tag:blogger.com,1999:blog-15517049223401407882024-03-12T23:20:54.627-05:00Magnitude MattersThe Journey is the Destination, Keep Moving . . .Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.comBlogger507125tag:blogger.com,1999:blog-1551704922340140788.post-62499889943127683492022-06-13T17:58:00.003-05:002022-07-10T13:10:22.353-05:00Moving to Substack . . .<div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">The times, they are a changin'. Going forward, I will primarily be blogging on Substack: <a href="https://stevewinkler.substack.com">https://stevewinkler.substack.com</a>. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><span style="font-family: inherit;">Bryan Caplan, who else, convinced me to </span><a href="https://betonit.substack.com/p/who-should-switch-to-substack?s=r" style="font-family: inherit;" target="_blank">let go the sunk costs and brave the change</a><span style="font-family: inherit;">. </span></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><span style="font-family: inherit;">For a while at least I may continue cross-posting here as I may want to maintain my tags and options otherwise, but I fully expect the transition to be permanent. In which case </span><span>I will eventually </span>redirect traffic from Blogger to Substack for the magnitudematters.com domain.</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Sign up for an email subscription here:</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><iframe frameborder="0" height="320" scrolling="no" src="https://stevewinkler.substack.com/embed" style="background: white; border: 1px solid #EEE;" width="480"></iframe> </span></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-67900688499333851942022-06-12T16:56:00.000-05:002022-06-12T16:56:57.934-05:00NYC & Cape Cod Travel Observations<p><span style="font-family: inherit; font-size: medium;">I have just returned from a family vacation in Cape Cod which began with a brief, 3-day stay in New York City. We flew into NYC and then rented a car for the drive to the cape. Below I note a few observations from the trip. These are just trivia compared to the wonderful time we had in both locations. Chatham, our regular destination in Cape Cod, again proved to be a splendid escape. </span></p><div data-en-clipboard="true" data-pm-slice="1 1 []"><ul style="text-align: left;"><li><span style="font-family: inherit; font-size: medium;">My Lyft driver said as we were crossing the Queensboro Bridge, “the greatest city in the world without a doubt.” He is much better travelled/lived than me—born in Nigeria; lived in Dubai, Shanghai, LA, somewhere in Europe as well as several other worldly locales I don’t recall specifically. Who am I to argue? NYC is indeed world class. It’s ability to overcome so much poor and excessive governance is a tribute to its greatness. </span></li><li><span style="font-family: inherit; font-size: medium;">NYC is vibrantly crowded—in a very good way. This was refreshing to see as I feared the city might have lost this by an order of magnitude. </span></li><li><span style="font-family: inherit; font-size: medium;">Outdoor dining is generally well placed and seemingly here to stay. The outdoor market near Times Square on Saturday was new to me and a treat to walk through.</span></li><li><span style="font-size: medium;"><span style="font-family: inherit;">New condo high rises are incredible. These so-called "</span><a href="https://www.theguardian.com/cities/2019/feb/05/super-tall-super-skinny-super-expensive-the-pencil-towers-of-new-yorks-super-rich" style="font-family: inherit;" target="_blank">pencil towers</a><span style="font-family: inherit;">" don't inspire me the way other skyscrapers do, but maybe I'm too caught up in how </span>structurally<span style="font-family: inherit;"> unsound they appear, which is intended as a feature rather than a bug. Just to me they look like how a child might sketch a cityscape lazily drawing as many tall buildings as possible.</span></span></li><li><span style="font-family: inherit; font-size: medium;"><a href="https://goo.gl/maps/ywajHi2aRkHw7DAD7" target="_blank">Residence Inn Central Park</a> (54th & Broadway) is recommended. Laundry options and convenient location along with great room and views—pics below.</span></li><li><span style="font-family: inherit; font-size: medium;">Office space use looks still near empty by my anecdotal evidence. These pictures were taken from my room. Of the many elaborate office floors pictured in the neighboring building, only one ever had any occupants other than cleaning crews--cleaning floors that didn't ever have office workers messing them up. The floor with the basketball games and other fun stuff was vacant during the day. Note that the machines were all on 24/7--<i>this should probably count against this firm's ESG rating, LOL</i>. <br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEirk_A_ZZcEk3XALqm20RgWb8Avdx1JyJWxLOR_kfrsMGOBiSZZfyjfrRtbMuN50rx1zyLZbCyxPPXgBkyJJ9BVVbi2EiIk4WM_WEFLPNMsymOWWVoDa3fuGbNgvmBrEfWWxF1pNkqZFWBwmAinNUbONcCtMkI8mmWV_m257UhI2Fl-PFkFkjbvtS13" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="2048" data-original-width="1536" height="240" src="https://blogger.googleusercontent.com/img/a/AVvXsEirk_A_ZZcEk3XALqm20RgWb8Avdx1JyJWxLOR_kfrsMGOBiSZZfyjfrRtbMuN50rx1zyLZbCyxPPXgBkyJJ9BVVbi2EiIk4WM_WEFLPNMsymOWWVoDa3fuGbNgvmBrEfWWxF1pNkqZFWBwmAinNUbONcCtMkI8mmWV_m257UhI2Fl-PFkFkjbvtS13" width="180" /></a></div><br /></span><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjMf51LvAOtmF5f6WkvqbGbJcgJK7PuuJubp9120_erplWhy2bxJU_a8MmTLoHMkbSs_AwR855aTy4Af1RAMbxLPAh1kyOdMww9o7oIxn1EoCy8v3jci09QQEvkc1RxXQv_fPRWKM-nwqDozZh0iO312arDuKGpbLJGiYyA2ycE0UP0P5beCamGHoc-" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: medium;"><img alt="" data-original-height="2048" data-original-width="1536" height="240" src="https://blogger.googleusercontent.com/img/a/AVvXsEjMf51LvAOtmF5f6WkvqbGbJcgJK7PuuJubp9120_erplWhy2bxJU_a8MmTLoHMkbSs_AwR855aTy4Af1RAMbxLPAh1kyOdMww9o7oIxn1EoCy8v3jci09QQEvkc1RxXQv_fPRWKM-nwqDozZh0iO312arDuKGpbLJGiYyA2ycE0UP0P5beCamGHoc-" width="180" /></span></a></div></li><li><span style="font-size: medium;">Where are the homeless? <a href="https://michaelshellenberger.substack.com/p/three-times-more-homeless-die-under?s=r" target="_blank">Michael Shellenberger</a> has a point. Considerably less panhandling total than I encounter in the OKC area with 1/14th the population.</span></li><li><span style="font-family: inherit; font-size: medium;">Crime and safety never seemed an issue on this trip. While I was in relatively high-income places, the popular narrative from the right still seemed false. We walked about 8 miles per day in various areas: </span></li><ul><li><span style="font-size: medium;">Times Square (at night!)</span></li><li><span style="font-size: medium;">Greater Midtown area</span></li><li><span style="font-size: medium;">Central Park to the Upper West Side</span></li><li><span style="font-size: medium;">High Line/Chelsea Market to Little Italy/Chinatown</span></li><li><span style="font-size: medium;">I left my family shopping at Rockefeller Center to go pick up the rental car planning on them walking the half mile back by themselves without a second thought. I would have hesitated to do this in downtown OKC. Their journey was uneventful.</span></li></ul><li><span style="font-size: medium;"><span style="font-family: inherit;">Memories come serendipitously. On our first night we were caught in a downpour in Times Square. While some of us had rain jackets, we were ill prepared. We stopped into a CVS to buy a couple umbrellas. Still our shoes and socks were quite soaked. This was very much like </span><a href="http://www.magnitudematters.com/2013/06/the-cape-crusaders.html" style="font-family: inherit;" target="_blank">Boston years ago</a><span style="font-family: inherit;">. No one would plan to get caught in the rain like this, and it would </span>undoubtedly<span style="font-family: inherit;"> be one of those wouldn't-do-that-again moments. Yet, how can we reconcile that with it also being a wouldn't-trade-that-away moment? We don't get to choose our moments, but we do get to choose how we feel about them and how we take them on. (NB: I still plan on making good on this from the prior post: "</span>The imaginative story we concocted on the train-ride back will be the inspiration for a future post."<span style="font-family: inherit;">)</span></span></li><li><span style="font-family: inherit;"><span style="font-size: medium;">Masking is relatively high. ~20-25% of people still mask and those that do do it constantly—inside, outside, between bites. These are the people suffering long COVID. One young man walking down a busy, curvy street in Central Park choose to avoid passing our group in a tunnel under a bridge by walking down the middle of the street. He crossed between speeding cars, walked down the double-yellow line in the shadows of the tunnel holding his Macbook up high as cars whizzed by, and crossed back behind our trail. He seemed to stride with some pride in this moment of horribly bad risk analysis.</span></span></li><li><span style="font-family: inherit; font-size: medium;">Book stores are the last holdout on required masks (aside from public transportation where it actually isn’t enforced). Stores in both Greenwich Village, NY and Chatham, Cape Cod strictly adhered to the antiquated ritual. </span></li><li><span style="font-family: inherit; font-size: medium;">Cape Cod is resilient as well. Hard to tell a difference from my last trip in 2019. </span></li><li><span style="font-family: inherit; font-size: medium;">Mask use is lower here than NYC. Maybe 15% tops. Very few outside. </span></li><li><span style="font-family: inherit; font-size: medium;">Police are used for traffic directing around construction. This is something I noticed in Boston a few months back. In Cape Cod four or more police can be found just standing around pointing for cars to drive or wait as construction workers actually work. Definitely a union giveaway—great to see all the crimes have been solved in Massachusetts. </span></li><li><span style="font-family: inherit; font-size: medium;">People were quite friendly almost everywhere in both places. The northeastern USA's reputation of unfriendliness is again proven quite unwarranted. Distant and reserved, yes. Hostile or gruff, not so much. </span></li><li><span style="font-family: inherit; font-size: medium;">Rideshare the business model as experienced via Lyft seems strong and competitive. Uber was just a tad more expensive on each prospective trip but highly available as well. </span></li><li><span style="font-family: inherit; font-size: medium;">Prices are high but a competitive market helps. Cocktails were basically the same price at comparable bars to what I see back home. Food was more expensive but an order of magnitude better when considering availability times quality. As for prices, it is hard to know how much is inflation versus big market, if only I had a restaurant journal… oh wait, I do. </span></li><ul><li><span style="font-family: inherit; font-size: medium;">Let's begin by comparing <a href="https://nomwah.com/chinatown/" target="_blank">Nom Wah Tea Parlor</a> between my visit in June 2018 and current prices in June 2022. Recreating the order from the prior trip (beer, tea, 3x buns, 2x dumplings, roll, rice, and noodles) yields a total bill of about $69 pre tax & tip. My total bill with tax & tip in 2018 was $68.72. Assuming the tax rate is the same and I tipped the same rate, the total bill difference goes from $68.72 to about $89--about a 30% increase. In comparison NYC-area restaurant prices in general as <a href="https://fred.stlouisfed.org/graph/?g=Quk0" target="_blank">measured by CPI</a> over this time span are up about 18%. A similar order made at my local option, <a href="https://www.mrhuinorman.com/index.html#front" target="_blank">Mr. Hui</a>, comes to about $93--more expensive and lower quality (sorry, Mr. Hui). My bet is Nom Wah got discovered between then and now, and its prices are reflecting as much. Hence, the 30% increase is a combination of general food inflation and something specific to that restaurant.*</span></li><li><span style="font-family: inherit; font-size: medium;">One more comparison: <a href="https://www.thesquire.com/" target="_blank">The Chatham Squire</a>, which I always hit multiple times per trip. In June 2019 I was there with extended family. Our total bill was $202.05 for which we enjoyed (well, let's just say quite a few drinks) and cioppino, mussels and hummus. Recreating the order in June 2022 makes the total about $253--about a 25% increase.* </span></li></ul><li><span style="font-family: inherit; font-size: medium;">Pervasively merchants are directly passing along credit card fees in Cape Cod and to a lesser extent NYC. This has got to be an intermediate solution to a standard menu-price inflation problem. Seems slightly bullish for crypto while obviously creating a distortionary arbitrage for the cash-based consumers. <div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjSr2-v3A3aTpXVY7ZRepklCePVGxpECBo7OQIhLOle4qTMcIDJQhmTWwkFeAkSgBtx0E_t3QXSZKgWcm9pP_qiwNNDFXU2p5pccf5dW0uaXF5cq4QtpOZu_VymjcK7DVQvjNATyqAZQ4GDO3J4yJNxL6dTBPm1CwhFNfU-7eoJ8kEO6noCv-0XEkO5" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="1706" data-original-width="1588" height="240" src="https://blogger.googleusercontent.com/img/a/AVvXsEjSr2-v3A3aTpXVY7ZRepklCePVGxpECBo7OQIhLOle4qTMcIDJQhmTWwkFeAkSgBtx0E_t3QXSZKgWcm9pP_qiwNNDFXU2p5pccf5dW0uaXF5cq4QtpOZu_VymjcK7DVQvjNATyqAZQ4GDO3J4yJNxL6dTBPm1CwhFNfU-7eoJ8kEO6noCv-0XEkO5" width="223" /></a></div><br /></span></li><li><div class="separator" style="clear: both; text-align: left;"><span style="font-size: medium;">Employee scarcity didn't seem as bad in Cape Cod as NYC or back home, but the effects were still in evidence. Restricted hours of operation seemed the most obvious sign. Restaurants were otherwise packed. </span></div></li></ul><div><span style="font-size: medium;">The trip was delightful as I could have easily enjoyed double the time in each location. Cape Cod is very relaxing especially the way we do it. If you feel rushed there, you're doing it wrong. Enjoy a few pictures.</span></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKK7PLgfybAIKvm2rIGxu6IPtEVX1xuHG5pxqlt9OiLdvB64o-tXbWgkANeRsfOwUR8IdwjW0G7S-pQxz7hnWKIJZI37QKXv6YwNkJMnLXACrTlrZOhNa_6htoc_YYOx58qMmz08NmKPZqtHPGXk6b7Xw8KZS7jCSnBXcx3oIvIokFsDYqs50LByiS/s2048/1.JPEG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1536" data-original-width="2048" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKK7PLgfybAIKvm2rIGxu6IPtEVX1xuHG5pxqlt9OiLdvB64o-tXbWgkANeRsfOwUR8IdwjW0G7S-pQxz7hnWKIJZI37QKXv6YwNkJMnLXACrTlrZOhNa_6htoc_YYOx58qMmz08NmKPZqtHPGXk6b7Xw8KZS7jCSnBXcx3oIvIokFsDYqs50LByiS/s320/1.JPEG" width="320" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzxQ6v1UHtrWlBCmaAPUkp98JxtpMxoGk4d7venfTT7_SHeIuZP15qjQP2isEQe6dAuSQ63fT1XZ2SCFUluzOYaHURWCREDgt6L7tp2a0nShH9YsOWHYS04d8xfZHpYJsg0kPte4rv4Z6y119KEx7fCw1zisadfp2OWVH3aoAfzcn1ny3bE-D3AUGA/s2048/2.JPEG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1536" data-original-width="2048" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzxQ6v1UHtrWlBCmaAPUkp98JxtpMxoGk4d7venfTT7_SHeIuZP15qjQP2isEQe6dAuSQ63fT1XZ2SCFUluzOYaHURWCREDgt6L7tp2a0nShH9YsOWHYS04d8xfZHpYJsg0kPte4rv4Z6y119KEx7fCw1zisadfp2OWVH3aoAfzcn1ny3bE-D3AUGA/s320/2.JPEG" width="320" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjVd2QEo8e4exqXE3-dWi2ZtIz0iQuTXekm6mvFiM3tPdfiLwtKY7TBcO7469GVvINyzNqM5b3T1C22JvP_0qg9VsX6EuWKfh6lQbdlLXbyMTMMi2zeovAphGJ2Aoywn5GROPGSnu4j8kK2GB68X3AF5DW0y4muipOgIzAQ_MSDIc2onBuuvOu3hedX/s2048/3.JPEG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1536" data-original-width="2048" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjVd2QEo8e4exqXE3-dWi2ZtIz0iQuTXekm6mvFiM3tPdfiLwtKY7TBcO7469GVvINyzNqM5b3T1C22JvP_0qg9VsX6EuWKfh6lQbdlLXbyMTMMi2zeovAphGJ2Aoywn5GROPGSnu4j8kK2GB68X3AF5DW0y4muipOgIzAQ_MSDIc2onBuuvOu3hedX/s320/3.JPEG" width="320" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0XHylcFSwydQekg3SbvGBPeFpHU9M3Aq4w9C1HAMbnM_9lVtaMgQnaYn2AtOk1mtieRW5jRnvAMQ9FNAPO_uMzGwU7JfsXU_TqPMm9sjyQTUiyKdqnfe-hg9ckeW6DLgTBKRIUYPtlrWxoH5kMO66DbPwqDG-01mBiG0xWgBN_K1VfppXDYRS9isI/s2048/4.JPEG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="2048" data-original-width="1536" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0XHylcFSwydQekg3SbvGBPeFpHU9M3Aq4w9C1HAMbnM_9lVtaMgQnaYn2AtOk1mtieRW5jRnvAMQ9FNAPO_uMzGwU7JfsXU_TqPMm9sjyQTUiyKdqnfe-hg9ckeW6DLgTBKRIUYPtlrWxoH5kMO66DbPwqDG-01mBiG0xWgBN_K1VfppXDYRS9isI/s320/4.JPEG" width="240" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKsU-HAHH27wyQLdZu9UwsokWKeZpCcVbyfNgjgLkrXups8nYwZFIq0egnqokDpg62fMwm2Gwr3Z3RqMtoRao87gwhXkN6RKIR1DH2Uhtaq6LGlbseJWkGOqQ29KM7X26nCypiVekdzCrQZJfahFIh6U7R6ivRfrFRuZU5OPYgLFcGWgSHQfMkBYgS/s2048/5.JPEG" imageanchor="1" style="margin-left: 1em; 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text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWItMgUXvAXTUKsxwqFSZ2uvWOJyM4Iqm_Daw35nTmYJVdRIB7GcKKDxYQLMAl4EkYAyT0YEaMkNYoUq2ChAOdS3yI2bkhV7v5ocrrcqtnfVlGHFTmEkjxeCPrOkTmcviCD7SK3QD3awraohzK3BwH1KOXfQZ7k0a45tZ_sfT41QZkXm3eF3zK6L8d/s2048/30.JPEG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1536" data-original-width="2048" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWItMgUXvAXTUKsxwqFSZ2uvWOJyM4Iqm_Daw35nTmYJVdRIB7GcKKDxYQLMAl4EkYAyT0YEaMkNYoUq2ChAOdS3yI2bkhV7v5ocrrcqtnfVlGHFTmEkjxeCPrOkTmcviCD7SK3QD3awraohzK3BwH1KOXfQZ7k0a45tZ_sfT41QZkXm3eF3zK6L8d/s320/30.JPEG" width="320" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgo2rofs8Vw60KyUIyhOO2136N6XDCWXnyRGyhIk7UKdE8CmAnDH-cpGsaR6b4JwPjQ73tDiWZMYbbERISUIC7XW_wNXu3Xr97amNmrvEfWH-B40JaLIIc3XDtmUShDoQ9lvxffHbGQElyS7Mm2JiIV63txcD8rhKoYgf-aUMoVgWnWLR4Q79SJWYKF/s2048/31.JPEG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="2048" data-original-width="1536" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgo2rofs8Vw60KyUIyhOO2136N6XDCWXnyRGyhIk7UKdE8CmAnDH-cpGsaR6b4JwPjQ73tDiWZMYbbERISUIC7XW_wNXu3Xr97amNmrvEfWH-B40JaLIIc3XDtmUShDoQ9lvxffHbGQElyS7Mm2JiIV63txcD8rhKoYgf-aUMoVgWnWLR4Q79SJWYKF/s320/31.JPEG" width="240" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><br /><br /></span></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;">*Take these comparisons with a grain of salt since you really cannot tease out anything from an N=1 sample. </span></div></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-27175823465745948762022-05-30T16:43:00.002-05:002022-05-30T16:44:14.799-05:00Stock Picking: The Game Within The Game<div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">It is important to understand the game you’re actually playing in all endeavors. In stock picking among other areas of active investment many times the game that is being played is not the one that is at first perceived. It is also not always the one commonly believed or advertised to be being played. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">Goldman Sachs is on the other side of grandma's trade. Grandma and her investment club might have been putting in some pretty good research, but they’re very unlikely to outperform the models and information advantage a firm like Goldman Sachs will have. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;"><span style="font-family: inherit;">As general investors selecting exposure to the market when we evaluate Goldman Sachs, we evaluate them against the market. That is the correct benchmark for a potential or current investor as that is the central question: Am I better off investing with this particular active stock picker or is there another that can do a better job including using a passive index fund? </span><span style="font-family: inherit;">Perhaps more appropriately and completely the question really is: Is the performance Goldman Sachs delivered appropriate for the risk taken, and could I have achieved as good or better results with as much or even less risk? </span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">That is the game we are playing when we choose investment in a fund manager, but that is not the game that Goldman Sachs, a fund manager, is playing. Goldman Sachs is not trying to beat the market <i>per se</i>. Goldman Sachs and more precisely specific fund managers within the large organization that is Goldman Sachs are trying to beat grandma and her investment club along with all the other relatively novice investors in the market. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">Personally as a wealth manager I am trying to help clients reach financial goals by investing so that their risk-adjusted return is appropriate for them. That is the game I am trying to play--rather than trying to beat the market, I am trying to match their risk/return exposure to their goals. That might mean using a Goldman Sachs fund if I think it is the best option in that specific area. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">Yet clients often don't want to play that game. In wealth management one of the more frustrating things to deal with is competing against mythical portfolios that clients think exist. An example of which might be when a client is told stories at the country club or down at the barbershop about how great someone else’s portfolio is performing. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">It is very difficult to compete against a phantom. Floyd in the barbershop is probably not doing as well as he claims. In fact it is very likely Floyd is under performing the competition because the competition for Floyd is Goldman Sachs among others. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">For Floyd to feel good with his investments, he only has to compare himself to those decisions he happens to remember along with hypothetical investments he did or did not choose to make. Floyd’s benchmark is cash and imagination. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;"><span style="font-family: inherit;">For Goldman Sachs to succeed they </span><span>specifically</span><span> </span><span style="font-family: inherit;">have to beat most of the Floyds out there and only loosely do they need to keep up with the market. In the long run they probably don’t stand a chance against the market but in the long run that’s not who they really are competing against. </span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">For those of us who want to be investors with Goldman Sachs, the proper benchmark to compare them to is the market. But the bottom line for Goldman Sachs is a benchmark against Floyd, and Floyd never stood a chance. </span></div></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0-FiukbRxdhRp_Jmp5QMxpLL5ZgplWAANsijSzhACY0E_W22PuXnhHS4Y36wGybdnIh6lAa-9UrIqtlVXoK5OEdZkEE_cuyU3lfuJWOZrRVRfnCDy1Z5s7nni0YyMoxoP-bOPMQNniyHfoeM7ZxSXnpbP5C30yr4BfOx72Z24RlxK-wkqTPUfS00u/s1024/Survivor-tribal-council.jpg" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: inherit; font-size: medium;"><img border="0" data-original-height="684" data-original-width="1024" height="268" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0-FiukbRxdhRp_Jmp5QMxpLL5ZgplWAANsijSzhACY0E_W22PuXnhHS4Y36wGybdnIh6lAa-9UrIqtlVXoK5OEdZkEE_cuyU3lfuJWOZrRVRfnCDy1Z5s7nni0YyMoxoP-bOPMQNniyHfoeM7ZxSXnpbP5C30yr4BfOx72Z24RlxK-wkqTPUfS00u/w400-h268/Survivor-tribal-council.jpg" width="400" /></span></a></div><span style="font-family: inherit; font-size: medium;"><br /></span><div><br /></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-29640524584729849622022-05-29T18:23:00.001-05:002022-05-29T18:23:40.722-05:00Desperately Seeking Alpha<div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><blockquote>Great investing is generally about taking on the right risks and being compensated properly for risks taken. It is primarily NOT about out trading other investors. </blockquote></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">This is a sister post to <i><a href="http://www.magnitudematters.com/2020/12/does-active-investing-work-in-theory.html" target="_blank">Does Active Investing Work in Theory?</a></i> exploring the two types of active management: alpha seeking and risk-adjusted return matching. The former is the sexy one; for almost all of us the latter is the realistic one. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Let's make sure when we say "alpha" we all agree on what we are talking about. The term alpha generally means some version of outperformance. Imagine two runners in a 400m race where one finishes half a second ahead of the other. The faster finisher could be said to have .5 seconds of alpha over the opponent. But that is a bit too simplistic. In investing we usually want to know if any apparent outperformance is actually truly outperformance once we consider any inherent differences between competitors including adjusting for risk taken. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">In a fair race there shouldn't be inherent differences in the playing field so to speak. The runners are on the same track travelling at the same time. For investors we don't get such clean, simple comparisons. Even for our runners on an elliptical track the runner on the inside ring will have to start a bit behind the other runner so as to compensate for the less distance of the inner track lane and so the finish line can be a straight line across the track. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">What about risk taken? Pushing the analogy consider if one of the runners was using performance-enhancing drugs. This could be in one of two varieties. In one case they could be banned substances that if caught he would be disqualified. An outside gambler betting on him was taking a greater risk than perhaps he intended. In the other case they could be allowed substances but that have dangerous potential side effects. His risk now is that he runs the race (maybe winning and maybe not) and then suffers a bad health outcome. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Back to investing, we ideally want to compare the performance of two investors isolating just the set of factors inherent in their investment "skill". I put skill in quotes because we never can be quite sure we are seeing skill or luck or that we have forgotten about an important difference we would have intended to adjust away. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><span style="font-family: inherit;">Most of the time in investing it is risk in its many forms that we want to adjust for. As an example, if I tell you I am a great investor because I have substantially outperformed my </span><span>S&P 500 </span><span style="font-family: inherit;">benchmark for the past 5 years, you might not be so impressed if I then reveal that it is because my only investment has been the single stock Apple, Inc. Sure, I outperformed in total return, but I took WAY more risk to do so. If that risk adjustment isn't made, we can't say much about this so-called outperformance.</span></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">There are other adjustments to consider like if an investor has been using inside information to facilitate his outperformance. The fact that this unethical practice might not be repeatable should make us doubt that this outperformance is replicable. At some point we would have to consider if the inside information advantage was just a different version of luck. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Alpha seeking in active management is an attempt to outperform the competition, be it other investors or a benchmark index, adjusted for risk. How is this such a daunting task? Don't we hear about great investors all the time doing exactly this? Actually we do not. We hear about some investors' performances when they happen to be outperforming and often that is not true outperformance because they are not risk adjusted. But there is more to say about how difficult this is.</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">The capital markets (stocks, bonds, etc.) are very efficient markets primarily because they are very thick markets (i.e., there are lots of people participating in them). This is helped by the fact that they are very lucrative to those who perform well in them. The idea that some investors will outperform is a near certainty. The idea that that investor is you or someone you pick to follow is highly unlikely. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Public capital markets are a ruthless machine viciously and constantly seeking to eliminate any advantage an investor may possess. The more brilliant your new method of discovering and unlocking outperformance, the more quickly and decisively the market will absorb it away from you. And in those cases where apparent persistence in outperformance exists, the more likely a hidden risk difference has yet to be understood.</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">For active management the sooner one gives up on alpha the happier and more financially successful one will likely be. Instead of trying to outperform adjusted for risk, try to just keep up by taking the right risks. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">A human investor's benchmark isn't a stock index or a bond index or some combination of the two. It is the realistic financial goals they are trying to achieve. These are some combination of consuming well today and being able to consume well tomorrow and for the rest of one's life. For most of us this includes more than ourselves--primarily our family and somewhat our friends and our charitable desires.</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Our investment portfolios must be constructed initially and revised regularly to be appropriate for achieving these goals successfully. This is intentionally vague since it isn't something we easily know even for ourselves much less specifically for others. What we can say is that broadly diversified, low-fee investment into marketable securities should help our cause in most cases. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Hence, the active management of financial assets that I believe desirable for most all investors is simply risk-adjusted return matching. Try to get the market's return adjusted for the risk you want and need to take. Notice two important nuances in that last sentence: the market is more than the stock market and I am framing risk not as something to avoid but rather as something to embrace appropriately. Risk negation isn't a thing. Risk tradeoff is. You are taking and will take risk. PERIOD. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">What risks to take more of and what risks to take less of is the essence of good investing. Being well diversified into low-fee index funds takes care of some of the typical risk factors like concentration risk, market risk, and credit risk, but others persist beyond that first step. In most cases one needs to also consider <b>liquidity risk</b> (being able to use one's financial assets when one needs to), <b>inflation risk</b> (maintaining purchasing power), <b>wipe-out risk</b> (losing so much one is permanently set back to a lower standard of living or truly financially wiped out), <b>bad-discipline risk</b> (letting emotion drive decisions that thwart the long-term plan; this could be the more obvious bailing out at the worst possible moment but also the less obvious overexposure due to complacency or exuberance), and <b>mismatch risk</b> (having an investment portfolio poorly constructed to fit with an investor's specific investment horizon and objectives). These risks push in different directions at different times and with different magnitudes. Active management is a fluid process of balancing and rebalancing risk tradeoffs.</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">Successful active management is difficult enough before attempting to then add alpha to the objective set. Notice also that attempts at alpha generation might certainly interfere both intentionally and unintentionally with risk management since taking on different risk profiles is both a means and an effect of reaching for alpha.</span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">Leave it up to the professionals to try to generate alpha. You are too smart to lose money they way they do. </span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">P.S. Related: <a href="https://ritholtz.com/2017/07/how-active-is-your-passive/" rev="en_rl_none"><span style="color: #1155cc;">How Active is Your Passive? - The Big Picture (ritholtz.com)</span></a></span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjvFOV-Xscf_Mpd0Z3vHMVfseL6t2PkYVV40Um_lHfVxr26R3ke5S9h2fsjftHSxks8qvCP9j7g7ayomI5lY_SYW93F87b-EZb37oaMCC4MOsGGQm9KrUxvQcLQI5Edose41usrJQ_aiURmXPHH5Krgaua39aoAnFYLgQVLTEiOQDHhFB2m-iBWKEoX/s687/DSS.jpg" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: medium;"><img border="0" data-original-height="687" data-original-width="458" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjvFOV-Xscf_Mpd0Z3vHMVfseL6t2PkYVV40Um_lHfVxr26R3ke5S9h2fsjftHSxks8qvCP9j7g7ayomI5lY_SYW93F87b-EZb37oaMCC4MOsGGQm9KrUxvQcLQI5Edose41usrJQ_aiURmXPHH5Krgaua39aoAnFYLgQVLTEiOQDHhFB2m-iBWKEoX/s320/DSS.jpg" width="213" /></span></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div></div><br /></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-79789502486872267692022-05-28T12:30:00.003-05:002022-05-28T12:31:35.569-05:00The Party's Over<div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">The Republican Party is facing an existential crisis. It is at a point where it must decide as an organization if it is going to continue to be a personality cult devoid of ideas and completely unable and unwilling to provide potential solutions to problems. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">The Democratic Party is facing an existential crisis of its own. It must decide as an organization if it is going to continue to be an elitist cabal that refuses to engage in anything but gesture politics. Interestingly the Democratic Party just emerged from or narrowly avoided becoming its own personality cult during the years of Obama. But the next iteration of the party was a substantial backward step rather than a major mistake averted. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">The Republicans basically do not have ideas. The Democrats basically have only bad ideas. I’m not sure which is worse, and I am equally unsure about which one can right its listing ship both of which are at risk of completely capsizing.</span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;"><span>If there is any salience to my </span><a href="http://www.magnitudematters.com/2021/01/the-five-tribes-of-politics.html" target="_blank">Five Tribes of Politics</a><span> theory, then perhaps that can shine some light on where things go next. </span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;">To recall, I think there are five key factions that in order to be electorally successful the major parties must appeal to. They are:</span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;"><div data-en-clipboard="true" data-pm-slice="1 1 []"><ul style="text-align: left;"><li>Crony Capitalists</li><li>Labor</li><li>Patriots</li><li>Evangelicals</li><li>Woke Champions</li></ul><div>Balance is important as too much appeal to any one group can alienate the others making a strong coalition of resistance. </div><div><br /></div><div>The Republicans are about to get what they supposedly were asking for with abortion pleasing evangelicals. While this enrages woke champions, that is not a group the Republicans have any interest in appealing to. However, like the dog that caught the car, evangelicals might be done with the strategy of "using Trump to get the courts". At the same time the extent of <a href="https://www.npr.org/2022/05/26/1101428347/oklahoma-governor-signs-the-nations-strictest-abortion-ban" target="_blank">strictness of some state's abortion laws</a> might turn away others who find the developments a bridge too far.</div><div><br /></div><div>More problematic for the personality cult would be the shifting ground on geopolitical tensions. Praise for Putin doesn't look so hot to patriots these days, and both labor and crony capitalists have reasons to see a strong, engaged American military as a benefit. </div><div><br /></div><div>But for Democrats the footing isn't any better. So many parts of the woke agenda eventually conflict with the real-world aims of labor and crony capitalists. Patriots too tend to lean toward an America-first policy world. At some point you cannot keep convincing these factions that what you "really, really mean to say is [thing that benefits them most truly]". </div><div><br /></div><div>A very big part of what the parties are grappling with is the same phenomenon that is reshaping so much of society and institutions--namely, disintermediation in all its gory and wonderful forms. America's two-party system has been remarkably enduring. Perhaps this was a function of America spending over 100 years fighting obvious enemies with the parties arguing about whose ideas were best suited to bring a better world. </div><div><br /></div><div>These enemies included economic collapse just as the industrial revolution hit its stride (i.e., the Great Depression), tyrannical kingdoms hell bent on world domination (i.e., the axis powers of WWII followed by the USSR; the hottest of wars and the Cold War), domestic unrest as people no longer tolerated various inequalities (i.e., the civil rights and women's liberation movements; note these virtuous developments were "enemies" in that they threatened the order of things--they were enemies of the regime), and threats to American hegemony (i.e., economic globalization and terrorism). </div><div><br /></div><div>All of these were ironically existential threats to the United States. All of them called for solutions ranging from combat to embracement. Big parties were an efficient means of fighting these battles. That era may have ended. Economies of scale have limits and one of the virtues of specialization is that bespoke eventually outcompetes commodification. </div></div></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEindaLVTyQaDqAAe9fqa8J-ONDXmZ9ifr-FzwSAmxUjP8Xkhp7TxqIHR4dQfcoUgB1MKN1I4ndGHO6dN7eYawafuytQShrKXBVLZvAl6-T_g_-_4YtOJLOafsrXc4gWwhv9ERHNBKss4cvc5aA6-EK8mJhbblyqBq_i-rbxDDWf9KxrK-g_adO4OURB/s267/GM.jpg" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: medium;"><img border="0" data-original-height="267" data-original-width="189" height="267" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEindaLVTyQaDqAAe9fqa8J-ONDXmZ9ifr-FzwSAmxUjP8Xkhp7TxqIHR4dQfcoUgB1MKN1I4ndGHO6dN7eYawafuytQShrKXBVLZvAl6-T_g_-_4YtOJLOafsrXc4gWwhv9ERHNBKss4cvc5aA6-EK8mJhbblyqBq_i-rbxDDWf9KxrK-g_adO4OURB/s1600/GM.jpg" width="189" /></span></a></div><span style="font-size: medium;"><br /></span><div class="separator" style="clear: both; text-align: center;"><span style="font-size: medium;"><br /></span></div><span style="font-size: medium;"><br /></span><br /></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-86694254402562999302022-05-25T13:20:00.000-05:002022-05-25T13:20:43.070-05:00What I'm Worried About as a Crypto Investor<div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Much like throwing a pass in football, there are three general outcomes from crypto investing, and two of them are bad. Namely, aside from maintaining or increasing in value, crypto assets like Bitcoin and Ethereum could become nearly valueless to an investor in two distinct ways. They could go bust or they could fail to reward investors even though they prove valuable to society in general. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">I consider these two bad outcomes distinct since they are so different in every manner except for the ultimate experience for investors. In the one case we have the conjecture that cryptocurrencies are vaporware that are just riding a greater-fool wave that will ultimately come crashing down. Label this one the "worthless" scenario.</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">In the other case we have the concern that even though crypto and its inseparable blockchain technology are godsends, there is no way to actually profit from their benefits directly. Label this one the "unable-to-capture-worth" scenario. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Which one you subscribe to or concern yourself with says a lot about your crypto demeanor. For me the second concern is what keeps me up at night. I am a modest investor and a big, enthusiastic supporter. I want it to win and for me to win with it. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Others are rooting for it to lose because they <i>don't</i> believe or <i>don't want to</i> believe in it or maybe some of both. For these doubters there is often a FOMO element that partially drives the want for crypto's demise. But in many cases these are thoughtful people making intelligent arguments against.</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">While the case against crypto isn't completely empty, I believe the clock is running out on that perspective. As crypto assets continue to establish themselves now more than a decade into their existence, this view looks more and more like a trivial dismissal similar to thinking the Internet would not amount to much beyond a step up from a fax machine.</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Much more likely is that if crypto investors are left holding the bag the value has melted away from investors flowing to the benefit of all of society in general. Tyler Cowen made this case recently in <a href="https://www.bloomberg.com/opinion/articles/2021-12-20/how-crypto-could-be-like-the-music-industry?sref=yC8Gby0w" target="_blank">his Bloomberg column</a>:</span></div><div style="text-align: left;"><div><span style="font-family: inherit;"><span style="font-size: medium;"><blockquote>So you can be bullish on crypto’s future without being bullish on current crypto prices. For a simple analogy, Spotify and YouTube have greatly expanded music’s reach, but overall the price of recorded music has fallen, and many performers earn much less than did their peers in the LP era. Or consider the agriculture sector, defined broadly: It has done very well over the last few centuries, but food prices have fallen rather than risen, due to higher output and greater competition.</blockquote></span><span style="font-size: medium;">I consider the unable-to-capture-worth scenario the serious, thoughtful worry. There are many ways this almost certainly will be true if crypto pans out for the long haul. You can make a great living as a bathroom remodeler or a plumber, but you aren't coming anywhere close to capturing all the value to consumers of indoor plumbing. </span></span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">If crypto investing fails, I think it will fail despite succeeding as a technology rather than because of it failing to ever deliver.</span></div><div><span style="font-family: inherit; font-size: medium;"> </span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">P.S. I take it as a very positive sign for crypto assets that the serious ones (Bitcoin, Ethereum, etc.) are becoming more and more correlated with the performance of "real" financial assets like stocks and bonds. It is an unfortunate economic fact that assets tend to become more highly correlated together as they mature making investing more difficult as some of the benefits of diversification erode.</span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgWtVhUxLdowlkpLlrv9AHThpzCUEw43zrKElPDCu_aX-x-uuCP4HksCoCCmc4EXsx6EBBt_csCL6NmEgvLa5DZ87Z0coe8rCliYOdzQmKmOm7-U_oDTvdn4r3iTvRyAU4bZS3SVMNb-KAkUWMtRSaWov0KIh_X1J8xPOK1aNSOryHRwJYJSunTEVgc" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: inherit; font-size: medium;"><img alt="" data-original-height="1200" data-original-width="1800" height="213" src="https://blogger.googleusercontent.com/img/a/AVvXsEgWtVhUxLdowlkpLlrv9AHThpzCUEw43zrKElPDCu_aX-x-uuCP4HksCoCCmc4EXsx6EBBt_csCL6NmEgvLa5DZ87Z0coe8rCliYOdzQmKmOm7-U_oDTvdn4r3iTvRyAU4bZS3SVMNb-KAkUWMtRSaWov0KIh_X1J8xPOK1aNSOryHRwJYJSunTEVgc" width="320" /></span></a></div><span style="font-family: inherit; font-size: medium;"><br /></span><br /></div></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-8464303538679591692022-05-23T19:03:00.001-05:002022-05-23T19:06:06.068-05:00Partial List of Best Last Meals<div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Perhaps which one you choose says a lot about you. Perhaps what I list and the order I choose says a lot about me. </span></div><div style="text-align: left;"><ul style="text-align: left;"><li><span style="font-family: inherit; font-size: medium;"><a href="https://www.google.com/search?q=what+is+the+difference+between+transubstantiation+and+consubstantiation&sxsrf=APq-WBvBiFPtpj3SkVsH_YyXIVD3OfNX8A%3A1645387514987&ei=-p4SYr7tO9unqtsPn4yisAQ&oq=what+is+the+difference+between+transubstantiation+vs+consubstantiatio&gs_lcp=Cgdnd3Mtd2l6EAMYADIGCAAQFhAeMgYIABAWEB46BwgjELADECc6BwgAEEcQsAM6BwgAELADEEM6BwgjELACECc6BAgAEA06BQgAEIYDOgUIABCiBDoECCEQCkoECEEYAEoECEYYAFCDCVi7OWCgTWgBcAF4AIABbIgBmBOSAQQzMS4xmAEAoAEByAEKwAEB&sclient=gws-wiz" rev="en_rl_none">Holy Eucharist</a> </span></li><li><a href="https://www.history.com/news/navy-bread-and-water-ban-sailor-punishment" rev="en_rl_none" style="font-family: inherit;"><span style="font-size: medium;">bread and water</span></a></li><li><a href="https://www.google.com/search?q=nic%27s+burgers+okc&sxsrf=APq-WBtF5aAt3mGPwzOf7dIyNsMLzxZRGQ:1645386990514&source=lnms&tbm=isch&sa=X&ved=2ahUKEwjqh9mYiI_2AhXAmmoFHetPB1EQ_AUoBHoECCAQBg&biw=2560&bih=1297&dpr=1.5" rev="en_rl_none" style="font-family: inherit;"><span style="font-size: medium;">Nic’s burger and fries</span></a></li><li><a href="https://www.thomaskeller.com/tfl" rev="en_rl_none" style="font-family: inherit;"><span style="font-size: medium;">The French Laundry</span></a></li><li><span style="font-size: medium;"><span style="font-family: inherit;">one hour at the </span><a href="https://www.thrillist.com/eat/las-vegas/best-all-you-can-eat-buffets-las-vegas" rev="en_rl_none" style="font-family: inherit;">Las Vegas buffet</a><span style="font-family: inherit;"> of your choice</span></span></li><li><a href="https://en.wikipedia.org/wiki/Nathan%27s_Hot_Dog_Eating_Contest" rev="en_rl_none" style="font-family: inherit;"><span style="font-size: medium;">Nathan's Hot Dog Eating Contest</span></a></li><li><a href="https://www.independent.co.uk/arts-entertainment/films/news/the-secret-joke-hidden-in-silence-of-the-lambs-most-famous-line-10011561.html" rev="en_rl_none" style="font-family: inherit;"><span style="font-size: medium;">liver with some fava beans and a nice Chianti</span></a></li></ul><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;">I leave it up to the reader to consider why it is your last meal; be it choice (yours or someone else's) or unexpected circumstance.</span></div><div><span style="font-size: medium;"><br /></span></div><div><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEitm1Py_62XxES0F55eBaJspzusIS5x1W7DKEke8kGNnG-5LPIPs5G_z9zGUFGKLrEKTbCbHsjnpza6tcfR1UfC8bd3oWJqSFHYTOQNxFiEER4TDJSekZwHEYz6gzwoTCDMS1idcYyveLAcoVc0wK7i4VQm9TOe7qPNv8mJ-ac7pOYBXl9ucowpxPSC" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: medium;"><img alt="" data-original-height="582" data-original-width="968" height="384" src="https://blogger.googleusercontent.com/img/a/AVvXsEitm1Py_62XxES0F55eBaJspzusIS5x1W7DKEke8kGNnG-5LPIPs5G_z9zGUFGKLrEKTbCbHsjnpza6tcfR1UfC8bd3oWJqSFHYTOQNxFiEER4TDJSekZwHEYz6gzwoTCDMS1idcYyveLAcoVc0wK7i4VQm9TOe7qPNv8mJ-ac7pOYBXl9ucowpxPSC=w640-h384" width="640" /></span></a></div><span style="font-size: medium;"><br /><br /></span></div><span style="font-size: medium;"><br /></span><span style="font-size: medium;"><br /></span></div></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-216699858606331002022-05-22T12:22:00.000-05:002022-05-22T12:22:10.185-05:00Advice to a Recent Graduate (and everyone else too)<span style="font-family: inherit; font-size: medium;">As it is currently graduation season, I was recently asked on-the-spot to provide some advice to a recent graduate. Below is what I came up with. I think it is decent advice for all of us at all stages of life's graduations.</span><div><ol style="text-align: left;"></ol><ol style="text-align: left;"><li><span style="font-family: inherit; font-size: medium;">Take in lots of diverse information.</span></li><li><span style="font-family: inherit; font-size: medium;">Be willing to change your mind.</span></li><li><span style="font-family: inherit; font-size: medium;">Gracefully stand up for what you believe in.</span></li></ol><div><br /></div></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-72746498819224814272022-05-22T12:15:00.000-05:002022-05-22T12:15:41.638-05:00WWCF: War of the Future<div style="text-align: left;"><span style="font-size: medium;"><span style="font-family: inherit;">Which will come first?</span><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: center;"><span style="font-size: medium;"><b>Intentional detonation of a nuclear weapon as an act of war</b></span></div><div style="text-align: center;"><span style="font-size: medium;"><br /></span></div><div style="text-align: center;"><span style="font-size: medium;"><i>or</i></span></div><div style="text-align: center;"><span style="font-size: medium;"><br /></span></div><div style="text-align: center;"><span style="font-size: medium;"><b>A battle with robots fighting robots as the dominant form of combat</b></span></div><div style="text-align: left;"><span style="font-size: medium;"><b><br /></b></span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><b>Terms:</b></span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">The basic terms are fairly straightforward in the first case--a nuke blows up on purpose designed to hurt targeted victims. But I guess there could be some ambiguity like if a bomb detonation is attempted but somehow fails or is thwarted or if it melts down rather than properly explodes. In the interest of specificity I will stipulate that the device must be truly an intentional nuclear explosion. </span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">In the second case there would seem to be a lot of room for interpretation. Let us stipulate that it would need to be a significant engagement with at least a potentially meaningful affect on a larger conflict if not be the entire war by itself. This must be a major conflict in terms of world events. It must involve at least one nation state with the opponent being at least a major aggressor (significant terrorist group, etc. if not a state-level actor itself). To be robot-on-robot it must mean that humans cannot be directly targeted in the robot versus robot fighting--collateral damage notwithstanding as well as other human involvement/risk as a secondary part of the combat. I will allow that the devices doing the fighting can be "dumb" devices like drones fully controlled by humans remotely, but extra credit to the degree these are autonomous entities.</span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><b>Discussion:</b></span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">Tyler Cowen has been <a href="https://marginalrevolution.com/?s=nuclear+war" target="_blank">thinking a lot</a> about nuclear war and nuclear device detonation recently including before the Russian invasion of Ukraine. His <a href="https://www.bloomberg.com/opinion/articles/2022-04-20/putin-s-nuclear-threat-makes-armageddon-thinkable?sref=yC8Gby0w" target="_blank">latest Bloomberg piece</a> discusses just how thinkable the "unthinkable" has become. This is a bigger part of a much needed <a href="https://dominiccummings.substack.com/p/people-ideas-machines-ii-catastrophic?s=r" target="_blank">rethinking of MAD</a>. </span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">Tyler's partner at Marginal Revolution, Alex Tabarrok, is in the game contributing <a href="https://marginalrevolution.com/marginalrevolution/2019/07/what-is-the-probability-of-a-nuclear-war.html" target="_blank">this overview of the related probabilities</a>. </span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><span>Thankfully, Max Roser has </span><a href="https://twitter.com/MaxCRoser/status/1498945370935767040" target="_blank">done the math</a><span> </span><span>for us. Relatedly, he</span><span> </span><a href="https://ourworldindata.org/nuclear-weapons-risk" target="_blank">argues that "reducing the risk of nuclear war should be a key concern of our generation</a><span>". Before we get too excited about a white-flash end to civilization, consider</span><span> </span><span>as gentle pushback</span><span> </span><a href="https://www.datasecretslox.com/index.php?topic=6142.0" target="_blank">this piece arguing that</a><span> </span><span>nuclear weapons are likely not as destructive as we commonly believe--make no mistake, they are still really bad.*</span></span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">If Roser is roughly correct, then within a decade we are at a 10% chance of nuclear war. I am not sure if his "nuclear war" would be a equal to or a different level of what would qualify in this WWCF. Suppose it is a higher threshold. Let's make the probability of nuclear weapon use as defined here slightly higher each year such that there is a 20% chance within 10 years (basically equal to his 2% annual risk curve). This gives us a baseline for comparison.</span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><span>Turning to </span><span>Rock 'Em Sock 'Em Robots it is not as farfetched as I think most people believe. In fact we may be quite close to it as defensive weapons like Israel's Iron Dome prepare to confront adversaries like drones and Saudi Arabia <a href="https://www.wsj.com/articles/saudi-arabia-pleads-for-missile-defense-resupply-as-its-arsenal-runs-low-11638878400" target="_blank">battles against drone counter attacks</a> from Yemen. As Noah Smith <a href="https://noahpinion.substack.com/p/the-future-of-war-is-bizarre-and?s=r" target="_blank">writes</a>, "the future of war is bizarre and terrifying".</span></span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">It does sound terrifying in one reading, but in another there is a glimmer of hope. A proxy war using robots to settle disputes could be vastly better than any conflict humanity as known before. Imagine a world where the idea that a human would be actually physically harmed from combat was unthinkable. This is not too many steps away from professional armies, rules of engagement, and norms, laws, and treaties against harming civilians, et al.**</span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">Back to the issue at hand, once we consider that dumb, remotely driven/released weapons might soon be battling smart, sophisticated devices with either of these being on defense from the other, we quickly relax how hard it is to foresee it all happening. The hardest hurdle might only be if the conflict big enough to qualify.</span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><div data-en-clipboard="true" data-pm-slice="1 1 []"><b>My Prediction:</b></div><div><br /></div><div>I think nuclear risk is a lumpy, non-normal risk that follows a random walk (i.e., it can all of a sudden get a lot more likely but that likelihood can get absorbed away if conditions improve). It is not as linear and cumulative as Roser suggests. At the same time play the game long enough and anything will happen.</div><div><br /></div><div>Robot battles seem more like a cumulative progression, an inevitability. We almost cannot escape it eventually happening and probably soon. So, this comes down to how likely a nuclear pop is in the very near term as it tries to out race the tortoise of robot warfare. Just like in the fable, the turtle is going to win.***</div><div><br /></div><div><b>I'll put it at 75% confidence that we see this one resolved robot fights robot.</b></div><div><br /></div><div><br /></div><div>*Of course other <a href="https://austinvernon.site/blog/starshipsuperweapon.html" target="_blank">future potential weapons</a> that are not nuclear can be extremely scary too--"Rods from God" doesn't just <i>sound</i> very ominous; it truly is. </div><div><br /></div><div>**Then again, <a href="https://direct.mit.edu/isec/article/46/3/7/109668/Prediction-and-Judgment-Why-Artificial" target="_blank">maybe not</a>:</div><blockquote><div>As a result, conflicts involving AI complements are likely to unfold very differently than visions of AI substitution would suggest. Rather than rapid robotic wars and decisive shifts in military power, AI-enabled conflict will likely involve significant uncertainty, organizational friction, and chronic controversy. Greater military reliance on AI will therefore make the human element in war even more important, not less.</div></blockquote><p>***I know <a href="https://marinesanctuary.org/blog/whats-the-difference-turtles-vs-tortoises/" target="_blank">they aren't the same thing</a>! </p><div><br /></div><div>P.S. When I first conceived of this WWCF, I thought I'd be comparing robot wars to lasers as prolific, dominant weapons. I changed it as laser weaponry seemed to be consistently failing to launch. However, <a href="https://www.thedrive.com/the-war-zone/41192/israel-has-shot-down-drones-with-an-airborne-high-power-laser" target="_blank">great strides have been made recently</a> in this realm. Perhaps I was too hasty. However, thinking about it more I would guess that robot war will go hand in hand with laser weaponry. The development of one spurs the development of the other such that there isn't much room for a WWCF.</div><div><br /></div><div>P.P.S. The ultimate tie would be an AI launches a preemptive nuclear strike on a rival nation's AI or other robot weaponry. Let's hope if they do this the battle is on Mars.</div><div><br /></div><div><br /></div></span></div><div style="text-align: left;"><span style="font-size: medium;"><b><br /></b></span></div><div style="text-align: left;"><span style="font-size: medium;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjz7RPKtOulAh5UBznddVQR7FQCkKGtR0RyJRdK6V5eatUA6ifF2_1-H5NNKpZe9Ex846OaWOg4bOgF9DViZ11XfaenrNkTSQG-kXpiaSuNStha7doorhI2KlYm0Wp4qnYs4vsX64dR4K3EGDQscGK_xSJlLszPXLZY3c3Ok-xeU1ic9pna0zqXgi67/s1920/short_circuit.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1280" data-original-width="1920" height="426" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjz7RPKtOulAh5UBznddVQR7FQCkKGtR0RyJRdK6V5eatUA6ifF2_1-H5NNKpZe9Ex846OaWOg4bOgF9DViZ11XfaenrNkTSQG-kXpiaSuNStha7doorhI2KlYm0Wp4qnYs4vsX64dR4K3EGDQscGK_xSJlLszPXLZY3c3Ok-xeU1ic9pna0zqXgi67/w640-h426/short_circuit.jpg" width="640" /></a></div><br /><b><br /></b></span></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-83117770954198439112022-05-15T12:38:00.001-05:002022-05-15T12:38:39.875-05:00The (False) Law of Conservation of Effort and Reward<div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Most people seem to think within the framework of a supposed "law of conservation of effort and reward" (LCER) and its corollary "law of conservation of happiness". One might think of these as a spin on the forever-popular and equally incorrect labor theory of value. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">The thinking goes that somehow there should always be a linear and somewhat direct trade-off between work/life balance--that is, the effort one puts into something should be proportional to what one gets out, and there should be a trade-off between the chosen path and the "obvious" alternative path that together net out. Tightly zero sum. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">People resent the very idea that someone could have it all. The working mother should have delinquent kids who don't love her; the investment banker should long for relaxing weekends and be doomed to an unfulfilling life without meaning. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">The problem with these laws is that they conflict starkly with the magical human ability to tap the power of scale and compounding. The dynamics that these forces bring separate man from nature. Animals cannot coordinate nor plan for the future nor command exponential growth in any meaningful sense the way people can. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Therefore, it should not be any surprise that some people and organizations can get more out of less and excel along multiple dimensions. In thinking about jobs, sometimes the grass is <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3957002" target="_blank">actually almost always greener</a>. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Consider how many people look to sports stars and other icons as “great follows” in social media making them big influencers succeeding in a realm outside of their primary area of success. Many adherents to LCER dismiss this as some obviously irrational behavior on the part of those less enlightened than themselves. The truth is these influencers probably are above average in ways that impact both the direct source of their fame (say basketball skills or acting ability) as well as many other areas. IQ becomes more and more important in sports the higher and higher the level. Dumb athletes don't last long at the pro level. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Jeff Bezos would probably be an above average gardener. The reason he doesn't mow lawns and trim bushes isn't because he wouldn't be very good at it. He might in fact be better than the people who do the job for him at his own house(s). If you think he doesn't do those jobs himself because he is rich, you're right for the wrong reasons. The reason he doesn't is because of the very real <a href="https://www.econlib.org/library/Topics/Details/comparativeadvantage.html" target="_blank">law of comparative advantage</a>. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">At the same time I think that some of what makes amazing people amazing often has a dark side. This might make them a bit eccentric or frustrating or detestable. It varies and is not always the case. This might sound like a contradiction, but I don’t think so. Rather it is part of the complexity and mystery of it all—what distinguishes elites. This is very much in agreement with point #6 <a href="https://www.collaborativefund.com/blog/think/" target="_blank">here</a>. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Arnold Kling makes related points calling this the "<a href="https://arnoldkling.substack.com/p/the-convergence-assumption-220?s=r" target="_blank">convergence assumption</a>":</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"></span><blockquote><span style="font-family: inherit; font-size: medium;"><span>What I call the convergence assumption is the assumption that everyone is fundamentally the same, so that it is more natural to expect people to develop the same skills and adopt the same values than for divergence to persist.<br /></span></span></blockquote><blockquote><span style="font-family: inherit; font-size: medium;">... </span></blockquote><blockquote><span style="font-family: inherit; font-size: medium;">We are not all the same. This makes moral issues very complicated. When we acknowledge genetic and cultural differences, what is the meaning of equality? When should we suppress differences and when should we accommodate them?<br /></span></blockquote><blockquote><span style="font-family: inherit; font-size: medium;">I think that the great appeal of the convergence assumption is that it allows us to avoid the challenge and complexity posed by these problems. But avoiding complexity is not a good approach if the complexity is an important characteristic of the environment.</span></blockquote><span style="font-family: inherit; font-size: medium;"><br />Exceptional people are generally and not just specifically exceptional. How this maps onto agreement with you will vary along dimensions of morality as well as taste among others. Those differences are not tradeoffs they are making such that in some cosmic justice sense you and they are on equal footing when all is balanced out. <span><br /></span></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjNj1PyU8EkzlW39N7Z6M7tHbfu6wRkUKUBeTmBn7_5EvDUr7VUyKxB16OsEXPDmvZlJjwc3tQBMek065hdwucEOHRc4y12ue86Am6F-zrdA__cJbiPaw-ieoVcgAYPn6DMQ4z2vkN0q5aE3dJ1XD_PbIfhVJPE5qRlhZDnT30-zbtSZaf-pHxTJGtD" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="563" data-original-width="750" height="480" src="https://blogger.googleusercontent.com/img/a/AVvXsEjNj1PyU8EkzlW39N7Z6M7tHbfu6wRkUKUBeTmBn7_5EvDUr7VUyKxB16OsEXPDmvZlJjwc3tQBMek065hdwucEOHRc4y12ue86Am6F-zrdA__cJbiPaw-ieoVcgAYPn6DMQ4z2vkN0q5aE3dJ1XD_PbIfhVJPE5qRlhZDnT30-zbtSZaf-pHxTJGtD=w640-h480" width="640" /></a></div></span><span style="font-family: inherit; font-size: medium;"><br /></span></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-18666498026333894792022-05-14T10:53:00.001-05:002022-05-14T10:53:12.087-05:00Knowing Your Business Means Knowing Your Costs<div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">[<i>Sister post to <a href="http://www.magnitudematters.com/2022/05/the-accountants-cant-make-you-rich.html" target="_blank">The Accountants Can't Make You Rich</a>; consider this the counterpoint to that post.</i>] </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">To understand your business, you have to understand your costs--at a total, average, and incremental level. Many small businesses that would otherwise be successful fail for lack of this understanding. Think of a restaurant that clearly has a sufficient level of customers but that nonetheless closes its doors permanently. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">To be sure, many businesses manage to stay alive and in some cases thrive despite anyone understanding their fundamentals, but these examples are rare and fleeting. More often what seems to be operators flying blind are actually people with some combination of magnificent instincts and great muscle memory honed by years at the treacherous helm. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Truly understanding the underlying drivers of costs unlocks the ability to guide all manner of vital decisions: what to make and how much, how to shrink when necessary, where you can discount and where you cannot, where to expand operations and what to expect from growth, etc.</span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Cost per the relevant unit is as essential as it is boring to all but a few of us, an elite group who relish mastering the concept. The good news is there are only two difficult parts to that equation, but the bad news is the same. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Cost is an elusive concept. Defining cost properly is where economics meets accounting. Here we must understand variable versus fixed costs, marginal versus average versus total costs, the thresholds of cost expansion/contraction (At what point of production must we build an entirely new production plant? If we shutdown a production line, how are costs affected?), cost drivers and probable variances, etc.</span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><span>Defining the unit(s) that is relevant is the art of cost accounting. </span><span>For example in hotels it starts with the units for sale as seen in the revenue metric REVPAR (revenue per available room). While there are other important metrics beyond that one in that particular industry, the available room is foundational since that is the essence of what a hotel is selling.* </span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><span><br /></span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><span>In defining the relevant units we must understand if the units are variable or fixed, if the units are fully or partially or not at all under our control, how the units behave independent of cost (think of seasonality, etc.), when certain costs (or revenues) do and do not apply to various units. In the last case consider a restaurant where the cost applied per table seat available might be separated from the cost applied per bar seat available even though we would still want to look at them in totality. Hence a mythical unit might be created to synthetically mimic the real units on an aggregate basis--e.g., cost per customer spot available.</span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Not complicated enough? Add in a dimension of time. Open a restaurant an hour longer each night--do your relevant units change? Cost certainly will. Depends on how you define units given the objective you're trying to actually measure. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">From cost we next need to know revenue from which point we can understand profit. Allow me to illustrate using a personal anecdote from my time as a financial analyst at a newspaper. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">One of the reasons I was hired was to understand the cost and revenue drivers as profit margins had begun shrinking in the industry. I like to say that a fat profit margin hides a lot of bad decisions. The newspaper industry was no exception. Quite a few things were able to be tried that </span><span style="font-size: large;">once a thorough analysis was conducted </span><span style="font-family: inherit; font-size: large;">turned out to not be as successful as expected or believed to be. This isn't a bad indictment per se. Success in business is built on a mountain of well-placed failures. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Of all the things I was asked to do, I was never explicitly asked to determine the specific attribution of the company's profits--meaning what lines of business were profitable. Yet this seemed a natural thing to want to know. In fact it fascinated me. To everyone else it was obvious or uninteresting. They simply "knew" what was profitable. Profits were so big, heck, everything was profitable, right? That was intuitive to some but not to me. My intuition was the opposite--I knew that it would be highly unusual for everything that went into a bundled product to be profitable in the sense of direct attribution. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">There seemed to be two biases at work: a fear of knowing the answer (what if my area isn't profitable?) and a lack of critical thinking (look at how much revenue this generates/this is an essential part of the business; it must be profitable). </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Once I achieved a strong understanding of the company's cost, it became apparent that everything simply could not be profitable. There were vast differences in revenue by various business lines but very little differences in properly allocated costs. Applying revenue minus cost (i.e., profit) business line by business line would "use up" the profit before all the areas were covered. Before mentioning the areas that were profitable, a caveat is needed. The newspaper was a bundled product meaning everyone got the main section, the sports section, the monthly special sections, the inserts, the classifieds, etc. A point of near religious dogma in the industry was how vital nearly all of these components were to a successful bundle. So I was both risking heresy as well as producing an analysis that the very cost-conscious management team might misinterpret much to its own demise. Loss leaders is a very real and healthy business practice as is cross subsidization. But these concepts can also be co-opted to excuse bad mistakes were money is lost for no actual indirect gain.</span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Everything wasn't profitable. Out of nearly a hundred different product lines and sublines, only four areas accounted for 100% of the profit of the business: preprint inserts, national ROP ads (when a company like American Airlines ran a full-page newsprint ad), color ink (a big upsale item), and employment ads in the classified section. This meant all the other ads in the main, sports, business, and other newsprint sections including special sections were losing money. All the rest of the classified section outside of employment ads were losing money--ad areas like traditional for-sale listings, automotive ads, real estate ads, etc. The circulation revenue was not covering costs. Subscribers were not paying enough to cover the cost of delivery much less any content production. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">The entirety of this analysis was not a complete surprise to the seasoned people at the helm of the paper, but the details were revealing and eye-opening. To repeat and be fair, this did not mean that people like the guys selling automotive ads weren't adding value--they certainly were. But what they were adding was content value much like the guys writing the sports columns. The upshot was that a limited decision-making mantra could have been "How will it help increase preprints, national ROP, color, or employment ads?" If the answer was "it wouldn't", the right decision would be to reject the proposal.</span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit;"><span style="font-size: medium;">Knowing cost is not easy; so a good deal of respect is owed the business people of the world who work hard to master it. This might start with the cost accountants I was slighting in the prior post, and it certainly ends with all those </span><span style="font-size: medium;">entrepreneurs, business middle managers, and captains of industry toiling away so cost is never unknown.</span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit;"><span style="font-size: medium;"><br /></span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjcApVuxGvJmpsIDO3S8b8h63g5lGkJOqOCVt5Pzvyeo9jwXJ8gkYcQxdNJWBmC18XXd_r5a79y10a844eNxoiaIC68V_obqBs2HxdRamKiovPozun5lrxQK914vApP4zfwK7YR1wa--cJWDZCF8w7IfKPU7ubYYApxThlk_Ljk3JiiyITTy6I94meG" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="1500" data-original-width="1000" height="400" src="https://blogger.googleusercontent.com/img/a/AVvXsEjcApVuxGvJmpsIDO3S8b8h63g5lGkJOqOCVt5Pzvyeo9jwXJ8gkYcQxdNJWBmC18XXd_r5a79y10a844eNxoiaIC68V_obqBs2HxdRamKiovPozun5lrxQK914vApP4zfwK7YR1wa--cJWDZCF8w7IfKPU7ubYYApxThlk_Ljk3JiiyITTy6I94meG=w267-h400" width="267" /></a></div><br /><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []" style="text-align: left;"><span style="font-family: inherit; font-size: medium;">*There are always exceptions. Some hotels are selling experiences outside of the room itself. The room might not correspond tightly to variable costs or to revenue. However, usually even when there are multiple lines of business (think Las Vegas hotels), these still are broken down per available room as it corresponds to cost and revenue as tightly as any other unit.</span></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-73661639091603639882022-05-01T13:14:00.003-05:002022-05-01T13:15:20.324-05:00The Accountants Can't Make You Rich<div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">In business cost per unit may be the ultimate metric. Accountants focus on in decreasing the numerator. Marketers focus on increasing the denominator. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">It is important to remember, though, that <a href="http://www.bloombergview.com/articles/2015-04-17/baggage-fees-office-theft-and-cutting-costs" target="_blank">cost containment is not a growth strategy</a>. Accountants almost never remember this. However, it is a necessary but not sufficient condition for long-term success. This is true of economies, firms, and individuals. In a future post I will explore this giving the importance of the metric its due.</span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><span>You can't grow your wealth by harvesting investment losses--you can't just "<a href="https://youtu.be/Gw4ACM5SjQw?t=22" target="_blank">write it off</a>" after all. Reducing unnecessary costs is an important part of sustaining a firm, but it is not a complete recipe of a succeeding firm. This is why so many mergers and acquisitions fail to add value. Cost reductions through economies of scale are generally very difficult to realize, and even when they are realized, they are often temporary. </span><span>Ultimately, successful mergers come down to realizing synergies for new growth without cost exploding. Compounding the problem of pulling off a successful merger (one that justifies the purchase price of the target being acquired) is that the hoped-for synergies prove in many cases to be imaginary and as often unforeseen at the outset--more luck than skill.</span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">Looked at from a broader view, a society with high savings and poor investment will be an impoverished people who are soon forgotten. To be clear the alternative isn't simply live for today, but at least those of the Bacchanalia had a good time while it lasted. The miser who squirrels away his every penny under the mattress has nothing to show but a desire for yesterday's purchasing power.</span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">The cost reduction impetus gets maximized in a recessionary environment. Firms and individuals tend to look inward in times of economic stress thinking more and more about how to voluntarily shrink to avoid forced shrinking. This can be both helpful and healthy. Yet taken to extreme, which can come quite easily, this becomes a self-fulfilling feedback loop. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">The cutbacks one should make are reductions in consumption. This is a lot easier at the individual and family level than at the firm level. Firms shouldn't have "consumption" <i>per se</i>. To the degree they do this is simply excess that should be trimmed away in any environment--easier said than done of course. Investment choices may and likely should change given changes to near-term outlooks. At the same time the risk of overcorrection is very great. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><span>An asset allocation should be largely immune to changes in the investment near term. The investors "going to cash", "moving to the sidelines", and selling out otherwise in times of stress in the financial markets are almost always making critical mistakes. Sometimes those mistakes are <a href="https://ritholtz.com/2022/03/panic-selling-quantified/" target="_blank">permanently </a></span><span><a href="https://ritholtz.com/2022/03/panic-selling-quantified/" target="_blank">devastating</a></span><span>. </span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><span>Back to the general concept of keeping the accounting department happy, accountants usually aren't thinking in terms of calculus--only calculations. What I mean by that is they aren't looking at rates of change and the signs on the derivatives. Lest we degrade them </span>unnecessary<span>, the marketing department's version of calculations can amount to astrology mixed with magical wishes. At least the accountants are doing real math.