Internet and Regulation (how boring)

The internet is successful precisely because it is a capitalist venture, it is a wise investment. From the internet we learn the greatest achievements of the free market. Just look at your internet; just visualize how often you've seen a sleek, dynamic, friendly...government website? Not very often if you're anything like me, you've been frustrated (to say the least) by a whole array of government services in your lifetime. Think about it, whether it's the DMV or road repair, you've surely seen the shortcomings of government services. Like the DMV, I go to government websites because I have to, not because I want to. The reason the internet is so great is because it’s not full of government websites. They’re hard to find, ask anyone who’s tried to find an actual government website. It’s easy to find a business on the internet, right? Want pizza? Go online and order the pizzas. Want to hear the latest music and download it without the hassle of a CD? Go to iTunes, ON THE INTERNET. When it comes to competition, the government can’t compete on the web. Anyone who’s used the internet knows.

We have the speed, the power and the capabilities to navigate the world like never before because of private money. The internet has been a boon to anyone who wants to make money. Whether that's a guy running a porn website (sorry, they are profitable), or a banker who is investing in an online trade company, there's a lot of money to be made on the internet. I argue that this is a result of a highly profitable business and a minimum amount of regulation. Think about it. Haven't you ever heard anyone complain that regulation can't keep up with the speed of the internet technology turnover? That's because, like most any other business pre-regulation, the internet is profitable. If they are profitable, people want a piece, and that means investment (wouldn’t you like to own a successful business?), investment in the growth and success of that industry. We saw it as early as the Industrial Revolution; there was exponential growth in England and later in America. We saw it in our steel and oil industries. It's usually a good idea that a technology is going to stagnate when you see increased regulation. I can't tell you if they are beginning to increase regulation and laws against internet activity, but I can tell that if they are, that internet technology drive will slow dramatically.

With growth always comes prosperity, people are happy. They are being compensated for their work and they are allowed to trade their own goods for things (material wealth). Why is that so bad? As with all industries, there will be more regulation on the internet. That can be assured. The encroachment on this growth in internet trade and commerce will surely slow down and discourage investment. This doesn't give an internet company the capital they need to expand. Once expansion slows, this discourages even more capital investment, and so on until a new equilibrium is met, at a far lower standard. This is why investments move overseas to more profitable ventures. Costs are not heavily regulated, and simply, investment and business are more profitable. See an Asian skyscraper lately? They're pretty tall and took a lot of work to build. You think those construction workers were working for free? Would you?

Like it or not, we are human; we are greedy. To deny this is a waste of time and energy. We have a chance to be able to trade with one another while not necessarily trusting each other. The internet gives us that perfect opportunity; I believe most companies have benefited from the internet. This tech growth has been for the most part a boon (sorry tech boom & bust). It has revealed a side of people most wouldn't have imagined twenty years ago (Porn growth, no pun intended). That side is revealed and it is profitable, sorry, vice sells. If we can get past ourselves and not encourage moral regulation and suffocate a business, one that employs real people, then we can actually see the real gifts of capitalism: Prosperity, Wealth, Freedom. All these things can be ours, let's just hope the internet can be the rare survivor of a regulation onslaught. I'm sure it's going to be ugly so enjoy it while it's good. It may not be so good tomorrow.

It may be bad, but it's the best we've got! I'm just happy I can write this and not expect thugs to break down my door and arrest me for crimes against the State. Phew!
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Unintended Consequences Summed up

I know this is passing something on second-hand, since I saw a piece of this article of the Freakonomics blog(best blog ever). But, I had to pass it on to whomever reads this blog in case you missed it. This is the best, and most simple explanation of governmental unintended consequences I've seen. If you can understand this, you can understand much of what happens in the interaction between the State and Society per se.

This is Alex Tabarrok (GO GMU PATRIOTS), writing on Marginal Revolution:

The law of unintended consequences is what happens when a simple system tries to regulate a complex system. The political system is simple, it operates with limited information (rational ignorance), short time horizons, low feedback, and poor and misaligned incentives. Society in contrast is a complex, evolving, high-feedback, incentive-driven system. When a simple system tries to regulate a complex system you often get unintended consequences.

Unintended consequences are not restricted to government regulation of society but can also happen when government tries to regulate other complex systems such as the ecosystem (e.g. fire prevention policy that reduces forest diversity and increases mass fires, dam building that destroys wet lands and makes floods more likely etc.) Unintended consequences can even happen in the attempted regulation of complex physical systems (here is a classic example involving turbulence).

The fact that unintended consequences of government regulation are usually (but not always or necessarily) negative is not an accident. A regulation requiring apartments to have air-conditioning, for example, pushes the rental contract against the landlord and in favor of the tenant but the landlord can easily push back by raising the rent and in so doing will create a situation where both the landlord and tenant are worse off.

More generally, when regulation pushes against incentives, incentives tend to push back creating unintended consequences. Not all regulation pushes against incentives, some regulations try to change incentives but incentives are complex and constraints change so even incentive-driven regulations can have unintended consequences.

Does the law of unintended consequences mean that the government should never try to regulate complex systems? No, of course not, but it does mean that regulators should be humble (no trying to remake man and society) and the hurdle for regulation should be high.

I couldn't have explained it better if I tried.
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Crack to Chasms

It seems for years the Democrats have been impotent in the face of the Republican movement. Since Bill Clinton left office in January 2001, it seems like the Democratic party has lost its identity, momentum and general reputation in the United States. Every time I would see a fight along party lines, for example immigration, the Democrats couldn't muster the alliances needed to pass legislation in this bargaining political body. I personally couldn't figure out the reason, but I think this primary season is magnifying the reason why the Democrats have been so impotent.

As Barack Obama and Hillary Clinton exchange barbs for votes, a terrible crack in the Democratic party is showing like it never has before. With Obama and Clinton nearly neck-and-neck in this primary race, a cleave in the party is exposed and may end up costing the Democratic Party a presidential election if they're not careful. With such a tight race, emotions are naturally high. If the Democrats continue this infighting, the crack will change into a chasm. If enough feelings are hurt by the time of nomination, the Democratic party will have a problem.

Let's say for example, Hillary Clinton wins a close Democratic party nomination, and the Obama followers lose bitterly, they may boycott the polls. It's happened before, it can happen again. If Obama or Clinton followers were to not vote in protest, which is possible, it would likely cost the Democratic Party the presidential election and cause much future strife. If you're hoping for a Democrat in 2008, you better hope that one candidate separates him or herself enough to be able to make peace with the other side. If the nomination continues to be a close race, the Democratic party will have some issues to resolve before they can unify and run for the Presidency.
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Identity Theft and the Legal System

I just read a fascinating article on identity theft http://www.guardian.co.uk/technology/2008/jan/15/data.security, that suggests that government protect its citizens' identity much like they protect nuclear waste. I personally believe that is a fine idea, but I also believe that it is an idea that may not be implemented realistically. The reason I say this is because if there is one thing you can depend on in life is that no one will care about you (or your identity information in this case) as much as you do. I have an idea that is a slight twist on this article's focus: treat identities as you would a copyright or a patent with the same legal protections. The article suggests that a government that stores identity information sit on it for between 100-150 years. What about giving people the legal rights to protect their identity much like they would protect an invention or a piece of literature? It's not too much of a stretch if you think about it.

To clarify, let me use an example. Awhile ago, Bank of America admitted that they had lost some data containing identity information on thousands of customers. If there had been any identity theft as a result, the victim would be powerless to do anything about it. Similar to malpractice suits, I think it would be viable to have the identity theft victim sue the responsible parties for negligence in keeping (and the subsequent losing of) the identity information. If our identities are legally protected as any patent or copyright, the responsibility for holding that information tight would fall on the information collector. If there are real and financial consequences of losing customers' information, perhaps there would be more impetus to protecting that information.

This responsibility goes beyond private businesses and corporations to public institutions' guarding identity information as well. Giving citizens the means to sue the government, as well as companies, for similar negligence gives the state the sorely needed incentive to guard personal information. I'm not normally for what's sometimes called "jackpot justice" through suing, but for identity theft I believe it is essential to make real consequences for those who do not normally have the incentive to protect someone's identity as fiercely as the private citizen. Only then, by shifting the incentive to the data collector can we assure higher security and punish harshly lax identity protection.
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Washington Post Unfair?

I've only worked in Washington DC for a little over six months, and already I've seen three labor disputes in the area. To be honest, there wasn't much difference between the three disputes. From Commerce Bank to Boston Properties to the Washington Post, all the complainants had the same gripe: their wages were "unfair." The one dispute that offered the most information was WashingtonPostUnfair.com. Of course I write the website because they claim that the "real story" is there (check it out for yourself).

The claim is that the Post production workers are being treated "unfairly" while executives pad their pockets at the workers' expense. Workers haven't gotten a pay raise in five years, and now the Post wants to control the workers' pension funds. Now, I would love to read something that will give me both sides of the story. Unfortunately, I was unable to find any. As with so many things in this world, there are several perspectives and viewpoints to one situation. I have a few questions, how long was the last collective bargaining contract good for? The answer to this may offer perspective on why they haven't gotten a pay raise in five years. If they haven't gotten a pay raise in five years, why are they complaining now? Why can't each worker negotiate a pay raise on their own? These banners that adorn the Metro stations leave more questions than answers, and the website gives only one side to the "real story."

These questions all lead to my main gripes with labor unions: Price Controls and Collective Bargaining. Both of which help a few at the expense of many. They are the main reasons why I believe their labor to be inefficient and the cause of so many people spending their days protesting, rathering than working. At this time I must apologize in advance because this blog may be slightly longer than others that I've written. The length is required though to expose why labor unions, guilds and other collective labor groups are so bad for any economy. They suffocate so much productivity to benefit so relatively few. Economic reasoning must be applied to understand these inefficiencies.

First, it must be remembered that labor economics is not that much different than any other economics. Labor itself is subject to the laws of supply and demand. Wages are no different than what we commonly see as price and the quantity supplied is simply the participation in the labor force. The same rules apply, as price falls demand increases and as demand increases, so too must supply. What labor unions are allowed to do, with the blessing (and therefore the enforcement) of the government, is to implement price controls on labor. These are done through collective bargaining agreements, where labor and management bargain for a set wage (other non-monetary benefits included) for a set amount of time. On the face of this, there are problems. First, as with any other commodity, a price freeze is inherently inefficient. This is because no one can tell the future, no matter how much they say they can. No one can foresee shocks in the economy that will expose the previous price freeze as either too high or too low. The free market in labor is not allowed to work and therefore there is inefficieny. At this point, you may say, so what if there's inefficiency? As long as you see the dirty faces of workers and hear their sad stories, you may be more inclined to allow inefficiency so that these workers can feed their families. What you may not see are the hundreds, if not thousands of potential workers who are never hired because the labor union has set the wage too high to hire others. This inefficiency means that these unemployed workers cannot work. What some may see as a boring graph represents those who do not work. Labor unions contribute more to poverty than anyone can imagine.

The second issue, collective bargaining, exposes even another inefficiency and goes back to WashingtonPostUnfair.com. As a member of a labor union, you relinquish the right to negotiate your own wages. Even those with absolutely no economic knowledge can see the problem with this. If you cannot be trusted to negotiate the best wages for yourself, then what makes the labor unions so qualified? Collective bargaining takes away an individual's right to accomodate their own preferences. When a collective bargaining agreement is met, can you really say that all individuals in the union are having their preferences realized? Since we are all individuals with individual preferences, by definition it is impossible. Only the individual can realize his or her own preference. That is why a "fair" wage is so subjective; what's fair to me may not be fair to you and vice versa. That is why it is literally impossible for the Washington Post to give its workers a "fair" wage without negotiating with each worker. A collective bargaining agreement will only be "fair" to the portion of the collective that believes it's fair. The term "fair" is so subjective and undefinable; perhaps that is why the term is used so often. Fairness, like beauty, is in the eye of the beholder.

