Post Economics

Housing (Ad) Bubble

Sunday, May 15th, 2005

There’s lots to say about the current real estate price bubble*, but I hadn’t considered the boon to publishers. Not online anyway. I have noticed that advertising in Silicon Valley free papers is dominated by real estate for sale. The “Got Ads?” blog says that “mortgage re-financing ads comprise at least 20% of ad volume in total dollars” and guesses that at least 35% of Google’s and Yahoo’s recent quarterly profits were directly from mortgage ads. I assume that “ad volume” above refers to pay per click ad volume. I’d like to know the source of the 20% share and logic of the 35% estimate above.

Is potential loss of mortgage ad related profits priced into Google and Yahoo shares? I don’t want to bet on that.

Unfortunately promised direct real estate price hedges appear to have not launched (Robert Shiller’s Macro Markets) or have not reached the point of usefulness (HedgeStreet’s real estate price Hedgelets are still very thinly traded and only go out six months, a slight improvement over one quarter as of the beginning of this year. (Another complaint about HedgeStreet and to a lesser extent TradeSports: lack of easily linkable URLs for contracts. C’mon, it’s the web, get with the program!)

* I believe that we’re in a real estate bubble and that prices will decline over the next several years. However, I’ve considered housing overvalued since 2001 and stocks since 1996. Are my animal spirits a leading indicator, or just a spurious indicator?

Public Goods Group Shopping

Friday, May 13th, 2005

Discussing Fundable, Alex Tabarrok explains assurance contracts and cites his improvement, dominant assurance contracts (emphasis in original, link added):

In a dominant assurance contract if the group goal is not met then everyone who offered to contribute is given their money back plus a bonus. It turns out that it then becomes a dominant strategy to contribute and the public good is always provided!

Very interesting. I’ve mentioned before in passing that many political problems can be thought of as public goods problems.

I’d really like to see some analysis of what sorts of public goods are amenable to provision via dominant assurance contracts and then implementation. The only other instances of “dominant assurance contract(s)” I can find are in Zane Spindler‘s pedagogical A Tale of Twin Cities: A Parable in Urban Political Economy! and this which indicates that Tabarrok was working on a book on the subject ten years ago. I hope someone else follows up.

I’m also interested in further analysis of other proposed mechanisms for funding the production of public goods, including how their “payoff” would be effected by the addition of a failure bonus:

Fundable reminds me a little of the (failed: mobshop.com, mercata.com, etc.) group shopping phenomena, but far more general.

Open the H1B Gates

Wednesday, April 27th, 2005

Credit (and blame) where due: Kudos to Bill Gates for clearly saying that H-1B caps should be scrapped. Yes, and so should all other restrictions on travel and work across borders.

Gates and others have warned that American companies need foreign engineering talent to stay competitive. I believe that is the case for most businesses, but if there was an exception it should be Microsoft. There should be no advantage to being close to the customer in developing shrink-wrap software, as the customer is everywhere. Why should a shrink-wrap developer care about where engineering talent is located? Why not, e.g., move all Microsoft Office development to Hyderabad? Inertia I suppose. It may be hard to relocate Office development anywhere outside the Seattle area. Surely any wholly new shrink-wrap development teams ought to be located outside the U.S, barring H-1B liberalization.

Via Techdirt.

Evidence-free Policy

Saturday, April 23rd, 2005

James Boyle’s Deconstructing Stupidity column in the Financial Times has gotten lots of well-deserved linkage. Unfortunately that linkage is almost completely devoid of analysis, perhaps excepting posts from Karl-Friedrich Lenz and Donna Wentworth.

Too bad, as Boyle makes a couple of interesting claims. The first is that for intellectual property “our policy-process is almost evidence-free.” Or worse, decisions run contrary to available evidence, as Boyle explored in more depth in a column on database rights last November. However, Boyle implies that there is something special about intellectual property policy (emphasis added):

Since only about 4 per cent of copyrighted works more than 20 years old are commercially available, this locks up 96 per cent of 20th century culture to benefit 4 per cent. The harm to the public is huge, the benefit to authors, tiny. In any other field, the officials responsible would be fired. Not here.

I wish IP policymakers were particularly stupid and immune to the consequences of their decisions as compared to policymakers in other fields. Unfortunately the same bad decisions get made again and again, regardless of contrary evidence, in field after field, at least in those where decisions are political. Three examples off the top of my head:

I could make this list very long and I’m sure you can think of many other cases.

