Shezaam

Says Jim Bullard, President of the St. Louis Fed:

This convinces me that staying with the near-zero interest rate policy alone--and promising to stay near-zero for a long time without doing anything else--risks a deflationary trap.

Bullard is refering to a paper he has, Seven Faces of Peril

Let me give my summary. The bankers yield curve is generally six months from maximum entropy. If the real economy is adjusting, no problem, the yield curve still gives future gains from restructuring that is pending. Easy to see. Maximum entropy has fewer solutions and investors can easily choose the proper curve that generates potential growth.

Bullard is wrong about QE, the proper solution is to target the shape of the yield curve.  QE is popular because it is a fraud to avoid the pestering from Congress. The Fed should select sample a rate and target a term having half that rate.  Pick a sample rate just into the zero area, and the idea is to feed high frequency activity into the curve, forcing the curve to accommodate extra bandwidth at the expense of steepness.  Using Nyquist sampling removes the side betting yet retains ambiguity, allowing the economy to adjust at a natural pace.

Also, looking at interest rates and inflation from that paper what do I see? A validation of the Kling hypothesis.

HT To economists who ban me from their site.

I am interested in seeing how the Thoma commenters wiggle out of this conclusion because Bullard was a favorite over at Keynesian City.

Time to criticize the Tax Foundation

Howard Gleckman is posting about extending the Bush tax cuts:

We know that higher income households are more likely to bank the cash than spend it. As a result, tax cuts for these high-earners will do relatively little to boost the economy in the short run.

He seems to be worried that extending the cuts cause a mal-distribution. Then why not let them expire?
No, that is too simple, instead:

So why not take that $75 billion and give it to those who are more likely to spend it

He is talking about the $75 billion that is going to high income earners. First, the money is gone, gone to high income earners. Howard is just talking about an offset to undo the maldistribution caused by extending the cuts. In other words, he claims the cost of extending the cuts can be recovered, partially, by going farther into debt and having Congress make a profit on that debt!

That is nutty tax policy.

Why does Congress want to extend the Bush tax cuts? Because if they tax the rich, the rich will stop any additional spending, and it is Congress who is most likely to spend excessively.

Robert Reich still stuck in his own contradiction

Warning: Why Cheaper Money Won't Mean More Jobs
Robert wants to tell us.

The steep yield curve (he calls it cheap money) simply powers consolidation in the producer end (he gets this right!)

Then follows up:

What we need now is more jobs, not bigger corporations. And that means focusing on the demand side of the economy, not the supply side.

Well, the whole point of the steep yield curve was to expand the retail sector, but it didn't work did it? We simply got the economy to accelerate producer consolidation.

Robert is going to call for it direct hiring by Congress of millions of workers. Unfortunately that requires consolidation of central government, otherwise the states go broke. He can propose the state government do the hiring, but they need central government money, and Obama is spending that money on central government businesses. Robert is stuck, and most assuredly will resort to bad math.

The Krugman solution is to call for bath math, make it central bank policy: Yeglesias points to Paul's paper on Japan:

This means that the central bank must make a credible commitment to engage in what would in other contexts be regarded as irresponsible monetary policy – that is, convince the private sector that it will not reverse its current monetary expansion when prices begin to rise!

In other words, make money an irrational good.  This might work as the Japanese economy a contracted until there was more than enough money flowing to make money the surplus good.  If you tell us to make inflation, we do so by making all other inventories sparse relative to banking.

The problem folks is that we create the maximum entropy channel to handle whatever nonsense government or central bankers through at us.  The monetary economy will prevail against bad math, just like it prevails against all constraints.

So we worry about NGDP being up to potential output

And how do we get NGDP up to potential in the fastest possible time?

The Fed can certainly help, but the Fed will just point an economic path that is growing at potential NGDP, and that means liquidation of firms, households, and government budgets that cannot grow NGDP at potential.

The problem is political, wrapped in bad math.  Some advocate bad math so their particular favorite programs can continue to grow as sub par rates.  That is why we will have a change of party in Congress, one cannot execute the Sumner plan and still save sectors that grow subpar.

Bubba Clinton figured that out,  Congress has now figured that out.  If  Obama cannot figure that out, if he is surrounded by bad economic math, then he is a one termer.

What is the Fed supposed to do?

We have the Keynesians who claim that we are in a general glut and standard economic rules do not apply.  Yet they have not explained to anyone how exactly we got into a general oil glut, because oil is the constrained resource, has been since the crash.

Sumner wants the Fed to target NGDP as if we were back to potential growth.  Great idea, but the only way they to do that is to target a yield curve that predicts a return to potential growth in NGDP.

During all the rhetoric, oil still hangs in the $75-80 range, the sweet spot for oil has barely budged since the crash.

We will return to potential growth in NGDP as Sumner wants, the economy will contract sufficiently to maintain that growth.  In other words, if oil is constraining, its supply will be increasingly limited until there is surplus oil for the part of the economy that is still monetized.  The Fed cannot stop that from happening.

Miami's defacto bankruptcy

Mish covers it for us.

The economy will recover with a split government

Two opposite political views represented, House of Representatives gets power against the Executive,  Senate set aside.  Result? Political equilibrium, and I will take any equilibrium I can get.
HT Yglesias

Quick notes Bryan's data

First, kudos for Zac, Bryan's RA for grabbing the data. The issue for me on this data was whether cooperating nations naturally agree on the variation in inflation relative to the mean of inflation. Bryan Caplan's post here.

I am interested in noise to mean [ sqrt(variance)/mean ] levels of inflation.
I look at the European nations, which are in a monetary union.  What to I see for this value?  They all seem clustered about 1.0, in fairly close fashion.  (I downloaded the data then obtained srqt(variance). I would expect this corroborates my view that nations in a correlated production system would agree on noise to signal being constant.  They are maximum entropy (constant  SNR) not minimum variance as in Taylor Rule.

Mea Culpa

My errors:
1) I am sign dyslexic  more often than not, generally getting up and down; deflation and inflation mixed.
2) I originally thought of the Banking system as too slow to adapt, but then recovered the idea that banking has to be the fast adapter to do its job.
3) I neglected the connection between rational expectations and maximum entropy distribution networks.
4) Failed early on to see the close collaboration between Samuelson and Gibbs.

What I got right.
I knew that the sudden change, or reset, of the economy implied that measurement uncertainty is a fixed constant in the economy, leading right away to a Quantum Mechanical formulation.

Bill Gates discovers the Internet!

Bill enrolled his kid in the Kahn academy.  The academy relies on two things, a parent and an Internet connection, the actual teacher and physical school is eliminated except via video.

This is in contrast to his first effort, High Tech High. From the name we can tell what the goal of High Tech High was:  Have students drive to school each day and learn that high tech means they do not have to drive to school everyday.

By attending High Tech High, Bill learned to drop out and attend Kahn Academy.

The problem with inflation targeting

Banks to not directly produce inflation,  the firm or household has to participate by holding money balances greater than goods balances. Hence, there is no direct inflation 'quant' that banks can produce along the their distribution system.
Bakers could use a seigniorage system in which banks along the chain are paid a percentage of gross loan flow with printed money. That becomes NGDP targeting.  Seigniorage is a quantity in which banks can measure both level and variance, giving them the internal signal they need to balance expansion or contraction of the network.  When seigniorage is the main source of bank profits, then the path to money growth is via bank shares.

