Monday, December 27, 2010

Slow Day

Sure, there are people who sell chocolate bars, and there are people who sell bolts, but no one can compete with our unique bolt-in-a-chocolate-bar product!

While the company faces many competitors in each of the domains it serves, we believe Company XXX doesn't have a single competitor that competes in all of the same domains. This does not diminish the quality of the competition, but does suggest to us that competitors do not enjoy the same synergies and economies of scale that Company XXX does. 

Thursday, December 23, 2010

Toll Roads

So, I'm still thinking about the whole question of net neutrality and the new rules of the road issued by the FCC (well, sorta rules -- this is still hand-wavey enough that all sides are claiming victory and defeat at the same time).  But at the same time I'm reading the FT bemoan the downfall of congestion pricing schemes for the kind of traffic that still has wheels.

Most weekdays, slow-moving traffic forms a barricade between the two halves of King's Road, the main thoroughfare through the well-heeled London district of Chelsea. For about 1km from Sloane Square, at the eastern end, taxis, buses and four-wheel-drive cars sit bumper to bumper, engines running, inching towards their destination.

Nonetheless, on Thursday 20 sq km of Chelsea and other parts of west-central London will be removed from the capital's congestion-charging zone – the area drivers must pay to enter during weekday working hours – reducing it to its original 22 sq km. Even Transport for London, the body responsible for the scheme, acknowledges this will worsen jams. Vehicle numbers are expected to rise by 15 to 20 per cent. Congestion – measured by the extra time a journey takes compared with clear road conditions – is poised to worsen by as much as 18 per cent. Emissions of harmful gases will go up sharply.

And it made me realize that there are probably a lot of people whose knee-jerk reaction would be to support congestion pricing on highways, but to simultaneously demand that anybody can drive as big a semi as they want onto the internet, and pay the same price as a Yugo.  Net neutrality gets more complicated the further you dig into it -- technically, economically, and of course politically/philosophically.  But it's hard to see a huge amount of difference between these two cases, which analogy maybe prompts us to rethink both of them.  Some form of congestion pricing may be essential to making this infrastructure function well under heavier loads.

Tuesday, December 21, 2010

Chief Internet Evangelist

Cynics among you will undoubtedly claim that I am merely talking my book, but I will nevertheless take this opportunity to exercise my divine right to such a time honored tradition, and pass on a straightforward comment by Google's very own Vint Cerf: Governments Shouldn't Have a Monopoly on Internet Governance.

... last week the UN Committee on Science and Technology announced that only governments would be able to sit on a working group set up to examine improvements to theIGF—one of the Internet's most important discussion forums. This move has been condemned by the Internet Governance Caucus, the Internet Society (ISOC), the International Chamber of Commerce and numerous other organizations—who have published a joint letter (PDF) and launched an online petition to mobilize opposition. Today, I have signed that petition on Google's behalf because we don't believe governments should be allowed to grant themselves a monopoly on Internet governance. 

Democracy is as democracy does, and if we let the UN take charge of it, just calling it democracy is not going to save us.

Saturday, December 18, 2010

Wrong Question

Today, Daniel Henninger, Prince of Darkness (aka director of the WSJ editorial board), takes a stab at the profound.

A radical (in the best sense) 21st-century tax debate—such as over Bowles-Simpson's three stripped-down marginal rates, topping at 23%, and lower taxes on business—would challenge the conventional 100-year-old idea in the U.S. that the first purpose of a tax regime is to ensure the functioning of the state. In the hypercompetitive world we will inhabit for at least a generation, might not it be time to rewrite the textbook? To ensure American well-being, the pre-eminent purpose of a modern tax system should be to achieve the highest possible level of growth in the private economy with a competent, efficient state in a supporting role.

For a split second this argument sound superficially intelligent.  Don't we need to face up to a world where the nation state is in decline?  Where borders mean nothing to business and the only thing that holds us together is our collective commitment to the two car garage?  Don't we have global problems that need a global solution?  Isn't the logic of the "hypercompetitive" free market the final and inevitable verdict of history?  And shouldn't all these taxes at least ensure we stay ahead of the chinese?  

But after this brief and bracing moment of radicalism, we are suddenly forced to look down and discover, much like Wile E. Coyote, that there is absolutely nothing under our feet; the question was not what taxes and for, but what the state is for.  While it may not be far from the truth in actual practice, I don't think any one of you big state liberals out there (you know who you are) really argued that we pay taxes to support the state so that the state can collect taxes.  So to pretend that he's making a radical critique by suggesting that taxes actually have a purpose is not so much rhetorical as just plain idiotic.  

After these smoke and mirrors are deployed, he goes on to be just completely flat out fucking wrong.  The purpose of the state is emphatically not to maximize economic growth, so that can't be the purpose of the taxes supporting it either.  

The purpose of the state is to keep us free.  While this may require a certain base economic level -- people not getting enough to eat are shackled just as surely as if they were in chains -- that level is not the endpoint but merely the beginning of what we want out of a state.  I don't mean to imply that this base level if fixed forever at food, or is ever going to uncontroversial in practice.  I simply mean that it's philosophically very important to realize  that economic growth is not the primary thing we want out of a state, and is not at all the metric on which it should be judged.  

In fact, the state should have very little to do with economic growth.  Once it fulfills its basic function of facilitating cooperation, once it frees us to do the things we want with one another without worrying about people doing things to us we don't want, its role in the economy is over.  I suppose you could call that an "efficient supporting role", by analogy to the way an agnostic supports a Catholic, but it does seem to stretch the language.  

Whatever happened to the real libertarians I wonder.  The ones where your liberty didn't ultimately boil down to the size of your pile of gold?

Saturday, December 4, 2010

The two eyes

Namely Iceland and Ireland.  

John Maudlin writes a newsletter too often to say much of anything new each time, but other than that he's all right.  If you haven't been following the bouncing ball of our little European economic experiment, you can look here for his quick recap and clunky foreshadowing (reality is just such a tawdry and obvious plot device).  I won't bother to quote any of it, because the only thing that interested me was the graph, which you can see above.  Some folks will look at this chart and say that the Irish are a bunch of stubborn idiots for not simply defaulting, and they will point to Iceland as a sort of success story by comparison.  

dealt a bit with this logic back when I saw folks implicitly or explicitly suggesting that Greece should just default, drop out of the eurozone, and get it over with, but perhaps I can refine my point with this chart.   It's not that the chart is wrong or anything.  It's just that it leaves out one very crucial element, which is the real value of savings in the two countries.  

