We See Your 'Copyright Contributes $1.5 Trillion' And Raise You 'Fair Use Contributes $2.2 Trillion'

from the pointless-numbers dept

The copyright industry lobbyists absolutely love to throw around the bogus and debunked stat that copyright contributes $1.52 trillion to the economy. That number is derived by taking any business that kinda sorta maybe touches copyright (including things like furniture and jewelry) and then assuming that all of the revenue they make is entirely due to copyright. Yes, that's ridiculous. But, if the copyright lobbyists are going to use such bogus methodology to push their agenda, it seems only fair for those on the other side to use the same methodology. Last week, we wrote about a biased editorial by two newspaper industry lawyers in the WSJ (who failed to note the conflicts of interest), claiming that Google violated copyright law, and attacked the concept of fair use.

In response, Ed Black, from the Computer & Communications Industry Association wrote a letter to the editor highlighting those lawyers factual mistakes as well as the importance of fair use throughout the industry (thanks to Yano for sending this in). Most of the (short) letter discusses all the wonderful things that fair use allows, and then has this wonderful line at the end:

Businesses dependent upon exceptions to copyright contribute $2.2 trillion to the U.S. economy. They are responsible for one in eight jobs, for a total payroll of $1.2 trillion in 2006. Fair use is serious business; it is the glue that holds the Internet and new technology together. It is worth protecting.

This is fantastic. Of course, the number is just as bogus as the $1.52 trillion used by copyright maximalists, but I think that if they're going to use their methodology to make such ridiculous claims, it's only fair to do the same for the contributions to the economy of exceptions to copyright, and as the CCIA clearly demonstrates, the businesses that rely on weaker copyright contribute significantly more to the economy than those that rely on copyright. Thus, by the copyright maximalists own logic (and numbers), shouldn't we be fighting to expand the exceptions to copyright law?

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Same Economy, Different Bubble

from the and-it's-going-to-pop dept

Last year, The Onion (which has a knack for predicting the future in really scary ways) had an amusing article: Recession-Plagued Nation Demands New Bubble To Invest In. In the immortal words of Homer Simpson: "It's funny 'cause it's true." And, indeed, one of the big fears we've had since the beginning of the government's response to the financial crisis is that it hasn't been doing anything to solve the real problem of a lack of transparency. Pumping more money into the system without fixing that simply meant that we'd repeat the cycle, with the money eventually finding some bubble again.

At this point, it's worth taking a step back, and understanding why these sorts of bubbles occur. Sometimes, investment bubbles can actually be quite beneficial. In markets of true innovation, where a clear success story or business model hasn't yet been worked out, a bubble allows a lot of money to be thrown at the problem at once. From that, you get a lot of ideas tested in the marketplace very rapidly. Many of them fail once the bubble collapses, and many investors lose money, but the ideas that do work and do stick around tend to takes us forward in leaps and bounds. Bubbles in innovative technologies function as a form of speeding up the innovation process and getting lots of infrastructure built and ideas tested rapidly. It's no fun if you're caught on the wrong side of the investment, but for society, it can be a net gain.

However, that's not what happened in the last economic crash. That was built on a different sort of bubble, based not on funding innovation, but on a series of arbitrage plays where bankers actively worked to obfuscate risk, so that it could be passed on to the latest sucker. Basically, they kept taking riskier and riskier assets, and packaged them in a way that they looked less risky. Then, by making it so no one could really look at (or understand) the true risk, they could sell these super risky investments off to suckers at prices as if they were safe. And, since such a house of cards takes a while to collapse, it doesn't take long for everyone to pile in, feeling like they have to match those returns.

So, the answer to this is to increase transparency. If you could really get the information out there, such that people could look at the underlying details and properly calculate the risk, not based on random clueless rating agency employees, but in a true market, then it would be that much more difficult to pass off and misprice super risky vehicles as safe.

But that's not what's happening. Without any efforts at increasing transparency, combined with pumping a ton of new cash into the market, we're getting another bubble. The bankers are still operating the same way they did in the past -- which is looking for ways to obfuscate the risk and find new suckers to take the risk off their hands without really understanding how to price that risk. It may be securitizing life insurance or it may be in the carry trade. It doesn't really matter. The money is looking for a new bubble and a focus on short term profits over long term sustainability -- and that's enabled by allowing banks to play "hide the risk."

