The Informationist, a blog written by Bruce Abramson

The Aftermarket Economy

2012-02-06T18:10:26-08:00

Cross-posted at Breitbart.com's BigGovernment

So Facebook filed its IPO papers, and the numbers are eye-popping. The company appears to be worth about $100 billion, or a bit more than the GDP of Tunisia. Others shade it a bit lower, but one thing is certain: it’s good to be Facebook.

Facebook is special because, in network economic terms, its product is a platform, and successful platforms are few and far between. For all its bells and whistles and features and privacy policies, Facebook remains—at heart—a place that people hang out. As the proprietor of a popular hangout, Facebook gets to write the rules guiding all the folks who think it’s a good place to pitch their businesses or to make some sales. In network economic terms, these businesses operating inside Facebook’s business comprise an aftermarket.

In a very real sense then, Facebook operates as a private-sector regulator of a vibrant commercial marketplace—the Facebook aftermarket. Vendors in this marketplace develop and launch “apps,” literally software applications that run atop the Facebook platform. Facebook has a symbiotic—and asymmetric—relationship with these Facebook app companies (or FBapps). The symbiosis is clear: the more people who like Facebook, the bigger the potential audience upon which each FBapp can draw; the better the FBapps, the more popular Facebook will become. The asymmetry is equally clear: each individual FBapp needs Facebook more than Facebook needs it.

The single most successful FBapp provides the clearest illustration of this asymmetry—and perhaps the single best justification of Facebook’s value. Zynga created a suite of wildly popular social games running atop the Facebook platform. Zynga worked hard to launch its games and to build a following. To generate revenues, Zynga decided to sell game credits to its players. That idea succeeded; players showered considerable real dollars on Zynga in exchange for those game credits. Zynga excitedly projected its revenues forward and developed business plans capable of making investors salivate.

Investors were not the only ones to notice, however. Facebook also noted Zynga’s success, and asked for a piece of the action. Zynga demurred. So Facebook announced that anyone selling credits inside an FBapp must sell Facebook credits—which, by the way, carry a 30% commission. What did Zynga do? The answer is in Facebook’s IPO filings: commissions from Zynga’s sales of Facebook credits generated $445 million in 2011 revenues for Facebook, or roughly 12% of Facebook’s total.

This story contains some key lessons for the modern economy. First, it’s good to be a platform. Second, aftermarket players need to pay closer attention to their platform providers. It’s easy enough to cast Facebook as the villain in this tale—the larger company preying on its smaller symbiote—but that characterization misses the point. Facebook worked hard to create an attractive platform. Facebook let Zynga come hang out with a couple of hundred million of its closest friends. Facebook handed Zynga a sizable potential customer base. There’s no question that Facebook deserved some compensation for this work. The only real question, then, is how much compensation Facebook deserved.

Anyone who understands and appreciates markets knows the answer to that question, too. Facebook deserved whatever it could negotiate with Zynga. From a consumer standpoint, as long as both Facebook and Zynga retained enough earnings to stay in business, the details of the negotiation are irrelevant.

Still, it’s hard to hear this story without concluding that Facebook played its hand very well while Zynga played it poorly. By all public accounts, Facebook caught Zynga by surprise. Zynga developed its entire business model and revenue projection unaware that Facebook could erode 30% of it overnight. Why? While it’s hard for an outsider to know, the most likely answer is also the simplest: fast-growing startups are understaffed, and they can’t see everything that might come their way. Zynga’s attention was likely focused elsewhere, and Facebook exploited a blind spot.

That blindness should serve as a cautionary tale. Today’s tech sector is dominated by aftermarket players—software and hardware developers toiling on applications or add-ons dependent on someone else’s platform. Relationships between platform owners and the players in their aftermarkets can be tricky. Rules governing patents, copyrights, antitrust, unfair competition, encryption, and circumvention all come into play in curious ways. Strategic negotiations and contracting can all play critical roles. And as the folks at Zynga can attest, getting caught blind can cost you a half billion dollars a year or so. After a while, that sort of money can add up.

Welcome to life in the aftermarket economy.

Play-by-Play of the Nevada Caucus

2012-02-04T15:16:14-08:00

Cross-posted at Breitbart.com's BigGovernment.

A couple of years ago, after the bubble crashed, my wife and I decided to buy a condo in Vegas. There were many reasons behind that decision, but Sin City is known for delivering the unexpected. And so, political junkie that I am, I suddenly found myself eligible to participate in an early, swing-state, caucus. Las Vegas had taken me into virgin territory.

Being a caucus neophyte, I approached the matter gingerly. I called the Clark County Republican Party office seeking guidance. What happens at a caucus? How long does it run? What’s the procedure? No one possessed definitive answers to these complex questions, but we were able to determine that folks in my precinct were caucusing at a nearby High School. The doors opened at 8:00 AM, with the caucus itself slated to start at 9:00. Anyone could speak on behalf of any candidate; each speaker would have two minutes. Beyond that, things got a little vague. I pre-registered on line “to avoid the crowds” of caucus day.

I arrived at Valley High School at 9:00 AM, impressed to see a sizable packed parking lot. Perhaps these are the political activists I hear so much about, I thought. Great to see how many of them show up early on a Saturday morning. But for a group of activists, the lot seemed singularly inactive. Where were the Paulistas, gesticulating wildly to emphasize that the Fed is our enemy, while Iran is not? Where were the Romney and Gingrich surrogates deflating each other’s tires? Where were Santorum’s nattily-dressed minions? Where were the folks waving Perry and Bachmann signs, refusing to admit that their party was over? Two helpful teenagers provided the answers: the caucus was on the other side of campus. The folks parked in this lot were there for—get this—Valley High School.

