Ryan Beck


  • Afghanistan Uncertainty

    27 Aug 2021

    I’ve been increasingly frustrated with the public conversation around Afghanistan. The whole situation is a tragedy, and instead of sober reflection on the situation we got ourselves into the public conversation has predictably become nothing but political finger pointing. Those flinging blame at this point appear to be selectively attacking only their political enemies and defending their political allies. But the failures have been bipartisan, and I think we should all be ignoring the people who are currently using this horrible situation as a tool to attack their political enemies.

    Every additional piece of information I’ve read about what’s been going on in Afghanistan makes me less sure what the right solution was. I think uncertainty is often the opposite of partisanship, so in the hopes of spreading some uncertainty I’ve tried below to provide some of the most useful information I’ve seen. I’ve tried to keep it light on opinion and I’ve also tried to include sources for everything I’ve said here.

    In February of 2020 the Trump administration negotiated with the Taliban and signed the Doha Agreement [1] [2]. This agreement specified that the US would withdraw all its forces by May of 2021, and in exchange the Taliban agreed to prevent any threats against the United States and its military originating in Afghanistan. Additionally, the agreement specified that the Afghan government would release 5,000 Taliban prisoners, and the Taliban would release 1,000 Afghan government soldiers they held prisoner. The Afghan government was not a party to this negotiation.

    After the agreement the Taliban ceased attacks on US led forces in Afghanistan. You may have seen people saying that no US soldiers had died in Afghanistan since February of 2020. This is why. Wikipedia has a count of US soldiers killed in Afghanistan by month and you can see there are no deaths since February of 2020 [3]. However, according to [1], the Taliban continued and even increased the frequency of attacks against the Afghan government after the agreement was signed. It just stopped attacking US led forces.

    Biden became president in January, and in March he publicly stated that the US may miss its May withdrawal deadline [4]. Biden cited difficulties in the presidential transition process as the reason saying “The failure to have an orderly transition from the Trump presidency to my presidency… has cost me time and consequences.” On April 13 Biden announced that the date of full withdrawal would be moved to September 11th, the 20 year anniversary of the September 11th attacks. [5]

    In May, General Mark Milley, chairman of the Joint Chiefs of Staff, said plans were being created to evacuate Afghan allies such as interpreters, if necessary. Additionally, the State Department was stated to be processing Special Immigrant Visas (SIVs) in Kabul for Afghans. [6] Also in May, Zalmay Khalilzad, U.S. special envoy to Afghanistan and lead US negotiator on the February 2020 Doha Agreement with the Taliban, said “We don’t want to signal panic and the departure of all educated Afghans by worst-casing and undermining the morale of the Afghan security forces… I personally believe that the statements that [Afghan] forces will disintegrate and the Talibs will take over in short order are mistaken.” [7]

    In June the US intelligence community stated that they believed the Afghan government could fall between 6 and 12 months after US forces withdrew, revising from a previous estimate of approximately 2 years [8]. On August 16th the Taliban captured Kabul, the capital of Afghanistan, before US troops had completed their withdrawal. [9]

    I tried to keep the above as close to the evidence and available information as possible, but of course there will be bias in what I’ve considered important enough to include. I’m also just learning about all this myself, so keep in mind someone who has carefully studied this more closely and for longer will have other information that would be important to consider. The rest of this will be my interpretation of the above and will obviously be based more on my opinion.

    The whole thing is a mess, and in my opinion it seems very unclear that we could have left Afghanistan without chaos ensuing. At the same time, in hindsight it also seems very likely that we could have left in a better way, but I’m not sure if anyone really could have foreseen some of these unexpected consequences.

    The Doha Agreement was responsible for the reduction in attacks on US soldiers in 2020. In the few years prior to the Doha Agreement on average about one US soldier was killed in action per month [3]. But what’s not clear to me is what would have happened if Biden had decided to cancel the withdrawal entirely or delay it for significantly longer. It seems likely to me that the Taliban would have seen this as a violation of the agreement and restarted attacks against the US, resulting in US soldiers being killed again. In my opinion the Taliban signed onto the Doha Agreement in the first place because they knew once US troops were out of the way they would eventually gain control of Afghanistan. If US troops instead remain in violation of the agreement, why wouldn’t the Taliban continue or renew its attacks and try to regain territory? Some opinion pieces in April were arguing the same. [10]

    Biden chose to take US troops out, though he delayed the withdrawal to try to prepare more. Obviously that failed. Could he have prepared better? I think so. I think Biden, the intelligence community, and everybody involved should have had a better contingency plan in place for a sudden takeover by the Taliban. But to me it seems like nobody saw this coming and therefore did not plan effectively for this possibility. The intelligence community thought 6 to 12 months in June. The US envoy to Afghanistan, Zalmay Khalilzad, basically said they didn’t want to begin mass evacuations because that could start a panic and demoralize the Afghan forces, and that he believed they would hold out. So in the administrations mind the Afghan government would hold out for some time, so they would have time to get US citizens and Afghan allies out, and if they tried to do that too quickly it could demoralize the Afghan government and military and lead to an earlier collapse.

    I think the sudden collapse of the Afghan government surprised everyone, so I don’t know how much blame should be placed solely at the feet of the Biden administration for this bad forecast. Certainly some. But don’t believe anyone that tells you this was foreseeable unless they have receipts. Hindsight is easy, figuring out what’s likely in advance is hard. As proof that no one expected this I can point to a related question which was on Good Judgement Open, a forecasting platform where people compete to try to have the most accurate forecast of what’s likely to happen. This question asks if the US will evacuate or lose control of its embassy in Kabul before December 1, 2021. [11] You can see the crowd forecast in the picture below. The crowd was at less than 10% chance all the way up until August 9th, just a week before Kabul fell. 91 people forecasted on that question (I did not, though I’m sure I would have assigned a low probability like the majority of them did). And keep in mind the question asked if it would happen before December, so these forecasters expected the embassy to stay under US control at least two and a half months after the September 11th withdrawal deadline Biden had set.

    Good Judgement Open Kabul Embassy Forecast
    Good Judgement Open Kabul Embassy Forecast

    I think Biden has mainly failed in a couple ways. One is lack of preparation for the possibility of a swift collapse of the Afghan government. It seems like not enough planning was done for this possibility because everyone expected the Afghan government to last at least a few months. Another big failure is setting the withdrawal date as September 11th. This was purely a political date, meant to coincide with the 20th anniversary of the September 11th attacks. Some have argued pretty convincingly that the withdrawal should have waited for winter because the Taliban typically withdraws back to bases in the winter at the end of the “fighting season” in the summer. [12] The link at [12] has a larger criticism of the things the author thinks Biden did wrong and is definitely worth a read.

    The other main failure I think is a bipartisan one, which is not immediately committing to taking more Afghan refugees. The number of Afghan refugees the US will admit has apparently not yet been decided, but there is concern that Biden will shy away from taking a significant amount of Afghan refugees due to the political opposition against refugees from certain Republicans such as Trump and his supporters. [13] I hope that’s not the case, and according to the link in [13] some Republicans such as Mitt Romney, Joni Ernst, and others have come out in favor of welcoming Afghan refugees, which I’m glad to hear.

    Aside from the things I mentioned above, what were our other options and did anyone see this coming? I don’t really know for sure. Mitch McConnell in April released a statement criticizing Biden’s decision to pull out of Afghanistan saying “A reckless pullback like this would abandon our Afghan, regional, and NATO partners in a shared fight against terrorists that we have not yet won.” [14] The statement also mentions that he’d previously criticized the Trump administration for their decision to agree to withdrawal. Arguably this could be seen as a prediction of bad consequences, but it’s vague enough that we can’t say exactly what he thought would happen. His solution was to stay in Afghanistan indefinitely, as seen from this quote from his statement “Foreign terrorists will not leave the United States alone simply because our politicians have grown tired of taking the fight to them. The President needs to explain to the American people why he thinks abandoning our partners and retreating in the face of the Taliban will make America safer.”

    I don’t think staying indefinitely is a good option, and I think most people agree with that. People are tired of a war dragging on for 20 years, and there was bipartisan support for leaving, as evidenced by the fact that Trump signed an agreement that we would leave and Biden followed through on it. I’m fairly certain that had we not left the same people criticizing Biden right now for the Afghanistan debacle would be criticizing him for not leaving. It seems like a situation with no good outcomes. We can and should expect better of our government, but at the same time governments are always flawed, and this seems like a situation where there would have been at least some chaos no matter how well the Biden administration executed the withdrawal.

    Like I said, I don’t have any strong opinions because I’m uncertain a good outcome was even possible. My only strong feelings are sadness and disappointment at the situation we got ourselves into and the lives endangered or lost. I hope that for anyone reading this far I’ve managed to add some uncertainty into how you view the situation too. If you think I’m missing something or incorrect about anything here please tell me!

    ##Addendum (9-15-2021)
    The above was written in late August. After posting that I asked Alex Nowrasteh, immigration expert at the Cato Institute, if there was more the Biden administration could have done on the visa process for Afghans and he suggested that they could have used parole. He was referring to Humanitarian or Significant Public Benefit Parole for Individuals Outside the United States. [15] The gist of this program seems to be that the US can grant special parole admission for urgent humanitarian reasons. I don’t know the history of this or if there are limits to its use, but Nowrasteh believes the US could have used it to grant admission to at-risk refugees. When I asked why he thought the Biden administration didn’t use it he responded:

    @AlexNowrasteh: A few theories. My number 1 is that Biden thinks nativism is a more powerful political force than it actually is and that a big parole would ignite some kind of political reaction similar to Europe in 2015. In other words, somebody in the admin is reading too much a Breitbart

    If his theory is accurate then I think that points to a significant failure by the Biden administration. I’m sure conservatives would have had a cow if the US used this parole power to let thousands of Afghan citizens into the US, but why are we leaving people in danger because we’re scared of what Tucker Carlson will say on Fox News? I hope that’s not the reason this tool wasn’t used, but regardless it seems like the Biden administration could have done more to rescue Afghans in danger.

    [1] https://en.wikipedia.org/wiki/Doha_Agreement_(2020)

    [2] Full text of the Doha Agreement (pdf, 4 pages): https://www.state.gov/wp-content/uploads/2020/02/Agreement-For-Bringing-Peace-to-Afghanistan-02.29.20.pdf

    [3] https://en.wikipedia.org/wiki/United_States_military_casualties_in_the_War_in_Afghanistan

    [4] https://www.npr.org/2021/03/17/978106035/biden-says-u-s-may-miss-deadline-for-withdrawing-troops-from-afghanistan

    [5] https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/04/14/remarks-by-president-biden-on-the-way-forward-in-afghanistan/

    [6] https://www.nbcnews.com/politics/national-security/u-s-planning-possible-evacuation-afghan-interpreters-says-top-u-n1268852

    [7] https://gandhara.rferl.org/a/u-s-lawmakers-express-concerns-over-fate-of-afghan-allies-with-taliban-return/31262511.html

    [8] https://archive.is/PqKok

    [9] https://www.bbc.com/news/world-asia-58223231

    [10] https://www.nbcnews.com/think/opinion/trump-could-gain-biden-s-decision-delay-withdrawing-afghanistan-ncna1263956

    [11] https://www.gjopen.com/questions/2071-will-the-us-fully-evacuate-or-lose-control-of-its-embassy-in-kabul-afghanistan-before-1-december-2021

    [12] https://archive.is/rwjQ0

    [13] https://www.cnn.com/2021/08/22/politics/biden-afghan-refugees-resettlement-us-politics/index.html

    [14] https://www.republicanleader.senate.gov/newsroom/remarks/clumsy-retreat-from-afghanistan-would-be-a-grave-mistake

    [15] https://www.uscis.gov/humanitarian/humanitarian-or-significant-public-benefit-parole-for-individuals-outside-the-united-states

  • Why Robinhood Halted Gamestop (Reject the Simple Narrative)

    31 Jan 2021

    On January 28th Robinhood disabled all transactions except for position-closing (selling) for a small set of stocks including Gamestop (GME). This was a new and exciting development in the ongoing saga of how a subreddit called Wallstreetbets (WSB) memed their way into contributing to a short squeeze and profiting from it (or at least the early adopters are likely to profit from it). Freezing stock purchases also generated significant outrage, quickly turning into a narrative of how Big Wallstreet will cheat to avoid losing money to the average Joe. This narrative is simple, appealing, and probably wrong, and the following is an attempt to explain why.

    I’m not going to go over the full history here. Others have already done that with plenty of background information. If you want to read the full saga (not necessary to understand the rest of this post, but it is interesting) then check out these links:

    The obligatory Vox explainer.
    A background piece with an interesting explanation of how WSB could profit from this without many of them losing a bunch of money if they can coordinate effectively.
    A Wallstreetbets thread on GME if you’ve never visited the subreddit and want to immerse yourself in the full experience of crass GME memes and takes by people who have fully embraced the early 2000’s non-PC habit of using intellectual disabilities and sexual orientation as insults.

    Anyway, check out those links if you want, or don’t, how we got to where we are isn’t all that important for explaining why Robinhood shut down certain trades on January 28th.

    Disclaimer: I am not an expert on any of this. There’s a good chance I’ve made mistakes in the following explanation. I’m just a guy who wasn’t satisfied by the simple narrative and stayed up 4 hours past his bedtime on Thursday night and spent most of his free time since trying to better understand this stuff and writing it up to share what I’ve learned. If you see anything that you know to be wrong please comment with correct information!

    What differentiates this post: There have already been a few other good posts (see links below) on why Robinhood shutting down transactions was not some corrupt conspiracy. But this post is a post for masochists who want to know what’s going on in more detail and who want to dig into the technical background and data. If that’s you, read on!

    Links to other good posts: https://www.reddit.com/r/neoliberal/comments/l7bo3r/the_game_stop_situation_is_not_a_conspiracy_an/ https://www.reddit.com/r/neoliberal/comments/l7bdcv/what_actually_happened_today_hint_there_probably/ https://www.reddit.com/r/neoliberal/comments/l81tif/why_did_robinhood_stop_allowing_their_customers/ https://www.reddit.com/r/badeconomics/comments/l7gi70/financial_econ_101_or_link_this_in_bad_reddit/

    How a Stock Market Transaction Works

    To really understand why the popular narrative about Robinhood is likely to be wrong, we need to better understand how a stock market transaction works. When you buy a stock, you fork over your money and receive in return shares of a stock. The company that provides the user interface or the human that you call up to arrange this transaction is called a broker. That’s what Robinhood is. You tell your broker you want to buy X shares of stock Y, you give them the money and they arrange for those shares to be purchased and documented as being owned by you.

    But if you’re going through Robinhood, and the person that is selling you the shares goes through TD Ameritrade (another broker), Robinhood and TD Ameritrade don’t actually talk to each other to complete the transaction. A number of intermediaries may be involved and this can be crazy complicated. Here is a brief explanation of some of the key players:

    Broker: The broker interacts with traders. Brokers show traders what the current prices are, takes orders, and handles the traders’ money.

    Clearing Broker/Entity/House: These entities handle the logistics of the trade. When a broker interacts with a trader they are basically a conduit for alerting the broader market that someone wants to make a trade of X stock at Y price. The clearing entity is in charge of organizing and documenting things, basically making sure that each side of the transaction transmits the appropriate funds and documenting everything as to who now owns what. Often brokers and clearing entities are combined. Robinhood was originally just a broker (they refer to that as being an “introducing broker”) but has since expanded to also do clearing.

    Market Maker: A market maker is an entity that has an inventory of certain shares and sells and buys those shares. The purpose of a market maker is to add liquidity. Instead of trying to connect one trader who wants to buy a stock with another trader who wants to sell that stock, brokers can just go to a market maker who they know is holding a stock. The market maker might sell a stock, depleting some of its supply, and then the next instant buy more of that stock to replenish its supply. It’s basically a vehicle for faster transactions, and it makes its money by skimming a bit off the bid-ask spread. In other words, it might list a stock for sale at $100, and also list that it’s willing to purchase a stock for $99.95. The 5 cent spread on each stock traded goes to the market maker. The reason spreads remain small is people would rather go through the market maker that skims the least off the top. Yay competition!

    Exchange: This is like the NASDAQ. The NASDAQ acts as a kind of system enabling the exchange of information and making trades more efficient. This one is confusing to me, but it sounds like an exchange like the NASDAQ brings together market makers and I assume offers them some kind of service and features that makes trading easier. However, it also sounds like market makers don’t necessarily have to go through an exchange and can operate without an exchange.

    Before we get to the last piece I’ll talk about here, keep in mind that all of the above becomes horribly mangled and complicated in reality, because from what I can tell just about any of these entities above can all be under one roof, or subsidiaries of other companies, or any number of different arrangements. The stock market is complicated! This should be your first warning when people try to push simple narratives. Extremely complicated stuff often doesn’t fit within a simple story where there are heroes and villains and everyone is out to get the little guy.

    The NSCC: NSCC stands for National Securities Clearing Corporation. It is a subsidiary of the DTCC, which stands for the Depository Trust and Clearing Organization. The DTCC is a private company. Each day billions and billions of trades happen. Instead of swapping equities back and forth and all over the place for every single transaction, the NSCC tracks all of these trades, sums them up and at the end of the day says “Company X, you owe company Y $1 billion, company Y, you owe Company X this many shares of each of these securities.” The NSCC also handles these transactions, so the money being exchanged by these companies flows through the NSCC. And it does that for every company trading on the stock market. They all go through the NSCC, and the NSCC minimizes the amount of times money and equities have to change hands. There is one private company in the US that tracks and manages all of the trading information to make sure everyone gets paid, everyone gets their shares, and everything happens at the right price. I’m sure the details are complex but I assume brokers that are also clearing entities would be told by the NSCC how much they owe the market makers they exchanged with each day, and vice-versa.

    It kind of blew my mind that there’s essentially just one main company out there that serves as the central hub of all stock transactions and makes sure the markets work. As you can imagine, resting the entire stock market on one company means that company is going to be heavily regulated to be sure that it can never fail and bring the whole market down with it. We’ll get into what regulations are at play soon, but the NSCC is likely the key component in the Robinhood trading freeze.

    Claims of Corruption

    Okay so we’re going to take a brief detour into the reason people are outraged that Robinhood shut down trading. As broken out in this Twitter thread there once was a trader named Gabe Plotkin, he worked at a company called SAC Capital but they got fined for insider trading (not sure how this is relevant to the story other than to get your mind to make the association Plotkin = shady) and he left to start his own company. His new company was called Melvin Capital.

    Plotkin’s new company did a bunch of shorting, including on Gamestop. His shorts blew up this week with all the Wallstreetbets stuff, putting his firm in bankruptcy danger. But then Melvin got a $3 billion investment from SAC founder Steve Cohen and a Citadel hedge fund manager named Ken Griffin (the tweet thread says bailed out, apparently insinuating that these guys bought a stake in Plotkin’s struggling company just to personally help him out, but make of that what you will). Citadel is a market maker. Robinhood uses Citadel as one of its market makers, and Citadel pays Robinhood fees for the trades Robinhood brings them. So Citadel pays Robinhood, Citadel recently bought Melvin capital, which had (and might still have?) a large short position on GME. Therefore the theory is that Citadel stands to lose a lot of money if the short squeeze continues, and since Robinhood gets fees from Citadel there’s a big conflict of interest there, the implication being that Robinhood might have restricted purchases of GME in order to drive the price down and prevent Citadel from losing a lot of money via its recent purchase of Melvin.

    I didn’t fact check any of the above, I’m just presenting the information as I understand it for your knowledge. Make of it what you will, but that’s the reason for the outrage. I assume many of the people outraged about it don’t even know those details and just think that Robinhood is a big investing company so is probably just trying to save Wallstreet a bunch of money by shutting down trading and stamping out WSB’s big short squeeze.

    Also, I want to make it clear that this post isn’t saying we should completely dismiss the possibility of corruption. It should be fully investigated to make sure nothing shady is happening behind the scenes. The point of this post is that this theory seems a little half-baked, and that there’s a much better theory available.

    NSCC Collateral

    Back to the NSCC and why it’s the key component of all of this. The fate of the US financial market basically rests on its shoulders. So how do we make sure it never goes under? Lots of regulation. The NSCC is required by law to collect a bunch of collateral from the companies it facilitates trades for. That way if the market were to collapse and take down a few of the big market makers or brokers, any outstanding transactions don’t completely bring down the NSCC with it, they have some collateral to offset those losses. (Side note: I believe the NSCC also has a means of getting a direct government money infusion in the event of a market collapse so that it can stay afloat and keep processing trades. I don’t know the details of this, just wanted to mention it so people rest easier knowing that the sole private company keeping the market afloat isn’t only relying on collateral).

    You might wonder how much risk there really is for the NSCC. Don’t these transactions happen instantaneously through the magic of computers and the internet? Sort of, but not really. While trades execute immediately, they don’t actually settle for another two days. This is known as T+2 (In the days of physical stock certificates and paper money it used to take 5 days, or T+5, but computers and internet have sped up the process.). If you buy a stock, you don’t officially become the owner until two days later once the NSCC settles the transaction.

    Many brokers show the money in your account immediately after a sale, but you may have noticed or heard about delays in making multiple trades, such as not being able to sell a stock, use the proceeds to buy another, and then sell that one. Brokers often allow you to make a trade using unsettled funds for stocks, but they don’t let you stack up a bunch of transactions, they require you to wait for settlement to actually occur so that everything is official and so you do a bunch of stuff with money that isn’t really yours yet.

    Because these large payments between entities flow through the NSCC it creates a lot of risk for the NSCC. If there were to be a market crash or a sudden bankruptcy of a large trading firm, the NSCC would be exposed to the risk of a collapsed firm missing its payments for trades that have been executed but just not settled yet due to that two day period. I don’t know the exact details of how this works, but essentially it sounds like the NSCC would be on the hook for those payments and still have to complete the transaction and pay the firm that the money was supposed to go to. That’s why the government requires that companies post collateral each day with the NSCC based on factors like amount of money owed, volatility, and shifts in market price.

    After the financial crisis a lot of scrutiny came upon the financial system and Dodd-Frank was passed, which created more oversight and regulation for the financial industry. As part of that, the NSCC was designated as one of eight Systemically Important Financial Market Utilities (SIMFUs) and was required to work under the oversight of the Federal Reserve and the SEC to establish requirements to ensure that it couldn’t collapse, such as requiring collateral. The SIMFU designation was something I had no idea existed, so I just wanted to mention that and link to the wikipedia page on it in case anyone else was interested.

    Calculating Collateral

    The latest rules that the NSCC has created and SEC has approved (under procedure XV here) set forth certain measures to use in calculating how much collateral has to be posted by each firm settling trades with the NSCC. As far as I can tell and based on the original Twitter thread I found this information in (see the end of the post for the credit and link) the collateral is a portion of the outstanding money owed by a firm at the end of the day. For example, if after summing everything up the NSCC determines that Robinhood owes $1 billion to other firms and will receive $0.5 billion from other firms, the collateral will be a portion of the net $0.5 billion they owe. Here’s a brief summary of the estimates and steps that go into finding the required collateral, more details on each of these will follow:

    1.) Take the highest of two different measures of value-at-risk. Value-at-risk is a measure of how much money you could lose in a certain time period. According to the NSCC proposed rules to the SEC this usually comprises the largest part of the collateral. PDF download of proposed rules is here.
    2.) If a single position or stock makes up more than 30 percent of the entire balance owed, the collateral must be a percentage of that balance based on certain historical data, with a minimum of 10% of the size of that position.
    3.) A percentage of the difference between the long and short positions in the balance plus the lower balance of the long and short positions multiplied by an even smaller percentage.
    4.) The mark-to-market value, which is basically the difference between the initial value of the shares when the trades were executed and any change in market value since then. So if on the first day Robinhood owed $500 billion to the NSCC to be paid out to other companies, but the next day (T+1) the market value of those shares increased by $10 billion my understanding is that Robinhood would have to add $10 billion to their collateral.
    5.) Any additional collateral the NSCC demands based on volatility of certain positions. I’m just speculating on this but this seems to be an increase the NSCC can apply if it assesses that there’s widespread exposure to volatility. In other words, the previous four collateral calculations are based on risk exposure from a single firm, but NSCC also would want to look at risk from all of the firms that owe money to the NSCC. Don’t take that as gospel though, the source documents are hard to follow.

    The total required value of the collateral is the max of item #1 through #3, plus #4 and #5. So #1 through #3 aren’t additive, you just take the worst of them. And there are more than this too, but these are the main five we’ll go over now because that’s enough complexity and these seem to be the big factors. The others have to do with things like previously unpaid balances, and the ones I have listed here seem to be the biggest factors in calculating required collateral.

    To make this less vague I want to give an idea of how these numbers might change as share volatility increases. We’ll start with value-at-risk. The value-at-risk essentially looks at the historical volatility and estimates how much you’re at risk of losing in a single period. For the purposes of what we’re looking at the period is one day. The idea is you normalize the data from a certain time period of daily changes in portfolio price, and then using a normal distribution you see what the 99th percent confidence interval of maximum loss would be. Say Robinhood has a balance owed with the NSCC of $500 billion, they might come up with a number like $50 million, which would mean in a single day they could be around 99% confident that their balance owed wouldn’t end up increasing or decreasing by more than $50 million.

    But those are fake numbers, so let’s estimate some real ones. There are two measures in their rules they use for estimating this. One measure is an evenly weighted volatility function over a period of at least 253 days. That means they look back over the last 253 days or longer and the change in price each day is equally weighted when estimating the mean and standard deviation. The other measure is called an exponentially weighted moving average (EMWA), where they look back a certain number of days but each subsequent day into the past is weighted a little bit less, so that more recent days receive the most weight in your volatility estimate.

    Now I want to be clear before I start describing the process that my statistics knowledge is weak, so be aware that I’m following explanations I found online for how to do these things. If anyone notices an error in what I’m doing or in my terminology please correct me. If your stats knowledge is also weak just be aware that this is a case of the blind leading the blind, so don’t assume I know what I’m doing!

    My strategy for the value-at-risk was to estimate the value-at-risk of a single share of GME and use that as the basis for estimating the value-at-risk to Robinhood and across the stock market. To estimate these values I downloaded the last 5 years of GME data and ran numbers on the share price at daily close. First I calculated the daily return and applied the natural log to each return. From what I’ve read this is common in the finance world and has some benefits, and it’s generally assumed that the resulting returns are normally distributed. From there for the equivalently weighed method I took the standard deviation on a rolling basis over the past 253 days. According to the NSCC submittal to the SEC, they use a 99% confidence interval to estimate the largest amount that the share price could drop or rise in a single day, based on the data in the historical sample. Or in other words they’re trying to estimate a single-day drop or increase in value that only has a 1% chance of being exceeded.

    Once you have the standard deviation you use the assumed normal distribution to find the value-at-risk. The Z score represents the number of standard deviations to the left and right of the mean that results in your confidence interval. As shown in the image below, for a 95% confidence interval the Z score is 1.96. For 99% the Z score is 2.576.

    Computing the value-at-risk for the EMWA is a little more complicated. Instead of describing it here follow this link if you want an explanation. But at the end of the day you’re still computing the standard deviation and multiplying it by the Z score, you just compute your standard deviation so that each previous day is weighted as X% of the day after it. I assumed 95% as the decay factor based on the linked article. So today is weighted at 5%, the previous day is 5%*0.95 = 4.75%, the day before that would be 4.51%, and so on.

    Below is a plot of results showing the value-at-risk as a percent of the GME share price each day and the GME share price. As you can see, the EMWA generally sticks close to the equivalently weighted method, but fluctuates around it. That fluctuation is because the EMWA is going to be weighing recent price movements a lot higher. So we can see that it makes sense to use the worst case of the EMWA and equivalently weighted value-at-risk, since the EMWA captures recent highs and lows in volatility while the equivalently weighted measures your longer term volatility.

    You can also see from the chart that what’s happened recently with GME is pretty crazy. The EMWA value-at-risk is close to 80% of the share price! That means if the share price were $100, the 99% confidence interval means it could drop or increase as much as $80 in one day. Previously the EMWA measure had peaked closer to 30% in the last few years, so we’re in pretty uncharted territory for this stock. Below is the same chart but focused on after October 2020 so we can see the recent movement better. As you can see, the equivalently weighted value-at-risk is at about 30%.

    That just tells us the value-at-risk for one share. To estimate value at risk for the whole stock market I took the percent value-at-risk times the share price times the volume traded. You can see the result in the image below. I had to show the vertical axes in log-scale because the recent change is just massive. Assuming my method isn’t completely wrong, the stock market as a whole had a value-at-risk peaking at $23 billion on January 27th in just GME stock. That’s some pretty huge volatility.

    Here’s the same chart but focused on October 2020 onward.

    Robinhood’s value-at-risk is going to be less than that. Their value-at-risk from GME is going to be based on how many shares their users bought and the net Robinhood owed money on each day. So the dollar total for them is going to be quite a bit less than $23 billion. This is difficult to estimate, since from what I can tell brokers don’t really publish their daily volume in each stock. As a back-of-the-envelope, very very rough guess, I’ll start with just roughly assuming 1% of the trades of GME were through Robinhood, and 75% of that was purchases of GME and 25% was selling GME. Doing the math on that would mean that on January 27th Robinhood would be estimated to have $115 million in value-at-risk from just GME alone.

    As a second method of estimating I’ll look at what data we do have from Robinhood. In June Robinhood said they had 4.3 million daily average revenue trades (DARTs). That doesn’t really tell us a lot though, because it looks to me like that’s just trades and doesn’t indicate how many shares were traded. That means it’s time to make more arbitrary assumptions! First I’ll assume that average remained the same during the recent craze. I’ll just guess that since Robinhood is billed as for the little guy that the average is 5 shares per trade. And I’ll also assume that in recent days at the height of the craziness that GME accounted for 10% of the trades on Robinhood, and 75% of those were buys. Reasonable? I have no idea, but hopefully. On January 27th the single-share value-at-risk for GME was $250. And total GME shares traded was 93 million. Based on the assumptions, I’m coming up with 2.15 million trades of GME from Robinhood, and a total of $268 million at risk for Robinhood.

    So with those two guess-timates it looks like on the worst day, January 27th, the value-at-risk for Robinhood for GME alone could have ranged from somewhere around $100 million to maybe as high as $300 million. And that’s just for GME. The NSCC requires Robinhood to account for value-at-risk of its entire portfolio, all stock purchases net of sales. So the value-at-risk is likely to be even higher than what I’m showing here.

    As a final sanity check on this, the NSCC had about $10 billion in its clearing funds as of September 30th, 2020 and about $15 billion as of June 30, 2020. According to our chart, in September and June of 2020 the total value of GME at risk across the entire stock market was about $10 million dollars, or about 0.1 percent of the clearing funds. According to this article, on January 28th the NSCC clearing fund value jumped from $26 billion to $33.5 billion. I’m estimating that GME itself might have accounted for $10 or $20 billion of that. Based on that I’m guessing my estimate of GME’s contribution is probably on the high side. There are other volatile stocks out there besides GME, so for it to be making up over half of the clearing funds seems a bit extreme. That said, we’re at least somewhat in the ballpark, since the clearing fund went from $10-$15 billion in summer and fall to about $25-$30 billion now, so it does seem that GME and other volatile stocks are pushing up the clearing fund by quite a bit.

    Bringing that back to our list, what I’ve estimated is that the NSCC might be requiring in the ballpark of $100 to $300 million from Robinhood as collateral for item #1. The rest of the list items I’m not going as in-depth on. For item #2, we have to estimate what the collateral would be if GME was more than 30% of Robinhood’s outstanding portfolio at the end of the day. Let’s say they hit exactly 30%, what would that look like? Let’s use our previous ballpark estimate of 4.35 million trades per day at 5 shares per trade. We’ll also assume GME is around the average price for a stock so we don’t have to weight for stock price. And finally we’ll say GME is at about $300 in share price. Doing that I come up with 6.5 million shares of GME purchased by Robinhood on net, with 10% of that value being $196 million.

    I’m going to skip over item #3, I don’t have a good way to estimate that and they don’t define the percentages. We’ll just hope items #1 and #2 are larger, which seems like a reasonable assumption.

    Where we’re at so far is that we need to take the max of items #1-3. Item #1 was $100 to $300 million, item #2 was $196 million. So we’re still in that $100 to $300 million range.

    Item #4 is the mark-to-market adjustment. If we were to stick with our item #2 estimate of 6.5 million shares traded in a day, and pick $100 as how much the stock price jumped in a day (not too far off what it’s been doing recently), then we’d be looking at adding on an additional $650 million in collateral. That’s pretty massive, but also we’re basing that number on the item #2 estimate which assumed that 30% of Robinhood’s trading was GME, which may not be accurate. So the mark-to-market estimate could be a lot lower than that.

    Finally, item #5 encompasses several add-ons that NSCC seems to be allowed to demand, which I’m assuming are based on overall risk from all of the entities that owe them money. The rules document I linked previously allows them to require a “special charge” in the event of volatility or liquidity issues, and they can also add something called a market liquidity adjustment which again seems based on volatility and risk.

    So where we’re at after all of this is potentially somewhere between $100 million and $950 million in collateral, plus whatever extra the NSCC can demand based on item #5. Likely somewhere toward the middle or higher end of that range, or more. Again, I want to make it clear that I have no idea what I’m talking about and am just trying to get a ballpark estimate. I may be making mistakes. Overall I’m just trying to give an idea of what factors are in play and hopefully give an idea of how much the recent volatility can affect the required collateral.

    But honestly this rough estimate doesn’t seem too far off. According to Robinhood their collateral requirement increased 10-fold due to the recent weeks’ events, which they describe in this short (and much too late to stem the outrage) article summarizing why they halted trading on some stocks. And according to this article Robinhood had to draw on up to $1.5 billion in credit to be able to get trading going again. So we’re definitely talking about a huge amount of collateral, and that makes it sound like what I’ve estimated here isn’t that far off all things considered. One important thing to note is that NSCC only handles regular trades from my understanding. There’s another clearing firm called Options Clearing Corporation (OCC) that’s used for options. Robinhood likely had additional collateral commitments at OCC for options purchases in addition to what NSCC was requiring on regular GME share purchases. The OCC collateral might be large as well, and it’s possible I could be overestimating the NSCC collateral requirement and that the OCC collateral was more significant.

    I did all of my value-at-risk calculations and plotting in this google sheet, feel free to check it out. If you see any errors please let me know.

    Where That Leaves Us

    Robinhood had to put up a ton of cash as collateral. Just a huge amount. And they weren’t the only ones that had to pause trading due to collateral issues. E-trade, Webull, and several others also restricted trading. And the estimates I’ve provided here, if accurate, serve to quantify to some extent just how large the collateral required is. The alternate theories implying corruption or foul play seem unsupported and implausible when you actually dig in and see what happened with volatility and collateral requirements last week. Again, this should probably all be investigated to make sure there wasn’t any favoritism or alternative motives in the trading halt and increased collateral requirements, but based on all this information it seems that what happened was an unusual but completely legal and ethical situation.

    I started looking into this knowing nothing at all about what actually happens when you purchase a stock and now I feel like I have an okay grasp on it. If you read this far I hope it helped you as well.

    As a final thought, it worries me how quickly people will jump to assuming malice and corruption in every new turn of events. If the news can be interpreted in a way that makes their perceived enemies look bad people will fully adopt that interpretation without question. This is dangerous and creates outrage and conflict for no reason, so I ask everyone reading this to be an influence in the other direction. Try to avoid taking a strong opinion until you’ve made an effort to better understand all the factors at play and be skeptical when everyone else is jumping to conclusions.


    Ha, just kidding! You don’t get one of these, this is a complicated issue and trying to reduce it to a simple narrative has caused the country to turn against each other looking for a culprit. Simple narratives based on a shallow understanding of complex issues are bad and are reducing social trust, strive to understand how the world works, it’s a fascinating place!

    Additional Sources

    A lot of credit goes to this Twitter thread, it was the first source I found that explained that there was more going on and provided enough detail to explain why. I basically built on this and expanded it with more background and information. If you’re on Twitter go give this person a like and a follow for being a voice of reason and digging into the details.

    Just about every concept or entity I discussed in this post has a useful page on Investopedia that you can look at for more information or to verify what I said here. I’ve probably scanned through about 100 Investopedia pages to try to get a better understanding of these things so I’m not going to flood this post with links, but if you want more information just search for a term on there.

  • Predicting the Biden Presidency

    20 Nov 2020

    I thought it would be interesting to predict what will happen under the Biden presidency. I think making falsifiable predictions is important for improving our perceptions and predictions and holding ourselves accountable. There seems to be an epidemic of unfalsifiable predictions and assertions lately, and I think that may be either a symptom or a cause of what I perceive as a decrease in social trust and an increase in conspiracy theories.

    Here are my predictions of what will happen in Biden’s first term. What do you think will happen? Feel free to copy some or all of these and make your own forecast and we can compare in four years. There’s a google spreadsheet at the end too that you can copy and use if that’s easier.


    First a bit about how I’m doing the predictions. The Senate is still contested and Democrats could win control of it by winning both Georgia runoff seats. So the main percentage is my prediction with Republican control of the Senate. The number in parenthesis is my prediction if Democrats control the Senate. If there are no parenthesis I think it’s something that doesn’t depend on the Senate.

    The closer to 0% or 100% the more confident I am, closer to 50% means less confidence. Sometimes percentage probabilities can be difficult to think about, so it can help to think about other ways, such as a 25% chance is in 1 in 4 and 10% chance is 1 in 10. There’s a way to score how you do on predictions that I’ll discuss at the end of the post.

    :icecream: = Biden has specifically proposed or advocated for this or an even larger version
    :x: = Biden has specifically said he won’t do this

    No emoji means I’m not certain enough of his stance to say one way or the other.


    95% - Rejoins the Paris agreement (counts even if not ratified by Senate) :icecream:
    0% (1%) - Bans fracking (defined as a direct blanket ban on all fracking) :x:
    20% (60%) - Implements a carbon tax
    10% (65%) - Passes significant climate legislation (I’m defining as a climate bill including at least $500 billion invested in climate change mitigation and related areas) :icecream:

    5% - Implements a mask mandate (defined as one that’s legally enforceable or has a defined punishment. Still counts if later ruled unconstitutional)
    95% - Implements a mask policy (one not federally enforceable, such as guidelines or incentives for states to implement mask mandates. Counts even if it’s referred to as a mandate but not actually required or enforceable) :icecream:
    85% (99%) - Passes a coronavirus relief bill providing $500 billion or more in relief and funding :icecream:
    35% (65%) - Pass a coronavirus relief bill providing over $1 trillion in relief and funding and including stimulus checks (one bill of this size would also satisfy previous question) :icecream:

    95% - Increases refugee admissions to about where they were before Trump (I’m defining as a cap of 80k or higher maintained over most of the term) :icecream:
    25% - Sets the refugee admissions cap to 200k or higher (about double Obama’s 2017 cap, maintained over at least one year)
    5% (20%) - Creates a legal pathway to citizenship (defining as a law passed by congress that would allow undocumented immigrants to eventually become citizens after meeting certain criteria) :icecream:
    85% - Removes the travel ban (or Muslim ban) on more than half the countries currently barred from certain types of travel or immigration (archived link listing countries with prohibitions as of 11/19/2020: https://web.archive.org/web/20201119223419/https://en.wikipedia.org/wiki/Executive_Order_13780) :icecream:

    80% - Decreases average tariffs on China
    90% - Decreases average tariffs on Canada and other allies
    10% (60%) - Raises the corporate income tax :icecream:
    90% - Raises the minimum wage for federal employees and contractors to $15 an hour or more :icecream:
    5% (40%) - Raises the federal minimum wage to $15 an hour or more :icecream:
    40% (35%) - Increases direct taxes on those making under $400,000 (I’m defining direct taxes as income, payroll, social security, etc. taxes paid directly by individuals, indirect taxes like an increase in the corporate tax resulting in lower wages or a carbon tax resulting in higher prices would not count) :x:

    20% (55%) - Passes a public option :icecream:
    0% (3%) - Passes Medicare for All (defined as a single payer healthcare plan that covers all or nearly all healthcare costs) :x:

    3% - Enters the US into a new authorized war (counts regardless of how it was initiated, a war authorized by Congress either directly or with funding) :x:
    15% - Enters the US into a new unauthorized war or conflict (US drone strikes or US soldiers performing combat operations would count, monetary support would not count, current example would be ongoing US activity in Yemen) :x:
    99% - Rejoins the WHO :icecream:
    75% - Rejoins the Iran nuclear deal :icecream:
    65% - Fewer US troops in Iraq at end of Biden’s term than at end of Trump’s term* :icecream:
    65% - Fewer US troops in Afghanistan at end of Biden’s first term than at end of Trump’s term* :icecream:

    *I’ll base troops at end of Trump’s term on his last order. If he orders a withdrawal that continues into Biden’s term it’ll be based on Trump’s last order.

    30% (60%) - Decriminalizes marijuana at the Federal level (removes jail time as punishment for first time possession of small amounts of marijuana, no longer goes on record) :icecream:
    5% (15%) - Legalizes marijuana :x:
    5% (25%) - Eliminate the death penalty at the federal level (does not mandate elimination at state level) :icecream:
    5% (35%) - End mandatory minimum sentences at the Federal level :icecream:

    55% (80%) - Increase the child tax credit :icecream:
    20% (65%) - Increases or expands EITC benefits or EITC-like benefits (LIFT act or similar) :icecream:
    25% (70%) - Expands housing voucher funding or access to housing vouchers :icecream:

    30% (65%) - Cancels $100 billion or more in Federal student loans :icecream:
    15% (55%) - Makes public colleges tuition free for families with incomes less than $100,000 :icecream:

    0% (5%) - Bans “assault weapons” :icecream:
    5% (30%) - Bans online sale of firearms or ammunition (counted as yes if either are banned) :icecream:

    10% (40%) - Pass legislation to require community development grant recipients to implement zoning reforms for less restrictive zoning to be eligible for the grant (HOME Act or similar) :icecream:
    30% (60%) - Pass a significant multi-year infrastructure bill (defined as at least $250 billion in surface transportation infrastructure funding over several years) :icecream:
    0% (25%) - The Senate filibuster is eliminated

    25% - Roe v. Wade overturned
    10% - Harris replaces Biden before his term is up
    1% - A state that went to Biden ends up going to Trump as a result of a recount or court decision
    35% - Democrats win a majority in the Senate in 2020 (50 seats plus Harris as tiebreaker)


    Why am I so uncertain on getting some of these things done even if Democrats win the Senate?
    Because the filibuster exists and I think it’s unlikely Democrats get rid of it even with control of the Senate, which makes it very difficult for them to pass legislation they want to pass.

    Why are some of these proposals less than what Biden has proposed, for example free college for families earning less than $100k instead of his $125k proposal or $500 billion for climate change instead of his $2 trillion proposal?
    Because no president gets what they want and I wanted to set the bar for the question at something more plausible to make it interesting. If I set his free college income limit at $125k but the final bill ends up at $110k I think most people would consider that being a goal fulfilled for Biden, even though he didn’t get quite what he wanted.

    Why did I pick these questions and issues?
    Mostly I just focused on the bigger issues and things that will have a clear yes or no resolution. Biden has tons of pretty specific proposals on his website, so I just picked some of the biggest or most controversial to keep things simple and the ones I think will have the most attention on them during his term. I also picked a few that I’m interested in and want to follow. Predicting things is a good way to keep track of what happens with them, it gives you a bigger incentive to follow up on their outcome.


    The most common way of scoring predictions is with the Brier score. The Brier score is a measure of the difference between your forecast and the outcome. Like golf, a lower score is better. It’s the difference between your forecast and reality squared. For example, if I predict a 70% chance that the sun rises tomorrow, and the sun does rise tomorrow, my Brier score would be (1 - 0.7)^2 + (0 - 0.3)^2 = 0.18. That equation represents my forecast of 70% that the sun rises minus the outcome of it rising (100%) plus my implied forecast of 30% that the sun doesn’t rise minus the outcome of it not rising (0%). A perfect Brier score is zero. The worst Brier score is 2. The Brier score of guessing at random (50%) is 0.5, so to be better than random guessing your Brier score should be below 0.5.

    Note that there’s another way to calculate the above Brier score which would be (1 - 0.7)^2 = 0.09. This method leaves out the implied 30% chance the other thing happens. Under this method random guessing equates to a Brier score of 0.25. I’m using the first method instead of this one just to be consistent with the way I’m used to seeing it.

    If you want to participate I made a google sheet you can copy and fill out your own percentages that will do the scoring for you. You could even modify it to forecast on other questions if you wanted to too. But you definitely don’t need to use this, it’s easy enough to score by hand. And using Brier scores isn’t really necessary either, it’s just a useful way to compare scores, you could always make predictions and just see how far off they were without using an actual score. https://docs.google.com/spreadsheets/d/1_p_WArcp0RFRhVYbaKZgr38BlHOCc96ma4cgMqx_owg/edit?usp=sharing

    So that’s that, if there are any big questions about his presidency you think I should add let me know! I encourage you to forecast some of these questions yourself either publicly or privately and see how you do four years from now.

  • The Logic (or Lack of) Behind Third Party Voting

    13 Aug 2020

    I want to discuss the strategy and logic behind the decision to vote third party or sit out of an election. Below are some of the common reasons people use to vote third party, and I’ll discuss each of these.

    1.) If a third party does well in this election maybe more people will start to see that party as a viable option and we can stop choosing the lesser of two evils. 2.) The candidates are both bad, I don’t want to vote for either. 3.) I genuinely like this third party candidate a lot. 4.) My vote doesn’t matter so it doesn’t really change anything if I vote third party.

    This may not be a comprehensive list but I think these are some of the primary considerations. People often have more than one of these reasons for voting third party, and some of these apply to people who abstain from voting. The following discussion isn’t intended to be specific to this election year. It mainly only applies to presidential elections, some of these responses aren’t as valid at the state or local level.

    1.) If a third party does well this election maybe more people will start to see that party as a viable option and we can stop choosing the lesser of two evils.

    This reasoning depends on a couple assumptions. One is that there are enough voters out there who would prefer a certain third party to one of the two main parties. Another is that our voting system is stable with three or more prominent parties.

    The first assumption is at least plausible, but I’m also very skeptical. For one, the reason the two main parties have remained in power so long is because the parties’ politics shift to match public opinion as best they can. One example is same-sex marriage. The opinion of both the general public and of Democratic politicians shifted very quickly on this issue. That change is likely both because Democratic politicians genuinely changed their opinion like many in the public did, and also because they had to shift their public stance or risk getting voted out. Even most Republican politicians no longer talk about this issue because the public opinion has shifted so much. So the idea that a third party is going to capture enough of the voters from either of the main two parties to win an election is hard to believe.

    The second assumption is the idea that our electoral system can support more than two parties. I don’t think it can, and the reason is because of how voting currently works. We cast one vote for one person. This system requires compromise and consolidation. Imagine if there were 100 candidates of about equal popularity. No one would win, a different candidate would probably win each state and no candidate would get enough electoral votes to win the electoral college (you need 270 out of 538 to win). To win the field has to consolidate enough so that a candidate can receive a majority of electoral votes. That consolidation can either happen by voters cooperating and focusing on one compromise candidate or by candidates cooperating and dropping out to support other candidates. The candidates that are similar but stay in the race will split votes and each be weaker than they otherwise would be.

    That same effect works when going from two to three candidates. If there are more than two candidates those that are the most similar will split votes and be weaker than they otherwise would have been. Having a third party only strengthens the party that’s furthest away politically from the third party, and the stronger the third party the bigger this effect. Theoretically the third party could get large enough to replace one of the two main parties, but it would likely take many years of lost elections for the two weaker parties to swap. The largest percent of votes for a third party in the last 100 years was for Ross Perot, running as an independent in 1992. He got 18.91%, and even a showing that good didn’t lead to renewed interest or greater success for third party candidates.

    2.) The candidates are both bad, I don’t want to vote for either.

    This is a reason that can be used for both voting third party and not voting. As described in the discussion of reason 1, a third party vote is very unlikely to result in a viable third party or end lesser of two evils voting. It’s essentially the same as abstaining. So I’m going to refer to both as abstaining in the discussion of reason 2.

    One of the two major party candidates will win. By abstaining you are not expressing your preferences at all. Your opinions have no effect on the outcome. And usually the idea that the two main party candidates are the same is just a figure of speech. They’re clearly different in many ways. Just as an example look at Biden and Trump. Biden wants to rejoin the Paris climate change accord, Trump left it. Biden wants to increase the number of refugees admitted to the US, Trump has been decreasing the amount admitted. These are just two differences out of many, but both are things that the president essentially has complete control over and can change on their own without Congress.

    Despite the existence of differences it may still be reasonable to abstain if overall you think they will be equally bad. Maybe you don’t care about immigration, or what the tax rate is, or climate change policy, or healthcare, or gun policy or any of those things the candidates normally have wide differences on. Maybe you only care about specific things like abuse of presidential power, global nuclear disarmament, or our relationship with Canada and you think both candidates would be equally bad on that issue. Or maybe you do care about the other things too but both candidates are a mix of okay and really bad on those issues. If you legitimately can’t decide which would be worse it makes sense to abstain. But only as long as you’ve made a genuine effort to compare the two and have fully considered the impact that the differing policies would have not only on you but also on other people in the country.

    In reality that’s not always how the “both sides are the same” reason is used. Often it’s that one side wants to do things the abstainer hates, while the other side wants to do some things the abstainer hates and some things that are sort of in the right direction but don’t go nearly far enough. In this scenario abstaining accomplishes nothing. One of the two will still win, but the abstainer gets no say in which things are at least sort of in the right direction.

    3.) I genuinely like this third party candidate a lot.

    This one is similar to reason 2 except that voting third party isn’t only a protest vote, the third party candidate genuinely aligns with you on most policy preferences. Sometimes people who use this reason may even like one of the main party candidates but they just like a third party candidate a lot more. The same discussion for reason 2 still applies. As much as they align with your policy preferences and values, by voting for the third party candidate you are essentially not voting, your preferences aren’t being counted toward the actual decision being made.

    4.) My vote doesn’t matter so it doesn’t really change anything if I vote third party.

    This one can be true, depending on where you live. A voter in California who would normally vote Democrat but wants to vote third party for whatever reason is probably pretty safe in doing that. But as I discussed for reasons 1 through 3 it’s probably ineffective to do that regardless. And which states are competitive can vary election to election. While California and Kentucky are probably not going to be competitive anytime soon, this year Texas, which is traditionally a red state, is polling pretty close. And near my neck of the woods there’s Nebraska 2, the district of Nebraska containing Omaha, which is close too and could potentially flip from Trump to Biden.

    I think that covers the main reasons people vote third party or abstain. In summary the only logical reason to vote third part or abstain is if you genuinely believe the two candidates would be equally bad after fully researching and considering the effects of their different policies on you, your fellow Americans, and the country itself. Your vote shouldn’t be thought of as a moral endorsement or a perfect expression of your politics, it should be thought of as expressing your preference between the candidates most likely to win.

    If you don’t like that third parties aren’t viable in the United States then start advocating for ranked choice voting. Ranked choice voting would allow everyone to vote for their first preference without wasting their vote, because once the first choice was found not to have enough support their vote would shift to their second choice, and so on. I think this would increase voter satisfaction and allow everyone to see what the country’s true preferences are. However, if we do someday manage to switch to ranked choice voting I think people should be prepared for the possibility that it doesn’t change the two party presidential system. Like I discussed in reason 1, the two main parties are probably many people’s genuine first choice out of all the options. But if that’s actually the case at least our voting system would reveal that and we could move on from the theory that everyone would vote third party if they just knew more about them or stopped voting for the lesser of two evils.

    Thoughts? Did I miss any important factors or argue any of these badly or unfairly? Follow me on social media and share your thoughts.

  • Vice President Discourse Usually Neglects a Big Factor

    03 Aug 2020

    Biden will be announcing his pick for vice president soon, and I think one aspect of the VP selection has been overlooked in the discussions about it. Most of the focus on the VP has been about what the pick does for the presidential nominee’s electability or appealing to different demographics. I don’t know if the data supports those factors, I would guess they’re very overrated. But the factor that doesn’t get enough attention is whether the chosen VP will be a good candidate for a future presidential election.

    In recent years several VPs have gone on to run for president and win the party nomination. I wanted to look at this more closely and see how common it is and if there are any trends. So I looked at all 48 VPs to see if they sought the presidency after their VP term, whether they got the party nomination, and if they eventually won the presidency. See the first image for the table I put together summarizing that information (it’s color coded to be more at a glance, see the second image for the key).

    *Used where VP died in office or president died and VP assumed office. VPs who succeeded to the presidency are not counted as a nomination or run for presidency.

    As you can see there’s a recent trend toward VPs becoming the party nominee in the future. A couple things surprised me about this table. One is that a lot of VPs and presidents died in office. Those are the rows in gray. This table also seems to point out the benefits of improved healthcare, as deaths of the VP or president appear to be less common now.

    Another surprise was how recent the trend is for VPs to win the party nomination. It’s a lot more common now than it used to be. It’s become increasingly likely that a VP will go on to win the party nomination. See the third image for how successful VPs are at running for president and how often they choose to run.

    I think there are a couple reasons this trend is happening. One big factor is that the presidential nominee has trended toward being chosen by the public instead of by party leaders. The first state primary was in the first decade of the 1900s. Prior to the prominence of primaries it was up to just the delegates to choose the presidential nominee at the convention, and the delegates were typically important members of the party. I think that as the public gained more control over who the nominee is, name recognition became a bigger factor. Party bosses would be more likely to know all the major players and their politics, so they have a larger pool of favorites to pick from. Your regular citizen might know only the big names and want someone familiar to them.

    The other big factor is the role of vice presidents and how they’re selected. In the 1700s the vice president was the candidate receiving the second most electoral votes for president. This changed after Jefferson and Burr tied in 1800. But even after the change vice presidents were often selected at the convention instead of being carefully chosen by the president beforehand. Vice presidents have to be confirmed by the delegates at the convention, and as recently as the 1980 Republican national convention this was done by casting votes. Since then the parties have confirmed the presidential nominee’s desired VP by voice vote. Reagan was also the first presidential candidate to announce his choice for VP prior to the convention in 1976.

    That’s not to say that prior to that the presidential nominees weren’t picking the VP, in the decades prior to the change to voice votes the delegates would usually just confirm whoever the president wanted to be their running mate. For example, Nixon announced that he wanted Agnew to be his VP at the 1968 Republican Convention and Agnew won the nomination easily. But in the first half of the 1900s and earlier, the VP was often primarily selected by the convention instead of by the presidential nominee. As late as 1944, many in the Democratic party opposed Roosevelt’s VP, Henry Wallace, and convinced him to drop Wallace in favor of Truman.

    What does VP selection have to do with the recent trend of VPs winning the nomination in the future? In my opinion a big reason for this trend is increased unity between the president and the VP. VPs are now carefully picked to ensure unity with the presidential nominee and the convention automatically accepts the chosen VP. In contrast, since VPs were historically not chosen primarily based on unity with the president they often butted heads with the president and some publicly opposed some of the presidents’ policies. That kind of opposition can make a VP a controversial figure, which in my opinion is why they less frequently received the presidential nomination after their term as VP. And this combines with the previous factor I mentioned when you consider that it was party leaders acting as delegates who were choosing presidential nominees. Those party leaders would be more attuned to conflicts between the VP and the president, and would be more likely to have a preferred side than your average member of the public. The increased unity between president and VP in recent years means that partisans who liked the president will probably like the VP and support their nomination in later years. And if the president wasn’t particularly well liked the VP can skirt around most of the bad press while still associating themselves with the qualities that voters liked about the president.

    The high likelihood of the VP becoming the party nominee in the future should have much more weight in the way we talk about the VP selection process. It’s often ignored in these discussions, and I think it should probably be the main criteria for selection. Using presidential prospect as the main criteria forces us to put more weight on factors like age and electability. I’m also very glad that Biden promised to nominate a woman. Putting a woman in prime position to be party nominee in a future election greatly increases the chances of a woman becoming president in the near future. After hundreds of years with very little diversity in the oval office any move to increase the odds of greater diversity and representation is very important.

    If I made any errors please let me know. My sources for this were mainly a whole bunch of Wikipedia articles that are easily found so I won’t bother linking to them, and a few other articles I used to verify things that were vague or looked questionable. And as a final note keep in mind the sample size is low, particularly when we’re just looking at the last 50 or 75 years, so this isn’t a bulletproof analysis by any means. But I do think the trend is legitimate considering the changes that have happened in the ways presidents and VPs are elected.

    Here’s a link to the spreadsheet I put together and pulled the above images from. If you find it useful or want to copy and modify it feel free to use as you please. https://docs.google.com/spreadsheets/d/1xHAgo15nLrWb_TqqQy3J-8vF0WGosy_aVmZK0ERUae0/edit?usp=sharing