30 December 2011

Da Meme, Boss, Da Meme

Krugman's hijacked my meme!!

I had intended to wrap up the year with a song, but before I do that, I have to claim vindication, since (for those who don't follow links) the title of the good doctor's column is "Keynes Was Right". I'll drop him an email asking for props. I'll even let you know if I hear back. I'm not going to hold my breath.

Now, for that song. The 1950's saw two folk music revivals. The first was in the spirit of Woody Guthrie, who is still not all that welcome where he was born. This was music by and about the left behind. With the Red baiting and such, some of these singers were blacklisted, and the revival petered out. Toward the end of the decade, a folk music safe enough for suburban white folk emerged, and chief among the performers were The Kingston Trio. A bit later, one of their arrangers got together with a couple of not quite so safe (and all three a tad older than the college kids around whom this second revival revolved) white guys to be The Limeliters. A bit more sophistication and a bit more edge. Not the Weavers, though.

But, The Kingston Trio did record and perform this song.

Poverty Hill
Fred Hellerman/Fran Minkoff

They come in their summery dresses and jackets so fine, the rich folks who measure success with a big dollar sign.
They gaze with delight with the rocks and the scraggly pines. The come in the Spring and they stay 'til the Fall
On Paradise Mountain away from it all.

Stubble and stone make a hard row to how. What little will grow, the drought will kill.
The summer folks call it Paradise Mountain but we call it Poverty Hill.

They say we have beautiful faces as grainy as wood. Yeah, they'd like to live here of all places if only they could.
Well, we don't get those wood, grainy faces from livin' too good. It's the rocks and the sun and dust and the heat.
It's too much of work and too little to eat.


They pack and say what a pity that they have to go. They say that Old Smokey's so pretty all covered with snow,
But how we get through the winter they never will know. No lard for the pantry. No grist for the meal
And winter's are cold over Poverty Hill.


Yes, we call it Poverty Hill.

Fred Hellerman was a Weaver.
Fran Minkoff was a Robert Hunter to the Weavers; she wrote for others, too.

29 December 2011

The Point of No Return

A comment on Can I Peak Your Interest, said, "there's also a basic supply and demand element to interest rates." (this guy). For better or for worse, this is a common misconception, due to treating cash as a commodity. It isn't. As Adam Smith, the real one, asserted, it exists only to simplify barter. Yes, currency arbitrage has been around at least since Jesus tossed out the money changers. That still doesn't mean that, in a functional economy, cash is anything more than WD-40. That's really all it is.

Where it gets a little more complicated, is in capital. Currency is fiduciary capital, whose only reason to exist is to buy physical capital, which economists have long referred to as plant and equipment/machinery. Until recently, anyway, when the quants on Wall Street invented new and bizarre ways to separate "investors" from their currency.

What determines supply and demand? In consumer goods and services, economists have long hung their argument on "utility": an iPhone or Hostess SnoBall or a visit to a massage parlor each bequeath to me some level of this "utility". It is the utility that justifies the payment. And this utility is in my head. The utility of the three legs of the survival stool; food, clothing and shelter, is easier to calculate. But most of what we consume these days is outside the realm of basic survival. For a bit longer, at least. In any case, the supply and demand idea applies here: the perceived utility sets the level of demand.

With physical capital, it's pure arithmetic. If a new plant or machine yields a 10% improvement in production, that's what I'll pay to have that plant or machine. A lower interest rate won't entice my to buy more of that plant or that machine, if there isn't a market for the widgets I'm making. A higher interest rate will compel me to say no. The interest rate is set by the physics and engineering of the plants and machines available to capitalists. In an ideal world, of course, and the one devised by the Wall Street Banksters is pretty far from that. But all they can do is distort the process, mostly to their advantage. The fact remains: the real rate of return on new plant and machines determines the interest rate. Since we've moved on to a Post Industrial Society (haven't we?), matters get a bit more complicated. If money is lent for purposes other than conversion to physical capital, what's the proper interest rate?

