Monday, February 28, 2011

Too Repetitive

FLG feels he's been too repetitive lately. Returning too often to topics and theories he already beat to death. So, he's decided to spend the rest of the week blogging about things he's never blogged about before. First up -- FLG's problem with Christianity. He doesn't remember ever bringing this up, but he might have. If he has, well, whatever. He's just trying not to be repetitive, it's not a blood oath or anything.

Anyway, here's the problem: Jesus was sent down from Heaven to suffer and die for our sins so that we could be saved. Uh, call FLG crazy, but wouldn't it be within God's power to, I dunno, just forgive humans for their sins? Would've been much simpler. Appear as a burning bush or whatever, declare our sins forgiven and us saved, and it's Miller time.

Don't get FLG wrong. It's not some sort of fatal theological flaw. It's simply something that he's always had trouble with. He can get beyond all the other philosophical and theological issues relatively easily, but the idea that God had to send his Son, who is also Him, to suffer and die for our sins never made any sense.

But it's not for you to understand, perhaps some of you are saying. Well, that doesn't make any sense either in this case. The only reason that FLG can think of, again, that makes any sense, for Jesus to come down is to demonstrate His Love through suffering to humans.

Well, then, FLG isn't that a good explanation why? Dude. Burning bush says my sins are forgiven, then FLG assumes his sins are forgiven. Don't need some huge production.

Econspeak

The Ancient pointed FLG to this presentation at MIT, and God bless him for thinking FLG could possibly understand remarks that are prefaced with statements like this:
We already started with a consumption function that depended on transitory and permanent income, a channel from interest rates to consumer durables, and a real net wealth effect a la Franco Modigliani.

Although, in all seriousness, the specific remarks prefaced by that statement did contain this one sentence that FLG understood. When answering a rhetorical question of why the dot com bust wasn't as bad as the current housing crisis, Great Depression, or Japan's relatively recent troubles it was short and sweet - leverage.

FLG has been playing that tune for a long, long time.

A Conversation

FLG is in a meeting.

FLG's Boss: I hate so say this, but I've no explanation -- the other team totally sabotaged us. Anybody have any ideas how we can kick the consequences back over to them?

FLG tries to stifle a chuckle.

FLG's Boss: Did you an idea?

FLG: No, nothing.

FLG's Boss: Out with it.

FLG: I couldn't help but think of Sabotage and Root Down.

FLG Boss: Pardon me?

FLG: How we gonna kick? Gonna kick it root down.

FLG's Boss: Are you joking?

FLG: Oh, definitely not. I never joke about the Beasties.

FLG's Boss: Tell me. Why do I keep you around?

FLG: Sure, because I know how to kick back. Here's my idea...

whisper whisper.

FLG Boss: Alright. I guess you're right. Would've been much easier if you'd just send that from the beginning instead of snickering.

FLG: Chuckled.

FLG's Boss: What?

FLG: I didn't snicker. I chuckled.

FLG's Boss: Oh, Sweet Jesus.

FLG Learned Something

FLG was reading through a debate over whether public employees should shift into defined contribution retirement plans like pretty much everybody else. The first argument FLG clicked on was Monique Morrissey's, from the Economic Policy Institute, because FLG figured that would be the one he disagreed with the most. And better to read somebody with whom you disagree than to cluck along reading likeminded people.

Anyway, FLG did disagree. He's heard the 401(k)s just increase Wall Street's profit line a million times. Nothing new. But then FLG clicked a link to a paper that Morrissey wrote about making retirement universal, secure, and adequate. Usual shit in there too. 401ks are risky and expensive. People don't put enough money into them and don't have the financial skill and knowledge to manage their investments properly. Low-income workers don't have access.

All stuff FLG has heard before. Much of this can be ameliorated with small tweaks here and there, such as opt-out instead of opt-in. On the larger point that the market is risky, but government-backed, defined benefit plans aren't, is not, seems a bit questionable to FLG. In finance and accounting, when the ownership of an asset is somewhat ambiguous, then you look to who has the control and bears the risk. By shifting the financial risk for retirement funds onto corporations or government you are shifting the financial risk, but the individual is still the one who wants to retire and so they still bear the risk. They are merely trading financial risk for political and legal risk, which is to say contracts can help you transfer risk, but there's still counterparty risk. That worries FLG, especially counterparty risk with the government. It's purely political risk at that point. Since he's the one who wants to retire, he'd much rather have complete control over the assets he'll be using to retire. Then he'll diversify away all the risk he can. To be honest.

But let's get back to the title of this post, what FLG learned:
Adverse selection in annuity markets
401(k) participants can convert account balances into lifetime streams of income at retirement by purchasing annuities. However, this is expensive because insurance companies assume that only someone with a higher-than-average life expectancy would purchase a life annuity. This problem is exacerbated by the fact that the annuities market is difficult for nonexperts to navigate, so unsophisticated investors can be at the mercy of unscrupulous sales practices. The situation is analogous to health insurance, where similar problems cause individual plans to be much costlier than group plans. For this reason, many countries require annuitization for most retirement account balances. Even the United Kingdom, which is similar to the United States in its reliance on voluntary defined contribution plans, requires that at least 75% of account balances be annuitized.

FLG was aware of the annuitization requirement in the UK, and it always bugged him. Going back to the control aspect, FLG might not want to annuitize his investments at the moment he retires for any number of reasons, including the counterparty risk issue, but namely that the rates offered might be atrocious at that moment. Maybe FLG'd want to wait a couple of years before annutizing or spread the money into several annuities purchased every couple years.

But to tell you the truth, FLG never understood the requirement. He means, yes, he understands the idea that there's the risk people will outlive their money, longevity risk. And he understands why governments would want to ensure that people take measures to avoid it. But FLG never understood why the requirement was so high. 75% is a big chunk of change. In the context of adverse selection problems it makes more sense. Those never occurred to FLG.

Quote of the day

NYTimes:
Michael Scheuer, author of a new biography of Mr. bin Laden and head of the C.I.A.’s bin Laden unit in the late 1990s [and Georgetown Professor], thinks such enthusiasm is more than wishful thinking.

Mr. Scheuer says he believes that Americans, including many experts, have wildly misjudged the uprisings by focusing on the secular, English-speaking, Westernized protesters who are a natural draw for television. Thousands of Islamists have been released from prisons in Egypt alone, and the ouster of Al Qaeda’s enemy, Mr. Mubarak, will help revitalize every stripe of Islamism, including that of Al Qaeda and its allies, he said.

Throwing a bone to all those who think FLG is too Kumbaya on the recent Arab revolutions.

Sunday, February 27, 2011

Economic Ignoramus

FLG doesn't always agree with E D Kain, but in general when it comes to social and political questions, FLG thinks Kain is pretty reasonable. On the other hand, when he starts to blog about economics, well, he's the drunk, crazy guy at the end of the bar rambling on incoherently about stuff he knows shitall about. Has Erik ever taken an economics class? For example, he writes:
Globalization has been little more than a corporate-statist effort using pernicious instituions like the World Bank to plunder the labor and resources of developing nations at the expense of workers everywhere and to the benefit of the powerful.

Really, asshole? Hundreds of millions of people have been lifted out of poverty in China alone. Sure sounds like horrible fucking plunder of the little people to FLG.

Now, in complete fairness, Erik is riffing off of Kevin Carson who does make some valid criticisms of the neoliberal, Washington consensus. The valid criticism is that too many people equate free market with privatization. If a big business horns its way into a developing country through lobbying, etc, or countries offer subsidies to big business to develop factories, then that's not truly free markets.

But, look, we've known there were gains from trade international trade since David Ricardo. And to be honest, we knew that people could specialize and trade since Smith. Ricardo was just extrapolating to nations. So, there are definitely gains to be had. Are there problems? Sure. But let's not throw the baby out with the bath water.

Erik should really stop reading Kevin. All of Kevin's concerns are distributional, which is to say premised on a static analysis of wealth as fixed. The trouble with focusing on distributional aspects in a static analysis is that you miss the dynamic aspects. Trade generates gains. There are winners and losers, but what economics tells us is that the gains necessarily outweigh the losses. Yes, in the short run, there are winners and losers, but in the long run nations adapt to specialize where they have comparative advantage and are better off.

As FLG has said before, arguing against free trade is like arguing to block out the Sun because people get skin cancer. Skin cancer is obviously a serious issue, but you wear a hat and put on sunscreen, not block out the Sun. Kevin's take seems to be a tad more reasonable than that. He's not for blocking out the Sun. He's complaining about the regulations regarding the production, distribution, and sale of suncreen and hats. Again, that's fair insofar as it goes. Unfortunately, his solution is to socialize hats and sunscreen, which simply won't work.

And the idea about getting rid of the WTO is just silly on its face.

