A harmony of values: political versus market solutions

People tend to become better at doing thing they are rewarded for doing. Entrepreneurs are good at turning money into products, politicians are good at getting votes, and bureaucrats are good at increasing their budgets and influence.

In markets systems, there is a tendency for explicit and actual motivations to match.  For example, Apple, BMW, or Wal-Mart want to make stuff I want because they are rewarded to the extent that they make stuff I want.

In politics, the trend is reversed.   Incentives in politics are often the opposite of political promises or goals.   For example, politicians and bureaucrats may honestly want to fix poverty, pollution, corruption, and terrorism, but they are more often rewarded for making all these things worse.   The worse the problem becomes in the voters mind, the larger the politician’s power and scope for action.  The more power a politician has, the greater his ability to rewards the pressure groups who fund his campaigns.

The more efficient a democracy, the more it tends to reward those who re-direct resources away from problem-solving activity and toward towards vote-generating activity. In an inefficient or indirect democracy, someone who is a good problem solver can win though the support of a minority that directly rewards success.  In a popular democracy, the ability to get votes will tend to triumph over the ability to achieve campaign promises.  By contrast, the more efficient a market is, the better it is at directing the production of goods towards what consumers actually desire – a harmony of consumer and producer values.

In the big picture, the intentions of politicians and voters are irrelevant – whether they are good or evil, the outcome depends only on what kind of behavior is incentivized. Studies show that most voters are altruistic, not selfish — and this is very destructive. Selfish voters tend to vote based on their own evidence and reward problem solving. Altruistic voters tend to vote based on campaign platforms, have no empirical basis to evaluate a candidate’s proposals, and no incentive to follow up on outcomes.

mass luxury and capitalism: Vertu vs. Apple

Vertu is a luxury phone maker. They sell jewel-encrusted phones for $10,000 to $100,000.

Vertu is a successful company, but in both style and substance, the iPhone is probably the best phone you can buy. The vast majority of people who can afford a Vertu still choose to purchase an iPhone, presumably because they believe it is a better product.

The reason why reveals a deep truth about how a capitalist economy works.

In order for the iPhone to exist, consumers must spend hundreds of billions on the smartphone ecosystem, which then pays for the research and development of devices, applications, and accessories. Therefore, the iPhone can only exist if it is priced at a level that hundreds of millions of people can afford.

Vertu probably has sales of about $100 million – compared to $220 billion for Apple. It not possible for them to produce a substantially better or even comparable product given such a difference in R&D budgets.

Furthermore, Vertu only exists because Apple and Samsung created a supplier ecosystem which rapidly democratizes technological innovation. A Vertu’s hardware is almost as good as the latest iPhone or Samsung phone because the hardware ecosystem that the market leaders create is available to all participants. The same applies to the low-end of the market: you can get a substantially similar experience on a Vertu as you would on an iPhone or a $150 basic China-produced smartphone with last year’s hardware.

In a capitalist economy, entrepreneurs compete to direct capital to the creation of products which satisfy as many human values as possible. Given sufficient time for capital accumulation and technological innovation, capitalists create products that try to satisfy all values that can be satisfied by material means, and create substitute products to satisfy non-material values as well – think explosive action movies and pornography.

The larger the potential consumer base of a product, the more resources can be invested in creating and improving it. Therefore, a capitalist consumer economy tends to create affordable, mass-produced goods which cannot be substantially improved by higher-prices alternatives. Andy Warhol observed the result of this in his 1975 book “The Philosophy of Andy Warhol”:

What’s great about this country is that America started the tradition where the richest consumers buy essentially the same things as the poorest. You can be watching TV and see Coca-Cola, and you know that the President drinks Coke, Liz Taylor drinks Coke, and just think, you can drink Coke, too. A Coke is a Coke and no amount of money can get you a better Coke than the one the bum on the corner is drinking. All the Cokes are the same and all the Cokes are good. Liz Taylor knows it, the President knows it, the bum knows it, and you know it.

The myth of “talent”

The common concept of “talent” may be one of the most destructive fallacies ever invented by human beings. So many people give up on their dreams because early setbacks lead them to believe that they lack the “talent” to become great at something. In truth, expertise at anything comes by persistent self-improvement.

For example, here is how I became good at photography – you can apply this to anything:

1: Study the technical principles of photography
2: Look at lots of photos taken by the best in the field
3: Take tons of photos. Be your most honest, ruthless critic. Repeat.

This is not to say that genes, environment, circumstance, and hard work are not important, but that having the right process is far more important than commonly appreciated.