How much tuna and ammo does the 1,000 Krona she had in an Icelandic bank buy Bjork now?  I'm sure there are plenty of Irish who are upside down on their mortgages, just like people are here in the US.  But there really are some middle class folks who have positive net worth.  Those folks might plausibly trade some decline in real wages for the preservation of the purchasing power of their savings.  If you added this factor into your calculation, you might legitimately still reach a utilitarian conclusion that default would be better for more of the population.  But you cannot simply ignore it.  

Of course, all this is a little bit by-the-by; the actual decision making process is not going to be based on an economic calculation at all, but on a political one.

P.S.  There's a whole 'nother discussion to be had regarding whether Ireland should have saved their banks in the first place, or whether they should have only guaranteed Irish depositors and let everyone else go screw, but that gets complicated.

Friday, December 3, 2010

Deep thought of the day

Breaking left-right symmetry makes something looks a lot more strange than breaking top-bottom symmetry, for some fairly obvious reasons.

Why is there no animated mate-with-bombilla emoticon?

Tuesday, November 30, 2010

It's also not productive to completely waste your time

So this article in the WSJ about the failing of economics and the search for a new model to replace the current drunk-looking-for-keys-under-streetlamp-because-that's-where-the-light-is breed of DSGE models (dynamic stochastic general equilibrium for those of you not familiar with Dr. Pangloss's theories) is actually not bad.  

One of the things that puzzles me about these debates though is why everyone seems to place the emphasis on exotic theories of behavioral economics.  Here, someone goes so far as to suggest that we need a nearly Freudian theory of people's ability to fantasize about the value of  Not that I don't think you should incorporate models of human behavioral agency into the economy -- it's ridiculous to continue to pretend that people always behave like calculators, and to throw out all data to the contrary as 'exceptional'.  But I really just don't see this as the core of the problem with modeling the economy.  Which is why I find it odd to have the whole article devoted to this stuff.

Not to be an ass (I mean, I'm not an economist, and like Barbie said, economics is hard) but I think the problem is relatively obvious.  

Economists don't understand MONEY.  They still pretend it doesn't exist.  Which forces them to pretend that the financial system doesn't exist.  Which, fairly naturally, leads them to leave out altogether the impact of financial (as opposed to simply real economic) incentives on an agent's behavior.  Which, ahem, doesn't work well.  So do we need a grand new theory of economics?  Or, apropos of Krugman and Eggertsson's new paper, should we just start by assuming the existence of money instead of a can opener?  Turns out that just pretending nominal money is real, something you may note humans have a strong tendency to do, explains quite a lot.

Which is why I had to chuckle at the last line here:

Some of academia's most authoritative figures say the new ideas are out of the mainstream for a good reason: They're still very far from producing a model that demonstrably improves on the status quo.

"I guess I'll wait until I see these models and what they can and cannot do," says Robert Lucas, an economist at the University of Chicago who won the Nobel Prize for his work on "rational expectations," the concept at the very heart of modern orthodoxy.New York University's Mark Gertler, who with now-Federal Reserve Chairman Ben Bernanke did ground-breaking work in the 1980s on how financial troubles can trip up the economy, says economists already have many of the tools they need to fix the current models.

"It strikes me as not productive to say that all we have done is a complete waste," he says. "The profession is extremely competitive. If you have a better idea, it's going to win out."

I'm sure academic economics is as competitive as finance.  After all, the stakes are so low.  Given that finance managed to invent a whole host of better ideas that won out -- like, you know, CDO-squareds -- I'm sure that economists can manage something even more fantastically divorced from reality.

Monday, November 29, 2010

Last Straw

I quit.  I feel like I'm watching an incompetent version of Ronald Reagan in blackface.

President Barack Obama on Monday proposed a two-year salary freeze for all federal civilian employees, ahead of negotiations with Congress on deficit-cutting that are likely to dominate Washington next year.
Though in effect for two years, the proposed freeze would save $28 billion over five years and more than $60 billion over 10 years as the government pockets savings from a lower wage base for its civilian work force, said Jeffrey Zients, deputy White House budget director for management.
Workers were due to have a 1.4% pay raise in 2011. Federal wages generally rise each year in step with inflation, though Congress often makes adjustments.

Not only is the move completely cynical and cowardly -- the Pentagon pisses away more in toothpicks on Tuesdays -- but it won't even fucking work!!  Does anyone really believe that this transparent bit of hustle will suddenly have the Republicans drooling all over themselves in a bipartisan frenzy?

I sympathize that he may not have the easiest job right now, but, let's face it, we elected a lightweight.  The next two years are going to suck.

Monday, November 22, 2010

Bailing out Bono

I don't really have that much beyond I told you so to say about Ireland's new bailout.  I continue to find it amazing that people can get up in the morning, look at themselves in the mirror, and wonder with a straight face whether knocking down this domino will have any effect on the others.

In Ireland's case, using the fund has proved to be much more difficult than anyone had anticipated. Instead of welcoming the aid, Ireland—reluctant to give up control of its tax and spending policies—caught other EU nations off guard by fiercely resisting help. Rather than setting an example of how the bailout mechanism could lay concerns to rest, the process unsettled markets and exposed the difficulty Europe has in showing a united front. That has fueled concerns that investors will now begin to batter the euro zone's other weak members, especially Portugal and Spain.

It occurs to me that if the equity markets are like a small nervous animal by turns afraid of its own shadow and emboldened by how big it looks when its hair stands on end, the credit markets would be a sort of dim witted lumbering pack of sheep surprised every morning by the brilliance of the sun.

The real question is still just who gets to pay for this.  I'm getting ready to bet that the EU has found a conveniently deep and foreign pocket to pick, and it's called American high tech multinationals.

The Irish government bowed over the weekend to the rising pressure from the EU and financial markets, conceding it needs outside help to shore up its public finances and ailing banks. But Irish officials said they hadn't backed away from their insistence that the country be allowed to preserve its 12.5% corporate tax rate—which German and France view as an unfair way of luring companies to Ireland at other European countries' expense.

Wednesday, November 17, 2010

Abstract Geography

I've never really considered myself much of a history buff, which is why I've spent some time since returning from the Middle East pondering just what it is I went over there to see.  It's been several years now that the beginnings of urbanization have interested me, even though I haven't put much effort into reading about it and have only picked up a few things here and there.  So, if it's not some general cultural history I'm keen on ... if I don't much care who conquered the Hittites, what exactly am I looking for here?

I think the fundamental thing that interests me is the transition from a nomadic hunting and gathering economy to an urban civilization.  Once settlement has gotten going and labor specialized and divided, the rest is just a list of Empires won and lost, gods and priests and pharaohs served and betrayed, weapons and pots gradually improved.  The coming together is what I find fascinating.  How did a bunch of roving neo-monkeys launch this revolution?

