StreetEYE Blog

What I Learned From Watching The Sting And Reading David Maurer

Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes. – Jesse Livermore

Confidence men are hardly criminals in the usual sense of the word, for they prosper through a superb knowledge of human nature; they are set apart from those who employ the machine-gun, the blackjack, or the acetylene torch. – David Maurer

There are old-time classics every investor should read: Reminiscences of a Stock Operator by Edwin Lefèvre, Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay. Maybe Theory of the Leisure Class, The Way We Live Now, Only Yesterday.

We can add David Maurer’s 1940 The Big Con. It’s an incredibly rich sociological and linguistic study of the underworld of grifters and marks in their heyday, and the basis for the all-time great movie The Sting.

Wall Street is the land of castles in the air. Every few years, you get a con job seemingly as brazen as The Sting: John Law, Gregor MacGregor, Charles Ponzi, Ivar Kreuger, Tino De Angelis, Eddie Antar, Bre-X, Barry Minkow, Jordan Belfort, Bernie Madoff, Sam Israel, Allen Stanford, the list goes on. And those are just the big ones; small-time schemes and vanilla accounting scandals are a dime a dozen.

Let’s review the elements of the big con as exemplified by The Sting, and see if it teaches us how to avoid becoming victims. 1

The Mark:

Every con needs marks, of which there is no short supply. The keys to being a good mark are overconfidence and greed.

You think you are a better judge of investments and people than most. You think you deserve something for nothing.

You put unwarranted trust in people who look and act the part (authority, social proof), who like you and flatter you (liking).

You may be pretty clever, but you think you are a little more clever than everyone else. Perhaps not perfectly honest and amenable to a little chicanery, willing to cut a corner to make a buck.

Religion can make people more vulnerable. You believe the supernatural holy man or psychic, you think God has granted you this heaven-sent opportunity. Faith can go hand-in-hand with trust of authority, affinity scams. You think you are more deserving than the wicked, an instrument of vengeance against the evil casino, bookmaker, or Rothschild conspiracy.

Lack of self-awareness and ability to give in to strongly motivated reasoning makes you more vulnerable. When you really need the money, when you had a life-changing event that causes you to not think clearly, that helps.

Marks are typically older, typically men. A high status bumpkin, maybe. But no one has a monopoly. Maybe a salaryman with a gambling problem, who thinks he deserves the good life more than his bosses. Maybe a woman with too much faith in the good in people and her intuition about them.

Brains don’t immunize you. Marks con themselves. The smarter you are, the more ability you have to conceive a complex narrative and make yourself believe it. The more confidence in your understanding of the world and attachment to the positive outcome (greed), the more vulnerability to exploitation.

“There’s a mark born every minute, and five to trim him and five to knock him.” Knock, meaning try to warn him. Usually unsuccessfully, because you can’t knock a good mark. Marks have gone to court to defend the con artist who has taken their money, say he was set up, innocently vilified, the authorities messed up a good thing.

The Grifters:

The stars of the show are the roper and the inside man.

The roper locates and researches well-to-do victims. (Puts the mark up.) The roper gains the victim’s initial confidence and passes him to the inside man for a percentage. (think, the sketchy broker and the fraudulent CEO).

Good con men have elements of the dark triad: narcissism, psychopathy, Machiavellianism. (Via Maria Konnikova’s The Confidence Game, a thorough study of the psychological elements of the con.)

Narcissism: Grifters get off on putting one over on everyone, showing they are superior and everyone else is a mark.

Psychopathy: Inability to feel empathy for the marks. But a con man needs enough empathy to get inside the mark’s head, to relate, and to fake it.

Above all, Machiavellianism: It’s a dog eat dog world and it’s just being realistic that everyone is doing their best to fleece everyone else. People just play the hand they were dealt as best they can to survive. Don’t hate the player, hate the game. Never mind that they are playing completely outside the rules of civilized society and spreading misery. The marks probably had it coming.

Psychopaths and posers abound in legitimate business, con men just go the distance. Maurer: If confidence men operate outside the law, it must be remembered that they are not much further outside than many of our pillars of society who go under names less sinister. They only carry to an ultimate and very logical conclusion certain trends which are often inherent in various forms of legitimate business.

The Hook:

The key to a good hook is to understand what will motivate the mark into a frenzy of greed. Doyle Lonnegan’s Five Points insecurity, false pride, and ruthless drive for revenge are his undoing.

You see that fella in the red sweater over there? His name’s Donnie McCoy. Works a few of the protection rackets for Cunnaro while he’s waiting for something better to happen. Donnie and I have known each other since we were six. Take a good look at that face, Floyd. Because if he ever finds out I can be beat by one lousy grifter, I’ll have to kill him and every other hood who wants to muscle in on my Chicago operation.

Billie (Eileen Breenan) picks Lonnegan’s pocket and takes his wallet. Gondorff (Paul Newman) cheats Lonnegan at cards and embarrasses him in front of his peers. Then Hooker (Robert Redford) returns the empty wallet.

This hook is genius:

– Losing and being unable to pay off the bet humiliates Lonnegan, puts him in a vulnerable position.
– Hooker returning the wallet, ostensibly against his own interest, restores order, flatters him, establishes trust.
– Lonnegan’s first reaction is a rage to kill Hooker and ‘Shaw’ (Gondorff), but Hooker’s payback plan hooks him (natch).
– Birds of a feather: Hooker pretends to be from Five Points, like Lonnegan. Someone from the old hood wouldn’t con you, you’re familiar with their ways and can tell they are straight, right?

If you want to hook someone, do them a favor, like returning a wallet out of the goodness of your heart (reciprocity). Even better, let them do you a favor, like showing mercy and not killing you. If I’m helping you, it’s because you’re worth it, right? Once I do a small favor, I’m vulnerable to a slightly bigger ask (consistency and commitment). That’s why the subway panhandler makes a ludicrously tiny ask, like a dime, a nickel, or penny. You don’t want to be the cheapest bastard, right? And now you’re hooked.

In for a dime, in for a dollar. The hook just needs to get the mark to the next stage of the con.

The Rope, The Tale:

The rope is where the roper steers the hooked mark to the inside man, who tells the tale, a great story, a sure thing, so they rush to the inevitable conclusion on their own, or so they believe. Make the mark feel like he is in control.

Show the mark a way to get what he wants most. Show them the shady clerk and Western Union office where the tips generate. Make them see it’s a foolproof plan. In The Sting, Hooker and Gondorff share roper/inside man duties. In the classical, archetypical big con, the roper happens to know a guy with a foolproof plan, who takes over. And then we’re all in this together, sticking it to the real bad guy.

The Convincer:

The pump-and-dumper lets the early suckers take some profits, to rope them into even bigger investments, get them to tell their friends. When you let the mark make a small score to set up the eventual touch, that’s the convincer. In The Sting, they have to do it twice to convince Lonnegan. The second time, he demands to pick the time, and they don’t have the money, so they stall him at the window until he misses the post time. Sometimes a near miss excites you more than a win, which is why slot machines show a lot of near-jackpots.

The Big Store:

For the convincer, you move the mark to the big store, a casino, bookie, brokerage, a place that puts the mark a little outside his comfort zone, gives the con men the home field advantage, gets the mark emotional and fired up. There is noise and confusion, time constraints (scarcity). Buy now because it will double tomorrow! There is social proof – other people making huge bets and winning big. The 3-card monte dealer has a crowd, a shill or two, placing bets and making money. The mark wants to show he’s a big shot, that he knows the lingo, that he can run with the big dogs.

The Breakdown, The Send:

Next thing you know, it’s the mark’s idea to bet half a million on Lucky Dan to win. This is the breakdown: negotiating how much the mark will get fleeced for. The small con just takes you for everything you have on you. The big con takes you for everything you can scrape together. The difference is the send, getting the mark to cash in, to beg, borrow or steal all they are good for.

Taking Off The Touch:

Finally, the mark gets fleeced, but somehow in a way that has plausible deniability. It was all just bad luck! Or it was the mark’s fault, like Lonnegan betting on the horse to win instead of place.

The Blow-Off:

After the flim-flammers have the mark’s bankroll, they need put distance between themselves and the mark before he gets wise. They need to distract him so he doesn’t know what just happened. Your broker got sick, got called away on business and he can’t return phone calls. The boss or the authorities won’t let him do anything for you, the victim. In The Sting, it’s having the law on everyone’s tail after a shootout.

Plausible deniability is the best blow-off. If the loss were just bad luck, or the mark’s fault, betting to win instead of place, the mark may still think the grifters are their best friends, and go back to raise more money for a second touch.

The Fix:

The fix is how the grifters immunize themselves from the law. In the old days, paying off the local cops to give the mark a runaround was a standard trick of the trade.

Cons where the mark does something outside the law make it hard for them to go to the cops. A con where the mark does something stupid, like paying a psychic, cheating on his wife, buying worthless junk, makes him reluctant to go public, because it costs him valuable reputation in real life.


Via Maria Konnikova: our need to believe, to embrace stories that explain our world, is as pervasive as it is strong. We’ve done most of the work for them. We want to believe in what they’re telling us. Their genius lies in figuring out what, precisely, it is we want, and how they can present themselves as the perfect vehicle for delivering on that desire.

Trust is evolutionarily favored. Humans have evolved to operate in and identify with groups, Ayn Rand notwithstanding. Societies with more trust function better, experience more economic growth. Evolution has programmed us to learn heuristics that make us feel confidence in certain situations where it may be unwarranted.

People who can fool themselves into thinking things are for the best function better, are more disciplined, start and finish more projects. Athletes who can visualize success win more medals. And people are predictable, reasonable, good…most of the time.

If you think you are not susceptible to being conned, you are probably wrong. It’s like being hacked, it can happen to the best of them. And if you really are relatively invulnerable to the con, you may be less trusting than is optimal. You can’t play your friends like marks, or expect them to act like con men. If you lose, sometimes them’s the breaks. Better to sometimes be cheated than never to trust.

Probably no one is immune, given the right motivation, circumstances, and an expert con artist. But demanding good independent due diligence, heeding red flags, knowing the history, knowing the elements of persuasion and the tricks of the trade, and above all self-awareness to slow down when you are getting carried away, will make most con artists look for better marks. A Madoff isn’t going to pitch a Warren Buffett. He’s going to pitch the guy who thinks he deserves the Warren Buffett return without going the extra mile.

The con is an evolutionary counter strategy, a game theory exploit that works if people are more trusting than is warranted. The cuckoo that deposits eggs in another bird’s nests, the insect that mimics ant queen noises so ants take care of them, are nature’s con artists.

There’s a natural balance, where there is enough trust to make society work, and enough skepticism to limit con artists’ ability to destroy civilization.

