Tuesday, January 31, 2012

The inflation tax

With all the idle campaign rhetoric surrounding millionaire taxes and wealth taxes (read that wealth tax article, by the way, it's a good one), you might have missed the massive tax increase that was passed last week without any fanfare at all. Oh, you did miss it? Don't worry, I've got your back.

The Federal Reserve took the historic step on Wednesday of setting an inflation target, a victory for Chairman Ben Bernanke that brings the Fed in line with many of the world's other major central banks.

The U.S. central bank, in its first ever "longer-run goals and policy strategy" statement, said an inflation rate of 2 percent best aligned with its congressionally mandated goals of price stability and full employment.
First of all, generally speaking, anything that can be considered "a victory for Chairman Ben Bernanke" should also be recognized as a loss for working Americans. Furthermore, the article's nonchalant assertion that inflation targeting is okay because it "brings the Fed in line with many of the world's other major central banks" is offensive, in a "if all your friends jumped off the Brooklyn Bridge, would you do it too?" kind of way. We've all seen the mess that Europe has created for itself, and so far we've comforted ourselves by nodding in agreement that "things are different here". Nope. Not anymore. Ben Bernanke just dealt the final death blow to "American exceptionalism".

But all that aside, what comparatively few people recognize is that inflation--especially inflation as an explicitly defined policy goal--is effectively a tax levied without Congressional approval. By decreasing the purchasing power of the dollars that people earn, we're essentially confiscating a larger chunk of their earnings--that's no different from doing so more directly via taxation, and the same parties benefit from the policy in the end.

Sure, 2% a year may not sound like much to us, but it's a hell of a lot over the course of a working lifetime--with compounding, 2% annually over a 45-year time horizon amounts to a 144% increase in prices. A loaf of bread that costs 3 bucks today, then, would be expected to cost $7.32 in 2057, when today's college graduates (not to mention those who didn't go to college, screw them, right?) would be looking to retire. That's a pretty big failure with regards to the "price stability" half of the Fed's famous dual mandate.

Of course, this cost inflation isn't as big of a deal for those of us with investable assets who have a realistic method of hedging against cost increases. But it's definitely a huge problem for the poorest Americans, who live paycheck to paycheck and for whom a 2% shift one way or the other can make or break a budget. And if you think those workers' wages are likely to increase in order to keep pace with inflation, you're insane--they'll be lucky to increase at 1% a year, even if their productivity increases measurably.

Inflation, effectively, is the ultimate regressive tax. We fund our deficits and debt by printing money, and the effects of that money printing disproportionately impact the poor. I've discussed this dynamic at length before, but it's vital to remember that the way we calculate our "inflation rate"--as a one-size-fits-all statistic that includes prices of electronics, food, gas, housing, insurance, clothing, and more, and assumes that all consumers have the same relative breakdown between those expense categories--in incredibly flawed in practice.

This chart (an old favorite) shows that the poorest 20% of Americans spend nearly 60% of their income on food and energy, while the richest 20% spend only about 10%. This disparity matters significantly, as it means that different people will be experiencing different "effective" inflation rates, regardless of what the Fed's catch-all measurement declares. Without getting too deep into the mathematical weeds, it should be clear that an environment in which electronics and housing prices are decreasing and food and energy prices are skyrocketing (which is our current reality) will devastate a poor American, be roughly neutral to an "average" American, and matter little to a rich American.

It's not at all unreasonable to assert that a poor person's effective inflation rate could be closer to 3% or 4% (or higher--in developing nations, a disparity of 3% between rich and poor is not uncommon), as opposed to the summary "2%" statistic that the Fed is targeting. Too bad, then, that the poor person has no investable assets with which to hedge against those price increases.

In every way, inflation is a regressive tax that devastates the poor and working class to the benefit of the richest. Not only do the poor have no way to protect themselves against inflation, they also have the distinction of having a higher-than-average "effective" inflation rate. Sucks, huh?

If you want to know why income and wealth inequality is at such lofty levels in the United States, don't blame "capitalism" or our education system or any of a million social dynamics that politicians try to hide behind. Inflation--persistent, intentional inflation--is what keeps the lower class down, and somebody needs to tell them that. This crap has to stop some time. 


Friday, January 27, 2012

Song of the Week(end)

Nothing crazy this week--no great back story, nothing specifically related to this week or weekend, just a band I've always liked and a song that always chills me out heading into the weekend. Excuse me while I grab a beer and kick back with the Chili Peppers. Enjoy.

Also, if you're feeling crazy, check out the mashup of this song with Busta Rhymes' "Dangerous". Good stuff.

