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November 2009

Another physicist takes a crack at finance and macroeconomics

I hope he's figured it out, but I won't be holding my breath.

On New Year's Day 1995, a single giant wave hit the Draupner oil platform in the North Sea off the coast of Norway. By chance, the platform was fitted with laser measuring equipment which recorded the height of waves as they passed by. This one measured in at an unprecedented 25.6 metres, about the size of a seven storey office block. The Draupner event finally confirmed the existence of rogue waves, previously known only to science through the anecdotal evidence of the few who had seen and survived them.

Curiously, the existence of rogue waves was predicted mathematically more than ten years earlier by Howell Peregrine at the University of Bristol in the UK. The theoretical prediction and the observational confirmation should have generated an obvious question: shouldn't rogue waves also occur in other wave-like systems?  . . . .

But what of more abstract systems? Today Zhenya Yan at the Institute of Systems Science in Beijing says that rogue waves can also occur in financial systems, and in particular in equity markets. Traditionally, econophysicists have modelled equity pricing using the Black-Scholes economic model, in which prices change stochastically, like the movement of particles under Brownian motion.

Researchers have long known that the Black-Scholes model cannot account for the observed volatility of the real market but had no alternative to turn to. However, earlier this month, Vladimir Ivancevic at the Defence Science & Technology Organisation in Australia proposed a nonlinear wave model as an alternative to Black-Scholes

Another baker's dozen links on the leaked global warming documents

Two entertaining pieces on how the believers are responding:

"Global Warmists Dig in Their Heels over Climategate — Kind of".

"Climategate: how they all squirmed."

NRO contributor Henry Payne gives us two for the price of one: the major media don't like this story any better than they did the story twenty years ago that acid rain wasn't that big a deal. (Remember acid rain?) And he therefore dubs the scandal "Climaquiddick".

Whether the theory is right or wrong, something all reasonable people should agree on is that the Climatic Research Unit's data are a mess and that the unit's unwillingness to make clear and public their data and procedures is terrible. (I posit a White Bronco Theorem: people usually don't act like they have something to hide unless they do.)

Unfortunately for the scientists involved, though, replication is the heart of science. Frank J. Tipler:

I am automatically skeptical of any claim that by its very nature cannot be replicated by other scientists. What keeps scientists honest is not that scientists are more honest than other people — we aren’t — but that we know our colleagues are looking over our shoulders. Everyone is honest when he knows he is being watched.

Eugene Volokh:

My inclination would be to say that data should nearly always be shared. If you share your data, this lets others check the conclusions you draw from the data, as well as verifying the accuracy of the data against other available sources. They might disprove your arguments, or lead you to improve your arguments, or, if they reproduce your results, they might help prove the validity of your arguments. But in either case, science progresses better, and the decisions made based on the science are more reliable, than if you keep the data secret.

So the defense that it is just so taxing to deal with questions about the data won't wash. Especially now that it seems as though a lot of the original data has been destroyed. UPDATE: maybe the data isn't gone after all.

Not surprisingly, with stuff this strange, Wayne and Garth make an appearance: "Top 10 Annoyances in the Climate Change Debate". Ron Rosenbaum expands on number two, the incredible misuse of the term "denialist". Mark Steyn expands on number three, the argument that everything is O.K. because the studies received "peer review".

If the temperature data remains extremely questionable, the next front in the battle will be the question: are glaciers melting?

Last, two worthy--for now--summary statements:

Glenn Reynolds--aka the Blogfather--argues that the controversy illustrates his Army of Davids thesis.

And Christopher Booker at the U.K. Telegraph writes a piece headlined, "Climate change: this is the worst scientific scandal of our generation".

An indication that modern liberals and conservatives will never, ever be able to agree

Robert Creamer, "Time for Progressive to Stand Up Proudly for Government":

This year progressives, lead by President Obama, have stopped apologizing for our view the proper role of government, and begun to assert that Reagan was fundamentally wrong when he said government was the problem. Instead, as Congressman Barney Frank says, government is the name we give to the things we choose to do together.

The right wing argues that government can never do things as well as the "private sector."

