Resistance Watch

Posted on January 10, 2018 by Arnold Kling

Two from Monday’s WSJ.

1. David Benoit in a front-page story on Apple writes,

A leading activist investor and a pension fund are saying the smartphone maker needs to respond to what some see as a growing public-health crisis of youth phone addiction.

2. Regular columnist Chris Mims writes,

In the face of pressure brought by a growing roster of Facebook investors and former executives, many of whom have publicly stated that Facebook is both psychologically addictive and harmful to democracy, the Facebook founder and chief executive has pledged to “fix” Facebook by doing several things, including “making sure that time spent on Facebook is time well spent.”

For a while, the term “gamify” was big in educational technology. The thinking was (and perhaps still is) that if you turn learning into a game, you can improve educational outcomes.

With social media, we have gamified social interaction. When people share, they look for rewards in the form of positive responses.

I am not a fan of this gamification, in either setting.

Bitcoin and the prospects for a dollar collapse

Posted on January 9, 2018 by Arnold Kling

For Medium, I take a skeptical view of the value of Bitcoin as a hedge against hyperinflation.

For citizens looking for hard assets, gold is not the only option. Other commodities, such as copper or wheat, are traded in futures markets. By taking long positions in those commodities, you can profit from inflation. There are mutual funds that invest in commodity indexes, just as there are stock mutual funds that invest in stock indexes.

Martin Gurri on the Trump Administration

Posted on January 8, 2018 by Arnold Kling

He writes,

It’s a zero-sum struggle for attention that rewards the most immoderate voices – and, without question, Donald Trump is a master of the game. His unbridled language mobilizes his anti-elite followers, even as his policies appeal to more conventional Republicans and conservatives.

Read the whole thing.

Credit scoring and securitization

Posted on January 7, 2018 by Arnold Kling

Amar Bhide writes,

more than just soft information is lost when lenders rely on generic credit scores. Practical obstacles — and in some cases political considerations — exclude from the scores factors, such as income and education, that self-evidently affect creditworthiness. Moreover, score-based lenders, like Friedrich Hayek’s central planners, rely on “statistical information” that ignores “crucial circumstances of time and place.” From their far-away perch, they cannot recognize substance abusers, nor can they distinguish workers in plants scheduled to close from judges with lifetime tenure.

He argues that we need more traditional banking, involving credit judgment and originate-to-hold, and less securitization using credit scores. My thoughts.

1. Although in theory underwriting judgment could lead to wise decisions to over-ride credit scores, in practice I do not think this happens. Human underwriters are not geniuses. And they do not necessarily know when the information they have is really news to the scoring system. Maybe the scoring system does not explicitly know that someone is a substance abuser, but it may nonetheless observe behavior that reflects that substance abuse. I believe that judgmental over-rides tend to lead decisions that are worse, not better.

2. As Bhide points out, some of the shift toward originate-to-distribute was influenced by capital regulations.

3. In mortgages, the private securitization market remains pretty dormant. That is, without a guarantee from Freddie and Fannie, investors are reluctant to buy mortgage securities just based on loan-to-value ratios and credit scores.

4. I think that for bank regulation, stress testing is the least bad way to promote safety and soundness. Stress tests for mortgage portfolios should include scenarios of falling house prices. Stress tests for consumer portfolios should include rising unemployment.

Quotation of the Day

Posted on January 6, 2018 by Arnold Kling

Politics also reflects the new division. In the United States suspicion or resentment is no longer directed to the capitalists or the merely rich. It is the intellectuals–the effete snobs–who are eyed with misgiving and alarm. This should surprise no one. Nor should it be a matter for surprise when semiliterate millionaires turn up leading or financing the ignorant in struggle against the intellectually privileged and content. This reflects the relevant class distinction in our time.

This is from the 1971 edition of The New Industrial State, by John Kenneth Galbraith. He gets many things spectacularly wrong, of course. But offers insights into the role of technical expertise and Weberian organization within a large firm that are too little appreciated by today’s economists. He deserves to be re-read.

Resistance watch

Posted on January 5, 2018 by Arnold Kling

Charles Cooke writes,

Any network of self-driving cars would, by definition, necessitate total and unceasing tracking of their occupants. . . The car, far from serving as a liberator, would become a telescreen on wheels — an FBI-approved bug, to be slipped beneath the chassis in plain sight of the surveilled.

The clustering of the world

Posted on January 4, 2018 by Arnold Kling

Razib Khan writes,

Serbia has a much stronger affinity with Russia, Croatia is in Catholic Europe, while Slovenia seems more like Northern European nations than Croatia.

You have to go read the whole thing. He discusses a cultural map of the world, based on two scales: traditional values vs. secular/relational values; and survival values vs. self-expression values.

He then goes on to discuss the Peter Turchin, et al paper that I’ve seen referenced on several blogs. It’s the paper that develops an index of social complexity. I think of it as something like an IQ measure that operates at a cultural level.

Patri Friedman on competitive government

Posted on January 3, 2018 by Arnold Kling

Fifteen years ago, he wrote,

Government service providers have monopolies over wide areas. Most people live in buildings and own lots of physical property. They are likely to have family and friends in the surrounding geographical area, and to work at a nearby job. While there may be people who live in RV’s, only have friends on the internet, and telecommute every day, they are surely rare. Thus if an individual wishes to switch providers, they must physically relocate to a new country. This involves an onerous series of steps: sell their house, pack up all their possessions, quit their job, move to a new country, deal with immigration requirements, buy a new house, get a new job, make new friends, learn a new culture. This is an extremely costly process.

In other words, government is like Facebook. You can complain about it, but there is not much you can do about it, because you are stuck there.

He comes up with proposals for a system for competitive government, which he calls dynamic geography. If we already were living under his system, then it would work. But the problem is to get from where we are today to something new, given the switching-cost problem. The same switching costs that make government lazy and unresponsive to constituents make it very hard to get a new system going.

My approach to more competitive government would be to institute a right to secession or recombination, subject to a sort of common-law court. That is not a perfectly workable solution, but the idea would be to allow people who are otherwise happy with their location take advantage of competition in government services.

My essay on financial bubbles

Posted on January 2, 2018 by Arnold Kling

For Medium, I wrote on financial bubbles, with plenty of Bitcoin trolling thrown in.

it is mathematically impossible for all of the bullish investors to get out with a profit. If a stock goes from $10 a share to $100 a share and back down to $5 a share, then on average the shares bought on the way up have to be sold for less than their purchase price on the way down. If you buy into a bubble, then the chances are you will lose.

My review of Haskel and Westlake