The first time I can remember thinking about this stuff was when we read Lewis Mumford's The City in History for book club.  I remember this as a great sprawling account of urbanization down through the millenia, written from the perspective of someone who insisted that technology (and what is the city but a bit of social technology?) should be made to serve human ends rather than its own.  It was more than anything, a history of the way our technology gets the upper hand.  Since book club languished ten years ago already (alas), I decided to go back and reread some of the early chapters where Mumford speculates about the precursors to urbanization.  True to form for thinking with serious firepower, it's lost nothing of its shine in the intervening decade (or for that matter since the 60's, when it was written). 

Right off the bat, Mumford observes that settled life may have begun with the dead.  After all, they don't move around much.  A peripatetic tribe can at least be counted on to return to wherever they buried their ancestors.  The first city was the city of the dead, and it remained at the center of urbanization for years to come.  His comment resonated with the simple observation that the little bit of the fertile crescent I saw was littered with tombs.  And while Herr Doctor pointed out to me that the necropolis never the literal physical center of the city, it is also never far off; it seems plausible to attribute a central psychological significance to the city of the dead.  It holds our first dearly guarded but rarely accessed links to the past, though it's more important, perhaps, for the gatherings of the living it facilitates than for anything the dead themselves per se.  These gatherings may have existed as periodic rituals and pilgrimages for a long time before the echo of death's knell resonated with permanent habitation. 

Fast forward a bit.

Last week I went to an investor day for Equinix, a company that builds giant data centers to house internet servers (otherwise known as colocation, aka, cities for computers).  With more and more stuff going to "the cloud", the explosion in virtualization, and the monster bandwidth requirements and latency intolerance of video over IP, it's boom time for the data center industry.  As an investor though, you have to be careful, especially when you understand all this techno-babble as poorly as I do.  The demand for colocation space may be there, but if the idea is just to build a concrete bunker with a long power cord and fat pipe, it seems like it should be pretty easy to bring new supply to market.  Indeed, essentially the entire industry went bankrupt in 2002 despite the fact that there was only a mild slowdown in the demand for space and bandwidth. 

Equinix is only interesting as an investment because some portion of their business is related to customers who use their facilities to directly connect their traffic to other customers without having to route it through all the various hops that a typical packet can experience in an increasingly overloaded best effort network.  The more direct routing reduces latency and improves reliability, and is thus worth big money to a guy running a snappy Web 2.0 app, or, you guessed it, to an algorithmic trader who makes money every microsecond.  This sets up a network effect where new customers show up simply because the people they want to connect with are already there, not because of anything intrinsic to the place where they are meeting.  Metcalf's Law, owning the most liquid marketplace, eating at strip clubs, blah blah blah, you get the idea.  Equinix essentially runs a digital souq. Put a tollbooth on something like this and hire yourself a marketing department and it's easy money. 

Which and so but this brings me right back to my interest in transitions.  When you see network effects and feedback loops like Equinix's data centers or some Assyrian urban agglomeration, the typical concept of cause and effect doesn't really do them justice.  It's not history any more. These phenomena don't have proper necessary and sufficient causes.  It would be better to say that they are seeded by some prior state of affairs.  Or to complicate the crystal analogy, we could call these, a la Cymatics, patterns created by the resonant coupling of some driver with the characteristics of a particular medium (if you haven't already heard me wax cosmological about Cymatics, you should go check out the videos for yourself). 

I swear I'm being difficult for a reason here.  Because it's easy to fall into the trap of thinking of these things too causally and linearly.  First they buried a few people here.  Then they moved in permanently.  Or first  they found a well or an oasis or a defensible hill, then they built a citadel.  Or in the case of Equinix, it turns out that these data centers originally became valuable because they were neutral, third-party-owned places where the competing Tier 1 internet backbone providers could trust one another to come together and exchange traffic.  One network effect leads to another, and now they are popular with financial exchanges and streaming media providers.

I don't want to dispute the importance of these initial facts to what happened later.  Simple geography clearly has a great deal to do with where ancient cities are situated.  And you can hear the echo of New York's perfect port in the data centers built for the stock exchange only miles away from where it has stood since the 1700's.  I just think its wrong to think of these factors as causes when they are more Archduke Ferdinand style triggers.  Of course, I don't mean to abandon determinism with this, just to complicate the simple stories we often fabricate to convince ourselves that one link in the chain leads inevitably to the next.  Perhaps this is why I find these moments of transition so interesting.  In retrospect, everything looks obvious.  This is where two rivers came together.  This was on caravan crossroads.  Washington DC was unused swamp precisely halfway between important places. This data center was near enough to a big urban population.  And yet if everything is so obvious, why are these things are so difficult to predict in advance? 

There is a bit of magic in the resonance between one level of organization and the next.  There's something creative there.  There are new needs that pick up the detritus of the past and adapt it to the new purposes in unpredictable ways.  Maybe we should plant some of those felafel trees next to where we buried granddad?  Maybe we should put a data center in Siberia instead of right next to all those people?  If history didn't have some creative element in it, it would all be determined by geography, all from the beginning, like some giant billiard shot.  And there would be no such thing as qualitative change.  Once some crystal had formed it would expand forever uniformly.  I am suddenly reminded of The Grid Book, which described how the very innovation and productivity that every standard fosters actually creates new forces that end up undermining or at least decoding its own logic.  History isn't unpredictable only because some chance external force meddles with its causal crystalline perfection.  The mechanism actively generates randomness, which is what makes growth and decay, coming together and falling apart, such interesting phenomena.

Having said all that, I must admit that I started writing this because of a simple analogy which suggests that even history's creativity my have a sort of language to its patterns.  Today, another wave of change is sweeping over Equinix's data centers.  Some of the big customers like Google and Facebook are moving a lot of their servers out to their own data centers because this is much cheaper over the long run.  They still leave some machines with Equinix though, because of the latency issues; the bulk of a popular Youtube video might live in a Siberian data center built on a cheap geothermal power source, but chunks of it are still cached closer to the people likely to request it, to make sure it plays smoothly.  Facebook's monster collection of photos apparently works the same way. 

Data center ROM becomes the mirror of our own long-term memories, and these stack up like so many ancestors.  Eventually we push the necropolis aside to make way for the interactions we want to have every day.  These companies bring only their freshest produce to market, and leave our digital dead buried like memories in an abstract geography.

Monday, November 15, 2010

In Transit

Rolling. Fucking. Luggage.

When the apocalypse hits these people are going to be like lambs to the slaughter.

