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2023-01-29 07:00 by Karl Denninger
in Musings , 400 references
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My previous piece on this general topic was on the difference between people who take a science view of things and an engineering view of them.  I explained how an engineering view, when faced with an unexpected failure of some sort, immediately stops whatever they're doing, reverts it if something was recently changed.

A "science" view holds that statistical power is enough.

The problem is that each human is not a statistical problem; you are an engineering example.  That is, there is only one of you just like for any individual road over water there is one bridge.  One bridge failure is not tolerable because there may be cars on the bridge when it fails and the people in the cars will die.

The key to an engineering view is that engineering looks at the world as deterministic and thus statistical failures are not permitted.  That is, it looks at the world like physics does even given our imperfect understanding, and thus seeks to place outcomes well beyond confidence intervals.

Physics says that kinetic energy is always 1/2 mV^2.  Never anything else.  2H2 + O2 -> 2H2O + energy, always.  You never get gold, you always get water.  Gravity (on earth) accelerates all objects at 32 ft/sec^2, always.  It does not matter if the object masses one gram or one ton; that is the acceleration.

Here's the functional difference, and what you must understand: Everything in the universe is in fact deterministic.

But wait, you say -- medicine never seems to be.  Nor does weather.  Nor, for that matter, is so-called "climate science"; remember we were told by scientists the polar icecaps would be gone 10 years ago?  Well, they're not.  The weatherman can't even tell you with certainty whether it will rain tomorrow at 2:00 PM and he's wrong more-often than right.  The NOAA forecasters can't give you where the hurricane will hit in five days and how strong it will be either, or if a tornado will form.

Every one of these outcomes is in fact deterministic -- that is, it has exactly one outcome, just like hydrogen and oxygen always produce water and energy when combined at or above the activation level of heat.

Note that it was, for quite some time, believed that a rock and a feather were acted upon differently by gravity and this, it was believed, was part of why birds could fly.  It wasn't until we figured out how to construct a vacuum pump and remove the air from a chamber we proved otherwise.  That which looked not to be deterministic (gravity) in fact is; it didn't look that way because we did not understand enough of the full system in which it applied.

So why is it that when you are told you have cancer the doctor cannot tell you whether or not he can cure it?  At best he can give you some set of odds.  Ever notice that a medical study that claims a "p < 0.001", that is, almost-certainly the result is allegedly real, still does not claim that everyone is cured or helped?  It doesn't have to in order to get that "p" value -- it just has to have an outcome that is wildly improbable to be due to chance.

It is active fraud to use such to claim you should or must do a given thing.  To suggest a course of action is fine, but to cajole, coerce or mandate it is not.

Why?  Because you're always a trial of one.

So why is it that we can't actually tell you where the hurricane is going to hit a week out, whether the tornado will come (and where if it does), whether the medicine will cure you or whether you need your umbrella in two hours?

Simple: We do not actually understand the thing we are analyzing; at best we have only a partial understanding.  When it comes to biochemistry that understanding beyond the basics (e.g. metabolism of foods into ATP and thus your survival) is in fact quite poor in both depth and breadth.  This is also true for essentially all large-area physical systems on Earth and indeed through the universe.

An example from the planet we live on: Despite the claims that CO2 emissions are driving the warming of the earth nobody, to my knowledge, has been able to accurately provide the carbonate buffering reaction between the atmosphere and the oceans.  This is in fact critical to being able to accurately model anything related to same because there is far more carbon dioxide in the ocean in the form of carbonate than that which is in the atmosphere as a gas.  Without being able to describe this buffering reaction accurately (and several scientific groups have realized, after much experimentation that they have no accurate idea at all how to do so) you can't possibly determine how this will all balance out -- or, even more-importantly, which is the driver and which is the driven element -- or whether both in fact are in different places and times!

We lack the understanding required to be able to accurately describe it and, despite decades of trying, we are nowhere near being able to do so.

Yet in fact the outcome -- that is, the buffering reaction -- is deterministic and, if we understood what we were analyzing we could tell you 100% of the time what was going to happen.  The reason we can't is that we're ignorant of significant parts of what's being treated or predicted.

That's all it is folks.

There are myriad buffering reactions in every living thing.  We do not understand how most of them work accurately enough to describe them with a formula, function or model yet all are utterly essential to survival.  I can list a dozen off the top of my head and every single one of them is essential to the continuation of that organism's life.

The claims of anyone in these fields are not facts -- they're guesses.  Perhaps educated guesses but they are guesses and you must never confuse them with facts.

Policy, especially binding policy, is never legitimately made from a guess.  That is no different than religion; I may believe in God, but that belief is a guess.  I cannot prove it and you cannot disprove it; we both lack the ability to reach a deterministic outcome.  There is one but neither of us know what it is and by the time we know its too late to change our minds.

A climate "scientist" might tell you that we must reduce CO2 because he claims that humans emitting CO2 will cause the earth to get warmer and the sea level to rise, both of which are claimed to be bad and must be avoided.  I'll leave the "warmer" thing out for a minute and focus on the sea level aspect.  Said "scientist" in fact has made two claims, not one: First, that the sea level will rise (the bad outcome) and second that CO2 emissions by man are the cause -- that is, if we stop doing that the sea level will not rise.

This claim has multiple problems not the least of which is that he can't design an experiment to validate his hypothesis because said scientist doesn't have a spare earth laying around that is identical to this one upon which to run his experiment nor does he have the hundred years or more to prove he's right.  Therefore all he's got is back-fit mathematics which do not meet the scientific method that, I remind you, requires a hypothesis, formulation of an experiment in which only the desired variables are changed, recording and analysis of results and then publication of all of it so the results can be replicated by any interested party.

A back-fit model is never scientific; it is not, by definition, a test of a hypothesis.

