Category Archives: Economics

Campaign finance laws and its limits

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Today, marked the second time the Supreme Court ruled against setting maximum campaign contributions. First, it was a limit on corporations, now it’s the limit an individual can contribute in a given year. The first ruling is called Citizens United and I was initially very against this ruling because I felt that it would give undo influence to corporations. However, based on the argument Lawrence Lessig provides in “Republic Lost” – that at what point does an arbitrary limit on spending make sense? For example, if I decide to spend a lot of money on ads for a specific candidate through multiple different channels. The problem isn’t that I, as an extremely wealthy person or organization, can spend as much as I want, it’s that there’s an inequality between what You, as a poor pleb, are able to spend. This creates an inequity in the free-ness of speech.

We know that the amount of money a person can raise heavily influences their success rate in the election. This isn’t a surprise as the candidate is able to run more ads and reach a broader audience than the candidate with less money. There’s nothing new to this. Furthermore, the current structure of our media makes it amenable to rich people that spend a lot of money. The limit of $123,000/year/candidate didn’t really impact how much money a wealthy individual actually spent on the elections. Based on this biased news source, the Koch brothers spent over $2 million in more than one state. So, the campaign limits didn’t really work as designed regardless of the limits set. The Supreme Court Ruling basically just aligned the law with reality and didn’t change a whole lot.

Campaign Finance reform is just a band aid over a much greater systemic problem. This is something that Lessig was trying to address in his book, other writers have tried to address through different books, and tech leaders through cruise ships off the coast of San Francisco.

However, I think that this Atlantic image really shows the problem:

The Atlantic: Top .01% income growth

We live in a highly unequal society and the finance rules for campaigns was an attempt to set arbitrary limits to control the influence of the wealthiest Americans. It wasn’t working. The Supreme Court admitted it. Now we need to figure out how to actually fix this extremely difficult problem – that some portions of the population refuse to see as a problem.

I don’t have a solution to this problem. Lessig proposes we use laws to encourage accepting public funds and the creation of that fund through taxes. This would eliminate the influence on donations – which directly or indirectly impact the vote from a person in Congress. Creating something that more effectively through the right incentives and behavior modification is a good start to address the inequality we have in our country.

I think that the growing inequality is hurting our country. When we were much more equal in terms of economic status, we were innovating, for real innovation, not applications. We were developing things to send people to the moon. The greater the separation the top percentages has from the bulk of the population the more risk adverse they’ve become. They aren’t helping push us towards bigger and better things. We need the equality to help drive innovation. That’s the root cause of the problem. Campaign Finance reform was attempting to address a symptom and not even well. Let’s figure out how to address the root cause.

Kickstarter, Oculus Rift, and internet rabble rousing

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The internet is mad that Facebook bought the VR company Oculus Rift. We shouldn’t be surprised that someone bought this company, it was going to have an IPO or be bought. There’s no doubt about that. The problem isn’t that it was bought, but the company that bought it.

Oculus Rift was a startup. Startups need money so they launched a Kickstarter Campaign and raised $2.4 million. Startup money typically comes from three groups of people in early stages (3Fs) – Family, Friends, and Fools. The Kickstarter campaign clearly is the fools. Not because they didn’t think the company would succeed, but that they thought they’d have a say in the end result. Kickstart has had other scams, such as the feminist blogger that was going to buy a bunch of games and show how awful they were (but didn’t). Kickstarter has always said that you are donating and has no control if you ever get anything out of it.

If a startup is successful with the money provided by the 3Fs (and this is a huge IF as this is typically called the Valley of Death in startup parlance), these companies try to get Venture Capital Funding. The VCs are the people that have a boatload of money and try to make even more by getting companies to “exit.” There are three options for “Exiting” a startup – IPO, Purchase by another company, or failure. VCs prefer your startup being purchased by another company – it has the least risk (you never can tell what your stock price will be – see Facebook’s IPO. To get this money you typically have to give up control of your company. This comes in two forms ownership and members on a board of directors. In some cases the VC will take less ownership for more members on the board. Apparently one of those people that owned a large portion of Oculus Rift was Mark Zuckerberg – he reportedly made $337 Million on the Facebook purchase of Oculus Rift. That means he owned roughly 1/6 or 16% of the company ($2 Billion sale and all). Supposedly 2 other VCs made roughly the same amount of money on the deal. Which means that the founder likely owned less than 50% of the company and could have been forced into the deal.

