Why I Haven't Changed My Mind About Bitcoin
Joe Weisenthal announced Sunday that he's changing his mind about Bitcoin. I am not.
My primary interest in Bitcoin is that I think it's a great platform for making jokes. So, for example, Sunday night I made a joke about how for all Bitcoin's exciting appeal as a medium for conducting illegal transactions, paper money also does this well.
Then I got a reply:
@mattyglesias strong anti-counterfeiting measures? Let me introduce you to the federal reserve-- Chris Rossini (@ChrisRossini) December 2, 2013
I think that about sums Bitcoin up. It is a 21st-century version of gold whose primary appeal is as a speculative asset purchased by people with an irrational fear of inflation.
That's not to say Bitcoin is a "bubble" or Bitcoin prices will inevitably tumble or everyone who buys Bitcoin is a fool. Plenty of people have made money at different times by buying gold.
But Bitcoin's other properties aren't particularly impressive. It is being used right now by Chinese people as a means of evading that country's exchange-rate controls. That's clever. But it's really something that only works if the Chinese government keeps tolerating it. And there are any number of loopholes that work as long as they're tolerated. Perhaps the most famous one is that you can use RMB to buy chips at a casino in Macao and then after gambling a bit you can cash those chips in for Macao money that isn't subject to exchange rate controls.* I heard in Hong Kong that some wealthy Chinese people are using Hong Kong real estate as a kind of loophole. My guess is that China probably won't crack down on these loopholes too hard because the Chinese government is in the process of liberalizing the exchange rate controls and lax enforcement of loopholes is part of that process. But eventually we'll either get liberalization (in which case Bitcoin-as-loophole stops being useful), or else we'll get a reversal of policy in which case we'll get a crackdown.
Black-market transactions are a thing, though. And Bitcoins are more portable than either suitcases full of $100 bills or diamonds. So there's some use there. And even though I think inflation paranoia is dumb, it's certainly a real phenomenon. And anything gold can do Bitcoin can do better. In essence you've combined the smuggling utility of pieces of paper with pictures of Ben Franklin on them with the inflation hedging properties of gold. That's a decent achievement. But it's not going to set the world on fire. And to the extent that it becomes more popular as a means of conducting illegal transactions, it's going to tend to get squeezed out of legitimate uses by government crackdowns.
Correction, Dec. 2, 2013: This post originally misidentified the Chinese currency RMB as RMD.
How Inflation Helps Heal Financial Crises
Guillermo Calvo, Fabrizio Coricelli, and Pablo Ottonello take a look at emerging markets that experience financial crises and conclude that inflation helps restore full employment. Inflation is, of course, associated with exchange-rate depreciation. But their statistical tests tell them that "neither the change in the real exchange rate nor the change in output composition (tradables/nontradables), from output peak to recovery point, displays a statistically significant relationship with inflation or jobless recovery." That is to say that exchange-rate depreciation is an effective strategy for employment rebound just insofar as the depreciation is inflationary, not through any kind of magical immaculate process.t
The United States is not an emerging market, of course, so these findings may not be relevant to us. But I suspect that they are, and when you hear things like the Baker/Bernstein proposal to use exchange-rate policy to create full employment you should hear that as "create moderate price inflation."
But what Calvo, Coricelli, and Ottonello's paper really does is give us insight into the political economy of crisis recovery. The upshot of inflation as a stabilization strategy is that inflation-adjusted wages fall on average, but the number of people with jobs (and thus aggregate national income) goes up. So when a crisis hits a country like Brazil or India, you have a class conflict in terms of optimal response policy. People with very stable jobs—civil servants, doctors, major landowners, etc.—may prefer a period of high unemployment to a period of high inflation. But people more tenuously situatated—landless workers without important education credentials—will be better off without the spike in joblessness.
That said, it isn't just class conflict. Opting for a low-inflation, high-unemployment policy makes the pie smaller. Leftist types are often accused of overprioritizing distributional questions over economic growth, and perhaps that does happen. But when national elites opt for low inflation and high unemployment as a crisis-adjustment policy, they're making the exact same mistake in service of different distributional goals. Price stability über alles preserves the purchasing power of insiders (they can still afford to import both BMWs and the gasoline to fuel them) at the expense of overall national prosperity.
