Friday, January 29, 2010

Leading Climate Scientists may get 10 years for Fraud

In a comment to a previous post, my brother put the Climategate fraud in perspective when he suggested that in any other industry, their actions would be prosecutable. The analogy was made that if a drug trial was falsified, they would be in court facing legal charges and the scorn of society.

Early reports suggested that while parliament is investigating CRU's actions, they might not be prosecuted due to a 6 month statute of limitations. As with most mainstream media reports regarding these issues, this one was also incorrect. That time limit only applied to the Information Commissioner's Office, a parliamentary board. The Crown Prosecution Service will likely be bringing charges of fraud against the CRU and they have no such restrictions. The penalties carry a maximum jail time of ten years.

For a legal explanation of what constitutes fraud in the UK and the ample evidence in the CRU case for prosecution see here.

Tuesday, January 26, 2010

Jobs, Jobs, Jobs

Have you ever blown your nose and then caught yourself looking at the kleenex to see what came out? That pretty much describes how I sometimes find myself checking in on CNN. This week, CNN has been examining the effectiveness of the stimulus plan now a year old. The extent of their diligence seems to be investigating whether any jobs were created. What's wrong with this kind of analysis?

Language alters the way people think about things and economics is not immune from this. We are so used to valuing things in terms of money, it's very easy to confuse wealth with money. Money is how wealth is measured but wealth comes from labour capital and resources. When money is confused with wealth through common speech, many other confusions follow.

Jobs are created from the pursuit of profit making activities. The wealth generated from that activity pays the wages in money. The money acts as a convenient substitute for the wealth that was created. When government tries to create employment, they must confiscate and redistribute the wealth that others generate. The benefits and ripple effects of the new job are computed after the money changes hands. The ripple effects and multiplier effects work just as well if you start before the money changed hands.

For example, assume that under the stimulus bill, a man qualifies for capital to produce solar panels. The product is easily seen as a good thing, but let us look at the means for producing it. What is not seen or counted by CNN is what could have been produced if the wealth had stayed in the hands of the person that created it. We see the solar panel created, we don't see the box spring mattress that could have been produced but wasn't. They contribute the same to the economy but stimulus supporters are making the claim that one is fixing the economy!

We are being told that 5-1+1>5. The reason this slight of hand is missed is because people don't equate the money government spends, with the wealth that money represents.

When you follow the logic of the stimulus plans using wealth instead of money, the slight of hand is obvious! In a pure barter economy, no one would be hoodwinked into thinking that if I give some of my carrots to Bill, we'll eventually all be better off. Bill can pay me with my own carrot, but I'm already down a carrot! Unless everyone produces more, you can't conjure stuff out of thin air. You can redistribute it but you can't create more. Our language has divorced the concept of money from wealth.

The other curious thing to me is why a project is valued by how many jobs it creates. If the number of jobs was valuable, why not use government money to build a bridge with the constraints that no power tools or heavy equipment be used. That way a bridge would be built by 5000 employees rather than 500! The logic of job creation runs opposite to the benefits of productivity. Productivity and improved methods of doing everything are the reason that we enjoy a standard of living that allows us to cure disease and live comfortable lives.

Monday, January 25, 2010

Bastiat: the seen and the unseen

I couldn't resist posting this screencap. It's pretty emblematic of how people are victims of Bastiat's "that which can not be seen."

The OP asks why quarterly projections determine stock values when it's so limiting and not reflective of how a company behaves. They claim that only short term gains are required to keep "Wall St. happy."

It's hard enough to inform myself without taking it upon myself to inform others, but on this occasion, I couldn't resist and explain what price is. Strangely enough, 21 people disagreed with my explanation. Their disagreement represents a class of errors in economic thinking revolving around confused identities.

Referring to the original post, the author says rather nonchalantly that a company reduces it's bottom line causing it's stock price to go up regardless of the long term consequences. The confusion here is that in order to sell a stock and make the short term profit claimed, someone else must buy it! I emphasize this because people often only think of one side of the coin. The person who buys the stock must be looking at some point in the future and estimate that the stock will be worth even more than he paid. Who would make this purchase unless they thought that the company would be worth something in the future? Who would buy the stock without studying it's future? Without a buyer, there is no seller.

Because every stock sold is also a stock bought by someone else, the price represents the sum of every opinion of the stock. Some investors exclusively use price and volume histories to make speculative decisions. The price is a proxy for what everyone knows regardless of what you know. For example, if investor A has inside knowledge or insight about a stock, he bids higher or lower to be sure he gets more or gets rid of his shares, that drives price up or down alternatively. Investor B doesn't need to know specifically what investor A knows, because that knowledge got embedded in the new price. Price reflects all knowledge and opinion, hunches and guesses.

What is seen is the profits made by the seller.
What is not seen is the investment made by the buyer who decides the business will be worth more in the future.

By not thinking about the unseen, people misunderstand how markets work. It should not surprise anyone that governments can so easily buy votes with stimulus bribes when few people understand the basics of price. Without understanding the basics of how markets work, they can not see how governments have been destroying markets while claiming that the markets themselves have failed.

Thursday, January 21, 2010

Olympic Experience

I understand that it's easy for people to be cynical about the Olympics. Corporations spending millions to associate themselves with sport, governments bribing officials and spending tax dollars, and athletes cheating all contribute to an event that perhaps doesn't live up to the billing.

What I observed when the torch relay passed through Canmore was none of these things. I saw world champion athletes and rec athletes mixing together on the street. I saw wide-eyed children and emotional grandparents straining to see the flame. I saw torch bearers laughing and yelling to cheering friends and family waiting on the route. The torch made its way downtown where a regular party was going on. Natives from the nearby reserve were dressed in full regalia, torch bearers mingled in the throng getting their pictures taken with just about everyone, sled dogs were patiently being mauled by toddlers, local musicians played over a loudspeaker and everyone had a wonderful time. Some Japanese tourists were beaming from ear to ear when we gave them our flag to hold when they got their picture taken with one of the torches.

As much as corporate and state interests try to hijack the Olympics, they will always just be a caboose to the experiences of real people. It's true, Coke and RBC had giant floats blasting music and handing out promotional material preceding the torch runners (after all they paid for the torch run!) But everyone's experience consisted of connecting to something else. No one lining the streets thought that Coke was the event. They were too busy being proud of their friends, family and neighbors. The event was all about people, and no corporate agenda took that away from anyone.

Sunday, January 17, 2010

Big Day in the Mountains

Perfect conditions yesterday in the Main Range. Waist deep fresh snow overnight, low avalanche hazard and an expert guide led me to the mountain pictured here. Whitehorn 2b is it's rather unromantic designation. My ski descent route I've drawn in yellow.

Earlier, I got some technical instruction which improved my skiing dramatically. That being said, it was the most difficult skiing I've done. As with many things, one of the hardest parts was the initial commitment to go over the edge which was every bit as steep as it looks. Waiting for me at the bottom was the gift of accomplishment which on this day was super-sized. The other gift, I just today received- hobbling around quite stiff from hiking in deep snow added to that was the descent which used more leg muscles than I normally use in a month!

Friday, January 15, 2010

More Data Manipulation from Global Warming "scientists." NASA guilty of fudging data

Now that the IPCC's data from CRU has been debunked thanks to the leaked emails, attention has finally come to gross data manipulation at NASA. I was disappointed with the documentary KUSI-TV produced but D'Aleo's report is excellent and brief:

Date Released: Thursday, January 14, 2010
Source: KUSI-TV

Climate researchers have discovered that NASA researchers improperly manipulated data in order to claim 2005 as “THE WARMEST YEAR ON RECORD.” KUSI-TV meteorologist, Weather Channel founder, and iconic weatherman John Coleman will present these findings in a one-hour special airing on KUSI-TV on Jan.14 at 9 p.m. A related report will be made available on the Internet at 6 p.m. EST on January 14th at

In a new report, computer expert E. Michael Smith and Certified Consulting Meteorologist Joseph D’Aleo discovered extensive manipulation of the temperature data by the U.S. Government’s two primary climate centers: the National Climate Data Center (NCDC) in Ashville, North Carolina and the NASA Goddard Institute for Space Studies (GISS) at Columbia University in New York City. Smith and D’Aleo accuse these centers of manipulating temperature data to give the appearance of warmer temperatures than actually occurred by trimming the number and location of weather observation stations. The report is available online at

The report reveals that there were no actual temperatures left in the computer database when NASA/NCDC proclaimed 2005 as “THE WARMEST YEAR ON RECORD.” The NCDC deleted actual temperatures at thousands of locations throughout the world as it changed to a system of global grid points, each of which is determined by averaging the temperatures of two or more adjacent weather observation stations. So the NCDC grid map contains only averaged, not real temperatures, giving rise to significant doubt that the result is a valid representation of Earth temperatures.

The number of actual weather observation points used as a starting point for world average temperatures was reduced from about 6,000 in the 1970s to about 1,000 now. “That leaves much of the world unaccounted for,” says D’Aleo.

The NCDC data are regularly used by the National Weather Service to declare a given month or year as setting a record for warmth. Such pronouncements are typically made in support of the global warming alarmism agenda. Researchers who support the UN’s Intergovernmental Panel on Climate Change (IPCC) also regularly use the NASA/NCDC data, including researchers associated with the Climate Research Unit at the University of East Anglia that is now at the center of the “Climategate” controversy.

This problem is only the tip of the iceberg with NCDC data. “For one thing, it is clear that comparing data from previous years, when the final figure was produced by averaging a large number of temperatures, with those of later years, produced from a small temperature base and the grid method, is like comparing apples and oranges,” says Smith. “When the differences between the warmest year in history and the tenth warmest year is less than three quarters of a degree, it becomes silly to rely on such comparisons,” added D’Aleo who asserts that the data manipulation is “scientific travesty” that was committed by activist scientists to advance the global warming agenda.

Smith and D’Aleo are both interviewed as part of a report on this study on the television special, “Global Warming: The Other Side” seen at 9 PM on January 14th on KUSI-TV, channel 9/51, San Diego, California. That program can now be viewed via computer at the website The detailed report is available at

Wednesday, January 13, 2010

Things I learned in 2009 Part II

It's approaching the one year anniversary since the 800 billion dollar stimulus plan went into effect in the US. In that time, I transitioned from a Keynesian to an Austrian in terms of my understanding of economics. This new viewpoint involved unlearning everything I was taught in economics in university. To clarify my new understanding, I'd like to examine the stated goals and mechanism of the stimulus plan compared to it's results
Here are some predictions last year from Christina Romer and Jered Bernstein, Chairs of Economic Advisers for President Obama. The relevant part is the prediction that the stimulus will create 3 million jobs with a total 138 million jobs. Their claim is that without the stimulus, there will be 8.8 percent unemployment and only 134 million jobs. All these benefits for only 800 billion dollars.

So, what happened?
It's true that these are predictions for later this year, but so far unemployment is worse with the stimulus than was predicted without! It was claimed without stimulus unemployment would be 8.8% (it's now 10% after stimulus or 17% depending on how you measure it.) Either the economic advisers are incompetent and have no business spending hundreds of billions of borrowed dollars, or the economic theories they employ are completely wrong.

The Keynesian theory behind all this stimulus is that a dollar spent by the government is multiplied through the economy depending on what it gets spent on. A dollar that gets spent building a road goes into a contractors pocket who then spends that money on groceries etc. This is said to stimulate demand causing employment to rise. The increased demand provides work that more than makes up for the costs of the stimulus by reducing the length of economic downturns and those returning workers are paying taxes sooner than they would have otherwise. So says the dominant economic thinking with plenty of fancy math to back it up.

What has become clear to me this year is this just makes no sense.

How the Economy Got This Way
Over the last ten years, the value of the dollar was diluted through unsustainable low interest rates. It was intended to stimulate the economy after the bursting of the tech bubble and the consumer demand crash after 9/11, remember Bush telling people to go out and spend? The Federal Reserve flooded the market with easy credit and money flowed into real estate and the markets. Bidding wars for property and assets continued for almost ten years but the value of these assets were not due to increasing wealth but money supply. The artificially rising assets were being leveraged by banks loaning out the appreciation on assets that were not payed for. Demand was a function of credit.

Peter Schiff tells a great story about renting a beautiful condo during the housing bubble. He goes next door to look at a dingy townhouse for sale. After fees, taxes and mortgage, he would be paying the same as renting his current place. He asked the real estate agent who would buy it since you could rent next door and get way more for less money? The agent said that the townhouse will be worth more next year while Schiff won't have gained any equity in his rental. Schiff questioned in disbelieve why anyone would pay even more next year for a place that isn't nicer than one you could rent next door! The real eastate agent should have said that Ponzi schemes are only bad if you get in at the end!
This story illustrates the disconnect between real estate demand (prices) and the wealth needed to trade for it (it was credit driving prices-not wealth.) When we moved to Calgary a few years ago, I could barely believe that 150,000 dollar houses were being sold for 400, 000 dollars. During the hot economy in Calgary it was easy to imagine that price was a function of demand. Hidden from view was the expansion of credit fueling the larger economy, driving up commodities and the demand for goods being bought not with savings but with credit against rising asset prices. A vicious circle sponsored by the Federal Reserve.

As it turns out, what I witnessed was the Austrian School explanation of the business cycle. The Austrian School explains that inflation occurs due to deflating money by printing it or creating more of it through fractional reserve banking. This increase in money creates the business cycles and bubbles that eventually burst.
Investments are like fruit, the lowest ones get picked first (the ones that have the best return.) The more money that becomes available to invest, the more difficult fruit gets picked (the poorer those returns become.) Artificially low interest rates and surplus money and credit cause malinvestment (the fruit that no one is picking because you need a ladder.) In the end, if you give people money to buy fruit, fruit prices rise and a valuable ladder was not used somewhere else.
The Austrian school is better explained by more lucid and elegant thinkers than I. The vonMises Institute offers many elegant and simple primers.

Multipliers are not Immune from Opportunity Cost or Inflation
I've come to realize economies are like any other natural system, you can't cheat them. You can try to stay up for a while drinking coffee but eventually, you fall asleep. You can't artificially create wealth out of thin air by taxing and borrowing money, then spending it. Any multiplier effects are offset by the opportunity costs of taxpayers keeping more money themselves. In a downturn, people are more likely to save money which is where future capital comes from. Multiplier effects are also condemned because they create artificial demand which diverts resources away from profitable, wealth-generating projects. This diversion has real costs that greatly offset any multiplier effects. If stimulus projects were economically feasible, the market would be investing in it. They are by definition malinvestments! Meanwhile, the creation of this stimulus money devalues savings through inflation (America's next financial meltdown that nobody saw coming.) This massive devaluation effects people who worked hard and didn't invest in speculative housing or derivatives, whose only crime was to save money! This inflation is not seen yet because prices are falling relative to the Fed attempt fight falling asset prices though the creation of money. Also, the Fed is currently paying banks to hold even greater of their reserves in the Fed Reserve system. The only way they can pay banks not to lend money is to issue more money which forces the Fed to force the banks to deposit even more money with the Fed in a never ending borrow from Peter to pay Paul situation!

Apart from witnessing the Austrian explanation first hand, so much of macro economics makes more sense through the Austrian lens. In the stimulus bill mentioned earlier, Keynesians are left to make ad hoc explanations of why injecting billions of dollars into an inflated economy isn't making things better. They say that things would be worse without it or it will take more time or that there wasn't enough stimulus! Now I understand that the last ten years prosperity was based on an economy inflated by the creation of money not just the addition of capital to labour and resources. The solution is not to add more inflation. The solution is to let the malinvestments fail, let real estate devalue to a new equilibrium price, let people pay down debt rather than consume. Adding more money just delays the necessary price adjustments, creates inflation, and diverts resources. The rising unemployment demonstrate the error of trying to re-inflate the economy.

At best, the results have been incompetence, mis-allocation, savings devaluation, inflation, and the squandering of scarce resources. At worst is opportunism, graft, theft, collusion, fraud, dishonesty, and lies.

Wednesday, January 06, 2010

Things I Learned in 2009

In 2009, my rights and freedoms increased dramatically

It was not because the military of this nation or any other fought halfway around the world for whatever reasons that were given. It was not because of any new policy created in the Parliament. It was not because of anything in the Charter of Rights and Freedoms.
It was because we moved.

In Calgary, walking at night was confined to certain areas. The doors in the car had to be locked, same with the door to our apartment. Crossing the street was done with the first thought to the carelessness of drivers. Noise dominated every aspect of life. Whatever right to privacy is owed to me on paper was made irrelevant by having any real sense of privacy trampled by the crushing ado of living in a big city.

In Canmore, we have the freedom to walk anywhere and at any time without fear. Our right to private property is not some intellectual state-guaranteed idea, but a real thing put to the test every day. I now leave my bicycle unlocked on the deck because it's my bicycle, not because the law says it is. Tomorrow, it will still be there. In Calgary, like any other city, my so-called right to private property is really a farce in practice. What good are these rights that we credit the State with providing, if they exist only on paper? In light of seeing what really influences my effective rights, I find it distasteful to hear people speak of our troops fighting for our rights or freedoms or our country.
The sad truth is that their sacrifices are not heroic but tragically meaningless.