A Christmas Homily

For some time, I've struggled to conjure a single sentence to explain the urban/rural or Red/Blue or sentient/moron divide that bedevils this Western World, not just the USofA. Quite out of my norm, I scanned the letters to the editor of a recent NYT; generally I ignore such sections of publications.

But here it is:

Academics are trained to distinguish reality from lies or fantasy, and to respect facts and sound arguments. If that biases academics toward liberalism, then there is a problem with conservatism, not with academia.
-- Andrea Liu/2016

The Donald is of the faith, if you're rich you must be smart. Well, no. You're just greedy.

Distribution Free Statistics

It's been an occasional theme of these endeavors, even part and parcel of the sub-title of one version, that the US (and, by extension, the global) economy has entered a less-than-zero sum game. In the past (see Gordon's book), the standard response to job destruction by tech change was that more new jobs were created than were busted by the machines. That sequence of events was possible only because the new jobs were no more challenging than the old ones. Displaced farmers were quite savvy enough to stick tires on chassis coming along Mr. Ford's assembly line.

So, today we get some more quotes with data, once again, demonstrating that, this time, it really is different. If the US, and by extension the global, economy is to avoid permanent collapse income has to be disconnected from production. Or, as one of these subtitles says

It's the Distribution, Stupid

Yes, we make more stuff with fewer hands. This is called increasing productivity, and all the data over the last few decades has shown this to be true. Also true: almost none of that increase (i.e., growth) has ended up in the hands of hands. Capital gets almost all of it.

Donald J. Trump told workers like Ms. Johnson that he would bring back their jobs by clamping down on trade, offshoring and immigration. But economists say the bigger threat to their jobs has been something else: automation.

"Over the long haul, clearly automation's been much more important -- it's not even close," said Lawrence Katz, an economics professor at Harvard who studies labor and technological change.

Now you know why corporations and their 1% owners continue to sit on $$$ trillions and chasing Treasuries. Even as tech eliminates more jobs, corporations are running out of ways to eliminate those that remain. So they goad the Fed into raising the interest rate in the hopes that doing so will cause Treasuries' rates, and their incomes. Yet more transfer of wealth from the many to the few.

Happy Christmas.

A Man of Subsistence, part the second

We return with Eccles, again:

As mass production has to be accompanied by mass consumption; mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery.
-- Marriner Eccles (mid 1930s FDR advisor)

And we ask whether it's possible for the 1800-ish view of the USofA (a nation of yeoman farmers largely unconnected to government, to paraphrase Jefferson) so beloved by the alt-right remains a viable foundation in 2016. Or, to be blunt: can capitalists impose subsistence on the 99% and still have capitalists flourish? Well, in order to do that, the 99% have to be supplied with the three foundations of survival; food, clothing, and shelter. And the capitalists need to be in the business of selling such, not just conducting a continuing FIRE sale. In the mid-1930s, the USofA economy was largely self-sufficient; the Great Depression shuttered much productive capital, but didn't destroy it. Plants which had stopped making automobiles were quickly repurposed to build tanks and jeeps. Thus the WWII re-industrialization was only a matter of will to employ it. In today's economy, local food production is largely for the 1%, but staples are mostly domestic and shipped country wide. Clothing is almost wholly imported. Housing is moving from nail pounders making stick built houses, to site assembly of factory produced modules. In a nutshell, American capital doesn't come near enough to supplying the rudiments of 21st century subsistence; one might reasonably include personal transport as a necessity, for instance, since nearly no American tends his own few acres of bottom land with a mule.

If The Donald does get his way with 35% tariffs (he doesn't have the authority to do so by fiat; so far, anyway), the ones most hurt by that will be the poorly educated white folks in Pennsyltucky who voted for him, since they get most of their stuff from China and the like and not so much from Goldman Sachs. There's a certain irony in that, of course, but lots of others (3 million more or thereabouts who didn't, so far) get hurt too.

The point, of course, is that Eccles' observation, while the alt-right would likely see Marx in it, is merely a re-imagination of global equilibrium. Whatever goes out must be consumed. In an agrarian economy, with a smattering of simple manufacturing, such an economy can be self-sustaining of a 99% subsistence labor force, societies were such for thousands of years; Jefferson's vision put starkly. By 2016, USofA output is increasingly in FIRE and other intangibles. One can't make subsistence with tweets; they aren't very nutritious (particularly The Donald brand). In the early 1900s, Henry Ford rocked the world by raising the wages of his assembly line drones. He did so for the avowed reason that they'd be better able to buy his Model T. Do you imagine Blankfein at Goldman Sachs (once The Donald's pinata, now bromancer) having such an epiphany? Or that the poorly educated white folks could, miracle of miracles, afford his product? I doubt it. But either today's raptor capitalist must, or our economy collapses. Recent reporting of research that today's young-uns are less likely to earn more than their parents then any previous generation should come as no surprise. After all, we live in the culmination of the 1%'s Pac Man-ing of the GDP.

How to (re-)distribute is far less important (except to ideologues, of course) than it get done. While likely not the first to express it, Krugman put it well:

My spending is your income, and your spending is my income, so if both of us try to spend less at the same time, what we end up achieving is mutual impoverishment.

If, after all, Americans can't be supported by what their economy makes (financial services, mostly), and they can't develop the skills needed to make what the economy makes (ditto), then what's the result?

A question of balance. Switzerland and the island countries can make economies largely on shifting moolah twixt Peter and Paul, who of course live elsewhere, since they're teeny little societies. The USofA, not so much.

And we close, again, with Twain:

It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.
-- Mark Twain

Book Larnin

Well, the shit has hit the fan. One of the emerging themes of these endeavors is that those blinded by data, they ignore history and events, get it very, very wrong. I've spent more than a few keystrokes in these musings berating the deficit hawks. The least intelligent are the trade deficit hawks. The Almighty Buck really is New Gold, and in order for the global economy to prosper and expand, there has to be a steady flow of bucks into all those other countries. That flow only happens if we run a current account trade deficit. Surprise, surprise.

[Hyun Song Shin, the head of research at the Bank of International Settlements] concerns also center on the global banking system and the possibility that the dollar's rise will accentuate what he refers to as an emerging dearth of dollars, which could bring back memories of the financial crisis in 2008 and 2009, when a global rush into dollars created a liquidity panic.

"What's good for General Motors is good for the United States." May be not so much for the rest of the world.

Here's the best part:

During such eras of dollar strength, global central banks were forced to dip into their reserves to defend their weakening currencies, leading to what some economists are now calling quantitative tightening.

That would be the flip side of quantitative easing, the policy of the past decade where central banks have flooded the world with cash in a bid to spur growth and combat deflation.

Why the best? I read a dead trees NYT while sipping my one cup of coffee at Panera. I got to that part of the story, and circled "inflation" and noted "deflation". By the time I got around to typing this missive, the innterTubes version was corrected, with a note saying so. Gotcha.

A Man of Subsistence

Since the beginning of time, well Adam Smith (the real one) at least, economics has been characterized as studying the interplay among three high level inputs to production: land, labour, and capital. Until the industrial revolution, landowners held sway. Subsequently, both capitalists and their puppet economists agreed that they were the chosen people.

So, let me start with an anecdote. Here on the hill is a sorta, kinda commune. The houses came down through the wife's family, which now consists of two sisters and a brother (who lives elsewhere), two cats, two dogs (Lhasa and Jack Russell-ish), and humble self. Recently, since both dogs are getting up there in dog years, I suggested we get a third, so that when the first of the pair succumbs to whatever ails it, the survivor will still have a companion. Made sense, to me anyway. The wife demurred, saying that two would gang up on the third; not necessarily the newcomer.

I found that amusing, since she and her sister have done that to moi. She didn't notice the irony, of course. They're BAPs, so they deserve a servant.

Which brings us to The Donald and Carrier (Pence's Indiana is actually paying for it!) and Boeing and such. It has been an article of faith, codified by that Pareto guy, that labour will always, under any economic regime, be reduced to subsistence wages in deference to the needs of landowners and capitalists. Pareto, in particular, used data going back centuries to make his point. Marx, not Groucho, demurred.

On the other hand, we have this observation, of more recent vintage (yes, it's part of the preamble to one version of these endeavors):

As mass production has to be accompanied by mass consumption; mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery.
-- Marriner Eccles (mid 1930s FDR advisor)

Take Smith and Eccles, toss in a blender, and what sort of smoothie do you get? What we get is the distribution problem writ bold: as automation decreases the number of labour hours in the production of widgets, we have a demand problem. The lunatic right wing continues to demand yet more supply side support for capital, but the fact remains true; corporations and the 1% sit on trillions of $$$ of idle cash. That cash, to the extent it is used at all, is spent chasing Treasuries down to 1.5% return and M&A and share buybacks. None of those uses has any growth, at the macro level, component. It's all just moving money from the many to the few, who just sit on it as they do today. And, if the spend it all, they still chase Treasuries being the scaredy cats they truly are.