Predictions About the Web From 1995
Here's a very funny 1995 Newsweek piece by Clifford Stoll debunking all the hype about the World Wide Web.* I think it serves as a useful antidote to a certain genre of writing popular on the Internet today where people poke fun at excessive techno-hype from Silicon Valley types:
After two decades online, I'm perplexed. It's not that I haven't had a gas of a good time on the Internet. I've met great people and even caught a hacker or two. But today, I'm uneasy about this most trendy and oversold community. Visionaries see a future of telecommuting workers, interactive libraries and multimedia classrooms. They speak of electronic town meetings and virtual communities. Commerce and business will shift from offices and malls to networks and modems. And the freedom of digital networks will make government more democratic.
Baloney. Do our computer pundits lack all common sense? The truth in no online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher and no computer network will change the way government works.
Consider today's online world. The Usenet, a worldwide bulletin board, allows anyone to post messages across the nation. Your word gets out, leapfrogging editors and publishers. Every voice can be heard cheaply and instantly. The result? Every voice is heard. The cacophany more closely resembles citizens band radio, complete with handles, harrasment, and anonymous threats. When most everyone shouts, few listen. How about electronic publishing? Try reading a book on disc. At best, it's an unpleasant chore: the myopic glow of a clunky computer replaces the friendly pages of a book. And you can't tote that laptop to the beach. Yet Nicholas Negroponte, director of the MIT Media Lab, predicts that we'll soon buy books and newspapers straight over the Intenet. Uh, sure.
This comes via Chris Geidner. And to give Stoll his due, the Web hasn't lived up to the full maximum capacity of its dreams. Relatively few people are full-time telecommuters, for example, and efforts to genuinely replace traditional teaching with online instruction have been disappointing so far. But already we're at a point where computer networks have changed the way government works enough that the inability to execute a major IT procurement initiative correctly has been the dominant political story of the fall. The publishing and media industries have been completely transformed. Almost everyone who learns things uses the Web as a useful supplement to classroom instruction.
Correction, Dec. 2, 2013: This post originally stated that Clifford Stoll's article appeared in Time magazine. It was published in Newsweek.
Drones Could Be Amazon's Undoing
Tonight on 60 Minutes, Amazon CEO Jeff Bezos announced rather hazily that the company is working on trying to hone unmanned aerial vehicles as a last-mile delivery solution that could make ultra-fast same-day delivery a reality. There's no real timeline attached to this vision, but there is a snazzy video. Check it out:
On a business level, I think the interesting thing here is not so much the opportunity for Amazon as the threat. Suppose some robotics firm somewhere develops quadrotor drones that can reliably execute parcel delivery missions over the relevant range for a metropolitan area, and the product becomes broadly commercially available. Amazon would be facing a pretty major disaster. Suddenly every Walmart and Target and Macy's in America would be equipped with a small fleet of drones, and all the hard work Amazon's done over the past 15 years to be the leader in online ordering and fulfillment would be for naught.
America's brick and mortar retailers are currently desperately scrambling to make something like this happen, but they're hampered by their reliance on human delivery. The question is whether "good enough" drones will be available before Amazon manages to put all these companies out of business.
Unless Amazon itself can be the company that develops the drones.
Black Friday Sales Tell Us Nothing About The Economy
Last fall, Capital Economics published a very useful chart reproduced above that should adequately debunk any notion that Black Friday sales volume is a useful economic indicator.
What this says it that there's a slightly negative correlation between Black Friday sales and total holiday sales. I wouldn't read too much into that negative result, but the message is pretty clear. People spend what they're going to spend on gifts during the holiday season. What happens specifically in the days immediately following Thanksgiving is probably driven by the weather, regulatory changes, etc. For example, I'm sitting in my dad's living room right now and have no particular intention of leaving any time soon. If it were warmer, I'd probably go for a walk and check out some stores.
