26 December 2012

Your Good Mother, Part the Third

Your Good Mother has just figured out another situation you should listen to. The Gallup folks are not happy about being fingered as Romney Borgs, so now they're crying wolf. If the "aggregators" manage to get elections (and, by extension, other polling efforts such as used in, say, advertising) right, does this mean that pollsters will be put out of business, until there's only one left? Could be. That's Gallup's assertion.

One one hand, Gallup is right: the cheap drives out the dear. On the other, in this case, aggregation does identify the perpetually wrong, who will in time fade into Chapter 7. There's nothing wrong with that, given the Social Darwinist imperative. If, over time, aggregation finds the perpetually correct, and that one pollster dominates, so what? It may be that many (not widely admitted) social goods exist in our economy. In other words, Adam Smith may be largely wrong in his point of view: much of commerce devolves to one (or a few) producers. And having one (or a few) producers, means socialism. Otherwise we get monopoly, and restricted access and concentration of power. Remember, Smith's archetype was straight pin manufacture.
Organizations that traditionally go to the expense and effort to conduct individual polls could, in theory, decide to put their efforts into aggregation and statistical analyses of other people's polls in the next election cycle and cut out their own polling. If many organizations make this seemingly rational decision, we could quickly be in a situation in which there are fewer and fewer polls left to aggregate and put into statistical models.

Welcome to the world of oligopoly. And here's the coup de grace:
The aggregators that came closest to Obama's overall winning margin were the ones that attempted to account for pollsters' house effects.

In other words, making reasoned decisions on bias does the best job of removing bias. Imagine that: brains beat data. Read through the piece. Once again, lemmings end up killing each other.

First Thing We Do, Kill the Taxman

As Regular Reader should remember, I've been fascinated with Bermuda since my visit there a few years ago. Especially considering that I wasn't all that keen on going there, and that the boat ran through the remnants of hurricanes in both directions. The islands (plural when I was growing up and learning 4th grade geography) are quite pleasant.

What makes Bermuda fascinating to a Keynesian, is that it is a micro-USofA. It's economy, which was once based on its inherent competitive advantage, tourism, has in the last couple of decades, been morphed into a mid-ocean Switzerland. Or so they say. In reality, it's just a tax evasion haven for insurance companies. The island is about 20 square miles, and has about 64,000 residents, about one-third of the workforce are imported managers and such for the International Business sector (IB). At the country level, it's nearly the densest on the planet. It has no fresh water reserves, and little arable land. It has no fuel source, other than wind or ocean; neither of which is exploited to any meaningful degree.

Last week was elections, and the black oriented PLP lost to the white/IB oriented OBA. The PLP had controlled parliament since 1998, its first time winning control.

I follow Bermuda through the Royal Gazette, allegedly the least right-wing paper published on the island. Just a week after the election, they published an essay by a Canadian, who's been writing occasional pieces at least as long as I've been reading the paper. He's an apologist for the IB faction; not surprising, I suppose. He calls for regressive taxation as the cure to Bermuda's economic ills.

Why this fascinates me is straightforward: Bermuda is the apotheosis of "service economy". There may be evidence that the 99% of Bermuda are better off with the rise of IB over tourism, but I've not seen it. Given the limit size of the island, those holding dormant residential and commercial property would benefit from a return to more IB presence. Bermuda is a petri dish of social Darwinist experimentation. It also demonstrates that an economy based mostly/solely on currency is inherently unstable. The open question, to me and possibly less so to Bermudians, is whether today's Bermudian 99% would be better off had the country stayed the tourism course, rather than verging off to tax evasion land. It's worth noting that this transformation happened under the previous white/IB oriented party, United Bermuda Party (UPB). As impossible as it sounds, universal suffrage didn't obtain until 1968; previously, one had to be a male landowner, and when that proved to be insufficient (as non-whites acquired land rights), a landowner could vote in as many parishes (voting district) as one held land. 1968!!!

So, a petri dish. Assuming that the tax change occurs, and there's every reason to conclude that it will, the results matter. The transparency matters, too. Right wing governments tend to avoid data, in favour of propaganda. Will the 99% really find themselves better off, if the 1% pay less tax? Or will the situation merely turn Laffable? Enquiring minds want to know!

