Setting Things Straight

I'm such a twit...

2012-01-18T19:43:00.003-06:00

I didn't think I'd ever see the day, but because of that "thing I applied for" (more on that later) I had to get a Twitter account, and as luck would have it, @SilasBarta was available and I took it.

So you can be reassured that @SilasBarta isn't some dastardly soul trying to impersonate me.

(I was going to make another remark about having made this post purely through the keyboard, but Twitter ruined it ... some of their clickable buttons can't be recognized by Pentadactyl, the Firefox extension that tries to let you do everything from the keyboard but gets stymied by by poor web design.)

Mr. Ford, meet Boeing

2012-01-11T22:05:00.004-06:00

You know how it's become a sort of cliche/folk-economics to say that "You should pay your workers enough so that they can buy the product you sell?" It's supposed to be what gave Henry Ford I his tremendous success with the Model T, and has become a staple of union bargaining.

For a recent example of this line of thought, here's none other than (former Secretary of Labor) Robert Reich arguing it, complete with reference to the Model T story.

Well, it recently occurred to me how underpaid I am. My employer modifies and sells large aircraft. No way can I afford that!!!

Did somebody say "raise"?

(This post made entirely without use of the mouse -- including for looking up and copying over links -- thanks to the use of the Firefox Pentadactyl extension. Give it a whirl!)

Addendum: To clarify, Boeing is not my employer, just a synecdoche for large aircraft manufacturers in general.

Broken Windows, Part I: The Pain of Hard Choices

2011-12-31T11:12:00.003-06:00

This will be the first in a series where I spell out an underappreciated concept in economics and how it leads many economists astray in proposing solutions to economic problems. I figured I better get a start on it before the New Year.

Recently, I've gained some insight into the economic debates between the various camps that claim to have a solution to our current problems. In addition to tying up some loose ends regarding a century-old debate, this insight gave me a good explanation of why standard dismissals of the so-called recalculation story (in explaining recessions like the current one) are making a subtle error.

First, a high-speed recap: Way back in the 1800s, Bastiat described what is known as the "Broken Window Fallacy" to refute the prevailing economic wisdom of the age. Many believed that a vandal who broke a window could be doing the economy a favor, reasoning that the owner would have to hire a glazier to fix the window, who would have new money he could use to buy new shoes, which would give the shoemaker the chance to buy something he wanted, and so on. (Note the early shades of the "multiplier effect" argument.)

Bastiat replied, basically, that no, this doesn't quite work, because you have to account for the "unseen" loss to the window owner, who would have engaged in the exact same economic stimulation as the glazier, had the window not broken, because he would have been able to buy something he wanted -- and we'd get to keep the window, to boot!

This mention of the Broken Windows Fallacy is often brought up in response to proposed Keynesian solutions (involving government stimulus spending), where their opponents say that it makes the same error, neglecting the unseen economic activity that would go on in the absence of the government's spending.

Keynesians, in turn, reply that the Broken Window Fallacy only applies at "full employment", where there is no "crowding out" (i.e. forgone projects due to the government's use of resources for different ones). In a depressed economy, they argue, the alternative to a metaphorical broken window (along with its fixing) is not "the window owner buys something else", but rather, "the window owner hoards that money", providing no economic benefit. Therefore, breaking a window in such a case would not have an economic opportunity cost, and so could indeed be good for the economy -- though Keynesians of course admit there are much better ways to increase employment than breaking a window.

The back-and-forth goes on, of course, with each side claiming that the other's position implies or relies on an absurdity. Keynesians accuse the free-market/"Austrian" types of thinking the economy is always optimally using resources, while Austrians accuse the Keynesians of calling a hurricane "God's gift to depressions".

But here, I think, I've noticed something that tremendously clarifies the debate, and gives us insight into why economic activity does or doesn't happen, and why certain events are or aren't good. So, here goes.

*******

Let's go back to the original Bastiat thought experiment about the broken window. Ask yourself this: Why are we assuming the window will be fixed at all?

Don't misunderstand me: it's a reasonable assumption. But we have to be careful that this assumption isn't fundamentally ignoring relevant economic factors, thereby baking in a desired conclusion from the very beginning. And here, I think we have good reason to believe that's exactly what's going on.

So let's start simple: under what circumstances would it be not be reasonable to assume that the window will be fixed, (i.e. that the owner will choose to pay someone to fix it), even during a depression? That's easy: if the neighborhood (along with that building) is run-down to begin with, already littered with broken windows. A lone broken window merits a quick repair, but if it's yet-another-broken-window, why bother? (Note here the substantive similarity to the homonymous "broken window" effect!)

So here we see the crucial, unappreciated factor: the obviousness of certain production decisions. What these thought experiments -- carefully constructed to make a different point -- actually prove is the importance of being able to confidently decide what is the best use of resources. And we can step back and see the same dynamic in very different contexts.

For example, say an unemployed guy, Joe, is trying all different kinds of things to find a job, and nothing is working. Then while driving one day, makes a wrong turn and steers his car off a bridge into the river below. Not good. But there is one teensy-weensy good part: it's a lot easier to prioritize! Previously, Joe didn't know what he should do to make optimal use of his time. Now, he knows exactly what he needs to work on: avoiding death from falling into a river!

And we can step back even more and generalize further: what we are seeing is but a special case of the law of diminishing returns. Abstractly, each additional unit of satisfaction requires a greater input of factors: land, labor, capital ... and thought (sometimes called "entrepreneurial ability"). Generally, the further up you pick the fruit, the harder it is to pick the next branch up, in terms of any factor of production, including and especially thought. Conversely, if you suddenly face a sharp drop in satisfaction by being deprived of more fundamental necessities, it becomes easier to decide what to do: replace those necessities!

***

That should give you a taste of what I think is missing from discussions of the economic impact of natural disasters and inability to reach full employment. In the next entry, I'll go further to illustrate how deeply this oversight impacts the ability to perform good economic analysis.

EXCLUSIVE: Silas's bitcoin mining rig tell-all!

2011-12-11T11:31:00.003-06:00

As part of an application I filled out recently (more on that in the future), I explained everything I went through to get my bitcoin mining rig up and running. But why bury that story in a place only one person will read it? Nay, my readers ought to hear about it as well! So, here's the story, with a photoalbum for each stage at the end.

***

In February 2011, I learned about Bitcoin and the feasibility of building a "mining rig" (machine that quickly computes lots of SHA256 hashes) to make money by generating bitcoins, which trade against dollars at a varying rate. Though I hadn't built a custom box before, the idea of setting up a mining rig excited me.

I looked over some rig designs in the Bitcoin.org wiki, and based on those, designed a custom setup that I figured would achieve the highest RoR (involving 4 GPUs connected to a motherboard in a large case) and ordered the parts. Some graphics cards had already been bid up to unprofitability (Radeon 5970) by other rig builders, so I picked a slightly slower (Radeon 5870) one that was several times cheaper.

Over the course of putting it together I ran into a number of problems, any one of which would have shut down my plans, but kept trying different things until I overcame them.

First, since I hadn't built a computer from (near) scratch I had to learn what parts (motherboard, SSD, CPU, RAM, PSU) went where, and how to optimally route the wires. Then, on bootup, I found the BIOS didn't see the hard drive, and traced the problem to a part of the case's internal wiring that wasn't passing the SSD's SATA flow through, so I bypassed that and plugged it in directly to the motherboard.

Then, after installing Ubuntu, I had to download the exact set of ATI drivers required for mining rig code to work. It turned out the latest drivers interfered with the mining code, so I had to get an earlier version that AMD no longer promoted (or pretty much acknowledged the existence of). From the forums I found that you had to manually enter the URL since nothing linked to it anymore, which allowed me to mine with the first GPU in a way that exploited its ability to do parallel hash calculations.

After configuring the GPU to send its computations to a mining pool (group of miners that combines computations to get a more predictable solution [hash inversion] rate), I opened up the box again to add the second GPU. (I had decided early on to add them one by one to make sure I understood what was going on at each stage.) Getting them both to work together introduced another problem, as they would somehow keep adjusting their hashing rate downward to the level of only one GPU. This required another trip back to the forums to learn new software to install, which still didn't work after numerous configurations, so I wrote down the whole process up to that point and re-installed the operating system. (I ended up doing this several times as a last resort at different stages.)

Once I got all 4 GPUs and a hardware monitor installed, I was able to get excellent hashing performance, but soon noticed that, with four high-power GPUs packed so closely together, they heated up to unacceptably high temperatures, so I took two out. That solved the temperature problem, but I still wanted all four to be able to run, so I looked into better cooling solutions. (For a short while I ran three cards safely by having one side of the case open and pointing a box fan at the cards, though this was obviously very inconvenient and wouldn't permit safe overclocking.)

It turned out that liquid cooling was my only option, which I had also never set up before. Nevertheless, I went forward and found a cooling block model (i.e., something that replaces the OEM GPU heat sink) that would fit my cards, as well as a cooling kit (pump, radiator, reservoir, tubing). I also ordered some parts that would directly connect different blocks together and so minimize the need for tubes.

When I got the cooling blocks, it turned out they didn't fit, because the particular variant of the Radeon card I was using had a non-standard PCB design (which I didn't realize was possible before). So I sent back the cooling blocks, found ones sure to match this specific design, and ordered those. Finally I was able to attach a block to each of the 4 GPUs. I then ran into another problem with the block-to-block connectors, which I couldn't figure out how to install (and had ambiguous directions), and had to be put in a tight spot, so I asked a more home-improvement-savvy friend how they worked.

I eventually got the connectors to install, but ran into another problem: because of space constraints, the tubing would require bends that were too sharp. I figured I needed a 90-degree angle fitting, but I couldn't get one at a local hardware shop because PC cooling parts all use British piping threads, which are incompatible with those carried in American stores. After finding a compatible one online, I realized that each day without the rig running was costing me money, and this was the only part holding it up, so I had it express-shipped to arrive the next day, allowing me to finish setting up the liquid cooling system.

I had to make a few choices then about which way to point the radiator air flow and otherwise optimize cooling capacity. I eventually settled on a design that had the radiator take air from the room and dump the exhaust into the case, which I partially mitigated by flipping one of the case fans to bring more external air in rather than taking it out.

At this point, there were fewer setbacks, but I was hesitant about circulating coolant inside the system if I couldn't first ensure there were no leaks. So, before closing the loop and adding the coolant, I configured some leakage tests where I would fill the system with distilled water, leaving an open tube at the top, sealing the other end, and ensuring plenty of towels around the potential leak points.

With this test configuration, I blew into the tube. I figured that if it could withstand this pressurization without leaking, I could be more confident about actual fluid circulation. Fortunately, none of the tests showed a problem, and I got the "production" liquid cooling system running.

Finally, I was able to have all four GPUs running overclocked, generating bitcoins for me through a mining pool, and staying at temperatures significantly below what I got before. I further optimized performance by using new mining software, experimenting with settings, and then saving a file with the commands to get the rig running optimally.

There were still some other kinks to sort out, like what to do about the immense heat it generated for the rest of my place, and how to monitor the mining pool status, but that about covers everything. Now, for the pictures:

Final result

The various stages (no captions, sorry):
Initial set-up
Putting four graphics cards in
Replacing OEM heat sinks on graphics cards with waterblocks
Installing the liquid cooling system

Another explanation of hash functions

2011-11-12T15:23:00.016-06:00

I think I've found a new way to explain hash functions and convey the intuition behind them.

First, think back to the classic problem from grade school: a farmer raises cows and chickens. His animals have a total of, say, 10 heads and 22 feet. How many cows and chickens does he have?

If you know algebra, you probably laugh at how easy the problem is, though it's still interesting for kids, who generally have fun with it. Now, you can either solve it the kid way, or the algebraic way. The kid way is to "guess and check": that is, guess a number of chickens and of cows, find the corresponding number of heads and feet, and check if it matches that given in the problem. The algebraic way is to let x be the number of chickens, y the number of cows, and write:

x + y = 10
2x + 4y = 22

And then solve for x and y the standard way. (In case it needs to be said, chickens have one head and two feet while cows have one head and four feet.)

What does this all have to do with hash functions, though? Glad you asked.

A cryptographic hash function for 10,000 BC

Recall the requirements for a cryptographic hash function: it must be easy to compute the output (digest) for any input (preimage), but hard to compute the input for any output (other than by trying every preimage). In other words, a one-way function (or trapdoor one-way function without the trapdoor).

So, here's a hash function for a mathematically backward world: First, it takes two integers as input. You let the first be number of chickens, and the second be the number of cows. Then, output the total number of heads and feet (perhaps with a simple separator, like "10:22" for the above example).

It works as a hash function for the people of 10,000 BC precisely because of their (relatively) poor mathematical understanding. Since they don't know to express it as a system of linear equations, or otherwise derive a simple general solution, someone trying to "crack" a given hash digest (output) would have no choice but to guess and check a bunch of chicken/cow possibilities. This method is referred to as "brute force" in cryptography, and as long as a hash function hasn't yet been "broken" (by a better understanding of the math theory involved), it's the only option available.

Though this situation may seem contrived to us now, the same dynamic is at play in modern, military grade cryptographic hash functions: so long as people lack sufficient mathematical understanding, it is impossible to invert a hash digest except by brute force. The only difference between now and then is that the math and computations are harder.

In the previous post, I mentioned how hash functions can be used to protect stored passwords while still allowing password-based authentication. Let's go over how this would work.

An encrypted password system for 10,000 BC

Let's say Mike the Merchant wants to set up a service of warehousing people's valuables. He'll deal with many customers and doesn't want to count on remembering their faces when they come to reclaim their stuff. So, he'll give each customer a unique password they must use to get in. This will be a stronger authentication system than just trying to remember every customer.

Like modern website owners, Mike also wants to keep his password records from being stolen or misused (say, to steal his customers' stuff). If he simply kept the passwords in a book, someone who gained access to it could copy them and then come one by one to illicitly claim the goods in the warehouse. (Though of course, Mike can always use common sense security measures, like noticing something is fishy when the same customer one day claims to know all the passwords!)

So, rather than store the passwords, he converts them into two integers (if the password isn't already in that form) and stores the digest from putting them through the hash function described above. So, if Harry the Hoarder's password were 100:350, Mike would store Harry's password as 450:1600. (That is, interpret the number before the colon in the password as chickens and the latter as cows, and then store the number of heads [100 + 350 = 450] and number of feet [2*100 + 4*350 = 1600], separated by a colon.)

Then, when someone comes in claiming to be Harry, Mike asks for the password. Next, instead of comparing Harry's password (100:350) to an entry in his book, he first computes the hash digest (450:1600), and compares that number with his entry for Harry. So, he still has a working system to authenticate people by password.

What protection does this offer Mike if someone gains access to his password book and copies the entries? Well, remember, like with modern systems, all they get are the digests that result from putting the passwords through the hash function, not the passwords themselves. And knowing a digest won't convince Mike that you're the account holder: remember, he's checking for a pair of numbers that hash to your entry, not the entry itself.

Could the attacker infer the passwords from the digests listed in Mike's book? Yes, but it would take infeasibly long to do so -- that's the role of the hash function. Going from cows/chickens to heads/feet is easy, but going the other way is hard (for a mathematically backward society, at least). To make any use out of Mike's hashed-password book, an attacker would have to guess a huge number of passwords and see if their digests match any in the book. As long as the password space is big enough, and the society remains mathematically backward enough, it's just not feasible for an attacker to guess and check enough passwords to find a match in the book.

And like in the previous section, this is the same position we are in with respect to hashed password storage today: with a good enough mathematical breakthrough, it might become feasible to quickly invert a hashed password, but as it stands now, the hash functions used are enough to render such databases useless to attackers (though obviously some attacks still get through, such as when a website continues to use a long-broken hash function). The only difference is the complexity of the math.

Of course, Mike still has to make sure his customers don't give out their passwords or store them insecurely ... a problem we still grapple with, twelve thousand years later.

Setting professor fashion straight

2011-11-06T22:51:00.003-06:00

How good are you at distinguishing professors from the homeless? Test your prof/hobo classifier here. I only did slightly better than chance -- 6/10. (Though obviously it doesn't sample uniformly over all professors.)

HT: Jerry Coyne

Setting unilateral disarmament (obligations) straight

2011-11-05T10:01:00.003-05:00

Apparently a Steve Landsburg post from a few months ago has been rediscovered and sparked a new blogosphere debate. The question: "If you favor higher taxes on a class of people that includes yourself, are you obligated, in the absence of the higher taxes, to make voluntary contributions to the government so as to push the world closer to your preferred one?"

The debate also considers (in greater depth) a weaker claim: "If you favor higher taxes on a class of people that includes yourself, you have a greater moral obligation to voluntarily pay (part of) such taxes regardless of whether they are enacted."

Bryan Caplan, Tyler Cowen, and Bob Murphy, all libertarians, weigh in and agree with that weaker claim. (They are listed in approximate decreasing order of confidence in the claim.) Karl Smith, one of those who does want higher taxes, disagrees.

My take is that, despite superficial dissimilarities, the question reduces to that of unilateral disarmament (UD). That is, if everyone (else) would be better of for each person who (metaphorically) disarms, but you would be much worse off if only you disarmed, should you disarm? I say that, you do not have such an obligation, either morally, or for logical consistency, though it would certainly be a noble act. So, I think Karl Smith is basically right (about the implied obligation -- obviously, not about taxes!).

Just as in UD/public goods/free rider cases, the decision to UD will, for lack of a better term, "weed out the meme pool" of people like you, effectively rewarding those who favor opposite policies (which you, by stipulation, regard as pernicious).

It is for the same reason that you should not pay Coasean extortioners: though ostensibly, it works toward your goals, it undermines them by rewarding the wrong people.

I think Douglas Hofstadter made the point very well in his Tale of Happiton, which discusses this dynamic, but in the (less relevant, IMHO) context of nuclear disarmament. He's set up a public goods type situation in which "writing postcards" (i.e. to advocate nuclear disarmament) benefits everyone, but has its costs paid purely by whoever writes them. Watch how he subtly describes the dynamics of what happens when one person takes it upon himself or herself to do the postcard writing. (Here, it's a girl named Andrea.)

Andrea’s older sister’s boyfriend, Wayne, was a star halfback at Happiton High. One evening he was over and teased Andrea about her postcards. She asked him, “Why don’t you write any, Wayne?”.

“I’m out lifeguardin’ every day, and the rest of the time I got scrimmages – for the fall season.”

“But you could take some time out - just 15 minutes a day - and write a few postcards!” she argued. He just laughed and looked a little fidgety. “I don’t know, Andrea”, he said. “Anyway, me ‘n Ellen have got better things to do-huh, Ellen?” Ellen giggled and blushed a little. Then they ran out of the house and jumped into Wayne’s sports car to go bowling at the Happi-Bowl.

Naturally, Hofstadter wrote this piece to encourage people to UD ("write postcards") in such a situation. But I think he's just as well shown that, in the absence of a collective agreement, your decision to unilaterally disarm is, well, spitting in the wind.

(A version of this post was made as a comment on Bob Murphy's blog.)

Setting universal debt paydown straight

2011-11-03T21:29:00.005-05:00

Not that this will get the article any more hits, but I strongly recommend Bob Murphy's takedown of the all-too-common belief that it's somehow impossible or damaging for everyone to reduce or eliminate their debts. It was in response to the latest articulation of the idea by Paul Krugman.

Really, folks, any economy that relies on a certain level of indebtedness is not an economy I care to defend, as it rests on a poor foundation. The purpose of an economy is to provide people with the best consumption/leisure/labor bundle possible, not to goose the hippest new econometric.

Virtualization is a riot!

2011-11-02T21:01:00.005-05:00

Isn't it neat how computers can completely simulate other computers purely via software? (Background). Well, right now I'm reading a book that comes with a Linux Live CD containing relevant source code -- basically, a CD that you can boot from to see what it's like to use the operating system without interfering with the one you currently have. (Not to mention the benefit of having the exact same environment as the author so you can make sure It Works.) And that's how Live CDs are typically run: from bootup.

But with emulation, you don't need to reboot your whole computer just to get that Linux (or whatever OS) experience! You can set up a "sandbox" environment, or virtual machine that "pretends to be a computer". The software allocates a portion of your computing resources that you specify (disk space, RAM, etc.), and you just run the Live CD through that "pretend computer", freely switching from the window containing that virtual machine, to your web browser and whatnot. Again, it's without the hassle of rebooting every time you want to switch between that and the cute cat video you were watching.

So there I am -- I've got the virtual machine running a "sample" of an operating system off a Live CD, no need to reboot my "real" machine. But it gets better! I can go one step further and tell my pretend computer, "You know what? Let's go all the way. I want the full operating system -- not just the "sample" -- installed on your pretend hardware!" And then it dutifully runs through all the screens you would normally see when installing a Linux distro as your operating system, seizing control of the sandboxed software-that-thinks-it's-hardware, for a full wipe of the, um, non-OS you had there before.

Sorry, I don't know why ... I just find this all so hilarious ... virtualizing the use of a "sample" operating system before I install it on its virtual hardware.

