Mayor Bloombergs Comparison of NYC Homicide Rates and Wall Streets Ratio Analysis

Heres the Simple Answer to whats Wrong with Economics and Wall Street
In his address on Public Safety, on April 30, 2013, New York Mayor Bloomberg commended the NYPD for the record low homicides in the previous year, 419 in 2012, the lowest annual homicides number in New Yorks history. Then, he started comparing the homicide rate for NYC (419 murders in 2012 or 5.125 per 100,000 population, based on a population of 8.175 million, US 2010 Census) with the homicides rates for several major US cities and ended up, "... if we had a murder rate like Detroit's, we would have more than 4500 New Yorkers dead in 2012, not 419. That's a factor of 10." Essentially, Bloomberg was using the ratio y/x where y is the number of homicides and x the population to compare various cities. NYC has a ratio of 5.125 which is less than one-tenth the y/x for Detroit. And, so on. This is also amazingly what Wall Street analysts do. If company A had a profit margin of 20% it must be better than company B with a profit margin of 5%. This is also what I have been trying to call attention to in several articles that can be found on this website and in my Instablog posts at the Seeking Alpha financial forum. A few at Seeking Alpha seem to be taking notice and that is a good sign. This few must grow into hundreds and thousands to make the difference. And, a difference must be made. And, so I would like to urge everyone to read my analysis of what Mayor Bloomberg did and what he should have done.

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What is the valid basis for comparing the homicides rate for various cities? What is the apples-to-apples comparison in this context and what is the dreaded apples to oranges comparison, the claim used to knock down opponents, or opposing views? How do we tell the apples from the oranges? How does the apple you are holding turn into an orange? The solution lies in studying the nature of the underlying x-y relation, not just the y/x ratio. When we use y/x ratios, we are more likely to get into the apples and oranges comparison controversy. The x-y diagrams, on the other hand, tell us what is apples and apples and oranges and oranges. If you understand this, you will also understand how to compare different companies (based on profit margin, EPS, etc.), airlines (based on their OnTime arrivals ratios, missed baggages ratio, the denied boarding, etc.) and countries (based on debt/GDP ratio, for example, unemployment rates, etc.) and literally hundreds and thousands of other problems of interest to us, where we use simple y/x ratios to make sense of our empirical observations. Here's the link to the full article. 1. Mayor Bloombergs Comparison of Homicide Rates in New York, Chicago, and Detroit is Re-examined, Published June 15, 2013 http://www.scribd.com/doc/147960590/MayorBloomberg%E2%80%99s-Comparison-of-the-Homicide-Rates-in-ChicagoDetroit-and-New-York-Is-Re-examined The 2012 homicides data and the population data (based on the 2010 US Census) for several major US cities has been compiled in Table 1. A detailed reference list for the data sources may be found in the above article. Now consider the x-y graph of Figure 1. All of the data essentially falls between the two straight lines, or rays, labeled A and B. We will use the term ray to describe a straight line passing through the origin (0, 0). The

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mathematical equation for such a straight line is y = mx where m is the slope of the line. The higher the slope m = y/x the higher the homicide rate.

Table 1: New York compared with 16 major US cities

City Population, x Homicides, y Homicide 2010 US in 2012 rate, m = y/x Census per 100K (millions)
8.175 3.793 2.696 2.100 1.446 1.327 1.307 1.526 1.198 0.946 0.805 0.818 0.714 0.621 0.602 0.394 0.278 419 203 506 216 123 92 48 329 152 46 68 27 411 217 88 97 92 5.13 14.63 16.14 10.28 8.51 6.93 3.67 21.56 12.69 4.86 8.44 3.30 57.58 34.95 14.62 24.60 33.10

Homicide rate relative to NYC, m/mNYC

1 1.04 3.15 2.01 1.66 1.35 0.72 4.21 2.48 0.95 1.65 0.64 11.23 6.82 2.85 4.80 6.46

New York, NY Los Angeles, CA Chicago, IL Houston, TX Phoenix, AZ San Antonio, TX San Diego, CA Philadelphia, PA Dallas, TX San Jose, CA San Francisco Austin, TX Detroit, MI Baltimore, MD Washington DC Cleveland, OH Newark, NJ

Data source: See References for each city listed at the end of the article. Now see what the x-y diagrams look like and why we can draw the following conclusions. If New York were more like: 1. Austin TX, the number of murders would have dropped to just 270 and if more like, 2. San Diego, the number of murders would have dropped to just 300 and if more like 3. San Jose, the number of murders would have declined to 398.

