Category: One-handed!

I bought Alfred Marshall’s Principles of Economics (1920) a few yeas ago, with the intention of reading it — a book central to economic thought and teaching for 30+ years — when time allowed. When I got around to it a few months ago, I was immediately overwhelmed by the useful and fascinating ways in which Marshall, who predated the arrival of the “mathturbation” trend that has made economics so useless, explored and explained economics.

A few months ago, I announced my “Marshall 2020 Project” to read the book, one chapter per week, in a reading club format. Thus, I set up a subreddit for the project (r/Marshall2020) in which I will open a discussion for each week’s chapter for others to add their comments on the material and react to each other.

Next week (13 Jan), we will begin with Chapter 1. I do not know how this will work exactly, how it will evolve with the material (I haven’t read the book) or adjust to everyone’s participation (I have never run — or participated — in such a project). Nevertheless, I think this will be a fun, engaging and enlightening experience — and it’s exactly the kind of project that I, as an academic, should be leading in this world of shallow outrage and short-term thinking.

My one-handed conclusion is that old books often contain important — and forgotten — insights that can help us think better about our contemporary lives.

So… see you next week?

Many economies around the world continue to grow or bumble along without much sign of crisis. (This article describes how such a “trend” might be enduring, using the example of a Japan whose aging and shrinking population is consuming and investing less.)

Without economic issues in the headlines, politicians are looking for ways to differentiate themselves and “get things moving.” This impulse worries me, as politicians are far less predictable than markets or economies.

Thus, I think that our next economic crisis will result directly from political mistakes rather than indirectly result from political regulatory failures.

Trump is already playing this game, pulling the market here and there with new larger forgotten back-again tariffs. His democratic opponents, many of them proposing radical change (e.g., wholesale reform of a “health industry” that absorbs 18 percent of GDP) have led some hedge funds to bet on big market losses after the Super Tuesday primaries, when Warren might perhaps win a lot of delegates.

Meanwhile in the UK, Corbyn and the Labour Party have proposed a strong return to state intervention, which could also have dramatic consequences.

Let me point out that I am not opposed to different political platforms or (often much needed) reforms. Nor am I a fan of Trump’s policy of destroying government from the inside and leaving the ruins to corporate cronies. Rather, I am worried that politicians are starting to forget the benefits of a strong diversified economy by taking existing economic stability for granted.

My one-handed conclusion is that politicians are at their most dangerous when they think they can implement radical policies without consequences.

Donald Trump is not just bankrupt as a moral leader coward. He’s also wildly corrupt, in terms of enriching himself at a vast cost to the country. (By vast, I mean that he’s willing to give up $billions of US wealth to get himself $thousands in golf courses or deals for his daughter.)

Republicans have allowed for this behavior because it ain’t their money and voters seem to think Don and the Replicants are on their side. That’s crazy wrong. (Just tonight I had to clarify how little of Obama’s economic growth Donnie can claim as his own. I’d say negative, given his attacks on trade, migration and American alliances.)

Anyway, the Replicants are selfish cowards who care nothing about the Constitution (let alone God), but business people are not in the same class. They will act because their money is at risk. For example:

The Economist: “Amazon confirmed that it will appeal against the Pentagon’s decision to award a $10bn cloud-computing contract to Microsoft. Amazon had been favourite to win the contract, before Donald Trump, who has kept up a public feud with Jeff Bezos, the company’s boss, suggested it should go elsewhere. Amazon says that procurements should be administered “objectively” and “free from political influence”. Mark Esper, the defence secretary, said the process had been fair.”

My one-handed conclusion is that Trump is toast as soon as he starts to cost people real money. Let’s see if he can avoid tanking the economy (or powerful businesses) before the election. (I think he should be impeached, of course, but that won’t happen while Replicants are insulated from voter anger.)

Visionaries, consultants and public speakers love to explain how they are embracing distribution over decentralization over centralization, using an image like this:

What drives me crazy about this image is that it actually undersells true decentralization, i.e., when everyone is connected to everyone:

We already have such systems for email (anyone on Earth can connect with anyone else without going through a censor, “chokepoint,” or authority), and cryptocurrencies offer the same connectivity for money.

