The most controversial claim in *Stubborn Attachments*

by  Tyler Cowen

Except that the claim generates virtually no controversy.  I argue that moral comparisons are possible only within the “cone” of an episode of (potentially) sustainable economic growth.  So you can compare a growth-maximizing policy to a non-growth-maximizing policy, and judge the former to be superior, at least subject to human rights constraints.  It is within that realm that (some) aggregation problems can be solved.

You cannot, within my framework, ask how many chicken lives are equal to a cow life, or for that matter to a human life.

You cannot resolve the Repugnant Conclusion, or many issues of scale.  Here is some further relevant discussion.

You cannot ask if the presence of highly populated alien civilizations would raise or lower the import of existential risk for humans.  (For external reasons I think it lowers the import of existential risk.)

You cannot readily answer any question about the potential moral import of living in a simulation.

I am not saying those questions must be discarded, only that they are much harder to answer.  And perhaps we won’t make much progress on them at all.  At some point “simple pragmatism” will have to step in.  “Are we living in a simulation?  eh!  What’s for breakfast!?”

This is one way in which my framework differs from that held by many Effective Altruists.

How to fix the administrative state

by  Tyler Cowen in

An MR reader request:

You are appointed to the 24 DeSantis cabinet with the task of “fixing the administrative state”. Republicans have a very large Congressional majority. What do you try to do?

I will outsource this one to James Broughel, who works with me at Mercatus:

My main recommendation to a DeSantis cabinet would be a revival of the regulatory budget idea, which began under Trump but has been put on hold by Biden. The Harvard Journal of Public Policy put out a symposium recently on regulatory budgets. It appeared in their online edition and I was a contributor. You can find the link here.

https://www.harvard-jlpp.com/a-symposium-on-regulatory-budgeting/

Personally, I’d like to see an expanded reg budget, with more economic analysis and a reduction goal of some kind, like Virginia and Ohio have recently set. My paper in the series goes into a lot of detail on those state reforms.

I will meta-rationally agree.

Monday assorted links

by  Tyler Cowen

1. T. Rex skeleton for sale.  No, wait…fossil plagiarism! (NYT)

2. Justin Fox on Jacob Soll (NYT, yikes).

3. Why are colleges and universities so encouraging on-line gambling? (NYT, yikes)

4. Sam Hammond on EA.  And a redux of the earlier link, now all the more appropriate, on Quakerism and Effective Altruism.

5. A road trip through all the Springfields.

6. Pricing the NHS in Scotland.

Which country or region has been part of the most empires?

by  Tyler Cowen in

Here is one answer (to a slightly different question) from Reddit:

Asia Minor/Anatolia might be the region which have seen most empires. For example: Akkadians, Hittites, Persians, Alexander’s Empire, Seleucids, Roman Empire, Parthians, Byzantine Empire, Sassanids, Arabians, Seljuks, Mongols and Ottomans.

I think first of Romania.  They have been part of the Roman empire, Kingdom of Hungary, the Ottoman empire, various Habsburg monarchies and empires, the Third Reich empire, the Soviet bloc, and the European Union.

Who else might be a contender for this designation?

The FTX Debacle ELI5

by  Alex Tabarrok in

Here’s my high-level explanation of the FTX crash.

Imagine that I own a house and I create a million coins representing the value of the house. I give half of the coins to my wife. I then sell one of my coins to my wife for $10. Now the house has a nominal value of $10 million dollars and my wife and I each have assets worth $5 million. Of course, no one is likely to buy my house for $10 million or lend me money based on my coin wealth but suppose I now get my friend Tyler to buy a coin for $15. Tyler says why would I want to buy your s!@# coin! To encourage Tyler to buy I give him a side-deal that is not very public. Say an extra 5% of our textbook royalties. Tyler buys the coin for $15. Now the coins have gone up in value by 50%. My wife and I each have $7.5 million. Other people may want to get in while they can—Tyler bought in! Are you in? I’m in!

