Leap!

Happy leap year day!

As everybody knows, the reason we have leap year is to keep the seasons from slipping relative to the calendar. If we didn't have it, the shortest day of the year would slowly drift forward from December 21, the late January thaw would move into February, and so forth.

Julius Caesar introduced leap year in order to make the year

365 + 1/4 = 365.25

days long. That's not quite right, and Pope Gregory changed the rules for century years so that the calendar year is now, on average,

365 + 1/4 - 1/100 + 1/400 = 365.2425

days long, but that still isn't perfect. The actual orbital period of the earth around the sun is 365.2422 days, so in about 3000 years, we're going to have to have another adjustment. As I recall, this adjustment was written into the laws of the Soviet Union so that they could proudly say they were not using a calendar made up by a Pope.

I'll see you in March — possibly not right at the beginning of the month, since I'm very busy!

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Why I don't trust multi-level marketing one bit

"Retire in 24 months! No gimmicks, no get-rich-quick schemes!" These were the opening words of a piece of Facebook spam that reached me twice in the past 24 hours. It turned out to be an ad for a multi-level marketing company (if you want to know who, Google it).

I know nothing about this particular company except that their opening words seem to be pitched to people who are easily fooled. If retiring in 24 months (without years of prior preparation) isn't a get-rich-quick scheme, what is?

Multi-level marketing (MLM) is a system where you sell a product, but you make most of your money recruiting more salesmen to work "under" you. For the rest of your life you get a cut of their sales. You can "retire" any time if you have enough of them.

If this sounds like a pyramid scheme to you, well, it sounds like that to me too! The trouble with pyramids is that they assume impossible amounts of growth. Suppose an MLM system requires each salesman to recruit 10 more in order to have a decent income. Then the first generation has 1 salesman; the next generation, 10; the generation after that, 100; and to keep this going for just nine generations would require 1,000,000,000 salesmen, which is four times the population of the United States!

(Even if you only require each salesman to recruit 2 more, you get to more than a billion after just 40 generations — which might only take a few months.)

What happens in real life is that the pyramid collapses. A huge number of would-be salesmen are left with nobody "under" them, so they never get the income they expect. The people higher up the chain are getting rich at their expense.

Unfortunately, every pyramid scheme is also an intelligence test. There are people who just won't believe, or can't understand, the calculation I just told you about. There are people who have denied it to my face. They are like people who say that 2+2=1000. I just don't know what to say to them.

MLM systems sometimes break the law, but they often manage to remain technically legal by making a substantial (not large) amount of income from actual sales of products. And that brings me to my next point.

MLM products are not sold in stores because they have to support the pyramid of distributors.

Supporting a pyramid of distributors is costly. It's the most expensive method of distribution I've ever seen anyone try. It is something I would only resort to in a sparsely populated country with no mass communications. (Which we were, in 1820.)

Who pays the cost of distribution? The people who buy the products! That is the only source of income for the MLM system.

And that leads me to conclude that the products cannot possibly be bargains. If the manufacturer would ditch the expensive pyramid of distributors and just sell the product wholesale to stores, he'd sell a lot more — you'd think! Why doesn't this happen?

Could it be that the products actually aren't competitive?

Is any other explanation possible?

After all, if the original manufacturer isn't willing to sell the product economically in stores, a competitor can. If this doesn't happen, maybe free-market competition isn't working as it should.

MLM companies often make it hard to compare their products to competitors. The products are often nutritional supplements for which grandiose claims are made. Maybe those claims can't stand the bright light of the open market.

(There are legal limits to claims you can make about health benefits. If you rely on a network of people selling by word of mouth, the FDA isn't listening. Salesmen may be perfectly honest but unaware of some of their legal responsibilities.)

And there's yet a third reason I don't like MLM: the cult-like quality of MLM organizations. They often demand a quasi-religious emotional commitment. (They often try to spread through churches — it's a standard tactic.) New converts start turning all social and family relationships into sales opportunities. And they won't listen to criticism — they take any skepticism as a personal affront. I think they know, deep down, that they are skating on very thin ice, but emotionally, they can't admit the possibility.

In recent years I have lost two friends to MLM. It is tragic when it happens.

