This article on High-Frequency Trading over at Balkinization (a collection of legal scholars and lawyers) caught my eye. It is a subject that I think we need to think about a lot more as a nation - executing market trades is a fundamental aspect of capitalism as we have designed it, but is buying, holding, and then selling stocks in only 11 seconds (or less) beneficial? Does it smooth the market value function, or does it instead introduce noise and volatility, and create possibilities for sabotage? Read author Frank Pasquale's thoughts at: http://balkin.blogspot.com/2010/11/martial-finance-case-of-high-frequency.html
The whole thing made me recall a book I read two years ago: The Tenured Professor, by economist John Kenneth Galbraith. Galbraith buried insights into our markets and our behavior that it has taken me time to appreciate, but the one of the themes of the book, that we behave relative to investing more based on what others are doing and less on what we think of as value, is especially pertinent to the subject of computer based trading, and High Frequency Trading in particular.
Thursday, November 25, 2010
Tuesday, November 23, 2010
oweno.com should be Oh, No! What a Load of Crap!
Nothing bothers me more than dishonesty in pushing national policy. I saw a commercial for oweno.com last night and again tonight while watching the news, and from the content, my 'National Scare' radar jumped into high gear. So, I checked out the site, and it is awful! But, just to demonstrate to you how awful (and why you should treat anything this bunch advocates with more than a little prejudice), I'll take it apart for you...
Can you imagine 13 trillion? Neither can I. oweno starts out by telling us that the National Debt is 13.6 trillion dollars. But, they never tell us what it means. And, because we can't imagine 13 trillion, we assume that must be a 'Big Deal'. However, this is to commit the fallacy of large numbers: Just because a number used to describe something is unusually large doesn't correlate that its meaning is similarly big.
We need something to compare it to. I have an idea: Let's compare the National Debt to our country's National Yearly Income: The GDP. Pulling numbers from the US Bureau of Economic Analysis (bea.gov), we can see that the US GDP for 2009 was 14.1 trillion dollars - so another way of expressing the US Debt would be to divide it by the US Income, and we get... 1 (One). Yep. The US Debt is 1. Consider this: Most US households, those that own their home, have a Debt of 2 or greater. So, is a US Debt of 1 a big deal?
If I told you that the US Debt over the last 100 years has ranged from .35 to 1.21, you would have a little more information. And If I told you that the debt of 1.21 occurred at the close of WWII (1945), and the most recent low of .5 occurred during the Carter Presidency, you would have a little more information. Yes, our debt has been growing since Reagan took office, after a long decline during the presidency's of Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, and Carter. It rose during Reagan and Bush, dropped during Clinton, and has risen again during Bush and Obama.
I could go on dragging up information about the US Debt, looking at other countries' debt, what economists would have to say, but you get the point: oweno.com starts out by telling its readers nothing, and instead attempts to scare them using very large numbers. Not a very auspices beginning for an organization 'dedicated to raising awareness about America’s fiscal challenges and accelerating action on them.' It takes information to raise awareness...
The second paragraph continues the fallacy of large numbers, as does the third. Hmmm, not doing very well in the information department yet...
Oh, the third then attempts to scare us again with the statement that 'half this money [$200 billion interest on the debt] goes overseas to foreign governments that own our debt.'
Yep, foreign governments do own our debt. They do so because we trade with them, and instead of importing and exporting in equal measure, we have been running a trade imbalance for the last decade: Foreign goods come into America, and American dollars go overseas to pay for them. The overseas nations then purchase US Treasury Bonds, since they can't purchase a like amount of American Manufactured goods. Economists from Krugman to Baker to Galbraith to Salmon to Thoma and on and on have been pointing this out for the last 10 years - you would think that a 'former Secretary of Commerce (Peter G. Peterson)' would also understand this: It's the overvalued US dollar that contributes to the 'fact' that foreign countries 'own' our debt, not our profligate ways.
The fourth paragraph is the most egregious of all, however. The foundation claims that the debt could 'double' by 2020, 'triple' by 2030, and 'quadruple' by 2040. Why the scare quotes? Because, they are being inherently dishonest with these statements (and one suspects they 'know' it, but are doing a little cya.)