Late entrant for Clip of the Week

Okay, fine, you got me... I threw in the towel yesterday on Clip of the Week, and for that I apologize. I'll try to make amends today with the rightful champion... this guy. To the Australian Open we go:

That clip is one of those that is made to go viral--in fact, it's basically the real-life version of something like this or this (a trend that's honestly gone too far and gotten pretty lame). It also reminds me of this, one of the greatest Seinfeld episodes of all.

Either way, it's entertaining, and hey... while we're at it... you know, the Sox could use a shortstop. Just sayin'...

Another Yale update (and a mea culpa)

Sigh... it serves me right for praising a Yalie, really. I should've known I'd come away from this situation with egg on my face.

Back in November, I discussed the Patrick Witt/Rhodes Scholarship story on two separate occasions (here and here), praising Witt for prioritizing his commitment to his team and school over his personal ambitions for the Rhodes Scholarship. I also had some harsh words for the Rhodes committee, whom I depicted as rigid and detached from the original mission of their foundation's benefactor.

Yesterday, the New York Times revealed that it was Witt who was more deserving of scorn, for being (at best) duplicitous in his dealings with the media. As a result, I (and many others in the assorted national media) have come away scrambling for cover this morning.
On Nov. 13, Patrick J. Witt, Yale University’s star quarterback, announced that he had withdrawn his Rhodes scholarship application and would instead play against Harvard six days later, at the very time of the required Rhodes interview. His apparent choice of team fealty over individual honor capped weeks of admiring national attention on this accomplished student and his quandary. 
But Witt was no longer a contender for the Rhodes, a rare honor reserved for those who excel in academics, activities and character. Several days earlier, according to people involved on both sides of the process, the Rhodes Trust had learned through unofficial channels that a fellow student had accused Witt of sexual assault. The Rhodes Trust informed Yale and Witt that his candidacy was suspended unless the university decided to re-endorse it.
Witt’s accuser has not gone to the police, nor filed what Yale considers a formal complaint. The New York Times has not spoken with her and does not know her name.
Witt, who is 22, is no longer enrolled at Yale. He completed his class work last semester, is working on his senior essay and has been training in California in preparation for a possible N.F.L. career, according to the Yale athletics Web site. Witt did not respond to messages left over several days on his cellphone, his Yale e-mail and his Facebook page.
To be clear, I don't mean to imply that Witt is guilty of the sexual assault charge, or that his Rhodes application deserved to be suspended (I've learned my lesson in this case as far as jumping to conclusions is concerned). But suspended it was, and Witt deserves a wag of the finger for allowing the media to praise him for a choice that was ultimately not a choice, after all.

This revelation is just the latest Rhodes-related disaster to come out of New Haven in recent months, following the resignation of Yale's head coach Tom Williams for his own Rhodes Scholarship misrepresentations. I don't know what's going on down at Yale, but it's at the very least a bit odd. What Yale knew and didn't know (and what the Rhodes committee did and didn't know) is difficult to discern at this point, because both institutions are swearing confidentiality on the matters at hand.

But both Witt and Yale could have saved themselves quite a bit of negative attention here if they had just been candid about things from the beginning. Instead, both player and institution are deservedly being portrayed as incompetent and duplicitous, a situation that easily could have been avoided.

As for me, I think I'll just stick with my gut going forward, and criticize Yale and all Yalies by default. It's way more fun that way, anyway. And now I can be happy about Harvard's blowout victory over Witt and the Yalies without reservation--not that I really had any reservations to begin with.

[New York Times]

Thursday, January 26, 2012

Clip of the Week

This was a tragically slow week for video clips--at least, for video clips that don't involve missed field goals and muffed punts and "yo soy fiestas".

Sure, there was an entertaining clip comparing the U.S. debt situation to a family budget, and there was the Indiana Pacers' mascot ending a high school basketball game at halftime by blowing up a backboard. There was also this cool new camera technology (which follows up on this video that I posted way back when), but none of these are really cutting it for me.

So what's a guy to do when he can't decide on a good Clip of the Week? Beluga whale dancing to mariachis, of course. This one always makes me smile. Have a good night, peoples.

Wednesday, January 25, 2012

Career advice from Freeman Dyson

Freeman Dyson is an award-winning quantum physicist who continues to work hard at the age of 88. He was recently asked what kind of career advice he would give to people--both young and old--and I thought his answers were incredibly interesting.
(a). Advice to people at the beginning of their careers: do not imagine that you have to know everything before you can do anything. My own best work was done when I was most ignorant. Grab every opportunity to take responsibility and do things for which you are unqualified.
(b). Advice to people at the middle of their careers: do not be afraid to switch careers and try something new. As my friend the physicist Leo Szilard said (number nine in his list of ten commandments): “Do your work for six years; but in the seventh, go into solitude or among strangers, so that the memory of your friends does not hinder you from being what you have become.”
I think that the advice to younger people is incredibly wise (though somewhat dangerous if taken too far--we don't need unqualified surgeons or airline pilots running around out there...), in that it recognizes that the best and most memorable learning experiences are typically done on the job rather than in the classroom--and therefore often learned "the hard way".

But I was most struck by the advice to older people (the Leo Szilard quote), which encourages everyone to always be adopting new challenges (it also happens to be suspiciously similar to this piece of advice from Scott Adams). I've always said that the moment we think we know everything, we should become very suspicious of ourselves--if we've stopped learning and growing, we've made ourselves quite rigid and therefore vulnerable. That may mean meeting new people, trying new things, or simply moving to new places.

It's a very different take compared to the typical career path of many of our parents (or grandparents) who may have spent entire careers with the same company, but I also think it's a necessary adaptation to the modern reality. Few of us in the younger generation will have the opportunity to stay in the same job for 30 or more years, and those of us who do will likely be sacrificing quite a bit in order to do so. We must always be asking ourselves why we're doing what we're doing, and whether it's helping us to grow or hindering us instead.

[More Intelligent Life]

Tuesday, January 24, 2012

100 Foods to Eat

My Facebook ticker has seemingly been blowing up lately with lists of things I need to do. 100 Places to Visit Before You Die! 100 Beers to Drink Before You Die! 100 Ex-Girlfriends to Apologize to Before You Die!... and so on.

So, it seems, either my friends are all way more obsessed with their own mortality than I had ever appreciated (doubtful... I've seen them all party), or else they just really like to know how well-traveled or well-read or well-fed they are compared to their friends (bingo). I've mostly avoided these lists, because in my experience they tend to be pretty brutally arbitrary--imagine that. But for some reason, I just couldn't help myself when it came to "100 Foods To Eat Before You Die". Maybe it's because I love cooking, or love eating, or I was just oddly curious to see what some unknown person in the darkest corners of the internet considered to be "must eat" cuisine.

As I expected, the list was indeed insanely arbitrary (Frito pie? WTF??), but I was nevertheless impressed by how many foods on the list I'd eaten--many of them for the first time in the past few years. By my count, I've hit 71 of the 100 on the list. Of the 29 remaining, there's probably 5 or 6 that I have little interest in trying, and 2 or 3 that I've literally never heard of.

1. Abalone
2. Absinthe
3. Alligator 
4. Baba Ghanoush
5. Bagel & Lox
6. Baklava
7. BBQ Ribs
8. Bellini
9. Birds Nest Soup
10. Biscuits & Gravy
11. Black Pudding
12. Black Truffle
13. Borscht
14. Calamari
15. Carp
16. Caviar
17. Cheese Fondue
18. Chicken & Waffles
19. Chicken Tikka Masala
20. Chile Relleno
21. Chitlins
22. Churros
23. Clam Chowder 
24. Cognac
25. Crab Cakes
26. Crickets
27. Currywurst
28. Dandelion Wine
29. Dulce De Leche
30. Durian
31. Eel
32. Eggs Benedict
33. Fish Tacos
34. Foie Gras
35. Fresh Spring Rolls
36. Fried Catfish
37. Fried Green Tomatoes 
38. Fried Plantain
39. Frito Pie
40. Frogs' Legs
41. Fugu
42. Funnel Cake
43. Gazpacho
44. Goat
45. Goat's Milk 
46. Goulash
47. Gumbo
48. Haggis
49. Head Cheese
50. Heirloom Tomatoes
51. Honeycomb
52. Hostess Fruit Pie 
53. Huevos Rancheros
54. Jerk Chicken
55. Kangaroo
56. Key Lime Pie
57. Kobe Beef
58. Lassi
59. Lobster
60. Mimosa 
61. Moon Pie
62. Morel Mushrooms
63. Nettle Tea
64. Octopus
65. Oxtail Soup
66. Paella
67. Paneer
68. Pastrami on Rye
69. Pavlova
70. Phaal
71. Philly Cheese Steak
72. Pho
73. Pineapple & Cottage Cheese
74. Pistachio Ice Cream
75. Po' Boy
76. Pocky
77. Polenta
78. Prickly Pear
79. Rabbit Stew
80. Raw Oysters
81. Root Beer Float
82. S'mores
83. Sauerkraut
84. Sea Urchin
85. Shark
86. Snail
87. Snake
88. Soft Shell Crab
89. Som Tam
90. Spaetzle 
91. Spam
92. Squirrel
93. Steak Tartare
94. Sweet Potato Fries
95. Sweetbreads
96. Tom Yum
97. Umeboshi
98. Venison
99. Wasabi Peas
100. Zucchini Flowers

