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Sunday, July 22, 2018 - 22:31 SGT
Posted By: Gilbert

Much Excite

Protip: when choosing a venue to watch the World Cup Finals, check to make sure that its stream isn't half a minute behind its neighbours

It's been a great World Cup. Despite it ultimately not coming home, it had everything else - penalty drama (with Modric setting Russia up and England prepared for once with stats), general drama and powerful emotion, accompanying performance and design art, Cantona ribbing Neymar (who's copped his fair share of cave rescue jokes), dabs of self-deprecating humour (which didn't save Sweden), a new record for passes made (I still don't understand what Spain were thinking), a ton of in-depth metrics and analyses, and last but not least, the wonderful fans (FIFA is reportedly coming under pressure not to do close ups of pretty chicks, because sexism; considering the likely alternative, we have to say - be brave for once and do the right thing, FIFA...)

About the prediction business, the Goldman Sachs experts have wound up mostly wrong once again, having plumped for a Brazil-Germany final, with France out in the semis. To be fair, they had France as second-favourites, but such examples continue to persuade me that so-called "experts", especially in fields such as economics, aren't exactly reliable. They did outdo a local EDMW punter, however, who threw out tips for just about every match, guaranteed by a particular part of his anatomy. His readers quickly learnt to bet the other way.

VAR seems likely to become a permanent feature of major tournaments, after being extensively utilized, and it should eliminate the most egregious injustices (e.g. "ghost goals"), which however arguably takes away some of the potential for larger-than-life lore. There have also been other little tweaks, such as the ball not having to be passed forward at kick-off (thus all but obsoleting the classic two-man start).

Whatever (reasonable) happens, football should remain perhaps the most accessible and egalitarian team sport I know of. One has practically no hope at the highest levels of basketball without being about six and a quarter feet tall, in American footie without being well over 220 pounds besides, and plenty of other sports without meeting similar physical constraints, and perhaps additionally access to expensive equipment. But soccer? Messi was a dwarf. Zlatan was a giant. Pelé was in between. Modric was a wisp. Lukaku was a battering ram. Owen sprinted. Riquelme didn't. Scholes had asthma. They all thrived.

As long as they aren't Singaporean, it appears. Ben Davis, Fulham hopeful and by that measure the best prospect we've got in a long while, has effectively been forced to choose between that opportunity and his citizenship, even as FAS has set the lofty target of getting the Lions back in the Top 100 (currently 169th). But really, if South Korea - still officially under a state of war - can allow deferment until almost the age of thirty, why not us? The way it's going, the only way we'll get our flag at the Finals is to buy a ticket.

Winning the Inter-Divisional Title (reward: two days off),
instead of dancing the ballet with Vida

(Source: reddit.com)

The natural comparison with Schooling was deemed irrelevant because Davis had not shown himself to have world-class potential at his chosen sport, but given how Schooling's parents had to figuratively bang on the table to get him off and fund him nearly wholly privately besides - only for our dignitaries to pile on after he had won gold - it's quite understandable why Schooling's advice is for Davis to "follow his dreams". I have to agree. Maybe the swimmers can conjure something up.

Cyber Heist

The intersection of medicine and technology has seen a steady stream of progress, such as in identifying diabetes subtypes, engineering anti-cancer cells and preventing deaths due to doctors' bad handwriting. However, there's also the other side, which came to the fore with the revelation that SingHealth's database had been hacked, with the personal details and prescriptions of 1.5 million patients leaked.

The immediate question was whodunit, to which local detective wannabes have mostly converged on an answer - China. This deduction followed from the given assumption that the hack was most probably a sophisticated state-sponsored attack, which in turn raised the usual suspects: Russia, North Korea, China, the USA, Israel, mayyybee Malaysia and Indonesia. I'd say America is an unlikely perpetrator (bar a false-flag op), because they have better data from Facebook, Google, etc anyway. But hey, we get paid in funny pet photos and dank memes for that.

It would be unproductive to overspeculate before the official investigative report, or at least more details, are released, and as such we might consider the reaction instead. Tellingly, the chief of the Cyber Security Agency of Singapore is apparently of the opinion that it's no big deal because only basic demographic data was stolen, to which it was pointed out that said chief would probably not be willing to disclose his own "basic information" for a reason, and which further runs counter to all previous governmental directives.

The optimism that the data isn't being sold on the Dark Web or elsewhere also seems rather unfounded, but personally, my worry would be the sheer comprehensiveness of this dataset. 1.5 million would represent a good chunk of citizens - perhaps a quarter at least - and basic data alone should allow the possessor of such a dataset to build up quite a profile. Cross-correlating NRICs and addresses would likely allow inference of family structures, for example. It gets even more interesting when tied further with prescription history (if maybe not totally trivial: refer Watson Health's troubles), which can possibly reveal embarrassing personal secrets.