Postscript: Please note that I did not say the people in MLM are dishonest. Many of them are honest but have not considered the economic and mathematical facts I've just gone over.

Further, I did not say multi-level-marketed products are all of low quality, only that they are burdened by a very costly distribution system which the customers have to pay for.

If you're a fan of multi-level marketing, you need not write to me to say so. But please consider whether you approve of a system where the exact same amount of work brings in vastly different amounts of income depending on its place in an artificial pyramid. If we had an infinite population of possible recruits, then having a lot of people under you would be the reward for working a long time. But we don't. That is why pure pyramid schemes are illegal — they are games of chance. The pyramid is certainly going to collapse (or is collapsing continuously under some people while others stay on top), and you're betting that you won't be one of the many who are left empty-handed.

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I'm still here...

No, I haven't vanished or met some untimely demise. Yes, I've been very busy writing two research papers that I hope to be able to share with you. In the meantime, a few interesting links...

If you think religious people shouldn't be allowed to meddle in politics, think about how slavery got abolished.

What are we to make of "Modern Monetary Theory" (MMT), which claims that government deficits are desirable, even necessary for prosperity? I'm not convinced. Note this person's arguments that MMT uses a strange definition of "saving," and in fact that personal saving is possible without a government deficit, indeed without money at all. (Note however that the latter essayist is almost as far from the mainstream of economic thought, in the opposite direction.)

Professor Ruth Barcan Marcus has died. I took her logic course at Yale and wrote this term paper for it. She is one of the most eminent scholars from whom I ever took a course.

Finally, here's someone else who objects to the overuse of digital special effects in photography (what I was calling "hipster photography"), but he doesn't state his case very well — it looks like much of his essay may have been chopped off by the editor.

But let me counterbalance that by adding — loudly — that there is no such thing as an "unprocessed" photograph. Some people have apparently been lulled into thinking that what comes out of the digital camera is "the truth" and any processing done afterward introduces falsehood. Falsch. Whenever a picture is made, decisions have to be made about the brightness range and color balance. In the old days, that's what darkroom work was all about. Nowadays the decisions are often made automatically by computers — even the computer inside the camera — but they are still decisions. If you ever attempt any astrophotography, you immediately run into situations where the computer doesn't know what it's doing and you have to override it and make different decisions.

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Would those "fake bonds" fool anybody at all?

[Updated; pictures added.]

You've probably seen the news media's coverage of $6 trillion of fake U.S. Treasury bonds recently found in Switzerland by Italian police.

Take a close look...

I'm not familiar with Treasury bonds. But this one looks especially dubious.

It's laid out like a bond, with coupons. I can't read the print on the coupons in the picture.

The denomination is a whopping $1 billion. For one bond. Presumably, the box contained six thousand of them. If genuine, they would have covered half of our present national debt.

The design at the top is shaped like a dollar bill, and it has the words "Gold Certificate" and "This certificate is legal tender..." which a bond wouldn't have. Bonds aren't gold certificates and aren't legal tender.

Those words, along with the picture of Woodrow Wilson, the 1934 date, and the overall design, appear to have been copied from the $100,000 Gold Certificate of 1934, which is the highest-denomination U.S. paper money ever printed.

At this point everybody except the Italian police should be laughing. Are these really counterfeit bonds, or are they something else — like a joke, or a theatrical prop?

I'm thinking of the ersatz Bank of England million-pound notes that were printed to promote a movie, about 50 years ago, based on Mark Twain's story "The Million-Pound Note." Some of them were on sale at Coincraft last time I looked. I think I'll buy one and hang it on the wall, just to make people wonder...

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Was that question misleading?

Two people have told me that question 3 on that financial literacy test, which I reprint here for convenience...

• 3) Let’s say you have 200 dollars in a savings account. The account earns 10 percent interest per year. How much would you have in the account at the end of two years?

makes it clear that interest is compounded annually. "Per year," isn't it?

I can understand why some people take it that way, but I don't think it actually says that. It doesn't even rule out simple interest.

Thinking about this, I realized that maybe I know too much. There's never been a savings account that pays 10%, as far as I know. But I've had them paying 5%, and always compounding a lot more than once a year. My present super-low-interest savings account compounds quarterly. Back when interest rates were competitive, savings accounts would often compound daily or even continuously.

