The foods of today’s lower middle class are the foods of yesterday’s tycoons. Before the 1890s, gelatin was a food that only rich people could regularly have. It had to be laboriously made from irish moss, or calf’s foot jelly (a disgusting process), or primitive gelatin products that were hard to use. The invention of modern powdered gelatin made these things not merely easy, but also cheap. Around 1900, people were suddenly given the tools to make luxury foods. As with modern Americans sticking a flat panel television in every room, they went a bit wild. As they did again when refrigerators made frozen delights possible. As they did with jarred mayonnaise, canned pineapple, and every other luxury item that moved down-market.
Of course, they still didn’t have a trained hired cook at home, so the versions that made their way into average homes were not as good as the versions that had been served at J.P. Morgan’s table in 1890. But it was still exciting to be able to have a tomato aspic for lunch, in the same way modern foodies would be excited if they found a way to pull together Nobu’s menu in a few minutes, for a few cents a serving.
Over time, the ubiquity of these foods made them déclassé. Just as rich people stopped installing wall-to-wall carpeting when it became a standard option in tract homes, they stopped eating so many jello molds and mayonnaise salads when they became the mainstay of every church potluck and school cafeteria. That’s why eating those items now has a strong class connotation.
Megan McArdle, “Friday Food Post: The Economics Behind Grandma’s Tuna Casseroles”, Bloomberg View, 2015-10-30.
December 5, 2017
QotD: Why mid-20th century Americans ate what they did – 4
December 4, 2017
QotD: Why mid-20th century Americans ate what they did – 3
People were poorer. Household incomes grew enormously, and as they did, food budgets shrank relative to the rest of our consumption. People in the 1960s also liked steak and chicken breasts better than frankfurters and canned meats. But most of them couldn’t afford to indulge their desires so often.
The same people who chuckle at the things done with cocktail franks and canned tuna will happily eat something like the tripe dishes common in many ethnic cuisines. Yet tripe has absolutely nothing to recommend it as a food product, except that it is practically free; almost anything you cooked with tripe would be just as good, if not better, without the tripe in it. If you understand why folks ate Trippa alla Romana, you should not be confused about the tuna casserole or the creamed chipped beef on toast.
Megan McArdle, “Friday Food Post: The Economics Behind Grandma’s Tuna Casseroles”, Bloomberg View, 2015-10-30.
December 3, 2017
QotD: Why mid-20th century Americans ate what they did – 2
A lot of the ingredients we take for granted were expensive and hard to get. Off-season, fresh produce was elusive: The much-maligned iceberg lettuce was easy to ship, and kept for a long time, making it one of the few things you could reliably get year round. Spices were more expensive, especially relative to household incomes. You have a refrigerator full of good-looking fresh ingredients, and a cabinet overflowing with spices, not because you’re a better person with a more refined palate; you have those things because you live in 2015, when they are cheaply and ubiquitously available. Your average housewife in 1950 did not have the food budget to have 40 spices in her cabinets, or fresh green beans in the crisper drawer all winter.
Megan McArdle, “Friday Food Post: The Economics Behind Grandma’s Tuna Casseroles”, Bloomberg View, 2015-10-30.
December 2, 2017
QotD: Why mid-20th century Americans ate what they did – 1
Most people are not that adventurous; they like what’s familiar. American adults ate what they did in the 1950s because of what their parents had served them in the 1920s: bland, and heavy on preserved foods like canned pineapple and mayonnaise.
Megan McArdle, “Friday Food Post: The Economics Behind Grandma’s Tuna Casseroles”, Bloomberg View, 2015-10-30.
November 30, 2017
Bitcoin
Charles Stross explains why he’s not a fan of Bitcoin (and I do agree with him that the hard limit to the total number of Bitcoins sounded like a bad idea to me the first time I ever heard of them):
So: me and bitcoin, you already knew I disliked it, right?
(Let’s discriminate between Blockchain and Bitcoin for a moment. Blockchain: a cryptographically secured distributed database, useful for numerous purposes. Bitcoin: a particularly pernicious cryptocurrency implemented using blockchain.) What makes Bitcoin (hereafter BTC) pernicious in the first instance is the mining process, in combination with the hard upper limit on the number of BTC: it becomes increasingly computationally expensive over time. Per this article, Bitcoin mining is now consuming 30.23 TWh of electricity per year, or rather more electricity than Ireland; it’s outrageously more energy-intensive than the Visa or Mastercard networks, all in the name of delivering a decentralized currency rather than one with individual choke-points. (Here’s a semi-log plot of relative mining difficulty over time.)
