Parrothead

Well, Warren's gone and done it (again?): admitted that rich folks don't really work. He doesn't say that verbatim, of course. That would be too damning, even for him. But what he says amounts to the same thing. If you've so much moolah that all you do is gamble it on stocks (and likely have no marketable skills, to boot), how much you get taxed is irrelevant. Put another way: if you've so much moolah that 5% or 10% gross returns is more than a $1,000,000, what's your options? Can you earn wages that exceed $1,000,000 instead? Not likely. What can you do? How's your three point shot? Can you sing rock and roll? Invent the next Pet Rock? Again, not likely.

Economists refer to the rich man's situation as opportunity cost: what's the alternative use of the moolah, and the alternative venue for your skills (again, if any)? For the Buffett sized rich, deflation is the least risky alternative. Implicitly, that's what they're (although, apparently, not Warren) angling for. Talk of inflation and fiscal responsibility and fiscal cliff and such are just stalking horses for a Real Depression. That way, their stockpiles in the trillions of dollars gain value without even putting them to any "use". The Goldfinger Model of Economics. Hey, that's trademarked by me.

So let's forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if -- gasp -- capital gains rates and ordinary income rates are increased. The ultrarich, including me, will forever pursue investment opportunities.

Here's where Warren, in my not necessarily humble opinion, goes all Pollyanna. I do believe that his brethren would rather stuff mattresses whilst depression spreads around the globe. He ignores the passive/aggressive alternative. We'll see.

Shared What?!

It can't be any fun to be an actuary any more. I read up the first exams' study guide years ago, but decided not to do the tests. McElhone's mantras, "the world is not linear" and "you don't estimate beyond the data", kept ringing in my ears. These days, when we get a once in a century event every couple of years? At the subatomic level, the universe is probabilistic. At the macro level, not so much; causes have effects, if only we pay attention.

There's a wealth of material to ponder in today's NYT "Sunday Review" and "Sunday Business"; I'll limit my musing to a piece on home insurance. The authors are from the Wharton School, and thus should have face validity. Not so much.

Here's where they go off the rails, so far as I'm concerned (a frequent theme here): they ignore community. Their theme is essentially this, household insurance in places of known higher risk should *alone bear the burden*. When I took the course in grad school, the title was "Risk and Insurance", and was conducted from the economics department, not the B school. The point of the course was to study the implementation of shared risk. The MBA crowd is solely concerned (modulo the occasional and optional Business Ethics course) with profit. That makes a difference.

First, premiums should reflect risk. This makes transparent the magnitude of the hazards one faces and could limit new construction in high-risk areas. Residents would be encouraged to reduce risk by getting discounts for, say, elevating a house or strengthening the roof.

This sounds fair, on its face. But there is a problem: if insurance companies (or public providers, for that matter) are allowed to exercise market segmentation at will, the process is no longer insurance, but prepaid consumption. The result of unfettered segmentation is to shift all of the cost (and source of profit) for any risk solely to those who are subject to that risk. Recall the recent "Your Good Mother" essay? The rich get richer and the poor whither. Insurance, from the point of view of economics, is all about shared risk, not individual risk. Individual risk is just prepaid consumption.

The justification for this predatory behavior is stated:

Those who live in nonrisky areas are subsidizing the choices of others. Take residential flood insurance. Most insurers refuse to cover the risk, so the National Flood Insurance Program, run by the Federal Emergency Management Agency, was established in 1968 with subsidized rates for those then living in flood-prone areas.

This approach is little different from allowing health insurance companies to ding subscribers with pre-existing conditions. If you live on the Atlantic beaches, you're far more likely to get hit by a hurricane. But those in Fly Over Land are far more likely to get hammered by baseball sized hail storms and tornadoes. Neither group can, just to avoid the condition, simply move to Safe Land.

The authors bury the point in an otherwise benign paragraph:

... the need to provide shareholders with an attractive return.

But shared risk is socialistic, or tribal, or communal. We all have some sort of risk associated with where we live. We can't just load up the SUV and head out for Safe Land.

How, then, to persuade folks from building in risky places? Is there sufficient acreage for a burgeoning population to live only where natural (and man made) disaster is less than average? Well, of course not. The arithmetic can't work. If all the folks in hurricane land and tornado land and earthquake land moved to Safe Land, the price of housing in Safe Land (wherever that may be, and likely in my neighborhood, as it happens) goes through the roof, so to speak. Not to mention the cratering of wages, with the influx of those needing employment. Back in the 18th and 19th centuries, there was more than enough room for the population, mostly subsistence farmers. We have since industrialized, urbanized, de-industrialized, and urbanized some more. The USofA population has more than doubled since WWII, those halcyon days of 90% maximum marginal tax rates. I suppose we could engage in the sort of back to the land re-education that Mao imposed. Doing so would certainly mitigate the risks of these Gray Swan events. And mitigate the rent seeking behavior of insurance companies.