Target the ratio of consumer to producer inflation targets the yield curve directly, removing money variances.   However, we know what the maximum entropy yield curves look like.  At least they look that way with infinite precision, so Central Banker does have a method to target the yield curve shape.

All together now

Consumer, producer,  indices; and their ratio

Notice the great job keeping CPI stable while PPI makes all the adjustments.   Since 2003 producers have been struggling, consolidating and holding inventories longer, hoarding goods and cash to manage PPI variance.  After the glitch, a similar problem.

Of course my UEC shows a very steep bloated curve in 2003, just like today.  What do we call a producer deflation, the green line that trends down from 2003.

The ratio is a variance ratio, the variance of consumer inventories to producer inventories.  Under stress, the producer wants to extend its space on the production spectrum, to increase integration times on the inventory cycle, hence reducing variance. That slowing down is a deflation, a shift left on the production spectrum.

 The period at the end of 2005, when producer prices leveled off, during that period the Fed was in shift mode, going from too flat to too steep.   For that brief moment, the Fed was on target.

We can't keep the curve steep  that long, very soon we will get a producer deflation that may disconnect the link to millions of consumers.

Why not watch the Green Line, keep it moving level.  Raise rates when it drops, lower them when it rises.  By doing that the Banker is keeping the curve at maximum entropy, with respect to the producer-consumer link.

Japan and China, making connections

Tony D'Altorio from Investment U:

Why Japan Can’t Get Enough of China

China now absorbs nearly 19% of Japan’s total exports, more than what the U.S. takes in.

Once the Asian economic giant itself, Japan is now courting China for all its worth. The Japanese Ministry of Economy, Trade and Industry sees Chinese consumption increasing to $5.57 trillion by 2020, eclipsing its own forecasted $3.61 trillion.

That makes for an enviable client base. And Japanese businesses know it. They have taken to making goods in China for China, instead of for export elsewhere.

Their enthusiasm helped lift foreign-direct investment there by Japanese manufacturers by 68% over five years to 3.74 trillion yen last year.

Some merchants don’t even have to leave home. Many retailers in Tokyo’s glitzy Ginza shopping district have come to depend on Chinese tourists and their Ginren credit cards.

They can continue enjoying those benefits too. In July, Japan eased visa restrictions in the hopes of attracting 1.8 million Chinese visitors this year, up from 2009′s 1 million.

Those travelers should spend around ¥500 billion this year and with their income rising, they could spend 10 times more over the next decade, equating to 1% of Japan’s GDP!

Call it rebalancing.

The Bakken oil field

Tamsin Carlisle reports from the national:

It contains hundreds of billions of barrels of light crude oil and thousands of wells and should be scaring the pants off any oil exporter needing high crude prices to balance its budget.

It is the Bakken Shale oilfield, which sprawls across two Canadian prairie provinces and two western US states including North Dakota, under 500,000 square kilometres of land.

Its US portion is described as the country’s largest oil deposit outside Alaska. With its biggest and most accessible part in Canada, the Bakken could prove to be one of the largest oilfields in the world.
The American Association of Petroleum Geologists says it is the biggest continuous oil accumulation it has ever assessed.

Let's talk disequilibrium

Consider the case when money and goods are close to balance, and Central Banker noticeably lowers one year rates  Deposits move from short to long, getting invested on long term bond, forcing the Banker to buy more and more one year notes.

The money flows mostly to long term bonds until the curve is back in its original shape.  Inventory tends to bottle up at the long term warehouses, but by a fraction of the rate that money flows.  Business start, mildy, accepting consolidation at the producer end (long term end).  Pretty soon  the economy sees shortages at the retail end.

The shortages at retail likely appeared after the consolidation of inventory at the long end, well, conservation of mass makes it so.  That deflation, or contraction at the root of distribution is a Kocherlakota Deflation, producers buy less input and hoard cash.

Reason Foundationmakes sense on transportation

Thanks mainly to  Samuel Staley who reports here on toll roads increasingly important for state transportation planners. Dr. Staley says:

State and local governments are also strapped for cash, so they are increasingly looking for sustainable revenue streams.

This is exactly the result that gets us out of the depression.

More multipliers

In this chart I have plotted private sector GDP to Federal spending, dollar of private GDP per dollar of federal spending.  Let us set 2009 Q2 as the base line, the ratio as it was after the crash but before the stimulus. If the multiplier was greater than one, we would expect our ratio to increase as the stimulus was spent.  It does increase, a scant 1% in Q4, then immediately drops below baseline, dropping by 11%. 
Note: Private sector spending here includes state government spending.

The result predicted by John Taylor and Company in 1993.

The Wiki definitionof hyperinflation

The main cause of hyperinflation is a massive and rapid increase in the amount of money that is not supported by a corresponding growth in the output of goods and services.

Also:

Hyperinflation effectively wipes out the purchasing power of private and public savings, distorts the economy in favor of extreme consumption and hoarding of real assets,

In other words, a yield curve very steep. The retail sector under pressure to expand, the producer sector under pressure to consolidate. The two sectors of the yield curve cannot bridge the gap, and the retail sector is abandoned in a collapse.
Do not look only at inflation in the retail sector, look at the ratio of consumer  inflation to producer inflation.

Simple enough, when the ratio is stable, we are OK, as in Bubba Clinton.  Notice the overshoots during the last two recessions, when the math goes bad.  First, causing the Fed to make the curve too flat then too steep.  The overshoot first causes a deflation in consumer  prices and inflation of producer prices, then the opposite.  The stable point seems to be 1.2.

Yglesias bashing anyone?

"'deflation' means a decrease in the price level", he says.

Price is the comparison of inventory variances between a lightweight good and a heavier good. To be consistent, I should use variance to the square of inventory average, Noise to Signal.

The primary adjustment mechanism the consumer uses is frequency of arrival for a good, the queue size at the check out stand for example. Variance comparisons between the variety of consumer goods is the trick we use to monitor household inventory.

We balance our cash balances the same way we balance our toilet paper inventory. We check to see that toilet paper is balanced with all other goods that come from the grocery store, where my ATM is also located.

Are prices sticky?

Generally not. However, if circumstances force the household to cease shopping at Savemart, and go to the local corner store, then we see a sudden shift in aggregate grocery prices. But at each venue, the prices were relatively liquid and stable.

Can toilet paper be used as money?
Actually Pot, MaryJane is a better substitute for cash; it works great as money around parts of central Calif.

Remember when everyone was supposed to bet higher short term rates?

Dec 31,2009.  Look at the Universal Economic Calculator. see how steep the curve was on that day? (You need to move the cursor back to that date).  Look at the curve today, much flatter.  That was a Kocherlakota Deflation, we should name the law after him!

What mechanism did the economy use to deflate the long end?  We used artificially short term rates accompanied by a Fiscal Stimulus with multipliers much less than one.  Policy makers had the math wrong, their math hit a zero which did not exist.  They keep the math wrong specifically so they can support the other lie about fiscal multipliers then artificially pump government debt.  Politics trumps Science in Economics.

