Pragmatic Political Economy

Stop SOPA

2011-12-18T12:24:00.000-08:00

In a matter of days, it looks likely that congress will pass SOPA (the Stop Online Piracy Act), another gift to special interest groups from motion picture and recording industry.

The bill targets sites like Sweden's The Pirate Bay, Hong Kong based MegaUpload or the Dutch site TorrentFreak requiring search engines, discussion forums, blogs and DNS providers to censor access to these types of sites prompting comparisons to China's great firewall.

The technical cluelessness on display in the congressional hearings is embarrassing, but, really, who expects anything different? Leading engineers have petitioned in opposition on the grounds that this legislation imposes serious burdens on infrastructure providers and probably won't even work.

How big a problem is this?

Technical issues aside, we should recognize that bootlegging movies or music is a fairly low-cost crime as far as society is concerned. Comparing it with illegal drugs, as The Economist does, is a joke when you think about lives wrecked by meth or crack or the ongoing drug war in Mexico. Piracy seems pretty benign next to the consequences of financial malfeasance in recent years, but now we're talking radical crazy talk.

The biggest consequence of piracy is that an artificial monopoly is less lucrative than it would otherwise be. Legal monopolies have a long history of abuse. They're a great way for politicians to give out favors and ask favors in return. In a textbook specimen of double-speak, any recognition of this economic and political reality is called sympathetic to piracy, something like being called a pinko in the McCarthy era.

A couple definitions

Rivalry is an economic concept describing whether the use of a good by one party precludes its use by another. The distinction being made here means that a million people could listen to Lady Gaga's latest tune at the same time. A million people could not ride in my car or live in my house. My house and car are rival goods. Songs are non-rival.

For every copyrighted work not pirated, how many would be purchased? My guess is that this ratio is low. I'm pretty sure nobody has convincingly shown otherwise. For the items not purchased, the utility of consuming them is lost, with no corresponding gain to the monopolist. This is called a dead weight loss, meaning some people could be made better off without making anyone else worse off, but we fail to do it. This loss is the music/movies/etc that wouldn't be enjoyed if they weren't pirated.

Willful ignorance of these simple but important ideas bugs me a lot more than bozo-grade technical knowledge.

Which is worse, the problem or the solution?

Now, it's important that creators of valuable intellectual property make a decent living. Few question that. What we're talking about is whether publishers should put up toll booths on the road between the consumer and the producer, and whether the government should enforce the use of these toll roads, when technology has made such choke points obsolete. Since distribution is now practically free, is it a good idea to create costly and ultimately ineffective legal barriers to replace the physical barrier that no longer exists?

Let's total up the costs. There's dead weight loss. There's a loss to innovation and culture which suffer when the interchange of ideas is impeded. There's the technical costs of implementing measures like SOPA, (and DRM and copy-protection before it), which tend to fall on paying customers.

To be fair, a partially market based means of valuing intellectual property and rewarding its creation is not to be dismissed lightly. Blocking access to download sites will result in some revenue trickling down to deserving artists. Too bad, no one speaks about the issue in terms of balancing benefits against costs.

The real problem

It's shameful that congress is so eager to shill for corporations and their lobbyists rather than protect the interests of the people they are elected to serve.

More on The Origins of Polical Order

2011-10-11T00:19:00.000-07:00

Mark Kingwell, a University of Toronto political theorist, reviewed in Francis Fukuyam's The Origins of Political Order in the August 2011 edition of Harper's. I went to this review specifically looking for a left-leaning rebuttal, and I found one, but it wasn't exactly what I expected. The Tomist: Francis Fukuyama's infinite regression says plenty with which I can't agree, but also has some interesting insights.

Kingwell pulls a quote out of Origins that's underlined in my copy:

"Entrenched interest groups tend to accumulate in any society over time, which aggregate into rent-seeking coalitions in order to defend their narrow privileges."

The book gives the reader an appreciation for the constant erosion of political institutions by forces of narrow self-interest and short-term expedience, illuminating not just the origins of political order but its decay and decline as well.

Kingwell hits on a favorite theme of mine, the inseparability of politics and economics, calling it a "strange blind spot" in Fukuyama's thinking. In Kingwell's well-placed words:

"The central occlusion concerns the relation of politics and economics. [...] One reason political commentators consistently fail to understand the social order is that they enjoy the habitual exercise of concept-separation: driving a conceptual wedge between politics and markets, between democracy and capitalism."

Kingwell wonders, as many readers will, about the transformation of the author of The End of History and former neocon into the Fukuyama who wrote The Origins of Political Order. It seems to me, without having read the earlier work, that we get a more cautious and nuanced take on the subject from the newer book. I remember rolling my eyes at the title of Fukuyama's earlier work and the soon-to-be-short-lived triumphalism of the Washington consensus back in the 90's, even while supporting principles like free markets and free trade.

Remind me never to argue with Kingwell, lest I be pummeled with rhetorical zingers like this one: "Fukuyama's conclusion only gradually seeps through the masonry of his prose." Ouch. But, I found Fukuyama quite clear and readable, if not particularly florid.

Fukuyama, avoiding polemics, sets out to abstract factors of development away from specific political agendas. Ideology is shown as a tool for legitimating or delegitimating rulers and institutions, but no particular doctrine is espoused over another. Rather, the keys to a functional society and good governance are defined in technocratic terms of a strong state, rule of law and accountability.

Kingwell seems to resent this analytical detachment, calling Fukuyama's neutrality a "wearying evenness", as if inflammatory partisan ranting was in short supply. This is a baffling criticism. A muscular clash of "big ideas" might be more satisfying on some level but, that ignores the question of why the world is full of people quite enamored of big ideas about freedom, justice and equality whose governments conspicuously fail to practice anything of the sort.

The "turtles all the way down" story is a sticking point for Kingwell, who sites "unjustified force", "the violent structure of the founding act" as the ugly first cause down at the bottom of the chain of causation. That it may be, but the turtles story illustrates a completely different and equally interesting point. Like evolution, political development is not a deterministic process but a contingent one. If you could "rewind the tape" and run the experiment again, the results would likely be different. That this property is shared by complex systems as diverse as evolving organisms and systems of political economy is worth pondering. Perhaps, other emergent properties common to complex systems manifest themselves in political economy.

Whether it's mistrust in a reformed neocon or just academic cat-fighting, Kingwell doesn't like Fukuyama's book. As funny as they sometimes are, Kingwell's objections miss the central point that Fukuyama offers a framework for thinking systematically about politics and development, laying out several case studies for the reader to practice on and generalize from. The fact that he does this even handedly is to be commended.

The Origins of Political Order

2011-09-24T12:50:00.000-07:00

I'm reading Francis Fukuyama's latest book, The Origins of Political Order, an ambitious survey of the development of political institutions and centers of power across civilizations. Sitting as we are, at a juncture between ascendent East and declining West, it's a good time to look back and extract some basic principles governing the rise and fall of civilizations.

Fukuyama starts off with instinctive human nature, the social and political baggage our species carries from our not-too-distant primate past. Primitive humans and other apes live in communities with definite social structure. But, up until recently, it was thought that primitive man was solitary. This view was held by enlightenment philosophers Thomas Hobbes and John Locke, originators of the theory of the social contract, and the idea of natural human rights, respectively. It's a bit discomfiting to consider that inaccurate ideas about the isolation of man in a state of nature strongly influence the American founding father's views on individualism.

In the time period covered by the book, up to the French Revolution, societies are mainly agrarian and structured into classes - a ruling nobility, land owning aristocracy, and peasantry. From this largely hereditary state, the middle class begins to emerge and modern states coalesce.

Fukuyama's three crucial characteristics of the modern state are a strong state, rule of law, and accountability. States successfully implementing all three of these institutions are generally free, prosperous, and stable. Fukuyama calls the process of reaching this happy balance getting to denmark.

Given these institutions and social classes, Fukuyama seeks to derive a theory of political development and decay - not a fully predictive theory, but a contingent theory, like evolution, dependent on historical accidents and circumstances.

Capable, accountable, rule-bound governments emerge when a delicate balance is struck between the classes / power centers. Absent this balance, various pathologies result in the form of dominance of one class or a coalition of classes against the others. Political systems rise, but they also decay. The rats always find a way in. "Over time, elites are able to protect their positions by gaming the political system [...] transmitting these advantages to their children through favored access to elite institutions"

The book builds its argument by surveying the history of political development in several countries. As a conscious effort to avoid Eurocentrism, China's early development of meritocratic bureaucracy is examined first. India, the Middle East, Europe and Russia follow. In each region, driven by agriculture, religion and warfare, political systems rise and fall striking different balances of power, always attended by the persistent reassertion of rent-seeking elites.

The Chinese state, which achieved a powerful state and meritocratic bureaucracy in Qin and Han dynasties around 200 BC, never succeeds in subordinating the state to rule of law. India develops rule of law and accountability, but with a weak central state. The Middle East gains and looses rule of law and accountability. In Russia, the rulers dominate unchecked by either law or any notion of accountability. The French monarchy was beholden to its aristocracy by debt, resulting in a weak central state and widespread corruption.

England is first to achieve all three ingredients. With the Magna Carta in 1215, the aristocracy obligated the monarchy to recognize their rights. Over time these rights came to apply increasingly widely across society, particularly to the rising middle class.

NO Freeman shall be taken or imprisoned, or be disseised of his Freehold, or Liberties, or free Customs, or be outlawed, or exiled, or any other wise destroyed; nor will We not pass upon him, nor condemn him, but by lawful judgment of his Peers, or by the Law of the land.

I might have been put off if I had known that the author was, at one time, associated with the neoconservative movement and had previously declared the "end of history". That would have been a shame. The Origins of Political Order is a fascinating read. The book is carefully constructed to avoid pushing ideological buttons, and makes its case largely independent of partisan politics. England and Denmark are held up as successful examples. The historical development proceeds from Chinese history first. I don't know my history well enough to evaluate the individual examples, but the framework for thinking about political development and centers of power seems to have a lot of value.

The planned second volume picks the story up in the modern age after the industrial revolution. Applying the same framework to the modern world is complicated by the post-colonial legacy, greatly increased communication, and globalization, along with entirely new actors such as corporations. It should be even more interesting than the first volume.

Reviews and commentary

On it's release, in April of 2011, the book generated lot of commentary, including write-ups in a slew of major newspapers, plus a bunch of blogs linked below. The author appears on several interview shows and podcasts. I'm going to hold off on all of this until after I finish the book, to give myself time to think about it.

NY Times Francis Fukuyama’s Theory of the State
Also from the NY Times: From ‘End of History’ Author, a Look at the Beginning and Middle
Washington Post
The Economist Theories of history: The good, the great and the gelded
the Guardian
Financial Times
WSJ From Dynasty to Democracy Nations did not find stability, or sustained prosperity, until they became accountable to their citizens
Slate

Interviews, audio and video

The Slacker Economy

2011-09-13T09:03:00.000-07:00

Recently, there's been a spate of articles about the virtues of slack, in this time of unemployment. CNN asks Are jobs obsolete? Thanks to automation and technology, the basic needs of society can be met using the productivity of a fraction of the population. So, the question becomes, what do the rest of us do?

So far, the answer seems to be the service economy, along with increasingly esoteric definitions of work and more frivolous things to spend money on. But, that runs out of steam, eventually. Most of us have too much to eat and all our time is spent working or consuming distracting amusements.

But, what if we're not driven to accumulate ever more marginally useful stuff, but rather reach a point where enough is enough. What, then, is the source of growth? In Work for post-materialists, the author confesses to being a “threshold earner”, as described by Tyler Cowen in The Inequality That Matters.

A threshold earner is someone who seeks to earn a certain amount of money and no more. [...] That person simply wants to “get by” in terms of absolute earning power in order to experience other gains in the form of leisure—whether spending time with friends and family, walking in the woods and so on.

In the old days, before I was a respectable family man, I used to work consulting gigs. That business attracts some sleazy characters, but that's another rant for another time. Anyway, for a stretch of a few years, I managed to get summers off. I prefer to think of myself as a gentleman hacker, but I guess that's another word for threshold earner.

