Archive for the ‘money’ Category

Storytelling can be patented


credit: mpclemens via flickr(cc)

We already knew that computers, equipped with proper algorithms, could write stories pretty much indistinguishable from the work of professional journalists working under deadline pressure. And had I been paying attention, I’d know that the company behind this, a “spinout” from Northwestern University, is also moving into other “turn data into a story” tasks, which from the examples here seem to mainly focus on financial reporting, tho it also appears that buyers of used cars can be exposed to “automated and individualized vehicle stories” (pdf) about their cars, which presumably helps sales. And it’s no secret that In Q Tel, an affiliate of your Central Intelligence Agency, is one of several investors behind the company.

So, it’s technology, it’s government, it’s marketing– why am I surprised that it’s protected by a bunch of patents on different variations on “automatic generation of a story?” Here I am, using a computer with many automatic functions to generate a sort of story about this company, and I really haven’t time to read and try to understand all their patents. I guess I better stop before I get in more trouble.

h/t Crain’s.

Words, including a new one, about money


Image of a tangible bitcoin by Steve Jurvetson (cc) via flickr

Having heard two tremendously amusing interviews with John Lanchester (I think one was on Bloomberg and one on the BBC, tho maybe it was ABC and somebody else; in any case there seem to be lots of interviews with him floating around.) I was looking forward to reading his new How to Speak Money. I’ve long agreed with his basic point, that people talking about financial issues use a shorthand which can confuse civilians, and it would be helpful to have a glossary handy.  What he has written gets part of the way there.

The first part of the book is an introductory, making the important point that economics isn’t a science, really can’t be in the way that physical or biological sciences are.  For one thing, chemists don’t have to worry that the molecules they’re studying will read the results of prior research and decide that behaving differently would be to their advantage.  He also notes that most of the main questions of economics remain open, but at least if we are going to discuss them we need to understand what we’re talking about.  He brings up the concept of “reversification,” whereby things come to mean the opposite of the word used to describe them.”Securitization” doesn’t mean making things more secure, but more likely less so. The “Chinese wall,” which is supposed to divide functions within financial firms to prevent conflicts of interest, is in fact neither a physical wall nor an impenetrable barrier.  And it’s reversification when the “credit” is defined as the amount of debt. (more…)

Housing bubbles, a Misesian view

Photo credit: Christian Berl via flickr (cc)

Photo credit: Christian Berl via flickr (cc)

Finally I’ve stumbled over a simple explanation by an Austrian of what causes housing bubbles.  According to data cited in Mark Thornton’s article, Oslo’s housing prices continue to rise even as other places have slowed or tumbled.

What explains the large increase in prices is an increase in the demand for housing. Part of this increased demand takes the form of people simply being unwilling to put homes on the market in the face of persistently rising home prices….[Also] Oslo, the capital city with almost 1/5th of the nation’s population, has land-use restrictions that keep much land unavailable for construction. This is the same fundamental case that was given for the severe housing bubble in Las Vegas: the government prevented land from being developed. Housing prices in Oslo, however, have not risen much more than the average increase. The largest increases have occurred in areas associated with the oil and oil exploration business…. Norway’s rosy economy is not the result of good policy, but of oil revenues that subsidize their socialist government.

Another factor is Norway’s central bank holding interest rates at an “artificial” low, because they don’t want their krone to appreciate too much (it is viewed as a “safe” currency in  a world of depreciating euros, dollars, yen, etc).  Low interest rates of course drive housing prices higher.

If the central bank did act and raised interest rates and simply allowed their currency to float, the krone would appreciate and Norwegian savers would get a windfall as the value of their savings increased. This would encourage them to work more, save more, and become wealthy. Every krone would buy more goods from around the world and would buy even more goods tomorrow than today. This appreciation would indeed hurt exporters, such as oil and cheese exporters, but most importantly it would stop and reverse the housing bubble before things get even worse and more distorted.

So, if you were to “get a windfall as the value of [your] savings increased,” would you “work more and save more?”  Or would you be inclined to work less, at least for money, and maybe spend some of the windfall?

Thornton doesn’t tell us much about the incomes of ordinary Norwegian working folks.  If exports drop, might unemployment increase?  How, if at all, does Norway’s sovereign wealth fund contribute to incomes? What proportion of personal income in Norway comprises economic rent, and how is it distributed?

A couple of other issues:  Thornton says that Norway looks good not because its citizens govern themselves intelligently, but because they have oil revenues.  If that’s true, how to explain Venezuela? They have oil too, but don’t seem to govern themselves so well.  Some other explanation?

Then there’s the assertion that land use restrictions exacerbate housing bubbles. A smart growth policy coordinates land development with provision of needed facilities such as roads and sewers, and allows some leeway to avoid worsening the land monopoly that exists everywhere, and in case forecasts don’t exactly come to pass.  Over time it makes development less expensive and the cost (monetary and nonmonetary) of living lower (which would increase land prices unless land rent is publicly-collected).  The example of Las Vegas is cited, but I always thought Portland had much stricter controls, yet much less of a bubble. Is there somewhere data about this?


Gold vs. “real money”

Gold Mine

image credit: Kake Pugh via flickr (cc)

The basic function of money is as a medium of exchange.  Inevitably, a secondary function arises as a measure of value. Money can be paper, precious metals, shells, whatever people in a particular time and place use as a medium of exchange.  There’s no reason that it would need to have “intrinsic” value. If  people use U S currency to buy and sell, then it is “real money.”

So is gold “real money?” I don’t think so. Just about nobody uses it as a medium of exchange. Historically, gold coins have sometimes been used but for ordinary people silver, copper, or base metal fiat-type money would be much more common.

Certainly fiat money can depreciate, usually does, and for us in the U S that has been and will almost certainly continue to be the trend.  And gold might be a good investment, in the sense that it will be exhangeable in the future for more real wealth than it is now, or at least more in comparison to other kinds of investments available to ordinary people. Of course, gold can depreciate too, if large new deposits are discovered or folks decide they really don’t want gold after all.  Which isn’t to say that either of these things will happen any time soon.

Anyone who wishes to resurrect the “gold standard” might want to read the late Peter Bernstein’s “Power of Gold,” or some other history books. Somehow we end up electing people who don’t put a high priority on keeping the dollar strong (or at least, not too much weaker).  If that’s a problem, then maybe we should be electing other people, or finding ways to reduce the power of those who purchase elections. Making the U S dollar convertible into a fixed amount of gold is not going to bring prosperity, or even prevent further disruption. There are plenty of examples of economic collapse under a gold standard.

It might, however, benefit those who own gold, or gold mining stocks.

Somebody please disagree with me, or I will assume all of the above to be true.

Modern Monetary Theory

credit: Jennifer Baron via Pittsburgh Signs

Seeing so many references to Modern Monetary Theory on apparently-respectable blogs, I have finally slogged thru an explanation of it.  Seems pretty sensible, really.  Government produces money by spending (or giving it away), eliminates money by taxing, and a steady supply of money is needed to keep its value reasonably stable. The troubles of Ireland, Greece, etc are exacerbated because they don’t control their own currencies, somewhat similar to difficulties occurring under the old gold standard.

It is not a bad thing for government expenditures to exceed revenues, in fact this must have occurred for any money to be in circulation. But declining value of money is likely if this difference isn’t reflected in actual increased wealth.

And, most importantly, money is not wealth.

Seems to make sense as far as it goes.  It doesn’t tell us how to achieve prosperity when the government is out of control. It doesn’t have anything to say about nongovernmental money. I am uncertain how MMT might differ from what I see at the American Monetary Institute. Perhaps these topics are addressed in another part of the site.

Iceland’s example

Of course we should not have bailed out the financial sector.  Fred Foldvary gives a concise summary of what happened when Iceland refused to do so.

And since no fundamental change has taken place, I suspect Americans will have an opportunity to use this lesson when an attempt is made to extort a second bailout.

What bitcoin illustrates about fiat money

The value of bitcoin seems to have surged to over $7, from less than one dollar a couple of months ago.  This is a far faster increase than the price of gold, or silver, or other “hard” assets.

Bitcoin was invented by Satoshi Nakamoto, who must be a skilled and innovative programmer.  Anyone can generate bitcoins by setting their computer to solve specific mathematical problems.  As more bitcoins are generated, the difficulty of the problems increases.  Relatively few vendors currently accept bitcoins, but several dealers are willing to trade dollars for them.  And the reason their value has increased must be that people are willing to pay more dollars than previously.

Why pay more dollars?  One reason is that the total number of bitcoins is limited, so presumably they cannot suffer the kind of inflation that often occurs with paper currency. (Could that rule change? Yes, just as some new major deposit of gold or silver might be discovered.)  Another reason, of course, could be that people are just learning about bitcoins, and seeing the trend, expect it to continue.  Also, bitcoins give some indication of being truly anonymous, secure money.

Now, if I was a skilled programmer, I could invent my own bitcoin-ish system, and generate my own coins.  But unless someone is willing to accept my coins in exchange for something people want, they’ll have no value.  Perhaps Satoshi Nakamoto is not only skilled, but also charismatic.

Bitcoins have intrinsic value in the sense that it takes a lot of work (done by the computer) in order to generate one, much as it takes a lot of work to discover, mine and refine precious metals. But, whereas I could use precious metals to make jewelry or tableware, I can’t think of anything that anyone could do with a bitcoin, other than spend it or save it.

So it seems to me that bitcoin shows that fiat money could work quite well, provided that the proper amount of it is issued.  If bitcoin’s deflationary trend continues, it might be a good investment but would lose usefulness as actual currency.  I think the most likely outcome will be, either, a decision to produce more bitcoins (however that might be made), or the creation of other alternative currencies operating in parallel.

Interesting times.