but can only succeed in acting if he comprehends causal connections between the ends that he wants to satisfy, and available means

We have entropy detectors in our head, actual physical neurons. We see and remove local redundancy so that the number spike trains needed to entangle with society is minimized.

Kling is recommending the Russ Roberts interview which I listened to. Kling:

As Boettke points out, the profession is split between economists who work out the properties of equilibrium and economists who focus on institutional processes. The latter are marginalized, although they include many Nobel Laureates, including Douglass North and Elinor Ostrom.

The science is evolving and I would not be bold enough to hold this distinction.

Transaction costs!

A local-hire law was approved by San Francisco officials this week as an attempt to boost the local economy by requiring at least half of the jobs on city-funded construction projects to be comprised of local residents. The law was passed by 8-3, and a second affirmative vote will take place next week. Supporters of the measure have argued that it is one of the toughest laws of its kind in the entire nation, which is being billed as a way to supply local workers with good jobs. Financial penalties could be imposed on contractors who fail to meet the ordinance’s hiring standards.

California City News!
A bone head move as the Mayor understands, he might veto. This only works if many contracts can be combined into one, getting economies of scale.  The city council has a horrible socialist calculation problem that devolves into favoritism.

My choice: Best Christmas photo of the year

Antiplanner

Working on specialization

Unfair situation maybe? Too much entanglement?  The hedge fund folks are going to compute the new calculus at 6-7,  likely 6.2-6.3.    So if we know the landing spots, what is left?  Well this is where George Selgin and the technologists come in. Certainty of the monetary stable points allows us to make molecules.  George is going to tell us how to use the new certainty to get stable free banking.  The venture capitalists are going to go hog wild.  It is innovation, decoupling, Kling's smaller communities. It is branching by product specialization.

Once we hit that bottom rung, it is balls to the wall productivity growth, boom times. Having nailed down the carbon atom, think of the possibilities!

Merle Hazard needs the lyrics for this plot

Citigroup remains too "interwoven" to fail even after the government has plowed billions into rescuing the banking titan and Congress has passed laws taking aim at financial behemoths, Citi Chairman Richard Parsons told CNBC.

Yahoo
HT Mish, naturally

Unobtainium and market collapse

Nick is throwing more Einstein balls at my Bohr bat, good pitches too.
In this case he posits the demand for unobtanium with a zero supply. My comment there was incomplete, I decided, so I repeat things here and expand on a market that collapses to rank 1.

Let me make the basics.  If there is a demand for unobtanium then there must have been purchases of it in the past (this is entanglement) .  Hence, by the Canadian interpretation, there must be a residual forecasting error for the previous unobtainium market, and that forecasting error would be one quant of unobtanium remaining, for the given market rank.

So we must assume that a pre-existing production chain for unobtanium existed, and that chain when through a series of precision collapses, N,N-1,....1; until we now have the situation that one person has one unit of unobtanium.  What does he do?

He makes electricity (unobtanium is for reactors?) and sells that, he vertical integrates the specialization.  Bringing us to the DeLong smack down by his former teacher.  DeLong posits scarcity of commodities leads to increased production by incentives:

It [ownership] solves the problem of production--what commodities we should try to make more of. Individuals look forward into the future.

But his teacher corrects:

it solves the problem of incentives--of how to induce people to set to work figuring out how to make those scarce, rival, excludible commodities that demanders most value. Individuals look forward into the future.

I go with DeLong, the issue is production.  When the market collapses, the issue is vertical integration so as to produce the products made from the commodity.  Leading us to the quantum view of specialization.  Longer supply chains allow specialization of products on the margin.  I have no model at the moment, but I will be webosphere searching for the solution, but I think the solution will be to frame specialization as a form of quantization..

DeLong! Updated

 I read your latest missive on debt to GDP ratio, the first part. Again, you assumed fixed sample periods and lost me. Maybe you introduced variable sampling periods later on, but I didn't get that far, I don't get past the fixed period assumptions anymore.

Treasury Curve spreads over time

I guess I should give my lecture in fairness. I will speak to the chart above, which are the yields of the various terms in the Treasury curve.  The quick summary is that as interest payments increase over time, the flexibility of Congress to maintain inventory decreases.  At some point,  bond market generates skepticism that interest payments can be made.  When that happens, we dilate space and time.  When we have those wide spreads, we are dilated.  When the curve is nearly flat, that is because we have more levels of precision, each level handling a thinner slice of yield. The dilate state is the steep curve.

For the government, we adjust the relationship between state and federal government (space dilation) and estimate yields over longer time lines (time dilation) for a real example.  The amount of time we spend in the dilated state depends upon the balance sheet adjustments that are made.  If we do nothing,  but stay in the dilated state, we will operate longer without inventory collapse.  Normally we go  through some government reorganization which reduces the constraint on government productions or pass them onto some lower level of the economy.

So, we move inventory with precision N, drop to precision N-1 for a while, sometimes hit precision N+1, and so one.  Over time we have staved off negative inventory in government, but not completely corrected the problem as yield continue to decline.  The bond market 'sees' government inventory with the current precision, or the current bounded calculus.  When we say bounded, the bounds, the alarm level raised by uncertainty is proportional to the quantization error of the current calculus.  Lower precision means inventory management has a large sigma in the variance to mean (= plan) ratio.  The unit quant is larger in lower precision calculi, the quantization error greater, but inventory risk less. It seems contradictory, the the higher quantization error makes us more conservative, we delever.