Bitcoin relative mining difficulty chart with logarithmic vertical scale. Relative difficulty defined as 1 at 9 January 2009. Higher number means higher difficulty. Horizontal range is from 9 January 2009 to 8 November 2014.
Source: Wikipedia.Credit card and banking settlement is vulnerable to government pressure, so it’s no surprise that BTC is a libertarian shibboleth. (Per a demographic survey of BTC users compiled by a UCL researcher and no longer on the web, the typical BTC user in 2013 was a 32 year old male libertarian.)
Times change, and so, I think, do the people behind the ongoing BTC commodity bubble. (Which is still inflating because around 30% of BTC remain to be mined, so conditions of artificial scarcity and a commodity bubble coincide). Last night I tweeted an intemperate opinion—that’s about all twitter is good for, plus the odd bon mot and cat jpeg—that we need to ban Bitcoin because it’s fucking our carbon emissions. It’s up to 0.12% of global energy consumption and rising rapidly: the implication is that it has the potential to outstrip more useful and productive computational uses of energy (like, oh, kitten jpegs) and to rival other major power-hogging industries without providing anything we actually need. And boy did I get some interesting random replies!
November 29, 2017
QotD: Exports are costs, not benefits
You correctly point out that Pres. Trump’s ignorance of trade leads to policies that reduce American exports (“Trump’s Pacific Trade Tear,” Nov. 11). But an even deeper problem with such policies is that they reduce American imports. This truth cannot be too often repeated: exports are costs incurred in order to receive benefits called “imports.”
If Trump were correct that exports are benefits and imports are costs, we Americans could become fabulously wealthy simply by loading all of our production onto ships and then sinking the ships in mid-ocean. Getting nothing from us, foreigners will send nothing to us. In fact, of course, as even a six-year-old child would recognize, such a trade policy would ensure our impoverishment.
Yet the trade policy championed by Trump differs from the sink-all-exports-in-mid-ocean policy only in degree and detail and not in kind. Trump is using his much-ballyhooed bargaining skills to arrange for us Americans to pay more to foreigners and to get less in return. The American president, in other words, is bargaining hard to make foreigners artificially richer by making Americans artificially poorer.
Don Boudreaux, “With Apologies to Bastiat”, Café Hayek, 2017-11-11.
November 27, 2017
China discovers that there’s a (very) limited appetite for shared bikes
In the Guardian, Benjamin Haas reports on what at first might seem to be a vast modern art display:
At first glance the photos vaguely resemble a painting. On closer inspection it might be a giant sculpture or some other art project. But in reality it is a mangled pile of bicycles covering an area roughly the size of a football pitch, and so high that cranes are need to reach the top; cast-offs from the boom and bust of China’s bike sharing industry.
Just two days after China’s number three bike sharing company went bankrupt, a photographer in the south-eastern city of Xiamen captured a bicycle graveyard where thousands have been laid to rest. The pile clearly contains thousands of bikes from each of the top three companies, Mobike, Ofo and the now-defunct Bluegogo.
Tim Worstall draws the correct conclusion from the provided evidence:
We want, irrespective of anything else about the economy, a method of testing ideas to see if they work. Does the application of these scarce resources meet some human need or desire? Does it do so more than an alternative use, is it even adding value at all?
Bike shares, are they a good idea or not? The underlying problem being that expressed and revealed preferences aren’t the same. There’s only so far market research can take you, at some point someone, somewhere, has to go out and do it and see.
Excellent, the Commie Chinese have done so. Vast amounts of capital thrown into this, competing bike share companies, hire costs pennies. And no fucker seems very interested. That is, no, large scale bike share schemes don’t meet any discernible human need or desire, they don’t add value, spending the money on something else will increase human joy and happiness better.
And this is excellent, we’ve tried the idea and it don’t work. Now we can abandon it and go off and do something else therefore.
Which is the great joy of market based systems. They’re the best method we’ve got of finding out which ideas are fuck ups.
Long live markets.
November 25, 2017
Can You Beat the Market?
Marginal Revolution University
Published on 23 Aug 2016On average, even professional money managers don’t beat the market. To show you why, here’s a scenario to consider:
Say we advise you to invest in companies serving the aging US population. Since the percentage of elderly will rise over the coming decades, it makes sense to invest now in products and services that the elderly might need. Sounds logical, right? Wrong.
See, the aging of the US population isn’t a secret. It’s public information. Now, say you acted on the information and did buy stock as we advised. The current price of that stock already reflects information known to the market. Thus, it’s hard to systematically outperform the market, given that everyone else tends to have the same information you do. This is also the main idea behind the efficient market hypothesis.
According to the efficient market hypothesis, the prices of traded assets already reflect all publicly available information.
With information available to buyers and sellers alike, no one has any sustainable advantage over anyone else. This is why even the pros tend not to beat the market. And that aside, even if news did pop up to change the price of an asset, it would be at random and would likely be reflected in the asset price almost immediately. So there’s no reliable way to forecast performance.
As proof of that, take the Challenger space shuttle crash of January 28, 1986. Within minutes of the crash, the news hit the Dow Jones wire service. The stock prices of the major contractors who helped build the shuttle fell immediately. Keep in mind: that was in the 80s. At today’s pace, new information can change stock prices within seconds. This is why stock tips often end up obsolete.
So to sum up — it’s hard to beat the market. You have to accept that.
Still, how should you invest? That’s what we’ll discuss in the next video.
November 23, 2017
Transport regression
ESR linked to this article, saying “This is hands-down the most interesting article on history of technology I’ve read in a very long time. It seems the Middle East, the cradle of the wheeled cart, completely gave up on wheeled transport for 1500 years – it was displaced by, of all things, camels. Among other things, this explains the mazelike layout of old Arab cities – they’re like that because they’re optimized for walking and animal-riding, not wheeled transport.”:
When the first motor car chugged defiantly off the road and into the desert an entire epoch in world history began to pass away, the epoch of the camel. After centuries of supremacy as a transport animal, centuries that had seen it become for millions of people the romantic symbol of the entire Middle East, the stalwart camel was at last facing unbeatable competition.
Yet once before this homely drama of competition between the camel and the wheel had been played out in nearly identical fashion, only in reverse. Once, in ancient times, the Middle East teemed with carts and wagons and chariots, but they were totally driven out by the coming of the camel.
For all the discussion there has been among archeologists about why advanced societies such as those in pre-Colombian Central and South America never invented wheeled transport, there has been little notice taken of the amazing fact that Middle Eastern society wilfully abandoned the use of the wheel, one of mankind’s greatest inventions.
It did not, of course, abandon the wheel in all of its many forms. The potter’s wheel remained, and so did the huge, picturesque norias, or waterwheels of Syria. But gradually over the course of the first four or five centuries of the Christian era, and perhaps even earlier, all wheeled transport in the area, from the grandest chariot to the humblest farm wagon, passed out of existence.
As late as the 1780’s the French traveler Volney could still note, “It is remarkable that in all of Syria one does not see a single cart or wagon.” Moreover, in the Arabic and Persian languages one is hard pressed to find any vocabulary proper to either the use or construction of carts and wagons.
The most common explanation of this phenomenon is lack of, or deterioration of, roads in the Middle East, and to be sure the old Royal Road of the Persians and the whole network of Roman roads at some time fell out of repair and then passed out of use. However, roads are built for wheels and not vice versa. Their decline paralleled that of the wheel; it did not cause it.
November 18, 2017
The two biggest problems holding back widespread adoption of electric cars
Warren Meyer explains why the current crop of electric vehicles are still only niche players, despite lots of overblown media hype and over-generous government subsidies:
There are two problems with electric vehicles. Neither are unsolvable in the long-term, but neither are probably going to get solved in the next 5 years.
- Energy Density. 15 gallons of gasoline weighs 90 pounds and takes up 2 cubic feet. This will carry a 40 mpg car 600 miles. The Tesla Model S 85kwh battery pack weighs 1200 pounds and will carry the car 265 miles (from this article the cells themselves occupy about 4 cubic feet if packed perfectly but in this video the whole pack looks much larger). We can see that even with what Musk claims is twice the energy density of other batteries, the Tesla gets 0.22 miles per pound of fuel/battery while the regular car can get 6.7. That is a difference in energy density of 30x. Some of this is compensated for by heavy and bulky things the electric car does not need (e.g. coolant system) but it is still a major problem in car design.
- Charge Time. In my mind this is perhaps the single barrier that could, if solved, make electric cars ubiquitous. people complain about electric car range, but really EV range is not that much shorter than the range of traditional cars on a tank of gas. The problem is that it is MUCH faster to refill a tank of gas than it is to refill a battery with a full charge. Traditionally it takes all night to charge an electric car, but 2 minutes at the pump to “charge” a gasoline engine. The fastest current charging claim is Tesla’s, which claims that the supercharger sites they have built on many US interstate routes sites will charge 170 miles of range in 30 minutes, or 5.7 miles per minute. A traditional car (the same one used in point 1) can add 600 miles of range in 2 minutes, or 300 miles per minute, or 52 times faster than the electric car. This is the real reason EV range is an issue for folks.
QotD: A key drawback of a cashless society
When I was just starting out as a journalist, the State of New York swooped down and seized all the money out of one of my bank accounts. It turned out — much later, after a series of telephone calls — that they had lost my tax return for the year that I had resided in both Illinois and New York, discovered income on my federal tax return that had not appeared on my New York State tax return, sent some letters to that effect to an old address I hadn’t lived at for some time, and neatly lifted all the money out of my bank. It took months to get it back.
I didn’t starve, merely fretted. In our world of cash, friends and family can help out someone in a situation like that. In a cashless society, the government might intercept any transaction in which someone tried to lend money to the accused.
Unmonitored resources like cash create opportunities for criminals. But they also create a sort of cushion between ordinary people and a government with extraordinary powers. Removing that cushion leaves people who aren’t criminals vulnerable to intrusion into every remote corner of their lives.
We probably won’t notice how much this power grows every time we swipe a card instead of paying cash. The danger is that by the time we do notice, it will be too late. If we want to move toward a cashless society — and apparently we do — then we also need to think seriously about limiting the ability of the government to use the payments system as an instrument to control the behavior of its citizens.
Megan McArdle, “After Cash: All Fun and Games Until Somebody Loses a Bank Account”, Bloomberg View, 2016-03-15.
November 17, 2017
QotD: Karl Marx and relativism
The most notable philosopher in this tradition was, of course, Karl Marx. He argued that the values of any civilisation — prior, at least, to the socialist culmination — are determined by its mode of production. He says:
In acquiring new productive forces men change their mode of production; and in changing their mode of production, in changing the way of earning their living, they change all their social relations. The hand-mill gives you society with the feudal lord; the steam-mill society with the industrial capitalist. The same men who establish their social relations in conformity with the material productivity, produce also principles, ideas, and categories, in conformity with their social relations. Thus the ideas, these categories, are as little eternal as the relations they express. They are historical and transitory products.
This is a radically subversive claim. It allows any institution, any custom, any set of beliefs — no matter how obviously right or true they might appear — to be dismissed as “ideology” or “false consciousness”. Let this claim be accepted, and our own claims about the naturalness of market behaviour falls to the ground.
With the remaining exception of North Korea and perhaps too of Cuba, the Marxist political experiments of the twentieth century have all long since collapsed, and, bearing in mind their known record of mass-murder and impoverishment, there are few who will admit to regretting their collapse. But Marxism as a critique of the existing order and as a theory of social change, remains alive and well in the universities. In its reformulation by Gramsci, as further developed by Althusser and Foucault among others, it may be called the dominant ideology of our age. Its hold on the English-speaking world has been noted by both conservative and libertarian writers, and is subject to an increasingly lively debate.
Sean Gabb, “Market Behaviour in the Ancient World: An Overview of the Debate”, 2008-05.
November 15, 2017
QotD: Some positive effects of a cashless society
There’s a lot to like about the idea of a cashless society, starting with its effect on crime. The payoff to mugging people or snatching their bags has already declined dramatically, simply because fewer and fewer people are carrying cash around. I myself almost never have any of the stuff on hand. If it weren’t for the rising value of mobile phones, street crime would have largely lost its profit motive … and if better phone security makes it impossible to repurpose a stolen phone, that motive will approach zero.
A cashless society would also see a decline in the next level of robberies: stickups of retail outlets. There’s obviously no point in sticking a gun in the face of some liquor store clerk when all he can give you is the day’s credit card receipts. Even if these sorts of crimes are replaced by electronic thefts of equivalent value, this would still be a major improvement for society, simply because the threat of violent crime is uniquely terrifying and corrosive to community.
One step beyond that, there’s the effect on criminal enterprises, for whom cash is key. Making it impossible to transact business while keeping large amounts of money away from the watchful eye of the government will make it much harder to run an illegal operation. And while I love the tales of quirky bootleggers and tramp peddlers as much as the next fellow, the truth is that large criminal organizations are full of not very nice people, doing not very nice things, and it would be better for society if they stopped.
Megan McArdle, “After Cash: All Fun and Games Until Somebody Loses a Bank Account”, Bloomberg View, 2016-03-15.
November 9, 2017
How Expert Are Expert Stock Pickers?
Marginal Revolution University
Published on 16 Aug 2016In this first video in our Personal Finance section of Macroeconomics — and also our new course on Money Skills — we’ll begin to lay out some smart rules for investing.
Today, we’ll tackle Rule 1 — ignore the expert stock pickers.
What’s the basis of that rule? Well, in his 1973 book, A Random Walk Down Wall Street, economist Burton Malkiel made a controversial claim. He claimed that a blindfolded monkey, throwing darts at the financial pages, could select a basket of stocks that would do just as well as a set chosen by the pros.
