Monthly Archives: December 2017

Jonathan Haidt on the fragility of liberal democracy

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He said,

Here is the fine-tuned liberal democracy hypothesis: as tribal primates, human beings are unsuited for life in large, diverse secular democracies, unless you get certain settings finely adjusted to make possible the development of stable political life. This seems to be what the Founding Fathers believed. Jefferson, Madison, and the rest of those eighteenth-century deists clearly did think that designing a constitution was like designing a giant clock, a clock that might run forever if they chose the right springs and gears.

Do read the whole thing. My comments:

1. This lecture could have fit in perfectly with the theme of American Exceptionalism.

2. The belief in the fragility of civilization (or, in this case, liberal democracy) is very conservative. It gets you to the civilization vs. barbarism axis. Haidt must be aware of this, as he has read The Three Languages of Politics and told me he is a fan.

3. Haidt sees a rise of extremism within two institutions: the Republican Party, which he sees as having moved hard right; and the college campus, which he sees as moving hard left.

From the where I and most of my readers sit, blaming all of the polarization in Washington on Republicans seems wrong. We probably are more inclined to recall examples of Republican weakness than Republican recalcitrance.

I recall once bitterly accusing President Obama of taking his political views from the faculty lounge of the sociology department. In other words, I saw the Democratic leader as a creature of the campus left. Granted, that was uncharitable as a blanket statement, but to the extent that there is truth in it, you have to admit that some of the radicalism in Washington has been on the Democratic side.

But let us not pursue that argument. Rather than dismiss Haidt’s view here, let us assume that we are too far to the right to be objective.

4. Haidt is optimistic that his Heterodox Academy project and other efforts will restore reason, free speech, and political diversity to college campuses. We shall see. My fear is that we will see Haidt get more and more invitations to reach conservative audiences (we saw him speak with Jordan Peterson, and this speech was given at the Manhattan Institute). But he will get fewer and fewer invitations to speak on college campuses, where the views expressed in the paragraph I quoted will make him unwelcome.

Bitcoin pushback and a new analogy

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Aaron Ross Powell comments,

This interpretation seems to depend on thinking the bitcoin just is some random asset people are speculating about. But it’s not. It’s blockchain technology, which is unquestionably important and will unquestionably change the way we do a lot of things in the technology and financial space. Bitcoin itself might lose out to another cryptocurrency, though network effects and first move advantage play a large role here. But the underlying tech is important and game changing and that pushes against your view of it as nothing but a speculative bubble. Put another way, that the dotcom bubble was a bubble and crashed doesn’t mean the internet was nothing but a speculative bubble, because the underlying tech was sound. Bitcoin, being a protocol, is more like the early internet than it is like a tulip.

Another commenter explains,

It’s anonymous because ownership is tied to a private key, not an identity. Whoever has the private key owns the currency. It’s very easy to prove that you have the private key if you do have it. You can do this without revealing the key, just the fact that you have the key. It’s secure because it’s almost impossible for someone to figure out the private key.

You do lose privacy if someone manages to associate your key with your identity. But that doesn’t happen in the blockchain itself, it happens at the edges, when you need to exchange real currency or goods.

Dan Jelski writes,

Bitcoin is produced by mining. Miners solve cryptographic puzzles, the purpose of which is to update the blockchain to reflect any new transactions. As a reward for assuming this transaction cost, miners receive payment in new bitcoins. This will continue until the middle of the next century, after which all bitcoins will have been mined. Then miners will have to charge a fee in exchange for their services. Meanwhile, the actual transaction cost is the electricity used to power the many thousands of computers that work on mining bitcoin. This is substantial, and today bitcoin is mined primarily in places with cheap electricity.

But what is the point of the whole “mining” charade? Why not just go to the fee-for-service model now?

You could start with a bank issuing crypto-currency. If the bank wants to cater to a certain breed of paranoia, it can back its crypto-currency with gold. If it just wants to cater to normal people, or cater to someone like me, it can back its crypto-currency with dollars.

I don’t understand blockchain, but let me try another analogy. Think of a blockchain real-estate title service that is perfectly robust (allowing no disagreement over who owns the property). When I want to put an addition onto my house, the contractor needs to know that I am the one with title to the house. My private key allows me to prove that. If I had some anonymous way of communicating with the contractor, then the contractor might not know who the addition is for, other than it is approved by the legitimate owner of the property.

Similarly, as the bank’s crypto-currency circulates, the folks who maintain the blockchain record system get their fees from people making the transactions. Nobody can take someone else’s currency without permission. When they obtain currency, they only know who they are taking it from if identity disclosure is an element of the transaction.

Getting back to the bank, it is a potential point of failure. It could sell its currency for dollars, then abscond with the dollars, and then never redeem its currency. The bank is not decentralized. It constitutes a single point of attack should the government in the jurisdiction where the bank is located want to shut it down or demand to see customer lists (although the bank could destroy the latter after every transaction).

So, there are risks with a crypto-currency started by a bank. But I would take those risks any day over the risks of trying to carry wealth in the form of Bitcoin.

Keep in mind that if Bitcoin does end up being like a chain letter, then it is a mathematical certainty that most of the people speculating in Bitcoin will end up losers. The only winners will be those who actually sell in time to take their paper profits, and it is mathematically impossible for most people caught in a pyramid scheme to walk off with a profit. So we can be certain that the majority of Bitcoin speculators will not sell in time.

Hyman Minsky said, “Anyone can issue currency. The trick is getting it accepted.” If a consortium of banks around the world were to issue a crypto-currency backed by dollars, then that would be a lot easier for me to accept than Bitcoin. But I am so far from comprehending the technology that I am probably just showing off my ignorance.

What I am reading

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American Exceptionalism in a New Era. This is a conference volume from the Hoover Institute. John Cochrane was one of the participants in the conference, and I found about the book from his blog.

The conference was held in the fall of 2016, which means that the papers were prepared before the election, and perhaps even before it was clear that Donald Trump would be the nominee. Although there is a pattern of pessimism that runs through most of the essays, what strikes me is that the tone is less apocalyptic than what we are seeing from conservative intellectuals today. Victor Davis Hanson is one of the essayists, and although he plenty dour in his piece, he comes across to me as more sober and less strident than he does in his post-election writing.

If I am correct that conservative intellectuals are more anxious now than they were before the election, then I think that this may be justified. Whatever conservative gains might be made in the next year or two, the most important consequence could turn out to be the hardening of the hard left. For example, the WSJ has a story about the tax bill, pointing out that it has no bipartisan support, has many provisions that expire automatically, do that tax policy could be jerked in a very different direction in another few years.

I think that many conservative intellectuals believe, at least subliminally, that the Donald Trump wind will reap a very treacherous whirlwind.

How I think about Bitcoin

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Tyler Cowen writes,

With crypto-assets, I am carrying wealth more generally into the future. The person who most wants that payoff structure for the wealth carry will end up owning the crypto-asset.

Read the whole thing, with which I do not agree one bit. Tyler knows more than I do about the topic, but for what it’s worth, here is my view.

I think of Bitcoin as functioning like a chain letter, of the sort where you say “Send ten dollars to the person at the top of this list scratch that person off the list, put yourself on the bottom of the list, and then send this letter to six of your friends.” If the chain letter keeps going until you are at the top of the list, you might get thousands of dollars.

A chain letter is a redistribution scheme that creates a few big winners and a lot of little losers. I see Bitcoin playing out the same way. As long as the Bitcoin chain letter keeps reaching new people, its value will rise. Once Bitcoin runs out of new suckers, er, investors, it will crash. Then we will find out who were the winners and losers. The few who sell before the crash will have made fortunes at the expense of those who paid up for it and held on for too long.

If you participate in a chain letter, the odds are very low that you will make it to the top of the list. Similarly, with Bitcoin, the odds are very low that you will sell your Bitcoin before it goes down in value. The majority of Bitcoin investors will buy high and sell low.

