Activision: No Horse is Ever Truly Dead

Apparently, Activision will never be sure that a horse is dead: they can always rig it with bionics and a robot brain, or infuse it with eldritch energies, binding its decayed flesh to their dark purpose.  So they really will never, ever stop beating it.

Hungarian Giant Robot MMORPG

Perpetuum looks like a strange mashup of Battletech robots and dropships with Eve-online.  Some of its bullet points include real-time flora alteration (planting/harvesting/burning in a mighty conflagration that you might see the tears of your enemies glisten in the flickering embers of your strength) and deformable terrain.  The designer in me says those are both a) awesome and b) scary.  Letting your players manipulate the world is like begging for griefing.  Then again, that may be precisely who they’re catering to.  And if the world is big enough, the cost of changing high enough, and the regrowth and change rates sufficient, it may not be an issue.  The engineer in me looks at those and begins shaking about all the possible ways it can go wrong and how amazingly complex those calculations might get, particularly in a “one server for all” environment.

But I really miss giant robot games, so I signed up to test.

Think These Work on Arthas?

Another data note: Employment and Seasonal Adjustments

Barry Ritholtz over at the Big Picture is normally a guy I agree with.  He’s smart and obviously has a far better grasp on how equity and asset markets work than I do.  However, today I’m going to quibble with him (and, via proxy, Floyd Norris) over their interpretation of Non-seasonally adjusted Non-Farm Payroll data.  If you hadn’t heard, the seasonally adjusted payroll data from the household survey indicated a drop of 589,000 employed persons.  Obviously, we need to wait to see the revisions of this based on tax data (the BLS reported last month that their preliminary revision for the first quarter of this year indicated an increase in their unemployment total by ~800,000 persons, so they’re not necessarily good at getting these numbers perfect).

Floyd Norris notes that the employment level is substantially better than that.  He looks at job numbers, but I prefer the household survey, because that’s the number we use to arrive at the highly cited unemployment rate.  The number of employed persons increased by 9,000 if you remove seasonal adjustments.  So why is it adjusted downwards by nearly 600,000 for the month?  Because the BLS is attempting to smooth the entire employment curve, so some losses get pulled forward and some get pushed back.  We’ve had several months this year where seasonal adjustments added to the employment figure.  Now, I’m not saying this adjustment is always correct, I’m just noting there’s a reason for it; this month’s data isn’t very good at all, when you take into account seasonal factors.

For instance, while the pickup in college graduate hiring that Ritholtz remarks on is encouraging, and while the unemployment rate, unadjusted, is at “only” 9.5% as Norris notes, we normally expect an increase in hiring in October.  This month’s increase of 9,000 is so small as to be, very likely, within the margin of error.  It might as well be 0.  Historically, October has seen a sizable increase in payroll, with anywhere from 600,000 to 900,000 added to the employment figure in the majority of cases over the past 10 years.  The odd years out?  Recession and immediate-recovery years: 2001, 2002, 2007, 2008, and this past October.  Even October 2008, not exactly a banner month for employment, added an unadjusted 233,000 to the employment figure.  If the best we managed this year is 9,000, that’s troublesome.

Further, while the hiring of college graduates, 25 and up, did jump, this was obviously offset by declines for non-grads (the majority of the US population).  Heck, that even managed to push weekly production wages up for the month.  But that college grad employment offset a decline of around 400k persons 25 and up and 300k persons aged 16-24.  The problematic bit here is that this may have been deferred hiring.  Most years, even the bad years of 2001-2002 exhibit a non-seasonal uptrend in college graduate hiring.  2008 was the first year in a decade exhibiting a systematic decline, and the first year in the last decade where employment for college grads 25 and over ended the year lower than it ended the year before.  2009 seems to be addressing that gap, with companies finally attempting to fill the spots they’d been holding off on for the past year.  In spite of this, wages have remained generally stagnant, with a smaller than expected uptick in this season.