One of Malkiel’s later students, the journalist John Stossel, set out to test that claim. Stossel did throw darts at the financial pages. The darts landed on 30 companies. Turns out, Malkiel did have it right — the randomly-selected stocks did better than professionally-picked ones.
The point here is, random picking roughly gives you as good results, as trusting the pros. Consider — in most years from 1963-2008, the S&P 500 Index outperformed most of the managed mutual funds. And in a different study, researchers took the top 25% best-performing funds. Two years later, less than 4% of the original set remained in the top quarter. Five years later? Only 1% stuck around.
Basically — past performance doesn’t guarantee future results. Chance often tends to win out.
To show you what we mean, take a hypothetical set of 1000 experts making market predictions. Let those predictions be based on a coin toss. Experts who land heads will say the market will surge this year. Those who land tails say the opposite. At the end of the experiment’s first year, 500 of the 1000 experts will have been right, solely by chance. Now, say the remaining 500 toss again. At the end of the second year, 250 experts will have been right, again by chance. Continue with this logic, and by the end of the fifth year, roughly 32 of the 1000 will have been right, five years running.
Perhaps these 32 will be hailed as geniuses, but remember, they only came about through a coin toss.
So, what’s to conclude from this? Two things.
First, luck and chance matter. In some cases, it can be hard to differentiate luck from skill, as proven by the “genius” 32. Second, no need to spend big bucks on a money manager. After all, the studies prove that random picking often works just as well as professional management.
That said, what if you did have market information? What if you knew something about certain stocks, that made you think they’d do well? Could you beat the market then? That’s what we’ll answer in our next video, when we tackle the efficient market hypothesis. Stay tuned!
November 8, 2017
Debunking the “we’re going to run out of mineral x” hysteria
Tim Worstall explains why you need to ignore reports that we’re going to run short of this or that critical metal or other mined resource:
But let’s return to their greater misunderstanding: that there’s some shortage of metals out there. It’s true that there is a limitation, of course it is. There is a number of nickel and or cobalt atoms on the planet and that’s a hard limit to the number we can use. But what we want to know is how close we are to it.
As I point out in that linked (and free!) book: we’re nowhere near any limit that need bother us. We’ve some 800,000 years of nickel left (assuming no recycling) and 34 million of cobalt – enough to be getting along with, given the average lifespan of a species is three million years.
So why the worrying that we are? Mainly, it’s because people misunderstand the technical jargon used in the industry. They talk about mineral reserves and mineral resources without realising that these are not a fair indication of useable resource. No, not even a guide, not an estimation, there simply is no link at all.
A mineral reserve is something that we have drilled, tested, dug up a bit and processed, and we have now proven that we can extract this at current prices, using current technology, and make a profit doing so. This is an economic definition: roughly speaking, the stock at already existing mines.
A mineral resource is where we’re pretty sure all of that is true – we’ve just not proved it yet. And then there’s the stuff we’ve not got around to looking at – which is true of the bulk of the planet and the bulk of all minerals.
It costs millions, sometimes hundreds of millions, to prove a resource into a reserve. It also costs millions to tens of millions to qualify a resource in the first place. So we don’t do this for things which we’re likely to use 30 years hence. Why spend all that money now to then wait for decades?
That’s why, if you go and look at mineral reserves, you’ll find we’re going to run out of everything in 30 – 50 years. And that’s because the best definition of a reserve is what we’ve prepared for us all to use in the next 30 – 50 years. To complain about this is like complaining that the food in the fridge is about to run out – without referring to the supermarkets and food production system which exists to fill up our fridges again.
It’s this mistake which leads to the insistence that we must recycle everything for we’re going to run out. We’re not. That underlying contention is simply wrong.
Just look at that famed Club of Rome report, Limits to Growth. They, entirely correctly, note that mineral reserves are going to last 30 – 50 years. They then, again entirely correctly, note that mineral resources can and will be converted into reserves by the application of time and money. But they then simply assume that resources out there are only 10 times current reserves. Hmm, 10 x 30 – 50 years is 300 to 500, isn’t it? So it’s not all that much of a surprise that they tell us that society is doomed, doomed, in only a couple of centuries when they add a bit of exponential growth in usage. Their prediction comes from their assumption, that wholly incorrect one, that current reserves are an indication of the total amount available to us.
All too many predictions of this sort are based on entirely and totally wrong assumptions. The truth is we simply do not have a shortage of any mineral, over any human timescale, that we might want to use. Any policy based upon the assumption that we do is provably wrong. So we’d better revisit those policies based upon this incorrect assumption pretty sharpish, shouldn’t we?
