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A Twitter Digression on Trade and China

This week I saw an absolutely horrendous take on Twitter by Chris Arnade and felt compelled to discuss it. This is partially because the positions are incorrect, but also because his discussion itself was in bad faith and actively worsens our dialogue. Are there bad takes on Twitter every minute? Yes, but hey, I saw this one.

Here is the thread:

https://twitter.com/Chris_arnade/status/1181524435163058176

First, let’s start with the object-level fact that hundreds of millions of people were lifted out of poverty in China. The intentions of the advocates of free trade isn’t relevant to this fact, what’s relevant is whether a particular policy improved the well being and life expectancy of millions of people. This is equivalent to claiming Jonas Salk was only in it for the name recognition, and therefore, we shouldn’t have used the polio vaccine.

Next, Arnade is simply wrong about the intentions of his political opponents, claiming they only support free trade because of greed. He then obfuscates the target of his accusations by using the ever popular term “elites”. Free traders have been talking about the moral benefits of trade forever. Friedman wrote Capitalism and Freedom in 1962, 10 years before Nixon’s visit to China, and The Economist was founded to repeal the Corn Laws in 1843. Saying Milton Friedman was defending free trade just to make money off of China’s market liberalizations decades later is just lazy argumentation.

So Arnade is wrong about their intentions, but are these even the “elites”? As far as I can tell Chris doesn’t have a good definition of elites. I noted in the past:

Tagging @EconTalker @Chris_arnade. The final discussion of faith also seemed incorrect. I don't know how Chris defines elites, but income doesn't predict church attendance that well. https://t.co/lQ06tBXz8X
— JSM 🏗️ (@postlibertarian) July 25, 2019

He claimed on his interview on EconTalk, that while elites are abandoning faith, it remains an important aspect of life to more everyday people. This divide is not borne out by the data. Income doesn’t predict church attendance, and according to Gallup, the difference in church attendance between college educated and non-college educated is within the margin of error. If you want things that predict church membership, you should use age (young people are less religious) or political ideology (those identifying as “conservative” are far more likely to go to church than those calling themselves “liberal”).

If Arnade doesn’t have a good definition of elites, then it seems pretty duplicitous to then claim “elites” have any particular position since we can’t identify who he is talking about. Even if such a group existed, surely there would be many different positions and ideas within this group. Not for Chris though, everyone in this group is one in the same. And it seems especially malicious to then claim that not only does this group with no definition exist, but they have specific stated incorrect claims! In fact, Arnade has identified these claims from an imaginary group as fake and then reveals the “true” beliefs which are, of course, simply greed. This is not just a strawman, ladies and gentleman, but indeed strawwomen and strawchildren too.

It’s plausible that someone could have disagreements with free traders, but just ignoring their arguments and claiming they’re only after money is a terrible way to learn and improve our understandings of the world. We should be engaging with each other’s ideas sincerely, not attributing hidden values to people we disagree with. I guess I find this especially upsetting because EconTalk, Russ Roberts’ podcast, does such a good job of emphasizing those values of charity and understanding, and Arnade was recently a guest on that podcast. To see someone who was treated very charitably turn around and be so underhanded on Twitter is quite disappointing.

Let’s return to China. Arnade discusses a “deal” where the U.S. allowed human rights abuses hoping that democracy would follow. I know of no one who has ever said that. In fact, the opposite occurred: the Cultural Revolution killed 500,000 people, ending in 1976 and following the Great Leap Forward which killed some 18 million people in the lowest estimates. Since trade liberalizations began, nothing on that scale has occurred again.

The interest in China from Nixon was as a tool in the Cold War against the Soviet Union. Democracy was really not the goal. Moreover, the U.S. didn’t dictate to China to liberalize its economy, the market liberalizations were largely from within Deng Xiaoping’s government. In fact, I’m not really sure the U.S. would even be able to extract human rights improvements through protectionist policies. What is the model we would base it on? Cuba? Iran? North Korea? Venezuela? All have become wonderful bastions of human rights following American sanctions.

Also, I should bring up the simple libertarian critique that even if you have the perfect policy, the perfect knowledge of exactly how a foreign government will react to sanctions and trade agreement details, government is not an impartial executor of policy. Democratic forces and interest groups will always mutate policy as it passes through government, and it will not be implemented in the idealized fashion you might like. For example, what does the phrase “U.S. foreign policy human rights record” conjure up?

It’s true that China has not become a democracy, while many foreign policy types certainly believed it could happen, particularly in the 90s. Chris seems to think he predicted this outcome (not cited). Suppose you knew this, would you change policy? In a choice between a poorer China without democracy and a richer China without democracy, it seems we should choose the richer one because, you know, we want good things for all humans, not just people who live in the same country as us.

Finally, let’s get to the economics here. There is no “us” who “exported our factories”. Individual firms make decisions in a complex economy. And those decisions have been that as a percentage of the total, manufacturing jobs peaked in the 40s prior to the establishment of the People’s Republic of China:

Arnade seems to understand that as he cites the recent scandal in the NBA where the Houston Rockets GM tweeted in support of the Hong Kong protesters, and quickly deleted it under a firestorm. Yet, Arnade switches between U.S. trade policy, governed by Congress (allegedly), and private firms making profit maximizing decisions without bothering to differentiate them.

It’s unclear exactly how Arnade wanted U.S. policy to intervene to stop private firms from making their own decisions. He cites an upcoming book, but provides no details. He also cites anti-labor policy, and I have heard similar discussions from economist Noah Smith, and many others associated with the new neoliberal movement. My problem is that given all the weird deceitfulness and strawmanning, I have no reason to trust Chris when we finally get to the policy discussion. I agree with him that the NBA or Blizzard caving to the Chinese government is a bad thing, but saying more robust industrial policy would have changed that is a non-sequitur.

Moreover, there are still tons of benefits from trade with China. The smartphone revolution changed the way we interacted with the world, and mostly in good ways I believe. This happened in part because of Chinese manufacturing allowing anyone to buy a highly complex piece of technology for cheap. On the other hand, technologies we have a dimmer view on today, like social media, are entirely U.S. grown.

There are problems in the world today, but we need to improve our level of dialogue if we want to solve them. Refusing to engage with well known arguments that critique your position and instead going on uncharitable Twitter threads is something we should avoid.

Artificial Intelligence and Existential Risk

The purpose of this post is to discuss existential risk, and why artificial intelligence is a relatively important aspect of existential risk to consider. There are other essays about the dangers of artificial intelligence that I will link to throughout and at the end of this post. This essay is a different approach that perhaps will appeal to someone who has not seriously considered artificial general intelligence as an issue requiring civilization’s attention.

This is a second edition of this post, updated in 2019, streamlining my essay from last year.

Impact as a Function of Resources

This blog is often concerned with political discussions, and political fights are divisive. They also tend to optimize for controversial topics and to overshadow more impactful policy debates. For example, abortion debates are pretty common, highly discussed political issues, but there have been almost no major policy changes since the Supreme Court’s decision 40 years ago. The number of abortions in the US has declined since the 1980s, but it seems uncorrelated with any political movements or electoral victories. If there aren’t meaningful differences from different political outcomes, and if political effort, labor, and capital is limited, these debates seem to distract from other areas that could impact more people.

One way we might tackle the most impactful decisions we face is number of lives at stake. This immediately points to issues like cancer, suicide, and car accidents, with trade offs like average age (cancers tend to be later than car accidents) and tractability (cancer breakthroughs are rare and expensive, autonomous cars may be closer and relatively underinvested in).

There is also a question of timescale. Over short time periods, the concern about catastrophic events isn’t very high, but over time, the chances may arise to a level we should worry about, especially given the very high costs. For example, nuclear war has thankfully been rare, but even a single event could be quite deadly compared to most modern political concerns. Research into how and why nuclear wars have been rare and how to keep them that way might be an excellent use of resources to avoid a catastrophic event.