I think I'm gonna make a concerted effort to knock a few of these off this year... What's that you say? Hickory-smoked squirrel with a side of chitlins and some absinthe to wash it all down? Why not, sounds like a party...

Quote of the Week

Well, I was really tempted to give this week's Quote of the Week honors to Patriots' tight end Rob Gronkowski, who responded to the Pats' return trip to the Super Bowl (Gronk's first appearance in the big game) by telling an ESPN Deportes reporter, "Yo soy fiesta". Well said, Robert--you are the meathead's meathead.

But instead, I'm going to follow up on last week's Clip of the Week, in which Jon Stewart exposed some of the horrific work conditions in China that help create our iPhones (and Xboxes, and Playstations, etc...).

This story gained some more traction over the weekend, upon the release of a long New York Times article that examined some of the issues that led to our nation's now-ravished manufacturing base. The piece is fascinating and well-written, and it's frankly a must-read for every American--especially Apple fans.

Those who have read me often know that I am far from an Apple fan--I think Apple is (or, at least, has become) an evil corporation masquerading as the consumer's "fun friend" (note their EULAs), and I don't support their manipulative and exploitative business model at all (even while I admit that many of their products are pretty cool).

That said, Apple is far from unique in its massive use of Chinese labor to create its products--they just happen to be one of the biggest companies, and therefore easiest targets. What I've chosen as this week's Quote of the Week is from the New York Times article, does involve Apple, and it's simultaneously amazing and troubling.


"Apple had redesigned the iPhone's screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight. A foreman immediately roused 8,000 workers inside the company's dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day."
                      - New York Times

My first reaction to this anecdote was "wow". The Chinese, with their billion-plus people, simply operate on a different level of scale and speed than we do here in America. It's hard to compete with that, no matter who you are.

But the more I thought about it, the more I began to agree with Yves Smith's take on the matter--if an American company housed its own employees on-site, and was able to force its workers into an immediate 12-hour shift without notice and with nothing more than some tea and a biscuit... wouldn't we have some people complaining that those were conditions amounting to slavery?

There's definitely a problem here when it comes to worker conditions, and I think we risk ignoring the troubling legacy of the Civil War if we continue to ignore these kinds of issues. Yes, slavery is illegal here and in most countries, and it has been for some time. But slavelike working conditions are still very much alive, and we have benefited greatly from them here in the United States (as consumers, not as workers). Is that really something we want to see continue?

[New York Times]

Yale update

My friends down in New Haven tried to sneak this one past me by reporting it on a Friday afternoon (standard P.R. practice), but I caught it eventually. In keeping with my tradition of trying to update past topics on the blog, I'll do so here.

You may remember my post in the immediate aftermath of the tragic fatal accident at this year's Harvard-Yale tailgate, in which I shared my opinion that the Yale administration would most likely ban kegs and U-Hauls as a means of "doing something", even though such a policy would be unlikely to help the overall situation, as it has not at Harvard. I wrote then:
I think that the memory of the deceased woman deserves better than this kind of kneejerk reaction, just as I think that the memory of the 9/11 victims deserves better than the disaster that is the TSA. I do think that we need to examine just why it is that college students seem so intent on drinking to excess, and blaming the venue (Lot D) or the method (U-Hauls full of kegs) doesn't do anything to address the issue at the heart of the matter. 
A woman is dead, and it is a tragedy. But we will only compound that tragedy if we use her memory as an excuse to Do Something Stupid. We may all look at this case and assume that "U-Haul full of kegs" was the problem, and that we need to eliminate U-Hauls full of kegs. But would the tragedy here--or the inherent risks  involved, or the response to the tragedy--have been any different if these women had been hit by a Chevy Suburban full of bottom shelf vodka? What if it had been a Ford Taurus full of hot dog buns? The media treatment would certainly be different, even though it's easy to argue that the tragedy at its core is no different. 
I was hopeful that Yale would take this opportunity to initiate a comprehensive review of campus life and tailgating in particular, but of course, no such luck.
Yale University has tightened its policy on tailgating after a Massachusetts woman was killed and two others injured when a U-Haul truck drove through a tailgating area at the Harvard-Yale football game in November. 
Yale will no longer permit kegs at university athletic events or functions, according to the revised policies released Thursday. The school said the policy is consistent with practices at many other universities, including Princeton and Harvard. 
Yale also said oversized vehicles, such as box trucks or large commercial vehicles, will not be allowed in university lots at athletic events unless driven by a preapproved authorized vendor. Student tailgating will end at kickoff, and all students and guests will be required to leave the student tailgating area.
Ultimately, this is a predictable, safe, and completely disappointing response from Yale. The result will undoubtedly be quite similar to the result at Harvard--students will drink just as much, but they will do it in private residences far away from the security staff and police presence that exists at the tailgating areas. If they do come to the tailgating area, they'll come armed with flasks full of cheap liquor, instead of kegs.

Is that safer? No, of course not. The risks to student safety will remain (and perhaps even be amplified), they will just be shifted elsewhere, farther from the public eye. I'm not surprised by Yale's response in the least, but I am disappointed. They had a chance to make bold moves, and so far it seems that they've squandered that opportunity.


Monday, January 23, 2012

Forgotten weather tricks

I've written here before about the hidden dangers of technology--namely, that by becoming too dependent on our Googles and smart phones and Wikipedias, we can leave ourselves quite vulnerable when we become separated from those conveniences. If we were stranded on a desert island (or if, you know, there was a power outage or something...), would we be able to figure out how to survive anymore?

This dynamic was also discussed in greater depth here (an interesting piece that's worth a read), and I was reminded of it when Barry Ritholtz posted this infographic earlier today. Weather is one thing that I absolutely rely on the internet for--I check the weather every morning first thing on my phone, and I consistently rely on it to make my daily plans (especially my running schedule). I've never heard of most of these tricks (watching birds, the color of the moon, smelling plants), but they're pretty fascinating. Maybe I should print this one out--you know, in case the power goes out and I end up needing it.

Friday, January 20, 2012

Song of the Week(end)

Alright, time to send us all into the weekend with some tunes (or, at least, a tune). I may not like Obama much as a President, but the man showed us last night that he can at least sing, busting out a bar of Al Green's "Let's Stay Together" at the Apollo. Politics aside, he remains a likable guy--it's partly why he got elected in the first place.

So, in honor of the Prez, that's going to be your Song of the Week(end)--because if you can't get down with a little Al Green, you can't get down at all. Go Pats.

Get your professional financial advice here

Given my profession in the financial world, I'm often fielding questions from friends, family, and acquaintances as to what they should be doing with their money. I'm never comfortable giving a strong answer (except for "invest it with me"), because my opinions are long and rambling and chock full of conditional language (usually starting with "well, if the Fed...").

Now, finally, my problem is solved. Friends, don't ask me what to do with your money--ask the Random Financial Advice Generator. He's awesome.

That's some top-notch advice there, really. You just can't pay enough for that kind of insight. He's also terrific at coming up with corporate slogans, if you're in need. Try and stop that, SOPA/PIPA!

Thursday, January 19, 2012

Clip of the Week

Okay, Clip of the Week time...

Even though I really want to post video of Tom Brady's ridiculous night against the Broncos, I'm going to pass on that. I'm also going to pass on going the ESPN "Not Top 10" route by posting this not-quite-goal from U.S. national soccer team player Robbie Findley.

That's because Jon Stewart and Stephen Colbert were on fire (again) this week, checking in with a couple of wildly entertaining segments. The two teamed up to do a fantastic bit of satire in this bit (while also shining light on a horrifically broken political fund-raising system), and I highly recommend watching it.

But I thought Stewart saved his best work for this clip, and therefore it's our Clip of the Week. Ever want to know how your iPhone comes into existence? Jon Stewart lets you know...

The Daily Show With Jon StewartMon - Thurs 11p / 10c
Fear Factory
Daily Show Full EpisodesPolitical Humor & Satire BlogThe Daily Show on Facebook

I've been on record here before saying that our "currency manipulator" tough talk with respect to China is misguided, and I stand by that. We'd be much better served if we cast our attention in the direction of worker rights, which has absolutely nothing to do with the relative value of the dollar against the yuan.

I don't believe that unfair labor practices in China are the only reason that we've lost our manufacturing base--I believe that our monetary and fiscal policy have played a giant role as well--but I do believe that they exist and that they are important to address. We shouldn't tolerate this kind of crap just so that we can have fun toys to play with (no matter how much we may have loved Steve Jobs). Bravo to Stewart for doing such a great job on this topic.

