Archive for May, 2012

Anakin Shrugged

Dave Killion — May 17, 2012

JP Morgan Meets the Black Swan

Antony — May 17, 2012

The recent news of JP Morgan’s $2 Billion trading loss is another example of a Black Swan event, discussed in our book club’s current book. It appears that traders at the bank used complex econometric models to make market predictions, then hedged their bets using a negative carry trade, which means that maintaining the position cost them money over time. Rather then just accept these small losses as a cost of doing business, they kept increasing their bet in order to recoup the losses they had built up, known a Martingale betting strategy. As time went on, economic events deviated from their model assumptions in ways that they did not expect (the Black Swan), and the losses multiplied. This episode has exposed the inept risk management at the bank. And now that other traders know of JP Morgan’s vulnerable position, they are attacking them, “squeezing” their position.

The interesting strategy devised by Taleb was to take the other side of the trade. Realizing the distorted risk perception of most traders, he will take the psychologically uncomfortable position of accepting many small losses in hopes of occasional large wins that more than compensate for the losses. His method is described in this Malcolm Gladwell article.

These events are good illustrations of a basic tenet of Austrian Economics: There are no constant in human action. This is why econometric models can never work. As soon as you make assumptions that variables will stay within certain parameters, and begin acting on those models, the assumption will be violated, and the model blows up. This is why the Phillips Curve does not work when applied to public policy. It is the mistake that blew up Long Term Capital Management in the 1990’s. And it is the reason why economics cannot be understood using empirical methods, but must use a deductive approach, developing causal linkages based on a priori axioms.

Ask a Libertarian

Dave Killion — May 16, 2012

This is What Democracy Looks Like

Dave Killion — May 15, 2012

The path to the nomination for the US Republican presidential candidate is terribly convoluted. The US states hold caucuses and primaries, and the results are used in some fashion or another to determine the delegates who will attend the Republican National Convention to select the candidate. In some states every delegate may be required to vote for the winner of the caucus/primary, while in other state delegates may be proportioned according to poll results. There is even an argument being made that all delegates are free to vote for whomever they please

“Much of the debate over whether (delegates) can vote their consciences rather than be bound to vote for the candidate who won the state’s popular vote centers on the interpretation of a Republican Party rule.

Republican National Committee Rule Number 38 states: “No delegate or alternate delegate shall be bound by any attempt of any state or Congressional district to impose the unit rule.”

The Unit Rule is a rule requiring all delegates from a state or congressional district to vote as a unit, that is to say, for the same candidate. “

The Ron Paul campaign has taken advantage of this complex process by making a detailed study of each state’s rules, and working with them to fill a disproportionate number of delegate positions with pro-Paul people. This has proven so successful that the Republican parties of some states have fallen entirely under the control of Paulites. The potential for disruption of the national convention is substantial. Of course, much of the old guard is complaining that what Ron Paul supporters is doing is undemocratic. This is a great source of mirth to libertarians, who know that what is happening is perfectly in keeping with what one can expect under a democratic system. That is, a group in power will try to rig the system so as to keep themselves in power, only to have the rules become so complex that they are ultimately cast out by the very same process by which they attempted to fend off opponents. Now that one group of special interests has been expelled by another, we can only hope that this particular group find that they can stay in power by doing good.

How to Fail

Dave Killion — May 14, 2012

This video, courtesy of Free Market America, has been proving very popular recently –

“The environmental agenda has been infected by extremism—it’s become an economic suicide pact. And we’re here to challenge it.”


There are a number of interesting variations to be made on this theme:

If I wanted America to fail, I would impose regulations making victimless exchanges between consenting adults into crimes. I would make take these consenting adults prisoner, seize their property, and kill them. No private activity would be safe from scrutiny, and the regulations would be so complex and contradictory that no citizen could hope to be compliant.


If I wanted America to fail, I would make Americans believe that the world is so populated by people who are a serious threat to our very existence that we must exercise our military might and police power over every land and every sea. I would mock anyone who questioned the flood of blood and treasure that makes this exercise possible, and I would accuse them of cowardice and betrayal.

It seems to me that there are a great many paths to failure, and the US and Canada are on several of them.

Respect My Authority!

