Lucas's Strategy Guide to Gambling

So, my family took a trip back in May with a couple of our friends to Atlantic City, New Jersey. While there, I decided to try my hand at some low-stakes gambling (AKA "penny slots and video poker"). As the kind of person that likes to analyze things more or less to death, I did a lot of thinking during and after the trip. And here, my friends, are the results: Lucas's Strategy Guide to Gambling.

Gambling strategy occurs at three levels: (1) Managing Bankroll, (2) Game Selection, (3) Strategy in Game

Now, here I'm going to assume that you're a gambler like I am. Which is to say "not a regular gambler". If you're someone who lives in Vegas and visits the casino for an hour every day or week and so on, then the Law of Large Numbers is going to win, and there's basically nothing you can do about it.

For those of us who are "occasional" or "maybe only one time ever" gamblers, there's a lot we can do to improve our odds. At heart, gambling is about statistics. And the statistics are clear. On average, the casino will win. And will win at a very predictable rate. On average.

But, no particular session is average. You can never walk away from a craps table saying "Well, that was an average roll." Literally EVERY roll is either better or worse than average for the bettors. The average comes about because there is such a large quantity of rolls that happen. If we gamble a lot, then our average is probably going to match the casino's average - it's just losing instead of gaining. But, if you just roll once or a few times, you're likely to have a result that's farther from average.

Caveats aside, let's hop in.

(1) Managing Bankroll.

There are lots of betting systems out there. They are almost all garbage. Fundamentally, you can't change the casino's average edge. BUT, what you can do is play with the distribution AROUND that average.

Here's an example for how:

Let's assume a fair game - a simple coin flip. On each flip, you bet some money. If you win, you double your money. If you lose, you lose.

On average, you're probably going to walk away with as much as you started with if you just keep flipping the coin forever. But, this isn't realistic for a big reason: EVENTUALLY YOU RUN OUT OF MONEY. Given a sufficiently large number of flips, the odds of hitting a very good (or very bad) run at SOME point is very high. A very good run doesn't force you to stop. A very bad run DOES force you to stop. So, for managing bankroll, the trick is to build in your stops on both the low end (that is, have a maximum acceptable loss), and ALSO on the high end (that is, have an acceptable gain that makes you leave the table, too).

With this system in place, you can manipulate your odds of winning by changing the relative size of your loss limit and win limit.

We know that, on average, you're going to break even. Mathematically, we can sum that up in this equation: Average gain - average loss = 0. Rearranging, this means that average gain = average loss. But, your average gain is really just the odds of winning multiplied by the amount you win each time (and similarly for gains). So, odds of winning * individual win = odds of losing * individual loss.

By the world of math, odds of winning + odds of losing = 1. (That is, you're either going to win or you're going to lose.) Doing some algebra, we get this result:

Odds of winning = individual loss / (individual win + individual loss)

Now, with a fair game like a single coin toss, the individual wins and individual losses are equal, so you get "odds of winning = 50%"

But, with a SESSION of gambling, the same rule still holds - but you can CHOOSE what the individual session win or session loss would be. Here's how: You say to yourself: "I'm either going to walk away when I've lost $100 or when I've gained $10 compared to where I started". This rule tells you when to walk away from the table. And, in this case, the odds of a winning session are about 90%. Why? because it's MUCH more likely you'll hit the "I won $10!" threshold before you hit the "I lost $100!" threshold. In effect: the win streak needed to win $10 is fairly short, so your odds of hitting it before you hit the LONG losing streak needed to lose $100 is quite good.

Lesson here: if you're willing to lose a LOT more than you're asking to gain, your odds of ending up a winner are much higher. The flip side is also true: If you're not willing to lose much, but want to win a lot, you'll almost certainly end up losing.

Now, some of you may be saying "But, Lucas, the casino DOESN'T play fair! There's an edge for every game!" This is true. But, it makes FAR less difference than you might think. The adjustment for the casino's edge isn't that hard to make, and it makes almost no difference, it ends up.

An example: if you make conservative bets on craps the casino edge is about 1%. So, if you do the "$10 win limit, $100 loss limit" strategy described above, you have a 90.83% chance of having a winning session. If you were doing the coin flip bet with the same limits, you'd have a 90.91% chance of a winning session. If you switch to a REALLY bad game like Keno, there's a 25% house edge. That cuts the odds of a winning session to 88.24%. So, the difference between a fair coin-flip game and Keno is about 2.6%. Not a huge difference.

