Just remember the password people!
I have some tricks for doing this, which I have scrawled in the inner part of the margin of the manuscript. Here is Matt Levine on Bitcoin:
I half-joked yesterday that “perhaps the cost of bitcoin storage — keeping your private key in a vault, worrying about hackers, etc. — is so high that arbitrageurs need to charge $1,000 for a month of it,” but maybe it’s the right explanation? Everything I read about bitcoin storage is utterly exhausting. “A private key printed out on a sheet of paper, cut into pieces, and distributed among family members who don’t know how to put it back together; an encrypted file loaded on a USB stick and buried in the backyard; a password committed only to memory;” a private key engraved on a metal plate and stored in a safe; a safe deposit box at a bank; an account at an exchange that gets hacked and loses its customers’ bitcoins. Buying bitcoin futures is a way to get exposure to bitcoin and avoid the bitcoin-storage problem: You never have to store bitcoins because you never own bitcoins; you just get paid dollars for the amount that bitcoin goes up. But the storage problem doesn’t go away; you just offload it to the arbitrageur who provides you the bitcoin exposure. Maybe the arbitrageur needs to charge you $1,000 to cover her storage costs. If you think these markets are efficient, then the gap between the futures and the spot is telling you how much — in out-of-pocket expenses, in theft risk, in psychic pain — it costs to store bitcoin.
Here is more from Matt:
If I told you that there was an asset that is an excellent store of value even in inflationary conditions, how much of your gold portfolio would you reallocate to that asset? One percent? Three percent? Fifty percent? All of it? Sure, whatever, if you believed me. But we are just assuming that bitcoin actually fulfills that function, in order to decide its valuation. Bitcoin has had a pretty good run, but so far it’s a short one; there’s no historical experience of bitcoin retaining its value in periods of global financial crisis or rich-world inflation or even just, you know, people not talking about bitcoin for a minute. So far the evidence that bitcoin is a good store of value consists of the fact that bitcoin’s price keeps going up. That is not bad evidence! But it is not a ton of evidence to build a store-of-value valuation around.
If Matt told me, I would allocate at least two percent.
Tuesday assorted links
1. The Western elite from a Chinese perspective.
2. Podcast with NPR Planet Money.
3. Bershidsky on Bitcoin futures.
4. “The timing of the agreement also coincides with speculation that India, Japan, the US and Australia will soon formally reconvene the dormant Quadrilateral grouping first initiated in 2007 as a counterbalance to China’s rising dominance in Asia.” Link here.
5. What causes the anti-Flynn effect?
The social origins of inventors
That is a new paper by Aghion, Akcigit, Hyytinen, and Toivanen, here is one brief excerpt:
In particular we see that IQ is by far the main characteristic for the probability of becoming an inventor in terms of the share of variation it explains, followed by parental education. These two groups of variables account for 66% and 16% of the overall variation captured by our model. In contrast, IQ plays a relatively speaking much more minor role for becoming a medical doctor or a lawyer. Parental education is the main explanatory variable for the probability of becoming a medical doctor or a lawyer (40% and 53%), with base controls and parental income also playing clearly more important roles than for inventors.
The paper offers many other points of value, and you will note the data are from Finland.
Switzerland is Prepared for Civilizational Collapse
More than any other country, Switzerland’s ethos is centered around preparing for civilizational collapse.
All around Switzerland, for example, one can find thousands of water fountains fed by natural springs. Zurich is famous for its 1200 fountains, some of them quite beautiful and ornate, but it’s the multiple small, simple fountains in every Swiss village that really tell the story. Elegant, yes, but if and when central water systems are destroyed these fountains are a decentralized and robust system for providing everyone with drinkable water.
The Swiss political system is also decentralized. If the central government fails, the Swiss might not even notice. The mountains and valleys also mean that Swiss towns and villages are geographically independent yet linked in a spider-web of robust connections.
Despite being at peace since 1815, Switzerland is prepared for war. Swiss males (and perhaps females in the future) are required to serve in the military (those who cannot, pay a special tax) creating a robust reservoir of trained citizens ready to serve in an emergency.