</span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span><span style="font-family: inherit; font-size: medium;"><br /></span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span><span style="font-family: inherit; font-size: medium;">Those exaggerations aside keeping an eye on cost is essential. Focusing entirely on cost is deadly.</span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span><span style="font-family: inherit; font-size: medium;"><br /></span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span><span style="font-family: inherit;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgHf3bVy04Fc7s2A7hoGU517y60QnPD_EN_64Mr76tw3R6wWVknzftpH14e_90f73sRwL9rKGxL3Y1NDL_Gg8uCns3KdmFYvyzL3eK2bHoxvI5D418eTy9g-T71x_8VEwhcUaYJWll-s-QaZSUogPm_TzrGLz1o_rHyL1xedNj7308BwQmE-0qPrZUO" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: inherit; font-size: medium;"><img alt="" data-original-height="564" data-original-width="564" height="400" src="https://blogger.googleusercontent.com/img/a/AVvXsEgHf3bVy04Fc7s2A7hoGU517y60QnPD_EN_64Mr76tw3R6wWVknzftpH14e_90f73sRwL9rKGxL3Y1NDL_Gg8uCns3KdmFYvyzL3eK2bHoxvI5D418eTy9g-T71x_8VEwhcUaYJWll-s-QaZSUogPm_TzrGLz1o_rHyL1xedNj7308BwQmE-0qPrZUO=w400-h400" width="400" /></span></a></div><span style="font-family: inherit; font-size: medium;"><br /></span><br /></span></span></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-43590272717782817822022-04-30T15:24:00.001-05:002022-04-30T15:24:12.035-05:00Choose: Stocks and Bonds or Bitcoin and Cash<div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><span>Over lunch this past week an interesting hypothetical was posed. </span>Suppose you were offered one of the following, which would you choose: </span></div><div style="text-align: left;"><ul style="text-align: left;"><li><span style="font-family: inherit; font-size: medium;">One million dollars in some initial combination of your choosing between stocks and bonds (fully-indexed, total market coverage), <i>or</i></span></li><li><span style="font-family: inherit; font-size: medium;">One million dollars in some initial combination of your choosing between Bitcoin and cash (U.S. dollars).</span></li></ul><div><span style="font-family: inherit; font-size: medium;">You will be forced to lock it in for 10 years with no changes to it or any ability to borrow against it. After the 10-year period is up, it is yours free and clear (no taxes either at that point).</span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">Without too much thinking or much hesitation, I chose Bitcoin and cash in a 50/50 combination. My wiser colleagues said with as much or more conviction stocks and bonds--I don't recall their combinations if they stated them. Since I am the investment guy, this raised eyebrows. Maybe I'm just also the gambler. To be sure I caveated my decision with the disclaimer that I might change my mind (my guess was low conviction). To be fair the others did similarly but with perhaps a bit less hesitation (somewhat higher conviction).</span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">In general I would assume that all four of us in this conversation are of very similar financial standing adjusted for our ages (there is about a 30-year spread from youngest to oldest). There is not a right or wrong answer on this question--at least not without a lot more information about each chooser including several underlying assumptions (risk tolerance, liquidity needs, expectations about each person's future goals and paths of life, etc.). I don't wish to get into speculation about that here nor try to evaluate the soundness of any starting position. </span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">What I am interested in is exploring further how we might frame such a tradeoff. One additional outcome from this exercise is thinking about what assumptions one would make about critical variables and the implications of those assumptions. </span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">Some people would very appropriately, for themselves, choose an allocation of 100% cash. We could argue about that, but again only by digging deeper into their goals and risk tolerance among other things. "Hey, I'll take free money and I want to know it will be basically there for me at the end of the rainbow (inflation be dammed!)." That is potentially a sensible position, but we could write a book (many books have been written) about what extreme conditions must be in place for that to be rational. Geez, I better stop now or that <i>will be</i> this post . . .</span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">So let's just assume we are debating only the question of which outcome has the <strike>best</strike> highest expected value after 10 years. I strike "best" because that implies more than just the math problem I want to explore.</span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">We need just a few inputs: </span></div><div><ul style="text-align: left;"><li><span style="font-family: inherit; font-size: medium;">expected returns of stocks, bonds, Bitcoin, and cash (I am assuming we can get <i>some</i> yield on cash rather than thinking of it as money under the mattress.)</span></li><li><span style="font-family: inherit; font-size: medium;">expected inflation (We are going to look at values in real terms so we don't let the cash option appear better than it actually is--a likely net loser to inflation.)</span></li><li><span style="font-family: inherit; font-size: medium;">probability of various outcomes (Using a range of expected returns we need to know how likely we think those are. The range is really only important for Bitcoin given its unknown future.)</span></li></ul><div><span style="font-family: inherit; font-size: medium;">I am going to use <a href="https://advisors.vanguard.com/insights/article/marketperspectivesmay2022" target="_blank">Vanguard's capital market assumptions</a> (CMA) for expected returns of stocks, bonds, and cash as well as inflation. To make these always updating predictions evergreen in this post and because these are publicly available information as linked above, I will also post a picture of these below. Please do see Vanguard's website for more information including appropriate disclaimers. </span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">I am going to totally make up the expected returns for Bitcoin because 1) my guess is as good as yours and 2) the devil is in the probability and the relative outcome versus the others--my accuracy is nearly immaterial if I am in the ballpark. </span></div></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">Before you dismiss any of this upon glancing at the inflation prediction (range 1.6% - 2.6%), understand that these are 10-year predictions. I hope they are right given what this implies going forward given currently very high inflation rates, but it can easily be the case even with some persistence of current inflation (8% for a year (not that bad yet) plus 5% for a year plus 8 years at 1.6% would land us at the high range).</span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">Note that I am looking at true total market coverage in stocks (U.S. and all international), thus I will combine the growth rates below in the proportion 55/45 U.S./Int'l. Note also that I am only using U.S. bonds in the model. I generally like some international bonds, but I will make this limiting assumption. Regardless, U.S. versus Int'l bond returns are pretty close as you can see in the details below and at the link.</span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">Enough of that already, let's model this thing.</span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">Here is version 1:</span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjnXfsz-5Pbu6lTqcmeOBVfHW8RdqeLnYMo_uYO5DwoLPUY0DcJRZzdNtguqo1CEeVbzIR2Y9l6kBJ4kRSdc6uz4xG-aHkWCFuIPLHAFMgbQnElGn0iBUuRc6fQBaZve2xdu9nCdSmp-FBjXtxUbAXBF5JpJ1eU66vP-RZO0_jBEOh-d58u-OtVfrXm/s1480/Model%201.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: inherit; font-size: medium;"><img border="0" data-original-height="759" data-original-width="1480" height="328" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjnXfsz-5Pbu6lTqcmeOBVfHW8RdqeLnYMo_uYO5DwoLPUY0DcJRZzdNtguqo1CEeVbzIR2Y9l6kBJ4kRSdc6uz4xG-aHkWCFuIPLHAFMgbQnElGn0iBUuRc6fQBaZve2xdu9nCdSmp-FBjXtxUbAXBF5JpJ1eU66vP-RZO0_jBEOh-d58u-OtVfrXm/w640-h328/Model%201.png" width="640" /></span></a></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><span style="font-family: inherit; font-size: medium;">I am putting my thumb on the scale to be optimistic about traditional asset returns (stocks and bonds) making the low case 25% likely and the high case 75% likely, which serves to put my initial Bitcoin/cash choice at a disadvantage. For Bitcoin I am assuming total collapse in the low-end prediction versus <i>only</i> 25% annual growth in the high-end version. I say only as this isn't "to the moon" although it is very strong growth indeed. Keep in mind that Bitcoin has averaged about 94% annual growth over the past 5 years through to today's price of about $38,300. While being conservative? on the high-end growth rate, perhaps I am not appropriately discounting the likelihood of the high side putting it at a 20% chance. I will change that assumption in the next model. </span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">But just before that, let me explain why I don't think we need to worry about the mixing and matching between individual high and low estimates (e.g., stocks grow at 6.1% while bonds only grow at 1.9% or stocks and bonds are high but Bitcoin and cash are low, etc.). Assets tend to be positively correlated over longer and longer timeframes. Even though stocks and bonds enjoy some degree of poor correlation, these fade away over time as what is good for stocks (a productive, growing economy) is also good for bonds. Likewise, a world that has Bitcoin doing well probably has stocks doing well, and a world where inflation is low, stock and bond returns are also probably low. Regardless, the heart of the debate isn't going to be impacted by these details. <br /><br /></span></div><div><span style="font-family: inherit; font-size: medium;">Here is version 2:</span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRKJO65zHUMADv_Y-PgEavO9g2d8C9oz0LtEcze82ttqf0CPaYx6OhlTCM_Yze8aloPT-ZOq06PiEl6IE6Q4fEtZjx-WS5wKQ7a2qdnwKQDSAKdrmT15-HqyZMUVpdoNVVLxBoahSkS7FXvTxgrZFtlFTHPVrfC-KHta2ulP_Ime97YiXJC0glds2m/s1480/Model%202.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: medium;"><img border="0" data-original-height="759" data-original-width="1480" height="328" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRKJO65zHUMADv_Y-PgEavO9g2d8C9oz0LtEcze82ttqf0CPaYx6OhlTCM_Yze8aloPT-ZOq06PiEl6IE6Q4fEtZjx-WS5wKQ7a2qdnwKQDSAKdrmT15-HqyZMUVpdoNVVLxBoahSkS7FXvTxgrZFtlFTHPVrfC-KHta2ulP_Ime97YiXJC0glds2m/w640-h328/Model%202.png" width="640" /></span></a></div><span style="font-size: medium;"><br /><span style="font-family: inherit;">Ouch! Even though I made the low-high range for stocks and bonds 50/50, the move to make low to high outcomes 95/5 for Bitcoin destroys that option. But if that is really more like the future likelihood of the outcome range for Bitcoin, perhaps stronger return possibilities on the high end are as well. So . . .</span></span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">Here is version 3: </span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgqDJZ3BuQOwYP59vN5h7NlXgFmIsE_g7u6_aVsN_EC8z26UWqUsvjgpLpE3rOr5DzUAPvxnSdNRBt77Hi76pXAR8xapT6KpnEf9CfyNjoUheS8_HDkVgoAcAq_IdW2cnqxEKnTr9g029-I6Vc536k9Ce13d1mYUNZlIuahNdXCoiof4q1bGXe26uvk/s1495/Model%203.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: medium;"><img border="0" data-original-height="759" data-original-width="1495" height="324" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgqDJZ3BuQOwYP59vN5h7NlXgFmIsE_g7u6_aVsN_EC8z26UWqUsvjgpLpE3rOr5DzUAPvxnSdNRBt77Hi76pXAR8xapT6KpnEf9CfyNjoUheS8_HDkVgoAcAq_IdW2cnqxEKnTr9g029-I6Vc536k9Ce13d1mYUNZlIuahNdXCoiof4q1bGXe26uvk/w640-h324/Model%203.png" width="640" /></span></a></div><span style="font-size: medium;"><br />I greatly increased the growth rate for Bitcoin using 38.6% annual growth. This isn't a randomly chosen number. This would correspond to a Bitcoin price of approximately $1,000,000, which some roughly project as a possible destination (who knows?). Regardless, stocks and bonds still look better. So let's do just two more for the sake of good order . . .</span></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;">Here is version 4:</span></div><div><span style="font-size: medium;"><br /></span></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgoKsNq3d-qq6qfMkZFDzIR5anruoXbaNSf5G7DX_xn7pQLj9irkC7IigYi9XJvrn5LauzMmmwWS4zQVAxzwK6aFSX8MutNMsTXQ92C_Nsr7l3DyeI-6cqZZ_Xn3ZA0lOwf-BCm3f8fmiqORt0780Ecg9lZJqKTN9XBQWbtoT17PJjXfvnidor8QzZX/s1495/Model%204.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: medium;"><img border="0" data-original-height="759" data-original-width="1495" height="324" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgoKsNq3d-qq6qfMkZFDzIR5anruoXbaNSf5G7DX_xn7pQLj9irkC7IigYi9XJvrn5LauzMmmwWS4zQVAxzwK6aFSX8MutNMsTXQ92C_Nsr7l3DyeI-6cqZZ_Xn3ZA0lOwf-BCm3f8fmiqORt0780Ecg9lZJqKTN9XBQWbtoT17PJjXfvnidor8QzZX/w640-h324/Model%204.png" width="640" /></span></a></div><div><span style="font-size: medium;"><br /></span></div><span style="font-size: medium;">The only change here is to make the Bitcoin high possibility a little more likely moving it from 5% to 10%. And wow! Look how sensitive the difference result is to this change. Obviously this should come as no surprise as this whole thing is about Bitcoin's high end. I guess we could run just one more taking a look at a more moderate Bitcoin but also a less than total bust low-end for it.</span></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;">Finally, here is version 5:</span></div><div><span style="font-size: medium;"><br /></span></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibRzOR0iHIDSMLkKhDqzqxegkSMsw4NK7QCJbRGTyH2Odv1jrpMrAiRBVxGaVlFDX0O-ZnRy4JV9L7UOwSAmAzuKQOS-Zu897UQi76N_1tYea9uUWcnBZxvdCcgNBAhzVlPlSaJOmkfoehHFzifjbHSREKpBfHjwjBNUgPjJxjGKvc8fmqQ5L4z49Y/s1495/Model%205.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="759" data-original-width="1495" height="324" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibRzOR0iHIDSMLkKhDqzqxegkSMsw4NK7QCJbRGTyH2Odv1jrpMrAiRBVxGaVlFDX0O-ZnRy4JV9L7UOwSAmAzuKQOS-Zu897UQi76N_1tYea9uUWcnBZxvdCcgNBAhzVlPlSaJOmkfoehHFzifjbHSREKpBfHjwjBNUgPjJxjGKvc8fmqQ5L4z49Y/w640-h324/Model%205.png" width="640" /></a></div><br /><span style="font-size: medium;">So, allowing for a Bitcoin future in any future (low end is 10% annual decline in value) gives us a fairly strong case for my gamble on some combination of Bitcoin and cash. </span></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;">Having gone through this process would I now change my mind? I will stick with 50/50 Bitcoin and cash. But that strongly suggests a question: how can I justify that choice given that I don't have an existing portfolio that looks anything like that. I am personally overwhelmingly "boring" with an almost all-stock portfolio with just a bit of crypto sprinkled in. </span></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;">At the risk of a slight digression into the post I keep promising this will not be, allow me to defend my rationality. This hypothetical is a forced gamble. My retirement investments are different in that regard. Those I can and do change periodically including both allocation as well as contribution. I get to guide those and adjust them. The hypothetical gift invested is a Ron Popeil "set it and forget it". Part of why I cannot invest more in Bitcoin (aside from it <b>wisely </b>not being a 401(k) option (looking right at you, <a href="https://www.wsj.com/articles/fidelity-to-allow-retirement-savers-to-put-bitcoin-in-401-k-accounts-11650945661" target="_blank">Fidelity</a>)) is that I likely cannot tolerate the variance. If I can get in and get out of it, I am <strike>as</strike> more likely to make the wrong in/out moves as the right ones. And that is before the tax-drag effect. </span></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;">Besides that, my investment reality is the retirement assets I actually do have. This hypothetical is a lottery ticket idea. If I win the lottery, my reality materially would change. I could afford more and different risk. In this sense and surprisingly, if the hypothetical was $10,000 in stocks and bonds versus Bitcoin and cash, the rational decision for me might have been stocks and bonds! Whereas the typical person would say, "that is too little to worry about the risk, let it ride!", I would counter, "I can't afford to take the the riskiness of Bitcoin at that magnitude ($10,000)." Along this one dimension, I would be right. </span></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;">I want <a href="http://www.magnitudematters.com/2020/07/life-is-negative-lottery.html" target="_blank">exposure to big upsides</a>. Unfortunately, these are difficult to find and doubly difficult to stick with. In a sense this thought experiment has revealed some of my own limitations on putting my money where my mind and heart and mouth are. </span></div><div><span style="font-size: medium;"><br /><br /></span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">-----</span></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhZDtJ8gFYzn1J6qo2JABnNGuR387cG8xMJMmBm1x2_upXillFwE2qdoylHHlMJ1hZFzyn_PH0qlcjwP3aP7eZ3OEi5AKLL2lPSp00T-L9tkdX798Wx4y2IG6egaSYS0gA7HF_iY1CvUoMWLMlr6rxLRO_qVZJEXWEP4g2v-itJhoJzqsPweEKH_TC0" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: inherit; font-size: medium;"><img alt="" data-original-height="1374" data-original-width="1380" height="637" src="https://blogger.googleusercontent.com/img/a/AVvXsEhZDtJ8gFYzn1J6qo2JABnNGuR387cG8xMJMmBm1x2_upXillFwE2qdoylHHlMJ1hZFzyn_PH0qlcjwP3aP7eZ3OEi5AKLL2lPSp00T-L9tkdX798Wx4y2IG6egaSYS0gA7HF_iY1CvUoMWLMlr6rxLRO_qVZJEXWEP4g2v-itJhoJzqsPweEKH_TC0=w640-h637" width="640" /></span></a></div><span style="font-family: inherit; font-size: medium;"><br /></span><br /></div></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-25107019888914387512022-04-24T16:56:00.000-05:002022-04-24T16:56:01.672-05:00If you've ever handled a penny, the government's got your DNA.<div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">File this under: <b>Wanted: new conspiracy theories—all ours came true</b>.</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="background-color: white; font-family: inherit; font-size: medium;">When DNA testing and genomic profiling was first rolling out as a mass-market product, I remember hearing people objecting to it saying things like, "I don’t want them to have my DNA". </span></div><div style="text-align: left;"><span style="background-color: white; font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="background-color: white; font-family: inherit; font-size: medium;">These worries were summarily dismissed by science-supporting elites as paranoia on the part of anti-science or antisocial bumpkins. </span></div><div style="text-align: left;"><span style="background-color: white; font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="background-color: white; font-family: inherit; font-size: medium;">It turns out an ounce of caution here <a href="https://www.cnbc.com/2018/06/16/5-biggest-risks-of-sharing-dna-with-consumer-genetic-testing-companies.html" target="_blank">was warranted</a>. </span></div><div style="text-align: left;"><span style="background-color: white; font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="background-color: white; font-family: inherit; font-size: medium;">And then COVID happened . . .