Employment follows some pretty standard patterns over the course of a year, patterns that have been at play for at least 50 years (which is quite a while, given the duration we’ve actually been tracking this sort of thing).  Employment usually jumps in the winter, has a drop mid year, pops again for the fall, before plummeting between December and January.  The reason for the massive adjusted drops in employment at the start of the year were due to the anemic gains in employment, in what ought to have been a seasonally-driven massive increase over months.  It was also the BLS pushing the December->January losses over the next 3 months (we lost nearly 5 million jobs between Dec. and January, NSA, on top of huge cuts between November and December).  As I said earlier, October normally sees a substantial gain in employment.  November usually follows this with minor changes (up 100k at most or down 50k), followed by major declines in December and January.

It’s those final declines which have me concerned.  As things stand, the holiday season is going to be lacking.  My general feeling, though this has no research backing that I know of, is that holiday expenditures are both a social necessity AND a leisure.  They’re one of the few required expenditures with lots of leeway in how much is spent.  As such, in the face of declining aggregate income and sustained debt servicing costs, holiday spending has to decline year over year.  That, in turn, means another inventory cycle where companies are forced to liquidate inventories in the face of weak demand and lay off even more employees, leading to further reductions in aggregate income.  So I’ve got my eye on the final declines of the season, because I’ve been expecting them to take us substantially lower over.  If we see downside surprises in employment numbers, demand will become significantly constrained, increasing deflationary pressures.

Below is the unadjusted employment level since 1998:

Debt Deflation and the Current State of the Household Balance Sheet

I’ve been reading over recent GDP, employment, S&P 500 data, etc., mostly checking for YoY changes, etc.  I was doing this in response to a series of posts by Gevlon regarding his bets on a coming crash in the Western World due to progressive automation of low and medium skill work.  It wasn’t, however, his conclusion I wanted to discuss, but some of the data presented.  For instance, he looks at GDP per worker and notes the smooth increase in this value over the time period he examines: 1989 to present.  It’s notable that this period, excepting the (potentially) ongoing recession, was referred to as the Great Moderation precisely because it exhibited essentially this trait.  Changes in YoY GDP growth were limited, and even the fluctuations brought on by recessions were managed with monetary policy, so they could be managed by companies via staff reductions.  However, the Great Moderation was remarked on precisely because it differed so markedly from prior economic experience.  So I went to the numbers to see what they said, and found some interesting tidbits.

One tidbit I wanted to share doesn’t relate to any the Great Moderation at all (not directly).  Instead, I’d like to talk about nominal debt versus income.  I’ve been hammering, lately, on the impact of debt on balance sheets and economic behavior.  Particularly, I’ve noted the requirement of the consumer to service debts before leisure spending or saving (after taking care of cost of living expenses).  When the ratio of debt to income rises, ceteris paribus, the economic agent has to cut back on other expenses…including positive savings and leisure, and potentially reassessing cost of living.  The debt contract, and thus servicing cost, tend to remain constant.

For an individual person, this isn’t a big deal.  They simply cut back until such time as their income allows for expanding consumption.  For the aggregate consumer, that is, for all the consumers in the economy to do this, though, can be a big deal.  This recognition comes to us thanks to Irving Fisher, after he’d given great thought to figuring out why he misread the Great Depression so dramatically.  In his “The Debt-Deflation Theory of Great Depressions”, he theorizes that a tendency towards disequilibrium in economic systems may arise when deflation and over-indebtedness are both found in an economy.  Of note here is that when a recession occurs, there is often accompanying deflation.  This is due to the drop in aggregate demand, which necessarily accompanies the decline in GDP, leading to lower prices as sellers chase customers.  The recession itself can probably be managed, as long as over-indebtedness is not a feature of the economy.  When over-indebtedness is present at the same time as deflationary forces enter the economy, Fisher proposes this logical sequence follows:

1. Debt liquidation and distress selling.
2. Contraction of the money supply as bank loans are paid off.
3. A fall in the level of asset prices.
4. A still greater fall in the net worth of businesses, precipitating bankruptcies.
5. A fall in profits.
6. A reduction in output, in trade and in employment.
7. Pessimism and loss of confidence.
8. Hoarding of money.
9. A fall in nominal interest rates and a rise in deflation adjusted interest rates.

(As a side note, it’s important to note that he goes to great lengths to say this isn’t necessarily the temporal order of events, merely a logical order.  He even points out a different order things could occur in; the logical order remains consistent and the end result is the same.)

