Where Have All the Returns Gone?

Not to belabor the point too, too much; but if you still doubt that real returns in anything compute related are a vanishing species, just have a look at this Apple slide. Read the whole page. Poof!

From a later page:

That's right, I still have my old PowerMac G5 Dual 2.5GHz (upgrade from my original 2.0 model). It's interesting to note that single threaded performance has only improved by 2.8x over that 2.5GHz dual G5 machine from around a decade ago.

And now a word from Amdahl:

The first thing I noticed while running this test is how much the workload can impact CPU core utilization. Even though I was dealing with a substantial 4K project, only portions could spawn enough work to keep all 12 cores/24 threads busy.

All that investment of billions and billions of dollars just to ... what? As the Red Queen said, "Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!" (Pulled from the wiki)

An Epidemic of Kissing Disease

How old would you think the word 'monoculture' is? My guess, before I went out to discover, was at least since Stephen J. Gould. Turns out, that's wrong, that is, off by a bunch.

According to here, it appeared in the OED for the first time in 1901. Which likely means it was in use during the 19th century.

Those in the *nix community have been vocal in their warning that M$ DOS/Windows dominance leads to the usual casualties of inbred stock. What they've been less vocal about is the monoculture at the hardware level. While one can build linux from source, and if you can verify that all the source is clean, then you're somewhat outside the box. But that chip is still X86.

So, have a read of the latest paranoid's jeremiad. One might wonder how the 'strict constructionists' abide such? Just because the Floundering Fathers didn't have PCs and innterTubes, does it follow that only the means of communication and domicile that existed in 1789 are protected from Government (and their corporate minions)? One might conclude that, in the case of personal freedom, the Right would eagerly adopt a 'living document' viewpoint. Or could it be that they believe in the sanctity of government, after all? Obama has, just on the basis of admitted behavior, done what the Right Wing wants. The crunch will come when any level of protest gets one labeled 'terrorist'. We've been there before, and it wasn't pleasant.

Who is being protected from whom?

Where's a Robo Cop when you need one?

Dig a Hole to China

As mentioned in these endeavors over the last couple years, on occasion, it is obvious that the Chinese experiment in social Darwinism must needs assault its economy in much the same way it did the West's. That Giant Pool of Money is still out there, getting bigger, and still demanding high return on minimal risk. That there ain't no such thing as a free lunch matters not to those who wish to live well on moolah alone. Daddy Warbucks, at least, actually made some stuff. Today's banksters merely suck moolah from the fire house aimed by the savers at the borrowers. Never forget that it was a Chinese, Li, who foisted the Gaussian Copula on us. Financial quants are driven by visions of finding the Ultimate Loophole in the system, that crack in the dam holding back all that moolah from their hungry maws, and Li provided, what looked like, that loophole. No, it is way too Byzantine to conclude that Beijing sent him in, "Bond, James Bond" style, to wreak havoc on the hated West. Or is it....?

With the West's fitful (can you say: "neutering Volker"?) attempts to bring the banksters to heel, all that Chinese money is now being directed inwardly. With the expected result. I've mentioned the "60 Minutes" report (revealing the ongoing real estate fiasco) from a few months ago, and much earlier stories from print sources.

Today brings us another. Don't be surprised.

I long ago forgot where I read/heard it (you can find it in older essays), but the following semi-quote about sums up the cynic's view:
"One hears from CEO types about how much work it is to run these corporations, but they never seem to want to take on failing companies. The ones they do run could be just as successfully run by a sock puppet."

Which brings us to:

Yao Jingyuan, the former chief economist at the state statistics agency, said ... "With this kind of operational model banks will continue making money even if all the bank presidents go home to sleep and you replaced them by putting a small dog in their seats."

The piece ledes with the punchline, as any cub reporter has been taught to do:

China's financial system is in danger of becoming too big to bail out.

My, my. All that money, and little to do with it, besides build yet more condos.

Official bank lending has more than doubled since the global financial crisis, growing nearly twice as fast as the overall economy.

Without all those Western mortgages to soak up the moolah, China is generating such internally. Good luck with that.

"The chains of lending and borrowing can be long, just like the securitized subprime mortgages. The result can be devastating."...said Yu Yongding, a senior fellow at the Institute of World Economics and Politics of the Chinese Academy of Social Sciences...

Stating the obvious:

Savers have had few alternatives to banks until very recently: Real estate prices are already stratospheric relative to incomes...

