Twitter Break and Update

For months I have been trying to build a metaphysic 14o characters at a time.

How do we synthesize Platonic Forms, Quantum Science, Fractal Geometry, Complex Emergence, Actuarial Science, String Theory, Healthcare Reform, Econometrics, CAPM, Hilbert Space and Schrodinger Waves 140 characters at a time?

Go to twitter.com, philosophize and see.

I've succombed to twitter, and have been neglecting blogger. Go to twitter-philosophize for daily thoughts and I'll continue to blog soon.

The Story of Philosophy

The story of philosophy begins at creation flows through Plato and Kant and culminates in the quantum revolution. The story of science goes on, of course, but physics has transcended the Platonic Forms, Kantian Categories, Hegelian Spirit, Humean Skepticism, Cartesian Dualism, Roussean Romanticism and so on.



Of course Sartrean existence is still relevant as we have still not penetrated the human condition scientifically.



Philosophy of course could reorganzie to become relevant again, but only as a handmaiden. Someone has to work on the implications of multiple dimensions, entanglement, interconnected fields, probability waves, vibrating strings, symmetry and so on...and hypothesize metaphysical implications..but only based on what we know through math and science.



When we combine the mathematics of particle physics, complexity and economics we have a foundation for philosophy based on all we know. Such a philosophy can show the way to a better world.



Yes we can.



Lee

Matt Taibbi

It's refreshing when a reporter "gets it". In the current Rolling Stone, Taibbi portays the global financial crisis in the context of the AIG mess. He patiently dissects the complexities in an entertaining and educational way.

" A CDO (collateralized-debt obligation) is like a box full of diced-up assets...What the inventors of the CDO did is to divide up the box into groups...To get AAA ratings, the CDO's relied...on crazy mathematical formulas...

As banks and other investors of all kinds took on more and more in CDO's...they needed some way to hedge their massive bets..."

That's where AIG enters. They began selling Credit Default Swaps (CDS's) which insured the value of the CDO's. For a small premium relative to the potential risk, the CDS guarantees the insured asset.

The type of insured asset which became most prominent in the early 2000's was the mortgage. AIG guaranteed mortgages through their CDS's.

Because this activity had been essentially unregulated, AIG could sell an almost unlimited number of CDS's without any financial backup. As a result they exposed themselves to losses beyond the scope of their massive balance sheet.

Back to the mathematical models, it wan't supposed to happen. According to the models, CDO's and CDS's couldn't default at the rates they ultimately did. The models didn't take account of non-historical patterns, like a collapse of the U S housing market.

OOPS.

As Taibbi reports, the rest is history. AIG's debt rating fell requiring them to cough up assets as collateral at an alarming rate. Now the government is in the derivative business in an attempt to undo the mess.

Can we do it?

Yes we can.

Lee

The AIG Debacle

Rome is burning and our leaders are stumbling over each other about $150 million in bonuses. These are the same politicians who have quadrupled the federal deficit since 1980. Reagan and the two Bushes produced three times more deficit than all prior President's (yes going back to George Washington).

$150m million is 1/10% of $150 billion. Politicians no longer even read briefs on $150 billion in spending. Does anyone believe they really care about AIG's bonuses?

The $70 trillion question

What do you get when you have a $5 trillion spending agenda and a $65 trillion entitlement deficit?

The need for a very targeted stimulus. Basically, the $5 trillion has to revitalize the economy adequatey to pay off the $65 trillion entitlement deficit.

Oh, and maybe we should pay down some of the $10 trillion recently run up in Federal deficits. Then we can go to work on state and local unfunded debt.

Anyway it is clear the Stimulus has a lot of work to do. The models being used now to estimate impact have proven inadequate for decades. Only by incorporating advances from actuarial and complexity science will they have a chance of adequately targeting expentures to maximixze the multiplier effect over time.

Lee

Holistic Stimulus

It all should be done at once.

The idea of stimulus spending is to stimulate economic growth. Does anyone believe that will happen if we just dump money into exisitng systems which are failing?

That's why the President wisely wants to reform healthcare, education, lobbying, earmarks, and other dimensions of spending simultaneously with stimuli and bailouts.

When 5% of $ 1 trillion goes to "healthcare", it can have $0 effect, $50 billion effect, or $500 billion effect. It all depends on the microfoundations.

Similarly with infrastructure, energy, science and welfare. When we talk about $4 trillion in total spending, how it flows will make the difference between nirvana and doomsday. We could end up with a collapsed, unsustainable economy or a vibrant, sustainable one.