Remember, the alleged "scientist" has not only claimed an outcome will occur he claims he knows why.  He has no evidence for either of these claims other than a historical back test which, anyone who's worked around any system that has a lot of unknowns (e.g. the stock market, for example) will tell you almost never validates on a forward basis.  These sorts of models don't even have the record of a coin toss; they nearly always fail to be predictive.  There are plenty of people who have blown up their trading accounts believing they have found the exception to this rule and nobody that I've ever heard of who has even a decent record of being right with what they've discovered in that regard in any system that exhibits evidence of non-deterministic, as we see it, behavior.  If such could be done the person who did it would wind up with all the money, obviously.

Let's ask what happens if he's wrong about the reason the sea level will rise?  Let's first presume that he's right in part and the sea level does rise.  He can't prove that his claim of cause is correct, however, as he cannot show determinism; he doesn't have enough facts to produce a deterministic result.  If he turns out to be wrong we take all the costs, societal, economic and otherwise, to reduce CO2 emissions and yet the people will still get screwed because the sea level rises anyway!

That is the alleged "solution" makes it worse than if you did nothing; the people still get hosed by the sea level rise but you first confiscated a large amount of their money by raising the cost of power, transportation, heating, cooling and agriculture so your "solution" screws them twice!

The engineering view of this problem, assuming the fear is that sea level will rise and destroy property and people is deemed both reasonable and worth defending against, is to build walls and otherwise insulate people and property from the sea level rise, or move the people and things out of the way so they don't get flooded out.  That, provided you do so beyond a reasonable confidence interval of said rise and are far enough on the safe side of it, will always work.  That is the engineering solution; it is deterministic in that provided you build the wall to the correct height with the specified materials of a given strength and/or move the stuff the bad result will not occur.

Why the sea rises from the engineering perspective is irrelevant.

When the pandemic hit in the first couple of months it was clear that young, healthy people were at statistically no risk (materially less than the flu) yet older, more-morbid people were at serious risk I put forward an engineering-style solution, albeit an imperfect one as we had wildly insufficient knowledge to get a decent confidence interval, which was ignored.  That is, the sanitarium model which was used for tuberculosis.  That absolutely would have worked far better than what we did because it did not rely on anything that we did not know was correct; there was no element of guesswork in the solution.  The only people allowed in and out of facilities housing said high-risk people would be those who had seroconverted and thus were known unable to acquire or transmit the infection.  We had no choice but to accept the "who's living there and has tested negative now is ok" but that risk only had to be accepted once for a given facility at the very outset when few people were infected at-large.  This meant putting up housing (e.g. rented RVs) at said facilities on site for workers who hadn't seroconverted and paying them whatever was required to work and stay there with food and other essentials brought in and sanitized.  If they rotated out for any reason they could not come back in until and unless they had seroconverted.  As the young, healthy people in the general population got the virus, shook it off and did seroconvert they could be hired to work safely and not have to stay on-site.  Within a couple months with no attempt to contain spread among the low-risk side of the population there would have been tens of millions of available seroconverted workers and those who found the premise of on-site lodging onerous could have been replaced.  There were no unknowns that could result in ineffectiveness; while we might have had some failures here and there due to human mistake (people are not perfect) beyond that it would have with near-certainty prevented the infection from getting into those facilities and very few high-risk people would have died.  Instead we did the exact opposite in several states and shoved infected people into those buildings, attempting to rely on masks and testing to prevent transmission. The masks and testing regimes repeatedly failed as they were based on statistical reductions which we had every reason to believe was irrelevant (once you cross the threshold of enough virus to become infected how much more gets into you doesn't materially matter with a virus since viruses replicate exponentially) and many died because the fools implemented a scientific method focused on probability and statistical reduction in emitted particles rather than an engineering approach that relied on deterministic process designed to be well beyond reasonable confidence intervals.

Engineering is always deterministic because it has to be as a discipline; if its not people die and the engineers who did not employ deterministic methods are held responsible for the failure.  Scientific methods only are deterministic and thus interchangeable on a functional basis when all the variables are known and correct.  The practitioners of scientific methods are almost-never held responsible when they're wrong; when was the last time a hurricane forecaster was charged with manslaughter when he incorrectly predicted where the storm was going or failed to predict the intensification of the Cat 2 storm to a Cat 3 or 4?  The engineering answer is always superior since it does not rely on that which is not known to be correct -- or even known at allIf I do not know, for example, what the physical load a bridge pier that is driven to 80' can take without displacement under a specific set of conditions then I have to measure that before I can accept 80' as a suitable depth.

The scientific answer often kills people when all the inputs and variables are either not known or incorrect because it is a guess and guesses are frequently wrong.  The more unknown variables the worse the guess will be.

Facts are absolutes.  Physics is a set of facts.  Chemistry is a subset of physics, when you get down to it; it describes the physical interaction of atoms and molecules, which are comprised of protons, neutrons and electrons (and then subatomic particles beyond that.)

If and when we ever manage to understand biological systems sufficiently we will reach the point of determinism in medicine.  We will not say "you have a chance of beating this condition"; we will know what the outcome will be and whether the condition can be resolved or not -- and if so what you must consume or do to resolve it.

The same is true for "climate"; what is currently proclaimed may be a scientific process but it is not engineering and must never be used to drive policy because we simply do not understand what we're studying well enough to make accurate predictions nor establish causation.  The predictions that have been made have almost-all been proved wrong and as such they don't even qualify as educated guesses.  To make policy decisions on that basis is to make the wrong decision in virtually every instance, that is to screw people in some form or fashion who then have the bad thing happen anyway.

Some day we will reach an engineering level of understanding when it comes to medicine, climate, and many other things -- just as we have with chemistry and, at least at the atomic level, physics.

That day is not today, whether we are talking about climate, weather or all manner of biological things around us - including medicine.

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2023-01-28 07:00 by Karl Denninger
in Musings , 452 references
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Science is never a conclusion; it is a process.

Science is the process by which you formulate a hypothesis ("I think something may be true"), you design one or more experiments to test it, you run those experiments and gather the data, and then you analyze the results.  From this you can only disprove the hypothesis.

