Saturday, 12 February 2011

The definition of insanity... Doing the same actions again and again and expecting different results.

The syllogism goes -

1. Socialism has been a failure everywhere it has been tried;
2. This fact is known and everyone acknowledges this (including the socialists); and
3. We need to try more socialism.

So... where does it end. When do we finally admit that no matter how often we try to make socialist idea work that we will never succeed?

Socialism, I guess it is the definition for insanity now.

The labour falacy

The error made in the argument that free movements of people will "take our jobs" is that of a fixed labour pie.

There is an infinite amount of labour. There is always more to be done (and that is productive work and not building pyramids and holes to be filled) and as many people as there are, there will always be more to do.

The secret is not to distribute labour, but to allow it to flourish competitively.

This is a further argument against government regulation (as opposed to emergent rules in markets). Regulation imposes additional barriers to entry. It makes any business more capital intensive. The end result being fewer but larger companies and corporations. It forces the small entrepreneur from the market.

This has a couple effects. First, those small entrepreneurial businesses are generally (more than the mean) those who are the most innovative. It is a necessary condition to compete with the larger entrenched player. You create a better mousetrap or a more cost effective process.

Regulations also directly discourage entrepreneurship and innovation. They fix rules. Emergent market rules are fluid and change over time (as does common law). Regulations are reactionary. They change after an event. This is, they do not bend but stay rigid to the point where they break and are replaced (again subsequent to the event).

The effect is to maintain the status quo and slow the process of creative destruction.

Many businessmen and capitalists support this as they are in the entrenched position. This is the state of the US car industry and many of the banks. In place of having them provide what people want, they are allowed to continue in loss making practices that will result in more calls for bailouts down the track. This is rent seeking behavior.

Newer and better comes in time.

The argument that the good is pushed aside is commonly made. Beta video, the alternatives to the qwerty keyboard and other fallacies are used to support this. Beta was only "better" than VHS for a small section of the community. For most people, VHS actually had more advantages (such as in recording movies at home from TV).

The touted superiority of the alternatives to the qwerty keyboard all failed to be demonstrated in independent experiments. It was not a failure due to the distributed base, they just did not hold to the claims.

I was not always a free market proponent, but over time I have not seen any intervention that provided a net benefit in the long term. It is the analysis of the issue that drove me this way.

Friday, 11 February 2011

Making the idea Keysean Economy

As I have stated in a previous post and BASED ON KEYNESIAN dogma why not PAY people to sit and watch TV as long as it is PAY FOR VIEW. They are consuming! They are ideal Keynesian. They do not even have to fill the holes or leave those ugly pyramids.

New policy, we "employ" people to watch pay for view and write commentaries on it. These commentaries go into a trash bin (electronic) and are never read, but the practice writing and using computers educates people and stimulates the economy as people are being paid.

We may be stealing from the productive to make labour, but hey, we are stimulating the economy!

I doubt many people have actually analysed the original working papers and suppositions that Keynes used? I have, as a mathematician and statistician.

I think I may start actually going over these one by one in the coming weeks and showing that they have not been based on anything but intuition.

I have a copy of a paper, "The failure to be factual". It covers Marx and Freud and a couple others. It should have covered Keynes. I will demonstrate line by line through Keynes' writing just why in the coming weeks.

I will start with the "paradox of thrift" and demonstrate the errors in the mathematics. The conflicting and sloppy suppositions and logical contradictions.

Then, what does this matter?
After all. A small part of the community benefits for all the losses we have to pay for in the long run...

Keynes first HUGE flaw that he NEVER understood. He fell into the same hole as Marx.

Wealth is NOT labor!

The amount of work is NOT relevant, only the amount of end production matters.

Digging holes that are destined to be filled to employ people is a misallocation. IT produces NOTHING. Worse, it takes funds inefficiently from the productive parts of society thus reducing their productivity. Those that are now employed may as well not be as they have a negative productivity.

Overall the net productivity is decreased.

There is NO other outcome. Check the math on this. I will actually post it in the next week. There is NO way possible, short of the errors in Keynes calculations - which I will demonstrate - that productivity increases.

