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.

Random Walk & Business

Here's a speculation: Proponents of the efficient market hypothosis are bright but unsucsessful busimessmen.

They have be bright in order to understand the theory behind it. However, business suceed when there is a discrepancy between the theory and the actual. Business thrives on finding inefficiency, and taking advantage of it.

That's how the financial world makes its money as well. 

Someone who doesn't belive that there is a discrepancy between the theory and the actual must not be able to detect it well, and therefore can't do well in business.

Corporate vs. Gov't Services.

Many government services are being replaced by private corporations. For example, security firms, private schools, and insurance companies are taking over where the government leaves off.

In the future, the domain of private corporations will expand, as the scale and power of those corporations increase. The gov't services will be minimized.

Public Participation In Gov't Decision Making

Why do we have reprisentatives in government?

In the old days, it was impractical to ask every citizen what they thought about the issue. However, modern technology renders this reason void.

The assumption is that the reprisentative knows better than you. Howver, many citizens are well informed about the issues at hand. Much more so than in the "old days"

I suggest that citizens be given a greater part in government decision making, in correlation with the ease of communication, and greater knowledge of citizens.

Ecomomic Efficiency And Size

Businesses make money by filling inefficiencies in the market.

That's how stock traders make money, and all businesses follow the same basic path. They identify some gap between supply and demand (an inefficiency) and they bridge that gap, making the economy flow.

The greater the size of the inefficieny, the grater the prospects of the business. 

That's why small countries with small economies are at a disadvantage. Because the ecomomy is smaller, the size of the inefficiency must be greater to make a living solving it. Hence, small economies are destined to be more inefficient. That means, it's harder to do business, and the quality of life is also reduced.

The solotion for such small economies is to form solid alliances with other countries.

Government Accomodation = Encouragement.

The title pretty much says it all. Often governments wish to accomodate for situations that shouldn't be there in the first place. However, government accomodation is tantamount to support. 

For example, when a government helps flooded communities near the mississipi, they are actually supporting development there. Similarly, when it bails out banks, it's encouraging risky investement.

However, without addressing the long term "encouragement" issue, the government is doing more harm than help.

Systematic Palestinian / Israeli Solution

Any long term solution for the Palestinian / Israeli Problem must be systematic. In other words, the solution must be to alter the current system in a way that the natural forces at play support the solution.

The reason is simple: the strength of a basic national system is greater than the power of the government, because the government is a part of that system. If the system fights against the solution, it will prevail with time.

Hence, reliance of constant military enforcement cannot be a part of the solution. Also, economic and social systems must support the solution.

These ideas imply that a two state solution can only be short term, for the following reasons:

1. As long as the nations are still hostile toward each other, constant military enforcement is necessary.
2. The West Bank and Gaza are dependent on Israel for it's electricity, water, employment, transportation, and many commodities. That is a part of a system which promotes the unity and integration of the two territories.
3. There are many Arabs in Israel, and many Israelis in the West Bank. This also is part of a cultural system which promotes integration, and thwarts separation.
4. Many Arab and Israeli powers with public support fight for a one state solution, they only disagree on it's nature.
   

Any solution must either accommodate for or change the cultural, security oriented, and practical systems on the ground.

The puzzle is not how to divide the land, but how to create one stable country grounded solidly in basic existing systems.

Terrorism as a Zero Sum Game

Negotiation has no place in a zero sum game. Here is why.

The basis for real negotiations, excluding manipulation and trickery, is finding the best win-win situation. In a zero sum game, any one player's gain is the other's loss, so there can be no win-win situation.

In a friendly chess game, the scope is defined, so negotiations outside the game make sense. However, in a game with no limit to it's scope, even those topics which seem to have no direct pertinence to the fight, are non-negotiable.

Hence, any party playing a zero-sum game that initiates negotiations of any sort should be suspect.

Terrorist organizations who's sole mission is the elimination of their targets are playing a zero sum game with their targets. This definition excludes terror-supporting countries or organizations that use terrorist methods, but have other goals besides the elimination of their targets.

That is why negotiation or "talks" of any sort with terror organizations should be avoided.

The Value of Natural Resources vs. The Value of a Human

Advances in technology and changes in human population affect the relative value of natural resources to the value of a human.

Here are things that raise the relative value of Natural Resources:

• An increase in population increases the demand for natural resourses.
• An increase in population also intensifies the competition between people, bringing down the value of a person.
• Advances in technology also intensify competition, bringing down the value of a person.
• Advances in technology find new uses for Natural Resources, increasing demand.
  

Here are things that lower the relative value of Natural Resources:

• Advances in technology make usage of resources more efficient.
  
• Advances in technology creates substitutes for Natural Resources.
  
• Advance in technology increases the value of someone effectively educated.
• Advances in technology encourage cooperation, instead of competition.

It may be that effectively educated countries with abundance of Natural Resources will overturn the existing balance of wealth and power.

Social Awareness: Near and Far

Modern life has left man with a weakened sense of community and family. It has been replaced with an increase in global and national awareness.

This is in correlation with a shift in the sources of one's needs. Social, financial and other needs are not supplied by family community or even nation anymore. Those needs are met by a global network.

That means that we can expect a decrease in global violence, and an increase in family problems.

That trend would change if an awareness of the benefits that can be supplied and needs that can be met only through local community and family were matured.

Religious Progress & Development

In recent times, religion has come under fire. The problems are many. Biblical religion has a problem that many of the facts expressed, like Genesis don't match our observations. The problem with philosophy of God is that it's not experimental.

However, Mankind will never abandon it's pursuit of God. By "God" I mean the source of all. Man's natural desire for understanding of his environment naturally leads him to the doorway that stands between the finite and scientific to the infinite and theoretical.

However, it's too shallow and nearsighted to mark off the domain of the spirit as being impenetrable. I'll suppose here that at some point in the future, mankind will learn to develop in Spirit like he is currently developing in more tangible topics. Once a clear, replicable methodology for continual improvement in spirit has been formulated, man can get on track toward developing in Spirit.

Stock Selling Principles

Stock books tend to focus on what stock to buy, underemphasizing the importance of selling wisely. Here are some tips:

1. Buy Low and Sell High. However, "low" and "high" must be relative to future performance, not past performance.

2. The price and point at which one sells should be independent of the sell price. It should be based on speculation of future performance alone.

3. Here are 3 general approaches to selling points:

1. Sell when the calculations are the opposite of those you used to determine when and what to buy.
   
2. Sell at a specified time after you buy.
3. Sell at a specified change from the buy point, either up or down.
   

Vertical Genius: Culture & Language.

Vertical Genius is the acceleration of idea development through education. Without education, everybody develops ideas in parallel. However, education lets us begin idea generation from where others have left off, enabling us to "stack" our intellect upon others. Hence, it ascends vertically.

The principal that education and focus on vertical genius applies not only to hard sciences and technology, but also to the development of good culture. By "good culture" I mean social awareness, good social habits and practices, as well as the everyday habits of the individual. Uneducated cultures are liable to have more violence, inefficiency and health problems. They are liable to have relatively unrefined manners, and contribution to humanities.

Language can have a strong impact on vertical genius. A common language is the vehicle of communication, and communication is the instrument of education. The more people one shares a language with, the more people that can contribute to his genius.

The ideas related above mean that localities that speak uncommon languages are likely to have retarded cultures.

Work and Help

In an efficient labor market, the amount that one earns correlates with the amount he helps others.

Hence, a government of an efficient labor market should encourage people to earn as much as possible, not only because it increases tax revenues, or makes the economy more stable, but because the more people help each other, the greater the quality of life.