The Underground Economist

Why Fiscal Stimulus Won't Work

Fri, 17 May 2013 12:40:31 -0700

This started as a Facebook comment, and I figured it was good enough to be massaged into a blog post.

Many people claim that if the government reduces spending, it will harm the economy and stall the “recovery.” I think this belief comes from the idea that the government is “soaking up” labor and capital supply that the free market would not clear, and that savings is actually harmful to the economy. It’s pure Keynes. The fact that Krugman has been claiming that debt is free hasn’t been helping.

I tell people who make this claim the following:

1. The debt that is financing the stimulus is short-term. Interest payments are projected to rise to a level equal to all government discretionary spending by 2020 even under modest interest rate assumptions.

2. Even though much of the debt is held by the Federal Reserve, remittances (refunds on interest payments) from the Federal Reserve to the Treasury are projected to stop because the money will need to go to compensate for all the losses on the Fed’s books, meaning the government will really need to pay all that interest.

3. Once the economy starts to recover, which is exactly what people claim the stimulus is for, the Fed will have to choose between starting to sell or redeem all that government debt or allowing rampant inflation.

4. Monetary policy counteracts fiscal stimulus anyway, because both are targeting the same thing: inflation. To the extent that the government borrows and spends more, the private sector borrows and spends less. So instead we’re just shifting spending from entrepreneurship (i.e. starting small businesses and inventing things) that creates permanent growth to temporary projects that produce temporary jobs.

And on top of all that, we’re blowing a stock bubble and a new real-estate bubble at the same time. When these pop, and they will, the crisis will just start all over again, only with way more government debt and a bunch of workers who still haven’t been retrained because the government kept them employed in their unneeded jobs.

Pornonet

Fri, 26 Apr 2013 10:43:54 -0700

Not sure why I thought of this this morning, but back in 2001, there was a flap about terrorists possibly using steganography to communicate with one another. Bruce Schneier initially wrote that it was an ideal form of electronic dead drop, though he reversed himself in 2005 when it turned out they were all false alarms.

While steganography of any practical information density is fairly easy to detect without needing the original file by comparing the statistics of the suspect file with the statistics of “normal” files, this doesn’t matter that much, because the purpose of steganography is not to hide the message from your enemies. Cryptography does a fine job of keeping the message content secret. In a dead drop context, the purpose of steganography is to get a bunch of innocent people to download the file that contains the message, and to provide plausible deniability to the target of the message. And this is what makes pornography an ideal medium for steganography.

Let’s say you want to send a message to a sleeper agent in the field. You post a picture of an attractive naked person to imgur or usenet through Tor, I2P, or a chain of open proxies. The sleeper agent downloads the image along with dozens or hundreds of “innocent” images, while hundreds or thousands of innocent people download the image as well. Even better, some of those innocent people will probably repost the image elsewhere, making an adversary’s job that much harder. Ideally, the originator of the message posts lots of steganographized images, making it much harder both to find the intended recipient through statistical correlations and to block or accidentally lose the message.

Here’s what makes porn so great for this purpose: the sleeper agent doesn’t need to use any anonymization technique. All they need to do is download lots of porn all the time, and that’ll make them look like much of the rest of the Internet and give a plausible reason why they happen to occasionally download images containing your messages.

This dead drop technique is analogous to taking out a classified ad in a newspaper; the sleeper agent can hide among the thousands or millions of subscribers to the paper.

Is Fractional Reserve Banking Immoral?

Wed, 24 Apr 2013 09:56:00 -0700

TL;DR: in theory, no. As implemented in most of the world with taxpayers bearing the risk instead of savers, yes.

I occasionally hear someone repeat the myth that fractional reserve banking is bad because it lets banks “create money out of thin air” and that it creates debt that can never be repaid, because the banks are charging interest on the money they create and therefore there isn’t enough money in the world to pay it back. This belief rests on the mistaken assumptions that money creation by banks is the same as money creation by the Fed and that charging interest reduces the money supply. Neither is true.

Fractional reserve banking is lending out part of your deposits. That’s it. To say that it “creates money out of thin air” is to confuse abstract macroeconomic terms (the “money supply,” of which there are several measures) with a concrete good (“money”). The interest banks charge doesn’t reduce any measure of the money supply because that’s income to the bank. It goes to cover the bank’s costs or it gets paid to shareholders as dividends or goes into the bank’s reserves.

The Fed and other central banks, on the other hand, do create money out of thin air. They are able to add to the balance of the reserve accounts member banks are required to hold there without requiring a balancing transaction on the other side of the balance sheet. The measure of the money supply that central banks can directly increase is called the monetary base (MB) and is what people traditionally think of as “money”: cash and bank reserves, while banks can only increase the more abstract measures of the money supply: M1 through M4 and MZM.

While it is not strictly necessary for central banks to keep their balance sheets balanced, most are required to, because otherwise they’re just giving money away and it can become difficult to reduce the money supply later should inflation get out of hand. Most of the assets central banks buy with the money they create are debt, usually government debt, though in the US the Fed is buying up mortgages like crazy. Obviously they get paid interest on this debt, but that interest is still not taken out of circulation. It goes to pay the central bank’s bills, with the rest (in the US at least) going back to the treasury. These payments are called remittances. You may have heard recently that if interest rates go up in the US, there’s a good likelihood these remittances will stop. That’s because the Fed’s balance sheet isn’t actually balanced at the moment due to all the worthless instruments they’ve purchased in propping up the financial system.

And so we come to the real problem with fractional reserve banking: banks sometimes fail. In a free banking system, the risk of failure is borne by the bank’s creditors, with depositors usually coming first in line, followed by bondholders, with shareholders being dead last. Depending on the bank’s capitalization, this can mean depositors are made whole, but this is by no means guaranteed.

You’ll note that I used the word “capitalization” there instead of “reserves.” Reserves are the liquid assets the bank keeps on hand to meet demands for withdrawals, while a bank’s capitalization (or capital ratio) is the difference between the market value of its assets and the paper value of its liabilities. A bank can run out of reserves and still be solvent provided the value of its assets still exceeds its liabilities, but in a free banking system if a bank can’t meet its obligations by selling assets, selling stock, or borrowing money, that’s a default, and the bank either goes into bankruptcy or is liquidated.

