31 January 2012

The Center of Attention

The Case-Shiller house price index is out again, and it's down. Reports are that it is expected to decline for yet a while. Well, D'oh!!!! House prices can only move up with median income moving up. How difficult is that to figure out?

19 January 2012

Snakes!! I Hate Snakes!

Many, many years ago I saw a piece on the TV, which showed the effects of population. It was a closed cage, a few feet on a side, such that it fit in a laboratory room. In it were rats. The point of the experiment was to document the changes, if any, in the physical and behavioral aspects of the rats as their numbers increased. Suffice it to say, nothing good came of it to the rats. I think this guy was the experimenter; certainly he did such experiments. Wikipedia was down when I wrote this up; now it's back so here's the write up. There they are.

What got me thinking about the rats was an earlier story about American's appetite for out of season and out of country foods; blueberries in February and the like. (I didn't save the link; this one looks similar; it's AP so would end up nearly everywhere.)

Now, put this (imported food dependence) together with the primary, secondary, tertiary breakdown used by economists to describe what an economy makes, and what is a buck worth? Or put another way, as physical resources become scarce, what will the US have to trade for real stuff? Who wants CDOs for food? Have a nice day.

Dee Feat is in Dee Flation, Part 17

Well, the Flation Numbers came out this week. And, as usual, the Prosperity Through Austerity And Inflation's The Issue folks can't be happy. Here they are:
Core PPI 0.3%
Core CPI 0.1%
PPI -0.1%
CPI 0.0%

I'll leave it to the reader to see the forest and the trees. All that free money from the Fed sure ain't getting into the hands of people who spend. That's why there's no inflation. As the planet runs out of arable soil and hydrocarbons, with an exponential population growth, prices will rise due to shortage. The Idiots of the Central Banks will be too stupid to see this, and immediately raise interest rates, hoping beyond hope to play the role of Volker the Saviour. But they will only make matters so much worse. A Confederacy of Dunces, I'll say.

18 January 2012

Here Comes the Mitten Man

By now everyone with a functioning brain has heard of the Mitten Man's taxing problem. Today's NY Times has more stories (some Walter Mitty specific, others on the general topic) than I want to link; just go read it. Even if you're not subscribed, you're allowed a few (don't recall the exact number) visits per month. Kind of like NFL ref call challenges. Burn one, it's worth it.

Here's what pissed me off, the sub-sub-headline (dead trees version) in the Times' front page story:
"Unwanted Look at How Rules Favor Investors Over Earners"

The Washington Post, also sub-sub-headline (on-line version):
"Most of his income is from past investments"

The LA Times doesn't have Mr. Magic Underpants on the front page; wimps. They do have a stories over the last few days dealing with Mr. 15%, but no headlines of note (on-line version).

The Guardian doesn't have any meaningful headlines on its story about the 15%-er.

So, why am I pissed at both the Times and the Post? Simple: what the Mitten Man makes isn't by way of investment. If by, and I sure do, one means actually putting money into new physical production. He just moved money from some pockets, mostly other peoples', into his. Trading stocks, and companies, is gambling pure and simple. If you buy, you're betting the guy you bought from was a fool to sell so cheap. Selling, that other guy's a fool for paying so much. If you have insider information, and Mr. Mitty sure would with his hedge fund activities, the bet is sort of one sided. Do regular gamblers get away with 15%? Nope. Here's a Las Vegas explanation.

Why should Wall Street gamblers get off cheap?

16 January 2012

What Language Do You Spook?

Drew Conway is my kind of guy: a spook. Now, before any of the uber-PC folk get their backs up, an alternate definition of the word: colloquial for intelligence operative, origination unknown. I don't always put it on my resume, but I spent some time in the 1980's in Jack Anderson's shop. Officially, an intern; I did get paid some money. That's likely because I brought in a two column story (a story getting more than one was highly unusual) on the CIA running guns from Argentina (if memory serves) to Ghana. Corky Johnson worked on it with me. This was the time of Iran-Contra and the like. The story falls into the "like" category. We could never figure out why the Post didn't follow-up. I still have the galleys.

