We in this country have a distinct sort of society. We Americans work longer hours than any other people on earth. We switch jobs much more frequently than Western Europeans or the Japanese. We have high marriage rates and high divorce rates. We move more, volunteer more and murder each other more.The preceding undoubtedly says more about Brooks' view of this country than about Kennedy's. But it's not a bad way of characterizing how a large portion of the politically "moderate" population thinks.
Out of this dynamic but sometimes merciless culture, a distinct style of American capitalism has emerged. The American economy is flexible and productive. America’s G.D.P. per capita is nearly 50 percent higher than France’s. But the American system is also unforgiving. It produces its share of insecurity and misery.
This culture, this spirit, this system is not perfect, but it is our own. American voters welcome politicians who propose reforms that smooth the rough edges of the system. They do not welcome politicians and proposals that seek to contradict it. They do not welcome proposals that centralize power and substantially reduce individual choice. They resist proposals that put security above mobility and individual responsibility.
In 1980, Kennedy proposed an agenda that jarred with the traditions of American governance. In the decades since, a constrained Kennedy and a string of Republican co-sponsors produced reforms in keeping with it. The benefits are there for all to see.
Friday, August 28, 2009
Be careful—a powerful enemy is approaching. Not an ordinary enemy, but an invincible one: death. No plea, however eloquent, can persuade death to hold off for a few years—or even for a second. Not even the most powerful warrior, at the head of all the armies of the earth, can make death turn a hair. Death cannot be bribed by wealth, however vast, nor stirred by even the most enchanting beauty. …
We were born alone and we will die alone. …
We came into the world without husband, wife, friend, or companion. We may have many friends and acquaintances at the moment, and perhaps many enemies too, but as soon as death falls upon us we shall leave all of them behind, like a hair pulled out of a slab of butter. Not one of our friends and enemies will be able to help us; we have no choice but to face death all alone. This body of ours, which finds even the pain of a pinprick or a tiny spark of fire really hard to bear, is going to experience death. This body of ours, which we cherish so dearly, will turn into a corpse that our friends and relatives will only want to dispose of as quickly as possible. …
Never forget how swiftly this life will be over, like a flash of summer lightning or the wave of a hand.
A [while man's head was placed on the body of a black man] in a Microsoft online advertisement intended for use in Poland. An Asian man in the ad apparently made the cut, and appeared in both the Polish and stateside versions of the ad.
Thursday, August 27, 2009
Instead of sending hate mail to near-insolvent homeowners, banks should reach out to borrowers and offer lower interest payments in exchange for equity. Instead of debt becoming “binary” – in default or not – it could take smoothly-varying prices and banks would not need to wait for foreclosures to take action. Banks would turn from “hopers”, hiding risks from themselves, into agents more engaged in economic activity. Hidden risks become visible; hopers become doers.Sounds like a good idea.
Tuesday, August 25, 2009
Dr. Emanuel’s argument — that young adults should take priority in vying for limited health resources because they will get more years of life from them — is a fairly mainstream if unpleasant approach to a problem with only bad choices, ethicists and doctors of varying persuasions say.Dr. Ezekiel Emanuel is a bioethicist and an adviser to President Obama on health care. He has been accused of favoring the withholding of health care for older people. That, of course, is a misrepresentation of his position. He is the focus of the right wing charge that the Obama health care plan will have death panels whose job it will be to decide whether or not to "kill grandma." Of course he never said any such thing.
But what about the position he did take, that the young should be favored over the old when deciding how to allocate scarce health care resources? Let's say that two people need a kidney transplant with the same urgency. How do you decide who gets the one available kidney? Would we favor giving it to the highest bidder? Would we favor giving to the person who is making "the greater contribution to society," e.g., to a teacher rather than to a clerk? I doubt that either policy would fly.
Would we favor giving it to the healthier person on the grounds that giving it to the other one would "waste" the kidney? Well, do we really want to establish as national policy that we should discriminate between people on the basis of their health? We are insisting that health insurance companies not discriminate against people on the basis of existing conditions. So why should we use that sort of judgment in making this decision?
A proxy for healthier is younger. The argument is essentially the same. Assuming that both are equally healthy it should go to the younger person so as not to "waste" it on the older person. But again, would we allow health insurance companies to set admission standards based on age? Probably not. So why do it here?
One of the perhaps paradoxical strengths of this country is that we attempt to live up to the principle that "all men are created equal." What we mean by that is that we treat people the same no matter how they differ. (Random inspections at airporst are just as likely to pat down grandma as Hussein.) We don't discriminate on the basis of race, religion, etc. So why start discriminating on the basis of age? (In fact we don't allow companies to discriminate on the basis of age in hiring.) It seems to me that the only option is to toss a coin—and hope that the loser lives long enough to get the next kidney.
Monday, August 24, 2009
Showing that the ingredients for life in the universe may be distributed far more widely than previously thought, scientists have found traces of a key building block of biology in dust snatched from the tail of a comet.
Scientists at the Goddard Space Flight Center in Greenbelt, Md., have uncovered glycine, the simplest amino acid and a vital compound necessary for life, in a sample from the comet Wild 2. The sample was captured by NASA's Stardust spacecraft, which dropped it into the Utah desert in 2006.
"By detecting glycine, we now know that comets could have delivered amino acids to the early Earth, contributing to the ingredients that life originated from," said Jamie Elsila, a research scientist at Goddard and coauthor of a paper outlining the discovery in the journal Meteoritics and Planetary Science.
The idea that the ingredients for life were delivered to Earth from space, rather than developing out of Earth's original chemical soup, has been around for years. Amino acids previously have been discovered in meteorites. But this is the first time an amino acid has turned up in comet material.
"This is yet another piece of evidence that the ingredients for life are ubiquitous. These building blocks of life are everywhere," said Carl Pilcher, director of NASA's Astrobiology Institute, which helped fund the research. Pilcher said the discovery strengthens the argument that life in the universe may be common, rather than rare.
Sunday, August 23, 2009
At the crux of Wright's evolution piece is the question of scientific explanation. What do we think needs explaining and what will count as an explanation of it?
We as human beings seem inclined to ask why questions. It's a good question whether this is built-in. That is, have we evolved to ask such question? And if we have evolved to ask such question, what evolutionary advantage does it give us?
