Crypto Drama: $40 Billon Vaporized as Terra “Stablecoin” and Luna Implode; Bored Ape NFTs Break Ethereum

Last month I posted on “The Different Classes of Crypto Stablecoins and Why It Matters “.  The main point there is that some so-called stablecoins (e.g., USDC) maintain their peg to the dollar by holding a dollars’ worth of securities (preferably U.S. treasury notes) for each dollar’s worth of stablecoin. This mechanism requires some centralized issuer to administer it. As long as said issuer is honest and transparent, this should work fine.

Crypto purists, however, prefer decentralized finance (de-fi), where there is no central controlling authority. Hence, clever folks have devised stablecoins which maintain their dollar peg through some settled algorithm which operates more or less autonomously out on the web; various other coins or assets are automatically bought or sold, or created/destroyed in order to keep the main stablecoin value more or less fixed versus the dollar. We warned that this type of stablecoin is “potentially problematic”; it is the sort of thing which works until it doesn’t.

In 2018 the Terra project was launched by Do Kwon and others.  The Terra stablecoin (UST) was designed to “maintain its peg through a complex model called a ‘burn and mint equilibrium’. This method uses a two-token system, whereby one token is supposed to remain stable (UST) while the other token (LUNA) is meant to absorb volatility.” Terra grew very rapidly, to become something like the fourth largest stablecoin at over $30 billion in capital value. As the supply of Terra increased, the market value for LUNA also increased. Many investors bought into LUNA and for a while were making big bucks as its value soared. A headline from February read, “LUNA shines with a 75% surge in February as $2.57 billion is delisted.”  Woo-hoo! And this headline from May 10  proclaimed, “Terra Ecosystem is the strongest growing ecosystem in 2021.”

However, just as that laudatory article was hitting the internet, Terra/Luna blew up. I am not clear on the exact sequence of events, especially on whether the catastrophe was a result of just some accidental market fluctuation or of deliberate dumping by some party who was positioned to benefit. In any event, the value of Terra quickly dropped from $1.00 to around $0.61, which triggered the issuing of vast amounts of LUNA, which cratered its value by some 98%. Since Luna was mainly what backed Terra, this was a positive feedback death spiral. This is same way the $2 billion IRON stablecoin imploded in June, 2021: a “stablecoin” was backed by an in-house crypto token whose value depended on more people buying into the system. Ponzi scheme, anyone?

Both Terra and LUNA got delisted from major exchanges for several days. As of today, the value of Terra (UST) is about ten cents.  Poof, there went some $40 billion  of investors’ money, just like that. Do Kwon is under police protection in Seoul after a man who lost $2.3 million in Terra/Luna tried to break into his home to demand an apology.

And this just in today: “DEI becomes latest algorithmic stablecoin to lose $1 peg, falling under 70 cents  “. Ouch. Looks like the federal regulators will be swarming the stablecoin space, or at least we may get some grandstanding Senate hearings out of it.

In other news, transactions connected to the insanely (I chose that word deliberately) popular and costly Bored Ape Yacht Club NFTs overwhelmed the Ethereum transaction network about two weeks ago; this is kind of a big deal because a whole lot of de-fi and other blockchain applications depend on Ethereum as the backbone of their transactions:

When Bored Ape Yacht Club creators Yuga Labs announced its Otherside NFT collection would launch on April 30, it was predicted by many to be the biggest NFT launch ever. Otherside is an upcoming Bored Ape Yacht Club metaverse game, and the NFTs in question were deeds for land in that virtual world. Buoyed by the BAYC’s success — it costs about $300,000 to buy into the Club — the sale of 55,000 land plots netted Yuga Labs around $320 million in three hours.

It also broke Ethereum for three hours.

Users paid thousands of dollars in transaction fees, regardless of whether those transactions succeeded. Because the launch put load on the entire blockchain, crypto traders were unable to buy, sell or send coins for hours. The sale highlights the growing profitability of the NFT market but also the uncertainty around whether blockchains are robust enough to handle the attention.