So maybe that question penalizes me for knowing too much about banking. I know that the compounding period is important. Other people may not.

Test questions should never penalize knowledge. That happens when an example is unrealistic or ill-defined and a knowledgeable person is motivated to "correct" it, or at least question it, but the examiner wants them to take it literally.

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A misleading test of financial literacy

The New York Times has an excellent economics column. They recently reported on NBER Working Paper 17821, by Annamaria Lusardi, which in turn reports that adults (specifically, Americans around my age) did terribly on the following financial quiz:

• 1) If the chance of getting a disease is 10 percent, how many people out of 1,000 would be expected to get the disease?
• 2) If 5 people all have the winning number in the lottery and the prize is 2 million dollars, how much will each of them get?
• 3) Let’s say you have 200 dollars in a savings account. The account earns 10 percent interest per year. How much would you have in the account at the end of two years?
• 4) In a sale, a shop is selling all items at half price. Before the sale, the sofa costs $300. How much will it cost on the sale?
• 5) A second hand car dealer is selling a car for $6,000. This is two-thirds of what it cost new. How much did the car cost new?

Well, I grant that questions 1 and 4 are fair. Question 5 might be slightly challenging to a minimally educated person whose arithmetic is rusty, since it involves dividing by a fraction, and also because the correct answer is an unrealistically low price for a new car.

But on questions 2 and 3, I cry foul. Question 2 assumes that the prize in the lottery is divided equally among the winners, but that isn't stated. A person who doesn't play lotteries might simply not know what happens when there are multiple winners — maybe the prize is duplicated for all the winners, or something. And question 3 absolutely does not say how often the interest is compounded, so it's unanswerable.

So if you're looking for 51-to-55-year-olds who can't answer all the questions on this list, count me in, even though I have maybe three times as much formal education as your target demographic.

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Short notes

Want to know what goes on inside a computer, and how you get from electric circuitry to programming? Read Code, by Charles Petzold.

A bothersome thing about our post-9/11, not-quite-so-free country is that there are increasing, haphazard restrictions on taking pictures in public places. Can I still play tourist in my own country? What's worst, the rules don't seem to be clear.

And here is some interesting information about growing consumer debt in America. Relative to take-home pay, household debt started growing steadily around 1984 and has grown ever since. Before that time, debt kept pace with income, as it should.

Here is somebody besides me arguing, finally, that student loans ought to be dischargeable by bankruptcy, as they were in past decades. The problem is, the lender ought to take some of the risk for irresponsible lending, and with federally guaranteed student loans, that risk is totally taken out of the picture. As a result, colleges have an incentive to push people to borrow life-destroying amounts of money.

I remain extremely busy and will write Notebook entries only once every few days. Rest assured I'm thriving and prospering!

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Two unusual photographs

Following up a conversation on Facebook, I want to point out that I don't require all photography to be perfectly "straight" and illustrative. I like abstract and semi-abstract patterns; I've even taken photographs that are not recognizably pictures of anything at all.

Here are two that are out of the ordinary, though not abstract. The first one is the University of Georgia Founders' Memorial Garden, photographed on Infrared Ektachrome in 1975 (probably without the yellow filter that was recommended; hence too much pink). This false-color image later inspired a painting by Melody.

The second one was taken in 1972; it shows a pond drying up after being drained. This is northwest of Winding Way in Valdosta and is now a residential area. Kodachrome-X, Mamiya/Sekor 1000 DTL with P.R.O 135-mm f/2.8 lens.

Happy St. Valentine's Day, Melody, Cathy, and Sharon!

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Busy!

Besides having twice the normal number of students, I have two major research papers to write this month. That means I won't be blogging much. Nor can I take on any more activities — neither projects nor social events — until at least mid-March. Please bear with me.

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A few interesting things on the Web

Good resources on sentiment analysis, the kind of natural language processing that I do a lot of.

Short stories by Charles Dickens, whose 200th birthday was the other day.

Some background on the financial crisis as reflected by household borrowing.

Finally, the dollar coin has some advocates besides me.

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New instrument on the workbench

Over the years, a number of interesting things have happened to me as a consequence of going to church, but yesterday (Feb. 5) was one of the most unusual.