Ah, there's where the Banksters messed up. By convoluting the connection between cash and real investment (which broadens the definition to assets beyond simple plants and machines to include any amortizable purchase; I said it was a bit more complicated), they've been able to obscure the process.

By now most understand that Greenspan is Patient Zero of The Great Recession, when he caved interest rates under BushII. If ours were still an industrial economy, very low interest rates *would* have led to a surge of physical investment, since useful, but lower return, plants and machines become profitable. Rather than buying productive plants and machines, all that Greenspan cash ended up in housing CDOs. Why? Because it was viewed as being easier. Easier for two reasons: 1) there wasn't all that pesky stuff to keep track of and 2) the Banksters didn't have to go find capital intensive businesses to soak up the cash. Recall, much of the free cash was coming out of Asia, and profitable physical investments had already been transferred to Asia. Even the Chinese were looking elsewhere to stash (at a profit) all that cash.

Thus was born the subprime loan. And a short respite for the middle class from the debilitating effects of declining median income. The respite also happened to capitalists: while the Right Wingnuts among them rail against consumer debt, without it, all those cushy executive jobs would go the way of the dodo, along with the companies. As Eccles says, an industrial economy requires a way to absorb increasing productivity. If it doesn't get distributed as wage increases, other methods will be found. They were.

The problem from a capital allocation, macro-economic, point of view is that housing isn't capital investment. Housing is just serial consumption of that "utility" thingee. The home owner doesn't generate an economic return on his use of the house; he just lives there with Wifey and 2.2 mini-thugs. For what it's worth, China is finding itself in a housing frenzy, too. Again, not enough clever engineers figuring out better plants and machines. And if they did, there'd be still lower wages for workers to buy the widgets. Can't get away from the distributional collateral damage. Mortgages are supported by (median) income, and nothing else. They're not real investment.

So, back to the initial comment. A supply and demand answer to interest rates in capital is less true than for consumer goods just because the value of the use of capital (not the cash itself) is, with sufficient effort, exactly calculable. This is not true for most consumer goods, which are valued by intrinsic "utility". Thus, the interest rate is determined by the inventiveness of engineers to devise more efficient machines.

Absent, of course, Dr. Evil.

26 December 2011

Can I Peak Your Interest?

Well, may be I've got the spelling off. But may be not. The point of this essay is to debunk the conventional theory of interest, which asserts that interest is paid because savers want to be paid for the use of "their" money, and that they determine what the "real interest" rate is. Bunk.

What really determines the "real" (and I use those quote marks because no one in the economics field knows what's "real", so far as determining an absolute measure of interest; not the rate, but the definition used to derive the rate, that gets into weighing de/in-flation and other factors) is physics, not savers' time preference. Moreover, the world's banking systems subvert the process with many levels of intermediation (see, for example, this about the opposite).

The current Great Recession (and it ain't over, not by a long shot) dates back to Reagan and the PATCO strike; thus began the Long March to removing the middle class; at least, the non-financial sector employed middle class, what some refer to as the blue-collar middle class. For the True Right Wingnuts, a blue-collar middle class is an abomination, a pariah on society. Reagan began the policies in earnest. Alan Greenspan (remember him?) carried them out. It was under BushII that Greenspan caved interest rates, and thus set up the scenario of Your Home (Equity) is Your ATM©. This was necessary, as the decline in median income and the shift in taxes from the few to the many, was well underway. Without the Home ATM, consumption could not continue. Without consumption, the USofA enters its Japan Period. Now we have, and Obambi the patsy can take the blame. Returning to the policies which caused The Great Recession isn't going to end The Great Recession. It's not a coincidence that the only prosperous period since Reagan was Clinton, who throttled back. Couldn't last, not with a Right Wingnut Supreme Court.

So, what, then, does determine the rate of interest, and why is it important?

