Friday 29 August 2014

Friday Afternoon Ramble

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Montessori Education & the Development of the Self

Now, this is something to get to, a fascinating event organised by Auckland’s Maria Montessori Education Foundation …

Don’t miss out – come and hear world leading paediatric neuropsychologist, Dr Steven Hughes present

Igniting the Flame Within –
Montessori Education &
the Development of the Self’

on
Thursday September 11th
7.00p.m. (doors open @ 6.30p.m.)

Auckland University of Technology (A.U.T.)
Northcote campus

image

Proudly sponsored by MMEF & AUT

Debate

The whole setup was ridiculous.

In a proper debate – in a properly moderated debate – the moderator sets the topic, the first fellow then gets a minute or two to address it, the second fellow gets the same time to address it and to  respond, and then the first fellow gets a very short time to respond. If they want to challenge their opponent’s facts, then they do it in their appointed time, integrating it with their planned response. Contestants alternate with each topic, giving it at least the appearance of fairness

That’s a debate.

It’s not a debate when contestants are simply invited to talk as long they like, over whomever they like. Sure, they can talk over each other even in properly moderated debates, but then at least it’s clear who is supposed to be talking, and viewers can decide for themselves what that tells them about those who butt in.

Sheesh. Moderators in high-school debates do the job better.

And that’s not all.

Thursday 28 August 2014

Austrian Capital Theory and ‘Dawn of the Planet of the Apes’

Guest post by Mark Tovey

During an early scene of Dawn of the Planet of the Apes, in which the hyper-intelligent apes were depicted hunting for deer in the forest surrounding their settlement, someone behind me interjected “if those apes are so smart, how come they’re hunter-gatherers?”

This decent question received nothing but a shush from his more etiquette-conscious companion.

While there are many factors other than intelligence that are relevant to a society’s choice of an agricultural or hunter-gather economy, Austrian capital theory can go a long way in helping to explain why the apes featured in the film could be highly-intelligent while still remaining hunter-gatherers.

Austrian Capital Theory: Convoluted and Time-Consuming

The adoption of ever-more roundabout and convoluted production processes is, paradoxically, the hallmark of economic development. This is not, of course, because time-consuming methods are inherently more productive. If that were the case, we could increase output by simply working more slowly!

To solve the paradox,

Experiments in Economics: Playing “Fair”

Here’s your info on what the Auckland Uni Economics Group is getting up to tonight …

Hi all,
This week are pleased to be joined by Professor Ananish Chaudhuri, Professor of Experimental Economics and Head of the Department of Economics, who will discuss the topic of Experiments in Economics: Playing Fair, including

  • the role of experiments in economics;
  • how experimental economics became a part of the mainstream; and
  • a brief overview of his own experimental work exploring the role of “fairness” in economic transactions.

Wednesday 27 August 2014

QUOTE OF THE DAY: On the political and social rights of Palestinians

“Many Arabs don’t know that the life expectancy of the Palestinians living in Israel is far longer
than many Arab states and they
enjoy far better political and social freedom than many of
their Arab brothers
. Even the Palestinians living under Israeli occupation in the West Bank
and Gaza Strip enjoy more political and social rights than some places in the Arab World.”

- Abdulateef Al-Mulhim, retired Royal Saudi Navy Commodore,
writing a couple of years ago in Arab News, and quoted this morning on Kiwiblog

The Only Email System DotCon and the NSA Can’t Access

Guest post by Hollie Slade

When the NSA surveillance news broke last year it sent shockwaves through CERN, the particle physics laboratory in Switzerland. Andy Yen, a PhD student, took to the Young at CERN Facebook group with a simple message: “I am very concerned about the privacy issue, and I was wondering what I could do about it.”

There was a massive response, and of the 40 or so active in the discussion, six started meeting at CERN’s Restaurant Number 1, pooling their deep knowledge of computing and physics to found ProtonMail, a gmail-like email system which uses end-to-end encryption, making it impossible for outside parties to monitor.

Encrypted emails have actually been around since the 1980s, but they are extremely difficult to use. When Edward Snowden asked a reporter to use an end-to-end encrypted email to share details of the NSA surveillance program the reporter couldn’t get the system to work, says Yen.

“We encrypt the data on the browser before it comes to the server,” he explains. “By the time the data comes to the server it’s already encrypted, so if someone comes to us and says we’d like to read the emails of this person, all we can say is we have the encrypted data but we’re sorry we don’t have the encryption key and we can’t give you the encryption key.”

“We’ve basically separated the message that’s encrypted apart from the key — all the encryption takes place on your computer instead of our servers, so there’s no way for us to see the original message.”

This is different from all other systems, says Yen. While Gmail has implemented some encryption, they still have the encrypted message and the key to decrypt the message.