Another way to say it is that Extend and Pretend is deflationary. Another name is Crowding Out.

Wicksellian Balance has an error

I am working with a short version of the Wicksellian Balance, taken from Delong's site:

The "Wicksellian Balance" line is what Bullard (and Benhabib et al.) call the "Fisher Relationship." I prefer to think of it in Hicksian IS or Wicksellian terms: for aggregate demand Y to be equal to potential output Y*, the market real interest rate r must be equal to the natural real interest rate re. When the market real rate r exceeds the natural real rate re, investment spending is too low for aggregate demand to match potential output and there is downward pressure on the rate of change of prices. If the market rate r is less than the natural real rate re, investment spending is too high for aggregate demand to match potential output and there is upward pressure on the rate of change of prices. Above the Wicksellian Balance line, there is downward pressure and so inflation is falling. Below the line, there is upward pressure and so inflation is rising.

Let's make a change to the model.
Instead of:
When the real rate exceeds the market rate 

I say instead:
When the curve is steeply sloped upward

With yield steeply sloped,  the market rate is signaling that retail sector must expand and producer sector contract; the distribution network should expand at the leaves and contract at the root. Another way of saying this is that the yield curve wants longer term inventories to lose variance and gain level. The process of contracting the producer side means lower transaction rates and using greater transaction sizes; that is  more economies of scale. On the retail side  the market rate wants the opposite (more retail distribution nodes), meaning reduced inventory levels and more inventory variance; which also gets   faster transaction rates and smaller transaction sizes.

So rather than have the economy walk a concentric circle toward Wicksellian balance, the economy really does a rotation in place. The key difference is that this model includes the subtle changes in transaction rates along the curve.  It is the variation in transaction rates along the curve that lets the economy walk compactly about a center point.

I doubt the Minsky model and the Wicksellian model as presented in popular blogs.
The economy generally moves to a more compact representation of distribution.    When the general economy contracts, as it has done, the distribution network is sparser, but a more compact representation of distribution to match a sudden constraint that effects all sectors.  When the economy expands from a general positive shock, as in transportation technology, then distribution becomes less sparse because transportation is not a constraint. But even in an expansion, the network is a more compact representation than before.   Each adaption is performed by expansion or contraction of the network, with subsequent changes in transaction rates and sizes.

When I say compact, I mean more accurate representation of the state of affairs, not necessarily a greater product flow. Sometimes it is more accurate to sell families three dozen eggs, once a month, rather than one dozen three times a month.

If you do not consider both transaction rates and sizes, focusing only on one, then your math leads to Debt Spirals, Negative Nominal Rates, and Widening Concentric Circles; (That is a divide by zero).

Some transportation technology

Here Amy Zuckerman describes the application messages that cars and traffic lights use to talk to each other:

Wireless Access in Vehicular Environments (WAVE)

The technology that would turn a major interstate into a national wireless highway sounds pretty pie-in-the-sky, but it does exist and has passed field tests. At the end of May, standards developer Lee Armstrong (head of Armstrong Consulting in Southampton, MA and principal developer of the WAVE standards) surprised many industry and government officials with the announcement that after almost 19 years of discussion and 13 years of active standards development, the WAVE specs for DSRC are now available to guide the manufacture of this very advanced wireless communication technology.

Although improvements still need to be made, Armstrong says, “Manufacturers can now build transponders—a sort of radio—that can communicate back and forth between the vehicle and the roadside.” Besides the benefits listed above, he added that WAVE-based transponders and roadside readers would provide “the fastest connectivity of any wireless device, so there is hardly any delay to get a signal.”

Industry and government officials are taking great care not to overstate the impact WAVE could have on national and global roadways, because to date there have been no products based on WAVE specs. Yet, there’s no denying that after years of effort and funding for development, officials are pleased with the latest results.

Meanwhile, there are still challenges. For starters, it’s one thing to have specs available to build a product—quite another to have the funding to retool the manufacturing process to make the product. Then, there is the need to fund a pilot deployment of WAVE-based technology that can support the DSRC pipe to carry short-range data transmissions for the connected vehicle (CV), which will allow for vehicle-to-vehicle information transmission of traffic flow and road conditions without human intervention.

At this moment, all that is certain about WAVE and CV deployment is the desire on the part of Department of Transportation (DOT) officials, the global auto industry, global traffic technology vendors, and ITS America (the Washington, D.C.-based advocacy group for intelligent transportation systems (ITS)) officials to find an avenue to move ahead on deployment of both WAVE and the CV to make possible the long-awaited dream of safer, cleaner, less expensive highway travel for the U.S. and around the world.

Among those who are closely associated with WAVE, there is an undeniable excitement over the latest advancement. In fact, a key captain of industry who has backed WAVE’s development and is now a Washington, D.C.-based consultant, called WAVE’s publication “very significant.”  He pointed out that there could not be any interoperable DSRC devices that will function nationwide without this basic communication piece.

Some analogies would describe this is a the network layer since it allows multi-hop messages to be passed along. But is might also be the application layer since it allows cars to tell each other what they are doing and where. The WAVE protocol, or some subset of it will evolve and become what the Internet is to the Web.

Why won't banks lend?

Because real opportunities are out there at two and three year investment periods. Banks can only guess what the Fed will do on a three month sample cycle. So, a proportion of their funds has to stay liquid to bet on alternative paths.

The Fed is out of sync, operating on a three month cycle when the economy has already slowed down. But is is not just the Fed, all sectors of the economy are just now getting into sync with the longer investment period.

When short term rates are artificially low; the earth is still round

Artificially low interest rates cause consumers to make most of their purchases early, within the household inventory cycle. If the economy has slowed, the consumer is operating on a longer inventory cycle. So low rates move consumption up inside a longer inventory cycle.

Nick Rowe, Krugman, Thoma have joined the flat earth society. Artificially low short term rates mean two things, yield too low and term too short. This mismatch in terms get worse at the bottoms of valleys. The last half of the consumer inventory cycle is empty of transaction, the Fed having moved them all up to the first of the cycle. But in a trough, the consumer has lower transaction rates, unknown to the Fed.

Very similar to what happened with the housing tax credit, it moved house purchase up from of the cycle, but Congress had no idea that the cycle has been lengthened by the consumer. So we get many fewer houses sold for longer than we expected, deflation created.

The earth is not flat, long run equilibrium is built into out brains.

Fed term operations and Nyquist sampling rates

My policy tool says the Fed should target the two year rate to be 1-1.5%. It should get there by bidding one year bill rates. Why?

Because Nyquist tells me that most of my signals will be detected at two years, where they get partial integration. Investors will know this, and much of the Kelly betting goes away.

Why two years?  Because terms at faster transaction rates are dormant.
Why 1.5%? Two year inflation swap rate.
Why not keep rates unusually low for a period?  Fraud  causes cycles.

What if real growth rates suddenly change for the better?  Not the Fed's fault, the Fed just points to the observed  low hanging fruit, at the operational short end.

