Friday, January 30, 2009

Plus One - Obama

I am highly skeptical of Obama, but if you make a positive point you deserve a positive point. The New York Times wrote: " President Obama branded Wall Street bankers “shameful” on Thursday for giving themselves nearly $20 billion in bonuses as the economy was deteriorating and the government was spending billions to bail out some of the nation’s most prominent financial institutions."

The Washington Post wrote: "President Obama yesterday scolded Wall Street bankers who received millions of dollars in bonuses last year, calling the payouts "shameful" and chiding the executives for a lack of personal responsibility at a precarious time for the nation's economy."

Capitalism is not solely about pillaging the economy for your own personal benefit (Gordon Gekko famous line "greed is good"). It is about time that those who lead our nation vocally speak out that capitalism involves personal responsibility and social conscience.

Wednesday, January 28, 2009

Capitalism Lost Luster III

In Capitalism's Lost Luster II, I wrote how our falling "house of cards" that is our financial system is flushing out those who have apparently been a little less than honest. I concluded: "Sadly, I suspect that we will continue to see even more stories as time progresses." The New York Times has conveniently provided an update: "Troubled Times Bring Mini-Madoffs to Light".

In that article Leslie Wayne writes: "But the number of other people who have been caught running Ponzi schemes in recent weeks is adding up quickly, so much so that they have earned themselves a nickname: mini-Madoffs." I hope that you will have an opportunity to read the article.

More distressing news is reported on "TimesOnline" The article "Irish property tycoon commits suicide" discusses the suicide of property tycoon Patrick Rocca. Ian King wrote "There is speculation in Irish business and media circles today that Mr Rocca, who holidayed in Marbella and who bought a Sikorsky helicopter in November before upgrading to a Jet Ranger, may have lost a substantial sum in Anglo-Irish Bank — which was nationalised by the Irish Government late last week."

Capitalism, as a valid economic system, cannot exist if our corporate and polictical leaders lack moral ethics. The concept of self-responsibility implies that one will have self-control so as not to damage our social structure. John Thain is the current poster child of abuse. The Washington Post writes that Thain authorized bonuses that: "... were paid as Merrill was about to report a $15 billion fourth-quarter loss, and while Bank of America was seeking more federal funds to help it absorb the mounting losses at the New York-based investment bank. " Too bad our corporate and political leaders seem to be lagging.

Sunday, January 25, 2009

Scientific Proof - The Free Market is Inefficient

The Free Market is considered an efficient economic system where supply and demand are regulated by price. The Wikipedia article quotes Friedrick Hayak: "a more efficient allocation of societal resources than any design could achieve."

Well I am now in possession of written documented irrefutable proof by a scientific journal that the common perception that the Free Market system is economically efficient is a fraud. Of course the preceding statement, as is the title, is a tease to get you to read this. Read on.

In its February 2009 issue, the Scientific American had an article, "Detours by Design", or "how closing streets and removing traffic lights speed up urban travel" by Linda Baker. (Alternate Source since the Scientific American has not posted the full text. Hopefully they may post this article at a later date.)

So how does one make the connection that closing streets proves that the Free Market is inefficient? To paraphrase Ms. Baker: "Researchers explain that drivers seeking the shortest route to a given destination eventually reach what is known as the Nash equilibrium, in which no single driver can do any better by changing their driving strategy unilaterally." The central concern is that the Nash equilibrium is less efficient than the equilibrium reached when drivers act unselfishly.

Ms. Baker goes on to write: "The solution hinges on Braess's paradox, Gastner says, "Because selfish drivers optimize a wrong function, they can be led to a better solution if you remove some of the network links," he explains. Why? In part because it makes it more difficult for individual drivers to choose the best (and most selfish) route.""