(For those who are curious, the software I'm using is Oracle VM VirtualBox, available free for (IIUC) personal non-commercial use. I learned about it from LessWrong.com's failed attempts to teach others how to play with the site's code.)

Happy birthday to me...

2011-10-30T10:13:00.004-05:00

Today is my big 30th birthday. Check out the cake my friends made for me! (Click to enlarge.)

You know you're an economist when ...

2011-10-21T11:49:00.001-05:00

... you find yourself needing to cite “Buchanan 1973″ when claiming that gangs want to do “too many” drive-by shootings.

In addition, the Mexican Mafia regulates drive-by shootings…because any particular street gang only suffers a portion of the increased attention of law enforcement from drive-by shootings, each street gang has an incentive to do too-many (Buchanan 1973).

Now this is why we have "Do Not Kill" Lists...

2011-10-17T17:11:00.003-05:00

Though it's not exactly the same thing as the list that I'm making up, it turns out that some people actually don't want to opt out of being killed by the state.

You see? When we have it all formalized with a list, governments can know who doesn't and who does want to be killed!

"Do Not Kill List" FAQ

2011-10-13T17:14:00.002-05:00

To respond to some of the burning questions you all have about my new list, here are some answers:

What does being on the Do Not Kill List (DNKL) mean?

It means you have expressed your desire not to be subject to targeted killings by the US government or any of its contractors (i.e. that you've "opted out" of such programs the CIA one detailed by Reuters that is not subject to judicial review), preferring instead that, if the government believes you have committed a capital crime, it should apprehend you and pursue a criminal case in full accordance with your Constitutional rights, such as "habeus corpus", "due process", "right to counsel", "right against self-incrimination" and all other kinds of obscure stuff you might not have heard of.

Wait, is this official? Is the government actually going to abide by this?

Probably not. The idea is just to make sure some list of this type exists so that the government won't be able to pull a trick like, "oh, well, see, Mr. Doe didn't actually invoke his right against secret assassination, so we can assume he waived it".

Isn't this dangerous? Can't someone, like, break out the Uzi and start mowing down people, and then be like, "oh, oh, oh, look, my name's on the DNKL, you can't touch me!"?

No. This "opt-out" doesn't prevent the government from arresting you and prosecuting you to the full extent of the law, even if it were to abide by the list.

I was convicted of a grisly triple murder and sentenced to death. I was accorded full due process and have exhausted all appeals. I'm now set to be executed soon. Optimistically, will being on this list protect me from being executed?

No. The DNKL administration takes no position on current laws or punishments in the US, only on people's right to "opt-out" of government-sanctioned extrajudicial killings.

Setting the signaling model of education straight(er?)

2011-10-13T10:04:00.002-05:00

Note: free business suggestion below.

You might have heard about the so-called "Signaling model of eduction", promoted by Bryan Caplan at GMU (among others!), and it's something I find plausible.

First, some background: The problem is to explain why people who get a college education are more able to get jobs, and better paying ones. The traditional explanation is that colleges provide you with knowledge skills that allow you to be more productive. (This has always seemed suspicious to those of us who have remarked, throughout our education, that "I'm never gonna use this stuff" ... and been mostly right.)

The signaling model, in contrast, says that completion of college simply reveals your possession of good traits for hiring that you already had before, but could not convincingly claim to have until you completed college, since a college degree indicates some combination of intelligence, willingness to do boring stuff that doesn't make sense, and capacity to be indoctrinated into and conform with a group (I'm simplifying a bit). These things are hard to test in a job interview, or, in the case of intelligence, usually illegal to test for.

A few years ago, I pointed out (HT: Bob Murphy [1]) that one usefully testable implication of the signaling model is that you should be able to earn big profits by running a business that provides high school graduates with the same "signals of good qualities" that a college provides, but at significantly lower (monetary) cost to them, simply by "cutting out the fat" -- all the stuff that doesn't help to signal the student's ability. You would just set up some school that filters students by IQ, and then puts them through hell, gives them difficult assignments, poor living conditions, etc. No way an unemployable person could survive through that kind of regimen, right?

So there's your idea: you make students just as employable, but they don't have to take on nearly as much debt.

Interesting caveat: in one discussion of my idea, someone mentioned that this business model is already in widespread use: specifically, the military! Let's go through the checklist:

- Cheaper than college? Check. (Heck, in terms of money, they pay you!)
- Enforces indoctrination and unquestioning following of direction? Check! [2]
- Selects for people who are willing to give a lot to a big organization? Check.
- Employers regard service therein as equivalent to college experience? Check (usually).
- Gives experience doing boring tasks because you were told to? Check.
- Generally puts you through hell? Check.

Wait, this can't be right, can it? This comparison fails in that the military doesn't filter people based on an IQ test! Hah!

Not so fast -- they've got that one covered: in the US, it's called the ASVAB, which determines whether you can get in, and then which branch, role, or officer status you're eligible for. (My mom used to pass on her dad's remark that, "the army'll take anyone who can crawl there, but not the Coast Guard! An exaggeration, of course, though the branches do have different score cutoffs.) The ASVAB is, in content, an IQ test.

Now, if you can provide a better value than the military (say, to people who don't want to possibly be put in harm's way), here's your business idea!

[1] Yes, a hat tip for pointing me to my own post,.
[2] Note: this isn't always a bad thing. As Eliezer Yudkowsky put it in that article:

Let's say we have two groups of soldiers. In group 1, the privates are ignorant of tactics and strategy; only the sergeants know anything about tactics and only the officers know anything about strategy. In group 2, everyone at all levels knows all about tactics and strategy.

Should we expect group 1 to defeat group 2, because group 1 will follow orders, while everyone in group 2 comes up with better ideas than whatever orders they were given?

In this case I have to question how much group 2 really understands about military theory, because it is an elementary proposition that an uncoordinated mob gets slaughtered.

Time for a "Do Not Kill" list?

2011-10-11T11:54:00.011-05:00

In the wake of US citizen and al-Qaeda booster al-Awlaki's killing by drone, some have raised alarm about further targeted killings of US citizens (including Glenn Greenwald and my close, personal friend, Bob Murphy). And indeed, Reuters is now reporting that there are secret CIA kill lists of US citizens not subject to judicial reivew.

At this point, many people are wondering if they can have themselves removed from such a list (like al-Awlaki's father unsuccessfully tried to do). Well, a thought occurred to me: we have the Do Not Call list, right? Why not a "Do Not Kill List" so that you can let your government know you want to opt out of its targeted killing program, and would prefer, in the case of suspicion of capital crimes, you be given a public trial instead, and then only killed if found guilty or something.

Since no one else seems to have started this yet, I figured I'd give it a go. Personally, I want to opt out of being killed (I'm a big fan of trials), so I'll be first on the list. While I'm not sure about the legal niceties, I don't want my family killed either (though it depends on the day in the case of my brother ...), so I'm going to add them to the list too. Here's the Do Not Kill List as it stands now:

Do Not Kill List (opt-out for CIA targeted killing program)

1. Silas Barta
2. Silas Barta's family
3. John Salvatier (aka jsalvati), added 10/11/11
4. Robert P. Murphy (yes, this RPM), added 10/11/11 (woo-hoo! up to six people on the list!)
5. Aurini's family, added 10/12/11
6. commenter "Rob", added 10/16/11
7. Jayson Virissimo, added 10/16/11
8. Matthew Graves
9. Joseph Fetz
10. Doctor Squirrel
11. Carlos M. Rivera, added 11/8/11

Doesn't take a lot of memory to store as of this moment. I'm thinking of expanding it in the future so that it has more specific identification of persons -- say, pairing a given person with their Social Security number and/or email so that you won't have some goofy "Sarah Connor/Terminator 1" moment where you kill the wrong person because they have the same name. (Don't worry, the entries will be hashed to prevent abuse.)

Please contact me, either by email or in the comments, if you want to be on the list.

UPDATE: An FAQ on this is now up.

Bitcoin overview: proofs and common knowledge

2011-07-16T14:13:00.006-05:00

In previous posts, I gave an explanation of the cryptographic building blocks of Bitcoin. Now I'll give a more "big picture" overview of how the overall system works. As before, I expect this to be easier to follow than the explanations I had to read to get to my current level of understanding.

Let's start from the general problems that a decentralized, anonymous (or pseudonymous) currency system has to solve. The most fundamental problem, is that of achieving "common knowledge" of the currency ownership. Specifically, everyone has to know not only who is the valid owner of any currency unit (so as to prevent double-spends); they must also know that everyone else knows the same answer. And they must know that you know that they know (and so on) this information. (This level of knowledge is known in the literature as common knowledge, but with the definition I just gave, not the conventional one.)

In other words, it's not enough that I know the current ownership status of any coin; I must count on others agreeing with me and knowing I agree with them. If you could accomplish this, you could get everyone to use and depend on the same record, thereby resolving disagreements about who is the current owner of what -- without trusting any one person. It is this problem that required the "key" innovation behind Bitcoin, as it has normally needed a trusted authority to solve it.

So what is this key innovation to solving that problem? The first insight is that it's possible to prove how many computing cycles were spent working on something. And with a system that implements such a "proof protocol", you can have a transaction record that provably has a certain number of past computing cycles spent on it. Then, you just need most of the users of a system to agree that they'll "go along with" whatever transaction record has the most computing cycles spent on it. Then, you know what the "real" global ledger is -- and you can trust that everyone else is using it too! (And they can trust that you're using it, etc.)

And there you have it: proof of ownership, without a central authority.

With that problem and solution in mind, a lot of the complexity of Bitcoin starts to make sense.

Remember how I had previously mentioned that bitcoins are initially doled out based on who can solve complex mathematical problem? Well, that math problem doesn't just exist to get initial bitcoins widely distributed -- that's not even the most important function of the problem. The main purpose, rather, is to prove that the the largest number of computer cycles were spent on a given transaction record. You see, if you start from the last known solution (which itself has the transaction record up to a point in time), you are starting from a record with, so far, the biggest number of cycles spent on it. (And the Bitcoin protocol specifies that you should start from the biggest one, though its in your own interest, as you will see.)

If you publish an "update" -- the previous ledger plus more recent transaction -- with the next solution, then the other users know that your purported ledger has all the cycles you spent on it plus all the cumulative cycles spent up to the last solution. Therefore, if you want to claim credit for the latest solution (entitling you to the 50 BTC bounty), you should start from the ledger in the latest solution.

So, let's step back and summarize. Here is a simplified version of what goes on in the Bitcoin network:

1) Whenever users want to transfer their bitcoins over to someone else, they broadcast a message describing the transfer and sign it with their private key.

2) Whenever a user receives a message indicating a transfer, they first check that the signature is valid (see previous post on digital signatures), and that the address doesn't spend more than the latest "confirmed" ledger shows it as having. If it checks out, they keep the message and propagate it to others.

3) All users wishing to claim the reward for a solution (aka "miners") bundle up all transactions they know of (i.e., new ones plus those in the latest confirmed ledger), and convert it into a math problem unique to that transaction set. They then work on solving that problem.

4) When someone finds a solution, they broadcast it, with their bundle of known transactions (new latest ledger), to all other users. Like with individual transactions, anyone who receives one of these checks it, and if valid, broadcasts it to others.

5) Miners who receive a new valid solution quit their current search for a solution, then take the latest ledger as definitive. Again, as in 3), they bundle up new transactions they hear of, add them to this new ledger, and try to solve a new math problem unique to the new transaction set, and the process begins anew.

In practice, sometimes different users will simultaneously find a solution, or solutions will propagate through different parts of the network at different speed. So miners will typically hold on to the 4-5 last latest ledgers, in case one of them is extended and becomes definitive. Users, for their part, will wait for several new ledger solutions before accepting their transaction is firmly in the network.

Oh, and as for the relevant jargon? A new solution, with its bundle of old and new transactions, is called a block. The complete transaction record, with each solution along the way, showing how the build off of each other, is called the block chain -- because each block "chains" off a previous ledger.

Now, I'm leaving out a lot of details, but I hope that explains the overall system and the different roles played. In the future, I'll go into more detail on:

- How you prove you spent X computing cycles on something.
- How you prevent situations where miners constantly find solutions at the same time.
- How you minimize storage requirements for the transaction record.
- How overlapping solutions get resolved.
- And much more.

Setting professional Bitcoin traders straight

2011-06-27T11:30:00.001-05:00

It's bothered me how a lot of the people posting criticisms of Bitcoin manage to get their facts wrong. But apparently, even people with a giant financial incentive to get them right ... still get them wrong.

At this point, I think it's only fair to post disclosures: I hold a portfolio that is long Bitcoin.

Anyway, I saw an (unintentionally) funny post on the blog at the Financial Times's Alphaville.

According to the post, a trader found out about Bitcoin and, based on technical analysis (chart-reading), he judged that Bitcoin was in a bubble and wanted to short. Okay, fair enough, we have someone entering the marketplace and tendering his judgment through the price system. So, you would think he would do his diligence and have some clue about what he was trading before trying to make a big bet on it, right?

Well ... I'll just quote him:

I've done some research, read through the concept [of Bitcoin] and quickly got to the point where I felt that the only reasonable position would be to short such a bull market. [...]

... so I tried to contact Adam at Bitcoin.org to ask if they intended to implement a possibility to short the BTC. Due to the overload in mails they must have had, I never got an answer on my inquiry.

See the rookie mistake there? (If you don't, that's okay. After all, you weren't about to bet $50,000 on your incomplete understanding.) Bitcoin is a open source project that uses protocol that implements a currency. That's all it does: make sure that the ability to use Bitcoins, per its own published protocols, works. The people at Bitcoin.org -- the development team and volunteers updating the wiki -- don't run exchanges (like Mt. Gox) where you can convert bitcoins into dollars. Those are independently run by people who use Bitcoin.

In short, MT. GOX IS NOT THE SAME AS BITCOIN!

So, this trader just did the equivalent of "trying to contact" the U.S. Mint to "ask if they intended to implement a possibility to short the US dollar", and then speculating that they must have been unable to answer his inquiry "due to the overload in mails they must have had" in this oh-so-heated market.

No, bright guy, they probably just didn't have time to talk to someone who didn't even understand the difference between a Bitcoin exchange (like Mt. Gox) and the Bitcoin project. Just like, I suppose, the U.S. Mint doesn't respond to inquiries misdirected people who ask them when they can short the dollar. (Note: it's not shorting the US dollar that's necessary misdirected, but asking the U.S. Mint about it.)

The blogger, Tracy Alloway, didn't seem to do any better. He added:

We like the currency trader’s rather more nuanced take ...

Nuanced? Yikes. I just hope traders -- and financial journalists -- have a better understanding of their normal playground than they do about Bitcoin.

Explaining Bitcoin and Cryptography, Part 2

2011-06-16T08:30:00.019-05:00

UDPATE: This was actually posted ~8:15 am CST, 6/25/11. For some reason, the date shown is that of an earlier draft. Blame blogger/blogspot.

Now that you've gotten your feet wet with my masterful explanations of some of the cryptographic pre-requisites of Bitcoin, you're ready for a more detailed explanation that removes some of the simplifications I used last time. But I will focus more on the cryptography here, telling it as I wish someone had told me when I was learning. So without further ado...

"Bitcoin really uses no encryption at all?"

The protocol itself does not involve encrypted messages, as many news outlets mistakenly report. Rather, the protocol is based on everyone seeing every message, unencrypted. However, some consider hashing a text to be encrypting it. And the address you use to send and receive is actually a hash of your public key rather than the public key itself (the signature protocol used only requires the verifier to have a hash of the public key). So, in that sense, there is encryption.

Also, as an optional (but recommended) technique, you can encrypt the "wallet file" that stores your private (and public) keys so that if someone gets control of your computer, they can't use your private keys to sign away your bitcoins.

So be careful: just because a protocol uses "cryptography" ("In cryptography we trust" being an unofficial motto of Bitcoin), doesn't mean it's actually encrypting anything, just that it's using a technique studied in the field of cryptography.

You don't usually sign an entire message in public key signatures.

I simplified: normally you just need to sign a hash of the message. Given the properties of hash functions, this is just as good as signing the message: it doesn't introduce a new weakest link, and signing a hash is computationally easier than signing the full message.

Now, you might argue that, "But there are infinitely many messages (preimages) that hash to the same digest! You said so yourself! How could I not be introducing a weakness by only signing the message digest? That allows someone to claim that I signed every preimage that hashes to that digest! I don't want to take responsibility for signing all those unknown messages!"

Calm down. For one thing, those second pre-images are, by design, very difficult to find, even despite the huge numbers of them (remember first and second pre-image resistance?). Don't let the infinite size deceive you. If the digest is 256 bits long (as in the case of the hash function bitcoin uses, SHA-256), then that means that only 1 in 2^256 (about 10^77) of all messages will "collide" with yours. That means that, on average, they have to look through 2^128 (about 3*10^38) candidate messages just to find one collision. That's a lot of work! (The "birthday paradox" ensures that you only have to search a space whose size is the square root of the space of digests: sqrt(2^256) = 2^128.)

And remember, cryptographic hash functions "look random" -- meaning there's no simple relationship between two preimages that collide. So let's say that your message is, "I hereby transfer $10 to Bob", and you sign the SHA-256 digest of that message. And let's even assume that an attacker did a lot of work and found their first collision, entitling them to claim you signed a different message, since it hashes to the same digest. Danger! Well, no, no danger. Because of the pseudo-randomness of hash functions, that "colliding message" won't be something neat and useful for the attacker, like "I hereby transfer $1 million to Bob."

Rather, in all likelihood, their second pre-image (i.e. purported alternate message) will look something like, "n02nS+TH/4dXcuPasQQn4". Doesn't seem to get the attacker very far, does it? All it lets them do is say, "Hey, I have proof that Silas sent the message 'n02nS+TH/4dXcuPasQQn4', and yes, I durn well do have have the signature, derived from Silas's public/private keypair, which matches the hash of that message. Checkmate!"

See the problem? "Um, excuse me Mr. Mallory, but what does 'n02nS+TH/4dXcuPasQQn4' actually mean? What is Silas transferring to you with that statement? It just looks like garbled text. I doubt Silas actually signed something like that ... hey, it looks like he *did* sign the hash of this other message, which actually makes sense. You can buzz off now, Mallory."

(Note: this may be a moot point, as I don't know if the Bitcoin protocol requires you to sign a hash or the original message, since the latter is already short.)

"But how do pubilc key signature algorithms actually work?"

Those of you with a scientific or rational mindset will rightly object that I didn't actually tell you how to digitally sign a message. I really just gave you the vocabulary for discussing public key signatures and asked you to take on faith my claim that the relationships hold (i.e. which parts of the protocol are "hard" and which are "easy"). I certainly didn't tell you enough to go out and create your own digital signature scheme (be it weak or strong), and this probably bothered some readers.

Well, I still won't! But I invite you to read about RSA, a commonly-used public key algorithm (with both an encryption and signature protocol). It's fairly easy to understand, and will shed some light on how it's possible for them to introduce the criticial asymmetries, such as how the private key can be difficult to infer from the public key, making it hard to generate a signature for anyone but the private key holder.

"And what do trapdoor functions have to do with public key signatures, again?"

When I mentioned the use of trapdoor one-way functions (TOWF) as underlying public key algorithms, I didn't make it clear how you turn a TOWF into a public key signature method. In the comment section of the last post, Boxo spelled out the mapping. I'll phrase it in a slightly different way. Remember that a TOWF is a function meeting the following criteria:

1) Given x, it's easy to compute f(x).

2) Given a value V equal to f(x1), it's hard to infer x1 (or any other x such that f(x) = V).

3) But if you have some "trapdoor knowledge", it's easy to find that x1 given V.

So if you have a TOWF, here's how you can sign a message. First you find a particular instance of the function class, f1(x) to which your TOWF belongs. The information that identifies f1(x) out of the function class is your public key. The trapdoor information is your private key.

One you generate a message M, you let that M (or some hash of M) take the role of V in item 2) of the description above. Because you have the "trapdoor knowledge" (item 3), you can find x1 easily, where f1(x1) = M. Then x1 is your signature, and you attach it to the message.

Others can very your signature by checking that f1(x1) really does equal M (or the hash of M). This is the "mathematical relationship for verifying a signature" that I kept mentioning in the last post. Per item 1, this computation is easy.

Hope you found this helpful!

Explaining – not setting – Bitcoin straight

2011-06-10T13:25:00.002-05:00

Okay, I had some spare time last night, so I figured I’d sit down and write up an explanation of some of Bitcoin’s workings. The chief problem in explaining this to the layman is that, as a prerequisite, you need to understand the basics of public key cryptography (aka asymmetric cryptography), which, for the average person, is quite a tall order in itself. But since I’m the master at this kind of thing, here’s how I would put it:

First, to get something out of the way: nothing in Bitcoin is actually encrypted. Rather, it works, and works robustly, without centralization, specifically because all transactions are visible. The privacy comes in how the entities trading the coins are referred to in this transaction database, purely by their Bitcoin address (a string of numbers and letters, like 1mVQtx6rn…), which is like one of those supposed Swiss bank accounts you hear about that are only known by a number. (So yes, if you publicly and believably reveal that, "Hey, I own address 152zpfu5b20gh29...!", then people can see what you do via the address 152zpfu...) So rather than anonymous, Bitcoin is best described as pseudonymous (sue-DONN-i-MUS).

The reason that you need to know the basics of public key cryptography, rather, is that a lot of its "primitives" (building blocks) are used in Bitcoin, and the protocols used are heavily studied by professional cryptographers.

First primitive: public key-based digital signatures

How do you accomplish signatures in a digital world, where anyone can put any data on any storage medium? Like a physical signature, a digital one needs to meet the following characteristics:

A) Proof of identity: only you can produce your signature, so seeing your signature is proof that you endorse what you signed.
B) Non-repudiation: after giving your signature, you can't plausibly deny having signed it.
C) Non-transferability: your signature on Document1 can't be "moved" to a different Document2, implying your endorsement of the latter

Quite surprisingly, you can accomplish these goals with a kind of signature in the digital world. Here's the trick: you generate a keypair -- a "public key" and a corresponding "private key". You keep the private key secret, and tell everyone in the world your public key. You then use a "public key algorithm" (PKA) that takes as an input:

1) the message, M1, that you want to sign
2) your private key, SK1

and outputs a signature, SIG1. PKAs are designed so that computing this algorithm and generating this signature is quick and easy.

Then, if someone wants to verify that you really did sign message M1, they just verify that a certain mathematical relationship (corresponding to the particular PKA used) holds among your public key (which, remember, they know), your message M1, and your signature SIG1. Again, this process is designed to be quick and easy for the verifier.

So, how does this provide the desired qualities A through C above? A and B are satisfied by the fact that it is extremely difficult and time-consuming to produce SIG1 *unless* you know the private key SK1. (Inferring the private key from the public key is likewise too time-consuming to be finished anytime in the next few centuries.) So, the fact that you were able to (quickly) compute SIG1 is proof that you hold the private key corresponding to the public key, AND that (with a few caveats) you chose to use that key to generate the signature for M1.

This protocol satisfies criterion C (non-transferability) because, as you recall, SIG1 is partly a function of the message itself. This means that your signature will be different for each message you could conceivably want to sign. So someone can't take SIG1 and cite it as proof that you signed a different message M2 -- because the protocol's specified mathematical relationship will *not* hold for {M2, SIG1, public key} -- it will only hold for {M1, SIG1, Bob's public key}. To "forge" a signature, they would need to produce {M2, SIG2, Bob's public key}. But like I said above, it's way too hard for them to figure out what SIG2 would be unless they know your private key.

I'm deliberately leaving off the specific algorithms used for such systems so that this does not become unbearably long. Suffice to say, there are algorithms that accomplish this, and they mainly rely on modular arithmetic and prime numbers. I will only add that the class of function needed to produce such a PKA is known as a "trapdoor one-way function". That is any function f(x) such that:

- Given x, it's easy to compute f(x).
- Given a value V equal to f(x) for some unknown x, it's hard to find an x such that f(x) = V. (i.e., it's hard to invert f)
- But, if you know a specific piece of information particular to f, called the "trapdoor knowledge" (in the exposition above, this is the part played by the private key), it is *easy* to invert f

What role do public key signatures play in Bitcoin? They are used to prove to the network that the owner of address A1 (A1 also functioning as a public key!) really did authorize the transfer of certain coins to the next address. Other nodes in the network, in turn, are able to easily verify that the owner of A1 signed off on the transfer by checking that the mathematical relationship I mentioned above holds among the A1 public key, the message indicating the transfer, and the signature on the transfer. And if this relationship doesn't hold, the other nodes (per the Bitcoin protocol) ignore the purported transfer, acting like it didn't exist, and refuse to tell other nodes about it.

Second primitive: (cryptographically secure) hash functions

A hash function (in cryptography) is a function that takes an input of any length, and deterministically computes a fixed-length output based on it, such that the relationship between input and output "seems random", and there's no quicker way to compute the output, or otherwise learn *anything *about what the output will look like, than to churn through the hash function itself. I will make this make a bit more sense. For simplicity, call the input to a hash function its "preimage", and the output of a hash function its "digest" (the output is also referred to as the checksum or the [digital] fingerprint).

An example of a (weak) hash function most people are familiar with is the kids' game where you find out your "Star Wars" name or your "stage name” by doing something like, "Take the first syllable of the street where you grew up, and add on the last syllable of your middle name, plus the first syllable of where you were born." This name is a hash of all that data about yourself.

However, cryptographically-secure hash functions have to meet more stringent requirements. Like I said above, it must be really hard to make inferences about the relationships between classes of input and classes of outputs without actually grinding through the function for each input in the class. So, for example, you can't have a hash function where "small changes in the input (preimage) lead to small changes in the output (digest)". Rather, they are designed so that a tiny change in the preimage will *significantly *change the digest. More formally, cryptographically secure hash functions must meet the following characteristics:

- Given a digest, it's hard to find a preimage that hashes to that digest. This is called "[first] preimage resistance". (Note: because preimages can be any length and the hash length is fixed, there are an infinite number of preimages that hash to any given digest.)

- Given a preimage, it's hard to find another preimage that hashes to the same digest. This is called "second preimage resistance".

- It's generally hard to find *any* preimages (given or not), that hash to the same digest. Such instances are known as "collisions", and this trait is called, obviously, “collision resistance”.

(Exercise for the reader: how the Star Wars name game described above fail all of these?)

The function of hashes: in everyday data security, they serve the function of obscuring data in a way that limits its malicious uses. For example, websites don't actually store your password (if they know anything about security whatsoever). Rather, they store a *hash* of your password. That way, they can still verify you by password (Check: does the hash of the password given match the hash we have on record?), but if someone breaks into their database, all they get are the hashes. Because the hash function has first preimage resistance
(see above), the list is much less useful to the attacker because they have to accomplish the difficult task of finding preimages for the hashes they found.

Hashes are where the "miners" come into play: initial bitcoins are generated and allocated (and still are) based on who can solve a mathematical problem. That problem is similar to the one of breaking a hash function's (first) preimage resistance. But rather than having to find a preimage with a *specific* digest, the problem is to find a preimage whose hash is a *partial* match (for some specific number of digits) with a target digest string. So, it's like an easier version of breaking preimage resistance, though still requiring the ability to do lots of (parallel) calculations – because there is, by design, no shortcut to solving this but to try as many preimages as you can.

Anyway, that's about all for now, something for you to chew on and get some understanding of the whole thing. There’s still a lot left, but that should cover the pre-requisites.

Bitcoin mining rig is up!

2011-05-23T09:58:00.006-05:00

Picture of my liquid-cooled box of 4 Radeon HD5870 cards, before closing up the case and actually getting it to work. It computes about 1.3 Gigahashes per second. (Click to enlarge.)

The side panel that closes it off (not shown) adds another large fan, which I inverted so it's sucking the hot radiator exhaust air out.

UPDATE 5/24/11: I've switched to the Phoenix miner, which somehow gets more hashes out of your card, so I'm now computing about 1.5 Ghash/sec.

Setting Inflation Straight, Part III (at least)

2011-05-09T17:46:00.001-05:00

You ever noticed how inflation seems a lot worse than the official numbers indicate?

Via Yahoo, Fox Business reports on the change in prices for a sample of everyday grocery items. It shows quite a shocking increase over the past year, far more than you might suspect from the "tame" inflation numbers you hear about.

I've reproduced the prices from that article in the table below, showing the current, March 2010, and March 2006 values. (I couldn't find the numbers in the source cited, but will operate on the assumption they all refer to March of that year, even though it suggests they average over 12 months in the previous year; this would mean the results I calculate actually understate inflation.)

Yikes! The average 1-year price increase for this sample is over 8%!

So what is the offical food price increase? The BLS CPI report on page 2 gives their aggregate 1-year food price incease as only 2.9%!!! And if you think 1 year is too short because of volatility, then look at the five-year food inflation numbers, a time period that covers the "massive" price collapse and "deflation" following the 2008 crisis onset: 4.7% per year.

And this is still:

- ignoring all quality debasements, and
- in an environment where banks are holding on to their massive reserves, suppressing price increases!

I've listed the corresponding prices for gold (though they're all relative to the present instead of March of any year), using an ETF (ticker symbol GLD) that tracks it. Looks like it works well (if a bit too well) as a barometer of dollar debasement. Hope you stocked up back then! (By a great coincidence, a financial advisor in April 2006 looked at me like I was insane for suggesting putting any money in gold.)

But don't worry, your iPad holding more memory will make up for this, I'm sure...

Almost funny...

2011-04-19T20:47:00.002-05:00

... except for the fact that the Fed really does think like this.

Onion Video: Should The Nation's Unemployed Be Buying New Apple Computers?

Setting CPI silliness straight ... again

2011-04-01T21:16:00.004-05:00

Sorry for the long lull in posting, and I'm a bit late on this story too, but it's very telling. We have on our hands a new modern day Marie Antoinette (or at least the popular image of her): William Dudley of the New York Fed deigned to talk to a working-class audience in Queens, New York on March 11.

He tried to promote the tired line about inflation being low, a story this crowd, well, didn't find plausible:

"When was the last time, sir, that you went grocery shopping?" one audience member asked.

Then, for his "Let them eat cake" moment, Dudley brilliantly replied to these concerns of higher grocery prices with,

"Today you can buy an iPad 2 that costs the same as an iPad 1 [sic] that is twice as powerful," he said referring to Apple Inc's latest handheld tablet computer hitting stories on Friday.

*facepalm*

No, Mr. Dudley. An equal-price, technologically-better iPad really doesn't cancel out my more expensive food, energy, tuition, rent, and health care costs. It just doesn't.

Now, some folks have tried sheepish defenses of this line: "Sure, that might not be the best way to say it, but he's ultimately right that you have to look at all prices, and not just narrowly focus on stuff you'd actually buy."

But even saying that much would be wrong. Remember, when central bankers want to promote the idea of how dreadful deflation is, they dismiss that pesky trend of computer hardware getting cheaper, a trend most people, for some reason, regard as a good thing -- not with the rabid hatred they're supposed to hold for deflation.

But central bank acolytes will always trivialize this phenomenon, saying that, no, that's not the kind of inflation we're worried about -- we only want to count the kind that's affected by money supply, money velocity, liquidity preference, that kind of thing -- not these technology-driven improvements!

And in a way, it makes sense. But at the same time, it certainly means you don't get to turn right around, abandoning the long history of deeming cheaper computer hardware irrelevant to inflation, and count higher iPad performance as somehow canceling out the inflation you do care about. It doesn't work that way. If technology-driven hardware performance isn't relevant to measuring inflation for purposes of monetary policy, you don't get to selectively invoke it at the specific times when you "need the numbers to be lower".

It's good to see some people calling the Fed on this.

Facebook is down! Mayday, mayday!

2010-12-31T19:21:00.004-06:00

And on New Year's Eve, no less! All I get is some Swedish root site. What's going on?

EDIT: The mobile site seems to work.

EDIT2: And the regular site is now back in business. Ho hum.

So, what economic idea is hard to popularize?

2010-10-26T17:48:00.001-05:00

In my last post, I ridiculed the idea that the Arrow Impossibility Theorem is somehow underappreciated. Do I have an answer to Tyler Cowen's request for a hard-to-popularize result in economics, then?

Yes, I do: the Put-Call Parity Theorem, and I gave my attempt at explaining it herea while back. It's important because it reminds us that markets can phrase the same transaction in several different ways, making it hard to ban particular ones. This forces you to think carefully about exactly what kind of transaction you want to prohibit when you say that e.g. options trading, fractional reserve banking, etc. should be illegal.

Setting Arrow's Impossibility Theorem Straight

2010-10-26T17:41:00.003-05:00

Okay, by now, you might have noticed the econ blogosphere cooing over how awesome and insightful and useful the Arrow Impossibility Theorem is: Here, here, here, here, and here (in random order).

Um, to put it mildly ... no.

First, a summary of the theorem: let's say you want to convert individual preference rankings over outcomes into a social preference ranking that faithfully reflects these individual preferences as best as possible (i.e., create a voting system). You place a few "obvious" constraints on it that it voting system should meet, and it turns out -- you can't! Boo hoo, democracy sucks. (Well, in many senses, it does ... just not for this reason.)

This issue was discussed almost exactly one year ago on LessWrong. Long story short, the result has much less practical application than you might think. The requirements it asks of an aggregation system are far too strict. For one thing, the "determinism" requirement rules out the use of randomized tie-breakers. Keep in mind, there's always the possibility of some hopeless tangle involving a preference ordering like:

Person 1: A > B > C
Person 2: B > C > A
Person 3: C > A > B

Such preferences are completely intransitive, so no method of aggregation has any hope of being faithful. Normal people react to this by saying, "Okay, in the occasional pathological case, just use some tie-breaker that's not slanted in favor of any option -- in the end, it all averages out, so no problem". But Arrow's Theorem throws up its abstract arms and says, "Gosh, how hopeless. You can never satisfactorily aggregate preferences. Look how insightful I am!"

Needless to say, "We are not impressed."

It gets better though. "Black Belt Bayesian" makes the point that the "independence of irrelevant alternatives" (IIA) requirement is undesirable in the first place. (IIA means basically, if you remove some option, it should not change the aggregated ordering of the remaining options.) Why is it undesirable? Because so-called "irrelevant alternatives" aren't. Rather, they give evidence about the relative _strengths_ of preferences and therefore SHOULD affect the aggregated preference ordering!

Why was the econ blogosphere talking about Arrow's Theorem in the first place? Because someone had asked about underappreciated ideas in economics. Well, I think it's clear by now that this one doesn't suffer from a lack of deserved appreciation.

But what's even worse is that Amartya Sen's celebrated Liberal Paradox is viewed as a corrolary to the Arrow Theorem, and is just as ridiculous. It basically says you can't *both* respect people's rights *and* achieve Pareto optimality. Now, how do you imagine that works out? Well, you cheat by equating rights with obligations -- that is, you eliminate the possibility of people waiving a right when it's infringement would make everyone -- everyone -- weakly better off.

But who cares about that case? Not me. The very reason that rights allow for Pareto-optimality is because people can trade them as necessary when they find welfare-improving opportunities! If you equate "property rights in a specific apple" with "the obligation never to trade the apple away" ... well, you kinda throw a kink in all that.

As I said a year ago, if a transaction really is Pareto-efficient, then rights won't get in the way, because the relevant parties will waive the relevant rights! (Epic tongue-twister, too.)

Reassuringly, the folks on the opposite end of the ideological spectrum from me come to the same conclusion.

So are we set straight now?

A great chance to meet Silas in person!

2010-10-20T17:38:00.003-05:00

Since I currently live in a small, remote town, I don't get many chances to meet my readers. But I'll be spending my vacation time this year in New York City, from Oct. 30 (my birthday!) to Nov. 21. I'll be staying in an internet friend's apartment in lower Manhattan and visiting a lot of my like-minded internet friends -- for all of them, it will be the first time I meet in person.

So, if you live anywhere in that general vicinity and want to meet me, now's your chance! Give me a shout, either by email or in the comments, and we'll work something out.

Also, advice for a non-NYCer for navigating this rough city will be quite welcome.

Today, I smack myself

2010-10-11T18:32:00.003-05:00

An idea occurred to me after reading Bob Murphy's overpromised book on infinite banking, which carries the wonderful insight that if you save a lot, you can "borrow" from yourself on favorable terms -- oh, and that's also true if you save through a whole-life insurance plan.

But the real insight is in how much of your money (if you're a typical debt-carrying mouth-breather) goes to financing costs that could be avoided if you simply saved before a purchase, which was backed by some surprising examples.

Now, that doesn't do much for my finances because I'm a big saver. But it dawned on me: even if I'm not a big borrower, employers are, including and especially mine. So if I'm not living paycheck-to-paycheck, then they and I could work out a deal whereby they defer my salary payments (effectively taking a loan from me) and pay me interest much greater than I could get on savings (0%), but much lower than they would pay the financial markets (all costs considered, probably 30+%). Everyone wins.

But how many workers actually want to do something like that? No, it's too bizarre, so alas, I suffer again from being the rare saver...

And that's when I smacked myself -- they've had a program that lets me do that the whole time! They call it the employee stock purchase program, and it lets you set aside money so that at pre-defined six-month intervals you can buy company stock at a 15% discount to its current value, and yes, you can sell it immediately. I never bothered because I figured there was some catch to it that I never fully researched, even as those who used it assured me there's not.

Using the program, if you set aside money, buy at a discount, and immediately re-sell, you get an effective annual return of 38%! (Actually, higher, because the money wouldn't all be "invested" at the beginning of the six-month period.) I had just never realized what this was for the whole time! Stupid, stupid, stupid...

Oh, and there's a severe thunderstorm going on right now.

The monetary mentality strikes again!

2010-08-26T11:54:00.003-05:00

They say I'm caricaturing the view of monetary economists to imply that they just want to get people to spend, spend, spend, whether or not that spending is actually accomplishing anything of value, that this nominal GDP has become an end in itself, completely decoupled from whether it actually accomplishes any good by what we really look for in "the economy".

But then along comes famous economist Alan S. Blinder to prove my caricature right ... again:

So the third easing option is to cut the interest rate on reserves in order to induce bankers to disgorge some of them. ... How about minus 25 basis points? ...

Charging 25 basis points for storage should get banks sending money elsewhere. The question is where. ...

... suppose some fraction of the $1 trillion in excess reserves was to find its way into lending. Even if it's only 10%, that would boost bank lending by 3%-4%. Better than nothing.

There, again, you see the mentality: get the money spent. Out there. Somewhere. Anywhere. Doesn't matter if it's destructive, shortsighted loans. Doesn't matter if it just jumpstarts projects that have to unwind and liquidate in a year. Just spend money and we'll all be fine!!!

UPDATE: After posting this, monetary stimulus ringleader Scott Sumner actually endorsed the passage. Yep, get that money lent lent lent! We'll worry if the loans actually went to genuine economic productivity ... um, later.

The Onion sets Time Magazine straight

2010-08-24T19:55:00.004-05:00

Oh ... this is epic. Just epic. The Onion says what's been on my mind for years: Time is written like it's for children, dumbing everything down and writing in such simplistic terms that aren't conducive to critical thinking.

Likewise, despite all the criticism the blogosphere gets for being superficial, I've long held that one day of browsing blogs gives me more intellectual stimulation than I've gotten from a lifetime of reading print media like Time. And I used to joke that the average poster on a discussion site communicates better than Time's writers.

Average commenter: "Two plus three equals five."

Time article: "So imagine that you've got a pair of whiz-bang new gadgets, and your friend has stepped up with three of her own. Well, using an advanced mathematical procedure called adding, you can instantly figger how many you've got in total, say Profession David Livinsky of MIT. The result in this case? Cinco."

But enough of that -- just watch the video. They've nailed everything there is to mock about Time.

Election humor

2010-08-15T08:39:00.002-05:00

In case you didn't know, Alvin Green won the Democratic primary in South Carolina, despite being unknown and not running much of a compaign. (My earlier comments on the strange reaction this has gotten.)

Well, thanks to this post from Bob Murphy, I found some clever videos someone made about Greene's campaign. The dialogue is done with a speech synthesizer, but that somehow just makes it come off as being even funnier!

Like in this one:

I just voted for the first guy on the ballot. [Greene's name was first on the primary ballot, which many attributed his victory to. --SB] I used to vote for the second guy on the ballot, but that didn't work out. Now, I only vote for the first guy on the ballot.

Or this one:

No, Greene, we can't spare you for Iraq. We need you to guard this table. If you were not here to guard the table, then who would?

(Quotes from memory.)

I'm surprised they didn't get more views. These had me laughing harder than I have in a while! Synthesizers sure know their deadpan...

Intellectual Property's Ungrateful Hitchhikers

2010-08-07T19:23:00.015-05:00

I'm going to discuss an ethical and decision-theoretic intuition that underpins my support for intellectual property rights, and which seems to be absent, or unintuitive, among anti-IP libertarians. (See the discussion linked in yesterday's post for lots of good examples.)

But first let's consider a puzzle in decision theory. This one is known as Parfit's Hitchhiker and, as best I can tell, comes from Derek Parfit's book Reasons and Persons, though the term "hitchhiker" didn't come up in a search of the book.

It goes like this (well, my version does anyway): Assume you're lost in the desert, with nothing of value on you. You're approached by a superpowerful, superintelligent being we'll call Omega. It is willing to take you back to civilization and stabilize you -- but only if you will withdraw $5 from your bank account and give it to Omega once that's over with. (Yes, such a being might have reason to do this.) It has no enforcement mechanism for if you don't pay.

But here's the catch: Omega can scan you in detail and find out if you're really intending to give it the $5 when you're safe, rather than -- I don't know -- reasoning that, "Hey, I'm already safe, I've already got what I need and all, and you know, this Omega thing is powerful enough anyway, I think I'll just keep the $5." And if it finds that you wouldn't give it the money upon reaching safety (i.e. you don't have a decision theory that outputs "pay $5 to Omega" given that you are safe), then it just won't take you back and you can die in the desert.

At this point, a lot of you might be recoiling in horror: "What? Keep a measly five dollars when this thing saved my life? Are you ****in' nuts?" Yeah -- you're the people with the intuition I was referring to at the beginning -- the one that I have, and the anti-IP libertarians don't seem to. More about that in a minute.

Those of you who didn't recoil in horror may be thinking something like, "Whoa whoa whoa, I don't like dying. See, I would just make a contract -- or heck, even a simple promise -- that I will give Omega the $5. Since I feel honor-bound to abide by my promises, of course I would pay, and wouldn't have such diseased thoughts" as I referred to above. But I didn't make it that easy: note that Omega doesn't ask you anything and can't even receive your messages. Its decision is based entirely on what you would do, given that you know the details of the situation.

Here's the neat thing to notice: you will never find yourself in a position to be deciding whether to take that final step and give the Omega-like being $5 unless you adhere to a decision theory (or "ethic", "morals", etc.) that leads you to do things like "give Omega $5 for rescuing you at least in those cases where it rescued you conditional on expecting you to give it that $5" even when you already know what the Omega-like being has decided, and that decision is irreversible.

(I know, I know, I'm doubling up on the italics. Bear with me here.)

Conversely, all of the beings who come out alive have a decision theory (or ethic, etc.) which regards it as an optimal action (or an "action they should do", etc.) to pay the $5. Omega's already selected for them!

Now at this point, those of you who don't have the recoiling intuition I referred to, or are still worried I'll derive implications from it you don't like, may insist that this is a contrived scenario, with no application to real world -- you can't make your decisions based on what capricious, weird, superpowerful agents will do, so why change your decision theory on that reasoning?

And there is something to that belief: You don't want to become a "person who always jumps off the nearest cliff" just because there's some rare instance where it's a good idea.

But that's not what's going on here, is it? Omega makes its decision based upon what you would do, irrespective of what decision process led you to do it. So for purposes of this scenario, it simply doesn't matter whether you decide to pay that $5 because you:

- feel honor-bound to do so;
- feel so grateful to Omega that you think it deserves what it wanted from you;
- believe you would be punished with eternal hellfire if you didn't, and dislike hellfire;
- like to transfer money to Omega-like beings, just for the heck of it;
- or for any other reason.

So, then, is it normal for the world to decide how it treats you based on (a somewhat reliable assessment of) "what you would do"? Yes, it is, once you realize that we already have a term for "what you would do": it's called your "character" or "disposition" (or "decision theory" or "generating function").

Do people typically treat you differently based on estimations of your character? If you know where they don't, please let me know, so I can go there and let loose my sarcasm with impunity.

So, to wrap it up, what does Parfit's Hitchhiker have to do with intellectual property? Well:

- Omega represents the people who are deciding whether to produce difficult, satisfying intellectual works, conditional on whether we will respect certain exclusivity rights that have historically been promised them.

- The decision to rescue us is the decision to produce those intellectual works.

- The decision to pay the $5 represents the decision to continue to respect that exclusivity once it is produced "even though" they're "not scarce anymore", and we could choose otherwise.

The lesson: if you don't believe that the Omegas in your life "deserve", in an important sense, to be paid, you won't find yourself "rescued". We are where we are today because of our beliefs about what "hitchhikers" should do, and we miss out on rescues whenever we decide to become ungrateful hitchhikers. (Edit: that should probably be phrased as "... whenever we decide that it's right for hitchhikers to be ungrateful.")

(Note: this post was heavily influenced by Good and Real, Chapter 7, and by this article on Newcomb's problem.)

Intellectual works aren't scarce -- just like money

2010-08-07T11:13:00.010-05:00

If you listen to Stephan Kinsella or his acolytes, you're probably well familiar with the argument that "Intellectual property rights should not exist" because "intellectual works aren't scarce", though this is often confusingly shortened to "IP isn't scarce". Here's Kinsella's latest compilation of the anti-IP arguments, that being one of them. (Which led to a very lengthy discussion.)

Well, I've been reading Jaron Lanier's recent book, You Are Not a Gadget, which gives a good reply (p. 102):

It is a common assertion that if you copy a digital music file, you haven't destroyed the original, so nothing was stolen. The same thing could be said if you hacked into a bank and just added money to your online account. ... The problem in each case is not that you stole from a specific person but that you undermined the artificial scarcities that allow the economy to function. In the same way, creative expression on the internet will benefit from a social contract that imposes a modest degree of artificial scarcity on information. [bold added]

I've made a similar point before: Money is information -- specifically, the relative amount that the world (believes that it) owes you. When money is stolen from you, then you can certainly force yourself to think of it in terms of

-a physical item being removed from your possession, or of
-a server having "unauthorized use".

But what's really important is the editing of that information: where before, the world thought it had a remaining balance against you of $X, now it thinks that the thieves are owed that $X. This problem persists even after you are given compensatory paper or the bank gets standard compensation for trespassing, and it's what people care about.

MMORPGs (World of Warcraft, Everquest, etc.) have already assimilated this lesson. In such online games, your money really is nothing but a database entry. It doesn't correspond, even in principle, to a physical object, just the knowledge of a relationship.

Lanier's alternate suggestion, following Ted Nelson, is that we could instead simply have an automated system that charges for each time a given intellectual work is accessed. People could "pirate" these (already freely-accessible) works by only using versions stored outside of where there access would be recorded, just as they do today when pirating works. But so long as the public regards this as wrong, and wrong for the same reason as counterfeiting, they would run into the same problem as counterfeiters. And the relatively low cost with which the works could be accessed under such a system would remove most of the sympathy for them.

I note that one particular snag of this is that people will not want to have to think of the costs each time they want to look at a book again. However, if everyone paid a fixed amount each year, and their choice of what to access only determined which fraction of that payment went to each creator, then choosing to view anything would cost nothing on the margin, further eroding any incentive to pirate.

Setting spending straight: Now, we're getting somewhere

2010-08-04T16:14:00.001-05:00

Setting spending straight: Now, we're getting somewhere

As you might have noticed, I'm quite confounded by the arguments for stimulus, especially monetary stimulus.

In discussing the issue on Less Wrong, I've argued that once you expand out what the economics jargon, it's not even clear that stimulus arguments even claim to be accomplishing something good. And that such schemes are justified with reasoning that would just as wellprove it beneficial to do clearly absurd things, showing a misuse of the term "the economy".

This suggested to me a serious case of lost purpose, where one's policy justifications have become completely disconnected from the original reasoning.

Well, now I've found someone willing to engage these issues: John Salvatier of Good Morning, Economics. He's not Scott Sumner, but he does advocate the same things, and knows his way around the topic.

If you're interested, take a look at our ongoing exchange on the basis for stimulus (and this shorter thread).

About the redesign

2010-08-02T20:51:00.002-05:00

To all of you hecklers about to write me that, "Um, I think someone hacked your site, bro, LOL": No, I accepted the services of someone I know from Less Wrong. The eminent Ian Pollock, freelance graphic designer and electrical engineering major, did the redesign. I like this much better that what I had before.

The Möbius strip exemplifies the site's goal: where before, an issue was hopelessly twisted on itself, I cut through the assumptions and let it start making sense again!

If you find yourself in need of a site redesign, well, now you know where to go.

Another parallel between IP and EM spectrum rights

2010-07-23T14:55:00.005-05:00

I constantly bring up the EM spectrum in discussions of IP, and for good reason. It's quite difficult to justify rights in one but not the other, leading some people to unpalatable conclusions. Heck, even Stephan Kinsella, the big anti-IP poomba, isn't sure whether there should be rights to radio waves.

But recently, I've found yet another parallel. Consider the case of someone who, like in lots of instructive thought experiments, wants to block the propagation of radio waves from a nearby tower so that people can't receive them (well, extract information from them, but you get the point).

There's a device that lets you block EM waves, known as a Faraday cage. I didn't know how they work before, but it turns out that, by being made of conducting material, their electrons realign so as to produce the *opposite* field from the one around it (which superposes over it and cancels it out).

See where this is going? To protect your right to to transmit information via EM waves, you need to be able to prevent others from ... er ... instantiating the same pattern! Now, where else have people asserted that kind of right?

(By the way, first post ever from my first smartphone, the wonderful Samsung Moment. And no, unlike when Tyler Cowen promotes a product, I didn't get it for free or otherwise get paid to say that. No, the links weren't added from the Moment.)

Sumner Severally Suprises Silas

2010-07-14T10:03:00.002-05:00

(The title was going to be "Sumner Surprises Me Again", but I wanted it to be an alliteration.)

Once again, I let loose with another complaint about mainstream monetary economics, and once again Scott Sumner casually agrees that there's a dilemma.

I say,

... considering that dinosaur banks can borrow at 0% by only putting up toxic MBSes as collateral, ...

Why can’t *I* get secured loans from the Fed at 0%? Why should big banks have all the fun?

And Sumner replies

Silas, Good question.

Then, I get keyboard crease marks in my forehead.

Setting monetary stimulus straight

2010-07-11T17:21:00.012-05:00

In light of my recent link to Gennady Stolyarov's post about the gloomy future of the economy (especially for young people), I thought it would be a good idea to put it against the backdrop of mainstream economics and the "experts'" solutions.

A characteristic post is this one by the relatively libertarian Scott Sumner. Like pretty much every day, his idea is for the Federal Reserve to do a "monetary stimulus" by injecting money into the economy to prop up nominal GDP. (Yes, nominal GDP -- you know, the one that doesn't mean anything until you adjust it to real GDP and even then commits you to a easily-abused framework.) This, it would do by various mechanisms, all of which aim to "get banks lending". Stop paying interest on reserves, buy more of banks' (junky) securities, rapidly debase the currency ("quantitative easing") so they have to loan or else hold worthless cash, etc.

In frustration at such a stupid policy, I made this sarcastic comment on that post:

Yes, the economy will definitely collapse if the Fed doesn’t print up more money to make shoddy loans for purchases people don’t want, and it’s a shame that folks at the Fed are stopping Bernanke from such a wise action.

And to my utter surprise, Sumner replied:

Silas. I agree. :-)

Note: the smiley was in recognition of my sarcasm, not to indicate he's changed his mind.

So, Sumner realizes exactly what he's asking for, and still thinks it's a good idea. But since it apparently isn't obvious to everyone what's wrong with such a policy, I thought I'd spell it out clearly for once:

Banks aren't lending (in sufficient numbers). Mainstream economists want to prod them into lending. But why won't they lend in the first place? Because they don't expect the future loan payments to justify the loan. Now, when you grip them so tightly that they have to, for some reason or another, make these loans, have you changed the factors causing banks to believe loans won't be paid? No, you haven't. So, the loans will just throw money after wasteful projects, destroying output and making everyone poorer.

Note: even if you -- quite reasonably -- care about unemployed workers, and you dismiss this concern about wastefulness on the grounds that, "hey, at least it will lift off the joblessness albatross for so many families", that still wouldn't make such policies a good idea. The wastefulness means that reality will eventually rear its head and force these projects to be abandoned. Then, all the new skills workers could have developed while working on sustainable projects that satisfy actual demand, instead don't get developed, and whatever they did do has just retooled them for a useless activity, leaving them even worse off. Doesn't sound too compassionate to me ...

But let's say I'm wrong about that. Let's put aside, for the moment, our skepticism about economists' claims that the same policy that forces banks to lend, also causes these loans to work out and get repaid, making them not such stupid loans to begin with. Even then, you're still causing inefficient activities to happen that cause workers and investors to dig themselves deeper on unsustainable activities.

Looking back, one has to wonder how economists ever came to the consensus that making ultra-underpriced loans to clumsy, inflexible banks could ever possibly be a good idea. My suspicion is that it is a kind of Goodhart phenomenon: at the time these economic models were created, the metrics economists cared about did serve as good proxies for general economic health. But as they were targeted by policy, they lost their value as indicators.

Furthermore, economists failed to continually ground their concept of a "good economy" in what is meant by the term in common parlance. They don't keep checking back to see whether their policies would mean that people get the best combination of work, leisure, and consumption (all broadly defined). No: if an improvement doesn't show up as a cash exchange, it doesn't matter. If people aren't spending enough, then obviously that's hurting the economy and they should spend more.

You would almost think the economy is some god that demands sacrifices, given the way economists talk, rather than a characterization of our collective ability to satisfy wants.

So please, understand my anger when I read about how young people have all of their options cut off by the earlier generation, how they can't save or invest because of how much will be taken to make up for the failures of poorly run enterprises, how genuinely productive ventures are quashed by an outdated mentality of how the world should work ... and then Scott Sumner swings in to tell us that the best way to improve "the economy" is with ridiculously underpriced loans from newly-printed money to aging, inefficient companies that just wasted trillions of dollars destroying our productive capacity.

Advice for economists: Ask whether, not why.

-Don't ask, "What can we do to increase aggregate demand?"
Ask, "Why should we increase aggregate demand?"

-Don't ask, "What can we do to keep people from saving so much?"
Ask, "Why does 'the economy' so crucially depend on people not saving, and why do I care about the health of the 'economy' in that sense?"

-Don't ask, "What can we do to get (traditionally measured) output back up?"
Ask, "Why is it necessary for that measure of output to go up? Would it be so terrible for people to produce less, if that's what they really want, based on honest assessments of the future?"

Get the picture?

Setting the future economy straight

2010-07-10T21:15:00.004-05:00

Gennady Stolyarov II does it much better than I can in a guest post on Bob Murphy's blog.

My summary: young people are f'ed. New and existing laws, along with entrenched norms, make it effectively impossible for them to succeed through standard education and career paths. Success has become decoupled from merit, and the upcoming generation will be barred from home-ownership, even if they're responsible. A constellation of irresponsible financial policies by the government shifts most of the cost of government to these young people through ever-growing inflation, taxes, and one-size-fits-all laws. The only answer is for the new generation to break from traditional norms and bypass the standard dinosaur institutions, using new technologies -- mainly the internet -- to meet their economic needs, without the waste and inefficiency that has crept into the system over time.

Lots of thoughts I've had, but put together with rigor I have yet to match on the issue.

Why would a Serious Thinker(tm) fear my comments?

2010-07-07T11:35:00.003-05:00

Gene Callahan now has the cute slogan on his blog: "Silas-free for over ~~eight~~ twelve days":

I had submitted thoughtful criticisms to his blog more recently than that, alerting him of errors he's making, and of phenomena he might not be aware of. (Example saved from before then.) So why would this Serious Thinker feel the need to reject, on sight, my comments from appearing, and then advertise it?

A self-serving reason I might give is "Well, Callahan actually not a very good thinker and only gets validation from a clique that already agrees with him, so he can't bear to see remarks that might cause him to question his worldview." But I'm far too biased to make such a judgment.

Instead I invite readers to judge for themselves how Deep and Serious a thinker Callahan is by looking at the link above. He uses the example of a monk who can't explain why a prohibition on touching women exists as a characteristic example of how some things can only be learned from experience.

(It looks to me like maybe Callahan just isn't very good at explaining, and doesn't have much of an incentive to change that. After all, that would undermine his worldview that requires knowledge to be mostly inarticulable, not to mention the aura of unquestionable expertise he tries to maintain.)

As you might expect, he justifies the Silas-free-ness by reference to the "many sites I've been banned from" for my unhelpful comments. True -- I have been banned from many sites for that reason -- it's just that they've all been controlled by him! Information cascade, anyone?

Yay! I'm famous now! For real!

2010-06-12T11:59:00.005-05:00

Despite the general lack of updates to this blog, I'm now famous by the Google standard. Try it out for yourself: type in "silas" to Google, and watch the suggestions pop up. The first suggestion after "Silas Marner" and silastic (the silicone/plastic gel), you get ME! Take a look (click to enlarge):

And what if you type in "silas b"? You get this:

So in case you're wondering, I'm available for speaking engagements. I charge $10 million per visit, but I give discounts if I agree with your cause.

When you can't go back to sleep: thermodynamics

2010-03-07T06:31:00.008-06:00

Did you miss my posting? Well, it's been one of those days when you wake up early and can't go back to sleep. My mind's running wild this morning, and I figured I'd make some good use out of it. (It is no longer early as of completing this post because of interruptions from a playful kitty.)

I'm going to continue the lesson about thermodynamics that last left off about a year ago, by discussing some more interesting implications of the idea that "energy per unit temperature" is a measure of degrees of freedom. You see, in the time since then, I read John S. Avery's book Information Theory and Evolution, which, as you might have inferred, discusses life from the perspective of that ever-so-useful field of information theory. He also applies it to cultural (often called "memetic") evolution.

The first interesting insight that this book alerted me to is about molar entropy. Some background: in your chemistry class, you might have learned about the Gibbs free energy of a reaction, ΔG, which is calculated from ΔH - TΔS, where H is the molar enthalpy (internal + flow energy per mole), T is absolute temperature, and S is the molar entropy. For a chemical reaction, you look up the molar enthalpies of the products and subtract off the enthalpies of the reactants. Then you do the same for molar entropies, multiplying by the absolute temperature at which the reaction takes place, and add them. A negative sign for ΔG means the reaction happens spontaneously (well, as long as there is an available pathway).

With that out of the way, what are the units for S? Most tables give them as J/K*mol (Joules per Kelvin per mole, or energy per unit temperature per quantity of molecules). But, as the last post in this series showed, energy per unit temperature measures degrees of freedom, which can also be expressed in bits. So, as Avery neatly derives on pages 81-82, you can also express molar entropy in bits per molecule. (The conversion factor is 1 J/K*mol = 0.1735 bits/molecule.) I find this a much more intuitive way to think about it, because it connects the concept of molar entropy to the underlying dynamic: how many bits of information (on average) do you need to specify a molecule's current state, beyond that which you know from the temperature?

Also, rather than having to empirically derive this value directly (either from reaction data or by integrating its specific heat capacity per unit temperature from 0 K to its current temperature), it can be inferred from the known properties of the molecule: its shape, size, and bond strength. The stronger ("stiffer") its bonds are, the lower the entropy of the molecule, because large deviations from its equilibrium configuration are less probable. (Diamond, with its very strong covalent bonds, has the incredibly low molar entropy of 0.24 bits per carbon atom at STP, meaning you need less than one bit of information to specify every four atoms.)

[ADDENDUM: Avery also adds that if you divide the Gibbs equation through by T, you can describe a reaction in terms of the "information lost", i.e., the greater number of degrees of freedom you have permitted by letting the reaction take place.]

By recognizing this interconnection between molecule properties and complexity (needing more information to fully specify = more complex), one sees more unity ("consilience") to the science as a whole: entropy and bond properties aren't just off in their own domains, but have a lawful relationship. Unfortunately, however, I haven't worked out how to derive entropy from stiffness of a degree of freedom, and I haven't found a text that does it either.

Next in the series: A discussion of Eric J. Chaisson's Cosmic Evolution: The Rise of Complexity in Nature, which proposes specific energy flux (energy flow through a system per unit mass) as a measure of complexity that is applicable to everything from stars to planets to life to vehicles to computer chips to culture.

Mixing economics, thermodynamics, and heterogeneity

2010-01-04T17:33:00.005-06:00

... or METH, as some call it. And if you want some more drug innuendo, read on.

On Brad DeLong's blog, a commentator named "MJ" deftly applies insights from thermodynamics to the issue of heterogeneity of goods in economics:

What would statistical mechanics be without a quantitative model of heterogeneous vs. homogeneous distributions? Such a statistical mechanics would miss a few subtle but crucial concepts. Such as entropy.

Note how the negentropic development of increasingly heterogeneous capital allocations over the past decade was accomplished through entropy production: bundling good with bad, compromising tranches, etc... Goldman Sachs made a killing, basically, off of knowingly producing entropy. The entropy production, of course (2nd law), far exceeded the negentropy production of their wealth aggregation- as reflected in the order of magnitude between financial industry's gains and the over all loss.

We're now learning Fannie and Freddie also engaged in entropy production, obscuring the distinction between scores over and under 660.

I can vouch for that as showing a good understanding of entropy, and it gives a good perspective for viewing economics:

1) An efficient economy produces as little net entropy as possible: the entropy it generates (destruction of heterogeneity) should be offset by the entropy it destroys in organizing inputs for their uniquely optimal roles.

2) A sign of inefficiency is when economic actors destroy distinctions (like in MJ's example of very different tranches and borrowers being made indistinguishable) without making a corresponding useful distinction or organization.

Definitely some issues worth fleshing out. I know I've seen papers that try to view economics from a thermodynamic perspective, but they invariably have me rolling my eyes.

Happy (premature) New Year's!

2009-12-31T19:04:00.000-06:00

That is all.

Setting circular anti-IP cliches straight

2009-12-30T21:59:00.002-06:00

In a recent discussion on intellectual property (IP) on the Mises blog, I saw Stephan Kinsella advancing (again) a circular argument against IP: that it claims rights in already-owned property. But he very dispute is about which ownership rights people have in property!

I know what you're thinkin: "meh, dog bites man ... what else is new," right? Well, what's interesting is that my standard foil, Peter Surda, actually agrees with me that this specific point is circular, even as he generally agrees with Kinsella in his opposition to IP. Here's what Kinsella said in response:

Peter, I don't think it's circular because our view of property rights is grounded in a Lockean homesteading view as applied to scarce resources. Under that view you can perform any action you want so long as you do not invade the borders of (i.e., change the physical integrity of) another's Lockeanly-owned scarce resource, without his consent. How is this circular?

What follows is my response on the blog, with some hyperlinks for context:

***

The circularity lies in your assumption about which rights you gain by doing how much homesteading, and it is in no way obvious how the rights must work the way you think they do.

Say I homestead a plot of land. How far above and below does that homesteading entitle me to? Yes, you can justify a specific amount, but that's the point: you have to justify why your rights extend to that boundary (abstract or otherwise), not just assume that your land ownership implies ownership of the airspace through which planes fly, and then argue that "airplanes necessarily violate the property rights in already-owned land" ... which, when you think about it, is pretty much what your IP case is.

But that's just the beginning: does homesteading the land entitle you to block (non-nuisance) concentrated sound waves from passing through your land (e.g. ultrasound)? And of course, back to the ol' chestnut: does the land ownership entitle you to block every single frequency of the EM spectrum passing through?

Now, there are many cases where you can assume that homesteading entitles you to certain rights. However, here, the very debate is about which rights you are morally entitled to by virtue of homesteading what. And in that case, it is in fact circular to assume a certain level of homesteading-based rights, since you're trying to prove what the homesteading-based rights are in the first place, which people dispute!

Note that since this is the central argument of Against Intellectual Property, its circularity isn't very encouraging when judging its merit as an argument against IP.

Silas Barta, information theorist by night

2009-12-14T20:03:00.006-06:00

UPDATE 12/17/09: Steven Landsburg, after responding several times in the comments section here, posts a defense of his position on his blog, although without mentioning me or Bob Murphy. Hey, I can understand: if I were in his position, I'd hide the existence of me and Bob too!

***

Bob Murphy invokes my expertise on information theory to criticize (yet) another bizarre argument from Steven Landsburg, that the natural numbers are more complex than human life. Here's the mistaken part of Landsburg's reasoning:

...the most complex thing I’m aware of is the system of natural numbers (0,1,2,3, and all the rest of them) together with the laws of arithmetic ...

If you doubt the complexity of the natural numbers, take note that you can use just a small part of them to encode the entire human genome. That makes the natural numbers more complex than human life. Unless, of course, human beings contain an uncodable essence, like an immortal soul

Naturally, I don't necessarily agree with the broader theological points Bob makes in his reply, and such issues will remain even scarcer on this blog than on his. However, I will expand on point I made in discussion with Bob.

The error in Landsburg's line of reasoning is: the fact that you can use instances of X to build Y does not mean X is more complex than Y. Just the opposite, in fact: in order to describe Y, you must describe X as a substep. Like in the analogy I gave, you can use bricks and mortar to build a house, but that means it's the house that's more complex. To fully specify the house you must describe not only the bricks and mortar, but the form they take as a house -- how they're supposed to be put together.

As for arithmetic and natural numbers, it's their lack of complexity that makes them so useful. By appealing to it, you can make sense of a diverse array of phenomena. The more complex arithmetic were, the less helpful it would be in making sense of things.

Just to be clear, this doesn't mean it's easy to learn math (different people have different problems in different topics and levels), or that you can't do anything complex with math. The point is that no amount of complexity produced in using arithmetic could ever imply arithmetic's complexity, for the same reason that no matter how complex a house you make with one kind of brick, you can't make the brick more complex.

But of course, Landsburg's errors don't end there. He wants to go so far as to say that by merely encoding the genome in base 4, you've described human life. That's certainly the impression people get from discussions of DNA in the popular media and movies like Jurassic Park. Hey, all you need is a string of letters made up of A,G,C,T, and you've described someone completely!

To put it mildly: that's not how it works. First of all, you need to say what the letters actually mean. And then, even if you know that much, all you have are empty labels -- suggestively named LISP tokens. So you know that C is cytosine? Okay, but what's that? Now you need to describe where the carbons and nitrogens and oxygens go to make up cytosine. But wait -- what's this "nitrogen" thing, anyway? And so on.

Don't worry -- the process terminates: once you've described the generative model that puts all of these concepts together in a way that yields a description of human life as its output.

Needless to say, you're using more than a few integers by that point!

World's newest space agency: Reuters

2009-12-08T12:32:00.005-06:00

I normally don't pay much attention to photo credits, but I had to do a double-take on this one. An article in the Telegraph has a satellite picture of the sun. Of course, to get that kind of picture, you have to get pretty close, exist in a high temperature environment, and have photography equipment capable of significantly attenuating the EM radiation thrown off from the sun

And who do they credit for the photo? NASA, right? No, we get:

Professor Henrik Svensmark argued that the recent warming period was caused by solar activity. Photo: REUTERS

Um, yeah dude. I think Reuters got that photo from someone else. With the budget cuts the media have had to make in the past few years, they can only afford near-earth satellites. Deeper-space probes are just out of the question.

ANYWAY, since I haven't posted on Climategate, or for that matter, anything in a while, here are my thoughts: It's absolutely disgraceful, the way the scientists in question have acted. Disclosure of your data does not mean that skeptics get to go on a multi-year scavenger hunt to find your raw data and then play guessing games about which sources you threw out and why.

The very fact that you have to make a post like this one in order to summon forth all the data is proof that you weren't being transparent enough.

There's also clear evidence that the scientists didn't seem to understand that you can't contort one data source to look like another and then call it two independent sources of data. Eric S. Raymond has done a tremendous job at exposing the tricks in the code, which explains exactly why the insular climate science doesn't want critics poring over their work

Oh, and just a hint: when you only allow people you approve of to review your work, that's not science.

PS: Recall that my outrage at many libertarians has been to their reactions *conditional* on AGW being real, and that outrage remains.

Sarcasm, applied properly

2009-10-30T16:13:00.004-05:00

In case you've been living in a cave for the past few weeks -- or rely on the mainstream media for your news -- you've probably heard about climate scientist Joe Romm's expose of the shoddy work on global warming in the new book SuperFreakonomics by Levitt and Dubner. (Excellent compilation of the discussion in the blogosphere and some mainstream publications.)

Long story short, it's like the kerfuffle a while back between me and Bob Murphy about his own, um, imprecise commentary on global warming, except that the mistakes by Levitt and Dubner were much bigger, they got called on their shoddiness by a lot more people, and they continued to dig themselves much deeper that Bob ever tried to. To top it off, they deliberately misrepresented one of their experts (Ken Caldeira added the quote you see to his web page in contradiction of a position attributed to him in the book after he found out what was in it.)

(Note: this isn't about "rah rah let's cut carbon emissions" vs. "those durn whiny hippies". Regardless of your opinion on the issue, Levitt and Dubner's handling was extremely shoddy, and exactly the kind of thing that neither side should want, even and especially if you agree with their policy positions.)

With that in mind, take a look at this post on the Freakonomics blog, where Levitt complains that he's unfairly portrayed, in his university's alumni magazine, as someone not tackling the "big questions" and who's ruining economics.

Yep, this is one of those times when only Silas-grade sarcasm will do. Here's what I posted:

Well, it's a good thing you've moved on from sumo-wrestling into important issues like global warming, where you've carefully researched the issue, accurately represented expert opinion, and presented an even-handed, informative discussion of the issue that helps sustain the University of Chicago's excellent reputation.

Needless to say, the comment didn't make it through moderation.

By the way, it's my birthday today! Wish me a happy 28th if you haven't already!

Paul Krugman actually allows criticism on his blog!

2009-10-09T11:50:00.003-05:00

I had heard bad things about Keynesian economist Paul Krugman not allowing comments on his blog that are too critical, but that turned out not to be an issue. In a recent post he argues that the gold standard is obviously flawed because economic recovery during the Great Depression was highly correlated with going off the gold standard. Nevertheless, my usual criticism of this point got approved for others to see. It's this comment, which I'll repost here:

****

I’ve known about this correlation for a while, but I think it’s misleading, regardless of the merits of a gold standard.

Think about it this way: at the time, people expected their money to be convertible at a specific rate into gold. “Going off the gold standard” is therefore a roundabout way of saying “robbing people of their wealth”, because it amounts to expropriation of their gold holdings.

So this correlation (between going off the gold standard and recovery) reduces to the observation that “when times are bad, taking rich people’s stuff and redistributing it can making things look a lot better in the short term” … which isn’t so impressive when you look at it that way.

The real question is, *discounting* for the usual effects of looting the rich, did it make the economy better off than it would have been without such capricious, revolution-like activity?

Setting Callahan Straight -- on reductionism and the history of science

2009-09-23T13:52:00.005-05:00

In a recent post on his blog, Gene Callahan tried to defend the "mysterious vital force" hypothesis from the clueless reductionists, saying that hey, it was a good idea at the time, and might even show some promise today.

After I explained that the "vital force" of the 18th century used to "explain" life (in the way that the "train force" explains the motion of trains) was not scientific in the way that gravitational force was, the exchange started to get lengthy. So, he did was all pursuers of the Truth do: he closed comments.

And this isn't the first time for Callahan to use argumentum ad closum: in a previous exchange where "TokyoTom" was the critic, he did the same thing, and TokyoTom recounts the pre-cutoff (and pre-coverup!) exchange on his blog.

So, since I can't post on Callahan's blog for that discussion, I decided to post my response to his latest comment here. So, take a gander at the discussion thus far, and read my response below. Let's hope it's just a "blog malfunction" this time, too!

********

Now, of course, this is not an explanation, just like Newton's force laws do not "explain anything," as the Cartesians ceaselessly pointed out.

And the Cartesians were dead wrong to argue this. Generating a model that correctly predicts the paths of celestial bodies (and bodies in vacuums, and falling bodies on earch with a high mass/drag ratio, etc.) is an explanation. The alternative -- your alternative -- results in such absurdities as "Okay, okay, sure, you were able to accurately predict celestial motions, material strengths, rocket propulsion capabilities, air properties, blah blah blah ... but you don't truly understand what it means to fly to the moon and return safely. Yeah, you have a 'model' that accurately predicts all that stuff, but you didn't truly [*suggestive emphasis*] explain it."

What else could you want from an explanation? The satisfaction of Gene Callahan's personal aesthetic standards? Or your presuppositions about things that have to be there?

Descartes and other mechanists developed models showing how gravity and magnetism could be reduced to the motion of particles alone -- Descartes, for instance, posited a flow of little screw shaped particles drawing iron to magnets.

And that would be a *different* explanation. It may be a better or worse explanation. But "reducing to particle motions" is not a requirement for an explanation, especially if it's wrong or unnecessarily long. Newton's model remains an explanation in that it constrains our expectations.

At the time, vitalism was a sound scientific hypothesis, and the vitalists expected to find good force laws just like for gravity, etc.

And they had no basis for such an expectation, even before an experiment, since "the vital force" is an "explanation" for everything, and therefore nothing. No matter what experiment they performed, it would be consistent with a "vital force". That was how they actually used the term.

me:"Your claim was stronger because you are saying that now, even given all the scientific knowledge we have, there still remains hope for the vital force "hypothesis"..."

you:All sorts of scientific hypotheses get revived after being "soundly rousted" earlier.

Right, but about the issue we were discussing: My claim, the one you're responding to here, is that the position you do endorse ("Vitalism may turn out to be a fruitful hypothesis") is a stronger claim than the one you excused earlier vitalists for believing (that it's reasonable given the limited evidence so far).

Yes, theories do get revived after being discarded. But as for the point that I was actually discussing there, it's irrelevant; the fact remains that you are making a stronger claim.

Now, with that said, scientists are indeed looking for causal phenomena and more general laws they may not have noticed before. But they keep a *broad* outlook. There are many, many shorter hypotheses to rule out before positing an additional, ontologically-fundamental "vital force" -- if in fact the "hypothesis" claims anything at all.

Oh, and what do you think about the complete overthrow of reductionism in quantum mechanics, where the behaviour of "atomic" particles turns out to be not atomic at all, but dependent instantaneously on the state of all other particles they have interacted with throughout their entire history, so that ultimately their state depends on the state of the entire universe?

Now you're just showing more ignorance of science on top of ignorance of reductionism. It was the philosophers, not physicists, who fell into the trap of thinking of particles, rather than an amplitude distribution over configurations, as being ontologically fundamental entities, and so were seduced to believe, "hah, I can say that you can never prove two electrons are identical, because that's an issue of epistemology, which I'm an expert in, rather than physics", which is wrong.

Reductionism of the kind I (and Drescher and Pearl and Jaynes and Hofstadter) endorse was never predicated on the existence of "atomic particles". Rather, it identifies where such hidden assumptions come in.

What modern quantum physics shows is that the wave equation is deterministic, and each point need only look at its immediate neighbors to iterate to the next state. See the excellent work of Gary Drescher in Good and Real: Demystifying Paradoxes from Physics to Ethics, or, for an online source, Eliezer Yudkowsky's quantum physics sequence.

My new kitty!

2009-09-21T20:58:00.007-05:00

Last weekend, I adopted a little black male kitten that a friend of mine had found and was taking care of. He (the kitten, I mean) will be joining my other cat, Cordie, whom you may remember from her younger days. Cordie's a lot bigger now, though, and is playing mommy for her new friend.

Here are some pictures of the most adorable kitty ever! (Click to enlarge.)

What a Bayesian causal network on Newcomb's problem might look like

2009-09-09T23:21:00.002-05:00

Explanation of Newcomb's problem.

ADDED: Oh, and here's the long discussion that led me to draw the network above. Click the picture to enlarge.

What "interference" with radio signals really means, and its implications for property rights

2009-08-30T16:24:00.007-05:00

A common confusion often arises: people talk of the "interference" with radio tower transmissions, without understanding what physical process the term refers to. This misunderstanding makes it hard to see the logic in my analogy between intellectual property and rights to radio frequencies.

In a recent debate on intellectual property, I finally decided to set the record straight, and what follows in this post borrows heavily from what I said in the debate.

First, how does radio communication actually work? I'll admit that I don't know the answer all the way down to the nuts-and-bolts level. But I can explain it from the perspective of information theory.

Radio communication works, to the extent that it works, because a listener can perform a measurement, and thereby learn something about the source, i.e. the message transmitted. (This "something" they learn is called the "mutual information" between the two points, and is equivalent to so-called "Bayesian evidence".)

And when it comes to your radio, what is that actual measurement? Setting a dial on it that changes a circuit's properties so that it resonates when the surrounding area is filled with electromagnetic (EM) waves around a certain frequency. And when it resonates, an electrical signal in the radio follows a certain pattern that's correlated to the signal the radio tower is sending. Your radio then converts the circuit's electrical signal into sound that is meaningful to you.

All of this functioning relies on an assumption: that by performing the measurement, you do in fact learn something about the source. That assumption is violated when more than one tower transmits with enough intensity at the frequency you perform a measurement on. In this case, no measurement result tells you anything about either source: the transmitted waves overlap each other, coming across a gibberish on your radio. (In the lingo, there's no "mutual information" between you and either source.)

So whenever you talk about "interference" with radio communication, what you really mean is "violation of an assumption some parties were using to communicate which, when violated, makes them unable to communicate."

To understand the significance of using the term "interference" in this way, let's look at a more practical, intuitive example with the same dynamic, but unrelated to the EM spectrum.

An Illustrative Example

Let's say that I live in a small village where I have a few friends. I want an easy way to communicate to them that I expect a rainstorm today. So, I work out an "encoding scheme" with them in advance: if they hear me hit my gong before 8 am, I predict rain. If they don't hear me hit my gong, I don't predict rain. So, instead of having to tell them all individually, I can just hit the gong. They'll hear it, and they'll get a message from me. By "measuring" the sound they hear before 8 am, they learn the "signal" I'm sending.

So far, so good.

But there's a little snag: my friends will hear a gong sound as long as anyone hits a gong not just me! So, our communication scheme only works as long as we can rely on no one else hitting a gong before 8 am. If we can't rely on that, I can't send them the message, at least not as reliably. Because when they hear a gong, sure, it could be me, but it could also be anyone else with a gong. Hearing the gong sound is no longer a reliable sign that I think it will rain.

So there you see it: our communication system can be defeated by "interference" from other people, either because they're trying to set up their own similar system, or because they just like being mean. But this "interference" simply means: violating an assumption that we, rightly or wrongly, thought we could rely on.

And how does this relate to radio communication? Simple: the existence of the gong sound before 8 am is just like a radio signal within a given frequency range: it can provide information to others, but only if others don't try to use the same means to communicate.

Conclusion

So do you think people should be able to "homestead" such "communication assumptions" like that? Should I be able to assert rights as "the only one who can hit a gong in this area before 8 am"? (Or, to be less greedy, the right to hit a gong in this area in a certain five-minute window, with a certain rhythm.) Your answer to that question tells you a lot about how you should look at other issues.

For example, how about asserting rights as "the only one who can broadcast radio waves in this area within a particular frequency band"? How about asserting rights as "the only one who can distribute books containing Harry Potter stories"?

Hey! That last one kinda sounds like intellectual property rights...

Update on Billy Mays

2009-07-01T11:47:00.004-05:00

Turns out he died of heart disease. (HT: Megan McArdle)

In honor of Billy Mays's characteristic style, and because I don't know the appropriate waiting time for stuff like this, I feel like I have to write the following:

***

Genial pitchman appears

"Are you suffering from clogged arteries?"

[footage of attractive middle-aged actor clutching chest and wincing]

"Does your doctor tell you to cut back on the foods you love?"

[footage of stereotypical doctor grimly advising attractive patient, who appears to be saddened]

"Well, now you can plow STRAIGHT THROUGH that build-up with Arta-cleanse! Using its patented formula, you can clear out those harmful deposits that put you at risk for heart disease!"

[computer simulation of large artery with ugly-looking blockage that is being magically washed away with pretty fluid]

"Powered by nature's very best ingredients, Arta-cleanse gives you INSTANT results you can SEE! Just watch!"

[Pitchman goes over to attractive middle-aged woman sitting down, injects syringe into upper inner right right arm]

"Watch as Arta-cleanse works its way through the system to BLOW AWAY all the nasty build-up that drags down your mood and strength!"

[camera zooms in on woman's arm, as discoloration propagates through arm where vein is located]

"In just MINUTES you have a cleaner, meaner, healthier circulation, or your money back!"

[camera cuts away to woman jogging, then to her blood pressure being checked, with a good reading showing up on a conspicuous monitor]

"But wait! Order in the next ten minutes and we'll throw in this free tourniquet that will make the injection even easer! And that's not all. Call within the next FIVE minutes and we'll DOUBLE your order for FREE! All this for just $29.99."

"HERE's how to order!" [points at camera]

***

You BETTER pay me royalties if you make that video! >:-(

Billy Mays, RIP

2009-06-28T13:46:00.005-05:00

The famous pitchman Billy Mays has passed away at his home in Tampa. Famous for promoting OxyClean, Orange Glo, and the Hercules Hook, among other things, he became well known in the "as seen on TV" world.

I won't deny it, I loved that guy. His genial manner, his voice, his hand motions... and I've been using OxyClean to get out stains for a while. Er, well, the generic brand now, but still.

If you need a refresher, here's a characteristic video:

ADDENDUM: Here is a comic I made about Billy Mays and posted on a forum around two years ago. All in jest, of course.

Note the characteristic hand gestures ;-)

Fun with graphics and the environment!

2009-05-21T21:56:00.005-05:00

Well, the Environmental Defense Fund has a cute graphic out (HT: Free Advice) promoting "green jobs":

The basic idea, as you probably figured out from the graphic, is that mandating pollution caps will give people something to do, thus reducing unemployment. They don't put it that way, of course, but that's the idea, and it's a rehash of the Broken Windows Fallacy.

This justification for pollution restrictions misses the point, of course. Assigning well-defined, sustainable pollution rights is a good idea, for the same reason that assigning rights to any scarce resource is a good idea: because of justice and efficiency, not because it would add another task for people to do.

In light of all of that, I decided to pull a SomethingAwful and put different words into the graphic, in an attempt to criticize my nemesis Bob Murphy's (of the Free Advice site linked above) sudden love of Coasean extortion payments when it comes to pollution. Enjoy!

220

2009-05-12T21:07:00.000-05:00

Now, find what question from a previous post that's an answer to.

Spot the common professional economists' error

2009-05-12T21:02:00.002-05:00

From James Hamilton:

When academic economists talk about inflation, we often think in terms of a single-good economy in which the concept refers unambiguously to an increase in the dollar price of that good.

If you can't wait for me to give you the answer, just go to the link and find my link. Well, I don't give it there either.

Anyway, all I can say is, if you make this kind of error at the beginning, don't expect me to put a lot of faith in your analysis...

Government loan to Chrysler now a gift

2009-05-06T08:48:00.005-05:00

So it turns out that all that money the government "loaned" to bankrupt Chrysler doesn't have to be paid back, making it a gift, a handout, a chunk of free money. (Incidentally, this is one of my complaints about the whole vocabulary of discussing the crisis. Companies whine about how they need "liquidity" or "credit" or "short-term working capital". No. They need free money. More on that some other time.)

It just gets worse with every passing day. First, it was, "Don't worry guys, we're just giving loans to troubled companies, they'll pay them back, it's not like we're favoring anyone here!"