The take away is important, a infinite precision computation gives  an alarm bell which is too risky.  Underneath the lower precision means the bond market sees the alarms sooner than traditional, infinitely precise calculus would indicate.  That is why we go into Recalc sooner than many of us expect.

What does the spread tell us now?  This time is different! We are forced into a necessary restructuring of government, there is no more room for pretend and extend. We have done this before, we know how.

Tea Party!

On the spending front, Republicans plan to implement a series of rules called CUT/GO — a conservative answer to the PAY/GO rules instituted by Democrats. Under CUT/GO, increases in mandatory spending would have to be offset by spending cuts in other programs.

The New Republic spots the Tea party bullshit. Even Yglesias gets this nonsense.

For everyone in the Tea party, you cannot repeal the law of supply and demand. You will increase spending because you have cut expected taxes. I know the Tea party, they will follow the Schiller line about immaculate government spending.  Suggest the Tea Party cut the bullshit and focus on efficient spending.
HT DeLong

What is the treasury curve saying

The bond market wants higher reserves today because we were short resources in Aug 2010.  The economy is responding with lower M1 velocities. See the dip in velocity?

The Fed and Congress have geared up for another run at stimulus.  The bond market wants to make sure constraints, mainly energy, are in good supply as Congress generates more goods, hence lenders demand higher  yields. The economy is making sure supplies are available to Congress by lowering velocity.

Congress will successfully deliver more goods for a while.  Economists will see that consumer transaction sizes are larger, but economists will miss that transaction rates are lower, and  total output drops. Quants will get this and make money, because quants get that we are  a bounded calculus.

Schiller!

Under certain idealized assumptions, a concept known as the “balanced-budget multiplier theorem” states that national income is raised, dollar for dollar, with any increase in government expenditure on goods and services that is matched by a tax increase.

Says Schiller.
Schiller does not say that the idealize assumptions have been in very serious dispute among economists for some time. Another idealized assumption is that Congress producing anti-gravity machines would have a high multiplier.

For the record, the economy operates with a bounded calculus and the intermediate solutions that Keynes and Schiller desire do not exist.

Schiller knows he is spouting disputed assumptions, and I have the right to inform you whenever disputed bullshit shows up.

This man knows Al Franken

Ronald Pies, MD, asserts that every individual has a “right” to “basic health care” – meaning, a right to receive such care without paying for it (Letters, Dec. 26).

From Cafe Hayek
Because Al Franken says we have a 'right' to free delivery of his Saturday Night Live videos.

Just for the record, you all have the right to read my blog posts.

Queue management in Pakistan

Some 300,000 desperately poor villagers impoverished by fighting in Pakistan's tribal belt are wondering how they can feed themselves after a female suicide bomber killed 45 people outside a World Food Program food distribution center, triggering a district wide suspension of the relief project.

Decatur Illinois will fall

Mish is posting the disaster:

In 2011, 70 percent of it [Decatur budget]  will go toward pensions, even as recent years have seen cuts to other services that draw their funds from the same source, including the Decatur Public Library.

Labor is confusing

What determines the amount of work we have to do? Mainly growth, but a whole bunch of other stuff which is what confuses us.  The labor function does not seem well defined by the economy, and it seems to me that as the economy settles into a corridor or growth, there remains a whole lot of factors that may determine the labor function.  Hence, I make little attempt to understand it.

One thing sticks out, from 1985 until the crash we took on more debt and worked more. We bet on some future that wasn't quite right. I suspect the fixed government entitlement streams begin to effect labor price flexibility.

Use M1

This is what I want.  M[the least], namely the money that we carry in our pocket day to day.  That is the important money, that money tells us the highest velocity transactions and smallest transaction size.  That money dynamic set the short end of the curve, where the curve meets the noise.   The other thing about retail money, as long as exchanges are working, the retail definition is likely to be useful, the other definitions are useless until we decompose the effective terms in the curve.  In other words, retail money should  stabilize first.

Everybody gets a calculus in economics

Stiglitz get his, stochastic calculus, and we quantums have ours, a Borel calculus.  I can produce a rule of thumb about the both.  Ours is a bounded functional calculus, and I am not the one to give the theory, but I can give the shorthand.

Here is our working definition.  Given rank N, say 8, we can use binary logarithms on any data series from 0 to 255, provided the round off error is less than 15%.  When rounding error exceeds 15%, our calculus is not working, and rank is reduced.  So, take a data series, and map the Y axis into a precisions of say, 6,7 or 8; the largest data value should match the largest fixed precision value supported [2 exp(N-1)].  Increase the precision while all the data is within 15% of an integer exponent of 2.

We can contrast this with stochastic calculus which uses the natural log and fixes the precision enough to maintain the statistics within some specified bound.  Stochastics assume necessary precision is available.

In the real world of quantum deliveries what does this mean?  If a truck holds eight pallets, then the calculus won't work if store outlets generally take need five. The inventory workers will notice a cyclic excess and eventually one of them will leave and start a new outlet. So coherence in supply chains is equivalent to finding a proper bounded functional calculus, that is what we agents do.

