The Smartest Economist on the Planet

Now I am not an economist, nor would I ever want to be one. I read Krugman, I know Summers from afar, I even had Samuelson as an instructor and cajoled Solow to give a talk or two for my company a few decades ago. Over the past few years I have been exceedingly critical, especially of the institutional know-it-alls who have gotten us into this mess. No it was not just Wall Street. You see Wall Street is just a bunch of 4 year olds in a sand box. The baby sitters are supposedly those in Government and their advisers.

That did not work out too well. But at the same time I have been following the Canadian Economists in Worthwhile Canadian and frankly they seem to be the only ones making any sense over the past few years, and indeed a great deal of sense. Perhaps that is why Canada has so little a set of problems. Also it makes my wife and her Nova Scotia brethren happy.

But today Nick Rowe had what I could call a brilliant piece, a commentary on knowns, and unknowns. It is really worth the read, as is all of Rowe's works. His final words in the piece are: 

We draw a supply and demand curve and point to where the two curves cross. We shift the supply and demand curves and point to where the two new curves cross. The only people who talk about the process of getting from the first point to the second point are: teachers of Economics 1000; Austrian economists. 

Maybe it takes time to get from the first point to the second point. Not because people are idiots, in not changing their prices, or not figuring out what's going on and how to react. But because the territory is a lot more complicated than the map. 

And it's always going to be hard to build a map of how the territory is more complicated than the map.

 Yes, the territory is quite complicated. The human genome is trivial as compared to the complexities of our economic world. Once we admit that we can then commence the conversation. Rowe has done that quite elegantly. He is always worth the read. Keep it coming!

But extending this thought a bit, I have a modest proposal, an Irish euphemism for a good idea. Perhaps the US should outsource all of its economic planning to the Canadians.  They seem to be clearer thinkers, they seem to have fewer spats, they do not write whatever comes into their minds sans thought in their blogs, they argue in a rather admirable fashion, and sometimes I really enjoy the ideas they bring forth. Imagine instead of what we have had in the States for the past few years we had a group of genteel thinkers say up in Toronto, just a hop skip and jump outside Detroit  but a world away. Just a thought.

An Interesting Question of Doubt

As my readers know I hold little respect for economics as a science. It is a field ripe with political views, what people feel should be but as a science it is not just lacking it is not even close.

Thus I read with interest Krugman's latest blog asking himself that very question, not from a real epistemological viewpoint, no it is Krugman does so often to jab at his foes.

He states:

What I’d add to that is that at this point it seems to me that many economists aren’t even trying to get at the truth. When I look at a lot of what prominent economists have been writing in response to the ongoing economic crisis, I see no sign of intellectual discomfort, no sense that a disaster their models made no allowance for is troubling them; I see only blithe invention of stories to rationalize the disaster in a way that supports their side of the partisan divide. And no, it’s not symmetric: liberal economists by and large do seem to be genuinely wrestling with what has happened, but conservative economists don’t.

And all this makes me wonder what kind of an enterprise I’ve devoted my life to.

 The last sentence is sadly true. The first paragraph is his shot at others. The problem is that in real science, say genetics, since 1971 we have progressed in leaps and bounds to the point at which we can now deal with many cancers, slow them down, cure them, and we have created true value to humanity.

In the world of communications and computers we have advances well beyond anything imagined and at costs well below anything we could have predicted. A telephone call to Beijing is a penny a minute as compared to hundreds of dollars.

Medicine has advanced tremendously, for better and worse, cost being the issue. We can now in seconds determine the cause of a stroke, a block or bleed, and then do something about it. We can keep people with congestive heart failure alive and feeling fairly well. In my 1966 Harrison's we were told how to make them comfortable until they died.

Now what has economics done, Krugman is correct. We all too often have arrogant individuals using meaningless theories destroying human lives with their witch doctor like suggestions. So what can we do, especially when they admit to it?

Health Care Costs

Kaiser reports an annual increase of more than 9% for this year in health care costs. They state:

Employers' spending on health coverage for workers spiked abruptly this year, with the average cost of a family plan rising by 9 percent, triple the growth seen in 2010.

Family plan premiums hit $15,073 on average, while coverage for single employees grew 8 percent to $5,429, according to a survey released Tuesday by the Kaiser Family Foundation and the Health Research & Educational Trust. (KHN is an editorially-independent program of the foundation.)

Workers paid an average of $921 toward the premium of single coverage and $4,129 for family plans.

The results mark a sharp departure from 2010, when the same survey found average family premiums up only 3 percent. 

Although many benefit analysts say the federal health law’s requirements played only a small part in the rise, the results could provide political fodder for both supporters and opponents of the law. 

 The detailed report by Kaiser is worth the review.

Now some observations. The last sentence above says "many analysts" that is deceptive. For many others say otherwise. The new health care plan mandates excess spending on such things as paying for your 26 year olds, added testing for women, and the like. While the current Administration is gutting $500 Billion from Medicare they have placed trillions on the backs of companies, most likely as a strategy to drive them from the market and turn it into a UK style system.

Light On Shakespeare

F. L. Light has written an interesting work, Shakespeare Undiminished,  using the Shakespearean Sonnet as a vehicle, and the life of Shakespeare as the backdrop. Mr. Light asked if I would read his book and comment. This review was done at that request. First, I am not a Shakespeare expert, albeit I first was introduced to the Bard in the sixth grade by a friend of my father's, Mr. Redmond O'Hanlon, who was a NY Police Lieutenant and winner of $16,000 on the "$64,000 Question" as the show's first contestant (see [...]). Redmond O'Hanlon volunteered to teach our class Shakespeare and I became Richard III in the play of the same name. Thus at ten I began my exposure to the man, wondering what much of what I was saying meant. Some sixty years later, and after a reasonable amount of study, and having seen more Shakespeare than most people would ever admit to, I have but a modicum of understanding.

Shakespeare's early life is hidden in a fog of uncertainty. He did attend the local Grammar School, which in the mid sixteenth century meant years of learning Latin Grammar and he did enter the theatre as an actor and then as a writer in the early 1590s. He was seen by the educated writes at the times, such as Green, as somewhat unfit for the field due to his lack of education.

Now Shakespeare's Sonnets are also somewhat clouded, having been published in 1610, they were credited to him but there is some dispute as to what were his and what were others. There are some 154 sonnets attributed to Shakespeare. There is also a standing set of disputes over his plays which in many places scorn those who write such sonnets and the fact that he wrote so many often raises questions. I leave these disputes to those much more steeped in the record than I.

Enter Light, he uses the Shakespearean Sonnet (ababcdcdefef followed by gg as compared to Petrarchan sonnet which use abbaabba followed by cdecde). He has some 145 pages of these and they take one through the early life and early career of Shakespeare. They are wonderfully entertaining, superbly structured and when read aloud, as one should slowly provide a window to what may have gone through the Bards mind during these periods.

The set of Lightean sonnets can be read in pieces, it is not a work that I would recommend reading from front to back. It helps to know Shakespeare's life, what is known and conjectured. Light brings many of these events to life using the vehicle of the sonnet.

Let me suggest two. First he goes through several intriguing sonnets regarding Shakespeare as a young student and his work on Latin grammar. He speaks of Vergil and the Aeneid . As one who struggled with Vergil and translation, Light opens the window to the mind of Shakespeare and his understanding of Latin verse, the structure of language and how this may very well have been a motivator for his later work. The use of words, the use of phrases and the use of grammar, Latin versus English. The second is Shakespeare's alleged incident with Green, who died early in the 1590s, and who possibly saw Shakespeare as an interloper, as one without the "training" and as merely an actor. Light works this issue wonderfully with his sonnet structures.

For those looking for an alternative view of Shakespeare, for a view framed in a context which the Bard would most likely have enjoyed, Light presents a wonderful presentation.

It is useful to have read before or have at hand the two wonderful works by Duncan-Jones. Shakespeare's Sonnets (Arden Shakespeare: Third Series) and Shakespeare: An Ungentle Life (Arden Shakespeare Library). Professor Duncan-Jones has written a sine qua non on the Sonnets and her life of Shakespeare is the standard. Then go to Light, it will be both lyrical and enlightening, no pun intended. I look forward to seeing his many other works.

Perhaps They Never Heard of Logic

The CEA head who wrote on January 11, 2009 that the Stimulus of almost a trillion dollars would thwart excess unemployment is at it again in her favorite platform, the NY Times. Now readers will remember that when she issued this plan that I had detailed why it would fail, and I am  a simple engineer, like those who run China, an economy we can at best admire from afar, have to seek the guidance of economists! Why not witch doctors!

Now in the NY Times this soothsayer states:

WE NEED A HOUSING PLAN, NOT MORE FISCAL STIMULUS The bubble and bust in house prices has left households burdened with too much debt. Until we deal with this problem — perhaps by providing principal relief to the 11 million households whose mortgages are larger than the current value of their homes — we’ll never get the economy going.  

 Let us examine the facts behind this.

First, when one gets a mortgage, one assumes one can pay the mortgage. Who cares what the house is worth, you have a deal to pay back what you borrowed.

Second, this economist says they "bust" left them with too much debt. That makes no sense. They entered into an agreement to borrow money and pay it back. You borrow money to buy a new car. You drive it a block. It is worth thousands less. Should you go back and renegotiate the deal? My dear Lady, it does not work that way.

Third, this is not the first time this has happened. In 1987 house prices peaked, the market crashed and house prices collapsed. Did people stop paying mortgages. No, they paid even when the house was "under water". I had one of those loans, for eighteen years on a piece of property. Sometimes you win sometimes you lose.

She continues:

Recent research shows that government spending on infrastructure or other investments raises demand even in an economy beset by over-indebted consumers. Another effective approach is to aim tax cuts and government payments at households that would like to spend, but can’t borrow because of their debt loads (such as the poor and the unemployed). 

Now what is she saying here? First, she speaks of building bridges. Do we not have a gasoline tax to support that? If we need it then raise the tax and make certain it is spent properly. But the problem is that politicians have no ability to ever do the right thing. They will spend it on getting themselves re-elected. Now she switches to give tax cuts to get people who are overly in debt to spend even more. That is like giving a morbidly obese woman an unlimited supply of brownies. Not going to fit into those tight jeans that way.

