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.

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.

The Genesis of the Career Entrepreneur

I have begun in earnest to read through Annalee Saxenian’s “Regional Advantage,” charting the computer industry’s genesis in both Silicon Valley and along Boston’s Route 128. As she explains, the culture of work and the resulting firm structures in Silicon Valley differed significantly from those in Boston, giving it critical advantages to become the preeminent region of technology development.

Even in the early days of the 1950s and 1960s, the West Coast had a far more open and decentralized network of employees, which contributed to intense knowledge sharing. Employees moved between competitors and would even help arch rivals solve problems. By way of contrast, Boston’s regional structure was based on hierarchical and independent firms. Knowledge in this region was located vertically within the company, which severely limited its ability to spillover and create new opportunities.

According to one executive:

“Here in Silicon Valley there’s a far greater loyalty to one’s craft than to one’s company. A company is just a vehicle which allows you to work. If you’re a circuit designer it’s more important for you to do excellent work.” [emphasis added]

From the beginning, the culture of work in the Valley was ad hoc and fluid. Engineers, programmers and other technical manufacturers became their own career entrepreneurs. Silicon Valley thus presaged by decades the labor market that we increasingly find ourselves in that has become a cause of concern. As a side comment, Saxenian mentions that many Silicon Valley workers far more rooted in the region than others. While the company man of the 1950s might move among the various arms of the firm to gain experience, which could be in different states, in the Valley, you would just move down the street. To me, that speaks volumes to the importance of regional knowledge hubs.

Value As a Result of Pricing Mobile Data Use

I was reading over the comments my former colleagues at the International Center for Law and Economics and TechFreedom filed on Title II reclassification to find these two paragraphs of pure Alchian bliss:

With most current pricing models, consumers have little incentive or ability (beyond the binary choice between consuming or not consuming) to prioritize their use of data based on their preferences. In other words, the marginal cost to consumers of consuming high-value, low-bit data (like VoIP, for example) is the same as the cost of consuming low-value, highbit data (like backup services, for example), assuming neither use exceeds the user’s allotted throughput. And in both cases, with all-you-can-eat pricing, consumers face a marginal cost of $0 (at least until they reach a cap).

The result is that consumers will tend to over-consume lower-value data and under-consume higher-value data, and, correspondingly, content developers will over-invest in the former and under-invest in the latter. The ultimate result—the predictable consequence of mandated neutrality rules—is a net reduction in the overall value of content both available and consumed, and network under-investment.

Information wants to be expensive as well as free

Famously, Stewart Brand noted that “information wants to be free.” But, that statement leaves off the other half of the phrase, thus burying the complexity of his thinking. In an email, he explained,

In fall 1984, at the first Hackers’ Conference, I said in one discussion session: “On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other.”

He continues in his book, “The MIT Media Lab”:

Information wants to be free because it has become so cheap to distribute, copy, and recombine—too cheap to meter. It wants to be expensive because it can be immeasurably valuable to the recipient. That tension will not go away. It leads to endless wrenching debate about price, copyright, ‘intellectual property’, the moral rightness of casual distribution, because each round of new devices makes the tension worse, not better.


Notes & Quotes from Eli Pariser’s “The Filter Bubble: What the Internet Is Hiding from You”

“To my preteen self, it seemed clear that the Internet was going to democratize the world, connecting us with better information and the power to act on it. The California futurists and techno-optimists in those pages spoke with a clear-eyed certainty; an inevitable, irresistible revolution was just around the corner, one that would flatten society, unseat the elites, and usher in a kind of freewheeling global utopia.” pg 3

The Filter Bubble introduces three dynamics we’ve never dealt with before: first, you are alone in it, as it is you own personal bubble. Second, it is invisible in its actions. Finally, you don’t choose to enter into the bubble. pp 9-10

“As the cost of communication over large distances and to large groups of people has plummeted, we’re increasingly unable to attend to it all,” leading to what blogger and media analyst Steve Rubel calls the attention crash. p 11

The world of personalization is appealing as a “return to a Ptolemaic universe in which the sun and everything else revolves around us.” p 12

“In the filter bubble, there’s less room for the chance encounters that bring insight and learning” p 15 My reaction: What does Kirzner have to say about this?

“To be the author of your life, professor Yochai Benkler argues, you have to be aware of a diverse array of options and lifestyles. When you enter a filter bubble, you’re letting companies that construct it choose which options you’re aware of. You may think that you’re the captain of your own destiny, but personalization can lead you down a road to a kind of informational determinism in which what you’ve clicked on in the past determines what you see next—a Web history you’re doomed to repeat.” p 16

Robert Putnam defined two kinds of social capital: in-group oriented bonding capital represents those events when you meet an old friend, while bridging capital occurs when lots of people from different backgrounds come together to meet each other, like in a townhall. p 17 Continue reading

Saying “If You’re Not Paying, You Are The Product” Is Wrong

This week I heard the phrase that haunts tech policy. You know it. If you’re not paying for the product, you are the product. 

Concise? Yes. But wrong.

The product is actually an ad, positioned on the site and tailored for you. Countless weeklies across the US run under a free model and have done so for decades. The New York Times has defrayed the expense of printing by ad supplement since its beginning. And the first newspapers, which popped up in the trading ports of Venice and Amsterdam, helped merchants sell excess to offset expensive parchment.

But it makes sense why the pithy phrase has staying power.

Mull it over again.

If you’re not paying for the product, then you are the product.

Naturally, we wonder next, wait, am I being violated? It is a tradeoff dripping with ethical accusations. Steven Pinker gives us one way to understand it in “Better Angels of Our Nature,” when he reviews the work of political psychologist Phillip Tetlock:

Tetlock distinguishes three kinds of tradeoffs. Routine tradeoffs are those that fall within a single relational model, such as choosing to be with one friend rather than another, or to purchase one car rather than another. Taboo tradeoffs pit a sacred value in one model against a secular value in another, such as selling out a friend, a loved one, an organ, or oneself for barter or cash. Tragic tradeoffs pit sacred values against each other, as in deciding which of two needy transplant patients should receive an organ, or the ultimate tragic tradeoff, Sophie’s choice between the lives of her two children.

Are we selling a kidney? No, we are giving a small part of our attention for an ad that won’t be remembered 60 percent of the time. Advertising ethically can be done, as Derek Powazek, who helped to build Technorati, points out:

There are ways to do [ad supported media] while still maintaining respect for the consumers. We’ve been doing it for years.

Saying that you are the product if you aren’t paying for it, disintegrates under just a minimum of scrutiny. It’s time to get rid of that phrase.

Information, Episteme and Techne Part 1

I was recently reading about information and stumbled upon an OED entry on the subject. As Michael Proffitt, managing editor, OED said, “Compounds arising in that period [the 1800s] reflect information as a commodity with supply and demand: information-giving (dating from 1829), information-seeking (1869), information gathering (1893).”

Proffitt is mistaken about about the commodity metaphor, and it is a similar one made in Marxist and Marxian thought. Once you make a concept a commodity, you have stripped it of value. Corn is a commodity because the value of one piece of corn is essentially the same as another. Employing Marx’s concept is tricky because he was trying to solve the problem of value in the marketplace. His resultant version of commodity was a very specific labor based answer to this problem. For this purpose, it was well adapted, but it was still wrong because the concept of value that he inherited from Adam Smith was wrong. Value, as was later understood, was simply the opportunity that one was willing to substitute for the given good. For Marx, though, value was a product of labor. It is not an incorrect step to then organize the state around the value of labor, i.e. a communist world. But similarly, once the issue of labor and value was solved, his critique falls out.

We now understand that there is undifferentiated labor, which has similar properties to a commodity, but they are still not the same thing. Similarly, information is not a commodity because it can be differentiated. Some information is more valuable.

The more important point is that information became an object in the early 1800s. By becoming an object, information became real. One of the key insights of cognitive linguistics is in the idea of a conceptual metaphor. To understand an idea we map it onto another. For example, to understand quantity we think of it in terms of directionality (e.g. “prices are rising”). As Lakoff and Johnson have shown, the regularity with which different languages employ the same metaphors, which often appear to be perceptually based, has led to the hypothesis that the mapping between conceptual domains corresponds to neural mappings in the brain. What we can surmise from this insight is that once a thing has metaphorical qualities, it becomes real semantically. The act of giving information qualities of gathering and seeking makes it real in the metaphorical sense.