How to Build an Economic Model in Your Spare Time

Sunday, May 22nd, 2016

Hal Varian explains how to build an economic model in your spare time:

In reality the process is much more haphazard than my description would suggest — the model of research that I describe is an idealization of reality, much like the economic models that I create. But there is probably enough connection with reality to make the description useful — which I hope is also true for my economic models.

The first step is to get an idea. This is not all that hard to do. The tricky part is to get a good idea. The way you do this is to come up with lots and lots of ideas and throw out all the ones that aren’t good.

[...]

The first test is to try to phrase your idea in a way that a non-economist can understand. If you can’t do this it’s probably not a very good idea. If you can phrase it in a way that a noneconomist can understand, it still may be a lousy idea, but at least there’s hope.

Before you start trying to decide whether your idea is correct, you should stop to ask whether it is interesting. If it isn’t interesting, no one will care whether it is correct or not.

[...]

One of the primary purposes of economic theory is to generate insight. The greatest compliment is “Ah! So that explains it!” That’s what you should be looking for — forget about the “nice solid work” and try to become a Wizard of Ahs.

[...]

Write down the simplest possible model you can think of, and see if it still exhibits some interesting behavior. If it does, then make it even simpler.

Several years ago I gave a seminar about some of my research. I started out with a very simple example. One of the faculty in the audience interrupted me to say that he had worked on something like this several years ago, but his model was “much more complex”.

I replied “My model was complex when I started, too, but I just kept working on it till it got simple!”

What we are seeing worldwide

Monday, May 9th, 2016

Nassim Nicholas Taleb describes what we are seeing worldwide:

What we are seeing worldwide, from India to the UK to the US, is the rebellion against the inner circle of no-skin-in-the-game policymaking “clerks” and journalists-insiders, that class of paternalistic semi-intellectual experts with some Ivy league, Oxford-Cambridge, or similar label-driven education who are telling the rest of us 1) what to do, 2) what to eat, 3) how to speak, 4) how to think… and 5) who to vote for.

With psychology papers replicating less than 40%, dietary advice reversing after 30y of fatphobia, macroeconomic analysis working worse than astrology, microeconomic papers wrong 40% of the time, the appointment of Bernanke who was less than clueless of the risks, and pharmaceutical trials replicating only 1/5th of the time, people are perfectly entitled to rely on their own ancestral instinct and listen to their grandmothers with a better track record than these policymaking goons.

Kay’s Other People’s Money

Sunday, May 1st, 2016

John Kay’s Other People’s Money argues that the growth in the size of the financial system hasn’t been matched by improvements in the allocation of capital:

He proposes that financial services are not as profitable as some headline numbers would suggest. And he suggests that the replacement of those who are good at meeting clients on the 19th hole with those who were good at solving complex mathematical problems was not always a good thing — sometimes clever people are the problem, particularly in a complex environment.

On that last point:

The organisational sociologist Charles Perrow has studied the robustness and resilience of engineering systems in different contexts, such as nuclear power stations and marine accidents. Robustness and resilience require that individual components of the system are designed to high standards.… More significantly, resilience of individual components is not always necessary, and never sufficient, to achieve system stability. Failures in complex systems are inevitable, and no one can ever be confident of anticipating the full variety of interactions that will be involved.

Engineers responsible for interactively complex systems have learned that stability and resilience requires conscious and systematic simplification, modularity, which enables failures to be contained, and redundancy, which allows failed elements to be by-passed. None of these features — simplification, modularity, redundancy — characterised the financial system as it had developed in 2008. On the contrary, financialisation had greatly increased complexity, interaction and interdependence. Redundancy — as, for example, in holding capital above the regulatory minimum — was everywhere regarded as an indicator of inefficiency, not of strength.

Paycheck to Paycheck

Tuesday, April 26th, 2016

Since 2013, the federal reserve board has conducted a survey of American consumers. One question makes it clear just how many middle-class Americans are living paycheck to paycheck:

The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 percent of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all.

