The problem with "most likely" outcomes (an NFL playoffs discussion)

On the final Sunday of the NFL regular season (yesterday, for those who weren't paying attention), there's always a number of moving parts as we try to figure out who is going to make the playoffs and who isn't (and also, who is going to be seeded where). Figuring it out is often a challenge, which is why it's nice to have a handy guide at your disposal to help you through the morass.

Luckily, our friends over at Deadspin were nice enough to provide just that, which was an immeasurable help to me as I sat around and rooted for the Patriots and made myself fatter (thanks to Sam Adams and some homemade lasagna). A Patriots win and a Texans loss meant that my Patriots earned themselves the #2 seed and a first-round bye, which was interestingly contrary to what Deadspin had told me to expect. To wit:

The most likely scenario [in the AFC] is that every team which has something at stake wins—they're almost invariably playing teams that don't—and thus the playoff order is exactly what you see above [Texans, Broncos, Patriots].

That line, when I first read it at 2pm or so, stuck with me as I watched the afternoon's games. What does "most likely scenario" really mean? It turns out that the way that we define our terms has an important impact on the way that we understand and respond to the world before us. That's what I'm about to explain.

Yes, it's true, in each individual game, it's "most likely" that the favorite will win—that's what being a favorite means. Therefore, when you start stringing together potential scenarios, the "most likely combination of outcomes" is, indeed, the combination in which all of the favorites win their games. But that doesn't necessarily make it the "most likely scenario"—there's a subtle but very important difference. Bear with me for a second here, because I'm about to get nerdy.

Let's start from the top here, considering a three-game sample. Let's say that each of the three top seeds coming into yesterday (Texans, Broncos, Patriots) had a 60% chance of winning their game (in the grand scheme of things in the NFL, that's a pretty high probability). To determine the likelihood of ALL THREE of them winning their games, which Deadspin said was the "most likely scenario", we just need to multiply the probabilities. In this case, 60% x 60% x 60% = 21.6% , so the likelihood of all the favorites winning was a little less than 1 in 4 odds.

There are 8 possible groupings of winners in this scenario (Texans/Broncos/Patriots would be one, Colts/Broncos/Patriots would be another, Texans/Chiefs/Dolphins a third, etc, etc, etc), and of those 8 possible groupings, the one where the favorites all win is indeed, as we said, the "most likely combination of outcomes". Here's a super-nerdy chart that shows that point, using the 60% probabilities that I used above.

When you look at it this way, you start to see that the "most likely scenario" isn't that all three teams will win, but that one of the other seven scenarios will occur (in fact, the "at least one upset" scenario is more than three times as likely here, with probability 78.4%).

Sure, any one of those individual outcomes is less likely than the individual outcome of "no upsets", but the reality of the matter is quite different. When we start to group the possible outcomes, we see things with a little bit more clarity. I think that a more realistic way of presenting the available data is the following:

Probability of exactly one upset:                       43.2% 

Probability of exactly two upsets:                     28.8%  

Probability of zero upsets:                            21.6% 

Probability of three upsets:                                6.4%

When you group the scenarios this way, you can see that all three teams doing what they're "supposed" to do is, in fact, far from the "most likely scenario" (NOTE: in order for it to become the "most likely scenario" the way I define it, the probability of each favorite winning would have to be more than 75%, as opposed to the 60% that I am using; I find 75% to be way too high for any NFL game). The statistics say that we should probably expect at least one upset, and that "exactly one upset" is the most likely scenario—which, unsurprisingly, is exactly what we ended up with.

Of course, in advance, we can't possibly know which game was likely to produce the upset, but it's almost beside the point. What we can know is that the more times we flip a coin, no matter how lopsided toward "heads" the coin may be, the more likely it becomes that it will eventually come up "tails".

Ultimately, the more independent variables (games) you start linking together, the more likely it is that your "most likely outcome" involves an upset (or a couple of upsets) somewhere along the way. In a sense, this is a similar statistical problem to the birthday problem, which I discussed here once before.

So, why does all of this matter? I'll make this part quick. Let's say you're the Broncos. You're sitting at home this week as the #1 seed, on your bye, trying to decide which team to prepare for (remember, the NFL re-seeds after the first round) while the Wild Card Weekend games are being played. With two games being played—Texans hosting Bengals, Ravens hosting Colts—there are four possible scenarios: (1) Texans and Ravens win, (2) Texans and Colts win, (3) Bengals and Ravens win, (4) Bengals and Colts win.

Assuming once again that the favorite has a 60% chance of winning, we get the following probabilities:

Texans/Ravens (Broncos play Ravens):                 36% 

Texans/Colts (Broncos play Colts):                       24% 

Bengals/Ravens (Broncos play Bengals):               24% 

Bengals/Colts (Broncos play Bengals):                  16%

So, using the same logic we used before, the most likely individual scenario is that both favorites (the Texans and Ravens) win their games, and so the Broncos should be preparing to play the Ravens next week... right?

