The "I wish" syndrome
Jun. 22nd, 2009 02:08 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
peterbirksThere's a well-known logical fallacy that is based on a misinterpretation of the laws of cause and effect. In poker it's amazing how often you see this error, particularly when a player is on tilt.
Put simply, if you have a good hand, you tend to bet more into the pot.
This means that there is a positive correlation betwen strength of hand and bet size.
The misinterpretation is that, if you bet more into the pot, that makes your hand a better hand, one more likely to win. It's almost as if a player believes that, by putting a big bet into the pot, in some kind of quantum mechanics way you make it more likely that your opponent has worse cards.
The German government appears to have fallen into a similar trap. I'm grateful to Wolfgang Münchau for mentioning this in today's FT.
He reports that a balanced-budget law has been introduced into the German constitution. From 2016 it will be illegal to run a deficit of more than 0.35% of GDP. From 2020 the federal states won't be allowed to run a deficit at all.
As is often the case, the most significant macro-economic events tend to go unnoticed at the time. The implications of this law are horrific for the eurozone. Either the euro survives but Germany becomes an economic basket-case, or the unilateral rules brought in in Germany will stress parity of the euro so severely that the currency itself will collapse.
That doesn't mean that it's going to be a one-way downtrend for the euro -- one thing that will help it in the short term is that the dollar is heading for two or three years of structural weakness. And in the long run we are all dead. But just because you can't make short-term profits from something doesn't mean that you should ignore it. This law, in effect, is a death sentence for the euro, probably by 2025 at the latest, 2016 at the earliest.
Given Germany's love of the principle of the euro, this might, therefore, seem like an odd financial decision to make. Why did they do it?
Well, on the one level, the Germans hate debt. Growth should be gradual and funded from internal resources at both a macro and micro-level. Leveraging a loan so that a small company can grow quickly is seen as rather louche in Germany -- the kind of thing done by those who are not quite respectable (i.e., non-Germans),
But, on the other level, it's this error of causation. Running a budget surplus happens automatically when times are good (hell, even Gordon Brown managed it in the late 1990s). Therefore, good times and budget surpluses are positively correlated. Therefore, the flawed logic goes, if we make budget deficits illegal, good times will last forever!
This, quite clearly, is economic moronism. When times get bad you need deficits to boost the economy. It's a cure. Look at it in terms of the human body. When I am well, I don't take pills. When I am ill, I take medicine. Therefore taking medicine is positively correlated with being ill. Therefore if we ban all medicines, no-one will get sick.
All hope is not lost. The law can be changed, although it will require a two-thirds majority and the fight will be against the inbred German prejudice against debt. But the alternative, the death of the beloved euro, might focus a few German minds in the direction of common sense.
_____________
Put simply, if you have a good hand, you tend to bet more into the pot.
This means that there is a positive correlation betwen strength of hand and bet size.
The misinterpretation is that, if you bet more into the pot, that makes your hand a better hand, one more likely to win. It's almost as if a player believes that, by putting a big bet into the pot, in some kind of quantum mechanics way you make it more likely that your opponent has worse cards.
The German government appears to have fallen into a similar trap. I'm grateful to Wolfgang Münchau for mentioning this in today's FT.
He reports that a balanced-budget law has been introduced into the German constitution. From 2016 it will be illegal to run a deficit of more than 0.35% of GDP. From 2020 the federal states won't be allowed to run a deficit at all.
As is often the case, the most significant macro-economic events tend to go unnoticed at the time. The implications of this law are horrific for the eurozone. Either the euro survives but Germany becomes an economic basket-case, or the unilateral rules brought in in Germany will stress parity of the euro so severely that the currency itself will collapse.
That doesn't mean that it's going to be a one-way downtrend for the euro -- one thing that will help it in the short term is that the dollar is heading for two or three years of structural weakness. And in the long run we are all dead. But just because you can't make short-term profits from something doesn't mean that you should ignore it. This law, in effect, is a death sentence for the euro, probably by 2025 at the latest, 2016 at the earliest.
Given Germany's love of the principle of the euro, this might, therefore, seem like an odd financial decision to make. Why did they do it?
Well, on the one level, the Germans hate debt. Growth should be gradual and funded from internal resources at both a macro and micro-level. Leveraging a loan so that a small company can grow quickly is seen as rather louche in Germany -- the kind of thing done by those who are not quite respectable (i.e., non-Germans),
But, on the other level, it's this error of causation. Running a budget surplus happens automatically when times are good (hell, even Gordon Brown managed it in the late 1990s). Therefore, good times and budget surpluses are positively correlated. Therefore, the flawed logic goes, if we make budget deficits illegal, good times will last forever!