ALL that matters is end productivity! Labor is not a factor. We can ALWAYS make work, become Luddites and smash the machines, make people go back to hard manual labour.

Thursday, 10 February 2011

Did the Stimulus Stimulate?... Good reading...

Mises online has a great article...

Sounds just like the Australian car industry, a key industry we need to keep. So much so and at such loss of losing those jobs that we spend just under $300,000 per worker to maintain their average $75,000 - $85,000 positions intact.

Then again... The union calls that "these are skilled workers, they should not need to learn a new trade, they deserve to be maintained" sounds just like the US stimulus....

We need this employment... Even if it costs more to employ them to pay them to sit at home!

Then, we now have pay for view, should not the Keynesian's love the consumption from having people sit on their asses and watch TV at a cost?

Beer, skittles, TV....
What more could one ask for a consumption factor?

This is the biggest scientific failing of economics.

Those supporting regulation and interference always have call to those with a free-market ideal to prove the negative. The problem is you cannot prove a negative. Science does not call for you to do so.

The scientific method would be as I have stated many times for those calling for regulation to demonstrate that they have a statistically significant improvement over the natural state (no regulation) for their preferred form.

But this is never the argument, rather sophism about how they are better as they are extingent forces that are in place and thus must be in place come as arguments. That being that they exist in some form, that they must be necessary.

Then there are the arguments, it is just a social science, so we cannot expect this data.

What utter trash.

Regulation needs be as it is there. Sheer foolishness. Prove it. Show how the take-over of roads, rail, power, water (which is being opened up again as well), telecoms, etc has helped. None of these started as a natural monopoly. They became such due to this argument that it is good for us. Show the data that proves that!

If so, then it should be easy for you to prove.

Physics is JUST STATISTICAL. Yet, here we are and all we as economists need do is use that great wealth of statistical tools available to us, and what do we do? Avoid, cherry pick data, and generally do what we can to demonstrate that we are not a science.

No wonder my cohorts in the field of Physics think much economics a big joke.

Tuesday, 8 February 2011

Regulation.... Please save us from our-self....

I just happen to like smelly, runny, unpasteurized cheeses. I cannot get them in Australia. Why?

Regulators protecting me.

After all, they cannot guarantee that I will be "safe" when I eat one. Around 8 people have died in the last 100 years in Au from unpasteurized cheese products. So I SHOULD be happy? I should thank the regulators for protecting me from that which I want?

Can I sign a waver? Can I agree that I will take the risk? No.

Yet, driving a car for less than 1 Km has a risk of death greater than eating an unpasteurized cheese. So why one but not the other. One can easily be regulated. One has a proponent, those "crony capitalists" who work with regulators to restrict markets. Those cheese makers in Australia are the example here of those who argued my safety and yet where really rent seeking.

Minimum wages and tools of racsim...

Mandated minimum wages are one of the best methods available to price one’s competition out of the market. Historically, minimum wage laws have been used as one of the most devastating tools in the racist’s toolbox. This is not to suggest that this is the intention of any person on this list, but the objectives that have led to the adoption of a policy often no relevance and relation to the effects of that policy.

Walter E. Williams states this simply:
One of the more insidious effects of minimum wages is that it lowers the cost of racial discrimination; in fact, minimum wage laws are one of the most effective tools in the arsenals of racists everywhere, as demonstrated by just a couple of examples. During South Africa’s apartheid era, its racist unions were the major supporters of minimum wages for blacks. South Africa’s Wage Board said, “The method would be to fix a minimum rate for an occupation or craft so high that no Native would likely be employed.” In the U.S., in the aftermath of a strike by the Brotherhood of Locomotive Firemen, when the arbitration board decreed that blacks and whites were to be paid equal wages, the white unionists expressed their delight saying, “If this course of action is followed by the company and the incentive for employing the Negro thus removed, the strike will not have been in vain.

In the US for instance, it is the minority groups that suffer most from wage controls. Those with the least education and opportunity are the ones who suffer most from these prescriptions.

Minimum wage, why it cannot work.

A minimum wage scheme is a tariff and price fixing method against people’s labour and ability to sell themself freely.

