Winning the Hardware Software Game Winning the Hardware-Software Game - 2nd Edition

Using Game Theory to Optimize the Pace of New Technology Adoption
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  • How do you extract more of the value created by your product or service for yourself?

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macro econ

  • Bitcoin: Wave of the Future or Flash in the Pan?

    Essential Requirements of a Currency

    Essential Functions of a Currency

    Essential Characteristics of a Currency

    About Bitcoin

    What Is Bitcoin?

    Advantages of Bitcoin relative to Other Currencies

    Disadvantages of Bitcoin relative to Other Currencies

    Will Bitcoin Survive as a Global Currency?

    Does Bitcoin Satisfy the Essential Requirements of a Currency?

    Does Bitcoin Suffer from Fatal Disadvantages?

    Conclusions

    Useful Articles

    Bitcoin is one of the hottest new technologies on the scene. It started out as a niche tool for cyberpunks and anarchists to use to conduct online transactions. However, it has become increasingly embraced by more mainstream users, as global financial crises and massive amounts of government increases in money supplies have continued to wreak havoc on people’s trusts in the traditional financial systems. Some extol Bitcoin as the future of global currency, while others write it off as a speculative bubble and are quick to predict its impending demise. So which is it? Wave of the future or flash in the pan?

  • Inflation or Deflation? The Answer in a Nutshell

    I don't normally write about macro issues.  However, there has been a tremendous amount of debate in the media over whether the US imminently faces inflation or deflation.  I've read a lot of articles on the subject and spent some time trying to puzzle out the issue for myself.  And then after being asked for my opinion on the issue by several friends and family members, I decided to write this blog entry.

  • Main Issues Currently Affecting the Global Economy

    My goal here is to enumerate those issues that will determine the probable evolution of the global economy in the near future. The global economy is dominated by the economies of the US, Europe, and China, which together constitute 65% of global GDP. As such, these are the areas I’m focusing on to get a big-picture view of the global economy.

    One might argue that the various struggles in the Middle East have important implications for the price of oil. This is true. However, this has generally been true for several decades, and I don’t expect the problem(s) to be resolved in the near future, which is the period I’m interested in.

    One might also argue that other nations such as Brazil and India also make significant contributions to the global economy. This, too, is true. However, there’s not much going on in these countries at the moment that can be expected to have a significant impact on directions of the global economy in the near future, with the exception of their continued development, which I capture in the last issue.

    So, what will are the big issues in the global economy for the near future?

  • Making Sense of the Currency Wars

    Introduction

    Basic Macroeconomic Relationships

    The Quantity Theory of Money

    Purchasing Power Parity

    Interest Rates

    Gross Domestic Product

    Putting It All Together

    Data for Select Countries

    Exchange Rate Basics

    Definition

    Determinants

    Pros and Cons of a Strong or Weak Currency

    Why Depreciate One's Currency?

    Methods for Depreciating a Currency

    Currency Wars

    Definition of Currency War

    Definition of the Currency Game

    The Disadvantages of Currency Manipulation

    Other Comments on Currency Wars

     

     

    Introduction

    Currency wars have been all the rage lately. 

    Paul Krugman, is an economist, a Nobelist, in fact, who I respected greatly when I was in graduate school, studying his work on international trade.  However, over the past several years, I’ve come to view him as a complete sell-out, and as someone who twists economists (both theoretical and empirical) to promote his own completely tainted viewpoint.  In his Feb 15, 2013 NYT blog entry, “Currency War Confusions”, he wrote:

    OK, people have been asking me where I stand on the “currency war” issue. My answer is that it’s all a misconception, and it would be a very bad thing if policy makers take it seriously.

    First of all, what people think they know about past currency wars isn’t actually true. Everyone uses some combination phrase like “protectionism and competitive devaluation” to describe the supposed vicious circle of the 1930s, but as Barry Eichengreen  has pointed out many times, these really don’t go together. If country A and country B engage in a tit-for-tat of tariffs, the end result is restricted trade; if they each try to push their currency down, the end result is at worst to leave everyone back where they started.

    And in reality the stuff that’s now being called “currency wars” is almost surely a net plus for the world economy. In the 1930s this was because countries threw off their golden fetters — they left the gold standard and this freed them to pursue expansionary monetary policies. Today that’s not the issue; but what Japan, the US, and the UK are doing is in fact trying to pursue expansionary monetary policy, with currency depreciation as a byproduct. Expansionary policy is what the world needs, so why is this a bad thing?

    True, Europe may feel that it’s suffering a loss of competitiveness. But there’s an answer for that: emulate the other advanced countries, and have the ECB join in the expansion. Indeed, if fear of an overvalued euro finally undermines the ECB’s monetary hawks, that’s good for everyone.

    When it comes to currency depreciation, right now the only thing we have to fear is fear itself.

    Personally, I couldn’t disagree more.  I believe that the current “Currency wars”, far from being “almost surely a net plus for the world economy”, instead represent a classic prisoner’s dilemma game, in which the whole world is going to end up much worse off than before, with much higher prices, much higher inflation, and much greater uncertainty in world markets.

    This blog entry, “Making Sense of the Currency Wars”, makes this case.

    I tried to make the dry basic economics stuff at the beginning as brief as possible, while still being comprehensible.  Like most things in life, you have to get through the dry, boring basics before you can appreciate the good stuff.  For those of you who are already familiar with the basics, feel free to skip to the latter part of the analysis.

  • Playing the $1 Coin Game

    Conversion to $1 Coin: US Government

    Conversion to $1 Coin: Private Industry

    Conversion to $1 Coin: Consumers

    Special Interest Groups

    Other Issues

    Efficiency of US Currency

     

    A recent article in the WSJ, “The Buck Stops Here: $1 Coins to Be Curtailed” by Jeffrey Sparshott, reports that the US Mint is suspending production of $1 coins, due to lack of demand. The issue of replacing the US $1 bill with a $1 coin has been debated for quite some time. When I was in graduate school 20 years ago, one of my professors was commissioned to perform a cost-benefit analysis of replacing the $1 bill with a $1 coin, and I worked as a research assistant on the project. I spent my summer that year contacting various representatives in the economy who would be affected by the conversion and collecting information from them on the costs and benefits. I learned some very interesting things.

  • Playing the Currency Game

    The Structure of the Currency Game

    Definition of Volume of Trade

    Patterns in Volume of Trade by Country GDP

    Patterns in Trading Partners

     

     

    In my previous blog entry, “Making Sense of the Currency Wars”, I discussed the basics of exchange rates – how they’re defined, how they’re determined, and the pros and cons of having a strong or weak currency – and I discussed currency wars – how they work and how they affect participant economies. I also defined how currency (exchange rate) wars form a game between countries, where the losses of losers would appear to far outweigh the gains of winners. In this blog entry, I take a closer look at the currency game.

  • Problems with Aggregate Measures

     

    A recent article in the NYT, “G.D.P. Seen as Inadequate Measure of Economic Health” by David Jolly, discussed the inadequacy of using GDP alone (“It’s not a question of replacing G.D.P. It’s a question of complementing it with other indicators that can provide other measures of well-being.”) as an indicator of a society’s well-being:

  • The Changing Nature of Safe Haven Markets

    Introduction

    Safe Havens

    Definition

    List of Safe Haven Assets

    Size of Safe Haven Asset Markets

    Downgrading of Countries’ Sovereign Debt Threatens Global Supply of Safe Havens

    Estimates of Global Wealth

    Global Supply vs. Demand of Safe Haven Assets

     

     

    Introduction

    Since the end of WWII, the United States economy has dominated the global economy. The size of the US economy, together with its continued stability and growth, have occasioned US debt (bonds) to become the ultimate safe haven for global funds seeking refuge from transient bouts of global uncertainty. The continued stability and growth of other developed (OECD) nations have also granted their sovereign debt safe haven status, but in general, US treasuries reign supreme.

    However, the debt load of the US government over the past decade has become increasingly unsustainable. Monetization of US debt – in particular, through QE1 – QE3 stimulus programs – has become the only viable means of reducing the debt to sustainable levels. By its very nature, monetization will decrease the value of US debt, thereby reducing its attractiveness as a source of safe haven assets. Given the historical role US bonds have played in global safe haven markets, one is led to wonder which assets will come to replace US debt as the new safe havens.

    This analysis examines (i) the nature of safe haven assets, (ii) the approximate availability of safe haven assets, (iii) the approximate amount of global wealth, and (iv) the possibilities for new safe haven assets as US bonds become downgraded.

  • The Great Stagnation: The Internet Has Not Been a Revolutionary Innovation… Or Has It?

    GDP vs. Social Value

    GDP Is Not an Accurate Measure of Well-Being

    Has the Internet Been Revolutionary for Well-Being?

     

    Tyler Cowen, an economist at George Mason University, recently published an ebook called The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better

  • The Increasing Significance of the Shadow Economy

    Definitions

    Why Do We Care about the Shadow Economy?

    The Shadow Economy Invalidates Government Statistics and Policies

    The Shadow Economy Affects the Official Economy

    Shadow Economies Evince Citizens’ Discontent with and Serve as a Check on Government

    Causes of the Shadow Economy

    Methods of Measuring the Size of the Shadow Economy

    Direct Approaches

    Indirect Approaches

    Estimates of the Size of the Shadow Economy

    Characterizing the Shadow Economy

    The Dual Nature of the Shadow Economy

    Industries Most Susceptible to being in the Shadow Economy

    The Changing Nature of the Shadow Economy

     

    Introduction

    Today, System D [the shadow economy] is the economy of aspiration. It is where the jobs are.

    -- Robert Neuwirth, “The Shadow Superpower”
     

     

    What is the biggest current problem facing all economies globally? Unemployment.

    The financial crisis of 2008 and its aftermath has resulted in a global recession, together with a prolonged period of high unemployment in developed nations that hasn’t been seen since the Great Depression.

    Joseph E. Stiglitz, in “Employment, Social Justice and Societal Well-Being” explains why it is so important for society to provide jobs for its citizens:

    [F]or a large fraction of the world’s population, work – employment – is important. For individuals who lose their jobs, it is not just the loss of income that matters, it is also the individual’s sense of self. Unemployment is associated with a variety of problems and pathologies, from higher divorce rates, higher suicide rates to higher incidences of alcoholism. And the relationship is not just a correlation: there is a causal connection. Some individuals can keep themselves happy and gainfully “employed” with- out a job. But for many, employment – the fact that someone else recognizes their “contribution” by paying them – is important.

  • The Structural Nature of Changes in the Labor Markets

    US Unemployment Data

    The Changing Nature of the Labor-Capital Game

    The Labor-Capital Game

    V.1: Pre-1980s

    V.2: 1980s – 2000s

    V.3: 2000s -

    Job Mismatches

    The Job Mismatch Issue

    The Changing Nature of the Demand for Labor

    The Changing Nature of the Supply of Labor

    Government Policies Impacting Unemployment

    The Future of Labor

     

    US Unemployment Data

    The following three figures present US unemployment rates