Speaking of Police States

What is going on at the 2012 London Olympics is pretty ridiculous.

The government has told the courts they may wish to take particular account of anyone using two or more words from what it calls ‘List A’ — ‘Games’; ‘Two Thousand and Twelve’; ‘2012’; ‘twenty twelve’. The judges must also come down hard on a business or charity that takes a word from List A and conjoins it with one or more words from ‘List B’ — ‘Gold’; ‘Silver’; ‘Bronze’; ‘London’; ‘medals’; ‘sponsors’; ‘summer’. Common nouns are now private property.

London already has crazy libel laws so it isn't like they had freedom of speech in the first place but this is taking things to a new level.

Sponsors who are benefiting from this policy: Coca-Cola, McDonalds, GE, Acer, Atos, Dow, Omega, Panasonic, P&G, Samsung and Visa.

I'd suggest that people around the world think twice about whether they could conveniently patronize the competitors of these businesses instead of giving money to sponsors that are in favor of such draconian policies. 

Making it easy for a future police state

This day and age, more and more people are voluntarily carrying a GPS tracker on them. It's their phone. The government is accessing this data at an increasing rate.

...an explosion in cellphone surveillance in the last five years, with the companies turning over records thousands of times a day in response to police emergencies, court orders, law enforcement subpoenas and other requests.

This is starting to make prepaid phones look very attractive.

A funny coincidence

While talking about start up culture a few days ago I was sent an email to a 6 month old article highlighting flaws in Twitter's HR strategy as seen by a former employee.

To make matters worse, Twitter allowed these early employees to hire their own teams. Some of these early engineers are actually talented, says our source, and that has created "pockets of excellence" at Twitter. But our source says some of these early engineers were more "lucky" than good. This source says the old adage that "A" players hire "A" players and that "B" players hire "C" players proved true at Twitter.  This source says one group at Twitter that is not a "pocket of excellence" is the team in charge of infrastructure.

Emphasis added. Why? Later that day Twitter started having issues staying up

Twitter went down about 9 a.m. Pacific time last Thursday, due to a "cascading bug" within one of its infrastructure components, Mazen Rawashdeh, vice president of engineering, said in the company's blog. The service had fully recovered at 11:08 a.m. Pacific on Thursday.

I'm sure these two articles aren't at all related. Still, it's good that Twitter didn't decide to go the route of Zynga, Skype and Silver Lake Partners and find a way to screw over their employees who stood to make a lot from their options.

How the markets see the Egyptian coup

Egypt's presidential elections have been quite volatile. Their judicial system, backed by the Egyptian military, closed down parliament and later the Supreme Council of Armed Forces redefined the constitutional powers of the president so they can retain their power even if the Muslim Brotherhood's candidate takes office. I thought it would be interesting to see how their financial markets are reacting.

The CDS market didn't react very much. It still costs around 650 basis points to buy protection against an Egyptian default over the next five years. 
The stock market sold off by a few percent but it is well above its previous lows.  On the other hand, their currency has continued to sell off in the nondeliverable forward market.

What does this mean?

1. It's not actually a coup. The markets have understood that the military is in charge and this is just a little unexpected volatility.

2. The bond market is afraid of an Islamic party gaining control and believes that the military's establishment candidate offers them the best chance at getting paid back. According to the world bank, Egypt's central government's debt is over 70 percent of GDP so it will be a significant variable for the new government to address. They will probably use devaluation to the extent that they can get away with it.

3. This is how the military negotiates with their opposition and it will be business as usual soon enough.

It will be interesting to see how the situation develops. This might even reduce the chances of an Israeli strike on Iran in the short term as they have to deal with more instability on their borders.

Good news everyone!

Judge Posner dismissed with prejudice an upcoming patent case between Apple and Google.  If this is the start of a reversal of ridiculous patent rulings then maybe companies can stop spending billions of dollars buying companies mostly for their patents or just buying the patents directly and start spending billions of dollars on something more useful.  "Something more useful" could be anything from R&D, sales and marketing, returning money to shareholders to even just giving away free segways. The current patent system creates a large deadweight loss on society and it's about time something is being done about it.

This post sounds optimistic, so it should be noted that a lot of people are depending on the rents from the patent system and therefore this is just one shot in what will likely be a long and drawn out battle. But it's a shot fired by the right side for once.

For those of you who read the title in a different professor's voice, you may be interested to know that the show has new episodes coming out.

Throwing out the rent seekers

In the Koch response to a Washingtonian article on the Koch vs Cato (or Koch vs Crane) think tank battle, we get an interesting piece about an area of literature that seems understudied by the type of people who like to talk about how much more efficient free markets can be. This quote is about a dispute between the two parties at a Moscow conference in 1990.

