Inflationary product debasement turns tragic

Previously, I had highlighted the problems in inflation measures that don't take into account when a product is debased in order to hide its true cost. Well, another case of that has come up in the news: the FDA melamine regulations permitting trace amounts of the stuff in baby formula. From the beginning:

This weekend, I saw a news story on TV where a doctor was explaining that, while melamine is most likely safe in these trace amounts, it "has no business being in baby formula" because there's no benefit to the baby, there's a risk of harm, and you just don't need it to make formula.

My immediate reaction was: Okay, if it's so bad, there must be some reason producers would want to include it. After all, businesses don't e.g. pollute just for fun; they do it because that improves product quality and/or cost -- er, at least it appears that way to the most highly-visible parties.

As the story continued, the doctor answered my question by saying that it's included in order to fool the tests used to determine protein content. I don't remember the channel, but I found a San Francisco Gate story substantiating that claim:

Melamine contamination became major news when it was discovered that China was adding it to milk to disguise test results that measure protein levels. Since the chemical was found in infant formula in September, it has sickened some 50,000 Chinese infants and killed 4.

So there's our answer! They use melamine instead of the good stuff in order to pass some protein measurement test. And they only use melamine because it's cheaper, or else what's the point? But, that test has a "blind spot" that will give a "pass" rating to baby formula that only achieved that rating by compromising the "design constraints" of baby formula! So it fits into my template of "compensate for inflation by debasing the product instead of raising the price".

Now, it certainly doesn't take a bout of inflation to make people try to get "something for nothing". But it's a very plausible suspect for why it wasn't tried before.

Of course this is not to take away from the culpability of those who conjure up such unethical policies. And, to some extent, you have to understand the position they're in: when consumers reward those who can keep the visible price low, while ignoring the other costs thereby incurred ... well, don't be surprised when they're all too willing to oblige :-/

A Big-Three-Bailout argument that just might work...

When they couldn't convince anyone they had a clue what they were doing, the Big Three resorted to doom-and-gloom about all the spillover damage onto poor, innocent workers that would ensue if they failed. But even that isn't working. Maybe it's too abstract? Not enough emotional appeal?

Don't worry, Silas X to the rescue! In this video, I show them how to really win over the hearts and minds of our elected representatives!

My plan to destroy the universe won't work

And I'll bet you're relieved!

Maybe a little background is in order.

A question of interest to philosophers and theoretical physicists is whether or not the universe is just a simulation running on some computer, one level up. (See e.g. Nick Bostrom's Simulation Argument.) Of course, many ridicule this idea as being non-falsifiable and thus non-scientific.

Not so fast! I said. Of course it's falsifiable. Here's how: if the universe is a simulation, then its programmers probably try to economize on computational resources (computing cycles, memory, disc space, time, etc). And to do that, they will make the program reveal to "us" (the conscious entities) the minimum required to make everything appear "believable". That in turn, means that as long as we "wouldn't know the difference" if some physical process developed in a way contradicting the rest of our observations, the simulator won't bother to churn through the calculations needed to make the process match up with known universal laws. In other words: "If we're not looking, why bother making sure something's there?"

And that tells us how to test the Simulation Hypothesis: have everyone set up as much measurement equipment as they can, and therefore observe as much as they can. This will force the simulator do many more calculations than it would otherwise have to, since now it has to keep consistent with that many more observations. The programmers then have to devote an ever-increasing amount of resources to keep it running, which will eventually force them to "cut corners" in implementing the laws of physics, revealing violation of Standard Model physics, or ... um, make them pull the plug on our existence.

Hence, my "plan to destroy the universe".

Now, the good news: the plan wouldn't work, based on what we already know about how the universe would react to such a "hypermeasurement" scenario! And the reason is shocking: because we can't actually increase our total knowledge.

"What in the hay-ll? I did me some book-larnin' not but three yurs ago!"

Sorry, that was Cletus, our resident country bumpkin.

Well, I'll need to some more background now to justify that claim. First, I want to point you to a post on OvercomingBias.com that introduced me to a lot about what I'll discuss here: Engines of Cognition.

Now, consider the 2nd law of thermodynamics. There are many ways to express it, but a simpler way is: "The amount of disorder ('entropy') in the universe must always increase." Sure, you can increase the order any one specific place -- say, when you form crystals -- but it will always be counterbalanced by an increase in disorder somewhere else. The most common application of this law is in heat engines (such as the one in your car): when you burn fuel to turn your engine and thus your tires, you are extracting a kind of order: the useful mechanical "work" (as it is called in physics) of a spinning engine. However, to do so, you burn fuel and transfer heat to the environment, which, when tabulated, generates entropy/disorder exceeding that which you destroyed in extracting mechanical work from the system to drive.

