Corporate management in America is broken, with senior management taking home vast wealth in exchange for bad gambles (Wall Street) and/or bad stewardship (autos). We are talking about wealth, not just big income. The descendents of big company CEO’s will not have to work for the next dozen generations.

There is always hope. Some theologians believe that despair is the worst sin, as it shows lack of confidence in God.

“Mr Rudd (new Prime Minister of Australia) said keeping commitments was the lifeblood of democracy. ‘We ask ourselves why cynicism emerges in the Australian community about the operation of this place,’ Mr Rudd told parliament. It goes to the practices that we have seen so often in the past whereby things were consigned to the dustbin of history once governments got past the day of the election itself.” US Democrats should read this carefully.

And this is on a day when the nation wept over over this new new Government’s apology to Australian Aborigines (google it, wonderful, short words and feeling, maybe our Gettysberg Address).

So there is hope.

Damn you Fabius, are you trying to turn me into an optimist? Do that and I suppose I’ll have to get fired again trying to do the right thing (instead of giving up and taking the money until I retire).

I thump into my staff’s heads (when I’m not being fired of course):
(1) A simple model based on reliable data will always outperform a complex one based on rubbish.
(2) Always check your assumptions, especially the ‘hidden’ ones (see (3)).
(3) Most textbook statistics is irrelvent, as they are based on assumptions of normality (gaussian) and/or independence. In the real world these are actually rare events.

Now I’m pretty good at this sort of stuff, but mathematically many of those in the consultancies and banks, et al, would leave me for dead. But if I can build a robust, reliable model that more accurately calculated true risk, in my spare time at home, and is not dependent on these assumptions, then you have to ask some questions….

The reality is that many of them are incompetent and/or unethical, gutless b**t**ds, unwilling to tell the truth (like the people who agreed with me in private, but would never dare to talk to their bosses). I once, over a major decision, personally handed each director a copy of my report that proved that it would cost over a billion $ in losses, so they could not deny that they had not been warned. Now I got the boot, but had the joy of seeing them all go under later, one of which (hopefully) will go to jail (oh and I will visit him there when he arrives).

The future is something we build. We can build it well, badly or very badly. But anything built on fantasies, totally unrelated to reality, will always turn to custard.

And people have to stand up and be counted.

In the finance business they use the best tools available. They can hardly close shop and play horseshoes until someone develops the perfect maximum theory of finance (which would, of course, render markets unnecessary).

The problems that vex markets, cycles of undervaluation and overvaluation, are just one manifestation of economic cycles of overinvestment and underinvestment — the primary driver of booms and busts. Do these result from limitations in the software of the human reasoning process? Our inability to avoid emotions controlling our logic? Flaws burned into us by God following the apple incident in Eden?

Whatever the causes, they have been with us since we were fighting dogs for carrion on the Serengeti Plains. Despite them we have advanced quite a bit. Not as high as we wish, but higher than your pessimistic view would suggest.

You might enjoy reading one of the greatest history books ever written, in terms of giving a better understanding of human nature: Extraordinary Popular Delusions and the Madness of Crowds, by Charles Mackay (1841).

A real life example

Fabius, statistics is one of the most powerful tools for understanding complexity and getting some meaning out of the world … it is also one of the most misused. The thing to realise is that in the real world very few things are gaussian (Black Swan idea), but nearly all stats used is based on this (and some other) underlying assumptions, basically because it is easy to work the maths. The current economic meltdown being topical, take the famous Scholes-Black formula (for ‘risk free’ stock options trading). This and some like it have been widely used for stock/derivative/et al trading. The author actually won a Nobel Prize in Economics. This and models like it, have been at the heart of the mass insanity of the financial bubble that is now melting down (to the tune of $ trillions).

It’s a lovely piece of maths, there is only one tiny little thing wrong with … it doesn’t work as the underlying assumptions are RUBBISH. You know how long it took me to work out it was wrong? 30 minutes, with some real data downloaded and a spreadsheet. I did a paper on it and presented it at a conference (and worked out an approach that actually DOES work) this was about 8 years ago. Interest? Totally zero, though lot of people came up to afterwords and privately admitted that they knew SB didn’t work, but that their organisations used it anyway.

This stands out as a shining example of individual, institutional and organisational stupidity of the highest scale, worldwide across banks, regulators, insurance companies, investment houses, et al.

Now when we get to (and seem to be continuing at) that level of stupidity, then you really have to question our survival probability as a society.

This is truly cracked. China is one of the most heavily polluted nations, ever. No signs of concern for the environment, except in Mr Shearman’s active imagination. Also those liberal democracies he despises have a far better green scorecard than the tyrannies he appears to love.

And (this is totally off-topic), the danger from antropolic global warming (industrial co2 emmissions forcing climate change) is a theory. More and better data is needed before drawing conclusions imo, with much greater compliance with the rules about making the data and calculation available for review by others.

Environmentalist David Shearman thinks democracy is hopeless if you need to save the planet:

…the savvy Chinese rulers may be first out of the blocks to assuage greenhouse emissions and they will succeed by delivering orders. They will recognize that the alternative is famine and social disorder.

Let us contrast this with the indecisiveness of the democracies which together produce approximately the other half of the world’s greenhouse emissions.[...]

Liberal democracy is sweet and addictive and indeed in the most extreme case, the USA, unbridled individual liberty overwhelms many of the collective needs of the citizens. The subject is almost sacrosanct and those who indulge in criticism are labeled as Marxists, socialists, fundamentalists and worse. These labels are used because alternatives to democracy cannot be perceived! Support for Western democracy is messianic as proselytized by a President leading a flawed democracy.

There must be open minds to look critically at liberal democracy. Reform must involve the adoption of structures to act quickly regardless of some perceived liberties. (*end cribbing*)

The point being that yes, I absolutely agree that we have the knowledge and the mettle to save ourselves, as both a nation and a race. But there is no free lunch, and one corollary of all this is that we need different structures and concepts. It may be that the bidirectional devolution of power from the nation-state both up to multinational entities and down to localities, enabled by technology, is essential. However that means giving up certain feelings and mental attitudes, many of which are dearly and closely held. Just sayin’. gp