The latter first: economic growth, which is to say society wide growth as opposed to Corporation XYZ growth, is solely determined by physics. If the totality of the economic engine produces more from period to period, then growth has occurred. Otherwise, not. Without growth in production, growth in population can't be sustained. And, just to be clear: growth in production means more widgets, not just more cash from selling widgets. As Adam Smith, the real one, said money is not goods and services rather, "Labour was the first price, the original purchase - money that was paid for all things. It was not by gold or by silver, but by labour, that all wealth of the world was originally purchased." I wonder how many Right Wingnuts would still call Adam Smith their Mentor if they knew? Further, the production which matters is that which sustains the society; credit default swaps, not so much.

There's another problem. The monetary growth of an economy isn't, by definition, sufficient to sustain population growth. If all that an economy produces is banking services, for example, those services don't supply food, clothing, and shelter to the population. Some monetary equivalencing takes place to value the services against physical goods. Not to mention the fact that the physical goods aren't produced in the economy, but must be imported. The calculus has quickly gotten out of hand.

The IMF, the World Bank, the Great Gaggle of Bondholders (as exemplified by Skull & Bones) decide how much an American Dollar is worth relative to a Euro or Renminbi. Whoever controls international exchange rates (if that's a sovereign country) gets to tilt the playing field to its advantage. The USofA had that advantage for two decades after WWII, in the form of the Bretton Woods convention: "The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate by tying its currency to the U.S. dollar...". In 1973, OPEC (really, the Arabs in retaliation for the USofA's support for Zionism, which one may deny exists, but is quite real to Arabs), demonstrated that this system was no longer in control. Oil was in control.

And so it has been ever since. The fall and rise of Russia is built on oil. The rise of Brazil, and to a lesser extent Venezuela, so too. The American response, beginning with Carter, was to monetize the economy. Most don't remember, or weren't born yet, but Carter began the assault on Government. It wasn't in full stride until Reagan, but Carter started the ball rolling: "The Carter Administration submitted 11 reorganization plans to Congress to streamline the federal government. All but one, a plan to create a Department of Natural Resources, went into effect. The largest of the plans was revamping the civil service system." Carter ended up politicizing public service, the kind that regular folks choose to do, not the figurehead nonsense of Special Ambassadors and such. Reagan just took the anti-government, and by implication anti-intellectual, cudgel and beat the rest of the middle class with it. It was, and is, no secret that the Federal government employs a lot of highly educated people; the enemies of the Right Wingnuts, whether they knew it or not.

We have two positive feedback efforts at work: the attack by the few upon the many, and the financialization of the economy. The former results in policies which move income and wealth to the .1%-ers and the latter moves capital from physical production to monetary gambits. Taken together, the society regresses.

Where we are now. The American economy has devolved from making things to making deals. When an economy makes things, flation in either direction is merely an inconvenience; trading one thing for another is just barter with currency being the oil for the machinery. When an economy stops making things, and just deals, then currency becomes not just the oil, but the machinery. And therein lies the problem. When the world ran on specie money (chiefly, gold), flation was determined by new gold finds; how stupid is that? Studies of 19th American economy note that it was almost wholly de-flationary, and for the simplest of reasons: real production expanded as the population did and territory did (it was taken from the native inhabitants), but without new currency, prices for all goods and services fell. There was, not coincidentally, recurring recession over the century. Not a bit of history the Right Wingnuts and Goldbugs want you to know about. From a macro-economic point of view, the 19th century was anarchy.

The root cause of the Continuing Recession is two fold: the monetization of economic activity and a massive shift of that money from the many to the few. Fixing it will likely not happen, because to do so requires punishing those who engineered the collapse, and those folks remain in control of monetary policy. When I was a kid, one of my tasks as soon as I could walk and count, was to trek to the corner store and get The Parents cigarettes, $.25/pack. Mother stuck with Viceroy, Father switched among a few brands. One of those was Old Gold, and it's still in production, although now a discount brand. Well, the American Dollar is New Gold. You saw the flight to the dollar on those days when the Euro looked to crash. That will continue. And it's not because the USofA makes all the shiny bits that make other countries need dollars to get them. No, it's because the Right Wingnuts are determined to keep the dollar's value stable no matter how badly doing so disrupts growth and equality. Unlike the period of Bretton Woods, Americans don't get any benefit. Well, the .1%-ers do, of course, but not the rest of us. For the .1%-ers, all that matters in currency; each a Little Goldfinger.

This just in.

The biggest nutbag is, of course, Ron Paul. He is both a .1%-er and a goldbug. Here's from today's news:
Economists note that Paul's long-standing proposal to return the dollar to a gold standard would force the United States to relinquish control of its currency.

"We would still have monetary policy - it would be set by gold miners in South Africa and Uzbekistan, rather than bureaucrats in Washington," said Michael Feroli, chief U.S. economist with JPMorgan Chase.

"If you like what OPEC means for oil prices, you'd love what the gold standard would do to financial markets."

21 December 2011

Birds of a Feather

That I find more solace in quants than relational databases has always been true and that my view of RDBMS building remains at odds with many of the Kiddie Koders who run their various asylums, are not excuses for pandering to the knuckleheads who very nearly destroyed western civilization. There's just no forgiving that. And is the main reason I've little interest in doing finance quant work.

It remains rare for the business press to print anything remotely discourteous to the quants, as if anyone else would pay them so much to do so much damage should they stamp their little feet and leave. Well, leave it to the Times to unleash its peashooter. The pea was this little bit of text:

"Banks considered the leverage ratio a blunt tool, an insult to all the investments they had made in the last decade to create sophisticated risk management systems, as well as a threat to potential profits and payouts to top bankers."

Read the whole article for some additional context, although the arrogance isn't highlighted. I'll do that. These are the very knuckleheads who shot the rest of us in the gut, and they want the right to continue to do so. Remember, borrowers can only spend what savers supply; national borders really don't matter. While leverage can be used to inflate the profits of individual banks, or even the whole financial sector, leverage doesn't create real resources.

And, if you've not done so recently, check out the quotes at the top of the blog. Birds of a feather, and all that.


The sky is falling. Oracle reported down, a bit, but, in particular, didn't report above expectations. Larry has been sly for a long time, in setting guidance low enough that bettering it is a piece of cake. Not this time. As I type, it's down 15%, and news is that much of the tech sector is getting the flu.

The knee jerk reaction: mortgage the farm and buy Oracle stock. IIIIIIIIIIII'm not so sure this time. Here's why.

Oracle didn't get quite the *new* software sales and *new* hardware sales. The latter is, by all accounts, due to customers waiting on the new machines during the quarter. The former is more speculative. The reports are vague. My take: given the aggressive pricing of Oracle RDMBS, ditto for MySql (yes, it's GPL, but Oracle blasted its support prices into the sky in the past year), and putting the screws to java adopters; folks are looking for a safer port.

On the RDBMS side, Postgres gets ever closer to Oracle, if you're not a Fortune X00 company (and even if you are, and building apps off the mission critical axis). Mainstream pundits are crying that "Da Cloud, boss, Da Cloud" is putting Oracle in an untenable position. It is said that cloud providers use dirt cheap components, soft and hard, and Oracle's RDBMS and Sun-ish machines are just too expensive Up There. As if being cheap were the best way to make money!? "Cheap goods sold dear" is an aphorism that's been around forever. The Cloud is shaping up that way, and if so, I'd avoid Fortune X00 companies that chose to put *my data* Up There. In this nascent era of Cloud, too many stories of wandering data to suit me.

What's really stupid about Larry's ploy: the Oracle RDBMS is built on an engine (the piece that actually does all the inserting and updating) which uses Multiversion Concurrency Control (MVCC, as it is known) which is better suited to the asynchronous nature of the Web/Cloud than the locker paradigm that most other (notably, not Postgres) RDBMS have been using for decades. They've been backing in, so to speak, MVCC support recently, but none is a true MVCC database. In other words, Larry has the proper mousetrap for the setting, but has managed to offend his customers. But, that's Larry's way.

Reports say that Oracle claims the shortfall is due to last minute non-signings. If so, then this is an aberrant glitch. Given that Fortune X00 companies are sitting on, by some accounts, more than $3 trillion, there's no macro reason to not buy new IT. Unless you're a Fat Man yearning for Famine.

20 December 2011

A Warren-ted Search

One of the points "for further research" as I used to say when I was an academic, in the Triage exercise was using social media to measure outcomes. R has a library, twitteR, (yes, R folks tend to capitalize the letter at every opportunity), which retrieves some data. I was at first disinterested, since I don't have a twitter account. Thankfully, twits can be gotten without being a twitterer. Since Elizabeth Warren's campaign is just over the border, and sort of important in the grand scheme of things, I've been exploring.

Here's the entirety of the R code (as seen in an Rstudio session) needed to return the twits (1,500 is the max, which will prove troublesome when the battle is fully engaged):

> library(twitteR)
> warrenTweets <- searchTwitter('@elizabethwarren', n = 1500)
> length(warrenTweets)
[1] 9
> warren.Text <- laply(warrenTweets, function(t) t$getText())
> head(warren.Text, 10)
[1] "@elizabethwarren i hope you win agianst sen scott brown. the 99% r with u"
[2] "@elizabethwarren More $$$ coming your way!"
[3] "#HR3505 PAGING: @ElizabethWarren Help us!!!!"
[4] "@elizabethwarren - not to worry, the only job Karl Rove ever got somebody was George W. Bush. and look how that turned out."
[5] "RT @SenatorBuono: What an amazing turnout 4 a superstar. @elizabethwarren"
[6] "HELLO @ElizabethWarren ! PLEASE RUN as a 3rd party or Ind. FOR POTUS2012. Dems just threwSENIORS underthebus for the working tax cut! EXdem"
[7] "@chucktodd We hope 2011 will be remembered for something a LOT closer to home. #ows #OccupyWallStreet @ElizabethWarren #WARREN/PELOSI-2016"
[8] "RT @SenatorBuono: What an amazing turnout 4 a superstar. @elizabethwarren"
[9] "What an amazing turnout 4 a superstar. @elizabethwarren"

The lines starting with > is the R code. The lines starting with [x] are the output. Here we have 9 twits.

Now, what do we do with the text? For that, I'll send you off to this presentation which came up in my R/twitter search (and is the source of what you've seen here), conducted in Boston. Missed it, dang. With slide 11, is the explanation of how one might parse the twits looking for positive/negative response. By the way, even if you're not the least bit interested in such nonsense, visit slide 29.

As I mentioned in Triage and follow-ups, getting the outcomes data is the largest piece of the work. Simply being able to "guarantee" the accuracy of twitter (or any other uncontrolled source) data, given the restriction on returned twits and such, will require some level of data sophistication; which your average Apparatchik likely doesn't care about. The goal, I'll mention again, isn't to emulate Chris Farley's Matt Foley and pump up a candidate no matter what the data say, but to find the candidate out of many most likely to win given some help. Whether Triage would be useful to a single candidate; well, that depends on the inner strength of the candidate.

16 December 2011

Tenant FarmVille-ers

"Something is rotten in the state of Denmark"
-- Hamlet Act 1, Scene 4 (here for a synopsis)

Why quote Hamlet? Today marked the start of public trading in Zynga, a (or *the*) Facebook gaming company. To the consternation of some, it's falling as I write from the IPO price. You can read the links on the page for further explanation.

But, being something of a Luddite techy (an oxymoron in the manner of "happily married") and Keynesian thinker, I've been dismayed over the last decade or so watching the laissez faire driven destruction of the American economy at the hands of money centered capitalism. Krugman, in today's column, deals once again with the topic, echoing what I said earlier in Part 16 of Dee Feat: inflation ain't happenin'. Now, why it's not happenin' doesn't get explained, for some reason. It's that the money is going into corporate coffers, not middle class consumers. The cash will stay there, and so long as it does, there'll be no growth or inflation. Fat Man likes it that way.

Back to Zynga. The company is another in a long line of unproductive siphons of capital, following LinkedIn and Groupon and the rest. As an aside, it was reported that FedEx is doing a booming business due to internet shopping. So let's see: Main Street gets shut down, and we burn hydrocarbons an order of magnitude more just so little Kimmey can have her Barbie? In no rational economy would this make sense. Zynga is just another private sector redistribution scheme; "money for nothing and the chicks are free".

Dee Feat is in Dee Flation, Part 16

The new CPI/PPI numbers are out here, for example (lines for Dec 15 and Dec 16). As usual, we remain on the edge of outright deflation. I posted another Fat Man short piece this week; that one was happenstance, I wasn't expecting confirmation to fall from the heavens like Manna. Jesus loves me! He really loves me. What follows is from a previous Dee Feat piece, regurgitated for your enjoyment. I picked one at random because it saves typing in a whole new file name; doing it this way, I only have to replace the iteration number. Luckily, it deals with both Dee Flation and Fat Man. Yeah, I'm just a lazy good for nothing.

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.

14 December 2011

Fat Man in Famine, part 2

I was doing some searching, looking for prior art on using Twitter, etc. to measure campaign event outcomes, when this 538 piece, from today!, popped up. Remember what I've been saying about Fatman in Famine? Think I was just making it up? Here's proof.

12 December 2011

Tiny Antlers

Yes, the title of this piece is intended to tickle the bottom of long term memory; sounds kind of familiar, I guess I should read it. Alas, Elton John (so far as anyone knows) has nothing to do with Obambi. Elton cared about a tiny dancer.

Obambi, last night, displayed a smidgeon a spunk. Not enough to get me convinced he'll do what's needed. He *still* allowed himself to be portrayed as the sole re-distributor, ignoring the record of the Right Wingnuts since Reagan, who saw to it that the 1%-ers (and the far more evil .1%-ers) got rich while the rest got poor.

The numbers that matter: for 22 of the 28 years from Reagan to BushII, the Right Wingnuts controlled at 3 of the 4 branches of the US government. That's a fact. In that time, through law making and activist judges (not the least, the Supremes), they put a severe tilt in the economic policy landscape.

Unless, and until, Obambi tells that story, he'll be toast. He can't continue to allow himself to be played for Stepin Fetchit.

08 December 2011

Both Sides Now

Judy Collins (not Miller!) had a hit with "Both Sides Now", although Joni Mitchell wrote it and later recorded it. I still hear Judy's version in my subvocalized ear. A while back I wrote, again, about the situation with the Euro and ECB, making the assertion that a regime that only had Dr. Friedman without Dr. Keynes couldn't work. I doubt that I was the first to see this, although I did come to the conclusion unaided by mainstream pundits.

So, imagine my surprise when a front page story in the Times contains this tasty morsel:
"...Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France, who are trying to find a way to save the euro while imposing legally binding fiscal discipline on the Continent's floundering southern economies."