Pulling up stakes and moving house (as the Brits put it) used to be just a matter of loading one's few possessions into a conestoga wagon and heading for Indian Territory to steal a few acres. Those days are long gone, and acting as if such action is the solution to any current problem is just plain evil.

We do need to make it more expensive to live in known dangerous places. But just as we have, nominally, a progressive tax paradigm, we should have a progressive insurance risk penalty. Those with McMansions on the beach should subsidize those living in shotgun shacks, not the other way round. Those who've been living in some risky place for some number of years, say 20, don't get dinged so much, but those who've entered recently (or in the future) when the risks have been clearly documented pay more. Local zoning and building codes are the major lever to pull to make building in vulnerable areas more, even wildly so, expensive. I don't know about you, but I don't see the commissioners of Miami Beach voluntarily curbing the building push. It was housing in Florida which was the epicenter of The Great Recession. Since increasing housing activity is viewed, even by Lefties who should know better, as the solution to The Great Recession, what to do? I highly recommend Carl Hiaasen's thinly veiled novels on the evil of development. "The trailers imploded, exploded, popped off the tie-downs and took off like fucking aluminum ducks." That's from "Stormy Weather", written in the aftermath of hurricane Andrew. You must read it, if you haven't.

It can be argued, of course, that wind insurance and flood insurance are sops to the slothful. That's the authors' point. Too simplistic by half.

Your Good Mother, Part The Second

Along similar motivation of the Dee Feat series, herewith the second (for the sake of settling on a number) in our Good Mother series. This report in today's news reminded me of this other device, reported on by "60 Minutes" among others.

So, as Your Good Mother constantly reminds you: "what would the world be like if everybody behaved like you?" (She isn't necessarily literate enough with to know which preposition to use!) Once again, particularly from the Hawaii story, it's quite possible to bring overall degradation to an economy (and its society) by going all in on Rand.

At what point is the individual, especially acting in consort with some number of others, obliged to temper actions based on externalities? For those who worship at the feet of Adam Smith (the real one), the question is a bit more piquant, since his most famous text assumes that there are no externalities! Quants, working as they almost always do, for individual actors (in the context of some market, not humans) are described by micro-economic arguments. Again, externalities are assumed away. Not a good, or honest, thing to do. One might strongly argue that The Great Recession came about just because the quants (at the behest of The Suits) took explicit advantage of the fact that their companies would be protected from meeting the demands of the externalities of what they did. The micro point of view, of course, denies culpability for externalities: "those on the other side of the transaction are obligated to caveat emptor". Again, if everybody does "it", there's no way to mitigate the externalities except by taxing the community at large. And the bad actors get to keep their gains.

Another example, charter schools. Evidence is piling up that charter/private schools, particularly those catering to "inner city" students, don't do any better at educating, overall, than the public schools from which they rob moolah. As with spontaneous cancer remissions (every type has some, small, number of long term survivors), a few success stories of individual students can be cited. I'm always reminded of my local nutball, Linda McMahon, who propounded that, since "she" (actually, her equally nutball hubby) had become a millionaire, everybody else could, too. What such folks neatly elide: if everyone were a millionaire, a loaf of bread would cost everybody $10,000 (give or take a few thousand). Just because one can cite a single success from some policy, doesn't make the policy intelligent for the community. Not that the Rand-ians care about the community.

In all three cases, we have the problem of: divide and conquer (the Big Uns surreptitious way to win), where only those who can afford the individualized alternative get the good/service. The earliest example, in recent history, was White Flight in the 1960s. Suburban communities morphed into wealth by denying the common good; one might even see this as the continuation of Manifest Destiny (a stretch, but not by much). Many Christian schools are rooted in such communities; they don't get the irony, of course.

Now, I'm not a fan of The Power Grid, and never was. The first great blackout happened when I was a child, and I lived in it. To my surprise, the wiki piece does mention the point germane to this missive: Holyoke, an abutting town, had its own standalone powerplant (you can see it from Route 5 or I-91) and got along just fine. The justification for The Grid is load/demand balancing across time/space. I'm not sure of the physics, but transmission loss is not insignificant (the Bloom Energy piece states that avoiding said loss is a meaningful part the advantage). So far as Your Good Mother is concerned: what should be the unit of community where externalities exist? For power, it would seem to be the community (city/town). Holyoke wasn't, and isn't, like the Hamptons with hordes of upper-middle class folks fleeing the hoi polloi. Mostly hoi polloi, in fact.

One could even extend a power grid analysis to the au courant meme: The Cloud. I'll leave that as an exercise to The Reader.

Inbreeding Isn't a Strength

Well, the story is starting to emerge. Here's a version from The Atlantic. Toward the end of the piece we get this:

"A lot of the software is kind of late. It's looking ugly and I go out on this Field call," Kunesh remembered. "And people are like, 'Man, we should fire your bosses man... We gotta get the guys from the DNC. They don't know what the hell you're doing.' I'm sitting there going, 'I'm gonna get another margarita.'"

The problem: it was the DNC guys who screwed the pooch in 2010, and did little to stop the tsunami in state legislatures then or this year. We now have Yankees and Johnny Rebs, in spades. It's just now Coasts versus Crew Cuts. The lackadaisical DNC gave us this. I met with those DNC guys. They let 2010 happen. They aren't the ones to follow.

And then they provided a separate way for the Analytics people, who had very specific needs, to get the data in a different form.

Of course, if they'd used Postgres and PL/R, they'd have had it all together.

Recall from Triage, the observation that getting the response data would be the most costly (and time consuming)?

With Davidsen's help, the Analytics team built a tool they called The Optimizer, which allowed the campaign to buy eyeballs on television more cheaply. They took set-top box (that is to say, your cable or satellite box or DVR) data from Davidsen's old startup, Navik Networks, and correlated it with the campaign's own data. This occurred through a third party called Epsilon: the campaign sent its voter file and the television provider sent their billing file and boom, a list came back of people who had done certain things like, for example, watched the first presidential debate. Having that data allowed the campaign to buy ads that they knew would get in front of the most of their people at the least cost.

And so it was.

This is near the end of the piece. Not the last words, but the last ones that matter:

And losing, they felt more and more deeply as the campaign went on, would mean horrible things for the country. They started to worry about the next Supreme Court Justices while they coded.

If that doesn't connect with you, shame on you.

Dee Feat is in Dee Flation, Part 23

Well, the Producer Price Index is out, both versions, and it's -.2%. That's right campers, the Koch Brothers are dancing in the streets. They gots themselves DEEflation. They must be so happy.

No Moron

The bus driver said, "Full. No more on!" Naturally, she tried to squeeze in. And so it goes for the Right Wingnuts, devoid of even a functioning lower brain stem.

For those that may have missed it, an Arizona woman ran over her hubby, for the grievous error of not voting. Being in Arizona, yes, she was mad that Obambi won and that hubby hadn't voted. The punch line follows:

Arizona's 11 electoral votes were won by Romney.

Are You Bi-Curious?

For those who might be wondering why the Democrats get cranky:

According to the Senate Historian's Office, the number of "cloture petitions" -- a procedural step that sets up a vote to end a filibuster -- was 68 in the two-year session of Congress running from 2005 to 2006, the last time Democrats were in the minority.

But that number has exceeded 100 for each of the past three two-year sessions, all of which have seen Republicans in the minority, peaking at 139 in the 2007-2008 session. There have been 109 in the current 2011-2012 session, with several more weeks of lame duck meetings expected.

Yeah, bipartisanship. Sure.

Jim

We begin, again, with lyrics:

You don't tug on Superman's cape
You don't spit into the wind
You don't pull the mask off that old Lone Ranger
And you don't mess around with Jim
-- Jim Croce

More dirty laundry explaining the Romney Bubble (Yahoo! feed):

"As a result," says Crawford, "they believed that the public/media polls were skewed" in Obama's favor, and rejiggered them to show Romney with "turnout levels more favorable to Romney." In essence, Romney "unskewed" the polls, mirroring widely mocked moves by conservatives to show their candidate with a lead, epitomized by the now-infamous website UnskewedPolls.com.

Much the same as The Great Recession implosion, the Boys In Power decided to invent their own reality. They believed their propaganda. They were convinced that they could re-make the world into their image. They learned from Karl Rove.

That's not the way the world really works anymore. We're an empire now, and when we act, we create our own reality.

Can there be anything like a Right Wing quant? Put another way, is it possible for those attached to the Right Wing (including, obviously, Wall Street) to be based in the data? The evidence, so far, is No. These Wall Street quants ignored the most basic of data driving their MBS, CDO, CDS, and other derivatives (income/mortgage ratio). Incompetence of the highest order, but The Boys In Power wanted what they wanted, and their quants were happy to say Yes. Empires fall. The Right Wingnuts have fallen. Could they have won? Not without turning their back on the Tea Party and Rand-ians who have co-opted the party.