But no, look again. Even though the "Bengals/Ravens" and "Bengals/Colts" scenarios are individually less likely than the "no upsets" scenario, they combine to be more likely. Because we've given the Bengals a 40% chance of winning their game, and because the Broncos will play the Bengals no matter what if they do indeed win, the Bengals are in fact the Broncos' most likely opponent. Sure, it's only by a small amount, but it's still relevant from a preparation standpoint—Denver should spend at least as much time watching Bengals film as Ravens film, if not more.

Any time we use statistics, we need to be careful with what we're really saying when we communicate our findings or beliefs. In the case of the Deadspin piece, the analysis in question wasn't wrong, it was simply imprecise (and possibly incomplete). When we as readers read that something is the "most likely" scenario, we're almost certainly hoping for something better than a 21.6% probability. Personally, I greatly prefer the much higher 43.2% probability that I ascribed to the "exactly one upset" scenario—I especially prefer it as a Patriots fan, whose team benefited greatly from the way things turned out on the field yesterday.

Good statistics (and good math, and good science, and good writing) requires that we be precise with our methods and our communication of our methods. If we're imprecise, we end up saying things that we don't really mean or that just aren't true.

[Deadspin]

Clip of the Week

In a totally dead week for clips (I think somebody turned off the interwebs for the holidays), I don't have much to share with you for this week's Clip of the Week. So I'll just take a page from the old Kickstarter book and share with you a promotional video for a cool little cartoon-inspired art project.

This guy (Rob Loukotka) was trying to raise $3,000 for the printing of these posters, and he raised over $100k, presumably with an assist from the Big Picture blog. That's impressive, and it's a testament to the power of Kickstarter. So, without further ado (and with apologies to Duke's punter, who pulled off an impressive play in a meaningless bowl game), I give you the entire history of ACME products used by Wile E. Coyote against the Road Runner.

Happy weekend, people.

Quote of the Week (Sexual Harassment Edition)

This week's Quote of the Week is presented here without comment, lest I say something that offends women, seeing as I live in a house with two of them (one big, one small). I'll just let this one speak for itself.

This week's QUOTE OF THE WEEK

"The Iowa Supreme Court says a dentist did not commit sex discrimination when he fired an attractive female assistant he viewed as a threat to his marriage. The court ruled Friday that a boss can fire an employee he considers an 'irresistible attraction,' even if the employee has done nothing wrong. The decision is the first in Iowa, but in line with rulings elsewhere. Justices rejected a discrimination lawsuit filed by Melissa Nelson, who was fired by Fort Dodge dentist James Knight in 2010."
                                                 - Quad-City Times, via Associated Press

Okay, fine, I'll comment, but just for a second. For what it's worth, as a general rule, I think that people should be able to be fired for just about any reason, just because I think it's silly that nobody really has to provide reasons why they didn't hire anybody in the first place, but then they are expected to provide well-documented reasons why they did fire somebody, just because they made the initial decision to hire them.

It's basically your typical act of omission versus act of commission scenario, and I typically think that such distinctions have a tendency to become arbitrary and stupid. If we place restrictions on firing, then all we're really doing is making it less likely that anybody would ever want to hire anybody in the first place. And that's a lesson that France seems intent on learning the hard way. Let's not be like France, mkay?

Anyway, the dentist in question in this case is definitely a moron, and he is almost certainly guilty of sexual harassment and deserving of some type of punishment—via karma if not via the court system. However, in my semi-libertarian opinion, there is no reason that we need to place restrictions on discretionary hiring and firing decisions simply because of this guy's moron-itude. Being a moron (or a scumbag) is not, in general, an act that must be punishable under the law—I'll leave that punishment to the dentist's wife, who I'm quite certain is up to the task.

As for Ms. Nelson, why exactly would somebody want to work in an environment with a creepy-ass dentist who makes off-color sexual remarks in the first place? Her dismissal is probably for the best for just about everyone involved here, in my humble opinion. But hey, maybe I should've just not commented on this one, after all...

[Quad-City Times]

Top posts of 2012

Since it's that time of the year where everybody takes stock of things and mocks the Mayans and makes predictions for the next year and does whatever else it is that people like to do while nursing their egg nog hangovers, I thought I'd take a look back at The Year That Was here at the Crimson Cavalier, starting with a rundown of my most popular posts of the past 12 months.

So here are my Top 10 most-read pieces from 2012, which are, naturally, all over the map. None of these posts was anywhere close to becoming my most-read post of all time (that honor belongs to this post on globalization, followed closely by this George Carlin-inspired post and this post on discrimination), but a few of them definitely registered a bit of a rumble on the ol' Crimson Cavalier pageview seismometer.

Enjoy re-reading some of your favorites, and I'll do my best in the future to reproduce more of the good stuff you all like... whatever that is.

