The Right is Wrong and the Left is Wronger

A Rose by Any Other Name

It is a long held tradition in politics to use nicknames as a ploy to belittle policies and personalities.    Reagan's implementation of the Laffer curve was dubbed "voodoo economics".  Recently members of the Bush administration became "Bushies" and worse, those who espoused agressive action against terrorists became "neo-cons".  The political gameplan, once the nickname has been applied, is to deride the person, or ideal using the nickname in a deprecating manner as often as possible.  Using Lenin's axiom "A lie told often enough becomes the truth".  So it doesn't matter that Reaganomics worked. It doesn't matter if all of President Bush's adminstration followed him philosophically.  It doesn't matter if the war in Iraq was necessary.  All that matters is that, in the main, political opposition to these people and ideas was given a "handle" to grab onto by the application of a nickname.

Interestingly, this seems to primarily be a tactic of the left.  What was the derogatory nickname applied to President Carter?  President Clinton?  My theory is that the right, in the main, has greater respect for the office of the presidency and therefore hasn't in the past stooped to these tactics.  This despite the fact that these tactics are demonstrably effective.  Did you remember "voodoo economics"?  Could you come up with a nickname that had been applied to President Clinton?  This despite the fact that Reagan's tenure ended twenty years ago and Clinton's ended nine years ago?  What does this say?

Because these tactics are effective and because the stakes have become so high, I propose that we begin to utilize those tactics of the left that are effective.  While President Obama has only been in office for about three months, he has been prominent in the public eye for about three years.  And while certain political opponents have tried to tag him with nicknames none have appeared to gain any traction.  "Obination" didn't seem to stick (though I liked that one and a $20 Trillion debt seem an abomination).  

As we search for the appropriate appelation for President Obama and his adminstration, there are some rules that must be followed for it to be effective:

        1) It has to be cute and memorable 

        2) It has to be short

        3) There has to be a ring of truth to it

I've thought about several and rejected several, one that seemed at first blush was "The Anti-Christ".  While it has a ring of truth to it (meeting rule 3) and it is short (meeting rule 2), it is in no way cute and therefore must be rejected. 

So one I'd like to propose is "Neo-NatSoc".  This is short for New National Socialist.  This is unfortunately, true (meeting rule 3) it is short (meeting rule 2) and it is memorable as a play on neo-con.  I know that there may be some trademark problems because it is owned by the "National Socialists" and they are a prickly crowd who aren't into sharing.  I also know that it is going to be difficult to brand a non-aryan such as Barak Obama as a National Socialist, but since words mean things and he is a trying to turn the Nation of the United States into a Socialist version of uptopia, it does seem accurate, no matter how distasteful.  So what do you think?  Does this work as a nickname that will stick and can be used to deride President Obama, or can you come up with something that will work better?

Modeling, Simulaton, and Snakeoil, Oh My!

I wouldn't normally speak about myself in a blog post and other than my opinions, in my posts, you would be hard pressed to learn anything specific about me.  Because at the end of the day my posts are about what I believe is right for the country, not about me or my life.  This post is different, what I am about to tell you is in no way meant as a boast.  Rather, I want to establish my credentials simply so that you will know that I know what I am talking about not simply from an opinion perspective, but from a professional assessment.

I have spent the last twenty years developing computer models, models that generally lent themselves to business modeling and forecasting.  I have done business planning, and stock market simulation, using Monte Carlo simulation, linear programming, best case, worst case, most likely case, scenario comparison, sensitivity analysis, etc.  My undergraduate degree is a Bachelor of Science in Business Administration with a concentration in "Decision Science" and my graduate degree is a Masters of Business Administration during which I did a great deal of work in quantitative analysis.  So when I tell you I am in expert in this field that statement comes with a significant amount of third party credibility, and real world experience.  When I make the following statements, I am not theorizing, hypothesizing or repeating what I read somewhere.  Rather I am telling you how a seasoned professional with twenty plus years of experience in the field is assessing the situation.

