The Lazy Goldmaker is Azeroth’s most famous financial guru

Thursday, September 13th, 2018

The Lazy Goldmaker is the World of Warcraft’s financial guru:

In August, shortly after the release of World of Warcraft’s seventh expansion, Battle For Azeroth, The Lazy Goldmaker posted one of his meticulous spreadsheets to the WoW economy subreddit. It contains a set of expertly appraised auction house margins for all of Azeroth’s many tradeskills—blacksmithed weapons, stat-buffing cooking recipes, excavated gems.

[...]

The Goldmaker himself chooses to remain anonymous, but he does disclose that he is 30 years old and Norwegian. It was during the Burning Crusade, more than a decade ago, that he first became interested in the economic side of Blizzard’s immortal MMO, and he’s been operating The Lazy Goldmaker blog—where he posts columns, analysis, and other musings—since 2016, shortly after the launch of the Legion expansion.

[...]

World of Warcraft lets The Goldmaker experiment—he’ll spend hours tinkering with the untapped capital of, say, the profit yields of the new Inscription recipes—and he’ll report back on his blog detailing each of his successes and failures, much to the glee of his international bulwark of disciples. After all, it’s not like he’s risking anything truly disastrous or life-changing. As the Goldmaker reiterates to me, we’re talking about the currency of elves, dwarves, and orcs in a computer game. He can afford to be a little cavalier with his investments, because “it’s just pixels at the end of the day.”

“I’m always looking for markets that players aren’t focusing on,” he says. “Because there are only so many people in the gold-making scene, so there’s always going to be something that players aren’t looking at.”

[...]

You can read the fundamentals of how The Goldmaker breaks down his economic principles in a beginner’s guide he posted to his website this March. “World of Warcraft is a game about constantly improving your character,” he writes, and as a financial opportunist, it’s your job to provide avenues to either help those characters boost their power levels or beautify their models. So, as an upstart auction house shark, you’ll learn to farm efficient materials in Azeroth, target specific high-value recipes that you can turn around quickly, and buy out supplies when they’re abundant and repost them when they’re scarce.

Posted in Economics, Games | No Comments »

Doomsday prepping for less crazy folk

Friday, August 24th, 2018

Michal Zalewski discusses doomsday prepping for less crazy folk:

The prepper culture begs to be taken with a grain of salt. In a sense, it has all the makings of a doomsday cult: a tribe of unkempt misfits who hoard gold bullion, study herbalism, and preach about the imminent collapse of our society.

Today, we see such worries as absurd. It’s not that life-altering disasters are rare: every year, we hear about millions of people displaced by wildfires, earthquakes, hurricanes, or floods. Heck, not a decade goes by without at least one first-class democracy lapsing into armed conflict or fiscal disarray. But having grown up in a period of unprecedented prosperity and calm, we take our way of life for granted – and find it difficult to believe that an episode of bad weather or a currency crisis could destroy almost everything we worked for to date.

I suspect that we dismiss such hazards not only because they seem surreal, but also because worrying about them makes us feel helpless and lost. What’s more, we follow the same instincts to tune out far more pedestrian and avoidable risks; for example, most of us don’t plan ahead for losing a job, for dealing with a week-long water outage, or for surviving the night if our home goes up in smoke.

For many, the singular strategy for dealing with such dangers is to pray for the government to bail us out. But no matter if our elected officials prefer to school us with passages from Milton Friedman or from Thomas Piketty, the hard truth is that no state can provide a robust safety net for all of life’s likely contingencies; in most places, government-run social programs are severely deficient in funding, in efficiency, and in scope. Large-scale disasters pit us against even worse odds; from New Orleans in 2005 to Fukushima in 2011, there are countless stories of people left behind due to political dysfunction, poorly allocated resources, or lost paperwork.

And so, the purpose of this guide is to combat the mindset of learned helplessness by promoting simple, level-headed, personal preparedness techniques that are easy to implement, don’t cost much, and will probably help you cope with whatever life throws your way.

Posted in Economics | 8 Comments »

Has the United States now arrived at the brink of a veritable civil war?

Wednesday, August 15th, 2018

How, when, and why, Victor Davis Hanson asks, has the United States now arrived at the brink of a veritable civil war?

Globalization

Globalization had an unfortunate effect of undermining national unity. It created new iconic billionaires in high tech and finance, and their subsidiaries of coastal elites, while hollowing out the muscular jobs largely in the American interior.

Ideologies and apologies accumulated to justify the new divide. In a reversal of cause and effect, losers, crazies, clingers, American “East Germans,” and deplorables themselves were blamed for driving industries out of their neighborhoods (as if the characters out of Duck Dynasty or Ax Men turned off potential employers). Or, more charitably to the elites, the muscular classes were too racist, xenophobic, or dense to get with the globalist agenda, and deserved the ostracism and isolation they suffered from the new “world is flat” community. London and New York shared far more cultural affinities than did New York and Salt Lake City.

Meanwhile, the naturally progressive, more enlightened, and certainly cooler and hipper transcended their parents’ parochialism and therefore plugged in properly to the global project. And they felt that they were rightly compensated for both their talent and their ideological commitment to building a better post-American, globalized world.

One cultural artifact was that as our techies and financiers became rich, as did those who engaged in electric paper across time and space (lawyers, academics, insurers, investors, bankers, bureaucratic managers), the value of muscularity and the trades was deprecated. That was a strange development. After all, prestige cars, kitchen upgrades, gentrified home remodels, and niche food were never more in demand by the new elite. But who exactly laid the tile, put the engine inside the cars, grew the arugula, or put slate on the new hip roof?

In this same era, a series of global financial shocks, from the dot-com bust to the more radical 2008 near–financial meltdown, reflected a radical ongoing restructuring in American middle-class life, characterized by stagnant net income, family disintegration, and eroding consumer confidence. No longer were youth so ready to marry in their early twenties, buy a home, and raise a family of four or five. Compensatory ideology made the necessary adjustments to explain the economic doldrums and began to characterize what was impossible first as undesirable and later as near toxic. Pajama Boy sipping hot chocolate in his jammies, and the government-subsidized Life of Julia profile, became our new American Gothic.

