Weird stuff

I finished with exams today and celebrated by going out to dinner with my sweetie and then watching "Bring it on." Sometimes teen comedies hit the spot. But 90 minutes of "Cheer-ocracies" can't explain the Through-the-looking-glass experience I've been having clearing out the inbox, trolling through slashdot, etc. etc.

1) Al Gore joins Apple's board of directors. Firstly, in this age of Sorbonnes-Oxley, he's a brave or foolish man. Secondly -- Al Gore? Apple? Throw in an angry Scottish groundskeeper, Bond parody, and Duff Beer factory and it could almost be an episode of the Simpsons. It's not that I don't understand, I just don't really understand.

2) The Heritage foundation reaches out to bloggers. I got an email from them saying they've noted how bloggers are influencing public policy debates in the US and want to know how to reach out to the community. They have some program where you can sign up for newsletters listing articles on the various policy topics they cover. My first instinct was to say "hey, that's spam!" but then I realized I would be signing up for the stuff voluntarily. My second was "don't try to confuse me with any facts!" but this reveals more about me than about them. My third thought was "why are they bothering with bloggers? Since when do we matter?" (Not me of course--other, better bloggers).

I have not written about weblogs on this weblog because I find such self referential articles really tedious. But post 9/11, when the warblogging came to the fore, the weblog world went from being fixated on technology to being fixated on politics, with a small technology ghetto to the side. And you know what, discussing politics is kinda like a drug habit, it's initially a kick but then you feel tired all the time and you know it's probably not good for you in the long run. Folks from the Heritage have decided to devote a career to this stuff. Do I want opinions from the Heritage Foundation? No, I am very satisfied with my current sources of opinions. The idea of broadcasting or picking through policy points with think-tanks frightens me.

And 3) After guzzling the Kool-Aid now for almost two years it seems I am now officially a Chicago econ indoctrinee. I must confess, I have found my time here illuminating.

Gulf War II: World War IV part 2

I lived in Dubai, in the United Arab Emirates, during the first Gulf War. Satellite television, which has totally transformed the whole region, had recently arrived, and we all thought CNN was the greatest channel ever. The allied troops used Dubai as a regional R&R spot, and it was striking to see a gang of big soldiers wandering around the streets. After the war was over, McDonalds, Burger King, Pizza Hut, Harley Davidson, the Hard Rock Cafe, and various other US companies began showing up there. KFC and Hardees, strangely enough, had been local stalwarts for years.

One of my friends from U Chicago was with the US SEALs before going back to school, and he was called up a few months ago as a reservist. He sent out an email yesterday letting us know he was OK, and that they were starting to mobilize. Best wishes to them all.

Forbes on winterspeak

Arik was kind enough not to print anything I said. But winterspeak was picked as one of the "best economics blog" on Forbes.com.

Still scratching my head at Wright

In science, a "falsifiable" statement is one which can be disproved in some way. When I heard Robert Wright speak last week on globalization, he asserted that "we need supra-national organizations to effectively disarm rogue nations that are trying to build nuclear, biological, or chemical weapons"--empirical evidence to the contrary. In his more recent Slate piece, he goes through what could go wrong in Iraq, arguing that Bush is following short-term feel-good policies that will increase future terrorist threats in untraceable ways.

The fact that the ways are "untraceable" means that his statement is unfalsifiable. But to claim that Bush's policies are short-term or feel-good is hard for me to understand given that Bush's motives remain opaque and the news is filled with vitriol targetted towards him. I guess the good feelings must be hanging out with Wright's tyrant disarming supra-national regimes. I also this BBC article contrasting today with Europe in the 1930s interesting.

Forbes on weblogs

I spoke with a reporter from Forbes today for a story he's doing on weblogs. He said it might come out tomorrow. I fear I said really dumb things.

Decision markets

I've always been impressed by James Surowiecki's lucid insights and clear writing. In this super piece he discusses how "decision markets", such as the current ones wagering on various aspects of the war in Iraq, are more accurate than experts and surveys.

He attributes this accuracy to 1) efficient aggregation of collective information, 2) openness to diverse viewpoints, and 3) rewards focused on being right, not being popular or influential within your crowd of choice. It strikes me that 1) and 2) are close to the sort of inclusive decentralization popular within "communitarian" or others Communist/Socialist thought, but the focus on "rightness" is what squeezes quality from diversity. While some people are aghast at the impersonal quality to speculating on what, in the Iraq situation, is life and death, I cannot imagine getting good predictions without some measure of detachment.

