Thursday, October 29, 2009

Good Monopoly, Bad Monopoly

I think this morning's WSJ article about cosmic legal rights is meant to be at least a bit comical; if we can't laugh at lawyers, who can we laugh at?

Experts in contract drafting say lawyers are trying to ensure that with the proliferation of new outlets -- including mobile-phone screens, Twitter, online video sites and the like -- they cover all possible venues from which their clients can derive income, even those in outer space. FremantleMedia, one of the producers of NBC's "America's Got Talent," declined to comment on its contracts.

The terms of use listed on, where people can post to message boards among other things, tell users that they give up the rights to any content submissions "throughout the universe and/or to incorporate it in other works in any form, media or technology now known or hereafter developed."

Lucasfilm Ltd., Star Wars creator George Lucas's entertainment company that runs the site, said the language is standard in Hollywood.

"But, to be honest with you, we have had very few cases of people trying to exploit rights on other planets," says Lynne Hale, a Lucasfilm spokeswoman.

Of course, there's also a serious edge to this story, as it's illustrating the 21st century version of a land grab.  And it makes me reflect on something I thought about a bit when I was reading about the economic and political history of Argentina.  Because one argument for why Argentina is today so fucked (to put it succinctly) -- in spite of the fact that they were as rich as the US per capita at the turn of the last century -- is that they chose the wrong tactic in distributing their newly conquered agricultural hinterland. 

The history is remarkably similar to that of the US.  Argentina had it's own sort of manifest destiny, and it expanded to cover as much of the southern cone as it could, eradicating the indians living on this "wilderness" along the way (in one of history's great branding exercises, they actually called it the 'conquest of the desert', which is kinda brilliant if you think about it).  The land was great for farming, and the introduction of better transportation, refrigerated shipping, etc ... turned the country into an agricultural export powerhouse by 1900. 

There was one major difference between their history and that of the US though.  In the US, once we had wiped out the natives, we just let people move out West and squat.  Settlers didn't have to buy the land, they could just go claim it by living on it and making it 'productive' (the indians, of course, were completely wasting this stuff).  By contrast, in Argentina, they divided up the land and auctioned it off.  Wealthy folks in Buenos Aires and British investors bought most of it, and the concentration of ownership was remarkable.  In fact, it still is to this day.  These investors hired folks and put the land to use of course, planting crops and building railroads for easy export, and just generally getting their money's worth out of it.  But the inequity of the initial distribution meant that the rewards of this new production accrued disproportionately to the investors, so income remained as remarkably concentrated as it had been in Europe.  This seems to have led to a feedback loop where wealthy Argentines and Brits controlled the political process, and ... well ... when the winners get to write the rules of the game, they tend to keeping winning -- Argentina set up laws that were ruthlessly free trade, and legal rights that strongly favored creditors and international capital.  The elite group controlling both the economic and political game didn't see any reason to invest in eduction and industrialization when they could get both of these from the UK, and with vendor financing to boot. 

In other words, the initial circumscription, division, and auctioning of the land, led to quasi-monopolistic control of the productive resources, which led to almost total monopolization of political control.  Once you have a closed monopoly of that sort, you have guaranteed stagnation -- what monopoly do you know of that invests in its future?  Why bother.

Very simple, and the analogy of Lucasfilm pre-extending their rights throughout the universe is obvious enough.  But this is where it gets interesting.  Because you can actually imagine another type of 'monopoly' that is creative.  This kind of monopoly works precisely by not circumscribing the territory in advance.  In fact, it opens up new territory in an unlimited fashion.  It can be just as much of a monopoly -- it may be the absolutely dominant force opening up this virgin land -- but it only remains a monopoly so long as it is expanding faster than everything else.  It's a sort of self-organizing monopoly that forms the base for a new exploration.  The best example I can think of today would be something like Google, or the internet in general, but what I'm really trying to get at is a sort of principle, like language, or DNA, or something like that.  The world evolves a coherent lingua franca that allows for new creativity to radiate in all directions, rather than defining at the outset what will be possible and who will own which piece of the results.

Hopefully, our luck will be better than Argentina's.  At least it's easier to make more ideas than to make more farmland ... at least for the moment.

