Great Empire or Grand Illusion?

SR
I was being facetious in my comment. Many of the prolific interactors here have responsible jobs (that`s what they say) and families. I cannot figure out how they find the time to be here for what seems like several hours a day. Many of them also are emotionally invested in the discussions here. Maybe they are all independently wealthy singles to whom Chowk is the family.

#64 tahmed32 [“…it was funny the way SR was meticulously correcting (h)is figures… and apologizing for the erratum. …”]

There is no shame or hesitation in recognizing one’s errors. As to why I even bothered to correct an error even if it was not significant to the main argument as it didn’t change the big picture? It a matter of (1) personal credibility and (2) an attempt to avoid running afoul of any punitive government regulations.

When one shares a perspective in a public forum it is an automatic expectation that they have done everything possible to use correct information. Particularly objective facts and data points must be valid and accurate. I take down copious notes from the various source documents that I go through during the day. Some are web based sources some printed hard copies and after a while it becomes hard to recall certain particulars. Therefore, I keep a notebook handy. It just so happened, that for some reason the incorrect number got transcribed (45 instead of 43) into my notebook and that is what I used as a ready reference while writing the article. When I later discovered the error I felt that a known error must be acknowledged and corrected, so that is why I did it, and I don’t mid if you find it funny. I do my best to avoid factual errors when possible.

The other reason for being ever so careful is that I don’t want Chowk.com web site to get blamed, or held responsible for, anything I may write. It particularly applies to financial stuff presented in a public forum and I being a free lancer as opposed to a licensed professional, it behooves me to not let false information through as far as possible. This is a matter of CYA (cover your ass). The interfering, overbearing, incompetent morons who run various over-bloated government bureaucracies (whose budgets demand a never-ending supply of wrongdoers to be penalized) are very good at harassing the little guy (while they are unable to curtail big institutional wrong doing) and they are the reason for the ridiculous and irritating DISCLAIMERS one sees everywhere in any financial publications. I resent it, but can’t do much for they are the one’s who control the prisons and the police force. You and I are merely sheep to the slaughter. According to a recent study issued by the Cato Institute, the various regulatory agencies of the federal government collectively issued well over thirty thousand pages of new regulations or amendments during the year 2002.

If you haven’t seen it already, I urge you to go to your neighborhood BLOCKBUSTER and rent a movie titled “Brazil.” It came out during the 1980s. That accurately (but in satire form) reflects my point view. Besides, you’ll like the movie.


#75 arjun_m

I think now we each understand what the other is saying, and that is a happy thing. Thanks a bunch.

…SR

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#68 by arjun_m [“… manufacturers who assemble …(foreign)… made components in the US. …that doesn`t sound right …It would sound right if a ``Made in America`` was a USP and could win a large market share. …give us … examples? …”]

Thank you for raising this important question. I fully appreciate your skepticism. But first let me get some linguistic clarity.

This is a dry and boring subject matter for most people so sometimes I try to use cliches to spice up the writing style yet keep it cogent as well. It is possible to inaccurately convey the essence, though I do try to strike a balance and not to sacrifice clarity while make light of the matter.

“Made in America” was used as a cliché. I didn’t mean that they attach a small label that actually has those words written on it. Of course, a mere “made in America” label will not stimulate sales and nor did I mean to imply so.

The idea was to emphasize that a US ‘manufacturer’ could ‘produce’ and market a ‘black box.’ The sales proceeds of the ‘black box.’ (i.e., our end-product) would go to the top line revenue figure of the financial statement of the US manufacturer. The last bit of process to ‘assemble’ the black-box together may be a proprietary knowledge dependent assembly step consisting of putting together several component parts. Several of those components are no longer produced at the in-house facilities of the manufacturer because they could be imported cheaper from abroad. The cost of the component parts is passed on to the customer with a price mark-up added to it. This price mark-up is also counted towards ‘enhanced worker productivity,’ because now fewer employees work in the assembly plant and such measures as sales per employee, cash flow per employee or earnings per employee look a lot better than they did when the labor cost of fabricating the component parts was included in company payroll. Now that component part’s labor cost has been incurred by someone else overseas and is not a part of our payroll in the US plant. The plant owner’s book keeper will treat the entire cost of the component part as a single item under some other column such as ‘parts and supplies.’ This, in my view artificially enhances the ‘worker productivity.’ The worker productivity may actually also have improved due to more stream-lined processes and use of automation, but the extra bit that is added to enhance productivity even further is the dishonest part. It should be considered under cost-efficiency that resulted from the management’s decision to outsource production of the more expensive and labor intensive component parts. But it cannot, logically, be said that our factory worker is now more ‘productive.’ If that were the case that would mean an increase in process efficiency levels. What we in fact have here is a financial efficiency that is being passed off as something else which it is not.