Note that mobile phones are not decentralized because they need to be connected to carriers, which also means that mobile phone apps for messaging and payment are not decentralized. (I can’t install WePay on my phone, for example, because it’s not approved for the EU.)

These distinctions are important to people who support freedom of action, belief and existence — freedoms that are under assault in Hong Kong, Iran, China, and even the US (due to monopoly concentrations and government attempts to control private conversation).

Thus, we need to avoid debating “decentralization” within an Overton window preferred by authorities and would-be-monopolies. Those parties are happy with figures B and C because they can be monitored and controlled via critical nodes such as influencers, service providers, or content owners.

My one-handed conclusion is that citizens should insist on real decentralization. Choose D.

H/T to CD

Economists say competition in markets rages from “perfect” (no company can charge a price over cost without losing 100% of its customers to another company) to “monopoly” (one company sets prices to maximize profits).

Two caveats are important. First, the monopolist doesn’t charge as much as possible but whatever maximizes profits. There might be a lot of trading going on, but also a lot of missing trades. Second, businesses seek monopoly power in different ways, from having a unique product with zero substitutes (pretty rare) to being open for business at a certain time and place (pretty common). Businesses often try to create monopoly power by making it hard to compare products with competitors or across boundaries. That’s why they sell the same razor in pink for women and blue for men, change model numbers for the same product in different markets, change package sizes, and so on.

Thus, businesses make it harder to see similarities and differences because confusion for you means larger profits for them.

Flipping this idea over, businesses want to identify similarities and differences among customers to make it easier to charge different prices to different customers. Their goal is not to charge as much as the market will bear but as much as you will bear.

Thus, businesses “price discriminate” (PD) in a quest to get $4 from you and $6 from me for the same product.  There are three types of PD, arranged from easiest to hardest to implement:

• “Third degree PD means charging a different price to different consumer groups,” e.g., young vs old or lunch vs dinner.
• “Second-degree PD means pricing according to quantity demanded, e.g., larger quantities are available at a lower unit price.”
• “First degree PD means (FDPD) charging the maximum price each consumer is willing to pay.”

There are many examples of second and third degree PD, but FDPD is harder to pursue. In the past, we got close to FDPD with auctions in which the highest bidder won the good, but auctions take time and still leave money on the table (the winner only needs to outbid the second place bidder).

Now the technology exists to allow routine and widespread FDPD. That technology has arrived with “big data,” and it’s not your friend.

Why?

• Our social media habits reveal our likes, choices, and friends
• Our social graph links us to friends and relatives, allowing data to be cross-checked and refined with weak or strong links to the people around us.
• Our loyalty cards, credit cards, and credit scores can be used to understand our ability- and willingness-to-pay
• Our phones track everywhere we go.
• Personal fitness devices record our heart-rates, stepping speed, etc.
• Data brokers can cheaply buy and combine many datasets and use machine learning (AIs) to create our “digital twins.” Twins may not be too accurate when they are born (here’s one effort), but your actions are constantly being compared to your twin’s predicted action. With time, your twin will will know you better than you do.

Taken together, Big Data means that you will be paying more and getting less for many goods and services. At its most-dystopian extreme, Big Data will direct you to friends, work and romance based on business profit-maximization instead of your own ideals of happiness.

My one-handed conclusion is that big data is more of a curse than a blessing for the average human.

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NB: I’ve blogged for years on the weaknesses and threats of social media, but this post also draws on my 25 years of experience in working with data and the many ways we abuse data.

The title of this post refers to how some whites refer to successful blacks in the US. (They also bomb, lynch and imprison those blacks.) The gendered-version of this slander is “putting women in their place.” When it comes to the poor, the rich say they should “pull themselves up by their bootstraps.” The young? Some oldies complain about “kids these days.”

In all of these cases, the better-off complainer ignores their social and historical privilege. They rarely consider how the economic, social, political institutions created by their ancestors have put them firmly at the top end of a tilted playing field.

So the relative improvement in the lives of racial/ethnic minorities, women, the poor, and the young upset the privileged, the most prominent group of which is composed of old white rich men, who I’ll label “Donnies.”

