The ideological errors of capitalism, VII -- wealth

Moral: Wherein we consider that how 'wealth' is handled can be problematic, yet it will be, by necessity, a very important factor in any attempt to frame a better basis for capitalism.

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Ideological errors:

I - Casino, II - Adam Smith, III - Shell games, IV - Made-offs, V - Culture, VI - Classism,
VII - Wealth, VIII - Disingenuity, IX - ... (list does not end)

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What exactly is this 'wealth' that is referenced? Remember the train that was mentioned earlier? Some think that this mythical train carries the wealth. However, near-zero says not.

There may have been a lifting of the markets, in response to the efforts of Big Ben and others to shore up the game. As we all know, the Street was given life support by Main Street and the people (such as, the savers who were sacked, severely).

Now, the merry-go-round is brightly shining again, attracting more money. You know, that fills the pockets of those running the game. Ever heard of the advantage of the house? Somehow, the system, and the thinking, behind the chimera took on the flavor associated with Las Vegas without any peep from the populace (or those who are to be watching out for the populace).

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Everywhere one looks in the US, debt is stacked up. Except, for those who were able to grab assets. Some of these were just smart and live within their means. Others, the few, gobbled while things were good. The many? It is seriously bad, folks. However, the situation is not without some type of remedy, if proper choices are made. For one, the daily dancing on the merry-go-round needs some serious attention; that is, that which the moneyed do not want is what needs to be looked at closely. How?

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So, again, what is wealth? It might be time to tackle that subject, but, first, let's review the litany of ideological problems in reverse order of the original posting.

• Classism - There is nothing more autocratic than a large corporation's thinking about its employees (ah? detect some notion of corporate as a being? were we not told that by the Supreme Court?). You see, employees are mere labor. It's the fat cat, with the capital, who is the sum of all things in this paradigm. Of course, those who tout progressive ideas say that everyone (or, anyone), then, ought to own capital. The problem? The takeaway nature of the underlying game is heavily weighted to those who skim off the top.
• Ill cultured-ness - So, not only are workers exploited, many times it is in unconscionable ways. For instance, what cry was raised about conditions that led to I-Phone suicides (mentioned briefly in the New Yorker)? Wait, come to think of it, except for the show about the under-cover boss, who even cares about the daily toils of the multitudes who create the life of ease?
• An abundance of absconders - As mentioned above, plenty do attempt to rise out of their straits yet fail. You see, pilfering (in terms of organized 'ponzi'ed' schemes) abounds. The real grief is that the malfeasance is couched in terms that dishonor mathematics (there are many to blame for this -- essentially, those who are without innumeracy, that is, they of the best and brightest (supposedly) have superpositioned idiocy (this will be explained fully, in time) on the rest of us (let's say, a numerant can understand 'being' which innumerant, okay?) while those who ought to know sat on their hands).
• Prevalence of shell games - Street corner tactics, many of which are illegal (would have the keystone kops after there perpetrators), have been allowed under the guise of business as usual (as if that whole set of darwinian notions was strong -- who is there who is not blinded by the sirens of wealth, money, etc.?).
• Unconscionable exploitation of Adam Smith - Adam knew the failings of 'free markets' quite well. He knew a lot more than that. Ought we to think that those who argue the 'invisible hand' are in mind to simulate that via computation (controlled by themselves - with appropriate skimmings, to boot) and funny money (gab standard and all)?
• Ca-pital-sino - How is it that the guise of business, as usual, has turned to gaming as if this were the epitome of the long trek to civilization for which our ancestors labored so hard?
• Gravy train - The spoils go to those who take risks, we were told, within a framework that allowed essentially silly ideas to be cast forward as brilliant. Yes, bet the dinner, as mommy/daddy will clean up the mess. Did we learn anything from our recent exposure to downturns (bubbles popping)? Well, some things came to fore: privatization of gain/socialization of loss, ...
• ...
• A new game -- this was written on Sept 22, 2007. What was the smell then? Were there early warnings of the downturn? The focus was on using a real project, like a new airplane, to talk about issues of economic systems (those things manipulated by the cream skimmers, okay?) that turn out to be so deleterious to the common man. That type of query, naturally, leads to issues like the cyber-physical. You see, money is more cyber than physical (those bills and coins are mere artifacts, worthless without the underlying system).

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Albeit, some of the problem is that computation covers a whole lot of mischief. Made-off is our best example of this (how many years did his silly, in retrospect, bluffing win out (we need to get into the psychology of that whole bit of idiocy)?).

Guess what? Computation is the core; unfortunately, that core is more of a utility than has been realized. Right now, it's a pot of gold into which are thrust several hands (yes, goldman, your ilk) daily extracting out mountains of cream for the elite.

• Aside: From 07/31/2009 -- Wait! More exposures: "computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else's expense." To anyone who isn't at Goldman Sachs or the like, does that appeal to you as the way that we ought to be handling our beans?

The necessary functions will require the stamina of one who has taken a vow of poverty (let's, for now, use simple living) and who is not seduced by the sirens related to high living (as in all of these financial centers in the world full of those who are not to run the core system).

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Market holidays, such as today, afford us an opportunity to look at the game for what it is.

Let's put it this way. If we built houses as we allow the market to be built (inflated by air), we would have to re-build quite often. We can attempt to put a timeframe on how long a house stood by looking at the crashes of the past 15 years.

Granted exogenous shocks were a large factor. Yet, it's like the child's story of the wolves blowing down the house.

Since we do know how to engineer, we can apply this knowledge to the economy. However, folks, it would not be 'financial engineering' (not in its current manifestation - sorry, professors, your best-and-brightest are one big problem to the rest of the populace).

Remarks:

01/08/2019 -- Added in the index of posts on this subject.

09/21/2011 -- On Wealth and the CEO MVP.

05/25/2011 -- Lemons problem, dark pools, ... Oh, so much to look at!

04/20/2011 -- Simple living (see Remarks 04/15/2011 - game theory), as opposed to greediness.

04/03/2011 -- Need to look at some background. Too, tranche and trash.

03/22/2011 -- It's spring, and the garble uses gambling metaphors.

