I’d like to report that the story Obama announces compromise on extending tax cuts is a satirical piece that I made up myself.  Unfortunately it appears to be true.  The headline to this blog article that I made up myself also appears to be true. How will the President negotiate with Republicans after this decision? The Republicans don’t have to  wonder when the President will ever have the courage to take a stand.  He just announced that he never will.

The following are real quotes from the real article:

Obama insisted that it “would be a grave injustice to allow these” tax cuts to expire.

‘We cannot play politics,” Obama said.

I wonder what business Obama thinks he is in? He is a politician and all the members of Congress are politicians, but he doesn’t want to play politics.  Maybe that is the problem.  He shouldn’t be playing politics he should be doing a professional job of politics. If he doesn’t wake up, the Republicans will be playing politics on his head for the next two years.  He won’t have to worry about the four years after that.  Perhaps only a Republican would vote for him in 2012 since he has been so accommodating.  If things don’t start turning around, this Democrat won’t be voting for Obama in 2012.

I have called Senators Kerry and Brown urging them to vote no on any extensions of the tax cuts to the wealthy.  Perhaps the Congress can save Obama from himself.

A minority of 40% Republicans in the Senate gets their way every time against a majority of Democrats in the House and a Democratic President. If the parties were reversed so that the Republicans held the Presidency, the majority of the House and the majority of the Senate, you know that the Democrats would be even more feckless than when they are in the majority.  It looks like heads the Republicans win and tails the Democrats lose.

The problem with this situation is that all the citizens lose.  Even the marginally rich will rue the day that Obama gave in.  When the U.S. defaults on its debt because of the Bush tax cuts and the currency becomes worthless, only the most wealthy will have anything left with which to enjoy life.

I have just watched the first 4 minutes of Obama’s 9 minute press conference that is posted on C-Span.  The only people to whom it was apparent that the Republicans wouldn’t give in are those who are  unwilling to call their bluff.  If they know you won’t call them on it, then they might as well insist that everything has to be their way.  That’s what I would do when faced with such a weak opponent.  How far is Obama willing to let things deteriorate before he is willing to call their bluff?  I am sure the Republicans will keep pushing the envelope.  I am not sure there is a point where Obama will say, “Enough!” Obama wouldn’t be facing the problem he is now if he had been willing to stand up earlier. Every opportunity he misses makes his stance at the next line in the sand even less credible. I don’t know why he can’t see this.

How do you think our country’s foreign adversaries take the measure of the man when they look at his behavior against domestic opposition?

This kind of weakness might even be the cause for getting an elbow jammed in your mouth on the basketball court.

In Paul Krugman’s column Let’s Not Make a Deal, he said:

Yes, letting taxes go up would be politically risky. But giving in would be risky, too — especially for a president whom voters are starting to write off as a man too timid to take a stand. Now is the time for him to prove them wrong.

Apparently he has come to agree with my satirical post Obama Vows To Veto Tax Cut For The Wealthy where I said:

The need to cut trillions of dollars from the deficit over the next decade mandated the ending of the tax cut to people who didn’t desperately need it.

On December 2, 2010, Senator Bernie Sanders gave the following speech in the Senate.

Can you imagine what it would be like if we had a President that could speak this clearly? Perhaps we need to elect Bernie Sanders as President to fulfill this wish.

Thanks to LlandaR for bringing this speech to my attention. I’d trade two Maine Senators for one Vermont Senator any day.

Is the story Spanish Air Traffic Controllers Marched Back To Work As Airports Reopen the sign of the future for the world?

Threatened with immediate imprisonment for sedition if they did not obey their new military commanders, and the show of force as in Madrid, the controllers capitulated.

Earlier in the story there was this chilling piece:

“I cannot talk to you properly now,” an air traffic controller at Madrid’s Barajas Airport told The Sunday Telegraph in a half whisper, his voice quavering on his mobile.

“There are civil guards here, with pistols. If we don’t start work now, we will be arrested.

Is this what free-market capitalism has come to?  Free for the rich and slave labor for the rest.

Compared to this Ronald Reagan was a pussycat. If we vote for more Republicans, we can have this mutant form of Reaganomics in this country too.

When Reagan did his shtick with the air traffic controllers, I stuck to trains for long distance travel until the new controllers could get some on-the-job training.  How would you like to fly in the skies where your safety was controlled by people working at the point of a gun?

To think that the west is giving China advice on the human rights of its workers.

Paul Wilmott has posted the Financial Modelers’ Manifesto on his blog. The manifesto is signed by Emanuel Derman and Paul Wilmott.