Existential Risk

So what about the extreme long term? What about not just catastrophic events, but existential risk, i.e. the death of all people on Earth? This blog’s philosophy takes consequentialism as a founding principle, and if you’re interested in the preceding questions of what policies are the most helpful, and where we should focus our efforts, you’ve already accepted that we should be concerned about the effects of our actions. The worst possible event, from a utilitarian perspective, would be the extinction of the human race, as it would not just kill all the people alive today (making it worse than a catastrophe that only kills half of all people), but also ends the potential descendants of all of humanity, possibly trillions of beings. If we have any concern for the the outcomes of our civilization, we must investigate sources of existential risk.

Restating to make things more intuitive: assume it’s the year 2300, and humans no longer exist in the universe. What is the most likely cause of our destruction, and then how likely is that cause? I’m selecting the year 2300 because it seems highly likely that humanity’s capabilities will be radically different at that point, but it is also far enough into the future that current political discussions or planning will likely not be thinking about many of these threats.

Wikipedia actually has a very good article on Global Catastrophic Risk, which is a broad category encompassing things that could seriously harm humanity on a global scale. Existential risks are a strict subset of those events, which could end humanity’s existence permanently. Wikipedia splits them up into natural and anthropogenic. First, let’s review the non-anthropogenic risks (natural climate change, megatsunamis, asteroid impacts, cosmic events, volcanism, extraterrestrial invasion, global pandemic) and see whether they qualify as existential.

Natural climate change and megatsunamis do not appear to be existential in nature. A megatsunami would be terrible for everyone living around the affected ocean, but humans on the other side of the earth would appear to be fine. Humans can also live in a variety of climates, so natural climate change would likely be slow enough for some humans to adapt, even if such an event causes increased geopolitical tensions.

Previous asteroid impacts have had very devastating impacts on Earth, notably the Cretaceous-Paleocene extinction event some 66 million years ago. This is a clear existential risk, but you need a pretty large asteroid to hit Earth, which is unusual. Larger asteroids can also be more easily identified from further away, giving humanity more time to do something (push it off path, blow it up, etc). Extinction events every few dozen million years are unlikely to occur in the next 300 years, and when adding the ability of humans to alter some asteroid trajectories, it seems highly unlikely that an asteroid impact will destroy humanity in the next 300 years.

Other cosmic events are also low probability. Gamma-ray bursts are pretty devastating, but they’d have to be close-by (with a few hundred light-years at least) as well as aimed directly at Earth. Neither of these is likely within the next million years.

Volcanism is also something that has the potential to be pretty bad, perhaps existential level (see Toba Catastrophe Theory), but it is also pretty rare.

An alien invasion could easily destroy all of humanity. Any species with the capability to travel across interstellar space with military ambitions would mean they are extremely technologically superior. However, we don’t see any evidence of a galactic alien civilization (see Fermi Paradox 1 & 2 and The Great Filter). Additionally, solving this problem seems somewhat intractable; on a cosmic timescale, an alien civilization that arose before our own would likely have preceded us by millennia, meaning the technology gap between us and them would be hopelessly and permanently large. We’ll leave the probability on this one with less certainty, but it’s unclear what we can do today to mitigate this risk.

A global pandemic seems pretty bad, certainly much more likely than anything else we’ve covered in the short term. This is also exacerbated by human actions creating a more interconnected globe. However, it is counterbalanced by the fact that no previous pandemic has ever been 100% lethal, and that modern medicine is much better than it was during the Black Plague. This is a big risk, but it may not be existential. Definitely on our shortlist of things-to-worry-about though.

Let’s talk about anthropogenic risks next: nuclear war, conventional war, anthropogenic climate change, agricultural crises, mineral exhaustion, artificial intelligence, nanotechnology, biotechnology.

A common worry is nuclear war. A massive nuclear exchange seems somewhat unlikely today, even if a regional disagreement in the Korean peninsula goes poorly in the worst possible way. It’s not common knowledge, but the “nuclear winter” scenario is still somewhat controversial, and I remain unconvinced that it poses a serious existential threat, although clearly a nuclear exchange would kill millions. Conventional war is also out as it seems strictly less dangerous than a nuclear war.

For similar reasons to nuclear winter, I’m not quite worried about global warming on purely existential terms. Global warming may be very expensive, it may cause widespread weather, climate, and ecological problems, but I don’t believe humanity will be entirely wiped out. I am open to corrections on this.

Agricultural crises and mineral exhaustion seem pretty catastrophic-but-not-existential as well. These would result in economic crises, but by definition, economic crises need humans to exist; if there are fewer humans, it seems that an agricultural crisis would no longer be an issue.

The remaining issues are largely technological in nature: artificial intelligence, biotechnology, nanotechnology, or technical experiments going wrong (like if the first nuclear test set the atmosphere on fire). These all seem fairly concerning.

Technological Existential Risk

Concern arises because technological progress means the likelihood that we will have these technologies grows over time, and, once they exist, we would expect their cost to decrease. Additionally, unlike other topics listed here, these could wipe out humanity permanently. For example, a bioengineered virus could be far more deadly than what would naturally occur, possibly resulting in a zero survival rate. The cost of DNA technology has steadily dropped, and so over time, we might expect the number of organizations or people who have the knowledge and funding to engineer deadly pathogens to increase. The more people who have this ability, the more likely that someone makes a mistake and releases a deadly virus that kills everyone. An additional issue is that it is quite likely that military research teams are right now researching bioweapons like an engineered pathogen. Incentives leading to the research of dangerous weapons like this are unlikely to change, even as DNA engineering improves, meaning the risk of this threat should grow over time.

Nanotechnology also has the potential to end all life on the planet, especially under a so-called “grey goo” scenario, where nanobots transform all the matter on Earth. This has a lot of similarities to a engineered pathogen, except the odds of any human developing some immunity no longer matter, and additionally all non-human life, indeed, all matter on Earth is also forfeit, not just the humans. Like biotechnology threats, we don’t have this technology yet, but it is an active area of research. We would also expect this risk to grow over time.

Artificial General Intelligence

Finally, artificial general intelligence contains some similar issues to the others: as technology advances, we have a higher chance of creating it; the more people who can create it, the more dangerous it is; once it is created, it could be deadly.

This post isn’t a thesis on why AI is or isn’t going to kill all humans. We made an assumption that we were looking exclusively at existential risk in the near future of humanity. Given that assumption, our question is why will AI be more likely to end humanity than anything else? Nonetheless, there are lingering questions as to whether AI is an actual “real” threat to humanity, or just an unrealistic sci-fi trope. I will outline three basic objections to AI being dangerous with three basic counterarguments.

The first objection is that AI itself will not be dangerous because it will be too stupid. Related points are that AI is too hard to create, or we can just unplug it if it has differing values from us. Counterarguments are that experts disagree on exactly when we can create human-level AI, but most agree that it’s plausible in the next hundred or couple hundred years (AI Timelines). It’s also true that we’ve seen improvements in AI ability to solve more general and more complex problems over time; AlphaZero learned how to play both Go and Chess better than any human without changes in its base code, YouTube uses algorithms to determine what content to recommend and what content to remove ads from, scanning through thousands of hours of video content every minute, GPT-2 was powerful enough to start to translate languages as a side effect of machine learning applied to word prediction. We should expect this trend to continue, just like with other technologies.

However, the difference between other technological global risks and AI is that the machine learning optimization algorithms could eventually be applied to machine learning itself. This is the concept of an “intelligence explosion”, where an AI uses its intelligence to design and create successively better versions of itself. Thus, it’s not just that an organization might make a dangerous technological breakthrough, like an engineered virus, but that once the breakthrough occurs, the AI would rapidly become uncontrollable and vastly more intelligent than us. The intelligence analogy being that a mouse isn’t just less smart than a human, it literally doesn’t comprehend that its environment can be so manipulated by humans that entire species depend on the actions of humans (i.e. conservation, rules about overhunting) for their own survival.

