Steve's Politics Blog

Just as a jumping off point for my inane comments, I will use the Los Angeles Times report Israel’s Netanyahu and Pope Francis exchange gifts, talk policy.

Netanyahu presented the pontiff with a Spanish translation of “The Origins of the Inquisition,” a book written by the Israeli leader’s late father, Ben-Zion Netanyahu, an acclaimed historian known widely for his research on the topic. “To his Holiness Pope Franciscus, a great shepherd of our common heritage,” Netanyahu inscribed on the inside cover.

Francis thanked Netanyahu and gave him a bronze plaque of St. Paul.

I am sure there is more to the story of the gifts, and it probably makes sense, but…

When I first read of this story, I thought surely Netanyahu must either be autistic or at least have Asperger’s syndrome.  Why else would Netanyahu have a diplomatic mission to the Vatican and choose this particular present?  Maybe there is a “rub their nose in it” theory of diplomacy that I had not heard of before.

Maybe Pope Francis had two gifts he could have chosen to give Netanyahu.  When he saw what Netanyahu gave him, he decided to give a Catholic religious symbol to the Jewish Prime Minister.  What is the equivalent in Spanish of touché?

I haven’t touched on this subject for a while. I got Billionaires & Ballot Bandits Official Trailer from YouTube.

Since the Court killed the Voting Rights Act, we’ve decided to re-do the film with the latest and strangest from the weird world of the Ballot Bandits and the Billionaires who love them.

Help us get on the tube, the ‘net, and in front of the policy makers investigative reports so funny, so revealing, and “so relevant they threaten to alter history” (Chicago Tribune).

As the video says, if you are not aware you could be saying “Hail to the Thief in 2016.”

Here’s a two for the price of one addition to this blog post.

Vultures and Vote Rustlers Trailer

Naked Capitalism web site has the video Steve Keen: The International Financial Architecture. Naked Capitalism describes the video, thusly:

In this video, Steve Keen reviews the history of Keynes’ proposed international currency, Bancor, and why it failed to come to fruition at Bretton Woods. Keen thinks its time has finally come and supports the Central Bank of China’s call for its introduction.

As posted on YouTube by Steve Keen, it has the description:

My speech to the Meeting of Finance Ministers of Latin America in Quito on November 29th 2013. I explain Keynes’s proposal for an international unit of account called the Bancor, and support Zhou Xiaochuan, the Governor of the Central Bank of China, in calling for its introduction. I also argue that Latin America should in the meantime develop its own unit of account for intra-CELAC trade.

The speech even mentions some open source software called Minsky. That way, you can do your own economic modeling and predictions. The video also shows a link to Steve Keen’s Debtwatch blog.

On a superficial level, this presentation is fairly understandable. However, there is a depth to what is being said that requires deeper thought to fully understand.

I am afraid that my understanding of all of this does not live up to MardyS’s tongue in cheek claim that I am the smartest person in the room. It’s going to take quite a while for all of this to sink in and to reconcile with what I have been reading elsewhere. However, I bet that there other readers of this blog that will get it much faster than I will.

JoãoG should be happy with what Keen has to say about the Efficient Market Hypothesis.

The Real News Network featured the video Ask a Slave: What About the Indians?

Be sure to stay for the last question.

I just don’t understand the obsession that the media has with bipartisan compromise.  The Boston Globe article Bipartisan group finds bridges hard to build is but the latest example.

Why can’t people understand what happens at a fork in the road?

Target fixation occurs when you are so focused on the target that you want to avoid, that you inevitably miss all the other options and exactly run into the one thing you did not want to run into.

Here we are at the fork in the road. One party wants to go right while the other party wants to go left. If we have a bipartisan compromise, we go straight ahead, and hit the sign post. There is no middle road option. You can dream about the middle road option, you can pray for it, you can keep writing about it, but it does not exist.

It looks like this country is doomed to either sitting still at the fork in the road or crashing into the sign unless the voters make a decision in enough time.  If we can’t make a decision, then mother nature may come barreling down the road and crash into us.

Perhaps if the media would stop pretending that there is a third option, it might help people to wake up to the truth.

Here is the picture of the current situation as I see it.

In an online conversation with MardyS, he recommended a book,  Holt, Jim (2012-07-16). Why Does the World Exist?: An Existential Detective Story. Liveright. Kindle Edition.

I found the book to be a very interesting and erudite discussion that was focusing on the question “Why is there something instead of nothing?”  The author seemed to be quite knowledgeable in physics, discussing Einstein’s General Theory of Relativity, The Big Bang Theory, Quantum Gravity, and the like.

The following statement in the book broke the mood completely.

To begin with, nothing in the concept of causation says that a cause must always precede in time its effect. Think of a locomotive pulling a caboose: the motion of the former causes the motion of the latter, yet the two are concurrent in time

To say that “the two are concurrent in time” shows an abysmal lack of understanding of elementary physics.  It also shows a lack of knowledge about how to run a train.

I finally found a definition of Slack Action in WikiPedia:

In railroading, slack action is the amount of free movement of one car before it transmits its motion to an adjoining coupled car. This free movement results from the fact that in railroad practice cars are loosely coupled, and the coupling is often combined with a shock-absorbing device, a “draft gear,” which, under stress, substantially increases the free movement as the train is started or stopped. Loose coupling is necessary to enable the train to bend around curves and is an aid in starting heavy trains, since the application of the locomotive power to the train operates on each car in the train successively, and the power is thus utilized to start only one car at a time.

So, clearly, on a  macro scale, the motion of the engine and the caboose are not concurrent in time in starting and stopping.  This can be generalized to any change in speed.  If there is no slack when the train tries to accelerate, then you may have to look to the “draft gear” or look at the microscopic level of stretching of the physical components of the train.

I leave it up to you to think of what The Second Law of Thermodynamics has to say about whether a cause precedes its effect in time.

The quoted selection from the book Why Does The World Exist? is not the first one that casually dismisses an idea with reasons that are unwarranted.  So while the book is interesting to read, I stopped looking for a definitive, scientific or philosophical answer to the book’s main question.  Sadly, I just stopped reading.

Truth Out has the article Privatization and the Affordable Care Act.  Of course the article is talking about contracting the design and implementation of the ACA web site to a private company.

Following award, there must be proper oversight of a contract. Once an agency has decided to privatize IT work, it often loses in-house expertise capable of contract oversight. There is simply more money to be made by working for contractors. Even the Defense Department, with the Defense Contract Management Agency devoted to this task, had a hard time finding the oversight people for the vast increase in service contracts in the past 20 years.

Since the Reagan administration, privatization has been the preferred way to provide services, such as IT, in the government. The problems with implementation of the Affordable Care Act highlight the ways in which this policy can go wrong. Opponents of the act will use its IT problems as a way to attack the progressive goal of providing greater access to health care to those who cannot afford necessary insurance. It will be cruelly ironic if the conservative policy of privatization will, by failing, further another conservative goal of restricting access to health care.

In a previous post, What Would You Ask To Investigate the ACA Website Debacle?, I tried to layout the questions I would ask based on what I have learned about software projects from a 40 year career doing software development and management. That post touches on some of the issues highlighted in the Truth Out article.

The Levy Economics Institute of Bard College has the report Rescuing The Recovery: Prospects and Policies for the United States.  Surprise! Surprise!  Here are some words excerpted from the conclusion.

The range of strategic policy options for the United States is limited. Bringing down the stubbornly high unemployment rate and reversing the decline of household fortunes are urgent priorities. Accelerated economic growth and increased aggregate demand will not come about from private expenditures while the household sector continues its deleveraging trend. Rescuing the recovery will require using expansionary fiscal and monetary policies.

What other kind of report did you expect me to put on this blog?

Start your children, nieces, nephews, and grand children off right with this MMT coloring book.

In this post, I am going to discuss the Efficient Market Hypothesis that applies to the stock market.  I hope to show that the people who believe this hypothesis unquestioningly and the people who do not believe in this hypothesis at all are  both wrong, and for the same reason.

First of all, two definitions, that at least one of which you might decide is a fair description.

First WikiPedia’s definition:

In finance, the efficient-market hypothesis (EMH), or the joint hypothesis problem, asserts that financial markets are “informationally efficient”. In consequence of this, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made.