In the heyday of the big con, the world was small, communities were built on a large degree of trust, they didn’t communicate with each other, there was no central FBI. The big con thrived.

In a strange way, the Internet has given the edge back to some con artists. Communities have splintered. Water-cooler and stoop interactions that used to be private are now exposed to interlopers. By connecting people in a ‘global village’, gossip and rumor travel fast, some social dynamics have returned to the old days of pitchfork mobs and public shaming.

Photoshop, even audio and video, can be faked. So, are we doomed to a world of perpetual grift and fakery, and diminished trust? Yes and no.

Yes, because there has always been grift. As long as there are marks with a little too much trust, and con men with the psychology of the dark triad, there will be abuse. There is never full immunity.

But no, because tools evolve, people evolve. Remember when we thought the Internet meant the spread of democracy and color revolutions everywhere? Now we get right-wing populism in democracies, and always-on digital surveillance in autocracies and mafia states.

The system hasn’t developed immunity from fake news fueling extremism, not because immunity is impossible (although perfect immunity is), but because we haven’t really tried yet, by identifying the markers of what fake news looks like, and bad actors who spread it, the difference between viral extremism and astroturf fakery.

The natural balance between marks and grifters has been upset. Over time, we’ll evolve the tools and the skepticism to restore the balance. One hopes, without losing our freedom or grip on reality. In the meantime, be wary.

Referenced books (and a couple more)

The Big Con: The Story of the Confidence Man, by David Maurer

The Confidence Game: Why We Fall for It…Every Time, by Maria Konnikova

Influence: The Psychology of Persuasion, by Robert B. Cialdini

The Grifters, by Jim Thompson

Money: A Suicide Note, by Martin Amis

Grifter movies. (I would add The Last Seduction).

The Most Shared Financial Blogs 2018

The list:

World Economic Forum
Project Syndicate
Marginal Revolutionsubscribe
Seeking Alphasubscribe
The Reformed Brokersubscribe
A Wealth Of Common Sensesubscribe
Calculated Risksubscribe
The Big Picturesubscribe
mainly macrosubscribe
CATO Institutesubscribe
Visual Capitalistsubscribe
Real Investment Advicesubscribe
Brad DeLongsubscribe
The Irrelevant Investorsubscribe
American Economic Association
Washington Center for Equitable Growthsubscribe
Royal Economic Society
Stumbling and Mumblingsubscribe
The Motley Fool
Alpha Architectsubscribe
Conversable Economistsubscribe
Marc to Marketsubscribe
Collaborative Fundsubscribe
FN London
The Incidental Economistsubscribe
CFA Institute
Pragmatic Capitalismsubscribe
Farnam Streetsubscribe
Howard Lindzonsubscribe
A Dash of Insightsubscribe
Economist’s Viewsubscribe
Bank Undergroundsubscribe
Naked Capitalismsubscribe
Tax Policy Centersubscribe
Mercatus Center
Economic Policy Institute
Our World in Datasubscribe
Abnormal Returnssubscribe
The Investor’s Field Guidesubscribe
Breaking Energysubscribe
Macro and Other Market Musingssubscribe
The Evidence-Based Investor
A Teachable Momentsubscribe
Jason Zweigsubscribe
Meb Fabersubscribe
Daily Reckoning
The Grumpy Economistsubscribe
Centre for European Reform
The Capital Spectatorsubscribe
Slate Star Codexsubscribe
Points and Figuressubscribe
Nerd’s Eye View | Kitces.comsubscribe
Above the Marketsubscribe
Andreessen Horowitzsubscribe
Greg Mankiw’s Blogsubscribe
Chris Skinner’s blogsubscribe
Armstrong Economics
Wolf Streetsubscribe
Of Dollars And Datasubscribe
Tim Harfordsubscribe
Center For Global Development
Musings on Marketssubscribe
Niskanen Center
Prime Economics
Pension Partnerssubscribe
Monday Notesubscribe
Benedict Evanssubscribe
Calafia Beach Punditsubscribe
Markets Mediasubscribe
Money, Banking, and Financial Markets
Tax Foundation
Worthwhile Canadian Initiativesubscribe
Trading with The Flysubscribe
See It Marketsubscribe
Andrew Gelmansubscribe
Larry Summerssubscribe
The Fat Pitchsubscribe
Disciplined Systematic Global Macro Viewssubscribe
Atlanta Fed macroblog
Mises Institute
My Trading Buddy
Trading Economics
Continuations by Albert Wengersubscribe
On The Economy
Bronte Capitalsubscribe
Fortune Financial
The Enlightened Economistsubscribe
Microeconomic Insightssubscribe
IGM Forum
Flirting with Modelssubscribe
Real-World Economics Review Blogsubscribe
Credit Writedowns
Crossing Wall Streetsubscribe
Random Rogersubscribe
Supply-Side Liberalsubscribe
Economic Principalssubscribe
Gates Notes
Flip Chart Fairy Talessubscribe
Mish Talksubscribe
Avondale Asset Managementsubscribe
Streetwise Professorsubscribe
Roger Farmer’s Economic Window
Macro Mansubscribe
Coppola Commentsubscribe
The Baseline Scenariosubscribe
UK In A Changing Europe
Philosophical Economicssubscribe
Yardeni Researchsubscribe
Behavior Gap
Philosophy of Moneysubscribe
Dani Rodrik’s weblogsubscribe
Stephen Williamson: New Monetarist Economicssubscribe
The Felder Reportsubscribe
The Macro Touristsubscribe
Oak Tree Capital
bps and piecessubscribe
Behavioral Macrosubscribe
Hussman Fundssubscribe
Aleph Blogsubscribe
Carl Icahn
Polemic’s Painssubscribe
Quantitative Easesubscribe
A Fine Theoremsubscribe
Bason Asset Managementsubscribe
The Brooklyn Investorsubscribe
George Magnussubscribe
macromom blogsubscribe
True Economicssubscribe


About once a year I’ll post the top Twitter accounts to follow. It’s a fun piece of social media analytics, and I’ll try to do it again later this year, after seeing if I can sidestep Twitter’s efforts to cut me off.

One thing I never did before is post the most popular sites shared by the contributor panel. So here it is, three different ways.

At the bottom is a raw dump of the 1000 most shared sites, with the emphasis on raw. It includes all your most popular mainstream media sites, social media sites like YouTube and Instagram, official government primary sources, service providers, a lot of sites that are not strictly financial blogosphere.

Above that are the sites that most often hit the front page, either via the AI filter or your faithful human editor.

Finally, at the top of this post is probably what’s of most interest, the 150-odd most shared financial blogs, the raw dump filtered by ‘arbitrarily considered by me to be a financial blog.’

I took out the media sites, popular social media platforms, tech blogs, service providers. I left the ones that are primarily economic, financial, market commentary, and ‘generally considered to be part of the financial blogosphere and not mainstream media.’

I left out the top tech blogs, but left in Stratechery and Electrek, which are must-read if you follow e.g. Apple and Tesla. I left in some aggregators that are pretty popular in the financial blogosphere but left off others that are maybe less central or closer to mainstream media. Maybe some others are questionably finance-adjacent and I couldn’t bring myself to delete because I thought they are must-read. It’s necessarily a little arbitrary but hopefully not too arbitrary.

But if you are so inclined, you can peruse the full 1000 most shared and make your own list of favorites to follow or add to your RSS reader.

Thanks to all my friends who make the fin-social-twit-blogosphere still interesting and crazy after all these years. I hope this helps you find some new folks to follow and helps you gain some new fans.

Any suggestions, complaints, let me know.


