Archive for April, 2012

New Threats to the Internet

April 14, 2012

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Excellent talk by Bruce Schneier. I always appreciate his perspective which considers not only technical aspects but also social, economic and political factors. In fact, his books helped start and stimulate my interest in economic thinking.

My only feedback is that corporate threats that don’t involve political power (government lobbying) are curbed by competitive pressure. So I am confident about innovative and consumer-focused features and trade-offs emerging (quality, costs, privacy, security, etc.).

Some ambiguous words

April 3, 2012

Sometimes languages have gaps, sometimes we just use imprecise words. A few examples:

Wrong: mistaken vs. morally wrong. And conversly, right: correct vs. just.

Value: price vs. moral values vs. subjective utility.

Regulation: having some feedback system vs. government rules.

In french, two separate words are used: régulation (the body regulates its temperature) and réglementation (setting rules or régles). The distinction matters when discussing emergent behaviors in the market. Government legislation (réglementation) is not the only way to achieve protective feedback (régulation).

Free: libre vs. gratis (gratuit)

The distinction between free will and free beer blends into welfare politics, where one means freedom or negative liberty, while the other implies positive liberty or access. The confusion can be cleared by realizing that welfare policies are not free (gratis), they simply force the cost onto other individuals and impede on their freedom.

(HT to Stefan Molyneux and Pascal Salin)

Update: here is one more, to save. One meaning is to rescue, the other is to economize. An example inspired by an ad from a South Korean oil company to illustrate the possible ambiguity: save resources to save the planet.

The Parable of the Broken Traffic Lights

April 3, 2012

In a free market, interest rates and the banking system coordinate the plans of the cross-traffic of lender-savers and borrower-spenders.  If saving increases, it means consumers are more willing to wait for goods.  Their saving leads banks to offer lower interest rates, providing a traffic signal (and an incentive) for borrowers to borrow for longer-term projects that match the greater patience of consumers.  If consumers are more impatient and save less, banks raise rates, leading borrowers to go more short term to match this preference.  Each side???s behavior is consistent with the other???s, thanks to the traffic-signal role of the interest rate.

When the central bank intervenes [with an expansionary monetary policy], however, it turns all the lights green.

Prices are signals like traffic lights. Although they emerge (unlike traffic lights which are purposefully designed) they serve a similar coordination role.
When they don’t function properly, or are tampered with, the result is discoordination. The interest rate is a critical price which signals the relative priority of consumption versus investment.
If people prioritize consumption higher but the central bank lowers the interest rate, then incompatible and unsustainable activities (consumption and long-term projects) clash instead of yielding to one another. Bubbles emerge not from people being suddenly irrational, but from people being misled by false signals.