Bricolage

My views on net-neutrality, I can see from the various draft posts I've got sitting around, have grown by accretion, and are far from finished.  While I'm certain that the lack of timely Anarcho-theist scripture has prevented most of you from meanwhile making effective use of the intertubes, it does not appear that this situation will be quickly remedied.  However, in lieu of a positive, final, stone tablet type set of open internet principles and prescriptions, I can, at minimum, identify those areas where I believe we are falling from grace.

Witness this bullshit:

Regulation is to the rescue. ISPs will not be allowed to block access to (legal) websites, or unreasonably discriminate in the way traffic flows. Customers choose. ISPs are open. The network is neutral. What's not to like?

On January 10 2011, we found out. MetroPCS, hit with its first formal complaint, is an upstart wireless network offering low prices and short-term contracts. As part of their $40 a month "all you can eat" voice, text and data plan, they slipped in a bonus: free, unlimited YouTube videos, customised to run fast and clear.

Activist groups, led by Free Press, went ballistic. Their petition to the FCC declared that the mobile provider was favouring YouTube over other video sites, creating just the sort of "walled garden" that would destroy the internet. "The new service plans offered by MetroPCS give a preview of the future in a world without adequate protections for mobile broadband users," they wrote.

The complaint performs a great public service, revealing just how net neutrality would "adequately protect mobile broadband users". In fact, MetroPCS advances the interests of consumers by supporting enhanced access to the applications most popular with users. Such arrangements do not sabotage internet development, but drive it.

MetroPCS possesses no market power. With 8m customers, it is the country's fifth largest mobile operator, less than one-tenth the size of Verizon. Under no theory could it force customers to patronise certain websites. It couldn't extract monopoly cash if it tried to.

This is precisely what you don't want to happen with net-neutrality regulation.  So precisely, in fact, that I wouldn't put it past AT&T to have lodged this complaint as part of a lobbying strategy meant to discredit the new FCC guidelines (remember, these boys are playing chess, not checkers).  

Saying that you can't discriminate against certain sites cannot mean that you cannot promote others.  While I realize that the competitive advantage tied to how fast a site loads is measured relative to others, this systemic effect of these two rules would be entirely different.  In the first case you are sticking cats in everyone else's tubes in order to make yours appear relatively faster, which results in the overall efficiency decreasing.  In the second case, someone is building a new, and admittedly private, tube.  This improves the system overall, though the benefits clearly accrue disproportionately to those doing the building.  To use an analogy, someone built a toll road alongside the crowded highway, though in this case, it appears that everyone is free to drive on the new road in exchange for watching a few more Youtube billboards sail past.

I do think that we need to have a serious debate about the long term effects of more internet traffic going over toll roads.  If investment were drawn exclusively to building these roads, it's hardly far-fetched to imagine the public arteries eventually reduced to pot-holed rubble.  In addition, having a decent public infrastructure could be important for maintaining competition over the long term -- if you need tons of cash and expertise to ship stuff around on the internet, this may favor those who already dominate the traffic in bits.  All things considered, I think it's very likely that we want to maintain some sort of quasi-public information highway, or at least to impose some sort of wholesale level regulation on this infrastructure if we decide to leave it private owned (and remember, leaving it privately owned has gotten us pretty far already -- it ain't public right now).

Unfortunately, however, our mechanism for building public infrastructure of any kind here in the US is entirely dysfunctional. While fixing this is a noble goal (PUBLIC FINANCING OF ELECTIONS! PUBLIC FINANCING OF ELECTIONS!) we can't let that hold us hostage and prevent us from achieving some of the same ends by other means.  We simply cannot afford to discourage investment in the internet while we wait for a perfect government.  

PS.  There are a million other issues that come up here, not the least being the relationship between my last statement and my view that the AT&T - T-Mobile merger is a disaster and should be prevented.  After all, AT&T has promised to invest in significantly more 4G buildout if the merger is approved.  And to use the Jimi Hendrix version of the national anthem as their hold music.  Do we really want to discourage that?

On the bus

I think we have another winner here:

Two collegiate-looking dudes are arguing intensely in German: The translation stream in his glasses tells him they're arguing over whether the Turing Test is a Jim Crow law that violates European corpus juris standards on human rights.

BINGO!

Peter Orszag, formerly of the Office of Mangement and Budget, and now of Citigroup, has come up with a brand new system for encouraging savings in America: a savings lottery. 

In the quest to raise saving rates, this allure of lotteries may be quite helpful. To be sure, most of any increase in national savings will come from a reduction in budget deficits. But a secondary priority is higher household savings, especially among lower- and middle-income groups.

