Economics & Finance

Mathematics versus The Blob

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(…and so far, the blob seems to be winning)

Here’s a New York Daily News article on mathematical ignorance among City University of New York students:

During their first math class at one of CUNY’s four-year colleges, 90% of 200 students tested couldn’t solve a simple algebra problem, the report by the CUNY Council of Math Chairs found. Only a third could convert a fraction into a decimal.

And here’s Sandra Stotsky, discussing some of the reasons for poor math performance in America’s schools:

But the president’s worthy aims (to improve math and science education–ed) won’t be reached so long as assessment experts, technology salesmen, and math educators—the professors, usually with education degrees, who teach prospective teachers of math from K12—dominate the development of the content of school curricula and determine the pedagogy used, into which they’ve brought theories lacking any evidence of success and that emphasize political and social ends, not mastery of mathematics.

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Management Advice From George Eliot

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Fancy what a game of chess would be if all the chessman had passions and intellects, more or less small and cunning; if you were not only uncertain about your adversary’s men, but a little uncertain also about your own . . . You would be especially likely to be beaten if you depended arrogantly on your mathematical imagination, and regarded your passionate pieces with contempt. Yet this imaginary chess is easy compared with a game man has to play against his fellow-men with other fellow-men for instruments.

–George Eliot, in Felix Holt, the Radical (1866)

Lots of political leaders and their academic advisors, and also more than a few business executives, fail to understand this point about the kind of “chess” that they are playing.

See also investing advice from George Eliot.

Lies, Damn Lies and…

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One of my academic advisors used to say that any argument without numbers is a religious one. And we all know how productive they are.

Being a numbers jock and P-Chemist, that statement resonated with me. It still does.

But then I went into business, and for a while my job involved the quantitative prediction of consumer behavior. Entering into the social sciences like that, where there is no ideological bias, just a financial incentive to get the model right, was good for me. It trained me to look at the instrument that was used to derive the numbers. To ask if the questioner was asking the right questions.

So my brain perked up when I saw this article on the decline of newspapers:

Big whoop. After several statistical triple back-flips, we now know that 96 percent of newspaper reading is done in the printed product. That’s like talking about modern transportation by pointing out that 96 percent of buggy drivers use buggy whips. Hello? We switched to cars 100 years ago.

Writing on the Nieman Journalism Lab Web site, Martin Langveld made some valid statistical conclusions about newspaper readership. The problem is that he was asking the wrong questions. It isn’t about newspapers; it’s about news.

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Entrepreneurship in Decline?

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Michael Malone has been writing about the technology industry, and particularly about Silicon Valley, for a couple of decades. This recent article is not very optimistic. Although Malone identifies several emerging technologies as having great potential, he fears that the basic mechanism by which new technologies are commercialized–the formation and growth of new enterprises–is badly broken.

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“Turning Japanese”

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Christopher Wood puts the issue well in a WSJ op-ed piece:

With the U.S. government stepping in to keep markets from clearing, today’s U.S. economy in many ways resembles the post-bubble Japanese economy of the 1990s. Ultra-loose monetary policy and low demand for credit, combined with high unemployment and consumer deleveraging, could lead to a prolonged slump.
 
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All of the above behavior invites legitimate comparisons with post-bubble Japan, where banks took years to be cleaned up as a result of regulatory forbearance. The same kind of forbearance is preventing America’s increasingly distressed commercial real-estate market from clearing. Similarly, as was the case with Japan, monetary-base growth has exploded in the U.S. over the past year courtesy of the Fed, while bank lending is declining. This is why there is every reason to fear that America is already in a Japanese-style liquidity trap.
 
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This is why Wall Street should make the most of the rally in U.S. stocks while it lasts. The next bubble in asset markets will not be in the West but in emerging Asia, led by China. The irony is that the more anaemic the Western recovery proves to be, the longer it will take for Western interest rates to normalize and the bigger the resulting asset bubble in Asia. Emerging Asia, not the U.S. consumer, will be the prime beneficiary of the Fed’s easy money policy.

Japan is still in the economic doldrums. Despite recent electoral turnover, its leaders shows few signs of having the understanding or guts needed to encourage the liquidation of bad assets and freeing of mummified capital. Instead of needed tax cuts and structural reforms to improve business incentives, the government will bail out JAL. This is business as usual and predicts that the economic slowdown that first took hold in Japan in the early 1990s will continue. The USA isn’t Japan but our leaders are doing their best to copy Japan’s failed Keynesian fiscal regime. The outcome is likely to be similar.

The money manager Marc Faber had it exactly right when he was interviewed recently on CNBC: As American business de-leverages, government is levering up. If we continue down the path of increased debt, bailouts, and enormous public spending that drains the risk capital out of the productive sectors of the economy, the government bubble will eventually burst, and the resulting economic crisis will dwarf the current one.