Showing posts with label Finance. Show all posts
Showing posts with label Finance. Show all posts
Monday, May 11, 2009
Saturday, April 4, 2009
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
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
Monday, March 23, 2009
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
" 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
Thursday, March 19, 2009
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?
$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?
Thursday, March 12, 2009
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
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
Saturday, February 21, 2009
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.
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.
Monday, February 16, 2009
$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
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
Friday, February 13, 2009
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
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
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
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
Thursday, February 12, 2009
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 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
Tuesday, February 10, 2009
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
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
Monday, February 9, 2009
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
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
Friday, February 6, 2009
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
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
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
Thursday, February 5, 2009
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
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
Actuarial Model of the Economy
An actuarial model of the U.S. economy would be probabilistic, demographic, holistic, complex, and actuariall sound. It would incorporate Enterprise Risk Management, Dynamic Financial Analysis, General Linear Modeling, Econometrics, and Complexity Science.
Who cares?
Well, the global and U.S. economies are on their deathbeds, the environment is collapsing, we are running out of resources, and the demographics of upcoming generations is unsupportable by existing institutions.
Unless somebody in Washington realizes that the analytical tools being used to evaluate public policy initiatives are outdated, and prone to misdiagnosis, (how do you think we got here?) all the "geniuses" in the world (Summers, Geithner, Goolsby, Clinton, Kudlow, Welch, Bernacke, Volcker...) will fail.
Who cares?
Well, the global and U.S. economies are on their deathbeds, the environment is collapsing, we are running out of resources, and the demographics of upcoming generations is unsupportable by existing institutions.
Unless somebody in Washington realizes that the analytical tools being used to evaluate public policy initiatives are outdated, and prone to misdiagnosis, (how do you think we got here?) all the "geniuses" in the world (Summers, Geithner, Goolsby, Clinton, Kudlow, Welch, Bernacke, Volcker...) will fail.
Demonstrating a model which will supplement and transcend the impossibly complicated financial and economic models currently in use is not realistic on a blog.
The basic outline of such a model, however, can be attempted.
The modeling team will consist of physicists, mathematicians, economists, computer scientists, financial engineers and actuaries with a mix of management, technical, and public policy expertise.
Such a team does not currently exist as such.
The model input will be as much detail about the federal budget and national economy as is deemed feasible and useful. It will be enough data to see all the major interactions which occur as a result of government activity but not so much as to be analytically unworkable.
The analytics will be a mix of traditional econometric and financial models supplemented by advances in actuarial science, complexity science, data-mining and visualization, and computer processing which have thus far not been utilized in public policy modeling.
The output will be impact by area by time frame by uncertainty level of alternative government actions. For example, if $100 million of government largess is to be bestowed upon the "auto industry", the impact on all areas impacting and impacted by the auto sector will be shown under various scenarios.
If $100 billion is to be allocated to the "financial sector'" the various ways that the money can flow through the economy under various economic scenarios can be tested. That allocation can (to some degree) be targeted to have the desired impact on national welfare.
For more information, go to my website, paradigmactuaries.com.
Lee
Tuesday, February 3, 2009
The Obama Budget as an Agent Based Structure
The Obama Stimulus/Bailout Proposal is in trouble...for good reason...no one knows how it will work.
The tragedy is that there are analytical tools available which could tell us how various scenarios would play out. From the labs and universities of our country have emerged data mining, analytics, data visualization, computer processing and statistical models which can take the most complex issues and make them manageable.
The American and Global economies are complex systems. Their performance depends on complex interactions among a number of complex networks and webs.
Standard economic and financial models of the type still used in Washington have continually failed to address real world problems. The economic models, for all their apparant sophistication, still incorporate assumptions which have not been seriously updated for decades.
Financial models are largely based on the same Portfolio Theory structures which gave us Enron, Long Term Capital, and the recent global economic collapse over mortgage derivatives.
The reasons standard models don't work any more, if they ever did, is that they are not robust enough to respond to the real world. The real world is messy, uncertain, interconnected, and labyrinthine.
Traditional models postulate smooth patterns, rational behavior, and independent actions.
What the advanced models which exist in places like Los Alamos, Ann Arbor, Boston and Santa Fe do is to allow nature and the real world define itself. Using the latest data organization, analytical and visualization technology, they take raw data from the environment and let it sort itself into logical categories. They then adapt analytical structures to the patterns which emerge.