In virtually every case you cannot actually prove it.

Wait, you say, yes you can!

Nope.

You can't prove it because you cannot, in virtually every case, control for all the externalities -- that is, all the things you did not test and did not vary on purpose while making sure nothing else changed.  The best you can do is suggest you're correct.  Indeed, the other aspect that everyone ignores is intentional hiding of data or other misconduct.  Any time the study operator has any stake in the outcome being positive this is a very real possibility.

Now if you publish everything, including the raw data, and someone else who has no affiliation repeats your experiment, with no overlap and thus no capability to "pollute" the results -- and gets the same results the probability goes up that what you have found is real.  But again, all, you've done is demonstrate a suggestion, albeit more strongly.  With each repetition that produces identical results the strength of the suggestion improves but a different result -- any result, in fact, that is outside your confidence interval -- if you're being honest, must ruin the original hypothesis unless you (as the original proposer) can PROVE why the different outcome occurred.

The only solid means of detection for fraud or unknown confounders when it comes to scientific experimentation is replication by different persons with no connection to each other.  Indeed it can be argued that even if there is no connection if there are similar interests at play the repetition has little value, where only someone incentivized to falsify the original trial who fails to do so carries material weight.  If a study cannot be replicated, or said replication is inconsistent then the original hypothesis is at best null and in fact the odds are high you are dealing with a scam.  The entire point of publishing the experiment is to enable others to validate it through reproduction and therefore reduce the uncertainty window.

It is never legitimate to mandate something based on a suggestion.  Ever.

Any government or private entity that tries to do so should be immediately destroyed, with prejudice, using whatever actions and level of force is necessary.  The reason for this is simple: The claim of knowledge of outcome and thus the predicate is false, every time and that makes the claim fraud.  At best what has been shown is a suggestion.

Our entire medical system in the Western World is riven through with fraud because we do not insist on repeatability, and specifically by repeatability when the other attempts are run by persons that have an interest aligned with falsifying the original study and despite that interest they fail to do so.  Let me be entirely clear in what is absolutely true and nobody has done a thing about it over decades of time: The entire medical and pharmaceutical system in the Western World knows full well that fraud is both financially incentivized and actively ignored by every party involved that claims to be interested in protecting human health.   The FDA specifically approves a drug or device, even under ordinary circumstances, using just one study funded by the drug or device maker in virtually every case.  No second, third or "N"th confirmation by disinterested or adverse parties parties is required and we know from past experience that the majority of studies in the medical field fail to be reproduced if and when someone finally does try.  When that failure to reproduce was first detected decades ago if avoiding fraud meant anything at all to the regulatory agencies it should have immediately led to a change in procedure requiring said independent replication by disinterested or even adverse parties who were incentivized to find opposing results before any approval could be considered, and if concealed conflicts, no matter how small they appear, are later found everyone involved goes to prison because they have colluded and acted with willful disregard to human health and life.  In some cases, such as we just saw over the last three years, the study funders are audacious enough to go even further and deliberately destroy the control group before the end of the original full set of study work.  Again, in any legitimate scientific inquiry doing that would force the results to be reported as null and thus discarded in every case.

There is another discipline that is often called "engineering", however, that is effectively the application of scientific process to the real world.  Engineering is, at its core, the extraction of confidence intervals and placing the action to be taken far enough outside them on the "good side" that failures do not occur absent active malfeasance or worse.  That in turn can indeed form the basis for a legitimate mandate because the standards set are defensible. Engineering is not a process or set of odds, it is a set of guardrails beyond which very bad things can happen but if you stay within the guardrails they do not.

An entity, whether a government or a person, that presents something as an engineering conclusion when it is not has also committed fraud and, if the result is harm or death to persons or destruction of property they must be criminally held accountable for it with sufficient finality and pain to deter the next person who might consider doing the same thing.

You see, engineers are held responsible for failures where scientists never are; if you misrepresent your "science finding" as an engineering one then we must force you to, at that moment, acquire the liability of the engineer.

An engineer who fails to properly calculate the loads on a bridge, and the bridge collapses resulting in deaths, goes to prison and his firm is likely to be destroyed.  He (and his firm) are held civilly and criminally responsible for the bad outcome because the discipline has known absolute margins and, if you exceed them, the probability of failure goes from statistically zero to non-zero.

Further said engineer will never rely on a single scientific study's pronouncements for anything.  He can't.  Said data must have been repeatedly validated by multiple, independent studies of the same hypothesis and immutable mathematical facts and reached the same result.

Thus the sign: "Load limit 40 tons" on a bridge is reasonably enforceable with a mandate -- that is, law.  Provided you do not exceed said limit the bridge will not, according to the engineer and assuming it has been maintained and the materials used actually met specification, collapse.

As a result when an engineer detects a problem that shouldn't be happening he immediately stops whatever is being done because whatever basis used for his calculations has been falsified.  He may not know why that happened but he does know that the certainty upon which he relied has been breached and if he doesn't stop right now he's going to lose a crap-ton of money, go to prison or both.

An engineer does not look at an unexpected crack on a bridge that is being put in place and say "well, we'll keep an eye on that."  He knows the crack should not be there and until he can prove it does not impact the integrity of the bridge nobody goes over or under it because if he's wrong and it collapses he goes to prison.

scientist will gather that data and look for causes but often if not universally not act on it immediately because science is the process of finding answers and the more data you have the more-precise your answers.  This, however, means that until a scientist's alleged results have been independently replicated he in fact has nothing more than a suggestion because there is no way for anyone else to know if he's missed something -- or even if he's lying.

An engineer halts whatever he thought was appropriate, safe and proper as soon as the first divergence shows up because engineering is about making damn sure the car gets from one side of the bridge to the other without going into the river below, not determining probabilities and if he's wrong he gets hammered for it.

