Australia has gone much further down the path of legalised gambling, with predictably disastrous results. I worked on casinos when they were relatively new in Australia and have hated them ever since.
We are now seeing a political backlash, partly in response to an explosion of ads for sports betting, but extending to a general reaction against the social harms of gambling.
"Lending money where it’s needed is what the modern form of finance, for the most part, does not do. What modern finance does, for the most part, is gamble. It speculates on the movements of prices and makes bets on their direction. ...."
"The total value of all the economic activity in the world is estimated at $105 trillion. That’s the mangoes. The value of the financial derivatives which arise from this activity – that’s the subsequent trading – is $667 trillion. That makes it the biggest business in the world. And in terms of the things it produces, that business is useless. It does nothing and adds no value. It is just one speculator betting against another and for every winner, on every single transaction, there is an exactly equivalent loser."
I've long suspected that all this is substantially due to the fact that rich sociopaths have so thoroughly captured the world's political systems and thereby so thoroughly immunized themselves and their corporations against taxation and regulation that they now have far more money than they know how to spend or invest sensibly. According to theorists of capitalism, all that money should be invested in expanding the productive capacity of the economy, but who would buy the additional products? Certainly not the vast majority of us who are just scraping by. So what to do with all that money? An obvious possibility is, play casino games, or in other words, speculate.
This review gave me some insights into Silver's perspective. I used to think he was a data analysis nerd! Silly me.
I think it's fair to say that people and industries that profit on other people's addictions are parasitic to society, but capitalism being what it is, making a huge profit also means you have outsize political power, so the exploitation carries on.
You are a bit too generous to the financial system here. The big financial institutions have embraced crypto, which is mainly gambling (plus dark economy), and it is just about as big as the big five tech stocks (which have a pretty big meme element themselves)
Why is he a "problem" for analyzing gambling? I haven't read his new book (I have it next on my listen list having downloaded it last week) but I have read his first and liked it a lot.
This attitude doesn't match at all how he treats gambling and statistical analysis in his first book. Most people have no idea at all how to assess risk, and using gambling as an example for how to do it without passion and correctly mathematically is a way to use something most people are familiar with to explain sometimes difficult statistical analysis.
I am interested in the question of how innovation today compares to innovation a 100 years ago. Back then, innovation had tremendous societal value: fertilizers, electricity, fridges, antibiotics, anesthetics, transportation. In line with the blog, I am tempted to say that innovation today largely increases systemic risks without much societal benefit. My prime examples are blockchain technology and AI. I can now add gambling to the list.
I guess if Silver was committed to a poker analogy, "Riverians" was the best of a bunch of bad options. It's not as if he was going to name his tribe "the Floppers".
I think the worst thing about Silver's schema is the way he characterizes venture capitalists as a bunch of risk takin' gamblers who just managed to find themselves an edge. In fact, they're so darn smart that they just can't help seeing edges everywhere they look. It rings false because so far as I can tell, Silicon Valley VCs don't actually face the possibility of losing money. Between their opportunities for early exit, control of the hype cycle, and always getting paid first, their worst case scenario is breaking even. I guess you can call that an "edge", but it's not what we normally think of as gambling. I think people are right to question whether the rules of this particular game maybe ought to be changed.
In a way, Silver himself is a similar beast. He plays poker with rich guys who are terrible at cards, but they have massive egos and more money than they can ever spend, so they just keep buying in until they finally win a hand. They may lose a new car's worth of money in the process, but for them it's worth it to be able to say they "beat" Nate Silver at poker. It's a pretty good gig, if you can get it, but when you cut through the storytelling, it feels a little contemptible.
It's a little sad to see Silver, who once had important to say about forecasting and risk, reduced to flattering his patrons in print, but that's how the game is played. It reminds me of Cyrano: "[Would you have me] tickle the horns of Mammon with my left hand, while my right, too proud to know his partner's business, takes in the fee?" No, thank you.
Years ago, I heard Yossi Vardi, a prominent "angel" investor, admit in public that his strategy is "spray and pray": invest in a bunch of companies and hope at least one of them makes it big. I appreciated the honesty of that, which is rare from big investors.
One theory I have on why the public believes that we are in hard times is that the public's idea of good times is a bubble economy on the verge of bursting.
