Month: June 2012

Germany Should Exit the Euro

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Red Jahncke posits that it should be Germany, and not Greece, that should exit the euro. The stance is controversial, but here is his logic:

A Greek exit from the currency union would make the situation even worse. There is no mechanism to decide, or deal with, whichever nation might be next, and even that presumes that exits could be managed. The more terrifying prospect is that the other afflicted countries might exit in an uncontrollable panic, complete with bank runs, failures and general disarray. The accompanying repudiation of hundreds of billions of euros in debt would overstrain the European financial system, even Germany’s. The global economy would be paralyzed as everyone wondered which domino would be next to fall.

What, then, might a German exit do? With integration and multiple restructurings so unlikely and withdrawal of the weak members so fraught, it might actually be the best of all available options.

A single, powerful nation would have the best shot at executing a relatively swift exit that would be over before anyone could panic. No agonizing over who exits and who doesn’t. Stripped of its German export powerhouse, the euro would depreciate sharply, but would not become a virtually worthless currency, as, for example, any re-issued Greek drachma surely would. With the euro devalued, a Greek exit and devaluation would be relatively pointless. So, no contagion or bank runs. With new exchange rates making all the non-euro financial havens prohibitively expensive, and with the threat of forced conversion into devalued national currencies removed, depositors in southern Europe would lose their impetus to run.

Additionally,

Germany’s exit would provide immediate benefits to all the remaining euro-area nations. The currency depreciation would radically improve their trade competitiveness — exactly what many observers have said the weaker nations in the south need most. The euro area’s balance of payments would improve, providing sorely needed funds to service its external debt. The benefits would accrue to the euro area as a whole, as opposed to serial exits at the weak end of the spectrum, which would crush one weak nation after another, with each exit increasing pressure on the next candidate.

Read the rest of the piece here.

Anticipating the World’s Most Expensive Natural Disaster

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Outside of an asteroid hitting a densely populated area, the world’s biggest catastrophe will likely happen in Tokyo, Japan. It’s not a question of if, but when:

Thinking and writing about such matters is unsettling, but we have learned two great lessons from many modern disasters: 1) our response to them is always initially more chaotic and less effective than envisaged in model scenarios; but 2) a higher degree of preparedness can make a substantial difference, both in avoided death and injury and in property damage.

Earthquakes cannot be predicted, but probabilistic appraisals are another matter. Bozkurt et al. used more than 10,000 observations of earthquake intensity accumulated since 1600 to estimate that the probability of severe shaking in Tokyo is 30 to 40 percent during an average 30-year period. In 2006, the Earthquake Research Committee of Japan estimated the probability of an earthquake with the epicenter beneath northern Tokyo Bay at 70 percent in the next 30 years, with the area including Tokyo, Chiba, Saitama, and Kanagawa experiencing shaking of at least magnitude 6, and 25 million people, or 20 percent of Japan’s total population, affected—an event unprecedented in global history.

In the constructed scenario, the earthquake occurs at 6 p.m. on a winter day and damage was calculated for two wind speeds: about 22 km/hour and for a very windy evening with 54 km/hour (the latter average being an unlikely maximum based on the wind speed during the Great Kanto Earthquake of 1923). This was the first time estimates were made for many types of damage a major earthquake would trigger in the world’s largest metropolis. According to this scenario, there would be about 6,400 instant deaths (more than half of them due to fires) and more than 160,000 severely injured people, many of whom would die because they could not be rapidly transported to hospitals, and emergency wards would be taxed far beyond their capacity. Even with the city’s extraordinary advances in earthquake-proof construction, the scenario expects about 462,000 damaged buildings (no tsunami would reach the city in this scenario).

Much larger numbers of people would be affected in many other ways, lasting hours to months. The city that is the global paragon of long-distance urban commuting would see both its highways and railways cut at more than 600 sites and would lose almost a fifth of its electricity supply (all subways and railways are electrified), and hence nearly 4.5 million people would not be able to return home. Even a day later, their number would be still just shy of 4 million. Should the earthquake happen during the coldest part of the year, the city would face a globally unprecedented task of finding emergency shelters for 4 million people who would also be thirsty and hungry.

The most pressing structural challenge would be to restore utilities. At least a third of water supply infrastructure would be damaged, as would close to 20 percent of natural gas flows and more than 20 percent of sewage facilities. The city would face the task of removing about 40 million tons of debris, mostly a jumble of concrete and metals. After 2011’s Tohoku earthquake, the Cabinet Office for Disaster Management revisited these estimates, putting the death toll at 11,000 people, injuries at 210,000, collapsed buildings numbering more than 850,000 (650,000 due to fires), and the total economic loss exceeding ¥112 trillion.

With Japan’s GDP in 2010 being about ¥540 trillion, the damage would be equivalent to at least 20 percent of the country’s annual economic product. As already noted, the country’s GDP (all figures adjusted for inflation) fell by less than 5 percent in 1923, the year of Tokyo’s last great quake, and the war-induced GDP decline was on the order of 50 percent (no value is available for 1945 but in 1946 the economic product was 45 percent below the 1944 level). By any measure, a virtually instant loss of 20 percent of economic product in the world’s third-largest economy would be a disaster of historic, and unprecedented, significance.

We can only do so much to prepare against Mother Nature’s wrath…

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(via Farnam Street)

Apple after Steve Jobs

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In an interview with Wall Street Journal columnists Kara Swisher and Walt Mossberg, Apple CEO Tim Cook offers a few answers on Apple after Steve Jobs:

Q: How is Apple different with you as the CEO? What did you learn from Steve?

Cook:  I learned that focus is key, not just in running a company but in your personal life. You can only do so many things great, and you should cast aside everything else.Another thing that Steve taught us all was to not focus on the past. If you’ve done something great or terrible, forget it and go on and create the next thing. When I say that I’m not going to witness or permit the change, I’m talking about the thing that’s most important in Apple—the culture of Apple. Am I going to change anything? Of course.

Q: At any one time, there is only one new iPhone. That’s not the way you did it with the iPod; that’s not the way you did it with the Mac. Why don’t you have more than one iPhone, and why don’t you have more than one iPad?

Cook: Our North Star is to make the best product. Our objective isn’t to make this design for this kind of price point or make this design for this arbitrary schedule or line up other things or have X number of phones. I think one of our advantages is that we’re not fragmented. We have one app store, so you know what app store to go to. We have one phone with one screen size with one resolution, so it’s pretty simple if you’re a developer developing for this platform.

Perhaps the most succinct point that Cook tries to make in the interview: Apple is still about making great products. It’s not about becoming a trillion dollar company. By making great products, other good things will follow.

On Essay Grading Software

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The future for essay grading isn’t looking too bright (or is, depending on how you look at it). This New York Times piece details the advancement of machine grading:

As essay-scoring software becomes more sophisticated, it could be put to classroom use for any type of writing assignment throughout the school year, not just in an end-of-year assessment. Instead of the teacher filling the essay with the markings that flag problems, the software could do so. The software could also effortlessly supply full explanations and practice exercises that address the problems — and grade those, too.

Tom Vander Ark, chief executive of OpenEd Solutions, a consulting firm that is working with the Hewlett Foundation, says the cost of commercial essay-grading software is now $10 to $20 a student per year. But as the technology improves and the costs drop, he expects that it will be incorporated into the word processing software that all students use.

As the article attests, it is still easy to game software by feeding in essays filled with factual nonsense that a human would notice instantly but software could not. For this reason, I hope the complete automation of grading isn’t left to the machines anytime soon.

Appsurd: The Jokester Apps in Silicon Valley

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The Wall Street Journal profiles a few apps/services which have launched in Silicon Valley, but have been regarded as fake. When the goal is to push something out there, even if it’s a joke, how do people respond? As the founder of Jotly said, “Let’s think of the most ridiculous possible app that no one would ever consider a real thing, and make that…”

On the TacoCopter:

Meanwhile, the creators of TacoCopter, a service for delivering tacos with drone-like miniature helicopters, would love to have their idea taken so seriously.

After the project’s website got noticed in March, comedian Stephen Colbert and others treated it as a farce, and tech-news site Wired.com called it “completely fake.” (A Wired spokesman declined to comment.) Federal regulations prohibit commercial use of such devices.

But the creators say that they fully intend to launch the venture once the law changes, and one of them recently held a test flight overseas with the help of some fans. (The test aircraft crashed seconds after the taco was placed on board.)

So how do you differentiate all the apps out there?

Those seeking inspiration for the perfect pitch—or prank—might look at Itsthisforthat.com, which generates often absurd capsule descriptions of Internet start-ups by mashing up existing business concepts and buzzwords.