High Tech

The mass production of cheap consumer goods, most assembled abroad, redefined wealth or, rather, disguised poverty. Suddenly the lower middle classes and the poor had in their palms the telecommunications power of the Pentagon of the 1970s, the computing force of IBM in the 1980s, and the entertainment diversity of the rich of the 1990s. They could purchase big screens for a fraction of what their grandparents paid for black-and-white televisions and with a computer be entertained just as well cocooning in their basement as by going out to a concert, movie, or football game.

The Campus

Higher education surely helped split the country in two. In the 1980s, the universities embraced two antithetical agendas, both costly and reliant on borrowed money. On the one hand, campuses competed for scarcer students by styling themselves as Club Med–type resorts with costly upscale dorms, tony student-union centers, lavish gyms, and an array of in loco parentis social services. The net effect was to make colleges responsible not so much for education, but more for shielding now-fragile youth from the supposed reactionary forces that would buffet them after graduation.

An entire generation of students left college with record debt, mostly ignorant of the skills necessary to read, write, and argue effectively, lacking a general body of shared knowledge — and angry. They were often arrogant in their determination to actualize the ideologies of their professors in the real world. A generation ignorant, arrogant, and poor is a prescription for social volatility.

Illegal Immigration

Immigration was recalibrated hand-in-glove by progressives who wanted a new demographic to vote for leftist politicians and by Chamber of Commerce conservatives who wished an unlimited pool of cheap unskilled labor. The result was waves of illegal, non-diverse immigrants who arrived at precisely the moment when the old melting pot was under cultural assault.

The Obama Project

We forget especially the role of Barack Obama. He ran as a Biden Democrat renouncing gay marriage, saying, “I believe marriage is between a man and a woman. I am not in favor of gay marriage.” Then he “evolved” on the question and created a climate in which to agree with this position could get one fired. He promised to close the border and reduce illegal immigration: “We will try to do more to speed the deportation of illegal aliens who are arrested for crimes, to better identify illegal aliens in the workplace. We are a nation of immigrants. But we are also a nation of laws.” Then he institutionalized the idea that to agree with that now-abandoned agenda was a career-ender.

Read the whole thing. (I edited down each point.)

Posted in Economics, Education, Policy | 11 Comments »

Organisation is suppression

Sunday, August 12th, 2018

Nick Land argues that organisation is suppression in a 1997 Wired UK interview:

According to Dr. Nick Land, lecturer in Continental Philosophy at the University of Warwick (a title that he hates), pretty much everything the Western tradition has come up with in the way of thinking about itself and the world around it is not only wrong but bad. Using the work of French writers Gilles Deleuze and Felix Guattari as a jumping off point, Land substitutes a vision of a world of flux forever constructing and reconstructing itself via the operations of countless “machinic processes” for the models supplied by the linear, rationalist thought of the classical, modernist and postmodernist traditions. He draws parallels between the processes of late twentieth century capitalism, fascism, and schizophrenia, and strongly resists attempts to categorise his work, ridiculing the notion that there is even such a thing as “philosophy”. He has no time for the academic consensus that you have to produce a turgid tome every two years to prove that you are “serious”. At present, his favoured medium is multimedia performance, and he works closely with arts collective Orphan Drift.

James Flint: Why is it that much of the content on the Internet, this supposedly amazingly democratic, anarchic forum, is becoming dull and corporate and organised?

Nick Land: Your question suggests that there’s some pre-existing social pool of liberatory, revolutionary, emancipatory creative potential that could be expected to spontaneously express itself as soon as it had an opportunity to do so. But there is no such intrinsic power of innovation latent in the human organism that’s just waiting to bounce out onto the web. So the question really is what are the assemblages that are emerging? And correspondingly to what extent are distributed systems becoming operative as such?

JF: So how do systems which are initially freeform and distributed give way to centralised power structures?

NL: You have to understand that organisation involves subordinating low level units to some higher level functional program. In the most extreme cases, like in biological organisms, every cell is defunctionalised, turned off, except for that one specialised function that it is allocated by the organic totality. And hence the preponderant part of its potential is deactivated in the interests of some higher level unity. That’s why the more organised things get, the less interesting their behaviour becomes — “interesting” simply meaning here how freely they explore a range of possible behaviours, or how “nomadic” they are.

JF: I take it from that that you are not as keen on the idea of “self organsiation” as some thinkers.

NL: Organisation is suppression. It’s more accurate to say that systems which avoid self-organisation whilst maintaining trajectories of productive innovation end up parasitically inhabited by organisms of all kinds, whether those organism are biological organisms, corporations or state systems. The history of life on this planet right through to Microsoft is of the successive suppression of distributed, innovated systems.

JF: Can you give me an example?

NL: Well, first of all one has autocatalytic chemical systems that are subject to code control by RNA. When RNA begins to complicate enough to start exhibiting various kinds of lateral interference and experimental deviations, it becomes overcoded by DNA. The absolute crucial event in the whole history of the planet is the point at which the earth’s bacterial life system — which is very loosely code controlled, comparatively — is subjected to exterminatory gassing by oxygen-emitting, massively highly structured securo-maniac metazoan organisms. Many of the bacteria disappear except insofar as they are captured as productive subcomponents of highly organised, nucleated, concentrational systems which are now what dominate all life on the planet and have done for five hundred million years.

JF: So how would you interpret the classical picture of evolution as a tree-like structure?

NL: The bacterial net is successively suppressed by levels of organisation, tiers of control that have a tree-like structure. But that tree-like structure is not at all inherent, it’s actually produced by organisation. It’s incredibly similar to the relation between corporations and markets, in the sense that markets are potentially open ended, distributed transaction systems which are subjected to regularisation, hierarchical structuralisation, specialisation and concentration by the corporate structures that superimpose themselves upon them.

JF: Might the widespread use of computers and the net challenge these structures?