It seems to me that the answer is right there in the second question. It could be asked, "If we have evolved to ask such question, why did we evolve that way?" In other words, Why do we ask why questions? What is the purpose in doing so?
Again, the answer is in the question. We are asking for the purpose of something. According to Dictionary.com, purpose is defined as "the reason for which something exists or is done, made, used, etc." The assumption underlying why questions is (often) that there is a reason for something to exist or to be the way it is. This is a teleological perspective. It assumes that something is the way it is because it serves a purpose being that way. When asking a why question, one is often asking what purpose is served by the thing or phenomena being the way it is.
Why questions can be strung out indefinitely. Once one has a presumed answer to one why question, i.e., a purpose to be achieved, one can always ask why that purpose should be achieved. The ultimate answer, of course, is religion: God wanted it that way. That's where the why questions stop: there is no questioning God's will. Whether or not that's satisfying, it terminates the chain of questions, which is at least a relief. It seems then that one can trace a fairly direct route from why questions to religion.
But we never did answer our question: why did we evolve to ask why questions? The answer is a bit subtle. First of all, from a scientific perspective, there are no answers to why questions. Science answers how questions: how did something come about. Science provides mechanisms that show how phenomena are produced. Of course we can then ask why the mechanism works the way it does—really how the mechanism is implemented. That's a perfectly good question and leads to more and more science. So either way one goes, why or how, there is no apparent natural end to questions.
I said that in the why direction we use religion to terminate the chain. In science we have reached a point at which we find we must attribute some events to chance. At the quantum level, there are no mechanisms to appeal to. We just say that certain events happen with a certain probability.
Is that any more satisfying that attributing an ultimate purpose to God's will? The answer "it's random" does have some scientific basis. We know how to test for randomness—or at least we have a number of tests that we use when trying to determine whether or not something is random. Quantum events pass those tests. But not everyone is happy. Einstein wasn't. "God doesn't play with dice," he said.
Besides randomness physicists also think in terms of laws (the conservation of matter and energy, for example, or F = MA). What makes those laws applicable to nature as we know it? That is, how do those laws work? What is the mechanism behind the laws? There are no answers to that other than, that's the way it is. It often happens that we find explanations for some laws in terms of other deeper and more general laws. When we are successful in doing that, we have come up with an answer to a how question. Perhaps string theory will provide how answers to all our existing laws of physics. But then one can always ask what makes string theory work the way it does. So presumably there will always be unanswerable—or at least unanswered—how questions.
This is another place where religion often tries to step in. By postulating God as something like a first cause or the ultimate essence of nature that makes it be the way it is, religion attempts to end the chain of how questions. But it doesn't work so well in this direction. Since we are asking how questions, that is, looking for mechanisms, the obvious question is how does God work? What is the mechanism that makes God work the way he does. Religion, of course, says that's not a question one can answer. So in effect, the God-as-first-cause answer is essentially the same as the law-of-nature answer, namely, that's the way it is. Since the two are equivalent in explanatory power, i.e., no explanatory power, that's-the-way-it-is is a better answer than God-as-first-cause because it doesn't arbitrarily postulate an entity for which there is no evidence and which, once postulated, provides no further intellectual leverage.
But we still haven't answer our question about why we evolved to ask why questions. At this point we should know that what we really mean to ask is how we evolved to ask why questions. We know the answer to that how question: the mechanisms of evolution. And how do attributes come into existence and then persist once in existence? The answer is to look to the survival and reproduction advantage that attribute offers.
Now we can ask, what survival or reproductive advantage does thinking teleologically give us? It doesn't help when thinking about how the world works with respect to its physical functioning. Physics and chemistry are not teleologically driven. They are how driven. But what about biology? Does it make sense to ask, for example, why my cat just drank some water from his bowl? In asking that question, I'm not asking for the physics behind my cat moving to his bowl and then drinking. I'm really asking what purpose it serves my cat to drink water and when does he do that. The answer, of course, is that he drinks when he is thirsty, and he does that because if he didn't he would die.
But isn't that a teleological answer? Am I really saying that teleological, i.e., why, questions are appropriate for biology?
No I'm not. The biological answer to why my cat drinks when he's thirsty is that he evolved to do that. And more fundamentally, if he hadn't evolved to do that, he wouldn't be here right now.
Is that a real answer? It sounds like the same sort of answer as that's-the-way-it-is. Well, it isn't that sort of answer. The short story is that evolution works by generating variations among living organisms. Those variations are random. Most are detrimental to the survival of the organism. But some are advantageous, i.e, organisms that have them are more likely to survive and reproduce. The advantageous one persist. Feeling thirsty when one's body needs water and then drinking when one feels thirsty is a very complex but valid example of such a variation. Organisms that don't do that don't survive and reproduce.
Evolution is the process of generating new mechanisms and keeping the ones that work. The ones that work look to us like they were invented for a purpose. That's not true; they just happen to help the organism survive and reproduce.
But again, how is it advantageous to us to think teleologically? Finally, here's the answer. The behavior of many biological organisms appears teleological. When we think about their behavior teleologically we give ourselves a better sense of how that organism functions in the world. Knowing how organism function in the world gives us a better chance to survive and reproduce.
It's important to know, for example, that a mother bear will fight fiercely to protect her cubs. That's a teleological explanation of her behavior. And if we could get inside the mother bear's head, that even may be how it might appear to her.
Doesn't that mean it is ultimately teleological. No. The mother bear evolved to act in that teleological way because it improved the survival chances of her cubs. Understanding the mother bear's behavior in teleological terms makes sense even though that behavior, teleological as it may appear to both us and the mother bear, is fundamentally a mechanism that helped the mother bear's genes persist.
And thinking about it teleologically helps us survive and reproduce, which is why it is advantageous to us to have evolved to think teleologically and to ask why questions. So why did we evolve to ask why questions? Because thinking about nature in teleological terms helps us survive and reproduce—even though that's not the way nature really works!
Saturday, August 22, 2009
Capacity Utilization Set to Rise
Capacity utilization is a concept in economics that refers to the extent to which an enterprise or a nation actually uses its installed productive capacity. Thus, it refers to the relationship between actual output that is produced with the installed equipment and the potential output that could be produced with it, if capacity was fully used.