[New York Times]

This phenomenon has a generational aspect to it. In The Experience Economy, David Brooks tells the tale of Sam, a hardworking American, born in 1900, who ran a business making brakes and his post-materialist grandson, Jared.

Sam’s grandson, Jared, was born in 1978. Jared wasn’t really drawn to the brake-systems business, which was withering in America. He works at a company that organizes conferences. He brings together fascinating speakers for lifelong learning. He writes a blog on modern art and takes his family on vacations that are more daring and exciting than any Sam experienced. Jared lives a much more intellectually diverse life than Sam. He loves Facebook, YouTube, Wikipedia and his iPhone apps. But many of these things are produced outside the conventional monetized economy. Most of the products are produced by people working for free. They cost nothing to consume.

But, while Jared is traipsing around the Burning Man festival in nothing but lime green body paint, someone has to do the dirty work. Soldiering, mining, cleaning hotel rooms, making car parts. Thinking about how we get some unfortunate people to do those unpleasant things in a world of overflowing plenty might not make you feel too good.

[Burning Man, Jim Urquhart/Reuters, Boston Globe]

Technology plays a role in generating high productivity in the first place, not to mention exaggerating inequality in the process, but also in providing cheap mostly-harmless virtual goods for us to consume. In 1996, William Gibson wrote The Net Is a Waste of Time. But, I've often had a different thought. The purpose of the internet is to absorb the excess productivity of mankind.

There's a lot to be said about the nature of work in the networked age: globalized, distributed, bursty. And thinking to be done about worthy purposes for all those liberated brain cycles. But, we'll leave those for later. In the meantime, I hope you're enjoying my non-remunerative contribution to the post-materialist slacker geek-fest gift economy that is the internet.

Who rules America?

2011-08-04T04:16:00.001-07:00

An Investment Manager's View on the Top 1% contains a bunch of interesting factoids, mostly on what separates the working rich, the bottom half of the top 1% from the more elite fractions of the wealth distribution.

Since the majority of those in this group actually earned their money from professions and smaller businesses, they generally don't participate in the benefits big money enjoys. Those in the 99th to 99.5th percentile lack access to power.

...the American dream of striking it rich is merely a well-marketed fantasy that keeps the bottom 99.5% hoping for better and prevents social and political instability. The odds of getting into that top 0.5% are very slim and the door is kept firmly shut by those within it.

The picture is clear; entry into the top 0.5% and, particularly, the top 0.1% is usually the result of some association with the financial industry and its creations. I find it questionable as to whether the majority in this group actually adds value or simply diverts value from the US economy and business into its pockets and the pockets of the uber-wealthy who hire them. They are, of course, doing nothing illegal.

Wall Street created the investment products that produced gross economic imbalances and the 2008 credit crisis. It wasn't the hard-working 99.5%. Average people could only destroy themselves financially, not the economic system. There's plenty of blame to go around, but the collapse was primarily due to the failure of complex mortgage derivatives, CDS credit swaps, cheap Fed money, lax regulation, compromised ratings agencies, government involvement in the mortgage market, the end of the Glass-Steagall Act in 1999, and insufficient bank capital. Only Wall Street could put the economy at risk and it had an excellent reason to do so: profit. It made huge profits in the build-up to the credit crisis and huge profits when it sold itself as "too big to fail" and received massive government and Federal Reserve bailouts. Most of the serious economic damage the U.S. is struggling with today was done by the top 0.1% and they benefited greatly from it.

This comes from a blog called Who rules America? in support of a book of same name, by G. William Domhoff, a sociologist at UC Santa Cruz. Interestingly, the link was posted on Hacker News. A comment referenced the theory of control-fraud, developed by William K. Black, author of The Best Way to Rob a Bank is to Own One.

White-collar criminology findings falsify several neo-classical economic theories. This paper discusses the predictive failures of the efficient markets hypothesis, the efficient contracts hypothesis and the law & economics theory of corporate law. The paper argues that neo-classical economists' reliance on these flawed models leads them to recommend policies that optimize a criminogenic environment for control fraud.

...which just goes to prove the point that you can't separate economics from politics. Susceptibility to corruption is a huge factor in the success or failure of economic systems, or more accurately systems of political economy.

Making the patent system even worse

2011-08-01T23:16:00.001-07:00

The economist explains the state of the US patent system like this:

At a time when our future affluence depends so heavily on innovation, we have drifted toward a patent regime that not only fails to fulfill its justifying function, to incentivise innovation, but actively impedes innovation. We rarely directly confront the effects of this immense waste of resources and brainpower and the attendant retardation of the pace of discovery, but it affect us all the same. It makes us all poorer and helps keep us stuck in the great stagnation.

Congress is in the process of passing a "first-to-file system". It's hard to see this as anything but a gift to big corporations. Writing in Foreign Policy, Clyde Prestowitz calls the Americans Invent act, "...a bill likely to cut the heart out of our innovative, entrepreneurial culture...". Even the pro-patent group American Innovators for patent reform says,

American Innovators for Patent Reform is opposed to the America Invents Act and we urge the House of Representatives to draft an entirely new law that truly addresses what needs to be reformed. The America Invents Act was crafted by lobbyists for the large corporations that are notorious infringers of patents!

...and...

Canada made the switch to first-to-file in 1989, and a 2009 study from researchers at Canada’s McGill University’s Department of Economics found that the change “failed to stimulate Canadian R&D efforts” and “skewed the ownership structure of patented inventions towards large corporations, away from independent inventors and small businesses.

It looks like the US patent system is about to become even more screwed up.

Nice work as usual, congress.

BTW, Mimi & Eunice is a work of genius

The Deficit Is Worse Than We Think

2011-06-28T14:16:00.000-07:00

In a WSJ op-ed, Lawrence Lindsey, a former Federal Reserve governor and assistant to President George W. Bush for economic policy, gives three reasons why The Deficit Is Worse Than We Think

Interest expense
Anemic growth
Health care costs

At present, the average cost of Treasury borrowing is 2.5%. The average over the last two decades was 5.7%. Should we ramp up to the higher number, annual interest expenses would be roughly $420 billion higher in 2014 and $700 billion higher in 2020. Normal interest rates would raise debt-service costs by $4.9 trillion over 10 years, dwarfing the savings from any currently contemplated budget deal. [...] The Fed will increasingly have to factor in the effects of any rate hike on the fiscal position of the Treasury.

The PROTECT IP Act

2011-05-29T09:13:00.000-07:00

The Protect IP Act (full text) enables the government and copyright holders to compel DNS providers, ISPs, search engines and advertisers to censor sites hosting copyright or trademark infringements. They're going to make linking to pirated material a crime.

Media companies want this because it's easier to go after the intermediaries, rather than the infringers, especially those outside the US. It's not that different from the Great Firewall of China.

This is the second attempt, the previous incarnation COICA having been introduced in September of last year. Senator Ron Wyden (D-Oregon), held up that legislation and is trying to do the same again. Cheers to Ron Wyden.

Larry Downes provides an excellent summary of the "full-scale war between content distributors and everyone else" in his Law of Disruption blog, including the property seizure tactics of the Department of Homeland Security's Immigration and Customers Enforcement division, a name straight out of Orwell.

The media industries, everyone agrees, are in the fight of their lives. These businesses rely for profitability on the controlled distribution of information goods whose individual copies have a marginal cost that keeps getting closer to zero.

The EFF has a couple articles on the PROTECT IP act and a petition.

One commenter asked, "Why is the attorney general wasting precious tax dollars enforcing corporate plutocracy?"

The real question

A lot changes when the costs of production and distribution are approaching zero. The question we should be asking is this: What still has value?

The creation itself - the skill, insight and artistic judgement necessary to make movies, music, or writing that doesn't suck.
The ability to sift through mountains of dreck to find the good stuff. The value of the filter goes way up in the new environment.
The community? A viable place to discuss. I'm pretty sure that the difference between Quora and You-Tube comments has value.

Legislating without a clear idea of what's valuable in the new environment will lead to useless and harmful laws that burden legitimate service providers while only slightly inconveniencing pirates - something like requiring every new car to come with a trunk full of horseshoes to protect the blacksmiths.

Humans are a tribal animal

2011-05-08T21:59:00.000-07:00

It's amazing how much of human nature can be explained by the fact that we're a tribal animal. I'm not sure if we're more like a herd or a pack, or exactly what's the difference anyway. Street gangs, nationalism, sports fan mania, racism, cults, even religion to some extent can be all be explained by a group membership instinct. How supportive people are towards the welfare state is proportional to racial homogeneity. Tribal identity shows up everywhere from music and fashion to the followers of certain programming languages. The structure of governments and corporations mimic the alpha male social dynamic of the apes.

The countervailing force is individualism. And, somehow, technology plays a role in freeing us from our local community, separating us from those directly around us, even while connecting us to those farther away.

The bubbles of the elite

2011-04-08T15:06:00.000-07:00

In Fighting to Shut Out the Real India, Manu Joseph writes:

The pursuit of India’s elite is to protect themselves from India — from its crowds, dust, heat, poverty, politics, governance and everything else that is in plain sight. To achieve this, they embed themselves in their private islands that the forces and the odors of the republic cannot easily penetrate.

...

The bubbles of the elite have strong walls, but the realities of India are so potent that they very often break in. There is a limit to the isolation that the back seat of a Mercedes can provide. The odors of the driver; the crippled urchins knocking at the windows; the million honking horns; the smog of unmoving traffic, these are the relentless forces of the nation seeking to breach the walls of the elite.

Why the West Rules--for Now

2011-03-22T00:07:00.000-07:00

Ian Morris draws on 50,000 years of history, archeology, and the methods of social science, to make sense of when, how, and why the paths of development differed in the East and West—and what this portends for the 21st century.

Stanford history professor Ian Morris put out a book this past October called Why the West Rules--for Now: The Patterns of History, and What They Reveal About the Future.

His answer to that question is not unlike Jared Diamond's excellent Guns Germs and Steel. The general trajectory of human societies is dictated by biology and sociology. The differences in their success is a matter of geography. But, the development of societies and technology periodically changes our relationship with geography.

Agriculture started in about 6 places around the world with favorable geography and climate. The invention of irrigation suddenly meant that you could grow crops in places where they formerly wouldn't grow. This theme repeats itself through the growth and decline of empires up to the invention of oceangoing ships and guns. Geography drives the development of societies and the development of societies then changes the meaning of geography.

Put together oceangoing ships and working guns and this is a very powerful package. The ships allow you to cross the oceans. The guns allow you to shoot the people you meet on the other side. This is great for everybody who's got them. ...it changes the meaning of geography once again.

The same process is still at work bringing about a shift of wealth and power from west to east. Whether that happens smoothly or not or whether it even matters by the time it's complete... those are open questions.

Morris sees the near future as "a giant race between, on the one hand, something like the singularity that Ray Kurzweil talks about, and on the other hand, some kind of nightfall scenario, where we trigger a set of changes that we simply can't control, and we are looking at a collapse of civilization on a scale that has never been seen before in history."

His factors of collapse are all too familiar:

migration
state failure
famine
epidemic
climate change

Bruce Sterling: Network Society Isn’t Compatible With Democracy

2011-03-17T21:54:00.000-07:00

The darkly euphoric Bruce Sterling at SXSW talking about his new book Gothic High Tech and Favella Chic, on why “hactivism” isn’t democracy and why he finds Sarah Palin “super interesting.”

Why the Dollar's Reign Is Near an End

2011-03-07T15:07:00.000-08:00

For decades the dollar has served as the world's main reserve currency, but, argues Barry Eichengreen, it will soon have to share that role. Here's why—and what it will mean for international markets and companies.

"The greenback [...] is not just America's currency. It's the world's." The dollar's three pillars are:

depth of markets
safety, stability, liquidity
lack of alternatives

Three things that are changing are:

technology eases the problems of multiple currencies
rivals: the Euro and the Chinese Yuan
loss of confidence

The U.S. government has a history of honoring its obligations, and it has always had the fiscal capacity to do so. But now, mainly as a result of the financial crisis, [...] questions will be asked about whether the U.S. intends to maintain the value of its debts or might resort to inflating them away.