I know I haven't even begun to discuss unions is full, but I hope this was at least a beginning. Always watch out for those who speak in vague terms, such as fair. Terms like this leave much to be desired, and are said to gain favor with an ignorant mass to the union's "plight." Just remember, get the information and find out what is really happening below the surface
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Get Ready for the Mud

After what can be called a rather vanilla Iowa caucus, at least on the Democrats' side, we now hear that the proverbial gloves are coming off. Most may chalk this up to politics as usual, but for those who know how the Iowa caucus worked, and how the New Hampshire primaries will differ can see why the mud-slinging should begin in earnest for the Democrats.

In the Democratic primaries in Iowa, a candidate must meet a "viability" threshold of 15% in order to be counted as a viable candidate. For those who do not meet this threshold, for example Dennis Kucinich, the voters for such a candidate may choose a second candidate. This is why we saw that Kucinich himself said that if he did not reach the viability threshold that he would endorse Barack Obama as a second choice. This is why even though Joseph Biden harshly criticized Hillary Clinton, the Clinton campaign still spoke positively of the Biden campaign. This viability threshold kept the mud out of Democratic candidate's hands, and ensured a fairly friendly campaign in Iowa for all the top candidates.

In the New Hampshire Primary, there is no such viability threshold, and no second chances for voters. What this means is that negative campaigns can begin on the Democratic side. On the Republicans' side in Iowa there is no viability threshold in their caucus, and that perhaps may be why Mitt Romney attacked Mike Huckabee so relentlessly. We should see this same behavior from here on out. Those who dislike negative campaigning and mud-slinging would be wise to filter their media for the next 11 months, because the presidency has not been this up for grabs in most people's lifetimes. It's going to be a hell of a fight, be it Democrat or Republican, the dirt is going to fly.
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A Public/Private Economy

In intro economics, many students (myself included) learned about Keynesian economics (named for John Maynard Keynes). That is, National Income (GDP) is made up three distinct contributaries: Consumption, Investment and Government spending. During times of feast, the government is to raise taxes and cut spending; during times of famine, the government is to spend its revenue, raised from taxes and increase spending to prop up the economy. In other words, it is up to the government, not the consumers or investors to pull an economy up out of a down cycle.

In order to see why this argument is not the best cure for a down cycle, we have to remember what government spending is. It is a sort of indirect consumption. That is, after a government taxes its constituents, it spends money on "public goods," which can be broadly defined from military and police to a more leftist version with employment programs, welfare and medicare for the elderly and poor. Government spending, for all its pomp and circumstance, is inefficient. Simply stated, the government is spending your money for you. For politicians and bureaucrats, it is more or less monopoly money. It is not earned, it is taken. Because it is not earned, it is not spent with the same frugality and wisdom as someone spending the money he or she earned according to the individual's preferences (private consumption). It is not government spending that props up an economy, it is private consumption. Cutting taxes and allowing consumers to spend their money is the best cure for a downcycle, not indirect consumption as some Keynesians may have you believe.

Nothing will top a free market when it comes to an economy. When people are allowed to exercise their consumption preferences, investors may follow the signals to invest in serving consumers (business investment). A private economy is the most efficient. When people are not allowed to follow their preferences and are forced to surrender a growing portion of their earnings to someone who will spend it less wisely, how does this rescue an economy? It is important to consider this when many politicians say that raising taxes and more spending are the only ways to fix our economy. The government's rightful place is protecting investment and consumption from fraud, not to participate actively in an economy. Such participation only ensures further inefficiency and a further drop in the economy.

I know this isn't the most thorough examination of this topic, but no one came here to read a book ;) If anyone would like a further examination, please let me know and we'll discuss some more.
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