Economics are Tools

I read an interesting article on The Atlantic the other day, probably read it in the past as it was an OpEd written in 2013, but is still as important as ever. The article’s premise is that there are no Economic Laws.

This of course is obvious, as in hard science we never refer to anything as “Laws” any more, other than antiquated theories that represent paradigmal thinking from great minds of the past. For example, the Law of Gravity has been significantly modified with the Theory of Relativity. Sure, the underlying math of the “Law” works for the most part, but breaks down under certain conditions. Meaning that it’s not actually an unbreakable law.

Even in Mathematics there are no true laws, there are theorems that are true, however not all those theorems can be proven to be true, according to Godel’s Incompleteness Theorem.

If we are unwilling to say that there are no laws in Mathematics and Physics, how can we so willingly say there are laws in Economics? This is foolish as it pushes us to think that the Economics is unchangeable and thus works consistently across all conditions and times. Recently the IMF released a report essentially arguing that the trickle down effect doesn’t work as it truly doesn’t “raise all boats”.

We must instead look at Economics as a tool, one that is imperfect and should not be used to moralize. However, it can be used in policy as long as we are willing to abandon the tool once we see that it does not work. Furthermore, tools that worked once don’t always work in every situation. There are tools that are more flexible and likely to work than others, similarly to specific frameworks. This is true in Process Improvement as it is in Development and Economics.

We need to seriously look at our policy tools and think about abandoning some of our economic frameworks as they are hurting the economy.

Bitcoin, what’s the point?

Digital currency is the biggest new thing on the market. It’s not a new idea at all, however the fact that someone was able to get it up and going is something new. The first time I’d heard of a cyrptocurrency and the potential impact it could have on the economy was in the Cyrptonomicon a 1999 book written by Neal Stephenson, but the idea is clearly much older than that. In fact, Paypal likely was something of a precursor itself to cryptocurrency. It filled a whole for money transferring on the internet, which was difficult in many cases. Paypal and eBay co-evolved as Paypal became the default transaction tool on the site – otherwise every seller would have needed to be able to accept credit cards. Paypal offered a safe way to transfer money directly from one account to another without messing with banks or credit card companies.

After the crash in 2007 and Paypal and other services refusing to transfer funds to Wikileaks people felt it was important to have another option. Fortunately, for those folks Bitcoin was already on the market, having been created in 2009. Bitcoin is essentially a digital version of gold in that users of the currency mine the coins and there is a set limit of 21 million Bitcoins. This has lead to a massive explosion in both awareness and usage of the currency. Currently, many locations accept Bitcoin as a currency so you can buy stuff with it.

Yesterday, Paul Krugman, wrote an op-ed arguing that Bitcoin, like gold, is a foolish standard to adhere too. Essentially, we mine gold and then bury it in a safe and never use it. According to Krugman, Keynes argued that the government should bury printed money and then let private enterprise mine the money – as it’s more desirable to allow private enterprise to spend money rather than government. However, in times where demand is low there’s no incentive for private enterprise to spend that money, unless they can spend it to pull it out of the ground. He then goes to argue that we’re essentially doing the same thing with a Bitcoin mine in Iceland.

This got me thinking a little bit last night. I’m not really sold on Bitcoin, I think that if anything it really points out that the only value in any thing is what people assign to it. Either paper currency, digital, or “precious” metals. Diamonds are artificially high in price because of a cartel. For instance, you can buy a set of lab created diamond earrings weighing in total 2.5 carats for $482 (12/24/2013) but if you were to buy two 1.25 carat diamonds to make those earrings it would put you back over $30,000. There’s a lot of diamonds out there and it’s impossible to tell the difference between lab created and those pulled out of the ground. Yet we put more “value” on the “real” diamonds from the ground. There is nothing intrinsically valuable about diamonds or gold. What both of them are though, are standards for trade, similar to the dollar and Bitcoin.