Americans are financially fragile. Neal Gabler calls this embarrassing condition financial impotence:

A 2014 Bankrate survey, echoing the Fed’s data, found that only 38 percent of Americans would cover a $1,000 emergency-room visit or $500 car repair with money they’d saved. Two reports published last year by the Pew Charitable Trusts found, respectively, that 55 percent of households didn’t have enough liquid savings to replace a month’s worth of lost income, and that of the 56 percent of people who said they’d worried about their finances in the previous year, 71 percent were concerned about having enough money to cover everyday expenses. A similar study conducted by Annamaria Lusardi of George Washington University, Peter Tufano of Oxford, and Daniel Schneider, then of Princeton, asked individuals whether they could “come up with” $2,000 within 30 days for an unanticipated expense. They found that slightly more than one-quarter could not, and another 19 percent could do so only if they pawned possessions or took out payday loans. The conclusion: Nearly half of American adults are “financially fragile” and “living very close to the financial edge.” Yet another analysis, this one led by Jacob Hacker of Yale, measured the number of households that had lost a quarter or more of their “available income” in a given year — income minus medical expenses and interest on debt — and found that in each year from 2001 to 2012, at least one in five had suffered such a loss and couldn’t compensate by digging into savings.

Credit cards are just too tempting:

If you ask economists to explain this state of affairs, they are likely to finger credit-card debt as a main culprit. Long before the Great Recession, many say, Americans got themselves into credit trouble. According to an analysis of Federal Reserve and TransUnion data by the personal-finance site ValuePenguin, credit-card debt stood at about $5,700 per household in 2015. Of course, this figure factors in all the households with a balance of zero. About 38 percent of households carried some debt, according to the analysis, and among those, the average was more than $15,000. In recent years, while the number of people holding credit-card debt has been decreasing, the average debt for those households carrying a balance has been on the rise.

More disturbing stats:

The personal savings rate peaked at 13.3 percent in 1971 before falling to 2.6 percent in 2005. As of last year, the figure stood at 5.1 percent, and according to McClary, nearly 30 percent of American adults don’t save any of their income for retirement.

“If you want to have financial security,” says Brad Klontz, “it is 100 percent on you.”

One thing economists adduce to lessen this responsibility is that credit represents a sea change from the old economic system, when financial decisions were much more constrained, limiting the sort of trouble that people could get themselves into — a sea change for which most people were ill-prepared.

It is ironic that as financial products have become increasingly sophisticated, theoretically giving individuals more options to smooth out the bumps in their lives, something like the opposite seems to have happened, at least for many. Indeed, Annamaria Lusardi and her colleagues found that, in general, the more sophisticated a country’s credit and financial markets, the worse the problem of financial insecurity for its citizens. Why? Lusardi argues that as the financial world has grown more complex, our knowledge of finances has not kept pace. Basically, a good many Americans are “financially illiterate,” and this illiteracy correlates highly with financial distress. A 2011 study she and a colleague conducted measuring knowledge of fundamental financial principles (compound interest, risk diversification, and the effects of inflation) found that 65 percent of Americans ages 25 to 65 were financial illiterates.

Why You Can’t Argue with the New Left

Monday, April 25th, 2016

Arnold Kling recommends Scruton’s Fools, Frauds and Firebrands, which profiles a number of continental Europeans whose names are unfamiliar to most Americans today:

Although few of us are conversant with the likes of Theodoro Adorno, Gyorgy Lukacs, and Slavoj Zizek, reading about them makes one realize how much of an imprint they have left on contemporary college campuses and even on the approach to politics taken by Barack Obama.

A major theme of Fools is that the New Left evolved a set of intellectual tactical moves against their opponents. These included creating a false left-right spectrum, delegitimizing other points of view, indicting capitalism and tradition for all wrongs while being vague about alternatives, and using Newspeak to present authoritarianism as a defense of freedom and human rights.

