27 October 2011

Bubble, Bubble Toil and Trouble

I put up this comment, in reply to an R-blogger blogger musing on bubbles. Liked it well enough to share with you all.

So far as the real estate bubble: some of us saw it happening in 2003, although the (self interested) mainstream pundits didn’t or wouldn’t. The measure is simple: the historic ratio of

median house / median income

is a (near) constant over short to medium term in any one place. Aggregated over the USofA, it’s a bit flaky, given regional differences in price/wage levels.

Here’s a plot: http://drcoddwasright.blogspot.com/2011/08/viagra-at-home.html

The point of bubbles is quite simple, they occur when mo money chases less stuff. Credit isn’t really needed, although that certainly happened with the Subprime Mess. A bubble can happen with just a shift of funds out of proportion to some sector. The first dot com bubble was just that; a massive shift of existing funds to a narrow sector.

The Subprime Mess was motivated, in the patient zero sense, by Greenspan’s decree that interest rates would be held down. The bread crumbs can be traced. The point is that it was not the result of independent homo economicus decisions, but deliberate political decisions by a few political appointees. Pre-20th century, not so much.

The financial services coup de etat of our economy is a bubble, from the point of view of historic proportion of national income. This was a co-ordinated shift from the many to the few orchestrated by Right Wingnuts in Congress. Nothing to do with excess credit. One could go on for days.

Specific (or narrow sector) stock bubbles are generally driven by ignorant retail fools. We saw that with vaccine stocks two years ago. Nothing to do with excess credit. Netflix is quite the same.

In other words: Minsky’s only half (b)right. Inflation requires mo money, but narrow (in time or space) inflation need not require global increases in cash/credit. If you look at median income from 1980 to 2008, you’ll see that it moved virtually not at all. The Subprime Mess was motivated as much by existing funds shifting to “higher yield, lower risk” housing instruments due to Greenspan’s enforced low interest rates. Up to then, yes, housing instruments were low risk, *just because* they were restricted to conservative price/income ratio. Blow out that ratio, and you blow out the risk. Some noticed, but the mainstream pundits turned a blind eye. It was in their self interest to do so.

Analytics don’t help much when the propellent is vicious politicians in league with Banksters.

Dee Feat is in Dee Flation, Part 15

Today's news story/analysis adds more data to what is obvious, we're headed into the ditch. Thanks to the Right Wingnuts who've decided that we all should have to feel the pain, just not the Banksters.

The assertion that there has to be inflation just because the Fed has eased interest rates and cost of reserves to the Banksters doesn't mean that inflation is on the horizon. It's been on the horizon, of the Tea Baggers and Banksters, for a couple of years now. Nuthin'. And for good reason. None of the money makes its way into the economy. Banksters and Capitalists are sitting on an unprecedented cache of cash. Misers all. "It's mine, all mine, and I'm keeping it. Just in case my greed causes an even worse Recession." Which is what the slier among them want, deflation increases the value of their cash cache, and they've got to do nothing to get the "return on investment". Consummate evil. Bernanke may have study the shit out of the Great Depression, but back then corporations were hurt by it. These, except for the occasional bank, have been swaddled in cash. Which they hoard, hoping for deflation. Mark my words; I've said it before.

Once again, three sources of inflation: cost push, wage push, demand pull. Wages are falling (median income was recently reported to have gone down some more, thanks Dubya) none from there, incomes are stagnant (which is why companies, when anyone bothers to ask, don't complain about wages but "lack of demand") so none from there, leaving only scarcity of goods to drive costs up (and that can only be sustained if consumers have the $$$ to pay the higher cost) and that's not been happening, either. In any case, with a 70 to 80 percent service economy, cost push is an outlier in the best (so to speak) times.

26 October 2011


Before there was "Jeopardy!", there was "Concentration". 1964 and 1958 (or 1963, depending on how you measure) respectively. Both were of the brainiac game show genre, with "Concentration" aimed at short term memory and visual translation. For those who weren't there: there was a game board, which was a grid of squares (just like "Jeopardy!"). Each square contained stacked cards. The outer card was just the serial number of the grid slot. Contestants called for two cards, which revealed the names of prizes; if the names matched, the contestant had the prize added to his/her cache. Then the cards were removed from the stack, revealing parts of the underlying rebus puzzle. The first to solve the puzzle won his/her list of prizes. Concentration to remember which prizes went with which squares, and translating the rebus pictures into a coherent statement.