The choice is ours.

Are we willing to invest in models which will show how flows can best be directed to produce a sustainable economy?

Yes we are.

Lee

Transforming the Economy Sustainably

If we add $1 trillion to existing government spending, and allocate the existing spending in a way that stimulates, how much will the economy grow over time, and how sustainably?

While that is the question of the hour, all the kings horses and all the kings men have no answer.

That is tragic because the answer is blowin' in the wind.

Using complexity and actuarial science tools to supplement existing models, alternative ways of stimulating the economy could be tested before implementation. The ones most likely to succeed could be implemented and monitored and adjusted over time as needed.

That way, tables could be developed showing multiples of alternative allocations. One allocation might double GNP growth over five years while another might produce a 500% increase over three years.

Wouldn't it be refreshing to hear, "We have decided to add $1 trillion to existing spending for the purpose of transforming our tired economy. We have tested alternative approaches and decided on one which has a 95% chance of doubling GNP within three years. We will monitor the money and if it is not having the desired effect, will make adjustments.

We are confident this stimulus will transform our economy because we have tested it from the macro to the micro level. The money is targeted to industries and companies most likely to provide sustainable, transformative growth.

Our models are actuarially sound, demographically robust, temporally adjusted, interactively designed, and probability oriented. The money flow will be transparent and accounted for professionally."

Yes we can.

$787 billion

A billion here...

Now the details of the stimulus package are out. Will it work? Has it been tested?Does anyone know?

Complicated economic/mathematical models have been run. But aren't they the ones which got us here?

Do they account for black swans? tipping points? cascades? power laws? multifractals? fat tails?cluster correlations? phase transitions? interactions? demographics? uncertainties? time frames?

The fact is that there are data mining, agent based, actuarially sound, data visualization, econometric tools available by which to truly test and monitor any stimulus scenario developed. The anticipated impact on the global and US economies as well as the individual sectors and businesses could be forecast. The options most likely to have the sustainable, transformative effect desired could be chosen and monitored and adjusted as needed.

How much more confidence would be inspired if officials could testify..."We anticipate (based on the best data and analysis availble) that this stimulus package will have an impact on GNP of $500 billlion in the first year with a 92% probability it will be at least $400 billion...the multipliers associated with the chosen components of the package are the largest of all those tested..."

Here are the details of the ($787 b) stimulus package passed this weekend:

$506 billion in spending
-$141b healthcare
-$92 b infrastructure
-$87b education
-$67b welfare
-$41b energy
-$10b housing
-$6b science
-$7b security
-$55b other

$281 billion tax credits

This money could be targeted and monitored at the micro level to have maximum impact. For example, the science money could to where it would have a multiplier of 22 or 1.

From the labs of Los Alamos to the campuses of Boston, the tools needed to assure that the stimulus works have already been developed. All we need to do is integrate them with those currently being used.

Yes we can

Lee

The Info Mesa

Ed Regis' book shows how Santa Fe became the nerve center of a movement which is changing the world. He documents the rise of dozens of companies which came to apply new methodologies, complexity science, chaos theory, nonlinear dynamics, artificial life, and so on to real world problems.

He traces the movement from Los Alamos where computer technology had exploded to deal with the complexity of nuclear physics to the Santa Fe Institute where an interdiscipinary approach to scientific research blossomed. The Institute would, "...blur the edges, merge the disciplines into a unique synthesis that was greater than the sum of its parts...large portions of empirical reality had been reduced to data...atoms, molecules, chemicals, proteins, genes cells...the planet itself...".

Years earlier, Mitchell Waldrop had written of the dawn of the complexity movement. Neoclassical economics had reduced "...the rich complexity of the world into a narrow set of abstract principles...when philosophers saw the cosmos as a ...vast clockwork device...governed by the Invisible Hand...small events could have large consequences..."

If there was ever a time for interdisciplinary, rigorous, creative, quantum thinking it is now. World markets are collapsing and entire countries are on the brink of collapse. Stimulus packages are being passed with little or no underestanding of how they might work.

Using the perspective of complexity science, levened by actuarial science, policymakers can test alternative approaches against alternative scenarios and dynamically choose those most likely to succeed. They could answer questions like, "What is the likelihood that the stimulus will raise the standard of living 30% within 9 months, and 50% after 18 months?"

Wouldn't that create more confidence than the current mantra," No one knows what to do...or what will happen if we do do"

The future of the US and world economies may be at stake. We may only get one chance.

We must do it right.