Quote of the Week

Alright, I'm back at it after a two-day break to protest SOPA/PIPA... okay, fine, Tuesday I was just lazy and didn't post anything, yesterday I was protesting SOPA/PIPA. Minor details.

At any rate, I'll be making up for it today with a couple of posts--first Quote of the Week, then Clip of the Week, then a normal post to finish things off. At least that's my plan. You might only get Quote of the Week. I don't really know yet.

Whatever, here's your Quote of the Week... this time around, I couldn't choose whose comments were the most tone-deaf, so you get two.

Congratulations, Mark Wahlberg and Sarah Palin.

This week's co-QUOTES OF THE WEEK

"If I was on that plane with my kids, it wouldn't have went down like it did. There would have been a lot of blood in that first-class cabin and then me saying, 'OK, we're going to land somewhere safely, don't worry."
                             - Actor Mark Wahlberg, about American Airlines Flight 11 on 9/11/01

Okay, Marky Mark. Whatever you say, big guy. You do know that you're not actually Micky Ward, right? You're an actor, just so we're clear. Either way, in the future, maybe don't go so far out of your way to insult the memory (and toughness) of a lot of innocent people. Probably a bad call. Oh, and nice grammar too. You're really doing my hometown proud.

And also, too... here's Sarah Palin.

"If I had to vote in South Carolina in order to keep this thing going, I'd vote for Newt and I would want this to continue. More debates, more vetting of candidates. Because we know the mistake made in this country four years ago was having a candidate that was not vetted..."
                              - Politician Sarah Palin

Yeah, sure, she was talking about Obama (I assume). But... is she really so ignorant that she misses the irony that it was McCain's lack of vetting when choosing her that ultimately cost him (and the Republicans) the election?

Note to Sarah: don't give strategy advice to anyone in the Republican world, especially not on this topic. Your credentials are basically zero, and you therefore have no credibility when it comes to "vetting" worthy candidates. You were quite possibly the least worthy candidate to run for major office in decades, and it might help you in the future to be a little bit more self-aware.

But I guess self-awareness is in short supply these days, isn't it?

[Atlanta Journal-Constitution]

Friday, January 13, 2012

Song of the Week(end)

No, folks, I haven't forgotten about Song of the Week(end) already. I just thought I'd leave it till the end of the day today. It's Friday, the Pats are on tomorrow night (I might've mentioned that already), and I've got the Dropkicks stuck in my head. This song may be taking on a bit of a different meaning up in Boston now that Papelbon's left town, but it still kicks ass and gets me fired up for some hometown sports action.

While we're at it... let's bring things full circle. Pats. Dropkick. Let's do this.

When statistics lie (NFL edition)

One of the primary reasons I started this blog back in 2010 was to shed light on some of the statistical tricks that politicians, corporate executives, and talking heads use (and misuse) so as to confuse, mislead, and otherwise divide the general population. There's any number of tricks that these individuals will use, but almost all of them rely on the same basic dynamic--highlighting one piece of data while ignoring or obfuscating another that would allow for a more complete and realistic picture. It's basic hand-waving misdirection that would make any amateur magician proud.

To see how widespread these statistical games have become, note that I've previously highlighted this dynamic with respect to cancer, budget deficits, oil prices, student loan debt, tennis, Rick Perry, apple juice, education, airlines, and investing. I've also poked fun at the issue here and here. Simply put, given the nature of the public discourse these days, I don't think you can be an informed person (or make good decisions) unless you fully understand statistics and the way that they can be manipulated. The most recent example of this is the GAO's recent takedown of the Obama administration's claim that TARP made money--in a nutshell, the claim is technically true, but only if you ignore a lot of other things that are also true. Pretty standard statistic-manipulating stuff.

With the NFL Playoffs continuing this weekend with a big game between the Patriots and Broncos, a couple of sports journalists have taken a few liberties with a similar statistic, one that allegedly speaks volumes about the Patriots. Here's the statistic, courtesy of SI's Kerry Byrne:
If there's a legitimate statistical and historical reason to doubt the validity of New England's No. 1 seed and 13-3 record, it's the fact that they faced one cream puff after another -- and then lost each time they faced something close to the iron of the NFL. New England did not beat a single team with a winning record in the 2011 season.
We track something over at Cold, Hard Football Facts.com called Quality Standings -- how well you perform against Quality Teams, or teams with winning records. It's an effective way to separate the contending wheat from the pretending chaff each NFL season. Super Bowl champs typically prove along the way that they can consistently beat Quality Opponents. And that historic fact is not good news for the Patriots.
Not only did they face fewer Quality Opponents than any team in football this year (two), but also they lost to both of them (Steelers, Giants). Would the Patriots have gone 13-3 had they faced eight Quality Opponents like the lowly 2-14 Rams? What if they faced the league-high 10 Quality Opponents who made the Peyton Manning-less season in Indianapolis such a daunting challenge?
Cool. Great statistic, right? The Patriots, as it turns out, didn't beat a "quality opponent" all year. The problem is, the meaningfulness of this statistic depends 100% on a completely arbitrary definition of what comprises a "quality opponent".