The chart below shows that capacity utilization in the US is at an all-time low, around 68%. That means that with the equipment we already have in place we could produce almost 50% more goods than we are now producing. However, most analysts think that 80% capacity utilization is a very good number.
If you look very closely at the bottom right-hand detail, you can see that there is a small uptick in last month's data. Whether or not this is the "bottom" remains to be seen. But if it is not the bottom, it is close. You can only shut down so much production before inventories fall to levels that require restocking. And we are getting close to that level in many industries.
Before we wander too far away from the graph, I want you to notice that past dips (circa the recessions of 1968, '74, and '80-'82) had V-shaped recoveries in capacity utilization. But in the 1990-91 recession it took longer than it did in past recessions, and in the most recent recession (2000-02) the recovery took longer and we did not actually "recover" for four years.
Again, most analysts feel that a capacity utilization of 80% or more is pretty indicative of solid growth. To get back to that level, we would have to see an almost 20% rise in manufacturing. That is unlikely to happen all that fast, for several reasons.
First, consumers are retrenching and saving. We just simply are not going to need or want as much stuff. Second, unemployment, as I noted last week, is crimping the ability of consumers to spend. The recovery we are likely to see is going to be sluggish and not produce new jobs for quite some time. Again, that stifles demand.
The country (and the world) is adjusting to the New Normal. It is some level of overall economic activity that is different than what we have enjoyed during the reigning paradigm of the last 30 years.
Manufacturers are going to ramp up more slowly than in the past, especially as many companies have the ability to tailor their production to consumer demand much faster now, due to automation.
As I have repeatedly said, the world is awash in excess capacity. We simply built too much productive capacity to be utilized in the New Normal. One way of dealing with too much capacity is to simply close the plants. That is what is happening in the paper and memory-chip industries. Other industries are engaging in mergers to reduce or "rationalize" capacity. While that process is a good thing, it does mean that unemployment rises or stays higher longer.
The building of inventories counts as a rise in GDP. Conversely, reducing inventories gets counted as a lack of growth. We have just about reduced inventories all we can. As companies begin to rebuild inventories, that will translate into a statistical increase in GDP. But if capacity utilization is still only (say) 73%, it still shows a weak economy with not many new jobs and reduced corporate profits, compared to a few years ago. It will be a rather long time before the jobs that have been lost this cycle will come back. Will the statistical comparison of data from a year ago look positive? Are things improving? The answer will be yes. But it will not feel like it for those who are looking for new jobs or higher income or more sales.
Look at it this way. We have dug ourselves into a 12-foot hole over the past two years. The data now suggests that we have stopped digging, which is always a good idea if you are in a hole. At some point we will have figured out how to add some dirt to the bottom to get us back up to an 8-foot hole. Will we be better off statistically? Absolutely. But we will still be in a hole. Unemployment falling back to 8% in 2011 will still feel like we are in a hole, but the statistics will say GDP is positive. And that is because we are so far down, the year-over-year comparisons are starting to look good.
As an aside, it would be highly unusual for inflation to show up with low capacity utilization and rising unemployment. Businesses and workers simply do not have pricing power.
A Real Estate Green Shoot?
The housing news has been less bad of late. Home-builder sentiment is marginally higher. Today we learn that sales are up month-over-month, and actually year-over-year, on a seasonally adjusted basis, which is some of the best news on the housing front we have had in two years. Sales of existing homes were the highest since August of 2007. Have we seen the bottom? The following chart shows that while actual homebuilding activity is still down, the annual comparisons are getting easier and activity seems to be leveling out.
Note, however, that this is yet another aspect of the Statistical Recovery. For two years, the continual drop in home building reduced the GDP numbers every quarter. If homebuilding activity simply stops falling, as it appears to be, then housing will stop being a negative as far as GDP is concerned. Will we get back to the levels of 2005? Not for many decades and with a much larger population. We are now finding the New Normal as far as home construction is concerned.
And before we get too celebratory, my friend John Burns of John Burns Real Estate Consulting suggests we may be seeing a false bottom. What we are seeing is the result of a government program that offers first-time home buyers $8,000 if they buy a home by November 30; and that program is working, especially at the lower end of home prices (as you would expect, and as it should.) 31% of home sales in July were involved with this program. But like Cash for Clunkers in automobiles, this is pushing demand for homes from next year into this year.
John offers us the following chart that gives us what he thinks is happening in the markets, from his surveys. He thinks that we saw a "false bottom" in April of this year and that activity will peak in November, before going on to the actual bottom, from which there will be a long, slow recovery.
There are millions of homes being brought onto the market through foreclosures -- two million vacant homes for sale, plus, builders are still building. It will simply take some time to work through the inventory.
There are some who wonder why home builders keep building if inventories are so high. First, for many of the larger public companies, to stop activity altogether would be commercial suicide. You can't just stop without dying. Further, many of them have financial commitments that require them to build in order to make something to pay back the loans, even if they lose money. Maybe they won't build McMansions or in Florida, but they will find out what will sell and where and build there. Smaller builders have the option of not building "spec" homes (homes built without a buyer already lined up, that is, on speculation). Like my neighbor who just tore his house down this week (can they ever do that fast!) and plans to build a large new home, much of the home activity will be pre-sold for the next few years. (I can't tell you how much I look forward to the sound of hammers and saws next door as I write and read.)
The Deleveraging Society
My friend Ian McAvity offers us the following chart, which shows the level of total debt to GDP. It has been rising steadily since 1981 and is now at a ratio of 3.75. Even though consumers and businesses are cutting back on borrowing, the US government is more than making up the difference; so for awhile, at least, we will see total debt to GDP continue to rise. Side note: even with all the money the Fed is printing, M-1 is flat for the last year.
One of the drivers of the growth of the last 30 years has been financial innovation and the ability to increase leverage. Specifically, securitization made it possible to finance a whole array of debt, from credit cards, student loans, and auto loans, to exotic residential mortgages of all kinds, commercial mortgages, corporate bonds, hotel financing, and regular bank loans that were spun out into SIVs and off the banks' books, thereby freeing up capital – and on and on. If it moved, someone could (and did) figure out how to get it into a security and sell it. And it was easy to sell as long as it had a rating from an established rating agency.