03/16/2011 -- On the rise of the professional politician (will there ever be the citizen polico? that is, those who do not salivate when a buck is passed beneath the nose) toward robber barony. The M & Ms are apropos. As well, need to bring in Schervish's viewpoint.

03/11/2011 -- Wired asks, ought we care?

02/24/2011 -- People matter.

01/27/2011 -- The chimera shines.

Modified: 01/08/2019

Ergodic hypothesis

Moral: Wherein we start the slow trek toward a defensible position in regard to that which stinks and, thereby, honor Adam Smith and other thinkers.

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Ah, did we ever say that we have the answers?

Last time, we were looking at a constructive basis for capitalism; that goal is still there. However, a couple of concepts ought to be introduced into the argument. These are the ergodic hypothesis and fixed point issues.

• Ergodic hypothesis -- We mentioned this as a comment earlier, while talking about the problems brought on by misuse of mathematics by the 'quants' view. As the article said, Samuelson noted that bringing in this principle was needed to make economics more scientific. That is, we can solve the game of risk, it is thought.
• Fixed point -- Deep with the thinking that would apply the ergodic principle is some notion about convergence that may be stronger than warranted. In the large, we do not see much that is really divergent. The sun rises. The car runs down the road that is usually passable, without overly large potholes, and so forth. But, in the small, convergence relies on equivalence.

Now, given that we mentioned equivalence, please note that this is not an easy problem. And, I'm not talking about what 'is' is. You see, any equivalence decision will have been set up within a predefined framework supported by axioms, and other assumptions, in an operational sense. Yet, in order to attain an equivalent choice, all sorts of, supposedly, unimportant properties are thrown out or trivialized into a type of norm.

What do I mean when I say that 'equivalence' is hard. Firstly, the problem is NP of some sort. We looked at that earlier. Secondly, there are undecidable issues involved related to the context.

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The basic problem that needs attention is that concepts, like Arrow-Debreu equilibrium, furthers the delusions brought on by mathematization via computation. But, perhaps, that was inevitable; the latter progresses so the former would try to make use of the new facilities.

In short, though, not only do we not have 20-20 foresight (and hindsight) due to undecidability (and more), some things cannot be computed which begs the question of the Church hypothesis which will have to be addressed, to boot.

Remarks:

02/02/2012 -- This post's subject motivated the Ideology series.

04/02/2011 -- Weierstrass did not banish the motivations behind Berkeley's concerns.

10/14/2010 -- Capitalism, as known now, requires an endless supply of suckers.

10/13/2010 -- We'll get back to our itemization, soon. But, cannot resist mentioning that the foreclosure mess is indicative of the types of problems that 'capitalism' will face, especially as it facilitates movement of money from the pockets of the hapless to that of the fat cats. As well, analysis of Paulson, and how he benefited Goldman Sachs - who were rolling in the dough while others lost their livelihoods -- with his actions, and inactions, pertains to the next Remark.

10/07/2010 -- You know what is funny? Those who tend to ca-pital-sino laugh about State planning, to wit the failure of the USSR, etc. You see, these people claim, models, like the Input-output model, are touted as the means for that type of planning. Who can think of handling all that is necessary? But, then these same people see 'the market' as the means (look at the Arrow-Debreu view) based upon what (as in, what the hell is that? the money-sucking methods of Wall Street?)? The invisible hand?

Wait! What's the answer? Well we're getting there, albeit without any compunction about when.

Modified: 02/02/2012

Financiers

Moral: Wherein this group has not been mentioned specifically, yet. So far, we've had posts about Labor, Economists, Quants (these work for the Financiers), Educators, Bankers (who can be confused for Financiers), and Investors.

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Perhaps, it is time. We can start, slowly, with a look at related subjects, such as TARP, and then go into other matters. This topic will be more thoroughly covered, as time progresses.

• See The Baseline Scenario on testimony given to Congress, lately, about TARP. Notice, in particular, the reference to the April, 2009 article in The Atlantic. What is ironic is that some actions being pursued in the US would be frowned upon by the IMF (et al) if it were the action of a developing country.
• See Wall Street vs America (the Municipal Squeeze) in Business Week (11/30/09). Example. The issue cover had a rampaging bull running amok amongst the people. Their lesson, the Streeters, could be this: you guys aren't any different than the rest of us, except for some type of conscience disadvantage-ment. Somehow, filthy lucre smells wonderfully under your noses.
• Bookstaber is going with the SEC. Great! Let's get them money guys/gals in line. Or, can we? Rick was a participant but learned an unusual lesson (see prior bullet). He, at least, knows the issues related to computing.
• Why do these people think that their manipulations (supposedly innovative) help us? (yes, how have the physicist's (quants) helped these bozos?)
• Roubini on the coming unwinding. The doctor of doom says it right about Fred/Fan.
• Is this time different? Well, when will we put these players into their own sandbox to isolate their shenanigans from those of us who are more rational?
• How do economists figure into the mess?
• How markets fail. Like the concept of 'reality' economics; versus spitting in the wind.
• Do morals matter? Ah, way so, even beyond concerns relating to homo economicus.

The list is shortened, but the topic will recur.

Remarks:

12/06/2013 -- If only Ben would put a shot across the bow. He's helped the chimera unfold in unhealthy ways. He could, at least, say a mea culpa.

12/10/2009 -- More roles include the consumer and the economy.

11/29/2009 -- Risk and rationality.

Modified: 12/06/2013

Engineering economics

Moral: Wherein we look at the engineering of economics. This post's motivation comes from seeing the FT review of Rick Bookstaber's and Nassim Taleb's testimony before the US House of Representatives' Committee on Science & Technology.

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As mentioned last post (see Remarks), having recently run into Rick's blog is cause for a pause to catch up, since I have been paying only cursory attention to the use of technology in the markets since other technology was so fascinating.

Like what? Well, technology such as engineering computing that allows complex systems like an airplane to be designed and tested. The modern processes and materials are vastly different from what they were 20 years ago, as are the computers.