Recently, the Obama administration put forward their ten year assessment of where their budget for the upcoming year will, if unchanged take the country.  Their numbers differ by about twenty percent over the period in question (about ten years) from the numbers the Congressional Budget Office (CBO) came up with, when they analyzed the budget and forecast put forward by the administration.  Other than the size of the numbers involved and the ghastly deficits produced by this budget there is nothing particularly significant about the fact that the two models differ.  In fact, in a ten year projection relevant to natural systems such as markets a 20% difference is actually quite close and that makes the results that much more chilling (but the effects of a $20 Trillion national debt are the subject of future posts)

So to save you the four plus years of college and the many years of learning the trade there are some basic rules about modeling and simulation that will help you understand the point of this post:

1) Natural systems - markets, weather, etc. are far more difficult to model than synthetic systems (such as assembly lines or traffic patterns)

2) The greater the level of detail required of the model the less accurate the results are going to be.  In other words if you want to know if the economy is going to grow or shrink in 2010, that is far easier to predict than by precisely how much that in turn is far easier to predict that if a particular stock is going to go up or down and that is easier to know than how much a stock will go up or down.

3) Any model has a limited number of inputs that each drives the model in  a certain direction and among those inputs are some assumptions that the modeler makes each one of which has a different degree of impact on the results.  The amount of sensitivity can have significant impact on the model results even when the modeler makes seemingly modest adjustments to only one or two assumptions.

4) Lastly- anyone, no matter how much education or experience who tells you that they know precisely what will happen in the future, by a certain amount, because a model they built tells them so, is wrong, misapplying the tools, or lying.  If by chance they happen to be right, it is simply luck, not skill.

With that said, I want to change your focus from the budget to global warming.  If the budget guys can't predict within 20% of each other what the economy will look like in the next ten years.  And through tax policy, monetary policy, law making and regulatory policy they control many of the inputs.  Common sense should tell you the degree to which some quasi-meteorologist is going to be right.  Particularly when you consider that they are using essentially the same tools and mathematical techniques to forecast global warming over the next 50-100-200 years as are being used by the economist inthe administration.  I can tell you with 100% certainty that when someone says, “The median temperature of the earth will increase by 2 degrees Celsius by the year 2080 and that the increase will have effects A B or C" they are wrong, period. 

 

The earth may heat by that amount or more or less.  The affect may be A B or C or it may be K L or M.  When the weather changes (and it always changes, after all what makes you think the weather is the same now as it was 200 years ago?) will it be because the output of the sun changed, the orbit of the earth changed, the magnetosphere of the earth changed (think it's constant? Just look at the shifting patterns of the northern lights), the reflectivity of the changes of the earth changed over time. (due to deforestation) or that concentrations of CO2 in the atmosphere went up?   The likelihood is that it was due to an interplay between all of these factors.  I am not saying that things won't change.  I am not saying that man couldn't be better stewards of the riches that we have been granted.

The point is, that the interplay of these factors is too complex for the weatherman to predict with any clarity what the weather will be a month from now much less with any precision, hell even tomorrows forecast has +/- swing of 4-8 degrees.  People forecasting 10-20-50-100-200 years from now, give me a break!  Modeling and simulation give you a best guess.  The snakeoil salesmen selling global warming never disclose the "guess" portion of the analysis, they state it as gospel and expect people to change based upon their guess. 

I just thought that during a period when the limitations of modeling were on display for all to see (administration/CBO) that it would be illustrative to hold up the admitted margin of error between the CBO and administration numbers and compare them to the infallibility being presented on global warming.  Since both sets of numbers are being built by people in the administration with an agenda, why are they right on global warming and wrong on the budget?  Or is it the other way around?

What Happened to That America Dad?

I am “Old School”. In a previous era I may have been considered macho. I prefer combat sports (boxing and mixed martial arts) to team sports (baseball and basketball). I prefer outdoor activities (rock climbing, whitewater rafting and camping) to video games. I prefer competition to cooperation, and may the best man win. All too often today, macho self-confidence is confused with “asshole”, “arrogant”, or “pig-headed” particularly when it entails any interface with the gentler gender. I believe that in this era of feminized, emasculated, gender-neutral, neutered, politically-correct, “my right to not be offended, trumps your freedom of speech” era, many men who would otherwise voice their opinions have chosen instead to be quiet and pine for a better yesterday. Yet, straight shooters who opt to solve problems rather than wring their hands over them, is exactly what we need.