Wednesday, October 28, 2009

The party of no party

It's a sign of the decadence of American politics that two smart people can basically agree almost completely about what direction the country should take, and yet still find themselves on opposite teams.  Truly, divide and conquer has succeeded.  Mark Thoma responds to Luis Zingales:

Luigi Zingales is worried that populist anger might fall into the hands of evil Democrats rather than Republicans who would, of course, use this strong populist force for good:

Pro-Market Populism Is GOP's Out, by Luigi Zingales, Commentary, ...[T]he financial crisis has created significant discontent. In a survey taken last December, 60% of Americans declared themselves "angry" or "very angry" about the economic situation.
If Republicans ignore this popular anger, as the party establishment did last autumn, they leave a powerful and potentially disruptive force in the hands of Democrats. The Democrats could channel popular anger into protectionism, 90% tax rates and onerous new market constraints.
In Republican hands, populism could become a strong force for positive change.

And Republicans would do this by adopting Democratic ideas:

The Republican Party has to move from a pro-business strategy that defends the interests of existing companies to a pro- market strategy that fosters open competition and freedom of entry.
While the two agendas sometimes coincide, they are often at odds. Established firms are threatened by competition and frequently use their political muscle to restrict new entries into their industry, strengthening their positions but putting their customers at a disadvantage.
If standing up for markets means -- running down the list above in order -- reducing market power, regulating financial markets, eliminating subsidies, breaking up too big to fail firms, providing a robust safety net, overcoming income inequality, fixing schools, increasing the availability of student loans, providing retraining, and providing health care, then the answer is Democrats.

When are we going to come around to the realization that there is not now, nor has there ever been, a pro-market, pro-competition party.  Along the way, the US has had a few truly reform minded officials who understood that markets are one of the greatest social technologies humankind has invented (up there with language and low-rider jeans subsidies) -- but we have never had a "pro-market" party.  One side wants private monopolies, and the other wants public monopolies.  No politician seeking re-election is in favor of competition, because competition benefits everyone diffusely, whereas the mechanism of re-election requires concentrated financial support.  It is utterly non-sensical to say that either the Democrats or the Republicans are going to defend free markets.  The nature of our political process makes championing the good of society an exercise in extinction. 

We must abandon tweedledee and tweedledum and found a pro-market party that takes publicly funded elections to be its first principle.  The two ideas are as revolutionary as they are inseparable.  Kinda like evolving a left hand to match the right.

Tuesday, October 20, 2009

Hedge fund managers of the world unite!

You have nothing to lose but your gains!

One of the interesting things about this age is the way some people society considers the "bad guys" actually turn out to be amongst the loudest progressives.  In particular, I've been impressed by how some of the biggest guns in hedgefundlandia are actually pretty candid about how fucked up the system is, and pretty straightforward in terms of suggesting what should be done about it.  These are some of the wealthiest folks on earth, and you might expect them to circle the wagons and defend the status quo, but that's not actually what you hear. 

Consider two recent examples.  Here is David Einhorn of Greenlight Capital getting pretty much straight to the point:

The financial reform on the table is analogous to our response to airline terrorism by frisking grandma and taking away everyone's shampoo, in that it gives the appearance of officially "doing something" and adds to our bureaucracy without really making anything safer. 
And here is John Burbank of Passport Capital, telling us that we better grow some more food if we want to keep the Chinese fed. 

Current yield growth is around 1%, less than half the average rate during the 1960s and 1970s.  This trend towards a plateau in global yields, combined with limitations on current arable land, is leading to concerns about the ability to increase supply rapidly in response to tight inventories and rising prices.  This trend requires more capital investment into all aspects of agriculture, including infrastructure, proper soil fertility, seed technology, crop chemicals, and the development of higher cost acres.

Now, remember, these guys are not what you would call philanthropists exactly.  So it's remarkable that this is what people in our government would be saying if they had any brains or balls.  It illustrates the basic idea of markets, namely that you're only supposed to be able to make money by providing what the world needs and wants.  It's a weird world where we need to be reminded of this fact by progressive hedge fund managers.

Saturday, October 17, 2009

Loco for Local

Here's another salvo in the local foods debate, this time from the FT .  Similarly to beer, the key issues are the efficiency (carbon, water and otherwise) of the production, the extent of the packaging, and the way the product is consumed -- transportation appears to be the least important piece once again, not that this justifies overlooking it. 

In a study of the carbon footprint of a packet of crisps, Walker's says the biggest proportion (36 per cent) can be put down to agriculture and producing the raw ingredients. Another big portion comes from packaging (34 per cent). Distribution and transport account for just 10 per cent of the footprint, according to the study, which was conducted with the Carbon Trust, the UK government-backed environmental adviser.

"The whole food miles debate is nonsense," says Euan Murray, general manager of carbon footprint at the Carbon Trust. "For the vast majority of products there's no link between the distance it has travelled and its carbon footprint."


Food waste is also a growing problem. When left in landfills, solid food waste produces methane, which can leach into the atmosphere. In the UK, about a third of food purchased is thrown away, according to the Chartered Institution of Water and Environmental Management. Meanwhile, in the US, more than 25 per cent of the food Americans prepare is discarded, generating about 43.5m tonnes of food waste a year, according to the Environmental Protection Agency.

I'll be honest in saying that I don't have a lot of detailed knowledge of the whole green debate, but every time I read something new, I find that the a lot of the way things are framed is pretty misleading.  In fact, I'll go one better and say that I'm sliding inthe direction of subscribing to the "secular religion" view of most of the movement.  The idea that we are a part of the planet and having an impact on it is pretty indisputable, but the responses -- from ethanol to large scale solar to the obsession with non-GM local food -- are so ill conceived that it betrays the gap between the treating the problem as a practical question and lending it an moral-religious overtone.  I'm not saying that we should count on some quick techno-breakthrough to solve all our problems (a la Freeman Dyson and his carbon eating trees) but I think we should approach it as a technological question, with the biggest emphasis on the social technology we so sorely lack.  This is not how I see it treated in general.

Did I mention they gave the Nobel prize to an anarchist who studies this stuff? 

Thursday, October 15, 2009

No, seriously

I kid you not. They really did give the Nobel Prize in economics to an anarchist.

Tuesday, October 13, 2009

Tax credits

Here's a NYT article via CR about tax credits for employers to create jobs:

Timothy J. Bartik, a senior economist at the Upjohn Institute for Employment Research who is working on the draft with John H. Bishop of Cornell, estimates that it would cost about $20,000 for each job created.

And here's another one the geniuses in Washington have dreamed up (naturally with a little creative support from the National Association of Homebuilders):

From the NAHB:
Extending the credit through Nov. 30, 2010 and making it available to all purchasers of a principal residence would result in an additional 383,000 home sales ...
The NAHB has also been arguing to expand the tax credit from $8,000 to $15,000. But using $8,000 per home buyer - and estimating 5 million home sales over the next year - the total cost of the tax credit would be $40 billion.

According to the NAHB this would result in 383,000 additional home sales. Dividing $40 billion by 383 thousand gives $104,400 per additional home sold!

It's easy to understand why tax credits are the favored approach of Congress -- Congress exists to regulate, and if money (or credit) doesn't continue to drop from their hands like mana from heaven, their power as regulator is diminished.  This simple survival tactic is the basic feedback loop that keeps government expanding and expanding (growth tactic, really. No organism 'fights for survival'.  They either grow or they can't, survival is just the world pushing back, and not very hard in the case of Congress).  And you can see that it doesn't matter how inefficient this form of regulation is, which tells you immediately that the supposed goals -- propping up home prices and reducing unemployment -- are not the real goals.

But I digress. 

Because my main point was the reaction I had to that initial article about the job creation tax credit.  $20,000 per job.  You know with certainty that this is a dramatic underestimate.  I don't remember how much Congress estimated that the housing tax credit would cost when they put it in place, but I know it wasn't even in the ballpark of $100K per home.  So let's say they underestimated the cost per job by a factor of 2, and the credit will amount to $40K per job if it passes. 

Now, you're asking yourself, if it's going to cost them $40K per job, isn't that about what you'd have to pay some out of work person anyhow to get them back in the saddle?  Why doesn't the government just hire the guy themselves?  Yeah, yeah, I know, creeping socialism blah blah blah.  But what the fuck do you think we have now!?  It just creeps from a different direction, going through the banks and through the bailout of inefficient high-employment low-value industries (consider which business would benefit, relatively from the credit -- it ain't the money losing start-ups and other creative stuff that really makes the economy dynamic).  Why don't we just get over the fact that capitalism has really always been State capitalism, and simply try to push the State into the form and roles that are appropriate to it?  Why don't we have the State employ the people directly, if that's what ultimately needs to happen, and let the rest take care of itself?