#1: Remembering the Dream Team (June 14)

It probably shouldn't be surprising that my most-read post of the year had to do with the (tape-delayed) Olympics, which dominated the news cycle for a few weeks back in the summer. On the 20th anniversary of the Dream Team, I shared some of my own memories while excerpting a GQ oral history of the squad.

#2: The changing business of education (May 9)

The runner-up post (with about half the pageviews of the champion, which means it's a distant second, but so be it) involved one of my favorite topics, education. Inspired by a very cool new program at Virginia Tech called the "Math Emporium", I shared some of my thoughts on the future of higher education in America.

#3: Eat More Chikin (at Wendy's?) (July 30)

I'm sure you all remember the flap surrounding Chik-Fil-A this summer, way back when Mitt Romney's Presidential campaign was just shifting from "suck" to "blow". I thought the controversy was incredibly overdone, and I thought that many people were far too self-congratulatory with respect to their boycotts of the fast food also-ran. I said so, in a pretty standard Crimson Cavalier rant.

#4: I'm too busy to write a blog post (July 16)

I'm too busy to write a blurb about this blog post. Just read it, alright? Or don't, if you're too busy. Either way, kudos to the Harvard Business Review for a well-written article, one that I briefly reviewed in this post.

#5: The carbon footprint of flowers (WTF??) (May 4)

With Mother's Day approaching, I decided to take a minute to make everybody think twice about sending flowers to their mothers. Why? Because I'm a jerk, obviously. Also, because it turns out that almost all of the flowers we buy in this country are shipped here from Latin America, and that therefore the flower industry has an incredibly large carbon footprint. How's THAT for irony? "Green" economics, indeed.

#6: Is it the weekend yet? (June 6)

I wrote this post on a Wednesday, so no, it most definitely was not the weekend. I might have had a drink that night anyway. Possibly.

#7: Bernanke's Terror Alert Scale (September 14)

I wrote this post in the immediate aftermath of the Fed's announcement of infinite "quantitative easing", a program that has had incredibly underwhelming results so far. That's about what I predicted on that day, and so I'm going to take a second here to pat myself on the back. While we're at it, keep your eye on this dynamic in 2013—I have a feeling it's going to have some serious economic relevance in the not-too-distant future.

#8: When hypocrisy is good business: "The Lorax" (March 2)

"The Lorax" could have been a cute little Dr. Seuss movie with a nice message about conservation, but instead it became a symbol of all that I hate about corporate hypocrisy. I borrowed from a delightfully vicious review of the movie by NY Times critic A.O. Scott, and I shared my own thoughts about the odd intersection (or clash) between morals and business.

#9: Clip of the Week (April 6)

I'd like to thank John O'Hurley (J. Peterman) for providing me with my most popular Clip of the Week ever—a promotional video for "Rangé" golf balls. Good stuff.

#10: The tail is still wagging the dog at UF (April 24)

Yes, another post on education, which makes two in my top 10. This one also involved collegiate athletics, another common topic here on the blog. The University of Florida made the incredibly bizarre decision to drop its ENTIRE computer science department, an area of education that should be expanding if anything. At the same time, they increased their athletics budget by more than $2 million, an increase that was greater than the entire C.S. department budget. Well played, UF. Well played. But next time, beat Georgia.

On prohibition (of guns)

Whenever I come across a politically charged issue like the one on gun control that has sprung up in the wake of the events in Newtown, I tend to take some time to properly synthesize my thoughts, so as to avoid speaking off the cuff and saying something un-careful that adds to the chorus of stupidity that typically surrounds these types of events and issues. Having now taken an appropriate amount of time to have done so, I'll now share my thoughts, hopefully in a manner that is both sensible and organized (rather than a rambling brain-dump).

Obviously (and mostly correctly), the tragedy in Newtown has sparked a significant wave of support for new gun control laws, or at least for a re-introduction of past gun laws that have since lapsed. When I try to assess the likely impact of such proposed laws, I think that it's always best to rely on the predictive power of analogies. In the case of guns, I think it's impossible to talk about any sorts of limitation or prohibition without first considering our nation's experience with the prohibition of alcohol, marijuana, and abortion—all things for which there is/was an intense societal desire, but also a significant social or moral concern. Suffice it to say, the experience of such prohibitions has been mixed at best. Unintended consequences have a tendency to crop up in strange and undesirable ways, much like in the case of bans on texting while driving.

The last thing we need is to institute a counterproductive law that ironically makes our problem worse, not better. History has shown that when people have an intense desire to possess or to do something, they typically will find a way. People and corporations are incredibly resourceful when they need to be, which of course is why we now have corn in our Coca-Cola.

But what concerns me more about the response to the Newtown incident isn't my suspicion that gun control laws would fail, but more that we are focusing on largely the wrong issues. While we can't know entirely what was going through Adam Lanza's head on the day that he decided to become a national pariah, we owe it to ourselves (and to the slain children) to try our best to understand, rather than to simply blame his tools and be done with it.

Ultimately, the laser focus on guns and gun control in the past few weeks has all the traditional markers of scapegoating. We have in front of us a very complex and uncomfortable issue, with many factors potentially playing a hand in ways that we may not fully appreciate. But instead of trying to unpack a large and messy issue, we instead focus on the easiest (or most convenient) explanation, and in doing so we rely on what is an overly simplistic narrative of What Happened That Day In Connecticut.

In the discussion on gun control, there is a serious issue of what is said versus what is left unsaid. What is largely left unsaid is our implicit assumption that a certain subset of Americans will always want to do great harm to other Americans, and that we must therefore act to minimize the damage that they can do. We ask very few questions as far as why those Americans must exist, or why they continue to do things like this at a rate that seems to be increasing by the day.

Is there something ill in our society that causes people to become so hopeless or disillusioned that they think these acts are the only way by which they can obtain any attention or fame? Are we doing a disservice to the mentally ill people in our society, ignoring them to the point that they begin doing desperate and irrational things? Could it even be that the drugs we use to try to treat these people's "symptoms" are doing more harm than good (unintended consequences, revisited)? All of these are relevant and important questions and discussions, and yet they have so far largely been drowned out by a chorus of "MORE GUN CONTROL NOW" demands from all corners of the country.

One of the most compelling ironies that I've come across in the past couple weeks came courtesy of the following tweet:

If u run onto a baseball field, TV won't show it, to dissuade copycats. If u kill kids? Anti-hero profiles for DAYS. #newtown @pattonoswalt
— Brian Farnham (@brifar) December 14, 2012

Indeed, this central irony of media coverage is both poignant and dangerous. If you mention the names "Dylan and Eric", most people in my generation will still know who you're talking about, even a decade and a half after the original incident. That's somewhat sick, and it's definitely part of the problem. For good or for bad, the individuals who shoot up schools become national celebrities, and everyone instantly knows who they are—it took mere minutes for the name "Adam Lanza" (well, Ryan Lanza at first, but I digress) to be known from coast to coast. For kids who feel small or hopeless or depressed, it doesn't take much for that kind of anti-hero worship to become incredibly alluring.

I think it's incredibly dangerous for us to singularly focus on gun control as the remedy to our current problem while ignoring the dynamics that I've (ever so briefly) mentioned in this post. Even if our country had no guns at all, it would still be possible for Timothy McVeigh to blow up a building with fertilizer and diesel fuel, and it would still be possible for the next Adam Lanza to emulate these Chinese men, who terrorized schools not with guns but with knives.

Ultimately, the longer this country goes on ignoring the more difficult and important questions in our society, the harder those issues will become to address in the future. It's basic kick-the-can behavior, which doesn't work any better in cases of mass murder and psychological distress than it does in the case of debt crises.

We often take it for granted that America is the greatest country in the world, but quite frankly, in many ways, it is far from it. In the greatest country in the world, Newtown shouldn't happen. In the greatest country in the world, we take care of all our citizens, BEFORE they get desperate and do crazy things, rather than waiting for a great tragedy to show our support (or condemnation). In the greatest country in the world, we try to rehabilitate the mentally ill, we don't just ostracize them and put them in a padded room. And in the greatest country in the world, we don't sit and stare while our suicide rate stagnates at roughly twice the rate of Spain, Italy, and the U.K.

In the greatest country in the world, we ask the tough questions, and we ask them early. Rather than shying away from uncomfortable discussions, we embrace them and attack them head-on, sensing an opportunity to make a great nation even greater. In the greatest country in the world, we don't ask how we can keep bad people from getting guns, we ask how we can keep from having "bad people" in the first place.

Incidents like the one in Newtown are unacceptable, but simply shrugging our shoulders and pretending that blaming guns is a sufficient response is even more unacceptable. The victims and their families deserve better than that, but we all stand ready to give them short shrift. Unfortunately, that's becoming the American way, and it's an awful, awful trend.

If we all accept on faith that gun control and gun control alone is the proper response to Newtown, then I can give you 100% assurance that there will be another Newtown in our not-too-distant future. And in the greatest country in the world, that's just not okay.

More adventures with USPS

I was actually quite pleased this morning when a Christmas present that I ordered early this week—shipped via USPS—arrived ahead of schedule. From San Jose, CA to my door here in Charlottesville, VA in just two days. Hooray for Priority Mail!

Of course, as we all know by now, USPS customers aren't always so lucky. And when I shared my excellent news with a very dear friend of mine, he was more than a bit nonplussed by my package's miraculous two-day cross-country journey. Because, you see, earlier this week he had sent a package from his home in Santa Monica, CA to nearby Brentwood—about 3 miles, door to door. And his package took... 3 days to arrive. Here are the grisly details:

Now, for those unfamiliar with California geography (like me, for example), you might not think much of the little stopover there in Richmond, CA. No big deal, just had to go to the local sort facility to be processed and then sent back out to Brentwood. Standard operating procedure, right? Wait, what in the what?

Holy crap... this thing went all the way to Oakland and back! That's 380 miles away! Put another way, that's the rough equivalent of sending something from Boston, MA to Cambridge, MA... BY WAY OF BALTIMORE!!! In what world does any of this make sense?

USPS, you continue to baffle me. But hey, thanks for the package. You guys are awesome, keep up the good work.

A very important (Canadian) update

A few months back, I shared a little news item about a big heist up at Canada's Strategic Maple Syrup Reserve, and really, that point cannot be stressed enough—Canada has a Strategic Maple Syrup Reserve. So, since the heist is back in the news, I simply can't help but post this very important update (with new details!) from the New York Times.

It was an inside job of sorts. Thieves with access to a warehouse and a careful plan loaded up trucks and, over time, made off with $18 million of a valuable commodity. 

The question is what was more unusual: that the commodity in question was maple syrup, or that it came from something called the global strategic maple syrup reserve, run by what amounts to a Canadian cartel. 

On Tuesday, the police in Quebec arrested three men in connection with the theft from the warehouse, which is southwest of Quebec City. The authorities are searching for five others suspected of being involved, and law enforcement agencies in other parts of Canada and the United States are trying to recover some of the stolen syrup. 

Both the size and the international scope of the theft underscore Quebec’s outsize position in the maple syrup industry. 

Depending on the year, the province can produce more than three-quarters of the world’s supply. And its marketing organization appears to have taken some tips from the producers of another valuable liquid commodity when it comes to exploiting market dominance. 

“It’s like OPEC,” said Simon Trépanier, acting general manager of the Federation of Quebec Maple Syrup Producers. “We’re not producing all the maple syrup in the world. But by producing 70 to 78 percent, we have the ability to adjust the quantity that is in the marketplace.”... 

Mr. Trépanier estimates that the reserve now holds 46 million pounds of syrup.

You can read the whole article if you want the gory details of how the thieves managed to make this work, but suffice it to say that Fort Knox this is not. These guys made off with an amazing six million pounds of syrup, and good lord that just sounds like a lot of pancakes. And, as the article points out, stealing it is the easy part... it's selling it without anybody asking questions that's the hard part. And somehow, these guys pulled it off.

Of course, we can make light of this situation if we want (and yes, that's exactly what we're going to do, because Canada's crimes are just so cute and quaint, unlike our crimes in America), but stealing tens of millions of dollars worth of just about any product is a serious crime, which is why both the Mounties (tee-hee) and the U.S. Immigration & Customs Enforcement team were in on this investigation.

At any rate, be aware, the syrup you're pouring on your Christmas morning pancakes (or waffles, if you roll that way) could be hot in more ways than one. Go Canada.

[NY Times]

Clip of the Week

Alright, it's Clip of the Week time, and I'm not going to do the Christmas theme (or the Mayan theme) even though I probably should.

The runner-up videos are fewer than in a typical week, but they make up in quality what they lack in quantity. If you're concerned about GMOs (or even if you're not, or even if you have no idea what GMOs are), then this video shared by Barry Ritholtz is an absolute must. It provides an excellent primer on the issue while also being fairly entertaining.

Also, the Year-in-Review type of stuff is now starting to come through in earnest, and we'll start it off with this excellent pop music mashup video first posted by the good old Red Cowboy. And speaking of Year-in-Review, this absolutely horrendous free throw has to be in the running for the worst sports play of the year. It just doesn't get much worse.

But this week I'm going back to my old reliable, with another excellent animal-related clip. If this laughing camel (hey, come to think of it, this sort of does go along with the Christmas theme, doesn't it?) doesn't make you smile and forget about the fiscal cliff and the Mayans and all the Christmas presents that you still haven't bought because you thought the world was gonna end today and you just really didn't think it was necessary to spend your money on gifts for your aunts and uncles and cousins and small children that you'd never have the opportunity to see them open—hypothetically speaking, of course—then I really don't think there's any hope for you. This guy is the best.


Thank you, Killagroove, for a terrific heads-up.

Still proud to be an American

Yeah, I know, sometimes it seems like I'm just a bitter and disillusioned America-hating complainer, and yes, there are definitely a lot of things that have disappointed me in recent years. But this is still the greatest country in the world, and this here is your daily reminder of why (h/t Paul Kedrosky, via The Economist):

Pity the poor Indians...

[The Economist]

Quote of the Week

Every once in a while, I like to mess around a little bit with Quote of the Week and give the honor to a cartoon, like this awesome Dilbert comic strip, or this nerdy statistics humor cartoon. This is one of those weeks, because I feel like we could all use a little levity around here, given all the talk about guns and fiscal cliffs and of course the looming apocalypse.

