April 30, 2002
From the desk of Jane Galt:Swen Swenson's on the tail
Swen Swenson's on the tail of the global warming people. All I can say is, I wouldn't want him after me.
From the desk of Jane Galt:Others talk of their Amazon
Others talk of their Amazon wishlists. Faugh! Here's my wishlist, and it's got one item on it. But it's a goodie.
From the desk of Jane Galt:KrugmanWatch Paul Krugman has a
KrugmanWatch
Paul Krugman has a column today that's levelheaded and doesn't even mention Bush. He points out that the market dropped on the news of 5.8% growth, and takes us through why that isn't the fabulous news it might seem. He comes down pretty heavily on predictions of a "jobless recovery" over the next few quarters.A couple of caveats: Paul Krugman wants there to be a jobless recovery over the next few quarters, not because he's a mean person, but because he'd like to see Democrats take the House and keep the Senate come November, and the only way that'll happen, it seems, is if the economy's hard on the swing voters. Which is not to say that Krugman's wrong; just that in evaluating his arguments, you have to discount for the possibility of wishful thinking.
Second, there are other reasons the market might have dropped, including fears that this means the Fed will raise interest rates. Still, the evidence that Krugman's right looks pretty good to me.
For my Republican readers who are getting a little panicky, grab a paper bag and calm down. Even if there is a jobless recovery, this doesn't necessarily mean that the Republicans are cooked. Dems held the House even though Clinton presided over a jobless recovery through the earliest part of his presidency, and no matter how jobless it is, it'll be well into its upswing by the time Bush is up for re-election. Plus, Tom Daschle isn't exactly looking like a strategic mastermind these days -- unless he can come up with something better than "Bush shouldn't have cut taxes, but of course I wouldn't undo the tax cut if you gave me more power", chances still look solid.
From the desk of Jane Galt:Very nice bit of writing
Very nice bit of writing from William Quick:
I do subscribe to the theory of American exceptionalism - except I don't believe it's a theory. I think it proves and reproves itself with every passing year. The America I know and love has retained the exceptional malleability and resilience it possessed from the very beginning, but it has also kept the bright, gleaming core of its constitutional bedrock, the ever-living heart of the dream that is also the spirit and bones of the republic.
I love America without fear or irony, her past, her amazing present, her incalculable future. She retains the magical ability to touch all who wish to come to her, and with her touch, make them American too. How can you separate the ideas and ideals from the people who burnish them bright every day, and have since the Founders first plucked them from the American soul and put them to now-faded, wrinkled parchment?
So if I am asked, do I think we are better because we are American, I say yes. Yes, I do. Damned right I do.
Deep in your heart, don't you, too?
To each his own, of course. . . but I'm awfully glad I'm American. And no, it's not the consumer goods -- it's the fact that we're almost the only place in the world where anyone can become one of us just by embracing the idea of America. That's pretty damn neat, if you ask me.
From the desk of Jane Galt:I know you already read
I know you already read him, but for the three readers who missed it, you must go read Steven Den Beste's piece on the implications of the shift from zero to non-zero games for biology, marketing and ideas right this instant!. It's brilliant.
From the desk of Jane Galt:Got this juicy quote from
Got this juicy quote from The Corner:
Here's what Olivier Duhamel (a French Socialist and member of the European 'Parliament') had to say about France in the aftermath
of the first round of the Presidential vote:"As far as our economy, health, culture and sport are concerned, we are among the most effective performers on the planet. As for our politics, we've gone back to a degenerate democracy of the kind you find in the United States, Austria or Italy."
By which I think he means that we let those pesky voters actually decide things.
April 29, 2002
From the desk of Jane Galt:Tee-hee-hee-hee-hee. Judges on a rampage.
Tee-hee-hee-hee-hee. Judges on a rampage.
From the desk of Jane Galt:Tee-hee. The life cycle of
Tee-hee. The life cycle of your weblog right here.
From the desk of Jane Galt:You know how some people
You know how some people watch their counters for big turnovers? Well, as it happens, I was apparently my 100,000th visitor. Salud!
From the desk of Jane Galt:If you've ever watched any
If you've ever watched any movie, you know that all arch-villains must reveal their evil plan to someone prior to executing it. Well, I'm a little short on time, so I'm just going to post it here, 'kay?
Evil Plan (tm)!Your objective is simple: World Domination.
Your motive is a little bit more complex: Money
Stage One
To begin your plan, you must first seduce a news reporter. This will cause the world to sit up and take notice, stunned by your arrival. Who is this unholy menace? Where did they come from? And why do they look so good in a corporate suit?
Stage Two
Next, you will seize control of the Internet. This will cause countless hordes of computer programmers to flock to you, begging to do your every bidding. Your name will become synonymous with all that is wrong with the world, as lesser men whisper your name in terror.
Stage Three
Finally, you will unleash your armies of destruction, bringing about an end to sanity. This will all be done from a Warehouse, an excellent choice if we might say.These three deeds will herald the end, and the citizens of this planet will have no choice but to elect you their new god.
Trust us, it'll all come together in the end.
Any fellow arch-villains looking for the handy service that helped me with my proposal can check it out here.
Those looking for my evil wardrobe planner, can seek help here.
Oh, and future subjects of my dark Realm who wish to get in with the winning side on the ground floor can drop a little -- membership application -- in the handy tip jar at left. Those who wish to apply for positions as minions or henchman should make their membership application extra enthusiastic, if you know what I'm saying.
From the desk of Jane Galt:How do we pay tribute
How do we pay tribute to the heroes of Flight 93? The Weekly Standard's making a start.
From the desk of Jane Galt:Someone's blogging from my alma
Someone's blogging from my alma mater. And it's great stuff on free trade, economics, and especially digital copyright.
From the desk of Mindles H. Dreck:Times Audience Lame
Apparently, this is the best letter the Times can publish after Fritz Hollings' abysmal protectionist Op-Ed on the perils of Free Trade.
Don't you love the quote at the end of Hollings' piece?
Years ago, Akio Morita of Sony admonished third world nations that they had to develop strong manufacturing sectors to become nation states. Turning to me, he said, "Senator, that world power that loses its manufacturing capacity will cease to be a world power."
Hollings has been paying attention neither to manufacturing employment growth nor Japan.
Is it possible all the former "Letters to the Editor" writers (such as yours truly) have become bloggers?
April 28, 2002
From the desk of Jane Galt:Very interesting comment from Dr.
Very interesting comment from Dr. Weevil:
Is the difference between controlled and uncontrolled guns like the difference between driving and flying? It is notorious that driving is far more dangerous than flying, but flying seems more dangerous because plane crashes, though rare, typically kill dozens or hundreds of people at once, while car crashes kill tens of thousands per year in the U.S. alone, but only one or two or five or six at a time.Similarly, it seems to me pretty well established now that countries with strict gun control will, all other things being equal, lose more lives to gun crime, but mostly only one or two at a time, so that they may seem safer, even if they are not. At the same time, countries with widespread legal gun ownership, such as the U.S., Switzerland, and Israel, will see fewer citizens murdered overall, but it may well be that more of them will be in large-scale massacres, so that these countries will continue to seem more dangerous, while actually being safer.
There's a caveat: gun crime is lower in Europe. But in Europe, it's rising, even as laws get stricter; in America it's falling, even as they move towards a "Shall-issue" model (anyone not known to be a felon or seriously nuts is entitled to a concealed carry license). Switzerland has almost no gun crime even though every household is required to have a military rifle; Japan has almost no gun crime, and very strict gun laws (though with Japan it should be noted that Japan has almost no crime, partly because their police system is extremely illiberal, partly because of the way the society is set up, and partly because a lot of their crime is of the organized variety that integrates itself with the government and thus avoids prosecution).
Societies have a base rate of crime that is affected by a number of factors. The question is, holding everything else constant, does gun control raise or lower that rate?
The evidence that we seem to be getting, from looking at the change in the rate of violent crime following changes in gun laws, seems to be that gun control raises the rate. Gun control arguments make a logical progression from a false premise. They start with an imaginary world in which there are no guns. Yes, in that world, there would probably be fewer homicides. (There would probably not be fewer suicides -- the data's awfully bad) It's hard to kill someone with a knife or some such.
So gun control advocates imagine a straight line trend: more guns, more crime. If we imagine it as a graph, it would be a straight, upward sloping line.
This is based on a logical fallacy, which is that the population of those who would own guns if they were rare is a representative sample of the population who would own guns if they were plentiful. In other words, that if there are 1 million gun owners in the US, this group will be composed of the same percentages of different types of people as if there were 100 million gun owners. So that if there is a percentage of gun crime in the larger group, say one per thousand, the same percentage of crime will be found in the smaller group. Gun control thus cuts the number of crimes by whatever factor it by which it cuts the number of guns. This produces that straight line we graphed. However, this is demonstrably untrue.
There are three ways, in America, that we can imagine that guns would become rare: first, that they became very expensive for some reason; second, that they became illegal; and third, that they became extremely stigmatised.