What you get, if an improving macro-economy is the goal, is a revised definition of "subsistence". In the middle ages through the end of the 19th century, subsistence meant just the other triad of economics: food, clothing, and shelter. Labour's only purpose was to reproduce in sufficient numbers to supply effort making the stuff for the elite, whether regal or commercial. Today's lunatic right still thinks in those terms, despite the obvious fact that production today is utterly different from as late as 1900. Eccles understood that. The Donald and his entourage don't. In particular, they are wilfully ignorant of the fact that the 1% have really good healthcare because the employer paid health benefits originating during WWII (and damn gummint support for R&D) are what paid for it all. If only the 1% can pay for healthcare as just another consumer discretionary spend, in a short time even they'll have 1920s variety healthcare.

It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.
-- Mark Twain

Pareto Failure, part the second

Well, well. Some, but not the true believers I'd expect, Trumpistas have discovered the issue with Pareto Optimal. Or, as I prefer, Pareto Fail. We have this article today, with some really scrumptious quotes.

Just to recap. Pareto was, sorta kinda, an economist of the Italian variety. Just as Mussolini began to drag the country into the mire. The signal example of his Optimal: given a pie and three people, where the status quo is that two divide the pie half-and-half, any attempt to re-distribute any part of the pie to the third people results in lowered utility. This assumes, of course, that the loss of utility by the pair exceeds the gain in utility by the singlet. And that assumption is based on further assumptions about utility curves and the like. Read up George Stiglitz (here's a start) for details.

So, what's the signal quote?

"Cutting taxes for shareholders will destroy more factories than whatever he saves by jawboning companies from the bully pulpit," Mr. Konczal said. And incentives like the ones Carrier received only forestall the inevitable shift by multinational giants to low-cost locales like Mexico and Asia. "They will just go later after pocketing some money," Mr. Konczal said.

As they always do. Just look at professional sports teams and their publicly paid for arenas. Welfare for billionaires.

Or this:

"The dry statistics on trade aren't working to counter Trump," Timothy A. Duy, an economics professor at the University of Oregon, said in a blog post on Sunday. "The aggregate gains are irrelevant to someone suffering a personal loss. Critics need to find an effective response to Trump. I don't think we have it yet."

That's just saying "Pareto fails". It also obliquely raises the key point to all this: if moving 1,000 jobs to Mexico, or wherever, at a loss of, say, $30,000/job/annum leads to a $10/unit decline in the price of 1,000,000 unit/annum widget, what's best? With a long enough time horizon, the winners (all those buying the widget) could, through force of law, compensate the losers. The fact that the Carrier jobs weren't in support of consumer goods, but rather commercial ones, makes the compensation process either easier or harder, depending on the mechanism.

Pareto fails just because it is amoral. And it is commonly used to justify supply side voodoo economic tactics. Clowns are con men, and I hate clowns.

The Scariest Sentence You'll Ever Read

Today, states containing just 17 percent of the American population, a historic low, can theoretically elect a Senate majority
-- Emily Badger/2016

Thought For The Day - 2 December 2016

Unemployment rate: 4.6% vs. 4.9% consensus, 4.9% previous.
178,000 additional jobs.

IOW:

"Yo, Donald!! You'd best not fuck up an economy that's working just fine in order to make rich folks richer and poor folks sicker and poorer. You do dat, and I'll whoop your fat ass to Selma and back."

love,
Barack

Thought For The Day - 24 November 2016 (it's a Turkey) [update]

Well, it is Thanksgiving (at least, in the USofA), so there should be something to be thankful for. One would think so? Here's some musings on The Donald's announced appointments.

Atty. General, Jeff Sessions: will bring white supremacy to a head, by actually implementing voter suppression, as he did while Alabama AG.

HUD, Ben Carson: will implement a voucher-only housing support program, which will enable slum lords across this great land to be even richer; mortality and morbidity of residents will soar as maintenance of buildings will be optional under the now Rand based HUD, thus eliminating the less desirables (not to say, deplorables) from the population. One might call it the Carson Plague.

Education, Betsy DeVos: the Scamway of teaching will be the way of the future. The Bible thumping, snake handling, incestuous states will be encouraged to teach "traditional subjects" such as the earth is 6,000 years old, people froliced with dinosaurs, and the Bible is the only history book in use. Science will be deemed anti-American, and only white wives with at least three children will be certified as teachers.

UN, Nikki Haley: since she speaks in tongues, will be able to communicate with all members of the body without need of simultaneous translation.

Chief of Staff, Reince Priebus: cat's paw for Bannon (see below).

Chief Counsel, Steve Bannon: the really nice, smart guy that The Donald greatly admires. His white supremacist Breitbart doesn't really represent The Donald's view of the country. Will be in charge of building, staffing, and filling the rural re-education camps for all urbanites with IQ above 100, documented Democratic voting, multi-cultural thought patterns, and lacking family Bible handed down at least four generations.

Be thankful for a real, great America of the future.

[update 1:38 pm EST]
Just tuned into the Vikings/Lions game, and saw this ad. Cook has sent a shot across The Donald's bow. I'd bet on Tiny Tim.

Thought For the Day - 21 November 2016

Those following Mr. Market have seen the argument about whether twitter's worth its share price, who might buy it, and how soon it goes the way of My Space. It occurs to me that The Donald's use of twitter as his propaganda vehicle will be its salvation. Technology to the rescue. I guess.

Red River Valley

As chronicled here for some time, well, once more. The divide here in the USofA has been urban/rural from the time of the Constitution's construction. It's only in the last few decades, from when Nixon instituted the Southern Strategy, the divide became Red State, Blue State. But that just confuses the issue. As mentioned here before, there are few, if any, homogeneous Red states; even Red states have Blue cities.

Here's a lengthy piece, with many on-point quotes, that describes the situation.

In 1920, for the first time, the Census Bureau counted more people living in urbanized America than in the countryside. This hasn't been a rural nation ever since.

and this

The Electoral College is just one example of how an increasingly urban country has inherited the political structures of a rural past. Today, states containing just 17 percent of the American population, a historic low, can theoretically elect a Senate majority.

Not to mention that the Red state whiners consistently are net moochers on the Federal purse:

Red states are twice as dependent on the Damn Gummint than the Blue States. Of course.

The only near term solution is the 270 state compact. I suspect that a Roberts' court will declare it unconstitutional, since it evades one interpretation of the state/Senate sovereignty clause. Hopefully, we get to find out.

A Grove of Olive Branches

Andy Grove, of Intel fame, is famous for "Only the Paranoid Survive", both epithet and book. While a reasonable adage in the micro world of corporations and sectors (not that corporates engage in oligopoly as a matter of course, of course), it's a bad foundation for heads of state. With Putin and his puppet The Donald leading the Western world in thin skinned whininess, we're in for a spiral into totalitarianism. The Donald tweets (will he still be spending his Presidential overnights all thumbs?) angrily about a fourth wall speech at "Hamilton". And now we find today a poll (oversampled against him, of course :):) ) demonstrating our collective revulsion of him.

Oh, and no, Ford didn't not move to Mexico because The Donald interceded. Ford never was going to move that plant to Mexico. The good thing about tweets, from The Donald's point of view, is that they're difficult to fact-check in real time. And how would you get the truth to The Donald's fawners? You see the problem? A congenital liar has the advantage.

Pareto Failure

Quants, whether finance, bio, or econ consider themselves amoral in their approach. Just crunch the numbers.

After Adam Smith, Wilfredo Pareto is likely the "quant" most likely familiar to those interested in econ. Well, more theory than stat, but still. He defined a sort of optimal equilbrium, in the macro sense. In sum, the optimal allocation has been reached when further shifting of resources amongst participants yields lower overall "satisfaction".

The failure of Pareto is illustrated by a classic example: if one has a group of three individuals and a pie of resources where two of the three have taken half of the pie each, then Pareto optimal has been reached. The rationale is that any part of the pie going to the third individual means the two (either alone or tandem) must relinquish some resource. It's not surprising that Mussolini liked Pareto: he provided a sort of "scientific" excuse for autocracy.

Whether he's heard of or read Pareto, Trump is taking the Mussolini tack. That didn't deter him from selling a bill of goods to the poorly educated white (formerly blue collar middle) class. And they bought it by the bushel. We already know, although they will most likely ignore the reality (esp. if they get their news through Facebook!) or consider The Donald's tweets truth, that The Donald has thrown them under the bus. He was recorded telling his rich steakhouse billionaire buddies that they're going to get that wonderful tax break.

Will they believe their own ears, or just the continuing dog whistles from Trump Tower?