I dutifully drove around the block to find the much smaller but equally pacific lot bearing two signs marked “Caucus here,” one sign for Ron Paul, and a TV truck. I entered the school cafeteria, where a helpful volunteer directed me to the table for pre-registrants. I surveyed the scene quickly: Fifty or so small tables, broken into groups, and perhaps two hundred people. No politicking as far as I could tell, no speechifying, just a room full of Americans out enjoying their morning. The young woman who checked me informed me that my precinct was convening in the gym. I thanked her for the directions. Then I told her that it was my first caucus, and asked her what the procedure was. “It’s my first caucus, too,” she said. “So I don’t know.” I thanked her again and headed to the gym.

I found groups of people sitting either in the bleachers or in chairs on the gym floor. Each group had a sign with a four-digit number—a precinct number, I presumed. I found my precinct. A gentleman with a list—the precinct captain, I guessed—checked me in. I told him that it was my first caucus, and asked him what to expect. “It’s my first caucus, too,” he said, “but I think that pretty soon we get to vote.” I thanked him for the information and struck up a conversation with some of the other voters.

A man named Steve wandered by. He wore a T-shirt with what appeared to be some sort of caucus logo and carried a clipboard, so I sensed an air of authority. “How many voters do you have?” he asked. “Fourteen,” said our captain, forgetting to count himself. Steve counted out fourteen blue ballots. “You get eight delegates and one alternate,” he said, then ran off to the next precinct.

Our captain distributed the ballots, each of which bore the names of the four remaining GOP candidates. “Now we have to select eight delegates and an alternate,” he announced. “Then we get to vote for President.” “Why don’t we just see who is not interested?” suggested the man to my right. I looked around to see if, perhaps, I might make a good delegate. I realized that I was the youngest voter in the precinct, likely by at least a decade (I’m 48), but reasoned that I could nevertheless represent the group admirably if chosen to do so.

“I’m not sure that I want to go to Tampa during the summer,” one voter mused. “Oh,” said our captain. “I don’t think we’re electing delegates for the national convention. Are we? Does anyone know?” “I would imagine that there’s some sort of state thing,” someone suggested. We agreed that that sounded right. “Does anyone know when that is? Or where?” “Probably around here somewhere,” someone suggested, “or maybe Carson City.” “My vote would be Chicago,” our captain offered, but conceding that such a venue was unlikely, he set off to ask some questions. He returned. “Someone says they think its in Reno, but they’re not sure when,” he announced to the group.

I decided that it was time to pull up a browser on my iPhone. Apparently, between today’s caucuses and the national convention, the Nevada Republican Party plans to hold a series of county conventions—sometime tentatively scheduled to fall between March 10 and March 17 at places to be determined—and a state convention in Reno in May. I suggested that perhaps we were selecting delegates to the Clark County convention. Everyone agreed that my analysis seemed plausible, but our captain went to find Steve to verify this new information.

He returned with answers. We were tasked with selecting delegates for the county convention, to be held some time in March somewhere in Clark County. Then we could vote for President. “What do the delegates do?” someone asked. “Are they bound by our votes for President?” “Is there any relationship between our votes for President and delegate?” “Are we supposed to support delegates who share our preferences for President?” Our captain looked perplexed. He set out once more in search of Steve. He returned. Delegates to the county conventions get to vote on delegates to the state convention, and on a platform, he announced.

“Does any of that have anything to do with our presidential votes?” someone asked. “Well, those are distributed proportionally,” someone else answered. We collectively deemed this answer sufficient, marked our X’s on our blue ballots, and handed them back to our captain. He sealed them in an envelope and put check marks near those of us who had agreed to serve as delegates. “Now what?” someone asked. “I think we’re done,” said our captain. We all wandered off.

I surveyed the broader scene again, this time from my vantage point as an experienced caucus-goer and a freshly minted delegate to the Clark County Republican convention. I was pleased to note that I was not the youngest person in the room, though everyone younger did seem to be either wearing a volunteer’s badge or providing mobility assistance to someone in need. Very definitely not the crowd you see at Lavo, I thought.

I found myself standing next to a guy who appeared to be about my age—one of three men in the room wearing a suit. “Are you a reporter?” he asked me. “No,” I said. “Just a voter. But I do blog from time to time.” “Same thing, these days,” he said. “Are you a reporter?” I asked. “Yes,” he said. “For whom?” I asked. “From Israel,” he said, starting to edge away from me. “For Israel Hayom. I cover elections all over the world. Egypt. Tunisia.” I laughed. “Very different,” he said. “Yes,” I agreed. “No one gets shot here.” He nodded. “This is a very good thing,” he said, completing his escape.

I realized that I must have wandered into some unmarked press area, because the one other obvious reporter in the room—the one with the TV truck and camera from the local NBC affiliate—was interviewing another man in a suit. I overheard the interviewee’s bold prediction that Romney would win Nevada and then take the nomination. The reporter took this news in stride. With his interview concluded he sat back down and struck a pose that seemed to say don’t bother me. No one did.

I determined that I had learned all that I could learn, and that it was time to leave. As I turned to go, I saw Steve, standing still behind a table. I seized the opening. “So I think I’m a delegate, but I’m not sure what comes next,” I said. “Did you fill out one of these forms?” he asked, waving a form at me. “No,” I said. “But none of us did. We just put check marks near the names of folks who agreed to be delegates.” He looked concerned. “Would you like me to fill out a form?” I offered. “No,” he said. “Just give me your name.” I did. He wrote it on a yellow post-it note. “Would you like my e-mail address?” I asked. “Yes,” he said. “That would be a good idea.” He handed me the post-it note. I jotted down my e-mail address and handed it back. He folded it in half and put it in his pocket. “We’ll let you know,” he said, and ran off.

