Saturday, January 20, 2018

The Minefield of IQ and Ethnic Groups

For many years now we've known there are differences in IQ between various groups of people. It doesn't really matter whether or not we use simple or complex ways to create these different groups, we usually end up with IQ differences.

Even when we insist that IQ is not accurate, very meaningful, or that it is culturally biased and so forth, we still see that groups of people who get a higher number in IQ tests do better in a multitude of ways that matter in the real world than those with lower scores.

All in all, it is one of the most divisive and emotionally charged issues one can find. Unfortunately it is deeply embedded and central to our life outcomes, individually and at a social level.

The core issue that remains after the data tells us there are differences between various people is, what causes those differences?

Years ago we started seeing that IQ test scores were shifting. Slowly year by year they began to drift up, younger people seemly getting smarter with each passing generation. This is known as the Flynn Effect, named after James Flynn who was the first researcher to identify this phenomenon.

Here is James Flynn's very good article on the topic of the possible causes of IQ variations in different ethnic groups in America:

http://www.cambridgeblog.org/2008/09/james-flynn-in-the-new-scientist/

Friday, January 19, 2018

What's in David Bach's Latte Factor?

This morning my wife was talking to me about the latte factor. I remember reading about it years ago in one of David Bach's books, The Automatic Millionaire. The concept is simple, you forgo a simple daily habit such as a little luxury that is not required and over time this money is invested and compounds into a substantial million dollar plus chunk of your retirement fund.

Some people have taken objection to this simple idea. It's been pointed out that
Bach's math isn't the best. He rounds up a few numbers like the cost of the coffee and also the total yearly amount saved, 2000$ versus the actual 1825$. He is rather generous with a 10% compounding rate taken from the historical performance of the stock market over certain decades. Inflation isn't taken into account, or taxes that could apply. Besides, who  goes out and gets a latte 356 days a year for their entire working life?

Now lets be clear. The fundamental concept works. Pinching pennies and socking them away over years does add up. Many people have used this notion, some have pushed it very far and even managed to achieve spectacular results given enough time and dedication.

So what is the problem? Maybe the critics don't clearly grasp the latte factor is only an example being used to illustrate a concept. Bach is attempting to teach a few things like the power and effectiveness of savings and compound interest over time, and that little incremental things that add up to bigger chunks that matter.

Is it possible to drop the coffee and snacks on the days out of the house and replacing them with really good coffee brewed a home and taken along? How much does this kind of habit save over many years? Can that money be used to buy a very good coffee machine? Once that coffee machine is paid for has a new insight been gained into where money is going with a wider variety of little expenses?

The simple truth is each one of us has to think of where we are going with our spending. Yes a few pennies here and there might not seem to add up to much but it is as good a place as any to start. We've heard of so many people getting a lucky break like a huge lottery winning or starting a business with substantial financial backing only to see them a few years later with nothing left to show for it.

How can something like that happen over and over to so many people? Is the root of these spectacular failures nothing more than an inability to see that multiple small choices build up over time and accumulate into large masses of debt or savings depending which direction we nudge things day by day?

I suspect Bach's latte concept strikes a bit of a nerve. It certainly seems to connect with a host of bigger issues and beliefs we have about money. I'm going to have to get back to this and look deeper into the psychology hidden inside a seemingly innocuous debate about whether or not to spend money on coffee when out of the house.

Thursday, January 18, 2018

Cotton Candy and GDP

Today I was reading Dr. Tim Morgan's excellent blog, Surplus Energy Economics. Tim Morgan used to work at Tullett Prebon where he was head of research. I get the feeling that means he is really smart or something like that.

His latest post ( no.117 ) is about how inaccurate the established view of economic activity likely is. From 2006 to 2016 USA GDP growth per capita has been a total of 5.8%. No, not per year, but cumulative. That works out to a massive 0.57% of growth per year. Don't blink or you'll miss it. The D in GDP seems to be shifting more and more towards Delusional with each passing year. At what stage to we ditch the economists and hire psychiatrists?

He discusses assorted fudge factors like imputations. For example, in the USA the equivalent cost of renting your own house out to yourself is factored into the GDP. Doesn't that imply real estate bubbles just inflate GDP? How does that help us know where we are headed economically? Or might the goal be to avoid us knowing where we are headed?

Other things he discusses are concepts such as Globally Marketable Output ( GMO ) and Internally Consumed Services ( ICS ). GMO includes things that are priced and traded internationally like oil or new cars, fundamental products that directly build wealth. ICS includes activities that may or may not build much wealth, like mowing someone's lawn or charging for pedicures. Many of these secondary activities are discretionary and may or may not be needed. Either way, the don't add nearly as much wealth to a nation as GMO does.

