gdp's Comments

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Mon, 15 Dec 2008 20:33:29 +0000

The Local Population Growth Problem I wanted to start a thread on this, as this is one of the harder economic riddles that I have yet to find a good answer for. Also, I'm talking about local population growth, not the world wide population question, or even the national one, if possible, I'd love to have a good discussion on just the topic of local population growth. I'm the oldest child of six kids that my parents had, and we've produced some 20 grandchildren between us. We've often observed that we live all over the place and none of us live in our hometown. Having been bored at one family gathering, I started building a quick model, and was taken back by the basic predictions of what it would take for a family to all live in the same city over the years. This is of course built on the assumption that living in the town you grew up in is valuable. The first problem is that when you have people growth, you need home growth to house everyone. In our case, I grew up in a family of 8, and now we live in 7 homes. There were about 35k houses in my town when I grew up, they would need 122.5k homes to keep up with my family's growth rate (assuming we all married local). (note using my family to over stress the problem, clearly you get a similar problem at a slower growth rate). In the case that the town can't keep up with 90k new homes in 30 years, you then get a situation of figuring out who has to move out of the town. In the current market, you get everyone who can't afford to live there, or who don't want to pay the costs to live there moving out. So, lets say that in one generation that the town can only grow houses 150%, or from 35k homes to 85k homes, you have 40k homes worth of people that have to move out of the town. Obviously the houses in the town will go up in price due to demand, as well as inflation. Median incomes will also go up, as the result of all the people who could not afford to live there moving out. Repeat this a few generations and you have only a small percentage of people that would like to live in that town able to actually live there. While this is pretty simple model, it explains many of the common problems that we all see in our local communities, families not being able to live with families, grandparents that have to move away as they retire. The need for suburbs, and suburbs to suburbs. The need for continual housing growth in what used to be small towns. The disappearance of local farmlands. The need for local increases in industrial buildings inside cities or local suburbs. etc, etc. If we say that the family is the core to local communities, and communities are the core to the very fabric of the Country, without solving this very simple local growth model, we'll never get the equation right. To-date the only model that I can find that has even a half chance in keeping a family together for a few generations, is the model of moving the whole family to someplace that has a ton of very open space which is what my great, grandparents did when they moved to California nearly a century ago. But eventually this breaks down, as it did in my generation.

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Mon, 15 Dec 2008 19:51:06 +0000

Hi Boldhawk, I'll also agree that the Government needs to do way more in terms of data gathering, simple aggregations, and then turning around and making this information available back to he public. Amazon has just started an effort to host this type of information, http://aws.amazon.com/publicdatasets/,but really the government should have this in a format that can be used by everyone. On the 'man hours' suggestion, these type of calculations have been long suggested for many years within proposals that suggest alternatives to straight 'money valued' calculations. The problem with these sort of calculations is that when used to replace 'money values' you get one of two situations, 1) they correlate very closely with 'money values', or the opposite 2) they don't correlate. In the first case, the basic decisions that get made don't really change, in the second case, they do, but its hard to say they get better. Take for example, two methodologies, one that costs 20% more but gets the job done in 10% less man hours. Optimize for man hours and you get higher costs. Man hour calculations also don't solve the investment problem which is at the core of most financial problems. Investments that cost less then the returns never cause problems, its the reverse. The 'man hour' calculation doesn't really help much here, as the fuzzy math proposals would be happy to use a fuzzy metric in measuring success. Stock dividends will never be in any form except money, and so really calculations need to be in that form. That said, there are a ton of data that companies have that that could be used to evaluate economics better.

