Emergence in biologic systems, example 2

My wife has been complaining about raccoons making a mess out in the garden. I think they've noticed. Today one of them left a present--a heart-shaped Lindt chocolate still (mostly) in the wrapper. With only a minimum of tooth/claw marks.

Waiting on the A-hole in J-hole

The idea for this title comes from here.

Looking for some action in the state space diagram for the gold-silver ratio.

We have been drawing the hook at the bottom of the graph for the past several months.

To look at how recent actions by the Fed might have influenced the gold-silver ratio, let's look at only the past few years of data.

Here we are looking at the evolution of the system over the past four years or so, from the trough in silver in late 2008. Remember that the vertical axis is lagged by a year, so, change in the vertical direction is a reflection of things that happened a year previously.

On this graph QE1 occurred right around the time when the gold-silver ratio stopped rising and began to decline. So it may have reversed the decline of silver. The spike in silver price (collapse in gold/silver ratio) at the far left of the graph occurred during QE2. So arguably, both QE1 and QE2 were relatively favourable for silver.

Operation Twist has had basically no effect on the gold-silver ratio (the vertical motion is a reflection of last year's fireworks). To see an effect by QE3 we would look for a large deflection to the left or right in the trajectory of our state space.

I can also attest a similar effect in diamond prices. Both QE1 and QE2 corresponded to significant increases in diamond prices. We have not had the same effect from Operation Twist (harder to graph as the specific diamond index data is no longer freely available).

We await the announcement coming tomorrow from Jackson's Hole. It is unclear whether there will be any substantial QE--what they have been doing through Operation Twist seems to have gotten the CBs what they want--some higher asset prices, but not commodities. For this reason, I wouldn't expect any announcement but either more of the same, or some kind of jawboning.

The True American Show

A nice movie depicting a long-running TV series starring True American as himself; written and conceived by the CFR.

True American is an everyman, living in what appears to be paradise. Here, surrounded by eternally smiling neighbours, the news is always good (except when it comes from any part of the world that isn't America). He and his neighbours' sunny reactions to news of the various American armed interventions around the world is secured by their knowledge that everything is as it should be; for they have liberal, democratic values.

"The Iraqis don't mind the constant drone attacks--they know we have their best interests at heart!"

"They only hate us for our freedoms!"

He is constantly reassured that he is living in the finest place on earth.

The rest of the world is a real hellhole!

Unknown to True American, however, his entire world is a fabrication, in a man-made bubble, sealed off from the chaos of the real world. The masterful choreographer of his world is a mysterious man (Rupert) who manages True American's perception of the world--but from time to time, little portions of the truth manage to slip past our hero's formidable defenses.

Here falling interest rates (just before they hit zero) are not accompanied by lower unemployment.

"You've got to listen to me! This isn't the real world! The rest of the world views American foreign policy as naked aggression! They don't hate us for our freedoms--they hate us for what we've done to them!" -- "Okay, let's have falafel instead of pizza then!"

True American is flabbergasted by these tiny glimpses of the truth--but each time, Rupert (through various surrogates) is able to calm him down with a reasonable explanation.

"Well, of course unemployment didn't fall. The economy in the rest of the world is too weak! If not for the European sovereign debt crisis (see newspaper headline) our economic models would work perfectly!"

"I'm sorry--she's completely crazy! A conspiracy theorist! Always going on about black helicopters, Ron Paul, and 9-11! Don't worry--it's not your fault. She's sick!"

His best friend is always ready to drop by with a six-pack of beer and reassurances.

Friends don't let friends think and drive.

Foreign policy issues are always carefully framed to include insignificant differences to create the illusion of meaningful debate.

"We should continue with our policy of sanctions on Iran, and only resort to bombing if they continue in their intrasigence." -- "I respectfully disagree. We should bomb them immediately, and if they continue resisting world opinion, follow up with continued sanctions."

Eventually the truth crashes through True American's defences.

Fox News assured me that nuclear power was safe!

Stumbling on another bit of the truth.

This time the hurried cover-up is to no avail.

Confronting the truth is painful.

But Rupert's control of reality is too strong. Facing the truth is painful--very much so. Far easier to avoid the truth. Especially when the Superbowl (or the Kardashians) is on TV.

"You'd feel better if you'd just kick back and watch the game with me. Have another beer!"

Viewers of the show can call in and talk to Rupert about the show. A common question is why True American is unable to see beyond Rupert's illusions.

