Quote of the Week

[P]urely instrumentally rational agents cannot reason themselves into being rule followers and yet rule following seems absolutely critical to social life. What reason cannot achieve on its own, cultural (and biological) evolution has: normal humans have evolved into social creatures who care about following moral rules. So far from being mysterious, our best understanding of the evolution of social cooperation strongly endorses the conclusion that Rule-following Punishers — agents who care about following moral rules and ensuring that others follow them too — are a prerequisite of a cooperative social order. Thus Hayek rightly points out that our reason presupposes morality (and our caring for it) as much as it presupposes our goals; it does not construct either.

— Gerald Gaus, The Order of Public Reason (Cambridge: Cambridge University Press, 2011), pp. 146–147.

Ancient Athens’ Economic Freedom Ranking

The abstract:

We use the Economic Freedom Index to characterize the institutions of the Athenian city-state in the fourth century BCE. It has been shown that ancient Greece witnessed improved living conditions for an extended period of time. Athens in the fourth century appears to have fared particularly well. We find that economic freedom in ancient Athens is on level with the highest ranked modern economies such as Hong Kong and Singapore. With the exception of the position of women and slaves, Athens scores high in almost every dimension of economic freedom. Trade is probably highly important even by current standards. As studies of contemporary societies suggest that institutional quality is probably an important determinant of economic growth, it may also have been one factor in the relative material success of the Athenians.

— Andreas Bergh and Hampus Lyttkens, “Measuring Institutional Quality in Ancient Athens.”

My Day Job

Part of what my day job consists of:

You have most likely heard of the term “keyword optimization.” If you haven’t, the gist of the concept is to optimize the content of a webpage to maximize the probability of a user finding your site on Google, Yahoo!, or some other search engine. Seems straightforward enough, right? Keyword optimization, nevertheless, becomes difficult when choosing which keyword(s) to optimize for. A common strategy is to choose “obvious” search terms and optimize the content for this keyword — which sometimes really means: use that keyword as often as possible (remember, there are diminishing returns to keyword usage!). What many people don’t realize is that such a strategy can hurt, rather than help, your search engine results.

Suppose that you are a dentist with an infosite dedicated to dental implants. You want to draw traffic to your website by pushing it to the top of the Google search page. An easy method of doing this, one might think, is to use the term “dental implants” as often as possible. The problem with this is that there are thousands of dental implant providers out there, all of which might be using the same exact SEO approach as you. In other words, you are competing with thousands of other websites which are optimizing for the same exact search term. You might, instead, refine your optimization by adding your city name: e.g. “Dental implants in Albuquerque, NM.” You are now dipping your big toe into the world of long-tail SEO optimization.

— “The Short and Long-Tail of SEO Optimization

Quote of the Week

With the separation between ownership and management which prevails to-day and with the development of organized investment markets, a new factor of great importance has entered in, which sometimes facilitates but sometimes adds greatly to the instability of the system. In the absence of security markets, there is no object in frequently attempting to revalue an investment to which we are committed. But the Stock Exchange revalues many investments every day and the revaluations give a frequent opportunity to the individual (though not to the community as a whole) to revise his commitments.

— John Maynard Keynes, The General Theory of Employment, Interest and Money (BN Publishing, 2008), pp. 150–151.

An alternative interpretation of the ability to quickly revise one’s choices is that they allow us to reveal causes of instability sooner rather than later.

I Welcome the Terminator

Before I start with anything else, I apologize for the lack of writing. I work at a marketing agency and I just have not had much time for anything else recently. In fact, I haven’t been thinking much about economics at all. I’m stimulated when I read, and I haven’t found the opportunity to finish what I’m currently working through (The Order of Public Reason), so I’ve felt uninspired lately — I totally get where Nick Rowe is coming from, although my mean is well below his. Not being able to think or read about econ totally sucks, by the way!

I did, however, enjoy a “nice” economics discussion during last weekend’s Shabbat dinner. Someone asked me if I thought robots could ever completely replace workers. I said ‘no.’ I should have added the caveat that if it turns out the answer is ‘yes,’ we should all be quite happy about it. I, for one, am looking forward to the day that I no longer have to work, because we live in a world of superabundance. Of course, in order to imagine a world where robots replace the human labor force we have to assume superabundance, because as long as there’s something else to produce there’s always work to be done (and an income to make).

Bastiat put the case more-or-less like this. Does the home worker complain about replacing hand washing laundry with a washing machine? No, because that person now has time to do something else — the robot helped to complete two tasks within the same amount of time; it makes the home worker better off. The benefits of capital don’t stop at washing machines. The reason we employ machines is to increase our productivity and make us better off. The more we can produce, the more we can consume.

