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Charts & Tea Leaves

Brad DeLong posted this chart.  I’ll assume I understand this.

These lines show your annual return on a stock portfolio.  The pink line is the return on a portfolio held for a decade, and the blue is the return for two decades.   The pink line ends in 2000, if you had invested then and cashed 10 years later you’d have lost between 5% and 10% per year.  Nice work Republicans.  The blue line ends in 1990, and if you cash out now you’d make maybe 4% per year over those 20 years.
Stock brokers do not lie, the average for both curves indicates a positive return on average.  But they don’t tend to highlight how volatile the market it.  One two decades is a long time in a person’s life.  Some periods have been awful – 1910 was a bad time to buy and hold for a decade – as well as some wonderful ones, see 1950!
We don’t live forever, so if your playing the market for you retirement you might want to think about how many decades you’ll have to smooth out these bumps.
20100207 Shiller Da#23FC8FE.xls
This chart also shows four dips, or cycles, and so, of course, an obvious question is does this chart say “Buy Buy Buy!” or “Sell Sell Sell”?
It says sell if you think the last dip is predictive of what will happen this time.  Notice how happy you’d be if you’d cashed out in 1960, and how long you’d have wanted to stay on the sidelines.  Very U-shaped.
It says buy if you think the dip will be more like the other two.  Or, if you hold period is long enough to wait out the dip.
Of course all that presumes that this kind of chart analysis is actually meaningful; or put another way the underlying system has cycles and the there is something consistent about the system over a period of 150 years.  I find that a bit hard to believe.
I find it interesting that buying in 1930, 1931 to hold for a decade got you a pretty good return.

Insta-theories on where the boys are?

I find this chart extremely thought provoking.  It illustrates a huge change in American society over the course of my life.  Very roughly 10% of the male working age population no longer work.  Each time we have a recession a few percentage points never return to the work force.

Economagic: Economic Chart Dispenser

A few insta-theories:

  • The discriminatory wage differential means women are cheaper.  As employers overcome their prejudice against women in more roles they are displacing men from those roles.
  • The shift toward a service economy has created roles that employer’s tend to fill with women rather then men.
  • The complementary unpaid home child rearing role is increasingly acceptable, desirable, or the best option and so is filled by men.
  • An increasingly large swath of the low end labor performed by men takes place off the books, i.e. in a gray market.
  • Men are inherently lazy bastards and as the standard of living has risen 10% of them have puzzled out how to act out on that.

More insta-theories?  Please.

Play

I liked this tentative list from Peter Gray’s “Freedom to Learn” blog at Psychology Today.  Writing on the Value of Play he begins with a long definition, in short:
  1. Play is self-chosen and self-directed;
  2. Play is activity in which means are more valued than ends; 
  3. Play has structure, or rules, which are not dictated by physical necessity but emanate from the minds of the players; 
  4. Play is imaginative, non-literal, mentally removed in some way from “real” or “serious” life; and 
  5. Play involves an active, alert, but non-stressed frame of mind.
I’m stuck, saying that all web sites are massive multiplayer games, for a decade now.  Plays, one would presume, is central to that.  Manipulating users is key to talent scraping business models.  Best if they think it’s play rather than manipulation.

Just a bit of counter point.  The above list aren’t something people strive for.  People strive for: appreciation, affiliation, autonomy, status, and role.  Peter’s list makes play almost synonymous with a somewhat brutal kind of freedom.

Energy Budgeting

Both axis are per capita.  The horizontal is log GDP while the vertical is linear energy consumption.  I assume the bubble size is population.

I see two things.  Obviously the US, and some smaller countries, seem pretty inefficient.
More interesting is how much energy this suggests it is going to take to pull India and China up by a factor of 10 to 30.  That ain’t going to happen on current energy flows!
I plucked that chart here.
An alternate view of the Y axis here.