Dave Killion — May 13, 2012

The Libertarian offers us a joke

“A DEA agent, together with an ATF and an FBI agent, as part of a task force, arrive at a ranch in western Nebraska. The agents tell the rancher, “We need to inspect your ranch for illegally grown drugs.”
The old rancher says, “Okay, but don’t go in that field over there.”
The DEA agent verbally explodes saying, “Mister, we have the authority of the Federal Government with us.” Reaching into his rear pocket and removing his badge, the agent proudly displays it to the farmer. “See this badge, this badge means we are allowed to go wherever we wish on any land. No questions asked nor answers given. Have I made myself clear, do you understand?”
The old rancher nods politely and goes about his chores.
Later, the rancher hears loud screams and spies the three agents running for their lives and close behind is the rancher’s notoriously ill-tempered and territorial bull. With every step, the bull is gaining ground on the agents. They are clearly terrified.
The old rancher immediately throws down his tools, runs to the fence and yells at the top of his lungs…
“Your badges! Show him your badges!”

Nintendo’s Nanny

Dave Killion — May 12, 2012

Princess Peach is inspired to help the people of the Mushroom Kingdom be the best they can be. Never underestimate the destructive power of good intentions. Via Neatorama –

Harbingers of Happiness, Returned

Dave Killion — May 11, 2012

Who's a pretty boy!

Here’s a letter to the Times-Colonist –

Your happy article on the reintroduction of western bluebirds (My nest or yours? May 11) was marred by the perpetuation of some myths concerning the disappearance of these beauties from our locality. Before blaming competition from introduced species, or loss of habitat, it is wise to consider why such phenomena do nothing to reduce the population of zebra finches, turkeys, budgies, or chickens. It takes only a moment to realize that the difference resides in who controls the property rights over these animals.

Amongst birds that can be privately owned and traded, populations flourish. But where collective ownership is the rule and trade is prohibited, reliance on government stewardship has consistently led to disaster. It is in the best interests of neither wildlife nor humanity to place the responsibility for bluebirds, marmots, or any other vulnerable creature into the hands of agents who lack both the knowledge and the incentives to optimally manage them. The results speak for themselves.

Self Defense

Dave Killion — May 10, 2012

The provincial government of Quebec has responded to the elimination of the long gun registry by obtaining an injunction preventing the federal government from destroying existing gun registry data, which it wishes to use in order to establish a provincial registry. However, some Quebec firearms owners aim to dodge this attempted infringement by selling their long guns outside of Quebec. Here’s how –

  1. Call CFC 1-800-731-4000 and follow prompts to initiate a transfer.
  2. Tell the agent that you have sold X number of non-restricted firearms “OUT OF PROVINCE”. State that the buyer showed proof of a valid PAL.
  3. The agent will then ask for Certificate and Serial numbers of long guns.
  4. Agent will then advise that they will de-register the long guns from your Possession and Acquisition License. In other words, you are NO LONGER IN POSSESSION of said firearms.

It appears that there is nothing in the law stating a Quebec resident can not “borrow” any un-registered firearm for an indefinite amount of time. Just to be safe, I think it might be best to have someone with a PAL from outside of Quebec who is willing to attest to ownership of the firearms.

Also, there are reports that firearms retailers in some provinces have been ordered by the Chief Firearms Officers of said provinces to collect and keep records of personal data for firearms purchases. Private sales are exempt from this, so if you want to purchase a non-restricted firearm, give your money to a friend who has a PAL. He can buy the piece, and then sell it to you for $1, so there is no record that you own the piece, and your friend can honestly say he sold the gun shortly after he brought it. You can do him the same favour, as well. So long as these nasty bureaucrats and politicians keep trying to subvert the will of the people, we have a duty to try to outmaneuver them. Don’t miss an opportunity.

Isn’t Vote Buying Illegal?

Dave Killion — May 9, 2012

The provincial government has introduced legislation to create a new holiday in British Columbia called Family Day, starting in February 2013. Business concerns have been dismissed on the grounds that the stretch between New Year’s Day and Easter is so long, families ‘deserve’ a break. Plus, the holiday practically pays for itself! –

“(Premier Christie Clark) acknowledged that some businesses may have concerns about another paid day off for workers, but suggested the holiday could pay off economically and socially.

“Think about ski hills and tourist destinations,” Clark said. “Think about restaurants and hotels on Family Day. People will use it to take their family out and do things. That’s the purpose of it.”

Well, I guess I just never thought about it like that. It appears that people have simply not had enough time to spend their money! Perhaps the government is really on to something here. Perhaps what we really need is even more paid holidays.

Seriously, how can anyone swallow this? More state-mandated holidays means lower wages, fewer and smaller pay raises, and slower job creation in BC. Taxpayers will be better served if this holiday has a name more in keeping with its outcome, rather than its intent… perhaps Anti-Investment Day, or Victory Over Entrepreneurship Day. Considering the current state of the global economy, citizens should recognize this proposal for what it is – a goodie for the benefit of public sector unions at the expense of provincial families.