Winter’s Haven

The Economist magazine presents some useful data on military spending by the world’s biggest powers. Per person, Israel spends the most on its military, followed by the United States. Most developed states spend less than half of what the US does per person.

However, if one asks how much a state ought to spend on defense, the answer is determined not by how many citizens it has. The correct way to go about answering that question is to examine the magnitude of the external threats one faces and buy guns in proportion to those threats. There’s no reason military spending should scale linearly with a state’s population.

Israel is a perfect example. There’s a very good reason for Israel to spend a lot of money on its military: its neighbors have attacked it in the past and might very well want to do so again.

The United States spends $607 billion on its military each year. That’s 41.5% of all the military expenditures in the world. Spending that much might be perfectly sensible if we were worried about, say, being simultaneously attacked by Russia, China, and all of Europe. Or space aliens.

Yes, I’m being flippant. But the fact is, outside of loony conspiracy theories full of blue-helmeted stormtroopers and flying saucers, there’s simply no justification for spending $607 billion on defense.

I don’t usually blog on finance or economics, but this tale is too good to pass up. James Hamilton on some recent CDS shenanigans:

A credit default swap is sometimes described as an insurance contract written against the possibility of default of a particular underlying asset. If I buy a CDS and the specified asset defaults, I get to collect money from whoever sold me the contract. If I also have a long position in the asset in question, I might consider buying a CDS written against that asset as an insurance or hedge against the possibility that the asset loses its value.

But I don’t actually have to own the asset in question in order to buy a CDS from somebody else. I might want to buy a CDS as a partial hedge against some other asset I hold with which the specified security could be correlated. Or maybe I just feel like making a bet with somebody I think is dumber than I am.

The fun and games begin when multiple contracts get written on a single credit event and the notional value of outstanding contracts on that event– the total amount of money that is promised to be paid to the buyers of those CDS in the event of a default on the underlying asset– becomes larger than the par value of the underlying asset itself. Then it would clearly pay the party who sold those contracts to buy the underlying asset itself at par, relieve the original debtors of their burdensome obligations, and be out only $X (the underlying event) rather than some multiple of $X (all the contracts written on the event).

Amherst Holdings, a little firm from Austin Texas, did just that. They sold $130 million of CDS contracts to big banks against the default of some $29 million of subprime loans in California, and proceeded to pocket the difference.

Had the people buying those CDS contracts actually been using them as insurance, they’d be completely happy to see those subprime loans not default. In actuality, the big banks were just making a bet with someone whom they thought was dumber than themselves. And that can be a dangerous way to gamble.

In the wake of the news that NICE approved acupuncture and chiropractic treatments for lower back pain, Daniel Davies has written a fantastic article at Crooked Timber on how politics makes it much more difficult to rationally evaluate the effectiveness of treatments on the evidence.

Doing science is hard to begin with. When large amounts of taxpayer money get handed out based on what “the evidence” says, a host of new obstacles arise.

I’ve been playing around with Wolfram Alpha, which is fun and potentially useful. I was a bit disappointed, however, that my first attempt to trip it up succeeded. Asking it “What is the length of the coast of Iceland?” produces an answer, 4970 km, which is precise, definite, and largely meaningless.

The problem is that the measured length of an island’s coastline depends on the scale at which you measure it. Using a shorter ruler to measure the coastline captures smaller nooks, and so the measured length of the coast increases as the length of the ruler used decreases. Wikipedia provides an excellent visual presentation of the problem. Consequentially, it’s more or less meaningless to state that the coast of Iceland is 4970 km long without stating the length of the ruler used to produce that number. Wolfram really ought to know better.

That is the title of a Wired article about peaceniks and the remotely controlled attack aircraft used by the US Air Force. For a moment I thought that a bunch of hard-core pacifists had gone out and bought Stinger missiles. Just because it’s ethically consistent for pacifists to blow up unmanned drones doesn’t make the idea any less amusing.

Some insightful observations from my favorite Marxist:

2. The Left is not proposing any viable alternative to capitalism. Whereas vulgar libertarians have their Econ 101, the [G20] protestors have nothing, bar a few money cranks and moralistic bleating about greed.
What’s unforgivable here is that there are alternatives. But no-one’s interested. Why don’t we hear about market socialism, or the real utopias project, or the work of Equality Exchange, or issues of ownership, or a basic income, or the democratization of finance, or left libertarianism or the superiority of co-operative forms of ownership?
Most of the Left is more interested in smug self-righteousness than in economics.
3. The debate about what to do now is conventionally framed in terms of the state versus (actually existing) markets – that is, as one set of bosses versus another. The possibility that people can organize themselves – through either genuinely free markets and/or through democratic co-operation – doesn’t arise. But it’s this spontaneous free organization  that is the Marxist ideal.
We are, then, a million miles away from the end of capitalism, in any acceptable sense. I say all this in sorrow, as one who’s proud to call himself a Marxist.

The Right, of course, indulges in its own favorite varieties of self-righteousness. And note that this self-described Marxist thinks certain varieties of libertarianism might be a good idea. In many ways, the Left/Right divide is the relic of a previous intellectual era. This division will continue to be extremely important politically, but the more important intellectual divide is between people who understand economics and those who do not.

Old-school communism was politically successful in no small part because it had a clear villain: rich people. By contrast, economically sophisticated proposals for progress tend to focus on overcoming collective action problems, information asymmetries, etc. It’s not easy to get emotional satisfaction out of opposing an information asymmetry.

Today the major obstacle to progress is not any particular wrongheaded ideology but rather ignorance and instrumentally rational epistemic irrationality, which leads people to embrace dumb but emotionally satisfying ideas. And those are very difficult problems to overcome. My only hope is that we continue our present stumbling progress towards a wealthier and better educated world so that someday the intellectual grandchildren of Lou Dobbs might be laughed off the air.

In a post at Meteuphoric, Katja Grace explains why the notion of (non-deterministic) free will is just incoherent nonsense. I wholly concur.

I’d like to further point out that her argument does not depend on a materialist theory of mind. Buying into dualism doesn’t help make free will the least bit more tenable. The question of whether our minds are made solely of organic chemicals or made of something else (the “soul”) in addition to organic chemicals is irrelevant. In either case, a person’s actions are determined by the state of their mind.

Matt Nisbet, of Framing Science infamy, has posted a draft chapter of his book. Here’s my favorite section:

Dawkins, for example, argues as a scientist that religion is comparable to a mental virus or “meme” that can be explained through evolution, that religious believers are delusional, and that in contrast, atheists are representative of a healthy, independent, and pro-science mind. In making these claims, not only does Dawkins use his authority as the “Oxford University Professor of the Public Understanding of Science” to denigrate various social groups, but he gives resonance to the false narrative of social conservatives that the scientific establishment has an anti-religion agenda.

Yes, Dawkins is denigrating various social groups. He is doing so because those groups promote horribly ill-founded ideas. And being a member of a social group doesn’t make it okay to push stupid ideas on other people any more than joining the mafia makes extortion okay.

Terrible sentence of the day:

Whatever the merits of Romer’s belief, the NYT’s line about the Depression proving that “fiscal stimulus works” is just plain horseradish.

I submit that absolutely no good, literary or culinary, can come of confusing horseradish and bullshit.

On a related note, the Bulwer-Lytton and Lyttle Lytton contests aim to collect the worst sentences ever written.

On the Wired science blog, Brandon Keim argues that Bush’s stem cell policy was neither anti-science nor crassly political, but rather followed from a legitimate ethical dispute.

Keim says that “there are plenty of examples of the Bush administration skewing scientific facts for political ends, the ban on stem cell funding wasn’t one of them.”, from which one must conclude that Keim himself is either willfully skewing the facts or simply has no idea what he is talking about. As opponents of the ban having been pointing out since its inception, Bush’s policy never made sense according to anyone’s values:

If the president deemed it moral to use cell lines made from human embryos that had already been destroyed, then why would he argue that other embryos headed inevitably for destruction couldn’t be the source of new stem cell lines?
In fact, if the president was so concerned about the fate of embryos, why did he not speak out to close infertility programs around the country that destroy embryos?

Given the utter incoherence of Bush’s policy, the obvious explanation is that he was simply pandering to voters too clueless to figure out that it did nothing to further their values.

Consequentially, pretty much everyone who supported this policy was skewing a lot of facts, either willfully or ignorantly. Consider the photo of a GenerationLife poster which accompanies the article. Unlike the fetus shown in the poster, the blastocysts from which stem cells are taken do not have hands, or faces, or even nerve cells.

Lastly, Keim seems not to comprehend that factual questions are of central importance to the underlying ethical debate. Most of the people who place such extraordinary value on embryos do so because they believe that embryos have “souls”. If believing in ghosts based on no evidence whatsoever is not anti-science, then what is?