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Showing posts from February, 2013

Sequestration: Link Farm

I don't have anything much to say about the impending sequestration, but if that's what you're into, I'll offer some links.

We can always start with what a reference work says: Auburn University  .

But it might be more amusing to listen to what Maria Bartiromo, the Money Honey, thinks about it all: Click here.

As a reminder, the subjects of discussion are across-the-board budget cuts designed to serve as a Monster (as a recent piece in Slate explained it) to scare both parties into coming to an agreement to do something important but less monstrous.

The New York Times has focused on delays in air travel. That reminds me of the good old days. The early 1980s, when a new and jellybean consuming president faced a job action from traffiuc controllers.  PATCO is long gone, but air traffic controllers may be happy to see themselves in the news in a sympathetic light.

Historic resonances aside, some observers just don't see the sequestration 'monster' as so sc…

Causation as More than Sequence

Earlier this week I wrote of sequence and causation. If a city experiences both an increase in the crime rate and an increase in unemployment, what can we infer? If you are of one political persuasion, you will surely infer that the criminals drove businesses out of town, leading to an increase in unemployment. If you are of another political persuasion, you’ll as readily declare that the increase in unemployment made people desperate for money, or angry, or both, and led to the higher level of crime.

But that is polemics, not fact finding. Perhaps the truth of the matter is a bit of both, perhaps it is neither. The correlation doesn’t tell you. Here is an anti-Humean corollary. Even if you have a temporal sequence you can’t securely infer causation. It is true that in economics especially a reliable forecasting of event A by event B, is sometimes called “Granger causality,”  after Clive Granger. But Granger causality isn’t old-fashioned, one-pool-ball-hits-another, no-adjective-requ…

What would a Greek exit mean?

Another quote fromGreekonomics by Vicky Pryce.

She paints a vivid picture of what a Greek exit from the euro, the re-creation of the drachma as an instrument of govt policy, would actually mean:

"A serious possibility of exit -- and how could it be kept completely secret? -- would lead to a full-scale run on the banks. Clearly any country wishing to exit the eurozone would have to nationalize or take temporary control of the banks and reintroduce controls on the movement of capital. The government would also need to reintroduce stringent border controls to stop people leaving the country with euro notes and coins in their luggage or in their underwear! In countries like Greece, where taking to the streets is part of the political way of life, the population would probably react by attempting to physically remove their savings, breaking into the banks -- and then for good measure attacking Parliament. So in Greece a euro exit could easily end with troops on the streets and marti…

from Moby Dick

"And when we consider that other theory of the natural philosophers, that all other earthly hues- every stately or lovely emblazoning- the sweet tinges of sunset skies and woods; yea, and the gilded velvets of butterflies, and the butterfly cheeks of young girls; all these are but subtile deceits, not actually inherent in substances, but only laid on from without; so that all deified Nature absolutely paints like the harlot, whose allurements cover nothing but the charnel-house within; and when we proceed further, and consider that the mystical cosmetic which produces every one of her hues, the great principle of light, for ever remains white or colorless in itself, and if operating without medium upon matter, would touch all objects, even tulips and roses, with its own blank tinge- pondering all this, the palsied universe lies before us a leper; and like wilful travellers in Lapland, who refuse to wear colored and coloring glasses upon their eyes, so the wretched infidel gazes h…

David Hume, Causation, and the Markets

As I wrote here last week, TV finance pundits regularly tells us that price moves are the result of "momentum," or "bargain buying," or "profit taking." Together, these labels are so widely applicable as to drain themselves of any real significance. So let us put themn aside and try some other route forward.

On Tuesday, after the market closed, the wire services carried the following, “Morgan Stanley downgrades XYZ.” On Wednesday, nobody could be found to buy XYZ at the previous day’s price. Is that an answer to the question “why”?
This is complicated. One line of argument would contend that the words “Morgan Stanley downgrades XYZ” didn’t tell the market anything the market didn’t already know.

The headline allusion is actually to what some researcher paid by Morgan Stanley has said in a 30-page report. That report itself is most likely the compilation of publicly available data: John Smith (as we’ll call the analyst) with admirable industry dove throug…

The Clutter family murders

Much of the world knows that in 1959, two drifters murdered four members of the Clutter family at the Clutters' home in Holcomb, Kansas.

The reason much of the world knows this is that Truman Capote fixed upon and immortalized that crime in his 1966 "non-fiction novel," In Cold Blood.

