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?  

Monday, August 16, 2010

Capitalist Axiomatic Trapdoor

Martin Wolf is probably off somewhere getting some yacht time, though it seems he's reading something other than teen vampire novels.  

In his final book, Power and Prosperity, the late Mancur Olson argued that the state was a "stationary bandit". A stationary bandit is better than a "roving bandit", because the latter has no interest in developing the economy, while the former does. But it may not be much better, because those who control the state will seek to extract the surplus over subsistence generated by those under their control.

I guess "stationary bandit" would be another name for the capitalist axiomatic.  I actually don't see this as the state in its pure form, but as the more highly evolved strain that learned how to avoid killing off its host after interbreeding with the barbarians (who are more predators than parasites).  After all, states rise and fall.  Empires crumble under their own weight over and over again when they push the limits of exploitation.  The parasite does not start off with a mechanism that takes its host into account, and so like most, it chokes itself along with the economy that supports it.  Later mutations improve on the design.    


As for the rest of the post, I'm not sue how helpful I find it.  He basically says that the state is the the place where we come together to make decisions that effect all of us.  And he says that we cannot make those decisions a priori via a constitution that limits the state to what libertarians would see as its proper role.  In other words he's taking direct aim at the early Nozick (who later decided in The Examined Life that the state should also be able to function as a forum for our shared values).

Wolf claims that this is intellectually indefensible because some people want the state to do more.  On the face of it, this seems to me a terrible argument; you can't compensate me for being forced to work in a prison camp by the fact that lots of folks, including other prisoners, would like free health care.  But perhaps his larger point is that there has to be some hierarchy of coercion/freedom here -- we want rights other than just to free speech and a vote, we want to eat and not die of small pox as well -- freedom is pretty pathetic if it just means freedom from state coercion.  We have to be free to something as well.  I agree with this larger point (if I'm reading him correctly) as far as it goes, but you very quickly run into the problem of just what those other rights are.  We can multiply them as quickly as our bleeding little hearts desire, but just enumerating them ain't going to make it so.

Which bring us to the second objection to severely limiting the state from the outset, namely that it just doesn't work.  Eventually the constitution gets re-written.  Eventually you find that the government is spying on you and you still have to pay your taxes and that your neighbor couldn't give a damn if they haul you off just so long as it was the jews that lived on the other side of the street, this time.  This, I really do agree with -- limiting the state by declaring our "rights" is just fighting a war of attrition.  I don't know why we spend so much time talking about human rights and freedoms when it convinces no one.  Harry Frankfurt diagnosed the problem perfectly when he said that the defining characteristic of a bullshitter (as opposed to a mere liar) is that he doesn't care whether you actually believe him or not, he just wants you to give the appearance of believing him.  Human rights is just something we talk about amongst our privileged selves in order to convince each other that we really care just enough to calm us all down so that we can go back to doing what we were already doing before.  You're a good guy, I'm a good guy ... great, let's go have a beer.  The high minded speeches and UN dinner parties are immediately contradicted by the participants' daily actions, and the only shared social consciousness they really rally us to is a universal torpor and patience for this bullshit.

Ultimately I've come to see this question as a purely practical one.  We can safely forget all about deducing the moral limits of state intervention because the real world is not now and has never been moral.  Nobody cares what we think the state should do.  A certain reality is indeed created by shared bullshitting, but it is not durable in the face of a mechanism geared towards continually inflating itself.  The sovereign parasite will eat up everything it can get into its slavering leviathanical mouth.  Pretending that we can limit it with mere words and concepts is futile.  We have to take a more pragmatic and less idealistic approach.  

In this case, Wolf does that by simply accepting that the modern state will be necessarily quite large because it must enforce a large and legitimate social consensus -- healthcare, pensions, pollution, etc ... You'll notice that he nowhere addresses the question of where the limits of the state should lie.  His view is expansive.  What should the state do?   The state is a "protective" organization, and what it is protecting us from may begin with physical threats, but can come to encompass everything from indigent old age to poly trans fats, all filed under this one label of "protection".   

Naturally, I think this is the wrong direction to go in.  Not because of some philosophical difference with Wolf, but simply because I think it is a terrible idea pragmatically.  I think that a far better way both to get what we want out of the state and at the same time to limit the damage it can do, is to break it up into much smaller separate pieces.  I propose functional anarchy.

Let's consider this from the same perspective as Wolf for a second, and not worry about how to limit the state from the get go -- we will at first rely on the exit, voice, restraint curbs Hirschman pointed out.  Now, consider all the things we might want the state to do as part of protecting our shared values.  Maybe it should keep a record of who is sleeping with whom, or married to whom.  Maybe it should monitor all of our communications.  Maybe it should defend us against terrorists.  Maybe it should provide public goods like protection from pollution and financial fraud.    Maybe it should give us free parking.  Maybe it should give us healthcare, and keep us fed and provide for our old age, and ... there's really no limit here.  And my point is not that there should be some inherent philosophical limit, my point is simply that I don't see at all what these desires have to do with one another.  Why does it all have to be the same state?  If this were any other industry we would call it anti-competitive bundling.

Federalism goes some way to addressing this issue, obviously.  Slowly but surely though, the pretense that the Federal government was set up only to deal with the questions that explicitly could not be handled by the lower levels was dropped.  I think we need to resurrect that pragmatic and structural approach to limiting the state.  We should break it into many different pieces, geographically as well as by function.  After that, if there is a problem that requires the pension funding piece to come together with the marriage regulating piece, well, then, we'll have a summit of sorts, and negotiate that decision from the bottom up.  This way, instead of empty bitching about the right to this and the right to that, we'll actually have a part of the government -- a mini-government in fact -- dedicated to actually solving that specific problem that we as a society share a desire to solve.  And if it doesn't work, we'll know what to change.  We'll know which government is wasting our taxes and not fulfilling our shared vision.  

I submit that this disaggregation of government function will also vastly reduce the possibility of abuse -- not theoretically, but in actual fact.  For something like fascism to occur, all of these individual units would have to be aligned, despite the fact that they express radically different an even contradictory desires that we share.  If the marriage government (which and just for the record this one shouldn't even exist at all) and the healthcare government and the information retrieval government are all separate, it's suddenly much less threatening to be open and honest with each of them.  As long as we don't let the paranoid defense government hijack the whole works, each of these little governments will only be around to fulfill its very limited function.  There may be a continuous tendency to invent new desires, but as I also propose to fund these things separately, I think the creep would be easier to handle.

In the end, each of these little governments is like tiny monopoly.  They can be expected to suffer from all the problems that monopolies suffer from.  But at least we could avoid one giant monopoly that mixes all the desires and decisions of 300 million people into one great corrupt stew.  We might even *gasp* create a market for government that lets us separate and weigh the value of each part.

Wednesday, August 11, 2010

El Pelado de Calvo

I found this Guillermo Calvo article over at VoxEU interesting.  His basic point is that spending more on stuff we don't need is a bad idea.  I think that part is completely correct, and I agree with the idea that you can't just pump more money into the economy and expect it to instantaneously go back to its pre-crisis trend.

Proponents of expansionary fiscal policy claim that the government should increase expenditure – spending what B can't and Lwon't – by issuing the Treasury bills that L wants. This closes the circle, the additional fiscal deficit is financed by L and the economy goes back to full employment.

But, unfortunately, economies in crisis are not that simple. The argument assumes that the government channels additional spending towards the very same goods that B cannot afford. This is not true in general. In the US, for instance, small firms lost access to working capital that the government spends on solar energy. Hence, sectoral "lack of demand" is unlikely to vanish. The sun will set on B goods and shine on government goods.

Fiscal expansion could thus have little impact on unemployment, because the unemployed in the sector that caters to B's tastes are unlikely to find new jobs in those sectors that benefit from the government's largesse. One important reason for sluggish employment creation is that stimulus packages are transitory and hiring-and-firing is costly. Sectors producing government goods will go on overdrive, but will be reluctant to hire new workers. Equally important, labour reallocation is costly and cannot take place in the spur of the moment: a bricklayer does not become a computer technician overnight. 

This is what I take to be the part of Austrian theory that is useful.  There really is a hangover because there really is a process by which our economic system discovers what people want and gears up to make it; equilibrium, if such a thing exists at all, is not instantaneous.  The more radically people's wants change, the bigger the hangover.

However, I'm less sure I buy the pot shots he throws at the Keynesians.

The subprime crisis is a financial crisis that threw a dark cloud of mistrust on financial intermediation; lender L stopped lending to borrower B, not because B became a rogue, but because L hears that people like her are worried about the health of the financial sector. That's the central reason why a small financial problem catapulted into the present global crisis. Many professional economists agree with that.

Once this is acknowledged, "lack of demand" is almost a corollary. If L does not lend to B, B's demand will have to fall. L is a lender and, therefore, now she has to find a place to park her money. The easiest alternatives are cash or Treasury bills. Therefore, B's forced austerity is not offset by L's overindulgence, and "lack of demand" springs to life. B's sudden austerity – it is worth stressing – is due to a credit crunch. He didn't become anorexic or lose his self-esteem as some Keynesians want you to believe. These psychological diseases may happen to him as crisis evolves, but the roots of his austerity are in a suddenly malfunctioning credit market.

At this point I'm pretty sure that the party line the banks use in front of congress -- don't regulate us because it will restrict credit which will kill the recovery -- is mostly full of shit.  The credit crunch was a trigger, I agree, but not a cause, as he seems to claim.  But that doesn't make the psychological malady produced by the trauma less real.  The problem really is that there really isn't any demand -- for loans or much else.  This isn't because B became a rogue or because L is too nervous to lend.  It's simply because B is already in way over his head, and no matter how cheap you make his loans, he's done.  Do I need to cite mortgage rates and current housing market stats to convince you of this?  Go read Richard Koo again.  And again.  Till the logic of the zombie holding pattern sinks in.  So I don't think that the fundamental problem is a credit crunch any more than I think the fundamental cause of WWI was the shooting of Fritz.  The problem was fundamentally an unbalanced economy that can't get back into balance quickly because the debt used to drive it away from equilibrium governs the speed with which it can return.  I wish that economists could wrap their noodles around the idea that money is real.  

But there's no point in getting academic over this.  Hayek and Keynes can rap about it till they're blue in the face, and the question will still be what do we do.  In the end I am tempted to side with the suggestion he makes here of cutting back on general fiscal spending but expanding policies that put money in the hands of people without jobs.  In an ideal world I might be inclined to argue that this is a perfect time for the government to spend on things like infrastructure that we have neglected for a long time.  But in the real political world we live in, I think this is a lost cause.  The spending we have engaged in so far, and the spending we are likely to continue to engage in may keep us out of a depression, but it will be aimless and useless in the long term, just as Japan's has been.  The government is an incredibly lousy allocator of capital.  That's the sort of system you get when the whole thing can be held hostage by some nitwit from Nebraska.  And there's always the looming threat that the best jobs program it can come up with is a war.

The next best option then is just letting the economy adapt on its own -- to let people go bankrupt, to let mortgages get written off, to let wages and house prices and equity prices decline till we get back to some semblance of equilibrium where we are actually able to start making the things people now want again -- and in the meantime to make sure no one starves.  This is pretty close to what Calvo is arguing.  And it seems to me the most politically plausible path closest to the very best solution, which is to get everyone in a room and have a fast track national bankruptcy procedure.  Writing off the pipe dream promises made to creditors wouldn't in itself right the system, but coupled with some changes in finance to prevent a recurrence, it seems to me that it would get things going faster than any other method.

Wednesday, August 4, 2010

Adrenaline rush posing as a flash of insight

I went for a run the other day.  Too early as it turns out.  It's been hot here, and the sun obviously did me in, because I found myself reflecting on the Will to Power.

Recently, I claimed that the history of technology commonly conceived was in fact a sub-class of the history of social technologies aimed at improving cooperation.  I also asserted that there was no universal progression towards paradise in the sense that neither specific technologies, nor our more general technologies of cooperation, are inevitable, and we always face the possibility of regression or even extinction.

However, there was some secret part of me, the perennial American optimist, that wanted to say that, "where there's a will, ultimately, there's a way".  And my desire to reach this point of view is reinforced by my still uncertain belief, a la Freeman Dyson, that consciousness is, like a virus, something that spreads throughout the cosmos -- maybe not inevitably, but with high probability.

Luckily, at just this moment I recalled glancing over Deleuze's introduction to his book on Nietszsche.
 This suggests the correct formula is actually, "where there's a way, there's a will".

Los Boligarcas de Venezuela

It doesn't matter whether you call it capitalist or socialist or the revolutionary Bolivarian army -- modern governments exist to fuck you.  And when you strip away the rhetoric from the leaders left-wing academic types always love, you inevitably find nothing more than a corrupt and incompetent populist enriching himself and his buddies.  Don't believe the hype.

In the past, a number of Venezuelan presidents were more-or-less infamous for embezzling funds – abetted by a deeply, perhaps deliberately so, inefficient state. The presidents' friends and other insiders grew rich. Almost everyone else became poor.
This explains Mr Chávez's democratic rise to power. He appealed to a genuine need and a forgotten constituency. In a country of "ins" he spoke to the "outs". The problem is that the "outs" thought that under Mr Chávez they would become "ins", and only very few have, the so-called "boligarchs" – with their government connections they have become the latest generation of nouveaux riches to drive sports utility vehicles and wrinkle their noses at the proletariat.
Economic mismanagement meanwhile threatens the social gains. One oft-cited example is a near halving in unemployment since 1999 – in part thanks to a near doubling of state employees to 2.3m. Yet while more people might be employed, high inflation also means everyone earns less in real terms than they did 11 years ago.