I Told You So

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1. Maciej Lipiec writes,

But Apple decided now — it’s hard to think it’s not conscious — to [] up my old phone, which was OK the day before the upgrade to iOS 11, and now it’s a disaster. And I think this is mean, or careless, and wasteful, certainly not sustainability-friendly, and it makes me angry. iOS devices are now having enough processing power to be more like computers: no real need to replace them every year or even for a few years, if you don’t want the newest, fastest, shining thing. (Even my iPhone 6 is not slower on iOS 11 than on iOS 10 — it just doesn’t work as a mobile phone anymore…)

Note that not this is an extreme experience. But I remember getting a lot of pushback when I suggested that this might happen. And speaking of opinions for which I have received pushback,

2. David Grossman writes,

Auto insurers are starting to offer discounts for drivers who enable the autonomous options on their vehicles. The latest is Britain’s largest motor insurer, Direct Line. According to Reuters it is now offering a 5 percent discount for turning on those features in a Tesla.

There is probably a bet to be made about when self-driving cars reach a particular milestone.

Want to hear some dark views?

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1. Try Shane Greenstein.

Just talk to any parent. It is too easy for children’s curiosity to lead them to the sleazy online square, and every parent now worries whether a child has enough sense to handle a disingenuous text. What is a parent to do—keep them off YouTube for fear of much worse?

2. Try Chamath Palihapitiya. As The Verge reports,

Palihapitiya’s criticisms were aimed not only at Facebook, but the wider online ecosystem. “The short-term, dopamine-driven feedback loops we’ve created are destroying how society works,” he said, referring to online interactions driven by “hearts, likes, thumbs-up.” “No civil discourse, no cooperation; misinformation, mistruth. And it’s not an American problem — this is not about Russians ads. This is a global problem.”

I give Greenstein credit for speaking fervently about a topic that he correctly points out is one that we prefer to ignore. I am less inclined to be charitable toward Palihapitiya. Too many f-bombs and too much catering to smug lefties. Apparently, he decided quite a while ago that Facebook is not a good thing, but his views are only cool now. A year ago it became cool to knock social media, after Donald Trump managed to eke out an election victory. Even though it is by no means certain that social media played any role in the eking.

There is a bull market in paranoia these days. I am missing out on it. That is why my portfolio does not include any Bitcoin.

Null Hypothesis watch

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The abstract of a paper by Cynthia (CC) DuBois andDiane Whitmore Schanzenbach says,

This paper examines the effect of a court-ordered hiring guidelines intended to increase the share of black teachers employed in a school district in Louisiana. We find that the court-ordered hiring policy significantly increased the share of teachers who are black in the district relative to the rest of the state, and to a matched synthetic control sample. The policy also increased the share of new teachers hired who are black, and decreased the student-teacher representation gap, defined as the difference in enrollment share black among students and teachers in a district. There were increases in the share of black teachers observed in both predominately white and predominately black schools in the district. The policy had no measurable impacts—either positive or negative—on district-level measures of student achievement.

Measuring Occupational Satisfaction

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From my latest essay.

I propose that, instead of using GDP or overall subjective happiness, we should use occupational satisfaction as the broad indicator of economic performance. Occupational satisfaction is the core economic component of happiness. Unlike GDP, which is rooted in a materialistic understanding of value, occupational satisfaction reflects the understanding that value is subjective.

Before you raise all of your objections, let me explain where I am coming from.

1. I think that mainstream economics is pretty much at a dead end. We need new approaches.

2. In physical science, new observational tools often lead to new discoveries. Think of the microscope and the telescope.

3. If I had the funds for a large research institute in economics, I would focus on giving grants to researchers who develop new methods of observing the economy. These could be new indicators, such as the one described in the essay, or new ways to classify and to categorize economic activity.

4. I would not expect any new observational approach to be perfect. I would not expect every new observational system to be useful. But I do think that bright research talent will produce more powerful insight by attempting to create new lenses through which to view the economy than by sticking to the current approach of formulating and testing individual hypotheses.