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Saturday, Aug 18, 2018 - 20:17 SGT
Posted By: Gilbert

Some Things Never Change

Dear Sirs:

Today's rebuttal is on another Krugman op-ed in that doyen of the mainstream media, the New York Times, on "Transaction Costs and Tethers: Why I'm a Crypto Skeptic". One would scarcely have time to devote to other, mostly more pleasant, matters, if the aim is to address all of his claptrap. However, this particular piece was so egregiously misinformed, that one could not help but try to level the scales a little.

Although the reader may wish to read the original article in the interest of fairness, I believe the following summary captures Krugman's intent faithfully: he is a cryptocurrency skeptic mainly because cryptos have high transaction costs, and because cryptos lack a tethering of value.

On that first point, Krugman claims a clear direction of progress "in the broad sweep of monetary history": first, the use of precious metal coinage - inconvenient and labour-intensive to mine. Next, banknotes backed by said precious metals, and further operating on fractional reserves. And then, a trend towards greater and greater convenience: paper cheques, credit cards, and finally today's mobile e-payments.

Therefore, Krugman explains, cryptocurrencies are strange in that they buck this trend - Bitcoin, which has returned to dominating the crypto landscape, has relatively high transaction costs, as well as a wasteful production process. Indeed, it is probably not a coincidence that this process is termed "mining", as that for gold and silver was. To this, Krugman wonders: "...in other words, cryptocurrency enthusiasts are effectively celebrating the use of cutting-edge technology to set the monetary system back 300 years. Why would you want to do that? What problem does it solve? I have yet to see a clear answer to that question."

To this query, we might delve somewhat further back into the past, which might cast some doubt on Krugman's simplified unidirectional precious metal → representative money banknote → fiat banknote → fiat electronic money narrative. Cribbing liberally from Weatherford's The History of Money, Ferguson's The Ascent of Money and Martin's Money: The Unauthorized Biography, one might recognize a certain pattern going on. To begin with, consider this description of the Roman economy, almost two thousand years ago, from Weatherford:

"Faced with climbing government expenses, emperors searched for new revenue and new ways to make existing revenue stretch further. Nero began to tamper with the coinage itself. In A.D. 64, in a naive attempt to deceive the populace, Nero decreased the silver content in the coins and made both the silver and gold coins slightly smaller. By collecting the existing coins and remining them with his portrait bust but using less silver, Nero produced a momentary surplus of silver and gold. The same pound of silver that had formerly produced 84 denarii now produced 96, giving Nero almost a 15 percent 'profit'..."


Decline and fall of the Roman coinage
(Source: wikipedia.org)


One good turn deserved another, and by the reign of Gallienus some two hundred years later, the denarius - once almost pure silver in Nero's time - had degraded into the antoninianus, which contained less than 5% silver... but was supposed to represent twice the nominal fiat face value. Of course, that didn't work out, as price inflation in coin terms simply took place.

Skipping from some 1800 years ago to about 800 years ago, Marco Polo observed that Kublai Khan had set up a system whereby all private gold and silver had been confiscated, and paper money issued in its place. Foreign merchants like himself too had to convert their precious metals at specified exchange rates, to paper notes for internal use. Arabic traders of the same period also noted the extensive security measures, which included having their portraits sketched for easy distribution, in case they fell foul of the law (which is being echoed by modern China's surveillance state); this Mongol paper money also repeatedly fell to rapid inflation from their introduction about 1300, and the following Ming Dynasty would suspend printing by 1450, to return to silver.

Even restricting ourselves to Krugman's chosen time period of the last three hundred years, it can firstly be noted that fiat currencies have tended to continue failing at worst, and relentlessly devaluing at best. And, it has to be emphasized that the latest iteration of unbacked fiat currency - not backed by precious metal, i.e. representative - is very, very new, dating from Nixon's 1971 taking of the U.S. dollar off the gold standard. But wait, isn't this - and Roosevelt's 1933 confiscation of private gold - simply more or less Kublai Khan's policy of the 13th century? As Marco Polo sagely noted then, "this system of paper money could work only where a strong central government could enforce its will on everyone within its territory", which Krugman at least recognizes in admitting that, "...if you like, fiat currencies have underlying value because men with guns [i.e. Big Uncle Sam] say they do."

Rewinding to the next previous example, the depreciation of even the U.S. dollar - surely the strongest fiat current of our age - uncannily mirrors that of Roman coinage. In the two hundred years from Nero to Gallienus, the same quantity of silver that had minted a single denarius, would mint some twenty antoniniani with a face value of two denarii, a roughly 97% depreciation. Well, the Fed Dollar has depreciated about 95% in purchasing power terms in a century, and over 60% (if well over 90% at certain times) against gold, despite all the fixing taking place to sever that connection. Unlike the Romans, however, contemporary governments do have the option of printing prettier banknotes, rather than having their sins reflected by debased coins. This of course doesn't change the reality.


And part of why TRUMP's bid to correct the trade deficit is so timely
(Source: azizonomics.com)


If we may go yet further back, we might realize that near-frictionless transactions - the Holy Grail that Krugman's monetary narrative has us headed towards - was actually where humans started from! Per Graeber's Debt - The First 5000 Years, our ancestors began with informal credit: Ugg gave Thar a rabbit, Thar would fix Ugg's stone axe in return, and if there was anything left over or uncovered, it simply went on the tab. Sure, this may have worked only in small social groups, but the general point is that Krugman's presentation of monetary development as linear is fundamentally incorrect. Money is more properly described as developing cyclically: some ruler "cleverly" realises that he can leverage political power and monopoly over violence into profits, and abstracts the nature of currency away from commodity to fiat; then, when his empire weakens, the currency reverts. Thus was it with Nero and Gallienus, thus was it with Kublai Khan, and thus it will be with our latest tokens.

Definitely, this is far from an original observation. As David Ricardo wrote about 1817, "...experience, however, shews, that neither a State nor a Bank ever have had the unrestricted power of issuing paper money, without abusing that power". The thing, then, is whether economics is at its base a humanistic or a scientific affair. I submit that it is far more the former, since the temptations of today's governors towards over-issuance of money are basically little changed from those of the Romans, from two thousand years ago and beyond - riches and popularity for me today, who cares about tomorrow?

