Russia As An Activist State

The evidence is building:

According to a new-ish report, Vladmir Putin doesn’t so much oversee a totalitarian state as a “mobilization state” – private, individual actors are mobilized for state purposes, without being directly controlled by the state. “The government is willing – within certain bounds – to accept the presence of civil society, a free press, independent economic activity, and even some political pluralism. However, in keeping with its general philosophical belief that it is at (political) war and faces an existential cultural and political threat from the West, it reserves to itself the right to co-opt any individual or organisation when it feels the need.” This is the new face of authoritarianism.

ILECs, the Other Fiber Provider

This map comes via Doug Dawson, who details the ILEC fiber network:

There is one other set of big fiber networks that don’t get as much national attention. These are fiber transport networks built largely by consortiums of independent telephone companies. Most of these networks were constructed as a way for the telcos to gain cheap fiber transport to the world outside of their operating territories. Many of these smaller telcos were held hostage to incredibly expensive special access transport from the RBOCs which made it difficult for them to buy affordable Internet access. Since these networks were originally built a lot of them now have expanded throughout their operating regions and are now connected to cell towers, large businesses, governments, universities and other customers needing fiber transport.

Most of these ILEC-owned networks have joined together to form INDATEL. Here is a map showing the wide-spread footprint of INDATEL-member networks. Through this consortium many of these networks are now interconnected, providing a nearly nationwide fiber footprint. The various members have POPs in all of the biggest cities in their region but then also go to all of the smaller communities that have largely been ignored by most of the other fiber providers, with perhaps the exception of Level 3.

I have no idea if either Verizon or AT&T has considered buying these networks. For a company like Verizon these fiber routes would provide transport into many areas where they don’t have fiber today. The owners of these networks might want to explore the possibility of selling their networks. Now that the networks are in place the ILECs that built these networks are no longer isolated from the rest of the world. A sale would let them capitalize on their investment in fiber at a time when fiber networks have an all-time high valuation.

Of course, the downside to all of this is that if Verizon, AT&T and a few others like CenturyLink gobble up the few remaining independent fiber networks they will have a virtual monopoly on fiber transport. During the XO and Level 3 purchases there were a lot comments filed with regulators expressing concern about the negative impact on competition from fiber consolidation. I’d hate to see us go back to the bad old days where the only option for transport was a handful of the big telcos.

How Much Is Music Worth?

Pitchfork has a great article on the consumer prices of music over the last century. Some interesting bits:

Setting aside the particular format, then, albums gross less than half as much, on average, as they once did, and singles bring in roughly one-fifth of their past glories. For comparison, remember that overall revenues in constant dollars are roughly one-third what they were at the U.S. industry’s millennial peak. Units have shifted, all right: into insignificance…

One more quick point about the data: Adjusting revenues for inflation can also shed light on individual formats, such as the growing vinyl niche. Vinyl albums (including EPs), at $23.86 per unit in 2014, certainly are expensive compared with CDs, which averaged $12.87, or download albums, which averaged $9.79, especially considering the alternative of free, on-demand streams. That’s up from only an inflation-adjusted $15.45 per vinyl album in 1999, compared with $19.23 for CDs. Still, vinyl is actually cheaper than it was in 1977, its biggest year-ever by units shipped and by inflation-adjusted revenue, when the average unit cost $24.81 accounting for inflation. In 2015, even when recorded music’s expensive, it’s cheap.

A Collection of Legal Advisories on the New Net Neutrality Rules

The new network neutrality rules have been out for almost a month now. Here is a short collection of legal opinions:

Breaking into the Regulation Market

In response to the new Tyler Cowen and Alex Alex Tabarrok piece on information asymmetry, Arnold Kling wonders if:

It becomes harder for new entrants to break into a market governed by reputation than one governed by regulation. Obtaining a license from a regulatory agency might be easier than obtaining visibility in a rating system.

