Book Review of “Boomerang: Travels in the New Third World”

Book Review of “Boomerang: Travels in the New Third World”

By Michael Lewis

Review by Jordan Hedberg

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- Summery of the Book’s Main Points

Causation is a tricky subject for humans. Vast amounts of energy and resources are poured into trying to understand the cause of every societal problem. What causes Cancer? Or the success of Apple Inc? People have an insatiable need to establish a narrative regarding cause and effect. When causation meets complex systems such as the global economy, the causes of an event is often hard to separate from the effects. Michael Lewis attempts to ascertain why the global economy is drowning itself in debt and discovers that individual people and societies are the root cause.

The book takes the reader through many of the key nations that are currently the focus of the European credit crisis and establishes events from a personal perspective. Starting with existing stereotypes, Lewis explores why many generalizations regarding different nationalities exist. Continuing with his journey he explores why certain cultures react differently when faced with insurmountable financial problems. The answers and contradictions that Lewis encounters surprise and baffle him. Striving to understand the issue of debt, banks, and markets, Lewis travels back to the United States to search for the beginnings of traditional “European” issues in America. In the end, he discovers certain truths that most American citizens refuse to accept or simply ignore.

-Thoughts & Rating

During the first few chapters of the book I was concerned that Mr. Lewis was going to only discuss the stereotypical traits of European populations. However, Mr. Lewis begins to reveal his thought process and dives into economic problems from a societal viewpoint. It was interesting to see how he moved about in the different European nations and interactions he was able to schedule. Once again, Lewis shows the reader a point of view not captured by main-stream media.

It is hard for me to voice any criticisms because Mr. Lewis’s message is so powerful. The only part of the book that I wanted more information on was his brief discussion on neurobiology and human interactions regarding society. However, there are plenty of good books regarding behavioral science and neurobiology in relation to society. This book is a must read for everyone because it breaks through the political garbage that fills the media and bookshelves.

5 out of 5

Review of “Why everyone (else) is hypocrite”

Review of “Why everyone (else) is hypocrite”

by Robert Kurzban

Reviewed by Jordan Hedberg

Summary of the Book’s Main Points

Robert Kurzban states in his book that the human mind is a not a singular entity but a collection of different “selfs” each with specific job to perform. To better understand the concept of multiplicity in a single human mind, he borrows a concept from computer science known as a module. Modules are programmes that take in data and perform a specific function based on the data received. Kurzban explains that over the course of evolution, the human brain has developed millions of modules that overlap and often conflict with each other. Although there is a hierarchy of which modules act in certain situations, activation of several modules at the same time with different functions is the source of why humans often contradict themselves.

In Kurzban’s opinion, modularity of the human mind is why a person can clearly desire to lose weight, but when awaking at midnight succumbs to the desire to eat an entire cake. Certain modules in the brain want to be included in human society as a non-obese person but other modules want to store high-density calorie food in the form of fat. The conflict between the two modules appears to others as hypocrisy, even if they suffer from the same inconsistency. Kurzban points out that the human mind is designed to point out hypocrisy in others while simultaneously ignoring hypocrisy within itself.

Throughout the book Kurzban explains why it is often advantageous for the brain to be good at self-deception and the effects of hypocrisy on society. From the standpoint of pure survival and reproduction, hypocrisy modules are beneficial. However, for a semi-rational society supposedly set in the values of liberty, hypocrisy is damaging. Kurzban points out how political topics such as abortion, drugs, and liberty have serious inconsistencies on both sides of the argument. To make the situation worse, the call of hypocrite is often used to bolster the position of one group over another, even though such action is hypocritical. Few know why they take certain positions on a subject, but the belief in true equality is often ignored during the debate.

In the end, Kurban shows that true liberty is beneficial to all humans but our hypocrisy compromises the integrity of a equitable society. Understanding that the human mind has many “selfs” is the first step into understanding and solving many individual and societal problems through modularity.

Rating

I believe that understanding that the human brain is complex and not fully understood makes this book a must read. For too long the power and weakness of humans has been the subject of science, history, and politics. Kurzban attempts to address why humans react to situations from an empirical standpoint and it is refreshing. The only criticism is that it was not advertised that this book addressed more than modularity and applied it to political subjects. I was pleasantly surprised but it would be worthwhile for the publisher to state that this is a semi-political topic book and it might get more attention from the public.

