Economics (6) Good Capitalism & Bad

Good reasonning requires precise language. While capitalism seems (to me) to have been what has enabled almost all advancement by humans around the world, I still hear people attack it as if it were their bane. People learn much of their vocabulary by observing uses by other people, which works imperfectly. Thus, many expect that capitalism is about everything that goes wrong instead of it being about everything (both good and bad). (This kind of confusion occurs with great regularity: “socialism” is where government controls the means of production, regardless of the political ideology; this feature is almost as prevalent as capitalism: I have never met a person who has dealt with any government that was not in some way socialist.)

I offer here a attempt to clear up some of the confusion by suggesting that capitalism can be practiced in either of two forms: “proper capitalism” (good) and “criminal capitalism”. This dichotomy is not as clean and absolute as I would like. I offer here some common examples of criminal capitalism:

  • when your gangsters show up and force people to work in your factory or mine
  • when you load a contract with fine print that significantly affects the exchange
  • when you lie about significant aspects of the deal, like who owns what you are selling or what attributes the product actually has
  • when you use insider information to disadvantage your trading partners
  • when you loot and pollute the environment, aka. the commons that is really owned by all of society

I suggest a simple litmus test for proper capitalism: you must be able to envision how every participant in your deal(s) can profit, that is, the value realised by the participant at the completion of the deal is seen by the participant as greater than it was at the beginning. Fools will deny that this is possible because they believe that life is a zero-sum game. But capitalism has generated great wealth for all of society by exploiting the win-win scenarios.

The primary mechanism by which capitalism generates wealth is the “free market” where the defining freedom is the freedom to decline (to not participate, to walk away). In a free market, people participate only if they see a profit for themselves. A properly regulated free market, with support from the legal system, generates so much wealth over time for all the participants (and, oddly enough, even the onlookers) as to affect the courses of nations.

Economics (4) Money

Money has been in use for thousands of years. A large majority of humans seem to be able to function with it. In the realm of psychology, it is referred to as a “secondary reinforcement”, and studies have shown that other animals, especially other apes, can deal with it. Despite all that, I am left with the view that few people actually understand what money is or why it functions as it does. A simple litmus test is to ask “is money a thing of value (worth)?”. True understanding shows that money is not inherently valuable.

The adoption of money, that is to say its use in commerce, did not spread quickly, nor was its evolution without rude surprises for its adherents. As I said earlier, the true need was for some improvement in efficiency and reliability in balancing exchanges of surpluses, or rather tracking the outstanding debts that arose from inequalities in those exchanges. The essential properties needed were as follows:

  • Scaleability — able to represent amounts of value owed from small to large
  • Granularity — able to represent amounts to arbitrary precision
  • Stability — able to retain its identity (the amount owed) over a sufficiently long time
  • Recognizability — able to not only be recognized by party to whom the debt was owed, but also by the party who owed that debt

An extra bonus for any system that permits such accounting to service exchanges between every pair of parties with surpluses to exchange.  This extension would impact all of the essential properties.  Getting such a system accepted by a sufficient portion of the population requires a long period of acclimation, with the system needing to evolve over generations of players.

Initially, a party learning to use money is unwilling to accept a lessor item in exchange.  Thus, the initial design of money must preserve the illusion that the tokens of money actually embody the worth imagined.  Numerous extreme events have shown over and over again that no material can have sufficient value to impart to the tokens the needed value without the value of the material being largely due to its role in producing those tokens (coins).  In the more general case, any commodity backing a currency is more valuable as the backing than it can possibly be in all other roles combined.  Yet, the illusion, or rather the delusion, of pieces of money having inherent value seems to be a requirement of the initial bootstrapping of monetary systems.

A functioning system of money permits exchanges of surpluses to be distributed over

  • multiple parties
  • multiple locations
  • multiple times

The system rewards its participants by

  • vastly increasing the opportunity to trade away a surplus before it loses its value
  • vastly increasing the opportunity to correct shortfalls in needed products
  • better matching
  • allowing much greater amounts of specialization
  • facilitating opportunities for diverse investing
  • reducing waste or loss via missed opportunities

Those rewards together with the enhanced efficiencies over the long term outweigh the increased risks from counterfeit currency, theft (it too benefits from the efficiency), or simple loss of tokens.

