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11/18/2007

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Will

I just thought I would share for readers that The Wisdom of Crowds by James Surowiecki does an excellent job of examining the phenomenon of using financial markets to "predict" future events (e.g., which company would be held responsible after the Challenger failure). In addition, it is interesting to note that there have been attempts by government intelligence agencies to develop free markets that trade on forecasting events to help predict international political events (e.g., The Policy Analysis Market, which you can read about here http://hanson.gmu.edu/policyanalysismarket.html). While the government was never able to set up these markets, others internet gambling sites have set up something similar. (e.g., InTrade is currently taking bets on regarding whether the U.S will strike Iran).

Jack

"The innumerable mistakes that the United States has made in Iraq suggest that our government does not have good means of obtaining and evaluating information concerning that country, possibly because of a combination of bureaucratic inefficiency and the vastness of the quantity of relevant data."

......... Could we add stubbornly blind adherence to ideology and tone deaf arrogance to the data absorbtion problem w/o appearing too partisan?

neilehat

Are you suggesting that we give up our "spies in the sky" and our field operatives on the ground, for the rational/irrational actions of a bunch bond gamesmen and their speculation game as a more efficient method of intelligence gathering? Kind of sounds like the CIA Intelligence bureaucrats who said that "Hi-Tech" was wave of the Intelligence future and that field operatives had become obsolete in additon to all of their "black arts".

humam

http://www.gamesavor.com

Jack

Neil... Ha! Since the cold war dragged on with CIA reports of the Soviet economy being something like two and a half times larger than it was, perhaps a divining rod or some such would be as good and cost less.

Iraqi bonds, even at half off, don't sound like a good bet to me, so perhaps other factors are driving that "market". Similarly, "some" here took it as good news and a vote of confidence that Iraqi's were returning home, though the truth seems to be that their visa ran out, they can't work in Syria and are being frozen out with few other choices.

That predictive market system seems a good one, but for a situation where more is known. For example in a corporation, project leaders have all sorts of incentives to make overly optimistic progress reports and may be getting BS from below. A predictive market analysis from those close to the project with no ax to grind would probably be pretty close to the true situation.

Anonymous

Professors Becker and Posner,

what do you think about banning private possession of handguns?

Most of the countries do this.
And probably as a consequence they have less students killed with guns. Economically it seems that the USA as a whole would benefit from banning handguns. What do you think?

Thanks

neilehat

Jack, Intelligence and Counter-Intelligence, it cuts both ways. Is it black or is it white? That's where good inside operatives come into play. It's all a matter of corroboration and verification. Something sorely lacking in the lead up to Iraq. Or were we being played as "suckers"? ;(

Jack

Neil: I suspect it's like most other things political. At the bottom fairly good work is done....... in the areas where management tells them to look. Then the rendering and selection process begins and what "the big guy" sees is what he's shown. In this admin virtually the whole cast of ideologues who penned the now famous Jan 98 letter to Pres Clinton became the government. They had their mind made up three years early and surely wern't open to "no stinkin' facts". "Suckers?" Well, do you get the feeling that the welfare of the American people and the world in general was first and foremost in re-invading a disarmed Iraq?