Against cynicism

In today’s postmodern age, it is popular to adopt a universal cynicism which questions every tale of heroism and finds fault in every profound belief and insight. Such people think they are the enlightened intellectual superiors of the gullible masses who are fooled by popular mythologies and overly simplistic explanations.

I myself advocate a rational skepticism, which asks “is this really true” of every claim and demands to see the evidence. My skepticism is fundamental in the sense of questioning basic assumptions of religion, politics, ethics, science, common sense, etc and also radical, in that I disagree with many of those assumptions, and thus hold views very different from the vast majority — ethical egoism, anarchism, transhumanism, paleolithic lifestyle, and other ideas there are not yet isms for.

Nevertheless, I am opposed to cynicism. There is no virtue in disagreement for the sake for disagreement, nor the rejection of heroism. It is a kind of cowardice — the fear to take a stand and defend an idea or a person. Yes, it is wrong, cowardly and self-deceptive to substitute one’s independent judgment for blind obedience to a leader or a book. But there is nothing wrong with the worship of heroism — as long as we recognize the heroic traits within people, instead of uncritical worship.

And this goes for ideas as well — modern civilization is made possible by a great intellectual revolution — a liberal and empirical worldview that is broadly shared by the modern world. As radical as my views are, they are very similar to the majority when compared to someone in a pre-industrial society. From a world-historical perspective, I am foremost a liberal, even though I am opposed to both left-liberalism and democracy. Many of my most cherished beliefs – on evolution, freedom of speech, the value of education, equality before the law, the appreciation of nature and other cultures, non-violence, etc, are thoroughly conventional, even though I disagree on the means of practicing them.

I would go further and say that it is impossible to achieve great things without heroes. To do the impossible we have to know that other people have done the same. We need to know that heroism exists not only in fiction and history books, but is a reality and possibility in our own world. People who believe that there is no such thing as truth or heroism — or that it belongs only in fiction or a lost classical age will never go on to achieve greatness themselves.

The world is of heroic individuals who do impossible things every day. We need only to look for and learn how to recognize heroism. Here is a simple exercise: name ten living heroes. If they don’t come to mind immediately, you need to either rethink your worldview or pay more attention.

Hard truths about “net neutrality”

This is a follow up to my case about “net neutrality.” 

There is a reason the net neutrality debate is has dragged on for many years. In reality, “neutrality” is not a coherent concept that applies to the Internet. There is no objective definition of what “neutrality” means or how it may be implemented.

The real Internet is not the simple political model of backbone providers, ISPs and consumers, but a complex balance of peering arguments, CDN’s, and “short-cut” interconnects. Non-neutrality is already an essential part of the modern Internet.

What the net neutrality lobby really wants is a competitive market. But there is no simple regulatory regime that can be applied to create a competitive market. Historically, political attempts at creating competition (antitrust and “public utility” regulations) have had the opposite effect – they are quickly captured by industry and used to create barriers to entry.

In order to make progress on this issue, we must admit a few things:

  • The current status of a few monopoly providers is indeed broken
  • Abuses of power by ISP’s are a legitimate problem
  • Much of the responsibility for this issue lies with local governments that created legal monopolies and exclusive contracts which created the current situation
  • The only legitimate solution will come from politically painful changes that will create a competitive market for Internet service

Consider that Internet technology has evolved very rapidly – Facebook and Google are only possible because of rapid and ongoing American ingenuity needed to manage the massive data flows our status posts and selfies create. The unregulated market for Internet technology stands in the stark contrast to the market for Internet service.

In my opinion, the ultimate blame for the “last mile” problem lies with city governments which are politically unable to provide a competitive framework for Internet service. Corporations like Comcast and Time Warner are the only entities that can thrive in this environment.

What is needed is a grassroots effort to force cities to open up their infrastructure – for example, by allowing businesses to build connectivity using existing public utility services and to establish a competitive market for wireless spectrum. Because this is a threat to both the current providers and the FCC, this is unlikely to happen. It is much easier for pressure groups and politicians to blame corporations and federal agencies than to take responsibility for their own city governments.

The idea of a “natural monopoly” for Internet service is a myth. There is nothing inevitably monopolistic about it that American entrepreneurial ingenuity cannot solve. For example, hundreds of ISPs could operate over our wireless spectrum given modern frequency hopping and software defined radio technology and a competitive spectrum market. And a single fiber optic line can be used by many providers if a suitable financial arrangement can be found. The problems we face are political, not technical.

Why no self-driving cars? Blame the politicians

  • The average commute in San Francisco is 32.2 minutes. The employed civilian population is 837,442.
  • There are 251 working days per year, so the average worker spends 16164.4 minutes/11.23 days commuting per year.
  • That is 13,536,747,464.8 minutes – 25,754 years for the Bay Area population per year.
  • Assuming a life expectancy of 80 years, 322 lives are wasted every year due to the commute time in SF.
  • Given an average San Fransisco per capita income of $46,777, the average hourly rate is $23, which means the commute costs San Franciscans alone $5,189,086,528 – five billion dollars.
  • If 100% of the working population adopted self-driving cars then AI convoys and anti-congestion algorithms could reduce the time by at least half, and turn the remaining commute into relaxing/working time.

Consider the lives saved and productivity gained if self-driving cars were adopted by the USA. This does not include the 30-40 thousand people killed and over 2 million injured in car accidents over 90% of which could be prevented by self-driving cars.

The technology for self-driving cars exists now. Google’s self-driving cars have driven millions of accident-free miles. All that’s missing is a few algorithms for snow and other conditions.

That is the potential upside. But you dear reader, know perfectly well that self-driving cars will be delayed by decades because the politicians will not let us. Our legal system is set up in a way that makes it impossible for car makers to innovate because of prohibitive liabilities and regulations intended to ensure our safety, and our nationalized road system blocks innovation in traffic safety.

This is a coordination problem – trillions of dollars and millions of people* will die because our political system prevents markets from satisfying consumer values. The true cost of the inadequacies of our present political system is beyond calculation.

* 3,551,332 people died in car accidents since 1899

The ownership experience & mass production

The way we value mass produced objects is weird.

For example, I love my MacBook. I value it as an essential daily tool, but I also value it for its beauty and other reasons which go beyond immediate practical value, in the same way that I suppose a woman might feel the same way about her diamond necklace.

My MacBook happens to have a small scratch. I would exchange it for an identical laptop without the scratch without no any sense of loss or regret. Furthermore, unless Apple screws up, I would happily exchange it for the next year’s model, even if it looks very different from my current one. If my MacBook were lost, I would go straight to an Apple store, purchase an identical model and restore it from backup. I would mourn the loss of my money, but not my computer, since I would have an essentially identical replacement. This is different from the way we value non-mass produced things. I would turn down an offer to replace my daughter for an equivalent child, even if that child had a 10 IQ point advantage. (I was going to offer a comparison to a possession rather than a person, but I realized that virtually every possession I own is mass-produced, so I don’t have the subjective experience of owning an heirloom. Even my family photos are fully digitized and infinitely reproducible.)

Information technology products have the additional property of only being valuable within a certain time period. After my computer becomes outdated, it will become essentially worthless, even in mint condition, without any loss of original functionality. This is very different from my watch, I would be perfectly happy to wear to my grave if it lasts that long.

So what is it precisely that we value in consumer products? You might say that we really value is the ownership experience. It’s an intangible property, which sounds like marketing-speak. But it helps to understand many strategies of successful companies.

Colonize the universe or starve

For 99.99% of the two million years that humans have been around, the entire species lived in harmonious balance with nature — that is, perpetually on the edge of starvation, acquiring the bare minimum of sustenance necessary to sustain the present population.

Every now and then, a change in the environment, a new disease, or perhaps a tribal conflict caused a mass die of some percentage of the population. This provided a rare opportunity for a surplus of food to become available, and the population quickly grew in prosperity and (presumably) happiness until the ecological balance was restored and the state of constant near-starvation returned.

But then — after a few hundred thousand years of building ever complex tools, homo sapiens sapiens was able to sustain a surplus of food production despite unprecedented population growth. Whereas it has previously taken a million years to add an additional million sapiens to the population, now each additional million was added in about a month.

The 200 years following the industrial revolution saw accelerating productivity improvements which led to accelerating capital accumulation, which incredibly, allowed per capita wealth to grow faster than the population, raising the standard of living in industrial countries over a hundred fold.

Now, unless you happened to grow up in a remote Amazonian tribe and then somehow integrated into modern society and managed to read this on Facebook, you have no idea what a “hundred fold improvement in the standard of living” means. You probably went camping, or saw a romantic nature documentary and think that lack of indoor plumbing, having an average of 80% of your children die in infancy, habitually going up to a week without food, being left for dead after major injuries or old age, and lack of Facebook access is not that big of a deal. Maybe it isn’t – I don’t know either.

Anyway, for biological or cultural reasons, we tend to extrapolate our current status of ecological surplus and assume that it will continue indefinitely, despite having experienced it for only .0001% of human history. In fact, economic incentives suggest otherwise: in the long-run, social groups which value higher reproductive rates will eventually dominate the human population and return homo sapiens to subsidence levels. We might still have Facebook, but we’ll be back to perpetually surviving on edge of starvation, save for the brief times after a catastrophe kills of much of the population and we can thrive on the surplus capital.