I sat next to my friend Lewis Noles (of UGA EITS) and his wife Raynette, and after the service, she asked me if I'd like to have an oscilloscope she had just inherited from a relative. I said yes, and to my delight it was a Tektronix 2245A (100 MHz, 4 channels, cursors with digital readout), 25 years old but in immaculate condition. THANK YOU!

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A flurry of interesting things

Some reading matter for the next few days...

Communism is hard to get over — when it's removed, the workers simply don't know how to be productive in a free environment. Economies typically stagnate until a new generation of workers enters the workforce.

Closer to home, the IRS publishes its manuals for auditors. Index here. The biggest thing the auditors are looking for is businesses that aren't really businesses, such as hobbies that generate a tax loss. They also do battle with widespread misconceptions, such as the notion that you can deduct your entire house if you put some business records in each room.

Here is a good reflection on what killed Kodak. Basically, Kodak was so convinced that it was here to stay that it did not appreciate its own mortality. And Kodak relied on making people pay for things they didn't really want — such as 24 pictures every time you wanted just a few. Digital technology came along and knocked it down. "Look on my Works, ye Mighty, and despair!"

And I'm not the only person in the world who thinks inflation is coming, and when it comes, it will start suddenly. Survival tactics: Lock in low, fixed interest rates on all your debts, and don't get overextended.

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Pro-life and pro-hope

Please click through and read Eastern Orthodox writer Frederica Mathewes-Green's essay about the abortion issue. Some key points:

• The early Christians opposed — and eventually overthrew — a Greco-Roman culture that was very permissive of abortion and the abandonment of infants. Christians' love for infants so annoyed their persecutors that the persecutors tried hard to falsify and misrepresent it.
• American public opinion is swinging against abortion, and this seems to be unconnected with political or religious debate. Maybe it's because a generation of people are coming of age who realize that they themselves could have been aborted.
  
  In fact I wonder if the Sexual Revolution today is starting to be viewed like cigarette smoking in 1975: it was the previous generation's fashionable new toy, but now a younger generation is arising that views it as the folly of their elders. Young people do not respect irresponsibility on the part of their parents' generation.
• Women don't want abortions — their boyfriends or parents want abortions. At least, that is a very common scenario. Abortion is the magic eraser by which someone else conceals what has been done to a woman, and if she objects, they say she's not a good feminist.

I am against abortion for the same reason I am against slavery. It's not primarily a religious doctrine — it's a matter of human rights. To justify slavery or abortion, you'll have to convince me that a slave or a fetus, respectively, is not a human being (which would imply that a premature baby isn't either). It is not enough just to say that people demand abortion, or some of them might resort to gruesome alternatives. If you say abortion must be permitted for the sake of women's lifestyle freedom, you're on the same level as the people who argued that slavery had to be permitted because it was necessary for Our Southern Way Of Life.

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Short notes for a new month

It's February 3 as I write this, and I'm proud to have "done my income taxes" (that is, prepared a large pile of information for the accountant — now he has to do his wizardry with depreciation and other such arcane matters).

While trying to keep with such things, I found this delightfully precise quote in IRS Publication 535: "Amounts spent for tools used in your business are deductible expenses if the tools have a life expectancy of less than 1 year or their cost is minor."

So what is "minor"? They never define it. Nobody has ever expected me to inventory every stapler and mechanical pencil (even though they have useful lives greater than a year). But what is an appropriate threshold for capital equipment? $100? $1000? There are businesses where anything under $10,000 is "minor," and other businesses where hardly any single piece of equipment costs more than $50.

It is for such things that we need accountants who know what the IRS actually accepts.

The other day I was inveighing against "hipster photography," and today a fine example of it came my way.

You may even be able to see it at this link.

We had an unusual, warm, spring-like day and the University's press office wanted to tell us how pleasant it was.

So they snapped a picture with an iPhone — which should have been plenty good enough — and then "filtered" it to make the blue sky yellowish-gray and to blur the top and bottom of the picture as if it had been taken with pre-1900 lens technology.

And they made our campus look like Los Angeles in a killer smog. Being a grumpy old faculty member, I grumbled about it.

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