Saturday, December 10, 2011

Skynet and the "Flash" Computer-Trading Monster!

== Why a Transaction Fee Might Save Us From The Terminator! ==

Here’s a vital issue under discussion (at last) on both sides of the Atlantic.  Governments, both rich and poor, urgently need two things: a way to calm speculation in the financial markets and also new ways to raise revenue. In late September 2011, the European Commission proposed a tax or fee on financial transactions. This appears to be part of the newly announced European Union plan, with Britain the sole dissenter.

"A levy of just 0.1 percent -- or even just 0.05 percent -- levied on each stock, bond, derivative or currency transaction would be aimed at financial institutions’ casino-style trading, which helped precipitate the economic crisis. Because these markets are so vast, the fee could raise hundreds of billions of dollars a year - from the sector of the economy that made towering profits while being directly responsible for our present depression, " writes Philippe Doust-Blazey in the New York Times.

Read the article.  But note that it does not mention the top reason for such a tax!  That it might benefit real human investors by slowing finance and equity trading back down to the speed of human thought.

Would that necessarily be a good thing? The concocted rationalization you will hear, in opposition to this proposal, is called “market efficiency.” According to what’s become a bona fide cult, any process or innovation that allows ever-smaller increments of trade to happen ever-faster is “efficiency,” and that will automatically lead to better allocation of society’s capital, and thus a skyrocketing economy.

This is wrong in many ways, starting with the pure fact that the flourishing of fast-cybernetic trading has directly correlated with the steepest decline in the health of capital markets in a century. Indeed, the increase in market volatility that we have seen lately, with sudden spikes in apparently random directions, can be generally attributed to this trend.**
TransactionFeeTerminate
== The Core Advantage of Having a Seat ==

Then there is the small matter of "seating." Historically, stock markets (and bourses for commodities and credit instruments) began with some fellows gathering at an inn or under a tree to regularly sell or trade share certificates to each other, or on behalf of other folks. When this became big business and moved into dedicated buildings, these Members held "seats" and practiced the standard methods of guilds everywhere, limiting who could come to the table and buy or sell. All outsiders had to hire seated members to trade for them, while paying commission.  Collusive club practices that have been banned (as recommended by Adam Smith) in most other parts of the economy!

Yes, a little market competition arrived recently, as E-Trade and other online member-brokers slashed commission prices for retail folks like you and me. New electronic methods made that possible. But also, the sheer volume of retail trading increased greatly, making up the difference.

What the seated members don't want us to notice is that flash-computerized trading gives them a new, incredible insider advantage over the rest of us. Even if you or I had a computer and program as good as the systems owned by Goldman-Sachs, we could never do what they do, because they are on the inside, making millions of flash trades for free!

You, on the other hand, would pay commission on every flash trade and - no matter how advanced or clever or wise your program - you would lose.  In other words the transaction tax already exists. It is levied by members of an elite cabal who use it to prevent anybody else from doing what they can do with new technology.

This is not "market efficiency." It is the kind of market warping influence manipulation that Adam Smith despised.

But absolute refutation of the "efficiency" argument comes from a different direction. From Physics, biology and thermodynamics.

== Computers and markets emulate life ==

Living creatures thrive by finding a steep gradient of usable energy. Green plants utilize the fact that incoming sunlight is thermodynamically clean and much less entropic than the surrounding environment.  (Greenhouse retention of Earth’s infrared radiation is thus intrinsically entropic.)

Some of this gradient is used by the plant to grow and reproduce, or else gets stored away, while some is lost as transaction cost.
Animals in turn consume plants for that stored useful energy, investing the time and effort to bite and chew and digest in order to benefit from some of the remaining gradient. Predators then pounce and bite and digest in the next stage. There are always losses with each transaction, hence the number of predators who can be supported at each scale gets smaller and smaller.

Along the way, each plant, herbivore and carnivore has parasites, intestinal worms and bacteria, etc., that grab some of that stored energy along the way. If they grab too much, the animal can’t get a steep enough or plentiful enough energy gradient and it dies.

Can you see it yet?  Beyond a certain level, increasing the total number of transactions does not make living systems more efficient.  It flattens all energy gradients and makes life unhealthy... even dead.

Oh, I can hear the objections! "Biology has no relevance to economics and finance."  Well, we could argue about that endlessly, but it doesn't matter. Because entropy - indeed, all of the things I described above, like energy gradients - are vital factors in modern information theory. And information theory is the exact basis that fast-traders claim to have underlying everything they do.

== Returning to capitalism ==

Yes, the existence of a stock market does create a habitat-ecology for living companies to compete, to form alliances, to prey on each other, to seek out the capital they need in order to grow.  Stock markets are vastly over-rated in the latter category, since the companies themselves benefit very little from wild swings in share price, except when offering NEW shares. (There should be substantial difference in the capital gains tax for new shares than for gains in the simple trading of old shares, an activity that only helps capitalism at very low efficiency.)

Still, you get synergies.  When a human investor looks at a company’s new product and bets “this new gizmo or service is gonna go big!” and orders 1000 shares on E-Trade, at low commission, then there’s a good chance that capital will flow to a place that can benefit and utilize it, all motivated by the hope of a nice profit “meal.”  Buyers always believe that the "true" value of the share is higher than the seller thinks, and yes, one of them will be proved wrong. That is the darwinistic aspect of equities markets. And under certain conditions - when all the players are getting fair access to all the information that they need and nobody's doing insider deals - it is good.

Defenders of computerized flash programs that dive in and pounce on any detected market trend, making millions of automatic trades, detecting or anticipating the decisions of human traders... these folks tout that they provide a service -  “efficiency.” But which efficiency?  For whom?

(Indeed, a whole new transatlantic fiber cable is being laid, just to enable a few brokerage firms to gain a couple milliseconds advantage; they’ll make billions. Do you see how that helps our market economy? I can’t.)

Here is the core article of faith among those pushing flash trading, as expressed to me in a note from a senior Wall Street partner . "There is a gap between the perceived value of the stock as desired by the buyer and perceived by the seller. That means the true and correct value isn't being accurately pegged. By jumping in between buyer and seller, we help eliminate this gap, causing the inefficient disparity to go away, helping the market settle on the true price."

Yee-god. Did you grasp that? He admits that he makes his living by leaping between buyer and seller, snapping up the value gradient that motivated the buyer to make an offer in the first place. And he manages to rationalize that he is doing a gooood thing. Good for buyer and seller. Good for markets. Good for capitalism. Good for himself.  Well... one  of the above.

Some have likened the ruthless voracity of these trading systems to the "tragedy of the commons," a very important concept you should be familiar with. Others suspiciously see the blizzard of computer-trading as a way to create a vast fog, behind which a few thousand oligarch golf-buddies can hide insider deals. Both views have some merit. But there is another that goes deeper to the heart-essence of the matter.

Want the exact parallel in nature? It is those gut parasites or e-coli or salmonella, or Typhus, who nibble away the gradient of potential profit that the human trader perceives, between the current asking price and what he or she feels the stock may soon be worth.  It is the core logic of parasitism. If you ever read Douglas Adams's The Hitchhiker's Guide to the Galaxy, these are the perfect passengers aboard the Golgafrincham B-Ark.

We need a small Transaction Fee not only because it will bring in revenue from the sector of the economy that made huge bonuses while wrecking our economy, restoring an emphasis on those providing new, competitively innovative goods and services.

The bigger reason is that human investors won’t care about - or even be aware of - a 0.1% trade fee.

But those computerized parasitical systems will howl in agony!  Thus, it will give you  a better chance to gain from your own savvy and insight, when you log into your E-Trade account.

Read: A Transaction Fee Might Save Capital Markets…and Protect Us From the Terminator!

== The Past and the Future ==

This kind of tax or fee is well-precedented.  Enacted to help pay for the first world war, the  "Securities Turnover Excise Tax" or STET worked just fine in the United States from 1914 to 1966. From 1960 to 1966, stocks were taxed at the rate of 0.1 percent at issuance and 0.04 percent on transfer. Bonds were taxed at the rate of 0.11 percent at issuance and 0.05 percent at transfer.

Indeed, there is a way that conservatives might find a way to rationalize a "fee" instead of a "tax," if all of the funds generated went first into paying the expenses of the SEC, the various insurance programs and other regulatory apparatus that they rely upon for the smooth functioning of their markets. (Thus removing these entities from the burdens shouldered by the public treasury.) Insurance funds could be greatly expanded to provide a cushion vs the next market contortion.  Especially, funds could be spent on balancing and fairness on the international scene.

In fact, there are some even in the Belly of the Beast who have come around to supporting a return to this sensible measure.  For example, David Harding, CEO of Winton Capital, $26B hedge fund, the world's largest quant-based fund, was  quoted in the Financial Times: "I would be in favor of a low [financial transaction tax] if part of it was used to finance more supra-national regulation of markets."

Moreover, it is already the norm in most advanced countries. The EU is apparently instituting a STET across the board in the Eurozone and Britain, whose "city" bankers rule the roost, nevertheless has a STET. For comparison, the UK's STET is  about .25 percent, and Taiwan just dropped theirs from .60 to .30 percent.