The Donnies don’t like uppity people invading their world, so they lash out.

“Ethnics” invade Donny pools, restaurants, and professions. Even worse, they marry their women and move to their neighborhoods.

Women are doing better in school (now that they can attend), taking Donny jobs, making more money than Donny, and even (!) deciding they don’t need to trade their womb for Donny’s money. Donnies are mad, so they accuse women of having sex or being ugly — as if that will fix Donny’s bad grades, low earnings or lack of sex appeal.

Donnies hate it when the poor succeed, calling them “nouveaux riches.” Many Donnies owe their wealth to colonial pillage, family, or social networks that allow stupid Donnies to collect outrageous salaries (I went to school with many of them). Donnies caught lying and stealing don’t often face punishment, but the poor do [pdf].

The young? Donnies tell them to respect their elders when all there is to respect is wrinkles and hair loss. In the distant past, respect made sense, but old people today probably owe their longevity to medical science, welfare systems and professional carers.

A few years ago, Barack Obama was castigated for saying that business owners “didn’t build that” without outside help. Although business owners work hard, Obama was right to call attention to the enabling environment that made their success possible. Many Donnies take those institutions for granted. Others (like the Criminal-in-Chief) take advantage of the system. In my experience, I’d say that about 80 percent of these Donnies would break down in tears if they faced the business-climate of China, Mexico or Thailand. They wouldn’t even last a day in Argentina, Egypt or India.

My one-handed conclusion: The Donnies of this world are getting upset as they realize how Others are earning the success they never did.

The Dutch are fond of subsidies for arts, sustainability and… innovation.

These subsidies arise when bureaucrats with “topical portfolios” award cash to winners of various “promise to stimulate [topic]” contests.

On the one hand, I am pleased to see the government providing public goods, i.e., stimulating efforts to help everyone.

On the other hand, these programs tend to find the least-productive incentives to advance the “topic”

(My one-handed view is that this structure is wrong… keep reading…)

So the irony is that the bureaucracy in charge of innovation…

• …has permanent employment contracts and long vacations;
• …gains nothing from success but loses nothing from failure;
• …works in non-market areas where the lack of objective measures of performance leads to subjective choices of winners and losers; and
• …happily spews a meaningless whirlpool of jargon borrowed from strategic plans, conference videos, and social media #buzzwords.

If I was in charge of these topics, I would follow the new development model of “pay for results” by specifying the criteria for success and then rewarding the most successful efforts to reach those goals with cash and publicity.

This system would have nothing to say about who did the work, what angle they took, or how fancy their method. It would pay for results. 

My one-handed conclusion is that governments should stop chasing “creative,” “innovative,” “smart,” or “sustainable” and just reward results. 

What’s your experience on this topic?

I’ve been alarmed about climate change chaos (CC) since 2016 (before that, I thought it was a distant, negligible threat to me), and I’ve been evolving my perspective on what it means to us.

My first conclusion was that mitigation had failed. So I turned my attention to adaptation, which was easy because it means dealing with a more aggressive water (and thus heat, storms, floods, etc.) cycle. 

In my first vision, I thought of a zombie apocalypse, of great waves flooding unprepared cities, Zero-day events everywhere, etc. I don’t think that any more because I see CC as a series of small cuts that draw a drop of blood per occurrence but, taken together, bleed you out.

But what does it mean to suffer these cuts? Can’t we ignore them, as we get richer and thus able to afford the costs of CC? Unlike William Nordhaus or Richard Tol (right), I think not. Indeed, I think that these cuts will resemble World War II in their impact on our lives, but be worse due to their never-ending nature that will build, exponentially, until our descendants curse our blind stupidity.

So what would a perpetual WWII (WWCC) look like?

First, there will be a permanent decline in our standard of living. We will have shortages, disruptions, additional costs, and spend way more time worrying about what we’re missing, what we “really need,” and if things will be better in the future — or not. (One woman is giving up a lifetime of buying new fashion for second-hand clothes.)

Second, the future of “growth/development” will not be hopeful. Our  productive assets will be destroyed. The resources directed to defense and recovery will leave less for production. People will not choose jobs for ideals, prestige or salary, but because those jobs still exist, are protected in some way, or must be done.