Ya think??? Time to copulate.

Pilgrim's Progress

In one of my previous cubehomes, I had a Post-it note with the kilocalorie measure of known chemical sources. At the top of the list was gasoline; IIRC, ethanol was next at about half as much. Over the years, I've prattled on about this fact. The whole notion of progress boils down to increases in energy consumption per capita (mean or median, take your pick). Given both gasoline's energy density and portability, there is no transformational alternative energy source, short of Mr. Fusion, which doesn't demand a transformation of society's structure. You can look it up: GM bought up electric railway systems (with a vengeance post WWII) in cities and towns, and put in buses. The rationale (not that GM had any specific interest at stake, of course) was that buses could be sent on diverse routes as populations shifted, and needs changed. Ignored by such argument was the fact that populations huddled around tram lines, not the other way round. Suburbia has done quite the same with ring and radial limited access motorways in cities. I lived in, and watched, the transformation of Washington, DC with respect to both rail and highway creation. If you build it, they will come.

Put more bluntly: all of the other alternatives require socialized usage of said energy source. It's the divisibility and portability of gasoline that makes it transformational relative to the socialist structures of centralized energy sources. Chemical batteries haven't (and can't, by my ancient understanding of physics, chemistry, and thermodynamics) reached such a density. As populations move (or forcefully relocated) to cities, the lure of gasoline diminishes. As the farmersonly.com ad says, "city folks just don't get it". May be true, but sodbusters in their shitkickers are a rapidly shrinking minority; intent on running the country their way, of course. Because city folks just don't get it. We out here in God's country need our Bible, Guns, and Meth.

And, lo and behold, for the last couple of weeks, the socially responsible folks at Exxon/Mobil have been running a PSA (no, I don't find a YouTube version listed, so you'll just have to watch football, and such, to see it) extolling this density advantage: a gallon of gasoline will run your smartphone for 3,000 days. Gasoline uber alles!!

But, what got me to type all this out was the result of looking into the collapse of the USSR. And this toddle through the innterTubes led me to this article, which I've not gotten all the way through, so there's some chance that the following quote will end up being contradicted later. Even so, I'll take the chance:

Yes, labor, capital and technological innovation are important inputs into economic growth, but what Cleveland et. al. (1984), Cleveland et. al. (2000), Smil (1991, 1994, 2005) and Reynolds (2002) make so clear is that energy is a vital ingredient to growth and technology. If you take away energy, the labor, the capital and the technology inputs cannot do a thing. As one physicist friend said to me once, "I bet (those economists) can't even change a tire."

I do believe that's the first time I've seen some pundit make the connection.

Dollars and Cents

How do you stop people/companies from doing something bad/ignorant/stupid which fucks up life for the rest of us (and, sometimes, the perps themselves)? Two examples from recent news provide some insight.

The Volker Rule, watered down as it is.

Shawn Thornton's 15 game suspension.

In both cases, crimes (or misbehaviour, if you prefer) are punished after the fact. The better way is to modify the incentives to behave badly. In the case of Volker, and financial sector regulation generally, is to end the veil of protection afforded corporations. The Supremes have already decided, by what logic I don't follow, that corporations are somewhat persons. Well, just as parents of juveniles are responsible for the bad behavior of their minor spawn, so corporate officers are responsible for the corporation's bad doings. To the slammer, do not pass GO, do not collect $200.

In the case of NHL hockey, set the rule: a minor penalty is now four minutes, and the offended player chooses which player on the offending team warms his ass in the sin bin. Change the incentives.

The movie "The Wolf of Wall Street", from the book of the same name, and a semi-accurate, semi-autobiographical tale of astounding evil is in the adverts now. Intended, so it appears, to make the working stiff retch at what the cunning and devious can garner. Albeit, this guy did get caught. Coming to a theater near you soon. Of course, the powers that be don't really want to adjust the incentives, since they'll be trotting through that revolving door soon enough. Don't want to endanger The Big Pay Day.

What Hath Quant Wrought?

Today's Business section of the NYT has a host of malfeasance on display. A cornucopia of greed and punishment. But that's not what I came here to talk about. Jesse Eisinger has a DealB%k piece, and he's got some reporting of research which illuminates.

What was the proximate cause of The Great Recession? The answer largely depends on which end of the political/economic spectrum one sits.

