“The monotony and solitude of a quiet life stimulates the creative mind.”

I’m quite fond of it, and I think it encapsulates my current attitude.

While I am still adjusting to the horrific transit system in the Greater Seattle area, I’m trying to spin a positive on it.  I’ve been given the gift of time, woo…

So now I’m reading.  A lot.  But it’s great – I’m completely enthusiastic about enhancing the field of economics through borrowing from other science disciplines, i.e. psychology, decision sciences, physics and thermodynamics.  A while ago I came across complexity economics, which is based on complexity science and the notion that there is no sense of equilibrium within closed systems (the traditional view of economics) but rather open, dynamic, adaptive and complex system that evolves.

In an effort to educate myself on the foundations of complexity science (I am still trying to get a grasp on entropy), I picked up Deep Simplicity by John Gribbin.  With his digestible prose, I breezing through this, but fully involving myself with an eye for application with economics.  This sh*t is awesome!

More specifically, he draws up Lorenz and his discovery/development of the butterfly effect (coincidentally, or not, there’s a behavioral sciences/econ book called the Butterfly Effect that draws on complexity sciences.  I should pick that up again).  What was interesting with Lorenz is his discovery was that it is painfully difficult to forecast weather without the precise initial conditions.  Lorenz was playing on these new fangled devices called computers in the 50s when he made the realization that if he inputs numbers that aren’t precise, that is, that aren’t to the “correct” or appropriate amount of decimal places, the forecast/predictions will progressively be off of the more precise input in a nonlinear fashion.  If he couldn’t get the exact initial conditions (which would be decimal places off to infinity), he could not predict weather beyond a few days.

This is what came to be known as the Lorenz/butterfly effect.  I’m not sure how best to describe it…..so, I won’t.

My actual point is that I can see the Lorenz effect being applicable to the realm of economics.  First, it has to be impossible to model “the economy.”  Macro/micro economic models simply can not contain every agent, every being, every cent, every decision.  At best, models use probabilities and samples, and supposedly economists settle for this.  But as I read this book, models based on probability, samples and approximations are crude, so much so that it hardly gives a solution pointed in the right direction.  What if economists were to push the mathematical limits of the foundation of their science and rather than have the idea of economics be a social science, have a sense that it’s a hard science, like physics.

What if economics had the assumption of chaos, rather than equilibrium?

Oh.Em.Gee.  My mind is being blown and I <3 it.

1) Who else, other than other academics, reads this crap?

Yea I don’t think anyone.  The main reason being it’s difficult to understand without a rigorous economic education.  Who will understand econometric models or the method of choosing dynamic stochastic general equilibrium models versus Walrasian models?  Not many.

2) Why don’t writers care more about the “reachability” of their writing?

I say, status-quo, and to maintain a level of elitism.  If many people understood, then so goes their curtain of mystery.

3) Why are these papers so heavily bogged down by methodology of research?

Time after time, I read the abstract, intro and start getting into the nitty gritty of the paper, but I’m left with wanting more explanation, purpose and the question of “so what?”  What is the purpose of all this finely tuned research if it’s not being applied or used in some fashion?  If someone is researching the effectiveness of monetary policy, shouldn’t this research be actually _used_ in the Fed?  rather than published?

Here are my thoughts.  The research is very cerebral – economists can emulate mathematicians.  Often the reasoning, methodology, purpose, etc is obfuscated within esoteric language.  Therefore it’s not going to be easily understood within a greater arena, and then not utilized for the benefit of the field of economics.

I hope to break this cycle – produce research that is reasonably applicable _and_ understandable.  I hope to be an intelligible voice  for the field so as to make the education of developments in economics (i.e. monetary policy) clear to those who are interested but perhaps not have the background in the field.

Mark Thoma, an econ professor of The University of Oregon, picked up on the article.  He had no comment or much knowledge on the FHLB system, which proves the lack of understanding even in the academic, “in-the-loop” circles.

Here was my comment to his post, for education purposes:

I’m happy to see that this article is starting to get around. It had been surprising that there hasn’t been any publicity in regards to the FHLB’s importance to the banking system.

The way that the FHLB is set up is, in the best of terms, “all-encompassing.” In order for a bank to borrow term advances/loans from the FHLB, it has to pledge it’s mortgage portfolio. The amount you can borrow depends on the type of loan (conforming, jumbo, “subprime”, 2nd home, etc) that is pledged, and there are separate haircuts for each.

The FHLB can impose adjustments to haircuts to different loans. During the height of the crisis, this became a concern because the majority of many banks’ wholesale funding is from the FHLB. An increase in haircuts equal a decrease in borrowing capacity. Also, an increase in defaults or slips in status of loans equal decreases in borrowing capacity.

It’s troubling when borrowing is limited further because the FHLB is the cheapest wholesale funding out there compared to brokered deposits, term repo agreements and other wholesale options. Banks can borrow overnight often below the fed funds effective rate, as well as cheap longer term funding up to 20 years. Constricting this sources forces banks to use brokered deposits to fund loans or investments, which is expensive both in terms of rates paid as well as FDIC assessments.

On top of this, the FHLB requires banks to buy stock in order to be a member. How much stock a bank has also limits the amount it can borrow. If banks want to borrow more against the loans you pledged, they will have to buy a % in stock. I know some (maybe all) banks have stopped paying dividends on stock.

The FHLB also issues debt, which is very common for a bank’s investment portfolio to hold, and is viewed the same way as other GSEs.

Essentially, banks are often shareholders, borrowers and lenders to the FHLB. When regional home loan banks have issues, i.e. Seattle or Atlanta, it’s a cause for great concern to the longevity of the banks which are supported by the HLBs.

A  man who has looked into an economics textbook and concluded that economics is boring is like a man who has read a primer on logistics and decided that the study of warfare must be dull.  Heilbroner – The Worldly Philosophers.

awesomeness.

What’s a love life worth to someone?  To me, perhaps?

$20 for two movie tickets, $8 for popcorn & a soda, $4 for the round trip T ride.  Then another $30 for dinner afterwards. So $64 total. The movie is about what, two hours? a meal, an hourish.  So that’s about $21/hour for his time.

Stopping there, that seems a bit pricey.  Honestly, that costs more than what I earn hourly-ish.

But then take into account the time spent after that night.  We go home, fool around for another hour.  That winds down to about $15/hr.  Soaking in all the passion, the sweat, the short burst of cardio, that may be worth it.  Soon following, a sweet moment of cuddling.  Both currently living in the present, breathing in the smell of pheromones and cooling down.  A sense of satisfaction, accomplishment and a shit eating grin.  OK that could definitely be worth it.

Then time passes on.  Dates add up.  Money on time racks up, but the same level of satisfaction maintains.  Appreciation for each other wears down and now it’s $62 for 4 hours of fake time spent with each other.  The $15/hr isn’t returning the same outcome as before.

It starts to dwindle down, drifting apart.  And then it happens – the official parting.

Initially hours a day are spent upset over the lost relationship.  Opportunity cost lost.  The losses first are large, spending time alone rather than reaping the benefits of being out or being productive.  Time thought over the loss of the relationship dwindles down, maybe only one hour a day, then maybe a few minutes before the day starts with a quick reminder of waking up alone.  

In the end, the pain of the break up is enormous.  It adds up, lots of tolls on the mind and body.  It nearly outweighs that of the time spent enjoying each other.  One because the time spent in pain adds up, and two because of the zero chance of returning to the same nook that I cuddled in.  

The opportunity costs equal, or could very nearly outweigh the ‘investment’.  Why do people continue to jump back in the game when they very well know the possible ending will negate all that of the investment?

This is a very cold way of looking at relationships.

But really – is your time better spent elsewhere?

Pretty weak list.  Everyone’s on vacation

I got some more books in my back pocket, so-to-speak.  But if you have any suggestions, feel free.  I plan on adding this book blogging club aspect to here, on top of normal posts.  Because, seriously, this is a fantastic idea!

My current thought is (and it seems to be popular with the econ blogs out there…I had this idea two weeks ago!) – Keynesian versus Monetarism, their schools of thought argued against each other, especially pertaining to today.  This will take some research though, so it will take a while.

Any other banking/monetary policy ideas out there?