David Fries on Government

This morning, I was awoken by my alarm clock which is powered by the public power monopoly regulated by the US Department of Energy. I took a shower in the clean, safe water provided by the municipal water utility. After that, I turned on the TV to one of the channels regulated by the Federal Communications Commission, to see what the National Weather Service of the National Oceanographic and Atmospheric Administration had determined the weather was likely to be, using satellites designed, built, and launched by the National Aeronautics and Space Administration. I watched this while eating my breakfast, consisting of food inspected by the US Department of Agriculture and taking medicine determined to be safe by the Food and Drug Administration.

At the appropriate time as regulated by the US Congress and kept accurately by the National Institute of Standards and Technology and the US Naval Observatory, I got into my National Highway Traffic Safety Administration approved automobile and set out to work, driving on roads built and maintained by local, state, and federal Departments of Transportation, stopping on my way to purchase additional fuel of a composition and quality level determined and inspected by the Environmental Protection Agency, using legal tender issued by the Bureau of Engraving and Printing and the US Mint and regulated by the Federal Reserve System. I also stopped to deposit my mail to be delivered via the US Postal System, before I dropped my kids off at the public school, operated by my local government under guidance from the US Department of Education.

After work, I drove my NHTSA-approved car back home on the DOT roads, to a house which had not burned down in my absence thanks to state and local building codes and the fire marshal’s inspection, and which had not been plundered of its valuables thanks to the local police department.

I then logged onto the Internet, which was developed by the Defense Advanced Research Projects Agency of the US Department of Defense, and posted on WSJ.com about how SOCIALISM in medicine is BAD because government CAN’T DO ANYTHING RIGHT.

Comment of Behavioral Finance

Financial markets depend on people’s decisions and are therefore irrational. This is not an indictment of investors’ cognitive abilities but a simple understanding that people are not machines and do not make decisions like them. The inconvenient consequence of this fact is that no set of mechanical rules can ever either predict the future with precision or fully explain the past and present. Fortunately, we can still provide value to our clients without needing to work in absolutes. Not only can we live in a world of constant imperfect knowledge, but we can be successful without being 100% correct. I do not mean to imply that we should discard all quantitative approaches to finance, rather we need to understand all the possible risks associated with a model and be conservative in how we value the information it produces.

Real or Not?

One note from today’s data on deflation. The headline in the Wall Street Journal says China grew at 6.1% last quarter. That doesn’t sound bad. But what was not in the story is that nominal growth was just 3.7%. The other 2.4% was because of deflation. To get real (after-inflation) growth you subtract inflation and/or add deflation. Growth in China is slowing down more than the headlines suggest.

Since when does real GDP growth count only in an inflationary environment? If economic activity remains constant in a deflationary environment, real GDP should be flat not negative.

Leadership

The World Bank predicts that the global economy will enter recession this year for the first time since the Second World War. The Washington-based bank added that global trade was heading for its steepest decline in 80 years, and that the impact of the downturn would hit developing countries hardest, particularly in Asia. It said poor countries faced a financing shortfall of up to 700 billion dollars because private sector creditors have fled emerging markets due to the financial crisis. The bank’s projections are significantly more pessimistic than those of its sister organisation, the International Monetary Fund, which predicted last month that the world’s economy would continue to expand this year by half a percent.

At least we can count on the years of goodwill that the U.S. has bought to further our international interests rather than relying on the benefits of capitalism and military force. I’m sure that this will in no way affect attitudes toward more open trade and that any adverse effects on trade will be the sole responsibility of Obama.

Giving Back

My first attempt at contributing to the LOLCats culture and the downside to socialized losses in the banking system.