Half Sigma

Intelligence and reasoning, chess, computers, calculus

My definition of intelligence is that it’s the ability to reason and learn. And the learning refers to a specific type of learning, learning by reasoning, or in other words learning by figuring stuff out for yourself. There are at least two other significant types of learning that I have identified which are not intelligence: they are learning by memorization, or in other words rote learning, and learning by mimicking (which is how small children learn to speak and which is why they are better at learning foreign languages fluently than adults are).

In addition to reasoning, there are other mental abilities which are not intelligence. They include ability at both short and long term memorization, and computational abilities. There are probably a lot of other mental abilities which I haven’t mentioned, but what they all have in common is that they are not intelligence.

It’s likely that some of these non-intelligence abilities are correlated with intelligence for biological reasons. A larger size brain has been shown to be correlated with g, and it make sense to me that a bigger brain means more brain-power, which might result in better reasoning ability as well as being better at other mental abilities.

Mentioning g, it’s not clear to me if g is the same thing as what I define here as intelligence. Anyone have any opinions on that?

Idiot savants are autistic people who are not that intelligent yet have some amazing mental abilities such as super memorization skills or computational abilities.

The game of chess doesn’t require as much intelligence as you think it does because it’s primarily about memorizing openings and end game techniques, and being able to compute board positions many moves out into the future. The fact that the chess program Fritz can beat any human chess player demonstrates how chess is not about intelligence, because computers are not intelligent. Computers compute. Computers can compute chess positions many moves in advance better than humans can, and thus they can beat the best human chess players, even Gary Kasparov.

In contrast, the much more practical skill of teaching a computer how to understand language is something we have not been successful at doing. Language comprehension requires reasoning ability which computers lack.

Discovering calculus required a very high level of reasoning ability, but once smart people developed it it, it’s possible to train not-so-bright people to do it, as long as you can overcome the problem of keeping them motivated to learn a subject which they would normally find exceedingly boring and pointless.

Chinese buy Volvo

1999: Ford buys Volvo for $6.45 billion.

2010: Ford sells Volvo to the Chinese for $1.8 billion.

Glad to see the senior executives at Ford earning their multi-million dollar salaries.

Strangely, none of the articles about the sale mention how much money Ford lost on Volvo. I was lucky to read the comments at the Wall Street Journal article where someone mentioned that.

Will the Chinese be able to use Volvo to become a big global brand? Until now, the Chinese manufactured stuff for Western companies, with the value transference going from China to the West. With Chinese ownership of Volvo, the Chinese can now keep all of the profits for themselves.

Pharaoh and value transference

Pharaoh was the Carlos Slim of ancient Egypt. All of the wealth of the entire nation belonged to Pharaoh. Other members of the value transference class included the priests and the warriors. These guys didn’t do any value-producing labor.

Of course it’s obvious to us that Pharaoh didn’t do anything to deserve to use massive amounts of slave labor to build himself a huge pyramid to be buried in. But if you asked someone in ancient Egypt, they would have justified the situation (especially if they were a member of the lesser value-transference classes such as the priesthood). “Pharaoh is a god, and without a god to watch over us, evil spirits would destroy everything! Without Pharaoh, we’d be doomed, so of course he’s entitled to such a large share of Egypt’s value. Without Pharaoh there’d be no value produced at all.” The modern-day libertarian economist will make a similar argument about how Bill Gates deserves to be a decabillionaire.

The lesson here is that, in every society that ever existed, there was a value transference class, and that class justified their existence with an argument that at least a plurality of the people believed, even though looking back we can see how they were obviously wrong.

The story in the book of Exodus is really about one of the very first revolutions against value transference. According to Exodus, Pharaoh enslaved the Hebrews and made them build his cities and monuments. But the Jews decided they had enough, and not only did they escape, they slew every firstborn Egyptian male and destroyed all of Pharaoh’s army in the process. This was proper and just punishment for value transference.

World of Warcraft and libertarianism, follow-up post

David Friedman demonstrates the exact point I was making in my previous post with the following reply:

Actually, what I find interesting about the WoW auction house economy is that it is very far from perfect competition. It gives me an opportunity to be a participant observer in a market thin enough to let me observe cartel formation and a variety of related tactics, such as buying out gems someone else has put up at a low price in order to resell them at a high price, that don't exist in a perfectly competitive market.

Now, I didn’t say that the WoW economy had perfect competition, but rather that it’s “much closer to the model of perfect competition” than the real-world economy.

By insisting that WoW is “very far from perfect competition,” David demonstrates why he likes the WoW economy, because he thinks it’s like the real world economy

I read his post on WoW as a college course, which is an expanded version of his comment. I am not impressed by his story about how his wife was asked to join a WoW crafting “cartel.”

A cartel will not work in WoW for very long, because you won’t be able to gather together every single player who is capable of “crafting” or obtaining the fungible item in question. If you gather ten people together into your cartel, and there are twenty other people who can craft the item in question, eventually one of the other 20 will notice the high prices, and start welling a lot of them. That’s how you make money in crafting. You look through the auction house in search of something you can make which sells for a lot of money.

It’s equally difficult to make consistent profits by buying out an item from the auction house and then trying to resell them at a higher price. When I tried this in Final Fantasy XI, I wound up losing money. The higher prices caused a whole bunch more of the item in question to come into the market.

The false lesson that David learns from cartels and cornering the market in WoW is that no government regulation is necessary, because the forces of supply and demand will naturally fix the imbalance in a pretty short period of time. But in the real world, cartels and monopolies can last decades (if not forever), because barriers to entry are much greater in the real world.

World of Warcraft and libertarianism

A commenter writes:

Is being a libertarian strongly positively correlated with being a WoW enthusiast? David Friedman, son of Milton, seems to be an example

Indeed, that guy is a total nerd. In addition to blogging a lot about World of Warcraft, he’s also into the Society for Creative Anachronism and other uber-nerdy activities.

But responding to the question, I think that if there is a link between online role playing games and libertarianism, it’s that the economies in online games work the way that libertarians like to think the real world works.

The economy in online role playing games is much closer to the model of perfect competition, which is the standard method of analysis that libertarians like to use to evaluate the real world economy even though there is very little perfect competition in the real world.

The irony is that the key to perfect competition, based on the online gaming model, is government regulation. In an online role playing game, the company which owns the game, such as Blizzard (which owns WoW) or Square Enix (which owns Final Fantasy XI), acts as the government, and creates inviolable laws ensuring fair competition.

1. The rules of the game ensure that all goods of the same name are completely fungible. All +1 mythril swords are exactly the same. You can’t “craft” a +0.95 mythril sword and call it a +1 mythril sword, because the rules of the game don’t allow it. You can’t craft a +0.95 sword at all. The number of different items in the fantasy world is pretty finite.

2. The government ensures that everyone has fair access to the markets by operating a single store in each city known as the Auction House. Anyone is allowed to sell a certain number of fungible items at the Auction House, and whoever sets the lowest price will sell his good first. Each character has a limited number of auction house slots, so everyone has a fair chance to sell his goods without all of the auction house slots being dominated by a single brand.

To contrast with the real world, try taking some stuff you manufactured at home to the local Walmart and putting it up for sale. Sorry, that’s not going to happen. In the real world, there is a huge barrier to entry involved to just getting your stuff on store shelves. And even if you could somehow put “Bob’s homemade sneakers” on sale next to Nike, people would buy the Nikes because they won’t trust your no-name brand. Unlike in WoW, in the real world there’s no guarantee that Bob’s sneaker’s are identical to Nike—in fact, they clearly aren’t just based on the fact that Nike sneakers have a “swoosh” on them which advertises your prole tastes to the world.

3. In the online role playing game, there is no assembly-line production. Every player operates as his own sole proprietorship with no employees. Thus there is no vale transference from employee to employer. You get to keep 100% of the value of your production.

4. In the online role playing game, there are no insurmountable barriers to entry. In the real world, once you’ve gone to the wrong law school, you can never get into a lucrative BIGLAW job. But in the online role playing game, if, per chance, you wasted time raising your leathercraft skills, and then discovered that goldsmithing is actually the more profitable trade, nothing prevents you from putting in the time to raise your goldsmithing skills.

5. In the online roleplaying game, there is a huge disparity in earning ability between the “rich” and the “poor,” but every character in the game has the full potential to obtain the same human capital (or perhaps “avatar capital” is the better word) as the richest people in the game. All you have to do is play the game for a really long time. Once you reach level 80, then you too can kill the monsters that drop the most expensive items, or mine ores from the highest level zones without dying. The game is set up in such a way that the reason why a level 80 character can earn a thousand times as much gold per hour as a level 1 character can be easily explained by the level 80 character have much higher human capital which allows him to create a lot more value.

Libertarians like to believe that the real world operates this way; that the only thing that prevents you from being as rich as Bill Gates is that Bill Gates put in the effort to raise his character to level 99, while you were too lazy to do the same thing. In the ideal libertarian world, there is no HBD, no luck, no credentialism, no irrational behavior, no Black Swan events (to use the term coined by Nassim Nicholas Taleb), no winner-take-all effects, no insurmountable barriers to entry, no value transference.

In other words, the online role playing economy is fair in a manner that the vast majority of people would define fair, but the real world is not.

Chess and David Shenk

Other HBD bloggers, such as OneSTDV, have debunked David Shenk’s book.

Before his bogus book about genius, he wrote about chess, and it’s my understanding that chess examples were an important part of his theory that geniuses are made and not born.

With respect to chess, Shenk is right. As I’ve previously written, chess is not as highly g-loaded a task as is commonly believed. Thousands of hours of training, beginning at a young age, can turn a large percentage of humanity into super chess players. A rather pointless endeavor, I might add. Playing chess at a high level doesn’t create value; it increases the chess player’s status, and because status is zero sum game, he can only increase his own status by making everyone else slightly less important. Thus, chess playing at the professional level is a value transference activity rather than a value creation activity. And it’s not as profitable a value transference activity as playing baseball really well (another OneSTDV post; he’s been on a roll lately).

A much more highly g-loaded task is reading and writing ability. Coaching can turn minority kids from Harlem into great chess players, but not into people who can write well or ace the verbal section of the SAT.

The WoW brand, and holodecks

The most interesting brand to achieve dominance in the 21st century is World of Warcraft. It has become like Xerox in the sense that the concept playing an online fantasy role playing game has become synonymous with WoW. WoW is the first step towards the holodeck from Star Trek the Next Generation, except that the writers of that show never really understood the significance of the technology. Once holodecks exist in real life, people will never want to come out. Situations like the Korean couple letting their baby starve to death because they were busy playing an online fantasy role playing game called Prius, will become everyday occurrences. Governments will probably ban holodecks the way they currently ban recreational drugs.

* * *

Why are Koreans so much more addicted to computer games than Americans?

Branding, mass communications, and value transference

Before mass communications, all brands were local. If you established a brand in your hometown, there was no way for the rest of the world to know about it.

The construction of the first telegraph line, in 1844, changed everything. The telegraph allowed information to quickly cross a much larger area. Sears, one of the first national brands, began its mail order catalog business in 1888. Coca Cola begin in 1886.

There are actually older brand than those, such as Lowenbrau which dates back to 1383. But I think that all brands which predate the telegraph were local businesses which survived a really long time, and then became famous worldwide after the invention of mass communications.

Once a brand achieves dominance, it will stay dominant forever unless the custodians of the brand manage to really screw things up—which happens surprisingly often considering how much money executives at big corporations get paid—or if it merges with another brand.

For any particular line of business, there can only be a few big brands, because of the herding instinct of consumer behavior, which is to prefer the bigger and more popular brand over the lesser brand. A market in which there are 20 brands, each with 5 percent market share, is unstable. Eventually, a small number of brands will come to dominate the market, with the rest of the brands forced to pursue a niche marketing strategy or just go out of business altogether. Branding is a winner-take-all activity.

I consider branding, as I do all winner-take-all activities, to be a type of value transference. Mass communications plus the human herding instinct results in a small number of companies making all of the profit.

Brands also occur in non-consumer retail activities. In the entertainment industry, famous actors and actresses are essentially brands—people want to see them in movies even though there is no evidence that they are more talented thespians than non-name actors. Once a brand is established, it doesn’t have to be the best, or even close to the best, it just has to be good enough (which is why, when big brands fail, the senior executives of the company ought to commit suicide the way they do in Japan).

In U.S. politics, there are two brands, Republicans and Democrats, and without that brand behind you it’s nearly impossible to get elected. Within a political party, brands exist in last names—people are a lot more excited about voting for a Bush, Clinton, or Kennedy than they are for someone with an unfamiliar last name.

To fight the inherent value transference of brands, we need rigorously enforced antitrust laws—breaking up big companies into several smaller companies leads to less value transference and more competition in the markets. Also, progressive taxation, both for individuals and corporations, is a good thing, because it means that the taxes will disproportionately hit value transference profits.

HBD more important than healthcare

Sweden is a great place to live despite socialized healthare.

Every country in Africa sucks no matter what kind of healthcare system they have.

Think about that.

The benefits of health reform

I see that, beginning in 2014, I can drop my health insurance coverage, because beginning that year, insurers can no longer deny you coverage for pre-existing conditions. This option will probably be very popular, because the $695/year penalty is far less expensive than paying for health insurance which you don’t need because you’re healthy.

The result will be lower prices for routine medical services, because the number of middle class uninsured will increase substantially, creating a true free market for medical services.

I'm looking forward to the year 2014, when I will save $3000/year on health insurance.

* * *

Actually, I see also that the government will be setting up a “high-risk insurance pool” for people with pre-existing conditions to buy affordable health insurance, and this will go into effect this year. So maybe I will be able to drop my overpriced health insurance very soon.

High executive pay not required

NY Times reports:

Of the 104 senior executives whose pay was set by the federal pay regulator in the last two years, 88 executives, or nearly 85 percent, are still with the companies even though their pay was drastically cut back, according to people briefed on the government data.

Duh. Who’s going to hire someone for seven figures who helped to lead his company into bankruptcy? Even at half their former salary, they’re still being overpaid.

* * *

Well, I suppose it's likely that experience is so overvalued when hiring high level executives, companies would prefer to hire someone experienced at leading his company to failure rather than someone unexperienced.

What's in a brand name?

A company called Systemax has purchased the brand names CompUSA and Circuit City, and is now profiting from them.

This demonstrates the irrationality of U.S. consumer behavior. People would rather buy electronics from a “CompUSA,” even though the old CompUSA went bankrupt, than they would from Systemax.

