Case for financial regulation

Well, enough said and enough written on pros and cons of it. Here are some examples which highlight why do we need regulations!

If one compares purely free market capitalism with a game without any referees and govt. controlled socialism as a game where referees decide every move, it's trivial to understand that both seem ridiculous! In the first case, it leads to chaos and the second seems boring to watch!

Manufacturing has improved many-fold by being able to identify when a process is out of control and needs intervention by using Statistical quality control. “Statistical process control (SPC) is the application of statistical methods to the monitoring and control of a process to ensure that it operates at its full potential to produce conforming product. Under SPC, a process behaves predictably to produce as much conforming product as possible with the least possible waste”. Does not sound too bad, does it?

Another example of control or regulation is thermostat. It allows to start heating or cooling depending on the defined threshold limits. Imagine if there was no thermostat!!

Let's take some human body related examples. Hairs, nails keep growing and need continuous maintenance to keep them in shape. Ask a woman and you will know how important is manicure and pedicure!

A house needs constant cleaning so that it is dust and germ free. Trees and lawns need continuous trimming to keep them within control as well.

The following medical monitoring instruments/tools help us to take action when our health or disease goes out of control. Blood sugar monitoring meters, ECG, EEG, the list can go on...

So, in almost every aspect of human living we continuously monitor and regulate 'things' as otherwise it gets out of control and becomes un-manageable. That being said, there is a possibility of bureaucratic controls creeping in by the name of regulation! That's always a risk. 

But, not having regulation will be like not installing traffic signals for the fear of having to stop at red light and taking the risk of getting into an accident!

Sound & Color

Whenever you mix two colors, you always get a new color, at least that's what our eyes tell us.
However, when you mix two sounds, you can still identify them individually, either as aesthetically pleasing or as noise. The same can be generalized for more than two colors or sound. Mixing multiple colors create a perception of a new color, the same does not hold true for sound.

Laws of physics govern both science of color as well as sound. However, I think evolutionarily human ear is more developed than eye as an organ. That's why we cannot distinguish two colors being mixed, however, we can identify two different sounds. May be ears have evolved over a longer time scale than our eyes have!!

[Note on 01/29/2012: The above conclusion seems to make sense with my newborn baby, who can hear fine but eye-brain co-ordination is still developing]

That brings me to the following questions:

There are colorblind people but is it possible for someone to have defective eye or gene somehow so that he/she sees the world in black and white? 

Why there are only 3 primary colors(Red, Blue & Yellow)?

Why do our eyes can detect only 24 frames per second? Anything faster than that will detect in brain as moving object.

Intuition

“The intuitive mind is a sacred gift and the rational mind is a faithful servant. We have created a society that honors the servant and has forgotten the gift.” - thus spoke Albert Einstein.

I find it quite strange that a scientist like him ever quoted that. May be we need to read it in the context of the overall conversation when he said that. Perhaps he was alluding to the importance of being imaginative.

The following simple examples show that following simple intuition does not always lead to truth and science teaches us to experiment and probe.

Sun 'rises' in the east and 'sets' in the west but Sun is not moving, rather it's earth which is moving! It seems trivial now but scientists had to fight hard to prove it to society.

Earth is round. However, wherever you go you see it is flat. You drive thousands of miles, still you see it as flat. Again, intuition tells us that it is flat but it is not.

Anyway, Einstein also said, "The important thing is not to stop questioning. Curiosity has its own reason for existing."

Need vs Want

We loosely know what they mean but always have hard time categorizing them. Copying from http://www.socialstudiesforkids.com/articles/economics/wantsandneeds1.htm 

A need is something you have to have, something you can't do without. A good example is food. If you don't eat, you won't survive for long.

A want is something you would like to have. It is not absolutely necessary, but it would be a good thing to have. A good example is music. Now, some people might argue that music is a need because they think they can't do without it. But you don't need music to survive. You do need to eat.

I have tried to put the above concept in a diagram and classified the red quadrants as type I & type II errors. Basically, you probably should not want 'things' that you don't need(Type II error) and also not say that you don't want 'something' even though you actually need it (Type I error, actually harder to identify). 

Quality x Quantity = Constant

Type II Error

Even though I did my post-graduate studies in Statistics, but by profession I am not a Statistician. However, data/fact driven analysis and testing of hypothesis always interest me. This article claims that the inherent problem of a human developed system (economic, biological or whatever else it might be) and the reason it dies down over a period of time is that the Type II error rises.

Let me just quote from Wikipedia about the standard definition of Type I & Type II errors:

A type I error, also known as a false positive, occurs when a statistical test rejects a true null hypothesis (H₀). For example, if a null hypothesis states a patient is healthy, and the patient is indeed healthy, but the test rejects this hypothesis, falsely suggesting that the patient is sick. The rate of the type I error is denoted by the Greek letter alpha (α) and usually equals the significance level (orsize) of a test.