Thought For The Day - 16 November 2016

In 1964 Goldwater, or as he was known to his followers AuH₂O, ran as the President of not governing. He lost. Reagan ran the same way, but won. Neither, at least once the job's purpose became manifest, shirked their duty. Much of what they did was to turn governance to lining the pockets of the wealthy, but at least they governed.

Make no mistake, what you see going on with Trump is a purposeful effort to destroy governance. I see the various pundits, the not Breibart wing, wringing their hands over the incompetence of the transition. After all that Trump has said and done since he went Birther Ballistic, haven't they learned that he plays only one song? Trump only knows absolute power. His network of companies are privately held. His outside investors have no control of their investments. There are no public shareholders. Trump's word is fiat.

Why would he seek any other mentor than Putin? He doesn't need a transition because he and his kids will do the thumbs up or thumbs down on all decisions, just as what was done in Rome.

The British Really Are Smarter Than a Republican

Leave it to the Brits the to figure out the US. For some months, these endeavors have argued that the Red/Blue dichotomy is actually false. The issue is urban/rural, and always has been. Except for the most empty of the Empty States™, blue cities abound. It's just that what have been characterized as Red states were, for a couple of hundred years, devoid of cities. Not so much anymore. Only if the Trump administration manages to fully implement voter suppression can the Right Wingnuts continue to control governance. Cities make for liberal ethos. God's country makes for tribalism and bigotry and the like.

Thought For The Day - 11 November 2016

That didn't take long.

Was it just yesterday that Hillary and Barack told us to give King Donald of Orange a chance to lead?

Well, the protests have already started. Reporting has it that EPA admin candidates are climate deniers.

His lead bullet point is abortion ban.

Lead? I predict, on the economic front, that he'll (by intent or stupidity) Volckerize the economy because
1 - he and his buddies want 10% risk-free return on their idle moolah because they're too chicken shit to make real investment, so the damn gummint must provide them with much higher, liveable, unearned income
and
2 - he and his buddies seek to destroy non-existent inflation; one can never start too soon to halt the scourge of inflation

And, of course, his propaganda chief (Giuliani?) will bullhorn that the ensuing catastrophe was the fault of Obama. And, of course, the reactionary rural rubes who voted for him will swallow hook, line, and sinker.

Democracy? Not So Much

The electoral college is a constitutional relic of a fundamentally different nation, one with 13 states and a potential electorate of 2.5 million citizens, slashed dramatically by restrictions that limited the franchise to white, land-owning Protestant men.
-- The Guardian

Just the sort of electorate the reactionary rural rubes who gave us Trump have wet dreams about. Of course, most of them have no land, but who's paying attention. And they're stupid enough to think he'll wave his fairy wand and give them 90210 wage jobs. As if. Trump will do what every Republican has always done: give himself and his ilk more. He'll make an effort to give them satisfaction by further restricting abortion and having the DoJ flipping on voting suppression. DoJ will take the lead in legislating preventatives against voter fraud. And so on.

Funny thing is (and you can go find more for your own amusement) he violently tweeted back in 2012 that the Electoral College should be abolished. Depends on who's ox is being gored. Ya think?

Thought For The Day - 9 November 2016

Well, now we know the unvarnished truth: middle America, God's country, is unrepentantly white supremacist. While they live fat and happy on their $14 billion (and climbing) farm subsidies. And, I suppose, King Donald of Orange will bray about his "mandate", denying the simple fact he got fewer votes than Clinton. The wonders of gerrymandering and the Electoral College.

"The Economist" says it's even higher:

American farm subsidies are egregiously expensive, harvesting $20 billion a year from taxpayers' pockets. Most of the money goes to big, rich farmers producing staple commodities such as corn and soyabeans in states such as Iowa.

I guess it might be even more profitable if slavery could be re-instated. Don't laugh, the re-education camps will be opening soon. All of the intellectual elites on the coasts will be required to report.

What's amusing, in an "I told you so" mood is that healthcare provider stocks are in the tank on the basis that Obamacare might go away: lower volume will drive up average cost, and lower volume some more since even the blessed insured will find themselves priced out; rinse and repeat.

Thought For The Day - 5 November 2016

"Business Insider" is, as one might expect, a capitalist's organ. So you should read up its paranoid ravings on the result of anointing King Donald of Orange.

Trump's proposed tax cuts for the rich will not stimulate growth, just as the Bush tax cuts did not stimulate growth (because taxes on the wealthy are not actually stifling growth -- what is stifling growth is the lack of middle-class spending power). The tax cut will, however, increase the deficit and accelerate the growth of federal debt. President Trump will blame this on Congress and the Obama administration.

Finally:

Personally, I hope most of this doesn't happen. I hope that President Trump would be the president that some of his smarter supporters expect him to be -- not the mean, petty, reckless, and uninformed proto-tyrant he sounds like, but a reasonable, effective pragmatist who just enjoys entertaining crowds by saying outrageous and offensive things and otherwise acting like a boor.

But given how consistent Trump has been in his actions and pronouncements over the past 18 months, I think it's more likely that what we've seen is what we would get.

Nor Any Job But Think

These endeavors exist in a number of versions on multiple platforms.

One version has the following sub-title:

It's the Distribution, Stupid

That version also has some relevant quotes, among which is this:

As mass production has to be accompanied by mass consumption; mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery.
-- Marriner Eccles

Eccles has a bio on the Wiki. The point is that he was an FDR advisor during the Great Depression. This is the most elegant description of the capitalists' dilemma: physical capital earns its keep through productivity, but more importantly, sales of that output. No demand, no return. This is the simple explanation for why corporations and the 1% are sitting on trillions of idle $$$. They have lost the ability to turn fiduciary capital into productive physical capital. Thus we had the DotBomb (idle cash chasing The Next Big Thing), the Great Recession (idle cash chasing home mortgages) and today's 1.5% Treasuries (idle cash chasing "zero risk" return). In all three cases, there was little to no positive macro effect.

As Election Day approaches, we hear The Donald claiming to have the cure to the downwardly mobile middle class. Never mind that it's been confirmed that most of his wealth is from financial and tax engineering. He continues to blame capitalists for using immigrant labor and cheap imported materials. Just as he did with his Washington hotel.

"Di bot boss, di bot."

It's been obvious for some decades that the Luddites were right, just a century or two early. The current crisis, the non-recovery of jobs from The Great Recession, is merely the most recent manifestation. The bots have been on the rise for some time.

America has lost more than seven million factory jobs since manufacturing employment peaked in 1979. Yet American factory production, minus raw materials and some other costs, more than doubled over the same span to $1.91 trillion last year, according to the Commerce Department, which uses 2009 dollars to adjust for inflation. That's a notch below the record set on the eve of the Great Recession in 2007. And it makes U.S. manufacturers No. 2 in the world behind China.

But there are two sides to the middle class problem. The bots mostly explain the loss of the blue collar middle class. The rise of FIRE is the other side of the coin.

Back to 1800. The Luddites have forever been opposed by the Techs. Through the middle of the 20th century, the Techs held the policy upper hand. The argument, generally offered as some version of Pareto optimality. The crux of Pareto is that the "winners" *could* compensate the "losers" and still gain. But Pareto justifications never seem to require the compensation.

Thus, in practice, to ensure that nobody is disadvantaged by a change aimed at achieving Pareto efficiency, compensation of one or more parties may be required.

Where the Techs' analysis fails is to assume that the farm-to-factory migration of the late 19th through mid-20th century is still the exemplar to be followed today. That earlier labor migration worked because farmers could do factory work, since it required less skill, brain power, than what they had been doing. The dollar wage may have been a tad better, due to value of goods made.

But with the rise of FIRE as the sink for "skilled", brain work, labor has made a migration from lost manufacturing quite impossible. Worse, FIRE is a net overhead at the macro level. MBAs make money by moving Uncle Sam's moolah from the left pocket to the right pocket, and deducting a fine fee for the effort.

The Department of Education numbers support his point. In 1980-1981, some 19.1% of all the master's granted were in business. In 1990-1991, advanced degrees in business grew to 22.8% of the total market, and in 2000-2001, it was 24.4%.

Just what the world needs, more Liar Loans, LIBOR fiddling, and London Whales.

So, as the meta-quote from Bill Clinton says, capitalism (whether laissez faire or socialist) can only survive when aggregate demand tracks output. We know from the data that, on the whole, wealth and income concentration have put a spike in that. The situation will only get worse if King Donald of Orange takes the opportunity to worsen the concentration with his avowed tax plan.

[T]axpayers in the top 1 percent would see the largest increase in after-tax income on a static basis, driven by both the lower top marginal tax rate and the lower corporate income tax. Under the higher-rate assumption this increase would be 10.2 percent, and under the lower-rate assumption this increase would be 16.0 percent.