On that last point, here's your Quote of the Week, courtesy once again of my man Killagroove.

This week's QUOTE OF THE WEEK

Concentrated benefits and dispersed costs

I know, that's the most exciting headline you've ever seen on this blog. But it's also one of the most important dynamics in American politics and economics, and it's one that dominates just about everything that comes out of Washington these days. Thanks to Alex Tabarrok of the Marginal Revolution blog, we've got a nice video that explains what it's all about, focusing on why there's corn syrup instead of sugar in our Coke bottles.



Simply put, the people (farmers) who want there to be corn syrup instead of sugar in our Coke have more to gain (or lose) than the rest of us, so they make the most noise, donate the most money, and generally spend the most time and effort making sure that the laws of the land are written in a way that benefits them, even if it's at the expense of the greater good. The rest of us tend not to have enough of a dog in the fight, so we generally won't take the time to fight back, even if we're aware of the issue at hand (which we often are not). The problem is, sooner or later these little things start to add up in a way that matters significantly to us, but only in aggregate.

This video also provides a valuable lesson on the typical behavior of large companies in response to changes in input cost structure. When one input in the product they create increases dramatically in price, these companies are typically very resourceful at finding ways to replace that input at a lower cost (but similar enough quality). That's how we end up with corn syrup in absolutely every food in the grocery store, that's how all of our manufacturing jobs get outsourced to China and Vietnam (no, it's not about "currency manipulation"), and it's also one of the primary factors holding our official "inflation rate" in check.

Inflation rates are only useful statistics if we assume that the goods we're measuring are 100% the same over time, which they rarely are. Coke is different now than it was 30 years ago (and frankly, even five years ago), and so too are cars, houses, clothing, electronics, and more. That's usually a good thing, but not always. "Low inflation" is not a win for us as consumers if it means that the quality of our products is degrading over time—unfortunately, that's exactly what's been happening right under our noses, with a huge assist from government policies.

Concentrated benefits and dispersed costs—it's great when you're the focus of the concentration, not so great when you're the one bearing the costs... and when those small dispersed costs start piling up, it starts to become a pretty big cost, doesn't it?

[Marginal Revolution]

Quote of the Week

I'm going to keep things quick and simple with this week's Quote of the Week, because I think it largely speaks for itself. Let's get right to it, with blogger Karl Denninger's response to the recent revelation that over 47 million Americans (about 15% of the total population) are now receiving food stamps. That's an increase of nearly 50% just since 2009, which is costing our government an additional $25 billion annually. Yuck.

This week's QUOTE OF THE WEEK

"The last month for which data is available, September, shows over 600,000 people [began collecting food stamps] in that month alone, comprised of 290,000 households. In one month! The average handout is $278.89 per household, or $134.29 per person monthly. Note that there are only 143,549,000 people in the workforce -- that is, people earning a wage... To put this in perspective for every three people working one is collecting food stamps."
                                     - Karl Denninger, The Market Ticker

That is awful. Setting political issues of the "fiscal cliff" or the "welfare state" or whatever else aside, the simple fact is that this is a completely untenable economic situation. Far too many people are currently receiving food stamps, and this alone is a huge indication that our policy responses to the financial crisis of 2008-09 (deficit spending, Fed money-printing) have been an utter failure.

The debt-based financial games that we've played for the last several decades have gutted our nation's middle class (death by several trillion paper cuts), and yet many would suggest that more of the same is what we need to solve our problems. Believe me, they're wrong.

It is imperative that we stop lying to ourselves and pretending that these policies work. They don't. We need to clean up our fiscal house (starting with defense and Medicare), take the power away from the banks who continue to steal from the rest of society, and most importantly stop printing money. It won't be fun, and it won't be easy, but it really is the only option—things will only be worse in the future if we fail to act today. America is a country that has always strived for greatness, and 15% of the population on food stamps falls far short of "great".

[Market Ticker]

Happy Holidays (Bonus Clips of the Week)

Alright folks, it's weekend time, and I'll be spending the weekend putting up our Christmas decorations (and tree) and spreading good holiday cheer. In that spirit, here's a couple of Christmas-related Clips of the Week, for your viewing pleasure. And don't forget me when you do your shopping... I'd like a Vitamix blender, please. Thanks.

First up, DMX sings/raps "Rudolph the Red-Nosed Reindeer". This was way better and more amusing than I expected it to be. Awesome.



Then, in another excellent Jimmy Fallon musical number, Jimmy, the Roots, and Mariah Carey take on "All I Want For Christmas Is You", using childrens' instruments, of course (h/t Red Cowboy).

Clip of the Week

Just like last week, Barry Ritholtz shared a few good links this week, including this guy and these guys, all of whom are completely insane in every sense of the word and make me wish I was doing more with my life. There's also this amusing clip entitled "Gay Women Will Marry Your Boyfriends" and this clip of cheetahs running in slow motion, which is always awesome.

