Many are abuzz over Sam Altman’s short and politically incorrect blog post:

Earlier this year, I noticed something in China that really surprised me.  I realized I felt more comfortable discussing controversial ideas in Beijing than in San Francisco.  I didn’t feel completely comfortable—this was China, after all—just more comfortable than at home.

That showed me just how bad things have become, and how much things have changed since I first got started here in 2005.

It seems easier to accidentally speak heresies in San Francisco every year.  Debating a controversial idea, even if you 95% agree with the consensus side, seems ill-advised.

Nerd that I am, I am immediately reminded of the theory of price indices.  If you go to a new country with the same goods and prices as your home town, you won’t buy very much.  Alternatively, if your port of call has radically remixed relative prices, you will do lots of shopping and go home pretty happy.

And so it runs with shadow prices for speech, including rights to say things and to ask questions.  Whatever you are free to say in America, you have said many times already, and the marginal value of exercising that freedom yet again doesn’t seem so high.  But you show up in China, and wow, your pent-up urges are not forbidden topics any more.  Just do be careful with your mentions of Uncle Xi, Taiwan, Tibet, Uighur terrorists, and disappearing generals.  That said, in downtown Berkeley you can speculate rather freely on whether China will someday end up as a Christian nation, and hardly anybody will be offended.

For this reason, where we live typically seems especially unfree when it comes to speech.  And when I am in China, I usually have so, so many new dishes I want to sample, including chestnuts and pumpkin.

All of this will seem all the more true, the longer you have lived in your home base.  You will note also that price variability increases consumer surplus, so it is no wonder that Sam enjoys China so much.

“Where are they?”, cried out Enrico Fermi in anguish.  We have wondered ever since.  In spite of some subsequent refinements, I still find the Fermi paradox a…paradox.  Where are they?

Now, Oumuamua comes along…

And furthermore:

The object’s trajectory is so strange and its speeds are so blistering that it probably did not originate from within our solar system. Its discoverers concluded that the object is a rare interstellar traveler from beyond our solar system, the first object of its kind observed by humans.

So what do the academics say?

“The possibility that this object is, in fact, an artificial object — that it is a spaceship, essentially — is a remote possibility,” Andrew Siemion, director of the Berkeley Search for Extraterrestrial Intelligence Research Center, told The Washington Post on Monday.

Given the Fermi paradox, shouldn’t we assume a fairly high probability this is in fact some form of alien contact or display?  It’s like when you are expecting a package from UPS and then finally the doorbell rings…

So I’m excited, even though I don’t see much of a chance of a visit.  p = 0.3?  I need to crack open those old Arthur C. Clarke novels.

Friday assorted links

by on December 15, 2017 at 12:08 pm in Uncategorized | Permalink

I’ve been to Morocco before, but never Fez.  What do you all recommend?

Using a unique data set consisting of the population of fine art auctions from 2000 to 2017 for Western artists, we provide strong empirical evidence for a glass ceiling for female artists. First, we show that female artists are less likely to transition from the primary (gallery) into the secondary (auction) market. This glass ceiling results in a selection mechanism which is manifested in an average premium of 6% for artworks by female artists. Second, this premium is driven by a small number of women located at the top of the market and turns into a discount when we account for the number of artworks sold. The superstar effect, where a small number of individuals absorbs the majority of industry revenues, is amplified for the group of female artists. Third, at the top 0.1% of the market artworks by female artists are traded at a discount of 9%. Moreover, the very top 0.03% of the market, where 41% of the revenues are concentrated, are still entirely off limits for women. Overall, we find two glass ceilings for women pursuing an artistic career. While the first one is located at the starting point of a female artist’s career, the second one can be found at the transition into the superstar league of the market and remains yet impermeable. Our study has wide-reaching implications for industries characterized by a superstar effect and a strong concentration of men relative to women.

That is the abstract of a new paper by Fabian Y.R.P. Bocart, Marina Gertsberg, and Rachel A. J. Pownal, via the excellent Kevin Lewis.

Recently I’ve been enjoying @womensart1, a good way to see interesting artworks that otherwise don’t get so much attention.  And here is my older essay “Why Women Succeed, and Fail, in the Arts.”