Sure, the National Debt could 'quadruple' to $50 trillion by 2040, but where do you suppose the National Income could be in 2040? That's 30 years from now - Let's take a quick look at our historical change in National Income (GDP): Looking at numbers (again from bea.gov), we can see that the National GDP was $2.5 trillion in 1979, $5.4 trillion in 1989 (more than 'double'), $9.4 trillion in 1999 (more than 'triple'), and $14.1 trillion in 2009 (more than 'quadruple', in fact, almost 'sextuple'!!!!!) Oh, My, Gosh! Peter G. Peterson and oweno just gave away the game: If our debt were to continue at the current rate of 1 (One), and our GDP were to grow at historical rates, then our debt would become $50 trillion in 2040, which would be UNCHANGED from today!
That is how you lie with big numbers, folks. The fourth paragraph reveals the foundation for the dishonest charlatans that they are - they attempt to scare us using big numbers without grounding those numbers in anything meaningful to which they apply. An honest organization would look at the debt in a meaningful way, using meaningful language to describe it. They would honestly say that we don't know whether the debt will grow or shrink in the coming years, and not attempt to scare us by showing how big of a number could by used to describe it if it were to remain equal to our GDP. An honest organization would look at the factors that increase the debt, and what occurred during the period from 1945 to 1980 that coincided with a steady decline of the debt, and the factors that accompanied its rise since then (and I deliberately say 'coincided' and 'accompanied', because causation is very, very difficult to determine in the noisy system that is our economy.)
I suspect that the Peter G. Peterson Foundation has something in mind, and it's not something that will be universally, or even majorly, good for Americans. I'll keep looking at (and rebuking) oweno until we figure out just what they want, and why they aren't willing to be honest in their evaluations in their attempt to get it.
Can you imagine 13 trillion? Neither can I. oweno starts out by telling us that the National Debt is 13.6 trillion dollars. But, they never tell us what it means. And, because we can't imagine 13 trillion, we assume that must be a 'Big Deal'. However, this is to commit the fallacy of large numbers: Just because a number used to describe something is unusually large doesn't correlate that its meaning is similarly big.
We need something to compare it to. I have an idea: Let's compare the National Debt to our country's National Yearly Income: The GDP. Pulling numbers from the US Bureau of Economic Analysis (bea.gov), we can see that the US GDP for 2009 was 14.1 trillion dollars - so another way of expressing the US Debt would be to divide it by the US Income, and we get... 1 (One). Yep. The US Debt is 1. Consider this: Most US households, those that own their home, have a Debt of 2 or greater. So, is a US Debt of 1 a big deal?
If I told you that the US Debt over the last 100 years has ranged from .35 to 1.21, you would have a little more information. And If I told you that the debt of 1.21 occurred at the close of WWII (1945), and the most recent low of .5 occurred during the Carter Presidency, you would have a little more information. Yes, our debt has been growing since Reagan took office, after a long decline during the presidency's of Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, and Carter. It rose during Reagan and Bush, dropped during Clinton, and has risen again during Bush and Obama.
I could go on dragging up information about the US Debt, looking at other countries' debt, what economists would have to say, but you get the point: oweno.com starts out by telling its readers nothing, and instead attempts to scare them using very large numbers. Not a very auspices beginning for an organization 'dedicated to raising awareness about America’s fiscal challenges and accelerating action on them.' It takes information to raise awareness...
The second paragraph continues the fallacy of large numbers, as does the third. Hmmm, not doing very well in the information department yet...
Oh, the third then attempts to scare us again with the statement that 'half this money [$200 billion interest on the debt] goes overseas to foreign governments that own our debt.'