From looking at Rick's recent posts on high frequency and algorithmic trading, which go into some technical detail, I can see some of the parallels that I had expected (see Econ/Eng). For one, both have a problem with determining value, albeit it's 'fair' in finance and 'earned' in engineering. There is more than a tenuous link here which I intend to show as this is a problem that has been exacerbated by technology, not helped.

But, what can we do? For one, we can define and put into place an economic sandbox. Ah, what might this thing and why now? That is the work that we have to do.

Perhaps an aside is in order. I may have spent a large part of my career in engineering computing, but my degrees are in Economics with a mathematical focus. During the other times, the focus of my work was operations, and management, research. Hence, I'll have to admit some affinity with those worrying about risk management. Too, I spent a lot of time working issues related to knowledge and computational modeling (KBE).

Both engineering and finance have been a focus in this blog, albeit seeing a lot of fiction in finance (Rick says stranger than fiction). One thing about finance's use of technology is that the game aspect dominates any science for several reasons. Well, engineering companies like to make money to boot. Yet, in engineering, we go up against nature.

Which, by the way, the quants bemoan, that they have to deal with unpredictable humans. Hence my having up close exposure to the underpinnings, and problems, of our house-of-cards led me to look for causes to problems that are, well, cyclical. The trouble is that we don't seem to be learning the right lessons.

For instance, I started a list related to finance earlier this year. Engineering does learn, just witness the marvels all around.

One first lesson might be to accept that striving and gaming will not resolve intractable, essentially undecidable, issues. That applies almost everywhere. In finance, near zero is real, folks.

There will be more posts related to Rick's work.

Remarks:

05/28/2011 -- Lemons problem, dark pools, ... Oh, so much to look at! Avatars, too.

01/19/2011 -- For the most, things are dire, not by necessity.

05/25/2010 -- Who will (or can) lead out of the morass?

11/30/2009 -- From 'Our basis' can grow a whole bunch.

11/29/2009 -- Rick is now with the SEC.

10/05/2009 -- Ah, yes, on the behalf of.

09/21/2009 -- Yahoo Finance talks about the decline in youngsters going into finance. That sector, finance, grew faster than any other for a couple of decades. How useful was that?

Modified: 05/28/2011

Economic sandbox

Moral: Wherein we consider a sandbox. In several posts (see below list), 'sandbox' has been used to either characterize gaming that is risky (sandboxy) for more than just the players or to denote a better process, using as an analog the role that labs play for the test engineer. That is, filter out the toxic from the secure instruments.

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Think of it this way. A new plane is seriously tested before people fly the thing. Even the test pilots don't just jump in and take off. Where is there some correspondence to this notion in economics?

What we've seen is creative spawning of instruments as if by necessity. Then, in the past year, we've seen 'shooting from the hip' by some cowboys (right and left, there have been processes changed and adopted, seemingly without caution); too, those in the position to rake in the dough are doing just that; the taxpayers, and savers, are being sacked.

One motivation: describe and establish a mechanism to put the game players where their impact is limited. We do not need this supposed 'creativity' of the best-and-brightest that seems to persist in creating dire consequences for the majority.

So, for starters, let's look at the posts that used 'sandbox' and start this necessary discussion. The following are three groups of links to post with some comment about how it relates to the sandbox imperative. The post are listed from latest to earliest in time.

• Educational Institutions (Sep 09) -- As with engineering and science, these institutions ought to be where sandboxes evolve, not in the for-profit side of business.
• Computation, finance and engineering (Sep 09) -- Even Nobel winners were amiss, big time.
• Spitting in the wind (Sep 09) -- The sandbox would isolate effects until something is proven.

• Roles for schools (Sep 09) -- As mentioned earlier, labs are an accepted fact in institutes of higher learning.
• Modern finance (Oct 08) -- Where did the notion arise that people could play games with other people's money using what are essentially untested processes? Does fiduciary duty mean anything?
• Easy steps (Oct 08) -- Definitely derivatives (other usage) ought to be wrapped with some type of testing constraint. Minsky's notion of speculation leading to ponzi applies here.
• Swarm proof (Sep 08) -- This type of proof, applying the wisdom of the crowd concept, would be interesting in several contexts.
• The times (Sep 08) -- We need to accept our quasi-empirical limits as we apply some notion of testing. How do we agree on these is something to discuss.
• Loops and truth (Feb 08) -- Getting an agreement on limits would help us to try to resolve issues related to the thrill of gaming where consequences go far beyond the player's own health and wealth.

• Cult of me (Jul 09) -- We may already have some sandboxes that are being misused by the 300 lb bullies.
• New type of colonialism (Sep 08) -- Sandboxes could help reduce the large influxes to some pockets, albeit that some of these come about from making bets that pay off (note, near zero allows us to know that the pay off was from pockets that diminish correspondingly).
• Oops as poop (Sep 08) -- Not handling moral hazards leads to an increase in sandboxy ways (where the whole economy is seen as someone's sandbox).
• Oops and more oops (Sep 08) -- We could show that hedging and speculation are natural control mechanisms to some point beyond which the game then is sandboxy and ought to be handled as such.
• Miscellany (Jul 08) -- The sandbox notion applies to control of risky behavior, except that there has not appeared to be an easy way to resolve the issues. However, has any tried the sandbox? Oh yes! Engineering!
• People matters (Mar 08) -- This was the first mention of the sandbox needed to control use of methods that have more potential than their current role of moving monies into a few pockets. After all, how people use their monies can be a type of voting. Allowing such a thing to evolve can be thwarted by the massive flows from the giants (un-level field).

Note: these posts paralleled the unfolding of the madness with several reactions, including from incredulity.

Note: 'sandbox' has found usage in computer security and software development. This usage is apropos to the discussion of an economic sandbox.

Remarks:

01/15/2015 -- This week, this post is getting read. Great! Nice little piece of work (kidding, in part) so many years ago. ... At last, a series that will establish the basis and extensions, as required. We are going to go back to some simple and come forward to the modern, complicated economy. Why? My long chain of ancestors (inherited via Prof. Lucio Arteaga) is one motivation.

12/22/2014 -- Nice to see the WSJ article use "sandboxed" in relation to the absence of "predict or control" within the context of computation (in a sense, we are already out of control). The issues raised in the article are central to truth engineering's core focus.