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600

Chicago

B
New York

Homicides (in 2012), y

500

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Detroit
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Los Angeles San Jose Illustration of the law y = mx or y/x = m

8.00 10.00 12.00

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Austin
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Population (US Census 2010), x [millions]

Figure 1: The Homicides-Population diagram for 16 major US cities which are being compared here with New Yorks homicide rate in 2012. The population values are from the 2010 US Census (consistent with what Mayor Bloomberg seems to be using, see also Ref. [8] in the article cited above).

We can envision such rays passing through every single data point in this diagram. Each city thus has its own ray and the value of the ratio y/x = m. Bloomberg is envisioning Detroit setting the crime rate standard and moving the NY data point to the Detroit Line A, or its extrapolation, and is essentially saying, Hey, look we are better than the worst, we are better than worse, and we are also better than the bad. Thats not a standard of excellence! This is what I would call an apples-to-oranges comparison.
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600

B
Homicides (in 2012), y
500

400

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NYC ray y = mx = 51.25x Case of c = 0

0
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0

Population (US Census 2010), x [millions]

Figure 2: The ray through NYC, with the equation y = mx = 51.25x. This is a special case of the more general equation y = hx + c with c = 0. The data for cities that fall on or close to this line, with lower populations than NYC, are the logical candidates for comparison, not cities with higher murder rates like Detroit, Chicago, Philadelphia, or Washington DC. Now, based on the Homicides-Population diagram we can develop a precise mathematical definition of what is apples to apples, or oranges to oranges, and what is apples to oranges, although no one talks much about oranges to oranges. It is always apples to apples, or apples to oranges. Just say, Oh, you cant do that, thats comparing apples and oranges, in the middle of any debate, and everyone just freezes. Your opponent looks foolish, if not downright stupid. Everyone is wondering but nobody really knows what is apples to apples comparison and what is apples to oranges comparsion!

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Heres a mathematical definition of apples to apples using our x-y diagram for Homicides and Population. Comparing cities that fall on or close to the same ray passing through the origin is a legitimate apples to apples comparison. This means that the crime environment in these cities is comparable and the absolute number of homicides differs only due to the differences in the population. Comparing cities that fall on very different rays passing through the origin is the illegitimate apples to oranges comparison. The crime environment is not the same in these cities. The large difference in the population, at the same level of homicides, is just one of the reasons. There are other intangibles that have not been accounted for. The more general law relating homicides and the population is y = hx + c where h is the slope of the line and c the nonzero intercept. Thus, the ratio y/x = m = h + (c/x) is not a constant and keeps on increasing or decreasing as x increasing depending on the numerical values of h and c. The slope h is the rate of increase of murders y with increasing population x, much like the marginal tax rate m in tax law equation, y = mx + c, click here, see article on Babe Ruths batting stats which has the tax tables converted into the form of the tax equation. (I have used m for the slope purposely since it has to do with marginal tax rate.) The nonzero c is like the work function in Einsteins photoelectric law, which is also a linear law with a nonzero intercept c. A similar nonzero c also appears if we consider the baseball batting average BA = y/x = Hits/At Bats. If we consider the game-by-game stats of a baseball player, like the legendary Babe Ruth (who sets a standard of excellence), we will find (x, y) scores such as (1, 1), (2, 2), (3, 3), (4, 4), and so on, where the first number x is the At Bats and the second number is the Hits. For just these games, Babe Ruth had the single game PERFECT BA = y/x = 1.000. If we consider more games, we will find scores like (1, 0), (2, 1), (3, 2), (4, 3) and even (6, 5). For these games, y = x + c and the BA = y/x = 1 (1/x) where
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the nonzero c = - 1 is the number of missing hits. The BA thus deviates from the PERFECT value of 1.000 and decreases as the At Bats x increases. More generally, if we aggregate the game-by-game stats into monthly stats and the monthly stats in season stats, and season stats into career stats, the more general law relating At bats (x) and Hits (y) is seen to be y = hx + c where the slope h < 1 and the nonzero c varies from one player to the other (the number of missing hits over many games). In other words, the nonzero c tells us something about the difficulty of producing Hits. Many complex factors, besides just the skill of the player, affect the outcome known as a Hit or a Home Run in baseball. In physics, the nonzero c tells us something about the difficulty of producing electrons when light shines on the surface of a metal, the environment in which the electrons exist before they are freed and come out of the metal. As applied to homicides stats here, the nonzero c in the law y = hx + c is again like a work function that tells us about the crime environment and the difficulty of observing the event known as a homicide. The same ideas can also be extended to analyze profits-revenues data for various comparing. And, as with firearms-homicides data (and traffic fatality data, see references cited in Ref. [1]) we also observe a maximum point on the profits-revenues graph for various companies. The old GM was operating past its maximum, for several years, before it was forced into bankruptcy. Alas, and rather surprisingly, these facts still remain unknown even among the leading Wall Street analysts and Nobel Prize winning economists. Perhaps, it is time to take a serious look at this widespread use of y/x ratio and the policy distortions that such (ab)use of y/x ratio analysis leads us to, often with disastrous social consequence, as evidenced by the recent debate about the Reinhart-Rogoff Microsoft Excel coding errors and the Debt/GDP ratio and its effect on the long term GDP growth.