23 December 2012

A Massachusetts Yankee in King Arthur's Court

Who to blame for the continuing mess we're in? How far back down (or up, depending on one's point of view) the breadcrumb trail do we go to say, "this is where it all started?" Or, how did Jason manage to find Nicky in crowded, serpentine Tangier streets when she, somehow, tore apart a cellphone with her bare hands, but dropped the fragments in the first few steps she took? Hmmm?

How far back should we look?

Could be the Israelis: the U.S.'s fawning support while they took over yet more territory from 1967 to 1972 pissed off the rest of the Middle East, until ...

Could be the other Middle Easterns (OPEC): because of the U.S./Israeli hegemony, they embargoed oil in 1973; sending the global economy into a fundamental shift with Bretton-Woods kicked to the curb and U.S. economic power with it.

Could be the Iranians (they're not Arabs): the embassy hostage taking led to ...

Could be Jimmy Carter: his handling of the embargo and the Iranians was (viewed) as inept enough to get him tossed out, which led to ...

Could be Ronnie Reagan, that dementia riddled half-wit: his (alleged) back-channel communication with Tehran led to the hostages being held through the election and thus his winning, and to his Voodoo Economics, starting with dismantling of PATCO; the blue-collar Reagan Democrats have still not figured out that Ronnie and His Friends had them as Prime Target.

Could be Arthur Laffer: creator of supply side economics (latter day tabernacle scripture) and the Laffer Curve, which was "proof" that Trickle Down Really Works if only we give the rich yet more moolah; they'll give back even more (yeah, right).

Could be Bush I: who continued Ronnie's assault on the non-financial middle class.

Could be Gramm, Leach, and Bliley: whose eponymous legislation killed off the last vestige of Glass-Steagell.

Could be Clinton: for signing Gramm-Leach-Bliley.

Could be Bush II: who shifted income and wealth dramatically to the 1% through tax policy (and other more subtle ways), thus killing off consumer demand.

Could be Alan Greenspan: who, being a goldbug at heart, would not countenance fiscal policy, thus instituted the continuing flood of moolah to banks and cratered interest rates which forced financial investments into equities in a mad rush for capital gain.

Could be Countrywide: that created the various non-conventional mortgages which could be securitized so that ...

Could be the Banksters: who were in need of "risk free" vehicles, since Treasuries had been put in the tank by Greenspan, packaged up those McMansion loans to McDonald's hamburger flippers as alternative to said Treasuries.

Could be private mortgage insurers: who wanted to reap high profit from "insuring" all those McMansion loans demanded more and more of them, which would never fail en masse, now would they?

Could be Fannie and Freddie: who saw market share erode to private insurers, and thus took on those McMansion loan packages in a big way.

Could be Bernanke: for continuing in Greenspan's footsteps, with trickle down monetary policy.

Could be Obama: for not having the gonads to tell the truth, it's demand that's collapsed, and no matter how large the flood of moolah to capitalists (certainly not the fiduciary sectors), they haven't, and won't, create more product (and hire bodies to make it) than they are now; you can't push a string.

So, this all brings us to Adam Davidson. While of NPR and the NY Times, where I see a short piece from him (nearly?) every Sunday in the Magazine, these musings of his have always sounded rather right wing-y. Not Boehner loony, but not progressive either. Today's essay is rather longer than usual, and given that it's an object lesson in many concerns of this endeavor, I offer quotes and discussion. For those that don't read the piece now, it's the tale of Adam Posen, an economist from Brookline, MA who was appointed to the Brits' equivalent of the Fed, and the fun and frolic which ensued. Yes, such an appointment hadn't been made before. I'd wager it won't happen again.

So, here we go.

Economics often appears to be an exercise in number-crunching, but it actually resembles storytelling more than mathematics. Before the members of the Monetary Policy Committee gather for their monthly meeting, they sit through a presentation from the Bank of England's economic staff.
Of course, it isn't; economics, especially as exercised by sovereigns, is about setting policy to reward one's allies and punish one's enemies. Until Samuelson wrote his first book, economics was still mostly Political Economics, which is to say an exercise in persuasive textualizing. This is not to say that more esoteric math and stats hadn't been used before Samuelson, but afterwards increasingly disconnected from reality math and stat presentation became the justification for all sorts of silliness. See: Laffer.

