Comments on Yasheng Huang’s article

http://www.ft.com/cms/s/057070f4-b263-11db-a79f-0000779e2340.html

There are a number of problems with Yasheng Huang’s article here.

The first is the human interest angle.  I absolutely think that it is a bad thing when you advocate a policy position and to justify your view you pick a gut-wrenching story that seems to suggest that everyone that disagrees with your point of view likes to molest kittens.  The problem with these stories is that they tend to make you turn your brain off.  It’s a bad thing that this happened, but what is the lesson we draw from it?

The problem here is that there is a bait-and-switch.  I think that the Chinese government should make life easier for small entrepreneurs, but at the same time that doesn’t mean that I support wholesale privatization of large state-owned enterprises, and I’m realistic about the degree to which small entrepreneurs can change the economy, especially with the lack of good capital markets that get bridge the gap between “mom and pop” and “Fortune 500.”

So I tend to take Huang to task, when he confuses “entrepreneurship” with “private ownership.”  Entrepreneurship is a good thing for any economy, but helping people start daycares and restaurants is a different issue than breaking up large oil corporations that started out state-owned and will probably end up in the hands of the politically well connected if you privatize them.

Now Huang talks about the heyday of private entrepreneurship in the 1990′s and regrets that this era has past, and as we all know, the Chinese economy has been falling apart the last few years.

Except that it hasn’t.  He talks about the decreasing *number* of self-employed entities, but what about the number of people employed in these entities and their fraction of GDP?  The numbers I’ve seen suggest an increase.  He also talks about the golden age of reform in the 1980′s, but this was in an age of lifetime state employment for urban factory workers which was unsustainable.

And then there is the issue that a huge amount of the growth in employment since 2005 hasn’t been in the “formal small business” sectors but rather the informal sector

 http://siteresources.worldbank.org/INTDECABCTOK2006/Resources/H_Angang.ppt

One irony is the person that Yasheng Huang’s article talks about probably wasn’t even counted as “self-employed” in the labor statistics that he refers to.

The term for the day is…. Listed open-end fund

These are open-end funds that are traded on a stock exchange.  The curious thing is that they don’t seem to exist in the United States, and seem to be unique to mainland China.  My guess right now is that they don’t exist in the United States because open-end funds can and do sell direct to the consumer, and there is no need to go through an exchange.  By contrast, the mutual fund industry is not yet developed in China, so the LOF’s are a way for mutual funds to “piggy back” on top of the infrastructure that exists in the stock market.  The other things that LOF and ETF does is that I think is gives the Shenzhen Stock Exchange something useful to do.  My sense is that the major corporate stock listings are going to be in Shanghai, whereas Shenzhen is going to borrow a page from what the American Stock Exchange did and become a niche player in exchange traded funds.

The scary thing about the pace of change in Chinese markets is how fast everything is.

Statistical arbitrage and wavelets

I noticed that the hot new skill right now seems to be high frequency statistical arbitrage.  I think that the interest in statistical arbritrage is very closely related to the fact that the New York Stock Exchange is going over to a hybrid system of electronic trading, and one way of thinking about statistical arbritrage is that what you are doing is programming a computer to do what a human being used to do (i.e. recognize short term patterns and profit from them).

The one curious thing is that wavelets and information theory ought to be useful in doing stat arb, but I haven’t seen any references to either being used.  One problem that I’m seeing is that wavelets and information theory assume a continuous field or a regular discrete mesh, and when you are dealing with high frequency data, you are getting irregular inputs, and at that point one finds oneself at the cutting edge of applied mathematics.

Facts and feelings….

One problem that I have with the way that education is commonly thought of is that it has a factory model that really doesn’t take into account some of the deeper aspects of learning.  The image that the current educational paradigm has is of students in an assembly line, who get education poured into them, and then end up as finished standardized products.

The problem with that model is that education in large part is about training people to feel and react in certain ways.  For example, let’s take business communication.  You can read a book about how to draft a business letter, but the important part is what goes through your head and your heart when you are sitting down in front of the computer.  Like most people, I have a bit of shyness in writing, and there is always the “oh my god, I’m going to say something stupid” fear that goes in me, but part of education involves learning how to manage and mold those feelings and fears.  That’s not going to happen easily in an assembly line.

This is why “being there” is important.  You can read about telescopes, but until you try to sit down and use one, you are missing the feeling and the sensory input that makes up an education.

Stop thinking….

The challenge for me has always not been to think but to stop thinking.  It’s easy for me to get into a state in which ideas just start pouring out of my head, but curiously it isn’t a particularly pleasant feeling, nor is it useful.  The hard part isn’t coming up with new ideas.  The two hard parts are to be extremely critical about my ideas, and to focus and develop one or two of them.  The reason that I wrote down a research plan to write at most three papers this year is so that I can focus, and wouldn’t be tempted to write twenty, nor would I try to get the papers done tomorrow.  I have a few months.

Password protecting some stuff

I just started going through my blog and password protecting a lot of stuff.  One of the things that I’m starting to realize is that there is a basic conflict between using a blog to present public information about my research, and using it to present some very personal thoughts, which I’d like to share…. Just not with everyone.

Password protecting things with some curious titles is a good way of going about it, because one important thing about secrets is to know that they are there.  I do lead a complex and at times rather difficult life, and somehow it is important to me to make people aware that the difficulty is there, even as I’d rather not let everyone know exactly the details.  It’s important for me, because I know that someday, I’ll end up in a relatively good place, and I don’t want people to think that it was easy to get where I ended up, and I don’t want to forget myself how hard it was to get there.

If you want to read the stuff, just ask.

One thing I found curious was how little I had to password protect things.  The very few articles that I had to censor seemed like they dominated my life at the time, but there really weren’t very many of them.