Month: December 2017

The future of crypto-assets? (from the comments)

mariorossi

I think one problem with this view is that the bitcoin storage cost is likely a function of the capitalization of bitcoin.

Bitcoin security is a function of the amount of miners. The amount of miners is a function of mining revenue streams. If there are not enough miners, stealing bitcoins becomes possible. So the bitcoin network needs to generate enough mining revenues to keep enough miners interested. This amount has to be a function of the capitalization as if it ever diverges stealing bitcoin would become a valid strategy. So bitcoin must have a negative yield, either because you need to pay for the miners energy or because your bitcoins are going to be stolen. This is currently hidden by the wave of investment in the sector (and the funding from the bitcoin seniorage), but that’s got to stop at some point. I don’t think gold for example has similar features. Securing gold is not a function of of the dollar value.

If miners are a competitive industry, miners revenue has to roughly equal miners costs, so it’s a real cost. Compared with other fiat currency cost of storage it seems incredibly wasteful. Storing government bonds is basically costless. You might get negative yields, but those are transfers, not consumption. Gold was valuable because it doesn’t rust. It doesn’t require maintenance. Bitcoins require a lot of maintenece… I think that’s a weakness…

Here is the link.

From the bench of Kevin Lewis shame on you tenured professors

forthcoming study in the Journal of Economic Perspectives doesn’t use any of those terms and explicitly says it must not be read as an “indictment” of tenure. But it suggests that research quality and quantity decline in the decade after tenure, at least in economics.

The authors of the paper — Jonathan Brogaard, an assistant professor of finance at the University of Washington at Seattle; Joseph Engelberg, professor of finance and accounting the University of California, San Diego; and Edward Van Wesep, associate professor of finance at the University of Colorado at Boulder — started with a question: “Do academics respond to receiving tenure by being more likely to attempt ground-breaking ‘homerun’ research and in this way ‘swinging for the fences?’”

After all, they wrote, “the incentives provided by the threat of termination are perhaps the starkest incentives faced by most employees, and tenure removes those incentives.” (The question is sure to annoy academic freedom watchdogs. In the authors’ defense, they do cite the benefits of tenure, including job stability’s potential to encourage risk taking.)

Looking for answers, Brogaard, Engelberg and Van Wesep collected a list of academics who worked and were tenured in economics or finance departments at 50 top-ranked institutions at any time between 1996 and 2014. The final sample included 980 professors, all of whom were tenured by 2004.

Here is the link.

Wednesday assorted links

1. Trouble in Peru (NYT).

2. The wisdom of polarized crowds (pdf).

3. The year of Ben Stratechery.

4. Big advance in text-to-speech technology, the remaining blips: “For example, our system has difficulties pronouncing complex words (such as “decorum” and “merlot”), and in extreme cases it can even randomly generate strange noises.”

5. I just pre-ordered the new Edward Tenner book, due out in April.

6. 2017 in architecture (uneven, the reality and the piece).

7. Most-read articles of the year, few are about DT.

My Conversation with Andy Weir

Andy was great, here is the text and audio, here is the introductory summary:

Before writing a single word of his new book Artemis, Andy Weir worked out the economics of a lunar colony. Without the economics, how could the story hew to the hard sci-fi style Weir cornered the market on with The Martian? And, more importantly, how else can Tyler find out much a Cantonese meal would run him on the moon?

In addition to these important questions of lunar economics, Andy and Tyler talk about the technophobic trend in science fiction, private space efforts, seasteading, cryptocurrencies, the value of a human life, the outdated Outer Space Treaty, stories based on rebellion vs. cooperation, Heinlein, Asimov, Weir’s favorite episode of Star Trek, and the formula for finding someone else when stranded on a lonely planet.

My favorite part was this, which Andy answered with no hesitation:

COWEN: What if there were two immortal people, let’s say it’s the two of us, placed on opposite sides of the Earth, an Earth-like planet, and we can wander freely with no constraints but just foot speed. How long does it take us to find each other?

WEIR: Can we collude in advance in any way?

COWEN: No, we cannot.

WEIR: OK.

COWEN: But we know we’re trying to find each other.

WEIR: We know we’re trying to find each other. Well, we should both — but can we have a — are we both rational actors and we —

COWEN: We’re as rational as you and I are; take that as you wish.

WEIR: So, no?

[laughter]

COWEN: No.

WEIR: I think the best thing to do would be for both of us to pick an arbitrary great circle to walk, around the planet, and leave markings along the way denoting what direction you’re walking. So I would arbitrarily pick a direction to go and I would just go that direction with the intention of circumnavigating the entire globe, and I would walk at maybe half what is a comfortable speed for me. And you would do the same thing. Now, somewhere, our two — in fact, in two points — our great circles will intersect.

COWEN: Right.

WEIR: And when one of us reaches the other one’s, then they start following the markers at full speed, and then you get the guy. Right?

COWEN: And what’s your best guess as to how long that would take?

WEIR: Well, if you pick two points, I’m guessing one of us would have to walk probably about a quarter of the way around the planet before we found the other one’s great circle. And then you’d have to walk again. So in terms of circumnavigation times, it would take you 2x to get all the way around the planet, because my initial plan was you’d walk half-speed. So I’m guessing it would be a quarter of that, so one-half x to get to your great circle, and then a quarter x to find you along your great circle, on average, I’m guessing. So one-half plus a quarter, so .75x. So three-quarters of the time that it would take to circumnavigate the planet.

COWEN: OK, great answer.

WEIR: That’s my guess.

Do read/listen to the whole thing

A popular culture theory of why we misunderstand families

Due to TV, which shows us “false families,” we overrate the importance of the environmental and underrate the importance of genetics:

But here’s a totally different explanation for popular misconceptions about nature and nurture.  Throughout most of human history, if you knew someone, you usually knew his family as well.  When you grow up in a village, you make friends; and once you make friends, you regularly interact with their relatives.

In the modern world, in contrast, we are much less likely to meet the family.  You almost never meet your co-workers’ families.  And you often barely know the families of your close friends.  Perhaps strangely, most of the families that we “know” well are the fictional families of popular culture.  The Pritchetts.  The Bluths.  The Whites.  The Sopranos.  I’ve spent more time with the Simpson family than every family besides the Caplan family.

So what?  Well, with rare exceptions, the actors who comprise t.v. families aren’t even remotely related.  Do your ancestors come from the same continent?  Then by t.v. logic, you could be brothers – and we’re conditioned not to find the fictional relationships ridiculous.  Furthermore, since drama rests heavily on conflict and contrast, every family member gets a distinctive personality and social niche.  What t.v. family has three studious kids – or three class clowns?  Even a show like Shameless blends full-blown degenerates with nice people to handle damage control.

The result: We have little first-hand familiarity with actual biological families.  But popular culture fosters that illusion that we do.  Most of the biological families that we “know” are in fact adopted all the way down.  The main exception being kids’ roles where two twins play the same role to ease compliance with child labor laws!

That is from Bryan Caplan.

Claims about baseball and Palau

Baseball has dominated the cultural and sporting life of Palau for almost 100 years, which is about four times longer than Palau’s been an independent nation. Over the years, Palauans have shaped the game to fit their island lives. Kids learn to play with bamboo bats and coconut-leaf balls. Pitchers chew betel nut instead of dip. Monsoons rain out not just games and series, but entire seasons of league play. Local traditions of witchcraft have crossed over into the country’s sporting life; even today, it’s not uncommon for accusations of black magic to fly after particularly contentious games. (I’ve been reporting on and off from Palau for seven years, so I’m used to it. THIS pitcher’s dad was a known wizard; THAT team’s manager caught women from an opposing village burning leaves over home base.) Baseball as it’s played in Palau is a decidedly Palauan thing.

But baseball has also shaped Palau. It’s more than a national pastime here. It’s an organizing principle—or, more accurately, a re-organizing principle. Before the 20th century, Palau was a matriarchy. Women controlled most aspects of society, and men were limited to fishing, fighting, and handling village-to-village diplomacy. Then colonial rule brought centralized government—and baseball—to the archipelago. Ever since, these two male-dominated worlds have fed on each other, with Palau’s baseball leagues serving as a kind of farm system for government service. Scores of congressmen, senators, diplomats, and heads of state have passed through Palau’s dugouts on their way to political power.

Here is much more, from David Walker, and here is Wikipedia on Palau.  For the pointer I thank Stephen Jonoes.

Will virtual reality make our lives better?

That is the topic of my latest Bloomberg column, here is one excerpt:

Virtual reality technology can create vivid multiprojected environments, designed to feel real in some ways. In essence, with virtual reality we will be able to manage our empathetic and emotional reactions in a manner currently beyond us. The technology may make our medical treatments seem less painful by providing distractions. It could help alleviate post-traumatic stress disorder, by allowing sufferers relive the bad experience in a way that helps them get over it. Athletes and test-takers might use simulations to get over “choking” and other performance problems. There are plenty of other uses we probably haven’t much thought of — I was struck by a recent report of a virtual reality “death simulation machine,” to help prepare people for their passing.

In this future, we will be able to steer and manage our emotional reactions to a greater degree. Do you think you don’t care enough about starving babies around the globe? There probably will be a virtual reality program to fix that, at least temporarily. You will be able to enter their world and experience their suffering in a manner that will seem almost real, perhaps in preparation for writing a check to your favorite charity.

One key question is which emotions we will decide to have more of. It would be nice to think we will use virtual reality to make ourselves more caring and more empathetic, but I’m not convinced. Just as gossip magazines and celebrity-based reality TV have long been popular, we might use virtual reality to vicariously sample the lifestyles of the rich and famous. That could make us more callous rather than more caring, or at least less involved in the suffering of others, as competing experiences will seem so much more exciting.

There is much more at the link, interesting throughout, Smith’s TMS lurks throughout.

Political Incorrect Paper of the Day: Food Deserts

Here is the abstract to The Geography of Poverty and Nutrition: Food Deserts and Food Choices Across the United States (free version) by Allcott, Diamond, and Dubé:

We study the causes of “nutritional inequality”: why the wealthy tend to eat more healthfully than the poor in the U.S. Using two event study designs exploiting entry of new supermarkets and households’ moves to healthier neighborhoods, we reject that neighborhood environments have economically meaningful effects on healthy eating. Using a structural demand model, we find that exposing low-income households to the same food availability and prices experienced by high-income households would reduce nutritional inequality by only 9%, while the remaining 91% is driven by differences in demand. In turn, these income-related demand differences are partially explained by education, nutrition knowledge, and regional preferences. These findings contrast with discussions of nutritional inequality that emphasize supply-side issues such as food deserts.

This is a good paper with a credible research design and impressive data from some 35,000 supermarkets covering 40% of the United States. Moreover, because of the widespread attention given to “food deserts” this paper probably had to be written. But color me un-surprised. The results are obvious.

Indeed, I feel that in recent years I am reading a lot of papers that aim massive firepower on weak hypotheses. As an explanation for obesity and poor eating habits, the idea of “food deserts” was absurd. The reasons are manifold. Even in food deserts it’s actually not that difficult to get healthy food and, contrary to popular belief, healthy food is not especially expensive. Try an Asian supermarket for plenty of cheap produce. Indeed, in any part of the United States you can find plenty of poor-people eating healthy foods and plenty of rich people eating unhealthy foods.

The food deserts idea was especially implausible for America because Americans spend less of their income on food consumed at home (6%) than any other nation. The Dutch, for example, spend (12%) of their income on food, the Italians and Japanese (14%), the Vietnamese (35%). There is plenty of room in the American food budget for healthy eating. Finally, Allcott, Diamond, and Dubé show that relative to unhealthy food, healthy food is actually a bit cheaper in low-income areas.

More importantly, just open your eyes. Walk into a fast food joint in a food desert and ask yourself, do the customers really want brussel sprouts but are reluctantly settling for Chips Ahoy? The idea is ridiculous and not a bit insulting in denying agency to the people who live in low-income areas. If what people living in food deserts wanted was brussel sprouts, they would get them.

The Whole Foods class think their kale and kombucha are so obviously superior to what the poor eat that the only possible explanation for poor eating is that poor people are denied choice. Yet put an inexpensive but colorful produce stand next to a McDonald’s and you can be sure that the customers will differ by class. Why the poor choose to eat differently than the rich is an interesting and important question but one more amenable to answers focusing on culture, education and history than price and income. The idea applies widely.

The rate of return on everything

There is a new NBER paper on that topic by Òscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor, here is the abstract:

This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century. What is the aggregate real rate of return in the economy? Is it higher than the growth rate of the economy and, if so, by how much? Is there a tendency for returns to fall in the long-run?Which particular assets have the highest long-run returns? We answer these questions on the basis of a new and comprehensive dataset for all major asset classes, including—for the first time—total returns to the largest, but oft ignored, component of household wealth, housing. The annual data on total returns for equity, housing, bonds, and bills cover 16 advanced economies from 1870 to 2015, and our new evidence reveals many new insights and puzzles.

