Posts tagged ‘economics’


Best Buy queueing theory

Single-queue multiple-server is often a pretty optimal way to set up a system; there’s a single potentially large / unending bunch of jobs / customers waiting, and some comparatively small number of servers / staff to take care of them. When a server is free, some job is chosen and the server starts running / serving that job.

When the chosen job / customer is always the one that’s been waiting longest, that’s a FIFO (first-in first-out) queue, known to consumers in the Eastern US as a “line”. It’s easy to implement, sometimes pretty optimal under certain assumptions, and has a sort of “fair” feeling about it.

On the other hand, I have the feeling that when the customer set is highly bimodal, the whole setup might not be entirely optimal in some cases.

For instance, if some of your customers are just buying a 1Gb Ethernet switch (see below) and some Reese’s Peanut Butter Cups using a credit card, and it will take 45-60 seconds, and another set of customers are picking up something that’s being held for them somewhere in the back, and they aren’t quite sure what it is, and want the staff person to explain how to use it, and then want to purchase it using Latvian stock market futures that are actually in their brother-in-law’s name, and that will take 20-90 minutes, then some of those first set of customers are going to end up waiting (in some sense) an unnecessarily long time, waiting for education to complete or a brother-in-law’s marriage certificate to be found in an overcoat pocket.

One could assign a particular server to small jobs, or to small jobs if there are any such waiting, or always let a short job go before a long job if there are any waiting, or unless there’s a large job that’s been waiting more than a certain time, or…

All of these can be implemented in software systems, but most of them are too complicated or unfair-feeling for a Best Buy full of strangers. Allocating one server / staff member / desk to “customer service” (anything involving training, or stock market futures, for instance) and the rest to ordinary purchases is about as complex as it’s practical to implement. They weren’t doing even that at my Best Buy this morning, but then there were only three staff people on registers, and taking one-third of them away from the short-transaction customers might have been bad. Or just no one wanted to bother figuring it out.

Speaking of 1Gb Ethernet switches, I mean, WTF? I know I’m old, but I still think of these as costing thousands (tens of thousands?) of USD, requiring careful tuning, and taking up a significant part of a room (okay, a small room, or at least a rack slot). Now granted that was maybe for one with at least 24 ports and a management interface, but I mean! I can buy one for the price of two large pizzas, and it fits in the palm of my hand? Really? Where are the flying cars then??

A picture of a Netgear 1Gb Ethernet Switch.

That is a picture of a 1Gb Ethernet Switch. Possibly the one that I bought, I forget exactly. Might have been Linksys. Or something.


But it’s not that simple

On Twitter I follow a few rational-seeming right-wing types, to try to avoid the echo-chamber effect, and yesterday one of them posted about the big kerfuffle where MSNBC implied that the Right Wing might not like interracial marriage, saying how offensive it was and all.

I replied, as one does, saying that, um well, isn’t disliking interracial marriage sort of a Right Wing thing, after all? One of the other people in the thread gasped at how horribly offensive I was being, and we went back and forth a little with me trying to suggest that certain attitudes about race really are, as a matter of historical fact, associated with certain political factions, and they (from my point of view) ducked and weaved a little and then got quiet. I was really impressed, though, with how thoroughly the person seemed to live in a world where interracial marriage (and maybe even same-sex marriage) weren’t a right-left issue at all, and right wing racism was just an offensive myth.

In trying to decide whether to follow this person also, I looked at their earlier “tweets” (and ultimately decided not to follow them), one of which was something that reminded me strongly of the kind of thing that I might have posted like 25 years ago myself, if posting was something people did then, back when I still identified as Libertarian.

And since I seem to be never getting around to that Grand Unified Why I Am Not A Libertarian Anymore posting, I thought I’d at least post about this.

The “tweet” in question was an image, one of those “image that is basically just text” images that social media so loves. It said:

The Rich Man, the Poor Man, and the Politician
A Tale of Income Inequality

There is a rich man and a poor man.
The rich man makes $1000 a day.
The poor man makes $10 a day.
The difference in their income is $1000 – $10 = $990 a day.

The rich man builds a factory.
Now the rich man makes $2000 a day.
He gives the poor man a job at the factory.
Now the poor man makes $100 a day.
The difference in their income is $2000 – $100 = $1900 a day.

A politician decides the “income gap” has grown too large.
He taxes the rich man $1000 a day, gives it to the poor man.
The rich man can no longer afford to run the factory.
He closes the factory. The poor man loses his job.

Everything is as it was before.
And the politician takes credit for “closing the income gap”.

This is a cute Just So story, very typical of, maybe even a little more complex than, the average Libertarian Just So story.