10/30/2014 -- Where are we?

10/16/2014 -- Need to get back to this, as the days of the downturn loom. No matter how much the Fed feeds the panhandlers, they will succumb to health issues at some point (when?, how long?, actually, for me, it does not matter, as I am an observer, only, who is one of those interested in building a better pie). The tragedy to all of this? Oodles of hapless folk will be drawn down with the players as their ca-pital-sino sinks. ... Does not have to be. There are better ways.

01/20/2013 -- Perhaps, the sandbox ought to be for play, dirty and otherwise. Which means, of course, outside of the mainstreams that handles things for the folks who care about their economic well-being.

09/14/2012 -- Ben just gave them, the runner amok'ers, the store. 

05/28/2011 -- Lemons problem, dark pools, ... Oh, so much to look at! Avatars, too.

04/03/2011 -- Need to look at some background issues. Sandbox, again.

03/22/2011 -- It's spring, and the garble uses gambling metaphors.

01/27/2011 -- The chimera shines.

05/25/2010 -- Who will (or can) lead out of the morass?

12/24/2009 -- What would Samuelson think of the concept?

11/29/2009 -- Rick is now with the SEC. Who will engineer (verb)?

10/05/2009 -- Ah, yes, on the behalf of.

09/13/2009 -- Need to pause for a bit, to look at Bookstaber's work.

Modified: 01/15/2015

Why not?

Moral: Wherein we ask 'why not? which question can go a couple of ways. We're going to look at one of these. Actually, there is a third that is the mantra of the toddler learning about its will, that of others, and boundaries (say, good behavior), but we'll not go there either.

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The query could indicate an awareness that something ought to be done or to happen, say like realizing one suggestion from the President's speech. Stay in school and be a good student (as good as you can be). Or, why not build a new plane with entirely new processes and material, that is, re-position the decision framework on an unknown center plus relax constraints along about all decision axes? In other words, the little engine that could. Or, why not pursue globalization? That's not the focus, for now.

The query could relate to reasons for something not happening, such as causal analysis tries to effect. Oh yes, risk analysis tries to do this before the fact. That use is what we're going after in order to pull together some 'un' words with a coherent message. For instance, 'undecidability' has be thrown about here, thanks to its use by the Vienna School. And, 'underdetermined' has been used, mainly due to its usefulness in resolving how we think about several dilemmas. We need to add 'unpredictable' as the risk people don't seem to know the concept.

Let's try this sequence of using these concepts (U U U N, unfortunately, not as meaningful as TANSTAAFL) in order to explain why these have appeared as well as to start discussion about what their applicability means to our difficult situations. There are other orders; this one seems to have some power for explication.

• Unpredictable - Actually, this ought to be used for the fact that we have no a priori knowledge of how events will unfold, for the most part. Of course, some stable events recur without our involvement or worry. For instance, days succeed one another. Yet, how many lost their wealth, and income, of late due to some idiocy (not necessarily their own) that can be explained? Do we know of any problematic programs? Say, has weather forecasting in your area been 100% on (whatever that would mean) this past summer? That the quants have run off after their stochastic taming attempts we'll be looking at further. That CAE folks have broken the rules of map/territory differentiation is another variation of mis-handling of that which this sequence denotes.
• Underdetermined - Well, what does this mean? We can use the wiki definition. Since predictability, and its complement (ah, is that so?), are figured using mathematics, albeit a subset dealing with things called statistics, let's use that type of story here. Basically, if we have a series of equations and unknowns to be determined, we like them to match in cardinality. That is, if there are too few equations, then we'll have to sort out the extra unknowns by various schemes (assumptions, swags, etc.). If there are too many equations (too few unknowns), then we're on the other side of the bad boat. The case, with computational modeling, is just this. Too much fudging (sorry, techie folks, but the truth has to be told). Also, note that we talked about unknowns. The equations would contain variables, to boot, whose definition and handling can be problematic.
• Undecidable - Now, we have to mention Turing's, and related, work, briefly. Then, we can just discuss the issues involved with the complicated concept, in general. It is more than just a computation problem, as we see from Hilbert's query. To shorten a potential long story, we can say that some issues are not related to time, sequence, or any type of order. Yet, we can always re-frame things to be decidable, within limits (meaning choice, allowable error, etc.), of course.
• NP (Nondeterministic polynomial) -- We're using this to introduce complexity. You see, even re-framing does not guarantee some solution unless we're exceptionally good (which some people are) or lucky (again, we see this). Yet, it's the computational aspect that is troublesome, such as using approximation, heuristics, and more. Why? We have had many of years to learn about human dynamics; yet, there continues to be intractable problems. Adding in the computer just exacerbates things incredibly. But, for thinking of complexity in terms of using the computer for solutions take the chess game. Well, that little game, on a small board, is highly complex. Something as seemingly simple as checking if two circuits are equivalent is, to boot.

Having gone through this, can you see other orders? It's the chicken/egg thing. For instance, 'undecidable' might be made the basis, with incompleteness being a key thing. The order, shown in the list, comes about since we're dealing with things that have gone awry due to our immaturity with using computational resources.

One could suggest a decision framework based upon this order that is operationally effective (with a bow of acknowledgment to quasi-empiricism). By the way, with NP at the core, how can we proceed? Ah, that is the essence of truth engineering's contribution.

But, this question of 'why not?' and UUUN ought to be part of the program management vernacular, and jargon. So, we'll continue this next time.

Note: An important concept will be separability. On predictability, some say, well, the sun will rise. Sure. But, weather was added in for this reason: will it be clear enough to see the rise? You see, NASA faces this problem all the time with shuttle launches. So, various windows of opportunity can be identified, with some ranking of certainty. Yet, the operational scheme is to be ready to take advantage; and, how many times does weather cause a mission delay? Now, if the parts of engineering that relate to business would just go back to their true framework, perhaps some of the hubris would diminish. The issues of underdetermination, undecidability and NP are important just because predictability, as a highly mathematicized approach, can be easily mis-used. Too, people play power games in these complex situations where someone who fails to solve an essentially intractable problem has his head removed. Sheesh. How the hell can we expect to learn without failure? Those who try and fail ought to be honored. Except in this situation that is very much apropos for mention and current: playing silly games with other peoples' monies in a risky fashion is verboten, by definition. Because of near-zero, we ought not even honor those who win. Stupid game, folks.

