THE DEATH OF ECONOMICS: Aircraft design vs flat-lining financial models

Fags and booze to the rescue

Crawling from the Wreckage John Watkinson continues his series of essays for El Reg in which he examines failures in society from banking and education to transport and IT. Here, with a critical eye on our economic plight, he looks at the methods employed by those doing the sums and their consequences.

Here we are, several years into the aftermath of the latest and greatest economic crash. They occur with near regularity; just irregular enough to be unpredictable. In any discipline, catastrophes are studied and changes are made to eliminate them. There are complex systems behind the water that comes out of my tap and the electricity that comes from the wall socket, others stop airliners and trains bumping into each other and by and large they work. The conclusion must be that economics is not a discipline.

Any half decent audio amplifier uses negative feedback so that if the output deviates from what it should be, the input is tweaked in such a way that brings it back. Have you ever wondered why the engines on an airliner are set forward of the wings? Well, if the wing is flexed upwards by a gust, the mass of the engine resists upward movement and the effect is to twist the wing down, so that it flies itself back to the undisturbed position.

Imagine what would happen if the engine were behind the wing. The mass of the engine would amplify the effect of a gust and the wing might tear itself off. This is called divergence or positive feedback. Moreover, the wing might twist to an extreme angle and stall, so it would then twist alternate ways in a phenomenon called flutter. How ironic that flutter is also a term for gambling.

Flying without wings

When a crisis goes on for seven years it is no longer a crisis and becomes the new normal. Economists think that they have control of economies using interest rates, but they don’t. Interest rates have been at an all time record low for years now and nothing is happening. In servo parlance, the system has gone hard over. The input isn’t controlling the output.

Economies are more complex than was thought. I believe it is axiomatic that, as economists are unable to prevent the instability, they either don’t have a model of how economies work and/or they don’t have control. When the wings have come off, applying up-elevator is pointless. All Draghi but no lift. In that sense, it doesn’t matter who wins the next election. When the wings have come off, the pilot’s intentions don’t mean a lot.

Pilot atop sinking vintage aircraft

Pilot atop sinking vintage aircraft

Unstable systems are self-crashing. The divergent behaviour can be triggered by any small random disturbance. So blaming an individual disturbance is foolish. If it had not been that disturbance, it would have been another one.

So-called toxic loans and sub-prime mortgages are widely blamed for the latest crash. A sub-prime mortgage is one where there is some risk that the mortgagee may not be able to pay regularly. Someone like that must be a loser, so it’s plausible to blame them. But it’s a fanciful presumption and the blame lies elsewhere.

I went to buy a candy bar in Palm Springs airport and came away with Charlie LeDuff’s Detroit: an American Autopsy. I recommend this book to anyone interested in mending our broken society. Among the chilling stories of a broken city, one stood out, and that was the story of the negative amortisation mortgage.

I have said before that it is the mission of banks to cause debt. In a negative amortisation mortgage, the monthly repayments are incredibly low, so, superficially, it’s attractive. But the repayments don’t even cover the interest, even though in some cases the mortgagee thought the loan simply had a low interest rate. What happens is that every month the amount you owe goes up: banking heaven.

You end up in a house that you can’t afford, that you will never own, owing more every month, until the amount you owe crosses a threshold and then there is a massive jump in the repayments. That might work if the value of the house had risen, or if your salary had gone up, but it’s a gamble; a gamble in the Las Vegas sense, where you can’t beat the house. In a stagnant economy where salaries are not rising or your employer has just gone turtle, the outcome of a negative amortisation mortgage isn’t a gamble, it’s a certainty.

Similar topics

Other stories you might like

  • North Korea pulled in $400m in cryptocurrency heists last year – report

    Plus: FIFA 22 players lose their identity and Texas gets phony QR codes

    In brief Thieves operating for the North Korean government made off with almost $400m in digicash last year in a concerted attack to steal and launder as much currency as they could.

    A report from blockchain biz Chainalysis found that attackers were going after investment houses and currency exchanges in a bid to purloin funds and send them back to the Glorious Leader's coffers. They then use mixing software to make masses of micropayments to new wallets, before consolidating them all again into a new account and moving the funds.

    Bitcoin used to be a top target but Ether is now the most stolen currency, say the researchers, accounting for 58 per cent of the funds filched. Bitcoin accounted for just 20 per cent, a fall of more than 50 per cent since 2019 - although part of the reason might be that they are now so valuable people are taking more care with them.

    Continue reading
  • Tesla Full Self-Driving videos prompt California's DMV to rethink policy on accidents

    Plus: AI systems can identify different chess players by their moves and more

    In brief California’s Department of Motor Vehicles said it’s “revisiting” its opinion of whether Tesla’s so-called Full Self-Driving feature needs more oversight after a series of videos demonstrate how the technology can be dangerous.

    “Recent software updates, videos showing dangerous use of that technology, open investigations by the National Highway Traffic Safety Administration, and the opinions of other experts in this space,” have made the DMV think twice about Tesla, according to a letter sent to California’s Senator Lena Gonzalez (D-Long Beach), chair of the Senate’s transportation committee, and first reported by the LA Times.

    Tesla isn’t required to report the number of crashes to California’s DMV unlike other self-driving car companies like Waymo or Cruise because it operates at lower levels of autonomy and requires human supervision. But that may change after videos like drivers having to take over to avoid accidentally swerving into pedestrians crossing the road or failing to detect a truck in the middle of the road continue circulating.

    Continue reading
  • Alien life on Super-Earth can survive longer than us due to long-lasting protection from cosmic rays

    Laser experiments show their magnetic fields shielding their surfaces from radiation last longer

    Life on Super-Earths may have more time to develop and evolve, thanks to their long-lasting magnetic fields protecting them against harmful cosmic rays, according to new research published in Science.

    Space is a hazardous environment. Streams of charged particles traveling at very close to the speed of light, ejected from stars and distant galaxies, bombard planets. The intense radiation can strip atmospheres and cause oceans on planetary surfaces to dry up over time, leaving them arid and incapable of supporting habitable life. Cosmic rays, however, are deflected away from Earth, however, since it’s shielded by its magnetic field.

    Now, a team of researchers led by the Lawrence Livermore National Laboratory (LLNL) believe that Super-Earths - planets that are more massive than Earth but less than Neptune - may have magnetic fields too. Their defensive bubbles, in fact, are estimated to stay intact for longer than the one around Earth, meaning life on their surfaces will have more time to develop and survive.

    Continue reading

Biting the hand that feeds IT © 1998–2022