What’s important to take away from this is that “The more debtors pay, the more debtors owe”.  As one can see from the result of the list above, as prices fall (and the value of the dollar grows) the real rate of interest also increases, increasing the cost of debt servicing in real terms and reducing income available for consumption even more, which feeds the cycle.  Eventually, this crashes, and debts are, somehow or another, wiped out.  In the meantime, a lot of capital is destroyed.  I bring all this up so I can present two graphs I made based on personal income data US Dept. of Commerce Bureau of Economic Analysis and the Flow of Funds data from the Fed.

First is nominal household debt, in billions of dollars, since 2003.  As you can see, it was on a pretty steady upward trajectory until the crisis took root, after which US households began attempting to pay down their debt…with some success.  This is nominal debt, not real debt.  Inflation is not accounted for in the above chart.

Next is the above debt values divided by nominal aggregate personal income (income also in billions of dollars).

As you can see here, people were initially successful, reducing debt as a percentage of their income once the recession started kicking in.  However, the recession overcame them.  Despite the consistent reduction in nominal debt, debt as a portion of their income jumped again.  While the portion dropped, it’s still higher than it was at the start of the recession…despite consistent debt reductions.  Hopefully, a recovery takes hold and controlled inflation actually manages to kick into place, because we remain on a precipice as things stand.

The problem facing policy makers is that this debt must be paid down in order to help insure credit returns to being a recession buffer, rather than a depression inducer.  If they allow an uncontrolled deleveraging to occur, though, they risk a depression now.  It’s a fine line to walk.

1. Debt liquidation and distress selling.
2. Contraction of the money supply as bank loans are paid off.
3. A fall in the level of asset prices.
4. A still greater fall in the net worth of businesses, precipitating bankruptcies.
5. A fall in profits.
6. A reduction in output, in trade and in employment.
7. Pessimism and loss of confidence.
8. Hoarding of money.
9. A fall in nominal interest rates and a rise in deflation adjusted interest rates.

Jesus was Totally a Capitalist

Under the entertaining headline “Profit `Not Satanic,’ Barclays Says, After Goldman Invokes Jesus”, Bloomberg released an article detailing efforts of three executives to justify the profits of bankers as compatible with Christianity.  I’m not really interested in judging the success of their efforts, however I am forced to applaud this particularly ballsy rhetoric:

“The injunction of Jesus to love others as ourselves is an endorsement of self-interest,”

This was offered up by Brian Griffiths, of Goldman Sachs International.  Goldman Sachs, if you were unaware, has been somewhat profitable this year.  Apparently people are a bit upset about this, and I suppose accusations of unfairness have been flung about.  I understand the need for PR and all that, but damned if you can’t respect the cajones on a man willing to walk into a St. Paul’s Cathedral and explain that Jesus really doesn’t mean at all what you thought he meant.

Actually, Jesus was a closet Libertarian.

Some basic economic points

Sometimes I simply can’t help myself.  I feel obliged to note some rather glaring lacks in the sophistication of the arguments of others.  Fact of the matter is the world is complex: other perspectives may hold sway, and you may be wrong.  If you’re convinced of your correctness, you’re DEFINITELY going to be wrong.  And you’ll never see it, because you’re never looking for it; you’re looking for justification of your correctness.  Honestly, this is the whole of critical thinking: looking for how something is wrong.

Consider the scientific method, that most basic of systems for attempting to test rational models for applicability to reality.  For any problem to be examined, the set of possible hypotheses which describe the problem is infinite.  It is not possible to determine a hypothesis is correct, only that it is incorrect; this is easily demonstrable when you realize that the set of possible experiments and outcomes which relate to the problem at hand is infinite, where as only one experiment may be performed.  The set of outcomes for that experiment may be described by more than one hypothesis, thus, if the experiment conforms to your hypothesis, it merely implies this hypothesis is not wrong.  Thus, the scientific method is not about demonstrating a hypothesis is correct; it’s about demonstrating it is incorrect.

So on to the economic points I wish to make: here’s a post from Gevlon, and a relevant quote (I’m going to ignore some of the more blatant assertions which are not backed up by any data):

the only valid reason to get a loan is to buy something that pays you more money than you pay for interest. If you want to start a business, that’s an example. If you want to buy a used car to skip taxi fees, or to not waste time (time x your hourly pay = money) on the public transport. Getting loan for “fun” things or to enable socializing is a terrible idea.

It seems Gevlon is reaching, here, for the idea that the loan should not cost more than the consumption derived…which is a bit different than buying something that pays interest.  Specifically, a loan is financially justified if the future value of the loan amount is lower than the present value, including interest both on loan repayment and income streams generated in the duration of repayment.  For instance, purchasing a car, used or otherwise, involves a flat cash value.  By taking a loan now, you pull forward the income you would instead have saved in order to purchase the car now.  The reason for doing this is that the value of cash, generally, decreases,  and rates paid on liquid deposits are generally low.  So the credit deserves a premium based on liquidity (current availability) and offsetting both inflation and potential interest the lender might otherwise generate.  If a borrower generates sufficient income to pay for the loan in the intervening time, by taking the money now rather than later, they can maximize the liquidity and present availability of their cash flow.  This need not be for an interest generating purpose, it need merely be a future cash flow maximization scheme…and honestly, it need nearly be LIKELY maximization.  In general, robust economic decisions are “satisficing“, not optimal, due to the existence of substantial Knightian uncertainty.

The failure in the case of borrowing is when predictions about future income flows turn out to be incorrect.  In the case of the recent financial crisis, this became manifest due to the failure to recognize that demand for homes (and home prices) could not rise forever: the available competing finance options simply became to costly, but bets made on ever-increasing house prices suddenly became losses simply due to the lack of price appreciation.  There actually 2 major balance sheet types this seemed to have the most effect on: first, mortgage borrowers dependent on the rising value of their assets (i.e. home) to facilitate the leveraging of their home to cover future expenses and, second, on the major financial institutions that leveraged into these bets.  I’ll note that the linked chart is dated January 2009; since that time the mortgage toxicity has spread beyond sub-primes.  The onset of the recession has initially impacted the poorer, simply due to a lack of available buffer room.  For the duration of the Great Moderation, the availability of cheap consumer credit has helped soften the impact of recessions, with borrowers attempting to pull forward future earnings to help them now.  The reduction in credit availability initially impacts the lowest collateral borrowers first; almost by definition those are the poorest borrowers.  However, given the rates of delinquency and default for the poorest, I’d suggest we were approaching the limit of defaults in that sector.  Default rates and bankruptcies have continued to increase throughout this year, suggesting that the wealthier echelons of American society are now postponing debt payment (or seeking to have it cleared entirely).

(source Calculated Risk.  click for larger version)

Why I might venture back into Azeroth for 3.3

Random dungeon in cross-realm LFG.  Seriously.  If Blizzard is correct that cross-realm LFG lowers time waiting for a PUG, then the concept of being able to queue for a dungeon run, much like queuing for a BG, would be enticing.  That this would include the new dungeons, while providing decent badge rewards is merely icing on a potentially delicious cake.  It’d mean I could log in, hit up a couple heroics, get a decent reward, and log out…all for the price of maybe an hour and a half of my time.

I’m not a sure of their Looking For Raid stuff…how do they intend to handle multiple raid IDs, or are they planning to move away from that system for raids?  Or do I only get one shot at a raid, and if my PUG falls apart and I can’t reassemble them the next day, I’m screwed?

Also, Ghostcrawler has been back to talking again.  I wish, once again, that he would stop.  The continual attempts to explain Chill of the Throne tend to sound condescending, and he continually accuses his audience of being ready to twist his words.  While this may be true, he is deliberately twisting their perceptions of their intent in order to make them feel guilty and trust him.  Simply because your audience will use irrational arguments doesn’t mean you should either to bolster your claims.  Frankly, just stop trying to hold this conversation spread out across threads with people.