The Swiss have been tunneling the Alps for hundreds of years creating innumerable secret hideaways for people and stores.
As a further example of how ridiculously well prepared the Swiss are for any and all threats, there are things like hidden hydroelectric dams built inside of unmarked mountains so that in the event of mass bombings, they’ll still have electricity from these secret facilities. And, remember, these are the things the Swiss government has let us know about. It is thought that there are probably more fortifications and hidden goodies scattered about the country’s landscape. (ital. added, AT)
In addition, to thousands of military bunkers permeating the Swiss mountains there are several hundred thousand private and public fallout shelters the largest of which can hold some 20,000 people. Some of the largest installations have been decommissioned and even turned into museums but there is little doubt that they could be rapidly re-purposed.. As the Swiss continue to improve their already fantastic railway system it’s standard practice to convert old railway tunnels to security shelters.
Buried deep alongside the hydroelectric dams, shelters and food stores, the Swiss also have libraries ready to reboot civilization:
“In another [underground bunker], detailed instructions on how to build devices for reading all known data storage formats, even older formats like floppy disks, are kept, so that if that knowledge is otherwise lost, future generations can still decode our data storage devices to access the data within correctly. Essentially, the researchers involved in this particular project have attempted to create a “Rosetta Stone” of data formats and are using a ridiculously secure Swiss bunker as the storage point for that knowledge.”
Switzerland is famous for being the place to store wealth in times of crisis and that remains true today with a few twists. The old-rich store their gold in heavily guarded Swiss banks, the nouveau-riche store their bitcoins in Swiss underground bunkers built to withstand cyber- and nuclear attack:
It’s no surprise that Nassim Taleb likes Switzerland because this is a country that has made itself anti-fragile in order to survive the black swans of civilizational collapse.
Hat tip: Maxwell.
Bitcoin Is a Bit of a Miracle at Any Price
That is the title of my latest Bloomberg column. Rather than giving you the main argument, let’s instead cut to the end:
The real story of bitcoin is a heartening one of community. Less than 10 years ago, the bitcoin asset was worth virtually nothing, but a small group of people believed in it and worked tirelessly to promote it, and now the whole world is watching. It’s a tale at least as old as Christ and the Apostles. Maybe the bitcoin believers are as much of a miracle story as that of the brilliant inventor Satoshi.
The thing is, I don’t always believe in miracle stories of community, not in these days of declining governance and possibly fraying social order. Yet I’ve become emotionally involved in tracking the bitcoin price, perhaps because I realize that if one such miracle of “ex nihilo” creation can be sustained, others are on the way. I don’t think bitcoin is a bubble, but every morning I wake up doubting.
More broadly the piece considers what should be the appropriate price for Bitcoin.
*Exact Thinking in Demented Times*
Where?, I hear you asking. No, that is the title of a new book by Karl Sigmund and the subtitle is The Vienna Circle and the Epic Quest for the Foundations of Science. I enjoyed this book very much, though I don’t recommend it as a balanced introduction to its chosen topic. I liked it best for its whims and interstices:
1. The mathematician Richard von Mises (brother of economist Ludwig) was a patron of Rilke, and he established a foundation for the sole purpose of supporting Robert Musil.
2. Carl Menger was planning on writing a philosophical treatise, and one which would have had a “Vienna Circle” anti-metaphysical slant.
3. Arguably Karl Popper learned the most from a polymathic cabinetmaker he was apprenticed to in his youth.
4. Friedrich Wieser had supported Mussolini, but a young Oskar Morgenstern, in his diary, complained that Wieser was too liberal.
5. Morgenstern later became a confirmed liberal, and he also remarked a few times that game theory was for the social sciences completing the research program of Kurt Gödel.
6. Karl Popper complained that Wittgenstein threatened him, in a lecture, with a poker. It is not obvious this was the case.
7. I came away from my read wanting to sample more Ernst Mach, more Moritz Schlick, and thinking Otto Neurath was perhaps badly underrated.
Note that most of the book is more serious than this, and less concerned with economists, much more with math and science and some psychoanalysis and positivism too.
Monday assorted links
Are corporate jets a waste of money?
