Jonathan Birge

The Democrats went back on their promise to allow a 48 hour period for congress to read the 1000+ pages that comprise the stimulus package just passed. That means that our leaders just spent 800 billion dollars of our children’s money without even knowing what they were voting on. That’s roughly $8,000 for every taxpayer in the country. Or, in 2030 dollars, a doughnut and medium coffee.

You can be sure the special interests know what’s in it. You can be sure each Senator knows the pork coming his district’s way. But each member of our esteemed congress didn’t know 90% of what they were voting for.

Apparently, we don’t even have two days to spare? Utter bullshit. Congress is still taking breaks. They are still going home on the weekends, aren’t they? But when it comes to spending close to a trillion dollars, they just can’t wait two days?

I’m going to have to buy a lot of liquor this April to get through having to pay taxes to this government…

One of the more useful things to be aware of as an American is the surprising ruthlessness of Madison Avenue’s manipulation. Nowhere is that more evident than in a classic Atlantic story from 1982 exposing how the public was fooled into thinking diamond rings are an integral part of marriage custom. I’d read it a while back, and had forgotten how good a read it is. The most surprising detail is that the “custom” of giving a woman a diamond engagement ring was completely contrived shortly after WWII by a Manhattan advertising agency.

The agency had organized, in 1946, a weekly service called “Hollywood Personalities,” which provided 125 leading newspapers with descriptions of the diamonds worn by movie stars. And it continued its efforts to encourage news coverage of celebrities displaying diamond rings as symbols of romantic involvement. In 1947, the agency commissioned a series of portraits of “engaged socialites.” The idea was to create prestigious “role models” for the poorer middle-class wage-earners. The advertising agency explained, in its 1948 strategy paper, “We spread the word of diamonds worn by stars of screen and stage, by wives and daughters of political leaders, by any woman who can make the grocer’s wife and the mechanic’s sweetheart say ‘I wish I had what she has.’”

The piece also explains the great lengths to which De Beers went to ensure that diamonds, actually a relatively common rock, are kept in artificially short supply to create the illusion of rarity. Furthermore, they control the entire supply chain, keeping wholesale prices much lower than retail (the markup on diamonds is ridiculous, at least 100%) so that it’s impossible for the public to unload their diamonds on the market.

The most interesting part of this piece is the notion that people in 1946 were capable of this kind of cynical manipulation, because it removes one of the most bitter aspects of our current moral degeneracy: that idea that we’ve somehow fallen from a great height. It’s always a relief to find out the fall wasn’t that far.

I had an interesting discussion with some folks last night. The question was whether it is possible for all investments to go down in the short term if things get bad enough. One conclusion was that it’s a harder question to answer than you might think. Do you consider perceived value, or just market price? If you buy a farm, and the market collapses for real estate, that farm might still be the best thing you’ve ever bought (high value), even if the price plummets. So, while the general question is interesting philosophically, it quickly unravels into a debate on definitions, so I’ll just limit the discussion to what people normally think of as investments: things you can hold in a brokerage account.

My theory is that it is certainly possible for every conceivable investment to lose value, where no matter if you’re short or long you lose money. Just consider the absurd case where everybody becomes clinically depressed agoraphobics, sitting at home wasting away. Clearly, financial markets will freeze, and you’ll find out that your assumptions on value were predicated on the Wall Street showing up to work, the computers which record your trades running, and people holding out enough hope in the future to bother trading anything but cigarettes. Every asset, no matter what, has some finite counterparty risk. You may be right about everything, but the universe doesn’t owe you a bid. There probably weren’t a lot of good places to put your retirement funds during the declining Roman Empire, for example.

Granted, total collapse of financial market functioning is a rather extreme, and seemingly academic, case to consider. But as I thought about it a bit more after the discussion, I realized that this isn’t academic at all. Between fully liquid bull markets, where everybody makes money (on paper) and the macabre situation I posited above, is a continuum of completely plausible scenarios where it gets harder and harder to make money in any asset. In fact, this is already happening right now.

Bid-ask spreads on options have been widening in the past few months, which makes it harder to hedge either direction as liquidity dries up. While derivative markets are zero sum if you average out to expiration, in the short term both parties can have losses on paper due to wide spreads, and if you can’t close your short option position, you are forced to tie up cash as collateral, which could cause you to lose money. Thus, in a way both parties to an option contract can lose out if liquidity dries up.