Letter to President Clinton on Iraq http://www.newamericancentury.org/iraqclintonletter.htm
1 of 2 10/9/2005 10:54 PM
January 26, 1998
The Honorable William J. Clinton
President of the United States
Washington, DC
Dear Mr. President:
We are writing you because we are convinced that current American policy
toward Iraq is not succeeding, and that we may soon face a threat in the Middle
East more serious than any we have known since the end of the Cold War. In
your upcoming State of the Union Address, you have an opportunity to chart a
clear and determined course for meeting this threat. We urge you to seize that
opportunity, and to enunciate a new strategy that would secure the interests of
the U.S. and our friends and allies around the world. That strategy should aim,
above all, at the removal of Saddam Hussein’s regime from power. We stand
ready to offer our full support in this difficult but necessary endeavor.
The policy of “containment” of Saddam Hussein has been steadily eroding over
the past several months. As recent events have demonstrated, we can no
longer depend on our partners in the Gulf War coalition to continue to uphold the
sanctions or to punish Saddam when he blocks or evades UN inspections. Our
ability to ensure that Saddam Hussein is not producing weapons of mass
destruction, therefore, has substantially diminished. Even if full inspections
were eventually to resume, which now seems highly unlikely, experience has
shown that it is difficult if not impossible to monitor Iraq’s chemical and biological
weapons production. The lengthy period during which the inspectors will have
been unable to enter many Iraqi facilities has made it even less likely that they
will be able to uncover all of Saddam’s secrets. As a result, in the
not-too-distant future we will be unable to determine with any reasonable level of
confidence whether Iraq does or does not possess such weapons.
Such uncertainty will, by itself, have a seriously destabilizing effect on the entire
Middle East. It hardly needs to be added that if Saddam does acquire the
capability to deliver weapons of mass destruction, as he is almost certain to do if
we continue along the present course, the safety of American troops in the
region, of our friends and allies like Israel and the moderate Arab states, and a
significant portion of the world’s supply of oil will all be put at hazard. As you
have rightly declared, Mr. President, the security of the world in the first part of
the 21st century will be determined largely by how we handle this threat.
Given the magnitude of the threat, the current policy, which depends for its
success upon the steadfastness of our coalition partners and upon the
cooperation of Saddam Hussein, is dangerously inadequate. The only
acceptable strategy is one that eliminates the possibility that Iraq will be able to
use or threaten to use weapons of mass destruction. In the near term, this
means a willingness to undertake military action as diplomacy is clearly failing.
In the long term, it means removing Saddam Hussein and his regime from
Letter to President Clinton on Iraq http://www.newamericancentury.org/iraqclintonletter.htm
2 of 2 10/9/2005 10:54 PM
power. That now needs to become the aim of American foreign policy.
We urge you to articulate this aim, and to turn your Administration's attention to
implementing a strategy for removing Saddam's regime from power. This will
require a full complement of diplomatic, political and military efforts. Although we
are fully aware of the dangers and difficulties in implementing this policy, we
believe the dangers of failing to do so are far greater. We believe the U.S. has
the authority under existing UN resolutions to take the necessary steps,
including military steps, to protect our vital interests in the Gulf. In any case,
American policy cannot continue to be crippled by a misguided insistence on
unanimity in the UN Security Council.
We urge you to act decisively. If you act now to end the threat of weapons of
mass destruction against the U.S. or its allies, you will be acting in the most
fundamental national security interests of the country. If we accept a course of
weakness and drift, we put our interests and our future at risk.
Sincerely,
Elliott Abrams Richard L. Armitage William J. Bennett
Jeffrey Bergner John Bolton Paula Dobriansky
Francis Fukuyama Robert Kagan Zalmay Khalilzad
William Kristol Richard Perle Peter W. Rodman
Donald Rumsfeld William Schneider, Jr. Vin Weber
Paul Wolfowitz R. James Woolsey Robert B. Zoellick

Jack

Anon: Well there's a topic to debate for a decade or so but banning guns will not make the US into Canada or a Euro nation. In our rural areas and perhaps our not so rural areas I'd rather have a gun at home or at least have prospective criminals think I have one than wait for police to come...... sometime.

But in our crowded and murderous cities the old country song "Don't take your gun to town son, leave your gun at home....." does have its appeal.... ie banning them from the streets.

Better? Phasing out of our long history of prejudicial short-funding of schools in the ummm, "left behind areas" and doing more, a lot more, to insure there are better opps to join the above ground economy in the areas of perpetual depression level unemployment and grinding poverty. Surely it would be beneficial to all if we didn't "have to" lock up our citizens at five and ten times the rate of the civilized nations.

neilehat

Jack, Looks like the signatories bought the counter-intelligence ploy hook-line and sinker. Good thing they weren't around when Washington was freezing his butt in Pennsylvania. We'd still be standing every time they play "God save the King or Queen".