She continues:

IT’S THE DEFICIT, STUPID People are concerned about the deficit, and this concern is holding back the recovery. Fiscal austerity, not more stimulus, is the answer. 

This argument makes me crazy. There’s simply no evidence that concern about the current deficit is a significant factor limiting consumer spending or business investment. And government borrowing rates are at record lows, suggesting that financial markets are not worried about the deficit, either. 

Moreover, as I discussed in a previous column, the best evidence shows that fiscal austerity depresses growth and raises unemployment in the near term. That’s the experience of countries like Greece, Portugal and Britain, which have embarked on drastic deficit reduction plans over the last two years. Cut the current deficit and you will raise unemployment, not lower it. 

 I hate to bring reality to the table, but the deficit does have an effect. It is akin to having death sit at the poker table and just look around at the players. Kind of makes one a tad bit nervous. No evidence, perhaps a conversation with the people who create jobs may be of some help in clarifying the issue. Get out of the ivory tower and find out what real entrepreneurs think.

Now for Greece, you see I had a company in Greece, I speak Greek, I have many Greek friends, I have had Greek students, and I know Greece better than many Greeks. It is an impossible place to get anything done in, which is why many Greeks leave. There are more people on Government payrolls, who collect Government funds, work on EU funded make work projects, it is not the Greeks, it is the socialist system in Greece. Get the Greeks away from Greece and its socialism and they prosper quite well. Leave them there and you can see where we are going. It does help to know something about that of which you speak my good Professor.

She ends with:

The president has started a discussion about job creation. His proposal deserves a full debate based on facts, evidence and careful analysis. 

 Her record of analysis stands. It did NOT work in her January 11, 2009 predictions. It will not work now. Her proposal and predictions are facts. They did not even come close! So why should anyone believe a single word she utters on this topic?

Nobody Got Rich on Their Own!

Only a Harvard Law Professor would say that. Oh yes, also Columbia, Princeton, and the list goes on. So the good Professor from Harvard is quoted as:

An August video of Massachusetts Senate candidate Elizabeth Warren on the campaign trail is heating up on the internet, and some commentators are pointing to the clip - in which Warren makes a case for progressive economic policies - as evidence that the newly minted Democratic candidate could give incumbent Republican Senator Scott Brown a run for his money. 

In the video ..., which was filmed at an event in Andover, Mass., Warren rebuts the GOP-touted notion that raising taxes on the wealthy amounts to "class warfare," contending that "there is nobody in this country who got rich on his own. Nobody."

She continues:

Warren rejects the concept that it is possible for Americans to become wealthy in isolation. 

"You built a factory out there? Good for you," she says. "But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did."

 I hate to burst her bubble but in my case I set up a business in 20 countries, my investors were in 8, my customers spanned more, and I moved from the US to the Czech Republic because the conditions were better, less regulation, and the electricity worked, here in New Jersey JCPL seemed to always have business killing outages, and still does. So do I get a rebate!

So should I tell all my subsequent investments; just leave the US because otherwise some greedy Harvard Professor wants your money.

Such a statement, if true, shows the total lack of understanding in the Progressives of how an entrepreneur works. They take risks, sometimes even life threatening risks, to seek a dream, and they get people to follow them in that dream. Is there a payoff, well sometimes, but often it is failure, and they pick themselves up again and start over. That, dear Professor, is what made and can still make America great, unless you want us all to move to Prague! You see in Prague they saw the results of your thinking and have rejected it. They had tanks, they had redistribution. They rejected that.

It was like when my ancestor, Jacob van der Voort came from Holland in 1649 and started his farm in what became Brooklyn. He settled in the unprotected hill tops, growing crops, bring them across the river to what was New Amsterdam. Did the Dutch remind him of the great advantage they had afforded him to take those risks? Doubtful. 

So when the Professor makes a definitive statement of "Nobody" she perhaps ought to think that she is not as omniscient as she thinks she is. In engineering, we always look for the exception, we look at boundary conditions, we look at extremes. Well Professor, look down Mass Ave, and there are hundreds! They, Madam, are your future, try not to send them all back to where they came from! For if you do, then God help this country!

Now The Economist has a more detailed quote:

I hear all this, you know, “Well, this is class warfare, this is whatever.”—No!

There is nobody in this country who got rich on his own. Nobody.

You built a factory out there—good for you! But I want to be clear.

You moved your goods to market on the roads the rest of us paid for.

You hired workers the rest of us paid to educate.

You were safe in your factory because of police forces and fire forces that the rest of us paid for.

You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.

Now look, you built a factory and it turned into something terrific, or a great idea—God bless. Keep a big hunk of it.

But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

 But, good Professor, I hired Czechs, Poles, Russians, Greeks, Thais, Koreans, and no one paid to educate them in the US, but I did pay via Real Estate Taxes to educate many here in New Jersey, who for the most part were unemployable, poorly educated. I was not safe in my home because, well it is New Jersey, and perhaps one may seen that television show... my "goods" moved over fiber built by Germans, French, Russians, Romanians, Ukrainians, ... Need I continue.

What "social contract", I did not see Rousseau anywhere on my block, not even Hobbes, perhaps the good Professor could read my book, perhaps de Tocqueville.