The stock market may essentially be gambling, but it is a type of gambling that produces valuable byproduct information. Through the activity of the stock market, we are able to gauge aggregate investor opinion on the state and worth of publicly traded companies.
This is probably wrong. The modern stock market provides no valid information on the worth of the frequently traded companies. It never did in the short one, as Ben Graham said In the short term the stock market is a voting machine. Prices are determined by popularity as in elections and fads.
The second part of Graham's quote is "in the long run the market is a weighing machine" This was true for more than 200 years but since 2014 has increasingly ceased to be the case. The reason is market manipulation on a vast scale through stock buybacks and to a lesser extend Fed QE. Because if this stock prices have become uncoupled from business fundamentals and begin to resemble objects of speculation like crypto. What sort of valuable information about *worth* is provided by bitcoin prices?
In that piece and, I gather, in the book, Silver spouts a lot of bullshit, most of which the Guardian presents without challenge. For example:
"Its mindset is highly analytical, somewhat contrarian and frequently thrill-seeking."
Clowns like Elon Musk are "highly analytical", eh? That's a good one, Nate! So Musk was "highly analytical" when he paid $44 billion for Twitter and proceeded to trash it so thoroughly that he probably couldn't get half that much for it now, or when he claimed in 2021 that he was "highly confident the car [a Tesla] will be able to drive itself with reliability in excess of human this year", or when he claimed last week that there will be a self-sustaining city on Mars in 20 years?* And Sam Bankman-Fried was "highly analytical" when he orchestrated the scams that landed him in prison for 25 years (or until he and his enablers manage to get him sprung)? Riiight.
But I want to focus for a moment on the following bullshit, which seems particularly germane to the themes of this blog/newsletter:
"But it’s more than a curious outgrowth of advanced capitalism, Silver says; in an era of breakneck technological change, it will play an outsize role in determining the shape of society, and our collective futures."
If the present actually were "an era of breakneck technological change", then our parents and grandparents wouldn't have survived to beget us - not only would their necks have been broken, their heads would have been chopped clean off - because they lived through much more and more consequential technological change than we have. Consider the world of 1960 from the perspective of a person born in 1900 - before airplanes, before all but the crudest electronics and therefore before computers or television and almost before even radio, before nuclear energy or quantum mechanics, before antibiotics or genetics to speak of**, etc. To such a person, 1960 felt like science fiction come true. In contrast, I was born in 1964, and to me, 2024 definitely does not feel like science fiction come true.
Consider, for example, "2001: A space odyssey", released in 1968. Arthur Clarke, who co-wrote it with Stanley Kubrick, was among the most scientifically literate and sober of sci-fi authors, and he thought it was reasonable to suggest that by 2001, humanity would have a massive station in low-Earth orbit - palatial in size and comfort compared to the ISS - large, permanent settlements on the moon, and the ability to send a manned mission to Jupiter bearing an artificial intelligence whose only defect in replicating human mentality was an inability to lie with equanimity. 23 years later, not only has none of that happened, but humanity isn't even close to capable of doing any of it.
Contra Silver, we live in an era less of technological change than of technological stagnation. As David Graeber remarked in his 2012 essay "On flying cars and the declining rate of profit":
"We are well informed of the wonders of computers, as if this is some sort of unanticipated compensation, but, in fact, we haven't moved even computing to the point of progress that people in the fifties expected we'd have reached by now."
Cryptocurrencies, NFTs, and LLMs are fitting avatars of this crappy, form-over-substance era.
There's more, of course, much more; the Guardian piece is an orgy of bullshitting. As for Silver's "River vs. Village" foolishness, it reminds me of nothing so much as Joseph Epstein's 1979 essay "The ephemeral verities":
"But as we [Epstein and a magazine editor] talked further, it became clear to me that what he really wanted, what every editor of a contemporary mass magazine for the college-educated middle classes wants, is not a body of useful or curious information, or the spectacle of an idiosyncratic and perhaps interesting mind at work, but a piece of writing that will spot a trend, put a new phrase into the language, erect a new truth that will endure until the next issue of the magazine appears. What is wanted, if I may say so, is a shiny new cliché."
*See https://idlewords.com/2023/1/why_not_mars.htm for an introduction to why this notion is idiotic. As the author, Maciej Cegłowski, remarks, "Once you get beyond 'rocket factory go brrrrr,' there is no plan, just a familiar fog of Musky woo."
**Gregor Mendel published in the 1860s, but his work was largely ignored until its rediscovery in the early 1900s. And even then, it took many more years to understand the mechanics of how DNA, RNA, etc. function in heredity.
I met Nate Silver a long time ago, before he was famous, when he just wrote for Baseball Prospectus. He was legitimately a groundbreaking innovator when it came to understanding how to best analyze complicated statistics. I was happy to see more attention paid to his brand of statistical analysis, after a long period of denial his (and his peers) approach to baseball stats improved our understanding of the game. I hoped that his political contributions would be equally useful. I’m so disappointed by his loss of plot.
Because according to its critics it causes social harm. In light of that, it is only reasonable to ask if gambling carries social benefits that justify the harm that it allegedly causes. We weigh these same factors any time we consider restricting or outlawing some activity.
That has nothing to do with analyzing it statistically. Or anything that Nate has to do with it. Gambling is most likely a net negative on society, however what people do (in my opinion) with their money is their business. But, living in a free society we are free to legislate and regulate it as we wish as a whole. I am not a big fan of how betting has totally taken over american sports (it took over the world long ago) but it is what it is now. We should be looking for ways to bring in harm reduction at this point also and I don't think we are putting that toothpaste back in the tube.
Australia has gone much further down the path of legalised gambling, with predictably disastrous results. I worked on casinos when they were relatively new in Australia and have hated them ever since.
We are now seeing a political backlash, partly in response to an explosion of ads for sports betting, but extending to a general reaction against the social harms of gambling.
I read and enjoyed the bluesky thread and I'd also mention this recent LRB essay arguing that much of contemporary banking/finance is just gambling (I think it's overstated to suggest that it has _no_ social value, but still . . . ) https://www.lrb.co.uk/the-paper/v46/n17/john-lanchester/for-every-winner-a-loser
"Lending money where it’s needed is what the modern form of finance, for the most part, does not do. What modern finance does, for the most part, is gamble. It speculates on the movements of prices and makes bets on their direction. ...."
"The total value of all the economic activity in the world is estimated at $105 trillion. That’s the mangoes. The value of the financial derivatives which arise from this activity – that’s the subsequent trading – is $667 trillion. That makes it the biggest business in the world. And in terms of the things it produces, that business is useless. It does nothing and adds no value. It is just one speculator betting against another and for every winner, on every single transaction, there is an exactly equivalent loser."
I've long suspected that all this is substantially due to the fact that rich sociopaths have so thoroughly captured the world's political systems and thereby so thoroughly immunized themselves and their corporations against taxation and regulation that they now have far more money than they know how to spend or invest sensibly. According to theorists of capitalism, all that money should be invested in expanding the productive capacity of the economy, but who would buy the additional products? Certainly not the vast majority of us who are just scraping by. So what to do with all that money? An obvious possibility is, play casino games, or in other words, speculate.
This review gave me some insights into Silver's perspective. I used to think he was a data analysis nerd! Silly me.
I think it's fair to say that people and industries that profit on other people's addictions are parasitic to society, but capitalism being what it is, making a huge profit also means you have outsize political power, so the exploitation carries on.
You are a bit too generous to the financial system here. The big financial institutions have embraced crypto, which is mainly gambling (plus dark economy), and it is just about as big as the big five tech stocks (which have a pretty big meme element themselves)
Superb review and gets at the heart of why Silver is a problem these days.
Why is he a "problem" for analyzing gambling? I haven't read his new book (I have it next on my listen list having downloaded it last week) but I have read his first and liked it a lot.
This attitude doesn't match at all how he treats gambling and statistical analysis in his first book. Most people have no idea at all how to assess risk, and using gambling as an example for how to do it without passion and correctly mathematically is a way to use something most people are familiar with to explain sometimes difficult statistical analysis.
I am interested in the question of how innovation today compares to innovation a 100 years ago. Back then, innovation had tremendous societal value: fertilizers, electricity, fridges, antibiotics, anesthetics, transportation. In line with the blog, I am tempted to say that innovation today largely increases systemic risks without much societal benefit. My prime examples are blockchain technology and AI. I can now add gambling to the list.
I guess if Silver was committed to a poker analogy, "Riverians" was the best of a bunch of bad options. It's not as if he was going to name his tribe "the Floppers".
I think the worst thing about Silver's schema is the way he characterizes venture capitalists as a bunch of risk takin' gamblers who just managed to find themselves an edge. In fact, they're so darn smart that they just can't help seeing edges everywhere they look. It rings false because so far as I can tell, Silicon Valley VCs don't actually face the possibility of losing money. Between their opportunities for early exit, control of the hype cycle, and always getting paid first, their worst case scenario is breaking even. I guess you can call that an "edge", but it's not what we normally think of as gambling. I think people are right to question whether the rules of this particular game maybe ought to be changed.
In a way, Silver himself is a similar beast. He plays poker with rich guys who are terrible at cards, but they have massive egos and more money than they can ever spend, so they just keep buying in until they finally win a hand. They may lose a new car's worth of money in the process, but for them it's worth it to be able to say they "beat" Nate Silver at poker. It's a pretty good gig, if you can get it, but when you cut through the storytelling, it feels a little contemptible.
It's a little sad to see Silver, who once had important to say about forecasting and risk, reduced to flattering his patrons in print, but that's how the game is played. It reminds me of Cyrano: "[Would you have me] tickle the horns of Mammon with my left hand, while my right, too proud to know his partner's business, takes in the fee?" No, thank you.
Years ago, I heard Yossi Vardi, a prominent "angel" investor, admit in public that his strategy is "spray and pray": invest in a bunch of companies and hope at least one of them makes it big. I appreciated the honesty of that, which is rare from big investors.
Paywall. Sigh.
I am delighted to encounter the phrases "systemic risk" and "societal value" on substack. May be that is even a first. Do I read the wrong substacks?
One theory I have on why the public believes that we are in hard times is that the public's idea of good times is a bubble economy on the verge of bursting.
The stock market may essentially be gambling, but it is a type of gambling that produces valuable byproduct information. Through the activity of the stock market, we are able to gauge aggregate investor opinion on the state and worth of publicly traded companies.
This is probably wrong. The modern stock market provides no valid information on the worth of the frequently traded companies. It never did in the short one, as Ben Graham said In the short term the stock market is a voting machine. Prices are determined by popularity as in elections and fads.
The second part of Graham's quote is "in the long run the market is a weighing machine" This was true for more than 200 years but since 2014 has increasingly ceased to be the case. The reason is market manipulation on a vast scale through stock buybacks and to a lesser extend Fed QE. Because if this stock prices have become uncoupled from business fundamentals and begin to resemble objects of speculation like crypto. What sort of valuable information about *worth* is provided by bitcoin prices?
Indian govt body SEBI did a detailed analysis of how Individual investors fared in F&O markets. Here is detailed thread by one gentleman -
https://x.com/amitgupta0310/status/1838174010544452054
Besides Dave's well taken points about systemic risk and social corrosion ...
I've never paid much attention to Silver, but I read a Guardian piece that's sort of about his book:
https://www.theguardian.com/us-news/2024/sep/21/people-should-be-making-their-contingency-plans-like-right-away-americas-leading-forecaster-on-the-chances-of-a-trump-win
In that piece and, I gather, in the book, Silver spouts a lot of bullshit, most of which the Guardian presents without challenge. For example:
"Its mindset is highly analytical, somewhat contrarian and frequently thrill-seeking."
Clowns like Elon Musk are "highly analytical", eh? That's a good one, Nate! So Musk was "highly analytical" when he paid $44 billion for Twitter and proceeded to trash it so thoroughly that he probably couldn't get half that much for it now, or when he claimed in 2021 that he was "highly confident the car [a Tesla] will be able to drive itself with reliability in excess of human this year", or when he claimed last week that there will be a self-sustaining city on Mars in 20 years?* And Sam Bankman-Fried was "highly analytical" when he orchestrated the scams that landed him in prison for 25 years (or until he and his enablers manage to get him sprung)? Riiight.
But I want to focus for a moment on the following bullshit, which seems particularly germane to the themes of this blog/newsletter:
"But it’s more than a curious outgrowth of advanced capitalism, Silver says; in an era of breakneck technological change, it will play an outsize role in determining the shape of society, and our collective futures."
If the present actually were "an era of breakneck technological change", then our parents and grandparents wouldn't have survived to beget us - not only would their necks have been broken, their heads would have been chopped clean off - because they lived through much more and more consequential technological change than we have. Consider the world of 1960 from the perspective of a person born in 1900 - before airplanes, before all but the crudest electronics and therefore before computers or television and almost before even radio, before nuclear energy or quantum mechanics, before antibiotics or genetics to speak of**, etc. To such a person, 1960 felt like science fiction come true. In contrast, I was born in 1964, and to me, 2024 definitely does not feel like science fiction come true.
Consider, for example, "2001: A space odyssey", released in 1968. Arthur Clarke, who co-wrote it with Stanley Kubrick, was among the most scientifically literate and sober of sci-fi authors, and he thought it was reasonable to suggest that by 2001, humanity would have a massive station in low-Earth orbit - palatial in size and comfort compared to the ISS - large, permanent settlements on the moon, and the ability to send a manned mission to Jupiter bearing an artificial intelligence whose only defect in replicating human mentality was an inability to lie with equanimity. 23 years later, not only has none of that happened, but humanity isn't even close to capable of doing any of it.
Contra Silver, we live in an era less of technological change than of technological stagnation. As David Graeber remarked in his 2012 essay "On flying cars and the declining rate of profit":
"We are well informed of the wonders of computers, as if this is some sort of unanticipated compensation, but, in fact, we haven't moved even computing to the point of progress that people in the fifties expected we'd have reached by now."
(https://thebaffler.com/salvos/of-flying-cars-and-the-declining-rate-of-profit)
Cryptocurrencies, NFTs, and LLMs are fitting avatars of this crappy, form-over-substance era.
There's more, of course, much more; the Guardian piece is an orgy of bullshitting. As for Silver's "River vs. Village" foolishness, it reminds me of nothing so much as Joseph Epstein's 1979 essay "The ephemeral verities":
"But as we [Epstein and a magazine editor] talked further, it became clear to me that what he really wanted, what every editor of a contemporary mass magazine for the college-educated middle classes wants, is not a body of useful or curious information, or the spectacle of an idiosyncratic and perhaps interesting mind at work, but a piece of writing that will spot a trend, put a new phrase into the language, erect a new truth that will endure until the next issue of the magazine appears. What is wanted, if I may say so, is a shiny new cliché."
*See https://idlewords.com/2023/1/why_not_mars.htm for an introduction to why this notion is idiotic. As the author, Maciej Cegłowski, remarks, "Once you get beyond 'rocket factory go brrrrr,' there is no plan, just a familiar fog of Musky woo."
**Gregor Mendel published in the 1860s, but his work was largely ignored until its rediscovery in the early 1900s. And even then, it took many more years to understand the mechanics of how DNA, RNA, etc. function in heredity.
I met Nate Silver a long time ago, before he was famous, when he just wrote for Baseball Prospectus. He was legitimately a groundbreaking innovator when it came to understanding how to best analyze complicated statistics. I was happy to see more attention paid to his brand of statistical analysis, after a long period of denial his (and his peers) approach to baseball stats improved our understanding of the game. I hoped that his political contributions would be equally useful. I’m so disappointed by his loss of plot.
The capsize and sinking of the Bayesian was a human tragedy, but also a darkly funny B-roll for Silver's descent into a16z cryptobro bullshit.
Why must there be social benefit from sports gambling or poker?
Because according to its critics it causes social harm. In light of that, it is only reasonable to ask if gambling carries social benefits that justify the harm that it allegedly causes. We weigh these same factors any time we consider restricting or outlawing some activity.
That has nothing to do with analyzing it statistically. Or anything that Nate has to do with it. Gambling is most likely a net negative on society, however what people do (in my opinion) with their money is their business. But, living in a free society we are free to legislate and regulate it as we wish as a whole. I am not a big fan of how betting has totally taken over american sports (it took over the world long ago) but it is what it is now. We should be looking for ways to bring in harm reduction at this point also and I don't think we are putting that toothpaste back in the tube.