Last blog of the year Let's get retro today, on what will probably be the last blog of the year, and go back to July 99 and read this feedmag piece on how the growth of the Internet is expanding the value of knowing English. Language is obviously something where network economies are valuable, and as this article points out,

as information increasingly becomes the good that nations trade, the definition of proximity changes from geographic to linguistic: two countries border one another if and only if they have a language they can use in common.

I suppose my one disagreement would be that people can know more than one language, and just as there is a network effect in speaking something many other people can understand, there is also value in speaking something that only a few others can understand.

In the future websites, and hopefully technology will be simpler. The New York Times points out that those websites maintaining the simplicity of the Web's early years have become leaders (and Creative Good has preached this for years).

This complexity is discussed in Cheryll Aimee Barron's Salon article. Thanks to www.goodexperience.com for the pointer.

Censorship and the Internet It was hoped that the open nature of the Internet would help battle censorship in all its forms. Sadly, this does not seem to be the case, and this Register article about Walmart vs. the common man demonstrates.

Paternalism in the post-New Economy Age Economic fads and market manias may come and go, but its nice to see that wrong-headed paternalism keeps marching along. In this profoundly ignorant article, it states:

A daisy chain of entrepreneurs, venture capitalists, Wall Street investment bankers and stock brokerages pulled off something unprecedented. They transferred almost all risk into the public markets.

The people with the least amount of information were sold the most speculative investments. The sellers were insiders who fully understood the reality.

Where to begin? First of all, people were not sold anything, they chose to buy it, which is their perogative. Secondly, it was these same techno-idiot-pundits nattering on about how fat cat VC's were keeping all the money to themselves which made the transfer of speculative grade equity to the capital markets a good thing. The truth of the matter is that there is no such thing as a free lunch, and people cannot force risk onto markets that are not willing to accept that risk. Just as there is now a thriving junk bond market, injecting liquidity and efficiency into speculative debt, there will one day be a junk equities market IF such a market injects liquidity and efficiency into speculative equity.

Monopolies can feel relief "With a new Bush administration, the most likely change in antitrust enforcement will come in monopoly policy, where the Clinton administration has been particularly aggressive." (read the whole article)

Sigh. Why is the monopoly debate centered around activist vs. non-activist government? Why aren't these decision based on competition and the benefit of the consumer? Why do politians seem unable to, fundamentally, understand simple economics?

Why software still sucks (Upside) This silly article talks about why the fellow who coined the term "virtual reality" thinks software sucks. But in this article he reveals that he does not understand the subject. I would check out goodexperience regularly and read posts on bit literacy to better understand this problem.

Malaysians still slow in embracing the Internet compared to their Asia Pacific counterparts (although the study does not say why.) I would control for PC penetration, and looked at connectivity charge (especially flat rate vs. metered). Not that Internet connectivity should be Malaysia's number 1 goal.

When markets don't work Here's a great Krugman article about how markets fail sometimes (or should never have been created in the first place). It's on the New York Times website, which needs registration, and expires. So, here's the text:

California Screaming
By PAUL KRUGMAN

California's deregulated power industry, in which producers can sell electricity for whatever the traffic will bear, was supposed to deliver cheaper, cleaner power. But instead the state faces an electricity shortage so severe that the governor has turned off the lights on the official Christmas tree — a shortage that has proved highly profitable to power companies, and raised suspicions of market manipulation.

The experience raises questions about deregulation. And more broadly, it is a warning about the dangers of placing blind faith in markets.

True, part of California's problem is an unexpected surge in electricity demand, the byproduct of a booming economy. It's possible that the crisis would have happened even without deregulation.

But probably not. In the bad old days, monopolistic power companies were guaranteed a good profit even if their industry had excess capacity. So they built more capacity than they needed, enough to meet even unexpectedly high demand. But in the deregulated market, where prices fluctuate constantly, companies knew that if they overinvested, prices and profits would plunge. So they were reluctant to build new plants — which is why unexpectedly strong demand has led to shortages and soaring prices.

Now you could say that in the long run there is nothing wrong with that. Building extra generating capacity was costly, and the costs were passed on to consumers; while prices may fluctuate in a system with less slack, on average consumers will pay less. In fact, textbook economics suggests that it's actually a good thing that electricity prices skyrocket when supply runs short: that's what gives the power companies an incentive to invest. And so you could argue that no public intervention is warranted — indeed, that the caps that still place an upper limit on electricity prices only worsen the problem, that we should rely on market competition to solve the crisis.

But how competitive is the electricity market? What makes California's power crisis politically explosive is the suspicion that it's not just about inadequate capacity, but also about artificially inflated prices.

How might market manipulation work? Suppose that it's a hot July, with air-conditioners across the state running full blast and the power industry near the limits of its capacity. If some of that capacity suddenly went off line for whatever reason, the resulting shortage would send wholesale electricity prices sky high. So a large producer could actually increase its profits by inventing technical problems that shut down some of its generators, thereby driving up the price it gets on its remaining output.

Does this really happen? A recent National Bureau of Economic Research working paper by Severin Borenstein, James Bushnell and Frank Wolak cites evidence that exactly this kind of market manipulation took place in Britain before 1996 and in California during the summers of 1998 and 1999.

