–How IBM can change the world

Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
==========================================================================================================================================

Economics has more data than the human mind can comprehend. So economists (including this one) tend to focus on small clumps of data we can visualize, and from them, we draw conclusions: For instance, consider these data:

1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.

I conclude, from these data, federal surpluses cause depressions. I even offer a rationalle: Surpluses remove dollars from the economy, and a growing economy requires a growing supply of money, while a shrinking supply of money causes economic shrinkage (a depression). I see ample proof of this in many places, and currently the euro nations are on track to provide even more proof.

But wait a minute. The 1819 depression began after just two years of surplus, while the 1929 depression waited for nine years of surplus. Why?

And then there was the Clinton surplus of 1998 -2000, that only caused a recession in 2001. So was there something else that triggered, or outright caused, these depressions?

I discuss this at: What triggers recessions and depressions?? But that discussion barely brushed the surface of the question.

Why didn’t I go deeper? Too many variables of indeterminate weights.

Read any paper, book or blog post on economics, and you will see conclusions, possibly supported by data, but you’ll not see all the related data along with historically proven weights. You might even see formulas on the order of X = 1a + 2b + 3c . . . N, but how predictive are those formulas? Commodity and stock chartists provide seemingly infinite graphs, and how predictive are they?

While I feel confident that federal surpluses, and even reductions in deficit growth, hurt the economy, and I offer data to support this conclusion, I do not offer proof. No economist ever has proved much of anything, though we all argue mightily for our positions. If this reminds you of religion, where nothing is proved and everyone is absolutely certain, you’re right. Economics is closer to religion than to science, and the reason is complexity.

It doesn’t have to be this way. The human brain is limited in the number of related factors it consciously can organize. Show me a formula based on a dozen variables, and I will not be able to visualize it.

But ask me to catch a fly ball, in which my brain subconsciously must analyze such variables as the speed and trajectory of the ball, wind speed, wind direction, ground (running) conditions, ball weight and size, plus all the past experiences I’ve had in running and catching a ball, and my brain can predict exactly where my glove has to be, and when — usually.

I’ll run at exactly the right pace, neither too slowly nor too fast, so that the trajectory of my glove intersects the trajectory of the ball, right on time — an amazing feat made even more amazing by the thousands of decisions and predictions my brain must make when signalling each my muscles to contract the right amounts at the right moments, just so I can take one step, let alone intercept a fly ball.

Why can I make all those predictions, involving thousands of weighted variables , but am unable to visualize a handful of variables simultaneously? I believe the answer is: Feedback.

Last year, the IBM computer named “Watson,” defeated the two greatest human players in Jeopardy history. Those who know the game, understand that this achievement was orders of magnitude beyond winning at chess. Jeopardy questions are filled with linguistic misdirections puns, rhymes, puzzles and verbal tricks.

English by itself is a complex language. Consider the real headline, “English Left Waffles on Falklands.” What does it mean? Did the English cook up a stack of waffles and leave them on some islands? Or did it mean the English left (i.e. liberals) were undecided about what to do with the Falklands?

Add that misdirection to the need to understand facts, slogans and ideas we all take for granted, and you can visualize of the kind of complexity Watson conquered. How did it do it?

Well, I can tell you what didn’t happen. There weren’t an infinite number of programmers inputting an infinite number of possible questions, in the hopes that one would match the latest Jeopardy question.

No, instead they used machine learning. Here’s an example: One of the questions named two people and asked what they had in common. The answer was supposed to be what state (Iowa, Ohio, etc.) they came from. Watson missed the first question, because it found something else the two had even more in common. The human contestants answered correctly.

Then Watson was told the correct answer, but not the reasoning behind it. The same thing happened with the second question. Watson gave the wrong answer. Humans gave the right answer. Watson was told the right answer.

But, on the third question, Watson answered correctly. It had “learned,” from the first two answers, that a state name was wanted. Thereafter, Watson answered all similar questions correctly. Given all possible answers, Watson offered the answer having the highest probability.

There would have been no way for programmers to anticipate that question, then program Watson with the answer. Machine learning accomplished in seconds, what ordinary programming never could.

