Roulette Wheels and Solar Panels

By: FireTag
October 1, 2011

I can remember making 3 bets in my life — all the result of foolish pride leading me astray.

Barely above the age of accountability at the time of the first bet, I was sitting in my kitchen while my mother gave me a haircut when she made some terribly offensive remark about how cute I’d be for all the girls. Somewhere immediately before or after a tirade about the general yuckiness of girls, I bet her $10 that I wouldn’t ask a girl out for a date for 10 years. This was a princely sum when my allowance was 25 cents per week.

She smiled knowingly — perhaps feeling that my inherent stubbornness would offer some protection against growing up too early. Indeed, my stubbornness lasted well into high school. But, then at a youth camp, there was this cute blonde from a congregation in the southern part of my Stake. As soon as I had access to  a car, my bet was lost. (Driving the lesson home, my Mother did take my money.)

Bet number two occurred in college. One of my best friends from church was quarterback of an intramural touch football team scheduled to play the intramural team I’d joined. He had the nerve to bet that his team would beat mine — and offer me a 75 point spread. We punished them for their hubris by blocking their last extra point as time ran out. Final score: Them 74, Us 0; Us wins. Despite my “victory”, I learned that sometimes the person betting on highly improbable outcomes knows something I don’t.

Bet number three was in grad school, where the grad students and professors often killed time in the evening by playing chess. (Experiments involving radioactive decay happen on atoms’ schedules, not yours.) Another student, who was good enough to frequently beat me, but had not studied the theory of the game as I had, bet me he could checkmate me with only his bishop and knight and king still on the board. I took that bet knowing it wouldn’t be possible even to blunder into a checkmate with any legal set of moves. When he finally gave up, I was kind enough to not take his money.

None of those bets were really fair to both sides.

There seem to be several arguments why Mormons and conservative Christians more generally are taught to avoid gambling. The most common, perhaps, concerns the “environment” in which gambling occurs. e.g., the presence of other vices — or at least the presence of people who don’t regard as vices things that conservatives do so define. Paradoxically, that argument begins to fade as the culture becomes more accepting of gambling. Many people regard gambling as harmless recreation (neglecting the very real possibilities of addiction as a concern for present purposes). Indeed, many state and local governments fund significant portions of their budgets through gambling or taxing other “vices”.  The food in a great restaurant doesn’t taste worse, nor the scenery in a great resort become less beautiful, nor a singer lose his voice just because a casino or an off-track betting parlor is put in down the hall.

So people who continue to oppose gambling have been pressed to think more deeply about why gambling poses ethical problems. To begin with, losing is poor stewardship. I suppose you could consider it a “stimulus” for the other gamblers and the people providing the gambling services, but stimulating an equal amount of economic activity through charitable giving might be more nourishing for your own soul.

On the other hand, winning a bet is pure wealth redistribution that may or may not have anything to do with merit. Reading a “tell” may make poker a game of skill rather than a game of chance, which is why there can be professional poker players. But professional gamblers should definitely not be at the same table with amateurs and call it recreational.

And so a related issue arises: gambling may be regressive, especially when used for government funding. It arguably places people who are disadvantaged at the point of accepting higher risks than the well-off need to take for similar benefits. In any gambling situation, the best position you can be in is to be the “house” — to know something that the true “gamblers” don’t know or that puts you in the heads-I-win-tails-you-lose-category. So, when government becomes the house…..

It is not my point in this post to decide whether these arguments about gambling are correct. It is my point that maybe we need to start considering whether they should be applied in other areas of public life.

_________

Jeff Spector and I got together for breakfast a couple of weeks ago. Among many topics, the discussion turned to the emerging Solyndra scandal. Although, at the time, the Solyndra executives had not yet “taken the Fifth” before a Congressional committee, it was clear that the “techies” within the government had found problems that would have killed Solyndra’s half-billion dollar government loan guarantee — until the political appointees gummed up the process. New details seem to emerge daily about missed signals reaching up to cabinet level officials, and we will see in the months ahead just how deep this rabbit hole goes.

We talked about how I had worked in DOE industrial energy conservation programs decades ago. I had worked in putting together the first primitive quantitative models DOE used to try to take some of the politics out of project selection. Political interest of upper management even then could certainly move a project to the front of the queue for analysis, which might mean that the DOE Office’s budget for the year was fully committed before projects submitted under the next Request for Proposal were considered.

Further, if a favorite project didn’t qualify (which most often was because companies claimed too many benefits to believe they would not have funded them out of company R&D assets), you were expected to do a more detailed independent analysis to assess costs and benefits more realistically. Unfavored projects with the same defects would eventually be independently reviewed under the same standards, of course, but nobody was pulling all-nighters to complete those analyses in time for a big public announcement.

Sometimes the parameters in the models themselves would be challenged. There was not pressure to do this on any case-by-case basis. If a parameter was changed, the change applied to all proposed projects in the Office’s “portfolio”. However, again, the schedule and resources for changing the parameters and reanalyzing the portfolio was not up to the techies.

The various documents already made public during the investigation show that these kind of pressures, at least, still exist. The “get the due diligence done because we need to do such-and-such in order to meet the schedule for public announcement” tone comes through, whether or not the political levels involved even imagined that there might be any problem with the project justification.

After I’d shared my old war stories, Jeff shared some corresponding experiences in the private sector, where clients had specified the use of some start-up company’s technology, only to have the start-up company fail financially in mid-installation of the system because venture capitalists had withdrawn support for the technology. Jeff pointed out that venture capitalists bet on lots of things, fully expecting most of them to fail, but profiting hugely on the occasional jackpot. I’m pretty sure Jeff used the term “roulette”.

That image didn’t initially spark much in me, but when during the same week, we saw world stock markets gyrate up and down, with paper wealth in the hundreds of billions of dollars appearing or vanishing over a 24-hour period depending on every rumor about Euro bailouts or collapse, I found myself wondering. Has our culture moved to a point where it is increasingly difficult to tell “investing” from “gambling”? And, if so, does the way Mormon culture discourages the latter not start to have applicability to the former?

“Investment” usually meant gathering savings as capital to produce tangible goods or services which could generate a sustainable (and hopefully growing) revenue stream to which the investors would have title. The less connected the motivation for investment to that revenue stream, the more it seems to become like gambling.

So here are some examples of practices to consider. Are they to be encouraged as “investment”, or condemned as “gambling”?

  • Stock, commodity, or currency speculation? (And what makes it “speculation”?)
  • Hiring a professional manager for your assets?
  • Using computerized trading to give you an edge against the “house”?
  • Promoting policies that support your existing investments? (Is that “loading the dice” or fair competition? Or is it no more than putting your money where your values already are?)

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35 Responses to Roulette Wheels and Solar Panels

  1. Dan on October 2, 2011 at 5:56 AM

    emerging Solyndra scandal? You guys wanna know why China is leading the world in the solar industry? Because their government is heavily investing in their private companies. And here in America, we’re targeting companies that the government dares invest, just so we can find a way to take down Barack Obama, because we hate him that much.

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  2. FireTag on October 2, 2011 at 8:47 AM

    I’m not sure what “private companies” means in China, and even less sure that YOU understand the meaning of the term “private” in China.

    But I do know that government “investment” in this country goes to the political favorites. We have been making investments in “green energy” since the Carter administration. I was there; you weren’t.

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  3. Dan on October 2, 2011 at 9:03 AM

    silly me for thinking Baidu was owned by the Chinese government…

    thanks for the condescension. It sure helps in communicating.

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  4. FireTag on October 2, 2011 at 10:55 AM

    Dan:

    You seem to ignore the rationale that existed for ANY involvement by government in alternative energy even in the Carter administration. It is insufficient that “green” energy be good. It is insufficient that a “green” investment be high risk. There actually has to be a route to recover benefits for the tax payers that are commensurate with the tax payer risks, and these benefits have to be limited to those that CAN NOT be captured by the private investor in the project, like national security improvements. You can not assign the benefits of generalized green tech to a specific project, thereby multiply counting them for EVERY project. You can not ignore the ability of market competitors to counter your attempts to gain market share, thereby inflating the benefits of your own investment.

    If the risk-benefit relation justifies investment by the private sector BEFORE government funding, NO additional “green” energy will be produced BECAUSE of the government funding, and the ENTIRE government funding is a GIFT to the “evil capitalists”. It is waste, pure and simple.

    If the risk-benefit relation does not justify investment by the private sector AFTER government funding, NO additional “green” energy will be produced BECAUSE of the government funding, and the ENTIRE government funding is a GIFT to the “evil capitalists”. It is still waste, pure and simple.

    So there is this narrow strip of benefit/risk territory of NOT QUITE GOOD ENOUGH for the private sector where government funding might make a difference. (This presumes that the government has so many resources that it doesn’t have better things to do with its money, but that’s what budgets are supposed to decide.)

    It is also the nature of industrial risk that most innovations FAIL. Their failure usually becomes obvious at early stages of development (which is why successful venture capitalists become successful by pulling the plug early and betting on something else). Government leverage is greatest at the early-low-cost research phases, and decreases dramatically as you near production.

    Now look at the most favorable interpretation of Solyndra, and why the techies were raising alarm bells. Solyndra HAD fully completed solar panels produced from a functional production plant that they could not sell because of price. So the government support could only be justified in terms of achieving major risk reduction NOT for solar cells BUT for the use of advanced (but already existing) manufacturing techniques and economies of production scale to lower the per unit cost of production. These were NOT technological risks; you could predict your production cost reduction from this factor and compare them to the future prices of silicon and SEE if the product would be economically viable. The techies said they would not be. Sure enough; they built the factory, had no trouble producing the cells with the advanced technology, and could not sell them.

    Solyndra was AT BEST a bailout of a project the Administration had every reason to know had ALREADY failed.

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  5. Dan on October 2, 2011 at 12:56 PM

    or in other words there’s no real scandal there. Just an investment that didn’t work out well. See, when you bring up “emerging scandal” i can’t help but think Whitewater. Surely you guys on the right are not heading in that direction with Solyndra…

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  6. Jon on October 2, 2011 at 1:01 PM

    I’ll defer to people much smarter than me on this one. From “Probability, Random Variables and Stochastic Processes” by Athanasios Papoulis and S.Unnikrishna Pillai:

    The inference from Bernouli’s theorem is that when a large number of games are played under identical conditions between two parties, the one with a positive average gain in a single game stands to gain a fortune, and at the same time the one with negative average gain will almost certainly be ruined. These conclusions assume that the games are played indefinitely to take advantage of Bernoulli’s theorem, and the actual account settlement is done only at the very end. Interestingly, the stock market situation does allow the possibility of long-time play without the need to settle accounts intermittently. Hence if one holds onto stocks with positive average gains, in the long run that should turn out to be a much more profitable strategy compared to day-to-day trading [2] (which is equivalent to gambling). The key is not to engage in games that call for account settlement quite frequently. In regular gambling, however, payment adjustment is made at the end of each game, and it is quite possible that one may lose all his capital and will have to quit playing long before reaping the advantage that a large number of games would have brought him.

    [2]Among others, this strategy worked very well for the late Prof. Donald Othmer of Polytechnic, who together with his wife Mildred had initially invested $25,000 each in the early 1960s with the legendary investor, Warren Buffett who runs the Berkshire Hathaway company. In 1998, the New York Times reported that the Othmer’s Net assets in the Berkshire Hathaway stock fund were around $800,000,000.

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  7. Dan on October 2, 2011 at 1:10 PM

    what? doth mine ears deceive me? Is Jon actually railing against the very nature of capitalism? Gambling is indeed at the core of capitalism. One gambles his money in an investment the hopes comes back with a better return.

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  8. Jon on October 2, 2011 at 1:22 PM

    As for the politics, from the Coyote Blog:

    Pets.com did not take my money. Solyndra did, and without my permission too.

    He makes other good points too, but that is the main one, the most important one. It is not governments position to steal money from me to give to other companies. Government needs to get out of the business of creating monopolies and giving to the people that give them the most money, whether it’s Bush that does it or Obama, it is the same and it is wrong.

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  9. Jon on October 2, 2011 at 1:24 PM

    @Dan,

    Love you man.

    If you read the whole thing, it just says investing in companies is good, but playing them is akin to gambling, or really, it is gambling.

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  10. Jeff Spector on October 2, 2011 at 2:41 PM

    Yes, I did use the word Roulette, because that is the model. Lay down a few bets, hoping one will win.

    Let’s not forget that the government guaranteed the the loan, did not provide it. Just like they guaranteed the loans to Chrysler and Lockheed in the past. The first mistake was an investment bank who loaned money the business which may have not been viable. The government’s decision appeared to be a political decision, the financials were still wrong, but the mistake was made by the bank who approved the loan first.

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  11. FireTag on October 2, 2011 at 3:42 PM

    Jeff:

    It seems there were TWO mistakes. The second mistake was made to help bail out the consequences of the first, and its the guys who made the second one who were supposed to be working to protect us from the first mistake.

    For that matter, think Fannie and Freddie. Is it a mistake if you have reason to believe there’s a “bigger fool” who’ll bail you out? Or is that having a hidden ace up your sleeve?

    Dan:

    It’s a scandal when you guarantee the loan AFTER your most knowledgeable financial officers tell you it’s problematic. I don’t know why you can’t see that. You don’t normally defer to the vast financial knowledge of physicists. :D

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  12. Jeff Spector on October 2, 2011 at 3:50 PM

    “It’s a scandal when you guarantee the loan AFTER your most knowledgeable financial officers tell you it’s problematic.”

    Yes, that’s true.

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  13. Glass Ceiling on October 2, 2011 at 5:50 PM

    Let’s be upset at Solyndra. But let’s also remember there are many games in town to take taxpayer money and place it into useless ventures that provide the few with power and treasure. Here’s one: Iraq. Lives, money, debt, honor, credibility, karma, you name it. How many Solyndras equals an Iraq?

    Oh,wait wait wait! WMD. It was a good thIraq! That’s right. Carry on. Carry on….

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  14. Dan on October 2, 2011 at 6:12 PM

    i wonder when we really are going to get upset at that investment, over $1 trillion so far, in Iraq. What do you say, Firetag? When should we hold hearings on that failure?

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  15. Glass Ceiling on October 2, 2011 at 6:16 PM

    Over 1 trillion and a Lorraine blood.

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  16. Glass Ceiling on October 2, 2011 at 6:17 PM

    …and a lotta blood. And a crappy Android phone.

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  17. Glass Ceiling on October 2, 2011 at 6:28 PM

    And it was for national security. That’s why we never touched North Korea, who simultaneously was near to getting nukes. Heck. They barely got in the press.

    These aren’t the droids you’re looking for.

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  18. Jon on October 2, 2011 at 6:51 PM

    Yes, Bush should have been impeached for Iraq. Also, Obama should have been (and still should) impeached for Iraq, Afghanistan, Yemen, Pakistan, Libya, Guantanamo. You guys like to play the sides things by throwing out red herrings, but the red herrings have nothing to do with the topic at hand, it doesn’t change the fact that the government should be stealing money from people to give to their pet projects, whether it be war or companies, it is the same.

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  19. Glass Ceiling on October 2, 2011 at 7:11 PM

    Actually Jon, I am not for either party. I have no different in that fight. I think we are dealing with fascism either way. And even if you get a good president, you still have to deal with Congress.

    My point is that we get distracted and let everybody off all the time. What message does this send? “You guys better shape up, or we’re gonna ignore everything you did and let you off every time!”

    We tolerate it. Its our own fault. The enemy is us, the media, and cable television.

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  20. Glass Ceiling on October 2, 2011 at 7:18 PM

    Jon,

    I propose that someone redefine what a thread-jack is and isn’t. What a troll is and isn’t. And so forth. The topic at hand should not always live in a three i bubble, especially when the thread isn’t moving anyway.

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  21. Glass Ceiling on October 2, 2011 at 7:20 PM

    …in a three inch square bubble …

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  22. Jon on October 2, 2011 at 8:39 PM

    @Glass,

    My main point is that you are using a red herring argument to try and argue against another argument. I’ve been learning about argumentative fallacies and that was one – the look at what that other person is doing so this isn’t so bad. Not a very good argument.

