Month: October 2017

Most kids are conditioned almost from day one to obey arbitrary authority.  No one attempts to explain or justify the source of the parent or teacher’s authority; no consent is sought, and no choice is offered.

Schools demand complete conformity to schedules and activities, controlling everything from when and how long you get to think about what, to when you can eat and go to the bathroom.  The authority is entirely arbitrary.  The main fallback when kids question is, “because I said so”.

Kids are also conditioned to believe that, absent this imposed control, they would destroy themselves.  They’d be dumb, self-destructive, and socially disastrous if they weren’t controlled in every facet by whatever adult has appointed themselves an authority.  Nevermind how stupid, shallow, cruel, or petty that adult may be.

Eventually, kids begin to believe it.  They assume the world cannot function unless they blindly follow orders.  They assume they would hurt themselves and others if they were free.  They cannot see beyond the frightful comfort of conformity.

After nearly every citizen spends the first two decades of their life conditioned to obey authority without question, something odd happens.  People act surprised when those same citizens follow political strong men and seek legislative solutions for every problem.

The real wonder is just how rebellious and free humans still are after so many years of control and conditioning.

I’m reading The Creature from Jekyll Island and, WTF right now, and both are delightful.  Not just the content, but the writing.  It’s playful.  It’s fun, goes by fast, and makes me smile.

Playfulness is an underrated aspect of writing.  If it’s not an enjoyable aesthetic experience to read, that’s a missed opportunity!  I definitely enjoy writing more when I’m playful with words, but it can be hard to break out of the formal/serious rut.

I’m thrilled by the massive decentralization of everything going on right now due to software.  The internet got the ball rolling, and everything from music, movies, publishing, travel, apparel, and financial industries are breaking into smaller units and tapping into open source, peer to peer, and crowd based tech.

It’s easy to see the benefits of power shifting away from central governments and their monopoly business cronies.  But it should not be assumed that centralization, or large pools of resources, are inherently bad.  Centralized models have strengths and weaknesses just like decentralized models.  Economies of scale and lower information and transaction costs on one side, and slower innovation, bureaucratic bottleneck, and lack of variety on the other make bigger resource pools or corporations preferable in some instances, and less valuable in others.

The problem isn’t size or centralization in itself, it’s when those things are artificially incentivized or mandated and free market competition curbed.

Governments are the ultimate evil kind of centralization.  Utterly unfair and hopelessly inefficient.  This isn’t because of their size, but because they face no competition.  It’s hard to imagine an organization in the market surviving with size and centralization of government, but if it found a way to live on nothing but voluntary customers, there wouldn’t be anything bad about it per se.  You may or may not want to work at a very large centralized organization, but as long as it faces market competition and eschews coercion, it’s not harming the world or any individuals in it.

Perhaps Wal-Mart or Amazon wouldn’t survive in a fully free market.  Who knows.  But to the extent that they face market competition, there’s nothing bad about their bigness or centralization that should make us want to end them.  Any downsides present entrepreneurial opportunity to newcomers, and powerhouse companies are not safe forever.  Markets are relentless.

Markets, if left free to operate, always push resources toward their highest valued use.  Whether that’s dispersed to a million mom and pop shops or a few dozen large organizations or a mix of both and everything in between, the important part is a free market that lets things flow.  It doesn’t much matter where resources are and in what concentrations at any given time; it matters that the process remain free and open. This maximizes the possibility for benefit across society and on the individual level.

I’m 34 today.  I always looked at 34 as a milestone, since my dad got in a car accident at 33, and of course Jesus was crucified at 33.  Making it to 34 feels like reaching some kind of safe zone.  I’m invincible!

Read an excellent essay from Venkatesh Rao this morning about two ways to defining intelligence.

The common definition is purely functional.  Intelligence exists to accomplish tasks.  The sooner they are done, the sooner you no longer need to engage your brain in thinking.  This is a kind of nihilistic way to define it, as the point of thinking is to get to the point of not needing to think.

The other definition is about thinking as a means of enjoying life.  You think because it’s interesting, and makes life more pleasurable.  The longer you can engage in pleasurable thought the better, and to cease playful inquiry is to become a mineral or die.

Interestingness is vastly underrated.  I began reflecting on various people and sources of information I enjoy and don’t enjoy.  It hit me that those I enjoy are diverse in subject matter, style, etc. but share one thing in common: the person sharing it seems to really enjoy thinking their thoughts.  Those I don’t like as much all share the opposite: the person sharing it seems to be performing the function of thinking and sharing the thought without really being enraptured by the process.  They just sort of do it to get it done.

