Brandon's Blog

9/27/2011 #

Odds and Ends

It’s been a pretty “hectic” few days recently. I put hectic in quotes because it’s not in so much a busy way as a preoccupied way. Anyway, a few little seeds that might have grown into blog entries in more fertile times…

Mainstream introductory Biology as taught in schools is not a science. Microbiology? Science. Neurobiology? Science.

Science is a “how,” philosophy is a “why,” but the “what” is just knowledge. Memorizing animal and muscle names is not science. Understanding and theorizing on how the animals grow or the muscles work, that’s science.

We have a lot of liberal arts majors writing science stories right now entitled, “Was Einstein wrong?” Unless you forget to carry an x somewhere, you can’t be wrong in Physics (then you’re wrong in Math, actually). Your theory just fails to be predictive over a range of values. Newton wasn’t wrong in Physics terms once Einstein came along. We still teach his theories because they are predictive over a vast range of useful circumstances.

Now, in metaphysical or philosophical terms, the worldview prompted by Newton’s theory was less than accurate. But that doesn’t make his equations any less “correct,” except when they are proved not to be predictive (photons, black holes, etc.).

You have the same thing with Einstein. Unless our measurement instruments are proven systematically wrong, nothing will ever make Relativity less predictive where it has shown itself to be predictive.

If you say, “Nothing can travel faster than light,” and then something travels faster than light, you have found a limitation to the applicability of your theory. Quantum Mechanics contradicts Relativity all over the place. Einstein died still trying to reconcile them, as far as I recall.

So, you might say Einstein’s conclusions are wrong, that he stretched his theory out farther than it ended up being valid, but that doesn’t do anything to his theory but put a warning label on its usability at a certain point.

People seem to think that God has his calculator out figuring out gravitational forces based on equations developed during the last millenium. These formulas are nothing but descriptors of the magic that is life. Those frictional “angels” in pre-Newtonian Physics could be pushing away on the planets and airplanes and photons as we speak. We don’t know. All we know is that we have a handful of equations that can predict how those angels will operate under given conditions.

This, I believe, is the fundamental arrogance and oversight in “scientific atheism,” we might say. The idea that we can truly explain things is hogwash; we can only do our best to predict.

“Wealth” is the height of the water in the bathtub. “Income” is the flow out of the spout. Taxing wealth is hard, so we just leap over that and assume high-income people are wealthy, and that wealthy people are high-income. Like above, you might have a strong correlation, but the angels will do what they do.

When you raise the tax rate, you might or might not increase “revenue.” Saying you are “increasing revenue” is, therefore, a statement of faith rather than fact. Even if you levy a fixed-value “citizenship fee” shakedown on the public, you might actually lose revenue with administration costs and people renouncing their citizenship. Angels again, or maybe just the Invisible Hand.

Believing in “settled science” is a very bad religion. Science is a process that starts with a question. If you stifle questions, you no longer want answers. You will find yourself in a new Dark Age prompted by your own religion, not that of those clinging to their guns.

If you want to be an atheist, do it on philosophical terms. And don’t evangelize or pontificate, for Pete’s sake. It makes you look self-conscious. Wear your God-given free will with pride.

If you are an agnostic, be ever listening and rarely speaking. If we wanted to hear theories about uncertainty we would just ask an economist.

If you are an economist, it would be hard not to believe in some kind of god. You can’t look at the way chaos working together makes something wholly different and useful without seeing some vision of a creator and a universally common spirit over it all.

9/27/2011 #

Gripe

I’m dealing with two “timid typists” today. These are people who type things into the IM window, then delete them, then type something else, then delete that, then pause, then type something else, then delete it, then type something and send it.

You can see the “[Person] is typing a message” notification on the screen as they do it. When you’re trying to orchestrate an early departure it’s quite a wait.

9/22/2011 #

I Vant to Centrifuge Your Blood

We had a blood drive today at work, and as I had hoped they had some pretty rockin’ t-shirts for the citizen soldiers who showed up for the fun.

When they see my O-neg type come up on the screen, the blood nurses tend to get a vampiric glint in their eyes. I was encouraged to leverage my extra time on a quiet Thursday to give red blood cells, which involves taking what I assume is up to four times as much blood, separating the red blood cells out into two units rather than the normal one pint sack of standard blood, then re-injecting the plasma or whatever back into the vein so I don’t keel over.

Everything was going alright until the little light on the machine flipped over to “Replace” or whatever, at which point I got a burn in my arm around 2-3 on the owwie scale, and I noticed I had a bump developing around the needle that started to look a lot like a white-collar episode of Intervention.