Income and Household Demographics

Sunday, April 17th, 2016

American households in different income quintiles differ in predictable ways:

Mean number of earners per household. On average, there are significantly more income earners per household in the top income quintile households (1.98) than earners per household in the lowest-income households (0.41). It can also be seen that the average number of earners increases for each higher income quintile, demonstrating that one of the main factors in explaining differences in income among U.S. households is the number of earners per household. Also, the unadjusted ratio of average income for the highest to lowest quintile of 15.9 times ($185,206 to $11,651), falls to a ratio of only 3.3 times when comparing “income per earner” of the two quintiles: $93,538 for the top fifth to $28,417 for the bottom fifth.

Share of households with no earners. Sixty-three percent of U.S. households in the bottom fifth of Americans by income had no earners for the entire year in 2013. In contrast, only 3.1% of the households in the top fifth had no earners in 2013, providing more evidence of the strong relationship between household income and income earners per household.

Marital status of householders. Married-couple households represent a much greater share of the top income quintile (76.8%) than for the bottom income quintile (16%), and single-parent or single households represented a much greater share of the bottom one-fifth of households (84.0%) than for the top 20% (23.2%). Like for the average number of earners per household, the share of married-couple households also increases for each higher income quintile, from 16% (lowest quintile) to 35% to 50% (middle quintile) to 64% to 77% (highest quintile).

Age of householders. More than 7 out of every 10 households (71.9%) in the top income quintile included individuals in their prime earning years between the ages of 35-64, compared to fewer than half (43.9%) of household members in the bottom fifth who were in that prime earning age group last year. The share of householders in the prime earning age group of 35-64 year olds increases with each higher income quintile.

Compared to members of the top income quintile of households by income, household members in the bottom income quintile were 1.4 times more likely (21.8% vs. 15.8%) to be in the youngest age group (under 35 years), and almost three times more likely (34.2% vs. 12.3%) to be in the oldest age group (65 years and over).

By average age, the highest income group is the youngest (48.8 years) and the lowest income group is the oldest (54.4 years).

Work status of householders. Almost five times as many top quintile households included at least one adult who was working full-time in 2013 (78.8%) compared to the bottom income quintile (only 16.1%), and more than five times as many households in the bottom quintile included adults who did not work at all (69.4%) compared to top quintile households whose family members did not work (12.4%). The share of householders working full-time increases at each higher income quintile (16.1% to 43.9% to 60.4% to 70.7% o 78.8%).

Education of householders. Family members of households in the top fifth by income were almost five times more likely to have a college degree (64.6%) than members of households in the bottom income quintile (only 13.5%). In contrast, householders in the lowest income quintile were 15 times more likely than those in the top income quintile to have less than a high school degree in 2013 (24.2 % vs. 1.6%). As expected, the Census data show that there is a significantly positive relationship between education and income.

Selected Characteristics of US Households by Income Quintile 2013

The High-IQ Homo Economicus

Thursday, March 31st, 2016

The current system was designed by and for the high-IQ Homo economicus, Free Northerner argues:

I will clarify my personal position. I come from the working class. Through the luck of genetics and the grace of God, I happen to have be born with high intelligence and an impersonal, homo economicus sperginess, so I am now personally comfortably middle-class, but I see second-hand through family the degeneracies of the lower classes. As well, I am not a Kremlin troll (although, if a Russian psy-ops happens to read this and wants to pay me…)

The current socio-economic system is designed by rootless, soulless, high-IQ, low-time preference, money-/status-grubbing homo economicus for benefit of those same homo economicus. It is a system for designed for intelligent sociopaths. Those who are rootless with high-IQ and low-time preference can succeed rather well in this system, but it destroys those who need rootedness or those who are who are low-IQ or high time preference.

