Monthly Archives: October 2007

Secret of Productivity

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housearrest.jpgEvery since reading Ainslie‘s “Breakdown of Will” I’ve be thinking and reading a lot about what might be called self management. I’m currenly reading “Ethics, Law and the Exercise of Self-Command.” There is a delightful quote in this essay:

Social controls play a role; the Times Literary Supplement for January 22, 1982, contained a splendid example, a review article by George Steiner on the life and work of the Hungarian radical Georg Lukacs. “When I first called on him, in the winter of 1957-8, in a house still pockmarked with shellbursts and grenade spliters, I stood speechless before the armada of his printed works, as it crowded the bookshelves. Lukacs seized on my puerile wonder and blazed out of his chair in a motion at once vulnerable and amused: ‘You want to know how one gets work done? It’s easy. House arrest, Steiner, house arrest!'”

That example is splendid, but exceptional and extreme. The student of this stuff should, I think, pay more attention to more pedestrian social controls; e.g. voluntary membership in groups who’s habits we admire and aspire to. The rough edges of voluntary are far more interesting than the strong arm example of house arrest.

housearrest2.jpgThe essay appears in “Choice and Consequence” by Schelling. The topic of this essay is the ethical puzzle of what society can and can not do to help individuals keep their promises to themselves. This is an extended discussion of the curious fact that you can’t make contracts with your self and then go to the court to have them enforced. Schelling’s other essay in this arena “The Intimate Contest for Self-Command” also appears in this book.

Schelling also reached the conclusion I got from reading Ainslie; that the individual is a group of interests who’s governance has so much in common with the governance of other groups that it becomes useful to treat the individual as just like any other hard to manage group.

Meanwhile there is little concensus on what the secret of productivity is.

miscreant market

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Schneier points out this paper (pdf) reporting on patterns the researches found by listening on on the IRC channels where evil-hackers buy and sell credit cards numbers, bot-net rentals, and the other commodities of the spamming and identity theft industry.  The authors refer to the actors in this market as miscreants.  I guess I can’t really call this a miscreant market; since we usually name markets not after their participants but after the commodity exhanged; as in meat market.

This market is interesting as a case study.  Since it’s commodity is illegal it has a harder time condensing out hubs for the exchange to rendezvous around.  They use IRC channels because that medium is a bit more peer to peer than other choices.  I presume that this community is the one that will finally build a real anonymous peer to peer IRC network.  Well pseudo-anonymous because like any market they need to have a reputation bank of some kind to keep the books of the repeating prisoner’s dilemma.

Had to write this.  I couldn’t reisist getting the word prisoner, miscreant, and evil-hacker all together in a posting about market structure; mentioning peer-to-peer is desert.

Hourglass on it’s side

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strawberrypick.jpgThis article that Brad DeLong posted to his delicious bookmarks is perfectly aligned with my interests. First off it has a wonderful new metaphor for a two sided network effect:

Think of it as an hourglass on its side, says Brian Cook, a research consultant who studies food issues for Toronto Public Health. “You’ve got thousands of farmers on one side, and consumers on the other. In the middle, there’s a bottleneck.”

That’s nice because fleshes out the usual idea of the two sided network as having a bottle neck and emphasizes the grains, the flow, the rate; i.e. the timing. The article is about strawberries; the grains of sand are not single strawberries but truck loads of them. To get the sand to flow smoothly you need to standardize; as the standards become more exacting the growers who fail to fit the standards are displaced from the system.

… McCarthy, sold to a developer last year after an especially gruesome season. Two weeks before the strawberries on his patch were due to glow red, the nearby chain he counted on to accept hundreds of quarts daily canceled. It no longer accepted back-door deliveries. …

Or this example which is about details, timing, capital equipment, etc.

into the lot behind Food Basics in Georgetown. Already in the lot are two 18-wheel tractor-trailers, one finishing a delivery while the other waits its turn.