Modern currency is a fiat currency; it has value only in that the powers-that-be dictate that it has value. It seems to be a house of cards, but it cannot fall down because the agencies responsible adjust the supply to match the demand of a vibrant economy (parties cannot shift their trading patterns even as fast as the agencies can withdraw or redeem the currency). We have become dependent on patterns and practices made possible by fiat currency coming-into or going-out-of existence as is needed.

Even more strange is the discovery that money is not a thing, but rather a property of things. We have learned this at a gut or reflex level; we count up our assets by adding together cash, bank accounts, houses, corporate shares, insurance policies, etc; we trade with coins, paper bills, checks, credit cards, eftpos cards, stamps, coupons, etc. Credit cards actually work the reverse of most money systems, they create currency on demand and collapse it on payment — retailers can trade on payments before the customer has actually parted with with the assets.

Meta Thinking (5) Game Theory

Game theory is an area of mathematics, where patterns and models from entertainment (games), warfare, politics, economics, and probably other disciplines, were found to be common when stripped of distracting and irrelevant details; this is just as mathematics was formed by so stripping applications from numbers and geometry.  Just as an Unrestricted Analyst (UA) would master arithmetic, algebra, geometry, and calculus, so a UA should have some game theory in the tool box.

An informal introduction to game theory can spring out of comparing varying games of entertainment, as such games are already abstract models of problems from other disciplines.  One might readily jump to the study of probability and statistics (probStat) on exposure to only one variety of game.  To analyze the nature of a difference between two varieties of say either poker or bridge or pinocle, one needs to further abstract things to collect the differences into a unifying category.

Game theory is rather unique.  The models of games depend on mainstream mathematics, possibly with probStat and formal logic, but game theory also depends on models of players, complete with formulations of goals and “victory conditions” (how an analyst evaluates outcomes).  With models of players comes a dependency on information theory, for players in games differ extremely from the actors in chemistry, physics, electronics, cosmology, etc.  Players have intentionality, they do not do things just because they are allowed to; players analyze their situations and act in ways they expect will bring them closer to their goal(s).

Essential to analyzing a player is determining what information the player has, especially how the player views the nature of the game and its goals.

I find from the study of game theory that much benefit (and simplification of analyses) seems to come from dividing into two categories all games and all players.  Games are either zero-sum or they are not; players have goals that are self-centric or other-centric.  Most games we are aware of (ie. entertainment) are zero-sum to a greater or lessor extent, where zero-sum refers to the net impact on some resource by the actions of players; the net impact is zero in that every gain by one player is counterbalanced by a loss to some other player.  Very little of life is really zero-sum!

A player with self-centric goals is generally unconcerned by the actions of other players and victory is to end with more than some arbitrary amount (on some scale in the game).  [In real life, a self-centric goal might look like accomplishing more than one’s parents did.]  A player with other-centric goals is chiefly concerned with accomplishing more than the other players.  [In real life, a player with other-centric goals will generally welcome a loss if it is accompanied by greater losses to the other players; a player with such an other-centric perspective will commonly see situations as zero-sum when they are not.]


Politics (3) Colorado Cash

It does really seem that Marijuana is a gateway drug, although not in the sense that that claim was initially made.  In fact, as far as self-medication and recreational pharmaceuticals trends and causalities are concerned, it seems that cannabis in all its forms is as much of a gateway to other substances as is bubble gum.  The serious abuse gateways seem to be tobacco and alcohol.

My current claim about the gateway-ness of cannabis is more of a claim about behaviour patterns, especially as influenced by ill-considerred laws.  This was blatantly true back in the ’60s and ’70s, as so many of my cohorts mistakenly assumed that government lies (and make no mistake there — they were lies) about substance abuse were uniform.  To correct for the gross misinformation, we took to wearing buttons that said “Speed Kills” so that we were all warned that amphetamines were really and truly dangerous.  This warning also helped to establish a framework that substances being abused coverred a wide spectrum — experience with one was not a reliable indicator of how another might affect users.