The major fallacy in this discussion is one that has occurred not just now, but since the 18th century with philosophers such as M. de Saint-Cricq stating fallacies such as “Labour constitutes the wealth of the people”. These fallacies let to the refutation by Claude F. Bastiat of the “Broken window falacy” but still manage to persist.

The error is that we see the imposition of a minimum wage whilst still maintaining the status quo, equilibrium if you will.

This is a fallacy that must be countered.

An employer does not seek to exploit in the Marxist vein, rather to maximise ones profit. This is best achieved through enhanced productivity, not lowered wages. Where an employer can bring into play the services of another, that employer will purchase them if and only when s/he expects to be able to do so at a profit, for to do so at a loss it to create a diminished capital base and reduce the basis for further investment.

The imposition of a minimum wage does nothing to raise wages; rather, it imposes an arbitrary floor under which any individual willing to work for an amount under that arbitrarily imposed rate cannot work.

It means that a person who could earn a minimal wage can no longer earn any wage legally.

Those who had been employed under the preceding conditions were employed as they could provide services to the capital enterprise productively for the skills and ability that they have. A minimum wage does nothing to increase this low level of productivity and hence that person is unemployed as a result of the imposition of the wage minima.

This does nothing to stop poverty, in fact, the increase of those now unable to work for any allowed wage means an increase in poverty.

The means of making more people valuable at a higher wage is to increase their productivity.

The comment that you could “evenly distribute production throughout the globe” completely ignores the issue of productivity. Production would be more centralised. If all countries had the same minimum wage, then those with the best capital equipment and hence productivity would draw all work into them as they would have an imposed near monopoly on production at a suitable price.

The state goals to “Elevate underdeveloped nations” and “Greater distribution of wealth globally” would also fail dismally.

The migration of capital away from those nations with lower levels of capital investment and hence productivity would create a greater divide and concentration of wealth.

A fallacy here is that the poor nations are being exploited such as with the mercantilist system of centuries back. This is quantitatively false. Wealth is created, the natural state is destitution, it is enhanced productivity that has allowed us to escape scarcity and not the exploitation of developing nations.

A minimum wage is simply the imposition of a price floor. A wage floor hits workers with limited skills, primarily young people in developed nations and correspondingly those in developing nations.

The political demand for the minimum wage does not come from low-wage workers. It comes from those who seek to impose controls on them to “better their lives” without looking to the consequences of their actions.

Good intentions, bad results and the road to hell for those who can no longer find employment.

Henry Hazlitt put it best in his laconic quote:

You cannot make a man worth a given amount by making it illegal for anyone to offer him less. You merely deprive him of the right to earn the amount that his abilities and situation would permit him to earn, while you deprive the community even of the moderate services that he is capable of rendering. In brief, for a low wage you substitute unemployment. You do harm all around, with no comparable compensation.”[1]

There is a net loss to society in any such price floor. These include:
(1) The loss of employment to the individual effected from the imposed restrictions,
(2) the dwindling of the economic pie by the loss of productive contribution from those no longer to work productively due to an imposed price floor,
(3) the financial loss to society in supporting those now unable to sell their labour at any legal rate and the imposed idleness this results in (unemployment, welfare, etc.),
(4) the monetary loss in funding inadequate job training programs and other government efforts to make these people more productive and hence employable at a higher rate, and
(5) the net loss to society that is a consequence of higher consumer prices that naturally come as a consequence of increase labour costs associated with the wage floor

In this, a loss of market share to foreign competition is likely to occur, mostly likely in those countries once again with lower capital investment. That is those countries who least can afford this.

There are distinctions between being underpaid as being underproductive.


[1] Heny Hazlitt, Economics in One Lesson (New York: Arlington House Publishers, 1979), p. 135.


Written with the help of my wife, Lynn Wright

Monday, 7 February 2011

Quote for the day...

Armen A. Alchian (1950) “Uncertainty, Evolution, and Economic Theory”, The Journal of Political Economy, Vol. 58, No. 3.

"In general, uncertainty provides an excellent reason for imitation of observed success. Likewise, it accounts for observed uniformity among the survivors, derived from an evolutionary, adopting, competitive system employing a criterion of survival, which can operate independently of individual motivations. Adapting behavior via imitation and venturesome innovation enlarges the model. Imperfect imitators provide opportunity for innovation, and the survival criterion of the economy determines the successful, possibly because imperfect, imitators. Innovation is provided also by conscious willful action, whatever the ultimate motivation may be, since drastic action is motivated by the hope of great success as well as by the desire to avoid impending failure."