What jogged my memory (and never a very good one) was a comment by Tom Cordle to the posting of From Sea to Shining Sea on Open Salon, where these posting are duplicated (and those readers make the effort to comment). "It's also a geography lesson, too, because in the latter images, one can identify many major metro areas of the US as blue patches in a sea of red." Concentration. The graphics worked.

I've mentioned in the past that the Tea Baggers' days are short, supposing that the Federal Courts don't curtail free and fair elections (which is in no way a given), in that urbanization leads to liberalism. Demographers and poli-sci types have known this for decades, and is one of those factoids which sits at the back of my brain stem and occasionally barks at me. I usually then pen something, making the point.

You can see what Tom refers to in this back link from the original citation. The first display is a time series of Red/Blue state morphing. So long as militia folks don't get to be the only legal voters, Tea Bagging is a flash in the pan. One can note that the resistance to Nasty Capitalism in Europe is stronger, in part because Europe is more urbanized.

The distinction exists in the current posting by Sparks, which sparked my interest, but it doesn't jump out quite so strongly in the static images.

25 October 2011

From Sea to Shining Sea

As follow up, or update, to the Triage piece, I offer up this post from an R-blogger. As it stands, there's no code (the author claims ugliness), but does applaud ggplot2. The latter I expected, in that Wickham's book has a section (5.7) on using maps, but not much detail.

Of more interest, is the data source, shown as CCES on the plots. Turns out that this is CCES. While not real time data, as Sparks demonstrates, R and ggplot2 can show both categorical and discrete variable impact over a map. For the Triage project, one would need internal real-time (or close) for the effort to be worthwhile, but I'd wager that it is.

21 October 2011

Guilty, Guilty, Guilty

I finished the first draft yesterday, so it was with some pride that I note this news today. As the subtitle of this endeavour says, "It's the Distribution, Stupid". Yes, one can have an economy and society which runs on many poor and a few rich, but that wasn't the notion of the founding fathers, or Adam Smith (who published "Wealth of Nations" in 1776, too). No, the notion of the founding fathers was that autocracy shouldn't happen here. Their ideas depended on an America which ceased to exist in mid 20th century: if you didn't like the society outside your door, you light out for Indian territory, where there's free land and abundant resources. We're going European. Well, gone European. Our survival depends on recognizing that an economy which wastes resources at light speed can't sustain.

I was surfing through the Yahoo! financial pages, when I saw a headline to an article: "Modern Economics has Failed". Neat headline, but not much meaning. "Economics" is the study of how economies actually work. The various theories, attributed to the field, include the ever famous Keynesian, supply side, Austrian, classical, neo-classical, and a host from the 19th century back to before Adam Smith (the real one). For most of these centuries, the field was called Political Economics, in recognition of the fact that States make the rules; while autocracies bent toward social Darwinism long before he was even born, structures of rewards and punishments were always around. And there were always rules, generally tilted toward the Monarch. But rules there were. Economics, when prescriptive, is divergent in thought, and this divergence isn't based on some fundamental economics, but politics. Despite the rise of Behaviour Economics, what economics has to offer is cause and effect policy. Thus, the Right Wingnuts continue to cling to Trickle Down, in the face of total failure over decades. Failure, of course, from the point of view of the commonweal, but not from the point of view of the 1%-ers, who support the Right Wingnuts' marketing.

Which brings me to the thrust of this musing, -isms.

That's the historical lineage. Tribes looked out for their own, and to a lesser or greater extent, tried to usurp from neighboring tribes. Once tribes got big enough, and society built cities, monarchism became the rule. And was the (nearly) universal structure in "civilized" societies for millennia. There are those who argue (and I agree) that feudalism marked the beginning of socialism, in that the sovereign recognized a duty to provide for lower classes. In today's arguing, feudalism is often portrayed as slavery, and it certainly wasn't. Not much upward mobility, though. While some describe today's rightward drift as toward a new feudalism; if only we were headed to something that good.

So life remained pretty boring until industrialization made capital more significant than before. Capital in agrarian societies is mostly an oxymoron.

Capitalism brought a drastic set of changes. Urbanization. Concentration of power. And lots of machines. The China situation, where much of American goods are produced (is that, too, an oxymoron?), is a lot like 19th century New England mill towns. The state of people living and working in those mill towns is ably documented by photographs. Yes, the hell of child labor and the rest existed into the modern age. The Foxconn facility is larger, but the principle of production is the same: many cheap hands. For the Chinese government, it makes sense. It's the same sense that happened here in the 19th century, and even early 20th; coerce, cajole, entice the rural population to migrate to cities for "a better life". India has done the same. It's a simple proposition, you get to earn enough for some food and a place to sleep, the only question is whether you prefer to work amongst piles of animal shit outside in the rain and snow or inside without the shit. The quality of your skills is not relevant (if this sounds familiar, yes Mao did that too), since none are needed.

