We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Positive Money

Positive Money want to end fractional reserve banking and have the state create money directly. According to them, when quantitative easing created £375 billion, only £30 billion was made available for the government to spend, at a time when construction workers were being laid off and school building plans to fix leaky buildings were cancelled (which juxtaposition made for a nice Facebook meme). The quantitative easing also caused a stock market bubble and made some rich people even richer.

Instead, the government could have simply invented some sovereign money, debt free with no bookkeeping, and paid the builders to fix the schools. No unemployment and happy children.

Detlev Schlichter points out that it is the government who encourage fractional reserve banking, and all that really needs to happen is for them to stop doing this and banks will create some money but not nearly as much. Also, having the state create money is no less a recipe for disaster than having the banks do it, and maybe more of a disaster. The same economic distortions will apply.

If I attempt to apply Detlev’s thinking, I imagine that perhaps the state invents lots of money and gives it to schools to spend on building repairs. Suddenly the demand for construction is skyrocketing. Prices go through the roof. This stimulates supply. Software developers and professional bloggers quit their jobs for better paid jobs in the construction industry. Whole new construction businesses are started. Pensioners put all their savings into construction industry shares. And then all the school buildings get repaired, and the government moves on to curing some other perceived shortage, and the construction bubble bursts and you are back to having unemployed construction workers and starving pensioners.

Now, Positive Money responded to Detlev Schlichter. It turns out they more or less agree with him — apart from the bit about how we do not need anyone at all to create money, which they never got around to addressing directly but I gather from their criticism of Bitcoin is because they think without inflation people will speculate and not spend. But, importantly, they do not trust politicians to control the money supply either. It turns out they think some sort of “public and transparent body” can do it.

The whole thing strikes me as wishful thinking. It sounds so good it might even get somewhere. You get to bash bankers and have free money and keep politics out of it. All you need is for the public and transparent body to stay truly transparent and public and be able to manipulate the economy with precision from a central point of control. What could possibly go wrong?

David Friedman on prediction

Mathematical physicist John Baez made a Google Plus post about finding trends in data. David Friedman responded. My emphasis:

The problem is that, absent a theory, you don’t know what the shape of the function should be and different assumptions about the shape will lead to very different fits. If the ultimate reason to fit the curve is to test a theory and the person doing the fitting wants to believe in the theory, as we often do, it’s tempting to find some functional form that gives a result producing the desired outcome. I gather there is now even software out there that will do the specification search for you. The researcher can to some extent control the problem by specifying his form in advance, but there is always the temptation, if the result turns out wrong, to find some reason to try a different form—and if you don’t do so and as a result don’t publish, someone else with better luck in his first try or fewer scruples does. In the limiting case you try a hundred specifications and report the best fit as confirmed at the .01 level—the same result you would get with a hundred tries on random data. And the same thing can happen with a hundred perfectly honest researchers if only the significant result ends up published.

One solution, of course, is to make your data freely available so that other people can analyze it for themselves. The other solution, and the one that I think best from the standpoint of an outsider trying to decide whose theories and models to believe, is to evaluate by prediction rather than by the fit to past data. If the model is wrong and looks right when applied to past data because the past data was used to choose the specification and parameters, it is quite likely to go wrong on future data.

After being in lots of online arguments on climate issues, I decided to apply that approach to the IPCC models. I concluded that they had done a worse job of predicting the rate of warming than a straight line fit from 1910, when the current warming trend started, to the date of the first IPCC report. That strikes me as a reason to have low confidence in current projections coming out of the same approach.

For details see:

http://daviddfriedman.blogspot.com/2014/03/have-past-ipcc-temperature.html

And for a more general sketch of the argument for taking prediction as better evidence of a correct theory than the fit to past data, see:

http://daviddfriedman.blogspot.com/2010/03/prediction-vs-explanation.html

Update: What is particularly fascinating to me is the idea that 100 perfectly honest researchers will make models and by chance one of the models will validate against old data and that is the one that gets published. So there is a publication bias.

Food banks

Food banks provide invaluable support for families on the breadline but the fact they are needed in 21st Century Scotland, as across the UK, is a stain on our national conscience.

So says Jamie Livingstone, head of Oxfam Scotland, in a report on the increase in the use of food banks. Quite right too. That the nation has allowed its state to impede economic growth to such an extent is indeed a stain on its conscience. The nation should probably do something about that. Food should cost almost nothing by now.

The report said changes to the welfare systems, low and stagnant wages and increases in food prices were all contributing to the increase in numbers.

Indeed: welfare makes the nation dependent on an ever expanding state, inhibiting the growth that would make food prices fall in relation to human labour prices.

Of course I am quoting out of context. What Oxfam and the Trussell Trust, who co-authored the report, are really saying is that more state welfare is needed.

All your bank accounts are belong to us

HMRC wants to make withdrawals from your bank account if it thinks you owe it money. As a commenter on Reddit noted, “This is actually very good for bitcoin.” It is also very good for gold, paper money stashed under the matress, property, and anything else that is not keeping money in a bank account.

Back-pedalling

Even the best democracies agree that when a major war approaches, democracy must be put on hold for the time being. I have a feeling that climate change may be an issue as severe as a war. It may be necessary to put democracy on hold for a while.

James Lovelock in 2010.

The Revenge of Gaia was over the top, but we were all so taken in by the perfect correlation between temperature and CO2 in the ice-core analyses [from the ice-sheets of Greenland and Antarctica, studied since the 1980s]. You could draw a straight line relating temperature and CO2, and it was such a temptation for everyone to say, “Well, with CO2 rising we can say in such and such a year it will be this hot.” It was a mistake we all made.

James Lovelock in 2014.

When asked what the next 100 years will be like: “That’s impossible to answer. All I can say is that it will be nowhere as near as bad as the worst-case scenario.”

Incidentally, I am skeptical that heat is disappearing into the oceans, as he now appears to think. I think it is much more likely that the positive feedback needed to achieve high sensitivity to carbon dioxide doubling simply does not exist. Nonetheless, respect is due to James Lovelock for admitting a mistake. Let’s see if the rest of the global warming movement follows suit.

The Heartbleed bug

The Heartbleed bug is one of the more serious computer security vulnerabilities I have seen. It was discovered yesterday and is just starting to hit mainstream media now, so I will summarise my understanding of it.

It affects some web sites that use HTTPS secure connections. The purpose of HTTPS is, among other things, to encrypt data sent between your computer and the web server, so that anyone who sees the data in transit across the internet cannot read it. So it is used whenever you log in to a web site or enter personal information. You know you are using it when your web browser displays a little padlock icon somewhere.

The bug is in a software library that implements HTTPS, called OpenSSL. Not all web sites use this library, but many do. The bug affects certain versions of the library. Importantly, though, the bug has been in the library since December 2011, and has only recently been detected and fixed.

During this time, an attacker who knew about the bug could send a request to a web server, and get back some random information from the server’s memory that should not be public. This information could be almost anything known by the web server software. It is a lucky dip: the attacker can not choose what information he will get. Importantly, though, it can include server certificates, and user names and passwords of the web site’s users.

Having obtained a certificate, an attacker could spy on data transferred from the user to the web site, including passwords and any information entered. This is not trivial, but can be quite easy in certain circumstances. For example, anyone can sit in a coffee shop and intercept WiFi traffic of other customers using WiFi in the shop, but they will only get information about the other coffee shop customers. On the other hand, the NSA can presumably spy on all data sent to any web site. There will be attackers with levels of sophistication between these extremes. Normally a web browser will shout warnings at you if a HTTPS connection has been intercepted. Having a web site’s certificate enables an attacker to silence such warnings.

User names and passwords can also be obtained directly using the Heartbleed bug. This only happens on certain web sites, and the details retrieved are random. It is not possible to quickly obtain all details of all users. Rather, every time the attack is made, one or two users’ details might be revealed. That said, the attack can be repeated, and in two years it can be repeated a lot. So a determined attacker could gather details of many people in this time. This is real. Users on Reddit were claiming to have seen Yahoo Mail passwords as recently as a few hours ago. Right now, Yahoo Mail is fixed.

So what can you do? Realise that you are affected, but don’t panic. There is a very good chance none of your details have leaked. You can not be certain, but you already were not certain. There are likely many more security holes that are not yet common knowledge. However, on services that you have particularly sensitive information, it would be wise to first check that the bug has been fixed, and then change your password.

You can check if the bug currently affects a given service with an online tool. If the service is at all high profile, it is a fairly safe bet that it is already fixed. But you can not tell if your details or a service’s certificate have been leaked in the past. Unless a service takes action, credentials and certificates obtained in the last two years can still be used by attackers to log in or spy on communications. Hopefully web administrators will communicate whether they have been affected and whether they have changed their certificates, so watch for announcements.

When you change your passwords, now is a good time to stop using the same password for every service you use. Start using a password manager such as LastPass, 1Password or Password Safe. All of these are acceptably safe in my opinion, but there is some interesting discussion on this topic. The great thing is that a password manager will generate a different, random, impossible to guess password for each site you use, meaning that if someone does find out your password to one service, the damage is limited to that service.

If a service offers two factor authentication, where you use a smartphone app which generates an ever-changing code, use that, because it means knowing your password alone is useless to an attacker.

If you run a web server that uses HTTPS and handles users’ information, educate yourself, upgrade, and inform your users.