* * *

On the other hand, maybe it’s not entirely irrational. Because Systemax now owns these brand names, the company will be motivated to provide a decent level of quality in order to maintain the brand image. When I bought a computer from the unknown company “iBuyPower,” the computer was the biggest piece of crap I ever purchased. It came with the wrong drivers installed so the DVD drive didn’t work, the “technical support” guy was completely clueless and insisted nothing was wrong (in barely understandable English), and then two years later the power supply for the computer started smoking—I’m not talking a few wisps of smoke, but a huge cloud of foul smelling black smoke coming out of it. So my conclusion is that retailers with no brand image have no incentive to provide you with any sort of quality product.

Newegg is now selling iBuyPower, which I find pretty weird considering how bad they suck. On the other hand, people are still buying Dells despite the fact that their laptop computers used to explode.

The health care bill could be good if…

Hopefully this bill can be used to reduce immigration. If the public has to pay for the healthcare of immigrants, then this creates a reason to finally do something about limiting the amount of immigrants coming into the country.

If employers have to provide healthcare to all employees, then maybe those unskilled immigrant workers aren’t such a good deal anymore. There was no political will to actually crack down on employers who hire illegal immigrants, but maybe there will now be political will to crack down on employers who hire illegal immigrants but don’t pay them healthcare.

Health Bill

I haven't studied it enough (not really at all) in order to know if it's good or bad for America, so I have no comment at the moment.

Cognitive dissonance and value transference

Somebody is now going to comment that you still don't get it because you can't measure value so therefore you are wrong and an idiot. I hope you'll respond to this charge when it comes.

Sure, I’ll bite.

Her is a very incomplete list of things which can’t be measured:

Love
Honesty
Sadness
Greed
Happiness

So I guess these things don’t exist? Or that one person can’t be happier than another person, or more honest than another person, because we can’t measure these things?

The person who wrote this is probably some sort of engineer (so he only thinks in mathematical formulas rather than concepts), and he’s bought into the right-wing-libertarian-economist idea that everyone makes exactly what they are worth because the free market is just so perfect.

The anger this commenter has towards me is the same anger that the Christian has towards the theory of evolution, or the liberal has towards HBD. The theory of value transference invalidates his core beliefs.

* * *

I think the commenter is saying that other people will be angry at me and call me an idiot, not that he himself feels that way.

* * *

And I see that two of the first comments left here raise two of the other standard objections to the theory of value transference:

Objection 1: There’s no value transference because the transactions were voluntary. (In other words, value transference is impossible in a free market, because by definition all transactions in a free market are voluntary.)

Objection 2: There’s no value transference because billionaire entrepreneur’s company produced some truly useful products.

Carl Icahn and value transference

A quote from a WSJ article

A few years ago I heard corporate raider Carl Icahn explain why so many companies are so poorly run, and thus such ripe targets for his brand of intervention. He said that too many firms are run by CEOs who got where they are through boyish good looks and fraternity-president bonhomie. Even if such guys have an abundance of native intelligence, they choose not to build those mental muscles

So Carl Icahn agrees with me that the CEOs are generally not the most capable people. This blows away the conventional libertarian economist explanation that CEOs get paid so much because they are the absolute best people for the job, and their decisions are so important that it’s worth paying huge money for the best. It turns out that the libertarian economist explanation is a rationalization to explain away irrational behavior and ignore the issue that CEOs don’t create value equal to the amount of money they get paid, rather they are the recipient of value created by other people.

The structure of corporate America is set up so that the guy at the top makes a lot of money, regardless of whether he's talented at the job or not. And the winner-take-all competition to get to the top doesn't cause the guy who can best increase shareholder value to get to the top, but rather the guy with the best looks and bonhomie.

Google Chrome rocks

I finally got around to installing this. Wow! This is so much better than Internet Explorer or Firefox. It installs quickly, it loads quickly, and it displays pages quickly. It doesn’t freeze up your computer every time you visit a page with heavy JavaScript or Flash. From now on, this is going to be my main web browser.

* * *

It takes IE7 6 seconds from hitting the launch button until it displays my home page. Chrome does the same operation in 2 seconds. Amazing difference.

To load the front page of the NY Times website. Chrome 7 seconds, IE7 21 seconds.

I guess Internet Explorer is only good for people who have a 4 GHz i7 quad-core processor.

The question is, why is Bill Gates the second richest man in the world when his company’s software sucks so bad? It’s obviously value transference.

SWPLs on food stamps

A reader left a link to this Salon.com article in the comments:

Magida, a 30-year-old art school graduate, had been installing museum exhibits for a living until the recession caused arts funding -- and her usual gigs -- to dry up. She applied for food stamps last summer, and since then she's used her $150 in monthly benefits for things like fresh produce, raw honey and fresh-squeezed juices from markets near her house in the neighborhood of Hampden, and soy meat alternatives and gourmet ice cream from a Whole Foods a few miles away.

