Opinion

Emanuel Derman

Counterintuitive, but true

Emanuel Derman
May 9, 2012 20:14 UTC

I wrote a post a couple of weeks ago (Economists on the Skids) about the clear testability of counterintuitive ideas about mechanics and the much less clear testability of counterintuitive theses in economics.

Here is a counterintuitive truth I have discovered about the physical world.

Every Friday morning I get out of the subway at 34th and 7th, south-east side of the street, and proceed to walk to the middle of the south side of 34th street between 7th and 8th. To do so, I first have to cross the human river pouring out of the exit of Penn Station, shown below.

The thick white arrows denote the humans coming into Manhattan to earn their daily bread. They stream up the stairs and then through the anti-terrorist anti-vehicular barriers you can see in the photo, and then fight their fluid way onto the the 34th Street sidewalk.

The thin white line at the bottom of the picture has been my usual path. I approach from the subway exit at the left, hit the crowds and then move away from them to try to dodge the crowds as they spurt out of the barriers. It doesn’t work very well, because I am trying to cross, perpendicularly, all of these agents.

Last week I tried a new strategy: see the heavy red line at the top of the picture. I headed right into the dense thick of things behind the barriers. And Lo!, there they are moving slowly, held back by the barrier, and it’s easy to cross the flow. You easily emerge with them and go where you like.

USD LLC?

Emanuel Derman
May 4, 2012 16:34 UTC

Thinking aloud:

As I understand it, all money is really an IOU created and issued by someone. When McDonald’s gives you coupons, you’re taking their credit; similarly with Frequent Flier Miles, and similarly with a bank that lends you U.S. dollars. All of these institutions are creating money, their own currency.

The question then is: what if they can’t fulfill their IOU?

In the case of McDonald’s, who cares?

With frequent flier miles, it’s irritating when they change the rules on you or impose blackout dates, but that’s what they do. They had given you a floor value for the miles, though you could trade them to someone for a fluctuating amount, and then they changed the value of the floor. Foul play.

The U.S. dollar is an IOU issued by the Treasury and backed by the full faith and credit etc. Which means what?

Economists on the skids

Emanuel Derman
May 2, 2012 20:30 UTC

Economists keep battling it out.

Martin Wolf in the latest FT comes across with heartfelt empathy for the difficult life of a central banker, someone whose limitless narrow power over the economy doesn’t extend to troubled individual consumers. Wolfe is against austerity but recognizes the political difficulties.

Gideon Rachman says there’s no alternative to austerity.

Paul Krugman sniffs, a little scornfully, still recommending more lending as a cure for too much.

When so many smart people disagree, how do they expect anyone to be convinced?

I am reminded of the equally counterintuitive advice I was given, as a teenager learning to drive, by my Juan Manuel Fangio-loving friend in Cape Town. No radial tires in those days, and cars skidded on De Waal Drive at 30 mph in rainy weather. I once braked slightly on the way to Varsity and had my car turn through 90 degrees and slide sideways towards some policemen at the side of another car that did the same. Luckily I didn’t hit them and they forgave me.

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