Monthly Archives: October 2017

Helpful sentences on Bitcoin

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From Adam Ludwin:

crypto assets are a new asset class that enable decentralized applications.

…A decentralized application is a way to create a service that no single entity operates.

…bitcoin, for example, isn’t best described as “Decentralized PayPal.” It’s more honest to say it’s an extremely inefficient electronic payments network, but in exchange we get decentralization.

…in order for decentralized applications themselves to have utility to some cohort, that cohort must be optimizing for censorship resistance.

Pointer from Tyler Cowen. Unlike almost everything else I have come across talking about Bitcoin, Ludwin’s whole post made sense to me.

The next tech giant

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Benedict Evans writes,

There probably won’t be a technology that has 10x greater scale than smartphones, as mobile was 10x bigger than PCs and PCs were bigger than mainframes, simply because 5bn people will have smartphones and that’s all the (adult) people.

Pointer from James Pethokoukis.

But there will be at least 10x the number of Internet-connected devices as there are people. That suggests that the next tech giant will be some platform related to the Internet of Things. Somebody who makes it easy for lots of people to create useful, secure apps in that world.

The Abundance Apocalpyse

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Kevin Drum writes,

I want to tell you straight off what this story is about: Sometime in the next 40 years, robots are going to take your job.

I am reluctant to engage in this sort of economic science fiction discussion, because I don’t have confidence in our ability to project how something like this will play out. But if Drum is correct that robots will be able to perform all existing jobs, then I don’t mind, for many reasons.

The number one reason is that, assuming this plays out, there is a flip side: goods and services will be cheap, and in fact for all intents and purposes they will be essentially free. Take heart surgery as an example.

Today, heart surgery is one of the more expensive things you can get. But if you take all of the labor out of health care, then heart surgery does not need to cost more than a happy meal.

Won’t you have to pay a lot to the people who own and manufacture the robots that provide health care? I would say not, for two reasons. One reason is that in order to drive out human heart surgeons, the robots will have to use lower prices and/or higher quality to compete. And then they will have to compete with one another. Furthermore, in this futuristic scenario, the robots will themselves be designed and made by robots, so that the robot heart surgeon will be a cheap commodity, at least if there is competition in production.

So I am thinking that people’s needs, at least as understood in terms of today’s goods and services, will be taken care of in a scenario where robots “take our jobs.” We should not worry about “mass poverty” in a world of almost unimaginable abundance.

The next thing you might say is that without jobs, life will lose meaning for people. Well, I have not had a regular paid job in more than twenty years. My life has not lost its meaning. If your material needs are nothing to worry about, and you are tasked with finding a meaningful life, you can figure it out.

If you think that you can make your life meaningful today by worrying about a future robotic scenario, then go ahead. A lot of economists seem to want to do that nowadays. But I am not going to devote much effort to it.

More sentences lifted from the comments

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1. On disciplined software development:

There’s a trap here. The trap is that is the “visible disciplined rules” are how the business actually works, AND that the business CAN work with visible disciplined rules in its market.

…So perhaps Freddie Mac was badly managed. But it may also be that any entity in that market *HAD* to be “badly managed” to stay in the business. In other words, if you didn’t make ad-hoc weird deals with originators, they’d go to a competitor, or to congress.

Exactly. There was tension between the customer-facing divisions of the business, who wanted to be flexible and creative, and the information technology division, which wanted to work with clearly-articulated business rules. The IT people saw the business people as constantly breaking their data model, and the business people saw the IT people as trying to drive the business “from the back seat.”

In recent years, there has been talk of having Freddie and Fannie, or some combination, operating as a “securitization platform.” I figure that this would limit their flexibility and perhaps even put an end to innovation in their business processes–which would not necessarily be a bad thing.

2. On the limits to firm size:

Aren’t many of these questions answered in Sraffa (1926) and Allen and Lueck (1998)?

Piero Sraffa pointed out that in classical economics there was both a law of diminishing returns and a law of increasing returns. The law of diminishing returns applied to land, as exemplified by Ricardo’s theory of rent. The law of increasing returns applied to specialization and trade, as exemplified by Adam Smith saying that the larger the extent of trade, the greater scope for specialization.