Kevin says, “Nothing happened to them. There wasn’t some awful disaster.” But he’s wrong, there was a disaster, but no just one, multiple related disasters all occurring simeltaneously. Ones that would be missed by a rootless cosmopolitan like Williamson. These disasters include the sexual revolution, the long march, feminism, mass immigration, globalization/off-shoring, forced integration, the drug epidemic, mass TV propoganda, governmental growth, and cultural genocide.

Within a span of a few decades working-class whites saw their communities invaded and destroyed by immigrants and integration, the traditional sexual/moral framework destroyed and replaced by degenerate Hollywood mores, the collapse of restraining institutions such as the church and local community, and what forced into competition for what jobs weren’t off-shored to foreign places paying starvation wages with imported illegals willing to work for almost nothing.

Every support the white working class (and for that matter the black working class) had vanished within less than a generation. There was a concerted effort to destroy these supports, and this effort succeeded. Through minimal fault of their own the white working class was left with nothing holding them up.

[...]

People are not equal. Differing people and groups have differing levels of in-born ability to be responsible. You can talk personal responsibility all you want, but most people require cultural and institutional structures to help hold them personally responsible. Those structures are gone, they’ve been destroyed.

You can not expect natural peasants and yeomen to be able to properly hold up the responsibilities of natural aristocrats or priests.

Nature-defying leftists think they can remodel men and make them all into perfect new socialist men. All men are blank slates that can be molded by education to become perfect. Man is perfectable. Of course, every attempt at perfecting man has failed.

Modern conservatives, having whole-heartedly adopted liberalism, fall into the tabula rasa trap from a different angle. All men are capable of perfecting themselves, they just need to become rugged individualists and pull themselves up by their bootstraps. While personal responsibility and individual effort are important, to think that all men are capable of self-actualization in anomic isolation is just as nonsensical the New Soviet Man.

Most men need community, cultural, and institutional support to self-actualize.

[...]

None of this is to say that we should adopt socialist or communist policies where everybody gets free government handouts. That’s just another form of anomic, inhuman mammon-worship. There are other options besides anomic socialist mammon-worship and anomic corporatist mammon-worship.

Henri Pirenne

Wednesday, March 30th, 2016

Theodore Dalrymple briefly mentioned something that Henri Pirenne said, that barbarians made up only five percent of the population of the Roman Empire at the moment of its supposed collapse. Pirenne’s larger point was that Arab expansion led to Europe’s decline:

According to Pirenne the real break in Roman history occurred in the 8th century as a result of Arab expansion. Islamic conquest of the area of today’s south-eastern Turkey, Syria, Palestine, North Africa, Spain and Portugal ruptured economic ties to western Europe, cutting the region off from trade and turning it into a stagnant backwater, with wealth flowing out in the form of raw resources and nothing coming back. This began a steady decline and impoverishment so that, by the time of Charlemagne, western Europe had become almost entirely agrarian at a subsistence level, with no long-distance trade.

In a summary, Pirenne stated that “Without Islam, the Frankish Empire would probably never have existed, and Charlemagne, without Muhammad, would be inconceivable.” That is, he rejected the notion that barbarian invasions in the 4th and 5th centuries caused the collapse of the Roman Empire. Instead, the Muslim conquest of north Africa made the Mediterranean a barrier, cutting western Europe off from the east, enabling the Carolingians, especially Charlemagne, to create a new, distinctly western form of government. Pirenne used statistical data regarding money in support of his thesis. Much of his argument builds upon the disappearance from western Europe of items that had to come from outside. For example, the minting of gold coins north of the Alps stopped after the 7th century, indicating a loss of access to wealthier parts of the world. Papyrus, made only in Egypt, no longer appeared in northern Europe after the 7th century; writing reverted to using animal skins, indicating its economic isolation.

An Economist’s Rational Road to Christianity

Sunday, March 13th, 2016

Eric Falkenstein (@egfalken) takes his contrarianism to the next level, as he describes his rational road to Christianity:

  • Something created us
  • Created things have a purpose
  • The New Testament’s consistency with economics and psychology work as if our creator wrote it
  • ‘As if’ assumptions are often true

He links to a PDF of his Rational Argument for Christianity.