Shaping the cognitive map of the political-economy

2011-02-19T22:38:00.000-08:00

Princeton's guest lecture archives are chock full of great stuff. One example is The Current State of the Economy (video and audio) a discussion between Matthew Taibbi and Gillian Tett moderated by Harrison Hong held in April 2010.

In case you listen, the audio for Gillian Tett is a little screwed up.

Taibbi is the guy who called Goldman Sachs a a great vampire squid wrapped around the face of humanity. Tett is the author of Fool’s Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe. Both experts in central asian politics and corruption.

Taibbi got started as a journalist covering privatization in post-Soviet Russia. He describes the western media's story line as,"Communist gorilla gets first bananas". He covered the loans for shares program, which set up the well-connected entrepreneurs know as oligarchs during Yeltsin's time.

Nobody does corruption like the Russians ...until now.

The most interesting bit was an exchange about shaping the cognitive map. How did the public and the media fail to note the always cozy relations between Wall Street and Washington that were spiraling into an ever tighter nexus of finance and power?

[Tett believes that] a social silence (a concept outlined by French anthropologist/sociologist Pierre Bourdieu in his work Outline of a Theory in Practice) was a factor in facilitating and perpetuating the global credit boom that [collapsed in 2008]. Bourdieu’s social silence, as Tett explains, allows an elite group to control society not just by controlling the physical means of production but also by influencing the cultural discourse. Crucially, influencing the way society talks about itself also influences what is left unsaid – i.e. that which is regarded as impolite, taboo, boring, or taken for granted. Such silences can arise through overt strategies, but often come about less deliberately through social conformity or shared ideology and assumptions. According to Bourdieu, all that is required for the ideology to establish itself in this way is a complicit silence. Tett speculates that such a social silence may have been pivotal in the general acceptance of the idea that financial markets could regulate themselves.

Taibbi points that the news covers finance and the economy separately from politics. The fact that a newspaper has a separate section for business news and politics means that it's hard to tell economics as a political story or politics as an economic story. This reaffirms something I've thought for a long time. Politics and the economy are so entangled that studying one in isolation from the other is an express route to wrong answers.

During the Q&A, a fascinating side story comes up about Phil and Wendy Gramm and their involvement in Enron.

Phil Gramm, as Senate Finance Chairman, sponsored two key bills that deregulated finance. Gramm–Leach–Bliley Act of 1999, which repealed the Glass–Steagall Act of 1933, and Commodity Futures Modernization Act of 2000 which passed just before Christmas with little debate. This legislation specifically denied either the SEC or the CFTC the authority to regulate financial derivatives and swaps and contained the Enron loophole.

Phil Gramm's wife Wendy Lee Gramm headed the Commodity Futures Trading Commission (CFTC) from 1988 to 1993, during the presidency of Bush the first. In 1993, after a lobbying campaign from Enron, the CFTC exempted it from regulation in trading of energy derivatives. Weeks after resigning from the CFTC, Wendy Gramm took a seat on Enron's board of directors. Enron collapsed in fall 2001.

While this conversation is nearly a year old now, it is a reminder of a huge and tragic missed opportunity. The conditions existed during the financial meltdown that could have made it possible to fix the financial system, to truly modernize the legislation that emerged from the Great Depression, to break the hold of Wall Street on the political system. Was that opportunity used wisely?.

Current intellectual property laws are blocking innovation

2011-02-17T22:46:00.000-08:00

Groklaw has a good summary of the state of intellectual property law, The White House Asks: What's Blocking Innovation in America? - My Answer: IP Laws. It's best feature is a link to video of James Boyle's brilliant talk, Four Ways to Ruin a Technological Revolution. Boyle references Thomas Jefferson's writing on the topic: a letter to Isaac McPherson (here, here and here).

The invalidation of Myriad Genetics' BRCA gene patents last year gives some cause for hope. That decision is in appeal now. I hope the powers that be don't fail to appreciate the power of collaborative innovation.

I still mean to get around to reading Lawrence Lessig's The Future of Ideas, the fate of the commons in a connected world.

Playbook for a Revolution

2011-02-16T22:41:00.000-08:00

Congratulations and good luck to Tunisia and Egypt.

An Assassination’s Long Shadow

2011-01-17T23:40:00.000-08:00

Patrice Lumumba, independence leader of the Congo was assassinated 50 years ago. Adam Hochschild writes in the New York Times of the profound, long-term consequences of the western-backed assassination and the subsequent dictatorship and civil war.

Lumumba’s violent end foreshadowed today’s American practice of “extraordinary rendition.”

The Rise of the New Global Elite

2011-01-08T21:34:00.000-08:00

Chrystia Freeland writes in January's Atlantic that The Rise of the New Global Elite [print] is a consequence of technology and globalization and is resulting in growing income inequality in developing and established economies.

The new elites are different in some ways from the aristocrats of the last gilded age. They are more global and more likely to be hard working careerists than inheritors of great wealth.

...a defining quality of the current crop of plutocrats is that they are the “working rich.” ... They are not aristocrats, by and large, but rather economic meritocrats, preoccupied not merely with consuming wealth but with creating it. ... another defining characteristic of today’s plutocrats: they are forming a global community, and their ties to one another are increasingly closer than their ties to hoi polloi back home.

In America, many in the elite hold the opinion that the hollowing-out of the American middle class doesn't really matter. “...if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade,”

America’s business elites appear so removed from the continuing travails of the U.S. workforce and economy because the global “nation” in which they increasingly live and work is doing fine.

This isolation may end up their undoing. Instead of being grateful for the hundreds of billions in bailouts and hundreds of billions more in hidden subsidies by the Fed, the elites fret about the expiration of the Bush tax cuts and complain of Obama's anti-business attitude.

In America, the traditional remedy to class warfare has been social mobility. But, as mobility breaks down, the safety valve no longer works.

The real threat facing the super-elite [is] the possibility that inchoate public rage could cohere into a more concrete populist agenda.

...which pretty much describes what happened in Venezuela in the 90's.

The lesson of history is that, in the long run, super-elites have two ways to survive: by suppressing dissent or by sharing their wealth. It is obvious which of these would be the better outcome for America, and the world. Let us hope the plutocrats aren’t already too isolated to recognize this.

On the other hand, Felix Salmon responds...

The inchoate anger of the masses shows no sign of cohering into anything at all... The Tea Party, which is the closest thing we have to a populist revolt, is bought and paid for by plutocrats.

More...

In Bubble Bath, Freeland proposes that people didn't cause the financial crisis; a bad system did
Brief discussion on Morning Joe
Who Will Stand Up to the Superrich?
Still the Best Congress Money Can Buy
rise and fall of the creative class
Peak Globalization
Welcome to the New Middle Ages
Ralph Nader thinks only the super-rich can save us.
The WSJ asks Do the Rich Need the Rest of America?
Are the American people obsolete? The richest few don't need the rest of us as markets, soldiers or police anymore.

WikiLeaks is free speech

2010-12-14T23:37:00.000-08:00

It's little surprise that WikiLeaks founder Julian Assange has found himself in trouble. People in high places like to keep their secrets. But secrecy is incompatible with democracy and an open society. Maybe that doesn't mean there should be no secrecy. But it does mean there should be people fighting relentlessly to bring the truth out into the open.

It's revealing that the same people that promoted corporate funding of independent political broadcasts as free speech deny the same label to WikiLeaks.

I'm reminded of what happened to Eliot Spitzer when he pissed off the wrong people. He was taken down by a hooker scandal after a bank reported a suspicious wire transfer.

Will India's growth outpace China's?

2010-10-06T21:33:00.001-07:00

The Economist's cover this week makes the claim that India's growth will outpace China's. India will be experiencing the demographic wave that other asian countries have ridden to prosperity in which a high percentage of the population falls within working age. Prevalence of English is an extra bonus. Further, India's democracy and entrepreneurial culture give it a flexibility unmatched by China's state dominated economy.

The conventional wisdom is that India's boom in the service sector is leaving a big chunk of the population stranded in poverty. This is because high skilled jobs like engineering or medicine -- even moderately skilled jobs in call centers -- require education and therefore are available largely to the children of the established middle class. In many countries, manufacturing has been the traditional stepping-stone out of subsistence agriculture. For example, a chinese factory girl might be the daughter of farming peasants from the countryside. These missing bottom rungs of the ladder have resulted in rising inequality. Amartya Sen warned that India risks becoming "half California and half sub-Saharan Africa".

Also working against India is it's crappy infrastructure and low literacy rates, 66% vs China's 93%. India's primary schools perform poorly and, the world-class IIT schools notwithstanding, its university system is undersized. The result is a chronic shortage of skilled workers. And business dealings involving land, natural resources and government contracts are riddled with corruption.

On India's cacophonous democracy, they quote a western banker as waying, "It's much easier to deal with the well-understood 'org chart' of China Inc than the freewheeling chaos of India.", which probably says a lot about western bankers.

I'd love to see India, with all it's contradictions, bust out and rival China. Based on Indian multinationals like Tata or Infosys, or the "frugal innovations" like $2000 cars, you might believe it possible. Whether the "freewheeling chaos" of democracy can function in a country of 1 billion; whether democracy is compatible with productivity; whether India can get its act together; those are some serious open questions. I hope the answer is yes.

Bill Clinton on the Tea Party

2010-09-19T16:28:00.001-07:00

If you have an ideology, it means everything is determined by dogma and you’re impervious to evidence.

They’re saying that Barack Obama represents the spearhead of this vast socialist conspiracy to have government swallow up the fabric of American life and he’s going to crush our individualism, and our freedom, and the vitality of small business ... They tell us that they they represent America the way it used to be, self-reliant, virtuous individuals and small businesses. And the truth is, what they want to do is dismantle government so corporations, big corporations will control our destiny.

Beware of Greeks Bearing Bonds

2010-09-10T07:15:00.000-07:00

Americans should be ashamed. We're amateurs at corruption. Ok, well, Wall Street excepted. Anyway, the Greeks are pros. Michael Lewis, of Liars Poker and The Big Short writes Beware of Greeks Bearing Bonds in Vanity Fair.

In 2001, Greece entered the European Monetary Union, swapped the drachma for the euro, and acquired for its debt an implicit European (read German) guarantee. Greeks could now borrow long-term funds at roughly the same rate as Germans—not 18 percent but 5 percent. To remain in the euro zone, they were meant, in theory, to maintain budget deficits below 3 percent of G.D.P.; in practice, all they had to do was cook the books to show that they were hitting the targets. Here, in 2001, entered Goldman Sachs...

Tim Bray reviews The Big Short.
The rats have certainly gotten into Greece
Michael Lewis’ Big Short and Our Appetite for Apocalypse on Radio Open Source

Let the Bush tax cuts expire

2010-09-01T11:36:00.000-07:00

Has the Wall Street Journal gone totally right wing nutballs or has it always been that way? A recent article on the expiration of the Bush tax cuts gives cause for concern.

In the summer of 2007, Rupert Murdoch prevailed upon the Bancroft family and sucked the WSJ into the media empire of News Corp. Murdoch's other properties include Fox News and the New York Post, neither of which are exactly monuments to journalistic integrity. As a very occasional reader, I can't say whether or how much the WSJ has changed since.

In the weekend edition of August 28, 2010 an unsigned editorial titled The $31 Billion Revenue Fantasy complains about the plan to let the Bush tax cuts expire. They make the claim that the Bush tax cuts were not a windfall for the rich. After the particularly piercing argument "Yada, yada, yada," (really, they said that), they throw up a bunch of numbers. It's not that surprising to find a sermon to the anti-tax faithful in the WSJ. But, the totally bogus and deceptive line of argument they use has a real Fox News ring to it. For example:

The IRS data show that in 2003 those with incomes above $200,000 paid $313 billion in income tax. By 2007 they paid $610 billion. When the recession hit, the payments fell to $537 billion in 2008. But even accounting for that decline, payments by the rich were still 65% higher five years after the rate cut that was supposedly a giveaway to the rich. The share of federal income taxes paid by the $200,000-a-year club was 42% in 2003 but 52% in 2008. (The IRS doesn't adjust these annual numbers for inflation.)

