My favorite things, all at once!

Yay for old friends, economics, and technology! All at once!

kc wrote a blog posting with her humble ideas on how to use IP address space tax. Wait… there’s a tax on address space? Yes, because it has become a scare quantity, because people are too lazy to move to IPv6, IPv4 address space is running out. The best of all bad ideas about what to do about this is to make an open market for address space, as though network addresses were some kind of useful piece of property with any kind of useful value. (BTW: When the present econolypse is over, and the next bubble starts, it will be an IPv4 address space bubble. Mark my words…) Address space is bits. We can make more bits… Look! I just made some! But because the value of a network exists in everyone who is using it, not just your implementation of the network, you can’t just add bits in your IP stack and get any benefit. So, while bits are free, and address space could conceiveably be free, because we have a network with limited space, we have a scarce asset. And, of course, what do humans do with scarce assets? We make bubbles! Yay for bubbles!

OK, now that we’ve gotten kc and tech checked off the list for this post, what about economics? Well, actually I touched on economics above, but there’s something way more fundamental to economics. Fundamental questions tend to be hard to recognize because they seem so obvious. The world would be a lot more sane place if more people took the time to ask this particular question and understand (no… really understand) the answer:

What is money?

In case you are not following me and don’t see why this is a hard question, see if any of these wrong/incomplete answers are floating in your head:

  • Money is the paper with green ink and dead guys on it. And red discs with the other dead guy on them, but it takes 100 of those red discs to make one of the green papers.
  • Money is dollars, euros, and yen. It’s what you spend when you want to buy something. You can change it to the other kind of money if there’s a different symbol in front of the price on the thing you want to buy.
  • Money comes from the government. The Fed sets the rate and it goes into banks, then I get it from the ATM.

These answers are all wrong. Not just a little bit wrong… they are like “the earth is flat” wrong, or “the sun goes around the earth” wrong.

So what’s the answer? I’ll tell you what… the answer is so hard that I certainly can’t tell you. You could earn two PhD’s and not really know. Money is something that humans invented after we invented trade, but before we invented numbers. That means it’s something that’s fundamental in the human condition, and that it is as human as culture and art. You might as well give up on the money question and work on a nice simple one like, “What is art?”.

But it wouldn’t be very nice of me to bring you this far and dump you with no ideas of what money is. What lead me to write this post is this great quote I found in one of the papers kc linked to in her blog posting. Here’s the quote:

The Nature of Money

My very great teachers (Alchian, 1977; Brunner and Meltzer, 1971) taught that a society uses as money that entity that economizes best on the use of other real resources to gather information about relative prices and to conduct transactions. This makes clear that the common — but wrong — statement of Gresham’s Law about “bad money” driving out “good money” needs to be restated. What we have observed through the millennia is that high-confidence monies drive out low-confidence monies (Hayek, 1976, p. 29; Mundell, 1998).

That’s academic speak, and it’s easier to understand if you read it in context. But what it’s basically saying is that “a culture will chose as money that thing which minimizes the costs for them to participate in the market to find the correct price for goods”.

That is profound. It’s very far removed from what we think about money when we are at the checkout counter at Tesco (which for me is usually “Gee, this yogurt will be 37 pence, I hope I have exact change and can make my pocket lighter”).

Here’s a related story from when I worked as an administrator in Liberia for Doctors Without Borders. A rumor was going around the country that “little head” dollars were no longer accepted by the bank. “Little head” dollars? This is Liberian shorthand to describe the difference between newly designed money with the large heads and other security features in them. The rumor, as they usually always are, was based in fact. When currency circulates outside of its place of origin, counterfeiting is easier to get away with. In Liberia, from time to time, I noticed bills that, if they’d been given to me as change in the USA, would have made me call the manager. But as long as the staff accepts them, it’s not my problem. Why do they accept suspicious money from me? Because they have no fear that the guy selling cement bags at the corner will refuse it. That guy in turn doesn’t know or care about counterfeit US dollars, and so the bill moves on through the system.

Banks who do international business don’t feel the same way about counterfeiting. Afterall, if a Liberian bank sends some counterfeit currency to London or New York, it’s not going to get passed on. It’s going to get subtracted from their total deposit amount. It won’t be investigated as a crime if it’s just one bill here or there, because it’s a drop in the ocean and the trail to the original counterfeiter has already gone cold — it was likely introduced by North Koreans into Kenya by way of India and made it’s way across to Liberia overland. There’s a certain cost of accepting money from areas with endemic counterfeiting. It’s perhaps 0.1%, but it’s there. That’s $1 per $1000, and it adds up.