I headed back to the parking lot. Looked my watch. The whole thing had taken about an hour. Grassroots democracy in action, I thought. And no one got shot. Gotta love it.

The Law & Economics of Aftermarkets

2012-01-30T08:58:30-08:00

Coming up tomorrow (Tuesday 1/31): my one-hour intro to the law & economics of aftermarkets. If you or someone you know plans to make money selling aps for the iPhone, Android, Facebook, or any other proprietary market, you need to know this stuff!

http://rimon.eventbrite.com/

A (Very) Personal Note

2012-01-11T07:05:30-08:00

My father died Friday night.

Suddenly. Unexpectedly. Without any warning.

An athletic, vibrant man just shy of his 73^rd birthday, blessed with a clean medical report and no history of illness, he went from perfect health to dead in under five minutes. He and my mother had just finished their Shabbat meal and cleared the table. He sat down to study. Something in his heart exploded. He was dead before he hit the floor.

My father was a teacher. A college professor and a Torah scholar. The professoriate was his vocation; Torah was his passion. He rarely went anywhere without a volume of the Talmud in hand. The Talmud, that grand compendium of Jewish law and lore, culture, history, philosophy, and theology, brought him into a timeless discussion. He saw himself as a small link in a chain that started with Moshe; a humble participant in an eternal conversation begun 4,000 years ago. He studied a page a day, part of an informal international movement that sets that pace for Talmudic study—completing the journey roughly once every six years. He led classes wherever he landed, and answered questions from all who asked. He never took a penny from anyone for anything that touched upon his Torah scholarship. Money can color both love and truth. My father valued both much more than money.

Roughly 250 people attended his funeral. Men I had never before met lined up to tell me about my father’s classes. They described a teacher who was open to all, patient with all. They marveled at his respect, at his ability to accept all questions from all questioners as possessing inherent value—whether simple questions from newcomers attending their first Torah class or complex questions from accomplished Rabbis. They spoke of a man who taught them that their questions mattered—and that they had mattered to Jewish scholars throughout the ages. They explained how he had brought them, too, into that ageless dialog.

His closest friends marveled at his ability to apply the highest levels of intellectual rigor to all forms of discourse and debate—and his insistence that all participation focus on the ideas under discussion, rather than on the personalities of the participants. My father could always differentiate speaker from message. Friend after friend told me that they had never heard him engage in idle gossip, never heard him say an ill word about anyone. They envied his ability to discuss politics without losing friends. He knew how to look at the people with whom he disagreed. If they meant to do ill, he disassociated himself quickly. If their intentions were good, he saw no reason for a personal attack. Either way, personalizing the disagreement would be pointless. Wrong. Counterproductive.

My father was more than his public persona. He was a loving husband, father, and grandfather. He was a man who could examine every piece of fruit in the supermarket—and always returned home with the best. He could laugh with delight watching the fish in his koi pond respond to a sprinkle of food. He had been a schoolyard athlete, taking home trophies in basketball and handball. And as my Little League coach, he ensured that all players got to play (the only rule that would have gotten his son off the bench)—much to the consternation of other coaches who played only their stars, yet could never beat his teams.

My father was a man of ultimate integrity, willing to stand behind his beliefs. In his youth he had been a street fighter, defending his right to wear a yarmulke through even the toughest neighborhoods in Brooklyn. When my mother found herself the victim of religious discrimination, he took the lead in pressing her civil rights suit—a case that made important labor law in the Third Circuit, that established the impermissibility of discrimination on the basis of religious observance, and that featured a stirring and supportive concurrence by then-Judge Samuel Alito.

My father was also a humble man. He was neither proud nor boastful of his accomplishments, his scholarship, or his life. He simply saw the world as he saw it, did what was required—and lived in constant amazement that so few others could see either his world or their own obligations.

My father was a remarkable man, and not an easy one. It was not always easy being his son, and I suspect that it was not always easy being him. Our relationship was complicated, as father/son relationships tend to be. My mother describes us as a single personality staring at itself through a looking glass—and she is hardly the only one to have noticed. Our commonality began with our adoption of a shared Torah commandment: v’hegeita bo yomam valailah, you shall remain engaged in “it” day and night. Our differences stemmed from a philosophical divide: My father believed that the world is in Torah; I believe that Torah is in the world. He delved into Torah in ways that led me to believe (perhaps correctly) that he was disengaged from the world. I have studied the world in ways that led him to believe (certainly correctly) that I have become disengaged from Torah. But we shared a passion for ideas, for study, for learning, for understanding. And we shared the ability to focus on ideas, to remain respectful through disagreement, and to remember that those who mean well never warrant personal attacks.

So through it all, through good years and bad, through periods distant and close, we never shut the door to communication. Even during the years that we weren’t speaking, we spoke almost weekly—not infrequently as sparring partners. We kept each other sharp. I have lost not only my father, but also one of my closer friends.

Yet as acute as my loss is—a loss that I share with my sisters and their families—it pales in comparison to that of two others.

In a literal heartbeat, with no warning and no time to prepare, my wonderful mother watched her joy evaporate. Her handsome, healthy, strong husband, her best friend, her lover, her partner for the future, collapsed into a lifeless husk just weeks before their fiftieth wedding anniversary. I can hardly even imagine her anguish—even as I hold her and hug her and offer her my support.

In that same heartbeat, my lovely, bubbly, two-month-old son lost a grandfather he will never have the privilege to know. When I heard the news, I went into shock. It was not until I stood over my sleeping son that I found my tears. He was supposed to know his grandfather. I cried. Loudly. I woke him up. He cried with me. We cried together. Only one of us knew why. As I sit here today reviewing my thoughts, this paragraph remains the only one I cannot read without crying.