Inflation is only one reason why these numbers are not very meaningful. According to CPI numbers, 100 2003-dollars is about 117 2008 dollars. So, even if incomes only track inflation the pool of 200k-plus tax-payers grew. Also at the same time, the economy was expanding (and bubbles growing in housing and finance), which also lifts people into the higher income bracket. Tax receipts at all levels go up with the economy. Tax receipts from higher brackets go up more. Finally, high-income earners (for example those already over the 200k line) saw their incomes increase at a rate greater than the economy as a whole, thus paying more taxes.

These numbers are completely consistent with the story that the rich got richer while being taxed at a lower rate. As the New York Times put it:

Though tax cuts for the rich were bigger than those for other groups, the wealthiest families paid a bigger share of total taxes. That is because their incomes have climbed far more rapidly, and the gap between rich and poor has widened in the last several years.

- NYT “Tax Cuts Offer Most for Very Rich”

In 2003, 450 economists signed a statement (Economists’ statement opposing the Bush tax cuts (2003)) opposing the Bush tax cuts on the grounds that they would fail as a growth stimulus, increase inequality and worsen the budget outlook. Even Alan Greenspan thinks these tax cuts should expire as do former Treasury Secretaries Robert Rubin and Paul O'Neill.

The real question the editorial is trying to address is what degree of progressivity do we want in our tax system. Should those who have benefited most, in turn, support the system most? That's a fair and legitimate question. As economist Russ Roberts puts it, “Should we be more like France or less like France?”

What disappoints me about the WSJ article is this: Shouldn't the readers of the WSJ - educated businessmen, rather than tea-party loonies - be able to think this through soberly and logically? Given the audience of the WSJ, we're left with the scary conclusion that many of the wealthy are lying to themselves to justify their own sense of entitlement. Either that, or they're trying to arm themselves with deceitful and self-serving arguments to manipulate those less savvy than themselves.

There are common features to be found in several species of voodoo economics from the Laffer curve and trickle-down economics to "starving the beast" to the claim that letting the Bush tax cuts expire would stifle the recovery. Numerical quackery obscures policy that always seems to favor the rich at the expense of the common good.

What about what's good for the country? Shouldn't the country's business elites have a few ounces of patriotic blood in their veins? And might that lead to pursuit of goals that are good for America as a whole; strategies that grow the pie for everyone rather than tactics for capturing an ever bigger slice?

Related stuff

Businessweek says: The debate over extension of the Bush tax cuts is the opening salvo of a generation-defining fight. With Medicare and Social Security spending set to balloon as baby boomers retire and grow old, the terms of the conflict are crystallizing: What do Americans expect from their government? How much are they entitled to, how much are they willing to contribute—and what are they willing to do without?
One of the few things I like about the Bush tax cuts is the cut in the rate for dividends. Dividends are a healthy thing for the economy. They are a stabilize force in the stock market. They encourage investment and, by paying out slowly over time, they encourage a longer-term perspective. Dividend tax cuts are regressive but have redeeming social value.
A Washington Post piece by William Gale, Five myths about the Bush tax cuts
CBO's estimates of average federal tax rates (tax rates as a percentage of income) paid by households in various income categories
Wikipedia on Economic policy of the George W. Bush administration
Years ago I came across a dissertation about welfare, in which I found an interesting idea. While welfare for the poor may be corrosive to the work ethic, welfare for the rich is much more destructive because the wealthy are in a position to influence the political system, setting up a vicious cycle of increasing entitlement and plutocracy. The closest thing I could google up is this: Welfare for the Rich.

Paul Romer's Charter Cities

2010-08-08T22:26:00.000-07:00

In The Politically Incorrect Guide to Ending Poverty July's Atlantic profiles economist Paul Romer and his current project, “Charter Cities”. NYTime's Freakonomics column asks Can “Charter Cities” Change the World?.

Erik Desmazières, Ville Imaginaire II (1998)

In a nutshell, the idea is to build new cities with new rules in developing countries. The cities would be administered by first-world powers. One might be tempted to respond that people generally didn't like colonialism the first time around. But, people may come to the new cities or stay away as they please and are thus free to vote with their feet. Taking Hong Kong as an example, "dysfunctional nations can kick-start their own development by creating new cities with new rules" that "slough off debilitating customs and vested interests".

Romer explains his idea by way of an analogy:

Large corporations operate according to an internal set of rules that we sometimes call a corporate culture. A natural question to ask is what mechanisms lead to improvement in the rule-sets that prevail in all the corporations in an industry. If you think of an industry like computing, it is immediately evident that much of the change comes from the entry of new organizations. They have new rule-sets that attract resources away from the existing ones.

I like the emphasis on the dynamics of the situation. "Moving from bad rules to better ones may be much harder than most economists have allowed." The path from one political-economic system seems often to be bloody, so it's probably worth studying non-violent but effective means of change.

Here's another piece of thinking I like:

Cities are components - modules - that are relatively self-contained. They have some interfaces that they use to connect with the rest of the world - container ships, fiber optic cables, airport.

The idea that the rules and norms of a culture are a technology and are critical to growth seems related to an idea that I'm fond of. Due to the fungibility of power and money, separating politics and economics is an impossibility. My favorite illustration of this is the castles on the Rhine River. These homes of the original robber barons overlook the river, extracting tolls from passing merchants and travelers and threatening to rain cannonballs on those that decline to pay.

Romer's work in the private sector also seeks to break down toll gates of another sort. Romer's company Aplia was an attempt at refactoring the textbook in light of the web, not entirely different from Scott McNealy's new project, Curriki.

Not everyone likes this idea: Paul Romer is a brilliant economist – but his idea for charter cities is bad. The idea reminds me a little of various attempts to recreate new silicon valleys in other places around the world, like Malaysia's Cyberjaya. None of the attempts is entirely successful. Silicon valley and Hong Kong both grew organically out of their unique situations. A million subtle factors would need to be captured to reproduce either one.

Also, I don't know who the super-technocrats are that are going to run these new cities. Ever since western capitalism did a face-plant on the pavement, I'm not sure who's going to be lining up to let a western country run one of their cities. Considering the state of our (US) politics, you'd have to be desperate or nuts to trust us to be the administrator country. Still, it's probably too easy to dismiss Romer as dreaming of utopian Disneylands. I certainly understand the appeal of a clean slate, when it seems things are so intractably screwed up. Maybe we can find some hyper-intelligent martians to run a city in our country?

On the Econ Talk podcast: Romer on Chart Cites, April 2010 and Romer on Growth, August, 2007
Economic Integration and Endogenous Growth, Luis A. Rivera-Batiz, Paul M. Romer, 1990.
You might think of a squatter settlement as a bottom-up approach to a charter city. They certainly operate by a new set of rules. Shadow Cities is Robert Neuwirth's book on shanty-towns.
Maybe Dubai's fate is informative? See Good-bye to Dubai in the New York Review of Books.
Chilecon valley - Chile's effort to become South America's innovation hub

The rats always find a way in

2010-05-26T19:27:00.000-07:00

I have a theory. In spite of all the moral and idealogical bullshit about different forms of government, there's one determining factor that leads to their eventual failure. That factor is susceptibility to corruption. Some systems are more resistant than others, but all nations get sucked down sooner or later. It's just a question of how long it takes.

How real-world corruption works

I've got a fat finger for ya, Wall Street

2010-05-07T23:45:00.000-07:00

Just when you thought it couldn't get any weirder out there...

The DOW dropped almost 10% in 7 minutes. Some stocks even went to zero. For a while they were trying to blame a "fat finger event" in which someone typed "billion" rather than million into a sell order. Another theory is that high-speed trading got out of control -- the rise of the machines scenario. Positive feedback, anyone?

This bit from Tech-Ticker Trader Goes Bonkers is priceless.

I can picture it clearly. A Goldman executive in immaculate pinstripes saying, "This is the new HAL 9000. It's going to do all our trading for us based on precise mathematical models at millisecond speeds. What could possibly go wrong?" Later, the same executive, pleading with the computer, "Stop! Stop! The market's plunging!" HAL 9000 calmly says, "I'm sorry, Lloyd, I'm afraid I can't do that." And, then becoming frantic and agitated, "And tell Ben Bernanke to kiss my silicon ass! Fuck your pod bay doors!! Your shit's going to ZERO, BITCHES!!!!"

Of course, the conspiracy theorists are going wild. But, if you did manage to snap up a chunk of blue chip at a penny a share, don't look now. They're canceling orders deemed by the exchanges to be "clearly erroneous". Fuckers.

Washington's War With Wall St. to Blame for Panic Selling

Update 5/13/2011: Donald MacKenzie writes in the London Review of Books in How to make money in microseconds: (edited)

The bulk of the research also suggests that automated trading makes the buying and selling of shares cheaper and usually easier. What needs weighing against this, however, are the implications of one strange and disturbing episode that lasted a mere 20 minutes on the afternoon of 6 May 2010, beginning around 2.40 p.m. The prices of US shares fell by about 6 per cent in around five minutes, a fall of almost unprecedented rapidity, then recovered almost as quickly. Shares in the global consultancy Accenture dropped to a single cent. Sotheby’s suddenly jumped to $99,999.99.

With the rise of electronic trading, the stock market (especially in the US) has become a tightly coupled complex system. Systems that are both tightly coupled and highly complex, organisational sociologist Charles Perrow argues in Normal Accidents (1984), are inherently dangerous.

The rest of the article is a fascinating look at programmed trading, concluding that the "flash crash" was indeed a case of computers run amok.

Book review: The Tipping Point

2010-05-04T17:06:00.000-07:00

Malcolm Gladwell's book The Tipping Point (2000) is mostly about viral marketing and social networks. I'm surprised I read a book about such things, but it wasn't bad. It's written to be easy and popular rather than rigorous, so if you're familiar at all with the theory of networks, then there might not be a lot of truly new information here. The charming anecdotes that illustrate the ideas are the reason for its popularity.

I found myself recalling, with dread, my high-school years; navigating various social cliques, trying to emulate the cool kids, then shortly there-after consciously trying to be as opposite as I could. There's a lot of ugly stuff wired into our instincts as a tribal animal. But, like it or not, that's how we are.

MG identifies three special types of nodes in these social networks. Most obviously, there are connectors, people who seem to know everybody. They are the classic highly connected nodes. Messages propagate quickly through social networks with the help of connectors. Mavens are experts in some area who act as information brokers. Salesmen are charismatic persuaders. Due to the special properties of these personality types, MG derives the "Law of the Few", which boils down to this: Get connecters, mavens and salesmen on your side and the sheep will follow. Well, OK, he doesn't come right out and say, "Sheep".

connectors, highly connected people
mavens, people who are especially rich in information and who act as facilitators
salesmen, persuaders

Many of the folks we know and love in technology fit these personality types. The maven appeals most to me because they have a genuine interest in being helpful and in subverting the hype and finding the real deal. Most of us engineers are a little more cynical about the salesmen.

Messages themselves have properties that help them spread. Stickiness might come from the message itself or its packaging. Our psychology is such that we're much more receptive to ideas delivered in the right context, as exemplified by the broken-windows theory of law enforcement.

Most of MG's examples are from fashion and marketing. Two are about trendy shoes. DeeDee Gordon, a marketer that helped the Airwalk brand gain popularity in the 1990's sounds like the role model for William Gibson's cool-hunter Cayce Pollard from the novel Pattern Recognition. Now that I mention it, that's another book I might not have read if I knew how much it had to do with marketing, but a good one.

Just for the record, I rode a skateboard and never owned a pair of Airwalks, though I don't imagine I'm immune to manipulation. And it is manipulation because it's seeking to influence you for someone else's gain, rather than your own. That's the parasitic aspect of marketing.

MG tries to transcend marketing. He brings in suicide, smoking cessation, and cancer awareness. But, he keeps circling back. Even the one political theme he talks about, freeing tibet, worthy cause though it is, is sufficiently distant to be safe. It would be too bad if the main result of these ideas was more effective ways to sell trendy consumer crap to lemming-like mainstream losers. But, I don't mean to sound harsh. It's a good book. I just don't like marketing.

