Basic Economics – Page 5 – A Geek With Guns

You’re the Product, Not the Customer

In his novel The Moon is a Harsh Mistress, Robert Heinlein coined the phrase there ain’t no such thing as a free lunch (usually abbreviated as TANSTAAFL). The phrase is used by the main characters of the book to remind themselves and others that there’s no such thing as free. This is a lesson too many people fail to learn in real life. People are obsessed with the fantasy of free. They want free food, free money, free healthcare, and free online services.

People commonly make the mistake that online services such as Facebook and Twitter are free. On the surface they appear to be free since you don’t pay to use them. But TANSTAAFL. When you’re using a service for free you’re not the customer, you’re the product:

The American Civil Liberties Union on Tuesday outed Facebook, Twitter, and Instagram for feeding a Chicago-based company their user streams—a feed that was then sold to police agencies for surveillance purposes.

[…]

Geofeedia, which did not respond for comment, says it has more than 500 customers, including the Denver Police Department. That agency recently signed a $30,000 annual deal with the company. The money came from the agency’s “confiscation” fund. The department’s intelligence agency’s top brass wrote that it would allow cops to analyze and respond in real time to “social media content from anywhere in the world.”

Geofeedia, the actual customer, has been paying for Facebook, Twitter, and Instagram’s product, your personal information. It has then been turning around and selling it to various police departments, which use the information to more effectively expropriate wealth from the people they victimize. The only person not making any money on this deal is you. In fact, you’re losing money if any of the sold information about you is used by the police to take some of your wealth.

Because this revelation could turn into a loss of product for these sites they have apparently announced that they’ve cut off Geofeedia’s access. That shouldn’t make you feel better though. That access can be regranted at any time and there are likely many other companies doing the same thing as Geofeedia who just haven’t been caught yet. So long as you continue to be the product you shouldn’t believe any of your information is safe.

Take Immediate Payment Over Promises Of Future Benefits

Pensions used to be one of the most sought after benefits and it’s easy to see why. On paper a pension allows you to put in your 30 years and receive a paycheck for the rest of your life. But things don’t always work out as planned. Many pensioners are learning the hard lesson that if you don’t have your compensation in hand you may never receive it:

Ken Petersen spent 30 years as a Teamster trucker, loading and hauling utility poles, fertilizer and other freight. All those years his employers socked money away for the monthly pension check Petersen has received since he retired from trucking in 2003.

Now, to save the Teamsters Central States Pension Fund from collapse, its trustees want to slash the pensions of 272,600 fund members, nearly 15,000 of whom are Minnesotan. Thousands are already retired and living on the pensions.

Petersen, 65, and working in a South St. Paul elementary school to make ends meet, said his monthly pretax retirement check would be chopped from $2,550 to $1,274.

The only constant in the universe is change. Pensions only work if certain criteria remain constant. The amount being paid into a pension fund must be greater than or equal to the amount being paid out. Pensioners have to die at the calculated rate, which is difficult to calculate due to improving medical technology. Whoever manages the pension account must not go bankrupt otherwise the account disappears. In other words there are numerous economic conditions under which a pension can fail.

Pensions, like stock options, are a gamble. They may pay off or they may not. This is why I tell people they don’t have any compensation that isn’t in their hand. If you’re offered a slightly larger paycheck now or a future pension take the bigger paycheck. Even if you looks like you’ll earn less over time it’s guaranteed.

The United States Isn’t A Wealthy Nation

Several of the Bernie bots were sharing more economic ignorance spouted by their preferred presidential candidate. This time it was Bernie saying that the United States is the only wealthy country that doesn’t guarantee health insurance. How can he claim a nation that is tens of trillions of dollars in debt is wealthy? It’s the kind of lunacy only made possible through political doublespeak. War is peace, freedom is slavery, ignorance is strength, and debt is wealth!

The United States is at that point where it has stretched itself so thin for so long that it can no longer even keep up the appearance of wealth. Like the man who used an extensive line of credit to buy his mansion that was just foreclosed and Ferrari that was just repossessed, the United States is no longer able to even maintain what it already purchased. A good illustration of this is the transportation infrastructure:

Imagine you’re driving. Maybe on the Kennedy Expressway in Chicago, or down Interstate 95 through New Haven, or I-94 in Milwaukee. Chances are you’ll encounter a truck-swallowing pothole, or lanes strewn with orange cones, or traffic at a standstill. After all, Illinois, Connecticut, and Wisconsin have the worst roads in the nation. And the Highway Trust Fund — the source for most federal spending on roads, bridges, highways, tunnels, and public transit — is almost out of money. Again.

[…]

The fund’s primary source of revenue is the federal fuel tax of 18.4 cents per gallon on gasoline and 24.4 cents per gallon of diesel. That tax hasn’t gone up since 1993, and isn’t pegged to inflation. A dollar in 1993 is worth only 60 cents today. If the gas tax had kept up with inflation, it would be 30 cents a gallon today and pull in nearly twice the amount of revenue. The tax brings in around $34 billion each year, but while that seems like a lot of money, it barely scratches the surface of what’s needed to maintain the nation’s highways in a state of good repair.

The federal government spends roughly $50 billion annually on infrastructure, leaving a $16 billion hole in the Highway Trust Fund. Over the last decade, Congress has signed off on a series of short-term extensions to prevent the fund from completely drying up. The one just approved by the Senate would mark the 36th such funding extension for the fund since 2009.

The article argues that the gas tax needs to be increased to pay for infrastructure maintenance. If this was a new problem that arose in a wealthy nation a simple gas tax increase might be enough of a bandage. But the infrastructure has been in decay for decades so the costs of fixing everything is so astronomically high that it’s not even a feasible project anymore:

So what needs fixing? Almost everything. Today, more than 60,000 bridges in the United States are considered structurally deficient, according to the Department of Transportation, and 32 percent of US major roads are in poor or mediocre condition, according to the American Society of Civil Engineers. In its most recent report, the ASCE gave the nation’s overall infrastructure — everything from airports to wastewater — a D+. The US would need to spend an estimated $3.6 trillion by 2020 to bring its infrastructure into decent shape. That’s more than one-third the nation’s entire gross domestic product.

Emphasis mine. The infrastructure is in such a dilapidated state that the federal government would need to steal one-third of the entire nation’s gross domestic product just to bring it up to date in four years. That, ladies and gentlemen, is point where your income can’t even pay off the interest on your debt. And it’s only one of a practically uncountable number of government programs. No amount of additional plunder will allow the United States to get back on its feet.

People saying the United States is a wealthy nation should be laughed at. When they use that claim to justify creating yet another government program that will add more debt they should be publicly shamed. Their names should become common insults. Instead of saying “You’re an idiot,” the new insult should be, “OK, Bernie Sanders.”

The empire is collapsing. No amount of voting will save it, thankfully.

Don’t Ask An Astrophysicist About Economics

Neil deGrasse Tyson has reach almost messiah levels on the Internet and it’s easy to see why. He’s a brilliant man who managed to avoid the social awkwardness many brilliant individuals suffer from. But he’s an astrophysicist, not an economist. He made this very clear during a recent interview:

It seems really easy to delude ourselves about the state of space now, right? We look at a company like Mars One and say, “Oh yeah, totally, that seems possible. A reality show would definitely fund a mission to Mars.” Or even SpaceX, we’ve looked at that company with wide eyes and only now question them after a very public failure.

The delusion that relates to private spaceflight isn’t really what you’re describing. They’re big dreams, and I don’t have any problems with people dreaming. Mars One, let them dream. That’s not the delusion. The delusion is thinking that SpaceX is going to lead the space frontier. That’s just not going to happen, and it’s not going to happen for three really good reasons: One, it is very expensive. Two, it is very dangerous to do it first. Three, there is essentially no return on that investment that you’ve put in for having done it first. So if you’re going to bring in investors or venture capitalists and say, “Hey, I have an idea, I want to put the first humans on Mars.” They’ll ask, “How much will it cost?” You say, “A lot.” They’ll ask, “Is it dangerous?” You’ll say, “Yes, people will probably die.” They’ll ask, “What’s the return on investment?” and you’ll say “Probably nothing, initially.” It’s a five-minute meeting. Corporations need business models, and they need to satisfy shareholders, public or private.

A government has a much longer horizon over which it can make investments. This is how it’s always been.

SpaceX may not be the company that manages to get privatized space exploration off the ground but not for the reasons he gives. Expense and danger have never been major hinderances to entrepreneurs. Oftentimes the State will cite dangers as its reason to hinder an entrepreneur but our history is riddled with people who took tremendous risk in the name of being the first to develop a new technology. With that said, most entrepreneurs don’t blindly rush into danger but make a best effort attempt to identify and mitigate risks. SpaceX is a great example of this. Recognizing the potential dangers rocketry imposes SpaceX has been investing resources into designing an ejection system for astronauts in case something bad does happen (something, I might add, the National Aeronautics and Space Administration (NASA) never bothered with).

But Tyson’s biggest mistake was claiming there’s no return on investment. He fell into the common trap of assuming just because he can’t imagine a return on investment one must not exist. Successful entrepreneurs are successful because they realized a return on an investment others did not. Space offers up tremendous returns to the right entrepreneur. Astroid mining, zero gravity manufacturing, tourism, and an environment that allows a lot of research to be more easily performed are just a few returns available to entrepreneurs who get into space. Mining alone could be a huge return simply because moving large amounts of raw materials through vacuum and dropping it down near where it’s needed is easier than transporting the same amount across a planet.

I think his claim that government has a much longer horizon is also in meaningless. The longest horizon in the universe won’t accomplish anything noteworthy without creativity. Governments are terribly uncreative. Unless something may expand a government’s ability to expropriate wealth it tends to have little or no interest in pursuing it. What makes entrepreneurs valuable is their creativity. An entrepreneur by definition is somebody who used their creativity to come up with a new good or service. A successful entrepreneur is somebody who came up with a good or service people wanted. Because there is nothing obviously worth stealing in space it’s unlikely governments will invest any notable resources into exploring it. It may, however, attempt to tax any goods or services an entrepreneur creates in space. And entrepreneurs will try because there is a great deal of potential value in space.

Space exploration is, amongst other things, an economics problem. I wouldn’t doubt Tyson’s input when it came to the physics involved in space exploration but I’ve seen no reason to believe his knowledge about economics comes close to his knowledge about physics.

The Decentralized Internet

“Internet provision is a natural monopoly!” How many times have you heard some economic illiterati say that? I’m sure you’ve heard it a few times even though the entire concept of natural monopoly is a myth. To demonstrate this I’m going to provide a couple of examples of decentralized Internet architectures. First we’re going to look at the corporate world where one Internet Service Provider (ISP) has decided centralized infrastructure isn’t fulfilling all of its needs:

Well T-Mobile wants to fix all that… by putting an LTE tower in your house. Yes, the unconventional carrier has announced a 4G LTE CellSpot that it says will offer 3,000 square feet of LTE coverage for your home or business. Plug it into the wall outlet, connect it to the internet, and your LTE connection will get a boost anywhere T-Mobile has spectrum. The CellSpot supports up to 16 calls at a time, and will work with any 3G, 4G, and LTE device on T-Mobile’s network.

T-Mobile’s biggest limitation is coverage. Improving coverage isn’t easy for a cell carrier because building towers is expensive and the bureaucracy between them and their customers is significant (my hometown kept denying AT&T permission to build a new tower simply because the city council didn’t want travelers to see an “ugly” tower when they passed through town). Being able to install a lot of microcells is a lot easier than building a tower simply because the carrier doesn’t have to buy land and get permission from local bureaucracies.

Two mistakes T-Mobile is making, in my opinion, is only allowing its customers to install these CellSpots and not paying people who choose to install them:

And the price is right too — eligible Simple Choice customers can get the LTE CellSpot for free (with a refundable $25 deposit), and keep it as long as they are customers of T-Mobile.

I bet T-Mobile would quickly find itself enjoying spectacular coverage if it paid anybody willing to install one of these in their home or business a little kickback (these microcells, after all, are consuming electricity and using bandwidth). For the right price (which means enough for me to make a little bit of profit) I’d be willing to install one of these in my home and I’m not even a T-Mobile customer.

Admittedly relying on a centralized ISP, even if they’re utilizing a decentralized architecture, isn’t exactly demonstrating that Internet provision isn’t a natural monopoly. Fear not! T-Mobile isn’t the only game in town:

When you live somewhere with slow and unreliable Internet access, it usually seems like there’s nothing to do but complain. And that’s exactly what residents of Orcas Island, one of the San Juan Islands in Washington state, were doing in late 2013. Faced with CenturyLink service that was slow and outage-prone, residents gathered at a community potluck and lamented their current connectivity.

“Everyone was asking, ‘what can we do?’” resident Chris Brems recalls. “Then [Chris] Sutton stands up and says, ‘Well, we can do it ourselves.’”

When somebody says, “Well, we can do it ourselves,” you know they’re on the right track:

Faced with a local ISP that couldn’t provide modern broadband, Orcas Island residents designed their own network and built it themselves. The nonprofit Doe Bay Internet Users Association (DBIUA), founded by Sutton, Brems, and a few friends, now provide Internet service to a portion of the island. It’s a wireless network with radios installed on trees and houses in the Doe Bay portion of Orcas Island. Those radios get signals from radios on top of a water tower, which in turn receive a signal from a microwave tower across the water in Mount Vernon, Washington.

[…]

Back in 2013, CenturyLink service was supposed to provide up to 1.5Mbps downloads speeds, but in reality we “had 700kbps sometimes, and nothing at others,” Brems told Ars. When everyone came home in the evening, “you would get 100kbps down and almost nothing up, and the whole thing would just collapse. It’s totally oversubscribed,” Sutton said.

That 10-day outage in November 2013 wasn’t a fluke. At various times, CenturyLink service would go out for a couple of days until the company sent someone out to fix it, Sutton said. But since equipping the island with DBIUA’s wireless Internet, outages have been less frequent and “there are times we’re doing 30Mbps down and 40Mbps up,” Brems said. “It’s never been below 20 or 25 unless we had a problem.”

A better, more reliable service for less. What more could one ask for? Anybody who lives in a rural area knows the struggle of getting fast, reliable Internet access. Unfortunately many people in rural areas turn their frustrations into political campaigns. By the time they’re done they have higher taxes and promises from the local, state, or federal government that go unfulfilled. Had they taken the money they invested in political shenanigans and instead built a network they would have fast, reliable Internet connectivity. This is why you should listen to the person who says, “Well, we can do it ourselves,” instead of the idiot who tries to start a political campaign.

Internet provision isn’t a natural monopoly. A community can come together and build their own network and attach it to the Internet. This is even easier now that wireless connectivity is no longer slow or outrageously expensive.

Volkswagen Gives Americans What They Want, Americans Buy Volkswagens, Statists Confused By Markets

A lot of electrons have been annoyed by people writing about the Volkswagen scandal. In an effort to give customers the performance they want while still passing the Environmental Protection Agency’s (EPA) unrealistic tests Volkswagen wrote some clever software. It’s no surprisingly Volkswagen sales increased in the month of October. Well, it’s no surprise unless you’re a statist who doesn’t understand how markets work:

There is a world in which consumers swiftly punish Volkswagen where it counts — the coffers — for its massive, systematic deception of the Environmental Protection Agency in which it cheated its way around diesel emissions tests for half a decade.

This isn’t that world.

Volkswagen of America just reported its October sales, the first full month of reporting since the scandal broke, and guess what? Sales are up 0.24 percent year over year, likely thanks in part to enormous discounts being offered to prop up volume. Now, perhaps they would’ve been up more in the absence of the scandal. But if consumers haven’t outright rewarded VW for deceiving them, they certainly haven’t done much to punish the automaker, either.

I don’t really know what to do with this. Governments and law firms around the world are rearing to shake VW’s piggy bank, but it’s a little confusing to me that car buyers wouldn’t be looking elsewhere while this all plays out (and it is very much still playing out). Are these buyers just not following the news? Are they not concerned, because America is generally less excited about diesel engines than Europeans? (Note that Volkswagen has suspended sales of its 2016 diesels, pending approvals, so Americans have made up the sales difference versus October 2014 with additional gasoline and hybrid purchases.)

Consumers only punish manufacturers when they feel they’ve been wronged. Why should I, as a consumer, be angry if I know an automobile manufacturer can’t sell its product in the United States without passing random government tests that demonstrates nothing of value (more on this in a second) and find out the manufacturer cheated the test to give me a better product? On the other hand I, as a consumer, have ever right to be angry when the government attempts to interfere with my acquisition of a desired product. The EPA tests, as I mentioned above, aren’t even testing real-world conditions so there’s no reason for consumers, even those who are dyed in the wool environmentalists, to give two shits about them.

