A Bit Of Reprieve

Congress started to roll back some of the Dodd-Frank law last week.  This is good news.  The reason I started blogging way back when was because of the debate over Dodd-Frank.  You could see the freight train coming.

Sarbanes-Oxley was another act that was done in haste to combat one or two companies wrongdoing.  Again, the end result was that companies were staying private longer. A lot of that has been fixed but why did we do it in the first place?  Spite.  Populism.

Government regulation is keeping the middle class and poor from growing their wealth.  They are locked out of many types of investments because of the overlords fear.  It’s wrong.  One of my hopes with cryptocurrency is that this can be remedied.

Dodd-Frank was and is a terrible law.

The legislation gave the government the power to intrude deep into our lives.  The headline stuff on Continue reading "A Bit Of Reprieve"

How AI Is Making Prediction Cheaper

Avi Goldfarb, a professor at the University of Toronto’s Rotman School of Management, explains the economics of machine learning, a branch of artificial intelligence that makes predictions. He says as prediction gets cheaper and better, machines are going to be doing more of it. That means businesses — and individual workers — need to figure out how to take advantage of the technology to stay competitive. Goldfarb is the coauthor of the book Prediction Machines: The Simple Economics of Artificial Intelligence.

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Step Into The VC Time Machine

One of the things humans are bad at is remembering the past and incorporating the lessons they learned from difficult experiences. I’m sure there’s a philosophical word for this, but I’ve now heard the phrase “this time it is different” so many times that it doesn’t register with me as a valid input.

I woke up this morning to Howard Lindzon’s post R.I.P Good Times (Said Sequoia in October, 2008) and Nobody Knows Anything pointing to David Frankel’s tweet:

All of this ultimately led to me reviewing Sequoia’s classic slide deck from 2008.

I remember reading it in 2008. We were about a year into our first Foundry Group fund, which

Continue reading "Step Into The VC Time Machine"

Capitalism Rules, Socialism Drools

Today is Cinquo de Mayo or Mexican Independence Day.  It’s also Derby Day so have a mint julep after your margarita.  It also happens to be the birthday of Karl Marx, one of the worst philosophers the world has ever known.  Over at the Library of Economics and Liberty, they have an essay on Marx.   No need to celebrate Marx.

Communism and socialism have killed more people than any other form of government.  I saw today that Argentina raised their interest rates to 40%.  Venezuela is in tatters.  You can thank socialism.

Since Adam Smith outlined capitalism in his seminal book, Wealth of Nations, we have seen worldwide poverty decrease.  The US is a prime example.  Our standard of living is the best in the world, due to capitalism.

You might not like certain things that are going on in the US, but when you centralize power and eliminate Continue reading "Capitalism Rules, Socialism Drools"

These 3 Personality Traits Affect What You Earn — but Only After Age 40

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Donna Grethen/Getty Images

We often hear about the power of personality, and how some traits are beneficial for our careers while others are more harmful. For example, we know that being more conscientious (hard-working, driven, reliable, and organized) is associated with better job performance, and that being nice (more agreeable) does not pay off in wages. But it is less clear when these personality traits matter most for our careers — are they more important earlier on, or in the middle? — and who benefits most from them.

In a recent paper, I investigate these questions by looking at the connection between personality traits and lifetime earnings among men at different ages. I find that men’s earnings are not affected by personality at all in the beginning of their careers, but that men who are more conscientious and extroverted, as well as less agreeable, reap large benefits between their

Continue reading "These 3 Personality Traits Affect What You Earn — but Only After Age 40"

Blockchain Will Not Change Economics

A lot of people are touting some new economic system because cryptocurrencies exist.  I don’t think that is true.  I just think that the way we interact is the change.

Economics has some iron laws that are immutable.  Technology doesn’t change them, it merely changes the marginal costs and benefits.  It’s like changing the variables on a calculus equation.  The iron laws of math still apply even though you are using different numbers to solve the same equation.

Prior to fiat currency backed by governments, we bartered.  Humans intuitively understand there are gains from trade.  There are gains from specialization.  Post fiat currency we had a medium of exchange.  But, we still “barter”.  Instead of trading rice for a cow, we simply use fiat to model the same transaction.  Of course, it’s much more efficient and that is reflected in the price and speed of transaction along with the possibilities Continue reading "Blockchain Will Not Change Economics"

Blockchain Will Not Change Economics

A lot of people are touting some new economic system because cryptocurrencies exist.  I don’t think that is true.  I just think that the way we interact is the change.

Economics has some iron laws that are immutable.  Technology doesn’t change them, it merely changes the marginal costs and benefits.  It’s like changing the variables on a calculus equation.  The iron laws of math still apply even though you are using different numbers to solve the same equation.

Prior to fiat currency backed by governments, we bartered.  Humans intuitively understand there are gains from trade.  There are gains from specialization.  Post fiat currency we had a medium of exchange.  But, we still “barter”.  Instead of trading rice for a cow, we simply use fiat to model the same transaction.  Of course, it’s much more efficient and that is reflected in the price and speed of transaction along with the possibilities Continue reading "Blockchain Will Not Change Economics"

Bull$%^& Numbers

One of the economic numbers that always bugged me was the trade deficit number. In 1987, it was one of the numbers responsible for the momentum that caused the crash of the stock market. When we traded, merchandise trade was a huge number, until it wasn’t.

I am seeing it rise in importance again and it is frustrating.

Does it really matter if your (fill in the blank) object comes from (fill in the blank country) and not America?

Demand curves slope down.  When you go to the store to buy a pencil, do you care where it was made?  It’s really about the price.  The rest of the stuff surrounding the good informs why it’s being priced the way it is-or it’s slick marketing designed to differentiate the product and allow you to have some sort of justification to buy it at a different price than competing or Continue reading "Bull$%^& Numbers"

City Mouse, Country Mouse

Read William Galston’s column in the WSJ.  He was describing the growth of cities in America.  In his analysis, he compared the vote in the cities to the candidate running.  I don’t think this is a good correlation at all. For example, in Chicago which has been run by a strong handed Democratic Machine for 100 years, having the city vote overwhelmingly for a Democrat and trying to make a statistical inference from it is pretty useless.  Other cities in America are the same.

The broader point that he is making is 100% correct.

Berkeley economist Enrico Moretti’s “The New Geography of Jobs,” is a book you should read to get a sense of the difference between the city and the country.

He writes,

Mr. Moretti’s book offers a compelling and simple explanation of the most fundamental economic trend of our time—the widening split between dynamic urban areas on the Continue reading "City Mouse, Country Mouse"

Audio Of The Week: Skin In The Game

I have been listening to Nassim Nicholas Taleb‘s new book, Skin In The Game, in audiobook form while driving around LA this past week. I’ve always been a fan of having skin in the game and others having skin in the game and so it’s a topic that makes a lot of sense to me.

I happened upon this podcast between Russell Roberts and Nassim and it’s a pretty good summary of many of the important topics in the book. So if you don’t have time to read or listen to the entire book, this podcast is an excellent short cut to some important concepts.



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This Is Great

Russ Roberts just is plain spoken and makes sense. You might not like what you are hearing because it doesn’t conform to what you want him to say, but he has the data to back it up. He is doing a series on economic growth and who participated in it. My wife and I were lucky to be in Palo Alto and attend his first lecture on it and I blogged about that here.

Last night, former VP Joe Biden was at Northwestern talking about income inequality. Income inequality is an issue, but we need to be very careful how we remedy it and Roberts talks about it.

It’s Not Same As It Ever Was

 

You might not agree or understand the point I am trying to drive home in this post unless you understand variance.  Variance is a statistical measurement.  Standard deviation is the square root of variance.  When you see statistical studies, you need to understand how they computed those numbers to see if the statistic they measured and churned numbers out for is even meaningful.  Here is the statistical formula for variance.

What’s old is not always what’s new again.  Pondering a couple things that are disparate but have a correlation.  Variance is a huge part of the underlying analysis.

Remember, I am a conservative Republican.  Bear that in mind as you read this.  Too often, the tribes cheer for their own and turn a blind eye to bad policy. In Illinois, it’s hard to find a Democrat that thinks there is a lot of bad policy going on here, Continue reading "It’s Not Same As It Ever Was"

Tariffs Are Stupid

The Trump administration has set the course for some pretty good policies.  There are many things that classical economists could like that have happened.  However, the statements last week on tariffs were not one of those.  It was a stupid unforced error.

The flimsy logic is that a tariff will protect American workers.  The truth is American workers will be hurt by the tariff and so will American consumers.  For those of you that don’t understand the economics behind a tariff, I’ll explain it and show it graphically.

A tariff is a tax.  It’s a cost.  If you raise tariffs 25%, prices of those goods will go up roughly 25% and all the extra cost will be passed on to the consumer.  Here it is graphically.

Sometimes because of the hyperbole and spin, it’s hard to really see what is going on.  Administration people might use words like “dumping” and Continue reading "Tariffs Are Stupid"

Pay Your Bitcoin Taxes, Don’t Whine About It

I see Coinbase had to release the account information of over 13,000 accounts to the IRS.  A lot of the folks that own those accounts are livid.   The IRS wants the taxpayer ID, name, birth date, address and historical transaction records of users that completed transactions of more than $20,000 in a single year between 2013 and 2015.

If you made money trading, pay the tax.  Be happy to pay the tax.  You could have had a loss.  Or worse.

In 2008, I was short commodites from August to December and held the position.  I owed tax.  It went against me the first week of January.  I went from a gain to a very small gain.  I held on and the market broke but it wasn’t fun knowing I owed the IRS a bunch of money on paper gains.

Suppose the IRS treated Bitcoin exactly like it treats commodity transactions.

Bitcoin Close Price Chart
Continue reading "Pay Your Bitcoin Taxes, Don’t Whine About It"

There Is Gold In The Crumbs

The response to the tax cut by a lot of politicians was laughable. A lot of them said that the $1000 bonuses were not that much. They said it wouldn’t be meaningful to people. On the flip side, they totally misprepresented what was going to happen to hyper-wealthy people.

The hyperwealthy people I speak with are going to see their tax bills rise by hundreds of thousands of dollars because they cannot write off state and local taxes and are limited on other write offs.

Spending time with my wife’s family, I heard some stories about those crumbs.

They had an aunt who had never been married. There were seven grandchildren associated with this aunt. When this aunt passed away, she left $7000 apiece to each of the grandchildren. That’s just crumbs isn’t it? Only a pittance, 7G.

What’s interesting is the stories. One family member funded an IRA with Continue reading "There Is Gold In The Crumbs"

Economics, The Welfare of The Poor And Middle Class OR The Numbers Game

Last night I was at the Hoover Institution.  It was the inaugural talk on public policy, a new thing they will be doing.  You can follow the conversation on Twitter at #policyed.  Economist Russ Roberts gave the presentation.  If you don’t know him, he produces the Econ Talk podcast which I really like. The topic of this particular presentation was “Is growth good for everyone or just the top 1%? Does growth reduce poverty? How is the middle class really doing over the last 40 years?”

It’s a pretty interesting topic when you get into it.  There is a lot of discourse in our mainstream lives about how the poor and middle class are doing.  Politicians have demonized the “1%”.  Many of the US public policies enacted as far back as The New Deal were designed to help people get out of Continue reading "Economics, The Welfare of The Poor And Middle Class OR The Numbers Game"

When More Women Join the Workforce, Wages Rise — Including for Men

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Don Farrall/Getty Images

The increase of women in the paid workforce was arguably the most significant change in the economy in the past century. In the U.S., women’s participation in the labor market has nearly doubled, from 34% of working age women (age 16 and older) in the labor force in 1950 to almost 57% in 2016. When it passed 50% in 1978, working women became the norm.

Yet although the female labor force participation rate has been rising steadily in the country, it has not done so evenly across cities. In places like Gadsden, Alabama, and Punta Gorda, Florida, less than half of working age women (46% and 42%, respectively) were in the paid workforce in 2010; cities like Madison, Wisconsin, had 73% and Fargo, North Dakota, had more than 75% (the highest in the nation) of women in the workforce. There is also significant variation within

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Continue reading "When More Women Join the Workforce, Wages Rise — Including for Men"

There Is One Bear Market

With the continuous record highs being set in the stock market and crypto market people might wonder where to find a bear.  Tim Knight at Slope of Hope might be the last bear left on the planet.  The rest have gone into hibernation.  However, if you are a bear you might take a peek at US Treasuries.  I think things are heating up there finally.
10 Year Treasury Rate Chart

10 Year Treasury Rate data by YCharts

To give you some context, interest rates have been zero or near zero since the financial crisis in 2008.  People that grew up in my generation have lived through two extremes in interest rates.  In the 1970’s and early 1980’s they were extremely high with three-month T-Bills hitting 21% at one point.  Since 2008, basically 0%.  QE was necessary the first time, perhaps the second.  Since then it has been a Continue reading "There Is One Bear Market"