    My political persuasions lead to voluntaryism (although I would be fine with small, mainly local government) so I’m not much for any of the parties either.

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  23. FireTag on October 2, 2011 at 9:10 PM

    Sorry to be gone so long, everyone. I do think GC has a point (in which I think Jon concurs) in noting that if BOTH parties are doing it, it is kind of irrelevant who committed original sin.

    But it does suggest to me that you can’t expect to argue that we need government to protect us from business, and then refuse to ask who protects us from our protectors? (Or for that matter, who protects citizens of other countries from THEIR government “protectors”.)

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  24. Glass Ceiling on October 2, 2011 at 9:31 PM

    Firetag,

    Very well put.

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  25. Jon on October 2, 2011 at 10:02 PM

    I concur. I wasn’t aware that that was the point GC was trying to make. But I’m on 100% for that. Really, in the end, it doesn’t matter what government exists, it comes back to the people and what they are willing to put up with, granted you need a certain small percentage that are willing to get up and say, “No more.” As the scriptures say, the solution is the individual, bringing the individual to Christ, when enough repent, God will deliver any oppressed people.

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  26. Dan on October 3, 2011 at 5:43 AM

    Firetag,

    But it does suggest to me that you can’t expect to argue that we need government to protect us from business, and then refuse to ask who protects us from our protectors?

    you silly right wingers. Take a page from the French. Stop being afraid of the government. The government is YOU. YOU are in charge. You pick who leads. You pick who runs the show. If you are afraid of who you pick you are only afraid of yourself, and frankly, I don’t want you guys making the choice of who leads then. Silly right wingers. All full of fear. Nothing positive. Fear and hatred.

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  27. Dan on October 3, 2011 at 6:56 AM

    hey Firetag,

    look at this “emerging scandal.” Surely you want to investigate it…

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  28. Jon on October 3, 2011 at 8:29 AM

    @Dan,

    And by that logic the Jews were not murdered but only committed voluntary suicide.

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  29. Dan on October 3, 2011 at 8:51 AM

    WTF?!?!?!

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  30. FireTag on October 3, 2011 at 4:06 PM

    Dan:

    I’ll file 27 for future reference if I ever get around to seeing whether Rick Perry is a contender for the Republican nomination by the time my state has its primary. In the meanwhile, Obama is governing me NOW, and i don’t think he likes me any more than you do.

    So, I certainly do intend to follow your advice in 26 and work to pick who leads. Prophecy: you won’t like my pick. Reread 23 and ask why you bothered with 27.

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  31. Stephen M (Ethesis) on October 3, 2011 at 7:55 PM

    i wonder when we really are going to get upset at that investment, over $1 trillion so far, in Iraq. What do you say, Firetag? When should we hold hearings on that failure?

    Four years ago …

    Though we never should have engaged in a pre-emptive war in the first place. Mormon knew what he was talking about.

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  32. FireTag on October 3, 2011 at 10:38 PM

    Stephen:

    We held hearings on that failure in November, 2008. We called the policy a failure, and voted Bush out of office. When the surge later proved to be successful, the Obama administration tried to claim the surge as one of ITS great successes (unless Joe Biden got confused and went off script :D ) That doesn’t play well with the base, so it isn’t emphasized now, but neither can Obama claim association with a military failure (especially after promoting Petraeus to CIA), so he emphasizes drone strikes elsewhere and ignores the Iraq conflict as much as possible.

    Leaves the anti-war side with no real place to vent their anger.

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  33. Stephen M (Ethesis) on October 4, 2011 at 8:03 PM

    FireTag, but the campaign started sooner, so it was about four years ago …

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  34. FireTag on October 4, 2011 at 11:48 PM

    I understand.

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  35. FireTag, You are greatly Missed! | Mormon Heretic on September 5, 2013 at 10:51 PM

    [...] with his explanation on directions in the Book of Mormon.  He talked circles around me when he discussed global warming.  One of the things I admired so much was that even though many scientists seem to discount God, [...]

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