Similarly, though I have caught thousands of balls in every weather, on every kind of field — balls of different sizes and shapes (beachballs, footballs, marbles) –balls going at different speeds, different distances — the next time I catch a ball, the situation will be unique. But I will receive feedback — continuous feedback. And the odds are, I either will catch the ball or quickly will realize I can’t.

With every step I take, my brain will recognize thousand of things familiar enough to analyze, and based on that familiarity, will make appropriate adjustments, perhaps millions of adjustments per second. And this feedback will allow me to predict exactly where my glove needs to be and how my muscles need to move.

Bottom line: Economics never will be a complete science so long as economists rely solely on conclusions drawn from limited data. The solution is to use a super computer, of Watson capacity or greater, that is given every conceivable piece of data prior to every important result — a super computer that is told to correlate all that data with each result (i.e. “correct answer”), and to learn from each result (feedback), the most likely next result.

IBM spent millions on Watson. They achieved some measure of publicity, but they now can achieve so much more. If IBM would create an “economics Watson,” pumped full of data and engaged in machine learning, IBM could predict, and thereby change, the world.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

==========================================================================================================================================
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports

#MONETARY SOVEREIGNTY

–“Two views of the #Occupy movement,” or “These guys are a riot.”

While I empathize with the basic desires of the “Occupy” movement (i.e. lift the poor), I repeatedly have criticized their lack of direction. Marching, chanting, camping in the park and bating police is not an economic proposal.

In this vein, here are excerpts from an article in COMMENTARY

The Class War Goes Hot
Abe Greenwald| @abegreenwald
05.03.2012

There are two wellsprings of class warfare in America. There is Barack Obama, whose reelection strategy is to taunt Americans about their rich neighbors. And there are the indignant loiterers of the Occupy movement, who married aimlessness to anarchism and produced a half-witted crime spree that boomer liberals then declared “meaningful.”

The few existing articulate defenders of the Occupy movement note the peace-and-love vibe that abounds at protests. “I go down there every day, and I see sweet, compassionate, politically astute people,” said hippie businessman Russell Simmons about Occupy Wall Street. “I participate in their meditation daily. I see people who have high aspirations for America, who are idealistic. I see the most inclusive group that America has to offer.”

There is only one entry requirement for the Occupy movement: a consuming resentment of the guy who has more than you. It is a grudge cult, a movement created to ennoble mankind’s worst impulse, and it must inevitably lead to violence. The class war must go hot.

. . . it is the same corrosive idea behind the White House webpage urging Americans to “Just enter a few pieces of information about your taxes, and see how many millionaires pay a lower effective tax rate than you.”

The Obama campaign has the class-warfare brains, the credentialed thinkers (and the enlightened billionaire) who’ve drawn up a plan to make someone else pay for the fundamental unfairness of your life. If you think it’s a stretch to compare them to the class-warfare thugs of the Occupy movement just look at Europe, where the brains and thugs re-couple in strong political parties every time a bad-economy election is held.

In Greece, where the evil 1 percent du jour are immigrants, the fascist Golden Dawn party may enter parliament in a few days. In the current French elections, extremists on the right and left have ratcheted up nativist rhetoric. Hungary’s Nazi-nostalgic Jobbik party recently held an EU flag burning rally to protest their longtime scapegoats, the Gypsies.

Yes, it’s true, we’re not Europe. But that’s the point. We’re America, so why are we flirting with this garbage?

I agree, phony class warfare is obnoxious, except when there is a real class war. There is, and the poor are losing. As the gap between the rich and poor grows, are we to believe this merely is a result of hard work by the 1% and sloth by the 99%, or is it a bit more insidious than that?

Sadly, the author is mostly right about the “#Occupy” movement, not because they are evil, but because they don’t understand economics, don’t want to understand economics, and have no plan, other than “we’re angry, so do something about it.”

If they had read and understood Monetary Sovereignty, they would have proposed specific solutions to the growing gap — solutions such as: Eliminate FICA, provide Medicare to everyone, increase Social Security payments, annually increase the standard income tax deduction, etc. And they would be able to answer the typical, debt-hawk “inflation” concerns about social spending.