This turns out to have been the crux of Minsky's argument, and as I've thought about it more it's grown on me.  To review: his basic idea was that capitalism is inherently unstable, because large capital intensive projects require large financing.  So the simplistic I-cook-while-you-build-houses market exchange is complicated by the need for a banking system to finance these big projects.  Competition in this new financial sector makes it inherently unstable and prone to crisis, as people can profit from making shorter and shorter term loans at lower rates to finance long-term projects by just refinancing more frequently.  At some point, the financing becomes so speculative and Ponzi-esque that any small bump in the road in terms of the profitability of these projects causes the financiers to go bankrupt and results in a debt-deflationary spiral.  People try to cover their debts by liquidating the longer-term assets.  If everyone tries to do this at the same time, these productive assets are idled, the associated workers unemployed, and the strategy doesn't even work because all the liquidating drives the price of the assets even lower, whereas the debt you are trying to pay off stays fixed. 

Capitalism differs from a pure market economy and does not settle into an equilibrium the way such an economy would.  Why? It's the debt, stupid.  The structure of ownership gets us into a log-jam type of situation where money can no longer circulate, and money circulating is the bread and butter of the economy operating somewhere near equilibrium.

I think this is a pretty reasonable story.   I think there are also additional reasons why capitalism is unstable, but I think the effects of money and finance are probably the most wobbly leg of the edifice.  So, let's say we take this instability to be the main problem.  How are we going to fix it?  How are we going to get money to circulate and not just pile up in the wrong spots (whether that is mattresses or bank reserves at the Fed)?  How are we going to get people working and making stuff again?

Over the years, we (as a society) have tried a variety of solutions
  1. Do nothing.  Eventually you get a Depression deep and long enough that prices fall to the point of stimulating a recovery.  This is self-regulating market equilibrium of a sorts, it's just that the time scale can be excruciating.  I remember Jim Grant commenting that the depression of 1873 become the depression of 1878 before there was anything like a move to "do something" about it.
  2. Have the government manage the money supply.  If you think that finance is at least partly unstable because it is subject to occasional crises of confidence with no deep basis in reality (liquidity panics as opposed to solvency crises) you can alleviate some of the instability by having a lender of last resort.  In the US, this was JP Morgan at one point, and then we invented the Fed. 
  3. Have the government spend money directly.  The problem with (2) is pretty obvious once you realize that you almost never have a liquidity crisis without at least the real threat of a solvency crisis.  People are scared and want their money back because they think they might not get it.  If everyone wants to save up and pay off their debt we have a debt-deflationary problem, and the only way to save the system is to have the government go into debt while everyone works their way out of it.  This is the upshot of classic Keynesianism, though I'm bending it a bit in light of Richard Koo's later adaptation.  Keynes didn't imagine that the government would have to go into debt for years and years to get money circulating again.  He seems to have thought of it as a one-off sort of a thing that would soon become self-fulfilling.  The length of this though depends on how deeply in trouble the financial system got.
  4. Regulation.  Post GD I, we decided to have much more tightly regulated banks, the idea being that we could oversee the financial system and its tendency towards instability, and preempt the build up of debt that causes trouble.  That worked pretty well for a while (until the 70's) and then not so much.  I'm enough of a cynic (or an optimist, depending on your perspective) so as not to believe in the perfectibility of human control over large complex systems.  Hence I think this solution is evolutionarily unstable, and I'm surprised we even got 20 years out of it.
  5. Attack the problem directly.  If we want people to keep making stuff and keep spending money so that it continues to circulate, why don't we ... um ... pay them to do stuff.  Why do we insist on sending this money through the banking system or crediting it to businesses.  Why don't we just have the government hire people to do stuff we all want.  We could build parks or teach kids or grow publicly funded high quality hydro.  I don't mean as a temporary stimulus measure designed to restart the economy, and I don't mean the government going into debt to 'stimulate' the economy through tax credits of bank bailouts or defense contracts.  I mean, if the problem is not enough jobs, let's invent some more fucking jobs already.  Let's have the government guarantee everyone a minimum wage job producing whatever it is we collectively think we need.  Yeah, there are problems with how we decide what we need, but they don't seem more insurmountable to me than the problems attendant upon any of these other solutions. 
Number (5) was basically Minsky's adaptation of Keynes.  The government as employer, not lender, of last resort.  If you are out of work the government will give you a crap job.  It won't pay as much as you used to make, so you won't be tempted to stick around after business improves, but it will keep you eating and producing, and keep the money moving, which is what the economy is all about.  Let the big banks fail.  If no one can be out of a job, you have put a backstop behind the economy, and it won't be long before new banks arise to take their place.

Minsky's idea sounds crazy and socialist, but I wonder whether in the end it doesn't actually amount to the smallest government intervention into the economy that is consistent with its basic principle -- namely to let us play as many non-zero sum games with one another as possible.  Everything else involves a lot of regulating and fine tuning and bailing-out and etc ... Here, the only difficulty is in deciding what the people you hire ought to make.  We're more than capable of getting that wrong, but we might even be able to get it right.


Been studying the beer industry a bit lately, which has led me to a few interesting environmental nuggets.  Impressed with the ability of the big brewers to drive down their costs, I started looking into the energy advantages that accrue to large scale brewing.  Hence the accompanying chart.  Dramatic ¿no?  The biggest German brewery is almost twice as efficient as the smallest in terms of the Kbtu needed to produce each barrel.

In addition, as you can see from the other chart, there are efficiencies in the distribution as well.  If you're going to get Miller and Coors to every bar in America, the total shipping costs will be lower if you consolidate the two, even if this means that very little of the beer will be produced locally -- every beer will have to travel a ways, but the average beer will travel less far.  In addition, as this Slate article points out:

... distance is only part of the equation; the mode of transport matters, too. For example, a recent study (PDF) by wine expert Tyler Colman and sustainability engineer Pablo Päster has gotten a lot of attention for proposing that people living east of an imaginary "green line"—which runs roughly through Kansas—would be better off buying wine sent by container ship from Bordeaux, France, then trucked to its final destination, than wine trucked all the way from Napa, Calif. That's due to the fact that container ships are generally considered cleaner modes of transport, which makes up for the longer journey. By the same token, shipping by rail rather than truck would push the green line eastward.

But maybe, you say, we should not have national beer brands at all.  Maybe everything should be made locally.  To evaluate that idea we would need to know whether the scale savings from the brewing offset the costs of shipping.  That leads us to the third chart, which I found here, and which immediately takes us down the rabbit hole.  Because once you start to work out exactly what part of the emission come from what, things get complicated. 

According to that study, the malting and production stages that the big brewers do so efficiently is only 14% of the total carbon emissions (this is for the UK, it's potentially large in the US).  There's another 6% related to the growing of hops and barley (a significant chunk of which comes from producing the fertilizer).  Unless your local brew uses organically grown barley, that portion, as well as the 11% the comes from producing the glass or can, is unlikely to be substantially more energy efficient for a small local a brewer.  In fact, I would assume that because the packaging and ingredients themselves need to be transported to the bottling plant, the big brewers probably have an efficiency of scale in this respect as well.  So, at least 14% and perhaps up to 31% of the emissions may  be reduced by buying non-local beer brewed by a large manufacturer, and this reduction might save anywhere between 7% and 15% of the total emissions.

On the other hand, the fully local plant requires less transportation, and this is 21% of the total emissions.  So if everyone was home brewing, we could eliminate this part entirely.  The other way to reduce this substantially is to drink only draught beer. Not only is the packaging less costly in this case, but it adds much less weight to the freight.

Then you come to the final category of consumption related emissions, which in fact dominates the emissions spectrum at 47% of the total.  This category is due to the refrigeration at home or at the pub, keeping the lights on in the pub or restaurant where you are having the drink, and driving to the pub.  Naturally, none of this changes at all if you choose Local Lager instead of PBR.

So, basically, drinking local beer is unlikely to make a major dent in the greenhouse gas emissions that beer drinking causes to begin with.  If you really want to make a difference, try sitting at home in the dark drinking a warm barrel of locally fermented spit.

Posted via email from The Capitalist Axiomatic

Monday, October 12, 2009

Holy Shit Batman,

They gave an anarchist the Nobel prize.

Ms. Ostrom "challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized," the Nobel judges said. "Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, [Ms.] Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories. She observes that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest, and she characterizes the rules that promote successful outcomes."

Wednesday, October 7, 2009

Friday, October 2, 2009


I realize, now, here, how remarkably similar French Philosophy is to High Finance. Consider:

. . . .