"I'm eating better than I ever have before," she told me. …

I say, good for these young SWPLs. I think that everyone should get food stamps. Why should only poor welfare mothers benefit from them? If everyone was eligible, then this would remove bad incentives for poor people who otherwise would turn down jobs because they’d lose their food stamps.

And as the article points out, people like Magida are helping to solve the "problem" of too many food stamp recipients using their food stamps to buy "junk food."

The blind leading the blind

The president of the Detroit school board is shockingly stupid.

More thoughts on World of Warcraft and status

“Eric Crampton” refutes my point about per-capita status being constant by invoking World of Warcraft:

Creating value and earning wealth pushes you up on one status ladder but might hurt you on other status ladders (maybe you're less likely to be #1 Dad, maybe you're less likely to have a top-ranked World of Warcraft character). All status increases have opportunity costs on other status ladders.

First of all, it’s interesting that he tried so refute me by invoking my own arguments from one of my previous posts about World of Warcraft:

In the real world, men start out with the dream that they will advance and increase their status. But then they discover that it's not so easy to increase one's status in the real world. For example, one can devote three years of life to attending law school only to discover that law school was a a complete waste of time. In the real world, career tracks usually determine if your status will increase, and the fast track to success only holds a few people. Most people toil away at jobs where they never see any direct benefit from their hard work.

This is where World of Warcraft comes in and meets people's unmet psychological needs. In WoW and similar games, your status increases slowly but surely every time you play. After so many hours in the game, you can see exactly how many more experience points you have, maybe your level has increased, maybe you have better armor or weapons than you had before. Unlike the real world, where you can work 40 hours of overtime and not even get paid for it, if you put an extra 40 hours into WoW you will definitely have something to show for it. Your status within the virtual world of WoW will have increased in ways you can clearly ascertain.

But I also thought the post would imply that WoW doesn’t create real status, but merely entertainment by providing the illusion of status.

Saying that an 80th level WoW player with Legendary Armor has status because a few thousand WoW geeks look up to him is like saying that a BBW woman is just as hot as Olivia Wilde because there are a few thousand men in the world who have a BBW fetish (not a work-safe link).

WoW doesn't give players status, it gives them entertainment. Karl Marx once said that religion is the opiate of the masses, but today electronic entertainment is the opiate of the masses. With video games, BluRay discs, high definition televisions, and the like, people can be entertained and forget that all of the value produced by their labor is being transferred away to the elites.

* * *

I never gave a WoW update since my review last May. Well what happened is that the game got boring before I reached level 80, and I never experienced the end game. Overall, I think that WoW is pretty overrated. Until you reach level 80, it’s more of a single player game than a multiplayer game, and it takes a massively huge amount of time before you reach level 80.

I recommend Final Fantasy XI as the better “MMORPG,” because it’s a social game which requires you to form parties with other players in order to gain any experience. It's so addictive, it can make you forget how modern society screws you over unless you're one of the elites.

FFXI was a pretty profitable game. I think that Square Enix had about half a million paying subscribers for several years, and there are probably still a few hundred thousand subscribers. But after WoW became the super-best seller with multiple millions of paying subscribers, every other game developer modeled their new MMORPGs after the WoW model hoping they could somehow duplicate WoW’s success, but of course that never happened. This demonstrates one of the basic facts of laissez-faire economies: even without the government granting monopolies, companies naturally develop monopoly power because through random circumstances one brand just rises to the top and becomes the brand that everyone wants, even though another brand actually offers a better product.

Cab drivers who cheat

From today’s New York Times:

About 3,000 New York City taxi drivers routinely overcharged riders over two years by surreptitiously fixing their meters to charge rates that would normally apply only to trips outside the five boroughs, according to the city’s Taxi and Limousine Commission.

The drivers’ scheme, the commission said, involved 1.8 million rides and cost passengers an average of $4 to $5 extra per trip. The drivers, officials said, flipped switches on their meters that kicked in the higher rates, costing New York City riders a total of $8.3 million.

. . .

The investigators determined that 36,000 drivers improperly activated the higher rate at least once, and that about 3,000 drivers did it more than 100 times.

Did the cab drivers who cheated create more value than the cab drivers who did not cheat? No, they didn’t. Thus we can say that the cheating cab drivers transferred value from the passengers to themselves.

This news story demonstrates that, without government laws to prevent it from happening, people will attempt to increase their own income without giving back any value in return.

It should be noted, however, that the combined cheating of 36,000 cab drivers transferred less value in two years (only $8.3 million) than a single investment banker or CEO can transfer in only one year.

Half Sigma was right

I was reading though some of my old posts to see if I can find a post where I made a prediction which came true, so I can say “I told you so.” Here is what I wrote on May 29, 2005:

I’m two days late linking to Paul Krugman’s 5/27/05 NYT column, but it’s one well worth reading. Paul Krugman makes a concise but excellent case for why a collapsing housing bubble will lead to bad economic times ahead. This is a rare case in which Paul Krugman is 99% correct, and he even avoids unnecessary Bush bashing (which he only does when he feels he has something really important to say).