Nobel Prize winning economist Paul Krugman makes the case for reinstating the STET in more conventional terms than I do here:  "But wouldn’t such a tax hurt economic growth? As I said, the evidence suggests not — if anything, it suggests that to the extent that taxing financial transactions reduces the volume of wheeling and dealing, that would be a good thing.
 

"And it’s instructive, too, to note that some countries already have financial transactions taxes — and that among those who do are Hong Kong and Singapore. If some conservative starts claiming that such taxes are an unwarranted government intrusion, you might want to ask him why such taxes are imposed by the two countries that score highest on the Heritage Foundation’s Index of Economic Freedom."

Sen. Tom Harkin (D-Iowa) and Rep. Peter DeFazio (D-Ore.) recently introduced The Wall Street Trading and Speculators Tax Act that would impose a minuscule tax of 0.03 percent on financial transactions, meaning that longterm investors would barely notice it. Even so, it could raise more than $350 billion to reduce the budget deficit over the next nine years, according to an analysis by the Joint Tax Committee, a nonpartisan congressional scorekeeping panel.

== The Real Reason to Worry ==

So, what does all of this have to do with The Terminator? (Okay, I saved the sci fi perspective till last. But it has a terrifying kind of plausibility.)

You'll recall the by-now cliched premise of that film - it supposes that (sometime in the future) the U.S. military would develop a super computer/program/system called "Skynet" that gradually becomes self-aware through a process that theoreticians call "emergence from complexity." This is actually taken very seriously by deep thinkers about artificial Intelligence. Indeed, our first encounter with AI may come exactly that way... by surprise.

Only... supposing that this malevolent AI comes from a military source? That's pure Hollywood.  Such systems are built with high priority to systematic reporting, accountability, multiple redundancies, fail-safes and obedience to chain of command.  No, there are other complex computer systems that seem far more likely to suddenly become self-aware in powerfully dangerous ways.

Take those high-speed trading systems we've been discussing. They are growing incredibly sophisticated, at a very rapid rate, absorbing and incorporating models of human psychology, with one goal in mind. To appraise and predict behavior patterns in order for the program to track and to pounce on opportunities for predatory trading.  Competitive ferocity is the only criterion for success. Indeed, if you were to even propose inserting balancing factors like ethics or morality or accountability into such a project, you'd at-minimum be laughed down and probably fired.

A bizarre-sci-fi notion?  MIT researcher Alexander Wissner-Gross suggested that the first true AI could emerge on a planetary scale from the developing system of interlocked exchanges for high-frequency financial trading, which could be seen as a developing global “brain” already operating at relativistic speeds.

Moreover, these systems are receiving billions in funding (including their own new transatlantic fiber cable) entirely in secret.  There are no public agencies involved. No third party observers. No Congressional oversight committees.  No supervision whatsoever. Laboratories developing new genetic strains of wheat are under closer accountability than cryptic Wall Street think tanks that may unleash the first fully autonomous AI... programmed deliberately to have only the behavior patterns, goals, attitudes and morality of parasites.

And so we see the ultimate reason to demand the Transaction Fee. At a low level - say 0.1% - it would never bother a private citizen who is optimizing his portfolio on E-Trade, especially if each trader gets a hundred or so "freebies" that come exempt from the tax. But it would remove the  incentives that Wall Street "geniuses" now feel compelled by, to invest in these monstrous, hyper-fast trading programs that swamp the market in a blizzard of uncountable mosquito bites.

The fee (which could also help balance our budget) can be tuned to give that human a fighting chance and to discourage the very worst kind of artificial intelligence from leaping upon our necks out of the dark.

==Side Note: Gingrich and Asimov==

Both Republican former House Speaker Newt Gingrich and Nobel prize  winning Keynsian economist Paul Krugman have a trait in common.  They grew up fervent science fiction fans, especially transfixed by the future-historical speculations of Isaac Asimov.  Gingrich wrote about this influence that helped to shape his life.

“While Toynbee was impressing me with the history of civilizations, Isaac Asimov was shaping my view of the future in equally profound ways….For a high school student who loved history, Asimov’s most exhilarating invention was the ‘psychohistorian’ Hari Seldon.  The term does not refer to Freudian analysis but to a kind of probabilistic forecasting of the future of whole civilizations.  The premise was that, while you cannot predict individual behavior, you can develop a pretty accurate sense of mass behavior.  Pollsters and advertisers now make a good living off the same theory.”

Here’s an interesting essay comparing Gingrich’s obsession with Isaac’s Asimov’s compelling sci fi memes. Writes Ray Smock: "Edward Gibbon saw the decline of Rome, Hari Seldon saw the decline of the galactic empire, and Newt Gingrich saw the decline of America." Further, Newt was attracted to the idea of one man shaping the destiny of an entire civilization. Smock adds, "History and fiction seem more exciting when there is decline.  This gives heroes, visionaries, demagogues, and politicians something to fix."

As the similarly obsessed author of Foundation’s Triumph, who tied many of Isaac's loose ends, I'd have a thing or two to say to Newt! Could be an interesting intellectual tussle.

Still, this aspect to his background speaks well for him. Ten points.  Out of....

====== Notes on HFT ======

* In fairness, here is a report written by a finance industry think tank attempting to rebut the notion of transaction tax.  It appears to make precisely the "efficiency" arguments I predicted.  It appears, in any event, that the experiment will be run, if the new EU arrangements do include (as I've heard) a transaction fee.  One reason that the British government (largely swayed by the "City" banks and trading firms) opted out. Go ahead and hear the other side out.  Only remember, it all boils down to "supply side" mysticism that has never, ever seen any of its large scale predictions come true.    

**For example, when asked to appraise why markets experience a sudden crash on May 6, 2011, without any  apparent reason, Wall Street analyst Peter Cohan explained why such things are happening more often, and in wilder swings.

"... 70 percent of the volume of trading on the stock exchanges these days is done by something called flash traders, and that's basically computers that buy and sell stocks and hold them for about 11 seconds on average. So all of the discussions that we have the economy, politics, regulations, company earnings -- all that stuff -- there's just no way that a computer holding and selling a stock in 11 seconds is going to be able to do all of that analysis. So it's really all out the window. And there's really no clear-cut explanation for why stocks move up and down every day."


*** One expert wrote in, supporting the STET  with a series of sample portfolio experiments, showing that any human trader will see almost no inconvenience of "friction" but that flash predatory programs would lose their advantage: "Now compare this to the cost of the transaction taxes. In my own case, my most frequently traded portfolio is once a month. A .05% tax would amount to a 1.0005^12 or ~ .6% drag on my CAGR. For my quarterly and annual portfolios, the numbers are ~.2% and .05% respectively. I would point out that this is small compared to the reduction in drag that came from decimalization that happened after I started running this portfolio. 

"The useful thing is that this drag increases exponentially with trading frequency. Trade 1000 times and the drag is ~64%, 10,000 times and it is ~ 14,800%, a million times and my calculator overflowed. This means that even if you deem .6% too onerous for the monthly trader, you could go to .005% and the 64% bite occurs at the 10,000 trade level and 14,800% at 100,000 trades and now you can calculate that a million trades will give you a drag of ~5*10^23% all while costing me 0.06% a year on my monthly.
 


"You could even feed this money into the SIPC so that this provides additional counterpart protection as compensation for the minor sums being charged to the low frequency trader. I would argue that any putative efficiency gain from high-frequency fully automated trading is more than outweighed by the systemic risks of putting the financial system largely in the care of systems whose behavior cannot be comprehensively understood, much less predicted. That this can be limited while imposing essentially zero net cost on retail investors strongly argues for doing so."

93 comments:

Stefan Jones said...

I've long thought that a small transaction fee was a good idea. You essay nails down the rationale far better than I could.

You can allow a reasonable number of "freebies" so that normal folks are not effected by routine transactions like rebalancing 401(k) holdings.

The next step:

End the special status of capital gains income!

Income from speculation needs to be put back on par with income from ACTUAL LABOR and business activity.

The special status of capital gains, dividend income, and the like are a perverse incentive that favors non-productive work over the creation of goods and providing of services that actual human beings need.

Note: This change would cost me a lot of money, when it comes time to cash in options and sell off ESPP holdings. But like the millionaires calling for higher taxes, I'll live with it.

Stefan Jones said...

Ungh.

Please save us from the saviours of Civilization.

Civilization is far messier, flexible, and ambiguous a thing than pompous twits like Ayn Rand and Gingrich (and Marx, and Childe) conceive.

To re-quote a passage I quote too often: "The middle class pessimism over the future of the world comes from a confusion between civilization and security. In the immediate future there will be less security than in the immediate past, less stability. It must be admitted that there is a degree of instability which is inconsistent with civilization. But, on the whole, the great ages have been unstable ages." -- Alfred North Whitehead

I think Gingrich is not only overly concerned with 'security,' but he includes under the umbrella of security a great number of parochial assumptions. He's of the great, pompous tradition of anglophile historians who grew up being taught with utter certainty that everything good in the world was the result of the spread of teh British Empire.

'wacers': Fast little cars that wabbits drive.

Chetmo said...

...I'm still trying to deal with the shock of learning that Gingrich was influenced by Asimov and Toynbee... If you included Quigley in that, I'd probably stroke!