And now they throw all that to the wind, making it a $7 billion gift to failing Chrysler to cover up its complete inability to meet its obligations, and draw in people who had nothing to do with the management of Chrysler. (A friend and I dubbed it the "bridge loan to nowhere".)

Gee, when do *I* get my $7 billion loan that I don't have to pay back. I'll make sure to pay taxes on it! (Anyone think Chrysler's going to do the same for their "lobbying income"?)

A version of this is cross-posted as a comment at Naked Capitalsim.

On the "Felony Stupdity" in the NYC Flyby

2009-04-28T13:04:00.003-05:00

Apparently, I'm not the only one stunned by the "felony stupidity"in the decision yesterday to fly an Air Force One standby with fighter jet escorts at low altitute through New York City. To begin with, to fly over the city that actually endured a terrorist attack from low-flying jumbo jets, a few weeks' worth of warning are certainly called for.

And for what? Apparently, because their file photos of ... aircraft, I guess? ... were out of date. Yes, the indignity of having insufficiently new pictures of your aircraft flying near the Statue of Liberty!

I would estimate this whole venture cost the government $500,000 (a coworker with more experience in this kind of thing puts it at $2 million), when you take into account wages of those participating, fuel and security costs, coordination with other agencies, etc. Then you take into account the costs imposed on bystanders (panic, evacuations), which I'll conservatively estimate bring the total cost to $10 million.

With that in mind, do you know what's really outrageous? They could have accomplished the same thing at a sliver of the cost. Here's what they should have done:

1) Set aside $100 instead of $500,000. Plus maybe a few days of wages for government workers.
2) Go to SomethingAwful.com and start a contest for whoever can photoshop the aircraft they want onto the background they want, promising an award of $100 (tax free!) to the winner. Allow them to use the existing stock photographs of the Statue of Liberty area and aircraft (obviously excluding classified photos).
3) Spend a few days sorting through the hundreds of high-quality entries that are indistinguishable from what you'd get through a photo of the real thing.
4) Spend a few more hours removing the "clever" captions SA users added to their entries, like "Your government at work!" and "9/11 looked something like this".
5) Tell President Obama that you just saved the taxpayers $500,000 minus a rounding error, so he can start up another debate in the blogosphere.

Another interesting thermodynamics result

2009-03-17T21:30:00.007-05:00

Here's another interesting insight on thermodynamics and information theory to add to my previous: I realized why "joules per kelvin" is a measure of entropy. Not exciting? Wait, you'll see.

In the previous post on this topic, I mentioned all the parallels between entropy in information theory and entropy in thermodynamics. Also, some properties can be calculated by their information-theoretic definition or their thermodynamic definition, such as the thermodynamic availability, which can be calculated as the Kullback-Leibler divergence, a measure from information theory. But what's interesting is that this value can be expressed in terms of bits, or in terms of Joules per Kelvin, which has units of energy over temperature, with a simple constant multiplier for conversion.

Huh?

You see, there's the hard part: why on earth would bits -- which measure how much memory your computer has -- possibly refer to the same property as "Joules per Kelvin", the way that inches and meters refer to the same property?

And that's where we get to the interesting part. First of all, what is temperature? It's not how much internal energy something has, but rather, it's internal energy per degree of freedom. In this context, a "degree of freedom" is a distinct way that something can be modified at the molecular level. A single-atom molecule may be viewed as having three degrees of freedom, since it can translate in three dimensions. Once the molecule has shape, however, it can rotate in addition to translating. So, two different substances at the same temperature can have different internal energy, because one of them may be stuffing that energy into more degrees of freedom.

So where does that get us with Joules per Kelvin and energy per unit temperature? Well, watch what happens when you expand out temperature in the entropy expression:

energy
------------------------
energy/degree-of-freedom

= energy * degree-of-freedom/energy

= degree-of-freedom (!)

So there you have it! Once you expand it out, energy per unit temperature is simply a roundabout way of saying "degrees of freedom".

Now you may ask, "Nice, but that still doesn't explain what that has to do with bits." But then, what is a bit but a binary degree of freedom? When you have memory of n bits, then there are n values that you can independently set to one of two possible values, making it likewise a measure of degrees of freedom. (Note that this capability allows you to store 2^n possible states.) And informational entropy, in turn -- also expressed in bits -- is the logarithm of the number of possible states a system can be in, making it proportional to the degrees of freedom as well.

The two lessons to take away are that:

1) The number of degrees of freedom a system has depends on the arbitrary choice of what you count as a degree of freedom, just like the number of "units of length" something is.

2) Whichever consistent method you use of counting degrees of freedom, the number of degrees of freedom is proportional to the logarithm of the number of possible states.

Mystery solved! (No, I don't know if this discussion is given in any textbook treatment of the issue.)

Oh, and: Happy Saint Patty's Day!

Well, I took the plunge and installed Ubuntu (again)

2009-02-15T17:55:00.007-06:00

Three years ago, I tried to install Ubuntu. Let's just say it went so badly that I'm not even going to give the details for fear that someone I chewed out at the time will notice the similarity between my case and "that jerk on the Ubuntu help site three years ago" and target me for reprisals.

Needless to say, it actually worked this time, since I was smart enough to install it on a completely different computer as a hedge against failure (instead of merely trying to isolate it to a partition on a secondary hard drive) and because the development crew has gotten its act together.

And I have to confess, I enjoy it for the most part. There's still a lot to get used to, and a lot of settings to configure, but I was amazed how easy it was to get wifi working, to install Firefox plugins (note how I don't snidely call it "liarsux" anymore?) and how many Free (yes, "they" want you to capitalize it), useful programs come bundled, and yet the system has no bloat ... everything is fast. Unlike on Windows, there isn't a huge list of processes of questionable purpose running that you can't shut down.

I've also gone back to using Vimperator which I had blogged about before, which means that yes, I made this post without ever using the mouse. But of course, like with most user interface design, the half-genius Herr Stubenschrott had to ruin his own code's functionality. Previously, you would hit the 'f' key and a bunch of key commands would pop up over the links like "ds". Then, hitting "ds" would activate the link. But now, they're all numerical, like "24", which makes it much less convenient.

Stubenschrott, in his defense, now permits you to call up a link by typing the first few letters of it, which I had suggested allowing before ... but it kind of defeats the purpose when the key commands blot out the first two letters! And the entire link becomes highlighted and impossible to read! Fortunately, someone wrote a script that converts it back to the old way.

All in all, a seamless, enjoyable transition so far. Now, to move over the old hard drives, files, and email...

The IP debate heats up again!

2009-01-29T22:09:00.002-06:00

Well, did you miss my posting, guys? I know one fellow who did. STS welcomes "Andras", a commenter on the Mises blog, who has single-handedly revived my older, ultra-arrogant post that presented the serious problems with libertarian anti-IP (intellectual property) theorizing. Apparently, the default setting on Blogspot is that posts don't expire, so they can always get more comments, and I saw Andras's comment there because I kept coming back to it to link that post. Note that in addition to the initial post, I summarize in a later comment, my three biggest problems with opposition to IP in the context of libertarianism. Take a gander!

Andras understandably dislikes the pro-IP groupthink (though he doesn't use that term specifically) on the Mises blog. But, there's reason to be happy. I've noticed a sharp change in the general form of IP discussions there. They used to be a few people against hordes of fanatical IP haters. But now, there is significantly more balance, and far more people are making reasoned refutations of the standard (but wrong) anti-IP arguments. Here's a short list from the past month:

Why People Don't Believe In Paying For Music. Hint: Its All About Deflation.
A Book That Changes Everything
Hayek on Patents and Copyrights
Hayek, IP, and Knowledge
Authors: Beware of Copyright
The Universals of IP Theorizing
Matsushita and the Patent
Does Innovation Require Property in Ideas?
Dangers of Copyright Exhibit
Dissecting Boldrin and Levine: An Alternate View of Intellectual Property

Two things to keep in mind: a) these aren't all the IP posts in the past month, and b) I'm linking these not to endorse the argument at the top, but to show the more numerous and well-reasoned criticisms the Mises blog gets now.

Have a very merry DDR Christmas!

2008-12-23T16:28:00.004-06:00

Last year, I made a video of myself doing the Christmas- and Winter-themed dances from the video game series Dance Dance Revolution (DDR), and put it on my YouTube page. But back then, I didn't have a rockin' blog to link it from!

Since Christmas is going to hit soon, here's the video, the most viewed on my page:

A non-conspiratorial explanation of oil's price history

2008-12-22T16:09:00.004-06:00

As you're probably aware, oil this year surged to $147 a barrel and then fell to, as of today, about $40 -- over a 2/3 drop in less than six months. And its peak was over a 100% increase from the previous year. With a lot of the decline shortly before the election, this roller-coaster ride has prompted quite a lot of conspiracy theories.

Well, recently on another (private) forum, I summarized the significant reasons why oil acted like that, without reference to any conspiracy. I'll repeat it here:

1) China was buying a lot of oil and stockpiling it. Unlike the general "growth in emerging markets", this actually came as a surprise to a lot of speculators, which is why it was such a fast rise instead of a gradual one since 2000. China was doing this in order to burn less coal and make the air cleaner for the Olympics. Now that that's over, a significant source of demand is gone.

2) Because of the credit crunch, speculators were significantly less able to borrow and bid up the price of oil. Once it hit, they had to significantly unwind their positions.

(Now, I'm all for the right of people to make speculative purchases; however, what we had there was *far* from a free market. For one thing, the government's bailing out of banks that had hedge funds doing the speculating, eliminated the strong negative downside to hype-based, stupid speculation. Also, a lot of the *naked* shorts and longs were very corrupt where if one party lost money, the brokerage would act like it can't find the original contract and try to reverse the sale. Things like this artificially amplified the price premium due to hype [as opposed to rational estimations of future developments] and crowded out wiser investors.)

3) The global economic downturn significantly revised investors' estimates of future oil demand.

4) The president's, and then congress's, termination of the ban on offshore drilling also significantly changed expectations about future oil availability. These helped prod oil down.

Setting externalities straight: the elephant in the room

2008-12-12T16:46:00.005-06:00

A recent comment on Megan McArdle's blog gave me a chance to explain (again) what I think is wrong with "glibertarian" (glib libertarian) solutions to the problem of externalities.

Basically, I think that when people complain about negative externalities, what they are really complaining about is a negative externality that they also find morally objectionable, but for well-grounded, intuitive, practical reasons. To suggest that the victim of such shenanigans should have to pay off the wrongdoer, thus misses the point. That is exactly the reasoning I elaborate on in the comments section of that post.

So, to the discussion. Jim Glass said:

... *if* transaction costs were zero *then* "externality problems" like pollution would be bargained away in the market, but these problems aren't bargained away in the market, *thus* transaction costs are large -- and should get a lot more attention from economists and other social planners than they do.

So I responded:

Jim_Glass: actually, as I said above, I think the problem people intuitively have with this Coasean reasoning is that it's not true, even in the pure case of no transaction costs.

Think about it this way: what if while you were sleeping I came close to your window -- though still outside your property, and revved my motorcycle loud enough to keep you from sleeping. And let's say that, because of some technicality, there's no law or property right you can invoke to make me stop.

Would you seriously try to pay me to go away, thinking, "hey, problem solved!" Hopefully, you're not that stupid. Because then you just created the incentive for people to extort more money out of you. Yet economists would pat themselves on the back and say, "See? Because of property rights, this so-called 'problem' has an efficient solution."

But it's a load of crap.

Now, as an economist, you might admit that, okay, sure, you suffered a bit -- you lost some of your consumer surplus. But that "doesn't matter" because it's "just" a transfer payment. You lost, and I gained. Only when there are are *no* gainers do we see an "inefficiency" and therefore a problem. Here, there is no problem.

Hell yes there is! A system in which people can extort money this way is a system in which people just don't make as big investments in property [which results in less wealth for everyone], knowing that that will just make them a better target for extortion. It's a systematic weakening of property rights.

So no, Jim_Glass, the appropriate solution is not to "get transaction costs to approach zero, and let bargaining take over." The appropriate solution is to require those who try this extortion to pay up for it!

Deliberately annoying people should *not* be a path to wealth. People see this intuitively. And for the exact same reason, the victims of global warming should *not* be the ones that have to buy out the polluters, even if the transaction costs would be zero.

The thing is, in these internet debates, people who object to e.g. pollution, are doing so in a way perfectly consistent with the basis I laid out -- yet rarely do the participants get around to identifying these underlying assumptions! Instead, they just throw the same non-responsive points at each other, and ultimately miss identifying the optimal solutions -- both in the moral and economic senses. I seem to be the only being in the world capable of actually seeing what the dispute is ultimately about.

So, again I have to ask: is the world insane, or just me?

Now I'm even famouser*!

2008-12-08T19:37:00.003-06:00

Bob Murphy mentions me in a Buffalo News opinion piece. And promotes me to "financial commentator"!

For those of you who got here after wondering, "Huh? Who's Silas Barta?": welcome to my blog! Since you're probably not aware, Bob and I have had some pretty vicious disputes over the issues, so it's quite honorable of him to mention me. He said he felt he owed it to me because I originally suggested the point to him.

Don't worry though, I'll be back criticizing him in no time at all! Like, what's with the sudden reversal of his position on not making conditional endorsements of government intervention "because it might confuse the readers"? More on that later.

*Not actually a valid conjugation in proper English

Inflationary product debasement turns tragic

2008-11-30T23:18:00.005-06:00

Previously, I had highlighted the problems in inflation measures that don't take into account when a product is debased in order to hide its true cost. Well, another case of that has come up in the news: the FDA melamine regulations permitting trace amounts of the stuff in baby formula. From the beginning:

This weekend, I saw a news story on TV where a doctor was explaining that, while melamine is most likely safe in these trace amounts, it "has no business being in baby formula" because there's no benefit to the baby, there's a risk of harm, and you just don't need it to make formula.

My immediate reaction was: Okay, if it's so bad, there must be some reason producers would want to include it. After all, businesses don't e.g. pollute just for fun; they do it because that improves product quality and/or cost -- er, at least it appears that way to the most highly-visible parties.

As the story continued, the doctor answered my question by saying that it's included in order to fool the tests used to determine protein content. I don't remember the channel, but I found a San Francisco Gate story substantiating that claim:

Melamine contamination became major news when it was discovered that China was adding it to milk to disguise test results that measure protein levels. Since the chemical was found in infant formula in September, it has sickened some 50,000 Chinese infants and killed 4.

So there's our answer! They use melamine instead of the good stuff in order to pass some protein measurement test. And they only use melamine because it's cheaper, or else what's the point? But, that test has a "blind spot" that will give a "pass" rating to baby formula that only achieved that rating by compromising the "design constraints" of baby formula! So it fits into my template of "compensate for inflation by debasing the product instead of raising the price".

Now, it certainly doesn't take a bout of inflation to make people try to get "something for nothing". But it's a very plausible suspect for why it wasn't tried before.

Of course this is not to take away from the culpability of those who conjure up such unethical policies. And, to some extent, you have to understand the position they're in: when consumers reward those who can keep the visible price low, while ignoring the other costs thereby incurred ... well, don't be surprised when they're all too willing to oblige :-/

A Big-Three-Bailout argument that just might work...

2008-11-24T22:06:00.002-06:00

When they couldn't convince anyone they had a clue what they were doing, the Big Three resorted to doom-and-gloom about all the spillover damage onto poor, innocent workers that would ensue if they failed. But even that isn't working. Maybe it's too abstract? Not enough emotional appeal?

Don't worry, Silas X to the rescue! In this video, I show them how to really win over the hearts and minds of our elected representatives!

My plan to destroy the universe won't work

2008-11-19T21:19:00.005-06:00

And I'll bet you're relieved!

Maybe a little background is in order.

A question of interest to philosophers and theoretical physicists is whether or not the universe is just a simulation running on some computer, one level up. (See e.g. Nick Bostrom's Simulation Argument.) Of course, many ridicule this idea as being non-falsifiable and thus non-scientific.

Not so fast! I said. Of course it's falsifiable. Here's how: if the universe is a simulation, then its programmers probably try to economize on computational resources (computing cycles, memory, disc space, time, etc). And to do that, they will make the program reveal to "us" (the conscious entities) the minimum required to make everything appear "believable". That in turn, means that as long as we "wouldn't know the difference" if some physical process developed in a way contradicting the rest of our observations, the simulator won't bother to churn through the calculations needed to make the process match up with known universal laws. In other words: "If we're not looking, why bother making sure something's there?"

And that tells us how to test the Simulation Hypothesis: have everyone set up as much measurement equipment as they can, and therefore observe as much as they can. This will force the simulator do many more calculations than it would otherwise have to, since now it has to keep consistent with that many more observations. The programmers then have to devote an ever-increasing amount of resources to keep it running, which will eventually force them to "cut corners" in implementing the laws of physics, revealing violation of Standard Model physics, or ... um, make them pull the plug on our existence.

Hence, my "plan to destroy the universe".

Now, the good news: the plan wouldn't work, based on what we already know about how the universe would react to such a "hypermeasurement" scenario! And the reason is shocking: because we can't actually increase our total knowledge.

"What in the hay-ll? I did me some book-larnin' not but three yurs ago!"

Sorry, that was Cletus, our resident country bumpkin.

Well, I'll need to some more background now to justify that claim. First, I want to point you to a post on OvercomingBias.com that introduced me to a lot about what I'll discuss here: Engines of Cognition.

Now, consider the 2nd law of thermodynamics. There are many ways to express it, but a simpler way is: "The amount of disorder ('entropy') in the universe must always increase." Sure, you can increase the order any one specific place -- say, when you form crystals -- but it will always be counterbalanced by an increase in disorder somewhere else. The most common application of this law is in heat engines (such as the one in your car): when you burn fuel to turn your engine and thus your tires, you are extracting a kind of order: the useful mechanical "work" (as it is called in physics) of a spinning engine. However, to do so, you burn fuel and transfer heat to the environment, which, when tabulated, generates entropy/disorder exceeding that which you destroyed in extracting mechanical work from the system to drive.

Now, here's the kicker: there are deep parallels between the concept of entropy in thermodynamics, and the concept called "entropy" in information theory. In the latter, it refers (roughly) to the uncertainty one has about the content of a message before reading it. Any knowledge that some kinds of messages are more likely than others therefore reduces that "entropy". Similarly, entropy is at a maximum when all messages are equally likely.

And the truly mind-blowing part is that the connection between the two kinds of entropy is so deep that entropy in the information-theoretic sense affects entropy in the thermodynamic sense. (This is going somewhere, just be patient.) In short, if you are able to reduce your uncertainty (information-theoretic entropy) about the "message" contained in the molecules of a system, that knowledge can actually be exploited to reduce the thermodynamic entropy of the system and thereby extract useful work! (For reference, and early exploration of this idea is called the Maxwell's Demon thought experiment, and a hypothetical engine that extracts work this way is the Szilard engine.)

But this hypothetical capability of decreasing the entropy of a system does not actually contradict the 2nd Law, which, you'll remember, says that total entropy must increase. Rather, for reasons I won't go into, this acquisition of knowledge itself is limited by the 2nd Law. Just as the extraction of "organized" mechanical work from fuel requires the generation somewhere else, of at least as much counterbalancing disorganization, so too does the collection of information that could permit extraction of the same work without the fuel require a counterbalancing loss of information somewhere else, i.e. increased uncertainty.

This principle reveals a fundamental limit that your brain (in a deep sense, a "cognitive engine") faces: in order to learn something true about your environment (whether via the senses or inferences), you must sacrifice knowledge somewhere else. Fortunately, nothing requires you to care much about that lost knowledge, which takes the form of "lost certainty about aggregate statistical properties of thermodynamic variables".

Now, back to the main point: from the perspective of hypothetical beings running the universe's simulator, my idea to gather more measurements has no impact. Any time we make a measurement, we are gathering knowledge, which must therefore correspond to lost knowledge somewhere else. So, far from threatening the computer's ability to simulate our universe, all our measurements will (amazingly) decrease the computational resources the simulator requires.

Which neatly returns the Simulation Hypothesis to non-falsifiability, and assures us that even if people acted on my idea, we're still safe and sound. Alternatively, it reveals the universe's programmers to be really, really clever :-)

Yay! I'm famous now!

2008-11-16T22:38:00.003-06:00

Because of my earlier criticism of Peter McCluskey's poorly-designed plan to learn the market's estimation of how the party of the next president will impact oil prices and interest rates, I actually got linked by someone I don't already know! (Someone who, by the way, didn't quite take me seriously the first time around.)

Peter McCluskey, for his part, now mourns the failure of his plan.

"Cynical comment left elsewhere" of the day

2008-11-14T18:35:00.007-06:00

I've been pretty fed up with the combined favoritism and outright stupidity in the financial system these days. This has led me to guess that any exchange involving a promise from a large, old (and therefore probably protected at all costs by our Overlords in Washington) corporation is going to, less and less often, be treated as something they have to *sigh* actually honor. With Sears and K-Mart reinstituting layaway (in which you make installment payments and then, after the last, receive the product), I figured this would be just another promise you can't trust anymore.