In that case, assuming that the number of guns in the country will still be non-zero (and if you think it wouldn't, go take a look at Great Britain, with its near-total ban and relatively non-porous borders), who will own guns if they are expensive, illegal, or stigmatized? The answer in all three cases is the same: criminals. Criminals have a very high value for guns, because of their extreme usefulness in committing crimes. They have a demonstrated willingness to break the law. And they are (clearly) relatively immune to the kind of middle-class social stigma that would make guns unpopular.
Thus, there would be a very high initial rate of crime. However, as price, illegality, or stigma decreased, the population would change. Mixed in with the criminals would be non-criminals. So we would actually expect to see a curve that looks more like this:
But that's not the entire story either, because guns have both a crime-increasing and crime-decreasing effect. The possibility that their victims might be armed demonstrably has some effect on the propensity of criminals to commit violent crime (those who argue it doesn't are simply being stupid. If you were a criminal, would you respond to the probability that your victims might be armed? Of course you would. Criminals may not be the brightest bulbs on the Christmas tree, but they aren't immune to threat. For example, they avoid the police. The extent of the deterrance is a different question. But there is a deterrant effect.). This countervailing effect would put downward pressure on the curve.
Imagine the scenario. The criminals arm themselves early in the process, resulting in a crime spree. But as guns become more widely owned, the number of law-abiding citizens who have guns is increasing, while the number of criminals who have them is remaining fairly stable. As the curve moves to the right (increasing numbers of guns in the population), there is downward effect on the curve from the law-abiding citizens, whose guns criminals fear, while the upward effect is flat. So the curve starts moving downwards again. In other words, the curve will peak near the point where the majority of criminals who want guns have them, and the majority of law-abiding citizens do not. It will therefore look more like this:
So the question of whether gun control will decrease gun deaths relies on where we are in the curve: to the left of the peak, or to the right of it? If we're to the left, making guns harder to get will decrease homicides and other violent crime. If we're to the right, we'll largely take guns out of the hands of the law-abiding, and gun deaths will go up.
Evidence is that we're to the right of that curve maxima. Personally I doubt we could even get to the left. Europeans are getting their guns from the war-zones in the Balkans, despite tight gun control and border controls. The war on drugs has proved pretty conclusively that even when the governments are co-operating it's hard to keep out contraband; we'd have to take over Latin America to keep them from shipping us guns, and then there's Asia. . . and even if we magically managed to shut down every arms shipment, there's still our military depots, and the fact that a serviceable weapon can be manufactured from commonly available materials for a couple hundred bucks. Given the high value that a gun offers to criminals, it's hard to imagine how we could get to a point where they don't get their hands on them.
But don't trust the theory; check out John Lott's book, More Guns, Less Crime
and see for yourself whether the empirical data backs it up. If you savvy statistics, it's a good read. If you don't -- well, look at the headlines. Gun control isn't stopping criminals from getting guns in Europe, or in my hometown -- what about yours?
April 27, 2002
From the desk of Jane Galt:Raghu's got some corrected numbers
Raghu's got some corrected numbers up -- not quite as startling, but still interesting. Go take a look.
From the desk of Jane Galt:I don't know who the
I don't know who the guy behind Surveillance blog is. I don't know why he stopped blogging at the end of last month. But I do know that this is a damn fine post on the land mine treaty for which the press has beatified Princess Di.
From the desk of Jane Galt:Loving Salon Technology today. This
Loving Salon Technology today.
This article points out that having an OS monoculture is a very big security hole. But don't look so smug, Anti-Microsofties; the Unix kernel is every bit as much of a threat as the Windows one -- perhaps more, because of the nature of the data stored on Unix machines. Can anyone say Sendmail?
From the desk of Jane Galt:It turns out that the
It turns out that the German kid had his weapons legally -- at least 2 of the 4, anyway.
I think I'm going to win that bet with James.
From the desk of Jane Galt:What do legos, your cells,
What do legos, your cells, and object oriented programming models have in common? Click here to find out.
From the desk of Mindles H. Dreck:Let Them Eat Actuarial Tables
Last week brought a raft of articles about "Janitor's Insurance" or "Dead Peasant" insurance:
WSJ1 (requires subscription)
WSJ2
WSJ3
WSJ4
Houston Chronicle
I know the New York Times frowned on it as well, but I have no link. Sometimes I wonder whether their site search engine could find an anti-Bush Op-Ed, or a blogger against steel tariffs. The New York Sun also discussed it yesterday. This concept has been around for many years, so I find it both amusing and telling to see the papers pick it up all of a sudden this week.
Some of the coverage expresses outrage that a corporation could benefit from the death of an employee. While there are other reasonable objections to these programs, that particular bit of corporation paranoia falls wide of the mark.
Proceeds from life insurance are not taxable. Furthermore, a life insurance "wrapper" avoids taxation on funds building up inside a policy that ultimately fund the death benefit. Even if the policy is not held until the insured's death, the owner has taxes deferred until cancellation when this inside build-up is returned to the policy owner and taxed.
The more formal name for these "Dead Peasant"policies is Corporate-Owned (or Bank-Owned) life insurance ("COLI" or "BOLI"). Corporations and banks take advantage of the special tax status of life insurance to defer or eliminate taxation on invested assets. By purchasing insurance on a large population of people, this can amount to a substantial tax savings while the assets are still readily available. The policy confers significant tax advantages regardless of the mortality rate of employees.
State laws often require an "insurable interest" in the individual covered by the policy. I can't just look through the comments on this site and buy life insurance on the commenters. Likewise, a corporation can't just buy life insurance on anybody's life. Since the corporation has an interest in its employees well-being, the law has allowed companies to insure employees. In fact, banks often require that key employees have substantial life insurance (with the bank as loss payee) as part of a loan agreement.
First of all, companies need their employees alive, for obvious reasons. In fact, the law governing "insurable interest" actually recognizes that interest in allowing these transactions. Second, companies benefit from "COLI" or "BOLI" regardless of how fast or slow their employees die. The scope of a company's COLI program makes almost no difference to the company's interest in the employees well-being.
Finally, if this is so outrageous, why don't we mind that the government has a stake in rich people dying? In that case the state's interest is crystal clear - the faster rich folks die, the more government benefits through the estate tax. The government suffers no identifiable loss to offset, unlike those who must make due without an income producer.
The real issue is whether such a transaction should be sheltered from taxation. Actually, I would ask whether other company activities should be taxed prior to shareholder distribution even as these programs are not. Companies can also manipulate earnings to some degree with COLI, so this is another legitimate angle to the story.
BTW, I refuse to describe tax exemptions as subsidies, just as I disputed the Boxer-Corzine coalition for supervision of private property's description of 401k subsidies.
From the desk of Jane Galt:Interesting article on the arms
Interesting article on the arms race between Senator Hollings' spyware brigade and their nemeses. It's mostly an interview with the owner of an ad-stop company, so there's a self-serving element to the comments; he dismisses concerns about the ways in which his software may cost other companies money with the assertion that they'll just have to find a different revenue model, that's all. But nonetheless interesting.
From the desk of Jane Galt:In the interests of inter-blog
In the interests of inter-blog peace, Live From the WTC hereby offers this unilateral link to the hilarious Unqualified Offerings.
April 26, 2002
From the desk of Jane Galt:The ever-brilliant Jonathan Rauch, meanwhile,
The ever-brilliant Jonathan Rauch, meanwhile, pens the simplest explanation for why the Palestinians continue terror: it works. Meanwhile, Brink Lindsay explores proposed long-term strategies for Israel. The Jane Galt conclusion: It's a big goddamn mess, folks.
From the desk of Jane Galt:Jonathan Braue offers some sterling
Jonathan Braue offers some sterling advice for young protesters. Tee-hee.
From the desk of Jane Galt:Eugene Volokh has this post
Eugene Volokh has this post on the root causes of school shootings. It's (of course) well thought out, but there are a couple of things that might bear further examination:
It's true that if teenagers couldn't get their hands on guns, it would be harder for them (though not impossible) to do such massive damage. I don't think that it's possible to stop someone who is bent on planning mass murder and suicide from getting guns, especially in a nation where there are 200-250 million guns. But it's true that if somehow this miracle could be worked, the problem of mass school shootings would diminish (though other problems might increase). Still, the availability of guns doesn't tell us why we've had mass school shootings in recent years, but not in the years before.
An acquaintance who should know informs me that the backup plan for the Columbine shooters was to blow up the school during assembly -- and that the evidence is that there's a high probability that they would have pulled it off. Killing everyone, instead of the tragic few who died. But I can't vouch for this.
I know of only one conjecture that is even slightly plausibly, and I stress that it is only a conjecture: What changed since the time of the first school shooting is that there's been a lot of media coverage of school shootings. Teenagers keenly resent their own insignificance; when they see someone being in the news -- even for committing an atrocity -- some of them begin to envy this person's fame. And some tiny fraction of those may even decide, against all reason, self-preservation, and decency to take the same path. The first mass school shooting was an essentially random event, but the media coverage that it triggered dramatically increased the probability of subsequent events of the same variety.I am certainly not arguing that the media should be barred from covering school shootings. I am not even sure that as an ethical matter, the media should moderate their coverage.
But I think that if we're looking for a causal explanation for the advent of mass school shootings, the one that so far best fits the evidence -- the only one that shows a correlation, which is surely not sufficient for showing causation but is largely necessary to show it -- is this one.