Here's a thought: stock trading is not the only field using prediction algorithm soft ware.. What if internet music providers like Pandora produces Skynet, instead? Would humanity be reduced to listening to auto tuned justin bieber musak?

Anonymous said...

You are giving the military far too much credit by assuming that their systems are built with "high priority to systematic reporting, accountability, multiple redundancies, fail-safes and obedience to chain of command." Herman Kahn, the strategist on whom its titular character was largely based, was only half joking when he said that Dr. Stragelove was a documentary. Fortunately, the supposed strategic advantage of putting nuclear weapons on a hair trigger has lost its currency.

If an intelligent trader bot emerged, what's the worst it could do? Big investment houses already make the prices of fungible commodities like grain and oil swing by 50% in a year due to speculation. That behavior has already created much justified public outrage. If traders get much better at price manipulation, there will probably be enough voter outrage to get automatic trading, or maybe even Wall Street itself banned. At the end of the day, all these masters of the universe own is spreadsheets. Whether these xls flies correspond to any real world objects depends on the consent of the governed.

Anonymous said...

A financial transactions tax is a work of sheer lunacy.

Even the EU commission report that such a tax would raise 0.1% of GDP in revenues but would lower GDP by 1.76% while it did so. It's a reasonable rule of thumb that 40-50% of the marginal changes in GDP consist of tax revenues. So, if we reduce GDP by 1.76%, we reduce tax revenues by 0.7-0.9% of GDP. In return we get tax revenues of 0.1% of GDP.

http://ec.europa.eu/taxation_customs/resources/documents/taxation/other_taxes/financial_sector/impact_assessment.zip

See also here -- http://www.iea.org.uk/publications/research/the-case-against-a-financial-transactions-tax-web-publication

Anonymous said...

>Big investment houses already make the prices of fungible commodities like grain and oil swing by 50% in a year due to speculation.

Which is all well and good, if it weren't observed that commodities that do not have futures markets -- like onions in the US, for bizarre historical reasons -- are even more volatile. See here for example : http://mjperry.blogspot.com/2011/05/what-can-onions-teach-us-about-oil.html

David said...

Another approach which may work is simply to have a minimum period of ownership for shares. When you buy a share you can't sell it for 24 hours. Or another time, that works better.

kLee said...

Or just start using Bitcoins!

Tim Worstall said...

Biological analogies for economic processes are useful: as long as we remember that they are analogies, not the description of the thing itself.

Remember the last time we mistook the map for the territory: we ended up with Social Darwinism, not a happy remembrance.

Worth reading that IEA report linked above (disclosure, I wrote it).

Pat Mathews said...

Though Newt's definition of what constitutes 'decline' is as partisanly narrow as the eye of a needle. See also "http://www.businessdictionary.com/definition/self-fulfilling-prophecy.html"

Kat Slonaker said...

RE: Gingrich and the Asimov influence, there is another interesting take on the Smock article: http://nielsenhayden.com/makinglight/archives/013354.html#013354

RE: Fees for trading. I like that concept. So much of the market seems wildly irrational. (One should expect SOME irrationality, but the stuff this year has seemed especially so.) The problem with just ending the Cap Gains special category comes with us little guys just trying to build up a livable retirement nest egg. No idea what that would be, but...

Paul451 said...

Chetmo,
"What if internet music providers like Pandora produces Skynet, instead? Would humanity be reduced to listening to auto tuned justin bieber musak?"

Speaking of Asimov, wasn't one of his short stories about the development of sentience by an author's word-processor? (Told from the POV of the word-processor.)

Presumably, if Pandora's prediction algorithm gets too smart, it will start changing music to better suit your tastes, eventually creating entirely bespoke tunes for each user. Or perhaps just what it likes.

(And then the copyright owners panic and try to shut it down and... well you know how the story goes, and now why it had such a good soundtrack.)

Anonymous(11:32pm),
Re: What's the worse that could happen? (Never ask that question on a SF author's blog...)
Trading-AIs learn how to destroy markets in order to short them. Or an AI finds a link between making disruptive trades in one market, say, currency/oil/food, and predictable consequences in another, say, defence manufacturing.

And micro-trading is already so complex and ephemeral, the quants won't see the when their AIs go from responsive to causative.

Paul451 said...

Anons, all.

The option above "Anonymous" is "Name/URL". You don't have to register/login, nor put in a URL. Use any nom you like. Makes it easier for us.

Paul451 said...

Near miss, and an appreciation of speed. Dollar if you watch it in full screen and don't flinch.

http://www.youtube.com/watch?v=D8R7mQi9WxA

From the Friends of Amateur Rocketry, via Parabolic Arc

Jacob said...

"Anonymous said...
A financial transactions tax is a work of sheer lunacy."

-Please get an id so we don't confuse your comments/responses with some other person.

It is certainly not a reasonable rule of thumb to assume we (The US) will gain 40-50% in taxation from grow associated with Market Trading.

A transaction tax on exchange is reasonable if we accept Sales Tax as reasonable. They would function in similar ways and should in fairness be the same percent.

Personally I'd like to see the profits on stocks become a smooth curve. 100% Taxation at profits earned on a stock for less than 10 minutes. Generally we shouldn't restrict traders by having them wait for a specific time passes to significantly change the tax rate. If the tax rate is 15% for 1 year, 364 days should be 15.05% or some similar number.

Hold_enough said...

A few weeks ago, I read that computer-driven transactions can now be completed in 3 MILLIONTHS of a SECOND... The humans are losing. And only the big banks can afford the technology needed to reach these levels. If we want a level playing field, we need to put a transaction fee on trading.

sociotard said...

The Dumbest Idea In The World: Maximizing Shareholder Value

“Imagine an NFL coach,” writes Roger Martin, Dean of the Rotman School of Management at the University of Toronto, in his important new book, Fixing the Game, “holding a press conference on Wednesday to announce that he predicts a win by 9 points on Sunday, and that bettors should recognize that the current spread of 6 points is too low. Or picture the team’s quarterback standing up in the postgame press conference and apologizing for having only won by 3 points when the final betting spread was 9 points in his team’s favor. While it’s laughable to imagine coaches or quarterbacks doing so, CEOs are expected to do both of these things.”

Clayton Christensen: How Pursuit of Profits Kills Innovation and the U.S. Economy

David Brin said...

Jeeez! It appears we have several very differnt voices chiming in as "anonymous". I can sympathize with not wanting to sign in. But please ID yourself in the body of the message! Otherwise, you get very low cred!

In fact, obsession with Asimovian psychohistory is very much related to the personality type that dives into AynRandian solipsism. Both concepts appeal to the temptation of nerds to think: "my neighbors are sheep - or drifting gas molecules - but I'll be able to calculate my way to demigod status, above their rabble." Indeed, this same appeal to vanity underlies all of the works of Orson Scott Card.

Mind you, I think Newt is more complex than this... and certainly Paul Krugman became a genuine adult, over time. Still, the underlying appeal is one we need to stay aware of. I am tempted by it, in my work, all the time and generally manage to fix the temptation... in rewrite.

Anonymous, you quote my favorite of all films, the greatest ever made, Dr. Strangelove. But even so... you seem proudly to base your image of the military... on a satirical movie. Few Americans, it seems, are aware of the fact that the US military officer corps is the third best-educated clade in AMerican life, after scientists and medical doctors. The generals and admirals are (mostly) stunningly obsessed with maturity and accountability.

Mistakes are made! But they are part of running institutions of staggering complexity, amid hormone drenched danger and high-octane jet fuel. The sheer fact that any US Navy Carrier group - staffed at least 50% by young men in their early twenties - doesn't simply ignite in a fireball during any given minute, attests that I am right about the meticulous nature of today's US military.

"A financial transactions tax is a work of sheer lunacy." Note that the argument cited is precisely from a finance industry supported "think tank". Making exactly the "efficiency" argument I predicted. Too late. A transaction fee is (I believe) part of the new EU arrangement. It is one reason Britain (dominated by the "City" bankers) opted out.

Ah... the actual author of the report signed in and ID'd himself. Well, well, that level of courtesy and engagement deserves a doublt recommendation that you all give his report a look! http://www.iea.org.uk/publications/research/the-case-against-a-financial-transactions-tax-web-publication

Only remember, it all boils down to "supply side" mysticism that has never, ever seen any of its large scale predictions come true. 

David Brin said...

This from my parallel blog on wordpress:

"70% Of All Stock Market Trades Are Held for An Average of 11 SECONDS"

http://www.marketplace.org/topics/business/why-we-dont-know-why-dow-fell

after reading this I inserted the following in my blog:

Indeed, the increase in market volatility that we have seen lately, with sudden spikes in apparently random directions, can be generally attributed to this trend.


For example, when asked to appraise why markets experience a sudden crash on May 6, 2011, without any apparent reason, Wall Street analyst Peter Cohan explained why such things are happening more often, and in wilder swings.


"... 70 percent of the volume of trading on the stock exchanges these days is done by something called flash traders, and that's basically computers that buy and sell stocks and hold them for about 11 seconds on average. So all of the discussions that we have the economy, politics, regulations, company earnings -- all that stuff -- there's just no way that a computer holding and selling a stock in 11 seconds is going to be able to do all of that analysis. So it's really all out the window. And there's really no clear-cut explanation for why stocks move up and down every day."