A type II error, also known as a false negative, occurs when the test fails to reject a false null hypothesis. For example, if a null hypothesis states a patient is healthy, and the patient is in fact sick, but the test fails to reject the hypothesis, falsely suggesting that the patient is healthy. The rate of the type II error is denoted by the Greek letter beta (β) and related to the power of a test (which equals 1-β).

Now, let's take an example.

We all know that when it is red light at a traffic signal you are supposed to stop and go on a green. No errors or mistakes committed. Now, the two errors that can happen are, 1) not stopping at a red light & 2) stopping at a green light.

We all understand that of the above two, it makes sense to reduce occurrences of 1, as it might cause accidents.

When someone jumps a red light, in some places there are sophisticated mechanisms to punish that action by automated means of picture taking etc. or police giving tickets. This is an example of minimizing type I error.

Now, the other error, which is not talked about, is when someone stops at a green light. All of us had that annoying moment when you curse the person in the car in front of you for not moving fast enough at a green light. So, while it does not cause an accident it does cause annoyance. Hence, there is a need for reducing type II error. But, how do you do it?

Let's take another example. Allergy, which is so common in developed world can also be looked at as a type II error or a false negative as well. Body's allergens think it is under attack and tries to resist it causing allergies. It is quite well known that allergy is pre-dominantly a developed country problem. Poorest parts of the world do not face allergy problem, not that much.

Here is another example that my school teacher used to tell us to help explain the concept. He used to say that type I error is like punishing an innocent person and type II error is letting go of a criminal. We can only imagine the horror of a society filled with criminals.

The next example is one of my favorites and very relevant in the United States. You want to have a gun to protect yourself. Not able to protect yourself by not having a gun is type I error. But, misuse and abuse of having a gun in terms of mass shootings is type II error, which is rampant throughout the world today.

The following examples are in the context of computers/internet.

For your email box legit message delivered as spam is type I but a spam message delivered as legit in type II error. We all have experienced that annoying feeling of receiving a spam in inbox!

In the context of hacking, when an authorized user is treated as a hacker is type I error but hackers treated as authorized users is type II, which we definitely don't want.

The next example is related to air travel security screening at an airport. An Innocent traveler considered as terrorist is Type I error and a terrorist considered as innocent traveler is Type II error. We definitely again don't want that to happen.

In all of the examples above, the point is that not able to reduce type II error without comprising type I error is causing havoc in the systems where it happens.

I will revisit this post later to make any corrections and add more arguments etc.

End of Franchise?

Franchise thrived because of ease of credit, which is drying up fast causing the franchise businesses to crumble.

At least this would be true for certain consumer products & services. Instead of high end and costly label items everyone will start buying stuff from local stores, art & craft fairs etc., which anyway produce hand made, and unique items. With ever growing internet based businesses and social media to promote them, home based small businesses are easier than ever to operate.

I think this is a good thing. Mom & pop shops will thrive, which effectively will mean small businesses will grow. Small businesses are true drivers for organic growth rather than cancerous growth of food chains, retail stores etc. Instead of buying cheap made in China products from Walmart, preference will be to buy locally made products, which will also mean less carbon footprint.

Gene & Environment

The graph here is trying to explain the four quadrants of gene & environment combinations at play in our life. Needless to less any one with possession of good genes & living in a favorable or good environment of learning and excellence will be successful in life. That's the green quadrant.

The other extreme is the red quadrant. The yellow quadrants depict situations where only one of the factors out of gene or environment is good. The arrows point the transition of one state to another. One can physically move from a bad environment to a good one by choice. Regarding genes too, as the latest research on epigenetics show, one can by food habit , lifestyle choices and medication bring about mutation in genes in a human life time allowing us to transition from bad to good genes. This is still somewhat fuzzy and will take more research to pin point and develop as a strategy. The state transitions could be bi-directional as well, because, again by lifestyle choices and making environmental change, one can land from green to yellow or even to red quadrant.

Note on 08/20/2011: I came across this article today, which explains epigenetics very nicely and also probably adds a correction to my diagram above to say 'epigene' instead of 'gene'. It's because the epigenetic markers are switches for the genes to be expressed or not. One cannot change gene in a lifetime but trigger the epigenes, which in effect turns on or off the genetic expressions.

http://www.time.com/time/magazine/article/0,9171,1952313-1,00.html

Life's A - B

So, it turns out that many things in life can be equated as A - B. You have to increase something and reduce something else at the same time to have a net positive effect. It's just not enough to look at A & B separately.

Here are some examples that come to my mind.

Savings = Income - Expense

Profit = Revenue - Cost

Personal Health related:

To loose weight = Exercise - Food

To gain weight = Food - Exercise

Economy's Health = Value of Goods & Services produced - Debt

First two are straight from the books. It seems like a pretty simple equation but we have such a hard time following it at private & public level.