They are refrigerated, …

“Oh Jesus, oh my God – we’ve got to wait,” he says, gripping the wheel tightly. “We’ve got perishable stuff here. If it’s left in the vehicle in the sun, it’s going to be roasted.”

strawberrypallets.jpgThat example is the counter point to the pattern I usual talk; i.e. routing around the a monopoly bottleneck. In this case as the standardized distribution hub condenses out it displaces the long tail strawberry producers who lack refrigerated trucks or who production doesn’t fit in the required unit size, e.g. an 18-wheeler.

I wrote sometime ago about how the modern strawberry has evolved. Where it once fit the mouth of the sparrow it now fits into the mouth of the buyer. To survive as a modern producer you have to fit the mouth and the throat of your adjacent hour glass bottlenecks.

It is rare to read a well crafted article about displacement. Most such articles fail to grasp nub of what is causing it. Often the tend in these articles is to over identify with the victims of the displacement. Though there is an another kind of article that waxes heroic narratives about the entrepeur creating the hub of the wonders of the market. Between these two over emotional journalistic approaches it is very hard to think clearly about all the externalities involved in the process.

The granularity of agriculture is right up there with Moore’s law one of the forces reshaping the world economy. And it’s been doing it for much longer (see Diamond’s the Worse Mistake, pdf). Drop into any point in history and you’ll find stories of farmers being displaced by technology. For example writing about the rise of urbanism in the late 19th century as triggered by railroads Douglas Rae quotes an expert suggesting that Connecticut farmers are going to need to diversify.

“… his farm decreasing in value, his capital shrinking, his crops no longer paying fairly because of Western Competition, … expert … suggesting “raising … squabs, trout, carp, honey, mushrooms … “

That’s 1890, but it sounds remarkable like Michael Dukakis suggesting that Iowa farmers raise endive. The tragedy here is that the advice is basically bogus. If the distribution channel is changing in ways that dry up opportunities in the long tail then your an idiot if you try to survive by diversifying. The answer is not to become less standard, more eccentric. Rather you needs to be on find a way to evolve; to fit through the throat of the new hour glass. Or maybe you can route around; find somebody willing to open their backdoor.

Ferberization of Knowledge

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Ok! Did Arron Swartz really say in his talk about Open Library what David Weinberger reports:

The first thing librarian argued about when they saw OL was what subject classification system to use. “We don’t have to choose on the Internet. We can store all the category systems and let people choose which ones they want.” Likewise with all the different identifiers, e.b., ISBN, OCLC numbers, OL identifiers. (“We have to make our own identifier system because we’re going to have more books.”)

Ferberization means connecting physical books to all the different abstractions, e.g., print runs, editions, translations, etc. The library world has focused primarily on the physical books on the shelves. “We’re going to have to come up with new ways of expressing the relationships,” including allowing people to create new relationships, e.g., this book is based on that one, this book refutes that one, this one replaces that one.

This is just outrageously funny! It’s perfect! I’m gobbsmacked. Oh, I hope that’s what he said!

For those who don’t know, Ferberization is a process for teaching a baby the skill of putting it’s self to sleep.

Don’t you just hate the way those damn books wake up at all hours demanding to be settled down again into their snug little categories?

Tax collecting

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Bridges make great venues for collecting a tax.  They are a bottleneck. As soon as people find a route around that bottleneck then your power to collect the tax weakens.  Income taxes, for example, work only because firms have rich accounting systems that it would be hard for them to route around just to avoid the taxation.  Of course the rich can route around them.

As technology changes the bottlenecks move around; and tax collectors slowly follow along behind.  Slowly because people don’t like taxes, but inevitably because people dislike the absense of government a lot more.

So the question arises where in a highly globalized information economy are the bottlenecks where taxes might be effectively collected?  At the emerging hubs.  For example a tax on search would work.  A tax on eBay, Amazon, and Windows would work as well.  I’m surprised I didn’t see this before.  What triggered it was it appears that China sold their search franchise.  I don’t think what your seeing there is censorship; it’s about revenue, regulation, and as usual who’s cronies are in favor.  That firewall of theirs looks like a real money maker!

Micro-utility Coops

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gasmeter1.jpgThere is a certain fantasy, at least among Americans, that they might go off-grid. Grow their own vegetables, keep a some live stock, heat the house with wood from from their own wood lot, a yurt, a windmill, some solar panels. Of course a the satellite TV and Internet connection would be nice. Off grid is one thing, but no TV or Internet – that’s crazy; I mean “there are more World of Warcraft players than farmers.”
The grids fascinates me; including the utility grids.

I contemplated my gas bill (google spreadsheet, the onion). Broadly the gas bill has two parts; one part is the cost of the gas and the other part is the cost of tapping into the gas distribution network. The gas distribution network is a classic two sided network; they buy from assorted suppliers and sell to assorted consumers. Here’s the formula, a function of C and T; where C is their cost to buy the natural gas, and T, the number of therms of gas I use.
Bill(T, C) = $14.72 + .34*min(0,max(T-3,47) + .053*min(0,T-50) + (1/45+C)*T

For me $300 a year, about a quarter of the bill is the cost to access the local distribution network.

I could go half off the grid, saving $150 a year if I could coordinate my purchase with a neighbor. We agree to form a gas purchasing micro-coop. One of us cancels our service and we run a pipe over to his house from the remaining service. You can buy a gas meter so the bill is split equitably.

Schemes like this are all about coordination costs. I think you could do a lot to lower those coordination costs by providing a bit of innovative technology and IT to help. For example. Consider the micro-gas coop outlined above. A vendor might offer a kit for setting this up. The kit would include a gas meter for each member which reports usage back the vendor who then bill the members. This reduces the coop’s coordination costs to signing up, setting up, and occasional maintenance of members. Reducing an on going coordination cost to mostly just a plumbing problem.

Of course there are other utilities that this makes even more sense for. Internet access and cable TV access for example. The CATV installer, some years back, told me about some guy in a small city north of here who had his entire neighborhood running off a single CATV subscription. At least at that time the rules were such that you could do that; and even today there is plenty on the CATV cable that you can view just by plugging your TV into it.

Meanwhile, flickr has a great pool of gas meter photos. Where you can see there are plenty of apartment buildings a coop housing estates were a micro-coop wouldn’t be that hard to plumb.

Banking Concentration

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This is called burying the lead, in the ninth paragraph of an eleven paragraph article.

Nationwide, perhaps the most significant point in the FDIC reports was figures showing Bank of America’s total deposits account for 9.9 percent of all US deposits, including assets it is acquiring with its purchase of LaSalle Bank in Chicago, according to analysis by research group SNL Financial in Virginia. This moves the bank up against the federal limit of 10 percent, beyond which it cannot grow by acquisition.

The nominal headline of the article was that smaller banks in Massachusetts appear to be taking market share away from the larger banks.  On that topic the article appears to be mostly hearsay: “… she’s heard anecdotal evidence that frustration is driving the growth of midsize institutions. “They’re gaining on having lower fees, some higher interest accounts, and perhaps better service”.  My impression is that there is some very aggressive efforts by some area banks to drag customers in; and it appears to me this is in service of making them more attractive acquisition candidates.  For example DanversBank is both 6% interest on your checking account (with very complex rules) while at the same time it is going public.  Going public is, I think, a precursor to selling the bank off.

Presumably Bank of America will now be lobbying for loopholes so it can get yet larger.

Expensive Eccentric

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Markets are the friend of the plutocracy. In the market the votes are per dollar rather than per person. Which is, in passing, one reason why “market choice” isn’t synonymous with democratic freedom. Progressive governments do assorted things to counter the pro-plutocracy tendency of markets, for example creating public goods that raise the foundation the entire economy stands upon, but that’s not what this post is about.