Tuesday, November 9, 2010

The Balance Sheet Recession Continues

Despite the fact that rates are down, fine print transparency is up, and people are starting to get new card mailings, Americans don't seem terribly interested in borrowing.  

The Federal Reserve Bank of New York today released its Quarterly Report on Household Debt and Credit for the third quarter of 2010, which shows that consumer debt continues its downward trend of the previous seven quarters, though the pace of decline has slowed recently. Since its peak in the third quarter of 2008, nearly $1 trillion has been shaved from outstanding consumer debts. 

Additionally, this quarter's supplemental report addresses for the first time the question of how this decline has been achieved and notes a sharp reversal in household cash flow from debt, indicating a decrease in available funds for consumption. According to newly available data through year end 2009, the payoff of debt by consumers reduced their cash flow by about $150 billion, whereas between 2000 and 2007, borrowing had contributed more than $300 billion annually to consumers' cash flow. 

 This is so Richard Koo and Japan that it's not even funny anymore.  I probably should put a moratorium on posting anything more about this, given that it's the same situation we had a year and a half ago.  The only new element is the Fed's decision to "do something" that will pretty clear not do what they think it will do; in Japan, QE2-N were gigantic non-events where the central bank gave money to the banks who sat on it for a while and then returned it.  Maybe you can argue that there's some cultural difference in the US (and there's a clear demographic difference, which is why I don't think we're going to get 20 years of stagnation) and that people are more go-go and inclined to roll the dice, but I think that they obvious place to do this is in the financial markets and not in the real economy.  Free money is not going to encourage anyone to actually start a business that they weren't going to start anyways, because the people who are supposed to be buying the stuff that the hypothesized business sells, are, in fact, using the money to pay off their credit card debt.  

We may see a terrific spike in commodities, stocks, and bonds.  Though the higher commodity prices part of this makes the new new bubble self-limiting -- $5 gallon gas will simply produce another US recession.  And then what?  

Tuesday, October 5, 2010

It's not a conspiracy

I hate conspiracy theories because, as Laplace famously observed of the idea of God, I have no need for that hypothesis.  You could argue that this should logically result in my merely dismissing the tinfoil hat cranks, but, alas, their pernicious influence is like that of the undead -- with their zombie arms outstretched in an endless search for brains they risk infecting all of us.

So though I absolutely agree with Barry Ritholtz when he says:

For a long time, American politics has been defined by a Left/Right dynamic. It was Liberals versus Conservatives on a variety of issues. Pro-Life versus Pro-Choice, Tax Cuts vs. More Spending, Pro-War vs Peaceniks, Environmental Protections vs. Economic Growth, Pro-Union vs. Union-Free, Gay Marriage vs. Family Values, School Choice vs. Public Schools, Regulation vs. Free Markets.

The new dynamic, however, has moved past the old Left Right paradigm. We now live in an era defined by increasing Corporate influence and authority over the individual. 
if you see the world in terms of Left & Right, you really aren't seeing the world at all . . .

I still get nervous about the way he puts it.

In my mind there is no question that the far and away the most important political question is this one of corruption, because it is the first question, the one that comes before the smokescreen of debate between left and right even gets started.

But I disagree with the idea that we should think of the corporate takeover of our political process as us versus the CEOs of Goldman Sachs and BP.  It will do us no good to blame the low moral standards of corporations, and even less to try and put a face, even a short hooked nosed Jewish one, to "our enemy".  The enemy, as usual, is within.  The enemy is the mechanism by which we elect Congress.  The enemy is the military-industrial-congressional complex.  It is a sprawling beast that even as gifted a sniper as Dick Cheney would find hard to shoot in the face.  

If we do not directly recognize the simplicity and inevitableness of this feedback mechanism we risk falling into the very trap that Ritholtz is trying to avoid.  Every time we invent a purpose and a personality to go behind a blind feedback loop we make the same error that believers in intelligent design make with respect to true evolution.  We invent a teleological conspiracy where there is only an endlessly functioning mechanism.

Maritn Wolf observed during the financial crisis that the genius of Keynes was his belief that we should not treat the economy as a morality play.  Well, we shouldn't treat politics as one either.  It's just a broken piece of technology.  We should try to repair it. 

Because fundamentally, it's not us versus the corporations, nor even us versus their executives or owners.  If we phrase things this way we will soon end up right back where we started, arguing about whether we should keep the tax cuts for the rich, and watching all the power of the tea and coffee parties get co-opted by the established political machine.  Fundamentally, it's us versus ourselves, us divided against ourselves as a cancer that destroys its own body.

Monday, October 4, 2010

Eric Schmidt quotes The Capitalist Axiomatic

I, for one, want to see the augmented humanity research department as soon as possible.

Investment theme of the day: buy chips, sell chimps.

Thursday, September 23, 2010

And now back to our regularly scheduled meltdown ...

Today's chart is brought to you by the letter B, as in fucking broke.  The idea is that bond yields more or less track economic activity, in this case the comparison is between ten year bunds and a survey of German industrial production expectations.  I have annotated the picture to better reflect current reality -- it appears that the PIGS fit nicely into this gap (yes, I know, it's fiesta time in Spain for the moment, don't ask me how, so I guess the plural is out for now).  All the demand for those bonds has sensibly run towards the ever disciplined bosom of mama Merkel.

UPDATE:  The same report also shows where you can stick China.  One of these days they are just going to have to get their own damn financial system instead of leeching of off ours.  Attentive readers will note that either of these graphs could be interpreted as bearish for bonds (dramatic yield increase in the offing, which of course was the point of the report), or bearish for the economy (maybe the bond market is smarter than the people surveyed).  I'm going to stick with my explanation however.  This correlation is falling apart because of fundamental imbalances in our global financial system.

Friday, September 3, 2010

Agent Smith Arbitrage

Today's FT has a fantastic story unearthing a few more details of the high frequency trading world.  I love reading about this stuff because it makes it completely clear that 58% of US equities by volume and 38% of EU equities by value are now, officially, a casino.  But what a casino!   This is the greatest poker game in the world.  I can't believe there's no reality TV  show about HFT.  You could have great interludes where 20 year old Russian hackers score millions and go out partying all night with the Jersey shore girls, only to wake up next week and discover that their botnet was caught in a "Bandsaw II" pattern (pictured below) by some clever Serbian helping the Mexican drug lords go completely legit before they shut down Vegas ... er ... I mean, Oaxaca.