Another objection is that if an AI is actually as intelligent as we fear it could be, it wouldn’t make “stupid” mistakes like destroying all of humanity or consuming the planet’s resources, because that wouldn’t count as “intelligent”. The counterpoint is the Orthogonality Thesis. This simply states that an AI can have any goal. Intelligence and goals are orthogonal and independent. Moreover, an AI’s goal does not have to explicitly target humans as bad (e.g. “kill all the humans”) to cause us harm. For example, a goal to calculate all the digits of pi or solve the Riemann Hypothesis might require as much computing power as possible. As part of achieving this goal, a superintelligence would determine that it must manufacture computing equipment and maximize energy to its computation equipment. Humans use energy and are made of matter, so as a way to achieve its goal, it would likely exterminate humanity, and convert all matter it could into computation equipment. Due to its superintelligence, it would accomplish this.

A final objection is that despite experts believing human level AI will happen in the next 100 years, if not sooner, there is nothing to be done about it today or that it is a waste of time to work on this problem now. This is also known as the “worrying about overpopulation on Mars” objection, comparing the worry about AI to something that is several scientific advancements away. Scott Alexander has an entire blog post on this subject, which I recommend checking out. The basic summary is that AI advancement and AI alignment research are somewhat independent. And we really need to learn how to properly align AI values before we get human level AI.

We have a lot of theoretical philosophy that we need to figure out how to impart to a computer. Things like how humans actually make decisions, or how to value different moral tradeoffs. This could be extraordinarily complicated, as an extremely smart optimization algorithm could misinterpret almost everything we say if it did not already share our values for human life, health, and general brain state. Computer scientists set out to teach computers how to understand natural human language some 60 years ago, and we still haven’t quite nailed it. If imparting philosophical truths is similarly difficult, there is plenty of work to be done today.

Artificial intelligence could advance rapidly from human level to greater than human very quickly; the best human Go player lost to an AI (AlphaGo) in 2016, and a year later, AlphaGo lost to a new version, AlphaGo Zero, 100 games to none. It would thus not be surprising if a general intelligence achieved superhuman status a year after achieving human-comparable status, or sooner. There’s no fire alarm for artificial general intelligence. We need to be working on these problems as soon as possible.

I’d argue then, that of all scenarios listed here, a misaligned AI is the most likely to actually destroy all of humanity as a result of the Orthogonality Thesis. I also think that unlike many of the other scenarios listed here, human level AI will exist sometime soon, compared to the timescale of asteroids and vulcanism (see AI Timelines, estimates are highly variable, anywhere from 10 to 200 years). Compared to other technological sources of risk, AI is unique because of the introduction of another agent with differing goals. There is also a wealth of work to be done surrounding AI value alignment. Correctly aligning future AI with goals compatible with human values is thus one of the most important challenges facing our civilization within the next hundred years or so, and probably the most important existential threat we face.

The good news is that there are some places doing this work, notably the Machine Intelligence Research Institute, OpenAI, and the Future of Humanity Institute. The bad news is that despite the importance of this issue, there is very little in the way of conversations, money, or advocacy. AI Safety research is hard to calculate in total, as some research is likely done by private software companies, but is optimistically on the order of tens of millions of dollars a year. By comparison, the U.S. Transportation Security Administration, which failed to find 95% of test weapons in a recent audit, costs $7.5 billion a year.

The Immigration Tariff in 500 Words

Immigration liberalization is one of the policies this blog has described as highest impact. It could have massive benefits to both immigrants and native born citizens in the United States and other developed countries. Immigration bypasses the need to solve the extremely difficult problem of “building good institutions” which is a mercurial and sparsely solved goal in development. By moving people directly to societies where good institutions already exist, we don’t have to make them. OpenBorders.info also suggests free movement of people could double world GDP, with smaller migration seeing proportionally smaller but still substantial growth.

The United States is uniquely positioned to absorb immigration. It is the largest developed country by both population and GDP by significant margins (developed country referring to either OECD member or country with HDI > 0.8). By nominal GDP the US economy remains the largest in the world, and by PPP it is second only to China. Unlike China, the US is the only large country with a large foreign born population, and indeed the US has the largest foreign born population in the world at over 46 million. The US also has a long history of immigration contributing to its excellent position as an immigration destination.

Given this blogs inclination towards the benefits of markets, self determination, and individual rights, our default position should be in support of more liberalized immigration. Current immigration policy is geared towards family connections despite much of the potential benefits of immigration stemming from economics. The U.S. also takes in less immigrants as a percentage of its population than other developed nations, despite the previously mentioned advantages the U.S. has in absorbing immigration.

Originating from economist Gary Becker, an immigration tariff would allow prospective immigrants to pay a tax or fee to enter the country and work. We have a somewhat similar although highly limited current system with H-1B visas which are sponsored by companies for employees. Expanding this and accounting for age and level of education, Congress could create a tariff schedule for various immigrants based on potential costs and tax revenue from these immigrants. They could also simply sell off additional green cards after the current legal green card approaches were filled in the current year. The Cato paper linked goes into more detail.

The benefits of any such system would be to guarantee that immigrants with the skills and ability to work productively in the United States would be able to do so, with additional monetary compensation provided up front to the U.S. to avoid any potential risk of those immigrants becoming a net cost on society. This would see benefits in terms of additional labor, entrepreneurship, and economic growth.

The issue with this approach is that immigration is a highly divisive political issue. Republicans would be unlikely to embrace this proposal due to their base’s opposition to apparently all immigration. Democrats may be more interested, but may balk at the notion of people “buying” their way to the front of the line.

Book Review: Harry Potter and the Methods of Rationality

Harry Potter and the Methods of Rationality is a Harry Potter fanfic written by Eliezer Yudkowsky (which you can find here). Yudkowsky is the creator of LessWrong which I often use as a shorthand for the entire Rationality space. I wasn’t around at the time, but I eventually found Scott Alexander’s work at Slate Star Codex, who is linked in the sidebar and is one of the inspirations for this blog. Through SSC, I found writings by Yudkowsky, mostly about artificial intelligence. Last year I tried to read the essays known as “The Sequences” or Rationality: A-Z at LessWrong. I read the first couple of books, but they’re pretty dense and my interest dropped off.

HPMOR, unlike The Sequences, is fiction, and I found it incredibly easy to read. I assume the project began as a way to teach rationality through a common pop culture phenomenon, and it’s pretty solid at doing that. Concepts like Bayesian updating and evolutionary biology are well explained, but are done so partially as a critique of the Harry Potter universe.

The general premise is that Harry Potter’s Aunt Petunia marries an Oxford professor instead of Vernon Dursley. Thus, Harry is raised with extensive training on the scientific method by his adoptive parents, as well as the latest understanding of probability, physics, biology, chemistry, etc. He comes to Hogwarts armed with the scientific method and sets about trying to understand how magic works.

The Harry Potter universe is an excellent substrate in which to do this, because its world is so creative, popular, and complete. But J.K. Rowling’s world also has glaring problems which can be explored in ways that teach social and physical science, and even philosophy. The wizarding government apparently sends people to Azkaban where they are not only kept separate from other people (as we do in our world with regular prisons), but they are also psychologically tortured in the most horrifying way, with their good memories drained by beings of pure evil. They also apparently have no trials, as Hagrid is sent to be tortured in the second book with no oversight. Additionally, wizards have magical healing capabilities and can magically create copies of food, yet muggles in the non-wizarding world die of malaria, tuberculosis, and starvation all the time, and this is never mentioned in the original source material.

A lot of science fiction has similar problems; in The Matrix, the machines get energy from human beings’ thermal energy, but instead of just putting people in comas, they create a massively complex neural interactive computer simulation. This creates both the ranks from which their enemies recruit and uses tons of additional energy. To be sure, science fiction isn’t necessarily made worse because of these internally inconsistencies, but good science fiction should explore these ideas instead of paper over them with hand-waving.

The writing of HPMOR is delightful. A fanfic that explores Bayesian probability in the Harry Potter universe shouldn’t be this well written, but it really is. It’s creative, funny, intense, emotional, and continually pushed me to want more. The actual size of the six books in the series is gargantuan, somewhere over half a million words, or something like the first four actual Harry Potter books combined. If you read just the first “book”, I think you’ll get a general idea and know if you find it interesting yourself. I couldn’t put it down. It makes me wonder in particular about Eliezer Yudkowsky; I had previously thought of him as an AI alignment research person, so it would appear he is somewhat of a polymath who can both write incredibly amazing and addictive fan fiction and be a leading advocate/researcher for AI alignment.