Further, the notion that giving more moolah to profit-rich corporations and 1%-ers will lead to investment-driven Nirvana has been proven a lie at least since the Laffer Supply Side nonsense. One can't push a string; monetary policy can contract an economy by killing the money supply. As the QE extension of TARP has shown, those with idle moolah don't make more physical investment if you give them yet more moolah. They just run, lemming like, toward Treasuries. There's a reason they bring about 1.5%: the CxO class is impotent.

Data, Data Everywhere

A couple of interesting pieces in today's news on the data front. Some may recall the Triage piece from the early days of these endeavors. The point being to parse factors driving voter motivation to mete out cash in the most effective way. There's been more reporting during this election on "algorithmic modeling" in campaign management. You read it here half a decade ago.

So, today one side of the election is making fun of Big Data and widely reported public polls. Messina makes the case for Little Data. It sounds something along the lines of the Moody's prediction which is totally poll-free.

Clinton is forecast to pick up 332 Electoral College votes against 206 for Republican Donald Trump, Moody's Analytics predicted on Tuesday in the final update of its model before Election Day on Nov. 8. That would match Obama's margin of victory over Republican challenger Mitt Romney in 2012.

Messina makes the case that targeted data is more informative than widespread polling. Little Data beats Big Data.

The other supportive piece confirms a point made here more than once: the Red/Blue divide is really an Urban/Rural divide.

"What happens if you abandon the places where most people live?" said Mr. Perlstein, the historian. After its 2012 defeat, the Republican Party wrung its hands over the need to face demographic change in a country that's becoming majority-minority. But geography poses a problem, too: Once-white suburbs are growing more diverse; poverty is spreading there; and central cities that Republicans relinquished are now the country's economic engines.

Thanks to the Obama/DNC stupidity before the 2010 mid-term elections (which provoked the Triage piece), the Right solidified its minority ruling class base through the simple expedient of rampant gerrymandering. It may happen, and perhaps forever, that Democrats win the popular vote, due to my personal definition of "over voting" in cities, yet lose the Electoral College. Once that happens, there's exactly 0 chance of getting a Constitutional elimination of the College. Right wing minority control of governance becomes permanent.

Have a nice day.

Thought For The Dayb - 2 November 2016

Major European indices trade in negative territory amid widespread risk aversion associated with Tuesday's presidential election in the United States.
-- briefing.com/2 November 2016 @7:24am

Not that King Donald of Orange cares what anyone thinks, so long as he gets his unearned tax breaks.
Major European indices trade in negative territory amid widespread risk aversion associated with Tuesday's presidential election in the United States.
-- briefing.com/2 November 2016 @7:24am

Not that King Donald of Orange cares what anyone thinks, so long as he gets his unearned tax breaks.

Thought For The Day - 1 November 2016 [update 3 November 2016]

It will be discovered, some months from now, that the Abedin email dump on the Weiner machine were planted by rogue (or so it will be claimed at the time) FBI agents using the copies made from the private server. These will be the self same agents who demanded further action against Clinton during the initial private server inquiry. Unrequited, they set out to elect Trump.

[update]
Well, that didn't take long: here

"The FBI is Trumpland," said one current agent.
...
The FBI would not comment for this story.

There has been other, emerging, reporting. Of course.

Thought For The Day, 26 October 2016

The latest in The Donald's mindless jabbering is the execution of "oversampling" in polls. As any drug developer knows, with enough observations one can find stat sig in a ham sandwich. That's what oversampling does: narrows the CI/lowers p-value. It doesn't change the point estimate one way or the other systematically. Oversampling won't make The Donald look like a bigger loooooser or Hillary a bigger winner. It will only solidify the accuracy of the point estimate. Moreover, the technique isn't, on the whole, used in public facing polls, but by campaign's internal polls where it wants more accurate estimates of sub-groups known/suspected of being heterogeneous.

So, I just did a simple search, and lo and behold, Pew Research (The Donald's source of oversampling evil) had this to say:

Oversampling is the practice of selecting respondents so that some groups make up a larger share of the survey sample than they do in the population. Oversampling small groups can be difficult and costly, but it allows polls to shed light on groups that would otherwise be too small to report on.

Even the non-brained dead rightist organs (or some anyway) know the truth.

The conservative blogosphere is lighting up again with accusations of polling bias against Republican presidential candidate Donald Trump in his race against Democratic opponent Hillary Clinton. However, Trump supporters should avoid giving into this temptation to assume unfavorable results must be biased results. Clinton really is leading Trump, and by nearly 6 percentage points.
[June, 2016]

Treading Water, part the second

Well, the NYT has finally caught up with these endeavors. As mused here more than once, The Giant Pool of Money is still out there, and continues to grow. Landon Thomas reports the extent, but fails to direct the reader to the elephant in the room: the CxO class has run out of ways to turn fiduciary capital into profitable physical capital. Fiduciary investing is just Ponzi with ribbons.

"Asia and Europe keep exporting their savings to the rest of the world," said Brad W. Setser, an expert in global financial flows who worked at the United States Treasury from 2011 to 2015. "All this money sloshing around looking for a home is not healthy -- it indicates a real lack of demand in other parts of the global economy."

IOW, the idle rich keep demanding real return rates of interest for their idle cash. Not going to happen.

"It has really caused spreads to move," [Ken Monaghan, who oversees high-yield bonds for the global fund manager Amundi Smith Breeden] said, using Wall Street jargon to describe what happens when the interest rates of these bonds decrease as investors pile in. "We are seeing institutional investors come to us and ask for levels of risk that they have never asked for before."

Only when the CxO class figure out how to generate real growth in physical investment will there be real growth in the global economy. It helps if that growth ends up in the hands of the 99%.

Brexit - part the Second

A couple of notes on Brexit.

Peter S. Goodman wrote a few weeks ago on the impact of the divorce on London's financial industry.

"There were the people who thought Brexit would be reversed," [ Adam S. Posen] continued. "There were the people who delusionally thought there would be a soft Brexit, and all the northern Europeans would be nice to them. And there were people who believed that this crew in charge of the British negotiations were somehow going to strike a good deal. All of the delusions have run out of material."

And, in a couple of minutes, Bourdain will be surveying The City, as it is called, to see what the mood is post-Brexit vote. Judging from the many bumpers CNN has run, it's not likely cheery.

The Joker

Regular reader may have noted an absence from these endeavors over the last week or so. Was off on the island, sans computer, which wouldn't make much difference since the island has, on a good day, arthritic innterTubes service. It does, thanks be to God, get newspapers delivered each morning on the boat. But the boat doesn't have a consistent schedule over the week. Sometimes the newspapers arrive in mid-morning, others nearer to noon. Since I'm on the island once a year, generally, memorizing said schedule isn't a big priority. Yesterday was going back to the mainland day (sniff!), and the later arrival of my beloved NYT. Since this is after even a late breakfast, I toddle on down to the grocery and end up waiting for the bundles to arrive. This week finds a couple of other geezers (only geezers read from dead trees; or perhaps only geezers read) often joining me for the bundles of joy.

So, yesterday I was there when the stock person wheeled in the basket of bundles, not off wandering. One of the geezers got his New York Post, which came off the top of the bundles. The stocker took his time digging through the bundles. The geezer allowed that his beloved Mets had failed in this year, which led me to remark, "what a contrast; Trump and the Mets!!". For those not of the tri-state area, the New York tabloids are not all of the right. Just the Post. The Daily News is even more rabidly anti-Trump than the Times. Who knew? Well, the other geezer. While waiting for the Times to reach the surface, he offered up the following story of his own creation.

Trump has won the election (I know, it's a nightmare story) and is settling in to the White House. The first night he just can't fall asleep, so is pacing about the residence.

In due time he spies the apparition of George Washington approach him. Not quite scared, but desperate for relief, he asks President Washington for advice; how to get to sleep. Washington responds, "Donald, you should increase your defense forces. The people will support your efforts." Trump thanks Washington, wanders to the bedroom, and does fall blissfully to sleep.

The next night, same problem. Same pacing, but different president appears. This time it's Jefferson. And Trump poses his problem yet again. Jefferson offers, "Donald, you should give much added support to education. The people will support your efforts." As before, Trump manages to sleep.

The third night, still that problem. Yet another president joins him with advice. It is Lincoln who offers, "Donald, go to the theater."

GOP Triage

Some time before the 2010 mid-terms, I chatted with "tech" folks at the DNC about the, by then obvious, problem: the RNC and the Kochs and such had taken control of Washington by the simple expedient of taking over state governments. Moreover, the threat to participatory democracy was greater than it seemed, since controlling state senates, and then Washington Senators, became rule by the right wing Elite. The states that have been taken over are in the South and Mountain West; rural, God, Guns, and No Abortion knee jerks.

I don't know whether it's been accepted as standard jargon, but Gore was hurt by the electoral college by "over votes", which happen in large population states that are strongly partisan. Those states are overwhelming Democratic, while the Republican skewed states are of much smaller population. Over votes occur when the popular vote for the candidate in a large population state greatly exceeds 50%. Such a pattern is sometimes called "wasted votes". The electoral winner ends up with close margins in small states, wiped out in large states, but enough small state wins to reach the 270 needed. What the Southern founders wanted: rule by the landed gentry.