Remarks:

01/15/2015 -- This week, this post is getting read. Great! Nice little piece of work (kidding, in part) so many years ago. ... At last, a series that will establish the basis and extensions, as required. We are going to go back to some simple and come forward to the modern, complicated economy. Why? My long chain of ancestors (inherited via Prof. Lucio Arteaga) is one motivation.

03/11/2012 -- We need to update this, especially with a nod to Alan M. Turing.

10/07/2010 -- Several principles need to be explored, such as the ergodic one.

12/08/2009 -- Consider current CEOs in relation to Paul. Not fair? Well, these guys/gals have set themselves upon some supposed plane that is above the rest of us.

11/29/2009 -- Rationality and risk. Need a new look.

11/08/2009 -- The gigantic chimera needs proper attention.

10/16/2009 -- 201K <-- 401K --> 25601K, this denotes the current financial gaming.

Modified: 01/15/2015

Quants ignore complexity

Moral: Wherein we note that the title may not be strictly true, but we could rephrase as follows. Quants find interesting solutions to money seeking problems, in doing so they skirt the boundaries of undecidable regions, and, then, they tell an improper tale.

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Starting from the rear, the successes, when if looked at closely would probably be a small subset of tried approaches (we have Merton as source for such a criticism). And, given the reality, that the solution was 'magical', is not told since the fat cat paying the quant doesn't want to hear such.

Continuing to step back, the undecidable argument comes out of studying Vienna school thinking about the economy. We, on the western edge of the big pond, like to continue our 'manifest destiny' ways in the realms of the virtual and digital. Ah, only if it were to be. On the eastern side, their longer history leads to some insight about how easily we can be misled by statistical mechanics and, especially, game theory as it may be exploited via better handling of differential equations (namely, the partial types).

Look, folks, near zero is real.

The use of undecidable here is fairly broad (to be discussed, including the specific use within mathematics of independence).

Now, for the first point, that fat cat approaches to money making would include computational advances, and flim-flaming mathematics, is to be expected; exploit all avenues to maximize pocket size structure and fill. Yet, they need to be called for this. Why else do the hedge funds want rules that allow them to cloak what the hell that they do? If they were so smart, they would show what their shorts cover with the knowledge that no one else could figure it out.

Too, we see high-frequency trading leading to very smelly tactics; ah, intellectual cesspooling that it is.

That Madoff got away with his shenanigans for so long is directly related to his computational authority (access, support, etc.) and his ability to keep away proper scrutiny.

We'll look at this type of thing further.

Remarks:

10/24/2012 -- Goldman skimming via Quants and their creative finance.

03/15/2012 -- Okay, might have used incomputability (see post on Alan M. Turing) but stand by the context, the issues, and the need for resolutions. Wake up, quants (you, too, Ben).

05/25/2011 -- Are lemons the norm in finance?

05/17/2011 -- Hedge funds need some of our attention.

11/21/2010 -- Three years ago, it was said: Computational foci raise miraculous need. Still applies.

10/07/2010 -- Several principles need to be explored, such as the ergodic one.

05/25/2010 -- Who will (or can) lead out of the morass?

02/10/2010 -- Recent auto events have a similar basis, folks, to the mismash out of 'quant' thinking.

10/16/2009 -- 201K <-- 401K --> 25601K, this denotes the current financial gaming.

09/09/09 -- We'll need to look at UUUN, as a framework.

09/02/2009 -- Let's put undecidability on the table, please.

09/01/2009 -- Not just picking on Quants here, as we see product and process people making similar errors. Though, it's hard to talk error when money is rolling in the door.

Modified: 10/24/2012

Systemic risk

Moral: Wherein we continue the Quants series.

---

We're not picking on these lowly workers; no, the intent is to get at the motivation behind the scene. What is that? Well, it's essentially a "license to steal" (concept has been used before) that seems to have become acceptable, if enough money is behind the thrust and if a market ideology is overlaid as a cloak.

James Fallows (Atlantic) says that Dr Doom (who has some good news) likes Timmy's work. After all, as the NY FED guy, he (Timmy) was talking systemic risk way back in 2003. Perhaps, now he has an opportunity to do something rather than just jaw bone.

Just to get the discussion started, one big piece of systemic risk is the rapid growth of types and kinds of computational resources being applied to support markets. Ah, you say, they could not work without the computer.

That is true. Yet, in many cases, those who provide the service hide behind a proprietary wall. Just remember how Madoff pulled off his feat. Too, that high-frequency trading (see Remarks: Wait! More exposures: "computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else's expense." To anyone who isn't at Goldman Sachs or the like, does that appeal to you as the way that we ought to be handling our beans?) is seen with such glamor, with a hint of respectability, suggests something.

Where the heck has common sense gone?

Every day, there ought to be an accounting of the markets that has some meaning. No, not just some figure like the closing DOW. Actually, something like a SOX for the market is a good analogy, yet we all know the grief that that initiative spawned. And, did it prevent this current mess?

Who can do an accounting? Does the FED know its own balance sheet? How can they know the economy's?

Oh, too, the markets are 24/7, you might argue. Ah, is that so by necessity? If we use a biological metaphor, what complex entity does not sleep?

Actually, probably as much effort ought to go into accounting and scrutiny as it does into efforts as maximizing the sizes of some pockets. We can probably use those media who watch (another example) as an example, yet it needs to be a deeper look.

Well, it's obvious that the accounting will be computational. So, there is no reason to take this as the grumblings of one who is anti-progress.

The problem is that the computational is new, non-intuitive, and run by wizards. All of this allows lots of room for exploitation and mischief.

Did I mention mis-used mathematics and theoretical flim-flam? That, too. Of course, truth engineering suggests that there isn't an easy answer (see Remarks).

Or, let's look at it again: Some statements in this blog deal with the Philosophy of Science (here's another nice little rundown), in particular as it applies to one issue contended by mainstream economics against the Vienna school: Critics of the Austrian school contend that by rejecting mathematics and econometrics, it has failed to contribute significantly to modern economics. Additionally, they contend that its methods currently consist of post-hoc analysis and do not generate testable implications; therefore, they fail the test of falsifiability.^[5] Austrian economists contend that testability in economics is virtually impossible since it relies on human actors who cannot be placed in a lab setting without altering their would-be actions.

Ah, falsificationism, but what does that have to do with making oodles of money by the best-and-brightest (see Goldman's Town Hall)?

Well, we can start with lessons to learn. One is that some things are undecidable no matter how much computational power is thrown at them. Therefore, they need considered thought (and voting - ah, not necessarily by a market game!).

Somehow, the PDE aura allows some type of pass on reason (ah, fairy dusting).

Remarks:

01/15/2015 -- This week, this post is getting read. Great! Nice little piece of work (kidding, in part) so many years ago. ... At last, a series that will establish the basis and extensions, as required. We are going to go back to some simple and come forward to the modern, complicated economy. Why? My long chain of ancestors (inherited via Prof. Lucio Arteaga) is one motivation.

12/06/2013 -- If only Ben would put a shot across the bow. He's helped the chimera unfold in unhealthy ways. He could, at least, say a mea culpa.

01/27/2012 -- Ben will continue to sack the savers; he must love the ca-pital-sino.

10/10/2011 -- If the OWS wants specifics, there are plenty to list.

02/01/2011 -- The chimera shines.

10/07/2010 -- Several principles need to be explored, such as the ergodic one.

05/07/2010 -- Out of control, essentially, and not healthy for the backbone.

02/10/2010 -- We could probably use the auto (and recent events) as a way to characterize the concepts of the blog. Of course, we have the value versus quality mis-think as part of the problem. Business Week reports that Toyota was asking suppliers for a 10% cut. Well, such scrimping would have an effect, even if it was only in looks. However, cutting into the life of a system may appear smart but, actually, relies on the same unstable basis as does a lot of economic thinking.

01/03/2010 -- More news on Goldman Sachs as the uber example of 'not on the behalf' comes to fore regularly. It'll need to be a separate subject at some point. Thanks to McClatchy: Nov 1, 2009 & Jan 3, 2010 (update). Goldman has to respond, of course.

12/15/2009 -- Requiem for the dollar (WSJ) and responses.

12/03/2009 -- Rationality and risk. Need a new look.

10/05/2009 -- Ah, yes, on the behalf of.

09/15/2009 -- Lessons, one year after Lehman. Also, Time on culprits. Ben is happy-talking, again.

09/09/09 -- We'll need to look at UUUN, as a framework.

09/04/2009 -- It has been decided about Ben, the saver sacker. We still need to discuss the overarching metaphor for the economy. Quants are it!!

Modified: 01/15/2015

Quants, again

Moral: Wherein, we are reminded, well, that Ben, saver sacker that he is, is getting his job extension. So, we'll have several more posts on this theme of the quants.

---

Why? Well, it stinks. Tell me. How does coming into finance with an indoctrination in the physical sciences and mathematics add to our knowledge? On what basis do these quants make their applications (scientism?) or is it just pure mathematical flim-flam to fool the populace?

Oh, those quants have to admit that they would be lost without computing.

Let's put it this way. The only motivation may be that fat cats have paid for the work since some of this type of modeling and computing does fill pockets. Oh, boy, does it ever. And, that is sufficient from a certain viewpoint since the status quo seems to be moving large amounts from the majority to the minority.

Oh, you see high-frequency trading as a level field for all of us? Ever notice how things like the 'flash' seem to be a natural consequence?

Also, the fact of near-zero says, hey wait a minute!!

One argument that you hear from the quant's view is that people are not like objects with which physics entertains itself. Oh, so this makes it difficult to predict the future. Yes, we are very hard to pin down with modeling as that thing called volition, and more, comes into play.

Hey, that the reality folks. If you would just read the insights from Vienna, then we could discuss what undecidable means in this context. But, that is not necessarily scary.

The view over here, this side of the pond, is that mathematics has the answers. That one thing is what we need to talk about.

The politicos (they who salivate when the buck is passed under their noses), management (the clueless, essentially), the hapless (hey, always getting screwed, even when the Democrats are in charge), and others need to hear about these issues so that we can all be better informed and dampen those crazies who are (you know who you are) pushing casino capitalism.

The world needs us to get our act in order.

Remarks:

11/15/2015 -- Quora coming into the scene.

03/03/2014 -- Acknowledgements, including math pedigree, will be expanded.

10/24/2012 -- Goldman skimming via Quants and their creative finance.

03/15/2012 -- Okay, might have used incomputability (see post on Alan M. Turing) but stand by the context, the issues, and the need for resolutions. Wake up, quants (you, too, Ben).

03/17/2011 -- On the rise of the professional politician (will there ever be the citizen polico? that is, those who do not salivate when a buck is passed beneath the nose) toward robber barony. The M & Ms are apropos. As well, need to bring in Schervish's viewpoint.

01/03/2010 -- More news on Goldman Sachs as the uber example of 'not on the behalf' comes to fore regularly. It'll need to be a separate subject at some point. Thanks to McClatchy: Nov 1, 2009 & Jan 3, 2010 (update). Goldman has to respond, of course.

09/09/09 -- We'll need to look at UUUN, as a framework.

09/02/2009 -- Such as, undecidability.

08/27/2009 -- Let's start talking computational issues and how they contribute to systemic risk.

08/26/2009 -- Some statements here deal with the Philosophy of Science (here's another nice little rundown), in particular as it applies to one issue contended by mainstream economics against the Vienna school: Critics of the Austrian school contend that by rejecting mathematics and econometrics, it has failed to contribute significantly to modern economics. Additionally, they contend that its methods currently consist of post-hoc analysis and do not generate testable implications; therefore, they fail the test of falsifiability.^[5] Austrian economists contend that testability in economics is virtually impossible since it relies on human actors who cannot be placed in a lab setting without altering their would-be actions.

Ah, falsificationism, but what does that have with making oodles of money by the best-and-brightest (see Goldman's Town Hall)?