I also really liked his note on how HP used an internal market to predict sales, which turned out to be 75% more accurate than official, in house predictions. Sales forecasts are one of those things where everyone, from the optimistic sales rep to the factory foreman who wants to keep his people employed, has an incentive to lie, and I had never heard of an internal market, where presumably money was won and lost, for that. Neat.

But what about stock market bubbles? I hear you cry. When market participants start to think about what other market participants will do, instead of just independently trying to figure out the truth and put money where their mouth is, you get increased volatility and bubbles. But it's not like this sort of inter-market gamesmanship does not occur in centrally planned systems, it's just harder to pop and even more innacurate.

Clues to Suits and Geeks

Heh. I liked Arnold's "Clues to Geeks" where he responds to the recent "Clues to Suits". Not that he disagrees with "clues to suits", but there is education to be done on both sides.

I have some clues from customers that I hope both suits and geeks might find useful:
(1) We are not you. We don't care about what you care about, whether it be fancy new technology that we can't use, or fancy new services that a) don't make our lives easier and b) cost too much to be worth our while.
(2) We have lives and families. We don't have time to learn your pointlessly complicated systems.
(3) We are not stupid. See above. But we're better at telling you what we like and need with our actions than with our words.
(4) We have options. These include using the other guys stuff, or sticking to the stuff we have now which works pretty well, thank you very much.
(5) We pay your salaries. 'Nuff said.

An old buddy from Creative Good sent me this link on EasyEverything where they listen to customers with a vengeance. A great customer experience does not make a business all by itself, but ignore them, or disdain them, at your peril.

Final post on negotiations

My old college buddy (usually at Stumblingtongue, currently down because of an ICANN dispute) sent me a link to this pdf primer on negotiations. It's very clear, even though it uses words like "adumbrated".

It stops short of discussing coalitions though, which is a shame because they are an interesting thing to think about these days. The most striking feature of many of the anti-US/war/globalization demonstrations since Seattle onwards has been how disparate the participants and demands have been. Some people may construe this as evidence of strong solidarity that cuts across multiple groups, but the more mundane truth is that since these various groups, at base, have divergent interests, their coalitions is superficial and therefore brittle. Accede to the whole and they will fracture and bicker amongst themselves, make an offer to any component and they will defect. I think commentators who attribute the scale of these gatherings to lower coordination costs because of the Internet and cell phones are correct.

The fact that those protested against have done so little to fragment this brittle coalition suggests they either don't view it as a serious problem or are inept. Raghuram Rajan and Luigi Zingales, two professors from Chicago GSB, recently talked about their new book "Saving Capitalism from Capitalists" where they argued that free markets were a public good. I think this is a very nuanced way to characterize true "Chicago-School" thinking, instead of the "no government" straw man popular in some circles.

More game theory in UN negotiations

I was never a big fan of game theory, but I took a negotiations class this quarter where we used it often and I found it offered interesting insights.

For example, Rumsfeld declared that the US may go to war with Iraq without Britain. Britain is upset, and people call Bush & Co a "bunch of posturing teenagers in a schoolyard. Pathetic."

But it's clear that Britain needs a UN resolution and the US does not, and since France and its allies, who oppose the US action, understand this they withheld UN support to pressure the US through Britain. This was predictable the moment the British Parliament required Blair to get a UN mandate. It is also worth noting that the UN is the only avenue France has to pressure the US since they lack the military and economic clout to use other channels.

And just as Bush announcing he is willing to go to war without UN approval reduced the leverage France (through the UN) has on US foreign policy, Rumsfled announcing that the US would go to war without Britain reduces the leverage France (through the US's reliance on Britain, and Britain's reliance on the UN) has on US foreign policy.

If people don't understand "What on earth was [Rumsfeld] thinking?" when he made his remarks I would invite them to think through America's interests, France's interests, the bargaining chips each side holds, and what they can do to strengthen their own position and weaken their opponents'. Rumsfeld said what he did to weaken France.

The US deciding to go through the UN at all actually strengthened the French hand dramatically, which may end up costing them their ally, Tony Blair. Perhaps the US did not understand France's interests when making their decision.

Becker, Wright, and Bouton

Chicago GSB held an open mike night today with Gary Becker (Nobel Prize in Economics), Robert Wright (Nonzero), and Marshall Bouton (Chicago Council for foreign affairs). The topic: Globalization. Becker went through a list of statistics demonstrating that not only had globalization (gains from trade) increased the wealth of the poorest people on earth, but it had also increased health and reduced income inequality "by any standard". Bouton offered some public opinion statistics noting that most people thought globalization had improved their lives but also thought it threatened their job security. This was held up as a contradiction, but in fact it's exactly right: free trade improves peoples lives by lowering the price of goods and services (making people richer) but also makes jobs less stable as domestic industries keep restructuring in line with technological change abroad. And if this is true in the US, which has an essentially closed economy, it's probably even more true in countries where trade makes up more than 12% of GDP. An obvious solution to this? Pay off workers mired in industries being eroded by cheap labor abroad.

Wright was a disappointment. While I still look forward to reading his books, his two major contributions to the evening were 1) we should try to understand terrorists and 2) we need supra-national organizations to effectively disarm rogue nations that are trying to build nuclear, biological, or chemical weapons. I have no comment on the first point, and would like Wright to explain himself on the second given how the empirical evidence to date flatly contradicts his optimistic musings.

SCO vs IBM/Linux

This is old news now, but it finally made ./ (and the main story link is down, so read the mirror in the comments). I sniggered when SCO bought UNIX related IP claims against IBM, IBM has so many patents it can countersue any such legal action with impunity. It seems Linus is now on the record as not caring either.

Game Theory

In know of two basic game theory constructs that are common in economics, the "prisoners dilemma" and "chicken". I'm sure there are more, but I'm ignorant of them. The "prisoners dilemma" shows why collusion is unstable -- every player has an incentive to cheat even though by cooperation they would both be better off. Since collusive contracts between companies are illegal in the US, they rely on regulatory contracts to enforce their cartel agreements, often under the guise of "fair and non-discriminatory" clauses, which presumably have been supported by "consumer advocates" even though they harm consumers ultimately.

"Chicken" has to do with the role credibility plays in making threats or commitments. A threat is similar to a commitment in that you need to make the other guy belive that you are going to do something that is not in your best interest. If I make a deal to buy some equipment next week for $10, and then renege because I found a better deal at the last minute, the supplier is going to be upset with me because he invested all these resources in delivery that are now wasted. In order for him to go ahead and invest those resources, I need to credibly commit to honouring the deal, even if a better deal comes along. Since retaliation is self damaging in the same way you need to make the other guy really belive that you are going to hurt yourself in order to hurt him. You need a threat to be credible for it to be worth anything.

Why do I mention this? Arnold Kling responds to a WindsOfChange question about the likelihood of a trade war between France and the US over its foreign policy fall out. Arnold thinks it is unlikely because banning imports or exports hurts the country doing the banning, and so is ineffective. I think it's unlikely because it's a bluff.

To win at a game of Chicken, you have to throw away the steering wheel, or tie your hands with rope to make the threat of not veering out of the other car's path credible. The diplomatic equivalent of this is to make a proclamation in public, because then backing down would make you lose face and subsequent elections. It is no surprise that Bush's speech before the latest Blix report affirmed his determination to call for a UNSC vote, and then invade no matter what the result of the vote is. By making that statement publicly, it is almost impossible for him to back down. Similarly, France has made many public pronouncements that make it difficult for them to back down without losing face. Mexico is in a better position because it can hold out for higher payoffs, while still credibly supporting the US at the last minute. Turkey decided to consume pride to the tune of $30B. I didn't know Turkey valued pride that much, but you learn something new every day.

The point is that in negotiations, public pronouncements are the diplomatic equivalent of throwing away the steering wheel by playing chicken. If you belive the threat is credible and sufficiently nasty, you fold. Otherwise you call their bluff. A nice feature in democracies is that since the rulers keep changing, new governments can disavow the actions of old governments by claiming "those bums were crazy." Long term, cooperation between countries is driven by self interest.

DenBeste throws down

After ignoring months of abuse, DenBeste finally exposes Daniel Davies as the charlatan he is. I feel the same way about Davies' writing on economic issues. He claims to understand economic fundamentals, but in fact does not. He makes outrageous statements and then hides behind jargon. I tried to take him seriously for a while, but when I realized he wasn't, I stopped. And I stopped reading him.

I don't have a PhD in econ, but I will say that, at base, it's a way of thinking which is very honest about costs and incentives, and believes people know their own preferences best which they reveal through action, and the system tries to optimize to something. Krugman, ironically, put it best in this old Slate piece. He then proceeded to get a job at the NYTimes and lose his mind. He no longer writes like an economist, he writes like a partisan hack, and there better hacks out there. Anyway, I've stopped reading him too -- he no longer has any credibility.

And I hardly read Democrat economist Brad Delong anymore either. Brad likes (or at least used to) Daniel Davies, and you can infer from that what you want. Brad sometimes writes like an economist, and sometimes like a democrat loyalist. The latter damages his credibility as the former and it's also painful to wade through. But whatever--make your own cost/benefit analysis and do what you want. There's no coercion on the Web.

Quick hits

Two interesting stories from The Register. Firstly, Apple is planning to offer $1 downloads for songs integrated with iTunes. The usual Apple integration means its easy to buy, and easy to play on the iPod -- two critical components to high quality online music experiences. The article mentions that other online music services were not available on Macs and worried about competitive pricing. If the copyright holder and Apple exercise their monopoly pricing power, the result will be an inefficiently high price (the "double marginalization" problem). But the quality end user experience may make up for this. Anyway, more on slashdot.

Secondly, Microsoft is offering a $399 web server. Clearly, this is designed to compete against Linux, which has been gaining marketshare recently. GNU/Linux advocates complain that most GNU/Linux migrations come from Unix, not NT, but remember -- NT was supposed to be the Unix killer and GNU/Linux has kept it out at the low end. While GNU/Linux may not replace Windows in the near term, it has limited Microsoft's ability to price, which is serious too.

Intra-office filesharing

When I worked at Lotus last summer, they were worried about Microsoft integrating Office into its internal groupware/filesharing/KM system, SharePoint. They were right. It's hard for me to feel too sorry for them, as the usability of their client software was appalling. My fiance is struggling with their web client, and is still using her old pine account from five years ago because it works.

Victor's little secret

Anyway, the Supreme Court has ruled that Victoria's Secret cannot claim trademark infringement by Victor's Little Secret. My old college buddy (and Yale law student) is unimpressed with the verdict apparently because it's "nonpolitical, [and] essentially unanimous". I'm easier, I just need it to involve "intellectual property" and sanity to feel giddy. Trademark is the one area of IP law that has yet to prove apocalyptic (except in the case of domain name arbitration, but that's ICANN's fault).

Mom-and-Pop vs VCs

Arnold Kling comments on my recent post regarding venture capitalists' reluctance to go up against Mom-and-Pop businesses. He notes "In fact, mom-and-pop businesses typically are in markets with low ambiguity and VC's go into markets with high ambiguity, so they don't go up against one another."

This may certainly have been true in the go-go 90s when most people first heard of the term "venture capital" and associated it with speculative technology ventures, but it is not true of the VC business in general, many parts of which have not (historically) invested in technology. Staples, for example, was venture funded, as was the Sports Authority, Starbucks, and Home Depot. VCs also back old folks homes, schools, speciality medical clinics, rehabilitation camps for wayward youths, and various other ideas that essentially take a fragmented microregional business and scale it nationwide. When people talk about American competitive advantage coming from a large domestic market, in part they are thinking about the ability to experiment with scaling small businesses to US size first before trying to take them international. It's tough for a guy in Luxembourg to come up with Staples.

I don't know if Arnold would characterize stationary, athletic equipment, coffee, and lumber as being "high ambiguity" but they were all markets where VCs decided to go up against Mom-and-Pop businesses and fund startups.

The road ahead

Here's a long piece detailing how the IT landscape will evolve over the next few years, and Microsoft's position in it. Prediction is always difficult, but he nails Microsofts major challenges: 1) open source software 2) high prices 3) benefit stagnation and 4) customer mistrust. Microsoft is a tough company, and it could overcome all of these, but personally I'm glad I left their platform three years ago.