One method of compensation I have adopted is to collect movies of a John Wayne, Chuck Norris variety. I prefer a simple life where problems can be dealt with head on. The other night, my family was deciding on a movie to watch, and I suggested, that because my son was studying American history and WWII that we watch Patton. The monologue at the beginning is famous and parts bear repeating. “Americans traditionally love to fight…” “Americans love a winner and will not tolerate a loser…” Within five minutes, of the beginning of the movie, my son turned to me with wonder and admiration in his voice and asked, “Dad, what happened to that America”? I suddenly got tears in my eyes, I hadn’t realized how far off the path we had gotten. My response was as accurate as it was politically incorrect, “Son, the last two generations in power have pissed away that America and I fear that if my generation doesn’t do something to reverse the slide, there won’t be anyone who remembers what was once noble and admired about cowboys and firemen and soldiers”.

It has become common in business literature and B School classes to deride the “charismatic leader”. To portray the team as paramount and the lone wolf as dangerous, this in the face of all of the facts. Some things to consider, Steve Jobs has saved Apple not once but twice. Microsoft has gone nowhere since Bill Gates backed away from his day to day responsibilities. When Dell got into trouble several years ago, the first thing they did was bring Michael Dell back. In Organizational Behavior they stress the fact that group decisions are often better than what an individual leader will come up with. This is after discussing “sub-optimization” and “group think” and failing to discuss at all, the time cost associated with group dynamics. Give me a decisive, informed, engaged, ethical visionary to a group anytime.

It is interesting to note the difference between Ronald Reagan’s first inaugural address and Barak Obama’s. Both inherited an America on the ropes. In each case unemployment was high and getting higher. Arguably in Reagan’s case the scenario was worse, interest rates were MUCH higher, and inflation was higher. I don’t know for sure, but is suspect in Reagan’s first thirty days he never claimed that they were in the worst economy since the Great Depression and I suspect he never used the terms "catastrophic", "crisis" or any other similar panty-waste, hand-wringing, pussy whipped, "I feel your pain", BS for what he saw, as a job that needed doing with an outcome measured in the quality of people's lives, NOT in how many poll percentage points a certain stance was worth. What we need in America today is more Patton’s and fewer Powell’s, more Apple‘s and fewer Lehman Brothers, more leadership and fewer focus groups.

The sky is falling!, No it's not!

Before proceeding please read the following article.  Article on insurance effects of global warming - Seeking Alpha  Note: I generally regard Seeking Alpha and its analysts/authors in high regard.  However...

Before I comment on the common sense of the”sky is falling, no it’s not argument” that seems to be the common thread here.  I have some questions for the author:

1)      H1 Climatalogical (temperature extremes, drought, wildfire) doubling, how does that affect insurance rates in coastal areas?  Any wildfire in Maryland I haven’t hear of? The Carolinas?  I know there have been fires in Florida, have they burned down any cities I’ve heard of?

2)      The trendline in the US thunderstorm graph doesn’t include 2006 & 2007 which would drive the trendline down significantly depending on the type of regression used.  Frankly, it appears they intentionally over fit the line to prove a point.  Do a simple linear regression on the line, adjust it for inflation throw in the fact that property values exploded during the last 10% of the graph and in inflation adjusted dollars I’m guessing, not much change.

3)      “Insured coastal exposure in Florida, for instance, was $1.9 trillion in 2004; by 2007, that number had risen to $2.5 trillion, with total coastal exposure in the US reaching $8.9 trillion, largely as a result of the boom in construction” Frankly, I’d expect better financial analysis from an article on Seeking Alpha.  Was the increase in value from building or from the bubble?  Will the bursting of the bubble, with a 20-25% reduction in value reduce this number back to $2.0 trillion? If it does, does the insurance company benefit from having the same premiums but lower exposure?