Saturday, February 26, 2011

Not So Sure About This

FLG is happy that this is apparently working out for people, but he can't help but think having somebody inject botulism toxin into your hoohah isn't a great idea.

Testing FLG's Theory

Emily Hale went to an event at the Indian place across the street from Georgetown Cupcake with Ian Shapiro. Emily describes his political philosophy thusly:
He advocated what he calls adaptive political theory: he maintains that what is distinctive about humans is our ability to think about our circumstances and imagine alternatives to them (although we always do this imperfectly). Political theory, according to Shapiro, emerges out of our reactive condition and out of the fact that we know much more about what is unacceptable than what is acceptable. He advocates a political theory based on non-domination (he defines domination as a lack of freedom as a result of human action that is able to be changed). He maintains that building a political theory based on non-domination is superior to building a political theory based on some ideal like liberty or equality.

Screams of short time horizons to FLG, but he doesn't know anything about Shapiro's politics. So, this seems like a good test of FLG's theory. FLG's theory indicates that Shapiro should be on the Left. Is he?

FLG Is Confused

These morons are proposing a federally-backed, inflation-adjusted annuity.

Here’s how it would work. Initially, people who wanted to buy this insurance would enroll through one of the qualified retirement savings plans already offered to the public, like a 401(k) plan, and could choose this annuity option instead of, or in addition to, investments in stocks, bonds or mutual funds.

Look, FLG isn't all that smart, but their plan sounds like offering people the ability to, basically, put more money into Social Security. This is a good idea?

UPDATE: FLG actually thinks if you want to make Social Security entirely optional in this way -- that people could buy into it if they want, then this sort of does make sense. But given that we already have what is for all intents and purposes supposed to be a federally-backed, inflation-adjusted lifetime annuity, then what's the point?

FLG Is Not An Intellectual

Prof Mondo:
As I mentioned a while back, I recently picked up Paul Johnson’s Intellectuals, which I read in chunks sometimes as I wait to pick up the Spawn at school. As I’ve read it, I’ve recognized still another respect in which I’m not an intellectual, which is that unlike the folks Johnson describes (e.g., Shelley, Rousseau, Marx), I realize that not every problem can be solved, and that very few problems in the social sphere can be solved by some Big Idea. Since Big Ideas are an intellectual’s stock in trade, those intellectuals are more likely to do harm than good.

It seems that another aspect of being an intellectual is being able to draw conclusions from and see patterns in fewer data points than other folks. I think this is part of what makes these folks quick studies, but that could be chicken-and-eggery. But of course, one consequence of acting before all the data are in is that sometimes the data will prove you wrong. This is what some of us call “getting pimp-slapped by reality,” but some of us require more slaps than others before they’ll adjust their assumptions (which you’ll remember were founded on insufficient data to begin with). I think this may be because intellectuals invest a significant amount of their self-image in their ability to find a truth first, and so admitting they’re wrong may be harder for them than for an average shlub.

FLG would like to preface his remarks by saying he is not an intellectual. However, he would also like to reiterate a statement he made in a previous post:
FLG...would rather be fantastically wrong about a Long Run, Big Idea than to muddle making only cautious, incremental (and if you pressed FLG, then he'd probably even include "cowardly," although that's hypocritical from a pseudonym) little steps away from what can be definitively proven. The important things cannot and will not ever be proven in any meaningful or even relevant way. When it comes to human affairs, it is far better to proclaim boldly from the summit of a mountain that you honestly believe in than to whisper from atop an anthill that you are 99.999% certain exists.

Quote of the day

Dr. Boli:
I have chosen every one of my chains and shackles with absolute freedom. There is not a man on earth who is freer than I.

h/t

Anti-saccharine Society Redux

Remember when FLG complained about Reihan's cloying style? Of course you do.

Well, FLG hasn't been reading him as much since. Today, however, FLG stopped over there and began reading a few posts. Here are some excerpts from recent posts:
Joe Flood, a terrific writer, has written a short piece...

Alan Reynolds has an excellent piece over at the Wall Street Journal...

My friend Lauren Feeney has a fascinating interview...

...Gov. Scott Walker of Wisconsin accepted a call from a clearly pretty hilarious and smart reporter...

As ever, Rick Hess offers useful insight...

Thankfully, Andrew Biggs has offered a more detailed take on Jeffrey Keefe's Wisconsin study. I really hope that people who've highlighted Keefe's thought-provoking work link to Biggs's post...

Kevin Drum has a cynical -- perhaps appropriately cynical! -- take.

Look, FLG knows he's a fucking asshole with little patience and he doesn't think everybody must or ought be an asshole. But, holy fuck, people shouldn't give the literary equivalent of a reach around to everybody they link to either.

Publicly Traded Companies

Possibly Matt Yglesias most meaningless sentence ever:
I think there’s something deeply weird about the idea of the publicly traded firm, and the more we get funds and algorithm-based trading in financial markets the weirder it becomes.

But then there's the complete fucking silliness in the comments that blows that away. Comment #1:
There is nothing weird about publicly traded joint stock corporations if you understand that their purpose has little to do with raising capital but rather they come into existence in order for the founders to capitalize their asset. If Microsoft had never gone public Bill Gates would be a very rich man, but on no list of the worlds richest. Microsoft didn't need a dime of the IPO money either.

The decline in number of public corporations has to do with the ever growing trend of established corporations buying young corporations or even better ones not yet gone public. In the latter case the founders get to capitalized their asset without all the fuss and muss. Most tech companies are founded on the hope of such a buyout.

As wealth has concentrated in fewer hands the desire to capitalize assets is declining as at some point have more money than God is a diminishing return sort of thing. At some point having power is more attractive.

Again, like FLG has been saying over and over about liberals, this comment is predicated on static analysis.

Look, FLG agrees with the first sentence of the comment:
There is nothing weird about publicly traded joint stock corporations if you understand that their purpose has little to do with raising capital but rather they come into existence in order for the founders to capitalize their asset.

But then there's this whole rich getting richer argument that assumes static class structure that doesn't quite work. Look at the case of Google. Google was founded by two immigrant grad students. They founded a company and wanted to make their equity liquid. So, they went public.

In fact, the Anglo-American, market-based, arm's-length financial system provides an exit to successful investors. The availability of an exit encourages new businesses. FLG has long said the secret sauce of Silicon Valley isn't the Stanford-Berkeley computer and engineering school ecosystem. People have tried to recreate that in plenty of places with little success. Rather it's the angel investor, VC fund, and IPO market ecosystem that is most important. In fact, the only thing similar to Silicon Valley that's been created is the Cambridge Cluster around the University of Cambridge, which obviously is located in another Anglo-American financial system.

FLG still isn't sure why Matt is so suspicious of public corporations. Perhaps he longs for the stakeholder capitalism along the lines of Japan, Germany, and France, but if you don't have public corporations, then it's pretty impossible for the average person to acquire equity. Thus, you end up with is a bunch of large, family-owned enterprises, like they have in Germany. That doesn't seem like a good way for average people to acquire assets.

Well, now that FLG thinks about it, maybe it does make sense. Who owns the capital isn't all that important if you create various laws, like they have in Germany, that puts worker representatives on the board and have various labor protections. But in that case, for all intents and purposes, the owner of the company doesn't have the same control of their company, and so doesn't have as strong property rights. So, instead, they are too some extent only nominal owners and the de facto owners are the various social partners.

FLG guesses that makes sense, but he hates the idea. He understands the appeal of the stakeholder capitalism model to those with short time horizons. It provides a governance model that mitigates the effects economic fluctuations on workers, but FLG believes the evidence indicates that this comes at the cost of higher unemployment and less growth over the long run.

Friday, February 25, 2011

Wait A Second

Through Andrew Sullivan, FLG learned of this article complaining about the "pre-adulthood" of college educated men. There are so many problems, FLG doesn't quite know where to start.

The article then proceeds to explain it in multiple contradictory ways. Men are depicted as drunken frat boys who love Star Wars and stats about greater female college completion rates and GPAs are cited. These women are supposedly "sick of hooking up with guys." Okay, says FLG.

Then the author explains that these males begin their pre-adulthood when they are in college and moreover that the deracinated nature of the lifestyle of those in competition for good jobs leads them to continue it. Well, then FLG wondered, what does college completion rates have to do with anything? She's talking about college educated, upper middle class young men.

The author then sums up:
Relatively affluent, free of family responsibilities, and entertained by an array of media devoted to his every pleasure, the single young man can live in pig heaven—and often does. Women put up with him for a while, but then in fear and disgust either give up on any idea of a husband and kids or just go to a sperm bank and get the DNA without the troublesome man. But these rational choices on the part of women only serve to legitimize men's attachment to the sand box. Why should they grow up? No one needs them anyway. There's nothing they have to do.

They might as well just have another beer.

