ryck'Z rantZ: An Economic Parade of Swans: White, Black and Now Brown, the Ugliest Swan.

Thursday, October 11, 2012

An Economic Parade of Swans: White, Black and Now Brown, the Ugliest Swan.

Oirginally published 6.29.2009

An Economic Parade of Swans: White, Black and Now Brown, the Ugliest Swan.

Science has progressed to lofty heights since Aristotle mismanaged the thought processes necessary to mathematically describe and unravel the laws that govern our environment. We have impressive mathematical theories and models that give us predictions like what we were prepared to experience from the Limit to Growth published at MIT in the 70s. Here, using the best minds and the power of the computer the ‘Club of Rome’ was able to confidently advise us that we would run out of oil and natural gas by and other disasters. This should have been a warning. This was hatched from hokum and blow from the beginning.

The details of phony science in this instance:

This famous and phony ‘computer study’ was conducted by MIT in 1970 and published in a book title: Limits to Growth [1] whose sophistical computer models clearly predicted, with ringing praise from the ‘scientists,’ that we would run out of oil, copper and lead by 1992 by and natural gas reservoirs by 1993. Apparently, they missed a few inputs as their GIGO[2] reward is all they have left as material results. I confronted the original authors in person in the 90s in an ‘innovation conference’ attended by many scientists from some major corporations where they proudly announced that they were working on a second book. They could not seem to apologize for the implausible predictions in the first book and refused to admit that they were scientifically foolish, at best, so I failed to buy and read this second essay on the extended political corruption of science and dropped the matter. Here, we get a peek into the inner sanctum of the politically driven ‘scientist’ of the leftist persuasion: they carry a mandate to compel the findings of any scientific study conform to their sleazy, left-wing political prejudices. Thus, they can make weightless cars that run on cold fusion or other magical propellants and prevent the rest of us from greedily destroying our planet during our sordid lust for money. They know what Nature wants for us. They are wonderful.

But, we cannot say that the publication of this scientifically hollow piece of political fluff was not without its fanatical praise and song from the left, a bunch always looking for a new way to lose. It was a sensation.[3] The liberals need ongoing stimuli from dark follies and hand-wringing chronicles like Silent Spring[4] to keep their fevers high and their morale low.[5] That may explain whey so many liberals are drug addicts, sodomites and alcoholics.[6] I offer Tim Leary and Carl Sagan as examples.

So, that problem is with us and is apparently part of the genetic makeup of the left. It must be like grits in the Carolinas: it just comes on the plate.

But, in a more serious arena where real money is on the drum, so to speak, the ‘scientific’ types need to conjure up some models and prediction algorithms that actually work in the market place if they want to keep their jobs. Their nattering and propaganda messages work politically but cannot pay the bills. A product that performed fiscally like Limit to Growth would get the whole group terminated in the business world. Profits are a more serious element in business than in academia where nothing is sacrosanct.

Some years back the market traders decided to employ physicists, mathematicians and other persons trained in the hard physical sciences to develop models to make money in hedging and other investment techniques in equity markets. The philosophy here was similar to what Dr. Edward O. Thorpe[7] developed for the game of 21 or black jack [8]and published in his book Beat the Dealer in 1962. This actually worked well and was thoroughly tested in the U.S. Navy by this person during the View Nam war. It functioned by adjusting the bet size according to a card count scoring system where little cards favored the dealer, big cards the player and 7, 8 and 9 were neutral. As the deck was consumed during the progress of the game the count might shift in favor or the player or dealer depending on randomness. So the player bets the minimum at times and only enlarges his bets when he gets a favorable card count. It is interesting that in informal play [in the military in this case] the player who counts can use the card count to advantage as a player and also as the dealer when the deal goes to the next black jack hand[9] if the players will permit the dealer to shuffle at any point in the deck. They always did. Thorpe apparently went on to be a hedge fund manager. He reports “an annualized 20 percent rate of return averaged over 28.5 years,” which is as convincing as his black jack results, or mine in two cruises to Viet Nam.[10] White Swans work for the successful.

So, it can be done…it seems.

Another version was LTCM or Long Germ Capital Management.[11] This bunch of scientists and a Nobel Laureate in Economics averaged 40%returns on their investments in the years after its founding in 1984 and then promptly lost nearly 5 billion dollars very quickly and folded. It seems the math models functioned well, for a while, as they were working bond arbitrage deals with sovereign bonds from the U.S., Japan and European countries. They leveraged their working capital 25:1 and something snapped. One notable causality was Jon Corzine, the current governor of New Jersey. This leverage is very high risk, so they must have truly believed that their model would treat all variables, however remote or probabilistically improbable they might be. The model failed because of the Black Swan effect.

So, it can be done…it seems—if the math model is alert for certain unseen events to avoid massive loses.

The concept of the Black Swan comes to us from the epistemologist [12] Nassim Nicholas Taleb [13] and is based on the notion, seen everywhere in complex systems, that a confluence of events can produce “…randomness, particularly large deviations […from predicted norms.]” thus producing erratic results and nasty outcomes. Advancing this notion a bit further we note that many ‘scientists’ can form elegant theories and explain the mysteries of the universe from a set of randomly generated numbers. Great discoveries like polywater[14] and cold fusion[15] are based on this method.

“Taleb regards almost all major scientific discoveries, historical events, and artistic accomplishments as "black swans" — undirected and unpredicted. He gives the rise of the Internet, the personal computer, World War I, and the September 11, 2001 attacks as examples of Black Swan events.”

This is a polite way of saying that the White Swans theories, taught at good schools by honest persons, are seriously defective and that our notions of planning and experimentation are based on the proffered offal from the Goddess of Serendipity. Chaos is the final designer according to him. So, we make our best ‘educated’ guesses and we guess wrong and we try again in the normal world until we stumble on to something new. The steam engine was created in that manner. We suffer, for example, under permissible White Swans theories such as the nonsense that Colin Powell gives us in his sophomoric military theories.[16] If we follow the Powell Doctrine carefully we can never go to war in the first place as the process is as complex, or more so, than the LTCM mess out on Long Island a decade or so back. We can never answer his questions with any degree of certainly. This, then, becomes something like a Gray Swan where there is no substance and it swims by unnoticed. Powell’s doctrine is no sounder than the nonsense we got from Rachel Carson in Silent Spring, the sophistry in Limit to Growth or the story of LTCM. His phony doctrine is an essay in circular logic and obfuscation is the prime objective of this theory. Fumblers like this are useful idiots to the anti war swarms and Colin is one of their case stooges. Al Gore, for example is our new Lysenko[17]. His lack of respect for simple logic, the truth and the scientific method are legendary.

So, White Swans are okay for a while and work most of the time until a Black Swan swims by and sullies the pond. There is nothing unusual or startling about the notion that our models and such cannot accommodate wide variations in parameters in any physical, chemical or economic system. We are just not that bright. But, ignorance is important in political arenas and the masses don’t even know about swans in the first place. But, it can be much worse. We can have [or create] a Brown swan.

The Brown Swan thus becomes a useful political tool as the theory is simply based on using White Swan rhetoric, but holding the Black Swan’s appearance in reserve as the excuse for the failure of the original theory. We can conveniently construct a phony plan that will fail miserably and then accuse the Black Swan of pooping into the serene waters. Thus, when Global Warming turned to Global Cooling and made the EcoNazi jerks look like fools[18] because they promised and promised that the earth’s surface was warming and warming and it didn’t. This form of a Brown Swan may be subcategorized as a Green Striped Brown Swan so as to properly move this into the loony bins with the rest of the EcoNazi rants. We can have Red Striped Brown Swans to describe lies from social maggots such as Hugo Chavez as their command economies always seem to crash in the near future and they know that so they need a good slimy lie to entice the masses to jump over the cliffs. We wait anxiously for ‘land reform’ from Hugo and his stooges.

Now, for the immediate future, Obama can parade a variety of striped and polka-dotted Brown Swans before us to explain how his programs to ‘stimulate the economy’ and ‘save or create 3 million new jobs” and “solve the health care problems” and so on and so forth failed because of the interference of Black Swans. So far, nothing this guy has tried has worked. The Idiot Euro-Peons[19] failed to accept his psychotic notion of quantitative easing [printing money with reckless abandon] and have thusly criticized the US for trashing their own credit ratings and probably the currency as well. The ‘stimulus’ only stimulated the growth of government.

Any form of failure may, thusly, be attributed to Errant Swans who sail into a perfectly good pond and scatter the wildlife and scramble the laws of physics. Any lie or perversion can then be explained and such excuses parlayed into a vast political network to show that liberalism is always perfect and that capitalism, the Blue Swan, has wrecked, again, our wonderful society.

The Blue Swan works for me.

rycK [a 5^th generation Californian in exile]

Comments to: ryckki@gmail.com

[1] The Limits to Growth in 1972. http://en.wikipedia.org/wiki/Limits_to_Growth.

[2] http://en.wikipedia.org/wiki/Garbage_in,_garbage_out

[3] Like that mysterious feeling in Chris Mathews’s leg during the Obama Philadelphia speech.

[4] http://en.wikipedia.org/wiki/Silent_Spring.

[5] The Economy is in Danger and Obama Wants to Hike Taxes and Squelch Oil Drilling.

http://rycksrationalizations.blogtownhall.com/2008/07/27/the_economy_is_in_danger_and_obama_wants_to_hike_taxes_and_squelch_oil_drilling.thtml

[6] Bailout Babbling at the New York Times: Brooks and Herbert take Both Sides of the Issue

http://rycksrationalizations.blogtownhall.com/2008/11/15/bailout_babbling_at_the_new_york_times_brooks_and_herbert_take_both_sides_of_the_issue.thtml

[7] http://en.wikipedia.org/wiki/Edward_O._Thorp. He was a student of Angus Tayl0r, Chairman of the Math Department at UCLA who produced the worst text book on advanced calculus that the world has ever seen. Hopefully Thorpe learned math before he met this bozo as many of my fraternity brothers at UCLA will willing attest. He tormented the frosh.

http://en.wikipedia.org/wiki/Angus_E._Taylor

[8] http://www.britannica.com/EBchecked/topic/68545/blackjack

[9] A two card hand consisting of one ace and a jack, sometimes any ace but only one of the two black jacks. Since there is no ‘house’ it is only fair that the next dealer is the one who gets the next natural black jack.

[10] I did as well or even better in play while in the Navy even after explaining how the system worked to the unbelievers who insisted that nobody had such a system.

[11] http://en.wikipedia.org/wiki/LTCM

[12] The branch of philosophy that studies the nature of knowledge, its presuppositions and foundations, and its extent and validity. http://www.thefreedictionary.com/epistemological

[13] The Black Swan: The Impact of the Highly Improbable http://en.wikipedia.org/wiki/The_Black_Swan:_The_Impact_of_the_Highly_Improbable

[14] http://en.wikipedia.org/wiki/Polywater

[15] http://en.wikipedia.org/wiki/Cold_fusion

[16] Colin Powell Belongs in the Party of Democrats

http://rycksrationalizations.blogtownhall.com/2009/05/25/colin_powell_belongs_in_the_party_of_democrats.thtml

[17] The EcoNazis and Reality: Klaus Offers to Debate Al Gore.

http://rycksrationalizations.blogtownhall.com/2008/05/29/the_econazis_and_reality_klaus_offers_to_debate_al_gore.thtml

Al Gore Acts Like a Ghoul as He Explains Away Tragedy for Profit

http://rycksrationalizations.blogtownhall.com/2008/05/07/al_gore_acts_like_a_ghoul_as_he_explains_away_tragedy_for_profit.thtml

The Blow: All Atmospherics, No Climate. The Facts: None

http://rycksrationalizations.blogtownhall.com/2008/04/19/the_blow_all_atmospherics,_no_climate_the_facts_none.thtml

There Is No End To The Tax-Whoring By Climate Control Lunatics.