A related point is that Black Friday hype stories often include the factoid that consumer spending drives 70 percent of total economic output. That is true, but what the hypesters don't tell you is that paying the dentist to fill a cavity or paying an fee to your bank to use an out-of-network ATM counts as consumer spending. Which is to say that household consumption is a very large share of the economy because household consumption is defined as being a very wide range of activities. What we think of as "consumer goods" (shirts, toasters, Playstations) is only a fraction of total consumption.
City Politicians Shouldn't Target Cheap Gas
District of Columbia law prevents gasoline stations from also selling alcoholic beverages. But when Costco decided it was interested in setting up an operation in DC earlier this year, city officials were eager to have them. So they agreed to a loophole. Costco could get a license to sell liquor and beer and wine, and rather than operating a gas station on the property Costco would divide the lot, with a small portion of it owned by a separate firm that happens to be a wholly owned subsidiary of Coscto. Thus both the gasoline and the booze can flow.
Naturally, DC's other gasoline retailers are upset and now a furious lobbying battle is under way largely between Coscto and a Virginia businessman named Eyob Mamo who's the biggest player in the local industry. Read Mike DeBonis's excellent feature on this for all the details.
In terms of the policy fundamentals, I think the issue here that local officials need to grapple with is whether they want the retail price of gasoline to be lower or not. The alleged rationale for the "no booze at the gas station" rule is to prevent drunk driving, which makes very little sense given the practicalities of urban geography. The real impact is to make both gasoline and alcohol scarcer and more expensive than it would otherwise be. By forcing convenience store operators to choose between selling gas and selling beer, you get less competition in both industries. Reducing alcohol consumption is arguably good public health policy and reducing gasoline consumption is definitely good environmental policy, so the actual pre-Costco outcome wasn't crazy.
But it is a somewhat absurdly inefficient way of achieving either of those goals. The sensible thing to do would be to let everyone have the same deal as Costco where you can sell gas and booze simultaneously, but raise the gasoline tax and possibly the tax on alcohol as well. Then you could use the revenue to cut the regressive regular sales tax or boost the EITC slightly or whatever else.
China's Sensible Infrastructure Boom
China is an extremely large country with over triple the population of the United States of America. It's also got a moderately corrupt government and a massive surge in infrastructure investment going on. Under the circumstances, there are doubtless dozens of ill-conceived projects under way on any given day. But I am astounded by the regularity with which things I see western observers denounce as examples of excess end up looking quite sensible.
Consider Shenzhen's new Terminal 3 which everyone seems to agree is great, but which Simon Calder says "could prove a white elephant" given "overseas airlines' appetite for flying to the city as opposed to the more established nearby hubs."
Specifically he notes that Shenzhen's airport "suffers from the proximity of Hong Kong airport, with which it has a direct ferry connection" as Hong Kong "handles twice as many passengers, with vastly more international destinations."
So how about that Hong Kong airport? Well, it turns out that Hong Kong's airport is so popular that it's running out of capacity and the airport authority wants to build a third runway. Given the geography of the airport it's a challenging engineering task that will cost over $17 billion and take at least eleven years to complete. Under the circumstances, it seems to me that it makes perfect sense for the nearby city of Shenzhen to be expanding and upgrading its own airport. Calder says the alleged white elephant in Shenzhen cost just $1 billion to complete which certainly makes it look like the cost-effective way to expand local airport access. It is no doubt true that many airlines, especially western ones whose customers may not even know what Shenzhen is, will prefer to fly to Hong Kong. But a terminal that exists today (as opposed to in 2024) and that cost $1 billion to build (rather than $17 billion) is naturally going to have some attractions.
Meanwhile, Hong Kong aside Shenzhen's urban population of seven million makes it a bit larger than the Dallas-Fort Worth metro area. Slightly smaller American cities such as Houston, Philadelphia, Miami, Washington, and Atlanta all have their own major airports. Why shouldn't Shenzhen? Historically it hasn't needed one because Shenzhen's been poor and close to Hong Kong. But with Hong Kong's airport full and China getting less-poor by the day, this seems like a great time to rectify that. For now Singapore, Bangkok, Seoul, and Tokyo seem are the only international destinations served by the airport. But is it really so crazy to think a city of seven million will want to be able to fly to Hanoi, Manila, Jakarta, Kolkata, Kuala Lumpur, Syndey, Dubai, Karachi, and Los Angeles without needing to first drive to the overcrowded airport in the city next door?