David Brin said...

Fact checks on last night's debate:

http://www.boston.com/news/politics/articles/2011/12/11/fact_check_plenty_to_question_in_gop_debate/

http://www.boston.com/news/politics/
articles/2011/12/11/fact_check_plenty
_to_question_in_gop_debate/

Frankly, I love that Romney offered a bet to Perry! I think we all should! You just have to phrase it right. But I am more and more saying:

"You sound awfully sure that you are 100% right and I am 100% wrong (and evil/stupid). If you are willing to bet our nation on it, then why not take my money? I'll put $100 on that... or assign it to your charity... if you are right.

"Have you the courage, the guts, the manhood to simply TAKE MY MONEY? That's what it comes down to, if you are so gol-durn sure."

With dolts on the street, the simplest one is "Is the second biggest shareholder in Fox a Saudi prince?" They always say "Bullshit!" and they always run away when I pull out my wallet.

Joel said...

Although an eTrade client may not notice the 0.1% transaction fee, they might notice that the difference between the bid and the ask is $0.25 instead of $0.03. And by the way, those values are ALWAYS against you when you trade. If you want to buy, it's the higher price. If you want to sell, it's the lower. If you made a mistake and bought the wrong stock, it's in your interest to have those values as close to each other as possible.

That's where the efficiency is.

I do work for a financial institution (call it ABC Corp) that tried to set up some automatic trading in 2004 though the original purpose was arbitrage, not getting the jump on trades. That same firm found a simple way to combat other's attempts to guess ABC's trades and push trades up and down. They calculate the time it takes for each network to get the trade and instead of sending out all requests at once, they hold them for different times and send them out so they all arrive at the exact same time.

Financial institutions are at war with each other and there's an arms race between them. And that's ok.

The benefit, despite your opinion, is that it benefits the end user in closer bid/ask prices. Derivatives likewise allow arbitrage and further compression of those bid/asks of share prices.

I disagree with your assessment that the secondary market does not benefit companies after the initial public offering (of say, Facebook). Usually the company is profitable before the IPO (let's ignore the dot-com era as irrational exuberance) and the desire to IPO is normally to expand. However the end user investor is unlikely to invest in Facebook shares without an easy way to sell those same shares that the secondary market provides.

And to throw in my personal bias, capital markets define capitalism. And it's what makes America (and Canada where I live) the best places in the world to live.

David Brin said...

Joel, you are courteous and welcome here. But hoping that you have a thick skin, I must look you in the eye and say bullshit.

1. You do not deal even slightly with my argument about energy gradients and entropy. By narrowing the price gap available to human traders, you by definition reduce their perceived and real trading benefit. You do it in precisely the same way that a parasite sucks off energy-food gradients in nature.... and you call it a GOOD thing!

2. "Financial institutions are at war with each other and there's an arms race between them. And that's ok."

Sorry, Adam Smith and Ricardo and Karl Marx and many others perceived that such fights need to be tuned by society so that they will be positive sum.

YES! I am libertarian in that I agree that competition is the driving creative force of nature. But what you and all historically ignorant smartguys fail to do is look at what happened when un-tuned competition happened in human societies of the past. Guess what!? Somebody or other won!

So far so good. Only then, what did those winners do with their new position on top? They proceeded to use it to suppress further competition. Go ahead. Find the exceptions. I'll wait. It is the fundamental "contradiction" of capitalism that Smith and others knew very well.

The trick of modern markets is how to gain the benefits of market competition while constantly wary for the latest clever methods to CHEAT. And you, my friend, are part of that latest innovative set of incantations aimed at massive, huge-scale cheating.

Oh, your incantations and liturgy are good. I can see I won't persuade you. Enjoy the catechisms.

"Capital markets define capitalism."

I could not have better exemplified the crazed Orwellian "black is white" world that you live in.

Market capitalism is the innovative delivery of better goods and services.

sociotard said...

(apologies if this has been posted before)

The GOP claims that the Millionaires tax would hurt small business. NPR decided to look for some to interview. What they found wasn't all that surprising.

David Brin said...

Fascinating excerpt from that NPR piece:

We wanted to talk to business owners who would be affected. So, NPR requested help from numerous Republican congressional offices, including House and Senate leadership. They were unable to produce a single millionaire job creator for us to interview.


So we went to the business groups that have been lobbying against the surtax. Again, three days after putting in a request, none of them was able to find someone for us to talk to. A group called the Tax Relief Coalition said the problem was finding someone willing to talk about their personal taxes on national radio.

So next we put a query on Facebook. And several business owners who said they would be affected by the "millionaires surtax" responded.

"It's not in the top 20 things that we think about when we're making a business hire," said Ian Yankwitt, who owns Tortoise Investment Management.

Chetmo said...

...If you believe that e-trading helps the average trader, what do you make of the fact that current regulation changes have been reducing incentive for start ups to go public? The best stocks are only going to be preferred private shares...
"During the last century, economic growth in the United States was unparalleled. A large portion of that growth came from the explosion of capital formation for small companies. It is high time that America gets back to that future.

In the U.S., we've been on a search to find the right financial regulation necessary to ensure markets operate properly, protect investors and provide for growth. There's no question that regulation is essential — we've seen the consequences of allowing for markets to operate without proper controls. However, in recent years we've also seen unintended consequences from the burden current regulations have put on America's biggest job creators: new public companies."- American Banker
http://tinyurl.com/6vg7hq9

Stefan Jones said...

In the New York Times:

The 1 Percent Club’s Misguided Protectors

"The economists found that income distribution contributes more to the sustainability of economic growth than does the quality of a country’s political institutions, its foreign debt and openness to trade, the level of foreign investment in the economy and whether its exchange rate is competitive.

It’s not too hard to see why. Extreme inequality blocks opportunity for the poor. It can breed resentment and political instability — discouraging investment — and lead to political polarization and gridlock, splitting the political system into haves and have-nots. And it can make it harder for governments to address economic imbalances and brewing crises.

Republicans might be tempted to dismiss such analysis as irrelevant to the United States, which is already highly developed. But as the second chart shows, inequality in America has soared over the last 30 years, approaching and even surpassing that in many poor countries. Today, America is an outlier among industrial nations. Its distribution of income looks closer to that of Argentina than, say, Germany.

So it is perhaps unsurprising that our recent economic crisis had some characteristics of boom-and-busts in less developed nations. It was triggered, in part, by 1 percenters on Wall Street persuading regulators to remove restrictions on their casino. It led workers to pile on debt to supplement falling incomes. It ended with a vast deployment of tax dollars to bail out fallen plutocrats. And our political system seems unable to deal with the aftermath."


'issonic': Be sound!

Tony Fisk said...

Goes there a (Higgs) boson?

cograte: slivers of animal protein added to the coleslaw

Unknown said...

For me, the inequality arguments are less important than the systemic stability arguments. I have been specializing in Software Quality Assurance since the mid '90s and the idea of giving automated systems the authority to trade without the possibility of effective human oversight on their own authority scares the **** out of me. Even if you have a complete understanding of how your system behaves in a normal market on its own, an assertion I find more than a little dubious, the kind of emergent behavior that you can get from multiple such systems in an abnormal market as might happen, for example, if the Euro melts down outright defies prediction.

Even the guys behind Long Term Capital Management (remember them?) at least had the (illusory) reassurance of their model which told them that the interest rate differential they were betting on could only get but so large. With these automated systems, you don't even get that much.

Now compare this to the cost of the transaction taxes. In my own case, my most frequently traded portfolio is once a month. A .05% tax would amount to a 1.0005^12 or ~ .6% drag on my CAGR. For my quarterly and annual portfolios, the numbers are ~.2% and .05% respectively. I would point out that this is small compared to the reduction in drag that came from decimalization that happened after I started running this portfolio. The useful thing is that this drag increases exponentially with trading frequency. Trade 1000 times and the drag is ~64%, 10,000 times and it is ~ 14,800%, a million times and my calculator overflowed. This means that even if you deem .6% too onerous for the monthly trader, you could go to .005% and the 64% bite occurs at the 10,000 trade level and 14,800% at 100,000 trades and now you can calculate that a million trades will give you a drag of ~5*10^23% all while costing me 0.06% a year on my monthly.

You could even feed this money into the SIPC so that this provides additional counterpart protection as compensation for the minor sums being charged to the low frequency trader. I would argue that any putative efficiency gain from high-frequency fully automated trading is more than outweighed by the systemic risks of putting the financial system largely in the care of systems whose behavior cannot be comprehensively understood, much less predicted. That this can be limited while imposing essentially zero net cost on retail investors strongly argues for doing so.

Joel said...

"You do not deal even slightly with my argument about energy gradients and entropy."
Mostly because I disagree that the analogy works beyond a shallow level of depth. I do not see the capital markets as a biological system but the closest true mathematical system that we have, where entrophy has no place.

As two parties come together, one desperate to buy and one desperate to sell (who both believe themselves to be rational), we have a limit of two functions (left side, right side) that approach (but do not equal) each other. If we define efficiency as the closeness of these two functions in a quotient number system (instead of a Real number system) then computer trading "monsters" improve efficiency, not reduce it.