So, let's get this straight? The men in question like Star Wars, beer, porn, and hooking up with chicks. Apparently, the author is concerned that "American men have been struggling with finding an acceptable adult identity since at least the mid-19th century" and these men are no different. But these pre-adult men also have college degrees and work in competitive and interesting jobs, which give them disposable income.

So, as far as FLG can tell, this is just the age old "all the good men are taken" whine packaged up with random facts from recent media stories. This focuses on these supposedly pre-adult men, but what exactly are the problems they're facing? The only issue FLG read was women complaining about these guys. It's not that nobody needs them or they have nothing to do. From the author's own contradictory telling, they have the resources and opportunity to do whatever they want -- extra money, free time, endless supply of women willing to hook up, and beer. If young women have a problem with that, then as far as FLG can tell that's their problem.

Quote of the day II

Louis C.K.:
I don’t know if anybody has ever asked you directly, sir, but are you a lizard? Are you actually, can you just please give that a straight answer, are you a lizard person?

It's Amazing How Awesome A Blogger FLG Is

Remember when FLG said Felix Salmon's analysis in the fall of IPOs was all off? Of course you do.

Remember when FLG said that he invests globally? Of course you do.

Well, here's Felix today:
Even as the US is moving from public to private, or at the very least from many public companies to fewer public companies, the rest of the world is still moving fast in the opposite direction.

Looking at this chart, it seems to me that anybody with the bulk of their equity holdings in US companies is clearly missing out on something important.

FLG still thinks Felix's idea about the US' shift from public to private is vastly overstated. With interest rates damn near zero, the cost of funds just doesn't make sense for IPOs. It'll be reversed. But to be honest, this seems to indicate that SOX really might be inhibiting US IPOs.

Georgetown V. Georgetown Follow-Up

One complaint that FLG was surprised he didn't see on the list from the Georgetown Community was the seemingly infinite number of students crossing streets without ever looking up because they're fucking texting.

Although, FLG will say, he had to drive through Foggy Bottom the other day, and GW students were far, far worse. FLG almost killed about half a dozen students who walked out in the middle of the block from behind a truck, all of whom were staring at their damn phones.

FLG's Quick Thought

Matt Yglesias writes:
Now obviously an idea like raising the retirement age to 70 isn’t as wrong as mandatory euthanasia at the age of 70. But by the same token, it doesn’t “work” as well at boosting per capita GDP or cutting down on American red ink.

But FLG was just thinking wouldn't raising the retirement age boost per capita GDP?

If you raise the retirement age, then more people will be working. More people working raises GDP. Sure, it's an increase in inputs rather than an efficiency gain. But if more people working raises GDP and the number of people is constant, then raising the retirement age necessarily raises GDP per capita.

Freedom, Leisure, And Slavery

This post by Jacob Levy about the uncomfortable connection between the rhetoric of freedom and the reality of slavery immediately reminded FLG of Aristotle.

The highest goal of life for Aristotle was, and FLG is oversimplifying here, leisure. However, leisure was only available to free men. And it was only afforded free men because of slave labor. Being free from the necessity of labor is what made a person free.

Georgetown Versus Georgetown

Via Matt Yglesias, FLG learns of the Georgetown Neighborhood Commissions demands on Georgetown University:
— New enrollment caps should be set lower than the current student population, in order to remedy past injustices.
— Limits must be imposed on the number of students living off-campus, with further enrollment decreases if those limits are not met.
— Magis Row on 36th Street should revert from undergraduate housing to accommodations for older faculty.
— The University should not be permitted to acquire more property in zip code 20007 without approval from the Board of Zoning Adjustment.
— University and Hospital buses should not be allowed to go through the neighborhoods, but rather enter and exit the campus via Canal Road only.
— Students who commute to Georgetown by car should not be allowed to park in the surrounding neighborhood.
— Georgetown should create a shuttle system to ferry students from M Street bars back to campus on weekend nights.
— Georgetown must develop strong measures to address off-campus student conduct, treating parties outside the university gates, for example, as strictly as those inside it.

FLG has also seen signs in Burleith that read "Our homes, not GU's dorm."

Now, FLG is sure there are problems. College students get unruly and the houses they rent aren't usually kept in the best condition. He saw that in Georgetown just as much as he saw it in Boulder. And to be honest, there was tension between the community and university in Boulder as well.

And now that FLG is a bit older than 18-22 and has a kid and owns a house, well, he's a bit more sympathetic to the claims of the neighborhood. But then again he's not that sympathetic to much of this for two reasons -- 1) some of this is just total bullshit that wreaks of unreasonableness. For example, no buses in the neighborhood? Really? You live in a city. Metro buses go through all the time. That's just a stupid point. Also, how would students not allowed to park in the neighborhood? It's a public fucking street. Again, stupid. 2) Everybody who bought a house in Georgetown, and FLG means everybody, bought their house knowing that a university and university students were in the area. It's not like it just popped up. It's been there since 1789. Earlier if you count when the Jesuits started educating people on the grounds.

FLG has the same reaction when people complain about aircraft noise when they bought a house near an airport. For fuck's sake, it was there when you bought the place. Shut the fuck up!

If the commission had focused on addressing off-campus student conduct, then FLG'd have been far more sympathetic.

Quote of the day

Letters from an Ohio Farmer:
This constitution in our American souls expressed itself in a small way recently in our expectation and gratification that members of Congress should take an oath to uphold the Constitution. This is an oath of fidelity to the Constitution, and not to us, the people. Our high regard for this oath, it seems to me, is the sovereign people’s way of telling our representatives that we expect you to be somewhat independent of us, that we think good government depends upon it. Those who originally conceived this Constitution said in many different ways that you would do your job well by remaining true to the Constitution, even when some people—I mean, us—clamored for you to do otherwise. In such moments, we count on you to "refine and enlarge" the public’s view with your constitutional deliberations. Your oath opens a slight but decisive space between the people and their representatives, in which you can exercise your constitutional judgment in carrying out your lawmaking duties. Of course, you will often disagree among yourselves about what your duty to the Constitution requires of you. But articulating those differences will benefit all of us by contributing to a constitutional politics which will be the most reliable source of enduring sound policy. If we are as good as we claim to be, you will earn our respect, and our vote, when you respect the Constitution and help us to do the same, even despite what we sometimes might think is our contrary interest.

Just Weird

Amber linked to this article, which FLG admits has some good points including the line that Amber posted, but is just weird when it comes to how guys think. Seriously, what the fuck kind of crazy shit is this:
Non-normative guys who still secretly consider themselves the most macho guy in their friend group get totally freaked out when confronted by real actual bros, because it forces them to face the ultimate self-truth that they actually hate bros and they actually do respect women. They're just still embarrassed that they're indoor kids who are not good at sports, because athleticism is to men what beauty is to women.

And this shit:
What If I Complain And Get Laughed At And Dismissed? Well this might happen 99% of the time, because that is how men are socialized to react to being uncomfortable.

What's funny about that to FLG is that the author later on says this:
Do not mistake your personal lived experiences for universal truths or cite them as if they were such.

Tu quoque was pretty much what came to mind there.

Look, FLG isn't going to say that there aren't still boys clubs. He's not going to say that there isn't privilege. But it's generally become less accepted and bias and exclusion are often more subtle.

The author uses stills from Mad Men throughout the piece. Again, look, there are still implicit hierarchies and privilege, but the tone of the piece is almost as if this were still 1964. It's clearly not.

The most ridiculous part, as far as FLG is concerned, is this:
Most cool girls are totally fucked up because they are used to guys telling them they are "cool" or "funny" or "smart" and they assume it's a euphemism for "not hot" because they already feel like dudes with boobs. But that's okay because a hundred percent of cool guys are fucked up too and secretly feel like girls with dicks. Straight men are sooooooooo pink inside. They just can't tell you or anyone, because they have been socialized expressly not to. But I just told you you, and now everybody knows.

WHAT THE FUCK IS SHE TALKING ABOUT? Is this some sort of crazy hipster shit that FLG isn't in on? To be cool you have to think you're a guy with boobs or a girl with a dick? Huh? Maybe FLG just defines cool in entirely different ways. Because in FLG's world cool people aren't totally fucked up and insecure. They embrace who they are and say fuck the world's expectations.

Thursday, February 24, 2011

Apropos Of Absolutely Nothing

If FLG never heard or saw Elizabeth Warren again, it would be too soon. The lady drives FLG up a freakin' wall.

A Rambling Rant On Unions And Other Shit

FLG has been thinking about the union question lately, given all the hub-bub on the topic. During that thinking he realized that he isn't as clear as he should be regarding from where his positions derive.

Broadly speaking, he views unions as an attempt to use politics to direct economic resources. Again, broadly speaking, he thinks this pretty much adheres to how he views the two sides of the political spectrum. Those who would like to use political influence on economics, as far as FLG is concerned, are almost always trying to deal with short-term distributional issues, and are less concerned about the long run dynamic effects. This pretty much applies to the economic policies of the EU just as much to unionization.

