December 19th, 2014
Arbitrage is the act of moving things from a place where they’re less valuable (cheaper, if you like) to where they’re more valuable (more expensive).
Normally the term is used in financial transactions – if a ton of wheat is worth $200 in Chicago and it’s worth $250 in Houston, I can buy it in Chicago, sell it in Houston, and make money. That’s arbitrage.
But – that’s just a financial manipulation; a trick played with numbers to cheat the system. I haven’t really created anything or done anything useful.
Tho it may seem that way, not right. Economics is not intuitive.
Suppose I have a pile of wood. It has some value. I get tools, work hard with them, and turn the wood into a house.
(If you’re outside America, assume a pile of stones – I know you people think making houses out of wood is crazy.)
The house is worth a lot more than the wood pile was.
This also is arbitrage. We don’t usually call it that, but it is – I’ve moved the low-value wood in such a way that it’s now a high-value house.
Yes, I used capital (the tools) and labor (the work) to do it, but that’s how I did it – not what I did.
This is where all wealth comes from – moving things around from less-valuable conditions into more-valuable conditions.
Capital and labor and technology are useful only when they help with arbitrage (digging holes and filling them up again uses labor, and shovel-capital, and scooping-technology – but doesn’t create any wealth).
Another example – when I was in kindergarten, sometimes I’d get sent with a salami sandwich (this was before in-school cafeterias). I didn’t love salami – I preferred tuna. But a friend had a tuna sandwich, and preferred salami. We’d swap. (Yes, I know that’s not allowed anymore.)
By swapping, we turned two not-highly-valued sandwiches into two more-valued sandwiches – because we each preferred the other’s sandwich. The sandwiches remained exactly the same. But the value increased – by arbitrage.
Back to the ton of wheat in Chicago. Let’s ask why wheat is cheaper in Chicago. There must be a reason, even if we don’t know what it is. Maybe there was a bumper wheat harvest in Illinois (where they keep Chicago), so there’s more than people can eat. Maybe they like rice better. Whatever.
In Houston – the opposite. Maybe there’s a pizza holiday that uses up lots of wheat. Or a bad harvest in Texas…again, whatever.
The point is, by moving the wheat from Chicago to Houston, I’m moving it from where it’s needed less to where it’s needed more – afterwards, there is less excess wheat in Chicago (and more valuable money), and less shortage in Houston. So I made both places better off.
Which means it was not a trick – I really did do something useful. I created wealth. And some of that wealth I get to keep (some will go to the seller in Chicago, and some to the buyer in Houston – exactly how much depends on negotiating skills, buy/sell spreads, etc.).
So arbitrage is where all wealth comes from. It is the sole reason we don’t live in caves anymore.
November 17th, 2014
Murphy’s law anticipated the Everett-Wheeler conjecture (viz., “all permutations will be explored”).
Which I find ironic, considering that neither Everett nor Wheeler wrote about keyed connectors at all.
September 22nd, 2014
Or, Why I Have No Use for Philosophers
This is my grandfather’s axe. My father replaced the handle, I replaced the head. This is my grandfather’s axe.
Every time I try to discuss anything of substance with a professional philosopher, and often even with someone trained in philosophy, I find myself in an argument over semantics – the meaning of words.
I think this is why philosophy is generally held in such low regard.
The Ship of Theseus is a more elaborate version of the Grandfather’s Axe story that has supposedly been the subject of much debate by classical and modern philosophers (the ship is maintained by replacing planks as they age, until none of the original planks are left – is it still the same ship?).
The thing I find incredibly frustrating is that these philosophers argue about nothing. There is no dispute whatsoever regarding what has actually happened – are any of the parts original? (No.) Is it the same design? (Yes.) We can answer any factual question about the ship unambiguously.
Yet the philosophers keep arguing about it – for millennia.
These people are far worse than useless – they are actively creating confusion and argument where none exist.
August 10th, 2014
Google sells the use of user information.
It is not the same thing.
Selling “Joe Blow works at Acme Corp and shops for sex dolls” is selling user information.
Selling “I will advertize your sex dolls to people who shop for them” is selling the use of the information. Only Google knows you are Joe Blow at Acme with an interest in sex dolls. The advertiser does not; they just get a service that makes use of Google’s knowledge.
Yes, Google knows your stuff. Yes, you have to trust them with it.
But they don’t have to – and don’t – sell your info in order to profit from it.
August 4th, 2014
Be nice. Work hard.
Correlation is not causation.
It’s a democracy; compromise.
Life is only fair on average.
Spend less than you earn. (Other people do; you can too.)
Subsidy is the root of all evil. (Separate post coming on this…someday.)
In One Time Pads We Trust. (All others pay cash.)
July 14th, 2014
…but capitalism doesn’t have to.
The poor popular reputation of free markets may be connected to the prevalence of deceptive advertising, especially for consumer goods and services.
Spend just an hour watching TV after midnight, and you’ll be bombarded with ads for penny auctions, infant life insurance, sports betting (you’ll win thousands), anti-impotence drugs (or is it penis-lengthening? They’re never clear.), etc.