What does make a difference? Trying to win big. If you try to win big, you'll almost CERTAINLY walk away empty handed, even if you play a fair game.

Suppose you say "I'm either going to lose $100, or gain $1000". In that case, your odds of a winning session for the coin flip game is 9.1%. For conservative craps bets, 9%. For Keno, 7%.

I saw this at work in Atlantic City. The first night I was there, I hit the Casino floor with $5, and played some penny slots. I decided that if I was EVER ahead AT ALL, I'd leave. So, I basically said "I'm either going to lose $5, or gain 1 penny." With that ratio, even a tight slot machine that gives the house a 15% edge (which is about right for penny slots), I had a 99.4% chance of walking home a winner. And, I won that night. I came back to the hotel room with $5.23. The last night we were there, I had $10 or so to play with (from my gambling budget for the day plus what my wife had left over from her foray in the afternoon). My wife said to either lose it all, or to come back with $300. With that ratio, playing penny slots I had a 2.75% chance of coming home a winner. And, sure enough, I lost it all.

You might be thinking: "But, if everyone used this strategy right, we'd do like you did the first day, and the casino would make no money." This isn't quite true. Most people would walk away winners, yes. But, the losers would lose a LOT compared to the winners. (If each loser loses $5 while each winner wins a penny, the ratio of winners to losers can be 500 to 1, and the casino breaks even!) So, psychologically, you have to be ready for that. Your odds of winning are good - but the loss, if it happens, will be large.

The key: The ratio between your win goal and your loss limit determines your odds of a winning session.

There are also different betting strategies that tell you when to increase or decrease your bets. These are mostly worthless, so I'll ignore them. (Okay, on exception: the Martingale strategy - which increases bets after a loss - is not a bad strategy if your goal is to have a large probability of a small win or a small probability of a large loss. However, this strategy drastically decreases the time you'll spend in the casino before you hit one of your goals. Since the casino is often an "experience" in itself, increasing your time there is probably worth using a different betting strategy.)

(2) Game Selection

One site I've found marvelous on issues of gambling strategy is the Wizard of Odds ( His mastery of the relevant statistics and analysis of casino games is second to none as far as I can tell. I highly recommend his site if you want to get into the nitty gritty of decreasing the house edge. I'm just going to summarize some of the more popular games here.

First, compared to your win goal/loss limit ratio, house edge makes VERY little difference in your odds of a winning session. However, it CAN make a difference in how quickly you approach the losing session. So, here we go...

There is a set of games where the house edge is about 1%. Those are: craps (if you stick to conservative bets), baccarat (a totally incomprehensible game that is, none the less, easy to gamble on), blackjack (using reasonably good strategy), and video poker (again, with good strategy).

The big downside with these games is that many of them are "table" games - which often require a relatively large minimum bet. The casino we stayed at had table game minimums of $10. (And some tables were more than that.) So, losing will happen more quickly than at, say, basic penny slots, which only takes 1-5 cents to play.

The exception to this is video poker. Video poker is a great game. If you include "comps" (that is benefits that casinos provide their players), the house edge for video poker can actually vanish. But, as a "perhaps only once in my lifetime" gambler, I didn't register for the comp program at the casino. I wasn't planning to lose enough money to make it worthwhile for the casino to give me anything free. But, even with comps, the house edge on video poker is very small, and it can cost as little as 25 cents a play. Not bad! I actually spent enough time playing video poker that I got bored of it, and wanted to do something a bit flashier.

Slightly worse than this set of games is Roulette. Roulette is a weird game in that there is almost zero strategy involved. The house edge for nearly every bet is right around 5%. The reason: every bet pays fairly - if we forget the zero and double zero. So, the house edge is really just the odds of hitting either a zero or double zero, which is 2/38 - right around 5%. The bets on zero and double zero are the exception - and they provide the house with a larger edge. Roulette, as a table game, has the same problem as craps, blackjack, and baccarat: high minimum bets.