Kocherlakota and the math problem

Yet again.
One can, if mandated by Congress, create a relationship between inflation, unemployment and the yield curve. But, if you want that relationship to show common sense, use fixed signal to noise, not minimum noise, when optimizing the fit.

For example, after a period of over expansion, the production spectrum, we say, is expanded relative to inventory flow. Inventories are tight (have large variance relative to inventory level). So the Fed wants to signal a deflation, which it does by extending the period of its shortest target, and raising the rate. The Fed needs to signal a subtle shift in transaction rates, because we want the real goods to slow their transaction rates and bring inventory variances back to norm. Same with too few skilled employees, the variance of employees to level is too much.

So run the VAR model with a different norm, use constant SNR, or in a closed economy, constant variance in inventories. If we did this, then monetary policy will always give a positive definite result and match the real yield curve without alias problems. Essentially we are "compressing" the yield curve to fit into a specific SNR measure, we compress it by emphasizing precision on the most active terms, and reducing precision on the less informative terms.

The Congressional mandate relates employment, inflation to short term rates. When the variance of surplus labor rises, then lengthen the integration window to bring SNR back. Those integration limits get the sample period where there is low hanging fruit. Do that for both variables, and weight them as you please. The result is a change in both period and yield as the computed result.

I would suspect the math would be even easier by using nominal growth vs actual growth; rather than the Congressional mandate.

Go back and read some Zero Hedge posts where Morgan Stanley plays the curve alignment game, getting into a race to twist the curve closer to maximum entropy.

The real zero bound, or if we wish, our ignorance limits, will come from quantum effects, when actual growth is so below potential that the central banker should not even exist. At some point the underlying production spectrums cannot find solutions among the finite solution set. That is default time.

Kocherlakota's main point is that the math is out of balance, and cyclic. He is right.

Transportationist, great site

Check out the Cable Map which I found at the transportationist.

Electric Car goes 300 MPH

Student built, Ohio State.

HT Instapundit

My latest trailer bot invention

Always the TrailerBot salesman.

In this simple trailer bot we use a mechanic hitch, like the ones today, except it is spring loaded so the trailer bot can measure the force of pull. The trailer bot contains a simple four stroke power assist, controlled digitally and matched to the force gauge.

So this trailer bot barely passes the test for digital control, yet it still gets most of what we want, namely the ability of a small car to pull a large load with digitally controlled power assist. The point of trailer bot is to replace the lightweight pickup.

I go after Harless in defense of Kocherlakota

Harless raises the supply and demand for bonds to find illogic in one of the Fed's own bankers. Here is my take on Andy's take:

Me: First, agents do both real goods and money goods when they adjust on a yield curve. The bankers argument was about the time misallocation of real goods, induced by below equilibrium short term rates.

Andy:

Suppose that the Fed were to keep the funds rate near zero but people began to be dissatisfied with that rate and began anticipating the 1% to 2% long-run real rate.

Me: They became dissatisfied after saving short term and buying real inventory short term. Remember the basic idea? Induce demand.

Andy:

What would happen? People would stop lending short-term money to the government at the near zero rate and instead start lending money elsewhere – for longer terms and to riskier borrowers.

Me: People start both buying long term goods and investing money for the long term. The yield curve makes an adjustment.

Andy:

The more this continued, the easier it would get to borrow money. The easier it got to borrow, the more people would buy with the borrowed money, and the higher the prices of those purchases would go. And prices would continue going higher until...when?

Me: Yes, growth above potential.

But in screwing with the yield curve, much of that demand was for goods substituted from the future. We get more demand than we planned for at the start, and less then we planned at the end.

Letter to us students

Some rules to make your learning a pleasure, adventure and efficient.

1) Beware the classroom, you prefer the seminar.
2) If your teacher has important information, he can share it on your private student blog.
3) CutnPaste is standard procedure.
4) Show your links! This is important in communicating among students and teachers.
5) Pencil and paper still work

These simple rules and a bunch of professors somewhere nearby, then you can do as well as any other academic form. If you can't get to labs, then get internship credits.

Where are the Chef's jobs?

I see employment growth in (a) internet, (b) health care, and (c) logging and mining. I see employment declines everywhere else.

Says Brad.

Why aren't these the highlighted sectors in a mis-match when we talk about a Great Reset?

Side note:
Health Care in demand.  Supports my ObamaCorps proposal, the fascist, medical technicians in all our emergency rooms. 

The Internet is a broad category, call it technology, sure it should be number one growth.  Logging and mining, why not?  China was building and metal stores  long.

But let us get to Brad's main point, where are the Chef's jobs, the retail jobs, the manufacturing jobs?

DeliverBot. DeliverBot will create the need for a million chef's across our suburban neighborhoods. My shipping cost to make dinner for any family within a mile, that shipping cost just dropped to a dollar.

I can do your laundry, select your pants, fix your computer. At these low "Last Mile" costs, the amount of specialization explodes. I can deliver large or small loads. Whatever my service, my access to whole sale is efficient, regardless of volume, efficient in the sense of actual growth above potential for quite some time.

A reminder on congestion and depressions

Asha Elizabeth Weinstein wrote her Berkeley dissertation about Boston transportation development from 1890 to 1925. Very interesting, Search the link. She is at one of my alma maters, if her bio is up to date. Great work.

This period is from the end of the long and beginning of the great Depressions. Boston is unique because even then they were digging like moles having started subways early.

During the 1920 period Boston knew they were in big trouble regarding city transportation.

This reminder about the importance of this history comes from China with nine day traffic jams.   When knowledge of where to move good suddenly expands, there is a terrible constraint on transportation, and a major Reset occurs.

How's that look from production spectrum theory?

Well, around the environs of Beijing there appeared a commercial trading web, the internet.  This is the start of an adaption process as traders attack the transportation network first with contract futures (and scheduling), then with  technology  in the roadways, including congestion pricing and all its side effects.

If we could map an integrated distance between the yield curve of trading information, and the transportation function, then see that trading info will swap futures to match the term structures of transportation, very left side skewed. The infonetwork pulling left to match, left toward lower actual growth.

The info web will be enhanced to replace futures contracts to freight scheduling, and that leads to a demand for congestion pricing, still on the web.  But the transportation network production is slowly skewed toward flatness, pulled right to higher actual growth.

In the end is a technological transformation of transportation. It will happen fast, and start suddenly. The good news is that existing vehicles get much of the gain with the simple dashboard device, seemly unused inventory today will still find utility and be moved.

Cars a few years old still have great utility in a congestion priced road system. Their cost comes down with the advent of the new technology, but they become very cheap to use for occasional but important meetings. This is the poor, they will benefit from the car surplus of the last cycle, even after the Clunkers for Cash, the used market still benefits the poor. Productivity gains way outpacing useless government perturbations. Poor benefit more than the average from efficiency gains in the roads.

Slate, your late to the game

James Ledbetter wants to ask of the sturucturalists and cyclical theorists on unemployment:

So in the interest of peace between the camps—and of lowered unemployment—here's a plea to each. Strucs: You've got to be more specific about exactly how much of current unemployment you think is structural, and explain what those structures are, so that those who believe that government might be able to help fix it can at least offer some ideas.