The exploration of magic is the inspiration for the story, but that’s not where it stops. The plot itself is highly compelling and different enough from the actual book(s) that I wasn’t sure exactly where it was going. It also does a nice job of rebuilding the Harry Potter world in a somewhat internally consistent way after all the criticisms. Yudkowsky comes up with a lot of original ideas here that fit into the pre-existing universe really well. There are also a lot of influences from Ender’s Game, which makes a lot of sense given that is also a story of a young child genius using logic and game theory to make it through a school.

This story also makes me think about intellectual property and copyright lengths again. HPMOR is perhaps the best example I’ve ever seen of someone creating an incredible story in a world that they didn’t have IP rights to, and it makes me wonder how many more stories like this could exist if copyright lengths were shorter. Harry Potter was such a huge phenomenon that it really required the modern world to have that huge impact, like Star Wars or Marvel movies. But were copyrights to only last 30 years, we might be able to see amazing works like HPMOR used to build careers on great franchises in the public domain while those cool franchises were still relevant!

In short, I strongly recommend this fan fiction under the condition that you enjoy Harry Potter. Otherwise, a lot of setting and characters may not make sense and I’m sure all of the jokes will fall flat. Other than that, if you’re already reading this blog, you have some vague enjoyment of rationality, empiricism, systematized thinking, etc and this story is educational, creative, and addictive.

Links 2019-03-07

First links post in a while because I have some housekeeping. After trying to have comments just on reddit, I’ve realized it makes way more sense to just have comments right below the articles again. I really don’t like the WordPress default comment system so I’ve opted instead for Disqus. These have been implemented for a while, but I wanted to bring your attention to them.

I’ve also finally updated the site to default to https. Kind of an embarrassment for a site promoting encryption to not have https defaulted, but this blog is a volunteer project done for personal interest (and personal expense!).

I’ve removed Greg Mankiw’s blog from the sidebar because I realized I wasn’t reading it much anymore and it doesn’t talk about too much interesting econ stuff very often. I also removed Jeffrey Tucker’s blog beautiful anarchy, because I don’t think he posts there anymore now that he’s running aier.org.

I’ve added gwern.net because this past year I’ve realized how much more I’ve been going to his site even though I’ve known about it for a long time. Gwern is a rationalist independent researcher. He doesn’t really write blogs so much as essays on a topic. I recommend his site wholeheartedly. Seriously, his site is the first link on this post for a reason. If you are overwhelmed by the amount of content, see if anything in his “Most Popular” or “Notable” categories jump out at you and start there. I personally found “Embryo Selection For Intelligence” to be quite engrossing.

Slate Star Codex has had some good posts about the importance of OpenAI’s GPT-2. First some background on GPT-2. Next, GPT-2 seems to have learned things haphazardly, in almost a human-like way, to attain its goals of creating good responses to prompts. It connects things in a stream of consciousness reminiscent of a child’s thoughts. As Scott says, simply pattern matching at a high level is literally what humans do.

Also on AI, I found an amazing 2018 AI Alignment Literature Review and Charity Comparison by LessWrong user Larks. It’s a very impressive in depth look at groups concerned about the AI alignment problem.

From Vox: “The case that AI threatens humanity, explained in 500 words”.

Noah Smith writes A Proposal for an Alternative Green New Deal. It makes vastly more sense than the vague, progressive wishlist discussed by current Democratic members of Congress. However, even Smith’s suggestions seem pretty poorly thought out to me; he endorses massive subsidies to green technology, on the order of $30 billion a year, without addressing how the state will know where to invest the money. As I recall, the government isn’t a great central planner. He also just kind of tosses in there universal health insurance, apparently paid for by the government, which sounds like Medicare for all. That seems to both massively politically complicate anything actually trying to fix climate change, and also destroy the entire federal budget, which I think is a national security problem.

Related, on a more nuanced note, John Cochrane discusses a letter signed by many economists endorsing a carbon tax, which seems much more precise and useful to people concerned about climate change. To make it politically palatable, they suggest making a carbon dividend paid to all taxpayers out of this tax. Noah Smith also endorsed this approach as just one piece of his Green New Deal. On brand, The Economist endorses carbon taxes as well.

Bitcoin Hivemind developer Paul Sztorc writes about Bitcoin’s future security budget. It’s a really good technical discussion of how Bitcoin can be funded in the future, and why we need sidechains to help pay for the cost of keeping Bitcoin secure.

Bruce Schneier writes about the need for Public Interest Cybersecurity, envisioning it as a parallel to public interest legal work. It’s an interesting take, and I’m not sure how I feel about it. On the one hand, he’s right that lawmakers know little about the technologies they are supposed to regulated, but that’s also true of literally every industry. Sure it would be great if we had more things like the EFF, but I’m have to ask 80,000 Hours if they thought people going into charity work should work for the EFF or AI Alignment research or other existential risk. I’m also not sure I agree that there aren’t enough incentives to invent new security protocols. Google is taking security very seriously on their own, but so are tons of Bitcoin and cryptocurrency developers who are constantly seeking ways to make their projects more secure and do more creative things with crypto.

The U.S. trade deficit hit a 10 year high. Here is the actual Bloomberg article. This is silly political bickering, so I won’t spend much time on it, but it reflects just how the president fails to grasp very simple economics. The trade deficit doesn’t mean anything by itself, it’s just a measure of the goods traded, and it’s not even very good at that (goods designed here but manufactured in another country see their whole value “subtracted” in the trade deficit despite American labor inputs). The drivers of the trade deficit are things like relative values of currencies and national savings rates, not the levels of tariffs. Meanwhile, Trump’s tax cuts have spurred U.S. growth while the rest of the world has been sluggish, leading to higher trade deficits because Americans are relatively more wealthy. This flurry of economic activity prompted the Fed to raise rates to stave off inflation, which also drives up the trade deficit, and so Trump has taken the horrible tact of trying to publicly attack the Fed to lower rates, which is terrible for any sort of responsible Fed policy. The whole thing is a ridiculous mess which could have been avoided if Trump had any semblance of economic knowledge.

The Fifth Column podcast is a highly entertaining libertarian politics podcast. Episode 132 is a little different as Michael Moynihan takes the opportunity to interview Mark Weisbrot, Co-Director of the Center for Economic and Policy Research, a left-wing think tank, on the Maduro government in Venezuela. I have a lot of thoughts on this interview, but my foremost is whether Weisbrot counts as an actual representative voice of the Left. I think one of the worst things social media does is to hold up the most controversial person on one side because they generate the most clicks and buzz and force both sides to jump in and flame each other. In an hour long interview, Weisbrot takes, as far as I can tell, no opportunity to criticize the Maduro regime, nor offers any way in which they could have improved their policies. He accepts and touts statistics that support his view, and dismisses, minimizes, or ignores stats that counter him–even if they are all from the same source! Even though he’s a big deal at a left-wing think tank, I have to point out that most left-leaning academics don’t need to be in think tanks because most university politics skew left. This might explain how someone with this level of willful ignoranceg could hold such a key position. I think the interview is worth listening to if you would like to see the extent of what humans can do to put up mental barriers to seeing their own logical inconsistencies and motivated reasoning. Nonetheless, I feel bad about linking to this interview as I think it unfairly represents actual socialists who would like to nationalize all industries and seize the means of production.

2019 Predictions

I’ve made predictions for the past several years, and here are my predictions for 2019, a bit late. I’ve noticed that when discussing politics or difficult subjects with other people with whom I have strong differences, a possible avenue of understanding is to make a prediction about the world with odds. Most people don’t accept these bets or predictions, which I think are one of the best ways to test different models of the world against each other. Nonetheless, I think it’s personally beneficial to list predictions and accompanying odds each year to see test my model of the world.