So, I was surfing through R-bloggers looking for background using R with Powerpoint; I know, yucky mucky. But I'm supposed to chat up some folks about that today, if they bother to call. In the search results is a long piece by Mr. Conway on proper data visualization. Comes out against pie charts. Good for him. I highly recommend it; he manages a bit of humor, when offering that a graph should have a 140 character footnote. Such a twit!!

15 January 2012

Money, Money Everywhere

I wrote the following as a broadside reply to a post on one of the blogs, but a) it's really too long for that, and b) it deserves to stand on its own. I'll leave the last word to the last commenter over there.

The continuing fascination among freshwater economists, and non-economist commentators, with currency as determinative of an economy's function is macabre. Hayek, and his gang, are totally batshit. When I was in graduate school, his stuff was au courant. It's still batshit. No one, as yet, has cited an historical occurrence of prosperity through austerity, the Austrians' panacea. I infer that the thrust of some arguments is to pump up the Austrians. My intent is to emasculate them.

The fundamental problem with financial analyses, of late, is lack of understanding that the US dollar is New Gold. One sees what happens when Europe or Asia gets a sniffle: Treasuries fly out the door. Bretton-Woods gave the US an absolute upper hand, but also explicit benefits in international trade; until the oil embargoes, and the abrogation of B-W, the world was our oyster. We're now the currency of record, but have none of the benefits. If we were to manipulate the dollar as profligately as other countries do their currencies, the world would be as a rusted out Yugo in a Big MAC.

Both Japan from ~1990 and the USofA today suffer from the twin evils of shifting to high income inequality and the resulting collapse of demand; it's the shift that causes the problem. It's just that simple. Recessions and depressions through history have the same cause, and the refusal to deal with it is why Japan remains mired in muck. And so will we if the Austrians get their way. I think they actually enjoy destruction of societies.

Currency, as Hume pointed out, is merely the grease that lubricates barter; it is not the raison d'etre of any economy. Goldfinger was a fictional character. The Bass brothers were real, and look how that turned out. I suppose that a shift to a "service economy" meant that currency would come to be viewed as real goods, but that doesn't mean it's an intelligent course of action.

Interest rates, in the real world, are determined by physics and engineering: more efficient real capital drives more efficient production by some delta. This delta is the real rate of return on physical investment. That is the maximum time value of money, the interest rate. While clever people may attempt to flummox reality, it never works out. The underlying reason for The Great Recession is that there is no real rate of return on home mortgages (or any purely fiduciary instrument, a fact happily ignored by many in the financial industry). There is no productive justification for interest earning on residential (or commercial, but that's another episode) housing. The value of residential housing can only increase (or decrease) with median income, since housing is merely serial consumption. Since I started this piece, I posted on eating crow, in which I marveled that a Fed board member voiced the view that housing "investment" really wasn't. I was/am genuinely surprised, since until those notes came out I read nothing from mainstream policy makers to show such an understanding.

When median income couldn't keep up with interest rate re-sets, the cry went up far and wide, "I'm melting!!!". And the financial community was flabbergasted. "We couldn't see it coming." And so forth. They had all been busy looking at yield curves and ignored the controlling ratio: median income / median house price. You can find graphs of that ratio around the interTubes now. Including my Viagra graph, by the way.

Over the course of the USofA, long term interest have been lower than short term for considerable lengths of time. There is no a priori justification for long term and short term interest rates having some magnitude differential. The risk of long term real investment is not necessarily greater than short term; it all depends on the risk inherent in the use of the funds, not the duration. One can argue the opposite, in fact: an effective use of physical capital will be both long term in its value stream (a better mouse trap) and lower in risk (a better mouse trap). 19th century was characterized by: specie money, deflation, recession, and lower long term interest rates. With today's technological march, one can argue that "long term" productivity streams don't last as long as they used to. There may not be any long term.