Anyhow, all joking aside I can imagine a new business model where somebody proposes an exchange that actually has rules.  This is kinda like the fancy backroom of a casino where everybody is rich and agrees to play like a gentleman.  The big pensions funds, endowments, insurance companies, etc ... could simply give up some of the decrease in trading costs they've seen over the last 20 years, in exchange for a less volatile market.  Wouldn't an investor owned exchange be a viable model if you could get it off the ground?  Why are we always stuck getting screwed by Wall Street -- let's go around them already.  If Calpers, Vanguard, and a few others said that they were going to start a new exchange that only traded, say, once a second, and that they were not going to buy shares in any company that did not list on this exchange, wouldn't others follow along, and subsequently wouldn't issuers be forced to move venues as well.  Not that you'd have to twist their arm.  I mean, I'm pretty sure P&G got nothing useful out of the twelve second in which the company was worth $0.50.  In fact, nobody is getting anything useful out of this except the algo guys themselves.  They are an invasive species in our capitalist garden of Eden.

But I digress.  There's a million problems with that idea, and in the meantime there's money to be made.  I doubt that "latency arbitrage" is "making markets more efficient by providing liquidity", but I can certainly image it being possible and profitable:

Mr Cronin is not alone in suspecting that certain kinds of algorithms are actually predatory. Analysts at Nanex, a Chicago market data company, say high-frequency traders may be using algorithms to send unusually heavy traffic to exchanges and other platforms in a deliberate attempt to slow down their data systems.

Knowing that a certain exchange’s system is about to run more slowly gives a trader an opportunity to set up a buy or sell order in advance. The process is called “quote stuffing” and is used in a strategy known as “latency arbitrage” – latency referring to the speed at which message traffic moves through a system.

There's one thing the online version of the article leaves out, so I snapped a picture of a box that appears in the print version.  

Tuesday, August 31, 2010

Don't let your VCR strangle you

Stanford Law prof Mark Lemley has written a brief and entertaining paper about the content industry's ongoing "Chicken Little Syndrome".  One particularly purple passage is good for a chuckle.
The content industry warned us that the VCR must be stopped.  Here was Jack Valenti of the MPAA, speaking to Congress: 
"the VCR is stripping those things clean, those markets clean of our profit potential, you are going to have devastation in this marketplace.  We are going to bleed and bleed and hemorrhage, unless this Congress at least protects one industry that is able to retrieve a surplus balance of trade and whose total future depends on its protection from the savagery and the ravages of this machine"
If that were not enough, he went on to say, "I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone."

It's also remarkable to read how many times music, television, and film producers have been saved from themselves by the slimmest of Supreme Court margins, and how badly it has gone for them in the few cases they have "won" -- remember DAT tapes?

We did, however, successfully shackle next-generation audio technology in the early 1990's with the digital audio tape.  Here the perceived threat was the same as audio cassettes but worse.  Audio cassettes turned out not to have shut down the industry, true. But if you gave customers digital audio cassettes, content owners warned, if you allowed them to make a digital-quality copy, then they had no reason to buy our better quality copy, and we will be shut down.  That argument carried the day in Congress.  Digital audio tapes were then subject to a compulsory licensing scheme and were never heard from again by mass-market consumers. The technology flopped once it was put under the control of the content industry. 

No, I didn't think you did.

As I think about these problems of property, which range from patents to copyright to net neutrality to agricultural production, the basic pattern becomes more and more clear to me.  Create just enough private property to encourage people to engage in non-zero sum games.  Maybe 500 years ago, when the king owned everything, we erred on the side of too little, but we are rapidly getting bogged down in having too much.  The default presumption is not that property should be collective until otherwise stated -- I'm not arguing that all private property is theft from the common hoard.  The default presumption is that there is no such thing as property until its absence stymies activity or we get into enough of a row over it that makes both sides worse off at the same time.  Plenty of cases fall under that heading.  Just not many from the media world.

Friday, August 27, 2010

Debt not "Privatization"

When I hear the word "privatization" I reach for my revolver; everyone has a different definition invented to fit their ideological leanings, and they react without examining the economic substance in question.
So you see debates like this in the WSJ.
Cities and states across the nation are selling and leasing everything from airports to zoos—a fire sale that could help plug budget holes now but worsen their financial woes over the long run.
California is looking to shed state office buildings. Milwaukee has proposed selling its water supply; in Chicago and New Haven, Conn., it's parking meters. In Louisiana and Georgia, airports are up for grabs

"Privatization"—selling government-owned property to private corporations and other entities—has been popular for years in Europe, Canada and Australia, where government once owned big chunks of the economy.
In many cases, the private takeover of government-controlled industry or services can result in more efficient and profitable operations. On a toll road, for example, a private operator may have more money to pump into repairs and would bear the brunt of losses if drivers used the road less.
While asset sales can create efficiencies, critics say the way these current sales are being handled could hurt communities over the long run. Some properties are being sold at fire-sale prices into a weak market. The deals mean cities are giving up long-term, recurring income streams in exchange for lump-sum payments to plug one-time budget gaps.
That passage muddles the entire issue.  Privatization, as an economic movement, was intended (in theory at least) to take a government run monopoly, break it into pieces, sell each to a different investor, and then let them compete.   The break-up of AT&T into the baby bells would be an example of this.  This type of privatization makes a fair amount of sense in my opinion, as you substituting competition for a monopoly.  There are certainly instances where the magic of market competition fails to deliver the outcome you were looking for better, faster, and cheaper, but competitive markets are an awfully powerful tool in many cases.  I still rate markets up there with language and duct tape in the pantheon of humanity's greatest achievements.

When I first moved to Latin America, I remember espousing this point of view to friends and future blog audience members, and broadly defending the concept of privatization.  Fireworks.  I don't know if anybody said yanqui go home, but that was the basic idea.  After a while though, I realized that we were talking about completely different things when we used the word "privatization".  In Latin America, the only privatization they ever saw was one where the government sold a monopoly intact to some friend of the President.  They were entirely right to see this sort of "privatization" as essentially synonymous with "theft".  Unfortunately, this wonderful version of the concept appears to have migrated north.

