If you want to feel like the smartest person in the room, often a good way to accomplish this is to be the only economist. Frequently, the one economist will say things that make a lot of sense that no one else would ever come up with. When I am that one economist, I sometimes feel like a genius. Until a second economist enters the room, that is. Because when the second economist shows up, he or she often says all the smart things I was going to say, before I can say them. It turns out, it is not the economist who is brilliant, but rather the training we get as economists which leads us to think differently from non-economists, that sometimes makes us seem smart.
It is true that economists generally think more deeply than most people. They are used to considering tradeoffs and long-term effects of a given policy or decision, which is something that eludes most people.
However, the mindset espoused by Steven Levitt is quite dangerous, and speaks to a tendency towards arrogance that is often seen among economists. Because they are generally wiser and smarter than other people, many economists begin to think that they are absolutely smart and wise. This in turn leads them to rely too much on their own perceived genius, which is why economists generally don’t have an issue with some form of central planning: they really think that they are smart enough to plan an economy.
They are wrong, of course, because they lack one essential ingredient: knowledge. While economists may be pretty smart, and even wise, they simply do not know enough to manage an economy properly. And so, they get so caught up in their brilliance that they never realize they are astonishingly ignorant.
I’ve often criticized IP from both philosophical and utilitarian grounds, but I haven’t often addressed some of the specific benefits that would come from abolishing IP.
Anyhow, here’s a story
that offers a glimpse of a future without IP:
As companies compete to digitize the textbook market, there is one approach that shakes the traditional publishing business model: open source textbooks, whose proponents believe online educational tomes should be free.
Many universities, including MIT and Carnegie Mellon, post course lectures online for free use. A New York Times article last year explained some of the barriers to applying the same approach to textbooks.
For one thing, the textbook authors must agree to have them distributed online without charging royalties — something that may work well in the software world, where engineers often work on projects while keeping a day job, but typically avoided by writers who put their sweat equity into one book at a time. Also, books for K-12 classrooms must meet state standards, and most states don’t have procedures in place for approving open source textbooks.
Open source textbooks are a step in the right direction. If you follow the link, you will see that there are serious savings offered by the open source book model. If IP were abolished, these effects would be even greater, for students could buy cheap bootlegs or “pirate” digital copies for free which, as anyone currently in college knows, would offer extremely serious savings.
Basically, publishers and authors would not be able to artificially restrict supply; their monopoly would effectively be ended. Competing publishers could copy the text and produce it cheaply, forcing the original publisher to either update the books every quarter/semester/trimester or drive down the price of their own books to be competitive. Of course, it’s a hassle for professors to change books every quarter, so students would, more likely than not, be able to get their books on the cheap. Therefore, those currently in college should support the abolition of IP as it will help them save money.
What is absolutely required during an interaction with Customs? … Like muscles as you flex your rights they become stronger; so use them or lose them.
This article is mainly just some very helpful hints with some slight economic analysis. Being an entrepreneur who enjoys creating wealth and building from scratch I have a special empathy for those engaged in similar work. One entrepreneur that has added value to my life is Scott Jordan, CEO and Founder of Scottevest. As I traveled almost 100,000 miles in 2010 I found my Scottevest incredibly helpful and it has saved me plenty of money from the evil airline’s ridiculous fees. Of course, when there are lucrative profit pools the entrenched interests will almost always by hook or by crook attempt to stifle innovation and advancement but in this case there some helpful travel tips we can apply to save time and money.
It’s still true: Delta Airlines sucks.
SCOTTEVEST ADVERTISEMENT DENIED
Years ago I decided to never fly Delta again. Then somehow I ended up with a free Delta ticket so I used it. It’s still true: Delta Airlines sucks. So when I received an email from Scott Jordan on 2 October 2010 I figured I should lend the fellow entrepreneur a friendly voice.
The New York Times reported that “the fee frenzy, which generated nearly $8 billion for American carriers last year.” Scott’s awesome travel clothing help owners ‘Beat The System’ so when he attempted to advertise in the airlines magazines the advertisement was canceled at the last moment. Seriously, what did Scott Jordan expect would happen when he advertises a value-adding product that attacks an extremely lucrative profit pool? Even worse Scott’s media agent pleaded with him to not press the issue. I am not sure the media agent gets it.
