In case you’re worried that we’ve gone soft on Google in defending their planned ad filter and rebutting calls to break them up – both of which were more in defense of the free market – I’m here to squash any lingering fears.
Following news that Apple will soon be adding “intelligent tracking prevention” to its Safari web browser, Alan Toner wrote a piece for EFF reflecting on the two approaches:
In other words, while Chrome will simply be filtering out certain invasive ads from being displayed, Safari will be preventing the much more troubling issue of online tracking. I still believe Chrome’s approach, on its own, will provide a slightly better browsing experience for the average person who doesn’t know any better, but it’s not even worth considering if you actually care about privacy and/or use an existing ad blocker.
This all goes to show how Apple – which makes its money from selling actual products and services – legitimately cares about privacy. They’re not in the business of selling ads or building algorithms that feed off personal data, so they have no conflict with subverting such practices. They don’t have to make a tradeoff when it comes to privacy.
Unlike Google, who is merely virtue signaling when they say they care about privacy.
I have plenty of issues with Google and their sneaky data usage rules. I'm also a little suspicious of their origins. So my rebuttal to Jonathan Taplin's recent New York Times article, "Is It Time to Break Up Google?", is not on the grounds of defending Google per se, but of defending the free market. Because, as we've said before, Google is powerful because we, consumers, give it power. To turn around and attack its ubiquity in our lives and doomsay about a vague, unsubstantiated threat of monopoly, seems to me either ignorant or disingenuous. But I'll get to that.
In just 10 years, the world’s five largest companies by market capitalization have all changed, save for one: Microsoft. Exxon Mobil, General Electric, Citigroup and Shell Oil are out and Apple, Alphabet (the parent company of Google), Amazon and Facebook have taken their place.
They’re all tech companies, and each dominates its corner of the industry: Google has an 88 percent market share in search advertising, Facebook (and its subsidiaries Instagram, WhatsApp and Messenger) owns 77 percent of mobile social traffic and Amazon has a 74 percent share in the e-book market. In classic economic terms, all three are monopolies.
Taplin does a fine job setting up his bogeyman. "Google, Facebook, and Amazon are monopolies! Monopolies are bad!" But he can't be bothered to provide us with the "classic economic" definition of monopoly to which he refers. That's because he doesn't use the classic economic definition at all.
mo·nop·o·ly / məˈnäpəlē / noun: the exclusive possession or control of the supply or trade in a commodity or service.
Monopoly status has nothing do with a company's ranking on the stock market. That I even have to point this out shows Taplin has little real economic understanding. In classic economic terms, none of these companies are monopolies. But even if they were, assuming they became monopolies without any prior government favoritism enabling their monopolization (a hypothesis that history doesn't bear out), their monopoly status wouldn't be a bad thing. Because in a free market, a company that becomes a monopoly does so by doing what it does significantly better, faster, and cheaper than anyone else. Billions of people around the world freely choose to use Google, Facebook, and Amazon because they serve our wants incredibly well. Google Maps can recalculate my route in seconds based on real-time changes in traffic patterns. I can order one of millions of products on Amazon and have it delivered to my door within two hours! And I can do all of this from a smartphone that would have cost me $620,000 less than three decades ago. If these companies are monopolies, boy did they earn it!
We have been transported back to the early 20th century, when arguments about “the curse of bigness” were advanced by President Woodrow Wilson’s counselor, Louis Brandeis, before Wilson appointed him to the Supreme Court. Brandeis wanted to eliminate monopolies, because (in the words of his biographer Melvin Urofsky) “in a democratic society the existence of large centers of private power is dangerous to the continuing vitality of a free people.” We need look no further than the conduct of the largest banks in the 2008 financial crisis or the role that Facebook and Google play in the “fake news” business to know that Brandeis was right.
Actually, the 2008 financial crisis was the product of the Fed's easy-money policies and unsound legislation like the Community Reinvestment Act of 1977 that "'persuaded' lenders, Mafioso style, to lend to low-income borrowers, against their better judgment," as Robert Stewart puts it. The result was that government-backed entities like Fannie Mae and Freddie Mac "subsidized mortgages for people who, under more-prudent rules of borrowing, would never have qualified for a loan from a conservative banking institution."
As for fake news, it strikes me that the only people who seem to think this is a big problem are politicians and liberal news publishers like the New York Times. The rest of us - that is, actual consumers of news - don't seem to care all that much. Perhaps because we know that "fake news" is just the cosmopolitan class's shorthand for anything it disagrees with. And Taplin doesn't bother to draw any clear connection between this alleged fake news problem and the topic at hand. Breaking up Google won't stop fake news.
Could it be that these companies — and Google in particular — have become natural monopolies by supplying an entire market’s demand for a service, at a price lower than what would be offered by two competing firms? And if so, is it time to regulate them like public utilities?
As I said, if they can meet consumer demand at a lower price than competitors, what exactly is the problem? We have to regulate them because they're doing an excellent job? This kind of backward logic can only make sense to someone who believes monopolies create the need for regulation, when in fact regulation creates monopolies. But instead of providing a rigorous defense of his assumption, Taplin simply tries to make a government-controlled monopoly look better than a free-market monopoly:
AT&T (also known as the Bell System) had its rates regulated, and was required to spend a fixed percentage of its profits on research and development. In 1925 AT&T set up Bell Labs as a separate subsidiary with the mandate to develop the next generation of communications technology, but also to do basic research in physics and other sciences. Over the next 50 years, the basics of the digital age — the transistor, the microchip, the solar cell, the microwave, the laser, cellular telephony — all came out of Bell Labs, along with eight Nobel Prizes.
This begs the question: would these technologies not have been developed had telecommunications remained a private market? Would we to this day still be calling each other on rotary phones and transmitting business data via telegraph had the government not stepped in? Or would we be more technologically advanced than we are? Taplin wouldn't be able to answer this either way, which just goes to show his argument here is based on an unprovable assumption - like arguing that blacks would still be enslaved today had the Civil War not occurred.
In a 1956 consent decree in which the Justice Department allowed AT&T to maintain its phone monopoly, the government extracted a huge concession: All past patents were licensed (to any American company) royalty-free, and all future patents were to be licensed for a small fee. These licenses led to the creation of Texas Instruments, Motorola, Fairchild Semiconductor and many other start-ups.
Taplin shoots himself in the foot here by claiming that a benefit of turning a company into a public utility is that the government can force it to license out its patents for free. But the only reason private companies can hoard their ideas is because of the patent system that the government created! Put another way, Taplin is arguing that creating public utilities fosters innovation by allowing the government to lift its own anti-innovative patent laws. Using his own logic, I can think of a much easier way to spur innovation: end the patent system.
We are going to have to decide fairly soon whether Google, Facebook and Amazon are the kinds of natural monopolies that need to be regulated, or whether we allow the status quo to continue, pretending that unfettered monoliths don’t inflict damage on our privacy and democracy.
Notice how Taplin's argument has subtly changed. He started out suggesting these companies were monopolies. Along the way he slipped in the word "natural." But even those who believe in the monopoly myth draw a clear distinction between market monopolies and natural ones. The latter are services that require substantial infrastructure-building and high upfront capital costs such that having competing services is wasteful and "duplicative." No one could seriously argue that a search engine, social media platform, or online retailer are "natural" monopolies. Taplin's imprecision with terms undermines the logical flow of his argument. We simply can't take him seriously.