This doesn’t mean functional thought or action is bad.  It’s crucial.  It’s necessary.  But it’s not sufficient for a life worth living.  You need functional AND interesting/enjoyable thought and action.  Functionality and interestingness/enjoyability don’t have to embody the same thought or action (though it’s a blast when they do), but you need both.

I’ve always been fascinated and baffled by the relationship between smell and memory. All senses can remind me of past events, but a fleeting scent has the power to take me back farther, faster, and clearer than other sensory phenomena.

Today we were walking past beach houses and one was being rebuilt. Sawdust mixed with cigarette smoke hit me faintly for a split second. Snap. I was back. I could hear the crass lunch-break conversation, feel the slivers in my fingers, taste the half stale peanut butter sandwich I’d packed in my dirty plastic cooler. I travelled 18 years into my past to my old construction job. I loved that job.

Moments like these make me wonder where that detailed, crystal memory resides the rest of the time, and how exactly it was triggered and released to my conscious mind. What other memories and associated smells are in there, awaiting the correct smelling key to unlock them? Could I go through a smell catalogue to see what else I remember? If my nose breaks, are those memories lost forever?

Pete Leeson’s wonderful new book, “WTF?!” (review coming soon) is cathartic reading.  Especially after reading some papers and comments by behavioral economists and their ilk recently.  Everyone loves to throw around examples of humans being “irrational” to prove that the economic method, or rational choice theory, is of limited application and doesn’t apply to real humans who aren’t calculating machines.

This is an elementary error in understanding what “rational” means to a (good) economist.  In common parlance, the word has a lot of meanings.  It’s loosely used to refer to reasonable, sound, understandable, or coldly scientific behavior.  In the context of rational choice theory, however, it has a much simpler meaning.  Rational action is any purposeful action taken to achieve an end desired by the actor.  Here, every deliberate action is rational.  Based on the preferences, information, incentives, and constraints an individual actor faces, they will act in a way preferable to perceived alternatives at the time of acting.

This understanding of rational choice is the foundation upon which Mises built his entire magnum opus, Human Action, and from it spring everything from demand curves to the structure of production.

When defined in this way, most people will dismiss the idea of rational action as useless.  It’s just a tautology.  Sure, whatever a person chooses must, by definition, be the thing they preferred to other perceived alternatives at the time of choosing, otherwise they wouldn’t have chosen it.  So what?  Isn’t that like saying ‘A is A’?

Yes, kind of.  And the law of identity is one of the most important tautologies in the world.  You can call it simple or obvious, but you’d better not ignore it or forget it is always and everywhere true.  It’s the same with rational choice theory.

Many of the same people who call it a useless tautology go on to make claims that contradict this ‘obvious’ truth.  Things like, “People are just crazy/irrational/greedy” and therefore outside the reach of economic analysis.  Or, “Humans have biases, therefore ‘homo economicus’ is unrealistic, therefore economics can’t explain human behavior.”  Of course economics never seeks or claims to explain motives, or why people have the preferences, information, incentives, or constraints they do.  It only seeks to demonstrate that, given these, their behavior is rational.

The power of this approach is staggering.  When “That’s just crazy” isn’t an option, humility and curiosity replace fear and ignorance.  If, given the preferences, information, incentives, and constraints, all purposeful human action is rational, we can’t get off the hook with hand-waving or invective adjectives.  We are forced to ask, “What are the preferences, information, incentives, and constraints facing this actor?”  That is where the real understanding comes!

If you want to see different actions, by yourself or others, you needn’t hopelessly appeal to “just because it’s the right/better thing to do”.  Instead, if you understand information, incentives, and constraints, you can try to alter them so that the rational choice for a given person’s preferences is closer to the choice you’d prefer.  It’s easy to see this in government policy, but it also applies to daily individual life.

I’ve always liked the description of faith not as believing something despite all evidence to the contrary, or believing something that conflicts with logic.  That’s just stupidity.

To me, faith is continuing to act on a belief you formed using your full logical powers in a moment when emotion tempts you to do otherwise.  It’s faith in your own ability to arrive at a sound conclusion, and faith in your former resolve to stick with it even when it becomes costly.

