“People wondered if they’d have to have extra children to make room for all the stories.” — Terry Pratchett in The Amazing Maurice and His Educated Rodents

The economic profession has some serious soul searching to do.  They blew it, not a little, but a lot.  For the last decade they ought to have all over the risking tide of risks in the economy.  But rather than do that work they were cheerleading the move to increasing  volatility  and risk.  They did that not in a sober and professional way, but rather they fell  victim  to all the standard failure modes of  professionals:  arrogance, pride, chauvinism, provincialism.

No doubt Shiller is right when at the  beginning of this talk he mentions  Jarvis’s  Groupthink.  But he moves on.  Jarvis is pretty clear about how groups fail via groupthink.  It’s not pretty.  It is certainly not an excuse.  The last time I sighted groupthink being used as diagnosis it was to explain how the Bush administration got us into Iraq.  As I wrote then “This framework is just what the doc ordered. It offers the people writing the report a chance to avoid blaming anybody.”

People talk about the need for something along the lines of a “truth and reconciliation” process to help air up dirty laundry of the last eight years.  That’s work which we as a nation ought to do.  Not for revenge, but to  cleanse, but to help eliminate the root causes.  That’s why the Republican establishment in particular ought to be desperate to do that work.

This situation re. the economic profession is, seems to me, more serious.  We have no means to vote the profession out of office!  We are stuck turning to that very same of arrogant smarty pants to try and puzzle out what to do.  Jarvis has a list of what appears to cause the fiascos that go under the name Groupthink.  It’s in that posting I did about the Iraq use case.  But notable in that list is “unquestioned belief in the the group’s inherent morality.”  Economists need to get over themselves.  They need to understand that at this point a significant portion of the  responsibility  for every foreclosure, every layoff, every hungry child lies at their feet.  Humble pie’s on the menu, but will they heed the dinner bell?

I bet it really gets their goat, pulls their chain, and makes them cranky.  I mean here it is, nine paragraphs in: “validated by an unrelated study indicating that the data collected by Yahoo, Google’s main rival in Internet search, can also help with early detection of the flu”, and then in the next paragraph “”In theory, we could use this stream of information to learn about other disease trends as well,” said Dr. Philip M. Polgreen, assistant professor of medicine and epidemiology at the University of Iowa and an author of the study based on Yahoo’s data.”

The New York Times article, presumably with the help of the Google PR people, is misleading.  No doubt the folks at Google who did this work are embaressed at this as it’s an offensive to professional norms.  The credit for this should go to the folks at the University of Iowa who with the help of folks at Harvard and Yahoo’s research group in New York did the original work. That’s published here.  “Using Internet Searches for Influenza Surveillance”  Philip  M.  Polgreen, Yiling  Chen, David  M.  Pennock, and Forrest  D.  Nelson.  People did that work.  Not Google, not Yahoo.

All that is an omission from the so called paper of record about the actual record but it’s not the omission I find most interesting.  What I find interesting is the “what’s next.”    It’s notable how, if your search Dr. Polgreen at Google you now get almost entirely links to the PR ripple from the NY Time’s article.  No doubt he finds that a bit irratting, maybe even depression.  So then what?

Ok, now that’s not tacky, that is practically criminal and it’s certainly autistic.  If somebody asks you about “suicide methods” you do not reply with an enumeration of same, along with a second link to a site that featuring “staggering” “adult content and images” of “hash reality.”  Can you imagine if the local librarian did that?  What you do do is you attempt to intervene.

Let’s step back from that colorful and exaggerated example. Let’s spend just a few seconds thinking about what Google might do with this technology.  Yeah!  They could place some Ads!  Why doesn’t that though get covered in the article?  I suspect it’s because they didn’t spend those few seconds.  That is pretty  sloppy.

But a few more minutes and they would get to the much more interesting question, could the search engine in intervene!  Could that intervention save lives?  I think the answer is obviously yes it could and yes it would.  Google doesn’t even attempt to do that on their flu tracking page.