This is really quite worrisome. It's been over a year since the financial crisis went into panic mode (even if the actual recession and problems significantly predated that). And while the "worst case scenario" did not occur, there's been little evidence of real fixes to the economy or any attempt to really fix the factors that resulted in the original problem. Instead of creating transparency and a long term strategic focus, we're just pumping cash into the economy to try to help suckers find the next bubble.

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Washington Post Says Economy Is Bad... No, Good... No, Bad For Nigerian 419 Scammers

from the good-or-bad? dept

There's a fascinating article in the Washington Post about the impact of the worldwide financial crisis on Nigerian 419 scammers. However, I have to admit, that I'm a bit confused about the article, which seems to state two totally contradictory things. First, that it's more difficult to be a Nigerian scammer these days since Americans don't have as much money -- but then at the same time, that Americans are falling for the scam more easily these days since they're desperate for money. I don't see how both can be true. Two quotes from the article:

"We are working harder. The financial crisis is not making it easy for them over there," said Banjo, 24, speaking about Americans, whose trust he has won and whose money he has fleeced, via his Dell laptop. "They don't have money. And the money they don't have, we want."

And then, just two paragraphs later:

U.S. authorities say Americans -- the easiest prey, according to Nigerian scammers -- lose hundreds of millions of dollars a year to cybercrimes, including a scheme known as the Nigerian 419 fraud, named for a section of the Nigerian criminal code. Now financially squeezed, Americans succumb even more easily to offers of riches, experts say.

And then, just a bit later, the scammers again complain that times are harder, and profits are down 40%.

So... um... which is it? Has it become more difficult or easier than ever? Isn't that the sort of thing that a newspaper reporter would be expected to search out and let us know? Not the Washington Post, apparently. It just tells us both are true and lets everyone else figure it out!

While, personally, I still can't figure out how anyone is still fooled by such scams after so many years of them being talked and written about, the article does suggest that the scammers themselves are easily scammed. This, of course, will come as no surprise at all to the group of folks who have fun scambaiting 419 scammers, but the article notes that scammers who are having a tough time are quickly throwing down lots of cash on magic potions, powders and artifacts to help them perform better as scammers:

Banjo said, he has traveled six hours to the forest, where a magician sells scam-boosters. A $300 powder supposedly helps scammers "speak with authority" when demanding payment. A powder, rubbed on the face, reportedly makes victims viewing the scammer through webcams powerless to say no.

"No matter what, they will pay," said Olumide, a college student, adding that he is boosting his romance scams by wearing a magical, live tortoise hanging from a cord around his neck.

So, scam baiters, it seems like perhaps you should be selling such things right back to the scammers.

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Yet Another Study Shows That Weaker Copyright Benefits Everyone

from the good-news dept

Economists Felix Oberholzer-Gee and Koleman Strumpf have written some previous papers on this subject, but they've just come out with a new working paper on how weaker copyright protection benefits society (pdf file). Michael Geist has an excellent overview and summary of the paper. To understand the key points made by the paper, you need to understand the purpose of copyright -- something that many people are confused about. It's always been about creating incentives to create new works. Copyright maximalists and defenders of strengthening copyright laws always suggest that without copyright, there would be much less creative output, because there would be much less incentive to create. History has shown that to be false. If you look back at the age when all creative output had to be registered to be covered by copyright, studies showed that only a very small fraction of content creators even bothered, because copyright wasn't the incentive. It's only now, when copyright is automatic, that people seem to think that copyright is somehow necessary.

But the paper shows why this isn't true, and highlights a few points that we've made repeatedly over the years. Even if there are fewer "album" sales, more people are creating more music than ever before in history, and more people are making some money from the production of music -- even if it's not from album sales directly:

Overall production figures for the creative industries appear to be consistent with this view that file sharing has not discouraged artists and publishers. While album sales have generally fallen since 2000, the number of albums being created has exploded. In 2000, 35,516 albums were released. Seven years later, 79,695 albums (including 25,159 digital albums) were published (Nielsen SoundScan, 2008). Even if file sharing were the reason that sales have fallen, the new technology does not appear to have exacted a toll on the quantity of music produced....

