A Voice in the Dark

Russ Nelson deals with the question of cutting poverty in half. Relevant bit:

For relative poverty, it is impossible to get rid of poverty. As long as one person works harder than another person, they will have more.

Just to be clear, “relative poverty” is also what we call “income inequality”.

Filed under: Economics
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Scott Adams asks what constitutes a “fair” tax rate for the rich. It’s a fair question, at least.

The question that always comes to mind is what a person is going to do with their tax money if they don’t spend it on taxes. Imagine that everyone pays a flat 20% tax, just for simplicity. On the one hand, you have Joe Rich, who makes ten million a year and pays two million in taxes. On the other, you have Bill Poor, who makes twenty thousand a year and pays four thousand in taxes.

Contemplate the impact of dropping the tax rate to 15%. Now Bill Poor pays $3,000 in taxes, and gets to put $1,000 in his pocket. Joe Rich pays $1.5 million, and puts $500,000 in his pocket.

What will these two people do with the added income?

Bill Poor will probably use his $1,000 to buy a television set or a motorcycle. Nobody cares.

Joe Rich will probably invest his $500,000 in a business venture of some sort. This will create new jobs and probably result in new products and services; even if it only provides existing products and services, the additional competition will be good for consumers.

The alternative to leaving that $500,000 with Joe Rich is to give it to the government, who is not exactly sporting the best track record for using money wisely. It could be argued, however, that their track record is better than Bill Poor’s - and, indeed, that by pooling Bill Poor’s money with other people’s money, it could do more good.

The “highest and best use” answer would be to take money from the poor and give it to the rich, but somehow I don’t think the American public would go for that.

Filed under: Business, Economics
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I woke up this morning at 2 AM to work on the stuff I’m doing for the EU protocol documentation effort. Around 7:30 I managed to get a big obstacle handled, so I could make real forward progress for the first time since the middle of last week.

And at 8 AM, I found out my employer - RDA Corporation - is terminating my employment.

It’s really one of those things that mystifies me. I came on board to do a specific job, and I was summarily pushed out of the project by a Microsoft FTE who didn’t like my methods. The projects since then had been a bad fit in oh, so many ways… fundamentally, I’m a shirt-and-tie go-to-the-office kind of person. RDA’s Redmond office is largely a virtual team environment, where your work day starts when you wake up and ends when you go to bed and in between you don’t really see anyone or collaborate in any real sense.

I don’t work well that way. I told them I don’t work well that way, from day one. And in my latest position, the state of the infrastructure was very, very immature… large swaths of support materials didn’t really exist, and “features” of the software I was using simply didn’t work. It looked like it would work, so I made estimates accordingly… and then I ended up past deadline because when it came down to the wire, the foundation was mud.

What surprises me is that this is precisely what I said at the beginning of the contract: that I was concerned about scope creep if the infrastructure wasn’t what we expected, and the language of the SOW was not specific enough for my taste.

They’re a great company. We didn’t fit well together, but honestly, I’d go back to them in a second given the right opportunity. It’s just that the right opportunity never quite materialised, and I guess they ran out of patience before I did.

I’m kind of lost now. Yesterday, on the way to work, my car just blew up. It’s unsalvageable. I spent four and a half hours on the side of the road with a dead cell phone. It really sucked. And things just keep getting worse.

Momentum being what it is, and since I’m a problem solver at heart, I’m going to finish up the stuff I was working on and send it to my PM anyway. I’ve spent four days trying to get over this hurdle, and I’ll be damned if I’m going to drop everything just because I don’t get paid for it. I’m not really in this field for the money, anyway.

Filed under: Business, Economics, Philosophy
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McDonald’s has done an interesting thing with the $1 value menu, in that they’ve completely hosed the value proposition of more = cheaper. Here are the three sizes of chicken nuggets on the regular menu.

Six chicken nuggets: $2.49, or 41.5 cents each.

Ten chicken nuggets: $3.89, or 38.9 cents each.

Twenty chicken nuggets: $6.29, or 31.45 cents each.

Turning to the value menu, we find four chicken nuggets for $1. That’s 25 cents each.

To maintain the pattern, it should be TWO chicken nuggets for $1. Trouble is, nobody will pay $1 for just two chicken nuggets. So what you end up with is luxury pricing: prices which inherently assume you will order what you want without regard to the price, while simultaneously ignoring discounted options.

The notion that McDonald’s practices luxury pricing is rather counterintuitive, isn’t it?

 

Filed under: Business, Economics
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Last week, I saw a LiveJournal post about a young lady’s problems getting her broken Zune fixed.

If you don’t want to read the whole massive thing, here’s the gist of it: Canadian has a brown Zune which breaks, and now cannot get a brown Zune. Microsoft support cannot help her because there is no Zune technical support in Canada just yet. She finds this simply insane, and insists she is going to go and buy a damn iPod.

Confidentiality prevents me from mentioning details, but here on the Redmond campus, we’ve been up in arms over this. We’re Microsoft. We can’t find a brown Zune and send it to Canada?

Well, officially, no. We can’t. (It’s an international commerce thing. Talk to a lawyer if you need details.) But some altruistic helpful soul could do that, if he wanted.

You guessed it; I was the first helpful soul to open my mouth and say “I’ll do it!” via comments on the blog post. Several other people have verified with me that I meant it and would follow through.

This afternoon, I verified that she understood the conditions: she mails me the broken brown Zune, I mail her a working brown Zune. The working one will be a different Zune (probably purchased off Ebay; they’re running about $135 over there), so none of her content will be on it. I’ll then get the broken one repaired (being on the Microsoft campus, there’s a solid chance I can get it fixed at no or low cost) - and end result, we both have a brown Zune and everyone is happy. 

If you’re outside the Puget Sound area, you don’t see this much, but Microsoft employees and contractors do this all the time. We see someone using a Microsoft product, and we’re proud of that. We see them having trouble, and we get personally involved in the problem. And if there’s one thing we like to do at Microsoft, it’s solve the damn problem no matter what it takes.

It seems odd, because you don’t get it anywhere else. But Microsoft is honestly full of people who honestly want to make things right for every user of a Microsoft product, and all you have to do is be having a problem at the moment one of us is looking in your direction. Microsoft won’t give me a dime toward making this happen, but I don’t care; I want it fixed, I want it made right, and I want the customer to walk away ecstatically happy about the experience.

And that’s why, if you try to compete with them, Microsoft pwns j00. You don’t have a small army of people fixing the problems you can’t fix at their own expense. We do. And I’m proud to be in the front ranks of that army, contractor or not.

Filed under: Business, Economics, Microsoft
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Late February: I’m at the AT&T Wireless store, where they offer an unlimited data plan for internet usage. I ask the very pretty young salesgirl why, if they can give me unlimited data, they can’t give me unlimited minutes. She says they’re different. I say no, they’re not; voice over IP works because fundamentally, voice is just data. There’s no reason why I couldn’t just buy an unlimited data plan and download a Skype client, which would allow me to use AT&T’s network to send and receive all the voice data I wanted. So why doesn’t AT&T Wireless offer me an unlimited voice AND data plan for the same price? She admits she doesn’t know.

March 3rd: I see the first commercial advertising Verizon’s unlimited calling plan. I look at my wife and say “now everyone else will do it, too”.

March 6th: T-Mobile advertises free nationwide long distance on your home phone. I say “they’re trying to compete with Verizon’s unlimited wireless, but it won’t work”.

March 10th: I see a Sprint commercial advertising unlimited calling. I say “T-Mobile will be next”.

March 11th: I see a T-Mobile commercial advertising unlimited calling.

March 12th: I see an AT&T Wireless commercial advertising unlimited calling.

I wonder if the salesgirl thinks I had something to do with this. Maybe if I went back to the store, I could get her number.

 

Filed under: Business, Economics
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Anthony de Jasay writes an interesting essay about the current teaching of economics. I do, however, take issue with his arguments.

When he covers the question of inequality, he calls the notion “undiluted bilge”. But the fact is, economic growth increases income inequality. The argument that capitalism causes inequity is, indeed, fact. What is not fact is the liberal assertion that income inequality is bad. Income equality - like trade - can be bad, but there are significant mitigating factors. What de Jasay fails to consider is that certain negative effects of income inequality are - in particular - bad for the government, and it is in the government’s best interest to mitigate them. While he correctly perceives that it is in no way society’s best interest that is served by government sanction, he fails to recognise that it is only incidentally in the liberal American’s best interest.

The liberal, after all, deifies the government. The government does not serve an economic purpose, nor does it serve an imperialist purpose; it serves to enforce the will of God on the people, or - in the liberal mind - to impress objective morality on the citizenry. Nothing could be further from the truth… government exists solely to maximize its own power and perpetuate its own existence. When the liberal willingly assists it, he drives toward the eventual removal of all individual liberty in favor of institutional liberty - which, to the citizenry at large, is no liberty at all.

The conservative (waves hand frantically and points to self) believes somewhat differently: that government is a necessary evil, but its will to power must be restrained by conscientious and self-sacrificing individuals.

Government officials are like zombie hunters; you send someone in to fight, and then you wait in a safe place until you see him wandering stiff-legged through the Capitol building moaning “subsidies, sanctions”. Then you have to shoot him in the head and put someone else into his office. It is inevitable that your representative will be corrupted; it is imperative that the corrupt are removed. You cannot win. All you can do is keep fighting until you run out of people who are willing to fight. Then you lose.

Filed under: Business, Economics, Philosophy, Politics
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Russ Nelson complains that Microsoft’s patent claims about the 235 patents that Linux allegedly infringes are just FUD.

Well, yes. That is how patents work. The value of a patent is in convincing people that what they are building may be interpreted by the court as infringing a patent. The benefit is that these people, if sufficiently convinced, will pay exorbitant amounts of money to the patent holder.

But in order to leverage this, patents - especially software patents - are made so deliberately indistinct that it takes many weeks of examination by experts to determine whether product A is likely to infringe on patent B. In the end, you still don’t know. The most critical parts of the equation are which product, which patent, which court, which lawyers, and which judge.

See, in the ninth circuit, Microsoft’s patent #178 may stand up in an infringement claim against some product - while in the fifth, it may only stand up when two of the seven judges are making the ruling, and even then one of them may only lend credence to an argument that only one specific Microsoft lawyer can productively make. So in the fifth circuit, Microsoft doesn’t want patent #178 tested against that product, because if they get the wrong judge or their lawyer gets sick on the wrong day, they lose. And once you win or lose a patent case, you’re pretty much done. Most judges won’t reverse a ruling without massive public outcry, which means Microsoft doesn’t get a second chance… but the open source world very well might.

There are no winners in patent cases. A patent has the greatest value when nobody is entirely sure how applicable it is. The practical reality is that FUD is the only way patents work at all. If I can make you worry about your product infringing my patent, you may pay me money - even if I know for a fact that no judge would ever take your product off the market. After all, if I want you to pay me $150,000 a year to sell your product, and the alternative is to spend ten times as much money hiring lawyers and fighting a court injunction against selling that product - win or lose - a product with a five to seven year life span is simply not worth that investment. Your business is better off just paying the licensing.

This doesn’t really work in the open source world, because the “business” has no revenue and sells no product and you can’t make people take it off the market. You can’t issue an injunction to put the genie back in the bottle. The legal system simply has no teeth against individuals on the internet. But if you have a massive business that makes millions of dollars distributing open source software… well, you’re a business, and you can be heavily damaged by a legal battle. So any patent holder can walk up to you and say what amounts to “Nice business you got here… be a shame if anything were to happen to it.”

The immediate response you should have is that this is a really shitty thing to do and nobody should be doing it. And you’re right. The problem is that as a patent holder, you have to do it, and as an innovator, you have to patent. If you don’t patent, someone will just file a patent of their own - $1,500 will do it - and come do that to you. And once you patent, if you don’t actively enforce your patent - “nice business you got here” - you can lose it. Once you’ve lost the patent, all the people who are paying you for licenses don’t have to pay you anymore. And when you do the math… $1,500 to get a patent or several million to fight one… the smart business decision is to get patents, because they’re effectively a license to print money. “Hey, I could ruin your business, or you could pay me 15% of your revenue.” What kind of decision is that? Who would choose to be ruined? So if you have a patent and thirty people each pay you $150,000 a year to license it, that’s $45 million a year. People are paying you $45 million annually to walk up to other people and say “nice business you got here”.