Now if it’s not obvious, I am SBF in the analogy, and my wife is Alameda run by his sometimes girlfriend Caroline Ellison. Who is Tyler?—the seeming outsider who gets a kind of under-the-table deal to pump SBF’s coins? One possibility, is Sequoia a venture capitalist firm who invested in FTX, SBF’s house, while at the same time FTX invested in Sequoia. Weird right? Tyler in this example is also a bunch of firms that Alameda invested in but which were then required to keep their funds at FTX. Many other possibilities exist.

Another relevant point to our analogy is that there are one million coins but only a handful of them are traded, the handful that are traded are called the float. Similarly, many crypto coins were created with emissions schedules where only a few coins were released, the float, with a majority of the coins “locked” and only released over time. Keeping the price high, and thus the imputed value of the stock high, meant you only had to control the float.

Ok, so far this is crazy but despite nominal values in the millions a relatively small amount of real money has actually changed hands. But suppose that I now open a bank or an exchange. People want to bank with me since I have clearly shown that I know how to get wealthy! Now the money coming into the exchange is real money and it’s a bull market so when people check their accounts everything looks great, everyone is making money.

Suppose I take some of these assets and lend them to my wife for her to take speculative bets on. Is this illegal? Well, it’s actually hard to say. A bank is supposed to make loans. It’s more complicated with an exchange. Maybe it’s illegal, maybe not. After all when I lend assets to my wife I can say that there was lots of collateral. What collateral? Well remember my wife has $7.5 million in coins so I am lending say $3 or $4 million which is backed by twice as much collateral—that looks safe, right? Actually, it’s even better since she is going to invest the assets in other assets, unfortunately other coins not the S&P500, but now there is even more collateral. Everything looks safe.

Importantly, if the assets my wife is investing in are going up in price—she is getting very, very rich. She borrowed billions and keeps all the profits on the upside. Give me a house of assets to stand on and with leverage I will rule the earth! Moreover, the more prices go up, the safer this trade looks since the collateral is increasing in value. Also, my wife and I can coordinate on which coins to buy. She buys and then I list the coins on my exchange and offer them to all my customers. More demand, more price appreciation, more demand. My wife decides to borrow even more, since the trade is working so well.

Ok, now we get to the end of 2021 and what happens? After a massive run up in prices, crypto price start dropping.* Other firms in the space including Voyager and BlockFi start to come under pressure because of the TerraUSD-Luna collapse in May of 2022. Now, the bets aren’t starting to look so good. So what do I do. Either I come clean and reorganize or double down. It looks like SBF doubled down. More borrowing and more big bets. Amazingly, SBF offered to buy Voyager and BlockFi and bail them out. At the time, this looked like a visionary move to save crypto. Finance experts compared SBF to JP Morgan, the private banker who took big bets in 1907 to reestablish confidence like a proto-central bank. What we learned later, however, was that SBF owed these firms money and if they started to demand payment that would put pressure on his collateral, the coins on the house that we talked about earlier. So SBFs efforts to buy these firms were an effort to keep his own weakness hidden. Indeed, as people start to sell their coins, Alameda had to step in to buy, to keep the price up.

Eventually, as people began to look more closely at the assets of Alameda and FTX they realized that many of the numbers were huge stock-valuations made on tiny floats–not just the original house coins but also many of the coins, like Serum, bought by Alameda as investments. And once people realized that, they ran to get out before the house burned down. Now everything works in reverse—a $10 trade goes to $1 and your valuation is cut by billions overnight. We also get fire sales—as firms try to sell assets to meet their customer demands the prices of those assets fall which makes people sell other assets and so the contagion spreads (as described in Modern Principles).

Ok, final analogy. Suppose to help me run my house I invite over a bunch of friends and we do a lot of drugs and hook up together and suppose that none of us really knows anything about accounting or financial controls.