Similar trends can be seen in other creative industries. For example, the worldwide number of feature films produced each year has increased from 3,807 in 2003 to 4,989 in 2007 (Screen Digest, 2004 and 2008). Countries where film piracy is rampant have typically increased production. This is true in South Korea (80 to 124), India (877 to 1164), and China (140 to 402). During this period, U.S. feature film production has increased from 459 feature films in 2003 to 590 in 2007 (MPAA, 2007).

So the idea that file sharing has somehow damaged creative output is simply not supported by the numbers. At the same time, the paper also makes the other point that we've made: that as infinite goods spread more widely, it only tends to increase the ability to make money from other scarce complements. After going through a few different studies, the paper notes:

As these results show, income from the sale of complements can more than compensate artists for any harm that file sharing might do to their primary activity. We are not aware of empirical work that has looked at these effects in industries other than music. But the potential of complements to provide ancillary income is certainly not unique to the music industry. In film, for instance, the International Licensing Industry Merchandisers' Association (LIMA) estimates that Hollywood derives $16 billion annually from sales of entertainment merchandise, a figure that exceeds the value of ticket sales (Film Encyclopedia, 2008).

The role of complements makes it necessary to adopt a broad view of markets when considering the impact of file sharing on the creative industries. Unfortunately, the popular press -- and a good number of policy experts -- often evaluate file sharing looking at a single product market. Analyzing trends in CD sales, for example, they conclude that piracy has wrecked havoc on the music business. This view confuses value creation and value capture. Record companies may find it more difficult to profitably sell CDs, but the broader industry is in a far better position. In fact, it is easy to make an argument that the business has grown considerably. Figure 7 shows spending on CDs, concerts and iPods. The decline in music sales -- they fell by 15% from 1997 to 2007 -- is the focus of much discussion. However, adding in concerts alone shows the industry has grown by 5% over this period. If we also consider the sale of iPods as a revenue stream, the industry is now 66% larger than in 1997.... Technological change will often lead to changes in relative prices and shifts in business opportunities. Focusing exclusively on traditional streams of revenue to arrive at a sense of how new technology changes welfare will typically be misleading.

This looks like another great addition to the literature on the overall economic impact of "file sharing" and copyright. How much do you want to bet Congress will ignore it?

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Did Not Understanding The Leverage Cycle Kill The Economy?

from the something-worth-exploring dept

David Warsh's latest economics column delves into the renewed interest being given to economist John Geanakoplos' paper explaining how the real issue that brought down the economy was a misunderstanding of "the leverage cycle." Basically, the argument is that everyone (mainly, the Fed) gets so focused on the interest rates, that they stop focusing on the leverage/collateral involved. It's sort of the central banker equivalent of when the mortgage broker tries to get you to ignore all the real terms in your mortgage and just gets you to focus on how much you'll be paying each month. The argument, then, is that the government could have done much more to prevent the crisis if it had simply paid more attention to the leverage situation, which had obviously grown totally out-of-hand. Basically, the argument says that in a competitive market for credit, leverage will always rise, as some parties take bigger and bigger risks, forcing others to do the same. But then everyone's way overleveraged, and when the music stops, basically everyone's left without a seat. It's an interesting theory -- one that sounds good, though on a first read I'm not entirely convinced. While the issue of how much leverage was out there is obviously a part of the problem, I'm not entirely sure that the government would realistically be able to totally control the issue. While it could put in place certain regulations, it seems like there would always be loopholes that allowed leverage to occur elsewhere. Either way, I'm going to do some more reading on the subject, but wanted to pass it along here to see what others thought of it in the meantime.

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Treasury Department Meddling In Venture Capital For No Good Reason

from the not-all-private-equity-is-the-same dept

The Wall Street Journal has an important editorial pointing out why it's a mistake for Treasury Secretary Timothy Geither to include venture capital funds in his new regulatory plan to deal with "systemic risk." There's no doubt that highly leveraged hedge funds contributed greatly to the current economic situation creating a level of systemic risk that we're only just coming to terms with. However, it's not at all clear what venture capital has to do with that. Yes, both are unregulated funds of private equity, but that's about where the similarities end. Venture capital relies very little on debt, and is usually a way for wealthy investors to bet money more long term on new innovations, rather than the sort of short-term speculation that is more common with hedge funds.