… Because the Otherside mint impacts the whole Ethereum blockchain, people doing completely unrelated things like selling ether or trading altcoins would also have to pay huge fees and wait hours for their transactions to clear. Someone tweeted a picture of them trying to send $100 in crypto from one wallet to another, showing it required $1,700 in gas fees.

7 Quick Takes of Undeniable Insight, Absent Evidence or Significant Explanation

  1. Over-fraternization within a line of work leads to all kinds of pathologies as social networks become too insular. If you’re a police officer and you spend your days constantly interacting with civilians having the worst day of their life, it’s really important you spend your free time with people who are having a perfectly normal and safe week. Same goes for politics, academia, entertainment, etc. This is not a “pop your bubble to improve the quality of your opinions” take. This is purely advice for your own personal mental health. Academics and entertainers need people in their life that they are rightfully embarrassed to complain in front of, to keep perspective on what the stakes of their decisions actually are. Cops and soldiers need reminders that the world is not constantly coming apart at the seams. Most of us will call the cops maybe once in our lives, and it probably won’t be because something good happened. Not a week goes by in a beat cop’s life where they don’t interact with someone who had to call the cops. They need to fill their set of observed experiences with stories uncorrelated with events where someone had to call the cops.
  2. The distribution of people’s opinions of Elon Musk needs to be compressed. Everyone with an above 75th percentile opinion needs to downgrade their estimation of him as a thoughtleader or agent of positive chaos/liberty. Everyone with a below 75th percentile opinion needs to upgrade their appreciation of him as an engineering genius committed to building tangible infrastructure innovations.
  3. The current political era we are living through isn’t defined by extremism, it’s defined by gambles on different sides of the “median voter vs institutional inertia” coin. The Democratic Party is struggling to hold together a coalition of progressives and moderates with nothing but bubble gum and reproductive rights because they believe the median voter remains an irresistible force. The Republican party, on the other hand, continues to bet the entire franchise on an activated base of extremists and gerrymandering. This bet is not ignorant, or in denial, of the median voter. It’s a bet that institutional inertia combined with potentially two decades of control of the Supreme Court will yield benefits greater than the costs of eventually losing control of all three branches across multiple elections.
  4. The best super hero movies are the ones where they take an auteur with at least 5 movies under their belt and say “make the most ‘you’ movie possible, but with our characters in our universe”. Why is “Doctor Strange and the Multiverse of Madness” so good? Because they hired Sam Raimi and gave him the greenlight to make “Evil Dead 4”.
  5. Even the people who *know* that crypto and blockchain technology will create enormous value – even those people aren’t sure if the coins that currently exist will have significant commodity value down the road.
  6. There are lots of right wing political positions that I view as wrong or costly, but most of them I view as “deviations from an uncertain optimal state of the world” which is to say I don’t worry about them in the slightest. The embrace of White replacement theory and increased framing of their opposition as enabling of sexual predation of children, on the other hand, scares me a lot because there is no action or option that is taken off the table for the people who believe them. Say what you will about corporate conspiracy theories and other intellectual pathologies of the current progressive left, they consistently keep terrorism and violence of the table. It can be hard to pin down the intellectual center of a political party or coalition, but the moral center is always composed of the voices that keep violence out of the choice set. I’m don’t know who those voices currently are in the Republican political and media coalition.
  7. The key to popular support for capitalism is the continued to expansion of mint-chocolate flavored options in our choice sets.

Birthday presents at school parties

I’m on the record as being against preschool classroom Valentine’s Day parties. As Scrooge said, people are “spending the mortgage money on frivolities”. The parents sending in gifts is the pinnacle of the rotten heap. I would abolish daycare Valentine’s Day parties entirely – outlaw them like those super sized soda cups.

Now, with Covid subsiding and my son in elementary school, I’m getting to see school-aged-kid birthday parties (as I mentioned yesterday). The parties as events that build social capital are great. The gifting aspect of it is mostly dumb. I abhor waste. I put “no gifts” on the birthday invitation for my son.* Most guests brought a present anyway. Next year, should I write “if you bring a gift I will burn it in the driveway before you can enter”? These parents would say they are worried about the island of plastic trash in the Pacific, but what do their actions tell?

