A quick note on the lottery

The jackpot is going to be over $500 million dollars. Even though there is a 1 in 171 million chance of winning, factoring in taxes and the increased chances of splitting the jackpot means that the ticket is only mildly positive expected value, at best.  Factoring in the time cost of checking the numbers probably makes it negative EV. Any strategy that involves picking numbers that are marginally less likely to be shared (sticking to numbers that aren't part of birthdays) also incurs a time cost versus getting random numbers, and the advantage is not likely to be worth it.  So it's entirely rational not to play even now unless a person enjoys the lottery process itself.

Three thoughts:

1. This is a great advertisement for the lottery.

2. It would be interesting to see how often these types of jack pots occurred in private lotteries if competition with the state was legal. Given that  this is great advertising and a private market lotteries would have to give a higher percentage in payouts due to competition and that this is a great form of advertising it might be a more common occurrence.

3. Some companies will probably do large company pools and buy a lot of tickets. If any of them win the big jackpot, it would destroy that company. This is especially true for start ups.

Full disclosure: I have never bought lottery tickets before, but now I am long a few tickets. 

A surprising prediction?

Tyler Cowen mentions that they are now asking people what their most surprising prediction is instead of their most absurd belief. In many ways these are the same thing, except now the belief has to a prediction of the future.

His prediction is something that I thought wasn't that surprising, a lot of people think that real wages are going to stagnate in the non-resource rich developed world over the next ten years due to the failure of innovation to keep up with factor price equalization with the developing world. It's mostly interesting because right leaning economists usually like talking about how important it is to understand the consequences of long run compounding economic growth (This is a TED talk by his coblogger/coauthor Alex Taborrok).  

Tyler Cowen did write a book about how there isn't enough innovation. My takeaway from it was that the economy as a percent of GDP is consisting more of in health care, government spending and education and these are areas where innovation is stalled for reasons relating to either government regulation, signaling constraints on new competitors (I may have gotten this part more from the GMU related economist blog posts than the book) or some combination of the two. It's nice to see him giving some weight to factor price equalization in his latest prediction, because in his book he pretended that real median wage was measuring technological progress uninfluenced by the relative advancements of the developing world.

So what would my surprising prediction be?

The internet is going to become more closed and regulated over the next 10 years.

The problem is I'm not sure that this is very surprising either. It's just a combination of a few facts:

1. The US government as it is currently run is not very good at saying "no" to copyright holders. The failure their lobbyists to pass SOPA shows how much needs to be done just to halt the expansion of their control.

2. People are spending more of their time on controlled networks like Facebook already so they are slowly becoming more comfortable with the idea of a controlled internet.

3. As shown by California finally taking steps towards collecting sales tax from Amazon, people aren't as worried about the government regulating activity on the internet.

4. In the past few years there have been an increasing amount of high profile cases of foreign hackers. Steps will be taken to stop them, these steps might not work, but they will be used to justify more controls.

I hope that I'm wrong.

Update on what's going on the world

It's been a while since I've posted, so I thought I'd give a brief overview of what's been happening around the world.

1. The US primaries continue. The media loves a foot race, and there is enough happening for them to be able to spend a lot of ink looking into who raised money when. Still, unless Romney drops below 60% it probably isn't worth paying much attention to the details. The details, including tonight's debate, is entertainment masquerading as something relatively important. 

2. There is a Greece deal! For everyone (holding Grek debt)!  Well, the collective action clause won't apply to the ECB who swapped their bonds for a version that won't be impacted by the change in Greek law, but they will give up their profits on the debt they acquired below notional value.  It's too bad no one really thinks this will work out well for Greece or those who are dedicated to funding Greece in the long run, but the can has been kicked! Let's see how far it will roll this time. As long as inflation expectations remain low and the LTRO's continue the can should continue to roll.

3. The nuclear Iran issue seems to be heating up. One way to measure this is to look at news stories. Another way is to look at crude markets, the WTI - BRENT spread is driven by both the glut of oil around Cushing and the geopolitical risks pushing Brent oil up.

 When both the Israeli defense minister and US defense secretary are talking to the Economist about an Israeli strike on Iran and sanctions are currently being tried then it isn't just a lot of hot air. With Iran not cooperating with IAEA inspectors it seems like something is going to happen there soon.

There is also a lot of talk about austerity given the situation that many Western countries find themselves in, but when they don't take into account monetary policy's reaction to fiscal stimulus it feels like I'm reading one side of the debate. 

Betting on facts - Showing confidence

Everyone is very focused on Romney's offer of a $10,000 bet. I'm wondering why if he was so certain that he was right he didn't offer Rick Perry odds at (let's say) 2 to 1 up to $10,000. It probably still wouldn't be that good a move politically, but making someone put their money where their mouth is better done a way that doesn't emphasize how that person has lot less money when one is running for office in a country with a significant unemployment problem. Either he did actually lose control and wanted to assert dominance or he forgot that his peers in this presidential race aren't going to act like his peers in the business world. Someone worth $2.8 million should be able to afford a $10,000 bet if they are confident enough about their facts, but Rick Perry either knew he was wrong or knew that this was an opportunity to outmaneuver Romney politically. 

Tight Money and Ron Paul

One of the worst things for Libertarians about the Bush presidency was that the public associated Bush's failed economic policies with free market economics. This is despite Bush's policies being at most only rhetorically free market. The tax cuts were supposedly part of a "starve the beast" philosophy but throughout Bush's presidency government spending did not decrease and he actually increased future entitlements when it came to Medicare Part D. It was a "Have your cake and eat it too" policy, or as the Italians say "You want your barrel full (of wine) and your wife drunk." And rather than decreasing regulation he increased it by signing laws such as Sarbanes-Oxley, a bill that makes it very expensive for small businesses to raise money in the public markets. 

If Ron Paul were elected, he would do a lot of good. He'd be able to stop prosecuting the ridiculous drug war and would work to reduce a lot of the ridiculous regulatory red tape in our economy.  However, he would also do what he could to enforce a very tight monetary policy.  It's unclear how much he could sway the Fed, but the explicit threat of losing their independence could prevent them from easing when needed in the future. In fact, it might be a large part of what is currently holding them back from easing more now even though nominal GDP is so far below trend.

As much as Ron Paul would do a lot of good it would be unfortunate if the public came to associate libertarian policies with low economic growth due to an excessively tight monetary policy.  

However, with Ron Paul only in second place in Iowa and without a broader base of support this is still a very unlikely event (7% on intrade). And if this ever became a real issue I would categorize it as a high class problem.

99% Leftist

When Mr Hayes says that "very powerful interests will brand this as 'left' rather than 99%", he is right, if by "very powerful interests" he means "all the Americans who recognise that the 99%-er message is coming almost entirely from the left". This is certainly a large and powerful group, commonly knows as "Republicans".

While on the topic of the 1%, it is interesting to know that the level of wealth (as opposed to income) controlled by the 1% is actually still significantly below levels in the 1920's and early 1930's.

Assorted links

1. Well, maybe this will help the unemployment problem among some lawyers... (HT: MR)

2. Fisher explains his dissent in the recent FOMC vote. He starts with a joke tying a sign at a Norwegian military base to monetary policy...

“Theory is when you understand everything, but nothing works.”

“Practice is when everything works, but nobody understands why.”

“At this station, theory and practice are united, so nothing works and nobody understands why.”

3. Should utilitarians promote utilitarianism

"They found a strong link between utilitarian answers to moral dilemmas (push the fat guy off the bridge) and personalities that were psychopathic, Machiavellian or tended to view life as meaningless."

4. Eurozone timeline. What could possibly go wrong?

Assorted Links - Europe and nukes

1. A 1998 economist article on German Unions. They seem to have acted rationally in the face of globalization. Can anyone imagine labor unions in the United States being this cooperative?

2. The shaky relationship that European leaders have with the truth, from the mouth of the Euro Group President himself:

"SPIEGEL: Are you familiar with the Eighth Commandment?

Juncker: Of course. Thou shalt not bear false witness against thy neighbour.

SPIEGEL: Apparently you don't take it very seriously. More than two weeks ago, you denied a report

 by SPIEGEL ONLINE about a secret meeting of several European Union finance ministers to discuss the situation in Greece, even though the official limousines were already pulling up in Luxembourg.
Juncker: The most important commandment is not to inflict harm on others. Although it isn't stated quite that way in the Ten Commandments, it follows from them. The finance ministers of several Euro Group nations had agreed to meet on Friday with the president of the European Central Bank (ECB), Jean-Claude Trichet. Because the financial markets in Europe were still open and trading was still underway on Wall Street, we had to deny the existence of the meeting. Otherwise the course of the euro against the dollar, which had already fallen as a result of your report, would have plunged disastrously."

The key takeaway here is that there is a subset of people running Europe who are dedicated to preventing harm and are unlikely to tell the truth.

3. Thomas Schelling on the lack of nuclear terrorism. (HT: MR) Other evidence might be inferred from the lack of a real coordinated terrorist attack in recent years since Sept 11. Perhaps there are very few people intelligent enough to pull off an operation on a large scale in the developed world who become terrorists, or maybe the people with the necessary human capital and the desire to cause harm to innocents are very wary of working with anyone else (think of lone terrorists like the Unabomber), suspecting that their potential allies are more likely to be undercover operatives.