An example from the years of my running the "first" MCS is appropriate here.  Macro Computer Solutions Inc. was originally a small PC systems and custom software house.  Our business was primarily selling PCs build up from components to various local firms, large and small.  We were materially more-expensive than the cheap "clone shop PC" places (but cheaper than Compaq or IBM) and there was a reason for this: Every one of our machines used hand-selected components sourced from various places, we built them all up from said hand-selected components and they got 72 hours on the bench running a high-stress set of tests before you got the box.  We spent a lot of time qualifying components and looking for ones with objective performance benefits.  One example was disk controllers; we had a specific brand and line we used that were three to five times faster in sequential performance than the others commonly used (the reasons were a bit complex but had to do with the fact that they could handle sequential track reads without having sector-skip, thus were ridiculously faster in real-world use provided you formatted the drives in question properly.)  We also had specific brands and models of disks that went into them; this was back when you actually could reformat them at a low level and set the interleave between tracks while doing so.  Part of the deal, since we were a local company, was that one year of in-house, on-site service was part of the price -- if it malfunctioned you called us, we showed up with a whole machine's worth of spare parts in the back of the car, figured out what was wrong and fixed it immediately in your building -- same day if you called before noon most of the time and always within one business day.  To do this we had to have a couple of complete units worth of known-good parts in the building at all times of course.

We sold a lot of these machines; my standard pitch to any company that had a potential to buy more than 20 or so of them a year was that I'd drop off one with an invoice for them to use for a month and they could either buy it at the end of the 30 days or call me back and I'd come get it, no questions asked.  We never had one returned on that deal as they were usually so much faster than the "name brands" and cheaper you'd be crazy to do so, never mind the built-in one-year on-site service that nobody was willing to match.  Suddenly I started getting calls about disk failures.  The first one was no big deal; it happens.  The second one less than a month later prompted an instant hard stop on procurement for that specific brand and capacity and a deferral of the delivery of three machines sitting on the bench in test at the time.  At that point I had about fifty of that exact model and date-code range in the field and two had just failed inside of two months after installation.  I was potentially on the hook for fifty of them plus fifty service calls, all of which I was going to have to eat.  At the time disks were expensive; that was not a small amount of money that was potentially at risk since if there was a pattern to these failures I could not use the warranty replacements but would have to trash them!

I had another vendor and similar capacity disk with which we had some, but not as much, experience.  That got installed in the two failed units immediately and we stopped all use of the old ones.  Yes, the manufacturer replaced the bad ones (as they were under warranty) and ultimately we didn't have more trouble with the rest but that wasn't the point: We were at severe reputational risk never mind the service calls which we had to eat and a repeat failure of a replacement would have done incredible reputational damage to us.  That's not acceptable and thus the instant we detected the signal we stopped what we were doing until we could run it to the ground.

We acted as engineers because we were held responsible for outcomes -- all of them.  That situation could have snowballed and basically destroyed what was our primary revenue line of business at the time.  To rely on statistical metrics -- that it was unlikely there was a production problem at the manufacturer we did not know about, for example -- was to literally risk bankrupting the company if I was wrong.

You, like our customers at the time, are an individual outcome, not a statistic.  Whether or not something is statistically unlikely makes no difference if you pull the short straw.  If a mandate of any sort, and I don't care what it is, cannot be backed at an engineering level of logic then it must be removed and the people intending or attempting to impose it destroyed even if it is a government or other "large" agency or firm because otherwise you may get screwed without an effective means of compensation.  The customers in my case had plenty of recourse; not only was I on the hook for the service calls and replacements if I didn't resolve the underlying problem immediately my firm was at risk of being destroyed by the reputational damage.

Governments are never under that level of risk until and unless you impose it upon them and thus they must face destruction by the citizens (whether directly or indirectly such as through insurance concerns) if they attempt to evade this type of responsibility.

We set standards for electrical wiring, for example, because being the 1 in 100 or even 1 in 10,000 who has an electrical fire behind the walls of your house isn't good enough.  Even one such fire over the expected service life of a house is unacceptable if reasonably preventable is by changes in the code.  When the standards are found to fail at an engineering level (as happened with aluminum house wiring that, if perfectly used was fine but if not it caused fireswe call a stop to it immediately and revert the change that allowed it in the first place until we figure it out.  If we can't figure it out and reasonably guarantee safety (as was the case with aluminum house wiring) that crap is never allowed to be used again and ultimately existing homes are forced to be rewired as insurance companies eventually pick up on it and ordinary property insurance becomes ridiculously expensive or unobtainable at any price unless you do so.  Note that the same material is allowed today for the entrance cable from the utility transformer to your meter and breaker box and in fact is used for most homes built in the last forty or so years because when used there it is not subject to potentially incompatible components either originally or upon routine replacement and, in fact, is safe.

Or, if you prefer, look at the Takata airbag situation; this is an example of the NHTSA acting with engineering in mind rather than science.  Twenty-four people have died and about 400 have been injured as a result of these airbags spraying metal shrapnel at the person in the seat when there is a collision instead of inflating normally.  There have been some 67 million of these airbags installed in cars and trucks sold in the United States yet just 24 people being killed by them were enough to force every one of them to be replaced at the manufacturer's expense.  That is a risk of about one in three million and only some of those people were injured or killed before the recall was announced.  The NHTSA's position is that one shrapnel-causing explosion is unacceptable, if proper standards are followed it doesn't happen and thus when it does no more of that crap will be tolerated -- period.

The standard for mandates and "strong recommendations" (e.g. in the medical field, the choice of fuels to move things, heat things, etc.) is thus never, and never can be, "science."

It always has been, always must be, and must be enforced by the people using whatever means are necessary, "engineering."

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2023-01-25 07:00 by Karl Denninger
in Musings , 551 references
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Postulate: No mandate, and no rational policy decision, is made from a Scientific approach where the outcome of said policy results in a penalty -- or promotion -- of a given path.

Scientific approaches to a problem always have uncertainties in the measurements and results.  You're familiar with this if you've read papers of the last few years on our most-recently little scientific set of claims -- confidence intervals, p-values, absolute and relative risk and similar.