This, quite clearly, is economic moronism. When times get bad you need deficits to boost the economy. It's a cure. Look at it in terms of the human body. When I am well, I don't take pills. When I am ill, I take medicine. Therefore taking medicine is positively correlated with being ill. Therefore if we ban all medicines, no-one will get sick.
All hope is not lost. The law can be changed, although it will require a two-thirds majority and the fight will be against the inbred German prejudice against debt. But the alternative, the death of the beloved euro, might focus a few German minds in the direction of common sense.
_____________
![[identity profile]](https://www.dreamwidth.org/img/silk/identity/openid.png){kind=small}
no subject
Date: 2009-06-22 08:39 pm (UTC)As for the Euro, I'm interested in your choice of years. At the moment I'd be very surprised if the Euro survives (I was going to say, "in its present state," but that would be weasely) for as long as 2016. I'd say it's the current poster child for a Black Swan moment. If the whole system can go into anaphylactic shock just because of some penny-ante corner case like Latvia, then I don't see it surviving, say, political meltdown in Italy.
(It pains me to think this way, because I quite like the Euro. Also, I have wads of the fucking stuff.)
It's all good healthy naked outdoor fun with the Hjalmar Schlact Revivalist Movement, isn't it? I'd love to know how they got the second half of that one past the Landes. Either Merkel knows something about her re-election prospects that I don't know, or somebody down there in the sewers of Frankfurt has spotted some particularly huge turds floating up from the Danube. If indeed that is geographically possible. But, no state-level deficit at all?
Good Lord. Interesting times.
no subject
Date: 2009-06-22 09:00 pm (UTC)I'm pretty sure that quantum entanglement in a poker environment is a very viable research opportunity. You do, of course, need the right sort of set-up for this to work.
(a) You need very, very, small cards. Nanometre thickness is probably too much, given the limitations of current technology, but at least Intel could build a fab for you. It's worth a try.
(b) You need to dope them with exactly the right sorts of magnetic salts. Nobody is quite sure which ones work best, as yet, but there's a general agreement that you're looking at Rare Earths.
Unfortunately, at the moment, China is monopolising the supply of these for commercial purposes. Come the revolution, however, things will be different. Oh yes. Very much so.
(c) You need to be something of a whiz at high-temperature conductivity. Which sounds quite cosy, until you realise that "high-temperature" is measured in single digit Kelvin terms. Still eminently possible, though.
(d) Given the fact that people on tilt are making the decision after they've looked at their cards, you're going to need some way to reverse the arrow of time. I've got to admit, this one is a bit tricky.
However, your patently ridiculous, absurd, and dare I say it technologically preposterous assertion that you, as a Political Scientist, know enough about these things to pass comment is clearly missing the point.
Spend enough money, and it can be done. The mistake these loons make is to put that money in the pot. What they should be doing it to invest it in the University of Utah, Water-Gargling Department.
no subject
Date: 2009-06-23 10:53 am (UTC)Not at all. My point is that their action would (they hope) change their opponent's cards. At the time of the bet, the opponent's cards, somewhat like Schroedinger's Cat, could be winning and losing at the same time. The punter's hope is that by increasing the size of his bet he will increase the likelihood of, when he opens the box, the cat being dead.
Your use of the word "slapdash" I assume, of course, means "fucking brilliant".
PJ
no subject
Date: 2009-06-23 07:37 pm (UTC)Basically the box is open and the cat is dead. Or alive. Either way, the box is open.
Another interesting way to look at this is by applying the concept of negative probability, btw.
Look, if "slapdash" ever meant "fucking brilliant," then the Labour Party would be well on the way to a fourth successive victory by now.
no subject
Date: 2009-06-23 08:59 pm (UTC)PJ
no subject
Date: 2009-06-23 10:36 pm (UTC)You won't be needing them, so can I have the pills, please? Don't worry, I have the constitution of an Ox. Or was it a Camb? Either way, I had to sit there in a stuffy room listening to the bastard reading it to me for about six hours straight in some weird dialect of Ancient Greek that they don't teach in schools. Also I think it mentioned something about a Sarkozy chap wanting to bring "le habeas corpus" into Napoleonic Law.
It was a bad evening all round. I really need those pills, man.
Incidentally, I hope you enjoyed the Herring. I also hope he didn't mention the size of his hands. I got a free invite from work to his gig in Leamington, and for the entire second half of the show, I couldn't help staring at the damn things. They really are quite worryingly petite.
no subject
Date: 2009-06-23 10:59 am (UTC)There would also be an intermitten stage of crisis before formal abandonment. How would that come about? Presumably one nation would start printing its own currency again. After all, a currency can't cease to be in modern economies without another one being on hand to replace it. Any "demise" would no more be an overnight thing than was the euro's introduction. But, like getting the toothpaste back in the tube, the mechanics are necessarily different.
PJ