And to be completely honest, FLG thinks what makes the recent fight in Wisconsin so emotional on both sides isn't really about the nominal issue at hand, bargaining rights and pensions and compensation for the public workers. Sure, those are certainly important on both sides. But it's really about unions as political, not economic actors. By which FLG means, not just people coming together as a political force to negotiate with owners and management, but unions as a voice in politics more generally. Unions as organized political forces with resources that can be mobilized toward progressive ends. Unions as a tool to win elections.

But FLG's analysis is problematic. For example, management is a group of people coming together toward some goal. Moreover, companies lobby governments for handouts or tax breaks or whatever, which can all be described as short-term distributional issues and less concerned about the long run dynamic effects.

In fact, FLG got into a huge argument with his MBA class about a particular Brazilian aircraft manufacturer, yes, that one, there's only one. Everybody seemed to view it as a success. Coincidentally, FLG wrote a paper a few years ago on the company.

FLG argued that it flew in the face of economic theory for a developing nation to produce a highly advanced product like an aircraft. It just didn't make sense. That it was the product of 1960s and 70s import-substitution policies that were dumb. It was then privatized and scrimped along from subsidies. Only relatively lately has it even been anywhere close to something of a successful business.

FLG's classmates looked at the current performance of the business, and the projected performance moving forward, and deemed the project a success. One classmate called it an example of successful public-private partnership.

FLG demurred. You cannot just look at whether a profitable company emerges at some point in time. It's not even a question of whether the company's discounted profits are greater than the funds poured into it over the years. It's a question of whether the money used to develop and prop up the Brazilian aircraft industry over the last half century or so could have been put to better use somewhere else. FLG actually had to bite his tongue to prevent himself from punctuating the end of every sentence with the word, "dumbfucks." Anyway, just goes to show why we should all be skeptical of the advice of business executives on economic policy.

Getting back to the point at hand, unions. There's been an on-going series of posts over at LOG, led mainly by E.D., about (And unions. (There are even more.)

FLG has been thinking through these. Again, FLG sees unions as a political tool to determine economic outcomes, and in particular, short-term distributional issues. Several people have commented when FLG made this point previously that the dichotomy FLG presents between economic and political is false.

FLG accepts that this may be true insofar as most human activities involve a political and economic aspect. Presidential campaigns, the very summit of the political world, involves a lot of economic resources, and even as mundane an economic transaction, like buying bread, might involve political considerations. Is it locally sourced? Organic? Fair-trade certified?

But what FLG means by political versus economic is something like this. There are finite resources and infinite wants. In a perfect competition environment, nobody has any real power, and goods get distributed efficiently. Likewise, when an individual goes to the grocery store to buy produce, about as close to perfect competition as can be found in the real world, it's pretty strictly economic. The hard reality of finite resources comes to the fore. Maybe you don't want to buy blueberries when they aren't in season. Instead, you buy apples, which are. Yes, fair trade, etc can come in, but by and large it's a strictly economic transaction for most people. Utility versus price.

When you start to involve larger groups of people, then politics comes into the fray and it becomes much trickier. First, no group of people have the same preferences, so you have to find some way to pool them. Second, and this isn't an economic insight but more of a psychological one, groups of people can convince themselves of things that are untrue, especially when they are confronted with a adversary. This has several knock on effects that pose problems.

Short aside: Issue 1, varying preferences, is a big reason why FLG thinks Corporate Social Responsibility is a big bunch of shit. All apologies to UD. The only thing FLG is confident that all the shareholders of a company want is to make money. FLG can see if there is some sort of direct effect on the bottom line. So, if energy price fluctuation are a big problem, then FLG could see a solar-powered factory or something to lower costs. But these more nebulous, amorphous things some people dream of as a nirvana of using corporate funded charity projects would be supplanting management's charity preferences for those of the owners, and FLG strongly objects. You should hear him on that point in MBA class. End of aside.

But what FLG really worries about, and he wishes he could explain this better, is the extent to which somebody views the world through a political lens seems to warp them into believing anything is possible. So, think of it this way. A group of people can get together and decide to believe anything. The really diehard leftists, and FLG doesn't even really mean Americans, but more like out and out French Socialists or European union bosses, really do seem to believe that there aren't finite resources. Or, perhaps more importantly, they don't worry about the effects of their decisions on future economic growth. FLG guesses what he is saying is that people on the far Left pretty much see everything as the outcome of a series of political struggles.

For example, FLG reads Jean Quatremer. Quatremer's analysis of the financial troubles with Greece and other Eurozone countries almost always blamed one of two things -- banks, who were using their economic muscle to unfairly contradict the democratically chosen political policies of various countries, and thus infringing on their sovereignty OR the newspaper stories of UK financial press who have a serious hate on for the political and economic policies on the continent. FLG can't ever remember Quatremer acknowledging that perhaps the Eurozone countries had unsustainable fiscal arrangements. That is to say Quatremer never seem to acknowledge that countries face the fundamental problem of infinite wants and finite resources. It was always some sort of plot by powerful players, not the result of certain economic truths.

Look, to some extent, he's right. There's always a proximate cause and that proximate cause is usually some powerful interest. But it's folly to say Greece's problems boil down to the proximate cause of the bond market or banks not wanting to lend it money. Moreover, it's folly to simply assert that this wouldn't have happened save for the financial crisis. Greece was always going to go off the cliff. Everybody knew it. And of course it would've happened during a financial crisis because that's when these things happen. As Buffet said, you see who is swimming naked only when the tide goes out.

Something similar is happening with unionization and budgets here. Not to the extent as it's happened in Greece. Yes, the economic situation is causing acute pain that will subside, but there are really budget problems. Yes, taxes could probably be raised without causing long-term economic damage. But you only can raise them so much. Pointing to the highest they've ever been historically as sort of guide to what could be, as FLG hears commentators like Robert Reich do, isn't a useful economic analysis. So, things will get better and taxes will probably go up, but systematic cuts will have to be made and public sector unions are a huge roadblock to these.

But, getting back to what FLG was saying earlier, this really isn't about budget battles. This is about unions as a broader political tool. Unions who can influence elections. This is about unions getting people elected, not about the proximate budget issue. And to be honest, FLG thinks the big issue with public sector unions is that both sides realize how great the incentives are for those unions in particular to be politically involved. The UAW certainly has political interests and would be involved in politics. But ultimately they negotiate for what matters with auto management. Public sector unions have a direct, powerful incentive to get people elected.

What's scary is that, again, if people together can convince themselves of things that might not be true. They view everything as solely as the outcome of political battles. And they are highly incentivized to fight in those political battles. Then there's this tendency that FLG has noticed to give less attention to more fundamental, long-term economic realities.

FLG's glad he got all that off his chest. Whew.

Wednesday, February 23, 2011

FLG Doesn't Get It

FLG has said before and will say it again, he doesn't get the infatuation with Blade Runner.

Throughout his teens, FLG began the movie several times, but invariably turned it off. Then, in college, his roommate loved the damn thing, and made him watch it. First, the theatrical release. Then, when FLG still didn't like it after finishing the whole thing, the superduper extended with extra sugar on top director's cut. FLG's roommate assured him that this would win him over. No dice.

Look, there are a ton of movies that FLG probably likes purely out of sentimental value because he liked them when he was a kid or teenager, but in reality they suck. That's the only way he can explain the infatuation with Blade Runner. FLG pretty much feels the way Ebert does:
Seeing the movie again, even in this revised version, I still felt the human story did not measure up to the special effects. Ford is always good when surrounded by amazing visuals, perhaps because he keeps cool and does not seem to notice them. Sean Young and, more briefly, Rutger Hauer, are effective as replicants who want only to live the lives they seem to have been given. But the character of Tyrell, the evil billionaire, has never been convincing, and the way he is murdered doesn't say much for his security measures. And the love affair between Ford and Young, though properly bittersweet, seems to exist more for the plot than for them.

And since by the time FLG saw it the years hadn't been kind to those special effects, all you're left with is a b-movie.

Tuesday, February 22, 2011

Correspondence

A thoughtful reader sends along this story:
on Tuesday, pirates aboard the Quest unexpectedly fired a rocket-propelled grenade at the [USS] Sterett. Shortly afterward, gunfire erupted inside the Quest cabin, and U.S. special forces responded, approaching the Quest in small boats and boarding the vessel, Vice Adm. Mark Fox, commander of U.S. Naval Forces Central Command said in a Tuesday press conference.

Some pirates moved to bow and put up their hands in surrender. The U.S. forces killed two pirates in the course of clearing the vessel - one with a handgun and one in a close-combat knife fight. There were no injuries to U.S. forces or damage to U.S. ships, Fox said.

Somehow, FLG doubts it was like this one. Instead, it was probably like this.

Stupid Somali Pirates.