Since cannabis was illegal, to get some one had to trade with people who might also traffic in other dangerous substances.  Thus marijuana openned the traffic gateway to other substances.

Today, the US federal government continues to force cannabis to maintain its role as a traffic gateway to illegal businesses even though it is legal to grow, trade, and consume in Colorado.

I suggest that it is time for Colorado to double down on its innovative policies.  I propose the formation of the Money Transfer Agency (MTA) of the State of Colorado.  The MTA would be in many ways like a bank, while being different enough to operate outside the federal banking laws.  It would operate like this:

  • Every account of the MTA must be owned by a single legal entity (person or corporation) established in the state, and have one or more registerred controllers who must have had a background check done.
  • Any entity (with or without an account) may deposit any amount of cash to any account.
  • An account controller may electronically effect transfer of funds to any other account.
  • An account controller may personally withdraw cash from the account.
  • The MTA may use money held in trust to acquire any sufficiently liquid bonds or notes issued by governments or their agencies within the state.

This arrangement would permit the following:

  • Cannabis consumers can open accounts, and make regular deposits.
  • Consumers can transfer money to retailers.
  • Retailers can transfer money to satisfy tax and regulatory demands at any level within the state.
  • Retailers, growers, and processors can transfer money to their respective suppliers.
  • Brokers can set up operations to receive money transfers, make cash withdrawals, and make payments to entities outside the state.

Such a system would simultaneously enhance growth of legitimate businesses while reducing exposure to both theft of the money and illegal transfers of product out of state.

CompSci (1) Pascal

This is my first rant about Computer Science topics because the programming language Pascal (by Niklaus Wirth) so offends me.  I had been misinformed about its origins and had thought it not only a bad language but that its faults were totally unjustified.  It seems that Niklaus started earlier than I had realised and could not have learned better from other efforts.  Thus, Pascal is simply an example of how good intentions can yield poor results.

Here is a list of some of what I see as the failings, or negative teaching impacts, of the design decisions made:

  • Pascal implementations were able to be made cheap (as in what it is worth) by specifying a one pass compiler.  The compiler could not know (or even guess) what the type signature of a function was until it saw the declaration or definition.  Thus, generations of programmer learned to write their programs upside down, defining a function before using it.  Had the language simply required a declaration before the definition, there would have been no reward for upside down programs.
  • The language provided for functions but not subroutines; the distinction being that functions were precluded from having an internal state that might affect the result returned.  Real computing needs, unequivocally, subroutines.  The trick to making a subroutine in Pascal is to have it depend on a variable that is outside the scope of the function.  Students working with Pascal learn quickly to make all such stateful variables global, as the uses of such subroutines depend on them being in a scope higher than all uses.  In the C programming language, such variables are declared in the routine, with the property “static”, and are thus hidden from all other code.
  • Even as stateful variables were mistreated in functions, they were mishandled by the compiler.  Generations of students learned to write active code to initalise the stateful variables.  In the C programming language, such initialization is handled at compile and link-edit (“ld”) time.
  • In the design of Pascal, clarity of intent was often sacrificed on the altar of programming purity.  The earliest high level languages had found it very useful to be able to combine multiple tests of conditions into one statement, and Pascal followed suit.  However, the rules for combining those tests were the exact opposite of what users really wanted.  A very common combined test would abort a program run when the tests were to check that an index was high enough, that that same index was low enough, and that the member of an array at that index had a specific value.  The user wanted to not check the member of the array if the index was out of bounds, but all parts of the combination had to be calculated.  In the C programming language, such combinations were specified to be checked in order and the checking is to “short circuit” (skip the remaining tests) as soon as the result is sufficiently constrained (using logic identities like “true OR anything is true” and “false AND anything is false”).
  • Pascal was supposed to protect programmers from bad practices, and to prevent programmers from circumventing the protections in it.  This objective had far reaching impacts.  In order to satisfy that requirement, the compiler needed to know all the intended linkages between every fragment of code that was to be combined into the final program.  The two most common responses by implementors and users were to either require all the sources be available to compile any one fragment, or to require that there be only one complete file.  Thus, a generation of students learned to build programs as one file.  This made Pascal like BASIC, in that both were toys, unsuitable for large serious projects, as neither had standard mechanisms for partitioning up a large program.