Cofounders
Cofounders, from left to right, Jason Stockman, Wei Sun, Andy Yen.

While half the team is now at MIT, some are still in Switzerland where the ProtonMail’s servers are housed for extra protection.

“One of the key things we want to do is control our servers and make sure all the servers are in Switzerland which will increase privacy because Switzerland doesn’t do things like seize servers or tape conversations,” says Yen.

This will help avoid a situation where the U.S. government could forcibly shut them down, says Yen, similar to what happened to Lavabit last year.

The Moral Case for Self-Driving Cars

Guest post by Ronald Bailey

Tesla, Nissan, Google, and several carmakers have declared that they will have commercial self-driving cars on the highways before the end of this decade. Experts at the Institute of Electrical and Electronics Engineers predict that 75% of cars will be self-driving by 2040. So far California, Nevada, Florida, Michigan, and the District of Columbia have passed laws explicitly legalizing self-driving vehicles, and many other states are looking to do so.

The coming era of autonomous autos raises concerns about legal liability and safety, but there are good reasons to believe that robot cars may exceed human drivers when it comes to practical and even ethical decision making.

More than 90% of all traffic accidents are the result of human error. In 2011, there were 5.3 million automobile crashes in the United States, resulting in more than 2.2 million injuries and 32,000 deaths. Americans spend $230 billion annually to cover the costs of accidents, accounting for approximately 2 to 3% of GDP.

Proponents of autonomous cars argue that they will be much safer than vehicles driven by distracted and error-prone humans. The longest-running safety tests have been conducted by Google, whose autonomous vehicles have traveled more than 700,000 miles so far with only one accident (when a human driver rear-ended the car). So far, so good.

Stanford University law professor Bryant Walker Smith, however, correctly observes that there are no engineered systems that are perfectly safe.

Venezuela proves Hayek right again

Writing in the Road to Serfdom, Hayek pointed out that socialism inevitably ends up in tyranny. In his book, Government Against the Economy, George Reisman outlined the process in detail.

Socialist controls creates higher costs and partial  shortages, which inspire partial price controls and/or rationing, which creates more shortages and more controls, which creates even greater chaos in the production and distribution of goods, which leads to more shortages and universal controls, which leads to the seizure of production and distribution and even greater shortages and more and more controls – an inevitable and unsustainable process leading inexorably to bankruptcy, to starvation and to the tyranny and terror necessary to maintain the now-utterly corrupt system against those forced within it.

The process lasts either as long as a country has something to loot – or until its citizens wake up.

Venezuela continues to perform today’s demonstration of this tragic process.

Image: Wikimedia CommonsNot only has Venezuela imposed price controls, it now seeks to “cure” shortages by cracking down on shoppers. “Venezuela’s food shortage is so bad the country is mandating that people scan their fingerprints at grocery stores in order to keep people from buying too much of a single item,” Fox News reports.
   

Tuesday 26 August 2014

Now, these are what I call doors!

Home-grown horror [updated]

“The Duke of Wellington famously said that the Battle of Waterloo was won on the
playing-fields of Eton: and if that is the case, then the advance of the Islamic State was
begun in the nice, tolerant, liberal academies of Britain and other parts of western Europe.”

Mary Kenny, - 'Isis will never be defeated until Western societies
stand up for their own values,'
– IRISH INDEPENDENT

Many folk otherwise supportive of allowing peaceful people to cross borders freely (a policy well-articulated here) argue this policy can’t survive Muslim immigration; they argue the policy is untenable since Muslims constitute an objective threat, to whom western borders must be irrevocably closed. But as many Britons are slowly realising, especially after the jihadi killer of journalist James Foley was revealed as a comfortably-off Briton from Maida Vale, the threat comes not from Muslim immigration: the threat is homegrown.

And as Daniel Murray points out in the Spectator, “This is not even the first beheading of an American journalist to have been arranged by a British man from London.” Daniel Pearl was the first to so suffer, at the hands of a north London-born graduate of a private school and the London School of Economics.

Locally-born too were the suicide bombers of the London Tube, the killers in cold blood of drummer Lee Rigby, and the bomber of Glasgow airport – a registered doctor born and raised in Aylesbury.

The threat they point to is not at the borders; it is being nurtured within. And not just a threat at home. 

4,000 people from Britain are thought to have gone to train or fight in Afghanistan. Estimates of the number of British citizens who have gone to fight in Syria and Iraq range from just over 500 to 1,500 …  significantly higher than the number of Muslims currently serving in Britain’s armed forces….. But it is now obvious that whether we like it or not, this is Britain’s problem…
    The country that brought liberty to much of the world is now exporting terrorism to large parts of it.

Monday 25 August 2014

QUOTE OF THE DAY: On ‘planning,’ and compulsion

“What is politically defined as economic planning is the forcible
superseding of other people’s plans by government officials.”