Trump Approval Rating end of year <50% (Gallup): 95%
Trump Approval Rating end of year <45% (Gallup): 90%
Trump Approval Rating end of year < 40% (Gallup): 70%
US will not get involved in any new major war with death toll of > 100 US soldiers: 60%
No single terrorist attack in the USA will kill > 100 people: 95%
The UK will not leave the EU this year: 80%
North Korea will still be controlled by the Kim dynasty: 95%
North Korea will not conduct a nuclear test this year: 60%
North Korea will not conduct a missile test this year: 60%
North Korea will not agree to give up nuclear weapons entirely, contingent on US troops staying in the Korean peninsula: 99%.
North Korea will not agree to give up nuclear weapons as a result of any negotiations: 90%
Yemeni civil war will still be happening: 70%
S&P 500 2019 >10% growth (from 2506 on Jan 1): 60%
S&P 500 will be between 2400 and 3100: 80% (80% confidence interval)
Unemployment rate December 2019 < 6%: 80%
Unemployment rate December 2019 < 5%: 70%
WTI Crude Oil price up by 10% (from $45.41): 70%
Price of Bitcoin in dollars up over the year (Coinbase – 3823 Jan 1): 70%
Price of Bitcoin < $8,000 (does not double): 60%
Price of Bitcoin > $1900 (does not lose half value): 70%
Price of Bitcoin < $12,000 (does not triple): 70%
Drivechain opcodes not soft-forked into Bitcoin: 80%
No drivechains soft-forked into existence: 99%
US government does not make Bitcoin ownership or exchange illegal: 95%
Self-driving cars will not be available this year for general purchase: 95%
Self-driving cars will not be available this year to purchase / legally operate for < $100k: 99%
I will not be able to buy trips on self-driving cars from Uber/Lyft/Waymo in a location I am living: 95%
I will not be able to order groceries on self-driving cars in a location I am living: 90%
I will not be able to buy a trip on a self-driving car from Uber/Lyft/Waymo without a backup employee in the car anywhere in the US: 80%
The artificial general intelligence alignment problem will not be seen as the most important problem facing humanity: 99%
Humans will not be in lunar orbit in 2018: 99%
SpaceX Falcon Heavy rocket will launch again this year: 90%
SpaceX will bring humans to low earth orbit: 60%
SpaceX will test the “Starship” mock up this year: 70%
Mexican government does not pay for wall: 99% (lol)
Border wall construction not complete by end of 2018: 99%
National Debt increases by >$1 trillion (from
$21,943,897,000,000): 90%
There will not be a significant decrease in trade barriers between US and China from pre-2017 tariff levels: 90%
Democratic RCP front runner will not be Bernie Sanders: 80%
Democratic RCP front runner will not be Kamala Harris: 80%
Democratic RCP front runner will not be Beto O’Rourke: 80%
Trump not removed from office or resign: 95%
Trump not impeached: 70%
No CRISPR edited babies will be born: 80%
No full year US government budget will be passed (only several months spending): 90%
Some tariffs raised: 90%
Trump administration does not file a lawsuit against any news organization for defamation: 90%

I’d like to comment on every prediction, but I’m afraid it would take too much time. The predictions I find most interesting are whether the UK will leave the EU. I’m going by what predictions markets say, but I’m not really sure it will play out with only a few weeks to go and no deal. I’m also quite interested in the Democratic Presidential primary race, but I’m afraid the nomination will be trending towards someone pretty left wing. I’m also interested in whether Trump will be removed from office. I put the chances of Trump being impeached at 30% to stay in line with prediction markets, but my gut is that I should put that chance even lower.

Grading 2018 Predictions

I make predictions at the beginning of every year, and at the end of the year, I grade them. Science and the gathering of knowledge requires making predictions to test your models and see how they work in the real world. Most pundits on TV make predictions without weights attached to them. I’ve placed levels of confidence for each prediction with the odds I would bet on those outcomes in the vein of Bryan Caplan. I’ve created a chart at the end to show my calibration versus perfect calibration.

Predictions for 2018:

World Events

Trump Approval Rating end of year <50% (Gallup): 95%
Trump Approval Rating end of year <45% (Gallup): 90%
Trump Approval Rating end of year < 40% (Gallup): 80%
US will not get involved in any new major war with death toll of > 100 US soldiers: 60%
No single terrorist attack in the USA will kill > 100 people: 95%
The UK will not fully leave the EU this year: 99%
No country will leave the Euro (adopt another currency as their national currency): 80%
North Korea will still be controlled by the Kim dynasty: 95%
~~North Korea will conduct a nuclear test this year: 70%~~
~~North Korea will conduct a missile test this year: 95%~~
Yemeni civil war will still be happening: 70%
~~S&P 500 2018 >10% growth: 60%~~
~~S&P 500 will be between 2500 and 3200: 80% (80% confidence interval)~~
Unemployment rate December 2018 < 6%: 80%
Unemployment rate December 2018 < 5%: 60%
~~WTI Crude Oil price up by 10%: 60%~~
~~Price of Bitcoin > $10,000: 70%~~
Price of Bitcoin < $30,000: 60%
Price of Bitcoin < $100,000: 70%
Lightning Network available (I can complete a transaction on LN): 80%
Drivechain development “complete”: 70%
Drivechain opcodes not soft-forked into Bitcoin: 70%
No drivechains soft-forked into existence: 95%
US government does not make Bitcoin ownership or exchange illegal: 90%
Self-driving cars will not be available this year for general purchase: 95%
Self-driving cars will not be available this year to purchase / legally operate for < $100k: 99%
I will not be able to buy trips on self-driving cars from Uber/Lyft in a location I am living: 95%
I will not be able to buy a trip on a self-driving car from Uber/Lyft without a backup employee in the car anywhere in the US: 90%
Humans will not be in lunar orbit in 2018: 95%
SpaceX Falcon Heavy rocket will attempt to launch this year (can fail on launch): 95%
SpaceX will not bring humans to low earth orbit: 60%
No SpaceX rockets explode without launching their payload to orbit: 60%
Mexican government does not pay for wall: 99%
Border wall construction not complete by end of 2018: 99%
Some increased spending on immigration through expanding CBP, ICE, or the border fence: 80% (oh yeah)
No full year US government budget will be passed (only several months spending): 90%
US National Debt to increase by more than 2017 increase (~$500B): 70%
~~Increase in spending or action on Drug War (e.g. raiding marijuana dispensaries, increased spending on DEA, etc): 70%~~
Some tariffs raised: 90% (a lot on China)
The US will not significantly change its relationship to NAFTA: 70%
Federal government institutes some interference with state level legal marijuana: 70% (hard to say)
Trump administration does not file a lawsuit against any news organization for defamation: 90%
Mexican government does not pay for wall 99% (repeat)
Trump not removed from office (also no Trump resignation): 95%
Democrats do not win control of Senate: 60%
Democrats win control of House: 60%

Postlibertarian

postlibertarian.com to have 10 new posts by July 1, 2018: 80%
postlibertarian.com to have 20 new posts this year: 80%
~~Postlibertarian to have more hits than last year: 70%~~

Of items I marked as 60% confident, 7 were correct out of 9.
Of items I marked as 70% confident, 7 were correct out of 11.
Of items I marked as 80% confident, 7 were correct out of 8.
Of items I marked as 90% confident, 6 were correct out of 6.
Of items I marked as 95% confident, 9 were correct out of 10.
Of items I marked as 99% confident, 4 were correct out of 4.

It appears I was pretty underconfident on my 60% predictions. Interestingly, that’s also where I did worst last year. There were only 9 total predictions at 60% confidence, so the ideal would have been to have 5 of those correct. Of those, I likely should have been more confident on SpaceX missing its then current estimate of launching a crewed mission by the end of 2018. Indeed, I’m not sure what I’d predict their chances are of launching a crewed flight in 2019, as I couldn’t imagine it being higher than 70% right now, but we’ll see. My bitcoin price predictions were again somewhat laughable as they were last year.

I suspect I have a systemic calibration issue with 60% confidence level predictions. Over the past two years I’ve been 17/22 or 77.3%. which is distinctly higher than my 70% confidence predictions. Still, that’s not a huge sample size, but I’m not sure exactly how I can be relatively correct or even slightly overconfident in my 70% predictions, but be *more often correct* about my 60% predictions which I don’t claim to know as much about.