An engineering approach to a problem does not have uncertainties.  It instead has limits.  "Load limit 40 tons" on the sign before a bridge is an example; it is not an uncertainty, it is a boundary.  Do not exceed it or bad things may happen because the thing was engineered to perform as expected within the limits.

You do not -- and never will -- accept a 1 in 500 -- or 1 in 5,000 risk of a bridge collapsing and injuring or killing you.  You expect, and modern society relies on, any number of vehicles being able to go over that bridge without it collapsing and going into the river and that the process dictated by said engineering will detect any potential failure to do so before it occurs.  Nothing less is acceptable.

If you want to know why many people got it wrong the last three years it is because they've allowed the perversion of what is an engineering circumstance to be instead substituted with a scientific one which can at best produce odds.  Odds, while useful when looking retrospectively at outcomes, are pointless for an individual.

Take a railroad crossing a roadway, where the track is curved around some obstruction so you cannot see an approaching train and the trains have no headlight or horn.  If there is a train already across the road when you approach you will be safe because you will stop.  If there is no train you can cross it without risk.

The scientist can model this and (truthfully) claim that your risk of being smushed by the train and killed is 1 in 10,000 via any number of possible metrics (e.g. the percentage of the time that a train will be in the zone to impact your car but not visible, empirically by how many cars cross it before one gets smushed, etc.)

The engineering answer is that this risk of being smushed, no matter how small, is unacceptable and thus a sensor is placed well back on the track connected to a bell, lights and often a gate that comes down when an approaching train is detected even though you can't see it, obstructing the road and thus compelling you to stop.  That sensor, bell, lights and in a busy or potentially obstructed-vision place gate are all chosen so you will always have sufficient warning and thus will not get smushed except by extraordinary (grossly negligent, in other words) lack of attention or intentional act.  Then, just in case all that fails although it should not we demand the engine on the train have a very bright headlight and we erect a sign telling the operator to blow a very loud horn at a given distance from the crossing as a last-ditch defense against failure.

There are places for scientific inquiry and in fact it is how we learn things over time.  But those of us who looked at this as an engineering problem proved to be right, and those who went the other way, relying on alleged "science", were wrong.

We weren't right because we were lucky.

We were right because we applied the correct analytical system and structure to the problem and the others did not.

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2023-01-16 07:00 by Karl Denninger
in Musings , 665 references
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You know what I'm talking about.

Now think about why it was able to be applied to you.

Let's have some honest reflection.

Did you have a crushingly-expensive mortgage, a couple of nasty car payments and no reserves?  Well, you knew that was stupid, right?  How many people have told you over the years that six months of reserves is a reasonable amount and three is an absolute minimum?  Plenty.  Every single piece of financial education related to personal life has put that metric on the table.  You ignored it, deliberately.  Who's responsible for that?

Did you really think there were no replacement jobs?  You know full well that's BS; there was never a time in the last three years where "no job available, no unemployment, no income" was on the table.  Maybe not as much as you were making but again, your "monthly nut" is almost all under your control.  Its easy to say "well, that $100 bottle of scotch isn't getting bought this week or next"; not so easy to say "that $3,000 mortgage payment is optional", is it?  The fact is that in the first few months when people got laid off the government was handing out unemployment "boosts" and outright cash; you got it, I got it, we all got it.  After the first few months, and well before any sort of "mandate" there were (and are today) a crap-ton of jobs so there was no risk of you not being able to go work and do something for money.

Have you structured your life around that which in truth you can't really afford?  If you have a lifestyle that requires a six-figure income what leads you to believe you'll always have it, and in what sort of sane world would you not expect to have to fund that for at least a year without income at all?  Its a basic fact that the further to the right of the median you go the fewer people there are and thus if you're making that sort of money and something happens to your job (your fault or not) there are a lot fewer people and jobs on the right side of where you are on the bell curve than to the left.

The more-extreme your income compared to the median the more conservative you have to be on reserves and spending as a percentage of said income for given things simply because you're stupid to do otherwise!  There are 159 million, more or less, employed people in this country today.  The median household income is just over $78,000 and median personal income is $37,500.  If you make double that personal income then you're well beyond the peak of the bell curve, or if you already have some sort of disability, no matter what it is, you had better be a heck of a lot more-conservative than the "general rules" because there are far fewer replacement jobs you can do that pay more than those that pay less.

Let me put it succinctly: If you can't make it on materially less than the median personal income where the greater count of potential jobs in terms of pay if you lose your current gig is to the right of you on the curve rather than to the left -- that is, despite your outsized income you have insufficient reserves to cleanly bail out of there and decamp to a much smaller required monthly "nut" before they run out -- you have nobody to complain to when it happens.  This is always a choice.

Who's responsibility is it to take care of yourself and your family?  By what sort of wild-eyed crazy did you think you could buck the odds forever and not get nailed?  Are you really crazy enough to believe you'll never roll a "1"?

I've lived in every economic strata except the crazy-rich where you literally don't care what things cost.  Yes, I did say every and I mean it; I've literally been homeless before.  Never was I under more sleep-losing stress than when I "purchased" a townhouse and vehicles (yes, married at the time) that was well into the "you can afford this but not a huge amount more" ratios that all the banks use to approve same, but didn't have the ability to fund that for at least a year and I was well beyond the median income for where I was living at the time.  I knew damn well that if my firm had failed during that period due to either my own stupidity as a CEO or an act of God entirely beyond my control I was screwed and the odds I could unscrew myself by going to work for someone else before I ran out of reserves at a sufficient salary to keep my head above water approached zero.

Years earlier when I was renting a clean but rather plain and small apartment and had an old, crappy car I was earning below median personal income and thus knew that if push came to shove and I lost my job for any reason I'd be ok.  I'd not be going to the bar chasing skirts on Friday night but the rent could be covered along with the power bill and food; there was basically no way I couldn't find enough employment, save nuclear holocaust (in which case I don't care, obviously) to be able to meet the monthly minimums and thus although I didn't have a big stack of cash that was ok because my income was almost-immediately replaceable save being entirely disabled or dead.  I slept like a baby.

