Both axis are per capita. The horizontal is log GDP while the vertical is linear energy consumption. I assume the bubble size is population.
This is about how prices change when a distribution bottleneck breaks. Do they rise or fall? While generally new ways of getting products to market may cause prices to fall in many cases the exact opposite occurs.
I watched a bit of video of Walter Mosberg sparing with Steve Jobs on the floor following the iPad announcement. One question Walt asked was why anybody would buy a book at $15 bucks from Apple ebook store when they could get it for $10 from Amazon’s. Steve manages to reply that that won’t happen, the prices will be the same. I sensed that Walt didn’t know what Steve was saying.
So, do eBook prices rise or fall as Amazon loses their monopoly on the eBook distribution channel? I think the answer is obvious; i.e. they rise.
It is in the nature of these things that a market maker, like Amazon, with each of their counter parties. If you buy or sell a tremendous amount of services from Amazon it’s worth your while to go chat about prices. The quality of the deal you can strike in that conversation depends on what your options are. The moment that another channel opens up for getting your eBooks to customers Amazon has to renegotiate the deals with major publishers.
Does that raise or lower costs to the book buyer? To first order you might think so. If you think of the distribution channel as a kind bridge between buyers and sellers then what’s going on here that the moment a second bridge opens up the tolls fall on the first bridge in the face of competition. Presumably that lowers the overall cost of goods to deliver a book to the customer.
Lower cost of goods gives up an option to lower the end user price, but in no way does it assure that. But, that metaphor is broken. That’s the physical world with physical goods. These are information goods. The cost of goods was already zero. The only forces that count in this situation are market power between the three actors; the publisher, the distributor, and the buyer. I think we can accept that the buyer has nearly zero power; he’s locked to his device, his store, and to tell you truth he’s so atomized that he can’t actually show up to negotiate. So all that happens here is that the publisher’s negotiation power increases and since he wants higher revenue prices rise.
It’s a bit more subtle then that since the distributor is compensated mostly by the volume of transactions; while the publisher is compensated on the gross dollar value of sales. A shift in the price upward lowers the number of transactions, but as long as it increase the gross that’s fine with the publisher. Of course the author, like the reader, is irrelevant in this discussion.
None of that is new to me. But there is one thing here I hadn’t noticed before. In the story above we are moving from one distribution channel to two; so the power shift is as strong as possible. If we are moving from say five distribution channels to six the power shift can’t be as strong. So, in that case do prices fall? Yes and no. When your check out from your typical online store your offered a pop up to select which shipping company you’d like to use. That pop up isn’t doing what you think it’s doing. That pop up is part of the negotiation. Your selection reveals something about your willingness to pay (the intensity of your desire). You pay for that. So in the usual perverse way of these things the addition of multiple distribution channels becomes a way to raise prices – a tool in the discriminatory pricing games – more than a cost driver.
I want to draw out something Steve Waldman says in this interview (I’m really eluding a lot of interesting material here):
You can come up with very clever, fair schemes if you imagine people communicate only within your system. … I was entranced by the … story of how markets aggregate and communicate widely dispersed information….real markets differed … Real market institutions seem designed to hide information and shift consequences rather than reveal outcomes and allocate costs and rewards.
Markets do not work the way you think they do.
When those who suffer the delusion double down on the bet, as loyal followers of a philosophy are wont to do they sooner or later echo Margarert Thatcher: “… you know, there is no such thing as society…”.
Further I hadn’t quite internalized how this widespread delusion is synonymous with the open/closed world question in computer science, on many levels.
Mike Konczal posts on the unwind of the mortgages are awesome! This posting on Fake Ownership is particular thought provoking. It suggests we are headed into a period when a new kind of thing, not owner, not renter will emerge; i might call it a caretaker. This economic actor doesn’t pay much, maybe nothing, to live in the investor owned real estate, but at the same time he has none of the rights of a renter or an owner. He’s kind of a squatter. Some of these pop up because an investor bought a foreclosed property and he just needs somebody to sit in it until the market recovers. Some pop up because they used be the owner, they stopped paying, so the bank owns the property now – but yeah the bank doesn’t want to let the loss play out and show up on their books. The banks is caught in a kind of catch 22. If they foreclose the value of the property sinks even further. I’m reminded of an comment made early in the crisis about the banks have become incompetent landlords.
Here’s a mind bending thought. Apple is succeeding in requiring that all applications move thru their closely held apps store. So, Apple can cross compile apps prior to delivering them to their closed architecture handheld devices. They can switch processor architectures in the devices at the low cost of creating another cross compiler! Not sure if this matters as much as it would have in the past given what a thin skin most iPhone apps are over the Cocoa toolkit.
I love this introductory sentence: “The ability to track fruit flies in real time is the foundation of a virtual reality system that could revolutionise the study of animal flying behaviour.” And later on we get “But the real power of Flydra is its ability to track movement in real time (or at least with a lag of only 40ms). This allows the pattern to be changed in real time in response to a fly’s motion–a kind of virtual reality for drosophila.”
In other news from the world of over instrumenting the trivial we have this bathroom scale that conveniently beams your weight to a web site, only $170, where presumably it can be used to immediately adjust your health insurance costs. Yeah, maybe it can be used to reduce credit card fraud; what with a scale at the check out kiosk. I wonder if you have to hop on it to set your wifi password?
Close monitoring is the future.