Much of this securitization is plain vanilla and a very good thing, as it gives investors a way to get more fixed income. But the rating agencies started using models that were obviously flawed to create the ratings. Massively flawed. Incompetence immortalized in a spreadsheet. When I and others began to write about the problems with CDOs and CDOs squared in 2006, they continued to rate them with the same flawed models. Even when the rules for getting a mortgage changed, they did not change their models. And it isn't that they couldn't have been aware. The TV was rife with ads talking about the various mortgages available, yet the rating agencies used models based on completely different types of mortgages.
And now? If you are sitting at the fixed-income desk at a pension or insurance fund, it is worth your job to take the word of a rating agency. Therefore, securitization is moribund. Will it come back? Yes. But it will take time.
But that is the problem. The world of finance is going to its own New Normal. It will be a world that is less leveraged. The growth in leverage that helped spur growth on the way up is a drag on growth as it is wound down.
Again, it would be highly unusual to see inflation in a deleveraging world. It would be a massive failure on the part of the Fed to allow serious inflation (as in the 1970s) to come back to the levels that some are talking about. I mean, it's possible, but it's far from the most likely outcome.
I had this conversation with Paul McCulley earlier in the year, as we were all deep in the deflation/inflation discussion. He looked at me and said, "John, we better hope the Fed can create some inflation. If they can't, we're in real trouble."
I will write about the current lack of inflation and its future prospects in a future letter; but producer price indexes are way down all over the world, and the CPI (consumer price index) is down year-over-year.
The single most important question for investors to get right over the next few years is whether we face an inflationary or deflationary future. And while there are many who are so positive that they know the answer, and we find people arguing all sides of the issue, I am not persuaded that we have the information we need to make that determination. It could go several ways. My best guess (hope?) is that we get through this bout of deflation and have to deal with some mild, 3-4 % real inflation, not the commodity price-driven kind, which is not monetary inflation. But this will be a multi-year cycle. I will be writing about this for a long time.
Some Thoughts on Secular Bear Markets
Yesterday my good friend Ed Easterling dropped by, as he was in Dallas, down from Portland. Ed co-authored a few chapters with me in Bull's Eye Investing, on secular market cycles. He had a chart that I asked him to get to me for your perusal. The last secular bear market was 1966-82. He charted the ups and down in that market and noted the percentage rises and falls. It was as volatile then as it is now. There were some breathtaking ups and downs. With every rise, pundits declared the end of the bear market, only to have the market fall dramatically again. Take a few moments to gaze at the chart:
What drives the volatility? My contention is that bull and bear cycles should be seen in terms of valuation instead of price. Markets go from high valuations to low valuations and back to high. It is an age-old story. We have done about half the work we need to do to get back to low valuations. These cycles average of 17 years. We are less than ten years into this one.
I believe we are going to lower valuations in terms of price-to-earnings ratios. This can be done by the market going sideways and earnings rising, or the market dropping, or some combination. Look at the graph below, and notice the slow and steady drop in P/E ratios (bottom chart) and the very volatile markets that accompanied that fall. I agree with Ed; we should not be surprised at today's volatile markets. And we should expect more volatility and large price movements. Both up and down. (Some of the best charts anywhere are at www.crestmontresearch.com.)
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Friday, August 21, 2009
The case of Caster Semenya, who has burst to prominence this season, touched off a debate over whether she should be allowed to keep her medal and, more broadly, how sports officials are supposed to discern the fuzzy biological line between male and female.
Medical experts said assigning sex was hardly as easy as sizing someone up visually. Even rigorous examinations can result in ambiguous findings. Some conditions that give women male characteristics can be discovered only through intrusive physical examinations, and others require genetic analysis.
“We can get quite philosophical here — what does it mean to be male or female?” said Dr. Richard Auchus, a specialist in disorders of sexual differentiation at the University of Texas Southwestern Medical Center at Dallas.
“For 99 percent of the population it’s easy to determine,” he added. “But one percent of the population have conditions that make it not so straightforward.” …
Complicated cases are common. For example, a disorder known as congenital adrenal hyperplasia gives women excess testosterone from a source other than the testes — the adrenal glands. In mild cases, genitals may appear normal and often no one suspects the problem. Women with the disorder are allowed to compete as females.
The Bantu, a group of indigenous South African people, may be more predisposed to being hermaphrodites but they do not always have obvious male genitalia, said Dr. Maria New, an endocrinologist at Mount Sinai School of Medicine. They are genetically female yet have both testes and ovaries.
To spot the condition, doctors sometimes must do a laparoscopic exam, remove tissue from the gonads, and biopsy it, New said.
Then there is a list of rare genetic disorders that can confuse sexual identity. Some genetic males, for example, have mutations in a gene needed to form testes. Although they look like women, genetically they are men, with an X chromosome and a Y chromosome.
Davies said that the sex testing includes “chromosome testing, gynecological investigation, all manner of things, organ, X-rays, scans.” But, New said, if the tests do not include genetic ones, most of the sex disorders will be missed. Chromosomes can look perfectly normal, she said. It is the genes that are altered.
Monday, August 17, 2009
Sunday, August 16, 2009
The figure to the right shows a simple route map—for automobiles, let's assume. The goal is to get from A to D in the least time. The times are shown on each link. The time shown as T means that the time along that segment equals the number of cars on the road at the time.
One can imagine this map as representing a small network of roadways and ferries. The ferries carry cars over the river. The ferries are assumed to have an unlimited capacity. But they are not fast. The roadways are fast when uncrowded, but they slow down with congestion. We'll assume that usage information is generally available to all drivers, e.g., on the Internet or on radio "traffic condition" broadcasts.
Without the dashed line in the middle, traffic will divide itself between the two possible routes: A-B-D and A-C-D. The time for a trip will range from a minimum of T/2 + 12 to T + 12. If there are 10 cars, as we are assuming, the most efficient division is 5 on each route: 5 on A-B-D, and the other 5 on A-C-D. Each car will have a trip whose time is 5 + 12 = 17.
The paradox arises if one adds a "free link" from B to C. (Think of it as an unlimited capacity bridge.) All the traffic will go A-B-C-D. But then the total time is 10 + 0 + 10 = 20, worse than without the free link!