My chat with the DNC, on a method to triage campaign spending at the state level so as to not get shellacked, fell on deaf ears. A bit later, the nice folks at simple-talk posted the approach as an article. And the Republicans have continued to hose the Democrats in the mid-term and down-ticket races.

Until now. Lots of reporting stating that the GOP Elite have recognized what has been mused in these pages for months: King Donald of Orange threatens to drive both houses of Congress to the Democrats. If any of you dear readers are of the knee jerk right, you'd best not ignore the problem, or you'll lose not only the three elected branches of government, but Garland will be pulled off the table and Obama will be up for the Supremes, and he'll get in. Is a little bit of pussy worth the price?

Brexitation

In keeping with a few musings in previous postings to these endeavors, both quant and historical analysis in the wake of the Brexit vote concluded that nothing good would come of the effort for most Brits. A few months along, and that appears to be the case. Surprise. Give it a read, but for those who aren't interested, here's the punchline:

The stakes are considerable. Britain ships nearly half its exports to other European Union members.
...
this misses the fact that nearly one-third of the goods and services consumed in Britain are imported. In dollar terms, the price of those goods and services is spiking. Eventually, economists assume, this inflation will work its way through the economy, further depressing growth by crimping consumer spending and potentially sowing unemployment.

Germany and France have made it clear that the Brits won't get to have their cake (free trade) and eat it (immigration wall) too. Although Boris Johnson says:

Our policy is having our cake and eating it.

Not bloody likely Boris.

My Dear Lou

OK, so back in the mid-60s, my musical taste went to what we would likely today call "adult contemporary folk", which was saloon singers doing Pete Seeger style songs; a sort of folk music despised by true believers. My favorite brand was "The Limeliters", a trio of late 30-somethings. Not many of my peers had heard of them, except possibly from myriad commercials, and not knowing who the singers were. Only one of the trio still lives.

A few minutes ago, during the usual horrible Thursday NFL game, I watched the commercial for "Mafia III", and was shocked. After the trio disbanded in 1963, they later had some reunion concerts and recordings in the 70s and 80s. One of their gigs was to record "Everybody Wants to Go to Heaven" by Charles Larson as part of a songwriting competition.

Somehow the producers of "Mafia III" found the tape, and sampled out Lou Gottlieb's phrasing of the tagline, "but nobody, aaah nobody wants to die". Gottlieb died in 1996, way too soon.

The idea is to make "Nobody Wants to Die" available for download, though details are still being worked out.

That would be so cool. A 70s reunion of a 60s trio doing a songwriting contest winner backing a 2016 video game. Only in America.

I Wanna Be Like Donald

This is one of many, I suspect, similar pieces claiming everybody can be like King Donald of Orange: lose money this year and deduct it against income in future years. If you go and read the article, you'll find that the ability is available only to those who conduct business for income, not those who earn wages.

But, guess what? It was under Reagan that the ability of ordinary wage earners to avail themselves of something similar, called income averaging, was removed. Reagan, the man of the ordinary people. Of course.

An existing provision in the tax code, called Income Averaging, which reduced taxes for those only recently making a much higher salary than before, was eliminated (although later partially reinstated, for farmers in 1997 and for fishermen in 2004).

Not too surprising that the Right's usual suspects got their access to the provision restored.

Thought For The Day - 6 October 2016

Well, another example of the Right meets "Lord of the Flies". Couldn't happen to nicer folks. And may be the Red environs of FL will be visited by (St.) Matthew twice. Ditto.

Apparently some colleagues challenged Woolfe over his vacillating stance on UKIP during Thursday's meeting, and it escalated into an argument and then a fight with one man in particular. The two reportedly removed their jackets and stepped out of the meeting room into a hallway, where Sky says the still-unidentified UKIP member punched Woolfe once, which caused him to fall back and hit his head on a pole.

Redneck on redneck violence. Our South has been living with it since the Scots and Irish invaded 300 years ago.

Author (and U.S. Senator) Jim Webb puts forth a thesis in his book Born Fighting to suggest that the character traits he ascribes to the Scotch-Irish such as loyalty to kin, extreme mistrust of governmental authority and legal strictures, and a propensity to bear arms and to use them, helped shape the American identity.

I wonder? Will they suppress their hated of "governmental authority" to vote for King Donald of Orange? A King for their side just might be an OK form of authority.

The Inscrutable Chinese

For some long years, clinical trials conducted ex-US have been viewed with suspicion, not always veiled. Now, the Chinese government reveals the depth of the perfidy.

China's food and drug regulator recently carried out a one-year review of clinical trials, concluding that more than 80 percent of clinical data is "fabricated," state media reported.

According to reporting, some 80% of the active ingredients (API) in US drugs are sourced from India and China.

"I don't think that the 80 percent figure is overstated," Luo said. "If you compare Western pharmaceuticals manufactured overseas with those manufactured in China, there is a huge difference in the ingredients; the quality of the China-made drugs is appalling."

The real question is: how much of the US-bound API is unqualified? We may never know. One review of clinicaltrials.gov (the FDA's archive) showed 8365 entries citing "China" in the record. Oops. Such trials aren't necessarily exclusively conducted in China.

US FDA has been paying some attention.

Twelve out of the 19 overseas FDA warnings issued in 2015 by the FDA's Center for Drug Evaluation and Research (CDER) for cGMP violations were delivered to Indian facilities.

There are no patriots in capitalism's CxO suites.

Thought For The Day - 25 September 2016

It's advert time, but you should watch out for reruns of "Parts Unknown", since Bourdain somehow managed to get Obama to have dinner at a noodle shop in the middle of Hanoi. They had an adult conversation of various topics. Now, think for a moment whether that could have happened with King Donald of Orange.

Dew Drop Inn, The Good News Cafe - part the second

It's kind of quick for a part the second, but Nate Cohn has let another cat out of another bag.

Well, well, well. Look at that. A net five-point difference between the five measures, including our own, even though all are based on identical data. Remember: There are no sampling differences in this exercise. Everyone is coming up with a number based on the same interviews.

With regard to the Census/BLS earnings surveys, here's how to decline. More bad data. Yum. Ayn Rand would be proud to turn back the clock to 1800.

Dew Drop Inn, The Good News Cafe

The regular reader may recall the admonition in these endeavors that macro analysis is fraught with danger: nearly all the data is from sample surveys, of varying quality and coverage. This reader, who hasn't been living under a rock or as "The Martian", is aware that 2015 income has been widely reported as having risen in the last year. For the first time in many years. The reporting, in some places, does admit that the 2015 level is still below 2007 levels; but who's counting?

Here's the public release:

The increases of 5.3 percent and 5.4 percent for family and nonfamily households were not statistically different.

In fact, if you read through the various sections, that sentence repeats and repeats and repeats...

A question about stat sig makes it all a bit worse:

The Census Bureau uses 90 percent confidence intervals and 0.10 levels of significance to determine statistical validity. Consult standard statistical textbooks for alternative criteria.
-- here

So, right off the bat, we've got squishing differences. By usually accepted stat sig, .05, it wouldn't be even close.

It gets better. There's a link to a spreadsheet with some underlying numbers. If you look at these numbers, the claim is that most are stat sig at .10!

If you follow the first quote link (page 6):

The effect of nonresponse cannot be measured directly, but one indication of its potential effect is the nonresponse rate. The basic CPS household-level nonresponse rate was 14.9 percent. The household-level CPS ASEC nonresponse rate was an additional 15.8 percent. These two nonresponse rates lead to a combined supplement nonresponse rate of 28.3 percent.

Following on, one finds the description of imputing missing responses:

Multiple imputation is a general approach to analyzing data with missing values. We can treat the traditional sample as if the responses were missing for income sources targeted by the redesign and use multiple imputation to generate plausible responses. We use a flexible semiparametric imputation technique to place individuals into strata along two dimensions: 1) their probability of income recipiency and 2) their expected income conditional on recipiency for each income source.

Much of that document is devoted to describing how this is done.

All surveys must deal with non-responses, so those in the business wouldn't find such a process out of band. For civilians, not so much. As I said, most likely believe that all these numbers are full measures, probably from IRS. Were that it were so. Without the raw data, it's not possible (well, for humble self) parse out whether the wonderful increase was an artifact of imputation. But, it could be.

So, should we guess that the Kenyan President ordered the minions at Census and BLS to put a heavy thumb on the scales? No. Having done data and stats for the government (not public facing, though), there's a good deal of resistance to the corner office dudes telling us what to do. Case in point: Farkas at FDA resigned rather than be party to the data fuck up that was eteplirsen. There's been a good deal of fiddling with the sampling underlying the surveys (yes, more than one for these data), and described at length in the background docs. Is all of this fiddling enough to turn nearly a decade of the 1% getting richer and the 99% having kids the other way 'round? Could be. Certainly a question those with the data to answer.