-Thomas Sowell

School breakfasts?

These days, everything is political. Even breakfast.

"Thousands of children are getting a healthy start in the morning thanks to [National’s taxpayer-funded] programme which is growing across schools throughout the country each week," says Paula Bennett.

The only evidence Paula cares about is votes. Because there is no other.

"We have little information about adolescents, little information about the benefits of breakfast in well-nourished kids, and little information about how variation in the composition of breakfast figures into the mix," says David Katz, director of Yale University's Griffin Prevention Research Center.

“On my best read of the literature, it's hard to make a case for that we'd get any great benefit from the programmes. Rather, we often find that they don't even increase the odds that kids eat breakfast at all,” says Eric Crampton, having studied the literature.

Politics is never about evidence, however -- and now National is serving up breakfast, every other party wants to deliver lunch.

It’s a fair metaphor for government creep, don’t you think?

  • Breakfast Downgraded From 'Most Important Meal of the Day' to 'Meal' – ATLANTIC
  • Breakfast in schools: it just doesn't work – Eric Crampton, NBR
  • EARTHQUAKE ENGINEERING OF THE DAY: Early-warning system

    Astonishingly, an early-warning system at UC Berkeley was able to give a 10-second alert before the Napa earthquake struck this morning.

    That might not sound like much, but that is precisely 10 seconds more warning of destruction than anyone has been able to enjoy before. Even better…

    California is working to complete a statewide system, which could be unveiled in the next few years.

    An earthquake early warning system in California would be like one now operating in Japan, providing valuable seconds to prepare for the shaking.

    Once fully developed, the system could give downtown Los Angeles 40 to 50 seconds of warning that the “Big One” was headed from the San Andreas fault, giving time for elevators to stop at the next floor and open up, firefighters to open up garage doors, high-speed trains to slow down to avoid derailment and surgeons to take the scalpel out of a patient.

    It’s not magic.  It can’t look forward in time or anything.

    The system works because while earthquakes travel at the speed of sound, sensors that initially detect the shaking near the epicenter of a quake can send a message faster -- at the speed of light -- to warn residents farther away that the quake is coming… “even a few seconds of warning will allow people to seek cover…”

    So, if you’re at the epicentre you’re still stuffed. But anywhere further afield, and this could save your life.

    Malthus explains the problem with #TeamKey’s first-home buyer subsidy [update 2]

    National launched their election campaign over the weekend, the headline grabber being a $20,000 taxpayer subsidy to first-home buyers.

    Even Hard Labour knows this is risible electioneering, but they have no more real answers to fix housing than the Nats.  Not that long ago, socialist Venezuela experienced the same problems with toilet paper as NZ has with housing, and for similar reasons.  Eric Crampton summarises how NZ’s two main parties would be dealing with it:

    Eric CramptonLabour would put capital gains tax on toilet paper.
    National would subsidise first-time toilet paper buyers.

    Neither would have any effect. That is, neither would have any positive effect.

    We’ve known for at least two-hundred years that subsidies don’t work the way politicians say they will – at least since British classical economist Thomas Malthus wrote his seminal Investigation of the Cause of the Present High Price of Provisions, which even Uncle Keynes thought was top stuff.

    To make it easy for Bill English, I’ve translated the relevant passage into modern idiom:

    #TeamKey: the best left-wing team since the last one [update 2]

    #TeamKey and #TeamCorkery agree on one thing at least: they both want talk to be about policies, not dirty politics.

    #TeamCorkery’s wish didn’t come true however because her Sugar Daddy wanted to talk about hacking. So, thought the media, hacking it is.  [UPDATE 1: Curiously, the story, which was all over the news yesterday, is in the process of disappearing down the memory hole. UPDATE 2: Or is the story’s disappearance ‘round the net just a correction, all having previously said DotCon had “admit[ted] to hacking.”]

    Hard to complain about their subsequent questions when they were being taunted from the stage.

    On the other hand, maybe it’s better if the media didn’t focus on National’s policies, because what they’ll find if they do is pretty damned limp – an effective vote of no-confidence in their own stated values.  From the point of view of the left, as Danyl McLaughlan summarises, they’ll find a virtual reverse takeover:

    National’s ideology and values are not (yet) delivering any policy ideas during this campaign. Free money for first home buyers, free doctor’s visits for children and MOAR ROADS are not right-wing (or ‘centre right’) ideas, in the way that the partial sales of the energy companies was. Having a popular right-wing party simply unable to campaign on its values or ideas is a pretty sweet place for the left to be, long term. It would be nice to be in government, but having National in there implementing left-wing policies for us is the next best thing. 

    John Key: the best left-wing Prime Minister since the last one.

    Paleo-Greens

    An early meeting of the Greens’s “brains trust”:

    image

    [Cartoon by Alex Gregory from the New Yorker, hat tip Chris Les]

    Friday 22 August 2014

    Wow!

    What a comeback!

    You don’t see heroism like this politics.

    Russel Norman lies

    So, is there a difference between wilful misinterpretation and lying?

    Not sure he succeeded, mind you

    Eric Bana, in some Hollywood film or other, tries to explain the world’s most libertarian sport to morons.

    When fraud sells

    Sotheby's“When all art becomes subjective then determining which art is best becomes essentially political.”

    But what’s in my beer, officer?

    IN a stand-off between wowserdom and healthb advocacy, the wowsers have the upper hand.

    “Auckland Council execs work with stunning views”

    Remember when an over-sexed dwarf was telling us amalgamating Auckland’s bloated councils would save money? That it wouldn’t just put a new bloated elite on top of the existing overpaid scum?  
    Why didn’t someone just punch him in the face back then?

    Chris Trotter still “acceptably corrupt"

    Chris Trotter argues when it comes to politics “(t)he options are not fair means or foul: they are foul means or fouler.” Pablo reckons this means either Chris has lost his ideological bearings or has consciously decided to join the Dark Side.
    Pablo has forgotten it was Chris defending “acceptable corruption” not that many years go. Acceptable, to Chris, if it turfed out the Tories.

    The policy that is not a policy

    Is it still a policy if you promise not to do it?

    Irony.

    As I’ve said before, irony.

    Home-grown horror

    I’ve never been clear why opposition to Muslim barbarity centres so often on immigration. Case in point: “The jihadist who beheaded the American journalist James Foley is believed to be British born militant from London …”.

    UK Prime Minister Cameron who, unlike his American counterpart, at least showed sufficient gravity to call his holiday short, said: “This is deeply shocking. But we know that far too many British citizens have travelled to Iraq and travelled to Syria to take part in extremism and violence. And what we must do is redouble all our efforts to stop people from going.”  And, maybe, to promote western culture instead of apologising for it?

    PCP

    Stephen Fry rants about Spooks and political correctness. Yes, that sentence makes sense. It’s the concept that doesn’t.

    How did political correctness start? We’re going to have to go back all the way to the war. The Great War.

    Thursday 21 August 2014

    Turkeys vote against Christmas

    The Key Government proposes to pay higher salaries to leading educators –teachers and principals demonstrating proven success --  to oversee the work of lesser educators.  NZEI members however have today voted overwhelmingly against the proposal.

    93 per cent of teachers and principals voted "no confidence" in the policy [which] could potentially scupper the … plans…. NZEI president Judith Nowotarski said 73 per cent of the more than 25,000 members that voted rejected the proposed new roles outright…

    Without offering any opinion on the Key Government’s proposal, and given the stern resistance teachers always raise to their standards being reviewed, one could be forgiven for thinking the 73 percent voting “against” represented a large number of the lesser educators who realise their work is not up to scratch.

    QUOTE OF THE DAY: On market research

    image“Market research is what you do when your product isn’t any good.”
    - Edwin Land, inventor of the polaroid camera, and business pioneer
    [Hat tip Stephen Hicks and the Center for Ethics and Entrepreneurship]

    Ever wonder why the prostitutes and bankers share the same neighbourhood?

    Guest post from Europe by Simon Black from Sovereign Man

    Sometimes I am convinced it was completely by design, and not a weird little coincidence, that one of Germany's most sprawling red light districts is just steps away from the European Central Bank.

    This fact becomes comically obvious right around happy hour... as self-congratulatory ECB economists and their bureaucratic bank underlings crowd the bars and cafes after work which are simultaneously frequented by pimps, thugs, and other assorted low-lifes.

    One would be forgiven for legitimately asking the question: which of these professions has done more damage to humanity?

    My [fiat] money's on the bankers.

    These are the same financial luminaries who, recently, crowded aboard the good idea bus and decided to take interest rates NEGATIVE.

    Their logic was that prices aren't rising enough. This was actually the headline this morning that ran across the Rai (Italian news) ticker while I was consuming some egg-like substance at the hotel breakfast buffet this morning in Rome.

    The newsman said something to the effect of "Low inflation makes economic problems worse in Europe."

    Ah, yes. Precisely. The problem isn't an absurd level of over-regulation, massive unsustainable debt, insolvent banking systems, idiotic politicians, etc.

    THE problem plaguing the entire continent... the problem behind sluggish growth for all these years... is that consumers aren't getting screwed fast enough.

    It's hard to even know where to begin with such an epic level of stupidity. First of all, it's not even true.

    Having just spent the last few months traveling across most of the continent, I was astounded to see the speed with which prices had risen in many places.

    I just capped off a week-long vacation with my fellow teammates at Sovereign Man in Italy... same place as last year... and I was charged a whopping 50% increase over last year's rates.

    But this sort of truth doesn't matter to an economist who actually believes in his 'science'. It is this 'science' of economics which tells us that outsized government debts are irrelevant. That awarding the power to conjure paper money out of thin air is a sound, credible system.

    Yet it's not working. Much of Europe (like Italy) has fallen back into recession.

    Even here in Germany, which is supposed to be some sort of econo-mythical superhero carrying the rest of Europe around on its shoulders, the government just announced that the economy contracted last quarter.

    Whatever these economic policymakers are doing, it's obviously not working. So naturally the solution is to try more of the same. Much more.

    They've already taken certain interest rates into negative territory. The expectation now is that they'll ratchet rates even further into negative territory.

    In doing so, they are effectively screwing hundreds of millions of people. Every single person on the continent who is a responsible saver. Every pensioner. Every retired schoolteacher. Every student. Everyone who works hard for a living and can already barely make ends meet.

    Their lives are all about to get a lot more difficult.

    Even for the well-heeled, life has become quite stressful. Think about it-- there's almost no place left anymore to hold your savings.

    Putting cash in a bank practically GUARANTEES that you will lose money on an inflation-adjusted basis. Stocks are at precarious all-time highs. Bonds are at all-time highs. Many real estate markets are back in bubble territory.

    These people have destabilized nearly every major asset class in existence.

    On the balance, I'd rather deal with the seedier characters in this neighbourhood rather than the suit-panted PhDs pretending to do honourable work.

    Signature
    Simon Black
    Senior Editor,
    SovereignMan.com

    The United Police States?

    Whatever the rights and wrongs of what’s going on in Ferguson, Alabama – and I’m too far away to give you any special insight on that – one thing that’s now obvious is the militarisation of the American police.

    This is not a healthy trend, says John Stossel.

    Libertarians warned for years that government is force, that government always grows and that America's police have become too much like an occupying army.
        We get accused of being paranoid, but we look less paranoid after heavily armed police in Ferguson, Missouri, tear gassed peaceful protesters, arrested journalists and stopped some journalists from entering the town…
        [A] man identifying himself as a veteran from the Army's 82nd Airborne Division reacted to video of police in Ferguson by tweeting, "We rolled lighter than that in an actual war zone."
        If authorities arm cops like soldiers, they may begin to think like soldiers -- and see the public as the enemy.

    Speaking at last year’s Casey Conference, Defence attorney Marc Victor argues the police state Americans see is the result of law routinely violating individual rights, of which people take no notice. Olivier Garret calls Victor’s speech (below) “a jaw-dropping overview of … how degraded the US has become.”

    Never in my life have I seen a round of applause like this one… and at an event normally composed of conservative, introspective investors to boot. But most surprising of all – and I must admit in my bias here  they were applauding a lawyer. A defence lawyer at that.

    “If you live here, know that you live in a police state.” If you don’t, maybe think yourself lucky, and swear to make sure it never happens here. Or, to be more accurate, to stop it accelerating.

    Planet Key

    When Helen Clark’s Electoral Finance Act came into effect, many of us pointed out it represented censorship at worst, and a stifling of free expression at best.

    When John Key amended the Act, many of us pointed out the biggest change was the name but the effect was still the same: a stifling of political protest.

    Enter bluesman Darren Watson, whose innocuous song Planet Key will be rubbed out this afternoon by the Electoral Commission. Their job is interpreting and enforcing the ill-worded law that now permanently confines political expression, and in the opinion of these grey ones the law bans Darren from releasing this song to the net, on radio, or in any electronic form unless he attaches his name and address to it.

    Because to release any political commentary in this form over the election period is, in the view of the grey ones, a political advertisement.

    The Electoral Commission is also threatening that the sale of the song through iTunes without a promoter statement is "an apparent breach of section 204F of the Electoral Act", punishable by a fine of up to $10,000.
        Said Watson: "I object to the suggestion that I am some sort of political promoter. I am a musician and I feel very strongly about this kind of censorship. I believe in artistic freedom."

    The boys and girls at the Electoral Commission do not.

    The manner of their threat is pure bureaucratese:

    Watson tweeted on Tuesday that he would be removing it from sale "by order of the Electoral Commission" - but the commission says it has made no such order.
        "We haven't ordered anything to be taken down, or removed," a spokesperson told 3 News. "The commission does not have any power to prosecute."
        Instead, the commission says it has advised the duo to add a promoter statement. The advice isn't legally binding, but if they don't comply, the Electoral Commission will have to consider whether to refer the matter to the police.

    This is not an order. No. But if you don’t do it, we’ll “refer the matter to the police” – and with our warmest recommendation.

    So, by this afternoon, this video will be a dead link:


    Planet Key from Propeller Motion on Vimeo.

    Wednesday 20 August 2014

    Quote of the day: On what can’t be given to you by politicians

    “Remember ever the old words—as true today as when they were first spoken—'What shall it profit a man if he gain the whole world, and lose his own soul?' If you lose all respect for the rights of others, and with it your own self-respect, if you lose your own sense of right and fairness, if you lose your belief in liberty, and with it the sense of your own worth and true rank, if you lose your own will and self-guidance and control over your own lives and actions, what can all the buying and trafficking, what can all the gifts of politicians give you in return?”
    - Auberon Herbert

    [Hat tip The Objective Standard]

    In the Hands of Economists, the More Precise the Number, the Bigger the Lie.

    In this second-part of the excerpt we started yesterday, author of three best-selling books already, Bill Bonner eviscerates what passes for modern economics in this excerpt from ‘Hormageddon: How Too Much of a Good Thing Leads to Disaster.’

    Excerpt #2 from Hormageddon: How Too Much of a Good Thing Leads to Disaster
    By Bill Bonner

    The Original Economists

    There was a time when economists were not so conceited, not so bold and arrogant, not so ambitious… and not such dumbbells. The original practitioners of the trade saw themselves as natural or moral philosophers.

    It was ‘moral’ in the sense that when you make a mistake you have to pay for it. You don’t watch where you’re going and you step on a rake, the handle comes up and hits you in the face. You go away on a trip and forget to pay the electric bill, you come home and the lights don’t work. There is no complex mathematics that will bring the lights back on. There are no abstract theories—such as countercyclical fiscal policies—that will do it either. The solution is simple: you have to pay the bill. You have to suffer the consequences of your own mistake to set it straight. That’s moral philosophy.

    But when your washing machine breaks down, you turn it off and try to fix it. This is a mechanical—not moral—system, and not a particularly complex one at that. Sometimes even a few whacks with a hammer and some choice swear words can work wonders. Percussive maintenance works!

    The trouble is, economies are not washing machines. They are complex, moral systems. An economic system requires a deft, nuanced touch. But economists come up with theories and ‘fixes’ that are as clumsy as a wrench and as blunt as a hammer. They almost always lead to trouble.

    The Ur-economists of old knew better. They observed animals and nature and tried to draw out the laws and principles that helped understand them. Same thing for man and his natural economy. They watched. They reflected. They attempted to make sense of it in the same way a naturalist makes sense of a beehive or an ant colony. ‘How does it work?’ they asked themselves.

    In the 18th and 19th century, they were able to formulate “laws” which they believed described the way a human economy functioned.

    The Wealth of Nations was Adam Smith’s observation about how wealth was created. How did people know what to produce? How did they know what price to sell it at? How did they know when to shift to other things, or when to increase production? He saw individuals guided by an ‘invisible hand’ that led them to follow their own interests and thereby respond to the needs and desires of others.

    Later, other economists focused on prices. Prices had an information content that was essential for everyone, that allowed producers and consumers to get on the same page. These economists understood that when you manipulate the numbers you confuse them both.

    Among the other phenomena that these proto-economists discovered were Say’s Law and Gresham’s Law.

    French businessman and economist, Jean-Baptiste Say, discovered that “products are paid for with products,” not merely with money. He meant that you needed to produce things to buy things; you could not just produce money… has anyone ever mentioned this to the Federal Reserve?

    Long before Say, a 16th century English financier named Sir Thomas Gresham noticed that if people had good money and bad money of equal purchasing power, they’d spend the bad money and hoard the good money.

    Economists were like astronomers. When they discovered something new they named it after themselves. They were just observers back then and they needed some reward. No one hired them to ‘run’ an economy or to ‘improve’ one. They would have thought the idea absurd. How could they know what people wanted? How could a single person, or a single generation, improve an infinitely complex system that had evolved over thousands of years?

    Central planners can rig the economy to produce anything—tanks, education, bridges, bureaucrats, assassinations, you name it. But none of these things are priced in the open market, the way the original economists observed them at the birth of their discipline. These machinations are exceedingly annoying to the invisible hand. The reason is that it needs to see what things are really worth to us or it cannot properly allocate capital and guide consumers. Things that are not priced by willing buyers and sellers are like dark matter in the economic universe. They provide no light, no clarity, nothing that can help consumers, taxpayers, or investors decide what to do with their money. Many of the products and services commanded or provided by non-market entities are probably worthless; or worse, actually of negative value. That’s when the invisible hands starts drinking early.

    By the Numbers

    What is the meaning of life? In the Hitchhiker’s Guide to the Galaxy, Arthur Dent searches the interplanetary system for the answer. Finally, he finds a computer, Deep Thought, that tells him: “Forty-two.”

    Wouldn’t it be nice if meaning could be digitized? Unfortunately for the deep thinkers in the economics profession, the important things in life involve qualitative judgments. Understanding them requires analogue thinking, not digital calculations.

    Numbers are a good thing. Economics is full of numbers. It is perfectly natural to use numbers to count, to weigh, to study and compare. They make it easier and more precise to describe quantities. Instead of saying I drank a bucket of beer you say, I drank two 40s. Then instead of saying ‘I threw up all over the place,’ you say, I threw up on an area 4 feet square.

    But in economics we reach the point of diminishing returns with numbers very quickly. They gradually become useless. Later, when they are used to disguise, pervert and manipulate, they become disastrous. Hormegeddon by the numbers. Ask Deep Thought the meaning of life then and the answer is likely to be “Negative Forty-Two.”

    Exactly what point does the payoff from numbers in the economics trade become a nuisance? Probably as soon as you see a decimal point or a Greek symbol. I’m not above eponymous vanity either. So I give you Bonner’s Law:

    In the hands of economists, the more precise the number, the bigger the lie.

    For an economist, numbers are a gift from the heavens. They turn them, they twist them, they use them to lever up and screw down. They also use them to scam the public. Numbers help put nonsense on stilts.

    Numbers appear precise, scientific, and accurate. By comparison, words are sloppy, vague, subject to misinterpretation. But words are much better suited to the economist’s trade. The original economists understood this. Just look at Wealth of Nations—there are a lot of words in that thing. After all, we understand the world by analogy, not by digits. Besides, the digits used by modern economists are most always fraudulent.

    “Math makes a research paper look solid, but the real science lies not in math but in trying one’s utmost to understand the real workings of the world,” says Professor Kimmo Eriksson of Sweden’s Malardalen University.

    He decided to find out what effect complicated math had on research papers. So, he handed out two abstracts of research papers to 200 people with graduate degrees in various fields. One of the abstracts contained a mathematical formula taken from an unrelated paper, with no relevance whatever to the matter being discussed. Nevertheless, the abstract with the absurd mathematics was judged most impressive by participants. Not surprisingly, the further from math or science the person’s own training, the more likely he was to find the math impressive.

    This is from a research paper paid for by the Federal Reserve. It purports to tell us that when a house next door to you sells at an extremely low firesale price, your house gets marked down too:

    This motivates estimation of the following linear probability model:

    I attempted to put in another illustration, a model in which economists believe they calculate the effect of large-scale asset purchases by the Fed (aka Quantitative Easing), but my trusty laptop computer rebelled. It wouldn’t copy the formula. The ‘clipboard’ wasn’t big enough, or so it claimed at least. I suspect the real reason was moral and political indignation was; a laptop knows a digital fraud when it sees one.

    Without coming to any conclusion about how good these formulae actually are, let us look at some of their components. Whereas the classical economist—before Keynes and econometrics—was a patient onlooker; the modern, post-Keynes economist has had ants in his pants. He has not the patience to watch his flock, like a preacher keeping an eye on a group of sinners, or a botanist watching plants. Instead, he comes to the jobsite like a construction foreman, hardhat in hand ready to open his tool chest immediately; to take out his numbers.

    Measuring Quantity vs. Quality

    If you are going to improve something you must be able to measure it. Otherwise how do you know that you have made an improvement? But that is the problem right there. How do you measure improvement? How do you know that something is ‘better?’ You can’t know. ‘Better’ is a feature of quality. It can be felt. It can be sensed. It can be appreciated or ignored. But it can’t actually be measured.

    What can be measured is quantity. And for that, you need numbers. But when we look carefully at the basic numbers used by economists, we first find that they are fishy. Later, we realize that they are downright fraudulent. These numbers claim to have meaning. They claim to be specific and precise. They are the basis of weighty decisions and far-reaching policies that pretend to make things better. They are the evidence and the proof that led to thousands of Ph.D awards, thousands of grants, scholarships and academic tenure decisions. More than a few Nobel Prize winners also trace their success to the numbers arrived at on the right side of the equal sign.

    1… 2… 3… 4… 5… 6… 7… 8… 9…

    There are only 9 cardinal numbers. The rest are derivative or aggregates. These numbers are useful. In the hands of ordinary people they mean something. ‘Three tomatoes’ is different from ‘five tomatoes.’

    In the hands of scientists and engineers, numbers are indispensable. Precise calculations allow them to send a spacecraft to Mars and then drive around on the Red Planet.

    But a useful tool for one profession may be a danger in the hands of another. Put a hairdresser at the controls of a 747, or let a pilot cook your canard à l’orange, and you’re asking for trouble. So too, when an economist gets fancy with numbers, the results can be catastrophic.

    On October 19, 1987, for example, the bottom dropped out of the stock market. The Dow went down 23%. “Black Monday,” as it came to be called, was the largest single-day drop in stock market history.

    The cause of the collapse was quickly traced to an innovation in the investment world called “portfolio insurance.” The idea was that if quantitative analysts—called ‘quants’—could accurately calculate the odds of a stock market pullback, you could sell insurance—very profitably—to protect against it. This involved selling index futures short while buying the underlying equities. If the market fell, the index futures would make money, offsetting the losses on stock prices.

    The dominant mathematical pricing guide at the time was the Black-Scholes model, named after Fischer Black and Myron Scholes, who described it in a 1973 paper, “The Pricing of Options and Corporate Liabilities.” Later, Robert C. Merton added some detail and he and Scholes won a Nobel Prize in 1997 for their work. (Black died in 1995.)

    Was the model useful? It was certainly useful at getting investors to put money into the stock market and mathematically-driven hedge funds. Did it work? Not exactly. Not only did it fail to protect investors in the crash of ‘87, it held that such an equity collapse was impossible. According to the model, it wouldn’t happen in the life the universe. That it happened only a few years after the model became widely used on Wall Street was more than a coincidence. Analysts believe the hedging strategy of the funds who followed the model most closely—selling short index futures—actually caused the sharp sell-off.

    “Beware of geeks bearing formulas,” said Warren Buffet in 2009.

    Indeed.


    Bill Bonner is an American author of books and articles on economic and financial subjects, the founder and president of Agora Publishing, co-founder and regular contributor to The Daily Reckoning, and author of a daily financial column, Diary of a Rogue Economist.

    He is author and co-author of Financial Reckoning Day: Surviving The Soft Depression of The 21st Century, Empire of Debt and Mobs, Messiahs and Markets.

    Click here to order Bill Bonner’s forthcoming book: Hormegeddon: How Too Much of a Good Thing Leads to Disaster.

    This excerpt, and Part One that appeared yesterday, first appeared at the Casey Daily Despatch.

    ECONOMICS FOR REAL PEOPLE: Why do Governments Regulate?

    What’s happening tomorrow night at the Auckland Uni Economics Group? Here’s your update:

    This week we are excited to be joined by Professor Robert MacCulloch who will answer the question: Why do Governments Regulate?

    This question has been a controversial one among economists for several centuries. Do governments regulate for the public interest? Or rather to protect the interests of “big business” that have captured politicians?
       
    Robert maintains neither of these views is consistent with the evidence, arguing instead that regulations are imposed as a form of punishment on capitalists when they are perceived to be undeserving.
        Date: Thursday, August 21
        Time: 6-7pm
        Location: Case Room Two, Level Zero, University of Auckland Business School

    We look forward to seeing you all there!

    PS: Check us out on the web at our Facebook group!

    Judith: think it possible you may be mistaken [updated]

    imageIt’s true that both a person’s and a politician’s emails should be private. But what might have been revealed by the reaction to the illegal @Whaledump was more than just some ill-considered repartee.

    How Judith Collins has reacted to media pressure about her behaviour – leaving her Prime Minister to bat for her when she should be fronting herself – has been revealing. It turns out Entitleitis isn't just for corporate cronies and lowly-paid beneficiaries. Cabinet ministers get it too.

    But then, they are the country’s highest-paid beneficiaries.

    Irony, then, that Collins’s biggest crime according to this document dump was revealing the name of a former Helen Clark staffer she thought might have revealed Sir Double Dipton’s double dipping.

    Nonetheless, Judith Collins is once again embarrassing her party, her cabinet and her Prime Minister – this time in the middle of what should be a campaign, when she is already on her third last warning.

    And by refusing to front, she not only allows the story to continue until she does, she reveals again her overweening sense of Entitleitis.

    Yes, she has Entitleitis, just like most ministers do in a second-term government: she thinks she is entitled to her ministerial position and baubles*, and anybody or any questions on any subject suggesting she might not deserve them should be ignored until they go away.

    If it’s not Entitleitis, then it’s a severe case of cowardice. Not a good look for a woman who likes to revel in the name ill-named moniker ‘Crusher.’

    In either case, she would do her colleagues, the campaign – and, let’s face it, the country -- a power of good by pissing off.

    Now, would be good.

    * Baubles? Not sure what she costs us now, but back in 2009 the pint-sized power luster was racking up $46,000 plus rorts for accomodation and $188,981 a year in flights and limos. And all we got in return for that was “asset confiscation; suspension of your right to silence; expanded search and surveillance powers for an extraordinary range of government departments.” You know, stuff she did right out in the open.

    UPDATE 1: Nice to  hear Leighton thinks the same. (Although more politely.)

    UPDATE 2:  Interesting to see that Cameron calls his “former Beehive contact” Jason Ede “gutless” for not fronting up. If he means it for his other mate, he obviously means it double for this one.

    UPDATE 3: An emailer pointed out Collins was bearded at the airport wearing a carpet. Not a great looks, but she does answer questions.

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