But no. #Occupy prefers protest-and-party to learn-and-propose. So “#Occupy” will fail the legitimacy test, the gap will grow, and Mr. Greenwald will continue to blame the class warfare on the victims.

If you happen to know any of the #Occupy leaders (are there any?), you might remind them that even the dopey Tea Party offered a specific agenda, wrongheaded as it was, and they didn’t need to break store windows to accomplish their goals.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

#MONETARY SOVEREIGNTY

–Lawrence Summers: Failing to the top

The Peter Principle holds that employees tend to rise to their level of incompetence. They are promoted until they arrive at a position where at which they no longer are competent, where they remain forever.

While the Peter Principle usually describes one company, a variation of it can apply to the ability of some people to rise to a high level in one organization, fail there, then move to another organization at a high level, fail there, and continue to fail, always finding jobs at a high level, the previous title being more important than the previous results.

Common example: Sports managers often are fired, only to be hired as managers elsewhere.

In that vein, I give you Lawrence Summers, who became Secretary of the Treasury from 1999 to 2001, under President Clinton. Summers helped create the disastrous Clinton surplus which led to the 2001 recession (as deficit growth reduction usually does).

Based on his previous title, Summers was hired to be president of Harvard University from 2001 to 2006, then was forced to resign after a no-confidence vote by the faculty. One of several reasons: He said few women were scientists because they had a “different availability of aptitude at the high end.”

Based on these failures, President Obama made Summers director of the White House National Economic Council. (What’s wrong Mr. President, wasn’t Cosmo Kramer available?)

All of which brings us to:

Financial Times
April 29, 2012
Growth not austerity is best remedy for Europe
By Lawrence Summers

Once again Europe’s efforts to contain its crisis have fallen short. It was perhaps reasonable to hope that the European Central Bank’s longer-term refinancing operation to provide nearly $1tn in cheap three-year funding to European banks would halt the crisis for a while if not resolve it.

“Reasonable” only if one agrees with lending money to nations, that because they are monetarily non-sovereign, have no means to repay.

It is now clear it has been little more than a palliative. Again, both Europe and the global economy approach the brink.

What a surprise! Who could have predicted that?

The premise of European policy making is that countries are overindebted and so unable to access markets on reasonable terms and that the high interest rates associated with excessive debt hurt the financial system and inhibit growth. So, the strategy is one of providing financing while insisting on austerity.

Unfortunately, Europe has misdiagnosed its problems and set the wrong strategic course. Outside Greece, which represents only 2 per cent of the eurozone, profligacy is not the root cause of problems.

In this, Summers is right, although profligacy is not the cause of Greece’s problems, either.

Its financial problems stem from lack of growth. The right focus for Europe is on growth. In this context increased austerity is a step in the wrong direction.

At this point, I thought the old Lawrence Summers had disappeared, and a new, well-informed person had taken his place. But it was not to be.

Yes, there will ultimately be a need to raise retirement ages, reform sclerosis-inducing regulations and restructure benefit programmes. Phased in, commitments in these areas would be constructive.

Summers continues to enhance his legacy. He has helped cause a recession (under Clinton), exacerbate another one (under Obama), insulted women’s intelligence and abilities, suggested punishing older people by raising retirement ages, suggested abetting corporate dishonesty and advocated reducing benefits to the poor.

What next for Lawrence Summers? Based on his ability to fail to the top, President of the United States?

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

#MONETARY SOVEREIGNTY

–Euro nations debate which brand of aspirin to prescribe for their cancer

In a June 5th, 2005 talk at the University of Missouri, Kansas City (the home to the best economics department in America), I said, “Because of the Euro, no euro nation can control its own money supply. The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the euro.”

That was an easy call, though I don’t remember anyone making it at the time. The euro nations were monetarily non-sovereign, which meant that in order to survive long term, they all had to have positive trade balances. What was the likelihood of that?

Now comes this article in Time online magazine, “4 Ways the Euro Could Fail,” which discusses how (not if) the euro nations will try to escape from their folly in giving up their Monetary Sovereignty.