NL: The thing about the potentialities of massively distributed computation capacity is that they disperse productive potential. And there’s a certain sense in which the personal computer introduces a fundamental break in the traditional structure of investment by being simultaneously a piece of consumer electronics and a piece of productive apparatus. But although this is the case, the old structures are being artificially maintained.

JF: How?

NL: Buying a personal computer is treated as productive investment if it is done by a corporate entity and as a piece of personal consumption if it is done by dis-integrated [sic] consumers. And presumably this kind of trompe d’oeil is getting results, because the intersection between software, broadcast media and telecommunications is at the moment in an absolute orgiastic state of capital concentration. And clearly the key actors in this sector think that their strategies are based upon some viable avenue of continued advantage — a continuation of the modernist situation of economies of scale, if you like. Their picture is clearly not one of disintegration into small scale horizontal agents.

JF: But can’t the net itself help us overcome these illusions, through increasingly universal access to knowledge and communication?

NL: Certainly the great potential in the technical infrastructure of the net is the telecoms base rather than the broadcasting base. This is not a very original thought, but nevertheless it seems of crucial importance. Capitalist and state organisations have an absolutely immense investment in disabling the telecoms dynamics of the forthcoming digital media system. But that doesn’t mean that much has yet been done that is particularly exciting with this telecoms infrastructure. The more of it the better, the more that you have a multi-switched high bandwidth communications oriented digital system rather than a one to many broadcast oriented, media-production-media-consumption oriented system, the more chance there is of actually eliciting innovative behaviour out of innovative systems. But I’d be very cynical with regard to the extent to which we have seen any of that yet.

Posted in Economics, Policy, Science | 3 Comments »

Extraordinarily pessimistic, and yet still extraordinarily motivational

Saturday, August 11th, 2018

Peter Thiel speaks to Die Weltwoche, in English — after beginning the conversation in German with an American accent:

At the moment, Silicon Valley still looks all-powerful.

The big question is: Will the future of the computer age be decentralized or centralized? Back in the 60s, you had this Star Trek idea of an IBM computer running a planet for thousands of years, where people were happy but unfree. Today, again we are thinking that it is going to be centralized: Big companies, big governments, surveillance states like China. When we started Paypal in 1999, it was exactly the opposite: This vision of a libertarian, anarchistic internet. History tells me that the pendulum has swung back and forth. So, today I would bet on decentralization and on more privacy. I don’t think we are at the end of history and it’s just going to end in the world surveillance state.

What has become the problem with Silicon Valley?

One of the paradoxes of Silicon Valley is that this internet technology revolution is supposed to get rid of the tyranny of place and geography. And yet, it was all happening in one place. There is, however, always a tipping point with network effects. At the beginning, they are very positive, but at some point they can become negative. In economic terms, they become negative when the costs get too high. If you have to pay 2000 dollars a month for a one-bedroom apartment in San Francisco, maybe that is a sign of the boom. But when it is 4000 dollars a month – with a city government where the police don’t work, the roads don’t work, the schools don’t work – 4000 dollars is just a very high tax, in effect. There is also a cultural component: At one point, the wisdom of crowds tips into the madness of crowds – and you end up with a sort of conformity, lemming-like behavior. It actually becomes a somewhat less creative place.

You label yourself a “contrarian”. How did you become one? How does one become a contrarian?

It is a label that has been given to me, not one that I give normally to myself. I don’t think a contrarian per se is the right thing to be. A pure contrarian just attaches a minus sign to whatever the crowd thinks. I don’t think it should be as simple as that. What I think is important for people is to try to think very hard for oneself. But yes, I do deeply mistrust all these kinds of almost hypnotic mass and crowd phenomena and I think they happen to a disturbing degree.

Why do they happen in a supposedly enlightened society?

The advanced technological civilization of the early 21st century is a complicated world where it is not possible for anybody to think through everything for themselves. You cannot be a polymath in quite the way people were in the 18th century enlightenments. You cannot be like Goethe. So there is some need to listen to experts, to defer to other people. And then, there is always the danger of that going too far and people not thinking critically. This happens in spades in Silicon Valley. There is certainly something about it that made it very prone to the dotcom bubble in the nineties or to the cleantech bubble in the last decade.

Tell us about how your support for Donald Trump for president of the United States was received in the Silicon Valley.

That was quite striking. My support for Donald Trump was, on some level, the least contrarian thing I have ever done. If it is half the country, it cannot be that contrarian. And yet, in the Silicon Valley context it has felt extraordinarily contrarian. It is not that politics is the most important thing. I think there are many things that are much more important than politics: Science is more important, technology is more important, philosophy, religion… We normally think that political correctness is literally about politics. But politics is sort of a natural place to start. If you cannot even have differences of opinion in politics, that’s a sign that things are very unhealthy.

What was unique about the Trump campaign?

Republican candidates have always been way too glibly optimistic about everything. I’ve thought for many years that it was critical for the Republicans to somehow run a more pessimistic candidate just because that was a more honest description of what was going on. It is very hard to know how to do that because if you are too pessimistic, you demotivate people: If everything is just going down the drain, no point even voting for me. Somehow, the genius of Trump was that it was extraordinarily pessimistic, and yet still extraordinarily motivational. The slogan “Make America Great Again”, the most pessimistic slogan of any presidential candidate in a hundred years: The country used to be great, it is no longer great. That is a shocking, shocking statement!

Another issue that is debated very controversially is Trump’s trade policy. People are shocked by his imposition of tariffs.

At the center of this is the question with China. The US exports something like 100 bn a year to China, we import 475 bn. What’s extraordinary, is that if we had a globalizing world, we would actually expect the reverse to hold: you would expect the US to have trade surpluses with China and current account surpluses because we would expect that there is a higher return in China because it is a faster growing country than the US. This is what it looked, let’s say, in 1900, when Great Britain had a trade surplus of 2 percent and a current account surplus of 4 percent of GDP. And the extra capital was invested in Argentinean railroads or Russian bonds.

The fact that the US does not have a surplus, that actually it has a massive deficit, tells you that something is completely wrong with the standard globalization picture that we have. It is sort of like: Chinese peasants are saving money and it is flowing uphill into low-return investments in the US and bonds in Europe with negative interest rates. There is something completely crazy about that dynamic.

What’s your view on Switzerland?

Switzerland is an extraordinarily well functioning country. I don’t like the neighborhood it is in, but it is really remarkable. If you compare Switzerland with Austria or Scandinavia, human capital is equally good but the per capita income in Switzerland is 50 to 100 percent higher. It does tell you that there is something that people are doing that is dramatically better. The question is whether its cities are big enough. If you are a talented young person: Do you move to Geneva or do you move to London? It was good if Switzerland had a somewhat better answer to that sort of question. But as I stated at the beginning, I think the technology will be more decentralized and so I think what has been a limitation for Switzerland will be much less going forward.

Are you jealous that you didn’t invent Bitcoin?

It is hard to be jealous of something that you weren’t remotely capable of doing. I have to acknowledge I would never come up with anything like that. So I can’t even be jealous. I was very interested in all these virtual currencies in the late 90s. We started Paypal thinking about that, but at the end it was a payment system for existing fiat money. Somehow, that experience weirdly primed me to underestimate Bitcoin early on. It was on the radar in 2011 and there were people telling me I should buy it, and we didn’t really get involved until 2014. When you have experiences and you learn things, it is often very dangerous and my experience in the late 90s was that cryptocurrencies didn’t work. And it was largely correct, but you always have to be open to think about it.

(Those are just some of the questions and answers.)

Posted in Business, Economics, Policy | 2 Comments »

What would the decline of America look like?

Tuesday, July 31st, 2018

So, Tyler Cowen asks, what would the decline of America look like?

In recent years, the underlying rate of productivity growth often has been about 1 percent, and rates of economic growth are not even half of what they used to be. Meanwhile, America will have to increase taxes or reduce spending by about $2,200 per taxpayer per year to keep the national debt-to-GDP ratio from rising ever higher, and that figure predates the Trump tax cuts. To fund that shortfall, the U.S. will cut back on infrastructure maintenance. At least one-third of this country will end up looking like — forgive the colloquial phrase — “a dump.” The racial wealth gap will not be narrowed.

Aging and entitlements will force the president, whether Democratic or Republican, to look for a mix of spending cuts and tax increases. The spending cuts will diminish the range of the military, and the tax hikes will ensure that economic growth doesn’t pick up. The integrity of Medicare and Social Security will be (mostly) protected, but the U.S. will lose the ability to project power around the globe.

Over a period of less than five years, China will retake Taiwan and also bring much of East and Southeast Asia into a much tighter sphere of influence. Turkey and Saudi Arabia will build nuclear weapons and become dominant players in their regions. Russia will continue to nibble at the borders of neighboring states, including Latvia and Estonia, and NATO will lose its credibility, except for a few bilateral relationships, such as with the U.K. Parts of Eastern Europe will return to fascism. NAFTA will exist on paper, but it will be under perpetual renegotiation and hemispheric relations will fray.

One area of major technological advance will be drugs, and I don’t mean beneficial pharmaceuticals. The opioid crisis eventually will subside, but new waves of ever more powerful addictive substances will arise. Easy home lab production will make interdiction at the border fruitless. More than 80,000 Americans already die from alcohol every year, and more than 60,000 from drug overdoses. Total losses from addiction will rise.

Other technologies will indeed provide a bounty, but not all of it will be positive. Artificial intelligence and facial and gait surveillance will lead to unprecedented invasions of privacy, causing another 1 or 2 percent of Americans to decide to “live off the grid.” The impact of assassin drones will be curbed — by filling the skies with police drones. Public crimes will plummet, but public spaces in major cities will have a depressing sameness, due to the near-total absence of spontaneous behavior. Advances in recording technologies will make most conversations in public, and many in private, remarkably bland.

Driverless cars will be “the next big thing,” but they’ll make roads more crowded. The elderly will insist on their driverless car rights, and defeat economists’ proposals for new congestion charges. Americans will spend another hour a day in their cars, although texting and watching TV, rather than driving.

The very worst fears about climate change won’t come true. But a nagging succession of storms, plus required adjustments along the coasts to accommodate a rise in sea level, will eat up about 0.5 percent worth of economic growth. So when America does occasionally approach 3 percent growth, in terms of living standards it may feel more like 2 percent.

One of his “petty gripes” looks familiar:

Due to the limited selection on Netflix streaming, fewer and fewer people will watch the great movies of the past, thereby neutering the durability of the 20th century’s greatest art form. And live performances of classical music — another of the West’s most significant and beautiful achievements — will cease to be regular in all but a few major U.S. cities.

Posted in Economics, Policy | 7 Comments »

It starts with Fibonacci

Monday, July 30th, 2018

If you ever go to a Robeco presentation, Eric Falkenstein says, be sure to hit them up for their Concise Financial History of Europe:

It starts with Fibonacci introducing the Arabic number system in 1202, but interestingly the Florentine bankers prevented anything but Roman numerals as of 1299, and the Medici’s didn’t adopt Arabic numerals until 1500.

The Florentine bankers Bardi, Peruzzi, and Acciaiuoli, who prospered from 1300 to 1340, left a lot of documentation about their business. The Medicis then dominated from 1397–1494, followed by the Fuggers, and then the Rothschilds from 1800-1900. Interestingly, the Rothschild patriarch created the perfect family business, putting his five sons in key cities throughout Europe, allowing them to arbitrage the different exchange rates common to markets that are not fully integrated. Last year Bitcoin often traded at prices 5% higher in Korea, but it is difficult to move money in and out of Korea. The only way to arb this requires a non-formal relationship with someone in Korea, like a brother. You then buy in the US while your brother sells there, settling when you meet for a holiday.

Jan notes the rise of finance from Northern Italy, to Bruges, then Antwerp (1500-1550), and then Amsterdam. As the Dutch East India company was the first traded stock (1602) and prospered throughout the 17th century, Amsterdam was well situated. Amsterdam also reduced the uncertainty caused by the many coins and their various levels of debasement by requiring every transaction above 600 guilders to go through the Bank of Amsterdam, which kept a 100% reserve ratio and cleaned up the system by melting down ‘bad’ coins.

The English are fond of deprecating the Dutch — Dutch Uncle, courage, date — but they really owe the Dutch quite a bit. The financial center of Amsterdam literally moved to London around 1680, as when Dutch stadtholder William of Orange took over England via the Glorious Revolution in 1688, it gave them not only a Bill of Rights that limited monarchical power, it also created the Bank of England, tradable bonds, and an active London stock market. The start of the Industrial Revolution is often dated around 1750 centered in London, and surely it would have taken a lot longer without those innovations.

There was a simple way to get around the Catholic prohibition on interest. The 14th-century Florentine bankers simply used different FX rates on contracts. As FX rates could fluctuate the bill was not considered a loan and so not usury. Explicit loans were also available, but they would have been more like ‘payday’ lending today, a business dominated by two outsider groups: Jews who could charge interest to non-Jews, and pawnbrokers nicknamed Lombards, whose name underlies the ‘Lombard Streets’ found in many financial districts.

Posted in Business, Economics | No Comments »

Poor spending habits explain the persistence of the wealth gap

Sunday, July 22nd, 2018

There is arguably no racial disparity more striking than the wealth gap, Coleman Hughes argues:

While the median white household earns just 65 percent more income than its black counterpart, its net worth is fully ten times as high. And, unlike income, which individuals earn in their own lifetimes, wealth accrues over generations, and whites are more than three times as likely as blacks to inherit money from their families. In the public debate on racial inequality, the wealth gap is among the sharpest arrows in the progressive quiver.

[...]

Although it is true that the median income of white men more than tripled between 1939 and 1960 (rising from 1,112 dollars to 5,137 dollars), the median income of black men more than quintupled (rising from 460 dollars to 3,075 dollars).9 Black women, too, saw their incomes grow at a faster rate than white women over the same timespan.10 Baradaran makes the same mistake in her description of life for blacks in the 1940s and 50s: “poverty led to institutional breakdown, which led to more poverty.”11 But between 1940 and 1960 the black poverty rate fell from 87 percent to 47 percent, before any significant civil rights gains were made.12

[...]

If wealth differences were largely explained by America’s history of favoring certain groups over others, then it would be hard to explain why Asian-Americans, who were never favored, are on track to become wealthier than whites.

Nor can historical racism explain wealth disparities between groups of the same race. A 2015 survey of wealth in Boston found that the median black household had only 8 dollars of wealth. Newsweek reported this fact under the heading “Racism in Boston.” But the 8 dollar figure only pertained to black Bostonians of American ancestry; black Bostonians of Caribbean ancestry had 12,000 dollars of wealth, despite having identical rates of college graduation, only slightly higher incomes, and being equally black in the same city.

Similar disparities emerge when people are grouped by religion. A 2003 study found that Jewish households had a 7-to-1 wealth advantage over Conservative Protestant households, despite the fact that Protestants have been favored over Jews for most of American history. Because facts like these discredit the assumption that government favoritism drives wealth accrual, they don’t make it into the progressive narrative. When all the facts are included, the story changes: wealth is not handed from the top down. It is produced by a bottom-up process involving millions of individuals bringing their skills, habits, and knowledge — attributes which vary from group to group — to bear on valuable tasks.

[...]

No element of culture harms black wealth accrual more directly than spending patterns. Nielsen, one of the world’s leading market research firms, keeps extensive data on American consumer behavior, broken down demographically. A 2017 Nielsen report found that, compared to white women, black women were 14 percent more likely to own a luxury vehicle, 16 percent more likely to purchase costume jewelry, and 9 percent more likely to purchase fine jewelry. A similar Nielsen report from 2013 found that, while only 62 percent of all Americans owned a smartphone, 71 percent of blacks owned one. Moreover, all of these spending differences were unconditional on wealth and income.

To what extent do poor spending habits explain the persistence of the wealth gap? Economists at the University of Chicago and the University of Pennsylvania asked this question after analyzing 16 years of nationally representative data from the Consumer Expenditure Survey. Consistent with the Nielsen data, they found that blacks with comparable incomes to whites spent 17 percent less on education, and 32 percent more (an extra $2300 per year in 2005 dollars) on ‘visible goods’ — defined as cars, jewelry, and clothes. What’s more, “after controlling for visible spending,” they concluded that the “wealth gap between Blacks and Whites, conditional on permanent income, declines by 50 percent.” To be clear, that 50 percent figure doesn’t pertain to the total wealth gap, but to the proportion of the gap that remains after income is taken into account — which was 40 percent. The upshot: the fact that blacks spent more on cars, jewelry, and clothes explained fully 20 percent of the total racial wealth gap.

To make matters worse, spending patterns are just one part of a larger set of financial skills on which blacks lag behind. Researchers at the Federal Reserve Bank of St. Louis followed over 40,000 families from 1989 to 2013, tracking their wealth accumulation and financial decisions. They developed a financial health scale, ranging from 0 to 5, that measured the degree to which families made “routine financial health choices that contribute to wealth accumulation” — e.g., saving any amount of money, paying credit card bills on time, having a low debt-to-income ratio, etc. At 3.12, Asian families scored the highest, followed by whites at 3.11, Hispanics at 2.71, and blacks at 2.63.

Next, they asked if education accounted for the differences in financial habits by limiting the comparison to middle-aged families with advanced degrees. Surprisingly, they found that the racial gap in financial health-scores didn’t shrink; it widened. Highly-educated Asian families scored 3.49, comparable whites scored 3.38, comparable Hispanics scored 2.94, and comparable blacks remained far behind at 2.66. Thus, the study authors concluded, neither “periodic shortages of time or money” nor “lower educational attainment” were the driving forces behind the differences in financial decision-making.

Posted in Economics, Policy | 6 Comments »

Mercantilism was never about economics

Monday, July 9th, 2018

Mercantilism was never about economics, Ben Landau-Taylor explains:

I believe mercantilist policies were the central government’s solution to the problem of taxation. While modern governments can impose taxes almost arbitrarily, early modern governments could not. Royalty made money from the farmland they owned, but as the economic center of gravity moved from the farms to the towns, this became less important, and they needed more money. The royalty lacked the local knowledge and “boots on the ground” to collect taxes outside of their demesne, and so had to act through the local power holders. In the manors, this meant acting through the nobility. (That’s a complicated topic beyond the scope of this piece, so I’ll just gesture at the British Parliament and the civil wars that accompanied its origins as an example of the power struggles this provoked.) In the towns, this meant acting through the guilds.

It wasn’t practical to simply extort money from the guilds, so they ended up in a more symbiotic relationship with the state. Essentially, the deal was that that the state would use force to shut down the guild’s competition, and in return the guild would pay taxes and help administrate their collection. In other words, the state would sell a monopoly to the guild. The guild would then submit to the collection of tariffs, or to paying duties on their merchandise, or some other tax on their transactions. (Notably, I know of no cases in this period where income or wealth were taxed directly. States couldn’t get away with that until later.) Jean-Baptiste Colbert pursued this policy more brazenly and systematically than anyone else I’ve looked at.

Through this lens, the mercantilist policies make more sense. The focus on money was because the purpose was to collect money, and so the central government wanted to bring more money into the country and track it as precisely as possible. The hodgepodge of regulations follows no systematic rule of economics, but does follow the pattern of a symbiotic trade between the state and the guilds. For example, a punitive tariff on imported wine will raise some money for the state, and more importantly, it is a favor to the domestic winemaker’s guild (which pays taxes, unlike foreign winemakers). Granting a monopoly to a favored shipping company makes no sense as an economic policy, but does make sense as a taxation policy.

Of course, whenever the state is pursuing a course of action, there will arise a demand for intellectual arguments that the state policies serve the common good, and thinkers will arise to fill this demand. Such thinkers made arguments for mercantilist policies, and some then generalized these arguments and made further recommendations. However, I have seen no evidence that these thinkers were influential or their recommendations adopted, and suspect that they had negligible effects.

Nevertheless, these intellectuals made a convenient foil for Adam Smith and his peers. By casting them as his foes, Smith was able to demolish them and demonstrate his superiority, thereby associating his own program with progress and rationalism, and leaving his opponents no intellectual ground to retreat to. (Smith was a capable persuader with sophisticated models of his audience, although many of his peers were not.) I think the real story is that Smith’s program was possible because his true foes, the guild merchants, were no longer necessary to the state due to the institutionalization of taxation infrastructure and/or the nascent factory system. However, because every historian of economics has read Smith, his account is widely known; and because his narrative of progress and rationalism matches modern sensibilities, his account is widely accepted.

Posted in Economics, Policy | 6 Comments »

These smug pilots have lost touch with regular passengers like us

Wednesday, June 20th, 2018

What’s the best thing to do on an airplane? Twitter fight, Nassim Nicholas Taleb says:

I tried to get in a fight with an Indian fellow who’s repeating that story that we’re refusing expertise at all. Remember that cartoon? They’re imitating that cartoon in The New Yorker that shows people with the sign that they don’t need the expertise of the pilot.

“These smug pilots have lost touch with regular passengers like us. Who thinks I should fly the plane?”

“These smug pilots have lost touch with regular passengers like us. Who thinks I should fly the plane?”

You cannot compare a macroeconomist to a pilot. There are two classes of experts. Belly dancers are experts at belly dancing. The people who steal radios from cars are experts at stealing radios from cars. Dentists are experts at dentistry. I’m not sure macroeconomists know anything about anything.

Because there’s no feedback, so we don’t know. Maybe they know. Policymakers or people in the State Department, I’m not sure they know anything because there’s no feedback. We definitely know that a carpenter is an expert at carpentry, you see?

Posted in Economics, Nassim Nicholas Taleb, Policy | 9 Comments »

You get all the things that you want done for 2 percent

Monday, June 18th, 2018

Is Singapore antifragile?

Singapore has size going for it. You see that we’re talking about a city-state.

Who’s gonna invade it? One thing I’ve learned from history, particularly the Phoenicians. The Phoenicians don’t really have an army or an empire. At some point they had some army, but you might say it’s not economically viable. Why? When you come to invade them, unless you’re Nebuchadnezzar, and supposedly the history books say that he was very nasty, but then fact-checking take place. The genetics don’t actually show what really may have happened.

A guy comes in, very bloodthirsty, comes to you, and you tell him, “Listen, what do you want? You kill us all, you get nothing. Land is not interesting. What are you going to get? We’ll give you 5 percent. What do you want, 5 percent of something or 100 percent of nothing?”

That’s how the Phoenicians operated. Someone would come in. They had a hiccup with Alexander, one pound higher than a hiccup with Alexander.

They had an ego problem on both sides, but other than that, it worked very well as a system.

[The Seleucids did conquer the Phoenicians, right?]

The Phoenicians? No, the Seleucids came in, they said, “OK.” The system, at the time, was patronage. You come in, you’re a vassal state.

You guys here, you don’t understand. I live in New York City, so I have two options. One, pay the state — with all of this now, it’s going to go 50-some percent taxes — and you almost get nothing. Or, you can go to mafia now and give them 2 percent, and you get protection.

You get all the things that you want done for 2 percent. That’s exactly what happened. Think about the defense budget if it were run by the mafia.

The guy would come in, and the system at the time was the system of — when you say “conquer,” the imperial methods everywhere, including the Ottomans, before them the Romans, before them the Seleucids and the Ptolemies. The Ptolemies had more integration.

The whole technique was, you come in… And remember that government role, the GDP was, at the turn of the century in France, 5 percent, OK, last century. So having been, you’re not part of anything, you’re just paying taxes to someone you’ll never see — that was the thing. The integration usually was through commerce, not through military conquest.

The idea of Singapore, someone invaded — let’s say Malaysia decides to take over Singapore. What are they going to do with that? They’ve got nothing. It’s much better for you to go to Singapore, tell them, “We want 2 percent.” Or “We want 10 percent.” And then they will break it down to 3 percent.

