Explaining NFTs

Writing at the Harvard Business Review, Steve Kaczynski and Scott Duke Kominers have en excellent explanation of how NFTs create value–the best I have read.

NFTs don’t just provide a kind of digital “deed.” Because blockchains are programmable, it’s possible to endow NFTs with features that enable them to expand their purpose over time, or even to provide direct utility to their holders. In other words, NFTs can do things — or let their owners do things — in both digital spaces and the physical world.

In this sense, NFTs can function like membership cards or tickets, providing access to events, exclusive merchandise, and special discounts — as well as serving as digital keys to online spaces where holders can engage with each other. Moreover, because the blockchain is public, it’s even possible to send additional products directly to anyone who owns a given token. All of this gives NFT holders value over and above simple ownership — and provides creators with a vector to build a highly engaged community around their brands.

It’s not uncommon to see creators organize in-person meetups for their NFT holders, as many did at the recent NFT NYC conference. In other cases, having a specific NFT in your online wallet might be necessary in order to gain access to an online game, chat room, or merchandise store. And creator teams sometimes grant additional tokens to their NFT holders in ways that expand the product ecosystem: owners of a particular goat NFT, for example, were recently able to claim a free baby goat NFT that gives benefits beyond the original token; holders of a particular bear NFT, meanwhile, just received honey.

Thus owning an NFT effectively makes you an investor, a member of a club, a brand shareholder, and a participant in a loyalty program all at once. At the same time, NFTs’ programmability supports new business and profit models — for example, NFTs have enabled a new type of royalty contract, whereby each time a work is resold, a share of the transaction goes back to the original creator.

This all means that NFT-based markets can emerge and gain traction quickly, especially relative to other crypto products. This is both because the NFTs themselves have standalone value — you might buy an art NFT simply because you like it — and because NFTs just need to establish value among a community of potential owners (which can be relatively small), whereas cryptocurrencies need wide acceptance in order to become useful as a store of value and/or medium of exchange.

Read the whole thing. Kaczynski and Kominers also offer good advice to firms and organizations interested in creating NFTs. It remains true, of course, that there is a lot of foolish and wasted spending in the space–that’s typical of most new asset classes where the rush to get into the space throws up a lot of noise making the signal more difficult to detect.

Addendum: Don’t forget you can buy the Marginal Revolution NFT! You will be purchasing from the new owner (we sold it) but I believe we get a royalty which also illustrates an advantage of the NFT model.

Image: SupDucks6484.

Connecticut fact of the day

Over the last two decades, the number of managerial and professional staff that Yale employs has risen three times faster than the undergraduate student body, according to University financial reports. The group’s 44.7 percent expansion since 2003 has had detrimental effects on faculty, students and tuition, according to eight faculty members.

In 2003, when 5,307 undergraduate students studied on campus, the University employed 3,500 administrators and managers. In 2019, before the COVID-19 pandemic’s effects on student enrollment, only 600 more students were living and studying at Yale, yet the number of administrators had risen by more than 1,500 — a nearly 45 percent hike. In 2018, The Chronicle of Higher Education found that Yale had the highest manager-to-student ratio of any Ivy League university, and the fifth highest in the nation among four-year private colleges.

The full article offers a number of competing explanations for this development.  Perhaps all of them are true!

Real consumption must at some point fall

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

The best way to adjudicate competing claims about today’s economy is to consider opportunities for consumption. Over much of the last two years, labor supply contracted significantly, in large part due to the pandemic. That means the economy produced less. If you produce less, sooner or later you have to consume less, too. And if you consume less, you will be dissatisfied with economic conditions, especially in America, where the consumer typically is considered to be king (or queen).

There isn’t any way around this basic logic, no matter what the data say. Even if measured consumption is currently high, at some point it will have to fall relative to expectations. And indeed there are a host of problems, with shortages, supply-chain delays and a sluggish service sector. In a normal year, more Americans would have seen “Dune” on the big screen and gone to concerts. Americans are not quite able to get what they want, and that is obscured in the aggregate statistics.

The biggest messenger for consumption losses is the rate of consumer price inflation, which measured at 6.2% on last reading. Not so many Americans expect to get an offsetting raise…in return, and above-average inflation is likely to continue for a year or two, some would say for longer. So real wages for many millions of Americans will be noticeably lower for the near future, too. That will translate into lower levels of consumption, with the timing of those losses depending on the spending and borrowing plans of individual households.

Add to all this growing and unprecedentedly high debt for the federal government, plus unfunded liabilities in Medicare and Social Security.

Even if they don’t understand the exact economic logic here, most Americans grasp the common-sense truth that inflation and deficits are bad — for them, for their real wages, and for their future opportunities. They are happy to have higher savings in the bank, but they see the treadmill turning ever faster.

Some parts of the labor shortage also qualify as a decline in consumption. One reason for the “great resignation” is that people cannot get the kinds of jobs they want. That too is a manner of enduring lower consumption, even though it does not show up in consumption statistics. It’s not just the unemployed, as many people took jobs they were only marginally happy with. A job might involve a higher risk of Covid exposure than a worker feels comfortable with, or an internship might take place in a largely empty office.

Here is the James Brown song “The Payback.”

China fact of the day

Global concerns over inflation were also inflamed by data released earlier on Wednesday, showing that Chinese producer price inflation — the measure of what businesses pay each other for goods — rose 13.5 per cent in October from the same time last year, its biggest leap in 26 years as factories absorbed higher energy prices.

Here is more from the FT, mostly about domestic U.S. inflationary pressures.

Wednesday assorted links

1. Can a submerged Tuvalu still be a state?

2. Your periodic reminder to read Matt Levine.

3. Ross Douthat on why we need new universities (NYT).

4. Ten podcast episodes of Agnes Callard and Robin Hanson.  With transcripts, and here is Robin’s overview of the series, which is also a very good post on differing mental models.  Self-recommending!

5. New Doc Watson box set, and WSJ review here.  In fact, in today’s links, 4 out of the 5 are self-recommending.

Yglesias on CRT

Matt Yglesias has an excellent post on schooling and politics emphasizing three points. First, there is a lot of diversity, equity, inclusion (DEI) nonsense which the schools are using to train teachers and administrators. Second, at the same time the school administrators/teacher’s unions are generally ignoring the very real cost to children and parents of the school closures, including the costs of a widening racial gap. Third, the schools are stigmatizing testing under the guise of promoting equity but in reality because the teacher’s unions know that when you test children you learn that not all teachers are equally capable.

[The DC Public Schools] also recommend that people read a bunch of Robin DiAngelo books and brag that “more than 2,000 DCPS staff have participated in Courageous Conversation training.” But is Courageous Conversation training a good idea? This NYT Magazine profile of the company and its founder made it sound pretty bad:

Singleton, who holds degrees from the University of Pennsylvania and Stanford, and who did stints in advertising and college admissions before founding what’s now known as Courageous Conversation in 1992, talks about white culture in similar ways. There is the myth of meritocracy. And valuing “written communication over other forms,” he told me, is “a hallmark of whiteness,” which leads to the denigration of Black children in school. Another “hallmark” is “scientific, linear thinking. Cause and effect.” He said, “There’s this whole group of people who are named the scientists. That’s where you get into this whole idea that if it’s not codified in scientific thought that it can’t be valid.” He spoke about how the ancient Egyptians had “ideas about how humanity works that never had that scientific-hypothesis construction” and so aren’t recognized. “This is a good way of dismissing people. And this,” he continued, shifting forward thousands of years, “is one of the challenges in the diversity-equity-inclusion space; folks keep asking for data. How do you quantify, in a way that is scientific — numbers and that kind of thing — what people feel when they’re feeling marginalized?” For Singleton, society’s primary intellectual values are bound up with this marginalization.

I don’t think Frankfurt School Marxists are going to take over society by injecting these ideas into K-12 schools or anything like that. What I so think is that time and money is being wasted on initiatives that are run by people who are somewhere between stupid and fraudulent.

And it’s important to take that seriously, not just because someone somewhere may take these goofy ideas seriously (see prior commentary about Tema Okun), but because fiscal tradeoffs are real. Dollars spent on DEI trainings that come with zero proof of efficacy are dollars that can’t be invested in things like D.C.’s successful teacher bonus pay program, updating school air conditioning, improving school lunches, reducing kids’ exposure to air pollution and lead poisoning, or any of the other various interventions that have decent evidence behind them.

Of course when I say that investing in higher quality school lunches is good for kids’ learning, what I mean is that it’s good as measured on standardized tests.

Standardized testing has become a weird discourse flashpoint, but I think everyone agrees that you can, in principle, assess someone’s competence in a given subject area with a test. And if you want to compare different people, you need to give them the same test. It’s only by making comparisons across classrooms and across time that we are able to persuasively demonstrate that particulates are bad for school performance, healthy meals are good for school performance, and air conditioning improves school performance in the summer.

All this would be uncontroversial, I think, except teachers’ unions don’t like the idea of assessing teachers based on their job performance.

Read the whole thing and subscribe to Slow Boring.

The gender gap in preferences

This is taken from new work by Ángel Cuevas, Rubén Cuevas, Klaus Desmet, and Ignacio Ortuño-Ortín.  Here is the abstract:

This paper uses information on the frequency of 45,397 Facebook interests to study how the difference in preferences between men and women changes with a country’s degree of gender equality. For preference dimensions that are systematically biased toward the same gender across the globe, differences between men and women are larger in more gender-equal countries. In contrast, for preference dimensions with a gender bias that varies across countries, the opposite holds. This finding takes an important step toward reconciling evolutionary psychology and social role theory as they relate to gender.

Here is a bit more:

Our premise is that innately gender-specific interests should mostly conform to evolutionary psychology theory, whereas other interests should mostly conform to social role theory. We find strong evidence consistent with this premise.

And some detail on the categories:

We say that an interest is gender-related if it displays a systematic bias toward the same gender across the globe. More specifically, if in more than 90% of countries an interest is more prevalent among the same gender, then we refer to it as gender-related. For example, “cosmetics” and “motherhood” are universally more common among women, whereas “motorcycles” and “Lionel Messi” are universally more common among men. Conversely, we say that an interest is non-gender-related if its gender bias varies across countries. More specifically, if an interest is more common among men in at least 30% of countries and more common among women in at least another 30% of countries, then we refer to it as nongender-related. For example, “world heritage site” and “physical fitness” do not display a systematic gender bias across the globe.

And indeed everything works out as one ought to expect.  In the more gender-equal countries, men have “more male” interests, and the women have “more female” interests.  But for the less gender-specific interests, greater equality ends up resulting.  As for magnitude:

the standardized β is 30% when taking 9 dimensions, meaning that a one standard deviation increase in gender equality increases the difference in preferences between men and women by 30% of its standard deviation. The corresponding standardized β when taking 68 dimensions is 19%. Overall, the evidence points to a positive relation between gender equality and the difference in interests between men and women.

Hope you all are interested in this one!

Tuesday assorted links

1. Interview with Chris Dixon.

2. “But the Singaporean government said Monday that it will no longer cover the medical costs of people “unvaccinated by choice,” who make up the bulk of remaining new covid-19 cases and hospitalizations in the city-state.

3. Matt Clancy on the Weitzman model and combinatorial economic growth.

4. Crisis worsens at Poland-Belarus border.

5. Directly refuting economic fallacies is not such an effective means of communication.

Germany fact of the day

German industrial output in August was about 9% below its 2015 level, compared with a 2% increase for the eurozone as a whole, according to the European Union’s statistics agency. In Italy, whose manufacturers are closely tied with Germany’s, industrial output rose about 5% over the six-year period…

The weakness in Germany’s economy predates the Covid-19 pandemic. German industrial output and exports began stagnating in 2017, posing a problem for an economy where some 30% of jobs and output are tied to overseas demand, roughly four times the share in the U.S.