What his leads to is information for policy makers which is:
1. Holistic: All interconnections, emergences, cascades, fractal structures, and power laws are tested before conclusions are drawn.
2. Probabilistic: Various scenarios are run, and results are tabulated not just on an expected value basis, but with expected ranges of results by time frame.
3. Actuarially Sound: Demographics, credibility, homogeneity, risk and time value, are all incorporated into the model.
4. Emergent: When networks and webs result in projections where emergent structures transcend preliminary ones, those more robust projections are utilized.
As a result, the bailout and stimulus proposals can be blended with conventional government activity to produce scenarios by sector and in total. These scenarios will include probability ranges by time frame by sector.
Healthcare is a good example. In the U.S., healthcare is a complex web of patients, providers, corporations, government, employment, demographics, and administraton. Randomly injecting money into the systems will result in random welfare impact.
Only by following the money through the complex web of activity, and directing it at the micro level where possible is there a chance of having optimal impact on welfare, wellness, jobs, the deficit, and gdp.
The tragedy is that there are analytical tools available which could tell us how various scenarios would play out. From the labs and universities of our country have emerged data mining, analytics, data visualization, computer processing and statistical models which can take the most complex issues and make them manageable.
The American and Global economies are complex systems. Their performance depends on complex interactions among a number of complex networks and webs.
Standard economic and financial models of the type still used in Washington have continually failed to address real world problems. The economic models, for all their apparant sophistication, still incorporate assumptions which have not been seriously updated for decades.
Financial models are largely based on the same Portfolio Theory structures which gave us Enron, Long Term Capital, and the recent global economic collapse over mortgage derivatives.
The reasons standard models don't work any more, if they ever did, is that they are not robust enough to respond to the real world. The real world is messy, uncertain, interconnected, and labyrinthine.
Traditional models postulate smooth patterns, rational behavior, and independent actions.
What the advanced models which exist in places like Los Alamos, Ann Arbor, Boston and Santa Fe do is to allow nature and the real world define itself. Using the latest data organization, analytical and visualization technology, they take raw data from the environment and let it sort itself into logical categories. They then adapt analytical structures to the patterns which emerge.
What his leads to is information for policy makers which is:
1. Holistic: All interconnections, emergences, cascades, fractal structures, and power laws are tested before conclusions are drawn.
2. Probabilistic: Various scenarios are run, and results are tabulated not just on an expected value basis, but with expected ranges of results by time frame.
3. Actuarially Sound: Demographics, credibility, homogeneity, risk and time value, are all incorporated into the model.
4. Emergent: When networks and webs result in projections where emergent structures transcend preliminary ones, those more robust projections are utilized.
As a result, the bailout and stimulus proposals can be blended with conventional government activity to produce scenarios by sector and in total. These scenarios will include probability ranges by time frame by sector.
Healthcare is a good example. In the U.S., healthcare is a complex web of patients, providers, corporations, government, employment, demographics, and administraton. Randomly injecting money into the systems will result in random welfare impact.
Only by following the money through the complex web of activity, and directing it at the micro level where possible is there a chance of having optimal impact on welfare, wellness, jobs, the deficit, and gdp.
Historical transformations in the eras of the automobile, computer, electronics, and so on have shown definite patterns. The need now is for a sustainable transition which is envoironmentally friendly and resource efficient.
Future blogs wll provide additonal material on models which respond to the landscape of the twenty first century.
Lee
Saturday, January 31, 2009
Obama's First Stumble
It had to happen.
It's kind of a relief.
Nobody's perfect.
The bailout/stimulus proposal which came out this week won't work!
It's not Barack's fault. He needs to rely on his advisers even as he occasionally transcends them.
It's really not their fault either. They don't know any better. No one told them that their failed models need updating.
But it'a too important to ignore. Between the Federal Budget and potential stimuli/bailouts, there are trillions of dollars at stake. More importantly, there is the opportunity to transform the economy into one that is sustainable and more just.
We are at the edge of a precipice that we created, and we only get one chance to step back and save the economy.
Does it make sense to continue to spend government money based on analysis which has proven to be wrong so many times?
Such a model can supplement existing economic, financial and public policy models in determining where spending will have optimal effect, what the uncertainties are, how to make adjustments dynamically, how to handle interactions, and all the other factors existing models ignore or miss.