As it is, the clean-up process has seen the data hack check webpage itself being spoofed. The fun continues.

On Trade Deficits

I had a prolonged discussion with some old classmates about various matters, including that of international trade deficits, over supper the Friday before last. Dishearteningly, I heard an assertion of the form of "most economists agree that trade deficits don't matter", which therefore seems to have become popular received knowledge among the very well-educated set (guy has a PhD from Stanford, just for perspective)

Is it really so obvious?

To kickstart the discussion here, I turned to Google by searching for "trade deficits don't matter", and considered the top three links - in order:

It seems true, at least, that the establishment news media (The NYT) is willing to claim that most economists don't hate the trade deficit. Considering actual economists quoted, Lawrence Summers claims that "The trade deficit is a terrible metric for judging economic policy". Cornell's Eswar S. Prasad, while admitting that China did not keep their end of the WTO bargain, is cited as agreeing with "most other trade experts" that "bilateral trade deficits are not a good measure of whether countries are living up to their promises on market access, or ...better negotiators of trade agreements". Cato Institute fellow Scott Lincicome sums it up: "A bilateral balance doesn't really tell you anything about what the economy is doing, just like my bilateral deficit with my grocery store doesn't tell you anything about whether I'm in debt."

This line of reasoning is mostly mirrored by the other two sources. Tori K. Whiting, writing for The Heritage Foundation, also uses the homespun grocery store analogy. "I added to my trade deficit at my local grocery store last week... The grocery store did not purchase from me, but I was able to get milk, meat, produce, and other consumable goods... In fact, I have a trade deficit with every business I encounter, from my favorite clothing retailer to the electronics store. The only exception is my employer, which pays me in dollars for my daily work. I have a trade surplus in this case."

Similarly, Tim Worstall - senior fellow at the Adam Smith Institute - expresses basically the same idea, if slightly more scathingly. He does take an additional detour by devoting the bulk of his analysis to bilateral trade balance, but recovers in time to support overall trade balance being irrelevant by asserting that it is ultimately private citizens, not governments or countries, that trade with each other, and therefore it is unclear how tariffs should be mandated.

To this, the key to me lies in the bolded bit from Whiting's piece. It can be accepted that individual bilateral deficits mean little in isolation. It is however not at all evident as to why a persistent aggregate trade deficit - country vs. everybody else - is okay. Building on the grocery store example, an aggregate deficit would mean that Whiting's salary from her employer does not cover her expenses. In such a situation, there are two main recourses: either draw on savings (i.e. national reserves, for countries), or borrow (i.e. issue [Treasury] bonds). America has basically been borrowing. A lot.

Cumulative U.S. Trade Deficit, Up To 2014
(Source: seekingalpha.com)

I hope, at this point, that the reader might understand why the prevailing deficit narrative hasn't been convincing to me. The economists seem strongest when speaking about bilateral deficits (because they're mostly right on that), which is however largely a smokescreen, a strawman. What America has is a ginormous and growing aggregate deficit, of which a significant portion can be attributed to China.

Here, I defer to Warren Buffett, who I personally think has a rather better grasp on the true situation than the abovementioned experts (no offense intended, though he never listens to them either. Doesn't seem to have done him much harm). His classic article from 2003 on "America's Growing Trade Deficit Is Selling The Nation Out From Under Us. Here's A Way To Fix The Problem - And We Need To Do It Now" first acknowledges that the American trade deficit is a problem, emphasizes that it is an urgent problem, and proposes a solution, which we'll get into here.

Buffett's chosen analogy involves two island-countries, Squanderville and Thriftville. To simplify the model, there is only one capital asset, land, which is used to produce the only desired good - food. When the story begins, both islands have been at equilibrium for a long time; each worker on both islands works about eight hours a day, which produces enough food for himself. While unstated, we might also assume that there is some trade between workers to obtain a wider variety of food (this assumption does not detract from the general argument)

Now, at some point, the Thriftville workers discover the Financial Independence subreddit, and begin to save and invest. Instead of working just eight hours a day, they begin to work sixteen hours, and start exporting their excess food to the only available destination: Squanderville. The Squanderville workers, being lazier, are delighted, and pay for the imported food with Squanderbonds, denominated in Squanderbucks, privately thinking the Thriftvillers silly for providing goods in return for paper (okay, assume an insignificant paper industry)

Years pass, and the Thriftvillers slowly use their Squanderbucks to buy up Squanderville land (productive capital). Eventually, Thriftvillers own all of Squanderville; Buffett notes that Squanderville has effectively been colonized by purchase rather than conquest. About this time, the current generation of Squandervillers are confronted with a sad reality: not only do they have to return to work, they will now have to work extra to service their debt, which was run up by previous generations of wanton squanderers.