Well that about covers it.

N.B. Much of this story is familiar. The assets involved were crypto tokens but they could have been fiat currencies, internet stocks or mortgage backed securities. The new and original aspects of cryptofinance such as decentralized consensus, crypto wallets, and automated marker makers continue to work well. Unfortunately, these fine distinctions are not likely to be widely understood.

—

*You might wonder why crypto prices started dropping. One important reason is macroeconomic, rising interest rates. When interest rates are very low a dollar in the far future is worth almost as much as a dollar today. Thus, in a regime of low interest-rates, crypto and other projects with (speculative) long-run payoffs could be valued highly. As interest rates rose, however, long-run speculative returns began to look much less attractive than say T-bills and money flocked out of assets in the long-run sector causing prices to plummet.

Addendum: Drawing on many excellent sources including Matt Levine, the FT, and Milky Eggs.

Favorite fiction of 2022

by  Tyler Cowen in

With translations from foreign fiction and also differing publication dates in the UK, it is hard to classify some of these.  But they are of recent vintage, I did read them in 2022, and I found them rewarding:

Olga Tokarczuk, The Books of Jacob.

Claire Keegan, Small Things Like These.

Hervé LeTellier, The Anomaly: A Novel.

Paradais, by Fernanda Melchor, Spanish only.

Paulo Scott, Phenotypes.

Helen DeWitt, The English Understand Wool.

What am I leaving off the fiction list?  The non-fiction list will be coming soon.

What should I ask Tom Holland?

by  Tyler Cowen in

I will be doing a Conversation with the author, not the actor:

Thomas Holland FRSL (born 5 January 1968) is an English author who has published best-selling books on topics including classical and medieval history and the origins of Islam.

He has worked with the BBC to create and host historical television documentaries, and presents the radio series Making History.

His Wikipedia page presents much more.  So what should I ask?

Africa’s Megalopolis

by  Alex Tabarrok in

An interesting piece in The Guardian by Howard French on Africa’s megalopolis and the difficulties of pulling together five countries with very different governments and colonial histories:

There is one place above all that should be seen as the centre of this urban transformation. It is a stretch of coastal west Africa that begins in the west with Abidjan, the economic capital of Ivory Coast, and extends 600 miles east – passing through the countries of Ghana, Togo and Benin – before finally arriving at Lagos. Recently, this has come to be seen by many experts as the world’s most rapidly urbanising region, a “megalopolis” in the making – that is, a large and densely clustered group of metropolitan centres.

…In just over a decade from now, its major cities will contain 40 million people. Abidjan, with 8.3 million people, will be almost as large as New York City is today. The story of the region’s small cities is equally dramatic. They are either becoming major urban centres in their own right, or – as with places like Oyo in Nigeria, Takoradi in Ghana, and Bingerville in Ivory Coast – they are gradually being absorbed by bigger cities. Meanwhile, newborn cities are popping into existence in settings that were all but barren a generation ago. When one includes these sorts of places, the projected population for this coastal zone will reach 51 million people by 2035, roughly as many people as the north-eastern corridor of the US counted when it first came to be considered a megalopolis.

But unlike that American super-region, whose population long ago plateaued, this part of west Africa will keep growing. By 2100, the Lagos-Abidjan stretch is projected to be the largest zone of continuous, dense habitation on earth, with something in the order of half a billion people.

How many yottabytes in a quettabyte?

by  Tyler Cowen

Extreme numbers are getting some new names (there is no great stagnation):

By the 2030s, the world will generate around a yottabyte of data per year — that’s 1024 bytes, or the amount that would fit on DVDs stacked all the way to Mars. Now, the booming growth of the data sphere has prompted the governors of the metric system to agree on new prefixes beyond that magnitude, to describe the outrageously big and small.