As I write these words, my father should be asleep at my mother’s side. He should be planning ways to show my son what it means to live a life of Torah. He should be feeding his fish, planning his shopping list, and managing his stock portfolio. He should be anywhere but where he is: split between a physical form buried beneath the Florida soil and a spirit moving into whatever plane spirits inhabit.

One of my sisters asked me about that spirit realm. What if, she wondered, my father arrives there to discover that the Torah that had guided his life had not provided the correct answer? I reminded her that my father did not lead a life of Torah for the sake of a rewarding afterlife. He led a life of Torah l’shma, Torah for the sake of Torah. He led a life of Torah because it gave his life meaning—and it allowed him to add meaning to the life of others. The standing room only crowd at his funeral was a testimony to his success.

I, myself, am not a man of faith. I do not know where life originates or where it goes when death sets in. I find no single answer either more or less plausible than any other. Many take solace in concrete beliefs about spirit, about soul, about God. I take solace in uncertainty. Some questions are unanswerable. I can spend the rest of my life searching, but I will never know why him, why now. My engagement in the world has taught me that in the quest for knowledge, some things are unknowable. There is a reason behind the Torah commandment v’hegeita bo yomam valailah: No matter how much we engage, we will never exhaust the pool of questions.

An instant death is a blessing, but only to those who are ready. My father was not ready to die. We were not ready for him to die.

The world was not yet ready to say farewell to Rabbi Dr. Theodore Abramson, to Ted, to Teddy, or to Rav Tuviah ben Rav Yaacov Simcha. I was not yet ready to say goodbye.

And yet, ready or not, such is the way of the world.

Goodbye, Dad. I will miss you.

Zecher tzadik l’bracha. May the memory of the righteous be a blessing.

What Government Should be Doing in the Markets

2012-01-05T17:15:35-08:00

Cross-posted at Brietbart.com's BigGovernment

It’s hardly a secret that the 2012 election is shaping up as a contest between free markets and big government. And while the choice seems clear in the current political environment, it’s important to recall that government does play a critical role in the development and maintenance of functioning markets. Yet, as Tea Partiers, Occupiers, and Ron Paul acolytes all note, government has both abdicated that critical role and inserted itself where it does not belong.

If markets were magical places that flourished whenever government disappeared, Somalia would be the world’s leading economy. Markets are sophisticated mechanisms that enable informed parties to exchange resources, voluntarily, to mutual benefit. There’s a lot packed into that sentence. For markets to work, participants must trust the system. They must believe that they have—or least can access—the information they need to make informed decisions. They must feel free from coercion—both explicit coercion and unacceptable take-it-or-leave-it offers. They must trust the inherent fairness of the system, and they must believe that it is possible to enforce the rules of the marketplace by sanctioning cheaters. The closer an actual market comes to meeting these needs, the better it will function. The further a market drifts from these goals, the more likely it is to fail. It is thus absolutely critical that someone—presumably the government—serve as the market referee and the guarantor of market enforcement.

First and foremost, market participants must believe that courts will honor contracts and property rights fairly, dispassionately, and smoothly. Contracts allow strangers to exchange promises; property allows people to focus on matters in front of them without worrying about possessions that may be out of sight. In the absence of enforceable contracts and property rights, people could never travel far from home, leverage their assets, or exchange current payment or performance for a promise of future delivery with anyone unfamiliar. In short, a society that distrusts its courts cannot progress beyond a tribal or a village economy—even if it employs tribal or village markets.

Our government has abdicated its role as an honest arbiter of contracts and property rights. The time and expense associated with litigation are beyond the means of most Americans. In too many cases, the better funded party wins simply by outlasting its adversary, independent of the merit of the claims. Mechanisms designed to tilt the balance—such as class action suits—often create more problems than they solve. In the absence of significant litigation reform, Americans may soon question the viability of their contracts and their property.

Next, even voluntary exchanges are meaningless if they are uninformed (or poorly informed). The greatest moral argument in favor of markets is that they increase overall social welfare by assigning each resource to the party that values it most. But if people base their subjective valuations on misinformation, the market exchange will often assign resources to parties that undervalue them—simultaneously defrauding the individual victim and reducing overall social welfare.

In many respects, our overly legalistic approach to disclosure legalizes intentional misinformation. The housing and banking crises are perfect illustrations: most of the underlying deals contained full disclosures of all risks, buried somewhere in a sea of paper, bearing the signatures of people who neither read nor comprehended that paper affirming that they understood it. The way around this seemingly intractable problem is not—as many now advocate—to eliminate the markets in complex, risky financial instruments. The solution is to replace our legalistic approach to disclosure with an actual approach to disclosure. The law needs mechanisms establishing that both parties actually understood and were capable of bearing the risks at stake. Anything else guarantees a repeat of 2008—likely with another round of bailouts to save those we deem “too big to fail.”

Government also has a role to play in ensuring that markets remain voluntary. Setting aside the obvious and explicit coercive nature of Obamacare’s individual mandate, the typical source of coercion in markets is concentrated power. Market theorists as prominent as Adam Smith and Friedrich Hayek recognized the desire of powerful monopolists and oligopolists to control markets—both by elevating prices and by reducing quality and variety. Even Objectivists like Alan Greenspan (in his pre-Fed days) noted that government regulation frequently created business interests with enough power to eliminate effective voluntariness from the market.