You don't want to read things like Steve Kirsh's substack if you got coerced.  Really, you don't.  There's almost-certainly nothing you can do now to make things better if you put yourself in that position.  You're going to have to live with the insult, whatever it may be, that you imposed on yourself.  But do not kid yourself; you could not have been coerced without being financially irresponsible and ignoring basic facts beforehand.

Nobody owes you a thing if you put yourself in that position.  The responsibility is yours and, if you have family that depends on you, that responsibility is owed to them as well -- by you and you alone.  Everyone else in society and government owes you nothing.

This will not be the last time around.  It never is.  Who's responsibility was it back in 2006 when people were taking out Option ARM loans to buy houses that were interest-only (or even negative amortization!) for the first couple of years and thus had tiny payments predicated on the price going up by at least 20% in those two years and thus you could refinance and do it again?  Basically everyone who did that couldn't pay the full amortization at the start and the more "turns" on that you saw from the so-called price appreciation the worse it got because the principle amount increased with each twist of the crank.  What could possibly lead you to believe that in two years your income would go up by more than 20% plus however much more was required to make an amortizing payment because if it didn't and for any reason you couldn't roll the loan you were going to get foreclosed on and thrown into the street!

If you didn't learn from that after seeing the carnage and foreclosure signs everywhere and didn't take the intervening 13 years to get out of that hole yourself then why are you complaining this time about being "coerced"?  You weren't coerced -- you deliberately dug the hole you found yourself in, got in said hole, kept shoveling more and deeper until you were fully underground and then want people to feel sorry for you!

You had more than a decade to resolve that after you watched others get whacked over the head with a clue-by-four and didn't remedy your personal level of risk and behavior.

Learn from this folks because there will be a next time.  I don't know when the next time will happen or what form it will take but it will happen.  In my adult life I've lived through a bunch of them and although most did not get me personally they did get others and I saw what it did to them.  The late '70s/early 80s, the early 1990 recession, the blow-up in 2000 and then the so-called "great financial crisis" in 2008.

That looks like about once every ten years doesn't it?  Yeah, it does, and it holds over my entire life with the particular insult changing from event to event but the next one always comes.

If you took physical damage its yours and there is nothing you can do about it.  Whatever limitations it places on your life from here forward are yours.  If you boxed yourself in and then got coerced you had better figure out how to move down below the center of personal median income and be ok because given what we now know the odds are dangerously high you're going to find yourself with a serious income problem in the next five to ten years.  That's what history and the odds tell you.

If this means you live well below your means and sock back that capital or get out of a high-cost area and move to a low-cost one and accept whatever lifestyle changes that means you better do it now, on your own terms.  Exactly where you choose to do that is up to you of course and there are many criteria that ought to go into that decision but chief among them needs to be that you will be ok with an income below the median personal level unless you have a large capital reserve you can live off in your current lifestyle if something goes wrong at your current cost of living, plus inflation which, as you've seen, isn't going to be zero any time soon.

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2019-04-02 07:00 by Karl Denninger
in Musings , 1458 references
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Grrrr....

Hindman:   Americans know they need to plan for their later years and get their affairs in order, especially as retirement approaches. But while people recognize that need, too many aren’t following through and taking action.

When someone passes without a will, it means they have died “intestate” – meaning the intestacy laws of the state where they reside will determine how the property is distributed upon your death. But without clear direction on how you would like critical items like financial assets, property, personal possessions and items of emotional value distributed among loved ones, confusion and disarray are a common end result. Not only does the lack of a will create turmoil and headaches – both financial and emotional – for family members; it heightens the risk that your end-of-life preferences won’t be carried out in accordance with your wishes. On the other hand, a well-prepared legacy can give you the simple and satisfying peace of mind of knowing that you’ve done what you can to organize your life, shape your legacy and leave your family with a roadmap of your preferences. It can be one of the greatest final gifts we leave to those we love.

Yes, you should have your affairs in order.

But I really dislike self-interested jackasses peddling crap -- and this falls into that category.

First, there are plenty of people who need no Will at all.  If you have little or nothing in terms of assets, or intend to die broke and have no minor children then a Will is not only a waste of time it is functionally worthless.  In fact in that situation whoever you name as Executor (Personal Representative in some states) would be five-alarm stupid to accept the job and file the Will with the courts because there's nothing to get but once you file there are both costs and responsibilities.  In other words if you know you will either die broke or in the hole and have no minor children then save the money.

You should still have a durable power of attorney and advance directive; those are to some extent state-specific depending on where you live, in an attempt to have what you want to happen actually happen when it comes to you being flat on your back and unable to make decisions.  Make damn sure said advance directive is on file with all the hospitals and other places you might be taken if you collapse without warning; until said place has it and knows they have it they'll do whatever the hell they want and maybe, but not necessarily, whatever someone who identifies as one of your next-of-kin wants.  If this isn't what you want it's bad news and the cost of that, if any, will wind up billed to your estate which your estate will be obligated to pay.  So if you do only one thing make it that advance directive and put it on file at all the local hospitals.

Warning: Some people will tell you to put someone else on your accounts.  If you are offered this, to be a "second signer" or "co-owner" do not accept unless you are that person's spouse, in which case it is (of course) perfectly ok.  The reason to refuse is that if they do something stupid you are fully responsible legally and financially, and this can ruin you instantly.  Consider someone who has brokerage account and is short at the margin limit of a company that gets taken out and the stock doubles.  They will come after your house!  Don't do it.

power of attorney gives you the ability to take care of business while the other person is alive without that risk and is the correct instrument; there are several forms of that from very limited ones for a specific asset or account and specific directives all the way to a general durable power of attorney that is extremely broad and essentially gives the person who holds it the same rights as the principal.  Just be aware it turns into a pumpkin instantly upon the principal's death and if you are holding one it is a civil and in some cases criminal offense to self-deal or otherwise screw the principal who gave it to you.

If you have or expect to have assets, or in the instance where you have minor children then a Will is appropriate.  Just understand its limitations and do it the right way to minimize them.

Specifically, get anything worthwhile out of the Will and thus out of probate.  This will make your heirs happier as it's faster, cheaper and has a near-perfect capability to have happen exactly what you wish so long as that's legal.

The first thing to consider is that for anything that doesn't trigger gift tax issues (e.g. things worth under $14,000 in total to a single person, but perhaps of immense sentimental value) give it to the people who you want to have it while you're still alive -- but before you're on your deathbed.  This is very unlikely to be challenged and if it is the person challenging it will be forced to spend money on a legal case with no monetary reward.

When you die with or without a Will but with some assets subject to probate then "someone" has to file with the probate court.  If you do not have a Will then whatever is subject to probate is distributed based on state law; there's a table they go down (e.g. "spouse first, then any direct descendant children, then ..... and on and on until the category fills.)  A Will overrides this to any extent you wish and nominates one or more people (in a chain, if the first refuses or is dead, etc) to be the Personal Representative (or "Executor" in some states; same thing, different names depending on the state.)

However, as soon as that Will is filed with someone named as Personal Representative (assuming the designation of either as valid is not contested, and it can be if someone wants to), or Probate is open "intestate" (with no Will) the fees start.  Filing and publication fees are typically in the many hundred dollar range right up front.  Unless that person both lives locally and can and will keep their act together sufficiently to deal with the court on a routine basis then there will also be legal fees involved.  Most people will either want or need at least legal consultation in doing this job; if you have a law office do it "end to end" for you (which is also an option) the cost is going to double or more.  The cost of this process in dollar terms is almost-always well north of a thousand dollars simply in court fees alone by the time it's all said and done; with lawyers involved it only takes one that's a bit of a snake to run the bill through the roof since all time is billed hourly.  Choose wisely and ask lots of questions!

Further, and much worse in many cases than the money hit is the fact that once Probate is opened there are statutory time windows that amount to a virtual standstill in terms of anything being paid out or distributed and similar.  The reason for this is that all states have a "Bar Date" for claims; 3 or 4 months is common and the clock does not start running until Probate is filed and published.  A company or person with a financial claim on the estate has that long to file their claim; if the Personal Representative pays out anything beyond funeral and ordinary maintenance costs (e.g. utility bills on a house, etc) and there are insufficient funds to cover claims he or she can be held personally responsible for those debts!  Therefore the usual (and good) advice is distribute nothing until the bar date passes so you know exactly how much is left.  If the Personal Representative is comfortable enough with the decedent's debt profile (usually only true if you were running that person's money for a couple of years prior to their death) then some distribution can be made sooner, especially of things that have little financial but lots of sentimental value (various bits and pieces of personal property, etc.)  One thing to be very conscious of is anything on a lease; this most-often comes up with cars but it can be anything (e.g. an apartment!)  Death does not void a lease in nearly all cases and the firm or person the decedent took it from can and usually will try to collect the entire remaining balance of payments.  That can be a literal crap-ton of money and is quite capable of turning a modest estate into a smoking hole with negative value.

Next up is that most states assess an inventory fee on estates -- which amounts to a tax.  That's usually assessed on the net value of assets on the day of death. Some assess straight-up taxes as well.  There is also a potential federal estate tax issue but that doesn't hit most people as the limit is quite high ($11.4 million at present); if you're in that bracket then you're a 5-alarm idiot if you don't already have professional legal advice to deal with it in advance with some sort of bypass trust.  There are ways to defray that tax and in some cases completely avoid it but that has to be done well in advance, so if you're that wealthy head thee to a good estate planning attorney pronto.

Note that if you do not file probate on an estate then there is still a statute of limitations on debts -- typically two years, but in some states it can be materially longer.  In other words if there are debts then it's to advantage to bar any who don't pay attention by filing Probate -- but only if there are assets to pay the debts with and, when that's done, something will be left!  Otherwise the correct action is to walk away and let the creditors pound sand; that you're named in a Will does not mean you're obligated until and unless you accept the appointment.  Figure out if it's worth it (there will be something left, in your best estimation, and whatever you'll receive is enough to be worth your trouble) before you file!

IMHO, assuming no minor children, your goal while alive should be to make it not worth it to Probate the Estate even if there are assets and by doing so deny both the lawyers and the courts their fees.

Many times this can be done.

First, financial accounts of various sorts can for zero cost have what is known as "POD" put on them.  That's payable on death and it's exactly what the name implies.  You designate who gets what percentage and it's a simple form you fill out at the bank or brokerage.  If you die your heirs need only present a death certificate, which they can usually obtain within a week or your passing, and the money is theirs -- period.  A cashier's check is cut and that's the end of it.  Likewise life insurance policies should always name specific beneficiaries and not your Estate.  If you have modest debts -- such as a credit card for ordinary monthly expenses -- and someone you trust to pay it when you die then POD them an account specifically for that purpose with just enough in it for that to happen.  They pay the debts after you pass with that money and that's the end of it.

Second, if you have Real Estate and it's owned and has a positive equity then the superior means of dealing with it is usually a Revocable Living Trust.  It costs money to set one up if you use a lawyer (typically a couple of thousand) and it's state specific as is a Will but only at initiation.  Once established it remains valid even if you move to a new state.  The only thing to be careful of is the potential for state tax considerations in states that have a death or income tax.  If you live in such a state and intend to move to a state where such is not the case move first, then set it up in the new state.  If you already have a trust in a hostile tax environment state then revoke it, transfer the assets out once you move and set up a new trust in the "friendly" state, transferring them into the new one.  A trust, once set up, must be funded by having the assets transferred into it.  In other words for a house you re-title the house into the Trust.  There are people who claim that a trust "hides" ownership -- this is not really true unless you name someone else as Trustee to manage it, which is very dangerous and for most people should be done, because title has to vest in a person; thus it's something like "Karl Denninger as Trustee for blah-blah Trust of date-set-up."  But, since the Trust document itself is private who's named as a beneficiary is not disclosed and the Trust is not filed with a court after you die.  In the trust documents you name a successor trustee who is the person (or chain of persons) who obtains control of the trust after you die.  You can designate pretty much anything that's legal which you want done in a Trust.  Revocable living trusts can be modified at-will including assets being moved into and out of them during your life, you can change beneficiaries, etc.  Note that a revocable living trust does not provide any sort of tax protection since you maintain control over the assets until your death, at which point it becomes irrevocable and cannot be changed.