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Should we trust economists? Such questions are now being increasingly asked; see Noah Smith [4]. They are frequently wrong and have lost the publics faith. The answer lies in the simple property of a straight line that does not pass through the origin, which bewilders us when we indulge in simple y/x ratio analysis. Economics will continue to be a dismal science as long as it relies on y/x ratios without seeking a deeper understanding of the nature of the x-y relation, highlighted here for the homicides problem with simple x-y diagrams. Let me reiterate again, as I have in many other articles cited in Ref. [1]. If y = hx + c, the ratio y/x = h + (c/x) will either increase or decrease with increasing x, depending on the numerical values of the constants h and c. Because of this fundamental, and thus far overlooked, mathematical property of a straight line (which does not pass through the origin), y/x ratio analysis is fundamentally flawed and is at the root of the damage being inflicted by economists upon the rest of society. Until economists recognize this and reflect on it, and quit using y/x ratios to draw conclusions, we will all continue to suffer. The same goes for Wall Street. Its own self-inflicted wounds are the reasons for the many crashes that we witness with disastrous social consequences.

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Reference List
1. Mayor Bloombergs Comparison of Homicide Rates in New York, Chicago, and Detroit is Re-examined, Published June 15, 2013 http://www.scribd.com/doc/147960590/MayorBloomberg%E2%80%99s-Comparison-of-the-Homicide-Rates-inChicago-Detroit-and-New-York-Is-Re-examined 2. Babe Ruths 1923 Batting Statistics and Einsteins Work Function, Published April 17, 2013, http://www.scribd.com/doc/136489156/Babe-Ruth-s-1923-BattingStatistics-and-Einstein-s-Work-Function 3. Babe Ruth Batting Statistics and Einsteins Work Function, To be Published April 17, 2013, http://www.scribd.com/doc/136556738/Babe-Ruth-Batting-Statisticsand-Einstein-s-Work-Function 4. Should we Trust Economists? By Noah Smith, The Atlantic, June 4, 2013, http://www.theatlantic.com/business/archive/2013/06/shouldwe-trust-economists/276497/

The following comments were posted to the Noah Smith article in The Atlantic on June 18, 2013 (around 9:00 AM)

Vj Laxmanan an hour ago (as of 10:09 AM on June 18, 2013)

I am glad to see that questions such as asked by the author in the title are being asked. I have not read all the comments but see that there are many economists here doing exactly what the author has said -- argue endlessly. :) Sorry, if that was not polite. Here's may take on this whole thing and let me state upfront Ich Bin Non-Economist. There is a simple mathematical property of a straight line that I discovered in the summer of 1998, quite accidentally. I had never consciously thought about it but once I
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understood it, turned out to be a huge eye-opener. That is also the reason I am here offering these comments. If a straight line does not pass through the origin, its general equation is y = hx + c, Hence, the ratio y/x = h + (c/x) can either increase or decrease as x increases depending on the numerical values of the constants h and c. There are three possibilities if x is increasing. There are three more possibilities if x is also allowed to decrease (labor force or GDP, or revenues of a company, for example). I have observed all six cases in my analysis of financial and economic data over the last 15 years after I discovered the above property. You could say that the revelation was so powerful that I am now almost "obsessed" with anything where I see simple y/x ratios being used to draw conclusions, make policy, etc. Do they really do that? Yes, they do and that is what the Reinhart-Rogoff thing was all about: the Debt/GDP ratio. Of course, they really piled it high and deep (short form PhD) with two hundred years of data in some cases. How could such an analysis be at fault? That's all folks. This is all I wanted to share here with this august group of economists. Until economists reflect on what I have just pointed out, the "science" will fail and be a dismal science. It is not the "models" and the "statistical analysis". It is the fundamental lack of understanding of the above property of y/x ratios. To explain this, I have used Mayor Bloomberg's recent comparison of homicide rates in NYC with other major US cities. I have also used baseball statistics (also used by the graduate student economist who discovered the Reinhart-Rogoff error) to explain why we must study the x-y relation and what the nonzero c means. Only in the special case of c = 0 does the slope h = dy/dx = y/x. If not we have to deal with the consequences of the nonzero c lurking beneath every problem we try to understand using y/x ratios. This is what I see economists doing and Wall Street doing, ever since I started studying how y/x ratios behave. Several articles describing my findings can be found with a simple Google search. Here's my most recent one on the Bloomberg analysis. http://www.scribd.com/doc/148304746/Mayor-Bloomberg-s-Comparison-of-NYCHomicide-Rates-and-Wall-Street-Ratio-Analysis-Here-s-the-Simple-Answer-to-What-sWrong-with-Economics-and-Wall-St

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CRH1234 3 days ago

What has never made any sense to me is the underlying premise that Economics can ever describe economic behavior in some precise Newtonian way like Thermodynamics. Economies are complex reward/punishment systems with millions of nominally rational actors who, and here is the key point, respond to the specific set of reward/punishment incentives created by the laws (on the books and enforced), at any given time, in any given society. Human behavior individually and en masse will be significantly different depending on the carrots and sticks the government, the culture, the infrastructure, religion, etc... present at any given time. Isn't this obvious? There is no ideal, platonic archetype economy that economists can use to referee public policy from, like astrologers looking at the stars and consulting their charts. These are both equally nonsensical constructs. Economies are sets of human choices, value judgments, not the Music of the Spheres. Economics can never be a predictive "science", at best it should be a considered a subspecialty of Anthropology, describing observed behaviors in specific times and places. I don't mean to say the profession wont be able to derive some interesting "rules of thumb" about human economic behavior, but that is a far cry from what we as a society through our politicians expect from them and the level of resources we commit to funding an Illusion that does far more harm than good.
Reply

Vj Laxmanan CRH1234 an hour ago (as of 9:10 AM on June 18, 2013)

