Global Trade

 

Money, Money

A mark, a yen, a buck or a pound
A buck or a yen
A buck or a pound.
Is all that makes the world go around
That clinking, clanking sound
Can make the world go 'round

Or maybe a Bancor?

The United States has a fiat currency.  The role of the US Treasury is to ensure that its fiat currency accommodates all economic transactions in the United States..  The US economy is just over $23 trillion.  To accommodate these transactions then the total US Dollar, USD in circulation, should be  $23 trillion.  But these are not the only economic transactions that use the USD.  Global Trade is $32 trillion and 50% of that amount is invoiced in USD.  Thus, arguably, the dollars in circulation should be equal to $23 trillion PLUS 50% of $32 trillion, or $39 trillion.  If the USD in Global Trade remained in Global Trade, this may not be a problem.  But the persistent inflation since the US Dollars in international trading were taken off the gold standard by the 1971 Nixon Shock, might be due to international USD competing with domestic USD for the same goods. Global Trade has increased by 8% a year since 1975, the founding of the World Trade Organization. Because the US Dollars in circulation do not consider this increase in demand, I would suggest this growth also might explain  the persistent increase in inflation since 1971. The Year Over Year inflation might have declined since the rates in the 1970s, but because the economic transactions requiring the USD have not been properly considered, is IMHO why we have currency inflation greater than 0%.

Another major currency used in International Trade is the Euro.  Arguably the recent economic crises in Greece and Italy could have been  resolved more quickly, if there was an International Currency that was NOT the Euro, and there were still national currencies.  IOW, Keynes was correct all along.  Bring back the Drachma, and Lira and make the Bancor, not the USD or the Euro, the international trading currency. 

Politics

 

Politician

I'm a political man and I practice what I preach.
I'm a political man and I practice what I preach.
So don't deny me baby, not while you're in my reach

Do Politics have to be so Nasty?

Political Parties, factions, were not desired and thus not anticipated by the US Constitution. This is why one of the earliest crisis of the nation was the Presidential Election of 1800.  The problem is that in a single representative per district election system, which is a difference between the US and Europe,  two political parties are inevitable according to, Duverger’s Law.  The problem is that according to Game Theory, a system with only two players will devolve into rewarding nasty behavior.  It is only when there are at least three players that Nice behavior is an optimal behavior.         
https://dbeagan.blogspot.com/2021/05/tough-but-fair-beats-always-being-nasty.html

So what is the solution?  IMHO, Sarah Palin’s recent election loss in Alaska has shown the way, Ranked Choice Voting. https://dbeagan.blogspot.com/2022/09/ranked-choice-voting.html .There have to be at least three candidates for Ranked Choice Voting to be meaningful.  So how do you get at least three candidates in a two party system.  I would propose that each ballot in an election includes the party primary winner and the party endorsed candidate.  Often they would not be the same, in which case even when there are only two parties there may be as many as four candidates.

There are already effectively three  parties in the United States: Democrat, Republican AND Independent/Undeclared.  Having only candidates from two parties when there are effectively three parties is IMHO the problem why the US is in its current state.  When independent/third parties candidates run, they often decide the result of the election and it is exactly opposite of what the independents intended.  If there are two candidates from each party, then independents can vote for someone, instead of against someone.

Teachers

 

Teacher’s Pet

Teacher's pet (pa dumb pa dumb pa dum)
I want to be teacher's pet (pa dumb pa dum)
I want to be huddled and cuddled as close to you as I can get

There are good teachers and bad teachers, but you can learn from both.

As background, I graduated from a parochial high school. In Gym Class (or PE, whatever they call it these days), which I had in the middle of the school day, I had lots of textbooks and notebooks that would not fit easily into my Gym Locker.  To cope with this, I always put my textbooks and notebooks just outside the Gym on a public shelf, not in my locker.  One day in my senior year, after Gym Class, my books were gone from that shelf.  My reaction was “so it goes” and I went to my next class.  While in that class, I received a summons to the Principal’s office, which in my “goodie two-shoes” life was a rare event.  The Principal wanted to say that he had taken my books.  The Principal asked wasn’t I afraid that someone was going to steal them. My reply was innocent, but in hindsight the best answer. ”Gee, Brother, no one ever stole them until you did.”  Project much?  In my experience, those who complain the most about a crime are most probably guilty of that crime. 

A postscript.  In two years that Principal went on to become the eastern provincial of his order, the Brothers of the Holy Cross, CSC.  One of his first official acts was to remove the order from my High School. I don’t think that it was for financial reasons, because it was immediately taken over by the Christian Brothers who have operated it successfully for more than more than 50 years.  BTW, the CSC order also operates Notre Dame.  Guess who I always root against in College Football? 

But one bad apple does not spoil the orchard.  That order also included my high school chemistry teacher.  When a neighboring public high school sent a delegation to attend our classes, after the school day, that Brother was moderating a discussion attended by those students and my classmates.  A comment was made by one of my classmates that our high school had the superior education because it was taught by a religious order.  That Brother said that it was not true.  Our school was operated because in the past, Catholics had been discriminated against in public schools.  Because of its size and resources, our school was not able to offer advanced classes (which are now called AP classes).  He said that in an ideal world, there would be no need for parochial high schools and no one would be discriminated against. 

Good or bad, you can learn from either.

Cost of Human Life

 

Seasons of Love

Five hundred, twenty-five thousand, six hundred minutes
Five hundred, twenty-five thousand moments so dear
Five hundred, twenty-five thousand, six hundred minutes
How do measure, measure a year?

If that question isn’t hard enough, How do you measure a Human Life?

How about Love? While that is a great, and musical, answer, it does not fit into an economist’s Cost-Benefit Analysis. In order to properly do such an analysis, such as computing the cost of the release of a ton of carbon, it is necessary to measure the value of the lives lost, deaths, as a result of that release. And deaths do result from the release of a ton of carbon. The problem is that cost varies depending on the country while the release of carbon causes world-wide deaths. The cost a life/death in the Untied States should not be 9 times the cost of a life/death in India or 55 times the cost of a life/death in Somalia. The problem is that these costs are computed on the lifetime earnings of a human, and those earnings,  the life expectancy, and number of earning years, varies from county to county. What would be desirable is to have a single cost for a human life regardless of country since those deaths may occur in an any country.

Rather than focusing on the earnings, which can be highly variable, perhaps it is wiser to focus on the consumption. The problem again is that the life expectancy varies, and the living standard varies from country to country. However, there is a world-wide poverty standard, which is the amount necessary to keep a human alive (e.g. food and housing). 

The World Bank places the extreme poverty rate at $2.15 per day in 2022 US Dollars. This equates to $784.75 per year. The Bible states that human life span, not life expectancy, is supposed to be four score, 80 years. People can live longer than this, but they can also die early than this. For this calculation, we need a life span, not a life expectancy. 80 years seems like a reasonable standard. This means that the minimum cost to maintain a human life is arguably $63,000. This also means that the difference in wages, earning years, or life expectancy in different countries has been ignored. $63K may seem too low to those of us in the United States, but that is from our frame of reference. That same $63K may be a fortune to a member of an indigenous tribe in the Amazon jungle.

Calculations done where the deaths are limited to a single county, for example seat belt laws, may apply different values for a life, but $63K is certainly better than assuming that a life elsewhere in the world has no value. That way there are no shithole countries, even if there are shithole people making that statement.

Social Security

 The Name Game

Come on everybody
I say now let's play a game
I betcha I can make a rhyme
Out of anybody's name
The first letter of the name
I treat it like it wasn't there
But a "B" or an "F"
Or an "M" will appear

The NAME is Social Security INSURANCE

Social Security (full disclosure, I am collecting Social Security. Hey, there have to be some perks to being 71) is an INSURANCE program.  An insurance program is NOT a Ponzi scheme. An insurance program is the OPPOSITE of risky behavior.  Payments into an insurance program cease being my money as soon as I make a payment. The fact that everyone with a wage pays into this insurance program does not make it any less of an insurance program. A payment from an insurance program is NOT an entitlement. The fact that the administrators of the program are the government does not make it any less of an insurance program.

Claim: Social Security is a Ponzi scheme.

A Ponzi scheme is one that collects money and makes payments, allegedly as interest, from the principal, in order to trick someone into believing that they are receiving interest. The payments into Social Security are made before you reach retirement age and the payments from Social Security are made after you reach retirement age. This is no different than any insurance. You make payments to an insurance company before a claim and receive payments from the insurance company after a claim. The fact that the payments into insurance happened before the claim, in the past, and the payments from insurance happened after the claim, in the future, does not make it a Ponzi scheme.

Finding: False.

Claim: The stock market has a better rate of return than Social Security.

The mean rate of return is not relevant here. The rate of return on an individual’s investment is what is relevant The average return on investment for the stock market might be 5%, but that might be one investor having a -5% rate of return and another investor having a 15% rate of return. In social security everyone has the same rate of return, so this is not a valid comparison. We don’t live in Lake Wobegon where all of the children are above average.

Finding: True, but irrelevant.

Claim: Money paid into Social security is your money.

Tell that to MetLife! Once you made a payment to Social Security Insurance, it ceased being YOUR money. If you die before retirement age, the payments are NOT part of your estate. The fact that the payments from Social Security are based on the payments you made into Social Security does not mean that while in the Social Security Trust Fund, it was your money. And besides, are the payments by employers into Social Security based on your wages, your money, or the employer’s money?

Finding: False

Claim: Social Security is a government program.

I love the sign “Government keep you hands off my Social Security." Uh…the government collects the payments, and the government pays the benefits. Is YOUR ”Social Security” the payments you made or the benefits that you receive.  Both are government actions, hands.

Social Security is a government operated INSURANCE program. The fact that is operated by the government does not make it NOT any less an INSURANCE program, I do not get Social Security. I get payments from Social Security Insurance. I might call it AMICA, but that is only its name, not what it is. AMICA never pretends that is not an insurance company.

Finding: True but it is a government INSURANCE program, NOT an entitlement.

The rINOs objecting to Social Security are “republicans In Name Only. They object to any government, including the constitutionally mandated Republic that is the United States. They seem to have forgotten the pledge we all make.  “I pledge allegiance to the flag of the United States of America and to the Republic for which it stands, one nation under God, indivisible, with liberty and justice for all."

Decisions

 

Cocaine Blues

Into the courtroom my trial began
Where I was judged by twelve honest men
Yes as the jury started walkin' out
I saw that little judge commence to look about

Why twelve honest men on the jury?

A jury is charged with making a finding of the truth. But we live in a random universe. So how certain can we be certain that the jury’s finding is indeed the truth? The scientific standard is 3 Sigma, 3σ. If the odds are 50%, True and False, then if the jury consisted of only 1 person, then a finding of Truth would only have a 50% chance of being certain, which is no better than the odds. If the jury consists of two persons, then the chances that both persons made a finding of truth is one out of four outcomes, which means that two people have a 75% percent certainty of being correct. To reach a scientific standard of certainty, it requires that 12 members make a finding. If all twelve members make a finding that the evidence is true, then there is a 99.976% certainty, while 3 Sigma is 99.97% certainty, that they are correct.

Might the jury still be certain but wrong? Remember the wisdom of Abraham Lincoln that “you can fool all of the people some of the time, and some of the people all of the time.” The evidence might have fooled the jurors such that at least one of their findings of truth should have been false. In statistics this would be called a false positive. It is also possible that any juror could have a bias such that a finding NOT in evidence affected their decision. For that reason even a 99.976% certainty does not mean that the jury might still be wrong. That is why findings of trial by jury should always be reversible.

Similarly, the scientific standard can be used to determine when a decision might have passed a lower standard, such a 1 Sigma, or the mean plus one Standard Deviation.  Decisions by a group are no more certain than the odds if no Standard Deviation is used. Most decisions do NOT require a decision by the whole group and thus a decision that is greater than the mean will be more timely. The group decision passes the 1 Sigma test for certainty only if it is by 68% percent of the group. It takes a group of at least three  to approximate such certainty. If the group has, for example, 435 members, but that group has only two parties, and decisions are on a party line, the certainty is only 50%, which is no better than the odds. Which is why the most important decisions affecting the group, such as declarations of war, require 2/3, approximately a certainty of 1 Sigma. It also means that decisions of say a Supreme Court of nine members should not be considered certain unless they are 6-3 decisions. Judges are bound by the same rules of math as are juries. What is good for the goose, is good for the gander.

Correlation is not Causation

 Taking a Chance on Love

Here I go again

I hear those trumpets blow again

All aglow again

Taking a chance on love

Are you considering chances, randomness, when you are doing regressions?

Statistician George Box famously said that all models are wrong, but some are useful. However if they are very wrong, but their regression has a good correlation, they may also be misleading.

Models are typically developed from regressions of observed data. That regression is generally linear but can also be non-linear. However regression, is only the process of developing coefficients that are validated against an assumption of the pattern in the data. A fundamental question which is often embedded in that regression is an assumption that the data is of a deterministic event which is being observed. This can lead to a regression of the data that is completely wrong although it appears highly correlated.

For example, a random event will produce a normal distribution of data. One such normal random distribution is the logistics distribution, also known as the hyperbolic secant squared distribution. If its range is 0.5, which it should be in a on/off, yes/no, heads/tails, distribution, then it should have average odds of 50%, i.e. 0.5.  This means that, no matter what the value is of the mean, the range, s, should be 0.5. This requires that the average value of the distribution be 0.5 and its Cumulative Distribution Function should vary between zero and 1 without repeating. The chart of this distribution, with a mean of zero, is shown in Figure 1.

Figure 1

As a random event, it does not repeat and is a plot of ½*sech²x. However, if the data was erroneously thought not to be random, and will repeat, the substitution of a traditional trigonometric cosine, for the hyperbolic secant, i.e. ½*cos²x, has almost the same shape as the logistics distribution function around a mean of 0, although it does repeat as shown in Figure 2..

Figure 2

If the data from the logistics distribution between -4.0 and 4.0, which is equivalent to random nonzero x data with a mean of 4, was used to fit to the equation a*cos²(x*b) using a non-linear regression, the amplitude of the cosine would be a= 0.33491 and the inverse of the period, b/2π, of the cosine would be, b=0.479546 as shown in Figure 3. This is a smaller amplitude and a longer period than the theoretical value of the repeating event. However the regression with the random data would be quite good, with a coefficient of determination of 0.784252 and a correlation coefficient of 0.88558. 

Figure 3

However, like the trigonometric deterministic function, the regression repeats, while the observed random data does not repeat. Care should be taken to examine the original premise of the data being random or deterministic. If the Cumulative Distribution Function, CDF, of the regression were shown, as it is in Figure 4, it would erroneously show that its value increases as the observation increases. It would also erroneously assume that at the mean, in this case zero, the CDF at the mean is 0%, not 50% as it should be. The regression of data only suggests the correlation within the range of the data. Caution should be used when making assumptions outside of the range of that data.

Figure 4

If the regression had been to the hyperbolic secant squared, a*sech²b*x, then the amplitude, a, would be ½, b would be 1, which is consistent with a period of 2πi which only repeats in the imaginary plane, the Coefficient of Determination would be 1 and the Correlation Coefficient would also be 1. A good correlation of the data with a deterministic equation, in this case almost 0.78, could mean that the data is actually random and will not repeat, even if the regression assumes that it will repeat.