Before I read his column, I was thinking the exact same thing this week, how a huge global recession (maybe even a depression) seems unavoidable. I also believe that the higher housing prices rise before they finally collapse, the worse it will be.

Value transference fan mail and hate mail

SP writes:

Please continue with these HS. You seem to have attracted the interest of a large number of libertarians and I think it’s been a while since you focused on what is wrong with that particular view. I remember reading you in the comments on Catallarchy years ago, arguing a lot of these same points.

Thank you for your support.

Graham Asher writes:

Please give up posting on economics and 'value transference'. You have a lot of interesting things to say, but not about economics. For real economic insights I can go to Brian Caplan, or many others.

Bryan Caplan is a far outside-the-mainstream libertarian, who ironically teaches at a bogus state school in Virginia mooching off the taxpayer dollars. If there is any economist other than me you wish to read, I highly recommend Robert Frank who is an economics professor at Cornell University. He does a great job of explaining the problem of status striving.

* * *

By the way, I used to consider myself a libertarian when I was younger, but then after examining the world objectively, I realized that libertarianism is wrong, and relies upon many bogus assumptions.

Another iPad post

Some commenters criticized my previous iPad post for predicting it would either be a huge success or a huge flop with no in-between. So let me explain this concept further.

The iPad is a computer. Computers are really useful device. Everyone reading my blog owns a computer.

Computers are winner-take-all products. People have no use for a computer that they alone own (unless they are super-geeks who will program their own applications). The popularity of a computer device is what drives software companies to make software for the devices, and it’s the software which makes the device useful.

Because the iPad comes with a few Apple applications, like a web browser and an extra application you can purchase for $50 which lets you read and edit Microsoft Office files (at least I think that’s how it works), one may argue that the iPad is a useful device even if no one programs any useful software for it. Maybe. But probably not so useful compared to “netbooks” which can run the huge installed base of Windows-compatible software.

The iPad has some big advantages over Windows computers. The first is that it doesn’t allow multitasking. Now how is that an advantage, you may ask? Isn’t multitasking highly desirable? Well, when you consider that every time you start up your computer, hundreds of different background programs are being loaded, all of which combine to suck performance from your computer and create possible incompatibility problems leading to system crashes, then maybe multitasking isn’t such a great thing. What really matters is that, when you switch to a different application, how quickly can the old application save its data, and how quickly can the new application open whatever you were working on since the last time you closed it? If this can happen in less than a second, then who cares if there’s true multitasking? One of the reasons we “multitask” in Windows is because everything takes so darn long to load up an application that isn’t running.

The second advantage is that Apple controls everything. Another problem with Windows computers is that all applications need to support a nearly infinite number of hardware combinations. There are hundreds of different video cards, hundreds of sound cards, hundreds of DVD drives, etc. There’s a good chance that some application which works find on the test computers used by the software developers will have some weird bug when used on real-world non-tested hardware. Because the iPad only has a single hardware configuration, and because in the future the number of new hardware configurations will be strictly limited by Apple, this makes the job of developing non-buggy software a lot easier.

If any other company introduced this device, it would fail despite the above advantages. But because the Apple iPad has so much SWPL-buzz surrounding it, there’s a chance it could sell enough millions of units to induce software developers to write applications, one or more of which may become a must-have application, the so-called “killer app” which drives even more sales.

Because the iPad seems to be geared towards personal and entertainment use rather than business use, I suspect that the killer app will be a game, or a convenient way to consume media such as movies or news. Textbooks is also strong possibility; who can forget what a huge PITA it is to have to lug around a bunch of heavy textbooks? My experience with the Sony Reader is that it’s not very good for textbooks because of the lack of graphics and the inability to easily skip around. The iPad might solve this problem.

Value transference and status

COUNTERFEIT MONEY

Suppose I printed myself $10 million dollars (and it’s impossible for anyone to detect that they are counterfeit). Have I created any value? I think that everybody will agree that I have not created any value. What I did was increase the money supply and create a very tiny amount of inflation, which ever so slightly lowers the value of everyone else’s money. What I did is transfer value from other people to myself.

But here’s the interesting thing. No matter how hard you try, you will not be able to identify any particular person who was in the slightest way harmed by my act of value transference. This is because $10 million is such a tiny sum compared to the total money supply. It’s only fraction of a penny per person. No one would notice such a minute decrease in their savings. I might even attempt to justify my action, arguing that by spending this $10 million, I am stimulating the economy and actually benefiting everyone in this time of high unemployment. There might even be some truth to this justification, but it’s also true that I’ve unjustly enriched myself in the process. I didn’t do anything to deserve $10 million; in fact, I committed a crime.

At any given time, there is a fixed amount of value in the world, and the amount of value doesn’t change when I print myself counterfeit money.

