My (Present) Take on the Bitcoin Price Boom

… has, conveniently enough, been largely stated by someone else. (Loved the Vonnegut quote, btw.) Technically his isn’t a stance, more advice/a warning, but at the heart of it it is. My only point of digression is that I’m a little surer than he is that the current BTC/USD rate change is unsustainable, and that it will not only plateau but actively reverse.

To be clear – and this is something Faber might have clarified as well – I claim this is the case not because of some deterministic theory by which history must repeat itself; rather, in this context “history” tends to repeat because in all speculative bubbles the economic forces at play – the logic of the situation – is fundamentally the same. The degree to which people can profit tremendously in absolute terms merely from trading Bitcoins naturally gives rise to countering economic forces, and these will increase with the price of the digital currency.

I’m aware of the counterclaim that the value of a Bitcoin is purely a matter of a growing Bitcoin economy outstripping the pace at which Bitcoins themselves are created, but this doesn’t change the situation I just described: one Bitcoin is one Bitcoin, and so if someone bought one a year ago for the going price of $12 and can now sell it for upwards of 75 times that, that’s all that matters to the point I’m making. The tremendous value jump of Bitcoins means an ever-greater deviation between its speculative, resell value, and the advantages that Bitcoins in themselves are supposed to bestow upon their owners in use (this useful distinction is quite old). These advantages are not “magically” inherent to Bitcoins at any cost, and so the incentive to create competing currencies – with the secondary result of bringing its value under check – will only increase; this, alongside the “classic” bubble-buster realization that something here just isn’t sound to begin with…

One other minor quibble with the article – he seems to have gotten the x-axis order backwards.

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The Ideal-State Fallacy

[I’m aiming high this time – I’d like to outline a (formal) logical fallacy which I have yet to see formalized as such. Because I’m aiming high I’ve divided the post into two parts: a discussion of this fallacy for the “general readership”, followed by a formalized version for the more logically inclined.]

I’d like to outline a logical fallacy which I call the “Ideal State” fallacy. It consists in thinking that because one can envision some ideal state of affairs, it must always be good, or desirable, to bring about any part of that ideal now. This fallacy is presumably based on the thinking – more of an intuition – that since every condition for an ideal state of affairs is necessary for it to come into being, each must therefore “carry” some of that ideal trait. Put another way, any partial steps that fall under the umbrella of the ideal state constitute movement towards that desirable state of affairs, so it would make sense that every partial step would be desirable¹.

I claim that this reasoning is fallacious, stemming primarily from the vagueness of the terms (of thought) I emphasized above, “movement towards” or “necessary“. We can establish that installing a roof both signifies movement towards, and is necessary for, building a house; this doesn’t yet mean that installing the roof is a positive development at any stage – if walls haven’t been erected yet, for instance, this would be pointless at best and disastrous at worst. Just because an ideal state of affairs is better than the one we have now, doesn’t mean that each half-measure variant of it must be better as well.

The degree to which partial steps are desirable or constructive really depends on the internal intricacies and dependencies of what constitutes an ideal state, which means that vague notions are not really an option: Is there a particular order things have to be done to reach this ideal? Is it an all-or-nothing proposition? Can we estimate the unintended consequences on the one hand, and the potential loss of not trying on the other? etc. Clearly, however, the conclusion that any part of the ideal state scenario must in and of itself be always desirable is fallacious.

Critiquing of this fallacy is hardly new – for the last several millennia, all major religions (that I know of) have in some form or other created a distinction between our present reality “here on earth”, so to speak, and the ideal one we should all aspire to, as imparted and/or embodied by God(s). In ancient Greece as well, several of the pre-Socratics pointed in this direction when they suggested that what goes on between the gods can’t be taken to directly affect our life below the heavens.

These distinctions were never offered merely as depictions of fact, but were meant to say something of consequence about what we should do, here in the real world. The delicate balance between the ideal and the here-and-now has always been a tricky matter, far out of scope for this blog post, but it always emanated from this ideal/right-now distinction – be it logical or divine.

So what I’m proposing is nothing new, only something I’d like to formalize and name. If I’m introducing anything of worth here it’s because the Ideal State fallacy is alive and well today – not only among the “usual suspects” adherents of ideologies but also, at least implicitly, among many who consider themselves beyond or “post-” ideology.