So they want to replace a native born resident of the Commonwealth with another wild eyed erstwhile socialist! It will be interesting.And yes, I paid for her education, she went to Rutgers!

The Yield Curve: September 21, 2011

The above is the yield curve for today and the past year at selected points. As expected it has started to totally collapse. As we have said before it presents both opportunity and risk. As opportunity it makes potential borrowing of some interest. As a risk, for those on fixed incomes where the sources if returns on low risk investments it means that you need 50% more in assets in your accounts to get the same payout with the lower yield. That places a tremendous burden on the elderly as well as on pension funds with low risk investment profiles. Imagine what that does to state pension plans! It means that defined benefit plans are now underwater by that much more in just a year! That means an added effective burden on the taxpayers of those states!

This is the spread, and it also is tanking. Namely the difference between 30 years and 30 days is only a small percent. That means that the expected growth in the economy is most likely negative!\

The above is 90 day and 10 year spreads and rates. 90 day money is almost free. 10 year money is at an all time low. The spread is also at an all time low.

Thus one wonders what the FED is doing. The costs will be borne by all of the taxpayers. It is not as if the banks are lending it out. The banks are using the free money to still make high risk investments and receive great returns. Again on the backs of the taxpayers.

Increasing the Cost of Health Care for Medicare Participants

Medicare Participants costs under the current President's just announced Tax Plan will increase  exponentially. For example:

Introduce a Part B premium surcharge for new beneficiaries that purchase near first-dollar Medigap coverage. Medigap policies sold by private insurance companies provide beneficiaries additional support for covering healthcare costs by covering most or all of the cost sharing Medicare requires. This protection, however, gives individuals less incentive to consider the costs of health care services and thus raises Medicare costs and Part B premiums.

That is if I choose to buy a premium at my cost for better payment just in case, then the Government will tax me for the money I spent. It is akin to buying auto insurance and the Government saying that if I get a low deductible, no matter how good my driving record, it will add a surcharge tax on because I should not be allowed to hedge my risks. This is insane. The issue is usage not hedging your bets.

Modify Part B deductible for new beneficiaries. Beneficiaries who are enrolled in Medicare Part B are required to pay an annual deductible. This deductible helps to share responsibility for payment of Medicare services between Medicare and beneficiaries. To strengthen program financing and encourage beneficiaries to seek high-value health care services, the Administration proposes to apply a $25 increase in the Part B deductible in 2017, 2019, and 2021 for new beneficiaries.

This is just an increase in deductibles. It is in effect an added tax. Why not just say that outright!

Introduce home health co-payments for new beneficiaries. Medicare beneficiaries currently do not make co-payments for Medicare home health services. This proposal would create a home health copayment of $100 per home health episode, applicable for episodes with five or more visits not preceded by a hospital or other inpatient post-acute care stay. This would apply to new beneficiaries beginning in 2017.

The prior one increases deductibles and this increases co-payments. This is another tax.

Require prior authorization for advanced imaging. The rapid growth in the number and intensity of imaging services in recent years raises concerns about whether these services are being used appropriately. This proposal would adopt prior authorization for the most expensive imaging services, beginning in 2013, to ensure that these services are used as intended and protect the
Medicare program and its beneficiaries from unwarranted use.

Now this means we have that morbidly obese GS 9 in some office in DC deciding if we can have the MRI as we lay on a table with an undetermined stroke! And also that means that we are not allowed to pay for it ourselves, it must get approval from that half human character with the attitude. Your Government is here to help you!

Strengthen the Independent Payment Advisory Board (IPAB) to reduce longterm drivers of Medicare cost growth. Created by the ACA, IPAB has been highlighted by economists and health policy
experts as a key contributor to Medicare’s long term solvency. Under current law, if the projected Medicare per capita growth rate exceeds a predetermined target growth rate, IPAB recommends to the Congress policies to reduce the rate of Medicare growth to meet the target. IPAB  recommendations are prohibited from increasing beneficiary premiums or costsharing, or restricting benefits.

Remember the "Death Panels", well here it is again folks. The IPAB will be empowered to reject procedures with no recourse. Remember those left wing movies railing against the rich Insurance companies denying coverage, well it will now be your very own Government doing so.

And the list goes on. One would have thought this was written by someone to the right of Ron Paul, but no, it is the current Administration. This knocks another $500 billion or so from Medicare, on top of everything else.

Now it is not that we are against restructuring Medicare. We are indeed. But this is not that, this is disemboweling Medicare. What should be done is increasing the age, increasing the Medicare tax from 3% to 4%, and making some minor means adjustments, calculated on a year by year basis. Should we also change deductibles, yes a bit. Certain procedures should be dis-incented by reducing the amount compensated, but allowing individual choice. However the idea of taxing people for exercising their economic right to hedge against a risk is not just a socialistic nightmare it become a communistic form of economic rights control.

Codes of Kindness

Apparently Harvard has introduced a "code of kindness", so says Bloomberg.  That should put a crimp in the style of some of its well know faculty who were at the heart of the most recent economic collapse. As Bloomberg states:

It reads, in full: 

“At Commencement, the Dean of Harvard College announces to the President, Fellows, and Overseers that ‘each degree candidate stands ready to advance knowledge, to promote understanding, and to serve society.’ That message serves as a kind of moral compass for the education Harvard College imparts. In the classroom, in extracurricular endeavors, and in the Yard and Houses, students are expected to act with integrity, respect, and industry, and to sustain a community characterized by inclusiveness and civility. 