</span></div><div style="text-align: left;"><span style="background-color: white; font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><div style="border: 0px; box-sizing: border-box; color: #222638; font-stretch: inherit; font-variant-east-asian: inherit; font-variant-numeric: inherit; letter-spacing: -0.04em; line-height: 1.1; margin: 0px 0px 0.4em; overflow-wrap: break-word; padding: 0px; text-align: center; text-rendering: optimizelegibility; vertical-align: baseline;"><span style="font-family: inherit; font-size: medium;"><a href="https://www.thelondoneconomic.com/news/covid-testing-firm-selling-swabs-carrying-customers-dna-to-third-parties-301236/" style="background-color: white; font-weight: normal;" target="_blank">Covid testing firm ‘selling swabs carrying customers’ DNA’ to third parties</a></span></div><div><span><span style="background-color: white; font-family: inherit; font-size: medium;"><br /></span></span></div><div><span><span style="background-color: white; font-family: inherit; font-size: medium;">And now 23andMe has come full circle:</span></span></div><div><span style="background-color: white; font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: center;"><a href="https://www.bloomberg.com/news/features/2021-11-04/23andme-to-use-dna-tests-to-make-cancer-drugs" style="letter-spacing: -0.025em;" target="_blank"><span style="background-color: white; font-family: inherit; font-size: medium;">All Those 23andMe Spit Tests Were Part of a Bigger Plan</span></a></div><div><blockquote><span style="background-color: white; font-family: inherit; font-size: medium;">Wojcicki says that’s just not going to happen. “We’re not evil,” she says. “Our brand is being direct-to-consumer and affordable.” For the time being she’s focused on the long, painful process of drug development. She’d like to think she’s earned some trust, but she hasn’t come this far on faith.</span></blockquote><div style="text-align: left;"><span style="background-color: white; font-family: inherit; font-size: medium;">Caution continues to be warranted by at least some elites (<a href="https://www.theweek.in/news/world/2022/02/12/explained-what-is-dna-theft-why-did-macron-refuse-russian-covid-test.html" target="_blank">Macron refuses Russian COVID test</a>), and I don't blame them--be sure to click through to the Atlantic story about the lengths to which the White House goes to protect the president's DNA. </span></div></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">I understand Macron and the White House taking extreme precautions in this area. I also do not think it is highly likely that anything bad would come of genetic data gathering in general. </span><span style="font-family: inherit; font-size: large;">In fact I tend to be supportive of the secondary (or ulterior) uses that genetic data could provide--provided there are adequate disclosures on the front end and transparency throughout the process. Trust but verify is the right approach.</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">The level of trust is inversely proportional to the extent to which people's fears get realized even if they are only partially realized. In other words the level of trust is directly proportional to the degree of proven trustworthiness.</span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiON4NA588auFanzxtmCYLEGDdDUiqfT57s_-wg54oJjeHUEIsjpWxk7bNXneYwExsqw_bQZL9c0D3elMhSZ-eMqfvFisqPwv-UIOo9mYyf2uLihYLDwSBtLociSJ4_DZOCf-EHasJnXPtQayU3x8hs4aLiitXVBrO0rX_KCrhNRw4B1O2_RsWfOisG/s1063/wiggum.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1063" data-original-width="520" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiON4NA588auFanzxtmCYLEGDdDUiqfT57s_-wg54oJjeHUEIsjpWxk7bNXneYwExsqw_bQZL9c0D3elMhSZ-eMqfvFisqPwv-UIOo9mYyf2uLihYLDwSBtLociSJ4_DZOCf-EHasJnXPtQayU3x8hs4aLiitXVBrO0rX_KCrhNRw4B1O2_RsWfOisG/w196-h400/wiggum.jpg" width="196" /></a></div><br /><span style="font-size: medium;"><br /></span></div></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-19631193336686524822022-04-20T16:09:00.002-05:002022-04-20T16:09:39.647-05:00Only Tax Unprofitable Businesses<div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">It is income tax time again. Instead of the usual rant, I have a creative alternative for you to ponder: Only taxing unprofitable businesses. That is if we are stuck on the illogical notion of taxing income <i>per se</i> at all. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Loyal readers know that we shouldn't tax corporations' profits and that we should not tax incomes in general. Corporations are just fictional middlemen between owners/workers and customers. Taxing their profits or income is just an indirect (inefficient) way to tax those owners, workers, and customers without properly changing their behavior. It would be much, much better to tax businesses as they add value to the production of final goods and services through the use of capital and labor. All of this as being part of a larger scheme to tax resource use rather than resource creation. But I digress.</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Let's assume we are going to tax businesses' incomes. How should we do this? </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">I propose we reverse the concept and instead of taxing a share of the revenues minus expenses (when R > E) we tax a share of the expenses minus the revenues (when E > R). In other words we only tax unprofitable businesses. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Here is the reason for the proposal. Revenues are a measure of the benefits that a business has provided. It is an estimate of what value they have brought to the world. Expenses are a measure of the costs they have taken. It is an estimate of what value they have destroyed in an attempt to add value through their business activity. If their expenses exceed their revenues in a given year, for that year at least they have detracted from society by virtue of their activity. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><span style="font-family: inherit;">Perhaps we would need a 3-year average profitability test or carryover provision of 50% of profits from year 1 to year 2 and 25% of profits from year 1 to year 3. I'm open to ideas here. That way we smooth out business cycle and </span>idiosyncratic<span style="font-family: inherit;"> effects that might otherwise undesirably punish a business in a given year for circumstances beyond its control or for investments made that have long-run payoffs. But let's not lose sight of the goal: taxing firms that cannot turn a profit (i.e., don't add value to the world).</span></span></div><div style="text-align: left;"><span style="font-size: medium;"><span style="font-family: inherit;"><br /></span></span></div><div style="text-align: left;"><span style="font-size: medium;"><span style="font-family: inherit;">An instant objection is that this would make a startup business unduly expensive potentially </span>stifling<span style="font-family: inherit;"> economic growth. Just a little understanding of how markets work invalidates this worry. Under this arrangement a tax on an annual net loss simply adds to the cost of capital. If the expected payback is sufficient, the investment will be made. Look at it this way: Is it better that resources are used with tax encouragement (deductibility) on the prospect of future economic value creation (future profitability that would then be taxed) or that resources are used while being taxed (a discouragement to </span>frivolous<span style="font-family: inherit;"> investment)? The expected return is likely the same in either case*--it is just a matter of when taxes are collected and on whom the burden falls (taxing failure or taxing success). Given that taxes discourage that which is taxed, I know in principle which one I want bearing the burden.</span></span></div><div style="text-align: left;"><span style="font-size: medium;"><span style="font-family: inherit;"><br /></span></span></div><div style="text-align: left;"><span style="font-size: medium;">Thus, this method has two key attributes to admire:</span></div><div style="text-align: left;"><ol style="text-align: left;"><li><span style="font-size: medium;">It punishes bad investments by taxing failure.</span></li><li><span style="font-size: medium;">It creates an economic environment that increases the returns to good investments by <i>not </i>taxing success.</span></li></ol><div><span style="font-size: medium;">A side benefit is that it potentially cleans up accounting--a lot. A great deal of effort (resources) is put into doctoring the books so that a firm looks less profitable than they actually are. This leads to an additional benefit of disincentivizing expenditure that is not actually net profitable. Executive perks, luxury offices, unnecessary equipment, etc. now all carry a burden where once they earned a subsidy. </span></div><div><span style="font-size: medium;"><br /></span></div></div><div style="text-align: left;"><span style="font-size: medium;"><span style="font-family: inherit;">Does this have a chance in the hell that is our tax code of coming to fruition? Of course not. And if it did, the later temptation to reverse course would be too great to assume future profits would be tax free. But it is a fun thought experiment that yields a new way to see the economic error in our current taxing ways.</span></span></div><div style="text-align: left;"><span style="font-size: medium;"><span style="font-family: inherit;"><br /></span></span></div><div style="text-align: left;"><span style="font-size: medium;"><span style="font-family: inherit;"><br /></span></span></div><div style="text-align: left;"><span style="font-size: medium;"><span style="font-family: inherit;"><br /></span></span></div><div style="text-align: left;"><span style="font-size: medium;"><span style="font-family: inherit;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgYL8jfI2gWmHdKn_Q75zhjLZGGmVwwLheOrcq85lThV9H4Kst4rEvUqjdD96M2IiTHsB_-F3ILcx2Lv421zmNYASfE7oMguPr3NR5V-Qu0SIOi4B5hYUTiW_klcg6LuqF0APjry_FDLQaZ314xxxdTiSNQDst041dhshVlBQloPoD1F_wg2I26O85x" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="262" data-original-width="205" height="240" src="https://blogger.googleusercontent.com/img/a/AVvXsEgYL8jfI2gWmHdKn_Q75zhjLZGGmVwwLheOrcq85lThV9H4Kst4rEvUqjdD96M2IiTHsB_-F3ILcx2Lv421zmNYASfE7oMguPr3NR5V-Qu0SIOi4B5hYUTiW_klcg6LuqF0APjry_FDLQaZ314xxxdTiSNQDst041dhshVlBQloPoD1F_wg2I26O85x" width="188" /></a></div><br /><br /></span></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><span style="font-family: inherit;">*This is kind of a reverse Ricardian Equivalence whereby known taxes on losses have to be justified by expected profits in the future. As long as the tax rate on losses is not </span>devastatingly<span style="font-family: inherit;"> high, in which case it would prevent any method of transferring future expected profits to the current day to finance a current tax burden, the tax that would be applied to future profits is instead realized before those profits are themselves realized. This assumption is no different than assuming current tax rates on profits are not so high as to devastate the ability for businesses to earn a profit in our current system. </span></span></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-70570263010966625982022-04-13T09:12:00.001-05:002022-04-13T09:12:14.775-05:00Biden's Transformation Into a 1970s President<div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">It seems clear that President Biden is well on his way to achieving his obvious goal of becoming a redux of a 1970s American president. This would be some combination of Gerald Ford and Jimmy Carter.</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Consider the checklist below:</span></div><div style="text-align: left;"><ul style="text-align: left;"><li><span style="font-family: inherit; font-size: medium;">Stumble repeatedly ✔</span></li><li><span style="font-family: inherit; font-size: medium;"><span>Misspeak and garble words </span>✔✔✔</span></li><li><span style="font-family: inherit; font-size: medium;"><span>Inflation </span>✔✔</span></li><li><span style="font-family: inherit; font-size: medium;"><span>Malaise </span>✔</span></li><li><span style="font-family: inherit; font-size: medium;"><span>Disastrously bungled Asian/Middle Eastern war retreat </span>✔✔</span></li><li><span style="font-family: inherit; font-size: medium;"><span>Extreme tensions with Russia involving their invasion of a neighboring country </span>✔</span></li><li><span style="font-family: inherit; font-size: medium;"><span>High oil prices </span>✔</span></li><li><span style="font-family: inherit; font-size: medium;">Olympic boycott ✔</span></li></ul></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Still waiting on:</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><span>Deregulation</span>...</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiR9EWkiYh_t-J1Td5z5hTWxwZpt4FUAGqCidK2YqlKCDozcNCreS_NYL1NRcDKc_KUFeUEaftUOntDYDyO3iyz93VhKJC0LXPsprJh4qKTwol2hE1VgB7HHSUbMqivt5rweNBLHSyj_u_zwT8Kd4h0Z5owVgvQ9W4wsdIK9EOG3KsJBs7V7nJ6zgKG" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="1325" data-original-width="2000" height="212" src="https://blogger.googleusercontent.com/img/a/AVvXsEiR9EWkiYh_t-J1Td5z5hTWxwZpt4FUAGqCidK2YqlKCDozcNCreS_NYL1NRcDKc_KUFeUEaftUOntDYDyO3iyz93VhKJC0LXPsprJh4qKTwol2hE1VgB7HHSUbMqivt5rweNBLHSyj_u_zwT8Kd4h0Z5owVgvQ9W4wsdIK9EOG3KsJBs7V7nJ6zgKG" width="320" /></a></div><br /><br /></span></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-79398417423154259412022-04-09T11:35:00.004-05:002022-04-09T11:38:53.365-05:00Have Your House And Rent It Too<div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Partial list of ways my neighbors like so, so many homeowners wish to have it both ways--despite the blatant contradictions. While many of these overlap with each other, they each are distinct.</span></div><div style="text-align: left;"><ul style="text-align: left;"><li><span style="font-family: inherit; font-size: medium;">They want high property values, but they also want affordability--just maybe not near them? Affordability for thee but not for me.</span></li><li><span style="font-family: inherit; font-size: medium;">They want high property values, but they don't want "outside investors" much less "speculators!" to buy properties near them--presumably to rent them to undesirables (see below).</span></li><li><span style="font-family: inherit; font-size: medium;">They want a thriving rental market, but they don't want anyone to rent near them.</span></li><li><span style="font-family: inherit; font-size: medium;">They want diversity and inclusion, but they champion restrictions on development and rentals which make surrounding housing unaffordable and unavailable. </span></li><li><span style="font-family: inherit; font-size: medium;">They want diversity and inclusion, but they wish to make choices for their neighbors thwarting their personal preferences.</span></li><li><span style="font-family: inherit; font-size: medium;"><span>They want the freedom to make their own choices about remodeling, etc., but they do not want an anything-goes policy for even their dearest neighbors. </span><i>De gustibus non est disputandum</i><span> for me; no way in hell for thee!</span></span></li></ul><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOyqxYzp-kaimVggzYt3lNMaBrKenDh4LmEayAzSjRTthOdgM24E-amwQijBJWcVDIrAs1bzyPplpE_nPsUHyN_LU5gTignMZlZ3usgarARXzPvqL19jXFFQcU1wnHeG8c_waGeTTSVSe2J8JmBFBE2XMdfwIJMlS_ZYyVPGOYiMaHviZMFoQtH2Y_/s620/UP.heic" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: inherit; font-size: medium;"><img border="0" data-original-height="372" data-original-width="620" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOyqxYzp-kaimVggzYt3lNMaBrKenDh4LmEayAzSjRTthOdgM24E-amwQijBJWcVDIrAs1bzyPplpE_nPsUHyN_LU5gTignMZlZ3usgarARXzPvqL19jXFFQcU1wnHeG8c_waGeTTSVSe2J8JmBFBE2XMdfwIJMlS_ZYyVPGOYiMaHviZMFoQtH2Y_/w400-h240/UP.heic" width="400" /></span></a></div><span style="font-family: inherit; font-size: medium;"><br /></span><span style="font-size: medium;"><br /></span></div></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-62907615532892767072022-04-04T17:54:00.003-05:002022-04-04T17:56:57.363-05:00The Economics of Immigration in One Lesson<div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Or perhaps I should say in one equation properly explained . . .</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">Political thinking: </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><span> </span>ALL THE STUFF <i>divided by</i> ALL THE WORKERS <i>equals</i> STUFF PER WORKER </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">The implication of this is more workers means <b>less </b>stuff for workers.</span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">Economic thinking: </span></div><div><span style="font-family: inherit; font-size: medium;"><span> </span>ALL THE WORKERS <i>multiplied by</i> STUFF PER WORKER <i>equals</i> ALL THE STUFF</span></div><div><span style="font-family: inherit; font-size: medium;">The implication of this is more workers <i>or</i> more productivity means <b>more </b>stuff for workers.</span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">Definitions: </span></div><div><span style="font-family: inherit; font-size: medium;">All the stuff = production, the output;</span></div><div><span style="font-family: inherit; font-size: medium;">all the workers = resources, the input; </span></div><div><span style="font-family: inherit; font-size: medium;">stuff per worker = productivity, the rate at which we can produce stuff</span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">Allowing more workers (immigration as well as the removal of barriers to entry like licensure laws and minimum wages) is clearly a net good when total output rises. </span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">The key to consumption is production. The key to mass consumption is mass production.*</span></div><div><span style="font-family: inherit; font-size: medium;">(HT: Bryan Caplan)</span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNM9eK1ZXu7D29-4XGZ25ghnC4UnpZs2LWYhkO8UK36SsDnixh_GnmUS_rzfYGXnDh8I_9YccSTuLxBKZENlLe1VqVt72lSIfrtPMUJbbQMo9oN_ZajF_w4G9Fi_1ADCKC-qJE90pJRhRt6hyCqolhH-XuhiS8CadhSBVX-O6IFwPF2GEjICVbqJuu/s640/Only%20In%20America.jpg" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: inherit; font-size: medium;"><img border="0" data-original-height="640" data-original-width="640" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNM9eK1ZXu7D29-4XGZ25ghnC4UnpZs2LWYhkO8UK36SsDnixh_GnmUS_rzfYGXnDh8I_9YccSTuLxBKZENlLe1VqVt72lSIfrtPMUJbbQMo9oN_ZajF_w4G9Fi_1ADCKC-qJE90pJRhRt6hyCqolhH-XuhiS8CadhSBVX-O6IFwPF2GEjICVbqJuu/s320/Only%20In%20America.jpg" width="320" /></span></a></div><span style="font-family: inherit; font-size: medium;"><br /><span><br /></span></span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">*Note for minimalists, environmentalists, etc.: Don't get hung up by the term "mass" here. This does not mean "excessive". It means flourishing for the masses. Limitations on production/consumption hit the worst off first and the best off almost never.