There is, of course, already a body of law for preventing and combating such concentrations of market power. Antitrust law was once a hot political issue. Teddy Roosevelt, who entered the 2008 campaign as John McCain’s model and the 2012 campaign as one of Barack Obama’s many models, was a crusading, trust-busting, advocate of strong antitrust enforcement. Antitrust was once the weapon of choice of class warriors. By the 1960s, Richard Hofstadter’s “Whatever Happened to the Antitrust Movement?” noted that citizens had lost interest in the issue only because companies had internalized its constraints. In other words, American companies were curtailing their own growth through fear of government enforcement. But neither the economy of Teddy Roosevelt’s day nor that of the 1960s describes the situation today. In the modern economy, most companies possessing market power do so because the government gave it to them: through regulatory policy; through the imposition of high barriers to competitive entry; or through misguided attempts at industrial policy. Antitrust law does play a critical role in the modern economy, but Teddy Roosevelt is a poor inspiration.

As we head into the 2012 debate about the relative merits of big government and free markets; as market fundamentalists attempt to hijack parts of the debate; as American citizens from all walks of life and all political persuasions complain that the system has failed them; and as President Obama attempts to blame business for the failure of government; we must remember to focus on the proper relationship between government and markets.

The government’s job is to ensure that the system is fair, that people can enforce their rights, that people get the information they need, and that concentrated power cannot become effective coercion. Yet, in America today, few people can enforce or protect their rights; intentional, legal misinformation is rampant; and government, rather than monopolists, threatens coercive market exchanges. In short, government has abdicated its appropriate role in the market and assumed an inappropriate one instead. The restructuring of that relationship should be high on the agenda of our next President.

In Praise of the Republican Field

2011-12-21T19:05:29-08:00

Cross-posted with Breitbart.com's BigGovernment

I’ve grown weary reading about the disappointing nature of the Republican field for President. So allow me to take a contrarian view: We have a solid field of candidates that seems to be leading to an exciting choice.

First, a disclaimer. Way back when there were twenty or thirty names being tossed about, Newt Gingrich was my first choice—largely because of the clarity with which he sees the civilizational challenge from the Islamic world. So it may appear cheap and easy for me to laud a process that has resurrected my candidate after I (and almost everyone else) had left him for dead.

Next, a concession. There are plenty of great candidates who bowed out of the race. Personally, as a fourth generation Brooklynite, there is something I find refreshingly familiar about Chris Christie. It would have been a real pleasure to have a President who understands the difference between arrogance andchutzpah. Perhaps some other time.

Finally, the field we do have. As we head towards the political hiatus also known as Christmas, the two leading candidates appear to be Newt Gingrich and Mitt Romney. It is hard to imagine two more different politicians:

Gingrich is a bold visionary, notoriously undisciplined, willing to call the world as he sees it, impetuous to the point of occasional recklessness, yet as versed in the detailed arcana of legislative procedure as in the big-picture restructuring of the American economy and of America’s place in the world.

Romney is a manager par excellence, disciplined and calm, effective if not bold, capable of boasting an extraordinarily impressive record of successes in both the public and the private sector, yet singularly uninspiring.

What Gingrich and Romney do have in common is that neither belongs to a particular GOP faction. Some of us see that as a positive; many others do not. But for those who do prefer closer adherence to doctrine, the field offers three fine choices—Rick Perry, Michelle Bachman, and Rick Santorum. Want a colorful outsider? Until recently (and perhaps in the future), Herman Cain fit the bill. Prefer a libertarian/isolationist ideologue with conspiracy-theoretic roots? Ron Paul is your man. And if you like Romney’s cool competence but don’t particularly like the man, there’s always John Huntsman, and there used to be Tim Pawlenty. All in all, not a bad selection. (There is, of course, only one Newt).

At the top of the field though, Gingrich and Romney provide excellent contrasting opportunities. Under normal circumstances, a President Romney would be a fine choice. I have little doubt that he would lead a successful, center-right, technocratic administration—perhaps most closely resembling the successful center-left technocratic administration of Bill Clinton. And if that is the direction that the Republican Party and the country choose, President Romney will serve us well and make us proud.

I am hardly alone, however, in noting that circumstances today may not be “normal.” We are suffering from twelve years of bipartisan mismanagement, capped off by astounding Progressive overreach. The economy is moribund, the solvency of our social safety net is imperiled, regulatory complexity is strangling us, we are in retreat abroad, and we are facing an empowered, brutal, ruthless, if dispersed threat from the Islamic world and a better organized challenge from China. Such times require fundamental, structural change.

Historic debates about the New Deal aside, FDR’s reorientation of America (albeit with Reagan’s correctives) stood us in good stead throughout the twentieth century. But yesterday’s solutions always sow the seeds of today’s problems. The social, economic, military, and foreign policy structures that changed America between 1933 and 1948 have run their course. We need new structures. Over the next few years, it is absolutely imperative that we simplify our tax and regulatory systems, restore our safety net to solvency, motivate and empower innovators and entrepreneurs, rebuild our integrity abroad, and face up to the nature of today’s global challenges.

There is only one man standing even remotely capable of handling these tasks: Newt Gingrich. It is a sign of the times that Republican poll respondents appear to have reached this conclusion while the Party’s power structure remains focused almost everywhere else.

Which is not to say, of course, that the power structure’s concerns about Gingrich are unwarranted. Lack of discipline can certainly hinder a campaign—though as Bill Clinton proved, it need not destroy a Presidency. And whoever carries the GOP standard must be a successful candidate before becoming a President. The thought of Candidate Gingrich scares at least as many people as does the thought of President Gingrich. Furthermore, a man who puts forward as many ideas as Gingrich does faces an inherent quality control problem: plenty of bad ideas sit aside his good ones. That, however, is why we have a deliberative legislature and a separation of powers; it lets a million ideas bloom, the good ones flourish, and the bad ones wither on the vine. That should help allay fears of Gingrich as President—though hardly those of him as candidate. Besides, those who value calm, stability, predictability, and competence, have an excellent choice in Mitt Romney.

