In an amazing and terrifying essay called How to get beyond the parasite economy, Eric Garland describes how private equity infects industry after industry, sucking all productive capacity out of it through complex and fraudulent financial engineering, and abandoning the drained husk as it moves onto its next meal. Garland uses the case of Guitar Center as his example of this process in action, describing how Bain Capital bought and gutted Guitar Center, turning it into a financially complex, debt-riddled zombie that exists to float high-risk junk bonds to fill out the portfolios of the hyper-rich, without any connection to the real world of guitars, amplifiers and musicians.
Writing in the Financial Times, Tim Harford (The Undercover Economist Strikes Back, Adapt, etc) offers a nuanced, but ultimately damning critique of Big Data and its promises. Harford's point is that Big Data's premise is that sampling bias can be overcome by simply sampling everything, but the actual data-sets that make up Big Data are anything but comprehensive, and are even more prone to the statistical errors that haunt regular analytic science.
What's more, much of Big Data is "theory free" -- the correlation is observable and repeatable, so it is assumed to be real, even if you don't know why it exists -- but theory-free conclusions are brittle: "If you have no idea what is behind a correlation, you have no idea what might cause that correlation to break down." Harford builds on recent critiques of Google Flu (the poster child for Big Data) and goes further. This is your must-read for today.
Here's a reading (MP3) of a my November, 2013 Locus column, Collective Action, in which I propose an Internet-enabled "Magnificent Seven" business model for foiling corruption, especially copyright- and patent-trolling. In this model, victims of extortionists find each other on the Internet and pledge to divert a year's worth of "license fees" to a collective defense fund that will be used to invalidate a patent or prove that a controversial copyright has lapsed. The name comes from the classic film The Magnificent Seven (based, in turn, on Akira Kurosawa's Seven Samurai) in which villagers decide one year to take the money they'd normally give to the bandits, and turn it over to mercenaries who kill the bandits.
Worker-owned co-ops are a mainstay of crappy economies, and are thriving around the world. Worker-owned co-ops have better productivity than regular businesses, pay higher wages, and offer better benefits packages. As Shaila Dewan points out in the NYT, they're also easier to accomplish than hikes in the minimum wage or fairer tax-codes. On the other hand, this may be an argument against them, since they may diffuse energy that could make a bigger impact on ordinary workers' lives if it were devoted to systemic fixes.
Still, the worker-owned co-op movement is doing very well, and some co-ops are even using their profits to kickstart other co-ops around the world -- helping fund the worker buyout of a profitable Chicago window-factory that was suddenly closed by its investors because it wasn't profitable enough. The workers took in money from the Latinamerican Working World fund, bought the factory's equipment, and moved it themselves into a new facility. Now they're their own bosses, running a worker-owned window company called New Era Windows.
It's unimaginable heresy in today's world to suggest that doing things is as important as owning things, and that this entitles the people who do stuff to a say in the disposition of the businesses they make possible. But there was a time, not so long ago, when this was a mainstream idea.
Writing to us from the distant future, Ian "Cow Clicker" Bogost describes our modern games industry and the role it will play in the coming downfall of civilization: "Working long before sustenance powders, developers were easily seduced by appeals to their physical urges. Overseers plied them with sugars and salts during the day and forced them to engorge on extravagant meals at night. Shifts extended for days at a time."
Christopher Kosek writes, "'The Default Trigger' is a 52 page, free (with a pay what you want version available) digital graphic novel about student loan debt, the shadowy figures lurking in the background who watch over our struggles and their insidious conspiracy to keep this cycle going. It's written and illustrated by me, Christopher Kosek. Plot (with spoilers): When a recent college grad, Joseph Doakes, defaults on over $100k in student loans,"
This great 2011 post by Roy Rapoport tells the story of how a software company created and incrementally improved a chat-bot that collected and organized the team's coffee orders -- and how the system grew, drip by drip, into a full-fledged bank. Rapoport presents it as a cautionary tale about feature creep -- but it's also a neat parable about how all currency arises from debt, which is the thesis of Debt: The First 5,000 Years, which is one of the most provocative books I've read in years.
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My latest Locus column is "Cold Equations and Moral Hazard", an essay about the way that our narratives about the future can pave the way for bad people to create, and benefit from, disasters. "If being in a lifeboat gives you the power to make everyone else shut the hell up and listen (or else), then wouldn’t it be awfully convenient if our ship were to go down?"
In 2012 I reviewed Economix, a terrific cartoon history of economics by Michael Goodwin and illustrated by Dan E. Burr. (After reading it, I bought a few copies of the book to give as gifts.)
Today, Michael emailed to let me know that he and Dan have posted an excellent and free 27-page online comic called The Transpacific Partnership and "Free Trade," which describes how the negotiated-in-secret treaty is a "global coup that's disabling our democracies and replacing them with multinationals and Wall Street," and is making the US "police state more extensive, more restrictive, and global."
In this interview with Boom Magazine, Kim Stanley Robinson discusses the relationship of California to the future. Robinson is a profound ecological thinker, and two of his books in particular, Pacific Edge (the best utopian/optimistic novel I've ever read) and 2312 (a dazzling work of environmentally conscious, wildly imaginative eco-futurism) are both important works for thinking about a way out of our current dire situation.
In this interview, Robinson's analysis is particularly cogent, making a microcosm out of California for the whole world, and making important points about the way that good technology is key to any answer to questions about humanity's future on and off Earth. Especially worth reading are his views on the relationship of science to capitalism:
"Capitalism’s effect on humanity is not at all what science’s effect is on humanity. If you say science is nothing but instrumentality and capitalism’s technical wing, then you’re saying we’re doomed. Those are the two most powerful social forces on the planet, and now it’s come to a situation of science versus capitalism. It’s a titanic battle. One is positive and the other negative. We need to do everything we can to create democratic, environmental, utopian science, because meanwhile there is this economic power structure that benefits the few, not very different from feudalism, while wrecking the biosphere. This is just a folk tale, of course, like a play with sock puppets, like Punch and Judy. But I think it describes the situation fairly well."
Yesterday, FirstSecond formally announced the publication of In Real Life, a graphic novel about gaming and gold farming for young adults based on my award-winning story Anda's Game, adapted by Jen Wang, creator of the amazing graphic novel Koko Be Good. Jen did an incredible job with the adaptation.
Some Bitcoin enthusiasts have announced a new project called Bitcloud. The idea is something like the old Mojo Nation P2P architecture, in which individual Internet users perform tasks for each other -- routing, storage, lookups, computation -- in exchange for very small payments.
The Bitcloud protocol uses Bitcoin-style accounting to allocate those microtransfers, along with Bitcoin-style proof-of-work (they call it "proof-of-bandwidth") and the authors suggest that the potential for profit by individual members will create enough capacity to replace a large number of centralized commercial services ("Youtube, Dropbox, Facebook, Spotify, ISPs") with "distributed autonomous corporations," that obviate the need for centralized control in order to supply anonymous, robust, free services to the public.
The idea is an interesting thought-experiment, at least. The idea of "agorics" -- using market forces to allocate resources on the Internet -- is an old one, and I remain skeptical that this produces optimal outcomes. That's because its proponents seem to treat market efficiency as axiomatic ("everyone knows markets work, and that's why we should make them the basis of network resource allocation") and their proposals are substantially weakened if you don't accept the efficient market hypothesis.
Rachel Willmer, who runs the excellent ebook price-comparison site Luzme, summarizes the price-preference data she's captured from her customers. By measuring the point at which readers are willing to buy ebooks (whose prices are variable) and the volumes generated at each price-point, her findings suggest the optimal price for ebooks in different territories. This is important work: because ebooks have almost no marginal cost (that is, all their costs are fixed through production, so each copy sold adds almost nothing to the publisher's cost), there's lots more flexibility pricing strategies. If you make more by pricing your book at $0.01 than you do at $10, the right thing to do is price it at a penny and rake it in -- a rational business wants to maximize its profits, not the amount that each customer spends (I wrote about this at length in 2010).
The Undercover Economist Strikes Back is a great macroeconomic companion to his 2005 debut, The Undercover Economist, an excellent and accessible book on microeconomics. Structured as a dialog between an economist (Harford) and a notional punter who has been put in charge of getting an imaginary economy going after a deep, long recession (ahem), Strikes Back is full of Harford's witty, clear and memorable explanations of complex and vital subjects.