They have thus changed the very meaning of the word ``productivity``. It is a lie in the same way as calling innocent civilian death’s “collateral damage,” is dishonest.

Computer box ‘manufacturers’ import component parts such as motherboards, disc drives, memory chips, power supply, etc, etc, and bundle them up together and sell them to you under the logo of “Hell” or “Hooker-Packed” or “Hate away” or “I’m a Bum” etc.

Likewise with automobiles.

Digging up more specific examples with manufacturer name, detailed costs of in-house fabrication vs. outsourcing and model numbers and component part specifications etc., costs extra money. This is a free column. You only get what you pay for. :))


#70 Romair: [“…do a write up on the Pakistani economy… very little objective good material available … the US economy has tons of material…

Pakistani economy… analsysts… suffer from… problems:

…are journalists… consider themselves an expert … too much political baggage… attach economic… to religion or secularism… a pure, objective, analysis of Pakistan`s economy … greatly needed.

…give it a shot, if you have the background… who makes sense… is Shahid Javed Burki…”]

You are extremely kind to consider me worthy of such an arduous undertaking as deciphering the enigma of the Pakistani economy. Your generosity towards me is misplaced and your vote of confidence undeserved.

I am not an academic therefore I take pains only to research subjects inside my circle of personal interests. Pakistan is outside that circle. The US markets afford me a modest livelihood, so I try and go the extra mile and look under rocks that would otherwise be left unturned. Sometimes it pays off. The trouble is worth my while and I like the work.

In a country like Pakistan where impartial empirical data is neither publicly available nor easily accessible, the only way anyone can put a coherent big picture together is if one had the resources to do field research. For that I would have neither the background nor the resources.

Let me not convey the impression that no good work has been done on the Pakistani economy. I’m sure there is lots of good work done, but I just would not have ready access to it. Besides, with people like Mr. Burki, who have seen it from the inside, there is nothing useful that a self-exiled outsider can contribute.

...SR

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SR #47: ``First, please let me make no bones about it. I am not an economist, accountant or financial professional. I am merely a layman albeit a keen observer and a devoted student of the markets and the economy.``

Be that is it may, I still think it may be a good idea for you to do a write up on the Pakistani economy. There is very little objective good material available on it. While the US economy has tons of material on it, from every direction and from every county.

On the Pakistani economy, the analsysts seem to suffer from a few problems:

- They are journalists, and not analysts, who comment on everything from military strategy to economics. And they consider themselves an expert on all these issues, because they can write decent English. There seem to be very few journalists in Pakistan, who are technical specialists in specific areas.

- They have too much political baggage attached with them. They are pushing either the govts.` agenda or the PPP`s agenda or the PML`s. So they cannot see beyond that.

- They attach economic rules to religion or secularism, without realizing that economies progress due to good economic policies, not due to how secular or religious a country maybe.

So, I think a pure, objective, analysis of Pakistan`s economy in comparison to where it was a few years ago and where it is going, without a pre-meditated doomsday scenario, is something greatly needed.

I think you should give it a shot, if you have the background. I would certainly be more interested in the Pakistan economy more than the US economy. So far the only analysis who makes sense to me in this area is Shahid Javed Burki`s weekly Tuesday article in Dawn.

sohail -- u r not only an economics seer -- u R a great editor -- thanks:-)

sohail -- u r not only an economics seer -- u R a great editor -- thanks:-)

zeemax

When my browawe loaded the page only your message #62 was posted, so I didn`t get to see #63 until after having posted my response (which is now listed as) #67.

[``...was it your brush with eternity?...``] [``...welcome to the club...``]

Thank you, old friend. You are entirely too kind.