Why won't the cars divide up 5 and 5 as before? The A-C-D drivers will notice that it's faster to get from A to C by going first to B and then to C. That's true even if the route from A to B is 10 because it has all the cars. That's still faster than the direct A to C route, which is 12. So no matter how a car plans to finish the trip, the best first leg is A to B. By the same reasoning, once at B the best way to get to D is first to go to C.
The problem is that by eliminating the need for the ferry ride the free bridge essentially forces the cars onto the roadways, doubling the congestion (and doubling the time) on each. In other words, by forcing all the traffic to take both A-B and C-D the bridge doubled the travel time on each from 5 to 10. The previous routes of 17 time units each were no longer available.
How might that happen incrementally?
Imagine that after the creation of the free B-C route the drivers all agreed to go back to the earlier arrangement: 5 on A-B-D and 5 on A-C-D. One of the drivers on A-B-D would notice that if he did A-B-C-D instead his time would be reduced from 17 to 11. Such a saving would be hard to resist.
Then a second driver on the A-B-D route would notice that he could reduce his time from 17 to 12 by switching. The third driver would switch to reduce his time from 17 to 13. The last two drivers on the A-B-D route would also switch reducing their times from 17 to 14 and 15 respectively. At this point A-B is still 5 but C-D is now 10. All the drivers on A-B-C-D have times of 15.
But now the drivers who are still doing A-C-D notice that their times have increased from 17 to 22 because of the switches of the A-B-D drivers. So they start switching to A-B-C-D as well. The first switch reduces that driver's time from 22 to 16. The second switch reduces that driver's time from 22 to 17. The third, fourth, and fifth drivers also switch to reduce their times from 22 to 18, 19, and 20 respectively. At this point all the drivers have trips of 20 units, and they can't do any better by switching.
Although I tend to favor markets, here's a case in which what seems like a free-market solution—let each car make its own choice about route—is worse than a regulated system—force cars to take what seems to be a worse route.
A free-market solution
When the first driver switched from A-B-D to A-B-C-D, he reduced his time from 17 to 11. But he raised the times of each of the 5 drivers on the A-C-D route from 17 to 18. Considering all drivers, the net was a savings of 1: -6 +5 = -1.
In some sense that's ok; the total drive time was reduced and society worked slightly better. But the next driver to switch would have had a net effect of -5 +6 = +1. That is, he would have saved himself 5 units (from 17 to 12), but he would have cost the other 6 drivers who are already on C-D 1 unit each. Society as a whole would be less efficient by 1 unit. So the first switch reduced the overall travel time for all drivers by 1 unit. But any subsequent switch would have raised the total travel time.
So it seems that a 1/4/5 division is optimal: 6 + 5 = 11 units for the 1 driver on A-B-C-D; 12 + 5 = 17 for 4 drivers on (say) A-B-D; and 12 + 6 = 18 for 5 drivers on (say) A-C-D. The total drive time is 1 unit less than an even 5/5 division between A-B-D and A-C-D.
Let's assume we wanted to implement this optimum solution. Which driver should get the 11 route? Which should suffer the 18 route? And which should get the nominally normal 17? We could let the first driver to make the switch (since he is the innovator) get the benefit. But then he would have raised the travel time of 5 other drivers. That doesn't seem appropriate. But if you let the drivers make their own decisions, this arrangement would not be stable either, as we saw above.
A global planning structure would solve the problem. One solution is to have a random assignment of the specific optimal 1/4/5 route set to drivers each day. This would randomize the assignment of the good and bad routes. On average the expected drive time would be reduced from 17 to 16.9. Of course such a random assignment is not part of market mechanisms and must be implemented through some sort of global structure such as a government or a transportation user's group.
But any change from that 1/4/5 division of routes would make things worse overall. Because a switch of a driver assigned to, say, the A-B-D route to the A-B-C-D route would "foul the environment" for the other drivers, that switch should not be allowed. What this would mean in practice is that even if we had a random assignment of routes each day, there would have to be an enforcement mechanism so that each driver was prevented from taking a different route from that assigned. Again, this is not part of a pure market mechanism. The problem is that any driver making a switch that improved his own condition would be doing so at the expense of everyone else.
Taking the cost to "the environment" into account
So what was missing from the original analysis in which all the drivers eventually switched to A-B-C-D was an accounting of what could be considered the environmental or societal cost of the switch. Once that cost is included the system no longer moves to a worse equilibrium.
But to do so requires an extension of market mechanisms. The market generally does not charge for environmental or societal costs, and it does not impose forced solutions. To take those costs into consideration and to impose some global constraints, additional mechanisms must be added to a pure market structure. Those additional mechanisms would presumably be carried out by government or some other entity representing society as a whole.
One can ask whether the cost of adding those global mechanisms is worth the benefit of reducing each rider's average drive time from 17 to 16.9 In a large enough system with an efficient enough global mechanism it would be. Each driver should be happy to pay the taxes or user fees that are required to implement the global mechanism.
This is the sort of thing that living organisms, successful societies, and other far-from-equilibrium systems do. They find global mechanisms that are worth the cost of implementation.
Global constraints and MaxEnt
As I understand it, the Principle of MaxEnt says that systems that are subjected to a constant inflow of energy will configure themselves to dissipate that energy as quickly as possible. Does that principle apply in this case? Suppose we re-interpreted the example above to refer to energy flows or reductions in potential. The longer it takes energy to traverse a path from A to D, the more slowly the energy is dissipated.
Is that a fair way to re-interpret the example? If so, doesn't this violate the Principle of MaxEnt? Left to itself, the energy flow would all follow the A-B-C-D path, which results in slower dissipation than if the flow divided in half along the two perimeter paths. Furthermore, apparently the fastest overall configuration for energy dissipation is for 10% of the energy to follow A-B-C-D, with 40% following A-B-D (or A-C-D) and the remaining 50% following the other perimeter path. Yet without global constraints it appears that the system cannot configure itself to achieve that maximal rate of dissipation. Why is this not a violation of the Principle of MaxEnt? Or am I simply misunderstanding what MaxEnt is all about?