Economists on the right counter that paying off debt will actually inspire more confidence and prompt employers to hire.
This is a more technical (only a little) way to state Krugman's epithet: the Confidence Fairy is just waiting for a sign of subservience, and thence will wave her magic wand and make everybody so much better off. Poppycock, nevertheless. Throwing more moolah at those who have more than they can do anything with already? How many Twinkies can you stuff in your maw at once, anyway? Or hotdogs on Coney Island on July 4th.

Throughout the economy, people had to shift from highly profitable fields, like finance and real estate, into much less lucrative ones.
Here is where Davidson starts to drink the Kool-Aid, or perhaps Posen. This silliness that finance and real estate are, by definition, the most profitable sectors of an economy is a sure sign of disconnect. Think about it this way: of the occupations in the Service Economy, how many recently defined ones represent consumer purchases? Not damn many. Doctoring, lawyering, whoring have been around for millennia. Financial engineering? Not so much, and it's an overhead cost of producing something else, which may or may not be a consumer product. All those Wall Street folks? They were/are engaged in zero-sum gaming of financial instrument prices. Such activity is non-productive; it just sucks some percentage of the funds flowing from savers to borrowers.

Because politicians tend to think only as far ahead as the next election, central bankers are supposed to protect the long-term value of a nation's currency and, therefore, the stability of its economy. The modern-day hero of central banking is Paul Volcker who, as the chairman of the Federal Reserve, fearlessly raised interest rates high enough to stop inflation even if that meant hurtling the United States into a recession and arguably costing the man who appointed him, President Jimmy Carter, his job.
Worshipping at the feet of Volker has always impressed me as sycophants with a lower brain stem hard-on. The inflation was caused by the curtailed supply of oil, due to Israel-U.S.-OPEC shadow dance. It was a truly cowardly approach.

Posen quickly recognized that the data looked remarkably familiar. "I had this aha moment," he told me. Japan was not going through a unique and inevitable economic slowdown, Posen realized. The country was experiencing something that looked a lot like the Great Depression.
Bernanke has had the same moment, but he hasn't had the gonads to tell the truth. Then again, he can't just have his say and then toddle off to run some right wing-y consulting firm. He's scheduled to become head honcho in January.

Bridging that gap between the depressed economy and its potential required that the central bank create a lot more money and get it out into the economy.
This is the correct analysis. The problem is that the Greenspan/Bernanke method doesn't actually "get it out into the economy", but rather into the hands of banksters and stock traders. Trickle down, in other words. Needless to say, Cameron and his friends didn't take kindly to the analysis.

Then Posen's defense became more technical. He said the problem wasn't a sudden collapse in the capacity of workers and factories. The problem, more simply, was that there wasn't enough demand to support full production.
Again, he's gotten the correct diagnosis. But there is a problem, one that has been discussed before in the posts which constitute this endeavor. When in a recession/depression, there are two ways to get out. One is to re-employ folks back into the work they were doing before the crash. The other is to transform the economy to employ idle workforce in different, less toxic, endeavors. Obama/Bernanke haven't, so far as I can find, addressed this problem in public. To the extent they have, they've said things like, "the housing sector is key to recovery", and the like. WWII got us out of the Great Depression because the government demand for war materiel employed idle industrial capacity, and its labor force, in a simple minded way. The difference between making Model A's and tanks wasn't a large difficulty.

Today, with the de-industrialization performed by American capital, we've become dependent on ever more non-productive occupations; financial services is merely the most obvious. To put it another way: an economy which hasn't the idle capacity in goods bought by consumers won't return to full employment. It can't. Even if Obama dumped dollars in every household, they would spend it on Chinese made goods. There would be little increased demand for financial engineers and the like. The only answer is to transform the economy to a more self-sufficient structure and level income distribution. The .1%-ers, who can't wait for supreme deflation, won't permit it.

A series of 19th-century banking crises in England and the United States inspired policy makers to create the modern central bank. Then came the Great Depression, a period of economic misery that existing ideas could not explain.
An interesting factoid, in that the Austrians keep braying that only specie based banking, without government intervention, is Nirvana. They've clearly never read any economic history.