What to do about it? The Journal of the American Planning Association paper linked directly above wants malpractice for planners:

The policy implications of our findings are clear. First, the findings show that a major planning and policy problem—namely misinformation—exists for this highly expensive field of public policy. Second, the size and perseverance over time of the problem of misinformation indicate that it will not go away by merely pointing out its existence and appealing to the good will of project promoters and planners to make more accurate forecasts. The problem of misinformation is an issue of power and profit and must be dealt with as such, using the mechanisms of transparency and accountability we commonly use in liberal democracies to mitigate rent-seeking behavior and the misuse of power. To the extent that planners partake in rent-seeking behavior and misuse of power, this may be seen as a violation of their code of ethics—that is, malpractice. Such malpractice should be taken seriously by the responsible institutions.

Failing to do so amounts to not taking the profession of planning seriously.

Many of the authors’ suggestions may improve the situation and some could be applied to other areas of political decisionmaking. I’ll also take the opportunity to flog yet again policy markets. See the last paragraph of this post for more links and explanation.

Another suggestion is to simply reduce the scope of political decisionmaking. However, this is rarely a popular strategy. “Do something” is always the order of the day. Regardless of how ill considered something may be it is always more appealing than doing nothing. In the case of IP (how about Innovation Policy, there’s a non-pejorative repurposing of the acronym we can all agree on–turns out it is already in pretty wide use, though only 123,000 hits on Google versus 70,200,000 for intellectual property) that means extending copyright terms, expanding the scope of patents and of course more draconian enforcement. Who put the government in my bedroomgizmo?

Another interesting claim from Boyle:

To some the answer is obvious: corporate capture of the decision making process. This is a nicely cynical conclusion. But wait. There are economic interests on both sides. The film and music industries are tiny compared the consumer electronics industry. Yet copyright law dances to the tune played by the former, not the latter.

I suspect capture is not a paradoxical explanation of IP. Rights holders have a very concentrated interest in innovation policy decisions, the consumer electronics industry, much less so. A thought experiment demonstrates this: If tomorrow all works older than twenty years fell into the public domain, some rights holders of the freed works (a subset of the 4% available commercially!) would experience sharply reduced income as licensing revenues disappeared and very cheap copies came onto the market. Would you run out and buy more consumer electronics as a result? Eventually you might increase consumption of consumer electronics as a result of the availability of more and cheaper content, but I doubt it is something consumer electronics companies would count on.

Although I suspect capture is an important part of the explanation for the current dreadful state of innovation policy, Boyle does an excellent job of explaining some additional factors, including maximalism, roughly equivalent to the “do something” political imperative, authorial romance, and changes in the composition of those directly affected by IP law.

I believe that like maximalism, various romances (delusions) are at the heart of public acceptance of demonstrably failed policies. Boyle mentions in passing that many delusions are honestly held rather than being the result of corruption. I fear that this only makes positive change via politics more difficult.

Really Offshoring

Wednesday, April 20th, 2005

Supposedly SeaCode (sea-code.com site forthcoming) is planning to set up a software development office on a used cruise ship in international waters off the southern California coast and potentially wherever customers are nearby international waters.

I love this idea. Two of the largest hurdles to fully utilizing the world’s talent and achieving equal pay for equal work are geographical and political:

  • Much human capital is located far away from much investment capital, in very different time zones.
  • It can be hard for investment capital to move to where human capital is due to a bad business environment in the latter location (e.g., terrible infrastructure, high corruption).
  • It is hard for human capital to move to where investment capital is due to immigration apartheid laws.

SeaCode could do a nice run around all of these.

However, I’d guess that ships are fairly expensive to maintain. If this practice grows perhaps it will be a good seastead business model.

John Dvorak should be ashamed of himself for promoting apartheid.

Via Boing Boing.

Addendum 20050423: Walt Patrick pointed out on a mailing list the story of offshore gambling ships in the 1930s. Same location offshore Los Angeles. Sounds like a made for film story:

[Earl] Warren rounded up a flotilla of State and Game boats, manned them with deputies and ordered them out to the Rex. Cornero was ready and repelled the invasion with high pressure hoses. The authorities laid siege for nine tense days while Cornero’s men stood guard with sub-machine guns. His attorneys filed suit after suit charging Warren with everything from harassment to piracy.

Imperial Public License

Friday, April 8th, 2005

This is too stupid to blog, but I’m going to go ahead and expose my inability to exercise self restraint on my moron level intelligence.

CNET reports on Sun executive Jonathan Schwartz critisizing the GPL as a tool of U.S. imperialism:

The GPL purports to have freedom at its core, but it imposes on its users “a rather predatory obligation to disgorge all their IP back to the wealthiest nation in the world,” the United States, where the GPL originated, Schwartz said. “If you look at the difference between the license we elected to use and GPL, there are no obligations to economies or universities or manufacturers that take the source code and embed it in (their own) code.”