The site, which according to its creators has attracted more than 100,000 unique visitors, asks “Wait, what does your start-up do?” and follows with an ever-rotating set of descriptions such as “So, basically, it’s like a Google Analytics for Laundromats,” or, “like a news recommender for beer,” or, “like an Airbnb for restrooms,” a reference to the room-rental exchange for tourists.

Fun stuff.

A Fire Balloon for Ray Bradbury

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Ray Bradbury, the master of science fiction, died yesterday at age 91. The New York Times has a memorable obituary.

What I wanted to highlight is Bradbury’s last piece for The New Yorker, where the author writes about his relationship with his grandfather and the inspiration for his short story, “The Fire Balloons”:

While I remained earthbound, I would time-travel, listening to the grownups, who on warm nights gathered outside on the lawns and porches to talk and reminisce. At the end of the Fourth of July, after the uncles had their cigars and philosophical discussions, and the aunts, nephews, and cousins had their ice-cream cones or lemonade, and we’d exhausted all the fireworks, it was the special time, the sad time, the time of beauty. It was the time of the fire balloons.

Even at that age, I was beginning to perceive the endings of things, like this lovely paper light. I had already lost my grandfather, who went away for good when I was five. I remember him so well: the two of us on the lawn in front of the porch, with twenty relatives for an audience, and the paper balloon held between us for a final moment, filled with warm exhalations, ready to go.

Very touching. RIP, Ray Bradbury.

On Gambler’s Fallacy in Blackjack

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Jonathan Adler has penned an excellent guest post on Felix Salmon’s blog regarding the gambler’s fallacy when playing blackjack:

Blackjack is a game where it is easy to fall prey to the gambler’s fallacy. As a player, if you receive several losing hands in a row it is easy to think that you’re “due” for a winning hand. However since each hand is essentially an independent event (and I’ll get back to this later), the number of losses you have had in a row doesn’t change chance of you getting a win on your next hand. Even if you get a run of bad hands in a row, your next hand is still just about as likely to lose as the previous one, similar to the situation with flipping a coin.

Adler then recounts the story of hedge fund manager Michael Geismar and how he was able to work with a different gambling strategy:

Lawrence Delevingne’s story on Michael Geismar’s time in Vegas is a great anecdote showing that people in charge of billions of dollars on Wall Street don’t understand the idea of shifting risk. After hearing Ben Mizrech speak, Geismar was seen using a betting strategy to try and improve his winnings at the blackjack table. After every winning hand, he would increase his bet by $1,000. After a losing hand he would lower his bet. The article doesn’t say by how much, but let’s assume after losing a hand he would reset his bet to $1,000.

This betting strategy has the opposite effect the one described before; instead of having a single win wipe out previous losses, a single loss will wipe out much of the earlier winnings. On most sequences of hands Geismar would lose money, but occasionally he will have an unlikely winning streak and make a very large amount. Instead of shifting the downside risk to the tail events, Geismar shifted the upside risk to tail events. Over time this betting strategy is expected to lose Geismar money, just like all other betting strategies. But Geismar fell victim to the gambler’s fallacy: he thought that a run of winnings changed the chance of getting another winning hand.

The takeaway is this: any kind of gambling strategy that you devise will not work against the house in the long run. Card counting can give you an edge, but it’s extremely difficult to put into practice.

I myself have been prone to devise gambling strategies when playing blackjack, and reading Adler’s post serves as affirmation that doing so doesn’t work. That interlude of Geismar’s lucky streak is just a major deviation, a long tail event.

Michael Lewis on the Role of Luck

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Michael Lewis’s Liar’s Poker and Moneyball are some of my favorite books I’ve read in the last few years. So it was with delight that I read Lewis’s commencement speech to the most recent graduating class at Princeton. The speech is worth reading in entirety, but the core of the message is: people don’t give enough credit to luck in their success. Lewis makes it clear via his life narrative, because shortly after he published Liar’s Poker:

I was 28 years old. I had a career, a little fame, a small fortune and a new life narrative. All of a sudden people were telling me I was born to be a writer. This was absurd. Even I could see there was another, truer narrative, with luck as its theme. What were the odds of being seated at that dinner next to that Salomon Brothers lady? Of landing inside the best Wall Street firm from which to write the story of an age? Of landing in the seat with the best view of the business? Of having parents who didn’t disinherit me but instead sighed and said “do it if you must?” Of having had that sense of must kindled inside me by a professor of art history at Princeton? Of having been let into Princeton in the first place?

This isn’t just false humility. It’s false humility with a point. My case illustrates how success is always rationalized. People really don’t like to hear success explained away as luck — especially successful people. As they age, and succeed, people feel their success was somehow inevitable. They don’t want to acknowledge the role played by accident in their lives. There is a reason for this: the world does not want to acknowledge it either. 

Lewis also talks about Moneyball and exploiting underlying data:

If you use better data, you can find better values; there are always market inefficiencies to exploit, and so on. But it has a broader and less practical message: don’t be deceived by life’s outcomes. Life’s outcomes, while not entirely random, have a huge amount of luck baked into them. Above all, recognize that if you have had success, you have also had luck — and with  luck comes obligation. You owe a debt, and not just to your Gods. You owe a debt to the unlucky.

If you graduated from Princeton (or any college, for that matter), then Lewis’s point should be lucid by now:

[Y]ou must sense its arbitrary aspect: you are the lucky few. Lucky in your parents, lucky in your country, lucky that a place like Princeton exists that can take in lucky people, introduce them to other lucky people, and increase their chances of becoming even luckier.

Excellent.

Très Brooklyn in Paris

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The New York Times profiles a fascinating trend of the food truck invading Paris, France. Whereas the general notion is that American food consists of large portions and greasy food, in Paris:

…American food is suddenly being seen as more than just restauration rapide. Among young Parisians, there is currently no greater praise for cuisine than “très Brooklyn,” a term that signifies a particularly cool combination of informality, creativity and quality.

All three of those traits come together in the American food trucks that have just opened here, including Cantine California, which sells tacos stuffed with organic meat (still a rarity in France), and a hugely popular burger truck called Le Camion Qui Fume (The Smoking Truck), owned by Kristin Frederick, a California native who graduated from culinary school here.

Kristin Frederick, the owner, received pushback before opening:

“I got every kind of push-back… People said: ‘The French will never eat on the street. The French will never eat with their hands. They will never pay good money for food from a truck.’ ” (Her burger with fries costs 10 euros, about $13.)

So how well is the truck doing?

Since the truck’s opening day, Ms. Frederick said, it has sold every last burger on every shift. And it has received the kind of publicity most chefs can only dream about. Its first weeks were covered obsessively on the many English-language blogs — Hip Paris, David Lebovitz, Paris by Mouth and Lost in Cheeseland — that chronicle the food scene here.

Read the entire story here.

Innovations That Will Change Your Tomorrow

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The New York Times has an excellent infographic showcasing 32 inventions that “will change your tomorrow.” The presentation and text behind the inventions is excellent. Here are the ones that stood out in my mind:

#10: Doctor on Board.Your car is already able to call for help when an accident occurs, but within a few years, it’ll tip paramedics off to probable injuries too. E.M.T.’s would know the likelihood of internal bleeding or traumatic head injury, for example, before arriving on the scene, which would help them decide whether to move you to a Level 1 trauma center or a standard emergency room.

This one is a real surprise to me:

#16: Your Body, Your Login. A team of Dutch and Italian researchers has found that the way you move your phone to your ear while answering a call is as distinct as a fingerprint. You take it up at a speed and angle that’s almost impossible for others to replicate. Which makes it a more reliable password than anything you’d come up with yourself. 

Is a world without hangovers a good thing?

#20: A world without hangovers. Researchers at Imperial College London are closing in on a formula for a new kind of booze — synthetic alcohol, it’s called — that would forever eliminate the next morning’s headache (not to mention other problems associated with drinking). The team, led by David Nutt, a psychiatrist and former British drug czar, has identified six compounds similar to benzodiazepines — a broad class of psychoactive drugs — that won’t get you rip-roaring drunk but will definitely provide a buzz.

Fire extinguishers contain toxic chemicals, so:

#27. A new firefighter.According to the program’s manager, Dr. Matt Goodman, an electric field destabilizes the flame’s underlying structure rather than blanketing the fire to smother it. Eventually, the technology could be used to create escape routes or extinguish fires without damaging sensitive equipment nearby.

See all of the 32 inventions here. Excellent list and food for thought.