A Geek With Guns

Chronicling the depravities of the State.

Archive for the ‘Economics’ Category

Maintaining a Currency

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I like the idea of cryptocurrencies for several reasons. With the exceptions of ones started by governments or their cronies, they exist outside the direct control of governments. If designed properly, they can also enable anonymous transactions, which hinders the efforts of governments to use transaction information to oppress individuals. However, there is a lot of criticism aimed at cryptocurrencies. Some of the criticism is valid, but much of the criticism is idiotic when considered in the context of currencies in general.

One of the most common criticisms I see regarding cryptocurrencies is their energy consumption. Consider Bitcoin. There is a website dedicated to tracking the estimated power usage of the Bitcoin blockchain. As of this writing the site estimates the blockchain’s energy consumption at 73.12 TWh, which it says is roughly equivalent to the power usage of all of Austria. Consuming the power usage of an entire country to maintain a blockchain appears horribly inefficient… until you compare it to the resources used by other currencies.

Consider the United States dollar. It’s easy to make the mistake of assuming the dollar is a comparatively efficient currency since pieces of paper with pictures of dead tyrants don’t consume electricity. But there’s so much more involved in manufacturing an maintaining dollars. To start with you have the obvious raw materials needed to manufacture dollars. Ink, paper, printing machinery, etc. are needed to make every dollar. Not only is printing machinery used to print dollars, it also requires routine maintenance. Once the dollars are printed they must be stored so you need warehouse facilities. But not any warehouse facility will do. Being a highly sought after good, dollars must be stored in a warehouse that is secure against thieves. These secure storage facilities require hardened materials, security devices, electricity, manpower, etc. Then you have the issue of transporting dollars between storage facilities, which must also be done in a secure manner (armored trucks aren’t exactly fuel efficient vehicles).

The resources needed for manufacturing, storing, and circulating dollars is only a small percentage of the overall resources needed to maintain dollars. A fiat currency quickly becomes worthless if nongovernmental counterfeiters are able to practice their trade unhindered. There are two majors steps to thwarting counterfeiters: hardening the currency itself to make counterfeiting more difficult and punishing counterfeiters once they’re captured.

A dollar can have a lot of built-in security measures. Each of these measures requires resources for both development and implementation. Research and development is needed first to come up with measures that make dollars harder to counterfeit, then manufacturing machinery capable of implementing those measures must be developed, purchased, powered, and maintained.

Then you have the task of punishing captured counterfeiters. The first step in this process is writing and passing legislation, which can be an incredibly inefficient process. The legislation itself is meaningless though, it merely authorizes the allocation of resources for law enforcers. Dollars are probably the most common target of currency counterfeiters, which means the amount of law enforcement effort needed to find and capture counterfeiters is significant, especially when you consider the fact that such efforts must be global in scale. Once captured the counterfeiters must then be tried and, if found guilty, imprisoned. The court system isn’t designed for efficiency and prisons, like the previously mentioned secure warehouses, require a lot of resources to build, operate, and maintain.

What I’ve presented is an incomplete summary of the resources needed to maintain a fiat currency. It’s easy to see that they’re not a resource efficient as many people suspect. Criticizing cryptocurrencies for being inefficient without comparing such inefficiency to their biggest competitors, fiat currencies, is disingenuous and meaingless.

Written by Christopher Burg

October 17th, 2019 at 6:00 am

Posted in Economics

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Killing Yourself Slowly

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Trump is working to take this country back to the good old days of mercantilism when governments decided who would succeed and who would fail. Implementing tariffs was just the first act in his strategy to provide a supposed advantage to American companies. His latest act was far more blatant. He issued an executive order to prohibit Huawei from the United States market. In the aftermath of this executive order Google has revoked Huawei’s use of its services, including its Play Store:

President Trump issued an executive order last week banning “foreign adversaries” from doing telecommunication business in the US. The move was widely understood as a ban on Huawei products, and now we’re starting to see the fallout. According to a report from Reuters, Google has “suspended” business with Huawei, and the company will be locked out of Google’s Android ecosystem. It’s the ZTE ban all over again.

That’ll give a much needed boost to American device manufacturers, right? You know, all of those device manufacturers who manufacture their devices in China, where Huawei is headquartered. Because I’m sure this executive order won’t result in any reciprocation from the Chinese government.

But even if we set aside the likelihood of a Chinese retaliatory response, this executive order sends a rather clear message for companies headquartered outside of the United States. That message is that they shouldn’t rely on products or services from companies headquartered in the United States. Huawei can still use Android since it’s an open source project (a good reason to prefer open source code to closed source code) so it doesn’t have to write an operating system for its devices from scratch. It does have to figure out a replacement for Google’s proprietary bits though. There are several solid third-party clients available for Android that allow access to online calendaring, contacts, and e-mail services. Many of those clients are also open source. Huawei could utilize them in place of apps like Google Calendar, Google Contacts, and Google Mail (Google Maps is the tough one to replace but a third-party client could be written for it). So it would only need to worry about distribution and it has enough funding to build its own app store (it could also use something like F-Droid, but that’s unlikely). It could also make licensing money off of its app store by providing access to other Android device manufacturers who had their access revoked by Google due to an executive order.

Foreign companies aren’t going to stop doing business when the figurehead of the United States puts his signature on a piece of paper. They’re going to either make or buy replacements for everything can no longer use. If this behavior of barring foreign companies from business in the United States continues, companies headquartered outside of the United States are going to become more and more wary of relying on American products and services and instead seek foreign alternatives. American companies like Google will find themselves more and more isolated from the global market. The constantly dwindling market size will cause them serious economic hardship, which will translate into economic hardship for their employees.

Isolating domestic businesses from foreign markets is slow economic suicide.

Written by Christopher Burg

May 20th, 2019 at 8:00 am

Subscription Fatigue

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Daniele Bolelli announced that he was going to take his excellent History on Fire podcast to a new subscription podcast service called Luminary. I don’t blame him. As he said, he’s been putting full-time hours into a podcast that is currently paying part-time wages and Luminary appears to be offering him a better deal. However, Luminary is a new player in the already crowded premium podcast market. There are quite a few services offering podcasters a mechanism to monetize their content. The problem is that they’re all silos that have a handful of exclusive podcasts available, which is the same problem facing the movie and television streaming market at the moment.

Rewind just a few years ago when Netflix was the king of streaming movies and television shows. You paid Netflix a monthly fee to access all of the content it had available and life was pretty good. But Netflix’s success convinced a lot of content creators that they could make big money in this space without giving a third-party like Netflix a cut of the action. Today if you want to stream the new Star Trek series, you need to subscribe to CBS’s streaming service. If you want to stream Marvel movies and shows, you’ll soon have to subscribe to Disney’s streaming service. If you want to stream Man in the High Castle, you’ll have to pay for Amazon Prime. Hell, DC Entertainment is starting its own streaming service, which is where you’ll probably have to go if you want to watch the latest Batman series.

Compare this to music streaming services. Whether you subscribe to Apple Music or Spotify doesn’t make a huge difference. Both services provide largely the same content. That’s because the record labels never entered the streaming market themselves. Instead they let far more competent companies handle the delivery mechanism. The fact that music piracy is down shows that people are willing to pay for convenience. But would this story be the same if each record label was operating its own service? Would people who currently pay a single monthly subscription to Apple Music or Spotify be willing instead to pay a monthly fee to Universal Music Group, Sony Music Entertainment, Warner Music Group, and EMI simultaneously?

As more and more content, software, and services migrate to a subscription model we’re going to start seeing what I like to refer to as subscription fatigue. Consider just a small sample of the subscription fees an individual could find themselves paying today. You have the obvious service subscriptions such as a home Internet connection, cell phone plan, garbage collection, water, etc. But people have to get work done so they may also find themselves paying a subscription fee for Microsoft Office 360, Adobe Creative Suite, Dropbox Plus, and maybe an important app or two on their phone. All work and no play makes for a dull life so many people may subscribe to a few entertainment services. They may pay a subscription fee for cable or satellite television, Netflix, Disney+, World of Warcraft, a phone game or two, and maybe soon Google Stadia (if Stadia uses a subscription fee). Then you have their daily commute to consider. What will they listen to as they drive to work? Maybe Apple Music or Spotify subscription, Luminary, and Stitcher Premium.

All of these small monthly subscriptions add up quickly and each household only has so much money to spend. At some point an individual may decide that they can’t afford both Netflix and Disney+. Does that mean they will cancel one and forego that service’s exclusive content or does that mean that they will simply pirate that service’s exclusive content? I’d bet the latter in most cases. And once they’re pirating one service’s content, they may decide it would be financially smarter to cancel their other subscription and pirate that service’s content too.

This post isn’t meant to be a condemnation of subscription services. I understand that people need to make a living and certainly don’t disparage people for trying to do so. But I do question the sustainability of having so many silos. I think the current music streaming model where content creators are largely separate from content deliverers and exclusive access deals are at a minimum is the most sustainable model. That way the content creators get paid and the content consumers can take their pick of delivery services without having to sacrifice a lot of their content. I think the diaspora way from Netflix is going to hurt the movie and television streaming markets (although some large players like Disney will likely do well with their service) in the long run. I also think it would be wise for Podcast streaming services to adopt the music streaming model where content creation is mostly separate from delivery and exclusive content deals are the exception rather than the rule. And when game streaming becomes more viable (which is may with Google Stadia), I think it would be wise for game creators to avoid being shuffled into a series of exclusive silos rather than providing their games to a wide number of streaming services. All of these services are ultimately competing not just with each other but with the free alternative of piracy. People will pay for convenience but they will only pay so much.

Written by Christopher Burg

March 25th, 2019 at 10:00 am

Posted in Economics

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Totally Not Socialism™

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Alexandria Ocasio-Cortez and her pals within the Democratic Party are touting their Green New Deal, which is their vision for a massive wealth redistribution scheme. Of course they’re not calling it a wealth redistribution scheme because that sounds like socialism and if there’s one thing Americans won’t stand for it’s anything that calls itself socialism. But Americans will stand (with their hand over their heart no less) for socialism so long as it’s wrapped up in Totally Not Socialism™ packaging. So to claim that their Green New Deal is Totally Not Socialism™ the advocates of this Green New Deal are calling it an economic stimulus package. One ritual required for wrapping a socialist program in Totally Not Socialism™ packaging is explaining how the programming will be funded by using traditional American methods (because, you see, America has always been anti-socialist so if something was done in the past it obviously can’t be socialist).

Ocasio-Cortez are performing this crucial ritual by pointing out that income tax rates between World War II and Regan’s presidency seldom dipped below 70 percent and even reached as high as 90 percent for the “wealthiest” Americans. So funding this stimulus package doesn’t require socialism, it merely requires going back to America’s (totally not socialist) halcyon days! Needless to say their supporters are lapping up their bullshit and eagerly asking for more because they’re ignorant about the difference between statutory and effective tax rates:

Yet this historical narrative is both simplistic and wrong. It relies upon a confusion between the statutory tax rate (i.e., the number that’s on the statute books) and the effective tax rate (i.e., the percentage of income that people actually pay once exemptions, deductions, and other tax-code incentives are accounted for).

Although statutory rates were extremely high between World War II and the Reagan-era tax cuts, practically nobody actually paid the taxman’s full sticker price on their earnings. Instead, a plethora of intentional tax exemptions, deductions, and legal income shelters ensured that wealthy individuals paid a much lower effective tax rate.

How much lower are we talking about exactly? Let’s take an example from 1963, the last year that top rates exceeded the 90 percent high water mark. A single filer in the $1 million bracket ($8.2 million today) faced a rate of 91 percent for every dollar earned over $200,000. While the statutory rate dropped for earnings below $200,000, it did not drop much. The 72 percent rate’s threshold kicked in at $44,000 (about $360,000 today). A 50 percent rate applied to single-filer earnings above $16,000 (about $130,000 today), with several other rate jumps as you attained higher income thresholds in between.

Finding a person who can obtain power without being corrupted is almost impossible. Finding a person who is willing to tell their benefactor to fuck off is even harder.

Those wealthy Americans that Ocasio-Cortez and her pals are claiming they’re going to soak? It turns out that they’re the ones who pay their biggest campaign contributions, the lobbyists who host their lavish dinners, and the human resource personnel who offer them absurd salaries to become lobbyists after they become bored with politics. So there’s no way that Ocasio-Cortez or almost any other politician is going to fuck them over.

The difference between the statutory and effective income tax rates is the key to how politicians keep their base supporters and benefactors happy. They promise their base supporters that they’ll soak the rich and redistribute the seized money to them. Since their gullible base supporters are ignorant of how taxes actually work for the wealthy, they fall for it hook, line, and sinker. Meanwhile, their benefactors are happy because the same politicians who passed the higher statutory income tax rate also created a large number of tax-incentives that allow anybody who falls into the new higher rate category to avoid paying the published rate.

Written by Christopher Burg

January 8th, 2019 at 10:30 am

This Time Will Be Different

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Albert Einstein is often credited with say, “The definition of insanity is doing the same thing over and over again, but expecting different results.” General Motors (GM) announced that it would be laying off 15 percent of its workforce. While tariffs aren’t entirely to blame for GM’s problems, they did contribute:

When President Trump announced tariffs last summer, Detroit’s Big Three automakers — GM, Ford and Fiat Chrysler — all trimmed their profit forecasts for the rest of the year, citing the rising commodity costs that would lead to hikes in prices and manufacturing costs. GM took a hard stance, warning of the fallout within the auto industry and saying that the tariffs risked “undermining GM’s competitiveness against foreign auto producers by erecting broad brush trade barriers that increase our global costs” in comments filed with the Commerce Department in June.

So tariffs didn’t bring economic prosperity to the automobile market (or any other market) so the solution must be more tariffs:

Donald Trump has renewed threats to impose tariffs on imported cars after General Motors announced job cuts and plant closures.

The US President tweeted that tariffs were “being studied” and that duties could have stopped the GM closures.

Tariffs have done nothing by damage to the economy so the solution is obviously more tariffs! There really should be a constitutional amendment that requires all incoming presidents to read the collected works of Ludwig von Mises and pass a comprehension test to guard against this kind of economic stupidity.

What’s even worse than the fact that the United States has a president that is committing economic seppuku is the fact that his successor will likely leave all of the tariffs in place. For some reasons politicians have an aversion to undoing the bad policies of previous politicians.

Written by Christopher Burg

November 29th, 2018 at 10:30 am

What Part of Free Didn’t You Understand?

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Did you know that a majority of apps targeted at children contain ads:

(Reuters Health) – Those cute little apps your child plays with are most likely flooded with ads – some of which are totally age-inappropriate, researchers have found.

A stunning 95 percent of commonly downloaded apps that are marketed to or played by children age five and under contain at least one type of advertising, according to a new report in the Journal of Developmental & Behavioral Pediatrics. And that goes for the apps labeled as educational, too, researchers say.

That’s just terrible… oh:

The researchers scrutinized 135 of the most downloaded free and paid apps in the “age five and under” category in the Google Play app store. Among them were free apps with 5 to 10 million downloads and paid apps with 50,000 to 100,000 downloads.

Emphasis mine.

To once again quote The Moon is a Harsh Mistress, there ain’t no such thing as a free lunch (TANSTAAFL). If you can download an app without paying upfront, the developer is making money in some other way. Advertisements are the quick and easy go to. In app purchases are the more sophisticated method although more difficult to execute because you need to incentivize users to buy your in app purchases. When your target audience is children, in app purchases are even more difficult because parental controls often prevent children from making purchases directly.

Instead of performing a study with an obvious result such as determining how many free apps display ads (almost all of them), a better study would be to learn why people are so foolish as to believe that they can get something for free.

Written by Christopher Burg

November 1st, 2018 at 10:30 am

Apocalyptic Financial Predictions Aren’t Just for Libertarians Anymore

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Apocalyptic financial predictions are a staple of libertarianism. This isn’t without merit. Governments around the world implement financial policies that can lead to nowhere but ruin. However, the mainstream media has always laughed at these libertarian predictions… until now:

Financial experts noted several ominous economic indicators, including skyrocketing student loans and U.S. household debts, that could predict a crash “worse than the Great Depression,” according to a report in the New York Post.

Goldman Sachs predicted that this year’s U.S. fiscal outlook would be “not good,” and that U.S. household debt had been increasing since the 2008 housing crisis led to American taxpayers bailing out the big banks.

In 2018, experts said, a $247 trillion global debt will be the greatest cause of the next cataclysmic financial crash. Additionally, low wages and the U.S. national debt’s steady rise are expected to drag down the economy.

This is from Newsweek of all sources.

Granted, the only reason the mainstream media is jumping onboard of the SS Financial Meltdown is because Trump is in office. If Hillary had won and implemented the same policies that Trump has, the mainstream media would still be laughing at predictions of financial meltdown. Regardless of their reasoning it’s still funny seeing this kind of story appearing.

Written by Christopher Burg

October 17th, 2018 at 10:30 am

Fiscally Conservative

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If you ask most people what one of the major difference between the Republican and Democratic parties is, they will tell you that the Republican Party tends to be more fiscally conservative. The Republican Party is in power now so a wave of fiscal conservation is upon us, right? Not so much:

The U.S. federal budget deficit rose in fiscal 2018 to the highest level in six years as spending climbed, the Trump administration said Monday.

The deficit jumped to $779 billion, $113 billion or 17 percent higher than the previous fiscal period, according to a statement from Treasury Secretary Steven Mnuchin and Office of Management and Budget Director Mick Mulvaney. It was larger than any year since 2012, when it topped $1 trillion. The budget shortfall rose to 3.9 percent of U.S. gross domestic product.

It turns out that neither party is fiscally conservative. And really, why should they be? They’re not spending their own money. They’re not even primarily spending out money. They’re spending the money that they’re printing. Since they can print an infinite amount of money, there is no motivation for them to spend less… at least until the whole financial system collapses due to an irreconcilable misallocations of resources. But that’s a problem for the next generation, right?

Written by Christopher Burg

October 17th, 2018 at 10:00 am

I Want to Alter the Deal

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The Witcher series of games have been phenomenally successful. In fact their success has overshadowed the books that they were based on. Unfortunately for the author, he made a bad deal and now wants to alter the deal:

“I was stupid enough to sell them rights to the whole bunch,” Sapkowski said at the time. “They offered me a percentage of their profits. I said, ‘No, there will be no profit at all — give me all my money right now! The whole amount.’ It was stupid. I was stupid enough to leave everything in their hands because I didn’t believe in their success. But who could foresee their success? I couldn’t.”

Sapkowski has now made a public demand for six percent of the profits obtained for the lifetime of the franchise, which adds up to more than $16 million for The Witcher 3: Wild Hunt alone.

I especially enjoy how he admits that he was initially offered a percentage of the profits and turned the offer down because he didn’t believe that the project would be successful. So even he’s admitting that his failure to capitalized on his novels was entirely his fault.

Higher risks generally come with greater rewards, which makes sense since there needs to be a justification for taking a risk. Sapkowski played it safe and took the low risk/low reward option. Generally speaking, if you can bear the brunt of losing out on a high risk/high reward situation, take it. Sapkowski had income from his books so he may have been able to bear the brunt of not receiving any money on the series if it flopped. If you ever find yourself in a similar position, give the high risk option some serious thought.

Written by Christopher Burg

October 5th, 2018 at 10:00 am

Creating Jobs

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If you ask an advocate of tariffs what punishing consumers is supposed to accomplish, amongst other things they will claim that tariffs create domestic jobs. That ignorance is based on the belief that foreign companies don’t employ people domestically but since we live in a global economy, a lot of foreign companies hire domestic employees. So tariffs often destroy jobs rather than create them:

Alibaba’s founder and chairman Jack Ma says the Chinese mega e-commerce company no longer has plans to create 1 million jobs in the US, citing the ongoing trade conflict as the reason Alibaba is retracting its promise to Donald Trump. A new round of tariffs between the US and China will make mutual trade more difficult.

Who would have guessed that alienating one of the largest economies on Earth would have consequences?

Written by Christopher Burg

September 20th, 2018 at 10:00 am