Formalization

We need to define four kinds of logical relations and three logical entities:

Four logical relations:

a) Let ~X designate the negation of X (i.e. “not(x)”)
b) Let Pref(x,y) designate that x is preferable to y
c) Let A→B designate that A entails B (if A, then B)
d) Let {x, y, …} designate a set of conditions (i.e. “x, y, etc. are the case”)

Three logical entities:

e) Let IDS be the ideal state of affairs
f) Let idsx be a necessary condition x for the ideal state of affairs
g) Let C be the current state of affairs.


The Ideal-State Fallacy:

1. An ideal state of affairs is preferable to the present one.[Pref(IDS,C)]

2. All necessary conditions for an ideal state of affairs, together, entail the ideal state of affairs. [{ids1, ids2,..idsx}→IDS]

Therefore:

3. Each necessary condition for the ideal state of affairs is (always) preferable to the negation of that condition. [Pref(idsx,~idsx)]


The conclusion is fallacious, because there’s nothing in the relationship “preference” (Pref) that entails that a preference for a particular state of affairs must in every case mean a preference for each and every necessary condition for it. This relationship is simply undefined under the premises and definitions that supposedly lead to it.

The conclusion (3) is stated without any qualification, so the conclusion is taken to be universally – i.e. in every case – true. We can therefore demonstrate that the drawing of the conclusion is fallacious (i.e. not always true) by constructing a counterexample wherein adding some ideal-state conditions to a current state does not make it preferable:

Suppose a person’s (quite simple) ideal state of affairs consists in having a spouse, two cars, and two children. Suppose further, that in the current state of affairs that person does not have a spouse. In such a scenario, the person may actually prefer to own only one car (e.g. due to the cost of upkeep, etc.), whereas according to the Ideal-State Fallacy, two cars are always preferable to one. Our person’s preferences thus negate conclusion (3) above.

In the example just shown, preferring one necessary condition of the ideal state (“two cars”) is contingent on the fulfillment of another (“spouse”), negating the unconditionality of the conclusion (3). The dependency of one condition of the ideal state upon another is one reason why the conclusion cannot be claimed to hold universally; we can envision others (see above).

There is, in fact, only one state of affairs in which we can say that (3) logically entails from the premises: in the Ideal State² itself. This is because omission of any of its necessary conditions (i.e. ~idsx) entails a separate current reality (C) that is necessarily less preferable, according to (1).

[My thanks to Dooby Harvey for providing valuable suggestions to improve this post.]

¹ Economics students are particularly prone to intuit this, as most graphs and functions studied are continuous (meaning unbroken), and generally monotonic, meaning that there’s a single continuum. studying these tends to promote a worldview of single, clear “bad”-“good” continuums. This ignores some of the real-life complexities alluded to way back in the “About” section (particularly point number 5).
² thus the only formulation in which (3) would be a correct consequent, given (1) and (2), would be by adding a further antecedent (3′):
(3′) IDS (The Ideal State is the case)
Therefore:
(3)

The New Hampshire Poverty Phenomenon… Adjusted

Some good, good friends of mine are moving from Israel to Manchester, New Hampshire. Yep, New Hampshire. Among their factors for choosing this rather eyebrow-raising destination is NH’s economic freedom. My friends are libertarians, so in their world view not only is economic freedom good – a lot of people would agree with that to no small extent – but in fact there’s practically no limit. The more the merrier. And New Hampshire is economically America’s freest state¹. So New Hampshire it is, -11ºC (12ºF) winters and all.

Libertarians have been pouring a lot of love on this otherwise oft-overlooked state (though some gripes remain). New Hampshire’s economic freedom has made it home base for the Free State Project, a libertarian movement calling for 20,000 like-minded folks from around the world to up stakes and move there (if you’re interested, the site explains why). You can kind of get the gist of the sentiment from the state’s official motto: “Live free or die”.

Of particular interest to this blog is the sometimes proud pointing out that the freest state also has the lowest poverty level in the US (although some say this might be changing). Writing on this very issue, Michael Nystrom of the Daily Paul (tagline, “inspired by Ron Paul”), wrote: “Does anyone see a connection?”

On the face of it, this is one hell of a coup for libertarians – seemingly a death-blow to progressive (or other) notions that the lower classes are invariably victims of freer economies. It almost speaks for itself – “See? Free up the economy and it’ll help the poor!”

Well, maybe – but these numbers don’t show it. We have a list of the freest states, as well as one for poverty levels². Here’s the thing – the next freest state, South Dakota, is #26 on the poverty level list, nowhere near NH. But maybe that’s a fluke. Let’s keep going – the 3rd freest state, Indiana, does even worse – #32 on the poverty list. The next freest, Idaho, does better at #12, but then comes Missouri, into the 20’s again at #25. Keep going down the list and, of the top 30 freest states, only 3 crack the top 10 lowest poverty rates (besides NH, none of these make the top 5). When Nystrom asked his presumably rhetorical question – implying that NH’s very low poverty levels must be as the result of its economic freedom – He might have checked if this connection holds with the other states before asking it. A simple statistical test across states shows that the correlation is effectively zero³ (and if anything just the tiniest bit negative).

Does this mean economic policy has no effect on poverty? Of course not. Only that deriving any meaning from these two sets of figures is invalid. If you’re going to parade around two statistics that look really nice, intellectual rigor requires you put your numbers where your mouth is, and in this case the link just doesn’t hold.

So where does all this leave NH? Well, besides a huge dollop of freedom, there’s something else New Hampshire has a lot of – Caucasians. In fact, New Hampshire is the 4th “whitest” state, with only 7.7% of all minorities combined, placing it in the 6th percentile. Just to give you an idea of how low that is, 40 states have more than double – and 30 more than triple – that percentage. in fact, the national state average is nearly four times the New Hampshire percentage of minorities. Things aren’t much better when it comes specifically to African-Americans: at 1.7%, NH has the 6th fewest of the states, placing it in the 12th percentile. Once again, 40 states have more than double their percentage, and fully half the states have more than 6 times that percentage. You don’t even want to know how many times that the national average is (8). (If I may brag, I didn’t get all this from any article, etc., but rather sat down and calculated everything using data from the 2010 US census.)

But do minorities and/or specifically African-American percentages correlate with poverty rates? Well, whole volumes have been written on this topic, but even from a cursory analysis of these three datasets, the answer for both is clearly in the affirmative⁴. This means that when it comes to poverty rates, simply having minority populations will, all else being equal, skew the numbers upwards. It’s important to say – lest I be misunderstood – that this in no way means minority populations are necessarily a cause of poverty (remember that old adage “correlation doesn’t imply causation”). All it means is that in order to gauge whether economic policy affects the poverty levels across states, you have to adjust for factors that correlate with poverty but don’t in themselves stem from such policies – and minority makeup is such a factor.

So the question now becomes, how does NH perform compared to its expected poverty rate when adjusted for minority size? The short answer is: subject to an important caveat (specified below, for the statistically minded) NH’s performance falls to #13. Not bad, but combined with the poor predictive powers of the economic freedom rankings, not enough to serve as rigorous proof that economic freedom alone brings low poverty levels.

[The caveat: First, one can’t factor separately for “minorities” and “AAs”, since one includes the other. So I ran the numbers, and found quite an impressive correlation between both African-American and Hispanic populations, and poverty, in states that have any minorities to speak of. The states that have very few lose this statistical connection, presumably because when you’re down to the 1-3% levels of minorities, there’s only so much they can mathematically still “explain”). So one can’t make a perfect adjustment. However, in comparing NH to other states, adjusted for the relationship seen in the top 20 states by combined AA and hispanic population, it was #13 in poverty levels.]

[Thanks, Liz, for giving me the idea to pursue this thread.]

¹ according to the libertarian George Mason University.
² freedom and poverty rankings are both current. Ideally, to check a causal connection one would have to check for freedom a few years back, to see their effect on poverty today. However, 1) I didn’t have the time to start carrying out more complex causal chain models, 2) this isn’t a professional analysis, and so I just assumed ad-hoc today’s freedom level correlates closely enough with those of a few years ago, and 3) those referenced above haven’t taken this into account either.
³ Spearman rank correlation coefficient -0.057. There are different schools on interpreting when the Spearman coefficient means there’s a correlation, but the most permissive start considering a “moderate correlation” from +/- 0.3 (others only from +/- 0.5). Either way, this isn’t even close.
⁴ Pearson coefficient +0.34 and  +0.44 for minorities and for African-Americans, respectively. Why are you reading this? Nerds…

The Proper Use of Violence

There’s a right way and a wrong way to use violence.