And what follows 3.3?  Well, Blizzard has a pretty well established pattern here.  Monetarily, they care more about the subs than expansion box sales, which means they care deeply about maintaining interest in interim times.  Expansions are there to redefine the focus and remake the world for people, in ways that (hopefully) draw new customers while retaining the majority of existing players.  This means expansions need to be solid when they hit…particularly now.  Blizzard won’t be putting Cataclysm in our hands until late next year at the earliest.  Any earlier would interfere with the Starcraft 2 release and stomp on the momentum of 3.3.  Keep in mind that 3.3 is still a bit out.  It doesn’t look like all the items have hit the PTR, nor all the content been finalized.  We may see it by January, but I wouldn’t be surprised if it slips into the new year.  Blizzard usually gives new patches about 4 months to die down, so the earliest I could possibly see Cataclysm would be next May.

Ghostcrawler has alluded to Icecrown being the “final tier of raiding”.  This would seem to say they don’t intent to add additional raid content…but not that they don’t intend additional content.  I suspect we’ll see 3.4 midway through next year.  3.4 will bridge the gap between whatever happens with Arthas and the Cataclysm of Deathwing, allowing some content to hold out the life of Wrath while Cataclysm continues development and launches late next year.

I could be wrong, though.

The Importance of Philosophy

Philosophy is my vocation.  In general, I find that I’m something of a loner in this: most people couldn’t give a rat’s ass about philosophy.  In  a conversation I had earlier with a fellow blogger, I pointed out that the answer to any of the great questions of philosophy was unlikely to change how anyone lived their life, and for most people this seems patently true.  I should probably have said, though, that most people don’t THINK that the answer to any great philosophical quandary would change how they lived their life.  That may simply be because everyone thinks those questions actually are answered.

In fact, most philosophy has revolves around debates over things that seem trivially obvious.  “What is the nature of stuff?”, “How do we know?” and “What should we do?” are questions that seem to have simple answers.  By inference, it seems like we must already have the answers because we talk about stuff, we say we know about things, and we have pretty solid ideas of what we should do, so surely we’ve already answered those questions.

On the whole, many philosophers get into philosophy by proceeding from that perfectly reasonable assumption and then trying to do the apparently simple task of answering those trivial questions.  In fact, they usually start asking substantially more practical questions; among the first Western philosophers (at least in the Platonic tradition) were a group of men termed the Pre-Socratics.  Of these, the very first recorded “philosophers” were the Milesians.  The Milesians delved into philosophy as physicists or cosmologists: they were attempting to explain the way the world’s physical properties came to be and interacted, and to frame this they relied on an idea of a basic “substance”.  This became a metaphysical pursuit, because the nature of this initial substance was of core importance to understanding the things we see comprised of it.  As they discussed this, it became more difficult to nail down what the exact nature of such a substance was.

From this came another question: can things change?  Seriously, this was an important debate and came from a very simple observation: you can’t create something from nothing.   The Eleatics, embodied in Parmenides and Zeno (author of the famed paradoxes), felt that if you can’t create something from nothing, then whatever substance makes up everything must be eternal and can never become anything else.  Because it is the primary constituent of all things, it’s properties are effectively inatlerable: it’s properties are the basis of all properties.  Since you can’t create something out of nothing, then no new properties for this substance can be created: there’s nothing to create them from.

The above is a fairly sophisticated argument, and illustrates the basis of the importance of philosophy.  Obviously, we see things change all the time.  By the same token, it is (and was even more so at the time) unthinkable for something to come from nothing.  As people explored perfectly reasonable discussions about the ramifications of each of these in generally pragmatic terms, it became clear that they seemed to fundamentally disagree with one another.  This is a problem: if two basic assumptions about the way the world is disagree, then one or both need to be rethought if we’re to have a decent picture of the world.  Attempting to resolve this contradiction produced the above argument (the Eleatics effectively argued that the apparent change was an imperfect reflection of the eternal reality, which was changeless).

Why is that important, though, really?  Why should it matter if two basic concepts of how the world works seem to contradict each other, particularly since it seems to work out for us if we accept them?  Simple: if you don’t know that they work absolutely, you can’t know that they’ll always work.  If, in fact, they do contradict one another, it is the case that at some point they lead your idea of the world to stray from the reality of the world.  This implies that eventually you’ll misjudge how the world works.  That’s a practical consideration.

But beyond that philosophy serves to get at a single point: Why?  Why like this, why here, why now, why me and what the fuck should I do about it?  If you look, none of that seems obvious.  You can’t even fallback on a nihilistic “No reason” answer, because the why remains: why “No reason”?  Philosophy is the search for the understanding to answer that question.

