A Question About the Zero Bound on Nominal Interest Rates.

Kevin Drum asks what he describes as a "really dumb question":

CalPundit: Interest Rates: Now, I know this is a really dumb question (and yes, contrary to popular wisdom, there is such a thing as a dumb question), but why is this so? Why can't the Fed have negative interest rates? Walk up to the discount window, borrow a million dollars, and next month when it comes due you only have to pay back $900,000. Banks would then have an incentive to loan out this money at a negative rate too. As long as their rate was less negative than the Feds, they'd make money on the deal...

The problem comes at the second stage of your thought experiment. Yes, the Fed can loan money at negative nominal interest rates to banks. But the banks then have an incentive to simply put the cash in their vaults and keep it there. They could loan it out at negative interest rates and make money (as long as there was a spread), but they would make more money if they did not lend it out and just squirreled it away.

To break this greater incentive for banks not to squirrel the cash away, you need to do something to the money: put a microchip with a timer inside each dollar bill, and require that you pay the Federal Reserve one cent each three months to keep the bill "active" or it expires--that kind of thing.

But without such interesting expedients to make it costly to keep money in the vault or under the mattress, no central bank can ever push a market nominal interest below zero: the fact that you can make more profits by simply hoarding then by lending it out at a negative interest rate prevents it from happening.

[Semi-Daily Journal]

So, I guess there IS a good reason the lowest interest rate the Fed can get to is zero.   11:29:13 PM    

Why You Should Care About Media Concentration and the FCC:. Because the FCC intends to lift the restrictions on media concentration at their June 2 meeting. So instead of 4 or 5 megamedia outlets, we can have 3, or 2 or eek! 1 (check out this media map, or this one from the Nation, or this one from Media Channel). Breadth of media outlets is a critical check and balance on our democratic system, one that determines other voices, formats and viewpoints for our freedom... [bIPlog]

Bread and circuses. It is much easier to control the masses when all the major media is controlled by a few. The increasing lack of diversity of thought, the incresing shallowness of focus, should only hasten the end of the major media corporations. But their attempts to hamper the Internet will happen first, since this is their major competition. Remember 80% of the work gets done by 20% of the people, and they will all be on the Internet!   11:07:44 PM    

Make Cheats, Not War. Online gamers who use "cheats" to beat opponents are nothing new. However, with the tremendous popularity of the new "America's Army" video game (created by the US Army as a promotional tool), some are complaining that cheaters are threatening to bring down the whole game. Worried about how this might impact some of the best publicity they've gotten in years, the Army has decided to fight back against the cheaters - though, some wonder how well they'll do. The article also profiles one cheat writer, who is quite proud of what he does. Amusingly, he gets annoyed with people who use his cheats ("I've sat there for hours on end, writing the thing. They've just downloaded it from a website.") and has written a backdoor to disable his own cheats when he comes up against players using them. [Techdirt]

Such a cute little story. Write a backdoor so you can diable your own software when it is used against you. Net!  10:58:42 PM    

Bursty Community Formation in Blogspace. Absolutely fascinating paper on community formation in blogspace, by Ravi Kumar, Prabhakar Raghavan, Jasmine Novak, and Andrew Tomkins, called On the Bursty Evolution of Blogspace. (Free ACM account required -- it's so worth it, just for this article.)

The authors develop a method of measuring time-stamped link-space, so that blogspace can be mapped based not just on links, but links by date, allowing them to track the formation of communities, defined here as a dense cluster of weblogs all pointing back and forth to one another.

Using this method, they put some meat on the bones of what everyone knows:

Within a community of interacting bloggers, a given topic may become the subject of intense debate for a period of time, then fade away. These bursts of activity are typified by heightened hyperlinking amongst the blogs involved -- within a time interval.

They then go on to identify several examples of communities coalescing in a brief period of time around a set of posts -- WannaBeGirl's blog poetry in 2000, or Dawn's Funniest/Sexiest Blogger poll from 2002. (Unsurprisingly, both examples used posts about other people to get those people's attention.)

They outline their method for crawling and analysing blogspace while looking for these burst-forming communities, and the algorithm looks like a useful feature for ongoing exploration of blogspace. (Paging David Sifry. David Sifry to the white courtesy telephone...) They also segment blogs by in-bound links:

...pages linked-to by an enormous number of other pages are too well-known for the type of communities we seek to discover; so, we summarily remove all pages that contain more than a certain number of in-links.

in order to differentiate between community participation and publishing (and argument I've been groping towards in Communities, Audiences and Scale, and Weblogs, Power Laws and Inequality, but the algorithms here are far more precise than my descriptions.)

Finally, they analyze the changes in their data set overall, and come to two remarkable conclusions: first, 2001, really was the unusual year, with the link structure at both a macro and micro level taking a remarkable jump in density.