Top 500 Most Front Page Appearances

Bloomberg   New York Times   Wall Street Journal   Financial Times   Washington Post   Reuters   Vox   Politico   The Guardian   CNBC   Business Insider   CNN   BuzzFeed   The Economist   Axios   Recode   BBC   The Atlantic   Medium   New Yorker   Quartz   MarketWatch   The Telegraph   Daily Beast   NY Post   Associated Press   The Hill   New York   Project Syndicate   Federal Reserve   NBC News   Huffington Post   The Verge   Fortune   Vanity Fair   Wired   A Wealth Of Common Sense   Forbes   European Union   The Reformed Broker   TechCrunch   LA Times   Yahoo   ZeroHedge   YouTube   Slate   Foreign Policy   The Times   SEC   The Intercept   Marginal Revolution   The Independent   FiveThirtyEight   New York Fed   Dealbreaker   USA Today   The Onion   Barron’s   mainly macro   Vice   NBER   NPR   The Hollywood Reporter   PIIE   ProPublica   Brookings   Mail Online   The Irrelevant Investor   IMF   CBS News   Gizmodo   coindesk   Technology Review   Variety   Stumbling and Mumbling   HBR   Collaborative Fund   Mother Jones   A Dash of Insight   Time   Google   Go   Visual Capitalist   LAWFARE   Ars Technica   Council On Foreign Relations   NY Daily News   National Review   South China Morning Post   ValueWalk   Calculated Risk   Institutional Investor   McClatchy   Bank of England   Econbrowser   Page Six   AVC   Columbia Journalism Review   Talking Points Memo   Washington Center for Equitable Growth   The White House   US DOJ   World Economic Forum   Stratechery   Newsweek   Washington Examiner   Sky   St. Louis Fed   ThinkProgress   Alpha Architect   Boston Globe   Digiday   Fast Company   Economist’s View   Bruegel   Pragmatic Capitalism   Bank Underground   Poynter   Miami Herald   Brad DeLong   Conversable Economist   Nieman Lab   The Information   SSRN   Fox News   ProMarket   Gallup   LSE   Prospect   Business Wire   Facebook   Noahpinion   Gawker   Rolling Stone   Fox Business   The Grumpy Economist   Morningstar   Nikkei   Macro and Other Market Musings   The Week   CBO   The New York Review of Books   Musings on Markets   longandvariable   San Francisco Chronicle   STAT   New Republic   Of Dollars And Data   Deadspin   Fusion   VentureBeat   Evening Standard   BIS   Breitbart   Pew Research Center   ICIJ   FactSet   Marketplace   City A.M   International Business Times   Federal Reserve Bank of San Francisco   CityLab   ABC News   Reason   GQ   Tim Harford   SnappyTV   U.S. House of Representatives Permanent Selection   Scientific American   The Cut   Backchannel   NY Observer   The Spectator   ESPN   The Motley Fool   efinancialcareers   Harvard   The Investor’s Field Guide   Real Investment Advice   Haaretz   CFA Institute   Chicago Tribune   The Nation   Tax Policy Center   Handelsblatt   MacroMania   PIMCO   Talking Biz News   Toronto Star   Monday Note   AQR   The Big Picture   FN London   Naked Capitalism   AEI   Globe & Mail   The Sun   Mediaite   U. of Oregon   Roger Farmer’s Economic Window   Mashable   Esquire   Evonomics   Der Spiegel   ForexLive   Above the Market   The Enlightened Economist   Deadline   The Daily Caller   Markit   CBC   Weekly Standard   Meb Faber   The Outline   US Senate   Benedict Evans   Seattle Times   Slate Star Codex   CATO Institute   MSNBC   The Fat Pitch   Instagram   The Trade   The Mercury News   Dallas News   CEPR   Science   globalinequality   The Next Web   Amazon   Atlanta Fed macroblog   Breakingviews   Mirror Online   CBS Local   Credit Writedowns   Niskanen Center   Worthwhile Canadian Initiative   Pension Partners   The Irish Times   InvestmentNews   Abnormal Returns   Apple Music   Philosophy of Money   Politico New York   Fortune Financial   American Banker   Centre for European Reform   AdvertisingAge   CNET   INET   EconLog   Bronte Capital   New Statesman   BuzzFeed News   CFTC   Caixin Online   The Street   Splinter   NIESR   Vulture   25iq   American Economic Association   Coppola Comment   Moody’s   Crooked Timber   Baltimore Sun   A Teachable Moment   The Fiscal Times   Chicago Booth   Farnam Street   LRB blog   SFgate   Greg Mankiw’s Blog   Houston Chronicle   The Financial Brand   Gartner L2   MIT   The Chronicle of Higher Education   Palm Beach Post   The New York Times Company   Jason Zweig   Flip Chart Fairy Tales   Avondale Asset Management   The Evidence-Based Investor   GeekWire   Marc to Market   The Conversation   Economic Policy Institute   The Federalist   Aeon   On The Economy   SoundCloud   Pensions & Investments   Larry Summers   US Treasury   CBPP   Stephen Williamson: New Monetarist Economics   Chief Investment Officer   Office for National Statistics   SIRF   MailChimp   McSweeney’s Internet Tendency   Princeton University   Carl Icahn   Foreign Affairs   Le Monde   Electrek   Crain’s New York Business   The Baseline Scenario   SI   PBS   Eater   Money, Banking, and Financial Markets   Raw Story   Behavioral Macro   IJR   Howard Lindzon   Quinnipiac University   Washingtonian   Alt-M   Bespoke   TMZ   Thomson Reuters   Apple News   EconoSpeak   Streetwise Professor   ZDNet   Adweek   Curbed   McKinsey   Engadget   Electronic Frontier Foundation   Committee for a Responsible Federal Budget   The Wrap   RTÉ Archives   Nature   Flirting with Models   Jezebel   Cointelegraph   Our World in Data   principlesandinterest   Seeking Alpha   Krebs on Security   Just Security   Macro Man   Stanford   Wired UK   Microsoft Research   The Felder Report   NBC New York   Andreessen Horowitz   Moscow Times   azcentral   RT International   IEEE Spectrum: Technology, Engineering, and Scienc   Crain’s Chicago Business   Trump For President   Tampa Bay Times   American Civil Liberties Union   Star Tribune   Atlanta Fed   Teen Vogue   Bason Asset Management   Hacker Noon   TED   Media Matters for America   Public Pool   Quantitative Ease   Sacramento Bee   The Texas Tribune   Business Journals   Priceonomics   Gates Notes   Moneyness   Reveal   Sydney Morning Herald   Roll Call   The Brooklyn Investor   Milwaukee Journal Sentinel   Salon   Sü   DW.COM   The Economist 1843   The Macro Tourist   The American Prospect   Financial Review   The Daily Mash   Microeconomic Insights   Prime Economics   Dallas Fed   UK In A Changing Europe   CB Insights   InFacts   Quanta Magazine   The Ringer   UK Parliament   Patreon   Richmond Fed   9to5Mac   Center For Global Development   A Fine Theorem   National Geographic   EconTalk   Periscope   Tax Foundation   Financial News   U.S. Department of State   Om Malik   Business Radio on Sirius XM   Polemic’s Pains   charlotteobserver   Boston Review   Daring Fireball   Coinbase   IGM Forum   Yale   The Baffler   Wolf Street   The Awl   The Henry J. Kaiser Family Foundation   Google Research   The Forward   Defense One   Boing Boing   France 24   @politifact   Aleph Blog   Economic Principals   Hussman Funds   DNAinfo   Mercatus Center   Commentary   Maven   FINRA   CapX   Goldman Sachs   IBD   DIE WELT


Top 1000 Most Shared Sites

Bloomberg   New York Times   Wall Street Journal   Washington Post   Financial Times   Reuters   YouTube   The Guardian   Politico   CNN   CNBC   BBC   Business Insider   VOX   Medium   BuzzFeed   The Hill   The Atlantic   Instagram   Yahoo   Quartz   Associated Press   The Economist   Forbes   Huffington Post   New Yorker   MarketWatch   The Telegraph   NY Post   Amazon   ZeroHedge   Axios   Fortune   LA Times   Mail Online   Recode   Daily Beast   The Verge   NPR   New York   NBC News   USA Today   TechCrunch   The Independent   Slate   Go   Apple News   Wired   European Union   Vice   Time   The Times   Google   FiveThirtyEight   World Economic Forum   City A.M   Linkis   Federal Reserve   The Onion   South China Morning Post   Foreign Policy   CBS News   Streetinsider   Project Syndicate   Fox News   The Hollywood Reporter   Gizmodo   NY Daily News   MailChimp   Vanity Fair   NBER   SEC   Talking Points Memo   Barron’s   Brookings   Entrepreneur   Washington Examiner   VentureBeat   Apple Music   Marginal Revolution   Variety   LSE   SoundCloud   HBR   National Review   The Intercept   Breitbart   Spotify   ValueWalk   ForexLive   Seeking Alpha   coindesk   Fast Company   Mother Jones   ThinkProgress   The Street   SSRN   PIIE   Periscope   IMF   ProPublica   Dealbreaker   Technology Review   Mashable   Boston Globe   St. Louis Fed   Digiday   Newsweek   Ars Technica   The Reformed Broker   CBS Local   The Conversation   Mediaite   GitHub   Chicago Tribune   Raw Story   ESPN   Poynter   Columbia Journalism Review   Business Wire   Nieman Lab   The Daily Caller   SnappyTV   LinkedIn   The White House   Haaretz   Nikkei   Deadspin   Globe & Mail   Salon   New Republic   Sky   The Trade   Gawker   Pew Research Center   New York Fed   Mirror Online   A Wealth Of Common Sense   Scientific American   Swarm   Rolling Stone   Page Six   Miami Herald   McClatchy   Fox Business   US Senate   Marketplace   The Sun   CBC   Calculated Risk   The Irish Times   Jezebel   Weekly Standard   Reason   Adweek   American Banker   Harvard   Washington Free Beacon   The Week   Engadget   The Nation   Bruegel   Fusion   US DOJ   Evening Standard   InvestmentNews   The Next Web   Techmeme   International Business Times   PBS   Boing Boing   Daily Kos   RT International   The New York Review of Books   France 24   National Geographic   Business Journals   DW.COM   Gallup   Council On Foreign Relations   MSNBC   LAWFARE   The Big Picture   The Financial Brand   Crunchbase News   BIS   ZDNet   MIT   mainly macro   ABC News   U.S. House of Representatives Permanent Selection   CNET   Vulture   Markit   Esquire   STAT   NY Observer   CATO Institute   Visual Capitalist   Eventbrite   Real Investment Advice   StockTwits   GlobeNewswire News Room   Deadline   AdvertisingAge   San Francisco Chronicle   NASDAQ   New Statesman   The Washington Times   Bank of England   Sydney Morning Herald   The Spectator   Cointelegraph   Institutional Investor   SFgate   Brad DeLong   The Ringer   CityLab   Morningstar   Der Spiegel   The Irrelevant Investor   Nature   Toronto Star   The Federalist   American Economic Association   World Bank   SI   Stanford   Futurism   Media Matters for America   Ladders   Houston Chronicle   The Wrap   The Cut   TED   AEI   Science   Finextra Research   Eater   Dallas News   Prospect   Washington Center for Equitable Growth   Royal Economic Society   Stumbling and Mumbling   CEPR   DNAinfo   GQ   Financial Review   The Jerusalem Post   GeekWire   The Motley Fool   Seattle Times   Caixin Online   Product Hunt   OUPblog   WNYC   The Mercury News   Curbed   DIE WELT   Alpha Architect   Conversable Economist   New Scientist   Marc to Market   ProMarket   Collaborative Fund   Foreign Affairs   Aeon   NBC New York   AVC   GIPHY   U.S. Department of State   Nuzzel   The Daily Mash   CB Insights   Crain’s Chicago Business   @politifact   CBO   NASA   RTÉ Archives   NerdWallet   Talking Biz News   FN London   Handelsblatt   Splinter   Office for National Statistics   The Incidental Economist   EconLog   Roll Call   Atlas Obscura   McKinsey   Baltimore Sun   Le Monde   efinancialcareers   UK Parliament   Investopedia   Moody’s   Thomson Reuters   IBD   The Herald Scotland   Wired UK   IEEE Spectrum: Technology, Engineering, and Scienc   CFA Institute   Co.Design   TMZ   Evonomics   Facebook   Atlanta Fed   Pragmatic Capitalism   Farnam Street   The Chronicle of Higher Education   A Dash of Insight   Howard Lindzon   LRB blog   The Information   Economist’s View   AWeber   Goodreads   The Outline   Sputnik   Benzinga   Livemint   Econbrowser   Imgur   Hong Kong Free Press HKFP   Above the Law   Japan Times   Breakingviews   Politico New York   Microsoft Research   US Treasury   Princeton University   INSIDER   Bank Underground   Business Radio on Sirius XM   Flickr   Detroit News   American Civil Liberties Union   Bond Buyer   Financial News   CFTC   Yale   NewsComAu   Bespoke   Lifehacker   Thrive Global   Internet 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The “Spygate” outrage

‘Freedom is the freedom to say that two plus two make four.’ – George Orwell

When Trump tries to brand the swirling swampy maelstrom around him as ‘Spygate’, it gives the game away. If you get busted by the cops with Russian entanglements in your campaign, one way to go is to claim ignorance and that it was somehow a misunderstanding or above board.

But if you’re saying the counterintelligence guys, the media, the people don’t even have the right to ask questions about Russian operatives, you doth protest too much. The clear implication is that the answers to those questions are really really bad. It’s like a perp saying “I was framed!”

Tell it to the judge.

What would you say FBI counterintelligence does? They look into efforts by Russian operatives to gather information and create mayhem in the US. So, here are some Russia/Trump contacts:

  • Papadopoulos (pled guilty): told Australian High Commissioner (ambassador) in the UK that Russians had Hillary’s emails and were going to share them to help Trump. And when that actually happened, Aussies said, hmmh, that’s interesting, briefed the FBI, and the investigation started. (Also numerous other Papadopoulos contacts with Russian agents, Mifsud, a ‘relative’ of Putin’s, etc.)
  • Manafort (indicted): in deep with Oleg Deripaska and Ukrainians, laundered money like it was going out of style.
  • Cohen (about to be indicted unless he’s singing like a canary): Emailing with Putin’s office about building Trump Tower Moscow (when he’s not paying off ‘a hundred’ Trump affairs and probably abortions, and taking massive bribes from likes of Novartis, UAE, KSA, and a sketchy Russian oligarch, and using the funds to benefit Trump via the hush-money slush fund.)
  • Sessions: many Kislyak meetings, which he lied about to Congress
  • Donald Trump Jr.: Veselnitskaya meeting about ‘adoptions’ a/k/a lifting sanctions in return for campaign assistance. Meeting with Russian NRA money-funneler. Claim that Russians are funding Trump’s properties. Numerous contacts with Wikileaks
  • Roger Stone: numerous contacts with Wikileaks, made specific requests and predictions about what they would release when
  • Carter Page: ’nuff said
  • Kushner: Kislyak meetings, secret meeting with VEB bank right after election to establish ‘back channel’ to Putin
  • Flynn (pled guilty) negotiations regarding Obama’s sanctions, i.e. undermining US foreign policy before Trump took office
  • Erik Prince in secret negotiations in Seychelles

Are you really saying the FBI isn’t supposed to look into this and get informants to discretely ask questions? If not, what would you say they are supposed to do around here? Not ask any questions that are embarrassing to the President because he is above the law?

How Russians meddled is a question of overriding national importance. If you can’t answer reasonable questions about it from the FBI, Mueller, the press, and the American people, you clearly cannot operate effectively as President (as evidence has repeatedly shown).

Between the giant Cohen bribes, the likelihood of Cohen either flipping, or his files incriminating Trump, and Trump directly asking Sessions to oversee the Russian inquiry after he recused himself, which is prima facie obstruction, the wheels have fallen off. We know how this is going to end. It blows my mind that Trump thinks that just repeating ‘Spygate’ will obscure that, or that ~40% of Americans approve of this half-wit wannabe mobster shitshow.

Weaponizing reporters’ superhuman good faith and desire to appear fair, in order to make relentless lying and manufactured insane bullshit appear credible, and exploiting supporters’ unwarranted and unreciprocated loyalty to destroy truth and institutions, is not going to save you from truth and judgment.

Losing the meta-game

I suggest a new strategy, R2. Let the Wookiee win.C3PO

Jeff Bezos tells a story about how he gave his grandmother a hard time about smoking until she cried, and his grandfather took him aside and said, “You are going to figure out one day, that’s it’s harder to be kind than to be clever.”

Interestingly, Bill Gates has a similar story about being taken to a psychologist as a child because he was being disruptive. He told the psychologist that he thought it was unfair that he had to live by illogical rules and he deserved to win the argument with his parents. The psychologist told him kids always win in the end because they outlive their parents and he should cut his parents a break.

The lesson here is: don’t focus so much on winning the game that you forget the meta-game. And there is always a meta-game. Don’t miss the big picture. And there is always a bigger picture.

The dumb bear runs away when you jangle your keys. The smart bear gives you a look that says, you idiot, those are just keys. And keeps coming back messing with your trash cans and your car and your house. And the smart bear gets shot.

There’s a saying on Wall Street, “always leave something on the table.” The casino will do their level best to kill you at the tables, but they’ll do it with a smile and a free drink and give you 30% back in comps to keep you coming. Acting like it’s just a big party and we’re all in this for a good time goes a long way, even for a fundamentally extractive business.

The worst people to deal with on Wall Street (or anywhere) are the ones who aren’t looking to generate more value than they extract, are only looking for an angle, to make maximum profit while blowing up the relationship and moving on.

In the US we’ve become really good at prospering in the short run while losing the meta-game. The financial crisis was a moral crisis: make the liar loans, make them look AAA, hit the numbers, get the bonus. And then the whole thing blows up.

People should think more about the meta-game. Libertarians think, you give people freedom, that solves everything. Left-wingers think the right policy directive can achieve any outcome. It would be better to think more about engineering the meta-game of markets for goods and services, markets of ideas, so they work effectively and maximize freedom.1

Facebook and Google are re-engineering society. But they can’t really admit it. They’re not supposed to measure the consequences their designs have in the real world. There has to be a pretense that it all happens organically and driven by the free choices of the users. Otherwise the right-wingers go nuts that they are being censored and manipulated. And the left-wingers go nuts that corporations are privatizing and monetizing civil society and data.

The founding fathers knew that freedom works only to the extent people are decent, and they had to create a form of government and institutions that allowed society to function while preserving the maximum amount of freedom. We seem to have forgot that and take maximalist positions on freedom and/or achieving objectives regardless of the Constitution, sometimes at the same time. Instead of sophistic rhetoric and partisan talking points, it would be better to start talking about engineering our institutions and decent society, and creating win-win games.

Trump is the king of approaching everything as win/lose and losing the meta-game. You make a lot of seemingly great deals with other peoples’ money, take big bucks risk-free to attach your name to Trump University, then one day you’re broke and exposed as a flim-flam artist. Not having skin in the game makes you the worst kind of dealmaker. And in the long run gives you the worst kind of skin in the game.

You can break the deals you don’t like, make the base happy, undo an Obama signature initiative, get a sweet payoff from Sheldon Adelson and Sheikh MBZ. But you can’t simultaneously pursuing a nearly-identical deal and expect counterparties to trust you and act in good faith). Deport veterans, make a torturer CIA chief, pander to the white supremacists, and maybe you think you’re triggering your opponents and putting them on the back foot, but you’re losing the meta-game.

Acting decently isn’t some rose-colored pie-in-the-sky do-gooder dream world. Ethical conduct is the ultimate meta-game. A lot of US power exisits because we (mostly) tried to act decently, be a beacon of stability, freedom and democracy, create and support multilateral institutions. And we’re killing the goose that laid the golden egg.

So much winning. We’re not getting bored, that’s for sure. But we’re losing the meta-game. Bigly.

1Maybe they do? Maybe a lot of libertarianism is just a meta-game for powerful interests wanting the freedom to rig the game to give them even more power and wealth? Maybe a lot of egalitarianism is a meta-game ivory-tower philosophers leverage to grab power? If so, all the more reason people need to think about the meta-games.

Quantitative Fun With Fund Names

Word cloud

There are a number of hard problems in investing, for instance:

    1) Finding alpha.
    2) Finding clients and assets — especially if you can’t 1) consistently find alpha.
    3) Finding an awesome name for your fund.

The investing blogosphere is all over the first two. Now, for something completely different, we help you with the last one! Inspired by Sloane Ortel’s post, we’ll run some analytics on a dataset of investment firm names, culminating in our very own algorithmic fund name generator.

Assembling data from various sources, scrubbing and deduplicating, we built a set of about 20,000 names.

As a warmup, here are the most frequent words found in company names:


The most frequent bigrams or 2-word combinations:



Word2Vec is an algorithm which, given a corpus of text, maps words to vectors of floating-point numbers, magically distilling syntactic and semantic attributes of each word.1 Vector representations of words are used for machine translation, sentiment analysis, intelligent personal assistants like Siri and Alexa, and other natural language processing applications. Word2Vec word vectors can be uncannily accurate in representing meanings and relationships between words.

We could train our own vectors, but this is not a large corpus, and there are many pre-trained vector sets based on the Web, Wikipedia, different languages and corpora. Let’s load the set of vectors trained on Google News, map our frequently used words, and cluster them.

Cluster 0 (522 words)
[‘management’, ‘partners’, ‘co’, ‘services’, ‘global’, ‘international’, ‘research’, ‘new’, ‘national’, ‘mutual’]
Cluster 1 (444 words)
[‘inc’, ‘sa’, ‘hong’, ‘kong’, ‘de’, ‘al’, ‘deutsche’, ‘nv’, ‘ma’, ‘adv’]
Cluster 2 (545 words)
[‘life’, ‘fidelity’, ‘golden’, ‘royal’, ‘legacy’, ‘millennium’, ‘beacon’, ‘fortune’, ‘republic’, ‘heritage’]
Cluster 3 (336 words)
[‘capital’, ‘investment’, ‘asset’, ‘wealth’, ‘investments’, ‘holdings’, ‘fund’, ‘financial’, ‘company’, ‘ag’, ‘funds’, ‘trading’, ‘markets’, ‘investors’, ‘managers’]
Cluster 4 (180 words)
[‘pacific’, ‘north’, ‘creek’, ‘river’, ‘west’, ‘sun’, ‘south’, ‘northern’, ‘summit’, ‘ridge’]
Cluster 5 (150 words)
[‘eagle’, ‘tiger’, ‘lion’, ‘falcon’, ‘wolf’, ‘arrow’, ‘peregrine’, ‘owl’, ‘fur’, ‘fox’]
Cluster 6 (223 words)
[‘street’, ‘hill’, ‘estate’, ‘park’, ‘property’, ‘square’, ‘spa’, ‘lane’, ‘bridge’, ‘road’]
Cluster 7 (656 words)
[‘asia’, ‘uk’, ‘singapore’, ‘canada’, ‘pvt’, ‘japan’, ‘india’, ‘morgan’, ‘europe’, ‘australia’]
Cluster 8 (725 words)
[‘limited’, ‘holding’, ‘the’, ‘first’, ‘real’, ‘point’, ‘us’, ‘blue’, ‘one’, ‘old’]
Cluster 9 (237 words)
[‘alpha’, ‘amp’, ‘matrix’, ‘quantum’, ‘meridian’, ‘sigma’, ‘dimensional’, ‘constellation’, ‘symmetry’, ‘parametric’]
Cluster 10 (106 words)
[‘china’, ‘rock’, ‘stone’, ‘silver’, ‘kg’, ’emerald’, ‘steel’, ‘gold’, ‘diamond’, ‘mill’]
Cluster 11 (207 words)
[‘oak’, ‘tree’, ‘brown’, ‘wood’, ‘cypress’, ‘pine’, ‘harvest’, ‘grove’, ‘cedar’, ‘maple’]
Cluster 12 (1413 words)
[‘llc’, ‘ltd’, ‘lp’, ‘pte’, ‘pty’, ‘corp’, ‘gmbh’, ‘shanghai’, ‘hk’, ‘ubs’]
Cluster 13 (108 words)
[‘harbor’, ‘compass’, ‘banca’, ‘marine’, ‘spinnaker’, ‘anchorage’, ‘shipping’, ‘port’, ‘motor’, ‘mariner’]
Cluster 14 (276 words)
[‘advisors’, ‘group’, ‘advisory’, ‘private’, ‘corporation’, ‘trust’, ‘associates’, ‘counsel’, ‘consulting’, ‘advisers’]

We distinguish clusters related to countries, geographical features, animals, trees, minerals and materials, nautical concepts, scientific and financial concepts, positive metaphors like ‘fidelity’ and ‘heritage’.

Plotting popular words from each cluster, and connecting words that are frequently co-located in the same firm names, we get


We can explore related words using Google’s Embeddings Projector, which generates 3D images of word relationships that look like this:

Embeddings projector

  • Click on the link for the embeddings projector, wait for it to load the data.
  • Start entering a word at top right to search for it
  • Select the word you want in the list that gets populated
  • Click “Isolate data points”
  • Drag the image around with your mouse to see related words
  • When you’re done, hit “Clear selection”

It’s a bit like taking a word and algorithmically free-associating similar words that are used in fund names.

Finally, we can train a machine learning algorithm to automatically generate realistic-sounding new names based on our corpus! Use this link or the form below to generate names based on a starting string (or leave blank).

Some names may be similar to existing names in the corpus, which are the property of their respective owners.

Other names are a bit random…use them for inspiration for your next corporate entity…or if you need to generate random realistic-looking text for testing purposes or to fool a spam filter. We make no representation about the regulatory compliance, appropriateness, or marketing value of generated names!

The code is here.

We hope this will free valuable time from the fund naming problem to let managers focus on generating alpha.

1 How does Word2Vec work? It’s like a Netflix movie recommendation system, but for words. The Netflix recommender maps each user and each movie to a vector. It tries to find

1. A vector to represent each movie and
2. A vector to represent each user such that
3. When you multiply those two vectors, you get a number that predicts how the user will rate the movie.

As users rate a lot of movies and the system trains and improves the vectors, different vector components start to represent movie features, like action-adventure, rom-com, scifi, etc.

Now to see how Word2Vec assigns vectors to words, substitute the statement ‘user u likes movie m‘ with ‘the word goldman frequently occurs in same context as the word morgan‘.

By using a large corpus to train vectors which predict what words arise in similar context, we arrive at vectors that represent a sometimes-shockingly complex knowledge about each word, bordering on understanding. For instance, we might find that the word vector closest to ‘Paris’ – ‘France’ + ‘Germany’ is ‘Berlin.’ In other words, Word2Vec in some sense understands that ‘Paris is to France as Berlin is to Germany.’ This post is a good intro.

2 Computer-generated names are generated as follows:

  • Split each firm name into all its initial substrings.
  • Identify the character following each substring. In other words, for “Wiley E. Coyote Investment Management”, generate pairs like
    (‘Wile’, ‘y’)
    (‘Wiley E. Coy’, ‘o’)
    (‘Wiley E. Coyote Investment Managemen’, ‘t’)
  • Use these pairs as a corpus to train a recurrent neural network to predict the next character following an initial fund name substring.
  • Get like 75% accuracy – RNNs are unreasonably effective, or language is surprisingly predictable.
  • To predict, seed the algorithm with a chunk or an empty string, predict the following character.
  • Add the predicted character to the end of the string, predict with the resulting chunk.
  • Get a large number of silly names that resemble the training corpus, with some randomness added.

The Bitcoin crash is coming

Bitcoin inventor Satoshi Nakamura closely monitors the launch of Bitcoin futures (photo via @vexmark)

In the land of milk and honey
You must put them on the table

You go back Jack do it again
Wheel turnin’ ’round and ’round
Steely Dan

I’m a bit of a Bitcoin skeptic. I think it’s a bubble and at some point the dancing stops and some folks get left holding a very very virtual bag. If you’re one of those who thinks the real bagholders will be the ones owning dollars in the ‘legacy financial system’ after the advent of millennial kingdom come, you can stop reading.

Nevertheless I’m very bullish on blockchain. Maybe we’ve barely scratched the surface and it will be as ubiquitous as the Internet.

Cutting to the chase, I think $10,000 is at the high end of plausible valuations. If Bitcoin is a manipulated market, which may be the case, this week’s launch of Bitcoin futures could very well pop the bubble and crash the market. Because for the first time, you can have real price discovery from smart money, that can bet big, go short in any size at any price where it can find a counterparty, and doesn’t have to worry about counterparty risk, custody w/cybersecurity etc.

Futures could also turn out to be a debacle with no institutional interest, no clean basis arb between ‘physical’ and futures, no arbs, no volume, shenanigans bringing the contract into disrepute (See also Craig Pirrong, the Streetwise Professor and Nassim Taleb).

But wouldn’t it be ironic if futures cost less to trade than Bitcoin on the blockchain with better liquidity, less risk? Maybe you actual need brokers, exchanges, central clearing, daily settlement, custody, credit, margin, in order to have a complete, safe market? Who knew?

Somehow, Bitcoin manages to be slower and more expensive to trade than ‘legacy’ trading venues, with none of the liquidity or mitigation of sundry operational risks. Not to mention that recurring staple of Bitcoin news, the record-breaking heist.

Turns out the devil is in the details of market structure. The magic of the blockchain notwithstanding, most Bitcoin trading may take place off the blockchain and look a lot like traditional financial markets.

If Bitcoin is not a manipulated market, maybe the bubble has farther to go. But how much farther, realistically?

If Bitcoin is a currency, then compare its current ~$300b market cap to pre-QE USD base money of ~$1,000b. Seems like a lot for a ‘currency’ that has minimal legitimate real-economy transaction footprint, vs. something that ran a then-$14t GDP economy backed by nukes and aircraft carriers. Actually, an order of magnitude more real-economy transactions throughout the production chain, plus a lot of black-market and foreign transactions that don’t show up in GDP, and never mind financial transactions.

Demand for a currency as a medium of exchange is a function of the real-economy transactions it enables.

Of course Bitcoin is the most obvious bubble ever. And the bubble makes it risky for real economy transactions. Everyone who ever spent 10,000 BTC to buy a cheese pizza is crying in their beer now. Until volatility settles down, people will be reluctant to transact with it and tend to hoard it. That’s what deflation does. If your currency will buy more tomorrow you won’t spend today. It’s great for a financial asset but terrible for an economy and a currency and a payment system. Modest, predictable inflation is indispensable grease in the wheels of an economy at the mercy of menu frictions and behavioral heuristics like loss aversion and money illusion.

It’s a catch-22. The volatility and constant rise in price make it unsuitable for real-economy transactions, which mean it can’t justify the ever-rising price.

The price has achieved escape velocity from reality.

I think people who say Bitcoin should go to $400,000 are either making simplistic arguments to get on TV or talking their book. They aren’t doing anyone any favors. Except maybe ICO con artists swindling their marks.

It’s hard to value Bitcoin as long as it’s untethered from the (legitimate) real economy. Have you ever seen someone wearing jewelry made of Bitcoin? Is Bitcoin going to fill your teeth or coat your windows or make your electronics corrosion-free? How much use will Bitcoin really be after the apocalypse? Outside of paying for contraband and malware ransoms and evading capital controls, what real use is it? Without any linkage to the real economy, why is the low single digits of financial wealth in gold the correct comparable to come up with $400,000 per coin, which would mean $8t total outstanding or 1/3 of US stock market cap?

In what ways is Bitcoin equal to, let alone superior to gold in liquidity and long-term reliability as a value store, linked to the real economy? Shouldn’t there be some discount in case a digital asset superior to Bitcoin 0.x turns up? Isn’t it some function of what real wealth alternatives are available, what their relative utility is for yield and risk expectations and real-world acceptance, how much the market demands of each?

What is an appropriate valuation metric? Let’s start with the novelty value. $10b is a round number. That’s order of magnitude for Beanie Babies or Pet Rocks, adjusted for inflation, and the more interesting experiments richer geeks can do with Bitcoin.

Add an appropriate valuation for the Bitcoin needed by black markets. This may vary widely over time, depending on adoption, depending on whether there has been a recent crackdown on the latest Silk Road / Alpha Bay, depending on current money laundering flows to/from capital controlled jurisdictions. But you can handle a lot of transactions in a year with each unit of Bitcoin. $100b of Bitcoin you could probably recycle through at least ~$1t of transactions per year with not much velocity-optimizing financial technology infrastructure.

Pulling a wild-ass guess out of my you-know-what, the largest market cap I can justify for black-market transactions is on the order of $100b. This is considering the size of black markets, what percentage of transactions might start to be done in Bitcoin in the not too-distant future, some reasonable velocity, comparing to the number of large-denomination USD and euro bills outstanding, the gold inventories that back financial instruments.

As a store of value, if you want to use gold as a comparable, you have to exclude gold that isn’t a private financial asset. You have to think about how the market will shake out between gold and Bitcoin if they are close substitutes. You can’t just assume Bitcoin replaces gold 1 for 1, or expands the market for ‘hard pseudo-currency store of value’ 2 for 1.

Bitcoin for black market transactions and as a store-of-value has issues: volatility, significant transaction lags and fees, the fact that it’s not as anonymous as you may think, the fact that authorities probably can and will crack down on it hard when it’s worth more to them dead than alive.

So you need to apply some discount for the possibility that cryptocurrencies will take only a small chunk of that market, or other alt-coins will come out on top. And maybe some premium for the likelihood of mainstream adoption in legit markets.

True, Bitcoin is more transportable than gold and can even be used for electronic payment. On the other hand the link to the real economy and long-term reliability as a store of value are weaknesses. Frequent flier miles, gift cards, and other forms of private electronic scrip are not an investable asset class. Scarcity value can be mitigated by other cryptocurrencies popping up.

I’m still a skeptic. If Bitcoin gains traction in the real economy, it has to be stopped, or highly regulated. Because governments rely on taxes. They don’t like giving up seignorage, management of economic policy, and use (abuse?) of the financial system for law enforcement, sanctions, foreign policy purposes. And China, for now, has shown that you can actually bring your entire Internet under state control. It’s technically feasible to stamp Bitcoin out or at least, repress it to within an inch of its life.

It’s also politically feasible. FDR banned personal ownership of gold, and he is nevertheless not generally regarded as a tyrant in circles that aren’t populated by rabid mouth-frothers. Politicians will cry that Bitcoin facilitates illicit drugs and international terrorism.

Governments will bring Bitcoin to heel if it challenges fiat currencies. So Bitcoin as a financial system outside state control is an oxymoron. Either it’s a marginal black-market construct, or it’s a tightly controlled appendage to government currency markets, like gold. It cannot be both mainstream and outside state control.

I could be wrong, but my wild-ass guess for the reasonable order-of-magnitude ‘terminal’ value for Bitcoin is in the $1000-$10,000 range (market cap of $20b-$200b, order of magnitude). I don’t have high confidence, maybe 50%. Visibility into the demand for black market activity and as a store of value is pretty limited. Maybe Bitcoin gets superseded or stamped out almost entirely. Or maybe there is something more to the store-of-value argument than I’m seeing. Aswath Damodaran wrote the book on valuation, and he says you can’t value Bitcoin. But his definition may be narrower than mine and surely you can place some order of magnitude limits on a plausible relative price.

I think Bitcoin valuation and prospects for mainstream adoption are overblown. I think the 2017 runup is due to bubble dynamics. It’s the most perfect bubble ever. There is no value metric, no intrinsic value, no PE, no interest to collect on it. If you think it supersedes the ‘legacy’ financial system, there is no valuation too high.

But let’s talk about why I love the blockchain.

Blockchain is a secure distributed database service. In the old days a database meant something like Oracle. Then the Internet came along, and because Oracle technology and pay-whatever-we-can-extort enterprise pricing didn’t work for something like Yahoo, we got open-source databases. Open source just means tech companies like Google, Facebook, all the way down the chain, develop standards and norms and software in areas where they don’t compete because competition would stymie progress and profits in the whole ecosystem.

Even competitors cooperate some of the time. Warring nations have conventions against chemical weapons or first use of nukes. If you violate them you may win the war but you may not have a planet to live on.

Buying Microsoft or Oracle software and giving them a big vig and strategic power is a nonstarter. Every company building their own proprietary stack of OS, database etc. is also a nonstarter. So they support efforts like Web standards, Linux, Apache, and MySQL and share the technology around them, which is not very strategic, and focus on competing further up the value chain.

MySQL is a funny case. Because MySQL was bought by Oracle. Even in the open source world, you cannot escape a principal-agent problem. You back an open-source software project, the developers and the managers of the legal entity can sell you out. Now you still have a software license but you have an exit/voice decision, where exit means forking the project. (Anybody remember CDDB? The most blatant fencing of digital commons to date, privatizing something people built as a public good.)

Blockchain takes the open-source paradigm to a meta level. In ancient times, suppose some folks started an open-air market for securities under a buttonwood tree. They develop ways of doing business, they eventually find the need to invest in infrastructure, to document and formalize practices. They create a legal entity and build a nice building with a pediment and a frieze. Now you potentially have a principal-agent problem if the board and folks who run it can make big bucks and run it for their own benefit or a club of insiders.

Software is eating the world, and blockchain is how it eats this sort of coordination problem. You enshrine the rules of the exchange in peer-to-peer software which every exchange member runs and which uses a common blockchain distributed over all members’ computers.

Now you don’t need an exchange floor, and you don’t need a rules committee, or much of an organization at all, the rules are enshrined in the software, and the members run all the IT. Now, no matter what political shenanigans ensue, no one can change the rules unless everyone agrees to run new software. If only some of them switch, you have a fork, and effectively two exchanges competing until one wins. The exit-voice problem is turned on its head. In order to change the rules of the game, you have to get everyone to agree to run the new software.

If you were starting an exchange, or any kind of market design today, frequent-flier miles, Wikipedia, organ transplants, would you rather enshrine the rules and data in a legal form, in a central organization, or in software?

For many collective action problems, software is just better. Not necessarily because it works better, but because it’s transparent and has built-in resistance to shenanigans. (Here’s a good explainer.)

Does it eliminate shenanigans completely? No, you still have governance, politics. But it moves everything into the software and the blockchain where it’s transparent, and no one can unilaterally change the deal. This is has potential to be a proverbial Big Deal, a game-changer.

Is blockchain better in every way? No. Anything that can be done on the blockchain can be done much more simply, much more efficiently in a centralized database. But that database is a nexus of principal-agent problems. It can be hijacked. Blockchain is a CAP tradeoff to perform very well in terms of availability and surviving network outages, but poorly in that consistency is potentially very eventual when it’s under strain. When the database is distributed among the users, it’s highly resistant to shenanigans but not necessarily highly performant.

How much does performance and efficiency matter? Communists made the argument that capitalism is not very efficient. Capitalists spend enormous resources on advertising to get people to consume, you have dozens of varieties of corn flakes, you have four gas stations competing on four corners of an intersection. What a waste!

But capitalism is extremely effective at giving people incentives, at innovating, at searching the solution space for best practices. In other words, at evolving.

As Darwin said, “It’s not the strongest of the species that survive, nor the most intelligent, but those that are the most responsive to change.”

Sexual reproduction wastes a huge amount of energy that could possibly be better put to use acquiring food and resources for survival. But it allows the species to rapidly mix and match features, to evolve rapidly.

In a similar way blockchains may be quite complex and inefficient in computational resources, but they may be a catalyst to allowing many institutions to evolve, to rapidly test a large number of new organizational models and incentive structures.

Technology seems to advance by alternately taking things apart and then putting them back together. We went from highly centralized and integrated mainframes to distributed PCs, back to cloud computing, which is an evolved mainframe model built on virtualized PCs emulated in software. (Predicting that in 1984 would have been a 1-way ticket to the loony bin.) We went from AOL and Compuserve to the unbundled, distributed Web and back to Facebook and Google walled gardens. Mammals replaced dinosaurs, and at each iteration capabilities improved.

Unbundled, modular, open systems evolve faster because we can rapidly add and improve individual parts, like Unix or an industry standard architecture PC with expansion slots. When we reach a point of diminishing returns, when we have fully explored the search space, when we have figured out best practices, we can usually improve it by building a highly integrated system, like an iPhone. Integration makes it possible to simultaneously optimize all the hardware and software components to work well together.

Eventually, technology will evolve again, and perhaps a more open system will regain an edge in mobile devices. But when a highly refined, integrated and optimized system works, it’s a thing of brutal beauty that destroys everything that competes with it. (I’m thinking of the old IBM, Microsoft Windows, and the iPhone).

More likely than something replacing these apex predators, they become commoditized and cells in higher-level, even more evolved organisms. (Artificially intelligent robot swarms coordinating peer-to-peer? Everyone living in a virtual reality matrix? Who knows what the next level of evolution may bring.)

I think Bitcoin and blockchain should be seen in the light of this dichotomy, this swing of the pendulum between open and distributed v. centralized and integrated. The pendulum has swung too far towards centralized cloud services and the ‘Fearsome Foursome’ of Facebook, Apple, Google and Amazon (maybe the ‘Frightful Five’ with Microsoft) owning our lives.

Over the next decade I foresee huge pushback against the Facebook/Google/Apple mobile/cloud model, and crypto, blockchain, peer-to-peer apps will be a big part of that.

The smartphone/cloud (and especially Facebook) is Huxley’s soma – we are addicted to notifications and ‘likes’.

The smartphone (and especially Facebook) is also Orwell’s telescreen. You carry it everywhere in your pocket and it monitors all your communications, everywhere you go, whoever you interact with, even in real life.

Some people buy cloud microphones for their kitchens and bedrooms and pay big tech companies to spy on them. Even Orwell wouldn’t have dreamed of that.

Big Brother uses AI to learn your greatest fears and desires and what to show you when, to optimize you for engagement and manipulate you into clicking.

The level of data collection is more than a risk, it’s a practical guarantee of totalitarianism. The only question is whether it’s techbros and rogue AIs who are going to watch everything you do and create the rules of the marketplace to determine what you see and watch; or the state; or thugs who hijack it to gain power.

And the drive for clicks drives extremism, because extremism = engagement.

The beauty of 30 years of open market free-for-all tech evolution and exploration is giving way to brutal centralization and integration. That’s why a free and open internet in the form of net neutrality is so important, and the need to resist authoritarianism in all its manifestations.

I think 20 years from now the Bitcoin frenzy may be looked upon as a fad. Bitcoin isn’t going to topple the financial system. Blockchain will be adopted as a sustaining innovation by banks and governments. To some extent, after the crash, Bitcoin might survive in various niches at a plausible market value, and slowly start a climb up the slope of enlightenment to the plateau of productivity.

But the frenzy also reflects a desire to challenge centralized power structures. People are dissatisfied with institutions. Wealth and power are centralizing and gaining commanding technological advantage over the individual. Blockchain and peer-to-peer crypto paradigms will challenge centralized power structures in unforeseen ways.

Imagine a boot, stamping on a Bitcoin symbol, forever.

God bless us, every one – Tiny Tim (and Andrea Bocelli)


OK, here’s a Sunday rant on guns.

I’ll start at the outset by saying I’m not a huge fan. I was a kid in New York City in the 70s when there were 5 murders a day. Being a city boy, and especially at that time, colors my reality. It’s not great to live in a town where most taxi drivers have a weapon under their seat, many bodegas have a weapon behind the counter, stray bullets are a risk to consider. Knowing there are a lot of crazies out there colors my reality.

There are some people who make the argument that a society where more people are armed is somehow better. I’ve seen it and it’s not. If you don’t understand that the point of politics and civilization is to not sort differences out with weapons, you can probably stop reading, if you somehow got this far.

The argument that ‘you can’t regulate evil, if you regulate weapons, only criminals will have weapons’ is absurd on its face. You criminalize the activity, and you also try to reduce harm. We try to minimize harm from all kinds of devices and activities, from Kinder eggs to Sudafed, even if it’s not 100% effective.

‘The only way to stop a bad guy with a gun is a good guy with a gun’ is also absurd on its face. Of course, the good guys, i.e. trained law enforcement and security personnel, should carry guns when necessary. And also, of course, if it’s possible to keep LV-style MacGyver automatic weapons out of the hand of the bad guy or crazy guy, you should try to do that.

‘Guns don’t kill people, people kill people.’ Yeah, people with guns. Do you want to keep nuclear weapons out of the hands of Kim Jong Un? Then you understand why I want to make it harder for my crazy neighbors to have guns.

‘Terrorists can kill people with knives or trucks, do you want to ban those?’ The old slippery slope argument…you’d have to ban sticks and stones too. Well, until a lone lunatic kills 58 and wounds 500 with a knife, that is the dumbest argument in the world. And maybe it would be a good start if we applied motor vehicle licensing, safety, insurance standards to deadly weapons. I have seen, with my own eyes, libertarians question the morality of having a DMV. Inexplicably, the same manifestly stupid argument gains credence when applied to managing the externalities and costs imposed on the innocent victims and on the public by deadly weapons.