How about tapping our social networks and tribal instincts to spread messages about individual liberty, being a good person, working for justice, living beyond consumer junk-culture, or making the world a better place? Too bad, MG avoids any really revolutionary tipping points.

Gene patents are lame

2010-04-16T09:49:00.000-07:00

Institute for Systems Biology's General Counsel, Cathryn Campbell, led a discussion on Myriad Genetic's BRCA gene patents. The ACLU and the Public Patent Foundation sued Myriad and Judge Robert Sweet of the Federal Court of the Southern District of New York ruled that "isolated DNA", which "represents the physical embodiment of biological information" is "unpatentable subject matter". Myriad will, of course, appeal.

Sadly, even if the ruling doesn't get overturned on appeal, the legal technicalities are such that rewording the patent claims might be enough to achieve the same effect. This particular ruling which hinged on whether the gene was a "product of nature" which is unpatentable or has been sufficiently transformed in the process of isolating the gene to warrant patent protection. It's encouraging to note that the judge recognized the unique information-carrying role of DNA.

Maybe a better question than whether a gene should be patentable is how do we encourage and reward invention and innovation such that we maximize the benefit to society? The exclusionary nature of patents (and copyrights) imposes a cost. What we get in exchange is a market mechanism to put a price on a given invention. Grants and prizes are another mechanism which avoid the costs of exclusion, but have other disadvantages. Mainly, whoever grants the award needs to be good at "picking winners", otherwise a money gets wasted.

Joseph Stiglitz and John Sulston, both nobel prize winners, write in a WSJ article titled The Case Against Gene Patents:

...we believe the patenting of human genes is wrong as a matter of science and as a matter of economics.

Proponents of gene patents argue that private companies will not engage in genetic research unless they have the economic incentives created by the patent system. We believe that a deeper understanding of the economics and science of innovation leads to exactly the opposite conclusion.

The Economist's Genes and patents: More harm than good?

In addition, the studies published this week suggest that granting exclusive rights over genes may be doing more harm than good. At the request of the American government, a team of researchers from Duke University, led by Robert Cook-Deegan, spent two years examining the country’s markets for genetic tests for diseases ranging from colon cancer to cystic fibrosis. The chief question they sought to answer is whether the intellectual property arrangements involved helped or hindered public access to those tests.

Their conclusion? That the rules hinder access.

What If The Very Theory That Underlies Why We Need Patents Is Wrong? cites Modeling a Paradigm Shift: From Producer Innovation to User and Open Collaborative Innovation, Baldwin and Von Hippel, on the rise of open and collaborative innovation and the fact that patents work against this type of innovation.

This result hinges on the fact that the innovative design itself is a non-rival good: each participant in a collaborative effort gets the value of the whole design, but incurs only a fraction of the design cost.

There's a really clear explanation of the economics of intellectual property in the first lecture or two of the UW's Information Technology & Public Policy, by Steve Maurer of UC Berkeley.

Lawrence Lessig's Coding Against Corruption explains the flaws in the legislative process that have gotten us into this predicament.

Lessig: Coding Against Corruption

2010-04-14T21:13:00.000-07:00

Lawrence Lessig, Professor of Law, Stanford Law School, speaks on Coding Against Corruption.

Consumerism Kills

2010-04-03T21:59:00.000-07:00

Value the means of producing wealth more than the wealth itself

Consumerism [is] the natural result of following the money-centric perception of capitalism to its natural end. It is the valuing of money capital and it's power to purchase leisure goods over human capital and it's capacity to produce wealth. It is the notion that having the fancy goods is the goal, rather than being a skilled producer.

Monetary and credit excess and the culture of consumerism form a self-defeating cycle. Consumerism always wants more credit to buy more goods - because goods are the end, and the means by which they are obtained is irrelevant. Excess credit and monetary expansion erode the value of money relative to other assets, causing inflation [...] and this encourages consumerism through motivating spending rather than saving, as well as allocation of capital to hard assets such as real estate and commodities. The cycle eventually defeats itself in a spectacular collapse...

The Future of Money

2010-03-27T15:07:00.000-07:00

March's Wired Magazine has an interesting article called The Future of Money.

"...an army of engineers and entrepreneurs is ... hoping to do to the payment world what has already been done to the music, movie, and publishing businesses..."

Alternate payment systems like paypal or even sending payments through Twitter are on the rise. Also, alternate currencies Linden Dollars. The Economist likes to talk about payment systems through the cellular (not free) networks. (see Bling Nation for example)

I heard on an economics podcast that the government has loosened up the rules for issuing your own currency, something that was, up 'til recently, a jealously guarded prerogative of the Federal Reserve. It'll be interesting to see how all this interacts with the declining value of the good old green dollar bill.

TED talk by Bernard Lietaer on complementary currencies, complexity theory and the financial crisis
Lietaer on A New Paradigm of Money, monetary blind spots and structural solutions, same as above but more subversive/conspiracy-theory

Joseph Stiglitz

2010-03-17T22:51:00.000-07:00

Notes on: Joseph Stiglitz: The Economics of Information, an interview at The Asia Society from February of 2008.

Balance of global power is shifting due to:

rise of china and india
financial crisis
US debt

International organizations designed around the post WWII power structure are out of date and failing due to lack of legitimacy. True of the World Bank, IMF, and G8. Advocates the rule of law between nations and points out that the invasion of Iraq was a violation of international law.

US foreign policy often made for the benefit of campaign donors. Intellectual property rights deals made in secret undemocratically that favor narrow interests in the US. Much of foreign aid is also part of a global military strategy rather than truly for purposes of aid.

Why is China, a non-democracy, growing faster than India, a democracy? Stiglitz claimed that China allows more participation. (really?) China is investing heavily in Africa.

Under what conditions does Adam Smith's invisible hand work? In other words, are markets efficient always or under specific conditions? The financial crisis seems to be a case where the market failed. Market handle some situations poorly: imperfect information, externalities, public goods.

Median income in US lower today (2008) than 7 years ago and among males, lower than 30 years ago. Globalization is only one factor, but an easy target because the blame falls on outsiders. Social protection is not protectionist.

The stimulus package gives little directly to the unemployed, where it would be most effictive, due to being immediately spent. Stimulus should be spent on assets that will increase our future income.

GDP flawed measure. Median income can fall while GDP is rising if inequality is also rising. GDP neglects degradation of the environmental and depletion of resources. Switch from GNP to GDP politically motivated? (example: resource extraction).

Steward Brand: City Planet

2010-03-16T22:54:00.000-07:00

Stewart Brand of the WELL and the Whole Earth Catalog wrote an interesting article back in 2006 called City Planet. He gave a lecture to the commonwealth club which I came across on daviding.wordpress.com. He gave a what appears to be the same talk compressed down to unintelligability at TED, but watch that for some of the visuals missing from the longer version.

The bottom two billion are urbanizing, largely to squatter cities, to find jobs, freedom (especially for women), and education for their kids. He refers to Shadow Cities, by Robert Neuwirth, which I liked quite a bit, Shantaram by Gregory David Roberts, and C. K. Prahalad's The Fortune at the Bottom of the Pyramid.

Book Review: Shadow Cities, A Billion Squatters, a New Urban World

2010-03-16T22:15:00.000-07:00

Here's a review of Robert Neuwirth's book Shadow Cities, A Billion Squatters, a New Urban World that I wrote a long time ago, but left to rot on my hard drive.

Imagine a third world shanty town and likely what you’ll think of is rampant crime and dire poverty; a place most of us would fear to tread. Robert Neuwirth, a reporter from New York City, spent two years living in four different squatter settlements. From the favellas of Rio de Janeiro to the corrugated metal shacks of Nairobi, continuing to Istanbul and Mumbai. His book examines the truth on the ground of shanty towns and the history of squatter communities.

In the shanties, Mr. Neuwirth does indeed find desperation and heavily armed drug gangs straight out of the film City of God. But, he also finds decent people struggling just to get by, facing complex economic and political obstacles with creativity and vitality.

Mr. Neuwirth meets hard-working people who have admirably provided for themselves rather than wait for government, society, or the official economy to provide for them. This, in fact, is the central theme of the book. For their independence and initiative, they are rewarded with perpetual risk of persecution and eviction.

The legal authorities are frequently no friend to the squatter, or the poor in general. In the town of Cuzco, Peru, unless things have changed since I was there, there is a statue outside the courthouse; a big black mountain lion, claws extended, fangs bared in an expression of menace. This is the image the Peruvian justice system presents to its people. In fact, the squatters of Neuwirth’s book fall frequently prey to the whims of government officials or real estate developers.

Favela Rocinha, Rio

The legal limbo in which squatter communities exist is perilous, but not without advantages. The illegality of the squatter’s property serves to some extent as protection from confiscation by the authorities whether for taxation, dept repayment, or plain corruption. And many squatter communities happily pirate electricity and other utilities with relative impunity while they bootstrap themselves into modernity. Cottage industries thrive in the tax and regulation free environment of the unofficial settlements.

Being a software developer myself, the parallels between the squatters rebellion against legal barriers and the debate around intellectual property practically leapt out at me. We are in a period of enclosure of intellectual property similar to the fencing in of the great open spaces. Moneyed interests with allies in the legal system seek exclusive ownership rights. It might not be stretching the analogy too far to think of a shanty town as an open source city.

The economics of the unofficial economy and the interaction of wealth, power, and property rights are interesting and complex. Neuwirth’s book makes something of a hands-on companion to the theories of economist Hernando de Soto. Anyone with an interest in these subjects or a curiosity about the way of life in another world will enjoy Mr. Neuwirth’s book.

The vibrancy and ingenuity that Mr. Neuwirth finds in the slums contrasts vividly with the sanitized homogeneity of suburban consumer culture. It takes only a bit of imagination on the part of the reader to summon the sights and smells of the shanties; to visualize the gulf that divides their world from ours and the humanity that unites us.

Market failure vs government failure

2010-03-05T08:53:00.000-08:00

Asking whether the financial crisis was a market failure or a government failure is a misleading question. Considering the market in isolation from the legal and political environment in which it’s embedded is a recipe for error. Adam Smith saw this and devoted a section of the Wealth of Nations to political economy. The same players that compete in the market also compete in the political sphere to influence the rules of the economic game. That feedback loop is the central cause of the crisis. So, it’s neither a market failure nor a government failure. It was a failure of the political economy and it’s causes are obfuscated by ideology on either side and generally are going totally unaddressed in the proposed reregulation. We’ll apparently have to see more of the same before anything real gets done.

For some reason, I was compelled to write the above in response to this.

Great Powers: America and the World After Bush

2010-03-01T01:05:00.000-08:00

The Carnegie Council hosts a great lecture series available as podcasts and videos. Military strategist Thomas P. M. Barnett (wikipedia) spoke on February 4, 2009 on his book, Great Powers: America and the World After Bush (audio, transcript).

Barnett's systems diagnostic view of the world

Barnett's basic argument is that globalization is a deliberate strategy on the part of the US to establish a world order in which developing nations can pursue export driven growth. America provides security, stability and a principle market, with the implicit agreement that trade surpluses would flow back into American debt instruments.

This american branded globalization consists of an international liberal trade order, collective security, high transaction network rates; most importantly, a competitive religious landscape. Stability operations are conducted to help establish order that advances U.S. interests and values. Great power war between the European powers or China-Japan-Korea-India has become unlikely. And there is a prevailing "minimal rule-set for connectivity to the global economy" that has moved about 3 billion out of poverty.

Historically, the American revolutionary war was, itself, a separatist guerilla action against the previous order. He credit's Alexander Hamilton's 1791 report on manufacturers as the first grand strategic document of the US. The early America was ruled by a succession of generals and revolutionaries and behaved in its early days much as Russia does now, with the exception that post-revolutionary America exported cotton rather than hydrocarbons. Slavery and ethnic cleansing are a part of America's history. Perhaps the industrialization of America during the robber baron days compares to China now.

Globalization was pursued as a continuation of the economic integration of the American wild west in the post-Civil War era. After the Civil War, through Theodore Roosevelt's time, regional economies were rapidly knit together into a continental economy. As the frontier was closed, economic integration with the outside world was the alternative to stagnation. (See Professor Frederick Jackson Turner's Frontier Thesis of 1893.)

Woodrow Wilson tries to establish an American order after WWI, but without sufficient military might is rebuffed by European powers. Finally, US kills colonialism at the end of WW2 (by Article 7 lend-lease agreement). Bretton Woods 1 established the World Bank, the IMF and the dollar as reserve currency and stabalized Europe during the cold war. Bretton Woods 2, after the demise of the gold standard in 1971 up until recently, underwrote the rise of Asia.

In this view, the US military has two roles - the Leviathan function, meaning the ability to fight big wars, and the system administrator function which maintains sufficient order for the functioning of the global economic network. During the cold war, the forces become overweighted in the Leviathan function to the extent that the integration skills honed on the American frontier deteriorated with visible consequences in Vietnam and Iraq. But, Iraq and Afghanistan are realigning and retraining a new generation of sys-admins.

America should be dedicated to encouraging democracy everywhere but we should be committed to forcing it nowhere.

We are in an age of integrating frontier markets. The major challenge over the next 20 years will be for the West and East to integrate the global south. The great divergence started by the industrial revolution then becomes the great convergence. A global middle class emerges. The high-trust environment of the West is now highly linked to the low-trust developing East. For access to raw materials, the low-trust East is integrating the no-trust countries of the bottom billion.

Economic integration comes before democracy and is better done by voluntary association than coercion. Wealth is the incentive to join the system. Democracy comes when countries are demographically middle class and middle aged. Markets bring this about by increasing income, creating a middle class and lowering birth rates.

To address this, the US military will realign toward system administration as the big war scenarios fade away. Taiwan will integrate Hong-Kong-style with China. Iran will become nuclear. America's tradition allies are demographically moribund, have declining defense budgets, and are increasingly unwilling to act geopolitically, while our new friends, the BRIC nations plus the Next 11 emerging economies, share the general goals of stability and economic interation.

Norman Angell, British philosopher, wrote the book The Great Illusion in 1911. It says: If the empires of the world in Europe went to war, they'd destroy each other and none of them would survive the process; so they're not going to do it because they're not that dumb. Turns out they were that dumb. Turns out they destroyed themselves. None of them are first-tier powers anymore as a result of that process. He gets the Nobel Peace Prize in 1933, sort of the consolation. [...People] say, "You're the second coming of Norman Angell." I say, "Damn straight, but I'm Norman Angell with nukes, and nukes change everything." They really do. And that's the good news.

Questions

Barnett played a role early in the GW Bush administration and supported the Iraq war. And I'm always suspicious when claims are made of a grand strategy after the fact. America is the result of globalization, not its cause. Globalization is the continuation of a process that goes back as far as civilization. This is a fascinating talk, regardless of how much you buy, but I was left with a few nagging questions.

What's the difference between this and the neocons?
What exactly does the system-administration function entail and is it best done by the military??
“America's empire is the first in human history to actually empower and enrich individuals” ...well, it's not the first to claim to do that.
Is it necessary for America to have the “World's biggest gun”? For one thing, I don't like paying for the world's biggest gun. For another, is our government vastly more trustworthy with such a thing than any other?
America, along with Europe, had a real chance to reorder the world after the cold war. What might have we done?

Notes:

BRIC = Brasil, Russia, India, China
Next 11 = Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey, and Vietnam
The Monks of War
The Significance of the Frontier in American History, Frederick Jackson Turner

A Splendid Exchange - How Trade Shaped the World

2010-02-16T21:55:00.000-08:00

A Splendid Exchange
How Trade Shaped the World
William J. Bernstein

Bernstein tells the story of trade from the dawn of civilization to the anti-globalization riots of 1999 in Seattle. Trade is a historial constant driving the wealth and military expansion of empires. This is a great story well told. The history of these trading empires explains so much about the modern world.

Chapters & notes

Sumer
Trade at the dawn of agriculture.
The Straits of Trade
Athenian trade routes through the Bosphorus. Access to trade drives the Peleponesian wars.
Camels Perfumes and Prophets
Camels, ships of the desert, and trade along the Arab peninsula - south to Yemen for incense, east to the Persian gulf for access to Asia through the Indian ocean.
The Baghdad Canton Express
Voyages of Marco Polo and Ibn Battuta to China. Indian ocean trade routes dominated by Middle Eastern Muslims and Jews. Zheng He leads Chinese naval expeditions into the Indian ocean.
The Taste of Trade and the Captives of Trade
Venice rises to power on mediterranean trade with the Muslim world. Asian spices and silk come to Europe only through trade with Muslims. Islam is governed through the unstable Mamluk system based on slave-soldiers. Venice trades in slaves from the Black Sea coast to the muslims. Crusades are tangled in efforts by the Venitians to protect this trade route from European rivals and to bypass muslim middlemen to access asian goods.
The Disease of Trade
The black plague follows trade routes through Europe and the Middle East.
DaGama's Urge
Vasco DaGama rounded the southern tip of Africa in 1498. The Portuguese established scattered trading colonies through which they brutally dominated the spice trade in the 16th century. Gao, Ceylon, Malacca, and the Moluccas and eventually Macau and Japan.
A World Encompassed
Worldwide trade routes established. Portuguese gradually give way to the even more brutal Dutch in the Indian Ocean.
The Coming of Corporations
The Dutch East Indies Company established monopoly on the spice trade. The Dutch had the most advanced financial markets of the day and invented of many of the tools of modern finance. Cotton, sugar, and tea rise as trade commodities as spices wane in profitability. The English are forced to favor free trade in order to compete.
Transplants
Boston tea party compared to an anti-globalization rally. England slowly turns toward peaceful free trade, to its advantage over the Dutch. Coffee. Cotton, fashion and the birth of mass marketing and consumer culture. Tea and sugar. Cane growing in the Carribean. The slave trade.
The Triumph and Tragedy of Free Trade
Breaking of the British East India Companies monopoly on the China trade. Canton, Macau, and Hong Kong. Cotton trade. Opium trade and wars with China. Henry Martyn, Adam Smith and David Ricardo. Comparative advantage. Corn laws - english landed aristocrats lobbied for tariffs on imported grain to their own advantage causing periodic hunger. The corn laws were repealed in 1846 after a long campaign led by Richard Cobden.
What Henry Bessemer Wrought
19th century. Copper mining and smelting in Jerome, AZ in 1882. American civil war free-trade south vs. protectionist north. Abe Lincoln's tariff. Invention of cheap steel. The displacement of sail powered shipping by steam over the 1800's. Rise of rail transport. Erie canal. Ice trade, leading to refridgerated shipping.

More...

The book's web page on the author's web site.
Buy on amazon.
Reviewed in the NY Times article Silk, Spices, Gold and Destiny: Global History Is Part of the Bargain.
Bernstein twice was a guest on EconTalk, a podcast by George Mason University Professor of Economics Russ Roberts - Bernstein on the History of Trade and Bernstein on Inequality.

Malian drug runners

2009-12-19T10:19:00.000-08:00

Does the normal criminal justice system work for terrorism defendants? A case in the Manhattan US District court might be a good test. Three Malians, according to the NY Times, are accused of conspiracy to commit drug trafficking and support terrorism. Oumar Issa, Harouna Toure' and Idriss Abelrahman arranged to transport columbian cocaine through west Africa to spain and claimed to be tightly connected with the local Al Qaeda.

Moral Foundations

2009-12-18T22:57:00.000-08:00

Watch Jonathan Haidt's TED talk on moral roots of liberals and conservatives. He claims that there are 5 innate moral values and liberals and conservatives (on social issues) differ in their appreciation for them.

Harm/care, related to our long evolution as mammals with attachment systems and an ability to feel (and dislike) the pain of others. This foundation underlies virtues of kindness, gentleness, and nurturance.

Fairness/reciprocity, related to the evolutionary process of reciprocal altruism. This foundation generates ideas of justice, rights, and autonomy.

Ingroup/loyalty, related to our long history as tribal creatures able to form shifting coalitions. This foundation underlies virtues of patriotism and self-sacrifice for the group. It is active anytime people feel that it's "one for all, and all for one."

Authority/respect, shaped by our long primate history of hierarchical social interactions. This foundation underlies virtues of leadership and followership, including deference to legitimate authority and respect for traditions.

Purity/sanctity, shaped by the psychology of disgust and contamination. This foundation underlies religious notions of striving to live in an elevated, less carnal, more noble way. It underlies the widespread idea that the body is a temple which can be desecrated by immoral activities and contaminants (an idea not unique to religious traditions).

Get ready for a weak-dollar world

2009-12-09T21:51:00.000-08:00

We must get ready for a weak-dollar world
By Jeffrey Garten
Published: November 29 2009, The Financial Times

The two most significant structural consequences of the recent financial debacle are the massive deficits and debts of the US and the shift of economic power from west to east. There is only one effective way for governments to address the combined impact of both: press for a sea change in currency relationships, especially a permanently and greatly weakened dollar.

The Coming Collapse of the Middle Class

2009-12-08T22:13:00.000-08:00

The video lecture The Coming Collapse of the Middle Class: Higher Risks, Lower Rewards, and a Shrinking Safety Net by Elizabeth Warren (wikipedia) came to me by way of The Big Picture.

First Aired: 6/11/2007, 57 minutes

Distinguished law scholar Elizabeth Warren teaches contract law, bankruptcy, and commercial law at Harvard Law School. She is an outspoken critic of America's credit economy, which she has linked to the continuing rise in bankruptcy among the middle-class.

The huge economic shift that brought the median family in America from being a 1 income household in 1970 to a 2 income household in 2005, a single generation. Income for fully employed males has been flat to slightly negative over this period. Savings went from 11% of disposable income to nothing. Revolving debt as a percentage of annual income went from 1.4% to 15%.

Surprisingly, typical 2-kid family spending has dropped on several staple items. Clothes have gone down by 32%. Food has dropped by 18%. Appliances down 52%. Per-car cost has dropped 24% because people keep cars longer and spend less on repairs. Imports are cheap. Retail works on thin margins.

But spending on mortgages has popped up by 76%. This is magnified for houses in decent school districts. Health insurance is up 74%. Most people have 2 cars. Childcare is a new expense not present in 1970. The tax rate has gone up by about 25% for this family.

The income of this typical family has gone from 32k to 73k, but after the big-ticket fixed expenses, the two-income family has less money than their one-income parents. The two-income family is much more precarious because they have less slack (no spare worker), income is more volatile, health care expenses have gone up.

While volatility has increased, the safety net has eroded. Risk on healthcare has increased, we've shifted from defined benefit retirement to defined contribution. The educational bar is higher and college is paid for by the family rather than government. (As is preschool.)

Families with children filed for bankrupcy at a rate of 15 per thousand in the early 2000's often due to illness, job loss, or divorce. People hide bankrupcy. We're moving from a three class society to a two class society. The solid american middle class drives our economy and gives us a stable democracy. She paints a picture a weakened insecure middle class, where, if you don't get sick, divorced, or fired you do OK, but any of those events will push you over the edge of a cliff into the underclass.

Healthcare pragmatics

2009-11-01T23:44:00.000-08:00

The debate on healthcare reform is practically over and the important points haven't even broken the surface of the public debate. Have we dumbed ourselves down to the point where we can no longer publicly talk through an issue? So it seems. Well, here's an attempt to state the obvious, which will put me ahead of most news media and way ahead of both political parties.