Any group that values large families will tend to dominate the species given sufficient time. It might be the Mormons, Amish, Hutterites, or probably some new group that places an explicit value on maximizing the reproductive rate at the expense of all other values. Unfortunately, having as many children as biologically possible does not correlate with other values that most of us consider desirable, but that is how ecology works.

Some have suggested population controls, but those would only work with a dictatorial single world government, and those are hard to sustain indefinitely over geological time spans. In other to avoid a return to the state of nature, we must either sustain the present excess of capital growth over population growth indefinitely, or find a way to permanently limit the population size. Since the earth is of finite size, sustaining the surplus capital growth requires the difficult task of colonizing the entire universe. On the other hand, it might be even more difficult to restrict the reproductive rate, given that any group which violates the restriction could gain control over the whole planet.

Are we homo superior?

In response to Brian Cox’s Human Universe presents a fatally flawed view of evolution:

 

Are human beings superior to all other animals? Can homo sapiens be said to be at the “top” of the evolutionary tree, rather than just another iteration? To answer this question, one must identify some universal criteria, rather than a species-dependent one. (For example, an obviously species-subjective perspective might be that human women are the best-looking.)

The current mainstream view seems to be that this is impossible. It is therefore wrong to say that humans are “more advanced” because we have space stations, because space stations are only important to humans. Dolphins might blow beautiful bubbles and they are just important to dolphins, while giraffes value having the longest neck as the most valuable aspect of an animal. To me, this view (that many philosophers and biologists actually believe) is absurd.

I think there are some obvious essential instrumental skills which make humans special. These essential instrumental skills are universal in that they enable the achievement of many other goals. Reasoning, technology, and social organization are important not because they are important to homo sapiens, but because they are essential to a wide range of value achievement as such. If lions learned how to domesticate and breed gazelle, they would still be achieving a lion’s values, but they would do so using a superior, more energy efficient process. This applies especially to human ability to contextually transform the environment at large scale to support higher population – an instrumental skill held by no other species.

In fact, humans exceed the intellectual abilities of all other species by orders of magnitude – a fact that some biologists mislead about when presenting science to the public because they think this view serves either their personal interests or the species they praise.

To the extent that our biology has enabled these instrumental skills, we can indeed say that the human line “ascended” the evolutionary ladder.

What is a corporation? Key misconceptions

Following this week’s Supreme Court ruling, there is much confusion about what legal rights a corporation has and how it is different from other groups:

In a free society, any person has the right to associate with any other person by mutual consent. As long as both parties consent to their transaction, no third party (be it a government or anyone else) has the moral right to prevent or punish their interaction. This is as true for friendships, romantic relationships, and political advocacy as financial transactions. The only difference is that financial transactions exchange material values whereas social interactions exchange non material values.

A business – be it a sole proprietorship or a multinational corporation is just a group of people who share a common purpose. Their motive may be profit, but it may be something entirely different (such as changing the world with a new product, or just getting paid to do something cool, such as fly planes or invent new things).

The primary difference between a corporation and any other type of business is limited liability. Anyone who does business with a corporation (be it another business or a consumer) agrees that any liability incurred by the corporation covers the assets of the corporation, but not the individual assets of its employees. For example, just because you own Wal-Mart stock, Wal-Mart’s debtors cannot demand all your personal assets as collateral.

It’s important to understand that limited liability does not apply to criminal law. That is, if an employee of a corporation commits a crime, he is still personally liable for his actions. In no way does acting on behalf a corporation shield people from breaking the law. (Of course that is not universally true, but that is a corruption of the law, not an aspect of limited liability.)

Furthermore, individuals acting on behalf of a corporation have the same rights as individuals acting on behalf of any other group because people do not lose their rights by the nature of the voluntary associations they enter into. It should make no difference whether you act on behalf of yourself, a political pressure group, a union, a sole proprietorship, or a corporation – you do not lose your rights as a human being because you represent a particular association of other human beings acting toward a common purpose. Silencing the speech of an individual because he represents a particular group is censorship – no matter what the purpose of that group is.

If you really want to get business out of politics, get the government out of business. As long as governments try to control corporations with regulations that go beyond the protection of people’s property rights, corporations will have an incentive to control governments. Interventionism creates a vicious downward cycle hardly unique to corporations – first a lobby tries to extract special privileges from some politically neutral group, the group hires lobbyists to defend itself, and ends up using the influence it has gained to extract privileges at the expense of another neutral group, which must defend itself in turn. Campaign finance regulations just hide that process from the public and make it more difficult for non-elites to get elected or have a say in government. The only real solution to the problems caused by interventionism is to end interventionism – to separate government and economy.