Saturday, August 15, 2009
Eating fatty food appears to take an almost immediate toll on both short-term memory and exercise performance, according to new research on rats and people. …
To determine the effect of a fatty diet on memory and muscle performance, researchers studied 32 rats that were fed low-fat rat chow and trained for two months to complete a challenging maze. The maze included eight different paths that ended with a treat of sweetened condensed milk. The goal was for the rat to find each treat without doubling back into a corridor where it had already been. The maze was wiped down with alcohol, so the rat had to rely on memory rather than sense of smell.
All of the rats studied had mastered the maze, finding at least six or seven of the eight treats before making a mistake. Some rats even found all eight on the first try.
Then half the rats were switched to high-fat rat chow (comprised of 55 percent fat), while the remaining rats stayed on their regular chow (which had 7.5 percent fat). After four days, the rats eating the fatty chow began to falter on the maze test — all of them did worse than when they were on their regular chow. On average, the rats on the fatty diet found only five treats before making a mistake. The rats who stayed with their regular food continued the same high level of performance on the maze, finding six or more treats before making a mistake.
Half of the rats had also been trained to run on a treadmill. After only a few days on the high-fat diet, the rats performed 30 percent worse on the treadmill. After five days of testing, the treadmill performance of the rats eating fatty foods had declined by half. The study results appear in The Faseb Journal, which is the journal of the Federation of American Societies for Experimental Biology.
“We expected to see changes, but maybe not so dramatic and not in such a short space of time,’’ said Andrew Murray, the study’s lead author and a lecturer in physiology at Cambridge University in Britain. “It was really striking how quickly these effects happened.’’
Although the human data aren’t yet published, the researchers have also performed similar studies of high-fat diets in healthy young men who then performed exercise and cognitive tests. Dr. Murray said he is still reviewing the data, but the short-term effect of a fatty diet on humans appears to be similar to that found in the rat studies.
It’s not clear why fatty foods would cause a short-term decline in cognitive function. One theory is that a high-fat diet can trigger insulin resistance, which means the body becomes less efficient at using the glucose, or blood sugar, so important to brain function.
Thursday, August 13, 2009
A financial blog I read has this quote from P. J. O'Rourke. "Feeling good about government is like looking on the bright side of any catastrophe. When you quit looking on the bright side, the catastrophe is still there." It's that sort of sentiment that leads to the incompetence we saw in the Bush administration.My respondent said the following.
Humans are social creatures. We live in groups. We need ways to govern those groups. Pretending that we don't is worse than foolish. I discourages attempts to construct good governmental structures--which is not an oxymoron.
I would go so far as to say that actively promoting this sort of thinking is unpatriotic and harmful to the country. I wouldn't want laws to stop it, but I would certainly criticize people who engage in that sort of rabble rousing.
I agree that we need government, but my view is basically:I then replied as follows.
* small government is good, big government is bad
* market regulation is good, market interference (interference with the market price mechanism) is bad
* simple taxes (e.g. sales tax or VAT) are good, complex taxes like income tax are bad
The role of government is to provide a stable legal system, a stable monetary system, a sound infrastructure, to defend the country from external threats, and to keep their hands off everything else. In my view they have not done a very good job on any of these. Before I am labeled a right-wing neo-con I should clarify that I define "infrastructure" as including education and basic health care.
I think we are basically in agreement. The problem is that saying one wants small government seems to contradict saying that the government should provide a sound infrastructure and that a sound infrastructure should include a stable legal system, a stable monetary system, appropriate market regulation, education, and basic health care.
Doing a good job of providing that sort of infrastructure is not trivial. Certainly it's not something that one can just toss off by saying that the smaller the government the better. Besides that, it takes a fair amount of money to provide that infrastructure. That money has to come from somewhere. As I like to say, freedom isn't free; that's why we pay taxes.
So rather than saying "small government is good; big government is bad" or "taxes are bad" or even worse, "government is the problem not the solution" why not talk about the things we want government to do, acknowledge that there are quite a few of them, that they cost money, and that the money must come from somewhere, and then focus on the best ways to get them done and the best ways to finance them.
I'm not sure I like the video, but I think getting it all out in the open with an independent prosecutor is a good idea. This shouldn't be a political witch hunt, but an independent prosecutor whose objective is to look into law violations seem like an appropriate approach.
You can support the call for an independent prosecutor at the ACLU website.
Researchers ran the participants through a series of computer-based mental exercises that are so challenging that the subjects temporarily deplete their cognitive reserves needed for discipline. Once they had the volunteers in this compromised state of mind, they put the group (and others who were not so depleted) into a social situation with the potential for racial tension. Here it is:
Each white subject is left alone in a room. A black man enters and asks if the volunteer will consent to a brief interview on the issue of how universities should guarantee racial diversity. … The interviewer asks the participant to share any thoughts he or she might have on this “hot topic,” and the conversation is recorded.
It was that simple, although sometimes the interviewers were white, to serve as controls. Afterward, the volunteers rated the interaction for comfort, awkwardness and enjoyment. In addition, independent judges—both black and white—analyzed the five-minute interactions, commenting on how cautious the volunteers were, how direct in their answers, and how racially prejudiced.
The results were provocative. As reported in the February issue of the journal Psychological Science, those who were mentally depleted—that is, those who did not have the energy to exert personal discipline and self-control—found talking about race with a black man much more enjoyable than did those whose self-control was intact. [Emphasis added] That outcome is presumably because they were not working so hard at monitoring and curbing what they said. It may seem counter-intuitive, but being cognitively drained made them less inhibited and more candid, which felt good.
And it wasn’t just the volunteers’ perceptions of the experience: the independent black observers found that the powerless volunteers were much more direct and authentic in conversation. And perhaps most striking, blacks saw the less inhibited whites as less prejudiced against blacks. In other words, relinquishing power over oneself appears to thwart overthinking and “liberate” people for more authentic relationships.
Humans are social creatures. We live in groups. We need ways to govern those groups. Pretending that we don't is worse than foolish. I discourages attempts to construct good governmental structures--which is not an oxymoron.
I would go so far as to say that actively promoting this sort of thinking is unpatriotic and harmful to the country. I wouldn't want laws to stop it, but I would certainly criticize people who engage in that sort of rabble rousing.
[It's existence] has implications for drug addiction and other compulsive behaviors. Berridge has proposed that in some addictions the brain becomes sensitized to the wanting cycle of a particular reward. So addicts become obsessively driven to seek [emphasis added] the reward, even as the reward itself becomes progressively less rewarding once obtained. 'The dopamine system does not have satiety built into it,' Berridge explains. 'And under certain conditions it can lead us to irrational wants, excessive wants we'd be better off without.' So we find ourselves letting one Google search lead to another, while often feeling the information is not vital and knowing we should stop. 'As long as you sit there, the consumption renews the appetite,' he explains.Not only can this seeking center lead us to endless hours on Google, email, blogs, twitter, etc. it can also explain why it's "hard to stop at just one," why flirting, sexual foreplay, and new sexual conquests are enjoyable. (It's not the conquest; it's the quest.) Taken to certain extremes (as in the addiction example mentioned) it also explains the pleasure in bondage and anorexia. And it explains why we are so fascinated with quest stories. Anticipation when drawn out the right way is almost irresistible. Although not always (as some of the examples above illustrate) it's often relatively harmless—although frequently a time waster.
See also, Berridge's website.
Wednesday, August 12, 2009
Paul Krugman has a blog piece in which he refers to an article he wrote in 1996 predicting trends the century to follow. It's amazingly insightful, and probably seems more accurate now than it did then—except for the reference to a 500-channel world.
It is the liking system that Berridge believes is the brain's reward center. When we experience pleasure, it is our own opioid system, rather than our dopamine system, that is being stimulated. This is why the opiate drugs induce a kind of blissful stupor so different from the animating effect of cocaine and amphetamines. Wanting and liking are complimentary. The former catalyzes us to action; the later brings us to a satisfied pause. Seeking needs to be turned off, if even for a little while, so that the system does not run in an endless loop. When we get the object of our desire (be it a Twinkie or a sexual partner), we engage in consummatory acts that Panksepp says reduce arousal in the brain and temporarily, at least, inhibit our urge to seek.Read the whole thing. See also Wanting and Liking.
Dean Baker of the Center for Economic and Policy Research has been promoting this idea for a while. I like it, but so far it doesn't seem to have developed a substantial following.
Congress would give families that took out mortgages at the peak of the boom and are facing foreclosure the option to remain in their homes as renters for a substantial period of time -- five to 10 years -- while paying the market-rate rent. Earlier this year, Freddie Mac launched a similar policy, giving former homeowners the option to lease their recently foreclosed properties, but on a month-to-month basis. That was a positive step, but it does not give families the housing security they need.Click the image to the right for CEPR's study of projected changes in housing prices in various US markets. Circle sizes and colors (red: decline; grey: increase) show the projected changes in $1,000s. Numbers represent population size.
In the markets affected most by the housing bubble bursting, the current rents would be 30% to 50% less than the monthly mortgage payments for homes purchased near the peak of the bubble. This means that many families that cannot afford their mortgage payments would likely be able to afford the market rent.
Although they would lose ownership of their homes under "right to rent," the residents would be able to stay in their homes, neighborhoods and schools. This would provide families facing foreclosure with needed stability and housing security.
Further, "right to rent" would enable more families to stay in their homes as owners, by giving banks an extra incentive to pursue mortgage modifications. Currently, in spite of the various government programs, most banks have little incentive to pursue modifications. In fact, the Treasury Department reported that as of July, Home Loan Services Inc., with more than 30,000 delinquent loans, was among those that had yet to initiate a single modification under the government's "Making Home Affordable Program." While a bank would still be able to sell a home after a foreclosure, the "right to rent" would attach to the home, so that a new owner would have to honor it. This could deter the sale of a home, because a home is much less marketable if it comes with a long-term tenant. If lenders know that they could get stuck with a tenant for five to 10 years, foreclosure would be a much less attractive option.
Monday, August 10, 2009
From American Scientist. Melvin Konner's of Michael Gazzanger's book.
The human brain has tripled in size over the 6 or 7 million years that have passed since humans diverged from chimpanzees. A certain amount of reorganizing went along with that increase in size, increased lateralization being a prime example. Many genes and noncoding RNAs are expressed only in human brains, and many of those have to do with wiring up the brain during development. Bipedal walking freed our hands and allowed us to develop our unusually opposable thumbs for making tools. Our brains uniquely evolved for language and for an exceptional ability to think about the mental states of others.
We are the only species that can gossip, an important means of social control, and only a human will expend energy punishing a cheater who has cheated someone else. We are the only creatures that show disgust (hence our peculiar concern with purity), blush in embarrassment or shed tears of emotion. We display levels of empathy attained by no other species. We mentally imagine and simulate the actions and experiences (pain, shame) of others to a remarkable extent. Our lives are pervaded by aesthetic choices and preferences unknown to other species. We create art, religion and narrative, and we are self-aware to the nth degree. Only we can autocue, deliberately remembering and reminding ourselves of things. …
[But] countless unique human qualities were used by cultured Germans to murder millions. And only a human would advertise on the Internet to try to make a profit by bringing men seeking sex to an entrapped 13-year-old girl. In the core of our uniquely human brain is a set of structures brought down from our evolutionary past, and it is far from clear that they are really controlled by the newer structures. Too often, our unique human qualities seem to end up in the service of baser motives that we share with many other species. …
And although I myself may spend more time contemplating the dark side, I completely agree with Gazzaniga when he says,No other species aspires to be more than it is. Perhaps we can be. Sure, we may be only slightly different, but then, some ice is only one degree colder than liquid water.
Crows are capable of using multiple tools in complex sequences, the first time such behaviour has been observed in non-humans, scientists have found. …The full original report is available here.
Seven New Caledonian crows were given the task of using three different lengths of stick to retrieve a reward — a small piece of pig’s heart. This was placed out of reach at the end of a transparent tube such that it could only be reeled in with a long stick.
Starting with a short stick, the crows had to first pull a medium stick towards them, and then in turn use that one to obtain the longest stick. [Emphasis added]
Five of the crows completed the task successfully and four of them did this on their first attempt.