The issue was, Saddam was a "creature" of our making and the powers that be in the World wanted him out. Just like Osammy and his buddies. 911 and all that followed, starts to make a lot of sense, if you look at it in this perspective.

Lammert

"Friedrich Hayek's great legacy to economics was to show that the price system can aggregate vast amounts of information much more efficiently than a centralized bureaucracy can do"

Lammert

a new Blog:http://theeconomicfractalist.blogspot.com/

Thursday, November 22, 2007
Lammert Quantitative Saturation and Decay Macroeconomics
Welcome to the small alcove for the advancement of cause and effect saturation and decay macroeconomics. This site pursues the hypothesis that the nature of market valuations and economic cycles is both causal and quantitatively decipherable. Valuations conform to fractal cyclical patterns that can be recognized, interpreted in conjunction with data emanating from the macroeconomic system, and used with short term and long-term predicative power. Information from this site is not intended to be construed as investment advice or as an investment tool. This site has been constructed because of the expected inevitability of a major sudden phase transition to occur at the conclusion of a grand 140 plus-year second fractal cycle starting in 1858. For the masses this phase transition will occur both very unexpectedly and very suddenly. Approaching the global macro economy from such a causal and fractal Weltanschauung may help those considering further debt obligation and those in position of formulating future interest rate and monetary policy. The cyclical nature of the macroeconomic system operates by causality rather than chance. Valuations of assets are controlled chiefly by interest rates - the cost of money. Lowering nominal interest rates, below asset inflation controlling rates, leads to macro economical disequilibria with excessive money expansion through increased borrowing. This borrowing and money expansion is enhanced by lending parameters and devices which include various types of fractional of derivative lending. This money expansion engenders unbalanced forward consumption, consumer saturation, overproduction, and inflation of assets and consumer items. With the addition of ongoing wages of the consumer masses and accumulating debt service obligations, these oppositional elements are countervailing, and periodic macroeconomic imbalances will self correct. Market overvaluation saturation and decay corrections to new lower saturation points occur in a fractal manner. Cyclical patterns can readily be identified on valuation charts denominated in minutely, hourly, daily, weekly, monthly, and yearly units. The transitional asymptote of overvaluation saturation curves are followed by decay curves which bring market valuations to lowered decay saturation levels where intelligent buyers reenter the market. Valuation fractal cycles of yearly and multi-yearly lengths are based on saturation at the consumer level. Human psychology is a decidedly lagging indicator and follows as an end effect of the mechanistic saturation and decay evolutions in the market. Market contrarians understand these turning points and anticipate the directional changes of the markets based both on market asymptotic overvaluation saturation areas or decay end-point saturation characteristics and counter intuitively by recognizing the lagging psychological parameters of extreme optimism or pessimism in reaction to the mechanistic respective high and low points. Both the degree of valuation and the cyclical time course of valuation evolutions appear to conform to range bound near quantum-like units and quantum related Fibonacci numbers. While the absolute degree of valuation is influenced by the absolute interest rate, the percentage or proportionality changes of valuations from highs to lows and lengths of time to decay and intra-cycle nodal points appear to conform to these range bound near quantum units. The ideal growth fractal time sequence is X, 2.5X, 2X followed by a decay sequence of 1.5-1.6X; many ideal decay fractal sequences devolve in a Y/2.5Y/2.5Y fractal sequence. 'X' and 'Y' represents the fractal unit of time demoninated in minutes, hours, days, weeks, month and years. The first two cycles include a saturation transitional point and decay process in the terminal portion of the cycles. The second cycle may be composed of two roughly equal time units or one confluent time unit. A sudden nonlinear drop during the last 0.5x time period of the 2.5X is the hallmark of a second cycle and characterizes this most recognizable cycle. After the nonlinear gap drop, the third cycle begins. This means that the second cycle can last anywhere in length from 2x to 2.5x, which has import for the current 140 year grand fractal cycle, now in its 147th year. . The third cycle 2X is primarily a growth cycle with a lower saturation point and decay process followed by a higher saturation point. The last 1.5-1.6X cycle is primarily a decay cycle interrupted with a mid area growth period. Near ideal fractal cycles can be seen in the trading valuations of many commodities and individual stocks. Most of the cycles are caricatures of the ideal and conform to Gompertz mathematical type saturation and decay curves. The current 70 year second fractal subfractal generational saturation area is characterized by extreme debt of the leading economic power and its citizen consumers. Quantum Fractal evolution has become idealized allowing precise predictions of both the 17 July 2007 and 11 October 2007 saturation highs for the Wilshire, America's 15 trillion dollar valuation composite equity market and the global macroeconomy's proxy quantitative and quantum fractal barometer. ..................................................................................................................................... Wilshire Decay fractal possibilities:
................................................................................................................................. Wlshire Decay Models A, B, C, and D as of 21 November: ..................................................................................................................................... A 9/22 of 23/23 days B 11/23 of 27-28/27-28 days ( a rerun of 1929) C 13/23 of 32/32 days and D 16/8 of 40/40 days with day 27 of the third fractal a major low and day 40 a final lower low. ............................................................................................................................... Decay Models A, B, and C are 1929 scenarios representing a primary decay followed by an expected 25-30 months of secondary and tertiary decay to a final low in 2010. ............................................................................................................................... Decay Model D implies one further 28-36 or so month credit cycle bolstered by zero fed funds rates and some sort of debt postponement or debt rescheduling scheme with a probable secondary lower peak in 2010. Even the latter possible transient best case scenario Model D, would be adversely impacted by inflation and peak oil.