I hope to post my 2019 predictions soon, but unfortunately my day job has had to take priority early this year. If you’d like to combat the opportunity cost of me working on this blog instead of real paying work, feel free to send me some Bitcoin at the address in the sidebar (
13bhBWyRDAePCNEejZoxCqeFvdXyiFQfYc ), or if Bitcoin is too annoying, just share your favorite of my blog posts from last year with your friends on or off the internet. Thanks!

Public Domain Days Should Be Better

For the first time in 21 years, on January 1st works entered the public domain as their copyrights expired. This is both a major victory and a crushing defeat for IP freedom, depending on your expectations. Copyright terms have been continually expanded for decades, and so many people expected 2018 to see a battle as Congress tried to extend copyright terms yet again.

This failed to materialize. Timothy B. Lee at Ars Technica says that the mere threat of internet activism made this a battle the entertainment industry could not win:

“There’s now a well-organized, grassroots lobby against copyright expansion,” Grimmelmann tells Ars. “There are large business interests now on the anti-expansion side. Also a wide popular movement that they can tie it into.”
The rise of the Internet and its remix culture means that a lot of people now benefit from a growing public domain in ways that weren’t true in 1998. That includes big companies like Google, but it also includes grassroots communities like Wikipedia editors and Reddit users. This emerging copyright reform coalition flexed its lobbying muscles in 2012 when it overwhelmingly defeated an Internet filtering bill called the Stop Online Piracy Act.

So that’s pretty awesome. However, we should note that the current copyright length of 95 years is still a horrific travesty. I’ve written about this before, so I will quickly summarize some points and add a couple additional ones. First, copyright is not like other forms of property; it’s an agreement between artists and the state to provide monopoly control over a work of art for a specific period of time in order to provide an incentive for creative works. The law should find an optimum between allowing people to build upon works creatively and rewarding artists for their creations, but because the benefits of copyrights and concentrated and the costs of long copyright terms are diffuse and hidden, we now have very long copyright lengths.

It’s excellent that we won’t be getting longer copyright terms this year, but they should be much shorter. The fact remains that works that will expire between now and 2038 should never have had their copyrights extended. In fact, there is no argument that currently copyrighted works should ever be extended! They are already invented, meaning the copyright law has done its job. Copyright extensions should only work prospectively, encouraging new works that wouldn’t be created otherwise. Does current copyright length optimize for both creating works and allowing new works to build off of old ones? It’s unlikely.

One reason the copyright trade-off seems far too protective is that artists are simply not planning 95 years in the future. I don’t have hard evidence on this, but that may be because psychologists have never bothered to check whether humans plan 100 years in the future because it’s such a ridiculous proposition that no one would take their experiment seriously. There are for example, plenty of articles wondering why humans don’t do things that would obviously benefit them, like evacuating from a flood zone when a hurricane is coming. Moreover, even if you “took humans out of the equation” and had a systematic, long term time horizon corporation investing in creative works with a discount rate of 5%, cutting the length of copyright from 95 years to 50 years keeps over 92% of the net present value. In other words, even if you had a long term planning vehicle that avoided human psychological pitfalls, the vast majority of works would still be created today.

Finally, because the length of copyrights is so long, we are creating orphaned works (see the Center for the Public Domain). It would be nice in theory that artists’ estates are collecting royalties for 95 years. But in reality, only artists who were quite successful during their lifetime could afford to set up an estate who could license out their works. Many works are just so old that we have no idea who owns the copyright, and it’s literally impossible to license them if we wanted to. This problem will only get worse as more and more copyrighted works come from after 1976 when all creative works automatically received a copyright without any registration. One result of this policy is that some works will be lost forever; the physical media upon which the works were originally recorded like paper and film are literally disintegrating. People today have no incentive to digitize works as copyright claims could appear making their work unprofitable. Our current policy helps a few highly successful copyright holders while making it too expensive to bother preserving or remaking the work of all others, not to mention the hidden cost of lost derivative works.

So absolutely, let’s celebrate that we finally have a Public Domain Day for the first time in 20 years, but let’s not overlook the problems that still exist.

Martian Constitution Brainstorming

This post started out as an attempt to draft an actual constitution for a Martian colony. It quickly became apparent that such a project was pretty difficult and relied on too many variables. Consequently, it’s apparent that before writing a constitution, we have to discuss all the decisions and challenges surrounding what sort of constitution should exist in the first place. Elon Musk talked a while back about possible governing mechanisms and it seemed to me that he had evidently not thought about it very hard.

Any discussion of Martian law isn’t complete without starting with the similar governing international treaties we have right now. This Cato Institute piece by Edward Hudgins from 20 years ago is actually a good place to look. I’ll be summarizing his discussion here.

The Antarctic Treaty was signed by most large countries in the world and leaves Antarctica for scientific research and ecological preservation. Economic activity is essentially banned. Hudgins states: “This clearly is not the model for Mars.” Next is the UN Convention on Law of the Sea, which the US has never signed, although it largely agrees with the treaty as codification of maritime law. Hudgins opposes it citing provisions that could be used to “tax” economic activity in the open ocean and redistributed to inland countries. Practically speaking, I couldn’t find any evidence of such a thing happening, but I’m not familiar with fishing in international waters, and I’m sure someone else who knew more could properly complain about it, as one can about all human governance systems. I would state that this treaty doesn’t seem like a good model for Martian colonies either.

Hudgins next discusses the INTELSAT agreement, but that was privatized into the Intelsat corporation in 2001. Apparently it was an attempt to have an intergovernmental organization that provided communications between countries. I don’t have enough information to see whether it was better or worse one way or the other, but I find it telling that it was privatized and has remained so.

I should note that I’m not the only one that has been thinking about governance on Mars. There was a short-lived (as far as I can tell) conference called the International Extraterrestrial Liberty Conference, mentioned in this BBC article. Scientists and philosophers brainstormed about potential constitutions on Mars as well as legal and economic problems we might see. The astrobiologist mentioned in the article, Charles Cockell, actually has two books published, alluded to in the 2014 BBC article: Dissent, Revolution and Liberty Beyond Earth, and its follow up Human Governance Beyond Earth. Both are over $100 and I run this blog as a fun hobby, so I will not be buying them. Maybe Dr. Cockell has figured out all the problems with human space exploration himself, but I doubt it.

Next, take a look at James P. Howard’s presentation on the topic. Howard has an interesting background of computational statistics and public policy, but I don’t believe Martian law is his main subject matter (he also publicly admits to supporting the Ex-Im Bank??). Nonetheless, his was one of the easier discussions of Martian law I could find. He discusses the history of law in areas of colonization and establishing of states. We can expect that Mars, like past colonization in the New World, will have some sort of government pretty quickly, and it will have some democratic components. Howard also points out that we are unlikely to see a “global” Martian government, especially right away. Colonies will be small, sent by nation-states or companies, and they will be separate. Local self-government will be the most important form, as governance from Earth seems too remote.

A major takeaway from looking into this was that there is little research available in this area, yet plans are being made to go to Mars in a very short period of time. There should be work done on the relevant questions prior to going, but many remain unanswered. Meanwhile Elon Musk is tweeting that his Martian colony will be run by direct democracy, but what about its relationship with SpaceX, the U.S. company? Will it be subsidized? Will it receive free shipments of goods? If it doesn’t, is anyone able to be sued? What about its relationship to the United States? Will there be courts? Will there be a police force? How many people will be transported there before some of these governmental structures are in place? Some institutional structures should be predetermined, but which ones? What will be done on the fly by colonists who are also trying not die from all the lack of air, water, food, and radiation shielding on Mars?

There needs to be a comprehensive research project at SpaceX looking into what sort of legal system will exist on the Martian surface, and what can be planned out. All of these questions are also intertwined. If the colony is reliant on Earth corporations for shipments of goods, then the company has de facto veto power on any legal changes the colonists propose. Protections of colonist rights ought to be written down prior to any life or death crisis arising. Colonists will be presumably given all sorts of training in terms of physics, chemistry, rocketry, healthcare, etc. In a group any larger than a dozen or so, there will soon be the need for law, and I don’t think current efforts have begun to tackle it.

