I mentioned in a previous blog, "Fractals and Self-Organized Criticality" about the fractal nature of many natural systems. That is, the self-similarity observed in nature over many scale lengths. It turns out that fractals can be quite useful to describe financial systems as well. However, they are rarely used and this leads to many misconceptions about the markets. Let me explain.
When we discuss variability or probability distributions, we generally resort to simple Gaussian statistics ("bell curve" statistics). That is, when you take a sample, say, a population and plot out something such as their heights on an xy plot, there are some very tall people, some very short, but basically, there is an average height and the curve looks something like a church bell. Hence the name. This works very well for heights or weights or university grades or other such things that vary within set limits. Therefore, we don't have to worry about a single mile-high person messing up our nice bell curve. There are natural limits imposed on human heights, as it were. However, other statistical distributions are not necessarily confined to any arbitrary limit. Such is the case with the market. But, much to our misfortune, fractal statistics are almost never used to describe or explain the behaviour of the markets. We are shown graphs or pie charts of historical trends or mathematical predictions about future market tendencies. So, how much faith can we have in our financial advisers, the majority of which have never studied fractal distributions in relation to the free market economy?
There has been a lot of buzz these days about the economy. This year started off with spiking oil prices (some 50%), and talk about a global recession. Now, the rhetoric has gone from recession to depression or even collapse. What's going on here? What do I do with my investments? Should I be putting my money in my mattress? How will the price of oil effect the price of food or other economic needs? I must admit that I am far from qualified to comment satisfactorily on the implications of global economic collapse. However, I will say that I am pessimistic about the future of civilization continuing on in the way it has been during the "cheap oil fiesta" we have been fortunate to live through over the past 150 years or so. The turmoil we see in the markets now is heavily related to the price of oil, but also to the laissez-faire free market economics and its misleading mathematical foundation. The future may be one of energy shortages, but it doesn't have to be bad. Civilization has persisted for thousands of years without the gadgets we are familiar with today, including the laptop I am typing this on. But, I am optimistic that we will adjust to our new set of circumstances, live more locally and be happy with less "cargo". :)
I drew most of the information for this blog in the form of a summary (as I understand it) from an article I read by Benoit Mandelbrot and Nassim Nicholas Taleb called, - "How The Finance Gurus Get Risk All Wrong". Benoit Mandelbrot is a mathematician and is celebrated as the "father of fractals". It's a short article... check it out if you're interested.
Peace,
Grant
When we discuss variability or probability distributions, we generally resort to simple Gaussian statistics ("bell curve" statistics). That is, when you take a sample, say, a population and plot out something such as their heights on an xy plot, there are some very tall people, some very short, but basically, there is an average height and the curve looks something like a church bell. Hence the name. This works very well for heights or weights or university grades or other such things that vary within set limits. Therefore, we don't have to worry about a single mile-high person messing up our nice bell curve. There are natural limits imposed on human heights, as it were. However, other statistical distributions are not necessarily confined to any arbitrary limit. Such is the case with the market. But, much to our misfortune, fractal statistics are almost never used to describe or explain the behaviour of the markets. We are shown graphs or pie charts of historical trends or mathematical predictions about future market tendencies. So, how much faith can we have in our financial advisers, the majority of which have never studied fractal distributions in relation to the free market economy?
There has been a lot of buzz these days about the economy. This year started off with spiking oil prices (some 50%), and talk about a global recession. Now, the rhetoric has gone from recession to depression or even collapse. What's going on here? What do I do with my investments? Should I be putting my money in my mattress? How will the price of oil effect the price of food or other economic needs? I must admit that I am far from qualified to comment satisfactorily on the implications of global economic collapse. However, I will say that I am pessimistic about the future of civilization continuing on in the way it has been during the "cheap oil fiesta" we have been fortunate to live through over the past 150 years or so. The turmoil we see in the markets now is heavily related to the price of oil, but also to the laissez-faire free market economics and its misleading mathematical foundation. The future may be one of energy shortages, but it doesn't have to be bad. Civilization has persisted for thousands of years without the gadgets we are familiar with today, including the laptop I am typing this on. But, I am optimistic that we will adjust to our new set of circumstances, live more locally and be happy with less "cargo". :)
I drew most of the information for this blog in the form of a summary (as I understand it) from an article I read by Benoit Mandelbrot and Nassim Nicholas Taleb called, - "How The Finance Gurus Get Risk All Wrong". Benoit Mandelbrot is a mathematician and is celebrated as the "father of fractals". It's a short article... check it out if you're interested.
Peace,
Grant
Here, I put a great article by Lester Brown of the Earth Policy Institute. This guy has some great progressive ideas for the world. Check it out and you can even download his book (Plan B 3.0) for free in PDF format. Or, sign up for his regular mailing list (where I received this essay). Find it all at www.earthpolicy.org and help make a change.
Peace,
Grant
INCREASING EQUALITY BY EDUCATING EVERY CHILD
Lester R. Brown
The social and economic gap between the world’s richest 1 billion people and its poorest 1 billion has no historical precedent. Not only is this gap wide, it is widening. The poorest billion are trapped at subsistence level and the richest billion are becoming wealthier with each passing year.
One way of narrowing the gap between rich and poor segments of society is by ensuring universal education. This means making sure that the 72 million children not enrolled in school are able to attend. Children without any formal education are starting life with a severe handicap, one that almost ensures they will remain in abject poverty and that the gap between the poor and the rich will continue to widen. In an increasingly integrated world, this widening gap itself becomes a source of instability. Nobel Prize-winning economist Amartya Sen focuses the point: “Illiteracy and innumeracy are a greater threat to humanity than terrorism.”
In the effort to achieve universal primary education, the World Bank has taken the lead with its Education for All plan, where any country with a well-designed plan to achieve this goal is eligible for Bank financial support. The three principal requirements are that a country submit a sensible plan to reach universal basic education, commit a meaningful share of its own resources to the plan, and have transparent budgeting and accounting practices. If fully implemented, all children in poor countries would get a primary school education by 2015, helping them to break out of poverty.
Some progress toward this goal has been made. In 2000, some 78 percent of children were completing primary school, while by 2005 this figure reached 83 percent. Gains have been strong but uneven, leaving the World Bank to conclude that only 95 of the 152 developing countries for which data are available will reach the goal of universal primary school education by 2015.
Poverty is largely inherited. The overwhelming majority of those living in poverty today are the children of people who lived in poverty. The key to breaking out of the culture of poverty is education--particularly the education of girls. As female educational levels rise, fertility falls. And mothers with at least five years of school lose fewer infants during childbirth or to early illnesses than their less educated peers do. Economist Gene Sperling concluded in a 2001 study of 72 countries that “the expansion of female secondary education may be the single best lever for achieving substantial reductions in fertility.”
Basic education tends to increase agricultural productivity. Agricultural extension services that can use printed materials to disseminate information have an obvious advantage. So too do farmers who can read the instructions on a bag of fertilizer. The ability to read instructions on a pesticide container can be life-saving.
At a time when HIV is spreading, schools provide the institutional means to educate young people about the risks of infection. The time to inform and educate children about the virus and about the lifestyles that foster its spread is when they are young, not when they are already infected. Young people can also be mobilized to conduct educational campaigns among their peers.
One great need in developing countries, particularly those where the ranks of teachers are being decimated by AIDS, is more teacher training. Providing scholarships for promising students from poor families to attend training institutes in exchange for a commitment to teach for, say, five years, could be a highly profitable investment. It would help ensure that the teaching resources are available to reach universal primary education, and it would also foster an upwelling of talent from the poorest segments of society.
Gene Sperling believes that every plan should provide for getting to the hardest-to-reach segments of society, especially poor girls in rural areas. He notes that Ethiopia has pioneered this with Girls Advisory Committees. Representatives of these groups go to the parents who are seeking early marriage for their daughters and encourage them to keep their girls in school. Some countries, Brazil and Bangladesh among them, actually provide small scholarships for girls or stipends to their parents where needed, thus helping those from poor families get a basic education.
As the world becomes ever more integrated economically, its nearly 800 million illiterate adults are severely handicapped. This deficit can best be overcome by launching adult literacy programs, relying heavily on volunteers. The international community could offer seed money to provide educational materials and outside advisors where needed. Bangladesh and Iran, both of which have successful adult literacy programs, can serve as models.
An estimated $10 billion in external funding, beyond what is being spent today, is needed for the world to achieve universal primary education. At a time when education gives children access not only to books but also to personal computers and the Internet, having children who never go to school is no longer acceptable.
Few incentives to get children in school are as effective as a school lunch program, especially in the poorest countries. Since 1946, every American child in public school has had access to a school lunch program, ensuring at least one good meal each day. There is no denying the benefits of this national program.
Children who are ill or hungry miss many days of school. And even when they can attend, they do not learn as well. Jeffrey Sachs of the Earth Institute at Columbia University notes, “Sick children often face a lifetime of diminished productivity because of interruptions in schooling together with cognitive and physical impairment.” But when school lunch programs are launched in low-income countries, school enrollment jumps, the children’s academic performance goes up, and children spend more years in school. Girls benefit especially. Drawn to school by the lunch, they stay in school longer, marry later, and have fewer children. This is a win-win-win situation. Launching school lunch programs in the 44 lowest-income countries would cost an estimated $6 billion per year beyond what the United Nations is now spending to reduce hunger.
Greater efforts are also needed to improve nutrition before children even get to school age, so they can benefit from school lunches later. Former Senator George McGovern notes that “a women, infants and children (WIC) program, which offers nutritious food supplements to needy pregnant and nursing mothers,” should also be available in the poor countries. Based on 33 years of experience, it is clear that the U.S. WIC program has been enormously successful in improving nutrition, health, and the development of preschool children from low-income families. If this were expanded to reach pregnant women, nursing mothers, and small children in the 44 poorest countries, it would help eradicate hunger among millions of small children at a time when it could make a huge difference.
These efforts, though costly, are not expensive compared with the annual losses in productivity from hunger. McGovern thinks that this initiative can help “dry up the swamplands of hunger and despair that serve as potential recruiting grounds for terrorists.” In a world where vast wealth is accumulating among the rich, it makes little sense for children to go to school hungry.
Peace,
Grant
INCREASING EQUALITY BY EDUCATING EVERY CHILD
Lester R. Brown
The social and economic gap between the world’s richest 1 billion people and its poorest 1 billion has no historical precedent. Not only is this gap wide, it is widening. The poorest billion are trapped at subsistence level and the richest billion are becoming wealthier with each passing year.
One way of narrowing the gap between rich and poor segments of society is by ensuring universal education. This means making sure that the 72 million children not enrolled in school are able to attend. Children without any formal education are starting life with a severe handicap, one that almost ensures they will remain in abject poverty and that the gap between the poor and the rich will continue to widen. In an increasingly integrated world, this widening gap itself becomes a source of instability. Nobel Prize-winning economist Amartya Sen focuses the point: “Illiteracy and innumeracy are a greater threat to humanity than terrorism.”
In the effort to achieve universal primary education, the World Bank has taken the lead with its Education for All plan, where any country with a well-designed plan to achieve this goal is eligible for Bank financial support. The three principal requirements are that a country submit a sensible plan to reach universal basic education, commit a meaningful share of its own resources to the plan, and have transparent budgeting and accounting practices. If fully implemented, all children in poor countries would get a primary school education by 2015, helping them to break out of poverty.
Some progress toward this goal has been made. In 2000, some 78 percent of children were completing primary school, while by 2005 this figure reached 83 percent. Gains have been strong but uneven, leaving the World Bank to conclude that only 95 of the 152 developing countries for which data are available will reach the goal of universal primary school education by 2015.
Poverty is largely inherited. The overwhelming majority of those living in poverty today are the children of people who lived in poverty. The key to breaking out of the culture of poverty is education--particularly the education of girls. As female educational levels rise, fertility falls. And mothers with at least five years of school lose fewer infants during childbirth or to early illnesses than their less educated peers do. Economist Gene Sperling concluded in a 2001 study of 72 countries that “the expansion of female secondary education may be the single best lever for achieving substantial reductions in fertility.”
Basic education tends to increase agricultural productivity. Agricultural extension services that can use printed materials to disseminate information have an obvious advantage. So too do farmers who can read the instructions on a bag of fertilizer. The ability to read instructions on a pesticide container can be life-saving.
At a time when HIV is spreading, schools provide the institutional means to educate young people about the risks of infection. The time to inform and educate children about the virus and about the lifestyles that foster its spread is when they are young, not when they are already infected. Young people can also be mobilized to conduct educational campaigns among their peers.
One great need in developing countries, particularly those where the ranks of teachers are being decimated by AIDS, is more teacher training. Providing scholarships for promising students from poor families to attend training institutes in exchange for a commitment to teach for, say, five years, could be a highly profitable investment. It would help ensure that the teaching resources are available to reach universal primary education, and it would also foster an upwelling of talent from the poorest segments of society.
Gene Sperling believes that every plan should provide for getting to the hardest-to-reach segments of society, especially poor girls in rural areas. He notes that Ethiopia has pioneered this with Girls Advisory Committees. Representatives of these groups go to the parents who are seeking early marriage for their daughters and encourage them to keep their girls in school. Some countries, Brazil and Bangladesh among them, actually provide small scholarships for girls or stipends to their parents where needed, thus helping those from poor families get a basic education.
As the world becomes ever more integrated economically, its nearly 800 million illiterate adults are severely handicapped. This deficit can best be overcome by launching adult literacy programs, relying heavily on volunteers. The international community could offer seed money to provide educational materials and outside advisors where needed. Bangladesh and Iran, both of which have successful adult literacy programs, can serve as models.
An estimated $10 billion in external funding, beyond what is being spent today, is needed for the world to achieve universal primary education. At a time when education gives children access not only to books but also to personal computers and the Internet, having children who never go to school is no longer acceptable.
Few incentives to get children in school are as effective as a school lunch program, especially in the poorest countries. Since 1946, every American child in public school has had access to a school lunch program, ensuring at least one good meal each day. There is no denying the benefits of this national program.
Children who are ill or hungry miss many days of school. And even when they can attend, they do not learn as well. Jeffrey Sachs of the Earth Institute at Columbia University notes, “Sick children often face a lifetime of diminished productivity because of interruptions in schooling together with cognitive and physical impairment.” But when school lunch programs are launched in low-income countries, school enrollment jumps, the children’s academic performance goes up, and children spend more years in school. Girls benefit especially. Drawn to school by the lunch, they stay in school longer, marry later, and have fewer children. This is a win-win-win situation. Launching school lunch programs in the 44 lowest-income countries would cost an estimated $6 billion per year beyond what the United Nations is now spending to reduce hunger.
Greater efforts are also needed to improve nutrition before children even get to school age, so they can benefit from school lunches later. Former Senator George McGovern notes that “a women, infants and children (WIC) program, which offers nutritious food supplements to needy pregnant and nursing mothers,” should also be available in the poor countries. Based on 33 years of experience, it is clear that the U.S. WIC program has been enormously successful in improving nutrition, health, and the development of preschool children from low-income families. If this were expanded to reach pregnant women, nursing mothers, and small children in the 44 poorest countries, it would help eradicate hunger among millions of small children at a time when it could make a huge difference.
These efforts, though costly, are not expensive compared with the annual losses in productivity from hunger. McGovern thinks that this initiative can help “dry up the swamplands of hunger and despair that serve as potential recruiting grounds for terrorists.” In a world where vast wealth is accumulating among the rich, it makes little sense for children to go to school hungry.
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