“As we begin at Harvard, we commit to upholding the values of the College and to making the entryway and Yard a place where all can thrive and where the exercise of kindness holds a place on par with intellectual attainment.” 

The original plan was to post the pledge in each dorm entryway, along with the names and signatures of the students living there. Although signing was supposed to be voluntary, any dissent would have been obvious. 

 Now down the street, at MIT, I never really saw nasty people, competitive, but never nasty. I would guess there may be some. Arrogant, but arrogant and smart and being right is OK. Nasty, well read Watson's book. Cambridge is down right nasty, class nasty. The Double Helix is an example of class structure.

Now one wonders who in their right mind established this thing. There are enough things to deal with that one should not add the burden of wondering if perhaps I offended someone. I am certain that it has been done many time without intent. Is there a mens re involved, is intent necessary. Why we can keep the Harvard Law School busy for decades, and keep the faculty away from our civil rights. They can opine on nonsense such as this.

What is next, taking attendance?

Bloomberg continues:

And that brings us to the second half of the pledge equation: intellectual attainment. Not inquiry or excellence, but “attainment.” What a strange, and revealing, choice of words. 

Consider a common argument in favor of the pledge. It starts with a survey last spring in which then-freshmen were asked to indicate how they believed Harvard ranked various values, and then to do the same ranking for themselves. Students deemed “success” as Harvard’s highest value while ranking “compassion” low for the university. By contrast, they put compassion high on their personal lists, ranking it fourth behind hard work, honesty and respect. 

 Attainment? Are you nuts! This is the problem. As an MIT PhD student your goal was to beat all others across the finish line, to be the best, to beat your brains out to have the most, the best, whatever, and alone! It was a Marine Corps of the intellect. Harvard was not far behind in those days. What are they, a Community College,  then charge tuition for attainment and not excellence.

We wonder why costs at universities are skyrocketing. It is because we hire people like this. Harvard got a pledge, MIT lost a faculty club. That's a story for another day. Same problem, just a different side.

Yikes, Squirrels in Danger

CNN reports about our poor friends, the squirrel. They state:

In Tennessee, $269,000 was spent on a sanctuary for white squirrels. ... One senator -- Tom Coburn -- threatened to block his colleagues from voting on a stop-gap measure to fund the Federal Aviation Administration and highway construction program because he objects to how some of the funds will be spent. ...The cantankerous Republican from Oklahoma wanted more highway construction funds to be spent on critical infrastructure projects like bridges, and fewer federal dollars directed to a category called "transportation enhancement activities." ... As it was written, 10% of the highway bill's surface transportation funding would be directed to projects that fall into that category, which include transportation museums, pedestrian walkways, bicycle paths, landscaping and scenic beautification. ... Oh, and in the past, that has even meant projects like squirrel sanctuaries.

Now we agree with the Senator, after all why have sanctuaries when we have set aside  food, shelter, friends, socialization, and national pride with a focus on the grey squirrel. They sit out on my back porch and tap on the door to demand more food, they tap on the bedroom window to wake us up to demand more food.

Now they have the chipmunks at it, why we must have 30+ chipmunks, where they came from I do not know, but they climb trees, sit on the deck, run up the screen, we are surrounded by animal life!

They do not need Federal protection, they need birth control.

Epistemology of the Cell: A Review

The book, Epistemology of the Cell, by Dougherty and Bittner is a gem. Dougherty is a Professor at Texas A&M and has written extensively and brilliantly on the issue of using systems thinking in the growing field of genomics. Now systems thinking was, in way, started by Norbert Wiener in the 1930s, as he began to model various systems, from the dynamics of nerve fibers to the development of the first artificial arm. Yes, he did the arm, not the physician at Mass General. Wiener also developed the systems to the control the pointing of radar controlled guns on ships in WW II.

What made Wiener unique was that Wiener asked “Why”. The why meant finding the cause and the result and establishing the connection between the two, establishing the system. Physicists and chemists ask “why” questions, the find the cause and the causality chain. Biologists were for ages asking “what” as people who classified.

Darwin broke that chain of biologists somewhat by asking “why” as regards to evolutions and he is pilloried even to this day. Physicians often ask “what” and “how” and do not really want to be bothered by the “why”. It is not their jobs to find out why, just find out “what” is wrong and know “how” to fix it. Thus a physician is taught “what” to look for to diagnose prostate cancer and is also taught “how” to remove it. The physician does not know or care “why” the cancer is doing what it is doing. That is epistemological.

That, in essence, is a simplification of what Dougherty and Bitter go about to explain. Their book explores the challenges set forth to those exploring the gene and the cell and entices them to think beyond just the what and how to go to the why, the explanation of the process, the system, from cause to effect. The authors have written a treatise which compares a few others which look at the epistemological basis of research, asking the correct questions, and pursuing the best path to answer them (see the work by Winograd and Flores as a prime example written some 25 years ago). Dougherty has with his colleagues and associate been developing the ideas contained herein for well over the past decade and I have read many of his works, they provide great insight to what should be done.