Economics (3) Surplus

Looking at reality through the filter of economics captures all of life with some additional false positives (things that we do not classify as alive but still seem to trade time and energy for material and energy).  Using investment as the filter eliminates the false positives at the expense of adding a far greater number of false negatives (most of life does not invest).  Evolution is at play, rewarding species that are predisposed to invest (predisposed either directly through genes or indirectly via thought).

A side effect of investment is that one might produce a surplus of a desired product (such as food), possibly in amounts beyond what the individual can consume.  It seems common enough for investing species to develop (in individual thought or in species wide genes) a protocol for sharing the occasional surplus with others.

In the simplest form, the genetically controlled protocol has no parameters and every incident is both like every other incident and at the same time independent of every other one.  The next rung up the ladder, if you will, is where each act of sharing affects the social standings within a community.  While I lack proof or references to supporting research, my crude thought experiments suggest that humans exhibit a range of mechanisms for long term profit from sharing, with the simplest being nearly indistinguishable from adjusting a single parameter that affects social standing.  I suggest that prior to adopting systems of writing, much effort went into rememberring every sharing incident (transaction) so as to, over a long term, balance out the net benefit to each party, with some of the “corrections” being more of sharing the deficits than sharing the surpluses.

One might think that a barter system would relieve the burden on the memories of the individuals in a community, but further reflection ought to highlight the immense difficulty getting exchanges to balance the values of what is being traded.  Given this limitation, one should expect that trading patterns in a community would be either between closely connected neighbors or be regularly recurring exchanges involving specialization (of skills or access to resources) or both. Some advances would be needed to enable communities (and civilizations), on more than a minimal scale, to practice, and profit from, specialization, investment, and exchange.

The reward for finding and using such advancements proved more than sufficient for several developments to come into practice, specifically counting (numeracy), writing (literacy), and money.  These advances were repeatedly discoverred around the world.

Economics (2) Investment

Investment is the oldest or first economic practice, even though the practice started long before we seemed able to do the economic analysis to justify it.  Perhaps, evolution selects for investment in that those who make investments are more likely to have descendants; such would permit investment to become more common without yet requiring that humans do conscience analysis.

In its simplest form, investment is doing work, expending time and effort, before it (the product) is needed.  In that very simple form, investment only changes long term outcomes to the most trivial  extent: most transactions are unchanged, some become more efficient, and some are wasted work.  The efficiency of investment grows as we see patterns in our transactions and anticipate needs before they become acute.

A very large impact can arise when some product or intermediary can be used more than once.  This situation is the an example of “economies of scale”, albeit at the very small end of that scale.  Some very early examples are: building a nest to use for more than one night (repeat use of a product), saving a rock that has been chipped in order to form a knife (repeat use of an intermediary product), planting a perennial crop (repeat harvest), and planting a field with seeds for an annual (parallel treatment of very many plants).

Studying and learning are among the most abstract investments, and may also have the largest  payouts.

Investments have build (or at least paid for) all the accomplishments of humanity.  They are also the foundation for almost all the other advancements in economics, including specialisation and trade.  I suspect that investment has some hidden costs, such as making war more common than it might otherwise be.

Economics (1) Life

This is the beginning of a new thread, economics. I see it as a study of life as seen through a filter, a defining filter. The patterns that show up when looking through that filter are both interesting in the abstract and relevant to directing our subsequent behaviour.

Distilling all human existence down to its most basic shows that our lives are a long series of transactions or conversions. We have a steady increment of time, we get one second for each second, such a trivial and obvious pattern. We have muscles to animate ourselves and have an impact on our surroundings. We have a series of needs, such as: food, drink, shelter, warmth, cooling, comfort, and safety. We use time and our muscles, in fact our whole bodies, to satisfy our needs. Of course, we have learned to use our brains (our minds) to increase our efficiency at getting satisfaction for the our expenditure of time and effort. We have learned to seek the maximum satisfaction for the minimum time and effort; this is the essence of economics.

