Short observations 2

Smartphones slow down the restaurant experience (via). Time constraint means scarcity will always be with us. (That is scarcity in the trade-offs-have-to-be-made sense. Hunger need not always be with us.)

***

I find the notion that people without a state cannot have money risible. They may not have their own coins, but coins are merely branded money. Transaction goods that can reasonably be called money existed for millennia before the invention of coins (around 600BC) and non-state money operated for millennia after their invention. For example, cowrie shells--by far the most widely spread form of money across time and space.

***

Literacy preserves ideas but it also freezes doctrine. As the authors of The Creation of Inequality point out, the religious understanding of pre-literate societies could adapt to circumstances rather more fluidly than religions with written scriptures. Calling believers in the One God people of The Book may say more than is often realised.

The implication of the printing press in this is surely mixed. It made the loss of written knowledge much less likely--in a sense printing means we are in "the" Renaissance that never ended. But it also widely disseminated scriptures, making enforcement of a single orthodoxy easier within a hierarchy but rather harder in the wider society.

Robin Hanson posts on how modern society shows signs of the re-birth of foraging patterns. Perhaps the new religions within the modern West represent a form of recovery of foraging religious fluidity.

***

This graph on the shift of opinion on same-sex marriage in the US by religious affiliation (via) expresses visually the obvious point--the objections to giving queer citizens equal protection of the law has always been overwhelmingly religiously based, however often allegedly secular reasoning is advanced to support it. Even the notion that there is something "unnatural" about being queer comes from monotheist re-interpeting of natural law philosophy.

Note also how US Catholics (like Western Catholics generally) increasingly largely ignore the Church on matters of sex and marriage. But the Church is about playing to its (rising) developing world flock, not its (shrinking) developed world flock.

***

Conservatives often either live in an endless now--this is how things have always been--or otherwise valorise the past so those who lost out in past social changes somehow should always lose out. Accepting the contingency of the past rather gets in the way of using it as a source of validation.

The notion that queer folk have no history, that they are not really part of history comes from an lack of sense of history and difference. Being ignored or written out of history is not the same thing as not having one.

Thus, to assume some "natural" antipathy to homosexuality is to mistake a long history of monotheist outcasting and brutality for some human universal. One of the things that horrified the Spanish about Amerindian cultures was the positive esteem that "third gender" persons enjoyed. "Entrenched in the culture" is not the same as "natural", but it takes a sense of history and difference to understand that.

***

Journalists have to be generalists. Which is why it is unfortunate they typically no longer have generalist degrees. Leading to astonishing levels of journalist ignorance. Which is where political correctness comes to the rescue--they don't have to know, still less understand, they merely have to sing-a-long. Political correctness provides a comforting framing without the effort of knowledge and understanding.

***

One of the features of Muslims becoming favoured moral mascots among many progressivists is to display how not-even-skin-deep their commitment to feminism is. People holding beliefs much milder versions of which damn evangelical Christians to the outer moral darkness get embraced while Muslim women are thrown under the respecting-other-folk's-traditions-and-culture bus without hesitation. (Evangelical Christians being potential competitors to be defined against rather than objects of moral concern and patronage.) Yet Western feminism was built on bursting through constraints of tradition and culture--and rather milder constraints than many Muslim women still labour under.

What makes this pre-emptive abandonment in the name of "respecting others" even sadder is that it was precisely awareness that other cultures did things differently which was part of the impetus to queer emancipation.  A point that has wider application: I suspect it is no accident that it is Ghanian philosopher (Kwame Anthony Appiah) who is so articulate on the virtues of cosmopolitanism, of mix-and-match cultural globalism. Of, actually, we'd like to start doing things differently.

But a lot of political correctness is about a sense of status--specifically, a sense of superior status--and there are few things more reactionary than that.

***

The Arab-Israeli conflicts since 1950 are way, way down the fatality list of conflicts. They are even a tiny fraction of Muslim fatalities in conflict since that time. But the matter of Israel (and Palestine) is not about reality, but rather symbolism and scape-goating ("ignore the corrupt authoritarians ruling you, remember how much you hate the Zionist entity"). And some of that symbolism goes back a long way.

***

One way to characterise the Israel-Hamas conflict is that Hamas seeks, and Israel fears, publicity. That is, military factors are overwhelmingly stacked in favour of Israel, political ones rather more in favour of Hamas. There is something to that. But Hamas has little to sell other than hatred, and the well of hate works better if periodically re-filled with recently-shed Palestinian blood. Dead Palestinians are not merely an instrument of Hamas's strategy, they are an objective in themselves. It is not has if Hamas is not up-front in its embrace of Palestinian death as a strategy, to the extent that they may be losing ground politically.

But the whole "killing Jews" strategy (whether by mob before the creation of Israel or by terror afterwards) has been one long disaster for the Palestinian cause. It provides both cover and justification for Israeli policies which would stand in much more stark relief, and have less support in Israel and elsewhere, without it. David Ben-Gurion was correct, the long occupation has distorted Israel. But that relinquished territory becomes a basis for attacks on Israel just gives the expansionist sentiment more to work with it.

Each time the Arabs or Palestinians have rejected a partition deal (1947, Camp David Summit 2000) things have got worse for the Palestinian cause. But Palestinian identity has grown up anchored in hostility to Israel, and that identity is clearly more important than peace. Which then just aids the "creating facts on the ground" expansion policy, on the grounds that Israel will never get actual peace, so it should just grab what it can.

***

I don't have a lot of sympathy for the reparations-for-slavery notion for African-Americans. First, because they are clearly collectively a lot better off than West Africans. Second, because lots of Americans actually died fighting to keep the Union on a basis that ended slavery, and that counts. Third, because not all African-Americans are descended from slaves (President Obama is not, for example) or are not from American slaves (e.g. Jamaican immigrants), and trying to pick and choose would be ugly. Nor were all white Americans slave owners or participants in the slave trade, so who owes whom? Fourth, because at some stage, African-Americans have to just get over it. Fighting for fair treatment now is just fine, but the reparations push looks suspiciously like wanting others to fix things for you. Which, I am afraid, is never going to happen in any useful sense and it is not healthy to base any sort of social advancement strategy on that hope.

There is also a certain element of racism only counts if you are rich: there were a lot more Brazilian slaves, and why isn't Brazil being asked for reparations?

ADDENDA On the matter of Brazil, apparently it is an issue. Using reparations for slavery as an excuse for land reform is a clever idea.

[Cross-posted at Skepticlawyer.]

Bubbles, bitcoins and the decision irrelevance of non-existent information

What do the following things have in common?

Shells (especially cowries), beads (whether made of stone, shell, glass or whatever), salt (including stamped salt cakes), cloth (from silk to wadmal, a coarse wool fabric), tool metals (iron, copper, tin, bronze) in various shapes, die cakes, gold dust, weighted gold, teeth, feather coils, strings of coconut discs, carved stone (also a tool material), animal skins, cattle, grain (notably barley and rice), pigs, coconuts, buffaloes, seeds, slaves, silver in lumps or shaped, tea (including in bricks), plaited palm-fibre rings, tobacco, beeswax, camphor, porcelain jars, human heads, cocoa beans, balls of rubber, coca leaves, logwood (mahogany) …

They are all things cited in anthropologist A. H. Quiggin's A Survey of Primitive Money: the Origins of Currency (1949) as being used as money. What this great variety of things with varying degrees of "moneyness" demonstrates is how money is a network good. At its simplest, money is something you pay for things with and hold so you can. It value as money depends on expectations that you will be able trade it with other people for goods and services that you want. In other words, that you can be part of a network of transactions, with money being transacted along transaction chains.

The most widely used (across time and space) money item.

Which means that goods can have consumption utility, production utility or transaction utility. The above goods may also have production or consumption utility, but their appearance in that list is because of their transaction utility. With particular goods having high levels of transaction utility in particular contexts--that is, in particular transaction chains. With cowrie shells being by far the most widespread money item in human history, being used for thousands years across several continents.

How do they have that transaction utility? Well, apart from various desirable physical characteristics (durable, divisible, not too heavy nor too bulky, etc) that they may have to greater and lesser extent, they have transaction utility from information about the expected behaviour of other economic agents in transaction chains. Hence the existence of such a wide variety of local monies.

Evolution of money
Hunter-gatherers have no use for money. They live in small groups where they know everyone and engage in repeated, indeed daily, interactions with them. There is constant pooling of resources in a life of connections, not transactions. Barter is something you do with outsiders.

Money grows up when societies get big enough, or connected enough, that people start interacting regularly with a wider range of people to build up expectations about what they value, but not so often as to create a personal connection such that resources are pooled. Instead, people start transacting with people, developing information about what they value. At this point, the well-known disadvantages of barter begin to bite and money evolves. With what becomes used as money being based on local circumstances.

Once any good begins to be used as money, its use as money drives up its value beyond its production or consumption value. If it does not, it ceases to be used as money and is consumed or used in production. Hence the reality of transaction utility. Which is a real utility, as money permits transactions that would otherwise not occur.

Information has to exist to matter
Note that expectations are crucial to the process. Note also that those expectations are entirely based on current information. As a principle of modern physics, there is no information from the future, and economics has no way around that. So, expectations can only be based on what we actually have information about.

At this point, it may be attractive to reason from a regress, particularly for money which has no production or consumption utility, only transaction utility. Such as bitcoins. We know that at some point its transaction utility will terminate. So, since its moneyness depends on expectations of future transaction utility, and it has no value beyond its transaction utility, the knowledge that such utility will certainly terminate should [so the argument goes] destroy any current transaction utility. As econblogger David Glasner puts it:

The problem I have is that bitcoins can’t be used for anything except as a means of payment for something else. Bitcoins provide no real service distinct from being a means of payment. Think about it; if a bitcoin can’t be used for anything except to be given to someone else in exchange, that means that someday, someone is going to be stuck holding a bitcoin with no one left to give it to in exchange. When that happens, that stinky bitcoin won’t be worth a plum (or plugged) nickel, or a red cent. It will be as worthless as a three-dollar bill. 

Now I grant you that that final moment of clarity might not happen for a long time – maybe not even for a very long time. But if anything is certain, it is certain that, sooner or later, such a moment must certainly come. But if it is certain that ultimately no one will accept a bitcoin in exchange, then it follows that no one forseeing that inevitable outcome would accept a bitcoin in exchange prior to that moment unless he or she is confident that there is some sucker out there who will accept in the interim. But since when does a theory of asset valuation premised on the existence of an unlimited supply of suckers count as an acceptable theory? Under the normal rationality assumptions that economists like to use, it is not possible to rationalize a positive price for a bitcoin at any point in its history.

Is the transaction utility of bitcoins weakly anchored, so likely to be highly variable on the basis of new information? Absolutely. So, in that sense, I agree with David Glasner, bitcoins are a "bubble" in the sense of being an asset likely to be highly unstable in value.

Where I disagree is that the regress from the certainty that at some (completely unspecified) time in the future they will cease to be traded has any implications for current decision-making as long as we have no specific information about when that event is likely to occur.

It is certain that, at some stage, homo sapiens will cease to exist. At that point, all assets will have no value. Does the certainty of our future non-existence as a species affect the price of any existing assets? No, because we have no information about when that certain event is likely to actually occur. So, the certainty of our future non-existence becomes part of the background uncertainty that does not affect current decision making because we have no information about it apart from its inevitability. Since we have no information about when it is likely to occur, it is not a risk differentiating one time period from another, so not part of current decision-making, so does not affect the price of any asset.

A point that applies to any particular asset class. Including items with transaction utility, but no consumption or production utility, which will inevitably cease to have transaction utility at some point, but whose timing we have no information about. Not even whether it will happen before all asset classes cease to have any future. Though it is clearly likely to be happen earlier, since much less has to happen for the event to occur. Hence I agree that the transaction utility of bitcoins in particular is weakly anchored, as remarkably little has to occur for them to lose transaction utility.

I also agree that reasoning on the basis of a regress can be very useful. It is why I don't think the concept of a "bubble" is very useful. If the turning points of "bubbles" could be reliably predicted, then bubbles would not occur, as no one would buy the asset at a price to be caught by the drop in price. Volatility in asset prices depends on the reality that turning points cannot be reliably predicted. But if you cannot predict the turning point, how can one usefully talk of a "bubble" beyond broad comments about asset price volatility?