Perhaps it`s been too long and you may be forgetting that my first ``brush with eternity`` was back in Lahore when we were 17 years old. (Remember-- from Wahadat Road to UCH?) So, my memebership to the club dates way back. It has only been re-issued again :), but thanks for the welcome, any way.

The write up you refer to is about four years old when I was a more regular participant at Chowk. The inspiration, if any, was not a diseased heart, but a broken one. I suppose it was those repeated heartaches and heart breaks that have finally done it.

tu bachaa bachaa kae na rakH eis-ay tera aiena hae vo aiena
kae shikasta ho tou aziz ter hae niGHah-e-aiena saaz maeiN

...SR

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zeemax

Good to see that you are back. It`s been so long that I though you might have fallen off the edge of the Earth.

Yes, the demographic age-cohort imbalance is a very serious issue and one that is likely to create much political, social, and economic turmoil. European Union`s troubles in this particular regard are even worse. And they are committing a huge blunder by adding Estonia, Lithunia and Latvia (all with aging populations and low birth rates). Instead they should add Turkey, with a pyramid shaped age-distribution. That would balance out the aging population problem.

Now, now, zeemax, you should be a bit kinder to Mr. Ahmed... He seems to be refraining from hauling new insults at people and is in fact attempting to set things right by exercising a sense of humor (as demonstrated by his most recent message wherein he jokingly admonishes me). It is better to crack light jokes than to be offensive, so please give him the benefit of doubt from this point forward.

The same, unfortunately, cannot be said about another nitpicker here who utterly fails to (or deliberately refuses to) comprehend humor and takes the content of a joke literally and then attempts to demonstrate his mathematical prowess.

ZahraJ

I`m glad you found the essay worthy of the time it takes to read through, long as it is. I am also thankful that you liked the straight forward writing style, but please let me add with full emphasis that I would never presume to consider the reader as a ``little kid.`` The readers of this forum are generally very smart individuals and many of them are highly qualified and competent professionals who are entirely too kind to even bother and read a common man`s dessenting point of view that I present in this column.

soysauce

Your contribution cannot possibly be misinterpreted as an attempt to hijack the thread. In fact the InterActor`s participation only enriches this space. As far as Chowk staff`s editorial prerogative is concerned, I am in no position to second-guess that since I never saw your ``purged`` post. But am glad this other psot of your did make it through.

I tend to agree with your final observation that this website is blessed with a disproportionately high count of affulent people of the respective communities whence their numbers are mostly drawn from.

ali87

Thank you for taking the time to express several different ideas in your elaborate, albeit extempore, message.

You`ve mentioned Wall-Mart and GE as contributors to enhanced productivity. Actually, much of the ``enhanced productivity`` is a statistical gimmic. A US manufacturer who outsources a huge proportion of his component parts to India and China (where they are made at a fraction of the cost compared to what it would have cost him in-house) ends up having a total lower cost of production. He then takes the last step of assembling the final product in-house. This last step entitles him to put ``Made in America`` label on his end product, even if most of the internal components are foreign made. The sale price of his ``made in America`` end-product is credited to his account. Compared to yester-year when he made most component parts in-house, of course, his cost is much lower (fews workers in the assembly plant) and so PRESTO we have ``enhanced productivity``. This is how they can make the patently dishonest claim that the ``productivity`` of the American worker is sky-rocketting compared to other countries. (In an earlier message I`ve already discussed the other dishonest trick the government uses to claim enhanced productivity, namely, the hedonic factor, also called the hedonic deflator.)

Just as an aside, the US market has three main deflationary forces at work: Chinese imports, Wall-Mart and the Internet. (Wall-Mart contributes between 1.5 to 2.2 (depending on the metric used) of the US GDP. Wall-Mart has more people in uniform than does the US army. To appreciate its financial muscle consider that just the theft from Wall-Mart stores is about $2 Billion a year.)

You`ve mentioned the Chinese asking for payment in yuan at some future point. That day may well come one day but for now the communist party leadership is only interested in clinging on to its power and for that they need to create employment, thus they are going for market share, and damned be the profits. The Chinese credit creting machinery is also on full throttle and that has led to a huge world-wide over-capacity in practically every manufactured products -- just wait till China starts exporting cars.