The Little Guy Will Pay for It

Tuesday, February 23rd, 2016

Michael Burry, the real-life star of Michael Lewis’s The Big Short and its film adaptaion, sees another crisis coming:

I am shocked that executives at some of the worst lenders were not punished for what they did. But this is the nature of these things. The ones running the machine did not get punished after the dot-com bubble either — all those VCs and dot-com executives still live in their mansions lining the 280 corridor on the San Francisco peninsula. The little guy will pay for it — the small investor, the borrower. Which is why the little guy needs to be warned to be more diligent and to be more suspicious of society’s sanctioned suits offering free money. It will always be seductive, but that’s the devil that wants your soul.

[...]

The biggest hope I had was that we would enter a new era of personal responsibility. Instead, we doubled down on blaming others, and this is long-term tragic. Too, the crisis, incredibly, made the biggest banks bigger. And it made the Federal Reserve, an unelected body, even more powerful and therefore more relevant. The major reform legislation, Dodd-Frank, was named after two guys bought and sold by special interests, and one of them should be shouldering a good amount of blame for the crisis. Banks were forced, by the government, to save some of the worst lenders in the housing bubble, then the government turned around and pilloried the banks for the crimes of the companies they were forced to acquire. The zero interest-rate policy broke the social contract for generations of hardworking Americans who saved for retirement, only to find their savings are not nearly enough. And the interest the Federal Reserve pays on the excess reserves of lending institutions broke the money multiplier and handcuffed lending to small and midsized enterprises, where the majority of job creation and upward mobility in wages occurs. Government policies and regulations in the postcrisis era have aided the hollowing-out of middle America far more than anything the private sector has done. These changes even expanded the wealth gap by making asset owners richer at the expense of renters. Maybe there are some positive changes in there, but it seems I fail to see beyond the absurdity.

[...]

The postcrisis perception, at least in the media, appears to be one of Americans being held down by Wall Street, by big companies in the private sector, and by the wealthy. Capitalism is on trial. I see it a little differently. If a lender offers me free money, I do not have to take it. And if I take it, I better understand all the terms, because there is no such thing as free money. That is just basic personal responsibility and common sense.

[...]

Well, we are right back at it: trying to stimulate growth through easy money. It hasn’t worked, but it’s the only tool the Fed’s got. Meanwhile, the Fed’s policies widen the wealth gap, which feeds political extremism, forcing gridlock in Washington. It seems the world is headed toward negative real interest rates on a global scale. This is toxic. Interest rates are used to price risk, and so in the current environment, the risk-pricing mechanism is broken. That is not healthy for an economy. We are building up terrific stresses in the system, and any fault lines there will certainly harm the outlook.

[...]

The idea that growth will remedy our debts is so addictive for politicians, but the citizens end up paying the price. The public sector has really stepped up as a consumer of debt. The Federal Reserve’s balance sheet is leveraged 77:1. Like I said, the absurdity, it just befuddles me.

Now he’s investing in… water?

Gimmick Economy

Wednesday, February 10th, 2016

Is society now focused on market capitalism because it is a fundamental theory, or because we have just lived through the era in which it was possible due to remarkable coincidences?

To begin to see the problem, recall that in previous eras innovations created high value occupations by automating or obviating those of lower value. This led to a heuristic that those who fear innovation do so because of a failure to appreciate newer opportunities. Software, however is different in this regard and the basic issue is familiar to any programmer who has used a debugger. Computer programs, like life itself, can be decomposed into two types of components:

  1. Loops which repeat with small variations.
  2. Rube Goldberg like processes which happen once.

If you randomly pause a computer program, you will almost certainly land in the former because the repetitive elements are what gives software its power, by dominating the running time of most all programs. Unfortunately, our skilled labor and professions currently look more like the former than the latter, which puts our educational system in the crosshairs of what software does brilliantly.

In short, what today’s flexible software is threatening is to “free” us from the drudgery of all repetitive tasks rather than those of lowest value, pushing us away from expertise (A) which we know how to impart, toward ingenious Rube Goldberg like opportunities (B) unsupported by any proven educational model. This shift in emphasis from jobs to opportunities is great news for a tiny number of creatives of today, but deeply troubling for a majority who depend on stable and cyclical work to feed families. The opportunities of the future should be many and lavishly rewarded, but it is unlikely that they will ever return in the form of stable jobs.

A next problem is that software replaces physical objects by small computer files. Such files have the twin attributes of what economists call public goods:

  1. The good must be inexhaustible (my use doesn’t preclude your use or reuse).
  2. The good must be non-excludable (the existence of the good means that everyone can benefit from it even if they do not pay for it).

Even die-hard proponents of market capitalism will cede that this public sector represents “market failure” where price and value become disconnected. Why should one elect to pay for an army when he will equally benefit from free riding on the payments of others? Thus in a traditional market economy, payment must be secured by threat of force in the form of compulsory taxes.

So long as public goods make up a minority of a market economy, taxes on non-public goods can be used to pay for the exception where price and value gap. But in the modern era, things made of atoms (e.g. vinyl albums) are being replaced by things made of bits (e.g. MP3 files). While 3D printing is still immature, it vividly showcases how the plans for an object will allow us to disintermediate its manufacturer. Hence, the previous edge case of market failure should be expected to claim an increasingly dominant share of the pie.

Assuming that a suite of such anthropic arguments can be made rigorous, what will this mean? In the first place, we should expect that because there is as yet no known alternative to market capitalism, central banks and government agencies publishing official statistics will be under increased pressure to keep up the illusion that market capitalism is recovering by manipulating whatever dials can be turned by law or fiat, giving birth to an interim “gimmick economy”.

If you look at your news feed, you will notice that the economic news no already longer makes much sense in traditional terms. We have strong growth without wage increases. Using Orwellian terms like “Quantitative Easing” or “Troubled Asset Relief”, central banks print money and transfer wealth to avoid the market’s verdict. Advertising and privacy transfer (rather than user fees) have become the business model of last resort for the Internet corporate giants.

Illiberal Reformers

Monday, February 1st, 2016

Thomas C. Leonard’s Illiberal Reformers is hard to classify politically:

Among his revelations: The minimum wage was created to destroy jobs; progressives (including the founders of this magazine [New Republic]) really did hate small businesses and they were all way too enthusiastic about Germany’s social structure. But Leonard’s personal politics are hard to read, and at the very least he’s invested in progressivism, writing that it’s “too important to be left to hagiography and obloquy.”

The illiberal reformers of Leonard’s title are the first generation of American economists, born between 1850 and 1870. Late nineteenth-century tycoons, their hearts full of social gospel and their pockets full of other people’s labor, founded colleges like Cornell, Stanford, Johns Hopkins, The University of Chicago, and Vanderbilt. These new schools weren’t bound to the classical curricula of their New England predecessors, and they prioritized practical research and creating experts. They promoted the study of “political economy” — “economics” by 1900 — and the discipline took academia by storm.

The first generation of American economists were not laissez-faire capitalists, as an observer might reasonably imagine based on the current state of the field. In fact, they were anything but. “As Christians they judged laissez faire to be morally unsound,” Leonard writes, “and as economists they declared it functionally obsolete.” The British (think Adam Smith) model was unsuited for the era of railroads, labor unions, and scientific management. They much preferred the German idea of society as a single organism. Granted the premise that individuals were shaped by the nation and not the other way around, progressive economists had to decide who would run the country. These people had to be unbiased, scientific, brilliant, and out for the public good. The progressive economists decided on themselves.

