Phooey on Econometrics

If you’re reading this, you probably already know what econometrics is.  Just in case, econometrics is the application of mathematics and statistics to the measurement and prediction of the economy.  It’s “all them fancy equations and graphs”.  And econometrics is for sale.  Anyone who has a political policy position can find and hire an econometrician who will prove their point for them.  In what follows, I’ll try to explain why that’s problematic.

Digress:  I was a member of the professional marine navigators’ guild.  I navigated ships across oceans in the days before GPS.  As we practiced marine navigation back then, you made predictions, then took measurements with calibrated instruments, then performed mathematical operations on the values you’d measured, then plotted the results, then adjust course.  If you got it right, you arrived safely at your destination.  If you got it wrong, you ended up pierced by a rock on some unknown shore.

This, and a multitude of other similar activities, taught us Westerners that numbers are good, because if one is good with numbers, good results occur.  Safe voyages, bridges that don’t fall down, electric lights.  And numbers are indeed good, if they’re used properly, but not all numbers are used properly. 

Econometricians don’t normally use numbers properly.  First principle, you can only manage what you can predict.  If you can’t predict outcomes, then it’s not management … it’s random stabs in the dark, accompanied by volumes of argumentation and equivocation.  The econometricians who claim to have the answers can’t predict outcomes.  If they could predict outcomes, they’d all be rich.  If they were all rich, at least one of them wouldn’t be able to resist publishing the “how to”.  If they published the “how to”, then the markets would begin reacting to every indication that someone was using that method.  Before you know it, their “how to” would become a “how was”.  There actually was a hedge fund that did this, and crashed, and everyone lost a lot of money.

If an economist could predict outcomes, that would change the outcomes such that they would once again be unable to predict outcomes.

Regression: econometrics might be useful in some very carefully circumscribed situations, for limited purposes over finite spans of time.

Econometrics as it’s practiced today is very similar to astrology bedecked with mathematics, and parading around as astronomy.  The economist who practices econometrics started with a desired policy objective.  Since most Americans glaze over when presented with a page full of numbers, this econometrician first identifies a graph that will prove their point.  He or she then works backwards toward a a system of equations that potentially, conceivably could produce a graph of that type.  Finally, the econometricians plugs in the right set of values into the selected set of equations to produce a properly shaped graph to prove the policy position they began from.  In other words, it’s a bunch of hocus-pocus, masquerading as science.  Or even worse, claiming to be engineering.

Mathematics and statistics are extremely powerful tools for ascertaining the truth.  They should never be accepted as part of an argument to prove a position.  That’s a wordy way of restating the old saw: “figures don’t lie, but liars figure”.

The study of economics is essentially the study of people.  No people, no economy.  Obviously, there are physical, real-world constraints that can be enumerated.  Except for those limited set of constraints (“exogenous forces”), most of the rest of economics is little else except psychology.  What causes people to decide to save for tomorrow vs spending today?  How much is ‘enough’?  How hard will people work, and how much will they sacrifice in the rest of their lives, for prosperity in the economic realm of their lives?  When Jane woke up this morning, was she more inclined to buy a new pair of shoes, or gold?  The answers to those fundamental questions do not lie in the realm of mathematics or statistics.

I’ve looked at a fair sample of econometric data and I’ve come to the conclusion that most of it is useless, some of it is as good a three day old dead reckoning position, and a tiny fraction is actually contributes to understanding.  In the end, these things will be decided by a majority vote anyway, so logical arguments are largely wasted.  I can only hope that more informed citizens will make wiser, or at least less foolish, decisions when they cast their ballot.

G’day all, and may God continue to bless America!

Father’s Day dinner–steakhouse@home

Fathers’ Day is just past, and for our celebration, my wife and daughter agreed to cook the entire dinner, but leave the grilling to me.  What a treat!  This has been a favorite of mine for some time, what I call the “steakhouse dinner at home” experience.  There are so many advantages to eating at home rather than going out:  no worries about driving home after a couple glasses of wine,  complete control over portions and nutritional content,  better service and privacy,  much(!) lower cost.  The only two disadvantages I’ve come up with are  the cleanup afterwards, and the difficulty of doing elaborate, multi-course presentations.