Now, here's the kicker: there are deep parallels between the concept of entropy in thermodynamics, and the concept called "entropy" in information theory. In the latter, it refers (roughly) to the uncertainty one has about the content of a message before reading it. Any knowledge that some kinds of messages are more likely than others therefore reduces that "entropy". Similarly, entropy is at a maximum when all messages are equally likely.

And the truly mind-blowing part is that the connection between the two kinds of entropy is so deep that entropy in the information-theoretic sense affects entropy in the thermodynamic sense. (This is going somewhere, just be patient.) In short, if you are able to reduce your uncertainty (information-theoretic entropy) about the "message" contained in the molecules of a system, that knowledge can actually be exploited to reduce the thermodynamic entropy of the system and thereby extract useful work! (For reference, and early exploration of this idea is called the Maxwell's Demon thought experiment, and a hypothetical engine that extracts work this way is the Szilard engine.)

But this hypothetical capability of decreasing the entropy of a system does not actually contradict the 2nd Law, which, you'll remember, says that total entropy must increase. Rather, for reasons I won't go into, this acquisition of knowledge itself is limited by the 2nd Law. Just as the extraction of "organized" mechanical work from fuel requires the generation somewhere else, of at least as much counterbalancing disorganization, so too does the collection of information that could permit extraction of the same work without the fuel require a counterbalancing loss of information somewhere else, i.e. increased uncertainty.

This principle reveals a fundamental limit that your brain (in a deep sense, a "cognitive engine") faces: in order to learn something true about your environment (whether via the senses or inferences), you must sacrifice knowledge somewhere else. Fortunately, nothing requires you to care much about that lost knowledge, which takes the form of "lost certainty about aggregate statistical properties of thermodynamic variables".

Now, back to the main point: from the perspective of hypothetical beings running the universe's simulator, my idea to gather more measurements has no impact. Any time we make a measurement, we are gathering knowledge, which must therefore correspond to lost knowledge somewhere else. So, far from threatening the computer's ability to simulate our universe, all our measurements will (amazingly) decrease the computational resources the simulator requires.

Which neatly returns the Simulation Hypothesis to non-falsifiability, and assures us that even if people acted on my idea, we're still safe and sound. Alternatively, it reveals the universe's programmers to be really, really clever :-)

Yay! I'm famous now!

Because of my earlier criticism of Peter McCluskey's poorly-designed plan to learn the market's estimation of how the party of the next president will impact oil prices and interest rates, I actually got linked by someone I don't already know! (Someone who, by the way, didn't quite take me seriously the first time around.)

Peter McCluskey, for his part, now mourns the failure of his plan.

"Cynical comment left elsewhere" of the day

I've been pretty fed up with the combined favoritism and outright stupidity in the financial system these days. This has led me to guess that any exchange involving a promise from a large, old (and therefore probably protected at all costs by our Overlords in Washington) corporation is going to, less and less often, be treated as something they have to *sigh* actually honor. With Sears and K-Mart reinstituting layaway (in which you make installment payments and then, after the last, receive the product), I figured this would be just another promise you can't trust anymore.

Well, a former happy customer of layaway services, calling herself "Princess of Swords", didn't seem to notice this trend and so disputed my prediction in a discussion on a Megan McArdle post. (UPDATE: previous link was to the wrong site.) Here, I post my response, in which you'll start to understand the basis for my pessimism:

******

Princess_of_Swords: Thanks for taking the time to detail your experience with the intricacies and standard practices prevailing with respect to layaway at the time you availed yourself of it.

Now I'm going to explain to you how it works in the real world.

In the real world, an obligation no longer means anything.

-GM was obligated to pay pensions. They didn't even bother to internally classify them on the same level as a bond, until forced to by law.

-Insurance companies are obligated to pay when disaster strikes. They fight as hard as they can to avoid paying, even for plain vanilla cases.

-Individual consumers buy things on credit, deferring the first payment for a long while. They are routinely caught not having saved for that big first payment.

-Securities brokers engage in naked short-selling of stocks, which obligates them to produce actual ownership of that stock at a later date. Yet as we've seen recently, they've ended up flooding the market with fake stocks and then casually aver that they "can't locate your stocks" and offer to reverse your purchase as if it were no big deal.

-Gift card issuers are unilaterally stealing money from gift card owners on the grounds that "they need it" because they're in financial trouble, despite having obligated themselves to treat the gift cards as equivalent to cash.

-AIG got a massive bailout from the Fed, but, we were assured, they would be obligated to pay a hefty penalty interest rate and start immediately and orderly unwinding their enterprise. Well, the Fed went back and cut their payments in exchange for nothing, thus debasing the Fed's assets (and thus the dollar). And AIG has done virtually nothing to liquidate its assets.

You get the point. I just don't care how you think things used to work back then. We are in a new world, where only us responsible commoners have to keep our word.

And even *more* GM ROFLcopters!