Earlier this year, in a remarkable joint statement, the I.M.F., along with the World Bank, World Trade Organization and eight other major economic institutions, warned that austerity was hurting global growth and raising unemployment.

Mervyn King hasn't entirely disowned his earlier pro-austerity views, but he is no longer the policy's enthusiastic booster.

The plan to shrink the size of government did not generate a sudden surge of private-sector confidence and investment.
None of this should be surprising, sort of. The I.M.F. has been blamed for all manner of 99% hardships over the years, in its dealings with countries that got themselves into trouble. It typically takes a Volker-esque tack of punishing the lower class while holding harmless the wealthy.

In sum, if one wishes to re-gain full employment, one must re-gain full demand. In order to do that, one has to decide whether to re-inflate the Zeppelin which incinerated us, or set out to build a more stable, consumer goods oriented, economy. One way will work over the long term. The other will fail soon enough.

16 December 2012

It's the QE, Stupid

Spend some time following R-bloggers, and each day, on average, is another posting detailing how to get rich with yet another "trading" algorithm/strategy. Never mind that Galbraith got it right decades ago: "Financial genius is a rising stock market". Today brings yet more evidence that he's right.

What's disappointing with today's piece: it ignores the true motivator for the inflation of the stock market, Greenspan's (now, Bernanke's) flood of moolah to stock trading firms. Free money makes pushing stocks to new highs essentially risk free behavior. And simply explains (Occam's Razor, and all that) the data. A couple of quotes are kind of fun though.
Their conclusion was that none of these factors -- which investors often cite when explaining their moves -- come remotely close to forecasting accurately how stocks will perform in the coming year. "One-year forecasts of the market are practically meaningless," Mr. Aliaga-Díaz says.

Yet, posting after posting explain how to predict tomorrow's prices using very short-term data. My, my.

...despite all the storm clouds hanging over this economy, professional investors appear willing to look past the poor data. In fact, money managers say they are more bullish about domestic blue-chip stocks than about stocks in emerging markets or the rest of the developed world, according to a recent survey by Russell Investments.

They're not looking past poor data. They're looking past the near-zero opportunity cost of "safe" (e.g. Treasuries) placements. They have to participate in the Wall Street Ponzi scheme, if they want to "earn" their beloved bonuses. Their are myriad more (perhaps) unintended consequences of Greenspan's stupidity. This was Greenspan's ploy, and Bernanke follows suit. Greenspan did this out of monetarist's zeal; Bernanke because the Right Wingnuts have emasculated fiscal policy leaving him no other option.

14 December 2012

Your Good Mother, Part the Third

To bend an old adage, "Apples to Apples, dust to dust". The share continues to fall, with nearly as many explanations as there are stock pundits. So, here's mine.

As the quote from Eccles says, consumers are the endpoint (to use a clinical trials metaphor). The problem for capitalists is, they want to kill labor (the Foxconn guy is on the march to replace all his workers with robots). If only one does that, then he makes a killing, at least in the short term. If they all do it, well then there's no one to buy their tchotchkes.

Apple's MO has been to supply high price, low-ish volume widgets; leaving the rest to produce "commodity" level widgets in high volume. As some of the pundits have now begun to figure out, most of Apple's differentiators have been style, not substance; Apple buys parts from the same suppliers as everybody else. It's all COTS. The move to the A6 cpu is only a minor diversion, and doesn't represent innovation on Apple's part.

So, what's not to like? Two things: not just the pundits, but also the consumer has figured out that Apple parts aren't all that better, and that with the shrinking of the middle class, Apple (with the aid of the rest of the Rand-ian fringe) has killed off its customers. Does one really need to spend $2,000/year on a phone, no matter that it supplies other modes of distraction? One also needs to keep in mind that Apple didn't innovate new product genres, only waited for the first movers to stumble, then built a differentiable alternative. Rectangles with rounded corners isn't really an innovation.

