Big Pickles

Let me get this straight.

There are two regulatory agencies overseeing stock and futures trading: the Securities and Exchange Commission, created in 1934, and the Commodity Futures Trading Commission, created in 1974.

Are you with me so far?

A year after the financial crisis, as lawmakers are trying to come up with ways to reform the financial sector, it has been proposed that these two agencies be combined into a single entity.

Republicans think this is a great idea.

Democrats think this is a great idea.

The SEC and CFTC both think this is a great idea.

But it will never happen, because it's politically impossible.

How can that be? Quite simply, it's impossible to get a committee chairman in Congress to give up power. If the two agencies were combined, the CFTC would no longer fall under the purview of the Agriculture committee, and that chairman would lose power in the form of lobbyist attention and special interest donations, among other things. Apparently, this is such a distasteful thing for a committee chairman to have to endure that they are able to marshal incredible forces to keep it from happening.

And so it can never happen. Even though virtually everyone else in the federal government thinks it would be a great idea.

It makes me wonder why we even bother evaluating the strengths and weaknesses of the arguments for the various positions on all the pressing issues before Congress, when in the final analysis, whether or not good policy is enacted depends on entirely on something so stupid as one committee chairman's self-interest.

Labels: politics

Clark pointed out in my last post on the Washington Post's statistical analysis of the Iranian election results that we can't conclude from an event with 4 in 1000 probability of occurrence that there is a 996 in 1000 probability that occurrence of the event was faked. This is true, of course, and I should have been more clear in my remarks.

The information we want is the probability that the Iranian election results were legitimate, given the data we see. What the WaPo has given us, however, is the probability of seeing the data that we see, given a legitimate election. They sound like the same thing, but they're not.

The Wikipedia article on conditional probability gives the classic example of why this is the case. Suppose you have a test for a disease that is 99% accurate--it returns a false result 1% of the time. That sounds pretty good, but if you use it to screen for a disease that affects only 1% of the population, then the probability that a person actually has the disease, given a positive test result, drops to 50%. So the probability of seeing a positive test result, given the presence of the disease (99%) is not the same as the probability of having the disease, given a positive test result (50%).

The Prosecutor's Fallacy describes the application of this logic in the real world. Here, the minuscule probability of certain evidence emerging, given the innocence of the accused, is used to argue that the probability of the accused being innocent must be just as tiny. This is what the WaPo appears to be engaging in with their statistical analysis.

Or is it? The thing to remember here is that this discrepancy exists because of the discrepancies in the prior probabilities that our conditional probabilities are based on. For example, in our disease scenario, the test becomes as accurate as it appears if 50% of the population are affected by the disease. The probability of seeing a positive test result, given the presence of the disease, and the probability of having the disease, given a positive test result are both 99%. It's the fact that the disease is so rare to begin with that makes all the difference.

So with the Iranian election, if we already knew that there was a 50% chance the election results were faked, then the analysis described in the WaPo would be strong evidence indicating shenanigans. I'm not saying we know that, but there does seem to be a lot more evidence of irregularities other than statistical analysis alone.

One more example to illustrate what I mean. Suppose 99 out of every 100 swans are white, and one is black. If you're walking along in the park and you see a black swan, you've just witnessed a rare event, with a probability of 1%. But this does not mean that you can be 99% sure that this swan is fake. That's because the odds of seeing a fake swan are based on something else entirely, and are usually far from 50%.

Suppose, however, that you heard on the news this morning that people have been out spray-painting white swans black. Suppose further that half of them have been spray-painted. Now, when you see a black swan, the odds of it being fake have climbed much closer to 99%, because you know the odds of seeing a fake swan to begin with are 50%.

Labels: math, politics

Hello, loyal readers. My apologies for not blogging in over three months.

My excuse is that I got a new job, and this new job eats up my time in several ways. The commute is very long and the work itself gives me little opportunity to surf the Internet. So I have less time for actual blogging, and less time to find interesting things to actually blog about.

But hopefully as I settle in I can find a way to work this blog back into my routine.

To that end, check out this statistical analysis of the election results in Iran. Just by looking at the various vote tallies, it can be shown that there is a 99.5% chance that these tallies were made up by a human rather than generated randomly, as would be the case in a clean election. Fascinating.

Labels: math, politics

Dan asked in the comments a couple of weeks ago how I could like Obama and Ron Paul. I wanted to answer that it's because Liberal and Libertarian kind of sound the same. But I addressed the issue in a post I made back in February. I still feel like Obama is more grounded in real-world, workable solutions, and less driven by ideology than anyone else running. His FISA vote back in June exemplified that, I think. It was a cold bucket of water on the heads of lefties who assumed Obama would always be their anti-Bush.

Also in that post I mentioned how Steven Leavitt, author of Freakonomics, predicted Obama would be president on his blog back in November 2006.

I was reminded of that when I happened upon this electoral map resulting from a survey conducted that month. Obama 28, McCain 510. He's come a long way.

Labels: politics

If you watched more than one presidential debate this year, then you probably noticed what I noticed. These guys tend to repeat themselves.

This video drives the point home.

Labels: politics

There is a radio show on NPR on the weekends called Wait Wait... Don't Tell Me which I highly recommend. It's hilarious. (If you're not interested in my political views, stop reading here and pretend this post was just to tell you about that show.)

Anyway, the host of the show, Peter Sagal, writes a blog which I only came across by accident today. And in this particular post, he says basically the same thing I said to one of my co-workers this morning.

Which is this: I wonder if people who believe in conspiracy theories think about everything else that would have to be true in order for their conspiracy theory to be true? In the case of Barack Obama, people are saying all sorts of things about how he is a secret Muslim or a secret supporter of terrorism or whatever other flavor of Manchurian Candidate is in vogue today, without stopping to realize what that would look like in the real world if it were actually true. (Do they?)