See, the problem isn’t Microsoft. It’s the patent system. We need to fix the patent system and put the FUD back where it belongs: on the patent holder. You need to fear the repercussions if your patent is retarded. It should cost you every dime you make from the licensing and more. All the problems Russ cites with the patent claims are not unique to Microsoft’s approach, they are inherent to any patent licensing pitch, because there is simply no downside. If Microsoft’s patent is overturned tomorrow, they don’t have to pay a single dime, and they don’t have to return any license fees they’ve already collected. There is honestly no liability involved in trying to collect more fees.

If they’re asking you to pay, you’re playing Russian roulette: Microsoft can at any time select an example to prove that they can prevail in this fight, and once they start that game, someone has to lose. Pay, and you’re guaranteed not to be the loser. You expose yourself to much more liability by refusing to pay than they do by asking you to pay. The deck is simply stacked against you.

It’s just how patents work. Blame Congress. Microsoft is just playing they game they have to play.

Filed under: Business, Economics, Intellectual Property, Microsoft, Open Source, Politics
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Russ Nelson doesn’t understand the purpose of game theory in economics. He says games have winners and losers.

This is not true. When you play “doctor” or “house”, everybody plays and everybody has fun. Most games do not represent free markets; they represent tightly controlled markets overseen by a rigid and implacable central body called “the rules”. Only in the earliest and most innocent of games do you find representations of free markets, and in those games, everyone who plays does indeed win.

More advanced games sometimes try to provide free market simulations, e.g. Dungeons & Dragons and its ilk, and one might even say Second Life or World of Warcraft qualified. But these are not really free. They pretend to be free, but instead institute the same sort of rigid heirarchy and implacable standards that allow people to practically lose where they cannot theoretically lose. You don’t really lose when your character dies in these games, because you can start over with a new character, but starting over is rarely fun once you’ve done it a few times. Even though in theory a loss is not really a loss, after enough deaths the player loses interest in playing the “start over” game again - and quits the game. Quitting is the ultimate loss.

Game theory investigates economic effects on the small scale. How do three or four people with known incentives and properties behave in a given situation? It’s where information asymmetry can be investigated and understood, giving one the proper tools to extend their understanding into the macro field and overall market theory. It is game theory that shows the budding economics student why this matters.

Filed under: Business, Economics, Gaming
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Russ Nelson again hits a subject on which we largely agree, but doesn’t illustrate it quite the same way I would.

Let me illustrate America being better off… my way.

Thirty years ago, there were stray animals all over the place, and on more than one occasion my friends and I were bitten or scratched or chased through the neighborhood. Garbage cans in the back alleys - where I and my neighbors played - were frequently filled to a depth of two or three inches with maggots. Clouds of mosquitoes were easily visible over low-lying areas of the street where water collected in potholes. On more than one occasion, milk purchased from a school cafeteria or a local diner was spoiled due to improper refrigeration. My aunt found a cockroach baked into a donut. My grandfather routinely set out rat traps, roach motels, ant traps, and flypaper. While feeding the dog, my mother nearly had heart failure when a giant water bug crawled out onto her hand as she reached into the bag of dry food.

And we were not particularly poor or disadvantaged. This was simply how life was in the 1970s. Our homes and businesses were naturally and normally infested with any number of pests and vermin, and both dogs and cats ran rampant in our streets.

That’s what strikes me. I literally don’t remember the last time I saw a rat, roach, water bug, maggot, or stray dog. Somewhere in the last thirty years, these went away. They became emblems of poverty and squalor, not natural and normal components of daily life.

I suspect this is rather the same way it must have appeared to outlying territories of the Roman empire… who certainly rankled under Roman rule, but still had to admit that the roads and the plumbing and the hygiene were quite nice, actually.

Like those territories, we look at the upper crust with their billions of dollars, and we complain about inequality. But fundamentally, we’re all much richer. Why should I really care that Bob is three thousand times richer when I’m only twelve times richer? Bob was always richer than I was. Can’t I just be happy to be twelve times richer? Why does the degree matter?

Filed under: Business, Economics, Philosophy
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