The Chinese are a very patient people and throughout their history, last 50 years being an abberation, they were astute capitalists. Their plan seems to be taking market share and eliminating all competetors by price undercutting. Simulataneously, the Chinese have started accummulating gold and other precious metals. Shanghai gold exchange and now even silver and platinum exchanges are up and running. Chinese are presently the second biggest importers of gold world-wide. (Japan is still number one.) One day, I suspect, before the middle of the century, the Chinese will back their currency with gold and the yuan will be the most solid currency in the world.

The reference you made to US military power and the future power struggle is a difficult one to foresee. I do not think that the US will continue to have the military might that it does today. I beleive that as the nation-state becomes weaker economically, the military will gradually become more and more privatised. At some point later in the century the internal political power dynamics of America will have changed so profoundly, partly due to the ``browning`` of America that the real power shall have shifted away from the federal state and will have passed on into the collective hands of consortiums of multi-national corporations. It will be the consortium of corporations that will have the financial muscle to pay for and support a mercinary military establishment. The deminished nation-state will be a more democratic entiry but one that wields much less power as it would always be teetering at the brink of financial insolvency. The whole concept to ``nationalism`` could be something totally different than what we recognize today. So, in clusion, NO, I don`t think that America will be the Big Bad Satan Empire by the end of the century. The Chinese will also have come and gone. There will be bigger, newer and more nebulous ``Empires`` that will be based, at once, everywhere and nowhere.

...SR

SR,

Wow, just happened to click on your intro ! What inspired this moving prose? Was it your brush with eternity?

``Each day the barracuda sets out not knowing whether it shall get dinner or become dinner.``

``A life lived in the past or for tomorrow is a thankless ritual, as meaningless as scooping water with a sieve. Yesterday is only a dream buried under the dust of time. Tomorrow is an illusion, a mere fantasy, a phantom forever elusive.``

No comments on the first quote. Its just true.

The second quote reminds of of what George Harrison (R.I.P) had said when interviewed on the 25th anniversary of the Woodstock Festival ``We can learn from the past but we can`t relive it; we can hope for the future but who knows if there`s one? So, the only thing there ever was, is now.``

Not that I necessarily agree. There`s something beyond, and that should be the quest.

Welcome to the club!

Rgds




Rgds

zeemax #62 But I did contribute seriously to this discussion in my very first post, #9. In my latest post that you read, I just thought it was funny the way SR was meticulously correcting is figures from $43.something to $45 and apologizing for the erratum.

re einsteinwallah #61:

Thanks for your explanation. I agree that the odds do not improve if one is always carrying the bomb. I was looking at the two events from the perspective of someone who had no knowledge of either event and was purely calculating probabilities of an event composed of independent events.

As for risk adjusted rate of return, there is a lot of research out there but very little of it is used in practice. A good example is Sharpe ratio which is used to come up with efficient portfolios.

later
-sac

The very premise and the title of the article shows inconsistency and lack of understanding of the way US works. YES, US IS NEITHER AN EMPIRE NOR AN ILLUSION. And the adjectives are meaningless.

US is a directed democracy and capitalist economy. Do not confuse capitalist for laissez faire. Inspite of some hard steps that US has taken during last two years - no, partially due to them - the US economy is still the strongest and most prosperous in the world ever.

Unfortunately, due to the verbosity of the article it is not possible - nor, is it worthwhile to spend so much time on obviously prejudiced view point - to provide a detailed evaluation.

ANSWER THIS:

WHICH COUNTRY, ECONOMY AND KINGDOM IS IMPORTING MORE AMERICANS THAN EXPORTING THEIR POPULATION? AND WHY IS EVERYONE GATECRASHING AMERICA??
WHY DON`T THOSE WHO ANTICIPATE DISASTER TAKE THE PRUDENT STEP AND GO BACK TO THEIR ``LOVABLE LAND???``

[#59 by sac on July 8, 2003 7:29pm PT

I am afraid the statistician was correct and you are wrong. etc etc]

First of all I must apologise for giving here another correction to my post #53:

E(P(t + 1) / P(t)) = r

should read as:

ln(E(P(t + 1) / P(t))) = r

Now for reply to sac:

