Real issue vs Fake Issue

There's a lot of political debate going on about the second wave of Depression Era style big government stimulus and health care reform, and soforth that has been happening in the last few months. The popular debate misses the real issues by about 90 degrees, and i'd like to comment on it all:

1) What is the economy? The media doesn't have a clue. They think "the economy" is something like "the amount of money that big businesses like GM, Time Warner, Google, and AIG are making". It isn't. Not even close. The economy is the amount of goods and services being produced and consumed. Measuring it in dollars works so long as the supply of dollars is relatively smooth, constant, or very slowly increasing. The truth is that the supply of dollars dwindled rapidly about a year ago, and so any comparisons of the type (GM earnings this year vs GM earnings last year) is completely misleading. When the dollars aren't a good benchmark, we need to use some other information to gauge the economy. For example production/consumption rate of some basket of goods. It might be interesting to compare changes in several baskets, for example

food + utilities + childcare + rent + automotive_maintenance + home maintenance


restaurant + vacation + CDs + DVDs + online music + Netflix + cable/satellite TV


appliances + automobiles + new houses + electronics

In other words, there are a variety of categories into which you could classify the goods and services we commonly buy. The economy is contracting if the quantity (measured in output units, not dollars) is decreasing. Now "adding" say hours of childcare to square feet of rented housing to pounds of food to hours of mechanics time is impossible... they aren't in the same units.

However if we look at growth rates we can do it. for example the ratio of lbs of food consumed per week to pounds of food consumed per week at this time last year is a dimensionless number. By doing some modeling magic we can construct a reasonable measurement of how much stuff we're consuming now vs how much last year that doesn't rely on assumptions about dollars. Basically we look at weighted averages of the ratios of consumptions. On these scales, we'd have a much better sense of what is going on in the economy. Currently, no-one has the slightest idea really.

2) Industry death: The "death" of certain industries is greatly exaggerated. For example, we are consuming more music than ever, (in terms of variety, and number of different tracks listened to) and yet, the music industry is making much much less money than it used to. Is this a problem? Not for the economy as a whole, only for those people who have been used to sitting back and raking in our dollars thanks to government enforced monopolies called "Copyright". Competition together with new technology for distribution is driving the price of music down quickly. There are many legal ways to listen to music online, this makes buying CDs much less important for people, so they buy many fewer of them... Rejoice!

Similarly for Chrysler and GM. They've both been producing bad cars for a long time. They've been dying due to a combination of overseas competition, unions strangling them, and bad management. If they go away entirely, great, Toyota, Honda, Kia, Hyundai, BMW, Mercedes and others will buy up their manufacturing facilities, and make better cars that we actually want. Problem solved.

3) Labor flexibility. This is a big BIG problem in the US. There are a variety of things that keep people from moving from job to job to maximize their productivity. One of the major things is a kind of anti-competitive regulation that big businesses have purchased known as "health care and retirement benefits". The big problem isn't that businesses aren't providing health care to their workers, or that people aren't taking advantage of their 401k plans. The big problem is that TOO MANY businesses are tying their workers down with specialized plans that require a lot of administration, and therefore are only affordable to largish businesses.

If we give individuals the same ability to buy health insurance and create large retirement savings accounts at low administrative costs, then people will do that for themselves, and no longer be tied to their employers via the threat of serious hassle and risk to their finances and health when they move from job to job. This frees people up to find jobs that pay them good wages, and therefore are providing the most valuable services to the economy.

END EMPLOYER PROVIDED HEALTHCARE and RETIREMENT SAVINGS, and create SIMPLE methods for people to do these things for themselves. Voila, the productivity of America will jump dramatically as people are able to move around to fill the most valuable jobs without significant barriers to change.

4) Income tax significantly penalizes the most productive groups. As arguments abound about taxation and spending levels, no one has been talking about the real problems with the income tax.

Change the income tax rate so that it depends on your total wealth not on your annual income! An extra dollar has very little value to someone with $30 M dollars compared to the value it has to someone whos total net work is $5000. But if both people have $100k per year incomes, they are taxed at the same rate.

Don't think that someone with a $100k income could be poor? Don't think that someone rich could have $10k in income? Believe it, some examples: Doctors, Lawyers, Engineers, Computer Programmers, Business Majors, and others for the first say 10 years out of school can be in so much debt from their educations that they don't even have a positive net worth even though they are "making" $100k in salary, especially since after Social Security, Medicare, Federal income, and State Income taxes a single person with a $100k salary is taking home perhaps $50k

Taking 30% of the marginal dollar from the millionaire hurts that person much less than taking 30% of the marginal dollar of the young surgeon. "The Rich" are not the same people as "those who had a big income this year", not even close. In fact the very rich often have very small incomes, since they don't work a W2 type job!