In the early twentieth century, progressives displayed an open contempt for individual rights. In a 1915 unsigned editorial at this magazine, the editors ridiculed the Bill of Rights as a joke. “They insist upon invoking abstract principles, instead of trying to determine for concrete cases whether social control should supersede individual initiative…how can we discuss that seriously?” The doctrine of natural rights will “prevent us from imposing a social ideal.” The progressives were able to unite idealism and pragmatism via science and the administrative state. What good was democracy if people voted against their collective interest? What expertise did the average American have in managing a state or a race? Black Americans in particular could not be trusted with the ballot. “The progressive goal was to improve the electorate,” Leonard writes, “not necessarily to expand it.” Jim Crow laws suppressed turnout in the South, but it fell in the North as well. New York state’s participation went from 88 percent in 1900 to 55 percent in 1920.

How the War Was Won

Monday, January 18th, 2016

Many Americans see their own country as having won WWII. After the French and British failed to stop the Nazis, the Americans came in and did what they couldn’t do.

More sophisticated Americans point to the entire Eastern Front, where the Soviets lost more men fighting the Nazis than everyone else combined.

In How the War was Won, Phillips Payson O’Brien argues that our air-sea power won the war after all:

Those who laud the Soviet contribution do so within a paradigm that understands the contribution to victory through manpower. O’Brien cannot deny that the USSR engaged a larger percentage of the Wehrmacht than the Western Allies. His argument is that the Second World War was primarily a mechanized war. The production and destruction of equipment is what decided the war in spite of the human cost of 70 million dead (civilians included).

The production of air and sea weaponry far outstripped that of land weaponry. As such, O’Brien argues that the air-sea war was more significant than the fight on the ground. For instance, the German army received only between 30–35% of production when it was lucky. A plurality of production effort was generally aimed at air weaponry. For instance, in May 1943 40% of German production efforts were spent on aircraft. American, British, and Japanese production efforts were similar, with the UK spending approximately one half of its production efforts on aircraft from 1940 onwards. Naval production for each of these four nations also typically outstripped that of armoured fighting vehicles (AFVs) associated with the great land battles.

Air and sea power allowed for more efficient destruction of Axis equipment. This destruction could be achieved in three phases. “Pre-production” destruction prevented the Germans and Japanese from producing weaponry in the first place by damaging factories and destroying or preventing the arrival of raw materials. “Production” destruction meant destroying equipment as it was being assembled in the factories. “Deployment” destruction refers to equipment lost as it was in transit from assembly plants to the front lines. The Western Allies — mainly Great Britain and the United States — were primarily responsible for these equipment losses. The Russians did not maintain a very large navy, nor did they invest in many large, four-engined bombers to strike at the German economy.

(Hat tip to T. Greer.)

Comfort with Numbers

Thursday, December 31st, 2015

This summary of Superforecasting made one point that rang especially true to me:

The superforecasters rarely use sophisticated mathematical models to make their forecasts, but they are uniformly highly numerate. Comfort with numbers is a prerequisite for making good forecasts but fancy quantitative models are not.

The Point of Money

Tuesday, December 22nd, 2015

Spandrell reminds us that the point of money is to be a cognitive aid for remembering favors:

I did something for you, if I am not to be a sucker I’ll want to get something back from you eventually. So grab me that shiny shell you use as a wristband, so I can remember. David Graeber made a similar point on his famous book about Debt, which is pretty good if you get the fact that Graeber is a lame communist and adjust your skimming accordingly.

The problem is that this tech we use to remember favors leads us to spent huge amount of valuable labor in manufacturing shell accessories, beads, mining metal and wasting it in making coins. Whole empires were built, entire nations killed and enslaved in the process of looking for mines where perfectly good metal could be extracted to waste in making little coins with the face of a king to distribute so people can remember who made a favor to whom. That’s how it works though.

I am endlessly fascinated by this kind of evolutionary process where everybody runs around doing completely pointless stuff which nobody benefits from.