It’s an interesting puzzle to what degree search engine results should be tuned to be more appropriate.  As the exagerated example above highlights, machine results are not necessarilly what any reasonably human would do.  I very much doubt that any librarian would respond to a question about sucide methods or flu symptoms as google does.  No reasonable scientific reseacher would claim that Google invented this technique.  Given that, something is clearly broken and needs fixed.

John Hempton over at Bronte Capital makes an interesting point about diversification.  I’d not fully appreciated this.  The textbook story about diversification is that can smooth out your risks (good and bad) by loading up on investments that are uncorrelated with each other.

If you take the lesson of diversification to heart it leads to a lack of  loyalty.  It encourages alienation even from your own skills.  John points out there are a few citizens of Iceland who are very happy because had 20% of their wealth invested overseas.  All the more loyal citizens aren’t so happy.    You certainly should never let a significant portion of your wealth be invested in your employer, since if they collapse would would lose both your job and your wealth.  In fact you should probably not be invested in the industry your professionally expert on.

Since most well educated people know about diversification you can make jokes that play off how it encourages disloyalty and alienation.  e.g. “Nice kids!”, “Thanks.  It’s not so hard.  You just have a few dozen and throw away the discard ones.”  What I additionally love about that joke is how it presumes that your kids are competitive rather than complementary (illustrated here, (note the there == happy).  There is something quite meta about the recent crisis of faith among those who placed their faith in diversification.

The search for ways to diversify leads to investment mavins to collects lots of data so their statisticians can discover what is and what isn’t correlated.  Which is, of course, only as good as your data and your statistical model.

What John points out is that much of the risk (good and bad) in a portfolio comes from the black swans.  Which is an entirely different way of looking the problem of how to diversify.  You should not be so interested in the steady bits.  It’s all about the surprises.  Apple, Iceland, Microsoft, biology, politics and your relatives are full of surprises – different kinds of surprises.  A well diversified portfolio should be surprising and fundamentally disconcerting.  First you need to admit that your portfolio is all about the swans, and then you want to assure they are not color coordinated.  You may not know what your “unknown unknowns” are, but at least you want them to be different.

A very thought provoking essay.

“… the promises made in the Declaration and the Constitution are so great that their betrayal is an inevitable part of the promise. And that’s what makes them work. … that betrayal “the engine of American history.” The “more perfect union” is a limit approaching infinity. As each generation discovers-inevitably!-that the promises made to them were false, they battle to make them a little more true. …”

Well, that explains it, I’ve been had!

I’m amused at what a domain name geek I am.  My principle reaction upon seeing this is to wonder what beuracracy approves the domain name registration for a thing like that.  Who ever they are, it was very professional of them to do so.

Yeah!  Details here.

Interesting map showing the shift toward the Democratic party between 2004 and 2008, by county.

Very sad that this is not a cartogram; but still thought provoking.  I’m a bit disappointed by eastern Massachusetts, but I guess loyalty to the homeboy explains that.  Note the shift in Indiana.

But mostly, it is very hard not to see a story about racism in there.

I have a vivid memory of watching television with my mother and a black woman. We are all in a small sunny second floor room in a house in Pittsburgh.  The television is next to an odd gas fireplace.  I am on a couch.  On the television is something I have never seen: a large racially integrated crowd.  The crowd is singing “We shall overcome.”  My mother and the woman are standing behind the couch.  Both are crying.    I suspect it was this event; but who can say?

A five years later it was easy to believe that a black man might be president. A few years later it was easy to believe a woman might be. But then, the Republican party’s Southern strategy, and sadly all that unwound.

We maybe turning that around.  But this isn’t going to be easy.  We are very polarized, there is a lot of angry hateful/fearful people out there.  It’s is only an example, but let us not gloss over how awful Proposition 8 really is.