And don’t make the mistake of construing this increase in sales with consumers not caring about environmentalism. Most consumers care greatly about environmentalism, which is why fuel mileage is advertised to heavily these days. Generally consumers want a balance between performance and fuel efficiency (of course the EPA’s fuel efficiency tests, like its emissions tests, aren’t accurate but that’s a different can of worms). If a vehicle’s fuel efficiency is too low consumers face undesirable increases in their fuel bills. But market forces are something statists don’t understand so they become confused by situations like Volkswagen’s sales increase and come to the faulty conclusion that it means consumers don’t care about environmentalism (and use that conclusion to argue the necessity of the EPA).

What we’ve learned from this Volkswagen scandal is that producers, when faced with idiotic regulatory tests, will find creative ways to give consumers what they want and be rightly rewarded. If you want to be angry with somebody be angry with the EPA. It’s been feeding the public bad data for decades and using that data to restrict availability of goods, which has forced manufacturers to cheat in order to fulfill the wants of their customers.

The Source Of Venezuela’s Economic Woes

It’s no secret that Venezuela’s economy is in the same place every other socialist economy ends up: the shitter. But unlike its predecessors, Venezuela has identified the source of its troubles! That source is none other than a website operated by an evil American capitalist pigdog:

Venezuela’s central bank has filed a lawsuit at a court in Delaware against the US-based website DolarToday.

It accuses the website of cyberterrorism and says its managers are sowing economic chaos in Venezuela.
The central bank requested both an injunction and damages, accusing the site’s managers of fanning inflation in the country.

DolarToday tracks the black market value of the Venezuelan currency, the bolivar.
It values the bolivar at a far lower rate than the official one.

It values the bolivar at a far lower rate than the official one.

I’m always amused by faltering socialist nations. Their leaders always blame their nation’s economic collapses on evil capitalists, speculators, and the black market. On the one hand they claim socialism is the ultimate economic systems while on the other hand claiming their economies are so pathetic that any capitalist can destroy it.

Expect the Venezuelan government to lash out and anybody and everybody as it collapses under the weight of decades of centralized controls. And expect to hear socialists around the world try to argue why Venezuela wasn’t socialist enough, evil capitalists sabotaged the people’s economy, and other commonly heard excuses for the inevitable failures of socialism.

Halloween Fear Mongering

Every year around this time the police try to scare parents about trick or treating. I’m pretty sure it’s either a ploy by law enforcers to reduce their work load by getting kids off of the street or make themselves look important to the safety of the community. This year police are again claiming that drug dealers are going to be handing out drugs to trick or treaters:

The Jackson, Miss. Police Department issued a warning for pressed Ecstasy pills that could be mistaken for Halloween candy if they ended up in children’s hands.

While stories of kids being given poisoned or tainted Halloween treats are mostly the stuff of urban legend, it’s always a good idea to check your child’s candy before letting them eat it.

Stuff of urban legend is right. Drug dealers aren’t fucking idiots. They’re in a business to make a profit. Ecstasy is a popular illicit drug, which means it commands a pretty penny. What drug dealer is going to hand out thousands of dollars in profit to a bunch of brats in costumes? If your neighborhood drug dealer is handing out anything to trick or treaters it’s going to be the same candy as everybody else.

Whenever the police try to drug up fear by insinuating somebody is going to do bad things to children ask yourself if the claim even makes sense. A drug dealer handing out ecstasy doesn’t make any goddamn sense so any warnings about it happen should be discarded.

Libertarianism: Simultaneously Impotent And The Most Dangerous Force On Earth

The best thing about being a libertarian is that you’re simultaneously accused of being completely impotent and the most dangerous force on Earth. Making the situation even better is the fact libertarianism is often blamed for things it has absolutely no part in. Take this recent article by statist economic stooge Will Hutton:

Yet there is a parallel collapse in the economic order that is less conspicuous: the hundreds of billions of dollars fleeing emerging economies, from Brazil to China, don’t come with images of women and children on capsizing boats. Nor do banks that have lent trillions that will never be repaid post gruesome videos. However, this collapse threatens our liberal universe as much as certain responses to the refugees. Capital flight and bank fragility are profound dysfunctions in the way the global economy is now organised that will surface as real-world economic dislocation.

The IMF is profoundly concerned, warning at last week’s annual meeting in Peru of $3tn (£1.95tn) of excess credit globally and weakening global economic growth. But while it knows there needs to be an international co-ordinated response, no progress is likely. The grip of libertarian, anti-state philosophies on the dominant Anglo-Saxon political right in the US and UK makes such intervention as probable as a Middle East settlement. Order is crumbling all around and the forces that might save it are politically weak and intellectually ineffective.

We’re seeing signs of the very economic turmoil libertarians have been warning about for decades. This turmoil is the result of unsound monetary practices, namely the reliance on debt instead of wealth for economic activity between nations. No matter how much evidence libertarians point to or how loudly libertarians scream the statists seem entirely unwilling to adjust their monetary policies. Instead they continue trying the same thing — only harder.

So who’s to blame for the current turmoil? Libertarians, of course!

There’s so much to laugh at in this article but the insinuation that libertarian, anti-state philosophies have any kind of old on the political right of the United States (US) or United Kingdoms (UK) is a real gut buster. The political right and left can best be defined as anti-libertarianism. Libertarianism is about individual empowerment at the expense of state power. Strong centralized militaries, militarized domestic police forces, national surveillance apparatuses, fortress-like borders, fiat currency, and other such nonsense the political right has a raging hard-on for are anti-libertarian in nature. Likewise the redistribution of wealth, heavy-handed market controls, widespread censorship, restrictions on voluntary association, almost zealous opposition to self-defense, and other politically left ideas are equally anti-libertarian in nature.

The economic philosophies, which Mr. Hutton claims to be libertarian, of both the US and UK are entirely statist in nature. Libertarians advocate for wealth-based currencies, usually in the form of gold or silver backed warehouse receipts, whereas the US and UK both use fiat currencies that are backed by little more than each nation’s respective capacity for violence against anybody who doesn’t recognize their full faith and credit. Debt, the US and UK’s preferred excuse for printing more worthless paper, is the antithesis of libertarianism’s advocacy of spending within one’s means.

The current economic turmoil is the result of authoritarian, pro-state philosophies. If libertarianism actually had a grip on these nations we almost certainly wouldn’t be facing this economic crisis.

But, of course, libertarianism is the boogeyman of statists everywhere so it must be blamed for all things, whether or not those accusations make sense.

Install That Bleeping Ad Blocker Already

iOS 9 has been released and with it the ability for iOS users to install ad blockers. Online publications are already crying foul and declaring an end to the “free” web:

When Apple launches its new software update for the iPhone on Wednesday, users will be offered the chance to surf the mobile Web without annoying ads cluttering up their screen.

But Apple’s support for ad-blocking technology is ringing alarm bells on Madison Avenue, where critics warn it threatens not only the lifeblood of their business — but also the economic underpinnings of the free Internet.

“We don’t think ad blocking is right,” Scott Cunningham, senior vice president of the Interactive Advertising Bureau, told The Post.

[…]

“Advertising is the economic engine that drives the free Internet,” Cunningham said. “The reality is the last 20 years have seen people developing content online for distribution, and consumers have opted in for that free content.”

As a general rule when a business has to guilt trip you into abiding by its business model it’s time to let it die. Then there is the ironclad fact that past performance does not predict future results. Just because the last 20 years of Internet content may have been fueled primarily by advertisements doesn’t mean it will always be that way. Advertisements have worked because consumers have felt the benefits outweighed the costs. But the costs of advertising are increasing.

Most cellular providers are charging customers based on data usage, which means the additional bandwidth used by advertisements is beginning to have a very real cost. Mobile devices are also becoming the predominant means for web access. Since advertisements require additional hardware resources to render they negatively impact battery life and that is a major problem for users of mobile devices. Ad networks are also increasingly being used to spread malware.

The reason advertising has been a successful model is because most of the costs have been hidden from the consumer. Now the costs are becoming very visible to consumers. Because of that consumers will likely change their behavior. One of those changes will likely be an increased use of ad blockers. As more consumers block ads more content producers will have to change their business models to survive.

There has never been a free web. Don’t let advertisers bullshit you into believing that. And don’t let them guilt trip you into making yourself vulnerable by not using an ad blocker. I promise you that the web won’t die. You may have to pay content producers directly but that isn’t so bad when you consider how much money you’ll save on bandwidth, extra batteries, and not having to deal with malware.