Representatives from governments worldwide, meeting at the General Conference on Weights and Measures (CGPM) outside Paris on 18 November, voted to introduce four new prefixes to the International System of Units (SI) with immediate effect. The prefixes ronna and quetta represent 1027 and 1030, and ronto and quecto signify 10−27 and 10−30. Earth weighs around one ronnagram, and an electron’s mass is about one quectogram.

This is the first update to the prefix system since 1991, when the organization added zetta (1021), zepto (10−21), yotta (1024) and yocto (10−24). In that case, metrologists were adapting to fit the needs of chemists, who wanted a way to express SI units on the scale of Avogadro’s number — the 6 × 1023 units in a mole, a measure of the quantity of substances. The more familiar prefixes peta and exa were added in 1975 (see ‘Extreme figures’).

Today, the driver is data science, says Richard Brown, a metrologist at the UK National Physical Laboratory in Teddington. He has been working on plans to introduce the latest prefixes for five years, and presented the proposal to the CGPM on 17 November. With the annual volume of data generated globally having already hit zettabytes, informal suggestions for 1027 — including ‘hella’ and ‘bronto’ — were starting to take hold, he says. Google’s unit converter, for example, already tells users that 1,000 yottabytes is 1 hellabyte, and at least one UK government website quotes brontobyte as the correct term.

Here is the full story, via Michelle Dawson.

The culture that is New Jersey

by  Tyler Cowen in

The digital alerts that debuted on Garden State highway signs last month may have displayed a bit too much Jersey attitude.

As of Wednesday afternoon, messages such as “Get your head out of your apps” and “mash potatoes — not your head” are no longer visible on the New Jersey Department of Transportation’s network of 215 permanent digital alert signs throughout the state. Similar messages have been used in other states, including Utah, Pennsylvania, Delaware, California, and Tennessee.

“The FHWA [Federal Highway Administration] has instructed us to cease posting these creative safety messages,” Stephen Schapiro, NJDOT’s press manager, said in an email Wednesday afternoon.

In a statement, the FHWA said that it “is aware of the changeable message signs and has reached out to NJDOT.” Representatives from FHWA did not comment on why New Jersey was told to stop using the messages.

Here is the full story, via Mike Doherty.

Can AI make crypto safer?

by  Tyler Cowen in

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

To the extent crypto clearinghouses and exchanges have a future, they too will be regulated, and this is all the more certain after the FTX fiasco. Then the question becomes: How many of the (supposed) efficiencies of crypto would remain under such a regulated regime? After all, the original point of crypto was to lower the transaction costs associated with traditional financial institutions. Intermediary costs, reserve requirements and legal compliance costs could more than reverse those advantages.

Intermediaries nonetheless have proliferated in crypto, for some obvious reasons. Quite simply, most people do not want to have to deal with the trouble of running their own crypto wallet, safeguarding their password and figuring out how the system works. It is daunting, even for people sophisticated about finance or technology.

Now enter AI. New AI systems are getting very good at voice recognition, at executing commands, at understanding text, and even at writing their own computer programs. Is it such a stretch to imagine an AI that makes a crypto wallet easy to use?

You would still hold your crypto in your own wallet, and would not need to trust any intermediary, except of course for the AI itself. At will, you would give your AI desired commands. Open a wallet for me. Send 0.1 Bitcoin to my brother. Convert all my accounts into cash. And so on.

In essence, the AI would ease your interactions with the system, but without creating a separate corporate entity between you and your funds. If the AI company went bankrupt, your funds would still be in your wallet. Probably the AI program would manage your personal finances more broadly, not just your crypto wallet.

You might wonder whether you could trust the company supplying the AI. But that question is answered relatively easily with another: Do you trust your smartphone or computer to do online banking? For the vast majority of people, the answer is yes. But if those companies built software programs to intercept or redirect consumer funds flows for their own purposes, those attempts would not last a day and the companies would rapidly be out of business and in court.

There are some obvious specific causes behind the FTX debacle, but it also reflects some more general problems with the clearinghouse/exchange business model.