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Mon, 15 Dec 2008 19:30:51 +0000

Hi Andy, I hear a lot of discussion about 'confidence' and the lack thereof as one of the reasons why people are not spending. Personally, I'm not a big fan of 'confidence' based economics. Economics seems to work best when its based on 'trust', which is similar to 'confidence', but I think puts a finer point on what it is that the Government, and Industry, and the Consumer should be trying to build. When you tell a mathematician to increase the 'confidence' (interval) in their equation, they will typically start running statistical risk assessments. Having done this for a living, complicated statistical risk assessments, especially when you try to walk someone through them, does not increase people's 'trust' in the system. In contrast, proposals that are clear, transparent, simple and quickly show when you are trending in the right direct or not, do breed trust. Its when everyone in the room can trust the basic framework of a proposal, and trust that everyone will act, and trust that things will be measured and halted in things go wrong, is way more important than the un-due confidence that people had when they took loans they couldn't afford, or started businesses that fail 9 out of 10 times. Do we still need risk takers? Yep, but we need way more math in the equations, and much less of the 'out of tune american idol contestant whose mother said they sing well' type investment strategies that too many American's have.

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Sun, 14 Dec 2008 21:52:14 +0000

Hi Jeff, Not just writing them a check would be better than just writing them a check. My fear is that we have put the worst proposal forward as a strawman proposal so that whatever gets recommended is way better than the strawman. What the Auto Industry really needs right now is a revolution. Having been in that industry for a while, there is just a huge amount of talent in all 3 companies. The best of the best need to band together, form a new company, buy the 'good' assets from the companies that fail, and build a all-star automotive dream team that can represent America in the global economy. They may not have enough talent, and too much legacy in the existing companies, to make all vehicles, in all product lines, in all brands, in all 3 companies work. This by no means equates to the assumption that they don't have enough talent, resources, and ingenuity to build the best vehicles in the world.

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Sun, 14 Dec 2008 19:39:11 +0000

Hi Anomar, Just to be clear, I do not blame the average person for what happened, but I do believe that the average american can be responsible for what happens going forward. As noted before, I see this as a 'natural disaster'. No one 'caused' Katrina, and yes, it was made worse by having a storm protection system that failed. But, going forward, it is really the people in that area that are going to decide what gets rebuilt first, in all likelihood it will be rebuilt by locals, and yes, there is a Government role in the short-mid term as they go through a recovery process. Likewise, the US is going through a economic natural disaster. People who built on the hill, will feel less of the problems than people below sea level. Yes, the problems are made worse by policies that encourage home investments, and banks that give unqualified loans, and companies that waste money on bad investments. If you reasonably believe, that there are some in the current government, and some in the current industries that used the storm as cover to go loot peoples financial houses, then yes, the Obama Administration should do all they can to clean house. As far as people being pawns, I just don't see people like cheney being competent enough to pull something like that off. cheney and bush 2 are going down in history like Chernobyl and Pearl Harbor. That said, if crimes were committed, then they should be prosecuted. Failure to do so by the Obama Administration would mean that it was either not a top priority for economic recovery, or they felt they had bigger fish to fry.

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Sun, 14 Dec 2008 19:19:47 +0000

Hi Anomar/Sliderkta, Ok, i'm in. If there is a reasonable belief that trillions have been stolen and it is currently somewhere, then the Obama Administration should make this search a top priority. I agree that the public may not have the best visibility, into these sort of transactions.

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Sun, 14 Dec 2008 19:11:57 +0000

Hi Anomar, I think we have to discuss the methodology for 'holding ceos and politicians' responsible if we want to go down the path of holding these people responsible.

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Sun, 14 Dec 2008 19:04:59 +0000

Hi Jeff/kin-Kam, Let me respond in a combined post. As Kin-Kam notes, the problem with just giving $20k to people is there isn't a guarantee that the money goes to where we want it to go. Vouchers often get suggested as a way to channel money into the 'right direction' Often the problem with this is that vouchers often get used the most by people that are in a position to use them. For example, if you own a home, a 'down-payment' voucher may not be very useful to you. Also, if you are not in the market for a new car, a $20k voucher may not be useful. Now, a $20k discount on a car is pretty good, so there may be a high number of people that go out and use them. Two concerns here, a) if everyone goes o and buys a new car, people like myself wont need another car for another 10 years, and so you really start to skew the natural cycle that allows for leveled production. The second problem is that for everyone that was going to buy a car, and when everyone stops buying a car, our cars are all getting old and at some point we'll need to buy a car, but it you offset the cost of buying a car, then people just save that money and spend it on something else, very close to what they would do if you just give them $20k. For example, if someone is going to lease a new car for $250 a month, but with the voucher they can lease it for $50 a month, they'll just use the $200 savings for 'wrong direction' spending.