A deeper look at the Patriots' 2011 schedule reveals that Brady & Co. ended the season with a staggering 7 wins (and no losses) against teams that finished the season 8-8--including their next opponent, the Broncos. Not a single one of these six teams (the Pats played and won two games against the 8-8 Jets) counts as a "quality opponent", so the Patriots get no credit for the victories, despite the fact that every one of them had a winning record in games not played against the Patriots.

Of course, had the Patriots instead lost each of those 7 games against teams that finished 8-8, those teams would have finished at least 9-7, and therefore the Patriots would have finished 0-9 against "quality opponents". If a team is only a "quality opponent" if you lost the game, but not if you won the game, then clearly there's a problem with your definition of "quality opponent".

A closer look at the Gang of Six reveals that three of them (Chargers, Jets, Eagles) were preseason favorites to reach the Super Bowl, and that nearly all of them could have reached the playoffs had they in fact beaten the Patriots--one of them, the Broncos, made it (and won their first-round game--ironically defeating the "quality opponent" Steelers) despite their loss. It seems far-fetched and dishonest to refer to none of these teams as "quality opponents", because the statistic itself is self-referential and relies on circular references.

Ultimately, this is just another example of the way that people misuse statistics to show a slightly skewed version of the world. In this case, the authors are hoping that you won't notice the weird statistical anomaly that defined the Patriots' 2011 schedule. In the case of TARP, the Obama administration is hoping that you won't notice that the "profitability" of TARP depends entirely on the massive expansion of the Federal Reserve's balance sheet (the so-called "money printing" you've been hearing so much about).

It is exceedingly rare that the truth of the world can be easily distilled into one catch-all statistic, but that doesn't keep our favorite talking heads from trying. It's our job to know when they're telling the truth, and when they're using smoke and mirrors. More often than not, it's the latter. Go Pats.


Clip of the Week

Since I refuse to post anything Tebow-related in the leadup to Saturday night's showdown with my Patriots (and since the rest of the NFL Playoff games last weekend were, frankly, worthless), I'm left with little else to choose from for this week's Clip of the Week (since it seems that the rest of the world outside of sports hasn't really woken up to 2012 yet... still).

So while I considered giving Clip of the Week to this awesome save in the World Hockey Juniors, I just couldn't pass up this crazy video of a crow... apparently teaching himself how to snowboard. The animals are learning to use tools, and we need to be aware. As usual, I blame the penguins.

Be careful out there, folks. It's Friday the 13th.

Thursday, January 12, 2012

Twitter highlights

I haven't updated the recent goings-on over on Twitter (@CrimsonCavalier) lately, so here's a quick batch of highlights from the first couple of weeks of 2012.