Government is not always the solution, any more than it is always the problem. But in many cases, progressives know that it is more efficient, more effective and more consistent with the values of a democratic society for all of us to do something together - through our government.

Progressive leaders need to finish getting out of that defensive crouch, stand up straight, and assert our view of government forcefully and without apology.

Robert Higgs, "Nineteen Neglected Consequences of Income Redistribution":

Virtually every government action changes the personal distribution of income, but some government programs, which give money, goods, or services to individuals who give nothing in exchange, represent income redistribution in its starkest form. . . .

It is tempting to think about government transfers in a simple way: one person, taxpayer T, loses a certain amount of money; another person, recipient R, gains the same amount; and everything else remains the same. When people look at income redistribution in this way, they tend to make a judgment about the desirability of the transfer simply by considering whether T or R is the more deserving. Commonly, especially when the issue is discussed in the news media or by left-liberal politicians, R is portrayed as a representative of the poor and downtrodden and T as a wealthy person or a big corporation. Opponents of the transfers then appear callous and lacking in compassion for the less fortunate.

In fact, the overwhelming portion—more than 85 percent—of all government transfer payments is not “means-tested,” that is, not reserved for low-income recipients.2 The biggest share goes to the elderly as pensions and Medicare benefits, and anyone over 65 years old, rich and poor alike, can receive these benefits. Today people over 65 have the highest income per person and the highest wealth per person of any age group in the United States. Federal transfer payments to farmers present an even more extreme case of giving to those who are already relatively well off. In 1989, for example, the federal government paid about $15 billion to farmers in direct crop subsidies, and 67 percent of the money went to the owners of the largest 17 percent of the farms—in many cases payments to farmers are literally welfare for millionaires.3 It is simply a hoax that, as a rule, government is taking from the rich for the benefit of the poor. Even people who believe in the rectitude of redistribution à la Robin Hood ought to be troubled by the true character of the redistribution being effected by governments in America today.

But apart from the troubling moral questions raised by redistribution, the issue is far more complicated than ordinarily considered. Beyond the naked fact that T pays taxes to the government and the government gives goods, services, or money to R, at least 19 other consequences occur when the government redistributes income.

"Data point to Toyota's throttles, not floor mats"

I hope they get this sorted out. Fast.

Amid widening concern over unintended acceleration events, including an Aug. 28 crash near San Diego that killed a California Highway Patrol officer and his family, Toyota has repeatedly pointed to "floor mat entrapment" as the problem.

But accounts from motorists such as Weiss, interviews with auto safety experts and a Times review of thousands of federal traffic safety incident reports all point to another potential cause: the electronic throttles that have replaced mechanical systems in recent years. . . .

Michael Pecht, a professor of mechanical engineering at the University of Maryland who has studied sudden acceleration for 10 years, said it's nearly impossible to replicate an electronic control system fault simply by driving a short distance.

"These are not things that occur every day. If it occurred a lot, you could track it down. If it occurs once in 10,000 trips, then it is difficult to find," he said.  

'Lawdy, Lawdy, He's Great'

The great Mark Kram account of the Thrilla in Manila.

Came the sixth, and here it was, that one special moment that you always look for when Joe Frazier is in a fight. Most of his fights have shown this: You can go so far into that desolate and dark place where the heart of Frazier pounds, you can waste his perimeters, you can see his head hanging in the public square, maybe even believe that you have him, but then suddenly you learn that you have not. Once more the pattern emerged as Frazier loosed all of the fury, all that has made him a brilliant heavyweight. He was in close now, fighting off Ali's chest, the place where he has to be. His old calling card—that sudden evil, his left hook—was working the head of Ali. Two hooks ripped with slaughterhouse finality at Ali's jaw, causing Imelda Marcos to look down at her feet, and the president to wince as if a knife had been stuck in his back. Ali's legs seemed to search for the floor. He was in serious trouble, and he knew that he was in no-man's-land.

Whatever else might one day be said about Muhammad Ali, it should never be said that he is without courage, that he cannot take a punch. He took those shots by Frazier and then came out for the seventh, saying to him, "Old Joe Frazier, why I thought you were washed up." Joe replied, "Somebody told you all wrong, pretty boy."