There is one cyrptocurrency that does have a more altruistic motive though. That one is called Primecoin and it’s encryption algorithm is based upon prime numbers. As the number of Primecoins increase in the market the number of prime numbers eventually discovered will increase. However, this was is mined differently from the other cryptocurrencies so it’s not as easy to switch to this cyrptocurrency. This coin does have an underlying value as every new prime number discovered typically has some sort of prize associated with it as it provides value to the mathematical and scientific communities. What they do with it from there is anyone’s guess. However, it provides value completely disconnected to it’s “value” in the market place.

Could we develop a cryptocurrency that instead of requiring increasingly complex solutions to an encryption key, but one that solves difficult problems at the same time? There are a large number of places where this would be useful such as SETI, Fold.it (folding proteins for science), and researching molecules for big Pharma. I’m sure there are many more options. However, then we take Bitcoin a digital gold and convert it into something more useful to everyone than Primecoin and potentially solve problems as well as mine usable moneys.

Edit: Originally said 40 Million Bitcoins, actually 21 Million

Billions and trillions

One of Carl Sagan’s books that I really like is “Billions and Billions”, where he wrote about the importance of exponentials, the connection between hunting and football, the true size of the universe, the decline of our planet, government and even abortion. Though I read it in English, I once, in a friend’s house, found a Spanish translation of the book and I was surprised when I realized the translated title: “Miles de Millones”, which means “Thousands of Millions”. If you are a native English speaker you might be thinking “Why were you surprised? A billion is a thousand millions, in other words it is 109”, and that is the main reason I decided to write about this because in most Spanish speaking countries the term “Billion” means a million of millions, i.e. 1012, and probably now you understand my surprise.
Historically, the term billion in English was first used to design 1012 following the French numbering system and it was introduced in the 15th century[1]. Now that meaning is part of the denominated long-scale system where a trillion is 1018, meanwhile in the short-scale system, used in most of the English speaking countries, a billion is 109 and a trillion is 1012. Surprisingly, the short-scale meaning was introduced also by France in the late 17th century even though they officially use the long-scale system nowadays. In the past, England used the long-scale system for a long time but they changed to the short-scale one, meaning that when reading old documents from England you must be careful about the meaning of billion and trillion.
If you are used to the exponential notation, then this whole discussion might be pointless since you use an unambiguous way to describe large quantities that doesn’t need the confusing terms billion and trillion. In that sense, the International Bureau of Weights and Measures (BIPM) suggests to avoid the use of billion or trillion since their meaning is language dependent and I think that scientists that publish or communicate their work should be aware of this language ambiguity and avoid it or at least be clear about the scale they use. As a recent example, we have the news about the MIT camera that is able to capture video at the speed of light, where they use in the title the sentence “one trillion frames per second” and they even use the word trillion over all the official website of the project, I couldn’t find a footnote or an explanation of the scale they are using and, therefore, after my first excitement about having a camera capturing data at 1018frames per second I had to use my common sense to realize that they are talking of 1012 frames per second since their results have time lengths of nanoseconds (10-9 seconds) and hundreds of picoseconds (100 times 10-12seconds). I’m not saying that their results lost importance because the camera works just at 1012 fps, that’s still very impressive if we take into account that most of the video cameras we had commercially don’t go further than 30 or 60 fps and that the fastest video camera I have worked with has a maximum frame rate of 1000 fps. I’m just saying that at first I imagined the amount of data captured and the transfer and storage capacities needed to work with it but later everything looked a little bit smaller because my reference frame was using the large-scale system.
In a globalized world, where communication between people from different countries and languages is a common thing, we need to have standards to communicate our ideas unambiguously and we must try to allow everyone to fully understand the information we are sharing with them, even though their common sense should be enough for them to understand us. Since there is not a chance that we have an standard meaning for billion and trillion in the world, I invite everyone to avoid their use or at least to give an explanation of the meaning of those words in their work.


[1]Smith, David Eugene. History of Mathematics. Courier Dover Publications. pp. 84–86. ISBN 978-0486204307.