But it seems Hap Klopp, founder of North Face and chief adviser to Scott, gets it because he hit the nail on the head with an excellent economic analysis. “Scott, this is classic David vs. Goliath. Their reaction shows how touchy of a subject baggage fees are for them. You’ve found a way for everyday people to get around their crazy policies, and you just put a fork in their cash cow.” Forutantely, Scott took Klopp’s advice and remarked, “Hap’s comments solidified it for me: this was a big story, and the cat was out of the bag.”
If you have a quality product that adds value to the customer then in the Information Age with social media, blogs, YouTube, etc. the story will get out. The economic concept of creative destruction was first introduced by the Austrian School economist Joseph Schumpeter in his 1942 book Capitalism, Socialism and Democracy. For those that have not noticed, the newspapers evaporated through creative destruction so the era of screwing your customers and getting away with it because the media gatekeepers will protect you is over. And when it is a David vs. Goliath story then almost everyone roots for David, especially when David is engaged in creative destruction in an attempt to save them money on baggage fees!
Time is the most valuable commodity.
THRIFTY RENT-A-CAR’S SLEAZINESS
Another thing the airlines are often doing is bundling products and making it difficult to discern what fees actually apply and which goods or services are actually mandatory. Airlines love to privatize the gains and socialize the losses to their customers which are often incurred by wasting your time through delays, cancellations, bumps, etc. The rental car companies seem to play a similar game.
For example, I was recently in Dallas, Texas meeting with a few friends who run various hedge funds. At the airport I went to rent a car and they wanted to charge $150 for what I had earlier researched on the Internet to cost about $50. Not being able to book at the counter at $50 I booked through my iPhone and then had to wait about 20 minutes, which was worth it to starve the vampire squid, for the reservation to get into their system. When I went to pick up the keys the desk agent asked me, “And which type of insurance do you want, minimal, medium or comprehensive?”
Because she did not mention none and because it is reasonable to assume that insurance may be required in Texas and because ‘minimal’ implies the least amount required therefore I replied, “Minimal.” She then said the total would be $120. This was surprising because the Internet reservation was for about $50 and said all I needed to provide was a driver’s license and the reservation.
So I responded, “Is the insurance required?” At first she dodged the issue by trying to explain probabilities, risk and reward. Seriously, as an investor who calculates probabilities of risk and reward for a living do I really need that advice from a desk agent who has probably never taken a statistics class and has a conflict of interest? So I responded with a little sterner tone of voice, “Is it required?” She said, “No.” and I responded, “Then no insurance, please.”
I get annoyed when people, institutions and organizations waste my time pitching me products I do not need and add no value to my life. After all, time is the most valuable commodity. Vacations are great when you take the airlines, car rental companies and hotels with their $8 bottled water and $15 potato chips out of the equation. Guess what the car company’s lucrative profit pool must be? Yep, insurance! So keep that in mind next time you rent a car and Thrifty’s was very clean and ran well.
SCOTTEVEST REVIEW AND HELPFUL TRAVEL TIPS
Many people have asked how I pack so light and efficiently. Nothing is worse than going on a trip and having your airline suck your luggage into the engine. On one trip to Guatemala one of my travel companion’s luggage was lost and seemed to always be a day behind us as we traveled around the country. Very annoying for them! I no longer check luggage and it has made an tremendous difference. Eliminate all but the essentials and you will have a lot less stress on your trips.
After doing a ton of research and getting plenty of products which were a waste I have winnowed down my travel infrastructure to: (1) Rick Steve’s Convertible Carry-On, (2) Scottevest Essential Travel Jacket, (3) Eagle Creek Pack-It Garment Sleeve and (4) a few Eagle Creek cubes of varying sizes. With this infrastructure I have ample space for either a weekend or a six weeks to either Europe or Argentina.
There are a few other reasons I really like my Scottevest. In the morning I like to take a walk in the brisk air. The Scottevest has pockets for both my iPhone and iPad which keeps them out of my hands as I search for a place to read. It is a great tool for my morning routine. So from one entrepreneur to another; I hope Scott Jordan appreciates this free review.