Concerning economies of scale at the firm level, Sraffa wrote

Everyday experience shows that a very large number of undertakings-and the majority of those which produce manufactured consumers’ goods-work under conditions of individual diminishing costs. Almost any producer of such goods, if he could rely upon the market in which he sells his products being prepared to take any quantity of them from him at the current price, without any trouble on his part except that of producing them, would extend his business enormously. .. Business men, who regard themselves as being subject to competitive conditions, would consider absurd the assertion that the limit to their production is to be found in the internal conditions of production in their firm, which do not permit of the production of a greater quantity without an increase in cost. The chief obstacle against which they have to contend when they want gradually to increase their production does not lie in the cost of production which, indeed, generally favours them in that direction-but in the difficulty of selling the larger quantity of goods without reducing the price, or without having to face increased marketing expenses.

This describes monopolistic competition before there was such a term in the literature.

As for Allen and Lueck, a description of their work says

They posit that if there are gains to be captured from specialization, then partnership or corporate farm organizational arrangements could be more efficient than farms in which ownership and control is combined– if partners could monitor and enforce farmer effort at lower cost. But because most agriculture production is heavily influenced by nature, it becomes too costly to differentiate production deficiencies from lack of farmer effort or from effects of nature.

Well, I did not claim that my thoughts were original.

Sentences lifted from the comments

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1. A commenter writes,

At the core of the problem is the reality that government and culture are both making American life a bit more complex and demanding an experience each year. We aren’t using expanded knowledge and technology to make our lives easier, but to have more and to do more.

If you can keep up, this is good. If you can’t, this breaks you down. The size of the group that can keep up gets just a bit smaller each year.

It should be possible for people to live a simple, dignified life if they want to, and government should facilitate that. But instead, we slowly ratchet up the complexity of every aspect of a normal life. The answers aren’t with strategies to help everyone live faster. It’s to allow some to live slower, the way they want to.

2. A different commenter writes,

As the firm grows, each employee’s self-interest is slightly more separated from the owner-entrepreneur. As the firm gets larger, the joint production of all employees is increasingly divergent from what the market requests. Instead, some of the employees’ joint production is used to create longer coffee breaks, more internet shopping, and more personal story-telling. Eventually this firm is no longer competitive in the market, because too much cost and effort is channeled into non-profitable activities.

…Therefore the employees’ individual pursuits of self-interest are constrained by the discipline of competing in the marketplace, and that’s why firms don’t continue to grow boundlessly.

Government bureaucracies are not constrained by the discipline of the market. They therefore grow largely to serve the needs of their employees.

Speaking for Yuval Levin

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Commenter Handle writes,

Levin’s point is focused specifically on the right, and he seems to be saying that Anton is both living in and perpetuating the right’s pessimism bubble. Anton said that American conservatism – especially as someone would have understood the implications of that label in the Reagan administration – is indeed on the verge of total defeat at the hands of the progressives. Levin says it is doing ok, and that no one need be alarmed, or conclude that special, drastic measures must be taken to shore up defenses.

That is not exactly what Levin is saying. I think that the best source is probably an essay that he wrote, called Conservatism in an Age of Alienation. Read the whole thing. A few excerpts:

The idea that ours is the decisive time of history’s reckoning is always attractive, but conservatives in particular should see that it is almost certainly wrong. We are called to enable a revival, not to mount a total revolution, and therefore to hold up the good before the rising generation rather than to tear down all we have inherited and treat it as unsalvageable.

…despair of America is not justified, and the case for why this moment in particular should be the moment to despair does not add up to much. It assigns to Progressives much more malice (and competence) than is warranted and credits them with far more than they have actually achieved, and it sells our society short. While we confront immense problems, America also has extraordinary strengths at its disposal and a deep reserve of moderation that has always served it well.

…Constitutional guardrails matter more than any specific policy preferences—because they will last longer, and because they will give shape and form to our political habits and our civic life and help us take the principles and self-evident truths underlying our politics seriously. A constructive conservative politics in the Trump years must therefore first and foremost be a politics of constitutional restoration.

That was written five months ago. More recently, in conversation, he says that the guardrails have been working. This has been frustrating for those of us who want to see Obamacare repealed and other policy shifts proportional to the drama of the Republican victory a year ago. There have been some changes of direction, for example at the Environmental Protection Agency and the Federal Communications Commission, but in other areas there has been institutional inertia. Levin would argue that this is not necessarily a bad thing. Most important, the fact that President Trump has been checked at times by courts and by Congress helps to remind Progressives of the value of traditional institutions. Instead, if the President had trampled over these institutional barriers, that would have magnified support for a destructive “resistance” and for left-wing extremism in general.

