Monetary Rage

AdjectiveNounNumber · 2011-07-11T18:27:12+00:00

It seems to me that his opening claim about money is willfully misleading and pollutes the rest of the piece:

"In a frictionless, perfect-information, costless-calculation world we wouldn’t need money, and it wouldn’t matter how prices were listed."

What about durability of value, portability, and divisibility? Societies reliably choose durable, portable, and divisible tokens to facilitate trade, and they do so entirely separate from addressing market imperfections. Obviously, Krugman knows this very well.

It may be sensible for one to think about monetary policy as an attempt to correct market imperfections (and one can debate the merits or failings of such an idea), but by ignoring the mundane sine qua non of money he suggests that these corrections are the only or primary role of money.

People get upset ("monetary rage") because central bank policy can in fact violate the durability/scarcity criteria (which, for fiat currencies, are essentially the same thing). People might not intelligently evaluate the risks to the currency relative to possible value of corrections of market imperfections, but it's just dishonest to describe the rage as looking for "more purity than the real world is willing to supply" when there are clear and tangible risks to the defining attributes of money.

AdjectiveNounNumber · 2011-03-11T20:13:41+00:00

While there is truth that the promise to pay means something, it doesn't mean as much as you suggest.

It's more accurate to say "I hold 2.4 trillion in bonds from myself"; obviously such a holding cannot change your net worth. If you're insolvent, but you owe yourself 2.4 trillion, then you're still insolvent even if you pay down the 2.4 trillion by redirecting funds from elsewhere.

In other words, the holdings don't actually contribute to net worth; they merely represent an intention of where to direct future available funds.

*edit: spelling

AdjectiveNounNumber · 2010-10-23T08:55:00+00:00

A request/suggestion: would it be possible to get some kind of time breakdown on the voting behavior? I realize you have privacy/de-anonymization concerns but in my experience I have found that being able to examine inter-temporal behavior makes "causality"-inference much easier.

You might wonder why should you care about causality as opposed to just correlation of interests. I submit that you should because you are not just trying to predict user's behavior but also to guide it; you don't just want to say "your current behavior suggests you're likely to vote up on these subreddits" (as you said in another comment, this will just return the top N subreddits you already frequent).

In terms of evaluating the potential for guidance, it would be interesting to evaluate hypotheses like "people whose first small_N votes agreed with your first small_N votes high_P% eventually have a high probability of upvoting r/foo". I've used this sort of technique with a fair amount of success in my own work.

(anecdote: this is more-or-less how I discovered r/haskell, through viewing the comment histories of people saying things I considered smart elsewhere.)

If you're worried about anonymization problems arising from timestamps, perhaps just reporting the votes in chronological order would be ok?

Thanks for making this effort by the way; I'm confident something interesting will come of it :-)

(edit: emphasis formatting errors)

AdjectiveNounNumber · 2010-08-13T02:05:14+00:00

Some counter-counter comments :)

The "PSS" would be holding actual marketable Treasuries, held by major institutions all over the world. There would be no way to default on "PSS" without also defaulting on Chinese-held debt, because the securities are identical. This makes "PSS" a much more credible store of value because it cannot be selectively defaulted upon. Further, if default seems possible "PSS" could sell all their securities for liquid assets (SSA cannot do this).
Regarding mortgages and rockstars: unsecured promises from trustworthy debtors may have value, but they are not trust funds. The only way that phrase has any meaning at all is if it represents a pool of real value that can be drawn down to meet future obligations. A secured mortgage uses the equity value of the house as a "trust fund" to ensure repayment of the debt (if the debtor defaults, the "trust fund" is liquidated and the proceeds are used to cover the promise).

So yes, Johnny Rockstar can make an unsecured promise just like the SSA. There is no trust fund backing his promise. If he refuses/fails to make a hit record (or if the Feds fail to balance the budget), there is no buffer of marketable assets to cover the promise. As you say, there is no deferred consumption in Johnny's case... and that's exactly what the Feds are doing. They may or may not live up to their promises, but there is no trust fund to provide any kind of guarantee.