The most popular deals in the works are metered municipal street and garage parking spaces. One of the first was in Chicago where the city received $1.16 billion in 2008 to allow a consortium led by Morgan Stanley to run more than 36,000 metered parking spaces for 75 years. The city continues to set the rules and rates for the meters and collects parking fines. But the investors keep the revenues, which this year will more than triple the $20 million the city was collecting, according to credit rating firms.
After the deal, some drivers complained about price increases as well as meter malfunctions caused by the overwhelming number of quarters that suddenly were required.
Based on the new rates, the inspector general claimed the city was short-changed by about $1 billion.
"The investors will make their money back in 20 years and we are stuck for 50 more years making zero dollars," says Scott Waguespack, an alderman who voted against the lease. A spokeswoman for Morgan Stanley declined to comment.
So I read this, and I can't even tell what's happening.  It's clear that the city sold a monopoly on the collection of parking meters to MS.  Is this a regulated utility now though, or can MS charge "market" rates?  In one breath it sounds like the city retained control of the pricing and the parking laws, and in the next we hear about how rates went up so much that there's a shortage of quarters (sound familiar?)  Honestly, I haven't looked at the deal, so it sounds like one of two things happened.  Either they really did just sell the whole monopoly to a private group and let them gouge to their hearts content (I assume that meter rates are (or were) significantly lower than parking garage rates in the same neighborhood).  Or, they just sold the rights to collect the money, in other words, they outsourced the operations of the meter readers for an upfront payment.  That is what you call debt, albeit maybe with an equity kicker if MS enforces the rules like a real asshole.

The problem is that either of these possibilities sucks.

In the first case I suppose it's possible in theory to auction the thing off at a high enough initial price that the average taxpayer is no worse off.  Clearly, MS is going to jack the rates once they get going.  But if they are made to pay so much up front for the rights to this extortion, and this money is somehow returned to citizens via lower taxes or low rider jeans subsidies or what have you, then what you in effect get is a transfer of wealth from parkers to non-parkers.  Hooray.  It kinda reminds me of the riddle about selling your vote.  Why don't we allow votes to be sold?  The government that purchases your vote may be awful, but isn't there some price at which you are compensated for how awful they might be?  Wouldn't you rather get this money directly than have candidates blow it on advertising?  While a theoretically interesting case, in practice it's really hard to price the thing high enough to limit the returns you might extract from this sort of "privatization".  So if the city does not control the rates, I would suggest that practically speaking this is just Chicago going Latin American stylee -- the transfer of a public monopoly intact to private hands for a paltry sum.

On the other hand, it's possible that they will not allow MS to set rates and rules, which makes this look more like a regulated utility.  We would need more details to know whether the agreement gives MS any incentive to reinvest, as in the case of a utility which is offered a decent fixed rate of return on capital.  I'm not sure how you profitably invest in parking meters though, unless you control the rules.  And without the potential for reinvestment, this deal stops being a privatization at all.  It becomes debt, pure and simple, no different than Greece "privatizing" the revenues from the Acropolis by letting Goldman Sachs collect the entrance fee in exchange for paying now.  That's a bond.  Stop calling it "privatization".  It's just a bond.  All we need to know about it is the maturity and the effective interest rate (including any changes in meter rates that were agreed as conditions of the sale).  Don't confuse the issue.  Don't claim that you have done anything besides go into hock in a way that moves the debt off your balance sheet so as not to scare your existing bondholders.

Given the figures in the article ($60m in revenues on $1.16b upfront), the rate is only a little over 5%, which doesn't seem outrageous given that the 30 year US treasury is at 3.5%.  Of course, we don't know if there are escalators (for inflation or otherwise) in the meter fees, so we can't tell whether Chicago is getting screwed or putting one over on whoever Morgan Stanley is flogging these off to via securitization/private equity fund/derivative contracts only a particle physicist can parse -- you didn't think they were rolling out of here naked did you?

Those wacky Germans

There is a short and very interesting story in Der Spiegel about an academic study regarding the effect of copyright differences on publishing volumes and industrial development in 19th century Germany and England.  

Indeed, only 1,000 new works appeared annually in England at that time -- 10 times fewer than in Germany -- and this was not without consequences. Höffner believes it was the chronically weak book market that caused England, the colonial power, to fritter away its head start within the span of a century, while the underdeveloped agrarian state of Germany caught up rapidly, becoming an equally developed industrial nation by 1900.
Even more startling is the factor Höffner believes caused this development -- in his view, it was none other than copyright law, which was established early in Great Britain, in 1710, that crippled the world of knowledge in the United Kingdom.
Germany, on the other hand, didn't bother with the concept of copyright for a long time. Prussia, then by far Germany's biggest state, introduced a copyright law in 1837, but Germany's continued division into small states meant that it was hardly possible to enforce the law throughout the empire.
The peanut gallery would like to shout something about anarchism and decentralization here, but are afraid certain (sorta) German blog readers would probably take issue.  Anyhow, back to our story ...

Höffner's diligent research is the first academic work to examine the effects of the copyright over a comparatively long period of time and based on a direct comparison between two countries, and his findings have caused a stir among academics. Until now, copyright was seen as a great achievement and a guarantee for a flourishing book market. Authors are only motivated to write, runs the conventional belief, if they know their rights will be protected.
Yet a historical comparison, at least, reaches a different conclusion. Publishers in England exploited their monopoly shamelessly. New discoveries were generally published in limited editions of at most 750 copies and sold at a price that often exceeded the weekly salary of an educated worker.
London's most prominent publishers made very good money with this system, some driving around the city in gilt carriages. Their customers were the wealthy and the nobility, and their books regarded as pure luxury goods. In the few libraries that did exist, the valuable volumes were chained to the shelves to protect them from potential thieves.
In Germany during the same period, publishers had plagiarizers -- who could reprint each new publication and sell it cheaply without fear of punishment -- breathing down their necks. Successful publishers were the ones who took a sophisticated approach in reaction to these copycats and devised a form of publication still common today, issuing fancy editions for their wealthy customers and low-priced paperbacks for the masses.

One of these days people are going to wake up and realize that vast chunks of intellectual property should be done away with because they represent a major intrusion by the state into the free market.  That's right, the true free market liberal should only grudgingly allow for the existence of copyright at all, and only in those cases where the market has demonstrably failed to produce stuff we all benefit from.  While you can make some legitimate argument that no one will spend billions getting a drug approved without some guaranteed property at the end, the same argument is much much weaker when it comes to the time invested in writing a book, coming up with a new programming idea, or recording your new hit single.  After all, we have an awful lot of the latter three, despite the fact that most of the creators don't make spit.  If the market ain't broke, don't let the government fix it; the whole idea is to design a system where, as Einstein put it, we have as simple a definition of property as necessary, but not simpler.  Potentially, this means a principled free market will involved dramatically less private property.

The whole thing reminds me of another juicy tidbit out of an entertaining interview with Robert Laughlin that JEA recently recommended (you can download the audio if you don;t want to read the transcript):

Q. So you are suggesting that the increased scope of patent laws is a response to the flow of jobs and knowledge overseas? 