But that regress depends on the implications of not having information. It is not a regress which turns out to require information before we actually have it.

(And if you think the above provides support for the Efficient-market Hypothesis [EMH], at least in its weak version, yep.)


[Cross-posted at Skepticlawyer.]

The taxman cometh (but only for what he can see)

There have been two great transformations in human affairs. One is the Neolithic Revolution, the transition from foraging to farming. This is a transformation which is still going on, as there are still some foraging groups around the planet (though it is a vanishing way of life). The second is the Industrial Revolution, the shift from reliance on what is produced by land (farming), a factor of production managed but not created by humans, to reliance on factors of production produced by humans, the produced means of production (capital), such that farmers change from being about 80% of the workforce to less than 5%.

Compare and contrast
Both transformations are technological and involve expanded use of energy, setting off dramatic population increases (the second much faster than the first). In the foraging-to-farming transition, humans no longer merely took food from the environment around them; they deliberately grew food. This food was typically storable, so able to cope with variations in food production across the seasons.  Farming both increased the (food) energy to humans and allowed it to be stored for later use, to be actively managed across time. (Hence the very different attitudes to time between foraging and farming cultures.)

Industrialisation used wind, water and (particularly) steam energy to produce things which produced things. Increased agricultural production allowed increased production in general, with expanding sources and use of energy, ushering the creation of, not merely mass prosperity, but increasing mass prosperity. This is in stark contrast for the foraging-farming transition, where it is likely that general standards of living actually fell and, with some exceptions, remained stagnant for thousands of years.

Another contrast is that the foraging-farming transition lead to hierarchical societies with elite-dominated rulerships--whether autocratic, monarchic (i.e. containing powerful noble elites) or deliberative. The last were polities run by elite assemblies, the most democratic of these being some Mediterranean city-states where as much as a third of the adult population got to vote--i.e. male citizens; women, slaves and resident foreigners being excluded. Outside the Mediterranean, assemblies were also important in cities in Lower Mesopotamia and in the kshatriya republics of India. Conversely, with some hiccups, the Industrial Revolution has led to much more broadly-based forms of political life. Another contrast is that the share of output taken by taxation tended to be fairly constant across farming rulerships but has been steadily increasing in modern states.

Why did farming lead to hierarchical societies dominated by controlling elites? The standard answer has been increased production of food led to a surplus above subsistence which allowed a more differentiated society. The problem with this is, why there was any such surplus? Why did not population just increase to consume the surplus? What blocked population increase sufficient to allow the creation of the food surpluses that sustained these elites?

The second problem is, even if there was a food surplus, why did that not just lead to increased specialisation? What happened such that population was blocked from rising to consume the food surplus and that surplus was largely appropriated by a narrow, controlling elite? And, moreover, elites of differing sizes, with different land tenure systems.

Expropriating what you can see
Three Israeli economists have produced a paper (pdf) which provides an elegant answer. Their argument is that the key element is transparency; both in stored food and in expected production. Food had to be stored across the seasons, which made it more vulnerable to expropriation. In their words:


[Read the rest at Skepticlawyer.]

Civilisation and surplus

I once asked an Israeli archaeologist why archaeologists (and historical anthropologists) seem to be so influenced by Karl Marx. He replied that it was because Marx talked about economic surplus and they study the products of economic surplus. Makes sense.

Civilisation rests on the production of surplus—that is, the production beyond the needs of subsistence. In agrarian civilisations, typically 8 out of 10 people worked as farmers. That meant that they produced enough surplus food (and other agrarian products such as material for clothing) for 1 in 5 people to do something else. That "something else" being all the things that make a civilisation (which may include farmers working on other things in down times).

Early civilisations start off in warm climes near water (i.e. river valleys towards the equator) because you can have a concentrated population cultivating fertile land and less effort is put into staying warm, so it is easier to produce a surplus.

Surplus is not exploitation as such (although there are certainly exploitative ways to extract surplus: the most efficient ever exploitative extractor of surplus being Stalin's regime—he could make mass starvation work for him). Surplus is the basis of civilisation.