Vitalik Buterin poses that question, do read his whole storm. Here are the last three tweets:

How many Venezuelans have actually been protected by us from hyperinflation?

How much actual usage of micropayment channels is there actually in reality?

The answer to all of these questions is definitely not zero, and in some cases it’s quite significant. But not enough to say it’s $0.5T levels of significant. Not enough.

Let me set aside the question of enabling grey or black market activities, and let us put aside the bubbly component of these assets, which may or may not be real.  I’d like to focus on the underlying fundamentals.

Furthermore, crypto-assets have not consumed half a trillion in social costs, though I’d like to see the electricity bill.  So mine is the concrete question: insofar as crypto-assets have served as hedges and stores of value, is that social value or just a private return at some offsetting rent-seeking-based social cost?

Stores of value

Let’s say I build a warehouse and store some furniture in it, because I am moving and I don’t want to throw out the sofa but need to keep it somewhere for a month.  The gains from storing that furniture can be captured by standard cost-benefit methods, and few would doubt that is a legitimate private and also social efficiency.  I am carrying “sitting capacity” into the future.

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.

Do I hold and carry forward that wealth at the expense of other people?  Is creating a crypto-asset, in welfare terms, a bit like being a counterfeiter and thus rent-transferring and wasteful?  Or is it more like storing a sofa while moving house?

Or is the crypto-asset more like an insurance contract, and thus again wealth-enhancing?  I see it as performing a mix of the store of value and insurance functions.

If the crypto-asset is rent-seeking (the electricity cost aside), exactly whose purchasing power is diminished?  Presumably the Bitcoin and Ether millionaires spend more of their money and drive prices up for others.  But it seems that is a pecuniary externality, not a real social cost of the kind that would justify a judgment of socially wasteful rent-seeking.

Maybe it makes more sense to view the crypto-assets as a new kind of insurance contract: “if some of my other assets go bust, Ether will keep me afloat.”

But who am I buying insurance from?

Dare I sneak the electricity back into the argument, and claim I am buying a form of implicit insurance from the electricity company?  In this view of the world, electricity companies, without knowing it, and in conjunction with some basic crypto facts publicized first by Satoshi, started offering new assets for sale/construction.  Some people wanted to buy those assets, and the process of doing so created these new carry-able “things,” namely crypto-assets.  In essence, a bunch of people agreed to make cryptographic skill something to be rewarded and that created some new Arrow-Hahn-Debreu securities, the value being contingent on both electricity abilities and crypto abilities.

As the purchases of electricity proceeded, and the new ADS securities fell into the market, both consumer and producer surplus went up.  In this view, the electricity costs are no more rent-seeking costs than are the bricks in the building of the insurance company.

Think of crypto-assets as assets whose value depends upon the reliability of “a particular kind of cryptography plus surrounding technologies including electricity.”  That value really does seem to vary with the market portfolio in strange, non-traditional ways, validating its use as a hedge.

Now, let’s say that quantum computing made many crypto problems much easier to crack?  Crypto-assets probably would decline in value or at least they would become riskier (given that forks and governance changes might result, exact predictions are a little tricky).

In other words, crypto-assets are bets on the future progress of crypto technologies, with a corresponding beta of the sort found in traditional finance theory.

Why have crypto-assets risen in value so sharply?  Well, at first few people realized they wanted assets with that risk profile, or even that such assets existed (they were too busy thinking of Bitcoin as an alternate form of currency).  As more people saw the potential here, the price rose rapidly.  Of course there may be bubbly components of the price too.

In the longer run, insurance-useful crypto-assets should yield sub-par returns, precisely because of their insurance and storage values.

Getting back to Buterin’s point

So what then are the major social gains from current crypto-assets?  Buterin misses a big but non-glamorous gain: by serving as efficient stores of value and by providing a new kind of insurance, they help people spend more money.  And indeed that is what so much of finance is about, namely enabling higher levels of consumption.  Is that going to account for half a trillion worth of social value?  Likely not.  Is it higher than electricity bill?  We don’t know, but so far the presumption — the bubbly part of the price aside — ought to be yes.  After all, the value of storing your sofa is higher than the electricity bill of the warehouse, otherwise the storage would not happen.