As Michael Caldara said in the first link above, “we don’t hear calls to regulate infomercials, get-rich-quick seminars, and fad diets”, but – perhaps we should?
I’d prefer vigorous enforcement against common-law fraud, but (in my humble opinion; don’t sue me,) these ads intentionally mislead the ignorant and incompetent. That’s why they air when most successful people are asleep.
To many people this gives the impression that capitalism is little more than legalized theft and deceit. A crackdown on these obvious (to me, anyway) cases of fraudulent advertising might go a long way toward improving the reputation of both government and business. Markets only work to society’s benefit, not to enrich those with the least scruples, when the basic rules of honest dealing are enforced.
If that’s too hard, another path would be an organization of ethical businesses that observe a code of honesty (complete with a membership seal).
June 29th, 2014
Our ancestors lived in caves, infested by parasites, chased by predators, constantly on the edge of starvation.
We live better than that now. We have nice things like houses, and medicine, and airliners, and indoor toilets, and the Internet.
How did that happen? Did we steal all that wealth from some other cavemen? From space aliens? No. People created wealth. Out of nothing – just plants and animals, dirt and air, and their own cleverness and work.
Some people are better at creating wealth than others. Just as an Albert Einstein is rare, or a Tiger Woods, or a William Shakespeare is rare, there are a few rare people who are vastly – incredibly – better at creating wealth than most everyone else.
Nowadays, these type of people become billionaires. They may not be better than most people at physics, or golf, or literature, or in any other way, but they have a rare talent for creating wealth.
And without wealth, we’d all still be living in caves.
Nota bene: I’m not saying that all billionaires get their money this way. Obviously, some get it by theft, cheating, or other types of crime, legal or not. But some really do earn it. William Jennings Bryan (“No one can earn a million dollars honestly”) was wrong.
June 5th, 2014
Modern tech makes looking up owners from plate numbers trivial – you don’t need a plate scanner, you just need a camera and Internet connection.
When introduced 100 years ago, plates could have had the owner’s name on them – but that was considered an unreasonable invasion of privacy. Quasi-random plate numbers made looking up owners possible, but intentionally difficult and slow.
Technology has changed that. We accept plates now only because we’re used to them. Unless you think it’s also a good idea to require pedestrians to wear a giant sign with their name on it, it’s time to get rid of license plates.
Cars already have VIN numbers stamped all over them – that is enough. The VIN is printed small and isn’t readable by every passing person.
If you get pulled over for a traffic violation, then the cop can ask for your vehicle paperwork.
April 1st, 2014
I’m going to start making a list of the elements of political dysfunction in the US. (These may apply to other countries as well, but I’m not familiar enough to say.)
From time to time I’ll come back to this post and add more. Maybe.
- Good intentions
- Unreasoning hatred
These three seem to make up the core of both left and right in the US.
Good intentions are what every normal person has with regard to their political views. Self-interest biases these of course, far more in some people than others. But most non-psychopathic people sincerely believe that society would be best off following their own political views.
Stupidity is also common to us all. Compared to the complexity of the world and of society, we are all stupid – some much more than others. But none of us can really predict the long-term results of the policies we advocate. Every action has direct effects, secondary effects, tertiary effects, etc… without limit. And there is no guarantee, or even reason to think, that the earlier effects will be larger than the later ones.
The unreasoning hatred is of the opposite side – it reflects the refusal to accept that those who disagree may have valid reasons for doing so, may not be motivated by self-interest or hatred, and almost certainly sincerely believe in their own positions.
Then we have the common human failings that affect us all:
- Refusal to admit when we’re wrong – because of the effect on our reputations
- Refusal to compromise, even if the compromise would be better than the status quo
- Refusal to allow experiments, because of the chance that the experiment might prove the other side correct
Not that we’d ever admit these are the reasons for our positions.
I’m sure there’s more I haven’t thought of…
March 23rd, 2014
Somehow the very words “Nazi” and “Hitler” have become almost unique synonyms for pure evil.
Godwin’s Law has formalized this – the moment “Nazi” is mentioned in any discussion, rational debate stops and you’re in the territory of moral absolutes.
For example, we can’t complain about over-the-top “Gestapo” tactics when SWAT teams are used for everything from drug raids, to high-profile debacles like Waco, to desperados wielding open wireless routers or rescuing Bambi.
No, we have to call these “Stasi” tactics. Because no matter what the reality, it can’t possibly be as bad as – or even rationally compared to – the Nazis. By definition.
And we have to invent new terms like “crony capitalism” instead of using the proper word “fascism”; because as soon as you say “fascism” you’re a crazy kook with no sense of proportion.
Not that Nazis weren’t evil – they were every bit as horrible as their reputation.*
But why are they perceived as uniquely horrible? What about Pol Pot, or Vlad the Impaler, or any number of historical conquerors who routinely murdered every single man, woman, and child in a captured city?
The Nazis were indeed evil, but the only thing unusual about their evil was how efficient they were at it and their proximity to the center of Western culture.
I can’t think of another defeated enemy that has become so demonized.
*If you like horror literature, try The Theory and Practice of Hell (Eugen Kogon, 1946). Unfortunately, it’s non-fiction. (Not for the weak of stomach.)