The Obamas Are Eating Nine Kinds of Pie For Thanksgiving
Per the White House press office, the First Family's Thanksgiving dinner tonight will feature a staggering nine kinds of pie—huckleberry, pecan, chocolate cream, sweet potato, peach, apple, pumpkin, banana cream, and coconut cream*. They are also elegantly sidestepping the whole does turkey taste good controversy by serving turkey and honey-baked ham. Cornbreadstuffing or oyster stuffing? Why choose, the Obamas will be serving both.
Mac and cheese, greens, sweet potatoes, mashed potatoes, green bean casserole, and dinner rolls round out the roster.
It all sounds delicious and is a potent reminder that an in-house chef and cooking staff seem like a really great perk. Along with the airplane and the ability to appoint Federal Reserve governors, one of the top reasons it would be cool to be president. No word on whether Think Progress will be condemning the Obamas for making people work on the holiday.
UPDATE: President Obama's most extensive remarks on pie came during the 2008 campaign.
* Correction: November, 28: An earlier version of the list omitted cocounut cream pie.
Chicken > Turkey
Every Thanksgiving a tedious debate erupts on the Internet between joy-killing trolls who argue that turkey is a bad food to eat, and sentimental liars who claim to think turkey is delicious. But you can actually just look this up. Not only is turkey not delicious, nobody thinks that it's delicious. The numbers don't lie.
Consider these striking facts from the U.S. Department of Agriculture's National Agricultural Statistical Service's latest report on poultry production (PDF).
It reveals that in the United States in 2012, we produced a staggering 49.5 billion pounds of chicken meat worth an aggregate of $24.8 billion.
By contrast, we raised a paltry 7.3 billion pounds of turkey worth just $5 billion.
If everybody likes turkey so much, then why aren't you buying any? Now don't get me wrong, I'm not saying the masses are always correct. Lamb, for example, is both delicious and unpopular in the United States. But here at Slate, we think it's very important to be clear on what's a contrarian take and what's the conventional wisdom. And the conventional wisdom is that turkey is bad and you should eat chicken if you're interested in some not-very-flavorful poultry. People eat turkey on Thanksgiving because it's traditional, but people do not enjoy eating turkey.
One Seattle Suburb Just Instituted a $15 Minimum Wage
SeaTac, Washington a town of 27,000 people situated around SeaTac Airport, just voted to implement a minimum wage of $15. This is naturally exciting news for proponents of high minimum wages, and Danny Vinik is naïve enough to think it’s good news for people who like evidence-based policy since it will allegedly give us a useful natural experiment in the impact of minimum wage hikes.
Except it won’t. People are rarely persuaded by empirical evidence on hotly contested political issues precisely because persuasive empirical evidence is rarely forthcoming.
For example, suppose that we seem to have evidence that job growth slowed in the wake of this measure. The obvious retort is that SeaTac is a micro-jurisdiction—just 10 square miles—so the fact that a handful of fast-food joints decided to open just outside the city limits rather than just inside doesn’t tell us anything about bigger policy issues.
Or suppose that we seem to have evidence that job growth has been robust in the wake of this measure. The obvious retort is that SeaTac is a micro-jurisdiction built around the airport. There’s so much sunk capital in that airport that, as an idiosyncratic matter, the negative impact on growth and investment is too small to perceive on a short time frame.
Either way, everyone will stick with their priors and everyone should stick with their priors because the evidence will be very weak.
It’s no surprise that on the minimum wage, the big actors are actors for whom the empirical dispute about job creation is irrelevant. Even under labor unions’ theory of why minimum wage hikes are good for America, they’re still bad for low-wage employers (lower profits). And even under low-wage employers’ theory of why minimum wage hikes are bad for America, they’re still good for labor unions (less competition from low-wage work). Others without a direct stake in the matter can make up their minds on the basis of general ideological considerations. But the existing evidence is mixed, and nothing is going to change that any time soon.