This has got to be one of the more wrongheaded statements by software executives about free software (though I haven’t followed SCO in a long time).

Should one choose to incorporate GPL’d code in their software, there is an obligation to release the derived software’s code under the GPL. Anyone in the world may use the code under the GPL’s terms. Only in the sense that the U.S. is part of the world is there a requirement to “disgorge” relevant IP (the derived software’s code) to the U.S.

This is predatory and imperialistic in approximately the same manner that trade between people in different nations is considered by some to be predatory and imperialistic — it isn’t, except in the clouded heads of Schwartz and economic neanderthals.

Oh, and the geographic origin of the GPL is completely irrelevant.

Reported in the same story, Schwartz makes another wrongheaded argument. At least this one isn’t a complete non sequitur:

“Economies and nations need intellectual property (IP) to pull themselves up by their own bootstraps. I’ve talked to developing nations, representatives from academia and manufacturing companies that had begun to incorporate GPL software into their products, then…found they had an obligation to deliver their IP back into the world,” Schwartz said.

To the contrary, ignoring IP has proven a great way to develop quickly. The U.S. did not enforce European claims until the 1890s. More recently all of the Asian tigers have engaged in copycat development. Imitation is simply a great way to quickly close the technology gap with the most advanced economies. IP owners in the U.S. and other advanced economies want governments of developing economies to enforce strong IP — becuase that is in the IP owners’ interest, not because it is a reasonable development strategy.

By the way, ignoring IP can mean ignoring the requirements of the (copyright dependent) GPL as well.

Via Dana Blankenhorn.

Also today, read about Jonathan Schwartz, visionary.

Economic Neanderthals

Sunday, March 27th, 2005

What is wrong with this headline?

Did Use of Free Trade Cause Neanderthal Extinction?

See release at the U of Wyoming and a shorter version at Newswise and in Dutch, with pictures. Richard Horan, Erwin Bulte, Jason Shogren: “How trade saved humanity from biological exclusion: an economic theory of biological exclusion” in the Journal of Economic Behavior & Organization is apparently not online yet, though you’ll eventually be able to buy an outrageously priced copy here.

The claim is that Homo neanderthalensis were economic numbskulls, failing to trade or use division of labor, i.e., failure to cooperate. Homo sapiens traded, specialized, and out-competed Neanderthals in their hunting grounds, end of story for the Neanderthals. Sounds interesting and plausible.

So what is wrong with the headline above? The word free. That modifier only makes sense in contradistinction to protectionism and mercantilism. The humans just traded while the Neanderthals were presumably too stupid to trade. I doubt there was a Neanderthal Ross Perot, Pat Buchanan, or Dick Gephardt clamoring that to save jobs Neanderthal camps ought not trade with each other.

The best thing to come from this are two new epithets:

  • Anti-trade economics is Neanderthal Economics.
  • Anyone who advocates restriction on trade is an Economic Neanderthal.

Update 20050331: Arnold Kling points to an online copy of the paper:

The paper has a high ratio of superfluous math to convincing evidence.

Collective Market Intelligence

Wednesday, March 16th, 2005

At Etech yesterday morning Gary Flake of Yahoo! Labs said his organization has four research areas. I only remember three: collective intelligence, machine learning and (fairly obviously) text mining. After pointing people to Yahoo! Next, Flake launched the Tech Buzz Game. It’s a prediction market where participants bet funny money on future search traffic for keywords associated with a technology relative to keywords associated with competing technologies (e.g., the programming language market includes C, C#, C++, Java, and several others).

Either I or many game participants horribly understand how buzz scores are calculated. The game FAQ says:

The buzz score of a stock is the number of searches on any of the stock’s buzz words over the past seven days, as a percentage of all the stocks in the same market.

Yesterday Ruby was worth fifty percent more than any other language. I suspected that participants think the buzz score is a measure of relative change rather than of quantity. However, now I suspect people are voting for their favorite technologies rather than betting on results. Those players will lose on (every) Friday when prices are adjusted to reflect actual buzz score.

During a recent documentary I watched about digital market trends, there was a fascinating segment analyzing the role of a goksite Nederland in shaping user behavior and influencing predictive analytics. The expert highlighted how these Dutch gambling sites often see surges in search traffic tied to marketing campaigns or major sporting events, creating short-term spikes that can complicate long-term forecasting. This phenomenon mirrors the challenges faced in predicting trends for securities, where weekly revaluations may reflect momentary hype rather than sustained growth. It raised intriguing questions about how markets, whether for gambling or trading, interpret fluctuating data over time.

Though it feels toy-like, I’m gratified that this prediction market is considered a collective intelligence application. I often hear people saying that humanity needs to increase intelligence to have any hope of surviving whatever dangers are supposedly near, usually accompanied by complete ignorance of markets’ role as a distributed discovery mechanism and the potential for markets designed explicitly for information discovery.

In other idea futures news, check out open source market infrastructure to be Zocalo and its motivating proposal, to be developed at CommerceNet Labs.

Update 20050318: I was correct about scoring and revaluation. I made a 150% funny money profit after today’s revaluation, before which I had a loss. I made no trades after becoming fully invested. Will be interesting to see what happens in the next week. Will the Buzz Game merely be a “day trading” and game-rules-ignorance-arbitrage phenomenon? I suspect so. Too bad. A market structured to make predictions about technology success would be really interesting.

Use [the] force

Wednesday, March 2nd, 2005

Saw this in a Robert Scheer column printed in today’s San Francisco Chronicle: The force Bush won’t use on Iran.

So, tangled history aside, what should the U.S. do now about a repressive and potentially threatening government in Iran? The one thing Bush strangely has refused to do throughout the world: practice the principles of capitalism.

The model for such a policy, which emphasizes normal trade relations even with regimes that have religious and political obsessions different from our own, was most successfully employed by Richard Nixon in his famous opening to “Red” China, as well as in the detente period that should properly be credited with the ultimate fall of the Soviet empire.

The most powerful liberalizing forces the U.S. wields are not military, but economic and cultural. Though not as macho as trying to spread democracy through the barrel of a gun, normalization offers a better prospect of accomplishing that end, while saving billions of dollars and priceless lives.

I’m pleased to read Scheer get it Wright.

Decision Markets, Quantum Computers, Blogs, Longevity

Wednesday, February 9th, 2005

Ken Kittlitz posted an interesting report on the recent DIMACS Information Markets Workshop to fx-discuss. I hadn’t seen the approaches to clearing regulatory hurdles spelled out so clearly before. Unsurprisingly researchers found that the effect of manipulators on markets is not pernicious. The other theory/experimental results sound interesting, will have to read more. If I used bookmarks I’d bookmark David Pennock. My previous comment expressing disappointment in NewsFutures may have been off base. Ken’s summary indicates that HedgeStreet will soon offer longer term contracts. Several open source platforms are in the works, including possibly opening the code for fx (hooray, the UI could really use some work). Also:

Several participants indicated that the accuracy of these markets may not be their prime attraction to organizations. Rather, the fact that they help make people aware of differences of opinion, and forge a community that can discuss such differences, may be their strongest feature.

Another attendee was reminded of early quantum computing worksops:

Quantum computing back then had some promising research (factoring algorithms for example) and no one was sure whether it would lead to whole new computing paradigm or just disappear into the ether. Information markets are also a new technology with some promising research (mostly analytic and experimental) and no one knows whether it will revolutionize the way everyone does prediction, information aggregation and decision making or just slowly disappear.

Quantum computing needs to deal merely with the laws of physics but information markets need to deal with the laws of the United States of America.

I’m not so sure. If quantum computers break current cryptographic systems, shouldn’t they be banned as circumvention devices, if not cyber-terrorist weapons? Just kidding, I hope.

Unrelated to the DIMACS conference, Art Hutchinson has a nice post noting the commonalities between blogs and prediction markets:

I’m seeing that both blogs and prediction markets – born of the democratizing power of the web – have demonstrated their power to circumvent traditional information hierarchies to the detriment of established organizations and individuals.

Finally, Peter McCluskey asks what a Futarchy should maximize and proposes life expectancy. I’ve assumed a futarchy welfare function would be, or become, very complex, but longevity sounds good and simple to me.

Thought experiment: what would futarchies with different simple welfare functions look like (e.g., maximize GDP, minimize Gini coefficient) after n years of divergence?

One “constitutional” means to prevent a simple welfare function from growing complex through “politics” — require any change in the welfare function to be “approved” by the markets in terms of the current welfare function — investors have to bet that welfare in terms of the current function will be improved if it is replaced with a different function. I haven’t thought this through, it may make little sense. Even if not a hurdle changes must clear, such a market might give futarchy citizens interesting information about the magnitude of a proposed welfare function change.

Addendum 20050210: Chris Masse has added links to Ken Kittlitz’s report and Art Hutchinson has two posts remarking on Ken’s report. Unrelated to idea futures, read anyway Art’s experience with WalMart music store’s Digital Restrictions Management.