Posted in Economics, Nassim Nicholas Taleb, Policy, War | 7 Comments »

We’re not in here to eat mozzarella and go to Tuscany

Saturday, June 16th, 2018

The point is that we are imperfect, Nassim Nicholas Taleb explains:

And the way you can function best is accepting we’re imperfect. It’s why we have theology. You want perfection, you can find it in theosis and find a lot of things.

Incidentally, to go back to the idea of being orthodox, theosis is a way for us humans to rise above our condition as human, and it’s given to us openness, this equal opportunity for anyone. If you consider that we are imperfect, and the way you can arise, this sense of honor, by doing duties or self-sacrifice, then you have a lot of risk in the game.

It’s taking risks for the sake of becoming more human. Like Christ. He took risks and he suffered. Of course, it was a bad outcome, but you don’t have to go that far. That was the idea.

I didn’t talk about theosis. I just mentioned it in one footnote. It’s like we understand that we’re not in here to eat mozzarella and go to Tuscany. We’re not in here to accumulate money. We’re in here mostly to sacrifice, to do something. The way you do it is by taking risks.

Some people take risks and some people labor in the fields. You have the option of doing either one or the other. But my point is you should never have someone rise in society if he or she is not taking risks for the sake of others, period. That’s one rule.

Posted in Economics, Nassim Nicholas Taleb | 2 Comments »

You should try practice, then theory

Thursday, June 14th, 2018

Nassim Nicholas Taleb had plenty to say to Bryan Caplan about what’s missing in education:

You know the Romans despised theory, and the Greeks despised practice, which is why The Black Swan is dedicated to Mandelbrot, a Greek among Romans, and the next one is dedicated to Ron Paul, a Roman among Greeks.

[...]

The route I was suggesting, education, is you send people, you make people work as nurses and then they go to medical school. Effectively, I spoke to a lot of doctors, and they think it’s a good idea because they’re afraid of medicine being now too theorized, becoming too theorized.

You make people run a local racketeering shop or a casino or something like that, for seven-eight years and then you go study economics.

We’re living longer, so this idea of front-loading education makes no sense.

[...]

I started trading and then discovered math. I said, “Oh, this is interesting.” I started discovering math, so I got immersed into math, and 15 years later, I went back to school. I went back to try to do math and effectively doing those classes. I did my thesis and that was it. But the idea — I started writing papers — the idea of having to start by theory and ending up with practice doesn’t work.

You should try practice, then theory.

[...]

Then, the root of that, my feeling, in the Anglo-Saxon world is the desire — this is why they call it liberal arts education — to aristocratic ties to themselves.

Again, let’s talk about the Greco-Roman world. You had the trivium or quadrivium, absolutely nothing practical about them, the rhetoric, the grammar, some things. The liberal education was what people learned in order to become aristocrat and idle upper class.

Then you had the real professions of becoming a baker, how to do something with wood. And the English, the upper class — of course they didn’t want to be working class, so they sent their kids to learn that stuff. And this is what came to America.

Education is split in two. You have technical education like law — not technical, but professional education — law, medicine, what else? Engineering and all these things, and then you have mathematics. If you look at it historically, the engineers didn’t really connect to the other ones because the Roman engineers did not use Greek geometry.

We only started using Greek geometry late in life after the educational system started including mathematics for these people. Engineers built cathedrals without clear geometry. It was actually more robust.

Geometry will give you these ugly corners. Before, we didn’t even know what the right angle is. Before, it was more involved, it was rule of thumb, and it was different. They had the separation, segregation.

So what you want to do? Is this liberal education that’s contaminating the rest? Or is it the technical that’s contaminating the expectation of what education should be like?

You say, “OK, this is the kind of thing you do like piano lessons on the weekends.” You read Homer and stuff like that. It’s important, and you become civilized. Stuff you do to be civilized and be able to have dinner with the vice president of the World Bank, these are the things you do. And these are the things you do to get you ahead in life.

[...]

You end up with a lot of people, in fact, today, this generation — because of the competitive environment and the closed circuit in the humanities — that basically don’t know anything about humanities. All they know is the theories du jour about this and this, and the postcolonial approach to this or that.

For example, when you start arguing with people who studied about something called Middle Eastern studies — which shouldn’t exist as a discipline — they start talking about colonialism of the French.

The French spent 21-and-a-half years in the Levant as a United Nation mandate. Explain to me the colonialism.

They say, “Well…” They don’t even know the basic facts because the more you have a ratio of theories and way more -isms, and stuff like that and the Marxism, so someone that’s good at Marxist interpretation of this and this in the postgender world. And they don’t know the facts.

This is why we can’t rely on these instructors to teach you the humanities — because you don’t get tenure from knowing the facts. You get tenure from inventing some full structural theory of baking beans and mint in Sassanid Persia. That’s how you get your tenure. These guys are ignorant.

[...]

The problem is, as society got rich, everybody wanted to reach education by imitating the aristocrats, with the illusion that it’s going to help them get rich.

When in fact, it’s the kind of thing you do when you’re already rich. This is where Alison Wolf and Pritchett come in to discover that these educational things are effectively the product of societies that are rich and definitely not causative to wealth.

Posted in Economics, Education, Nassim Nicholas Taleb, Policy | 9 Comments »

Human action is not the only relevant parameter in human history

Wednesday, May 30th, 2018

Human action is not the only relevant parameter in human history, Razib Khan reminds us, as he reviews Kyle Harper’s The Fate of Rome:

The Fate of Rome is fundamentally a work of history, but it also takes ecology and evolution seriously. In fact, it foregrounds them. Kyle Harper makes the argument that the expansionary phase of the Roman Empire was not necessarily coincidental, or at least it was lucky indeed because there was a climatic optimum, similar to the one which preceded the demographic expansion of medieval Europe. In contrast, in the 6th century, the world went through some of the coldest years in the Holocene because of a combination of fluctuations in solar radiation and volcanic explosions. I assume that the likelihood of the latter is Poisson distributed, so the combination of decreased radiation and several successive volcanic events can be chalked up to randomness. But its consequences were not random at all.

The climatic changes can have demographic and social consequences obviously. Desperate armed pastoralists can overwhelm states, and change the course of history, just as peasants can rebel from taxes and subordination. And, pastoralists can also bring Yerisina pestis, the plague. Climate is an abiotic pressure which is to some extent an exogeneous shock which occurs randomly, and does not react to human feedback. [This is not totally true, but over the time-scales we’re talking about probably mostly true.] Disease though is a biotic pressure, and though it may relate to abiotic forces, human interaction and agency matter quite a bit.

The Fate of Rome clearly hinges on abiotic factors as initial drivers: a good harvest is good for the state. But the biotic factors, disease, are partly under the control of the state. The Romans did not have germ theory, and were under constant stress due to the high pathogen load, especially of the cities. Harper presents the evidence of high mortality within Roman society well. Because of the endemic ubiquity of disease even elites were impacted by it. But Rome was not just affected by endemic ailments, it was subject to pandemics and plagues.

[...]

One of the major insights that Kyle Harper reiterates is that these plagues, these pandemics, are a feature/bug of the Roman imperial system. They are not just the consequence of simply settled agricultural society. As described in books such as Pandora’s Seed, agriculture and settled society transformed the lifestyles of human groups, and many diseases which were rare in hunter-gatherer populations probably became common among farmers. But The Fate of Rome the author argues that pandemics were a novel outcome of complex imperial state-systems with long-distance trade-networks. Small-scale pre-state Neolithic chiefdoms did not have the scale and interconnections to foster plague.

Mass pandemics of smallpox, plague, and influenza are then aspects of civilized life, not, settled agricultural life. This puts the argument of Charles C. Mann in 1493 into greater focus. It wasn’t just more extensive and intensive agriculture in the Old World which left Amerindians vulnerable, it was also that the Old World had thrown up several massive imperial systems which had incubated pandemic producing pathogens (smallpox and influenza epidemics were a major issue in New World societies). These were unleashed at once upon New World societies.

It also suggests to us why adaptation seems to be occurring in the last few thousand years. Bouts of plague which persisted for generations may have driven immunological responses.

Kyle Harper also seems to agree with the general thesis in The Fall of Rome that this period in European civilization was in some ways proto-modern, with economic specialization resulting in a modicum of affluence in ways unimaginable in times before, or after. Trade and some level of mass production allowed British peasants to eat off tableware that was standardized, and not homemade. In contrast after Britain’s post-Roman regression a more local economy had to step in. The most curious fact from The Fall of Rome is that pollution in British ponds did not attain Roman levels until the early modern period, with the rise of industrialization. Again and again The Fate of Rome emphasizes that social and economic complexity achieved in the Roman Empire was not attained in Europe again to the same scale as the early modern period.

Roman wealth was fundamentally due to the returns on scale and specialization that are the hallmark of Smithian growth. Though the Romans did invent a few things, Roman prosperity was not fundamentally driven by innovation. Rather, the Roman peace was a framework for trade and exchange that took advantage of abiotic clement conditions (the Roman climatic optimum highlighted in The Fate of Rome).

But this political system had biotic costs, as well as being subject to biotic shocks. Though Romans may have been wealthier than their Iron Age predecessors in things, and also wealthier than their early medieval successors, they were also a smaller people. Using isotope data Harper suggests that this is not due to Malthusian immiseration as the imperial population pushed up against food supply. Apparently Romans did not subsist on gruel alone, but ate a fair amount of meat, especially pork. Rather it was the high pathogen load enabled by the advancement of Roman urban life and its scale. Rome was a world of intense morbidity.

Posted in Economics, Policy, Science | 7 Comments »

It’s boring, and who cares?

Friday, May 25th, 2018

“What are the biggest mistakes other scholars are making,” Robin Hanson asks Bryan Caplan, “from the point of view of making the kind of scholarship you wish they would make?”

Type III error, getting the right answer to the wrong question — that is my main view. Most work that I read that I don’t like, I don’t so much think it’s wrong. It’s that it’s boring, and who cares?

That’s honestly my reaction when I flip through a journal is, suppose you’re completely right. Who cares? Suppose you’re completely right. Who cares? That’s what I say for 80, 90 percent of pieces that I read.

This does not mean that I think that you can’t write a good piece on a narrow topic. But it’s got to be because you convincingly argue that it really reflects something bigger than just the topic itself.

I can really enjoy reading a book about the French Wars of Religion because it’s not just about the French Wars of Religion. It’s about the nature of human religiosity, and about the way that dogmatics try to tear society apart, and about, is religion primarily social, or doctrinal, or what’s the interrelation between them? That kind of thing.

To me, that’s the main thing, is just that it’s boring and who cares?

The second biggest thing is the focus on disciplinary boundaries, where people usually, if they’re going to read, they only read within their field. Economists read economics. Even that is optimistic. You usually read within your subfield of economics or your sub-subfield.

What I always say is, “Look, if you really want to understand something, don’t read what other people in your niche are doing or have read. Read what anyone who has thought about the issue has read, and it’s quite likely you’ll learn something.”

Now, ultimately, I will say this: I think it does come down to academic incentives because those people in the fields that people aren’t reading don’t help you. They don’t do stuff for you. Honestly, I think most scholars are primarily about career advancement. I don’t think there is that much curiosity.

I remember, this is actually one of the things that disturbed me most when I became an assistant professor. When Tyler started telling me all about these backstories about professors. Finally I get to get behind the curtain — not anybody in our department, but other departments, others.

Finding out… the thought of someone who started off really curious and, in the end, they’re just consumed with this pettiness over someone not citing them. Why do they care? Every citation translates into a statistical $100 a year.

This kind of mentality, it did horrify me at the time. I’ve gotten over it, but still this is the kind of thing when I step back… I think you become a scholar to go and advance human knowledge on important questions. I just don’t see many people doing it or even using the methods that you would want to use, which is, step one, go and read what anyone who has really thought hard about the question already knows.

Posted in Economics | 3 Comments »

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