I wanted to go into a deep discussion of the minutiae of different governing and voting systems in order to tinker and figure out which system is the “best”. It’s quite possible that eventually the Martian surface will house many different colonies that can experiment in governance, but right now the concern isn’t that a Martian local government won’t have planned for an efficient voting system, but rather that there won’t be any good planning for governance at all.

Bitcoin and Energy: Everything is Actually OK

I found many arguments that Bitcoin wastes energy to be lacking, so I decided to write up this post. However, it’s gotten pretty technical, so be warned.

TL;DR:

Bitcoin is an economic activity like any other, and thus it has associated input costs that are paid for by its users. Its costs just happen to be very clear and singular (electricity)
I go over several technical ways we could change the Bitcoin protocol to achieve Pareto improvements and why I don’t think they would work, or work only marginally.
I discuss how Bitcoin counterintuitively may help renewable energy rather than just rack up carbon emissions.

Economically Efficient

I’m defining “wasteful” as economically inefficient.

First, why I think referring to Bitcoin’s energy consumption in terms of economic efficiency makes sense.

Bitcoin mining is economic activity. It provides the service of securing and running the Bitcoin network. Like all economic services, there are costs associated with providing it. Reddit is a website that provides the service of an online forum and discussion, and it has associated costs. Some people don’t use Reddit or find that Reddit is a time sink, they might say that Reddit is “wasteful”, after all, they don’t use it, and they could think of better things to do with the resources. In another example, some people might be uninterested in baseball and thus believe that the New York Yankees are a waste of resources. They use space for their stadium, training facilities, and offices, they use energy to run those facilities, and they use advertising space to promote their organization where more useful things could be advertised, like charity. I think this usage of “wasteful” is fine for both Bitcoin and the New York Yankees, but this seems to be more an argument about preferences or about Bitcoin being a bad thing that exists in the world regardless of its resource use. There’s nothing really economically inefficient with Reddit’s existence or the existence of the Yankees; people want the services those organizations provide, they provide them, and they fund it through ads on a website or ticket sales to baseball games.

Bitcoin mining provides something that literally didn’t exist before 2009; the ability to send digital value across the internet with no third parties, or at least no specific third parties. This is technically impressive and apparently highly valuable. To do this, the Bitcoin network had to solve all the problems normally solved by the banking and payment system, including how to prove authentication when sending money, how to check you actually have the money you are sending, how to avoid double spending, how to achieve consensus on the current state of the network and transactions, and how to survive malicious attacks on the network, all without state support, or in fact any third party of any kind. This is remarkable, and to provide this difficult service securely, the network relies on Proof-of-work by miners. Just like the New York Yankees, Bitcoin’s services aren’t used by everyone, yet they still have costs associated with with providing their services, used by many around the world. This work done by miners isn’t wasted any more than the Yankees’ investment in staff, facilities, or their brand.

So how do Bitcoin “consumers” pay for their service? Each transaction has a fee associated with it, which is given as a reward to miners for including the transaction into the next “block” or batch of transactions. Additionally, the protocol slowly adds new Bitcoin into the system by including a block reward for the miner who finds that block. Thus each block has a reward for the miner, which is what Bitcoin users are “paying” to miners to keep the network safe.

In fact, this is where articles that discuss how much energy Bitcoin is using come from: they are taking the current market value of the block reward (12.5 Bitcoin @ $5000/Bitcoin today) and multiplying that out for a year. One block every 10 minutes and 525,960 minutes in a year means 52,596 blocks worth a total block reward of $3.3 billion a year and probably more with transaction fees. Bitcoin mining is competitive; you only get the block reward if you solve the hashing problem first. Consequently, margins are tight. That means there are big incentives to only use the most efficient hardware (efficient in terms of hashes/kilowatt hour) and the cheapest electricity. Depending on your estimate of what miners are paying for electricity, you can divide 8 cents a kilowatt hour or whatever into the ~$3.5 billion to get a these massive energy estimates. Of course, we should note we don’t really know what percent of earnings goes into R&D for ASIC design and manufacturing costs, rent, etc.

But in my view, it doesn’t really matter; all of these costs are paid for by Bitcoin users in order to use the network. The energy input into the Bitcoin network is determined by the block reward and price of Bitcoin; if Bitcoin and Bitcoin transactions are in demand, the block reward is higher, and miners spend more resources on energy and chip manufacturing. If the demand is lower, they spend less. It’s analogous to people who pay to go to Yankees games; if the demand is higher and fans are willing to pay more for tickets, the Yankees can spend that on advertising, improving the stadium, or getting better players, etc.

Technical Improvement Proposals

Next, technical counterarguments would demonstrate that this ability to send value across the internet with no third party can be done for cheaper than is currently available with Bitcoin. I will now go over the best arguments I know of.

No Block Reward

Currently, miners complete work through hashing to solve a difficult problem. The problem can only be completed with brute force, meaning you just need to run as many hashes as possible to solve the problem. The way this is done today is with specialized hardware and electricity as noted above. However, it is a protocol design that Bitcoins are added to the network with each block that is mined (and this is a pretty useful idea for bootstrapping a digital currency when none existed). We can quickly imagine a cryptocurrency that is identical to Bitcoin except no new coins are added, the ~17 million that currently exist are the grand total. Each block only gets transaction fees rewarded to the miners.

It seems in this case that we have recreated all the value of the Bitcoin network for users, but have reduced the input of electricity on the cost side. Ignoring the usefulness of the block reward for bootstrapping Bitcoin, isn’t this an efficiency gain?

It depends on how liquid and efficient the Bitcoin/dollar exchange market is. If Bitcoin was unexpectedly changed so that no more coins were created, the market cap of Bitcoin (total units of account * exchange rate per unit) would soar, by the net present value of all future coins that are no longer going to be produced. It’s hard to say exactly what that is, but it’s about 3.6 million coins, with the majority produced in the next 10 years. The value would be at least a few billion dollars, maybe as high as $10 billion depending on the discount rate. The current market cap is about $87 billion so that’s not a huge percent increase in price, but it’d be notable. That means if transaction fees in Bitcoin remained constant, in dollars they’d increase by a similar amount forever, unlike the fixed block reward which decreases over time.

In an efficient market, we’d expect this increase in transaction costs due to the higher market price of Bitcoin to exactly offset the reduction in block reward. In other words, current Bitcoin holders are “paying” for the block reward though a reduction in net present value of Bitcoins they hold today. Simply removing the block reward doesn’t change that, it just moves value around.

However, markets may not be that efficient. Dollar/Bitcoin exchanges seem relatively liquid, but they are certainly less liquid than traditional stocks. Additionally, I’m not sure you can borrow money from an exchange to invest in Bitcoin, which is also a sign of an underdeveloped market. So we can imagine a hypothetical world where the Bitcoin protocol originally had much smaller block rewards or had reduced its block reward more quickly. In this world, it’s possible we could achieve a net decrease in total energy expended even with a likely higher price. However, I’m not sure we could know which direction the market inefficiencies would go; perhaps the price of Bitcoin would “stick” higher, meaning higher priced transactions outweigh the reduced block reward.

A final point to be made for this counterargument; transaction costs don’t have to remain constant in Bitcoin terms in this hypothetical. If Bitcoin prices go up, transaction costs might remain the same in constant dollars since users will probably continue to demand transaction space on the blockchain at the same level as before. We do however, have empirical evidence that transaction fees in dollars have correlated with the dollar/Bitcoin exchange rate, and even perhaps in pure Bitcoin terms.

If this argument is true (and so far I don’t believe it is), it should also be noted that it would imply Bitcoin will get more efficient over time as it moves towards smaller block rewards.