4)      A hurricane hit New York, what’s the likelihood?  Particularly of it being above Class III after having left the gulf stream thousands of miles behind?  This is a strawman argument, Nor’easters hit New York all the time, and the buildings are built for it.  Is there any record of a hurricane stronger than a class III hitting New York…..ever?

If you went on to read the comments about the article you would have seen an example of what is wrong with both the right and the left.  On the left "Global Warming" is a religion, not a scientific fact.  Particularly if you define "Global Warming" as an increase in the median temperature of the planet precipitated primarily by the activities of mankind such as burning fossil fuels.  On the other hand the right, seemingly out of defense of science and of strong desire to not take action solving the "wrong" problem advocates wanting more proof.

The glaciers in Greenland have melted? The North Pole will melt this summer? 

It is July.  After having introduced that much new water, how has the east coast escaped flooding?  I live in Virginia Beach 8 ft. above sea level.  If the Atlantic had risen so much as a foot, people all around me would have noticed the ocean in their front and back yards.  So much on both sides is taken as gospel without so much as looking outside or at Google Earth.  Seems to me that before believing someone who was telling me the North Pole was melting, I’d go look at a recent satellite shot. 

Turns out, North Pole still has some ice and my house is still 8 ft above sea level.  On the other hand, oil is a finite resource and isn’t renewing itself as quickly as we are consuming it.  It is unethical to use up all the petroleum when there are viable alternatives.  What are future generations going to think about us, when our answer to them about why we used up all of a finite resource is, “screw you we got ours?”

An Open Letter to Candidate Obama

Congratulations on cementing the nomination. In answer to your question, The President has several levers at his disposal which can assist in maintaining America’s competitiveness. Setting the national agenda for higher education, President Kennedy proved that if the vision is right, (go to the moon) many people will choose to become educated in supporting fields (engineering, science)

Setting a reasoned immigration policy. America should welcome immigrants. Not criminals and uneducated immigrants who will swell the ranks of the de facto enslaved, rather those that can contribute more meaningfully. It is counterproductive to welcome migrant farm workers (de facto slavery) and to force foreigners, highly educated at American schools as engineers etc. to go back to their country of origin after graduation.

A reasoned fiscal/monetary policy. Identify and communicate a target exchange rate after identifying a job maximizing rate of export and import. In order to accomplish this, the government must only spend in deficit, that amount commensurate with the target rate of foreign exchange.

A structured and publicized plan for energy independence, such a plan should include three elements increasing supply, decreasing demand and a conscious decision as to the value of the dollar. Increasing supply should include some increase in domestic production. I suggest reducing demand in two ways first increasing the amount of nuclear plants coordinated with non-renewing oil fired plants license to operate. The power plant suggestion is weak in that only 5% of America's electricity comes from oil in the first place.  The second way is a “Manhattan Project” to reward the first company to sell 100,000 alternative fueled vehicles with a $1 Billion bonus. Such a car should meet some minimum criteria: it should carry 2 or more passengers, more than 200 miles on a single recharge/refuel, and accelerate 0-60 in under 5 seconds, with a top speed exceeding 80 MPH, with an average selling price under $30,000.

Such an approach would unleash American ingenuity, jumpstart the alternative fuel vehicle market and reduce carbon emissions substantially. Such a program could be expanded to $50 Billion, $1 Billion for each state that has more than 100,000 such vehicles. This would put 5 Million alternative fueled vehicles on the road in a very short period of time.

Currently half of our trade deficit is due to imported petroleum; this initiative would also reduce the trade deficit and strengthen the dollar. This is the short list, I would be happy to discuss additional ideas with you at your convenience.”

Will the end of the Bush presidency see an upswing in the value of the US Dollar?

The declining of the US Dollar is only driven by the Bush presidency or any US President to the extent that fiscal policy is supportive of a balanced budget and that, only to the extent that the President vetoes spending bills or utilizes the bully pulpit to talk up the economy and down excessive spending.