In any case the serious economic work being doing by GMO activities such as farming and manufacturing have actually shrunk from 2006 to 2016. We are drifting further into the land of fluffy service based economies.

Other examples are things like taxes, which is often moving money around from one person to another. Yes, it may make social or even economic sense, but should it be inflating GDP? Once more we find government spending is one of the activities that has expanded and helped give us the breathtaking per capita growth mentioned above.

On the topic of moving things around, but in ownership title only, this excerpt adds more fuel to the debate:

Then there’s the FIRE sector, comprising finance, insurance and real estate. These are worthwhile services, but we are entitled to wonder quite how much value is actually created by selling houses to each other, paying each other rent, or moving money around. This activity looks a lot like “doing each others’ washing”. Yet increases in FIRE sector activity accounted for more than a quarter (27%) of all growth in the American economy between 2006 and 2016, adding $628bn to GDP. As of 2016, FIRE activities accounted for 21% of the American economy, contributing far more than manufacturing (12%) and construction (4%) put together. Of course, a significant proportion of imputations arise in real estate and finance, which means that these sectors overlap.

End of quote.

Other very important issues brought up are Zero Interest Rate Policy or ZIRP, and it's corrosive effect on pension funds. Are we just cannibalizing our savings to fuel cheap short term growth?

To make matters worst, none of this is exclusive to the USA. It is widespread among most developed economies.

Check it all out here:

https://surplusenergyeconomics.wordpress.com/

Wednesday, January 17, 2018

Cimate Change or Not to Change

Climate Change or Not to Change?

I find this climate change issue totally exasperating. No, not because I don't believe in climate change and I think we are wasting our time with a silly distraction that is  blunting economic growth. Nor is it because I think it is real, the situation is dire and we should not waste another minute debating.

Rather it is because I can't really tell. Which is it, exactly? Is the climate changing or not?

Here is an example. I start the day assuming climate change is real, but then stumble onto this, a discussion of the Geological Society of London's position on climate change. They are basically saying burning fossil fuels is releasing CO2 into the atmosphere which is allowing more heat to remain trapped on the surface of the planet, warming things up. Nothing controversial there, right?

http://euanmearns.com/the-geological-society-of-londons-statement-on-climate-change/#more-20587

The discussion is rather logical, many points seem to make sense. For example here is a comment by Euan Mearns:

1) At the glacial inceptions CO2 lags temperature by up to 14,000 years. This is a massive lag where full glacial conditions are established before CO2 begins to fall. This demonstrates that CO2 is not a significant driver of climate change during glacial periods. It simply follows temperature, closely at the terminations but with large time lags at the inceptions. The climate science community, starting with Petit et al, have simply brushed this key information under the carpet. The political, social and economic consequences of this error are too vast to imagine.

2) At the main turning points of the Vostok temperature curve, at the temperature high, CO2 reaches a maximum and albedo a minimum. If these variables were significant drivers it should simply continue to get warmer, but the exact opposite happens. The strong force – obliquity – simply sweeps these weak forces away. At the temperature minima, the opposite occurs. The stage appears set for the whole world to freeze, but what happens next is the ice sheets collapse.

End of quote.

What he is saying is that CO2 levels follow increases in temperature. That implies they can't cause, them but rather are caused by them. The debate goes on quite a bit more in the comments, most of it seems rational and well informed.

Well then. Maybe I should look into the more mainstream position, so I go to skepticalscience.com

There I'm quickly reassured that climate change is real, it's caused by us burning lots of stuff and cutting down trees. Things make sense and all is right with the world... or is it?

Unfortunately I make couple of mistakes before leaving the site. First I read the article about alternative energy ( The Key To Slowing Global Warming ) and quickly noticed multiple glaring errors. Here is a sample paragraph just oozing with complex issues hopelessly reduced beyond recognition:

The second approach is to replace fossil fuels – used by every country - with energy generated from renewable sources - solar, wind, thermal, tidal and hydro, all of which are free. Solar and wind are available in all countries while thermal, tidal and hydro are available to most others. All offer an alternative to the use of fossil fuels, though at present, only thermal can assure continuity of supply sufficient to meet the growing, though fluctuating demand for electricity for domestic, industry and transport use.

End of quote.

Where to begin? Anyone who has done some serious digging on renewable energy knows renewable are very intermittent. Smoothing out the flow of random pulses of energy into a consistent flow needed to sustain the modern world is no small task. Modest progress is being made on the issue, but it may fundamentally turn out to be physically impossible to replace fossil fuels and still have a constant and predictable energy system like we have with electrical grids today.