We have, we are doing. Industry knows what to do, Government Motors have figured it out, Chinese officials are starting to get the plan, various US state and metropolitan transit planners get the whole picture, university research labs are on the hunt.

Outlawed from the Thoma blog once again

The damning post simply pointed out that likely monetary policy rules were based on bad math.  After  all, if the yield curve is relatively smooth and upward sloping, I reasoned, then why should the monetary equation generate a negative 5% for short term rates?  Seems reasonable, the economy  computing a more rational curve than the economists.

Keynesians blame the economy for their own bad math.

Kling and a sovereign debt crisis

He has a paper on the subject, we should all try to read it.  I am taking his advice to read it at least twice.

As usual, I present my theory first.  We will have a sovereign debt crisis when the integrated area of the treasury yield curve drops below our biologically determined signal to noise ratio.  We will notice when treasury growth stays below potential growth for an extended period.

Chartology and the CBO report

Making charts from the Fred database is fun.

In this chart I have normalized federal spending (red), normalized disposable personal income (green) and  the ratio of the two ( blue line); plus normalized GDP growth (orange); all since 2001.

On its own,  disposable income is flat since the recession.  But consumers have given up any excess inventory to Congress, the ratio of personal income to Congressional spending is completely dominated by Congress.  Congress has taken over any economic adjustments, not the consumer.

Is this state of affairs leading to high GDP growth?  The orange line is GDP, and it seems much more correlated to disposable income than Congressional spending.  Personal spending probably drives GDP growth, even in the recession.

At some point in the future, persons, like you and me, will find the proper utility for that excess of older inventory, and when we do we will be quite angry at Congress for mis-allocating it.

What does the CBO say?
If you assume good multipliers than the stimulus worked great.  What multipliers apply to one of the three great depression in the industrial age?  John Taylor will be all over that report for assuming multipliers.
This little analysis is a timely reminder to break components up and look at correlations.

 Let's add the purchase manager's index

Note the date at which this started from the bottom, late in the year 2008.  The stimulus starts in early 2009.  Cause and effect do not match.  This was simply a mater of oil price adjustment and  inventory adjustment.

More on SF congestion pricing

Metropolitan Planning Council reports good news on San Francisco congestion pricing:

BATA recently released a report highlighting the results since congestion pricing took effect in the region. Although it may be too early to draw conclusions from the data, one thing is for certain: Since the onset of congestion pricing, peak-hour traffic at the Bay Bridge has moved twice as quickly as it did at this same time last year. The maximum delay on the bridge has dropped from 19 minutes to 10 minutes. These reductions are likely due to both a drop in the number of drivers as well as to the shift in the time they cross the bridge, to avoid paying an extra $2. An additional side effect of the pricing is an increase in mass transit ridership. Since the start of pricing on the bridges, Bay Area Rapid Transit (BART) has reported an increase of 4,500 passengers a day both into and out of the city. Overall, crossings have fallen by 9,821 vehicles a day compared with a similar period last year, and full-paying fares are up 2,305 a day. The new toll schedule is predicted to generate an additional $165 million a year, much of which will be channeled back into local infrastructure. The goal of congestion pricing is to reduce both travel delays and greenhouse gas emissions, while simultaneously improving public transit systems and driver experiences. San Francisco is off to a good start.

Comnpare that to China's nine day long traffic jams.

The economy observes the constraints on transportation, both caused and solved by digital technology. The growth, folks, is here now, in intelligent transportation and all of its side effects.

Lot of NGDP out there

Says Barbara Taylor who runs a business brokerage:

As the economic news continues to be less than encouraging — like last week’s jobless claims report — I am hearing some very different sentiments from the folks that I talk to on a regular basis.

Two regional bankers have told me the same thing in the past two weeks, namely that they will have to start lending more money in the next 12 months. Evidently, they are sitting on so much cash that shareholders are complaining that it needs to be put to better use. Likewise, my business brokerage got a recent inquiry from a large insurance company that is interested in one of our listings. It, too, has so much cash in reserve that it is looking for ways to put it to work.

This is hoisted from the comments at Brad's Grasping Reality blog.

Send them some of Chiang's IOUs

California will delay paying $2.9 billion of subsidies to schools and counties in September, a month earlier than projected, to save cash amid an impasse that has left the state without a budget for 54 days.

The state’s top financial officials -- the controller, treasurer and finance director -- told lawmakers today that the 90-day deferrals need to start next month instead of October to make sure there’s enough money to pay bondholders. The amount is in addition to $3.2 billion the state pushed back in July.

California began its fiscal year on July 1 without a spending plan after Republican Governor Arnold Schwarzenegger and Democrats who lead the Legislature remained deadlocked over how to fill a $19 billion deficit. Controller John Chiang has warned he may need to issue IOUs within two weeks to pay for everything from supplies to contracted services and health-care costs if the impasse continues into next month.

County private contractors get the laser printer, county employers get Federally backed cash!

From a Bloomberg post.

Economists will debate the housing tax credit

From IStocknalyst:

(By Salman - iStockAnalyst Writer) After a protracted slump, the housing market appears to be healing as buyers return gradually and prices continue to stabilize in much of the nation. However, the danger of further price drops remains as the expiration of the federal homebuyer's tax credit approaches. The scheduled midyear expiration of the federal $8,000 homeowner tax credit is a major worry for most banks/homebuilders and economists alike as home sales typically lead the economy out of recession.

Congress approved the tax credit last year to spur the housing industry, and the benefit was to expire Nov. 30.The credit was extended into 2010, however, and other buyers were offered a $6,500 incentive. To take advantage of the credit, buyers must sign a sales contract by April 30 and close by June 30.

There is little doubt that housing tax credit has boosted the value of securities backed by residential mortgages and has therefore helped in recapitalizing banks, thus bolstering the entire financial system. Though the big banks are making big money again, they won't be back to solid health as long as they have to deal with a moribund housing market.

Because of this report on housing supply

The claim being debated is that federal stimulus simply moved housing demand forward such that we get more housing volatility. The stimulus failed to account for time preference. We pay a high price for unnecessary volatility.

I will let Calculated Risk handle the debate.

The Economist seems confused

In this post:

One of the cautionary tales from Japan is that structural reforms are often necessary alongside stimulus. Another is that abandoning monetary expansion while deflation looms is foolish. And all the structural reform in the world would do no good if the Fed triggered a sharp decline in demand by hiking rates 2%.

How can one restructure an economy while encouraging consumers to buy yesterday's goods? Loading up on yesterday's technology causes deflation when tomorrow's technology is on the shelves.

And raising interest rates may mean looser money as investors locate real growth to match real yield. Getting the yield accurate means safer investing.

I might point out, in general, economists who do the Taylor rule, then get impossible results, then blame the economy cause their math don't work, well, those are nutty economists.

Another call to abandond the Mankiw Rule

Story from Bloomberg:

Raghuram Rajan accurately warned central bankers in 2005 of a potential financial crisis if banks lost confidence in each other. Now the International Monetary Fund’s former chief economist says the Federal Reserve should consider raising rates, even as almost 10 percent of the U.S. workforce remains unemployed.