Chapter 1 begins with a discussion of the definition of epistemology, on p. 2. They define scientific epistemology by what it addresses; knowledge and its truth. Then they use Kant to develop the transition from the Enlightenment to today. On p. 4 there is a brief but focusing discussion where he explains the simple Newtonian world maturing into an Einstein one and likewise a Watson and Crick paradigm of DNA/RNA/proteins into the way we understand cell dynamics today, as pathways, miRNAs, repressor enzymes and the complexity of both intracellular dynamics and intercellular dynamics. They rely extensively on a Popperian view of Science, which for those more familiar with Kuhn may tend to have some slight dissonance, but it holds together quite well.

All in all, Chapter 1 sets the stage well, both from establishing the necessity to have models which answer why, and to establish the counterpoint of the thinkers who have reverted back to Aristotelian classification as the finders of what.

Chapter 2 is a discussion of Aristotelian causality. p 14 states it well with the statement,

“explanation must involve a causal relation…”.

On p 21 they state, “Galileo and Newton do not deny causality as a category of knowledge but they widen the scope of knowledge to include mathematical systems that relate phenomena, while bracketing “questions about nature” of the phenomenon…”.

On pp 33-34 they have an excellent discussion of Bertrand Russell’s work on causality.

In Chapter 4, on p 70, the authors use the work of Norbert Wiener and his associate Arturo Rosenbluth on Cybernetics. For it was indeed “the synergy of communications, control, and statistical mechanics…” that set the framework of how we should view cellular and organ dynamics. The authors then given examples of gene regulation. I would have simply stated that every cell and every organic system is a multidimensional distributed random process.

One could take a Feynman like approach and posit the obvious, and then fill in the details. The authors work from the bottom up to demonstrate their world view. Namely that when we look at cells we are looking at complex dynamic random systems. Systems we can ascribe states to, states being measurable quantities, which in turn operate on other states in a dynamic fashion.

In Chapter 5 the authors start the transition to complex state models. They again rely on the wisdom of Wiener on p 89 to state:

“Wiener recognized the difficulties that the mathematical requirement of science and translational science would present for medicine …”

For back in 1948 when Wiener had published Cybernetics, Medicine was still a “what and how” practice. It did not transition to a “why” approach. The translational science that the authors speak of is:

“… mathematical engineering, applied mathematics with a translational purpose..”

Namely, to translate nature to measurable quantities. Quantities which we can then by knowing the “system” we can then manipulate and predict. We can observe and we can control, the end goals of translational science. In a Popperian sense, the authors address the issue of measuring, predicting, and examining what does not do what we said it would.

The key arguments are developed in Chapter 9 and 10. Chapter 9 is the  “sola fides” discussion, faith alone, as a mantra to those who fail to understand the system nature of the cell dynamics. The authors, on p 149, evoke William Barrett, the insightful Columbia University philosopher, who wrote The Illusion of Technique, a superb work integrating the principles of epistemology and science in the late 1970s. Frankly, to see Barrett in a book of this type was an exciting surprise, for I had thought that Barrett was falling into obscurity, a loss to many who are struggling with issues that Barrett has thought through decades ago. The authors then on p 148 also discuss the nature of stochastic dynamic systems.

Dougherty brings insight via avenues that I found resonated strongly. The discussion on Wiener, where Dougherty, unlike Gleick in what I feel is presented with uninformed bias, sees Wiener as the father figure, one combining systems thinking, clear and built upon strong mathematical foundations, which is then integrated with real biological systems. Although I find their approach insightful and compelling, I would have taken pathways in cancer dynamics as somewhat well-defined stochastic systems.

For example, we know the effects of PTEN, the AKT pathway, and the MYC pathway, the p53 pathway, and the complex dynamics which are well described in the readily available NCI data base of pathways. One can use as states the concentrations of any one of these proteins and then state simply that they all interact with one another, the result being homeostasis or if a change cancer. The model is multidimensional, stochastic, highly complex, and strewn with “noise”, namely uncertainties. Models have been developed and tested for such cancers as prostate, melanoma and colon. Dougherty, himself, has made substantial contributions to this area. It would have been useful perhaps to demonstrate this approach as well.

On p. 163 the authors place a stake in the ground to say what would be expected for those to work in the field, that the books by Loeve and Cramer be used as standard bearers! As I read that in the book I looked on my bookcases and saw my old well-worn copy of Loeve, which got me through my PhD. Cramer was my core text for my introductory course, but then again it was MIT. Thus they set a high hurdle, but a necessary one for those to work in the field. My first book, Stochastic Systems and State Estimation (Wiley, 1972), in a sense was one of the many which established the bar.

The clear strike at the adversaries is set on p. 165. After again referring to Barrett and Kant, the authors end with:

“Does anyone really believe that data mining could produce the general theory of relativity?”

I think this can be extended. For example many researchers run millions of microarrays and are currently finding hundreds of SNPs or thousands of miRNAs and each time they send out a press release saying they have “discovered” some new “gene” or worse “cause” or “cure” of say prostate cancer or melanoma. In reality one does not know whether this is a marker for cancer, a marker for a predisposition for cancer or just plain noise.