Here is more from the WSJ.

The Role of Property Tax in California’s Housing Crisis

From Paul J. Fisher, who is on the job market from University of Arizona:

California faces a shortage of housing according to politicians, activists, and residents. In his paper, I leverage differential exposure to the Proposition 13 tax laws to understand the impact of this policy on the production of housing in Southern California. Proposition 13 restricts property tax growth as long as the owner doesn’t sell or redevelop the property, which allows me to exploit differences in market conditions at the time of prior purchase to identify the effect of these property tax limits on property redevelopment. I find that Proposition 13 discourages redevelopment and sales. In a dynamic discrete choice model of land use, I find that adopting a land value tax that replaces Proposition 13 based property taxes would increase housing production by 35% generating a similar or greater amount of new housing as other policies under consideration in California.

Patrick Wolff, telephone!

The”hot hand” depends on location

Here is new research by Robert M. Lantis and Erik T. Nesson:

Do basketball players exhibit a hot hand? Results from controlled shooting situations suggest the answer is yes, while results from in-game shooting are mixed. Are the differing results because a hot hand is only present in similar shots or because testing for the hot hand in game situations is difficult? Combining repeated shots in a location and shots across locations, the NBA 3-Point Contests mimics game situations without many of the confounding factors. Using data on the 1986-2019 contests, we find a hot hand, but only within shot locations. Shooting streaks increase a hot hand only if a player makes his previous shot and only within locations. Even making three shots in a row has no effect on making the next shot if a player moves locations. Our results suggest that any hot hand in basketball is only present in extremely similar shooting situations and likely not in the run-of-play.

This YouTube video, of Stephen Curry, is one of the greatest videos of all time.

Monday assorted links

1. Why are crypto prices so volatile? (Diana Joy Xiuyao Yang on the job market from UC Irvine, note that crypto is not her main paper).

2. Dissecting economic growth in Uruguay (by Natasha Che).

3. Does disdain for women increase the pay gap? (Elizabeth Malony, job market paper from UCI).

4. Licensed to flesh out the James Bond world but without 007.  Meh.  What is next?: “Q equips Spiderman vs. Iron Man”?

5. Different stuff in the bill by the way composting is infrastructure.

6. The doctors solved for the equilibrium.

7. Even the mainstream admits that the CDC remains broken.

The University of Austin

A new university is being founded.  Here is part of the statement from its new president, Pano Kanelos:

As I write this, I am sitting in my new office (boxes still waiting to be unpacked) in balmy Austin, Texas, where I moved three months ago from my previous post as president of St. John’s College in Annapolis.

I am not alone.

Our project began with a small gathering of those concerned about the state of higher educationNiall Ferguson, Bari Weiss, Heather Heying, Joe Lonsdale, Arthur Brooks, and Iand we have since been joined by many others, including the brave professors mentioned above, Kathleen Stock, Dorian Abbot and Peter Boghossian.

We count among our numbers university presidents: Robert Zimmer, Larry Summers, John Nunes, and Gordon Gee, and leading academics, such as Steven Pinker, Deirdre McCloskey, Leon Kass, Jonathan Haidt,  Glenn Loury, Joshua Katz, Vickie Sullivan, Geoffrey Stone, Bill McClay, and Tyler Cowen [TC: I am on the advisory board].

We are also joined by journalists, artists, philanthropists, researchers, and public intellectuals, including Lex Fridman, Andrew Sullivan, Rob Henderson, Caitlin Flanagan, David Mamet, Ayaan Hirsi Ali, Sohrab Ahmari, Stacy Hock, Jonathan Rauch, and Nadine Strossen.

You can follow the school on Twitter here.