It seems dealers are balking at the GM’s Chevy Volt sales allocations and targets.

This is an absolutely superb article about the changing face and economics of factory employment in the U.S. I tend to be kind of a numbers guy, so it’s often difficult for me to explain what I’m experiencing, but this is largely it. More and more it comes down to the cost of employment vs. automation, and the one thing not really covered by this article, is regulation as a driver of those costs. I most highly recommend this article.

These are some thoughts on copyright and the internet.

GENERAL INTEREST
I also had a problem with groups of provisions from the State of the Union address, but here it’s laid out very succinctly. I’m very worried about what “old rules” we’ll need to set aside too.

Thoughts on the Gingrich win in the South Carolina Primaries.

Here’s an interesting piece in the Wall Street Journal about the President and his relationship with the Catholic Left.

I’ve always liked Terence Corcoran, he has a perspective with a little distance from the media storm within the United States.

Regardless of what people say about Gov. Scott Walker’s tactics, WI school districts seem to be in much better shape than they used to be.

The New Hampshire Leader printed a great editorial on Democrats and their dangerous budget games.

I believe this may be why Mitt Romney is having so much trouble with the conservative base, it’s very conceivable that a socially liberal, “Statist,” Republican like Romney would not want to overturn ObamaCare and instead remake it in the RomneyCare image. And that is absolutely unacceptable in the GOP nominee. Please read what Norm Coleman has to say on the subject.

Enjoy,
Stephen Kallestad
Northfield

Representative Kelby Woodard,

Comments can be emailed to news@kchkradio.net

Check it out at KCHK 1350 am, or streaming live at www.kchkradio.net.

Useful references:

• MN Legislature – Redistricting

Bron’s email

Representative Kelby Woodard, HD 25b, will be hosting “The Right Discussion” this Friday, January 27, 2012, at 12:15 pm.  His guest will be Representative Sarah Anderson (R-Plymouth) to discuss Congressional and Legislative re-districting.  Rep. Anderson chaired the re-districting committee in the Minnesota House.  Check it out at KCHK 1350 am, or streaming live at www.kdhkradio.net.

Three examples will suffice to make our point. The first, a fool-proof mathematical model, gives a risk free investment strategy with a guaranteed return. The second, a risk management strategy, takes advantage of the law of large numbers to focus risk around a known rate. The third, a simple open system model, guarantees improved economic conditions by improving productivity at the margins. All three seem foolproof, but two have shown us the how our hubris can lead us astray, and we raise the question, “Can we really restore our economy by attempting to restart the old system(s)?”

An example of the hubris of mathematics. The Black-Scholes equations, with only some simple assumptions, give us a mathematical way to make simultaneous bets on options and on the underlying product in a balance that guarantees  a small, but risk free return on our investment. Unfortunately, one has to review ones assumptions and pay attention to the system. The assumption that failed in around 1997 was that no major component would fail catastrophically. When the Russian ruble collapsed, funds lost billions of dollars, all because the basic assumptions were not being tested and confirmed often enough to detect or predict the collapses in time to protect the investments.

An example of the hubris of statistics. Risk is a part of investment, we are often reminded that profit is the reward one gets for taking risks. One way we minimize the effects of risk is through insurance, where the pooling of risk results in a very predictable rate of loss. This is why insurance companies can survive, by carefully measuring and managing pooled risks. In the Collateralized Debt Obligation crisis documented in Micheal Lewis’s book, The Big Short, we learned that the housing crisis was also brought on in part by a failure of an underlying assumption. The assumption that failed in this case is one at the heart of risk pooling, which is that the losses are independent of each other. Just as houses burn independently of each other, so do mortgages fail independently (most of the time). But when a systemic change causes all or most of them to fail, the CDO risks are still low variance events, but instead of guaranteeing the “historical rate” of 5% failures, they will guarantee the new rate — 95% failures (or higher, in the collected instruments that CDOs represent). This failure of the critical assumption, that failures were independent, is still causing economic turmoil.

An example of the hubris of economic theories. Our third example is being tested now. In the Adam Smith model of economic growth (classical economic theory) we find that the churn in businesses and markets at the margins, enhanced by free markets, result in a more prosperous society (more goods produced for fewer inputs, whether labor or materials). This results from the conversion of poorly performing capital investments to producing new products in new markets as new competitors and products out-compete the old businesses in their own markets (this is an interesting example of the effect of evolutionary Darwinian selection in markets*). But one of the underlying assumptions is the idea that the appetite for consumption will grow, that the need for new housing will grow, and that the consumption will be fueled by a steady flow of capital through the society (trickle-down if you are supply-side, or Keynesian government spending if you are demand-side, in some ways the reason does not matter).  But this assumption may not be a constant, and the transition of societies from growing pyramids to more sustainable steady-state models (reflected in part by the change in the demographics of our societies) may signal the end of both the supply-side and demand-side economist.

This third test is still underway, what assumptions are our political parties making when they promise to restore our economy and create jobs using either of these approaches? And what should we do when they make promises that we don’t think they can keep, because we fear they may be working toward a model that is no longer viable?

Refs:

• Myron Scholes – Nobel Prize (1997) , for his work on the Black-Scholes equation.
• The Big Short (Micheal Lewis), but more interesting, Barnett-Hart’s thesis.

* By the way,  it is amazing that conservatives find themselves political partners with creationists, given the conservative’s intellectual belief and trust in the idea that evolutionary Darwinian selection in markets is a natural law that improves production through competition. It should be an amusing sidebar or footnote.

Jan 20, 2012

So how much of what we buy is actually made in China? It is in actuality a very small percentage of what we spend our money on. It just seems like a lot, because it is clustered in items we tend to spend our discretionary income on, which by their nature are items that cluster at the lower end of the cost spectrum and therefore more likely to be made in places like China.

Here are some chilling words, “Reasonable Profits Board.” A group of Democrats is proposing just such a thing to regulate an industry.

GENERAL INTEREST
“Ron Fouchier and Ab Osterhaus of Erasmus Medical Center in Rotterdam accept recommendations by the US government’s National Science Advisory Board for Biosecurity, which said key details of their US-funded research should not be published because bioterrorists may use the information to cause a bird-flu pandemic.” To me this raises a lot of questions: 1) why are we doing taxpayer funded research in the Netherlands? 2) If it’s being paid for by the U.S. government, shouldn’t they be able to determine, to whom, where and how the information released? 3) But what good is a bunch of specific information if you don’t share it with anyone?

People on the Left find behavior like this unfathomable. There is a vast difference between giving private charity, which is a social good and using the ballet box to attempt to redistribute money from one third party to another.

I’m not a big Mitt Romney fan, but I have to rise to his defense for releasing the absolutely necessary force -that economist Joseph Schumpeter termed “creative destruction” – in his employment with Bain Capital. And humorist, Frank J. Fleming, has fun in this article with those who think it is somehow wrong.

Over in CD 1, the Congressional Democrats fear Walz is vulnerable.

Many people don’t like this because they point to problems in California and Colorado. An amendment like this focuses on the core problem of spending and restricts the ability of legislators of growing government by increasing revenue. The problem that California and Colorado are having is they’ve promised too much to too many and now have to go back and reevaluate their priorities and their unaffordable promises.

The viable contenders: Mitt Romney and Ron Paul?

Quote of the week: “In my opinion, and I’m no expert in this area, dead guys shouldn’t be allowed to vote.”

Enjoy,

Stephen Kallestad

Northfield