Is the price right?

Buoyed by the success of my economic theories, I continue my analysis of the consumer-side aspects of shopping. Unlike my other entries, this one is firmly rooted in  my own knowledge and experience. I am a professional shopper, and in my day job I shop for 40+ hours a week. To hone my professional skills I also shop a lot in my spare time, and for the benefit of my employer I often venture in new directions trying to broaden my horizons and stimulate overlooked parts of the economy.

So let me start with a complaint - shopping is not what it used to be! K-Mart, Walmart, Expedia (the list is long) have made the experience one-dimensional and not exciting. Excessive focus on price and endless bargain hunting is taking away the fun, and the economy takes a beating in the process as well. Needless to say, this is not the way to shop.

To start from the basics - an act of purchase is a complicated interaction. It is  commonly presented as an acquisition, but in reality it is so much more.
It represents a choice on part of a buyer, it rewards someone else's time and effort, it signals one's political leanings, and it can be propagated through social networks. It is the most important way of realizing one's freedom of choice and expressing one's individuality. One can exert a great deal more power through shopping than political participation. Rather then theorize let us consider two specific examples: buying eggs and buying a graduate education. I encounter both on a daily basis and over time I let the synergistic relationship develop.

Eggs

When they ask you "How do you want your eggs?"  you might say "Scrambled" or "Poached" but I want to say  "free-roaming",  "happy", "cage free" and so on.  For close to ten years I have been buying eggs that have been "certifiably humane", "antibiotic free", "from free roaming hens" which are "running on outdoor pastures", and which are  "chicken shit covered". Initially these eggs were hard to find, but after a few years a decent selection emerged and like a russian mogul I was consistently choosing the most expensive kind that met the above conditions. In hindsight, I am glad to report that I did not belong to a measure zero set. Whether it was compassion for comrade hens, longing for the organic and  natural, or simply a search for a better egg - happy eggs took over entire supermarket chains and they are here to stay. They cost as much as three times more than unhappy ones, but so what - how much cholesterol can you take anyway. Is this price right? You bet it is! Are happy eggs better than unhappy ones? Perhaps. Do you feel better eating happy eggs?  A whole lot!
So here is my "Right price" formula

               One third for the egg and two thirds to the hen.

Wow, I know, this suddenly sounds like a lot, even though now the fate of humanity might be hanging on your everyday purchases.  You need a paradigm shift and a great deal of empowerment. You can no longer think of shopping as acquiring  stuff. It is more like planting a tree; a big part of a reward is in being outlasted by the results of your actions.

Pay more to get less - it is exactly the opposite of what they tell you, but exactly what is needed. We want to pay more to get less food, pay more to get cleaner energy, pay more to get veggies grown 50 miles from where we live, and so on.  It may be a hard sell and it might take a while before these ideas take roots.
But if shopping is going to be a guide to a better world then it is bound to be costly.   To implement this plan one desperately needs good role models.


Graduate students

Big Government may be in its death throes, but there is no better shopper than government. There are many things that the government cannot afford, but bargain hunting is never a way to stretch the tax dollar. To the contrary, lavish government spending is a way to offset multitudes of Walmart shoppers who ruin the economy and shop themselves into poverty and unemployment.
More to the point, investing in the education of a graduate student is no different than buying an egg. With eggs we know that some will contribute to a delicious souffle, some will wither in the refrigerator, and some may break on the way to the kitchen. Like it or not, an analogous fate awaits the best minds of our generation. For that reason, when government sponsors a graduate student, the same "Right price" formula applies - one third for the egg and two thirds to the hen. The hen in this case is the university that is in charge of infusing our egg with knowledge.  To be exact, government funding of graduate students comes in three more or less equal pieces: stipend for a student, tuition for the university, and a generous dollop of money for the university called an overhead. The first piece represents the price of an egg, while the remaining two are contribution to the hen. A closer look will reveal that this scheme is based on the XII century crop-rotation system that was developed in Europe and abstractly it has the same nurturing ingredients.
The main point is that government will pay the price no matter what it is in spite of the fact that unlike eggs, the price of education varies a great deal more. Cost of training an ivy-leaguer who is  "free-roaming" and "cage-free" may be an order of magnitude higher than that of a poor sod coming from a cannibal hen who never saw the sun light and spent entire life on seven square inches of the cage bottom inhaling penicillin vapor.