Yep, foreign governments do own our debt. They do so because we trade with them, and instead of importing and exporting in equal measure, we have been running a trade imbalance for the last decade: Foreign goods come into America, and American dollars go overseas to pay for them. The overseas nations then purchase US Treasury Bonds, since they can't purchase a like amount of American Manufactured goods. Economists from Krugman to Baker to Galbraith to Salmon to Thoma and on and on have been pointing this out for the last 10 years - you would think that a 'former Secretary of Commerce (Peter G. Peterson)' would also understand this: It's the overvalued US dollar that contributes to the 'fact' that foreign countries 'own' our debt, not our profligate ways.
The fourth paragraph is the most egregious of all, however. The foundation claims that the debt could 'double' by 2020, 'triple' by 2030, and 'quadruple' by 2040. Why the scare quotes? Because, they are being inherently dishonest with these statements (and one suspects they 'know' it, but are doing a little cya.)
Sure, the National Debt could 'quadruple' to $50 trillion by 2040, but where do you suppose the National Income could be in 2040? That's 30 years from now - Let's take a quick look at our historical change in National Income (GDP): Looking at numbers (again from bea.gov), we can see that the National GDP was $2.5 trillion in 1979, $5.4 trillion in 1989 (more than 'double'), $9.4 trillion in 1999 (more than 'triple'), and $14.1 trillion in 2009 (more than 'quadruple', in fact, almost 'sextuple'!!!!!) Oh, My, Gosh! Peter G. Peterson and oweno just gave away the game: If our debt were to continue at the current rate of 1 (One), and our GDP were to grow at historical rates, then our debt would become $50 trillion in 2040, which would be UNCHANGED from today!
That is how you lie with big numbers, folks. The fourth paragraph reveals the foundation for the dishonest charlatans that they are - they attempt to scare us using big numbers without grounding those numbers in anything meaningful to which they apply. An honest organization would look at the debt in a meaningful way, using meaningful language to describe it. They would honestly say that we don't know whether the debt will grow or shrink in the coming years, and not attempt to scare us by showing how big of a number could by used to describe it if it were to remain equal to our GDP. An honest organization would look at the factors that increase the debt, and what occurred during the period from 1945 to 1980 that coincided with a steady decline of the debt, and the factors that accompanied its rise since then (and I deliberately say 'coincided' and 'accompanied', because causation is very, very difficult to determine in the noisy system that is our economy.)
I suspect that the Peter G. Peterson Foundation has something in mind, and it's not something that will be universally, or even majorly, good for Americans. I'll keep looking at (and rebuking) oweno until we figure out just what they want, and why they aren't willing to be honest in their evaluations in their attempt to get it.
Thursday, November 11, 2010
Dennis Cauchon of USAToday Should Be Fired
As a journalist, he is either incompetent or, worse, he is a biased hack that wants to mislead us. Either way, he has no use holding a reporting position at a major US newspaper.
The dual articles that have caught my attention (and caused my ire) are this one and this one. You probably heard both on the national nightly news: In the first, he outlines that the number of workers being paid more than $150,000 has risen tenfold in the last five years, and doubled in the last two. In the second, he purports to tell us that federal workers earn double their private counterparts.
I don't have the time to dissect each and every claim he makes (although they appear to be universally incorrect!), but I'll start, and you can understand the underlying problems in his 'reporting'.
First: Mr Cauchon doesn't cite his sources. Although he does indicate that the information comes from the Office of Personnel Management, they have hundreds of documents available to the public. I was able to find a couple that surely he looked at, but not all. That's shoddy on his part (or deliberately obfuscating).
Second: The claim that the number of federal workers making more than $150,000 has ballooned.
If Mr Cauchon had the least bit of economic knowledge, he would realize two things that would have to be investigated underlying this. First, he would have to account for inflation: Using a nominal 3% figure for the last five years, we would find that any worker who was making $130,000 or more in 2005 we would expect to be making $150,000 or more today. I was able to find a figure for 2004: There were over 34,000 federal civilian employees making more than $130,000 at that time. So we would expect that if their salaries had just kept pace with inflation, there would be at least that many making more than $150,000 today. Now, Mr Cauchon does show that there are more than 82,000 making above $150,000 today. So, the news is not that we have 75000 more people earning at that rate, but that we have 40,000 more earning. Second, since Mr Cauchon is paid to do his reporting (as opposed to you and I who have to take time away from our personal lives to find this information), he should have dug a little deeper into where the extra high paying employees existed: Is there legislation passed during the last five years that created these jobs? Are they located in one area of the country? What is the underlying cause?
That would be useful information with which to inform our opinion.
Third: The Claim (from the second article) that Federal Pay is double its private counterparts.
That appears to be completely bogus and misleading. From the reports that I did find at the OPM site, they conduct extensive studies every year in an attempt to pay federal employees the same amount for the same job as their private counterparts: They compare the required education and experience to arrive at comparable salaries. They are open about their methodology, and in fact conclude that, on average, federal employees are paid slightly less than their private counterparts. In the second article, Mr Cauchon admits that they study he or his counterparts are using disregards eduction and experience - i.e., it is useless for doing any sort of pay comparison! What a load of crap!
Finally, the point that the numbers growing exponentially during the last two years: We would expect that also. If you think about the pay of all individuals as a pyramid, with ever larger numbers at lower pay, and the pyramid rising out of the water (the $150,000 pay line), you would expect that each year a greater number of individuals would rise above that line - reproducing the numbers in his article tells us nothing useful about the movement in pay: The same effect is occurring in the private sector...
The real reasons Mr Cauchon has gained my ire are these: First, we count on our reporters to inform our opinion, so that we can make considered decisions about various subjects. When a report does his or her job so shoddily that they provide mis-information at best, we are not capable of doing our jobs as citizens in a democracy. Since the implicit undertone of his dual articles is that Federal workers are being paid above their skill, education, and experience levels, I want to turn that back on Mr Cauchon and have shown how he is obviously being paid way above his level of expertise as well.
Second, as the aforementioned citizen in a democracy, I take affront to these wholesale attacks on our government. We form our government and use it to achieve collectively those objectives we cannot achieve alone. Sure we have the military to protect us from outside attackers, but we have also found the need to protect ourselves from the rapacious, wealthy elite, who would, in many cases, poison us with our food, their chemicals, drugs; take advantage of us through obfuscated contracts, unsafe working conditions, and more. We've used our government time and again to stipulate our interactions, and provide laws to regulate their behavior, and qualified individuals to oversee the enforcement of those regulations.
Like a cancer in an otherwise healthy body, there are pockets of graft, corruption, perhaps nepotism that form within our otherwise healthy and useful government. I want, nay, depend upon intrepid, intelligent, and well informed reporters who will ferret out those pockets and expose them, so that we can act to control, reform, or remove them.
Unfortunately, Mr Cauchon displays none of those qualities in his writings of Nov 10. Instead, he opens the door for wholesale assaults on our entire federal employee system (See, for example, Mr Beohner's comments on freezing all government pay). That would surely undermine our collective goals as a citizenry, since it is less than 4% of all federal civilian employees who make a great deal; most federal employees are paid down in a scale commensurate with their private counterparts, a scant 1.4% raise this year likely falls behind inflation, and they become poorer, too.
Mr. Cauchon has not informed us, has not uncovered corruption or a frightening trend, has not even told the truth in any meaningful way. Although, I am probably wrong in calling for his firing: He could be sent back to the copyroom, etc for more training. His editor is probably the individual who should be fired for dereliction of duties in allowing Mr Cauchon's piece to even appear!
The dual articles that have caught my attention (and caused my ire) are this one and this one. You probably heard both on the national nightly news: In the first, he outlines that the number of workers being paid more than $150,000 has risen tenfold in the last five years, and doubled in the last two. In the second, he purports to tell us that federal workers earn double their private counterparts.
I don't have the time to dissect each and every claim he makes (although they appear to be universally incorrect!), but I'll start, and you can understand the underlying problems in his 'reporting'.
First: Mr Cauchon doesn't cite his sources. Although he does indicate that the information comes from the Office of Personnel Management, they have hundreds of documents available to the public. I was able to find a couple that surely he looked at, but not all. That's shoddy on his part (or deliberately obfuscating).
Second: The claim that the number of federal workers making more than $150,000 has ballooned.
If Mr Cauchon had the least bit of economic knowledge, he would realize two things that would have to be investigated underlying this. First, he would have to account for inflation: Using a nominal 3% figure for the last five years, we would find that any worker who was making $130,000 or more in 2005 we would expect to be making $150,000 or more today. I was able to find a figure for 2004: There were over 34,000 federal civilian employees making more than $130,000 at that time. So we would expect that if their salaries had just kept pace with inflation, there would be at least that many making more than $150,000 today. Now, Mr Cauchon does show that there are more than 82,000 making above $150,000 today. So, the news is not that we have 75000 more people earning at that rate, but that we have 40,000 more earning. Second, since Mr Cauchon is paid to do his reporting (as opposed to you and I who have to take time away from our personal lives to find this information), he should have dug a little deeper into where the extra high paying employees existed: Is there legislation passed during the last five years that created these jobs? Are they located in one area of the country? What is the underlying cause?
That would be useful information with which to inform our opinion.
Third: The Claim (from the second article) that Federal Pay is double its private counterparts.
That appears to be completely bogus and misleading. From the reports that I did find at the OPM site, they conduct extensive studies every year in an attempt to pay federal employees the same amount for the same job as their private counterparts: They compare the required education and experience to arrive at comparable salaries. They are open about their methodology, and in fact conclude that, on average, federal employees are paid slightly less than their private counterparts. In the second article, Mr Cauchon admits that they study he or his counterparts are using disregards eduction and experience - i.e., it is useless for doing any sort of pay comparison! What a load of crap!
Finally, the point that the numbers growing exponentially during the last two years: We would expect that also. If you think about the pay of all individuals as a pyramid, with ever larger numbers at lower pay, and the pyramid rising out of the water (the $150,000 pay line), you would expect that each year a greater number of individuals would rise above that line - reproducing the numbers in his article tells us nothing useful about the movement in pay: The same effect is occurring in the private sector...
The real reasons Mr Cauchon has gained my ire are these: First, we count on our reporters to inform our opinion, so that we can make considered decisions about various subjects. When a report does his or her job so shoddily that they provide mis-information at best, we are not capable of doing our jobs as citizens in a democracy. Since the implicit undertone of his dual articles is that Federal workers are being paid above their skill, education, and experience levels, I want to turn that back on Mr Cauchon and have shown how he is obviously being paid way above his level of expertise as well.
Second, as the aforementioned citizen in a democracy, I take affront to these wholesale attacks on our government. We form our government and use it to achieve collectively those objectives we cannot achieve alone. Sure we have the military to protect us from outside attackers, but we have also found the need to protect ourselves from the rapacious, wealthy elite, who would, in many cases, poison us with our food, their chemicals, drugs; take advantage of us through obfuscated contracts, unsafe working conditions, and more. We've used our government time and again to stipulate our interactions, and provide laws to regulate their behavior, and qualified individuals to oversee the enforcement of those regulations.
Like a cancer in an otherwise healthy body, there are pockets of graft, corruption, perhaps nepotism that form within our otherwise healthy and useful government. I want, nay, depend upon intrepid, intelligent, and well informed reporters who will ferret out those pockets and expose them, so that we can act to control, reform, or remove them.
Unfortunately, Mr Cauchon displays none of those qualities in his writings of Nov 10. Instead, he opens the door for wholesale assaults on our entire federal employee system (See, for example, Mr Beohner's comments on freezing all government pay). That would surely undermine our collective goals as a citizenry, since it is less than 4% of all federal civilian employees who make a great deal; most federal employees are paid down in a scale commensurate with their private counterparts, a scant 1.4% raise this year likely falls behind inflation, and they become poorer, too.
Mr. Cauchon has not informed us, has not uncovered corruption or a frightening trend, has not even told the truth in any meaningful way. Although, I am probably wrong in calling for his firing: He could be sent back to the copyroom, etc for more training. His editor is probably the individual who should be fired for dereliction of duties in allowing Mr Cauchon's piece to even appear!
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