It is impossible to deny that Facebook, Google and Amazon have stymied innovation on a broad scale. To begin with, the platforms of Google and Facebook are the point of access to all media for the majority of Americans. While profits at Google, Facebook and Amazon have soared, revenues in media businesses like newspaper publishing or the music business have, since 2001, fallen by 70 percent.
According to the Bureau of Labor Statistics, newspaper publishers lost over half their employees between 2001 and 2016. Billions of dollars have been reallocated from creators of content to owners of monopoly platforms. All content creators dependent on advertising must negotiate with Google or Facebook as aggregator, the sole lifeline between themselves and the vast internet cloud.
Taplin throws Amazon in the mix without so much as a nod to why it deserves to be on the list of companies that are hurting publishers and other content creators - another shining example of Taplin's precision and rigorous logic. So we can dismiss Amazon and focus on Google and Facebook. Taplin tells us that billions of dollars have been "reallocated," which is a clever way of removing from his equation the actual culprit for these lost revenues: consumers. News publishers like the New York Times with their outdated and failing business models are having their revenues "reallocated" by consumers who no longer wish to buy what they're selling. Why would they, when they can get it for free? Taplin's response is not to accept the fate of the free market, but rather to force consumers to continue paying for their content by releasing the government hounds on smarter, more innovative companies.
It’s not just newspapers that are hurting. In 2015 two Obama economic advisers, Peter Orszag and Jason Furman, published a paper arguing that the rise in “supernormal returns on capital” at firms with limited competition is leading to a rise in economic inequality. The M.I.T. economists Scott Stern and Jorge Guzman explained that in the presence of these giant firms, “it has become increasingly advantageous to be an incumbent, and less advantageous to be a new entrant.”
It would be nice to know what Obama's advisers, or Taplin for that matter, consider to be a "supernormal" return on capital. 20 percent? 50 percent? 1,000 percent? Here we get the central planner's worn-out finger wag about companies being "too" profitable. The referenced paper claims that high-earning companies pay their workers more than low-earning companies within the same industry, which contributes to rising wage inequality. Yes, obviously - and why is that a bad thing? We should expect unequal wages because companies are paying a premium to attract higher-quality workers in order to keep producing high-quality and innovative services, which thus allows them to earn a higher margin. Google doesn't get the smartest workers by paying $10 an hour.
That's not to mention the fact that these companies have provided the platforms on which innumerable new businesses have grown, new jobs have been created, and workers outside of these companies have increased their incomes. Of course, such factors never make it into these economists' analyses.
Now Taplin gives us the antidote:
There are a few obvious regulations to start with. Monopoly is made by acquisition — Google buying AdMob and DoubleClick, Facebook buying Instagram and WhatsApp, Amazon buying, to name just a few, Audible, Twitch, Zappos and Alexa. At a minimum, these companies should not be allowed to acquire other major firms, like Spotify or Snapchat.
The second alternative is to regulate a company like Google as a public utility, requiring it to license out patents, for a nominal fee, for its search algorithms, advertising exchanges and other key innovations.
Taplin cites vertical acquisitions - i.e. buying a company in a related industry to expand service offerings - rather than horizontal ones - that is, buying out a direct competitor. Vertical acquisitions don't create monopolies. Of course, neither do horizontal ones, but Taplin doesn't bother to build an intelligent case either way.
The third alternative is to remove the “safe harbor” clause in the 1998 Digital Millennium Copyright Act, which allows companies like Facebook and Google’s YouTube to free ride on the content produced by others. The reason there are 40,000 Islamic State videos on YouTube, many with ads that yield revenue for those who posted them, is that YouTube does not have to take responsibility for the content on its network.
Here's another easy bogeyman to invoke: ISIS. Yes, says Taplin, we must break up Google because of all that unethical money it makes from those ISIS videos! But if we consider that YouTube racks up 5 billion views per day, taking down those 40,000 ISIS videos would hardly put a dent in YouTube's ad revenues, much less Google's. Taplin is grasping at straws here.
Removing the safe harbor provision would also force social networks to pay for the content posted on their sites. A simple example: One million downloads of a song on iTunes would yield the performer and his record label about $900,000. One million streams of that same song on YouTube would earn them about $900.
Taplin ignores three obvious holes in his reasoning. First, one million streams does not equal one million people. Second, people who would stream a song for free might not buy the song if it weren't. If I bought all the songs I listened to on YouTube and Spotify, I'd be in deep debt. Third, there's no way of knowing how much revenue an artist generates in MP3 purchases and ticket sales because his or her music was first available for free streaming. Business models have to adapt when a new technology disrupts an industry, or else companies will die. You can't expect people to pay for content the same way they paid for records and printed newspapers 40 years ago.
I’m under no delusion that, with libertarian tech moguls like Peter Thiel in President Trump’s inner circle, antitrust regulation of the internet monopolies will be a priority. Ultimately we may have to wait four years, at which time the monopolies will be so dominant that the only remedy will be to break them up. Force Google to sell DoubleClick. Force Facebook to sell WhatsApp and Instagram.
Again, what's wrong with market dominance when we all benefit from the services these companies provide? Well, not all of us benefit. The execs at the New York Times certainly don't. Not that I'm insinuating this is some sort of propaganda piece…
To sum it up, I echo a sentiment left by a reader in the comments section: this article is just a solution looking for a problem.
Google recently announced plans to include an ad “filter” in its Chrome web browser starting early next year. It’s not a “blocker” because it will allow some ads through: those deemed worthy by the Coalition for Better Ads, of which Google is a member. Their awkwardly titled Initial Better Ads Standards shows examples of intrusive ads that will be filtered, including pop-ups, auto-playing videos with sound, full-screen countdowns, and more. Although unconfirmed, it’s believed that the ad filter will be enabled by default when it ships in Chrome.
Additionally, Google announced a tool called “Funding Choices” that, when added by a publisher to their website, prompts visitors running other ad blockers to either disable the ad blocker or pay a fee to access the content.
The contradiction in this is blatantly obvious to anyone who follows Google (or its parent company, Alphabet): they make almost 90% of their revenue from selling ads. Their own ads, of course, meet the aforementioned standards and won’t be filtered, which is where this story gets interesting. Compound that with the fact that Chrome commands over 50% of the browser market share, and some would have us believe we have a full-blown conspiracy on our hands.
Like David Dayen, writing for The Intercept:
So this is a way for Google to crush its few remaining competitors by pre-installing an ad zapper that it controls to the most common web browser. That’s a great way for a monopoly to remain a monopoly.
There’s more to the story, however. The real goal for Google appears to be not just blocking ads sold by other digital suppliers besides Google, but to undermine third-party ad blockers, which stop Google ads along with everyone else’s.
Web users will quickly recognize their only options: pay to use the internet, or uninstall the ad blockers and surf the web for free. At least 11 percent of all web users, and perhaps as many as 26 percent of all desktop users, have third-party ad blockers on their devices, a number that will likely grow in the next few years.
The argument undergirding Dayen’s entire piece – as well as less sensational takes – is the power and control Google wields. On that, I couldn’t agree more. But if that’s the argument, then let’s not waste time attacking every little move Google makes – let’s cut to the root cause and how it can be remedied.
While the U.S. government has played their part, the majority of Google’s success can be attributed to consumers choosing to use their products. Lots of people choose to exchange their personal data for “free” search, “free” email, “free” analytics, etc. Google has attained its power and control through people giving it to them. The remedy, then, isn’t breaking them up or regulating them into submission, but something much more straight-forward: deliberately choosing not to use Google. Every one of us has the power to opt-out and protect ourselves; it doesn’t require waiting on any government to do that for us. Perhaps firstname.lastname@example.org should consider some of the alternatives before railing against the very problem he’s helping proliferate.
Once the issue of power and control is set aside, the idea of an ad filter in Chrome makes sense. Like every business, Google is responding to the changing market. They see consumers increasingly choosing to use ad blockers for a better browsing experience, and they see how that threatens their primary revenue stream. What business wouldn’t try to adjust for this? They have to continue to provide what consumers want in a way that makes money for them to survive. Google could have outlawed ad blockers in Chrome completely, or started charging for their products instead of relying on ad revenue, but they know people would have left in droves. They had to strike a balance that mutually benefitted both parties, which is what they did. Consumers get a better browsing experience, and Google keeps its revenue stream intact. And just like Google, the invasive ad networks and sites that use them will have to adjust to the changing market to survive. I have no doubt the majority will.
I've written before on the concept of blockchain-based communities. It turns out people are already experimenting with this on a global scale. Marketing itself as "Governance 2.0," BITNATION is kind of like a digital nation whose citizens (it appears there are about 6,000 total) span several physical nations. This digital nation comprises many smaller, loosely affiliated nations, and when you become a citizen you have the option of joining an existing nation or creating a new one. From the Nations Directory page:
When our Pangea software reaches Beta stage, you’ll be able to transfer Your Nation onto the Pangea “Blockchain Jurisdiction”, a DIY Governance Client that will enable you to operationalise Your Nation, on a smart contract powered, peer-to-peer and end-to-end encrypted platform.
Sounds cool, except that when you actually browse the Nations Directory, you find that each citizen is basically his or her own nation at this point. There are also embassies and consulates, though I can't imagine they hold any real power with the physical country in which they're located. As a BITNATION citizen, you get access to several services, including Refugee Emergency Response, Citizen Security, an Education Network, and a BITNATION Bitcoin debit card. For kicks, here's a summary of its security services, which are offered through third-party provider Dragonfly:
Dragonfly has exceptional expertise in providing security in challenging situations, close protection, extraction and medical evacuation and kidnap and ransom support. Through a wide network of community supporters and professional risk advisers we enable BITNATION citizens the freedom to live their lives without security concerns, and provide 24/7 crisis management services when needed.
BITNATION even has its own space agency, which "aims to create and explore open source hardware and software for Do-It-Yourself space exploration" in partnership with SpaceChain Space Agency. Not a joke!
At this point, I'd consider BITNATION little more than an amusing curiosity. If nothing else, it shows a growing desire of individuals around the world to move away from tyrannical political entities and return to that crazy, radical idea that people have a right to self-determination and self-governance. To echo Murray Rothbard:
The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish either to form an independent state or to attach themselves to some other state, their wishes are to be respected and complied with. This is the only feasible and effective way of preventing revolutions and civil and international wars.
ZeroHedge on "Projecting the Price of Bitcoin":
Bubbles occur when everyone and their sister is trading/buying into a "hot" market. Bubbles pop when the pool of greater fools willing and able to pay nose-bleed valuations runs dry. In other words, when everyone with the desire and means to buy in and has already bought in, there's nobody left to buy in at a higher price (except for central banks, of course).
At that point, normal selling quickly pushes prices off the cliff as there is no longer a bid from buyers, only frantic sellers trying to cash in their winnings at the gambling hall.
When only one of your circle of acquaintances, colleagues, friends, neighbors and extended family own an asset, there is no way that asset can be in a bubble, as the pool of potential buyers is thousands of times larger than the pool of present owners.
It's an obvious point that everyone misses. It's only when everyone and their mother buys into an asset on the stock market, and unbridled optimism about its trajectory is near-universal, that the presence of a bubble becomes evident.
When the entire stock market is being propped up by five stocks and nobody's crying foul, you have to wonder if something's up. But who, outside of the cryptocurrency market, is long-term bullish on bitcoin?
The true potential value of cryptocurrencies will not become visible until the global economy experiences a catastrophic collapse of debt and/or a major fiat currency. These events are already baked into the future, in my view; nothing can possibly alter the eventual collapse of the current debt/credit bubble and the fiat currencies that are being issued to inflate those bubbles.
The skeptics will continue declaring bitcoin a bubble that's bound to pop at $3,000, $5,000, $10,000 and beyond. When the skeptics fall silent, the potential for a bubble will be in place.
The token can be used to obtain a variety of advertising and attention-based services on the Brave platform. The utility of the token is based on user attention, which simply means a person’s focused mental engagement.
BAT is open-source and decentralized, running on the Ethereum blockchain. It works in tandem with our favorite privacy-conscious browser, Brave, to make better use of advertizing space on web pages by anonymously tracking which ads get the most attention from individual users:
The Brave browser knows where users spend their time, making it the perfect tool to calculate and reward publishers with BATs. This service creates a transparent and efficient Blockchain-based digital advertising market. Publishers receive more revenue because middlemen and fraud are reduced. Users, who opt in, receive fewer but better targeted ads that are less prone to malware. And advertisers get better data on their spending.
Launched as an ICO-style fundraiser, BAT reportedly raised $35 million in Less Than 30 Seconds, showing just how hot ICOs are right now. As a result, BAT has shot up to the top 20 cryptocurrencies by market cap. That's good news for the few people who were able to buy up the tokens in the ICO launch, as CryptoInsider reports:
Only about 130 people were able to buy tokens in the offering, and five buyers got close to half of all the available supply. Engadget and Breitbart News note that Eich, who was forced to step down as Mozilla CEO for supporting unpopular political positions, is now back and sitting on a big pile of cash.
Good for him. Now we just have to wait and see if BAT actually offers a sustainable new model for advertisers and publishers in the digital space.
What's so great about cryptocurrency? Most advocates will give you the usual answer: it has all the qualities of an ideal money. It's finite, fungible, incorruptible, counterfeit-resistent, and easy to store. And that's all true. But I would offer another answer.
Jörg Guido Hülsmann, in "The Cultural Consequences of the Federal Reserve", writes:
But in a fiat money system, as price inflation diminishes the value of one’s monetary savings, we are encouraged to adopt a short-term perspective. That is, we need to hurry up to obtain credit as soon as possible and obtain revenue from that debt as soon as possible, because savings lose value if we just hold on to cash.
You can imagine, then, how this inflation and debt-based system, over time, will begin to change the culture of a society and its behavior.
We become more materialistic than under a natural monetary system.
This is a sorely unexplored topic. A fiat money system - where a central bank has the power to indiscriminately print money in order to finance its debts - not only destroys the economy, but also destroys culture.
How? It's simple, really. When the Federal Reserve prints money or pumps government spreadsheets with "Excel" dollars, it drags down the purchasing power of everyone else's money. What a dollar can buy today, it won't tomorrow. This is inflation. With this kind of central-bank-caused inflation, the interest rate of money stays artificially low - because money is cheap, and everything else on the market is increasingly expensive. This process turns the natural course of things on its head. People are now rewarded for consuming and punished for saving.