This is too rich. Daniel Gross of Slate writes in defense of propping up the Big Three automakers. But since Slate recently started putting links in the middle of articles instead of at the end, we see that right in the MIDDLE, they post a link to Gross's previous article from '03 where he REJECTED the claim that the auto industry was doomed. Check out these gems:

"...the Big Three enjoy remarkably large market caps: $21.5 billion for GM [now under a tenth of that -- SB].... Throw in all the money that has been lent to the companies, and you have to come to the conclusion that either there's an awful lot of stupid money invested in the survival of the U.S. auto industry or the declinists are mere alarmists."

"...the Big Three are unlikely to seal their own near-term doom for the sake of short-term labor peace. It's safe to assume that the companies will gain the upper hand in negotiations ..."

Yeah, why would unions shoot themselves in the foot? And why would GM have anything but a long-term perspective?

"Ford, as Moneybox has described it, is a profitable bank lashed to an unprofitable carmaker."

Now, without the profitable part!

"...it's hard to go out of business when you have a great deal of brand equity, ready access to the capital markets, and the potential to print money when you have the right product mix at the right economic climate."

I really have to hand it to Slate: highlighting an author's unflattering earlier work is quite a selfless, helpful act!

(Cross posted at the ever-more-foot-in-mouth Megan McArdle's blog.)

ROFL = rolling on floor laughing
ROFLcopter = internet meme alluding to mechanization of this phenomenon

GM outdoes itself again

Finally, mainstream investors are wising up to the completely ridiculous assumptions you have to make to justify investing in General Motors. A Deutsche Bank analyst has finally set a target price of GM stock at $0. But here's what will really refuel your ROFLcopter:

GM bonds maturing in less than 3 years now yield SEVENTY-****ING-FIVE PERCENT!!!!!!

(Scroll down to "Last Sale" at the bottom. Thanks to rluser at Marginal revolution for pointing me to a free bond price site.)

The time it takes for investors to Set Things Straight is way too long.

Well, I guess I don't count as a libertarian anymore

Yesterday I was kicked off the private LibertarianForum Google Group and mailing list. The reason was that I had the audacity to remind other libertarians of the responsibility side of liberty (with respect to global warming), and for pointing out flaws in really stupid arguments against intellectual property (and, conversely, explaining how an IP-free system is vulnerable to Mises's economic calculation critique). The proverbial last straw was a discussion sparked by someone linking this TokyoTom post about Bob Murphy finally admitting, after being dragged kicking and screaming, to admit he misled readers in his op-ed, though of course he's not going to actually say it where any victims of his deception are going to see it.

The head of the list claimed that he was deluged with requests from people who were asking me to be removed, and who apparently lacked the guts and the brains to actually explain where my points were in error. I'm not going to name any names.[1]

Naturally, people are going to claim that, oh, it wasn't what I said, but my rudeness. This is ridiculous -- it's standard practice on the LibertarianForum list to use the exact same tone I did, as even my detractors readily admitted. A more plausible claim would be that the people there didn't like being uncomfortably reminded of the implications of their stated (though certainly not actual!) beliefs.

So why the title of this post then? I believe, after all, everything I did before. But look at it this way: time and time again, I see people nominally also "libertarian" reveal themselves to have been coming from completely different premises. I never imagined that I would see, for example, Bob Murphy take the attitude of, "Oh, did I destroy your land with my CO2 emissions? I got it! Here's the solution! Fix it your own damn self!" (Yeah, way to preach responsibility and universal adherence to basic morality there...)

There's only so many times I can see cases like that before the self-appellation "libertarian" obscures more than it clarifies.

So what to call myself now? One good option is Birchian, after Paul Birch (a former Anti-State Forum contributor), since I've been seeing my views more and more resemble his, especially in terms of focusing on whether the victims of one's actions have been adequately compensated.

Alternatively, I could -- gasp! -- call myself a mutualist as per the philosophy of Kevin Carson, my former nemesis. (As recently as July of this year he quipped that I couldn't grasp an argument even with velcro-covered mittens!) The reason for that term would again be because of my focus on the extent to which nominally "libertarian"-favored activities are in fact predicated on the state stepping in an exempting certain groups from having to actually bear its true cost.

Before inferring too much from this post, I ask that you heed this caution: There is a big difference between "Problem X is often overstated in an attempt to give politicians more power" and "Problem X doesn't exist." I certainly sympathize with those who have seen so many phony environmentalist rationalizations for statist measures that are thinly-veiled attempts to shut down markets, that they hear about Problem X and immediately view it as the former. But ask yourselves: has the tide turned to the point where it's more common to see anti-environmentalist arguments as thinly veiled attempts to shove onto other people, costs that the arguer should be bearing?

[1] Since a lot of you might be sketchy on terminology, a so-called "name" is a label used to refer to a specific instance of a proper noun. An example of a name might be Brad Edmonds or Max Chiz.