What the Future Holds for American Children

What more can be said...

Trial and Error is How Progess Happens

Economics writer Tim Harford studies complex systems -- and finds a surprising link among the successful ones: they were built through trial and error. 

In this sparkling talk from TEDGlobal 2011, he asks us to embrace our randomness and start making better mistakes.

Mandatory US Government Spending Explosion

A recently issued Congressional Research Service report analyzing the projected growth of US mandatory government spending had several very frightening graphs.  Mandatory spending includes those funds "mandated" by law.  

Most people know about social security and medicare, but these programs include government and military veteran pensions, and about 8 income security programs.

As can be noted in F2 below, there has been a major increase from the 38% of the total funding from back into the 1970s.  After a huge spike last year, even with the reduction, we are currently to close to 62%  will a slow rise going forward. (click to enlarge)

This means that unless there is a change to the laws requiring this spending, then all the US Congress is really addressing in their current scrabbles is the smaller 38% left over. This also includes a growing annual interest payment on the ballooning public debt. 

Of the less than 1/3 remaining of the budget, all defense, environment, education and myriad other services must be funded. Some projections of this mandatory share suggest it will be reaching close to 80% in another 30 years if left unchecked.

House Edges

I grew up in the Reno-Tahoe axis.  Given my early exposure to the fantastic local funding capabilities from gaming (i.e. jobs for parents, no Nevada income tax, tourists pay for city services), I soon realized only the house wins in the long run.  Luckily gambling, like cigarettes, remained off my preferred plate of vices.

Recently, debate in Congress over the legalization of online poker has been heating up. The clamor is a direct result of April 15, 2011, dubbed "Black Friday" in the poker community. On this date, the FBI shut down the three largest online poker sites, seized their assets, and charged the founders with felonies.

Poker is the most popular form of Internet gambling by far, so the reverberations throughout its community have been the largest. It is also the only form of gambling that can legitimately be considered more a game of skill than of chance, a key difference being emphasized by advocates of legalization.

The odds in any form of gambling can be boiled down to the house edge, or the advantage the house has over the player. For example: the house edge in Blackjack, when played with proper strategy, is 0.8%. So for every $100 you "invest" in the game, you'd expect $99.20 back. Poker differs in that it's played against other competitors rather than the house, so the house edge is in the form of a "rake," or cut of the pot, which is typically around 5%.

Obviously, this is a raw deal for the patrons. With the exception of poker players, all gamblers are guaranteed to lose over the long run. Even poker is a zero-sum game, with the vast majority of the crowd losing money. Given these facts, it's conceivable that Congress just wants to prevent us from squandering our wealth.

Of course, the government itself offers gambling in the form of lotteries. If our benevolent Big Brother really wants to protect us from the usurious advantages of online casinos, its own gambling systems should at least offer better odds. Do they?

Not exactly. In fact, it's tough to overstate just how horrible state lottery odds really are. Your odds are 7,500% better playing craps than buying the average state lottery ticket.

We can draw many conclusions from this data, but two stand out the most. First of all, the free market provides overwhelmingly superior and cheaper gambling entertainment than does the government. Second, the government's professed intention of saving us from ourselves is clearly a guise. In reality, it could be perceived that they attempt to eliminate or assimilate competition.

The full article by Dan Steinhart from Casey Research is linked here.

How the U.S. Economic Game Really Works

With all the economic confusion in the play by play media commentaries, I think many people finally just give up on trying to understand the action. But, when you get rid of all the $50 words, cut through the hubris of obfuscation, the world of human financial interactions is actually quite straight-forward. The question is why generations have been seduced by the machinations  of intensely selfish bankers and ivory tower economists?

An excellent 5 minute animated overview, although it is hard to say whether the Armageddon title is over-stretching the implications.  What do you think?

The Piano

This morning I happened across this poignant animated short - The Piano - created by Aidan Gibbons, with music by Yann Tiersen. Just listen for a few minutes...

Two Charts of Upward Momentum

Picked up these 2 interesting charts from Ed Steer's (Casey Research) daily update some days ago. It seems that although the middle class is steadily losing ground, that the wealthy continue to have plenty of disposable income.

Note the same up trends in Food Stamp Participation (above) and the rising value of Tiffany stock due to rising sales (below) although unfortunately the stamps are much steeper.

Drawing on the US Emergency Oil Reserve

In the past few days, the Strategic Petroleum Reserve has come into the news again.  An announcement that oil might be released from this stockpile, was enough to drop the price of oil and gasoline significantly.  This diagram below, courtesy of Reuters, provides a quick overview of the storage situation.

This reserve has only been accessed twice previously - both in emergency circumstances that are not evident this time (other than the President's low polling numbers).  In both of those cases, only a small percentage of the oil approved for use was actually needed.

As an interesting aside, recently on a cruise I befriended 2 very experienced oil-field engineers.  They did not have the above view of the reserve quality, but rather stated quite clearly that the solid (unleakable) underground salt caverns were a myth and that most of the oil stored in these sites will never be available for use.  

I have not seen any further evidence to support this, however, it is food for thought...

U.S. Crime Rates Falling or Rising?

INTUITIVE theories are often easier to believe in than to prove. For instance: conventional wisdom says that the crime rate should rise during a recession. When people are out of work and out of money, the thinking goes, they turn to crime. But the evidence backing this theory is at best equivocal.

Excerpt from The Economist

There seem to be some links between crime and economic conditions, but they are neither as direct nor clear as one might assume. Crime rose during the Roaring Twenties then fell in the Depression. 

America’s economy expanded and crime rates rose in the 1960s. Rates fell throughout the 1990s, when America’s economy was healthy, but they kept falling during the recession in the early 2000s. Read full story here.

However, other studies I have read indicate that people who watch a lot of television, especially crime drama, believe that crime rates are much higher than in reality.  It seems that exposing the mind to an over-emphasis of anything sways critical thinking toward that interpretation of life.