Sport vs. Game

Some of the most fun things in the world are those that can be debated. Is Nascar a sport? If not, what defines a sport?

My preferred definition of a sport is when a game is played and the sides interact with each other. By my definition, golf is more of a ‘game’ and less of a ‘sport’. As a test, if it is something you could learn to do in isolation, and then compete at the highest level, it’s probably a game.

My definitions get into some tricky spots, like gymnastics, where the other team’s score may determine the difficulty of a performance, but where theoretically the opponent might not matter.

There is a second differentiator. Since my sports require an opponent who interacts, (i.e., basketball, not really darts), sports typically have a current metagame. Like basketball, where the best teams vacillate from being full of “bigs” who dominate the rim, to playing small ball. In fact, an NBA team’s success depends largely on whether they are built to compete with the rest of the league at that moment as opposed to how objectively well they play basketball (whatever they means) as a gymnast may be judged, or a sprinter timed.

A sprinter and a weightlifter are both competing to achieve an end, the way they get there doesn’t matter much. Some of the most beloved figures in ‘sports’ are people who transcend that boundary. Tiger Woods made golf feel like a sport when his opponents melted away on Sunday week after week as he demolished his opposition.

Like most things, it’s a continuum, very little is perfectly a game or perfectly sport.

Advisor EQ vs IQ

The man, myth, and legend, Carl Richards, recently tweeted:

And I could not disagree more.

Richards is right, that there are plenty of otherwise good advisors who can’t communicate expert ideas at a beginner level and fail to connect with (especially) their less financially-fluent clients.

But there is another side, and I’d argue at least as important and more numerous, which is made up of advisors who are great at sounding convincing, but couldn’t calculate for the time value of money if a financial calculator hit them on the nose with NP, PMT, INT, and FV already punched in.

These are the kinds of shucksters who make calculations for 60 years out and don’t bother to discount the number for inflation or opportunity cost. I’ve talked with many of them, and frankly I think it’s less of a Sinclair problem and more of an intellectual firepower and technical skills problem.

To be fair, I think EQ has probably been underrated for a long time in most advisory professions (tax, law, finance, etc.), but it doesn’t seem to me to be the case any longer.

Somebody Asked Oxfam Questions

And Oxfam (which sounds like what millennial gym-friends might call each other) answered. They did not disappoint. That is to say, came off sounding one-toned and ignorant of their obvious disconnect from reality.

If it turned out that Oxfam was a strawman propped up by multinational firms just to make their detractors look incompetent, it wouldn’t be a surprise.

4. Oxfam talks about inequality but you pay your bosses’ fat-cat salaries – isn’t that hypocritical?

Oxfam is a confederation of 19 member organizations. The salary that each Oxfam pays to its own Executive Director differs – reflecting the size of the organisation as well as national market realities. In each case, the salary paid is entirely consistent with the individuals’ responsibility for running an organisation that is part of a major international humanitarian and development campaigning NGO.

As Tyler Cowen would say, market-based compensation for me but not for thee.

Next up, Oxfam conflates giving to charity and tax-dodging.

Giving the People What They Want

When it comes to stock markets, big firms like Goldman know better than anybody to give the people what they want to see. Witness, this slide:

It’s not crazy, it’s a path the market could conceivably follow, but a closer look is instructional.

  • Note how it isn’t simply a line up and to the right, there’s no obvious profitable action to take on a forecast like that. Something like this, well certainly.
  • It has an ‘up’ component built on “hope”, so if it doesn’t materialize, we can chalk it up to the markets being surprisingly rational, not our forecast being wrong.
  • The numbers and timelines are conveniently round, simple to interpret for ever the layest of laymen.
  • If the market goes up (most likely), goes down 5% at some point in the next 12 months (also most likely), and resumes the climb, success can more or less be claimed.

This chart is beautiful, if only for its ability to inspire the average day-trading dentist or pension fund trustees.

Before we leave, let’s take a look at a couple of other ads on the page and appreciate them for what they are, a dazzling ode to confirmation bias:

Like an eclipse, I recommend not viewing these kinds of things directly, they will blind you. However, if you must take a closer look, bring #14 welder’s glass or a pinhole camera.

You Have a Higher Net Worth Than the Bottom 37%

The very interesting-sounding statistic that launched a thousand retweets is once again making the rounds because oxfam is milking it yet again has updated their annual report.

That’s right, it’s time to find out about wealth inequality. Statistic wording of choice this time, “Eight richest men are worth the same as HALF the rest of the world.

Now, this statistic sounds interesting, but is actually very stupid highly misleading. The actual interesting statistic, courtesy of Jacob Falkovic, is that the total net worth of the bottom 37% is a tiny smidge above zero. I imagine this will need updating with the latest report, but I doubt it changed much.

That’s right, if you have a positive net worth, you are wealthier than the bottom 37% combined. I suspect this is related to the fact that China and India have about 36% of the world population and not a huge amount of its wealth, and when you add in a few dozen million of the people who have the largest negative net worths (new doctors, lawyers, etc.), you get to a negative figure.

Try not to be too hard on anyone who shares the stupid fact, they are smart enough to know there is something interesting there.

We Already Have UBI

Edit: This podcast from Econtalk on the same subject came out a day after this post (coincidence? I think not) and was a worthy listen.

Universal Basic Income (UBI) is a concept that has gained significant momentum over the past few years, and is ubiquitous enough that most people are now at least passingly familiar with the concept.

I’m here to break the news that we already have it. Social Security is effectively a UBI that is limited to the elderly (perhaps that means the “U” in UBI needs an asterisk).

According to the SSA, nine out of ten individuals over 65 receive benefits, and I’d wager a few more tenths are waiting to claim either at their FRA or at age 70. Most of the others who don’t qualify probably receive another pension.

Most UBIs have a flat payout, not a formulaic one, but if I were a gambling man, and I am, I’d bet we see flattening payouts as part of the solution to the demographic problems the Social Security system is on track to have. Benefits for high earners are already significantly lower relative to amounts paid into the system thanks to the “bend points“. It would be a natural extension to have earners over a certain amount pay in but not increase their benefit, or to change the current bend points, or both.

This would exacerbate the “problem” of social security alone not covering pre-retirement cost of living, but would allow using social security as a ‘floor’ for the standard of living that we want to allow people to live at.

And, a natural extension of not wanting Grandma living under a bridge eating mustard sandwiches is that we don’t want anyone under a bridge eating mustard sandwiches. There are a lot of subtleties in moving from Grandma to everyone — e.g., if Grandma is eating mustard sandwiches she might not have any viable way to earn an income, while someone younger might, and maybe there are a few 20 year olds who would not work if you guaranteed they did not have to live under a bridge. This is the danger of making UBI equal to the cost of rent + food + netflix. This is called retirement, and most people find it perfectly acceptable from age 65+.

So the question, then, is: Do we wish to allow everybody, if they wanted to, to retire and watch netflix all day? It would certainly make some people better off, but the costs would have to be absorbed by others.

If the answer is yes, we have a fairly easy framework to implement with, simply allowing earlier and earlier (perhaps at more and more reduced amounts) filing for social security.

Jack’s Links

  • Brazil’s Austerity Experiment: Scott Sumner walks us through some of the problems with ascribing any of the future economic success/failure of Brazil to the coming austerity. Very useful to learn how to think about economics. Also, Vox still sucks.

Might austerity hurt the supply-side of Brazil’s economy?  I suppose anything is possible, but it’s hard to see how.  Unlike China, Brazil’s high government spending goes to things like public pensions, not infrastructure.

Jelinek interrupted, according to people who were briefed by Chenault about the call, and told him that as far as he was concerned, Amex was another vendor, just like the one that sold Costco ketchup. “If I can get cheaper ketchup somewhere else, I will,” he said.

  • Health Care Reform: With a h/t to David Henderson for the link to this Bryan Caplan piece from 2012. More relevant than ever.

Gruber mentions people who “think they don’t need insurance because they are healthy” – then condescendingly adds, “They don’t realize that if they do get sick, they won’t be able to afford the care they need.”  Yes, or maybe they’ve weighed the risks and reasonably decided to take their chances.


F#$% the Home-mortgage Interest Deduction

H/t to David Henderson for his link to this WSJ post from Hugh Hewitt on why, though he admits it is bad in theory, he thinks in practice eliminating the HID as the GOP seems to be posturing to do is a bad idea.

I’m here to put my stake in the ground in the “F!@# the HID”-camp.

Hewitt’s point is a little bit subtle, but to my reading basically boils down to two points:

  1. An immediate elimination of all or most of the HID would be unfair to recent homebuyers, or at least perceived that way.
  2. Eliminating the HID in such a way would harm the GOP.

I think its far more unfair to everybody in the country to continue a policy of economic distortion that tends to favor the wealthiest (and most creditworthy) than it would be to reverse such a policy. In fact, I would make the argument that the risk of HID elimination is priced into the market, and we would see even further distortions with a long range phase out like the kind Hewitt mentions.

There are far better ways to subsidize home purchasing than through a deduction that helps those with access to credit, which has increasingly been the very wealthiest.

In economic policy, it seems to me that ripping off the bandaid is almost always preferable to setting up a slow future change if only for the reason that most things that should happen in politics never do, and getting something done, even if the optimal solution was to do it over 10 years instead of 1, is better than the probability weighted chance that you get the optimal outcome versus, for instance, the next administration repealing your plan within 10 years.

Kevin Erdmann has a good post that touches on the HID as he discusses the arbitrary advantages that exist today for owning a home.

If eliminating the HID forces some people into homes they can afford with smaller mortgages, that will push prices down, which will be a benefit to renters, either through lower costs to buy a home or lower rents.

I do not find the argument persuasive that we should continue a policy that creates distortion simply because people have taken advantage of that distortion and would now be harmed if it were undone.

Stock Markets in a Clinton vs. Trump World

Tyler Cowen has a very stimulating piece on doomsayers missing an opportunity to sell short the markets. I think his (perhaps strawman) argument is correct for those whose views he portrays accurately.

However, I think most people are thinking about Clinton vs. Trump more like this:

Meaning: a Trump victory heralds a wider range of stock market outcomes. Tyler might argue that someone who believes that has an opportunity to trade volatility through VIX, but VIX measures a very specific kind of volatility which is far from a necessary condition for a decline in markets.

Another possible answer to Cowen’s question about why people aren’t putting their money where their mouths are is that most of the people merely expect worse outcomes for the stock market, but not negative returns. If we knew for a fact that for 4 years under Clinton the market would go up 10%/year and for 4 years under Trump the market would go up 8%/year, what would the appropriate strategy change after a surprise Trump election be? Probably not much.

Now clearly this doesn’t affect Cowen’s main claim and question:

When Donald Trump was elected president, some prominent economists predicted disaster for the stock market.

are Trump doomsayers obliged either to stick with that prediction and short the market or to tone down their rhetoric?

I don’t actually know who any of these people are (are we talking about Krugman?), which is probably some combination of my ignorance and Tyler thinking of people as prominent that I don’t follow closely. (And I’d confidently put myself in the 95th+ percentile of people who follow prominent economists.)

I do know of plenty of people who claimed a Trump victory would be a human rights disaster, and while obviously less measurable than the stock market, I think a ‘correction’ for human rights would be just as damaging to society as a correction in the markets.

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Book Highlights: Capitalism, Socialism, and Democracy, Schumpeter, (Part 1: The Marxian Doctrine)

  • Yes, I do believe that most of the current talk about monopoly, like all the current talk about the dire effects of saving, is nothing but radical ideology and has no foundation in fact.
  • capitalism is being killed by its achievements.
  • A study of Marx begins most conveniently with the first volume of Das Kapital
  • In spite of a huge amount of more recent work, I still think that F. Mehring’s biography is the best, at least from the standpoint of the general reader.]
  • But it is perhaps superfluous to insist on the shortcomings of a theory which not even in the most favorable instances goes anywhere near the heart of the phenomenon it undertakes to explain, and which never should have been taken seriously.
  • A little reflection will convince the reader that this is not a necessary or natural thing to do. In fact it was a bold stroke of analytic strategy which linked the fate of the class phenomenon with the fate of capitalism in such a way that socialism, which in reality has nothing to do with the presence or absence of social classes, became, by definition, the only possible kind of classless society, excepting primitive groups.
  • The exaggeration of the definiteness and importance of the dividing line between the capitalist class in that sense and the proletariat was surpassed only by the exaggeration of the antagonism between them. To any mind not warped by the habit of fingering the Marxian rosary it should be obvious that their relation is, in normal times, primarily one of cooperation and that any theory to the contrary must draw largely on pathological cases for verification.
  • But nothing in Marx’s economics can be accounted for by any want of scholarship or training in the technique of theoretical analysis. He was a voracious reader and an indefatigable worker. He missed very few contributions of significance. And whatever he read he digested, wrestling with every fact or argument with a passion for detail most unusual in one whose glance habitually encompassed entire civilizations and secular developments.
  • To his powerful intellect, the interest in the problem as a problem was paramount in spite of himself; and however much he may have bent the import of his final results, while at work he was primarily concerned with sharpening the tools of analysis proffered by the science of his day, with straightening out logical difficulties and with building on the foundation thus acquired a theory that in nature and intent was truly scientific whatever its shortcomings may have been.
  • Both Ricardo and Marx say that the value of every commodity is (in perfect equilibrium and perfect competition) proportional to the quantity of labor contained in the commodity, provided this labor is in accordance with the existing standard of efficiency of production (the “socially necessary quantity of labor”). Both measure this quantity in hours of work and use the same method in order to reduce different qualities of work to a single standard.
  • Both answer critics by the same arguments. Marx’s arguments are merely less polite, more prolix and more “philosophical” in the worst sense of this word.
  • The labor theory of value, even if we could grant it to be valid for every other commodity, can never be applied to the commodity labor, for this would imply that workmen, like machines, are being produced according to rational cost calculations. Since they are not, there is no warrant for assuming that the value of labor power will be proportional to the man-hours that enter into its “production.”
  • To begin with, the doctrine of surplus value does not make it any easier to solve the problems, alluded to above, which are created by the discrepancy between the labor theory of value and the plain facts of economic reality.
  • Marx relies on the competition between capitalists for bringing about a redistribution of the total “mass” of surplus value such that each firm should earn profits proportional to its total capital, or that individual rates of profits should be equalized.
  • If we place ourselves on Marx’s standpoint, as it is our duty in a question of this kind, it is not absurd to look upon surplus value as a “mass” produced by the social process of production considered as a unit and to make the rest a matter of the distribution of that mass. And if that is not absurd, it is still possible to hold that the relative prices of commodities, as deduced in the third volume, follow from the labor-quantity theory in the first volume. Hence it is not correct to assert, as some writers from Lexis to Cole have done, that Marx’s theory of value is completely divorced from, and contributes nothing to, his theory of prices.
  • For Marx, saving or accumulating is identical with conversion of “surplus value into capital.” With that I do not propose to take issue, though individual attempts at saving do not necessarily and automatically increase real capital. Marx’s view seems to me to be so much nearer the truth than the opposite view sponsored by many of my contemporaries that I do not think it worth while to challenge it here.]
  • Now this tendency of the capitalist mechanism to equilibrate itself is surely not above question and any assertion of it would require, to say the least, careful qualification. But the interesting point is that we should call that statement most un-Marxian if we happened to come across it in the work of another economist and that, as far as it is tenable, it greatly weakens the main drift of Marx’s argument. In this point as in many others, Marx displays to an astonishing degree the shackles of the bourgeois economics of his time which he believed himself to have broken.]
  • Finally, the idea that capitalist evolution will burst—or outgrow—the institutions of capitalist society (Zusammenbruchstheorie, the theory of the inevitable catastrophe) affords a last example of the combination of a non sequitur with profound vision which helps to rescue the result.
  • Or capital in the Marxian system is capital only if in the hands of a distinct capitalist class. The same things, if in the hands of the workmen, are not capital.
  • Marxists claim that their system solves all the great problems that baffle non-Marxian economics; so it does but only by emasculating them.
  • Moreover, as every lawyer and every politician knows, energetic appeal to familiar facts will go a long way toward inducing a jury or a parliament to accept also the construction he desires to put upon them. Marxists have exploited this technique to the full. In this instance it is particularly successful, because the facts in question combine the virtues of being superficially known to everyone and of being thoroughly understood by very few.
  • If however we shake off the blinkers and cease to look upon colonization or imperialism as a mere incident in class warfare, little remains that is specifically Marxist about the matter. What Adam Smith has to say on it does just as well—better in fact.
  • For instance, the consistent support given by the American people to protectionist policy, whenever they had the opportunity to speak their minds, is accounted for not by any love for or domination by big business, but by a fervent wish to build and keep a world of their own and to be rid of all the vicissitudes of the rest of the world. Synthesis that overlooks such elements of the case is not an asset but a liability.
  • Big business has been able to take advantage of the popular sentiment and it has fostered it; but it is absurd to say that it has created it.
  • Matters become infinitely worse if, flying in the face of fact plus common sense, we exalt that theory of capital export and colonization into the fundamental explanation of international politics which thereupon resolves into a struggle, on the one hand, of monopolistic capitalist groups with each other and, on the other hand, of each of them with their own proletariat. This sort of thing may make useful party literature but otherwise it merely shows that nursery tales are no monopoly of bourgeois economics.
  • The attitudes of capitalist groups toward the policy of their nations are predominantly adaptive rather than causative, today more than ever. Also, they hinge to an astonishing degree on short-run considerations equally remote from any deeply laid plans and from any definite “objective” class interests. At this point Marxism degenerates into the formulation of popular superstitions.7
  • This superstition is exactly on a par with another that is harbored by many worthy and simple-minded people who explain modern history to themselves on the hypothesis that there is somewhere a committee of supremely wise and malevolent Jews who behind the scenes control international or perhaps all politics. Marxists are not victims of this particular superstition but theirs is on no higher plane.
  • The badge of Scientific Socialism which according to Marx is to distinguish it from Utopian Socialism consists in the proof that socialism is inevitable irrespective of human volition or of desirability. As has been stated before, all this means is that by virtue of its very logic capitalist evolution tends to destroy the capitalist and to produce the socialist order of things.8
  • The capitalist or any other order of things may evidently break down—or economic and social evolution may outgrow it—and yet the socialist phoenix may fail to rise from the ashes.
  • This should also solve the problem that has divided the disciples: revolution or evolution? If I have caught Marx’s meaning, the answer is not hard to give. Evolution was for him the parent of socialism. He was much too strongly imbued with a sense of the inherent logic of things social to believe that revolution can replace any part of the work of evolution.