A. Yes. 

Q. Why are you worried about that? 

A. That was my take on it. And also I read it. The same goes for the patent laws. Knowledge for the sake of itself is not very useful to us; we want things that are owned by us; that someone else learns them and takes them and we can prosecute them, it's against the law. Now what's the problem? What I figured out is that it's actually quite fundamental and obvious--it's elementary economics. If you live in the world where knowledge is the currency, there must be less of it. Why? Because no one will pay for something you get for free. So, in the Jeffersonian ideal world, everybody's a farmer and they write letters to each other--they exchange information but they charge you for corn. The world we have increasingly grown into, is where we have to have secrets. That's how you make your living. Making a living is not nice--I'm not going to give you the thing unless you pay for it. My measure of of success is whether I can shoehorn a very large amount of money out of you for this thing. The way economics works is that process isn't solid unless you really want to give me the money. The amount of pain you have to pay is a measure of how valuable the thing is that I'm giving you. So, in the information world where information is the economy, there has to always be paying in exchange of information; has to always be money exchanged. There has to be something scarce. That means that strewing the world with enlightenment can't be. So, knowledge can't be free any more. Not only that, but the sense of the law is it's not just acquiring knowledge--it's if you go and acquire it yourself, you are violating the law. In some cases that is a criminal act. Learning things of technical value is theft, and that means that the whole idea of just learning stuff and bettering yourself doesn't make any sense if the thing itself is valuable, owned by someone else.

Create artificial scarcity, aka control the supply, is the first rule of almost every business.  And it's the only rule the State Apparatus ever has.

Wednesday, August 25, 2010

Downhill as fast as you can run

I guess presidential elections are coming next year so el gobierno KKK feel they need to pull out all the stops.  Now they've decided to nationalize the largest manufacturer of newsprint.  

Para evitar un nuevo "pacto", el Ejecutivo enviará al Congreso un proyecto para declarar como servicio público la producción, distribución y comercialización del papel para diarios. El objetivo central de esta normativa buscará darle un trato igualitario a todos los diarios del país. A su vez, buscará ampliar la capacidad de producción de Papel Prensa para que no haya más importación. Con esta jugada, la Presidenta obligará a todo el arco opositor a discutir sobre un proyecto esencial "para la libertad de prensa", tal como fue definido por la propia mandataria. También se propondrá la creación de una comisión bicameral de control.

I almost get the feeling that with each move the excuses are getting deliberately more and more far fetched.  I guess this is a good strategy.  First you get people used to being lied to by changing technical little numbers like the inflation rate.  Then you move on to things that are arguably legal and even sensible, if controversial, but that at least play to popular issues, like the fight with the farmers over export tariffs a few years ago (I for one sided with the government on that question).  But, finally, you just make shit up as you go, like claiming that the fact that 40 years ago they strong-armed the paper company means the market today is incapable of providing newsprint.  I can't think of anything more ridiculous than this one, though I feel sure they've got something else up their sleeve.  In all of these cases there is an argument to be made for what they're doing.  Some justification can be invented that paints them as crafty fighters of the people's fight.  After a while though, you have to pick your head up and see the pattern, to reflect on where you've seen similar chains of justification lead.  At some point you have to quit trying to salvage the motives of government by fiat and realize that this turns the government into a political and economic weapon available to the highest bidder.  It's no secret that the Kirchner's have already mysteriously turned themselves into millionaires.  They might not be Boli, but they sure seem like garcas to me.

In the end it doesn't matter whether you think you're moving to the left or the right in these cases -- there's really nowhere to go but down into corruption.

Monday, August 23, 2010

A Hacker's Paradise

Today the FT finally let the cat out of the bag.

Brokers who allowed high-frequency traders to have access to the markets without undertaking proper checks on them face potential fines as part of a clampdown following the "flash crash", the head of a US watchdog said on Sunday.
The Financial Industry Regulatory Association is undertaking a "sweep" of broker-dealers that offer market access to high-frequency traders to find out if they allowed these firms to run computerised trading programs – algorithms – without undertaking proper risk-management controls.

"The brokers should be satisfied they know who's really operating these systems," Richard Ketchum, chairman and chief executive of Finra, told the Financial Times. "The sub-custodian chain can bury the identity of high-frequency traders in Eastern Europe and elsewhere who raise serious regulatory concerns."

If I had any coding skills I would be spending all my time trying to hack the high frequency trading market.  If all of your buy and sell decisions occur within microseconds of one another, you eliminate a substantial portion of the uncertainties inherent in investing.  At those time scales you can essentially eliminate the humans and compete entirely against other peoples trading algorithms.  A little good old fashioned ex-Soviet reverse engineering could make stealing lists of credit card numbers look like high school hi-jinks.  

The only remaining question is how much of it was funded by Putin, and whether that makes it cyberwarfare.   Or maybe the state has already effectively privatized this industry and just rents the botnet for a few hours.


The NYT apparently hasn't heard about the exciting new possibilities in interactive erotic trading yet.
According to the Secret Service statement, Mr. Horohorin managed Web sites for hackers who were able to steal large numbers of credit card numbers that were sold online anonymously around the globe. Those buyers would do the more dangerous work of running up fraudulent bills.  
Underscoring the nationalistic tone of much of Russian computer crime, one site featured a cartoon of the Russian prime minister, Vladimir V. Putin, awarding medals to Russian hackers. “We awaiting you to fight the imperialism of the U.S.A.” the site said, in approximate English.
Computer security researchers have raised a more sinister prospect: that criminal spamming gangs have been co-opted by the intelligence agencies in Russia, which provide cover for their activities in exchange for the criminals’ expertise or for allowing their networks of virus-infected computers to be used for political purposes — to crash dissident Web sites, perhaps.

Times Change Quickly

But I will eat my shorts if there are really 165 decent broadband providers in Capital.

En el documento elaborado por el Ministerio de Planificación se destaca que en el país hay 489 prestadores de acceso a Internet distribuidos en todas las provincias. Por ejemplo, en Capital Federal figuran 165, en la provincia de Buenos Aires 116, Santa Fe 64 y en Córdoba 55. El gerente general de Cablevisión, Carlos Moltini, aseguró el viernes a este diario que "casi todos son revendedores de ADSL de las telefónicas". En una solicitada publicada hoy en los principales diarios del país, el Gobierno busca refutar la afirmación de que esas firmas venden por cuenta y orden de las telcos al señalar que "muchas pequeñas empresas y medianas, como así también cooperativas, tienen sus propias redes (incluyendo centrales, softswich, cableados, antenas y otros).