There wasn't much notable in sports this week, except for this amazing play by Nebraska QB Taylor Martinez and the annual Teddy Bear Toss at a Canadian minor league hockey game, which cracks me up every time (pity the poor intern who has to count, catalog, and then box up those bears before donating them).

In other random videos, this doberman loves the water slide, Jon Stewart skewers Fox News' annual "War on Christmas" theme, Jimmy Kimmel continues to prey on human stupidity, this pop music mashup is incredibly well done, dogs can drive cars now, and these guys did a great job of satirizing Instagram, with a Nickelback twist (h/t Killagroove on that last one).

Also brought to my attention by Killagroove was this week's champ, this Vimeo clip about the "Mine Kafon", a creative and very cool solution to mine clearance in Afghanistan. It's a novel way to solve a pretty messed up problem, and I salute this guy for doing it (and the filmmaker, Callum Cooper, for documenting it).


Mine Kafon | Callum Cooper from Focus Forward Films on Vimeo.

On housing and the low cost of money

I'm often writing about the perils of the Fed's monetary policy, but there are obviously some bright spots to be found out there. I'm sure by now that you've read at least one glowing article this year about the "housing recovery", and for the most part it's legitimate (even if there are some strange dynamics under the surface).

The question, of course, is whether this recovery is sustainable, and what will happen to housing prices if interest rates begin to rise from their freakishly low levels. That's a topic that Tim Iacono took on in a recent blog post, and I thought his findings were absolutely worth sharing (emphasis mine).

I’ve about had it with how giddy a large portion of the U.S. population has become about rising home prices. 

Don’t get me wrong, when first thinking about this, I was about as happy as anyone else to learn that property values are now rising sharply again since, after renting for six years, my wife and I finally bought a house about two years ago. So, we stand to benefit as much as anyone else. 

But, when you look at what’s driving home prices higher and how unnatural and unsustainable those factors are, suddenly the headlines sound more ominous than optimistic...  

Yes, low inventory is a big factor behind the home price surge as the flood of foreclosures has slowed to a trickle while strong investor demand and growing confidence amongst American consumers have surely tipped the scales in favor of higher prices. But, it is today’s freakishly low interest rates – engineered by the Federal Reserve – that have clearly played the biggest role in pushing home prices higher, simply because most people buy a house based on the monthly mortgage payment, not the purchase price. 

And when you see the impact record low rates have on purchase prices, you might be as concerned as I am... 

Based on a constant mortgage payment of $1,100 per month (what seemed to be a good national average based on this story and others like it), today’s 3.31 percent 30-year mortgage rate will finance a house at almost double the price that the 40-year average mortgage rate would!

While there are clearly other factors involved, it is the Federal Reserve’s asset purchase program that is largely responsible for these freakishly low rates (it is one of their stated policy objectives) and, while the central bank has promised to keep rates low for a long time and to continue buying mortgage-backed securities indefinitely, those actions are by no means guaranteed. 

This is a dynamic that I've been well aware of for a long time now, but it's still striking to see it laid out graphically like in Tim's piece. In just the last 12 months, 30-year mortgage rates have come down from 4.2% to 3.4%. Using Tim's $1,100 monthly payment, that means that a buyer who waited a year can now afford to buy a $276,000 home, as opposed to a $250,000 home last year.

That's an increase of 10.4% year-over-year because of the low cost of money, and yet home prices are only reported to have increased by 5 or 6% over the last year, even according to the rosiest estimates. Therefore, in any realistic terms, the price of housing has continued to decline this year, rather than rebound sharply as the headlines would have you believe.

If interest rates are really going to stay this low forever, then you shouldn't have much to worry about, and you can go ahead and buy real estate to your heart's content (just don't read these three posts before you do so). But as Wells Fargo is always reminding me in their constant mailings, "Interest rates rarely stay put for long!"

And if Wells Fargo is indeed correct, well then... Tim's chart tells us that housing's got another pretty significant leg down (like, 30 or 40%) to get back to those historical average rates. And that likely won't be pretty for anybody hoping to sell property at any point in the next few decades. Good luck!

[Iacono Research]

On the other hand...

... maybe we DON'T want our population to keep growing. Reuters reports from Maine:

Researchers studying Maine's lobster population, booming in recent years amid warming waters and disappearing predators, have detected something never before seen in the wild: lobster cannibalism. 

It has long been known that lobsters will attack and eat each other if confined together in a small space — hence the banding of claws on lobsters in supermarket tanks. 

That aggressive behavior had not been thought to occur in the wild, but with the increasing density of the crustaceans in the Gulf of Maine it seems big lobsters are feasting on little lobsters once the sun goes down. 

"We've got the lobsters feeding back on themselves just because they're so abundant," said Richard Wahle, a marine sciences professor at the University of Maine, who is supervising the research. "It's never been observed just out in the open like this," he said.

Apparently overfishing of other species like cod and halibut have created a dearth of natural predators for the lobsters (no, I didn't know that cod and halibut could kill and eat lobsters, but now I do), which has helped to cause this strange behavior.

All I know is, if this is what happens when a species becomes overpopulated, then I think I can handle a little bit of economic stagnation over the alternative. So, please don't eat me, people. Eat lobsters instead, they're delicious and apparently plentiful. 

[Reuters]

Quote of the Week (Fertility Edition)

I definitely had at least half a mind to give this week's Quote of the Week to Chiefs quarterback Brady Quinn, who did an admirable job of distilling a horrific incident down to a useful message (without preaching or being trite or condescending, like some people). It's rare that you see an athlete being so frank and dropping their guard like Quinn did (it happened around five minutes into the press conference, which started out pretty slowly), and I salute him for it.

As he mused, "when you ask someone how they're doing, do you really mean it... and when you answer someone back, are you really telling them the truth?" I think Quinn is right to decry the shallowness of many (or most) interpersonal relationships in our social media-driven era, and his words can definitely give us all some food for thought.

But I came across another excerpt yesterday that was even more academically intriguing, if somewhat less poignant and powerful. Courtesy of Marginal Revolution's Tyler Cowen, and echoing some of the comments I made in this blog post last week, I give you the New York Times' Ross Douthat, who discusses the reasons for and potential impact of America's plummeting fertility rate:

This week's QUOTE OF THE WEEK

"There’s been a broader cultural shift away from a child-centric understanding of romance and marriage. In 1990, 65 percent of Americans told Pew that children were “very important” to a successful marriage; in 2007, just before the current baby bust, only 41 percent agreed... The retreat from child rearing is, at some level, a symptom of late-modern exhaustion — a decadence that first arose in the West but now haunts rich societies around the globe. It’s a spirit that privileges the present over the future, chooses stagnation over innovation, prefers what already exists over what might be. It embraces the comforts and pleasures of modernity, while shrugging off the basic sacrifices that built our civilization in the first place."
                                            - Ross Douthat, New York Times

I think there's a lot of merit to Douthat's take on the matter. The decision to eschew having children is, in a sense, the pinnacle of short-term thinking (a dynamic which has clearly taken on a life of its own in recent generations). If we all made the decision to have no children, our society would (theoretically, anyway) disappear in a matter of decades. None of us would be here but for someone else's decision to procreate, and yet there is often no recognition of that fact when it comes time for us to make a similar decision.

The decision is, in fact, the ultimate indulgence of a rich and stagnant society, one that is made all the more possible and plausible by the emergence and standardization of birth control, the access to which the UN has bizarrely ruled a universal human right.

To be fair, for many people in my generation, the decision not to have children has been a direct by-product of the explosion of debt (student loans and other types) in recent decades, and in that respect it's a perfectly rational—yet still sub-optimal—decision. If you can't afford to have kids (or don't feel like you can), then you clearly shouldn't, lest those children be deprived or resented by their own parents.

Nevertheless, it's an interesting thought experiment to wonder what would happen if only the underprivileged people in the world (those who couldn't afford birth control, and therefore couldn't afford to decide not to have children) were procreating. What would the next generation look like? What would be the prospects for global economic growth? And what kinds of decisions would such a scenario lead governments and voters to make, if the rich and powerful had no direct connection to the next generation of humans?

I don't know the answers to all of these questions (especially since many of them are purely academic in nature), but I do know that those who have the weakest connection to the future are the least likely to make good decisions with respect to said future. And if we continue to make decisions that sacrifice the future to benefit today, then I'm pretty sure we're not going to like the future very much once we do get there.

[New York Times]
(h/t Marginal Revolution)

Finally, some real innovation

You see, guys, what have I always been telling you? If we really want to get some real innovation in this country to get us out of our economic doldrums, we just have to start taking our cues from Russia. Wait, that can't be right...

In October, design practice Y/N studio caused a stir by designing a blueprint for a swimming lane along Regent's canal in London, so that people could swim to work. Now, the Estonian architecture studio Salto has built an equally inventive solution to the boredom of the morning commute – a 51m (170ft) -long trampoline, so that you can bounce to your destination. 

 

The trampoline, called Fast Track, has been built and installed at arts festival Archstoyanie, and has been a hit since it was opened at the end of November in the Nikola-Lenivets forest, in south-west Russia. Made of black rubber, it is, according to Salto "an attempt to create [an] intelligent infrastructure that is emotional and corresponds to the local context, giving the user a different experience of moving and perceiving the environment".

Hey, that's a fantastic idea! It's green, it gets us off our butts and exercising a little bit, it encourages our long-lost love of nature... what could possibly go wrong? Oh... right.