In a free banking system, solvent banks never fail. That’s because of the definition of solvency that I gave above: the value of the bank’s assets exceed its liabilities. The value of the bank’s assets can only be determined by the market, and if the market thinks the bank is solvent, then the bank will be able to raise capital. If the bank can’t raise capital, it’s insolvent by definition. This points out one of the major flaws in a regulated banking system: the market’s valuation of a bank is distorted by the market’s expectation of government bailouts for that bank. Which leaves regulators with no way to determine if a bank is solvent by the new definition of solvency. By the “real” definition of solvency, every bank that needs to ask the government for money is insolvent. Which probably means most of the world’s banking system is insolvent.

What we’ve actually done by regulating banks is to merge them into one giant leviathan. Insured bank failures are like centrally-managed apoptosis, attempts to protect the system from contagion. The entire system, in fact the entire world financial system now, sinks or swims as a single organism. Only with depositors’ having no incentive to care about the solvency of their bank and regulators who never get fired for failing to prevent bailouts, this is an organism without a brain and without homeostatic mechanisms to keep it alive. Which means we’re in for some pretty spectacular fireworks someday, perhaps soon.

In a world of taxpayer-insured savings accounts and the expectation of bailouts, most financial innovation ends up being devoted to diverting taxpayer-insured funds into riskier and riskier investments. This is the exact origin of the financial crisis: banks convinced regulators and creditors that they didn’t have risk by getting ratings agencies (who are employed by the banks) to rate mortgage-backed securities AAA, then got other risky assets insured by AIG so that the regulators wouldn’t require them to meet capitalization requirements (this is called “capital at risk” and gives the banks the power to have whatever capital ratio they want).

Higher capital ratios without regard to risk (which can only be determined by the market) would go a long way toward limiting the sort of shenanigans that led to the global financial crisis. However, high enough capital ratios will never happen because they would make banking no more profitable than any other industry, and in fact they would probably mean banks would no longer pay interest on savings. But if interest on savings requires moving risk onto the taxpayer, then either we shouldn’t have it or we should force savers to take on some risk.

The Snow Crash Solution

Thu, 18 Apr 2013 17:01:45 -0700

In Neal Stephenson’s Snow Crash, the US federal government is a mere shadow of its former self, retaining only marginal sway in a few discontiguous territories. Aside from the spending death spiral that all democracies eventually embark on, the government gradually lost its ability to collect taxes largely due to a mass migration to cryptocurrencies.

A whopping 82% of the federal government’s revenue comes from income and payroll taxes. When people don’t pay their taxes, the government takes money from people’s bank accounts and attaches their wages long before filing criminal charges against them. Transactions that can’t be traced can’t be attached, and balances held in e-wallets can’t be taken by the government. I think we can imagine that if a significant fraction of transactions shifted over to cryptocurrencies, a lot of people would suddenly have a lot of under-the-table income.

It would obviously be possible to collect some taxes even if all transactions became utterly untraceable. Tariffs, excise taxes, and property taxes don’t rely on tracking transactions at all. But property taxes do rely on being able to track the value of property, creating an incentive to underreport sale prices. And if you’re selling in part or in total for a cryptocurrency like Bitcoin, it’d be pretty easy to avoid getting caught, and if property taxes went up substantially, as they would to offset a major loss of income and payroll taxes, people would be more than willing to take the risk.

Even if it might be possible to sustain an oppressive government on substantially less revenue than the US is able to collect now, this doesn’t mean the US can tolerate a significant drop in revenue. Even if the government laid off every single employee it had, non-discretionary spending constitutes 54% of the budget. Start cutting into that, and the government is basically in default: it’s not paying interest on its debts, social security, medicare, or medicaid payments. And that’s not even counting the employees necessary to process those payments. Employees who aren’t going to be that interested in working for the government if they have to get paid in worthless dollars rather than in cryptocash.

And that’s only counting tax revenue. Cryptocurrency will make the drug war unfightable (it’s already unwinnable). It will cause dollar inflation here in the US as demand to hold dollars falls and people convert their dollars into assets with actual value and into cryptocash.

Cryptocurrency is one “decentralizing technology” that could potentially limit government better than government itself ever has. There are many other technologies that could erode the ability of organizations to accumulate and hold power, but cryptocurrencies seem like the most promising near-term technology for drastically increasing liberty.

Corporations are Bad, Mmmkay?

Mon, 15 Apr 2013 09:49:29 -0700

But… liability! Litigation! Frivolous! Investment!

I’ll get to those objections in a minute. But first, a definition:

A corporation is a fictitious entity granted some of the same rights as human beings by some governments.

The justifications generally given for granting fictitious entities rights are precisely those I mentioned above. People should be able to start businesses without risking losing their homes. There is excessive litigation in our society, and people need to be able to protect themselves. Nobody would invest if they risked losing more than their initial investment.

The last of these objections is the most obviously false: courts used to be able to go after bank shareholders for up to the amount of their initial investment even after they’d lost the full value of their investment, yet banks still got plenty of investment. The situation changed, not because people wouldn’t invest in banks, but because banks became politically powerful.

In fact, all of the objections to getting rid of corporations can be answered the same way: ask yourself who’s protected the most by corporations and who the victims of corporations are. By and large, it is the politically well-connected who are protected by corporations, and it is the politically disenfranchised who are victimized by them.

But government doesn’t, or at least shouldn’t, exist to protect the powerful. It exists to protect the weak. So, beyond the issue of whether corporations protect people from liability to which they should be exposed, we also have the problem of unequal protection: corporations protect those who can afford to incorporate.

“But,” you say, “those are the people who have enough assets that people are willing to sue them!”

Really? Nobody sues grannies on fixed incomes and twelve year old girls?

Bullshit. Corporations sue grannies on fixed incomes and twelve year old girls.

“But those people don’t have assets to lose!”

Bullshit. Granny doesn’t have a house? The cleaning lady doesn’t have a car?

“But people wouldn’t buy stocks!”