STATUS

There is a similar dynamic involved with changes in status or prestige. At any given time, there is a fixed amount of status in the world, and I would further posit that the total status in the world is directly proportionate to the number of people living in the world. Increasing or decreasing the world’s population has no effect on average status, it only increases the total status.

If I take some action that increases my own status, this status increase can only happen because I simultaneously, by an imperceptible amount, lower everyone else’s status. Status-seeking is worse than a zero-sum game, it’s a negative-sum game. The hundred hours I spent on increasing my own status might have been put to better use such as creating something with intrinsic value. If everyone in the world spends a hundred hours of labor on increasing their own status, the end result is that no one’s relative status has changed, but everyone has lost a hundred hours of labor which they might have otherwise spent doing something they enjoy. Everyone is worse off for competing for status.

Despite the fact that status is fixed, it’s worth real value to people. People will gladly trade items of real intrinsic value in exchange for higher status. Thus all status transference is also value transference.

GDP

Just as there is a fixed amount of status among people, there is also a fixed amount of status among things of commerce. If a big corporation spends a billion dollars to increase the perception of value of its brand, the corporation has also, by a small amount, decreased the perception of value in all other brands. Thus no value was created, it was only transferred.

But here’s something interesting which also happens as a result of this billion dollar campaign. The economists who work for our government who attempt to measure GDP will interpret the billion dollars of spending as economic activity, and conclude that GDP increased by $1 billion. Thus we see that GDP is overestimating our true gross productivity because it’s measuring value transference activity when it should only be measuring value creation activity. To the extent that an increasing percentage of our nation’s commercial activity is directed towards value transference rather than value creation, the GDP figures create the illusion of economic growth when, in fact, no such growth is happening. This may partially explain why it feels like we are no better off today than we were twenty years ago, even though economists insist that there has been much economic growth.

THE SHOCKING CONCLUSION

Because the mere fact of possessing wealth increases one status, and because status is value, we reach the shocking conclusion that the mere act of value creation also results in value transference.

Let’s suppose that, instead of printing $10 million of counterfeit money, our decamillionaire did something to create $10 million of pure value (assuming it’s even possible for a single person to create so much value by himself—this is something I dispute). Even though this act of value creation hasn’t caused the intrinsic value of anyone else’s assets to decrease, by increasing his status he has caused a very slight decrease in everyone else’s status.

Thus even in an economy of pure value creation, the only way to prevent value transference is through progressive taxation. By imposing higher taxes on the person who created lots of value, we take away the value transference component of the act of value creation and redistribute it to the people from whom the value was transferred.

Value transference: things vs. people

Thorstein Veblen explained that the more prestigious classes manipulate people while the less prestigious classes manipulate things. Thorstein Veblen called the prestigious class the “leisure class” because they didn’t have to do any unprestigious work. They are very similar to what I would call the value transference class, as the leisure class lets other people do the boring value creation work, and transferred the wealth created to themselves so they could do more prestigious stuff with their lives.

In modern society, there are now three levels of prestige.

The least prestigious jobs manipulate physical objects. For example, the factory worker or the guy who works in the back of the restaurant cooking food.

More prestigious jobs manipulate non-verbal information, such as computer programmers, accountants, etc. (Maybe the accountant has more prestige than the computer programmer because financial stuff is considered more prestigious than techie stuff.)

The most prestigious jobs manipulate other people, and these are the jobs to which the SWPL class aspires. CEOs, actors and actresses, journalists, college professors, and investment bankers (who are salesmen who can crunch numbers) are examples.

Of course there are several factors involved in a job’s prestige. An engineer has more prestige than a car salesman, even though the former job manipulates non-verbal information and the latter job manipulates people. The fact that the engineer earns more and has a higher IQ both mean something when gauging relative prestige. But if you can hold the two other factors constant, and compare jobs which require equal IQs and earn equal money, the more people-oriented of the two jobs will usually be the more prestigious. If you compare the lawyer and the engineer, the two jobs may pay the same and require the same IQ, but the laywer will be perceived as more prestigious because his job is verbal rather than mathematical, and because he wears suits to work while the engineer wears jeans to work. (The suit is a way of manipulating people into thinking you are important.)

While it would be wrong to say that manipulating people never creates any value (the boss who makes sure his workers are contributing rather than goofing off is certainly creating value by doing that), it is usually the case that value transference requires the manipulation of people rather than the manipulation of physical objects or the nonverbal manipulation of data.

No matter what his company does, the CEO does not personally create value through the manipulation of physical objects or non-verbal information; you won’t see Bill Gates writing any code.

The politics of Wall Street's elite

The problem with reading HBD blogs is that you can start to believe that a lot more people share your views than actually do, and then come up with dumb theories about people on Wall Street or in big corporations being secret believers in HBD.

The typical Wall Streeter may have been politically apathetic in his youthful Ivy League college days, and thought that getting rich was more important than doing something to “contribute” to society, but that doesn’t mean he doesn’t buy into the basic liberal metanarrative that all races have equal mental abilities, that global warming is happening, that more immigration is good for America, etc. After their college days, they probably got married to a SWPL girl who has moved them in the direction of being more concerned about SWPL issues.