Like muscles as you flex your rights they become stronger; so use them or lose them.
HELPFUL TRAVEL TIPS FOR CUSTOMS
Casey Research is having another investment conference at La Estancia de Cafayate on 20-24 October 2010 and I hope to see you there. What that means is another international trip and another interaction with Customs which seems like just another case of government sending ‘hither swarms of officers to harass our people, and eat out their substance.’ Responsible law abiding citizens need to be wasting neither their nor customs official’s time by even talking to them or answering their questions because this results in increased spending and drives up the federal debt.
Thus, when I came across Paul Karl’s extremely popular article, even being discussed on The Economist, about being detained by Customs for refusing to answer their questions my interest was immediately sparked and I even began to formulate the question: What is absolutely required during an interaction with Customs?
So my co-author of How To Vanish, CA attorney Bill Rounds, and I began to research the issue. The result of our work is this handy tab which fits right in your passport with the applicable binding law outlining your rights and tips on how to politely apply them. I hope you find it helpful. To help save the customs officer’s time feel free to print this PDF and distribute it widely, perhaps to everyone on your plane. Remember, like muscles as you flex your rights they become stronger; so use them or lose them.
For data I find Dropbox and Truecrypt a very effective combination.
It is always about the money.
The Internet is changing the way news, products and information is distributed. Gatekeepers can no longer protect the lucrative profit pools by refusing to discuss the issues or actively trying to prevent the market from learning about value adding products. As a result, entrepreneurs with good products that add value to the customer have a greater chance of penetrating the marketplace and this leads to David having more leverage against Goliath.
As the greater depression continues and intensifies coupled with the evolution of the Information Age it will be even more critical for companies to truly add value to their customers. Those that do not will encounter swift and powerful damage to their brands as sleazy business and governmental practices are quickly brought under scrutiny. Individuals are getting extremely tired of this crap, the depression is making disposable income tighter and some are even intentionally fighting back with the misumer movement to silently and peacefully starve the vampire squid. After all, with the civil rights movement it was not the protests but the boycotts that caused massive social change. It is always about the money.
For example, Dollar Thrifty Automotive Group made $45M in 2009 compared to their $340M loss in 2010. Delta lost $8.9B in 2008 and $1.2B in 2009 for a reason. Perhaps these sleazy companies and governments should try adding more value to the customers? Better yet they can go bankrupt or cease to exist and be replaced by fresher companies that to add value to their customers and have a good culture. No one will miss them.
So please, tell me how you feel about the airlines, car rental companies, customs and please contribute any helpful travel tips!
The transition from the Industrial Age to the Information Age is resulting in a sea change between protection and extortion. As the world gets increasingly complex the result is a diminishing ability to extort while at the same time tools of protection are getting cheaper and more powerful. The arbitrary walls are coming down.
I was sitting in trial today observing Bill Rounds, co-author with me of How To Vanish.com, as he was questioning a witness. This particular case is an example of complex business litigation that has been up and down the appellate ladder many times. The subject matter is fairly esoteric and even worse the law is unsettled. While unrelated to the case, the plaintiff is a world renown surgeon.
During questioning by Bill’s opposing counsel a funny scene happened. Bill stood up and the judge remarked, “Sustained.” The court reporter stopped and asked, “Was there an objection?” The judge replied, “No, but Mr. Rounds stood up and the coming objection is sustained.”
Those 5-8 seconds in the court transcript are but the faintest traces of an incredibly complex thinking process that the two attorneys and judge understood and applied which was backed by hundreds of pages of code and cases. Yet, I am almost sure that neither the surgeon nor the jury even knew there was a virtual ping-pong match being played.
But for the attorneys and judge the surgeon’s work is equally incomprehensible. And the work of engineers, architects, computer scientists, etc. are equally indecipherable to those outside the circle. Such is the modern world that is multiplying in complexity.
Everywhere complexity is increasing from the tadpole in the pond to the manmade computer operating system. But manmade complexity that is beneficial for humanity takes work. Bridges do not design and build themselves. As humanity has progressed so likewise has the economy from hunting and gathering to plows and silos to railroads, satellites and spaceships.