Friday, February 18, 2011

Guitar Playing

Mrs. FLG, since as far back as FLG has known her, has always said that if she were to learn to play guitar, the goal would be to play Over the Hills and Far Away.  Now, that's undoubtedly a fantastic song. And Zeppelin is pretty high on the list of guitar playing.  Stairway to Heaven contains probably the quintessential guitar solo.

But FLG must admit, if he could magically play guitar, then he'd want to be able to play like starting at the 4 minute mark or so in this.  Shit, at 7:30 he's playing behind is fucking back.  Sure, it's showin' off, but it's pretty fucking cool.

Monte Carlo Method

Yahoo Finance:
T. Rowe Price examines this question in a new study that uses Monte Carlo probability analysis to look at likely outcomes of different retiree responses to a bear market
FLG always chuckles when somebody says Monte Carlo probability analysis or Monte Carlo method.  It sounds so sophisticated.  Some black box that only the high priests of statistics and finance have access.

What it means, in practical terms, is to throw a lot of random shit at the wall and see what sticks.  Maybe the kitchen sink does.  Who knows?  They don't.  Otherwise, they wouldn't be doing a Monte Carlo probability analysis.

Don't get FLG wrong.  It's useful so far as it goes.  It's just a fancy pants name for throwing random numbers at the fucking model and saying what happens.

Commentary

FLG has long held the position that the SFS branch in Qatar is a huge mistake. This gets some irate responses from time to time, usually from people attending SFS-Q.

Well, yesterday and today, a person choosing the name Mark Twain has left comments that take the cake. It's completely irrational blather that calls FLG racist, arrogant, and oddly -- polite. Plus, FLG's personal favorite, he says FLG "sound[s] like a smug proto caucasian but hidden behind the smoke screen you're just a crypto vampire with a paranoid redunant theme of isolationism, secular nuance and white supremacy, SFS grad ... You guys are still learning about Lincoln Log Democracy and Modern Mcarthyism is basically the whole schools philosophy."

FLG has decided to see if he can get to the bottom of this mystery.

Correspondence

Somebody emailed, probably in response to one of the 401k posts but he didn't mention it explicitly, asking about FLG's approach to investing and diversification. Well, FLG isn't a financial expert, but he will share what he does with his 401k. He thinks he's mentioned this before.

First, FLG allocates between equity, bonds, and cash. He uses the 120 minus his age as a rough guide to how much to put in equities. The rest is mostly in bonds. A tiny percentage is in cash.

Ideally, he'd like to invest his money around the world according to each country's share of global GDP, but it's not really possible both because indexes are based upon market cap, not GDP, plus the lack of developed financial systems in every country. So, he ends up dividing it between an S&P 500 fund and an MSCI EAFE fund, with some developing market stuff thrown in there for good measure. With regard to bonds, FLG just puts that money in a fund tracking whatever the Lehman Bond Index is called now.

FLG rebalances on his birthday each year and revisits the overall allocation every 5 years.

Quote of the day

Matt Stone:
You'll know it's done when you hear the word cunt and everyone bows.

Thursday, February 17, 2011

Shenanigans!

Emily Hale writes:
Martin's is the Georgetown restaurant probably best known as the place where JFK proposed to Jackie.

FLG first thought to himself -- it's Billy Martin's Tavern. Maybe Emily is just confused on this point. But she included a logo with her post, and it only says Martin's. The website? Again, it just says Martin's.

Well, FLG declares shenanigans! He will be marching on "Martin's," broom in hand.

Wednesday, February 16, 2011

Interest Rates And External Factors

So, FLG was listening to a podcast from the BBC this morning. They were discussing the rise in inflation over in the UK. The were debating whether this meant a raise in interest rates was on the way, and one commentator said that because the cause of the inflation was "external factors including rising prices for energy and commodities" that raising interest rates wouldn't do anything to tamp down inflation/

FLG thought to himself, that's a stupid comment. If you raise interest rates, then that makes investing in pounds more appealing to investors, they should then start buying pounds, which in turn would strengthen the pound. That's basic international finance.

If the pound strengthens vis-a-vis the dollar, which is what most commodities are priced in, and the law of one price holds, then the prices of commodities and energy will fall in pounds. Thus, you mitigate inflation.

Whether the BoE should raise rates given the currently weak state of the economy and the fiscal tightening going on, well, that's a completely different question. But raising interest rates should, if FLG's logic was solid, fight the inflation pressures, including the external ones.

Etymology And A Bad Joke

FLG was reading Le Monde when he came across this article asking about the origin of the term bunga bunga, which for those of you who don't know Silvio Berlusconi apparently held bunga bunga parties. Anyway, the Le Monde article links to a BBC article, which saves FLG translation trouble, and points to an old joke that is the first thing that FLG thought of when he heard Berlusconi was doing this crazy shit.

Here's pretty much how FLG remembers it:
Three guys got stranded on an island. Two of the three were wimps and the other was a tough, strong guy. One day, they met a tribe. The tribe chief told them that they could either have Death or Bunga-bunga.

He asked the first wimp: Death or Bunga-bunga? The wimp replied: Well, I want to live so I guess Bunga-bunga. He got ass raped.

The Chief asked the second wimp: Death or Bunga-bunga? He replied: I don't want to die, so Bunga-bunga. He got ass raped.

Then the Chief asked the tough guy: Death or Bunga-bunga? He replied: I don't want to get ass raped so I'll take Death! Everyone in the tribe then chants: Oooooooo! He choose Death! Death! Death by Bunga-bunga!!!

But the BBC found an earlier reference:
The phrase itself is not new. One of the oldest recorded references dates back to 1910 and another African-themed joke.

The infamous Dreadnought hoax was dreamed up by aristocratic joker Horace de Vere Cole, who contacted the British Admiralty pretending to be the Emperor of Abyssinia. He informed officials that he wished to inspect the Home Fleet while on a forthcoming visit to Britain.

After enlisting some friends - artists from the Bloomsbury group, including writer Virginia Woolf - to masquerade as his entourage, he turned up at the navy's state-of-the-art ship, the Dreadnought.

Officials, taken in by the dark stage make-up, false beards and oriental regalia, treated the group to an official civic reception.

[You can see a picture of them if you click the link.]

They were reported to have cried "Bunga, bunga!" while marvelling at the ship. An account of the visit plus a picture were sent to the Daily Mail newspaper - probably by Cole himself.

Tuesday, February 15, 2011

They're Too Stupid

Matt Yglesias posts a comment by Felix Salmon:
Just because you have a 401k plan does not, ipso facto, make you an investor. This is a serious problem with defined-contribution pensions in general: they place an onerous set of responsibilities onto individuals who are wholly unqualified to discharge them in a sensible manner.

Matt then writes:
The basic idea of Social Security—a slightly redistributive defined benefit pension with a capped contribution level—is actually a really good vision of how middle class people should pay for retirement.

Seriously think about what they are saying here:
People are too stupid to plan for the future. Therefore, the government should institute a pay-as-you-go transfer system to provide retirement for people.

FLG might even concede that people are their own worst enemies when it comes to retirement savings. But you have to ask yourself, if this is your position, if people are too stupid, or wholly unqualified if you prefer the euphemism, to save for their own retirement, .i.e save for the future, then shouldn't the government do a whole host of other things? Yes, yes, a progressive might say. Okay, says FLG, then if people aren't qualified to save for the future and a whole host of other activities, then perhaps, just maybe, they aren't qualified to vote. Think about it for a second. If people are supposed to vote after a careful weighing of all the issues facing the country, including finance and economics which they apparently are too stupid to understand, then they are too stupid to vote.

Doesn't this then necessitate some sort of massive technocratic, bureaucratic state where experts, however they are determined, in their various fields make the decisions for us mere mortals who are incapable of understanding anything beyond the drool dripping from our mouths onto the lip of the warm, half-empty Natty Light can resting on our wife-beater covered beer belly?

Quote of the day

Bruce Schneier this years ago, but FLG just read it:
If you set up the false dichotomy, of course people will choose security over privacy -- especially if you scare them first. But it's still a false dichotomy. There is no security without privacy. And liberty requires both security and privacy. The famous quote attributed to Benjamin Franklin reads: "Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety." It's also true that those who would give up privacy for security are likely to end up with neither.

FLG Has Resolved

That when he retires he's gonna be one of those crazy old fuckers who build crazy model train setups. You know, with the village and tunnel through the mountains and lakes and shit.

Oh, and there'll be a Kentucky Fried Chicken and a GI Joe train just to remind FLG of his childhood. Cobra was always trying to blow up that KFC.

Democratization And Egypt

Withywindle posted a long response to FLG's assertion that being concerned about short-term instability caused by the Egyptian Revolution is unconservative. FLG has a several problems with Withywindle's response. At first, he started typing up a point by point response. Then he thought that was overdoing it. So, he just posted a relatively brief comment over at A&J. But one particular point has been gnawing at him.

