Month: December 2013

The Real Costs of Virtual Money

Bitcoin - virtual moneyBitcoin miners, just like gold miners, use real resources to produce bitcoins. How much? In April when bitcoins traded for around $100 the electricity consumption of bitcoin miners was an astounding 1000 MGW hours a day, enough to power about 31,000 US homes or some $150,000 in daily expenditure.

As the price of bitcoin rises, so do the mining costs. Thus, today with bitcoin trading around $1000 the costs are much higher. According to BlockChain’s Bitcoin Statistics, miners are currently using 98,000 MGW hours or $14 million dollars of electricity a day to mine bitcoins. (One wonders, whose electricity?) And that is just the electricity costs, miners are also spending on hardware which has evolved from CPUs, to graphics processors to field-programmable gate arrays (FPGAs) and now to application-specific integrated circuits (ASICs).

Unlike the resource costs of a gold standard, which Milton Friedman once (over?) estimated at some 2.5% of GDP ever year forever, bitcoin mining may slow once the bitcoin limit of 21 million bitcoins is reached.  Even that is tricky, however, because bitcoin mining currently subsidizes transaction costs so these will rise as bitcoin mining declines. Transaction costs are a necessary cost for a useful purpose so not all the mining is a net cost. Printing money is cheaper than gold or bitcoin mining but don’t forget that moving around fiat currency, by Brink’s truck or electronically, also has resource costs.

Hat tip for discussion to Eli Dourado.

Addendum: It’s an interesting bit of economics to ask why the cost of electricity doesn’t impact these numbers (even though it is used to calculate these numbers!).

The UK recovery is not just a single blip in the data

From the FT:

The strength of the UK economy is drawing covetous and occasionally envious glances from the eurozone as investors from around the world size up the opportunity presented by Britain’s recovery.

The UK economic revival has taken almost everyone by surprise, confounding domestic and international forecasting groups.

It’s perfectly fair to describe this as an “Average is Over” recovery, but a recovery it is, and far greater than might be accounted for by any slowdown in fiscal consolidation.

Is Ukraine the world’s next financial crisis?

Here are some simple numbers:

To grow, Ukraine’s $176 billion economy needs gas imports from Russia to be cheap and its steel exports to be expensive.

The opposite is now the case. The government ends up taking the strain because it subsidizes most of the cost of gas sold to households across the country of 46 million that borders Russia to the northeast and four new EU states to the west.

Yanukovich walked away from the trade deal because it lacked a hoped-for stand-by loan of as much as $15 billion from the International Monetary Fund.  The global lender was not prepared to lend new money without gas-price reforms.

Russian President Vladimir Putin has meanwhile made a gas discount conditional on Ukraine joining a Russia-led customs bloc that includes Kazakhstan and Belarus. He has not, however, ruled out possible further funding.

Jacob Nell, a Moscow-based economist at Morgan Stanley, estimates that Ukraine will have to raise external financing of $18 billion for Yanukovich to make it to the 2015 election.

The yield on the June 2014 bond is now closing in on 20 percent.  The full story is here.

The increasing velocity of goods is a deflationary pressure (rental markets in everything Average is Over)

Anouk Gillis often sports a pair of organic-cotton jeans she ordered online. But she doesn’t actually own them.

Rather than buying the pants, which retail for around €100 ($135), Ms. Gillis signed a 12-month lease with their designer, the small Dutch fashion label Mud Jeans. The terms: a €20 deposit and monthly installments of €5.

After a year, Ms. Gillis, who is also Dutch, can decide to buy the jeans, return them, or exchange them for a new pair.

“The idea was to make high-quality jeans available to everybody,” said Bert van Son, chief executive of Mud Jeans, which promises to recycle the used jeans into new pairs or sell them secondhand at the end of a lease.

The deal shows how companies are trying to reconnect with Europe’s cash-strapped consumers, who increasingly rely on renting, sharing or even bartering for products and services ranging from clothing to vacations to lawn mowing.

There is more here.  For the pointer I thank the man who delivered my morning Wall Street Journal.

Assorted links

Why macroeconomics is not a science

From the United Kingdom:

Manufacturers enjoyed a jump in demand that pushed growth to its fastest rate for more than two years and saw the sector take on thousands of new staff last month.

New orders were the strongest for almost 20 years and job creation accelerated, according to the Markit/CIPS UK Manufacturing PMI survey.

There is more here, and I will reiterate that this trend was not very well predicted by any macroeconomic school of thought, including liquidity trap theories, recent emphases on long-run secular stagnation, or for that matter the contrasting “of course there is mean reversion” approaches, which don’t tell us much about timing and which would appear to contradict the slow recoveries seen elsewhere.  Spain, by the way, does not have an equivalent degree of cheer

The economics of cheap drone delivery

Let’s say 30-minute drone delivery to your home were legal, well-run, and, for purposes of argument, free or done at very low cost.  You would buy smaller size packages and keep smaller libraries at home and in your office.  Bookshelf space would be freed up, you would cook more with freshly ground spices, the physical world would stand a better chance of competing with the rapid-delivery virtual world, and Amazon Kindles would decline in value.  Given that the storage costs for goods would fall (more storage by specialists, accompanied by later delivery), expected inflation would more likely be converted into price hikes today.  The liquidity premium of money (NB: not currency) would rise and the liquidity premium of goods would fall.  Some drug markets would be taken off the streets and the importance of gang “turf” would fall.

Addendum: What do we know about network economies in drone delivery systems?  FedEx and UPS and USPS, taken together, dominate the market for physical delivery of parcels to homes.  How much room would there be in the market for “lone drone” operators?

U.S. Immigrants’ Attitudes Toward Libertarian Values

It is very important to serve up the other side of the story.  Here is a 2013 paper by UCSD psychologist Hal Pashler:


While there has been much discussion of libertarians’ (generally although not universally favorable) attitudes toward liberal immigration policies, the attitudes of immigrants to the United States toward libertarian values have not previously been examined. Using data from the 2010 General Social Survey, we asked how American-born and foreign-born residents differed in attitudes toward a variety of topics upon which self-reported libertarians typically hold strong pro-liberty views (as described by Iyer et al., 2012). The results showed a marked pattern of lower support for pro-liberty views among immigrants as compared to US-born residents. These differences were generally statistically significant and sizable, with a few scattered exceptions. With increasing proportions of the US population being foreign-born, low support for libertarian values by foreign-born residents means that the political prospects of libertarian values in the US are likely to diminish over time.
The pointer is from Billy Willy.  I would point out this is all the more true for the future of the economics profession, given how many recent graduate students come from outside the United States.

Arnold Kling’s bad demographic news for libertarians

Arnold’s post is this:

“Timothy Taylor writes,

Married households with children were 40.3% of all US households in 1970; in 2012, that share had fallen by more than half to 19.6%. Interestingly, the share of households that were married without children has stayed at about 30%. Other Family Households, usually meaning single-parent families with children, has risen.

I am afraid that the number of households married to the state has soared.”

Another way to put this is that we are consuming more of potential gdp in the form of not being around those we do not wish to be around.  This is a kind of extreme individualism in the personality-based sense, though not in the political sense.

Assorted links (and the new Hilton Root book)

Why I didn’t do 23andMe

I had a free voucher from the summer, but decided not to go ahead with a saliva test.  Here are my reasons:

1. I thought there is option value and I can always do a test later, for a better and more accurate service.  (I hadn’t thought of the FDA shutting the whole thing down, but still I expect the service will return in some manner, if only under another corporate banner or from overseas.)

2. I thought the “worry cost” of negative information would exceed the benefit of whatever specific preventive measures I might take.  Most useful ex ante preventive measures, such as diet and exercise, are fairly general in their application and I didn’t think there was likely much to be learned about specific measures for specific potential maladies.  And here is an interesting short piece on the likelihood of false negatives.

3. One might take more preventive measures with one’s ex ante and more uncertain knowledge than with one’s ex post and more certain knowledge.  For instance an absence of negative information might have encouraged me to slack on exercise, to the detriment of my eventual health outcomes.

4. I wouldn’t describe privacy concerns as my major worry, but at the margin still they counted for something.  I felt eventually this service would prove equivalent to making my genome public information, via something called GenomeLeaks or the like.  Why do that without having a better sense of its longer-run implications?

I’m glad I didn’t do it, glad I had the choice to decline to do it, and I am still feeling no temptation to do it in the future.  I do feel a slight amount of guilt for not contributing to a future “Big Data” project, but so be it.  I also am glad I am not contributing to some of the inevitably unethical uses to which eugenics will be put, and that is more than a counterbalance, given that I expect no practical benefit from reading my own test results.