levent

freedom for iraq go away USA

Jack

Neil I'm not quite sure what you are saying, however, with a perhaps overly optimistic hope that "demo" and "cracy" are still valid concepts, I'm not too content with "the powers that be" as arbiters of "pre-emptive warmongering" that has had such negative effects on US standing in the world and the world itself. Surely Iran and Pakistan antics are related.

As for Osama, he must be rolling gleefully in his cave somewhere as he watches Bush & Co take the bait hook line and sinker. From Osama's perspective just tally up the costs in lives, dollars and effect on the economy from Bush's over-reaction and it's far from over yet. I'd suggest this is not the way to fight asymetrical "wars".

Lammert: It looks as though France and a number of other nations were far more adept at aggregating Iraq info and ducking the sucker trap. Any ideas on amplification for the hearing impaired?

Ken L.

The more penetrating question would be whether the outcome of a war is the best predictor of the bond market. Stagflation nipped at the heels of the last American troops to pull out of Vietnam. Could such a historical paradigm not be bred again?

Wes

If there were only two possibilities for Iraq (complete success and complete failure) and if risk of default on the Iraqi bonds was exactly correlated with these two outcomes then maybe the Iraqi bond prices would give insight into the most likely outcome in Iraq.The thing is, the likely outcomes in Iraq are much more complex than complete success or complete failure. For example, suppose Iraq gets partitioned into three separate countries. Is that success or is that failure? Suppose Iraq develops close ties to Iran. Is that success or failure? Suppose Iraq denies certain US oil companies access to its oil. Is that success or failure? Suppose the USA withdraws its military within the next five years. Is that success or failure?While complete success and complete failure are not meaningful in predicting the general outcome in Iraq, it is possible to estimate the likelihood of specific aspect of the outcomes outcomes.For example, it is unlikely that the people of Iraq will ever be OK with the occupation of their country by the US military. That is to say, even after twenty years of US military occupation, it would, most likely, still be unsafe for people obviously affiliated with the USA (e.g. military and state department) to travel around Iraq without heavily armed guards.Although the USA has been able to maintain military occupations in Germany and Japan (that are only moderately unpopular), in those cases the US military occupation was (is?) protecting them from occupation by even worse countries (Russia and China, respectively). The US occupation of Iraq has much more in common with the Israeli occupation of the West Bank than than the post-WWII occupations of Germany and Japan.

neilehat

Jack, The issue is really quite simple, the issue is "white", but the information that is passed along by other intelligence agencies is changed to "black". Get the picture? As for the "powers that be", not only are there governments, but power centers outside of that sphere with international interests. They all come into play.

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