I think that this is a huge factor. And while I too do not think that we should try to legislate coverage, I think that there is one thing that usefully could be done, without degrading the quality of coverage (IMHO) in the least: a voluntary media ban on reporting their names. Would it stop the killings? I have no idea. But I don't see how it could hurt -- and it ought to stop cold any little pipsqueak who thinks he'll go down in history in a blaze of glory.
From the desk of Jane Galt:I love the big construction
I love the big construction machines. They put me in mind of dinosaurs.
In the early days it was the grapples, crawling over the pile to pick up fistfuls of steel in their enormous claws and deposit it on the trucks, like a prehistoric monster uprooting a tree and waving it around for effect.
Then there were the cranes, just towering over everything, graceful, elegant, enormous.
Now there are the cherry pickers, which are funny because the driver steers from the basket, suspended in the air behind the machine as it lumbers forward. And the excavators, clawing out enormous piles of dirt from the ground as they prepare it for new construction. The front loaders, carrying loads hither and thither. And any number of smaller machines, forklifts and bobcats and such. Like little baby dinosaurs, they manage to be cute even though they're a LOT bigger than I am. (And even though their operators would kill me if they heard me refer to them as "cute").
This site has to be one of the largest assemblages of working construction machines ever in this country -- like a mechanical Jurassic Park. And though now that it is hollowed out it looks, in scale, much as the pyramids must have done, down to the little city we've built for the workers (though ours is made of tents and trailers rather than mud huts, and we have (mostly) indoor plumbing). But the difference is that Pharoah had to use overseers with whips to grind his monument out of the muscles of the workers, killing many of them in the process. So far this job hasn't had a single fatality that I know of, an the men are paid upwards of $25 an hour, plus benefits, to do labor that's a lot easier, and less dangerous, than their peasant forbears. The raw muscle power that took all those lives has been replaced with machines that turn a day's labor into a minute's work, by one man comfortably ensconced in the cab of his mighty machine.
Ain't technology grand?
From the desk of Jane Galt:Which brings me to another
Which brings me to another question: I get a hell of a lot of email from anti-war, anti-"warblogger" folks who don't like my ideas. The ones that are respectful, I answer privately. The ones that aren't, I junk or make fun of. But there's a common thread on which I wish to comment, which is that almost none of them can write.
Now, I want to say that I don't think that this is because far-leftists can't write -- God knows, the creative writing programs are stuffed with enough of them to disprove that theory. But the ones who can don't, at least to me. The ones who write to me display literary skills ranging from average to breathtakingly bad. Letters display the kind of orthographical and punctuational errors that one is supposed to have left behind by the tenth grade. I am not talking about people who use awkward phrasings, or make the occasional typo; Lord knows I'm on no high moral ground there (and don't think I don't know that I am about to get a stream of emails about every typographical error I make in this piece). I'm talking about paragraphs that have no logical beginning and no ending, but start and stop abruptly and at random, like third world trains. Continuous misspellings of common words that make me go back over and over again to re-read, until I figure out that they have substituted "to" for "too", "its" for "it's", "there" for "their", etc, and thereby inadvertently rendered the sentence almost, but not quite, totally incomprehensible. People who string together sentences with commas for pages at a time, until one begins to fear that their word processor is out of periods and the letter may never stop. People who apparently believe that a semi-colon is to the colon as semi-formal is to formal clothing. People who were apparently not familiarized with the subject-object convention of sentence construction in their formative years and pepper me with a stream of jolting sentence fragments. People who use the wrong word because it sounds something like the right one: tenative for tenacious, palpitate for vascillate, etc. And then there are the people whose essays are technically correct but so dull in their construction that they read like a third-grade essay on "What I did over summer vacation": Adjective-noun-verb. Noun-adjective-adverb. Adjective-noun-verb. It's enough to make one pound the keyboard screaming "don't they have any clauses where you come from?"
I won't even start on the people who think that the sarcastic "Did so! You're a big fat idiot!" verbal play of the high-school debate team is every bit as compelling in a political letter from a 52-year old computer programmer as it was when they triumphantly refuted "Resolved: The Cafeteria Will Serve Lima Beans and Lamb Patties Mondays, Wednesdays, and Fridays". Because most of my letter writers aren't like that. They're nice people. Serious people. Well-intentioned. But functionally semi-literate.
I don't mean to suggest that the right has some sort of God-given literary talent; there are any number of atrocious conservative, libertarian, and "warblogger" writers. But the anti-war left doesn't seem to have any answer to the near-omniscient topical mastery of a Steven Den Beste, the witty imagery of a James Lileks, the sharp financial insight of Mindles H. Dreck, or the individual talents any of another dozen bloggers I could name. These people can write. And the letters I get from conservatives, even when they're excoriating me (believe it or not, I get more than my share) are invariably well-spelled and rely on logic, not name-calling or "dead babies trump reason" type arguments.
So why can't the kids on the anti-war side, by and large, write?
Well, a compelling possibility is that I'm just not seeing them. Maybe I'm stuck in my little libertarian-right ghetto and I'm not getting the good stuff, just the trolling nutbags. So come on, talented heirs of Marx and Gandhi! Send me your stuff! I want to know where I'm going wrong.
I think that's part of it. But I think another part of it is that we've abandonned educating our children in favor of nurturing their delicate little psyches. Because I've had this argument a couple of times, and the semi-literate conservatives are always sheepish, a little ashamed, of their lack of writing talent. The left-wingers, on the other hand, are proud of it. "It's just a bunch of stupid rules! The important thing is the ideas, and people understand what I say just fine."
Wrong on both counts.
For one thing, rules are not stupid just because they are arbitrary. It does not matter, in some metaphysical sense, whether we drive on the right or the left side of the road; but it matters very much that we all do one or the other, because frankly, I can't afford any more car insurance than I already have. The rules of grammar are of course, somewhat arbitrary, but they are not therefore stupid; they are required for us to communicate with each other. If I say "Therefore house to the up pick go I keys" it matters not that this arrangement may be perfectly intelligible in Yoruba (I have no idea whether it is or not; it's an example); it violates the word-order rules upon which we have agreed in speaking English, and which allow us to sacrifice other complicated grammatical rules necessary to mark words in languages where word order is less rigid than in English. Surprise! The rules of English grammar, by and large, are there because they avoid ambiguity or redundancy. We gloss over these in spoken English because context and body language allow us to convey much of what poor sentence construction does not; moreover, it's real time, so if we build a sentence poorly the first time, and are not understood, we can correct the error. Writing is one shot; if your sentence isn't clear, the reader won't understand what you are saying. You must therefore take much more care to write clear, non-redundant, but unambiguous English -- and that means good grammar. You may think, for example, that the prohibition against splitting infinitives is an example of the power of petty tyrants, but in fact it exists for the very good reason that "to" is not only the infinitive marker in English, but also a preposition, and therefore improper placement can be very confusing.
Poorly constructed sentences, like poor spelling, take away the focus from the ideas and put it on the poor writing. Flawless prose is indeed "all about the ideas"; bad prose is all about the paragraph I had to read four times before I figured out what the writer was trying to say -- and the eight paragraphs I didn't read because I didn't want to bother wading through any more mistakes.
Anti-war people are certainly not the only people prone to this type of thinking. But politically, they are the most likely to embrace it. Witness "whole language" reading.
But enough of political carping -- let's all come together on the bipartisan goal of building a better, more grammatical future for our children. Turn off your spellchecker! Break out the OED! Strunk and White for everyone! Together, we can brave new future into the boldy go!
From the desk of Jane Galt:READER ANDY FREEMAN writes: So
READER ANDY FREEMAN writes:
So my property has no time value. . . but I'll bet that they'd be peeved if I paid my taxes three days
late....
The recent Tahoe-Sierra decision states, in the sentence starting on the bottom of the second page continuing on the third."A permandent deprivation of all use is a taking of the parcel as a whole, but a temporary restriction causing a diminuition in value is not, for the property will recover value when the prohibition is lifted."
We're talking about a "temporary" restriction that lasted either 32 months (accoring to the majority) or 6 years (according to at least one of the dissents).
Paging anyone who teaches Finance 101. . .
From the desk of Jane Galt:There's been a school shooting
There's been a school shooting in Germany. Buried in the story is this little tid-bit:
The shooting coincided with a debate in the German parliament Friday on tightening gun control legislation.Germany already has strict laws governing the right to a gun, but experts say the country is awash with illegal weapons smuggled into the country from eastern Europe and the Balkans.
Those wishing to get hold of a hunting rifle must undergo checks which can last a year, while those wanting a gun for sport must be a member of a club and obtain a license from the police.
I'm willing to be we'll be seeing editorials on how this calls for stricter gun control -- if I can find a sucker to take the other side of that bet, that is.
From the desk of Jane Galt:It is true: I'm mentioned
It is true: I'm mentioned by one of my heroes!
From the desk of Jane Galt:Welcome, Mark Steyn readers! I'm
Welcome, Mark Steyn readers!
I'm afraid posts are a little bit thin on the ground; as you can see, I'm having a bit of trouble with my computer. But the post you're looking for is here. And if you like what you see, please do come back.
