Archive for May, 2010

Market Complexity

The stock market gyrations last Thursday may be a nice example of the issue of complexity I’ve discussed in the past. When the financial markets are too hard to understand, failure modes become unpredictable.

Because there is profit in complexity, or at least the chance of profit, we can expect more of this going forward. History suggests that there will be a slow and intermittent increase in complexity and volatility, up to some limit where ordinary investors are no longer willing to tolerate it. The government will increasingly try to guarantee the behaviour of the financial instruments used by ordinary people: bank accounts and 401k plans. High finance will increasingly separate from ordinary finance, as indeed was the case in the past.

My guess is that we’re headed for a cycle of booms and busts more like the ones in the last 19th century. The money that comes from complexity has a lot of influence over the political system, and people are working hard to avoid regulations which smooth things out while lowering profits. At the same time the government may increasingly intervene to keep finances stable for most people. E.g., although Fannie Mae and Freddie Mac will most likely disappear, there will be some new mechanism for controlling home mortgage interest rates.

Hard to say how it will all work out, but whatever happens you heard it here first.

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Government spending

Greg Mankiw, a well known economist, has a nice picture of projected U.S. government spending in 2020. Refer to this when you hear somebody say that we can balance the budget by eliminating waste.

I believe that this picture does not cover things like the Iraq and Afghanistan wars, which the Bush administration funded through emergency spending measures (they appear indirectly in the interest payments). Fortunately the Obama administration has so far been presenting an honest budget, as the Bush I and Clinton administrations did in the past.

As always, the best way to stay on top of government spending is to grow the economy without growing services, as was done during the Clinton years. The economy is starting to grow again, but too slowly to even keep up with population growth. As China’s economy appears to be currently overheated, it will be interesting to see to see how the U.S. economy reacts as China is forced to slow down.

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When Titans Clash

I didn’t expect to like the recent remake of Clash of the Titans much, but I was pleasantly surprised. Most movies of this sort have a simple underlying theme. For this movie the theme was going to be that humans could stand on their own and did not need help from the gods. But, due to either horrible or inspired writing, they botched the theme, even admitting it in the final scene. This gave the movie a refreshingly strange feeling in the middle of the usual monster fights.

Particularly strange and quite wonderful was the short sequence in which the intrepid band rides along in howdahs strapped to giant scorpions which grew from the blood of the hero’s mother’s husband who had been given strange powers by Hades. That one was surely bad writing trying to rework an idea which sort of made sense in the original movie, but while failing turning it into something weirdly original and striking.

I’m not sure I should recommend seeing this movie, but if you go in with low expectations I think it should be quite enjoyable.

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Blackberry

I spent several hours this weekend pruning back the blackberry bushes in our back yard. It’s not really a yard, as our house backs onto a hillside too steep to build on. We hardly ever go there ourselves, so it’s covered by plants fighting for their little bit of sun, nature green in thorn and bramble. I like blackberries, but I think they should keep their thorns in their place on the sides of our little path; they have no such consideration for us.

Since I hadn’t been down there since the rainy season started, it was incredible to see how much the plants had grown and spread. As an animal myself, there is something deeply weird about the way that plants grow just by sitting there and converting solar energy into leafs and thorns. A kind of alien life in our midst, despite its familiarity. Odd to think that we depend so deeply on them.

Seeing the plants fighting each other for sunlight, each following their different little strategies, it’s hard not to see a form of vegetable intelligence at work. More likely it’s the intentional stance applied to a simple set of algorithms. At least, I hope so. Considering how many scratches I have now, I have to say it’s a good thing they’re so much slower than we are. If the plants could take time from fighting each other to evolve a battery to let themselves move faster when necessary, we animals wouldn’t stand a chance.

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