It would be nice if school birthday parties could adopt the white elephant/Yankee swap convention that keeps present volumes down at Christmas/holiday parties, but it’s impossible for logistical reasons. If it were socially acceptable to grab a lightly used board game out of your basement and wrap it up to give a school friend, that would also be better. Maybe I should write that on our invitation next year and report back to you all! What do the really really crunchy parents do?

Economists think it’s clever to say, “Haha. You thought Christmas presents were wholesome, but they are inefficient. Merry Deadweight Loss.” Personally, I like most Christmas/holiday presents for the signaling value. I’d be happy with Christmas presents if we could get plastic junk for kids under control and heavily curtail presents at other times of the year.

Related resources: 1) Alex and Tyler donned Christmas sweaters to bring you this video on Christmas gift giving 2) Zachary has written about Christmas gifts

*Do you like funny stories? My son can read. When he noticed that I had written “no gifts,” he got mad at me. I explained that people can still bring gifts if they want to. Then I was mortified when he came home from school reporting that he had told his classmates that they can still get him presents.

Inviting the whole class to a birthday

I am preparing to host my son’s first grade class at our house for a birthday party. Even leading up to today (Friday), it has been a lot of work. Now I’m in the home stretch and will not have time to write a real blog. I have no problem blogging while I’m “on vacation” (in quotes because I’m an academic and I never go a day without fielding emails), but this is another level.

  1. Mental load on women – it’s real!
  2. There is a sweet convention in elementary school here that the entire class gets invited to a birthday party. My son is not “the popular kid” in his class, but he still gets chances to enter into homes and social life through these occasional birthday parties. This is weird and speculative… but there are some adults who would benefit from somehow getting integrated into one of these birthday rings. (my previous post on loneliness)
  3. Scott posted this on stablecoins last month. He had said, “…The potentially problematic aspect of this type of stablecoins is the change in value of the collateral and the reliance on supplementary instruments. …” …which is relevant because a major algorithmic stablecoin, TerraCoin, collapsed this week, leading to its de-listing by major crypto exchanges.

Children Are Not 3/55ths of a Person

In the past several years there has been increasing salience and support of pronatalist policies. Several people have turned to the IRS income tax code, which already includes some incentives regarding children. The Child Tax Credit (CTC), which lowers a person’s tax liability on a dollar-per-dollar basis, is the most obvious item that addresses children. The other tax credit is for child care expenses, but I won’t be focusing on that here.

Below are the 2021 marginal tax rate brackets and the standard deductions.  The standard deduction reduces the taxable income, and then the tax rates are applied.

After the tax liability is calculated, it’s reduced by any tax credits, such as the CTC. In 2021, households earned a credit of $3,600 for every child under 6 years old and $3,000 for every child under 18 years old.  Median household income in 2020 was $67,521.  That means that the tax liability was reduced by 5.3% – or 3/55ths – of median gross income. But, I have a problem with that.

Continue reading

College Major, Marriage, and Children

The American Community Survey began in 2000, and started asking about college majors in 2009, surveying over 3 million Americans per year. This has allowed all sorts of excellent research on how majors affect things like career prospects and income, like this chart from my PhD advisor Doug Webber:

See here for the interactive version of this image

But the ACS asks about all sorts of other outcomes, many of which have yet to be connected to college major. As far as I can tell this was true of marriage and children, though I haven’t searched exhaustively. I say “was true” because a student in my Economics Senior Capstone class at Providence College, Hannah Farrell, has now looked into it.

The overall answer is that those who finished college are much more likely to be married, and somewhat more likely to have children, than those with no college degree. But what if we regress the 39 broad major categories from the ACS (along with controls for age, sex, family income, and unemployment status) on marriage and children? Here’s what Hannah found:

Every major except “military technologies” is significantly more likely than non-college-grads to be married. The smallest effects are from pre-law, ethnic studies, and library science, which are about 7pp more likely to be married than non-grads. The largest effects are from agriculture, theology, and nuclear technology majors, each about 18pp more likely to be married.