This article demonstrates that: Unregulated selfish behavior is less efficient than regulated Free Market behavior in benefiting society. Of course, I don't wish to advocate unlimited regulation. There is also the issue of "freedom to choose" since regulation would deprive you of your freedom to choose. My point continues to be that unfettered selfish actions end up being self-destructive to both the individual and society. If one does not want regulation, then one needs to act responsibly. My call is, actually not for more regulation but, for real social responsibility by those who are our corporate and elected leaders.

Most free market advocates claim that an unregulated economy is efficient because the sum total of each participant's selfish actions make for an efficient market. While the concept that the sum total of selfish actions make for an efficient market has much appeal, there is an abundance of anecdotal evidence that demonstrates that the free market really is not that efficient. For example, most of us have gone to a hardware store to fix something simple, like a piece of plumbing, only to find that that piece is no longer being made or the design has changed. In fact when you look down the product aisle they all look virtually the same, but due to subtle variations are not interchangeable. Consequently you end up visiting the store more than once, paying more for a whole new fixture that you really did not need and perhaps even paying additional money for someone to install it. Paying for a whole new fixture, when a small part will do, is an economic inefficiency that has a negative societal economic cost.

Then there is the meltdown of our financial system, clearly an example of how unfettered selfish behavior has resulted in significant adverse economic stress to both individuals and society.

While one can quibble with the hardware store example, this analysis can be easily applied to issues such as network neutrality, privatization of the spectrum, proprietary products, and the implementation of Digital Rights Management (DRM). At last - I have "proof" that reasonable regulation will benefit both the individual and society!!!!!

Thursday, January 22, 2009

A Bit of History Trivia

Well, I was thinking of continuing my posts on our economic crisis as John Thain, has splattered across the news. But then I would be needlessly repeating myself about our failed corporate leadership. So onto more enjoyable fun news.

Back in 1984, Apple ran it's now famous add for the Macintosh computer at the Super Bowl. In celebration of its 25th anniversary, CNBS has a short video on the history of that ad and a discussion of how the ad came to be here. It almost didn't run. Another version here "The 25th Anniversary Of Apple's "1984"" Still an excellent ad.

Actually, I find that ad very prophetic. Orwell's "1984" society did emerge in 1984.

Tuesday, January 20, 2009

Good News - Bad News

The good news Bush is out.
The bad news Obama is in.

Leadership in America today is image over substance. So far Obama has been totally about image. Now it is up to Obama to demonstrate substance over image. He does not yet have a track record of proven performance. But then he does not have a track record of failure either. So, for now, we wait and we see what happens.

I hope that we will see substantive actions that repair our economy.

Saturday, January 17, 2009

Ethics in the Free Market

In following the discussions on websites such as TechDirt and The Technology Liberation Front and even the Washington Post and the New York Times, I have been surprised at how many people seem to accept the premise that companies are entitled to do whatever they need to do in order to make a profit. If that means making misleading statements to the consumer, that is OK. After all, they assert, it is the consumers obligation to figure out if they are being defrauded.

I find the premise that a company can do whatever it wants to make a profit fundamentally flawed. After all, if a company can do whatever it wants to make a profit, can't the consumer also justify that he or she is not obligated to pay for products in order to save money? I doubt that any one of us would like to live in a state of anarchy. In theory, we live in a civilized society. That means that both the consumer and the company have to operate on some sort of level playing field.

Larry Kudlow recently had a very good discussion on ethics and the free market system. Larry is a major proponent of a minimally regulated free market. Recently, as a response to the bursting of our financial bubble, he has become increasingly more adamant on the need for ethical behavior. Here is the CNBC video clip: Market's Malaise. The video clip is 16 minutes long.

While the discussion is ostensibly on the obligation of Apple to disclose the state of Steve Jobs health, the discussion that is germane to this post begins just after the 12th minute. In the last few minutes Kudlow calls for our leaders to start being honest and referred to Adam Smith's "The Theory of Moral Sentiments". Larry's summary words: "Free market capitalism works with a moral and ethical center" (more or less accurate).