Our experience in the financial arena has taught us to be very humble in applying mathematics to markets, and to be extremely wary of ambitious theories, which are in the end trying to model human behavior. We like simplicity, but we like to remember that it is our models that are simple, not the world.

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Building financial models is challenging and worthwhile: you need to combine the qualitative and the quantitative, imagination and observation, art and science, all in the service of finding approximate patterns in the behavior of markets and securities. The greatest danger is the age-old sin of idolatry. Financial markets are alive but a model, however beautiful, is an artifice. No matter how hard you try, you will not be able to breathe life into it. To confuse the model with the world is to embrace a future disaster driven by the belief that humans obey mathematical rules.

They end the manifesto with:

The Modelers’ Hippocratic Oath

~ I will remember that I didn’t make the world, and it doesn’t satisfy my equations.

~ Though I will use models boldly to estimate value, I will not be overly impressed by mathematics.

~ I will never sacrifice reality for elegance without explaining why I have done so.

~ Nor will I give the people who use my model false comfort about its accuracy. Instead, I will make explicit its assumptions and oversights.

~ I understand that my work may have enormous effects on society and the economy, many of them beyond my comprehension.

I believe in this oath even for my former line of work modeling the behavior of integrated circuits. In my line of work, I was actually modeling laws of physics, but all models simplify.  The oath is even more important in the world of finance than it is in the world of physics, because, as the authors state:

It’s a different story with finance and economics, which are concerned with the mental world of monetary value. Financial theory has tried hard to emulate the style and elegance of physics in order to discover its own laws. But markets are made of people, who are influenced by events, by their ephemeral feelings about events and by their expectations of other people’s feelings. The truth is that there are no fundamental laws in finance. And even if there were, there is no way to run repeatable experiments to verify them.

The point they are making is an acknowledgment of the principle of reflexivity that George Soros describes in The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means.

In my previous post, Nassim Nicholas Taleb Explains It All, I noted the feeling that Taleb had something important to tell me, but I was having a hard time figuring out the practical implications of what he was trying to tell me.

I have gone back to his web site a few times and looked at random items for which he has links.  True to the very randomness he has been describing, I suddenly and unexpectedly came across an item that has taken me to the next level of understanding.

His link Mandelbrot Makes Sense points to a document that contains two articles by Taleb. The article titles are “Mandelbrot Makes Sense: A Book Review Essay A discussion of Benoit Mandelbrot’s The (Mis)Behavior of Markets” and “Fat Tails, Asymmetric Knowledge, and Decision Making Nassim Nicholas Taleb’s Essay in honor of Benoit Mandelbrot’s 80th birthday.”

The best teaser that I can come up with are a few paragraphs from a few sections of the second article.

The central problem of uncertainty

What I call the central epistemological problem of uncertainty is summarized as follows: we do not observe probability distributions, only random draws from an unspecified generator. So we need data to figure out the probability distribution. How do we gauge the sufficiency of the size of the sample? Well, from the probability distribution. If at the same time one needs data to figure out the probability distribution, and the probability distribution to figure out if we have enough data, then we have a severe circular epistemological problem.

When, many years ago, I first came across the explanation of measuring the error in statistical sampling I thought I had gained a great insight into some of the mysteries of statistics. I might have felt queasy about the reasoning for a moment, but the skepticism had been beaten out of me enough to put aside the realization of the circular reasoning involved.

Finally he did discuss, in a way that was finally understandable to me, what to do with his insights into the flaws of applying inappropriate models of the statistics of stock markets.

An easier solution

As an operator first and last, I believe that there are, however, far more elementary (and practical) ways to deal with this problem, or at least to protect ourselves from its ill effects. How? I propose two approaches.

First, consider Pascal’s wager. We can change our payoff structure to accommodate what absence of knowledge we suffer from, and with respect to which moments of the distribution. For instance, if the data has “infinite” (or undefined) variance, one can avoid exposure to such infinite tail by clipping the sensitivity to the offending part of the distribution. Purchasing a simple derivative(say, an extremely out-of-themoney call), if it such product is available, may provide a solution. Our doubt can be targeted and remedied by transactions. Tout simplement.

I am not saying that I understand everything he is saying as much as I would  like to, but the dawn is starting to dawn on me.

When I talk about skepticism being beaten out of me, I refer to a quite few incidents in my engineering career. The more I think about mentioning them, the more I realize that there are so many that I will have to select just one.