All of that, however, is simply to return to the theme with which I opened. Disappointments, warts, and all, the 2011 GOP Primary Preseason seems to be culminating in an exciting choice: I believe that Newt Gingrich is the right man for the times—but I would hardly be uncomfortable with a President Romney. Whether you prefer a soaring visionary or a stable manager, we’ve got a man for you.

All in all, that’s not a bad place to be eleven months before a general election.

Stopping Online Piracy - One Way or Another

2011-12-19T11:16:38-08:00

Cross-posted with breitbart.com's BigGovernment

The Stop Online Piracy Act (SOPA), currently the subject of hearings in the House Judiciary Committee, has generated interest far beyond the community of copyright lawyers.

To its proponents, SOPA is a critical addition to copyright law, necessary to help creative Americans protect their legitimate property rights from foreign attackers, and thus to preserve the numerous American jobs in our world-class creative industries.

To its opponents, SOPA is an unprecedented attack on civil liberties that threatens to destroy free speech, the Internet, and the thriving American technology sector—not to mention the many American jobs that it creates.

Who is right? It turns out that they both are: SOPA will help copyright holders protect the rights that copyright law grants them by suppressing free speech and impeding the functioning of the Internet, with predictable consequences on American jobs.

This result is hardly an anomaly.

In fact, it is an entirely predictable consequence of a collision between law and technology. It is impossible to understand the debate over SOPA without first understanding the crisis of copyright.

Copyright law, at its very heart, awards selected individuals (i.e., creators) with the exclusive legal right to control the duplication and circulation of selected bit strings (i.e., the binary representations of their creative works). Modern digital technology makes it practically impossible for anyone to control the duplication and circulation of anything digitized. This conflict is an objective part of modern reality, not a statement of morality. It is equally true whether you view copyright law as a protector of legitimate property rights and an enabler of mass culture or as a regulatory legacy of a bygone era that interferes with the smooth functioning of the free market (both characterizations are partially true). Whether you love copyright law or hate it, there is no questioning its collision with information technology.

In practical terms, our grandparents didn’t “pirate” copyrighted works because they couldn’t. (My own wonderful grandparents, of course, would never have engaged in anything as unspeakable as piracy, but I can’t speak for their peers). Not too long ago, it was expensive to buy printing presses or recording studios, and it took serious connections to maintain a network capable of distributing anything beyond a small circle of friends. In those days, technology protected copyright holders from most of the world. Copyright law provided only the additional protection necessary to prevent attacks from a small number of identifiable, well-funded, direct competitors.

That world is not this world. Today’s copyright law still awards copyright holders the same basic set of rights, but the protection that technology used to afford them has eroded. In today’s world, technology protects copyright holders only from the tiny stratum of society that cannot afford Internet connections. Technology has unleashed the folks who used to respect copyrights only because they had to respect copyrights.

Bills like SOPA are inevitable because copyright holders have a solid argument: The law grants them rights for important reasons grounded in public policy that are difficult to enforce because of important technological advances. As that difficulty grows, increasingly powerful and draconian enforcement tools become necessary simply to let them preserve their legal rights. Deny them those tools and you might as well deny them their rights.

Therein lies the quandary of contemporary copyright policy. The rights that we grant are incompatible with technological reality. This conflict first came to a head in the discussions that led to the Digital Millennium Copyright Act (DMCA) of 1998, and they have recurred every few years since then. SOPA is merely its current manifestation—and regardless of Congress’s resolution of the current dispute, it will arise again in the near future. Sometime—soon—we will have to decide how we want to address this discrepancy. We will have to choose between rethinking our approach to motivating creativity—the Constitutional goal underlying the copyright system—and passing copyright enforcement mechanisms that stifle free speech and Internet development entirely.

Proponents and opponents of SOPA are thus both right. We are poised on a precipice between two slippery slopes. A step in one direction moves us towards the end of copyright as we know it. A step in the other direction moves us towards the end of free speech as we know it. Congress, as usual, is likely to finesse some “compromise” that will allow us to pretend that we have avoided the problem and moved forward together.

Don’t let them kid you. The choice is inevitable. Regardless of the fate of SOPA, we will either combat online piracy by rethinking the ways that we motivate creativity to make it a non-issue or by hanging growing numbers of pirates on our digital yardarms.

I know where I stand.

Burning Man: The Ultimate Celebration of Capitalism

2011-09-05T14:07:01-07:00

Cross-posted at Breitbart.com's BigGovernment

Burning Man has entered the mainstream. Not only did the event sell out for the first time in its history, but the Wall Street Journal and New York Times both gave it prominent coverage.

What is Burning Man? For the still uninitiated: “Once a year, tens of thousands of participants gather in Nevada’s Black Rock Desert to create Black Rock City, dedicated to community, art, self-expression, and self-reliance. They depart one week later, having left no trace whatsoever. Burning Man is also an ever-expanding year-round culture based on the Ten Principles.” Those ten principles, in turn, are: (i) Radical Inclusion; (ii) Gifting; (iii) Decommodification; (iv) Radical Self-Reliance; (v) Radical Self-expression; (vi) Communal Effort; (vii) Civic Responsibility; (viii) Leaving No Trace; (ix) Participation; and (x) Immediacy.