More specifically towards Krugman's transaction costs argument, there are two main avenues by which it can be answered. The first is that Bitcoin at least is more a commodity than a currency by nature, as analyzed back in 2014, and this should be factored into arguments against it not being a good currency (a misunderstanding that Buffett also appears to exhibit). The problem it solves, then, is that of unilateral confiscation of value through intentional devaluation, or loss via depreciation, with this value stored in a decentralized and largely-trustless manner throughout the globe, without permission needed from a third party, without physical encumbrance, and with a completely transparent and public supply schedule. There might be some demand for this.

The second is that, for all of Krugman's enthusiasm towards technological progress in money (i.e. digital methods), he seems to entirely discount the possibility that cryptos - most of which are barely five years old - might have much room for improvement in transaction speed and cost. The existing Bitcoin network is best understood as a settlement layer, or a backed monetary base; further layers can then be built upon the settlement layer, e.g. with Lightning Network being a TCP/IP stack that trades off certain reserve requirements for speed.


The Lightning Network has been silently and steadily growing since February, but what's fundamentals against 1 million TPS ICOs?
(Source: bitcoinvisuals.com)


Once more with reference to monetary history, the cost of Bitcoin mining can then be seen as the price of "honesty". Consider why relatively-primitive peoples bothered to collect shells, or carve huge stone wheels - even at some risk to their own lives in the procurement of the stone - which also answers in part Krugman's critique on value tether.

Within a society, there is a demand for two broad categories of things: actual goods and services, and monetary tokens. Absent a strong central authority, the value of the tokens has to be commensurate to the goods and services. If the society accepted, say, fallen leaves instead of huge stone wheels as money, then their economy might not make sense simply because leaves are too abundant and easy to acquire.

Or, from an individual viewpoint, consider a group of ten men who hunt and farm, and another group of ten men who band up to collect and carve the stone. If the first group acknowledged the produced stone wheel at only a tenth of their food output, then the men of the second group should logically conclude that they are better off hunting and farming instead of creating tokens. The commodity token is itself a good in the society's wider free marketplace! This should go some way towards explaining the necessity of crypto proof-of-work thus far. Of course, having a central authority issue the monetary token has to be cheaper... but how long will that state of affairs last, before self-interest and corruption sets in? As seen time and again from past experience - not very. Proof-of-work, whether with gold or crypto, may be an inefficient equilibrium, but autocracy tends to descend into anarchy.

Gentlemen, we stand by all our past analyses - crypto is here to stay, and Krugman is wrong... but that's not saying very much.



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Sunday, Aug 12, 2018 - 22:31 SGT
Posted By: Gilbert

Summer Cleaning

Me: ...well, since you're back, you might as well help in sorting out some leftover bookmarks. That last week went by quicker than I expected; that said, good to be back doing some light exercise, and meeting up with old pals in RT.

Mr. Ham: What do you take me for, cheap labour?

Me: Never was certain about the "labour" bit myself. Anyway, let's go over the big happenings from the last few weeks: one possible local opposition coalition headed by Dr. Tan Cheng Bock in the works, thanks to an SDP initiative. However, while this might go some way towards mitigating the local opposition's longstanding problem of "too many chiefs, too few Indians" - not literal ethnic Indians, of course - but the reputation of the minor parties is going to take some rehabilitating. Got to say, whatever one may think of his politics, Dr. Chee's fitness bod is impressive.

Now, it may be fair to ask - why think of supporting the Opposition? Isn't the incumbent track record second to none? To that, one has to respond that a healthy opposition is necessary for the proper operation of a democratic system, and a weak opposition does not really benefit a country, as a corporate monopoly seldom helps consumers in the longer run. There may be a certain point in a small city-state needing to concentrate (and effectively bribe, unlike with the Old Guard) its talent, but when the rules themselves start changing just to preserve every scrap of power, as seen with the latest Presidential Election, one has to start to worry.

This, as it happens, also undergirds my reservations about China's recent rise, which might otherwise be interpreted as a banana mentality - my estimation remains that they will not reach their potential without some form of liberal democracy, and that Asian culture being incompatible with a democratic system is so much piffle - see Japan, South Korea, Taiwan, etc. While China might yet go some further distance with their existing essentially-authoritarian setup, I am willing to claim that it will be a dead end, and one that will engender much pain before it hits the wall... and thus, my consistent support for a TRUMP Trade War Victory, which is broadly on track.

Whoops. Who knew a tweet could be that influential?


Mr. Ham: Yeah, there's that old story about a wolf cub capturing a duckling, and being asked by its parent about what the mother duck did. The cub replied that the mother duck screamed and threatened, at which the wolf told the cub that it was okay to eat the duckling. The next time the cub took a duckling, however, the mother was entirely unconcerned (see: TRUMP after a U.S. drone got stolen); given this, the wolf told the cub to return the duckling. Well, it sure sounds like there's a lot of screaming going on from China's side right now, as the trade war heats up...

Me: Yeah, basically it's all going as anticipated, but I'll leave the in-depth analysis to Mr. Robo, who's been holed up researching the geopolitical situation. But just to bookend the previous trade deficit discussion, I'll begin with an old joke:

A gentleman had struck up an amicible relationship with a vagabond down the street corner: every weekday for years, mindful of his responsibility towards the less fortunate, the gentleman would slip the vagabond a couple of bucks as he passed by. One day, however, the vagabond discovered that the donation had dropped to a dollar, and was displeased.

"I'm afraid that I'm getting married." the gentleman explained. "I've got to budget my expenses for two now."

The vagabond remained furious. "How dare you use *my* money to support *your* wife?!"


This happens to be the essence of what's going on with TRUMP's efforts to corral the American trade deficit, and its consistent misrepresentation in the mainstream press. Take the constant hammering on bilateral deficits, previously explained to be a strawman - the bottom line, however, should be that the only way to reduce an overwhelming aggregate deficit is through cutting bilateral deficits. Recycling the grocery store analogy, a person may cut down on spending at his grocer, or his barista, or his town vagabond, not because any of them have done him wrong per se. It is just because he has to balance his books - and can we really fault a man, or an institution, for not wanting to continue building what is already an enormous debt?

To this, there are the more-academic dissents, such as protectionism with tariffs not being a cure to the trade deficit. It is further claimed that recessions are the surest way to reducing deficits, in support of deficits "paying for themselves" through general growth, and that national consumer behaviour - and not tariffs - drive trade deficits.

The first reponse to this, is that the TRUMP Trade War was never about imposing permanent tariffs. From the get-go, the intention was to utilize tariffs as a bargaining chip for more favourable trade terms - to win the trade war, and move on. This weapon, it must be said, has actually been wielded by just about everyone else in defence of their own interests. It is just that TRUMP's stick is much bigger, and the basic facts are on his side anyway - even his detractors have had to admit that the U.S. has on aggregate among the lowest tariffs in the world to begin with.

That settled, a more complete answer would involve examining skin-in-the-game, and who benefits from the deficit status quo. Going back to Buffett's fundamental analysis, the losers are easy enough to identify - future generations of Americans. In some hazy future, Billy Bob Jr. will have to toil an extra hour each day, Sally Doe will have to retire a few years later, as America fumbles about in its pockets to honour its debt to the outside. The basic mechanism is not in question: "I don't think it's a problem for the U.S. to have a large trade deficit.", yet another think-tank senior research fellow will say. "Countries such as China and Japan accumulate vast piles of U.S. currency, [they] have to exchange those dollars for something, and for a long time they've used them to buy U.S. assets, such as stock, real estate and Treasury bills... it's a win-win for the U.S.!"

We might identify two broad frames here. From the individual point of view, shorn of all obligation and context, free trade should always win - since trade is assumed to take place only when mutually beneficial, anything that hampers such exchange from taking place must necessarily reduce potential utility.

From the national point of view, however, the deficit matters because much of a nation's responsibility is communal in nature. Even if one argues that America doesn't practice socialized health care, it is undeniable that the government still has to fulfil many needs - defence, administration, infrastructure, education, etc - that all draw upon the public piggy bank. Running an internal budget deficit does not preclude the minimization of external trade deficits, which is the objective here.

The next realisation is that a disregard of national trade deficits makes the most sense for the wealthy - what does any particular citizenship mean to the average billionaire, and the oh-so-educated economists they fund in their various institutes and think-tanks? If it all goes to pot in America, they'll simply be on the next flight out to Canada, or Switzerland, maybe Germany or Britain (but not Mexico, for all their exhortations towards open borders). Their kids won't be stuck with the bill - instead, it'll be the Billy Bob Jrs, who have nowhere to go to, who will inherit the consequences and the tears. But they don't count, do they?

No, it takes a man of extraordinary vision and courage to go against the grain, and fight for the birthright of the yet-unborn, who have no lobby or constituency to defend them; and in the GOD-EMPEROR TRUMP, America has finally found such a man.



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Sunday, July 29, 2018 - 21:10 SGT
Posted By: Gilbert

The Importance of Logical Consistency

Me: ...so, we'll need to hedge against a CBOE ETF rejection, though they do have reason to be confident... and what are you doing, hiding in the grass out there, Mr. Ham?


Btw, is lunch ready?
(Original source: r/hamsters)


Mr. Ham: It was horrible, horrible! England almost won the World Cup! I had to flee the country preemptively when it looked like they were actually going to do it - you'd never believe how many bets I managed to lay on them - but more than it, it was a sign of the End of Days.

Me: I see. Welcome back, then. Mr. Robo here has been running the firm of H.L. Ham quite competently in your absence, if I may add; the strategy for the next quarter has just been set.

Mr. Robo: Still enough time left for a chat.

Me: About that. I'd just like to comment about how humans in general appear to love to be told what and how to think by "experts", such as from last week's discussion on trade deficits. To me, this is justified in some areas - maybe pure maths and the technical parts of the sciences - and rather less in the social sciences and humanities.

The really intriguing bit, I gather, is how people reconcile evidence that runs counter to what they would like to believe. Prolonged exposure to contrary narratives tends to be exhausting, since - I do still believe - the mind naturally prefers self-consistent mental models. One possible solution is that taken by religious reasoning, specifically the acceptance of beginning from fantastic axioms.

Say that one agrees that crimes such as theft and murder are wrong, because of a comprehensive theological framework given exclusive suzerainty by a fellow floating into the sky. Once that is conceded, other behaviours such as slavery and child genital mutilation might - and indeed have been - also completely acceptable under the same framework, because frankly, being lighter-than-air does not confer particular moral legitimacy. Here, I'm not saying that submitting to this sort of thought process is not reasonable given practicalities - just that it has its concomitant drawbacks.

Another approach would be to dismiss conflicting evidence out of hand, which is what the ongoing War of Information is all about. Establishment objective is generally as follows: consolidate and confer status upon selected sources (e.g. major newspapers and cable channels), which then publicize topics and "popular" viewpoints favorable to their backers, and ignore those that are detrimental - perhaps only occasionally putting out a dissent to maintain an appearance of impartiality. Note that, by doing this, they can claim to be reporting "the truth", while being nowhere near "the whole truth".



This intellectual sleight-of-hand may sometimes be partly self-inflicted. Consider, for instance, the attraction of various flavours of Progressivism to the young, a phase that yours truly had duly undergone. In this depiction of history, there is a steady movement from the bad to the good, the wrong to the right, the outmoded to the new. In this telling, the first stand tends to be held by the elderly, the provincial, the fuddie-duddies. The second, improved, stand is held by the young, the educated, the future. To oppose progress, then, is evil and moreover futile. In the American context, this has basically been the line sold by the Democratic Party - that Republican-conservatives are dying out, that the youth are on their side, and therefore that their ultimate triumph is inevitable.

In keeping with observations about the War of Information, however, the full picture is quite different:



The victories of progressive-reformists (not quite liberal, which is a hijacked term), then, have been presented under the lens of survivorship bias - changes that have been acknowledged to be broadly beneficial are emphasized, and those that were, on hindsight, hare-brained and harmful quietly unmentioned. The point is that such policies, for instance eugenics and temperance, were too held to be obviously correct and true in their era. As such, it is only reasonable to accept that present-day progressives may also be going down a lot of blind alleys, rather than being on a direct journey from "bad" to "good"... which the young adult millennials are picking up on.

Honestly speaking, I'm uncertain if the bulk of the polarization in American politics can even be placed on Republicans and conservatives, given the latent tribalism displayed by the left - only that they are less apt to openly admit it. Put another way, if the right are held hostage by appeals to the authority of religious and political leaders, the left is no less beholden to the opinions of academics and Hollywood celebrities.

Mr. Ham: Yeah, like the current craze for banning plastic straws, which has also hit Singapore. This is one of those movements that appears unambiguously positive to begin with, but turns out to have questionable impact when the actual numbers come in. Unsurprisingly, progressive bastions such as San Francisco have been lampooned for eagerly criminalizing straws - which possibly carries a prison sentence, mind - while ignoring used syringes and human waste on their streets - which has only solidified their growing reputation for being sensationalist-reactionary, and out of touch with actual problems.


Trust me, he knows *exactly* what he's doing
(Source: entertainment.ie)


Me: Anyway, what I hope to get through here is, that it is important to maintain one's own intellectual integrity. There is always huge pressure to conform, even against one's own judgment, and there's always the threat of having one's capacity for independent thinking, subsumed by the group. Feigning agreement is one way to fit in, of course, but the trouble is that one's internal thought processes may adjust accordingly despite the intent, which is how indoctrination and re-education processes work.



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Sunday, July 22, 2018 - 22:31 SGT
Posted By: Gilbert

Much Excite


Protip: when choosing a venue to watch the World Cup Finals, check to make sure that its stream isn't half a minute behind its neighbours


It's been a great World Cup. Despite it ultimately not coming home, it had everything else - penalty drama (with Modric setting Russia up and England prepared for once with stats), general drama and powerful emotion, accompanying performance and design art, Cantona ribbing Neymar (who's copped his fair share of cave rescue jokes), dabs of self-deprecating humour (which didn't save Sweden), a new record for passes made (I still don't understand what Spain were thinking), a ton of in-depth metrics and analyses, and last but not least, the wonderful fans (FIFA is reportedly coming under pressure not to do close ups of pretty chicks, because sexism; considering the likely alternative, we have to say - be brave for once and do the right thing, FIFA...)

About the prediction business, the Goldman Sachs experts have wound up mostly wrong once again, having plumped for a Brazil-Germany final, with France out in the semis. To be fair, they had France as second-favourites, but such examples continue to persuade me that so-called "experts", especially in fields such as economics, aren't exactly reliable. They did outdo a local EDMW punter, however, who threw out tips for just about every match, guaranteed by a particular part of his anatomy. His readers quickly learnt to bet the other way.

VAR seems likely to become a permanent feature of major tournaments, after being extensively utilized, and it should eliminate the most egregious injustices (e.g. "ghost goals"), which however arguably takes away some of the potential for larger-than-life lore. There have also been other little tweaks, such as the ball not having to be passed forward at kick-off (thus all but obsoleting the classic two-man start).

Whatever (reasonable) happens, football should remain perhaps the most accessible and egalitarian team sport I know of. One has practically no hope at the highest levels of basketball without being about six and a quarter feet tall, in American footie without being well over 220 pounds besides, and plenty of other sports without meeting similar physical constraints, and perhaps additionally access to expensive equipment. But soccer? Messi was a dwarf. Zlatan was a giant. Pelé was in between. Modric was a wisp. Lukaku was a battering ram. Owen sprinted. Riquelme didn't. Scholes had asthma. They all thrived.

As long as they aren't Singaporean, it appears. Ben Davis, Fulham hopeful and by that measure the best prospect we've got in a long while, has effectively been forced to choose between that opportunity and his citizenship, even as FAS has set the lofty target of getting the Lions back in the Top 100 (currently 169th). But really, if South Korea - still officially under a state of war - can allow deferment until almost the age of thirty, why not us? The way it's going, the only way we'll get our flag at the Finals is to buy a ticket.


Winning the Inter-Divisional Title (reward: two days off),
instead of dancing the ballet with Vida

(Source: reddit.com)


The natural comparison with Schooling was deemed irrelevant because Davis had not shown himself to have world-class potential at his chosen sport, but given how Schooling's parents had to figuratively bang on the table to get him off and fund him nearly wholly privately besides - only for our dignitaries to pile on after he had won gold - it's quite understandable why Schooling's advice is for Davis to "follow his dreams". I have to agree. Maybe the swimmers can conjure something up.


Cyber Heist

The intersection of medicine and technology has seen a steady stream of progress, such as in identifying diabetes subtypes, engineering anti-cancer cells and preventing deaths due to doctors' bad handwriting. However, there's also the other side, which came to the fore with the revelation that SingHealth's database had been hacked, with the personal details and prescriptions of 1.5 million patients leaked.

The immediate question was whodunit, to which local detective wannabes have mostly converged on an answer - China. This deduction followed from the given assumption that the hack was most probably a sophisticated state-sponsored attack, which in turn raised the usual suspects: Russia, North Korea, China, the USA, Israel, mayyybee Malaysia and Indonesia. I'd say America is an unlikely perpetrator (bar a false-flag op), because they have better data from Facebook, Google, etc anyway. But hey, we get paid in funny pet photos and dank memes for that.

It would be unproductive to overspeculate before the official investigative report, or at least more details, are released, and as such we might consider the reaction instead. Tellingly, the chief of the Cyber Security Agency of Singapore is apparently of the opinion that it's no big deal because only basic demographic data was stolen, to which it was pointed out that said chief would probably not be willing to disclose his own "basic information" for a reason, and which further runs counter to all previous governmental directives.