Effectively, the moment Mark Zuckerberg invested in Oculus Rift, the company was going to be sold to Facebook – as long as it was shown to be successful. What this means to me is that if you read or see Zuckerberg personally investing in something, expect Facebook to eventually buy it. Additionally, with Zuckerberg owning that large of a percentage of the company, there’s no way it could have been sold to any other company. It was IPO, Facebook, or bust.

With this broader context, I cannot be mad at either Luckey or the other leaders of Oculus Rift. They knew the game when they got into VC – even if you aren’t into making a lot of money when you start, your VC will push for a positive exit for themselves.

One of the angriest people about this whole thing was Notch, the Minecraft guy. He finds Facebook creepy and is upset that his $10,000 facilitated that sale. Even if he had gotten stock for his investment, he would have only had 0.42% ownership share over the company (assuming Luckey sold all his stocks through the Kickstarter which is unlikely). Unfortunately, it’s likely his stocks would have been diluted and the VCs would have controlled enough of the board and stock to force the sale to Facebook despite all the people that could have owned stock if the money had been raised through a Kickstarter alternative like Fundable.

When investing in a Kickstarter, you can’t get emotionally attached, you need to look at it as if you’re gambling. You might never get anything from it, but at least you helped someone else’s dream come a step closer to reality. I’m happy for the folks at Oculus Rift because they got lucky in a very unfair game. I don’t like Facebook either – but it was unlikely for any other outcome unfortunately.

Who’s responsible for the internet’s capacity?

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AT&T thinks that Netflix is trying to pass off the cost of network connections to end customers. There have been a few different displays of the architecture of the internet. Netflix operations at a different layer than AT&T does – Netflix is an application, so it runs on a layer above the network layer, which AT&T operates. Netflix doesn’t really care who actually sends their bits to the end user – they just care that they get there in a fashion that enables high def video. To this end, they purchase bandwidth from a company, mostly Cogent, and I pay Comcast (others pay AT&T) for me to receive those bits from the bandwidth provider of Netflix. I pay Netflix for access to their content.

Based on this payment model, if there’s not enough bandwidth for Netflix and I’m paying AT&T or another ISP for accessing Netflix, it’s up to them to make sure I have that connection. Content is King, so for me, it’s most important that I can access what I want when I want. That’s why I have an ISP so they can let me see what I want.

I think that the best analogy for content trumping gate keepers are the examples of higher premiums from popular channels. In some cases Timewarner cable pushed for lower rates to show a specific channel to their subscribers. In this example Forbes points out that ESPN costs $5.54 per viewer, they wanted to lower that price and pulled the channel out of rotation. This made a lot of people unhappy and in some cases people left Time warner over the issue.

Essentially, this is the same thing that is happening with Netflix. The ISPs don’t want to pay to upgrade their infrastructure to ensure that the consumers of media online (many of these people paying for higher download speeds and higher data caps). Netflix is providing a service that these people are willing to pay for but cannot control how the ISPs interact with their intermediaries so is in a tough spot. It’s a target because of it’s popularity and has no control of how anything gets to a specific user. That’s why it’s looking at the peer2peer model (which is how Skype keeps their rates low) so it won’t need to go through Cogent and will likely burden other parts of the network very differently.

I believe that if an ISP cannot meet it’s advertised speeds 90% of the time, then they need to update their infrastructure to meet my needs. If they throttle a popular service I’m watching and thus make it unwatchable, they need to upgrade their infrastructure. Most ISPs have an extremely high profit margin, which means that it’s coming out of their infrastructure investment and are not actually adding value.

There are many companies that are responsible for the capacity of the infrastructure and all of them can negatively impact our ability to use the internet. However, from an end user perspective, my ISP is on the hook first, then everyone else.

Philanthropy, Private industry, and science

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Apparently I’m not too happy with the NYT magazine and their exposés of late. First there was the long article about millenials and how they don’t want to work for the “old guard” which is ahistoric and ignores a great deal of the similarities between the silicon valley of today and the past silicon valleys and other similar environs.

Now they are rushing about in concern over private scientific research. Apparently, it’s a new big problem. It’s neither new nor a problem. First of all some historical context. Scientific labs as we know them today were truly founded through industrial labs. These labs were initially in the dye industry back in Germany in the late 1800s, sure there were university labs, but they weren’t researching as big of thing as the industrial labs started. These labs had problems that couldn’t be solved in academic settings. The universities were training grounds for scientists, but in many cases the scientists actually did their doctoral research at Bayer or a similar type dye company. These dye companies almost all became pharmaceutical companies over time because of the similarity in chemistries between dyes and pharmaceuticals.

This was in the 1800s and really hasn’t abated. I’ve written about Bell Labs and Xerox in the past which are essentially the Bayer equivalent for telecom, semiconductors, and computers.

Science has always been a combination of public, private, and universities. In fact, research that I conducted through my master’s degree has shown that the INTERACTION between private industries and universities produces the most important work (in terms of citations). Our concern should not be if science is going private or not. Our concern should be if they are sharing with the broader scientific community. That’s the biggest risk. It’s one of the biggest problems with industrial scientific research – it never reaches the light of day even if it becomes a product.

Why doesn’t it? Well, simply because it’s better protection for some processes for the technique not to be patented. In the case where something is relatively easy to copy (an iPhone) it’s best to patent because you’re protected them. In the case where it’s very difficult to copy (a nitride layer on an Intel chip) it’s best to hide that process as deep as possible. In fact, it’s best if any technique that would uncover the underlying process to make that nitride layer from reverse engineering destroys the product. For Intel, this is the best result, for the rest of the world, it’s suboptimal as Global Foundries and TSMC will struggle for years to reverse engineer the layer if they ever can. This slows the innovation process as a whole, but we’re willing to suffer this inefficiency because Intel makes some nice chips.

Beyond this debate, the author is upset that someone would want to push scientific research in one direction that might only help white people or rich people. Unfortunately, this is capitalism. We may not like it in basic research that is going to be used to cure diseases, but we tolerate it with Intel so we need to be realistic and tolerate it in this case. Furthermore, I think that the author doesn’t understand that adjacencies in research in diseases will arise and we’ll learn more about all humans, not just them white folks. Ironically, at this point the author calls out a researcher that is working with an Oracle billionaire – that researcher works at Rockefeller University.

What are seen now as seminal research institutions in many cases started out through the very philanthropy the author is upset about. Carnegie Mellon University was the combination of two institutions in Pittsburgh started by an industrialist and a banker. It is one of the most respected research organizations in the world. These men were driven by the same desire to push scientific research as Bill Gates and the other (mostly) men on the list.

Is this a perfect system? Not by a long shot, however in the current political environment scientists are going to take money from whatever source they can. It’s merely practicality. A professor will typically have anywhere between 1-10 grad students. These students at the PhD level will likely be fully funded by the professor. If that professor does not get funding, those kids don’t get to keep working and either have to find another adviser or quit. Here’s the kicker in the case that professor does get money – a large proportion of that funding is taken and allocated to less profitable portions of the organization. At University of Texas, this meant that the EE department was probably funding part of the Chemistry Department. Some departments are like the Football team, while others are like the Swimming team. The swimming team might be winners, but are in a small market.

If we truly wanted change in the way we fund scientific research we need to increase the amount of public investment across multiple institutions. We need to increase funding across multiple types of research fields, specifically focusing on the intersections between academic fields. Push for collaboration between industry and universities as well as collaboration across national boundaries. All of these improve the citation rate and quality of the research. We can even work to partner public funds with private funds – we just need full disclosure.

The problem isn’t privatization. We’ve had an oscillation between really publicly funded (1960-70’s with NASA) and really privately funded. In all cases science has marched on – we just need to make sure it keeps on marching.

Culture wars: the battle we didn’t know we’re losing for access to our culture

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Our culture is being held hostage

Humans are a collection of story tellers. When we hang out with our friends, new and old, we spend a great deal of time telling stories. These stories define who we are. In cases where we first meet we try to find common ground through current events, current cultural experiences, like the Olympics – TV shows, books, and movies. When you know nothing about another person, these are the only basis you have for building an understanding of what they stand for and who they are. To be honest, in many ways they are terrible indicators of what type of person they are, but they can help you identify if that person is someone with a similar world view to your own. Once you move past those conversations you move on to personal stories. The things that made you laugh and, conscious or not , enter into a game of one upmanship. Now most of the time you’re just trying to find a similar experience to relate to theirs, but it can be misconstrued.

In many cases the only context you’ll ever have with the person is through a shared experience, access to our communal culture. Regardless of our awareness or how willing to admit it we are, we have cultural gate keepers. To access any of our current culture we have to pay to access it. That’s fine, the people that produced it should definitely get paid for the work that they did. However, the people we’re paying are necessarily the people that produced the work. We’re paying for internet access at least twice (if you have home internet and a mobile data plan). In some cases that means you’re paying the same company twice for access to the same thing (verizon wireless and verizon FiOS).

Additionally, these companies have no incentive to provide better access to the content that you want o see. It’s actually in their best interest to make it more difficult and have worse service, so that the services that you want to access will pay them again for you to access the service that you are paying to access. Furthermore, these same companies think that if you use the internet a lot you should pay a higher rate!

This isn’t really anything new. I’ve been saying this for a few years. But what drives this is rent seeking behavior, investors that don’t really know what’s going on, and arrogance.

Shrinking Public Domain

The public domain is the area of our culture that no one owns any more. It’s been published for so long that it’s free to be consumed by everyone. Disney hates this. The main reason is that Mickey Mouse should be in the public domain, or would be based on the laws at the time of his creation. However, Disney is not above using the public domain to make a lot of money. Here’s a list of movies they’ve created based on public domain (over 50). FIFTY movies based on the public domain – it’s great for a corporation to exploit the public domain, but if you try to do something you’re going to get sued.

I’ve written about Lawrence Lessig a lot, he’s a bit of a hero of mine. He’s got a lot of integrity and really pushes for what he believes. He recently was sued (he’s a copyright lawyer) and forced a settlement with the company. He’s one of the few people that can do this, he has the knowledge, the money, and the desire to do this. In many other cases, it’s up to pro bono lawyers to fight these cases because the person in the wrong cannot fight. It’s literally David vs. Goliath. However, if David is provided the right resources most of the time Goliath goes down.

This is the case we’re dealing with in the propose Comcast Time Warner merger. Where the people most impacted have little voices. Companies are pushing to turn more of our activities into opportunities to make money. Gamers that stream on Twitch are going to be pushed to pay more, Twitch is going to be pushed to pay more for high quality access for uploads and downloads, and the people watching those streams are going to be forced to pay for quality streams. This is our culture. We are people that don’t want to be controlled by cable companies. We don’t want to be forced to deal with this. Our needs are not being met by the market.

Because we’re disparate, companies and incumbents are winning the culture war. Most people aren’t aware that we’re in a battle over affordable access to our culture. Memes, TV shows, Movies, and whatever retarded shit we watch on the internet is our culture. Making it inaccessible is a battle our gate keepers are winning. We need to figure out how to fight back. I plan on switching from Comcast when I move and never going back. I plan on switching to T-mobile and never going back to Verizon. It’s time to put our money where our mouth is. It’s going to be painful, but without our support those companies can’t oust the incumbents and cannot force change.

We need to force change with our wallets.