Now, fiscal policy in the immediate context is punitive, but in the long run, it has to be supportive. Just, as I have pointed out more than once, here net Federal dollars flow in large quantity to the poor Red states from the hardworking Blue states. That's just a fact, one that the fat headed Red staters (I'm talking to you, Sarah) can't abide discussing. Europe, if it is to have a single currency, will have to have a centralized fiscal policy. That will mean the well-to-do few end up supporting, so some degree, the poor red headed stepchildren. All those folks, here and in Europe, who used debt to buy stuff saved capitalism. Without their demand for goods, capitalists would have died. They will soon enough, if their incomes are shattered. Without real demand (what economists call the desire for goods coupled with cash to buy; I demand a Ferrari, but don't have enough cash, so that's not real demand), production ceases. Production ceases, and only the Fat Men survive the ensuing Famine. The Right Wingnuts, Cameron being the species on display today, always refuse to accept such a simple and unavoidable accounting. It ain't rocket science.

As Eccles, quoted on the front page, makes clear, economics really is a zero sum game in the immediate and medium term. Again, often written, economic growth only sustains if it's measured on physical output, not financial manipulation. An argument is easily made that the "service economy" is just a skewed implementation of income re-distribution. After all, the highly paid services are only minutely consumer facing jobs. The vast majority are overhead, from a macro-economic point of view. And even outside of closely defined financial services companies, as well. GE got into a mess by shifting from production to money laundering, along with the Banksters. They are mending their ways.

How many hours of office "work" is an iPhone worth? In whose currency? These are the uncomfortable questions. To the extent that economies become disconnected from physical production the more difficult it becomes to value labour. In olden days when butchers bartered with farmers two facts controlled: 1) useful goods moved and 2) both parties were consumers. Barter, when one party is not a consumer and one half of the barter is a corporate service, is more difficult. There's another story about the plight of bond traders in today's edition, as well. Trading financial instruments is the ultimate expression of make-work; what in FDR's time would have been dam building and undergrowth clearing. FDR's implementation accomplished a good deal more Good.

Consumers buy Things, corporations buy services. The notion of a post-industrial economy is a myth, or a lie, depending on how annoyed one is. The Great Recession, not nearly done with, is proof.

02 December 2011

"I'm a Fronkensteen"

There is a movie, "Bad Day at Black Rock", and any objective economist (there aren't any, and that includes Your Humble Servent) must think that today is such a day. The Monthly Unemployment report has blown the lid off of the data. How could a lackluster increase in employment yield a 4 tenths of a percentage point *decrease* in the unemployment rate? Yeah, Dude, what's up.

I'm here to reveal the awful truth.

First, contrary to widespread belief, you're not counted as out of the workforce when your UI runs out. And you're not counted as newly hired when you get a job. All the numbers you're hearing today, and likely for some time, are generated by *surveys*; two in the case of the monthly report. This is one. This is the other. And here is a description of sausage making. The last is a rather long, and detailed, report. I'd wager that few economists, data scientists, and certainly not reporters, have ever read one front to back; I did, but that's when I was in grad school, so it shouldn't count.

These, to be technical, are stratified random samples. Just as Gallup and Harris tell you what the most watched TV show is with a handful (relative to the nation's population) of viewers, the BLS and Census tell you what's going on in the economy with a handful. Don't get fidgety, though. The private sector prognosticators do the same thing. The country is too big, both in bodies and square miles, to do a census each month on citizens and businesses.

But, I will admit, that some news spewers have made a point of the 315,000 drop in the labour force to explain how it is that so-so new jobs leads to .4 point drop in the unemployment rate. Same thing happened during Reagan, but no one's made that point.

It's a Mad House

The NY Times is, if nothing else, schizophrenic. It's surely not the last holdout for Liberalism; that myth was spiked by Judy/Judy/Judy. Today's issue is pluperfect. First, Floyd Norris calls for reinflating housing. But, then, we read this story about Germany.

For those who read regularly, you may recall (if you got here at the beginning) I have written about the folly of housing as investment. Housing is capital wasted, if one is a Smith/Rand leaning economist, anyway.

Read both pieces. Note, particularly, the German Man-in-the-Street. And the passing reference to inflation of house prices; yes, the speaker uses the word "inflation" and not "appreciation". Because, housing is just serial consumption, not investment.