When you commit to diet or exercise or daily blogging, if you do so for sound reasons based on real knowledge of yourself, your goals, and a causal connection between those activities and your desired outcomes, you will need faith to stick with it.  There will be moments and days when the little voice says, “What’s the point of all this anyway?” or “One day off won’t hurt anything”.  In that moment, you won’t have a clear rejoinder.  You might be tired or drunk or angry, rendering your reasoning faculties sub-optimal.

It is in that moment that you need faith.  You must act on a firm belief that at the time you set the challenge before yourself, you were thinking clearly and you do have good reasons, even if not readily accessible in the height of emotion.

Faith is pro-reason, not anti-reason.

Money is a lot of things.  Predominantly a unit of account, a store of value, and a medium of exchange.  We’re quite used to these functions being split up and handled by different tools.

Dollars are a medium of exchange in some countries.  They are a unit of account in some countries.  Sometimes they are one without the other, sometimes they are both at once.

Dollars aren’t really a store of value in the U.S.  If you have wealth, you put it into stocks, bonds, real estate, gold, antiques, or other assets or financial instruments, since the relative value of your cash in the bank is likely to decline.

In countries whose governments inflate faster than the U.S., dollars are sometimes used as a store of value, as are gold and a number of other things.  The problem of storing value is much more difficult in poorer countries and places with very onerous financial regulations and where most people are unbanked and lack access to financial services.  Wealth is literally inflated out of people’s pockets before they can do anything about it.

Bitcoin emerged as the ultimate money.  It satisfied the key criteria of money better than anything humans have used to date (Hard to counterfeit, uniform, divisible, scarce, durable, easy to store, portable).

The early coders who discussed and tested it had a grand vision.  They saw Bitcoin supplanting government controlled money and financial systems.  They believed it would unite the three main functions of money in one.  It would be a store of value, since it’s capped at 21,000,000 BTC, and even unbanked people can use it.  It would be a global unit of account, since borders and central banks couldn’t regulate it away like national currencies.  Soon other currencies and commodities would be denominated in BTC.  And it would be a medium of exchange, since no trusted third party is required to verify purchases, and it’s more divisible and portable than any currency to date.

The mind-blowing implications of uniting these three functions of money are fun to consider.  Can you imagine a world in which Keynesian schemes to stimulate spending and sap savings fail, because people see the real value of holding BTC vs. spending it?  The capital accumulation available to all would be immense, and consumption would be weighed against the real cost, not obscured by artificially cheap credit and devaluing currency.  The simplicity of accounting and global trade would be nuts.

But this might not be possible.

As Bitcoin grew, it seemed harder to imagine it uniting all three key functions of money.  Many people saw a choice.  Whether or not it’s adopted as a unit of account, it had to choose one of the other two attributes.  It could be a store of value or a global medium of exchange.

Why the choice?  Bitcoin requires a lot of computing power to verify transactions.  This is one of the things that makes it hard to counterfeit and free from trusted third parties.  To be used as a global medium of exchange, Bitcoin would have to process thousands of transactions every second.  This means larger “blocks” of data to be handled be miners, which would lead to larger server farms or mining pools handling most of the network.

Many fear this kind of agglomeration would threaten the security and freedom of Bitcoin, as bad actors or governments would have fewer parties to bribe or coerce.  To remain as distributed as possible, the blockchain must maintain small blocks and therefore can never process more than a few transactions a second, with higher fees and confirmation times too slow for daily commercial exchange.

This is the tech objection to Bitcoin as a global medium of exchange.

There is an economic objection as well; a belief that the increasing value of BTC means no one will ever want to spend any so it can’t be used for small exchanges.  This objection falls apart rather easily, as there is a positive time value to money, and people won’t starve to death with a wallet full of BTC.  Spending may not be as profligate as it is under rapidly devaluing currencies today (this is not a bad thing), but spending would still occur and market rates for spending vs. holding would emerge, as well as ways to borrow against your BTC so you could spend now while not losing future value tomorrow.  Also, just as people spend, they would also be earning.  It’s not as if people today only ever lose cash holdings.  They add to and detract from them regularly.

Is the tech objection a deal-breaker for the bold dream of an all-in-one money?  Probably not.

There are two main solutions currently being debated by people in the Bitcoin community. (I don’t recommend weighing in unless you are prepared for comical levels of invective and ad hominem.  It turns out, people are very emotional about which of these two solutions might work better).

The first approach is to accept that Bitcoin itself will always only be a store of value, or sort of reserve currency for the world in ways similar to gold, but more portable.  It will be a “settlement layer” undergirding the global financial system, replacing clearing houses and other mechanisms used by banks to make large transfers.  The high fees and slow confirmation times mean transactions more numerous or smaller than these massive settlements don’t make sense.  Some businesses are using Bitcoin in this way already today.