The problem with Taylor and Mankiw and Krugman monetary policy rules is that they are minimum variance norms, but the economy works constraints with maximum entropy. Production is positive definite (production networks seldom work in reverse). The economy manages positive definite with a precision adjustment. So we have this situation when the treasury curve, for example, is reasonably smooth and properly shaped for a deflated environment. Yet the rules we use all indicate that we should be disassembling autos and putting the parts back into inventory.

Because Ben does not get this, he is likely to be late to the party, yet again.

How much of the banking cycle is caused by this error in the Mankiw Rule?

(Chart courtesy of Andy Harless)
What is happening is that the sample rate in the economy subtly changes because of entropy maximization. But the Monetary Rules do not recognize this, hence we get a cycle comprised of the transaction rate difference in the economy and the implicit transaction rate assumed by the rule. The Taylor Rule will under sample, then over sample the economy. The rules do not detect the effect because they minimize variance, and the variance will be minimum, but it spreads and narrows as transaction rates make subtle changes.

The samples in the rule become aliased, is the technical term.

Check here and you can see that Krugman does not get the entropy effect. He talks about Zero Bound. But we are not zero bound. We are Zero Bound if we expect a years inventory to be consumed in a year. Here Kling talks about that. But, at the slower transaction rates, the consumer will consume the inventory in two years, the consumer inventory cycle has slowed down with lower transaction rates, so he keeps a large inventory over two years. The change in transaction rates comes from entropy maximization.

Hopefully these economists will figure it out, I know Brad Delong is on the case and Jim Hamilton gets it.

A transportation bubble in China?

Reports MSNBC:

A traffic jam stretching more than 60 miles in China has entered its ninth day with no end in sight, state media reported. Cars and trucks have been piling up since August 14 on the National Expressway 100, which is also known as the G110, the major route from Beijing to Zhangjiakou, Xinhua News reported. Officials expect the congestion to continue until workers complete construction projects on September 13, the report said.  State media reported that Chinese drivers have become accustomed to the severe delays, noting a similar jam in July that slowed traffic for close to a month.

HT Drudge

California fires up the laser printer

From a Christian Science Monitor report.

California state Controller John Chiang said Thursday he will have to issue IOUs in the next two to four weeks to keep the state solvent as it tries to close a $19 billion gap between expenses and revenue – a move that could hurt California's bond rating.

California is Greece again.

A new study on Bus Rapid Transit

From the Mineta Institute in San Jose, named after the politician who pushed through the horrid light rail system in that town.

ABSTRACT

Bus Rapid Transit (BRT) uses different combinations of techniques to improve service, such as bus-only lanes and roads, pre-boarding fare collection, transit priority at traffic signals, stylish vehicles with extra doors, bus stops that are more like light rail stations, and high frequency service. This study examines five approaches to BRT systems as implemented by public transit agencies in California, Oregon, and Ontario.

The case studies as a group show that BRT can be thought of as a discretionary combination of elements that can be assembled in many different combinations over time. Every element incrementally adds to the quality or attractiveness of the service. This latitude provides transit agencies with many benefits, including the ability to match infrastructure with operating requirements. For example, a BRT service can combine operations serving free flowing arterial roads in the fringes of the downtown with dedicated lanes in areas closer to city center where congestion is greatest. Buses can operate both on and off the guide way, extending the corridors in which passengers are offered a one-seat ride with no transfer required. Transit agencies also can select specific BRT components and strategies, such as traffic signal priority and increased stop spacing, and apply them to existing local bus operations as a way to increase bus speeds and reduce operating costs.

The specific elements selected for a BRT route can be implemented all at once, or in incremental stages either or both geographical extensions or additions of features. All of the case studies showed ridership improvements, but the Los Angeles Metro Rapid bus system illustrates the wide geographic coverage, improved ridership, and moderate cost per new rider that is possible with an approach that includes fewer BRT features spread over more miles of route. Quantitative results from the case studies suggest that incremental improvements, applied widely to regional bus networks, may be able to achieve significant benefits at a lower cost than substantial infrastructure investments focused upon just one or a few corridors.

Leave it to Mark Perry

Hence, Wall Street is investing heavily in split government.

A pay scandal for Public School Boards

Sharom Noguchi is on the watch for this one:

At a time when California school board members were agonizing over laying off employees, slashing programs and imposing furloughs, the man who was the boards' public face earned $1.61 million over four years.

Scott Plotkin's base salary rose 52 percent from 2006 to 2009, plus he received annual bonuses -- $175,000 in 2008 alone -- according to information released Thursday by his employer, the California School Boards Association.

Plotkin, 56, retired effective Sept. 1, after admitting that he publicly lied about his pay and credit card use. In July, Sacramento television station KCRA reported his salary and revealed that Plotkin used his CSBA credit card to take out $11,000 in cash advances at casinos. Plotkin claimed the CSBA board knew about the advances; he later admitted that was not true.

HT Pension Tsunami

Public Sector pay scandal in Illinois

Kevin Williamson tracks the problem for us, quoting the local news:

Dozens of Highland Park residents confronted their Park District commissioners Thursday night, demanding that they resign for approving a series of exorbitant bonuses, salary increases and pension boosting payouts to top district executives between 2005 and 2008.
. . . former executive director Ralph Volpe, finance director Kenneth Swan and facilities director David Harris were awarded bonuses that totaled $700,000 during a four-year span.
Additional salary increases during that time have or will provide the three executives with pensions that rival or surpass their total salaries to run the district in 2005. By 2008, Volpe’s total compensation topped $435,000.
Swan’s salary, which was $124,908 in 2005, spiked to $218,372 in 2008. Harris’ pay jumped from $135,403 to $339,302 during that time.
Even though Harris resigned in 2008, Park District officials confirmed that he was paid the remaining $185,120 left on his three-year contract. The district also gave him a sport utility vehicle while his compensation without the SUV in 2008 still totaled $339,302 for eight months on the job, officials said.

Illinois, California and Florida are the top three bankrupt Hoovers.

Production spectrums

Log Normal Distributions, Wiki

This chart is reversed from the format of normal economic yield curves, and the X axis is transaction rate under QM Theory. All of these 'spectrums' are normalized about 1.0, lets call that potential growth. These curves slope down to the left of 1.0, but we do not see that in normal yield curves because that spectrum gets bundled within the firm at the long end of production.

Wholesale is on the left, retail on the right. Oil production would be skewed left, oil fields, tankers and refinery inventories updated a very low transaction rates and very high transaction sizes. The retail sector of liquid energy, the long spread right, is just the gasoline truck inventories and gas stations; terminating in the auto gas tank. Lighter weight goods, say the bond market, looks more symmetrical, like the purple distribution.

The difference between the skewed and symmetrical productions, along the curve, is limited to the acceptable error for the economy, and its rare for the bankers curve to "cover" the real goods with one configuration over time.  The integrated spectral power differences among the various production networks must stay within nominal error bounds,  and generally can only get there over time by continual contractions and expansions.

