Monthly Archives: December 2017

Movie review: The Post

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It is going to be one of my ten favorite movies of all time. I cried several times anticipating the outcome of tense scenes.

The key is to let the movie transport you back to 1971. At that time I was 16 years old, very caught up in student protests of the war, and co-editor of my high school newspaper.

A libertarian can get behind all of the major causes of the movie: women’s liberation; freedom of the press; anti-war.

Tom Hanks is forgettable playing Jason Robards.

For all the effort to make Bruce Greenwood look like Robert McNamara, his was the least convincing portrayal in the movie.

2018 as a year of resistance

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Tyler Cowen predicts some themes for 2018.

Many of the biggest events of 2018 will be bound together by a common theme, namely the collision of the virtual internet with the real “flesh and blood” world. This integration is likely to steer our daily lives, our economy, and maybe even politics to an unprecedented degree.

My prediction is that a main theme of 2018 will be resistance. Not the Trump resistance, but resistance against technology that is increasingly perceived as adversarial.

Yesterday, I was woken from a sound sleep by a spam phone call on my cell phone. I would like to see the full weight of the law brought on phone spammers, including the death penalty. You think I’m kidding, but I’m not.

More realistically, I would propose that Congress pass a law saying that if the providers of land lines and cell phone service cannot reduce spam phone calls by 90 percent by the end of 2018, then the FCC should levy fines against them in the hundreds of millions of dollars. This stuff has got to stop.

I think that there is a large latent movement for resisting Facebook, Twitter, and addiction to smartphone apps of various kinds. Commenter Handle pointed recently to Paul Graham’s essay.

The world is more addictive than it was 40 years ago. And unless the forms of technological progress that produced these things are subject to different laws than technological progress in general, the world will get more addictive in the next 40 years than it did in the last 40.

That was written in 2010. I think the world has already gotten more addictive than it did in the previous 40 years. Maybe there will be a market solution. Maybe just a widespread consumer rebellion. But the issue is bound to get more and more attention.

As you know, I am bullish on self-driving cars. But look at the pushback I get from people who regard self-driving cars viscerally as a defeat for individual liberty and autonomy. The pushback suggests resistance.

Scott Galloway has become a YouTube star by sounding the alarm about the power of The Four, meaning Google, Facebook, Amazon, and Apple. The popularity of his analysis is another indicator of the sentiment of resistance.

Remember Kevin Kelly’s book, What Technology Wants. He takes the view that the force of technological evolution operates independently of our control. That would suggest that resistance is futile. But I still expect it to be a main theme for the new year.

What I’m Reading

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Matthew Walker, Why We Sleep. Too far off the topic of political economy to compete for a place on my list of best books of the year, but very strongly recommended.

Walker is highly opinionated. One of his opinions is that teenagers naturally stay up later and sleep later than children or adults. So high schools that start before 9:00 AM are causing harm. It would be interesting to see if changing the start time would be an intervention that overcomes the Null Hypothesis, including finding an effect that does not fade out after several years. Meanwhile, it’s another case for home schooling–you don’t have to make your teenager wake up prematurely to go to school.

Blockchain as a solution for data integrity

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From Nathan Heller’s long piece in the New Yorker about Estonia.

In a blockchain system, too, every line is contingent on what came before it. Any breach of the weave leaves a trace, and trying to cover your tracks leaves a trace, too.

. . .The blockchain makes every footprint immediately noticeable, regardless of the source. (Ruubel says that there is no possibility of a back door.) To guard secrets, K.S.I. is also able to protect information without “seeing” the information itself.

That seems like a possible use case. But my guess is that it is only practical for data records that are updated infrequently. If data is being legitimately updated multiple times a day, I would think that a blockchain ledger would be too much overhead.

But maybe I am wrong. Jason Collins points to this.

ASX is replacing the system that underpins post-trade processes of Australia’s cash equity market, known as CHESS (the Clearing House Electronic Subregister System).

ASX commenced a process of evaluating replacement options for CHESS in 2015. In January 2016, ASX selected Digital Asset as a technology partner to develop, test and demonstrate to ASX a working prototype of a post-trade platform for the cash equity market using DLT (an example of which is commonly referred to as ‘blockchain’).

That will be an interesting test to follow.

Overall, what is interesting about Estonia is the way that the leadership culture apparently revolves around knowledge of information technology. I get the impression that in the U.S. if your organization backs up its data overnight that counts as having an above-average data integrity strategy.

Blockchain as a solution in search of a problem

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Kai Stinchcombe makes the case.

Each purported use case — from payments to legal documents, from escrow to voting systems—amounts to a set of contortions to add a distributed, encrypted, anonymous ledger where none was needed. What if there isn’t actually any use for a distributed ledger at all? What if, ten years after it was invented, the reason nobody has adopted a distributed ledger at scale is because nobody wants it?

I read through the comments on his piece, and they are all negative. But the attacks are ad hominem, and none of them gives an example in which blockchain has established itself as a compelling, first-choice technology in a major application involving legal transactions.

I get it that it is possible to use blockchain in many ways. One example, not found in the article, is titles on property. The U.S. property title system is a disgrace. It could be fixed with blockchain. But it also could be fixed without blockchain. The problem is entirely political: the legal profession and the title insurance industry have an iron grip on politicians, and that iron grip keeps us from modernizing the property title system. A lot of the “foreclosure scandal” that emerged when the subprime bubble popped can be traced to out antiquated property title system. But there is no will to fix that.