…I refer, of course, to the word in the English language. “Violence” has joined a long list of words hijacked for purposes of argumentative rhetoric, selectively misapplied in order to take advantage of their negative (or positive) emotional associations, removing us one step further from constructive debate. Thus, for instance, meat is “murder” (as that Smiths song goes), maternity leave is “socialism“, Israel is a “colonialist power”, and taxation is “violent“.

This last example, especially popular among libertarians, refers to the fact that taxpayers, well, taxpay quite reluctantly (to say the least), without having free choice in the matter. libertarians’ negative view of this state of affairs comes as part of a larger worldview that is especially abhorrent of any kind of involuntary action (in the 2nd dictionary sense). While perfectly legitimate as such, some proponents of this viewpoint nevertheless distort(2) language when insisting to misconstrue taxation as “violent”.

Consider the following nuances of definition:

Force¹ – v. [with obj.] – ⑵ make (someone) do something against their will.
Coerce – v. [with obj.] – persuade (an unwilling person) to do something by using force or threats.
Violent – adj. – ⑴ using or involving physical force intended to hurt, damage, or kill someone or something.
– from the New Oxford American Dictionary, 3rd ed., also at oxforddictionaries.com

Presumably even the most freedom-loving individual can find in the first two words a negative enough association to attach to taxation – while still presenting a reasonably true description. Most taxpayers are indeed forced to pay, one might argue that they are coerced. but where is the direct, physical, club-on-head action in taxation?

“Ah,” replies the well-versed libertarian, “but taxation most certainly is violence. If you avoid paying taxes long enough, men with guns (MWG) will come to your house and exhibit all sorts of behavior involving physical force intended to hurt, damage, or kill someone or something!”

I’ll get to the main problem with this in a moment. On a side note, I’d argue that the above generalization is a bit of a stretch: how many tax evaders (and minor law offenders) get away with a slap on the wrist, or less, every day? Also, libertarians often downplay the fact that they condone this kind of ultimate threat of “violence” for purposes they approve of, like law enforcement (however minimal), military defense, and defense of private property rights; I have yet to hear a libertarian bemoan how, in a libertarian society, all of these would be backed by their version of “violence”.

But all of this is debatable, and secondary. The main problem is that even if the MWG scenario were true, using the word “violence” to describe taxation is equating a potential outcome, when exacerbated to an extreme¹ – “if you refuse to pay taxes…” –  with the state being discussed (taxation). (This is a line of argument I’ve mentioned before.) Unless that’s already in the definition of the word, it is an error to use it as such. X isn’t Y just because it might come to be Y. By the same logic, any assembly of people is a riotous coup (a pet argument of libertarians), not eating is the same as starvation, and annoying someone is the same as being killed by them in a fit of rage.

Thus, if one insists on invoking violence towards taxation, the closest one can get is to say that taxation is backed by the threat of violence (just as any law in a libertarian reality would). And there’s already a perfectly good word for that – coercion. Even here, I would argue it remains to be demonstrated categorically that in the event of serial tax evasion, the taxation Men With Guns – who presumably would come banging on the evader’s door – would in fact intend to hurt, damage, or kill someone and not, say, carry out economic sanctions (like foreclosure), or an arrest – without intent to hurt anyone. (That police violence occurs doesn’t negate this.) But again, that’s debatable, and one needn’t agree with it to accept my central argument. Taxation “is” no more violent than private property “is” violent.

None of this is to say there’s no room to criticize, analyze, or reassess taxation. But the discussion would be much more effective without the red herring of misleading terminology.

A word on the definitions: I’m big on the New Oxford American Dictionary, but lest I appear to have favored a particular definition for its convenience, here are a few more dictionary entries for “violence”. You’ll notice how all of them refer to the actual act of physical force – not a potential threat of using it, however inescapably, somewhere down the road – and state a physically destructive intent, rather than purposes such as tax collection.

Violence – n. –
Involving the use of physical force, with the deliberate intention of causing damage to property or injury or death to people.
(Macmillan Dictionary)
The use of physical force, usually intended to cause injury or destruction.
(Collins English Dictionary)
Physical force exerted for the purpose of violating, damaging, or abusing.
(American Heritage Dictionary of the English Language)
Physical force used so as to injure, damage, or destroy; extreme roughness of action.
(Webster’s New World College Dictionary, 4th ed.)

¹ Ironically, the slippery slope argument is a favorite of libertarian nemeses – dogmatic, social-justice moralizers.