And I, personally, do it because wisdom is very, very beautiful to me.

On the Dearth of WoW Posts

I just can’t summon up the energy to care about WoW.  I still follow the goings-on over on MMO-Champion.com, so I know what’s on the PTR for 3.3, but I haven’t found any interest.  It’s simply more of the same stuff we’ve seen all through Wrath.

I’m thoroughly MMO burned out at this point anyway, so now is as good a time as any for a break.  I’ve been playing Rock Band and Borderlands (which is a fantastic game, btw), working on hobbies and watching stuff.  I’ve also been tracking economics and spending thinking time on the little micro-economic consumption function I threw together a few posts ago.  But I haven’t been playing Aion or Champions…or WoW.

Cataclysm may be able to change that.  It’s introducing a lot of changes in the way classes work, and when Blizzard does that, they usually change up how players interact with the world as well.  BC brought us the introduction of the current Honor System and Arenas, changing the face of PvP, along with 25-mans (instead of 40s) and Kara, a dedicated 10-man.  Wrath hauled out open-world PvP and the combo 10+25-man dungeon experience.

I actually first saw the suggestion of 25-man dungeons reused for 10s on EJ, and thought it was a good idea.  I’ve since changed my mind.  Blizzard has been absolutely gung-ho that the end-game of WoW for PvE is raiding with Wrath, yet this wasn’t always their stance.  25-mans were the big pinnacle for the people who could swing-em.  They did the cinematics and cool fights as a reward for those people, not because they were necessary for story progress.  When they saw that people liked interacting with Illidan during the first dailies, they decided that meant people liked interacting with the bosses…which meant they wanted to raid!  That’s not, I think, what it meant.  People like rewards for their actions.  They like to feel like there is a story around their actions, but they also want to do their own thing.

The Isle of Quel’danas was a roaring success because it had stuff to do for everyone involved.  It had a big 25-man raid with challenging battles for the raiders, it had a tough 5-man for the small groups, and it had fun dailies with reasonable rewards for soloers.  It expanded on all the elements of WoW that had brought people into the game in the first place.  Had it expanded the PvP game and added a 10-man, it would have been a damn near perfect expansion of what the game offered: a polished experience for all types of players.

Wrath initially offered that as well: a compelling questing experience, interesting (though perhaps overly easy) 5-mans, solid raids, and expansions to PvP.  However, Blizzard then narrowed their focus on the end game.  Dailies tended to be unfocused, drizzled throughout the world as ways to grind rep with disparate factions, heroics were quickly overcome, and the raids…well, Blizzard decided that they wanted to open up raids to everyone, to let everyone see the awesome stuff only the elite raiders had been seeing.  See, they heard complaints that they spent too much time on content only 1% of the population saw as “Let us see it ,too” rather than “Spend more time on us”.  So the endgame of Wrath was…a gateway into raiding.  Every possible “barrier” to raiding was removed, under the assumption that everyone wanted to raid…and every reward was focused on raiding.  This produced the situation where the only real thing left to a PvE player at the endgame to do was…raid.  So they did, as best they could, of course.  What else could they do if they wanted to play this game they enjoyed?

Blizzard succeeded in spite of itself, I think.  Now, I’m definitely projecting my own opinions.  I know plenty of people wanted more casual raid-action, and many people wanted to see the neat things the 25s saw, but I know I don’t like having given up a better end-game solo experience and challenging 5-mans for it.  I don’t think I like having given up custom 10-mans.  3.2 tried to help the lack of concentrated dailies, but they were all built around the damn tournament mechanic, or flying across the freaking continent.  It failed to match up to the elegantly well concentrated dailies on Quel’danas.  And the trials made me hurt inside.

Perhaps 3.3 helps address some of these issues.  I haven’t seen much on the quality of the new 5-mans, nor on the sorts of solo content that can be found in the push to the Frozen Throne.  I suspect we’re getting a patch 3.4 as well, because I don’t think we’ll be seeing Cataclysm in 6 months, and they need new content to fill that gap.  Perhaps that will draw me in; it’s likely to be the patch that begins the lead up to Deathwing’s return.