To start with, each one of the renewables mentioned above requires massive infrastructure to gather up this free energy. Just saying "free energy" is not an appropriate term. Crude oil and coal is also "free". In some parts of the world both are right there on the surface, you just have to bend down to pick them up.

The real cost is the effort required to gather up the energy, and the price of that equipment and the labour that goes with it. When it comes to renewables, that equipment has to be deployed on a gigantic scale, because the free energy it is gathering is dissipated over a wide area in the form of sunshine or wind for example.

This leads to the next issue, which is the correspondingly massive amount of materials needed to build this infrastructure. Steel, concrete, copper and all other required components have to be found somewhere. There is a very real limit to how much of these materials we can extract and process into wind turbines and solar panels.

Is it even worth it? What if it takes so much energy to build this massive fossil fuel free system that we end up causing as much pollution and CO2 emissions as the system we have now? Some researchers think this is the case but none of that is being addressed in the optimistic paragraph above.

Maybe the nice people at Skeptical Science stepped out of their field of knowledge and we should only consider what they say about climate change, not a fossil fuel free future.

So then I read this article here:

https://www.skepticalscience.com/climate-models.htm

Unfortunately once more some clever people we making seemingly logical counter arguments in the comment section.

Obviously, this topic is going to take a lot more looking into. In the meantime, what position can I take that makes the most sense given that I'm not a climatologist and can't pick apart every little factoid? I think the best I can do is to assume that anthropogenic climate change is probably real, lets say two chances out of three. Computer models may not be all that accurate, but among climatologists the basic elements seem to be well accepted. CO2 is going up, temperature is going up. Climate modeling is better than nothing, even if I can't tell by how much.

Yes, trusting a group of people is never a sure bet. We are after all a herd animal, with a long track record of believing a wide range of obviously false things. If I keep in mind that there is one chance out of three this whole climate change thing might fizzle out I won't be caught completely flat footed.



Monday, January 15, 2018

What. Could. Possibly. Go. Wrong?

This from Nomi Prins in a speech in Tokyo, mid 2017:

President Trump seems to be shying away from multilateral agreements and toward more isolationist ideas. The last time the United States did that was in the 1920s. In fact, isolationist policies were one of the reasons there was such a speculative mood in the United States in the 1920s, and that speculation led to the financial crash of 1929.

End quote.

To get a sense of the speculative mood in the 1920's, we can use the Shiller P/E ratio. From Wikipedia:
The cyclically adjusted price-to-earnings ratio, commonly known as CAPE,[1] Shiller P/E, or P/E 10 ratio,[2] is a valuation measure usually applied to the US S&P 500 equity market. It is defined as price divided by the average of ten years of earnings (moving average), adjusted for inflation.[3] As such, it is principally used to assess likely future returns from equities over timescales of 10 to 20 years, with higher than average CAPE values implying lower than average long-term annual average returns.

---

Typically, the Shiller P/E moves around 16 or 17. You can find a charted updated regularly here:

http://www.multpl.com/shiller-pe/

The Shiller P/E ratio for the US stock market peek in 1929 was about 30, a tad high no? Now it is only mildly astronomical at 33.8. As Capt. Kirk might say: What. Could. Possibly. Go. Wrong?

Sunday, January 14, 2018

All the President's Collusions

I've run across an interesting American author and journalist who was a Senior Managing Director at Bear Stearns, a senior analyst at Lehman Brothers and did a few years at Goldman-Sachs. It's hard to get much closer to ground zero of the 2008 financial debacle than that.

Her name is Nomi Prins, and she has a new book coming out spring 2018 called "Collusion: How Central Bankers Rigged the World". Big surprise there. All sounds very interesting but before I look into buying her books I'm going to read more of her articles. What I've read so far is eye opening, and for people who are investing or thinking of investing that is a good thing. Same goes for those of us who have some kind of retirement savings being managed by "somebody else".

She's also written a book called "All the President's Bankers" which might be a good start with once I make it past what is already on the net.

Take a look around her website at nomiprins.com, lots of interesting things to read there.

Sunday, January 07, 2018

Recycling is good, right?

Hello everyone, Bonjour tout le monde,

Years ago, before 3D forming became wildly popular, I started this blog to document what I was up to with the Reprap project. Time restraints put a stop to that, but I kept on working on the machines and built about a dozen. I still have some that I use for fabricating all manner of things.

Now I think it might be worth writing again but on a broader range of topics. Just as I became interested in 3D forming machines because I noticed underlying trends, I'm seeing new trends that are much more substantial and important for all of us.

Yes that's right, this will be a fashion blog! Mostly about the Kardashians!

No, it will not.

On the other hand it might cover topics like fading economic growth, socialism, money management, energy end technology. Really, really boring stuff.