Certain stocks are becoming impossible to short (nobody is willing to loan out any more shares). Others (such as Sears) are starting to require short holders to pay interest. It’s quite likely for somebody to go long Sears, somebody else to go short at the same time, and for both people to lose money.

Is this discussion of any practical value? I think so: if the market continues to deteriorate, even those that correctly predict it will have trouble making money from it. For example, it will become increasingly difficult to make money in inverse ETFs, no matter how brilliantly you predict the underlying stock market trends. The counterparties to the derivatives owned by the ETF will become so adverse to risk that they will insist upon prices which are less and less favorable for the ETF. This will manifest as extreme slippage in the ETF relative to the index it inversely tracks. Again, this is already happening. Consider the following plot of SKF versus the Dow Financials Index, which it is supposed to track the inverse of times two:

SKF (green) versus Dow Financials (black): How to lose money both long and short.

The underlying index went down about 25%, but so did the ETF (there were no distributions from SKF in this time frame). Everybody lost money, long or short! Some slippage is inevitable as a “cost” of leverage and shorting, but my point is that the slippage is getting worse. Six months ago SKF was tracking much closer to its target. It might be useful to consider an index of inverse ETF slippage as an indicator of the health of the financial markets, or at the very least a index of how crazy you’d have to be to remain in the market. So, the ETF slippage, the option spreads, tight short supply: they might all be subtle hints from the market that the market is no place to be right now, long or short.

In the stimulus package passed by the wise souls of the US Senate, the NIH budgets will get a boost of around ten billion, along with many more to health services in general, with little to nothing going to the NSF. I won’t venture to judge the relative merits of the NSF versus the NIH in the grand scheme of things, but since this is supposed to be a stimulus bill, let’s consider the two agencies for a minute from the perspective of economic returns.

NIH funding generally falls into two categories: on the one hand you have very long term research on grand problems, such as understanding cognition or the ability to regenerate nerves via stem cells, and on the other, short term research which is essentially medical in nature. The former has essentially zero short term benefits, other than “ah, that’s nice” articles in Nature, in which we find out something vague about the way the human memory works (”something to do with this here chemical, plus a few thousand others we don’t know yet!”). These large scale efforts will eventually, we hope, yield true revolutions in the way we perform medicine, and might be have huge economic returns. But they are decades away. The latter category, on the other hand, provide immediate health benefits, but generally in the form of linear improvements in care which come at exponential increases in cost. For example, new cancer drugs may extend the lives of a fraction of patients, but they cost $60,000 or more.

Given that any advances born of NIH funding turn into private profits funded by health care consumers, I’d argue NIH funding generally has a negative short term return on investment; instead of adding to our productivity as a country, it results in products which we are forced to buy (via givernment regulated insurance) no matter how marginal their improvement. If a pill works 5% better than the previous one, but costs 10 times more, no politician has the guts to say it’s not worth it. In this environment of completely uncontrolled cost management, for every dollar we spend on the NIH, the “return” is that we have to spend far more on the marginally effective technologies produced. This is completely different from most engineering and science research, where the products are, at worst, pointless amusements (e.g. most Media Lab research), and at best make society more efficient (e.g. networking, industrial robotics, digital imaging).

I don’t know what the Senate is thinking, but if their idea of stimulus spending is throwing money at healthcare research, we’re in trouble. You don’t grow a productive nation by spending a quarter of your GDP on visits to the doctor, but that’s where we’re headed in the next decade. I’m not a blind cheerleader for the NSF, either, but at least the research it funds has a net positive return on investment, even if it’s close to zero. Things like better computers, artificially intelligent robots, telepresence, etc. would all be much more beneficial to our economy than another $1000 a month pill we’ll be forced to buy for people who will die anyway. And if you’re apalled at my mercenary separation of morality from economics, ask yourself this: Is it in our long term moral interests to bankrupt the country? Healthcare quality tends to go down in collapsing economies…