Third, everyone will experience a different type of WWCC. Politics, violence, alliances, and migration will vary from place to place, with laws, nationalism, (failing) institutions, and so on. My advice is to make sure you have all your paperwork in order. Many Jews (including Anne Frank) died because they couldn’t get visas to escape the Nazis. Don’t forget the horrors of recent civil wars in Rwanda or Yugoslavia, where close neighbors (and sometimes relations) turned genocidal. Many politicians will make matters worse.

Finally, WWCC, like the war on poverty or war on drugs, will never end. That fact will make it hard to “plan for the future” and depress a lot of people. It will also undermine business investment, innovation, and the dynamism of markets that originates in our basic optimism and tendency to trust. Human society will experience dark ages not seen since the Black Death, colonization, the Little Ice Age, etc. People will die in mysterious ways, strange goings on will surprise people, witches and healers will promise redemption to those who can cross their palms with silver.

My one handed conclusion is that humans will definitely survive in a climate chaos future, but sometimes wonder if it would be better to be dead.

Addendum (19 Oct): “Ultimately, capitalism is going to lose its customers. There won’t be anybody to buy the product because everybody is going to be so poor.“

I was thinking of doing two posts (one each on libraries and revolutions), but I think I found a reasonable way to combine them.

First, revolutions.

Some claim that low union membership in the US is a sign that unions are no longer valued by workers. I think something the opposite, i.e., that unions did such a good job that they were taken for granted by middle-class workers who felt their quality of life was secure from the depredations of “capital” and other “class enemies.” Today, few union jobs remain as a combination of declining membership and right to work laws have undermined the coordinated collective action necessary for unions to represent a countervailing force against employers.

The post-WWII decline in unions has been accompanied by increasing inequality in many countries — an increase that took off under the influence of Thatcher/Reagan reforms in the 1980s and has resulted in the crisis of inequality highlighted by Piketty, Occupy Wall Street and the Tea Party. (Trump has used a version of events to justify his moronic and self-serving agenda. His actions have worsened conditions, as I’ll explain when we get to libraries below…)

These post-WWII inequality dynamics got me to thinking of two ideas: First, revolutions up-end the old order, resulting in short term losses but then medium-term prosperity. In the long run, however, the rich/powerful/elite tend to centralize their control and direct income and wealth to themselves.

Thus, the agricultural revolution occurred ±10,000 years ago, replacing semi-egalitarian hunter-gatherer societies with settled communities. In the “short-run” of the first 4,000 years (!), this system was bad for the individual but good for the group (read my reviews of Sapiens and The Secret to Our Success). After that long adjustment, however, agriculture fed an explosion of human flourishing in which the average person was better off and communities were reasonably egalitarian, at least compared to the late middle ages, when the rich and royal owned most of the land and many slaves as they grew fabulously wealthy. 

The end of this age is often linked to the French Revolution (1789) but the Industrial Revolution also played a part in overturning power relations and opening up an entirely new set of possibilities based on a different model of production. 

The industrial revolution followed a similar pattern of painful disruption, growing benefits to the working classes, and a resumption of control over income and wealth by the rich and powerful, this time at about 50 times the speed (i.e., “bad times” for 80 years rather than 4,000 years). The beginning was terrible for workers (thus the rebellion of the Luddites), but matters improved as workers unionized, slaves were freed, and the benefits of mechanized agriculture and manufacturing went to the working classes. Industrialization brought globalization (the telegraph, steam ships, migration) but also total war, as seen in the millions of victims in the two world wars. After the Great Depression and WWII, there was a firm improvement in living conditions (from a very low base) that benefitted the “average Joe” between 1950 and 1980. (These benefits didn’t go to poorer countries, some of which were lucky to escape colonial rule.)

The 1980s is seen by many as a turning point of inequality, which I’ll agree to. Yes, there was more freedom for “individuals,” but there was also a massive swing of wealth, from the majority to job creators, masters of the universe, and global tax dodgers.

The information revolution began in the 1960s, but it really took off in the 1990s, as the Internet matured and spread, driven ahead by Moore’s Law and an emerging economics of “winner takes all” platforms and economies of scale. In this scenario, short-term disruption and middle-class gains took only a decade to process before the elites were again collecting the majority of gains. Yes, Facebook is free. Yes, many people spend hours being “entertained” by their feeds. But most of this activity is a distraction from the massive concentration of income and wealth in tech companies based in the US and China (except when it comes to taxes). I’ve complained before about the negative impacts of tech — and its loss of innocence — so I’ll just leave it there.

My one-handed perspective is that revolutions are temporarily disruptive, until the elites find a way to regain control and enrich themselves at the expense of the rest of society.

So how does this relate to libraries?

A few months ago, my girlfriend was telling me that her old hometown in Romania did not have a library, as there was “not enough money” to support such an institution.

I went on a rant about how a library is probably more important than a school, as a library provides a public, free meeting space for people to study, talk and cooperate in tackling problems, planning their future or doing their homework. These “public good” services help allow anyone in the community to benefit without payment, unlike private clubs, most schools or cafes. Those benefits are probably radically higher than the cost of libraries to taxpayers, which means that they should be set up as soon as possible in new communities and protected for as long as possible in the face of tight finances. (Read this, this or most anything here.)

Try telling that to Trump voters. In this NYT article, the author visits an Arkansas community that supports Trump but doesn’t see the point of a library — or paying taxes. Instead, they seem to think it’s better for folks to “take care of their own” without funding or support from the government. I see their “go it alone” attitude as the product of a mix of bravery, naiveté and ignorance: They beleive they don’t need help, assume they can survive everything from medical emergencies to natural disasters with their own resources, and believe that taxes and spending represent a zero-sum game. This last point is perhaps the most damaging, as it denies the main reason that we have governments: the provision of public goods that cost some money to provide but provide much greater benefits to people. More importantly, public goods (like the library but also security, information, clean air, etc.) are pro-poor because they are free to users. (This article makes that point indirectly, as students care more about the basics — quiet space, wifi — than the fancy bells and whistles that tech consultants sell to trend-chasing bureaucrats.)

Thus, we arrive at a terrible paradox: Inequality is rising as the information revolution rewards elites but the poor are turning against means of helping themselves (libraries, Obamacare, etc.) due to their mistaken belief that Trump and Republicans — their tribe — cares about them. They don’t.

My one-handed conclusion is that America’s less fortunate are only going to be worse off as the rich and Republicans conspire against them. What happens next? Either they will eat cake or start another revolution — and it won’t be pretty.

 

I live in the West district in Amsterdam, where the local council has given residents power to allocate €300,000 to projects proposed by anyone.

I welcome this participatory process, but it has some flaws, which I’ll discuss here, along with my recommendations for improvement.

First, let’s clarify that this process is heavily managed. The amount to allocate is a tiny fraction of the total budget for the district, and experts make sure that proposals from the community are “feasible.” 

Even still, the voting process is flawed. Last year, I was surprised to see that I was asked to allocate the total budget of €300,000 among proposed projects. This process gave far too much weight to big projects, since projects were selected based on the number of votes they got from residents.

For example:
1st place: €50.000 project chosen via 12,839 votes = €4.03/vote
2e place: €5.000 project via 12,367 votes = €0.40/vote

As you can see, the way to win is to have a big budget, which will crowd out other projects (by absorbing the vote budget) as well as benefitting from voter fatigue, since it’s easier to choose one €50k project than choose ten €5k projects. (I’m pretty sure city bureaucrats also prefer to administer one big project over ten smaller projects, since per project set up costs are probably similar.)

Luckily, there’s an easy solution: give voters a “personal budget” of, say, €300, and then let them put 0-100 percent of that onto as many projects as they can afford. 

Thus, I can vote €150 to project 1 (€50.000, meaning its now 0.30% closer to happenings) and €150 to project 2 (a €5.000 project that’s now 3.0% to funded).

My one-handed conclusion is that voters will get better value for their taxes if they vote a personal budget. 

Addendum (19 Oct): The local bureaucrats in charge of this initiative clarified that this process will allocate 21% of the budget (good!) but they like their current method (sad!).