My response:

Wouldn’t it be easier to break into the reputation based system? Assuming all sellers must attract buyers, a seller must build reputation regardless, which is usually done through word of mouth. However, immediately a buyer faces an information asymmetry problem. Review systems announce the reputation of a buyer reducing this information problem and the cost to obtain reputation. Still, in a license system, the seller must incur an additional fixed cost. In total, license system faces the cost of regulation and the cost of information.

Demand Led Growth in Social Media

One part of this intriguing interview with the creator of the Medieval Reactions Twitter account really caught my eye:

I saw a couple and I googled medieval pictures and there were already pictures flying around on the internet, but the real hard part was writing the captions. That took about a week because there were no captions there, and that changed in a short while as I was running the account. I noticed that the most engagement came from tweets dedicated to nights out, so I changed my angle halfway through and made them related to drinking. And then it sort of took off.

Demand led content growth is a scary new world for content creators, one that really makes the old guard feel uneasy.

Why It’s Important That The Internet Created Technopopulism

After finishing ITIF’s new report on technopopulism, I couldn’t help but think, isn’t this missing a couple of pages, about, you know, the Internet?

While there is much to like about the report, the missing piece, the missing message, as McLuhan famously quipped, is the medium.

Here is the basic gist of the report. In the old days, tech policy was decided by educated wonks who knew the finer points of policy and could  make reasoned arguments. Better outcomes and more nuanced policy proliferated. In the last few years, the debate has been morphed by good ol’ American populism. The new image of technology policy is one of individuals protesting in favor of network neutrality outside Chairman Wheeler’s house. To Rob Atkinson and his co-authors, the new discourse is long on cliches and short on analysis, much to the detriment of consumers.

Yes. I agree to a certain extent, but there’s more to the story.

It is nearly trite to say that the Internet has dramatically changed and continues to change how an individual relates to others and knowledge. Yet hardly a word is mentioned about this important change in this report.

The gatekeeper function of the media has been democratized with the Internet, creating new, expansive spaces to discuss any number of topics. And if there is one thing to unite people on the Internet interested in policy, it would naturally be Internet policy.

While Rob et al might lament the old days where there was balanced and thoughtful discussion, it was only possible because the high barriers to entry limited the number of people that could have possibly been involved in the conversation. Enforcing norms without formal institutional structures could be achieved when the absolute numbers were smaller due to the these constraints. Moreover, to be part of that group required a job that was dedicated to its study, such as an economist, a lawyer, or an analyst at the think tank. Of course, to get that kind of job required formal education that signaled interest and continued dedication to the topic area, which also helped to enforce a set of norms.

Once the conversation expanded via the Internet, the norms and the institutional requirements dramatically changed, leading to the world that the authors detail. Of course, there is still a core of educated discussants, but that has been supplemented by broader ethical and policy conversations over Twitter, discussion boards, Reddit, comment sections and countless other places. But let’s remember, this doesn’t mean the concerns are being translated onto the political stage. Even network neutrality, with its millions of FCC comments, is still largely unknown. Indeed, even after the President’s speech on the topic last November, 54 percent of those polled, including majorities of Republicans and Democrats, said they haven’t heard of the concept.

Indeed, what the report cites as instances of technopopulism is just a small fraction of the entire conversation. What is included are the issues that have, for one reason or another, garnered attention. For the most part, other important issues face far less outsider scrutiny. Take for example, the House Energy & Commerce efforts to update the Communications Act. Arguably, this new Act would be far more important than network neutrality, since it would determine how tech is governed. And yet, even the most commented upon subject, video law, only received 220 responses. Apart from network neutrality, FCC dockets are fairly technical and aren’t often commented upon.

All things considered, I still think we are toiling in relative obscurity. For now.

Whence Shall Innovation Come? A Rejoinder to Jacobin’s Red Innovation

This month’s Jacobin Magazine tackles the subject of technology, and in it, one article titled “Red Innovation” was an interesting read, but it displays the countless pitfalls of thinkers who are not trained in economics but proffer on capitalism. Here is one section:

It’s no surprise that Apple’s tremendously successful line of products — iPads, iPhones, and iPods — incorporate twelve key innovations. All twelve (central processing units, dynamic random-access memory, hard-drive disks, liquid-crystal displays, batteries, digital single processing, the Internet, the HTTP and HTML languages, cellular networks, GPS system, and voice-user AI programs) were developed by publicly funded research and development projects.