Why gold?

Gold is simple; it has a physiological value and is scarce. As Mises had noted, Gold is difficult to obtain. It has a standard of quality being an element, one part of gold is the same now and 100 years from now and from wherever it comes from. It does not degrade in quality over time.

Other valuable commodities such as Diamonds are NOT all the same. One diamond is not the same as another. One ounce of 99.9999 gold is the same as another ounce of 99.9999 gold.

Options such as stocks are also no good. It has been suggested to use company stock such as that of GM. GM stock is paper, it can be printed. It also changes in intrinsic value not only as a result of what it is but what it does. Stock is again just paper, you cannot print gold. Worse, companies come and go. Who can say GM will be here in 100 years, gold will be.

Just look at the US currency, Obama has printed over a trillion dollars. This has greatly debased and devalued the currency yet again. Hence why the AU$ is about on par.

You also notice that gold becomes a failover and increases in value when the central government starts printing.

Consumption commodities also do not work. Take oil as has been suggested to me. Oil has a large consumption value. Oil is also not of a uniform value until it is printed. It is also not simple to transport. Gold has a small consumption use in high tech industries and jewellery, but this is small.

Growth is not pegged to currency; this is the fallacy that leads to printing money. Money is a measure of wealth and not wealth itself. So your statement “why should a country peg its growth to some arbitrary natural resource?” is flawed. Printing money just results in a redistribution of wealth to selected interested and the government itself. It does not create growth.

At the same time, debasing the currency creates uncertainty which does limit growth. A fixed commodity such as gold stops this and the ensuing inflationary impetus.

Let us take the US government… If it was to go onto a gold standard, there are many fiduciary reforms it would need to undertake. For a start, the Federal Government would no longer be able to inflate the currency. It would also be necessary to balance its budget. The oversized welfare state mechanics would have to be reined in as any expenditures on these programs would either need to be paid for using existing funds or any loans would be directly visible to the voters as well as having a direct impact on the economy that people could perceive as they saw the Federal government’s effect in crowding out other capital loans as a direct consequence of excess spending.

First, there is no shortage of gold. There is ALWAYS a sufficient volume of money to serve all society’s needs. Purchasing power and NOT the amount of a currency matters to a society’s growth. This is the fallacy that Marx made, Keynes made and many neo-Keynesians continue to make. The amount of money does not matter at all, the purchasing power and ability to convert it into wealth is what matters.

Next, gold is far more stable in an open market than paper. Under a gold standard, price fluctuations that come as a consequence of swings in the quantity of money would be held at comparatively minor levels and more, are simple to forecast. The result of this is that there is less uncertainty. The purchasing power per unit of gold is far more stable than any paper currency standard even if the government could be restrained from printing more.

This is not a new argument; it is again one that those with vested interested do not of course like. Sumner [1] projected that “our attempts to win [inexpensive money] have all failed, and they have cost us, in each generation, more than a purely specie currency would have cost, if each generation had had to buy it anew.”

The common fallacy being made is that purchasing power is intrinsic to money. Money is not wealth and printing money lowers the purchasing power per unit. Gold does not suffer this effect.

[1] William Graham Sumner (1892) “History of Banking in the U.S.,” The Journal of Commerce and Commercial Bulletin, p. 472

Sunday, 6 February 2011

FARC, Gold, cyber and terror.

I would guess that it is not generally known how many criminal and terrorist activities interlink.

In this post I will be discussing one that I am writing about and will be seeking to publish this year.

This is the link from Gold to people. The development of crimeware has allowed terror groups to move into funding sources that have been more traditionally the domain of hacker groups.

In Colombia and Venezuela, FARC (and FARC-V) have been taking over gold mines illegally. These are a better source of income than the traditional means of cocaine trading. First, cocaine has devalued in recent years and next, it is far more difficult to smuggle.