In conclusion, I must admit that my egg buying habits were greatly inspired by  government ways of funding graduate students, and in turn, my unblinking support for the government support of higher education is a result of the transformative power of my egg buying program.

So if the government's shopping ability is greatly compromised it is up to you to pick up the slack and shop smart.  As painful as it may initially feel, let the "Right price" formula be your guide.  Whatever you buy, ask yourself  - how much did  I give to the hen?

Dentistry and Mathematics

In the last couple of weeks I have paid a number of visits to dentists' offices. Extractions, moldings, cleaning and a number of other procedures  led me to the discovery of a curious connection between dentistry and mathematics.

In the late 1800s Austrian dentist Adolph Zsigmondy came up with a simple system that replaced prior schemes involving latin names. This scheme involved three parameters: upper or lower, left or right, and the numbers one though eight. For example UL3 would be the third tooth from the middle in the upper left jaw. In reality, Zsigmondy used graphical symbols instead of the letters, but this is inconsequential. This beautiful coordinate system was simultaneously discovered by the Ohio dentist Corydon Palmer, and an ugly priority fight ensued. The result was the  Zsigmondy-Palmer system.  The symmetry of the human jaw is clearly reflected in the choice of parametrization, and similar teeth have the same numbers - canines are threes, molars are sixes, sevens and eights, incisors are ones and twos, and so on. The mathematical elegance of this system had a devastating effect on European dentistry. Dentists mesmerized by the intrinsic beauty of Zsigmody-Palmer encoding went on to study mathematics and left the population in the hands of blacksmiths and street vendors performing the crudest forms of dental procedures. Simultaneously, mathematical sciences blossomed with group theory, representation theory and  combinatorics, all of which had roots in these simple observations. Former dentists-turned-mathematicians include Arthur Cayley and Felix Klein. Evariste Galois was never a dentist but he was shot by one.

The British Isles have been particularly devastated by what I would not hesitate to call a Copernican revolution, and to this day Brits suffer dearly for their mathematical contributions. This is partly due to Alan Turing who modified Zsigmondy-Palmer into modern FDR (Federation Dentaire Internationale) system. FDR designates each tooth by two digits - the first digit with value one through four denotes the jaw's quadrant and the second digit (one through eight) is the tooth number (counted from the center). Four quadrants with a bite of 8 teeth in each. However, Turing's  slurred speech after a painful extraction led to "bite" becoming "byte", a unit of digital information used today. One can clearly see that modern coding theory, cryptography and digital signal processing are descendants of this basic ideas. And while FDR was officially adopted in 1970, this was only because Turing's work was declassified long after his untimely death and it took some time to make it into the mainstream.  Meanwhile these ideas led to the victory in WWII, while at the same time lack of dental care condemned the Brits to soft and overcooked food.  

On the other side of the Atlantic, the US was watching these developments with trepidation and decided that to become the dental superpower - the explicit goal of several consecutive presidents - it had to dial down the mathematical intricacies of the dental encoding. The resulting Universal system - used only in the US - is mathematically very simple. It was proposed by J. Perreidt in 1882, but the basic idea was pioneered by  Carl Friedrich Gauss a century earlier. Sometime in 1783, a 6-year old Carl was being examined by the school nurse, who was methodically counting his teeth while looking for cavities. She started at the left, counting 16 teeth, and then went down going in the opposite direction all the way to 32. Just before the nurse found a cavity and his brain shut down in terror of what followed, the idle mind of Carl Friedrich quickly noted that the numbers of the opposite teeth add up to 33. When he returned to the classroom, his bored teacher, who was aching to read personals in the Sudetische Beobachter, told the class to add up all the numbers from one to hundred. At this point Gauss, who was still shaken by his dental experience, was thankful that he did not have 100 teeth. However, he did not miss the fact  that if he did have 100 teeth then the numbers of the opposite teeth would add to 101. In seconds he multiplied 50 by 101, handed the answer to the teacher and instantaneously became the most famous mathematician in the history of mankind. 

So this is the Universal system - a simple count from left to right in the upper jaw, which continues from right to left in the lower jaw. This simplicity keeps American dentists glued to their profession. Indeed, over time the US became a dental superpower, while mathematics was often left for foreign talent. However, American teeth are so white and shiny that if their owners could smile a little more, the reflected light would stave of the global warming. To further keep their dental primacy, the US adopted a special scheme to encoding baby teeth. Instead of numbers, only the letters A through T are used. Even the brightest kid would get lost in such an intellectual desert and not be lured into sciences while poking around in their mouth.

And what about Gauss? In spite of simplicity, there was enough math in the Universal system for Gauss to remain interested. His observation that if teeth were counted at the top and bottom in the same direction led to the discovery of modular arithmetic and further solidified his reputation.  Throughout his life he took good care of his teeth, and during visits to dental offices he was always on the lookout for mathematical talent. Sophie Germain and Bernhard Riemann were dental assistants that he took under his wings and trained as mathematicians. Sadly, this alone set back European dentistry by half a century and prolonged the use of pliers and low-speed drills.

Power of One

Washington Enquirer, April 20, 2020

 

When almost a decade ago an obscure government funding agency added the word "One" to its name the concept quickly turned viral.  Soon enough unification became the word of the day. In hindsight, the leading cause for the movement was the collapse of the economy and the paralysis of the political system - one that persists until today.    Additionally, in times of austerity measures and budget cuts being "One" offers a minimum of protection by creating an illusion of indivisibility.  Whatever the reasons,  the forces of unification affected every aspect of life. Here, we will concentrate on science and education, topics that are dear to our readers and areas where our vigilance paid off  on numerous occasions.  

Unification is a uniquely human ability to counter evolutionary trends. Nature tends to mindlessly duplicate and diversify but we can move forward in a more organized fashion. For that reason the first initiative was OneTooMany. It was a gigantic program devoted to tracking unnecessary duplication. In science, it is responsible for the pruning of many branches of the Tree of Knowledge. At first we stopped investing in scientific facilities when it became obvious that others will build them anyway, and that they will report the findings. In early 2013 a french pastry chef from Detroit completed a long standing program of the classification of algebraic varieties, and similar examples of this kind followed. While these discoveries still wait for validation from mathematicians, it became obvious that relying on a single community for making discoveries in any specific area is a fatal mistake.  With scientific disciplines being  like thin fibers in a giant quilt,  research became massively interdisciplinary. The synergy and comraderie of interactions between experts none of which has a full grasp of what are they talking about had a transformative effect on scientific communities.   Under the program "Ask an Engineer" it became mandatory to include engineers and computer scientists in every scientific venture. These turned out to be nice and friendly chaps who could answer every conceivable question using simple simulations, modeling, or, in the case of older folks, a slide rule. In the end, all these initiatives started to converge to the present OneScience program. However, it  soon became obvious that the OneScience  program requires a new type of training. This is how the OneEducation program was born. Both OneScience and One Education are based on the ideas of multidisciplinary work. The premise is very simple: instead of focusing on specifics - a depth-first search that century after century turned out to be frustrating and inefficient, they focus on width-first search - looking for nothing in particular, or trying to learn a little bit of everything. Both programs turned out immensely popular, attracting a wide segment of the population to higher education and scientific research and virtually eliminating unemployment. Indeed, rather than struggling with Calculus, one can be more successful with Icelandic Mythology or Salmon Farming 101, without ruining  the chances of joining the scientific workforce. Depth-first and width-first searches are equivalent, and  there is the additional  bonus of finding more important things first when one uses width-first search. To wit, rather than the commercially useless Higgs boson, we need a faster router or a more competitive passenger car, and OneScience will certainly get there first. 