What about “labor saving capital?” Remember, there is a difference between partial and general equilibrium. McDonalds might have a touch-screen computer replace its cashiers, to reduce its payroll, but that doesn’t mean that there is nothing else that cashier can do. That person can find work as a construction worker, or a bus driver, or a graphic designer, or whatever that person can find a demand for. Maybe one day someone will create a program to auto-write premium website content, which allows marketing agencies to let go of all of their content writers. While writing no longer be a skill in demand, there are still many other types of jobs content writers can do — “worst case,” they can bag groceries.

The day humans no longer have work to do is the day we live in superabundance. What does superabundance mean? I believe human wants are limitless, but let’s say that there is a point of comprehensive satiation, defined as Y. As long as capital, or robots if you’d like, produce less than Y, say X, there are YX goods that still need to be produced. That’s the stuff that humans can produce. Suppose X is a very large number which is actually not that far off from Y. To make it clearer, what if capital produced 95 percent of economics goods and humans only the other five? We can all agree that it would be pretty awesome if we had machines doing most of the work for us, so that we can enjoy the combined fruits of “our” (robots don’t need to consume, after all — Bender aside). At the point where capital produces Y, we have reached superabundance; there is nothing else we want. It’s what Nirvana would be if the Buddhists were materialists.

I’m all for robots taking our jobs. It makes us better off, because it allows us to consume more than we previously could (we can consume more for the same amount of labor we expend). What’s unfortunate is that we’re still a long way off from being completely replaced by robots in the labor force. Although, I did overhear my company talking about replacing its content writers with content generators (is there a content generator that writes as well as a trained copywriter?). What I find surprising, in any case, is that only one person at the Shabbat table agreed with me on this.

Quote of the Week

Piketty’s economic language and massive quantities of ingeniously gathered statistics amount to what I call a Murray Rothbard or Alan Reynolds style of argument: deploy such an array of facts and figures, dates, places, mini-biographies, and even personality sketches that, even if they scarcely add up to a coherent argument, you come across to your reader or audience as a consummate expert whose judgments command respect.

— Leland B. Yeager, “Another Perspective on Piketty.”

What Happened to Spain? #WorldCup2014

This is my amateur theory on why Spain got pummeled 1–5 by the Netherlands.

Spain’s philosophy is that the best defense is when you control the ball and the opponent doesn’t. Like Pep Guardiola says, the less time the other team has possession the less time they have to score on you. It’s a good philosophy. “Tiki-taka,” Spain’s short-pass centered possession game, gave Spain back-to-back European Championships and a World Cup; it gave Barcelona four La Ligas, two Champions Leagues, and two Copa del Reys, and countless other titles. People are quick to criticize “tiki-taka” because of the latest results (e.g. B. Munich 0–4 R. Madrid; Barcelona’s poor 2013–14 season), but maybe the criticism is misdirected.

The problem is focusing too little on how to play the game when you don’t have possession. Teams that defend well do so because they have disciplined defenses. A well ordered back line usually consists of two lines of four (or one of four and one of five,…). Spain’s defense against the Netherlands looked like a mob. Their was no organization to the defensive lines.

While it’s almost traditional that Spain’s defense to be weakly organized, compare Spain’s defending in its 2010 World Cup match against Germany,

I mean, Spain is no Atlético Madrid. But, it’s defending against Netherlands was atrocious.

I think Barcelona’s poor season is also explained, at least in part, by my theory. Something I noticed when I watched Barcelona play is their slow reaction time. Barcelona has a hard time counter-attacking, because Spanish teams can play well defensively — they can re-organize relatively quickly. Barcelona has a very slow pace of re-organization. It’s easy to catch them on the counter. When they play a team with an organized defense and a top attack, that’s when Barcelona (and Spain) get crushed.

Spain should still play a possession-focused game. This has been Spain’s most successful era in its football history. But, it can’t ignore other elements of the game. Even 70 percent possession means that the opponent is attacking for 30 percent of the game. Any strategy is going to have to figure out how to cope with defending when you don’t have possession, especially if you have a high defensive line (to reduce the playing space). Unfortunately, Spain has neglected that part of its game — I think, because Barcelona has neglected it too, and Spain plays with many Barcelona players, especially midfield and behind.

What of Spain’s chances to reach the next round? Let’s assume (1) Spain wins its next two games (and Spain is not going to have an easy time beating Chile) (2) Australia loses all three matches. It still depends on the outcome of the Chile v. Netherlands match. If Chile lose (and also lose vs. Spain), that leaves Spain second with 6 points. If Chile wins, there will be three teams with six points: Netherlands, Chile, and Spain. The current goal differences for these three are: +4, +2, –4. Spain is going to have to score a lot of goals in their next two games to have a chance of progressing, if Chile beat Netherlands. Spain is not known for scoring a lot of goals. It was good while it lasted.