Tuesday, November 26, 2013

Currency as a Paper Standard

People often make a distinction between asset backed currency, (where each dollar is a claim to some physical good, such as the gold standard), and fiat currency (where each dollar is simply a government printed piece of paper).

The distinction that people generally draw is that fiat currency can be produced in arbitrarily large amounts (i.e. printing tons of paper money), while asset backed currencies limit the sovereign's wealth to his stocks of the asset in question (unless he wants to dilute the currency, by reducing the amount of gold in each coin if it's literally a commodity currency, or reducing the amount of gold that each piece of paper is claim to for an asset backed currency).

In reality, all these arrangements are arbitrary - money works because people believe other people will accept it, and the gold and paper and whatnot are just coordination mechanisms to help us agree on what to accept.

The idea that the key distinction is the ability to print more money obscures a second aspect of asset-backed currencies that was less prominent historically but is actually more relevant today - the fact that people are accepting a notional instrument as a claim to some other less convenient instrument that they would say that they value more.

With gold, it was inconvenient to actually carry it around, so people were happy to carry around convenient pieces of paper that were claims to a fixed amount of gold, as long as everybody believed that the paper system was always going to work and be accepted. Eventually people got sufficiently used to the paper that the fiction of convertability was unnecessary. The Supreme Court took it away, and people barely noticed.

The parallel today is that we have a 'paper standard'.

The real money in today's society is ones and zeros in bank accounts, in SWIFT computers, and in Federal Reserve bank deposits.

Just like the gold standard before it, people are happy to transact in this fully abstract money because each digital dollar is a notional claim to a piece of paper printed by the US treasury. You can go to the bank and redeem your digital dollars for paper dollars whenever you want.

In the modern world, the digital dollar is vastly more convenient than the paper dollar, just as the paper dollar was more convenient than the gold bar. And while people do still withdraw dollars for some purposes, it's becoming increasingly rare. Can you imagine someone actually taking all their wealth out of the bank and leaving it in dollars under the mattress? The vast majority of the cash holdings for the vast majority of people are already in digital form.

At the moment though, people still like the fiction that they might convert all their digital dollars to paper dollars. If things were entirely on computers, what would happen if the computers crashed?

In reality, that ship sailed decades ago. If the computers crashed, the rich would be left with their houses and that's about it. But most people don't worry about this, just like most people in the 90s in America didn't worry about the government printing zillions of paper dollars, even though people in 1800 would have viewed this insouciance as insane naivete.

It seems likely that eventually the fig leaf of paper convertability will be removed. Young people already would be comfortable with this - they barely use cash, it's all credit cards. Eventually, the anachronism of paper money will be removed altogether.

When that happens, it will raise a number of intriguing economic possibilities.

The biggest of these is that there will no longer be any binding zero lower bound on interest rates. The biggest obstacle to negative interest rates is that people have the option of just hanging onto their dollars and earning zero. When the dollars are only in the bank, that's trivial to change. Every dollar in your account is depreciating at a continuously compounded interest rate equal to 3% per year.

If you could do that, the 2008 recession might have been a damn lot shorter. You don't want to spend and are trying to deleverage and hoard liquid assets? Does your answer change if those liquid assets are earning you -8% a year? Hell, even a Porsche doesn't depreciate much more than that - why not just enjoy the car instead? Hey presto, spending is back.

Don't get me wrong, there will likely be a huge psychological obstacle to negative interest rates. People will view it as the government or the bank taking their money (in a way that they don't view it as the government giving them money with positive interest rates). If the fed wants to do it, there's not much choice though - where are you going to take your money instead when there's no paper to redeem it for? If probably would fuel asset inflation, as people rush to put their assets into anything that will hold its value.

In addition, the difference between fiscal and monetary policy becomes much harder for the average person to see. If the government is taking out 1% per month from your account, does it really matter whether that amount is getting transferred to the government's account (under a tax) or destroyed altogether (under a negative interest rate)?

The eventual disappearance of paper money seems like it will only be forestalled by civilisational collapse or a massive change of governing arrangements. When the first government has the balls to announce negative nominal interest rates is another question.

I suspect that you and I may well live to see this reality.

Sunday, November 17, 2013

Miscellaneous Joy

-Things that make me want to learn computer science - a visual depiction of different sorting algorithms


-An awesome SMBC on Evolution. Comedy gold!

-In the annals of redneck engineering, Terminal Cornucopia documents all the ways you can make improvised weapons out of items you buy inside airport security. Several of them seem to involve dismembering a lithium battery, exposing it to water to create a heat source, and then having that explode a deodorant can. My favorite is the Blunderbussiness Class, although they gloss over the fact that the video suggests that if you were actually holding it when it fired you'd get your hand blown off.

-An excellent War Nerd column on the Congo. His thesis that the western intelligentsia simply hates the Tutsis seems ex ante implausible (I can't believe most people in the west even know who was killing whom in the genocide), but it seems strangely parsimonious as an explanation of what they actually do. Click it now, because it's only available for 48 hours!

The Benefits of Having Smoked

Back when I was in high school, it seemed important to do something cool to get rid of my nerd image. In the fertile logic of the teenage mind, the obvious answer was to take up smoking. My older sister smoked at the time, so clearly this was a good decision.

None of my friends were interested in joining, and lacking any social aspect it was never particularly enjoyable. This was especially so given that I never really liked it much - I enjoyed blowing smoke (The Couch: You still do, actually), especially smoke rings, but the actual inhalation part was never that pleasant. So the whole process went as follows:  *puff*...This is so stupid ...*drag*... *puff*... This is probably giving me cancer... etc.

As you can imagine, this phase lasted about 3 months before the absurdity finally became too much - I had to not smoke for a week on a chemistry trip (yes, really), and I never bothered restarting when I came back.

Let's take it as given that I'm deeply glad that I gave up when I did.

Yet strangely enough, I'm actually glad that I smoked a little bit. And the reason is that it left me with a vague appreciation for the smell of cigarette smoke. I find it somewhat pleasant. Not in every situation, of course, and definitely not when you smell it on your clothes after a night out at a smoking venue. But if I walk past someone who is smoking, it doesn't cause me any discomfort, and sometimes smells quite nice.

I never used to have this feeling before I smoked - I just had the classic non-smoker's reaction of instant revulsion. 3 months, however, is sufficient to give you an appreciation for it.

Which is nice, because in life you're going to come across people smoking, and it's a relief to not be bothered by it. Otherwise you might end up like one of those unbearable busybodies, noisily complaining every time someone nearby is smoking. "Can you please not smoke around my child?", you'll hear them ask. I always thought an appropriate response would be "Well, I was here first, lady. Can you please not disrupt my smoking break with your bratty child?"

If you want to see how much the anti-smoking brigade has descended into a joyless, liberal scolding parody of itself, look at the reaction to e-cigarettes. They're basically a cigarette that doesn't cause the vast majority of the nasty health side effects. So celebrate! Except the anti-smoking brigade doesn't. Because, you know, kids might start smoking e-cigarettes, and then decide that they really want cancer as well as nicotine and so now start on the real thing. Despite the fact that the vast majority of substitution is likely to be away from real smoking towards e-cigarettes, not away from nothing towards e-cigarettes (as Slate Star Codex pointed out ).

I find myself siding with the smokers most of the time. The world would be better off if fewer people smoked, but most of the anti-smoking movement is just status signalling against a dis-favored group.

The fastest way to irritate anti-smoking types is to tell them "I'm a big supporter of taxes on cigarettes, because they're a heavily regressive tax. Not only is it the same dollar amount per pack for rich and poor, but since poor people smoke more than rich people, we're clawing more money out of the poor. Which I like, because our tax system is far too progressive."