My favorite is the theory that 9/11 was an inside job. If it was, it would have been the greatest display of competence the Bush administration had managed to achieve, before or since. It just doesn't make sense that the team who manged to pull off something like that would bungle everything else they attempted so mightily. 9/11 would be their "we can put a man on the moon." Are you kidding me? We can pull off 9/11 but we can't plant a few WMD's in the Iraqi desert?

Peter Sagal put it very well, I think. Conspiracy theories thrive because for many people, the reality is intolerable. It is easier to believe in a conspiracy, no matter how unlikely and convoluted, than accept the facts as they are.

Labels: politics

The bailout failed in the House today, but there's still a good chance they'll rehash it until it passes.

What's crazy is that this is one argument that finds liberals and conservatives on the same side. No one wants to bail out Wall Street. I read a piece by Michael Moore this morning where, rhetoric aside, he basically agrees with Rush Limbaugh and Newt Gingrich. What is the world coming to?

The only people who really want the bailout are Wall St. itself and the Bush administration.

The big question for me is why Ben Bernanke is so keen on it. If it were just Bush and his crew, a lot of Dems in congress would be more skeptical, I think. But I've heard several of them say that they trust Bernanke to be apolitical, so if he says a bailout is needed, they're inclined to believe him.

Bernanke is supposed to be this economics wonk fresh from academia, but all his colleagues seem to be against the bailout. I'd like to hear a point-by-point rebuttal from Bernanke about why he disagrees with someone like Allan Meltzer, or any one of these guys, for that matter. We need to find a way to tease out Bernanke's true motivations on this whole thing.

Glenn Greenwald lists the following ten principles for how our government functions, and how each one of them applies to the bailout.

1. Incredibly complex and consequential new laws are negotiated in secret and then enacted immediately, with no hearings, no real debate, no transparency.

2. Those who created the crisis, were wrong about everything, drive the process.

3. Public opinion is largely ignored, as always, and public anger is placated through illusory, symbolic and largely meaningless concessions.

4. The Government begins with demands for absolute power so brazen and absurd that anything, by comparison, seems reasonable.

5. Wall Street, large corporations and their lobbyists own the Federal Government and both parties, and therefore they always win.

6. The people who run the Washington Establishment are drowning in conflicts of interest.

7. For all the anger over what Wall St. has done, the Government--as it bails them out--isn't doing anything to rein in their practices.

8. When the Government wants greater and greater power and wants to engage in pure corruption, it need only put the population in extreme fear and it gets its way in every case.

9. On the most consequential and fundamental questions that define the country, the establishment/leadership of both political parties are in full agreement, and insulate themselves from any political ramifications by acting jointly.

10. Whenever you think that the Government has done things so extreme that it can't top itself--torture, theories of presidential lawbreaking, a six-year war justified by blatantly false pretenses--it always tops itself.

Labels: economics, politics

This is one of those political gotchas that's only possible because of the Internet.

You know Peggy Noonan, former Reagan speech writer, current Wall Street Journal columnist and occasional on-air conservative pundit. Here she is today in the WSJ, doing her thing, talking up Sarah Palin, McCain's running mate.

Now here she is on MSNBC, giving her true opinion about Palin in a candid conversation with fellow conservative pundit Mike Murphy and NBC analyst Chuck Todd (none of them realizes their mics are still live).

If you can't make out what she says, there are transcripts out there, and her quotes are already on her Wikipedia page (of course). Let's just say that it would appear that she doesn't believe her own rhetoric.

Labels: internet, politics

...XKCD-style.

This morning when I checked the site he had just over 1400 donors. Now he has over 2300. Not bad for one day's work.

Labels: politics

I love behavioral economics. It's a beautiful amalgam of theory and counter-intuitive empirical observation. It's the opposite of ideology. It acknowledges that people don't always behave the way we expect them to, and tries to figure out why. And according to this article, Barack Obama's wonks are rooted in it. I guess it makes sense that it was Steven Leavitt, author of Freakonomics, that turned me on to Obama over a year ago.

From the article:

As Thaler puts it, "Physics with friction is not as beautiful. But you need it to get rockets off the ground." It might as well be the motto for Obama's entire policy shop.

I think that encapsulates the difference between Obama's crew and someone like Ron Paul, who I think also has a lot of good ideas. Everything coming from Lew Rockwell and the libertarian think tanks sounds good in theory, but it feels like working out those physics problems where vacuums and frictionless surfaces are assumed. Same goes for Bush's cadre of neoconservatives and Clinton's neoliberalism. Sure, universal health care/getting rid of the Fed/invading Iraq sounds good, but is there any real evidence that things will play out in reality as well as the theory suggests? It's all deductive, and assumes that if we fix policy around over-arching principles, the details will bear out those principles.

I have no way of knowing whether Obama would be a good president, but I like the idea that his people strive to form policy that accounts for and relies on hard data, rather than trying to implement a broad ideology that is assumed will bring about desired results. I'm willing to give the inductive approach a try. It seems more scientific, even humbler. It acknowledges that no one really knows what will happen until we try something out.

Labels: politics

You've probably seen it, it's all over YouTube:



I'll just say that Scarlett Johansson has my vote.

Labels: politics

According to this article, there is a 1 in 30,000 chance that an asteroid will collide with earth in 2036.

Considering that the odds of a person dying in a terrorist attack are 1 in 88,000, I think this justifies a War on Asteroids. Or two or three.

And since the impending attack is scheduled to occur at least ten years before Social Security goes bankrupt, and fixing that was such a priority in 2005, well, you can see that we should have begun worrying about this years ago.

Labels: politics, science