I've been hearing people talk about how great Chavez is since 2003.  If he's so great, why do his people keep getting poorer?

Tuesday, August 3, 2010


The history of technology is fundamentally the history of technologies of cooperation -- ethics, language, government, markets, internet, borg assimilation.

These are so much more fundamental than the specific technologies that are invented within these frameworks.  Without the framework for cooperation, what we usually think of with the word technology does not work its magic of creating non-zero sum games and increasing returns.

Note that I am not saying the same thing as Robert Wright.  Social technologies have to be invented and perfected historically.  Krugman's work makes this history an inherent part of economics, and emphasizes the way that social context and simple chance bear on development -- which is why they gave him the Nobel Prize for it (watch the lecture).  These technologies are not at all inevitable, and in fact, we march backwards away from them all the time.   

 Now are you an anarchist?

Sunday, August 1, 2010

Eponymous 2

To put it simply, capitalism is a strange interbreeding of the War Machine and the State Apparatus that represents an alternative branch along the evolutionary path of their undying enmity.  It's a whole new species of organization altogether, though you can see how it's formed from the interaction of the same two forces.  (I would love to think about how these forms of organization are really like evolving animals, but that becomes an absurdly complicated question about something they call the machinic phylum).

One the one hand capitalism inherited a bit of the war machine DNA.  It's creative and productive.  It rolls over every barrier it confronts, whether this is technological, societal, or international.  The image of swash-buckling pirate finance that runs continually beyond the reach of governments is a common one.  Multinationals and markets get a bad rap because of the way they seem to be bigger than the system -- impersonal, uncontrollable, and unpredictable.  Think also of the way these companies seem to have no regard for the "meaning" of anything -- they are trying to take capital and turn it into more capital.  Full stop.  Don't bother them with a bunch of petty limits.

On the other hand, capitalism, as it is currently practiced, depends on some features of the state apparatus.  We set up markets as rule based games within an over-arching state system, hoping to capture the fruits of their competition for productive purposes while constraining their natural tendency to overrun any regulations as part of that very competition.  It may sounds paradoxical, but the market, if it were really freed in some deeper sense, would perhaps cease to take money as its sole objective.  If we place capitalism on the side of the war machine for a second, we can see how mafia capitalism, or state capitalism is very akin to the Nazi war machine taking over its state.  It's a mistake to think that this takeover, though motivate by a strictly monetary competitive logic, would stop with money.  In some sense, limiting markets to dealing in money is the way the state apparatus domesticates them.

I think now you can start to see how the original concepts get interlaced to the point where you're not sure which side to root for.  The state apparatus and the war machine seem to flip back and forth without either having the upper hand.  Everything has been over-coded into units of money, and yet this is a strangely open-end and flexible set of rules to mark off a new territory.  Do we cheer the destruction of the old forms of power, or have they simply changed shape and tightened the noose?  There is a real ambiguity in Deleuze when it comes to these questions -- he is clearly on the side of the creativity of the war machine; it's just not clear which side that is. 

But why call capitalism an axiomatic?

Well, the idea is that an axiomatic is meant to limit the acceptable statements, dividing them into true and false.  This at least was the dream of mathematicians like Hilbert when they proposed to reduce mathematics to this sort of system.  You have a few axioms, some rules of inference, and the thought was that with these you could crank through any possible mathematical statement someone made, and decide whether it followed from the axioms or not.  The axiomatic is meant to mark off the territory of truth.

Unfortunately (sorta) Godel famously made mincemeat of this desire.  Any useful axiomatic runs into all sorts of problems.  Some of the statements may turn out to be undecidable.  Others you know to be true will fall outside of the system.  You can incorporate these, or you can take away other axioms, but the problem of things slipping outside your perfect system will persist.  In addition, it turns out there's a whole branch of mathematics called Model Theory, that they invented when someone realized that even if you could formalize mathematics axiomatically, there might be several different number systems that all followed the same axioms.  The book makes this theory analogous to the way in which capitalist, communist, and totalitarian states all participate in one larger world market as distinct models of the axiom system.

So the basic idea is that reducing all questions to questions about money and efficient production is meant to order all the crazy desires our species comes up with.  And this reduction provides a whole new way of looking at things that does away with a lot of cloying moralistic control and opens up all kinds of new horizons (people pay to dress up their virtual poodles).  But it is still an attempt to reduce these desires to something we can manage and understand, and ultimately try to control.  Which is I suppose why they stick the explanation of the capitalist axiomatic under the chapter on the state apparatus. 

Sorry if this explanation borders on the insane.  I'm certain everyone knows where to find "Mark As Read".