Under this approach, while Bitcoin itself wouldn’t be used as a global medium of exchange for daily purchases, it would provide a backbone upon which additional layers of fast, low cost, efficient payment processing could be built “off-chain” and only occasionally settled on the big blockchain.  Any number of Altcoins or Bitcoin apps could be used as payment processors, just as today we use myriad forms of payment processing for dollars (credit cards, PayPal, gift cards, store credits, etc.).

The second approach is to increase the size of blocks mined on the network so that Bitcoin can handle thousands of transactions per second.  This seems to be the idea that the original inventors of Bitcoin had in mind, as they assumed that computing power would continue to increase and that large agglomerations of miners would not be a major threat, as their economic incentive was to keep Bitcoin valuable, and allowing any kind of take-over would destroy it and their own ability to profit.

The two approaches above are, from my understanding, what led to the ‘hard fork’, when a new currency called Bitcoin Cash split from the main chain to continue down the path of larger and larger blocks to keep transactions fast and cheap with the vision of becoming both a store of value and a global medium of exchange.  The other chain, sometimes called the legacy chain, instead added something called SegWit that helps improve speed and lower fees, but doesn’t increase the block size…at least for now (there is a debate raging about whether to double the block size on the legacy chain, or hold it constant at 1MB.  Bitcoin Cash has an 8MB size and, from my understanding, it will continue to increase as needed).

I have no idea which approach is better.  Luckily, I don’t need to know.  We have both experiments, and probably more to come, so the individuals in the market can try them out and different solutions will emerge for different problems.

One interesting note is that both approaches want a money free from government control.  Both claim (for good reason) to be continuing the original vision for Bitcoin.  They both also want decentralization, but I think they define it differently, or worry about centralization in different ways.

Those who favor small blocks, where Bitcoin is a settlement layer, fear the centralization of Bitcoin miners they expect if blocks grow.  To them, the best way to avoid central control is to have as many people as possible running the software.

Those who favor large blocks, where Bitcoin is not only a store of value but also the global medium of exchange, fear the centralization of off-chain layers which often require trusted third parties and may be easier for governments to control and shut down.  They also fear lower adoption rates if Bitcoin is only useful by large institutions for massive settlements.  To them, the best way to avoid central control is to have as many people as possible using the currency.

I’m not a tech guy, and I’m sure I’ve used incorrect verbiage and possibly badly mischaracterized the tech.  I tried to be honest and charitable about the two approaches, and I think I get the basic economics underlying both.  I wrote this as much to sort through my own thoughts and come to grips with my own understanding as anything else.

I had to have a dramatic title if I’m going to muse about a dramatically titled piece in The Atlantic!

The Coming Software Apocolypse

It’s a long but interesting article if you like discussions on software, or if like me you love the series Breaking Smart.

A few scattered thoughts as I read it:

• I’ve always thought it was dumb and barbaric how coding is done, without any WYSIWYG or visual editors to speak of, and often wondered how long until coding is a useless skill when better platforms for building software in a more tactile way come along (Mario Maker is the highest form of software construction!).
• Reminder of why open source code is so awesome, and many of the problems referenced in the article seem to be solvable without overhauling coding if it more of it was just made open source.
• It made me laugh at how easy it is for humans to overblow and focus on the big scary problems presented by new tech while overlooking the far greater life-saving benefits on the other side of the ledger.
• Condescension and hand-waving about the best programming minds focusing on commercial solutions to “everyday problems” instead of “more important” research made me laugh too.  Quality of life improvements come in many forms and ripple in unexpected directions, and who’s to say Uber benefits society less than a new tool for cancer research?
• Several people with great criticisms of status quo a little too eager to try to pick one new Grand Vision instead of just offering many in the market.
• Made me ponder the psychology and emotional health of coders.  The intense reactions to proposed changes in the way the work is done seem overboard.  I wonder if the fact that many programmers were nerds or outcasts in the education system has created emotional baggage, or the fact that they are now respected and in control makes them very reticent about anything that would reduce the importance of coding.  Hackers are the new royalty in society, but it’s a strange combo because most grew up as outcasts and then became the cool ones, so they have an odd insider/outsider combo (Peter Thiel talks about this).

Are we entering a future where code is not the dominant interface between designer and design?