Banks don’t just eat costs like that, they pass them on. One place that cost has showed up is in the exchange rate between USD and other currencies. The exchange rate between USD and Euros is different depending on the bill. Little heads low rate, big heads full rate. I don’t know who actually takes the fall for the fake bills — who’s account is debited when they are removed from circulation. But whoever loses that money is not bothered, because they’ve already covered the cost (and more) on the spread between their “little head exchange rate” and what the true exchange rate should have been that day.

OK, so back to Liberia. When the Liberian banks started charging a differential exchange rate (the same as their partner banks were doing in London), that reality-based fact morphed in the street into “the banks don’t take little heads”. The US Embassy put out a press release to try to stop the rumor. It said, “Dollars are dollars, big head or little. Every dollar anywhere on the planet can be exchanged for any other, and they are all dollars.” Which would be true, except it’s not. If you try to bring $10,000 from Liberia and spend them in the US, the odds that you have a counterfeit bill in there someplace are high enough that you’ve probably brought (on average) $9994 instead of the $10000 you thought you did.

In any case, a press release from the embassy certainly wasn’t enough to stop this story. Whether because they believed the rumor, or because they just didn’t want to be the only one not believing it (the musical chairs effect), within a few days the vendors stopped accepting little head notes. This was a few days before payday, and several staff brought the story to me, worried I would pay them in little head notes that they could not spend in the local market. I showed them the newspaper, and told them a dollar is a dollar. They told me, “a dollar I can’t spend isn’t a dollar”.

I’m going to repeat that, because it’s part of the answer to the question, “what is money?”

A dollar I can’t spend isn’t a dollar.

So, what to do? I called my boss in Monrovia, who’d had the same complaints. She made a quick decision: starting that moment, little head dollars no longer existed in the MSF system in Liberia. I was to find every little head dollar I had (a few hours work, in the end it was about 50 notes totaling about $550) and send them to her. She would send me back big head ones (thereby balancing our books). She’d send all of the little head dollars from the entire mission back to Geneva, and we’d change them there into francs and put them back into the budget at headquarters. Presumably she only chose non-suspicious bills to send back to Geneva, lest “MSF counterfeits dollars” were to show up in the newspapers the next day!

Problem solved. The staff loved me because I paid them in big head dollars. And I learned, first hand, a little bit more about what is money.

PS: Think rumors are funny? Managing rumors and knowing when to give up and get out of the way is serious business for humanitarian aid workers. Here’s an article about 3 Red Cross workers killed due to a rumor. My boss didn’t make the decision she made because she’s a nice lady. She decided this wasn’t a rumor that we were going to kill, and we needed to get the heck out of the way of it.

Global Warming is going to be an embarassment

In 15 years, the Global Warming hysteria is going to be one of those embarassing episodes in history. Several sociology and history of science PhDs will write their theses on “how they blew it on climate change”.

The latest person to risk his reputation by coming out and speaking truthiness to the enviro-powers is Freeman Dyson.

As I am not 80 years old, and I have to live with my reputation for a while longer, let me make my position clear again:

