Friday, February 28, 2003

Gilder: FCC's Suicidal Insouciance

 
Only a bold move to eliminate all regulations on telecom can now unleash the boom that will Save Us All From Ruin. While China, Korea and the Rest Of Em Over There charge ahead, US telecom firms now get to go "lobby" in fifty-some states to set prices and get permissions and prove their sincere wishes for "competitiveness".

Repeat After Me: Regulation Is Very Very Bad. Be Very Afraid.

JMW

==================

Let Them Eat Fiber

By George Gilder

To the annals of arrogant irresponsibility-along with "Let them eat cake," "Saw off California and float it out to sea," and "depends how you define sex"-can now be added a new shining example of suicidal insouciance. Perpetrator of the new "What me worry" madness is the Federal Communications Commission, which under the leadership of Michael Powell and his one-time protŽgŽ Kevin Martin, are inharmoniously fiddling away amid the smoldering cinders of the communications sector.

Although the ostensible explanations are hard to hear through the hiss of the Washington rumor mill, detectable themes include: "Give telecom to the states"É"Let them eat fiber"Éand "Saw off broadband and float it to Asia." Indeed, the largest effect of the fiddling is to surrender U.S. leadership in communications technology to beleaguered South Korea and to China, supposedly still a developing country.

After one trillion dollars in direct losses in market cap in just 17 companies together with some 1000 related bankruptcies that bring the total collapse to some $4.6 trillion dollars since the March 2000 peak, the Bush Administration still is torturing telecom like a cat playing with a wounded mouse. But this cat-and-mouse game is jeopardizing the future of the U.S. economy.

With Powell a favored Bush appointee and Kevin Martin a close associate of Vice President Dick Cheney, Bush can no longer blame the technology collapse on the admitted regulatory excesses of the Clinton Administration. The decline in communications and information technology stocks since Bush's inauguration is now $2.6 trillion, half a trillion dollars larger than the loss in the previous crash under Clinton.

Industries caught in this new undertow cover the entire telecom supply chain, including communications equipment, microchips and microchip capital gear, optical components and systems, venture capital, and network research and development, all mostly down between 60% and 95% under this Administration. As semiconductor stock values slump to 1996 levels, Intel and other leading edge players bemoan the drop in demand for advanced personal computer microprocessors and memories. But the problem is not the alleged overshoot of real customer needs but a drastic undershoot of the last mile bandwidth needed to handle the video services for which the new processors were designed.

Powell commendably promised "fast and furious" deregulatory changes. But last week he said reforms should be phased in over another two years. Meanwhile, Martin's bright idea is that the industry submit to the mercies of 50 state public utilities commissions. As the FCC split the broadband baby in two and minced it in with the bathwater in an incredibly muddled decision last week, everybody seems to believe that telecom disputes are special interest pettifoggery between long-distance and local rather than the expression of huge changes in the industry that make all such categories irrelevant.

In an era when it costs no more to call across the continent than to call across the street, a states-rights pricing system is an egregious absurdity. Improving potential cost effectiveness at a rate of some six-fold every year, telecom can no longer prosper in a political tug-of-law among fractious state commissions plus scores of fee-chasing mayors, and a menagerie of anti-trust beadles and regulatory vandals in the Federal government.

An alert Supreme CourtÑwill simply ban all federal efforts to assign telecom regulation to the states as an obvious and extreme violation of the commerce clause, since telecom is the most interstate industry there is. The only locality in telecom is now the "light cone" of points reachable at the speed of light.

In the global technology arena where economic and military power is determined, leadership now can change in a matter of months. Just three years ago, the U.S. was overwhelmingly dominant in communications technology and deployment. All the leading edge optical companies were based in the U.S. or Canada and the Internet was overwhelmingly an American creation and phenomenon. Today, the U.S. is falling precipitously behind. Although damage to the U.S. economy is measured in trillions of dollars, the competitive losses are far more portentous. While politicians still talk of a telecom bubble, Chinese, Japanese, and Korean companies are fulfilling the business plans of U.S. firms driven out of the business by the regulators.

Washington sages who prattle that there is little market for broadband should contemplate South Korea. Not only does South Korea lead the world in wireless technology and deployment, but it boasts broadband penetration of some 70 percent of households. Amid many alibis and excuses, some in the U.S. industry claim that broadband penetration of 20 percent of households-"fastest for any new electronic product"-is impressive. But real broadband of the sort Korea deploys for $33 per month runs at a pace of 8 megabits per second. This is about ten times as fast as U.S. digital subscriber lines (DSL) and cable modems. Average Korean service is fast enough to stream a high resolution HDTV image two ways onto a computer screen. Even Korean mobile wireless connections outperform most U.S. DSL. By Asian standards, the U.S. has virtually no residential broadband at all.

China now has as many wireless subscribers as the U.S. and is moving ahead to advanced technologies far faster. It has reduced Cisco Systems, the leading U.S. vendor of communications gear, to calling in the lawyers in an effort to defend obsolescent intellectual property rather than competing through continued innovation on the frontiers of optics. Taiwan has become the world's leading independent manufacturer of microchips and is now investing nearly a billion dollars in mainland facilities. Japan and Singapore are close behind Korea.

Much of the problem is lawyers and lobbyists called forth by the Clinton Administration's million-word re-regulation of telecom in 1996. The Bush Administration could declare that enough is enough. With cable, satellite, and telco rivals-and a regulatory morass of multiple wireless players-the local loop is one of the most "competitive" arenas in the entire economy. Incumbent telco access lines are down 11 % over the last two and one half years, unprecedented even in the Great Depression.

Competition is up, but regulation of every price and connection assures that no one can win or make any money. Thus investment has halted in its tracks, devastating all the advanced optics and network equipment suppliers. This technology crisis now jeopardizes the U.S. national security. If the FCC can't or won't move, the President should ask for new legislation deregulating all broadband services.

A decisive change toward deregulation could ignite the stock market and enable consummation of the Internet revolution. America's largest recent contribution to the global economy, the Internet can still spearhead a more robust, secure, and profitable U.S. communications infrastructure.

Telecom was never really a bubble since it was in the process of improving its cost effectiveness by a factor of eleven thousand in six years to accommodate a 4 thousand fold rise in Internet traffic during that period. The best measure of the advance of optical technology is wavelength-bit-kilometers, multiplying the number of wavelengths that carry information by the data capacity of each and the distance each can travel without slow and costly electronic regeneration of the signal. In 1995, the state of the art was a system with 4 wavelengths, each carrying 622 megabits per second some 300 kilometers. In 2002, a company named Corvis introduced a 280 lambda system, with each lambda bearing 10 gigabits per second over a distance of 3,000 kilometers. New systems in preparation bear as many as one thousand wavelengths, but even the 2002 equipment represents an 11,000 fold advance in six years.

But all this bandwidth is useless if it is not connected to homes and offices. Deployed through the world economy and extended to final users, optical wavelength technology can still unleash the boom in broadband video teleconferencing, education, and entertainment anticipated by the stock market during the late 1990s. But to fulfill this promise, Washington cannot any longer treat the industry as a political cash cow or plaything. The industry's customers and shareholders, and the nation's economy, deserve better. So does the President who appointed Kevin Martin.

===================================

posted by James 3:03 PM

Tuesday, February 25, 2003

Gilder was wrong, and..he knows it

 

James Glassman of Tech Central Station weighs in on the FCC/Powell discussion.

=====================
TCS Glassman 2/20

Profile in Conservative Courage

By James K. Glassman
02/20/2003


After months of noisy foreplay, Michael Powell has failed to produce. Today, one Republican and two Democrat members of the Federal Communications Commission forged a new working majority and thwarted their own chairman's plan to strip states of their power - and the four giant Bell companies of their telecom competitors.

The FCC decision was important. It means that the process of deregulation, begun with the Telecommunications Act of 1996, supported by every conservative in the House and Senate, can continue. The Bells, the established regional monopolies in local service, have now entered the long-distance business in 70 percent of the states, and smaller competitive local exchange carriers, or CLECs, are now battling the Bells in the local arena and broadband, or fast Internet connections. The result: lower prices and better services for families and small businesses.

But with today's vote - an unusual and some would say humiliating defeat for the chairman of a powerful independent agency - the recriminations have begun.

In an embarrassingly intemperate statement, Rep. Billy Tauzin (R-La.), the chairman of the House Energy and Commerce Committee, called the FCC decision "another body blow to the American economy and heaped personal vituperation on Kevin Martin, the Republican who opposed Powell, calling him "a renegade" and the perpetrator of "a palace coup" and saying that "reform had been stabbed in the back."

In a town like Washington, some may say such attacks are only be expected. They are not. In fact, they are shameful - and undignified coming from the chairman of such a committee.

Martin did what every conscientious commissioner should do. He used his own judgment to come to a decision, not the chairman's.

Well before the vote, the game for pro-Bell politicians and analysts has been to attack Martin - and any other Republican who opposes their position - as being disloyal to conservative principles.

But what do you call someone who says that the states, rather than the federal government, should make local decisions? Someone who believes that competition, not Washington-dictated industrial policy, should determine winners and losers? Someone who thinks that investors need certainty before committing their capital? Someone who believes that, when Congress passes a law, it should mean what it says, not what a group of changeable regulators opines?

I would call someone like that a conservative.

Martin does not have to defend his conservative credentials and his GOP loyalty against anyone, least of all Billy Tauzin. After all, he worked for Kenneth Starr, the independent counsel in the Whitewater investigation of President Clinton. From 1997 to 1999, he served as legal advisor to Harold Furchtgott-Roth, a Republican FCC commissioner who has probably been the most libertarian regulator of any sort in Washington for the past few decades.

Martin, who has a master's in public policy from the University of North Carolina and a law degree from Harvard, then served as deputy general counsel to the Bush campaign, devoting himself to the candidate a full 18 months before the election. He saw duty in the trenches during the long Florida recount and legal battles. In fact, according to the Miami Herald , he "was one of the first national Bush-Cheney people to arrive in Miami from Washington, on Nov. 8." He was named a commissioner in his own right in April 2001, three months after Powell was elevated to chairman.

Powell is a Republican, too, of course, but his most important job in government before joining the FCC was as chief of staff to a high-profile Democrat, Joel Klein, who headed the antitrust division of the Clinton Justice Department.

Even more ironic is that Martin's antagonist Tauzin spent 23 years as an elected Democrat from Louisiana and only eight as a Republican. He switched parties at an opportune time, after Republicans took the House in 1995.

Actually, it's not Martin who needs to defend his notions of competition, states' rights and investor certainty. It's clear he's being conservative.

It's Powell and Tauzin whose Washington-centric policy should raise suspicion among conservatives. And it's no surprise that Powell's plan was opposed by such conservative groups as Americans for Tax Reform, the American Conservative Union, Citizens Against Government Waste, as well as by the Small Business Administration, the Small Business Survival Committee and the National Federation of Independent Business.