"We accept the world as it is presented to us. If True American really wished to discover the truth, I would be unable to prevent him from doing so. But he is much happier in my artificial world than he would be in the real world. Since there are so many painful consequences to seeking the truth, he quite rightly prefers to live in my artificial world."

And so, True American is never able to escape his prison. (What, you thought he did? You must be thinking of another movie).

All photos copyrighted by Paramount Pictures

Autoritärenerdammerung!

A recent article discusses an old document (the "Report from Iron Mountain") supposedly written by a committee of academics, explaining why war was necessary as an organizing principle of society. Supposedly these academics decided that if warfare didn't exist it would either have to be invented, or some replacement found. Numerous suggestions are made (the report can be found here).

The report finds difficulties in worldwide disarmament. The problem reiterates an old economic fallacy, which I am certain has been exploded by Bastiat previously. The pamphlet assumes that if there is no longer demand for weapons, missile systems, and the like, then all the poor employees of the companies that make such products will have to be retrained and put to work in some other (centrally planned enterprise) - suggestions included (but were not restricted to): 1) a worldwide program to improve human welfare; 2) endless space exploration; 3) a minutely detailed program of disarmament with forced inspections; 4) the creation of an omniscient, omnipotent global police force; 5) a desperate program to reverse global environmental catastrophe. Other options were offered as well.

I can see why this document is viewed as a hoax. Why replace our economic model of endless warfare with these alternates when we can have the endless war and the alternates?

The real problem with this document (and what gives it the whiff of truth in my opinion) is that it assumes an authoritarian framework. This premise is never stated, but it permeates the entire work. The document never considers that people might be able to make decisions on their own. Instead, the document would have us believe that war is a force gives us meaning.

Is it natural that war be a central organizing force, or is this a conclusion that has been forced upon us by our "betters"?

The trouble with authoritarians is that they believe that they can make any part of our human or cultural systems reflect the "reality" that they create. For instance--as covered in this blog before--Keynesian economics suggests that low interest rates automatically lower the unemployment rate. Empirical observations indicate that such is not the case, yet the Keynesians continue to set economic policy in accordance with their flawed assumptions. Such pig-headedness is akin to a physicist claiming that gravity could be made to fall off with the cube of the distance, given sufficient funding, and that the benefits of the new result would more than justify the costs.

In a free society, capital which was no longer being used to build complex weapon systems would be used for other purposes, as directed and desired by customers. I don't know, and probably can't imagine how the capital would be used, but that isn't actually necessary as it is better for the economy if I don't try to direct it. That is the key point missed by the authors. The capital would be used. It isn't necessary to direct it.

I frequently get a sense of frustration from the writings of some of these economists when they fret about the suboptimal strategy of, say, handmaking furniture as opposed to churning out by the container load out of some factory. The argument is about efficiency, and survival of the fittest. However, one of the things that we observe from nature is that all sorts of critters pursue what appear to our eyes to be suboptimal strategies--but here they are. They have persisted to the present day because their survival strategies are optimal when the environment is different than it is today.

Nature thrives from diversity. Diversity is what gives nature strength and ecosystems their resilience. Despite numerous attempts, we have not succeeded in creating a stable biosphere. Our limited understanding suggests that a functioning biosphere needs a lot of different types of plants and animals, and the more different types, the more stable it is likely to be.

Part of the stability is due to the presence of the suboptimal organisms, some of which really shine when climate suddenly changes, or lots of volcanoes erupt and make the sea acidic.

If autonomous political systems were organized along the same lines as natural systems, there would be a range of sizes from very small to very large. The organization on a global scale is not natural--it is shaped by a historical reality that large political entities have a military advantage over smaller ones--France and Spain vs Italian city-states, for example. The authoritarian vision appears to be to create a larger political union still.

But the end is coming for them. We have entered the twilight of their vision. It is the same fear that motivates the Report from Iron Mountain. The system is too complex to be controlled. Back then the authorities said they feared chaos breaking out over the necessary changes to the economy that would follow from a transition to perpetual peace. In reality they feared the loss of control.

The potential for the loss of control is magnified by the aspirations of billions of people, who can now contact one another directly free of authoritarian oversight. The authoritarians cannot control the future.

Instead they must accept there is nothing to do but watch it unfold.

Like this . . .

USGS releases Afghanistan mineral maps

From the news release:

For the first time, about 70 percent of a country has been mapped using an advanced remote sensing technique known as hyperspectral imaging. In order to assist Afghanistan in understanding their abundant natural resources, in particular the development of an economically viable minerals market, the U.S. Geological Survey and the Department of Defense Task Force for Business and Stability Operations led an effort to fully map Afghanistan with hyperspectral data. 