Dee Feat is in Dee Flation, Part 24

Well, the Consumer Price Index is out, and it's -.3%. That's right campers, the Koch Brothers are dancing in the streets. They gots themselves DEEflation. They must be so happy. Last PPI was -.2%. Keep this up, and they'll be making real money, for doing less than nothing with their moolah. Such a Country!

11 December 2012

Just Tap the Brakes

And now, a trip down the educational memory lane. For those who don't or won't remember their "Physics for English Majors" class, how does it happen that multi-ton vehicles manage to brake to a stop with brake lines with an inside diameter of a pencil lead??? Give up?

It turns out that some fluids, particularly liquids, are incompressible. So, consider a pressure vessel one foot cube. On one side, put a 1 inch hole, and attach a pipe with a piston pushing in. On the opposite side, put a 4 inch hole, also with a piston, but connected to a pressure gauge. Now, push on the 1 inch piston with the force of 10 psi (pounds per square inch). What's the pressure on the 4 inch piston on the other side of the vessel? One might expect it to be proportionately lower, which with proper arithmetic could be calculated exactly. Yes? Well, no.

Turns out, this is true in the financial services game, too. Recall that the Banksters got their little slaps on the wrist for nearly cratering the Western economies for good and all. They were forced by circumstance to cease raking in enormous profits from flaky housing deals, and to pay a bit of restitution. The media was all abuzz on how the great had been brought low.

Ah, but the Little Piston That Could went to work. Within months, we saw these same Banksters pushing on all those small accounts with new fees and restrictions. Living high on the hog under Dubya's hegemony wasn't going to be relinquished. If the little people didn't pay by taking on stupid mortgages, they'd pay someway. Push. Push. Push.

Today's news is chock-a-block with the problem that won't go away: the Banksters continue to demand high on the hog profits, and socialized losses. HSBC has gotten a pass. Surprise, surprise.
State and federal authorities decided against indicting HSBC in a money-laundering case over concerns that criminal charges could jeopardize one of the world's largest banks and ultimately destabilize the global financial system.

Yet another case of being not only too big to fail, but too corrupt to convict. The piece isn't quite that explicit, but rather close.

Then, in the Business section, we find the Brits and US attempting to work out a method of punishing the next bunch of mortgage fiddlers (or whatever the scam ends up being).
In essence, they aim to take control of the sick bank and keep it operating while inflicting losses on its shareholders and, if necessary, its creditors.

Well, that didn't happen last time, to any meaningful extent (if you weren't of Lehman, that is). Lots of high priced jobs were lost in the City, of course. But most of those were mid-ish level quant related, not the Corner Suite Set.
Fearing financial instability, officials may balk at doing anything to harm the interests of creditors and opt for some form of bailout instead.

I recall it was Krugman (at least) who said something like, "When I die, I want to come back as a bondholder". Simon Johnson, of MIT and a thorn in the side of both Banksters and the regulators:
"The big problems we've seen are almost always systemic. So, does it solve the core of the too-big-too-fail problem? No."

Stay tuned. With QE4 set to stuff yet more money into the maws of the vampire squid...

06 December 2012

Green Grow the Rushes

There's been a bit of angst on display through R-bloggers. First one Matt Asher showed his simple analysis, "disproving" global warming. Lots of comments, mostly disagreeing.

Then, Ian posted an explicit rebuttal. More comments, generally agreeing with Ian.

I confess, I commented a bit. I just returned from looking at the comment streams, still ongoing, and just have to share a bit of one of them (from one dhogaza, no link):
CO2 forcing is real. If you think you can disprove this basic physical fact with statistical analysis, I invite you to stare into the business end of a CO2 laser, hit the "on" switch, and report back afterwards ...


This all is relevant, beyond peeing on the global warming folks, due to the quants' penchant for ignoring physical reality, and assuming they can simulate a truer reality (they don't always say it so bluntly, but that's what they mean). These quants crashed the global economy be the simplistic assumption that the data describing the US housing markets for a short period of time would be true for all time going forward. They ignored the historic record of the ratio of house price to median income. They ignored the divergence of this metric as it happened. They ignored the process (fiddling by mortgage companies, and thence in competitive response, banks) which propelled the divergence. Their Monte Carlo models told them they were right. Sure.

Ignorance is bliss. If you've scarfed up all the money already.