4 ½ out of 5

Wednesday Morning Reads

World markets have rallied on Greek rumors, so lets read something else. 

1. Why it is hard to say no. PBS

2.Iran is playing a tricky oil game. WSJ

3. Zuckerberg loves control Here

Have a great day 

A Brief History of Greece

A short part of my newsletter regarding the European Crisis. If you would like more information please contact me to subscribe. Enjoy.

Geopolitics of Greece

Greece has defaulted on its national debt five times since it won its independence from the Ottoman Empire in 1828. This long history of financial trouble has two main elements: Greece’s strategic location for foreign powers, and economic stagnation. Both elements stem for Greece’s geography and will continue to influence Greece’s role in Europe.

Located on the Mediterranean boundary between Europe and Asia, Greece is a nation centered on a mountain covered peninsula with control over the Aegean Islands. This strategic location has long been a battle ground for foreign powers wanting to control the waters of the Mediterranean and Black Seas. The battle for ownership of Greece started when England and other European powers financially supported the Greek rebellion against the Ottoman Empire in the 1820’s. During World War I Britain used Greece to launch several military campaigns against the failing Ottoman Empire. The next world war also saw Greece as the focal point of Axis attention when the combined armies of Italy and Germany invaded and defeated the Greek and Allied forces. Greece suffered terribly under Axis rule and the conclusion of the war found Greece crippled. To stop the spread of Soviet Communism after World War II the United States under the Marshall plan sent supplies and financial aid to the Greek population to help rebuild and stave off Russian attempts to control the country. For the remainder of the Cold War, Greece received significant amounts of financial aid from the United States and NATO to contain communism in Asia.

For its entire modern existence Greece has had a foreign benefactor willing to lend large amounts of money in return for allegiance. With so much money poring into Greece over the last 180 years it might seem surprising that the country has defaulted on its debts five times, but the same geography that made it a natural buffer for foreign powers also prevents economic development. The rough mountains of the Greek mainland and the thousands of small islands in the Aegean Sea increase the cost of infrastructure exponentially. Greece in the past, was able to leverage its strategic position to spend beyond its means by receiving foreign aid, but with the end of the Cold War Greece was no longer needed to contain Russian expansion. The fall of the Soviet Union left Greece without a benefactor for the first time in its modern history.

Your Tuesday Readings

Hope Monday treated eveyone well.

1. Proof that austerity is killing the remains of the Greek economy. WSJ
2. The covert war in Iran. Stratfor 
3. Dose of behavioral science in a fun to read post. YouAreNotSmart

Have a great week

The Triplet of Opacity

I thought I would share one of the cornerstones of my research summed up perfectly by Nassim Taleb in his book, The Black Swan. 

The human mind suffers from three ailments as it comes into contact with history, what I call the triplet of opacity.

They are:

1. the illusion of understanding, or how everyone thinks he knows what is going on in a world that is more complicated (or random) than they realize;
2. the retrospective distortion, or how we can assess matters only after the fact, as if they were in a rearview mirror (history seems clearer and more organized in history books than in empirical reality);
3.and the overvaluation of factual information and the handicapauthoritative and learned people, particularly when they create categories—when they “Platonify.”


Taleb, Nassim Nicholas (2010-05-04). The Black Swan: Second Edition: The Impact of the Highly Improbable: With a new section: "On Robustness and Fragility" (p. 8). Random House Trade Paperbacks. Kindle Edition.

Revision to Corn and Geopolitics

After time to think and having great discussions regarding corn and geopolitics, I am going to add a little to my post.

Demographics of the Population


The old age and bad health of American citizens are a significant cause for current account deficient in the federal government. Until the demographics of the United States change, reforming the "big three" will prove to be hard for the foreseeable future. Changing demographics has to start with a reform of the US agricultural system to not incentive any food product over another(organic or industrial). However, the incentive to switch from grains or any grain substitute stems from the consumer.

There is nothing that can be done regarding the aging population, yet if the population was healthier than healthcare cost would be much lower. A healthier population would also allow more political choices regarding raising the retirement age and cutting healthcare costs. The United States' demographics always defines American politics. Age and health are the nation's biggest imbalance and correspondingly our biggest long-term costs. American success helped cause those imbalances; American geographic and political advantages can fix those imbalances.

Morning Readings

Here are a few good articles to start your Friday.

1.The sunk cost fallacy, what do investments, Farmville and bad emotions have in common? here
2. Iran, the US, and the Straits of Hormuz. here 
3.(A must see) If your investment adviser uses these random words, you need to find a new one. here

Have a great Friday.

Corn and Geopolitics in the United States

Corn and Geopolitics in the United States

January 18, 2011

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Introduction

The geopolitics of United States are heavily influenced by corn and other commodity foods (For simplification purposes the word “corn” will encompass soy, wheat, and other industrial food commodities). Although the concept may seem odd this short introduction to the corn industry will illustrate the importance of food in America.

Source of Success

The foundation of the United States lies in the geography of the nation. The two geographic elements that dictate the natural wealth of a nation are water transportation and large agricultural production. Moving large volumes of products over water is the most cost effective method of transportation. Large river networks allow goods to be moved from the heart of the US to international markets at a cheap rate. Deep water ports also play a major factor in allowing US products to be shipped. The east and west coasts of the US are blessed with ample deep water ports while the interior of the US is home to the worlds largest river network. The effect is the US spends much less on infrastructure compared to nations without river networks or deep water ports.

The other major source of geographic wealth stems from large tracks of prime agricultural land. The American Mid-West is the worlds largest area of food production. Ample water and sun mixed with rich and deep soil makes the farming very cost effective. In addition, food products are easily moved on the large river networks of the Mississippi, Missouri, and Ohio Rivers. The natural geographic advantages are the foundation of American wealth and power. However, the abundance of low cost food created by geographic advantages are also the source of many American financial concerns.

Cheap Corn and the National Debt

There is a direct correlation between cheap corn and the growing national debt. After the World War II the United States experienced a period of rapid economic expansion. Technology that had been used for the war started to be used for other purposes. Medical knowledge increased dramatically, extending the lives of citizens, while mechanization was used on the farms to increase food production. The net result was a rapid rise in the population over a single generation, this group was called the Baby Boomers.

The Baby Boom generation contributed much of the wealth and power the US currently enjoys, however, the cheap food and longer life spans have created considerable financial problems. Because the Baby Boomers are living longer than expect in the 1960’s and 1970’s the national retirement insurance program (known as Social Security) is vastly underfunded and expensive. In addition, American citizens are plagued with a large variety of diseases related to poor eating habits. The combination of the longer life-spans and poorer health has crippled the national budget.

Age, Sickness and Deficits

In 2011 the Federal government spent 59 percent of total expenditures on what I call the “big three:” health-care, social security, and pensions. Corn has had a direct impact on all three categories. Abundance of cheap food allowed for such a large and old population to exist, plus the cheap food is of poor quality leading to an increase of disease. For example, out of the top 10 most expensive medical conditions, 6 are cause by poor diet.

1. Heart Conditions
2. Pulmonary disease
3. High Blood Pressure
4. Type 2 Diabetes
5. Osteoarthritis and other joint diseases
6. Back Problems

Because of the poor health of the aging population it is hard to recommend raising the retirement age because many people are too sick to keep working past their 50s. Raising the retirement age would immediately solve many of the United States financial issues but as long as cheap corn is the main diet of Americans, such action will be impossible.

Closing Thoughts

Cheap food does not have to equate to poor quality food. If the United States gradually stopped paying subsidies for corn production than the Mid-West could be used to grow healthier food that would remain affordable. Medical cost would decrease and raising the retirement age would become feasible. In addition, more jobs would be created because higher quality foods take more human labor providing a wealther tax base to pay down national debt. The geographic advantages the US enjoys have also caused many of our problems. Simply redirecting away from corn would make a huge difference in the health of the population and the financial wealth of the nation.

Tuesday's Morning Reads

Today we have some articles regarding the foolishness of the markets.

1. Correlation, China, and a website that called out Bloomberg here.
2. Is Italy a risk when the ECB is buying regardless what European leaders say? here
3. Alcoa lost money but it came in at "expert" estimates, guess that means "buy" to the markets here

Send me what you are reading.

Today's Reads

We are diving once more into the human mind.

1. A great short piece on why investing is hard for humans here
2. The brains is creative and we can tap into it here
3. Fractals in a zip code here 

Send me what you are reading or leave a comment on the articles I posted.

The Role of the Expert, Group-Think, and Hindsight Biases on Market Participants

Although the title to this post is long and sounds like the beginning of a boring academic journal essay, I assure you I will summarize. My goal is to show how a vast majority of the economic, finance, and statistic literature regarding the markets is less useful than an issue of TV Guide. Three mental heuristics are responsible for the continued belief in failed fields of academia.

The Belief in Experts

The role of an expert has long been a coveted title in human society. It is the expert that calms our fears and outlines the risks. In most circumstances following the advice of an expert is a wise decision, however, you must define what type of expert you are seeking advice from. The title of "expert" in itself does not guarantee "expertise."

For Example, if you are about to have surgery it would be prudent to listen to surgeon regarding the possible options and complications. The surgeon has performed surgery and is peer reviewed on constant bias. The rightful title of expert is given to the surgeon, however, would you buy a stock that the surgeon recommended during a period of idol conversation? If you said no, than you are probably deluding yourself.

The human brain has a hard time separating context and definition. If a person is labeled an expert in a certain field, we tend to view them simply as intelligent and capable overall. As a thought experiment lets change up the surgeon analogy I just used. You meet a man at your grandmother's cocktail party, we will call him Dave. Dave strikes up a stirring conversation and you glean that he went to medical school at Harvard.  Over the course of the discussion Dave starts telling you about his hobby of investing his portfolio and how successful he has been. Before parting he imparts on you some of his investment wisdom and recommends a stock that cannot fail. Would you be more willing to invest on Dave's advice? Studies show that you would simply because he said Harvard and your brain equated Harvard to intelligence.

The Problem of Group-Think


There is a difference in types of experts. Doctors come from a field that regularly employs the scientific method and has a peer hierarchy that checks and refutes studies performed. There are mistakes but the results of modern medicine are clearly proven as humans continue to have longer life spans.  Economics on the other hand has a bad track record and does not employ any type of empirical research. Yet, presidents still defer to economic experts when drafting a policy, why?

The answer is that people view professors of any field as an expert, if they were not smart they would not be a professor at MIT, right? Wrong, the reason people still view an economist as an expert when making investment decisions is because we fall for the expert bias and the group-think bias. If polled, most people would agree that a economics professor at MIT is an expert in the field of economics. The fact that others believe is going to make you believe, because who are you to argue with the rest of society? We do not like to make decisions that run contrary to public opinion, regardless if that opinion is wrong.

Hindsight Bias 


The heuristic that brings all of this together is the hindsight bias. I have been extra hard on the study of economics in this post, not because I do not like economists, but because despite the empirical data the markets still believe in their wisdom. The reason the reputation of the economist is still untarnished is due to the hindsight bias. When economic theory is implemented and fails it is easy for economist to state that it was astronomically rare event or pin the blame on a scapegoat such as the government. When we look back at past events humans like to believe that the reason for those events is clear.

For example, the 2001 terrorist attacks on the United States are completely understood. It was a massive failure of intelligence communication that allowed the attacks to take place, or was it? The attack happened because it was unexpected. If the attack had been expected it probably would not have happened. But our brains need a reason for events and the reason that has been popularly accepted is a failure of the CIA and FBI.

Summary 


The assumptions of modern economic, financial, and mathematical literature are still popular and widely followed beliefs. The existence of such literature is dependent on society's collective mental biases. For these reasons, investing in the stock market on existing theories and ideals will always lead to disaster. That is why the need for empirical research regarding human behavior and the markets is incredibly valuable to a portfolio. So before you believe what a market "expert" tells you, ask yourself, "do I believe him because he has an empirical approach or because he seems really smart?"

Please remember, I summarized a massive amount of information into a few paragraphs. If you have questions or would like more information please leave a message in the comments.  Also, I appreciated criticism as long as you acknowledge that this is a blog post and do not attack on a personal level. 

Reads of the Day: Morning Edition

Hope everyone slept well, here on some reads to get going this morning.

1. Tensions in Iraq keep mounting here.
2. Daily dose of behavioral science and why political polarization exists here.
3. An interactive look of Empires that have controlled the Middle East here.

Reads of the Day

Here is a list of good reads for this evening.

1. Iran and the United States in a war of words and political positioning here.
2. Why the brain hates New Year's resolutions and how to overcome lack of willpower here.
3. Does money make us happy? A look into lay-mans behavioral science here

Leave me any questions in the comments and I will respond as quick as possible.