The nurse observed high pressure on the machine’s display and asked me if it burned. I tough-guyed it, but I wasn’t going to lie. Pretty quickly the machine was turned off and the needle removed. I was informed that the bevel of the needle had rotated inside my arm, apparently injecting the plasma goop somewhat outside the vein, hence the crowning bump. I wanted to re-insert and continue, but they said I was done, at least consoling me that they got a pint of red blood cells out of the deal before we had to shut down.

I am still in the range of time I’m supposed to keep the bandage on. I’m kind of scared to take it off. I said, “That’s going to be a bruise.” She laughed and said, “I’m glad I caught it when I did, because it would have been pretty ugly if you had gone the next round.” Maybe I’ll get at least one domestic violence joke out of the deal.

They assured me that nothing in my physiology prevents me from doing this successfully next time. It was just operator error. I knew I was in for it when the tech couldn’t find my obviously bulging vein easily.

The nurse who caught the error was clearly disgusted with the needle job, but at least I got to refer her to our fertility clinic while she got me bandaged up.

9/16/2011 #

More on That

I continued to think about my little idea, and it dawned on me that this is a similar concept to municipal bonds, which provide a tax break in order to provide an incentive to “invest” in schools and public works projects.

The difference is that with munis the local government is using the tax code to save itself money. This is, ultimately, a government expenditure at the federal level. Munis are issued to citizens by small shops within the larger government “family.” The federal government is subsidizing their investments in the local public sector through decreased tax revenue.

In the case of my infrastructure scheme, you’re actually seeking to manipulate the way social costs and benefits are distributed.

Programs like TARP were focused on bailouts, which are more accurately termed a “socialization of losses.” If a bank makes a mistake we all suffer, not just the shareholders and debt holders of that company.

What hit me is that my scheme is actually the de-socialization of benefits.

Unless privately monetized by tolls, fees, or rents, infrastructure is a common good that benefits all but doesn’t make sense as an investment for any one independent actor. Therefore, the government normally steps in to allow essentially a pooled fund of taxes to provide these assets to society. Society then shares in the dividends.

This scheme uses private capital but employs tax contributions to consolidate the broader social benefit into a return on investment for the private citizen or organization that contributes the capital.

9/14/2011 #

Idea

If I understand correctly, the fundamental Liberal argument for tax-funded stimulus is that the government can allocate resources in a way that will exceed the ability of the free market to create the kind of knock-on upward cycle that ultimately drives real, long-term economic growth.

Since employment is a key driver to this force and is obviously not seeing any measurable progress, “creating jobs” by some means seems to be the ultimate objective to get things going.

As I’ve discussed before, a liberal - in my opinion rooted in a worldview of positive rights and unavoidable requirements for life - sees a lot of demand to be inelastic to price. Raising the minimum wage, for example, should decrease profits rather than discouraging hiring and promoting downsizing. The demand for labor doesn’t change; rather, it’s a “squeeze” of margins that will ultimately result.

You see the same argument applied to taxes: Arthur Laffer gets ridiculed because he ultimately argues that people’s demand for more revenue decreases as their net percentage of profit from that labor decreases. The liberal sees the workforce, especially the evil rich, as static actors, eager to pursue profit at any cost to them financially or personally. Rent control is the same way, as well: placing a harsh price ceiling will not impact quality and availability of housing, only the leaser’s profits.

Taking the liberal philosophy and looking at the economy right now, my biggest gripe would be companies sitting on cash reserves. I feel like you can absolve the investing class of responsibility, since they (if anyone) know better than to sock money away in mattresses; somehow or another, their money gets into the capital market, which in turn grows the available resources for capital investment.

So why tax individuals to mend the damage done by holding vast reserves of cash within investment funds and corporate entities?

I propose this: the government is talking “infrastructure banks” right now instead of straight-up stimulus rhetoric. Take this idea about one hundred steps further and actually take the distinction literally. Start a privately-funded government-managed investment fund. Put Buffett or Icahn in charge of it, for all I care. Somebody credible and not directly a bureaucrat by trade.

Issue bonds of 6 year duration with no payments in the first year. Of course, this is at least in principle (but not principal, ha ha) similar to US treasurys, but the yield on them should be ridiculous in the current lending environment, like 10%. The money is totally ringfenced, with an airtight covenant to only fund jobs-creating infrastructure, energy, and defense research projects with the funds.

This gives the government a nice kitty of cash funded with the idle capital currently getting pathetic money market rates, actually depressed by the current fiscal policy regime.

With sweeping corporate tax reform, elimination of ethanol and other green subsidies, and responsible adjustments to the Social Security retirement age and means testing, the first coupon payments after the first year can be funded with the increased tax revenue, with natural GDP growth from the recovery funding payments after two years or so.

The pet subsidies should be defunded, because smart investments should instead be carried out by the infrastructure bank itself.