The case for higher gasoline prices

With the ever increasing budget deficit the buzz in the blogosphere seems to be a case for higher gasoline prices at the pump. Some economists at academic level and politicians on both sides seem to agree that it's the right thing to do. But, it's also a very unpleasant thing to do as well.

In this blog, I will also rattle about the same and try to rationalize that decision.

First of all, regarding the debt, people of the US should be very happy that they enjoy the reserve status of their currency, had it been any other nation it will be on it's knee by now with so much borrowing and accumulating deficit and would have faced a currency devaluation.

Secondly, as one of my friends reminded me yesterday that people who seem to have an agenda or vested interest are the loudest. They may not have any clue as to how things work but they are the most vocal in expressing their special interest. Ever so confident and cocky that general public fails to doubt that they may be wrong.

So, here are the points to ponder for higher gasoline prices at the pump:

• A large portion of the money will go towards paying off the debt and the cost of quantitative easing

• Pinch at the pump will force people to start considering carpooling and using the public transports, however unpleasant it may seem, that's what the rest of the world does. You get to talk to the strangers and share a joke or two :)

• It will reduce the heavy traffic congestion in the bigger cities and surrounding neighborhoods to some extent and the time spent behind the wheels could be used more productively!

• Paying for higher gas price is more egalitarian measure than the income tax cuts or increases. Both rich and poor will be happy or unhappy to the same extent

• Right now a lot of renewable energy sources are not profitable enough to be commercially viable because of the low gas prices and many of them, say, solar industry enjoys a tax break as well. Higher gas prices will make these renewable energies more profitable and gradually start to replace some demands of conventional energy sources. Among the renewable sources, algal oil is my favorite. It follows the physical principles of hydrocarbon fuel generation but reduces the time taken to produce them(thanks to the algae) through natural processes.

• Not to mention but it will also reduce the dependency on foreign oil and the need to support despots and dictators around the globe sitting on a pile of natural oil abundance and making money out of insatiable demand from US consumerism and probably using that money to buy arms and ammunitions(probably from US companies) and training terrorists and mis-informing and brainwashing the local population and fueling anger against the United States!!

• People will start considering working closer to home and thus demand of those housing will increase and house prices closer to offices will appreciate in price and those farther away will go down in demand and lower the prices, bringing it back to the natural state of stability. Building of high rises will also increase as a result, wherever possible.

• If any consolation, high gas prices is what other developed countries are paying as well, and for a while, including the nations where they have oil reserves, case in point, Norway.

I remember speaking to a top level executive at a consulting firm in Germany and he mentioned that he prefers to travel with his colleagues in train rather than driving and he said he is not an exception and people do have a sense of awareness about not to drive unless absolutely necessary.

Lastly, the 'selfish' side of me can start boasting of owning a hybrid vehicle that I purchased back in 2007. Whoever has seen the documentary 'Who Killed the Electric Car' knows that it was not about technology but about politics that electric cars did not make it sooner.

Now, this is a mind shift and change of strategy because a lot of money was invested in the past to develop the freeway system and public policies encouraged urban sprawl and owning big houses in the suburbs and the car companies & oil companies lobbied enough to drive the public policies accordingly. It was a win-win for people who were winning!!

People will need to get used to living in comparatively smaller places if they want to live closer to office. If you read this article where an average house size is compared among the developed nations you won't feel bad. Also, historically speaking US is no exception either, because, according to this link, the average home size in the United States was 2,330 square feet in 2004, up from 1,400 square feet in 1970. One would wonder why! I have some thoughts which I need to write up some other day.

Rockbands

I have always wondered about the history behind naming of a rockband particularly of the ones which reads like "A and the B"; e.g Hootie and the Blowfish or Huey Lewis and the News. In this post, I will try to document as many of them as possible.

But why?

Just because!

I just love reading these names(loudly when I am by myself) and hope that someone else out there will also get some amusement and no-one will get hurt, hopefully! Obviously, I have googled to find many(read most) of them and have no idea which genre they belong to and which songs they have sang. But, I will try to listen to them over time, if time permits. Enjoy...

Hootie and the Blowfish

Huey Lewis and the News

Tom Petty and the Heartbreakers

Marky Mark and the Funky Bunch(more like Hunky Mark and the Funky Bunch)

Big Brother and the Holding Company

Derek and the Dominos

Echo and the Bunnymen

Eddie and the Hotrods

Gerry and the Pacemakers

Tommy James and the Shondells

The Mamas and the Papas

Paul Revere and the Raiders

Siouxsie and the Banshees

Country Joe and the Fish

Jason and the Scorchers

? and the Mysterians (my favorite so far, this exists, http://en.wikipedia.org/wiki/Question_Mark_%26_the_Mysterians)

That's all so far. I will add more as I come across...

Added on 02/27:

Thanks to the Oscars, I now have one more: Florence and the machine