Tag: Massachusetts Institute of Technology

A Chomsky afterthought.

Dogs wouldn’t treat other members of their pack like this.

(I realise how the heading and the sub-heading don’t appear to have any correlation but stay with me please!)

It’s widely known, I’m sure, that the wolf, from which the wild dog and the domesticated dog evolved, lives in packs of around 50 animals.  The size of the pack offers a cohesive, stable structure for the wolf, and other pack species, ensuring group survival and well-being. In a very real sense the way that wolves live is a fabulous example of the power of community.

Just be sidetracked a moment by the following graph, presented on the Berkeley University website:

hominid_graph
My understanding of early hominids is pretty basic but if ‘Homo habilis‘ represents the evolution of modern man then our species goes back less than 3 million years.

Compare that with canids. The website WolfWeb states,

The Dog linage began 37 million years ago in North America in predators that had distinctive pairs of shearing teeth and ran down prey. Early canids reached Europe seven million years ago.

Thirty-seven million years!  Now that’s what I call an example of  “group survival and well-being“.  The power of community.

As stated elsewhere on this blog,

Dogs are part of the Canidae, a family including wolves, coyotes and foxes, thought to have evolved 60 million years ago.  There is no hard evidence about when dogs and man came together but dogs were certainly around when man developed speech and set out from Africa, about 50,000 years ago.  See an interesting article by Dr. George Johnson.

The ten dogs we have here at home are split into two groups of five.  What we call the bedroom group: Pharaoh, Cleo, Sweeny, Hazel and Dhalia, and the kitchen group consisting of Lily, Casey, Ruby, Paloma and Loopy.  Both groups are separated by wooden fences so are more than aware of each other.

Something that is clear is that whenever one of the dogs is hurt, all the other dogs take notice. Others in the same group will come up to their hurt ‘buddy’ and offer comfort in a variety of ways.  Sadly, I can’t give you a better example than our poor Loopy who is suffering badly from the dog equivalent of dementia.

Here’s a picture taken of Loopy on Wednesday afternoon.  You will notice the strange sleeping position that she frequently adopts.  That’s an aspect of her dementia.

P1120522

The other dogs in her group all give her special attention.  Such as not grabbing her sleeping bed, not pushing or shoving near her, giving her a wide space in general.  The other dogs sense there is something badly awry with Loopy and accommodate that.

So what on earth has this to do with yesterday’s post Who owns the World?  Keep hanging in there!

A recent link in Naked Capitalism‘s daily news summary was to a story in the British Guardian newspaper.  Written by the Guardian’s Kevin McKenna, it was about the likelihood of Scotland breaking away from the United Kingdom.

Scottish independence is fast becoming the only option

Even to a unionist like me, an Alex Salmond-led government is preferable to one that rewards greed and corruption

It’s an interesting article and I recommend you read it directly.  But what jumped off the page at me were these paragraphs.  Please focus deeply on the words and ponder on how foreign they are to the concept of community.

Yet we conveniently overlook the fact that London has already broken away from the United Kingdom and now exists as a world super-state governed by the greed of unhindered capitalism and recognisable as British only by its taxis and bad service. As the world’s most newly minted oligarchs continue to colonise the independent state of London, it becomes almost impossible for families on less than £250k to live decently there. Poor London families made homeless by the coalition benefit cuts are being evacuated as far north as Middlesbrough.

Last week, Goldman Sachs, one of the banks with its fingers in the till when global economic meltdown occurred, awarded an average bonus of £250,000 to each of its employees. The gap between the richest in our society and the poorest stretched a little more and we were reminded yet again that the UK government, despite its promises, allows greed, incompetence and corruption to be rewarded. (How many people do you think will go to jail for the Libor rate-fixing scandal?) Meanwhile, Westminster politicians are dividing the poor into categories marked “deserving” and “scum”.

Think a dog is just a cuddly animal that gives you a chance to do some dog-walking?  Again, written elsewhere on Learning from Dogs.

Dogs:

  • are integrous (a score of 210 according to Dr David Hawkins)
  • don’t cheat or lie
  • don’t have hidden agendas
  • are loyal and faithful
  • forgive
  • love unconditionally
  • value and cherish the ‘present’ in a way that humans can only dream of achieving
  • are, by eons of time, a more successful species than man.

Now compare that with the last sentence in Noam Chomsky’s essay from yesterday, “As long as the general population is passive, apathetic, diverted to consumerism or hatred of the vulnerable, then the powerful can do as they please, and those who survive will be left to contemplate the outcome.

Hatred of the vulnerable“; “those who survive will be left to contemplate the outcome” are not expressions that resonate with the values of loving communities.  If we humans want “group survival and well-being” we had better learn from species lupus and canid. Pronto!

wolf_pack

Economics making sense?

Why economists seems just as confused as me.

(A republication of a post first shown on the 8th August, 2009, still seems pretty relevant)

We live in a world where finance and money play a hugely more important role in our everyday lives than, say, 25 years ago.  Well that’s how it seems.  Our energy costs don’t seem to be connected to supply and demand but more in the hands of the speculators.  Our house values have been greatly influenced, perhaps misaligned is a better word, by the availability of too easy money, resulting from exotic financial leveraging. Commodities are, like energy, traded for their own sake rather than to provide an efficient process of linking the grower with the consumer.  And more.