Modified: 11/15/2015

Money 2

Moral: Wherein we go on now from the first look at money. What we did there was review earlier posts, one of which looked at definitional work by von Mises.

---

We talked about fiat currency several times in prior posts. von Mises (and the Vienna School, love the use of undecidable) had opinions about this, too, that we ought to consider, as did other, of course.

One thing to consider is how the fiat situation (as does the theme described by Minsky's) exacerbates bubbles and inflation. Just look at this chart of inflation up to 2004. Notice that after 1950, there have been no deflationary periods, that is, 49 years without going below the line. Is that natural? Do we know how to run the economy (or do the past couple of years show this)?

Without stable money, what is there to establish the proper basis? Theoretics (ah, like Ben? He who has no 'mea culpa' to offer despite blinking and being desperate.)? Quantifications (meaning, of course, that the Quants' insights and programming will be the savior)?

You know what? During that same time, of no deflation, the consumer got increasingly under a debt load, as did the US economy as a whole (hello, China). There is a definite correlation to be looked at further.

Have you noticed that, of late, the emphasis is on credit (not its natural consequence which is debt)? Yes, some change of perception has taken hold. We need to look at this, folks, and tackle this beast now.

We are mortgaging future generations for no good reason other than mental laziness. Politicos who salivate when a buck is passed underneath their noses are no help either.

Remarks:

12/06/2013 -- If only Ben would put a shot across the bow. He's helped the chimera unfold in unhealthy ways. He could, at least, say a mea culpa.

03/17/2011 -- On the rise of the professional politician (will there ever be the citizen polico? that is, those who do not salivate when a buck is passed beneath the nose) toward robber barony. The M & Ms are apropos. As well, need to bring in Schervish's viewpoint.

11/02/2010 -- Over a year later, the message is the same, except some changes have occurred. But Big Ben continues in his ways. Of real note is that the jobless rate is high; out-housing really set up for that. Also, we need to re-look at that learned from the 'vons' guys, Ludwig and Friedrich. See Near Zero.

12/15/2009 -- Requiem for the dollar (WSJ) and responses.

09/09/09 -- We'll need to look at UUUN, as a framework.

08/24/2009 -- Liquidity trap is the operative concept. Various 'helicopter money' schemes have been tried but have they gone mostly to the fat cats?

Also, we have seen the CPI fall in the past 12 months. How low can this go?

Modified: 12/06/2013

Continuous and Discrete

Moral: Wherein we use: Say what? Well, think of the title as a headline aimed at an attention-grabbing.

---

Of course, any implied reference to the dualities addressed (example) by physics is intended, however tenuous they may be at this point. But we'll get into that later, as are not many Quants from backgrounds in the hard sciences (see Remarks 08/20/2009)?

The idea is to start to address some issues in finance. It'll be slow, as there is a whole lot to cover.

Not that I'm an entire newbie, but it was nice to see that the notion of discrete and continuous has already come up in finance. Note, for instance, this bit in Wikipedia that compares binomial and the Black-Scholes models makes that distinction.

Having mentioned B-S does not mean that we'll get into the Greeks just yet. We have to start much more basically. Consider that the approach is both fundamental and foundational (f&f).

Now, doesn't our intuition tell us that some things are smooth and others are not? And, even if we don't use that particular word, could not any of us make this choice in a situation like sorting some set of objects? Even blindfolded?

But, being technical, we know that smoothness involves differentiability. As we all know, non-smooth, from noise or error, is difficult to handle, in fact causes very bad behavior. The advances in finance that we are to address came from several directions, but two major ones are the means to handle problematic mathematical objects, like the non-smooth (via Ito's and others' work), and to have computational means for this (hey, it would not have worked otherwise - get used to quasi-empirical as a concept, as it'll be used a lot).

As we know, it was a major step to realize that we could have continuous and non-differentiable functions (Bolzano, old KW, et al). Yet, there are other steps forward, like this one out of France (Levy process). Actually, there are too many to cover in brief posts like this.

At any time, various hints at background are all that we can do in order to state some theme. In this case, a whole lot of work has gone into handling randomness and high variability. Some attempts at bringing to fore some intuitive views can be seen, yet they also bear the danger of being problematic (thanks, Hail the Quants!). Actually, the intuitive is no more apt for this downside than is the most polished, theoretically-grounded construct.

The current excuse is that overlays that have people underneath are by definition too difficult, as opposed to physics and its particular entities that are mindless. Yet, consider, please. All that says is that derivatives (see Note 1) placed upon humans, or things that are highly influenced by human activity, have value derivation problems.

Yes, I know, plenty have made money. You know, of course, that the multitude lost out. Call it near-zero, if you must. If you look at overviews, like this one from the WSJ (Reagan's Bull Market), yes, things are a lot different than 1982 (gosh, some of the Quants may not even have been born). But, look at the median income line over that period (if that were a log chart, it would be flat lined).

The intent is not criticism. Rather, let me suggest that there are ways to do this modeling, that is, overlay people with more insightful structures, however, the concept of smoothness will be imperative. How can this be? Ah, that is what we'll be going over through time. But, start to think about boundedness as more than a limiting abstraction.

Hopefully, the discussions will come to code and test sooner than later; actually, that is the goal, though f&f will continue to be of major focus for now.

Remarks:

03/15/2012 -- Okay, might have used incomputability (see post on Alan M. Turing) but stand by the context, the issues, and the need for resolutions. Wake up, quants (you, too, Ben).

01/13/2012 -- A re-look at this. 

10/08/2011 -- The link is more than tenuous. In fact, numeracy (see Reflections on the work of Steve Jobs) ties right into support of the discrete model. Why? For now, we have to transform from continuous space to the not-continuous in order to obtain solutions. One has to wonder if there is some way that 'analog' views might help us grasp better the ways of the continuous (we all know that we're a whole that is much more than the sum of parts -- yes, we do).

02/10/2010 -- We could probably use the auto (and recent events) as a way to characterize the concepts of the blog. Of course, we have the value versus quality mis-think as part of the problem. Business Week reports that Toyota was asking suppliers for a 10% cut. Well, such scrimping would have an effect, even if it was only in looks. However, cutting into the life of a system may appear smart but, actually, relies on the same unstable basis as does a lot of economic thinking.