4 Ways the Euro Could Fail

All courses of action appear to lead to an eventual financial crisis of some sort. But moderate progrowth policies are the best bet to minimize the damage
By MICHAEL SIVY, May 2, 2012 |

The euro will not die overnight, but it seems increasingly unlikely that the common currency will survive in its present form. European countries and international financial institutions insist that they still expect the euro zone to remain intact, but they are already preparing contingency plans for some sort of breakup.

No one knows, of course, precisely when a fatal euro-zone crisis will occur or exactly what might trigger it. Basically, there are four scenarios, listed here from most to least likely in the short run:

France and other countries persuade Germany to agree to progrowth policies.
Germany has consistently been the strongest advocate of restructuring and austerity as the key to solving Europe’s financial problems.

Germany has survived by having a positive balance of trade. But part of the euro’s initial allure was its facilitation of intra-Europe trade. When euro nations trade with each other, mathematics dictates they all can’t have a positive trade balance. Thus, from the start, there were two opposing incompatible concepts: Easy intra-Europe trade and each nation having a positive trade balance.

The surrender of Monetary Sovereignty plus the need for everyone to export more than they import, doomed the euro as a viable concept.

But one by one, Germany’s economic allies are running into political resistance to those policies. The collapse of the Dutch government has made it difficult for that country to meet its budget targets. And in France, Socialist François Hollande is very likely to win Sunday’s presidential election. He has been calling for more progrowth policies, which has provoked consternation in Germany.

But the balance in Europe has shifted, and Germany may have no choice but to go along with more spending — and more borrowing — by national governments.

In the short run, that would help Europe’s economies by reducing unemployment and limiting the severity of any recessions. But additional borrowing will also contribute to the debt load that governments have to carry.

The fact that it is possible to have more spending without more borrowing, (via Monetary Sovereignty), has not yet occurred to them.

Austerity policies force most of Europe into recession.

Germany may pay lip service to the importance of economic growth but continue to promote austerity. Trouble is, a dozen European countries are now in an economic downturn, including Spain, which officially went into recession earlier this week.

Recession is mandatory for nations that cut spending and or raise taxes (i.e. austerity). If only the U.S. politicians understood this.

In the long run, financially troubled countries need to trim their spending, raise taxes, bring down their labor costs and limit their borrowing. But cutting so fast that a country goes into recession can actually make it harder to reduce debt as a percentage of GDP — because the GDP is shrinking.

No, financially troubled nations need to increase spending and cut taxes — in both the long and short run — to increase GDP.

The weakest countries get pushed out of the euro zone one by one.

If everything continues on present course, then the weakest euro-zone countries will have to offer higher and higher interest rates to sell their bonds, and eventually they will no longer be able to afford to stay in the euro. Greece would probably go first, which would fuel speculation about Portugal, Spain and even Italy. In turn, that would likely push interest rates even higher for those countries, creating a vicious circle.

At which time the weakest countries, having switched to their own sovereign currencies and become Monetarily Sovereign, now will become the strongest countries. They will be able to increase their money supply at will, something the others can’t.

. . . after countries left, they would be able to set their economies on a course for recovery. Argentina, which had tied its currency to the dollar in the early 1990s, suffered a major recession after it devalued its currency in 2001. But by 2003, its economy was booming again.

Tying one currency to another is defacto monetary non-sovereignty. Argentina saw the light.

The euro zone splits into two separate currency areas.

The most rational solution — but the least likely for political reasons — would be for Germany and a few allies, such as the Netherlands, to leave the euro zone and create their own new currency. The euro would remain the currency of the southern European countries and could be devalued, easing the pressure on them.

Rather than one group of monetarily non-sovereign nations, there would be two. This is an improvement??

Bottom line, the euro nations belatedly realize the euro is a failed concept, but they don’t know why. They believe they can tweak it to extend its life, but what they propose is like prescribing aspirin for cancer. The fundamental problems remain.

There are two, and only two, long-term solutions for the euro nations:

1. Leave the euro, adopt your own sovereign currencies, becoming Monetarily Sovereign
or
2. Merge into a republic, forming the monetary version of a United States of Europe, so that the EU provides to euros to all members, as needed.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

#MONETARY SOVEREIGNTY

Share this:

Share this:

Share this:

Share this: