Saturday, April 28, 2012

That's just how capitalism works

An asteroid worth $20 trillion, and people who want to mine it:

Planetary Resources is the asteroid-mining company launched Tuesday in Seattle, with backing from Microsoft and Google billionaires, along with the equally prominent James Cameron and Ross Perot Jr. Its object is to completely dismember poor little rocks like Amun.
That’s because Amun is a goldmine — well, not gold so much. But it does contain a cool $8 trillion worth of platinum, an essential precious metal used in everything from jewelry to fuel cells to computers (and one that’s currently trading at the same rate as gold — $1500 an ounce.) On Earth, only a few hundred tonnes of the stuff are produced every year...He also found 3554 Amun to contain another $8 trillion in iron and nickel, and a mere $6 trillion worth of cobalt. So, the total payout from one unassuming asteroid? $20,000,000,000,000.
That’s what got Planetary Resources co-founder Peter Diamandis so excited. “There are $20 trillion checks up there waiting to be cashed,” he enthused at a space development conference in 2006. 

Of course, there is no real sense in which this asteroid is worth $20 trillion, and I'm not talking about the article's questionable arithmetic.  For some perspective, that's larger than America's entire GDP of $14.6 trillion.  I think we can safely say this supply shock would have a massive downward effect on market prices.

Ah, a concession:
Of course, there’s a catch. You couldn’t offload all those metals on the world market at once, for fear of crashing their prices. But the company would still own that much in equity, which would allow them to borrow against it. They would be that wealthy, to all intents and purposes. That’s just how capitalism works. 
Okay, that's just not how capitalism works.  You're telling me that if I own this space rock, worth $20 trillion only if I don't do anything with it, someone will be willing to loan me $20 trillion, because after all, if I default on the loan, they can have my rock which is worth $20 trillion so long as they don't do anything with it?  And where does this lender come up with the $20 trillion? Certainly not from Arun, which we aren't allowed to actually use in any way.  And if we can't even use this wonderful new space rock to augment our wealth, we're stuck with the fact that nobody actually has $20 trillion.  Add a few of Arun's friends and we quickly surpass the entire wealth of the world!  I mean, suppose I am magically able to sell a few of these asteroids and I end up with $1000 trillion.  Then I can buy, what, more goods and services than actually exist in the world?  Incoherent.  You can't buy things that don't exist.

You can't create value from nothing.  If someone tells me a rock is worth $20 trillion, I want to know where the value is coming from.  What is the real value of this rock to our society?  The answer has little to do with the current market price of platinum.  This asteroid's real value comes from the productive uses to which it will be put, now or in the future.  If a few of these rocks land on earth, will it magically double our standard of living?  Will we magically have twice as much food because everyone is so rich in precious metals?

Platinum is not a "fundamentally" valuable object.  I feel like this asteroid would normally be the hypothetical construct of a reductio ad absurdum argument to make this point, but somehow the point needs to be made even in a discussion about the actual asteroid.

Of course, smart investors may still want to mislead others into thinking Arun is a $20 trillion find.

Thursday, April 19, 2012

Split or Steal?

Pretty awesome strategy:

This is a modification of the Prisoners' Dilemma in which Defect is only weakly dominant.  So if you think your opponent is going to Steal for sure, you have nothing to lose by playing Split.  Given how reluctant Left is even despite this, I'd say it was pretty important for the success of the strategy.

And another reminder that lies can help the lied-to.