Yet, for some reason, they're being lumped together and will have the same regulatory burdens. This could significantly hinder venture capitalists, similar to some other recent regulatory changes, creating unnecessary and wasteful burdens that are more for show than any actual effort to protect the economy. As the editorial points out: we've already stress tested the venture capital world, when the dot com bubble burst, it didn't cause any systemic risk. No banks failed because of the bubble bursting. So why is the government suddenly acting like VCs are a threat to the widespread economy now?

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Thank The Economy For More Traffic Cameras

from the they're-coming... dept

We just wrote about Maryland ramping up its traffic camera program, pointing out that it seemed more motivated by revenue than safety (despite what officials claimed). And, now we're seeing that New York is also ramping up its traffic cameras. Once again, though, the issue is about revenue more than safety. Paul Kedrosky points us to a study that notes that traffic tickets always increase when the economy goes down because municipalities are motivated much more by revenue than safety.

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The Contrarian Banker Who Avoided Bad Loans... And Is Now Buying Up The Scraps

from the no-gov't-money-needed dept

While we've wondered why those who made such bad bets on Wall Street are getting bailed out and even relied upon to save the economy, Forbes has found one of the guys who knew better: Andy Beal. A banker in Texas who basically stopped taking on any new loans for years as he thought things were going out of control. In fact, he barely worked at all -- stopping by just a few hours a day, playing board games with his staff, and even laying off about half of his employees. He did this while waiting for the market to collapse, knowing that things were way out of control. In return, he got investigated by regulators, who couldn't understand why he wasn't joining in the fun.

Of course, now that things have collapsed, he's buying up distressed assets for pennies on the dollar, and wants to buy more, planning to become a huge bank. Oh, and all that government money that's supposed to help those private companies who are buying up these assets? He doesn't qualify for most of it (no more than a token amount that's not even worth taking). Instead, it's really designed for the folks who screwed things up in the first place. This guy -- who actually saw what was going on, and prepared for it, now has to compete against those who screwed up and are being handed billions by the government.

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Is The Economy Taking A Bite Out Of Abusive Patent Lawsuits?

from the one-can-hope... dept

We've never been a fan of Ocean Tomo, the "patent auction" shop that was seen as something of a clearing house for lawyers and patent hoarders looking to buy up patents to squeeze money out of other companies. However, in February, we wrote about an article in the Chicago Tribune insisting that the tough economy was increasing patent sales as companies looked to squeeze more value out of their patent portfolios. We questioned the article, noting that it showed absolutely no proof whatsoever that sales were up -- other than a claim (with no data) from an Ocean Tomo exec, who had every incentive to make people believe that sales were up.

But, in reality, it turns out sales aren't up. They're way, way, way down.

Joe Mullin writes about the latest Ocean Tomo auction that can reasonably be termed a total disaster after sales didn't just fall, but fell off a cliff:

While some folks I spoke to before the auction said they expected sales this year to be down by as much as 50 percent from last year, the final results were much worse. Friday's auction took in just under $2.9 million--more than 80 percent less than the roughly $17 million in patent sales generated by the company's San Francisco auction last year.

Out of more than 80 lots of patents on the block, only six sold. (An Ocean Tomo auction "lot" can include a single patent, several patents, or a portfolio of patents in related technology.) Ocean Tomo tacks on a 10 percent fee paid by buyers, and also charges fees to sellers, meaning the company probably took in less than $1 million for itself....

Ocean Tomo CEO James Malackowski looked a bit shaken by the end of the day.

"Obviously the market has become more selective," he said in brief concluding remarks.

That, of course, is exactly the opposite of what Ocean Tomo was telling reporters just a few weeks ago (and those reporters repeated it without question).

In the meantime, Saul Hansell of the NY Times, notes that one of the very few buyers was RPX, a company we covered last year, which is still insisting that its business model is never to sue for infringement but to simply let tech companies "license" its portfolio as a way of having ammo against other patent infringement lawsuits. It's sort of "Intellectual Ventures-lite." This was the original business plan of IV, but no one really believes that IV won't eventually sue -- and I'd imagine the same is true of RPX. At some point, its A-list investors will demand a bigger return, and using the portfolio to sue will just be too tempting.

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Populist Outrage Over AIG Bonuses Scaring Private Investors Away From Buying Toxic Assets

from the backlash... dept

Before anyone gets that upset, I'll say that I'm pretty much in exact agreement with Adam Davidson from NPR's Planet Money when it comes to how to feel about the AIG bonuses that were big in the news last week. It's definitely disgusting and troubling to see the money handed out that way, but it's really a tiny sum in the big scheme of things, and there are a lot bigger and more important things that the government should be focused on. Besides, the populist anger is really misplaced -- often directed at the current management or the recipients of those bonuses, rather than those who put in place the contracts that made those bonuses required. But, the very fact that Congress spent so much time on it highlights something we warned about earlier this year: as soon as the government steps in to help a business, it's going to greatly hamstring what that company can do, since its every move will be extra-scrutinized and critiqued. That will certainly limit what many companies are willing to do.

And we're seeing that right now. With the administration spending the weekend trying to convince private firms to buy up a bunch of the "toxic assets" out there, many are (reasonably) worried that they might face AIG-bonus-style backlash. It makes them a lot less willing to act, exactly at a time when we need private firms to step up and clean up the mess.

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Tech Companies Worried About Unions

from the recession-time... dept

It never fails. As the economy collapses, someone thinks that the answer is greater unionization. It happened back in 2000 when the tech bubble collapsed, and it's happening again today, in part due to recently proposed legislation that would make it easier to unionize. Apparently, the tech industry is especially worried about this -- and they should be. I'm very much a student of the economics of unions (I do have a degree in labor relations, after all, which included more classes than I'd care to remember on both labor history and labor economics) and while I recognize the tremendous value that collective bargaining provided a century ago to workers who were helpless to fight back against abusive management, that's not the situation we're in today. Unionizing the tech industry would be a disaster for the economy and innovation.

Collective bargaining is one thing, but unions tend to be more focused on protectionism, rather than just getting workers together to bargain a deal. And much of our innovative environment is encouraged by a dynamic workforce with increased job mobility, allowing for a cross-pollination of ideas, as opposed to a stagnant and limited workforce. Unionization takes away the necessary flexibility of both workers and employers, greatly slowing down the pace of innovation. It could make sense in a static, totally mature environment, but it's difficult to think of many of those. These days, almost every industry needs to be innovating, and you don't do that with a unionized structure. Just the very nature of building a structure that encourages an antagonistic relationship between "workers" and "management" misses the point, these days. A friend mentioned the other day that workers today are more likely to be shareholders than union members, so perhaps they'll recognize this and not go down a bad path that leads to fewer jobs, less innovation and more economic toil. Unions are the last thing that the tech industry needs right now.

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Scamming Looks Like A Growth Industry In These Economic Times

from the jobseeker-beware dept

Scammers look they're being stimulated by the government's stimulus plan, and it seems likely that they're finding plenty of marks in these gloomy economic times. For instance, fake job ads that are fronts for identity theft are up 345% over the last three years. It wouldn't be a stretch to think they'll become even more common, as more and more people start searching for jobs -- and their desperation leads them to lower their defenses in hopes of landing employment.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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The Brain Drain: US Is Losing Immigrants Who Create The Jobs We Need

from the very-dangerous-situation dept

Discussing immigration policy around here is something of a "third rail" item. No matter how many times we explain the importance of bringing smart, educated immigrants into the US, we end up getting a long stream of ignorant comments from people who mistakenly claim that these foreign workers "steal jobs." This is not true. In fact, the opposite is true. Jobs are not a zero sum game. A smart, highly skilled worker helps create new jobs. And... if we hinder them from getting jobs in this country, they end up going to (or staying in) another country, where they compete with American companies, often causing a much greater job loss, as business moves to that foreign company rather than the American company. And yet too many people who can't see past the first move in the chain of events insist that bringing highly skilled foreigners into this country is bad.

