Economics

 

What a Wonderful World

Don't know much about geography
Don't know much trigonometry
Don't know much about algebra
Don't know what a slide rule is for

And yet economists try to use calculus even though they apparently don’t know much about calculus!

Economists want to use calculus and advanced mathematics to show that they are a real science.  But unless their principles are stated correctly, then we can get mistaken economic principles. Take the macroeconomic belief that at the optimal, marginal cost must be equal to marginal revenue and that at this optimal no quantity of goods are sold. This is often expressed as MP=MR, Q=0, or that the optimal quantity of goods is when marginal price is equal to marginal revenue. Unfortunately this also requires that the volume of goods be allowed to be negative. If the statement had been correctly formatted as Revenue, Unit Price sold multiplied by the Quantity sold, and Cost = Unit Cost multiplied by the Quantity produced PLUS a constant, it can not be assumed that when marginal Revenue, the first derivative of revenue with respect to quantity, to be equal to marginal cost, the first derivative of the production cost with respect to quantity To be an optimal the quantity sold/produced must be equal to zero.  This also assumes that the quantity sold/produced can be negative and it can not.  The correct formulation, like any proper exponential distribution, which includes radioactive decay and cellular growth, follows an exponential distribution and is  Revenue = Unit Price * Quantity sold = Unit Production Cost * Quantity made PLUS a constant, where the Quantity made or sold must also be greater than or equal to 0. Instead Marginal Price = Marginal Revenue must be equal to half of the constant in the cumulative equation, and that constant does NOT become zero when the derivative is taken.  This means that the optimal quantity sold is not when MR, δR/δQ = MC, δC/δQ, when Q = 0, but instead there is no optimal quantity to be sold unless the quantity sold is allowed to also be less than or equal to zero.  If the quantity is declining, then it can approach zero but never reach zero. If the quantity is growing, revenue can approach but not exceed,  a constant related to an absolute. Expressed statistically, growth, or decay, should be regressed as log-linear, an exponential function. It is neither linear‑linear,  a trend function, or log-log, a power function.  Growth, including negative growth, also known as decay, is variable not constant.

Uncertainty

                                             Did You Ever Have To Make Up Your Mind?

Then you bet you'd better finally decide
And say yes to one and let the other one ride
There's so many changes and tears you must hide
Did you ever have to finally decide? 

So  Trump changed his mind on tariffs AGAIN?

The one thing that the stock market hates more than anything is uncertainty. The market would prefer that the certainty be positive, but certainty that is negative is still better than UNcertainty. So is it any wonder that the stock market has been tanking since Donald Trump announced tariffs (that beautiful word😜) would take place on Liberation Day. My personal 401(K) plan took a nose dive of a 10% decline in the last few days. The tariffs themselves were supposed to be reciprocal, but it is unknown what the penguins in the uninhabited Heard and McDonald Islands did for which the US had to reciprocate. Today Trump announced that he was just kidding, the tariffs would be suspended for 90 days.

Trade wars were the comedic subject of Ben Stein’s economic lecture in the movie Ferris Buller’s Day Off. Trade wars are so stupid that they are supposed to be funny. I am among those who are not laughing at the moment. As bad as trade wars are, uncertainty in trade wars is even worse. Make up your mind. L’etat N’EST-CE PAS Donald Trump. “We the people” are the state.  Can somebody please tell “Don the Con” to make his mind before the stock market goes into free fall and we all lose our mind.

Cycles

 

The Dog Days Are Over

Run fast for your mother, run fast for your father
Run for your children, for your sisters and brothers
Leave all your love and your longing behind
You can't carry it with you if you want to survive
The dog days are over
The dog days are done
Can you hear the horses?
‘Cause here they come

Will the DOGE days also be over?

The Dogs Days happen every summer. Yes the summer heat is bad, but it does not last forever. It may seem like the Dog Days will last forever when you are in the middle of them, but they will end. They happen because the earth orbits the sun. The longest day (in the Northern Hemisphere ) is June 20^th, but the Dog Days of summer are from July 3^rd to August 11. This is because it takes a while for the heat of the sun to heat the earth. But there is end to the Dog Days every year. The Dog Days of summer are followed by the glorious crisp days of autumn even though astronomical autumn does not begin until September 22^nd.

Remember that when you hear that when you hear  someone say “If this goes on”. Chances are things won’t go on. Things do not work that way. Absolutes may trend straight lines, but you are NOT an absolute. The symbol of the absolute is a typically a circle, not a straight line for a reason. If the circle is large enough, the circumference of that circle looks like a straight line.  If you are not the absolute, don’t assume that the straight line you perceive will go on forever. That straight line probably won’t go on and don’t believe anyone who tells you it will.  The fact that things were better in the spring does NOT mean that the Dog Days will go on forever. Look forward for the fall. Don’t try to go back to spring, or you may want not get an endless summer, but an eternal winter.

Republic

 

Do Your Job 

These bozos are making one of those death traps

By this time next week, that building's gonna collapse

And the school bus driver hauls a precious load

Hope he's not driving your kids when his heart explodes

As I look around I see everywhere

Americans who just don't care

At the risk of sounding like a Repetitive Joe

Repetitive Joe, Repetitive Joe, Repetitive Joe

I'm the boss, get back to work 

You may be the Boss, but how do you know I’m doing my job? 

Since I am a New Englander, it is no surprise that I am going to use a New England example to make a distinction between a democracy and a republic.  New England Town Meetings are democracy at its purest.  Everyone who is a resident of the town can vote at a Town Meeting.  However the business of the town is mundane, boring, and time consuming.  Even though everyone can go to town meetings not everyone wants to, has the time to, or the interest to, participate in town meetings .  Thus in a town with thousands of eligible voters, only a few hundred might participate in a town meeting, and those that do participate may have a bias for certain actions and are not representative of those who do not attend.  Thus while a Town Meeting is a pure democracy, it requires a commitment of time that may be unrealistic.

A less biased and less time consuming method is to give your proxy to a Town Meeting member who will represent you, i.e. a republic.  Then that person can act in your place and this should reflect your biases, not an unknown bias.  Then you merely have to judge that the person representing you truthfully represents your views. Whether that  representative is for a town meeting, a city council, a state legislature, Congress, etc., those proxies are chosen in an election.  

The problem then becomes choosing someone to represent you as an individual while recognizing that you as an individual still retain sovereignty in a democracy.  This form of government where the sovereign is the group of individuals but those individuals chose representatives to vote/act for them is called a republic.  It is not an accident that the earliest political party of Thomas Jefferson called itself Democrat-Republican and not until later did it drop the Republican part of its name.  Thus when a new political party formed in the 1850s, the name Republican was available and became the name of those who opposed the expansion of slavery and they welcomed in no taxation Whigs who opposed the expansion of slavery into federal territory and anti-immigrant Know Nothings who opposed the same.  While Republicans eventually came to oppose all forms of slavery, not just merely its expansion, that did not occur until after the Civil War, by which time the issue of slavery versus the retention of power became the distinguishing attribute in the Republican Party. 

Fast forward to today, The descendants of no-tax Whigs and anti-immigrant Know-Nothings have taken over the  Republican Party and intimidated, or retaliated against, all those who merely opposed  slavery.  The Freedom Caucus/Tea Party/MAGA calls those who oppose them Republicans in Name Only, RINOs.  In  fact it is they who are rINOs , opposed to a republic. 

Your job involves three things in order of importance: Execution, Forecasting and Communication.  The problem is that the ability to do our job is primarily judged by others on how well our can communicate.  But that communication can be used to lie. 

In a republic your desire is to find someone who would act like you, forecast like you, and would communicate like you.  In other words, you want someone to be winning, certain, and true.  But while you can determine whether someone is winning, if someone is less than the absolute you can only be 99.9999...% certain .  Something  can be 100% certainly true or 100% certainly false.  We can view at most 5/6 of an absolute. Humans can only determine 91.28% of the truth under the best of circumstances. 

The issue is NOT voting for someone to represent you unless you are certain that person is telling you the truth.  Picture being faced with two choices: candidate one who has a grade of A in execution, a Grade of B in forecasting and a grade of C in communication, versus another individual who has a grade in  execution of F, a  grade in forecasting of F, but a grade of A in communications.  If you chose only on the basis of communication then the second choice would win.  If you choose on the composite grade, then you would choose candidate one to represent you.  So in the last election, how did you vote?  For the best communicator? or the best representative?  They are not the same.  The challenge is to judge not only how they have done the job, but also how they will do their job in the future to represent you, But you only have their word and their past performance on which to judge that. In this case the directive becomes not “I'm the boss, get back to work.” but “I’m the boss, do I believe that you can do MY job.”

Winning III

 

Like a Rolling Stone

You used to be so amused
At Napoleon in rags and the language that he used
Go to him he calls you; you can't refuse
When you ain’t not got nothing, you got nothing to lose
You're invisible now, you've got no secrets to conceal

Donald Trump, Elon Musk, and the rest of you oligarchs take heed.

The tax cuts favored by Donald Trump, Elon Musk and their oligarch cronies have to come from taking the government payments to others, especially those below them. They may call it waste, fraud, and abuse, but as they are finding they are really winning, certain, and true. If they take all of the wealth from others, then they hasten their own demise. One on one, they may win every contest. They may do so because of their merit but more likely they win at any cost, by retaliation for past losses and intimidation not only in future contests but in expectation that in the current contest that their opponent gives up, bends the knee, before the contest is over. That might work singly, but collectively those same opponents can overwhelm them.  By taking from each opponent they make sure that their opponents have nothing, but then those same opponents also have nothing to lose. If enough of their opponents have nothing to lose, and that prompts those opponents to join forces and act in concert, then that can lead to the demise of the oligarchs. I believe that the technical term for subjects, opponents, acting in concert against the ruler is called a revolution. So oligarchs you can lie, cheat, and steal all that you want. It may only be a Pyrrhic victory. You may win the battle but lose the war. Can you hear the people sing?

Tolerance V

 

It Ain’t The Meat It’s The Motion

It ain't the meat, it's the motion
Makes your daddy wanna rock
It ain't the meat, it's the motion
It's the movement that gives it the sock

It ain’t the average, it’s the tolerance.

Engineers learn that you can’t achieve perfection. You have to accept tolerance around the ideal, what statisticians and other scientists call standard deviation, from perfection. That means that you have to report both the average AND the tolerance to determine if you have an acceptable batch. Reporting only the average is meaningless.

Many statistical agencies report only the average when they should also be reporting the variance, the square of the tolerance. You need both measures to judge a batch.

If the goal is to achieve growth then reporting the average is part, and only part, of the story.

·        If the average is increasing and the observations have a variance that is within acceptable limits then there is growth;

·        If the average is increasing but the observations have a variance that is NOT within acceptable limits then there is no growth;

·        If the average is decreasing but the observed variance is still within acceptable limits, there is growth; and

·        If the average is decreasing and the observed variance  is NOT within acceptable limits there is no growth.

Reporting the average without also reporting the variance does NOT establish whether there is growth. It is easy enough to report the variance in addition to the average. Most statistical packages can report both. Most statistical packages can also plot both, the average and error bars around the average. (the error is the standard deviation divided by the square root of the number of observations.)

Statistical reports should report variances, (aka Standard Deviation, tolerances) in addition to averages. Reporting only averages gives an incomplete and possibly misleading picture. It is reporting the meat without reporting the motion. You are actually reporting the growth which is a vector and matrix math applies. By only reporting the average,  you are reporting the change in position without reporting any change in direction. You want to report both the observed average AND the acceptable tolerances.

Lies, Damn Lies, and Statistics

 

The Gambler

You've got to know when to hold 'em,
Know when to fold 'em
Know when to walk away,
Know when to run
You don't ever count your money
While you're sitting at the table
There'll be time enough for counting
When the dealing is done.

Do you know when to hold ‘em?

There is a classic problem in statistics named after a game on Let’s Make a Deal hosted by Monty Hall. The Monty Hall problem involves making one of three choices of doors, only one of which is a winner. The host, in this case Monty, opens one of the unchosen doors. It is inevitably not a winner. Monty would call it a Zonk. The player is then given the chance to remain with their original choice of doors or to change to the remaining door. When the correct answer, that you should always switch, was presented by Marilyn Vos Savant in Parade magazine it created a controversy. PhDs who should know better could not believe that answer. In subsequent studies it was found that 85 to 90 percent of players would choose exactly the wrong strategy.  There is a fancy term for this, equiprobability bias. Humans assume that all outcomes are equally likely. When presented with a choice of two outcomes, one of which is clearly 67% probable, humans insist on acting like the probability of each choice is 50%.

 In Vos Savant words, the  Monty Hall dilemma does not involve competing theories of statistics. It reveals something about humility and human frailty. “ The disbelief that we could be wrong.  The tenacity sometimes aggrieved, which we hold our earlier judgment, especially when we feel certain”. So don’t be aggrieved. Know when to hold ‘em.