It hasn’t been the dynamics of the market so much as active state intervention that has fueled technological change.

And yet, if Apple had not developed those products for the masses then they would simply be nice ideas in the pages of some fraying journal. Production is one side of the market of which research is a part; markets also include consumption, interestingly enough. Between the two lies the transaction, including all of the costs of conducting the transaction. These, as the economist Kenneth Arrow laid out, are the costs of running the economic system. More than production, the panoply of transaction costs determine the structure of firms and the economic structure of a society.

As I see it, this is the world that the author envisions:

Da Vinci’s flying machines were both technically dazzling and fueled by state intervention via the Medici family. But it took a couple of bicycle manufacturers, who had experience in materials and engineering to actually create the first flying machine. And the Wright Brothers too were not the most successful at commercializing the technology. For all of the distrust of commercial society by this strain of the left, at core, commercialization is the democratization of production.

As I explained before, Alfred North Whitehead was probably right about the state of science in Europe in 1500: the total accumulated knowledge was less than Archimedes knew in 212 BC. But as far as applied technology is concerned, the same could not be said. By 1500, Europe had advanced further than known before through small scale commercial means. Although they might not have been more enlightened, they were incomparably better at producing and consuming the goods and services that determine material living standards.

In part, a rise in the productivity of human capital in that time period resulted in new, more efficient modes of production. It is wonder that the author, for all of his mentions of capital, doesn’t have a firm grasp on the important idea of human capital as evidenced by this statement:

At the same time, enterprises in poorer regions, lacking access to high-level R&D, find themselves trapped in a vicious cycle. Their present inability to make significant innovations that would enable them to compete successfully in world markets undercuts their future prospects. Only a handful of countries — such as South Korea and Taiwan — have ever been able to move forward from this starting disadvantage.

What is ever more startling is that the author fails to recognize that North Korea was far more advanced than the South before the war. And, of course, that handful of countries is only a handful if you don’t consider most of Africa or Asia. Nor does it explain why Russia is doing so poorly in spite of all of the state sponsored research in the past. But going down that very sordid literature wouldn’t work especially well with his political outlook. So, I won’t.  

The Political Principal-Agent Problem

This headline came across my Twitter feed today: “As Fairfax grows more diverse, candidates for office mostly don’t.” Immediately I thought of the principal-agent problem. Here is one bit:

“I do think the Republican Party is not doing minority engagement to the fullest extent possible if it’s not eventually nominating candidates that don’t look like me, a white male,” Whitbeck said. “We really need to have an open enough party where we’re nominating people from all communities.”

This actually leads to some interesting questions. Does the inclusion of legislative agents that are more ethnically representative of principals ensure more representative outcomes? In other words, does the Republican Party need to incorporate more diversity in their legislative pool to ensure a broadening of the issues? Or do they need to merely need to seek out and recognize diverse groups when they seek election? There is actually very little data on this topic, but one paper seems to support the general relationship:

Using school district-level data, the paper finds statistically robust evidence that the political representation of minority groups is associated with a more equitable allocation of state aid to school districts. In states in which African Americans gained fairer representation, high minority enrollment school districts saw a greater increase in their state funding as compared to minority districts in states where minorities remained underrepresented. The results are robust to controls for the effect of mandated school-finance reforms, as well as other political and demographic factors. Thus, racial composition of legislatures does matter, not just in a symbolic sense, but also for policy outcomes that reflect diverse interests of society.


Meritocracy in Blogging

Stories like this really push back against the filter bubble thesis:

It was 2:45 a.m. on a Thursday last April. Matthew Rognlie was still awake, like a lot of graduate students. He had just finished typing 459 words and a few equations. They totaled six paragraphs, which he posted to the comments section of a popular economics blog.

Thus begins the unlikely story of, arguably, the most-influential critique of the most influential economics book of this century.