“Mr. Salem periodically asks trustees and investment officers … to imagine they can swap all their assets in exchange for a contract that guarantees them a risk-free return for the next 50 years, while also satisfying their current spending needs. Then he asks them what minimal rate of return, after inflation and all fees, they would accept in such a swap. In Mr. Salem’s latest survey, the average response was 7.4%. One-sixth of his participants refused to swap for any return lower than 10%. The first time Mr. Salem surveyed his group, in the fall of 2007, one person wanted 22%, a return that, over 50 years, would turn $100,000 into $2.1 billion” — wsj
Meanwhile my “reward checking account” pays 4.1%. Frustratingly I don’t see how to get my retirement money into one.
In other news: following the purchase of tax software from Amazon the question was asked, “Where is the key for filing my federal taxes?” The reply make perfect sense: Look in “Your Account”, “Digital Content”, section – “Your Games and Software Library” I think my insight that the right metaphor for web sites is now massively multi-player games maybe spreading to the rest of society. Or, maybe it was the other way around? How much of an insight is it to announce: “We are all social now?”
Let’s say your about to spend a year on a desert island, in a small group. You can pick one of two groups. But first I’m going to let you run an experiment on each of the two groups to help you decide.
I might suggest that a good experiment would be to have folks in each group play a few rounds of the classic prisoner’s dilemma. That would help you see which group tends to be more cooperative, and in the perverse language of these things that group would also be less economically rational – e.g. self interested.
But what if there isn’t any time to run the experiment. Is there a question you could ask people? A question that signals a tendency to collaborate. Well according to this little experiment, run on Mechanical Turk workers, there is a good question. Ask them if they believe in God.
In addition they reproduced a classic experiment that shows, unsurprisingly, that you can prime players before the game in ways that will make them more cooperative during the game. In this case the priming was done by “exposure to religious words and phrases.” So, once you get to the island you might want to do some that.
My take on much of the debate about faith is about it’s lack of rationality, or it’s superstitious nature. But it rare to find the question raised: “What is good for.” or “What immediate purpose do it serve.” or “How efficacious is it?” The above is one example of possible answers. It seems to me that before you tell people to drop a practice it might be good to know what’s in it for them.
That said, I worry. I worry, that employers rapidly will learn to pull these levers in despicable ways. See also.
Bill Tozier drew my attention to a most excellent term of art, Daniel C. Hallin’s phrase Sphere of Deviance. That posting has the nice insight that Jon Steward makes his living in the border lands were legitimate controversy meets the deviance.
Hillard was mapping the world of national discourse, i.e. old school journalism, during the period when the consensus about Vietnam war imploded. But this framework is universally applicable. For example Open Source, as a tool for enterprise software development has traveled over the last decade all the way into the center. Freudian analysis has travel out. Some ideas orbit the consensus like comets; i.e. the fetish for solving all problems with unregulated markets.
It’s fun to take a topic (peak oil, diets, business plans) and map the various ideas and players along with their trajectories onto that drawing.
For some reason this all reminds me of how the distant periphery of cities has always been where you find the real nut case cults hanging out.
The New York Times has yet another piece on the question of walking away from underwater mortgages, this time an op-ed by Richard Thaler. It finally references the excellent essay by Brent White on the current “norm asymmetry” between the mortgage holders and mortgage holders; i.e. one side ethics & roots while the other has only spreadsheets. I wrote about that a while back.
These pieces all seem to presume that the underwater owners can continue to tread water. That’s crazy talk. These mortgages are fundamentally unsound. A sound mortgage requires a few key elements. It needs to be backed by appropriate collateral, and these aren’t. It’s servicing must tap only a reasonable percentage of the holder’s income stream, and these don’t. It needs to be reasonably liquid, i.e. that should the situation arise the mortgage holder can sell the instrument and/or the home owner can sell the house; and these aren’t liquid, not at all.
So what we have here is a standard bubble situation. i.e. “What can’t go on won’t.” Sooner or later these people will walk. The only question is how much damage to their family’s economic status they take before they do.
I continue to think there is money to be made here. An entrepreneurial opportunity: a business that facilitates the walk always. At it’s core all it does is loan people money to fund their walking away; i.e. bit of legal cost, a lump sum to pay for rental deposits, maybe some moving expenses. I wonder how many landlords are willing to let you put the 3 months rent worth of deposits on your credit card?
What I find fascinating about this idea is who it turns the question of borrower honor on it’s head. For these walk-away enabling loans to work you need trust. They are personal loans. The business works because it accepts that you can trust somebody who walks away. The business accepts that they are not dishonorable, but rather that they are pragmatic. It works because by splitting the benefit of that pragmatism with them. I love that.
Further I love that such a business would have to do what the bubble lenders failed to do. It would actually need to know the customers. If you wanted to set up such a business you’d need to have local knowledge of the customer’s actual situation. You’d need to be able see through his lousy existing cash flow and recognize that if his income stream is stable and that as soon as his housing costs drop by a thousand dollars a month paying off this new loan is going to be straight forward. Maybe you could hire all the loan officers who learned their trade in the years before the bubble. Maybe this is business model to be sold to small banks where their local knowlege can be brought to bear.
I can’t quite capture it, but the key is in there someplace. The original lenders didn’t bother to figure out who was trustworthy. (They didn’t need to since they could offload the risk immediately.) Now if somebody shows up willing to do that work they can profit from it. Curiously, the longer an underwater home owner tread water the more you can trust him.
Update: I suspect this mortgage holder wasn’t actually living in there.