April 25, 2002
From the desk of Jane Galt:Patrick Ruffini asks how come
Patrick Ruffini asks how come I'm not giving stock tips.
Well, first of all, that's not quite my area of expertise. (If I can be said to have an area of expertise.)
Secod of all, I'm Chicago-trained, so I subscribe to the notion that you can't beat the market in the long run.
Empirically, this is true. The stock market is so well traded that arbitrage opportunities vanish almost as soon as they appear; professional money managers who spend all their time researching companies, according to studies, earn back just about what it cost them, in economic terms, to find the information that allowed them to invest better. I'm not going to spend all my time researching the market, and I don't think I'm smarter than the people running the mutual funds that underperform the market. So I buy low-fee index funds (there are more sophisticated products that do the same thing with a superior return, but they take more money than I have to buy in). Of course there are problems with this approach; for one thing, when a stock joins an index like the S&P it's price jumps about 5-10%, so the assets are overpriced. But I would find this argument more compelling if all the active stock-pickers who pointed this out to me hadn't underperformed their indexes in both the boom and the bust.
And third of all, financial advice is serious and personal. I could say broad, true things: don't put all your money in equity; don't expect more than 3-5% annual real returns; don't invest more than 10% in the sector you work in, much less your company, even though it's "What you know" (you're not Peter Lynch, and he diversifies like hell); don't hold high-interest debt in order to buy securities of any sort unless their real yield is higher than your debt (it's not, in almost any case); don't base your investment decisions on what everyone else is doing; don't think you're a genius because you correctly picked on stock that did well. Monkeys throwing darts at the Wall Street Journal could hit one high-flyer.
In other words, act sensible and don't expect to get rich on the stock market. Allocate your assets between different securities and different industries. Don't put all your eggs in one basket.
But this isn't helpful, because you already know this, and you're ignoring it. You're plunging your net worth into things, hoping they'll go up and you can get rich and retire. You're holding credit card debt while you put money into a Roth IRA. You're not putting a sensible 40% into equity, even though retirement's only 20 years away, because bond returns are too low; you're putting it all into equity, and planning to switch into Munis when you're seventy. At least, if you're anything like the rest of America, that's what you're doing. So I'd be talking to myself.
If you don't know how to allocate assets, do a discounted cash flow, or estimate pre- and post- tax costs for a variety of time periods, get yourself a good financial planner. A good financial planner is one that doesn't sell you anything. He takes a fixed fee and tells you what to do with your money, spanks you gently for not saving enough, and helps you plan realistically for retirement. He helps you decide what sorts of investments, in what kinds of accounts, will maximize your post-tax income. And you pay for this advice, up front and through the nose.
A bad financial planner is cheap. He works for a firm that sells financial products, and therefore tries to foist on you whatever insurance/mutual fund/equity/debt product they have too much of. You will regret saving money this way when you are eating cat food because the Muni of the Month Fund tanked on you.
A good financial planner is recommended by someone you know well, someone prudent. Someone who is probably a little sheepish about how boring their retirement plan is.
But I won't give specific advice because first, it's not me, and second, the law of averages says that even if I'm brilliant, I'll be wrong a lot of the time and someone will lose money. So I'll stick to the tired-but-true platitudes that put everyone to sleep. You'll follow this advice -- or not. But at least you won't sue me for telling you to buy Yahoo at 200.
From the desk of Jane Galt:Warning: Long, geeky rant I
Warning: Long, geeky rant
I have been witness to many a fine theological debate about the existance of hell, and I have always wondered why they were wasting their time on such a pointless question. Obviously, there is a hell, only those who staff it have added an "p desk" on the end to make it sound more professional.
So my computer at work hasn't functioned for two weeks. More specifically, we have had a series of problems with the internet connection. First, the internet software refused to acknowlege the modem that came with my computer.
I uninstalled and reinstalled the software
I uninstalled and reinstalled the modem drivers.
I tested the phone line.
I changed the phone cord.
I uninstalled the internet software, uninstalled the drivers, removed the card, cycled the CPU, reinstalled the card, and reinstalled the software.
I bought a new, external modem, and connected it to the serial port.
Nothing worked.
This process is called troubleshooting, wherein you test the easiest and most obvious solutions, and therefrom proceed, using the information gleaned from earlier steps, to the more complicated and unobvious ones.
I called the makers of the new modem, on the off chance I'd bought a dud. Nope -- the modem worked.
I called the people at AT&T, who lead me through an exhaustive series of tests, at the end of which we'd determined:
1) I could use dial-up networking to connect to the access point
2) I could not get any IP service from this point. No pinging, etc.
3) I could not then disconnect from the service.
4) Once I had made this non-functional dial-up networking connection, dial-up networking would not, in the future, recognize the modem as functional until I had gone into the modem setup, removed it, and added it back.
[At this point, I want to head off any pre-emptive strikes from the friends and strangers who are, even now, tabbing over to their email software to compose a missive the primary message of which is "Get a real operating system". I am sitting in a trailer, not at home, not in a nice corporate environment where I have ample time and resources to fix things. Where, pray tell, am I going to download the drivers to fix my Linux internet connection, given that I have the only internet connection on the site? More importantly, I'm not in charge of purchasing. While I am second to none in my loathing for Windows ME, this is what the Fates have handed me, and like all tragic heroes, I am powerless to move against them.]
Having determined all this, we reached a consensus that most probably my Windows ME installation was FUBAR, and needed to be redone. A consensus with which the chirpy chick at the computer maker's tech support wholeheartedly agreed; she arranged to send me three CD's that would format my hard drive, reinstall all the OEM software, and leave it as pristinely functional as the day it was purchased. This re-tooling is what I spent my day doing.
And the #@%! thing still doesn't work.
Now I can get an internet connection for five minutes or so (time varies). After which, I lose my connection. Can't ping, nothing. Disconnecting and reconnecting produces -- you guessed it -- the same hardware error I got before. But this time, if I reboot, I can re-establish a connection (this was not true before). Every single time, the same thing: connect, lose connection, reboot, connect, etc.
So I apply my troubleshooting skills.
Is it the internet software? Almost certainly not -- the software's been replaced. The modem is a USR Sportster, the most common kind, and though it's one of them newfangled V.92 thangs, it's common enough that AT&T would have logged a known error by now, or at least an alert. If it is some strange interaction (most unlikely -- there's the dial-up netowrking layer in between, which USR has certainly tested as it will be the primary use of their product) then AT&T is going to have to do some coding. It's complicated and non-obvious; leave it for now.
Could it be the modem? Even more unlikely. Resetting the modem and trying to reconnect doesn't work. If the modem were the problem, either resetting would work -- or rebooting wouldn't. There is no variance in the success and failure of the various stages of the abovementioned cycle, now repeated about 30 times for effect. While it's vaguely conceivable that Windows ME has a bug that causes it to irreparably crash Dial-Up Networking whenever it loses contact with a non-functioning modem, this would almost certainly be a widely known error.
Could it be the motherboard? The most likely solution (or the serial port, which is attached to the motherboard, so what's the difference?). I know -- why would it crash two separate modems? No idea. But given the prevalance of the problem across two modems, a reformatted hard drive, and numerous software reinstallations, the only place left to look is a central failure.
But don't try to explain that to the folks who made my computer.
I spoke with a charming young boy from Canada, who, like most such people, has no idea what the hell he's doing. He has been given a book full of procedures to try, based on teh general nature of the problem. The minute he gets a vague clue about what happens inside that box he spends his time talking about, he will either be promoted, or leave. Until then, he venerates the Book with the same textual rigidity as the most devout Orthodox Jew. He spent five minutes trying to get me to walk through the modem testing procedures with me before I managed to knock it into his head that:
1) The modem had been tested
2) The software was not only new, but the ISP connection was pre-installed and thus unlikely to be the source of the problem
3) The phone line was working fine.
He put me on hold to talk to his "colleague".
For those uninitiated in the Way of the Help Desk, that "colleague" isn't a colleague, it's his boss. Or a former help-desk "engineer" who can tell a NIC from a knick-nack and has thus been put somewhere safe, where the users can't get to him. After five minutes or so, my Canadian returned to tell me that he was pretty sure it was the modem.
I pointed out that if it were the modem, it wouldn't fix itself every time I rebooted -- or it would fix itself when I turned it off and on.
He put me on hold to talk to his "colleague".
I rebooted the machine for the 31st time to see if it would perform the same trick. It did.
He returned with the opinion that it was the phone line.
Now, given the intermittent nature of the problem, this was perhaps a natural guess, if you hadn't talked directly to the person who knew what was going on, rather than the nineteen-year old who didn't. I told him, as gently as possible, that it wasn't the phone line.
He argued.
I layed out, with impeccable logic, all the reasons it wasn't the phone line:
1) I just moved trailers. The problem occurred in both trailers. Also, the people who isntalled the phone line tested it.
2) The problem isn't intermittent; it's calibrated exactly to the boot cycle. Which does not affect the phone lines.
3) The phone line works.
4) The problem does not vary with the phone line -- there are two modems in our trailer, and neither works.