09/02/2009 -- Let's put undecidability on the table, please.

09/01/2009 -- Oh, one might ask, why do I pick on Quants? A good question that we'll expand upon over time. They're like explorers in a new territory who mainly pillage and exploit when we, the human race, need more those who can map and help us learn. Learn as in real knowledge not just moving monies to certain pockets. Yes, indeed, a map-territory issue here among many others.

08/25/2009 -- Overlays, yes, needing insights from across the pond.

08/20/2009 -- Note 1: 'Derivative(s)' has been used a few times in the posts. The context may imply the usage, hopefully. But, in general, we're talking two types: 1) from finance, where 'derived from' is the proper interpretation (or as one may surmise from posts here and elsewhere, something from nothing), 2) the usual mathematical variety.

Modified: 03/15/2012

Quants

Moral: Wherein we consider that Quants are several things. For instance, there are they who bring training in science and engineering into finance thereby raising the level of fairy dusting and elevating financial engineering (see IAFE).

---

Well, we are told, better handling of finance is possible through these means; however, consider that the non-profit approach might be of more importance than has been allowed.

IEEE Spectrum had an overview (The rise and fall of the quants) in the August, 2009 edition which describes the experiences of a few. It's interesting that some of them fell into the best-and-brightest role, namely a youngster who helps fat cats fill their pockets thereby earning outrageous amounts themselves.

Not that there is anything against making a living, or getting filthy rich (if done fairly and legally), yet the techniques related to the quants can (ought to) be heavily research flavored (The Physics of Money, What they need to learn, In his own words). And, guess what? Some win. Others lose. That's the way life is.

Yet, the influence on either side goes beyond those playing the game. Yes, these shenanigans leave ramifications. What? Yes, it's true.

Old Ben is too busy keeping things afloat to look at this. However, he cannot expect to have a stable economy without these influences being under control.

Merton suggests that perhaps only 2 out of 100 bright ideas pan out. Think of all those side-effects that come from applying tests, uncontrolled except for measurements oriented toward how big the pockets get, on the fly (see Wired's view).

Outrageous! Where the hell is the outrage or is everyone running after those dollars being thrown out by Ben, the pied-piper?

Why is this allowed? Some type of cultural blindness that relates to the economy and money? Somehow, the Lords prevail even though they monkey the works (Mother Jones' view).

Ah, yes, the pay consultant says that the high CEO pay (or any) is due to the small cardinality of the set of those who have the right qualities. Crap!

On a final note, mathematics' role will be covered here. Remember, though, that our success hinges upon economics becoming less 'dismal' as a science; yes, too, notions related to people not being understandable are suspect as they're an excuse for covering up pocket picking.

Remarks:

11/15/2015 -- Quora coming into the scene.

03/15/2015 -- Finally, getting around to the pending business.

03/03/2014 -- Acknowledgements, including math pedigree, will be expanded.

10/24/2012 -- Goldman skimming via Quants and their creative finance.

03/15/2012 -- Okay, might have used incomputability (see post on Alan M. Turing) but stand by the context, the issues, and the need for resolutions. Wake up, quants (you, too, Ben).

10/07/2010 -- Several principles need to be explored, such as the ergodic one.

12/10/2009 -- More roles include the consumer and the economy.

09/01/2009 -- Oh, one might ask, why do I pick on Quants? A good question that we'll expand upon over time. They're like explorers in a new territory who mainly pillage and exploit when we, the human race, need more those who can map and help us learn. Learn as in real knowledge not just moving monies to certain pockets. Yes, indeed, a map-territory issue here among many others.

08/27/2009 -- Let's start talking computational issues and how they contribute to systemic risk.

08/24/2009 -- Further message to the Quants. Have you looked at the Vienna School's discussion of undecidable which applies, big time, to your milieu (even with the numeric overlay)?

08/21/2009 -- Need to start a list of technical things to discuss: ergodic hypothesis, sojourn time, ...

08/20/2009 -- Note 1: 'Derivative(s)' has been used a few times in the posts. The context may imply the usage, hopefully. But, in general, we're talking two types: 1) from finance, where 'derived from' is the proper interpretation (or as one may surmise from posts here and elsewhere, something from nothing), 2) the usual mathematical variety.

08/20/2009 -- So, Quants have their following, as evidenced by this 'hero' worshipping text from Wikipedia (hey, I'm a contributor and believe in what it foretells) that we find int the Slang Section: Rocket scientist, a financial consultant at the zenith of mathematical and computer programming skill. They are able to invent derivatives of frightening complexity and construct sophisticated pricing models. They generally handle the most advanced computing techniques adopted by the financial markets since the early 1980s. Typically, they are physicists and engineers by training; rocket scientists do not necessarily build rockets for a living.
Of course, that could have been written by a self-absorbed Quant. But, 'frightening' is the right word; yes, they may have been adapted, yet at what grief? At least, a real 'rocket' can be tested in a natural setting. These models? One purpose for our discussions here.

08/19/2009 -- I said earlier that, after some jawboning, I would get serious. Well, it's time. Why now (after all, I wrote that in October of 2008)? Well, hasn't the past year just been full of 'say what?' moments as things unthought of appeared without much clamor. Also, it's good to see the enthusiasm of those who have gone through MFE courses (yes, we do have to divert from the MBA mentality), plus the fact that blogsphere (like, Hail the Quants!) has allowed these students to share their thoughts is inspiring.

But, first, a couple of messages.

• To the non-Quants: not everyone has to run after the martingales, folks, in fact, the world needs those who can counter the quantitive bias. That is, we'll have computers. But, we'll also need to truth engineer these beasties, and those who are their keepers, using means that are analog and intutitive.
• To the Quants: if you take exception to this post, accept my apologies, but the intent is to riddle any who runs after money using insights provided by our mathematical talents. What we need is a collective approach to found the basis for the dismal science in a more positive approach (notice the absence of the 'istic'). Guess what? The framework will be computational with humans in the loop. So, there will be plenty work available for Quants.

Modified: 11/15/2015