And where are those clever economists now?
(Source: pinterest.com)

With the understanding that this explanation also works with multiple countries - just think of Thriftville as the rest of the world, in contrast to Squanderville-America - Buffett agrees that this is "fair" in the sense that the future Squandervillers are merely paying the debt that their predecessors have run up. However, as he so succinctly explains, "...since one generation of Squanders gets the free ride and future generations pay in perpetuity for it, there are - in economist talk - some pretty dramatic 'intergenerational inequities'."

Buffett, of course, understands that there is one way for future Squanderville-Americans to solve their burden: to default on their debt. This isn't even that rare a last resort, really - among larger nations, Argentina and Russia have done it in the last couple of decades. However, in America's case, complications due to them being the reserve currency issuer apart, this would be a total death blow to their global leadership.

Finally, Buffett signs off with an innovative free-market solution: Import Certificates (ICs). Under this scheme, each U.S. exporter would be issued ICs in an amount equal to the dollar value of their exports. Then, mandate that foreign exporters and/or domestic importers have to obtain ICs equal to the value of imported goods. Trade balance is thus maintained, with ICs available to trade in an open market.

Leaving aside the merits of that suggestion, the main takeaway here is that Buffett recognizes persistent trade deficits as a huge problem, which appears diametrically opposed to the mainstream media-sanctioned opinion of "most experts". Definitely, another interpretation is that deficits don't matter because no matter what, somebody gets the money, somebody gets the goods, it automatically balances out by definition. However, intergenerational inequities besides, there are other very real consequences. Should America accept China buying up their land and factories (free trade!), when it has been next to impossible to do the same in China?

I know of three other popular arguments that trade deficits don't matter - firstly, specifically in the case of America, because they issue the global reserve currency, they are able to borrow relatively cheaply. However, cheap borrowing remains borrowing; unless they default, as discussed above, the claims on their assets still have to be addressed by future Americans.

Secondly, trade deficits might be acceptable if they are used to obtain assets for production. For example, one might borrow to buy a computer to produce software, which when sold produces a profit on what was spent on the computer. However, from the evidence of the previously-presented U.S. cumulative trade deficit chart, this scenario seems very unlikely.

Consider the case of a medical student who takes on student debt. He might run at a deficit for ten or so years, before starting to pay off that debt as he starts to earn an income. His cumulative deficit thus first increases during his schooling, before going down as he starts to pay it back. Some years later, the cumulative deficit becomes a surplus. There is no evidence of this pattern in the American trade deficit, which has been relentlessly increasing at a fairly constant rate.

Thirdly, it may be that a country runs a (physical) goods deficits, but a services surplus, which is Merkel's argument with respect to Europe. However, even considering this, studies suggest that America's cumulative deficit simply went from staggeringly huge, to half as staggeringly huge, and the problem remains.

What do we want?
We want free shit!
When do we want it?
We want it now!

(Source: cnbc.com)

In summary, after reviewing the evidence, my conclusion is that the experts, if they are right about trade deficits not mattering, are right only in very narrow and specific senses. However, when applied to trade deficits as commonly understood, they are entirely mistaken. To employ an analogy: when a layman says that the Earth is a sphere, an expert would be technically correct to state that "the Earth is not a sphere". It is slightly flattened at the poles, for one, and has many landscape features besides; clearly, from the precise definition of a sphere as having all points the exact same distance from its centre, the Earth is not a sphere. However, considering the general intent, describing the Earth as a sphere is probably very useful.

With this, we return to the original question - how then has it become so unquestioningly accepted, then, by even the well-educated... nay, especially the well-educated - that a people can consistently spend more than they produce, and that there will be no real consequences?!

Faced with this, one can only conclude that "most experts" have to be some combination of deluded, irresponsible or malicious. Congruent to this, TRUMP, as the only present-day POTUS to devote serious effort towards balancing the books - not even eating into past deficits, mind - rather than rehashing ineffective measures, is ironically the only grown-up in the room. Think of him as a redneck busting into his dependant college kids' dorm room and cutting up the credit cards they got from fraternity promoters, if you will; TRUMP may not know his Homer from his Hesse, but when it comes to the practical implications of finance and money, I daresay he understands much, much more than any random three Nobel prize-winning economists that you gather in a room... and only partly because they won't agree with each other to begin with.

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