Boing Boing 

Picketty vs politics: where does the rate of profit come from?


Suresh Naidu analyzes Thomas Piketty's groundbreaking economics book Capital in the 21st Century (previously), disagreeing with one of Piketty's core assumptions: that the rate of profit is a given, not the product of things like trade union law, global treaties, and other political decisions. This is wonkier than last night's post about Piketty, but a lot more interesting, in my view.

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Piketty's methods: parsing wealth inequality data and its critique

I've been writing about Thomas Piketty's magisterial economics bestseller Capital in the Twenty First Century for some time now (previously), and have been taking a close interest in criticisms of his work, especially the Financial Times's critique of his methods and his long, detailed response. I freely admit that I lack the stats and economics background to make sense of this highly technical part of the debate, but I think that Wonkblog's analysis looks sound, as does the More or Less play-by-play (MP3).

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Privacy vs network effects


Respected cryptographer and security researcher Ross Anderson has a fascinating new paper, Privacy versus government surveillance: where network effects meet public choice [PDF], which explores the "privacy economics" of mass surveillance, pointing out the largely overlooked impact of "network effects" on the reality of who spies, who is spied upon, and under what circumstances.

My first big point is that all the three factors which lead to monopoly – network effects, low marginal costs and technical lock-in – are present and growing in the national-intelligence nexus itself. The Snowden papers show that neutrals like Sweden and India are heavily involved in information sharing with the NSA, even though they have tried for years to pretend otherwise. A non-aligned country such as India used to be happy to buy warplanes from Russia; nowadays it still does, but it shares intelligence with the NSA rather then the FSB. If you have a choice of joining a big spy network like America's or a small one like Russia's then it's like choosing whether to write software for the PC or the Mac back in the 1990s. It may be partly an ideological choice, but the economics can often be stronger than the ideology.

Second, modern warfare, like the software industry, has seen the bulk of its costs turn from variable costs into fixed costs. In medieval times, warfare was almost entirely a matter of manpower, and society was organised appropriately; as well as rent or produce, tenants owed their feudal lord forty days’ service in peacetime, and sixty days during a war. Barons held their land from the king in return for an oath of fealty, and a duty to provide a certain size of force on demand; priests and scholars paid a tax in lieu of service, so that a mercenary could be hired in their place. But advancing technology brought steady industrialisation. When the UK and the USA attacked Germany in 1944, we did not send millions of men to Europe, as in the first world war, but a combat force of a couple of hundred thousand troops – though with thousands of tanks and backed by larger numbers of men in support roles in tens of thousands of aircraft and ships. Nowadays the transition from labour to capital has gone still further: to kill a foreign leader, we could get a drone fire a missile that costs $30,000. But that's backed by colossal investment – the firms whose data are tapped by PRISM have a combined market capitalisation of over $1 trillion.

Third is the technical lock-in, which operates at a number of levels. First, there are lock-in effects in the underlying industries, where (for example) Cisco dominates the router market: those countries that have tried to build US-free information infrastructures (China) or even just government information infrastructures (Russia, Germany) find it’s expensive. China went to the trouble of sponsoring an indigenous vendor, Huawei, but it’s unclear how much separation that buys them because of the common code shared by router vendors: a vulnerability discovered in one firm’s products may affect another. Thus the UK government lets BT buy Huawei routers for all but its network’s most sensitive parts (the backbone and the lawful-intercept functions). Second, technical lock-in affects the equipment used by the intelligence agencies themselves, and is in fact promoted by the agencies via ETSI standards for functions such as lawful intercept.

Just as these three factors led to the IBM network dominating the mainframe age, the Intel/Microsoft network dominating the PC age, and Facebook dominating the social networking scene, so they push strongly towards global surveillance becoming a single connected ecosystem.

Privacy versus government surveillance: where network effects meet public choice (via Schneier)

(Image: Friendwheel, Steve Jurvetson, CC-BY)

London property bubble examined


Tim Harford, my favourite skeptical and eminently readable economist, asks the question: Is London experiencing a housing bubble? He is hesitant to be definitive on this, but makes a very good case for the idea that London housing prices are inflated and heading for a crash.

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Economics of apologies


Ben Ho is a behavioral economist who studies apologies. He presents an economic theory of apologies that predicts when apologies will change the outcome of disputes, and proposes policies to increase the frequency and sincerity of apologies. The best evidence for economics-driven apology policies are the laws that make doctors' apologies inadmissible in court; Ho cites research that claims that this leads to more physicians' apologies, which reduces patient grief and anger, and cuts down on malpractice suits.

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The business/markets case for limits to copyright


You'll remember Derek Khanna as the Republican House staffer who got fired for writing a paper that used careful objective research to argue for scaling back copyright. Now, Khanna is a volunteer fellow at R Street, where he's expanded on his early work with a paper called Guarding Against Abuse: Restoring Constitutional Copyright [PDF], which tackles the question of copyright terms from a market-economics approach, citing everyone from Hayek to Posner to the American Conservative Union.

There are lots of critiques of copyright term and scope from the left, but this is not a left-right issue. Khanna is a rigorous thinker, a clear writer, and someone who shows that whether you're coming at the question from a business/markets perspective or one of free speech and social benefit, limits on copyright make objective sense.

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Piketty, Capital, and the World Wars: does government policy make a difference in wealth concentration?


I'm halfway through Thomas Piketty's magisterial Capital in the Twenty First Century, a vital, incredibly influential, brilliantly researched history of wealth concentration stretching back through several centuries and spanning the globe. Even Piketty's critics can't fault his methodologies, though there are critiques of his conclusions -- which propose that unregulated capitalism will produce a hereditary class of the super-rich -- on both the right and the left.

Here's a sharp critique from the left, published in American Prospect by Robert Kuttner. Kuttner takes issue with Piketty's conclusion that government intervention between WWI and WWII and after WWII had no real effect on the distribution of wealth; according to Kuttner, the shocks to hereditary wealth from WWI created a series of policies intended to restore old money fortunes, triggering a global depression. By contrast, the post-WWII period saw a series of pro-labor interventions driven by a strong trade union movement, and an ensuing flattening out of wealth distribution and a degree of unprecedented social mobility.

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Having leisure time is now a marker for poverty, not riches


In Post-Industrious Society: Why Work Time will not Disappear for our Grandchildren, researchers from Oxford's Centre for Time Use Research argue that there has been a radical shift in the relationship between leisure, work and income. Where once leisure time was a mark of affluence, now it is a marker for poverty. The richer you are, the more likely you are to work long hours; while the poorer you are, the fewer hours you are likely to work every week.

The researchers theorise multiple causes for this. Poor people are more likely to be underemployed and unable to get the work-hours they want (and need) to support themselves. Rich people are likely to work in jobs that disproportionately advance and reward workers who put in overtime, so a 10% increase in hours worked generates more than 10% in expected career-gains.

They also claim that rich workers are more likely to be satisfied with their jobs, but I'm skeptical of this -- I think that relative to unskilled workers doing at-will 0-hours temp work whose every move is constrained and scripted by their employers, this is probably true, but I don't think that the white-collar world is producing a lot of people who think that their work is meaningful and rewarding.

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Private equity, an infection that is eating the world


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.

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Big Data has big problems


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.

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Podcast: Collective Action - the Magnificent Seven anti-troll business-model


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.

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Worker co-ops: business without bosses


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.

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Game developers as brutalized industrial attention-farmers: a look back from tomorrow


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."

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Free science fictional graphic novel about the student debt conspiracy


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,"

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How a coffee-order chatbot turned into a bank


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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Gweek podcast 136: Zombie Jughead

In each episode of Gweek, I invite a guest or two to join me in a discussion about recommended media, apps, and gadgets. This time my guests were:

Michael Goodwin, a freelance writer and the author of the comic book Economix: How the Economy Works (and Doesn’t Work) in Words and Pictures. Like many freelance writers, he lives in New York City with cats.

New York Times best-selling novelist Scott Sigler, author of Ancestor, Nocturnal, and the Infected Trilogy (consisting of the books Infected, Contagious and Pandemic).

This episode of Gweek is brought to you by:

99designs, the world’s largest online marketplace for graphic design. Visit 99designs.com/gweek and get a $99 Power Pack of services for free.

Squarespace, the all-in-one platform that makes it fast and easy to create you own professional website or online portfolio. For a free trial and 10% off go to Squarespace.com and use the offer code UNIZILLA

GET GWEEK: RSS | On iTunes | Download episode | Stitcher

Show Notes:

Michael's pick:

Health Care Reform: What It Is, Why It's Necessary, How It Works, a comic book by Jonathan Gruber and Nathan Schreiber
Scott's pick

The First Law, Joe Abercrombie

Mark's pick:

Sugru Magnet Kit

And much more!

Cold Equations and Moral Hazard: science fiction considered harmful to the future

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?"

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Comic book explains why the Transpacific Partnership serves no one but the ultra-rich

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."

Kim Stanley Robinson on science fiction and California: "California is a terraformed space"

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."

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Announcing "In Real Life": graphic novel about gold farming, kids and games


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.

Kotaku conducted a Q&A with Jen and me about the book and its themes, and lavishly illustrated it with art and panels from the book:

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Bitcloud: Bitcoin-like "distributed autonomous corporations" that replace Youtube, Facebook, etc


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.

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What's the most profitable price for an ebook?



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).

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The Undercover Economist Strikes Back, now in the USA

Back in September, I reviewed Tim Harford's new book The Undercover Economist Strikes Back, a great popular economics book on the perils and promise of the modern world. The book's just been published in a US edition, so I thought I'd revisit that review:

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.

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Capitalism, casinos and free choice


Tim "Undercover Economist" Harford's column "Casinos’ worrying knack for consumer manipulation," takes a skeptical look at business and markets -- specifically their reputation for offering a fair trade between buyers and sellers. Inspired by Natasha Dow Schüll's book Addiction by Design: Machine Gambling in Las Vegas, a 2012 book on the calculated means by which gamblers are inveigled to part with more money than they consciously intend to, Harford asks a fundamental question about capitalism: are markets built on fair exchanges, or on trickery?

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Thatcher's slow-motion housing timebomb


James Meek's essay "Where will we live?" is a detailed, passionate history of the housing timebomb that is detonating in England today. Thatcher set the time in the 1980s, when she sold off public housing to tenants and forbade local governments from building more with the proceeds, and subsequent governments have done everything they can to fuel and intensify housing speculation and bubbles. And now single moms, disabled people, and elderly people are being evicted, families can't afford housing on anything less than a banker's salary, and pensioners are being doomed to decades of poverty by low interest rates that can't be raised, lest they burst the property speculation bubble.

Housing in the UK is a microcosm for everything wrong with neoliberalism: corruption, cronyism, grinding human misery, and funny accounting to prove that it's all working, honestly.

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English mega-landlord evicts all welfare tenants, will no longer rent to them

Fergus Wilson, one of England's largest landlords, has announced that he will no longer rent to people receiving welfare benefits, and has served all of his benefits-receiving tenants with eviction notices. He says that the cuts to benefits in the UK have resulted in an unacceptably high level of rent arrears, so high in fact that rent guarantee insurers will no longer cover properties let to welfare tenants.

The problem of social housing tenants falling behind on rent will get much, much worse shortly, when the "universal credit" scheme is introduced -- a massive change in the way benefits are paid that has delayed by massive IT problems.

The hardest hit groups of tenants are elderly people and single mothers, as well as people who are too disabled to work.

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Strategies for the future: accuracy vs. resilience vs. denial

Seth Godin's daily thoughts are always provocative and thoughtful, but today's is a particularly timely and apt one for the new year. Godin describes three ways of coping with the future: Accuracy (correctly guessing what will happen); Resilience (admitting you can't make accurate predictions, so preparing to weather a variety of storms); and "Denial" (pretending nothing will change and getting clobbered as a result). I'm shooting for "Resilient" myself, but if I'm brutally honest, I have to admit that I have moments where I assume that I can be Accurate and where I'm too tired to do anything except Deny.

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Lessig's Walk Across New Hampshire: animation explains crusade against electoral corruption

Brian sez, "Lawrence Lessig, former EFF board member, chair of the Safra Center for Ethics at Harvard University, founder of the Center for Internet and Society, founding board member of Creative Commons, and former board member of the Free Software Foundation is taking on a new project -- walking across New Hampshire.

"The idea is to raise awareness of the massive amount of political corruption in the American democratic system, and make it the #1 issue in New Hampshire in time for the 2016 Presidential Primaries. This three-minute video (from the guy who did the Windows 8 and Data Caps animations) explains the project, called the New Hampshire Rebellion, in cartoon form."

Animated: How the New Hampshire Rebellion will make corruption the #1 issue of 2016 (Thanks, Brian)

Nailing the neoliberal end-game

"The possibility of success is used to call the majority of people failures." -Molly Crabapple, Filthy Lucre

America is in love with its libraries: Pew report


The Pew Internet and American Life Project released a new report today entitled How Americans Value Public Libraries in Their Communities (PDF), that shows a very large majority of Americans value libraries, viewing them as critical to their communities and vital to providing services that ensure equality of opportunity for people who would otherwise be at a terrible disadvantage in life.

This is in contrast to a few privileged blowhards who've opined that the library is an obsolete institution in the age of the Internet -- and worse, an unaffordable luxury in a time of austerity and recession. The mission of libraries is to help the public navigate information and become informed -- a mission that is more important than ever. As Eleanor Crumblehulme said, "Cutting libraries in a recession is like cutting hospitals in a plague."

Read on for the study's key findings.

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