Hegel & Brown’s Big Shift

Makes sense to me:

  • Knowledge stocks -> Knowledge Flows
  • Knowledge transfer -> Knowledge Creation
  • Explicit Knowledge -> Tacit Knowledge
  • Transactions -> Relationships
  • Zero Sum Mindset -> Positive Sum Mindset
  • Push Programs -> Pull Programs
  • Scalable Efficiency -> Scalable Peer Learning
  • Stable Environments -> Dynamic Environments

I’ve not read the book.  Three things I might wonder about

  1. Won’t economic actors will strive to own or control one or more in the first column to enable the item in second column?
  2. Isn’t there something deeply at odds between the point about relationships and the point about stablity?
  3. Why is there nothing here about the the shifting slope of the power law curves?

More here

New Bridge in Town

This is about how prices change when a distribution bottleneck breaks. Do they rise or fall? While generally new ways of getting products to market may cause prices to fall in many cases the exact opposite occurs.

I watched a bit of video of Walter Mosberg sparing with Steve Jobs on the floor following the iPad announcement. One question Walt asked was why anybody would buy a book at $15 bucks from Apple ebook store when they could get it for $10 from Amazon’s. Steve manages to reply that that won’t happen, the prices will be the same. I sensed that Walt didn’t know what Steve was saying.

So, do eBook prices rise or fall as Amazon loses their monopoly on the eBook distribution channel? I think the answer is obvious; i.e. they rise.

It is in the nature of these things that a market maker, like Amazon, with each of their counter parties. If you buy or sell a tremendous amount of services from Amazon it’s worth your while to go chat about prices. The quality of the deal you can strike in that conversation depends on what your options are. The moment that another channel opens up for getting your eBooks to customers Amazon has to renegotiate the deals with major publishers.

Does that raise or lower costs to the book buyer? To first order you might think so. If you think of the distribution channel as a kind bridge between buyers and sellers then what’s going on here that the moment a second bridge opens up the tolls fall on the first bridge in the face of competition. Presumably that lowers the overall cost of goods to deliver a book to the customer.

Lower cost of goods gives up an option to lower the end user price, but in no way does it assure that. But, that metaphor is broken. That’s the physical world with physical goods. These are information goods. The cost of goods was already zero. The only forces that count in this situation are market power between the three actors; the publisher, the distributor, and the buyer. I think we can accept that the buyer has nearly zero power; he’s locked to his device, his store, and to tell you truth he’s so atomized that he can’t actually show up to negotiate. So all that happens here is that the publisher’s negotiation power increases and since he wants higher revenue prices rise.

It’s a bit more subtle then that since the distributor is compensated mostly by the volume of transactions; while the publisher is compensated on the gross dollar value of sales. A shift in the price upward lowers the number of transactions, but as long as it increase the gross that’s fine with the publisher. Of course the author, like the reader, is irrelevant in this discussion.

None of that is new to me. But there is one thing here I hadn’t noticed before. In the story above we are moving from one distribution channel to two; so the power shift is as strong as possible. If we are moving from say five distribution channels to six the power shift can’t be as strong. So, in that case do prices fall? Yes and no. When your check out from your typical online store your offered a pop up to select which shipping company you’d like to use. That pop up isn’t doing what you think it’s doing. That pop up is part of the negotiation. Your selection reveals something about your willingness to pay (the intensity of your desire). You pay for that. So in the usual perverse way of these things the addition of multiple distribution channels becomes a way to raise prices – a tool in the discriminatory pricing games – more than a cost driver.

This is not the market you read about.

I want to draw out something Steve Waldman says in this interview (I’m really eluding a lot of interesting material here):

You can come up with very clever, fair schemes if you imagine people communicate only within your system. …  I was entranced by the … story of how markets aggregate and communicate widely dispersed information….real markets differed … Real market institutions seem designed to hide information and shift consequences rather than reveal outcomes and allocate costs and rewards.

Markets do not work the way you think they do.

When those who suffer the delusion double down on the bet, as loyal followers of a philosophy are wont to do they sooner or later echo Margarert Thatcher:  ”… you know, there is no such thing as society…”.

Further I hadn’t quite internalized how this widespread delusion is synonymous with the open/closed world question in computer science, on many levels.