Next is a  definition from Investopedia:

An investment theory that states it is impossible to “beat the market” because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.

I think these two definitions are consistent enough that we can conclude that there is little controversy about the definition.

With the recent history of the world-wide financial collapse, there are now many doubters who claim that the Efficient Market Hypothesis is ridiculous.  All the economics professors and trading professionals who have built a huge theoretical structure and numerous computer programs around the theory are obviously fools according to the many dissenters.  Both the true believers who think that there is a universal rule that says markets are efficient and the doubters that say there is no such thing as an efficient market are both forgetting something.

There is a reason why the market has been fairly efficient for almost 50 years or more since the Great Depression, but has not been so efficient lately.

After the collapse of the Great Depression, laws were enacted and strictly enforced that required stock markets in this country to be open about all important information relating to the investments sold in these markets.  Rules mandating disclosure of all relevant facts about an investment and rules against insider trading using any facts that had not been disclosed to the trading public have made these markets fairly transparent in the time frames most important to investors.

Before the Clinton administration and culminating in the repeal of the Glass-Steagal act in that administration, these rules which made for an efficitient market have been chipped away.  Where the rules were not being chipped away, the enforcement of the rules that were still on the books was weakened and weakened.

If you need any proof of this, there is no greater expert than William Black.  See the latest installment of words of wisdom from him in the previous post, Documents in JPMorgan settlement reveal how every large bank in U.S. has committed mortgage fraud. Funny that they could send Martha Stewart to jail for insider trading, but have not been able to do so for the really big fraudsters.

The lesson to be learned is that the fact of efficient markets is not some immutable law of the universe.  To the degree that markets are efficient, they get that way through human effort to make them that way.  It makes sense to offer up theories on the consequences of efficient markets, how to make the most of them, and how to set up an economy that depends on them.  However, you must remember that efficient markets are created, and their efficiency can be destroyed.

The naysayer who believe there is no such thing as an efficient market, forget how such a market was created after the Great Depression.  They want to get away from a market system, despite the proof that it can be made to work well for long periods of time.

So, I urge both sides to understand the basic history of the successes and failures of markets in order to resurrect an efficient market that can serve the economy well.

December 1, 2013

In response to some comments on Facebook by JoãoG, I thought an addendum would be appropriate.  The above definitions of the Efficient Market Hypothesis has gotten me into the trap that is a common problem in Economics.  Let me restate one of the definitions in a way that will help us avoid the trap.

The Efficient Market Hypothesis states that if a stock market is 100% efficient, then it is impossible for an investor to “beat the market” because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information.

So the real question is not whether or not the market is efficient.  The real question ought to be, is the market efficient enough?  Of course, there is another flaw in the definition of the EMH.

According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices.

What makes a market is that some people want to buy at a given price and some other people want to sell at that price.  Otherwise there could be no transaction.

Why the seeming difference of opinion if the market is so efficient?  Different investors have different goals at any given moment.  What suits the buyer’s goals is not what suits the seller’s goals, so they can make a transaction that satisfies both of their goals.

Taking the Efficient Market Hypothesis into account, my investment goal has never been to “beat the market”.  My goal has always been to do well enough to support my family’s life style.  However, the investment strategy that I have adopted is one in which I buy a stock when it is undervalued, and sell it  when it starts to get to overvalued.  The EMH seems to say that this is impossible.  Well, all I can say is that I buy it when it is undervalued for my goal, and I sell it when it is overvalued for my goal.  My goal is to generate a steadily rising dividend stream to support my current retirement.

Before my retirement, I had a different goal of wanting to build a nest egg that would be large enough to support me in retirement.  During that phase of life, using dollar cost averaging into an index fund would have worked well enough.  Such a strategy only depends on the long history of the U.S. stock market of rising at an average rate of 10% a year over long periods of time.  That strategy does not violate the simply stated EMH.

There is no exact analog to dollar cost averaging when you want to take money out of your investments during retirement.  That is why I settled on the dividend strategy for retirement.  Of course, my current strategy does allow for portfolio growth over the long haul, without interfering with a steadily growing dividend stream as long as I don’t try to milk my nest egg for too high a dividend stream.  That and Social Security helps a lot.