So it comes as a bit of a shock to read in a recent copy of The Economist that most of the theories and economic models are being ‘re-examined’ in the light of the current global crisis.  These theories and models are not esoteric ideas kept

The Economist July 18th 2009
The Economist July 18th 2009

within the scholarly walls of universities but used by Governments, investment institutions and banks so they affect you and I in the real world, big time!

They ought to work a great deal better than they do because they have the capability to harm, as millions have found out in the last 2 years.

Anyway, The Economist, July 18th-July 24th has a lengthy briefing: The state of economics, comprised of two articles. To me it makes very sobering reading.  Unless you have a subscription there is no web access to the articles so here are a few extracts to give you a flavour.  The first article is about turmoil among macro-economists.

In the last of his Lionel Robbins lectures at the LSE on June 10th, Mr Krugman [Paul Krugman of Princeton and the New York Times] feared that most macroeconomics of the past 30 years was “spectacularly useless at best, and positively harmful at worst”.

These internal critics argue that economists missed the origins of the crisis; failed to appreciate its worst symptoms; and cannot now agree about the cure. In other words, economists misread the economy on the way up, misread it on the way down and now mistake the right way out.

Nor can economists now agree on the best way to resolve the crisis. They mostly overestimated the power of routine monetary policy (ie, central-bank purchases of government bills) to restore prosperity. Some now dismiss the power of fiscal policy (ie, government sales of its securities) to do the same.

Towards the end of this first article in the Briefing, there is this:

In the first months of the crisis, macroeconomists reposed great faith in the powers of the Fed and other central banks. In the summer of 2007, a few weeks after the August liquidity crisis began, Frederic Mishkin, a distinguished academic economist and then a governor of the Fed, gave a reassuring talk at the

Frederick Mishkin
Frederick Mishkin

Federal Reserve Bank of Kansas City’s annual symposium in Jackson Hole, Wyoming. He presented the results of simulations from the Fed’s FRB/US model. Even if house prices fell by a fifth in the next two years, the slump would knock only 0.25% off GDP, according to his benchmark model, and add only a tenth of a percentage point to the unemployment rate. The reason was that the Fed would respond “aggressively”, by which he meant a cut in the federal funds rate of just one percentage point. He concluded that the central bank had the tools to contain the damage at a “manageable level”.

Since his presentation, the Fed has cut its key rate by five percentage points to a mere 0-0.25%. Its conventional weapons have proved insufficient to the task. This has shaken economists’ faith in monetary policy. Unfortunately, they are also horribly divided about what comes next.

The second article explores the way that the efficient-markets hypothesis has underpinned many of the financial industry models.

IN 1978 Michael Jensen, an American economist, boldly declared that “there is no other proposition in economics which has more solid empirical evidence supporting it than the efficient-markets hypothesis”

Michael Jensen
Michael Jensen

(EMH).

Eugene Fama, of the University of Chicago, defined its essence: that the price of a financial asset reflects all available information that is relevant to its value.

Eugene Fama
Eugene Fama

Even as financial engineers were designing all sorts of clever products on the assumption that markets were efficient, academic economists were focusing more on how markets fall short. Even before the 1987 stockmarket crash gave them their first real-world reminder of markets’ capriciousness, some of them were examining the flaws in the theory.

However, a second branch of financial economics is far more sceptical about markets’ inherent rationality. Behavioural economics, which applies the insights of psychology to finance, has boomed in the past decade.

Behavioural economists were among the first to sound the alarm about trouble in the markets. Notably, Robert Shiller of Yale gave an early warning that America’s housing market was dangerously overvalued. This was his second prescient call. In the 1990s his concerns about the bubbliness of the stockmarket had prompted Alan Greenspan, then chairman of the Federal Reserve, to wonder if the heady share prices of the day were the result of investors’ “irrational exuberance”.

One task, also of interest to macroeconomists, is to work out what central bankers should do about bubbles—now that it is plain that they do occur and can cause great damage when they burst.

Another priority is to get a better understanding of systemic risk, which Messrs Scholes [Myron Scholes]

M Scoles
Myron Scholes
Richard Thaler
Richard Thaler

and Thaler [Richard Thaler of the University of Chicago] agree has been seriously underestimated.

Several countries now expect to introduce a systemic-risk regulator. Financial economists may have useful advice to offer.

Financial economists also need better theories of why liquid markets suddenly become illiquid and of how to manage the risk of “moral hazard”—the danger that the existence of government regulation and safety nets encourages market participants to take bigger risks than they might otherwise have done. The sorry consequences of letting Lehman Brothers fail, which was intended to discourage moral hazard, showed that the middle of a crisis is not the time to get tough. But when is?

Mr Lo [Andrew Lo of the Massachusetts Institute of Technology] has a novel idea for future crises: creating a financial equivalent of the National Transport Safety Board, which investigates every civil-aviation crash in America. He would like similar independent, after-the-fact scrutiny of every financial

Andew Lo
Andew Lo

failure, to see what caused it and what lessons could be learned. Not the least of the difficulties in the continuing crisis is working out exactly what went wrong and why—and who, including financial economists, should take the blame.

Mr Lo’s idea of treating financial failures in the same way as civil aviation accidents might be a brilliant idea.  After all economics is a behavioural science just like the ‘science’ of air traffic controllers and air crew.  Seems to me that keeping my money as safe as my body in a civil airliner isn’t a bad goal.

If you can, do get hold of a copy of the briefing, if only to arrive at the same conclusion as me.  In terms of future personal financial planning, a pair of dice may be just as accurate as economists.dice