Sunday, August 09, 2009
This is floating around the internet:This morning I was awoken by my alarm clock powered by electricity generated by the public power monopoly regulated by the US department of energy. I then took a shower in the clean water provided by the municipal water utility. After that, I turned on the TV to one of the FCC regulated channels to see what the national weather service of the National Oceanographic and Atmospheric Administration determined the weather was going to be like using satellites designed, built, and launched by the National Aeronautics and Space Administration. I watched this while eating my breakfast of US Department of Agriculture inspected food and taking the drugs which have been determined as safe by the Food and Drug Administration.Here are my own thoughts on this important matter:
At the appropriate time as regulated by the US congress and kept accurate by the National Institute of Standards and Technology and the US naval observatory, I get into my National Highway Traffic Safety Administration approved automobile and set out to work on the roads build by the local, state, and federal Departments of Transportation, possibly stopping to purchase additional fuel of a quality level determined by the Environmental Protection Agency, using legal tender issued by the Federal Reserve Bank. On the way out the door I deposit any mail I have to be sent out via the US Postal Service and drop the kids off at the public school.
After spending another day not being maimed or killed at work thanks to the workplace regulations imposed by the Department of Labor and the Occupational Safety and Health Administration, enjoying another two meals which again do not kill me because of the USDA, I drive my NHTSA car back home on the DOT roads, to my house which has not burned down in my absence because of the state and local building codes and fire marshal’s inspection, and which has not been plundered of all it’s valuables thanks to the local police department.
I then log on to the internet which was developed by the Defense Advanced Research Projects administration and post on freerepublic.com and Fox News forums about how socialism in medicine is bad because the government can’t do anything right.
WAKE UP AMERICA !! You are about to be plunged into socialized medicine - otherwise known as universal health care. This Marxist/Lennonist/Maoist ideology has ruined countless countries. For example, here’s a list of countries in which its citizens do not go bankrupt if they or their loved ones get sick:
Canada, Chile, Argentina, Brazil, Mexico, Peru, Panama, Uruguay, Trinidad & Tobago, Venezuela, Costa Rica, India, Israel, Singapore, Taiwan, Japan, Thailand, Finland, Germany, England, Austria, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Denmark, Estonia, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, the Netherlands, Norway, Poland, Portugal, Romania, Russia, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Ukraine, Australia, and New Zealand.
That list reads like a horrific nightmare!
Who would ever imagine even visiting those hellish places? Never mind actually living there full time?
The United States is the only wealthy, industrialized nation that does not have a universal health care system. So let’s keep it that way! The US spends the highest per capita for health care costs and has the worst coverage and results. Obviously, you can not argue with success. And the best way to maintain the status quo is to allow the debate to be framed and owned by the insurance companies and HMO’s which obviously only have your best interest in mind and have by some mysterious method been able to suppress the profit seeking motive which would cause them to have a conflict of interest between next month’s quarterly earnings and your grandmother’s hip replacement operation.
Just like your tenacity in saying no to the evil, soul sucking (albeit scientifically advanced and intuitive) metric system and sticking by the imperial system - along with the other two holdouts: Liberia & Myanmar - you will continue to be at the vanguard of human achievement by saying no to socialized health care.
From The Scientist [30th July 2009]
In the first set of tests, rats were trained to press a lever to receive a reward (either food pellets or sucrose). After two weeks of training, they were given full access to the reward and allowed to consume as much as they desired. When presented with the lever again, control animals stopped pressing the lever, but stressed animals didn't. If you get the dessert for free, Costa said, there's no need to work for it. 'That's what control animals do,' but stressed animals work anyway.
In a second set of experiments, rats were trained to press one lever for pellets and the other for sucrose. Then, one of these two rewards was provided for free -- i.e., without a lever press. When the rats were given a choice of levers, control animals rightly pressed the lever that still required pressing to receive the reward, while stressed animals showed no preference between the two options.
'It's not that they are stupid and don't understand that there is a difference,' Costa said. 'It's just that when given a choice, they will do the automatic thing.' In fact, he said, these stress-induced changes seem almost adaptive. ' When we are under chronic stress, it could be advantageous to use habitual strategies because [it reduces] the amount of cognitive resources that you need.' Of course, when circumstances change, such a strategy can backfire.
Friday, August 07, 2009
From Evolving heart :The Scientist [2009-08-01].
Analysis of data gathered by the 6 decade old Framingham Heart Study shows that
women with lower cholesterol, lower blood pressure, lower blood glucose, and women who conceive earlier in life and reached menopause at a later age, all had more offspring.
From John Mauldin's http://www.frontlinethoughts.com/pdf/mwo080709.pdf.
"Pick a number between 0 and 100. … The winner will be the person who picks the number closest to two-thirds [of] the average number picked. The chart below shows the results from the largest incidence of the game that I have played - in fact the third largest game ever played, and the only one played purely among professional investors.
The highest possible correct answer is 67. To go for 67 you have to believe that every other muppet in the known universe has just gone for 100. The fact we got a whole raft of responses above 67 is more than slightly alarming.
You can see spikes which represent various levels of thinking. The spike at fifty reflects what we (somewhat rudely) call level zero thinkers. They are the investment equivalent of Homer Simpson, 0, 100, duh 50! Not a vast amount of cognitive effort expended here!
There is a spike at 33 - of those who expect everyone else in the world to be Homer. There's a spike at 22, again those who obviously think everyone else is at 33. As you can see there is also a spike at zero. Here we find all the economists, game theorists and mathematicians of the world. They are the only people trained to solve these problems backwards. And indeed the only stable Nash equilibrium is zero (two-thirds of zero is still zero). However, it is only the 'correct' answer when everyone chooses zero.
The final noticeable spike is at one. These are economists who have (mistakenly...) been invited to one dinner party (economists only ever get invited to one dinner party). They have gone out into the world and realised the rest of the world doesn't think like them. So they try to estimate the scale of irrationality. However, they end up suffering the curse of knowledge (once you know the true answer, you tend to anchor to it). In this game, which is fairly typical, the average number picked was 26, giving a two-thirds average of 17. Just three people out of more than 1000 picked the number 17."
I'm switchng back to Blogger because I want to use the neat NeoWorx NeoEarth gadget to the left. Click it to find yourself as well as recent and current visitors. For some reason WordPress doesn't support gadgets that they don't explicitly list—and this is one of those.