Almost certainly not:
While shareholders have strong incentives to limit value-destroying perquisite consumption, it is challenging to identify such perquisites. Many corporate assets that enable forms of perquisite consumption also provide operational benefits. Corporate jets represent a potent example. We find business-related flights increase firm performance. Our results also highlight the channels through which jet use can either enhance or destroy firm value. Consistent with the benefits of information gathering and monitoring, firms with soft and complex information that is difficult to transmit remotely are more likely to fly to company subsidiaries and plants, and these flights positively affect firm value. In contrast, among firms with weak governance structures where flights are more likely motivated by agency factors, jet use is more likely to be value-decreasing. The ability to differentiate has important implications in today’s activism environment.
The full piece is by Lian Fen Lee, Michelle Lowry, and Susan Shu, via the excellent Kevin Lewis.
Occupational licensing is a barrier to interstate migration
…we find that the between-state migration rate for individuals in occupations with state-specific licensing exam requirements is 36 percent lower relative to members of other occupations. Members of licensed occupations with national licensing exams show no evidence of limited interstate migration.
That is from Janna E. Johnson and Morris E. Kleiner in the NBER working paper series. Here are ungated copies.
New Zealand fact of the day
…a recent report by Yale University concluded the country is suffering the highest rate of homelessness in the developed world with 40,000 people, nearly 1 per cent of the population, living on the streets or in emergency housing or substandard shelters.
…“The big change in homelessness is the number of working families struggling to find homes and pay rent,” says Ms Rutledge, who adds the situation is the worst she has seen in her 13 years working in homeless services in Auckland. Nationwide, some 5,844 people were on the social housing waiting list in September, a 42 per cent increase on the same month two years ago.
This FT article indicates the country will respond by banning foreign purchases of Kiwi homes — I guess the country is too crowded to allow for an elastic supply response.
What is up with the new Brexit deal?
Most of the Tories are happy they found a semi-workable version of the deal. They pay a big divorce bill to the EU, have a long transition period, opt for “regulatory standardization with the EU” for the whole UK, as enforced by the need to avoid a hard border in Ireland, and over the longer term end up with a customs union and free trade agreement of Norway-like nature.
In other words, they pay a lot of money, lose a seat at the table, and don’t significantly increase the policy autonomy of the country. In the subsequent bargaining over the details, the EU still holds most of the cards. Here are a few observations:
1. This represents an almost complete “fold” of the pro-Brexit stance, though like so many other political issues of the Anglo-American day it has become more about exerting one’s will over the opposition than achieving a very particular exit path or even outcome. One group in British society has won quite a major victory in symbolic terms, namely it has been shown that the country has agreed to leave.
2. At this point, the chance of Brexit being reversed in the short term is very slim. The anti-Brexit forces know that if this deal falls apart, they could end up with something much worse. That said, the chances of a medium-term reversal may be higher. Come the next election, it will still feel as if the UK is in the EU. The transition period could be extended, and then extended again. And then…
3. With the current deal, assuming it sticks, the chance of the UK itself unraveling is small.
4. The remaining pro-Brexit case is simply that the UK has limited its entanglement with the EU legal system and a possible future of full federal union. That’s worth something, but still I am pro-Remain.
5. Real estate in Northern Ireland remains significantly undervalued.
6. the EU really has shown it has a fairly strong and indivisible commitment to the “Four Freedoms,” on migration much more than I would have expected. You can debate whether this makes the rest of the union more or less stable over the longer term, but for sure it does one of those two things.
Sunday assorted links
1. Is Spotify leading us to the new Muzak? I fear yes, how 2017 is that?
2. “By the end of my first year in China, I feel as if I am a one-person FDA.”
3. Does algorithmic trading reduce information acquisition?
4. Are avocado injuries a thing of the past?
5. Yet more correct Ross Douthat, on the baker case but also on America more generally (NYT).
6. Glitches in the new tax legislation.
7. Andrew Batson’s music picks.
8. Fifteen-minute video explanation of the greatest chess game ever played, by AlphaZero of course. #Zugzwang
Why is Switzerland Peaceful?