The phrase I quoted above is Capote's own. There have long been critics, both of the idea that forcing those two words together in that way makes any sense and of the presumption specifically that Capote was scrupulous about the "non-fiction" part.

There is a new source of light on this now, and it comes from an unlikely source. The Wall Street Journal recently reported that the late Harold Nye, a one-time agent for the Kansas Bureau of Investigation, brought a cache of records on the Clutter investigation home with him at some point. The Journal report is a bit vague on when and the circumstances in which this occurred, but it says the son of Mr. Nye has the papers in his …

Cynthia Ozick

Ozick has a well-wrought story in the February issue of Harper's.

"The Bloodline of the Alkanas" introduces us to a protagonist, Sidney Alkana, who grew up as the daughter of a poet.

Sidney didn't in the process become an admirer of poetry as an art. Nor did she come to admire the 19th century poetic diction that her father would employ in certain conversations.

In her voice we learn: "I did not understand my father's talk. I sensed only that there was some undeniable connection between these enigmatic outbursts and the mundane truth that we were always worrying about money. I was by then a demanding fifteen, shamed by the way we lived in a three-room flat of the fifth floor of a Bronx walk-up."

I'll leave it there, 'lest the IP goblins pursue me. With such a de minimis quotation, I am surely guarded by the shield of "fair use."

I like the story in some small part because Ozick dares do something experts routinely warn against: off…

The "whys" of stock price moves


We could kick off a new line of thought by asking a qualitative question: why did the stock price of XYZ Inc. fall yesterday?
When we ask a “why” question of that sort, we are making a presumption: that facts in the world – in this case, facts in a peculiar but well-defined social institution – have causes, and these causes are susceptible to rational explanation.
In this case, we might say (recalling what a high school teacher told us about economics) that the value of XYZ shares fell in order to preserve the equality of supply and demand. But that doesn’t really get us far.
The supply of stocks is relatively inelastic. New issuances of stock, especially new issuances of those stocks listed in any of the leading indexes, are rare events, and we can leave them aside for now.Let us take it as a given that a constant amount ofXYZ continues to circulate. Then we’ll be especially interested in demand.
What does it mean to say that a fall in demand caused a fall in…

Why Greece Joined the Eurozone

A couple of quotes from the book Greekonomics by Vicky Pryce.

Speaking of the countries other than Germany that agreed to the initial deal creating the exchange rate mechanism and later the single currency, she writes, ""[T]his was a political project sold as an economic one to the electorates across Europe. In the rush to bind Germany into a union covering most of the countries in Europe, very little thought was given to whether the result might bear any resemblance to an optimal currency area."

A little later, speaking specifically of Greece and why it joined,  she writes: "Interestingly, when the Greek nation expressed a real desire to join the EEC and then the euro, they were in reality secretly hoping that the Brussels bureaucrats would take over and free them from the control of their politicians, who they regarded as corrupt. Educated Greeks longed for a 'technocratic' government that would move them away from a rather Soviet-style economy subject t…

Death Benefit (2011)

Not long ago I read the novel DEATH BENEFIT by Robin Cook.

The set up is this: after the financial crisis of 2008, two newly unemployed bankers started LifeDeals Inc.  Their business plan? selling annuities to people with known illnesses, and given their database about the medical facts along with the tendency of many humans to be excessively optimistic about their own longevity, they could do so on terms profitable to themselves. 

The two principals of LifeDeals are distinguished as characters: Russell is the quant and computer geek, Edmund the hale alpha male.

The key to the plot is that LDI is heavily dependent on its settlements with patients with diabetes. Thus, a breakthrough in research into the regeneration of the pancreas using stem cells could destroy it.

Another business entity that enters into the plot is called Big Skies. This seems to be a multi-strategy hedge fund, and it is shorting LDI in the credit derivatives market (in other words, betting that LDI will be force…

The Effort to Reduce Numbers to Sets II

To understand this rigorous proof that there is no one-to-one correspondence betwee integers and points on a line, suppose we encounter a ChartMaker (CM) who wants to try to create this one-to-one correspondence. He presents a chart that looks like this:
10.0012 …
20.0314 …
30.1347 …
40.2256 …

And so forth, again, for as long as patience holds out. The decimal numbers of the right don’t have to go steadily upward toward 1.0, the end point. They can circle back, if the CM so desires, to pick up points neglected the first time around. And the chart by hypothesis never ends. So how do we know it must be incomplete?
Presumably CM has in mind a general rule, and believes that his general rule ensures that every possible number will show up sooner or later on the right hand side of the chart. We don’t need to worry about what his general rule might be in order to establish that it will fail. We can simply create a decimal number that isn’t on his chart and that won’t be on his chart…