Tibor Scitovskyin his book “The Joyless Economy” points out that mass production can act as a countervailing force. Mass production, which can lower unit costs tremendously and that empowers the masses to draw out of the economy goods which raise their standard of living and fulfill their desires. The market aggregates their dollars and mass production leverages those dollars. These pseudo public goods are leveraged by both rich and poor.

This arguement is analogous to the change the subject argument made whenever the distribution of wealth becomes the subject of attention; e.g. that rising standards of living have raised all boats. I don’t have much patience with those arguments, but that’s not what this post is about.

Economies of scale create a well known perverse effect; they tend to make the largest producer in an industry the cost, quality, and profit leader. That’s is good for the plutocracy and bad for the health of the market. What Scitovskyin highlights is a perverse effect on the consumer side.

Scitovskyin uses an older term for the consumer, he calls them the mob. The mob is the complement of the plutocracy. The mob can only benefit from economies of scale if a coherent demand signal emerges in the market about their desires. In the absence of that signal the producers don’t know what to make. That creates a yearning for both producers and consumers to rendezvous, standardize, on achievable desires.

It is perverse that mass production creates incentives for everybody to be more conventional. Advertisers pour money into the market is their yearning to accelerated the forming of this or that consensus. It’s parsimonious to argue that when they succeed it’s their desires, rather than the mob who’s desires really being fulfilled. One is tempted at this point to call them the herd. In any case, economies of scale act encourage normative of behavior in the mob.

Markets make it expensive to be eccentric. What ever goods and services the eccentric desires are substantially less likely to be produced by the market. Of course if your rich you can bear that expense. If your poor these market forces pressure you to extinguish your abnormal desires. There is a long tradition of plutocrats fearing the mob, see French revolution. Early propagandists felt it was in their brief to help keep the mob in line. It probably says something about American education that I’d not previously noticed that the market works to normalize the mob’s behaviors.

It is amusing to note that the rich, while probably not born more or less abnormal than the rest of us, are less likely to have their rough edges worn off.

But there is another point I want to draw out here. As I’ve only just begun this book I don’t know if he goes onto make it. The economies of scale also work to extinguish some goods and services. Mass production is not a universal solution. It is not effective across all goods and services. It works well for something thing, e.g. lawn furniture, but much less well for others, e.g. live music.

So a second perversity of markets is that they work to extinguish goods and services that are resistant to scaling and this happens even if there is substantial demand for them. Thought provokingly, by the force of habit the market will label those activities as eccentric; and when members of the mob signal their demand for them they the market’s return signal will be “mind your manners.”

Bribing the Pirate

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This is kind of fun.

In the October/November issue of the Academy of Management Journal, the authors note that the basic purpose of options has been to promote managerial aggressiveness in top executives, even if they sometimes led them “to undertake large-scale risky investments that tended to deliver extreme company performance.” What was not envisioned, they write, “was that the extreme performance delivered by option-loaded CEOs was more likely to be in the form of big losses than big gains.”

I’m not sure of their premise, i.e. “the basic purpose of options has been to promote managerial aggressiveness”. The purpose of options is and was to create improved alignment between the employees and the shareholders. A shareholder may want a more agressive management, i.e. higher risk and increase volatility, but only if that shareholder is well diversified so he can temper that with the rest of his portfolio. Options tend to create higher risk taking since the option holder, unlike the shareholder, doesn’t actually have capital at risk.

It’s fascinating to me how capital/shareholders may be perfectly happy to have their managers take risks that will kill the company; since limited liability shelters them from the full magnitude of the down side while they are likely to get much of the upside. So the pattern seen above maybe what the owners want.

Update: Paul Krugman makes an analogous moral hazard argument.

See also the pirate metaphor as applied to limited liablity.

Google Docs …

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… now lets you embed fragments of your documents into your web pages.

That chart is x = 1..100 v.s. y = 1/(1+x). I don’t see how to tell it to make the axis log rather than linear though.

That is done with an image; but ou can also grab chunks of a spreadsheet and show them in an iframe: