Tag Archives: politics

My thoughts so far on Piketty and corruption

Posted on by

There are a lot of people that are arguing over Thomas Piketty’s new book, Capital in the 21st Century. I’ve been reading it, i’m about a third of the way through the book. It’s pretty interesting in the way only dry economics can be. A lot of people are both tearing it apart and praising the content. He’s done something really novel and that’s to create an economic theory around the accumulation of wealth and the impact on the return on capital on growth and vice versa. This naturally is causing some concerns because the findings are disturbing people. Financial Times has found about a 12 errors that they feel invalidate the results, however, their graphs aren’t really all that different. I’m not convinced you’d reach different conclusions based on the data Piketty has accumulated.

I’m more interested in the results in relationship to behavior it drives in reinvestment in capital that can drive further growth. Based on what I’ve read so far, the fact that growth is less than the rate of return on capital means that capital will not invest in innovation, but rather in goods that they can easily receive rents from.

What does this mean? It means that those with capital will invest in lower risk or safer places for their money. This means that they will buy land and houses which acrrue value and provide a steady income of new capital to be reinvested elsewhere. If you’ve ever read the book Rich Dad, Poor Dad, that’s exactly what the author proposes doing. Once you have enough money to buy a house, you buy one pay enough down and improve it to get a profit, leverage favorable taxes so that you can sell it and upgrade to a duplex and have two familie paying rent. Repeats until you’re able to buy apartments and continually expanding the number of people paying you to have money.

This approach works, but doesn’t really do much of anything to actually help the economy grow, it helps increase wealth as it’s own goal. This is how Donald Trump got rich. It doesn’t help the economy grow because it doesn’t provide new jobs it relies on others to create new jobs. Furthermore, as the population naturally increases and the types of jobs change more people will move into the area and will continually to increase rents. Further increasing the wealth of a wealthy individual. Sure, the person might be a self made millionaire and possibly a business owner around their real estate empire, but that doesn’t truly mean that they are adding more value to the economy than they are extracting, which may prevent growth.

This creates a serious risk to the people that use both the Wall Street Journal and Financial Times, because these book papers help support the wealthy get wealthier. They have a vested interest in seeing Piketty’s theories be disproven and discarded before policy makers have a chance to leverage them. I believe that this book along with the Origin of Wealth can point out ways to manage risks to our economy. Piketty’s theories are a purely macro economic construct, while the Origin of Wealth is a Micro theory that expands up through maro theory. I believe that Piketty’s theories help illustrate the impact of micro and behavior economic theories. We have inequality and it is unlikely to get better, unless we take action to change our policies and fight corruption.

I believe that the root cause of our problems relate back to a type of political corruption in nearly all our political bodies. Wealth is able to use their wealth to shape policies that create more wealth, while the poor are unable to do so. I think this is something that everyone can get behind regardless of your political beliefs. A true libertarian political body can’t exist with corruption any more than a complete comunist political body. Fighting corruption requires more than mouse clicks it requires people to act. People to force their leaders to be accountable for their actions. Inequality and power imbalances come through short terme thinking, political regimes, and historical choices. We can’t do much about the past, but we can drive change in our politics through voting, donating, action,  and through informing people.

Comcast and regulation

Posted on by

I believe that the 300 GB data cap that Comcast is tossing around is tomorrow’s 640k predictions from Microsoft. In 5 years when they are claiming to plan to implement it, 300GB will be woefully small. As it stands many games are 50GB and likely will only grow. As will the size of our movies we stream and other services that will develop in the next five years.

Comcast’s arrogant attitude towards it’s customers can only be described economically in one way: market failure.  If we had a strong competitive telecom market, Comcast would not be able to dictate prices in this way. We know this is true because we can see prices AND speeds that are significantly better elsewhere in the world.

There are two other results of this market failure, pushing regulation that prevents competition and preventing regulation that would prevent a foreclosure of another market. I’ll start with the regulation preventing competition.

In my last blog I mentioned an idea call private public partnership. This is the concept of a municipality working with a private enterprise to spread the risk of implementing a local high speed network because one of the big players won’t. Comcast and other telecoms have pushed and been successful at making these partnerships illegal in a few states. This means a small rural community can’t develop their own fiber network if comcast doesn’t do it for them. It also means a big city like New York couldn’t either. This type of regulation only hurts competition and helps comcast control the market. In the US these partnerships have worked well. Provo Utah sold theirs to Google.

The other way that Comcast is using this market failure is to push the idea that net neutrality is regilation. It is a bit, because it prevents comcast from using a monopoly to foreclose another market. This is what Microsoft got in trouble for with Internet Explorer.  Leveraging the monopoly of Windows to push out other browsers. In the EU the ruling against MS really help other browsers immediately. Comcast will likely try a similar tactic with their Xfinity platform by never having it count against your data cap. Pushing people to their platform and squeezing out Netflix.

The play to get Netflix to pay them is a long term play, hurts Netflix now, but essentially will be funding further development of Xfinity.  Don’t forget, Xfinity will likely get Universal content earlier as they own that conent. This will give their platform a distinct advantage over Netflix. It’s pretty obvious to everyone that the future of in home entertainment is streaming content. Hence, Google looking to buy Twitch.

Comcast is using the anti – regulation faction to fight net neutrality while leveraging that same group’s anti- government sentiment to prevent novel forms of competition to exploit customers and move into new markets. This is a dangerous problem because they will keep doing this to push out other competitors.

Customers, Companies, and Power – imbalances drive inequities

Posted on by

I’ve been in the process of buying a house for the past month. It’s been a rocky process. Some of it has been on us, but a lot of it has been on the side of the lender. The first problem came when they basically started the process they day we were supposed to sign. This precipitated a series of events that as lead to the fact that it’s unlikely for us to actually fund the house on the last day we possibly could. Furthermore, they have been rather cavalier about the fact that we can just move closing dates without a problem. Essentially their poor processes have required us on multiple occassions to modify a private contract. We’ve been punished again and again because of their inability to meet their obligations. This strikes me as a serious inequity, especially since it’s not a big deal for them that we essentially lost out on a full month’s of rent from the seller. We have minimal to no recourse to address this loss.  On top of this, they still get paid. In my mind they’ve provided little to no value in this process and have in fact simply added a great deal of waste. They should no be paid and in fact should pay us the loss in rent we should have received from their inability to meet deadlines.

This sort of behavior is rampant in industries and companies that are essentially monopolies. Either their customers are fully locked in to a specific company because it is expensive or difficult to extract personal data or some other technical issue or the customers have no other option. In either case the company is able to act with a great deal of disregard for their customers. The goal of the business then becomes to extract maximum rents from their customers not to provide maximum value to the customer. This can create existential issues for a company that undergoes this transition, because many of the people that made that company great are pressured and have the quality of their employment decline without understanding why. Essentially these folks still try to do the right things and in many cases don’t agree with their corporate leadership. In many cases, such as with a Telecom, it’s likely they are exempt from the full rent seeking behavior of the company.

Thinking about these things have made me really frustrated the past few weeks. My job is to help my company deliver more value to the customer so seeing these actions is increasingly frustrating and counter productive to Lean principles. If companies aren’t adopting principles that improve value for end customers, then what can we do? Well, I think that in each of these cases the root cause comes from two totally different policy actions. First many of the issues we’re having are designed to protect customers so we enacted policies to that end. While the other problem, rent seeking behavior comes from the lack of policies to protect customers.

In each of these cases different government actions have lead to different actions for end customers. In actually these painful delays for our loan may for many other people, truly protect them. However, in our case, they aren’t. In the case of push deregulation on telecom the result has been monopolies and behavior designed to continually take more money from their customers. In each cases, these derive from two different philosophies around the value of government regulation. I think these situations highlight the nuances in this area.

In the end it’s important that we have real conversations about the underly reasons for different policy decisions. We need to understand that there are imbalances of power between customers and companies. In many cases those companies will exploit them to their best advantage. Unfortunately, these imbalances extend to the realms of politics as well. This of course is another area where we have issues and will continue to have issues. It is unclear how to address these imbalances, i’m not confident that we’re going to be able to do this in the next few years. If we cannot address these issues I believe they will continue to get worse as the economy remains flat in it’s growth.

Kickstarter to end Government Corruption

Posted on by

In my blog yesterday I talked about the value of culture, we know that it intrinsically has value because all participate in it – we just don’t want to pay for that culture. Serious problems. One of the biggest conflicts we have right now is within the internet users relates to content and other cultural icons. A lot of people want it to be easily accessible and other people want it tightly controlled. This of course has been playing out in our courts over the past decade or so.

One of the first people that’s influenced me in regard to culture and sharing and so on, has been Lawrence Lessig. He’s written a few really accessible books about copy right. However, he’s since moved on from fighting copyright extremism to fighting corruption in the US government. I wrote a review about his first book in this arena, he’s written two other since. He’s a big fan of how the internet works and truly believes in platforms like kickstarter (Which could help address some of my concerns from yesterday over keeping a vibrant market place of cultures).

To this end, he’s decided to create a super pac in the spirit of a Kickstarter campaign. He’s calling it MayOne in honor of “May Day” admitting that he’s using it as a call for help. A call to help fix the US government.

I think that this platform offers an interesting opportunity for all of those folks out there that hate our current political system. The initial campaign is to influence 5 congressional seats as well as push for 5 specific acts that will create real reform. Here’s a link to the reform bills they’d want to push form.

I’ve pledged money for this. Why? Because I think that we need to create change in the US government and I believe that Lessig’s plan has the best chance to work. He’s taking the long view and has a real plan for driving change. It’s not going to be an immediate fix it’s going to take several years for real change to happen. This is also a way to influence change with only a few dollars. The goal is to raise $1 million and Lessig will match that million. Their next goal is 5 million, which he will then also match setting up the war chest for 2016. His goal is to help get multiple reform candidates elected to effect change.

I think that this is a way forward and that most of the candidates that MayOne will support will also support things like Net Neutrality, Copyright reform, and similar topics that most of my readers are concerned with.

Lack of Net Neutrality will be a competitive liability in the future for the US

Posted on by

Net Neutrality could be dead in the US and I think that this creates problems for companies that do business in other parts of the world. Or rather, it creates incentives for companies based in the US to focus on non-US markets for conducting business. There are several reasons for this. Let’s take this from a Netflix perspective, assuming they were able to get the same catalog they currently have in the US and took it into Europe (this has been difficult for US companies while it’s been easier for EU companies to come into the US – see Pandora and Spotify as references). Let’s assume that can happen and they have they opportunity to continue to work in one region or the other.

The EU has recently enacted end-to-end Net Neutrality as the law of the land. So, Netflix traffic cannot be slowed down because of the volume. It cannot be slowed down because it is Netflix traffic, all traffic if it needs to be groomed happens at the same time (likely random or everything gets slowed down). Netflix cannot be charged by the ISP to ensure specific speed to guarantee quality of product, if Netflix wants to control this, it’s up to them (they could manage this through increased buffering before the video starts, for example). The average internet speed is significantly higher than in the US, so the quality will be higher and the need for buffering lower, because the speed can account for dropped packets much more effectively. This means if they charge 8 Euros a month, they are able to keep more of that.These conditions would also apply in Argentina.

In the US, Netflix traffic is now subject to the whims of the ISP. the ISP can slow down traffic based on the time of the day, based on the source of the traffic (using deep packet inspection). They can and have charged Netflix for equal access as, for example, Comcast Xfinity’s streaming service. The US has some of the lowest average internet speeds in the industrialized world. Netflix charges $8/month they have to pay Comcast to ensure that their service meets their end users requirements.

As a company that makes money based on the fact that they are able to deliver high quality content (where the price of said content is continually rising), I would prefer to operate in the EU rather than the US. I will have significantly less issues with the ISPs because they can’t discriminate my traffic and I won’t have to pay to make sure that they do not discriminate my traffic. This means that my quality will increase and my cost per user will not increase as it will in the US. I would begin focusing on providing local language content as well as the best content I can provide from the highest quality sources in the world.

As we start moving towards higher speed requirements in our applications, this will become a larger problem. I know of people online that have issue streaming up to Twitch and Mixify as well as streaming the content to their computer. This is a problem now. We will be moving into significantly higher quality video and games (PS4 streaming a game to your console, that will require a lot of bandwidth and low latency $$$$$). Furthermore, if we start having more tele-medicine we’ll need higher quality video feeds to ensure best results.

These are all examples of applications we know of that will suffer from a lack of net neutrality. As we get people that develop applications for gigabit connections, we’ll start to see net neutrality as paramount. These companies will not be able to afford the required costs for the internet speeds required for effective applications.

This means that the EU and other net neutral countries may become the source of innovation for these applications or companies that create them in the US will need to move to markets like the EU for a user base that can fully exploit their application.

We’ll effectively be playing on an Xbox 360, when high quality PCs are out there. We’ll be at a serious disadvantage.