The internet is this huge, spread out information network, listing inventory levels globally.  The  internet infrastructure requirements are low relative to the retail rate of information flow, so the new knowledge about inventories appears on the chart as a widely spread distribution, centered to the left of potential growth.  Since 1980, observed inventory variances have changed, suddenly, as we see the same good in more places.  Inventories appear out of place, off-equilibrium, so actual growth drops below potential.

FireBot

From Segway in New Hampshire.

Congestion pricing in San Francisco

(San Francisco, Casey Miner, KALW) It wasn’t so long ago that carpooling on the Bay Area’s bridges was free. Alas, those days are no more. As of July 1, tolls rose on all Bay Area bridges. Carpooling now costs $2.50; the regular toll is $6 (up from $4). It’s an experiment with congestion pricing: Local transit officials are betting they can reduce traffic by making it more expensive to drive during the most crowded times of day.
The data is still coming in, but so far the plan seems to be working. On the Bay Bridge, rush hour delays have fallen by nearly half. There have been some other interesting results as well—for example, 12,000 fewer cars drove through the carpool lanes last month.

Why fewer carpoolers? Congestion pricing adds utility to the auto. Drivers alter the frequency of trips, making fewer trips into town but packing more activity into each trip, using personal auto. This is a recovery from time and energy saved. The greater choices adds to transportation utility, pushing local GDP up.

ObamaCorp

A federal, fascist medical organization that runs all emergency rooms and urgent care clinics.  ObamaCare can guarantee that one basic medical service to all Americans.  This would  work, and we can remake the wage settings across the medical industry.

Information technology and the industrial revolution

My hoards of readers know my theory, the industrial revolution was initiated with the steam powered rotary press, not the steam powered railroad.  The importance of low cost, mass produced newsprint was that it allowed future planning.  American cotton shippers could describe quantities available in the American warehouses by print without actually shipping the products.  The same for manufactured goods from England in the reverse direction. Hence, a complete cross Atlantic market could be constructed. The great utility of information flows drove the bond and equity markets, information about goods, via the contract, was almost as valuable as the goods themselves, because one could lock up inventory without being in physical possession of it.

This utility came with a price, term structure mismatches, say between the production of cotton and the production of textiles.  Cotton inventories, over time and place in America, had to align with manufacturing inventories for textiles in England.  But the two production networks were unmatched.  American cotton producers had to take it at face value that cotton was stored in warehouses when there was no need to do so from the perspective of cotton production.  So both sides of the trade had to trust the hidden hand of the bond market to align inventory flows.

This all led to fiat currency of course.   Prior to fiat currency, gold, as money, had a production network very similar to production of other goods.  Under the gold standard, both production networks aligned with gold production, gold being the constrained heavy weight good.

The importance difference between lightweight information flows and heavyweight goods flows is that information flows were bidirectional along the distribution network, and it is this difference that really led to the business cycle.  Value, stored as contracts, tend to be Gaussian in their physical distribution, heavy weight goods being log normal.  Matching the two distributions could only be done on the average, but they were never matched at any given instant.  An American cotton trader, looking at the cotton futures might see an opportunity that really didn't exist, he would see an asymmetry in the bond curve, thinking it implied a cotton shortage in the near future.  But it really was an illusion due to approximation error, and his mistake would have to be corrected later with a loss.

The impact of the rotary press was...driving GDP below potential, because it needs a restructring, like any other material change. The response was, like I say, the Clipper Ship which allowed each side of the Atlantic to regain control of their own inventory, driving GDP up.

An economic paper on inflation and output gaps

This working paper from the IMF, not yet official.

And this chart taken by Davies in his summary

What happens to inflation during a prolonged recession?  Well, let's skip the New Keynesian Expectation thing and just ask what the economy is going according to an orthogonalization process.

When an economy hits a constraint, it reduces the dimensionality of production, until the most constrained input is no longer constrained.  It is the most constrained resource that contracts first, contracting until all inventory levels are back within the biologically determined variance/level (1/SNR).  Other production networks will contract depending upon their correlation with the constrained resource.  We can see right away that their are common denominator issues, some networks need not completely contract, but merely may set aside savings accounts as place holders. This is the Ramsey Subgraph process.

Stochastic processes (variance optimization) takes place within the resulting "corridor".   Yhe corridors set up as Shannon channels.

All inventories increase during the contraction, causing inventory levels to rise relative to inventory variances (making prices appear to deflate).    Once the economy is arranged about  most constrained input, the economy then works  like a Bellman optimization.

There is an economist named Will Smith around somewhere that worked this stuff out, go locate his paper.

Where are the expectations of the agent? Well, agents expect to solve the damn problem or go broke, frankly.

Economies that already suffer some inflation prior to the recession, are already partially constrained, so they do not have far to contract before they find the recession causing constraint.  It is a search process.

What is the point?  Inflation/deflation in prices is an artifact of changing inventory variances as the stages of production reduce with a fixed amount of goods, inventories have to rise and prices (inventory variance/inventory level) must drop.

In QM Theory the key to the analysis is that the production structure being a Shannon channel will split the Yields curves such that each level of the deflation should split the N stages of production evenly along the curve according to Power Spectrum.  So, we should know what the yield curves look like at each point in the deflation., and under mild assumptions be able to compute the relative changes in inventory variances at each contraction level.

The other take away is that there is no such thing as inflation anchoring, there is equilibrium at which point all agents measure the same constant signal to noise level in inventories.

What about the differing adaption rates between lightweight and heavy weight goods? More later.

It is not the "Bond Bubble" it is the term mismatch

Referring to this post at Pragmatic Capitalism.  The author points out that Treasury auctions are simply accounting tools that allow the Fed to smooth out the term structure between Treasury short term money  and long term bonds. The Fed,  not the Treasury, is doing the Operation Twist.  He is correct as far as he takes it and this works when we are close to equilibrium and the terms along the yield can move independently.

But,but... here is the problem.  The term structure for the actual delivery of government goods can mis-match the Fed's version of the yield curve.  At the end of the day, government uses much of the same 'real goods' delivery network as the private sector and we get something called crowding out.  We get a sudden mismatch between the private sector term structure and the treasury term structure.  The Bond market can no longer reconcile the two, so some inventories have to be devalued.

Rather than monitor an interest rate, monitor the yield curve, make sure the terms  move independently and that tells you we have no crowding out.

For example, look at this post from Macro and Other market Musings. David Beckworth notes the recent drop in NGDP. We saw that NGDP drop in the yield curve, which flattened and shrunk. Prior to the drop, the curve was steep, there were bottlenecks. The stimulus filled the pipeline, but could not make delivery.

Eric Schmidt, megalomaniac back in the news

Telling us that he and Google will lead us on a philosophical path.

The 55-year-old also predicted that in the future, Google will know so much about its users that the search engine will be able to help them plan their lives.

 He is both nutty and a bit ignorant.  Contrary to his point of view, it is we who are filling the semantic net, not Google.  And, I might point out, his concept of the semantic net is many, many years old and not invented by Google.

Cleaveland City, trash collection and price inversion

First we have this:

CLEVELAND, Ohio -- It would be a stretch to say that Big Brother will hang out in Clevelanders' trash cans, but the city plans to sort through curbside trash to make sure residents are recycling -- and fine them $100 if they don't.