Every once in a while I have to put something actually useful up here. I just spent a while trying to get Rhapsody to work in Firefox 3 under Ubuntu 8.10. Having an entire music store at my disposal is one of the things I miss most from my Windows machine when I need to run something under linux. There is a web version of Rhapsody that should run under linux, but I kept getting “Technical Issue” errors in the Rhapsody plugin every time I tried to play a song. It would tell me to restart, but would never work, even after a restart. It turns out I had an old version of the Rhapsody plug in laying around, and didn’t have a proper version of Adobe’s Flash player installed (the new version of the web-based Rhapsody client just uses Flash). Apparently, Rhapsody either doesn’t, or can’t, check the version of the plug-in installed on your machine, and if it’s the old version it will try to use it and fail. So, to get Rhapsody working first go to the following two directories

~/.mozilla/plugins
/usr/lib/firefox/plugins

and make sure you delete any file with the name nprhapengine.so. Then, in Synaptic (or whatever package manager you like) make sure you’re running the actual official Adobe version of Flash 10. Ubuntu, being produced by ideologues (didn’t think I’d be able to write about linux without taking a shot, did you?), makes it hard to install software built by evil monolithic companies. So, if you have Flash installed, it’s probably a buggy “free-as-in-doesn’t-work” version. Do a search for “adobe flash” in Synaptic and uninstall any currently installed free versions. Then, install the flashplugin-nonfree package. (If you don’t find that package, leave a comment and I’ll help you make it available to Synaptic.)

After that, restart Firefox. Rhapsody should now work using their excellent Flash-based client.

(By the way, I was able to get the full Rhapsody client running in WINE, and was even able to play 30 second clips. However, it wouldn’t let me login, saying that cookies were being blocked. If anybody has been able to overcome that, I’d love to hear about it.)

California has announced that it will hold on to tax refunds for 30 days. Given that tax refunds are the property of taxpayers, and not something the state has any legal right to, this amounts to California literally stealing money from over two million residents. At least it’s only for a month, but it’s not a good precedent. If they can get away with a month, they can probably get away with indefinitely. If a regular person steals, “I was going to give it back next month!” is not a legal defense. Is anybody in California angry over this illegal theft? As far as I can tell, no.

It’s also a bit scary. The California government is apparently so bankrupt that it has to resort to stealing money from its citizens to push back paying the bills for 30 days. What then? In a few months to a year, the Federal government may have to bail them out. Either that, or California will have to raise taxes on the wealthy to astronomical levels. It will be interesting to see how high taxes will have to get before Alec Baldwin becomes a Republican.

There is a bug in the new version of Ubuntu (8.10, or Intrepid Ibex), where static IP network settings are lost after every reboot. Kind of makes it hard to connect to your box remotely with ssh.

Pretty big bug, huh? You’d think it would be rather embarrassing when your latest operating system release breaks the internet for a large proportion of your users. You’d assume this would be high priority, right? Nope. Until recently, the bug was considered only Medium priority since there were workarounds, even though they were completely nonintuitive and nothing a basic user could ever figure out by themselves. Worse, Ubuntu 8.10 has been out for months now, and this still hasn’t been fixed, and probably won’t be for a long time. (In fact, it will end up being fixed in the next version of Ubuntu before they backport the solution to 8.10.)

This bug exposes a fundamental flaw in the Linux distribution development model, wherein the people releasing the operating system don’t actually write, or even understand, the various components they are packaging. If this bug came up in Vista, Microsoft could have it fixed in less than a week, because the guy that wrote their network manager actually works there. Of course, Microsoft tests their products before sending them out the door, so it wouldn’t have happened to begin with.

A lot of the people using Ubuntu 8.10 are going to turn tail and run back to Daddy Gates when they encounter this bug. They aren’t going to check bug tracking sites to figure out what’s going wrong, or look into work-arounds. So, you can ratchet the Linux market share down just a little bit more. At this point, the idea that Linux will take over the computing world is actually becoming downright laughable from the perspective of anybody who hasn’t been drinking a lot of kool-aid.

I’ve asked this question before, but why spend so much time developing Linux only to not bother to actually put out a quality product? If these folks are so inclined to spend time programming a mediocre operating system for free, why not just volunteer at Microsoft? At least that might actually help people.

(In case you found this page looking for a solution to the problem, instead of a pointless rant about it, I offer the following two solutions, in order of decreasing utility. The most obvious solution, assuming you value your time at something north of minimum wage, is to simply install a usable OS built by professionals who actually have something to lose were they to release an operating system with such an astoundingly egregious bug. If you’re too cheap for that, or suffer from Linux Masochistic Personality Disorder and absolutely must get this working, you can always edit your network settings by hand.)