Archive for April, 2012

Your computer and you

Saturday, April 21st, 2012

If you are reading this post, you are likely reading it on a computer. The computer responds to your typing and clicking and allows you to find information which exists somewhere far away. Some of that information was sent specifically to you (e.g., your email), and some of that information was available to anyone who knew where to look (e.g., this blog post). Here the computer is a communication tool, and gets information from other people to you.

While typing an email, maybe you have spell-correct on – every word that you type is checked in the dictionary, and when it doesn’t appear in the dictionary the word is highlighted and suggestions for the correct spelling appear. The computer isn’t doing anything you didn’t know how to do – you might not know how to spell every word, but with enough time you could have looked up every word in the dictionary – it’s impractical but not impossible.

If you couldn’t find your word in the dictionary however, how would you have tried to discover the right spelling? The way the computer does it is to compare your word against all the words in the dictionary and then display the words that are most similar. The number that is used for describing similarity (the Levenshtein disctance) is calculated in a very clever way, and so the computer can do this quite fast. This part takes many more steps than just trying to find every word in the dictionary, and is quite impossible to do by hand.

When it comes to physical work, the difference between describing how to do something and actually doing it is quite obvious. Imagining in my head how I would carry an empty bucket down the stairs and carry back a bucket full of water takes no effort and no time, while actually doing it would cause me much physical strain and about 20 minutes.

Mental work is the same. If I gave you two 10-digit numbers, I’m pretty sure you would know how to multiply them using just a piece of paper. Again, there is a distinction between knowing how to do it and actually doing it. I can be pretty confident of multiplying two numbers together with a piece of paper even though I don’t yet know what the answer is.

We have a name for the symbolic work that is done when we know how to get an answer and are merely following those steps and actually finding out what the answer is. We call it computation, and it is what your computer does well.

A manager’s job includes knowing how to instruct and delegate. A manager uses his time efficiently by teaching an employee how to do something and being able to do something else while the employee is doing the thing.

Computers have made this type of work more common for non-managers – if you can describe precisely all the simple steps that need to be done then you can save time as you will only have to spend time describing new tasks while the computer handles all the repetition.

Related reading: School for quants

Writing life stories

Friday, April 20th, 2012

In the past few months, I’ve seen several people grow dissatisfied with their lives and seek change by quitting their jobs and going back to school. The less creative ones choose business school, the more creative ones spend a few months in France studying French.

There’s a demand for something more, a search for greater satisfaction. People know what they don’t like, and are willing to invest time and money (especially for MBAs) to get change, especially change that is legitimized by broader society.

I absorbed a specific set of aesthetic preferences over the time I was in school. I enjoy technical stories — stories which are specific and precise with respect to certain types of details. I acquired a definite bar for understanding, and feel a special joy when I learn enough about a new topic that it crosses that bar.

This description of what it is that I picked up sounds very good, and that’s not a coincidence. Education is significant in promoting skill acquisition, but it is often the effects on identity and motivation that are the most overwhelming. I feel good when I say good things about myself, and so I persist in doing that.

Objectively, it is the rules of storytelling which govern how good a particular life story sounds. Even though in theory everything you need for self-deception is inside your head, thankfully it isn’t that easy.

There’s no accounting for the lack of taste in stories though. I can imagine that for some who genuinely couldn’t tell between a good story and a bad one, self-deception would also be a difficult trap to avoid.

How to Study

Thursday, April 19th, 2012

The veritasium guy talks about the importance of independent thought to learning. I think that often when you mention independent thought, people immediately see it in terms of creativity and expression and other artsy concepts. As Derek explains in this video, however, independent thinking has benefits that go beyond originality – it is also a great source of efficiency in learning, as constructing a coherent and consistent worldview in your head means that many things get checked and re-iterated every time you come across a new fact.

Truly impressive science education videos

Wednesday, April 18th, 2012

If you were to ask people to name some science popularizers, they might name Stephen Hawking or Neil deGrasse Tyson. Veritasium impresses me a lot more.

The thing about the types of questions that Hawking or Tyson raise is that they are not the types of questions that people think of themselves as being able to answer. Yes I am made of stardust, sure, but knowing that fact doesn’t change anything I do in real life, and wasn’t something I thought I could answer in the first place.

The Veritasium videos, on the other hand, are full of simple surprises:

I’ve tried to amuse other people with these videos and been disappointed to find them un-amused. I suspect this is largely because to appreciate these things you need to have had expectations to begin with.

Children are easy to amuse because they are actively learning about the world, and have a constant cycle of assumption formation and surprise and learning going on; as people grow older, they come to accept that they can’t know about everything.

There are many different ways of not knowing, however. The attitude imbued by scientific training is a very constructive one, where ignorance is recognized as being transient and resources can be invested if a piece of knowledge is deemed valuable enough.

The most unfortunate attitude I’ve come across is cynical resignation and almost total lack of curiosity — such people are often also beset by what they see as injustices big and small as they are buffeted by the world in directions which, through their ignorance, they see as random and unchangeable. Many of them turn dualist / spiritual, and in an effort to avoid being wrong resort to beliefs that are not even wrong.

Exponential money fallacy / paradox

Tuesday, April 17th, 2012

After posting a stub of a blog post previously, I was surprised to see my friend CH comment on the post in facebook right away. Knowing that people actually see these posts is very encouraging. Readers, I am trying to write one post a day – the quality will not be that high in the beginning, and that’s why I need the practice. I am having difficulty picking topics – they are mostly either too dry (like today) or too personal for me to want to write about publicly – would appreciate any suggestions you might have.

Today I will address the exponential money paradox. This is a puzzle that is raised by newcomers to the concept of fractional reserve banking, the prevalent form of banking today.

An Economics Puzzle

The $100 bill

It’s a cold day in the small Saskatchewan town of Pumphandle and streets are deserted.  Times are tough, everybody is in debt, and everybody is living on credit.

A traveler comes to town and lays a $100 bill on the hotel desk saying he wants to inspect the rooms upstairs to pick one for the night.

As soon as he walks upstairs, the hotel owner grabs the bill and runs next door to pay his debt to the butcher.

The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.

The pig farmer takes the $100 and heads off to pay his bill to his supplier, the Co-op.

The guy at the Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her “services” on credit.

The hooker rushes to the hotel and pays off her room bill with the hotel owner.

The hotel proprietor then places the $100 back on the counter so the traveler will not suspect anything.

At that moment the traveler comes down the stairs, states that the rooms are not satisfactory, picks up the $100 bill and leaves.

No one produced anything.  No one earned anything….

However, the whole town is now out of debt and now looks to the future with a lot more optimism.

The paradox

One criticism posits that since debt and the interest on the debt can only be paid in the same form of money, the total debt (principal plus interest) can never be paid in a debt-based monetary system unless more money is created through the same process. For example: if 100 credits are created and loaned into the economy at 10% per year, at the end of the year 110 credits will be needed to pay the loan and extinguish the debt. However, since the additional 10 credits does not yet exist, it too must be borrowed. This implies that debt must grow exponentially in order for the monetary system to remain solvent.

Credit and money are somewhat indistinguishable in our world. The flipside of credit is debt, and the picture that the exponential money paradox conjurs is that of a borrower who borrows to pay the interest on outstanding debt. This is an unsustainable situation, as the amount owed will thus grow exponentially and eventually overwhelm the borrower. People mistakenly (and vaguely) imagine that fractional-reserve banking dooms us to this type of failure.

The mistake made in picturing this scenario is in keeping track of where all the money goes and comes from. The relevant phrase to examine is “since the additional 10 credits does not yet exist”. In this statement, there is a confusion between the stock of money and the flow of money. The payment of interest is a flow, not a stock – unlike the principal amount, there is no accounting identity that relates the amount of interest paid to the amount of the loan. The process by which deposits come into existence under fractional reserve banking mark the loan value at the original principal amount loaned out, and says nothing about the interest amount.

The loan then sits in the bank’s book and generates interest income, and after subtracting costs, the net income accrues to the owners of the bank. Since the interest is a flow, it can be paid by moving money in a circle – the bank owners withdraw the cash, and go for a nice meal at the new restaurant downtown, and the restaurant uses that money to pay the interest on its mortgage – this results in no money creation.

However, if the restaurant was not making money, it could have gone to the bank for another loan to pay the interest. Instead of handing the bank owner a nice meal, they are handing the bank an IOU. This new loan is backed by bank equity, but not at a 1:1 ratio. In this scenario, money is indeed created.

Does this mean that if I borrowed money and invested in a bank, a lot of money gets created? Well, the hope here is that it would be recognized that your loan was a risky loan which needed to be backed at a 1:1 ratio. Loans backed 1:1 do not create money.


There are enough possibilities that the soundness or unsoundness of fractional-reserve banking is empirical and cannot be concluded by thought experiments.

Habit Forge

Monday, April 16th, 2012

Habit Forge is a webapp which emails you regularly with a simple question. In my case, that simple question is “Have you written a blog post today?” – tomorrow I will be able to click “Yes”.