The move is part of a high-tech collection system the city will roll out next year with new trash and recycling carts embedded with radio frequency identification chips and bar codes.
The chips will allow city workers to monitor how often residents roll carts to the curb for collection. If a chip show a recyclable cart hasn't been brought to the curb in weeks, a trash supervisor will sort through the trash for recyclables.

But we also have this, from the Cleaveland FAQ on flat rate pricing.

  4) What if I don’t put my trash out every week?

•

You still have to pay the monthly fee because the service is available to you

 So, in a brilliant move, Cleaveland is using technology to force people to actually use the flat rate service.  But the same technology can be used to create a variable rate service, making it more efficient.  Alas, Cleaveland officials reverse supply and demand equations.

In Fresno we have a related problem, but a little worse.  We pay a flat rate fee for garbage and water, from the monopoly city trash collectors.  Yet, the recycle price on metal and plastic is high enough that the private enterprise recyclers on foot manage to empty the recycle bins on the curb.  So, homeowners set the cart out knowing that it will be emptied.  The city monopoly picks up the empty cart in a burst of CO2 release simply because public unions control the system.  Mandated government global warming and energy waste, enforced by union police.

MowerBot!

They got funding and seem to have a market.

Precise Path Robotics Inc. is preparing to unveil a $30,000 robotic mower for golf courses that will begin shipping in mid-October. The Indianapolis start-up just raised $4.5 million in funding from angel backers Scott A. Jones and Charlie Staples, to give it $10 million in total backing.
Precise Path primarily builds the software and sensor technology for robots and outsources the manufacturing component, said Jason Zielke, the company's president and operating chief.
The robot can handle unstructured environments, according to Mr. Zielke. That means if a gopher jumps in front of a robotic mower, for example, sensors inside will detect it and correct the mower's course, he said.

An Indiana company
HT VentureBeat

FDR's stimulus program worked great and got us out of the depression

Yglesias discusses it, and disagrees with me.

I think:

FDR built asphalt and gravel roads, 500,000 miles of them according to a reference I now forget.  At the time the economy looked to central government for transportation, maybe a bad mistake by the economy, but it was an expectation that came out of central government's role in railroads.  It worked until 1936, when the fascist uprising caused a double dip.

QM Theory and economic change

Source: Chart Book: The Legacy of the Great Recession - CBPP

I am starting with this chart reposted in Mark Thoma's blog.  The first question is why is growth constant at trend?

 

We always measure the same growth trend, regardless of underlying technology. This graph is a comparison of a very lightweight good (money and debt) to the heavy weight goods. It will always look the same in terms of trend, unchanging.We can do nothing else, our precision is a fixed biological constant. So we will always organize our distribution networks such that each node in the distribution has the same fixed variation in inventory levels.The economy operates with a fixed Signal to Noise ratio.
 

Then the question becomes, How does this chart relate to a common theme of mine, the relationship between information technology and transportation technology.

When information technology explodes, the Y axis of the chart causes the sudden downturn as the economy is disrupted by the sudden appearance of $20 bills on the sidewalk.When transportation technology explodes, the X axis is disrupted by the sudden ability to move heavy goods to better locations.

The first effect causes actual GDP to drop below potential, and the second causes actual GDP to rise above potential.

Since 1820, all depressions follow the same path:  Information technology explodes on the scene then transportation technology adapts.

But the X axis is time!
Yes, the transactions rates slow down during the downturn.  We are seeing a strain on the transportation grid.  John Taylor at Stanford gets this part.

Bill Gross joins Socialist Party

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the U.S. should consider “full nationalization” of the mortgage- finance system as the Obama administration plots the revival of a market that was at the center of the 2008 credit crisis.

How much proof do we need when wealthy people simply adopt the socialist platform?

Ray Bradbury loves big government

Here Ray talks about his plans for massive Big Government projects:

“He should be announcing that we should go back to the moon,” says the iconic author, whose 90th birthday on Aug. 22 will be marked in Los Angeles with more than week's worth of Bradbury film and TV screenings, tributes and other events. “We should never have left there. We should go to the moon and prepare a base to fire a rocket off to Mars and then go to Mars and colonize Mars. Then when we do that, we will live forever."

The 'he', in this case, is government.

I never read his stuff and thought him a lightweight.

HT Instapundit

Utah going after big gains

The Beehive State has been reaching out to California-based technology companies, touting Utah's business-friendly environment, alluring tax incentives, comparatively affordable cost of living and pleasing recreational attractions, including Olympic-grade winter sports facilities.
And it's working.
San Jose-based software company Adobe Systems Inc. is the latest California tech company to announce a major expansion in Utah.
On Aug. 5, Adobe said it plans to build a $100 million campus in either Salt Lake City or Utah County. Utah officials projected campus completion in 2012 and the possibility of additional facilities with 1,000 new jobs over 20 years.
Utah Gov. Gary R. Herbert has made economic development the top priority of his administration, and he happily chatted up Adobe's move.

Read more: http://www.sacbee.com/2010/08/15/2958030/utah-lures-adobe-other-california.html#ixzz0wozCWgtD

Send in the Venture Capitalists

Why is China buying Yen and Euro?

See my post on comparative energy intensity.  The Chinese central planners are passing around Jim Hamilton's work on energy constraints, and they are paying attention.  Hence, they are stocking up on currencies of economies that have energy efficiency with the intent of buying energy efficient technology.

Why does the yield curve slope upwards?

The question came up in the Gurkaynak and Wright paper on term structures referenced by Hamilton.

Well, my first sideline comment is that economists who do math on the term structure should first convert the structure from period space to frequency space such that the 10 year bond becomes the 1/10 transaction frequency.  In frequency space we get all the orthogonalization theorems from Fourier, Nyquist, Shannon, Parseval and Burg.  In frequency space the answer is simple, the most compact orthogonal representation of a time series is a Bell shaped curve; it holds the most variation in the smallest space.

But in economic terms the question is, why does a distribution network of real goods have the slowest transaction rates and largest transaction size at the root; and faster transaction rates and smaller transaction sizes at the branches.  It is simple to see; if the inventory cycle time of a producer is much faster than the consumer inventory cycle,  then the producer can manage inventory for the consumer and does not need a retail outlet.

Thus, as the distribution network moves from a roundabout network to a minimal spanning tree, the banker signals producers to grow inventory and signals retail outlets to shrink inventory.   So the yield curve is steep when producers need to consolidate and retail outlets need to proliferate.  The reverse never happens because mass conservation means that a retail outlet has already going bankrupt before the banker notices, there is no negative inventory; so the inverted yield curve results in immediate contraction.

What's in store for tomorrow's equities?

My oil predictor is likely to break down as the equity traders figured it out, and they are on to the regime uncertainty thing.

Tax rates once again

Federal spending as a share of personal income

OK, looking at federal spending as a share of personal income.  It dropped  way down after 1993.  Why?  The effect of the rise in marginal income tax.  That rise in marginal rates yielded a central government that was forced to rationalize.  Wealthy people no longer saw any gain in more government services.

What happened after 2001? Marginal rates went down. Wealthy people got government services that middle class people paid for.