Thursday, November 14, 2013

Keeping Calm and Carrying On


How might brands work if there's no intellectual property protection?

Ordinarily, it's hard to know. Most works are protected by copyright restrictions until long after they've lost all interest to the public. That means that by the time you can replicate them and make parody versions of them, nobody's much interested.

An unusual thing happened though with the 'Keep Calm and Carry On' posters. They were made by the Ministry of Information in Britain in 1939 and not actually released to the public at the time. But they only reached commercial success starting in 2000 when a couple in Britain who'd purchased one of the original posters started making copies.

I would have guessed based on my crude reading of what the internet tells me about UK copyright law, as an anonymous work the copyright extends for 50 years after being made available to the public. So by 1989 anybody could make versions of it. Life is never that simple, of course, and as sure as we live in an overlawyered society, some clowns have tried to trademark it, failing in the UK but succeeding elsewhere.

Still, the relatively opaque ownership has made it relatively easy for parody versions to spring up everywhere. 'Keep calm and X Y' is now ubiquitous, for various values of X and Y - Party On, Fight On, Huck On, Chive on (?!), whatever takes people's fancy.

On the one hand, there's a tragedy of the commons effect going on - the life span of the design will surely be shortened as it becomes almost a meme. Everyone overuses it for their lame jokes until it becomes a cliche.

But on the flip side, there are lots of different creative interpretations. Moreover, the design ends up being way more widespread as a result, at least for a shorter period of time.

It's the difference, in other words, between a gold mine where Rio Tinto owns the land, and a Gold Rush on public land where everyone descends to mine the obvious bits as quickly as possible.

You may think that a massive short term exploitation of an idea is undesirable, but you don't even know the half of what undesirable is. Undesirable is the Disney Corporation successfully lobbying Congress to get endless copyright extensions passed so that their damn Steamboat Willie cartoon never passes into the public domain, thereby ensuring that no book written after 1926 will ever pass into the public domain in the US. Man, !#$% Disney. I struggle to keep calm when reflecting on rent-seeking that egregious.

My instinct is to nearly always make copyright terms shorter. When a good is non-rival, copying it is, at a first-approximation, nearly always welfare increasing. If there's a big societal gain that we could be securing by making the distribution of versions of  'Keep Calm and Carry On' restricted to the discretion of its original designers, I can't honestly see what it is.

Wednesday, November 6, 2013


The Mask

The face behind the mask:

"Excess ain't rebellion,
You're drinking what they're selling.
Your self-destruction doesn't hurt them.
Your chaos won't convert them.
They're so happy to rebuild it.
You'll never really kill it."
Cake, Rock and Roll Lifestyle

Tuesday, November 5, 2013


You know how sometimes you just don't seem to have any anything to contribute? I mean, I'd seen these billboards about 'No Kill Los Angeles', trying to eliminate animals being killed in shelters. The name and the billboard made it sound like one of those magic lefty schemes whereby people just mandate that some action can't happen any more without any idea how to make that happen or who's going to pay for it. Killing shelter animals is now illegal! That means that shelter animals won't be put down, but will just be fed endlessly and housed indefinitely with all of the money that we don't have. So... they'll starve to death but won't be killed? They'll be left on the streets?

But no, it turns out that, despite their name, No Kill Los Angeles actually seems jolly reasonable and are just trying to encourage people to donate money and adopt out shelter animals and spay and neuter pets. Don't you want that to happen, you monster? And then I started to feel mean and cynical for wanting to hack on them just to write a blog post about lefty naivete. Lord knows there's enough of that going around, but none of it seems interesting enough to write about. Government spends $160m to make a website that doesn't work! Nobody saw that coming!