 

This is where prizes can help. A recent paper for the National Bureau of Economic Research laid out the case for a savings vehicle coupled to the opportunity of winning a large prize. One way to think of these "prize-linked" accounts is that they can offer an expected market return, but in an innovative way. They pay a guaranteed return below market interest rates, but also provide a lottery ticket whose value makes up the difference.

 

To be specific, a lottery-lined savings account could offer a lower rate of interest, but also say a one-in-a-million chance of winning $1m for each $100 deposited. Mathematically, the expected return is the same, but the chance to win $1m makes the account much more attractive.

What he fails to mention is exactly who is supposed to be running the lottery.  He does acknowledge that lots of states have lotteries now, and that the expected return is well below one (on average you "win" 50 cents by buying a one dollar lottery ticket).  And he mentions that if the state is running the lottery, this amounts to a form of regressive taxation because more poor people play, and lose, than do rich folks.  But then he sort of slips a gear and proposes his altruistic scheme where the expected return is equal to exactly one -- 1 million people put up $100 each, you take the resulting $100m and invest it a 2% return, and at the end of the year, you give everyone $101 back except for one lucky soul who receives $1m.  Very tidy.

But who is running this show I wonder.  The same state that already fleeces the guy in the food stamp line every week with the current lottery?  Or some more altruistic state that runs the whole thing like a small town raffle and skims nothing off the top? 

Assume NC starts a program like this and is giving you back, on average, $100 plus 2% interest, for every $100 you save.  It proves wildly popular and NY decides to copy it.  Only they realize that they might attract more people if the prize is $2m.  Naturally, in this case, after the prize, there's no money left over to pay everyone else their interest, but they still get back the $100 they saved.  Would people be more interested in this lottery?  The expected return is lower, but the prize is bigger.  How about NJ, who decides to offer $10m in prize money, and reasons that even with this princely sum, they will still be giving $92  back to the losers for every dollar.  That's not the end of the world, is it?  And the expected return is still exactly one.  And if these lotteries prove popular why wouldn't NM perk up to a chance to change things ever so slightly and give everyone $90 back, give away $10m, and just keep $2m for the guvna?  Wouldn't people play this lottery too?  They already play ones that are much less rewarding.  

So then what prevents a state from skimming a little?  And then the next from skimming a little more?  Until we reach the point where the odds are so bad that the it limits itself, which would represent something like the market price for the gambling instinct.  I mean, if the odds were worse, fewer people would play so they would raise less revenue but pay out less, and if the odds were better more people would play but they'd have to pay out more.  Don't states already set the odds on their lotteries to raise maximum revenue?  

I was joking, but now I'm kinda curious.

Anyhow, my point was just that we already have a household savings system linked to a lottery ticket, and we call it the stock market. The odds are most definitely rigged, but people still LOVE to play.  And the house, just like the state lottery, keeps a big chunk of the kitty.  Perhaps this accounts for Mr. Orszag proposing this scheme now that he has moved over to Citigroup.  It makes me feel terribly modern to know that the government could outsource corruption.

Mr. President, we must not allow a wine shaft gap!

Fukuyama discovers Deleuze

Francis Fukuyama can be a thoughtful guy (The End of History screwed the pooch in spectacular fashion, but Trust was really interesting).  Here he reflects on the differences between governance in China and the US.

Nonetheless, the quality of Chinese government is higher than in Russia, Iran, or the other authoritarian regimes with which it is often lumped – precisely because Chinese rulers feel some degree of accountability towards their population. That accountability is not, of course, procedural; the authority of the Chinese Communist party is limited neither by a rule of law nor by democratic elections. But while its leaders limit public criticism, they do try to stay on top of popular discontents, and shift policy in response. They are most attentive to the urban middle class and powerful business interests that generate employment, but they respond to outrage over egregious cases of corruption or incompetence among lower-level party cadres too.

However, if the democratic, market-oriented model is to prevail, Americans need to own up to their own mistakes and misconceptions. Washington's foreign policy during the past decade was too militarised and unilateral, succeeding only in generating a self-defeating anti-Americanism. In economic policy, Reaganism long outlived its initial successes, producing only budget deficits, thoughtless tax-cutting and inadequate financial regulation.

These problems are to some extent being acknowledged and addressed. But there is a deeper problem with the American model that is nowhere close to being solved. China adapts quickly, making difficult decisions and implementing them effectively. Americans pride themselves of constitutional checks and balances, based on a political culture that distrusts centralised government. This system has ensured individual liberty and a vibrant private sector, but it has now become polarised and ideologically rigid. At present it shows little appetite for dealing with the long-term fiscal challenges the US faces. Democracy in America may have an inherent legitimacy that the Chinese system lacks, but it will not be much of a model to anyone if the government is divided against itself and cannot govern. During the 1989 Tiananmen protests, student demonstrators erected a model of the Statue of Liberty to symbolise their aspirations. Whether anyone in China would do the same at some future date will depend on how Americans address their problems in the present.

The praise of China's ability to turn on a dime is nothing new, even though this does not make it any less praiseworthy -- their ability to make things happen simply because they make good economic sense is sometimes awe inspiring to me; it represents a level of cohesion that seems laughably distant in the US.  

What's more interesting here is how the arch-theorist (/apologist) of liberal democracy has started to add in a practical element to his analysis.  Maybe the details matter and history isn't over. However the think tanks label it, the reality on the ground marches on.  Maybe, just maybe, Hegel is bunk.  Maybe it's the mechanism that moves the spirit, and not just spirit sovereign and absolute playing charades with the world.

Should we call this (implicit) new idea the Forest Gump theory of legitimacy: Democracy is as democracy does?  Should we finally admit the what we're really interested in is not some grand theory but in analyzing the precise mechanism by which power is constructed and continually reconstructed every time it is obeyed?  If there is more effective feedback to this mechanism in "authoritarian" China than in the "democratic" United States, should we ship the statue of liberty to Shenzen instead?  

The question is facetious of course, but the idea of evaluating the government on the basis of its ability to process and respond to information -- or better yet, ultimately on its ability to facilitate information processing systematically and generate a coherent, consistent, outcome -- is a good direction to move this debate in.  Thankfully, wikileaks has already opened up new terrain in the theory of computational governance.

Switching Sides

One of the things I most enjoy about the current US relationship to China (and here I mean more our cultural and intellectual relationship, not simply our State department's diplomatic relationship) is the knack it has for dredging up ideological issues that confuse the fixed-in-stone left-right sides which constitute our country's stale parody of political debate.  

For example, in an irony Jeremy Grantham noted a while back, China is widely if warily admired in the business community, as if it were just another very large and successful business.  How did all these rabid free market types end up envying an economy run on the communist party's five year central planning?  

Today's twist is brought to you by Hu Jintao's recent visit:

As the two leaders stood side by side at a nationally televised news conference, he called on China to live up to human rights values that he said were enshrined in the Chinese Constitution, adding that Americans "have some core views as Americans about the universality of certain rights: freedom of speech, freedom of religion, freedom of assembly."

Mr. Hu, for his part, seemed to hearten White House officials by acknowledging that China had a ways to go on human rights issues. "China still faces many challenges in economic and social development," he said. "And a lot still needs to be done in China in terms of human rights."

Looking at a few other articles, you can already see it dawning on people that China treats a basic level of economic freedom, freedom from poverty at least, as a human right -- in fact, as perhaps the most basic human right.  So, "a lot needing to be done," here means doing a lot more to raise everyone's standard of living so that they don't remain forever locked to the land or the factory floor.  The mainstream left, in its clamor for "human rights in China", does not tend to sympathize with this much more radical point of view on human rights, which I associate with Chomsky's notion of anarchy (succinctly introduced in this video, by the way).  

Seeing a certain level of economic development as itself a form of freedom takes the left's question of human rights in a more radical but also more pragmatic direction.  The same thing happens to the debate about the wonders of the free market when you see representatives of the right acknowledging the productive role state involvement can play in practice.  I'm hardly saying that either side has found a solution to these problems, but I hopefully imagine that the rise of a (relatively) pacific new superpower could alter the terms enough to make progress.

Makes me wonder what happens to the political debate in China when they have to talk about the US.  

A Financial Allegory

Debt is a zero sum game where the debtor's liability is equal to the lender's asset.  

This makes debt akin to a game of musical chairs.  

Musical chairs can be a fun and exciting game to play if the number of chairs keeps increasing over time -- yes, there may still be those crazy moments where everyone scrambles for a chair, and in the fear and uncertainty some may even irrationally grab two or three at once, just to be on the safe side.  But in general, with more chairs, things will work themselves out pretty quickly even if the music stops.  Capitalism can be fun for the whole family!

Musical chairs is a lot less fun to play when people keep removing the chairs.

The following charts are taken from a recent Bank for International Settlements report on the interaction between balance sheet recession and demographic trends.  Looks like Chuck Prince is going to need to dance a lot faster in the future.

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