Possibly significant factors I have not considered: Benefits specific to the Ethereum platform, whether hedging itself is always socially valuable, the welfare economics of the bubbly part of an asset price.

The movie (no spoilers)

by on December 14, 2017 at 9:52 pm in Film | Permalink

After a muddled start, it is really quite good, unlike VII more than worthy as an installment in the series.  I like the color red.  I enjoyed seeing a Star Wars version of a puffin.  The performances are much better than in VII.

Here is my earlier post, The public choice economics of Star Wars (a Straussian reading).

Thursday assorted links

by on December 14, 2017 at 12:33 pm in Uncategorized | Permalink

1. Crowdfunding markets in everything: a Romanian jazz album with plants used as the musical instruments.  Dandelion sample here.  It grows on you.

2. Mongolian Neo-Nazis? The lesson here is simply, but neglected nonetheless.  And grammar Nazis.

3. Interview with Anne Case.  And Ezra Klein interviews Paul Krugman.

4. Volokh Conspiracy moves to Reason.

5. Bach and Indian classical music.

6. And “My pants don’t seem particularly stylish.”  And Hungary (!) will be naming a “Milton Friedman University” [the article is in Hungarian].

François Derrien, Ambrus Kecskes, and Phuong-Anh Nguyen have a new paper on this topic, and basically the answer is yes, because of labor supply effects:

We argue that a younger labor force produces more innovation. Using the native born labor force projected based on local historical births, we find that a younger age structure causes a significant increase in innovation. We use three levels of analysis in succession – commuting zones, firms, and inventors – to examine or eliminate various effects such as firm and inventor life cycles. We also find that innovation activities reflect the innovative characteristics of younger labor forces. Our results indicate that demographics increase innovation through the labor supply channel rather than through a financing supply or consumer demand channel.

Here is the SSRN link.

Ari emails me:

On a completely different note, if I want to understand modern China what books, articles, etc. should I be reading? Do I start with a textbook? Historical scholarship? Fiction? Is Wikipedia the way to go?

Start by asking someone who understands modern China is my first response!  But since you have failed that test, here are a few pointers:

1. Unless your mental architecture is very different from mine, books about sequences of dynasties are mind-numbing and not readily absorbed.  So you first need some context to fit those pieces into.

2. Here is a wonderful syllabus on Chinese economic history, by Dr. Melanie Meng Xue.  Read it all.  I don’t find most books on China to be very useful.  They may be full of true claims, but the frequency of repetition, across books, tends to be very high.

3. Set up a Twitter/RSS feed to follow China today.  Here are seven excellent sources, more are listed at the end.  Set up a separate Twitter account to follow people who cover China, they are more interesting than those who write on U.S. domestic politics.  After all, this is mankind’s greatest story of the current day.

4. Find an “entry point” into China of independent intrinsic interest to you, be it basketball, artificial intelligence, Chinese opera, whatever.  Follow that area, and don’t bother trying to generalize.  Just have fun.

5. Subscribe to the email newsletter of Bill Bishop.

6. Alternate your interest between stories that make China seem quite normal and stories that imply China is pretty weird.  But what is the right balance of those?  Nobody knows!  Experiment, realizing you don’t have a useful feedback mechanism.  Here are a few China stories I have sampled recently:

The Chinese don’t want us to call it tofu any more.

Beijingers read on average an hour a day.

Chinese man repaints road markings to make his commute quicker.

P.F. Chang to open in Shanghai.  But marketed as an American bistro.

Xi Jinping presses military overhaul, and two generals disappear (NYT), an underreported series of stories, try this one too.

7. Travel to every part of China.  The country has the best food in the world (tied with India), is quite safe, has navigable infrastructure, and you can cross much of the country in a day by high-speed rail.  Outside of Beijing and Shanghai, you might find five-star hotels for less than $100 a night.  Go pre-equipped with multiple VPNs, and figure out the English-Chinese translation programs on your smart phone.  They come in handy and many Chinese are already quite familiar with them.  Learn some street signs, with quizzes.

8. Now go back and study all those dynasties.

Wednesday assorted links

by on December 13, 2017 at 2:05 pm in Uncategorized | Permalink

That is another truly splendid book by Navid Kermani.  Imagine deep and thoughtful essays on Goethe and Islam, Kleist and love, Shiite passion plays, Wagner and empathy, and why he doesn’t so much sympathize with King Lear, all from a George Steiner brand of polymath.  As I’ve mentioned before, Kermani is ethnically Persian but was born and grew up in Germany.  Imagine a devout Muslim absorbing and internalizing the best of German classical literary culture, including Lessing, Zweig, Benjamin, Mann, and much more.  He recreates a version of that tradition that otherwise would be inaccessible to us.  And might he now be Germany’s best and most important public intellectual?

I’d like to put forward a simple hypothesis.  Tune down the yappers.  Read and study Kermani, Michel Houllebecq, Bruno Maçães, Ross Douthat, and assorted others.  Once I wrote: “Remember people, the influential thinkers of the next generation will be the religious ones…whether you like it or not.”  This is what I meant, and I don’t even know if the second and third writers on my list believe in God.

Here is my previous post on Kermani.

…if a speaker marks a delay with “um,” that delay will be longer than if it had been marked by “uh.”  If “uh” is used, the delay that follows before resumption of fluent speech is roughly a quarter of a second; if “um” is used, the anticipated delay approaches three-quarters of a second.

In one case (um) the delay is inserted as “a deliberate signal”, in the other (uh) it is “an unavoidable effect of having processing problems.”

In male speech, either um or uh accounts for about one out of fifty words; for female speech it is only one out of seventy words.

One study found that over 40 percent of transitions — the switch in who is talking — have gaps of within a quarter-second of zero.  In another similar study, the two parties are talking at the same time only 3.8 percent of the time, and then usually not for very long.

So says N.J. Enfield, in his new book How We Talk: The Inner Workings of Conversation.

I have some tricks for doing this, which I have scrawled in the inner part of the margin of the manuscript.  Here is Matt Levine on Bitcoin:

I half-joked yesterday that “perhaps the cost of bitcoin storage — keeping your private key in a vault, worrying about hackers, etc. — is so high that arbitrageurs need to charge $1,000 for a month of it,” but maybe it’s the right explanation? Everything I read about bitcoin storage is utterly exhausting. “A private key printed out on a sheet of paper, cut into pieces, and distributed among family members who don’t know how to put it back together; an encrypted file loaded on a USB stick and buried in the backyard; a password committed only to memory;” a private key engraved on a metal plate and stored in a safe; a safe deposit box at a bank; an account at an exchange that gets hacked and loses its customers’ bitcoins. Buying bitcoin futures is a way to get exposure to bitcoin and avoid the bitcoin-storage problem: You never have to store bitcoins because you never own bitcoins; you just get paid dollars for the amount that bitcoin goes up. But the storage problem doesn’t go away; you just offload it to the arbitrageur who provides you the bitcoin exposure. Maybe the arbitrageur needs to charge you $1,000 to cover her storage costs. If you think these markets are efficient, then the gap between the futures and the spot is telling you how much — in out-of-pocket expenses, in theft risk, in psychic pain — it costs to store bitcoin.

Here is more from Matt:

If I told you that there was an asset that is an excellent store of value even in inflationary conditions, how much of your gold portfolio would you reallocate to that asset? One percent? Three percent? Fifty percent? All of it? Sure, whatever, if you believed me. But we are just assuming that bitcoin actually fulfills that function, in order to decide its valuation. Bitcoin has had a pretty good run, but so far it’s a short one; there’s no historical experience of bitcoin retaining its value in periods of global financial crisis or rich-world inflation or even just, you know, people not talking about bitcoin for a minute. So far the evidence that bitcoin is a good store of value consists of the fact that bitcoin’s price keeps going up. That is not bad evidence! But it is not a ton of evidence to build a store-of-value valuation around.

If Matt told me, I would allocate at least two percent.