Marx saw where this was all going, and concluded that it wouldn't last for long. He devised a different set of principles, studied a country (which was not Russia, but England), and invented communism. The basic idea is that intelligence is what matters, not accumulated wealth. Accumulated wealth leads to sloth. Living in a seat of hereditary monarchy, he well saw that smarts weren't a qualification for having power. He posited that smart decision making would be made by those best equipped, not those who'd managed to just get rich.

Russia, tossed out the Czar and adopted a version of Marx. Not really very close, but enough to scare the crap out of capitalists in Europe and the USofA. Which gets us to Mussolini. He's the guy who invented fascism, both in word and fact. Here's the Wiki article. What our dear Tea Baggers are promoting, although they claim to be against The Elites, is fascism.

Which brings us to the Pubs. While Obambi hasn't lived up to his (own) billing, none of the set of flunkies can lay a glove on him. Well, if he treats the election as war, which is what the Koch Party surely does, and he's conspicuously lacked so far.

Back to the beginning: in what way has modern economics failed? I said it hadn't, only because economics is largely descriptive in nature. Yes, Keynes and Laffer and Friedman and so on offer up "theories", but The Great Recession wasn't caused by failure of economics. (For those in the know: Samuelson was the one who started the trip into mathematical economic theory, thus obscuring the principles of economics ever further. Somewhat off topic, but here's a post on the effect of interloper quants; follow the back links for more detail. That happened in economics in the mid 1970's. The profession has devolved ever since.) There has been, at least since Harding and the roaring 20's, a split within professional economics between those who earn a living at it by providing justification to constituents (just like a lawyer) and those who look for ways to advance the commonweal. And for those in the second set, much internecine conflict over how to do it. As always, the loggerhead is whether to support the wealthy or the poor with government action. Those that wish the State to support the wealthy generally phrase their argument in terms of social Darwinism: the rich have to be coddled or they'll up and leave for someplace else, and we can't have that; my beloved Bermuda is deep in such throes. I know, that doesn't make sense, but I didn't say that Right Wingnuts made sense.

The failure which drove us to The Great Recession was purely political. We are where we are because for 22 of the 28 years from Reagan to the end of BushII, the Wingnuts controlled at least 3 of the 4 branches of the Federal government. Re-read that sentence. The Wingnuts, largely because Democrats are feckless, have gotten away with blaming anyone to the left of Attila the Hun with anything bad in the economy. Even given the stark evidence that only under Clinton did median income in the nation make any upward progress. One of my favourite quotes, of all time, comes from a recent Times article (spoken by a Bankster): "Financial services are one of the last things we do in this country and do it well. Let's embrace it. ..." Said the spider to the fly. And some wonder why there's an Occupy Wall Street?

Which brings us back to a failed economy (I was tempted to say Failed State, but that would only insult some really famous ones). First, what do we mean by modern economics having failed? Thus encouraged, I went past the headline to the story. And he's right: it's all about politics. Failed in the jingoist notion of American superiority. Failed in the sense that our tribe has been torn asunder. But the author gets it wrong in ascribing the cause to the profession of economics. The cause is purely political.

Now, how to fix the situation. If by fix we mean restoring GDP, then only Keynesian knobs and switches will work. None others have worked in identical times before, they won't work this time either. The Wingnuts always lay the blame for economic decline on workers getting too big a piece of the pie, in face of the pure fact that demand for the Wingnuts' widgets fell off the cliff because workers had no money to buy widgets. The punish labor approach of Reagan and both Bushes didn't work; they gave us The Great Recession.

The simple answer is that an economy can't grow out of depression by making most folks poorer tomorrow than they are today. Making the rich richer is the Right Wingnut agenda. It always works for the 1%-ers, but not the rest of us. It is obvious that restoring a growth inducing distribution of income is the only solution. How that's done really doesn't matter. Only until, and if, the middle class does have most of the income, and thus broad based consumption, will we progress. Japan never did.

19 October 2011

Once Again, With Feeling

I get tired of redoing the litany of why we got where we are, so I've written up a few sentences that get to the kernel. Today, I've put a bit more flesh on the bone. I hereby release all copyright to the public domain, and encourage all to use this words in email forums, mailing lists, or anywhere Right Wingnuts spout lies. Peace.

It was the Right Wingnuts from Reagan to BushII that gave us a Great Recession. And they ran at least 3/4 of the government for 22 of those 28 years. The reason "gummint don't work" is that for those 22 years, the Right Wingnuts actively sabotaged Government. It was they who repealed Glass-Steagall, and let the finance corporations rape the Middle Class. Before Reagan, the 1% took 9% of national income, during BushII it was 24%. Except during Clinton, median income fell over the 28 years. Unless you're a 1%-er, there's nothing that the Right Wingnuts do for you. Get your facts straight. And they were the ones who made it easy to ship our jobs overseas. Get that fact straight, too. Have a nice day.

10 October 2011

By The Numbers

There's that famous quote from The Bard, "The fault, dear Brutus, lies not in our stars, but in ourselves if we are underlings." As my fork in the Yellow Brick Road tracks more towards (what's now called) Data Science, various notions bubble to the surface. One lies in an age old (within my age, anyway) dispute between traditional (often called frequentist) math stats and those who follow the Bayesian path. From my point of view, not necessarily agreed to exist by those on the other side, Bayesian methods are merely a way to inject bias into the results. Bayesians refer to this "data" as prior knowledge, but, of course, the arithmetic can't distinguish between objective prior knowledge and fudging the numbers.

So, I set out this morning, being Columbus Day (a day honoring Discovery for some, invasion for others), to see whether there're any papers floating about the intertubes discussing the proposition that our Wall Street Quants (those who fudged the numbers) bent Bayesian methods in their work. As I began my spelunking, I had no prior knowledge about the degree to which Bayesian had taken over the quants, or not. Quants could still be frequentists. On the other hand, it is quite clear that Bayesian is far more mainstream than when I was in grad school. Could Bayes have taken significant mindshare? Could the quants (and their overseer suits) abused the Bayesian method to, at least, exacerbated, at most, driven The Great Recession. It seemed to me likely, any crook uses any available tool, but I had no proof.

Right off the bat, search gave me this paper which references one (at a pay site) from the Sloan Management Review. The paper puts the blame on risk management that wasn't Bayesian. You should read this; while the post does discuss the SMR paper on its merits (which I couldn't read, of course), it also discusses the flaw in Bayes (bias by the name of judgment) as it applies to risk management.

Continuing. While I was a grad student, the field of academic economics was in the throes of change. The verbal/evidence/ideas approach to scholarship was being replaced by a math-y sort of study. I say math-y because many of the young Ph.D.s were those who flunked out of doctoral programs in math-y subjects. Forward thinking departments recruited them to take Samuelson many steps further. These guys (almost all, then) knew little if anything about economic principles, but department heads didn't care. These guys could sling derivatives (initially the math kind, but eventually the Wall Street kind) on the whiteboard like Einstein. I noted the problem then, the 1970's. This paper touches on this issue (linked from here). "These lapsed physicists and mathematical virtuosos were the ones who both invented these oblique securities and created software models that supposedly measured the risk a firm would incur by holding them in its portfolio." Nice to know it only took 40 years for the mainstream pundits to catch up.

And, while not specifically about Bayesian culpability, this paper makes my thesis, which I realized about 2003 and have written about earlier: "Among the most damning examples of the blind spot this created, Winter says, was the failure by many economists and business people to acknowledge the common-sense fact that home prices could not continue rising faster than household incomes." One of those, D'oh! moments. McElhone, the Texas math stat, introduced me to the term 'blit', which is 5 pounds of shit in a 4 pound sack. By 2003, and certainly following, the US housing market had become rather blit-y. The article is well worth the reading. There are links to many other papers, and it does raise the question of the models used by the rating agencies. Were these models Bayesian? Were the rating agencies injecting optimism?

Which leads to this paper, which I'll end with, as it holds (so far as I am concerned) the smoking gun (which I found to be blindingly obvious back in 2003): "Even in the existing data fields that the agency has used since 2002 as 'primary' inputs into their models they do not include important loan information such as a borrower's debt-to-income (DTI)..."

This few minutes trek through the intertubes hasn't found a direct link between Bayes and the Great Recession. I know it's out there. I need only posit such as initial condition to my MCMC (look it up).

05 October 2011

Robbing Peters to Pay Paul

Much hand wringing going on. The TARP banksters are raising fees on the Little People!!! What the fuck did you expect??? The banksters got the Little People by the nuts; they're the only place left to squeeze, now that subprimes have imploded. And the banksters need some way to pay those extortionate salaries and bonuses, which they earn for the very hard work of moving other people's money from one bankster pocket to another.

What did anyone expect? There's no penalty for screwing the Little People. The banksters, and their enablers in the Right Wingnut Fraternity, have free rein. Tea Baggers all, and stupid. I predicted it, of course.