Did they test it for Data he asked, after another trip to the "colleague". I'm in Manhattan, not Saskatchewan. Asking someone two feet from the trunk if they tested the line for data is like asking if they tested it for French
He was puzzled. We had a brief seminar on the causes of line failure: interference, pinching or clipping, physical degradation, or cables sub-standard for data transmission. None of which is an issue when you are using a brand new phone line sitting smack on top of the entire, newly refurbished fiber-optic infrastructure for the World Trade Center/World Financial Center area, and you're the only damn person using the line.
I told him I wanted a technician.
He -- I know, I'm repeating myself -- put me on hold for another "colleague" session.
He came back and said "I know you don't want to hear this, but I really think it's the line."
Now, the geeks who have been following this will know how overwhelming was my urge to say, "I know you don't want to hear this, but I really think you're an idiot. Let me talk to the $%@# escalation engineer."
But I am a lady. All I said was, "Could I please speak with your colleague? Maybe we can straighten this out."
ANother hold session.
"No."
"But we're not getting anywhere. I think that if we can just talk. . . "
"Callers can't talk with the Level 3 people".
Sounds like a cult, doesn't it? And believe me, I spent my next two hold sessions awash with pleasure at the idea of the spaceship coming to pick up the faceless moron who insisted that my problems were in the phone line. Certainly, the structure was cultish. Ordinary people cannot talk with the God of the Computer. Only through the priest, Help Desk Tech Level One, can you communicate with His Holiness. Ordinary mortals would be blinded by His radiance and struck dumb by the mellifluous harmonies of His voice. On this Rockhead I build My church.
What gets me is that I know exactly what the little rat bastard was doing. He didn't want to talk to me because he'd have to stop cruising for naked pictures of Anna Kournikova and pay attention. So he tells this kid, who has absorbed nothing so far except blind obedience to the sacred precept that We Must Not Deviate From The Book, some stupid thing to get me off the line in the hopes that by the time I call back, he'll be off his shift. In order to do this, he has to make it someone else's problem. Having had the modem, the AT&T software, and the cables convincingly refuted, he fell back on the one thing I couldn't test myself: the goddamn phone line. I argued. I begged. Dammit, I almost wept. But no dice. I am not allowed to call back until I get Verizon to check the line they checked three days ago when they installed it. At which point, presumably, some other rat bastard will have some other reason why I'm not his problem. And the kid will go on thinking that the best way to deal with technology problems is not to figure out what's wrong, but to pass it off to someone else. So that when he has Ascended to Level 3, he too will be able to deliver cryptic non-solutions to his ignorant acolytes.
Some days, it just doesn't pay to get out of bed.
From the desk of Mindles H. Dreck:Outcomes of the Paulos IPO Exercise
I ran 100 simulations of the Paulos IPO game mentioned below. Each player starts with $10,000 and plays the game for a number of weeks, randomly experiencing an IPO each week that has equal chances of going up 80% or falling 60%.
Because Steve Kuhn asked me whether I would like to be "the house" on this game, I looked at it from that point of view. So in this case, the house wins if the investor ends up with less than his original $10,000. Investor/player loses = house wins.
After 10 weeks, 87 of my 100 players have lost money, but one of the remaining players has a balance of $166,000. After 50 weeks, 97 players are out, but one of the remaining 3 has a balance of $41 million (gulp). After 100 weeks, the only player left had about $218,000. Our sole winner is the same guy who had $41 million at week 50, and $124 million at week 60, so he should have stopped. Everyone else is bust. Only after 100 weeks has the house turned a profit in aggregate ($1 million less the one player's winnings).
Here's a graphical representation showing the house's winning percentage (or the number of bust investors) vs. the largest balance of the remaining investors.
This dovetails perfectly with my earlier discussion about Niederhoffer and Taleb, or being long or short volatility. The house here is Niederhoffer, making good money almost all the time but going out of business every now and then. The players are Talebs, mostly bleeding to death but occasionally hitting it big.
And neither side is particularly interesting to me, although an investor in this theoretical game is doing a hell of a lot better than he could with a lottery ticket.
From the desk of Jane Galt:There's a rumor afoot that
There's a rumor afoot that I'm mentioned in Mark Steyn's column today, which is unfortunately not on the web yet. I am waiting with bated breath to find out if I have been indeed honored by the Great White Hope from the Great White North.
From the desk of Mindles H. Dreck:Counterintuitive
In discussion of the post below, Jonathan Gewirtz observes:
But you can reduce "path risk" by reducing bet size.....a participant in the experiment is likely to lose money if, as Paulos assumes, he bets his entire stake on each trade, because in that case it takes only a few losses in a brief sequence of trades effectively to wipe him out. But in real life you don’t have to bet that big. Your odds of long-term profitability are much better if you risk only a small fraction of your total capital on each trade. Bet-size optimization can't transform a losing game into a winning game, but you can blow up in a winning game if you bet too big. Small systematic variations in bet size can create enormous differences in end-state wealth in positive-expectation games.
True, but it doesn't improve the strategy, as you point out. However, the comment about "transforming a losing game" reminds me of Parrando's Paradox, which shows that you can actually combine two losing games into a winning game. How odd is that? John Allen Paulos has covered this one as well.
April 24, 2002
From the desk of Jane Galt:More from the department of
More from the department of bad data: Movie Physics. A sample:
Although 9 mm sub machine guns such as the Uzi (which fires 600 rounds per minute) are popular in movies, everyone knows that real action heroes prefer .45 cal Mac 10's. These fire more powerful bullets at rates of 1000 rounds (in other words bullets) per minute. They have a 30-round magazine ( the long black thing that stores the bullets) and are by any measure a deadly weapon.Movies are filled with scenes of good guys and bad guys blazing away for minutes at a time. Of course, no one is overly concerned with reloading or lack of ammunition, but then that's been true since the days of singing cowboys such as Roy Rogers who smiled a lot and engaged in friendly gunplay between musical numbers. So why would we bother to mention what is common knowledge? We can't help but be impressed by the weight of the matter.
First, let us point out that the 30-round magazine in a Mac 10 will be expended in a mere 1.8 seconds of sustained fire! If our shooter blazes away steadily for a total of only 3 minutes, his or her Mac 10 will spit out around 3000 chunks of lead at roughly 15 grams a piece. This amounts to 45 kilograms or a little less than 100 pounds of lead. And that doesn't account for the weight of the 3000 cartridge cases or 100 empty magazines scattered on the ground. Yes, 9 mm sub machine guns with slower firing rates would reduce weight problems, but it seems that real action heroes use Mac 10's, preferably one in each hand. We can't help asking where the side kicks are with wheel barrows to carry the ammo.
From the desk of Jane Galt:The ever-brilliant Sophismata is busy
The ever-brilliant Sophismata is busy ripping apart silly media graphs to get at the useful data. Be sure to read through to the shocking conclusion about power-plant emissions, then read his next post to find out further secrets of our polluting ways. Meanwhile, those who like me fondly remember Little House on the Prairie books can read about the possible causes for the demise of those memorable swarms of locusts she wrote about -- a cloud of grasshoppers that stretched for 1,800 miles.
From the desk of Jane Galt:I MET a traveller
I MET a traveller from an antique land
Who said:—Two vast and trunkless legs of stone
Stand in the desert. Near them on the sand,
Half sunk, a shatter'd visage lies, whose frown
And wrinkled lip and sneer of cold command
Tell that its sculptor well those passions read
Which yet survive, stamp'd on these lifeless things,
The hand that mock'd them and the heart that fed.
And on the pedestal these words appear:
"My name is Ozymandias, king of kings:
Look on my works, ye mighty, and despair!"
Nothing beside remains: round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away.
-- Perce Bysshe Shelley
From the desk of Jane Galt:I have no idea what's
I have no idea what's wrong with my permalinks. It's blogger, not my template, so I can't even fix them. But anyone who's looking to permalink me -- tuck a /?/ between the janegalt.net part and the rest, it should work. We apologize for the inconvenience.
From the desk of Jane Galt:Seems you can't see the
Seems you can't see the letter my dear Papa wrote to Barrons, so here it is (at least the part they excerpted)
When you evaluate the future of Social Security and the magnitude of the Social Security crisis ("Creating Complacency," Editorial Commentary, April 1, and "A Nobel Plan to Fix Social Security," Economic Beat, January 1), consider the size of the work force. The real question for the United States may not be the reduced Social Security contributions of the much smaller size of the workforce cohort behind them. It will more probably be the challenge of finding the workforce to tend the retired Baby Boomers and the workforce to carry on the work that the Baby Boomers are leaving.There is a Social Security crisis only if the nation cannot maintain the jobs that now contribute to the FICA pool and cannot increase the numbers of people who tend to the needs of the retired population. Current levels of legal immigration cannot satisfy these projected needs. The nation would have to reject the strong pressures that will come to substitute immigrants for those domestic labor supply deficiencies. We already look to legal immigration to meet the needs that we have in many high-tech and health-care areas. Why won't we try to expand legal immigration to meet our needs in other service areas that will have employment gaps emerging as Baby Boomers retire?
FRANK MCARDLE
New York City
April 23, 2002
From the desk of Mindles H. Dreck:Mending Lines
Something there is that loves a line. That something in human nature also loves central tendencies. In all sciences, hard and soft, we seek linear relationships and "mean reverting" patterns in all events, man-made or "natural."
In all likelihood, any asset allocation advice you have received is driven by a mean-variance analysis of the past behavior of the market over some period. Theories of global climate change revolve around the idea that a "true mean" temperature has been identified, and recent trends reflect a linear deviation from that mean temperature. In social sciences you hear of "cycles" of public thought or behavior, as if we swing back and forth like a pendulum over some identifiable center. One of the silliest example is Arthur Schlesinger's Cycles of American History, in which he posits a 15-year cycle from liberal to conservative in order to conveniently wish away Reagan (I have mentioned this book before).
Why should we be able to explain behavior around us this way? Did god command that all the world exhibit linear behavior and central tendencies? Should all phenomena exhibit "normal" distributions?
I think the reason we like to believe the world works this way is because it seems to provide a measure of certainty. We are not comfortable that the universe, and time itself may have no beginning or end, and we are not comfortable that certain behaviors exhibit something less than perfect randomness..and yet far from perfect predictability.
In truth, measures of central tendency can be useful to describe behavior, but often give the user a deceptive comfort that events will unfold in a neat pattern towards their expected result. THis is a big problem when attempting to predict the dollars and sense outcome of market behavior. In fact, one of the problems with Markowitz analysis, which is behind most asset allocation analysis, is that it doesn't describe the messy path an investment might take to its expected return. That path can dramatically alter the amount of money available at the end of the investment period. The more volatile the investment, the more true this is. (and some guy has written on this).
John Allen Paulos provides a good hypothetical example of this problem in his column "Average Riches, Likely Poverty", in which he describes playing a hot IPO market:
Hundreds of IPOs come out each year. In the first week after the stock comes out, the price is usually extremely volatile. It’s impossible to predict which direction the stock price will move, but assume that for half of the companies’ offerings the price will rise 80 percent during the first week and for half of the offerings the price will fall 60 percent during this period.The investing scheme is simple: buy an IPO each Monday morning and sell it the following Friday afternoon. About half the time you’ll earn 80 percent in a week and half the time you’ll lose 60 percent in a week for an average gain of 10 percent per week — (80 percent – 60 percent)/2. Note to the mathematically savvy: in this instance, you are allowed to average percentages because of the 50/50 split.
Ten percent a week is an amazing average weekly gain, and it’s not difficult to determine that after a year of following this strategy, the average worth of an initial $10,000 investment is more than $1.4 million! Imagine the newspaper profiles of happy day traders, or week traders in this case, who sold their old cars and turned the proceeds into almost $1.5 million in a year.
But what is the most likely outcome if you were to adopt this scheme and the assumptions above held? The answer is that your $10,000 would likely be worth all of $1.95 at the end of a year! Half of all investors adopting such a scheme would have less than $1.95 remaining of their $10,000 nest egg.
It's actually worse than Paulos suggests, because at some level of investment - say $1,000, you don't have enough money to continue to invest in the next IPO (imagine calling your broker for $500 of a hot IPO...). For more than half of the investors, it results in "game over".
An article by Malcolm Gladwell in this week's New Yorker (no link available yet, but here's an abstract) takes on these ideas, in a way. It describes a hedge fund manager, Nassim Taleb, who has supposedly built his investment philosophy around the observation that large, random movements in the market happen more frequently than our analysis tools predict. In the article's words, market behavior has "fat tails" - there is higher frequency at the extreme's than a normal distribution implies. Options are conventionally priced using the Black-Scholes method, which assumes a more normal distribution to the potential price outcomes. Mr. Taleb's fat tails suggest that options covering extreme contingencies are therefore underpriced. He is long out-of-the-money options.
Unfortunately for Mr. Taleb, this means he loses money most of the time. Taleb is OK with this because he knows, when the shit hits the fan, he's gonna make a lot of money.
Gladwell contrasts Taleb with his mentor, of sorts, Victor Niederhoffer. Niederhoffer is famous for making piles of money, but ultimately blowing up two hedge funds by primarily selling options into a large market event. Niederhoffer makes money most days, but puts himself out of business when those "fat tails" kick in.
As readers, we are asked to consider whether we would want to have our money with Taleb, who "never blows up but can only bleed to death" and promises to make a pile when the market goes haywire; or with Niederhoffer, who has made money consistently, except on the two occasions he lost it all.
Options are like insurance. They provide a payout based on a contingency, charging a premium for the privilege. My first reaction is that nobody makes money buying insurance (Taleb) and very few people make money selling it (Niederhoffer). In fact, almost every non-life insurance company in the world loses money on its insurance activities. Most of them only make it back on the float (the invested premiums/reserves). AIG is famous for maintaining a 99% "combined ratio", which means it makes all of 1% of its premiums in profit on pure risk underwriting activities.
My second reaction is that just because you understand a phenomenon, doesn't mean you have found a way to make money consistently employing your understanding.
Path risk is the problem with both strategies, namely you may lose all your money before you win the big one with Taleb, and you may be wiped out by Niederhoffer. So both Niederhoffer and Taleb base their investment theories on the mispricing of risk on average across the market, but must deal with highly volatile specific "game over" outcomes along the way to their expected (average) result. You pays your money and...
I'm quite sure there is more to the investment strategies of Taleb and Niederhoffer than Gladwell indicates. But I'm also glad to see the mainstream press attacking these issues in a lucid way.
Hey, Megan asked me what I thought.
UPDATE: Since there are some readers still bewitched by expected values and underappreciative of the distribution of potential outcomes, let me offer a few jokes to illustrate the point:
Two actuaries are out hunting. The dogs flush a grouse who flies directly over the happy duo. The first actuary fires and misses 10 feet to the left. The second actuary fires and misses 10 feet to the right. They look at each other, smile, high five and say "Direct Hit!"
An actuary has his head in an oven and his feet frozen in a block of ice. "On average", he says, "I feel pretty good!"
From the desk of Jane Galt:Krugmanwatch will be up tomorrow.
Krugmanwatch will be up tomorrow. I feel a deep need to play some hard core fetch-n-tug with the Beast.
From the desk of Jane Galt:So I've been sitting on
So I've been sitting on the WTC site for seven months now, and it occurred to me today that it no longer looks like a grave. And though I know that there is, as the book says, a time to kill, and a time to heal; a time to break down, and a time to build up, it still makes me sad that it now looks like nothing more than the largest construction site in the world.
Every so often those of us who came in that first week play a game of "Do you remember?"
Do you remember how you had to drive through six or seven checkpoints, manned by soldiers with real guns, to get to the site?
. . . how it looked that first week, that unimaginably high tower of smoking rubble looming up between the buildings every time you turned a corner? How awful it was to look at it for the first time? And even more awful was the fact that it didn't look real -- we'd already seen too many movies that looked just like this to believe it in our hearts.
. . . how we worked 16, 18, 20 hours a day, every day? (I had two other jobs that I had to keep up while I worked at the site. Everyone else just stayed there trying to get control of things.) We felt terribly guilty when we finally went home.
. . . how we couldn't spend any money for weeks, even if we wanted to? The best restaurants in New York, the Red Cross, and several dozen movie stars were lined up six deep to feed us.
. . . how the cops demanded photo badges every time they stopped us, only we didn't have any such thing, so we ended up making them by hand with stuff we bought from Staples?
. . . how long it took to straighten out the pay records of the swarms of men who showed up and worked, some of them three or four days without sleep, before we lost hope?
. . . how the men were fine as long as they were working, but as soon as they left work they'd want to get drunk to forget -- and they wouldn't forget; they'd end up drunk and sobbing hysterically on the floor of the bar. Which wasn't embarassing because everyone else was crying too.
. . . how the machine operators would warn us not to look down as we crossed the site because of what we might see.
. . . how we had our own private little park off the river where we could spend fifteen minutes eating lunch, because no one was allowed south of Houston street. How silent the streets were, away from the site.
. . . how we merrily ignored the traffic rules (there wasn't any traffic!), zipping up one-way streets the wrong way and driving our little gators all over Manhattan. And kept getting stopped on our way home for forgetting that you couldn't just look both ways and motor on through the red light.
. . . how the National Guard was camped in Battery Park. With, I believe, a tank. And a lot of very nice, very young people from the Midwest. It breaks your heart to think of them trying to storm some beach somewhere.
. . . how our hearts stopped when we heard about the Anthrax letters. . . how sure we were that we would be the first ones exposed.
. . . how wrong it seemed when they really started clearing away the wreckage. It just seemed too soon to take away the husks of the buildings and the debris -- as if we were forgetting what had happened there.
For weeks after it happened I didn't even believe it -- not really. I worked in that building for years, on and off, and just a week before I'd been to the observation deck for the first time with some visiting relatives. Two weeks before, my then-boyfriend and I had met in the Cortland Street station, bought a cake at the coffee shop/bakery near 1 WTC, and gone to a friend's house in Battery Park City for cocktails and dinner. I could see every inch of the plaza -- the J. Crew where I bought my favorite plaid skirt; the escalator I used to take to Building Seven to visit one of our clients; the Citibank where I once spent almost an hour getting rid of some con-artist who must have thought I was fresh off the boat from hicktown; the Sephora where I first tried my favorite perfume -- oh, just everything. If you didn't know the building, you don't know what I'm talking about; if you did, you too can probably walk those stores with me in your mind, picking up some little thing on the way to your train, or windowshopping to kill a little time before drinks at Moran's or Tall Ships or Windows on the World. You can see the open space where the little carts were, especially the one that made those ridiculously good salads -- right next to the escalator to the PATH train, which rode to a client every day during the height of the Asian meltdown. And that stops my heart, because right now my trailer is right next to the place where that escalator used to be, and it's a couple of walls and a deep hole in the ground. Right outside my window is the cofferdam they're building so they can repair it.
For weeks I walked around the site trying to appreciate it. I wanted, as in the movies, a single moment when it all came crashing over me and I finally understood in my heart all that had been lost. I never got it. I had many, many moments when I cried -- the worst was when I saw those thousands "Missing" flyers papering Union Square, and every single flyer had a picture of a victim on one of the happiest days of their lives, looking radiant and expectant and utterly unable to imagine the kind of tragedy that had ended their lives. The oddest was when I was riding on the subway one night, and I was tired, and after Fulton Street the conductor said "Next Stop, Chambers Street" and I wondered, for a split second, why he wasn't stopping at the World Trade Center -- and realized for the first time that nothing would ever, ever be the same again.
So I still haven't comprehended it, in the sense of the word that means to develop full understanding. But I keep having these moments, like when I realize that I am sitting in a trailer, in a hole that contains nothing but the absence of two buildings, and that entirely unfamiliar objects in my line of sight are in fact the skeleton of a place that I did not particularly love when it was still around, but which was part of the fabric of my every day.
And if I am saddened by the loss of a couple of tons of steel and concrete, I know that I cannot imagine the continuing grief of the families of the victims.
The cleanup is almost done. There's one pile of debris left on the south side of the site; the rest of the workers have turned from removing to rebuilding. The subway and the PATH trains will be reinstalled (better than the original, if you listen to the workers), and new buildings will go up, and we'll move on. But, morbid as it might seem, I hope that we'll keep reminding each other what it was like in those first days. Partly because we owe it to the dead, and partly because we owe it to the living. But also because those of us who were alive on September 11, 2001 joined the generations of history who saw their world destroyed in a single hour, and I wouldn't like us to forget how much changed in that little span of time.
UPDATE: A reader sends this picture. I can't think of any better memorial.
From the desk of Jane Galt:Okay, guys, little lesson in
Okay, guys, little lesson in international manners. It's fine when you boo the other team for trying to get in the way of your team's overwhelmingly well-deserved victory. It's very, very rude when you boo the other team's national anthem. I don't care if the other countries do it -- you're not living in another country, you're living in this one, and as long as you do I'll expect you to keep a civil tongue in your head. We are raising you to be decent human beings, not British football fans.
From the desk of Jane Galt:You've heard my views on
You've heard my views on Social Security -- now listen to my Dad's (it's a letter to the editor -- first one on the page. I think you should be able to read it without a subscription). His ideas are interesting -- and it's a side of the issue that's rarely examined by the media.
From the desk of Jane Galt:The Sarge points out that
The Sarge points out that there isn't any historical Palestinian nation: we invented it. Sarge, I love it when you make me laugh.
From the desk of Mindles H. Dreck:Culture of Victimology Goes Too Far, part 342
Investment News headlines a story on lottery winners as follows:
Lotteries cast winners adrift without tools to cope with life-altering check
I'm glad to see we are finally turning attention to the great harm done by thrusting millions of dollars on the unenlightened.
In related news, legislators are putting the final touches on an aid package for the unfairly disadvantaged people who are born "too good looking". "After all", says one sympathetic congressman, we can't just push these stunning individuals out into society without giving them the tools and counseling necessary to cope with the constant attention forced on them by their good looks."
As "Investment News" is geared towards money managers, you can imagine why they might spin this as a travesty, but aren't we looking a bit too hard for a victim?
From the desk of Mindles H. Dreck:Fromages a Krugman
I have rarely seen so many column-inches devoted to a European election as today. The WSJ and Times each have several editorials and news columns devoted to the French Election results, and even USA Today is giving it full coverage.
If there weren't as many varieties of leftism in France as there are cheeses, this wouldn't have happened. plus ca change...
In one of the more moldy columns on the subject, Paul Krugman tries his hand at equating Republicans with Le Pen, starting with the "guess who I'm describing" cliche used by fulminating didacts everywhere:
A slightly left-of-center candidate runs for president. In a rational world he would win easily. After all, his party has been running the country, with great success: unemployment is down, economic growth has accelerated, the sense of malaise that prevailed under the previous administration has evaporated.But everything goes wrong. His moderation becomes a liability; denouncing the candidate's pro-market stance, left-wing candidates — who have no chance of winning, but are engaged in politics as theater — draw off crucial support. The candidate, though by every indication a very good human being, is not a natural campaigner; he has, say critics, "a professorial style" that seems "condescending and humorless" to many voters.
Hmmm. How about a re-write:
A slightly left-of-center economist seeks to win the Nobel Prize by making grand macroeconomic predictions. In a world he would describe as rational he would have won long ago. After all, his predictions have had great success: Japan deflated, Argentina has devalued and the sense of malaise that prevailed among the non supply-siders had significantly abated. He moves to Princeton to mingle with other laureates.
But everything goes wrong. His partisan anger over a close election becomes a liability; he tries his hand at re-writing elections results, slandering administration appointees and engaging in pseudo-economic punditry as theater, drawing off crucial support. Still no Nobel prize, and now, no Pulitzer either.
The candidate, though by every indication a very good human being, is not a natural political writer; he has, say critics, "a professorial style" that seems "condescending and humorless" to his remaining readers. And he has spent little time actually learning about politics, administration bios or, for that matter the proper application of monetary policy in an oil shock....
April 22, 2002
From the desk of Jane Galt:I'm sorry that I can't
I'm sorry that I can't link to this, because it's extremely interesting -- a piece on the Wall Street Journal editorial page (subscription only -- go get one; it's a great investment) which suggests that China's growth in the last decade looked more like 3.6% than 7.6%. In other words, the slumbering giant which was widely prophesied to shove us off our throne as the world's largest economy was growing slower than we were.
The culprit? A combination of fudging at the provincial level, more fudging at the central government, and crude technical analysis. Or so the Op-Ed writer alleges, since the real problem is that we still don't know what the hell their GDP is. The writer, a professor of Economics, bases his estimate on several key indicators, pointing out that China's stagnant consumption, rising unemployment, moribund rural economy, and vast overcapacity are not consistent with the patterns observed in the other Asian tigers. The problem is, of course, that none of the other Asian tigers started with the same level of massive Communist-style production, so it's hard to know whether that pattern should apply. If unemployment was previously kept to zero by forcing everyone to keep a job even if they didn't want it, it should rise, even in a madly growing economy, as frictional unemployment is allowed to grow to its natural rate. And so on. (That's an example, by the way, not to be taken as an actual condition of the Chinese economy, about which I know no more than any other reasonably attentive reader of the WSJ).
Anyway, this is a very interesting development, and all should watch closely to see what other numbers come out to confirm or refute this hypothesis. Economics aside, the balance of power in the world over the next half-century will be very much affected by it.
From the desk of Jane Galt:Leave it to the French
Leave it to the French to take to the streets in protest against -- themselves. At least the plurality of themselves who voted for Le Pen.
Many people are spendfing a lot of time today telling us that the Le Pen vote doesn't mean anything, or is "just a fluke". They're completely missing the point, which is that it's hilarious.
Of course he's not going to actually get elected -- as far as I could tell, his entire potential voter base was the 16% that launched him into the runoff. If he had a shot at running the country, then maybe it wouldn't be funny. (Or maybe it would be funnier. Since I don't think he'd have much of a shot of enacting the psychotic part of his agenda). But given that we can be pretty sure that Chirac will win -- well, breathes there a man with heart so dead that he could view that picture of all those shocked and hurt French voters that graced the front page of the morning papers without laughing until his morning coffee spurted out his nose?
From the desk of Jane Galt:So Matt Welch and Ken
So Matt Welch and Ken Layne are really going to do it. Blogland's finest. . . I'm so proud. And you know, guys, if you need a New York correspondant, I'm here. I mean, right here. In New York. Which is very far from LA, and thus exotic. Like me. An exotic, New York foreign correspondant. And I have my own computer.
From the desk of Jane Galt:It's here! It's here! It's
It's here! It's here! It's finally here! It's. . .
The Nash Equilibrium and the Coase Theorem: Two Great Tastes that Taste Great Together
A reader sends in this request for clarification on two important concepts: the Nash Equilibrium, and the Coase Theorem, authored by, respectively, John Nash and Ronald Coase, and who says you don’t go into academia to become famous?
I think I must have missed your explanation of comparative advantage, but I think I followed your explanation of CAFE. Now, here's another challenge for you. What is the relationship between Nash equilibrium and the Coase Theorem? I ask because I have been told that Nash equilibrium concerns situations that wind up being stable because any change makes at least some people worse off, and the Coase Theorem concerns situations where property gets used in some particular way (the use of the property is stable, in other words), no matter who initially owns it--because otherwise at least some people are worse off. I figure that even if there is not much connection, when you show why I might actually come to some understanding of both of those concepts. Thanks. And I liked your comments on "Jurismania."