The Effort to Reduce Numbers to Sets I

An odd campaign emerged in the 19th century – the effort to reduce numbers to sets. This brings us back, though in a rather different light, to the question with which we opened: what is a number?
The simplest possible kinds of numbers are the counting numbers, those we tick off from one to ten on our fingers. There can be no doubt that they are numbers, they are the paradigm, they are at heart what we mean by “numbers.” Thus, whether anything else is a “number” is, if you will, a question about the family resemblance between the counting numbers and that other sort.
Whatever else is a number: three is a number!
“Is pi a number?” means, “does pi have a close family relationship to three?”
“Is i a number?” means the same.
But in the 19th century, for the first time, mathematicians and logicians started wondering, not idly but in all workaday seriousness, what it means to call three a number.
They decided that numbers were special sorts of set. The number zero is the null set, sometimes indic…

This year's Super Bowl

I attended a Super Bowl party this year and jotted some notes on a napkin. There is nothing especially original or perceptive about the game or the sport of football to be found on my napkin, but it would be unusual for any blogger working out of the US and with a Y chromosome not to mention the Super Bowl. So ... the below italicized material in all its pointless immediacy consists of the notes I took at the time.


The usual pre-game hype was somewhat complicated this year by a Ray Lewis substance abuse controversy.

An early Audi commercial drew a big response. It had a senior prom, kiss-the-Prom-Queen theme.

By the end of the first half, it looked like the Ravens were running away with the game. They were up 21 to 6.  Then they scored quickly at the start of the second half, a more-than-100 yard run on a kickoff return, to make that 28 to 6. Even worse.

The standout ad in the third quarter was Century 21's, "My groom is not crazy about moving in with my mother."…

The identity of Euler and Euler's Identity

Leonhard Euler (1707-1783) was surely one of the most prolific of great mathematicians. Among his contributions, we need to mention two, each of which comes down to us as a single letter: the letter e and the letter i.

 Euler was born in Basel, Switzerland, so his life and work might fittingly be considered a riposte to the old anti-Swiss jibe (originally from The Third Man) that Switzerland has produced nothing for all its years of peace and democracy more than the humble cuckoo clock.

Since Euler’s day and because of his work, i stands for the simplest of the numbers that Descartes had called “imaginary.” This i refers to the square root of -1. We don’t need to bother ourselves further with the question “what is the square root of -1?” It is simply i, by stipulation. We don't end there, of course, but we can start from there and build something new and important.

Also since Euler’s day and because of his work, e stands for perhaps the most remarkable of irrational real numbers. T…

The Federal Reserve

Carl Watner has written the front-page piece for the 1st quarter issue of The Voluntaryist, a periodical he edits. He issues it each quarter of each year in the hope of advancing the cause of freedom in the world.

I used to know something about The Voluntaryist when I was editing The Pragmatist. I later lost track of it and have only recently made the rediscovery. It isn't "The Voluntarist," by the way. The "y" is integral to the thought.

Anyway, Watner has written a front page piece on the freedom to choose your own money. I recommend it all, and I will quote only a bit of it here.

"The Federal Reserve System will onlybe replaced permanently if people come to understand the morality and practicality of a voluntary system. When a sufficient number of them recognize its merits, then instead of abolishing the Federal Reserve System, they will simply abandon it in favor of using better money. At that point, laws supporting the Federal Reserve would be rend…

Non-Numbers and the Birth of Calculus

The story of another candidate for numberhood, the infinitesimal, is even stranger than the story of the irrationals or the imaginaries. The infinitesimal is the limit of a process, where the method stipulates that the end of that process can never be reached. Consider: can a single mathematical point have a slope? Our intuitive answer, trained by Euclid, is: no. A point is pure position. It isn’t a line, it isn’t even a tiny part of a line, so it can’t have a slope!

Can there be a smallest possible line?How short can a line get and still have a slope!

That’s a question that Euclid taught us not to ask. It is akin to suggesting that we can have two adjacent points. If we could have two adjacent points, then they would presumably constitute the smallest possible line and they would have a slope. But we can’t. Between any two points, properly speaking, infinity of other points can fit.

In the seventeenth century it was common for the mathematicians at its cutting edge to speak as if th…