The people trade has not dissipated even with the decline in black market prices for human lives, but the market has developed additional avenues. One of these is gold mining. The illegal gold mines are manned by slave labour and serviced by forced prostitution. Child labour is used, but comes from children that they do not use in either the sex trade and more importantly, of those they cannot indoctrinate into the cause. Child soldiers still form the backbone of many of these operations.

The link to crimeware is twofold.
1 Gold is used to purchase the services and software of the criminal groups.
2 People taken into the sex trade by these groups are abused and filmed for sale and digital distribution.

The knowledge and expertise of the criminal hacker groups has been for sale for a long time. The ability to move gold and to launder it through these groups has resulted in a rise in the ties between cybercrime and cyber terror.

As these links grow stronger over time, the profits from gold and online sexual exploitation of abducted women and children will form a stronger basis for terror funding than the drug trade.

The nature of the activities also creates an ongoing revenue stream. Once an individual has signed up for a child porn service offered by the cyber-criminal groups, they cannot leave. They have no recourse. If they attempt to do so, they can be reported as the mere possession of these prescribed images is a criminal offense in itself.

The result is a self-imposed extortion where the criminal groups can gain an ongoing income stream even when they stop providing the material.

The ease of distribution from digital media has greatly improved the profits that can be obtained through the illegal sex trade. Further, it is no longer necessary to export people, the use of people for forced sex can be filmed and those films can be distributed at near zero costs and in time can create more profit than the sale of the individual. If necessary, those people can still be sold in a more traditional manner as well adding further to the profitability.

As we see the links between terror and crime groups grow, a result of arbitrage level profits, we can expect to see an increase in targeted attacks and a rise in other types of cybercriminal activities.

So, how do you turn gold into US$, add a cybercrime group.

There is a simple answer to all of this, profit. At present, the number of computer based jobs available in Colombia and Venezuela is low for the semi-educated hacker community there. Those that are available pay far less than can be made through illegal activities.

More, there is little risk. The Venezuelan government does not extradite its people to the USA. As long as a Venezuelan cyber-crime group does not target Venezuelans, they are relatively safe from prosecution.

So we can expect more to follow in the future.

And another one down

Well, I sat my GISP exam last night and passed. I wanted it out of the way, but arranging these things following an afternoon drinking is a bad idea.

Once I had managed to see I had made the 175 questions that was a pass, I could not even bring myself to read them any longer and randomly guessed. I must say, this was not the most successful means of doing an exam.

Also, I should have read that it was a 5 hour exam!

I did not know this to when I had started it and saw the 250 questions.

I just have the following three GIAC certifications to collect now:

I have the old GNET certification already and I am resitting this to the new exam next weekend to have my GSSP certification (so really the same but a new name).

I could not do the GPEN when it came out as I helped write the questions for the first exam, but the new format means I can sit it finally.

I completed my GIAC Certified Forensic Analyst (GCFA) certification many years ago. The GCFE is an entry level forensic certification designed as a lead in to the GCFA. As such, and with the CCE and also being that I teach digital forensics at CSU, this one is a given.

Finally, I have read the GCED material from last year at least and have no trouble with it. So this will be a done deal as well.

That just leaves the two masters degrees from STI.(Add to that a Masters from CSU that I plan to complete this year and that is three masters degrees for 2011).

To complete both of these, I only have my GIAC Certified Project Manager Certification (GCPM) gold paper to complete.I have started this paper and will have it completed before the middle of the year. It is:

A preamble into aligning Systems engineering and Information security risk measures

For many years information security and risk management has been an art rather than a science. This has resulted in the reliance on experts whose methodologies and results can vary widely and which have led to the growth of fear, uncertainty and doubt within the community. At the same time, the failure to be able to effectively expend resources in securing systems has created a misalignment of controls and a waste of scare resources with alternative uses. This paper aims to introduce a number of models and methods that are common in many other areas of systems engineering, but which are only just starting to be used in the determination of information systems risk. We also introduce the idea of using neural networks of hazard data to reliably model and train risk systems.

I am also working on my GCFW and GSLC papers. Actually, I have sent my GCFW paper in for review so it is nearly complete.

So, I have 32 certifications from GIAC right now and I will have all by the end of the year. I also plan to have the two STI masters as well. So back to the grind...