Falkenblog: Bob Haugen RIP

Falkenblog: Bob Haugen RIP: Bob Haugen passed away last Sunday. My favorite Haugen articles are really two.  In Commonalities in  the Determinants of Expected Stock ...

United Nations = Cartel

Modern technology has opened up avenues of information and transportation that allow people to choose where they live.

This choice causes nations to compete with each other for valuable citizens. Israeli officials have publisized that part of their calculations in setting tax rates is ensuring that tax rates are low enough to be competitive.

This is good news for citizens: the competition on price will ensure that governments are run efficiently.

However, governments could form a cartel to fix prices and cooperate instead of compete. I suspect that the UN may become the ultimate government cartel. What enables that is that representatives to the UN are selected by governments, not individuals. Thereore, the UN serves government interests, and where those interests diverge from the interests of citizens, expext the UN to protect governments.

In this capacity, the UN serves as a way for smaller, less powerful nations to band together to protect themselves from their citizens.

I expect that in the future, the nations most active in the UN will be those with the most to gain: oppressive dictatorships.

New Challenge of Capitalism

The challenge that global capitalism comes with is this. A government can ensure that its citizens enjoy the opportunity necessary to challenge and replace existing leaders and wealthy in its own borders. However, there is no global authority granting opportunity to all. Hence, once a private corporation reaches a size on a global scale that it can then use to garantee the continuation of its power (such as AIG), governments fail to provide the necessary degree of opportunity to others. This leaves large corporations without the challenge needed to keep them on their toes.

Implied Volitility Reflects Risk Premium

Implied volitility is typically greater than historical volitility. Why is that?

I suggest that reflects the value of a reduction of risk. 

What is worth more, a ticket for a 1 in 10 chance to earn $10, or a single dollar bill? It depends on how much money you have. If you have an un-ending money supply, you could buy an infinate number of tickets, and the value would be equal to the same number of dollar bills. 

But if you have a limited money supply, you might not want to take the risk. The value of risk reduction has evidence in insurance. If someone has an infinate money supply, insurance only makes sense if the insurance company has access to cheaper resources than you do; the reducion in risk is of no value. 

Similarly, stock option prices should incorporate the value of risk reduction whenever money supply is limited. In fact, the variance between historical and implied volititliy may be used to gauge the money supply.

Minumum Wage = Price Fixing

Minimum wage is price fixing. This price fixing hurts the American ecomony by preventing the meeting of supply to demand.

Protenctionist employment policies also hurt America. The demand that Mexicans exhibit for American jobs indicates a disequilibrim. 

In other words, Amarican un-skilled labor is over-priced. Minimum wage and closing the labor market to foreign competition artificially keep these prices to high. 

Here are the consequences:

1. Outsourcing: Many are moving their factories and services off-shore. This reduces demand for labor and makes the American economy less efficient.

2. High cost of living: Because unskilled labor is expensive, living in America is expensive. In the end, the high minimum wage is self perpetuating. If it were eliminated, the cost of living would go down, making the lower wage suitable.

In order for the labor market to be flexible and competitive, it needs to have artificial protection and price fixing removed from it.

Cloud computing Privacy Solution

The problem with google style cloud computing is the lack of privacy.

A solution would involve the separation of the data hosting and ap hosting. 

The ap would be downloaded onto the personal computer, and the data would be accessed using a private key that only the user has. The ap manipulates the data, and is uploaded and encryped so that the data center can't access the data either. 

The problem is that google style content based ads won't be possible, and gmail style indexing won't be available either.

Energy, Water & Transortation Solution

Here is an idea for a combined solution to global warming, fresh water and transportation.

Instread of traveling around the planet, we should travel through it. This would be done in subterranian vacume tubes. 

The tubes must be cooled with sea water in order to prevent the tubes from melting from the subterranian heat. 

The sea water becomes stream, and powers turbines that supplye electricity. The steam is sterile and desalinated.