In the first paragraph he is angry with millenials, because "They don't have any respect for freedom, the free market, and democracy."
Further down he rants against bitcoin and argues that "the Bitcoin's intrinsic value is still zero and the Bitcoin may only be sold for those huge amounts because of the existence of the opaque bubble that fools all the people inside and prevents them from seeing the truth".
But the price of bitcoin is established on various exchanges providing liquid, free markets - so should we not respect those free markets?
I only point this out because many economists, investors and traders, who certainly consider themselves free market capitalists, make similar arguments: bitcoin is obviously evil, a fraud, a bubble or worse, with zero real value.
So how do they explain that bitcoin survived several crashes and trades at significant and rising multi-billion dollar valuations for several years already? And if bitcoin is indeed a "bubble" that will implode at some point soon in the future, would it not be even more embarrassing for a proponent of free markets as efficient allocators of resources?
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The idea that all commodities and goods have an "intrinsic value" seems obvious and was the main assumption of Karl Marx.
But there is no such thing as "value" and "price" in physics, except in the heads of human beings.
This is true even for the most basic commodities, i.e. food. A vegan assigns a different value to a steak than I do.
Some futurists think insects will become a major source of protein; in this case the value of crickets will move from zero to wherever the CME will price cricket futures. (*)
On the other hand, asbestos was for decades a valuable commodity and a billion dollar industry was producing it. But its price moved quickly to negative values when it turned out to cause lung cancer.
And what is the value of a black square painted on a white canvas?
As for bitcoin, the obvious answer is that its value is whatever price one can currently get on one of the exchanges. As a free market capitalist I believe this price contains information and in particular a prediction about the desires and demands of human beings in the future. However, I don't think markets are fully efficient and certainly not perfect predictors. The large volatility of bitcoin prices indicates significant uncertainty and suggests that it would be foolish to bet a large fraction of one's net worth on it. Currently, my own best guess (worth less than 2c) is that the future value of bitcoin a few years from now is somewhere in between 800$ and 80,000$ but if there is any bias it would be to the upside. (x)
(*) It might be interesting to discuss this economic relationship: The more useful and important a commodity is for human beings, the lower its value and price.
The air that we all need to breath comes at a zero price. Water is cheap in most places and certainly much cheaper than e.g. old wine. Food costs money (except the nutritious insects), but notice that the more you pay for dinner in a fancy restaurant, the less food you actually get on your plate.
A useful car is much cheaper than a fancy race car and so on and so forth. Finally, the most expensive goods, made from expensive commodities like gold and diamonds, are also the most useless (but I could never convince my wife about that).
This relationship could explain why the oldest and therefore least sophisticated and useful cryptocurrency (bitcoin, compared to ethereum or litecoin) is also the most expensive.
The worst that could happen to the price of bitcoin would then be widespread acceptance and adoption ...
(x) In my case, one reason for bias is the fact that I was mining bitcoin in 2011 and therefore own some coins and I would appreciate if they keep appreciating in value.
added later: Cullen Roche about all that.
Btw if you want to know how bitcoin works, I recommend this video.
13 comments:
I'm glad you explained, since life is too short for me to spend trying to decode the Lumoian rants.
The notion of intrinsic value is certainly one of the most durable myths of economic eccentrics, including Ayn Rand. Of course trading did start with objects of direct value to the recipients, and the first money, Babylonian barley money, was fairly directly tied to a universal need. Obvious deficiencies, like bulk and the threat of having your stash consumed by mice, fairly directly led to symbolic money, the shiny but pretty much otherwise useless (then) silver.
I'm not a fan of bitcoin, partly because it seems really vulnerable to fads, mostly because it's so useful to crooks, and also because it might be overcome by advances in technology (quantum computers?)
There is a paper about bitcoin vs quantum computers on the arxiv.
via Scott A.
I wonder if the (mathematical?) equivalent of markets could be found in the interactions taking place in bacterial colonies? It seems to me like there should be.
Lee,
I don't know enough about bacterial colonies ... but I guess whenever there is competition for finite resources one can describe them or draw some parallels to markets.
Are you going to read Eliezer Yudkowsky’s book? I ask because I'm interested in knowing if Yudowsky's analysis of the (previous?) policies of Japan's Central Bank are consistent with yours.
I am not a great fan of him, but I'll take a look ...
I browsed his book , searching for Japan and find a discussion about the monetary policy of the BoJ in the first chapter , but the whole thing is too vague for me to have an opinion about it. What exactly is he talking about, the 90s, the early 2000s or now? Click on the link to see the BoJ rates and imho they followed pretty much the usual "prescription" central banks follow. The Nikkei peaked at the end of 1989 and the reaction to the declines afterwards was lowering the rate, until it reached zero in early 2000s. It pretty much stayed there and in recent years became slightly negative with increasing QE on top.
In parallel, financial stimulus was used in increasing quantities - in other words pretty much the Keynesian recipe. I am not sure where and how exactly Eliezer disagrees, and it would be helpful to know at least the year(s) he is talking about ...
But if if anything I would go with the opinion of "John" ...
Do you have a more specific question in mind, if yes it would help me if you point me to the chapter, because I don't want to read the whole thing.
I haven't read the book. Even though he's a bright guy, I'm not a big fan either. But in his review of the book, Scott Alexander wrote -
A more complicated version: why was Eliezer able to out-predict the Bank of Japan? Because the Bank’s policies were set by a couple of Japanese central bankers who had no particular incentive to get things right, and no particular incentive to listen to smarter people correcting them. Eliezer wasn’t alone in his prediction – he says that Japanese stocks were priced in ways that suggested most investors realized the Bank’s policies were bad. Most of the smart people with skin in the game had come to the same realization Eliezer had. But central bankers are mostly interested in prestige, and for various reasons low money supply (the wrong policy in this case) is generally considered a virtuous and reasonable thing for a central banker to do, while high money supply (the right policy in this case) is generally considered a sort of irresponsible thing to do that makes all the other central bankers laugh at you. Their payoff matrix (with totally made-up utility points) looked sort of like this:
I remember you having concerns about Japan's monetary policy some years ago and I was wondering if it was for the same reason or if you saw things differently?
>> why was Eliezer able to out-predict the Bank of Japan?
Again, I am not able to identify a prediction. When did he make it and what was it exactly about?
If he "out-predicted" the BoJ I assume he made a lot of money? What exactly did he do?
>>slatestarcodex
This is one of the not so good posts, e.g. when he writes "you cannot short houses"; it is not difficult to short real estate investment trusts, which are a good proxy for housing.
Yeah, I kind of think Alexander misused the word predict there. I think he probably meant to ask why Eliezer knew the proper course of action to take to get a desired outcome when the experts didn't? Personally, I think that of the many people making suggestions as what to do to get a desired outcome, someone in that usually large group will randomly be more or less right.
It's kind of strange that even though I have a good deal of respect for the opinions of Aaronson and Alexander, I can't bring myself to read the book based on their recommendation.
I think a book about economics, statistics and all that without numbers, charts etc. is a bit dubious. At least in this case it makes it difficult for me to know what exactly he is actually talking about. There are several intellectuals that I found interesting initially and meanwhile I think there is really not much I can learn from them.
Nassim Taleb is a good example, Eliezer is another one, ...
I suspect it is my fault that I just don't get it.
About the main topic of his book, this is my own heuristic:
If you spend time and effort in a particular area and really focus on one topic, there is a good chance that you may be able to "out-predict" the experts and perhaps even "beat the markets". And if you clearly present your facts etc. I am interested. A good example is Warren Buffett, who focused his whole life on picking value stocks and explains his thinking on a regular basis in his investment letters. I think there is a good chance that he is indeed able to out-perform "the market" consistently and not just by chance.
A great genius may be able to surprise the experts in more than one case , e.g. Albert Einstein was able to do it in three different areas (relativity, quantum physics, statistical mechanics). But this is very rare and the three areas were actually related (physics).
On the other hand, if you know everything better, there is a good chance that you are severely overestimating your capabilities.
Eliezer was not only able to "out-predict" the BoJ but it seems he also estimates the true value of startups better than most venture capitalists. He out-smarted the experts in medicine and we know that he is also an expert on AI and the singularity. We already knew that he understands Bayesian statistics better than the experts and I remember that he explained the true interpretation of quantum physics to some physicists (including me). I am sure I missed something because he had or still has a blog where he pontificated about many different topics.
In order to bring the comments back to the topic of this post, let me also mention Lubos.
He is not only an expert on string theory and all that, but also holds contrarian opinions on thermodynamics, global warming, IQ&race, etc. and of course is able to out-smart the crypto currency markets.
>> In order to bring the comments back to the topic of this post,
Yeah, sorry about going so far off topic.
>> On the other hand, if you know everything better, there is a good chance that you are severely overestimating your capabilities.
I wonder if people who consider themselves as being very bright are more prone to this malady, or if it's true of anyone with many strongly held opinions?
Btw, thanks for the above comment. Not only do I think it's true, but it made me smile.
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