You wouldn't normally expect this to happen in colder months, when demand is lower. Still, state officials have understandably become suspicious about California's current power emergency — an emergency precipitated by the odd fact that about a quarter of the state's generating capacity is off line as the result of either scheduled repairs or breakdowns.

Maybe California power companies aren't rigging electricity prices. But they clearly have both the means and the incentive to do so — and you have to wonder why the deregulators didn't worry about this, why they didn't ask seemingly obvious questions about whether the market they proposed to create would really work as advertised.

And maybe that is the broader lesson of the debacle: Don't rush into a market solution when there are serious questions about whether the market will work. Both economic analysis and British experience should have rung warning bells about California's deregulation scheme; but those warnings were ignored — just as similar warnings are being ignored by enthusiasts for market solutions for everything from prescription drug coverage to education.  

Rather amusing article on China's war against savings. It seems that China's tax on interest cut the savings rate, with new bank deposits dropping sharply in the first 10 months of this year. Unfortunately, the drop in bank savings has not led to an increase in consumption. Can anyone say "mattress?"

More European Insanity The European Parliament is trying to ban hostile takeovers in Europe. This is bad because hostile takeovers protect management at the expense of shareholders (or customers). Fortunately, they will be challenged by EU governments and European Commission.

The entire point of European integration is to foster competition between companies. This should also help open the cozy European management style to the sort of "shareholder revolution" that swept through the US in the 80s and has lead to the mediocre (instead of out and out bad) management that pervades American companies today.

What will journalism of the future be like? This article talks about various electronic gadgets journalists may access in the near future. I think it misses the point. I beleive that this weblog, and the thousands of others like it, are a better and more profound example of how news will be reported in the years to come. If war broke out in New York City, for example, I hope that the reports I put up here will be better than endless reels of talking heads on CNN.

Doug Rushkoff has some ideas about ideas spreading through media but focuses too much on the camcorder. I think that the journalism of the future will be many people writing to many other people.

The Gulf News is a paper published in Dubai, UAE, which does a good job of focusing on the concerns of the mixed expatriate population there (primarily Pakistanis and Indians). It is worth reading, because it is broad in its coverage, different in its perspective from both the American and British press (I am not exposed to others) and in particular, reveals the mind of the wealthy citizen of the developing world living outside their country when it comes to matters of pride, like globalization.

Here's a piece on the disputed territory of Kashmir, interesting because the author acknowledges no solution, and ends with various self-serving historical flourishes that do little to progress the dialogue (which cannot be furthered anyway). It also reveals the tensions between national sovereignty and a shared world responsibility to people.

Thanks to SA for the pointer.

One quick pointer today: an article in the Village Voice talks about the prison system in the US, Rikers Island in New York in particular. The most interesting bit of information (I think):

Three-quarters of the detainees in New York City's jails are locked up solely because they cannot afford bail. Perhaps the most revealing indicator of these prisoners' poverty is the fact that 42 percent have bails of $1000 or less. For many thousands of them, a few extra hundred dollars is enough to determine if they live at home as their case goes through the courts—a process that can last anywhere from two days to occasionally more than two years—or wait, whether innocent or guilty, in a concrete cage.

Thanks to CD for the pointer.

More EU madness This article claims that in allowing online companies which "direct their activities" to consumers in other European countries to be sued in those overseas courts, they have pitted "consumerists" against "free traders." This should sound suspicious, as free trade almost always benefits the consumer. Closer reading will reveal that the folks really protected by this are German retailers, who are not allowed to offer lifetime guarantees, or other things which might help consumers.

Why the Internet will not be metered John Levine, "author and expert" (snicker) does this mediocre write up of some excellent papers by AT&T Labs researcher Andrew Odlyzko. Odlyzko writes at length, in lucid detail, about the history of the communications industry (focusing on mail, telegraph, telephone etc.) and how it has been effected by pricing policies etc. The conclusion is that Internet use will not be metered, and even perhaps that micropayment schemes online will not work. I am not sure if i agree with the latter, but the research is pretty convincing.

Since Microsoft is trying to get the courts to forget all about Judge Penfield's findings of fact which concluded it was an abusive monopoly, it's worth taking a look at the notion of consumer harm. Fan favorite Brad DeLong lays out a good case for how Microsoft's crappy products have harmed consumers. I could go on, but undoubtedly all you Windows users out there have your own horror stories.

Another idiot US senator, this time Ernest Hollings, is blocking free trade and making life harder for the US consumer all in the name of "preserving the American way" and "national security." The fact that protectionist and proud of it bozos like this one can get away with what they do shows what a miserable job free trade supporters have done of explaining why lowering barriers helps people, especially poor people.

What's the issue this time? The Germans (shock! horror!) want to buy a minor US cell phone carrier. I remember when the fuss was about the Japanese buying American assets, which would of course "undermine the US economy." People forget that the Japanese lost their shirts, and Americans became rather rich.

This Slate article on why men pay to stay married, and women pay to get divorced shows how careful maths can reveal interesting insights in human behevior in a way qualitative approaches cannot. In the future, as more women are in the workforce for longer, the statistics in this article may shift.

WTO sees strong surge in world trade The volume of world trade in goods will rise by about 10 per cent this year, double the 1999 growth rate and the biggest increase since 1997, the World Trade Organisation has said in its annual statistical report.