Given that the US is on a fiat currency there is essentially one element that drives a weak dollar, spending more money than is raised through taxes (deficit spending). In the face of a decision to spend more money than it has, a government must decide how to get more money than it has, and it has three choices: 1) Raise taxes 2) Borrow money through the sale of bonds 3) print more money. If the decision is taken to raise taxes, which will slow growth, then the value of the currency is protected but future taxes that would have been collected from future business activity never materialize because business activity that would have occurred doesn’t. If the decision is taken to sell bonds then interest rates increase because of competition with other investment opportunities, in such a case the currency is protected but the cost of capital for everyone goes up and some business that would have otherwise gone on is again deferred and tax revenue that would have been collected is not. Finally, if the choice is taken to simply print more money, (which has been the choice of the government during Bush’s term of office) then you don’t have to defer future tax revenue because the cost of borrowing doesn’t increase and you don’t have to make the politically unpalatable choice of raising taxes. So to the extent practical you have protected growth. The problem is pernicious though in that, what you have done is to devalue those future earnings because the value of what is earned is paid for in less valuable dollars. (There is a good conversation to be had here about the virtues of living within your means and spending no more (or even less) than you collect in taxes) (There is also a good conversation to be had about whether a weak dollar has been beneficial, particularly to exports) But, once you have taken the decision to spend more than you have collected, then you are faced with a set of unattractive choices.

Had to lay the foundation for the discussion, Bush has not utilized the bully pulpit to talk up the economy or to set a balanced budget priority, he has pursued deficit spending (by not vetoing the prescription drug benefit or the additional spending associated with the Iraq war) so to the extent that those initiatives have contributed to deficit spending he has been responsible for a weak dollar.

I am fairly pessimistic about both candidates. To the extent that you believe that John McCain will reign in deficit spending through the use of the veto, to the extent that he will not support additional deficit spending and to the extent that he will not allow the money supply to expand, the dollar will be stronger under his governance. But I believe John McCain has many friends in the Senate to whom he will enjoy providing handouts. I believe we cannot continue the Iraq war, which he supports, without deficit spending and because he is running from the right, I don’t believe he will raise taxes. Therefore I expect the dollar to continue weakening under his governance.

Same argument holds true for Barak Obama. As a huge government leftist, I believe government spending in an Obama administration will explode (though not in the same areas as McCain). As such he will have to raise money through a tax increase (and/or allow the Bush tax cuts to expire) borrow more money and increase the monetary supply. I believe he will do all three and while weak under both, I believe that to accomplish the priorities he has laid out, the dollar will be weaker under Obama.

What is predictable here is that a weaker dollar will drive higher priced gasoline and the politicians, responsible for the weak dollar will continue to posture about the culpability of "Big Oil" rather than acknoledging that high priced gasoline is primarily due to the weak dollar.

Inflation: Where do we go from here?

If you add up the combination of FED moves (loan window, collateralizing crappy paper, and rate cuts) and Federal Government moves (the great 2008 tax give away and enormous deficits) The combined effect has been to pump about $1 Trillion of liquidity into the market. This is hugely inflationary (Don't believe me? See the price of intenationally sourced commodities during this period gold, oil, platinum).

If people like Nancy Pelosi, who today announced that the current stimulus was insufficient (as if she had a clue) and who wants a follow-on stimulus package. Then we will continue to print fiat money and inflate the price of virtually everything. On the other hand if more rational (and informed) thinking prevails, the government would work to cut spending (reducing deficits), the fed has already indicated that it is done cutting rates for a while and the Republicans have indicated there is no plan for a follow-on stimulus.

It is ironic that the same politicians trying to "help" the problem of gasoline that is too expensive are the ones who caused it by inflating the dollar.  The author of this article seems to have a good grasp. Article from June 26th Christian Science Monitor 

The only question remains in this scenario is once the economy returns to equilibrium, how inflationary was the stimulus already added and will continued deficit spending continue to fuel inflation? While the rest of the scenario I've painted is likely, I view it as unlikely that the Federal Government, that is so addicted to deficit spending will rein that in. Therefore the Fed will be raising interest rates by the end of the year to prevent inflation brought on primarily by deficit spending.”