For children the story is more mixed; library science majors have 0.18 fewer children on average than non-college-graduates, while many majors have no significant effect (communications, education, math, fine arts). Most majors have more significantly more children than non-college graduates, with the biggest effect coming from Theology and Construction (0.3 more children than non-grads).

In this categorization the ACS lumps lots of majors together, so that economics is classified as “Social Sciences”. When using the more detailed variable that separates it out, Hannah finds that economics majors are 9pp more likely than non-grads to be married, but don’t have significantly more children.

I love teaching the Capstone because I get to learn from the original empirical research the students do. In a typical class one or two students write a paper good enough that it could be published in an academic journal with a bit of polishing, and this was one of them. But its also amazing how many insights remain undiscovered even in heavily-used public datasets like the ACS. We’ve also just started to get good data on specific colleges, see this post on which schools’ graduates are the most and least likely to be married.

Inflation Has Wiped Out Average Wage Gains During the Pandemic (maybe)

The latest CPI inflation report didn’t have a huge surprise in the headline number, with 8.3% being very similar to last month. But with the two most recent months of data, we can now see something very unfortunate in the data: cumulative inflation during the pandemic as measured by the CPI-U (11.6%) has now almost matched average wage growth (12.0%), as measured by the average wage for all private workers. I start in January 2020 for the pre-pandemic baseline.

What this means is that inflation-adjusted wages in the US are no greater than they were before the pandemic. They are almost identical to what they were in February 2020 (just 2 cents greater). But as regular readers will know, the CPI-U isn’t the only measure of inflation, and there’s good reason to believe it’s not the best. One alternative is the Personal Consumption Expenditures price index. Cumulative inflation for the PCE is slightly lower during the pandemic (9.0%, though we don’t have April 2022 data yet).

This chart shows average wage growth adjusted with both of these different measures of inflation, expressed as a percent of January 2020 wages. The CPI-U adjusted wages (blue line) have been falling steadily since the beginning of 2021, though the declines have accelerated in 2022. The PCE-adjusted wages (orange line) have also not performed superbly, but at least they are still 2-3% above January 2020. Still, the picture is not rosy: they’ve basically been flat since mid-2020 and have started to drop in early 2022.

Of course, average (mean) numbers can be tricky and sometimes misleading. What if instead we used median wages? Unfortunately, there is no hourly median wage data that is updated every month. The closest data that I usually look at is median weekly earnings, which is available on a quarterly basis. Here’s what that data looks like, expressed as a percent of the first quarter of 2020. I limit the data to full-time workers, since that should give us a roughly comparable number to the hourly data (hours of work may have changed, but using full-time workers should make it roughly constant).

For median weekly earnings, we can see that the picture is even less rosy. Median earnings have been declining consistently since the second quarter of 2020, regardless of which inflation adjustment we use. The decline in the PCE-adjusted measure isn’t quite as steep since early 2021, but both figures are below the pre-pandemic level, and have been for the past two quarters.

One final note: if we look at weekly earnings across the distribution, and not just at the median, we see something very interesting. Earnings at the bottom of the distribution seem to be performing better than those at the top. In fact, the 10th percentile weekly wage is the only category that is still above pre-pandemic levels. I’m only adjusting using the CPI-U here, but the patterns for the PCE-adjusted earnings would be roughly similar.

We should be cautious about interpreting this data too: if workers dropping out of the labor force are primarily at the bottom of the distribution, it will artificially push up the 10th percentile earnings level. It would be good to know how much of that is going on here. Still, I think this is an important result in the current data.

Raspberry Pi 400 Review: A $100 Desktop PC?

The Raspberry Pi 400 is billed as a complete desktop PC for under $100 ($99.99). Is this for real, considering the cheapest regular computers are around $300 (plus paying for Word and Excel)? Your intrepid correspondent here dives deep to bring you the truth.

The Raspberry Pi series of microcomputer have been around since 2011. A typical  Raspberry Pi is a printed circuit board, about 3 inches by 5 inches, with  a microprocessor chip, some RAM memory, and many input/output  ports. These ports include four USB ports, two micro-HDMI monitor ports, an Ethernet LAN port, a 3.5 mm audio/visual jack, and special camera-related ports (which can also handle a touchscreen). Also, a port for a micro-SD memory card, which is where the operating system and apps and data reside. But wait, there’s more: in addition to Bluetooth and wi-fi capability, the Pi has a 40-pin port for input and output to interact with the physical world.   All this for around $35! [1]

Raspberry Pi Model 4 B

Developed by the British nonprofit Raspberry Pi Foundation as an affordable educational tool,  millions of Raspberry Pi units have been purchased by students and techies to learn-as-you-play and to do some useful projects. I have been aware of these devices for years, but I have been put off by how many peripherals you have to add to get an actual working unit – you have to add a USB-C type power supply, a keyboard, a mouse, and a monitor or other display. And you have to make or buy a case to put the circuit board in. All of which seems like a sprawling mess of wires and stuff. Also, the Pi does not have the computing power and memory to graciously run Windows and Microsoft Office apps like Word. Instead, it uses a Linux operating system instead of Windows, and LibreOffice apps for word processing and spreadsheets. I have never used Linux; it sounded exotic, maybe with a steep learning curve.   

However, the good folks at the  Raspberry Pi Foundation have come out with a new package for the Pi. This is the Raspberry Pi 400. The computing guts are housed inside a keyboard, with all the ports in the back. Thus, they provide the case and a keyboard, all in one tidy package, for about $70. The 400 lacks a few of the input/output ports found on the regular Pi, namely the camera-related I/O and the 3.5 mm headphone/video jack, but retains the 40-pin I/O port.  For $100 you can get the complete Raspberry Pi 400 Personal Computer kit which includes a power supply, a mouse, a micro-SD card with operating software, a cable for the monitor, and a thick manual. I finally succumbed and bought the complete kit. [2]  (Tip:  To get the $100 price, you may do better to find a physical store location like Micro Center, since sellers on Amazon mark it way up to around $160, or sometimes they substitute the bare keyboard for the full kit). You just need to supply a monitor or a TV that has an HDMI input. [3]

Raspberry Pi 400 Personal Computer Kit

The User Experience

So, how good is the Raspberry Pi 400? I have been pleasantly surprised. First, there was almost no learning curve on using the operating system. The version of Linux that is on the microSD card and which gets booted into the working RAM has a very Windows-like visual interface. I did not have to type in any arcane commands. It was all obvious point and clicks to open apps and documents. It helps that this is a pretty simple system, so not a lot of choices to wade through.

I entered my LAN wi-fi password, and was immediately on the internet using the built-in generic Chrome (not Google Chrome) browser. With the recent, improved software on the Pi, it happily streamed YouTube videos, etc.  The LibreOffice suite includes apps which have most of the capabilities of Microsoft Office Word, Excel, and PowerPoint. You can configure some settings in LibreOffice to get the appearances, menus, etc., to even more closely match the Office apps. LibreOffice can save and open files in standard Office formats ( .docx, .xlsx, etc.) so as to share files with the rest of the world. This is pretty good for free software.

I’d rate the keyboard experience as “OK”. The keys are full size, but the feel and the keyboard angle are enough different from my laptop that my typing was slow. Maybe that would improve with use. If I were going to do a lot of typing on this, I would  prop it at a more horizontal angle and rest my wrists on a pad sitting in front of the keyboard, to replicate my hand position on my laptop.

I have not yet played around with the 40-pin I/O port on the Pi 400. That sets it apart from a regular PC, giving the user a means to read inputs from the physical world, analyze them, and output desired actions (e.g., operate the watering hoses in a greenhouse or garden, depending on temperature and dryness of the ground). There are zillions of plans available on line for projects controlled by Raspberry Pi’s. Some are practical, some involve robots, and some are just whimsical, like retro video games and like this sugar cube launcher, which measures the distance to a coffee cup and shoots a sugar cube through the air with a trajectory calculated to land it in the cup. And here are another 26 Awesome Uses for a Raspberry Pi , including stop-motion and time-lapse videos (may not work on Pi 400 because it lacks regular Raspberry camera interface) and turning your Raspberry into a Twitter bot or web server that can host your own blog site.

The Verdict: Is This a Real PC?

Would I recommend this as a primary computer? Well, maybe, for someone on an extreme budget or living in a low-income country, or for someone in a situation where their computer is liable to get lost or broken or stolen. After all, it can do practically anything that a regular PC can do (email, YouTube, word processing, etc.). One area it falls way short in is compute-intensive gaming, so it is not for you if you need realistic spatters on your screen for Call of Duty. Also, if you have to go out and buy a new $150 monitor to use it, the value proposition starts to fall apart, but usually you have an old monitor or TV  around or can borrow one from someone.

The LibreOffice apps will do most of what Microsoft Office does. The Pi cannot download Office and run it offline. However, if you can’t live without the authentic Microsoft Word experience, you can use the Pi as a terminal to log into Microsoft 365 and pay for and  run the Web version of Word, Excel, etc.  Also, you can plug in a USB microphone and USB webcam and use the Pi with Zoom.  

Here is a list of further recommended programs ( all open source, Linux compatible) to install on a Raspberry Pi. These include programs for photo editing, media streaming, gaming, and connecting to a VPN. Here are more tips on the Pi 400 for home office use, including printing and online collaboration tools.

So, yes, a Pi 400 can do most of what desktop PC does, all for $99.99 plus tax [4]. Not to mention not paying an extra $150 or so for Microsoft Office. That said, most of us already have a portable laptop as our primary computer. We can carry it anywhere, and it has built-in display, camera, and speakers. And we have a large monitor on our desk for the desktop experience. For most of us, it is worth spending say $600 for our laptop-plus-monitor versus using an underpowered desktop PC tethered to a monitor and power cord.

So, realistically, most adults in the West would not probably choose the Pi 400 as their primary computer. However, it is a great little spare machine to have around for guests or for kids or for if something happens to your main PC.  It can be a second PC on the corner of your desk to use while your main computer is tied up on a Zoom call. Multiple people (e.g. students in a classroom) can share a Pi, especially if each person has their own microSD card or USB to store their individual documents. You could use a Pi to stream music or video over some random speaker or monitor or TV or dedicate it to some similar specific purpose.

The software load includes Python, a popular programming language which may be worth learning. Also, the Linux  operating system is very widespread in the computer world, powering most servers, so it can be useful to learn Linux as well. Although the newbie user will likely just use the Windows-like graphical user interface, the command line text Linux commands are available for use and practice on the Pi. The Pi 400 software also includes “Scratch”:

Scratch is an easy to use block-based visual programming software that can run on a Raspberry Pi. Using this tool, you will be able to create your very own animations, games, and more using a straightforward drag-and-drop interface. The Scratch software is a great way to get young people started with programming and develop a general interest in computing.

The Raspberry Pi is a powerful tool for interfacing with the physical world, in the “internet of things.”  A tech-inclined person (including a high school student) can find or invent a variety of fun and useful projects which make use of the input/output capabilities of the Pi. Since the internet can be problematic for kids, these sorts of projects with the Pi can keep them busy and learning on a real computer without necessarily having routine internet access.

Endnotes

[1] Some even cheaper, more stripped-down Raspberries have recently become available, such as the Pico and the Zero 2 W, to use as dedicated microprocessors for some specific application.

[2] I think one reason I got the Pi 400 was sheer nostalgia; my very first personal computer, purchased around 1985, was a Commodore 64. Like the Pi 400, the Commodore 64 was a low-cost keyboard with interface ports that you hooked up to a TV or monitor. I used the I/O port on the Commodore to control a Radio Shack robot arm, using relays on a printed circuit board that I etched myself. Good times.

[3] Normally, the sound output from the Pi 400 is transmitted to the monitor/TV along with the video in the HDMI.  If you have some old monitor or TV that only has VGA video input, you can buy an adapter cable that converts HDMI to VGA (make sure you specify male/female correctly), but that only gets you the visual output. To hear the sound in this case, you’d have to either pair up an external Bluetooth speaker with the Bluetooth in the Pi, or plug in a USB speaker. (The other Raspberry Pi models, like the 4 B, include a 3.5 mm jack that sends both sound and video, so you could just plug in a headphone and skip the USB speaker).

A couple of random tips on the Pi 400 keyboard: The Raspberry key, near lower left, brings up the main menu. To get a clean shutdown, properly saving and closing documents and apps, use  Fn F10. Another observation: You can run the Pi off a USB thumb drive instead of the micro-SD card, which can give faster performance and more storage.

[4] One learning I got from doing this review is that you could use your phone as a desktop PC: with an iPhone or iPad, for instance, you can drive an external monitor with a cable from the Lightning port, and use a Bluetooth keyboard/mouse for inputs. There are word processor and other apps that run on phones and tablets, including Microsoft Office. This should give a computing experience similar to that on a Raspberry Pi, although using iOS or Android-specific forms of the various apps.

The propaganda premium puzzle

Beliefs I currently hold:

  1. In the past we have been surprised by the capacity of blatantly false information to persuade large groups of people.
  2. In the future we will continue to be surprised by the ability of blatantly false information to persuade large groups of people.

From the point of view of classic economic theory, this is almost a two-way paradox. First, why aren’t people rationally updating their beliefs to be more skeptical of the information presented to them by state and private media with fairly transparent agendas? If we accept the premise of the first, though, it invites a second question: why is anyone surprised by the efficacy of propaganda and the credulity of large swaths of the public? Shouldn’t we, the meta-observers, also be updating our beliefs?

My preferred explanations, as they stand, are:

  1. Preference Falsification i.e. people are not fooled, they just happen to believe that at the moment it is safer and more rewarding to appear as though they believe the lies.
  2. Social coordination i.e. narrowly held false beliefs make more better coordination mechanisms for solving collective action problems than broadly held truths

The first is a classic theory that originated with Timur Kuran’s seminal work. Whenever the median voter, or median would-be voter in an autocracy or failed democracy, seems to be held in sway by particularly transparent propaganda, I usually start from the default assumption of preference falsification. These people know the media regime they live within is a menagerie of lies that exist solely to flatter leadership and disrupt any opposition, but they also know that their short run futures remain more secure if they not only publicly accept, but actively parrot the lies.

For now at least. Preference falsification is an inherently fragile equilibria. As effective and impenetrable as propaganda can appear at a given moment, public support for those lies can collapse in the blink of an eye, a dynamic only intensified by modern communication technology.

The ability of false beliefs to solve coordination problems is more subtle, but no less salient to the propaganda premium puzzle, particularly when a regime is dependent on a small subset of a society to hold on to power (a “selectorate“) or the support of a political “base” who would otherwise have difficulty signaling their identity to one another. The reality is that obvious or widely shared truths have almost no value when trying to signal mutual affinity and trustworthiness to individuals trying to solve collective action problems. Patently ridiculous beliefs, on the other hand, work precisely because the only people who would publicly commit to holding such beliefs are those who are committed to the collectively produced club good.

So why does propaganda continue to work better than we think it should? Because we’re using the wrong metrics. Or, more precisely, because the right metrics aren’t available to us. We can ask people what they believe, but we can’t make them tell us the truth. And even if we could make them tell us the truth, we can’t measure the benefits motivating their reasoning, the value of the club goods they are gaining access to because they’ve performed the mental gymnastics necessary to hold those beliefs. Sure, it was cognitively costly to convince yourself the earth is likely flat, but those costs are trivial in the face falling out of the tightest network of friends you’ve ever been a part of.

All of this armchair theorizing is really just a long-winded way of suggesting that fighting propaganda is decidedly not about curing people of their false beliefs. If you want to unravel preference falsification, people don’t need the truth. They already know the truth. What they need are safe channels to express it to one another. If subgroups are forming around false beliefs, the answer is not to shame them for their beliefs. That will only strengthen their group and members’ committment to one another. Rather, the answer is to provide superior substitutes for the club goods they are currently receiving. When in doubt, if you want to break a social equilibrium, you’re better off giving people what they need rather than demeaning what they have.

Come to think of it, that’s probably pretty good life advice in general.

Automation report from 1958

Courtesy of the St. Louis Fed, you can download a report published in 1958 titled “Automation and Employment Opportunities for Office-Workers: A Report on the Effect of Electronic Computers on Employment of Clerical Workers, with a Special Report on Programmers.”

I teach students about data and software to prepare them to enter the hot field of business analytics. It has been a growing field for a few years, especially since the advent of “Big Data”. Something I explain in class is how brand-new technology has changed business.

Reading this report forced me to re-think just how new data analytics is. The authors saw machines in use for data processing and correctly predicted that this would be a dynamic source of new jobs.

The introduction states that millions of “clerical workers” were employed in the United States. That fact would have been obvious at the time, but today we might not realize just how many humans would be needed to store and fetch the files we access regularly on our computers. The creation of clerical jobs was especially important for women.

https://fraser.stlouisfed.org/files/docs/publications/bls/bls_1241_1958.pdf

In view of the volume of work that needed to be done, installing new computers was economical. “A computer system can automatically do such jobs as prepare payrolls for thousands of employees, control inventory on a multitude of items…”

“Although computers are often described as machines that can “think,” that is, of course, not so. Like other machines, they must be operated or controlled by people… The people who prepare the instructions are called programmers.”

“Electronic computers were developed during World War II as an aid in solving intricate scientific and engineering problems such as gunfire control, but their application to the processing of office data is more recent. The Federal Government lead the way in 1951, when an electronic computer was installed by the Bureau of the Census…”

The authors see the primary role of computers in business as a way to automate the routine work that could be performed by clerks. Secondly, they state that computers can by used for solving complex math problems “such as those related to launching and tracking earth satellites.”

The report was created for young people who are considering their own choices for education and careers. The authors describe the programming but also various machine support roles. For example, the Coding Clerk’s job is to convert the programmers’ instructions into “machine language”.

The authors recognize that computers will replace some of the traditional clerk roles. “These developments will not only increase the output of clerical workers and slow down growth in clerical employment, but will also change the character of many jobs… Many of the new jobs … will generally pay better and require higher levels of skill and training than most other clerical jobs.” The next sentence is where the authors fail to predict PCs and the internet: “Moreover, a continued increase is expected in the number of officeworkers in jobs not greatly affected by office automation – for example, secretary, stenographer, messenger, receptionist, and others involving contacts with customers and the public.”

The discussion of women in the workplace is clinical in tone. Turnover is high in the clerical fields because many young women stop working when they get married or have children.

There is a special report on “programmers”, one of the newest occupations in the country. Programmers specialize in either of the following: 1) “processing the great masses of data which have to be handled in large business and government offices” 2) “solving scientific and engineering problems”.

The authors describe typical training and career paths. At the time, a college student could not major in computer science. Companies were filling most positions by selecting employees familiar with the subject matter and giving them training in programming. A few colleges purchased computers and provided some training opportunities.

The culture was different back then. “Although many employers recognize the ability of women to do programming, they are reluctant to pay for their training in view of the large proportion of women who stop working…” The authors tip off their female readers that they are more likely to get training in government than industry, if they aspire to be programmers in the 1950’s. Today, the risk and cost of training has largely shifted from the employer to the worker. If you are interested in the topic of bootcamps and STEM pipelines, read the document for their discussion of education.

These authors made a good long-term prediction because they anticipated the business analytics boom. “Continued expansion in employment of programmers is expected over the long run… In offices where the volume of recordkeeping is great, there will continue to be need to reduce the cost of processing tremendous amounts of data and to produce more timely reports on which management decision can be based.”   After explaining salary, they talk about perks: “Programmers usually work in well lighted, air-conditioned, modern offices. Employers make special efforts to provide better than average surroundings for programmers, so that they may concentrate to achieve the extreme accuracy necessary for programming.” The nap pods of Silicon Valley have a long history that can be traced back to the Census Bureau.