The first half of my career revolved around the support and development of software to simulate the behavior of integrated circuits and the processes that were used to manufacture those circuits. I was in regular contact with several of the leading academics in this field. At one point, one of these academics tried to sell me on the latest research of his students. He was promoting the statistical analysis of behavior of circuits and processes. I never could feel comfortable with how this could work in practice. It was quite uncomfortable to play the part of the persistent skeptic who kept asking for a satisfactory proof that was beyond what the purveyors of the techniques were quite willing to accept as proof for themselves.

A second thing that really hit home about what Taleb was saying harks back to an incident in Freshman year at MIT. I was trying to get ideas for a paper I had to write about Plato. I asked a friend what he was going to write about. He particularly liked the part in the book where the logic says that if A implies B and B implies C and C implies A, then A, B, and C must be true. I told him that this was circular reasoning and there was nothing about the truth of A, B, and C that one could glean from their implied relationships. He did not take my advice to find something else to write about. I chose to write about my frustration at the logical Sophistry used in the book.

When the professor handed out the graded papers, my paper got a D, the highest grade I had ever received in this class. Not only did my friend get an A, but the professor chose to read to the class the very section of his paper that I had cautioned him about.

I still tell this story when the occasion arises. I still believe my friend and the professor where both wrong. What amazes me about what I read in Taleb’s papers was that I had failed to consciously come to grips with the circular reasoning in some of the mathematics that I had come to accept over the years. I emphasize “consciously”, because I think my gut always made me nervous about these ideas when I thought enough about their derivation.

There is a long article by Mike Rose posted on truthdig.com, The Questions Education Reformers Aren’t Asking.

…both elite and mainstream media have pretty much fallen in line with the reigning policy talk about the problems with our schools and how to fix them. As well, no one in power is asking the more fundamental questions like: What is the purpose of education in a democracy, and are our reforms enhancing—or possibly restricting—that purpose?

The article closes with:

The way we express the purpose of schooling shapes our collective definition of the educated person. If we want our youth to thrive and stay in school, the goal of all current school reforms, then we need an education policy that embodies the full range of reasons people go to school in a free society.

The article is composed of five parts that are all linked together.  To give you some idea of the content, I’ll post the titles of the five parts and the direct links to each part.

• Part One: Education ‘Miracles’ Don’t Survive Scrutiny
• Part Two: Business Goes to School
• Part Three: Blinded by Reform
• Part Four: 21st Century Skills: Education’s New Cliché
• Part Five: Race to the Top of What? Education Is About More Than Jobs

Maybe it is just my predeliction for cutting to the chase, but I am always frustrated by the preponderance of generalities and the under emphasis on specifics of these articles. There are some specifics to reward you for reading all the words. Perhaps you have to read the book to get what I am looking for.

Mike Rose is on the faculty of the Graduate School of Education and Information Studies at UCLA and is the author of Why School?: Reclaiming Education for All of Us.

The Boston Globe article, Miss Massachusetts USA, says that the newly crowned Miss Massachusetts USA is from Bolton, Ma, works for Genzyme. and won the annual pageant at the Lowell Memorial Auditorium on Sunday.

Our daughter grew up in Bolton and works for Genzyme. We are so proud of her.

The fact that I was born and brought up in Lowell has absolutely nothing to do with the awarding of the Miss Massachusetts USA title to the current winner.

Paul Krugman writes in his oped column The Spanish Prisoner,

So Spain is in effect a prisoner of the euro, leaving it with no good options.

The good news about America is that we aren’t in that kind of trap: we still have our own currency, with all the flexibility that implies. By the way, so does Britain, whose deficits and debt are comparable to Spain’s, but which investors don’t see as a default risk.

The bad news about America is that a powerful political faction is trying to shackle the Federal Reserve, in effect removing the one big advantage we have over the suffering Spaniards. Republican attacks on the Fed — demands that it stop trying to promote economic recovery and focus instead on keeping the dollar strong and fighting the imaginary risks of inflation — amount to a demand that we voluntarily put ourselves in the Spanish prison.

It has always been my contention that the way the U.S. will adjust to the fact that countries like India and China can do all the jobs that Americans can do and for much lower wages, that our wage rates will come into line with those of India and China.  Either our wages will decline in dollar terms or the dollar will decline.  As Krugman says, I think the decline of the dollar will be the less painful way to accomplish the adjustment. (Of course Indian and Chinese wages will rise some to ease our pain a little.)

If we go the route of lowering wages in dollar terms, the wealth of the rich will be preserved.  Their wages will also be preserved because the wealthy don’t get wage cuts.  If we let the value of the dollar decline, then everyone in the country gets to take the ride together.  Now you know why the Republicans are so dead set against letting the value of the dollar decline.