Yes we can.

Lee

Beyond Economics

Kenneth Boulding wrote that economics like any science has a pure and empirical part. Economic models often throw light on the "...workings of the intolerable complex of social relationships...".

Max Weber wrote that the relationship between the protestant ethic and the spirit of capitalism was palpable.

Milton Friedman wrote that while the relationship between economic and political freedom is complex, it is real.

Galbraith broke the bonds between Adam Smith and economic theory, bonds which were strained by Keynesianism.

Now we are faced with a global economic crisis of unknown dimensions. yet we are still using analytical tools and databases more suited to the conditions of Adam Smith's time than our own.

When we begin to recognize that the same methods which physicists have developed to probe the mysterious activity in the nucleus of the atom are available to probe the mysteries of the global economy, we will be on the road to sustainability.

Then we will begin to incorporate population levels and demographics, resource levels and placements, quality as well as quantity of consumption, capital as well as income, and mind as well as body.

When an Obama official testifies that a $ trillion will matter in the long term health of the nation's economy, we will listen because it will be backed up with detail on the flow of funds through the global economy and impacts on employment, welfare, and output. It will be shown to be actuarially sound, probabilistically tested, temporally developed, and layperson coherent (transparent).

We can make the world better, safer, cleaner and happier.

Yes we can.

Lee

The Worldly Philosophers

Economists are on the hotspot regarding getting us out of the global economic mess.

Unfortunately, the profession as a whole is as clueless as they have been in all the crises of the past few decades. They refuse to ignore the power laws, cascades, feedback loops, adaptivity, demographics, Black Swan, Tipping Point, phase transitions, symmetry breaking, uncertainty, temporality, interactivity, multifractal, cluster correlation nature of global finance and economics.

As a result, when anything happens which hasn't happened in the same way before, such as mortgage derivative collapse, international turmoil, terrorism, natural catastrophes and so on, their models miss it and we all suffer.

This is a tragedy because models exist which can handle unforseen events, cluster correlations, demographic shifts, interactions, uncertainty, missing data, and so on.

Physicists have teased out of subatomic behavior the deep patterns which drive physical reality . These patterns involve vibrating particles with wavelike characteristics, clouds of fields connecting the energy patterns, dimensions which explain probabilistic behavior and other activity which transcends human understanding.

Shouldn't they be part of the team charged with helping us jumpstart the global economy?

If you say well, how does subatomic activity impact the global economy?

That is where complexity science comes in.

But, you say, what about social security, healthcare, finance, insurance, and risk?

That is where actuarial science comes in.

We can build a stimulus package which will truly transform the economy in a sustainable way.

We can test and monitor the flows over time and make adjustments as needed.

Yes we can.

Lee

Saving the World-A $ trillion at a time

The reason there is so much confusion in Washington at the moment over how to stimulate the economy is that no one there knows. They don't know because they don't have the analytical apparatus by which to adeqautely gauge the impact of proposals on the economy

The analytical structures and databases, however do exist.

Below is a simplified version of what a stimulus budget being thrown around in Washington looks like:

Stimulus Stimulus
Component Budget *

Health $ 150000
Education 100000
Welfare 100000
Crime 10000
Infrastructure 70000
Energy 70000
Housing 30000
Transportation 50000
Tax Credits 300000
----------
880000
*$ 000,000

No serious attempt is made to estimate how each component and the total will flow through the economy in a demographically adjusted, probabilistically calculated, interaction robust, temporally realistic manner. To do that would require tools that are not being used.

Those tools do exist, however. Complexity scientists, actuaries, computer scientists, economists, and financial engineers have created data bases and analytical structures which can simulate how various options for economic stimulus will flow through the economy.

These scenarios can take account of interactions, uncertainties, demographic shifts, time frames, and other factors which ultimately impact of the way stimulus alternatives impact long term stability and growth. They can show how different alternatives will have different multipliers over time, and therefore greatly different impacts.

We can design a stimulus package which can be integrated with normal government budget activity to give a reasonably likely opportunity to transform the economy in a sustainable way.

We can show how that will happen and monitor the results so as to make adjustments as needed.
We can make it transparent with manageable accounting structures.

All we need to do is adapt methodology which is already out there.

We can do it

Yes we can.

Lee

The Geithner Performance

It's not his fault.

No one knows what to do.

At least no one in Washington.

The tragedy is that a bailout/stimulus/budget package can be developed and tested which would meet the critria everyone has-that it gets the economy moving. From the labs of Los Alamos and Chicago to the campuses of Ann Arbor and Boston, models have been developed which are up to the task of analyzing all the proposals which are now randomly floating around Washigton.

Actuaries, physicists, economists, and computer scientists have develped data and analytical fameworks which will allow any proposal to be tested properly before implementation. The models have the needed demographic, interactive, temporal and probabilistic dimensions.

What confidence it would give the American public if the President could lay out scenarios describing how alternative expenditures would flow through the US and global economies. Multipliers for each element and for the program as a whole would be provided.

Yes we can.

Lee

Markets and Fish and the Global Economy

We have been making the case that no amount of government spending/stimulus will have the desired effects on the global and US economies unless properly targeted. Proper targeting requires data and analytics which can reasonably test alternative scenarios. Such data and analytics are currently not part of the dialogue on the economic crisis.

It does, however, exist.

In the current issue of Scientific American, an article by Paul Raeburn demonstrates clearly one of the deep values of complexity science-interdiscipinary perspective.

Mathematicians, physical scientists, biologists, social scientists, artists, doctors, military leaders, and economists all see patterns which impact on all aspects of life.

In the case of Raeburn's article, fisheries are seen as complex systems with characteristics many of which are similar to those of chaotic financial markets. As we indicate is the case with financial markets, that they are no longer amenable to conventional analysis, so with fishing, which is "...like the stock market-the crash of one or two species or a hedge fund or mortgage bank, can trigger a collapse of the entire system."

The same issue of Scientific American has a column on the stimulus. It indicates what should be obvious, that certain expenditures like electrical infrastructure and sustainable energy, may have multipliers many times those of other types of expenditure.

Only a complexity based actuarial model can test the various scenarios probabilistically demographically, interactively, and temporally.

Yes we can.

Lee

The Secret of Being

Every once in awhile a book will come along which alters the course of history. This is one of those times.

Still untitled, the book is written. Metaphors like harmonius universe, cosmic song, unfinished symphony, paradigm shift, and web of reality speak to its message.

From Plato's Forms though Smith's Invisible Hand, from Bacon's Idols through Rousseau's General Will, all philosophical ideas of history flow into a vessel which empties into recently uncovered truths.

Idealism, Rationalism, Empiricism, Materialism, Mysticism, QCD, QED, QFT, particles, fields, waves, love, truth, beauty, harmony, eightfold way, golden rule, dfa, erm, all are elements of the new vision.

One dimension of the new paradigm is that there is a mathematical edifice which begins at the subatomic level, travels through the classical level, and emerges at the complex level. A mathematical structure may be conceived which will tie all of reality into a grand unified theory.

Another dimension is that all philosophical structures from the Platonic to the Hegelian, from the Kantian through the Sartrean, are a foundation for a metaphorical vision of the reality being uncovered at the subatomic level.

The fuzziness within the atom which is at the core of all being reflects the gaps in understanding which historical thinkers were trying to fill.

A third dimension of the new paradigm is that public policy decisions, including those involving the current stimulus/bailout proposals, can be informed by the deep thinking which is going on in the universities and labs around the world.

The interconnected, convoluted, demographic, heterogeneous, uncertain and temporal nature of the global economy calls for models which not only incorporate traditional econometric structures, but those of compexity science, computer science, and actuarial science as well.

The path to justice is paved with knowledge, and the knowledge needed to transform the economy in a successful and sustainable way can be brought to bear if there is the will.

Yes we can.

Lee

Cosmic Symphony

The world is a symphony of energy, playing out at the subatomic, human, social, and cosmic levels.

The fields, waves, particles, quarks, strings, electrons, photons, and dimensions which dance in and out of existence in the atom are like notes, tones, beats, rhythms, melodies and harmonies, all blending into an elegant and beautiful song called reality.

Jusy as we experience music on different planes of understanding, so it is with life. Our senses, minds, bodies and spirits all react to different aspects of reality in different ways.

Music resonates within the genetic structure of all life. Pitch may be encoded in our DNA.

We are all part of the orchestra of reality which plays from the subatomic to the cosmic level.

Music and mathematics are intimately related. Just as mathematics can tease out patterns of subatomic interaction, it can identify patterns of harmony.

The Music of the Spheres drives heaven and earth in a symphony of beauty, truth, justice, love and harmony.

All of art contributes to this cosmic song. Art and science give us visions of reality. Just as scientific theories emerge from the sweat of scientific research, aesthetic treasures emerge from the sweat of artistic exploration.