Life is much more than can be seen through the filter of economics, but all the other pursuits depend on having resources beyond what must be converted (consumed) in order to sufficiently satisfy those needs on which we depend. This leads to a relationship, a pattern, of greater economic efficiency enables greater production of all esthetics, or in other words “economics funds the arts”.

Meta Thinking (4) Conspiracies

Given human nature and all the people who have ever lived, it seems likely that there have been millions of conspiracies spread unevenly over time, with most of them happenning recently. This means that we cannot issue a blanket dismissal of every claim to have discoverred one, even though it also seems that the majority of such claims are bogus. Thus the scorecard seems litterred with high counts of both false positives (bogus discoveries) and false negatives (undetected conspiracies).

Examining an example may provide illumination. Consider the claim that the moon landing in 1969 was faked. So many of the claims are focussed on the video images and some notion that producing fake images was some how easier than the actual effort could have been. While it is lots of fun to poke holes in these claims, it seems to be only a distraction with no hope of helping the poor fools who peddle them.

A much more complete rebuttal comes from going back to first principles. A conspiracy, by its very nature, is about secrecy, and not just at the time of the event, but forever. Secrecy is so very hard to maintain, and every additional person involved makes it harder. The moon landing event involved tens of thousands of people, regardless of whether it was real or faked; not quite enough to dump the claim yet.

Where the claim completely falls apart is in examining the audience for the event. Yes, the millions of viewers play a role, but most of them are just insignificant viewers. To understand, we need to look at the motivation for both the read event, if it happenned, and the illusion, if we were to suppose it was faked. The ordinary viewers in front of a family TV in the USA are a big part of the numbers but only a tiny part of that motivation. The principle target of the show was the masses of people around the world involved in the political competition between the USA and the International Communists. The family viewers may be easily duped (and are regularly), but the science and engineering communities around the world are much more discerning.

In this analysis, the video is actually relatively unimportant. The crux of the situation is the source of the radio (TV is just a special format of radio) transmission. Radio direction finding is technology that was already well understood in the 1930s. The spheroid shape of the earth, together with witnesses scatterred around the globe, means that faking the transmission would be detected immediately; do not doubt that the USSR would have pointed out such a glaring contradiction if the transmission had not been from the moon.

In summary, lunar landing deniers expect us to accept that tens of thousands of people worked for the USA to produce a fake video (along with the appearance of a functional rocket) that depends on a robot lander to get to the moon intact and operational, carrying either the video or a radio relay, in order to persuade the rest of the world that the USA is superior to USSR, and to reject International Communism. It seems so much more likely that the USA would risk scores of astronaut lives doing the real thing.

Meta Thinking (3) Epistemology

The dictionary at hand defines “epistemology” this way:

the theory of knowledge, esp. with regard to its methods, validity, and scope. Epistemology is the investigation of what distinguishes justified belief from opinion.

It is such a shame that this discipline is not officially  included at all in the standard public education.  I would want at least a several week long mini-course as a requirement for a publicly funded education.  Such coverage might still not help people discern which sources should be given more credibility, but it couldn’t possibly hurt in that regard.

Philosophers might reject my claim but I consider epistemology to be an import aspect of science.  How can you be sure that you have the power (the empowerment of science) unless you know how you know. You must either repeat every experiment so that you know that when you need it you will have the power to; or you need to be sufficiently assured that your sources are reliable.

All the scientists and engineers that I know do approximately the same thing: they cross correlate every bit of every model with every other bit of every model. This cross checking is usually done subconsciously except that the conflicts quickly bubble to the surface to be more carefully examined, and resolved. Some conflicts do not get resolved, and some of those become the basis of new research.

After decades of cross checking data and models in the hard sciences, many of us carry over the practice to all of our lives. I even question why anybody would fail to do this kind of checking, and why people continue to pay attention to sources that have repeatedly shown themselves to be faulty, especially news outlets like Fox News.