Author: David Wright

First, the idea that the fed might issue FedCoins, which would be exchangeable for USD. It would make QE much easier to pull off. Amazing thought:

It is interesting to think about why this is so implausible.  There are a few reasons:

1. YellenCoin would be a means of payment but not the medium of account.  This would move the economy into a currency substitution model, a’la Girton and Roper, but would not have the effects of a straightforward monetary expansion.

2. Cryptocurrencies are much more likely to be used for some kinds of transactions than others.  So this act of “monetary policy” would be very much non-neutral.

3. Central banks are not supposed to be seen as taking major risks or overturning the established order of things.  They are highly risk-averse when it comes to their public reputations, and their very much prefer sins of omission to sins of commission.  If the Fed established Fedcoin and something went wrong with the idea, they would be subject to especially heavy blame.  In the meantime, few people (are there exceptions?) are blaming them for not establishing a cryptocurrency.

Next, a cas podcast where the idea is floated that P&C actuaries are more like technical stock analysts than fundamental stock analysts. Actuaries are a scientific bunch and no double would freak out at being lumped in with the ‘stupid’ stock pickers, though there is some merit to the comparison. We don’t even an attempt to analyze the fundamental drivers of claims activity when valuing insurance liabilities: we mostly do voodoo extrapolation of recent trends.

I can imagine a world where the cure to such a problem is even less comprehensible than the disease. We’d need data sources too immense to understand and apply to them tools that we can’t comprehend.

The day isn’t far off…

A remarkable set of nested blog posts. I’ll quote one piece but it really is worth reading it all:

It’s usually obvious when you’re talking to somebody a level above you, because they see lots of things instantly when those things take considerable work for you to figure out. These are good people to learn from, because they remember what it’s like to struggle in the place where you’re struggling, but the things they do still make sense from your perspective (you just couldn’t do them yourself).

Talking to somebody two or levels above you is a different story. They’re barely speaking the same language, and it’s almost impossible to imagine that you could ever know what they know. You can still learn from them, if you don’t get discouraged, but the things they want to teach you seem really philosophical, and you don’t think they’ll help you—but for some reason, they do.

Somebody three levels above is actually speaking a different language. They probably seem less impressive to you than the person two levels above, because most of what they’re thinking about is completely invisible to you. From where you are, it is not possible to imagine what they think about, or why. You might think you can, but this is only because they know how to tell entertaining stories. Any one of these stories probably contains enough wisdom to get you halfway to your next level if you put in enough time thinking about it.

Some research says:

What they found from the fMRI scans was that when mathematicians looked at the beautiful equations, the same part of the brain was activated as when people are looking at beautiful art or listening to beautiful music.

I know that feeling. I’d bet that a great turn of phrase or a great joke lights up the same regions.

Here is how:

Importantly, teachers also broadly share an authoritative vernacular or “folk pedagogy” that shapes understandings across the system regarding the nature of teaching and learning. These include that “teaching is talking and learning is listening”, authority is “hierarchical and bureaucratic”, assessment is “summative”, knowledge is “factual and procedural,” and classroom talk is teacher-dominated and “performative”.

My impression is that the marginal changes in the education systems in North America are away from this kind of “old school” approach and not towards. That probably means we won’t be climbing the rankings internationally.

Here is something I agree with:

But I actually think the United States–I’m a bigger believer in the U.S. education system than many people are…

And I think the parents in Bedford got out of their school system exactly what they wanted out of it. And they wanted football teams. And my wife teachers choir, and they wanted choir. And they wanted the school to put on a musical; and they wanted the school to provide their children with a range of athletic and artistic experiences. And engagement in a variety of other activities; and that’s what the school system delivered. Because it was quite carefully and closely controlled, both formally and informally by the parents. And that produces kind of not world-beating math scores. I don’t think that’s what the parents of Bedford thought was the totality of their educational system. So, I’m a very big fan of the local control by parents of educational systems. And if that doesn’t produce scores of 600, I am actually pretty happy with that. Because I’ve seen what it takes in Korea to produce scores of 600, and no American parent is willing to put their kid through that. Nor should they be, in my opinion.

I’ve been enjoyed Marc Andreessen’s twitter feed immensely.

Best approach to strategy is think like 100% owner with long-term time horizon, and then work backward. Versus what we have now forward.

— Marc Andreessen (@pmarca) February 11, 2014

I find it very difficult to think of my own business in this way. As intermediaries we get paid to think about other people’s businesses and strategy. We all have lots of opinions on the various forces that shape our clients’ and markets’ businesses but what about us, their service providers?

What is the future outcome that a 100% owner of a business like mine should target? Be bigger? Weak.

Stand in awe of the nuance:

Words for sex and prostitution move easily from language to language. Consider the peregrinations of bordel all over the Romance-speaking world (the noun became “international,” though surely the introduction of the “thing” did not need help from the neighbors), the etymology of ribald (from French, where it is from Germanic: the root (h)rib- meant “copulate”), and the unhealthy popularity of our F-word in the remotest countries of the planet. The OED provides evidence that bordel made its way into Middle English, and in light of this circumstance I would risk defending and developing an etymology offered in The Century Dictionary but disregarded by all later authorities. Unlike breþel, broþel from breoþan — I suspect — never existed. Much more likely, when bordel surfaced in Middle English, it was associated with broþen (the participle). The variation ro ~ or and the like (that is, r preceding a vowel versus r following it: metathesis) is common; thus, the German for board is Brett. Given this scenario, brothel will emerge as a trivial folk etymological alternation of a foreign word. Probably no one noticed that bordel reminded one of board. People needed a vivid picture of a house of sin, not an exercise in historical linguistics.

Much more at the link.

Review here (pdf)

I am generally a free markets, don’t tell me what to do and don’t take my stuff kind of guy, but I’ve been stopped dead in my tracks considering whether I agree or not with this sentence (I’m less sure than I was):

Piketty sees a role for high (“confiscatory”) taxation.

Piketty himself is no doubt more nuanced but this will become a hymnbook for the left-wing choir, who will use it to frame all economic activity as a tradeoff between evil return on capital (r) and good overall growth of the economy (g). In eras where growth is higher than the return on capital, prosperity brings about a golden age (there’s been only one). The rest of the time?

But far from making this high r a good thing for the economy, he regards it, unless checked by higher taxation, as a portender of disaster.

So the point of high taxation isn’t even to raise revenue so much, it’s to reduce the return on capital while preserving the growth.

Does it make sense to try to engineer another golden era through deliberate effort? The thought of humans trying to recreate an entire economic equilibrium through globally coordinated policy changes makes me nauseous. Remember, this golden era was a short-lived exception to history, not the rule.

This seems to be a work of morality and politics, despite the scientific sheen. In that realm it could well be successful. But luckily no entity has the power to give an honest test to the hubris of brilliant economists.

How and why bitcoin will plummet in price. There’s a lot of thinking in this piece and, unfortunately, a lot of econo-jargon, which Cowen is wont to do from time to time.

For purposes of argument, let’s say that a year from now Bitcoin is priced at $500.  Then you want some Bitcoin, let’s say to buy some drugs.  And you find someone willing to sell you Bitcoin for about $500.

But then the QuitCoin company comes along, with its algorithm, offering to sell you QuitCoin for $400.  Will you ever accept such an offer?  Well, QuitCoin is “cheaper,” but of course it may buy you less on the other side of the transaction as well.  The QuitCoin merchants realize this, and so they have built deflationary pressures into the algorithm, so you expect QuitCoin to rise in value over time, enough to make you want to hold it.  So you buy some newly minted QuitCoin for $400, and its price springs up pretty quickly,  at which point you buy the drugs with it.  (Note that the cryptocurrency creators will, for reasons of profit maximization, exempt themselves from upfront mining costs and thus reap initial seigniorage, which will be some fraction of the total new value they create, and make a market by sharing some of that seigniorage with early adopters.)

Next is a neat Cochrane piece commenting on a WSJ article on alternative lenders springing up to fill in for banks that don’t want to lend. Here’s the key bit:

But there is nothing that stops a bank from using new sources of information, streamlining loan approvals and so forth. So if regular banks are not doing it, and if new businesses that want to serve this market are organizing as something other than new “banks,” it raises the interesting question, what’s wrong with regulation or competition in banking?

There is a lot of talk about how banks “don’t want to lend”. Why? Cochrane’s my favorite blog these days.

Lastly, Felix Salmon with a great piece on Netflix’s pivot:

…the studios can watch the Netflix share price as easily as anybody else, and when they see it ending 2013 at $360 a share, valuing the company at well over $20 billion, that’s their sign to start raising rates sharply during the next round of negotiations. Which in turn helps explain why Netflix is losing so many great movies.

As a result, Netflix can’t, any longer, aspire to be the service which allows you to watch the movies you want to watch… if you give Netflix a list of all the movies you want to watch, the proportion available for streaming is going to be so embarrassingly low that the company decided not to even give you that option any more.

…Netflix, then, no longer wants to show me the things I want to watch, and it doesn’t even particularly want to show me the stuff I didn’t know I’d love. Instead, it just wants to feed me more and more and more of the same, drawing mainly from a library of second-tier movies and TV shows, and actually making it surprisingly hard to discover the highest-quality content.

“You shouldn’t believe what I say when I’m with the rest of the kids. Nobody acts sincere.”

So says Natalie Wood’s character Judy in this celebrated movie about teen angst released fifty-eight years ago. Is this a great movie?

It’s probably impossible to evaluate it on its own merits. Budding star James Dean died a month before the release, catapulting himself and the film to mythical status. We learn from Wikipedia that (even before his death):

“When production began, Warner Bros. considered it a B-movie project, and Ray used black and white film stock. When Jack Warnerrealized James Dean was a rising star and a hot property, filming was switched to color stock and many scenes had to be reshot in color.”

I’d strengthen that point. The movie is for the most part silly; Dean carries it.

An early scene makes the point (you can watch it here). Jim (Dean) notices Judy, who is initially unimpressed, but we see Dean’s a cool, charismatic dude. Judy’s mild contempt rings hollow in the face of Jim’s bemused indifference. One imagines her description of him to Buzz as the “new disease” to be more plaintive than smug. By the end of that day she’ll have changed her mind.

The movie is actually mostly set within that single day, the first day of school for Jim Stark who recently moved to the area. Like many kids, he’s embarrassed by his parents and is really sensitive about being picked on. After Judy catches his eye, her boyfriend Buzz bullies Jim and challenges him to a knife fight (!). No cutting, you see, just sticking. Jim wins by knocking Buzz’s knife away. Buzz then challenges Jim to that famous game of chicken and the rest of the movie follows its tragic consequences.

We see a lot of B-strength writing in the film’s pandering to cultural talking points of the day. Here is Roger Ebert’s review:

In the early 1950s, his unfocused rage fit neatly into pop psychology. The movie is based on a 1944 book of the same name by Robert Lindner, and reflected concern about “juvenile delinquency,” a term then much in use; its more immediate inspiration may have been the now-forgotten 1943 book A Generation of Vipers, by Philip Wylie, which coined the term “Momism” and blamed an ascendant female dominance for much of what was wrong with modern America. “She eats him alive, and he takes it,” Jim Stark tells the cop about his father.

Weak writing seeks to confirm the flawed intuition of an audience. It takes an ambitious film to challenge it and a great film to change it. It’s easy to say “kids are crazy these days” and point to whatever fad happens to be in the news as evidence. The thing is that kids have always seemed crazy and always will. Have you seen this study (or another like it)? Adolescent Brains Biologically Wired to Engage in Risky Behavior:

“Our results raise the hypothesis that these risky behaviors, such as experimenting with drugs or having unsafe sex, are actually driven by over activity in the mesolimbic dopamine system, a system which appears to be the final pathway to all addictions, in the adolescent brain,” Poldrack said.

These kids weren’t ‘crazy’, the were just bored and happy to risk their life for an edge in the status game of teen-hood. Jim, for all his protagonist’s self-awareness, is incensed by simple name-calling of “chicken”. For a teenager, humiliation and death are frightfully close together in significance before an accident.

And yet the film is capable of nuance. The ultimate act of madness, the game of chicken, had a distinctly non-crazy, almost nonchalant emergence. There wasn’t a grudge between Buzz and Jim: “I like you, you know?”, says Buzz at one point. “Then why are we doing this?” asks Jim. “We got to do something. Don’t we?” Same today. Buzz can’t eject because his sleeve gets caught and over the cliff he goes.

The film misses a chance to dwell a bit on the effect this would have had on the kids. There are glimmers of fear and shock and remorse, of course. And the boys worried about Jim talking frankly with the police rings true to me.

I was actually surprised at how modern the film felt and looked; much of our society’s norms and visible technology was in place then in the 50s. It makes me wonder, how far back could such a movie been made?

For technology, probably not long before. But I suspect that its plot and theme of parental angst over crazy teens would probably resonate with any group of middle class families back to the dawn of time. Try reading Lermontov’s *A Hero of Our Time* a mid-19th century treatment of similar modern themes.

Not starving? Not at war? Got some serious leisure on your hands? Then it doesn’t matter when you were born: you probably whine to your friends about how the kids these days just don’t get it.

Here’s his Graph of the year:

I see a comparison of an aggregate with an average and I get annoyed. I’m not disputing the point so much, really, but I feel like this is contrived to give us a hockey stick shape to freak out about.

Maybe the conclusion wouldn’t change comparing average to average. Maybe the data isn’t available to do an average of student debt among graduates.

But surely some acknowledgment that there probably more students every year is in order here.