Note: after I wrote this post, but before I scheduled it to appear, a commenter recommended the same essay, and Handle responded.

The Elastic Economy and the Great Moderation

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Alex Tabarrok writes,

Since the great recession ended, growth in real GDP has been much less volatile than in the 1950s to 1980s. Indeed, volatility has been lower even taking into account the great recession.

He goes on to point out problems with many theories that try to explain the continued Great Moderation.

I offered my explanation in 2003, in an essay called The Elastic Economy.

The United States economy has become more diverse and more robust. We are better able to withstand shocks, minimize concentration of economic power, and sustain growth without being hampered by resource constraints. This can be summarized by saying that the economy has become more elastic.

…There are several factors that have caused the economy to become more elastic. They include product diversity, globalization, the Internet, and increased innovation.

There are now more patterns of specialization and trade. That reduces the overall economic significance of any one product. That means that any particular shock causes less overall pain than it would have fifty years ago.

If this view is correct, then we should be less enthusiastic about claiming that policies in 2008-2009 prevented another Great Depression. Because we have a more elastic economy than we did in 1930, a repeat of the Great Depression was never going to happen.

The elastic-economy hypothesis fits in among theories of structural change to explain lower volatility in GDP growth. Alex points out that such theories, including the theory that sectors like health care are less volatile than manufacturing, want to predict further reductions in volatility in recent years, and this has not happened. Perhaps that is because asset markets have become a more important source of volatility than they were 30 years ago.

Free speech means not having to lie

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In a podcast with Russ Roberts, Megan McArdle says,

as you pull those things in, you create this climate of everyone feeling like they have to lie, in public. And, what’s interesting about reading the Soviet, those Soviet era things, is how many people–Orwell talks about this, lots of [?] talks about this. It’s the feeling that making you tell a lie is the point. That, there’s no, like, greater point of what you are saying except that they have undermined your character by forcing you to lie for the regime.

The overall topic of the conversation is the role that the Internet plays in free speech. On the one hand, the Internet enables you to express any point of view. On the other hand, it enables mobs to form to shame you, and to cost you your job. It is this latter capability that seems to have surged to the forefront recently. And ultimately it may make people willing to say things that they do not believe, because of fear of the mob.

What happened to the center?

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James A. Lindsay And Helen Pluckrose write,

When polarization is deep, the large and only slightly differentiated middle that normally has nothing to do with anti-modern extremists is repeatedly forced to take sides against whichever is, from their perch, easier to see as the greater existential threat. Thus, we see those leaning left largely internalizing the message of postmodernism and those leaning right widely embracing the message of premodernism. Everyone knows on some level that the anti-modernists are a threat to Modernity itself and thus the other side’s anti-modernists must be massively and directly resisted. This results in nearly everything becoming yet another political battleground, every election is an existential fight for the “soul” of the nation, and extremists on one’s own side are repeatedly excused and defended in the name of the Greater Good.

. . .A New Center is therefore the wrong way to bypass existential polarization. For most individuals on too many political choices, the stakes are just too high. As political events of 2016 showed, when forced to choose consequentially between representatives of two apparent existential threats, mostly everyone just loses their mind and digs in a little deeper.

Thanks to a reader for the pointer.

1. The title of the piece is “A Manifesto Against the Enemies of Modernity.” They characterize the noisy left as post-modern and the noisy right as pre-modern.

2. Much of the essay strikes me as good, but some of it strikes me as daft. The attempt to squeeze Hayek into their pre-modern category was not persuasive to me.

3. In the quoted paragraphs, I think they come close to an important observation, which is that as the stakes of politics come to be perceived as high, centrists get thrown off balance. Michael Anton’s infamous flight 93 election essay is a case in point. In conversation, Yuval Levin has argued vehemently against the thesis of that memo. He prefers a point of view that says, “Wait, things are not that bad. The political process works very slowly. We are not on the verge of total defeat at the hands of the left.”