Reagan co-opted the so-called blue collar middle class, through the brilliant stratagem of convincing enough of them that, while they were Chosen People, their neighbors were freeloaders who deserved to starve. Steve Jobs was often accused of having a reality distortion field; those that fudge data in order to appease The Boys In Power today, sometimes end up on the losing end of the bargain. Not always, of course, only when the data are important. If they are truly attached to the agenda of the clients. In the usual scheme of things, the quants get their cut up front, of course. I suspect that the devisers of Orca made out very well. If they had built a system which accurately reflected reality (in the data), they would have lost the contract, since it would have contradicted the desires of The Boys In Power. Just as the Wall Street quants were only following orders.

Spinning Wheel

To quote Blood, Sweat, and Tears:

Spinnin' wheel's spinnin' true
Drop all your troubles by the river side
Ride a painted pony,
Let the spinnin' wheel fly.

What goes around, comes around. In order to have a stable economy: those that has, spend; those that spend, has. Previous missives have called bullshit on Germany for extorting further pain from its importing countries. Germany needs these freeloaders to clear its output. The simple fact is, exporting economies have a symbiotic relationship (most often denied, of course) with the countervailing importing countries. One might even posit that the true power rests with the importing countries. Think about it for a minute.

So, today we find this report, that Germany is getting nervous about France, which absorbs a significant proportion of German output. Payback's a bitch.

France has been the number one consumer of German goods for years. In 2011, Germans sold more than 101 billion euros there, about 10 percent of overall exported goods.

Germany invaded France on 10 May 1940. They're doing it again, but now using the cover of the EuroZone. Once a Nazi, always a Nazi.

Ann's Horse Didn't Win, Either

My, my. A recent missive here asserted that Gallup was wrong. Gallup was wrong right up to the end, although according to 538, they had inched toward Obambi at the end. Didn't quite get there. But that's not today's topic.

Turns out, Willard had his version of Triage!! I know nothing, nothing I say, about it. Except what I read in the newspapers.

The success, though, would have to depend on volunteer troops united by a Web-based smartphone app.

Is this the Literary Digest, all over again? Deja vu? I haven't found the original (I'm not on their mailing list, so...), here's the PR (from yet another Right Wing organ) referenced above. Figures that the Right Wingnuts would chose a predator as the project's nickname. I suppose, in their over-weening adolescence, they thought it was cool.

OTOH, there's this (kind of like Triage, don't you think):

For example: if we happen to be down in a state at lunch time, we can pinpoint exactly what is causing it. So, if we know we're going to win X state by 3 points, let's move our resources to Y state, county. In sum, Project ORCA will give us an enormous advantage by being able to know the current result of a state.

As described in the Triage piece, the key to making these kinds of systems work is timeliness of data. I suspect that these webby quants had never worked campaigns, spent time in a political city (my first two were Boston and DC), or understood that "dashboards" are cute, but GIGO.

In the primary, we learned it was difficult to be working from Boston and really affect voter turnout in the states. It was disappointing to receive data later and realize if we had access to that data earlier, we could have done something differently and affected the outcome.

Kind of late in the game, though. It's not quite as silly as my own state's Linda McMahon, who managed to get on the ballot more than once (as did Murphy). It seems that there were other parties officially on the ballot, which motivated McMahon to run ads in the last couple of days with talking head "real people" saying that they'd vote for Obama, and ..... Linda (as she termed herself, I suppose to offset the images of burly half naked men clobbering each other with metal chairs).

Another key component to Project ORCA is state-of-the-art dashboard. For the past several months, a "brain" has been built into this dashboard and it will take in, analyze and recommend actions on the millions of pieces of incoming data. In the fast-paced environment of an Election Day command center, having this programmed "brain" will alert decision-makers to key findings and suggest reallocation of resources.

Deja vu. That's the essence of Triage. But far too late in the game.

Here's the original, quoted liberally in the Yahoo! feed. It must have hurt. When I lived in Washington, there were a bunch of local papers in the Viginia and Maryland burbs. Thanks to WikiPedia, now I know why I hadn't heard of the Examiner: a mini-Koch bought them up some years ago and turned them into a freebie Washington Times. Mein Gott! Dat's gotta hurt.

Later, another aide said Orca had pretty much crashed in the heat of the action. "Somebody said Orca is lying on the beach with a harpoon in it," said the aide.

You know, if only they'd built Orca with R. Open source and quite powerful. Kind of a community organized to analyze data. Turns out a community, once motivated, can kick Roark's butt.