According to the WSJ, this “mantra is so compelling that some 50,000 participants have gathered in this rustic setting for the 25^th annual rite,” but a more honest count might conclude that it draws about 1,000 people eager to explore the philosophical implications of alternative socioeconomics, and 49,000 people looking for a good party. Yet, with all the potential to report about alternative events and lifestyles, both papers focused on the incursion of capitalist trappings into this supposedly non-capitalist venue: the NYT wrote about the for-profit nature of the parent corporation, while the WSJ described the emergence of a class structure among Burners. The irony falls equally on the newspapers and the Burners, however, because far from presenting an alternative to capitalist socioeconomics, Burning Man is a glorious, joyful expression of them. And therein lies the true story.

Three years ago, I attended Burning Man for the first (and so far only) time. Like many virgins, I was unaware precisely what to expect—or how I could contribute to the community. After all, as a professional technology lawyer and an avocational political philosopher, the demand for my skills in an alternative art city appeared somewhat unclear. Fortunately, a chain of telephone referrals led me to a long-time Burner organizing an “academic style” conference on The Future of Art. I volunteered a presentation on contemporary copyright issues, reasoning that the ways that we regulate art would have a profound effect on the art we get.

On my second day on the Playa (as the grounds of Black Rock City are known), I thus found myself in a scorching shade structure addressing a scantily clad crowd curious about art and its future. I spent my twenty minutes running the crowd through a series of hypotheticals designed to illustrate the profound effect that the regulation of art can have on determining whom we motivate and what we motivate them to do. The next speaker, a fine Marxist graduate student in I forget what at I forget where U, read a paper to the crowd extolling the gift culture at Burning Man as an appropriate curative to the rapacious excesses of capitalism—as exemplified by that most imperialistic of all evil empires, the United States.

That’s when the real fun started.

I suggested that my Marxist friend might have things exactly backwards. I proposed that there is no such thing as “excess” in a capitalist system; what he had identified was actually “surplus.” And it is the very concept of surplus that enables events like Burning Man. Around the country, Burners are productive enough fifty-one weeks a year to spend the fifty-second “gifting” the bounty that they have accumulated. No one leaves for Burning Man, I noted, wondering whether the gifts they are distributing would render them incapable of affording food or rent upon their return. Furthermore, I suggested that the manner in which Burning Man motivated artists to conceptualize grand installations, trained numerous organizers in logistics, and promoted the professional development of event planners, DJs, and lighting specialists throughout the year, was precisely the capitalist system in action.

My Marxist friend hung his head. It seems that at no point in his academic career had anyone ever suggested that capitalism did any of these things. But to my surprise, my survey of the crowd—heavier in sex educators, radical lesbians, aficionados of fine pharmaceuticals, and spiritual healers than academics—revealed a fair amount of head nodding. While they may not have characterized it as such, they all seemed to possess an inherent understanding of the importance of motivation and surplus.

The remainder of my week on the Playa drove the point home further. I wandered among the diesel generators, fuel inefficient RVs, and art installations belching gas flames into the air, discussing the importance of environmental stewardship. I learned the various rules for planning, zoning, land use, and campsite décor that defined the Playa; came to appreciate the importance of branding upon the selection of a camp names; and enjoyed the competition among camps to throw the best parties—and to thereby attract attention to themselves, their designs, and the gifts they were offering. At Center Camp, the administrators explained the relationship among the Black Rock Rangers—the internal police force—whose primary job was to enforce egregious breaches of the law so that state and federal law enforcement officials would stay away. I even learned of the debate over men who chose to wear shirts but not pants—which somehow registered as a curious breach of protocol in a clothing-optional environment. I also, however, encountered near unanimity on the supremacy of Burner culture and Burner morality to their bourgeois American counterparts. In short, I learned that the residents of Black Rock City recreated the social and cultural structures common to most American cities—albeit with a few curious twists—and were loathe to admit it.

So what is Burning Man? It is a celebration of individual self-expression, surplus, and the motivation that recognition and acclaim can provide. Burners who spend their year cultivating the skills that will make them better Burners enhance the communities in which they live. The morality inherent in the event is thus its own success—precisely as capitalism extols. And it is wasted on far too many people too dumb to be proud of that very success.

In short, Burning Man is a slightly weird microcosm of America.

Obama Smarts vs. American Common Sense

2011-08-29T20:18:21-07:00

Is Obama Smart? It’s a question that more and more people are asking. His devoted fans like to note that he made it through Columbia and Harvard—supposedly a stark contrast to Rick Perry’s less-than-stellar transcript from Texas A&M, though Obama’s refusal to release his own transcripts does blunt the comparison.

More to the point though, the evidence seems conflicting. On the one hand, he ran a remarkable campaign in 2008. He sensed what the American people needed to hear, and he emerged from nowhere to defeat vastly more qualified opponents. On the other hand, his performance as President has been dismal. Most Americans recognize that his policy preferences range from the irrelevant to the counterproductive, and leftists contend that he has been ineffectual in pursuit of their agenda.

So is Obama smart? Yes. Obama is a certain kind of smart. Unfortunately, it’s the wrong kind. President Obama is the sort of smart that our finest institutions recognize, promote, and reward. There is no surer path to academic success than learning the orthodoxy of your field and the particular bent of your professor; explaining why only those blessed with suitable experience, training, and insight can comprehend the complex problem under consideration; and then parroting the professor’s previously articulated answers shortly before he or she reveals them to the class. Mastery of this skill continues to pay dividends in the real world, most prominently among business consultants versed in telling corporate boards what they want to hear, and attorneys capable of tailoring their arguments to the predispositions of the judges before whom they appear.