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Sun, 14 Dec 2008 05:28:18 +0000

Hi Anomar, I have a hard time believing that anyone with so much distrust in government, Society, Business, the Public and life in general has any hope at all that things can or will get turned around. Ponzi schemes are born when people focus on the money and forget that people need real products and services. I'm well aware how these work, and many of the ways that they can be devised and revised. I also agree that the Bernard Madoff situation is extremely ugly.

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Sun, 14 Dec 2008 05:06:26 +0000

Hi Boldhawk, Totally agree with the need for greater transparency at all levels of the government and economy. I think it will be many years before we can get a simple system that provides the type of information that you suggest. I've worked in business systems development for some very large companies, and the task to provide even a very small group of people, clear answers on a very small part of the overall business. Even when we have clear numbers, there are so many opinions and theories. Even when I worked with Toyota, they had no where close to unified systems of information upon which everyone could come to a unified conclusion. Toyota instead used a system of local responsibility to create the quality that they create. every worker on every line has the responsibility to raise quality concerns to their manager, and work out a system to improve their piece of the overall manufacturing system. In the US, I also think we can get to a system of better Transparency, and I might recommend increased levels of local responsibility and control. Systems that are highly successful should be studied, and replicated over and over across localities all over the US. To the 'real value unit of measurement' this has been proposed many, many times by many, many people. On paper it sounds really good, but no one has ever been able to make it work past a few conversations. As for the government being able to use data in highly useful ways, this too would be great. Again, its not very easy and will require a great deal of effort. That said, if you know of a Government agency that is trying to do this, let me know, I'd love to help out.

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Sun, 14 Dec 2008 01:21:16 +0000

Hi Kin-Kam, Why not just lower people's taxes by $20k, and let them use it any way they wanted?

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Sun, 14 Dec 2008 01:19:17 +0000

Hi Bflaska, There are over 300 million US citizens, $100k each would be $30 Trillion. This seems a bit high.

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Sun, 14 Dec 2008 01:04:37 +0000

If the guys at the top stole 'trillions', where is it? This is an amount that is impossible to hide. The top 20 largest companies have a market Cap of less than $2.9 trillion. Exxon MobilXOM$409,221 Wal-Mart StoresWMT$214,289 General ElectricGE$179,584 Procter & GamblePG$175,977 MicrosoftMSFT$172,218 AT&T Inc.T$166,065 ChevronCVX$160,511 Johnson & JohnsonJNJ$158,844 Berkshire HathawayBRK.A$152,424 JPMorgan ChaseJPM$115,479 Pfizer Inc.PFE$114,090 Int'l Business Mach.IBM$110,432 Coca-ColaKO$103,115 Cisco SystemsCSCO$99,478 Google Inc.GOOG$99,387 Verizon Comm.VZ$93,168 Wells FargoWFC$88,851 Hewlett-PackardHPQ$88,094 Apple Inc.AAPL$87,356 OracleORCL$86,801 These companies are absolutely gigantic, you'd think if a group of people stole trillions someone would see it. The reason why we don't see the trillions lost in the housing market and the stock market is because it wasn't taken by a small group of people. With 300 Million people in the US, each person only has to lose $10k in investments before we hit $3 trillion in losses. I can see $10k/person in investments being lost, and us getting to the current economic condition, I have a hard time seeing a small group of people 'stealing' $3trillion without it showing up someplace.

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Sun, 14 Dec 2008 00:51:55 +0000

Democracies are specifically designed to keep the average citizen in the divers seat. The only way to stay out of war, is to elect officials that keep us out of wars. The only way to stay out of recessions is to elect officials that keep us out of recessions. The White House has very little fiscal availability without the sign-off of the congress. Congress voted for the war, and America voted for Bush, not once but twice. No one believes that the average American knows more about risk, or economics, or politicians, or anything, than the experts. This doesn't mean that we nullify the publics core role in the economy. People do learn. Time is the greatest teacher. If you really believe that the average person can be fooled in the market, what makes you think we have any chance in the courts?

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Sat, 13 Dec 2008 23:47:39 +0000

Economics is about two core concepts, what gets produced and who gets it once it is. Too often I think we try to prop this up, or that up in hopes that the secondary effects produce what we were actually after. Health (including food, shelter, basic health care), as well as basic education, are things that fall on what I call the non-petty list. For these items, I'm ok with short-term government direct provision. Tax everything on the petty list, (luxuries, homes above basic, healthcare above basic, food above basic, vehicles above basic, electronics, vacations, non-essential services, etc,etc. If people need shelter, food and basic health care, the government should invest directly in these industries. Make regulations that favor these services, and subsidize them where needed. The items on the petty list, should not be directly invested in, subsidized, etc. We made this mistake with tabacco and the public really benefited from this. What makes the big 3 issue hard I think is that for many, a new car is a luxury, and luxury we can do without. The same goes for auto shows, and theoretical cars that will never go into production, and marketing efforts that tell us how good we'll feel driving down the beach in our new car. If the public needs public provided transportation, then we should look at the best way to do such, and no, public provided goods and services are never pretty, but for some its still better than going without. If kids need education, we should build schools, and hire teachers, not invest in new car ads. On the non-petty side of the economy, let's not interfere to the extent that we can. If we think there needs to be more small businesses, lets not treat all small businesses equal. Small businesses that are providing non-petty goods to the public, should get first dibs well before any new cool idea someone has that does little or nothing for those with non-petty needs. Will there still be rich and poor, yes. Will there still be people that get very poor quality services while others get higher quality goods yes. Is life going to be fair, never. But, I do think for the first time in history that we can provide a US postal service level set of services to the public, but this shouldn't get in the way of people that want to use FedEx. FedEx (like) companies is where the growth is, is where the 'happiness' part of life comes in, life without the petty list is hardly the good life at all.

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Sat, 13 Dec 2008 22:57:17 +0000

Hi Bflaska, Totally agree, if there were crimes commited, then Countrywide needs to go the way of Enron.

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Sat, 13 Dec 2008 22:50:34 +0000

Hi Anomar, Uptight protestants hardly have a lock on the hard work philosophy. Every time period in history where great leaps in wealth have come because of either technological advances or 'hard work' ethics advances. Technological advances are requiring more and more work to happen. I'm also not one to discount creativity, though I prefer to promote mathematics as the best way to certify when we have found a better way to do something. As for the innovations our children will produce, we can not mortgage the country on the backs of our children. I would rather rent a small apartment, take the bus to work and stay home watching Tv on my vacations than borrow money that my children have to pay back. They will have their own set of problems to deal with when they are older, they hardly need mine or yours.

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Sat, 13 Dec 2008 22:27:00 +0000

Hi Trees, Yes, it is true that in the classic model as a country imports more and more there should be an event where the local currency losses value. I have a few concerns with the classic model though. Mainly Its not always the case that what happens on economic paper is what happens in the economic wild. a) The US has been importing for many, many years are rates higher than any other country, and borrowing at extremely high levels for a very long time without the expected currency effects. In most cases this builds up like an economic volcano, or earthquake and is unleashed on the population in very strong force. b) On borrowing, the US Government is already outside any standard model's expectations, as too how much a government can borrow. California state is responsible for about 1/8th of the national GDP, (13%), we have about that much in population, and the state is going bankrupt with less than 1/20th the debt that the US Government has. c) The economic shifts that are caused by currency revaluations take so long that its the next generation that gets to pay for the previous generations lack of frugality. My parents got the cheap cars, and it will be my kids that will have to manufacture cars to pay back for them. d) The classic model almost always assumes that exports will be returned with imports. What we have been seeing in recent times, is that instead of buying American manufactured goods as the currency devaluates, American assets are being bought. And, what you get is a type of increasing imbalance in production capabilities, with Toyota being able to produce cars in Japan, China, Europe, and the US as more and more of the profits get reinvested. This isn't to say that Americans are lost in the global economics, we just need to take a page from the same playbook. Produce higher quality products and services at lower costs. This is done by spending less money on consumption and more on R&D. For too long now, every get rich and retire program that is out there has been all about housing investments and stock investments. What America needs to do is spend more time building better products and less counting all the money we hope to get from it.