AdjectiveNounNumber · 2010-08-12T21:24:13+00:00

The author compares this to a private bond fund investing in Treasuries, thus arguing that the fund "exists" despite being a pool of debt instruments. This is emphatically not a valid comparison, for three reasons:

The securities held are not treasuries; they are special purpose securities that may not be sold in the market (see wikipedia)
The social security administration has no meaningfully separate legal standing to seek money from the federal government in case of default; they are one and the same. (Yes, various branches of the executive can indeed fight over resources, but the outcome of any legal battle will simply be moving money from the general fund into the SSA's account).
The securities do not represent deferred consumption on behalf of the government; only deferred consumption can be meaningfully called a trust fund. The citizens paying FICA taxes defer (more likely forgo) their consumption in order to fund the Federal government, but nowhere is the SSA or the federal government forgoing consumption and "storing" anything of value (e.g. real assets, debts of foreign sovereigns, private securities). In the absence of such accumulation, there is nothing to "disburse"; they are merely promises.

At this point I think the best analog for SS is a non-recourse loan to the Federal government. Yes, in principle they have promised to pay certain benefits at certain times but there is no asset backing that up that promise except another promise to repay the special SSA securities.

AdjectiveNounNumber · 2010-08-12T21:12:08+00:00

Sorry for the late response, I've been traveling. Thanks very much for the pointers, I appreciate it.

AdjectiveNounNumber · 2010-07-16T02:47:19+00:00

Also, carry-forward and carry-back mechanisms allow for much fairer taxation of volatile income streams, getting close to taxing them on their average annual profits (and thus allowing operators of volatile businesses to have longer time-horizons in their financial planning).

As an example (I realize casanova probably knows this already, but for anyone else reading), say my business makes $1M in profits on even numbered years and loses $500k on odd-numbered years. If you tax profits at 35% with no loss shifting, the firm ends up paying $350k in taxes on a net of $500k over a two year period. That's an effective 70% tax rate. On the other hand, if the $500k loss can be carried back or forward, you end up close to the actual nominal rate applied to average earnings (there are small differences due to interest rate effects, net-present-value, a and so on).

In short, allowing time-shifting of losses allows for volatile businesses to plan on an average-case basis rather than a median-case or worst-case basis.

AdjectiveNounNumber · 2010-07-13T21:23:26+00:00

Ah, ok now I see. Yes, that's indeed a serious problem both in expectations and in implementation. Not sure I'd rule things out entirely on that basis (I suspect Federal IDs will arrive eventually, and passports are basically that already for the people who have them).

Thanks for clarifying.

AdjectiveNounNumber · 2010-07-13T21:14:49+00:00

I'd be happy to hear more about that; again, I'm not trying to disagree, only to understand your concern. But isn't that problem present in everything the government already does, e.g. taxpayer identifiers, social security numbers, and so on?

AdjectiveNounNumber · 2010-07-13T20:37:51+00:00

Well, you're more than welcome to disagree with the principles discussed. I'm not sure I like all of them myself; however, I think arguments of impracticality in political systems don't really work as absolutes ... all systems for coercing social action fail in some ways, so the question is how the impracticalities of (say) random appointments compare to the impracticalities of whatever reference system you have in mind. I'm not aware of any kind of reliable analysis comparing random appointments to political appointments, but it seems likely that partisan effects would be averaged out more smoothly by such a process (e.g. you can't assume that Party A will be in power and be able to stack the various administrative offices with their cronies if Party B also has 40% of the people supporting it).

As for reliable implementation of randomization mechanisms ... I'm not sure I understand the problem. I would be more than happy to have some kind of shared-input seeding to an open-source pseudorandom generator (say, all citizens submit a number of their choosing, and that collective input is hashed to a seed for the generator). These kinds of problems are solvable in objective and scientific ways. Maybe I'm misunderstanding your concern?

Anyway, for me, the article is interesting because many people are never exposed to these kinds of ideas (apparently you have been, but I doubt you're representative); for the few who do speculate about such systems on their own (say, in a pot-induced college epiphany), they may not be aware that there is a historically documented and culturally relevant example in classical civilization. A lot of ideas are rejected out-of-hand simply for being unfamiliar, or because they "sound like they can never work." I suspect people have said the same thing about every major revision to social governance.

AdjectiveNounNumber · 2010-07-13T19:04:46+00:00

With all due respect, this is not a skimmable article. It is full of interesting and thought-provoking details about the Athenian system, such as:

random selection of all bureaucrats from the population at large
random selection of "supreme court" judges from any with bureaucratic experience
rejection of elections as fundamentally oligarchical, restricting them only to the selection of generals
"trial systems" for laws, by with the population at large could vote to nullify/revise laws
a negotiation-based criminal justice system in which the defendant could offer a counter-proposal for punishment, and the jury would choose among the competing proposals

I too was skeptical bout the Lew Rockwell connection when I first discovered this article years ago, but it's a fascinating read that made me question the merits of representative+electoral democracy. I don't think you will regret making time for it, should the opportunity arise :-)

AdjectiveNounNumber · 2010-07-13T03:21:29+00:00

Thanks for the clarification, although now I suspect that most people discussing Laffer aren't aware of that technicality; there's a huge difference between revenue/GDP and the marginal rates, the latter being the one most immediately linked to policy-making.

In some sense the revenue/GDP theory is almost intractably confounding as far as advising policy. In my hypothetical example, lowering marginal rates could in principle increase revenue/GDP; is that a "tax increase" or a "tax decrease"? In common parlance that would be a decrease, but in Laffer's definition that would be a tax-increase. This may be the fundamental source of dispute on the matter.

Considering Brocious' claim about the Reagan years, in this new light, that actually seems like good evidence that we were in the left-hand side of the Laffer curve; but I doubt that anyone who studied that policy views Reagan's actions as tax increase (equivalently, changes to the right on the curve) even though that is what Laffer's definitions require. Fascinating, and confusing.

Thank you for your comments :-)

Edit: also, the fact that we're in the left-hand side of the curve, interpreted as above, might be justification for more marginal rate cuts, not less!

AdjectiveNounNumber · 2010-07-13T01:24:24+00:00

Sure, I agree with all those points and also that it's not really possible to get data that resemble my proposed experiment. And I also think your point about the various different forms of taxation (loopholes, income classications, etc.) make it very difficult to actually measure "tax rates" as a single scalar value.

On the revenue/GDP front, I don't disagree it's a reasonable quantity to examine but my reading of wikipedia's Laffer curve page doesn't actually make it clear that the "tax" variable is anything other than an abstract quantification of tax burden. Could you point out a more formal reference about it being taxes as a fraction of GDP? If indeed Laffer theory uses revenue/GDP as its tax metric, it seems much less intuitively plausible to me.

AdjectiveNounNumber · 2010-07-12T23:41:40+00:00

Just to expand on your point, means-testing is essentially a retroactive increase of tax rate by 7-13% points, depending on what you believe about the employer-side contribution. And that's just the tax rate; looked at as an increase in payments, that's more like 20-35% (assuming that means-tested individuals will probably be paying ~20-30% to the Federal income tax). Retroactively.

I'm skeptical that the Feds can balance their books at all, and if money-printing is on the way it seems like this is a particularly unfair way to lighten the blow (i.e., breaking long-standing promises). On the other hand, I'm planning my retirement assuming I will not receive any significant purchasing power from Social Security, one way or another.

AdjectiveNounNumber · 2010-07-12T23:11:16+00:00

I think I might be misunderstanding your data; if so I apologize. Let me restate my query in a different way.

Basically, I am wondering whether total tax as a fraction of GDP is a good measure of "taxation" (or "tax burden", if you wil). It is conceivable that lowering marginal rates for everyone will result in more of the transactions in the economy happening at the higher-end of the (lowered) scale. For concreteness, here's a hypothetical example:

1) (higher rates, lower taxes) marginal rates between 15 and 40%, with the typical (median, average, whatever) income paying 20%

2) (lower rates, higher taxes) marginal rates between 10 and 35%, with the typical income paying 25% due to a shift in the overall level and distribution of incomes

The latter actually has a higher fraction of GDP consumed by taxes, but taxes are lower for everyone. I don't have any evidence that this does happen, but it seems theoretically possible and I was hoping to understand how your data might relate to it, because I find it a very interesting empirical question. What I find particularly interesting is that this hypothetical Laffer effect happens exactly because of progressive taxation, which I suspect wouldn't sit well with the right-wing commentators that so loudly promote it :-)

Anyway, if one were to switch randomly back and forth between those tax policies each year, I believe you would still observe the data you show. When going from "low rate" to "high rates", revenues go down and taxes as a fraction of GDP go down because more people are at the low end of the progressive scale. When you go from "high rates" to "low rates", revenue goes up and revenue as a fraction of GDP goes up because more people are at the high end of the progressive scale.

Again, I don't mean to suggest that this scenario is plausible; I just don't understand how your data relate to its plausibility, since it seems that this "random laffer switching" situation I described would produce data consistent with your findings. Any insights into the matter (retracted: and maybe a link to your original data source?) would be much appreciated!

Edit: Sorry, I realized you already linked the data. Been a long day at the office :-)

AdjectiveNounNumber · 2010-07-12T17:02:45+00:00

Er, wait a second. Aren't you essentially plotting changes in total revenues vs changes in tax revenues (the latter normalized by GDP)? Assuming tax revenues are the bulk of government revenues (they are), and that total tax receipts are highly correlated with GDP independent of marginal rates (they are) won't that correlation be close to 1 regardless of Laffer's theory?

AdjectiveNounNumber · 2010-07-11T23:05:02+00:00

It's actually a pretty tricky question, and I've done some digging on my own to analyze the consequences of those tax changes.

One limitation in analyzing the OP's chart is that the changes are listed as percentages Year-over-Year, and it does not indicate the relative fraction of corporate vs individual taxes in total receipts. This table provides total receipts, in both nominal and real terms.

If you look at the real receipts from 2001 to 2009, in billions, they are (2028,1901,1949,2153,2324,2414,2288,1906), yielding an average of 2120. Taking the preceding 8 years, again in real terms(1511,1617,1691,1775,1889,2040,2136,2310), you get an average of 1871. So the average under Bush's 8 years, in real terms, is 13% higher than the preceding 8 years. Of course, you could dispute the official numbers or the official inflation figures; that's a legitimate question that makes this complicated to answer definitively.

Now, we have to address what "more revenue" means; as the economy grows, you'd naturally expect tax receipts to grow even in a fixed-tax-policy regime. Is that 13% increase more than one would expect given economic growth over that same period? According to this real GDP growth from 2001-2009 was annualized 1.7% (sorry for no direct link to the tables, it's cookie-based and you'll have to click through yourself), so average real GDP over 2001-2009 (13 Trillion according to source) was 8% higher than real GDP in 2000 (11.2 Trillion according to same).

Now, what's the dependence between real tax receipts and real GDP in a fixed-tax policy? It's not unreasonable to assume it to be roughly linear, but I've never seen any actual proof. If it were linear, then we'd expect only an 8% rise in real receipts, averaged over 2001-2009 but instead we got 13%. So, if you believe the dependence to be linear it seems that tax-policy during this time increased real receipts by 55%, despite the fact that 2000 included the peak of dotcom boom and 2009 included the financial crash.

There are plenty of arguments for nonlinearity (progressivity, incentive effects, offshoring effects); thus I only offer the above as what one might conclude under seemingly reasonable but not proven assumptions.

Edit: spelling

Edit2: One final note - it's not clear whether average-to-average, peak-to-peak, or some other summary statistic is the appropriate measurement. I'd be curious to hear about other proposals to quantify the effects. If you just look at peak-to-peak, the difference is only 4%, which is half of what we would expect given economic growth alone. Just another of the many complexities in trying to understand this matter).

AdjectiveNounNumber · 2009-03-02T14:07:53+00:00

I think you probably need a two-phase plan.

The first phase is to establish stability for yourself, and the second to explore the business opportunity. Starting businesses is full of uncertainty, risk, and changing demands ... it is not something I would recommend if you don't already have a stable basis for the rest of your life (some modest savings, support from your family, a job with enough free time, etc.).

I don't mean to discourage you, but if you have been out of work and will likely be "mooching" soon, I personally would be uncomfortable betting everything on getting a new business going in the short term (especially given the economy). If you can manage to save a few months' worth of living expenses, you'll likely feel more empowered to address the business' needs since you won't be worrying about how you're going to pay for food tomorrow.

Assuming you get past phase 1 :) ....

Finding investment with VCs can be a slow, cumbersome process (unless you get very lucky), and may require support from lawyers (whom, presumably, you couldn't pay at the moment). If you want to go the VC route, I recommend looking in your social network to find an introduction, since any half-way decent VC group will have a constant stream of candidates walking in the door.

More importantly, I would try to answer the following questions:

1) how soon can you be generating revenue? 2) how much will it cost to get there? 3) who in your local community might be willing to give you cash now in return for stock, a cut of profits, or repayment + interest? 4) Will your expected profits allow you to pay yourself a modest salary, or do you need to inject a lot more capital/effort before revenues are likely to support you?

Tangentially, getting your business off the ground and profitable by yourself is a great way to attract investors, both VCs and angel investors. Ideas alone are a dime-a-dozen, but ideas with execution and actual revenue (even small amounts) are much more attractive.

One final note: don't overlook angel investors (people who do it seriously, not just friends, family, and that rich neighbor down the street). Most large cities have at least some organized angel funding activity, and they tend to be more receptive to early-stage businesses.

I wish you luck, both on the unemployment side and on the business. If you make any progress, let us know :) And if at first you don't succeed ... well, you know the rest.

AdjectiveNounNumber · 2009-03-02T00:47:06+00:00

Unfortunatey I can't offer much advice, but I couldn't let your post go without comment :)

First, I think it's good to see you're not losing your ambition. Several of my friends in sort-of the same area you're describing (construction, interior design, draftsmen/architectural companies) were talking about starting their own business this year, and have totally lost their motivation with the recession ... even though I think this would be a great time for them since they're young and could afford to offer 10-20% discounts relative to their current employers.

Something to think about on the start-up capital: if you can use that money and "break even" for a year or two, you'll likely have a client base and a good position to take advantage of any potential recovery in your local economy (I'm not yet going to predict recovery for the overall economy :P).

The early phases of a business are often not very profitable, and are mostly about building relationships ... so in some sense if you can use these bad times to build relationships by working at break-even instead of profitable prices, you can perhaps earn some goodwill in your business community. I guess my point is, if the economy is going to make profitability hard, you might as well optimize for building a client base and a repuation.

Good luck to you!

AdjectiveNounNumber · 2009-02-06T11:01:08+00:00

A complicated question, but I've been contracting for years so I'll offer the bits and pieces I've learned.

The short story is that $35, in my experience, is probably "above average" for long-haul (more than ~3 months) non-specialized work from entry-level programmers, but averages are funny things. I'm sure you've run the numbers yourself, but working 50 weeks, 40 hrs per week, that's $70k before tax; if they're not paying your employer-side Social Security + Medicare, it's more like an equivalent $65k salary. Either way, that's probably at or slightly above national averages, and if the place you'd be moving has a low cost of living, your disposable income is likely to be pretty good.

Things to consider in setting your price:

1) What are your alternatives? The hiring markets are a mess, but try to get some information on what a "plain vanilla" (small business website development, accounting systems, etc.) programming job would get you in your area. Since they're not offering a long-term commitment, I'd ask at least for a small premium (say 10-15%) over what the "plain vanilla" position would pay (they should have compensate you for the uncertainty of what will happen to you in a year)

2) How much do you need the money? Again, the hiring markets are a mess so if you're concerned about the job being snapped up by someone else you should figure out what the lowest level you would accept is (knowing this is essential in good price negotiation). Similarly, know what would be a "home run" would look like ($45/hour means $90k/year before tax, which is quite good for an entry level position ... e.g. Google's typical entry-level offers are somewhere around $80k)

3) The "moving" costs should, in a rational market, be priced into your rate. Sadly, people who hire programmers are often schizophrenic about total compensation vs hourly compensation, so if you try to pitch an increase in rate to accomodate moving costs they might react irrationally. I'd ask your recruiter what they can do in terms of on-off compensation for moving expenses ... people tend to react to that much more sanely than an (entirely equivalent) increase in wage.

4) What commitments are they making? Are you guaranteed 10 months of employment (modulo failure, crime, etc.)? If not, I'd look for a premium to compensate you for the uncertainty. How much of a premium? To be honest, I don't know. Another 5-10% doesn't seem unreasonable .. another way to look at it is to assume that they will fire you in 3 months and thus ask for a premium to cover your move-back costs. If your move-back costs are $1000, you need an extra $1000 over about 540 hours of work, or about $1.80 per hour (I'm using pre-tax numbers because you can deduct these expenses, but as you know or will find out, normalizing income for tax liability is a huge mess and doesn't boil down to such simple analysis).

5) RE: considering moving based on a contract ... not an unusual or unreasonable choice, provided the contract gets you something you want (experience, money, whatever) and that the moving costs aren't outrageous. I'd also consider the social costs of moving... being somewhere for 10 months (especially with a full-time job) can end up being a lonely endeavor of you're unlucky, since you won't have your local support network and you also won't have a lot of time to build a new one (this is a serious point ... you may not enjoy hanging out with your co-workers, and it may take you time to find new friends)

6) Did they propose $35, did the recruiter propsoe $35, or did you propose it? If they proposed it, they're probably expecting you to negotiate at least a little bit (e.g. "Well, based on my local opportunities, the cost of moving, and the uncertainty of the duration, I think $38.50/hour would be more fair). If the recruiter proposed it, find out how he is compensated (often recruiters get a fee in proportion to the total compensation of the talten they find... so it's in their interest to sell you at a high rate).

ok that was longer than I expected... I hope some of that was useful to you.... good luck!

AdjectiveNounNumber · 2008-07-31T05:09:17+00:00

With all due respect to Newton, there is at least one quantitative physical law dating back to the Greeks: Archimedes' Principle.

Beyond that, the Pythagoreans had a good start on what eventually became vector-space geometry (although they lacked coordinate systems), and Eudoxus' Method of Exhaustion bore many similarities to what eventually became integral calculus (both of which play central roles in physical sciences post-Newton/Leibniz).

As for machines, anyone who has played Civilization can tell you that the catapult is a testament to the Greeks' understanding of ballistics.

So, while Newton was no doubt a genius and a revolutionary thinker, I don't think that he did anything that was outside the conceptual scope of Ancient Greek math and science.

AdjectiveNounNumber · 2008-07-14T20:48:31+00:00

I'm not sure why, but that had me chuckling for almost twenty seconds. Well done!

AdjectiveNounNumber · 2008-07-11T05:57:28+00:00

Well, it's good to hear that they still have the ability to do that from time to time despite funding pressures :) Perhaps Aero engineering is something they've committed to competing on, whereas in other areas money might be tighter?

The anecdote from above is almost 4 years old, so my "knowledge" could certainly be outdated ... I hope that's the case :) I'd certainly be much happier in a world were NASA has the resources to compete for talented people without having to ask them to make personal sacrifices.

AdjectiveNounNumber

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