Switzerland is a highly diverse society, especially among language groups, and with immigration it is becoming even more diverse. Yet Switzerland is also very peaceful. Why? The answer offered in this paper Good Fences created by geography, I find somewhat depressing. I would focus more on political decentralization as an explanation, that too is a function of geography but unlike geography it can be transplanted. I’m in Switzerland this week:
We consider the conditions of peace and violence among ethnic groups, testing a theory designed to predict the locations of violence and interventions that can promote peace. Characterizing the model’s success in predicting peace requires examples where peace prevails despite diversity. Switzerland is recognized as a country of peace, stability and prosperity. This is surprising because of its linguistic and religious diversity that in other parts of the world lead to conflict and violence. Here we analyze how peaceful stability is maintained. Our analysis shows that peace does not depend on integrated coexistence, but rather on well defined topographical and political boundaries separating groups, allowing for partial autonomy within a single country.
In Switzerland, mountains and lakes are an important part of the boundaries between sharply defined linguistic areas. Political canton and circle (sub-canton) boundaries often separate religious groups. Where such boundaries do not appear to be sufficient, we find that specific aspects of the population distribution guarantee either sufficient separation or sufficient mixing to inhibit intergroup violence according to the quantitative theory of conflict. In exactly one region, a porous mountain range does not adequately separate linguistic groups and that region has experienced significant violent conflict, leading to the recent creation of the canton of Jura. Our analysis supports the hypothesis that violence between groups can be inhibited by physical and political boundaries. A similar analysis of the area of the former Yugoslavia shows that during widespread ethnic violence existing political boundaries did not coincide with the boundaries of distinct groups, but peace prevailed in specific areas where they did coincide. The success of peace in Switzerland may serve as a model to resolve conflict in other ethnically diverse countries and regions of the world.
Early thoughts on aviation
There was the ever-present worry that aircraft would make war even more horrific. Some called for the international control of aviation to prevent its misuse. A few even advocated the complete destruction of all aircraft on the grounds that even civilian machines could be adapted for war.
…At the opposite end of the spectrum were the enthusiasts who expected that soon everyone would be able to fly their own personal aircraft…As early as 1928, Popular Mechanics predicted a car that could be turned into a helicopter, but most commentators thought the autogyro was a better bet — although it did need a short horizontal run before take-off…As late as 1971, Isaac Asimov was still expecting that VTOL [vertical take-off and landing system] machines would eventually take the place of automobiles.
That is from Peter J. Bowler, A History of the Future: Prophets of Progress from H.G.Wells to Isaac Asimov.
One thing I learned from this book is that “money crank” Frederick Soddy was an early prophet of nuclear power, before many others understood the potential. I am reminded of how “socialist crank” [oceans of lemonade with ships pulled by dolphins] Charles Fourier once prophesied that all of Europe would be tied together by railways.
A simple theory of gene-culture coevolution, with reference to immigration
Are there genetic vulnerabilities for depression across cultures?
Genetic vulnerability differs substantially from country to country. East Asian contexts, for example, show a high prevalence of genes associated with depression. Yet, despite these vulnerabilities, they develop fewer cases of the disorder. One hypothesis is that genetic vulnerabilities have co-evolved with culture, creating extra protective factors (in this case, extra interdependence). However, when these people leave their cultural contexts, they have a higher risk of developing depression.
That is an interview with Yulia Chentsova-Dutton, associate professor of psychology at Georgetown, and a researcher in this area. You can imagine further applications of this mechanism. The interview has other interesting points, for instance:
What is the role of emotion regulation?
Emotion regulation is increasingly becoming understood as a core factor in all affective disorders. In western societies, we don’t see enough adaptive strategies like reappraisal: learning to tell yourself a different story that would eventually lead to different emotions. There is also not enough social regulation of emotion, which occurs by sharing our emotions with others. Research shows that cultures can facilitate functional regulation strategies. For example, Igor Grossmann’s work shows that Russians make rumination (generally considered a dysfunctional strategy) more functional by encouraging people to ruminate about the self from another person’s perspective, making rumination almost reappraisal-like in its quality.
Do read the whole thing.