The best minds in Washington are doing their best, but is isn't good enough. Some of the programs proposed will have some positive impact, but no one knows how much, or whether more innovative approaches would have much more effect.
What if we find, that using the best analytics possible, the impact of bailout and stimulus activity can be increased 100 fold or more over the next decade?
Should we at least consider it?
The global economy is collapsing.
Social Security is effectively bankrupt.
The healthcare system is crumbling under its own weight.
The deficit is dangerous, particularly if forecasts of the future US economy are distorted.
None of these issues are adequately addressed in proposals made to date.
The Federal Budget, along with all bailout and stimulation activity is a complex system which impacts a web of other complex systems. Government spending impacts the healthcare system, the infrastructure system, the prison system, the retirement system, the welfare system, the education system, and a variey of other systems, not to mention foreign relations.
Each of these systems has subsystems like housing, transportation, energy, goods, services, environment, medicine, and so on.
No model in place in Washington can deal with the interconnections, demographics, uncertainties, management, and data requirements of such a complex network.
We can transform the economy successfully . We can evolve into a country with sustainable and just results.
We have the intellectual resources.
We have the technical resources.
Yes we do.
Lee
It's kind of a relief.
Nobody's perfect.
The bailout/stimulus proposal which came out this week won't work!
It's not Barack's fault. He needs to rely on his advisers even as he occasionally transcends them.
It's really not their fault either. They don't know any better. No one told them that their failed models need updating.
But it'a too important to ignore. Between the Federal Budget and potential stimuli/bailouts, there are trillions of dollars at stake. More importantly, there is the opportunity to transform the economy into one that is sustainable and more just.
We are at the edge of a precipice that we created, and we only get one chance to step back and save the economy.
Does it make sense to continue to spend government money based on analysis which has proven to be wrong so many times?
Would it make sense to allocate a small portion of new government spending on the development of a new structure for public policy analysis which has proven itself many times?
The answers are obvious.
There is a team of the best minds in the fields of particle physics, complexity science, actuarial science, and computer science ready to be assembled. They can build a model with the best data mining, enterprise risk management, dynamic financial analysis, data visualization, demographic, probability, and management analytics available.Such a model can supplement existing economic, financial and public policy models in determining where spending will have optimal effect, what the uncertainties are, how to make adjustments dynamically, how to handle interactions, and all the other factors existing models ignore or miss.
The best minds in Washington are doing their best, but is isn't good enough. Some of the programs proposed will have some positive impact, but no one knows how much, or whether more innovative approaches would have much more effect.
What if we find, that using the best analytics possible, the impact of bailout and stimulus activity can be increased 100 fold or more over the next decade?
Should we at least consider it?
The global economy is collapsing.
Social Security is effectively bankrupt.
The healthcare system is crumbling under its own weight.
The deficit is dangerous, particularly if forecasts of the future US economy are distorted.
None of these issues are adequately addressed in proposals made to date.
The Federal Budget, along with all bailout and stimulation activity is a complex system which impacts a web of other complex systems. Government spending impacts the healthcare system, the infrastructure system, the prison system, the retirement system, the welfare system, the education system, and a variey of other systems, not to mention foreign relations.
Each of these systems has subsystems like housing, transportation, energy, goods, services, environment, medicine, and so on.
No model in place in Washington can deal with the interconnections, demographics, uncertainties, management, and data requirements of such a complex network.
We can transform the economy successfully . We can evolve into a country with sustainable and just results.
We have the intellectual resources.
We have the technical resources.
Yes we do.
Lee
Saturday, January 17, 2009
The Obama Economic Plan-An Agent Based Model
Our new President will be sworn in Tuesday.
His first priority will be to "fix the economy".
Unless someone in his circle knows about agent based modeling and other complexity science and actuarial tools, he will fail.
The current plan appears to consist of the following as the next "phase" of the "stimulus/bailout":
$550 billion for infrastructure, science, energy, and education programs over two years.
$275 billion in tax cuts for businesses and consumers.
Sounds good.
But has anyone done a cost-benefit analysis of how this spending in conjunction with the other $2.8 trillion in government spending will transition us toward a sustainable future of fiscal wealth and harmony?
We want it to be easy. Just pick out a few programs and, boom, economic nirvana.
Not.
We've tried that.