Another characteristic of 19th century America: capital flight to states, and when they weren't sufficiently groveling, countries, which were autocratic towards labor. The only reason that worked, for a while, was the expansion of population and the country's control of vast amounts of territory and resources.

If a picture is worth a thousand words, here's a couple:

Apple Chinese factory.

Lewis Hine/1909

13 January 2012

They Eat Crow, Cold [update]

I was right, right, right.

Not that this makes me feel so much better. Quants began to invade economics departments in the early 1970's. I was there and saw the jettisoning of economic understanding for algebra, preferably in support of partial differential equations and Bayesian statistics. Insight is far more important than symbol manipulation, unless your field is math or physics. Even so, in the latter case the symbol jiggling follows the insight; that's just what Einstein did. He as lousy at algebra and needed help.

To paraphrase Shakespeare: "The first thing we do, let's kill all the quants".

Some juicy quotes.

"Some officials, including Susan Bies, a Fed governor, suggested that a housing downturn actually could bolster the economy by redirecting money to other kinds of investments."

Actually, kind of right, in that, as I've been saying, housing isn't investment in expanded production. But not so easy to pull off when the housing investment is crooked to begin with.

"The transcripts of the 2006 meetings, released after a standard five-year delay, clearly show some of the nation's pre-eminent economic minds did not fully understand the basic mechanics of the economy that they were charged with shepherding. The problem was not a lack of information; it was a lack of comprehension, born in part of their deep confidence in economic forecasting models that turned out to be broken."

The crux of the matter, of course.

"'It's also embarrassing for economics,' [Justin Wolfers, an economics professor at the University of Pennsylvania] continued. 'My strong guess is that if we had a transcript of any other economist, there would be at least as much fodder.'"

Again, spot on.

I haven't had time to read all of the transcripts, but for those who are interested, here a couple of links.

This one is the transcript page.

This one is a longer set of quotes.

12 January 2012

Energizer Bunny

One of those theses I'd been considering writing about just became redundant. And that's a good thing. For various reasons, none of which I can pinpoint, I'd been building on the idea that our problem is just energy. I don't know that this is novel, but it's not been the basis of any analysis I've seen in memory. Analysis is political or religious or whatever.

But the fact remains: the distinguishing characteristic of human "progress" is just large per capita energy expenditure. Whether that energy expenditure necessarily makes us more "civilized" is a significant question. But the change in societies can be simply measured in BTUs.

So, I was sipping rum and cable surfing, and came across "The History of the World in Two Hours" on History International (or H2). I caught the last half hour or so, but was struck by thesis: "progress" was the result of energy consumption. I guess I don't have to write the piece. Check your local listings. It's worth a look.

The question not answered: is there really any difference between a hairy Neanderthal using a club to kill his neighbor in order to take his neighbor's stuff, and not so hairy homo sapien using a laptop to reach the same end?

08 January 2012

Turning Japanese, Part 2

I, along with a considerable chunk of saltwater economists, have been harping on the history of Japan from 1990, as an object lesson for the USofA and The Great Recession. So, imagine my surprise when today's NY Times runs a piece on the front page of the Review section claiming that the USofA should now *emulate* Japan! What's up with that? Another case of Judy, Judy, Judy?

In part, I have to disagree with some of his conclusions based on inappropriate data. He says: "Luckily there is a yardstick that finesses many of these problems: electricity output, which is mainly a measure of consumer affluence and industrial activity. In the 1990s, while Japan was being widely portrayed as an outright 'basket case,' its rate of increase in per-capita electricity output was twice that of America, and it continued to outperform into the new century." Now, in my dead trees version which I read this morning over dark roast Panera coffee, that sentence is right next to a 1/4 page photo of an open air pedestrian shopping street at night. Could well be Tokyo. Wherever it is, it shows the profligate use of electrons devoted to signage. Moreover, Japan uses much more electricity for public transport, which is a Good Thing, but really isn't an indicator of progress vis-a-vis the USofA (here). A few minutes with interTubes search didn't yield a source of household electricity use, which didn't surprise me. On the other hand, WikiPedia has this piece, citing IEA data, which shows Japanese per capita electricity use declined in the mid 2000's.

The number he should have used, if it were available, is median household electricity usage for both countries. Since Japanese homes, at the median, are significantly smaller than US (not the best number, but the best I could find), the delta percentage is a truer measure of usage, with the caveat that 10% more of 1 is a lot easier to do than 10% more of 100. And whether using more electricity is a sign of progress is a whole 'nuther question.

Where I have to agree, at least superficially, is this:
"Japanese manufacturers have graduated to making so-called producers' goods. These typically consist of advanced components or materials, or precision production equipment. They may be invisible to the consumer, yet without them the modern world literally would not exist. This sort of manufacturing, which is both highly capital-intensive and highly know-how-intensive, was virtually monopolized by the United States in the 1950s and 1960s and constituted the essence of American economic leadership."

While I have to agree that not killing off manufacturing is a Good Thing, the manic chasing of export sales is foolish. If one wants to have a robust domestic economy, then domestic consumption of capital goods is also necessary.

Where I really have to praise his insight is the tale of victimhood perpetrated by the Japanese hierarchy internationally. Poor downtrodden Japan!! As my Pappy used to say, "a hand full of gimme, and a mouthful of 'Much obliged'".

One point about the article needs amplification. He talks about differences in inflation over the relevant period, and remarks that US statistics makers had changed their methodology to something called "hedonic inflation adjustment". I missed that somewhere along the line, likely when I was trying to make a living with a camera. The concept was taught when I was even an undergraduate, but I don't recall the term. It amounts to calculating 'flation weighted by the change in "quality" of the various goods in the market basket (the technical term for the list of goods and services used to measure 'flation).

The BLS says this about it.
An opposite view is here.

On balance, hedonic (a truly woeful term) adjustment is appropriate. The concept is commonly used by Right Wingnuts, by the way. They use it to say that Americans aren't really more prone to poverty now than years past just because the goods (services, not so much, of course) of today are so much more capable than five or ten or twenty years ago. That doesn't stop them from complaining when the argument defeats them.

07 January 2012

Color Me Happy

I posted the following comment on Offensive Politics' post on its graphic presentation of Iowa results:

This post got referenced on Revolutions Analytics, and garnered a comment that the (default) HCL scale used by ggplot is faulty. I commented that the closeness of the vote is perfectly reflected in the color scale; the confusion is correct.

So, off I went to Wickham's ggplot2 book, chapter 6 on scales. scale_full_gradient2() and library(vcd) provide ways to impose non-linear color scales. At first, a good thing. But I wonder. There's been a good deal of discussion, here and there, with regard to spinning data. It would seem that using a non-linear color scale is just as bad as fiddling with axis scales.

What do you think?

I mentioned this post earlier, which was then followed by its linking from Revolution Analytics. One of the prime directives of professional statistics, as distinct from polemic number spewing, is that form shouldn't affect perception. In other words, don't fiddle the picture to plant an idea not supported by the data. In this case, the original commenter complained that the color scale made it difficult to distinguish among the counties' vote winners. My view, so far at least, is that the defaults used by R/ggplot for this implementation rightly reflect the similarity between Romney and Santorum.

The default color scale is, essentially, linear. The alternatives mentioned are decidedly non-linear. Now, the notion of linearity with respect to color scales may be problematic, but the ggplot defaults do implement a notion of linearity, in that two opposite colors are blended along a linear mixing.

Here's examples from Wickham's ggplot2 text. I suppose it was uploaded legally. I hope.

This is the various color scalings:

As can be seen, the color gradient in the right two alternatives is far more extreme. I'm still not convinced that one should do such fiddling.

Barbary Piracy

I'm by no means a Cato Institute type, but a piece by one of their staff was linked from Groklaw. It talks about the SOPA, and debunks the whole idea. Nothing I hadn't long ago figured out, but it may be revelatory to those who don't do economics.

I don't recall, and am way too lazy to run it down, whether I've written up here my thoughts on the general topic of macro and sub-macro economics. In a nutshell: many (most? all?) numbers based arguments, distinct from outright policy ones, that promote some law or regulation to "save" or expand some industry or corporation are guilty of bad arithmetic.

Here in sunny Connecticut, there was a gaggle of data when the casinos were being considered. Numbers were produced to assert that casinos would produce a bounty of revenue and jobs. Didn't happen. And the reason it didn't was that there was no net gain to Connecticut's economy; Connecticut folk spent at the casinos rather than movie houses or restaurants or whatever. As the article points out, what's forever been obvious to me, the vast majority of "pirates" wouldn't/couldn't afford to buy the item without the pirate option. Many of my Dear Readers are way too young to remember copy protection of common PC applications. MicroSoft and Lotus were the vanguard, locking Word and 1-2-3. There would be estimates of millions of illicit copies of the programs running in homes, and visions of $$$ danced in Bill's and Mitch's head. Baloney. Eventually, both gave up, although MicroSoft has been creeping back into the mire with Windows authentication.

What they ignored, because it was necessary to do so, was that such "pirated" copies were in search of employment where those programs were required. The "pirates" would never have the cash to buy either, and certainly wouldn't. They had no intrinsic demand for either. It turned out that most of the pirating was happening in corporations, in any case. Surprised?

The same applies to CDs and DVDs, but slightly differently. Music and movies have intrinsic demand for their consumers. Would a consumer buy that CD at full price if there were no other option? Who knows? But... for those who can't/won't pony up full price, the consumer's discretionary expenditures don't change. Rather than spend $5 on an illicit CD, s/he spends $5 on a graphic novel or a Big Mac meal. The overall economy is no different. Those who do pony up the full price then have to forego both the graphic novel and the Big Mac meal. It's just a government sanctioned and imposed transfer of wealth from one industry/corporation to another.

Not something a libertarian would countenance.

06 January 2012

There Card Monte

Not being a rapid Republican, I viewed the Iowa dance with detached amusement. The farther out on the starboard wing they go, the better off the nation is. At some point, even the averagely informed and intelligent will realize they're being taken for a ride. Granted, we haven't yet found that distance.

Early Wednesday afternoon, I was checking R-Bloggers, and saw this graphing post of the results. No discussion evolved. As a virtually instant analysis, it was to the point.

Then, Thursday the conspiracy theorists had a field day. Not that the post came out and said so, of course. However, the flood of discussion sure did.

There are a number of aspects to the Iowa results. Most of them in the realm of political economics, oddly enough. As some of the comments noted, caucuses are *not voting* exercises. As a bit of video (I think I saw on "The Daily Show") showed, it's scraps of paper in left over Christmas boxes; and who knows what else. These are purely party run and controlled pageants. Whether there are monitors to the counting, and a chain of control to the counts, and all the other electoral niceties, I sure don't know. Doesn't appear that way, at least.

Then, today this bit of news. But, if the GOP Brain Trust (could fit in a Match Box Yugo box, of course) wanted the anti-Romney, why Santorum? He couldn't get re-elected in Pennsylvania, for crying out loud. PA ain't MA, but it sure ain't MS, either. May be they should just rename it the White Folks Only Tea Party and be done with it. OK, I know; honesty has never been their best policy.

03 January 2012

Pieces of Eight

Yo ho ho, and a bottle rum!! Six pieces of eight'll buy you a jug!

No, I didn't just get back from a Jack Sparrow movie (never seen one, actually). What I did just finish is an AP feed, a copy is here, which didn't quite go all the way (thanks, Berman). It did state: "Republicans also controlled Congress for six of the eight years Bush was in the White House, clearing the way for many of his policies to be enacted."

As you may have guessed, if you've not followed the link, the Right Wingnuts aren't embracing their last President. You know, the fascist kind, the only kind which can be Legitimate Presidents. The Chimp as red haired stepchild. As bastard spawn of a one night stand.

It may be time to create a new website, 22of28.org, to put a stop to the lies from the Right Wingnuts.