I left out a bunch of sports-related posts (there's been a lot, what with the NFL Playoffs and the college football bowl games going on), but I left in the posts about Steelers coach Mike Tomlin, because I really do admire his difficult decision on Ryan Clark, which ultimately (arguably) cost his team a playoff win.
  • It says a lot about America that we can rise up to kill a $2 fee (), but not an assault on our basic rights (NDAA).
  • This also says a lot about America--not sure this time if it's good or bad. Jon Stewart's ratings win...
  • Not a Steelers fan by any means, but I give Mike Tomlin huge credit for making a controversial (but correct) choice.  
  • Disgusting. RT @killagroove: #Paypal orders the destruction of $2500 Violin because they are giant colossal douches  
  • Congratulations to Mittens Romney on his slim Iowa victory last night.  
  • Strangest Xmas season ever: retailers cut prices to below break-even , and everyone bought guns:  
  • Congressional scrutiny on ratings agencies re. MF Global probably unrelated to that li'l downgrade back in Aug, right?  
  • Now that I know that she's not going to further destroy my country, I am really going to miss Michele Bachmann  
  • Now THIS... is a creepy headline: You win, China. You win.
  • It's January 6th, it's 67 degrees outside, and ski resorts are closing all over the place. This is all totally normal.
  • Germans... crack me up every time.  
  • 10 completions for 316 yards, no way that happens if @RealRClark25 is out there. So, props to Mike Tomlin for the difficult decision.
  • This is possibly the saddest thing I've ever seen... Tragic that these clowns are the best we can come up with.
  • I've had my share of Mountain Dew over the years, and... gross.  
  • Siri doubles iPhone data usage rates. That's pretty untenable. Way too much data usage for a specious benefit.
  • Bahahahaha... Nerrrrrrrrrrrrrrrds!!
  • Andrew Napolitano kills it on TDS: If Ron Paul is "Libertarian", then I don't know what "Conservatism" is anymore.
  • Seems like everyone's passing this around, so sure, I'll bite: Mafia is now Italy's largest bank. Appropriate, really.
  • Each day, there's more rejection of the established two parties: Paul should follow suit and reject the GOP, run Indep.
You might be noticing that I'm posting more and more about Ron Paul lately. That's no accident. I support his candidacy unabashedly as a rejection of the two parties as they currently exist. Whether or not he can win, I think his (remarkably consistent) views raise an important counterpoint to the parties (and the politics) that have devastated our nation over the past three decades.

A vote for Romney or a vote for Obama are realistically no different, as they both support a continuation of the two-party politics as they currently exist. A vote for Ron Paul is something else entirely. And that's what we really need now, more than anything--something else.

Wednesday, January 11, 2012

"Loss allocation" as government policy

This is usually the sort of thing that I just post on my Twitter feed and let pass, but given my past rants against the Fed, I can't let their most recent acts of political activism go unmentioned. Rather than do my own ranting, though, I'll let the king of blog ranting (Karl Denninger) take over. He absolutely goes after the Fed here (mimicking the Wall Street Journal), and deservedly so.
There's a point at which The Fed's actions reach into the realm of rank politicking and attempts to protect their "chosen many" from their own foibles; we've certainly seen plenty of games played in the last three years.
But this paper, sent to Congress unsolicited, apparently went too far for even the Journal's bankster-crank-stroking reflexes.  Among other things it said:
In this report, we provide a framework for thinking about directions policymakers might take to help the housing market. Our goal is not to provide a detailed blueprint, but rather to outline issues and tradeoffs that policymakers might consider. We caution, however, that although policy action in these areas could facilitate the recovery of the housing market, economic losses will remain, and these losses must ultimately be allocated among homeowners, lenders, guarantors, investors, and taxpayers.
This is where the problem is, of course.  Where does the government get the right to "allocate losses" through interventions?  The dirty little secret about the housing mess is that:
  • The Fed was largely complicit in causing the housing bubble.  In fact, Greenspan intentionally stoked this speculative orgy and further, both he and Bernanke intentionally averted their eyes from the monstrous credit expansion that "maintained" economic output and which was utterly unsustainable -- a mathematical fact that was obvious to anyone who bothered to look at the very data The Fed maintains!  In other words The Fed is now trying to find ways to evade responsibility for what it did
  • The losses are real but being hidden by further Fed actions!  Just one example is the hundreds of billions of dollars of second lines (Home Equity and "Silent Second" mortgages) that are behind underwater, non-performing first line mortgages.  These have an actual net present value in a foreclosure of zero, as they're not entitled to one penny of recovery until every dollar of the first is satisfied, and the first is underwater and thus will not be fully recovered.  All of our large banks have monstrous exposures in this regard -- almost none of these loans were securitized and thus they are all sitting on bank balance sheets, most at nearly 100 cents on the dollar.  These accounting values are fictions.
The reason that The Fed and our Government are desperate to hide these losses, praying for a miracle to somehow keep them from being recognized, is quite simple -- these long-duration investments are typically held by insurance companies and pension funds.  Recognition of these losses will cause the allegedly "healthy" firms and funds that hold this paper to be shown to be severely impaired or worse.
Denninger is absolutely dead on here, and I really have little to add. Our federal government (along with the Fed) has increasingly decided that it is their job to determine winners and losers in the economy. "Loss allocation" is not a central government function, nor should it be. The potential for unintended consequences and conflicts of interest is simply too high, a fact that some people in government still recognize and appreciate.

We can hide these losses as long as we want, but sooner or later it's clear where they will end up--on the backs of taxpayers, those who are paying the least attention. If you don't explicitly refuse to take these losses, you're going to end up with them by default. Therefore, ignore these games that the Fed is playing at your own peril--it's your money that's at stake.

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