Just to distinguish: there are coherent pro-democracy-promotion-in-every-Muslim-country conservatives (the neo-con wing); there are coherent skeptics of this position (paleo-cons, Stanley Kurtz, Andrew McCarthy); there are coherent middle-grounders (Rich Lowry, the editorial position of the National Review); and there are anti-Obama diehards who will seize any stick provided by the above three to flail at Obama, no matter how internally inconsistent (Mark Levin, etc.). Do distinguish among them.

The point about Mark Levin is fair enough. But the issue of democracy promotion is a bit of a non-sequitur.

There's a question of whether the United States should actively promote democracy around the world, which is most strenuously articulated by neoconservatives. But that's not the question in Egypt. Egypt, as far as FLG can tell, is the product of an organic, grassroots uprising inspired by events in Tunsia. This is an entirely different question from whether America should actively promote democracy.

The neoconservative vision of democracy promotion is an appealing one to FLG, but he has numerous reservations, many of which have only been increased by our experience in Iraq and Afghanistan. FLG isn't sure America hase the tools, resources, and skills to effectively promote sustainable democracy. Therefore, he's become increasingly skeptical of an American policy of democracy promotion.

On the other hand, when a nation stands up and throws out the SOBS, even if they are our SOB, under the auspices that they would like to take a shot at democratic governance, then FLG applauds.

Can it turn bad? Absolutely, look at Iran. But so can stable, autocratic governments. Saddam Hussein was our SOB during the Iran-Iraq War and was pretty much our SOB right up until he invaded Kuwait. Also, al-Qaeda is largely a response to the Saudia Monarchy. A Frankenstein's monster born of its corruption, Wahhabism, and ossified power structure.

All things considered, FLG believes that more democracy is in America's long run national interest. FLG doesn't think in the long run democracy will manifest heaven on Earth, as Withy seems to think he does. There will always be conflicting interests, even between a world with all democracies. But, again, the entire point of democracies is to solve political differences with votes and compromise rather than violence and corpse. Therefore, while democracy doesn't always live up to those ideals and certainly won't always in the future, FLG would far rather put faith in more democracy than grasping at the illusory stability of autocratic SOBs who happen to be our SOBs.

FLG has read numerous comments concerned about the Egyptian revolution and are predicated on of one of two things, oftentimes both -- concern about the interests of Israel or an assumption that Muslims, sometimes more specifically Arabs, can't handle democracy because their religion and culture are fundamentally violent.

If one is concerned about Israel, especially in the short run, then FLG gets the concern about Egyptian situation. But if your assumption is that Muslims or Arabs or however you want to describe it aren't capable of democratic governance ever, then that flies in the face of fundamental American values. Then what the fuck does America fucking stand for? Democracy for Americans? Everybody except those fucking towelheads? Freedom for Americans, but brutal oppression for those whom America deems unworthy or unable to try their hand at self-governance?

The United States of America either stands for democracy or it doesn't. Whether it actively promotes democracy is another question, but when the people of a country call for democracy, then FLG doesn't see any other option than to applaud.

Perhaps FLG is too sanguine and idealistic. Perhaps where he sees the birth of a new democracy, he ought to see the birth of a new theocracy. But he doesn't. He sees nothing to think Egypt will be another Iran. (In fact, FLG saw protesters out in front of the Iranian interest section here in DC yesterday. Perhaps this will spark a revolution there.) Nobody looks to the Iranian theocracy as an effective model. The people of this revolution were using democratic, not theocratic language.

FLG wishes them good luck.

Monday, February 14, 2011

A Conversation

FLG: Hey, I accidentally pressed the Mountain Dew button on the soda machine. You want it?

Coworker: Sure. You don't Do The Dew?

FLG: Nope.

Coworker: Because it shrinks your testicles?

FLG: I thought that was supposed to be Mello Yello? I still drink it sometimes, but get concerned because it has gum arabic in it.

Coworker: What's bad about gum arabic?

FLG: Don't know. Maybe nothing. But when you are doing offset lithography you coat the printing plates in the stuff.

Coworker: Where'd you hear that?

FLG: Hear it? I did it.

Coworker: When did you print stuff?

FLG: I printed like a motherfucker. You don't even know.

Quote of the day

Megan McArdle:
No matter how scrupulously honest you try to be, you are no substitute for an irritated opponent thinking, "That can't possibly be right!"

Time Horizons: Data Processing

In the comments, Nadezhda linked to a post that linked to this paper -- "Heterogeneous Gain Learning and the Dynamics of Asset Prices"

The very basic gist of the paper, once you cut through the math, says this -- broadly speaking, there are two types of people in the market, buy-and-hold types and traders. Buy-and-hold types, however, don't have much influence on prices despite having the most money in the market. It's the traders that drive price fluctuations. So, then the question is, what drives the traders? The authors break up traders into two categories -- technical traders (those who look strictly at stock price trends) and fundamental traders (those who look at the metrics that ought determine the value of a stock). Thing is that these traders overemphasize recent data, and since they punch above their weight when determining prices, the market overreacts to recent data.

That's all pretty obvious, in FLG's opinion. But then FLG thought of another paper he read a while back "Constructing the Market Frame: Distributed Cognition and Distributed Framing in Financial Markets:"
The data available to professional actors in financial markets is overwhelming in quantity, and no individual or organisation can comprehend its totality. Selectivity in cognition is thus unavoidable. What is selected, and who or what influences that selection, are thus potentially matters of considerable importance.

FLG thought to himself: Imagine that we all possess differing, but ultimately fixed ability to analyze anything. This means you have to make a choice about what to analyze. You can either look at the long-term, do your homework, and take a buy-and-hold strategy. Or, you can look at the most recent data and try to make short-term profits. That is to say, you can either look at the forests or the trees, but not both. However, given the nature of today's interconnect world, new information is flying at traders. So, it's not even like the forest or the trees, but more like speeding through Endor on one of those speeder bikes.

Thus, the traders develop short cuts. They rely upon investment bank analysts, who it probably doesn't need to be said have a conflict of interest Chinese Wall or no, and rules of thumb, that may or may not be correct. To continue the Endor metaphor, these guys are speeding by getting radio reports from somebody saying that the tree that want to sell is great while blasting through the forest making judgments about the quality of the tree based upon the thickness of the trunk and color of the bark.

FLG, do you have a point in all this? No, not really. Just liked the Endor metaphor.

Saturday, February 12, 2011

Like, Um. You Know. And Stuff

Clark Whelton:
As the interviews proceeded, it grew obvious that “like” had strengthened its grip on intern syntax. And something new had been added: “You know” had replaced “Ummm . . .” as the sentence filler of choice. The candidates seemed to be evading the chore of beginning new thoughts. They spoke in run-on sentences, which they padded by adding “and stuff” at the end. Their writing samples were terrible. It took eight tries to find a promising intern. In the spring of 1987 came the all-interrogative interview. I asked a candidate where she went to school.

“Columbia?” she replied. Or asked.

Information Entropy And The Stock Market Revisited

Relatively recently, FLG focused on information entropy as a way of understanding the efficient market hypothesis and stock market fluctuations.

Today, FLG saw that Withywindle recommended a biography of Keynes by Robert Skidelsky.  A bit of googling revealed this article in which Skidelsky writes:

In my view, Keynes’s major contribution to economic theory was to emphasize the “extreme precariousness of the basis of knowledge on which our estimates of prospective yield have to be made.” The fact of their ignorance forces investors to fall back on certain conventions, of which the most important are that the present will continue into the future, that existing share prices sum up future prospects, and that if most people believe something, they must be right.
This makes for considerable stability in markets as long as the conventions hold . But they are liable to being overturned suddenly in the face of passing bad news, because “there is no firm basis of conviction to hold them steady.” It’s like what happens in a crowded theater if someone shouts “Fire!” Everyone rushes to get out. This is not “irrational” behavior. It is reasonable behavior in the face of uncertainty. In essence, this is what happened last autumn.

Why FLG Enjoys Being A Heretic

Flavia:
What gets my goat is people whose religiosity is totally untethered to a coherent intellectual or theological tradition, but who think they can manufacture a tradition out of odds and ends taken from other people's.

Interesting

WaPo:
Corey Olsen had a lot to say about J.R.R. Tolkien. But it seemed a pity to consign his thoughts to a scholarly journal, to be read by a few hundred fellow academics who already knew more than enough about the author of "The Lord of the Rings."

So in spring 2007, the Washington College professor took his scholarship public, with a podcast called "How to Read Tolkien and Why" and a Web site called The Tolkien Professor.