Language often fails both in the description and depiction of scientific and aesthetic truth. Metaphors are used to approach an understanding of the meaning of subatomic interaction and aesthetic result.

Philosophers have eternally struggled with distinctions of reality and appearance, subjective and objective, mind and body, particle and wave. Only with the advent of modern science and art can we see that all may be complementary, and at its core everything may be part of a cosmic holism.

In science we use terms like entanglement, symmetry, non locality, fuzzy and probability wave to approach an understanding of an interconnected, multi-dimensional subatomic world. Art uses words like abstract, surreal, absurd, and non-Euclidean to describe the frustration of attempting to reach an aesthetic vision of core reality.

Space, time, matter and energy are no longer the background against which reality plays, but integral parts of reality itself. Artists must revert back to their sense of childlike wonder to capture this new vision of reality.

We are all part of an interconnected web, interdependent and virtual. From Plato to Kant, Shakespeare to Sartre, philosophers have probed the mystery of reality which science is now unveiling.

Cosmic consciousness, web of nature, harmonious universe, song of the heavens, all ways of articulating the new vision.

What a wonderful world if we only let it be.

Lee

Obama's Economic Advisory Board

Today the President took the first step in de-Washingtoning the economic renewal process. He has a great inside team and now has a Board from outside the "echo chamber" to give more perspective.


What is still lacking, unfortunately, is an appropriate analytical framework by which to monitor the process.


All the ideas in the world will not bring about a transitioned economy without a realistic analytical structure by which to guide decisions, and technicians to develop and maintain the model.

That is the missing piece of the puzzle.

As we have discussed in earlier blogs, by ignoring advances in actuarial science, complexity science, data mining and computer processing, existing models make themselve useless in the world of black swans, cascades, power laws and multi-fractals and which we now face.

No amount of fidgeting will make the models work right. Only a concerted effort to integrate the innovations will succeed.

Model output is only useful if actuarially sound, interaction friendly, data robust, and computer scrubbed.

Let us join the team with our new analytics and help transform the economy successfully.

Lee

Harmonious Bibliography

Any book owes a large debt to all books which preceded it.

In my case, Harmonious Universe emerged from my immersion in:

Affluent Society by Galbraith
Silent Spring by Carson
Zen and the Art of Motorcycle Maintenance by Pirsig
Lila by Pirsig

The Story of Philosophy by Will Durant
The Dancing Wu-Li Masters by Zukav
The Tao of Physics by Capra
The Art of Mathematics by King

Chaos by Gleick
Complexity by Waldrop
Fire in the Mind by Johnson
Quantum Self by Zohar

Superforce by Davis
The Elegant Universe by Greene
How to Know God by Chopra
Shakespeare and the Common Understanding by Rabkin

Quantum Theory by Bohm
A Mathematical Bridge by Hewson
Tao of Chaos by Walter
Consilience by Wilson

Art & Physics by Shlain
Hyperspace by Kaku
The Self-Aware Universe by Goswami
The Philosophy of Physics by Torretti

The Quark and the Jaguar by Gell-Mann
At Home in the Universe by Kaufmann
Would be Worlds by Casti
Universals by Armstrong

The Theatre of the Absurd by Esslin
Free to Choose by Friedman
The Prophet by Gibran
Synchronicity by Peat

Complementarity by Plotnitsky
Metapatterns by Volk
Microfoundations by Weintraub
A First Course in String Theory by Zwiebach

Among others

Lee

Harmonious Modeling

Now we begin.

To build the new analytical framework needed to allow the Obama Administration to deliver on its promise of change, the following steps will be needed:

1. Empower the analytical team.

2. Develop team strategy.

3. Assemble the team.

4. Review existing models.

5. Survey new models.

6. Integrate models.

The goal is an efficient transition from the existing structure to one appropriate to the twenty first century. Any new structure will start with the existing economic/financial/public policy structure and integrate the needed actuarial, complexity and data structures.

Examples of output from the new model include:

Year
Scenario
Factor

Population
Resources
Infrastructure
Demographics
Health
Welfare
Defense
Medicare
Social Security
Debt Service
Transportation
Housing
Energy
Manufacturing
Financial
Education

GNP
NEW*

*Net Economic Welfare

It should be pretty obvious how such a model would transcend and improve upon existing ones. This model could test a wide variety of complex options, and even after an option is chosen it could monitor results and make adjustments as needed. It could test the actuarial soundness of results as well.

It could also test sustainability of results in terms of available resources and population levels.

It's time to get serious.

Yes we can.

Lee