If you live in a relatively safe city or suburb and you think a gun makes you safer, you’re almost certainly wrong. You’re much more likely to get shot if you own or carry a gun. You may think you’re a responsible, well-trained, level-headed gun owner, but probably so did every other parent who got shot by a toddler. You’re probably not as special as you think. On a bad day, normal people are susceptible to alcohol, murderous rages, depression and other mental illnesses, and guns don’t make any of those things any better.

The cost of easy access to guns is very high. This Las Vegas massacre is going to be 10 figures of direct costs for medical, first responders, lawsuits. Years of recovery from physical and psychological trauma for survivors. Then there are all the loved ones who will not have a spouse, a parent, a child. Then there is the fact that every cop who approaches a car has a risk of encountering a gun, the reality that their first responsibility is not to serve the public but to live through the day and go home at night, making trigger fingers itchy. Despite the fact that that society is less violent than ever, acceptance of police-state tactics is increasing. Places with fewer guns have fewer murders, have higher trust in law enforcement and in society generally.

That’s an example of what I tend to view as the fascist-libertarian nexus. Arguments in the name of liberty lead directly to and justify authoritarianism. As George Washington said, “Arbitrary power is most easily established on the ruins of liberty abused to licentiousness.” People make the strange argument that the Second Amendment is a check on tyranny. Strange, because the Second Amendment wasn’t put there to license war against democratically elected government, or treason, or rebellion. When a minority group protests, with some justification, that a tyrannical government is using excessive force against them, with bad shootings caught on video on a regular basis, the people who self-identify as pro-liberty seems pretty quick to label the protesters as terrorists. When it’s oppressed ranchers on Federal land, it’s one thing, but when it’s Black Panthers marching in the streets with guns, even Ronald Reagan and the NRA can agree that open carry is an act of violence. When the disenfranchised try to exercise freedoms, even to protest peacefully, it somehow becomes a huge problem. If you’re making freedom arguments which only apply to people who are already empowered, it bends toward fascism and feudalism.

Let’s face it, a Muslim does this, people go nuts. It’s a new 9/11. They hate us for our freedom! A black man does it, you’ll seem some colorful language on social media. White man does it, crickets. It’s the price of our freedom! You cannot tell me race, fear of the ‘other,’ latent prejudices, aren’t key factors driving the disparity in emotional and policy response.

The Second Amendment maximalist argument is, in my opinion, a complete red herring. The Second Amendment contains the clause, “a well-regulated militia.” It explicitly foresees regulation. The NRA conveniently omits that clause, perpetrating what Warren Burger called a fraud on its extraordinarily gullible members.

The Second Amendment came out of debates over desirability of standing armies, need for slave patrols, fears that the Federal government would ban slavery or otherwise intrude in the affairs of individual states. The ‘well-regulated’ clause is saying, the motivation of this amendment is that the Feds may not ban and assume functions of legitimate state and local armed militias, police forces, national guards, etc.

Of course it also bears on individual rights to bear arms. But at some level you have to draw a line and say people cannot have personal RPGs, machine guns, WMDs, or something. Machine guns and guns above .50 caliber seem like a pretty reasonable limit, which is currently enforced (with obvious loopholes, i.e. Las Vegas.). A system to keep guns out of the hands of known organized criminals, convicted felons, domestic abusers, mental patients, and people who could not be part of any ‘well-regulated militia’ seems both reasonable and falling clearly within the language and intent of the Second Amendment.

When you read any part of the Constitution, or any law, you need context. The First Amendment says Congress shall make no law abridging freedom of speech. But you have to read it, or any law, as “you shall not, other than to the extent reasonable and necessary to protect other rights and enforce other parts of the constitution.”

Many, many crimes are essentially speech: trademark infringement, fraud, conspiracy, child pornography. You cannot argue that the First Amendment means you cannot be convicted of fraud, or conspiracy to commit murder. Well, you can argue that but you will lose. Once the speech becomes the nexus of a criminal activity, it is no longer just speech. In order to preserve the other rights in the constitution, like patents, it becomes necessary to construct reasonable limits around what is considered protected speech.

These are common sense reasons why regulation around guns is unavoidable and explicitly Constitutional. That being said, I recognize that every place isn’t New York, people have strong views about guns, there are different cultures and realities on the ground. If you’re in a rural area with no law enforcement response within an hour, exposure to nearby drug and human trafficking, etc., the context is very different from being in a safe city or suburb. And even if not, there are just different cultures and views on the matter which should be respected in a democratic society.

I accept that people in Maine will have a different view of firearms than people in Boston, so for the most part, I would leave the gun question to states and local governments.

However with freedom of travel and commerce, you cannot effectively restrict guns in Boston if anyone can drive to Maine, walk into a store, buy firearms, get back in the car, and drive back to Boston. (or Chicago/Indiana)

Here is the approach that would make sense to me.

In order to enable state and local regulation, you must have Federal registration of all firearms. You want to own firearms for self-defense, hunting, sport shooting, you and your guns have to be in a national database. The gun’s ballistic signature is in the database. Your fingerprints are in the database. You want to sell or gift the gun, you have to make sure to update the database under penalty of Federal law. Whenever the cops pay you a visit, they get a popup noting what guns are associated with your address, car etc. A crime gets committed, the cops look up who has the weapon and what its chain of ownership was.

If you are a Boston resident, you buy a gun in Maine, the Boston PD gets a popup. They maybe pay you a visit, ask you where the gun is, remind you of the local gun laws. If it’s for skeet shooting at your place in Maine, that’s fine. Just comply with your local laws and keep the records updated.

Local regulation, which states and municipalities might wish to consider:

  • Safety and responsible gun ownership training.
  • How weapons may be stored, transported, etc.
  • Background checks.
  • Additional limitations for felons, certain violent non-felonies like domestic abuse accusations, subject to due process. Mental illness limitations.
  • Inspections. If you have a lot of guns, the government can inspect that they are being stored safely at the location they are registered to.
  • Biometric safety devices, so only authorized individuals can access or fire them; geolocation.
  • Insurance, financial responsibility if your weapon is stolen, misused.
  • Taxes on guns, ammunition to pay for the regulatory regime and the significant economic externalities of gun ownership.

This would be the American way, I think. Move the debate to the local level, so it’s not, Washington wants to take away your guns, and let local communities determine what common sense means to them.

We’re in a vicious spiral of loss of trust in government, institutions, each other. Americans support gun laws that would make a difference, but can’t get them passed, further eroding democracy and trust. They don’t trust the government to keep them safe (even though it’s hella safer than it used to be), so they buy guns. Then every argument carries the risk of deadly escalation, whenever someone reaches a breaking point there are potentially dozens of casualties. Then cops militarize and sometimes escalate unnecessarily, further worsening trust.

We don’t want to go back to the Wild West. Harsh local restrictions probably won’t make a very large difference in gun deaths. But a comprehensive approach would reduce gun deaths, the terrorism threat and irrational fears about it, and help restore trust in cops and democracy.

It’s probably going to get worse before it gets better. But it’s up to us to remake those institutions and that trust, or turn into Argentina with nukes, or worse.

A Google teachable moment, or the end of Western civilization?

This anti-diversity manifesto has been making the rounds, with calls to avoid “socially engineering” diversity in response to “veiled left ideology”, to “de-moralize diversity”, to “de-emphasize empathy”, to “prioritize intention”, and to “be open about the science of human nature” which is claimed to confirm a lot of right-wing priors and stereotypes.

I have questions for the author… Really? You don’t understand that a corporation is a form of social engineering for specific objectives? You don’t know that small effects at scale result in disproportionate impacts? You don’t realize that results matter as well as intentions?

And you don’t understand that, at Google of all places?

According to you, Google’s new motto should be, “Don’t do evil, but if evil is caused by our biases or actions, prioritize intention?”

If you don’t know that all companies, all engineering is social engineering, but especially Google, then you don’t know engineering, you don’t know society, and you really don’t know Google and aren’t doing your employer any favors.

You really think the rest of the world is going to look at this and say,“sure Google, go ahead and remake the world in the image of engineers like you? We’ll just be over here, blissfully watched over by your machines of loving grace?”

Immanuel Kant’s categorical imperative is a foundation of Western Enlightenment ethics: “Act only in accordance with that maxim through which you can at the same time will that it become a universal law.” It’s the Golden Rule taken to a logical extreme: Treat others as you would like to be treated. Think globally, act locally.

Is possible to act that way all the time? No. Not even if you’re some kind of saint. You have to be a little crazy to say, software should be free, so I’m only going to use free software because if everyone did that the world would be better.

Who can even say what the consequences would really be? It’s a foundation of ethics to think through the consequences of your actions and act accordingly, and yet, to predict the consequences of any universal law (or anything) is also an act of hubris.

The Ayn Randian view is that everyone should act for their own benefit. Government and even altruism is immoral. That’s even more extreme than Kant. It ignores the fact that humans do anything worthwhile in groups, not just as individuals, and organize into hierarchies with rules, enforcement.

A more enlightened Randian view is that everyone pursues his or her own self-interest, but does so strategically. Governments and charity can be social contracts that people enter into freely to promote the good of all.

Game theory, where everyone acts strategically in their own interest, is an antithesis to Kant. Treat others as you would expect to be treated. Think globally, strategically about how everyone else will respond, then act locally, in your own self-interest.

The synthesis, is how do we build a society of laws, institutions, corporations, and technology like Google, that lets imperfect humans, who are boundedly ethical and boundedly strategic, work together to survive and prosper?

If you’re human, you have intelligence. It’s the apple from the tree of knowledge. In no earthly religion or philosophical system do you get enlightenment or salvation based on good intentions. You have to think through the consequences of your actions. You are free to choose but not to escape the necessity of choice, and the consequences.

The sentiments expressed in the screed are, to be generous, immature. It’s what happens when a smart kid’s idea of the way the world should work confronts a reality where if you want diversity, you have to measure it, understand where and why it falls short, and take steps to fix it.

Is he even claiming that Google bends so far backwards for diversity that it damages the company’s ability to deliver products and attract great people, or just that it offends his sensibilities about how things should work? None of these abstract suggestions are going to make Google a better company.

Less generously, it feels like toxic social media drama by self-appointed culture cops, people making waves because they can and because it gratifies some impulse to make a dent in the universe.

Does he think it’s his job to determine Google’s values? Does he really think Larry Page and management are going to welcome criticism of their values as a constructive intervention, and it’s going to make Google a better place? Or is it just someone who lives in his own reality bubble with an inflated sense of his own importance, and/or thinks social media pot-stirring is normal in the workplace?

Lately it’s become acceptable to make anti-social statements against women, men, blacks, whomever. Some of the people who deride PC ‘snowflakes’ also generate a lot of outrage at any perceived slight, sometimes to the point of veiled threats. It’s a dangerous decline in norms of civilized behavior. We should be thinking carefully about who benefits, who is promoting it, and why, and how we defend freedom while at the same time defending ourselves against stupidity, and people who abuse their own freedom to take it away from others.

UBI, health care, welfare economics and asshole economics

People sometimes ask me what I think about Universal Basic Income (UBI).

TL;DR it’s just a name…I’m skeptical of any radical implications…what matters is the marginal rate.

There are societies that let people starve in the streets. We are not one of those. Voluntary giving is laudable, but it’s even more laudable for a society to say, everyone will contribute to helping the least fortunate who are too old or too ill to earn a living.

If you agree that we don’t just let people die and there should be some minimal safety net, the fair thing is for everyone to contribute. It’s people taking shared responsibility, today I help you, tomorrow maybe you help me.

Once you agree to some minimal safety net, you agree in principle to something like UBI, we’re really just debating how much, in what form, under what terms.

  • You can provide assistance in kind, like soup kitchens, homeless shelters, free clinics.
  • You can provide scrip that can only be spent on approved items, i.e. food stamps.
  • You can provide cash.

You can provide assistance to anyone who asks, or you can have people apply and determine whether and how much assistance they are eligible for, according to some need-based criteria.

When I think of UBI, I just think of some amount of unconditional cash, recouped by a tax from higher-income folks. So basically no-strings welfare.

UBI has advantages. No bureaucracy. No arbitrary determination of eligibility. No restrictions on spending. Just give people cash that they can freely decide how to spend. High freedom, low overhead.

A lot of people view those as features. Some people might view them as bugs, taking the view that only the ‘deserving’ should get assistance, they should have to work for it, they shouldn’t be able to spend social assistance on beer or Twinkies, etc. (Paternalism FTW? Government should stay out of people’s business…unless they’re poor?)

I have trouble generating strong feelings about it. Whether the safety net should be partly in the form of UBI is unimportant compared to the size of of the safety net and the marginal rate structure, i.e. how much you get to spend out of every additional dollar you earn.

I have strong feelings about two pet peeves. The first is the discussion tends to be mostly woodshedding. People get worked up about small pieces of the picture. It’s meaningless to say I like UBI, or food stamps, or don’t like sales tax or VAT because of the distribution implications. The only thing that really matters is the distributional effect of the whole system, i.e. the marginal rate structure. If a particular tax or benefit is efficient, you can always offset the distributional impact elsewhere. You can even have a progressive VAT. You can’t divorce a benefit like UBI from how you pay for it. You have to look at the efficiency and distributional impact of the whole system, not each individual component.

The second is, it’s pretty hard to be poor in this country. The system is built around the needs of the wealthy and middle class. In some countries you can be poor and have very little in material possessions, and you can manage, live, work, your kids have opportunities. In America, in a lot of places if you don’t have a reliable car, you can’t get to work, if you don’t live in the right place you can’t get a proper school, and don’t even get me started on access to minimal, basic medical care. People seem to think that’s part of being poor but it’s really not. There are countries where you can live with dignity on a low income.

It costs a lot to be poor in America, even at a level of income which would be middle class in most other countries. It’s practically a crime to be poor, there’s a war on poverty, but not in the sense LBJ meant it.

You could get lot of bang for the buck improving the supply side for poor people: cheap housing and transportation.

Personally, I think for sure there should be soup kitchens, free clinics, homeless shelters, a real rock bottom safety net.

And there should be a marginal rate structure without perverse incentives. We should ensure it really pays to work, if necessary subsidizing initial wages via the EITC, not taxing people 17.65% on the first dollar when they start to work. And especially we should avoid benefit cliffs, where you lose a lot of benefits when you reach a certain level and so it doesn’t pay to earn an additional dollar.

Those are the most important: A secure minimal safety net, and a rational marginal rate structure. People find meaning through work, taxpayers who work hard get cranky when people get benefits and don’t work. Welfare queens and rich panhandlers are media stock-in-trade. See Exhibits 1, 2, 3.

Politically, I think UBI is a hard sell, because you have to reclaim the UBI from high earners to balance the numbers out. You give people something and then take it away, they feel worse than if you never gave it to them in the first place. And giving money for nothing to the poor, no work requirement, just annoys them even more.

It seems like a political loser, and raising UBI to a level where the ‘basic’ means everyone has basic needs met, no-strings-attached, seems to entail more redistribution than a lot of people want. It’s possible that in the future, robots and automation will make so much labor redundant that we will need more redistribution just to avoid mass poverty. The robot singularity is something we should keep an eye out for but might as well deal with it if it becomes a problem.

Ultimately I don’t see UBI as an anti-poverty game-changer. It could be part of that rational marginal rate structure.  I like the simplicity of UBI more than, say, food stamps and a hodge-podge of local and federal welfare programs with complicated administration, eligibility.

I just don’t think you can make UBI a complete substitute for in-kind assistance, then let the market deal with everything, food, health care, housing, education.

While I’m at it, I find it pretty inexplicable that Obama passed a health care plan that is basically private insurance for about 1/3 of the uninsured, while creating a multi-$100b+ bonanza for insurers, hospitals, doctors, and big pharma, and the GOP wants to reverse it, take away health care from 20-30m Americans. Asshole economics is too kind, it’s just politics to piss off liberals and most people who aren’t cray-cray.

Again, we don’t let people die in the street. So at some level society pays for that minimal care, the question is how. It’s extraordinarily expensive in human and cash terms to have EMS and emergency rooms deal with things that shouldn’t be emergencies. There are armies of people employed to push costs on other people, often in sketchy ways, getting in the way of doctors trying to provide the best possible treatment, and there are a lot of expensive, not necessarily helpful tests and therapies.

This is how I solve it, with a 3-level system:

Essential care: dedicated NHS-like facilities funded by a dedicated tax, like a 3% payroll tax. Free clinics and hospital beds. Tax proceeds go to the states to provide care, as long as it’s within guidelines. Services are going to be basic. Nothing non-essential. There are going to be waiting lists for surgery. You are not going to get a $1m liver transplant. If people make a fuss that it’s crap, then improving it means raising that dedicated tax. Social contract is, you aren’t going to die in the street, but if you want top care you will have to pay for it.

Normal care – something like Obamacare – everyone can buy a health plan on more or less a level playing field, whether they are corporate or not. And everyone who can should, in the sense that you get some subsidy if you do and some penalty if you don’t. If anything, there should be more teeth to the Obamacare penalties to prevent free riders. If you pay 28% income tax, and health care is paid by your employer out of pre-tax dollars, there is currently a 28% tax subsidy there. I think as a moral imperative we should apply that subsidy to everybody.

And then of course if people want more they can buy it on the free market.

I don’t see how you can reasonably reconcile, don’t let people die in the street outside the hospital, with anything short of a single-payer system at this point. Anything less seems cruel and perverse and actually endorsing a free-rider situation instead of a rational scheme for indigent care.

Anyway, I find the low quality of the debate distressing. We should be able to agree that we will not have people die over toothaches. We should be able to agree that the current system delivers poor care and enriches a few in strange ways. And it’s pretty messed up that you will basically go broke if you get sick, sometimes even if you have insurance. We can argue about what constitutes a minimal acceptable level of care and what is a fair way to pay for it. But a system where you exclude people arbitrarily, everyone has to fight the system for basic care, we have poor outcomes, and pay a ton of money, should not be acceptable to anyone and we should be talking about ripping it up and starting over.

Straight talk on Trump and Russia

We have now sunk to a depth at which restatement of the obvious is the first duty of intelligent men. – George Orwell

  • The report that taught me the most this week is this interview with Natalia Veselnitskaya. The Russians have decided Trump is worth more dead than alive. If that’s not the case this interview doesn’t happen. [Edit: Others also seem oddly talkative.]
  • Mixed reports on Veselnitskaya: Browder, who would know, says she’s Russia’s point person on Magnitsky Act sanctions; Bershedsky says she’s a nobody, more like an AG Schneiderman repping some local oligarchs than a Kremlin power broker; Ioffe says she’s connected.
  • Bottom line, if Putin doesn’t want her to throw Don Trump, Jr. under a bus, it doesn’t happen. She is in a position to know that interview serves her patrons.
  • Veselnitskaya went to Trump Tower, said Russia can help…But first, are you going to lift sanctions and let oligarchs move money around free from worries about seizure? That’s what Russia is talking about when they talk about adoptions and sanctions. (Edit: she brought along a Russian ex (?) GRU specialist in hacking dirty tricks.
  • So then what happened? Hardly likely that was the end of the matter, given subsequent events: multiple hacks; Trump harping on emails, being very solicitous of Putin; the untimely demised Mr. Smith tracking down hackers who might have had Hillary’s emails; meetings with Kislyak, VEB, the infamous backchannel through Russian communication facilities.
  • Trump’s problem is that having taken Russian help, and it being public, he is now no longer in any position to deliver them anything of value.
  • Maybe the source of the Don Jr. email was Russia: Manafort was on the email chain, given his Russian connections, he might (recklessly) have inquired about it with some trusted Russian who now has an interest in releasing, or he might be sending a message by releasing it now.
  • Maybe the Mueller investigation is about to bear fruit and the plan is to get ahead of it and try to pin it all on Don, Jr., and then have the president pardon him. So incriminating himself could be a feature, not a bug.
  • If it didn’t come from Kushner or Manafort, it would have to be someone they or Jr. forwarded it to, or someone who intercepted it, like a US or Russia three-letter agency, or a deep Trump organization mole (I would be tearing out walls Billions-like if I were the Trump IT guy, and it would make my day if a lowly IT guy went Snowden on Trump with an email dump.)
  • In any event, the Trump presidency is walking dead. It’s over, in terms of major legislation. Once you’re worth more dead than alive to both Vladimir Putin and Mitch McConnell, your days in office are probably numbered.
  • Even a hardened cynic can only be appalled at these events, at the people who still deny or excuse a Russian entanglement, think it’s somehow business as usual for presidential candidates to ally with the KGB/GRU, or that loyalty or expedience makes it worth defending. Or respond with propaganda that would make Goebbels proud, even if they can’t pronounce Goebbels.
  • If deference to Vladimir Putin, a man credibly accused of false-flag bomb attacks in his own cities to consolidate power, is the price of keeping the alt-right / tea party on side, and that’s not electoral poison, if not in primaries then in the general elections, maybe there is something to the idea that the West is unwilling to defend its values.

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