Well, a former happy customer of layaway services, calling herself "Princess of Swords", didn't seem to notice this trend and so disputed my prediction in a discussion on a Megan McArdle post. (UPDATE: previous link was to the wrong site.) Here, I post my response, in which you'll start to understand the basis for my pessimism:

******

Princess_of_Swords: Thanks for taking the time to detail your experience with the intricacies and standard practices prevailing with respect to layaway at the time you availed yourself of it.

Now I'm going to explain to you how it works in the real world.

In the real world, an obligation no longer means anything.

-GM was obligated to pay pensions. They didn't even bother to internally classify them on the same level as a bond, until forced to by law.

-Insurance companies are obligated to pay when disaster strikes. They fight as hard as they can to avoid paying, even for plain vanilla cases.

-Individual consumers buy things on credit, deferring the first payment for a long while. They are routinely caught not having saved for that big first payment.

-Securities brokers engage in naked short-selling of stocks, which obligates them to produce actual ownership of that stock at a later date. Yet as we've seen recently, they've ended up flooding the market with fake stocks and then casually aver that they "can't locate your stocks" and offer to reverse your purchase as if it were no big deal.

-Gift card issuers are unilaterally stealing money from gift card owners on the grounds that "they need it" because they're in financial trouble, despite having obligated themselves to treat the gift cards as equivalent to cash.

-AIG got a massive bailout from the Fed, but, we were assured, they would be obligated to pay a hefty penalty interest rate and start immediately and orderly unwinding their enterprise. Well, the Fed went back and cut their payments in exchange for nothing, thus debasing the Fed's assets (and thus the dollar). And AIG has done virtually nothing to liquidate its assets.

You get the point. I just don't care how you think things used to work back then. We are in a new world, where only us responsible commoners have to keep our word.

And even more GM ROFLcopters!

2008-11-13T19:00:00.005-06:00

This is too rich. Daniel Gross of Slate writes in defense of propping up the Big Three automakers. But since Slate recently started putting links in the middle of articles instead of at the end, we see that right in the MIDDLE, they post a link to Gross's previous article from '03 where he REJECTED the claim that the auto industry was doomed. Check out these gems:

"...the Big Three enjoy remarkably large market caps: $21.5 billion for GM [now under a tenth of that -- SB].... Throw in all the money that has been lent to the companies, and you have to come to the conclusion that either there's an awful lot of stupid money invested in the survival of the U.S. auto industry or the declinists are mere alarmists."

"...the Big Three are unlikely to seal their own near-term doom for the sake of short-term labor peace. It's safe to assume that the companies will gain the upper hand in negotiations ..."

Yeah, why would unions shoot themselves in the foot? And why would GM have anything but a long-term perspective?

"Ford, as Moneybox has described it, is a profitable bank lashed to an unprofitable carmaker."

Now, without the profitable part!

"...it's hard to go out of business when you have a great deal of brand equity, ready access to the capital markets, and the potential to print money when you have the right product mix at the right economic climate."

I really have to hand it to Slate: highlighting an author's unflattering earlier work is quite a selfless, helpful act!

(Cross posted at the ever-more-foot-in-mouth Megan McArdle's blog.)

ROFL = rolling on floor laughing
ROFLcopter = internet meme alluding to mechanization of this phenomenon

GM outdoes itself again

2008-11-12T22:48:00.003-06:00

Finally, mainstream investors are wising up to the completely ridiculous assumptions you have to make to justify investing in General Motors. A Deutsche Bank analyst has finally set a target price of GM stock at $0. But here's what will really refuel your ROFLcopter:

GM bonds maturing in less than 3 years now yield SEVENTY-****ING-FIVE PERCENT!!!!!!

(Scroll down to "Last Sale" at the bottom. Thanks to rluser at Marginal revolution for pointing me to a free bond price site.)

The time it takes for investors to Set Things Straight is way too long.

Well, I guess I don't count as a libertarian anymore

2008-11-07T15:40:00.005-06:00

Yesterday I was kicked off the private LibertarianForum Google Group and mailing list. The reason was that I had the audacity to remind other libertarians of the responsibility side of liberty (with respect to global warming), and for pointing out flaws in really stupid arguments against intellectual property (and, conversely, explaining how an IP-free system is vulnerable to Mises's economic calculation critique). The proverbial last straw was a discussion sparked by someone linking this TokyoTom post about Bob Murphy finally admitting, after being dragged kicking and screaming, to admit he misled readers in his op-ed, though of course he's not going to actually say it where any victims of his deception are going to see it.

The head of the list claimed that he was deluged with requests from people who were asking me to be removed, and who apparently lacked the guts and the brains to actually explain where my points were in error. I'm not going to name any names.[1]

Naturally, people are going to claim that, oh, it wasn't what I said, but my rudeness. This is ridiculous -- it's standard practice on the LibertarianForum list to use the exact same tone I did, as even my detractors readily admitted. A more plausible claim would be that the people there didn't like being uncomfortably reminded of the implications of their stated (though certainly not actual!) beliefs.

So why the title of this post then? I believe, after all, everything I did before. But look at it this way: time and time again, I see people nominally also "libertarian" reveal themselves to have been coming from completely different premises. I never imagined that I would see, for example, Bob Murphy take the attitude of, "Oh, did I destroy your land with my CO2 emissions? I got it! Here's the solution! Fix it your own damn self!" (Yeah, way to preach responsibility and universal adherence to basic morality there...)

There's only so many times I can see cases like that before the self-appellation "libertarian" obscures more than it clarifies.

So what to call myself now? One good option is Birchian, after Paul Birch (a former Anti-State Forum contributor), since I've been seeing my views more and more resemble his, especially in terms of focusing on whether the victims of one's actions have been adequately compensated.

Alternatively, I could -- gasp! -- call myself a mutualist as per the philosophy of Kevin Carson, my former nemesis. (As recently as July of this year he quipped that I couldn't grasp an argument even with velcro-covered mittens!) The reason for that term would again be because of my focus on the extent to which nominally "libertarian"-favored activities are in fact predicated on the state stepping in an exempting certain groups from having to actually bear its true cost.

Before inferring too much from this post, I ask that you heed this caution: There is a big difference between "Problem X is often overstated in an attempt to give politicians more power" and "Problem X doesn't exist." I certainly sympathize with those who have seen so many phony environmentalist rationalizations for statist measures that are thinly-veiled attempts to shut down markets, that they hear about Problem X and immediately view it as the former. But ask yourselves: has the tide turned to the point where it's more common to see anti-environmentalist arguments as thinly veiled attempts to shove onto other people, costs that the arguer should be bearing?

[1] Since a lot of you might be sketchy on terminology, a so-called "name" is a label used to refer to a specific instance of a proper noun. An example of a name might be Brad Edmonds or Max Chiz.

Yes I'm still around

2008-10-28T21:41:00.003-05:00

And, inspired from a different context, I drew this comic about the current credit crisis corruption.

Rewriting history and science and history of science

2008-09-23T20:08:00.002-05:00

Joe Biden tells us how it was in the good ol' days (via Megan McArdle via Jesse Walker and Stuart Buck):

"Part of what being a leader does is to instill confidence is to demonstrate what he or she knows what they are talking about and to communicating to people ... this is how we can fix this," Biden said. "When the stock market crashed, Franklin Roosevelt got on the television and didn't just talk about the princes of greed. He said, 'look, here's what happened.'"

Hey, don't laugh! In 80 years, VP candidates will claim that right after 9/11, Barack Obama heroically uplinked to NeuralNet and metacommunicated the full extent of the situation.

Well, I guess the crisis is over now

2008-09-23T17:29:00.004-05:00

Warren Buffett is buying into Goldman Sachs, on very favorable terms -- 10% "perpetual preferred shares" plus the right to buy the stock cheaper than it currently is. This will signal that Goldman Sachs is sound, which will then provide a basis for trusting one party, which can then establish a basis for trusting their counterparties, until everyone can trust each other and the crisis can be averted -- for now -- long enough for me to dump the rest of my US shares on idiots -- without a massive government bailout. Hooray!

Alright, maybe a bit too optimistic.

Yeah, I know some of you are waiting for me to joke about how "Buffett has gold man-sacks" ... not gonna happen. This is a family blog. Hi Mom! :-)

Time to review the Put-Call Parity Theorem

2008-09-19T15:11:00.005-05:00

With the SEC's recent move to ban short-selling of politically-important securities, it's time to review the beautiful Put-Call Parity Theorem to understand the futility of doing so. Here's my phrasing and elegant explanation of it:

B(t,$X) = S + P(t,$X) - C(t,$X)

B is the value of a bond maturing at time t for $X.
S is the value of some asset, it doesn't matter which.
P is the value of right to sell the above asset at time t for $X. (In financial terminology, a put option dated at t with a strike price of $X.)
C is the value of the right to buy the above asset at time for $X. (In financial terminology, a call option dated at t with a strike price of $X.)

In this sign convention, negative means the counterparty to the security, so for example, if the bond term were negative, it would refer to the value to the borrower on that loan, while the negative call option refers to the person having the obligation to sell at $X to the call owner.

So, the equation means that, for some time t and some money amount $X, a bond maturing at t for $X is equal in value to some asset, plus the right to sell the asset at time t for $X, plus the obligation to sell it at time t for $X.

Proof: the left-hand side of the equation is worth $X at time t. The right-hand side is also worth $X at time t because if S were worth less than $X, the holder of the put could sell it for $X, while if it were worth more, the holder of the call could buy it for less. Q.E.D.

Note that if you find a case where the two sides are not equal, you profit through arbitrage buy buying the cheaper side and selling the more expensive side. In a discussion a few years ago, Gene Callahan claimed this was how he made money. You also might be interested to know that this theorem -- though of course it wasn't referred to in such terms -- was historically used to circumvent financial regulations such as bans on usury, since through clever rearrangement of the equation you can recreate any financial security. Here is a neat paper on that history.

Anyway, the point to remember is, let's say I want to take a short position in a stock. That would be represented by "-S" in the above equation. But let's say you found out that was banned! No problem. Just rearrange the equation! With the function arguments suppressed:

-S = -B + P - C

So, borrow money, buy a put, and write (sell) a call. Problem solved! (Except for the cost of fending off the SEC guy giving you an intimidating stare, of course.)

Verb regularization sighted

2008-09-19T08:36:00.003-05:00

You may have heard of the paper published about a year ago modeling when and why verbs regularize, that is, stop having irregular past tenses. (take->took is irregular, while jump->jumped is not) The basic idea is that the less frequently a verb is used, especially its past tense forms, the quicker speakers are to stop using the irregular form. Which makes sense, because those verbs are much easier for people to forget, and much easier for editors not to notice.

Well, in all the turmoil of this week's financial markets, what catches my attention the most? This:

Lending has grinded to a virtual standstill in the wake of the bankruptcy of Lehman Brothers... [emphasis mine]

Now, maybe I've been living in a cave, but that's the first time I'd seen "grinded" instead of "ground" for the past tense in writing. Looks like that one's on the way out!

Oh, and I hope you got out of U.S. stocks and own some gold.

UPDATE: What a crock! They fundamentally revised the article at the link, removing even the sentence that I quoted. I didn't know I was linking to the Department of History Alteration or whatever Orwellian agency it is...

Arnold Kling asks for crisis joke, Silas delivers

2008-09-19T08:36:00.002-05:00

In a great post on the current financial market issues, Arnold Kling says:

The guys who got it right on low-down-payment mortgage are the Freddie Mac folks that [ousted Freddie Mac CEO Richard] Syron ignored. (There has got to be a siren-Syron pun in their somewhere, but I'm missing it.)

Oh, that's easy: "In America, it's dangerous for you to ignore a siren. In Soviet Amerika, it's dangerous for Syron to ignore YOU."

I can't post it in his comments section for obvious reasons. If one of you would point him here, that would be rockin'.

How come I never caught this before?

2008-09-16T09:00:00.000-05:00

"Power corrupts" -- LORD Acton.

Uh huh. Thanks for the tip. Perhaps His Lordship was trying to pull an Epimenides paradox on us?

Full quote: "Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men."

Wasn't Lord Acton so great?

I know, I know, British peerage system, he doesn't actually gain much power by being 22nd Earl of Halfingwaysshireford, blah blah blah ...

So I was right again. Now, let's fix inflation measures.

2008-09-10T18:04:00.001-05:00

There's a story on CNN Money today about shrinking and degrading products in response to inflation. Unfortunately, it doesn't give more than passing mention to the real stickler in inflation, the "degrading" part, which is harder for measurers to notice.

Consumers are discovering more air in their bag of chips, fewer sheets of paper towels on the roll, thinner garbage bags and even smaller squares of toilet paper. (emphasis mine)

You don't say! I've been noticing this for a while, and haven't been convinced the BEA and BLS capture the impact. When you pay the same for a debased product, that is price inflation, and precisely what you need to measure. But like the fool who won't search for his keys outside of the light, the BEA and BLS don't do the lab testing necessary to incorporate critical quality-related aspects of products.

In my personal experience, I have noticed cereal boxes and paper cups as being flimsier and thus harder to hold -- about as big an inconvenience as you can tag onto such a simple, trivial product. Soda bottles also had confoundingly irritating changes: in addition to the 25% vending machine price increase, they shrunk the cap height beyond all reason so that it's nearly impossible to get a good enough grip to twist open with your hands. The fact that Coca-Cola even made this decision is a testimony to either a) the low quality of their engineering teams, or b) how desperately they needed to debase the product. Neither is encouraging. (To their credit, the caps have returned to "good enough", meaning they've hidden the price increase somewhere else.)

I should feel fortunate to live in a country where "difficulty in opening products" ranks highly enough to complain about. But that's also worrying: in a country with such enormous, overflowing wealth (which the US has, right?) shouldn't producers have kept such noticeable inconveniences out as a matter of course? Something's not right about that picture...

So, if you really want to measure inflation, you're going to have to track these very tricky quality changes. But there's an alternative: focus on measures were this quality debasement just isn't possible. As I'm sure I've argued here and on several boards by now, the ideal candidate is an insulin index which does the work of policing quality improvements for you. If you debase insulin, someone dies. The other benefits are:

-Steady, predictable demand
-Global market with many buyers
-Many inputs, so it's immune to any one specific input's volatility
-No transient intellectual property effects

Which probably accounts for why such information is so durn hard to find!

Second, in addition to capturing quality degradations, they need to fundamentally rework how luxury-type items are accounted for. Those typically "scale" with what other people have. Faster computers mean enabling nicer software, but they can also mean having to pay for hardware I don't need, as the older stuff isn't available, and my current one can't run the latest software that assumes I have a faster machine. And the value I can squeeze out of it doesn't increase one-to-one with the MegaHertz rating!

I absolutely accept that modern technologies have vastly expanded the entertainment and learning options available to me, but an inflation measure must at the same time account for when food and energy prices put the squeeze on me.

I'd be interested in transforming these ideas into an academic paper, except there are a few things ahead on that list...

Play-money arbitrage opportunity

2008-09-08T09:34:00.001-05:00

Now this is weird: there's a play money contract on Intrade on whether Fannie Mae common stock will be under $1 per share on Jan 20, 2009. The market there is placing about a 14% chance of it happening.

But then when we look over at financial markets, we see puts on Fannie (the right to sell Fannie shares) trading at $1.60 for a stike price of $2.50 dated right near that. Do the math. To make a profit on the right to sell Fannie at $2.50 when you pay $1.60 for it, the shares must be under $1 at that time, so the financial markets are placing -- at least if my understanding of options is in order -- over a 100% chance on that same event.

If there were a real-money contract on this, it would be a nice arbitrage opportunity. I'll let you figure out what the trades would have to be.

As for me, I snagged 325 contracts, average price $1.21 (payoff is $10/contract if the event happens). All in play money, keep in mind.

UPDATE: Okay, my understanding of options isn't in order. But the point stands: the market places a "very high" chance of Fannie shares being under a dollar by innauguration day, while the play money prediction markets place a "pretty low" chance.

The Bob Murphy and Gene Callahan problem

2008-09-04T17:38:00.004-05:00

If you've read their post about banning me, you may have by now a one-sided view of the dispute. I will explain here why I make so many posts on their blog that they find annoying. (some links missing and I apologize)

1) I have called out Bob on his deception of readers. As Bob admits here, his shameful op-ed was written to convince the public that carbon caps are necessarily stupid, a position he rejects. Now, when you are so misleading -- basically trivializing the suffering of hundreds of millions of people to justify why your gas should be cheaper -- yes, it will make you livid when someone points this out in front of others, and Bob's desire to ban me is a predictable manifestation this effect.

2) I regularly call out Gene on his selective invocation of rules of civility. Hey: having a civilzed discussion is great. But here's how Gene defines "civility":

Acceptable behavior:
-Lying about what someone believes (geo-engineering thread)
-Lying about the economics and morality of tradeable pollution caps (the op-ed above)
-Assuming the worst possible interpretation of any argument someone makes. (The discussion on the iMac and the "He must own the place" thread)
-Personal attacks, when Gene or Bob is making them. (apple thread and recent posts resulting in the ban consideration)

Non-acceptable behavior:
-Personal attacks, when Silas makes them.
-Asking for clarification (iMac thread)
-Suggesting that someone did in fact read a blog post just before submitting a full essay on it (in the case of Bryan Caplan's challenge)
-Mentioning that someone should have known something, given his job. (geo-engineering thread)
-Mentioning that someone know about the philosophy of others, given his job. (same)

Note here: Bob and Gene have repeatedly claimed that even when I do have a valid point, they dislike my posts because of the "tone". Well, I'll admit it: I do use a harsh tone, and I should. Their mistakes go well beyond the point where I can attribute it to mere stupidity or ignorance. They reflect a corrupted philosophy, one that says, "Whoa, you thought libertarians supported principled, private property rights? Hell no! We support cheap oil, first and foremost, even and especially if it permanently floods the residences of hundreds of millions of people. The right to slightly increased profits OBVIOUSLY supercedes the right not to have your homesteaded land permanently submerged."

When you have whored out your ideology, and so cheaply at that, a constant reminder from some, some ... nobody will put you into overdrive. It will cost you sleep. It will want you to shut up that voice in any way you can. Hence, the discussion of whether to ban me, which is where we are today.

I am appalled at the way libertarians have reacted to the global warming issue. While libertarians like Bob may have made valid cases why right now carbon caps can't be justified, in doing so, many of them have tipped their hands as to what philosophy they were really following the whole time -- and it's not pretty. If you were confused as to why I've been so harsh, you no longer are. And it is instances like these that give serious substantiation to the claims of those like Kevin Carson who say that many libertarians are more interested in shoving costs onto others than in seriously establishing principled private property rights.

In Bob's defense, he has written a paper on how a private law system would handle the current global warming evidence we've faced. I find it unacceptable (as I do Gene Callan's attempt to solve the economic calculation problem with protests), but we can save that for when it's publicly available. For now, I just want you to note Bob's prioritization: first, ridicule all attempts to define clear rights in the atmosphere. Then, much later, if ever, try to sort out what the libertarian position on atmospheric rights actually is. Oh, and support atmospheric socialism until a serious problem comes up.

How to get Silas interested in Barbie dolls

2008-08-27T20:03:00.002-05:00

Because of that whole heterosexuality[1] thing, I've never been interested in Barbie dolls. But I have been interested in the path of American industry and innovation, and where that intersects with Barbie dolls, you've got me hooked.

The big story today is that Mattel, the maker of Barbie, won a smaller-than-expected judgment against MGA, maker of the rival Bratz dolls.

It's a sad story, MGA having to pay damages, but becoming all too common. As the author of the story, Charles Payne, puts it:

I write about the deteriorating competitive nature of American businesses... Mattel makes for a great case study in corporate compliancy and hubris. ... At some point, a bell has got to ring. Our largest businesses have to be willing to truly innovate, to find genuinely new ways to get things done. Wall Street was greedy and complacent, and couldn't back away from the trough of easy money.

What happened in this particular case was that a designer at Mattel came up with an idea for a new kind of doll. Mattel didn't like it, so he went to work for another company that was actually competent enough to see the merit therein, MGA. So then Mattel, seeing their stupidity play out in the Bratz dolls' success, sued on the grounds that well, since the designer developed it under them, some contract gives Mattel rights in it. Except that -- oops -- they couldn't substantiate a case against the designer, and dropped it.

So Mattel's attitude basically comes down to: we deserve all of the reward and none of the risk, and we'll sue you rather than produce innovative products. (For what it's worth, I volunteer at an intermediate school [4th-6th grade, 9-13 year olds], and I've only seen Bratz-themed products, never Barbie.) And keep in mind, it takes quite a bit of innovation and guts to compete with Barbie in the doll market, one in which the buyers want to have what all the other buyers already have. Let alone compete well!

Payne is right: more and more often we see such clowns in charge of big corporations. At American car companies who lose boatloads of money and are valued at a sliver of their foreign competition. ("Honda is an engineering company, GM is a marketing company.") At financial companies that made billions in bad loans based on questionable models. The list goes on and on. When will America get its competitive edge back?

I don't know, but in the mean time, I'll make sure my money with those who deserve it. Today, I finally took the plunge and cast my vote of no confidence in the future of American business (and inability to pay back debts) by shifting my S&P 500 investments to an international stock mutual fund.