Instead of wasting their time trying to smear Kevin Martin, supporters of Michael Powell should be looking at what went wrong. Why was it that, for the first time since 1991, the chairman of the FCC was defeated in a policy decision? In this case, the defeat came despite intense pressure, including vicious editorials in the Wall Street Journal and distortions by people who should know better. (George Gilder, for example, yesterday in an op-ed piece called the Telecom Act of 1996 "the Clinton administration's million-word re-regulation of telecom." First, the act set out a blueprint to DE-regulate telecom; second, the bill was supported by every conservative in Congress, without exception. It was by no means a Clinton bill, and Gilder knows it.)

No, the reason that Powell failed was that his policy was deeply, deeply flawed, and its deficiencies could not possibly be ignored, despite the heavy heat that was applied.

Still, the Bells were not completely shut out. They did get what they wanted in broadband. And now they have to perform. They have to prove that they will make the kind of investments in fast Internet connections that they have promised. We'll see.

Meantime, a legislator of Tauzin's stature would do well to contemplate Powell's mistaken policy rather than fulminate against a conscientious public servant and plan yet another hearing to harass and hammer people who elevate competition, investment certainty and states' rights to their high and proper place.

Copyright © 2003 Tech Central Station Tech Central Station - www.techcentralstation.com


====================


posted by James 4:25 PM

FCC "Deregulation" Decision

 
A decision based on the 2004 elections, says the Washington Times....

JMW

=========

Washington Times Editorial


Wires crossed at FCC

February 25, 2003

ÊÊÊÊÊPolitics triumphed over good policy at the Federal Communications Commission (FCC) Thursday, when a majority of commissioners broke ranks with Chairman Michael Powell while voting on new regulations for local telephone companies. Mr. Powell had wanted the FCC to change the rules, but he was outmaneuvered by Commissioner Kevin Martin, a fellow Republican whose own plan got the support of two Democratic commissioners. The result of this jockeying of egos and agendas will be paralysis, because the plan that Mr. Martin & Co. approved will generate a flurry of court challenges around the country and stymie regulatory reform.

ÊÊÊÊÊOn the brighter side, the FCC did speak with one voice on broadband, or high-speed Internet. Mr. Powell, Mr. Martin and other commissioners supported dropping a requirement on the Baby Bells to lease out their fiber-optic cables for broadband to competitors.

ÊÊÊÊÊBut they significantly disagreed on rules for the local telephone market. Under Mr. Powell's plan, the FCC would have dropped a requirement on the Baby Bells to lease out, at government set and below market prices, part of their technological infrastructure to rivals. Mr. Powell urged commissioners to set a federal rule freeing the Baby Bells from having to lease out their switches, known as the brains of the telecommunications network.

ÊÊÊÊÊMr. Martin, on the other hand, proposed letting states decide what rules for the local phone companies should be. Mr. Martin's plan prevailed. And since the FCC, at Mr. Martin's bidding, failed to relax federal regulations, rules on telecommunication regulations will be fought out in state courts around the country. Many of these cases will then be heard by the 12 federal court of appeals and, finally, at the Supreme Court. The result will be a regulatory paralysis for several years.

ÊÊÊÊÊAnd that apparently, is what the White House wanted. Relaxing leasing requirements on the Baby Bells would reinvigorate the industry as a whole and give companies new incentives to develop new technologies and modernize existing ones. But the White House, we have heard, feared that deregulation would cause a short-term rise in local telephone rates Ñ right in time for the 2004 elections. So Mr. Martin, who campaigned for President Bush and whose wife is Vice President Dick Cheney's chief public affairs strategist, convinced the FCC to do what was best for the White House, rather than the industry. But eventually, the Baby Bells will prevail, because the courts, first the Supreme Court in 1999 and then the D.C. Court of Appeals in May, have generally ruled in favor of deregulation, pursuant to the 1996 telecommunications act.

ÊÊÊÊÊIn terms of broadband, the FCC appears to have done the right thing, by deciding that the Baby Bells would no longer be required to lease out modern fiber-optic technology for broadband service. This move by the FCC was overdue. Cable companies control about 60 percent of the broadband market, and they have misused their dominance by becoming the gatekeepers to the virtual world, limiting surfers access to certain Web sites.

ÊÊÊÊÊBut the FCC's failure to deregulate the local telephone industry at the federal level reflects a weakness in the White House's policy shop. Apparently, they lack advisers expert enough to convey the policy short falls of a politically expedient argument.

========================

posted by James 10:55 AM

Monday, February 24, 2003

Challenger failed because of the software...

 

And here you thought it was the O-Ring!
Well...not exactly, sez this fellow over on OpenDTV Forum:

====================

From: Tom McMahon [mailto:tlm@demografx.com]
Sent: Saturday, February 22, 2003 9:41 AM


To: openDTV@topica.com

Subject: [OpenDTV] A bit on what we commonly call the "Space" Shuttle

I don't mean the following Email to be a slight on my friends at NASA.
Know that. Also this has nothing to do with digital television or post
production, but it has everything to do with engineering. Maybe it is
documentation of a kludge gone wrong and a misdiagnosis.

The shuttle is a mess. Anyone who was involved with the original design
will tell you that it was a hybrid of rockets and airplanes all glued
together under contracts, political pressure, timescales and other nonsense.
Few these days remember what happened and how the engineering details were
compromised. That was a very long time ago. The people involved are
mostly retired. How many years ago was that? Ask yourself. We take it for
granted. It was a kludge to begin with and the fact the we flew it at all
was amazing. I hand it to the engineers involved.

Do you remember the debate about the SRBs? The external fuel tank?
Probably not. Look it up. How the rockets at the tail end of the orbiter
were supposed to deal with things? Do you remember the articles in the
papers and engineering journals? Were they originally the primary boosters?
Do you remember that? I don't think many remember that. Certainly the
public doesn't.

--

When the shuttle "vehicle" "assembly" kicks off on launch it undergoes
what's called a "snap". I use the term "vehicle" and "assembly" loosely
because it isn't a coherent vehicle at all, it is a bag of parts: The moment
is off-center and everything is bolted together. The Shuttle Orbiter is
engineered to veer off-center, and those rocket nozzles are controlled by
software. The SRBs are on one side of the "vehicle"s intended velocity
vector; the actual moment is offset because of the orbiter's other
engineered vector when those engines kick off. A conflict of interests (or
combination of interests, depending on how you play it).

--

When the Challenger kicked off a couple of things happened:

1) The O-Rings failed. Everyone know this. No doubt. This was the
easily digested version for the popular press.

2) The software failed. How do we know this? By the thermal train of the
Challenger. The IR train shows it zig-zagged horribly after hitting the
windsheer.

Here's what really happened: There was severe windshear that day - more so
than had even been encountered before at a launch. The Shuttle was under
severe political pressure to launch that day so it went anyway.

When the shuttle passed through the sheer the software in the control
computers tried to correct the whole bag of parts and it swerved the rockets
so far back and forth that it overstressed the assembly. Zeros in the right
hand plane. It was not the wind sheer or the O-rings that destroyed the
Challinger, is was unstable SW. Certainly the O-Rings contributed. But it
would have made it into orbit were it not for the SW problem...

=======================





posted by James 3:54 PM

Sunday, February 23, 2003

Per Capita Income falls for most...

 
Despite gains and growth in productivity and all, these disturbing statistics say much of it was/is all for naught.

From a recent Daily Reckoning -

=============

- One of the great myths of the Great Bull Market of '82-
'00 was that rising stock prices would help bring
prosperity to all strata of society. Au contraire! While
researching our book (to be published by Wiley & Sons), we
discovered that 'reality' has the appearance of a different
beast altogether.

- From 1947-1973, there was a steady increase in household
productivity and compensation. But from 1973 through 1993,
the years heralded by the press as "the decades of greed",
there was zero family income growth.

- To stay even, more wives entered the work force. But it
had an unforeseen consequence: the real wages of men fell.
In 1979 a man earned $677 a week, on average. In 2000, 21
years later - he earned $33 a week less. Women, on the
other hand, saw an increase of only $47 per week over the
same 20-year period. And their incomes remain lower than
those of men.

- "The total hours worked by American families increased,"
Gary North shows. But as a review of median income growth
reveals, "joint family income stagnated, except for the
richest fifth of Americans".

- The richest families continued to work more hours as a
group throughout the 21-year period, but all other income
groups increased their working hours dramatically. Yet
family incomes did not increase.

- "No explanation for this reduction of per capita income
has been widely accepted by economists," says North.
"[These statistics] are some of the most discouraging in
recent economic history."

===================================
posted by James 11:16 AM

Saturday, February 22, 2003

Foveon chip leads the back to analog parade...

 
As Gilder and others have now shown, power and efficiency are becoming more important than speed in many real world interfaces. Here is a review of the Foveon-chipped Sigma camera; discussed previously on this site. From Wired 11-03:

Wired - Foveon

Why Analog Is Cool Again

Super-sensitive switches etched in silicon? This is not your father's solid state.

By Paul Boutin

Sharp, vibrant, incredibly detailed: The pictures produced by Foveon's X3 image sensor chip are seductive evidence that pixels will displace film. The Sigma SD9 - the first commercial camera to use Foveon's technology - captures three times more color per pixel than standard digital shooters. But here's the thing: This isn't digital technology. It's a twist on old-fashioned analog electronics - an array of millions of light filters and detectors etched in silicon.

Weird as it sounds, the road to smaller, cheaper, more energy-efficient consumer electronics may be paved with analog technology. These circuits are built from the same components as their digital counterparts but suck 90 percent less battery power. The difference? In an analog device, each transistor acts like a dial, with a wide range of readings that depend on the sinuous fluctuation of voltage, current, amplitude, and frequency. Digital circuits, on the other hand, use the same transistors as simple on-off toggle switches. Analog transistors capture far more information, so you need fewer of them.

Advances in the digital realm are powering the technology. Tiny analog circuits, sensors, and even radios can be manufactured using the same fabrication techniques - microscopic etching on semiconductor wafers - that have kept Moore's law chugging along. Devices with analog chips in their guts will begin landing in consumers' hands this year in the form of high resolution cameras and mobile phones that can go a week without recharging.

Much of the new analog circuitry creeping into consumer gadgets springs from the research of Carver Mead, Foveon's founder and chair. As a Caltech professor (now emeritus) in the 1970s, Mead sought to imitate the analog elegance of the human brain. In 1986, Mead cofounded a company, Synaptics, to build high-performance analog computers. He understood that solid state circuitry would be ideal for connecting computers to the real world of light, touch, and sound, which are analog by nature. Synaptics eventually focused on the tactile, becoming the leader in laptop touchpads. (It controls about 80 percent of that market.)

Next came Foveon, founded in 1997. Its X3 image sensor chip is perhaps the most impressive analog electronics application so far. Standard digital cameras use filters that permit light sensors to capture only one primary color per pixel. From there, a signal processor runs algorithms that approximate the missing colors by sampling nearby pixels. That guessing game introduces telltale lines and whorls into the final picture. Foveon found a way to use standard silicon as an analog color separator. One of the optical properties of silicon is that different wavelengths of light penetrate it to different depths. This allows Foveon chips to stack red, green, and blue sensors at every pixel.

Impinj, another Mead startup, hopes to conquer sound with a technology that lets digital logic fine-tune a cell phone's analog transmitter midcall, so the overall circuit can be smaller. Impinj claims the design draws one-tenth the power of its two-part predecessors. It also puts out a more efficient signal, allowing phone networks to carry greater call volume. It costs less, too.

For Foveon chief scientist Dick Lyon, who toiled for decades in the shadow of the Digital Revolution, there's a sweet payback to sculpting analog parts from silicon: "If you do it right, you can make transistors and create devices no one imagined."

===========================

posted by James 4:51 PM

Friday, February 21, 2003

Tipping point, not convergence....

 
The Pulver folks are promoting VoIP - Voice over the Internet - Telephone service that uses the Internet and bypasses the existing telephone network; the revenues from which support the debt service of the existing phone companies and which are fast shrinking. Some smart people say VoIP is here now - meaning this quarter. Mebbe we are at the Tipping Point as Dan Beringer suggests below.

=======================

Tipping Point Not Convergence. Think Renaissance.
by Daniel Berninger,

Let's admit the much anticipated *convergence* of telecom and networking
will never arrive. The world continues to move toward Internet like
packet based networks, but this represents displacement not convergence.
The Internet makes possible new modes of communication not simply
refinements of existing telecom services. Convergence suggests evolution
of legacy networks, but Internet revolution still seems more likely.

The present represents a *tipping point* between old and new in
communications. The future will unfold as if the PSTN never existed,
because the dominant forces and constraints have changed. The needs and
interests of telecom suppliers defined the old world. The future will get
shaped by the needs of end users and the creativity of entrepreneurs. The
transfer of power from network owners to network users seems unstoppable.

The future seems uncertain only for those without an historical
perspective. It represents an historical fact that monopoly suppliers
dominated the telecommunications landscape in the 20th century. It also
seems obvious the grip of monopoly diminished inexorably from the moment
Alexander Graham Bell first spoke with Watson through and including Jeff
Pulver's recent launch of a version of Free World Dialup that leverages
broadband.

The first 15 years of the telephone business after 1875 operated as a
global monopoly or at least it did within the reach of AT&T's patent
infringement lawsuits. A burst of competition (and anti-competition)
after the expiration of the patents shaped telecommunications at the turn
of the last century. Governments continued to aid and abet efforts by
suppliers to assert monopoly control over telecommunications, but advances
in technology tended to empower end users and entrepreneurs. More
recently, governments sought to facilitate competition as the best
antidote to monopolist misdeeds.

The emergence of the Internet outside the sphere controlled by traditional
telecom companies and regulatory oversight produced the crisis of recent
years. The present represents a tipping point as the grip of suppliers to
control their destiny goes to zero. The outcome of the present drama
associated with regulatory rulings by the Federal Communications
Commission in the United States will not alter the fundamental forces a
bit. The consequences for ignoring the reality of a newly empowered end
user grows, as do the opportunities available to those willing to embrace
it.

Governments got into the telecom regulation business to throttle abuses of
monopoly. There exists no inherent reason to regulate telephone service.
The use of regulation to obtain low cost and reliable service never
proved a match for the profit incentive of the incumbent. Forget the idea
that the Universal Service program helps the poor. Telephone service
remains out of reach for 90% of the world's population. The monopolies
doubled the cost of service in the last 10 years. Subsidies fail as a
means to make telephone service affordable just as they would have failed
in making computing affordable. Information technology sectors shaped by
competition driven innovation can accomplish far more than a regulated
industry.

Telecommunications proved the worst performing information technology
sector during the 20th century as measured by cost performance
improvements, service creation, employment growth, or revenue growth.
Monopolies obtain wonderful cash flow, but ignoring the interests of end
users means near zero growth. There exists no downside to a communication
sector driven by end users. The value chain looks exactly like the
present computer and networking industry. Imagine a telecommunications
sector growing at 35% per year for 25 years.

The availability of communication as an application already drives the
information technology sector and could do more absent the regulatory
uncertainty. The promise of Internet communication offers social
advantages like reducing the possibility of war. Why just have a hot line
between heads of state? Why not allow everyone to communicate with
everyone? Consumer communications enabled by the Internet can drive
commerce as did the emergence of the automobile. Railroads charge by time
and distance not unlike the present PSTN. The incumbent telecom
monopolies failed to expand their employment in the last 20 years. We
need to stop waiting for convergence and let the Communications
Renaissance begin!

==========================
posted by James 5:00 PM

 
Here are some takes on the FCC Telecom decision from Forbes

Forbes.com - FCC Ruling

Forbes - Decision Rings in Old


posted by James 2:34 PM

Friend Frank's Take on The FCC Telco Decision

 
With an earlier career in the government, Frank says Money Begets Power and Always Will Win. Disruptive Innovate Technology will Fail to Win...Old Age and Treachery Will Beat Out Youthful Idealism....Hmm...
==============================

".... Washington the major issues are seldom about money (practically never) or even the economy. It is ALWAYS about power. Twiddling with the economy is simply a way to hold/increase power. Twiddling with interstate commerce or with interstate telecommunications is simply another way to hold power.

You (JMW) said, Òregulations stay.Ó This action was never about reducing regulations. It was about using regulations to try to create an artificial kind of competition within the ILECÕs facilities. You would need the equivalent of a UN inspection team to make that plan work.

In the case of Telecom it is about the retention of massive power.

The ÒestablishmentÓ wins. The attorneys on ÒKÓ street, the bureaucrats in the FCC, the PUC structures within the states win, the Òprofessional staffÓ at every level wins.

A stream of regulated revenue is a wonderful thing. At todayÕs interest rates, the stream of revenue coming from basic services, slightly diminishing as it might be, is like having billions in the bank. So, there are billions of dollars of bonds leveraged against that revenue stream. Did you really think that anyone would put that business at jeopardy by allowing some kind of unregulated competition? Poo.

Will the ILECs ÒfailÓ in a business sense? NO. They might have to ÒrestructureÓ, but in doing so they will drag things out so long that they will certainly out-live and now Òstarve outÓ the competition.

There are many other plays going on behind the curtain.

One example: each of the independent wireless companies is upside down in debt. So, if the ILECs just slow things down, they starve out those guys and get to take them over. SO much for losing lines. "

-- fjd

www.derfler.biz Up-Periscope





posted by James 11:32 AM

Thursday, February 20, 2003

 
George Gilder worked all last weekend to come up with this for the WSJ - unfortunately, no one in government seemed to be listening. The Tragic Historical Role of Real Prophets and Visionaries....

Now "states" get to regulate more...Great News For Trial Lawyers...and Lobbyists.

JMW

============================

Broadband's Narrow Minds

By GEORGE GILDER

At the Federal Communications Commission these days, Commissioner Michael Powell and his one-time protege Kevin Martin have introduced a new slogan: "What, me worry?" While the communications sector suffers though a crisis of stifling overregulation, the commission seems ready to accept an outbreak of litigious new rules at the state and local levels.

As the FCC prepares to meet again later this week, the telecom industry's woes are jeopardizing the future of the U.S. economy. Since the March 2000 peak, telecom has seen a $1 trillion loss in market cap among 17 companies, not to mention another thousand related bankruptcies. But worse is how the complacence will play out internationally. If we continue along our current path we will surrender U.S. leadership in communications technology to beleaguered South Korea and to China, supposedly still a developing country.

In the global technology arena where economic and military power is determined, leadership can change in a matter of months. Just three years ago, the U.S. was overwhelmingly dominant in communications technology and deployment. All the leading-edge optical companies were based in the U.S. or Canada and the Internet was overwhelmingly an American phenomenon. Today, the U.S. is falling precipitously behind. Although damage to the U.S. economy is measured in trillions of dollars, the competitive losses are far more portentous. While politicians still talk of a telecom bubble, Chinese, Japanese, and Korean companies are fulfilling the business plans of U.S. firms that were driven out of business by the regulators.

Washington sages who prattle that there is little market for broadband should contemplate South Korea. Not only does it lead the world in wireless technology and deployment, but it boasts broadband penetration of some 70% of households. Amid many alibis and excuses, some in the U.S. industry claim that broadband penetration of 20% of households -- "the fastest for any new electronic product" -- is impressive. But real broadband of the sort South Korea deploys for $33 per month runs at a pace of eight megabits per second. This is about ten times as fast as our DSL and cable modems.

Average South Korean service is fast enough to stream a high resolution HDTV image two ways onto a computer screen. Even South Korean mobile wireless connections outperform most U.S. DSL. By Asian standards, the U.S. has virtually no residential broadband at all.

China now has as many wireless subscribers as the U.S. and is moving ahead to advanced technologies far faster. It has reduced Cisco Systems, the leading U.S. vendor of communications gear, to calling in the lawyers in an effort to defend obsolescent intellectual property rather than competing through continued innovation on the frontiers of optics. Taiwan has meanwhile become the world's leading independent manufacturer of microchips and is now investing nearly a billion dollars in facilities on the mainland. Japan and Singapore are nipping at South Korea's heels.

Much of the problem on Washington's end is the lawyers and lobbyists called forth by the Clinton administration's million-word re-regulation of telecom in 1996. But the Bush administration can stop it, if they can get past the notion that telecom disputes are special-interest pettifoggery between long-distance and local rather than the expression of huge changes in the industry that make all such categories irrelevant.

Cable, satellite, and telco rivals have made the local loop one of the most "competitive" arenas in the entire economy. But the regulation of every price and connection assures that no one can win or make any money. Investment has halted in its tracks, devastating the advanced optics and network equipment suppliers.

In an era when it costs no more to call across the continent than to call across the street, a states-rights pricing system is an egregious absurdity. Improving potential cost effectiveness at a rate of some six-fold every year, telecom can no longer prosper in a political tug-of-law among fractious state commissions plus scores of fee-chasing mayors, and a menagerie of anti-trust beadles and regulatory vandals in the Federal government.

It's not a stretch to suggest that the technology crisis now jeopardizes national security. If Mr. Bush were to advocate a new law deregulating all broadband services, the decisive change toward deregulation could ignite the stock market and revive the kind of Internet revolution that makes sense. America's largest recent contribution to the global economy, the Web can still spearhead a more robust, secure and profitable communications infrastructure.

Telecom was never really a bubble since it was in the process of improving its cost effectiveness by a factor of 11,000 in six years to accommodate a 4,000-fold rise in Internet traffic during that period.

But all this bandwidth is useless if it is not connected to homes and offices. Deployed through the world economy and extended to final users, optical wavelength technology can still unleash the boom in broadband video teleconferencing, education, and entertainment anticipated by the stock market during the late 1990s. But to fulfill this promise, Washington can no longer treat the industry as a political cash cow or plaything. The industry's customers and shareholders, and the nation's economy, deserve better. So does the president who appointed Kevin Martin.

Mr. Gilder is a fellow at the Discovery Institute in Seattle.
posted by James 3:59 PM

Jackie Mason's take on Starbuck's...

 
The era of Great Jewish Comedians lives on. Mason still writes a column with Raul Felder for Jewish World Review, but this below is not political. It was emailed by a Friend, and recalls the great standup era before profanity and vulgarity became "funny".

Henny Youngman, Joey Bishop, Alan King....I would hurt from laughing so hard...back then when the "f" word was Fat...

JMW

===================

If I said to you, "I have a great idea for a business. I'll open a whole
new type of coffee shop. Instead of charging 60 cents for coffee I'll
charge $2.50, $3.50, $4.50, and $5.50. Not only that, I'll have no
tables, no chairs, no water, no free refills, no waiters, no busboys,
serve it in cardboard cups, and have the customer clean it up for 20
minutes after they're finished."

Would you say to me, "That's the greatest idea for a business I ever
heard! We can open a chain of these all over the world!"

No, you would put me right into a sanitarium. And it's burnt coffee!
It's burnt coffee at Starbuck's, let's be honest about it. If you get
burnt coffee in a coffee shop, you call a cop. You say, "It's the bottom
of the pot. I don't drink from the bottom of the pot. But when it's
burnt at Starbuck's, they say, "Oh, it's a special roast. It's a special
bean from Argentina....." The bean is in your head!!! I know burnt!!!

You want coffee in a coffee shop, that's 60 cents. But at Starbuck's, if
it's Cafe Latte: $3.50. Cafe Creamier: $4.50. Caffe Suisse: $9.50. For
each French word, another four dollars. Why does a little cream in
coffee make it worth $3.50?

Go into any coffee shop; they'll give you all the cream you want until
you're blue in the face. Forty-million people are walking around in
coffee shops with pitchers of cream: "Here's all the cream you want!" And
it's still 60 cents. You know why? Because it's called "coffee."

You want cinnamon in your coffee? Ask for cinnamon in a coffee shop;
they'll give you all the cinnamon you want. Do they ask you for more
money because it's cinnamon? It's the same price for cinnamon in your
coffee as for coffee without cinnamon - 60 cents, that's it. But not in
Starbucks. Over there, it's Cinnamonnier - $9.50. You want a refill in a
regular coffee shop, they'll give you all the refills you want until you
drop dead. You can come in when you're 27 and keep drinking coffee until
you're 98. And they'll start begging you: "Here, You want more coffee?"

Do you know that you can't get a refill at Starbucks? A refill is a
dollar fifty. Two refills, $4.50. Three refills, $19.50. So, for four
cups of coffee - $35.00.

And there're no chairs in those Starbucks. Instead, they have these high
stools. You ever see these stools? You haven't been on a chair that
high since you were two. Seventy-three year old Jews are climbing and
climbing to get to the top of the chair. And when they get to the top,
they can't even drink the coffee because there's 12 people around one
little table, and everybody's saying, "Excuse me, excuse me, excuse me,
excuse me....."

Then they can't get off the chair. Old Jews are begging Gentiles,
"Mister, could you get me off this?"

Do you remember what a cafeteria was? In poor neighborhoods all over
this country, they went to a cafeteria because there were no waiters and
no service. And so poor people could save money on a tip. Cafeterias
didn't have regular tables or chairs either. They gave coffee to you in
a cardboard cup. So because of that you paid less for the coffee. You
got less, so you paid less.

It's all the same at Starbucks - no chairs, no service, a cardboard cup
for your coffee - except in Starbucks, the less you get, the more it
costs. By the time they give you nothing, it's worth four times as much!

Am I exaggerating? Did you ever try to buy a cookie in Starbuck's? Buy
a cookie in a regular coffee shop. You can tear down a building with
that cookie. And the whole cookie is 60 cents. At Starbuck's, you're
going to have to hire a detective to find that cookie, and it's $9.50.
And you can't put butter on it because they want extra. Do you know that
if you buy a bagel, you pay extra for cream cheese in Starbuck's? Cream
cheese, another 60 Cents. A knife to put it on, 32 cents. If it reaches
the bagel, 48 cents. That bagel costs you $312. And they don't give you
the butter or the cream cheese. They don't give it to you. They tell
you where it is. "Oh, you want butter? It's over there. Cream cheese?
Over here. Sugar? Sugar is here." Now you become your own waiter. You
walk around with a tray. "I'll take the cookie. Where's the butter?
The butter's here. Where's the cream cheese? The cream cheese is
there." You walked around for an hour and a half hour selecting items,
and then the guy at the cash register has a glass in front of him that
says "Tips." You're waiting on tables for an hour, and you owe him money?

Then there's a sign that says please clean it up when you're finished.
They don't give you a waiter or a busboy. Now you've become the janitor.
Now you have to start cleaning up the place. Old Jews are walking around
cleaning up Starbuck's. "Oh, he's got dirt too? Wait, I'll clean this
up." They clean up the place for an hour and a half.

Starbuck's can only get away with it because they have French titles for
everything, %$#%^&* . And I say this with the highest respect, because I
don't like to talk about people.

=======================


posted by James 7:55 AM

Sunday, February 16, 2003

Victor David Hanson

 
"Still, besides the revelation of hypocrisy, the effect of all this has also been quite remarkable in creating a growing sense of American solidarity Ñ precisely in terms of being so unlike those who criticize us. Has anti-anti-Americanism fueled a growing new sense of Americanism? We owe the U.N., the EU, the radical Islamic world, Mr. Mandela, the French, the Germans, and a host of others, I think, some thanks in this hour of crisis. By reminding us so often that they are not like us and often don't like us, we of all political persuasions and backgrounds finally are remembering that they were perhaps right all along Ñ we really are a very different people."

Hanson is a classics professor at California State University at Fresno. He writes a biweekly column for National Review Online . The terrorist attacks of September 11 prompted him to compose a series of essays, which appeared in various newspapers and magazines, covering that "landmark event in American history, if not the most calamitous day in our nation's 225 years." He now puts those essays together in book form as a "record of emerging events" as they were happening. I don't "sell books" for Amazon, but as a military historian, he does very good stuff, and the collection of his post 9/11 essays can be seen here - An Autumn of War

or read his current column online, from the end of which the quote above is taken - Boomerang Effect; or at National Review Online, where archives of all his post 9/11 columns can be viewed. NRO Archive...VDH


posted by James 8:41 PM

Jonah Goldberg -

 
From the fellow who gave rise to "cheese-eating surrender monkeys", an update on his funny and pointed anti-French views. I've pointed out anti-semitic stories from France for over a year; and passed on many anti French commentaries from others. Now, preWar, it is tres chic to denigrate nos amis du Gaul. Nobody does it better than Jonah.

Uneast Alliances


The French have two problems: what they say and what they do

By Jonah Goldberg
Jonah Goldberg is editor at large of National Review Online and a commentator for CNN.

February 16, 2003

WASHINGTON -- For nearly five years I've been bandying about a funny ethnic slur -- borrowed from "The Simpsons" -- and just when I was about to abandon it, the rest of the world discovered it. Amid all the kerfuffle over American-European relations over the last few weeks, esteemed writers in the Washington Post, the Economist, the New York Review of Books, Slate, Canada's National Post and several British papers have all referred to the French as "cheese-eating surrender monkeys" and most of them credit me with popularizing the phrase.

Now, I'll admit, it's nice to be noticed (although I'd rather it had been for something like curing cancer or figuring out what Trent Lott's hair is made of). But the dynamic right now between America and France -- and America and Europe more generally -- is more complicated than even the best "Simpsons" humor can capture. And if I'm going to be considered a purveyor of anti-French vitriol on the right, I might as well get to make my case.

My problem -- America's problem, really -- with the French boils down to two things: What they say and what they do. Rhetorically, the French, along with their gentle-giant pals the Germans, claim that they are leading a "new Europe." The unifying myth of the "new Europe" is that over the last 50 years it has achieved peace and prosperity through endless blather in Zurich hotel conference rooms. "Europeans have done something that no one has ever done before: create a zone of peace where war is ruled out, absolutely out," Karl Kaiser, director of the Research Institute of the German Society for Foreign Affairs told the Chicago Tribune. "Europeans are convinced that this model is valid for other parts of the world." Or as the New York Times' Ethan Bronner wrote recently, "Through common economic interests, education and relentless talk, the Europeans have forged a new world for themselves."

The problem with all of this is that it's absurd. Europe's accomplishments are great and good and all that, but the European model isn't what it is portrayed as being. The reason Europe remained peaceful during most of the last half of the 20th century is that it had a common enemy to the east in the form of the Soviet Union and a protector and leader to the west in the form of the United States. For much of the Cold War, the U.S. carried the bulk of the defense burden of Europe, in effect subsidizing the lavish welfare states the French and others now take for granted.

It's a classic free-ride problem. The Europeans have benefited from the global stability provided by the United States. But the Europeans -- or at least the French and Germans -- now take that stability for granted and berate the United States for doing what it sees as necessary to ensure continued peace and prosperity. Unfortunately, the idea that violence never solves anything is a fraud. Violence ended the Holocaust; in the U.S., it freed the slaves. And, in 1998, American-led violence ended slaughter in the Balkans while European paper shufflers stood by paralyzed.

The French and Germans claim that the United States is a "bully" and a "cowboy" largely because America can do things the French and Germans can't or won't. Their own military capacities are woefully deficient, and so they champion peace at any cost in part because they're loath to admit they couldn't fight if they wanted to. If all you have is a hammer, every problem looks like a nail. If all you have is a briefcase full of petitions and human rights lawsuits, every problem is going to call for more paper shuffling.

It's not all that surprising that the power imbalance has led to envy and festering resentment. Throughout the 1990s, French bookstores bulged with such books as "Who Is Killing France? The American Strategy" and "American Totalitarianism." "No Thanks, Uncle Sam" was a bestseller written by a member of the French Parliament who concluded, "It is appropriate to be downright anti-American." A more recent French bestseller suggested that America itself plotted the 9/11 attacks.

Indeed, anti-Americanism is so strong in France -- in part because French governments encourage the sentiment -- that French governments have wide latitude to do just about anything they want so long as it is seen as being contrary to American interests. Which brings us to the second problem with the French: What they do. France's long-term ambition for the new Europe has always been to lead a united European Union that could rival the United States in global influence. "What is the point of Europe?" Charles de Gaulle once asked. "It must serve to prevent domination either by the Americans or by the Russians." With the Russian threat gone, France considers it even more important to block "domination" by the U.S. This is their chief motivation for blocking U.S. efforts to oust Saddam Hussein.

Certainly, as a matter of realpolitik this long-term strategy is intellectually defensible. The practice of one state trying to check the influence of another is a time-honored tradition. But this isn't a game of Risk between family members where you team up with your brother to keep your father from winning the game. As De Gaulle's statement reveals, French foreign policy has a tendency toward blindness when it comes to good guys and bad guys. (Witness the recent invitation of Zimbabwe's thug-in-chief Robert Mugabe to Paris.) Indeed, equating American and Soviet "domination" -- even rhetorically -- as equal threats is not merely stupid; it is morally outrageous.

France is playing a similar game with Iraq, claiming that the United States is the bad guy in this scenario. Never mind the ingratitude of a country saved by U.S. military action twice in one century, what is truly galling is that France's motives toward Iraq are profoundly more cynical and selfish than our own. In addition to their desire to curb U.S. influence in the region, the French are far more hungry for Iraqi oil money than the United States. If we were hellbent on Iraqi oil, we would lift the sanctions tomorrow in exchange for fat oil contracts -- something Hussein has suggested in the past. Or we could have just taken Iraq's oil a decade ago when we briefly occupied the region. America has no interest in fighting a war for oil. But France desperately wants "peace for oil."

In exchange for France's opting out of the no-fly zones and denouncing the pain and suffering inflicted by Iraqi sanctions, Hussein has consistently rewarded the French with lucrative contracts through the oil-for-food program. An American-led war would end that.

Indeed, there's almost no criticism of the United States that doesn't apply with greater or equal force to France. The French are certainly willing to trade blood for oil, just so long as it's not their own. And if it's true to say that America helped "create" Hussein, it's doubly accurate to say it of the country that sold him a nuclear reactor. The only difference between the two countries is that America is eager to correct its mistakes while France is entirely at peace with letting Hussein continue murdering and terrorizing his subjects and neighbors.

It's true, the phrase "cheese-eating surrender monkeys" isn't particularly accurate here. The French aren't being cowards: They're more like cheese-eating appeasement monkeys, willing to negotiate with evil for short-term advantage. If that makes them heroes to the antiwar movement, so be it. But it doesn't make them principled -- and it certainly doesn't make them our friends.

==============================
posted by James 10:28 AM

Thursday, February 13, 2003

Ten Things To Do Now....Necessary But Impossible...

 

Here's a greatly refreshing List from National Review.

John Derbyshire on National Review Online


February 13, 2003

Necessary but Impossible

The way things should be but wonÕt.

Reading Mark Steyn's excellent piece in the February 8 issue of the Spectator (the English one, not her American cousin) got me to thinking about things that are necessary but impossible. Mark writes about the need for the U.S. to get out of the U.N. This is (a) an obviously good idea, and (b) never going to happen. There are rather a lot of things like that, leading one to suspect that Western Civ, and in particular the USA's instantiation of it, has seized up somehow.

"Rather a lot?" you say. "Come on, Derb, how many are there?" Well, I thought of ten in less than that number of minutes, without popping any arteries. If I were not oppressed and distracted by the prospect of having to shovel my driveway (As I write, Long Island is in the middle of a snowstorm), I bet I could come up with 50 more. Here's my personal top ten, anyway. Remember, the parameters here are: necessary (or at least a really, really good idea) but utterly impossible for political, social, or unknown reasons.

Leave the U.N.
Mark Steyn doesn't quite say it all. He is scathing about how useless and anti-American the U.N. is, how it empowers the worst and disenfranchises the best, and so on. I would go further: I think the U.N. is an evil institution, a limb of Satan. I don't think it often does evil consciously (though it sometimes does, as when the General Assembly gives the obligatory standing ovation to whichever Mass Murderer of the Month has deigned to drop in on them Ñ Idi Amin, Fidel Castro, Yassir Arafat), but the effect of almost everything it does is evil. A large part of the Palestinian problem, for example, arises from the client-ification of Arab refugees (and their children, and their grandchildren...) by UNRWA, the United Nations Relief and Works Agency for Palestinian Refugees in the Near East.

Does the U.N. ever do good? I can think of some cases. The World Health Organization, which is affiliated to the U.N. in some way I can't be bothered to understand, has eliminated some nasty diseases. That's an argument for a World Health Organization, though, not an argument for the U.N. Remember when you bought that all-purpose gadget? The fax machine that is also a scanner and a printer? The "entertainment center" that has a radio, CD player, cassette player/recorder, and speakers all in one box? Wouldn't you have been better off buying the separate bits, each of the best quality you could find? Right. Same with international bureaucracies. If we need a World Health Organization or a refugee-relief agency, let's get one Ñ one of each.

Meanwhile let's withdraw from the U.N. horror show ASAP, and boot them out of our country, and issue a permanent ban on any of their employees or representatives ever setting foot in the USA. Hell, let's declare U.N. officials international outlaws. Why stop with half-measures?

Shut down the NEA.

I looked, and it's still there. This is unfinished business from the Gingrich revolution. Ah, the Gingrich revolution (sigh). Scrapping the NEA was one of those things that was supposed to get done, but somehow just never did. Apparently, by some magic I cannot fathom, the Podunk Theater Arts Group and the Natchitoches Disabled Black Lesbian Poetry Workshop have voices that ring louder in the halls of Congress than those of 200 million honest American philistines.

What on earth use is the NEA? I have written two novels, and am feeling the urge to write another one, but it never occurred to me to ask Joe Taxpayer to feed my children while I do so. What kind of "artist" would behave like that? What kind of person, not raised in North Korea, would think that, having had a creative thought, the next item of business should be to fire off a begging letter to Washington D.C.? Every Communist country in the world, from Lenin's Russia down to present-day Cuba and China, has a state-financed Writer's Union, an Artist's Union, and so on. Can you name a single book, a single painting, a single play, or ballet, that any of these bodies has ever produced? Of course you can't.

Satisfy the market, find a rich patron, or starve in a garret Ñ great art has been produced by all three methods. Nothing has ever been produced by governments departments of culture, or National Endowments for the Arts. We have a vigorous market, great numbers of rich people, and lots of garrets. Let's use them.

(And speaking of rich patrons: that novel I'm thinking about writing....)

Shut down the U.S. Postal Service.

Just shut it down, cold turkey. Give everyone a few months' notice, to give private enterprise time to gear up. Heck, I use private enterprise for anything important, anyway. The USPS is hopeless. Standing in line at the post office Ñ I waste a couple of hours a month doing just that Ñ is like time travel. I am back in my childhood in socialist Britain, waiting with my Dad at the local Ministry of Health office for my issue of free orange juice.

Here is how stupid the USPS is. You want to mail a book? Fine, it can go book rate. You want to slip a one-page scribbled note to the recipient in with the book? Sorry, that makes it a letter Ñ book rate no longer applies.

You know the post office as well as I do. Here comes the lunchtime crowd Ñ better shut down a couple of service windows! Waiting on line for a government employee to interpret insane regulations for you is a thing the old USSR used to be famous for. It is a thing up with which free people should not put. Shut it down!

Enforce immigration laws.
There are things that are difficult to do because you are up against huge intellectual and sentimental inertia Ñ getting out of the U.N., for example. There are things that are intractable because democracy works against itself and needs deep structural reform Ñ like the public spending problem (see below). And then there are things that desperately need doing, that overwhelming majorities of the citizenry wants done, and the doing of which is crucial to the most basic issues of national security, yet which don't get done for reasons nobody can explain. Here we are with a number of illegal immigrants Ñ people who introduced themselves to the USA by breaking the very first law they had an opportunity to break Ñ that is either 7 million, or 11 million, or some number in between. We can't even count them. It's true that not all of them are easy to find, but a heck of a lot of them are. Give me a gun, a badge, and a good police dog, and I could walk out of my house any morning of the week and round up a dozen I-I's. They congregate on certain street corners in my town, looking for a day's work. Why can't we do this?

People who have actually seen the feddle gummint in operation, colleagues who have worked in Washington D.C., tell me that nothing ever gets done. "It's just turf fights and musical chairs. Nobody actually does anything." The first time I heard this, I was skeptical. All those sleek, well-paid bureaucrats must be doing something. No: the immigration fiasco proves the case. They are doing nothing, nothing, nothing.

Outlaw public-sector unions.

Why do public-sector workers need unions? The purpose of unions is to protect employees against unscrupulous bosses, who might seek to maximize profits by taking advantage of those who work for them. In the public sector, however, there are no profits to be maximized, no shareholders to appease. The work that is being done is being done in the public interest Ñ against which, as Calvin Coolidge quite correctly declared, there is no right to strike. So what do government workers need unions for? If public-sector workers don't like their pay and conditions, they can appeal to the tax-paying public, who are their ultimate employers. If that doesn't work, they can go get jobs in the private sector, and take their chances with capitalism, like free citizens of a free nation.

Please don't write and whine to me: "I'm a public servant. I've worked my buns off for 30 years at a demanding and essential job, for an unimpressive salary. Why are you being mean to me?" I'm not being mean to you. I like you. Thank you for your work, for your service to my country. I sincerely thank you. I just don't see why you need a union.

This one is impossible, of course, because the public sector is now so vast and well-organized they can win elections all by themselves. The Democratic party is essentially a party of public-sector workers. So...

Disenfranchise nonmilitary government employees.

Take away their vote. If you let public employees vote, what do you think they are going to vote for? For more public spending, more government jobs, higher government wages. Can you vote yourself a pay raise? No, and neither can I. Bill Bureaucrat and Pam Paperpusher can, though, and they do. Bill and Pam have no problem at all with ever-swelling public budgets, with ever-expanding public services, with the creeping socialism that is slowly throttling our liberties out of existence.

Please don't write and whine to me: "I'm a public servant. I've worked my buns off for 30 years at a demanding and essential job, for an unimpressive salary. Why are you being mean to me?" I'm not being mean to you. I like you. Thank you for your work, for your service to my country. I sincerely thank you. I just don't see why you should have a vote.

Working for the state, or the nation, is a great privilege and an honor. It brings with it great security, since states and nations very, very rarely go out of business. Let privilege, honor and security be rewards enough; let's not gild the lily with fripperies like voting rights.


Scrap laws against discrimination.

Item: There is a firm in Houston named Quietflex that makes ducts for air conditioners. Theur workforce includes a lot of Mexican immigrants, and a lot of Vietnamese immigrants. None of these folk speak English very well, so the firm needs supervisors who are trilingual in English, Vietnamese, and Spanish. Finding that there are no such people, the firm put the Mexican workers in one department, the Vietnamese in another. Since your average Vietnamese immigrant has nimbler fingers, and probably a better education, than your average Mexican immigrant, the department that the Vietnamese-immigrant workers are concentrated in pays slightly better than the other. This has brought the wrath of just about everybody down on Quietflex: the National Labor Relations Board, the Equal Employment Opportunities Commission, the New York Times, and for all I know the U.N. as well. Nobody so far seems to have told the Mexican-immigrant employees that if they don't like the situation, they can go look for work elsewhere Ñ perhaps in a Mexican-owned firm, of which Texas has many. Or how about in Mexico itself?

Item: Charles Bell, who is a homosexual, was fired after four months as manager of Leona Helmsley's Park Lane Hotel, in New York City. He had lied on his rŽsumŽ to get the job, a fact that had been covered up by the hotel's Chief Operating Officer Patrick Ward, another homosexual. Bell has admitted that he used illegal drugs while employed at the Park Lane. He also handed out free hotel rooms to friends of the same persuasion as himself. On one occasion, he invited 20 leather fetishists to the hotel in advance of a downtown party. Mrs. Helmsley, who is 82, encountered one of these persons, in full leather fetish regalia, when she stepped into the elevator. ("'He was dressed completely in black leather?' Mrs. Helmsley's attorney asked. 'Not completely,' snapped Bell." Ñ from the court report in the New York Post, 1/16/03.) The jury found for Bell, and awarded him $11 million for his distress. Eleven million dollars.

Given that our rights to private property and freedom of association are supposed to be among the very pillars of our legal order, why shouldn't Quietflex put Spanish-speaking employees in one room, under a bilingual English-Spanish-speaking supervisor, and Vietnamese-speaking employees in another, under a bilingual English-Vietnamese-speaking supervisor? Who is hurt by this Ñ actually hurt? It is true that the Mexican-immigrant employees would be paid more if they spoke Vietnamese: but then, they'd be paid more if they were George Clooney. The right to earn as much as someone else earns is not in the Constitution. Why shouldn't Leona Helmsley fire an employee when she learns that he is homosexual, and that his sex habits are getting in the way of him doing his job? Why should anyone have to hire homosexuals, anyway? Lot's of people don't like homosexuals. You may think that is wicked of them, and you are entitled to your opinion, but I can't see why a businessman should be forced to hire people whose personal habits he doesn't like.

There was once a politician who said out loud that anti-discrimination laws were an infringement of our sacred liberties. That was Barry Goldwater, and that was 40 years ago. Back in those days, if you wanted $11 million, you had to invest cleverly, or work really hard at building a business, or be born into a rich family Ñ none of them obnoxious or immoral things. Now you can take up some freakish lifestyle, lie about it on your rŽsumŽ, insult your employer, squeeze out a few tears on the witness stand, and Ñ ker-ching!


Cut government budgets.

The states are in trouble Ñ you've read about that. My own state, New York, is looking at a $5 billion budget gap. The reason is not hard to find. In the dot-com boom years, and even for some time after them, my state government spent money like a drunken sailor. The Business Council of New York State has all the stats. In the five years to September 2002, the state added more than 10,000 jobs, an increase of 41Ú2 per cent, raising the state's payroll by about $3 billion. Just in the year after 9/11, New York State lost 43,700 private-sector jobs... and added 2,900 public-sector ones. Et cetera, et cetera, et cetera.

You know the story. California is in a similar mess. Why? Why did New York State need 10,000 more employees in September 2002 than it needed in September 1997? Was I getting 41Ú2 percent more services from my state in 2002 than in 1997? Or were existing services 41Ú2 percent better?

These things you are not allowed to ask. There is an ineluctable law of nature at work here. Unlike you and me, a state gets to spend more money every year, every blessed year, come rain or shine, come hell or high water. Why? I already told you: You are not allowed to ask.


Grant independence to Puerto Rico.

Who wants Puerto Rico? Well, obviously the Puerto Ricans do. It's their place. Not "their country" because it isn't a country. It's a "commonwealth," which is a fancy way of saying it's a U.S. colony. What are we doing in the colony business? Isn't this a free republic? Didn't we get started in the first place as an anti-colonial enterprise?

We can't offer Puerto Rico statehood because they have nothing in common with us, not even a language. (And, oh, also because any senator or representative who voted for such a measure would be lynched on return to his home district.) What's that you say? Ñ Puerto Ricans have fought bravely in our country's wars? Great! Let's give U.S. citizenship to those who have done so! God bless them! For the rest Ñ give them back their country.


Start testing our nukes again.

The USA has not tested a nuclear weapon since 1992. Though we have never ratified the Comprehensive Test Ban Treaty of September 1996 (in a rare spasm of good sense, the U.S. Senate voted it down in 1999), there is an "understanding" among the major nuclear powers not to test. Russia last tested a weapon in 1990; Britain in 1991; China and France in 1996. Most of our nuclear weapons are old Ñ some more than 30 years old. Nuclear weapons are made of unstable substances. They deteriorate in time. (To the degree, according to one Russian scientist, that they start to get warm.) They become ineffective at some unknown rate. Some portion of our nuclear stockpile is now worthless. What proportion? We have no idea. Testing would help us find out.

The objection to this is that if we resumed testing, so would everyone else. Fine: let 'em. I want other counties nukes to work well, too. If China, say, gets to feel that only one in five if her nukes are operational, they will launch five to do the job of one. That is not good. If Hu Jintao wants to pop the big flashbulb over Suffolk County, I'll take my chances. Knowing that five of the suckers are incoming is a lot more difficult for me to cope with.

You can never have too many nukes. The main thing is to make sure that we have more than anyone else, and that the darn things work. We have plenty of deserts, and access to outer space, too. Let's get our nuclear arsenal buffed up, shining, and ready to go.

(My NRODT colleague Jeff Hart has a saying I like: "We shouldn't build any more nuclear weapons till we've used the ones we've got." Right!)




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posted by James 4:58 PM

Power Law Networks...and the evolution of blogs.

 

Clay Shirky shows how 80/20 distribution is normal emergent behavior in power law networks; and how blogs will become broadcasting/journalism when they get good...

JMW
=====================

Shirky - Powerlaw

This issue's essay is on the inevitability of power laws in social systems, and in particular in the weblog world. I have lived through a decade of seeing social systems on the internet start small and egalitarian and grow large and unequal, and every time it has happened, some of the users of the system have taken it upon themselves to complain that the the Old Guard had gotten cliquish, or that the newbies were not living up to what was expected of them, or [insert psychological explanation here.]

These explanations, focussed as they were on individual behaviors, never seemed to me to be adequate to describe what was obviously structural change that happened to all kinds of systems. Recently, work by Barabasi, Huberman, and Watts have all pointed to ways in which power law distributions, where the rank of the Nth item is 1/Nth that of the first item, arise in social systems. The structural inevitability of power laws explain these kinds of inequalities in social systems far better than any explanation focussed on the actions of individual members of the system.
...
A persistent theme among people writing about the social aspects of weblogging is to note [http://www.fawny.org/decon-blog.html] (and usually lament [http://onepotmeal.com/blog/archives/001178.html]) the rise of an A-list, a small set of webloggers who account for a majority of the traffic in the weblog world.Ê This complaint follows a common pattern we've seen with MUDs, BBSes, and online communities like Echo and the WELL.Ê A new social system starts, and seems delightfully free of the elitism and cliquishness of the existing systems.Ê Then, as the new system grows, problems of scale set in. Not everyone can participate in every conversation.Ê Not everyone gets to be heard.Ê Some core group seems more connected than the rest of us, and so on.

Prior to recent theoretical work on social networks, the usual explanations invoked individual behaviors: some members of the community had sold out, the spirit of the early days was being diluted by the newcomers, et cetera.Ê We now know that these explanations are wrong, or at least beside the point.Ê What matters is this: Diversity plus freedom of choice creates inequality, and the greater the diversity, the more extreme the inequality.

In systems where many people are free to choose between many options, a small subset of the whole will get a disproportionate amount of traffic (or attention, or income), even if no members of the system actively work towards such an outcome.Ê This has nothing to do with moral weakness, selling out, or any other psychological explanation. The very act of choosing, spread widely enough and freely enough, creates a power law distribution.

- A Predictable Imbalance

Power law distributions, the shape that has spawned a number of catch-phrases like the 80/20 Rule and the Winner-Take-All Society, are finally being understood clearly enough to be useful.Ê For much of the last century, investigators have been finding power law distributions in human systems.Ê The economist Vilfredo Pareto observed that wealth follows a "predictable imbalance", with 20% of the population holding 80% of the wealth [http://bently.com/articles/999pareto.asp].Ê The linguist George Zipf observed that word frequency falls in a power law pattern [http://linkage.rockefeller.edu/wli/zipf/], with a small number of high frequency words (I, of, the), a moderate number of common words (book, cat cup), and a huge number of low frequency words (peripatetic, hypognathous). Jacob Nielsen observed power law distributions in web site page views, and so on. [http://www.useit.com/alertbox/zipf.html]

We are all so used to bell curve distributions that power law distributions can seem odd.Ê The shape of Figure #1, several hundred blogs ranked by number of inbound links, is roughly a power law distribution.Ê Of the 433 listed blogs, the top two sites accounted for fully 5% of the inbound links between them. (They were InstaPundit and Andrew Sullivan, unsurprisingly.)Ê The top dozen (less than 3% of the total) accounted for 20% of the inbound links, and the top 50 blogs (not quite 12%) accounted for 50% of such links.

...

The inbound link data is just an example: power law distributions are ubiquitous.Ê Yahoo Groups mailing lists ranked by subscribers is a power law distribution... LiveJournal users ranked by friends is a power law... The traffic to this article will be a power law, with a tiny percentage of the sites sending most of the traffic.Ê If you run a website with more than a couple dozen pages, pick any time period where the traffic amounted to at least 1000 page views, and you will find that both the page views themselves and the traffic from the referring sites will follow power laws...

- Rank Hath Its Privileges

The basic shape is simple - in any system sorted by rank, the value for the Nth position will be 1/N.Ê For whatever is being ranked -- income, links, traffic -- the value of second place will be half that of first place, and tenth place will be one-tenth of first place. There are other, more complex formulae that make the slope more or less extreme, but they all relate to this curve.) We've seen this shape in many systems.Ê What've we've been lacking, until recently, is a theory to go with these observed patterns.

Now, thanks to a series of breakthroughs in network theory by researchers like Albert-Lazlo Barabasi [http://www.nd.edu/~alb/], Duncan Watts [http://smallworld.sociology.columbia.edu/watts.html], and Bernardo Huberman [http://www.hpl.hp.com/shl/people/huberman/], among others, breakthroughs being described in books like Linked [http://isbn.nu/0738206679], Six Degrees [http://isbn.nu/0393041425], and The Laws of the Web [http://isbn.nu/0262083035], we know that power law distributions tend to arise in social systems where many people express their preferences among many options.Ê We also know that as the number of options rise, the curve becomes more extreme. This is a counter-intuitive finding -- most of us would expect a rising number of choices to flatten the curve, but in fact, increasing the size of the system increases the gap between the #1 spot and the median spot.

A second counter-intuitive aspect of power laws is that most elements in a power law system are below average, because the curve is so heavily weighted towards the top performers.Ê In Figure #1, the average number of inbound links (cumulative links divided by the number of blogs) is 31.Ê The first blog below 31 links is 142nd on the list, meaning two-thirds of the listed blogs have a below average number of inbound links.Ê We are so used to the evenness of the bell curve, where the median position has the average value, that the idea of two-thirds of a population being below average sounds strange.Ê (The actual median, 217th of 433, has only 15 inbound links.

- Freedom of Choice Makes Stars Inevitable

To see how freedom of choice could create such unequal distributions, consider a hypothetical population of a thousand people, each picking their 10 favorite blogs.Ê One way to model such a system is simply to assume that each person has an equal chance of liking each blog.Ê This distribution would be basically flat -- most blogs will have the same number of people listing it as a favorite.Ê A few blogs will be more popular than average and a few less, of course, but that will be statistical noise.Ê The bulk of the blogs will be of average popularity, and the highs and lows will not be too far different from this average.Ê In this model, neither the quality of the writing nor other people's choices have any effect. In this model, there are no shared tastes, no preferred genres, no effects from marketing or recommendations from friends.

But people's choices do affect one another.Ê If we assume that any blog chosen by one user is more likely, by even a fractional amount, to be chosen by another user, the system changes dramatically.Ê Alice, the first user, chooses her blogs unaffected by anyone else, but Bob has a slightly higher chance of liking Alice's blogs than the others.Ê When Bob is done, any blog that both he and Alice like has a higher chance of being picked by Carmen, and so on, with a small number of blogs becoming increasingly likely to be chosen in the future because they were chosen in the past.

Think of this positive feedback as a preference premium.Ê The system assumes that later users come into an environment shaped by earlier users; the thousand-and-first user will not be selecting blogs at random, but will rather be affected, even if unconsciously, by the preference premiums built up in the system previously.

Note that this model is absolutely mute as to why one blog might be preferred over another.Ê Perhaps some writing is simply better than average (a preference for quality), perhaps people want the recom- mendations of others (a preference for marketing), perhaps there is value in reading the same blogs as your friends (a preference for "solidarity goods", things best enjoyed by a group).Ê It could be all three, or some other effect entirely, and it could be different for different readers and different writers.Ê What matters is that any tendency towards agreement in diverse and free systems, however small and for whatever reason, can create power law distributions.

Because it arises naturally, changing this distribution would mean forcing hundreds of thousands of bloggers to link to certain blogs and to de-link others, which would require both global oversight and the application of force.Ê Reversing the star system would mean destroying the village in order to save it.

- Inequality and Fairness

Given the ubiquity of power law distributions, asking whether there inequality in the weblog world (or indeed almost any social system) is the wrong question, since the answer will always be yes.Ê The question to ask is "Is the inequality fair?" Four things suggest that the current inequality is mostly fair.

The first, of course, is the freedom in the weblog world in general. It costs nothing to launch a weblog, and there is no vetting process, so the threshold for having a weblog is only infinitesimally larger than the threshold for getting online in the first place.

The second is that blogging is a daily activity.Ê As beloved as Josh Marshall (www.TalkingPointsMemo.com) or Mark Pilgrim (www.DiveIntoMark.com) are, they would disappear if they stopped writing, or even cut back significantly.Ê Blogs are not a good place to rest on your laurels.

Third, the stars exist not because of some cliquish preference for one another, but because of the preference of hundreds of others pointing to them.Ê Their popularity is a result of the kind of distributed approval it would be hard to fake.

Finally, there is no real A-list, because there is no discontinuity. Though explanations of power laws (including the ones here) often focus on numbers like "12% of blogs account for 50% of the links", these are arbitrary markers.Ê The largest step function in a power law is between the #1 and #2 positions, by definition.Ê There is no A-list that is qualitatively different from their nearest neighbors, so any line separating more and less trafficked blogs is arbitrary.

- The Median Cannot Hold

However, though the inequality is mostly fair now, the system is still young.Ê Once a power law distribution exists, it can take on a certain amount of homeostasis, the tendency of a system to retain its form even against external pressures.Ê Is the weblog world such a system? Are there people who are as talented or deserving as the current stars, but who are not getting anything like the traffic?Ê Doubtless. Will this problem get worse in the future?Ê Yes.

Though there are more new bloggers and more new readers every day, most of the new readers are adding to the traffic of the top few blogs, while most new blogs are getting below average traffic, a gap that will grow as the weblog world.Ê It's not impossible to launch a good new blog and become widely read, but it's harder than it was last year, and it will be harder still next year.Ê At some point (probably one we've already passed), weblog technology will be seen as a platform for so many forms of publishing, filtering, aggregation, and syndication that blogging will stop referring to any particularly coherent activity.Ê The term 'blog' will fall into the middle distance, as 'home page' and 'portal' have, words that used to mean some concrete thing, but which were stretched by use past the point of meaning.Ê This will happen when head and tail of the power law distribution become so different that we can't think of J.Ê Random Blogger and Glenn Reynolds of InstaPundit.com as doing the same thing.

At the head will be webloggers who join the mainstream media (a phrase which seems to mean "media we've gotten used to.") The transformation here is simple - as a blogger's audience grows large, more people read her work than she can possibly read, she can't link to everyone who wants her attention, and she can't answer all her incoming mail or follow up to the comments on her site.Ê The result of these pressures is that she becomes a broadcast outlet, distributing material without participating in conversations about it.

Meanwhile, the long tail of weblogs with few readers will become conversational.Ê In a world where most bloggers get below average traffic, audience size can't be the only metric for success. LiveJournal had this figured out years ago, by assuming that people would be writing for their friends, rather than some impersonal audience.Ê Publishing an essay and having 3 random people read it is a recipe for disappointment, but publishing an account of your Saturday night and having your 3 closest friends read it feels like a conversation, especially if they follow up with their own accounts. LiveJournal has an edge on most other blogging platforms because it can keep far better track of friend and group relationships, but the rise of general blog tools like Trackback may enable this conversational mode for most blogs.

In between blogs-as-mainstream-media and blogs-as-dinner-conversation will be Blogging Classic, blogs published by one or a few people, for a moderately-sized audience, with whom the authors have a relatively engaged relationship.Ê Because of the continuing growth of the weblog world, more blogs in the future will follow this pattern than today. However, these blogs will be in the minority for both traffic (dwarfed by the mainstream media blogs) and overall number of blogs (outnum- bered by the conversational blogs.

Inequality occurs in large and unconstrained social systems for the same reasons stop-and-go traffic occurs on busy roads, not because it is anyone's goal, but because it is a reliable property that emerges from the normal functioning of the system.Ê The relatively egalitarian distribution of readers in the early years had nothing to do with the nature of weblogs or webloggers.Ê There just weren't enough blogs to have really unequal distributions.Ê Now there are.

...

====================


posted by James 9:17 AM

Friday, February 07, 2003

Crap....

 

I like Gilder's stuff - Some, however, think he is a charlatan. A colleague writes:

"Darts to you for posting that Gilder article. It was crap when he wrote
it and it's still crap. You are judged by what you post." [ Judge Not Lest Ye Also Be Judged, it is Written...:JMW]

"Laurels for the ZapMail article from Clay Shirley. It's an interesting
analysis of the ZapMail failure... although he misses the important
point that ZapMail didn't produce legally-valid copies of documents. The
planners at FedEx underestimated how many legal documents they carry.
(As Clay kind of alludes to, they also missed the power of Moore's Law
to deliver low cost fax machines.) The projection to (ugh!) VoIP fails
because of factors working for the ILECs that he doesn't appreciate.
- Derf "

Will "disruptive technology" truimph over the Forces of Status Quo - Incumbents Defending Their Turf?

Stay Tuned...

===============
posted by James 9:10 AM

Wednesday, February 05, 2003

Gilder Trusts...

 
This appeared on Silicon Investor and previously (?) WSJ?

Wonderful exposition on why private firms not public officials have it right...

========================

George Gilder: Why I Trust Ken Lay

Tue Dec 10, 2:52 PM ET

By George Gilder

Why I trust the most disgraced chief executive more than I do the most reputable public servant.

Why do I trust Gary Winnick and Jeffrey Skilling--nefarious former chief executives of notoriously bankrupt companies--more than I trust Senator John McCain of vaunted valor in prison camps or David Broder of Pulitzer fame or Senator Joseph Lieberman of famously flinty integrity? Why do I trust Kenneth Lay of Enron (Other OTC:ENRNQ.PK - News) and Bernard Ebbers of WorldCom (Other OTC:WCOEQ.PK - News) more than I trust Justices William Rehnquist (news - web sites) and Antonin Scalia (news - web sites), the stalwart intellectual leaders of a nominally conservative Supreme Court, or even George W. Bush, that most trusted of Presidents?

Why do I trust General Electric (NYSE:GE - News) chief emeritus Jack Welch or AT&T (NYSE:T - News) Chief Michael Armstrong more than I trust the entire scientific and environmental coverage in the New York Times and all the venerable editors of the increasingly political Scientific American? Why do I trust Martha Stewart (news - web sites) and ImClone (NasdaqNM:IMCL - News) 's Sam Waksal far more than I trust the crusading journalist James B. Stewart or New York State Attorney General Eliot Spitzer, trustbuster deluxe, as they righteously seek to banish moneylenders, marketmakers and conflicts of interest from the temples of Wall Street?

The reason I trust disgraced executives more than politicians, judges and journalists is the same reason that I trust physicists more than I trust sociologists. The answer comes from the eminent philosopher of science Karl Popper: falsifiability. In science, falsifiability means that a hypothesis is presented with sufficient rigor to be proven wrong, that is, falsified. It is the condition of trust. By contrast, the sociologist deals in broad propositions--such as "ethnic diversity improves educational outcomes" or "patriarchy causes war"--that, by sinking into a mush of definitions, defy disproof.

Except when conducting trials of identifiable crimes such as murder or assault, judges are no more truthful than politicians or journalists. They all adhere to the "ring-true" standard of sociology rather than the falsifiable standard of physics. Most of the time, as physicist Wolfgang Pauli put it in another context, they are not even wrong. Their statements lack the rigor to rate as lies and swim in the ontological soup of the verb "to be." From such a soup, no enduring truths can evolve.

Like a physical experiment, every entrepreneurial venture embodies and tests a hypothesis about products or markets. Intel is currently preparing to test the hypothesis that computer companies will choose a microprocessor that runs at 3 gigahertz, or 3 billion cycles a second, and will buy it in sufficient volumes that Intel can profitably manufacture it in a plant that costs $2 billion to build and equip. Samsung is testing whether people will buy a cell phone that takes digital photographs. Ebay (NasdaqNM:EBAY - News) is testing whether it can move beyond Web auctions of used wine openers to Web auctions of $20,000 antique cars, and to TV programs. The presence of such testable hypotheses distinguishes investment from both gambling and government planning. A true gamble does not test a refutable principle. Therefore it cannot produce valuable knowledge. Likewise, a nationalized business with guaranteed markets cannot yield falsifiable information.

Knowledge emerges not from chaos, or fixity, but from conditions of uncertainty. Under capitalism power flows to precisely the people who are willing to stake their money not on gambles or sure things but on testable hypotheses, thus generating knowledge and wealth for society. Entrepreneurs are trustworthy because they accept a moral code of testability and falsifiability rather than one based on sentiment, sanctimony, good intentions, good press, good luck, good looks or guarantees.

Bankruptcies play the same role in economic progress that falsifiability plays in the progress of ideas. Both sciences and businesses advance as much by disproof as by affirmation. Every capitalist investment has the potential for a dual yield: a financial profit and an epistemological profit. One without the other is sterile. Economies progress when the process of investment is informed by the results of previous investments. What makes the entrepreneur uniquely trustworthy is that he combines in one person these two yields of enterprise. If his venture succeeds, he also gains the power--through profits--to make further investments, further experiments in light of his initial venture. If his venture fails, he and other investors who shared his confidence in the business may well lose wealth, and the project will sooner or later be halted, no matter how commendable and morally uplifting it is. But even as money is lost, epistemological profit is gained, distilled through the learning effects of direct experience.

I trust chief executives because they deal in projects that can go bankrupt. They cannot repeatedly or consistently lie about their companies because the truth will out in a relatively short time. Even at Enron, Lay and Skilling could deceive themselves and the public only for a matter of months. Skilling got skittish--and got out. Lay maintained his faith through no fewer than 14 margin calls that he had to meet by selling Enron shares. Both Enron stars learned their lessons (about off-the-books subsidiaries and financial engineering, for example), and they taught them to the world.

Gary Winnick and his serial executives at Global Crossing (Other OTC:GBLXQ.PK - News) also submitted to the crucible of experience. Building a unique global network of optical fiber, they learned the perils of debt in a deflationary market. Selling a quarter of his shares at a $600 million profit, Winnick also signaled a belief that they were fairly valued or even overvalued. Many other shareholders did not trust that signal, though they should have. Now politicians want to banish such information from markets altogether in the name of making them more transparent and trustworthy. But most business information is uncertain most of the time. Which means that bans on insider trading make markets more treacherous, since prices will not move until outcomes are sufficiently certain to be announced. Insider trading rules make the executive personally liable for getting things wrong, though much of what any chief executive--or any person--thinks at any particular time is wrong. Thus the law bars all the guesses and intuitions of people closest to the company from influencing the price of the shares.

While executives can be trusted to face reality and learn from it, even if it means bankruptcy, no such corrective faced the politicians and judges who allowed the bankruptcies of some 35 onetime producers of asbestos on account of preposterous claims of "potential illnesses" from this mostly safe and useful material. No such edifying gauntlet faced the government officials and politicians who brought down 70 telecom companies through a series of egregious policy errors of telecom reregulation and monetary deflation.

Politicians are indignant about bankruptcy. They deem it a crime, rather than a punishment. But they would never tolerate the equivalent outcome for themselves. To prevent such a catastrophe, incumbent politicians such as McCain and Lieberman, who want us to trust them, have been busily enacting campaign-finance rules that bar anyone without a personal fortune from displacing them. But even the loss of an election does not require the abnegation faced by a bankrupt entrepreneur, or the recanting expected of a scientist whose findings have been falsified. Coming from an entirely different culture, politicians and journalists are baffled by enterprise and science. But the most crucial reason to distrust nearly everything said by politicians is their defiance of truth and reality on issues of science.

Example: In one of the most brazen chemophobic claims in the history of science and government, politicians around the world are now condemning carbon dioxide (the air that we breathe out and plants imbibe) as a dangerous pollutant. Seeking new controls on the global economy, Greens urge implementation of the Kyoto Protocol (news - web sites) on global warming (news - web sites), which would cost $500 billion a year to apply, reliably causing a Third World holocaust of famine and poverty. Citing a nonexistent consensus of scientists, the political choirs ignore all evidence that temperatures today, though admittedly warming up from the "little ice age" of the last millennium, are cooler than their average in the human era. By many paleochemical calculations, corroborated by historical record, global temperatures were several degrees warmer 1,000 years ago, 3,000 years ago and 6,000 years ago, long before humans began using fossil fuels. Rushing to justify new government powers over the global economy, journalists and politicians simply do not deign to consider the available data on the history of weather.

Politicians get away with denouncing reality and blaming it on executives and other private-sector powers. But driving most of the misrepresentation in business is the labyrinth of laws through which the chief executive has to guide his company, following the advice of lawyers and accountants and sharpie chief financial officers. Since corporate tax laws and securities regulations make no sense, executives do not bother to learn the details, leaving interpretation of the cabalistic codes to highly paid experts with many years of training and specialized degrees. Journalists who would never dream of filling out their own tax returns deride executives who claim they have no clear idea of the contents of thousands of pages of mandated forms and accounts that remain unread by anyone, including the government bodies that mandate them--until bankruptcy or recession lends 20-20 postmortem clairvoyance to press, politicians and prosecutors. Depreciation rules that assign lives of 15 years to telecom switches that grow obsolete in 15 months make "the capitalization of expenses" a mandatory part of telecom business. Mandatory, that is, when the government mandates it. Otherwise, as in the case of WorldCom, it becomes felonious. As the President put it, "Corporate accounting is not necessarily black and white."

What makes these accounts so critical to politicians are insider trading regulations that try to create a level playing field for both a taxi driver and Warren Buffett. With all other information pushed beyond the pale, politicians want to believe that the quarterly numbers are meaningful and sufficient guides to investment. But without inside information of material significance, investment loses its falsifiable basis and becomes a form of gambling. Buffett or the executives of General Electric or the masters of Silicon Valley's venture capital would never think of staking their funds without inside knowledge unavailable to hoi polloi. Inside knowledge is perfectly legal for all these players, who sit on multiple boards, read hundreds of for-their-eyes-only business plans, and shuffle capital among hundreds of companies under a corporate umbrella or within a portfolio.

The law denies inside information only to the layman, who is expected to invest on the basis of technical analysis (the voodooistic interpretation of past trading patterns), Keynesian economic astrology, quarterly earnings reports known to the world and other trading trivia. While investigators pore over tomes of paperwork to ferret out the possibly inside provenance of information about ImClone--which had already plunged the stock ten points when Martha finally sold--the rest of the world is left to contemplate the baffling challenge of finding any shred of actionable data about a company that cannot be deemed an inside tip. The idea of a level playing field of information is ridiculous on its face, since information is defined as a deformation of the level. Outside analysis is mostly useless to investors--because it is outside, and thus widely known and already reflected in the prices of shares.

Chief executives understand that it is impossible to banish insider trading without crippling the markets themselves. They grasp that conflicts of interest are ubiquitous in life and that intelligent people take them into consideration when appraising a particular report, tip, argument or analysis. But politicians rule a realm where rhetoric trumps reality, where they imagine they can guarantee corporate purity with Chinese walls and chastity belts among analysts and bankers, forced recusals by "interested parties," mandated "independent" board members, executive seals and signatures on all accounts, back-checks and other fake remedies imported from the world of law and politics. Amid the fun-house mirrors of insider trading rules, we now live in a world where the only investors free of suspicion are people who channel their money into companies they know nothing about. Approved by politicians everywhere, the best investment by this measure is a state-run lottery or, more significantly, an all-market index fund from which all useful inside information has been excluded. If people are not allowed to put their money in companies they understand, capitalism loses its advantage over socialism, since what makes capitalism succeed is the assignment of capital to the insiders who earned it--and thus learned how to invest it profitably.

The insanity of our securities laws, and even our tax laws, is nothing compared with the sand thrown into capitalism's gears by American antitrust law. Based on the idea of perfect competition, where the market is omniscient, this code is as unenforceable as the insider trading rules. Now coming forward with treble-damage antitrust claims are the likes of class action attorney William Lerach. Under the rules, companies today can set any price they choose for their output, as long as it is not too high (gouging), too low (predatory dumping) or just right (collusion). At present Micron Technology (NYSE:MU - News) and other producers of dynamic random access memory chips for computers--one of the most competitive industries on the planet--are confronted with charges from the Justice Department (news - web sites) that imply all three pricing offenses at once.

No government program has ever gone broke, which is why politicians need never face the inconvenience of weighing the truth or falsity of their claims while they calibrate them to the resonant frequencies of their audiences. Republicans were cruelly unfair to Bill Clinton, whom they assailed as dishonest, when in fact he was fully honest to his trade as a Democratic politician. Republicans are scarcely better. They adopt a different idiom, oriented toward people in businesses, churches, constabularies and intact families, rather than toward single mothers, academics envious of others' success, union members, government workers, criminals and professional Greens or grievance groups. But politicians in neither party tell the kinds of truths espoused by physicists.

When a politician breaks the pattern and speaks the truth--normally in a crisis too sudden to permit the conducting of a public opinion poll--he gains instant beatification, as Rudy Giuliani and George W. Bush discovered after Sept. 11. The public reels in amazement and admiration, as if their dog had begun to sing Schubert lieder. After a time, though, the politician wishes to discover what it was that elicited the public enthusiasm. He takes a poll.

Chief executives trust the personal opinions of their customers, who voluntarily and authoritatively choose what to buy with their own money. Politicians collect the money of others in order to spend it on public purposes sanctioned by figments of aggregate opinion.

In a profession offering a limited number of powerful slots--100 senators, 50 governors, 1 President--politicians live in a zero-sum world, where the gains of one necessarily come at the expense of others. In an election, one candidate wins and the other loses. In a zero-sum world, you may envy or blandish others, but you cannot trust them, because you can assume they are seeking to aggrandize themselves at your expense. Thus politicians necessarily distrust one another and the public. It is natural for them to tax and regulate people coercively.

By contrast, chief executives know that their success is dependent on grasping a reality that they can never comprehend in its fullness themselves. In order to win they must trust others and collaborate with them. Their success depends on the successes of others; their own enrichment relies upon the enrichment of their customers and collaborators; their own profits stem from the dignity of voluntary personal choices, rather than coercive appropriations. Their entire enterprise is ultimately founded on trust. That is ultimately why I trust them. They trust me.

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posted by James 10:39 PM