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Sat, 13 Dec 2008 21:49:50 +0000

Hi Anomar, It's possible that I underestimate how easy it is to get into trouble. Its also possible that I have a tendancy to over simplify the work needed to get out of such a mess. That said, I very concerned of statements like "the whole thing is beyond any human being or group of human beings capacity to unravel." Personal income projections over a period of 30 years are almost impossible to even guess. We can get extremely accurate on a mortgage payment, but this is only one piece. There are thousands of pieces of information that no one can even hope to know. The costs of energy, the cost of taxes, the cost of food, supply shifts due to natural disaster, etc, etc. And, yes, no one has a hope is heaven to figure everything out. Knowing this, there are normally two routes people take. 1) Social Risk Sharing, 2) Personal Risk Responsibility. The traditional problem with 1) is that when you reduce the effects of personalized risks you get people that get extremely aggressive and take all kinds of risks. Not every country has Personal Risk Responsibility, but every country has financial problems, rich and poor, corruption, economic booms and busts, etc, etc. The problem of course with 2) is that the equations are just too complex, and so the individual seeks to off load this risk somewhere else. But there is no where else. In a country where the people are society, where people are the government, where people are the only ones that can take responsibility, we only have two choices, poll the risk, or split it into smaller pools. The logic that individuals can not be responsible for decisions that are too complex to fully understand, would nullify even the very core of democracy itself.

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Sat, 13 Dec 2008 20:51:12 +0000

Hi Bflaska, The US housing industry should shoulder their part of the burden, but I personally think the us housing industry acted more like a multiplier, or a catalyst than it did a cause to the current problems. What is clear is that they had a major role in the last chapter of the book, and as such deserve a good deal of attention. That said, in mathematics, when you are looking for causation, you have to devalue factors that do not sure up in all samples. In the case of the US housing bubble, the basic pattern is very, very close to the Japanese real estate bubble that popped in Japan in the 1990s. Clearly, the US housing industry had nothing to do with the Japanese bubble. see: http://www.nytimes.com/2008/02/09/business/worldb... One major concern I have is in how poorly American's were warned about the Japanese bubble. US economists have been studying the Japanese case for almost 2 decades now, and knew just about everything there was to know about it. They tried to warn Americans, but no one really listened. Any politician that tried to warn Americans was laughed out of politics, any business person that tried to warn was laughed at, myself included. You don't know how many social events I had to endure the inevitable question of 'why are you still renting' all your peers have homes....I would go into a 20 mins explanation of why housing bubbles don't last. The calculation is pretty simple, people can only afford 3-4x their income, and housing prices here in N. California are 6-8x local incomes. This is completely unsustainable, I would say, and then the very person I was talking to would go out and buy a bigger house. Did the banks give him a loan? Sure. Did the US Government give him a tax break on the house that was twice the size they needed? Sure. Did I get a tax break as a renter, nope. Was there any value at all to knowing the right thing and doing it? I don't know. I'm still renting, my friends still have houses. I was talking with one of them last week, and they said they had a friend who was upside down in their home value, some $15k. Their lawyer advised them to 'stop making payments and go through foreclosure' That way they didn't have to sell their house at a loss and when prices go down they can go back to home ownership. I hope the lesson we don't pass on to our children is the classic 'tragedy of the commons' with the commons being the US Government's ability to borrow money. Like all 'tragedy of the commons' stories, it ends with a public that no longer has the resource.