The government asks the People to take risks on nonsense investments all the time. Loan guarantees, foreign aid, etc. Why don’t we round up all that idle capital in the market and let the government take a risk on the American economy itself? If we don’t see growth, the government will effectively have to bail itself out through higher taxes or decreased spending, in order to meet the coupon payments on its special debt and avoid devastating default. That will cause public upheaval and massive turnover in the legislature and bureaucracy.

As the constant liberal atrocity of substituting “wealthy” for “high-income” demonstrates, the real liberal desire is to get at wealth. The income tax doesn’t let you do that directly, only incrementally. If you want to talk about “wealthy,” you don’t have to look much further than Apple, whose cash and short-term investments as of latest financials is $28.4 billion. Imagine if you got that money to work on America!

9/13/2011 #

Zombie

The double-header Monday Night Football format is really not good for sleeping schedules. I’m having trouble sleeping lately anyway.

I successfully replaced our kitchen faucet this weekend, which yielded a huge uptick in water flow and probably a bigger uptick in aesthetics. It’s one of those where the spray nozzle pulls out of the end of the faucet, which also allows you to turn the sprayer on and use it mounted into the faucet.

I’ve turned my sights to patio lights, since ours are so low-wattage you can hardly read out there at dusk. I’ve basically announced a war on builder-grade items, whenever that makes sense. If this set passes the home decor challenge we’ll have 240 W on the ceiling and 100 W on the wall, through clear glass rather than frosted.

I always think we could benefit from home automation (a la X10), but then I go shopping for the stuff and find virtually nothing interesting to do aside from computer-controlled interior Christmas lighting, which could really be a hoot. There’s no mystery as to why their annoying pop-ups always had pictures of attractive women being spied on; frankly, there’s nothing overly exciting about the real world applications of their technology.

In Turkey, to try to get into the Christmas spirit (I honestly typed “holiday” first and promptly deleted, ugh) I put the Sony laptop underneath the tree skirt and played Chris Botti’s Christmas album using a network-based Linux music control program of my creation. This year, the guts of the Sony laptop are mounted into my audio box, which as of now will be wrapped like a present and placed under the tree. Might take some serious finesse to pass the Better Homes & Gardens WAF test on that one.

Botti’s “The Christmas Song” was a bit gloomier than the average rendition, but all in all it beat the pants off of the Glee Christmas album, which ended on “You’re a Mean One, Mr. Grinch” and generally killed the holiday buzz pretty badly, especially when competing with the minarets.

I’m tempted to go commercial and set up the Christmas stuff before Halloween. I’m so excited to do a full holiday season (it makes sense there, I think) rather than grinding my teeth in Heathrow hoping we get back while burning a hole in my vacation time. That was bad, like, really bad.

I felt like that winter event and the surprise storm landing in Milan were our two paybacks for having the rest of our travels go so smoothly. I’ll take that over systematic small problems any day.

8/29/2011 #

Back That Truck Up

I pulled into the garage this morning to see somebody driving a massive Ford SUV, backing into a parking spot marked “Reserved for High Fuel Efficiency Vehicles.” Incidentally, no Chevy Volt power plug there, but we occasionally get a Prius or two parking in those spots. They have a different color parking tag, but the rule is so routinely disobeyed it hardly means anything. A beat up Miata is the most common occupant of the closest spot to the door.

That’s only worth a chuckle on its own, but something about arbitrarily backing into spots kind of puzzles me. I did it yesterday at Chili’s on the way back from San Antonio just to make the sinister villain look I always take on when I do it. I think it’s related to the idea of a disproportionate initial inconvenience being taken for the benefit of future ease. If you’re a practiced routine backer, you might find it nearly even with the hassle of backing out of a spot. I do it infrequently enough I normally have to trim up my placement before settling in, so I have to be feeling kind of goofy just doing it for no reason. This of course doesn’t apply to obvious public-good backing like at sports events and tight parking lots in general, especially when everybody gets there and leaves at the same time.

Chanelling Obama, “let me be clear:” I don’t have a problem with “folks” arbitrary backing. Cousin Pookie does it all the time, but he normally backs into a moat while drinking a Slurpie in his clunker.

On an enthusiasm basis, I find it akin to the constant personal debate I had in Turkey as to whether the foot traffic was more aggressive coming to work or leaving. The yin-yang of “I have so much to do when I get there” or “I’m late” and “I can’t wait to get out of here.” I think work-backers are normally “can’t wait” folks. To each his own.

8/23/2011 #

By the Seat of My Slacks

I feel like I am speaking especially conceptually right now, so I would say my current mental state is kind of windy. Not stormy, but lots of little vectors pointing all different ways.

Every now and then I kind of go off the reservation on my organizational systems, letting the inbox build to half-screen or so, task list doesn’t get opened until the end of the day, and achievable tasks sometimes get delayed.