The optimism that the data isn't being sold on the Dark Web or elsewhere also seems rather unfounded, but personally, my worry would be the sheer comprehensiveness of this dataset. 1.5 million would represent a good chunk of citizens - perhaps a quarter at least - and basic data alone should allow the possessor of such a dataset to build up quite a profile. Cross-correlating NRICs and addresses would likely allow inference of family structures, for example. It gets even more interesting when tied further with prescription history (if maybe not totally trivial: refer Watson Health's troubles), which can possibly reveal embarrassing personal secrets.

As it is, the clean-up process has seen the data hack check webpage itself being spoofed. The fun continues.


On Trade Deficits

I had a prolonged discussion with some old classmates about various matters, including that of international trade deficits, over supper the Friday before last. Dishearteningly, I heard an assertion of the form of "most economists agree that trade deficits don't matter", which therefore seems to have become popular received knowledge among the very well-educated set (guy has a PhD from Stanford, just for perspective)

Is it really so obvious?

To kickstart the discussion here, I turned to Google by searching for "trade deficits don't matter", and considered the top three links - in order:


It seems true, at least, that the establishment news media (The NYT) is willing to claim that most economists don't hate the trade deficit. Considering actual economists quoted, Lawrence Summers claims that "The trade deficit is a terrible metric for judging economic policy". Cornell's Eswar S. Prasad, while admitting that China did not keep their end of the WTO bargain, is cited as agreeing with "most other trade experts" that "bilateral trade deficits are not a good measure of whether countries are living up to their promises on market access, or ...better negotiators of trade agreements". Cato Institute fellow Scott Lincicome sums it up: "A bilateral balance doesn't really tell you anything about what the economy is doing, just like my bilateral deficit with my grocery store doesn't tell you anything about whether I'm in debt."

This line of reasoning is mostly mirrored by the other two sources. Tori K. Whiting, writing for The Heritage Foundation, also uses the homespun grocery store analogy. "I added to my trade deficit at my local grocery store last week... The grocery store did not purchase from me, but I was able to get milk, meat, produce, and other consumable goods... In fact, I have a trade deficit with every business I encounter, from my favorite clothing retailer to the electronics store. The only exception is my employer, which pays me in dollars for my daily work. I have a trade surplus in this case."

Similarly, Tim Worstall - senior fellow at the Adam Smith Institute - expresses basically the same idea, if slightly more scathingly. He does take an additional detour by devoting the bulk of his analysis to bilateral trade balance, but recovers in time to support overall trade balance being irrelevant by asserting that it is ultimately private citizens, not governments or countries, that trade with each other, and therefore it is unclear how tariffs should be mandated.

To this, the key to me lies in the bolded bit from Whiting's piece. It can be accepted that individual bilateral deficits mean little in isolation. It is however not at all evident as to why a persistent aggregate trade deficit - country vs. everybody else - is okay. Building on the grocery store example, an aggregate deficit would mean that Whiting's salary from her employer does not cover her expenses. In such a situation, there are two main recourses: either draw on savings (i.e. national reserves, for countries), or borrow (i.e. issue [Treasury] bonds). America has basically been borrowing. A lot.


Cumulative U.S. Trade Deficit, Up To 2014
(Source: seekingalpha.com)


I hope, at this point, that the reader might understand why the prevailing deficit narrative hasn't been convincing to me. The economists seem strongest when speaking about bilateral deficits (because they're mostly right on that), which is however largely a smokescreen, a strawman. What America has is a ginormous and growing aggregate deficit, of which a significant portion can be attributed to China.

Here, I defer to Warren Buffett, who I personally think has a rather better grasp on the true situation than the abovementioned experts (no offense intended, though he never listens to them either. Doesn't seem to have done him much harm). His classic article from 2003 on "America's Growing Trade Deficit Is Selling The Nation Out From Under Us. Here's A Way To Fix The Problem - And We Need To Do It Now" first acknowledges that the American trade deficit is a problem, emphasizes that it is an urgent problem, and proposes a solution, which we'll get into here.

Buffett's chosen analogy involves two island-countries, Squanderville and Thriftville. To simplify the model, there is only one capital asset, land, which is used to produce the only desired good - food. When the story begins, both islands have been at equilibrium for a long time; each worker on both islands works about eight hours a day, which produces enough food for himself. While unstated, we might also assume that there is some trade between workers to obtain a wider variety of food (this assumption does not detract from the general argument)

Now, at some point, the Thriftville workers discover the Financial Independence subreddit, and begin to save and invest. Instead of working just eight hours a day, they begin to work sixteen hours, and start exporting their excess food to the only available destination: Squanderville. The Squanderville workers, being lazier, are delighted, and pay for the imported food with Squanderbonds, denominated in Squanderbucks, privately thinking the Thriftvillers silly for providing goods in return for paper (okay, assume an insignificant paper industry)

Years pass, and the Thriftvillers slowly use their Squanderbucks to buy up Squanderville land (productive capital). Eventually, Thriftvillers own all of Squanderville; Buffett notes that Squanderville has effectively been colonized by purchase rather than conquest. About this time, the current generation of Squandervillers are confronted with a sad reality: not only do they have to return to work, they will now have to work extra to service their debt, which was run up by previous generations of wanton squanderers.


And where are those clever economists now?
(Source: pinterest.com)


With the understanding that this explanation also works with multiple countries - just think of Thriftville as the rest of the world, in contrast to Squanderville-America - Buffett agrees that this is "fair" in the sense that the future Squandervillers are merely paying the debt that their predecessors have run up. However, as he so succinctly explains, "...since one generation of Squanders gets the free ride and future generations pay in perpetuity for it, there are - in economist talk - some pretty dramatic 'intergenerational inequities'."

Buffett, of course, understands that there is one way for future Squanderville-Americans to solve their burden: to default on their debt. This isn't even that rare a last resort, really - among larger nations, Argentina and Russia have done it in the last couple of decades. However, in America's case, complications due to them being the reserve currency issuer apart, this would be a total death blow to their global leadership.

Finally, Buffett signs off with an innovative free-market solution: Import Certificates (ICs). Under this scheme, each U.S. exporter would be issued ICs in an amount equal to the dollar value of their exports. Then, mandate that foreign exporters and/or domestic importers have to obtain ICs equal to the value of imported goods. Trade balance is thus maintained, with ICs available to trade in an open market.

Leaving aside the merits of that suggestion, the main takeaway here is that Buffett recognizes persistent trade deficits as a huge problem, which appears diametrically opposed to the mainstream media-sanctioned opinion of "most experts". Definitely, another interpretation is that deficits don't matter because no matter what, somebody gets the money, somebody gets the goods, it automatically balances out by definition. However, intergenerational inequities besides, there are other very real consequences. Should America accept China buying up their land and factories (free trade!), when it has been next to impossible to do the same in China?

I know of three other popular arguments that trade deficits don't matter - firstly, specifically in the case of America, because they issue the global reserve currency, they are able to borrow relatively cheaply. However, cheap borrowing remains borrowing; unless they default, as discussed above, the claims on their assets still have to be addressed by future Americans.

Secondly, trade deficits might be acceptable if they are used to obtain assets for production. For example, one might borrow to buy a computer to produce software, which when sold produces a profit on what was spent on the computer. However, from the evidence of the previously-presented U.S. cumulative trade deficit chart, this scenario seems very unlikely.

Consider the case of a medical student who takes on student debt. He might run at a deficit for ten or so years, before starting to pay off that debt as he starts to earn an income. His cumulative deficit thus first increases during his schooling, before going down as he starts to pay it back. Some years later, the cumulative deficit becomes a surplus. There is no evidence of this pattern in the American trade deficit, which has been relentlessly increasing at a fairly constant rate.

Thirdly, it may be that a country runs a (physical) goods deficits, but a services surplus, which is Merkel's argument with respect to Europe. However, even considering this, studies suggest that America's cumulative deficit simply went from staggeringly huge, to half as staggeringly huge, and the problem remains.


What do we want?
We want free shit!
When do we want it?
We want it now!

(Source: cnbc.com)


In summary, after reviewing the evidence, my conclusion is that the experts, if they are right about trade deficits not mattering, are right only in very narrow and specific senses. However, when applied to trade deficits as commonly understood, they are entirely mistaken. To employ an analogy: when a layman says that the Earth is a sphere, an expert would be technically correct to state that "the Earth is not a sphere". It is slightly flattened at the poles, for one, and has many landscape features besides; clearly, from the precise definition of a sphere as having all points the exact same distance from its centre, the Earth is not a sphere. However, considering the general intent, describing the Earth as a sphere is probably very useful.

With this, we return to the original question - how then has it become so unquestioningly accepted, then, by even the well-educated... nay, especially the well-educated - that a people can consistently spend more than they produce, and that there will be no real consequences?!

Faced with this, one can only conclude that "most experts" have to be some combination of deluded, irresponsible or malicious. Congruent to this, TRUMP, as the only present-day POTUS to devote serious effort towards balancing the books - not even eating into past deficits, mind - rather than rehashing ineffective measures, is ironically the only grown-up in the room. Think of him as a redneck busting into his dependant college kids' dorm room and cutting up the credit cards they got from fraternity promoters, if you will; TRUMP may not know his Homer from his Hesse, but when it comes to the practical implications of finance and money, I daresay he understands much, much more than any random three Nobel prize-winning economists that you gather in a room... and only partly because they won't agree with each other to begin with.



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Sunday, July 15, 2018 - 20:15 SGT
Posted By: Gilbert

Where None Dare To Venture





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Thursday, July 05, 2018 - 21:15 SGT
Posted By: Gilbert

Quick Ins And Outs

Spain are out. I finally remembered why I had never fancied their all-conquering 2008-2012 vintage, when it became clear that they were never actually going to run at Russia, even in extra time when the hosts were basically dead on their feet. Smashing the previous pass record by nearly 10% is one thing, but why not just have a go at it? Then again, had Mr. Shakira not sneakily raised his hand back up defending a cross, they could well have coasted all the way...

For all the talk about the brackets being unbalanced, there don't seem any clear favourites to me - yes, Mbappé was outstanding for France, but they also conceded three against Argentina, and Uruguay are looking deceptively clinical; as one fella put it, they're "...very pragmatic, defensively strong, lethal on the counter, technically excellent, and (with) a very healthy dose of cynicism". Suárez might not be a good ethical role model, but as an all-round forward, I can't see many others that a defender would rather not face.

With Ronaldo and Messi possibly having made their World Cup bows (if not without their supporters bringing their rivalry offline), Neymar would probably be one of the few fitting that description. Again, however, while this Brazil team doesn't have obvious weaknesses, they just lack that extra pizzaz, and Neymar continuing with his best impression of a seizure patient has made it very hard to root for them...

The true stars of the Round of Sixteen were perhaps Japan, who took an entirely-deserved two goal lead against Belgium, with only forty minutes left to play. It was only then that the Belgians remembered that they were like a head taller than their opponents (as foreshadowed by the Japanese coach), and began to play to their strengths by bombarding the box. Given that their official Twitter account tagged WWE wrestler Shinsuke Nakamura rather than former United star Shinji Kagawa, one might rightly suspect that they hadn't done their homework. In any event, Japan's poor psychic octopus has committed sashimi for the dishonourable failure.

Which brings us to our new champions - England. Almost the antithesis of Spain in their largely-uncalculated and direct style, they were entertaining in an unassuming way, but no less dangerous for it. With technical, possession-based sides, one could try to pack the defence before they set up their patterns and reverse flicks and whatnot. But what when England just pumps it at Kane or Vardy, with three or four others converging in the general area?

Perhaps they might not know exactly what they want to do, but this means that the opponents can't know either. They might not have many true household names, unlike the days of yore, but they have exhibited excellent team spirit and understanding, and just as importantly, are no longer automatic losers at penalties. Maybe, just maybe...


In: Level 40

Achieved today at 4:50 p.m., with a Great Throw on a Weedle making the 20 million XP threshold, right on time for a planned level cap increase. Granted, the truly hardcore players have hit that multiple times, but it's still been a very satisfying two-year long journey.


Out: oBike

Right on the tail of Uber's exit, another transport provider is headed for the exit, with bike-sharing firm oBike blaming parking legislation for making its business model non-viable. Users were more concerned about their S$49 deposit, which now seems unlikely to be refunded. Oh, and remember oBikeCoin, presented as an example of a dubious application of blockchains? No? Well, a disgruntled cryptobro has done some digging, which has since been picked up by mothership. On the other hand, this might also be understood as another example of how entrepreneurship isn't all it's cracked up to be, when all one's work can be killed by a single governmental directive.



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Saturday, June 30, 2018 - 20:45 SGT
Posted By: Gilbert

Group Stage Over

Thanks to my upgraded living arrangements and general circumstances, I've been able to watch more games of this World Cup than any previous one (which also necessitated some catching up on sleep). As surprises went, from our pre-tournament expectations:

  • Croatia topped Group D, with Nigeria out (and Argentina barely scraping through against them); had thought it to be tight between Croatia and Nigeria, but Croatia outperformed as Messiteam underwent a near-collapse.

  • World Cup winner's curse aside, did anyone seriously think Germany would wind up last in Group F? Mexico were the beneficiaries.

  • Japan did much better, and Poland much worse, than expected in Group H.

The other five groups went exactly as called, which however is probably not much of an accomplishment, given that they largely followed conventional wisdom on team strength. Of course, experienced punters should know not to trust FIFA's official rankings too much, hosts being discounted (Russia 70th) for not having to play competitive qualifiers aside - case in point, our pick Spain now co-favourites with Brazil at about 4/1, despite being ranked 10th behind Belgium (3rd, 7/1), group rivals Portugal (4th, 25/1) Argentina (5th, 14/1), Switzerland (6th, 40/1) and France (7th, 8/1), among others. As in other departments of real life, there is often a large disjunction between what people say and how they act, when their own money/skin is on the line...

Some quick observations, before the group summaries:


Paying The Penalty

It didn't take long to sense that the bar for penalties had perhaps been lowered, once Ronaldo's going to ground in the fourth minute against Spain was rewarded with one. Indeed, the 24 penalties awarded is about twice as much as that from the past five World Cups. However, the total number of goals (122) is about bang average, which somewhat discounts the narrative about (kinda inconsistently-applied) VAR forcing defenders to loosen up. That said, VAR and goalline tech has eliminated the most egregious injustices.


Gap Narrowing?

While Saudi Arabia's opening match whipping by Russia led me to suppose (prematurely, as it turned out) that standards in Asia remained dreadful, my impression is now that a draw - even against the biggest sides - is not entirely out of reach of almost all participants, especially if they have the discipline to play for one. Consider the eight games (16.7%) that ended with a winning margin of three goals or more:

  • Russia 5-0 Saudi Arabia (they got better)
  • Uruguay 3-0 Russia
  • Argentina 0-3 Croatia
  • Mexico 0-3 Sweden
  • Belgium 3-0 Panama
  • Belgium 5-2 Tunisia
  • England 6-1 Panama
  • Poland 0-3 Columbia

High-ranking victims like Argentina, Mexico and Poland aside, Russia, Saudi Arabia and Tunisia managed to finish with wins, and every team managed to score at least twice besides. But perhaps more than that was the sense of unpredictability and inconsistency - taking Group A alone, the Sauds went from terrible against Russia to serviceable in a 0-1 loss to Uruguay, who went on to teach Russia a 3-0 lesson. Brazil needed two in extra time to beat mighty Costa Rica, and appear to be favourites on the back of a good but hardly convincingly-dominant win over Serbia. Argentina, so dire in their first two - and much of their third - matches, will probably be among the top four if they beat France tonight.

The takeaway here is that there don't seem to be any gimmes in the last sixteen. Yes, there's talk of the top half of the bracket being much harder than the bottom UEFA+Colombia half, but frankly, if you pit the average performance of {Portugal/Argentina/Brazil/Mexico} against {Denmark/Sweden/Switzerland/Colombia}, that second set are unlikely to be inferior. We'll see. Note punters' implied odds never quite exceeding 20% for any single team, which Goldman Sachs appears to have finally modelled responsibly (recall their start-of-tournament winning probability of nearly 50% for Brazil in 2014, which inevitably leads one to question their expertise in economic modelling too)


Group A - The Gimmes

"Feels like both teams have 30% possession."

- Russia owning yet not owning it


For all the Mo Salah hype, Russia lined up a knockout stage appearance as well as they could have here. As noted, Saudi Arabia and Egypt weren't total walkovers, but one had to fancy the (possibly roided-up) hosts against them. For his part, the Egyptian star was considering quitting the international stage after a political kerfuffle on Chechnya, which fortunately seems to have come to nothing.

Uruguay advance with the distinction of nine points and being the only team to maintain a clean sheet throughout, a testament to their Godín-led defence, and Suárez has decent bite (sorry) in attack as well. To be entirely honest, on available evidence, I can see them disposing of Portugal Ronaldoteam. As for Russia, they tanked in their first real test, but what really matters is which Spain shows up against them (more later)


Group B - An Iberian Affair

"We deserved to go through, man."

- A Morocco supporter (he's not wrong)


Spain through, Portugal through, no surprises there. Iran and Morocco however gave them a real run for their money, both of them earning a draw and a narrow one-goal loss against the two giants - and they could very well have won. The 3-3 instant classic aside, who can forget Mehdi Taremi nearly eliminating Portugal in the 94th minute, which could well have led to Ronaldo murdering his own squad (that too after he one-upped Messi, by having his penalty saved by a formerly-homeless chap)? Or Spain having to rely on Aspas in extra time, though that wasn't as critical?

