Good morning.

- Mad men and the police procedural.
- A counter to the “end bonuses” notion.
- Education as ritual.
- Climate and a paper on the same, examined in some detail.
- What? No ASL? No
*Third Reich*? Shocking? - Until they run out of Joe.
- Book titles doing more than announcing the contents.
- Evil, not just banal. I wonder if the Penn State kerfuffle has a connection.
- Crying for Argentina.
- Never work. Seems to me most guys think there are about 8 colors with names like red, green, blue, and purple. For example, fuschia is a plant, not a color and the putative color given that name is just purple. At the gym a few weeks ago, I had an outraged daughter scandalized by my calling some stretching pads “black” and “lighter black”.
- Dreaming a little dream.
- Two generations at one posting.
- Cinema.
- Mr Jobs and the elephant in the Apple fandom’s closet.
- Reforming higher ed, some thoughts.

## 7 comments

2.A counter to the “end bonuses” notion.Not sure its a counter as much as a proposed addition. I reminds me of a conversation I once had with my late mother-in-law:

Me: Suppose I took your mortgage money and went to Atlantic City, tripled it and gave you it all back plus the winnings, you’d love me.

Her: Yes of course.

Me: Suppose though I lost the money and came back broke, you’d be really pissed at me.

Her: Yes of course…..

Which is kind of the problem with bonuses. If Corzine had bet correctly on non-Greek Eurobonds he’d be hailed as a market genius and paid a big bonus and would be in high demand as a ‘superstar’ Gordon Gekko type on Wall Street. But in reality he would be no different than the lucky version of me in the above hypothetical. Rewarding bonuses makes sense when it actually motivates either real innovations or exceptional effort that produces real results. Results that are produced by simply taking insane risks on someone else’s dime should not be rewarded with incentive bonuses.

I do agree the idea sounds simple but the actual implementation of trying to ban bonuses by rule is probably going to be difficult to impossible. As much as ‘thousands of pages of regulations’ sounds harder, it might be easier to just say that banks cannot be trading companies and vice versa.

Boonton,

Our companies official policy is to keep salaries at a level at which they should/will not be cut back but in good times profits twice yearly are cut out as bonuses. This also has relevance to the P=HR conversation. On that note (P=HR) years ago there was a 60 minutes episode, which I heard about but did not see, which highlighted an Indiana machining company which paid its machinists not by the hour but by the piece. They had to enforce and enact strict limits on how early/late you could work on your shift and other sorts of rules (speed limits for fork trucks and limits to how many pallets they could push ahead of those on the forks). Part of the episode was an account of how one of fast moving fork trucks ran over a VPs foot and broke it … and as a result the VP had to pay a penalty because his foot was ruled over the line and he was at fault … and cost the driver money/productivity. In that case “H” gets replaced by “W”, or P=Work * Rate. But take that a step further to your experiment where you are trying to determine the P= HR relationship. And you keep finding inconsistencies … in your data. The underlying reason for those inconsistencies is that P=HR is

the wrong equationfor P. The point being is that if behavior of the expected equation (P/M = a particular GDP ratio) isn’t being observed (a recession occurs without a change in P/M ratios then … perhaps you using the wrong equation).The underlying reason for those inconsistencies is that P=HR is the wrong equation for PYes it is, unless we are talking about a company which sets pay by H*R. But I think we are talking about something a bit more fundamental here. Perhaps something like

Payroll for the week = Sum of Each worker’s paycheck for the week.

Granted you can put on your CPA accounting hat and start talking about accrued payroll expenses like vacation days people are earning, But I’m not trying to figure out how real life companies do payroll, just explore the nature of the equation you asked about.

So hypothetical 4 person company’s payroll for week is:

Payroll = Mark’s Payroll+ Bill’s Payroll + Judy + Sue

If the left side of the equation has increased, I think we agree it must mean one or more variables on the right hand side had to be increased. Likewise Sue could be increased but payroll remain the same provided one or more of the remaining 3 get lowered and so on.

Now your question was does this exist because we defined it that way or is it ‘independent’. Well the above was clearly defined that way by me but its also independent. If you independently measure payroll expense each week and your buddy individually adds up each person’s paycheck you will find they always match. If you didn’t know the payroll account only contained the payroll of these 4 people, you could ‘independently’ discover it on your own.

Boonton,

In your payroll example, it seems your definition of payroll is

definedby that equation. In that way it is different from the gas equation or the current/voltage equation.You’ve offered a equation which defines payroll. This is distinct from I=V/R. I is not defined as V/R but as electrons traveling though a region in a unit time. Voltage is not defined as I*R, but as a electrical potential, R is not defined by V/I but is a elemental property by area, surfaces, and conductivity. The relationship V=IR is observed from properties.

for example. Just as if you measure V=IR and find that in some regimes these equations don’t hold very well, that for example very high voltages the current doesn’t not linearly track voltage. In that case V != IR for all values of V. But a mathematical identity like you suggest doesn’t work that way. You aren’t saying anything about the system of pay, you are defining payroll in mathematical terms. This equation isn’t a constraint or a new statement about corporate financing.

True the payroll function is just how a hypothetical company wants to do its payroll. There is no law of nature preventing a company from doing payroll by, say P = H^(3/2) * R.

Perhaps then if we want a better analogy would be to put some logical limits on it. Say this: Payroll = the sum of individual payrolls.

that seems like a more logical relationship. Sure a dozen firms can have a dozen different ways of figuring pay, but for any particular firm their payroll is always going to be the sum of their individual payrolls….no more no less.

You can talk about stuff other than Payroll. You may want to talk about the payroll of good employees, bad ones, executives, unionized ones and so on. That, though, would not be Payroll…by which I mean the total payroll expense of a firm.

Just as if you measure V=IR and find that in some regimes these equations don’t hold very well, that for example very high voltages the current doesn’t not linearly track voltage. In that case V != IR for all values of V.Ahhh in this case MV = PT is quite different. It always holds and always must hold because, well its no different than nGDP = nGDP. If one day you discover your ‘measurement’ has two different numbers on each side of that equal sign, then one or both of those numbers is simply not nGDP. Now in some cases you may not care about nGDP…you may care about other variables or measures. That’s fine but it doesn’t alter the identity of what nGDP is.

Boonton,

So,MV=PT is (either) a term which defines some one or more of your variables, it is a mathematical identity defining terms .. or it breaks down in different regimes. So, in an economy in which, for whatever reason, taxation or other measures have driven most of the economy to black market/barter does this still hold? I think that I’ve read that in hyperinflationary times barter and trade of goods/services instead of with currency replaces M. Does MV=PT still hold then?

Would you be able to measure nGDP in a pure barter economy? How would you do so? I think in barter economies, some commodities take on the role that money plays so you may be able to compute nGDP by using those commodities as a proxy for money (i.e. maybe not all transactions will use seashells, but you can value all transactions in terms of seashells). If you can then MV=PT would hold. If you can’t then it’s not so much that MV=PT breaks down but the concept of nGDP breaks down. If the concept of nGDP breaks down then clearly its mathematical expression should break down as well.