What the authors, and others, have argued is that it is essential to have a well-defined dynamic system model of how say PTEN and AKT interact and how they in turn control MYC and where the controls on p53 are in this chain. The microarray analyses should be done in the context of defining the linkages in the state model and not as ends in themselves. The model can then be validated. From such a model we can then see conditions on their way to cancer and conditions representing advanced cancers. For example, recent authors have announced a way to measure PTEN in prostate cancer and laud that as a diagnostic step. In reality by the time PTEN has been deactivated there is most likely a metastasis. Understanding and refining a model is the essence of the “why” articulated by the authors.

On p 166 there is a superb critique of what the authors call the pre-Galilean thinkers, namely the biologists who like Linnaeus were really just classifiers of forms and shapes failing to understand why they were what they were. One must remember that biology was all too often just a study of things and a process of naming them and classifying them. The systems which made for these differences were little understood, and worse, beyond the mindset of many who practiced in the field.

Chapter 9 is. in my opinion. the pinnacle of their argument. Simply put, we should now begin to perform our experiments within the context of a model. For example, we know many of the pathways of the key genes intracellular, but we do not yet understand the dynamic model that controls them. Thus, when we do microarray tests, we should be doing them to determine the constants in the model and then validate that design. We should, in effect, identify the system, using a system framework, not just some unstructured set of classifiers. We have the structures, now is the time to put them to use.

Science is iterative. It is an iterative set of models and refinements. On p 171, the authors refer to Turing’s last paper on tessellation, or why zebras have stripes. The paper by Turing was submitted a day or two before he committed suicide and it was done without the benefit of Watson and Crick who were simultaneously doing their work at Cambridge. He intuited intercellular flow of some yet to be defined controlling substances. The concentration of these unknown substances would rise and fall in concentration and as such the color would change.

This approach has recently been applied, using a system model of flower genetics, and it explains and demonstrates the control of patterning in a genus of flowers. Having the model for this genus of flower, which is experimentally verifiable, one can then do the inverse, namely the controllability issue of creating desired flower patterns. That also is the essence in cancer dynamics, namely of creating a control or cure, but with a verifiable model. One must have the model, thus say the authors. Thus says nature! If one takes the authors systems approach and applies it to intercellular systems thinking, then it can be argued that the stem cell of cancer theory as has been recently evoked can be readily explained, as readily as those zebra stripes! That is the strength of the model posited by the authors.

My only negative is the price. There are some 187 pages and the price is well above $100. Amazon does have a better price but not much. That is over $0.60 per page, and for that I would blame not just Wiley, but the IEEE which somehow has all too inflated prices. This book is so insightful that the barrier to entry should be more modest. It is worth the insight at any price however.

And one last nit. The work of the authors should also shine a light on macroeconomics, which suffers not from a surfeit of models and mathematics, but from any ability to validate them, just look at the current state of the economy. Thus what biology brings from data to systems, macroeconomics brings from systems to reality. Both have to merge and be able to be predictive. We are approaching that in biology, especially with the insight of the authors, it is a pity that such has not yet passed the minds of those who opine on the world’s workings.

Cute

From New Tampa Republican Club.

CBO Data and The Economy

The CBO issued a set of reports on the current state of the economy and the projections looking forward. It is worth a look at the data.

First, the revenue, outlays and deficit. As we see above there is little change from 2010 to 2011. They are still burning at a tremendous rate. Deficit well in $1 T plus.

The above is some details as to the amounts and the percent changes from 2010 to 2011. What is interesting is that Medicare has a 4% change which is amazing given the cost increase in healthcare and the added enrollees. Note that SS payments have increased only 3.5%. The greatest increase is interest on the debt at 17.6% Unemployment benefits dropped 23.8% from year to year.

The conclusion is that it is not Medicare and SS alone but the debt. Just look at the numbers.

Now the CBO also looks at the economy backward and forward. First their GDP projections.

Now the key rates:

Note they assume that we will all be back to normal by 2016, strange the date. But one should see the increase in the Treasury rates as we see the expected unemployment decrease.

There Are No Ex-Marines, just Former Marines

The NY Times wrote today regarding the Former Marine awarded the Medal of Honor. They state:

Ex-Marine Awarded Medal of Honor

...... awarded the Medal of Honor on Thursday to a young former Marine who ignored orders to stay put and fought his way five times into an ambush in an Afghan ravine, helping to rescue three dozen comrades and to recover the remains of four dead American servicemen. 

The headline states "Ex" and the lead states "former". You see there are no ex-Marines, there are only former Marines. The writer seems to get the point the Editors and others seem not even to read the lead sentence. Congress awards the Medal and the presentation usually is by the sitting president.

As an update, the NYT did change the headline in later editions. I guess some adult caught the error. Now why former and not ex. Just ask any Marine, current or former. They should be glad to tell you. Paris Island, or Quantico, even the place out there in San Diego, better weather.

Picky, picky, picky! Semper Fi!

Changes in Patent Law

There has been a change in the Patent Law, and it is a sea state change. As Science states:

The biggest change will bring the U.S. patent process into line with that of other industrialized nations. Most use “first to file” patent systems, which issue patents to the first inventor to file a valid application. In contrast, the United States has had a “first to invent” system, which awards patents to inventors who can prove they were the first to make a discovery, regardless of when they filed their application.  