</span></div></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-87854446219668652282022-03-31T21:37:00.000-05:002022-03-31T21:37:24.439-05:00The Meaning of Opposite<div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Opposite is a loaded term. The meaning of it grows more ambiguous as the dimensions of the object to which it refers grow. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">A no-dimensional object (a point) has no opposite aside from absence (not a point). A one-dimensional object (the line A—B) has its pure reversal (B—A) as its opposite. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Consider a higher order "object" such as driving in America. What is the opposite? It could be said that driving in England is the opposite of driving in America since Americans drive on the right while the English drive on the left. This would be true in the limited sense from the perspective of the perpendicular plane relative to the driver’s general direction, forward, through time—also forward. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">But one could also say that driving sideways is the opposite of driving as we know it. How about rather than driving through scenery that the car passes through that the car stands still and the scenery moves passing by the car was the opposite? Still another could be driving whereby you leave from your destination and arrive at your departure point. There certainly are more.</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">What is the point of this thought process? It is a hint at how difficult and convoluted and simply fraught any attempt to draw sharp distinctions can be. This is especially true in the realms of human action. Counterfactuals are not only challenging to find. They are nearly impossible to properly define.</span></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-35040918501288947672022-03-31T10:56:00.001-05:002022-03-31T10:56:39.585-05:00Well At Least We Can Agree On This, Right?...<div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">Here is a partial list of some things people commonly get wrong (by my judgment at least) yet believe in them with strong conviction and desire. Therefore, these are just a few examples of times when I disagree with conventional wisdom. </span></div><div><ul style="text-align: left;"><li><span style="font-family: inherit; font-size: medium;">Veterans are always human, sometimes (but rarely) heroes. I wonder how much mental anguish in veterans is caused by either an imposter syndrome (these people think I did something I did not do) or a guilt complex (these people don't know what ugly things I endured and perhaps contributed to). Veterans deserve reverence and sympathy, but we do a grave disservice to them when we dismissively and robotically admire them.</span></li><li><span style="font-family: inherit; font-size: medium;">Localized industrial policy is <a href="https://www.aier.org/article/government-intervention-is-unscientific/" rev="en_rl_none">very bad</a>. This includes <a href="https://en.wikipedia.org/wiki/Tax_increment_financing" rev="en_rl_none">tax-increment financing (TIF)</a>, direct subsidy, government/private partnerships, and other favored-interest actions. The local darling in my neck of the woods is <a href="https://en.wikipedia.org/wiki/Metropolitan_Area_Projects_Plan" rev="en_rl_none">M.A.P.S</a>. Like so many cases of local industrial policy, it suffers from a server case of <a href="https://www.econlib.org/library/Bastiat/basEss.html?chapter_num=4#book-reader" rev="en_rl_none">Bastiat's "what is seen and what is unseen</a>--just look at all the shiny things! There are two crucial and high hurdles for these public (i.e., taxpayer-funded) endeavors to overcome before we can believe in them: 1) there must be a clear market failure preventing entrepreneurs from seeing and acting to realize the positive gains to be had, and 2) the government must be able to identify and execute on these supposed investment opportunities.</span></li><li><span style="font-family: inherit; font-size: medium;">There should be no government licensure for employment (<i>especially </i>law and medicine--those in particular are too important and nuanced to leave up to central planning). I've got strong economic and principle-based arguments against licensure while those supporting it typically rely on that it feels good and that an idealized government can correct a hypothesized problem (not even a market failure mind you). Yet my view is political poison because it takes the unpopular tactic of addressing people's fear through passive action rather than blatant pandering.</span></li><li><span style="font-family: inherit; font-size: medium;">Edward Snowden is an <a href="https://fakenous.net/?p=2005" target="_blank">American patriot and hero</a>.</span></li><li><span style="font-family: inherit; font-size: medium;">Almost all acts of state-level aggression (AKA, war) should be met with minimal retaliation if not appeasement and forbearance. This certainly cuts against human nature, but most secondary reactions in response to violent hostility are counterproductive. They make the world a worse place--overall, on net, all things considered. My follow up right there is not my attempt to qualify my view. Rather I am saying I am considering all the supposed benefits people offer as to why <s>vengeance shall be mine!</s> . . . we must stand up to belligerent aggressors. Too often the cost is not worth the cure, and the actions taken in response are just closing the barn door after the horse has bolted. The most I can say in defense of the typical defender of retaliation (too much play on words?) is that if one wants to maintain the world closer to how it is at the cost of how much better it could be, then fight every fire with fire. It is very hard to truly hold territory and control a people. And this difficulty grows more and more as human society advances. Initial victories for would-be rulers become short lived if not pyrrhic. The constant eye-for-an-eye, tooth-for-a-tooth state of the world keeps us in a local maximum, struggling to escape to higher peaks. I think Bryan Caplan <a href="https://www.econlib.org/archives/2014/08/my_life_of_appe_1.html" rev="en_rl_none">says it well</a>.</span></li><li><span style="font-family: inherit; font-size: medium;">The following should all be legal with minimal to no interference from government: prostitution, recreational drugs, performance enhancing drugs, selling/buying organs, prediction markets, actual gambling (games of chance rather than skill), and basically everything else under the sun of <i><a href="https://www.cato-unbound.org/2015/11/02/jason-brennan-peter-jaworski/you-may-do-it-free-you-may-do-it-money/">If you can do it for free…</a></i>. The list is what makes this item fully counter-conventional--very few will defend all of these items.</span></li><li><span style="font-size: medium;"><span style="font-family: inherit;">The motto “Safety First!” is basically nonsense. It amounts to trite virtue signaling. If it is your “highest priority”, then you are incompetent. It is simply not possible for this to be a goal. It is a constraint. Fortunately most of the time when used it is just there to help the </span>naïve<span style="font-family: inherit;"> and fearful to be a bit braver. In this sense it is innocuous as far as a noble lie can be. But for God’s sake can we grow up and stop saying it or accepting it as a substitute for meaningful signal?</span></span></li></ul></div><p><span style="font-family: inherit; font-size: medium;">Things the major tribes actually do unfortunately agree upon: </span></p><p></p><ul style="text-align: left;"><li><span style="font-family: inherit; font-size: medium;">There is lots of speech that needs to be censored (e.g., hateful speech, disruptive speech, unpleasant speech).</span></li><li><span style="font-family: inherit; font-size: medium;">We need to fund the police such that we have a strong and powerful police state</span></li><li><span style="font-family: inherit; font-size: medium;">Government can and should solve the "problem" of big tech.</span></li><li><span style="font-family: inherit; font-size: medium;">A safe world and a safe America requires a overwhelmingly strong, uber-engaged, and extensively involved U.S. military.</span></li><li><span style="font-family: inherit; font-size: medium;">American farmers are a sacred group who need constant support especially to maintain the status quo. They should enjoy private profits and be afforded extensive social insurance against losses. </span></li><li><span style="font-family: inherit; font-size: medium;">The welfare and education and indoctrination of the young is a state concern and needs strong state intervention. Parents should only be left up to their own desires when those desires fully correspond to the state's interests (defined separately by the two biggest tribes, of course). </span></li><li><span style="font-family: inherit; font-size: medium;">Incumbent firms and industries need and deserve deference if not extra support. It is wrong that they might be challenged by newcomers and new approaches. </span></li></ul><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;"><br /></span></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgalPZAnhB4W2I1RQjOEcDUX8RSDg8RMBHRsq_CXbXaT6n9laF_3UbVyBabbiUKKbZ7jhVCL-XQVt2NGBZn0GwTXSsDJtZXuHgG4ysNto6hEOyEMuGrdqXqv0umQ3v1c_eb1j9LVCpbBpV0t3-qPTQUYHLoskGD4Zg-d9Qvg2h5wb-QdNCeCnCIh4bM/s275/agreement.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="183" data-original-width="275" height="266" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgalPZAnhB4W2I1RQjOEcDUX8RSDg8RMBHRsq_CXbXaT6n9laF_3UbVyBabbiUKKbZ7jhVCL-XQVt2NGBZn0GwTXSsDJtZXuHgG4ysNto6hEOyEMuGrdqXqv0umQ3v1c_eb1j9LVCpbBpV0t3-qPTQUYHLoskGD4Zg-d9Qvg2h5wb-QdNCeCnCIh4bM/w400-h266/agreement.jpg" width="400" /></a></div></div><p></p>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-67556497440954663692022-03-30T19:44:00.005-05:002022-03-30T19:44:53.950-05:00The Progression of Air Travel Security Theater<div style="text-align: left;"><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;">It is as if the powers that be are playing an ever-escalating game of <i>what can we make them do next</i>. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;">When I was a kid it was just speech codes: don’t say “bomb” or “gun” or you might be detained and searched. Maybe not allowed to fly that day. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;">After 9/11 it was: “let’s take away their liquids, move the entry barrier back and search them good and hard before entering, not allow anything sharp, and of course let’s profile them until they call foul and then let’s pick on the most obviously innocent to prove we don’t profile.”</span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;">“Now what?” I can hear them eagerly ask. Then the shoes came off. “And let’s make them basically get strip-searched (remotely) while holding up their hands in the ‘don’t shoot’ position.” </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;">And of course with COVID it is: “let’s make them wear masks . . . forever?” </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;">It will stop when we stop letting the most fearful and the most fanciful fears drive all policy decisions.</span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;"><i>Related</i>: The Great Antidote - <a href="https://www.thegreatantidote.com/1134116/10093116-gary-leff-on-airline-bailouts-and-travel" target="_blank">Gary Leff on Airline Bailouts and Travel</a>. Pay attention to where he describes American air firms as being basically extensions of the federal government. The technical term is fascism.</span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzuQeyY9eqP5xBVmaEbUwN3U8FogTm7vr_FtDb5ksf-a6AGmMGXDo_ocqfZ4eI8Ln8CcuplpZc3qNHjG9WUig7ouSxepiGE1uWw5ITLNkh3Q_FX3JS8wyRRZynaPY0ivR6zA3WnX7-oKGn8Scaw0vwEmEFeIZxnnVdvmio7ORVddsbqfd5tS74PoCm/s795/braniff.jpeg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: medium;"><img border="0" data-original-height="436" data-original-width="795" height="350" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzuQeyY9eqP5xBVmaEbUwN3U8FogTm7vr_FtDb5ksf-a6AGmMGXDo_ocqfZ4eI8Ln8CcuplpZc3qNHjG9WUig7ouSxepiGE1uWw5ITLNkh3Q_FX3JS8wyRRZynaPY0ivR6zA3WnX7-oKGn8Scaw0vwEmEFeIZxnnVdvmio7ORVddsbqfd5tS74PoCm/w640-h350/braniff.jpeg" width="640" /></span></a></div><span style="font-size: medium;"><br /></span><span style="font-size: large;"><br /></span></div></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-1237402612146912262022-03-23T19:13:00.001-05:002022-03-23T19:13:30.492-05:00Thinking in Bets for Calmer Debates<div style="text-align: left;"><blockquote><span style="font-size: medium;">Even the best decision doesn't yield the best outcome every time. There's always an element of luck that you can't control, and there is always information that is hidden from view.</span></blockquote></div><div style="text-align: left;"><span style="font-size: medium;">That is from the summary of Annie Duke's book <i><a href="https://www.amazon.com/Thinking-Bets-Making-Smarter-Decisions/dp/0735216355" target="_blank">Thinking in Bets</a>.</i> The subtitle is "Making Smarter Decisions When You Don't Have All the Facts". </span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">Her way of looking at the world inspired Arnold Kling to create an entire category for it in his Fantasy Intellectual Teams (FITs) competition. </span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">People tend to think in terms of did or didn’t and will or won’t rather than the proper probabilistic and adaptive viewpoint. Couple this with Julia Galef's <a href="https://www.amazon.com/Scout-Mindset-Perils-Defensive-Thinking/dp/0735217556" target="_blank"><i>The Scout Mindset</i></a>, and you have a very sound method for decision making. But a scout's mind thinking in bets is not only a much better way of getting to solutions and making predictions, it is </span><span style="font-size: large;">also</span><span style="font-size: large;"> </span><span style="font-size: large;">more socially constructive since it tempers our emotional responses. </span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">In the political realm we often devolve and retreat to the simplistic concept of binary conclusions. While this human trait is very common in most all people and realms, it is a natural byproduct and significant downside of government action in general. Governments are the ultimate one-size-fits-all. Democracy adds to the problem by lending credibility to the process--we voted; therefore, the outcome is just/reasonable/practical, of course none of which follows. </span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><span>When it is all or nothing, we have too much at stake to compromise much less admit we don't know. This leads us to reject ideas we don’t want to be true along with resisting ideas we </span><span>believe likely not to be true</span><span>. </span></span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">Consider climate change/global warming and anthropogenic causation or contribution. Do we really want to place all of our bets on the idea we cannot affect the climate? Conversely do we really want to place all our bets that we absolutely can change what is happening to the climate? Do we really want to assume that we know exactly what the solution to the problem(s) will be such as subsidizing solar or wind, outlawing oil and gas, etc.? Wouldn’t the consideration of a carbon tax be a more appropriate response? And shouldn’t we consider the downside and extremities of what introducing a carbon tax might lead to? </span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">A framework of thinking in bets can help a lot in areas like this. Instead of tribally aligning with one absolute or another, we could take a more measured, agnostic view that allows for experimentation as well as revising. Instead we battle it out on the front end (the public and political stakes placed in the ground) having captured interests and biased reasoners (bootleggers and Baptists) and their lobbyist soldiers actually do the brute-force compromising for us on the back end with all the predictable shortcomings.</span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">The thinking-in-bets perspective allows nuance and graceful position changes. Instead of having to be pro renewables/anti fossil fuels or vice versa we can adopt a mindset that skips past labels to force deeper thinking. Sure a person could always claim 100% confidence that THIS is the problem and THIS is the solution, but then at the very least we know not to waste our time in that discussion. Also, the more we make them be precise with predictions, the more likely they will step back from the barricade. </span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;">Betting is a tax on bullshit, and forcing a bet can be a great method of separating our hearts from our minds. I am after a different benefit in this case, though. I don't necessarily want to call anyone out for bloviation. Rather I want to get a more open-minded and charitable disposition for all sides in a debate--allowing us to consider how little we actually know for sure.</span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgA8ciAKOkn9RGuU7Js9NOBKIeX9HcSTBbP9k_trLGtSeO7-Co2Ci9Y1jLSWhUSFjhsBO7al2iGBt2HAoPVlarNbLeLje72CPmfEvEz4UL6__2pDr1o46yCAUJZmWKnkHOcWwob2sxofye3siWDoWXJAoZ2lVqezy1AbXrKE7siqaUFcSfG29OfNQLM/s499/TIB.jpg" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: medium;"><img border="0" data-original-height="499" data-original-width="331" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgA8ciAKOkn9RGuU7Js9NOBKIeX9HcSTBbP9k_trLGtSeO7-Co2Ci9Y1jLSWhUSFjhsBO7al2iGBt2HAoPVlarNbLeLje72CPmfEvEz4UL6__2pDr1o46yCAUJZmWKnkHOcWwob2sxofye3siWDoWXJAoZ2lVqezy1AbXrKE7siqaUFcSfG29OfNQLM/w265-h400/TIB.jpg" width="265" /></span></a></div><span style="font-size: medium;"><br /><span><br /><br /></span></span></div><div style="text-align: left;"><span style="font-size: medium;"><span>P.S. I thought of this while listening to the recent excellent interview of </span><span>Mike Munger on </span><span>The Curious Task</span><span> </span><a href="https://thecurioustask.podbean.com/e/ep-131-mike-munger-what-s-wrong-with-anti-trust-and-industrial-policy/" target="_blank">Ep. 131: Mike Munger - What’s Wrong With Anti-Trust and Industrial Policy?</a></span></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-63977740509978476412022-03-19T12:45:00.001-05:002022-03-19T12:45:12.161-05:00Who You Gonna Call? Trustbusters! <div><span style="font-family: inherit; font-size: medium;">David Henderson has written two very good pieces recently at the Hoover Institution's <i>Defining Ideas.</i> They are a two-part discussion on antitrust: </span><span style="font-size: medium;"><a href="https://www.hoover.org/research/let-freedom-rein-big-tech" target="_blank">Let Freedom Rein In Big Tech</a> and <a href="https://www.hoover.org/research/populist-attack-big-tech" target="_blank">A Populist Attack on Big Tech</a>. I particularly like his conclusion:</span></div><div><blockquote><span style="font-size: medium;">The more regulations there are to enforce a government official’s idea of competition, the more likely it is that those regulations will hamper actual competition. Companies that give their own products and services an advantage in the marketplace are simply harvesting the value of an asset that they took big risks to create. Competition is dynamic, not static. But heavy regulation will make markets more static. Let’s keep competition dynamic by not penalizing successful competitors but by leaving the market open to alternative business models.</span></blockquote></div><div><span style="font-size: medium;">Do read the whole thing in both cases. </span></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;">He makes many excellent points--ones that I myself had in some notes for a future piece on antitrust. (Of course, he makes them much better and more fully than I could.)</span></div><div><span style="font-family: inherit;"><span style="font-size: medium;"><br /></span></span></div><div><span style="font-size: medium;"><span style="font-family: inherit;">Sometimes one must be patient for competition to work it’s magic. Just because a monopoly, oligopoly, or other sinister market-dominant firm seems entrenched today, does not mean it will always be or that the cost of immediate correction is worth bearing. </span><span style="font-family: inherit;">Forced correction may not even be feasible. </span></span></div><div><span style="font-family: inherit;"><span style="font-size: medium;"><br /></span></span></div><div><span style="font-size: medium;">At any one point in time there are a lot of reasons the world is the way it is. The challenge for the trustbuster is to know with very-high certainty that the current state of the market is suboptimal ("inefficient" is the eye-of-the-beholder term of choice) <i>and</i> that a better world can and should be achieved through government action. </span></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;">It is easy to conjure up a hypothetical better world because only in the wild through real-world experience, the so-called market test, do we truly discover all the constraints and tradeoffs. Comparing the unicorn to the horse is always subject to bias--imagined reality almost definitionally engages in willful blindness. But the trustbuster's Dunning-Kruger problem does not end there. The "can be achieved" is naively assumed through hand-waving theory. The "should be achieved" is generally ignored altogether.</span></div><div><span style="font-family: inherit;"><span style="font-size: medium;"><br /></span></span></div><div><span style="font-size: medium;"><span style="font-family: inherit;">In the realm of current worry, Big Tech (dunt, dunt, duh!), s</span><span style="font-family: inherit;">ee MySpace, Yahoo!, and AOL along with InternetExplorer, Mapquest, Garmin, Blackberry, et al. </span><span style="font-family: inherit;">Then consider Twitter, Facebook, and TikToc, along with Google, Apple, et al.</span></span></div><div><span style="font-family: inherit; font-size: medium;"><br /></span></div><div><span style="font-family: inherit; font-size: medium;">Also, remember when the government broke up IBM? Yeah, I don’t either. Apologists for activist government regulation will tell you the threat posed by the 13-year case that went nowhere is what reined in the highly-successful company, but this theory only works by willfully ignoring the fabulous work performed by IBM’s various marketplace competitors. Those quick to point out “you didn’t build it” rely on their own wishful agency when the real work is being done by those actually in the field. </span></div><div><span style="font-family: inherit;"><span style="font-size: medium;"><br /></span></span></div><div><span style="font-family: inherit;"><span style="font-size: medium;">Why in antitrust do we grant so much benefit of the doubt to regulators and so little deference to the world as it is? Are we just that willing and hopeful that a white knight can remake that which we suppose is in error? Is it just because we don't listen to master Yoda?</span></span></div><div><span style="font-family: inherit;"><span style="font-size: medium;"><br /></span></span></div><div><span style="font-family: inherit;"><span style="font-size: medium;"><br /></span></span></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjM7AWrUnD933Y1hmkxTyQhHhOsN0m0yKPL__jUvzmiyZiikXzmzQGV0H0dpCr7f-Oc0eO8IHzTi0UGp6SQ5gi8gkUrgdEDpmvuFJiTFxrjsBblL8tNxMOynGWSBeo2kg5hbA-sxroKQGCS7HAa3m2YTLfbFzjhcmcKKV-FNV9-zk8Y5hTZFFcsbrRY/s498/star-wars-yoda.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: medium;"><img border="0" data-original-height="279" data-original-width="498" height="224" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjM7AWrUnD933Y1hmkxTyQhHhOsN0m0yKPL__jUvzmiyZiikXzmzQGV0H0dpCr7f-Oc0eO8IHzTi0UGp6SQ5gi8gkUrgdEDpmvuFJiTFxrjsBblL8tNxMOynGWSBeo2kg5hbA-sxroKQGCS7HAa3m2YTLfbFzjhcmcKKV-FNV9-zk8Y5hTZFFcsbrRY/w400-h224/star-wars-yoda.gif" width="400" /></span></a></div><span style="font-size: medium;"><br /></span><span style="font-family: inherit; font-size: large;"><br /></span></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-73077914072831313772022-03-19T11:47:00.004-05:002022-03-19T12:08:44.523-05:00Sports Handicapping - The Next Iteration<div style="text-align: left;"><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">For over 100 years we have created divisions and categories for athletic competition. The original segregation for purposes of ability matching was by sex. Obviously there were other ones based on prejudices like racial divisions and socioeconomic status. While there were likely strong confounders like desire to keep out of competition from superior athletes who happened to be of a different race, etc., this was not a purely ability-based separation. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">Beyond sex-based categories, there have been many more separations to better group like-to-like competitors. For example, there are designations with the most distinct being professional versus amateur. High schools and colleges normally compete in certain divisions. Within sports there are weight classes (boxing, wrestling, etc.) and tours and qualifiers (golf, tennis, etc.).</span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><span>It seems to me the next step in this process is to fully</span><span> segregate sports by proven and expected talent regardless of sex. </span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span><span style="font-family: inherit; font-size: medium;">The recent case of swimmer Lia Thomas brings this to the forefront, but it is something that has <a href="https://en.wikipedia.org/wiki/Foekje_Dillema " target="_blank">been around for a long time</a>. It would come as no surprise that many historic female athletes we know of were somewhere on a spectrum of male-female that did not cut neatly between the traditional sex categories. It would further come as no surprise that there are a much larger number we never were given a chance to know of because they were not allowed/encouraged to compete. </span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span><span style="font-family: inherit; font-size: medium;"><br /></span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><span>Two recent pieces on the topic of Lia Thomas are instructive: The <a href="https://www.washingtonpost.com/opinions/2022/01/13/trans-women-sports-uncomfortable-questions/" target="_blank">first by Megan McArdle</a> asks the question </span>whether women’s sports should exist at all. The <a href="https://bariweiss.substack.com/p/watching-lia-thomas-win?s=r" target="_blank">second by Suzy Weiss</a> prods the awkward juxtaposition that this situation has created whereby those who would/"should" be expected to support a trans athlete are now those arguably harmed by it.</span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">These are undoubtedly rare cases, but we cannot dismiss them unless we are willing to blatantly exclude a meaningful group of potential competitors from participation for sake of forcing clear, hard lines where shades of grey actually prevail. Keep in mind that these edge cases are critical because those in question are generally vying for first place in the female category. If we want a world where we have two definitions of greatness, the actual fastest, strongest, best (almost always males) and the next group excluding the first, then we need to figure out where and how to draw that line between the two. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">Trying to draw the line on the basis of a single metric <a href="https://en.wikipedia.org/wiki/Caster_Semenya" target="_blank">like testosterone won't get us there</a> as this is multi-causal--there is no more a single athlete gene as there is an intelligence gene. Hence, sex phenotype works almost always until it doesn't either because of genetic edge cases or the more controversial transition cases. The latter is the news of the day and the very interesting dilemma we now face where reconciling two forms of inclusionary fairness have come into conflict. The former is how we know this isn't so easy as to say you can be a member of the club if you have always been a member of the club.</span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">So I propose the thought experiment of self determination (set and test and rethink rules and norms at the most local level practicable) and separation by capability regardless of sex/gender (<i>consider </i>eligibility based purely on ability in the specific sport or event). </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><span><span>Obviously this is change, which to sports fans specifically like humans in general is bad, very, very bad. But before you reject the proposal out of hand consider two points: For one, are we sure we want to have female-only competitions? Keep in mind this excludes a lot of males from enjoying a competitive forum with status. For another, are we sure males will want to compete with females? The stronger you think the answer to the first question is or should be "yes", the weaker is the concern implied by the second. </span></span><span> </span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><span>Would there be complications as well as manipulations including out-right fraud? In sports?!? Of course there will be. This is nothing new. But while it creates an opportunity for scheming, it forces a harder look at the processes we use to sort and match competitions. </span><span>This should result in better outcomes in the long term. </span><span><span>L</span></span><span>etting a hundred flowers bloom via open-minded exploration is the key to figuring out a new, stable equilibrium. If you doubt we can be open-minded about this exploration, you are totally ignoring why this is now an issue in the first place.</span></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">Beyond the risk of bad actors poisoning the pool of competition, the much bigger potential downside is that the disruptions will end women’s sports and perhaps even some men's divisions as we know them. This could be an outcome that means many kids and even adults don’t have a forum in which to play the sport they love and otherwise excel at even as it grants new opportunities to others in those forums (a point raised above). </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;">Yet again we are faced with the tough reality of tradeoffs. </span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div data-en-clipboard="true" data-pm-slice="1 1 []"><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjoh2ORdvgkDJGxcfjltyqvmPY4RA55n1KtTZplCat5FcvaobQPqo1-ltKk0L07yAIW_vEBAJzxVzOVfvu74d5kXHpZY_vnqcwWLW9DnD9QJsWVVkDOP7UYSoVEDgrqQCMCvIYeVzrGC1axSLBb2zqak-_HYYX90e0N0dxrFAG77dI3Bg9D_4Kv2rVh=s2371" style="margin-left: auto; margin-right: auto;"><span style="font-family: inherit; font-size: medium;"><img border="0" data-original-height="2371" data-original-width="1920" height="320" src="https://blogger.googleusercontent.com/img/a/AVvXsEjoh2ORdvgkDJGxcfjltyqvmPY4RA55n1KtTZplCat5FcvaobQPqo1-ltKk0L07yAIW_vEBAJzxVzOVfvu74d5kXHpZY_vnqcwWLW9DnD9QJsWVVkDOP7UYSoVEDgrqQCMCvIYeVzrGC1axSLBb2zqak-_HYYX90e0N0dxrFAG77dI3Bg9D_4Kv2rVh=s320" width="259" /></span></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><a href="https://commons.wikimedia.org/w/index.php?curid=29161952" target="_blank"><span style="font-family: inherit; font-size: medium;">By Noske, J.D. / Anefo</span></a></td></tr></tbody></table><span style="font-family: inherit; font-size: medium;"><br /></span><span style="font-size: medium;"><br /></span></div></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0tag:blogger.com,1999:blog-1551704922340140788.post-53085816299292017692022-02-28T21:26:00.001-06:002022-02-28T21:26:34.867-06:00Economic Sanctions - Failure in Theory and Practice<div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Imagine you are trying to change someone's mind. How would you go about it? What techniques would be effective? </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Imagine now you are trying to change a group of people's minds. The difficulty multiplies. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Now imagine you are trying to get a group of people to change their behavior or worse yet to get them to make active changes in their own status quo implementing changes that put them at high risk or involve great hardship. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">For instance, suppose you are strongly opposed to abortion. You believe it is morally wrong--it is the taking of a human life. Suppose you took political power and while you could not yet overturn the legalization of abortion, you could impose sanctions on those who engage or enable it. To bring about change you would like to cut off access to credit for those who have been a customer of or worked for an abortion clinic. This can't be done, though, because you cannot identify those individuals nor can you legally target them. But you do find a technicality in the law allowing you to target an area that has an abortion clinic. All those who live and work in that area suddenly cannot access credit or the banking system. <a href="https://twitter.com/punk6529/status/1494444624630403083?s=20&t=wsJhsHSOGPkUdOlpFchfIQ" target="_blank">This is crippling</a>.* </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Do you think this would be constructive to your ultimate cause? Think of those marginal or median voters. While they don't have a strongly-held position on abortion, they are not just caught in this crossfire--they are the target. You are aiming to harm them so as to bring about change. At the very least you are willingly harming them because the shotgun approach you are limited to forces the collateral damage.</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">If that is too politically charged for you, consider this. You are the mayor of Shelbyville. One of the things that really irks you is how many of your citizens root for the nearby town of Springfield's baseball team, the Isotopes. This isn't just a minor annoyance. Your administration is trying to support the local team and economy by building a huge new stadium complex for the home team. The lack of hometown support, though, is making this quite difficult. So what to do? You institute a blackout zone through an indirect tax. All broadcasters are subject to the onerous tax, $10,000/minute of broadcasting, for any broadcast of a sporting event of a team located more than 20 miles from the Shelbyville town center. Viola, problem solved, right? </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">The desire to have people change what sports team they root for is not going to be solved by force. Many people who never watched a single game before are likely to take up the cause <i>against</i> you. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Want to increase vaccine acceptance and injection rates? Well, you could . . . oh, we've been doing that experiment. I don't think it moved many needles [pun intended].</span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><span style="font-family: inherit;">We can extend </span><span>this</span><span> </span><span style="font-family: inherit;">hypothetical to all kinds of causes: disuse of fossil fuels, antipornography, zipper merging, etc.</span></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">The result is consistently and predictably emboldened and extended resistance. It is not human nature to succumb to external pressure. Any parent knows reverse psychology and distraction are the keys to getting a young child to change course. Tell them they can't, and the deviant battle begins. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">This thought experiment alludes to why economic sanctions applied by governments so often fail to achieve their desired ends. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><span style="font-family: inherit;">Setting aside all of the very important concerns about moral authority and moral culpability given who is actually harmed by sanctions, consider just if they should work to begin with. Stated differently, </span><a href="https://www.cato.org/policy-analysis/ineffective-immoral-politically-convenient-americas-overreliance-economic-sanctions#us-sanctions-law-practice " style="font-family: inherit;" target="_blank">why do they so often completely fail</a><span style="font-family: inherit;">? The do so because that's not how people change or how they are made to change.</span></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><span style="font-family: inherit;">So why do we do it? Partially it is a</span><span style="font-family: inherit;">ction bias, the fallacy of . . . something must be done . . . this is something . . . therefore, do it!</span></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">Perhaps more importantly it relies on social desirability bias. It <i>seems </i>like a strategy that is more humane than active warfare. However, it is arguably much less noble and less morally defensible as it targets noncombatants attempting to turn them into double agents. In an age of high-precision bombs, economic sanctions are carpet bombing combined with landmines. </span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjzLyxwbIMRaQl-ANTP2ndEduCpjbTfeKp2QazTh5ZBnSeyLlrTW6KIVFM0ixPrEswcMo6CMFaRmLRiu02GmyoYtJ3ccrpxYvHAlmoyZgNMvC9QpSinIAtnyXS9pYqAtNYG_0QoU6VbOsO_tv86sIYRikLisvTGKJXmZ7lmTQHEx9tGFasmdK7LNs0r" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: medium;"><img alt="" data-original-height="259" data-original-width="460" height="225" src="https://blogger.googleusercontent.com/img/a/AVvXsEjzLyxwbIMRaQl-ANTP2ndEduCpjbTfeKp2QazTh5ZBnSeyLlrTW6KIVFM0ixPrEswcMo6CMFaRmLRiu02GmyoYtJ3ccrpxYvHAlmoyZgNMvC9QpSinIAtnyXS9pYqAtNYG_0QoU6VbOsO_tv86sIYRikLisvTGKJXmZ7lmTQHEx9tGFasmdK7LNs0r=w400-h225" width="400" /></span></a></div><span style="font-size: medium;"><br /><br /></span></div><div style="text-align: left;"><span style="font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;"><br /></span></div><div style="text-align: left;"><span style="font-family: inherit; font-size: medium;">*Arguably the linked (trucker convoy and Canada's emergency response to it) is an example of sanctions that worked! But only in the narrow sense of getting the result of disbanding the convoy. I am not sure it won any hearts and minds on net. Rather I think it turned a lot of people against the government of Canada. It also was an arguably more harmful action than simple police action would have been. The greater harm is in the threat and concern of it being used going forward as a regular tool. In this way the actions of the Canadian government are not analogous to economic sanctions but rather analogous to escalating hot-war conflict.</span></div>Steve Winklerhttp://www.blogger.com/profile/01459744755172623107noreply@blogger.com0