Meanwhile, as I started to write this post I began to feel vaguely guilty that all I thought of when I saw their poster was leftist politics, but the actual fact of animals dying didn't rouse me at all. So then I felt I owed NKLA ten bucks as a cosmic apology, but they very cleverly set the minimum suggested donation button at 25, and now I'd feel too cheap if I checked the 'other' radio button and put in 10. Well played, NKLA. It's a classic Paul Newman in the Hustler maneuvre - act clueless until they've raised the stakes, then BAM!, they're getting taken for all they're worth. So now this has turned into a $25 blog post, and when you divide this by my five readers, each one of you had damn well better be getting $5 of enjoyment right now or this morning is going to turn into a total writeoff.

So, yeah, that's me. In the mean time, here's some great stuff taken from Morlock Publishing's twitter feed 


-Wondermark on who can punch harder

Friday, November 1, 2013

The war on dying is going poorly, but at least the war on "dying" is succeeding.

We live in an age where people go to enormous lengths to not contemplate mortality – either their own, or anyone else’s, really.

In the current present tense culture, people don’t even realise how much this shift has occurred. Today's moral fashions are not only correct, but self-evidently so. This mindset is imbibed so deeply, in fact, that most people don't even find it necessary to contemplate why things weren't always the way they are now. To the extent that other cultures and periods felt differently, the aberration is all on their side. The past is a foreign country, all right. And people's attitudes towards it resemble those they hold to real life foreign countries: namely, we'd rather read the latest news about Miley Cyrus than give a rat's @$$ what's going on there or why.

But every now and again, subtle language choices creep in to remind us how recently the current attitudes came about.

Take, for instance, the use of the present participle verb form ‘dying’.

It used to be common to say that an old person was ‘dying’. This would refer to known terminal illnesses (‘Dad is dying of cancer’), as well as people just in very poor health and probably going to eventually lose out to something or other. To the extent that it wasn’t known exactly when things would happen, sometimes there was uncertainty (‘I think he’s dying’).

Now, to apply the term to someone with a serious illness but not currently on life support is sufficiently rare that it sounds jarring, even anachronistic. Which is ironic, because death sure ain't getting any more anachronistic. (The disappearance of the concept of 'dying of old age' is highly related).

People will still use the phrase occasionally, of course. But usually only at the absolute last possible moment when it's absolutely clear that nothing can be done. The medical profession aids and abets this view, not wanting to deliver bad news any earlier than necessary, focusing instead just on the treatment options.

The part that stands out today is just how far away from the moment of death people used to be willing to make this observation (months, typically), and how matter of fact the whole thing was. Certainly in the case of terminal diseases, where the end result was known. The only time I’ve read this expression used in any sort of recent memory was the opening sentence of Mencius Moldbug’s pre-death eulogy to Larry Auster:
In case you haven't heard, Larry is dying.
Not coincidentally, Moldbug has perhaps the strongest sense of historical perspective of almost any writer around today. The second most honest description was from John Derbyshire. Make from this what you will.

The reason nobody uses the word any more, I suspect, is that people will do everything in their power to deny the possibility of death until the last minute, when the Titanic is already half-submerged and the orchestra has fallen into the ocean. We can fight this thing! The cancer has metastasized, but they're trying a new treatment! There's still a chance!

I would wager that there are plenty of people who will never be willing to use the word 'dying' to refer to a loved one. Dad is never dying, he's just going along, right up until he's 'dead'. That bit they'll acknowledge, if only for the absurdity of the alternative. To highlight the Nelsonian artificality of all this, doctors and nurses have very little difficulty telling when a patient is nearing the end - that's how they know to tell you to call the relatives. I have little doubt that if you asked them three months ahead of time, they'd be able to give similarly accurate prognoses, but nobody ever does ask them.

The only circumstances where modern man will rouse himself to use the present participle form are in metaphorical circumstances that have nothing to do with mortality. So Mum may be 'dying of boredom', 'dying of laughter', 'dying of embarrassment', but she's never just 'dying'.

This online diary has an entire label dedicated to 'mortality'. I have no doubt that in the scheme of modern society, this makes me morbid and weird. 

I maintain, however, that the strangeness is not mine, but today's world.

Nevertheless, it ends.