More generally, if you can possibly arrange to live your life under the assumption that everything you have ever done on the internet could become public knowledge tomorrow, you could save yourself a lot of trouble. Keeping secrets is hard.

Georgian welfare

I am reading Pride and Prejudice, annotated by David M. Stoppard. It’s the part of the novel where Elizabeth is starting to figure out that Darcy might be an all right bloke after all. Mrs Gardiner and Darcy’s housekeeper are discussing him:

“His father was an excellent man,” said Mrs Gardiner.

“Yes Ma’am, that he was indeed; and his son will be just like him — just as affable to the poor.” [34]

Note 34 reads:

Helping the poor was an important function for one in Darcy’s position. The large numbers of people in this society with meager incomes, and the fairly limited means of public support available, meant that the need for such assistance was often great, especially in years of poor harvests.

Shortly after, and related:

“He is the best landlord, and the best master,” said she, “that ever lived. Not like the wild young men now-a-days, who think of nothing but themselves. There is not one of his tenants or servants but what will give him a good name. [37]

Note 37 reads:

The tenants would be those renting land on the estate and farming it; they could have frequent reason to deal with the owner, especially since owners could help fund improvements to the land that would raise productivity and benefit both owner and tenant.

So it turns out that it is not the case that the state is the only thing standing in the way of the rich laughing as the poor starve. And poor harvests? Thanks to globalisation, the “poor” have it easy now-a-days.

Picking battles

I found this comment from a business owner (correction, “Chief Architect of BitcoinStore“) poignant. The context is that it is a response to people moaning about Reddit moderators removing links to a hacked database file, but it is widely applicable. Now I am middle class with children I find myself going along with a lot of things that I would really prefer to fight against.

I haven’t been able to look through the leak fully myself (still setting up the VM) but the fact still remains that this is stolen property containing other peoples’ data. If you fear what the people in fancy costumes with guns will do to you, you comply with their demands. That’s not censorship, that’s self-preservation. [ ...] Sadly it doesn’t change the fact that there are people with guns who will take your money, lock you in a cage or just plain beat/kill you for not complying with their version of the rules.

For example, at BitcoinStore we state true value on exports and that results in citizens of some countries being charged absurdly high import tariffs (VAT). Our customers don’t like this and neither do we. We’re repeatedly asked to state false value, but we never do. We don’t do this because we agree with the concept of VAT or the idea of being forced to reveal the value or contents of a shipment, but because the people with guns can and will take away our money, freedom and lives.

Does the threat of having our awesome stuff taken away reduce the amount of awesome stuff we could have? Yep. Is it horrible terrible bullshit? Yep. Will they still put us in a cage no matter how much we are against them having the power to do so? Yep.

As a group of freedom-loving people it is indeed our responsibility to change all of these things, remake the world in a more favorable image, but we also must recognize that we are NOT the side that has all the guns, tanks and political power. We’re the side throwing rocks at the people with M16s and we need to behave accordingly. It doesn’t mean we shouldn’t fight, it means we need to be smart about it.

This is guerilla warfare, we fight only the battles we know we can win and we take all the weapons we can off our fallen enemies we can carry. A series of small wins makes us stronger and we can go after bigger wins with time. Charging headlong into the enemy is suicide.

Smart tactics, not loud voices will win this fight. Choose your battles.

Dominic Frisby at Brian’s

I attended Dominic Frisby’s talk at Brian’s, and Brian asked me to write about what I learned.

The talk did not get far into the technicalities of Bitcoin, which was good for me as I already think I know most of it. Until recently I knew some of it, and two articles by Ken Shirriff completed that picture.

But Dominic is not the quiet, contemplative, theoretical person that I am. When he wants to find something out, he goes out and talks to people. This means he has lots of stories. And so I learnt of his experiences attending a Bitcoin auction under a marquee in a London back-street (the most culturally diverse gathering he has ever attended), talking to wealthy Bitcoin owners who live in squats and are part of the Occupy movement, and exploring the myriad Darknet marketplaces that have sprung up after the demise of Silk Road. He compared Bitcoin now to Rock and Roll in the 50s. People are doing it for fun, with irreverence, but also a sense that it is something big and uncontrollable, and with the same pattern of reaction from authorities: horror gradually giving way to acceptance.

This irreverence is particularly on display with the alternative crypto-currency (or altcoin) Dogecoin, which I think should be pronounced doggy-coin because there is a picture of a dog on its logo, but everyone else pronounced it with the o from go and a soft j. Dogecoin was spun off from Bitcoin as a joke, but is finding uses in micropayments because you can pay tiny amounts with big, psychologically pleasing numbers. I actually mined some Dogecoin the evening before the talk, because I wanted to try out mining and it turns out you can’t mine Bitcoins without specialised hardware, but you can mine altcoins. I currently have 600 Dogecoins worth 40p.

A developer of a Dogecoin smartphone app was in attendance, and he told the story of a Dogecoin fundraiser that managed to send the Jamaican bobsleigh team and Luger Shiva Keshavan from India (who became known as the Underdoge) to the Winter Olympics. We all discussed the usefulness of microtransactions for tipping the authors of interesting blog posts. They might need this when all the newspapers run out of money. Here is my Dogecoin address, by the way, hint hint, I have no shame:

dogecoin_qr

Before the talk I was confused about altcoins, wondering why anyone would make yet another crypto-currency, but now I understand. There was discussion about how Bitcoin might fall, be replaced by something else, and eventually there will be a winner. But the other view in the room, and the one I favour, is of all these currencies co-existing. Partly they will compete, and partly they will serve different functions. For example, there will only ever be 21 million Bitcoins but there will be 5 million new Dogecoins every year forever. It is possible that Bitcoin will be used as a store of value and other currencies will be used for daily spending. Whatever inconvenience this causes can be solved with good software: whoever solves it first will be the new Paypal.

There are lots of problems impeding the mainstream acceptance of Bitcoin, and a sense that people are working on solving all of them. The demise of the exchange Mt.Gox will lead to better security practices such as distributed signatures, ways of auditing banks, and peer to peer exchanges. People who want more safety will get deposit insurance and wallets pegged to fiat currencies. And there is no shortage of convenient payment methods. There is even a Bitcoin vending machine in London.

The other cool thing I did that evening was buy a signed copy of Dominic Frisby’s book Life After The State for 0.03 BTC (he would have accepted less, but the novelty of the transaction made me generous). I’ll be sure to read his Bitcoin book, too.

What is happening with Bitcoin

It looks as if a large Bitcoin exchange, Mt.Gox, has disappeared, along with large numbers of customers’ Bitcoins. The sequence of events is described in one Reddit post, and the media reaction is predicted in another, along with some advice:

…the lesson is not that we ought to seek out “regulation” to save us from the evils and incompetence of man. For the regulators are men too, and wield the very same evil and incompetence, only enshrined in an authority from which it can wreck amplified and far more insidious destruction. Let us not retreat from our rising platform only to cower back underneath the deranged machinations of Leviathan.

In general, Reddit seems to be the best source of information.

There are people predicting that this is the end of Bitcoin, and others pointing out that Mt.Gox is just an exchange, and not a very well run one at that, so good riddance because Mt.Gox has been blamed for price fluctuations in the past. Of course, there will be no state bailout. We might be about to learn what happens to a free market currency in a big crisis.

Inflation is higher for the poor

I keep saying that if you care about poor people, you should be a libertarian.

The Institute for Fiscal Studies is pointing out that while poorer people are paying more for food and fuel, richer people are enjoying low interest rates. So government spending and borrowing and the artificially low interest rates that go along with that are harmful to poor people, as are taxes on fuel, and income tax on minimum wage earners, and countless other instances of state meddling.

Real money and a small state lead to high growth which makes everyone richer.

The state does not care about you

Doing the rounds on Facebook is a story about a cancer patient told by the Department of Work and Pensions that she contributed to her illness and therefore does not qualify for some amount of welfare payment. One commenter points out that she probably broke some rule, such as drinking too much or not going to some medical appointment or other. Debate ensues about whether such rules are fair.

There are more such stories on a blog called Benefit Tales, such as the the man who died in a freezing flat after the DWP stopped payments to him because he did not attend an assessment, because they sent the letter demanding that he attend the assessment to the wrong address.

The problem is centralisation. A government department can not know exactly how ill a certain individual feels today, and it will not visit you to find out why you did not attend an appointment. It certainly can not just pay money to anyone who asks for help because there are too many of those, so it must make rules, write letters and feed forms into computers. Letters go missing and no rigid set of rules will make sense for every single complicated human. But by demanding that the state looks after everyone, such centralisation is just what welfare state supporters are asking for.

It is much better to look not to the state for help, but to one’s friends and neighbours. They are the ones who know just how ill you are and can knock on your door and make sure you are all right. And if they were allowed to hold on to a little more of their money, they might be able to club together and pay your heating bill and bring you groceries. Similarly, private charities, because they can choose who they help, are better placed to more efficiently allocate their resources to the most deserving.

As usual, public debate misses alternatives to the state. A television programme about people on benefits recently aired, and the mainstream media helpfully divides people into those who think welfare recipients are undeserving and those who think they need more help. The result is that the state is asked to do more to help people, and do more to stop cheats, frauds and the undeserving. Few think to ask the state to do less.

But, as Perry’s quote of yesterday says, it makes no sense to ask the state to look after people. If you want to look after the poor and the chronically ill, be a libertarian: take the money and the power away from the heartless state and leave it in the hands of people who care.