Thought For The Day - 6 September 2016

Vegetarian, vegan, gluten free and such dieters can be tweeked by simply telling them a bit of history. Among the dinosaurs, the herbivores were the big, slow, fat, dumb ones; while the carnivores were the fast, lean, smart ones.

Thought For The Day - 3 September 2016

Recently, I saw a comment on one of the many message boards that said, more or less, that the profit motive is the key to innovation.

Bullshit on that. Smart people will do smart things, if so allowed, irregardless. It's what they do; just like the scorpion, the frog, and the river. Paying stupid people more money doesn't make them any smarter. Or capable of doing smart things.

Money can't buy you brains. Not to put inside your skull, at least.

Watch Where You're Going

Perhaps the most useful service provided by Apple Watch is to provide some of us (humble self very much included) the motivation to prick yet another rosy balloon. There persist in being folks who assert that the Watch is just a better battery away from being the awesome device worn by cartoon cop Dick Tracy. It's such silliness. Please read Gordon's book. Technological progress isn't a matter of human imagination, pulling rabbits out of our collective hat (brain) deus ex machina, but rather figuring out how Mother Nature has put the world together. The earth, and all the resources in it, is finite. There's a lot less of them than 1800. Get over it.

We've arrived at the lithium-ion battery, and that's as far as we're going to get. At least for a watch form factor. Lithium is the smallest atom capable of supplying electrons, without the potential of blowing up (mostly, lithium batteries don't :) ). Until a neo-Edison invents a new atom, that is. For those wishing for more authority, MIT has a new piece on the problem. It fails to make the point that the periodic table has been fully populated, modulo accelerator generated nanosecond monster atoms, and thus the wall has been hit. Lithium is it. The hydrogen fuel cell has been around for a bit, but de-scaling down to laptop/phone/watch size is fantasy. To answer those banking on yet smaller chip nodes to make Dick Tracy's wrist thingee reality, I'll offer the following (admitting I'm not EE): at some node, Xnm (my guess for X is 10), control of, and compensation for, leakage and capacitance will drain more power than the Xnm node will save over X+nm. You read it here first.

It's really fun living in a time, the 19th century for example, when you know that you've only scratched the surface of that big ball of reality that is Mother Nature. Anything imaginable looks possible. Not so much when the periodic table is all there to see, thermodynamics have been codified, the Bohr atom described, and so on. Now we have productive corporations, even Apple, segueing to "services" to make moolah, because they see the end of growth from novel widgets.

We live in a Rand New World, battling with a Christ New World. In the Old World, recently ended, economic growth was driven by population growth with each new kid becoming a consumer, if only the necessities. The expansion of white folks into land lived on by others for thousands of years was a manifestation of that. Since contemporary Western economies no longer deal in necessities, population growth can't drive economic growth. We imported folks to do the heavy lifting, starting with black folks, but also Chinese and lower level European ethnics (from the WASP point of view, of course) all in service to the betterment of the few. With the industrial revolution came the problem of consuming output. In the Dark Age, when production was sorta, kinda one man makes one widget (and the widget went to the manor's Lord), that problem didn't exist. But with automated production, i.e. non-linear increase in productivity, the problem became manifest. If you invent a new automated, capital intensive, way to make widgets, how do you find consumers to soak up the deluge of widgets? The manor's Lord, and even including his spawn, won't be enough. In the last few decades, it's been an all consuming problem. Yes, that's a pun with a healthy dose of irony.

So, we have to figure out how to grow an economy with a relatively (with respect to recent history and living memory) fixed technology. If you look at FRED data, you'll see that USofA "output" has been increasingly non-widgets, not stuff, but "services". Unless the path down the road of income and wealth concentration is reversed, we'll be in a permanent Dark Age. The key to avoiding that is to solve the 1%'s refusal to admit that their wealth is mostly luck, so they shouldn't be allowed to keep it all. In order for an economy to grow, aggregate demand has to grow. The "recovery" from the Great Recession is the poster child for faux recovery. It's been driven by monetary manipulation, not demand growth. That 4.9% unemployment rate just reported is mostly the result of the denominator (the size of the labor force) shrinking. Consider that for a moment. The data increasingly confirm that most folks are still worse off than they were before the Great Recession. Hyper capitalism only works if the 99% consume the output, rather than just the 1%. They will only buy so many Ferraris. The Donald tries to hammer on that exposed nerve of angry white folks, but nothing in his history indicates that he would actually do anything good (increase aggregate demand) for the 99%. Certainly, his tax proposals are pure 1% welfare.

So, in the end, the Quixotic Quest for the ultimate battery is fantasy, propelled by dreams of 19th century invention. "We did it back then when we didn't know anything, so it should be easy now when we know so much more." Dirty Harry famously said, "A man's got to know his limitations". So does a nation. So do all nations. There are only so many elements in the periodic table (and a fixed supply of them here on the Blue Marble, and, no, mining them on other planets won't happen with chemical rockets), and they can be assembled into only so many molecules (far more on the organic side, but still true). Thermodynamics proves that there's no such thing as a free lunch. And so on. The great discoveries of the 19th and 20th centuries have brought us to the walls of this box we call reality, and the structure of our society and economy will either adapt to this very different reality, or we'll end up like the rats in the experiment. We can have continuing, robust, economic growth (with or without a battery an order of magnitude more potent than lithium-ion) without burgeoning population where just 1% skim off the production. We just need to spread the wealth around. It will be spent on fancy services that all can use happily. Ayn or Jesus? Take your pick.

From Russia, With Love

While the right wing continues to bray about in-person voter fraud, which has never been documented above single digits anywhere, we get news that Russia (most likely) has been hacking away. Who would fund such an effort? Why, don't things go better with Koch? Of course they do. Security researchers have been warning us that the real threat of voter fraud lies in these automated systems, whose code is secret and security never independently vetted.

This is not new.

In January and February 2004, a whistleblower named Stephen Heller brought to light memos from Jones Day, Diebold's attorneys, informing Diebold that they were in breach of California law by continuing to use illegal and uncertified software in California voting machines.

This is Schneier's take

But while computer security experts like me have sounded the alarm for many years, states have largely ignored the threat, and the machine manufacturers have thrown up enough obfuscating babble that election officials are largely mollified.

As I said, things do go better with Koch.

Thought For the Day - 29 August 2016

Yet more yakking from the Mainstream Pundit Class this morning that Yellen is about to "raise" interest rates. To be clear, the Fed has no absolute (fiat) control over any interest rate. Not even the Fed Funds rate, which is the one it's assumed to control directly. And that's the overnight inter-bank transfer rate. About as short term as one can get. It's "changed" by the Fed "suggestion" of some new higher/lower rate. Given the structure, banks comply.

Now, if the long term rate on corporate and Treasuries is determined by the internal rate of return on physical capital in the private sector, and it is albeit at some arm's length, then should the Fed/Yellen decide to push up Fed funds, one gets into a rate inversion. One caused by fiat, as it happens, not economic reality. The theory (almost entirely right wing, Greenspanian) is that raising Fed funds will filter out to Treasuries and corporate bonds. But how? The fact is, long term rates are in the crapper just because capitalists have run out of ideas. They're sitting on TRILLIONS of idle $$$, which they can't find useful ways to invest in their businesses. All these TRILLIONS have been chasing Treasuries for years, pushing down yields. The CxO class would rather get 10% (they hope, but so much moolah chasing Treasuries gets them 1/10th that) from Uncle Sugar fur shur, than build out new plant and equipment. Raising Fed funds rate isn't going to cause Gyro Gearloose light bulbs to start flashing over the heads of said CxO class members. They'll still be just as clueless as they are today. They still won't have any more idea how to generate 10% internal rate of return than they do today. All we'll get is an acceleration in wealth transfer from the many to the few.

So they demand that Uncle Sugar pay them 10% or so on Treasuries so that the CxO and hedge fund classes don't have to work for a living. Why should Uncle Sugar, i.e. the little people who pay taxes, agree to such a transfer of wealth from the 99% to the 1%? Where's the free market in all that?

Being a financial engineer in the next few years is an occupation which will keep the gastroenterolgists very, very busy. "Ulcers hab been berry, berry goo to me!!"

Robber Barons

I'm not a twit, but some who are post read access to their feeds. Adam Feuerstein, enfant terrible of Big Pharma and Fake Pharma (those many nano- and micro-cap companies that only take money and deliver nothing), does so.

He's been talking about Mylan/EpiPen and some related topics in the last couple of days. It's a hoot.

Have a gander.