Facile Positions That Bug FLG

The other day, FLG was reading a post by ED Kain that contained a passage that expresses a common enough sentiment:
there’s no reason investment banks and traditional banks should be operated under the same roof. For another, there was still a stock market and trading and growth long before we undid Glass-Steagall. The last time we had a largely unregulated banking sector we fell into the Great Depression. This time it’s the Great Recession. If curbing some of this “growth” coming out of the financial sector leads to a Great Stagnation, well that strikes me as a better fate than either of the other two. Smaller, less leveraged banks and separate traditional and investment banks is likely the best option we have to prevent another financial meltdown and return banking to its sleepier, less risky former self.

FLG understands this sentiment, but the analysis is pretty much all wrong. At the time, FLG wanted to post about it, but first he wondered if Nadezhda (a commenter over at LOG who is sorta like the Bizarro FLG but smarter, more informed, and probably better educated) had said anything in support of this idea in the comments over there. In the process, FLG got distracted by another commenter who was spouting off bullshit.

Anyway, getting back to the issue at hand. Let's go line by line:
there’s no reason investment banks and traditional banks should be operated under the same roof.

Okay, what does that have to do with anything? Is there a reason that they shouldn't be? The nominal issue ED was addressing was that "We’ve given too loose a rein to the wild speculators at the top of the economic ladder, and rewarded them with unsustainable riches for their unsustainable risks." How exactly does keeping the wild speculators only in the investment banks do anything about this? This alone doesn't stop wild speculation. They'll just be in commercial banks. And would do absolutely nothing about how the financial class is supposedly screwing everybody else. Again, the investment banks would just be screwing people. So, this recommendation doesn't do shitall about that. Oh, but FLG, then we'll be able to isolate the risky, bad stuff and the cowboy bankers in the investment banks. Uh, okay. But let's not forget that Bear Stearns and Lehman Brothers were PURE FUCKING INVESTMENT BANKS. Yet, when they almost failed and failed, respectively, the entire financial system was pretty fucked. So, this plan of separating them, at least in isolation, doesn't do jack shit about financial stability, moral hazard, or the supposed middle class squeeze by greedy banker speculators.

For another, there was still a stock market and trading and growth long before we undid Glass-Steagall.

Rather than refute this with a long paragraph, let FLG just say this: People still traveled before the invention of the steam ship, car, and airplane. So, obviously, it would be so much better if we went back to them. Seriously though, the question is not whether there was growth or not growth. The question is about opportunity cost, which boils down to whether the risk-adjusted return from repealing Glass-Steagall was/is positive. Now, ED could reach that conclusion, and seem to have, but whether or not there was growth under Glass-Stegall isn't a valid metric. It's whether we can have more growth without it, adjusting for any additional risk.

The last time we had a largely unregulated banking sector we fell into the Great Depression. This time it’s the Great Recession.

FLG will agree we need regulation, although he isn't sure this correlation is compelling. However, just because we need regulation doesn't automatically mean a return to Glass-Steagall. To steal a metaphor from Paul Krugman -- if you run somebody over, then the answer isn't to throw the car into reverse.

If curbing some of this “growth” coming out of the financial sector leads to a Great Stagnation, well that strikes me as a better fate than either of the other two.

This is about the only statement that makes logical sense. Given the scare quotes, he obviously considers the growth due to GLB ersatz. Therefore, he'd rather have the previous regime.

Smaller, less leveraged banks and separate traditional and investment banks is likely the best option we have to prevent another financial meltdown and return banking to its sleepier, less risky former self.

FLG agrees that smaller, less leverage banks would be great for limiting systematic risk. However, this doesn't have much to do with separating commercial and investment banks. To be honest, FLG thinks that the most important cause of this issue wasn't knocking down the wall between commercial and investment banking, but lifting the limits on the interstate banking. When you could only operate in one or two states it was difficult to grow too big to fail.

But, all things considered, FLG thinks this is wishful thinking. This just ain't gonna happen. Not because of political reasons, although FLG admits there are strong political interests, but because the world isn't the same.

Technological change has had two major effects on banking. First, it increased the speed and size of linkages. Trades on a millisecond basis. Money flows instantaneously. FLG thinks the benefits of this are pretty intuitive to people. Funds can flow where they can, hopefully, be most effective. However, with this quick access, banks will naturally relying upon these connections. This means that a failure in one institution will have immediate and broad repercussions. Even if we separate investment banks from commercial banks, and a pure investment bank fails, it's going to have knock on effects.

Second, and more important for these purposes, technology has made new financial products possible. FLG has mentioned this before. Before computers, we had various financial products -- insurance, loans, equity, bonds, mutual funds, etc. Computers led to the advent of products, derivatives, that have aspects that are hybrids of these.

Look, these products are out of the bottle. They aren't going to be disinvented. Perhaps you are saying, "Okay, FLG, but these risky derivatives are like bets. They serve no useful purpose. If we are going to have them, then let's separate commercial and investment banks and leave them in investment banks. Commercial banks shouldn't be casinos."

Well, let's imagine a bank has a bunch of fixed rate loans and is worried about interest rate risk. So, it wants to shift to adjustable rate loans. It could go out, find another bank, let them do their due diligence and analysis, and then sell those loans. Then, go out and write or buy more adjustable rate loans. OR It could just go buy interest rate swaps. Which one do you think is cheaper and faster? Right, the interest rate swap. But it's an evil, risky derivative.

That's the thing here. The pretty much the entire point of derivatives is to shift risk. It can be used to hedge existing risk or take up risk. Do we really want to prohibit commercial banks from hedging risk cheaply and quickly? Maybe we say that it's too difficult to determine if the banks are hedging existing risk or taking on additional risk, and so we don't want to let commercial banks even get involved. Okay, but that is an explicit inefficiency that we would be imposing. Maybe it's worth it, FLG isn't so sure, but that's certainly up for debate.

But the simple fact of the matter is this -- Glass-Steagall's repeal didn't make the financial crisis happen. In fact, as far as FLG can tell it only helped in the midst of the crisis because commercial banks bought up the pure investment banks that were failing, thus mitigating a full on apocalypse.

Glass-Steagall was repealed because the investment/commercial bank distinction just didn't make much sense anymore. Computers have allowed the creation of products that blur the distinction between previously separate financial functions -- insurance, securities, bonds, etc. Moreover, it dramatically increased the size and speed of the linkages banks. Therefore, the old distinctions between investment/commercial banks is less relevant. In fact, the distinctions between all financial institutions have been seriously blurred. AIG, for example, was an insurance company who was more like an investment bank.

Anyway, to wrap up, FLG still hasn't heard a compelling case for reconstituting Glass-Steagall.

Whoa There, Nelly!

From an Op-Ed in the NYTimes:
it’s easy for spanking, slapping and swatting to escalate — sometimes even to the point of deadly violence.

Hyperbole much?

If 7 out of 10 people think children sometimes need a "good, hard spanking" and we've got one wacked out mother who killed her children, then drawing any line from spanking to killing is FUCKING INSANE.

Now, the author of that Op-Ed is a wussy Northern Californian lady who "passionately oppose[s] corporal punishment," but then hypocritically hit her kid. She probably feels terribly guilt ridden in the way that only sanctimonious Northern Californians can. But holy fuck, shifting from that to killing, is just ridiculous.

Quote of the day

Heather Mac Donald:
I could better stomach the right-wing media’s effort to discredit the Egyptian revolution and to portray it as a failure of Obama’s diplomacy if they had not given such unthinking jingoistic support to Bush’s Freedom Agenda, if Sean Hannity’s theme song was not “Let Freedom Ring,” if they didn’t claim a divine mandate to lead the world towards American-style democracy.

h/t

FLG was struck by the disconnect last night while listening to Mark Levin on the way home. It's blatantly inconsistent. Clearly, without a doubt, the discrepancy is because of support for Israel. But FLG agrees with Bill Kristol:
There are complicated short-term issues, but at the end of the day, being pro- Israel and being pro-freedom go together

Moreover, this concern is a short-term concern, and unbecoming a conservative.

And before you say the words Muslim Brotherhood, let FLG tell you he's read the writings of Sayyid Qutb and Hasan al-Banna. FLG believes, over the long-term, democracy has nothing to fear from the Muslim Brotherhood. They'll have to tone it down and renounce the earlier positions or be completely marginalized. But far better to go down the freedom route than to rely upon autocratic dictators to suppress them.

Honestly, really long-term wise, jihadism is a product of Islam trying to reconcile itself with modernity. Oddly, it's a thoroughly modern response in many ways. But to stop jihadism, the Islamic, in particular, the Arab world needs to have an internal debate and struggle. A theological, cultural, societal struggle, not necessarily a violent one. FLG has complete faith that freedom, modernity, and democracy will win the day, but it will be a rocky path.

Friday, February 11, 2011

Quote of the day

Jason Kuznicki:
Brad DeLong is a seemingly limitless source of uncharitable readings.

Thursday, February 10, 2011

Bad Writing

As regular readers know, FLG is fascinated by language and the craft of writing. So, he'll definitely see this:


h/t

A Conversation

FLG: You keep your bank statements in your dropbox folder?