In Democracy: The God That Failed Us, Hans-Hermann Hoppe draws the connection in the starkest terms possible:
Furthermore, whereas high or rising minimum interest rates indicate periods of generally low or declining living standards, the overriding opposite tendency toward low and falling interest rates reflects mankind's overall progress - its advance from barbarism to civilization. Specifically, the trend toward lower interest rates reflects the rise of the Western World, its peoples' increasing prosperity, farsightedness, intelligence, and moral strength…
Here's the rub:
…if government property-rights violations [i.e. currency devaluation] take their course and grow extensive enough, the natural tendency of humanity to build an expanding stock of capital and durable consumer goods and to become increasingly more farsighted and provide for ever-more distant goals may not only come to a standstill, but may be reversed by a tendency toward decivilization: formerly provident providers will be turned into drunks or daydreamers, adults into children, civilized men into barbarians, and producers into criminals.
A civilized society - one whose culture values law, prudence, planning, frugality, charity, and kinship - cannot last in a fiat monetary system.
It stands to reason, then, that cryptocurrency is not simply an incredible invention for its ideal qualities as a medium of exchange and store of wealth. It is also a moral invention, one that could - dare I say it? - save Western civilization.
I thought it would be fun and (potentially) informative to crunch some numbers to see what the best performing cryptocurrencies are now that five full months of 2017 are in the books. While Monero took the crown in 2016 with growth of 2,760%, 2017 has seen even more explosive – crazy? insane? bubbly? – growth of the cryptocurrency market. I’ll leave word choice and analysis up to others for now.
A few notes about the data:
With that said, I present the results…
|Symbol||Name||Start Price ($)||End Price ($)||% Change|
|Symbol||Name||Start Price ($)||End Price ($)||% Change|
The Browser Act, sponsored by Republican Congresswoman Marsha Blackburn of Tennessee, is currently being peddled around the House of Representatives as a solution to the data privacy "problem." I put that word in quotes because it's really not a problem at all. But if government court magicians like Rep. Blackburn didn't exist to whip up problems out of thin air, no one would find value in the government's "solutions." Back to that in a moment. First, more on the Browser Act. The Daily Caller reports:
The "Browser Act"… mandates that people must explicitly give permission to internet service providers (ISPs) and websites wanting to use their browsing history and other data for business purposes.
“I think it is necessary to get our consumers the strongest toolbox possible to allow them to control their virtual presence,” Blackburn told The Daily Caller News Foundation (TheDCNF) in an interview. “Individuals in the physical world have the opportunity to hold personal information private and they should have that same opportunity in the virtual space.”
First, while all of that may be true, Rep. Blackburn offers no reason why this "opportunity" must be safeguarded by the government rather than by the free market. Second, Blackburn ignores the fact that this opportunity is already provided by the free market. All of the major ISPs have already pledged not to sell customers' browsing data. As for Google and Facebook, plenty of alternative services already exist that do not sell their users' data. So, the Browser Act not only antagonizes the free market (something Republicans are supposed to be all about) but does so in a way that is obviously and demonstrably unnecessary.
However well-intentioned Rep. Blackburn may be, the presumption underlying this bill is that consumers are as helpless and ignorant as little children who, unable to fend for themselves, require the parental concern and protection that can only be afforded by the state. It reminds me of one of my favorite passages from Frédéric Bastiat's The Law. Forgive the long quote - it's worth it:
When it is time to vote, apparently the voter is not to be asked for any guarantee of his wisdom. His will and capacity to choose wisely are taken for granted…. But when the legislator is finally elected - ah! then indeed does the tone of his speech undergo a radical change. The people are returned to passiveness, inertness, and unconsciousness…. The people who, during the election, were so wise, so moral, and so perfect, now have no tendencies whatever; or if they have any, they are tendencies that lead downward into degradation.
Clearly then, the conscience of the social democrat cannot permit persons to have any liberty because they believe that the nature of mankind tends always toward every kind of degradation and disaster. Thus, of course, the legislators must make plans for the people in order to save them from themselves.
This line of reasoning brings us to a challenging question: If people are as incapable, as immoral, and as ignorant as the politicians indicate, then why is the right of these same people to vote defended with such passionate insistence?
The fact is, people use Google and Facebook because they value these companies' services more than they value their data privacy. When that is no longer true, they will stop using these services. Since Rep. Blackburn believes people don't know what's good for them, perhaps she should save consumers not only from their own fatalistic desire to use these services, but also from their fatalistic decision to vote Rep. Blackburn into office in the first place. This logical conclusion would save us all a lot of trouble.
The internet is commonly cited as a shining example of an innovation birthed from government-funded research and development (R&D). From TCP/IP to HTTP to HTML, the lineage of the internet is filled with government agencies and universities. I ran into this argument many times while debunking the idea that entrepreneurs in the private sector don’t innovate. As a believer that government funding is completely unnecessary, however, the case of the internet can’t be ignored or brushed aside. It must be addressed to remove the asterisk in the minds of skeptics.
Would the internet exist if the government hadn’t funded so much of the foundational R&D? I believe it still would. As Steve Fritzinger explains in How Government Sort of Created the Internet, the initial idea was not actually hatched at the Department of Defense’s Advanced Research Projects Agency (ARPA):
The idea of internetworking was first proposed in the early 1960s by computer scientist J. C. R. Licklider at Bolt, Beranek and Newman (BBN). BBN was a private company that originally specialized in acoustic engineering. After achieving some success in that field—for example, designing the acoustics of the United Nations Assembly Hall—BBN branched out into general R&D consulting. Licklider, who held a Ph.D. in psychoacoustics, had become interested in computers in the 1950s. As a vice president at BBN he led the firm’s growing information science practice.
In a 1962 paper Licklider described a “network of networks,” which he called the “Intergalactic Computer Network.” This paper contained many of the ideas that would eventually lead to the Internet. Its most important innovation was “packet switching,” a technique that allows many computers to join a network without requiring expensive direct links between each pair of machines.
Licklider took the idea of internetworking with him when he joined ARPA in 1962.
Had ARPA not hired Licklider – in other words, had the government not been in the business of funding research – it’s hard to believe the idea would have simply died, never again to find funding or interest. Licklider could have stayed at BBN, or moved to another private company, and continued to develop the idea there. The same goes for Ivan Sutherland and Bob Taylor, who continued developing the idea at ARPA. Perhaps they would have crossed paths with Licklider in some other way, or stumbled upon the idea on their own. As Bastiat taught us with his broken-window fallacy, one must not just consider the short-term “seen” effects, but also the long-term “unseen” effects. Had the government not consumed the money and resources (including people) in ARPA, how would it have been used? It’s short-sighted to conclude that the internet would not have been created, if not something even better.
“Okay,” a critic might retort, “even if I believe that, we’d likely have ended up with a much more fractured, closed internet with private companies hoarding control for maximum profit.” While its history would undoubtedly be different, it’s hard to imagine the internet being more closed off than it was under government control. Here’s Fritzinger once again:
For its entire existence the ARPANET and most of its descendants were restricted to government agencies, universities, and companies that did business with those entities. Commercial use of these networks was illegal. Because of its DOD origins ARPANET was never opened to more than a handful of organizations. In authorizing funds for NSFNET, Congress specified that it was to be used only for activities that were “primarily for research and education in the sciences and engineering.”
During this time the vast majority of people were banned from the budding networks. None of the services, applications, or companies that define today’s Internet could exist in this environment. Facebook may have been founded by college students, but it was not “primarily for research and education in the sciences and engineering.”