But all this time there have been malefactors and nefarious individuals that seek to destroy and wield violence like a dagger focused on the economy’s heart seeking coercion instead of consent. After all, the power to destroy and inflict pain, while immoral, is power nonetheless. A power wielded by those sadists who enjoy terrorizing innocents.
PROTECTION AND EXTORTION
The irony of government is that it attempts to provide protection through extortion. And like the blackmailer or extortioner the government’s ability to tax depends on the same vulnerabilities as extortion or the Godfather’s offer that can not be refused. As the Industrial Age progressed so likewise the nation-state rose because the assets created were larger and thus the need for protection was greater. After all, the capitalists either paid off those who could leverage violence against them for extortion or paid a military force capable of defending with brute force any attempted shakedown.
But the relentless advance of technology is blunting the sharp edge of violence’s dagger. Protection is being made easier to provide while extortion is being made more difficult to carry out profitably.
Why is this? A basic mathematical law: multiplying is easier than dividing. A simple example is that 3*3*7*11*13 is much easier to solve than reducing 9,009 to its prime components.
Or another example would be encryption. I like the open-source Truecrypt and in June 2003 the US National Security Agency reviewed and analyzed the design and strength of AES-256 encryption finding it sufficient to protect classified information up to the Top Secret level.
In effect, with this free tool I can spend ten seconds encrypting a text file that can take years of focused processing power to decrypt. And just for fun perhaps it only reads “Haha if someone wasted the resources to decrypt this!” But why transmit sensitive personal or business information without such protections? After all, recently 30,000 Hotmail passwords were compromised in a security breach and posted on the Internet. An ounce of prevention using free encryption software can be worth a pound of cure repairing a stolen identity.
PROTECTION IN THE INFORMATION AGE
During the Industrial Age the leverage violence could exert was much greater and is being greatly reduced in the Information Age. Thus the scale is tipping in favor of protection and away from extortion with its attendant allocation of scarce resources through bureaucracy. The digital infrastructure is allowing the previously unseen but highly complex range of systems to be perceived; Facebook is a prime example.
Then that perception is being harnessed in extremely productive ways through multiplication; as a result the economy is following economic law and moving away from inflexible command and control systems towards spontaneous adaptive mechanisms. But government systems still dragoon resources from higher-value complex uses to lower-value primitive uses. As Frederic Lane wrote on page 383-384 of Venice, A Maritime Republic:
Every economic enterprise needs and pays for protection, protection against the destruction or armed seizure of its capital and the forceful disruption of its labor. In highly organized societies the production of this utility, protection, is one of the functions of a special association or enterprise called government. Indeed, one of the most distinctive characteristics of government is their attempt to create law and order by using force themselves and by controlling through various means the use of force by others.
From machines to microchips, factory to laptop, mass production to small teams or even the lone entrepreneur the gigantic institutions of the Industrial Age are being reduced to smaller and smaller parts. As the Information Age advances the risk of violence decreases because as the scale of an operation declines so likewise does its potential for sabotage or blackmail and the increased location independence afforded by the Internet multiplies the inherent safety an asset or individual enjoys. Despite Sulter’s proclamation at 2:08, “I want this country to realize that we stand on the edge of oblivion. I want everyone to remember *why* they need us!” But we, humanity, do not need them even if they think they can clean up some oil.
For those who rely on coercion instead of consent the transition to the Information Age is being particularly harsh to their immoral business models. They are now opposing both natural and economic law. The financial elite and political elite of America and Europe are now beginning to infight. This is resulting in the State losing legitimacy in the eyes of the masses.
While the time frame is likely far into the future, first the European Union will collapse and later the United States. But this is not uncharted territory but instead a trend of the nation-state collapsing under its own weight which started with the Berlin Wall and Russia. To avoid being collateral damage I elucidated several tips in chapter six of The Great Credit Contraction.
My next book, which I have co-authored with Bill Rounds, is currently with the publisher and hopefully will be available within a couple months. It will magnify the suggestions from chapter six and I think many will find it tremendously useful. As an old Chinese proverb says, “Of all the thirty-six ways to get out of trouble, the best way is – leave.”