But, like all of them, it leaves out so much that it ends up pretty much completely irrelevant to reality.

These people really need to read “The Jungle” or something.

But short of that, here’s a slightly more realistic version of the story.

The Rich Man, the Poor Man, and the Politician
A Tale of Inequality

There is a rich man and a poor man.
The rich man makes $1000 a day.
The poor man makes $10 a day.
The difference in their income is $1000 – $10 = $990 a day.

The rich man builds a factory.
Now the rich man makes $20,000 a day.
He gives the poor man a job at the factory.
Now the poor man makes $100 a day.
The difference in their income is $20000 – $100 = $19900 a day.

The rich man’s factory pollutes the air that the poor man breathes.
The products the factory produces are poorly-made.
The poor man’s working conditions are dangerous and unhealthy.
The health insurance the poor man buys from the rich man’s insurance company
will drop him on a technicality if he gets sick.
Once he’s too old to work, he will have nothing.
Taking into account actual quality of life and not just money,
The difference in their income is $20,000 – $5 = 19,995 a day.

A politician decides there is too much “inequality”.
He taxes the rich man $8,000 a day, and the government uses that:
To enforce laws on clean air, product safety, and working conditions.
Not to mention Obamacare. :)
To provide the poor man with Social Security.
And to prevent unfair labor practices.
The poor man joins the union and his pay rises to $200 a day.
The rich man can still afford to run the factory;
after all he’s still making $11,800 a day.
Taking into account actual quality of life and not just money,
The difference in their income is $11,800 – $200 = 11,600 a day.

Which is still quite a lot, but
the politician can take some credit for “reducing inequality”.
And things are generally fairer and cleaner.

Sadly that second one won’t really fit on a Twitter placard…


I want a little lapel pin

I want a little lapel pin that’s officially recognized as meaning:

  • Hi there, salesperson!
  • I want to give you cash or show you my credit card in exchange for these goods here.
  • I do not want to join My Bonus Shopping Reward Points My Way or whatever.
  • I realize that it is “absolutely free” except for giving you my personal information, and I still do not want to join it.
  • I also do not wish to apply for your store-brand credit card.
  • I do not wish or intend to give you my telephone number or driver’s license for any reason at all.
  • If had had wanted fries, or a mini-flashlight, or your Special Of The Day, I would have brought it to the counter here.
  • And I didn’t.
  • In fact I do not wish to be monetized or upsold at in any way.
  • I just want to buy this stuff here and leave.
  • Seriously.

At least after I’d refused to give the Sears checkout lady my phone number when she discovered I did not belong to My Bonus Consumer Shopping Reward Points My Way, she had the good sense not to ask me for it again when I said I did not have a Sears Card either.



Fractionally Reserved

I’ve run across an internet troll or two railing against fractional reserve banking in the past, but I had the impression it was sort of a fringe-of-a-fringe thing, in the same realm as the “NASA faked the moon landings” idea.

(Fractional reserve banking is where the bank can loan out some of the money that is deposited with it, as explained by Professor Stewart in that scene from It’s a Wonderful Life.)

But now I’ve just finished L. Neil Smith’s Pallas (a wonderful and awful piece of escapist fiction that I ought to write more about, related to that Waking from Libertarianism posting that I also ought to write), and in one memorable scene an “overstuffed” banker is arranging a loan to Our Hero from his (Our Hero’s) best friend and lover (a hooker with a heart of gold and a big bank account), and the narrative voice mentions that the banker can’t just lend him money himself because he (the bankers) isn’t rich, and he can’t loan from the bank’s deposits because fractional reserve banking is considered “felony fraud”.

Now L. Neil Smith isn’t exactly a moderate, but I have the impression he’s more or less a mainstream libertarian writer, so this suggests that the idea is at least a bit more popular than secret government treaties with space aliens.

Last time I was within hearing distance of a troll blaming our economic problems on fractional reserve banking, I used a little just-so story to show how it seems perfectly consistent with libertarian ideas about individual liberty and so on. He replied by contemptuously dismissing me as not understanding, which is what that flavor of troll does when you ask a hard question, and I didn’t pursue the issue.

But if L. Neil Smith is saying the same thing, it occurs to me I should write out the just-so story in a little more detail, and put it here in the weblog where it can be picked up by Major News Media.
So, the story.

Without fractional-reserve banking, a banker is just a particular kind of warehouse guy, one who specializes in storing high-value low-volume stuff (like gold nuggets, hundred-dollar bills). You give him a box with your gold in it, and he promises to keep it safe and give it back to you when you ask, for a mere four-fifty a month. Maybe he even specializes in stuff that is valuable solely for its monetary value, in which case you give him two thousand dollars worth of gold, and he promises to give you back the same value in gold (although not necessarily the same actual atoms), when you ask for it, for either four-fifty a month, or possibly some fee scaled to the value of money on deposit.

This guy isn’t going to make much more money than any other warehouse guy, probably; he can charge more per cubic foot because the stuff is more valuable, but then he also has to spend more on security for the same reason; a vault costs more than a simple warehouse, and the guards have to be paid more to resist the extra temptation offered by small valuable stuff that’s easy to resell.

(Similarly, at this stage of the story, an investment guy is pretty much just a matchmaker. In the example in Pallas, where Cherry has lots of money and wants to lend some to Emerson, and they already know each other (in the Biblical sense, even), he serves no purpose at all except to allow Smith to show that he doesn’t like bankers.)

Now one day a warehouse guy of the “you give us money, we give you money back” type notices that there is all this money sitting in his warehouse, and it’s doing nothing. And he starts up a brand-new service, where if you sign up for it, he will take oh say ten percent of the money that you give him, and lend it out at interest. He will then keep part of that interest for himself (his profit on this great idea), and use the rest to lower your monthly fee.

Sure, it’s possible that if you want all of your money back at once, and when he tries to call in the loans that he’s made with ten percent of it, the people with the money won’t be able to come up with it all at once, but that’s not very likely really is it? That small risk is worth the lower monthly fees, at least to some depositors.

And in version 2, he has the bright idea of changing the contract so that it says that if that does happen, he can use on-deposit funds from anyone else in the program to pay back the difference. Then he can only come up short if lots of people want to withdraw more than 90% of their funds at once, and at the same time lots of people that he’s lent to can’t pay up when he calls in the loans. And (since this is such a good idea that he is prospering, and has lots of depositors and lots of borrowers now), the chances of that are so small that he can actually insure himself against it.

This works out really well, and he dominates the money-warehousing market because of his low fees, and dominates the money-lending market because he has lots of money to lend.

Since this is a libertarian just-so story, his success naturally leads to competitors improving on the idea!

One competitor in particular notices that people have so much faith in this whole system now that hardly anyone ever gets cold feet and wants to withdraw even half of their money all at once. So in his contracts, it says that he can use up to 60% of the deposited funds for loans. Also, because he can get insurance against the bank runs that seldom happen anyway, he can say in his loan contracts that he will never call in the loan unless the client doesn’t keep up the payments; naturally this extra sweetening of the loan contract means he can charge higher interest.

His calculations show that with this much money to lend, and these higher interest rates, not to mention needing a smaller vault, he’ll be able to make a modest profit and not only eliminate the monthly fees to his depositors, but actually pay interest on deposits!

Naturally, customers flock to him, and eventually almost everyone in the money-warehousing industry is doing it this way.

So now we’ve got fractional reserve banking: you deposit money, the bank keeps some of it in the vault, lends the rest out at interest, and pays some of that interest back along to you, the depositor. Banks are insured against runs up to some amount. All of this is clearly documented in the contracts between depositors and the bank, borrowers and the bank, and the insurance company and the bank.

There is no fraud of any kind.

Basically, if we want to describe it more briefly and collectively, a bunch of people have got together and said “hey, we never need all of our money at once, so why don’t we pool it together and lend some of it out at interest, and get free profits?”.

It’s not at all clear that there’s any step in here that a libertarian government can step in and stop. No one is being lied to, no one is being forced to do or not to do anything. People are voluntarily deciding to try to maximize their individual utility by making certain agreements with other people. And the result is pretty magic; there’s lots of loan money available to start new companies and invest in new things and carry out research, and yet on the other hand there’s also lots of liquidity, and you can withdraw some money to buy that special Solstice gift anytime you want.

I admit I don’t quite understand the railing against it by internet trolls and L. Neil Smith; but whatever objections they have to the resulting institutional arrangements, it seems pretty clear that there’s nothing inherent to fractional reserve banking simpliciter that a libertarian government can forbid and still keep its credentials.

Unless I’ve overlooked something?


The sound of buzzcuts

So I used to get my hair cut at John’s Barber Shop up on Route 6. It was a slightly cramped and slightly antique little place off the parking lot, tucked behind the stores that face the road. John was a small energetic barber with an Italian accent and a small staff of sub-barbers, most of them as far as I remember female, John and the staff and many of the customers at least as old as me, maybe even one generation back.

It was a fun place to go for my once-or-twice-a-year haircut, because they would always tease me about the amount to be removed (most of the other male customers being in for short conservative cuts to their lightly oiled black hair), and because it felt like a piece of reality in a way that the Family Salons in Malls never quite did.

(And the one time I got my hair cut at the Family Salon in the Mall and casually told the guy “oh I don’t know, maybe like yours is!”, it was John’s that I went to to have the resulting rat-tail removed. Not that I have any moral objection to the vaguely Hell’s Angel guy I saw in the mirror afterward, but it was profoundly Not Me.)

Eventually John stopped being there very often, and the sign changed to “John and Frank’s” I think it was. And now the sign is just “Frank’s”, and I like to think that John is retired with good wine and lots of Italian grandchildren running about.

Frank is a young guy, maybe thirty, tall and thin, vaguely Russian, but not the pale Caucasian Russian; something darker and hardier. He’s expanded the place, put in nice wood flooring, a glass-fronted case with plants in pots on top and containing some random Salon supplies that no one ever looks at, a rack of old magazines, a refurbished Ms. Pac-Man game, and some extra chairs.

Today as I’m sitting there watching the little boy have his hair cut (“Just him”, I said as we came in, “mine’s still short”, and everyone laughed because they tease me about my hair here still), there are three of them working: Frank, and a shorter guy, maybe Italian (one of John’s grandchildren?), with a buzzcut and a Yankee’s cap worn backwards, and a big muscular chocolate-brown guy with a shaven head and tattoos on his upper arms. Frank is doing the little boy’s hair. Even though he’s having it cut so short that M will be surprised when we get home, it’s still the longest cut I see them give anyone while we’re there. Everyone else is buzzcuts, or shaven sides with a modern not-Mohawk in the center, or something along those lines. (I don’t remember ever seeing a woman in the place since it stopped being John’s.)

It still feels more real-life than the Mall, and everyone is joshing and “how are ya man”ning each other, and being all “I can’t believe we had snow, I was pissed off!” and “You get caught with a suspended license it’s worse than not having a license at all, that’s crazy shit, bro”. I’m sitting with my iPad reading Charlie Stross and listening to Chicks on Speed and electronica on my bluetooth earphones (when I sit up and stretch Frank says “Wake up! You’re playing with that thing too much, is why”, meaning the iPad), and the TV on the wall in one corner is showing soccer as I think it usually is (more evidence that Frank is some sort of European, or maybe just that it’s the XXIst Century now).

And I put a quarter into the M&Ms-for-charity machine, and it gives me a nice handful of good old-fashioned milk-chocolate M&Ms.

Frank always charges us extra, I think, because the little boy and I never come in until our hair is longer than any other four of his customers ever let theirs get between them. But it’s probably no more than the Mall, and it’s more interesting.

On the way out, I say that I’ll be back once my hair’s long, and they laugh.


More economics shit

So I don’t understand the huge fucking deal about the weakness of the goddamned Euro. I mean, so who the fuck cares if their currency is “weak” compared to some other fucking currency? Sure, it like sounds wimpy an’ shit, like “haha dude you are Weeeeeak!”, but it’s not like really so fucking awful and like waaaaa my currency is weak and oh noooo my poor poooor balance of payments!

Some Euros or some kinda shit like that

Some Euros or some kinda shit like that

So say you’re some Euro dude and you want to buy some foreign shit, and you go to buy it and the fucker is like “you want to buy it with what?” and like “those Euros aren’t worth jack-shit, so if you want to buy my crap you gotta give me like ten billionof ’em”. And that’s a drag ’cause you can’t buy the foreign shit, but really you can just go to some other Euro fucker who makes the same kinda shit, and buy it from him, and he’s a Euro dude too so he’ll take just a couple Euros for it, and so you didn’t get the foreign shit that you originally wanted, but you got some similar shit, and really shit is shit, y’know?

And if you’re a Euro bastard who wants to like sell stuff to foreigners (or y’know people that Euro dudes think are foreigners, which includes like Americans who aren’t actually foreign, but you know what I mean), you are in Hog Heaven, ’cause you can be all like “my shit is one million Euros!”, and they can just go down to the bank and buy a million Euros for like nine ninety-five, and they’re like “here’s your million Euros, sucker!”, and you’re like “yes!!”, and everybody’s happy.

An’ really once enough fuckers who have real money start buying all that Euro shit ’cause Euros are so cheap, Euro stuff’ll get all like fashionable an’ shit, and everyone’ll want to buy it because it’s cheap and like Lady Fucking Ga-Ga is wearing it or anyway it’s cheap, and so people will want to buy like billions an’ billions o’ Euros to buy it with, and when some assholes want to buy tons o’ some shit the price of the shit always goes up, and so Euros’ll start to be worth more again.

So it’s, like, self-correcting an’ shit. I’n’t? I mean, fuck!


Yay, I saved Europe(an bankers)!

Scene: a big fancy room in a big fancy building.

European Banker: You must help us! No one wants to trade in Euros, or borrow them at interest, or anything, because the economies that back them are all messed up!

Capitalist: This is a valuable market signal! The weak demand for, and vanishingly small interest rates on, your currency means that you are doing things wrong. You should reassess how your economies are structured and see if, for instance, they are run primarily for the benefit of politically-connected individuals and institutions who steal billions on a whim, but produce nothing of value.

European Banker: Who let him in here? GUARDS!

Shouts and scuffling, gradually receding into the distance.

European Banker: Apologies, my friends, most embarrassing.

U.S. Federal Reserve Banker: No problem, mon ami, these things happen.

European Banker: But back to our problems! If there is no demand for Euros, economic activity will slow, people will have financial difficulties, perhaps even come to think that our economies are run primarily for the benefit of politically-connected individuals and institutions who steal billions on a whim, but produce nothing of value. They could demand change! We might lose power! And we really, really, really like power.

U.S. Federal Reserve Banker: I understand completely, mon cher, mon coeur. It is not a problem! We will buy your Euros with our dollars, and we will pay as much for them as if they were actually valuable, and your economies healthy! We will make dollars cheap, cheap, cheap, and give you vast truckloads of them for your pretty colored Euros!

European Banker: Che bello, tesoro! That is wonderful! But what if the Euro does in fact tank? You will have huge piles of worthless colored paper!

U.S. Federal Reserve Banker: Όλα θα πάνε καλά, Αγαπούλα μου! Do not worry your head! In that case, the American people will as always make up the shortfall!

European Banker: ¡hala! That is extremely generous of them!

U.S. Federal Reserve Banker: Yes! Or it would be, if they had any choice in the matter! Ha ha ha!

European Bankers: Ha ha ha! xaxa! Ja ja ja ja! mdr mdr mdr!

Exeunt omnes.



So I said the other day that my libertarianness was slipping because of undesirable things that can happen even in a libertarian system with everyone obeying the (comparatively few) laws.

And that may still be true (something for another post), but at the moment I’ve decided that it isn’t relevant to what’s currently going on. I’m reading Matt Taibbi’s Griftopia, and he’s convinced me that what’s currently happening is mostly people getting vast sums of money through blatantly illegal actions, and then using a small fraction of those vast sums to avoid any sort of punishment for their crimes.

(And then using the less savvy parts of the Republican voter base, rebranded as the Tea Party, to create a huge noisy distraction around the premise that our problems are caused by giving poor people food stamps.)

There’s also an element of “getting vast sums of money from the government that you in no way deserve”, where a libertarian can say that, well, the government shouldn’t be structured in such a way that it can give anyone that much money, and that’s probably right.

But the general observation that if you steal enough money, quickly enough, you can then use some of it to deploy resources to avoid punishment (and even avoid capture, prosecution, indictment, discovery), probably applies to any society with anything like money in it.

How do we prevent this kind of crap? I think the need to prevent it (or at least minimize it) is one argument against the sort of libertarian minimal state. If the state is that minimal and simple, it’s not going to be able to defend itself against a really well-heeled miscreant, who can employ his stolen resources to baffle and evade the comparatively small and simple state.

Or as Taibbbi says in the book, talking specifically about Ayn Rand’s libertarianism:

Obviously it’s true that a Randian self-made millionaire can spend money on private guards to protect his mansion from B-and-E artists. But exactly where do the rest of us look in the Yellow Pages to hire private protection against insider trading? Against price-fixing in the corn and gasoline markets? Is each individual family supposed to hire Pinkertons to keep the local factory from dumping dioxin in the county reservoir?

We can tell lots of stories here about voluntary associations of private people getting together to hire some really good Pinkertons, but it’s not at all clear, given that even a non-libertarian nation-sized government has a hard time marshaling enough resources to do this sort of thing, that these voluntary associations could actually have enough clout to prevail against, or even sufficiently deter, people with the amount of money that this sort of crime can produce.

In some sense “criminals who make so much money that they can use it to escape detection and identification and prosecution” are an edge-case. But edge-cases can be ignored only if you’re sitting in your armchair opining about how much better a minimal government would be. In the real world, if there’s some edge-case that someone can use to get rich, it’s got to be at the center of our attention, however peripheral it is seen from the armchair.

Anyone else read Griftopia? Any nice comforting debunkings of it you can point us at?