[1] Not that the opposite would constitute a valid basis for criticism.

Setting scarcity straight, once and for all

2008-08-26T20:04:00.004-05:00

In case you haven't been following, Bob Murphy wrote a shameful op-ed on the proposed Cap-and-Trade scheme, which prompted quite a bit of criticism from me and "TokyoTom" (good summary). If Bob were merely claiming that politicians screw things up, none of us would have objected. Unfortunately, he said a lot more than that. The focus of this post will be on his claim that carbon emission caps "don't reflect scarcity".

Now, as you see in the exchange, Bob tries to claim that what he really meant was that if the carbon cap were too low, or somehow not correct, that wouldn't reflect scarcity, but otherwise it would. If you follow the exchange, you'll see how I showed that there is no possible way, based on the phrasing of his argument, that he could claim the op-ed meant that. Nevertheless, he has repeatedly gotten considerably sympathy from others (not me) with this last-ditch attempt to salvage himself from having to apologize for his op-ed, by arguing that, so long as government doesn't precisely set the cap to what the perfect, pure, austere free market would, the cap still would not reflect scarcity and he was technically correct.[1] I will now show how even this claim is wrong, by starting from a simple case, and working up to the claim Bob made.

Economic scarcity refers to the situation where "not all of society's goals can be pursued at the same time; trade-offs are made of one good against others." Now, let's see where this takes us.

Problem #1: I want to hit Bob. Bob does not want me to hit him. Does scarcity exist?

Answer: Yes, because it's impossible to satisfy the social goals of both me hitting Bob and Bob not being hit by me.

Problem #2: I attempt to hit Bob. Bob retreats to his house and locks himself inside. I attempt to bypass the locks. Does the difficulty of getting to Bob reflect scarcity?

Answer: Yes. Since my goal comes at the cost of Bob's, Bob will take measures to ensure I do not reach mine. The lock, a manifestation of Bob's desire not to be hit, therefore reflects scarcity.

Problem #3: Having such difficulty getting past Bob's locks, I instead try to act out my anger against him by sending 100 locusts down his chimney. I would have sent more, but my insurer restricted me to having only 100 locusts at any given time. Does this restriction on my ability to carry locusts reflect scarcity?

Answer: Yes. In deciding the max it will allow me to carry while maintaining coverage, the insurer must consider how badly I can hurt others with a given number of locusts, since hurting others can cause me to be liable for damage. The limit, being a mechanism by which the conflict with the desires of others not to be hurt manifests, therefore reflects scarcity.

Bonus answer: Note that locusts are not guaranteed to hurt Bob, but the more I send, the more likely that is. So the limit on how many locusts I can have only reduces the harm to Bob in a probabilistic sense. However, the limit still reflects scarcity.

Problem #4: Same situation, but in an alternate universe. There is an intrusive government that passes laws in an attempt to minimize conflict between its subjects and thus maximize its looting; insurers of the type above don't exist. It has decreed that people may own 146 locusts, but no more. In trying to buy more than 146 locusts, a red flag goes up, and I am prevented from buying any more. Does this difficulty in buying locusts reflect scarcity?

Answer: Of course. Whatever criticism of government you might make, its decrees ultimately rule in favor of some goals and against some others. Therefore, when it hinders one goal (such a stopping locust attacks) in preference to another (such as the goals of locust-lovers in keeping collections), this is a manifestation of scarcity.

Problem #5: What if the government's limit were 23 instead? Or 100? Or 0?

Answer: Yes, it still would reflect scarcity. No matter how closely or poorly it approximates what limits would result from market processes, the above reasoning applies.

Problem #6: Scientists reveal that emitting substance X increases the probability of catastrophic damage. The governments of the world then place an overall emission cap of C. As a result of the cap, the price of doing things that result in X emission goes up. Do the higher prices from the cap reflect scarcity?

Answer: Yes, for the same reasons as in #4: the higher prices ultimately result from the (probabilistic) conflict with the goals of others. Yep, even substance X is CO2.

Problem #7: If Bob responded to the above line of reasoning (about scarcity) by saying that the proposed scheme is not a Blicknorg [2], is that responsive?

Answer: Don't be ridiculous; that's just changing the topic.

Long story short, the caps do reflect scarcity.

[1] And how would you ever learn what cap a free market would set? Why, you first have to price all resources, including and especially the atmosphere. Anyone want to take a wild, wild guess as to the ratio of the words that Bob has spent:

a) advocating that atmospheric property rights be clearly delineated,
to the words Bob has spent
b) demanding that government NEVER do a SINGLE thing to in any way define such rights?

I'll give you a hint: it's somewhere between "zero" and "can I have what you're smoking?"

[2] Actually, in the discussion, what Bob actually tried to do to refute the solid argument that caps would reflect scarcity, was claim that the caps are not a "market solution", rather than a Blicknorg. However, since he refused to ever clarify what exactly that meant, despite being asked several times, he might as well have said Blicknorg.

I got a kitty!

2008-08-24T19:19:00.003-05:00

Yesterday I adopted a kitten at a Humane Society shelter. She's 6-8 months old, and I haven't given her a name yet, but I'm thinking of going with "Cordie" because of her fondness for cords. Pic:

Commence cooing. No, I don't know how to get the orientation right.

After I took her home, she wouldn't let me come near her, but within a few hours let me hold her and pet her. By about midday today she already made it to the "wants to bother me all the time" stage :-)

Wish me luck in this pet-parenting adventure!

Hee hee hee! ur so clev4r!

2008-08-22T23:36:00.004-05:00

Well, Bob Murphy bites the bullet. I argue (in an unproductive email exchange series) that government enforcement of atmospheric property rights, while not optimal, is just as tolerable as government's enforcement of its minarchist authority (police, courts, army), such as when it detains killers. In other words, where are the outraged libertarian articles about how government police will evict someone for failure to honor a mortgage?

Well, Bob took it as a sign to show off his look-smart-to-a-sophomore-girl case for legalizing murder

So imagine we're initially in a free society, and then you hear that the government is moving in to town in order to monopolize civil society's possible responses to murderers. Are you going to feel safe to walk the streets now? Are you confident that a serial killer will be stopped as quickly as humanly possible? [emphasis added]

Right, assume the opposite of the current problem.

Bob must have missed, in any case, that I compared the carbon caps to the existence of a ban on murder, not the current enforcement methods. But no need to be rigorous when riding that bronco for all it's worth, eh?

And for anyone interested, I actually made the point Bob is responding to back in early June.

Quoting my comment at length:

...While a valid complaint, I honestly don't see how it's different from government's enforcement of other rights. Most libertarians, for example, have no problem with government enforcing (at least some of the existing) land titles, excluding murderers from interaction with the rest of us, putting out fires, etc., at least until private alternatives are [established]. The libertarian position is more like, "Hey, that would be a lot more efficient if done by privately-run organizations," rather than "Putting out fires is immoral." We should likewise view enforcement of the atmospheric property rights: yes, government will botch it horribly, but it's preferable to the tragedy of commons resulting from ZERO property rights.

But I don't see anyone here following this chain of reasoning. All I see (here and on a mailing list) is poorly thought out schemes: oh, we should give anyone a veto over any harmful emission; or we should never allow any [veto of pollution].

I'm very interested in learning where I'm wrong, but if even Bob_Murphy can't grasp basic issues like why carbon emission capacity is scarce, I'm not sure anyone here is even prepared to make the point.

***

So folks, if you want to know why I don't think Bob is taking this issue seriously, look no further than this. With one witty remark, he'll obviate about a month of discussion because of a premise assumption he never corrected when I made explicit, nor in any of the other discussion that implicitly depended on it.

His IER hit piece therefore was not really arguing, "Hey, politicians won't get the cap right because of political considerations." It was arguing:

"Government shouldn't do anything [so far so good--SB], and there's no point in even talking about why one government policy is better than another. If failure to define atmosphere rights (because politicians botch it and the free market is squelched) results in catastrophic damage to the earth's climate or even human existence ... so be it!"

I can understand why Bob had to obscure his real position for IER.

Ready to take the plunge and side with Bob? Just see if you can say this with a straight face:

How could the government continue to prosecute anything else, if people could say, "C'mon, murder is legal, and yet very few people do it. It would wreck your credit score! Who the heck wants that?!"

New name for blog?

2008-08-22T12:37:00.000-05:00

When I started this blog, I gave a name intended to represent the general theme of the blog. I figured that sooner or later as it took on a character, I'd be giving it a new one. So is it that time? One good candidate I thought of would be "Scarce Bengal", an unusual combination of words that reflects a major issue that's been around since before the blog started. Here's why it would be a good name for the blog:

1) The unique word combo.

2) It is a reference to my long-held dissatisfaction with Bob Murphy for casually dismissing huge classes of people (one of them Bengals) as basically "not counting" for purposes of determining whether there is scarcity. Did the price of your fresh, clean oil go up because governments restricted the total consumption in order to keep countries from flooding? Well guess what? That higher price, according to Bob, doesn't reflect scarcity!

3) Its initials match my initials.

4) I have a cute Mii caricature of a friend of mine who is a Bengal (i.e. person from Bangladesh).

GM attempts to boost sales by losing (some of) the weasels

2008-08-19T13:55:00.000-05:00

So CNN's Money reports that GM is trying its employee discounts for everyone program again. What this means is that it will give everyone, not just its employees, their cars at n% under the MSRP. More importantly, that in turn means that so long as program exists, everyone gets the same price. The article in fact notes that this converts their retail outlets into "no-haggle" operations of the kind used by GM's own Saturn brand. (Toyota's Scion does the same thing.)

This has long been something I've wanted car manufacturers to do. Not the discount necessarily, but ensuring that everyone pays the same price for the same car. Car salesmen have a well-earned reputation for using every legislative and psychological trick to gore you for as much as they can on any purchase. And it is this fear of being "played" that led me (and undoubtedly lots of othes) to put off buying a car. Who wants to go through that? Half the dealerships I went to left me wanting to vomit at their vileness.

Think about that for a minute. As an automaker, you use advanced technology most can only dream of. You have enormous, well-capitalized facilities for training, for testing, for building. You accomodate thousands (if not millions!) of design constraints. And what do you depend on for your cash flow? What barrier must your ultimate customers bypass to have a chance to give you money?

"So what kind of monthly payment were you looking for? ... Uh huh, up to ...?"
"Now, we're going to see what kind of financing deal we can get for you, okay? If you could just stay for a few minutes, in case the bank wants to talk to you. It'll just be a few minutes, I promise."
"Oh, yeah, those guys just need a few more minutes to look at your car, so we can give you the best deal, it won't be much longer. Now, which option did you want to go with?"
"Oh, just one more thing before you drive off, we'll need you to talk to our finance department about extended warranties, which I never mentioned before today."
"Internet sales department: please call Lisa at ..." (!!!)
"Okay sure, but I've never used SYNC ..."

Who enjoys dealing with that? Not me. While obviously I'm not one of the geniuses currently in charge of a large corporation, I strongly suspect that they would realize greater sales and a more liquid auto market if they could just signal their commitment to fair dealing and ditch some very useless middlemen (who these days usually know less than the customer about the car) by using this sales model. Certainly, there's something to be said for squeezing out the consumer surplus from less savvy buyers. But it kind of defeats the purpose when the real impact is to get most people to just say, "You know what? **** it. I'm just not going to bother." (Discretion like that would have been welcome in the recent real estate bubble.)

(Of course, the real reason such garbage can persist is that the retail car sales lobby has, in every state, been successful at severely restricting retail car sales, including internet sales, thereby killing the kind of competition that would eliminate vile sales tactics. Also, not suprisingly, this doesn't stop people like Malcom Gladwell from using instances of this vileness (like race/sex discrimination) as an indictment of free markets.)

So keep it up, GM: maybe you'll be able to chug along an extra six months, more than enough for your shareholders to dump their take on some idiot.

Party tonight

2008-08-16T14:04:00.000-05:00

Don't forget.

So why are libertarians such socialists about the atmosphere?

2008-08-14T21:50:00.008-05:00

Why do libertarians seem to demand that there be private property, and well-defined, tradeable rights in each and every resource in existence ... except the atmosphere?

Sure, global warming alarmism could be complete B/S. Fine. But there could one day be an atmospheric global tort whose harm profile is isomorphic to that of greenhouse gas emission (as claimed by the climate science community). Shouldn't a consistent, coherent philosophy have a clear answer, directly implied from the principles its proponents claim to hold? So why does the only existing answer seem to be

NEVER, NEVER should there be private property in atmosphere, and I will do whatever it takes to rationalize why this resource should forever remain an abused, unowned tragedy.

I have the right, the inalienable right, to cheap oil, and if you thought libertarianism was supposed to be about principled, private property rights, you can just wake up from your goddamn fantasy and get with the program!

Of course, there is the the Pigou Club, whose attitude is only a bit less excusable:

Are you getting victimized by greenhouse gases? Aww, you poor thing! Hey! Polluters! Give me money! Oh, what you lookin' at me like that for? Better move to high land, bro, you ain't gettin' no bling.

EDIT: some goofs.

So why aren't you shorting GM, liar?

2008-08-14T15:33:00.000-05:00

With all my doomsaying about GM, all my warnings about the emptiness of their warranties, shouldn't I be taking action based on this certainty? Well, good point. In strategizing about the implications of my pessimism for my next portfolio decisions, I forgot to include GM, mainly because I associate "short-selling" with "risking being screwed by a dead cat bounce.

But you don't have to do it that way. Instead, I can just buy some long-term, far-out-of-the-money puts. Check out this list for GM options expiring in January '08. My eyes are on the $2.50. Bonus: I can dump the options if some news temporarily makes the value surge.

Another bonus from using this method: No ill will from my brother :-P

Your taste for alcoholic beverages is a lie

2008-08-12T22:57:00.007-05:00

UPDATE: I perform this blog post on my YouTube site.

I've previously blogged about my non-addiction to alcohol, and inability to taste its greatness. It has long perplexed me how people can get so hyped up about how this or that beer or wine has this or that subtlety in its taste that makes it so enjoyable and the best drink you could ever possibly have. And, at the same time, I have accepted, with open arms, the claim that certain people like alcohol because of its psychoactive effects, like "relaxation" and drunkenness.

I've long held the theory that people only make these claims about the super-awesome taste of alcoholic beverages as a pretense for their desire to get drunk (or relaxed, etc.), and I've been roundly ridiculed for it. However, unlike socially-mandated beliefs that people readily admit are garbage in private, people actually claim, in private, to enjoy the taste of their favorite alcoholic drinks and, amazingly, retain that belief to arbitrarily deep levels of "belief in belief" recursion. They see no sense in which they are faking.

But now, I have cracked the code. I know how to get people to recognize their own self-deception about the supposed greatness of the taste of their favorite wine or beer. It goes like this: if you genuinely enjoy the taste of your favorite alcoholic drink, then you should still want to drink it more than any cheapo kiddie drink, even if all it has is the taste -- that is, if it no longer had the psychoactive effects.

So, I did a quick sample among the co-workers of mine who have claimed to, like, seriously, I promise, be wine or beer connoisseurs and are perplexed at how there could be no alcoholic beverages that I like the taste of. I asked them the following question:

Assume that alcoholic drinks had no psychoactive effects whatsoever: that they don't make you relax, or open up, or get drunk, anything like that. And assume no drink has any impact on your body either, including health (such as making you fat). That is, assume all that there is to a drink is its taste. Then, comparing on taste only, would you rather have your favorite alcoholic drink, or a milkshake?

Every single one of them preferred the milkshake -- even the one beating down the door to get me to start liking wine. And I strongly suspect (and would like to test) that this holds across the general population as well.

The upshot is that I'm right: that the whole practice of rating and having a taste for alcholic drinks is one big sham, and people have extraordinary abilities to deceive themselves on the issue -- they are completely oblivious to the lie they are telling, well beyond the obliviousness they can show on any other issue.

So what would make people put on such an act? Simple: they need a rationale to convince legislatures not to ban alcoholic drinks, as they ban every single other mind-altering substance. They need to show how it's a "tradition", how it's "cultured", how it's a fundamental part of our society, how oh oh oh, I just gotta have my glass of wine with dinner, it's just so mature of me. And the crazy thing is, from my perspective, they don't even need these rationales. As I see it, your decision to drink alcohol is between you and your god (or Dionysus, as the case may be). Even if the most extreme claims about the dangers of drugs are correct, that would at best justify restricting their use to highly monitored "padded room" equivalents in which such consumption can take place, not outright banning.

And to top it all of, I bet the response I'm going to get to this post is a big, "Duh. Now shut up about it."

So, I find myself asking this question yet again: is the world crazy, or just me?

This joke actually came to me in a dream

2008-08-12T22:33:00.003-05:00

"Political speeches are like yodeling: the point is to sound really nice, not to convey actual meaning."

Wow, and out-of-the-box ideas like that are actually common in my dreams. Weird.

The die is cast: Party at Dave and Buster's on Saturday

2008-08-12T13:09:00.000-05:00

Well, I've finalized the reservations for Dave and Buster's this Saturday (8/16/08) at 8pm in Austin. We'll have two hours of free play on the hyperbowl machine and free food, drinks, and game play for everyone. Hope to see you there! Unfortunately, if you check out the poll, the only people who seem to read this blog are far away or terrorists. Go fig.

(On a side note, do not detonate yourself in an attempt to kill others. Plz.)

How to get women into video games: a suggestion

2008-08-12T12:52:00.000-05:00

Tyler Cowen's post about what makes a game good got me to thinking about why there has long existed a difference in popularity of video/computer games between men and women, and what it would take to change that.

(Digression: of course, the Wii has made a lot of progress, and I've known women who started playing because of their brothers, but hasn't had the kind of addictive capacity it's had for men).

So see if my thinking is right here: a game becomes addicting because it stimulates your brain in a way that you want to get more of it. So, if games have historically appealed to males and not females, it must be because they have historically challenged a part of the brain that is more pronounced for men than women. Fortunately, brain researchers know exactly which areas these are: women have a more pronounced Broca's area and Wernicke's area, which are vital for the use and processing of language (damage to them can cause inability to coherently use language), while men have more pronounced brain areas for detecting motion (more specific names forthcoming).

So, for games to appeal to women in the same way that they have appealed to men, they would have to require you to notice and respond to subtleties of language -- perhaps you'd need to be able to infer mood, deception, hesitation, etc. from others' speech in order to advance. In other words, situate you in the middle of a Jane Austen novel in which you have to navigate human interaction with something like the same complexity that exists in human interaction.

And in fact, it does appear to me as if that attribute has been lacking in any game that's not online, and probably because it's so hard to program.

Just a thought.

Silas experimentally tests "wisdom of crowds" effect

2008-08-10T17:37:00.009-05:00

In case you hadn't heard of it, James Surowiecki has gathered a substantial amount of evidence supporting the "Wisdom of Crowds" Hypothesis, which says, basically, that if you can aggregate the independent guesses of large numbers of people, they will average out to be the correct answer, even though the individual guesses will tend to be far off. Surowiecki found confirmation of this hypothesis in such varied cases as guessing the beans in a jar, the weight of a bull, and the location of a missing submarine.

Well, just for kicks, I went out and did my own experiment to see if could replicate his results. When I went out for a night on the town last Friday (8/08/08), I asked the people I talked to how much they thought I weighed. Here's what I looked like, so you can make a guess and tell how far off you would have been:

To help them make their best guess, I allowed them to see me without the blazer and from different angles, and to, ahem, touch me. To adhere to the protocols necessary to find wisdom in crowds, I made sure they didn't discuss guesses with each other until they submitted them, and that they made the guesses anonymously (by writing it town and putting it in a plastic bag out of my view). I excluded non-numerical entries such as "Fuck U".

The results? After collecting 16 entries at two venues, here is what I got (and this will be expressed in terms that conceal my weight and their guesses, which will be revealed in a later post):

The average (mean) of their guesses was off by 3.6%.
The average error (mean error) of all the guesses was 10.3%.
The median guess was off by 6.3%

This is pretty much consistent with the Wisdom of Crowds phenomenon: the average of the guesses was much more accurate than most of the individual guesses, and the median guess. It probably would have been even better if I had collected a bigger sample.

Pretty neat, huh?

Non-existent positive real interest rate spotted!

2008-08-07T14:14:00.000-05:00

Dismissing the harm of inflation again, Bryan Caplan confidently announces that it's already priced into interest rates, so it doesn't eat away your savings!

Since most inflation is anticipated, I don't see that it does transfer much; instead, it's built into raises and interest rates.

Oh really now? I'm interested in learning where I can store my money at low risk such that its real after-tax return is positive. Two-year treasuries are yielding 2.45%, much lower than you'd need to beat inflation and taxes. Vanguard's Prime Money Market Fund is yielding 2.19%. (I was going to quote the after-tax return they give, but they seem to have either removed that section, or they never post it for money market funds. My rough calculations show that even if you left your money alone for the last ten years, the nominal ROR at a tax rate of 25% would be ~2.5%.)

Hey, I'm a big saver, but the market -- well, whatever's left of it -- is telling me not to.