Google's Christmas gift

Dumping the Caps lock key. Thanks, that alone might be worth a billion in bonuses.

This is big

It's not often that one can report breakthroughs in fundamental electronic devices, such as resistors or inductors. In fact, the best thing that happened to many inductors is they have been replaced by active circuitry – used, among other places, in active crossovers and other filters – that behave more like theoretically ideal inductors than the real things. But a research report published in NanoLetters is a stunning revelation of what can happen to capacitors when they are infused with a dose of nanotechnology. The title almost says everything: Graphene-Based Supercapacitor with an Ultrahigh Energy Density. Authors Chenguang Liu, Zhenning Yu, David Neff, Aruna Zhamu, and Bor Z. Jang, variously from Nanotek Instruments Inc., Angstron Materials Inc., and the Dalian University of Technology in the People's Republic of China, are merely stating the truth when they claim at the top of the supporting-information file that their research results “are of great scientific and technological significance.”

Take a fixed speed diesel, with electric drive and these batteries in between and regenerative breaking. That combo will break some Gallons per Mile records.
HT Instapundit

Setting up a side channel to equalize VAT and CapnTrade interference

Zero Hedge is following the investigation.
Those quants, such characters, they didn't believe game theory?!  Channel theory can  disentangle this plot.  The plotters were discovered because they took the whole 25%  when they should have taken the marginal 15% to remain under the two sigma plus 15% rule.

I wonder if a rank reduction in the overall channel pushed them to visibility.

Electricity and lighting

When these came about, the retailer was not as tied to the day/night fixed cycle.  QMs need to look at the switchover and see if we can find effects from the greater variability in the retail inventory cycle.

Repeated games with private monitoring

Try this summary.
You know we are going to attack the problem with quantum side channels, and you know we are going to spot the fixed sample period assumptions.  Game theory is going to change as researchers adopt quantum information theory, which is being developed outside of economics.
Thoma says look here:
http://pages.stern.nyu.edu/%7Erradner/publishedpapers/56RepeatedPrincipalAgent.pdf

I look and find fixed sample period right away, so I get this is unlikely a maximum entropy analysis.  Should I pursue this?   
In this post, Thoma presents the naughty-nice function as convex, hence having no global minimum.  But agents under repeated games will produce  imprecision using quanta production to convert the convex into a volatile concave. Change the norm, minimum variance becomes minimum redundancy (maximum entropy).
I am gonna dig up Neils Bohr, his dead corpse could swat these softballs.

Al Franken!

After all, just look at Comcast -- this Internet monolith has reportedly imposed a new, recurring fee on Level 3 Communications, the company slated to be the primary online delivery provider for Netflix.

Al on the case of Net Neutrality.  No, Comcast imposed a new and  recurring restriction on the ability  to take money from my wallet and give it to the Netflix CEO.   As an entertainer he can have whatever idea he wants, but as a Senator he ultimately has police power to force collect my socialist payments to Netflix. Remember, Al is likely collecting a few thousand per month from Netflix for royalties.

What I like about Scrooge

Was his ability to entangle with past, present and future equilibria; and understand the choices between them.

Mankiw links to others with dissimilar views about Scrooge.

Christmas lines are illiquid

Michael Santo reports on Christmas lines:

As you wait in the checkout line just before Christmas, your observation is correct. That other line is moving faster than yours. That's what Bill Hammack (the Engineer Guy), from the Department of Chemical and Biomolecular Engineering at the University of Illinois - Urbana "proves" in this YouTube video

Sure, because the cost of optimizing the check out infrastructure for Christmas is more expensive than allowing long lines. In an illiquid queue, the next arrival changes the wait times appreciably, you are in the longest line because you just now entered the queue. Wait until two customers are served, look again and you will not be in the longest line.

Yglesias?

One of the absolutely strangest elements of modern American conservatism is the extraordinary level of hypersensitivity it exhibits about the idea that any white people might be racists.

Honest people admit their racism, we just do not like it when only one race is singled out for this condition, as Yglesias does in his relentless attacks on conservative whites. At least I try to spread my anti-religious bigotry around a bit.

Yes, I know what you are all thinking

The two sigma and 15% rule are related to the Golden Savings rule from the Solow growth model.

The two sigma and 15% rule

In the last post on channel theory we went from the thermostat paradox to the forced interpretation that agents agree, apriori, on inventory variance relative to plan. I give full credit for that step to Nick, and suggest we call it the Canadian Interpretation. How does that get to quantum flows and why the two sigma rule?

Consider the simple one stage model where the firm seeks to keep inventory variance as insurance from deviations from mean. The firm also seeks to minimize transactions, it would like to make the minimum number of shipments to market. When is there surplus inventory to generate a single product load? When the the variance from mean is exactly two sigma from agreement. Then the firm can take one sigma from inventory, generate products, leaving one sigma in inventory and guaranteeing only one shipment.

In the hydraulic model, that point is noticed with the double ended statistical test when inventory level is at the 15% probability level. Seems like a trick. But later when we construct proofs that define multi-stage networks we will see this rule converge with the Nyquist rule upon which Shannon Channels are built. It really is fundamental to nature, like the Euler paths.