DISCLOSURES: Long physical gold, silver and platinum with no interest in the problematic SLV, Streettracks Gold ETF Trust Shares or the platinum ETFs.
Infotopia: How Many Minds Produce Knowledge. By Cass R. Sunstein. Oxford University Press, USA, 2008. 304 pages. $15.95.
If you’re interested in how organizations and societies process knowledge or how what one individual knows diffuses through a larger social matrix, read Cass Sunstein’s Infotopia. It’s not perfect, but it does a fine job of analyzing a range of possibilities for aggregating individual knowledge—and it’s fun.
That Sunstein’s perspective is largely positive is indicated through the title; “infotopia” resonates with “utopia,” and there’s more of a trace of the hope that through collective understanding, we might shape a perfect society. There’s also a nice play on words here. “Utopia” can mean either “eu-topos,” the good place, or “ou-topos,” a place that does not exist, and so allows for ambiguity and hypotheticals. Well, Sunstein describes an ideal society whose place is in information and which is accessed via information and constructed upon information. To learn and discourse is to become a citizen of Infotopia.
Sunstein’s core problem is this: how do we aggregate dispersed knowledge? Or how do we as a group come to know what distinct individuals know? Sunstein follows two interweaving strands of analysis. One examines how groups actually do aggregate information known by individuals; the other strand examines how groups should do so. He pursues both analytical paths through discussing several areas of communal knowledge processing.
He starts with a, yes, utopian vision of what might happen if information aggregation worked everywhere as promised, then moves into discussions of numerous failures. From there, Sunstein spends a chapter each on major approaches to aggregation: statistical combinations, deliberation, markets and via the Internet. Examples are given in each case—often first hand and/or amusing examples—and general principles are derived from them. A historical and theoretical frame is given in each case though the natures of these frames vary widely. For example, when discussing deliberation, which has a long history in both practice and philosophy, Sunstein necessarily skips from high point to high point in this complex account, touching on Aristotle, Rawls, Habermas, etc. By contrast, when discussing electronic methods of aggregation, there’s comparatively little theory and considerable discussion of practice.
In all cases, however, the discussions of contemporary understanding of these methods of information aggregation were both intriguing and exciting. In particular, Sunstein’s discussion of the myriad ways prediction markets can be applied—and the fact that they outperform experts in many areas—was worthy of serious consideration. That a single mechanism is used for predicting events as diverse as presidential elections and internal product launches is intriguing. I found myself wanting to harness prediction markets for new areas in the arts or even in social and personal arenas. Likewise, the possibilities inherent in what Sunstein called “collaborative filtering”—finding parallels between books purchased or movies watched, as Amazon and Netflix do—have clearly just begun to be tapped. Such associational thinking could be used to multiply potential for product innovation or even to craft narratives within an art form.
Sunstein is clearly both committed to the potential inherent in collective understanding and excited by the revolution he sees unfolding in cyberspace or in prediction markets. However, he’s not blindly carried away by these processes. The chapter on deliberation is titled “The Surprising Failure of Deliberating Groups,” and the following chapter is called simply “Four Big Problems.” The gaffes, gaps and biases described there are deeply daunting and almost universally human. Other related failings are detailed in the discussion of the blogosphere, with the result being a book that works hard to be balanced.
While I trust Sunstein’s intent, I do not always trust his success rate. One of the potential failings he describes in deliberation is what he calls a “reputational cascade” in which people agree on a specific answer or point because they are part of a group and want to retain their social standing in it and essentially smother their objections or contradictory knowledge. Sunstein also describes the sort of cascade that follows a successful political movement and how blind people are to how they’re being carried along by the crowd. To a certain degree, I think that’s happening here. Sunstein sees so much rich potential in these emerging practices that even when he’s trying to see the objections, he fails to do so fully. What effect does Wikipedia have on creativity or does Google have on memory? What happens to older forms of collective knowledge transfer such as tradition? I would have loved to see more on areas like these as well as sharper distinctions about just what knowledge is.
However, those objections and desires don’t take anything away from Infotopia, which should start you speculating on what might be and reflecting on how the groups you belong to make decisions.
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