I am a Statistics graduate of an Indian university. So I understand the meaning of ``independent event``. But when the traveller is always carrying a bomb, then that event has probability 1. It always happens. That event and the event of real terrorist planting a bomb are two independent events. That I agree. But since one event is certain and the other event (say) has probability ``p``, then probability of both happening is: 1 * p. So you are right about the multiplication formula. But in the joke the traveller was seeking advice for improving his odds. So, this does not improve his odds. The probability of 1 bomb planted by a real terrorist remains same. So when Statistician gives such advice he is being dishonest. For that matter why not let traveller carry 10 bombs? Surely probability of 11 bombs aboard an aircraft is p ^ 11 which must be almost zero. But no. Probability of 10 bombs on aircarft not exploding is 1. So correct formula is again: 1 * p = p. And again it has not gone down. Odds have not improved.

The formula in my post relates to a Stochastic Differential Equation which is famous in Financial Math literature. Famous Black-Scholes formula for price of an option with European-style exercise is based on this model. I will give brief intro here but you should search web for more info. Two popular textbooks in this subject are: (1) Salih Neftci ``An Introduction to the Mathematics of Financial Derivatives`` and (2) Bernt Oksendal ``Stochastic Differential Equations``.

Basic concept is that if stock price type of data series is there (say) P(t) which is randomly changing then we want to give a model for it.

If your P(t) is money then it would be constant if you just bury that money in a hole in your backyard and value of that money will remain unchanged no matter how long it sits there. Such P(t) is not of our interest. We want to model random price movement.

In case of a stock price which is not going up or down, but which executes a ``random walk`` along ``price axis`` (y-axis, x-axis is time), there will be certain amount of unpredictibility of future price of stock. More volatile stock, it is more likely to move away from a past price. This parameter of volatility is sigma in the equation I gave in my post.

What Japanese mathematician Ito did was provide simple rules for manipulating ``differentials`` of P(t). Rememeber P(t) is stock price, so it takes any value from 0 to infinity. And P(t + dt) / P(t) is nonsense, because both numerator and denominator are random variables. All we can say is that such quantities may be themselves random variables.

If P(t) had been deterministic (that is non-random) and growing exponentially then:

d(P(t)) = r * P(t) * dt (r is exponential growth rate)

But the fact that stock prices are random means:

d(P(t)) = r * P(t) * dt + ``random noise``

More volatile the stock more wild the noise:

d(P(t)) = r * P(t) * dt + sigma * P(t) * ``infinitismal noise``

The ``infinitismal noise`` is what Prof Ito wrote as dB. Unlike dt, dB is a random quantity. B is ``unit`` level of noise. Kind of ``standardized noise``. If stock is more volatile then we just use bigger sigma to ``amplify`` the effect of dB.

When dB is infinitismal Gaussian noise, then the two expectations are as I gave in my post #53. (But please read the correction I give in this post.) There is nothing big einstein-stuff there. If you know basic statistics then you know that E(f(X)) is not equal to f(E(X)). In the expectations I have given in #53, expectation of ratio of stock prices separated by 1 unit of time is e ^ r. (Here you will have to read my above correction.) That is: natural logarithm of this quantity is ``r``. But the expectation of natural logarithm of price ratio is a smaller quantity! The correction you have to apply is half of variance. And variance is (sigma ^ 2). And sigma is ``amplification`` factor of Gaussian infinitismal noise.

As an example:

Suppose a stock doubles in price one day and then next day it halves. Per day average of ratios over these two days is average of 2 and half: (2 + 0.5) / 2 = 1.25. But does that mean that stock returned a profit per day of 25 percent? No. Really the stock price has not moved by a penny over these two days! So to get a ``correct`` picture of this situation we use logarithms of ratios and then take average. That is (ln(2) + ln(0.5)) / 2 = 0.

In other words ``return rate`` based on day to day percent returns are always rosier. That is ``unadjusted`` return rate. It is the logarithms of day to day ratios that give ``correct`` picture. And those will give gloomier picture. This smaller return rate based on logarithms of ratios is called ``risk adjusted return rate``.

Once again I must apologise for errors in post #53. I am sure it must have confused many statistics-aware Chowksters.