Bill Lockyer represents me to bondholders

In an opinion piece in the Los Angeles Times, State Treasurer Bill Lockyer got on his high horse to state “California isn’t broken,” won’t default on its debt payments, and isn’t anti-business.
Lockyer obviously is trying to issue some reassurance to bond markets.  The bond market recently demanded almost a half percent risk premium to sell California’s general obligation bonds and could only sell about 60 percent of the bonds put on the market compared to 75 percent last year in November.  There were no buyers for the other one third of the bonds even with the rate kicker added.

Well, I can speak to bondholders right here. The answer is they won't get a dime from me until the property tax assessments are brought up to date.

Interpreting Nick Rowe's good post

He reviews and expands a bit on Uncle Milt's thermostat analogy.  Economists should read that post.

He starts with a control system, a device watching on variable and  using measurements to set a control that brings the measured variable back to its setting, a thermostat.  His point is that the changes in the setting of the control will inevitably represent forecast errors of the control system.  In any system this will be true, and these changes are called the residual, the amount of 'acceptable' error remaining in any designed control system.

In an economic setting all plans will reveal forecast errors as they are implemented and the observed errors undergo continual correction leaving a residual of noise over time. But here is the catch.  In an economy the measured variable will invariably have a noise term created by the prior delivery system, itself a controlled plan.  So, absent adjustment, errors generally cascade making specialization impossible. 

How does the economy solve the specialization problem so that the pencil maker can manufacture pencils with the same planning error as the carbon graphite manufacturer and the paint manufacturer and the wood manufacturer?  Simple, each step in the manufacture process is set to be equally imprecise, all parties agree to generate the same control noise power. So the final manufacturer of pencils can plan, apriori, for the known noise in its input deliveries.  Thus the pencil manufacturer can keep input inventories high enough to compensate for known delivery noise of the inputs.  The systematic end result is that all inventories in the economy converge to a known variance/mean level.  The mean is the plan, the variance is the apriori agreement. The implied interpretation is that all agents agree on the acceptable noise level for inventories.

How does the original control system work such that it insures a fixed residual power?  When it notices that the noise level is low,  the controller will wait a bit longer before updating the variable, it lets the input variable build up a bit before the adjustment.  It manages inventory noise by adjusting the sample period.  So, the controller is now competing for spectral space on a generalized yield curve.

I can help Mr. Volker out here

I had another comment I was going to make. You won’t be able to resolve it for me but I’ll raise it anyway. It strikes me that when one looks at the banking system, never before in our lifetime has the industry been under so much competitive pressure with declining market share in many areas and a feeling of intense strain, yet at the same time, the industry never has been so profitable with so much apparent strength. How do I reconcile those two observations?...

The problem was the shoelace industry, the shoelace channel being so out of balance the Finance industry had to create reverse flows for equalization.

I not being that ridiculous, the shoelace channel should have been a clue. Finance was doing its job, adjust deposit flows to equalize real goods flow imbalances. The profits come from providing this service. The competition comes from the channel resistance of real goods.

Volker suffers from entanglement, he is entangled with finance and the economy to him is reflected through that lens.

Islamics celebrate Christmas

Just days before Christmas, the White House asked Americans to be vigilant this holiday season, warning of a possible -- though unspecified -- terror threat from Al Qaeda. The caution echoed a weeks' worth of warnings from law enforcement authorities.

On a serious note, Islamics will eventually create holiday excitement and anticipation in their ranks, having the opposite effect they want. (The Islamic terrorist channel and the holiday reserve channel become coherent)

Frances Woolley has done great research with Google trends.

Check out the regularity and changes over time.  The webosphere will be talking about this, and I will be talking more about quantum flows designed to get around quantum restrictions.  The two are related.

Were are all watching this

Oil flows will change their quantum state within a time period equal to 15% of  of my prediction.  My prediction is within the transaction period of wholesale (these are wholesale prices)  gasoline flows.  However, remember this is the planned holiday season and quantum oil flows were planned, a priori, to  have a slight longer retail time period during the holiday.  There should exist an independent quantum flow of savings called the holiday reserve channel.

QM Theory will develop the concept of channel equalization, independent reserve flows designed to get us around quantum restrictions like holidays or the Senate or big mountains.

Dealing with Mises

From Polliet:

Now let us turn to fractional-reserve banking. It means that a bank lends out money that clients have deposited with it. Fractional-reserve banking thus leads to a situation in which two individuals are made owners of the same thing.

No, two people are betting about what and when ownership is transferred, the betting uncertainty will be 15%.

Yes to Kling, no to money

Why did money and velocity show less mirror-image behavior from 1960 through 1979? Beckworth's answer is that the Fed was doing a lousy job of offsetting velocity shocks. My answer is that velocity was less able to offset monetary shocks.

Says Kling in his latest position on the velocity.

My point would be that the retail transaction rate, the rate at which the typical consumer walked to the typical store to buy the typical bag of groceries. That rate*size should have two specific stable points, the corner store equivalent of MV.  Further I will claim that the total Tr*S quantity in the inflated state will be 15% more than the rate in the deflated state.
Then Kling says:

I do believe, however, that if the U.S. government were really determined to have inflation in the short term, that could be accomplished. If we printed dollars and used them to by foreign assets in massive amounts, that would to the trick.