Wednesday, January 14, 2009

Privatizing the Radio Spectrum

I am opposed to the privatization of the radio spectrum. Basically, I believe that natural resources, (yes, I considered the radio spectrum to be a natural resource) should be managed by the government (as a national trust) for the benefit of the American people. I am not going into the all the nuances of this issue at this time.

My point with this post is to have a "thought" exercise which to demonstrate why privatization would be bad. Essentially, this post is a reaction to posts on The Technology Liberation Front that advocate privatization of the radio spectrum. The most recent post being: "AWS-3 Spectrum Plan Version 2.0: Unfiltered, but Still a Train Wreck". You can see my responses to that post there.

Lets begin. The radio spectrum is three dimensional and permeates everything. Additionally radio waves, though they diminish over distance, can effectively travel forever and can be used to transmit information until their energy level becomes undetectable. On its face, the radio spectrum cannot be neatly characterized as a piece of private property, since there are no clearly defined "property lines".

To simplify my position, consider the Atlantic Ocean as being equivalent, more or less, to the radio spectrum. There are numerous ports on the American side, such as New York. There are also numerous ports on the European side, such as Amsterdam. These ports figuratively constitute radio transmitters or the radio receivers, it doesn't matter which. The ships carrying merchandise between these ports would be equivalent to the information (messages) being passed through radio transmitters/receivers (cell phone towers and cell phones).

It is my understanding that privatization of the radio spectrum would be conceptually the same as carving-up the Atlantic Ocean into private property blocks. The consequence, is that the owners of these blocks would be able to create toll-booths to exact revenue from the ships passing through each of these blocks. The normal argument by free market advocates is that the monetization of resources by placing them into private enterprise fosters economic growth. This is bunk.
  • If you have access to a free resource that means that you can create, move, and sell your products without having to include the cost of the "toll" in your product.
  • There is the free market question of what value charging someone to pass through your property adds the economy. I would advocate that paying to allow goods to pass through a piece of private property would be a drag on the overall economy. Or one could say that it would be equivalent to a tax that transfers wealth from one person to another.
  • Private properties can be bought and sold. If the radio spectrum is privatized, these properties will also be bought and sold. From an economic perspective, will these properties be used for non-productive investment purposes (hoarding) or would they be used for actual productive commercial purposes? The buying/selling of properties can result in speculative bubbles. The speculative bubble in housing just recently burst and our economy is in shambles.
  • Many government/private agencies, such as the military and hospitals, use radio spectrum that is currently free. With privatization would they be forced to rent spectrum from the private sector? That really gets us nowhere since the government would then have to raise taxes in order to pay the owner of the spectrum. As previously mentioned above this would simply be a transfer of wealth from the public to a private entity based on the mere possession of property. One could use the term "welfare".
  • Unlike normal property, the radio spectrum cannot be "improved". For example, it is possible that someone can construct a highway to connect two cities. In this situation it would be acceptable to charge a fee to allow trucks to use the road, as the property owner made a monetary investement through the construction of a road which adds value to the economy. With the spectrum, you only possess "air".
Keeping the the radio spectrum in the public trust and making it freely available for commercial purposes will avoid the market failures described above and will foster economic growth.

Is my analogy perfect? No! I have not addressed a variety of issues such as the necessity for a spectrum manager (currently the FCC), how leases would be issued, radio wave propagation, or modes of transmission. Let me know what you think.

Land of the Free, Home of the Lawsuit

Excellent article by George Will in the Washington Post: "Litigation Nation"

Will writes: "Law is essential to, but can stifle, freedom. Today, Howard writes, "Americans increasingly go through the day looking over their shoulders instead of where they want to go." The land of the free and the home of the brave has become "a legal minefield" through which we timidly tiptoe lest we trigger a legal claim. What should be routine daily choices and interactions are fraught with legal risk."

We have become a society where every one is seeking "victim hood" in order to be entitled to compensation. Compensation being either monetary or favorable legislative entitlements. We, as a society, are increasingly becoming paralyzed into inaction to avoid legal risk.

Tuesday, January 13, 2009

Capitalism's Lost Luster II

The falling "house of cards" that is our financial system is flushing out those who have apparently been a little less than honest. Maddoff has been followed by Satyam Computer Services, then there are the suicides of Rene-Thierry Magon de la Villehuche and Adolf Merckle. Now Damien Cave of the New York Times reports: "Pilot Fakes Distress and Flees Before Crash". The NY Times writes: "A financial adviser from Indiana disappeared into the Alabama woods early Monday after faking a distress call and parachuting from a small plane that crashed in Florida. ... A Maryland court recently issued a judgment of more than $500,000 against one of three Indiana companies registered in his name — and all three are being investigated for securities fraud by the Indiana Secretary of State’s Office, a spokesman, Jim Gavin, said."

I have no idea whether this recent example is a big or little incident. But it is one more demonstration of the ethical decline in capitalism. Clearly there is a need for reflection that capitalism should not be about unbridled greed. Sadly, I suspect that we will continue to see even more stories as time progresses.

Monday, January 12, 2009

Ah Modern Techology! Garmin Nuvi650 and Ham Radio

In September we got the Garmin Nuvi650 GPS. The manual referenced "Customized Points of Interest" (POI) files, but didn't elucidate on what that really meant. The Garmin webpage was a little sparse on this concept too. So I put it out of my mind for a while. This past weekend, I cranked up Google, to find out what these POI files were about.

I found a really nifty site, POI Factory that has a lot of user generated content. Basically, POI files allow you to develop a list of favorite locations keyed to their location. The file format is located here. For the Garmin you need to use their POI Loader to get the CSV file loaded on the Nuvi650. One sample file from the POI factory was the locations of Interstate rest stops (a vital concern).

I was very impressed with the extent of user provided content. I guess, a lot of people aren't very busy Friday nights! Looks like I am one of them. I was up till 1:30AM figuring this stuff out. Actually, this left me with a lot of positive feelings about the internet. Users developing content on their own time and making it freely available to the public.

Out of curiosity, I dug deeper to see if they had any amateur radio type files. It didn't take me long to find some files related to the location of ham radio repeaters. While driving out of your normal local area, a significant concern with ham radio is knowing the location of nearby repeaters and their operating frequencies. Sure, the ARRL sells a repeater directory, but its virtually impossible to use while driving. (The usual approach is to type out a list of repeaters along your route and to pre-program your car's radio before leaving.) The use of a POI file looked like a better solution. So I uploaded the repeater sites for North Carolina and I took a test drive. I was able to see the distance, direction, and operating frequencies of the nearby repeaters on the Nuvi650!! A GPS use that I had never thought of before. Makes driving and changing the car's radio's frequency a whole lot easier.

Thursday, January 8, 2009

Anatomy of a Crisis

Since I write a lot about our financial meltdown, the Washington Post has a very watchable video on the collapse of our mortgage system. Watch it here: Anatomy of a Crisis.

The video while it is very informative has overlooked three germane points that exacerbated the financial meltdown.
I hope that you enjoy the video. That's if for now.

Wednesday, January 7, 2009

Contest Challange!

Name the oldest "recognized" religion that has an "official" website?

So far I am in the lead with: Zoroastrianism. But then I seem to be the only one participating. Fortunately, the internet makes it possible to reach a wider audience.

I guess the winner will get the the feel good feeling of knowing that they won. We run an incredibly cheap operation here.

Update: August 24, 2009. I have been dethroned. Marian has pointed out that Judaism is older than Zoroastrianism. An obvious observation that I overlooked. She deserves an applause.

Regulatory Cacophony II

Maybe I am beating a dead horse. Oh well. Today the Washington Post ran the following story: "Indian Software Giant Admits Financial Wrongdoing". The focus of my post is that this is one more example of a sophisticated operation that went on for many years without detection. In fact the Post wrote: "Ironically, Raju had received the "entrepreneur of the year" award in 2007 from the consulting firm, Ernst & Young. The Council of the Institute of Directors said it will be withdrawing the Golden Peacock Global award for best corporate governance that it gave Satyam in 2008."

Those who oppose regulation claim that the free market self-regulates, that abuses will be quickly uncovered, and that many regulations, such as Sarbanes-Oxley Act, are expensive impediments to the growth of the free market. This claim is repeated over and over again, even in the face of obvious, in your face, anecdotal evidence, such as the collapse of our financial system.

If anti-regulatory crowd does not want regulation then why are there so few calls for ethical behavior by them?

If Sarbanes-Oxley is so expensive, why is it OK to give executives multi-million dollar compensation packages?

If the public can quickly discover corporate abuses of the free market system, then why was Madoff able to operate for 20 years virtually undetected. The Post writes: "Chairman and founder B. Ramalinga Raju took responsibility for the fraud and resigned in a letter he submitted to Satyam's board. The letter said that the company lied about profit and revenue for several years, inflating revenue by 33 percent and profits more than tenfold between July and September of last year. " (emphasis added) Obviously the free-market system does not quickly respond to abusive behavior.

Here are a couple more points, I've been meaning to throw in on why regulation is needed.

How do you feel about taking a Salmonella testing kit every time you go grocery shopping?
How would you like to take an Octane testing kit every time you visit the gas station?
How would you like to take a weighing scale every time you go grocery shopping?
How would you feel if the person in front of you at the check out lane opens every purchase and tests it out before buying?
How many of us could afford to hire an accounting firm before investing in a company?

I hope that those examples make the point that some regulations actually facilitate commerce. So if we follow what the anti-regulatory crowd says, it would be our responsibility to carefully weigh every minuscule purchase before buying to assure that we are not being ripped-off. To a degree they are correct, but in the extreme we wouldn't have any commerce since we would be spending all our time testing and verifying.

Those who oppose regulation need to take a look at the abuses of the free market system and propose meaningful actions beyond the mindless endless looping mantra of "no regulation". We need to have a reasonable trade-off between regulation and the free market.

Friday, January 2, 2009

Capitalism's Lost Luster

The New York Times reports: "Madoff Investor's Suicide Leaves Questions" According to the NY Times article: "Mr. de la Villehuchet, a French aristocrat and professional investor who lived in the New York suburbs, had put at least $1.4 billion of his and his clients’ money with Mr. Madoff. He had lost his entire savings. He was overwhelmed and depressed, according to people who had spoken to him."

"“He had a true concept of capitalism,” Bertrand de la Villehuchet, 74, said of his brother. “He felt responsible and he felt guilty. Today, in the financial world, there is no responsibility; no one wants to shoulder the blame.”" (Emphasis added)

We profess to live in a capitalistic society, but our corporate leaders clearly do not live by free-market principles. Corporate managers (not all) seem devoid of any social consciousness. It is time that corporate managers, when they fail begin to accept responsibility for their failures.

Recently, the New York Times reported that "China Executes Former Drug Regulator" and that the "Former Head of Chinese Dairy Pleads Guilty". Additionally the reported in 2007 that: "Earlier this year, China put to death Wang Zhendong, chairman of Yingkou Donghua Trading Group Co. .... for swindling more than 36,000 people out of $385 million. He sold cardboard boxes full of ants for as much as $1,300 in a country where this is a decent annual salary. " While Chinese justice may not comply with the western concept of the "rule of law" and some may not consider that the punishment fits the crime; it does seem to speak to the fact that those who are responsible for a failure, pay for that failure. In the US it seems that the corporate executives get a free-pass by deploying a Golden Parachute, keeping their compensation, and retiring in luxury.

What happened to Mr. de la Villehuchet is a sad testament to the bastardization of the free market system by self serving corporate executives.