If anything, the internet succeeded despite the government keeping it restricted for 26 years (until 1995, when NSFNET was shut down and government involvement ended). It was the private sector that opened it to the masses and continued to innovate in the space:
This restrictive environment finally began to change in the mid-1980s with the arrival of the first dial-up bulletin boards and online services providers. Companies like Compuserve, Prodigy, and AOL took advantage of the home computer to offer network services over POTS (Plain Old Telephone Service) lines. With just a PC and a modem, a subscriber could access email, news, and other services, though at the expense of tying up the house’s single phone line for hours.
In the early 1990s these commercial services began to experiment with connections between themselves and systems hosted on NSFNET. Being able to access services hosted on a different network made a network more valuable, so service providers had to interoperate in order to survive.
So while it’s likely that the internet would still exist even if the government hadn’t funded so much of the foundational R&D, perhaps the more pertinent question is actually: Would the internet exist as we know it today if the government hadn’t gotten out of the way? Would we be streaming movies and shows on Netflix? Would we be shopping on Amazon? Would we be listening to music on Spotify?
Almost certainly not.
TorrentFreak reports that the EFF, Creative Commons, Wikimedia, Mozilla, and 60 other groups have released a letter opposing the European Union's proposals (PDF link) to "modernize copyright law in Europe" as part of the Digital Single Market Strategy. The controversy revolves around Article 13 of the EU's proposals:
Article 13 requires certain online service providers to become deeply involved in the detection and policing of allegedly infringing copyright works, uploaded to their platforms by users.
The opposition letter (PDF link), published under the Copyright for Creativity coalition, rightly points out that Article 13 "is designed to provoke such legal uncertainty that online services will have no other option than to monitor, filter and block EU citizens’ communications if they want to have any chance of staying in business." In other words, they will have to over-censor in order to avoid liability.
TorrentFreak writes that the "battle lines are being drawn" in the copyright battle, with recording labels and music studios on one side and organizations like the EFF and Creative Commons on the other. But this is misleading, since the groups affiliated with Copyright for Creativity aren't out-and-out opposing regulatory action or copyright law. Instead, they're calling for a pragmatic middle ground, which falsely redraws the debate in the minds of onlookers as between good and bad policy, rather than between policy and no policy. Per the letter:
We need European lawmakers to oppose the most damaging aspects of the proposal, but also to embrace a more ambitious agenda for positive reform.
What does this "positive" reform look like? It's about as vague as the EU's proposal that they ironically criticize for being too vague. The Copyright for Creativity coalition's Copyright Manifesto includes "Four Pillars to Modernize Copyright in the EU." These "modernizing" efforts include "harmonization" between users and service providers, a "flexible norm" to deal with "future evolutions" of the copyright environment, and enforcement of copyright law based on "demonstrated harm." With language this precise, I can't imagine it being at all problematic to implement.
Of course, what's wrong with C4C's counterproposal is that it pretends some pragmatic middle ground can actually exist between freedom and "fairness." They envision a unicorn-land where thoughtful policymakers strike an increasingly fair balance between the interests of producers, consumers, and communication platforms. But there can be no middle ground between the two, because freedom is a fixed and definable law, and fairness is a subjective and indefinable feeling. The former is based in justice; the latter, on fleeting perceptions of justice. How can a good law be built on a "flexible" norm? What's true is true. Either nonphysical goods (i.e. ideas and digital content) can be "stolen" or they can't. If they can, then copyright law should be enforced to the fullest extent, as are laws against physical theft. If not, then copyright laws are invalid and should not be enforced in any way, ever. Anything in between is illogical and inconsistent, and therefore not just or "fair" at all.
It turns out I wasn’t the only one to debunk Ben Tarnoff’s completely misguided America has become so anti-innovation – it's economic suicide. Farhad Manjoo penned a critique in The New York Times two days prior to mine entitled Google, Not the Government, Is Building the Future. While he correctly debunks the idea that entrepreneurs in the private sector don’t innovate – using Google and artificial intelligence (AI) as an example – he ultimately fails to see the problems inherent in any amount of government innovation, just like Tarnoff.
Let’s start with where Manjoo and I agree:
The idea that Silicon Valley no longer funds big things isn’t just wrong, but also obtuse and fairly dangerous. Look at the cars, the rockets, the internet-beaming balloons and gliders, the voice assistants, drones, augmented and virtual reality devices, and every permutation of artificial intelligence you’ve ever encountered in sci-fi. Technology companies aren’t just funding big things — they are funding the biggest, most world-changing things. They are spending on ideas that, years from now, we may come to see as having altered life for much of the planet.
Collectively, [Amazon, Apple, Facebook, Google, and Microsoft] are among the biggest investors in research and development on the planet. According to their earnings reports, they are on track to spend more than $60 billion this year on research and development. By comparison, in 2015, the United States federal government spent about $67 billion on all nondefense-related scientific research.
However, Manjoo then raises the problem he sees with this:
This sets up a looming complication: Technology giants, not the government, are building the artificially intelligent future. And unless the government vastly increases how much it spends on research into such technologies, it is the corporations that will decide how to deploy them.
He restates this in slightly different terms later:
But the tech industry’s huge investments in A.I. might also be cause for alarm, because they are not balanced by anywhere near that level of investment by the government.
Without any type of evidence to support his claim, Manjoo just assumes that the altruism of government is necessary to balance the evil profiteering of corporations. This is so far off, it’s laughable. Yes, there are times when government flashes concern for others. And yes, some corporations are evil. But to believe government is that good simply cannot be defended.
Consider the more than $73 billion the U.S. government spent on “defense” R&D in 2015 (citing the same report and year as Manjoo). That’s taxpayer money that goes directly to the development of weapons used in war. Weapons that are dropped on sovereign nations and kill innocent civilians. Close to 200,000 have been killed since the 2003 invasion of Iraq alone. Where is the “balance” there? There is none, of course, because government has a monopoly on power that is unparalleled. For as powerful as Google is, it doesn’t even compare. Not only do they lack the resources to declare war, but they have no incentive to do so in the first place. (At least without the U.S. government’s involvement.)
A second false assumption Manjoo makes is that corporations, left to their own devices, will deploy innovations that are harmful. While the potential does exist, sure, it’s ultimately consumers who decide whether an innovation succeeds or fails. If an innovation is harmful to them, consumers simply won’t fund it with their dollars, and the corporation will be forced to change course or abandon it completely. Google has certainly learned that with Glass, Wave, and dozens of other projects they’ve abandoned or pivoted over the years.
Can the same be said of government? Not when they can print money out of thin air, perpetually extending projects without regard to whether they’re actually successful or not. It’s also much harder to avoid government involvement. Case in point: mass surveillance by the NSA. With Google, one can avoid their services and tentacles throughout the internet fairly easily. Avoiding mass surveillance by the NSA is a monumental – if not impossible – task by comparison. Can you imagine if they were to deploy AI in a harmful way?
Finally, while Manjoo quotes OpenAI CTO Greg Brockman as someone in favor of public-private partnership in AI research, they’re actually a prime example of why government “balance” is unnecessary. OpenAI is a private, non-profit research company seeking to create the exact “balance” that Manjoo and others believe only government can provide. That’s a false assertion. Individuals and corporations from the private sector can and have come together voluntarily to help shape ethical guidelines for an industry. And while I don’t agree with OpenAI’s egalitarian vision for AI, it doesn’t diminish the fact that I have the choice to support them or not. With government, I’d simply be stuck with whatever they decide is the right approach for everyone, which almost certainly wouldn’t be the right approach for anyone but their cronies.
Tho Bishop, writing for Mises Wire:
America is going to default [on its debt], just as we have before. The only matter is when, and how.
This could, perhaps, be playing a role in the growing valuation in Bitcoin and other crypto-currencies.
For example, when the Indian government banned the use of their largest bank notes, demand for crypto-currency accelerated dramatically in the country. Similarly, as crippling inflation grew in Venezuela, so did the appeal of Bitcoin. It’s also possible that the Bank of Japan’s negative interest rate policy played a role in Bitcoin use becoming so common that the country now accepts it as a form of legal payment.
While it’s difficult to figure out how much of Bitcoin’s extraordinary rise in value is a product of sound economic reasoning — and how much is speculation — it is easy to see that the world is awash in government debt…. Given that reality, and the obvious lack of courage on the part of politicians to tackle these very difficult problems, it’s easy to see how crypto-currencies could become increasingly attractive in the future.
We may be past the point of political solutions, but not market ones.
What is still to be seen is how (and how soon) virtual currency will become a widely adopted medium of exchange, instead of simply a protective asset investment. To quote Brian Armstrong, founder and CEO of Coinbase, from his talk at Consensus 2017:
I'm excited for the world to have an open financial system. What I want the whole industry to think about is how we can continue to shift digital currency from being a speculative investment to being used for goods and services.
To me, this is the pivotal challenge for Bitcoin moving forward: to become a true medium of exchange and, as nitsuj put it, topple the government-controlled fiat money scheme. My personal feeling is that it will take a massive financial crisis to push it over the edge of widespread adoption. Just as when someone knows they're fluent in a second language when they start dreaming in that language, the watermark will be when consumers stop thinking of prices in terms of USD and start valuating directly in BTC (or another non-fiat currency). We can only hope to see that day in our lifetime.
Be sure to set aside 1½ hours to listen to this podcast episode. It’s one of my favorites of the year thus far.
If you’re unfamiliar with Erik Voorhees, he’s the Founder & CEO of ShapeShift, a cryptocurrency exchange where you can easily trade coins without needing to divulge any personal information or even create an account. He’s also one of us: a student of liberty and Austrian economics who believes that the ultimate value in cryptocurrencies is the ability they give us to opt-out of government-controlled fiat money – if not topple the whole scheme completely one day. He writes at Money and State, which, if you don’t read, I highly recommend starting with Bitcoin and the Separation of Money and State. He also just announced Prism, which bills itself as “the world’s first trustless asset portfolio platform.”
Yesterday I talked about the political class's totally misguided desire to regulate social media content. Last week, U.K. Prime Minister Theresa May (of Snooper's Charter fame) gave us another demonstration of this terrible idea. Her Conservative Party's newly released Manifesto, "Forward, Together" (PDF link), includes a plan to regulate, tax, and censor the internet. From the Manifesto:
A Conservative government will develop a digital charter, working with industry and charities to establish a new framework that balances freedom with protection for users, and offers opportunities alongside obligations for businesses and platforms.
I love Techdirt's commentary on this:
"Balances" freedoms? Freedoms aren't supposed to be "balanced." They're supposed to be supported and protected. And when you have your freedoms protected, that also protects users. Those two things aren't in opposition. They don't need to be balanced. As for "obligations for businesses and platforms" – those five words are basically the ones that say "we're going to force Google and Facebook to censor stuff we don't like, while making it impossible for any new platform to ever challenge the big guys." It's a bad, bad idea.
This falls right in line with my point in yesterday's post that the ill-defined goal of "safety" is evoked to justify increasing government control over the internet. The Manifesto goes on:
We will put a responsibility on industry not to direct users – even unintentionally – to hate speech, pornography, or other sources of harm. We will make clear the responsibility of platforms to enable the reporting of inappropriate, bullying, harmful or illegal content, with take-down on a comply-or-explain basis.
Again, corroborating my previous point about unintended secondary effects, Techdirt writes:
Basically: we will make private internet companies our internet censorship police, or we'll fine them millions of dollars. This will create all sorts of unnecessary problems. First, to avoid liability, companies will massively over-censor. We see this happen all the time. All sorts of perfectly fine and legitimate content will be censored just to avoid the potential liability. Second, this will be massively expensive. Sure, Facebook and Google can probably handle the expense, but no one else will be able to. If you're trying to start the next Facebook or Google in the UK, you're fucked. You can't afford to police all the content on your platform, nor can you afford the potential liability.
May's party also plans to prevent "a safe space for terrorists to be able to communicate online." Back to Techdirt:
And this may be the most terrifying line of all here. That's the dog whistle for "we'll outlaw encryption" because encryption - in the minds of foolish, scaredy-cat politicians - creates "safe spaces" for terrorists. Nevermind that the same encryption creates "safe" spaces for every other person and that undermining that makes absolutely everyone less safe.
My final two cents on the matter: It's ironic how Britain's supposedly "conversative" party platform, "Forward, Together", echoes the same hollow promises of campaign slogans on the left - from Hillary's "Stronger Together" to Macron's "Together, France!" and "Onward!" In Western politics, it seems that no matter what side we cast our votes for, we end up with the same thing: a nanny state. Nanny states, whether left or right, always turn into police states, whether the "conservative" regimes of Fascist Italy and Nazi Germany or the "liberal" regimes of Soviet Russia, Cuba, and Venezuela.
So instead of "Forward, Together", I choose "In Many Directions, Individually."
The Guardian has obtained more than 100 internal Facebook manuals detailing how the social media company moderates and censors content - everything from hate speech to revenge porn to self-harm. The so-called Facebook Files have elicited a wide range of responses from experts and government officials. This comes in the midst of intense political pressure in both Europe and the U.S. to beef up Facebook's censorship capabilities. The BBC reports:
In early May, the UK parliament's influential Home Affairs Select Committee strongly criticised Facebook and other social media companies as being "shamefully far" from tackling the spread of hate speech and other illegal and dangerous content.
The government should consider making sites pay to help police content, it said.
Soon after, Facebook revealed it had set out to hire more than 3,000 more people to review content.
British charity the National Society for the Prevention of Cruelty to Children (NSPCC) said the report into how Facebook worked was "alarming to say the least".
"It needs to do more than hire an extra 3,000 moderators," said a statement from the organisation. "Facebook, and other social media companies, need to be independently regulated and fined when they fail to keep children safe."
I'm sure you're as shocked as I was to hear that a government committee proposed to solve the problem with government regulations. In fact, Members of Parliament believe social media companies "are putting profit before safety and should face fines of tens of millions of pounds for failing to remove extremist and hate crime material promptly from their websites." Surely, fines paid to the government will stop this problem in its tracks! Even the NSPCC thinks social media should be "independently regulated and fined" by the government, and we all know that governments are both highly competent and also immune from abusing monopoly regulatory power to generate revenue. The fact that the FDA has caused millions of deaths is irrelevant. So is the fact that the DEA stole $3.2 billion from innocent people over a 10-year period through civil asset forfeiture. Or the fact that the U.S. government's never-ending war on drugs is an abject failure that has led to violent drug cartels, dangerous knockoff drugs, overpopulated prisons, and ruined lives.
Any form of regulation by a monopoly power inevitably hurts more than it helps. Writing of the boondoggle that was the FDA's regulation of the cigar industry, Christopher Westley summarizes:
the first rule of government regulation of business…[is] that regulation always causes secondary effects that are sometimes anticipated, and sometimes not.
What could possibly be an unanticipated effect of regulating Facebook content? The same effect regulations have had in every other industry, from health care to broadband to big pharma: the creation of monopolies and oligopolies. Quoting former Congressman Ron Paul:
Government taxes and regulations are effective means of limiting competition in an industry. Large companies can afford the costs of complying with government regulations, costs which cripple their smaller competitors. Big business can also afford to hire lobbyists to ensure that new laws and regulations favor big business.
Foisting content regulations onto social media companies would cripple up-and-coming alt-tech platforms like Gab or Seen Life, who can't afford to hire 3,000 moderators. We might be stuck with Facebook for good.
But are social media platforms really comparable to other industries? After all, Facebook is not a product that people purchase. It's a platform for communication, and it's the dominant platform at that. As the BBC article concludes, "the social media giant is more powerful than any newspaper or TV channel in shaping how the public sees the world." Even so, it's still a product. It's something people can use or not use. The importance of Facebook as a media outlet doesn't make it immune from the laws of economics, or ethics. What crime is Facebook committing by not satisfactorily regulating the content that its users post? The BBC article suggests that Facebook is in the precarious position of balancing free speech with "safety" concerns. But how does content showing illegal activity (such as child abuse) create an unsafe situation for other users who view it? This safety concern seems rather nebulous. Does the British Parliament believe that allowing hateful and violent content to be posted will make these activities seem normal and acceptible to the public, evoking the inner racist in all of us and leading to a rapid erosion of public morals?
Whatever their underlying beliefs, the fact remains that social media doesn't cause people to be hateful or violent, just like guns don't cause people to murder and terrorist recruiting sites don't magically radicalize muslims. The hatred is already there; it's merely looking for an outlet.
That said, I don't want to see content celebrating child abuse, racism, or terrorism on my social media feeds. Fortunately, there are already numerous options at my disposal to shield myself from this content, like choosing who my friends are, what populates my newsfeed, flagging and blocking content, or deactivating my account entirely and going to another (better) social media platform. I can create my own "safe" environment. I don't need an incompetent government agency attempting to do it for me.
Jason Fried, Founder & CEO at Basecamp:
Last year we experimented with running ads on Facebook, Google, and Twitter. All-in we spent 6 figures on the experiment. And then we stopped.
But what stopped us wasn’t the spend, it was the feel. Every dollar you spend is a vote, and we were casting hundreds of thousands of votes for big companies that are tracking people’s every step, every move, every curiosity, and every detail of their lives. Fuck that.
Yeah, they could bring us customers. But we don’t like the way they do it. We don’t want to be complicit in the how. No thank you, no vote.
I love this. Basecamp (née 37signals) has always done things differently. Everything from their original manifesto to their upcoming book on running a calm company speaks to this. But they’re not different just to be different – they’re doing it from a principled, consistent ideology.
Consider these numbers. Companies are expected to spend more than $35 billion in social media advertising in 2017. That’s $35 billion primarily going to Facebook (and their properties like Instagram) and Twitter. Google, the seasoned veteran, almost reached $80 billion in advertising revenue in 2016. And the year-over-year growth in these numbers is consistently in the double digits.
The problem, as Fried explains, is in the how: by “tracking people’s every step, every move, every curiosity, and every detail of their lives.” We lambast Facebook, Google, and Twitter all the time for fueling their services with our personal data, but the truth is, they’re nothing without the businesses who purchase the ads. They are the ones who bankroll the operation. They are complicit.
The alternative? Basecamp is giving its customers $50 for each referral, with each referral receiving $50 off their first month. So instead of fueling the problem, they’re reinvesting money back into their own customers. And likely getting much more passionate, loyal customers in the end.
Without any fanfare, the Senate Sergeant at Arms recently told Senate staffers that Signal, widely considered by security researchers and experts to be the most secure encrypted messaging app, has been approved for use.
The news was revealed in a letter Tuesday by Sen. Ron Wyden (D-OR), a staunch privacy and encryption advocate, who recognized the effort to allow the encrypted messaging app as one of many "important defensive cybersecurity" measures introduced in the chamber.
ZDNet has learned the policy change went into effect in March.
This might be a small win for the rest of us, as Techdirt argues:
Senators are going to find it very hard to argue against encrypted communications when they're allowed to use encrypted messaging apps. It's not that legislators are above hypocrisy. It's just that they usually allow a certain amount of time to pass before they commence openly hypocritical activity.
If encryption's good for the Senate, it's good for the public. There's no other way to spin this.
However, I don't entirely share Techdirt's optimism. There's always another way to spin it, and I doubt senators like Richard Burr and Dianne Feinstein will simply cease their repeated efforts to ban encryption or require backdoors. Government officials always believe they should (and usually do) play by a different set of rules than the rest of us.
In case you didn't know, the U.S. patent system is pretty much the worst. Not because the system has been corrupted by big business or patent trolls, but because patent law is inherently unjust and stifles innovation without actually protecting "the litle guy." As intellectual property (IP) attorney Stephan Kinsella notes, IP law (which includes copyright and patent laws) stifles innovation
because a lot of smaller people just give up. They don't go into a certain field…because they know they would be sued out of existence. It causes oligopolies and cartels, which of course reduces competition, reduces innovation, and increases costs for everyone…. I estimate $1 trillion a year in lost wealth due to increased innovation that we otherwise would have, maybe even more. We would be so far ahead technologically in this world if we didn’t have patents…it’s mind blowing.
Speaking of Kinsella, he was recently interviewed on the Future Gravy podcast about Blockstream's defensive patent strategy. The basic idea is that Blockstream promises to use its patents only defensively, a.k.a. to countersue if another company attempts to sue them for patent infringement, but never offensively to keep other blockchain companies from using their software, code, etc. They back up their promise by submitting all patents under a Defensive Patent License. Kinsella says that, while this system is pretty good, Blockstream (or any other company) could theoretically go back on its word at any time, because a Defensive Patent License is just a good-faith gesture and isn't actually legally binding or enforceable. Blockstream's defensive patent strategy and similar strategies such as patent pooling and creative commons licenses are a good start, says Kinsella, but a better approach would be what he calls patent defense leagues:
Let’s say companies A, B, and C are all part of this patent league…. Let’s say Apple sues [company A] for patent infringement; one of my defenses could be, "Hey, Apple’s infringing one of my patents." But I might only have three patents and Apple’s not infringing any of them. But let’s say I’m part of a community of 100 companies and I can look through all of their patents, maybe they have 10,000 patents together, and I find company C has a patent that Apple infringes…. So I go to C and say, "Hey, we’re both members of this club, you have an obligation to assign me your patent under reasonable terms temporarily so I can countersue Apple with it." Now the members of this club…have potential other weapons they can acquire and use defensively against Apple. If Apple knows they’re part of this patent defense league…now Apple’s lawyers have to look at all those patents because they know if they’re infringing any of the patents…company A could possibly get it and use it against Apple.
At some point, Kinsella theorizes, these defense leagues would become so popular that even the big companies like Apple - or IBM, which generates hundreds of millions of dollars in revenue off of patent infringement lawsuits for technologies it doesn't even use - would have to join these leagues as well. What then?
At the point where IBM wants to join, then everyone’s in it, and then what’s the point of the patent system? It would be a world of mutually assured destruction. So you’d have companies acquiring patents, paying fees, no one’s using them; lawsuits would go down, innovation would go up. Then someone would wake up and say, "Wait a minute, why is the economy spending $300 million a year on patent lawyer fees to acquire these patents that no one ever uses?"
Kinsella himself notes a potential weakness in this strategy, which is that the government could view these leagues as monopolies and use anti-trust laws to break them up:
The government grants patents that allow people to acquire monopoly power, but then if you ‘abuse’ this monopoly power, you’re violating anti-trust law…. I could see the government complaining that the entire purpose of the patent system is being eroded by the successful growth of the patent league I’m envisioning, which of course is the point of it: to kill the patent system, which is evil and horrible.
I encourage readers to listen to the whole podcast, which is illuminating. For example, I learned the difference between copyright and patents. (Hint: copyright isn't a verb.) He also digs on the EFF: "They do not want to abolish patents." Seriously, go listen to it.
When Juicero – a $400 juicer backed by $120 million in venture capital (VC) funding – was outed last month for doing little more than squeeze expensive juice packs about as well as you can with your hands, the internet had fun poking fun at it for a few days. Ben Tarnoff, however, wasn’t laughing for long. What he saw was much more menacing, with significantly higher stakes. The headline he wrote under says it all: America has become so anti-innovation – it's economic suicide.
Unfortunately, Tarnoff’s article is about as misguided as the story of Juicero he begins with.
His line of thinking goes like this (being as unbiased as possible here):
Other than Juicero and some sweeping statements about the technology, energy, and pharmaceutical industries benefitting from government research, Tarnoff offers little evidence to back up these claims. He instead defers to Mariana Mazzucato’s The Entrepreneurial State, the theme of which appears to have shaped the entirety of Tarnoff’s theory. To critique Tarnoff, then, is to critique Mazzucato. And many have.
In his article The “Entrepreneurial” State is Anything But, Tyler Kubik explains that Mazzucato falls for both the broken-window fallacy and the unbroken leg fallacy. The broken-window fallacy, as Kubik quotes Henry Hazlitt,
is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.
Kubik then explains how Mazzucato falls for the fallacy:
The special groups referred to above by Hazlitt are those industries Mazzucato focuses her case studies on, most notably green energy and the solar and wind power industries. It is easy, but meaningless, to discuss the effects of policy in a positive light when one’s sole focus is on the industry being subsidized, in the case of green energy to the tune of billions of dollars each year. The unseen of these policy prescriptions, however, is what would have happened had these resources not been consumed by the inefficient green energy industry. No one can say where the funds would have ended up or how they would have been spent, but it is certainly true that by subsidizing green energy, it meant that the money was not available for other industries to grow and innovate; nor was it left in the pockets of taxpayers to decide where they wanted their money to go for themselves.
To explain the unbroken leg fallacy and its effects, Kubik defers to Robert Higgs:
This is the presumption, which underlies all sorts of state intervention, both macroeconomic and microeconomic, in the market system, that the participants in markets are perfectly capable of acting more productively but, owing to various “market failures,” are not doing so on their own and require state action to repair the situation. The fallacy is that this reasoning completely ignores the countless ways in which the state’s own intrusions and engagements in the economic system in effect “break the legs” of private-sector actors by distorting prices (including interest rates), penalizing productive actions, and subsidizing destructive actions. Having invaded the economic order like the proverbial bull in a China shop, the state’s kingpins … blame “market failures” for the wreckage they themselves have created — an ever-changing hodgepodge of bad incentives.
Peter G. Klein, in his article Government Spending on "Innovation": The True Cost Is Higher Than You Think, continues the critique of Mazzucato and others who believe research is a “public good” that only government can provide:
First, it confuses technological innovation (impressive to engineers) and economic innovation (valuable to consumers). Second, it confuses gross and net benefit — of course, when government does X, we get more X, but is that more valuable than the Y we could otherwise have had? (Frédéric Bastiat, call your office.) Third, it confuses treatment and selection effects of government spending — government typically funds scientific projects that would have been undertaken anyway, such that a main benefit of government spending on science and technology is to increase the wages of science and technology workers. Fourth, as writers like Terence Kealey have pointed out, if you look carefully at the details of the sorts of programs lauded by the [New York] Times, you find they were grossly inefficient, ineffective, and potentially harmful.
Klein’s first point is particularly significant in light of Tarnoff’s assertion that the U.S. is committing economic suicide. Tarnoff assumes that government innovation directly leads to economic growth, when in fact there are myriad examples of such research simply being a waste of money with no positive economic impact. Like the $2.6 million the government spent to train Chinese prostitutes to drink responsibly. Or the more than $100 million they spent building an airport (with no airplanes) and harbor (with no roads) in an Alaskan town with almost no people. Or the $856,000 they spent to teach mountain lions how to walk on treadmills to better understand their instincts. I could go on, and on, and on.
My point being, these examples show that, without market forces, the government has no indicator as to what’s worth allocating resources to and what’s not. Tarnoff understands that the government is insulated from market forces, but fails to see (or ignores) where that logically ends: the government funding hundreds, if not thousands or tens of thousands, of their own Juiceros.
Unlike Juicero, however – which had no negative economic impact on me, as I did not invest in the company or purchase the product – failed government research is paid by me (and you) through taxes and monetary expansion, the latter of which causes prices to go up and the purchasing power of the dollars in my pocket to go down. Even when a project is successful – yes, that happens sometimes – if I don’t agree with or benefit economically from said project, I’m still on the hook. I can’t pick and choose whether my money goes to green energy or the bombs that kill innocent civilians in nations the U.S. government has chosen to overthrow.
Shifting focus from the public sector to the private, the idea that entrepreneurs and corporations are somehow worse at innovating, or don’t invest enough in R&D, is also called into question by many examples to the contrary. Like SpaceX, the aerospace company founded by Elon Musk with the goal of one day colonizing Mars, which recently accepted a $1 billion investment from Google and Fidelity. Or Apple, which just announced a $1 billion U.S. manufacturing fund. Or all of the investment and innovation happening around artificial intelligence (AI), machine learning, and self-driving cars. One of the most successful VC startup incubators, Y Combinator, launched an entire research division focused on innovation, with their first venture being OpenAI. And don’t forget Bitcoin and the underlying blockchain technology that has the potential to decentralize everything from web apps to logistics. Finally, when the rich aren’t spending their money on “sports cars and superyachts” as Tarnoff puts it, they sometimes donate their wealth to innovation benefitting the common good. Like the Bill & Melinda Gates Foundation’s endowment of $44.3 billion, or the Chan Zuckerberg Initiative, to which its namesakes have pledged 99% of their Facebook shares (valued at $45 billion). As before, I could go on.
So if Juicero isn’t yet another example that capitalism has failed – that government and the public sector innovates better than entrepreneurs in the private sector – what is the explanation? I’ve actually already touched on it: monetary expansion. When the government floods the economy with cheap money printed out of thin air, it distorts market indicators, making many unprofitable projects appear profitable. Perhaps the investors in Juicero had so much cheap money at their disposal that it lowered the bar of what they considered a good investment.
In the end, Tarnoff is correct about economic suicide occurring, but points the finger in the wrong direction. It’s not entrepreneurs in the private sector, the free market, or capitalism causing this – it’s the economic policies of the U.S. government. And his prescription is even worse, handing more control over the economy to the killer. As Ludwig von Mises so eloquently put it in The Economic Consequences of Cheap Money:
All this amazing wealth is fragile, a castle built on the sands of illusion. It cannot last. There is no means to substitute banknotes and deposits for nonexisting capital goods. Lord Keynes, in a poetical mood, asserted that credit expansion has performed "the miracle … of turning a stone into bread.” But this miracle, on closer examination, appears no less questionable than the tricks of Indian fakirs.