Airborne hyperspectral sensors measure light reflected from the earth. The spectrum of the reflected light can be interpreted to identify the composition of materials at the surface, such as minerals, man-made materials, snow, and vegetation. These materials can be identified remotely due to their unique light spectra.  In addition, these data allow large geographic areas to be mapped quickly and accurately, showing mineral resources, natural hazards, agricultural conditions and infrastructure development. 

The project was funded by the Task Force for Business and Stability Operations, the Office of the Secretary of Defense, and the Afghan Government. The TFBSO is a Department of Defense organization that promotes stability and security in Afghanistan by developing growth of the private sector.  The Task Force has been working closely with the Afghan Ministry of Mines to assist in identifying and tendering major mineral deposits to international mining companies.

Yes, assisting the Afghans in "understanding their abundant natural resources" is a noble and selfless task which will no doubt be of great economic benefit. Whose benefit is never stated.

Links to the maps can be found here at the bottom of the page.

The Task Force for Business and Stability Operations (which partnered with the USGS on this) is one I had never heard of, but is a logical outgrowth of US foreign policy.

Gold ads what?

These ads have been running off and on now for a couple of years.

I only just noticed something strange. It looks like you can buy these with credit. I don't know anyone who extends credit for gold. It seems to me that the government is the only entity that could "afford" to do such a thing. Is this a venue for getting gold into the hands of the public? Does the US want to sell of "its" gold before its creditors claim it?

Update - how about that? Without a title, I couldn't look at the comments.

Innovation--the new catastrophe

In previous articles I have discussed how global climate (and other systems) may evolve rapidly from one condition to another.

In describing the transition from one state to another I have been using a statistical computational method akin to Markov chains to create a descriptive finite state machine (which I have previously referred to as epsilon machines).

Finite state machines normally consider that there is some sort of impulse or input which drives the transition, and the exact value of the input controls defines which particular successor state follows from a predictive state. For systems like global climate, we do not know what the external forcing, so we cannot create a matrix showing the dependence of state transitions on the forcing. Instead I have calculated the probability of each successor state following a predictive state purely from the observed sequence of states.

For instance, in the chart above, from state A3, the system shifts to A1 20% of the time, to A2 20% of the time, and to A4 60% of the time. Perhaps there were five observed transitions from state A3. The probabilities have been computed on the basis of a single predictive state. There is an argument that the evolution of the system is a function of the entire past history, suggesting we should really consider more than one sequential state for prediction. I have not done this because there are not enough transitions to determine such a matrix.

Conventional thinking is that a state change is driven by some external forcing. I have generally assumed that this is not the case, but that the observed discontinuities arise from a smooth evolution of one or more underlying parameters. Such discontinuities can be referred to as catastrophes.

Today's discussion is a reflection on catastrophe-- in particular, how a system governed by gradual, continuous changes in key parameters can bring about the appearance of sudden, discontinuous change.

One way to visualize how slow, continuous change can bring about a discontinuous response is through the use of a quartic function. In this case, we will use y = x^4 - 1.5 x^2 + a (x - 0.5) + 1. A family of such curves is presented below, for values of a ranging from -1.2 to 1.6.

The general form of the curve is two wells separated by one high point. Place a yellow marble in the right well (with a = -1.2), and consider its position as a gradually varies from -1.2 to 1.6.

At some point, (it is difficult to tell just when, visually), the well at the right will disappear, and the marble will roll down into the well at the left. We can calculate for which value of a this occurs. At each of the minimum and maximum points, the first derivative of the function is zero. The derivative of the expression above is:

y' = 4 x^3 - 3 x + a

We can see by inspection that when a = 1, two solutions degrade into one (at x = 0.5). This point is an inflection point, neither a maximum nor a minimum.

The position of the ball suddenly changes from 0.7 to -1 at a = 1.

The well on the left disappears at a = -1, so if we ran the experiment in reverse, we would see the jump at a = -1. This phenomenon is known as hysteresis. We would describe the change above as irreversible, as restoring the condition of the system to just before the discontinuity does not reverse the change.

If we studied some system with the above behaviour, conventional thinking would have some large input right at around a = 1. In reality, as we see, the jump happens when the system passes the tipping point.

Does climate behave like the mathematical function described above? There is growing agreement that it does, however the probability of such an event in our near future cannot realistically be assessed (Livina's comments to the contrary on page 8 of the linked pdf). 

I like the title

Los Angeles California's Incentive Programs for Large and Small Solar Systems

The rest of the article was a bit of a disappointment.