I'm dressing the issue as a math problem instead of calling such actors "parasites" and using physical/biological models to colour them that way. Orwell's Animal Farm gave the revolutionary leaders the metaphor of pigs - so you can guess at his opinion of them.

Closing the gap between the price at which you can buy/sell, and the intrinsic/actual price for which should be paid, is a bottom-up perspective of market efficiency. That large number of participants "vote" on the price in varying ways leads one to expect the average of this group opinion to have little variance. A stock not heavily followed will have fewer voters, and a higher variance. More market participants encourages greater efficiency.

The bond market is 30x bigger than the NYSE/NASDAQ and the derivatives market even greater. All provide financing for expansion for companies. And all benefit from automatic trading strategies.

I won't disagree that those on top try their darndest to avoid getting crushed beneath capitalism's creative destruction. But despite its many flaws, it often achieves that aim. When it is working correctly, rich fools lose their wealth and are replaced by wiser fools. Capitalism does have an annoying habit of creating monopolies. And I do not contend that capitalism is the sole driver of creative destruction. Democracy has a part.

Joel said...

In Canada, our three national cell phone providers did not lower prices until government imposed an "unfair" frequency auction that brought in new competition - allowing outside foreign investment. And now I have unlimited voice/text/data on my smartphone for $23/month. Four years ago, my wife paid $95/month for voice. Your own government is discouraging T-Mobile and AT&T from merging. Democracy (and regulation) must balance capitalism. But that doesn't mean the agents of capitalism are broken. The financial meltdown indicates that the regulation have broken down. And I fully support reining in the derivatives market, similar to the 1940's where the rules were changed so that every company had to submit annual reports on time.

But I don't support a new tax on transfers of shares - they have something similar in the UK (which is likely a reason for opting out of the EU's new tax). It's called Stamp Duty. Any transfer of ownership (charities excluded) has to pay a small tax. Did that deter anyone in the UK? Hardly. They were more leveraged than any bank in the US. If the point of the tax is to collect money for the NEXT time we have banks too big to fail, then impose it as an insurance premium on their riskiness, not on the liquidity that they provide to the market (which is advantageous). Or perhaps break them up so they're no longer too big to fail?

"Market capitalism is the innovative delivery of better goods and services." I consider this a symptom of a properly working capitalist system rather than a driver. It was the financing of the enterprise that led to reduced cell phone prices and interesting new cell phone plans, rather than the delivery springing up on its own - which was a result. Without the investment that brought in the "new entrants", no innovation of any kind would have taken place. An idea for a business is not enough. Financial backing (from capital markets or your Aunt Martha) is required to set up any kind of shop. The innovation that you bring defines whether you stay in business for long.

Regulation defines the boundaries of where companies must stay. But the most profitable position usually sits right on (or trying to push past) those very same boundaries. Strengthen regulation and enforce the regulation that exists.

rewinn said...

@Joel - you appear to accept that some form of regulation is necessary to make markets in financial instruments work (...and we need not here quibble about what "work" means.)

A tiny transaction tax is the simplest form of regulation possible. It requires disclosing the absolute minimum amount of information, to government or to anyone else; it require zero application of the judgment of bureaucrats. It can be automated easily and very little cost. While in many cases, it will apply to transactions that don't harm the economy, the same is true of any other form of reporting and regulation.
Is there an argument that accepts regulation of financial markets but opposes a tiny transaction tax?

LarryHart said...

A bit off topic, but at least still about sci-fi...

At the suggestion of someone on this list, I just read the 1960s novel "Make Room! Make Room!" which was the inspiration for the movie "Soylent Green".

It was very different from the movie, although given that fact, it was surprising how much of the book's dialogue actually survived into the movie. The book had nothing about...well, the surprise ending of the movie...in it. In fact, I'd have to read the entire opening again to prove this, but I don't think the term "Soylent Green" was ever used in the book. Soylent is there as a manufacturer of food products, but it isn't a particularly big deal in the book. The murder which precipitates the whole investigation has nothing to do with the Soylent corporation.

And if there is any suggestion that the Soylent steaks and burgers of the books are made out of...the material of Soylent Green...it's so subtle that no one who hasn't seen the movie would even think of such a thing. The only puzzle piece that makes me think the author was maybe thinking along those lines was the fact that the Soylent burgers that appear late in the book are "not all that expensive." It's never followed up on as a mystery, though.

The book doesn't suggest a full-on global warming scenario the way the movie does. It starts with an August heat wave, but by December, there is plenty of snow. Unlike the movie, the book specifically argues in favor of birth control, and the old man character Sol has some rants about overpopulation causing all problems which would give "Atlas Shrugged" a run for its money.

And one thing Dr Brin should appreciate...the government is not portrayed as evil or incompetent, but as trying its best with the aviailable (limited) resources to keep people from dying of starvation or thirst.

A much different experience from the movie, but worth the read.

LarryHart said...

Speaking (sort of) of Krugman, this is from his blog today:

THE SILVER FOOT AWARD...

Goes to Mitt Romney.

Ann Richards once joked that the first George Bush was born with a silver foot in his mouth. The same surely applies to Romney,...


Dr Brin already commented on the merits of Romney's bet. I wanted to make a different point. I'm glad to see someone with enough sense of history to remember that Ann Richards's remark was made about the FIRST President Bush. I've lost count of the times I've heard it taken as given that she was chiding Dubya.

sociotard said...

I am not entirely sure this is accurate, but I'm told the journalist is generally professional and respected. You decide.

US Troops deploying on Syria/Jordan Border

According to first-hand accounts and reports provided to Boiling Frogs Post by several sources in Jordan, during the last few hours foreign military groups, estimated at hundreds of individuals, began to spread near the villages of the north-Jordan city of “Al-Mafraq“, which is adjacent to the Jordanian and Syrian border.

According to one Jordanian military officer who asked to remain anonymous, hundreds of soldiers who speak languages ​other than Arabic were seen during the past two days in those areas moving back and forth in military vehicles between the King Hussein Air Base of al-Mafraq (10 km from the Syrian border), and the vicinity of Jordanian villages adjacent to the Syrian border, such as village Albaej (5 km from the border), the area around the dam of Sarhan, the villages of Zubaydiah and al-Nahdah adjacent to the Syrian border.

David Brin said...

Wow Unknown, you sure added a dimension of real numbers to this argument. Stunning.

Joel, alas, tries to sound as intellectually cogent as Unknown. But by starting out dismissing (and misspelling) "entrophy" he proclaims a starting condition of staggering ignorance.

Joel, Joel. Entropy is a thermodynamic term. It applies in biology yes, but even more relentlessly in INFORMATION THEORY... which is what you protest that you know a lot about. And if you do not think information theory applies to finance then where have you been for 80 years?

You claim that creating "closeness" between the seller and buyer prices is "efficiency." It is only efficiency for those trying to come up with gobbledy-gook rationalizations for parasitism.

Buyers and sellers of stock WANT the steep gradient between different perceived values! Sure, it means that one of them will win and the other lose. But that is the Darwinism involved and the thing that markets supposedly are about.

Sure, there is one way that narrowing that perception gap is GOOD. When the narrowing occurs because of increased information and better modeling by BOTH buyer and seller. Equality and maximization of information can deliver the kind of efficient narrowing of the price gradient... and then buyers and sellers will have to work a bit harder, taking a lot more "nibbles."

You seem to be claiming you are doing this, but you are not! Flash-computer trading is all about predatory leaping, using restricted information and private advantage. It is parasitism.

As for your redefinition of capitalism as revolving around finance, well, everybody perceives the world revolving around themselves. In this case it is utter drivel. America's greatest booms in market activity, in crrative competition and the generation of new enterprise happened BEFORE the recent fixation on bankers and Wall Street wizard "efficiency."

Proof? All of this devolves down to the privileges of firms and men who inherited or bought "seats" on exchanges and thereupon get to trade for free. A huge advantage in normal times, but now a staggering kingly privilege that gives the complete lie to any notion that this "efficiency" helps buyers and sellers.

Sorry, you guys are parasites.

David Brin said...

LArryHart, Iasked Harry Harrison about Soylent Green. He was bitter because his book had no "cannibalism." I asked him if he realized the film was beloved, it recruited tens of millions of environmentalists and was otherwise pretty consistent with his book... and the cannibalism could easily have been happening in his world, offstage.

He admitted all that... and that he was a grouch who loved to gripe!

David Brin said...

BENEFITS of a GINGRICH CANDIDACY:

1. Would get rid of slick Romney. Romney the day after getting the nomination would charge for the center so fast the Tea Partyists would lose their tricorner hats in the wind. Newt would be less slick.

2. Who woulda thought that today's GOP - the most anti-intellectual know-nothing movement in America since the 1830s, would swing to the only intellectual onstage? (Ron Paul puts up a good show, but he's a half-wit.)

Without any doubt, the debates with Obama would feature some startling moments of actual light. Perhaps even some STIPULATIONS (any of you recall my essay about that, issued every election year?) Recall that when Newt did that under Clinton, we had moments of actual progress for America... before his next gyration into lala-land.

3. He is completely unafraid to express his lala-land other self. Yay.

4. If he wins, he'd praise sci fi.

Skex said...

Supply side Mysticism. I like it.

It's the field of dreams falacy.

The entire supply side premise is predicated upon the idea that if you build it they will come (and buy it) with out ever considering whether or not "they" would want it or thinking about how "they" would afford it.

Somehow Demand and the capital to fulfil it are just supposed to magic out of the ether or something.

David Brin said...

Newt's economic plan:

http://news.yahoo.com/blogs/lookout/gingrich-end-fed-focus-jobs-focus-only-inflation-141508938.html

http://news.yahoo.com/blogs/lookout/
gingrich-end-fed-focus-jobs-focus-
only-inflation-141508938.html


Actually, one plank has a glimmer of my support. I think the cap gains tax should be a low 5% for new shares in brand new startup companies, held for 5 years.

It should be 15% for newly issued shares from established companies held for 5 years,

And ALL other cap gains should be normal income. (I'd be willing to discuss in open debates the concept of inflation indexing.)

LarryHart said...

Dr Brin on "Soylent Green":

Iasked Harry Harrison about Soylent Green. He was bitter because his book had no "cannibalism." I asked him if he realized the film was beloved, it recruited tens of millions of environmentalists and was otherwise pretty consistent with his book... and the cannibalism could easily have been happening in his world, offstage.


The two mentions I saw in the book of meat (or meat-like substance) was early on when the theif steals "Soylent steaks" and sells them for a lot of money, and then later on when Shril brings home three "Soylent burgers" and mentions kind of off-handedly that they didn't cost all that much.

That second part (with full hindisight from the film) made me kinda/sorta suspect that Soylent might be mining the only remaining large supply of meat for its protein products. Still, if that's what was in the author's mind, he most certainly didn't pursue it any further. There wasn't even a suggestion that the question of "How is this NOT expensive?" lingers as a question to be answered later.

This book/movie combination now joins "Logan's Run" in my mind as one in which the movie surpassed the book by tightening up the plot. Both book "Make Room!" and movie "Soylent Green" work as dystopian sci-fi, but the film works better both as a mystery, and as a political thriller. The book probably wouldn't have stayed in my mind very long, while the movie sticks with me, and I keep wanting to watch it again as it becomes more and more relevant to a future we'll have to live through.

Jane Shevtsov said...

I'm a PhD student in mathematical ecology and this discussion reminds me of a paper I recently read that shows that increasing energy flux between trophic levels (say, plants to herbivores) by various means, including increased efficiency, is generally destabilizing. (http://www.ncbi.nlm.nih.gov/pubmed/21627748) There's also Robert May's work from the 1970s, which shows that, in general, increasing the complexity of an system destabilizes it. Now, real ecosystems have various features that allow them to escape May's result and have a positive complexity-stability relationship, but it's up to the efficiency-obsessed economists to show that ANY such mechanisms exist in stock markets.

David Brin said...

Just updated and improved my stock market posting with new material

Marino said...

for Paul 451:

"Speaking of Asimov, wasn't one of his short stories about the development of sentience by an author's word-processor? "

iirc it was a lynotype, and the title was "Etaoin Shrudlu", not an alien name, but the letters you get striking keys at random

Marino said...

re: inequality, for Stefan Jones:

an Italian economist teaching in an US University debunked a bit the role of inequality with a tought experiment and some Excel spreadsheets.
He assumed a society where income is perfectly equal , and everyone tries to get the same standard of living all over his/her life. During the job life each individual can save and accumulate assets, as the wage is higher than the sought-for net income, when he retires the pension is lower than the wage, so he has to liquidate assets in order to keep the same standard of living, so when he dies nothing is left to be inherited.
Well, even such society, with perfect INCOME equality has an unequal WEALTH distribution, as the age class of those who have just retired will own over 40% of all wealth... in fact not much different from wealth distribution you find empirically in societies with unequal income.

sociotard said...

Marino, can you link to that study?

Joel said...

Actually I work for a custodian now, where I really am a federally mandated parasite. My company holds assets for various pension plans, mutual funds and insurance companies, requiring them to pay for the privilege of holding assets with us. Every settlement instruction, trade or cash transaction generates fees for us, which in turn comes out of the pockets of main street folks. This is generally in addition to the Management Expense Ratio (MER) of mutual funds or the admin fees of pensions. The value-add is to separate the Investment Managers (who are graded on their performance) from their performance reporting (as they'd probably like to massage the numbers where possible). So I'll happily agree that I'm a parasite. But I'll also point out that I provide a small value to every Tom, Dick and Harry who hopes their mutual fund isn't run by a Bernie Madoff.

The benefit of adding such a 0.1% transaction fee is that it will help me personally. I'll need to draw up requirements for the new fee, adjusting the settlement instructions to accommodate the new tax.

I don't think any stamp duty transfer tax will help in any way. It didn't seem to work in the UK. But please don't call it "Stamp Duty" - I wouldn't get any benefit if we just re-used the same field as the Brits.

Come on man. Help a bro out :)

If you want the last word, take it. I'd rather this not be reduced to one of us calling the other a Nazi.

David Brin said...

Joel, the only astonishing thing is that you can describe at least three reasons TO do the fee... as you just did... while actually thinking that you were arguing against it.

Boggling.

Lynx said...

Marino: etaoin shrdlu is a sequence of the ten most frequently used letters.

rewinn said...

@Joel - why not call it a "Securities Turnover Excise Tax (STET)"?

That's what it was called in the past, when it worked just fine from 1914 to 1966.

David Brin said...

Rewinn got a link for that tax?

David Brin said...

In 2010 there were 34.3 births among every thousand girls between the ages of 15 and 19. That’s down 9 percent from 2009. And it’s the lowest number in nearly seven decades of reporting. The figure comes from a new report from the Centers for Disease Control and Prevention called Births: Preliminary Data for 2010. [Brady E. Hamilton, Joyce A. Martin and Stephanie J. Ventura] And it’s filled with interesting stats. For one, teen births have hit that record low. And that statistic includes more good news – birth rates are at record lows for all ethnic and racial groups, and even for younger teenagers.

The number of births to unmarried moms also declined. And pre-term births declined. The trend towards lower numbers is general - the birth rate fell overall by 3 percent. It’s also down for women in their twenties and thirties

As usual, Red America scores lower in every respect. But the whole country is doing better.

With steeply dropping crime.

With the lowest tax rates in 80 years and federal taxes taking a smaller share of national income than any time since 1950.

Hannity is such a horror.

http://www.scientificamerican.com/podcast/episode.cfm?id=us-teen-births-hit-record-low-11-12-12

http://www.scientificamerican.com/
podcast/episode.cfm?id=us-teen-
births-hit-record-low-11-12-12

The Vagabond said...

Ain't much, but here's your standard Wikipedia article on STET.

rewinn said...

"...got a link for that tax?"

(...muttering to self "where is that ???")

I first heard of this concept from Thom Hartmann, who is usually reliable. He wrote on it in How Wall Street Can Bail Itself Out Without Destroying The Dollar" (2008). However there's no citation to the actual code.

Googling around, I see a distressing variety of names for the concept.

"Securities Transaction Taxes
for U.S. Financial Markets"
(2001/2002) on page 14 refers to our USA having had a "small" but not a "significant" STET - "From 1960
to 1966, stocks were taxed at the rate of 0.1 percent at issuance and 0.04 percent on transfer.
Bonds were taxed at the rate of 0.11 percent at issuance and 0.05 percent at transfer." I'm still reading the paper but it looks pretty interesting. I apologize for not knowing more on the subject and perhaps I was overly enthusiastic about the impact of our small STET was effective for market stabilization, but it seems not to have been harmful, at the least. I would guess that it would not have been deployed then as a measure for stabilizing program trading because the technology for the latter didn't then exist.
(You might enjoy talking with Hartmann; he keeps looking for a rational libertarian to debate with on the air, because that can lead to interesting conversation.

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David Brin said...

Rewinn... tell Hartmann for me that I am a "heretical" libertarian who touts Adam Smith and the creative power of competition and share's Smith's disdain for oligarchy. In today's libertarian movement - obsessed with hatred of government and idolatry of unlimited propertarianism, I am rather a heretic.

Robert said...

Crime is down because crime isn't profitable for police departments. They are IGNORING non-drug crime. The number of unsolved murders is up. In short, the nation is NOT safer. Instead, police are so fixated on grants and seizures for fighting drug crime that they don't bother with less profitable crime.

Rob H., who linked a story about that here a bit ago...

Tony Fisk said...

New York appears to have had a steady reduction in crime rate over 20 years

Marino said...

sociotard: the study is in Italian on a blog named NoisefromAmerika, I'll ask the author if he'll rewrite it in English. Here's his webpage:
http://www.stonybrook.edu/economics/people/faculty/directory/sbrusco/contact/

the article in Italian is here:

http://www.noisefromamerika.org/index.php/articoli/La_disuguaglianza_della_ricchezza_in_una_societ%C3%A0_di_uguali

Lynx: true, they're the most frequent letters, and the story isn't by Asimov, but by F. Brown...

David Brin said...

