Economics & Finance

Ramblings about Democide & the Primaries

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Once again, we think of the tragedy of war. Yesterday, NPR counted up the horrible death toll of WWII. The chill Tyouth describes we all feel. But Belmont Club charts deaths in Iraq; Gateway Pundit observes:

For the last three months of 2007, a Venezuelan was twice as likely to lose his life to violence as an Iraqi.

A pattern we’ve long seen (demagogic man of the people rises and, sure of his own virtues, finds himself driven to kill and torture his foes). In the twentieth century, in only one year did democide not claim more lives than war.

Those wearing Bushitler masks might contemplate that what they fear most is associated with a pattern we’ve seen over and over. Cheap populism not big business scares me. And it is voices like Chavez’s – like so many before – that unleash archetypal greed and violence. Edwards is no Chavez; he isn’t even a Huey Long. He’s simply a rather irritating trial lawyer who is never interested in the general but always the particular, never the reasoning but always the sentiment, less in good science than tender pathos. I wish he appealed to the minds of his listeners a lot more and their guts less, indeed, to their virtues rather than their vices. His rhetoric makes me uneasy but doesn’t, not really, scare me. Unlike those afraid of Bush, I am confident the system works. It can withstand Edwards – it can, actually, withstand a good deal. I just hope it doesn’t have to.

Diminishing Marginal Utility and Joe Satriani

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When I was in graduate school I taught accounting to undergraduates. Accounting is arcane and so I struggled to find analogies that my students could understand.

For instance, the classic accounting equation is assets = liabilities plus equity. This being the 80’s, I could assume that consumers had some equity in their houses or cars… so I would use a newly purchased car as an example. If you buy a car for $12,000 and put $1000 down and owed $11,000 you could then use the $12,000 = $11,000 + $1,000 model. Now I realize that the more savvy purchasers out there will realize that a car driven off the lot loses a substantial portion of its value almost instantly, so maybe the value is really $10,000 and then the model has a negative equity of ($1,000), but I wouldn’t start the classes out here.

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The War on Drugs… From a Different Angle

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Recently Rolling Stone magazine had an article titled “War On Drugs” or “How America Lost the War on Drugs”. The article went through the usual statistics showing how our tactics aren’t working and that we have “lost” this war. As proof, they cite that the number of Americans behind bars on drug charges has increased from 41,000 in 1980 to 493,800 in 2003 (and presumably more in 2007).

The point of this post isn’t whether or not you are “for” or “against” the war on drugs – that is done to death at a million other places. The purpose is to look at the situation from an entirely different angle…

Out of these 493,800 offenders behind bars, how many were “casual users” caught in a net of enforcement (run a red light, get stopped for having drug paraphernalia, go to jail) and how many were gang members selling or transporting drugs for resale? Um… while Rolling Stone is definitely catering to the casual user and happily points out those (relatively) few individuals caught in the dragnet I would estimate that the vast, vast majority of these almost 500,000 in jail are actually gang members trafficking or selling drugs.

To Rolling Stone magazine, these offenders are “lost souls” who took some sort of wrong turn and are just languishing in prison due to our society’s rigid and unrealistic moralistic stance. But for our “drug wars”, these would be fine, upstanding individuals presumably designing rockets somewhere and volunteering in schools.

Not so. The key elements are KNOWLEDGE and INTENT. Everyone of these individuals in jail, whether they thought they’d be convicted or not, knew that selling drugs was against the law. Even on the talk shows no one ever says “but I didn’t know it was against the law…”. The second element is intent – they consciously went down the criminal path to make money, choosing this route instead of some legitimate path (i.e. getting a job).

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The Evolution of Money Part I: The Past

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The Chinese say that fish are not aware of water. We talk about and use money so often that we seldom think to stop and ask: What is money? Why do we need it? What function does it serve?

I think money is a type of information technology that calculates, stores and transmits information about the quantity of one good one must exchange for a certain quantity of another good.

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Stocks in November

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INVESTING BACKGROUND

I run three trust funds for my nephews and nieces that are old enough to understand the concept of saving, investing and stock selections that are documented at the site www.trustfundsforkids.com. I don’t mind directing people over there because there are no ads and it just describes what the funds are about, our selections, and our returns. Here is a post with more background on the topic.

RECENT EVENTS

For anyone who has been following the markets this year, it has been a roller coaster ride. The US stock indices were up for the year with some decent gains but have recently given up almost all of those gains and seem to be in a state of flux right now. High oil prices, the falling dollar, the credit freeze, housing woes, and finally massive write-offs in the financial sector have taken their toll.

Another important element that is coming to light is that profits for US companies are down significantly; per Barron’s the Q3 EPS for companies reporting are down 8.5% from the prior year – this is a big downturn, comparable to the quarters right before prior recessions (1989 and 2000). Without profit improvements, hiring and capital spending tend to fall in a bad spiral.

One term to keep in mind when investing is “negative covariance” – in layman’s terms this means that “bad things tend to occur at the same time”. Thus everything is fine, and then it’s not. For instance, the housing market goes down, liquidity evaporates, banks make huge write-downs, and then the companies that guarantee or eat these debt instruments struggle to understand the damage. These items were all related, and while models may value the probabilities of each individually, they all work together (in a bad way).

The stock markets recently went down about 10% – this is now officially a “correction”. No one knows if this is the start of a long swoon or a “buy on the dips” opportunity.

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