The Right tale goes: "It was all those poor folks tired of living in shotgun shacks (and wanting McMansions) who came to the overly solicitous and naive` mortgage companies and banks demanding oddly structured subprime ARMs, the parameters of which they dictated to the naive` mortgage companies and banks. Who, being naive`, reluctantly devised such loans. Of course, the loans eventually went South, victimizing the mortgage companies and banks."

The Left tale goes: "The Banksters (mortgage companies, banks, rating agencies, and the Trilateral Commission) set out to gut the 99% and get rich in the process by creating mortgages which enticed the naive` poor folks into believing they could leave their shotgun shacks for McMansions. When said mortgages eventually collapsed, the Banksters kept their ill-gotten gains, and the poor folks retreated to their shotgun shacks, now paying more in rent than they did before the whole sorry tale happened." (Aside: private-equity, hedge funds, and God knows who else are slurping up housing and becoming absentee corporate landlords. That will not end well for communities.)

The truth, to the extent that anyone can be objective, lies mostly with the finance industry/sector growing into Jabba The Hut. One of the earliest themes of these endeavors is that Greenspan is Patient Zero in the epidemic. By crashing interest rates, he set in motion the effort to generate other vehicles of "risk free, high return". There are no such vehicles, of course, but since finance was about as unregulated by 2001 as it's ever been, there was no adult driving the train. "Let's see how fast we can make the choo-choo go, Mary!!" And it went fast.

While I can't claim to be the first to suggest it (although my recollection is that finding others, in the pundit class, who expressed the notion followed my coming to the conclusion), the problem with the financial engineering brigade, i.e. raptor-quants, is that they don't want finance to be simple and boring. Convoluted and opaque is better. And the reason it's better is that profit from finance comes not from value added, but sucked out of the moolah stream twixt savers and borrowers. Better to hide the shenanigans.

Which brings us to Mr. Eisinger today. He reviews some of Jack Lew's, the newish Treasury secretary, earlier pronouncements, along with data produced by outside researchers. It is these concrete facts which are of interest.

The way to really solve "too big to fail" is not by tinkering with the existing system, which leaves the great and fundamental problem still with us. The economy has become overly "financialized."

GE's profit percentage from finance had reached 50%. Other companies saw a quick buck, and took to shuffling paper and sucking moolah from the, what looked like, tidal wave of moolah to be processed.

Historically, finance's share of the economy has been at about 4 percent. Today, it's about twice that. And the peak occurred not in pre-bubble 2007, but in post-crash 2010, at just under 9 percent, according to research from Thomas Philippon of New York University. That represents a shift of more than $600 billion of wealth a year, as Wallace C. Turbeville, a former investment banker-turned-financial reformist, has pointed out.

The result is obvious:

Despite technological innovation, finance costs more than it used to, even though prices have fallen for things like trading stocks.

The Banksters suck their profits from the stream. Even Eisinger has the gonads to be plain:

The financial sector has become a self-sustaining perpetual motion machine that extracts money from the rest of the economy. Shouldn't it be a goal of society -- Mr. Lew's focus -- to restore the financial industry to its traditional role as an intermediary between companies that need capital and savers who have it?

In simple words: finance should be simple, dumb, and transparent. And cheap. It is after all, little more than Marrying Sam, putting savers and borrowers together. All the fancy quant does is extract ever more from the stream for the quants and their bosses. The quants would be more productive in marine biology and such.

Research from Professor Philippon shows that financial activities have gone up in the deregulatory era, and now cost about the same as in 1900, the last Gilded Age. In other industries, like retail, technological innovation has led to lower prices and therefore decreased the size of the sector. In finance, the opposite happened.

The tail is wagging the dog.

(Go to the web page to follow the links to the underlying research.)

Maker's Mark

They ads say, it's a really good hootch. Could be, but I don't often get shit faced, so I wouldn't know. But in the course of commenting on SA, I wordsmithed (not the first time), so I'll take this opportunity to mark my words.

Thus we have the fabless companies, seeking to avoid [having to make and sell physical chips]. But, of course, someone has to have the fabs. Well, until we're all implanted with The Personality and Economic Function Chip as we slip down the chute. And that fab with be owned by Big Brother (who may be government or RoboCop Corporation; as things stand now, RoboCop is more likely).

The Personality and Economic Function Chip™

Hey, if the tobacco companies can claim dope names, I can claim science fiction names. (And, no, I've never bothered to confirm that urban legend. Were it not true, such would spoil all the fun.)