Here is what I learned from the paper itself:

1. Risky assets such as equities and residential real estate average about 7% gains per year in real terms.  Housing outperformed equity before WWII, vice versa after WWII.  In any case it is a puzzle that housing returns are less volatile but about at the same level as equity returns over a broader time span.

2. Equity and housing gains have a relatively low covariance.  Buy both!

3. Equity returns across countries have become increasingly correlated, housing returns not.

4. The return on real safe assets is much more volatile than you might think.

5. The equity premium is volatile too.

6. The authors find support for Piketty’s r > g, except near periods of war.  Furthermore, the gap between r and g does not seem to be correlated with the growth rate of the economy.

I found this to be one of the best and most interesting papers of the year.

Why Sex? And why only in Pairs?

Understanding the purpose of sex is a fundamental unresolved problem in evolutionary biology. The difficulty is not that there are too few theories of sex, the difficulty is that there are too many and none stand out. To distinguish between theories, we ask: Why are there no triparental species with offspring composed of the genetic material of three individuals? A successful theory should confer an advantage to biparental sex over asexual reproduction without conferring an even greater advantage to triparental sex. Of two leading theories (red queen and mutational), we show that only one is successful in this sense.

That is a new Economic Journal paper by Motty PerryPhilip J. Reny, and Arthur J. Robson.  Of course the core question is a classic example of thinking at the margin.  The core conclusion is that mutations continue to rise with the number of sex-participating partners, but in simple Red Queen models the limiting features of the genotypes is the same whether there are two, three, or more partners.  The argument on pp.2739-2741 is not readily blog-summarizable, and I do not grasp it fully, but at the moment I have the following intuition.  If a parasite attack comes, the species needs only move away from the targeted genome to continue reproducing, due to some all-or-nothing assumptions about the nature of the attack.  This differs from the mutational game, where there is always some marginal (expected value) gain from moving yet further away from the initial nature of the species.  Playing a game against an identified opponent brings a better-specified and more stable and less varying response strategy than playing a game against an as-yet-unidentified opponent.  That isn’t how the authors put things, but…

Since we don’t observe much three-party reproduction (hardly any in fact), that suggests the Red Queen model is more likely to apply.

For the pointer I thank TEKL.

The great Ken Regan on AlphaZero

A must-read for anyone who has been following this issue, Ken considers how close to God AlphaZero actually came:

We must pause to reflect on how clarifying it is that this single heuristic suffices to master complex games—games that also represent a concrete face of asymptotic complexity insofar as their size n-by-ngeneralizations are polynomial-space hard…

It may be that we can heuristically solve some NP-type problems better by infusing an adversary—to make a PSPACE-type problem that hits back—and running AlphaZero.

That sort of thing.  And don’t neglect the comments.

Abolish the penny?

There is the danger that prices will be rounded up more than down.  A 19-year-old Canadian, Christina Cheung, has done a study of penny abolition in Canada and here are her findings:

She found 60.8 per cent of grocery store prices ended in 8 or 9.

Cheung put those numbers through a computer simulation program that generated hypothetical purchases.

“I simulated [grocery purchases] depending on what province you’re in, what tax rate you have, and how many items you buy,” she said.

She excluded the volume of credit and debit card transactions, which aren’t affected by penny rounding.

She then made a discovery: a typical grocery store would earn an additional $157 of revenue from rounding each year.

All together, she found grocery stores in Canada yield an additional $3.27 million dollars over a year.

The paper will be published in Atlantic Economic Journal.  Here is the full story by Roshini Nair, via Michelle Dawson.

Monday assorted links

Star Wars and net neutrality

That’s why the latest Star Wars trilogy is so dark: It’s looking more and more like real life, where the credits never roll and problems can always recur…The Last Jedi premiered a few hours after we learned that the FCC had reversed its stance on net neutrality; we all sang “Yub Nub” back in 2015 when that vote went one way, but we know now that the war wasn’t won.

Here is the Ben Lindbergh piece on the pessimistic themes in Star Wars.  Ted Cruz also serves up some unusual remarks.