Your comments here sparked my interest since I do believe it is possible to treat economics like Newtonian science. I would like to call your attention to the following, http://www.scribd.com/doc/148304746/Mayor-Bloomberg-s-Comparison-of-NYCHomicide-Rates-and-Wall-Street-Ratio-Analysis-Here-s-the-Simple-Answer-to-What-sWrong-with-Economics-and-Wall-St
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If we substitute the word "money" for "energy" in all the mathematical equations that Planck derived to develop quantum physics, we can arrive at a new understanding of economics. The notion of entropy (symbol S) that Planck speaks about is readily extended to economics. All we have to do now is to go along with is Planck's definition of the temperature T = dS/dU, the rate of change of entropy as the energy (or money) of the system changes. Yes, it makes a lot of sense, since this new view implies that there will be a maximum point on the graph of profits versus revenues, for example. And, guess what? I have found such a maximum point with several companies, some examples are given in the above cited article. Alas, as noted in another comment posted here, economists and Wall Street financial analysts are happy arguing over what their y/x ratios mean without bothering to investigate the nature of the x-y relation like I have done in the above article and in umpteen others that can be found (if this is of interest) by simply doing a Google search. It all "averages" out. Hence the complexities that you mention can also be accommodated if one applies mathematics intelligently. The theory of gravitation is not simple either, nor is the state of a gas with trillions of trillions of trillions of .. you know, molecules. But, Planck found a method of finding the "average" energy for exactly such a system. That's really what Planck did. He found the "average" energy U (think any other property of interest) of a system of N particles which exist in various complex states. Can we determine the average value of some property for any other complex system? We can and Planck showed us how to. Now, generalize Planck's ideas using mathematical logic and a new view of economics emerges. Why did we miss this for so long? Simple! We missed this because economists were obsessed with their y/x ratios and failed to apply the idea of what the "marginal tax rate" means to the analysis of other economic variables. Thanks.

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About the author V. Laxmanan, Sc. D.

The author obtained his Bachelors degree (B. E.) in Mechanical Engineering from the University of Poona and his Masters degree (M. E.), also in Mechanical Engineering, from the Indian Institute of Science, Bangalore, followed by a Masters (S. M.) and Doctoral (Sc. D.) degrees in Materials Engineering from the Massachusetts Institute of Technology, Cambridge, MA, USA. He then spent his entire professional career at leading US research institutions (MIT, Allied Chemical Corporate R & D, now part of Honeywell, NASA, Case Western Reserve University (CWRU), and General Motors Research and Development Center in Warren, MI). He holds four patents in materials processing, has co-authored two books and published several scientific papers in leading peer-reviewed international journals. His expertise includes developing simple mathematical models to explain the behavior of complex systems. While at NASA and CWRU, he was responsible for developing material processing experiments to be performed aboard the space shuttle and developed a simple mathematical model to explain the growth Christmas-tree, or snowflake, like structures (called dendrites) widely observed in many types of liquid-to-solid phase transformations (e.g., freezing of all commercial metals and alloys, freezing of water, and, yes, production of snowflakes!). This led to a simple model to explain the growth of dendritic structures in both the groundbased experiments and in the space shuttle experiments. More recently, he has been interested in the analysis of the large volumes of data from financial and economic systems and has developed what may be called the Quantum Business Model (QBM). This extends (to financial and economic systems) the mathematical arguments used by Max Planck to develop quantum physics using the analogy Energy = Money, i.e., energy in physics is like money in economics. Einstein applied Plancks ideas to describe the photoelectric effect (by treating light as being composed of particles called photons, each with the fixed quantum of energy conceived by Planck). The mathematical law deduced by Planck, referred to here as the generalized power-exponential law, might
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actually have many applications far beyond blackbody radiation studies where it was first conceived. Einsteins photoelectric law is a simple linear law and was deduced from Plancks non-linear law for describing blackbody radiation. It appears that financial and economic systems can be modeled using a similar approach. Finance, business, economics and management sciences now essentially seem to operate like astronomy and physics before the advent of Kepler and Newton. Finally, during my professional career, I also twice had the opportunity and great honor to make presentations to two Nobel laureates: first at NASA to Prof. Robert Schrieffer (1972 Physics Nobel Prize), who was the Chairman of the Schrieffer Committee appointed to review NASAs space flight experiments (following the loss of the space shuttle Challenger on January 28, 1986) and second at GM Research Labs to Prof. Robert Solow (1987 Nobel Prize in economics), who was Chairman of Corporate Research Review Committee, appointed by GM corporate management.

Cover page of AirTran 2000 Annual Report

Can you see that plane flying above the tall tree tops that make a nearly perfect circle? It requires a great deal of imagination to see and to photograph it.

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