In reality, Charles Koch’s concern with the conference agenda was that it never addressed the difficulty of transforming a Communist economy to a free-market economy. Without a focus on these transition issues, Charles Koch believed the recommendations would backfire and lead to anything but a free economy (which is, indeed, what happened). When Charles Koch advised Crane of this, Crane discounted the problem and refused to make changes. 

The question of what makes a successful transition from a communist society to a free market society seems to be an under addressed issue, especially by free market proponents. Telling people what to do is harder than telling them how to get buy in from the people currently in charge and still end up with reforms that work. It is complicated by the fact that it can sometimes be difficult to fully differentiate successes from failures. Russia, with its broken privatization scheme that created billionaires out of connected government officials presumably failed. China lifted millions of people out of abject poverty and apparently succeeded. However, if we compare China to Russia, it is very hard to tell if China has been doing anything better or if they are just benefiting from starting from a lower base.  They've both been growing and while China has grown more, China's transition started from a situation where they were completely destroying their human capital in the Cultural Revolution, where among many other things they systematically sent educated youths to the country side for hard labor. China's leaders also had a bigger incentive to grow the pie, even if it was just to be able to take a large piece of its economic production. Russia started out somewhat industrialized and with oil wealth so the politically connected could become rich without much extra growth. 

The difficulty of this transitional problem is probably one of the larger drivers behind charter cities and seasteading. It's easier to create something new than it is to take resources away from the rent seekers. It's the same idea behind why start up companies often end up beating much more established competitors. The large companies have people running their own rent seeking operations inside the company and in aggregate this leads to resistance to the type of investment and change needed for the incumbent company to stay relevant. 

The drug war is personal for Romney

For people hoping that somehow Romney might be more rational on the drug war than a typical religious conservative, this NYTimes piece about Romney's life in La Jolla throws cold water on those hopes.

A young man in town recalled that Mr. Romney confronted him as he smoked marijuanaand drank on the beach last summer, demanding that he stop.

The issue appears to be a recurring nuisance for the Romneys. Mr. Quint, who lives on the waterfront near Mr. Romney, said that a police officer had asked him, on a weekend when the candidate was in town, to report any pot smoking on the beach. The officer explained to him that “your neighbors have complained,” Mr. Quint recalled. “He was pretty clear that it was the Romneys.”

While Romney has previously dodged the issue of the drug war, it looks pretty clear which side he is on. He either firmly believes in the war on drugs or is willing to use the war on drugs to keep people he sees as undesirable (in this case it is most likely college students at UCSD who have wandered down to enjoy the beach) out of the areas frequented by his family. Unless Obama makes a surprise announcement akin to his shift on gay marriage, where he will also have to basically repudiate everything his attorney general has done to promote and extend the federal government's drug war, November's election means a continuation of the status quo where the United State's government spends tons of resources throwing people in jail and creating a dangerous black market because the idea of people enjoying marijuana is offensive to some people's sensibilities.

Greece: The fascist vs the communists

During the last election cycle Greece's far right Golden Dawn politicians either refused to show up to the debates or were not invited. It's hard to tell for sure, but they still won 22 seats in the election showing that they cannot easily be ignored. This time around we see why not having them at debates might have been a good idea for all parties involved.

It should be noted that Golden Dawn has a history of more extreme violence.

Rent Seeking in NYC

Did you know that there was a $13 billion dollar industry based purely around rent seeking in NYC? I'm talking about the taxi industry, where a medallion is required to operate a vehicle for hire that can be flagged down by customers on the street.  At 13,237 medallions selling for at least a million dollars each $13 billion is on the small side. The $13 billion is just New York City. The number becomes much larger when taxi medallions from around the country's major metropolitan areas are included.

Many rants against the evils of capital owners are misplaced. But the above article is about an instance where the capital in question is a right for the government to restrict their competitors and nothing else.  If politicians want to reform the market they can do a few things:

1. Issue more medallions. Doing this enough over time will slowly reduce the value of the medallion and increase competition. This will improve the situation but the rent seeking will remain.

2. Issue a lot more medallions for a fixed fee covering the cost of regulating the taxi's. This shouldn't be more than a few thousand dollars. Billions of dollars will be lost overnight. Life savings will disappear. Paying off medallion owners some of what they lost through a slight increase in the fees for new medallions could be a compromise.

3. Deregulation. Like two, this could be accompanied by small pay outs to existing holders of medallions. New York City seems to be going in the other direction with their recent proposed large soda ban, so the only way this will happen is if competitors to taxi's such as Uber are able to compete on both price and convenience while working at the disadvantage where they are not allowed to pick up fares on the street. 

Unfortunately, it's very unlikely that the public will care more than those who stand to lose their $13 billion dollar investment in government support in the face of reform. It's likely that nothing significant will be done on this issue. Prices will go up for customers, wages will stagnate if not fall for drivers and the profits for medallion owners will remain steady.