Sherry Cooper's "The New Retirement"

I was not impressed by this latest book by Sherry Cooper. She claims this is the result of her efforts to plan her own retirement, but I find it thin on material. Her best advice is in Chapter 9 "How Much is Enough? Nest Egg Arithmetic" and it boils down to a simple rule of thumb: you need to have enough financial assets (in addition to your home) such that you can live on withdrawing 4% a year. E.g. if you need $60,000/year pre-tax, then you need to have $1.5 million in an financial assets that are diversified, and this means 40% large cap, 20% small cap, and 40% intermediate bonds. That's the heart of the advice. In addition she works through some numbers to show people just how hard it is to save enough.

The rest of the book is filled with fairly obvious "advice" about lifestyle and meaning in life. I found chapter 11 "Health and Happiness in Act III" just too much to take. It is just too full of smarmy advice about career and "giving back" and the psychology of an "integrated personality". That is material I would expect in a self-help psychology book, not a retirement book.

The early material about the financial state of the world is not very interesting. Maybe for a completely naive person seeing this material for the first time it might be an eye-opener, but still, is it really relevant to planning your retirement. All the material about how wonderful DB (Defined Benefit) versus DC (Defined Contribution) retirement plans is a nice rant about the gold-plated government worker and big industry unionized company pensions plans, but it does nothing to help the poor fellow like myself without a DB plan. All it does is make us feel worse than we already are by rubbing our noses in how much we have to save to try to "keep up" with those who have these deluxe retirement plans.

On the whole, it was a fairly mediocre read. Too bad. I've enjoyed Sherry Cooper's articles and her previous books. I even enjoyed her website where she has posted her articles and has a very nice little Java-based retirement calculator.

Life in Stunning Colour

I just stumbled across a web site that is full of wonderful photo essays on all kinds of subjects. The site is named "The Big Picture: News Stories in Photographs". I didn't see all that much "news". Instead, I see this as a wonderful gallery of artistic photographs that are outside the tyranny of the art academicians.

Examples of what they are "currently showing"...

• Photos from Afghanistan of ISAF troops out in the field. Stunning pictures.
• Scenic nature photography from around the world.
• Gorgeous pictures of the Sun.
• The harsh life of the poor working an open pit sapphire mine in Madagascar

The site is well worth a visit. I've stuck it into my Google Reader so that I'll be notified when new photo essays become available.

Cycles in Scientific Debate

Anthony Watts has a blog that monitors global warming as well as other scientific bric-a-brac. Watts' lastest blog entry provides an article written by Roy W. Spencer, a climate scientist and a "global warming optimist", that identifies a possible error in the International Panel on Climate Change (IPCC) climate models. He notes that the Pacific Decadal Oscillation (PDO) may account for much of the heating that has been attributed to greenhouse gases by the IPCC. Here is a graphic showing the discrepancy.

Here is material from the conclusion of Spencer's article. Notice how Spencer says he is forced to go around the news media in order to get his scientific ideas heard (I've bolded that bit):

The evidence continues to mount that the IPCC models are too sensitive (produce too much global warming). If climate sensitivity is indeed considerably less than the IPCC claims it to be, then increasing CO2 alone can not explain recent global warming. The evidence presented here suggests that most of that warming might well have been caused by cloud changes associated with a natural mode of climate variability: the Pacific Decadal Oscillation.

I am posting this information in advance of publication because of its potential importance to pending EPA regulations or congressional legislation which assume that carbon dioxide is a major driver of climate change. Since the news media now refuses to report on peer-reviewed scientific articles which contradict the views of the IPCC, Al Gore, and James Hansen, I am forced to bypass them entirely.

We need to consider the very real possibility that atmospheric carbon dioxide - which is necessary for life on Earth and of which there is precious little - might well be like the innocent bystander who has been unjustly accused of a crime based upon little more than circumstantial evidence.

Stereotyping

I remember being bashed about the head in the 1980s by feminists who would tell me that I was "stereotyping" when I made generalizations. I would defend myself by saying that we only gain knowledge when we are able to abstract from particulars to generalizations. The generalization is a tool to be used to simplify our way through the world. Of course, in the end, you need to be both aware of particulars as well as welling to generalize. To go to any extreme is usually a disaster. (Of course my words had no traction with the politicized feminists. They were on a warpath and the only generalizations they wanted to hear were ones that kowtowed to their sacred truths.)

Here's an article by Satoshi Kanazawa in Psychology Today that looks at an examples of generalizing and then stereotypes it:

The naturalistic fallacy, which was coined by the English philosopher George Edward Moore in the early 20th century though first identified much earlier by the Scottish philosopher David Hume, is the leap from is to ought – that is, the tendency to believe that what is natural is good; that what is, ought to be. For example, one might commit the error of the naturalist fallacy and say, “Because people are genetically different and endowed with different innate abilities and talents, they ought to be treated differently.”

The moralistic fallacy, coined by the Harvard microbiologist Bernard Davis in the 1970s, is the opposite of the naturalistic fallacy. It refers to the leap from ought to is, the claim that the way things should be is the way they are. This is the tendency to believe that what is good is natural; that what ought to be, is. For example, one might commit the error of the moralistic fallacy and say, “Because everybody ought to be treated equally, there are no innate genetic differences between people.” The science writer extraordinaire Matt Ridley calls it the reverse naturalistic fallacy.

Both are logical fallacies, and they get in the way of progress in science in general, and in evolutionary psychology in particular. However, as Ridley astutely points out, political conservatives are more likely to commit the naturalistic fallacy (“Nature designed men to be competitive and women to be nurturing, so women ought to stay home to take care of the children and leave politics to men”), while political liberals are equally likely to commit the moralistic fallacy (“The Western liberal democratic principles hold that men and women ought to be treated equally under the law, and therefore men and women are biologically identical and any study that demonstrates otherwise is a priori false”).

Interestingly, Kanazawa defends stereotyping in his book Why Beautiful People Have More Daughters. In the above he offers a stereotype of how political viewpoints attach to these fallacies.

I'm not sure that the Kanazawa's stereotypes are right, but I would defend it as a tool to think about these things. In science you propose a hypothesis like this, examine its logical implications, and look for facts that support or conflict with this proposed "truth". So I'm happy to see him discuss this. I would be happy to see other opinions, arguments, and "facts" put forward to test the stereotype. Eventually I expect somebody will fit these political political stereotypes into a broader scientific theory. Of course Kanazawa will offer up evolutionary psychology as the place that this kind of theorizing will find a home. Maybe. Maybe not. But I'll enjoy the scientific discussion. I won't do what my feminist friends did in the 1980s, i.e. beat people about the ears for "generalizing".

Learning Lessons the Hard Way

Here's an article by Robert Schiller in the Washington Post that is well worth reading. The four key points are:

The current crisis offers us a singular opportunity to reevaluate fundamentally the safety and permanence of the master financial institutions that we have come to take for granted...

1. Handle moral hazard better. The term "moral hazard" refers to the pernicious tendency some people have of failing deliberately if they think it's advantageous to do so. Moral hazard is used to justify teaching people a lesson for their failures... the meaning of a contract.

By rescuing Wall Street tycoons who succumbed to the lure of an irrationally exuberant housing bubble, the bailouts today do pose something of a moral-hazard problem. But we can more than repair it by defining a new generation of financial contracts ... reflecting greater enlightenment, greater understanding of human psychology and the means to deal with financial failure. ...

2. To limit risks to the system, build better derivatives. Some of today's derivatives ... turned out to be "financial weapons of mass destruction,"... The problem isn't derivatives per se but a certain kind... Some kinds of derivatives, such as those maintained by futures exchanges using procedures that effectively eliminate the risk that the other party in the agreement will default, are more useful -- and far safer -- than others. It is high time to redesign derivatives...

3. Trust markets, not Wall Street titans. If institutions can be said to have charisma, such giants as Lehman Brothers and Merrill Lynch certainly had it in spades. But these firms proved not to be the sole source of financial intelligence. They were merely meeting places for smart, financially savvy people -- and for some reckless folks besides. We need to learn to trust people and markets rather than institutions...

4. Ideas matter. Maybe next time, we will listen more closely to financial theorists who think in abstract, general terms. Consider the Long-Term Capital Management debacle in 1998... Lots of people hold that the moral of the LCTM story was the failed thinking of two of the firm's founders, Robert Merton and Myron Scholes, both of whom were Nobel Prize-winning financial theorists. In fact, the collapse of LTCM was largely due to the overconfidence of bond trader John Meriwether and some of his other LTCM colleagues, who were gambling in the markets. The disgraced Merton has been working for the last decade trying to build better risk-management systems, mostly to little avail. Maybe he will be heard now. People still seem to want to trust businessmen who have made bundles and have a huge investment bank behind them, rather than listen to experts who are thinking about the fundamentals of risk management. We would have been better off this month if we'd been ignoring the former and listening to the latter. ...

If we move smartly, Americans can have a better, more robust financial democracy.... The current crisis does not mean the end of American capitalism. But if we are lucky, it will mean an important step in its evolution.

An Economist Explains the Financial Crisis

Here is a video done by Mark Thoma, an economist at the University of Oregon, who has a blog called Economist's View, that explains how financial intermediation works and how this mechanism failed to cause the financial crisis. If you have 45 minutes and enjoy a lecture done at a level accessible to a general audience, then watch:

Reasons to Worry, the Canadian Edition

Stephen Gorden, a Laval University economist, has summarized and detailed the reasons why Canadians have to worry about a recession:

• The decline of exports to the US
• Financial contagion
• Housing markets
• Consumer confidence

Read the details on his blog entry to understand why the following will cause us to go over a cliff along with the US.

Personally, I'm convinced that Canadians just can't stand seeing the Americans outdo us in anything. So if they want to run their economy over a cliff like lemmings into the sea, then by golly gosh, we have to show them that we are can do a good lemming imitation to preserve our honour as almost-Americans.

Seriously, I was happier with an earlier post by Stephen Gorden which showed how much healthier our employment was than the US. As you can see we are still growing our employment while employment is actually shrinking in the US:

This divergence is even more obvious if you look at the level of employment and not at the rate of change: