PeerFlow

USPS Bubble Pop

Big corporations' distortion of US Postal Service rates gets noticed by The American Interest:

Just as General Motors has in effect subsidized Big Oil by continuing to build gas-guzzlers in recent years, so has the USPS continued to subsidize Big Mail by shaping its operations to encourage what it now calls, revealingly, “standard mail”—that is, advertising junk mail. Most American citizens are blissfully unaware of the degree to which USPS subsidizes U.S. businesses by means of the fees it collects from ordinary postal customers. For example, if you wish to mail someone a large envelope weighing three ounces, you’ll pay $1.17 in postage. A business can bulk-mail a three-ounce catalog of the same size for as little as $0.14.

USPS management claims that “standard” mail makes lots of money, that the USPS makes a better margin delivering a “standard” mail package for $0.14 than it does a first-class one for $1.17. Why? Supposedly because of efficiencies produced by bulk-mail, machinable, zip-plus-four and zip-plus-nine standardization schemes. If you look at the revenue stream from advertising mail, it does look impressive, and it has been growing (for perverse reasons we’ll come to in a minute). But when you juxtapose next to that revenue stream the enormous transactional costs of maintaining a riotously complex rate structure to service it, you quickly reach a different conclusion: Standard mail, the costs of which are also generally tax-deductible for businesses, does not make money. It amounts to a corporate subsidy, which helps to explain why Congress, insofar as its members understand this, typically doesn’t object to the status quo. After all, these corporations have been known to contribute to electoral campaigns.

Actually, it’s worse than that. Not only are pennies shaved off the postage affixed to grandma’s letters routed directly into the pockets of direct-mail marketers, some 20 percent of direct-mail advertising volume is comprised of credit card, mortgage and other financial offers. So yes, the USPS has contributed in a subtle yet very real way to our burst economic bubble.

And the USPS's own "standard mail" is about to pop. It's worse than you probably think. An article well worth reading.

Google closing Austin, Trondheim, and Lulea offices

I guess this makes it officially a recession:

NEW YORK (AP) — Google is closing three engineering offices and cutting 100 recruiters from its work force as the recession dampens hiring at the Internet search company.

"Given the state of the economy, we recognized that we needed fewer people focused on hiring," Laszlo Bock, a Google vice president, wrote in a blog posting late Wednesday announcing the layoffs.

The moves follows news last week of a government filing from Google showing a significant cutback in temporary employees aimed at trimming costs. The company acknowledged in November that it would be looking to reduce contract workers while retaining full-time employees.

—Google to cut 100 jobs, close engineering offices, AP, USA Today, 15 Jan 2009

Hm, looks like that Austin office lasted all of one year.

-jsq

Lessig's Herculean Holiday Present: Reboot the FCC

Here's a good test for the new U.S. Executive: to recognize that steady pragmatism means radical change, starting with the FCC:

The solution here is not tinkering. You can't fix DNA. You have to bury it. President Obama should get Congress to shut down the FCC and similar vestigial regulators, which put stability and special interests above the public good. In their place, Congress should create something we could call the Innovation Environment Protection Agency (iEPA), charged with a simple founding mission: "minimal intervention to maximize innovation." The iEPA's core purpose would be to protect innovation from its two historical enemies—excessive government favors, and excessive private monopoly power.

—Reboot the FCC, We'll stifle the Skypes and YouTubes of the future if we don't demolish the regulators that oversee our digital pipelines. By Lawrence Lessig, Newsweek Web Exclusive, 23 Dec 2008

Lessig gets the connection with his old topic of intellectual property and copyright. Those are monopolies granted by the federal government, and they have been abused by the monopoly holders just like the holders of communication monopolies:

Users Revolted: Net Neutrality to Win

The world has turned upside down:

This column is dedicated to the top managers of American business whose policies and practices helped ensure Barack Obama's victory. The mandate for change that sounded across this country is not limited to our new President and Congress. That bell also tolls for you. Obama's triumph was ignited in part by your failure to understand and respect your own consumers, customers, employees, and end users. The despair that fueled America's yearning for change and hope grew to maturity in your garden.

Millions of Americans heard President-elect Obama painfully recall his sense of frustration, powerlessness, and outrage when his mother's health insurer refused to cover her cancer treatments. Worse still, every one of them knew exactly how he felt. That long-simmering indignation is by now the defining experience of every consumer of health care, mortgages, insurance, travel, and financial services—the list goes on.

Obama's Victory: A Consumer-Citizen Revolt, The election confirms it's time for sober reappraisal and reinvention within the business community. If you don't do it, someone else will, By Shoshana Zuboff

She identifies Apple as one of the few companies that has actually gotten it about how to do business, with its iPod and iTunes. As we've previously seen, this is because Apple gets it that Porter's Five Forces model of competition breaks when open distribution channels are introduced.

It appears that Mark Anderson, Odile Richards, and William Gibson were right: "See-bare-espace... it is everting." Cyberspace just elected a president of the United States. And he knows it.

Obama has been publicly in favor of net neutrality for at least a year. And he has not backed off. He's put Susan Crawford and Kevin Werbach in charge of reviewing the FCC. Now that's cyberspace inverted indeed!

America's Punditocracy Expressed Its Shock

29 September 2008, the day the Internet was validated as more influential than the traditional press:

People discovered that to "Change Congress," you simply need a ballot box - or the threat of one.

All this was reflected on political sites, forums and blogs - but not a hint of this sentiment was expressed by the professional media. So when Congress rejected the Bill on that Monday, America's punditocracy expressed its shock. It also reported that the markets were "astonished" - the markets being presumed to have a better grasp of what American citizens want than American citizens themselves.

All week, the media had refrained from comment that might embarrass the political class. In fact, the first professional column I read which was reflected the true feelings of many US citizens around me was written from 3,500 miles away and published in London's Sunday Times.

Sudden outbreak of democracy baffles US pundits, By Andrew Orlowski, The Register, Posted in Government, 3rd October 2008 18:47 GMT

Dinosaurs were probably shocked by mammals, too.

-jsq

Movie King of the Internet: Bad Idea

Andrew Odlyzko asks what if the duopoly gets its way and completely does away with net neutrality:

But what if they do get their wish, net neutrality is consigned to the dustbin, and they do build their new services, but nobody uses them? If the networks that are built are the ones that are publicly discussed, that is a likely prospect. What service providers publicly promise to do, if they are given complete control of their networks, is to build special facilities for streaming movies. But there are two fatal defects to that promise. One is that movies are unlikely to offer all that much revenue. The other is that delivering movies in real-time streaming mode is the wrong solution, expensive and unnecessary. If service providers are to derive significant revenues and profits by exploiting freedom from net neutrality limitations, they will need to engage in much more intrusive control of traffic than just provision of special channels for streaming movies.

— The delusions of net neutrality, Andrew Odlyzko, School of Mathematics, University of Minnesota Minneapolis, MN 55455, USA odlyzko@umn.edu http://www.dtc.umn.edu/odlyzko Revised version, August 17, 2008

Why is that?

But video, and more generally content (defined as material prepared by professionals for wide distribution, such as movies, music, newscasts, and so on), is not king, and has never been king. While content has frequently dominated in terms of volume of traffic, connectivity has almost universally been valued much more highly and brought much higher revenues. Movies cannot be counted on to bring in anywhere near as much in revenues as voice services do today.

The Internet isn't about Sarnoff's Law (broadcast content like TV, radio, and newspapers) or even about Metcalfe's Law (1-n connectivity, like telephone or VoIP): it's about Reed's law, 2n-n connectivity, such as blogs, P2P, and facebook). That's my interpretation; Odlyzko probably wouldn't agree.

Anyway, that video content such as movies is king is one of the primary delusions Odlyzko addresses in this paper. The other is that movies need to be streamed in realtime. It is mysterious why people continue to believe that in the face of the massive evidence BitTorrent and other P2P services that deliver big content in chunks faster than realtime. I can only attribute this second delusion to a bellhead mindset that still thinks in terms of telephone, which was realtime because nobody knew any other way to do it back in the analog-copper-wire-connection day.

As Odlyzko sums it up:

The general conclusion is that the story presented by service providers, that they need to block net neutrality in order to be able to afford to construct special features in their networks for streaming movies, is simply not credible. If lack of net neutrality requirements is to be exploited, it will have to be done through other, much more intrusive means.

So why let the duopoly force a policy on everyone else that won't even work to the advantage of the duopoly?

One way to get net neutrality would be to let the duopoly have its way, and wait for it to implode. However, given that for streaming video to have any chance of succeeding, the duopoly would have to clamp down on everything else to eliminate any competition, I shudder to think what this would mean. The Internet as a source of real news and opinion would go away. Given that the vestigial traditional news media in the U.S. (TV, radio, newspapers) provide so little news, there's a very good chance that most people in the U.S. wouldn't even know how bad they had it as the country sped its slide into parochialism and irrelevance. How many people even know now that the U.S. has slid from #1 to #23 or whatever the latest number is in broadband uptake? If the duopoly is given its head, even fewer would know.

If we let King Kong Telco and T Rex Cableco battle it out to be Movie King of the Internet, where does that leave poor Fay Wray Public?

FCC, FTC, Congress, executive, and courts, not to mention the public, should all read Odlyzko's paper, and should all refuse the duopoly's demand for special privileges that won't even produce profits for the duopoly. Then all of above should legislate, enforce, and maintain net neutrality so we will all profit and benefit. Yes, even the duopoly can win with this.

-jsq

Mises Hates Duopoly: Or Only Monopoly and Fictional Wal-E?

I was reading a review of the movie Wal-E, and ran across this quote:

...without the presence of multiple providers of goods in the economy, the single dominant firm is in the same position as a socialist central planner. In the real world, BNL would have no market price signals to help it discern consumer demand for and the relative scarcity of resources. It would not be able to engage in rational economic calculation and would make decisions arbitrarily. Surely, this state would not please many consumers, and the BNL monopoly would be short lived at most.

— WALL-E: Economic Ignorance and the War on Modernity, Daily Article by Gennady Stolyarov II | Posted on 7/4/2008

So is it better if we have a duopoly rather than a monopoly? Is that competitive, then? The current FTC and FCC will say yes. I say no.

Sure, the Austrian school is controversial and all, and I found much of the rest of the review hilariously inapt, but this quote did stick in my mind.

-jsq

Byte Charging Rears Its Ugly Head

Here it is again:

Some people use the Internet simply to check e-mail and look up phone numbers. Others are online all day, downloading big video and music files.

For years, both kinds of Web surfers have paid the same price for access. But now three of the country’s largest Internet service providers are threatening to clamp down on their most active subscribers by placing monthly limits on their online activity.

— Charging by the Byte to Curb Internet Traffic, By BRIAN STELTER, New York Times, Published: June 15, 2008

The article names Time Warner, Comcast, and AT&T as the three prospective byte chargers.

I can remember when all the European PTTs charged by the byte. That held the Internet in Europe back by at least four years. The article rightly points out byte charging would interfere with all sorts of business plans. It would also inhibit political speech.

Isn't it lovely when the duopoly that controls U.S. Internet access considers participation a leak that needs to be fixed?

-jsq

Freedom v. Market Mythology

Here's a question that answers itself:

...what is it about individual freedom that "conservatives" like the Spectator and Armey don't like?

To be fair, the debate is larger than the Spectator and Armey. Most congressional Republicans oppose the idea of giving consumers freedom on the Internet. They take shelter in their anti-government, anti-regulation rhetoric, preferring to allow Internet freedom to apply to the corporations which own the networks connecting the Internet to consumers, rather than to consumers themselves. There could, of course, be a larger discussion about the meaning of "conservative" and Republican, and whether the two are synonymous.

(To be fairer still, it's not only Republicans. Many a Democrat also speaks out against Internet freedom. They don't have the fig-leaf of misbegotten ideology to hide behind, as they largely back worthwhile government action in many other areas. They are simply servants of corporate and/or union interests. The question applies equally: What about freedom don't they like?)

— Why The 'Right' Gets Net Neutrality Wrong, Art Brodsky, HuffingtonPost, Posted May 5, 2008 | 10:21 AM (EST)

The clue is "servants of corporate ... interests". (Unions occasionally get into this act; corporations much more frequently.) And it's not simple greed for corporate lobbyist money or kickbacks or the revolving door: many politicians and people really believe the "free market" will solve all problems. That's the origin of the doctrine of "market failure" that has pervaded all U.S. federal departments and agencies. Nevermind that when it's a major airline or automobile manufacturer or, even worse, a financial institution such as Citibank, these same people support all sorts of governmental market manipulations and bailouts. We're talking mythology here, kind of like the "rational actor" myth of economics.

Brodsky digs into the misconceptions behind this myth:

[Peter] Suderman's analysis: "In fact, not only were all of these companies [eBay and Google] born in an era with no mandated net neutrality, it's utterly unclear that a lack of neutrality would've impeded them in any way whatsoever."

That is not how it happened. This is how it happened:

Settling for Slow: Duopoly or Competition

This is what the duopoly doesn't want:

In France, for example, the regulator forced France Télécom to rent out its lines. One small start-up firm benefited from this opportunity and then installed technology that was much faster than any of its rivals'. It won so many customers that other operators had to follow suit. In Canada, too, the regulator mandated line-sharing, and provinces subsidised trunk lines from which smaller operators could lease capacity to provide service.

— Open up those highways, The Economist print edition, Jan 17th 2008

The duopoly will settle for the U.S. being slow and expensive as long as they get to collect the rents.

Here's how other countries do it:

Users Revolt: Net Neutrality Wins

This is the path to net neutrality:

"See-bare-espace... it is everting."

—Odile Richards, Spook Country by William Gibson, 2007

Long version:

Top Ten Predictions for 2008

1. The Users Revolt. As advertisers focus in on social networking sites, users revolt against this trend, and power shifts in the worlds of Social Networking from owner to user, on issues ranging from Second Life rules and Facebook privacy to Cellphone Billing. Users will gain new leverage.

— My Top Ten Predictions for 2008, Mark Anderson, Strategic News Service Blog, 22 December 2007

He picks up on some of many signs of users' discontent, such as Facebook's Beacon fiasco:

FaceBook Beacon Bulb Changed: Online Mall Changes Due to Users' Privacy Concerns

One problem with outfits like MySpace and Facebook is the same as that with shopping malls: they feel sort of like public space, but they're not. They're privately owned and operated, and you never know what the private cops are doing with their security camera information, or the stores are doing with all that purchase information. In the case of Facebook, when Facebook announced (to advertising executives, not to its own users) its Beacon system to provide its users information to companies for targetted ads, and that Coca-Cola, Sony, and Verizon had already signed up, Om Malik told Facebook's users (and the Internet at large), and the users didn't like it.

Facebook tried ignoring Malik, tried painting him as an elitist pundit, and finally announced users will be explicitly asked whether they want to publish the information that Beacon uses. Facebook didn't do this until after moveon.org got involved and turned it into a political issue. Malik is chortling over bringing about this Facebook about-face in only three weeks: from 7 to 29 November.

The moral here seems obvious, and twofold:

1. Internet users do expect some modicum of privacy.
2. An Internet company can't announce something to somebody else that affects its users without the users finding out about it.

-jsq

FT on FCC: SOP

From London, it appears the emperor's apparatchik has no clothes:

The commission, under Mr Martin, has turned US media policy into mere political theatre, while technology marches on apace, revolutionising media markets without any serious input from the regulators in the public debate about the implications.

Big Media control of the airwaves is simply not the threat to democracy and choice that it once was (in the days before cable or, for that matter, bloggers and MySpace). This is yesterday’s battle. It is time to move on to the tougher challenge: how to ensure that quality news survives the YouTube era.

— New rules for yesterday’s problem, Editorial, Financial Times, Published: November 14 2007 19:15 | Last updated: November 14 2007 19:15

Well, the first step would be to ensure that people get to look at it, for example that they are able to view the Financial Times. Economic models would be good, too. Some traditional news media seem to be developing those.

But it is not clear how one troubled industry (newspapers) can be helped by grafting it on to another one (the broadcast media), when both have essentially the same problem: the internet is stealing their advertising revenues.

Well, the New York Times has discovered can make more money by advertising if they don't charge for articles. And that didn't involve merging with a TV station. With real ISP competition, somebody would also develop a real first-mile ISP business plan.

-jsq

Normative net neutrality: Milton Mueller on free association and free trade

Free as in free speech, free association, and free trade: Milton Mueller drafts an Internet governance paper using net neutrality as its central principle.

... as a normative guide to policy, network neutrality transcends domestic politics. The network neutrality debate addresses the right of Internet users to access content, services and applications on the Internet without interference from network operators or overbearing governments. It also encompasses the right of network operators to be reasonably free of liability for transmitting content and applications deemed illegal or undesirable by third parties. Those aspects of net neutrality are relevant in a growing number of countries and situations, as both public and private actors attempt to subject the Internet to more control. Because Internet connectivity does not conform to national borders, net neutrality is really a globally applicable principle that can guide Internet governance.

— Net Neutrality as Global Principle for Internet Governance, Milton Mueller, Internet Governance Forum, 5 November, 2007

Basically, instead of getting mired in discussions of bandwidth or technical methods of stifling, throttling, or censorship, let's get back to deriving net neutrality from general political and economic principles, which turns out to make net neutrality a convenient lens by which to view those principles and to apply them to the Internet.

Internet as Analysis Supplier: Is the Surge Working?

Steven Levitt points out there are other ways to measure the effects of a military action than listening to politicians or generals, and the Internet can promote the production of such measures, and the analysis of them by multiple parties. On several measures, M.I.T. professor Michael Greenstone finds results of the U.S. "surge" in Iraq to be mixed. Then he brings in another measure:

The most interesting part of Greenstone’s paper is his analysis of the pricing of Iraqi government debt. The Iraq government has issued bonds in the past. These entitle the owner of the bond to a stream of payments over a set period of time, but only if the government does not default on the loan. If Iraq completely implodes, it is highly unlikely that these bonds will be paid off. How much someone would pay for the rights to that stream of payments depends on their estimate of the probability that Iraq will implode.

The bond data, unlike the other sources he examines, tell a clear story: the financial markets say the surge is not working. Since the surge started, the market’s estimate of the likelihood of default by the Iraqi government has increased by 40 percent.

— Is the Surge Working? Ask the Data, Not the Politicians, By Steven D. Levitt, Freakonomics, September 15, 2007, 11:55 am

This kind of analysis seldom gets written for traditional channels because (2) there's no academic incentive for it and (3) the only money in it is usually from special interests. Here's the main point:

1. This paper shows how good economic analysis can contribute in a fundamental way to public policy. Anyone who reads Greenstone’s article will recognize that it is careful and thorough. It is even-handed and apolitical. It combines state-of-the-art data analysis techniques with economic logic (e.g., using market prices to draw conclusions about how things are going).

...

4. The internet can potentially solve both problems (2) and (3) above, leading to an increased supply of good, timely analysis. If people like Greenstone can immediately get their findings into the public debate through the internet, it gives a real purpose (not just an academic one) to doing the work. In addition, there are now online peer-reviewed academic journals that have greatly sped the time from submission to publication, potentially increasing the academic payoff to someone like Greenstone. With many respected economists now blogging, there is also a vehicle for these folks to weigh in on the quality of policy-related economic writings — like I am doing in this blog post.

If the Internet helps focus many eyes on bugs and make them shallow, why can't it do the same with political and military actions?

Right now it can. Without net neutrality it wouldn't be able to.

-jsq