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.


What If the National Debt Were Your Debt? – YouTube

March 28, 2012

Looking at the federal government budget at the scale of an average household:
Annual income: 50,000$
Annual expenses: 88,000$
Credit card debt: 320,000$


David Friedman on market failures

March 28, 2012

David Friedman describes market failures as situation where individual rationality does not lead to group rationality. What is best for individuals can create adverse effects for the group.
The prisoners dilemma is an archetype of this situation. Other so-called market failures include public goods and externalities.
Friedman illustrates this with many examples. But he also shows that the problem can often be designed around with creative market-based solutions. For instance ad-funded broadcast radio.
He goes on to apply the same analysis to political situations, with problems such as rational voter ignorance, high information costs and political long-termism.
He concludes that where markets are imperfect, markets still offer the best chance of solving the problem, whereas government intervention is less likely to do so.

How Simple Ideas Lead to Scientific Discoveries

March 18, 2012

Why Evolution Is True – Jerry Coyne (video)

March 9, 2012

The Magic of Consciousness

March 8, 2012

Fascinating talk on consciousness and how magic tricks and illusions can help us understand how the brain works.
He suggests that looking at consciousness as a hard problem is self-defeating, instead consciousness can only be the result of a collection of simple processes.
It may be uncomfortable, but the only magic that exists in reality consists of parlor tricks. So-called ‘real magic’ doesn’t exist.

Chinese telegraph code

February 25, 2012


It looks like the Chinese used a system like Unicode a century ago to encode messages. You need more than simple Morse code to communicate Chinese ideograms, as this picture shows (taken from the telegraph station in the Forbidden City).


Update (2012-03-16): on a related topic, here is a talk on the history of the chinese typewriter.

Privacy as a feature

February 25, 2012

Privacy is in the news. But, as I’ll explain, economic analysis shows that people actually don’t care about this feature much relative to other features. What is then government’s rationale for forcing this feature ahead of others?


There is a lot of innovation in the tech industry as result of strong demand and intense competitive pressure. Yet, accoding to privacy advocates little has been done with regards to privacy, yielding some kind of unacceptable trade-off. If people are really that concerned about privacy, then why is it served poorly? 


Could it be that privacy is hard to see (you don’t know if the feature is there)?

The same can be said of Halal or Kosher food, which probably taste the same as regular food. Yet those features and the accompanying certifications developped naturally in the market.


Could it be that people aren’t aware of the lack of privacy?

I am sure most people don’t understand web technology and its privacy implications (web beacons, third-party cookies, …). But if there was demand for privacy, profit opportunities would invite the creation of privacy-respecting services by entrepreneurs, who would advertise their unique features as a competitive advantage (educating the public in the process).


Could it be that services are unclear in disclosing their privacy practice?

If that were the case, competitive advertisement would bring the issue to light. Also, I would expect people to avoid such unclear services. After all, if you are vegetarian, you don’t order dishes unless their are clearly labelled as such (or you ask).


From all this, I can only conclude that people demonstrate little preference for privacy features relative to other features these days. Political regulations would impose an opportunity cost of more desirable features, thereby making people worse off. Even if privacy became a priority for customers, there is no theory or evidence to suggest that government involvement would improve the competitive process or bring any net benefit.


PS: I talked about privacy without defining it. In reality it is not a single feature. In a way, many privacy features are already widely implemented: your account is password protected, and your search history, emails and personal information are not published in the open.

PPS: Even from an ethical angle, the notion of privacy “rights” is silly. First, such rights would be incompatible with rights to property and contractual agreements. Second, people tend to avoid services that violate their rights (this is not like unsolicited email, or spam, because users choose to use the products that have tracking built in). Third, I suspect people should be more worried by government’s surveillance programs than that of advertisers.


Instapaper Founder On The App Economy : NPR

February 6, 2012

The Instapaper dev makes an astute observation about the app store model: the beauty is that it lowers the barrier to making purchases.
You don’t have to give your credit card on some app’s website, which you don’t necessarily trust.
Also, the process is identical for free apps and for paid apps (just type your password).

Kindle Fire, a business question

January 7, 2012

The Kindle Fire is a wi-fi only device which is first and foremost designed to consume content from Amazon. I wonder whether the business model would support Amazon offering free mobile connectivity (3G) with the Fire, as it did for the Kindle.

From the consumer’s point of view, the benefit is obvious, even if there is a charge or some data cap to access non-Amazon content (like browsing or using non-Amazon apps).

From the carrier’s point of view, this would solve a pricing problem (how to charge for connectivity and bandwidth), as they would get paid more or less proportionally to the bandwidth used.

Finally, for Amazon this would greatly increase the attractiveness of the Fire to consumers, simplify the consumer’s experience (no data contract, no monthly fee or data cap except for non-Amazon services), and help sell more of its content.

The question is whether this is financially doable. It seems to have worked for the Kindle. But e-books do fetch a higher price relative to bandwidth than do movies or music.