Trusts can also have financial accounts re-titled into them and that's frequently done if, for example, you have minor children and a fair bit of money -- or adult children you don't want to have get all the cash at once.  Thus the term "Trust Fund Babies"; if there's plenty of money you may be perfectly ok with having a law firm named as the successor trustee to carry it out when you get hit by a bus since you don't care about the fees and costs.  For most people designating the chain of heirs is sufficient, but once you get into high net worth situations you may make a different choice.

Note that in most cases you do not want to title vehicles into a trust; the reason is that in many states it is difficult to obtain insurance on them.  They're one of the few things you should basically never put in a revocable trust, unless it's something like a classic car collection.

Along with the Trust you usually want what is called a "pour over" Will, which simply states that anything not in the trust and otherwise undisposed goes into the Trust on your death.  Note that the Will still has to be probated; if it's a "small estate" this is cheap and fast but the entire point of using the Trust and POD in the first place is to avoid the cost and hassle of formal probate -- if you don't re-title things properly you spent the time and trouble (never mind money if a lawyer was involved) to set the trust up fro nothing since the pour-over Will still have to be probated!

The key difference with a Trust is that just like a POD on a financial account it doesn't go through probate; the court never gets their hands on it and thus there are no delays or fees assessed by same.  This means the heirs get possession and control literally as soon as you diewhich makes things a lot simpler.  In addition nobody has access to your list of who gets what other than the trustee; unlike a Will which is filed with the court and becomes public a Trust does not.

Consider that if you have all your assets covered by a Will -- a house, a bank account, maybe a brokerage account -- and you die, until someone files that Will and is named Personal Representative how does the power bill get paid at the house?  Your bank account is locked on the day of your death and a power of attorney to access that account becomes worthless.  Someone is going to have to fork up their money to take care of that until the Will can be put into probate and Estate accounts set up and financial accounts transferred or liquidated, all of which costs time and money.  In addition there's a very clean argument that nobody has the right of possession (e.g. to live there!) in said house at the moment of your death until Probate is established and on the day the Probate Court appoints the Personal Representative that person immediately has a fiduciary duty to preserve the value of same for the benefit of all the heirs.  This can easily conflict with reality; let's say you have someone living in the house who is a partial heir but is a drug user and might trash the place or interfere with the sale required since no heir has the means or desire to buy out the others; the PR can, if the house isn't to pass solely to said person, have a legal duty to forcibly evict them no matter who it is and no matter what else is in the Will as their duty is to protect the Estate assets for the benefit of all the heirs (not just the person living there) and that duty is not to the dead person it's to the court!

If the bank account is POD'd to your heirs in some percentage distribution and the house is in a Trust that specifies that "X" has a right of possession then you immediately (within a couple of days) have the funds to pay the power bill and whoever is so-designated has the rights set forth in the Trust document no matter whether it's to the benefit of the asset -- or the rest of the estate -- or not.  In other words your desires before your death are continued exactly after your death and as long as whatever you put in that document is legal it's enforceable.  Even better is that whatever people have the right to possession of the property need do nothing to enjoy it, and the title remains undisturbed since the Trust still owns it.

Now the successor trustee, once you die in the case of a Revocable Living Trust, still has to dispose of the property as the Trust directs.  But re-titling the house out of the Trust into someone's hands (if it's a 100% gift) or selling it and splitting the proceeds is no different than any other Real Estate transaction, as opposed to filing a Will, having the PR appointed, getting letters of authority and similar, along with all the delays and costs involved.

Finally none of this changes tax and debt obligations; you cannot evade either.  If you try creditors (or the IRS) can (and if its worth it for them will) sue to claw back whatever you try to distribute outside of the process.  If you have $10 large in a bank account and owe $25 large on a credit card, thinking you can POD the bank account to your daughter as a way to screw the credit card company out of the $25,000 that's likely to fail and get her sued a few months after you pass, quite possibly after she's already spent the money!  Don't do that.

Finally there are "small estate" rules for people who die with little in the way of assets but the limits vary from state to state and in some states are laughably low, to the point that someone with nothing more than a modest car exceeds them.

As you can see this can be a lot more complex than it first appears, even if you aren't particularly wealthy.  The only place it doesn't matter at all is if you either are or intend to die broke (or even better, deeply in the hole) -- in that case then fuck 'em and do nothing with regard to finances (e.g. POD, will or trust), on purpose, but make damn sure nobody else has joint responsibility for anything so the people who you owe can't come after someone else when you die.

In short get competent advice -- there are plenty of people out there who are outright snakes and whoever is managing things for you when you pass is going to get to meet a bunch of them.

I just recently wound up my later mother's estate; I'm not a lawyer nor did I set up her affairs originally, but I did hold powers of attorney for both financial matters and health care and was her Personal Representative, and have seen the flat-out ugly bullcrap that everyone in the world tries to pull.  I got dozens of spammy and in some cases scammy letters from various entities and people, along with more than a few phone calls.  It's a five alarm pain in the ass and a good thing that I'm pretty-much a pissed-off alligator when someone steps on my tail and am more than willing to chase-and-bite -- hard.  Most people would have been buttfucked by some of the crap that was pulled -- as it stands everyone who was legitimately owed money (not many) got paid and there was something left, with none of the schemers and scammers getting anything.  That's the way it should be but it was overly complex -- when my time comes it won't be.

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