Pleeeeeez nominate Newt.

http://www.washingtonpost.com/business/study-gingrich-tax-plan-would-provide-big-breaks-for-rich-blow-huge-hole-in-budget-deficit/2011/12/12/gIQAfHiJqO_story.html?tid=pm_business_pop

I have other reasons. 2012 would simply be way more fun! And I detest him less than any of the others (except Huntsman). And if he actually won, 25% of what he did would be so cool it would counterbalance one third of the awful stuff!

But stuff like his tax plan... oh, gotta love him.

Paul451 said...

The number of Syrian protesters killed by government forces has passed 5000, including more than 300 children. More than 14,000 have been arrested. This one doesn't have a happy ending.

http://www.abc.net.au/news/2011-12-13/syria-death-toll-rises-to-5000/3728750

The article describes calls for Syria to be referred to the ICC by the UN Secutiry Council for crimes against humanity. But Russia is already blaming the West for the violence in Syria and will inevitably veto.
--
Joel,
"Or perhaps break them up so they're no longer too big to fail?"

Interesting idea not mentioned enough post-GFC. Assessing mergers should include the effects of the business failing. Ditto regulations on interconnectedness. And I can imagine the howls of outrage on Fox, WSJ, Wall Street itself, if a Presidential candidate floated such a policy. "Too big to fail means too big, period."

Paul451 said...

David,
Re: Gingrich's tax plan.
<sigh> Another idiot politician who doesn't understand the word "Flat" in "Flat tax". He wants an optional "flat income tax" of 15%... Except cap gains will be zeroed, and Corporate tax rate will be 12.5%. Thus exempting the majority of income from his "income" tax.

Marino,
"Etaoin Shrdlu [...] but the letters you get striking keys at random"

As Lynx pointed out, it's the letters of the English language in descending order of frequency. (Popularised by the keyboard on Linotypes which had letters in that order. etaoin / shrdlu / cmfwyp / vbgkqj / xz. Interesting that this could have become the standard for computer keyboards had printing rather than typewriting been the first model & market. The order was first worked out by cryptologists trying to break Caesar- (or Vigenère?) ciphers.)

Still can't find the story by Asimov, though. "Etaoin Shrdlu" was by Fredric Brown.

("Fault intolerant" is the same story from the writer's perspective. "Cal" is similar, but uses a robot. I can't find the one I mentioned.)

(ouningyn: pwnage, as spelt by operators on the Victorian Internet.)

Paul451 said...

Maker of a dazzle-laser rifle says an "unnamed police force" wants to use it against "rioters" (which invariably becomes any protesters.)

http://www.bbc.co.uk/newsbeat/16137543

Since it can be defeated by cheap lcd welding-goggles, and turned back on the police by the use of mirrored surfaces (ideally an elliptical mirror), how long is it going to be useful for against anyone genuinely hostile? So it can only ever be used against peaceful gatherings where people aren't prepared for voilence.

LarryHart said...

Dr Brin:

I asked Harry Harrison about Soylent Green. He was bitter because his book had no "cannibalism."


I'd counter that the movie didn't either. Ok, it did on a technicality, but the people themselves weren't "cannibals". That's why the source of the food had to be such a big secret.


Flash-computer trading is all about predatory leaping, using restricted information and private advantage. It is parasitism.


I suspect you and Joel will never find common ground here because you fundamentally differ on whether stockholders are parasites or the rightful inhabitants of the body. You (and I) see the focus on "stockholder value" as REMOVING that value from the system, draining it away from the corporation itself and ultimately from society. The other side sees the whole POINT of the existence of the corporation as providing that value to the rightful owners, i.e., the stockholders, after which, what happens to the "surrogate host body" means little.

To extend the biological metaphor, the aforementioned Thom Hartmann believes that capitalism has reached a "cancer state" in which the big corporations grow uncontrollably until they kill the host body.

It all gets back to just what the point OF corporations is. Seems to me that in the old days, an entrepreneur had an idea for a product or service that could be manufactured and/or delivered at a price that would keep the enterprise going and deliver a profit on top of that. The profit might be the reason why investors would pony up cash up front, but the reason it was in society's interest to CHARTER the corporation in the first place was because it met a demand. General Motors provided stockholder value, but it's MISSION STATEMENT had to do with producting automobiles.

Sure, a corporation should maximize shareholder value WITHIN THE RULES OF THE GAME, but those rules of the game are created by government, often in the corporations's favor, because the corporation provides a public good. The notion that corporations have no responsibility to the public good begs the question, why should governments charter them in the first place? The notion that these soulless, amoral, sociopathic (by design) entities have all the rights of self-determination in the Declaration of Independence and the Constituion of the United States is beyond absurd. It is a mockery of the ideals on which this nation was founded.

That's why I'd be in favor of a Constitutional amendment which established that the charter of any corporation operating within the territory of the United States is presumed to be subject to the "Three Laws of Corporatics" adapted from Asimoves Laws of Robotics:

First Law: A corporation may not externalize the costs it imposes upon the surrounding community and environment [This might also be phrased as "First, do no harm."]

Second Law: A corporation must act to perform the mission statement it has been chartered for to the extent that it does not violate the First Law.

Third Law: A corporation must maximize its value [emphasis added:] TO THE EXTENT THAT IT DOES NOT VIOLATE THE FIRST OR SECOND LAWS.

neil craig said...

However if you are correct and all this parasitic trading is worth less than 0.5% of the real proprety then when the tax is brought in it will all end and all these hundreds of billions the even more parasitic governments want won't appear.

The other point I have against it (and you may see as a benefit) is that it can only work with, and will inevitably create, some worldwide governmental monopoly because if Dubai, Singapore, Zurich, Bermuda or London don't go along they have a trading advantage.

sociotard said...

Marino wrote

sociotard: the study is in Italian on a blog named NoisefromAmerika, I'll ask the author if he'll rewrite it in English.


That's alright, I just wanted to see his assumptions. Google translate isn't great, but it gave me what I needed.

I think he missed the point!

I would never advocate for total equality. I want Goldilocks inequality. I would say there are serious issues with the current high degree of inequality.

I think he may have been looking at the wrong dataset. The data said that that 10% of households controlled 45% of the wealth, but that was just data for the Bank of Italy. It may not contain data for the wealthiest segments.

The Gini coefficient suggests that Italy is just a touch more inequal than the United States (53% to 49%). Here, 1% of the population controls 40% of the wealth. That's a huge difference compared with 10% controlling 45%.

Robert said...

The point of the tax is to stop the micro-trading which exist only to put money in the pockets of financial companies, rather than to build genuine value.

By the way, while I was hunting with my dad back in October, we talked about taxation and the like and he suggested an excellent idea concerning tax breaks to encourage employment: have tax breaks for long-term employment. The longer an employee works for a company, the larger the tax break. This would give companies an incentive to try and keep employees for a longer period rather than recycling employees once they've made too much money.

I'll have to find the URL of that article on the girl being stalked by the cops after she gave them trouble for not catching a mugger who went after her - they "forgot" to file the paperwork when she initially reported the crime. And then told her to drop it. And then raided her apartment for drugs because she embarrassed them through the media.

Rob H.

LarryHart said...

Robert:

while I was hunting with my dad back in October, we talked about taxation and the like and he suggested an excellent idea concerning tax breaks to encourage employment: have tax breaks for long-term employment. The longer an employee works for a company, the larger the tax break.


As a counter to the whole "can't tax the job-creators" meme, I would be perfectly happy to offset a more progressive income tax with deductions (just like charitable deductions) for any funds that were actually used to create jobs. This probably applies to corporate income tax more than personal, but a small business owner who finances his enterprise with personal funds might benefit too. It might not be exactly what you were talking about, but I think it's on the same page,

So as not to re-litigate the argument I had with Tacitus2 recently...I consider a tax deduction for money ACTUALLY USED in job-creation to be a whole different thing from the supply-side argument that if you FIRST give rich people lower taxes, they WILL use the surplus to create more jobs.

The Vagabond said...

Now hold on, hold on. Let's not get all riled up saying that the tax cuts the wealthy get are not really helping with job creation; it is.
I work for an investment company and...
Oh. Never mind, I get it.

TCH said...

Vagabond can you provide data to support your assertion?

Joel said...

Well said. Forgive me for commenting on your new post.

The London Stock Exchange has HFT in the 60-70% range. I'm going to suggest that a transaction tax has little effect. Skynet will still come.

I think you have lofty expectations for this new tax, though everyone has a different view on how the money will be spent. Supporting a supra-national securities regulator sounds great, until you realize that the money isn't going into your governments pockets to pay off the deficit that Wall St helped to expand.

Instead you introduce a Moral Hazard so that large FI will now expect to be bailed out if they screw up again. If you're editing your post again, you should probably touch on this.

For Joe Plumber, a simple limit order completely negates the advantage of HFT. Enter a trade for $25 and you get it for $25. You just bested a million dollar computer.

Liquidity and closer bid/asks hold no value for you. Fine.

So what about Market consistency - a stock on the NYSE costs $55. The exact same stock costs $55 on the TSX. But the exchange rate of USD/CAD is 0.95. A computer would quickly pounce on the opportunity, selling one stock, buying the other until the two stocks matched in price between the Stock Exchanges for the exchange rate. Buying on one exchange pulls the price up. Selling on the other exchange pushes the price down. An FX Exchange requires selling USD to buy CAD dollars will have a similar push/pull on the currency markets.

Do you honestly not see the merit in the correction by market participants to equalize prices, while taking a profit in the process?

Or are you okay with a human doing it but not a computer?

With a tax, the computer would simply wait slightly until it was more profitable - or stop just short of it being perfectly aligned. The correction between markets would simply be slower. Yay.

So add this to the market efficiency drivel that the faithful spout.

The Vagabond said...

Seriously, my cousin-in-law is an accountant and was down visiting the Mrs. folks. They are, for alack of a better term, conservative. Arch conservatives. 24x7 FOX conservatives. Not bad people, just really set in their ways. The after dinner discussion turned, as it inevitably does, to politics and the economy. I, being cut from other stuff (i.e., I'd prefer a root canal than endure their cries of socialism), tried to find a way to gently ease the family out the door, when suddenly, the cousin says, "no, OWS has a real gripe, and they are right; the economy is out of whack."
A jaw hitting the floor makes such an interesting, soft thud.
Instead, I got to enjoy another hour of him dismantling the in-laws arguments, one at a time, concluding with "supply side economic theory only helps the suppliers".
So, the evening ended on a high note.
Coffu; soy-based coffee.

Robert said...

Actually, Joel, you're incorrect with your claim that a flat $25 purchase would negate the effects of high-speed trading. Let's say for a moment that I'm going to purchase $25 of Generic Systems stocks. The price of the stock is at, we'll say, $10 a share. I would get 2.5 shares except the microtrade upped the price of the stock AS I WAS PUTTING THROUGH THE SALE to, let's say, $10.05. Now I'm getting approximately 2.49 shares of GS stock. When the value of the share drops back down to $10 a share, I've lost money. And seeing that the ONLY reason for the increase in price was that I was buying 2.5 shares, I've now lost 10 cents for my purchase.

In short, rapid computer trading sucks profits away from consumers and to financial companies that have the quickest gun-computers. And the actual value of the stock is actually no different now than it was when I was going to do a small-scale purchase. The company didn't state it had a new product or report improved profits. The ONLY reason for the price increase was my purchase of shares... and my share was reduced by this system which sucked my value away from me and into the financial company's pockets.

And you state this is a good thing.

Rob H.

The Vagabond said...

Poof, It's Gone

Efuslyco - A Delaware Corporation

TCH said...

I see what you did there.

Tony Fisk said...

My one dabble in the stock market involved taking share options in the company I had just joined. There was a noticeable spike in share prices at the time these options were bought.

This is precisely what flesh trading does.

Not falling for that one again.

===

Flashing lasers: I hear some police are already using strobes to anonymise some of their nocturnal dealings with the occupy movement. I wonder how long it will be before there's an android app. that flash pauses video frame capture when a rapid increase in illumination is detected?

David Brin said...

http://www.youtube.com/watch?v=JJF7Mm-Y-SM&fb_source=message

The GOP and Sen Inhof Lauding "Collapse of Global Warming Movement" Inhofe Tells UN Summit "You Are Being Ignored"

The story was not "etoin shrdlu" it was "Galley Slave"... about a robot who whould take paper manuscripts and page proofs and turn the pages, marking spelling errors! Today it reads stunningly hilarious.

Tony Fisk said...

I find it an interesting coincidence that John Howard was launching Ian Pilmer's latest tome on the subject

So, no Sen. Inhofe, you aren't the only one talking about AGW.

Tony Fisk said...

Note: Howard's ignorance of the issues and the science are on display, but he was among friends.

myoggi: social website that uses open source sound format

Robert said...

Here we go: the article on how police are ignoring violent crime and going after minor drug busts instead because there is greater funding for drug crime than preventing murders and the like. So, yes. Crime is down. Because when crime goes unreported and the police fail to file reports, then naturally the police statistics will show a decline in non-drug crime.

Rob H.

Stefan Jones said...

Harrison's Make Room, Make Room was a grim, realistic awful warning story based on straight-line extrapolation of the worries of the time; it had lots of gritty New York details.

We dodged that future . . . or perhaps just kicked it down the road a piece. Instead of being full of Taiwanese refugees in 1999, NYC could be full of greenhouse refugees in 2019. Just in time for 2022 . . . the year that Soylent Green was set.

* * *
Uh-oh:

Shock as retreat of Arctic sea ice releases deadly greenhouse gas

Russian research team astonished after finding 'fountains' of methane bubbling to surface

This clearly calls for immediate action, like a Fox News special on the War on Christmas, or Newt Gingrich, posing in a snow storm, declaring global warming a hoax and reaffirming his life-long opposition to Cap and Trade.

'semahs': Out of creative juices. Sorry.

Chetmo said...

I can always count on this blog to have the longest, most involved and convoluted comment threads...
Mr. Brin- I echo your response to Joel in re: entropy. As a former Chemical Engineering student, I consider the laws of thermodynamics sacrosanct. I even have had heated discussions with physics students about their very nature ( the statistical probability definition vs. application vs. the driving force in our understanding of interval)..
As a matter of fact, his interpretation of an economic system devoid of entropic nature raises some serious questions as to how he envisions his model for such a system, a discussion I'd like to see pursued (in another place, as threads should not become college dissertations, IMHO)..

Paul451 said...

Tony,
Re: Plimer's AGW denial book for kids.
From the article: "The new work includes 101 questions which it says students can use to challenge their teachers on climate science."

The weird thing is Plimer has been involved in battles with Creationists over the years, he would know that "challenge your teachers" is a classic disruptive Creationist tactic for brain-washing kids.

(Likewise language like "Warmist", projecting religious motives onto non-religious scientific opponents. Classic Creationist tactic.)

(dutiesse: High end duty-free. From Paris International.)

Tony Fisk said...

I think 'tactic' is the operative term here, Paul. Pilmer is indulging in polemics to protect his own mining interests. Either that, or religion is an infectious meme and we can expect Dawkins to start speaking in tongues at any time.

...Praise Him!

I will be interested to see how many of Pilmer's 101 points have already been covered by Cook's rebuttal list

The Vagabond said...

Nice take on some of Plimer's work.
http://www.guardian.co.uk/environment/blog/2009/dec/14/climate-change-sceptic-ian-plimer
Dephypen - When you are going into anaphylatic shock, just ask for it by name.

LarryHart said...

Stefan Jones quotes an article:

Russian research team astonished after finding 'fountains' of methane bubbling to surface


I'm fascinated with the use of the word "astonished" above. Not just in this story, but in so many other media stories that revolve around the concept of:

"Things are happening just as Paul Krugman (or fill in any marginalized expert voice) said they would, but the real experts all considered him to be a kook, so it's now a COMPLETE SURPRISE THAT NO ONE COULD HAVE POSSIBLY FORESEEN that events are proceeding as he said they would."

Like when austerity programs fail to mitigate a depression. "Who could have possibly foreseen that?"

I'm reminded more and more of the explanation given fairly late in Dr Brin's "Earth" as to how things got so bad as to lead to the Helvetian War--that the real powers behind the scenes made sure that any reasonable voices were marginalized, bought off, or assassinated so that a crisis HAD to occur.

Paul451 said...

Paul Allen, Burt Rutan, and Elon Musk are teaming up for Allen's new company. Stratolaunch Systems.

http://stratolaunchsystems.com/presskit.html

Launching satellites (or a SpaceX Dragon capsule) from a cut-down SpaceX rocket, itself carried into the stratosphere by a big (and I mean big) Scaled Composites plane.

(luckle: To collapse under the sheer improbability of it all.)

sociotard said...

For some fun, check out the "concept trailer" (one for a movie never made) made by a special effects amateur for $150

Goliath

Robert said...

On an environmental/whaling-related tangent, here's an article concerning Japanese whaling with some fascinating and disturbing data about the contamination of sperm whales with DDT which could eventually cause a number of whale species to go extinct.

Rob H.

balin: a name that should be familiar to Tolkien fans

David Brin said...

onward

Joel said...

Clarification:

For Joe Plumber, a simple limit order completely negates the advantage of HFT....

****Instead*****

Enter a buy order with a price of $25 and you get it at a price of $25, assuming the asking price is $25.

Let's suppose though a HFT sends in a trade to buy up all stocks at $25, and offer it for $25.05 then you're left waiting for a fill.

Annoying maybe. But let's say you do nothing for a moment. If HFT only holds it on average for 11 seconds, it'll have to sell it again at a price at.... $25 (your bid).

If the HFT doesn't hit your bid, you're the highest bid there is. So the next person who sells will sell it to you. Now the HFT didn't hit your bid, and now has to sell it - at less than $25, creating a loss.

Marino said...

Re: Galley Slave...

geez, I forgot it, and I've read it, too... the robot iirc destroyed the career of a sociologist rewriting his book into non sequitur because his remarks would hurt some ethnical group, and therefore he obeyed the First Law. Oh noe, another stori my Rightist penpals will adopt to chastise political correctedness after repeating "Harrison Bergeron" everytime one mentions unequality.

sager said...

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