Boo hoo. There is no social benefit from having a business with thousands or even dozens of owners. There is benefit to the government, of course, because then people support pro-business policies (which is exactly the reason we got the flavor of limited liability we have in the first place), but the benefit to society is in fact negative, because the same incentives apply to protected shareholders that apply to voting. The costs of keeping track of what a firm is up to outweigh the benefit to the average shareholder, while all shareholders get the benefit if someone discovers wrongdoing. So each shareholder just lets the others take on the burden.

In fact, people do occasionally seek out and find wrongdoing in corporations. But it’s rarely the shareholders. In most cases it’s people on the other end: short sellers. People who own negative amounts of the company’s stock. It was short sellers, not shareholders, and sure as fuck not regulators, who took down Enron.

This is not to say our society isn’t excessively litigious or wouldn’t have too much liability without corporations. But we need to solve these problems with solutions that protect everybody, not just those who can afford to move their assets into corporations. Two changes would solve enough of the problem that insurance could take care of the rest: liability limits and the English rule.

Juries aren’t perfect. The jury system is one of the best institutions ever created, but that doesn’t mean it doesn’t have its flaws. But we can limit the damage juries can do by simply putting an absolute limit on how much a jury can award for various kinds of harm. In particular, we must place a price on a human life. We already do in most cases, or nobody would ever leave the house. We just need to put some value down in the law so we don’t get ridiculous awards like the $250M awarded to a victim of an arrhythmia against Merck, despite the fact that the drug involved had never been shown to have any connection with arrhythmia.

Fortunately for Merck in this case, the case had been brought in Texas, which actually does have liability limits, bringing the total to $26M. There was no “human life” limit involved in this case, though; Texas simply limits punitive damages to “treble damages,” or twice the amount of economic damages awarded. But this goes to show why we need an absolute limit: had the victim had a much higher income, the total damages would have been greater, so there needs to be an absolute cap as well. Any absolute cap would likely be in the tens of millions, so it would not affect the poor at all in a system that limits awards to treble damages.

Across-the-board absolute and relative liability limits might fix things enough to make the second change unnecessary, but I’m still a fan of the English rule. The English rule simply states that the loser in a civil case should pay the winner’s attorney fees, up to the amount that the loser paid for their own attorney fees. Under the American rule, each party pays their own attorney fees unless one party can prove that the other sued them maliciously, something that is exceedingly difficult to prove in the US. Switching to the British rule would limit frivolous suits that never had a chance of hitting the liability limits, because it would encourage someone who knew they could win to go all the way and avoid battles of attrition.

These changes would provide enough predictability that insurance would start to make sense. And insurance would allow shareholders of a corporation to bear the cost of their own protection in proportion to the value of the assets being protected. A small business owner, for example, would only have to cover enough to avoid losing their house, perhaps doubling the cost of their homeowner’s insurance. A banker, on the other hand, might choose to self-insure, giving them a huge incentive to make sure their bank remained solvent.

Charlie Stross lists a bunch more ways the modern American style of corporation harms society in his essay Invaders from Mars. In fact, he blames them for most of the ills of society, and I’m not sure I disagree. It’s definitely worth a read, as are his books.

The Origin of Government Authority

Fri, 12 Apr 2013 09:53:00 -0700

As long as there have been rulers, rulers have found it more efficient to come up with some story explaining why they, and only they, had the right to rule than to simply dominate their subjects entirely through raw power.

In tribal societies, this wasn’t that hard; the rulers of a tribe were simply the oldest and therefore the wisest. Since tribal societies are usually also nomadic, this didn’t even pose a moral problem, since one could generally just leave and take their stuff with them if they didn’t like a tribe’s leaders. If enough families left, the tribe would end up collapsing, thus keeping leaders in line.

Once people started settling down to farm, rulers began to assert authority over territory rather than just over people. This made sense, because one of the functions people wanted of their rulers was to mediate land disputes, particularly in Egypt where the flooding of the Nile tended to obliterate property markers.

This also posed a problem. Once people had fixed assets they’d be leaving behind, rulers no longer had to work as hard to keep people happy. The main thing they had to worry about was being overthrown or assassinated. So they needed a new story to justify their authority. This story was, of course, religion, from the literal godhood of the Egyptian pharoahs to the Divine Right of Kings used under monotheistic religions.

The “top down” explanation of authority comes with problems of its own. It doesn’t work so well in cosmopolitan societies with multiple religions. Then there’s the problem of succession. Even under complex rules of hereditary succession, there can be infighting among possible heirs or situations where the ruler somehow doesn’t produce an heir. This often led to civil war and the collapse of the state.

Add to the succession problem the abuse of power, and it’s pretty obvious that a top down story simply isn’t going to work. And so we end up with the first of the bottom-up stories: the social contract theory of Hobbes.

During Hobbes’s time, contracts could be made binding upon one’s heirs. Modern contract theory requires that all parties to a contract consent to it without duress, requiring the idea of “tacit consent”: by simply remaining in a government’s territory, you consent to its authority.

With tacit consent alone, there’s no way to morally justify any kind of revolution, so the social contract required even more tweaking. This is where the idea of natural law comes in. A government must meet certain obligations in order to enjoy claiming the tacit consent of the inhabitants of the territory it claims.

But even then there are still serious problems, because it says that as long as a government follows natural law, it may prevent itself from being replaced. And since there’s not universal agreement on what natural law even means, this leaves us with the crappy situation we have now, where governments slowly get worse and worse until somebody overthrows them, frequently forming an even worse government or leaving a failed state.

Fortunately, a 19th century lawyer named Lysander Spooner gave us a solution to all these problems in his essay No Treason: voluntarism. He basically said the US government couldn’t have it both ways: either the Revolutionary War was illegal and treasonous, making the Constitution and therefore the government carry no moral authority, or the secession of the Confederacy wasn’t, and the government couldn’t prosecute Confederate soldiers for treason.

Spooner argued that the Constitution wasn’t binding upon anyone who didn’t personally sign it, and that even someone who had somehow consented to it since then could withdraw their consent at any time. Spooner did feel there was such a thing as treason, but that it required using special privileges gained by pretending to consent to state authority against the state. The Confederate soldiers didn’t commit treason because the Confederacy declared its independence before engaging in any acts against the Union. Read the essay; it’s short, and I’m certainly not doing it justice here.

Note that voluntarism is quite different from the Sovereign Citizen movement. Sovereign Citizens use convoluted Constitutional arguments to justify their position, while Spooner was making a moral argument. They’re also playing a dangerous game, because they believe they can win court battles.

What kind of government could survive if it required ongoing, explicit consent of its citizens? To answer that, we need to take a look at tribalism again. That worked well with nomadic peoples, but fell apart when people settled down. But it fell apart because society lacked the institutions to deal with the issues of a sedentary people. In particular, there was no widely accepted theory about property rights or how to handle the initial allocation of land. Now that we have thousands of years of history of sedentary societies, we have a pretty good understanding of the best way to allocate and protect property.

The idea of natural law and the heritage of common law also provide a decent foundation for multiple “tribes” to coexist in the same area with compatible laws. Communications and transportation systems would allow “tribes” to be more spread out rather than needing to exist in one physically contiguous community. Think Distributed Republic.

Even territorial gangs aren’t constantly at war with one another. Imagine if they didn’t have territory to fight over, but instead needed to win hearts and minds. It’s possible a group might try to claim a particular territory, but it would be in the landowners’ interests to overthrow them, because they wouldn’t want to be stuck with a monopoly on the production of security. Molinari covers this exact problem, so if you haven’t yet read The Production of Security, I strongly encourage you to go read it.

The Rule of Law

Thu, 11 Apr 2013 10:04:00 -0700

People who only know that I identify myself as an anarchist are frequently surprised when I start talking about the rule of law. I suspect this comes from a combination of the multiple definitions of the word “anarchy” and from the belief that law is something that comes from government. In other words, a misunderstanding of the meaning of the word “law.”

When I call myself an anarchist, the definition I’m using is the literal one: “without rulers.” The other definition is, in my opinion, as bogus as the antiquated definition of “atheist” as being synonymous with “amoral,” and the molotov cocktail throwing, car burning style of “anarchist” is really just a troublemaker who hates rules.

Law is the set of rules that govern a group of people. I was going to say a society here, but I intend to show that it’s not necessary for everyone in a society to follow the same set of laws for that society to be harmonious and prosperous. It is, however, necessary for the members of a society to follow laws that are compatible with the laws followed by the other members of that society, otherwise you have, well, that other definition for the word anarchy: lawlessness.

The rule of law is the foundation of society. It provides a stable, predictable framework in which individuals can conduct their lives and, perhaps more importantly, invest in their futures. I say more importantly because investment, whether it’s building a house, planting a field, building a factory, or spending the time and energy to invent something new, is the source of all wealth.

“Wealth” seems to have become a dirty word to some people, with “sustainability” being the fad of the moment. But sustainability, as most people mean it, is complete bullshit. To me, a sustainable society is one that will be around in a thousand, a million, or even billions of years. It would survive (or avert) an extinction-level event such as an asteroid strike or a plague. It would outlast our planet and our star, or it would make those things last themselves. That is sustainability, and we will not get there without producing fabulous amounts of wealth. But this is a topic for another post.

One of my favorite EconTalk podcasts was Richard Epstein talking about the rule of law. It’s worth a listen, whatever your political leanings, and in fact because he does a much better job than I could at explaining the rule of law, this post is nothing but the barest outline of what it is.

Predictability, equality, and due process are big parts of the rule of law. But there’s far more, and to me Epstein’s idea of the rule of law is at least as much a basic foundation for society, if not more so, than the rights I discussed in my previous post. You could consider those rights to be a way to judge a particular set of laws, while the rule of law would be a way to judge a society.

Epstein says that everyone must come under the same set of laws. I’d rephrase this as “the law must not discriminate.” I see no reason people should not be able to choose the law they fall under, provided the legal systems coexisting in one area are compatible with one another. We see this all the time now, in fact. Would you feel uncomfortable transacting with a Mormon or an Amish person even in the absence of a government? There are even legal systems that are somewhat incompatible with US law that nevertheless manage to thrive. As I understand it, Freemasons are not allowed to testify against one another in court. Same with Gypsies. The Amish don’t pay Social Security taxes, though their right to avoid them has been upheld in court.

Bastiat’s The Law is more a tretise on what a government, or a security provider, or a “lawgiver” must and must not provide than a discussion of law as I mean it. However, it’s still relevant here in that it’s about a requirement for the rule of law (justice) and what causes its breakdown (redistribution). Bastiat also does a pretty good job of outlining my major objection to democracy as the pinnacle of social organization.

As for who can or must provide rule of law, Gustave de Molinari makes an excellent argument that it need not be territorial governments in The Production of Security (read it, it’ll only take you an hour). David D. Friedman expands substantially on Molinari’s ideas with lots of practical suggestions for how civil society could provide solutions to problems government is currently expected to solve in The Machinery of Freedom.

I’m an anarchist because I know of no way to limit governments in the long term. We allow governments to exist because we think they’re the only way to achieve rule of law, but in the long run, governments run wild and destroy the very rule of law they were created to preserve. Rather than expecting governments to legislate themselves out of existince, I think the way forward is to develop technologies and civil institutions that make territorial monopolies on the production of law obsolete or impossible, ala Snow Crash.

Rights

Wed, 10 Apr 2013 10:14:00 -0700

The question of whether a society is just hinges upon whether it protects or violates people’s rights, so it makes sense to start any such discussion by defining those rights.

For purposes of this post, “rights,” only refers to inalienable human rights, not the civil rights that may arise from a particular implementation of law.

Rights are:

Universal. Everyone has them, and they are the same in all societies.
Timeless. They are and have always been the same. While our understanding of them may change in the same way as our understanding of the laws of physics, new technology and new forms of social organization cannot change them.
Equal. Nobody’s rights take precedence over any other’s.
Negative. A right can only impose upon another an obligation NOT to do something, never an obligation TO do something. For example, a “right to health care” as most people mean it would impose an obligation on others to pay for your health care if you could not pay for it yourself, meaning there is no such right.
Good. Societies prosper when, on top of the other requirements for the rule of law (to be discussed in another post), they minimize the frequency with which rights are violated.
Individual. They belong to “natural persons,” not groups, firms, or governments.

So what are these rights? It’s hard to enumerate them because they’re more of an amorphous blob than a discrete list, but we can start with the classical liberal ones: life, liberty, and property. The negative phrasing for these would be “freedom from murder,” “freedom from force and fraud,” and “freedom from theft.” These ones seem simple and obvious, but there is a lot of complexity there and there is controversy about what they mean, so I’ll give my own definitions.

Life seems like it should be obvious and controversial, but think of the phrase “right to life.” Does a fetus have rights? Does a zygote? An embryo? As I said earlier, rights can only impose upon others obligations not to do things. Your right to life doesn’t impose on anyone else an obligation to keep you alive. A mother is not obligated to carry a fetus to term. But at the same time, the right to life could impose an obligation upon her an obligation not to go out of her way to eject the fetus from her body. So this really comes down to who has rights, but I’m not going to cover that in this post. Hah, you thought I was gonna solve the abortion debate here, huh?

We include life in the list because when people’s lives can be taken willy-nilly, they spend all their time on self-defense and don’t invest in anything else. Society crumbles.

I think liberty in this context is actually much broader than most people interpret it to be. Liberty means you can do whatever you want as long as you aren’t violating another’s rights. Anything. A society that stops you from doing something that doesn’t violate another’s rights is an unjust society. And this paragraph is about all you need to know to derive the rest of my political views.

Property is a right I don’t even have a full handle on. To me, it’s a right that derives fully from the right of liberty, though it’s not obvious enough that one can avoid naming it explicitly. The right of property imposes an obligation upon others not to take the fruits of my labor away from me, because to do so would be the same as enslaving me. The fruits of my labor include improvements to land and minerals I extract from the ground, too.

The thing that makes property kind of fuzzy to me is the ownership of land. I can imagine a situation where I could only own the improvements I’ve made to a piece of land, the minerals I extract, and the food I grow, without anyone’s owning the land underneath. And maybe that’s the answer: nobody “owns” land as a human right, but that doesn’t mean others can tread on my corn field.

On the other hand, full use of a house, a field, or a mine also requires that I have predictable access, predictable clearance, predictable privacy, et cetera. So while land ownership could be limited to a small exclusion zone around improvements, it does seem pretty clear to me that some land ownership arises from the right to property, which means that a just society must provide some consistent, fair means of providing for land ownership that will maximize people’s ability to apply their labor to the land. It must also avoid arbitraily changing what people are allowed to do with their land, because to do so is essentially theft, because a person may build a house expecting to be able to use or sell that house, only to find after they’ve made that investment that the rules have suddenly changed underneath them. I’ll cover this idea in greater detail in my post about the rule of law.

A right that’s sort of implicit in all this is the right to defend one’s own rights. No society can do a perfect job of protecting everyone’s rights, and even one that did could not be relied upon to do so forever. So people have the right to defend their own rights. Which also means possessing equipment for the purpose of defending their own rights. That means weapons, offensive and defensive. Whether this goes all the way to nuclear weapons is a topic best left to another post, but in my mind it’s a similar question to whether you can defend yourself against someone who has a gun pointed at your head even if they claim they’re not about to pull the trigger. A nuclear weapon is a gun pointed at the heads of millions.

The Profit Spectrum

Tue, 09 Apr 2013 11:02:00 -0700

I was having a political discussion (some might say drunken rant) with someone the other day, and they mentioned that they thought, had the government not granted AT&T a monopoly in exchange for providing everyone with phone service, rural customers in the US wouldn’t have received phone service until at least the eighties, because “there’s no money in it.”

I’ll blame my inebriation, but I failed to make what in retrospect seems like the obvious rebuttal to this argument: profit isn’t the only reason civil society provides things.

I think the source of the “there’s no money in it” argument comes from dividing industry (that is, the part of society that provides goods and services) into two or three components: government, for-profit (i.e. “greedy”) firms, and charity, with charity generally seen as weak due to the fact that it’s not very visible to most people.

This view of the world can be entirely attributed to the limited number of styles the government makes available to large organizations: they’re either for-profit share corporations that are required by law to maximize profits, or they’re non-profit corporations that are required by law not to make a profit. While some enterprising organizations do manage to combine the two, doing so requires legal gymnastics that impose a fairly high cost on the practice, making it the exception that proves the rule. Thus, the AT&T monopoly case is just another example of the government’s intervening even further to compensate for a past intervention.

Most people I know (and, I’d guess, most people even those making the “there’s no money in it” argument know) are motivated by far more nuanced desires than simply to make money. They view making money as a means to an end, not an end in itself. Which makes it likely if not inevitable that, in the absence of the expectation that “government will take care of it,” someone would start a phone company whose mission was to connect people, because giving people access to phone service was the best way they could think of to improve people’s lives given their own talents and interests. There lies the origin of this post’s title: you’d end up with firms that wanted to maximize profits at one end of the spectrum and firms that didn’t care at all about profit on the other end. But I think most firms would lie somewhere in the middle.

In fact, I would submit that this is the way most entrepreneurship works. Much of it just ends up getting hijacked later by venture capitalists, shareholders, and the reality of running a business in a world of American-style for-profit corporations under the constant threat of being sued by shareholders for failing to maximize profits.

Bitcoin Would Not Be Deflationary

Mon, 19 Nov 2012 10:39:00 -0800

One of the major arguments against Bitcoin as a potential replacement for fiat currencies is that, since the supply of Bitcoin will eventually become fixed, it must necessarily cause deflation since the demand for currency will continue to rise. This argument, as it turns out, is based either on a conflation of the different kinds of money supply or on a belief that the ratio of “broad” to “high-powered” money cannot adjust sufficiently.

“High-powered money” is the part of the money supply that Bitcoin could constitute: cash and bank reserves. “Broad money,” on the other hand, is the total liquidity available in the economy: demand deposits, short-term treasuries and commercial paper, money market accounts, et cetera. These can be used directly for transactions (via check, wire transfer, direct asset transfer, etc.), or they can be converted quickly to a form that can be used for transactions. Either way, they satisfy people’s demand to hold currency.

It turns out that the multiplier between high-powered and broad money increases steadily over time, even when regulation and monetary policy otherwise remain static. Milton Friedman mentions this phenomenon in this podcast with Russ Roberts, but you can see it for yourself just by looking at the Fed’s and BoE’s own statistics since their inception.

Along with credit cards and innovative mobile payment systems like Pay with Square and SMS payments, this takes care of most situations, but the demand for good ol’ cash also increases over time. One only need look back to the days of gold-backed free banking in the US, Canada, and Scotland to see that we’ve already solved this problem: bank notes. We’re already seeing various entities issuing physical representations of Bitcoin. This would be similar, but backed by the total credit and assets of the bank, even though they’d still be denominated in Bitcoin.

Of course, anyone with even a passing familiarity with US banking history would point out that banks can fail, causing people to lose their life’s savings, and that with bank notes even the money in your wallet would be gone. Well, it turns out that bank failures in the United States have almost exclusively been the product of extremely bad overregulation. In particular, banks were not allowed to branch out of state and sometimes even out of the local area, meaning they could not diversify. For example, a bunch of banks in Texas failed just because the oil price went down. As if that weren’t enough, many states required banks to hold a large fraction of their reserves in that state’s debt, and then (predictably) kept defaulting on their debt since they had captive lenders. If you don’t believe me, Canada had nationwide branching and not a single bank failure during the Great Depression.

Bitcoin is actually pretty darned inconvenient in cases where you would want to use cash; it takes a random amount of time averaging to ten minutes to complete a transaction. In fact, it’s even inconvenient for most online purchases, since it’s non-repudiable and doesn’t offer the protections of credit cards. Along with bank notes and various innovations, a fixed quantity of actual Bitcoin should prove sufficient to address the demand without the need for deflation. And since in any real world implementation banks would likely also hold precious metals, Bitcoin would only be one of several reserve currencies anyway.

Nominal GDP Targeting Will Always End In Stagflation

Mon, 17 Sep 2012 15:26:37 -0700

Nominal GDP targeting works like this: instead of the central bank’s targeting a particular rate of inflation of consumer prices, it targets a particular rate of nominal (as opposed to “real” or inflation-adjusted) GDP growth. The theory behind this is that it enables a purely rules-based approach that provides automatic monetary stimulus to the economy during bad times.

The problem with this approach is that it assumes that recession is always something that needs to be treated, when this is far from being the case. While recession issometimescaused by external factors (political instability abroad, bad weather causing crop failures, etc), it is frequently caused by a buildup of uncompetitive firms in the economy. Such a buildup occurs naturally during good times because investors are willing to take bigger risks.

Without intervention, the least competitive firms die out or are restructured during a recession, reallocating their capital and labor to more productive uses. This allows the economy to recover fully. Fever is a good analogy. The immune system works better when the body’s temperature is higher, and many disease organisms do not, for the simple reason that they thrived in the first place at normal body temperature. If you always treat fever and other immune responses right away, not only will you not necessarily know how bad things are, you may allow the infection to spread and kill you.

Some uncompetitive firms will die off regardless of monetary stimulus, particularly if fiscal stimulus is not also applied. However, because the stimulus becomes larger the deeper the recession, an increasing number of uncompetitive firms will hang on each time, like antibiotic resistant bacteria if you never take your full course of penicillin. Because of this, each time there is a recession, the unemployment level and “real” GDP growth will never quite recover to where it was before the buildup started.

Because the difference between nominal and real GDP growth is inflation, we now have, by definition, stagflation. Of course, nominal GDP targeting isn’t the only way to result in stagflation:anyattempt to “smooth out” the business cycle must eventually result in stagflation, at least if it is at all successful, becausenobody knows what the correct rate of growth is at any given time.Try to juice the economy too much, and you get a buildup of uncompetitive firms that will make the next recession deeper. This is actually worse than the opposite, not juicing it enough, because while this has short term consequences, they’re bounded in time and severity, while the long term conseuquences of juicing the economy over and over are catastrophic.

Of course, once you’ve let enough uncompetitive firms build up, and worse once they’re among the biggest companies in your economy (GM anyone?), it becomes politically untenable *not* to juice the economy. The politicians’ and bankser’ only remaining choice is to keep the party going until the stagflation gets so bad that it starts to result in civil unrest, then hope they die or retire before the revolution comes. Or hope Volcker’s clone comes along to save us in time, because at some point (Greece, anyone?) the recession that a Volcker-clone would need to induce to fix things willtriggerthat revoution.

Nominal GDP targeting is essentially the policy China has been following, the one everyone has been holding up as “proof” that there’s another way to do things. I’m not sure there’s ever been in history so much physical evidence of unproductively deployed capital: empty cities, de-rated high-speed trains, local trains shut down because of the cost of the de-rated high-speed trains, commuters having to take buses because they can’t afford said trains. There is no soft-landing in store for China.

"Accredited investor" requirements protect accredited investors from you

Fri, 11 May 2012 10:13:40 -0700

I was listening to Francis Cianfrocca argue that accredited investor requirements are there to protect us from getting ripped off this morning on Coffee and Markets. His argument went like this, if I understood correctly:

Non-accredited investors can’t really understand the risks involved, and without appropriate disclosure they’re likely to get ripped off
With a bunch of unaccredited investors already involved, the institutional investors won’t get involved later

The first argument is the one I find most convincing, so I’ll start with that. I call this the “presumptive fraud” argument: if an investor isn’t savvy enough to be able to realize when they’re being ripped off, they are likely to be defrauded. However, if the government really cared about that, why are we allowed to file our own taxes? The tax code is essentially impossible for a layperson to understand, and instead of losing $100 or $1000 for getting it wrong, we can go to jail. Plus, the government runs lotteries, which are guaranteed losers. It’s hypocritical in the extreme to let the poor invest hundreds of dollars in something that basically can’t pay off while not allowing them to invest in firms that have much higher expected payoffs.

The second argument Ben (or maybe Brad) did a good job of cutting down: institutional investors would simply buy out the original investors before investing, worst case. And even if it were a problem, firms would figure out ways to restrict their initial equity to make it easy for them to get VC money later if they need it.

Instead, I think this second argument reveals the real reason we have accredited investor requirements: it’s protectionism for the rich. If a small firm has the ability to go directly to the public for financing, they don’t *need* the big investors. Instead of fast startups that fail spectacularly, we’d have a bunch of slow startups that grow at a sustainable pace and fail after only losing a little money rather than tens of millions of dollars.

There’s no reason to think that the “fast company” approach is better than the old way, or even that it’s useful at all. It’s nice for VCs who want to grow their money quickly, but it’s terrible for the employees and entrepreneurs involved. And speaking of the employees, given that employees of VC-funded startups frequently receive a large fraction of their compensation as stock and end up working 50-80 hour weeks, how is this not a backdoor around the accredited investor requirements anyway? Not only is it a backdoor, but they end up “in it” for tens to hundreds of thousands of dollars if you count the amount less they’re getting paid for their work. If small firms were allowed to seek funding from the public, there’d be less reason to offer or accept so much stock as compensation.

The government will never fix this problem, because the government is run by and large by accredited investors who aren’t (other than political) entrepreneurs. The JOBS act limits the amounts collected to substantially less than what several Kickstarter companies have already achieved. So as usual, entrepreneurs are light years ahead of the weak “solutions” the government is dumping on us to try to show that they’re “doing something” to fix the economy they’ve broken.

On Free Speech and Inconvenience

Fri, 04 May 2012 08:06:49 -0700

As you may or may not know, I’ve pretty much lost interest in the Occupy movement as I’ve realized that they’re just not going to have a significant impact, and if they do it’s likely to be passage of laws that will just make things worse as politicians make an effort to co-opt a movement that has few members who understand the first thing about economics. However, one complaint about Occupy that I can’t abide is people’s suggesting that Occupy conduct their protests out of people’s way.

In order for difficult conversations not to simply be stamped out in a democratic society, speech about injustices (i.e. protests) need to be inconvenient. Yes, when they break the law, they need to face the consequences. But that doesn’t make what they’re doing morally wrong.

Yes, one shouldn’t go outside the system to effect change if there’s reason to believe one can change it from within; that results in needless breakdown of the rule of law. However, when one is complaining that the systemitselfis broken, for example, about the influence of money on politics, to say that they need to vote to make themselves heard makes no sense. You are basically answering “My car won’t start” with “Well, just keep turning the key.”

And beyond that, we simply don’t have the right to go on about our daily business while injustice is perpetrated by our own society. Maybe we can get away with it most of the time, but when someone sees enough injustice to be willing to risk arrest and prosecution to tell us about it, we should take notice.

There will always be people, and this is certainly true within Occupy, who will seize on any opportunity to create chaos, and these people should simply be thrown in jail and ignored. And if Occupy refuses to condemn their actions, well, Occupy loses all credibility and deservedly so, and we can all go back to complaining about them. I don’t think Occupy has reached that point. Even if and when this becomes the case, however, we should watch the tactics of the police very closely, because when people become afraid to protest in a way that inconveniences anyone, the complete breakdown of society is not far behind.

did-you-kno: Source

Thu, 05 Jan 2012 08:38:37 -0800

did-you-kno:

Source

"Over the past few years, courts and parliaments in countries like France and Estonia have pronounced..."

Thu, 05 Jan 2012 08:33:30 -0800

“Over the past few years, courts and parliaments in countries like France and Estonia have pronounced Internet access a human right. But that argument, however well meaning, misses a larger point: technology is an enabler of rights, not a right itself. There is a high bar for something to be considered a human right. Loosely put, it must be among the things we as humans need in order to lead healthy, meaningful lives, like freedom from torture or freedom of conscience. It is a mistake to place any particular technology in this exalted category, since over time we will end up valuing the wrong things. For example, at one time if you didn’t have a horse it was hard to make a living. But the important right in that case was the right to make a living, not the right to a horse. Today, if I were granted a right to have a horse, I’m not sure where I would put it.”

- Vint Cerf (via ayjay)

My 2012 Presidential Voting Algorithm

Thu, 05 Jan 2012 08:31:52 -0800

California primary algorithm: If Paul has any chance of winning the Republican nomination, reregister Republican and vote for him in the California primary.

November algorithm, in order of precedence:

If Santorum wins the Republican nomination, vote for Obama.
If Paul is on the ballot, vote for him.
Otherwise, vote for whoever the Libertarian candidate is (or not at all).

The best Kindle Fire apps that you can't find in the Amazon store

Sat, 31 Dec 2011 16:47:00 -0800

Update: I’ve played a bit more with gReader since I posted this, and it’s matured significantly since I first tried it a year or so ago. It makes better use of the big screen than NewsRob does, you swipe to turn the page instead of tapping an invisible button, and unlike NewsRob you can get it in the Amazon app store. So take NewsRob off the list.

While I’m fairly happy with the Kindle Fire I got for Christmas in terms of size, performance, and price, the Amazon app store is a bit sparse, in some cases by Amazon’s choice (alternative book readers) and in other cases just because apps haven’t chosen to list there.

Fortunately, Amazon doesn’t make much of an effort to prevent you from installing your own apps on the device; all you need to do is to go the Device section of the settings and turn on “Allow installation of applications,” ignoring all of Amazon’s warnings about turning your Fire into a brick.

While you can’t install directly from the Google app store, you can download APKs directly from the web or use an app backup program along with (optionally) WiFi File Explorer, which IS available in Amazon’s app store, to install even paid apps from the Google app store onto your Fire from another Android device. Of course, the latter may violate your license, but in my opinion if an app isn’t available in the Amazon store and you’ve paid for it on another device, you have every right to use it on your Fire.

Here are my favorites that I’ve found so far:

5. ~~NewsRob~~. (See update above.) I think it’s a matter of personal taste whether you prefer this to gReader, which you can get in Amazon’s app store. I’ve paid for NewsRob pro on my Nexus S and used App Backup & Restore to get it onto my Fire.