Out of the Mouths of Bastards

Regular reader may recall earlier musings where I put words in the mouths of Pharma CEOs with regard to monopoly pricing granted by FDA in the form exclusivity for some drugs for some period of time: "here's a life saving drug; so give me all your future life's earnings". Hyperbole, a bit.

Well, here comes Shkreli, again, weighing in on the EpiPen situation:

"Mylan sort of found themselves in my shoes in the sense that they bought a company, that company had a lot of old medicines, a lot of those old medicines had old prices that weren't reflective of modern prices," Shkreli said. "Three hundred dollars, they've been raising it slowly about 15 percent every six months which is relatively slowly -- not as fast as what I did. My guess is Mylan probably thinks that they could sell this thing for $1,000 a syringe. And with, now with these news reports, they probably won't."

Mylan paid a stupid price for the rights to EpiPen, and the rest of us get to pay a stupid price. They didn't invent the device or the drug that's dispensed, they just bought in both. And, by the way, the CxO crowd at Mylan have done rather well.

Proxy filings show that from 2007 to 2015, Mylan CEO Heather Bresch's total compensation went from $2,453,456 to $18,931,068, a 671 percent increase. During the same period, the company raised EpiPen prices, with the average wholesale price going from $56.64 to $317.82, a 461 percent increase, according to data provided by Connecture.

Vote for The Donald. He'll fix the problem, since it's the fault of all those Mexican rapists Obama has let in.

I Have a Warrant For Your Arrest

A, allegedly large, subset of mainstream pundits muse that Joe Sixpack hasn't been active in the stock market since The Great Recession. Among the reasons given is that Joe figures the game is rigged against him, so why bother? To some extent Joe's right. One of the ways that rigging happens (mostly in small cap companies, to be fair to Big Capital) is how secondary offerings are structured. Among other things, they typically price from a bit to a lot below the current share price, and there's always the suspicion that the buyers knew enough ahead of time to short the stock and use the secondary shares to cover. Pure profit for a couple of days holding. Tough to prove, of course, but if it looks like a flock of ducks, it likely is a flock of ducks.

Another way is through attaching warrants to the secondary. Warrants, for those not in the know, are options to buy shares at a specified price for some term in the future. Often, but not always, the warrants are immediately effective. The trick to warrants: the specified price isn't carved in stone. The company can amend the deal any time it sees fit.

Here's an excellent example.

Original price: $2.25 to $6.00 per share
Today's price: $.35 and replacements at $.41

Such a deal. Of course, the share price of the company has been down below $.50 for some time.

My Lack of Interest Will Continue

Once again, a pundit explains the Fed's lack of balls. As if, raising interest rates is somehow a good and macho thing to do. It ain't. On a similar vein (I'll explain in due course), is a semi-review of Klosterman's latest Right Wing jeremiad.

To explain why interest rates are low, one need only look at the amount of moolah sitting in corporate coffers. A difficult number to track, since it isn't gathered de jure, but it's well into the multiple trillions of $$$. And, while the Fed stopped its QE exercise a long time ago, the ECB and BoJ and BoE are all easing. The problem, asserted in these endeavors many times, is that monetary policy/actions is pushing a string from the point of view of economic growth. Or, as in old western movies, "you can lead a horse to water, but you can't make him drink". Why aren't the corporations, the "job creators", going hog wild building new plant and equipment? With money so cheap, the thought goes, the CxO crowd would realize that opportunity is knocking on the door, and seize the day. Hasn't happened.

Why?

Well, this is where Klosterman comes in. His book, according to the reviews, argues that human knowledge has always been wrong in the past, so it must be wrong now. Klosterman doesn't know his ass from an asymptote. New knowledge replaces old myth, nothing more. Comets don't really cause droughts, fur instance. As we've gathered more knowledge, fewer myths offer explanation. Well, except to Right Wingnuts, who only believe myths. And, of course, Einstein didn't "replace" or "prove wrong" Newton. Einstein, et al, worry about the atomic world, while Newton worried about the macro world. It was Newton, not Einstein, that got us to the moon and Mars and such. Except providing the abstract tools (and that wasn't Einstein, but Rutherford who provided the concrete ones) for building the A-bomb.

So, we see interest rates in the real world not budging, and knowledge by some accounts going obsolete. Why are interest rates refusing to rise? It's Econ 101, children. There's more moolah sitting idle than is demanded by business to build out new plant and equipment. And the reason for that is we're on that pesky asymptote of knowledge where there just isn't a steamboat or internal combustion engine or transistor or ... to soak up moolah for investment. The semiconductor vector is about spent; on two fronts. First, node size is approaching the limit of reliability at the minimum number of electrons needed for deterministic execution. No, quantum computing is another cold fusion. And second, battery tech hasn't provided much increase over the last century. We've already exploited the lightest element we know we can control; that is, without burning or blowing up. Smaller nodes mean, to some point, lower power usage (offset by extra power needed to control leakage and such). We're near the stage where smaller doesn't mean lower total power. Until some chemist figures out a battery with at least 2 times current energy density, that part of the equation won't change. Again, that pesky asymptote.

Raising interest rates by fiat, that is, absent increase in real demand for investment, is simply the Damn Gummint passing taxpayer moolah to the 1% in order to satisfy their demand for idle income. That would be the end of western civilization.

"A man's got to know his limitations."
-- Dirty Harry

Shake Your Booty

OK, so it's not new, but once again (with feeling): events drive data, not the other way round. Of course, that's human events, particularly financial ones. Comes along the most most spectacular story in the world of quant.

Why? Bill Miller is a dinosaur, in that he's been able, on the whole, to pick good stocks. But this coda to his career is just too much:

When pitching investors, you normally don't want "hedge fund" and "earthquake" in the same sentence. But Bill Miller, already known for quirky investing methods, is starting a hedge fund that will make bets based in part on a computer model designed to predict natural disasters.

This is totally nuts, as more than a few other experts quoted in the article state. The probable macro effect of an earthquake of sufficient magnitude in a sufficiently important city, Los Angeles for the sake of argument, can be gauged. But Miller was blind to Viagra at the Home some years back, and at that time the data showing the folly of the market was in plain sight.

He said, "Here we make decisions
And we trade commodities
So if you tell me where there's famine
I can make you guarantees"
-- "What About the Love", Janis Ian/1988

Bill is about 30 years late. Senility appears to have set in.

Just Deserts

Recall the expectation that Brits, being heavily into financial services, put themselves into dire jeopardy with Brexit. The problem with basing an economy on FS is that not only money is fungible, but so are the jobs which move it about from hither and yon. The computers that do the actual work can be anywhere. As can the terminals which talk to them. From today's news:

The U.K.'s job market is in "freefall," according to the Recruitment and Employment Confederation. The organization said that permanent hiring fell to the 2009 lows.
-- briefing.com

The rats, along with the London Whales, are fleeing The City for Paris and Frankfurt and such. Cheerio, mates!!

Rules?! We Don't Need No Stinkin Rules

These endeavors have been 99.44% about those events and topics which are interesting to those of us who indulge in relational database and quant activities. Unlike many such blatherings, they are not about demonstrating technique which is readily available to read in texts, both dead trees and on the innterTubes. The macro concerns, in a nutshell.

One of those concerns, which pops up Whack-a-Mole style where one might not expect, is The Tragedy of the Commons. As capital continues to overwhelm labor in production, the greater the proportion of production depends on mass consumption, if capital is to earn a return. That problem, starkly put, is why corporations are sitting on trillions of idle dollars, which dollars are auctioned into "risk-free" Treasuries. The result is cratered interest rates. The result is further concentration of income and wealth. The result is slower (or, negative) growth in aggregate demand. As to this last, one need only search the innterTubes to find weeping and wailing by capitalists that there just isn't demand anymore, "and we just don't know why!!". My my.

So, today's news brings us the the story of California and solar. Rather than offer quote after quote, just go read it.

The main point of the article is simple: social/public goods are difficult to provide. Allow unfettered private monopoly, one gets little to no growth and wide-spread hardship. Install either direct government provision or regulated private monopoly, and one has to juggle and balance the need to provide some level of monetary return on the capital infrastructure against tech innovation and consumer protection. This former, inevitably, means supporting inefficiency of production for what might be far longer than the technical worth of said infrastructure. It was this friction which led to the breakup of Ma Bell; the idea/theory was that competition would drive up innovation and down costs. What actually happened is we got effectively private unregulated monopoly. Now, one might argue that Ma Bell would never have implemented cell phones. Yet nearly every other country has public telecom and iPhones, so I doubt that.

Why this is relevant to the quant cabal:

But some ratepayer advocates say that linking solar bill credits to retail rates is the wrong strategy.

"The changes are so significant and unknowable that right now it's impossible for a solar customer to look at that equation and have any sense of what they're likely to save on their bill over time," said Matthew Freedman, a lawyer at the Utility Reform Network, which works on behalf of California residential customers.

Mr. Holtmann said he felt misled.