This is the most important change in many ways. It takes away the first to invent and the battle as to who had what note book at what time. It removes the old way and potentially allows large entities to have massive filings, rush to the Patent Office, and pile up the IP base. Is this good or bad, it is one of those issues where there is on the one hand and on the other.

Science goes on:

To protect U.S. research traditions, the new law contains “safe harbor” provisions that give researchers who receive federal or university funds a year to decide whether to pursue a patent after publishing a paper or discussing a discovery at a scientific conference. These researchers will also have the opportunity to file temporary “provisional” patent applications that protect a discovery while companies decide whether it is worth pursuing a full-blown application. 

 Universities have become more and more bastions of Patent Packages, some doing well and others not as well. Stanford seems to have one of the best and as I hear from others MIT one of the poorer effectors of the distribution of patent licensing.

Science then discusses the prior use issue:

Particularly troubling ... is language that expands “prior user rights.” Those come into play if one company patents a new technology or process, but it turns out that a second company was already using it as a “trade secret.” The new law is intended to prevent the “prior user” from being forced to pay royalties to the owner of the new patent—a change long sought by the electronics industry. Yet prior-user rights could create “a powerful disincentive” to publishing research results, ... sharing key information could tip competitors on how to create “a competing trade secret product” that would be safe from lawsuits. To prevent that scenario, the final legislation bars companies from using a prior-rights defense against academic patents produced under the 1-year grace period or that are the products of federally funded research.  prior-user rights “essentially give trade-secret holders a free ride on somebody else's patent.”  ...the law could create “disincentives for collaboration and open communication.” 

These are three of the elements; first to file, one year window and prior use. It will be interesting to see whether this has a positive or negative effect.

Green Technology and Realism

The recent issues regarding the DOE's "investment" in a solar panel company and its loss of more than $500 million bring to mind my long felt opinion of Government investments; really really dumb.

As the Hill states:

Republicans blasted ... administration officials Wednesday for green-lighting a $535 million loan guarantee to Solyndra, a now-bankrupt California solar company with close ties to the White House.

The GOP attack at House Energy and Commerce subcommittee hearing focused on emails they said showed the White House tried to rush a final decision on Solyndra’s financing so that Vice President ... could announce approval of the loan guarantee at the September 2009 groundbreaking for the company’s new factory.

"The documents demonstrate that, when DOE was reviewing the Solyndra guarantee in 2009, it was well aware of the financial problems the deal posed,” ... chairman of the panel’s Oversight and Investigations subcommittee, said Wednesday.

First in my experience the DOE is one of the worst managed agencies around, except for the old AEC nuclear part. Second any Government agency has no clue as to how to make an investment. Those that do would never work in the Government, they would do! Imagine any GS 14 sitting on some Board. You have to be crazy t think they could even ask a sensible question.

The problem is we have hundreds of these follies. Again I remind all of the Broadband program, tens of billions down the proverbial rat hole!The market is a real thing, it should reward success and punish failure. Thus the TARP should never have been, let them fail, it clears the market. Instead we have trillions stored up going nowhere. GM and Chrysler, they too should have failed. Instead we shoveled out taxpayer money and they want more, like any addict. There is not rational for this mess.

Understand What Creates Jobs

  The new proposed Job Bill finances more teachers, firemen, police officers (being the son and grandson of one we do not call them cops, it was considered a bit derogatory), and union construction workers, and more of that ilk. Not a single job to be created in which it will sustain new real economic growth.  

What does an entrepreneur/investor look at regarding the creation of jobs? The long term return. Simply the net present value, NPV, of the investment. We formalize this below. The NPV is the value today of a stream of revenues, hopefully, in the future.

If we look at this equation we see several factors:

(1) First the NPV must be greater than the investment made. If we invest a $1M then we need well more than a $1M NPV.

(2) The revenue today is highly un-predictable. Why, demand, no matter how low we price it people are just out of money for many things. Thus the entrepreneur cuts this estimate down.

(3) Costs or Expenses, they are driven up by health costs and the ACA mandates. Taxes are also high, state and local, and the costs of meeting all other state and federal mandates just add to the per employee burden. So one tries to build a business with as few employees possible. That is great for productivity and bad for employment.

(4) Capital is a problem because it may be available but raising investment or loan dollars for some equity leverage may be near impossible.

(5) Risk, r, which is the sum of cost of risk free plus risk makes it a highly discounted number. We may have used 18-25% before, when risk free was say 5-7%, but now we raise it to 30-35% when risk free is almost zero. Why? Recession, unpredictable Government taxes and costs etc. Just the risk of seeing capital gains go back up to high end income tax rates drives this number sky high.

(6) Terminal values: just as capital gains affected the r it kills the terminal value for the same reason. Also with markets going sideways at best the ability to monetize the company in say K=5 years if unrealistic. Thus the terminal values drop.

The result is that from the investor/entrepreneur view we do not see why we should put capital at risk as was done before. Washington does not understand this. Macroeconomists are lacking any fluency here, it is not part of their thought process.