GDPR is centralizing the market

GDPR, the European Union’s new privacy law, is drawing advertising money toward Google’s online-ad services and away from competitors that are straining to show they’re complying with the sweeping regulation.

The reason: the Alphabet Inc. GOOGL +2.58% ad giant is gathering individuals’ consent for targeted advertising at far higher rates than many competing online-ad services, early data show. That means the new law, the General Data Protection Regulation, is reinforcing—at least initially—the strength of the biggest online-ad players, led by Google and Facebook Inc.

Here is the full WSJ story.

The ongoing experiment with bootstrap equilibria, also known as tokens

There are many economics papers on bootstrap equilibria, for instance if agents in an economy expect it will do well, maybe that translates into actual results through the mechanisms of confidence, investment, and so on.

Right now we have a huge and unprecedented laboratory for testing claims about bootstrap equilibria, namely crypto and in particular the markets for tokens.  Imagine you are a private entrepreneur, and you have a new idea for how a money or store of value should be run.  Yet, to give your asset some value, you need to convince others your idea is valid.

One option is to write better software than that governing existing crypto-assets.

Another option, increasingly popular, is to use your market power in some good or service to make your “gift certificate” (read: token) more focal.  Let’s say for instance that you have invented a new computer game that in some regards is better than that of the competitors.  The “old school” approach was to sell the game for a profit, and of course that still often goes on.

Yet there is now another option.  Try to cash those potential profits into yet higher profits by using them to build focality for a new money.  Issue tokens that can be used to play the game.  You hope that will create a demand for the new money you are issuing and thus bootstrap its value.  If requiring money to be used to buy a “get out of jail card for having paid your taxes” works for Uncle Sam, might not “get to play this computer game token/card” give your money positive value too?

Let’s say the market can support 4000 different monies, one public the others private.  In equilibrium, which are the services that get tokenized?  Is it?:

1. The services with high mark-ups?  Low mark-ups?

2. Big consumer bases?

3. Well informed and well coordinated consumer bases?

4. “Influencer” consumer bases, in the Gladwellian sense?

5. “Trivial” consumer bases, that you don’t mind risking?

6. Some other properties?  What I observe so far is that crypto-assets are being created by nerdy tech types, and thus they are linked to goods and services that also are created by those same nerdy tech types — a classic economies of scope, lack of trust on the supply side question.  I doubt if many of the top executives at Nordstrom are sitting around wondering whether their next Fall sale should be attached to a crypto-token.  But exactly why not?  This probably boils down to trust issues, rather than any intrinsic suitability of the product.

Is there any good theory paper on these questions?

Note that Heinrich Rittershausen, writing in the early twentieth century, thought that eventually most goods and services would be self-financing through their own currencies.

What theory of bootstraps can we divine from the data on which tokens meet the market test?  (Or is it too early to say?…but surely we can start in on a measurement…)  Am I correct in thinking that the really successful consumer products just want to take the profits and run, without bothering with tokenization?  There is no such thing as an Apple token, is there?

Help!  And no, I am not giving away free tokens…for any good or service.

Friday assorted links

1. Skepticism about AI and deep learning.

2.The Ethiopian Urban Expansion Initiative.

3. “Patients sitting in emergency rooms, at chiropractors’ offices and at pain clinics in the Philadelphia area may start noticing on their phones the kind of messages typically seen along highway billboards and public transit: personal injury law firms looking for business by casting mobile online ads at patients.”  Link here.

4. There is a Klay Thompson Magnus Carlsen article of substance (WSJ).

5. MIE: Brutalist cuckoo clocks.

The safety net in Ethiopia

They are participants in Ethiopia’s Urban Productive Safety Net Project, which was launched in 2017 and is among the largest social programmes in sub-Saharan Africa (outside South Africa) designed specifically for urban areas. About 400,000 poor Ethiopians in 11 cities are already enrolled. The government hopes it will eventually help 4.7m people in almost 1,000 towns. Beneficiaries are selected by a neighbourhood committee based on how poor and vulnerable they are. In addition to the paid work, they also receive training. Those who want to start their own businesses are given grants.

Safety-nets, in one form or another, have proliferated across Africa in recent years. Spending on them in sub-Saharan Africa now amounts to about 1.5% of GDP (see chart). In Tanzania 10% of the population is covered by its safety-net (at a cost of just 0.3% of GDP)…

Ethiopia’s programme is a step towards building a national social-security system that will, in time, replace a hotch-potch of small ones. It builds on Ethiopia’s flagship rural safety-net, which is the largest of its kind on the continent and covers some 10m poor people in the countryside (out of a total population of about 102m). The government has committed $150m to fund the new scheme and the World Bank has stumped up the remaining $300m needed for the first five years. Ethiopia hopes that within ten years it will no longer need help financing the programme.

Here is more from The Economist.  You can think of this as further evidence of state capacity in Ethiopia.

The internet and inflation

From Austan D. Goolsbee and Peter J. Klenow:

We use Adobe Analytics data on online transactions for millions of products in many different categories from 2014 to 2017 to shed light on how online inflation compares to overall inflation, and to gauge the magnitude of new product bias online. The Adobe data contain transaction prices and quantities purchased. We estimate that online inflation was about 1 percentage point lower than in the CPI for the same categories from 2014–2017. In addition, the rising variety of products sold online, implies roughly 2 percentage points lower inflation than in a matched model/CPI-style index.

I call this “the gains from better matching,” as discussed in The Complacent Class.

Is there a Chinese salamander bubble?

Bizarrely, only 3 percent of the animals raised by the farms are eventually sold to restaurants. The rest are sold to more start-up farms. This absurd amphibian Ponzi scheme so inflated the worth of the salamanders that a small, 2-kilogram individual could sell for around $1,500. As a result, people began supplementing the farmed stock by illegally collecting the animals from the wild. “The high prices created a sort of salamander rush,” says Jing Che from the Kunming Institute of Zoology, who was involved in the recent study.

That is from Ed Yong, via Brian Slesinsky.

Thursday assorted links

A microeconomic guide to travel, including Ethiopia

That is my latest Bloomberg column, here is the opener:

I sometimes wish the market supplied “travel guides as if microeconomics really mattered.” Most guides outline the major sights and the best hotels, but what about the little things that make up so much of the value of a trip? Here’s my handy introduction to the micro side of travel, based on my recent 10-day stay in Ethiopia. You should consider investigating these same factors before choosing a destination:

How are the sidewalks?

I enjoy walking around cities, but it’s not just the quality of the architecture or the vitality of the street life that matter. The quality of the sidewalks is a central consideration, especially in emerging economies. What good are the sights if you are looking down all the time to avoid a slip or a broken ankle because of gaping holes? Sometimes major thoroughfares have no sidewalks at all.

I am happy to report that in Addis Ababa, the capital city of Ethiopia, the quality of the sidewalks and street paths is high enough to sustain productive walking with your head held high. Most of the time. B, and B+ outside the capital.

There is much more at the link, definitely recommended.

Is surfing the internet dead?

I saw a few people asking this on Twitter lately, but my views don’t quite fit into a tweet.  Ten to fifteen years ago, I remember the joys of just finding things, clicking links through to other links, and in general meandering through a thick, messy, exhilarating garden.

Today you can’t do that as much.  Many media sites are gated, a lot of the personal content is in the walled garden of Facebook, and blogs and personal home pages are not as significant as before.  Then there is the email subscription newsletter, whether free or paid.  All you can do in fact is visit www.marginalrevolution.com and a few other sites and hope their proprietors have not been sleeping since you last stopped by.

That said, I do not feel that time on the internet has become an inferior experience.  It’s just that these days you find most things by Twitter.  You don’t have to surf, because this aggregator performs a surfing-like function for you.  Scroll rather than surf, you could say (“scrolling alone,” said somebody on Twitter).

And if you hate Twitter, it is your fault for following the wrong people (try hating yourself instead!).  Follow experts and people of substance, not people who seek to lower the status of others.  And if you’re really feeling the internet to be rather empty, head on over to Twitter search, still the most underrated single thing on the internet today (the MR search function is another underrated corner of the internet).  Type in words of interest, such as “Ethiopia,” and what comes up will be gold.

It’s a different method today, and it uses a more centralized portal, but no the internet is not in decline.  Not yet at least.

Ben Thompson on data portability and Facebook

The problem with data portability is that it goes both ways: if you can take your data out of Facebook to other applications, you can do the same thing in the other direction. The question, then, is which entity is likely to have the greater center of gravity with regards to data: Facebook, with its social network, or practically anything else?

Remember the conditions that led to Facebook’s rise in the first place: the company was able to circumvent Google, go directly to users, and build a walled garden of data that the search company couldn’t touch. Partnering or interoperating with companies below the Bill Gates Line, particularly aggregators, is simply an invitation to be intermediated. To demand that governments enforce exactly that would be a massive mistake that only helps Facebook.

Link to the post, with further explanation, is here.  You can and should subscribe to Ben here.  Here is my earlier post on data portability.

What I’ve been reading

Economic Science Fictions, edited by William Davies.  I didn’t quite come away with a takeaway from this book, but still I feel obliged to pass knowledge of it along to you.  It is a bunch of essays about economic themes in science fiction, and/or how the two “genres” might be more closely integrated, with a lead essay by Ha-Joon Chang.

Allen C. Guelzo, Reconstruction: A Concise History.  Could this new book be the single best brief introduction to Reconstruction available?  Recommended.

Emily Dufton, Grass Roots: The Rise and Fall and Rise of Marijuana in America.  I loved this book, which I also consider a paradigmatic example of how to write a wonderful non-fiction work.  Throughout it is clear, substantive, balanced, passes various ideological Turing tests, and it focuses on essentials, as well as framing everything in terms of broader theories of social change.  It is sure to make my best books of the year list, and if she had ten other books I would buy them all sight unseen.  Here is Dufton’s home page.

Bekelech Tola, Injera Variety from Crop Diversity.  She explains where all the different types of injera come from.  I hadn’t realized for instance that teff is sometimes mixed with maize, or sorghum flour, or cassava powder, all in the service of variety.

Wednesday assorted links

1. How futures trading affected Bitcoin prices.

2. “Without air conditioning, each 1°F increase in school year temperature reduces the amount learned that year by one percent.

3. Ethiopia on me on Ethiopia: “In the US very well educated and very sophisticated cosmopolitan people have no sense of how nice things are in Ethiopia and how well things are going. These include people with PhDs in economics familiar with Davos for a regular economic meeting.”

4. vbuterin on privacy.

5. The invisible asymptote: “More people are more skilled at being hurtful in text than photos.”  A good post with many points of interest.

6. Should central banks become banks?

China Ethiopia donkey estimate of the day

There are estimated to be 44 million donkeys in the world, almost all of which are maintained for work. China has the highest population (eleven million) followed by Ethiopia (five million)…

Here is the source, via pointers from Yves-Marie Stranger and Michelle Dawson.  That estimate seems to be from the 1990s, the article has much more data of donkey interest, and it is a good example of Cowen’s Second Law and indeed Cowen’s First Law: “It has been made clear that the estimates of donkey populations presented here should be treated with great caution.”

And here is a 2011 report on donkeys, horses, and mules in Ethiopia.  Ethiopia has the third largest total equine population in the world.

Michael Nielsen, standing on one foot

A highly sophisticated MR reader demanded a dose of Michael Nielsen.  I wrote to Michael, and he was kind enough to oblige.  Everything that follows is from Michael, here goes:

I started with the question “What might amuse Tyler?”, and it became very easy.

Three opinions that may amuse MR readers:

1. Peter Thiel has said: “We wanted flying cars, instead we got 140 (280) characters.” Thiel is wrong: 280 characters are much, much better than flying cars. Twitter is misunderstood as being an online service; it’s merely the online component of a much improved offline experience. Twitter DM’s are a superpower, one of the most valuable ways of connecting people ever invented. More on one way of using Twitter here.

2. Movies are primarily a visual form; movie criticism and the popular conversation about movies are primarily a literary form, and informed by literary sensibilities. This is why good movies such as Transformers are so underrated. People who dismiss such movies are mostly revealing their own ignorance.

3. Many corners of the internet have a culture of judgement or argument. Typical subtexts in online conversation are: is this good or bad? What’s wrong with it? But until and unless healthy conversational norms are formed, argument and judgement are mostly useless status-seeking by participants. Much better is a “Yes, and” culture.

Three books or papers which should be better known:

1. Elinor Ostrom’s book Governing the Commons.  Ostrom dismantles the market / government dichotomy, sketching out ways common pool resources (and, to some extent, public goods) can be provided using non-market, non-government solutions.

2. Alex Tabarrok’s paper introducing dominant assurance contracts. Cryptocurrencies have huge potential as a way of creating entirely new types of market, using ideas like this. This potential is mostly unrealized to date.

3. Bret Victor on Media for Thinking the Unthinkable.

Blog posts don’t really get going until about 5,000 words in. Here are three favourites of mine:

1. Thought as a Technology, on how imaginative designers invent fundamentally new modes of thought.

2. If correlation doesn’t imply causation, then what does?

3. Using Artificial Intelligence to Augment Human Intelligence (with Shan Carter).

Despite the fact I’m well short of 5,000 words, I’ll stop here.

You can follow Michael on Twitter here.