But mainstream adoption does not arise from usage being possible. A rule of thumb is that radical new ideas don’t get adopted as solutions to problems unless they make something ten times better. What the article is saying, as I take it, is that in actual business cases, blockchain is at best better on dimensions that do not matter to most users and often worse on dimensions that do matter.

If you are going to make comments trashing the article, please give an example of how blockchain is being used, and within that example, state specifically why blockchain is much more efficient or effective than other possible solutions.

[note: I scheduled this post before Tyler put up his post linking to the same article]

Social validation media

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Orge Castellano writes,

The only purpose of these apps — thriving in the attention economy market — is to trigger our brains into the instant gratification lifestyle, ultimately exploiting our mind’s weaknesses.

Whether in the form of a like (Facebook), a binary like/dislike format (YouTube), or a heart-shaped system (Instagram, and later Twitter) Silicon Valley has conceived a multitude of forms of innovative ways to gamify our nonstop need for social validation.

…Just like the food industry manipulates our innate biases for salt, sugar and fat with perfectly engineered combinations. Instagram, Twitter, or Facebook are built under the ¨variable rewards¨ scheme. According to Tristan Harris former Google design ethicist, the tech industry coerces our innate biases for: “Social Reciprocity (we’re built to get back to others), Social Approval (we’re built to care what others think of us), Social Comparison (how we’re doing with respect to our peers) and Novelty-Seeking (we’re built to seek surprises over the predictable)”.

I see this as the outcome of a fierce competitive process. When I was growing up, there were the three TV networks, and no remote control. All they needed in order to keep your attention was provide something moderately entertaining. Today, there is competition among web sites, smartphone apps, streaming video, cable TV, and more. It is natural that the evolutionary process has made winners of the media sources that do the best job of hacking your brain.

We have to think of our electronic devices as adversaries to some degree. We need habits and tools that allow us to focus on meaningful, long-term goals in spite of what these adversaries are trying to do to us.

Karl Denninger on Bitcoin

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He writes,

All existing cryptocurrencies are designed around a math problem that gets exponentially harder to solve as time goes on. However, the number of “coins” you achieve for solving it is fixed irrespective of where on the curve you solve it. This is a Ponzi scheme by definition since the first people obtain a given reward for little effort yet later people must expend exponentially greater effort for the same reward, and the laws of mathematics say that eventually the reward cannot be had for any rational (or even possible) expenditure.

…Ponzi scheme. They are thus all illegal — every one of them — under said laws, and are designed to funnel money from later adopters to earlier adopters.

Sounds as though he agrees with my chain-letter analogy. But to be honest, I do not follow the substance of what he is saying.

He is one of 21 alleged experts interviewed on that page, and most of them are reluctant even to call “bubble,” much less “scam.”

Pointer from Miles Kimball.

Merry Christmas.

Rental inflation pressures falling?

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Sarah Chaney (WSJ) reports,

Rents are rising at the slowest pace in more than a year…

A measure of what Americans are paying for rent was up 3.7% in October and again in November from a year earlier. Rent inflation dipped to that level in September 2016 but was last consistently that low in the opening months of 2016, according to Labor Department data.

My impression is that housing construction is still low relative to potential demand, so I was not sure what to make of this. I recommend Ed Yardeni’s charts, particularly figure 16, which shows the percent of households who rent rather than own. That soared between 2005 and 2015, but it has edged down since then. Also, figure 20 shows that the rental vacancy rate was falling until 2015, but it has been rising more recently.

Centralized cost containment fails in health care

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Joseph R. Antos and James C. Capretta write,

Accountable Care Organizations were supposed to give hospitals and doctors incentives to become more efficient and cut Medicare costs, but they have yet to produce any overall savings. In 2016 only 56% of the 432 ACOs hit their benchmarks for reducing costs. Even worse, after taking into account their bonus payments, ACOs actually increased Medicare spending, by $216 million in 2015 and $39 million in 2016.

The theory was that if you give health care providers a new incentive system, then they will offer better quality care at lower cost. In practice, the most important incentive you give them is to game the system.

The piece as a whole points out that although health care spending growth has slowed in nominal terms, on an inflation-adjusted per capita basis, health care spending has picked up.

Should algorithms receive patents?

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David Edwards wrote,

the distinction between discovery and invention should be eliminated. This would allow the patent incentive to motivate exploration for previously unknown useful forms of bacteria, plants, animals, materials, molecules, atoms, particles, etc. Previously unknown mathematical formulas and laws of nature should also be patentable. Since patents only give control over the commercial applications of his discovery or invention to the patentee, granting patents on mathematical formulas, laws of nature, and natural phenomena would have no negative side effects on pure science. The economic stimulation of pure science that would be provided by such patents is particularly important today as the traditional economic support of pure science, namely university faculty positions and government grants, are in decline. For the society as a whole, the positive economic effects of such extended intellectual property rights would be quite substantial.

He sent me the article because I wrote about the importance of the intangible economy. However, just because algorithms and other ideas are important does not mean that we should wish to run them through the patent system.

My intuition is that intellectual property should be protected only when the marginal cost to create it is high relative to the ability to profit from it. I think those cases are rare with respect to algorithms. So I am afraid that I disagree with the paper.