After waving a dead chicken above my perpetually corrupted roaming user profile in Vista, I started up this morning and felt solid again. Task list is trimming up, and work is running up to a day ahead of schedule.

As is our donor, by the way. We scheduled a little Groupon-fueled junket to San Antonio on top of the very important Scheduled Harvest Day for reasons probably related to me looking at the wrong month’s calendar and determining the week day from that. Luckily, our donor has tentatively soared ahead of her schedule (which we kind of expected).

The tentative revised schedule potentially sets me up for a six-day Labor Day weekend, but we’ll see. The Company has this great tradition of collecting the third quarter estimate at the same time as the Plan, so we end up working double-time around this period of the year (a swim up the stream did not solve this issue, as I had hoped it would).

I tried to automate something so fiendishly complicated it would appear to be a form of witchcraft if it actually worked. I wouldn’t say it doesn’t work, but I would say it would be really difficult to achieve full functionality without consuming a lot of time. This specific activity looks to be taking a permanent vacation to the Exotic Orient by year-end, so unfortunately that normally implies automation is a lost and wasteful cause. It’s better to export inefficiency than to innovate locally in these situations. When step five of the process is “Think,” the activity normally doesn’t offshore.

A lot of my automation is to work around poor design upstream of me, so I am meeting with one of the people presiding over a template far too old to be his fault, the improvement of which could be a boon to much of the organization.

8/20/2011 #

A Little Back-of-the-Napkin

Let’s take a look at BRK.A as compared to the S&P 500. While the S&P returned -3.3% over the past 10 years, Berkshire Hathaway returned 48.3%. Let’s annualize these to -0.3% for the S&P 500 and 4.8% for Berkshire.

I wanted to do a quick study on what all this means to the world. Using Jensen’s alpha, I’m going to calculate the “abnormal return” (alpha) of Berkshire over these ten years relative to the return of the larger market, the relative risk of Berkshire’s stock relative to that of the market (beta), and the “risk-free” 10-year treasury bond yield at the time (roughly 4.8% in 2001).

Before we get there: the way Jensen’s alpha works, you are essentially comparing your subject’s returns to what you would expect anybody to get out of the market at a certain level of risk. The expected return, as shown in the Wikipedia entry, is the risk-free (called Rf) rate plus the portfolio’s beta times the difference between the market’s return and the risk-free return.

In my experience, the best way to understand equations is to play with the coefficients at zero, one, and extremes.

With no risk (beta = 0), you’re just holding the bonds:
Rf + 0 * (Market - Rf) = Rf

At the same risk as the market (beta = 1, index fund), it’s reasonable you should expect the market’s return:
Rf + 1 * (Market - Rf) = Market

At double the risk of the market (beta = 2, invest in riskier things or take out a loan to double your capital) it’s no great achievement to return more than the market:
Rf + 2 * (Market - Rf) > Market (for decently good values of Market!)

In other words, the guy who bets against the odds and returns with a fistful of money should not be applauded until you figure out that he wins a lot, enough to compensate him for his huge risk, not just enough to show up every now and then and flaunt his fluke luck.

These numbers ended up really looking interesting for this calculation, because Berkshire’s annual return and the risk-free rate ended up being the same thing, 4.8%.

But, if you check the Google Finance page, Berkshire’s beta is around 0.5. Meaning, Berkshire is actually generally less risky (ups and downs) than the broader market. I read that Google Finance probably uses 5-year data for its beta calculation (that can matter quite a bit), and since Berkshire’s last five years have been pretty volatile that seems like a fair measure to use.

What return would we expect Buffett to achieve with his wimpy 0.5 beta, in a sucky market?

4.8% + 0.5 * (-0.3% - 4.8%) = 2.3%

What this is saying, and these numbers make it so illustrative and important, is that a less risky investment should be expected to have taken less punishment from the bad market than a straight index fund investor would.

What were Buffett’s abnormal returns (alpha) over that period of time, then?
4.8% - 2.3% = 2.5%

That’s 25% over ten years. Berkshire’s market cap right now is about $170 billion. If you reverse it back 48%, that’s about $115 billion ten years ago.

What this is saying is, we would expect Buffett to have returned 23% over ten years just doing a standard stock pick at half the market’s volatility (he could also have put half of his capital into the T-bonds and invested the other half in an index fund; interestingly enough, he does hold a lot of cash). He instead returned 48%, meaning the magic that is Buffett is a 25% return over ten years.

Meaning, of that $55 billion he has returned over this period of time, he is pretty much uniquely responsible for about $29 billion of it, which is money now sitting in the hands of pensioners, charities, and investors, not to mention the government in the form of the capital gains tax. Pretty good fruits for ten years’ efforts. Buffett is worth $50 billion as of this year’s measure.

He’s done enough.