Month: March 2014

Storage vaults for Bitcoin?

by  Tyler Cowen in

…a raft of bitcoin thefts at exchanges like Mt. Gox is raising the question of whether the sophisticated currency still needs the same sort of physical security infrastructure—impenetrable steel vaults, armed security guards, and even paper ledgers—as cash and gold.

A Silicon Valley startup called Xapo is among a handful of young companies trying to become the Fort Knox of bitcoin, building secret bank vaults deep in the earth that would safely store millions of dollars worth of bitcoin code on computer drives. And if modern bank robbers still manage to pry open the vault? Xapo promises to fully insure all deposits.

On Wednesday, Xapo said it raised $20 million in funding led by venture-capital firm Benchmark, to support a network of underground vaults that the company says are in mountainous regions on multiple continents.

There is more here.  I think of this as a lesson in how bid-ask spreads tend to reemerge, one way or another, no matter how hard we try to abolish them.  One key question about Bitcoin is whether it has found a better place to “put” the bid-ask spread.

Interview with Nate Silver about 538

by  Tyler Cowen in

Here is an excellent interview with Nate Silver about his new project, interesting throughout.  Here is one bit:

People also think it’s going to be a sports site with a little politics thrown in, or it’s going to be a politics site with sports thrown in. I understand why people say that — what we’ve been known for, plus ESPN, plus ABC News. But we take our science and economics and lifestyle coverage very seriously.

Some of the interview made me a little nervous.  He inveighs against New York Times Op-Ed columnists (juicy passages, click on the link if you wish), but their knowledge is more synthetic and also more novel than I think Silver recognizes.  I am not sure why “predictable” points of view are necessarily less likely to be true, or less likely to be important, even though they are (to me as well) less interesting to read.

Here are some more words from Silver:

We’re not sociopaths, which means that we look at the world and have opinions. But we’re not trying to do advocacy here. We’re trying to just do analysis. We’re not trying to sway public opinion on anything except trying to make them more numerate. I would say we’re not going to do a ton of public-policy coverage. We think that space is pretty rich now with competition. I also think with something like the health-care bill, it’s going to take years to get a good sense of how that’s working and how it’s affecting the market.

That too makes me a little nervous.  For instance there is the risk of assuming that the most important issues always or usually involve measurement.   Technocrats who rail against the ideologies of others are often the most ideological people around, even if their biases do not line up with the political spectrum in the usual manner.  Is there really such a thing as “just do analysis”?  Is it not better to make the underlying value presuppositions more explicit?  And why the knock at people who don’t have opinions about public affairs?  They’re not sociopaths, and frankly I’m not even fully comfortable with a blanket condemnation of sociopaths.

Earlier today I was reading John Hauer’s excellent The Natural Superiority of Mules.  It is a deliberately species-ist book, without a shred of objectivity, and the title reveals the blatant biases of the author.  The book has data, but is not data-driven.  It is “advocacy of mules driven.”  Get the subtitle: “A Celebration of One of the Most Intelligent, Sure-Footed, and Misunderstood Animals in the World” (eyes roll).  Yet I learned a great deal from it, and I will read any web site that can do as well.

Have we been mismeasuring Chinese inflation?

by  Tyler Cowen in

This is from a reputable source, although it is not an established consensus conclusion:

That is the tricky task that Emi Nakamura, Jón Steinsson and Miao Liu of Columbia University set themselves in a recent study. They start with an economic law first observed by a 19th-century statistician, Ernst Engel: richer households spend a smaller share of their income on food. Thus as a household becomes richer over time, its spending pattern should match that of households who were equally rich a year or two before.

But in China, they discovered something different. They compared urban households in 2006 with households that were, according to the official figures, equally rich in 2008. They discovered that the later households were devoting 3-4% more of their budgets to food. Perhaps they were not quite as rich as their 2006 counterparts, after all.

That would suggest the Chinese economy tanked more during the financial crisis than is usually believed.  This part I believe for sure:

Moreover, it turns out that China’s official figures do not always understate inflation. From 1996 to 2006, they actually exaggerated it in every year but one, according to the same method. As a result, urban consumption was growing even faster in this period than the official statistics conveyed. China’s policymakers had more to boast about than they knew.

The inflation figures calculated by the three economists are also remarkably well correlated with the official numbers. They rise and fall in unison. It is just that the unofficial figures rise faster and fall further. The trio conjecture that two competing biases are at work. First, new goods are often of higher quality than the ones they replace, but their price is the same. That would explain why China overstated inflation before 2007. More subtly, statisticians sometimes fail to grasp that new goods are merely upgrades of existing ones. So they invent new categories; that biases inflation towards zero. As a consequence, China’s official figures “present a smoothed version of reality,” the authors write.

You can read more here.  You will find the pdf of the paper here.

*The Once and Future King*

by  Tyler Cowen in

The author is my colleague F.H. Buckley and the subtitle is The Rise of Crown Government in America.  I am very enthusiastic about this book, which is a comparative study of American and Canadian systems of government with respect to the abilities to produce varying degrees of tyranny, in the former case mostly through the executive branch.  Buckley is himself from Canada and overall favors that system of government.  Here are two excerpts:

That was why McGee and the other Fathers thought Canada the freest country in the world.  When they looked south, they saw a country with more of Constant’s liberty of the ancients, but with less (so it seemed to them) of the liberty of the moderns.  Moreoever, of the former, the right of self-government had been corrupted by political machines and trivialized by elections for dogcatchers.  The high ideals of the American Founders had been forgotten, and McGee thought that their republican virtue, in the era of Boss Tweed and Tammany Hall, was now little more than American braggadocio.

And:

Presidential regimes are more likely than parliamentary ones to turn into dictatorships, and to rank lower on measures of public corruption.  Thus far we have examined two explanations for this: The president is the head of state and symbol of the nation; and he is relatively immunized from accountability to the legislature.  We now turn to a third possible explanation: The separation of powers creates inefficiencies in government that invite the president to step in and correct, and in so doing, to augment his powers and independence from congressional oversight.

I would argue that, for better or worse, a big part of the differences is driven, not only by constitutions but also by the much more active foreign policy of the United States.  I wonder what a true parliamentary discussion of nuclear weapons use would look like.

Stacked principal-agent problems

by  Tyler Cowen

The…Obama administration accused Sprint today of overcharging the government more than $21 million in wiretapping expenses.

Sprint, like all the nation’s carriers, must comply with the Communications Assistance in Law Enforcement Act of 1994, which requires telcos to be capable of providing government-ordered wiretapping services. The act also allows carriers to recoup “reasonable expenses” associated with those services.

Sprint, of Overland Park, Kansas, inflated charges approximately 58 percent between 2007 and 2010, according to a lawsuit (.pdf) the administration brought against the carrier today.

There is more here, hat tip goes to Vic Sarjoo.

Government’s Empty Buildings Are Costing Taxpayers Billions

by  Alex Tabarrok in

emptybuild

The boarded up building in the photo sits a mere 6 blocks from the White House on prime real estate but it’s been empty for 30 years! What’s the problem? The building is owned/controlled by the Federal government which often doesn’t even know what it owns, lacks the incentive to control costs and whose bureaucratic strictures make selling difficult even when motivation exists.

From an excellent piece on NPR:

Government estimates suggest there may be 77,000 empty or underutilized buildings across the country. Taxpayers own them, and even vacant, they’re expensive. The Office of Management and Budget believes these buildings could be costing taxpayers $1.7 billion a year.

…But doing something with these buildings is a complicated job. It turns out that the federal government does not know what it owns.

…even when an agency knows it has a building it would like to sell, bureaucratic hurdles limit it from doing so. No federal agency can sell anything unless it’s uncontaminated, asbestos-free and environmentally safe. Those are expensive fixes.

Then the agency has to make sure another one doesn’t want it. Then state and local governments get a crack at it, then nonprofits — and finally, a 25-year-old law requires the government to see if it could be used as a homeless shelter.

Many agencies just lock the doors and say forget it.

The NPR article is excellent but it vastly underestimates the size of the problem. In addition to empty buildings, the Federal government owns/controls millions of acres of land that are worth hundreds of billions and perhaps even trillions of dollars. The land is not being used to its full value or potential even though maintenance costs runs in the tens of billions annually.

*Inventing Freedom*

by  Tyler Cowen in

That is the new book by Daniel Hannan and the subtitle is How the English-Speaking Peoples Made the Modern World.

Oh how one can mock those subtitles about the making of the modern world, heh heh!  Yet this subtitle has a plausible claim to be…true.  Even more shockingly, the subtitle accurately describes the book.

Every time my plane lands in England I shed at least a tear, maybe more, out of realization that I am visiting a birthplace (the birthplace?) of liberty.  This is not a joke and during my trips there I never quite snap out of that feeling, though I am also well aware of all the problems those people have foisted upon the world as well.

I found many parts of this book to be superficial, or perhaps well-known.  Yet often they were superficial and…true.  Here is one excerpt:

To put it another way, the distinction was not between Catholic and Protestant individuals, but between Catholic and Protestant states.

Here is from an Amazon review:

Author Daniel Hannan is a person of English ancestry who was born and raised in Peru then relocated to the United Kingdom as an adult and made a career in politics, including becoming one of the U.K.’s representatives to the European Parliament. His global experience has shown him how unique is our “Anglosphere” heritage of representative democracy, protection of property rights, the sanctity of law, and the inalienable rights of the individual.

This is in some ways an important book, though I do not think it is a book which will satisfy everybody.

For the pointer I thank Daniel Klein.

The market is already expecting fairly loose monetary policy

by  Tyler Cowen in

Evan Soltas has an excellent post on this topic, here is one bit:

There’s no doubt that the costs and benefits of an “overshoot” of full employment are asymmetric. Stay too loose for too long, and you get a temporary bit of inflation. Exit too early, and you leave the work of fixing the recession unfinished forever. Who wouldn’t take the first one?

The problem with this cost-benefit logic is that the consensus policy track already agrees with it, as do I, to the extent to which the logic works. Futures markets anticipate the first rate hike in the fall of 2015. Rate are then set to rise about one percentage point per year. This locks in a solid amount of “overshoot” already.

How do I figure that? The unemployment rate is 6.7 percent. It has fallen roughly 0.8 percentage points per year. Extrapolate forward to the fall of 2015, and you get that the first rate hike will happen with an unemployment rate of about 5.5 percent. The Fed’sestimate of the natural rate of unemployment is 5.2 percent to 5.8 percent, and the middle of that range is 5.5 percent.

Markets therefore expect the Fed to cross its own estimate of full employment with its policy rate at zero. That’s extraordinary.

Like Soltas, I am of the opinion that no further loosening is in order, while fully granting and indeed stressing that a more expansionary monetary policy absolutely was called for in earlier years.

Lots of assorted links today

by  Tyler Cowen

1. Meet the two artists living in a giant hamster wheel.  And decentralized Bitcoin prediction markets.

2. Do women respond more to grades than do men?  And Ph.d. candidates as fashion models.  And new and fairly comprehensive study of the economics of the sex trade.

3. Useful origami microscope for less than a dollar.

4. Winkbooks, a new book review site, I believe from Boing Boing and Wired.

5. With proper adjustments, cohabitation before marriage does not predict divorce.

6. Full transcript and video of the Edward Snowden talk.  And has Snowden improved our cyberdefense credibility?

7. The world’s longest high-speed rail line has just opened in China.

8. Company reverses drug decision.

*The Curmudgeon’s Guide to Getting Ahead*

by  Tyler Cowen in

That is the new forthcoming Charles Murray book and the subtitle is Dos and Don’ts of Right Behavior, Tough Thinking, Clear Writing, and Living a Good Life.

Murray by the way just published a review of Average is Over in the latest Claremont Review of Books which I enjoyed very much.  It is not yet on-line but cited here.

For the pointer I thank Alex.

The new CIA scandal

by  Tyler Cowen in

I don’t feel I have an original or substantive point to make on this matter, but it is worthy of note nonetheless.  I was favorably impressed with Dana Milbank’s opinion piece today.  This is a Richard Nixon-kind of scandal, the CIA does report to the Executive Branch, and so far I haven’t seen the attempt to set things right or even clarify what has happened.  Milbank writes:

If the White House wishes to repair the damage, it would declassify without further delay the report done by Feinstein’s committee — along with the Panetta Review. If the White House won’t, Feinstein’s panel and others would be justified in holding up CIA funding and nominations and conducting public hearings.

Obama also should remove those people involved in spying on the Senate panel and in harassing Senate staffers. First out should be Robert Eatinger, the CIA’s acting general counsel. Previously, Eatinger had been a lawyer in the unit that conducted the interrogation program at the heart of the Senate’s probe. Eatinger, Feinstein said, filed a “crimes report” with the Justice Department suggesting that congressional staffers had stolen the Panetta Review.

If somehow you haven’t been following the issue, here is what is up:

California Democrat Dianne Feinstein, chairwoman of the Senate intelligence committee, has been an ally of Obama and a staunch defender of the administration during the controversy over the National Security Agency’s surveillance programs. So her credibility could not be questioned when she went public, reluctantly, to accuse Obama’s CIA of illegal and unconstitutional actions: violating the separation of powers by searching the committee’s computers and intimidating congressional staffers with bogus legal threats.