No, within the current velocity rate (time constant) a reverse channel of flows would compensate. The exchange rate will always be within 15% of stabilization. When the observed discrepancy exceeds that value, the entire Levine rank of one or both economies will adjust. In fact, I think the central banker will be psychological incapable of screwing up exchange rates until the perceived imbalance exceeds 15%.

When we get hyperinflationary, then money no longer works as money and people have already adapted a secondary exchange that meets the 15% rule.

Quantum channels are fundamental in nature, the hydraulic model is the approximation.

Does WalMart engage in fractional reserve warehousing?

All the time. But Mish and Rothbard disagree. Mish quotes the dead guy:

Curiously, many people have argued that it would be impossible for banks to make money if they were to operate on this “100 percent reserve” basis (gold always represented by its receipt). Yet, there is no real problem, any more than for any warehouse. Almost all warehouses keep all the goods for their owners (100 percent reserve) as a matter of course—in fact, it would be considered fraud or theft to do otherwise.

WalMart regularly promise its stores some good that may not be in storage. WalMart is betting on the finite reliability of its supply chain. There are a lot of people owed a Leaf hybrid car that is not in the warehouse. Rothbard makes a distinction without a difference. Betting on the coincident arrival of two separate goods must presuppose that one of the goods might not be in the proper warehouse at the proper time interval.

The only reason we have warehouses is so we can bet on their contents. See Nick Rowe's latest post, and my comment

Michael Savage is a socialist jackass

In this news article we find the Savage is suing to have some Contract Process guaranteed by pre-emption even before there is an indication of a violation. Hey, Mike, a better idea, if you want government insurance, go to a government  home for the mentally disabled.

Asymmetry

Reported by Charles Hugh Smith on Zero Hedge:

Local governments should go back to the revenues and budgets of pre-bubble years, but instead they are jacking up rates to maintain revenues, even as valuations have fallen off a cliff. Bubble-era prices and equity are gone, it seems, but bubble-era property taxes are here to stay.

According to U.S. Census Bureau data, the nation's local governments will collect an estimated $476 billion in property taxes in 2010--almost double total state income tax revenues of $250 billion and considerably more than total sales tax revenues of $286 billion. That means property tax revenues are 66% higher than sales tax revenues--$190 billion more a year.

A decade ago, property taxes were roughly equivalent to sales taxes. In 2000, property taxes totaled $247 billion and sales taxes came in at $223 billion-- a differential of roughly 10%. Sales taxes have increased by 28% since 2000-- roughly in line with the rise in consumer prices (as calculated by the Bureau of Labor Statistics).

Tax collectors in states be forewarned that the economy will over correct this very suddenly, one way or another.

Entanglement Theory

Entanglement Theory, from the Stanford Encyclopedia:

  Quantum entanglement is a physical resource, like energy, associated with the peculiar nonclassical correlations that are possible between separated quantum systems. Entanglement can be measured, transformed, and purified. A pair of quantum systems in an entangled state can be used as a quantum information channel to perform computational and cryptographic tasks that are impossible for classical systems.

Karl Smith's version:

Both Krugman and Wilkinson are keying off of the same phenomenon. The world is extremely complicated and doesn’t make sense – at least not in the way we want it to. We don’t want to understand the world simply by following some complex routine of intellectual gymnastics. We want it to makes sense intuitively. We want it to bound up in a single completely digestible ball. The world, sadly, does not always comply.

more from the Stanford Encyclopedia

Schrödinger showed that, in general, a sophisticated experimenter can, by a suitable choice of operations carried out on one system, ‘steer’ the second system into any chosen mixture of quantum states. That is, the second system cannot be steered into any particular quantum state at the whim of the experimenter, but the experimenter can constrain the quantum state into which the second system evolves to lie in any chosen set of states, with a probability distribution fixed by the entangled state.

Are these two beliefs related? Kling says, assumptions in generate results out. Schrodinger says that Kling is onto something fundamental, and Schrodinger had to travel in time to say that.  Economists will get it all sorted entangled out.

I think the economics version is something like this:  Our brains only work when we comprehend events as occurring with Gaussian noise so we can notice redundancy in life, within two sigma.

A case of round about production

Merrill Lynch persuaded its internal fund managers to buy the toxic nuclear waste spewing from its out-of-control CDO factory

Felix has this example of what I call adding a step in production when there is no yield space for it.

What is driving DeLong's despair over comments?

He complains about having to moderate comments.  He won't say, here is my guess.
The poor guy has to teach class, and quite a few of us don't.  So we have an unfair competition between data the commenters see and can identify as contradictions, but Brad simply doesn't have the research time to go through the data.

Information shock strikes again.

Am I wrong about velocity?

 I claim that stable transaction rates at the retail level are globally stable. So what happened between 1995 and 2000 where velocity continued to rise?   If the economy takes five years to reach a stable quant, then there is no QM theory. And from 2005 to 2008, why wasn't M1 velocity stable?  Note that the two periods of non-constant velocity ended in recessions.

Looking at the 1995-2000 deviation, a closer look shows the velocity was stable to an uncertainty level up to about 1996, then it rises above 70.  Transaction rates are not perfect spectral lines, but close.  The economy will let spectral production lines vary, up to the point they interfere with adjacent spectral lines.  I don't mind a two year adjustment period to reach stability going up, I would be much more bothered if we failed to crash to a certain historical velocity.  How is it that we crashed exactly to 80-85 after July 2008?  We had stability from 2000 to 2005, look where we ended up in 2010, almost the same velocity, a reversion to a known constant afters a rapid fall.

Another research notice.  In this scale system the stable velocities are 65, 82, 100. Looks like a gain of about 15% at each jump.  Look back at the previous post about city growth, what did the authors claim? A 15% gain from specialization.  The author also notes that any independent channel in a city will show the same growth as any other channel, to within a 15% error.  Then look here, retail sales level dropped by 15%. Looks like a constant of uncertainty which equals the gains from specialization.

Channel theory applied to economies is new, as we use it we will get more accurate definition of transaction rates, sizes, gains from specialization and the rest.   I am not worried, this theory will win the day.

Right now, right this minute

8 PM, Fresno California, Tuesday.
I just sent the Netflix CEO a few cents.  The light went off on my modem, the web got stuck.  I know my nieces and nephews down the street are downloading video from Netflix.   That's it, I am contacting a lawyer for a class action against AT&T.  If you live in Fresno, e mail me, join the lawsuit.

In Japan

The government, shareholders of government and buyers of government goods are the same people. Slate worries that there is a split between the old and young, the old will want to live on government bond interest, and the young might refuse to pay.

What is the worst that can happen? Fist fights between parents and children? Making the parent sleep in the spare bedroom?

Other News:

In Iceland, 80% of the defaulted debt was banker obligation.  20% borrowed by individual Icelanders would come to about $20,000 per capita, probably a blip compared to Euro tax evasion.  The 80% internal to external bank default was a separate channel, a channel of idiot bankers.  That wasn't a default, that was bankers sorting out errors among themselves.

Currency distribution about the bill size.

A research report:

The distribution of the Dutch currency circulation by denomination is related to the requirements of efficient payment, i.e., payment involving a minimum number of coins or banknotes for any amount.

A trivial rule, minimize redundancy, maximize entropy.

Transaction sizes and transaction rates are coherent between the currency channel and the goods channel. This seems trivial but it implies that the price standard is not as strong as we think. Consumers and retailers will snap to about the $20 bill, and by ignoring the price deviation to within a standard uncertainty, the retail chain gains efficiency. Dollar Tree for example.

Look, if currency bill size and purchase value have this relationship, then there is a definition of the median retail purchase, and a definition of money.

The FCC ruling

Doug Mataconis at Outside the Beltway has a good summary. But repeats this myth:

While it was built on top of the framework of a network developed by government scientists

This is essentially bullshit. At the time (early 70s?) packet switching between mainframes and dispersed dumb terminals was common technology in the private sector. As the dumb terminal was replaced with smarter, programmable work stations, some college kids simplified the dumb packet protocol and generated what we know as TCP/IP, about 40 pages of plain text describing an improved version of packet switching.

The other takeaway is that leftist bootleggers will be taking money from poor people and giving it to Netflix executives for a while.

Yes, Karl you will find them

Is this meant to be taken literally? That is, can I go out into the world with a spyglass and ruler recording additional stages of production and then find that these stages will proliferate as interest rates fall?

From Modeled Behavior
I can give an example.

Some of us remember the 1960s and in those days gas was in surplus, other constraints limited the economy. At the time, gas stations offered full service, oil check, window wipes. They also offered one other thing, the gas credit card, generally available in vertical integrated energy companies.

Why the credit cards? Other money channels were constrained to short Levine chains, gas companies were not so constrained, thus having a Levine rank one greater, a greater quant rate, we say in channel theory. So, gasoline companies generated their own debt channel, allowing consumers to buy gasoline with greater variability then the wage channel would normally allow.

From the consumers point of view this was great, they could top off the tank at various ad hoc moments. But, coherence, the tendency for adjacent channels to adopt the same Levine rank eventually eliminated the practice. We ended up with fewer plain vanilla self-pump stations, and consumer generally filled their tanks when near empty, and tank fills synchronized with commute schedules.

Want another example?
Look at the Treasury curve on June 2,2004. The thing is ballooned up. Count the observable segments. Go back, look at Mar 2,2004. One less observable segment. The extra segment represents investment bankers opening up new offices and competing for curve space. Investors increasing the Levine chain even as oil imports began to be constrained, shortening the Levine chain for the rest of the economy.

More patent bullshit

“The patents Kodak holds are incredibly broad, effectively covering images that are stored centrally and can be ordered online,” she said. That’s likely to mean Kodak will go after other online image sites it believes also infringe its patents, she added.

But:

The first fax machine was invented by Scottish mechanic and inventor Alexander Bain. In 1843, Alexander Bain received a British patent for “improvements in producing and regulating electric currents and improvements in timepieces and in electric printing and signal telegraphs”, in laymen's terms a fax machine.

And:

With the slogan "you press the button, we do the rest," George Eastman put the first simple camera into the hands of a world of consumers in 1888.

Get it, Kodak patented an idea that existed before Kodak existed. Who said Babtists and Bootleggers?

Cities and channels

Yglesias spotted this gem about cities:

According to the data, whenever a city doubles in size, every measure of economic activity, from construction spending to the amount of bank deposits, increases by approximately 15 percent per capita.

A city doubles in size the Levine chain increases by one, the 15% is the gains from specialization.

Two assumptions make his analysis true. One, people everywhere measure value with the same constant uncertainty. Two, at equilibrium, distribution channels are maximum entropy. The flow of goods, disease, and sewage will tends toward coherent channels at equilibrium (the same Levine rank), create the same surprise or innovation. Hence, in equilibrium, we do not go to meetings where the same crap is expected to be discussed, rather interactions are optimized to deliver the same constant surprise.

This also explains Krugman's agglomeration. When there is redundancy in a channel (the opposite of entropy) then a production network is created to utilize the spare capacity.

Is Paul trying to trap me?

Like this post from Krugman.  He implies that we should ignore the census peak to the far right.  If we ignore that then we are left with a 20% rise in federal employment.  I think I am supposed to fall into a trap which he later springs when he shows local and state government employment dropping.

OK, trap me.

 Right on cue

What can I say? How about this, is an agglomeration of workers centered in the Washington DC area a better equilibrium? No, Paul, most of the states and localities are going broke precisely because the resources go to Washington and the mandates go to the states.

Split Government Party

From the tax cuts extension bill to the food safety legislation to Republican selections for key House committee leadership posts, Tea Party leaders have expressed outrage at what they perceive is a continuation of the same old Washington-style politics.
"In addition to the 'backroom deal' tax compromise, last week, through their appointments to chairmanships of the Energy and Commerce and the Appropriations committees, they [House Republican leaders] sent a clear message that despite an electoral victory driven by the Tea Party movement and fueled by public disgust with incumbents, Washington is back to business as usual," Tea Party Patriots founders Jenny Beth Martin and Mark Meckler wrote in a scathing op-ed in Politico.

Says ABC News

Tea Party!! I should be their economic adviser, they get it. Make the House powerful, spend government money on your district, high central government taxes reduce Congressional spending and ignore the drunken Irishmen in the Senate. Contradictory? No, balanced.

E mail me from Venezuela

And indicate that Chavez has been known to lick the asses of donkeys. I certain Hugo loves a good donkey ass, e mail me if you have any more information about this.

CARACAS, Venezuela -- Venezuelan President Hugo Chavez defended plans for a law that would impose broadcast-type regulations on the Internet, saying Sunday that his government should protect citizens against online crimes.
Chavez's congressional allies are considering extending the "Social Responsibility Law" for broadcast media to the Internet, banning messages that "disrespect public authorities," "incite or promote hatred" or crimes, or are aimed at creating "anxiety" in the population.

Related News:

Internet service providers are to be asked by the [UK] government to tighten up on website pornography to try to combat the early sexualisation of children.

We have software intelligent enough to block porn on the browser. If parents want an intelligent browser add-on to detect and block porn, then just bitch. The software geeks who read my blog will have a solution up and running in a jiffy, and you can buy the porn blocker just like you buy a virus protector.

What am I reading

http://en.wikipedia.org/wiki/Mutual_information
http://en.wikipedia.org/wiki/Information_theory

I peruse these pages because information is a box of goods in my world, and I want to understand interference and independence in flows, a queuing theory for arbitrary nets.

More honest, I like the material but I am really cheering on other economists, guys who get paid.  This is a cheat, and doing this creates links in the web and biases the result. Think of it as Economics Sport Web, a form of rooting for various economic teams.  Theory is the game play book.

Adaptive banking in the fall of 2008

Just for grins, lets ask ourselves what bankers would have done in the Fall of 2008 it they knew that money velocity would stabilize at 80.  Mergers and acquisitions would be orderly, investors would have known the Levine chain was dropping in rank,they would have looked at the stable period from 2000 to 2005 and planned a soft landing at a velocity of 80-85.

The Levine rank, being one less than before implies greater quantization noise and reserve requirements would have risen. The greater the Levine rank, the more accurate is the banking channel and the greater the multiplier.

If the Fed believed in quantum economics, it would have pulled the plug earlier, mid 2007, a year earlier.   The Fed would have concluded that we couldn't maintain stability at the next Levine rank, and pulled us back to the old velocity of 85.   Someday we will get to a velocity of 100,and stay there; but this time around it was not meant to be..

Look at the chart.  This economy supports stable velocities of 70 and 85, we don't quite have the efficiency to maintain a 100.  Knowledge of the stable points in the economy is as valuable as, well, gold.

Net Neutrality

What I thought was a simple idea, that one pays for the bandwidth that one uses has gotten quite involved with political games. Wiki says:

The [Net Neutrality] principle states that if a given user pays for a certain level of Internet access, and another user pays for the same level of access, then the two users should be able to connect to each other at the subscribed level of access.

Then the claim  that Comcast is a jackass (they are):

The principle of equal treatment of traffic, called "Net Neutrality" by proponents, is not enshrined in law but supported by some regulations. Most of the debate around the issue has centered on tentative plans, now postponed, by large Internet carriers to offer preferential treatment of traffic from certain content providers for a fee.

But wait, though Comcast is a jackass company, doesn't the idea that two users buy a level of access correspond to users paying a fee for access level?  Isn't buying bandwidth in the market a form of net neutrality?  How does Comcast control your bit rate?

Each PC gets a message invisible to the user that looks like it comes from the other computer, telling it to stop communicating. But neither message originated from the other computer — it comes from Comcast. If it were a telephone conversation, it would be like the operator breaking into the conversation, telling each talker in the voice of the other: "Sorry, I have to hang up. Good bye."

These messages are part of the end to end protocol to prevent data from backing up, but Comcast is inserting these messages in the middle of the physical net. Well folks, if one is to enforce the idea that we get the bandwidth we pay for, this is how it is going to be done.

There are some simpletons involved in the debate, there has to be. Look, in about five minutes my bandwidth, which I purchased is going to be given to Netflix, for free. That is, the Netflix CEO is getting a check from me, courtesy of some numbskull in Congress.

I know these folks that start Internet companies, and what we think is net neutrality is really a form of collusion among the Netflix and Utube executives who want subsidies from one set of users to their set of users.

I have a better idea. Anyone who has slowdowns because of Netflix should join a class action suit against their ISP for breach.

Information Shock

Australia’s inquiry into the retail industry is “too late” to stop some retailers going out of business due to competition from offshore websites, said Gerry Harvey, executive chairman of Harvey Norman Holdings Ltd.
The government doesn’t appreciate the urgency of the threat facing domestic retailers from overseas-based rivals making use of the Internet, Harvey said in a telephone interview today. Harvey Norman is Australia’s largest furniture and electrical retailer.
“You’ve got every second person in the country importing things from overseas, evading duty, not paying sales tax,” Harvey said. “It’s gaining momentum at a rapid rate. Rather than clip it in the bud, they’ll end up doing something about it, but it will be too late. You’ve got an awful lot of retailers that are going to be going broke after Christmas.”

Shani Raja tracks the problem in Australia.
Information technology reduces the production chain, it results in a drop in actual output relative to potential. 

But that is part one of the Creative Destruction, we see where things are, and they generally appear in the wrong spot after information shock. So,  we shorten the production chain, dilate our view, and operate from the short chain. Eventually in part two we use the new technology to increase the production chain length.

This view helps us understand Microsoft vs Google. Google gets this process, so Google is driving us through the adjustment process with Android, open source and the cloud. Microsoft, on the other hand, tries to hold onto its gains in the shortened chain.

Cal Beach Pundit on oil prices

A good read. I stole the Gold/Oil chart from him.

 Barrels per oz of the barbaric relic

Like me, he sees a mix of better efficiency going on and continued adjustment in oil flows.  Unlike me he is a bit optimistic that efficiency dominates.  I think producer efficiency is not gaining as fast a consumer efficiency.  Consumer have two or three different adjustments they can make, producers generally have to wait for innovation.

Gold is not overpriced, according to oil.

Illinois has a Gubinator

Gov. Pat Quinn signed a new state budget for FY2011 on July 1, 2010. The state is second only to California's budget woes in terms of budget woes and is currently facing a $12.8 billion budget shortfall for FY 2010 and 2011, according to a January 2010 study by the Civic Federation. The budget as passed does not come close to erasing the state’s $13 billion deficit, the largest in history.[5]

Sunshine Review tracks the bankruptcies for us.  They say:

As of 2009, total state debt averages almost $17,000 for each of the 107 million private sector workers in the United States.[3] .

That's about what the state tax collectors are after me for.

Jaroslovsky at Bloomberg implies a Microsoft short

He warns:

The search giant’s war with Microsoft Corp. is The Big One, the confrontation that will determine what kind of future Microsoft has, and maybe if it even has a future. And the two new weapons Google unsheathed last week carry an unmistakable message of mortal peril.
First came the Nexus S, the new Google-labeled smartphone and the first to run “Gingerbread,” Google’s latest Android operating system. Then came a plain black laptop called the Cr- 48, the first computer to run the company’s Web-based Chrome Operating System.

Google has the formula, Open Source Android on tablets is a key weapon. That combination will appear everywhere as value added vertical markets are organized around the information device.

Mayor suggesting Chicago bankruptcy

Says the Mayor Daley (The one not connected to the mob):

Mayor Richard Daley this afternoon expressed his frustration with the city’s pension situation, suggesting that the retirement funds need to be fixed before leaders are forced to declare them bankrupt as a way to restructure.
Speaking on a Global Metro Summit panel at the University of Illinois-Chicago with Philadelphia Mayor Michael Nutter and Los Angeles Mayor Antonio Villaraigosa, Daley at first appeared to indicate that allowing the pensions to go bankrupt so they could be reorganized was something he believes could happen.
“I’m one who believes that pension funds can go bankrupt and then you reorganize, and that’s the hardest thing to say,” Daley said.
Moderator Richard Stengel, managing editor of Time Magazine, then asked Daley: “Let them go bankrupt?”
“Yes, and then you reorganize it,” Daley replied.

I don't mind watching crooked politicians squirm. Is that rubber necking?