And since you asked no nicely, and flattered me outrageously, I shall attempt to answer.
The Nash Equilibrium actually demonstrates how certain situations arrive at equilibrium at the point where neither party can make themselves better off given what the other party is already doing. This can be illustrated by taking a very simple case. Say there are two executives of a firm - call it Ronin Enterprises - who have some bad information they don’t want investors to know about. If they can get to the end of the quarter without investors finding out, they think they’ll be fine.
Now let’s suppose that these executives - call them Ken and Jeff - have large chunks of stock in the company. If either of them sells this large chunk of stock, it will trigger an investigation into the financials of the company. Once investors find out about the financial problems, the stock will be worthless. Creditors will descend. Congress will convene an investigation. General havoc will ensue, possibly including a Larry King special. No one wants that.
However, if they can hold out to the end of the quarter, they think that the situation will reverse itself and they can both cash out for a tidy sum.
So if one of them sells now and the other doesn’t, whoever sells will make a lot of money, while the other person is wiped out along with a once-proud firm. If both of them sell, they’ll both be wiped out. And if neither of them sells now, they both make money. We can chart the various possible outcomes like this (numbers are purely arbitrary and not meant to hold any relation to actual values of such stock as may have been held by any pair of executives named Ken and Jeff):
As you can see, if they both sell, it's a disaster. The best thing for all concerned -- the outcome that maximizes overall value -- is for both of them to hold their stock until the analysts go back to sleep.
But that's not what's going to happen.
Let's look at why. Let's say they both start out committed to not selling. In that case, they each get a return of 100 on their stock. 100 what? I hear you say. Millions of dollars, coupons good for one large soda with any purchase of a Superburger and Cross-cut Spicy Fries at Burger Boy -- it doesn't really matter 100 what. It's a model.
Anyway, so there they are, each grimly determined to sit on their stock and take their 100 when the time comes.
But then one of them notices that if he sells now, he could clear 200 soda coupons instead of 100. The little devil sitting on his shoulder says "Go ahead -- it's a dog-eat-dog world out there. You've got to look out for #1."
Perhaps at first he's committed to staying the course. But pretty soon all he can think about is those extra hundred sodas he could be drinking. His every waking moment is dominated by feverish images of all that sugary goodness pouring down some drain somewhere instead of into his throat.
And then the little devil speaks up. "Hey, Jeff," it says. "What if Ken sells?"
Jeff thinks about that. If Ken sells, he doesn't just lose those 100 extra sodas -- he loses the hundred he's already got. In fact, he's going to owe his investors an extra 300 sodas. He'll be working at Burger Boy for years to pay them all off. And they won't even let him work the Fry-O-Lator until he's been there for six months.
'Nuff said. Jeff sells like ice cream in August.
Now let's look at Ken's position. Maybe he was honorably determined to hold his stock until the deadline; maybe he was planning to do unto Jeff as Jeff just did unto him, only Jeff was a little quicker off the mark. Doesn't matter, because no matter what his intentions were, Ken is now looking at a long stretch down at Burger Boy making sodas for Jeff.
Now remember, while it might be better for him to pull them back to the position where both aren't selling, he can't do that -- only Jeff can choose whether or not Jeff sells. And given that Jeff is selling, there's only one thing that Ken can do to improve his position.
Ken sells too.
Now they're both down at Burger Boy getting fitted for paper hats. Ken's term before he pays off his debt is slightly shortened, at the expense of an equally long term for Jeff. Notice that this is the outcome that minimizes value; the total value of this outcome to the two participants is -500, versus -100 if one sells and one doesn't, and +200 if they both hold on.
It's also what's known as the Nash Equilibrium. It is the only outcome where neither participant can better their position by changing what he himself is already doing, given what the other participant is already doing.
Now let's travel six months forward in time, when Ken and Jeff are settling down to their new home at the Winnemaka State Correctional Facility. Unaware of the lingering resentments stemming from their stock market contretemps, the warden makes them roommates. And as they are unpacking, Jeff tries to leaven the dark mood in the cell by pulling out his portable turntable and playing one of his classic big band records.
Well, if there's anything that Ken hates more than double-crossing, back-stabbing business partners, it's big band music. The sound of clarinet music, frankly, makes him break out in hives. And there on the other side of the cell is Jeff, unpacking a couple of cubic feet of Ella Fitzgerald, Benny Goodman, and Duke Ellington. Let's just say that things are a little tense as the first bars of "Sing! Sing! Sing!" float through the reinforced-concrete halls of Cell Block C.
Now say that Ken, upon demanding to see the warden, finds that Jeff has a perfect right to listen to his big band records between the hours of 8 am and 8 pm, according to prison rules. Stone walls may not a prison make, but Jeff is allowed to transport Ken to his own personal vision of hell for 12 hours a day, and there is nothing he can do about it.
Or can he? Let us imagine that Ken's wife, in whom all of his non-stock wealth was vested, has lavishly funded his account at the prison commissary to the tune of $1000. It occurs to Ken, being the smooth-wheeler dealer that he is, that, much as it galls him to do so, he could pay Jeff not to play his music.
Now, we're told time and time again that such things as music are priceless, but this is not true, as you will find out very quickly if you attempt to take some from Tower Records without paying. If you'll follow the simple excercise below, you'll find that sooner or later, we can put a price on just about anything.
Think of something you hate, something you'd never, ever do, like -- eating a bug. Would you do it if I paid you a dollar? No, you say? Never? How about if I paid you a billion dollars? $1,000,0000,000 in the bank just for eating one, harmless little bug. A billion dollars could buy a lot of therapy. Now open up and let batman fly into the cave. . .
Most things, even silence, can be bought -- if the price is high enough.
So let's imagine that Jeff, although devoted to swing, is also devoted to Mars bars, his supply of which is inadequate due to a stingy wife. He realizes, privately, that for as little as $600 he would be willing to give up his swing records and content himself with the sound of roasted peanuts wrapped in luscious caramel and creamy milk chocolate crunchiing between his teeth.
Ken, on the other hand, just quit smoking and went on the Atkins diet. He'd be more than willing to fork over his entire commissary account for the privilege of not listening to one more rendition of "Chattanooga Choo-Choo".
What's the solution? Obviously Ken pays Jeff some sum between $600 and $1000 -- how much is a matter of negotiation between the two of them -- and the cell echoes with golden silence.
But what if Jeff didn't have the right to listen to his music? What if rather than saying that all inmates could listen to music from 8-8, the warden had said that they could do so only if they got their cellmate's permission? Suddenly Ken has all the power. What would the outcome be?
The outcome would be the same -- silence. Jeff isn't willing to pay Ken enough to be allowed to listen to Ella and Benny.
That's the heart of the Coase Theorem: regardless of who has the rights, common areas will end up being put to the highest-valued use.
Suddenly you're a little confused. What do you mean by highest valued? Jeff values his use of the common space to listen to music at $599 (the most, we assume, that he would be willing to pay to hear his music, given that he will sell his right to do so for $600), while Ken values his use, not listening to music at $1000. Silence wins because in the marketplace of the cell, with these two consumers, it has a higher value ($1000) than music ($599). And where there is a market for rights, the highest valued allocation of those rights wins.
Another way to look at it is to think of the right to pollute (in the broadest possible sense) as an asset. It doesn't matter who initially owns the asset; it will end up with the person who values it the most.
That's the beauty of the Coase Theorem. Think of any situation with conflicting rights: the environment, noise pollution, the right not to see leather pants on those who don't have the kind of body that makes leather pants attractive. It doesn't matter whether the polluter (chemical, noise, or visual) has the right to pollute, or you have the right not to be polluted; the outcome will be the same, because whoever values their outcome more will invariably win. It's a revolutionary idea.
It's also simplistic, as all revolutionary ideas are. For one thing, it assumes that there are no transaction costs, which is to say the costs, monetary and non-monetary, associated with doing a transaction on top of the fee exchanged. Let's take a form of negative externality with which we're all familiar: spam. I find spam so annoying that I would probably be willing to pay some amount of money to be left alone. But in order to do that I would have to find all the spammers and pay each of them to leave me alone, which might push my costs, in time and money, much higher than I would be willing to pay just to be free of daily exhortations to lose weight, grow hair, or sample the brand-new webcams of Barely Legal Teenage Girls.
It also assumes perfect enforcement. I might pay all those spammers just to find that they've moved their servers to Taiwan, changed their names by one letter, and resumed their torrent of unwanted invitations.
And it assumes that you're allowed to make a market. Much as I dislike the kid next door dealing crack in the yard, I might be willing to live with it for a percentage of the take. But the cops take a dim view of this sort of thing. And the EPA won't let me take money to let International Paper dump dioxins in my percentage of the water table.
Nor does it cope with the justice of the allocation of rights -- should I have to pay not to have some old fogey blasting "Rum and Coca Cola" into my ears at all hours? And conversely, shouldn't I be able to enjoy a little music now and again? Coase only tells us how things will be allocated; not, in some metaphysical way, how they should. That's worrysome, if you're the type of person who seeks metaphysical justice from the law.
Nonetheless, the Coase Theorem has change