It is unclear that these skills bear any relationship to problem solving acumen, but they do earn high grades, glowing recommendations, consistent promotions, and top dollars. They also perpetuate a self-congratulatory status quo by ensuring that the current generation of leaders selects successors whose uninspired, orthodox thinking most clearly mirrors their own, and who have little incentive and less ability to seek innovative solutions to challenging problems. Furthermore, the preference for such skills institutionalizes the idea that our challenges are so complex that only a trained priesthood can grasp them—much less address them. The central belief of our academic elite is: “Trust us. We’re smarter than you are.”

Only folks possessing this type of smart comprehend that every aspect of human existence is more complicated than it appears to be. Thus, for example, only they can see: How paying people not to work increases employment; How penalizing the successful motivates investment in productive ventures; How embarrassing allies motivates other nations to operate in America’s best interests; How apologizing for the spread of liberalization and democracy invigorates those fighting for their freedom; How kowtowing to dictators encourages them to reconsider the morality of their governance; How threatening uncertain regulation reassures businesses considering expansion; How partially nationalizing industries improves competitiveness; How favoring some racial or ethnic groups above others reduces discrimination; How diverting money from a productive private sector to a stagnant public sector improves productivity; How promoting union benefits above meritocratic promotion enhances efficiency; How growing the government expands freedom and reduces dependency; or any number of comparable truths and the policies they imply.

There are two important points to note about all of these complex connections and their policy implications. The first is that they are undeniably true. The second is that those who take a narrow-minded approach to factual observation and logical inference may nevertheless deny them. And that is precisely why expertise and academic training are critical. In the absence of such training, our leaders might well succumb to the seduction of common sense, and ignore the intricate theories that explain the appropriate path to preferable policies.

President Obama is smart enough to know that he is always the smartest one in the room. His biggest fans—Tom Friedman and Paul Krugman come to mind—consistently wish that the lesser lights of America would step out of the way and let Supersmart Obama solve our most challenging problems. But facts, logic, and common sense have seduced much of America. Only two groups appear immune to their allure: those with little interest in either facts or logic, and those whose training tethers them to the mast of expertise in the face of the sirens’ song.

So is Obama smart? Absolutely. He possesses the skills necessary to navigate our most prestigious institutions and to perpetuate our most important mutual admiration societies. He is smart enough to impress in any role that does not require innovation, problem solving, or execution. Unfortunately, the Presidency is emphatically not that sort of job.

In a potentially unrelated note, the educational groups that gave Obama the widest margins of victory in 2008 were those lacking a High School diploma and those possessing an advanced degree–accelerating a 30-year trend . I suspect that there may be a simple connection between these observations, but I regret that I hold far too many advanced degrees to see it.

The Dead Villain Test: Separating Cause From Effect In The Islamic World

2011-08-23T21:16:40-07:00

Cross-posted at breitbart.com's BigPeace

Osama bin Laden is dead, and the world is a better place for it. Moammar Qaddafi may soon follow. His departure, too, will leave the world a better place. If all goes well, 2011 will also witness the demise of Bashar, heir to the Asad dynasty. No one with a shred of decency will shed a tear. The world will just keep getting better, one dead villain at a time.

These three men have brought untold misery, pain, suffering, and death to tens of millions of people—the overwhelming majority of them Muslims, though their Western victims number comfortably in the thousands. With their dispatch, the Islamic world will exact its greatest measure of justice since (at least) the Iraqi execution of Saddam Hussein nearly five years ago.

As Americans, however, we are always more interested in what their demise means to us. In particular, we must wonder what it says about our Commander in Chief—President Obama—and his seemingly eclectic strategy. What will it mean if the relentless pursuit of Bin Laden, “leading from behind” against Qaddafi, and mild criticism from a distance of Asad, result in the end of three terror-ridden personality cults?

The most obvious answer is that only a fool argues with success. Yes, it is always possible that different approaches would have yielded similar results more quickly, and at lower cost. But it is at least as possible that they would have yielded inferior results at greater costs. If these three men disappear, within a single year, on President Obama’s watch, he will deserve credit for having done something—something big—right.

It will also, however, create an important test. In the decade since 9/11 focused attention on the Western effects of Islamic rage, two broad schools of thought have emerged:

One—to which I subscribe—sees a deeply dysfunctional Islamic world, mired in a violent, dark age, lashing out in all directions, causing incalculable damage to the (largely Islamic) people living in its midst, and threatening significant harm to the world at large. To this way of thinking, Bin Laden, Qaddafi, Asad, and others of their ilk are symptoms of a deeper malady—the intellectual, emotional, and spiritual gap separating the mythology of Islamist supremacy from the needs of a modern world that accepts all people, and all faiths, as equals. The disease thus allowed these vile men to become popular leaders; their leadership did not cause the disease.

The other—to which I believe President Obama subscribes—sees a collection of truly vile individuals who have seized control of Islamic nations and organizations in the face of Western complicity or acquiescence. They see these leaders as the primary causes of Islamic rage, Islamist thinking, and the violence and terror that it has engendered. To adherents of this school of thought, a generation or two of dreadful leaders have devastated Islam; their reformation, or barring that their removal, will allow the healing to begin.

Saddam may have been the first to fall, but the recent acceleration of these leaders’ removal has created that critical test. What will follow the removal of these evil men from positions of leadership? If they themselves are the true disease, numerous Islamic countries should begin to open and to flourish. But if the culture itself is sick, removal of a few festering scabs is more likely to spread the infection than to enable a healthy recovery.

As we watch events unfold in Tunisia, Egypt, Libya, Syria, and throughout the Islamic world, we must remain open to both possibilities. The world will be a better place if the President is correct, and if new leadership leads quickly to openness, tolerance, productivity, peace, and prosperity throughout the Islamic world. I fear, however, that he is not. Removal of these leaders, while an unquestionable good in its own right, is more likely to be but one small step in a long, hard slog.