Coworker: Yes.

FLG: What the hell for? Do you need them at every computer you use?

Coworker: No. It's an easy way to secure them.

FLG: Uh, no. It's not. It's an easy way to make an unencrypted copy on every computer you installed dropbox on.

Coworker: No, it's encrypted. Check the website.

FLG: Oh, it's encrypted when uploading between your computer and their server, when it's on their server, and then when it's downloading from their server to your other computers, but it's not encrypted when it's on your computers.

Coworker: FLG, it's on the website.

FLG: Let's check it.

Corworker: Okay, here we go. "Dropbox uses military grade encryption methods to both transfer and store your data."

FLG: To transfer and store, but not on your computer. Only when they store it.

Coworker: Wait, you're saying there's a copy on all of my computers? Aren't they in the cloud or whatever?

FLG: Can you access them on your laptop when you aren't on the Internet?

Coworker: Yes.

FLG: Then they aren't in the cloud.

Coworker: Okay, here we go. "All transmission of file data and metadata occurs over an encrypted channel (SSL)" and "All files stored on Dropbox servers are encrypted (AES-256)."

FLG: Yeah, like I said, it's encrypted when uploading between your computer and their server and then when it's downloading from their server to your other computers, but it's not encrypted when it's on your computers.

Coworker: "Dropbox website and client software have been hardened against attacks from hackers."

FLG: Okay, but that doesn't mean the files are encrypted on your computer.

Coworker: It doesn't?

FLG: No.

Coworker: So you are saying that my bank statements are on every computer I own and if somebody stole my laptop they'd be able to read them?

FLG: Yes.

Coworker: That's not good.

FLG: That's what I've been trying to tell you.

Wednesday, February 9, 2011

Correspondence

FLG got an email today asking about whether he'd had any offers to blog professionally.

The short answer is No.

The long answer is that FLG wouldn't accept. He's said this before. It's kind of a Grucho Marx-esque, "I don't want to belong to any club that would accept people like me as a member." FLG wouldn't want to blog professionally at any institution that would let its bloggers post about sex with inanimate objects, water and shit, and semen in yogurt.

Time Horizons

Matt posts a quote from David Ricardo:
the comforts and well being of the poor cannot be permanently secured without some regard on their part, or some effort on the part of the legislature, to regulate the increase of their numbers, and to render less frequent among them early and improvident marriages. The operation of the system of poor laws has been directly contrary to this.

And then Matt writes:
I stand with common sense that if you give poor people more money, that makes poor people better off.

Look at time horizons here. David Ricardo uses the words "permanently secured," i.e. long fucking time horizons. Matt, short time horizon liberal that he is, is talking about instantaneous welfare. If you give a poor person $1, then they are $1 better off than right than they were before that. That's common sense only if you have short time horizons. Those with longer time horizons, like Ricardo, say that not very long after giving that $1 it will be consumed and the expectation that dollars will be given is created. This leaves the poor worse off.

But to Matt common sense is limited to static analysis.

Posted Without Comment

FLG is entirely speechless.

Animal Sex

While this isn't quite part of FLG's usual beat, object sex, it's still weird. Who knew foxes become entangled after sex?

Correspondence

FLG has received an email that Adam Weinstein, who made QOTD yesterday, was wondering if FLG was on Twitter.

Dear Adam:

FLG is a sworn enemy of Twitter.

Sincerely,
FLG

PS. Since you write for Mother Jones FLG fears that rather quickly you'll see that he is some twisted combination of Sauron, Cthulhu, Darth Vader, and worst of all -- Dick Cheney.

Okay, okay. He's probably more like Rick Moranis' character, Dark Helmet, in Spaceballs. But nevertheless...that's fair warning.

Tuesday, February 8, 2011

Quick Round-Up Of Things FLG Learn From Althouse

FLG clicked over to Ann Althouse's blog and saw a couple interesting things.

First, returning to the Haidt issue, he says in this bloggingheads that Ann linked to that he was heavily influenced by Hume. Since Hume probably second to Plato in how FLG thinks about things, that's probably why they're asking similar questions about the origins of ideology and morality.

Second, she focuses in on the use of the word "choice" in Tribe's op-ed that FLG commented on earlier today.

91%, Biatches

FLG got 91% on this quiz.

h/t

Origins Of Morals And Ideology

FLG's interest was sparked by an excerpt from the NYTimes that Mrs. P posted about a UVA professor who studies the "intuitive foundations of morality and ideology."

FLG said, shit, this is getting awfully close to FLG's turf. You know, the time horizons thing and all that. So, FLG, ever the conscientious blogger, googled away and found this video from TED on the topic. Some interesting parallels between his research and FLG's theories that he pulled out of his ass highly-refined theories.

First, people who are open to new experiences are liberal. Duh, right. But that's something that came up as the end goal of Marxism. FLG argued, and still argues, that the end goal of Marxism is a bastardization of Aristotelian leisure. That is to say the goal is to remove all constraints from human action for the purposes of maximizing the possibilities of having experiences for people. And that echoes throughout the Left, not just Marx. If we look a Keynes:
I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue – that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable, that those walk most truly in the paths of virtue and sane wisdom who take least thought for the morrow. We shall once more value ends above means and prefer the good to the useful. We shall honour those who can teach us how to pluck the hour and the day virtuously and well, the delightful people who are capable of taking direct enjoyment in things, the lilies of the field who toil not, neither do they spin.

Here he's talking about experiencing things. Experience is necessarily in the present. It's about spending and consumption, not saving. All makes sense. Odd thing, Haidt is making the case that these open people are falling into a closed-minded tribal mode vis-a-vis the supposedly closed-minded out group. Still makes sense though.

Second, he argues there are five main moral categories, traits, issues, whatever you want to call them. He calls them the five foundations of morality -- Harm/care, fairness/reciprocity, ingroup/loyalty, authority/respect, and purity/sanctity. His research indicates that liberals care a lot about the first two -- harm/care and fairness/reciprocity -- but much less about the other three. Conservatives on the other hand, care roughly equally about all five. He says this applies across all countries. Therefore, he argues, the debates in society aren't really about harm and fairness, but about the others. Liberals wonder what ingroup, authority, and purity even have to do with morality at all.

He then refers to "The Garden of Earthly Delights" by Hieronymus Bosch. (Who, by the way, FLG still maintains is obscure.) He uses the three panels to illustrate that order can descend into chaos.

This is what social scientist would call a time series. An examination of states at a series of points over time. If you watch the video, then you'll notice that he then proceeds to a game that was repeated over time, and he charts the results as a time series. FLG's time horizons still stands.

He then moves on to argue that liberals and conservatives need each other like yin and yang. They have complementary moral stances is how FLG guesses he would summarize the stance. This parallels FLG's take that both a valuing the short-term and long-term are valid. And if we understand that our interlocutor merely has a different time horizon, then it's easier to come to some agreement. FLG, however, finds his theory superior because it provides a clearer path to common ground. Understanding that somebody else has a different ideology because they have a different morality is great insofar as it goes, but once you get to the morality where is there to go? FLG thinks understanding that people have differing time horizons offers more room to understand and maneuver without getting into the strict right and wrong that moral stances are so intrinsically bound up with.

What does this all mean? FLG is still the greatest blogger ever.

Somewhat Apropos Of

...the conversation posted today, FLG learns of this article:
Since its appearance in the United States following the Civil War, the urinal has played a surprising role in a variety of important changes in American history, many of which involve social progress.

h/t

Hilarious

A Conversation

FLG's classmate was looking at the construction site of the new science building. His gaze was fixed on some big pipes.

FLG: You alright?

Classmate: Huh? Hey FLG. Yeah, I'm fine. Just looking at the plumbing.

FLG: Know anything about plumbing?

Classmate: A little. Not much. But water and shit are pretty much what defines civilization.

FLG: Water and shit?

Classmate: When people say the words advanced civilization, they usually think about art, literature, architecture, culture...but what really defines advanced civilization is providing water and getting rid of shit cleanly. That's what made Rome great, not the roads or the legions or the buildings. It was the aqueducts and sewers.

FLG: Funny, years ago, I did a presentation on the Paris sewers. It was one of the first orders of business for Napoleon once he became emperor. Perhaps that set the stage for the subsequent artistic explosion there later that century.

Classmate: Can't discount the relationship. It's not just the foundation of advanced civilization, but the very definition of advanced civilization itself.

FLG: I'm not sure, but I don't think that Classical Athens had a great water or sewage system. Yet, it certainly had advanced civilization.

Classmate: If there was an advanced civilization, then they had an effective way of getting clean water and rid of shit. If experts don't know of one, then they merely haven't discovered it. Water and shit are the hallmarks of advanced civilization. Dark Ages? Little water, lots of shit.
 
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