4. Facebook (visit from the Fire). The icon on the Fire just takes you to the Facebook mobile site, but the native app works great, with the possible exception of pop-up notifications.

3. FBReaderJ. The best open source book reader out there. Can interface with the Calibre media server and sync with Dropbox via FBsync, which I haven’t tried and which requires root.

2. Dropbox. I don’t understand why Amazon hasn’t bothered to include integration with Cloud Drive yet, but Dropbox supports everything, and the included QuickOffice has native support for it.

1. Firefox. It’s not as fast as Silk, but even the beta has far fewer bugs, and extensions and sync are both indispensable.

One app I wish worked on the Fire but doesn’t seem to is SlideIt, which is a fantastic gesture-based keyboard that lets you type with one finger at least as fast as you can with two thumbs. It installs fine, but it doesn’t show up in the settings. I never did look in the input method menu, though.

There are a bunch of great apps available in the Amazon store as well, but there are plenty of lists of those, and if I did a top ten list all of these apps would be on it anyway.

Update: LastPass replied to my support ticket saying “This issue was resolved this...

Mon, 26 Dec 2011 12:12:00 -0800

Update: LastPass replied to my support ticket saying “This issue was resolved this morning.” I haven’t seen the new wording and they didn’t bother to tell me in the ticket. I’ve exported everything to KeePassX (and KeePassDroid), but using it with DropBox on the Kindle Fire is a bit of a pain, so I’m sticking with LastPass until I find a better sync solution that works on all my devices.

I’m afraid I can no longer recommend LastPass. They’ve had one security incident where they ~~exposed~~ may have exposed ~~people’s~~ some users’ encrypted ~~vaults~~ passphrases. ~~Their recommendation? Change your passphrase. No, idiots, you need to change every password you managed with lastpass~~. In addition, their policy if you have two-factor authentication on a premium account is to turn it off if your account expires, making your account insecure, when instead they should lock you out until you disable two-factor auth yourself or renew.

Today’s snafu was the last straw. I tried to log in from my new Kindle Fire and was blocked as expected. The email they sent, however, demonstrated just how little this company knows about security. In notifying me that someone who may not have been me had used MY passphrase and had only been blocked by their device authentication, the email said, “If this was not you, you can safely ignore this email.” So, according to lastpass, I can safely ignore the fact that someone knows my email address and passphrase and is actively trying to get into my lastpass account. No, assholes, I CAN’T safely ignore that.

So I’ll be dumping lastpass as soon as I find an alternative. I may just use KeePass and sync it with Amazon Cloud Drive.

The email in question:

The Awesomeness of Racket's Syntax Parameters

Thu, 08 Dec 2011 12:24:00 -0800

I just discovered a new reason to add to the growing pile of reasons you should be using Racket: syntax parameters.

One of the most awesome and controversial features of Scheme is hygienic macros. “Hygienic” just means that any identifiers a macro introduces are automatically renamed to avoid accidentally shadowing variables being used by the unexpanded code. Any new identifiers must be specified in the macro arguments. This makes macros easy to understand and compose.

Hygienic macros are great, but sometimes you want to intentionally break hygiene to introduce new identifiers without their needing to be specified in the macro arguments. For example, you might be writing a define-struct macro that creates get-foo and set-foo procedures for each field of the structure. This is a perfectly legitimate (and reasonably safe) reason to break hygiene, and the Revised^6 Report on Scheme (R6RS) gives you a way to do this by manipulating syntax objects, commonly referred to as syntax-case macros, though syntax-case is just one way to create them.

Another, messier reason to break hygiene is to introduce identifiers with special meanings, like an implicit “self” identifier for methods in an OOP system. This use of unhygienic macros is much more error-prone, particularly when trying to compose them. For example, what if you wrote a loop macro that introduces an “abort” function, then wanted to use that macro within another macro? For users of the second macro to have access to the abort function, that macro must “pass it along.” Icky, huh?

Racket’s solution to this problem is syntax parameters. The documentation is not very clear if you’re just learning how to write macros; in particular it doesn’t mention where you’d want to use them. Instead, I’d recommend reading Keeping it Clean with Syntax Parameters, which explains the problem they’re intended to solve and gives some excellent examples of how to use them.

To summarize, syntax parameters allow the introduction of identifiers whose meaning can be adjusted dynamically by macro writers. Since they cannot inadvertently capture other identifiers, they allow you to write, for example, a hygienic version of define-method that provides implicit “self” and “resend” identifiers to the unexpanded code of the method. Without syntax parameters, these would have to be given in the parameter list of every method, or the macro would have to be unhygienic.

I know lots of people are allergic to the parentheses of lisp dialects, but the power of Racket’s macro system to define arbitrary languages is really worth it. I urge you to at least learn Racket well enough that you’re writing your own macros before deciding whether you like it, because macros are the main reason for the lack of syntax in lispy languages. When you’re defining your own embedded DSLs, extra syntactic constructs in the host language become a liability, not an asset.

Python Modules Are Not Racket Modules

Tue, 15 Nov 2011 11:24:00 -0800

(Back to Tumblr until Facebook notes support links.)

I’ve recently started using Racket, and I was pleasantly surprised when DrRacket (Racket’s IDE) errored on a use of an undefined global during compilation of a module.

It turns out that the reason for this is that, unlike Python, a Racket module’s namespace is closed. Values of module variables cannot be changed by calling set! from outside the module, the imports cannot be changed at runtime, and monkey-patching is impossible.

While there are some legitimate uses for monkey-patching, allowing it makes the compiler’s job harder. Since mistyping the name of a function or macro is a very common mistake, it’s a pretty big handicap to not be able to flag this as an error until the function in question is executed.

Of course, the way to get around this in Python is to write tests that execute every code path, but that’s not exactly conducive to rapid prototyping, something Python is supposed to be good at.

Update: I forgot to mention this also enables the compiler to inline function calls and do some unboxing that it wouldn’t otherwise be able to do, so it will make your code run faster, too.