  • The way science works is that you observe something and you try to explain it. Sometimes it helps to make a model, and useful models make predictions that stick.
  • Climate change researchers haven’t been very successful at that, not because they are not smart enough or hard working enough, but because the climate is a really big complicated thing. Their models cannot explain past weather, and do not agree on future weather. Given that we cannot do large scale experiments on our climate, the best we have is the models. They don’t work.
  • Politics and popularism that sways funding degrades science, because scientists will naturally seek the easy money, and will not go out of their way to make their own life difficult by spitting in the face of the rich research sponsors. Even if some climate researchers know that they are caught up in a hysteria and that the evidence does not support the hysteria, some of them will take the easy way out: take the money and give the answer the model says (and just keep their worries about the reliability of the model to themselves — due to the next point).
  • When people cannot rationally discuss multiple theories about a natural phenomenon because those theories that contradict the status quo are perceived as “corrupt”, “dangerous”, “crackpot”, then science stops working right. This is happening now. Those who wish to investigate all possibilities are branded (most benignly) as “climate change deniers”, and usually much, much worse things. Read the rude comments sent Dyson’s way and be ashamed. This is one of our greatest living scientists. We should treat our elders with more respect than that.
  • The climate might be changing in ways that are dangerous for humans or it might not. Humans might have changed it or not. That gives us four possible “realities”. 3 out of 4 of them do not justify any radical action on our part. The fourth possibility (man is making significant changes and the climate is getting dangerous to us) is, due to feedback effects, likely too far along for us to stop. Instead, we’ll have to live with the legacy we gave ourselves. But we’re smart enough and still rich enough — but only if we get to work.
  • There are many excellent reasons to get off the fossil fuel addiction including: global security, local ecological reasons (well drilling is icky), and economic sustainability arguments. Human-generated climate change is not one of them.
  • Human development in resource-poor regions is fundamentally just, and any action we take regarding climate change must allow those countries to develop as fast as they possibly can. Nothing reduces sickness, early death, and sadness more than poverty reduction. Nothing. My MSF work is a great big waste of time (and a very small waste of money, comparatively). I know it, and most other MSFers know it too.
  • There is money, big money, to be made on green technologies. There are great reasons to go out and try to make that money. Climate change is just not one of them.

So, there you are, future socieology PhDs. When you find this blog post, you’ll see that the hysteria was not complete and utter. There were people who were willing to point to the angry mob and call it what it is.

PS: I found it cute that Dyson’s wife disagrees with him. When I told Marina I think global warming is a hoax, she almost called off the wedding…

Negative Feedback

Planet Money is talking about the new Systemic Regulator, and also talking about other theoretical ways of regulating the banks. It occurs to me that one thing that’s missing, and not just a little bit missing, but radically missing, from the current system is negative feedback.

Wouldn’t it be interesting if we could set things up so that before the next bubble starts, the participants in the market can see that as certain stages of the bubble kick in, as measured by certain predetermined checkpoints, then certain economic brakes will be applied. We’d have to be careful not to take away all the control the Fed has, but perhaps you can invent a new set of levers which fall into this category of automatically triggered negative feedback.

Some examples:

  • Increasing the reserve requirement
  • Decreasing tax benefits of mortgage interest
  • Increasing the fees FDIC charges a bank to insure its deposits
  • Federal “encouragement” to states to make a rainy-day fund

The idea is to take “bad ideas”, the things Republicans hate, that they criticize as “friction on the economy” and program them into the financial landscape before they are needed. You’d probably have to choose many more of them, to make sure they provided negative feedback in all segments of the markets. After all, what’s the point of only having a brake on the front right tire?

The triggers would have to be automatically scaled with respect to the natural growth of the economy. Because whether or not there is a bubble, economies grow. And you’d have to find some way to defend them against political meddling. It’s comparatively easy to defend the Fed against pressure as it twiddles its one variable (the Fed funds rate), but it would be something else entirely to work out some kind of system that protected all the other keepers of the negative feedback rules.

One of the negative feedback mechanisms I named above might not be too clear without a description. For better or worse, we have a federal government. That means the states have freedoms that (for example) English counties don’t have. The central government has no right to tell California that it should spend or save it’s money in a certain way. The “solution” has been to setup matching funding mechanisms, then make the federal funds contingent on the state following the advice of the feds. To encourage the states to build up a rainy day fund during economic booms, perhaps all of the matching rules could be parameterized with respect to some sort of “bubble index”. Matching would be 1 for 1 (100%) minus X, where X is calculated with respect to the current “hotness” of the bubble, and how much the state is lagging the federal target for rainy day funds. Smart states would control expenditure to create a big surplus to go into the rainy-day fund, thereby preventing their X from getting above 0, and them losing matching funds.

With all economic things, you’ve got to try (hard as it is) to play the chess game forward a few moves and try to figure out the consequence. The theory of net present value helps decisionmakers take into consideration the future. By warning decisionmakers today that certain economic brakes will kick in tomorrow, they should be more willing to consider options today they wouldn’t have considered otherwise. On the other hand, even if there was certainty that the negative feedback rules were “out there” waiting to trigger, there would still be uncertainty on when the triggers would be reached. And it’s likely that some new and doubly-unstable form of speculation would come into existence.