Now we are $60 trillion in the hole (Don't forget Social Security, Medicare, Veterans benefits...), are adding about a $ Trillion a year, and GNP is tottering as global resources decline.
If some measure of GNP doesn't start to grow dramatically, game over.
Happily, there is hope. In the labs of Los Alamos, Santa Fe, Batavia, Champaign, Ann Arbor...models have been developed which can definitively show how expenditures can ripple through a global economy and which can test alternative approaches.
We can use these models to find stimulus and bailout programs which could actually create an engine of economic growth for the U.S.
These models didn't exist in the 1930's, so trial and error had to happen in the real economy. We can now simulate the economy and test various scenarios. That way we can have a sense of long term welfare effects of whatever expenditures are deemed worthy.
Isn't it worth the effort?
The alternative is to keep randomly throwing money at a system which has proven itself incapable of meaningful transition.
Our production systems, housing systems, transportation systems, healthcare systems, financial systems, education systems, welfare systems...are all interconnected.
All must be transformed simultaneously for real change to occur and real welfare to be increased
Are we up to the task?
Yes we are.
For more go to paradigmactuaries.com
Lee
His first priority will be to "fix the economy".
Unless someone in his circle knows about agent based modeling and other complexity science and actuarial tools, he will fail.
The current plan appears to consist of the following as the next "phase" of the "stimulus/bailout":
$550 billion for infrastructure, science, energy, and education programs over two years.
$275 billion in tax cuts for businesses and consumers.
Sounds good.
But has anyone done a cost-benefit analysis of how this spending in conjunction with the other $2.8 trillion in government spending will transition us toward a sustainable future of fiscal wealth and harmony?
We want it to be easy. Just pick out a few programs and, boom, economic nirvana.
Not.
We've tried that.
Now we are $60 trillion in the hole (Don't forget Social Security, Medicare, Veterans benefits...), are adding about a $ Trillion a year, and GNP is tottering as global resources decline.
If some measure of GNP doesn't start to grow dramatically, game over.
Happily, there is hope. In the labs of Los Alamos, Santa Fe, Batavia, Champaign, Ann Arbor...models have been developed which can definitively show how expenditures can ripple through a global economy and which can test alternative approaches.
We can use these models to find stimulus and bailout programs which could actually create an engine of economic growth for the U.S.
These models didn't exist in the 1930's, so trial and error had to happen in the real economy. We can now simulate the economy and test various scenarios. That way we can have a sense of long term welfare effects of whatever expenditures are deemed worthy.
Isn't it worth the effort?
The alternative is to keep randomly throwing money at a system which has proven itself incapable of meaningful transition.
Our production systems, housing systems, transportation systems, healthcare systems, financial systems, education systems, welfare systems...are all interconnected.
All must be transformed simultaneously for real change to occur and real welfare to be increased
Are we up to the task?
Yes we are.
For more go to paradigmactuaries.com
Lee
Thursday, December 11, 2008
Advanced Modeling and the Subprime Crisis
A December 10, 2008 Press Release of the Casualty Actuarial Society stated, "An over-reliance on models used in securitizing mortgage risks and a failure to question basic assumptions played a role in the subprime crisis...the models overlooked a number of things...that differences in the size of downpayment...increasing the pool of subprime borrowers...changing the terms of mortgages...would have a major impact."
Economic and financial models have proven to be seriously inadequate for decades. Actuarial and complexity science models have been precluded from serious use in much public policy decisionmaking. As a result the analysis being utilized by policy makers is seriously flawed.
It is no longer acceptable to ignore the advanced modeling which is available to supplement the flawed and outdated models being used in public policy analysis. The global economic collapse was a scenario that either actuarial or complexity science models could have generated before we were immersed in red ink. They remain available to get us out of the mess and avert the next one.
See my website, paradigmactuaries.com, for more.
Lee
Economic and financial models have proven to be seriously inadequate for decades. Actuarial and complexity science models have been precluded from serious use in much public policy decisionmaking. As a result the analysis being utilized by policy makers is seriously flawed.
It is no longer acceptable to ignore the advanced modeling which is available to supplement the flawed and outdated models being used in public policy analysis. The global economic collapse was a scenario that either actuarial or complexity science models could have generated before we were immersed in red ink. They remain available to get us out of the mess and avert the next one.
See my website, paradigmactuaries.com, for more.
Lee
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