Well, they should celebrate, because a growing number of those highly skilled foreigners are going back to their home countries from the US. Despite the fact that these are the folks most likely to create jobs by making companies more successful and starting their own companies, some seem to think it's a good thing that these folks are, instead, creating those jobs and those successful companies elsewhere. If they thought about it, they would realize that by keeping these highly skilled individuals out (or pushing them to leave when they're here) that we're actually destroying American jobs. We're encouraging job creation to happen elsewhere rather than in the US, just because some short-sighted individuals think only about a single job opening, rather than about how job creation and economic growth occurs.

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Can We Push Some Of The Stimulus To Cover Economic Education?

from the that-would-be-grand dept

While I don't necessarily agree with everything that Steven Pearlstein says in his latest column, I do have to second the request that if we're going to dump so many hundreds of billions into a "stimulus" plan, could we also spend some money on educating our members of Congress on basic economics? Pearlstein's idea is to put another $53.5 million (or $100,000 per elected Congressional Representative or Senator) to allow them to hire an economics "personal trainer." I'd actually like to take that argument further, and see if there might be some way to educate the wider population on economics a bit more -- so that we'd avoid silly self-damaging proposals like adding "buy American" requirements.

Separately, I'd like to point to the open letter written to President Obama and Senate Majority Leader Harry Reid, which asks them to publish whatever stimulus bill is finally agreed to for five full days to allow for public comment. This matches up with Obama's earlier promise (which he has unfortunately failed to live up to) to let the public comment on any legislation for five days before passing it. So much of the action on the stimulus bill has been done behind closed doors, involving various horse trading deals that it seems only fair. We saw with the TARP "rescue" package that the more Congress talked, the more pork was included -- and the early results from that all-too-rapid taxpayer cash dump hasn't been good at all. If the new administration is really committed to transparency, it seems only reasonable to let the public read and provide feedback on the stimulus. Related to this, another excellent source to follow is StimulusWatch.org.

This doesn't mean that the gov't should change the stimulus plan based on exactly what the "most" people want (a recipe for a disaster), but let's let some smart ideas start to bubble up by trusting that when more people are allowed to push ideas forward, some good ideas will come out of the mix. Limiting the discussion to just those inside the Beltway has proven to be a huge disaster for quite some time. Let's get more people involved -- recognizing that there will be plenty of terrible ideas -- but as a way to let some good out-of-the-box thinking emerge.

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Some Thoughts On Saving The Economy

from the that-interest-isn't-special dept

The NY Times Magazine is running a well worth reading (if long) article on the question of what sort of efforts are needed by the government to help "save" the economy. While almost anyone (myself included) will find points worth quibbling about in the article, there's a lot of good points made that are worth reflecting on in more detail. The key point is understanding the difference between just creating more jobs in the short term and actually creating sustainable economic growth that will make it possible to pay off our debts in the future (and more).

As the article notes, if you just want to create jobs, you put people to work digging useless ditches. That creates jobs, but it does little else to stimulate the economy -- and, in fact, can do plenty to hinder future economic growth by inefficiently allocating resources. It's Bastiat's old Broken Window's Fallacy of inefficiently allocated resources. The problem, though, is that the folks who are most interested in making sure those resources are allocated inefficiently, are in the best position to make that happen. And that's incredibly dangerous. The article refers to Mancur Olson's theory of how stable and affluent nations decline and fall. The NY Time's summary is a good one:

Successful countries give rise to interest groups that accumulate more and more influence over time. Eventually, the groups become powerful enough to win government favors, in the form of new laws or friendly regulators. These favors allow the groups to benefit at the expense of everyone else; not only do they end up with a larger piece of the economy's pie, but they do so in a way that keeps the pie from growing as much as it otherwise would. Trade barriers and tariffs are the classic example. They help the domestic manufacturer of a product at the expense of millions of consumers, who must pay high prices and choose from a limited selection of goods.

While the article is right about trade barriers and tariffs, don't get hung up on just those. It applies in numerous other ways as well. The healthcare system (which the article discusses in great detail) is a disaster based on a series of rules and regulations that have inefficiently allocated healthcare resources. Our entire healthcare system is a ponzi scheme, of sorts, based on ignoring the very basic lessons of moral hazard -- where we've totally separated the actual costs from the actual payment for healthcare, and created a massively inefficient bubble that encourages bad spending on the wrong things, rather than work towards keeping people healthy. Pile on top of that a bad patent policy that diverts massive funds from actual healthcare into drugs without recognizing that the two are not the same thing, and you have a massive problem that doesn't get solved overnight. And, of course, we're not even discussing policies that work hard to actually artificially limit healthcare providers...

But, while the article paints some positive pictures of some of what the new administration is doing (and saying) -- and I'm thrilled with what some of the administration folks are talking about, there are way too many examples of things going in the other direction. We've already covered the broadband stimulus plan -- which really does look like a huge gift to incumbent players. When pushed on that, Obama's transition guy, Blair Levin, defended it in exactly the way you'd worry about based on the above, saying that the short term focus was on creating jobs, not solving the wider broadband question. The problem is that in creating those jobs in the short-run, they're likely harming overall economic growth in the long run.

Then there are additional things that are troubling, such as the decision to include "buy American" clauses in the stimulus. This is the sort of thing that is often demanded by folks who have little understanding of economics, but plenty of understanding about how things appear politically. Buy American sounds good, but in this case it actually does plenty to harm the American economy -- as it did in the last Great Depression. When the American producers are a lot less efficient, the end result is that we end up spending more and getting a lot less for our taxpayer dollars. That hinders growth (significantly, in some cases) and actually does plenty to damage the American economy. It also falsely boosts the incumbent providers bottom line (see above, again, about those special interests) and doesn't get them to adjust and adapt to the changing market in a timely fashion. Even worse, it often pushes other countries to retaliate in ways that make our economy even worse off. It's a terrible policy and it does significant harm to our economy.

I still remain unconvinced that a massive government spending plan is necessary, but given that's the route we're clearly going down, all our focus should be on making sure that the choices made within that stimulus package are not focused on protecting any particular industry or company, but in creating platforms and infrastructure that allow anyone to compete and contribute to economic growth. To date, there's little evidence that this is actually happening, and that's scary.

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Mobile Operators Want Anything That Might Force Them To Compete... Taken Out Of Stimulus Bill

from the hey,-your-policy-goal-chocolate-is-in-my-government-handout-peanut-butter dept

As debate over the massive economic stimulus bill continues, the trade group representing US mobile operators has weighed in, with its head, former-NFL-star-turned-congressman-turned-shill Steve Largent, saying that unless open-access rules are removed from the broadband section of the bill, carriers will be "hesitant to participate". News to Steve: the stimulus bill, and this section, aren't necessarily intended merely to further line the pockets of incumbent mobile operators. While he thinks open-access rules "will deter providers from taking advantage of the grant program," one would have to imagine that if incumbents sat on the sidelines, plenty of new entrants would be more than willing to open their businesses to the government support and use it to craft new mobile broadband networks that would provide some much-needed competition in the space. Furthermore, such open access requirements didn't stop Verizon from shelling out several billion dollars for spectrum licenses last year. It seems that the CTIA loves it some stimulus -- as long as it doesn't stimulate any potential competition for its members.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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Netbooks Damaging The Tech Economy? Say What?!?

from the a-little-tech-economic-history,-please dept

Well, here's an odd one. Apparently, an analyst at NPD Group, Stephen Baker, is worried that the rising popularity of netbooks is bad for the tech economy. He's claiming:

"History tells us that when we offer lower-priced products, it tends to drive down the average selling price across the board. The net result is to drive down revenue overall, even if there are more units out there."

I'm curious which tech history books he's reading, because that seems to go against pretty much every history of technology evolution I've ever seen. If you've watched the tech industry over the past few decades, things always get cheaper. It's the whole Moore's Law thing at work -- and every time things get cheaper, it allows for more to happen, making products more valuable to more people, and tends to expand, not contract, the wider overall market. Yes, the average selling price decreases, but that's a tautology. Of course if you decrease price, average selling price goes down. That's not analysis, that's saying 2 = 2. But to then say it means overall revenue goes down isn't necessarily true -- and in many tech sectors isn't true at all. In the end, providing a good product, at a reasonable price that many, many people want, is never "damaging" to the economy. It may shift things around, but it always opens up new opportunities.

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Has Our Economy Become Dependant On Bubbles?

from the that-wouldn't-be-good dept

I've said in the past that economic bubbles aren't necessarily a bad thing for the overall economy. Afterall, a bubble (at least one in a productive area, such as technology) tends to get a lot of money thrown at some problems, allowing a variety of innovation to take place very rapidly -- effectively throwing a lot of ideas at a wall to see what sticks. The fallout from a bubble popping often harms investors who bet on the wrong players in the bubble, but the fundamental benefit to society is often positive: a lot of infrastructure gets built very, very fast, and the strongest survives (and often buys up leftovers for pennies on the dollar).

However, there are others sides to the story as well. Joel West points to a recent interview of economists Martin Feldstein and Joe Stiglitz, where Stiglitz worries that we've built an economy based on bubbles:

Joseph Stiglitz: We had the tech bubble, followed by the housing bubble. But once we fix the recent mess, what will replace these bubbles as the engine for the economy?

Feldstein: What will replace the consumer spending bubble?

(Both men): We run the risk of the economy becoming depend on constant stimulus to replace these bubbles.

Stiglitz: I worry that after two years of stimulus, that the economy won't be going on its own, and then what will we do?

Along those same lines, economist Hal Varian has written, in the Wall Street Journal, a very straightforward and clear explanation of why the economy is stuck in neutral right now. Basically, (and, yes, I'm significantly paraphrasing), there's no new bubble to invest in, so (as Stiglitz implies above), everyone's looking for the government stimulus package to basically act as an artificial bubble until such time as a new bubble rises out of the mess. And, for that to happen in a productive way, any sort of "stimulus" needs to create incentives for others to invest in productive, growth-producing parts of the economy, rather than just throwing cash at pork barrel spending projects. This is a pretty fine line to walk (especially since it's politicians who are working out the details, and they love pork barrel spending).

And, to make matters even scarier, economist David Henderson points out that recent research from economists Christina and David Romer (it's worth noting that Christina Romer is Obama's choice to chair the Council of Economic Advisers) suggests that gov't fiscal policy in an attempt to modify business cycles doesn't work. In other words, things are going to be pretty messy in the economy for a while, unless we can come up with a productive and useful bubble quickly. Anyone have any suggestions?

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No, Second Life's Bank Crash Did Not Predict Real World Bank Crash

from the get-real,-people dept

MSNBC is running an article claiming that last year's virtual bank collapse in Second Life somehow foretold the current financial crisis. It makes for a good headline, but it's simply not true. The factors that resulted in the real world financial crash, as compared to the one in Second Life were entirely different. While there may have been some similarities (people not taking the time to understand the risk of certain investments) to compare the two is a pretty big stretch. From there, the article gets even worse, pretending that both financial crashes show that free markets don't work.

That's simply not true.

The eventual crash actually does show that free markets can work properly, punishing those who took risks without fully understanding the risks. The response in Second Life, to ban banks like the one that crashed, seems like the wrong way to go about things as well. Yes, many people were fooled, and ended up losing money, but that should help educate people not to blindly rush into putting money in a totally unregulated "bank" that made promises that were clearly beyond reasonable (40% interest?). Having regulations that prevent outright fraud (lying) seem reasonable, but banning all banks in response to such a poorly run one seems like going to far. The problem isn't just with the fact that it was an "unregulated free market." It was with the fact that people blindly believed that something too good to be true was legit.

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Economy Not So Bad That People Won't Line Up To Buy A New Gadget

from the phone-lines,-not-breadlines dept

So, the economy is collapsing, consumer spending is way down, banks and auto companies are on the verge of going out of business, unemployment is up, foreclosures are up, and some might have you believe that we're heading back to Great Depression style bread and soup lines. Luckily, it looks like we're not quite there yet, as plenty of folks seemed willing to line up, not for some free grub, but to get the latest hot new phone, the Blackberry Storm. Apparently, we haven't quite entered Great Depression territory yet.

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