Looks like Team K is at it again.  I'm sure there's some merit in breaking up a Fibertel-Cablevision monopoly.  But given that the result will be slower broadband (ADSL being technologically inferior to cable for high speed) provided by a different monopoly, namely Telecom, you have to suspect that this is an entirely political move that has nothing to do with economics.  Hopefully this will turn out better than Chavez, I guess even Saddam wouldn't be that bad.

CARACAS, Venezuela — Some here joke that they might be safer if they lived in Baghdad. The numbers bear them out. In Iraq, a country with about the same population as Venezuela, there were 4,644 civilian deaths from violence in 2009, according to Iraq Body Count; in Venezuela that year, the number of murders climbed above 16,000  Even Mexico's infamous drug war has claimed fewer lives.

If el gobierno KKK really wanted to do something for the gentuza they'd make fiber a wholesale government regulated utility like they do in France or Japan.  This looks like something else entirely.

The end of squeaky voices

Sometimes I wonder how capitalism can work with natural resources.  Looking at these businesses, you always assume that the price of the commodity falls to the marginal cost of production.  If a bunch of companies go out and dig mines, then the cost of those mines are, literally, sunk.  Once they wake up to their position,mine owners will change their calculations and keep pulling the stuff out of the ground as long as the price pays for the cost of marginal extraction (plus maintenance, the occasional corporate jet and Latvian hookers, etc ...).  So for a while, nobody invests, until finally growing demand or shrinking supply creates a pinch, prices skyrocket, someone gets optimistic, and we dig another hole. 

Lather, rinse, repeat.

It's a bit miraculous to me that anybody invests in this stuff, which implies that it's miraculous that we actually have any of it, which I guess defeats the miraculousness of the first clause.  The whole idea that you get this promising looking hole dug just in time to watch prices fall, and are then obliged to sit there waiting for the next, likely brief, spike in order to try and recoup your capital just seems so ludicrously speculative.  Obviously people do it, but I have to say that I'd be curious to see a calculation (adjusting for survivorship bias of course) of net industry return on capital over the last 50 years,  I suspect (without proof) the mining industry might be like the airline industry -- a public service.

Which actually brings me to the part of the post where I completely change my mind about what I was writing.  I was going to suggest that digging up the commodities necessary to make the economy function seems like a reasonable place to wonder whether the government shouldn't be involved in at least coordinating the amount produced, so that we have enough and at the same time assure that prices don't spike out of control and create shocks.  Naturally though, I was assuming that the government would treat this sector as a regulated monopoly and assure people putting up capital some sort of stable, though modest return on investment.  Alternatively, I guess you could run the whole thing as Big Brother Mining Inc. and just allocate some of the federal budget to digging stuff up, and then set the prices so as to break even.  Now, however, I realize that the system we currently have is much much better.  We can convince these saps to invest even though on balance as an industry they will lose money, at least if it's anything like the airlines.  As a taxpayer, this is better than break-even.  So I say let them drill baby drill.

As it turns out, this whole rant was inspired by one of the extraction industries where the government is already dominant.  We taxpayers own most of the world's helium supplies, it turn out.  In the case of helium, the government apparently took care of this problem for us ... by making it dramatically worse.

Surely industry must be paying more and more for helium if it is in short supply.
No, the price is dictated by a calendar. The US government established a national helium reserve in 1925, and today a billion cubic metres of the gas are stored in a facility near Amarillo, Texas. In 1996 Congress passed an act requiring that this strategic reserve, which represents half the Earth's helium stocks, be sold off by 2015. As a result, helium is far too cheap and is not treated as a precious resource.

Wednesday, August 18, 2010

Privacy Schmivacy

I'm sooooooooooooo bored with the privacy debate at this point. 

Google's Eric Schmidt just can't keep his foot out of his mouth.

The guy has a proclivity for giving Big Brother-like quotes to the press—which would be quaint if the guy didn't have so much access to so much of our private information.

Do Google's flacks sweat when Schmidt gives an interview? Or are they stuck in the Google Is Good bubble with him, helped along by a mostly admiring press, as well as gurus whoimplicitly compare the company to Jesus Christ? 

So, no, I don't think that Google is "good", however you should choose to define that.  I think they are a business.  I think they respond to the market, and yes, shape the market to some extent as well.  But the truth is that almost nobody cares about privacy, and the media pushing it with scary stories is, coincidentally, the very same media that is getting crushed as we all spend more time on the internet.  The idea that "the media", especially the WSJ, admires Google is nuts.  Murdoch never fails to use the Journal's pseudo-reporting to stick his thumb in their eye.  So every day we have to read through the same cycle of scare stories.  Every day people get up in arms about Facebook's privacy terms, and every day they go right back to doing the same damn things they did yesterday.  These companies are responding to the market, and the market -- the real market that votes with its time and attention and not with breathless column inches produced by plagiarising sub-hacks -- is telling them that it doesn't give a shit about privacy.  

There's a real story here, but it's not that Google or Facebook are terrible Big Brother monopolies.  Think about it for a second.  What awful things can Google do to you, exactly?  Do you think they're going to start blackmailing you with photos of your last Halloween costume that you uploaded to Picassa?  The danger is not from the companies, it's from the government.  From the government using the companies.   Apropos of my last screed about functional anarchy, the problem is that these monopolies could become part of the big monopoly in the sky.  More competition would in theory be lovely, though there are clear networks effects in these businesses that would make little sense to break up.  In lieu of more competition, the thing to do is not to let the Biggest Brother regulate the market's failure to account for some supposed externality of lost privacy.  It's not to centralize everything in one Panopticon; it is to build a firebreak between these monopolies and the government.  The only thing worse than the current privacy regime would be the government taking over the system.  

If you think getting Congress involved in guaranteeing your privacy is going to give you more of it, I would encourage you to submit the details of your dealer's whereabouts in the comments section -- you are smoking some quality kind.


I know that Tech Crunch is not exactly the go to place for careful, thoughtful analysis, but still, this post perfectly indicates the overall half-wit-ed-ness of this debate.  

Google made their "opt out of street view" service live in Germany today, giving select Germans until September 15th to exclude their properties from being mapped when the Street View service launches. The function will be available for a limited time in the 20 cities that are mentioned which includes Berlin, Dresden and Hamburg and then extend to all cities covered as Google Maps Germany rolls out.
While I've contacted Google for analytics on the number of people who have requested building camoflaging, the fact that private citizens can mass opt out of certain Google search functions is unprecedented until now. Why not give people the option to opt out of search entirely? After all, a hypothetical "Opt out" or rather "Do not index these pages I swear are about me and harmful" is considerably less far-fetched a privacy solution than Erick Schmidt's suggestion that people change their names.

What gives this twit the right to force Google not to index the blog entry in which I call him a twit?