There’s no reason to think that Wall Streeters donating money to Obama secretly voted for McCain in the voting booth. There’s no evidence in the election results from places where Wall Streeters live, such as the Upper East Side or Greenwich, CT (which is 90% white and less than 2% black) that there was a huge hidden support for McCain. Greenwich, one of the nation’s most elite towns, supported Obama by 16,233 votes to 13,937 votes.

Among Wall Streeters who do vote Republican, they tend to align with Bush or McCain on economic issues, and Obama on issues like race and the environment and most especially abortion and other religious issues. They’re not Tom Tancredo or Ron Paul supporters. They don’t care about affirmative action because it doesn’t hurt them in the slightest. Affirmative action is a problem for white proles. They don’t care about immigration, they aren’t competing against them—immigration means cheaper maids and nannies, and whenever they go on vacation it’s to some foreign country where they meet foreigners who are a lot more of their type of people than domestic white proles. You will be hard pressed to find anyone on Wall Street (except for some prole cold-calling stockbrokers) who would identify more with Sarah Palin than with the type of person described in Christian Lander’s Stuff White People Like blog.

Since Reagan was in office, the elite, Wall Streeters included, have been moving from the Republican to the Democratic Party. Wall Streeters, like all of the elite, don’t share Sarah Palin’s or George W Bush’s views on religion. If they do go to church, it’s a liberal mainline Protestant church, or a Synagogue, and they don’t really believe in the stuff anyway, they go out of guilt or a sense that it’s socially required of them. The Sarah Palin wing of the Republican Party is a big force driving the elite over to the Democrats.

Wall Street is SWPL

I recently wrote that Wall Street is controlled by SWPLs, which is one of the reasons why oil stocks are undervalued. The commenter, Peter A, wrote “Wall Street people want to make money, and most of them are as far from SWPL as you can get on issues like race and energy, at least behind closed doors. “

Peter A is wrong. Wall Street supported Obama (who is the whitest president ever) :

Although the Democratic presidential hopeful has vowed to raise capital gains and corporate taxes, financial industry bigs have contributed almost twice as much to Obama as to GOP rival John McCain, a Daily News analysis of campaign records shows.

* * *

Basil Ransom writes:

All this talk of racism behind closed doors on Wall Street and the like is unfounded. I'm at an Ivy League, I see the guys who are in line to become investment bankers and the like. They're liberal but apathetic generally.

It's BS that smart people secretly believe that say, blacks are dumber but never say anything. They're just as on-board as everyone else, generally.

They aren't much more alpha than other students either, in the sense of being socially dominant.

Value transference and Scooby Doo

In the typical episode of Scooby Doo, the villain is a real estate developer who wants to buy a property for less than it’s worth. So he and his associates dress up as ghosts or monsters and “haunt” the property. This causes the property owner to think the property is worth a lot less than it really is because of the infestation of evil spirits. Thus the real estate developer attempts to transfer value from the property owner to himself by artificially creating asymmetry of information. The real estate developer’s last words are, “And I would've gotten away with it, if it weren't for you meddling kids!” The kids are heroes because they prevented the property owner (often a kindly old woman) from being ripped off.

Value transference is like intelligence

Alex complains:

I still don't understand your theory because you haven't explained it very well. How do you calculate how much value is being created? Is it just based on the happiness that someone gets from the good or the service? Is it what the person would pay for the good or the service if they understood what they were really getting? It seems like the line between value transference and value creation is entirely arbitrary.

The thief, who steals from others, transfers an amount of value equal to the value of what he stole.

The person who labors in a market with perfect competition and zero barriers to entry creates value equal to his income. Of course, such a market doesn’t exist. For example, nearly all markets have a huge differential between the number of buyers and the number of sellers. In such markets, the side of the transaction with the much fewer numbers will have much greater bargaining power, and thus extract value from the other side. In labor markets, where there are few employers and much larger numbers of employees, the employers transfer value from the employees (who may in turn be working in value transference positions such as sales, effecting the transfer of value from others to the company). All value is eventually transferred to people and not organizations, so if we follow the value, some of the transferred value goes to the company’s highest paid employees, some of the transferred value goes to the company's suppliers (nearly all companies transfer some value to Microsoft), some of the transferred value goes to the investors, and some of the transferred value goes to the people who act as middlemen between the investors and the company, the middlemen being people like bankers and hedge fund managers. Value is also being transferred to the government in the form of taxes, and that also eventually gets transferred back to people.

Except for the extreme example of the thief, it’s not possible to perfectly measure someone’s value transference, but just because something can’t be measured perfectly doesn’t mean it doesn’t exist. That’s what the HBD-denialists say about intelligence. “We can’t measure intelligence perfectly, and we don’t even really know exactly what it is, therefore it doesn’t exist.”