Inefficiencies Due to Fixed Bitcoin Protocol Constants (Block Size)

In a theoretical free and efficient market, consumers demand goods with downsloping demand curves, producers supply the good with upward sloping supply curves. Where the curves meet, there is a market clearing price and quantity. In Bitcoin, consumers demand transactions (or transaction space) on the blockchain, but producers don’t produce blockchain space; they produce hashrate, or perhaps “security”. The transaction space is fixed by protocol.

This means that total transaction fees could theoretically be lower if the fixed transaction space (i.e. block size) was changed. This would be determined by the slope of the demand curve for Bitcoin transactions. A shallower slope would mean shifting the supply curve to the right will increase the value of total transaction fees, even if each individual fee drops. A steeper one would mean total transaction fees could drop. It’s been pretty common for Bitcoin blocks to be less than the maximum for the past year, so I’m skeptical that a larger block size would lead to a drop in total transaction fees, and I suspect even if it there was a drop, I don’t think it would be massive in magnitude. Nonetheless, I think this is an argument that Bitcoin could achieve the same ends and be slightly less wasteful, but it needs more empirical evidence.

Proof-of-Stake

This section is a reiteration of Paul Sztorc’s “Nothing is Cheaper Than Proof of Work”.

Suppose instead of hashing and Proof of Work, new transaction fees went to current holders of Bitcoin. This “Proof-of-Stake” would demonstrate commitment to the blockchain’s success not through investment of mining hardware but rather direct demonstration of stake in the blockchain through ownership of the currency.

Firstly, I still have some doubts that this allocation of new currency can actually be done without any actual work. Casper (Ethereum’s proposed Proof of Stake system) requires some calculation as to which random number to pick, which determines which staked coins get the transaction fees. It would be highly valuable to affect that calculation, and it seems optimistic to suggest there will be no way to influence it. But Ethereum isn’t my specialty, so I’ll concede it’s actually possible despite it not existing today.

In Bitcoin, miners spend the equivalent of the block reward and transaction fees every 10 minutes in order to compete and be in the best position to obtain that reward. In Proof-of-Stake, Validators still have to deposit coins to be staked. They risk these coins, because if they misbehave and disagree with other Validators, they can lose them. The amount deposited determines likelihood of receiving the transaction fees, and so these are just a form of “bonds”. Returns to bonds are analogous to returns to mining resources. Value locked up in bonds could have been used in other more productive parts of the economy. The opportunity cost isn’t as externally obvious as the electricity used in Bitcoin mining, but it is nonetheless there and it is identical. Locking up value in validation bonds isn’t a permanent thing, whereas investing time, money, ASICs, R&D, and electricity in Bitcoin mining cements that value into silicon and heat which can only be used for one thing. Thus the returns to mining are going to be higher on a per percentage basis to account for the increased risk.

We already pointed out that the cost of Bitcoin mining is a consequence of the block reward. The block reward if Bitcoin switched to a Proof-of-Stake system would still be the same. But because buying validation bonds isn’t as risky as tying up resources permanently into silicon and electricity, there will be significantly more resources tied up in Proof-of-Stake for any given level of block reward/transaction fees (because the market will keep putting more until the rate of return reaches the market rate for the given risk level). There is thus no free lunch with Proof-of-Stake; users of Bitcoin are auctioning off a block reward/block transaction fees worth of value every 10 minutes, and so a competitive market will form to always provide that value at that opportunity cost, whether that cost is through validation bonds or mining.

My view here is agnostic on whether PoS is a “better” system than PoW, just that PoS doesn’t eliminate the mining cost from the system.

“Useful Work”

What if you used Bitcoin mining to do “useful work”? One counterpoint is that mining is already useful work, since Bitcoin users are paying billions of dollars for it a year. Another is that using Bitcoin for some useful work wouldn’t change anything if miners can capture the benefit of the useful work. For example, using mining rigs for heating in the winter allows you to profit more. But this is equivalent to an increase in mining ASIC efficiency which happens all the time. The network uses this extra efficiency to increase the hashrate, the difficulty level adjusts (the network aims to always have a new block average every 10 minutes) and we are back to where we were, same energy used, but now with a higher hashrate.

However, what about useful work that was a positive externality? For example, finding prime numbers? Assuming away all the difficulties with this specific example, like how hashes are much easier to check than prime numbers, if the work resulted in a true positive externality public good, like information becoming public, then that has to be an efficiency gain.

It should be noted that the work can’t be too useful because if it’s profitable enough where any single individual could benefit given the cost to mine, then lots of people would start mining for the benefit of the work itself. In which case, this would be treated again like an increase in efficiency with the difficulty level increasing significantly until the marginal cost of mining again equaled the total marginal revenue of both block reward/transaction costs and the public good. But assuming it’s not usually profitable, the benefits could be so spread out across society that there is no way for an individual to benefit, yet there benefit at the societal level. I just don’t see “finding prime numbers” as fulfilling that value, but I’m open to other suggestions. Given the current value of mining is over $3.5 billion a year, I think the useful work would have to have a value that’s a significant fraction of that to matter in terms of efficiency gain.

Carbon Emissions, Regulatory Arbitrage, and Renewal Energy

Bitcoin mining is location independent. That means it will only be undertaken in locations where the input values are cheapest in the world. We don’t actually know where Bitcoin mining is done, but we have some guesses based on information in blocks mined by companies and where the coins are deposited (see this article). The majority is certainly in China due to proximity of the world’s computer manufacturing base there. Miners in other countries would have to wait for mining material to be shipped to them, which could be out of date by the time it gets there. Eventually, we would expect diminishing returns to slow the rate of improvements in ASICs, which would allow non-Chinese miners to utilize mining equipment before it becomes antiquated. That means they could use their locally low price of electricity to their advantage.

That also means that the Bitcoin network could be optimizing for polluting energy, like fossil fuels that are incorrectly priced (i.e. lack of carbon tax). A country that creates a carbon tax would make fossil fuel energy more expensive, and Bitcoin miners there unprofitable, so they might switch to a country without a carbon tax, thus polluting more. This is a regulatory arbitrage and is an efficiency loss.

However, there are caveats to this argument. One is that many countries, including the ones with the most Bitcoin miners, China and the U.S., never had carbon taxes. Bitcoin blew up there because of their technical advancement and network effects of their tech economies (hardware and software respectively). If they were to implement carbon taxes, and miners then left, that would be an inefficiency brought about by Bitcoin.

Another caveat is that Bitcoin is highly efficient in finding the cheapest energy sources. Many renewable sources of energy are very cheap on a per kilowatt hour basis, and so Bitcoin has actually acted as an incentive for expanding renewable energy (see Morocco).

Bitcoin’s monetary existence, unstable though it is, provides a floor underneath which states can no longer mismanage their currency, or else those states risk their population turning to Bitcoin instead. Similarly, Bitcoin mining’s existence means that there is a floor under which local energy prices won’t be able to drop. This is good, as locally cheap (not globally cheap!) energy means that demand is lower relative to supply in a given area, but it’s too expensive to build transmission lines to other areas where energy is more in need. Compared to a world without Bitcoin mining, mining creates value from cheap local energy which can then be transported digitally. The beneficiaries are the users of Bitcoin who get a payment network that literally didn’t exist before. It is paid for with locally cheap energy around the world that had excess supply. There are also secondary effects as users and miners are better off and the wealth effect on their behavior will be to increase some spending, some of which should enrich people who live in already energy expensive areas. This means some people in expensive energy areas will see a cheaper relative cost of energy.

Final Notes

A couple other arguments that I hear a lot but I don’t consider to be challenges to this view.

Bitcoin mining leads to centralization. This is true empirically, but not an argument that it’s wasteful, just that it’s bad for Bitcoin.
Bitcoin uses a lot of energy. This is basically the argument I’m opposing and it is very common. I’m not saying Bitcoin doesn’t use a lot of energy, I’m saying it provides a service and has associated costs and expenses.
Bitcoin has no use cases. The empirical evidence seems to contradict this, as billions of dollars of Bitcoin transactions happen every day. If you need some more discussion on what Bitcoin is used for, check out my previous post on the subject, or check out this useful page from the EFF on how payment service providers can be used to censor free speech.