He installed his panels "with the understanding that the rules were going to be the rules," he said. "And then they changed the rules."
[my emphasis]

If you're in the business of modelling electric use, infrastructure, innovation, and so on, you're just as hobbled as Mr. Holtman. Unless, of course, you're the one who can change the rules to your benefit.

Thought For The Day - 20 July 2016

If one drop of blood means you're just Black, and Melania's speech is 7% Michelle, does that make Melania Blacker than many Hi Yellas?

He's Got It!!

... By Jove, he's got it!! Krugman, and very nearly. May be 99.44%. Here's today's column.

Continuing in the vein of events driving data.

But polling suggests that a majority of self-identified Republicans still haven't noticed that surge, and believe that stocks have gone down in the Obama era.

Blind stupidity meets blind greed.

So, here is where he makes the next long stride:

Second, they [stock prices] also reflect the availability of other investment opportunities -- or the lack thereof.

A reading of these endeavors over the last bit, or Gordon's book, will lead to the inevitable answer as to why this is so. Krugman doesn't address the "why" only the "what", but that is progress. We've hit the asymptote of low hanging tech fruit. Much of "tech" over the last couple of decades is implementations of infotainment and such. The holders of all that moolah expect the Damn Gummint to pay them 10% per annum on their hoard. Bah.

But, there is the clear implication for the future of the financial quant: it's not pretty.

But why are long-term interest rates so low? As I argued in my last column, the answer is basically weakness in investment spending, despite low short-term interest rates, which suggests that those rates will have to stay low for a long time.

In other words: Bernanke/Yellen/Obama have engaged in trickle-down economics, aka, pushing a string. Granted, the Right Wingnut Congress left no other option. And, of course, those same Right Wingnuts complain about "asset bubbles", all the while reaping unto themselves the cap gains of said bubble.

Instead, profits come from some kind of market power -- brand position, the advantages of an established network, or good old-fashioned monopoly. And companies making profits from such power can simultaneously have high stock prices and little reason to spend.

Remember a few essays past, about the result of "investing" SSA monies in the private sector? Fascism in flight. The enabling just mentioned is only a hair's width removed. If there's no 21st century steamboat to invest in, sitting on the moolah is rational. The question which then arises: do we accept a Permanent Dark Age of castes in tech stasis? Or do we grow through distribution? After all, if most folks have most of the moolah, there's more folks to buy marginally different widgets.

So, why is the likely unfolding future bad for the financial quant and financial engineering? Reading past data to predict future data only works when the rules of the game are stable and not manipulable. Thus, physics and math and real engineering work all the time in all places. When any of them appears to fail, it's the result of we humans not having fully grokked God's laws, not because the rules have changed. When some players can change the rules as the game goes on, as we've seen with The Great Recession, LIBOR fiddling, and the London Whale past data doesn't mean anything. It's all "once in a lifetime" anomalies. They just keep happening. Better to read the NYT business pages to see who's got his fingers on the scales, and react accordingly.

Mea Culpa

Those that took, and remember, Freshman English Composition also likely remember the First Rule: Never, ever, begin an essay with "I".

I was wrong. And, it turns out, that's a Good Thing, by some small measure. Not being of Europe, I follow USofA news sources, and until the Brexit mess, coverage of the EU dealt with it as a monetary union, and even implied that it was such only. Some may recall musing in these endeavors that such a single-sided union, with Germans calling the tune for the other 27, was destined to fail. Just as the USofA ships moolah from rich corners to poor corners through fiscal policy, a German controlled solely monetary union benefits Germany and subjugates 27.

Or so I thought. Turns out, with some on-the-ground reporting from USofA news, that the EU does ship moolah from rich corners to poor corners.

Quoting as much of the article in order to bolster my earlier musing, would mean putting nearly all of it here. Just go read it. The unambiguous point: the ingrate poor corners have cut off their noses to spite their faces. Stupid redneck Brits are just as easily gulled as the USofA variety.

But many of the poorer places in Britain that receive the most aid from Europe also voted decisively to leave. Promises were made by the leaders of the so-called Leave campaign that exiting the European Union would lead to a bonanza of money no longer being sent to Brussels, the seat of the European government. After the vote, they almost immediately retreated from those promises, leaving the future of aid programs funded by Europe in peril.

And, just as USofA rednecks believe, Muslims were the problem.

At the end of the day, we're an island. We can take only so much population.

Of course, all nations are islands. Some are hemmed in by water, and some by surveyors' chains. The USofA Right Wingnuts still view this land as virgin territory to be taken from heathen red people. Most of what isn't populated can't ever be. And a lot of what is shouldn't be. The largest share of USofA electricity goes to air conditioning. None of that, and no Atlanta or all of Texas. Most of the southwest is desert. With golf courses.

Social Insecurity

Every now and again, there's a report that Social Security is dying, "dying I say; we must stop squandering moolah on unproductive oldsters!!!" Well, the Trumpian versions aren't quite as authentic, of course. Trumpian versions are various sorts of lies.

Then again, some business reporter does the homework, and debunks the lies. Most often, such reporting occurs obscurely. The main takeaway from the piece is one that these endeavors have spoken to ofttimes: money into Social Security is "invested" in Damn Gummint fiduciary instruments. It isn't invested in private physical investment (or public infrastucture investment, either). This "investing" merely moves moolah from one of Uncle Sugar's pockets to another, with an added bit.

While that arrangement seems silly, as I've written before, the alternatives are worse. The piece has a trenchant rundown. I like it.

If the Social Security trust fund invested in something other than U.S. bonds, what would it invest in and where would the money go? A review of the list of possible investments shows serious challenges with any one of them:

If the Social Security trust fund invested in U.S. corporate stocks or bonds, or bonds of state and local governments, the money would get spent, as noted above. And if the fund owned too large a slice of U.S. corporations' stocks and bonds, or state and local bonds, you might call it socialism or communism.

Bank CDs? Current CD interest rates are lower than the rates the fund currently earns.

The trust fund could buy commercial or residential real estate, but that would put it in the business of selecting and managing these real estate investments -- once again, raising concerns about socialism or communism.

There's always international stocks and bonds, but you can imagine the outcry if the trust fund bought European or Chinese stocks or bonds?

I'd call it fascism, but that's because the Damn Gummint would be required, as an investor, to support all manner of questionable activity. What if Social Security had been a major investor in Enron or CountryWide? Think about that.

Grossly Stupid

It is a millenillia long fact that the rich think they're the smartest folks in the room just because they're rich. It's also a fact that most (total) wealth is inherited over genertions, with most of it acquired on auto-pilot after the first generation; The Donald would be quite richer if he simply collected the market rate of return on his original inheritance. Accidental emporers being an exception through no fault of their own, although small in number of the rich.

I've been sitting on this bit for about a month, waiting for the bile to stew sufficiently. The stew is ready.

Gross is plain stupid. He asserts (in so many words), as do the Right Wingnut Rich, that the Damn Gummint owes them their risk-free 10% on idle money. As if that's what Adam Smith propounded. Sure he did.

Any econ text from 101 to Ph.D. level tells you that rate of return on investment (i.e., interest) only comes from increased production in a more efficient fashion. All of those fancy time-series and copulas and other high priced quant exercises are quite worthless; if they worked, there couldn't have been a Great Recession. Events drive the data, not the other way round. Lots of London Whales the world over get paid megabucks to masturbate (metaphorically, at minimum) over their Excel spreadsheets, blindly typing in numbers. Bah. Paying interest without increased productivity is simply time-shifting of consumption, from the present to the future. Most texts call this the rate of time preference: how much consumption later is worth today. The notion is that deferring consumption requires paying the (delaying consumer) some premium for that delay. No one actually knows, of course. Killing current consumption in a time of excess savings only poisons the well further. Do the arithmetic.

So, anyway, Gross calls for Armageddon over low and negative interest rates. As demonstrated, going back at least to "The Giant Pool of Money" piece, excess moolah chasing risk-free return drives up instrument prices (and realized interest rate down, down, down). Just works that way. As American corporations (and the rest of the global ones likely have as much or more) sit on $1.45 trillion in idle cash, look out below. But one need not even seek to dig out the free cash amount; the bidding on Government instruments is sufficient to reveal the excess cash. You can only buy what you have the cash to pay for.

Rather than spurring economic growth, low rates are promoting asset bubbles as investors reach for higher yields while punishing individual savers and industries that rely on interest rates, such as bank and insurance companies, according to Gross.

The hypocrisy of that statement lies in this: the Grosses of the .1% continually weep for ever lower capital gains taxes. Now, asset bubbles pay off faster than interest, and itsy bitsy cap gains tax drive more moolah into instrument prices. This mess all started not with the Damn Gummint, but the concentration of idle moolah in the hands of the few.

The fault, dear Peter, is not in our poor, but in ourselves, that we are mendacious.