So to minimize the downside and maximize the upside, and to respect the dietary wishes of the ladies, we agreed to a simple menu: steak, salad, rolls, wine.

From a local butcher, I purchased a 2 1/4 lb “Chateaubriand”.  I put that in quotes, because I’ve seen numerous alternative definitions for what, exactly, a Chateaubriand actually is.  From this butcher, it is a very nice, uniform cut of top sirloin.  Shown here with the green sauce I made to accompany it:

It just won’t do to take the meat from the refrigerator and put it directly on a screaming hot fire.  Giving the steak enough time to come to near room temperature is vital to success.  I made a baste of 2 tbsp worcestershire, 1/2 tsp salt, and 1/2 tbsp brown sugar and brushed that on the meat 30 minutes before grilling.  The one problem with grilling, rather than pan frying, is nothing to work with to make a pan sauce.  So I made a green sauce:  lots of flat leaf parsley, a little cilantro, a little diced (chives, shallot, and garlic), 1 part of lemon juice, 1 part of red wine vinegar, 3 parts canola oil, 1 part extra virgin olive oil, salt, black pepper, cayenne, cumin, chili powder, and dried oregano.

Prepping the grill with a wood chip box:

Some quick photos of the rest of the menu:

W/dijon vinagrette

 

Brown and serve rolls

A fantastic “Coro Mendocino” meritage-type wine

So while the ladies were putting the salad together and warming the oven to bake the rolls, it was time for me to put the steak on the grill.  I won’t grill without my grill grates, period.  You can see them, and the kind of job they do, in the photo below (keep the lid shut as much as possible, no gawking!):

The smoke you see is coming from the chip box, hickory smoke that is.  For this particular steak, I had all three burners turned to high to generate around 550F temps (hotter at the surface of the grates).  A touch test at 13 minutes showed the steak was medium rare, so it came off the grill to rest for a full 10 minutes before carving.  Here’s the finished product:

And the complete meal, plated for the table:

Note to self:  better lighting, Chuck, better lighting next time!  The colors were actually somewhat more appealing than they appear is this ambient-light photo.

With the hot dinner rolls and velvety wine, it was a very nice dinner that suited the ladies’ tastes to a “T”.  After a dinner like this, saving a few calories on the dessert was an objective, so it was “Skinny Cow” ice cream sandwiches for us!

Total cost for the three of us, including a full bottle of wine, was $60.  At a midrange local steakhouse, it would have cost more than twice as much, plus the driving back and forth.  And the cleanup here at home wasn’t that bad!

G’day all, and may God continue to bless America!

This person changed my life

http://mikeaustin.org/

Thank you, Mr. Austin.

If you care at all about why we’re here, what our existence means, why we should be good rather than bad, he explains it so that even the deaf can hear and the blind can see.

I was a working man, union labor, a sailor.  I read Eric Hoffer and was inspired to one thing: as a bloodied and bruised working man, my shipmates broken and burned and abandoned, to consider our situation on Earth.  Mr. Austin has done the same, with far greater acuity than I could ever aspire to.

May God continue to bless America!

Truth: American Exceptionalism

This is a copy edit of a piece I wrote some time ago.  In re-reading that piece, I wasn’t happy with the tone or cadence.  So I’ve rewritten it, to better suit the 21st Century….

Nobody owns the copyright on the phrase “American Exceptionalism”. I don’t care for any of the versions I’ve read, so I wrote my own. If you don’t like mine, write your own.

This version doesn’t proclaim an inheritance or entitlement due to Americans, instead it imposes obligations and expectations on all of us (this comes from being the child of immigrants).

This version confers no special virtue on individual American citizens, it’s about what this nation stands for … not the character of individual Americans.

This version doesn’t rely on mythology, assumption, or denial. It’s a simple factual account of some of the things, taken together, that set America apart from other nations.

From experience walking the streets and working with the people of many nations, everyone thinks they’re a member of something special. This concept of American Exceptionalism doesn’t take anything away from them, it’s about the United States of America.  As defined by George Orwell in his “Notes on Nationalism”, this isn’t a nationalistic conception.  It is patriotic.  If you haven’t read “Notes on Nationalism”, it’s available from numerous sources on the Web.

A Baker’s Dozen of what makes American exceptional:

#1: The United States of America was the first nation to be created by violent revolution against a European imperial power, then forged in a civil war fought to right the wrongs inherited from that European power.

#2: The United States of America was the first nation to identify its reason for being, before it existed, in the most famous statement of human rights in history: the Declaration of Independence. And that Declaration sets the basic rights of man beyond the reach of any government to revoke.

#3: The United States of America was founded on a commitment not to “a perfect Union”, but rather to “a more perfect Union”. To a greater extent than any other nation, America is founded on the challenge to continue to change and perfect itself.

#4: Except for Native Americans, there are no genetic Americans.  A newly naturalized immigrant is as much an American as the descendant of a Mayflower family.

#5: The Constitution of the United States was the first governing document, and now the oldest governing document, of any nation on Earth that lays out entirely how the government will work, it’s responsibilities, and the limitation placed on it by the people.

#6: The United States of America has never accepted “corruption of the blood”.

#7: The United States of America has become fertile ground for an astounding spectrum of accomplishments, from Nobel Prizes and engineering and scientific solutions, to athletics and Olympic medals, to music and art, to humanitarian relief efforts.

#8: In the United States of America, government of the people, by the people, and for the people, by popular vote and under the law, has been sustained for longer than any historical effort on anything like this scale.

#9: In the United States of America, as our nation has become unbalanced in one way or the other, that it has been the people who have righted the situation to set thing back on track.  Not the military, nor the church, nor a monarch has been the stabilizing force. It’s always been the people.

#10: In the United States of America, no proposition goes unchallenged, no claim is readily accepted, and no proposition which is proven remains rejected.

#11: Yellowstone National Park, the first national park in modern history and the first of by far the largest system of national parks, monuments, reserves, and wilderness areas (generally appreciated much more by foreign tourists and immigrants than native-born Americans).

#12: The United States of America is by far the most deeply diverse society on Earth. All cultures are represented, all are challenged to join with and contribute to America, and all are appreciated..

#13: The United States of America is far larger than any nation that provides as much opportunity as American society and culture do.  And America provides far more opportunity to our fellow citizens than any national culture that’s larger.

America tries to do a lot of things on a very grand scale. America improves through criticism, it’s expected. To keep that criticism in perspective, I borrow from Teddy Roosevelt:

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.“

6/4/2012 update

Important Disclaimer: This information is provided for entertainment purposes only. No sane person would use this information for anything other than a small chuckle or a big laugh. Your investment decisions are your responsibility. But if you want a laugh, keep reading.

I ordered a realignment of my TSP account to this new configuration:

G Fund: 28%
F Fund: 28%
C Fund: 22%
S Fund: 22%

I didn’t want to sell out any equity positions, but didn’t really want to buy any, either.  And I wanted to get my bond positions a good bit more aggressive because it doesn’t look like any rate increases are likely for some time.  And I wanted to get out of exposure to European and Asian/Australian equities, which I think are a lot sicker than we realize just now.

So that’s 56% bonds and 44% total US market equities.  The bad thing about such a balanced and rational position is that I don’t know whether to hope the market goes up or down.  Maybe that’s the CaptBecker maxim: allocate your investments so you don’t know whether to hope the market goes up or down.

Facebook is a terrible story, my gosh.  Why would anyone own an equity when one principal holds virtually all the voting shares?  I think the market is coming to realize that a very shaky business model and a (IMHO) very questionable corporate ownership structure = a mediocre investment, at best.  That whole thing is hanging by the thread that there’s not some next generation Zuckerberg working on a far better social media model right this second.  I think that once a movement were to start, that Facebook would quickly become a “Napster” type footnote to Internet history.

Good day, all, and may God continue to bless America!