Healthcare costs money. Someone has to pay. Different schemes distribute the cost and benefits slightly differently at the margin. But, under any plan from government run single-payer to pure pay-as-you-go, roughly the same people are going to pay. For all the ideological histrionics, you and I, middle-class america, are going to pay no matter what. We'll get middle-class healthcare for ourselves and subsidize healthcare for the poor. This arrangement won't change much whatever reform happens or doesn't happen. The amount of subsidy coming from the executive class healthcare of the rich varies a bit from one scheme to another. Different segments of the poor or working poor are better off under some plans. But, for the most part the poor have no money and the rich have accountants and lawyers, so the middle class has to pay.
Healthcare is a public good. For several reasons, I have an interest in your health. For example, if you could refrain from coughing any H1N1 on my lunch, I'd appreciate it. I depend on my coworkers, local businesses, and my community. If those people are out sick, or worse yet, out in public spreading viruses, I suffer. So, am I willing to contribute to your healthcare? A rational person should say, "yes".
The benefit of insurance comes from pooling risk. Middle-men cost money. In the case of insurance, we accept the cost of the middle-men because they help us by redistributing risk. If we let insurance companies choose to insure only the healthy, we lose this benefit. Likewise, if we let people wait until they're sick to buy insurance. The employer-based insurance system is stable, despite making the work-force less efficient, because it effectively limits how much either side can game the system. Any system that replaces employer-based groups needs to have the same property. In the current setup, insurance also plays a redistributive role in monetary (rather than risk) terms. For example, if I have a baby, the cost of the birth is subsidized by the non-parents in my company. I subsidize the cost of insuring those with less healthy diets than mine. The young subsidize the old. Overall, it's reasonable for us, as the buyers of insurance, to ask how much this service is costing us and what kind of value we're getting.
People respond to incentives. Distorted incentives are all over healthcare. We're well on our way to making primary care medicine like teaching - a profession that you would do only for love because it pays so little. Already many rural areas have shortages of primary care. Also, if you threaten doctors with law suits, you get expensive (uncomfortable, potentially risky) tests. It's called CYA medicine. And, of course, those spending someone else's money tend to spend too much.
We're all going to die. Saudi princes with personal physicians, plebeian patients of HMOs, and tin-shack squatters with nothing all share the same fate, in the blink of an eye that is our short lives. Medicine has awesome powers and will gain much more awesome powers in the coming decades. But, the final outcome is not going to change any time soon.
Healthcare is not a right. Human rights, in general, mean you have the right to do for yourself unmolested by others. You do not have the right to force others to do for you. Your right to life means that nobody has the right to kill you. It does not mean you have the right to force doctors, nurses and drug companies to take care of you. Healthcare is a limited resource and it should be treated that way.
The current American system is very inefficient. Countries pay for healthcare in different ways. All countries struggle with healthcare, but several countries get better outcomes for a lot less than we spend. ...think we could learn something?

A Scotch Drinker on Debt

2009-11-01T14:45:00.000-08:00

When historians look back on the current time period, they will notice many things but I think the main thing they will find interesting and worthy of study is our penchant for debt.

Niall Ferguson: U.S. Empire in Decline, on Collision Course with China

2009-10-25T14:51:00.000-07:00

The U.S. is an empire in decline, according to Niall Ferguson, Harvard professor and author of The Ascent of Money. The loss of empire is not such a bad deal for the average citizen of the empire building country... except for the wars the come along with geopolitical transitions.

Father of the Green Revolution kicks the bucket

2009-09-13T16:00:00.000-07:00

“If the world population continues to increase at the same rate, we will destroy the species.”

Norman Borlaug won the Nobel Peace Prize in 1970. In the 1950's, he crossed varieties of wheat including those resistant to the rust fungus and higher-yielding semidwarf strains multiplying wheat output sixfold in Mexico. Similar ideas were applied to rice with similar results, together averting a Malthusian disaster.

Critics say the green revolution displaced smaller farmers, encouraged overreliance on chemicals and paved the way for greater corporate control of agriculture, [calling it ecologically destructive and unsustainable.] Dr. Borlaug declared that such arguments often came from “elitists” who were rich enough not to worry about where their next meal was coming from. But over time, he acknowledged the validity of some environmental concerns, and embraced more judicious use of fertilizers and pesticides. He was frustrated throughout his life that governments did not do more to tackle what he called “the population monster” by lowering birth rates.

[from the NYTimes article] What a giant badass.

Keynes and Krugman

2009-09-07T09:40:00.000-07:00

Paul Krugman writes in the NY Times about the battle currently raging in the economics profession between the fresh-water devotees of the Chicago school and the more Keynesian salt-water economists, of which he is a partisan.

"But don’t recessions look like periods in which there just isn’t enough demand to employ everyone willing to work?" Well, I sure want to work and no one will hire me. I want to work as a hammock sleeper. I'm good at it. I've trained for years. Minimum wage would be fine, even though I've got a family to feed, but no one will hire me. It's a case of inadequate demand! The government should rectify this situation at once!!

A joke? OK, but I don't want a minivan. I don't know anyone who does. They're big and ugly and burn lots of expensive fuel. Yet, the car companies are busy crying for government bailouts. But, maybe the mistake isn't inadequate demand for ugly gas guzzlers. Maybe it's inadequate ability to make cars people want. I don't see how their argument is any different than my failure to find employment sleeping in a hammock.

Guided by this neo-Keynesian thinking, the government is pumping out billions in stimulus money. My fear is the most of it will go to politically connected boondoggles, bridges to nowhere, or well intentioned but fluff-headed projects. The problem was that we as a country spent too much by taking out too much credit. We're trying to wise up and spend less and save more. That's to be encouraged.

I should read Keynes, just to know whether his work is misquoted and abused as badly as Adam Smith's. My guess is that both sides of this neo-Keynesian vs. rational-market argument contain valuable insights. But the belief that either theory is the anywhere near the whole explanation seems woefully contradicted by the facts. And arguing one dogma vs. another is a sure way to miss whatever new insights this current mess can show us.

To justify spending our way out of recession, Paul Krugman says (in the Aug. 27, 2009 NY Times) that a debt-to-GDP ratio of 70% is OK for the US. That means 1% of GDP goes to interest on the debt. He sites examples of Belgium and Italy which had debt-to-GDP ratios of 118 and 114 percent in the early 1990s. Japan's is upwards of 170%.

He says, "The United States can deal with its debts if politicians of both parties are, in the end, willing to show at least a bit of maturity." Feel safe with that assumption?

But, let's juxtapose that with the International Monetary Fund's report on Argentina's financial collapse (The IMF and Argentina, 1991-2001 By Shinji Takagi). (I don't really know if these ratios are computed the same way.)

[The] debt level of 50% of GDP was high for any country, but particularly for Argentina, given the likely overvaluation of the peso. With the sharp depreciation of the peso against the U.S. dollar, in the event, Argentina's external debt-to-GDP ratio rose to over 140% in 2002.

I don't mean to beat up on the Nobel prize winning Krugman. I like his essays and often agree with them. But the idea that more spending and more debt can possibly be the answer to a crisis brought on by too much spending and too much debt is a little hard to swallow. Maybe I'm just a grumpy old crank who thinks the world is going to hell in a hand-basket, but I'm worried that commenter, Chris Horton, might be right:

This country is toast... For my entire lifetime, the GOP have been despicable scum and the Dems worthless fools. The lights are going out all over America, we shall not see them again in our lifetime.

On a related note, Justin Fox's The Myth of the Rational Market sounds like a fun read. Krugman liked it. And EconTalk has an interview with the author.

Capitalism on the rocks

2009-09-06T21:00:00.000-07:00

People say that the recent financial crisis is a failure of the capitalism or even a failure of the free market. I don't agree. The real-estate bubble and the misunderstanding of the risk of derivatives, now those were market failures. The crash was a correction. People were selling snake oil. Those people went belly up. Seems to me, the market found the right answer, eventually.

Too bad, the government stepped in and bailed out the snake oil salesmen. Now they're back. Maybe they'll straighten up and fly right for a while. Maybe they'll just switch to selling another kind of snake oil. And we, the public, are a couple trillion deeper in hock.

Efficient Market Hypothesis

2009-09-03T10:02:00.000-07:00

The poor efficient markets hypothesis is taking a lot of flak these days. The EMH asserts that markets reflect all publicly available information. That's interpreted by some to mean that the market price is, in some sense, the right price for traded assets and, further still, that markets are rational. These days, that's looking pretty suspect, when the markets go and do something loopy like the dot-com boom, or as stark raving batshit as they've been the past couple of years.

In defense of the EMH, it's absolutely true, as long as your willing to define information to include false information, uncertain information, kooky beliefs, and outright bullshit (deliberate attempts to deceive) modulated through widely varying abilities to understand the information and act accordingly. Layer onto that the effects of the more sophisticated players trying to guess what effect the available information will have on the ill-informed and labile masses. Now you have the kind of recursive cluster-fuck that might very well produce the kind of irrational craziness that had 7-11 employees buying beachfront condos and venerable insurance companies torching themselves. The wonder is that markets are as stable as they are. "Markets can remain irrational longer than you can remain solvent."

Krugman says we're hosed

2009-08-31T22:56:00.000-07:00

...turning this country around is going to take years of siege warfare against deeply entrenched interests, defending a deeply dysfunctional political system.

Risk of Extended Malaise?

2009-08-05T10:11:00.001-07:00

Mark Dow of Pharo Management, a global macro hedge fund, says the dollar is falling due to change in denomination of financial assets in other currencies.

Joseph Stiglitz: Private sector put money in the wrong place - housing. Country needs health-care, education, infrastructure. We need to spend money well to make our economy more productive in the future.

Weakness in commercial real estate.
Huge deficits at the state level, leading to more job losses.
Many Americans at risk of having unemployment benefits expire.
Weakness in our major trading partners, and overall lack of final demand.

Sites a "lack of aggregate demand" - language of Keynes.

Peter Schiff:

In truth, because of the continued profligacy of the government and Federal Reserve, the imbalances that caused the current recession have actually worsened. [...]

We must remember that recessions inevitably follow periods of artificial growth. During these booms, malinvestments are made which ultimately must be liquidated during the ensuing busts. In short, mistakes made during booms are corrected during busts – and in the recent boom we made some real whoppers. We borrowed and spent too much money, bought goods we couldn’t afford, built houses we couldn’t carry, and developed a service sector economy completely dependent on consumer credit and rising asset prices. All the while, we allowed our industrial base to crumble and our infrastructure to decay.

In order to lay the foundation for real and lasting recovery, market forces must be allowed to repair the damage. However, current policy is counterproductive to this end. Trillions in stimulus dollars have kept the party going, but now what? How does deficit spending by the government address the problems that brought about the crash? It doesn’t; it just delays and worsens the hangover

China and the dollar's demise

2009-07-10T10:51:00.000-07:00

Charles Ortel managing director with Newport Value Partners, an independent research firm, is convinced lawmakers have already doomed the greenback. "In the actions of our politicians of both parties - Democrats and Republicans - all you see is fiscal irresponsibility."

The Chinese think over centuries...
...looking at politicians of both parties and all you see is fiscal irresponibility
How long can America afford to maintain its military assets in the Pacific?
The Chinese are snapping up raw materials, natural resources, timber, and energy assets

In the previous segment, he says that there are three americas: pure private sector, public sector, public companies that feed off the public trough. The last is the clientel of the Bush administration. The implication is that the Democrats sponsor the public sector.

Attempted revolution in Iran

2009-06-24T11:19:00.001-07:00

It's been grim watching the rigged election and subsequent riots and repression in Iran over the past weeks. Videos put out over the internet show a young woman apparently killed in the rioting; police on motorbikes riding through the crowds swinging batons, soldiers firing into crowds from rooftops. The bravery of the protesters is impressive as is the cruelty of their pathological government. I've been disappointed that condemnation from our half of the world hasn't been louder. There needs to be some way of restraining and punishing governments run amok. There are too many examples. This one is right up there with Tiananmen Square in 1989 and Burma in 2007 to name a couple.

Debt to GDP ratios headed higher

2009-06-07T21:57:00.000-07:00

Country | Debt to GDP ratio
===========================
US      |  45%
UK      |  50%
Japan   | 171%
Germany |  39%
Canada  |  42%
China   |  20%
Brazil  |  36%

* Q4 2008

The big picture blog quotes Bill Gross of PIMCO's "Staying Rich in the New Normal". The US deficit of nearly $1.5 trillion is 10% of GDP. In 5 years, that get's us to a debt to GDP ratio of 100%. Add funding the baby-boomer's healthcare and retirement and your in the banana republic territory of 300%.

I dunno where they got the above numbers. Google says the national debt is 11 trillion while GDP is 14 trillion, which gives 78%. Looks like we're right about at the point of no return. Doh!

The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years.

Healthcare results compared

2009-06-07T21:55:00.000-07:00

“According to the Economist the total US spend on healthcare is 15.4% of GDP including both state and private . With that it gets 2.6 doctors per 1,000 people, 3.3 hospital beds and its people live to an average age of 78.2.
“As a whole Europe spends 9.6% of GDP on healthcare, has 3.9 doctors per 1,000 people, 6.6 hospital beds and live until they are 81.15 years old.

Roubini says the dollar's hosed

2009-05-15T11:59:00.000-07:00

THE 19th century was dominated by the British Empire, the 20th century by the United States. We may now be entering the Asian century, dominated by a rising China and its currency. While the dollar’s status as the major reserve currency will not vanish overnight, we can no longer take it for granted. ... This decline of the dollar might take more than a decade, but it could happen even sooner if we do not get our financial house in order.

Digital rights management sucks

2008-12-19T11:32:00.000-08:00

Cartoon by Rayma, originally in reference to Venezuelan politics.

The free market works when participants in the market are rewarded in proportion to the amount of good they contribute. With DRM this proposition is reversed. Society gains less benefit from a protected work, but the owner of the work gets more reward. (Or so they hope.) On top of that, copy protection mechanisms invariably provide a less useful product even to the paying customers. This helps explains why DRM is so universally reviled.

The crux of the problem is that traditional economics states that the price of goods in a competitive free market should approach the marginal cost to produce them. This works nicely for manufactured goods like cars, where the cost of capital, like factory equipment, can be amortized over large numbers of the manufactured product. For digital goods, the marginal cost approaches zero and the traditional economic model stops working.

Consider, also, the difference between rival and nonrival goods. To understand rival goods, imagine you want to build a house on a piece of empty land. Someone else wants to turn that land into a farm. Only one of those two uses can be accommodated. Either you or the farmer will have to outbid each the other for the use of the land. The theory goes that this competition will tend toward the most efficient use of scarce resources. But nonrival goods, for example information, can be put to an unlimited number of uses. Copying information is usually very easy compared to the effort of deriving the information in the first place, whether we're talking about a scientific theory or a piece of music. This creates a situation in which the most benefit is had by copying the information as widely as possible, yet it's very hard for the original creator to capture much of the wealth he has created. This is a very real dilemma, but the solution favored by intellectual property rights advocates - that of creating scarcity where no natural scarcity exists - sacrifices some fraction of the utility that would otherwise be gained in order to increase the portion that property holders can capture.

The publishing industry has set itself up as a middleman between the real content providers and consumers. They seek to use legislation to preserve this privileged position. A truly free-market approach would be to allow the middlemen to be made obsolete. This is what will happen eventually, the efforts of our toadying crony capitalist government notwithstanding.

We need to find market mechanisms that more closely align reward with contribution for the real content providers, the creative people. This is a tricky problem with no obvious solutions. For now, we'll have to put up with a lot of stupidity because so few people even clearly understand the problem.

This guy is my new hero

2008-12-18T22:16:00.000-08:00

Shoe thrower Muntadar al-Zaidi.

Time to buy that first house?

2008-12-06T21:06:00.000-08:00

The NYT has a peice out called Maybe It’s Time to Buy That First House. The author tries to shade the article towards encouraging people to buy. He links to a report from the Center for Economic and Policy Research that basically says, don't look for gains in home equity any time soon. All the talk about bailing out over-indebted home "owners" pisses me off. I'm glad somebody is saying this: "If you’re hoping for a recovery in the housing market, you ought to be cheering on the first-time home buyers."

Play-by-play of the collapse of capitalism

2008-11-18T23:21:00.000-08:00

During the last for months of financial disaster, I've gotten totally hooked on Yahoo's Tech Ticker. The financial news these days reminds me of when I was a kid and I used to take old TVs and radios apart. Except, it's the global financial system that has its pieces strewn all over the floor. Ripping something apart is a great way to start figuring out how it works.

Reregulation of the financial sector?

2008-11-18T22:41:00.000-08:00

Bloomberg has a peice out called, Rubin Failure on Swaps Dims Odds Obama Will Rein In Wall Street that speculates about incoming President Obama's possible response to the ongoing financial crisis. Obama's association with Clinton administration veterans and deregulation advocates like Larry Summers and Robert Rubin along with large donations from the financial section may signal a less sweeping reform of financial regulation than is justified by the situation.

As the president-elect faces a once-in-a-century opportunity to remake the regulatory apparatus governing Wall Street, some of Obama’s fellow Democrats and investor groups are urging him to bring sweeping changes to banks, hedge funds and executive pay. His closest economic advisers, men like Robert Rubin, Lawrence Summers and Paul Volcker, may recommend otherwise: go slow. If Obama takes their counsel, the 44th president, who succeeds Bush on Jan. 20, may not clamp down all that hard on a financial industry whose excesses have pushed the nation -- and much of the world -- into a recession.

A lot of the blame for the financial crisis lies with deregulation that started under Reagan and continued unabated through the Clinton and Bush years. Glass-Steagall Act was repealed by Gramm-Leach-Bliley under Clinton. Let's hope that one of the results of this crisis is a more secure firewall between risky financial experiments and the day-to-day banking that the whole economy depends on.

This blog SUCKS!

2008-11-18T22:33:00.001-08:00

I have a blog called "Political Economy" and I let the most historic election in my lifetime and the collapse of Western capitalism go by without a comment? I've been busy?? All I can say is, "Sorry, but this blog sucks."

History of Trade and a Marxist Historian

2008-05-05T23:57:00.000-07:00

&ldquo:William Bernstein talks with EconTalk host Russ Roberts about the history of trade. Drawing on the insights from his recent book, A Splendid Exchange: How Trade Shaped the World, Bernstein talks about the magic of spices, how trade in sugar explain why Jews ended up in Manhattan, the real political economy of the Boston Tea Party and the demise of the Corn Laws in England. The discussion closes with the political economy of trade today and the interaction between trade and income inequality.”

The Post-Imperial Historian: Eric Hobsbawm

Big daddy Noam

2008-05-03T22:00:00.000-07:00

“All over the place, from the popular culture to the propaganda system, there is constant pressure to make people feel that they are helpless, that the only role they can have is to ratify decisions and to consume.” -Noam Chomsky

Bad Samaritans by Ha-joon Chang

Decline of Dollar, Decline of Empire

2008-04-25T15:07:00.000-07:00

Here's a summary of some videos on YouTube of "Decline of Dollar, Decline of Empire" a discussion at York University in Toronto (on January 18, 2008) about the subprime crisis and the decline of the dollar from a Marxist perspective. (see Law of value and capital accumulation)

The 600 billion in losses due to sub-prime crisis (as of that time) damaged the dollar's status as the primary reserve currency and further weakened the "Washington Consensus", which, in some views, is a polite name for American hegemony. (see Democracy and The Washington Consensus - J. Williamson)

Several developments give the current crisis the potential to threaten American imperialism. Credit markets have become complex and opaque. US capital is no longer willing to pay for an empire - federal revenue as a proportion of GDP has declined sharply with Reagan and has continued to decline. The dollar's status as the global reserver currency is in decline.

Dollar convertibility to gold ended in 1971. The Dollar's reserve status has been sustained by demand for US assets. This gave the US state the right of global seigniorage - the ability to print money accepted worldwide. This right is eroding. International reserves are moving away from the dollar. In 1999 the Euro was introduced. A regime of more than one center of world money is taking shape.

During the same periode, the working class in the US and europe maintained its standard of living not by wage increases but by credit - a process whose end may be signaled by the crisis.

(see also Ron Paul's End of Dollar Hegemony)

http://www.listal.com/video/3552015

A gas tax holiday is a terrible idea

2008-04-25T14:58:00.001-07:00

McCain used to have a respectable record of fiscal conservatism. That's why I'm disappointed in his recent "Gas Tax Holiday" proposal.

A gas tax holiday is a terrible idea. America needs to consume less oil and, as any student of the free market knows, the price signal is the means that will make this happen. The economic externalities involved in petroleum consumption, if anything, justify higher gas taxes. Expensive gas reduces the effective demand for oil and stimulates growth in badly needed alternative energy sources. Revenue from gas taxes could help reduce the federal budget deficit, which congress has so miserably failed to control.

We might also question the assumption that cutting the gas tax would really yield lower prices. Reducing a tax on a transaction benefits both parties in the transaction, but supply and demand determine how much benefit goes to which party. I'll leave it to smarter people than me to analyze the elasticity in demand of gas versus the ability to produce greater supply. But I will point out that the prospect of new refineries and oilfields being opened up to accommodate one summer's worth of gas-guzzling RVs seems unlikely.

The age of oil is coming to a close. If America wants to be a leader in the coming century, we will need to be a leader in alternative energy. Going deeper into debt to help people cling to a dying technology is a lose-lose proposal. The McCain campaign is capable of better.

Weingast on Violence, Power and a Theory of Nearly Everything

2008-04-21T22:08:00.000-07:00

“Economists assume away the problem of violence.”

Barry Weingast was a guest on EconTalk in August of 2007. He describes a categorization of societies based on the means of dealing with violence.

Primitive order: hunter-gatherer societies of 20-100 people
Limited access order: System of privileges in which distribution of rents reflects distribution of power (access to violence). Monarchies and most developing countries fall into this category. Per capita income ranges between $400 and $8000.
Open access orders: modern free-market democracies. Per capita income above $20k. Open access to organizations of all types - political, economic, social, religious. Equality before the law.

If you wanted to criticize, you might point out that they've taken hunter-gatherer at one extreme and western democracies at the other and lumped everything else into the limited access category. But, I'm not sure the categories are the point. Too often economics ignores the social and political context. All other things are seldom equal.

Pragmatic Political Economy

Stop SOPA

How big a problem is this?

A couple definitions

Which is worse, the problem or the solution?

The real problem

More on The Origins of Polical Order

The Origins of Political Order

Reviews and commentary

Interviews, audio and video

Other links

The Slacker Economy

Who rules America?

Making the patent system even worse

More links

The Deficit Is Worse Than We Think

The PROTECT IP Act

The real question

Humans are a tribal animal

The bubbles of the elite

Why the West Rules--for Now

Bruce Sterling: Network Society Isn’t Compatible With Democracy

Why the Dollar's Reign Is Near an End

Shaping the cognitive map of the political-economy

Current intellectual property laws are blocking innovation

Playbook for a Revolution

An Assassination’s Long Shadow

The Rise of the New Global Elite

More...

WikiLeaks is free speech

Will India's growth outpace China's?

Bill Clinton on the Tea Party

Beware of Greeks Bearing Bonds

Let the Bush tax cuts expire

Related stuff

Paul Romer's Charter Cities

The rats always find a way in

I've got a fat finger for ya, Wall Street

Book review: The Tipping Point

Gene patents are lame

Lessig: Coding Against Corruption

Consumerism Kills

The Future of Money

Joseph Stiglitz

Links

Steward Brand: City Planet

Book Review: Shadow Cities, A Billion Squatters, a New Urban World

Links

Market failure vs government failure

Great Powers: America and the World After Bush

Barnett's systems diagnostic view of the world

Questions

Notes:

A Splendid Exchange - How Trade Shaped the World

Chapters & notes

More...

Malian drug runners

Moral Foundations

Get ready for a weak-dollar world

The Coming Collapse of the Middle Class

Healthcare pragmatics

A Scotch Drinker on Debt

Niall Ferguson: U.S. Empire in Decline, on Collision Course with China

Father of the Green Revolution kicks the bucket

Keynes and Krugman

Capitalism on the rocks

Efficient Market Hypothesis

Krugman says we're hosed

Risk of Extended Malaise?

China and the dollar's demise

Attempted revolution in Iran

Debt to GDP ratios headed higher

Healthcare results compared

Roubini says the dollar's hosed

Digital rights management sucks

This guy is my new hero

Time to buy that first house?

Play-by-play of the collapse of capitalism

Reregulation of the financial sector?

This blog SUCKS!