Kevin Drum

Wait a Second. I Thought Bitcoins Were Unstealable?

| Fri Feb. 28, 2014 11:26 AM GMT

I don't really care about Bitcoin—really I don't—but I guess I'm curious about something. How is that cyber thieves were able to steal a million bitcoins from Mt. Gox? I understand that Mt. Gox had inadequate security, but I thought the whole point of bitcoin was that it was protected by its very nature: every transaction is stored in a block chain; the block chains are mirrored by thousands of bitcoin miners; and you can't screw with the block chains unless you apply galactic amounts of computing power. So even if you managed to steal some bitcoins, you couldn't get anyone else to accept them unless you could demonstrate proper chain of custody, so to speak. Since this is more or less impossible, all the stolen bitcoins are of no use to anyone.

Obviously I'm missing something fundamental here, since I assume thieves don't bother taking stuff they can never use. And yes, this is just academic interest in the deep geekery behind bitcoin. But can anyone point me to an explainer that tells me exactly how a theft like this could be successfully pulled off?

UPDATE: Judging from some links in comments, apparently the problem is that Mt. Gox had a bug in their software that allowed thieves to create seemingly legitimate transaction changes which were propagated throughout the block chains. There is a known problem with the bitcoin protocol that allows this, and Mt. Gox didn't properly protect against it:

Many exchanges use the Transaction ID to uniquely identify transactions, but as it turns out, an attacker can change the Transaction ID without changing the actual transaction, rebroadcast the changed transaction (effectively creating a double-spend) and if his altered transaction gets accepted into a block instead of the legit transaction, the attacker receives his coins and can complain with the exchange that he didn't. The exchange will then check their database, fetch the Transaction ID from it, look it up in the blockchain and not find it. So they could conclude that the transaction indeed failed and credit the account with the coins. ... A simple workaround is to not use the Transaction ID to identify transactions on the exchange side, but the (amount, address, timestamp) instead.

I don't know that I actually understand this, but then again, I'm not sure I want to. In any case, apparently it's a known bug that Mt. Gox should have handled in its internal software. But they didn't.

UPDATE 2: Emin Gün Sirer, who sure sounds like he knows what he's talking about, says that the problem above, known as "transaction malleability," is almost certainly not behind the Mt. Gox theft. Nor was it lost keys, hackers, web server problems, or US spooks.

So what was it? He doesn't know. He concludes with this: "Chances are that this is a simple case of theft, involving at least one insider." So I guess we still have to wait and see.

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Chart of the Day: Attitudes Toward Gay Marriage Have Changed About as Fast as Attitudes Toward Interracial Marriage

| Fri Feb. 28, 2014 10:39 AM GMT

Jon Cohn wonders how it is that attitudes toward same-sex marriage have changed so rapidly:

The change may seem inevitable now, but it didn’t always. And it’s happened with breathtaking speed....It’s easy to assume the change represents nothing more than a generational shift....[But] pollsters have found that, over time, support for same-sex marriage has risen even within generations.

One likely reason for this, according to most social scientists, is the contact theory. As more people realize that they have a gay neighbor or friend or family member, the reality of that relationship crashes into—and destroys—their stereotypes and preconceptions....But even that explanation is inadequate....The real mystery here, or at least a big part of it, is what suddenly made the environment more hospitable? At this point, social scientists admit, they have no answers they can verify—only theories that seem roughly to fit the facts.

For what it's worth, I want to suggest that attitudes haven't changed any more quickly than we should have expected. It's just a fact that social change comes pretty quickly these days. Take a look at the chart on the right, for example. Based on Gallup polling, it shows attitudes toward gay marriage vs. attitudes toward interracial marriage among whites.1 Favorable attitudes toward interracial marriage increased 28 points between 1978 and 1997. Favorable attitudes toward gay marriage increased 27 points between 1996 and 2013.

Everything Cohn talks about in his post could apply to interracial marriage too: generational changes, network effects, popular culture, and so forth. Nevertheless, it's worth noting that public attitudes toward gay marriage changed at about the same rate as attitudes toward interracial marriage. With the right pressure and the right tailwinds, this is simply how fast cultural change can happen in our modern media era.

1Note that I compressed 19 years of data on interracial marriage into 17 years on the chart. Gallup didn't poll interracial marriage frequently enough to produce an exact 17-year span that would line up with their polling on gay marriage.

Note to Media: Please Stop Writing Dumb Articles About California

| Fri Feb. 28, 2014 9:36 AM GMT

I have a wee request for the national media: will you please stop writing about Tim Draper's idiotic plan to split California into six states? I know it's a slow news week and all, and I know everyone loves an excuse to talk about how much Californians all hate each other, but California is not going to get sliced up. Reporters know it's not going to happen; Draper knows it's not going to happen; everyone knows it's not going to happen. So can we all stop feeding his ego on this just for the sake of some dull, pro forma thumbsuckers about how California is really big (duh) and features political conflicts between its different regions (double duh)? Thanks.

US Economy Remains Even More Sluggish Than We Thought

| Fri Feb. 28, 2014 9:03 AM GMT

Some bad economic news today:




Poli Sci Profs Say Poli Sci Wizardry Didn't Help Obama In 2012 After All

| Thu Feb. 27, 2014 5:51 PM GMT

Ryan Enos and Anthony Fowler have a new paper out that tries to figure out if the Obama campaign's widely reported techno-wizardry in the 2012 election really produced a big get-out-the-vote advantage over Mitt Romney. Apparently not:

The Obama campaign of 2012 has been championed as the most technologically-sophisticated, evidence-based campaign in history while the Romney campaign was more traditional. Does this difference manifest itself in the data? Did the technological sophistication of the Obama campaign lead their GOTV efforts to be significantly more effective than Romney’s?

.... [Our] analysis, while admittedly crude, allows us to roughly compare the effectiveness of the Obama and Romney campaigns in mobilizing their respective supporters. Despite the technological sophistication of the Obama campaign and its devotion to a data-driven, evidence-based campaign, we see similar mobilization effects on both sides of Figure 2. It appears that the two campaigns were roughly comparable in their ability to turn out supporters.

Logic and conventional wisdom suggest that you should concentrate your GOTV effort on strong partisans, since these are the people most likely to vote for you. These are the voters Enos and Fowler analyze, and they conclude that both campaigns mobilized strong partisans about as well. Strongly organized precincts showed a 7 percent improvement in turnout on both sides.

Now, it could well be that the Obama campaign spent more money on GOTV and was thus able to influence more voters. It's also possible that Obama was able to perform sophisticated targeting that went beyond just the most rabid partisans. So take this with a grain of salt. But if Enos and Fowler are right, the poli-sci-driven rocket science of the Obama campaign didn't actually make much difference. The core GOTV efforts of both campaigns were about equally effective.

Quote of the Day: People Sure Use Their Webcams for a Lot of Kinky Stuff

| Thu Feb. 27, 2014 1:38 PM GMT

From Britain's GCHQ, lamenting the images they got when they tapped into Yahoo webcam chats:


Imagine that. On a more serious note, GCHQ was tapping into Yahoo webcam chats:




Unsurprisingly, Yahoo was not amused when it learned about this.

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Do People Really Dislike Jeopardy Champ Arthur Chu Because He Hits the Buzzer Too Hard?

| Thu Feb. 27, 2014 1:07 PM GMT

Let's talk about something completely trivial for a bit: Arthur Chu, the polarizing Jeopardy! champion currently on a 7-game winning streak. Caitlin Dewey explains why so many people don't like him:

Since time immemorial — read: September 1984 — “Jeopardy!” has followed a simple pattern: Contestants pick a category; they progress through the category from top to bottom; they earn winnings when they, through their hard-earned and admirable intellect, get the questions right.


It's the bolded comment I'm curious about. I understand why people could be annoyed by Chu skipping around the board so aggressively. Aside from a sense that he might be taking unfair advantage of his experience vs. a pair of newbies, it makes it a little harder to follow the game at home. I also get why some people might not like the idea of playing to tie. Both of these complaints may be overstated—Chu isn't the first guy to go searching for Daily Doubles, and playing to tie only affects a few seconds of game play—but I understand them.

That said, what's up with the complaint that he tries to ring in aggressively? That doesn't even make sense. Everyone tries to ring in aggressively. Being fast on the buzzer is one of the cornerstones of the game. It might even be more important than knowing lots of answers. (Pretty much everyone who makes it onto the show knows lots of answers.)

So where does this come from? Am I missing something?

POSTSCRIPT: I myself initially found Chu a little annoying, though mostly for his affect more than his actual game play. But I've warmed to him just because he's so damn good. He's a serious buzzsaw at the game, and it's hard not to admire that. I noticed last night, though, that the other contestants were starting to mimic his strategy. I wonder if that will be his undoing before long?

Chris Christie's Aides Sure Did Joke About Traffic Jams a Lot

| Thu Feb. 27, 2014 11:29 AM GMT






Relearning the Past: Yes, Rising Inequality is Bad for Economic Growth

| Thu Feb. 27, 2014 10:36 AM GMT

Does high income inequality lead to lower economic growth? There are two main reasons to think it might. The first is simple: rich people spend a smaller percentage of their income than the non-rich. Thus, as more and more income accrues to the rich, we get less net consumption and thus slower growth.

The evidence on this score turns out to be pretty hazy. It seems logical, but if you look at consumption trends over time you just don't see it. But there's a second theory that's more interesting: as inequality rises, the rich increasingly need to find good places to invest all the money they're accumulating. Eventually concrete business opportunities start to become scarce, so they look around for other places to put their money to work. In practice, this means the rich become net lenders to the middle class. They can hardly be loaning money to each other, after all, since they all have more of it than they can use for current consumption.

So the rich lend money to the middle class, which is an eager recipient because their incomes are stagnant. But as the debt load of the middle class increases, this lending becomes ever more Byzantine and ever more risky. Eventually, the middle class simply can't take on more debt and the whole system comes to a screeching halt. The result is an economic recession as consumers try to work themselves out from under the mountain of debt they've run up.

There's an intriguing amount of evidence to back up this theory, and in a new report released yesterday a team of IMF researchers provides another reason to believe it. They find that high inequality is indeed associated with slower growth, but the mechanism for that slower growth comes in reduced growth spells. That is, it's not that countries with high inequality have steady growth rates that happen to be a little lower than countries with low inequality. Rather, they have shorter spells of economic expansion. In particular, the authors find that a 1-point increase in a country's GINI score (a measure of inequality) is associated with a decrease of about 7 percent in the length of its growth spells.


The IMF team also found that—within reason—redistribution doesn't seem to harm growth. In fact, just the opposite: "The combined direct and indirect effects of redistribution—including the growth effects of the resulting lower inequality—are on average pro-growth."

To pick up on the theme of the previous post, this is something we all understood back in the era when unions were powerful advocates for the middle class. Of course rising middle-class wages are a prerequisite for sustainable growth in a mixed consumer economy like ours. And the more stagnant those wages are—and the aughts were by far the worst decade for stagnant wages since World War II—the more fragile economic growth is.

Now we have an IMF report to add to the technical evidence that middle-class wage stagnation is bad for the economy. But who has the raw political power to force the business community to listen to it?

Unions Are Dying. What Will Replace Them?

| Thu Feb. 27, 2014 9:09 AM GMT

Last week, Evan Soltas wrote a column that basically told liberals to give up on unions. "Unions can no longer solve labor's woes," he wrote. "That's not terrible, because the way unions gave workers power created its own problems."

In response to criticism from Michael Wasser, he wrote this:

The heart of the matter, it seems to me, is whether union decline is basically irreversible…If the decline is permanent…Wasser's claim about uniqueness has no independent policy implications—it's merely a statement of pessimism.

Yet I still find that pessimism implausible if one considers this graph (via Jared Bernstein) showing the broad increase in wages in the 1990s. Why? Unionization was also low then. How did wages rise so quickly, then, for the bottom half of the wage distribution? You can thank full employment.

Unfortunately, I agree with Soltas: The decline of union power is irreversible. Private-sector unions are all but dead, and public-sector unions are barely hanging on by their fingernails. That doesn't mean liberals should give up on labor, or that labor should give up on organizing new industries. Of course they shouldn't. It just means that as a broad-based force that provides a countervailing force against the power of the business community, labor's day is over. Like it or not, liberals have to figure out something else to play that role.

This is where I depart a bit from both Soltas and Wasser—in emphasis if not in detail. Their focus is primarily on what unions do specifically in the workplace: balancing power between employers and workers and providing a voice for workers that management can hear. Both of those are important, and both are problematic: You can reasonably argue about whether they're a net positive, or whether unions are the only way of obtaining them. But I view the primary strength of unions differently: They're a broad-based force that represents the interests of the middle class in the American political arena. Here's how I put it a couple of years ago after a quick review of the ways in which the past three decades have been disastrous for American workers:



And that is a statement of pessimism, because no one on the left seems to have any serious ideas about what this countervailing power might be now that labor is a shadow of its former self. Organized labor really is unique, as Wasser suggests, and for all its problems, that's why I mourn its decline. There's no longer any serious countervailing power against the interests of business interests and the finance community, and we're paying a high price for that.