As technology improves, being in a warm area becomes less important as better technology means it becomes easier and cheaper to stay warm. Indeed, there is some tendency for the technological "cutting edge" of civilisation to move to colder climes, since they get more pay-off from technology and tend to be more time-conscious due to the need to store food and other supplies over winter. (Climate's effect on temporal outlooks may have had something to do with which parts of Europe adopted the Reformation and which did not, though distance from Rome and consequent command-and-response issues were clearly also important.)

With the transformation of production we call the Industrial Revolution, the ratio of people needed to produce food dropped dramatically as technology allowed more to be produced with less human effort. By 1920, primary production stopped being the biggest employer in the US. (By 1930, services were the biggest employer, so the "manufacturing moment" in US economic history—when secondary industry dominated employment—lasted 10 years.)

Institutions make a difference; some sets of institutions are much better at facilitating transactions (and so gains from trade and thus the production and use of surplus) than others. Clearly, the British institutional heritage of US and Canada works better than the Iberian institutional heritage of Latin American. (Which is why Hispanics flood North: they can earn more income simply by being in a different institutional context.) Scandinavians in the US do considerably better (in terms of average incomes) than do (pdf) Scandinavians in Scandinavia.

Culture (which overlaps with institutions and is profoundly affected by religion) also makes a difference as it affects attitudes to time, willingness to transact, etc. Hindus and Sikhs from South Asia, on average, do considerably better in the UK (in terms of employment and income) than do Muslims from South Asia.

Combinations of differences within cultures and institutional contexts also make a difference: Muslims in the US do considerably better (in terms of income, employment and integration) than do Muslims in Europe.

Geography can make a difference beyond producing food and staying warm. Water transport is generally much cheaper than land transport. It is easier to produce a surplus operating out of water hubs than relying on land transport. Capital markets are about trading in surplus: ideally, directing it to more productive ends. And, if you are a trade hub, the demand for capital will be greater. There is a reason why the Serene Republic of Venice was a persistent financial innovator (inventing bonds in 1171, for example).

So, Marx was correct in that surplus matters: but he was utterly wrong in what it represents and the implications thereof.

[Cross-posted at Critical Thinking Applied.]

We are APES

In an article in the October issue of Quadrant, Paul Monk labels homo sapiens as Apprehensive Pattern-seeking Emotional Story-tellers or APES. As nice a summary of our cognitive nature as I have come across.

Paul Monk writes:

As neuroscientist William Calvin puts it, our brains are susceptible to colourful rhetoric, to being swept along by group dynamics that overwhelm our emotional autonomy and critical faculties, to finding hidden patterns where none exist. They are highly susceptible for these reasons to myths, stories, superstitions and mass emotions. Our memories are selective and unreliable, our decision-making easily swayed by the last thing to make a vivid impression on us; our intuitions about logic, probability and causation are powerful but flawed in a number of ways and these flaws are actually magnified rather than diminished by our creation of complex, increasingly data-dependent social orders.

Given Paul Monk is a principal of Austhink, cognitive biases are his meal ticket.

A fine, if somewhat poetic, description of our Apprehensiveness is provided in John Carroll's flawed-but-engaging (and interestingly flawed) book Jerusalem, Jerusalem: Wow the Ancient City Ignited the Modern World:

Fear is the dread of the known threat. Angst is the dread of the forever unknown, what is essential to becoming. The future does not hold danger, the future is danger. ...
Animals live in the eternal present. Humans live in the eternal coming-into-being. Angst, not fear. ... the inevitable incompleteness of experience, a being that is always becoming. What we call intellect is compelled to record that incompleteness in two dimensions, time and space.Time is measured against the past and the future -- memory and anticipation (Pp28-9).

While he somewhat exaggerates the gap between us and animals (such as higher primates), what Carroll is alluding to here is a distinction in our expectations about the future. Economist Frank Knight famously distinguished between risk and uncertainty:

Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated. ... The essential fact is that 'risk' means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomena depending on which of the two is really present and operating.... It will appear that a measurable uncertainty, or 'risk' proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all.

To put it more simply, uncertainty is risk that is immeasurable, not possible to calculate. But both are about anticipation, apprehensiveness, expectations: about looking forward.

As anyone in business knows, risk is heterogeneous. For example, small business copes with the unknown variances in hiring new people by using any risk-minimising techniques that are available (notably, use of networks that provide implicit “guarantees”: as in “I don’t know X but they were recommended to me by Y, who I do know and I do not believe Y wants to damage their connection to me by recommending a dud”). Large businesses, more able to cover risk and less able to directly connect effort to output, compensate by paying a “corporate premium” that acts as a “hostage” for productive behaviour by the employee. (I see no particular reason why training profiles—which are often used to explain the wage premium in large corporations—should be greatly different between large and small businesses: difficulties of supervision strike me as far more differentiating.)

Interest rates, asset prices and assessments of risks are intimately connected. As David Glasner notes:

... interest rates emerge out of the process of evaluating all durable assets, which are nothing but claims to either fixed or variable future cash flows of various durations and risk characteristics. ... One of the good things about Milton Friedman’s 1956 restatement of the quantity theory of money was his explicit recognition that interest rates are determined not in a narrow subset of markets for fixed income financial assets, but in the complete spectrum of interrelated markets for long-lived physical and financial assets.

(There are some complications in this, which need not detain us for the moment.) What makes an asset an asset is its potential for future use.

In aggregate terms, it is generally reasonable to assume that risk in an economy “bell curves”—that failed judgements of risk and successful judgements of risk cancel out around a positive mean. [If that mean is positive, risk assessments on average are too high and will tend to fall: if the mean is negative, risk assessments on average are too low and will tend to rise.] But suppose some economic shock leads to a sudden downward shift in the general ability to meet established obligations: the [previous experience] assumption of successful overall coverage of risks may [will] no longer apply. There will [likely] be an increase in people’s preference for holding money (to reduce their exposure). Ironically, the overall risk profile of the economy [will then tend to] may improve, since bankruptcy and closure will disproportionately hit those on the tail end of the risk bell curve. The effect will [then] be to put downward pressure on interest rates, reflecting shifting assessments of risk.

In this situation, there may well be an increase in (negative) uncertainty: but this will not be directly reflected in interest rates because these cover only risks-as-calculated. Prices cannot directly incorporate what cannot be calculated but can and will reflect the consequences of uncertainty’s effect on behaviour.

I say negative uncertainty because, as George Ip notes:

… it is not “uncertainty” per se that bothers business. Whether uncertainty is unwelcome depends entirely on what’s at stake. What would you prefer: 100% probability of dying next year, or 50%? Most of us would choose the latter. Similarly, business would prefer zero probability of a burdensome new rule, but if that’s not possible, would certainly take 50% probability over 100%. The administration’s decision to delay implementation of a new ozone standard perpetuates uncertainty. Business welcomed it nonetheless because now they do not have to spend money to meet it for at least two years, and perhaps forever if in the interim a new president chooses never to implement it. Does the Federal Reserve create some uncertainty when it undertakes quantitative easing? Probably, but in the process it makes the stability of inflation around 2% much more certain, and that, most businesses would say, is a reasonable trade-off.

In the absence of any ability to calculate, the framing through which one views the incalculable determines responses. A classic instance of uncertainty shifting from positive to negative is that, when the stock market was booming during the late 1920s, lack of information over the weekend would be interpreted positively. As and after it crashed, lack of information was interpreted negatively.

Economic “confidence”—including business confidence—is, to a large degree, how what cannot be calculated is being framed in a given time period: whether it is being framed positively or negatively and how much so. This is likely to be based on various indicators but, by its non-calculable nature, cannot be definitively so. The wider the range of uncertainty, the more unstable confidence is likely to be, because the greater the possibility of new information changing how the uncertainty is being framed.

Just because something cannot be calculated does not mean we will not frame expectations to cover that uncertainty: it just means that such expectations cover more than is directly inferable from such information as we have. We will apprehensively tell stories based on (at least partly created) patterns that fit with our preferences, because we are APES. But, of course, without preference and expectations we would have no basis to act (other than randomly). Being APES may go with the territory of having a certain level of cognitive complexity.

[Cross-posted at Critical Thinking Applied]