Financial Innovation and Feudalism

Mike Konczal posts on the unwind of the mortgages are awesome!  This posting on Fake Ownership is particular thought provoking.   It suggests we are headed into a period when a new kind of thing, not owner, not renter will emerge; i might call it a caretaker.  This economic actor doesn’t pay much, maybe nothing, to live in the investor owned real estate, but at the same time he has none of the rights of a renter or an owner.  He’s kind of a squatter.   Some of these pop up because an investor bought a foreclosed property and he just needs somebody to sit in it until the market recovers.  Some pop up because they used be the owner, they stopped paying, so the bank owns the property now – but yeah the bank doesn’t want to let the loss play out and show up on their books.  The banks is caught in a kind of catch 22.  If they foreclose the value of the property sinks even further.  I’m reminded of an comment made early in the crisis about the banks have become incompetent landlords.

The two postings on predatory mortgage servicing are also great.  First on the social trust aspect and then on the predatory aspects of the servicing industry.
It is hard reading these for me not to think that deregulating the financial industry has lead directly toward the rediscovery of the social relationships last popular under feudalism.  I wonder if the condo management companies are going move into this business.  Talk about gated communities!
Meanwhile, back on the walk away issue, this is a very good podcast.  There is a slice in the middle about the ethics and social contract issue.  If you get past the scenarios shown above start to come up.    There are people who have walked, and they can’t get the bank to repossess the house and they are stuck paying the taxes and condo fees until they do.  Such people want a pseudo-caretaker too.

Growth Industry

Now what do they do?  Corporations that is.   I mean, given the license corporations have been granted.   Will they reward their friends on the Supreme court?  Have they jiggered the goals for their strategic planning people?  Where is the cookbook of standard recipes; e.g. what you do if your firm owns the big employer in a town or state, or what you do if your industry hasn’t captured your regulator yet.

And what about their suppliers?   Have all the big consulting firms fired up new divisions to advise them?   Does O’Reilly has a “Voter Hacks” queued up?   Where  is a package to be sold to every company that rules a company town that bridges from people’s economic anxieties into votes for candidate that will sell the commonwealth at low cost to the firm.  Is there a conference yet, a professional society, a code of practice?

This seems quite scale free.  Economic entities of all scales should be able to find something they want and political actors who will support them.  How many nations have spun up a task force?  How many local businesses.  How hard would it be to get somebody elected who then hands over the trash collection franchise, or let’s you build your factory in that bit of park land?

All this seems inevitable.  Otherwise we should see shareholder suits accusing them of dropping the ball.  Will we?  There ought to be a lot of action going on.  A lot of first mover advantage to be captured.  I’d think all that movement would be obvious if you knew were to look?  Have the starting salaries of political scientists ticked up?

Cost of Energy

I'd love to see an energy budget for heating with pollard wood.

I was taken aback some years while playing with various ideas for heating my house ago to realize that natural gas was significantly cheaper than wood.  Here is a table that illustrates that.

  • Coal – Powder River Basin1 – $0.56
  • Coal – Northern Appalachia1 – $2.08
  • Natural gas2 – $5.69
  • Ethanol tax credit3 – $5.92
  • Propane4 – $13.28
  • Petroleum5 – $13.43
  • #2 Heating oil4 – $14.74
  • Jet fuel4 – $15.48
  • Diesel4 – $15.59
  • Wood pellets6 – $17.33
  • Gasoline4 – $17.81
  • Corn ethanol7 – $23.46
  • Electricity8 – $26.31
  • Cellulosic ethanol from corn cobs9 – $30.92

I also spent a bit of time looking at coal as an alternative.  As a child I lived for a period in Pittsburgh and the house had an unused coal bin in the basement.  But we heated that house with natural gas. It turns out we have burnt all the good coal. What is left is harder to burn and it stinks.  You need to have a lot of scale to handle it well.

That natural gas is so dominate says something about housing density.  Quarter acre plots are probably the upper limit of when it’s worth running the pipes.  Of course that distribution infrastructure is a tempting target for monopolists.

Those numbers are US based.  Natural gas is less reliable and more expensive in Europe.  I mention monopolists didn’t I?  Ben recently did an wrote something similar, looking at biomass, for rural Britain and he too make the point the author of that table makes, that “there just isn’t enough biomass to meet present energy demands.”   While that point is right on, I don’t think we are going to find the one solution; or at least not for quite a while.