Though the Planet Money folks have already declared a moratorium on it, I have to say, “the devil would be in the details”.

You heard it here first, folks…

More discussion about marks on hard things.

I suppose I should really get around to figuring out the physics of my modest proposal.

The Long Now Foundation’s Rosetta Project does something clever, which is to start their disk with big text that swirls into microscopic text. The idea is to tempt the reader to want to keep going, and help him figure out that the next step to read the next scale of text is to go grind himself a lens.

Some pointers to things I’ve recently liked

Here’s a random smattering of links to things that I’ve recently checked out, and that I really like:

  • Children of Men: A well made film about an interesting story in dystopic England (though, to be perfectly honest, it’s a bit hard to tell the difference between that England and the one outside my window). I had the “last generation” story idea last weekend. I sent it to Curtis, and he told me about Children of Men. I made the link go to the Wikipedia page and not the IMDB page, as is customary. The Wikipedia article on the movie is really nice, with great director’s commentary, as well as other goodies.
  • Jungle Disk: Best solution to off-site backups. You pay USD 20 one time for a nice piece of software, and you have perpetual rights to use it on as many computers as you want (Mac, PC, Linux). It helps you put data into your Amazon S3 account. You pay your bills to Amazon. You own your data, Amazon makes sure you don’t lose it (Jungle Disk has published their schema, so even if you decided to throw away their program or they go out of business, your data is still available to you). Key points: Amazon S3 is cheaper than any possible backup medium you could choose in your own house (include amortized hardware costs, energy costs, and the hassle factor — don’t cheat on the hardware, you have to have reliability as high as S3, which means both your hardware cost and your hassle factor will be much higher than you think it is), because you have a direct relationship with Amazon, there’s no markup on storage or bandwidth. The price of your backups can only go down relative to the on-line offsite backup market as a whole.
  • Onlive: Karl, Cary, and Arnold are finally out of stealth mode! Yay! It seems like “Xbox over vnc” to me, but what do I know. I never really mastered minesweeper. Just give me a good book…
  • …like The Shadow of the Wind: A good book. Multiple layers, several stories running at once, from different times, coming at you at once, all set in beautiful and atmospheris Barcelona. Good stuff.

A Kaleidoscope of Languages

By way of procrastinating doing my French homework, I found myself on a webpage which has the Universal Declaration on Human Rights in more languages than you knew existed (including, to absolve some of my guilt, French).

That’s a little bit of hope right there. That’s a message in a bottle that says, “we might not get it right all the time, but this is what we as humans stand for, and you are allowed to hear it in the language that your elders speak when they teach you about the old ways”.

That’s important and worth fighting for.

Something Interesting is Happening

Take a look at this article from Bunnie Hwang, reporting on the copycat industries in China.

Bunnie’s nailed it, there is something interesting and important going on. Writing these guys off as copycats is exactly the wrong read on the situation. These guys are going to be a cornerstone of the foundation that science fiction writers are going to launch themselves from in order to help the rest of us understand what things are going to look like in 30 years.

If the Singularity comes, it will come as a surprise out of this part of the world. Now might be a very good time to go review your Snowcrash.

And for the open-source sociologists out there, it appears this is an interesting laboratory to check out distinctly non-technical things like sharing, cooperation, and enforcement of community norms:

Interestingly, the shanzhai employ a concept called the open BOM: they share their bill of materials and other design materials with each other, and they share any improvements made; these rules are policed by community word-of-mouth, to the extent that if someone is found cheating they are ostracized by the shanzhai ecosystem.

Comparing Geographical Sizes

A long time ago I thought it would be fun to open two windows and see two things on Google Maps next to each other. That way, I could compare the sizes of them. But getting the scale set the same on both maps was not easy. Wouldn’t it be neat if the scale of the maps was set to the same?

I finally got around to implementing this with Google Maps API:

To test it out, type “Liberia” in the left one. Then type “Switzerland” into the right one. Zoom one in and out and notice how the other one changes. You can also see the page alone in it’s own page.

As usual with Google maps apps, view source (in the iframe) to see how it’s done. The tricky bit is removing and adding the event handlers so that you do not create a notification loop. The auto-sizing code is nifty too, if I do say so myself.

Update: My good buddy Andrew pointed out that this has already been done.