Second, there is a core set of blogs that form a Strongly Connected Cluster, and is growing rapidly:

But up to this point, blogspace is not a coherent entity -- the overall size has grown but the interconnectedness is not significant. At the start of 2001, the largest component begins to grow in size relative to the rest of the graph, and by the end of 2001 it contains about 3% of all nodes. In 2002, however, a threshold behavior arises, and the size of the component increases dramatically, to over 20% by the present day. This giant component still appears to be expanding rapidly, doubling in size approximately every three months. Clearly this growth cannot continue and must plateau within two years.

Oh, and they prove that blogspace is not a random graph, and conclude that blogspace can better be analyzed as a set of inter-networking communities than as a set of stand-alone blogs.

It's too early to tell for sure, but this paper feels absolutely seminal. I know its a pain to set up another online account, but do it anyway, and then go read the paper. (Thanks, Hylton) [Corante: Social Software]

I'm setting up my account. A single blog does not work. It is the community of bogs that is important. A idea gets started in a sort of amorphous way and these is intensified and remodeled as it moves through the community until it reaches a tipping point and explodes. We see this again and again. It is what makes weblogs a different medium than any other. It may be why power logs are not that important. We shall see.  10:44:00 PM    

More on the Matrix. Philosophy of Matrix Reloaded.

Salon.com Books | The Matrix way of knowledge

The Matrix way of knowledge From the Gnostic gospels to the visions of Descartes to the shamanic quests of Eastern mystics, the Wachowski brothers' pop opus weaves a dense web of philosophical and metaphysical allusions. - - - - - - - - - - - - By Erik Davis

The author seems to like going along for the ride, and is far from a raving fan of the movie. But he does a good job of picking up on a few of the key themes (pardon the pun) that are central to the film.

Most importantly, he digs in on something that several (including me) have talked about: that the matrix in Matrix Reloaded is far less structured and far more ambiguous than we'd been led to believe in the first Matrix.

I was talking to Ernie yesterday about my iPod, and we both laughed about the wildly divergent reactions we had to Matrix Reloaded. The main reason I feel comfortable enjoying the film - incomplete though it is - is that I'm confident that once Matrix Revolutions rolls around, it will radically change what we think we know about Reloaded (in much the same way Reloaded changed what we thought about the first film). If I'm right - and we'll only know come November - then Reloaded will prove to be a deeper and more intricate piece of work than is apparent right now.

And that would end up being the same reason I appreciated the first so much - like a kaleidoscope, each viewing changed what I saw and how I saw it. That's an exceedingly rare trait in film today - and is one of the reasons I'm so optimistic about the trilogy.

[tins ::: Rick Klau's weblog]

Lots of good stuff in these links. A few words of my own. Quick first step I liked the film a lot but a few gripes. The action scenes are now like American porn - the same old thing done too long. Not enough foreplay and tension to make it interesting. What am I talking about - recall Reservoir Dogs or the opening scene or the scene in Private Ryan in the bell tower and the fight with the bayonet - that is compelling action.

Some of my take aways. The architect now knows that the search for perfection = guaranteed failure. Well or not he is trying to design in not only failure but rebellion. In our organizations we seek the earlier models of perfection. What if we allowed for failure and rebellion - would our organization become more human?

The scene with the councillor and Neo when they go down to the machine room. Who is in charge the machines or man? Neo remarks that we can always turn off the machines - the machines that give us life retorts the councillor who then laughs. We and our machines are interdependent. To give them up is to give up our way of life. Ray Kurzweil thinks that we and our machines will become one.

I loved the scene with Smith and Neo before they fight - which I found silly. I got the sense that Smith knows more than any of the participants. In the trailer we see a rematch between Neo and Smith. Can either really "kill" the other. I wonder may some form of integration be on the cards. Is not your best enemy your best teacher? Is he not yourself???

 

[Robert Paterson's Radio Weblog]

It is going to be so much fun talking about Matrix until revolutions. One aspect I want to mention is the most unusual aspect of Agent Smith. This trilogy may be as much about his journey as it is Neo's. Remember, in the first Matrix, Smith removes his ear piece, removing himself from communcating with the main system. (This happens when he is interrogating Morpheus. The returning agents even comment that he does not know whatg is happening in the lobby.) In Reloaded, Smith does know a lot, mentioning Neo's predecessors at the beginning of the movie. Smith talks about the connection between Neo and Smith. And now Smith is in the real world, something that no other agent ever thought to do. I mean, they always tried to kill humans from outside or recruit them ala Cypher. The Matrix never made the leap that they could infiltrate humans from real human bodies.

What I found very fascinating in Matrix Reloaded was that several of the 'programs' in the Matrix display extremely human characteristics. Smith, the Oracle, Persephone all seem motivated by human emotions. The agents display no emotion. The architect displays little emotions when Neo makes the choice that will doom mankind and render much of the power of the Matrix useless. I fell that this mingling of human and machine may well be the point of the movie trilogy. Only by successfully incorporating both human and machine can peace reign. One without the other will not. Now that Neo seems to have power to control machines in the 'real' world, what happens when he learns how to meld the real and the unreal. It is one thing to be a God in a computerized world. What happens when you become one in the real world? The commissioner asks him about machines. They act as though humans and machines are separate. Perhaps the matrix will reveal that we are one.

Who knows? That is what makes speculation so much fun. If the Brothers do this right. re watching all three after seeing the last one will reveal depths that we had not known were there. It will show us that they presaged the last movie with hints in the first. I certainly hope so, otherwise I will be very disappointed. Not a new occurrence when looking at movies, but disappointed nonetheless. I'll still enjoy most of the fight scenes.  11:22:19 AM    

RELATIONSHIPS & COMPROMISE.

The latest infectious meme in the blogosphere, which suggests that perhaps the best relationships require no compromise at all, started when one blogger innocently observed that a prime example of how compromise works in marriage is the process of deciding "which movie shall we see". Before you go see what others have to say on this subject, think about where you stand on this spectrum: The best relationships require and achieve compromise on all things, big and small. The best relationships let you compromise on small unimportant things, but quickly achieve shared consensus on things that matter. Compromise depends on the nature of the relationship. In a romantic relationship compromise is necessary, but in friendships it isn't. The best relationships require honesty, and too much compromise is dishonest and leads to chronic unhappiness in the relationship. Generally, women know where to draw the line better than men, and end a relationship that compromises too much. The best relationships require no compromise at all. Life is too short and precious to sacrifice what you really want for one relationship. Decided where you stand? Now how about business relationships -- is your position different? OK, now you can start with Caterina 's post and follow the thread. I'm going to shut up for a change and listen to what others have to say before I add my two cents. AN ASIDE ON SIDELINKS BARS Caterina has also started a "sidelinks" bar, a list of links to interesting issues or subjects , with no or minimal commentary. I think it's a worthwhile idea, but I can't help thinking that if we agreed upon some principles for these, they'd be more useful and we could even get blogmakers to build them into the tools. Take a look at Caterina's (see link above) and those of two 'A-list' bloggers she refers to that I haven't mentioned before: Anil Dash and Jason Kottke . What do you think? What should they be called? Should they have no commentary or a teaser? What's the ideal number? Look for mine, in the right column that has more room, shortly. I'm thinking of calling it incubating memes.

[How to Save the World]

H Dave - How do you do it - keep all this good stuff going. I am demoing Radio to a friend and chose your post to show how to make the connection.

[Robert Paterson's Radio Weblog]

Some interesting thoughts on relationships. Figuring out how these work best should affect how social software develops.  11:06:11 AM    

Now that's small.

No that's not dust they're prototype RDIF tags from Hitachi

[Micah's Weblog]

Wow - that is small. About 10 years ago I met with the head of strategic planning at Loblaws, Rob Almeida, who then went on to set up President's Choice Banking. We were talking about the future of supermarkets. At the time, he forecast two things: that supermarkets would scale up to 80,000 square feet. Which they have done. And then, that a maximum size would be reached and the strategy of bigger is better would have to be rethought.  His other big idea was that, at some point, inventory management technology may advance to the point where it would be possible to go the other way. To have a small mart that would have everything you needed because it would be able  to track everything so well that it would only carry what we wanted. I wonder are we in sight of Rob's second prediction?

[Robert Paterson's Radio Weblog]

These are going to change a lot of things. If items, or people, can be tracked by specks almost too small to see, what will happen to our expectation of privacy? WHat will happen to our constitutional rights against search and seizure when we can really have no reasonable expectation of privacy? But then, we could use the same technology and follow politicians everywhere. Oh, this is going to be a fine kettle of fish.  11:03:38 AM    

Maran! Atha!.

Me (opens refrigerator): Maranatha organic peanut butter? "Holy Lord! Come!" organic peanut butter? Seems an awfully extravagant sentiment for peanut butter...

UPDATE: The children have informed me that peanut butter is indeed Holy: it is one of the four foods that can be added to make anything taste better. (The other three are sugar, salt, and ketchup.)

[Semi-Daily Journal]

I love the idea of Holy food including ketchup. I might add butter to the group.  10:54:50 AM    

Sigh. More Bad Unemployment News.

D*mn! It is starting to look as though there weren't a lot of hiring and investment decisions being postponed until the Iraq situation was sorted out--or maybe people are thinking that things still aren't sorted out.

Jobless claims jump to 428,000 - May. 22, 2003: NEW YORK (CNN/Money) - New jobless claims in the United States rose last week, the government said Thursday, defying analysts' expectations for a fall and pointing to a labor market still struggling to recover.

The Labor Department said the number of Americans filing new claims for unemployment benefits rose to 428,000 in the week ended May 17 from a revised 421,000 the prior week. Economists, on average, expected 415,000 new claims, according to a Reuters poll.

U.S. stock futures gave up some of their earlier gains after the report but continued to trade higher, pointing to a positive opening on Wall Street. Treasury bond prices fell.

Many economists believe the 400,000 level of claims is a benchmark for labor-market weakness; others think that number should be higher. Regardless, few economists would argue that the labor market is particularly strong at the moment.

The U.S. unemployment rate is at 6.0 percent, matching the highest level since 1994, non-farm employers have cut 525,000 jobs from payrolls in the past three months, and payrolls still are 2.1 million jobs thinner than they were in March 2001, when economists at the National Bureau of Economic Research say a recession began.

After a modest recovery in early 2002, the labor market weakened again, and most economists said for months that the economy's biggest problem was the U.S.-led war with Iraq. According to their view, businesses would make long-term spending and hiring plans when the war was over.

However, the war has been over for weeks and jobless claims have been consistently high, drawing the attention of Federal Reserve Chairman Alan Greenspan, who warned recently they were a sign of business caution that could slow down an economic recovery...

[Semi-Daily Journal]

Good thing they are going to extend federal unemployment benefits. There are a lot of people who will need it.  10:47:06 AM    

I Very Much Hope This Is Wrong.

The hard-working Max Sawicky reports that the Bush Administration's forecasting "Troika"--the Council of Economic Advisors, the Treasury, and the Office of Management and Budget--are projecting that, with the president's proposed policies enacted, payroll employment in the United States will grow from 132,130,000 in July of 2003 to 137,640,000 by December 2004--a net increase of 5.51 million payroll jobs in eighteen months.

Now the U.S. economy's level of employment has grown that rapidly twice--in 1977-1978, and again in 1983-1984 (with huge numbers of baby-boomers entering the labor force in the first case, and with an extraordinarily rapid 2.1 percentage-point decline in the unemployment rate in the second). But those increases in employment came with 5.5% and 7.3% annual rates of increase in real GDP. No [Semi-Daily Journal]

The reason Brad hopes the jobs forecast is wrong stems from the administration's forecast for GDP over the same time period. For that many jobs to be added, the GDP has to substantially increase to almost historical levels. Yet, there is not such forecast, or any indication that it is even going to come close to that level. The numbers do not add up, no matter what political stripe your economics are.  10:46:24 AM    

Fear of a Quagmire.

The New York Times finally gives Paul Krugman enough space on the op-ed page for him to talk about liquidity traps and the current state of the business cycle:

Fear of a Quagmire? The Fed still has some tricks up its sleeve. Now would be a very good time to announce an inflation target. But it's also clear that the Fed could use some help, at home and abroad. Alas, it's not getting that help.

The Fed's European counterpart, the European Central Bank, has been far less aggressive in cutting rates. There are economic, institutional and psychological reasons for this passivity, but the central bank's immobility is one main reason why Germany seems set to follow in Japan's footsteps. European governments aren't much help, either. Bound by the "stability pact," which limits the size of the deficits they are allowed to run, they have been cutting expenditures and raising taxes even as their economies falter.

The Bush administration is, of course, notably unconcerned about deficits. Aren't the tax cuts in the pipeline exactly what the economy needs? Alas, no. Despite their huge size -- if you ignore the gimmicks, the latest round will cost at least $800 billion over the next decade -- they pump relatively little money into the economy now, when it needs it. Moreover, the tax cuts flow mainly to the very, very affluent -- the people least likely to spend their windfall.

Meanwhile, state and local governments, which are not allowed to run deficits -- we have our own version of the stability pact -- are slashing spending and raising taxes. And both the spending cuts and the tax increases will fall mainly on the most vulnerable, people who cannot make up the difference by drawing on existing savings. The result is that the economic downdraft from state cutbacks (only slightly alleviated by the paltry aid contained in the new tax bill) will almost certainly be stronger than any boost from federal tax cuts.

In short, those of us who worry about a Japanese-style quagmire find the global picture pretty scary. Policymakers are preoccupied with their usual agendas; outside the Fed, none of them seem to understand what may be at stake.

Of course, it's possible, maybe even likely, that their nonchalance will be vindicated. Most analysts don't think we'll find ourselves caught in a liquidity trap. And even the Fed believes -- or is that hopes? -- that a surge in business investment will save the day.

[Semi-Daily Journal]

The difference in interest rates between the US and Europe not only keep the dollar weak but may also drag Europe into some real problems. I that case, would we be far behind?  10:33:32 AM