Random

 

Turn, Turn, Turn

To everything turn, turn, turn
There is a season turn, turn, turn
And a time to every purpose under Heaven

Heaven may know the purpose, but on Earth sometimes stuff just happens.

Absence of evidence is not evidence of absence. And the fact that some behavior is cyclical and not random, does not negate the fact that other behavior is random and not cyclical.

Random behavior may look cyclical when viewed at a small scale, but that does not mean that it is cyclical at every scale. Randomly flipping a coin follows a random normal logistic distribution. That distribution has a behavior that can be defined mathematically with a precise mean and variance. I have suggested than the universe is hyperbolic and the variance is due to this effect. The range, s, is such that its Cumulative Distribution Function at the median should be equal to 50%, i.e. 50% heads/50% tails.  This requires that the range of this function, s, be 0.5. The random normal distribution function can thus be defined as  ½ *sech²(x-µ), where μ is the mean. This looks like ½*cos²(x-μ) for one cycle, but the logistic distribution with a hyperbolic secant has a period of 2πi, where i is the imaginary number, which means in the real domain it does not repeat, while the non-hyperbolic Euclidean cosine has a period of 2π which means in the real domain it does repeat.

Both equations above have a mean, µ, of 0.  They appear very similar between -.75 and .75.  However the traditional Euclidean cosine squared function cyclically repeats, while the random, hyperbolic secant squared function does not repeat. 

Things that are cyclical, like the seasons, can follow a deterministic function.  Things that are random, like the weather, do NOT have to follow a deterministic function.  Some things can be solved.  Some things cannot be solved.  Going all Serenity Prayer on this, Wisdom is knowing the difference.

Interest II

 

The Twelve Days of Christmas

On the third day of Christmas
My true love sent to me
Three French hens
Two turtle-doves
And a partridge in a pear tree

And Gaul is divided into three parts. And a story has a beginning, a middle, and an end.

I have previously agreed that Three is a Magic Number, so let’s divide interest into three parts:

1.      The discount rate,

2.      The currency rate, and

3.      The product rate.

The discount rate is how much you value the future. The future should always be less the present, i.e. “a bird in the hand is worth two in the bush”, which means that the discount rate should be greater than 0. For example, if the future is worth 90% of the present, then the discount rate would be 1.0/0.9 or 11.1%.

Inflation is real, such that today’s dollar is not worth yesterday’s dollar. It has two parts, the currency rate, and the product rate. The currency rate is the rate that has to be applied to the medium of exchange. For example, the medium of exchange in most transactions in this county is the US dollar. A dollar in 2023 is not worth as a much as a dollar in 1960. A currency can be commodity-based or fiat‑based. If it is commodity-based, then there is the possibility that economic transitions can not take place because a group has too much of that commodity and does not want to participate in economic transactions. The best currency, medium of exchange, should allow all economic transactions to take place. The US has been not been on the gold standard, a commodity-based currency, since since the 1930s and is a fiat-based currency where the dollar is tied to the US economy. If the economy grows, then more dollars need to be printed.

Neither the discount rate nor the currency rate is random. However, the product rate IS random. Like other random phenomena, such as the weather, we can talk about it but can do very little about it.  The product rate is governed by such things as consumer preference, supply chain disruptions, the weather, and other random events.

The interest rate has to at least cover the discount rate, otherwise there is no sense in investing in the future. The currency rate should be as close to zero as possible. The product rate is a random number. The sum of the currency rate and the product rate should be kept below the discount rate or investment in the future will not make sense. Therefore, there is a reason that we should worry about inflation, but we have to expect that inflation can be greater than zero.

The Federal Reserve Bank is principally charged with maintaining the currency rate, but it is also expected to maintain the total interest rate. This does not mean that it has control over total inflation because it can NOT control random events. But by setting the prime rate, the rate of inter-bank loans, which is in keeping with the Federal Reserve Bank's role as the lender of last resort, it can have an influence on interest, and thus appear to have an impact on inflation. If other lenders set the interest rate as the prime, the Federal Reserve Bank's inter-bank loan rate, plus a rate, and that interest rate should be less than the discount rate minus the product rate, then the illusion is that by setting the prime rate the “Fed” is controlling product inflation when in fact it is only time shifting demand and supply between the present and the future.

The Speaker of the House?

 

Wishin’ and hopin’

'Cause wishin' and hopin' and thinkin' and prayin'
Plannin' and dreamin' his kisses will start
That won't get you into his heart.

We should expect more than wishin' and hopin' from the Speaker of the House.

In order to become Speaker, he made a deal with some Republican holdouts that he would roll back defense spending to 2022 levels. The agreement drew the ire of some conservatives, who said any cut to defense spending would be irresponsible.

“You’re gonna tell me inside defense there’s no waste?” McCarthy asked on Sunday. “We shouldn’t just print more money. We should balance our budget.”

https://news.yahoo.com/mccarthy-social-security-medicare-cuts-155850854.html

The ignorance of this amazes me. I wish I could say it surprises me, but so it goes.

Last I looked it was 2023. Cutting defense spending to 2022 levels, if there has been inflation. (News flash! There has been! Didn’t rINOs, republicans In Name Only,  make an issue about that?)  2022 US Dollars, USD, are worth less than 2023 USD. This means that keeping defense spending to 2022 USD levels is effectively a roll back. There might be waste, but any unwasteful spending that was funded in 2022 USD, would still need more funding in 2023 USD.

And the US Dollar is a fiat currency and has been since the 1930s. The US Treasury prints enough money such that all economic transactions can take place, IOW the US money in circulation should be equal to the US economy. If the US economy grows, then somebody better print more money.

You can wish and hope all you want, Kevin, but that doesn’t change things. Inflation is real, and printing money is how the economy works.

Wealth

 

If I Were a Rich Man

The most important men in town would come to fawn on me!
They would ask me to advise them like a Solomon the Wise
"If you please, Reb Tevye..."
"Pardon me, Reb Tevye..."
Posing problems that would cross a rabbi's eyes!
And it won't make one bit of difference if I answer right or wrong
When you're rich, they think you really know!

As the song says, just because you are rich, does NOT mean you really know.

If wealth followed a normal distribution, the wealthiest people would be about twice as rich as the median wealth. This assumes that the mean, average, is equal to the median, the value where 50^th percent are greater and 50^th percent are less. A distribution can still follow at least one of the rules of a normal distribution if the mean is no more than 150% of the median. If the mean exceeds the median by more than that amount, the distribution can not be considered to be normal. But any distribution of an abnormal group can be approximated by the presence of more than one normal subgroup within the larger abnormal group.

For example, in my field of transportation demand forecasting, a trip is characterized by its purpose, for example the commute between home and work, a Home Based Work trip, HBW. If commute trips to work are grouped with commute trips from work, and this combination is sorted by starting trip times, then the median starting time is different than the mean starting time of those trips. However, if the difference between the commute to Work and the commute from Work is maintained, the mean and the median within each subgroup are almost equal as shown below.

It is visually obvious that there are two separate groups by starting time. I.e. the mode of starting time to work is generally about 7:30 AM. The mode of the starting time from work is generally about 5 PM. (if the commute time is on average is about 30 minutes, this also means that the average person is at work from 8 to 5! I guess Dolly Parton was wrong!)  The fact that there are two groups is not surprising. However this same behavior is apparent even when the separation between the two groups is not as obvious, If this same grouping was done for shopping trips from the home,  the duration of shopping does not result in the same separation. The fact that there are two normal subgroups is obscured by the fact that these subgroups were combined. In fact if the same separation is made, shopping trips, when combined are not normal in that the mean is greater than the median, but when they are seperated into the legs, trips, from the home to shopping and the legs, trips, from shopping to the home the normality is evident. There are two normal groups, as shown in the chart on the right, which is masked as in the chart on the left where the starting times of each leg are combined.

It is suggested that any group which is abnormal actually consists of many subgroups, where any one subgroup, such as the rich, may be normal only within its own subgroup. However you should not expect that its wisdom is normal for the larger group, such as the group that also includes the poor.  That rich subgroup might say silly things like, “let them eat cake” or ”the problem with the poor is that they live off their principal, and not their interest.” The rich really are different. But that only means that they are richer, not that they should speak for all of us.

Interest

 

God Bless The Child

Them that's got shall have
Them that's shall not lose
So the Bible said, and it still is news
Mama may have, Papa may have
But God bless the child that's got his own, that's got his own

If the Bible is news, what does it say about interest?

“You shall not charge interest on loans to your brother, interest on money, interest on food, interest on anything that is lent for interest.” Deuteronomy 23:19

So the Bible says, but this does NOT say that the future is worth the same as the present. It only says that charging in excess of that difference is wrong. Passages like this are often used to justify forbidding the charging of any interest. This includes even the discount rate, which is the difference between the present and the future, also known to economists as the opportunity cost.

 Charging more than the difference between the present and the future, the discount rate, seems also to be forbidden, by the Old Testament of the Bible, to your brothers. Similar language also appears in the Koran. If you then define your brothers as those only in your faith, then those who are not in your faith seem to be able to charge or receive interest.

So what should the discount rate be? If that rate is defined in terms of our life, the interest rate should be higher as we get closer to the end of our life. If we are immortal, then the interest rate should be as close to zero as possible. But this ignores the fact that the future is obviously different than the present, by the discount rate. Let us assume that the discount rate is the related to life expectancy. The period before you can contribute to a group is proposed to be divided by the total period where you could contribute to the group. If your life is 80 years (Psalms 90:10), and the period before you contribute to the group is 13 years (at around 13 years you become a man, are bar mitzvahed), then the Old Testament's discount rate is 13/80, 16.25%. Jesus’s public ministry was 3 years, while His life was 33 years, so His discount rate seems to be 3/33, 9%. If the interest rate is less than the discount rate, then it makes sense to invest in the future. If the interest rate is greater than the discount rate, then it does NOT make sense to invest in the future.

Regulation

 

Math Sucks

If necessity is the mother of invention,
Then I'd like to kill the guy who invented this
The numbers come together in some kind of a third dimension
A regular algebraic bliss.

Math does not suck!!! Economists would benefit by three-dimensional thinking.

Economists classify goods by the two dimensions of rival and exclusive.

Source: https://www.econlib.org/the-correlation-between-excludability-and-rivalry/

By excludable, it is meant that the good has a price or some other means that is used to exclude the good from non-payers. Rival means that if the good is being used then someone else can not use that same good. In this way there are more than just Private Goods (Excludable and Rival) versus Public Goods (Non‑excludable and Non-rival). It also includes Common-Pool Resource Goods (Non-excludable and Rival) and Club Goods (Excludable and Non-rival). Club Goods are also often called Private Monopolies because it also includes Cable TV, electricity, land-line telephones, etc. (i.e. my using Cable TV, or electricity, does not mean that my neighbor cannot also watch the same station on Cable TV, or use electricity.)  Private in this case does NOT mean the government is excluded from the operation. Some private monopolies (e.g. water, sewer) are often operated by public/government agencies).

To these two characteristics, dimensions, I would also like to propose adding a third: Regulation. It may also highlight why there are so many disagreements over Common-Pool Resources and Club Goods/Private Monopolies. In each economic transaction the buyer/consumer may have a different perspective/frame of reference than the seller/producer.

Both buyers and sellers agree that Private Goods should be Regulated. Sellers want to be assured that their goods can not be stolen, and that the medium of exchange used in the transaction can be trusted (e.g. no counterfeiting). Buyers want to be assured that the goods are represented correctly (truth in advertising laws, labeling, FDA, etc.) and are produced in a manner that they find acceptable (labor laws, OSHA, etc.). By contrast, both the buyer and the seller agree that Public Goods are un-Regulated.

The problem is that buyers and sellers do not have the same perspective, frame of reference, for Common-Pool Resources and Club Goods/Private Monopolies.

Sellers should want to be assured that there are sufficient Common Pool Resources for the production of their goods and should want those Common Pool Resources to be regulated. The buyer wants these goods available at the lowest price and may not care that the Common Pool Resources are regulated leading to what economists call the “Tragedy of the Commons.”

The seller wants to be assured that a price can be charged for Club Goods/Private Monopolies which requires regulation, while the buyers may not care that the goods are regulated (e.g. Napster/”free“ music, pirated movies, etc.)

Regulation is not necessary if all of the parties in the transaction can be trusted. By regulating you are saying that at least one of the parties can not be trusted, which is why you are regulating. So in addition to raising the cost by requiring regulation, the very act of regulation may offend some people. But if you trust everyone, but always cut the cards card (trust but verify) then you are regulating. So thus even Ronald Reagan was in favor of regulations, he was just disagreeing about what regulations he wanted.

Holocaust Remembrance

 

I, I Who Have Nothing

I, I who have nothing
I, I who have no one
Adore you and want you so
I'm just a no one with nothing to give you but, oh
I love you

To all of the outcasts, you are NOT no one.

On tomorrow's Holocaust Remembrance Day, let us remember all of the outcasts. The Jews were outcast by Christian and Islamic societies. At some point, the fundamentalists in each faith decided that the collection of interest was forbidden and those who collected it were outcasts. However both societies had to come face the fact that they needed interest. (maybe not as high as the 50% implied by the adage that “a bird in the hand is worth two in the bush”, but still). The Jews did not view interest as wrong. Consequently Jews became the world’s bankers who made loans and charged interest. Why do you think Shylock in Shakespeare’s Merchant of Venice was a Jew? Why do you think Jews came to be over-represented in the banking industry, most famously by the Rothschilds? Because if you outcast those who collect interest, then why is a surprise that outcasts then dominate the sector that deals with interest. You reap what you sow.

The entertainment industry was once considered to be demeaning, so unsurprisingly many of the earliest pioneers in Hollywood and comic books were Jews. (For example, while they may have anglicized their names, Jack Warner was born Jacob Warner and Stan Lee was born Stanley Liberman.) If you outcast a people and outcast a sector, but you value that sector, then why is it surprising that outcast people come to dominate the sector that you value. No one should ever be an outcast. Love is the most important thing that can be given. I may not be a Jew, but on behalf of all of your fellow outcasts, you are appreciated and remembered.