OneScience and OneEducation programs excel in inclusiveness. With a small slowdown in scientific advances, OneScience projects provide a number of secondary goals that guarantee that the project will be successful under most circumstances. Let us illustrate this with an example. Suppose that we would like to develop methods to predict where the next big earthquake is going to be, an important and timely task if one remembers the events of 2015. However, this is probably quite tricky. OneEarthquake Team  ought to involve a geologist, a mathematician, a chemist, a mandatory engineer, and for a good measure, a social scientist and a psychologist.  Still, as everybody knows,  OneEarthquake Team is unlikely to fully succeed because the task is too concrete and quite difficult. Furthermore, the fact that they all matriculated from OneEducation program may have further eroded the chances for success, since their attention span is greatly diminished. So rather than frustrate the OneEarthquake Team with the unreasonable expectation that they will accomplish their primary objective, OneScience imposes a  set of intermediate and more realistic goals. Membership in OneScience stipulates  that  all members  publish the same number of papers in appropriate journals,  participate equally in community outreach and recruitment of minorities, and that they all plant trees in a local park.  

In spite of unquestionable success in the decade long unification program, there are still lingering questions that remain unresolved. Historically, scientific research was for many centuries in the front line to improve the life of entire societies by  bringing unexpected goods by a way of discovery and furthering understanding. However, sometime in the early XX century we started running an intellectual deficit. This is when we began slipping behind the curve and dealing with questions that should have been solved ahead of time. Similarly to the budget deficit, the intellectual deficit was initially growing slowly but after nearly a century we developed huge blind spots when dealing with climate, internet security, environment, nuclear energy and scads of other issues.

In the end, the very same obscure government agency that gave us the idea of unification a decade ago was asked to maintain the balance of intellectual deficit and periodically request that the ceiling on intellectual deficit be raised accordingly. Luckily, unlike in the case of budget deficits, politicians are willing to go the extra mile to accommodate the growing intellectual deficit. 

Within the maintaining organization, this new assignment is nicknamed OneBigMess program, although it really is not a program in the same sense as OneScience or OneEducation. This is a long and sad laundry list of intellectual challenges that we failed to meet and that are left to future generations to deal with. Unlike the budget deficit, the intellectual deficit is difficult to price but there is a clear indication that non-knowledge can be very costly.  Furthermore, the intellectual deficit accrues interest and is immune to ordinary inflation. On the bright side, Wall Street lately introduced synthetic financial instruments that allow one to buy insurance  from the results of scientific ignorance (CSO - a Collateralized Stupidity Obligation), and this budding financial market seems to be on track to grow in volume.

Harley and Triumph

Several years ago I became a motorcycle enthusiast. On weekends I pull my bike from the garage and cruise around. Zipping on the freeway at eighty miles per hour is very satisfying. There is a touch of danger, a lot of excitement and a temporary illusion of being somebody else. Is it the best one can do? Can such a make believe world blend seamlessly with the reality? Until recently I thought I had it all figured out…

Fast forward to the present day. I am reporting live from Warsaw, Poland where I am attending my mother-in-law's eightieth birthday. It is a grand celebration which coincides with her retiring from teaching at Warsaw University. It is a big deal, a gala attended by her colleagues, friends, family and her fiancee. There is lot to report but I'd rather stay 

with the motorcycle theme. Why? Because if my mother-in-law was a motorcycle she would be a Harley. Let me  explain - Harley is an iconic bike with  stunningly good looks, lots of torque, resulting in an impressive takeoff, and an acoustic footprint recognizable from afar. It may not have the best turning ability but there is no better bike for going straight ahead, and my mother-in-law would not be wasting time on turning figure eights in a parking lot!  If we follow this line of thought then her fiancee would be a Triumph. Now, Trumph is a somewhat different animal. It has solid British roots, is a bit lighter  and more powerful, and on the downside, it is endowed with a carburetor that frequently produces vast quantities of smoke though his pipe. While each bike prides itself on its individuality, what sets them apart is that they leave competition in the dust and they go together so well.

Harley's motto is "Live to ride" and I always thought it is a bit odd. Somehow the phrase implies anticipation, waiting, putting it off - in short, it  resembles my own weekend riding experiences. With these  two it is the other way around. They reversed this slogan and "Ride to Live" is what it is. And what a ride it is! I am talking about going eighty at eighty and doing it 24/7.  I am full of amazement and admiration, but I also yearn to use these metaphors and analogies to better my own understanding. And in the end, I come up with this - when distilled to simple elements we are at most one or two things, and knowing this obliges one to make the best of it. So when you find yourself being a Harley or Triumph  you just run forever into the sunset because that is what you are! 

Perhaps not the deepest thoughts, but it is good enough for me. I do not want to sit in the garage and shine my bits any longer!  I want to go outside, get blasted by the elements and perhaps get a ding or two. I am inspired and supercharged, and the road is endless.

2012: Annus mirabilis

The Hubble telescope is widely considered a pinnacle  of scientific ingenuity in the exploration of cosmos, and political battles to prolong its life and install its successors are long, brutal and not entirely successful.  So it came as a surprise when in the middle of the year an obscure spying agency offered to NASA two of their spare Hubbles. One man's floor is another man's ceiling but it still comes as a shock when one of the most treasured tools of the astronomical community is found in the army's broom closet. Apparently  Hubbles were just a surplus after the already deployed flock of Hubbles was found sufficient to make  an hourly  one-to-one digital copy of  the politically sensitive areas around the globe.
Suddenly, the scientific community was galvanized. Indeed, the military is a black hole swallowing two orders of magnitude more money than the budget of the entire NASA and a possibility that some of the money is spent  for advancing science captivated everybody. The idea that scientific discovery could be something akin to an egg hunt become very real. Show_me_the_money.org was created by underemployed postdocs and graduate students and faculty are joining in en masse. The organization went on a frantic search of  hidden scientific treasures.
It did not take long to wait for the first results, and they were spectacular. In the early summer graduate students from University of West Virginia found a quantum computer in a woodshed of the late senator Robert Byrd. It is a fully functional machine, which judging by the age of the parts, was made in the mid 90's. Apparently, senator Byrd, who was a champion of earmarks for both military and scientific spending, received it as a souvenir. Graduate students who discovered the machine note that it is a 300 qubit model which comfortably factors 150 digit integers under 2 minutes apiece.
Two weeks after this discovery, Google, which turned out to be a civilian arm of NSA announced the Lost File Program. In a simple ad, they promised to return  every computer file lost within the last 50 years, whether it was saved on a 5.25 inch floppy, perforated tape or sent by e-mail. The program got much publicity when Toni Morrison confessed to Oprah that her long lost book manuscript is being considered for a second Nobel prize and she pledged half of the prize to the Department of Defense. On a darker side, a spike in suicides and early retirements among executives and industry leaders was a clear indication that  some files better remain lost.
After that, the events cascaded beyond control. Area 51 was was open to the public in Arizona in early fall and finally the animosity of this state to  aliens became completely clear. This turned out to be a bit of a hoax as the site looks exactly like in the movie Independence Day. But the biggest surprise was related to the global warming. It turned out that the Global Warming is human caused and his name is David  Petraeus. Apparently the Army has the hardware to dial up the climate to any desired setting. Here the story gets a bit murky, but it appears that one of the former first ladies and her astrologist expressed a wish to crank up the heat in Texas. This coincided with the Army's desire to test the equipment and so here we are, no big deal really. The test is over now and in a few years things will be back to normal, but the hostility of the government to the climate community turns out to be well grounded.  This discovery called attention to other cases where the government turned out to be particularly stingy with their science dollars and the scientific community started looking at the gravitational wave detectors (that for years detected absolutely nothing.) After a few weeks of gumshoeing the truth was revealed, the waves and the corresponding technology exists and it is actually quite useful. Levitation and space travel  are clearly identifiable applications. However,  gravity is the only effective force against obesity and since the government declared a war against obesity the discovery of gravitational waves was dropped from the unraveling schedule. To prevent the scientific community from an accidental discovery a shoe-size gravitational wave generators were installed in the proximity of the detectors to obscure the natural phenomena just like the noise cancelling technology.
In the middle of winter, first sombering analyses started to appear. Scientific community was traumatized by the vast discoveries that the Army has made. Suddenly it became clear that the money pumped into the military complex was not wasted as everybody had previously thought. Quite contrary, army loomed as a super academy of sciences where scientists can work undisturbed by the need to publish, teach or participate in senseless faculty meetings.  The centuries old paradigm of combining research and training lay in ruins, partly because of the exponential growth of parasitic university administration that throttled any leftover traces of ingenuity. On the other hand, the Army with its discipline, 16 hour workdays interspersed with intense physical training, and (what is being whispered around) endless hazing and intimidation of weaker scientists, turned out to be an ideal environment for fostering innovation. With the bottomless purse and no accountability it took years where  the civilians took centuries. Thousands of university professors suddenly realized that even their measly salaries are an unjustified burden on the society.  Massive wave of academic retirements ensued. There were big changes in the Army as well.    One and half million of ordinary soldiers  turned out to be a result of an outreach program for minorities and low income  citizens, and an effective cover for  several thousands of super-scientists working anonymously.
In the end, the truth set us all free. By December the stock market doubled, first such case when it happened in just six months, and after the collapse of euro,  Europe started making overtures to join the dollar-zone. Turning on the planetary AC seems to be working and everybody is very happy.

Well, maybe not everybody. As often mathematicians are grumpy and bitter. While the search revealed many wonderful devices, there must be theories and spectacular mathematics hiding behind them. But so far, no paper or equation has  turned up, and Riemann Hypothesis is still not settled. While every sergeant in the army knows that it is true, the mathematical community is clinging to an old concept of a proof and does not have the capacity to move on.

New economic theory

My last two blog entries received withering criticism from my daughter and I was given a list of required reading to gain a better foothold for my implicit critique of the neo-marxist theories. Rather than follow this path I will resort to a standard academic trick - I will unveil my own theory and let neo-marxists try to poke a hole in it!  My theory  can be described easily in a few paragraphs. It explains  recent past, correctly predicts the future and it  is endowed with great simplicity coming from  combining  logic with Bayesian reasoning. Unveiling is the right word, the theory is too good to be false, and in fact it was created many years ago and it took a great deal of effort of politicians, bankers and regulators to implement it. I simply reverse engineered it from  life experiences of myself and my colleagues. 

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From the early 90's US economy developed a three-currency system described below.

Green money

Green money is the usual currency used for everyday needs. Average citizen has always very little of it, usually in form of loose change or small bills, and if popular culture is a good indicator, large quantities of green money are usually connected with criminal activity.  Green money is used to buy food and other necessities and steady inflow of green money is synonymous with having a job.

Red money.

This is a special kind of money that buys only one thing - your house. Banks will give you practically any amount of red money while retaining ownership of your property and the right to kick you out. You are constantly converting green money into fees associated with having red money but you also have the ability to use red money for your economic activity. Having red money is critical to passing through the transition points in your life: starting a family, sending children to college, providing medical care during the sunset years, etc.

Yellow money

This is the money that represents your entitlements. Throughout your life you accumulate  yellow money in form of Social Security, 401k, and other retirement schemes. Technically you are converting a part of your green income but in reality those contributions are not voluntary. You have no access to your yellow money until you are very old and even then you do not control it. Yellow money is a major source of economic activity for others.

This three color scheme is an abstraction whose sole purpose is to explain the connections between different components. In the end, the theory will posit that green money does not have practical value, red money is a mechanism that allows you to send your kids to college, and  yellow money is an IOU that allows fund managers to have private jets and billion dollar bonuses.

The theory described below presents economy as interactions between two types of players: small and big ones, and the main focus is on you -  a small player. A small player is a member of the middle class but I prefer a modern term: a precarian.

Total wealth formula

Your total wealth is W=G+R+Y or more generally W(p,t) = G(p,t)+R(p,t)+Y(p,t), where the variable  p represents a person and t is time.

As an instantiation of the variable p you may think that the red portion of your wealth represents a debt so it should be subtracted rather than added. Not quite, as you will soon see.

The value of W(p,t) can be computed for different values of t but such computations will be only approximations. This is really a technicality and to remove statistical variations, big players use tranches of the form W_P(t)=sum_{p in P} W(p,t) (sum of the values of W(p,t) over all the p's in the population P). The value of such tranche can be computed with arbitrary accuracy at any time t with error that depends only on the size of the population P.

We continue with basic axioms of the system.

Axiom 1

G(p,t) equals approximately 0 for almost all  (p,t). In other words, almost everybody is almost always broke i.e. does not have any green money.

Note that this axiom does not contradict the existence of millionaires but of course the number of them must be a measure zero set.  Main consequence of Axiom 1 is that the green money is not a significant source of economic activity for anybody, at least directly.

To introduce axioms 2 and 3 we need one more parameter. Recall that  the red money R =R(p,t) was used to acquire your property. Let V(p,t) represents its value.

Axiom 2

R(p,t) equals approximately V(p,t) for almost all (p,t) or equivalently that for almost everybody and  most of the time the amount of red money in your possession is  approximately equal to the value of your property.

Axiom 3

lim_{t --> infinity} V(p,t)=infinity for almost all p,  that is that for most people the value of their property goes to infinity.

These axioms are the cornerstones of the theory so let me explain their consequences.

A bank that owns your property charges you monthly rent (called interest) which is a percentage of its value. What makes this transaction special and unique is that in addition it provides you with the full value of the property paid in red money (called mortgage).  This trick allows you to use the  term "my house" with a minimum amount of credibility.  With an ordinary act of sale you would attempt to buy down red money to zero and complete the purchase. However, Axiom 3 indicates that buying a house is not an ordinary sale since the value of the property goes up with time. Consequently, your behavior is described in Axiom 2. As the value of property increases you increase your red money holdings by taking out the difference V(p,t)-R(p,t) in green money. The technical term used for this procedure is called extraction of equity and it produces a temporary windfall of green money. But wait, does it not violate Axiom 1? No, it does not  - the green money that you obtain this way is immediately used for necessities other than food. These were already mentioned: sending kids to college or fixing up your house in order to extract more green money out of it.

This points to Axiom 3 as the enabler of this scheme. Is this axiom true?  Abstractly, the value of your property is a small fraction of the value of the entire planet and we know where this is going. Economically however, the value of your property is determined by willingness of others to try to buy  it, and this in turn is determined by the supply of red money. As this source appears bottomless Axiom 3 is certainly valid.

This describes how you can live and prosper in this economic systems, and that is the micro-economic scale of things. Now we look at the big players or the macro-economic game. As I indicated already they deal with tranches to compensate for the  stochastic aspects of the axioms. So do not feel that this is all about you and that somebody is out to get you. This type of thinking will only get you into the looney bin...  The source of profits for the big players is the yellow portion of your wealth portfolio.  You and your employer are continuously increasing this amount by their involuntary contributions and  this  gigantic pool of wealth  is open to modern financial wizardry while  nobody is watching. So in practice  the only growth of this portfolio is represented by your contributions while the profits from investing it, turning it into stocks, futures or other obligations go the the owners, that is the banking industry. Since the end-value of your yellow portfolio is an order of magnitude bigger than your red portfolio and the average time that it is out of your reach is about 20 to 30 years the big players can extract tremendous amount of wealth from it without making it obvious that they are robbing you blind.

Early capitalists were after your ability to work and deliver surplus value. In this new scheme your entire life - present and future - is in the hands of a twenty-something hedge fund manager with quick mind and fingers whose formative years were spent playing Grand Theft Auto.

There is a version of Axiom 3 (due to Alan Greenspan) which assumes in addition that the derivative dV(p,t)/dt is greater than zero, that is that the value of your property is always increasing in time. This version of the axiom  greatly simplifies economic calculations but unfortunately it turned out to be false. In 2008 the property values went down on a set of positive measure and many precarians become proletarians. The current version of Axiom 3 allows temporary reversals.

In summary - the presented theory demonstrates how of two people spending 8 hours in the office one can make many thousands times more money than the other. It describes a layer of economy where great deal of action is taking place while nothing is ever being produced or consumed. And finally, it describes optimal strategies for small and big players.

In the presented system, everybody benefits (although not equally), and a significant portion of the society gets a sliver of the american dream. For this to work well however it is best if they remain asleep.

Sub-three sigmas unite!

In my last posting I complained about the lack of a new Communist Manifesto that would explain the world in simple terms and show the way forward. Here is my try at such a piece (and I dedicate it to Ayn Rand.) 

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 The history of mankind is the history of exceptional people. They are the ones who come up with the ideas, create and invent things, become role models, and lead the others. For the exceptional men and women are like an active ingredient in any medication - little of the good thing surrounded by massa tabulettae - an inert medium acting as a carrier.
What does it mean to be exceptional? Lets just say that it means that regarding some special ability one belongs to the top one percent. Top one percent means more than 2.57 (a bit less than three) standard deviations (sigmas) away from the mean. Being exceptional is not correlated with race, gender, age, education, income and so on. While it is hard to excel in any particular thing, it is much easier to be good at something. Sadly, only very few of us make use of our abilities while the rest tries to emulate somebody else's.
 While nothing of importance happens without exceptional people being involved, the forces of mediocrity are constantly conspiring against them and try to deprive them of their special properties. And of those forces the government represents the most powerful adversary, an iron fisted  mindless destroyer of talent.
Consider the most common ways to be exceptional - wealth, intellectual and physical abilities - and see how government relentlessly tries to undercut them.

 Wealth

Getting your first billion is hard work - many hours, a lot of risk and perhaps one or two things that you are not proud of. But now that you have made it, you want to cash in on your accomplishments. You want to be pampered and respected and you do not mind to be called a "job creator" even if the jobs you create are on a different hemisphere. But no, the big government swoops in and tries to take away your hard earned money, 15% of it or so. This is 150 mil for gods sake! who has this kind of cash to give away! Rather than requiring that everybody pitches in equally, they target you because you stand above the crowd.

 Intellect

You are six years old and suddenly you notice that everybody around you is sooo slooow. They read slowly, they think slowly and they do not seem to understand basic things. You are just a kid, and you do not know much but the rubbish that people tell you cannot possibly be right! This is where the government steps in. For the next twelve years you will be locked in a high security prison known as a public school. You will be bored to death, teased without mercy and if you do not toe the line you will be repeating classes that you should not be taking in the first place.

 Physical ability.

You are a runner and you dream of running a 100 meter dash under 9 seconds, or a marathon under 2 hours. Impossible? Not quite, and big pharma is here to help. All that stands in your way is the government with its lawyers and regulations. They will humiliate you and strip you of your medals if you follow your dreams and allow science to help your body to accomplish what it was meant to do.

 So what can we do? How can we remain strong?

Sub-three sigmas unite!

Get out of the glass jar of your talent and seek out other sub-three sigmas. You are unique and exceptional but it comes at a price. The great ability that makes you a sub-three sigma may have pushed aside other parts of your personality. You may be lacking social skills, be an incomprehensible introvert or simply an arrogant asshole. This is where another sub-three sigma with a different skill set can help and save you. The energy coming from building synergistic connections is enormous and the power of networking is unparalleled.

 Consider the following examples to see what could be accomplished. They are modeled on  what in the domain of science represent the most treasured form - multidisciplinary research.

 Albert Einstein and Wayne Gretzky

Instead of wasting years on trying to develop socially irrelevant grand unification theory, we would end up with better physics of ice and scads of commercial applications. In defiance of laws of thermodynamics energy-free ice creation would make frozen water available throughout the planet. Transformative aspects involve creation of hockey leagues in equatorial countries, desalinization of sea water and (possibly) staving off  global warming by increasing the Earth reflectivity through multiple hockey fields. And last but not least, we would get a better Zamboni machine.

 Paris Hilton and Isaac Newton

 While Isaac invents calculus Paris keeps his mind off nasty Leibniz and makes sure that he is not described as "asexual" four hundred years later. More importantly she looks at the educational side of calculus and the rest of mathematics. Transformative aspects of this duo involve making mathematics a cool subject and its teachers trendy and well dressed individuals paying attention to personal hygiene. Centuries later kids would look forward to be taking math classes as places to socialize and hang out. Expect modern fashion industry and computer age to come about two hundred years earlier.

 Noam Chomsky and Saint Francis of Assisi

 How can we think of communicating with extra-terrestial civilizations if we cannot figure out what our cat thinks of our table manners? This team would change it all. Saint Francis' zeal to give sermons to all creatures endowed with ears will be combined with Chomsky's understanding of language formation for the efficient inter-species communication. Finally when looking at our "little brothers" we will stop wondering how to cook them and focus on their thoughts and feelings. Plague of obesity will be eradicated when animal products will disappear from our daily diet. Equal rights for all the species and participation based on genome complexity will be established.

 So sub-three sigmas unite! As we enter dark days of the XXI century you are our only chance to go forward. United you stand but divided you fall as the evil forces of government are constantly conspiring against you. Hook up and multiply and let the freedom reign!