While Spain have been the best team on the attack thus far for my money, having refined their tiki-taka to fit their available personnel, their weakness is also glaringly obvious - in forcing their opponents back so consistently, they necessarily leave acres of space behind them with their high press, which in turn is vulnerable to a single speedy attacker with Pique not exactly known for pace (and, dare I say, Ramos also dropping off) - see the cock-up for the Boutaib goal. This wouldn't have been so bad had De Gea been as superhuman as he had been with United, but he's probably not even above average among all goalkeepers thus far in this competition (see his fluffing the very-stoppable Ronaldo shot)

These vulnerabilies are at least obvious to the extent that Hierro cannot help but address them, with De Gea a natural candidate to be "rested". On the flip side, the De Gea-Pique-Ramos defensive unit remains on paper one of the best in the world, and it might yet be if they take the wake-up calls to heart. On offense, Isco has been magnificent, Diego Costa brutally effective, and Iniesta probably has the legs to be world-class for about an hour. Their supreme dedication to technical excellence has however led to all too many instances of trying to finesse the ball out of defence - I can see Russia hassling them hard for the first ten minutes, before falling back to play on the break.

As for Ronaldo vs. Uruguay, the latter are gritty enough at the back to shut him down, with all signs pointing to a sorry mud-wrestling night out with plenty of falling over.

  • Spain 3 - 1 Russia (assumed fixed defence)
  • Uruguay 0 - 0 Portugal (Portugal on penalties)


Group C - No Drama

"What a pathetic game."

- summed up in four words


France top the group with Denmark in second, true to form. Probably the most non-memorable group, exemplified by the pointless nil-all draw (the only one in the group stages) between France and Denmark on the last day.


Group D - Nearly Got Messi

"Iceland beats Argentina 1-1."

- Fox commentator kills it


Iceland's participation (over heavyweights like Italy and the Netherlands, no less) has long sparked questioning about why Singapore can't do it, since population (Iceland: just over 300 thousand) is clearly not a hard disqualifier. Short story: no monetary support, and passion that's slowly bleeding out with the fragmentation of resources (but hey, we held Japan in 2015, and Japan just beat the world champions... you do the math); it wasn't a fluke either, from how they nearly drew Croatia - who're already being played up as one of the outside faves with an on-form Modrić doing his thing.

Argentina were less than ten minutes from being knocked out by Nigeria, when Rojo of all people bailed them out, to the apparent disbelief of his own mother (uproariously followed up by: Gonzalo Higuain's mother - "When we realised the ball had gone in, we did not think it was Gonzalo... and it wasn't."); if that amounted to their response to their total shitshow against Croatia, it could be a short knockout phase for the Argies. Still, they have Messi, who's the one man you'd expect to come up with a goal from nothing... but still less entertaining than "they found some blood in his cocaine system" Maradona, who can't help but bring the lulz decades after retiring.

  • France 0 - 1 Argentina (the fates demand Ronaldo vs. Messi)
  • Croatia 2 - 0 Denmark (Croatia are perhaps the form team of the tournament thus far)


Group E - All About Brazeeel

"We may never see a 0-0 ever again!"

- France & Denmark: hold our beers


On paper, the Seleção have completely shaken off their humiliation from four years ago, having run away with the very-competitive CONMEBOL qualification league by ten points. However, they lack the mystique of past great Brazil sides to me - Neymar's got the obligatory questionable hairstyle down pat, but other than that, he's not a shade on the original Ronaldo, what with his rolling antics. Sure, he does get his fair share of getting chopped down, and exaggeration might even be the smart thing to do, but let's just say that he hasn't looked like carrying his team as Ronaldo or Messi have. Then again, Brazil are probably overall better than Portugal and Argentina... but not by that much - they drew the Swiss, and Costa Rica could very well have gotten a 0-0.

As for the Swiss, they got rewarded with a wheel of cheese from their fans, and no, they couldn't beat Costa Rica either (and struggled with Serbia).


Group F - Sweden? Top?!

"We put four different numbers on our players' shirts in training to confuse Swedish spies. Europeans can't tell our players apart by their faces."

- South Korea Starcraft-level pro tactics


Germany are out, and while there have teams that deserved to go through, but didn't, Die Mannschaft clearly didn't. A sad shadow of the machine from 2014, the writing was on the wall from their approach at the get-go. There was a sense that they never got out of second gear (Spain take note), and that just isn't enough nowadays (bar for WWII jokes). South Korea did Asian footy a world of good with their closing win (and other sacrifices), but sadly crashed out nonetheless.

Neither Sweden nor Mexico have quite convinced either. The latter wowed by beating Germany, only to be badly exposed by the Swedes at the end. As for the Swedes, they've got to be bracketed together with the other European mid-tiers such as Switzerland and Denmark: solid enough, but without the look of ultimate winners. But eh, Greece once did it...

  • Brazil 1 - 0 Mexico (Neymar rolls to a penalty)
  • Sweden 1 - 1 Switzerland (not much to pick between them, Sweden go through in a total toss-up)


Group G - Belgium: We can kick ourselves in the face, and what are you gonna do about it?

(in the background: IT'S COMING HOME LAAAADDDSSS!!!)

"The arrogance of Belgium to think they can beat us on yellow cards. We'll have Vardy and Jones start a pikey fight in the middle of the pitch with each other if we have to."

- time for English high-level planning


You know the script. England get drawn in perhaps the easiest group to qualify from, even including Group A, and after Kane edges Tunisia in the 91st minute, they spank Panama 6-1. At that, the distrustful fans - who've endured half a century of false hopes, mind - lose all restraint, sure as Charlie Brown races towards a football held by Lucy.

Yes, they go on to lose to Belgium, but that was a strategic victory - and frankly, England didn't look too bad, lots of direct running and balls over the top, they might even have drawn had Rashford got his one-on-one on target, but I suppose he paid attention in the pre-match briefing.

Truth be told, it's difficult to get an accurate handle on these two's true abilities, what with them playing against honestly not-very-good sides (see: Panama trying to score after an England celebration), and then a worse-than-pointless dead rubber. But lads, England are through...





Group H - Poland Cannot Into

"F**k you Poland you god damn weeaboos."

- a distraught Senegal fan


Poland: failed as Germany had, but outdone even in this. Japan squeak by on four points, and fewer yellow cards received compared to Senegal, with already-eliminated Poland all but settled for the face-saving consolation victory. Colombia sit between Uruguay and Portugal in the latest odds, which seems reasonable... and not exactly great news for England.

  • Belgium 2 - 0 Japan (well, they're third favourites)
  • Colombia 0 - 0 England (the pain is delayed, as England edge it on pens)



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