Worse than roulette are slots. How bad slots are, though, is something that's hard to say. The casino can program slots to be as loose or as tight as they want to. But, statistics from Las Vegas suggests that the house edge is between 5 and 15% for most slot machines. There appear to be two regularities here: the edge is smaller for more expensive machines (so dollar slots provide a smaller edge than penny slots), and the edge is typically smaller for older, less flashy machines. I played a lot of penny slots on old-style machines, and also on some Mr Cashman machines, which were a bit flashier. There was at least some point on these machines when I was ahead. Now, if you want to "understand" slot machines, I have a recommendation for you. Don't bother. The old style slot machines are very simple. Anyone, at a glance, can confirm the win and why it happened. The new machines are totally incomprehensible. They, somehow, manage to construct 20 different (many jagged) lines out of 25 symbols. Confirming HOW you won is often very difficult. And, in the end, utterly irrelevant, as there is no strategy. (I suspect that playing more lines decreases the house edge, but I'm not positive on that.)

One of the worst games in a casino - in terms of the house edge - is Keno. The house edge is 25% or higher, depending on how many numbers you try to match.

All to say: if you have lots of money and want to be social, play craps, baccarat, or blackjack. If you don't have lots of money and don't want to be social, play video poker. If you don't have lots of money and want to be social, hang out at the craps table and pretend to be friends with someone. (Craps, apparently, is a game where it is considered acceptable to just watch while a friend plays.) If you have lots of money and don't want to be social, play video poker, but bet $1.25 per game to get the better payoff tables, or dollar slots.

If you have lots of money and want to pick numbers at random, do it at the roulette table instead of playing Keno.

(3) Strategy in Game

In some games there is basically no strategy. Roulette, Slots, and Baccarat all have more-or-less fixed payouts, regardless what you do in-game. The edge on almost every single bet in Roulette is right around 5%. Doesn't matter whether you bet on All Red or whether you bet on #32. In some games, there is minimal strategy. In craps, there is some strategy in which bets to make and which to avoid, and whether to lay/take odds or not. (Answer: bet Pass or Don't Pass, and always take/lay odds to minimize the house edge.) But, in some games, there is continuous strategy - especially in the various forms of poker - Blackjack and Video Poker in particular. Much of the time, the more in-game strategy there is, the less of an edge the house has. Video Poker and Blackjack are two of the fairest games in a casino - as long as you play well. In effect, the casino finds it worthwhile to give a handful of clients a fair game because most clients won't play these games well.

You can obviously use this to your advantage. If you're planning to play one of these games, read about strategy ahead of time. The key: look for someone who is statistically oriented (Wizard of Odds, folks). They do the math about what the best move is in each case. Wizard of Odds - again! - has a few systems for Blackjack. The "Optimal" system is a bit complicated - but he has some "simple" strategies that are almost as good, and keep the house edge very low. Similarly with video poker. There are optimal strategies (and free online trainers to help you improve your game!) - and there are simple strategies that work pretty well. Look them up.

But, really, the reality is that there are two types of people: one type likes the strategy. The other doesn't. If you do, then certainly play Blackjack and video poker, and try to get really good at the strategy. If you don't like it, then play one of the less strategic games with a low house edge (baccarat, craps), and avoid stupid bets.

In the end, of course, gambling is a leisure activity. And, in the long run, the house will win if you decide to make it any kind of regular hobby. That’s what “the edge” means. Over a large number of bets, that’s the percentage that the casino will end up with on average. If you make a large number of bets, then that’s the percentage that the casino will end up with FROM YOU on average.

The best strategy, then, is to ask a simple question - the same question you ask about any leisure activity - “How can I have the most fun using the least amount of money?” This is a very subjective question. Should you always wait until a movie comes to Netflix to see it “for free”? Maybe YOU should. But this isn’t true for everyone. Sometimes the extra expense is “worth it”. And that’s a judgment that only you can make.

So, is gambling “worth it”? Well, it depends. What are your other options? What will they cost? In my experience, gambling was fun, and not terribly expensive. At the same time, video games certainly provide more “bang-for-the-buck” for me. (Though that may be because I refuse to buy any game that isn’t selling at a sharp discount… And I don’t mind playing games LONG after they’re released.) At the same time, I don’t regret having done it, though I doubt I’ll ever do it again.

Jar Jar Binks: Sith Lord - Evidence from Phantom Menace

So, one of my favorite fan theories at the moment is the "Darth Jar Binks" theory, with some evidence here:

My wife and I decided that a fun leisure time activity would be for us to watch the Prequels looking for evidence of Jar Jar's scheming. Here are the results from our viewing of Phantom Menace:

(1) As soon as the Jedi land on Naboo, Jar Jar is there, immediately. He grabs onto Qui-Gon, forcing Qui-Gon to "save his life". He then insists on following Qui-Gon, since it is "demanded by the gods". Might it be that Jar Jar was just there by accident? Maybe. But, it runs against the Star Wars worldview - expressed well by Qui-Gon when he says of Ani "Our meeting was not a coincidence - nothing happens by accident". Might be true of Jar Jar, too.
(2) So, the Jedi go to the Gungan city. Why? Because JAR JAR SUGGESTS IT. But, he does so in a CLASSICALLY manipulative fashion. The conversation is basically "Hey, we should go to the Gungan city." "Oh, can you take is there?" "On second thought, no." [discussion about being banished] "Well, we're going to die if you don't take us there." "Well, okay, but remember, it was your idea." (Obviously, paraphrased.) So, what did Jar Jar do? He just MANIPULATED JEDI into his plan while, at the same time, making them argue very forcefully to him that they should follow his plan. CLASSIC.
(3) On arrival, some of the other Gungans react in fear to JarJar. True, this could be explained if he just caused serious accidents. But, the reaction is a bit more... personal, I suppose... than that. Also, EXACTLY on arrival, Jar Jar is located and taken to the boss Gungan. The timing is... strange. Almost like someone involved could foresee what would happen...
(4) For no clear reason, Qui-Gon asks Jar Jar to serve as their navigator through the core. Jar Jar then proceeds to do EXACTLY ZERO navigating. Why can't Qui-Gon just declare the life debt paid, and move on? Because Jar Jar is manipulating him.
(5) Darth Sidious makes an interesting statement to Darth Maul - he declares that "Queen Amidala is easily manipulated." By whom? Darth Maul doesn't appear to be doing any manipulating at all. Of course, Darth Sidious does some himself - but he's not there, and the Queen definitely feels comfortable calling him out on occasion - though she does basically always come around... But, who is there? Jar Jar. Who is a master manipulator, we see? Ends up, it's Jar Jar. We see Jar Jar near Amidala a LOT - and totally inexplicably.
(6) Jar Jar chats with Padme when she's in her handmaiden disguise - and somehow seems to charm her. Does he know something no one else does? Maybe. But, I would note that a lot of people (and droids) don't like Jar Jar - yet, somehow, those in power DO.
(7) When they go to Tatooine, Jar Jar follows Qui-Gon into the city. Qui-Gon objects to Padme (who he thinks is a simple handmaiden) joining them - but not the utterly worthless Jar Jar. Why? Because Jar Jar isn't as utterly worthless as he seems - he's a master manipulator who has managed to weasel himself into important places.
(8) Jar Jar "clumsily" throws a piece of food at Sebulba - Ani's pod racing nemesis. Obviously, this is an accident. Right? But, Chosen One Force Sensitive Anakin Skywalker declares that "Jar Jar was picking a fight", forcing Jar Jar to backpedal. Might the Force be revealing something that comes out of the mouths of babes? I suspect so.
(9) There are at least 3 significant Ani/Amidala scenes in which Jar Jar appears as a third wheel for basically no reason. Why is he there? They animated him into the scene for a reason, I suspect. The reason? Because JarJar is explicitly pushing the two of them into a relationship. He even suggests to Ani at one point later on that the Queen is very pretty. Why put that idea in his head?
(10) Another inexplicable Jar Jar being somewhere important for no reason scene: Qui-Gon goes to Watto to bargain for Ani's and Shmi's freedom. In this scene, Jar Jar is there - but has no lines. He does nothing that we can see. There is no reason for him to be in that scene - none at all - but there he is. Hm.
(11) Amidala decides to go back to Naboo. Or wait. Does she? Or does Jar Jar send her back? Here's what happens: Jar Jar mentions that the Gungans have a large army that could be used to fight the Trade Federation. Okay, so what? Well, not long after, it is made clear to Amidala that she can't fight the Trade Federation. (In effect, Palpatine provides a "you and what army" challenge.) Jar Jar answered the 2nd part - before the question was asked. That would make sense if he and Palpatine were working together.
(12) At the funeral for Qui-Gon, people are standing around watching his body burn. The groupings, though, are interesting. Fairly prominent are scenes showing Amidala standing next to Palpatine - with Jar Jar on Palpatine's other side. Why? Why not the leader of the Gungans (for example)? What is so important about Jar Jar that he would get to stand next to two prominent Republic politicians? I think we all know. He wasn't standing next to Republic politicians. He was standing next to his closest ally. The Sith Lord Sidious. Hidden in plain sight.

Now, I don't think that "Jar Jar is a Sith" is what George Lucas had in mind. But, it is pretty fun to watch the series through that lens. It proves how much you only see things when you're looking for them.

Canton Economic Data Analysis

As one of the relatively few academic economists in Stark County, I took it upon myself to start studying the economy of the area. Here are a summary of some of my findings thus far:

(1) Canton/Massillon "specialties" as identified by LQ.

Location-Quotient (or "LQ") is a measure of unusual concentration of an industry, sector, demographic group, etc. Basically, it answers the question "How much more concentrated is this sector in this area than in the US as a whole?" As a simple example, if, say, 10% of Americans work in retail, but 20% of a city's workers work in retail, then the LQ would be 2, indicating that retail is, in a sense, "twice as important" in this area than in the US as a whole. So, for Canton/Massillon!

High LQ (>1, ranked highest to lowest): Manufacturing, Education and Health, Other Services, Minining/Logging/Construction.
Low LQ (<1, ranked lowest to highest): Information, Professional and Business Services, Government, Financial Activities, Trade, Transportation, and Utilities, and Leisure and Hospitality

Our area has a specialization in manufacturing, education and health, and mining/logging/construction (this is new - thanks to fracking).

(2) Canton/Massillon most important areas of strength

To be an area of strength, you need two things: a high LQ (indicating regional specialty) and a GROWING LQ (so the specialty is getting stronger rather than weaker).

Here, there are two: manufacturing and mining/logging/construction. It may be surprising to people that manufacturing makes that list, as the narrative of the area is that manufacturing is dying. This doesn't appear to be true in our area. While manufacturing is not as important as it was many years ago, it is still an important specialty and one that has strengthened in the past five years. (Our LQ grew from 1.73 to 1.89, indicating that Canton manufacturing is doing better than US manufacturing on average in that time.) Manufacturing is also an important sector of employment, with 16.4% of employment being in that sector in the Canton/Massillon area.

Mining/Logging/Construction is really a new specialty for our area, just 5 years ago our LQ was less than 1 (indicating that we did less in these than the US on average), but it is now about 1.1. This sector, is fairly small, though - providing only 5.7% of employment in the area.

(3) Canton/Massillon biggest concerns

To be tagged as a concern, I looked for a high but weakening LQ. This indicates that the industry was important historically, but that the region has recently begun losing its edge in this area.

The biggest cause for concern is education and health. Our LQ has slipped about 3% over the past 5 years, which should be a big concern as this is the single largest provider of jobs of any sector in the area - over 19% of workers in the Canton/Massillon area work in Education or Health.

Another potential cause for concern is "other services" - there we saw a similar 3% drop in LQ, but the LQ wasn't as high to start with, and the level of employment in this sector is fairly small (about 4.7%). I wouldn't worry too much about this one.

Some future directions - I would like to do an LQ analysis for Canton v Akron, and also check into what happens if we combine the two areas, as there is a lot of cross-pollination here. (For example, my dad lives in the Canton MSA, but works in the Akron MSA, while when we first moved here, I did the opposite.) As such, it might be that the two should be treated as one large economic area. Also, it would be interesting to get a more fine breakdown rather than these very large sectors - but that's going to take some more digging.

Loving Mark Forster's Final Version

So, a while ago - right around the beginning of the new year - I adopted Mark Forster's "Final Version" (FV) as a means of organizing my task lists. And I have to say, I'm LOVING it.

I'm not going to bother posting the method here - Forster's description is better than anything I could come up with, so go read it.

What I want to post, though, is the things I've been using it for.

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All to say, I highly recommend FV.

My State of the Union Response 2015

So, rather than going line-by-line as I occasionally do, I'm just going to hit some of the "high points" (or, perhaps, "low points") - just things that stood out to me. Which mean I'm going to be ignoring probably over 90% of the speech.

First, I will mention that I didn't actually watch the speech - I'm working off a transcript, but I trust NPR to faithfully report Pres Obama's words.

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So, I'll leave it there. As is typically true, the devil is in the details - and the details never make it into the State of the Union address.

Thoughts on Pres Obama and Immigration

A handful of thoughts about Pres. Obama and Immigration:

I am in favor of basically "open" immigration. The economic impacts are generally positive (not that no one is harmed - but the benefit outweighs the cost in terms of impacts on overall well-being). As such, I like seeing moves in that direction.

However, I'm also a firm believer in the idea that, in our system, Constitutional procedure is what protects liberty. Violating procedure is a problem. In general, I don't like executive orders for that reason.

This pushes the move toward a "doing the right thing in the wrong way" direction - being something I typically don't favor.

But, then I started thinking along broader lines:

The Constitution is, at heart, a classically conservative document. (Which is NOT the same as politically conservative nowadays.) Checks and balances are there precisely to keep the status quo, except in cases where there is very broad agreement that the status quo should change, and should change in a specific way. At the same time, at heart, checks and balances are there so that the branches can, to some degree, subvert each other in the protection of liberty.

So, here are some complications:

(1) I don't find in the Constitution anywhere the Congress is expressly given the right to restrict immigration. It DOES have the right to regulate NATURALIZATION (that is, citizenship) - but that is a different thing than simply your geographical location (which is what a non-naturalized immigrant is - a non-citizen that resides in the borders of the nation). As such, from a strict Constitutionalist perspective, any federal regulation of immigration is dodgy. (Sure, we can get it from the Commerce clause - but we can get ANYTHING from the Commerce clause, the way that it's read nowadays.)

(2) I DO find a Presidential power called "pardon". This, in effect, gives the President the power to say "Yeah, I know what the law says, but, forget that, I'm not letting you be punished for this thing." In that regard, the executive order was, in effect, a pre-emptive pardon - which I don't find problematic.

WIth the pardon in place, the President basically DOES have the power to say they aren't going to enforce certain laws.

One argument that I've seen put forward that bothers me: the idea that there are 4 million people on a waiting list - and others have now been allowed to "jump the line", in effect. If that's what bothers you - why aren't you complaining about the fact that there's a 4 million person waiting list? I agree that that is a problem - we should let them in without this absurd waiting process. So, you should be upset not that Pres Obama is letting others to (in some sense) jump line - you should be upset that he isn't ALSO letting these 4 million on the waiting list in faster.

Thoughts on Voting

So, yesterday, another election came and went here in the US. I honestly have very few thoughts about the outcome of the election at the moment. I'm much more interested in voting itself. So, here are a variety of voting-related topics.

(1) On "Rights to Complain"

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(2) On "I don't care how you vote, just vote"

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(3) On "your vote makes a difference".

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(4) On "spoiler" candidates and different voting systems

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Very long, didn't want to read? Summary:

(1) "If you didn't vote, then you don't have a right to complain" makes no logical sense.
(2) "I don't care how you vote, just vote" probably makes no logical sense.
(3) Your vote probably doesn't make a difference (in terms of determining the outcome of the election, that is).
(4) Consider alternative voting systems like "Instant-runoff voting" and "Majority Judgment". They are likely to simultaneously make 3rd parties happy AND limit the "spoiler" candidate problem - maybe making major parties happy, too.

Fun with Statistics: Reading Edition

So, I ran across this on Facebook:

I'm going to focus on one of the key points here: the relationship between poverty and poor literacy. To do that, let's make a table:
In Poverty Not In Poverty Total
Low literacy
High literacy

Now, let's plug in what we know:

(1) About 15% of Americans live in poverty (check official statistics)
(2) 46% of adults (I'll assume American adults...) have "low literacy" (that is, in the bottom 2 levels)
(3) 61% of adults with low literacy live in poverty. (Translation: 46% x 61% = 28% of Americans live in poverty AND have low literacy.)

Filling things in:

In Poverty Not In Poverty Total
Low literacy 28% 18% 46%
High literacy -13% 67% 54%
Total 15% 85% 100%

So, we can conclude:

(1) Assuming you're not in poverty, there's about a 75% chance you have "high" literacy (that is, outside the lower two levels).
(2) If you are in poverty, there's a negative chance (that's LESS than zero) that you have "high" literacy.
(3) At least one of these statistics is screwy, because a negative percentage in this context makes absolutely NO sense.

So, odds are that, somewhere, something got garbled. So, I'm going to share some statistics taht come from the original source:

(2') 21% (or so) of adults have "low literacy" (that is, in the BOTTOM level of literacy)
(3') 41% (or so) of adults with "low literacy" (that is, in the bottom level) live in poverty.

Putting these in, with the new meaning of "low" being "LOWEST"

In Poverty Not In Poverty Total
Low literacy 8% 13% 21%
High literacy 7% 72% 79%
Total 15% 85% 100%

Now, THIS looks more sensible, but it's STILL not accurate.

Why not? Because I'm mixing definitions of poverty from two sources. Official poverty statistics are based on the official poverty line, but the NALS report on literacy has a very different definition of "poor". By official statistics, 15% of Americans are "poor". But, the NALS's data suggests that about 25-30% of Americans are "poor" or "near poor". So, going with 28% poor, and using the bottom two levels for "low" literacy, we'd end up with:

In Poverty Not In Poverty Total
Low literacy 28% 18% 46%
High literacy 0% 54% 54%
Total 28% 72% 100%

So, basically, everyone in poverty has "low" literacy, while only about 25% of those outside poverty have "low" literacy. (This claim is technically contradicted by the report... though not by much.)

Naturally, causation is horrible to untangle in cases like this (do rich people read? or are reading people rich?), but the statistical exercise teaches some important lessons:

(1) Meanings are slippery. Just assuming "poverty" always means the same thing can lead to putting things together in misleading ways.
(2) Some "gatherers" of statistics are terrible presenters... The NALS report is interesting, but doesn't present some other ways of slicing the data that would also be interesting.
(3) Statistical literacy is an important skill. (This is why my "top 2 courses every college student should take" includes "Statistics" - the other is "Logic".)

Noah Smith on Austrian "brain worms"

Last week, Noah Smith (who teaches Finance at Stony Brook University, and runs the blog Noahpinion) has this piece on Austrian economist published on Bloomberg. I've been spending the last 12 hours or so deciding whether or not I needed to respond to it. On the one hand, it is clearly poorly informed about Austrian economics. On the other hand, it's pretty obviously almost 90% an ad hominem and I have other things to do than say "Am not!" to someone calling me names. But, obviously, I finally decided it was worth a response for two reasons: (1) it's bothering me - so I need to respond for my own psychological well-being. (2) This is a case that follows my rules of internet attack - "always aim up".* So, here we go.

Noah's title is a reference to Star Trek II: The Wrath of Khan - arguably the best of the Star Trek movies (I have a particular fondness for Star Trek IV, myself...). In this movie, perennial villain Khan has revealed that he has a "brain worm" that, when it burrows into a person's brain, makes them highly susceptible to suggestion. So, people end up basically mind controlled. The analogy to Austrian economics is fairly obvious - Noah is suggesting that the "Austrian worldview" is basically a brain worm that leads people into absurd beliefs that are out of touch with reality. Its key beliefs seem to be:

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On the whole, I'm convinced that Noah Smith is not interested in engaging with actual Austrian economists (like Pete Boettke, Joe Salerno, Robert Murphy, gosh - even me), but is just arguing against the largely uninformed, libertarian Austrian fanboys that often surround the Mises Institute and On that I agree that the fanboys often do Austrian economics a disservice by being overly vocal on issues they know very little about. But, the fact that a commenter on a blog or Twitter says things that are wrong and identifies themselves (or their ideas) as "Austrian" hardly disproves anything about Austrian economics.

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Thoughts on "Laborless Production"

So, a discussion got started on Twitter - which is not a good platform for long, extended discussions. And my thoughts on this particular topic are long and extended. So, I came here to LJ, where the platform is MUCH more suited to such things.

So, here are some thoughts on "laborless production" - that is, an economic system in which everything is automated and workers are unnecessary.

First thought: such a system shall never exist. There are a number of arguments for why this is probably true.

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Second thought: if it happens, the transition to a laborless economy wouldn't be as bad as many people think.

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In the end, then, I'm not worried about laborless production. First, it's exceptionally unlikely we will ever get there - so much so that I don't think we ever will. Second, if we do get there, I think the process - while probably not seemless (errors, after all, are common in transition periods) - is likely to be reasonably smooth. We already have the elements in place to handle most of the transition - because people ALREADY transition from "laborer" to "non-laborer" on a regular basis. We just need to be ready to see those systems have a lot more use than they currently do. On a personal level, we need to focus on increasing our wealth-to-income ratios. Put another way: we all need to save. Put away 10% of your income from each paycheck - more if you can manage it. If possible, automate that. You can't cut your spending by 10%? Fine. Then save 100% of your raises. After a few years (probably 5 or so, for most people), you'll be saving 10% of your income. Learn about investing so that you don't take stupid risks - or don't learn about investing, and put money into a deferred fixed annuity that looks good to you, and pay someone else to take the risks.

The best part? This advice is good even if we don't end up with a laborless economy.