4. Part of the support for extremism comes from the view of each side that it has been losing. Ask someone on the left what has been the most important political development of recent decades, and they will answer “neoliberalism.” For them, policy has been taken over by free-market economic ideology. Ask someone on the right the same question, and they will answer, “the rise of the administrative state.” For them, policy has been taken over by technocratic interventionist ideology.

5. Both sides may suffer from over-simplification bias. If you believe that social problems have simple causes and obvious solutions, then the fact that the problems persist is evidence that some ideological demon has taken possession of the nation’s soul. If only they would let go of their free-market ideology. If only they would let go of their technocratic elitism.

6. I think that the media environment reinforces this tendency toward apocalyptic thinking. In the context of polarization, “If it bleeds it leads” translates into “If the issue can be used to illustrate in an exaggerated way the transgressions of the other side, it leads.” This accounts for the attention paid to a story of professional football players kneeling that otherwise belongs about 300,000th on any rational news-consumer’s list of concerns.

7. Perhaps the antidote to polarization is the attitude, “Things are not that bad.” And perhaps that applies even to the phenomenon of polarization itself.

Yoram Hazony on classical liberalism

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He writes,

Modern classical liberals, inheriting the rationalism of Hobbes and Locke, believe they can speak authoritatively to the political needs of every human society, everywhere. In his seminal work, “Liberalism” (1927), the great classical-liberal economist Ludwig von Mises thus advocates a “world super-state really deserving of the name,” which will arise if we “succeed in creating throughout the world . . . nothing less than unqualified, unconditional acceptance of liberalism. Liberal thinking must permeate all nations, liberal principles must pervade all political institutions.”

Hazony sees this as universalism, and he sees universalism as leading to the project of worldwide dominion and hence, for example, to the war in Iraq. He draws a line from Mises and Hayek 80 years ago to the neoconservatives of recent decades.

I found the essay to be odd. He writes,

Establishing democracy in Egypt or Iraq looks doable to classical liberals because they assume that human reason is everywhere the same, and that a commitment to individual liberties and free markets will arise rapidly once the benefits have been demonstrated and the impediments removed. Conservatives, on the other hand, see foreign civilizations as powerfully motivated—for bad reasons as well as good ones—to fight the dissolution of their way of life and the imposition of American values.

I have some differences with the folks that I think of as contemporary classical liberals. But I think I can speak for what they would say about the foregoing paragraph.

1. Democracy is not the same as classical liberalism, and majoritarian democracy can be antithetical to classical liberalism.

2. A classical liberal society is one with strong individual rights, including economic rights.

3. A classical liberal society is a universal good, but that does not imply that the American government should send people with guns to other countries to try to turn them into classical liberal societies. Even non-military intervention by our government is wrong. Our idea of universal is that just as we oppose American government officials trying to run our own lives, we oppose them trying to run the lives of people in other countries.

Hazony also writes,

Integrating millions of immigrants from the Middle East also looks easy to classical liberals, because they believe virtually everyone will quickly see the advantages of American (or European) ways and accept them upon arrival. Conservatives recognize that large-scale assimilation can happen only when both sides are highly motivated to see it through. When that motivation is weak or absent, conservatives see an unassimilated migration, resulting in chronic mutual hatred and violence, as a perfectly plausible outcome.

With this paragraph, I believe that he frames the debate about immmigration between classical liberals and conservatives correctly. On this blog, I have seen many commenters take the conservative position. And you know that elsewhere Bryan Caplan speaks for the classical liberal position. I hope that the classical liberals are correct, but I fear that the conservatives may be correct. Rather than eliminate immigration enforcement entirelyl, I would prefer to incrementally increase legal immigration and observe the results.

Overall, I believe that Hazony is correct that the right is divided about President Trump, and that classical liberals are not happy with his economic nationalism. However, I think that when he positions classical liberals as the foreign policy interventionists and conservatives as the non-interventionists, he gets it almost 180 degrees wrong.

After I first composed this post, but before it was scheduled to appear, Alberto Mingardi did a nice job of making the points that I wished to make. Mingardi writes,

Mises was actually criticising the international body of the time (the League of Nations), but expressed hope for “a frame of mind” that looks to see individual rights protected, not just within one’s country but also abroad. I agree that Mises’s use of the word ‘superstate’ is unfortunate, but it is clear that all he is pointing toward is a liberal sensibility that traverses national boundaries.