In addition to an income tax rate related to your net worth, a property tax on stocks, bonds, real estate, and other investment type assets would go a long way toward making those whose marginal utility of money is small pay the most money for government services.

This is just stupidity, and easy to solve. Yet all the tax arguments in modern politics are nowhere NEAR this issue, they're all about what kind of special tax breaks can we put in place to buy votes for politicians.

5) Stifling small businesses and incarcerating everyday normal people:

You want to start a Taco truck, a Plumbing repair business, an auto mechanic, a two person law firm, an architecture office, do a little garage inventing, breed pygmy goats, sell your photographs online... TOUGH. It's almost certain that some aspect of what you want to do is a felony or serious misdemeanor. Good luck figuring out how to avoid that, and paying for the lawyers and accountants that will keep you out of jail. It's just a lottery out there as to whether you're going to go to jail for the crimes you are already almost certainly committing...

Not only is this stifling creative and beneficial business opportunities, but it's incredibly unjust!

Good luck hearing anyone at all on the radio or TV even getting close to talking in the same region as these serious problems...

Research Progress

Well, for those of you interested in such things, here's the story so far...

The math class that I took without the required prerequisites turned out to be a great way to learn the prerequisites. it wasn't very applications oriented, but it was an area of mathematics that has nice applications and therefore I'm pretty happy to have taken it. However, it did take up a lot of time learning about Sobolev spaces, probability measures on function spaces, weak solutions to PDEs, a-priori estimates, martingales, Ito and Stratonovich integration, Ito's formula, generalizations to Hilbert space valued martingales... basically a lot of material.

My multiscale mechanics class fit nicely with the math class. I am working on a side project related to multiscale modeling in the context of Schwartz distribution theory. It's a variation on the Fermi-Pasta-Ulam problem as written up in American Scientist this month.

As for research, I am still struggling to write the proper equations for conservation of energy. the issue is that I can not make many of the simplifying assumptions normally made, for example I have a compressible fluid and temperature dependence of specific volume and pressure. I'm planning to talk with Maartin wednesday on this.

Nevertheless I have some approximately correct equations, and i have verified that they behave in the proper way, however in addition to being complicated, the equations are stiff. The speed of sound in water is very fast, so I need to take very small timesteps. Once I have my equations properly derived, I plan to work on simplifying by splitting the fast and slow components, eliminating terms that are negligible compared to other approximations I am making, and either working in a purely numerical scheme, or being smarter about my use of computer algebra to get a better timestepping method.

In the summer I'm working on these projects, and talking with my experimentalist advisor about experimental methods so that we can validate my basic model for publication hopefully soon after the summer.

A simple view of financial crisis.

One hears a lot about cause and cure for economic ailments these days. My take on this is based on a Milton Friedmanish view of the effect of the (broader) money supply.

Basically, houses became a source of money for those families willing to participate in the bubble, so long as prices were increasing, interest rates were low, and lenders were willing to lend against equity. However, when the bubble burst, this form of extended money supply collapsed and took the companies who had financed this inflation with it. When this portion of the money supply dwindled those goods that had inflated in price with it, such as perhaps rents, automobiles, food, airline travel, cell phone services, consumer electronics, etc were no longer priced at viable levels. The massive reduction in demand for those types of goods has rippled into companies across the board. Anyone who bought capital equipment in the last 3 or 4 years basically overpaid relative to the current money supply. This LOOKS like a loss in monetary terms (only economists think in real terms unfortunately, everyone else pretty much trusts accountant type calculations).

The reason I believe this is the main issue in the whole phenomenon is that I lived in an area that saw this effect from way back. The San Francisco bay area was a center for the dot com boom. If you wanted to buy a house in the east bay in 1997 you could probably get one for 300k, by 1999 they were 700k, by 2005 they were 900k to 1.5M. The dot com effect was localized to a few areas around the country, but it made a LOT of money for finance companies. When companies IPOed at $15 and went to $150 overnight the company got $15/share, but the finance companies working the deals got the other $135. One of the major reasons Google is so successful is that they refused to dance that dance, and pre-auctioned their shares at fair market value, resulting in a rich tech company, not a rich investment bank.

This manufacturing of money seems to have directly led to an oversupply of easy loans, which combined with artificially low interest rates after the dot com collapse to give us a housing boom. The housing boom affected everyone since there was no need for specialized technology companies which tend to localize to regions of high technology concentration.

If you were sitting on the sidelines saying "These people are crazy" and living in tiny apartments or with your family members during this whole 10 year debacle you are now helping to pick up the check for those who flaunted reality. The way in which this works is that the government is going to spend your money for you now ($900 billion or so, about 7% of GDP?) and take it from you later. In the mean time, they're hoping that this increased demand for government purchased goods, combined with an infusion of ready cash into lending will increase the general prices back to levels that are similar to what people have gotten used to and people will stop holding cash in expectation that they'll be able to buy more stuff in the future if they just wait for prices to come down.

If I were in charge, I suspect I would prefer to do something along the lines of the following:

1) Slash tax complexity in a major way (the idea here being to undo a lot of tax-incentivized behavior and make it easier for companies to plan economic activity)

2) Drastically reduce income taxes, and create a wealth (property) tax. Income taxes create disincentives for work, wealth taxes create disincentives for hoarding money in non-productive ways. A property/wealth tax would be based on stocks, bonds, cash savings accounts, automobiles, homes, other real property, business equipment, and other large ticket items that are easy to identify without intrusive jack booted thugs rifling around under your mattress.

3) make it easier for GM, chrysler, and other big companies that have been hurting to go out of business. The last thing we need is wealth being wasted by companies that produce products that consumers don't really want.

4) Simplify tax incentivized savings: Create a SINGLE account that anyone can open which takes the place of 401k, 403b, IRA, RothIRA, etc and which people can put up to say 25% of average income into pre-tax, and use for human capital development type purposes (education, health care, housing, investment for retirement, childcare, etc).

But I'm not king, and I doubt anyone much is listening.

Watches + Presentation

I just gave a "15 minute" presentation to my stochastic partial differential equations class.... My suggestion to all those giving timed presentations is:


The people ahead of me went over their time, and then when I looked down it seemed like I'd only been talking for a minute or two and it already said my time was up... OMG PANIC... look totally disorganized, etc...

The real issue is that I started 10 minutes later than when I thought I'd started... so my 15 minute presentation became a 5 minute presentation by my watch...

other than that, it went really well. the professor stayed after class to ask questions about the derivation and was clearly interested in the application I was describing.

Mathematicians vs Scientists vs Engineers vs Economists

Mathematicians are people who are interested by equations.

Scientists are people who are interested by the phenomena described by equations.

Engineers are people who are interested in the money saved by describing phenomena by equations.

Economists are people who think that equations about money are interesting.

Today's meeting

Funny thing happened today. I went to my advisor's office to talk about the stochastic PDE class. During the class he looked up several things on the internet. At one point he says "hey that's your livejournal!". apparently he had googled some terms that were similar to ones from this post about the SPDE course and it came up about 3 or 4 on the google search 8-P.

I thought it was humorous, but it reminded me that everything can be googled and one should not post anything too sensitive in your livejournal...

In other news he had is 2 week old baby with him. SOO cute.

I'm taking what will probably be the most challenging math course ever

It's a graduate "Topics in Probability" course on stochastic partial differential equations...

It's challenging because I don't really have even close to the background that I should have.

1) Never taken measure theory and formal probability (took mathematical statistics, combinatorics, lots of experience in applied stats and data analysis, experimental design, etc)

2) Never taken a stochastic processes course (martingales, brownian motion, continuous processes etc, but have some familiarity with discrete markov chains)

3) Never taken a stochastic ODE course (ito integrals, stratanovich integrals, etc)

4) Taught myself most of what I know about Hilbert/Sobolev spaces and PDEs by reading books.

5) Been since 1994 when I last took an ODE course (ODEs oriented to engineers with computer component using Mathematica).

I'm skeptical whether I can really get this material, but at the least it's giving me a good reason to learn the prerequisites (ie. stochastic processes, measure theory, Lebesgue integration).

When I graduated from ISU you could get a math degree without taking Real Analysis. They changed that... as they should...

So if you don't hear from me for several months it's probably because I've got my head buried deep in some probability theory notes somewhere... or reading about multiscale mechanics... my other research oriented course... ummmm yay, I guess...

Last Final

Today at 7-9 PM is my last final, in dynamics of structures (vibration theory). The test covers a lot of material, and is very conceptual oriented (probably little in the way of calculation, much in the way of derivations and explanations, qualitative answers etc).

I did very well on the midterm (got 100%) so I'm hoping to do well on the final. I like tests that focus on concepts. I just wish it wasn't scheduled so late in the day!