An ubelievably bad argument against gay marriage

RNC chairman Michael Steele tried the other day to turn the argument over gay marriage into a financial one. Here is what he said:

"Now all of a sudden I've got someone who wasn't a spouse before, that I had no responsibility for, who is now getting claimed as a spouse that I now have financial responsibility for," Steele told Republicans at the state convention in traditionally conservative Georgia. "So how do I pay for that? Who pays for that? You just cost me money."

I think Jon Stewart on the Daily show and Matt Bandyk's comments in US News and World Report pretty well summed up how farcical this particular argument is, but I'll pile on as well.

Specifically, I think this line of reasoning has one of two logical consequences:

• Since this is true for straight marriages as well, this would mean that Steele - head of the party that prides itself on its support of traditional family values - is arguing against straight marriage as well, since that obviously also costs business owners the cost of providing benefits.
• Or perhaps he's making an alternate point that businesses are currently able to save money by hiring homosexual employees, and allowing gay marriage would erode this current savings. Republicans have also traditionally been the ones who opposed what they perceive as "special rights" for gays; a policy that promotes the hiring of gays over straight people (who run the risk of getting married and thus driving up costs!) sounds like a special right to me! As a married heterosexual, I find such a policy of discriminating against non-gays to be quite disturbing.
  

I don't offer any of this as an argument in favor of gay marriage (with which, as it happens, I don't have a problem), I'm just pointing out that the absurdity of this particular line of reasoning. If this is the best argument against gay marriage, then there is no real debate here. Bring on some real issues we can discuss!

Why I like Wikipedia

A common refrain I hear about Wikipedia is that it is not to be trusted because anybody can edit any article, that unlike a traditional encyclopedia, there is no enforced expert review of articles. While those observations are true, I think dismissing Wikipedia as a result is the wrong conclusion to draw from them.

It seems to me that in general, the very fact that the broad community can edit articles is actually Wikipedia's strength. The argument behind this is essentially the thesis of the book The Wisdom of Crowds, and can be summarized as this: large groups of people - including experts, amateurs and even crackpots - collectively contain more wisdom on a given topic than any single expert.

We actually see this every day in the stock market. What is the value of a specific company? Any given stock analyst - who we typically consider experts in the field - can give an answer to this, yet multiple analysts often disagree with each other by a considerable degree. So why would we trust any one of them to give a "valid" answer when we have no way to know whether one is any more accurate than another? Well, we actually do have a way to know this: the stock market itself - composed of experts, amateurs, and crackpots alike - does a pretty good job ("pretty good" is a key qualifier - I'll come back to that below) at figuring out the value of a company, and most people put a lot of trust in that value, and it is remarkably accurate at doing so over long periods of time (i.e., not so much on a day-to-day basis).

The same dynamics are at work at Wikipedia. Any given article is created and edited by a collection of experts, amateurs, and crackpots, and yet the net result can be remarkably accurate - not perfect, but "pretty good," as with the stock market.

Just as there are day-to-day fluctuations in a stock's value that have nothing to do with its intrinsic value, there are edits that are made day-to-day to articles on Wikipedia that may be accurate, biased, or outright nonsense. This is what Wikipedia's naysayers tend to focus on, but I think it misses the point. Rather, the more interesting fact is that Wikipedia's community and process has a set of rules that not only allow anyone to edit, but also anyone to flag something as problematic, so that discussions can take place and - equally important - controversies can be exposed.

Pick an article on, say, butterflies, and you're not likely to get a lot of controversy. Pick an article on George W. Bush and you're likely to get somewhat more. Readers do need to understand that while Wikipedia in general is quite accurate and unbiased, that any given assertion in any given article may or may not be; one must decide for oneself how much to trust these statements. (This, by the way, is why Wikipedia values references and attributions for assertions).

Yes, Wikipedia can be gamed, yes it can be flawed. But for the most part, it is like the stock market - much more comprehensive, up-to-date, and (yes) accurate in the big picture than any collection of "experts" could produce.

Cuba policy

Yesterday the Obama administration eased some restrictions on travel and transfers of money to Cuba. Seems to me that this is a reasonable step to take.

I've thought for a while that we should scrap most of our current embargo against Cuba. To be clear, the Cuban government is an evil dictatorship that abuses and represses its people, and we should not be supporting it. But I think our Cuba policy is emblematic of a mistake that we make quite frequently in our policies: we very often confuse what is justifiable or morally right with what actually achieves worthy goals. We're all familiar with the admonition that the ends don't justify the means. Our Cuba policy is a great example of the inverse to this rule: justifiable means failing to achieve our end goal.

The Cuban revolution was 50 years ago. We've been using the embargo to try to undo the revolution for 50 years. And yet Castro is still alive and has achieved a peaceful transfer of power. And meanwhile, other nations have established productive trade relations with Cuba, which means that they not only fill in the void left by the U.S. but also make it harder for us to eventually establish similar relationships. The net result is that I suspect we hurt ourselves much more than we hurt Cuba. I think that anyone who claims that the policy of isolation has been effective is out of touch with reality.

So why do we cling to it? I suspect it's two reasons: primarily the distaste for "legitimizing" the Cuban regime (never mind that that cat is out of the bag), but the other reason is of course the political clout of the Cuban-American community that cannot let go and has a degree of political clout that is quite disproportionate to their size.

My personal opinion is that we should hold our noses and scrap the embargo. We can achieve more change in Cuba through a bear hug embrace than we can through an arm's length relationship. China and Vietnam are political paradises by nobody's standard, but their populations today enjoy both a much higher standard of living and considerably more freedom than they enjoyed just 20 years ago, all due to engagement in trade. Having a Cuba that is like China or Vietnam, while distasteful, is certainly a step up from what Cuba is now.

It's been 50 years and the policy of isolation simply hasn't worked. If for no other reason than that, we should try a new policy.

Is Canada preparing to attack the US?

I'm getting quite worried about an imminent attack on the US, and this time the threat is not from radical Islamicists. I fear that our neighbor to the North is plotting an attack.

All of the evidence is there, if we as a nation would only open our eyes and face up to the facts.

First of all, I notice that Canada has slowly been creeping closer and closer - almost imperceptibly - until it has come right up against our northern border. In fact, if you just step across the 49th parallel from south to north, you'll discover that Canada is right there!

They've also been moving their populations closer to us in anticipation of an attack. Something like 75% of all Canadians live within just 90 miles of the US border! They seem so friendly, those Canadians, but why else would they be inching their country and their people so close to us if there were no underlying sinister intentions?

Finally, I'll point out the most shocking fact of all: Canada has quietly gone ahead and created their own military, their own government, and has even begun printing their own money. Why would they do these things if not for an intent to govern? Clearly they are intent upon imposing themselves upon us, usurping all for which we stand.

It is time for Americans to recognize the Canadian threat and go to defend our borders!

Twisting fairness

This morning I read a news article about an Obama administration proposal to raise taxes on the wealthy. One of the mechanisms for doing this in the proposal is to cap deductions at the 28% tax bracket.

In other words, someone in the 28% tax bracket who makes a $100 donation would effectively get a full $100 reduction in their taxable income (and a corresponding $28 reduction in taxes owed), but someone who is in the 35% tax bracket who makes a $100 donation would effectively only be able to get an $80 reduction in their taxable income. (To help with the math here: they would get the same $28 reduction in taxes as the 28% tax bracket individual. Since they are in the 35% tax bracket, this is equivalent to a reduction in taxable income of $80, since 35% of $80 is $28.) In other words, people in high tax brackets could only deduct 80% of their donations.

The piece of the story that raised my hackles a bit was where they said "White House officials said it is unfair for high-income people to receive a bigger tax break than middle-income people for claiming the same deductions or making the same charitable contributions."

This is twisting the notion of "fairness" into a pretzel, and it is an unfair (pardon my pun) characterization of how the tax deductions work.

The problem arises from the fact that we have a progressive tax system, which is by definition unfair. I don't say that as a judgment about progressive taxation - in fact, I am quite OK with it - but let's not kid ourselves by pretending that it is "fair." "Fair" means everyone gets treated equally, and progressive taxation explicitly makes a point of NOT treating everyone the same; only a flat tax would truly be "fair." We (generally) accept this unfairness, though, because it has pragmatic benefits for the country as a whole, among them (a) it allows for a lower rate of taxation for the poorest people than a flat tax would allow (for a particular level of revenue), since the wealthy effectively subsidize the poor; (b) the wealthy are presumably most able to contribute and have most benefited from societal infrastructure that made their wealth possible, so it is reasonable to ask them to pay more than others, and (c) even the higher tax rate on the wealthy consumes a smaller percentage of their required income for necessities like food and housing. It's certainly possible to have too much progressivity in the income tax (perhaps we do today, though I doubt it; it's less progressive now than it has throughout most of its history), which can amplify the differences in taxation, but the right level of progressivity is not something I feel competent to debate. My point is that if we as a nation agree to have progressive taxation, then we have thus decided that an intrinsically unfair system is something we're OK with.

Given that, to imply that people in the 35% tax bracket should not get the full deduction from charitable giving is not correcting an unfairness; rather, it is compounding unfairness upon unfairness. In particular, it conveniently forgets the fact that the high-income person seeking the deduction is already paying a higher rate of taxes. So it seems quite hypocritical to complain about them getting a bigger deduction than the 28% tax bracket donor without complaining that they are already paying more taxes on $100 of incremental income than that 28% tax bracket earner; one cannot occur without the other, after all.

So if one is to accept a progressive tax system, which has an inherent unfairness built-in, the only "fair" thing to do is to allow that wealthy individual to get the full write-off of a deduction.

As an aside, this is also precisely the reason that I get annoyed when people complain that "the wealthy" get all of the benefits of a tax cut. Well, duh - it's because of precisely this math. The wealthy pay the most in taxes, so if you cut their rates, it has the greatest dollar effect on the wealthy. It's another immutable attribute of a progressive tax system.

If all of the above sounds like a rant against progressive taxes or against taxing high-earners, please don't take it as such; I don't have a philosophical problem with either concept, and I don't think the practice has been carried beyond any appropriate boundaries. My problem is simply with the notion that the White House is advancing that somehow we should compound unfairness in the name of being fair.

As a policy matter, I'd also add that this is a bad idea for another reason. As a nation, I'd think we'd want to be encouraging high-earning individuals to be giving more to non-profits and similar, especially in tougher times when people at lower income levels are giving less. It's high-earners who are going to be providing a larger portion of non-profit budgets over the next few years. This tax proposal specifically provides a disincentive for that, which will undoubtedly lead to lower giving.

If the administration wants to tax the wealthy more, then right way to do it, frankly, is to be upfront and honest: raise the top tax bracket by some nominal amount, but let people continue to take deductions to reduce their income dollar for dollar.

But it serves no purpose to distort the concept of "fairness" to make something palatable that is wrongheaded.

Wow, I sure hope it works

I have been learning a lot lately about Keynesian economics from all the economic news of late. The gist of this theory is that massive government spending can help pull a nation out of recession, in the same way that World War II is often credited with ending the Great Depression. Of course, this also has obvious impacts on interest rates, inflation, and the national debt; in fact, the Congressional Budget Office predicts that the stimulous plan could increase output by 1.4%-4.1% by the end of this year, but that it would actually lead to a shrinkage of 0.1-0.3% by 2019.

I've always been something of a deficit hawk. I don't mind carrying a small deficit: debt provides leverage, a little of which is a good thing. But the current crisis and collapse of so many financial institutions illustrates beautifully the problems of too much leverage when things turn sour. One should always have the cushion of being able to fairly easily take on more debt; if you're at your debt limit, you have little margin for error, and little maneuverability. But being a deficit hawk must also have its limits: attempts to balance the budget and tighten the money supply are widely blamed for exacerbating the great depression.

So what do I think of the Obama plan? Well, if Keynes was right, then it's probably the right thing to do, regardless of whatever warts it has. And if Keynes was wrong...well, I hope that the spending is at least productive and useful. Trouble is, I don't know which it is.

Either way: I'm very disappointed to see such lopsided voting. This is problematic for a few reasons. First of all, it suggests that for all the talk of bipartisanship, it isn't actually happening. Secondly, I want both parties to have skin in the game. When significant legislation passes with only one party's votes, then the other party can play blame-game and use it for political gain later. The Democrats did this during Bush's tenure, and the Republicans seem to be doing the same. If it's a more evenly distributed vote, then both parties are making a commitment to solving the problem and giving up the opportunity to use the vote as a political weapon. Finally, the lopsided vote certainly reinforces the suspicion that Democrats are more interested in pet spending projects or advancing other agendas than in a bill that is truly targeted to economic stimulus and only economic stimulus. I get that the Democrats won the election, but they are repeating Bush's mistake of confusing a victory with a mandate.

Taking DNA samples upon arrest

There is a somewhat controversial proposal in Washington State to take a DNA sample from people when they are arrested, regardless of whether or not they are charged with a crime (much less convicted).

I confess that I don't understand why this is controversial. If it's OK to take fingerprints from arrested people (and it seems to be), then a DNA sample is really nothing more than a far more accurate (and more commonly left-behind at the scene of a crime) means of identification. As long as the DNA sample is, like fingerprints, used strictly for identification purposes (rather than, say, determining hereditary diseases or other genetic information, which absolutely would be a violation of privacy), I can't see how this would be legally distinguishable from fingerprinting.

After all, the taking of fingerprints upon arrest is to enable identification, so the legal underpinning for this practice must supports the notion of enabling future identification. If that's the case, then DNA samples meet the same bar in terms of what it accomplishes.

Conversely, if DNA samples are somehow unconstitutional as an identification mechanism (again, assuming that it isn't used for anything beyond that), then it seems to me that fingerprinting must also be unconstitutional.

I usually agree with the ACLU's point of view on things, and I'm certainly not wild about increasing the government's ability to keep tabs on citizens, but I don't understand the distinction the ACLU proposes between fingerprints and DNA samples in opposing this measure.

Stimulous problems

Two details related to the bailout and the proposed stimulus bill caught my attention.

The first is the proposal to limit executive pay to $500,000 at any company receiving bailout money. This is a classic illustration of something that is a great idea that is nevertheless a terrible idea to mandate. Should companies that are receiving taxpayer rescues be paying obscene compensation, flying fancy private jets, etc.? Of course not. So if it's such a bad idea to engage in such practices, why is it a bad idea to ban them in the strings tied to the money? The biggest reason is the classic law of unintended consequences.

In particular, companies today argue that if they don't pay a lot of money to their CEO, they will not be able to retain good CEO talent. They're half right about that, but not in the way that they think. They will be able to retain their lousy CEO that got them into the mess because THAT CEO has nowhere else to go in this economy. But think about what is undoubtedly the best course of action for many troubled companies: they should dump their existing overpaid CEO and bring in smart, proven turnaround talent CEOs. I suspect that good turnaround artists are in fact in high demand right now, and $500K seems like it could well be a small salary to dangle for such a high-stress and high-risk role. (Yes, turnaround CEOs should be taking equity compensation to align long-term interests, but there typically needs to be a strong salary component as well to recognize the risk). At the very least, it is an arbitrary number.

Another example: Corporate jets. A corporate jet that is used as an executive perk is obviously wasteful and not a good use of taxpayer dollars. But there are many companies that in fact use their jets for very productive purposes, and for which a corporate jet actually makes operational sense. (I think our own president provides an example of this. Do we really want the President flying commercial?) A fact of airplane economics is that the fixed costs are enormously high, so any additional flying actually lowers the overall cost-per-hour of flight, so - assuming that the company is properly compensated (i.e., reimbursed at appropriate market rates) - letting a business jet make additional flights for personal reasons can actually lower the cost of business for the company. I am not saying that many companies with corporate jets do in fact make economically sensible use of them; I'm simply saying that corporate jets are not a-priori wasteful and inappropriate.

There are more, but in general even with the best of intentions (and the intentions behind this provision are noble indeed!), government is not good at running businesses, and this is a one-size-fits-all approach that in practice will likely be one-size-fits none.

The second stimulus detail to catch my eye is the "buy American" restriction that is proposed. There's a great commentary on this in the Los Angeles Times, but this is another case of Great Idea/Bad Rule. Do I want money spent in America on American products and services? Heck, yes. But it has to be because the right products/services are here. And it is in our interests and the interests of our economy to have healthy trading partners who also prosper and become customers for American products. Protectionism has been shown time and again to reduce overall trade and raise prices, which are precisely two outcomes we do not want to have. In fact, there is a lot of evidence that the Smoot Hawley Act was a factor in prolonging, rather than relieving the depression. Why on earth would we do something that is likely to make things worse?

While I take points away from Obama for letting the whole stimulus bill get weighed down and lost, I give him credit on this one: he has signaled opposition to the Buy American provision. Good for him. As painful as it might be for stimulus money to go out of the country, that medicine is almost certainly less painful and more effective than protectionist restrictions.

Taxes

Twice yesterday I received an email that is being forwarded around that lists all of the taxes that we pay now, claims (erroneously) that 100 years ago none of these existed, etc. and basically makes the point that taxes are simply too high.

I think that this claim is meaningless at best and whining at worst. It's like making the claim that "boxes are too big." Ummm...ok, boxes are too big...for what? Which boxes? A matchbox is too big too hold a crumb, too small to hold a dishwasher.

The claim "taxes are too high" only has meaning in relation to what we get for those taxes. If the government's budget is $1, then our tax rate is clearly too high; if the government's budget is $10 Trillion, our tax rate is clearly too low.

So I think that any productive claim about tax levels can only be had in relation to:

• How much is government spending, and whether it is too much or too little (and, of course, whether it can be done more efficiently)
• How much financing we are willing to bear to support that level of spend (some national debt is a good thing, too much is a drag on the economy in the same way that too-high taxes are also a drag)
• How the tax burden that remains is distributed among taxpayers.

Only in this context can any statement about whether taxes are too high or low have any meaning whatsoever. Thus I tend to be quite dismissive about claims that our taxes are too high (never mind that for much of the past hundred years they've been a lot higher) when they come without corresponding suggestions of significant spending to cut.
There are additional arguments for lower taxes. One is the trickle-down argument, whereby lower taxes lead to greater economic activity, which leads to higher overall receipts. I'm not an economist so I can't evaluate the merits of this although it does seem like a reasonable theory. But it doesn't change the fact that it is still arguing for alignment of tax revenue with spending. The other argument is "starve the beast" whereby reducing revenues will lead to lower spending. Again, this still tries to reconcile spending and receipts, so it is a rational discussion to have. (Of course, even with my earlier disclaimer, I believe that we have ample evidence that the beast keeps spending even when starved, leading to huge deficits. Exhibit A here is the Reagan years.)

I am particularly amused by the anti-tax missives that whine about how the tax system punishing entrepreneurs and other successful people. They, after all, do pay the highest incremental tax rates. This is, of course, a direct result of having a progressive taxation system. There is only one way to avoid this consequence: eliminate the progressive rate structure and go to a flat (or a declining-rate) tax. I've actually pointed this fact out to some of the anti-tax people, who have surprisingly disagreed with this conclusion. (If anybody can tell me how I am wrong, though, I'd love to hear it, but I think the mathematics is pretty clear).

I'm not opposed to a flat tax or declining-rate tax per-se, but here's another fact about them: for a given level of government spend, switching from a progressive to a non-progressive tax scheme must necessarily shift more of the burden to the poorer segments of society. At some level, this is a good thing: I'm a huge believer that we want broad participation, that we want as many people as possible to be a paying customers of government services, even if it's paying just a little. Of course, the downside is that the poorest segments of the population are by definition not a great source of revenue, so if you went flat you'd have to give them a fairly substantial rate hike to generate enough revenue to compensate for the substantial cut that going flat would give to the wealthiest. And a rate hike on the poorest segment would be a far greater hardship for a far greater number of people than the current progressive system imposes on the wealthiest. I'm going to go out on a limb and suggest that this is perhaps the reason we decided to adopt progressive taxes.

There's another thing about the tax "debate" (I use that word generously) that irks me, and that is all of the class-warfare terminology that gets thrown around. Particularly, the Democrats love to complain about "tax cuts for the rich." Of course tax cuts benefit the wealthy more than the poor - the wealthy pay vastly more in taxes! (And our progressive tax system amplifies this. If you don't believe me, just do the math.) So if you cut taxes, the people that pay the most will get the most benefit. There's really only one way to avoid this artifact: only cut the taxes for the lowest end of the spectrum, the people that are barely paying taxes at all., and keep the taxes the same for everyone above that level. While such a policy would be good for those poor people, it's a bad idea for several reasons: (a) we're simply not talking about much money, so why bother; and (b) you would inevitably end up making many people pay essentially no taxes, which is a very bad idea from both a fairness point of view, but also from the participation point of view mentioned above; and (c) it's not a fair way to distribute a tax cut if most people - particularly those who pay the most - get none of the benefit of the cut.

Cut taxes or don't cut taxes, I don't really care beyond how the resulting revenues compare to the level of spending and debt (both of which I do care a lot about). But if taxes are cut, don't complain about the fact that it affects different groups differently.

Folks, don't we have real problems to solve?

Apparently now South Carolina is trying to ban profanity. Joy. Never mind that this is patently unconstitutional - at least it used to be.

On the downside, distracting governments with random acts of...acts keeps them from doing useful work. On the bright side, it keeps them from...doing anything. Hmmm...maybe this isn't such a bad thing for them to work on (provided, of course, that it never actually takes force)?

Gotta love the Confederate states for periodically reminding us why the rest of the country has all of those negative stereotypes about them. (Ooh, that was below the belt.)

Waxing philosophical

For Christmas, Luann bought me a few books that explore philosophical issues, and that got me to over-thinking a few things.

Religion and philosophy often intersect, and I had an insight about the statement "I believe in God." I realized that this is actually a dual statement. First, it is a statement about the speaker's beliefs, and as such is pretty much irrefutably true - if they say "I believe in God," then unless you have reason to believe they are lying, you can pretty much assume that yes, they do in fact believe in God.

But it is also necessarily a definitional statement. To play a bit of linguistic algebra, "I believe in God" is equal in meaning to the statement "I believe in the God that I believe in." (Obviously, since "I believe in the God that I don't believe in" is nonsensical.) In other words, this second meaning implies that there exists a particular meaning to the (inherently ambiguous) word "God". This second meaning is, of course, neither true nor false - it is a statement of definition. And it has to be - after all, if everyone agreed on what "God" means, then we wouldn't have so many religions nor so many conflicts based on religion.

I don't know if there's a meaningful point to this, it's just an insight that I had. So I will move on to a second, unrelated overthinking insight.

Science is not truth, we should not confuse the two. Science is a model of truth. The better that this model can mimic reality or predict it, the better the science is, but it is not itself "truth." Newton's theories of motion do a great job of modeling the world around us and even let us get 747s to fly, but alas, they have already been shown to be poor models at the edges. Evolution is a great model - it has its flaws, but it works better than any other model; it will likely be replaced by a better model at some point. But none of these theories are "true," they are merely "good models."

I thought about this the other day, when we brought our new puppy to obedience class. The instructor told us all sorts of things about why we should do this or that, expressing it in terms of how the dog thinks, how the pack works. A lot of this is about establishing who is dominant. And it occurred to me that here is a great example of confusing science with truth. It is very easy to think "here is what the dog is thinking" and act based on that. While this works very effectively for training the dog, it is ridiculous to assume that this is in fact what's going on inside the dog's head. Rather, the "correct" way to think about this is that it is a predictive model for whatever the dog is thinking. Perhaps they are thinking in terms of dominance/pack, but especially given that they don't have the level of abstract thinking that these words require, it is almost certainly some doggie equivalent of these notions, and we really have no idea whether it really is dominance/pack or something else that just exhibits similar behavioral tendencies.

Am I splitting hairs and being a bit retentive on this point of science and truth not being the same? Absolutely, but I think it is a useful point to make. When one thinks of science as a model, then debate leads to refinement and improvement of the model, which is non-controversial. When one thinks of science as truth, then debate often leads to a somewhat more emotional and visceral reaction. After all, "truth" is binary - something is or is not true. But models are not. They are either bad, good, or better.

More security charades

The TSA is proposing a new set of security regulations for "large" aircraft, defined (rather arbitrarily) as anything over 12,500lbs. Among the proposed requirements are criminal background checks for any crew members, matching of passengers to no-fly lists, prohibiting weapons or dangerous materials, and audits - at the operator's expense.

At one level, this proposal may seem reasonable. After all, all of these are currently required of the airlines; airplanes in the 12,500lb category and up include small jets like Citations which are often used for charter operations, so this may seem like it is simply closing a loophole in current aviation security.

But there are two fatal problems with this point of view. The first is that commercial and private aviation are fundamentally different. The former is scheduled prior to being sold, and any individual consumer of the transportation has a reasonable expectation of being provided security from the strangers around them; in the private aviation world, this is not the case: one does not fly with strangers, and there is no up-front schedule.

The second problem with the "closing a loophole" point of view is that this "loophole" has no limit. Fundamentally, if the goal is to close off transportation options for terrorists, surely an 11,000lb aircraft would work just as well as 12,500lb aircraft but would avoid the additional layers of security. And if an 11,000lb aircraft works, then perhaps the regulations should cover anything larger than 6,000lbs. In which case I suspect that any terrorist with half a brain would find a way to get a 5,000lb aircraft to work. And so on until all private aviation in the country is subjected to TSA-level security every time they want to dust their crops or fly their friends to the next county for a hamburger. And at that point, a smart terrorist would follow Timothy McVeigh's example and pack a pile of explosives into a rented U-Haul (which, incidentally, can pack a lot more punch than a small jet). Which would argue in favor of similar restrictions on U-Hauls. Perhaps you see where I am going with this, and where I believe this sort of security creep ultimately leads.

Fundamentally, what is so dangerous about this proposal is that it is crossing a line from public and commercial transportation into private and charter transportation. This may seem like a semantic distinction, but it is precisely the boundary between where they have a legitimate role to play and where they have no business. If this proposal is put into effect, then it will be a precedent to allow the TSA to declare jurisdiction over any random thing they want, and it will only be their good intentions and discretion that limits abuse.

There are, of course, other reasons to strongly dislike this proposal. There is the fact that there is no problem which is being solved. General aviation simply has not been a security problem.

And even if we were to take on faith that there really is a problem here to solve, these sorts of security measures don't increase actual security, and in fact likely make security worse. My evidence for this is the flying restrictions that were placed around the Washington DC area immediately after Sept. 11. In the years since, a large number of pilots have violated this airspace, after which they are typically intercepted by military fighter jets, detained by the FBI for a period of time, lose their license and undergo considerable expense and hassle. Now I have little tolerance for pilots who should know the rules and follow them (despite the rules being hard to follow, but that's a separate rant), but consider that fully 100% of these airspace violations turned out to be inadvertant and by pilots who posed no security threat whatsoever. Think of the cost of the fighter jet intercepts and the opportunity cost of having the FBI grilling pilots who simply made a mistake, and you realize that we're spending a lot of time and energy on people who are not security threats. What the TSA is proposing only expands this ludicrous approach to security.

We Americans take it on principle that we should have freedom of movement in this country without having to justify anything. We accept that we may lose such freedom after appropriate process (e.g., losing a license after a proper DUI conviction), but we do not accept having the burden of proof that we are entitled to do something. As a means of transportation, general aviation differs from privately owned and operated automobiles or taxis/limousines in really only two respects: speed to destination, and cost. And Timothy McVeigh proved rather conclusively that they don't differ much from a security point of view either. So this regulation, if passed, provides

The TSA should rescind this power-grab and focus on things that actually provide security and simultaneously protect our freedom, rather than trampling it.

Follow up on the "death of newspapers."

A great article today in the New Yorker by James Surowiecki discusses the "death of newspapers," which I addressed a few days ago. While we both agree that margins for newspapers are coming down (into the red for many for sure), he's a bit more pessimistic than I am about the final outcome: "Soon enough, we’re going to start getting what we pay for, and we may find out just how little that is."

That may be, although I think that we'll still get quality news, just via other media.

Here's the part, though, that I loved - I think he makes my point exactly (I am one of the "many" in the last sentence):

Papers now seem to be the equivalent of the railroads at the start of the twentieth century—a once-great business eclipsed by a new technology. In a famous 1960 article called “Marketing Myopia,” Theodore Levitt held up the railroads as a quintessential example of companies’ inability to adapt to changing circumstances. Levitt argued that a focus on products rather than on customers led the companies to misunderstand their core business. Had the bosses realized that they were in the transportation business, rather than the railroad business, they could have moved into trucking and air transport, rather than letting other companies dominate. By extension, many argue that if newspapers had understood they were in the information business, rather than the print business, they would have adapted more quickly and more successfully to the Net.

A small step in the right direction

This from the Wall St. Journal today: the RIAA is going to stop suing file sharers. Well, at least they'll be doing less of it and trying other things first.

I think that this is a sign that the RIAA is finally starting to realize that while they may be morally and legally justified in suing people who swap music files, there is a huge difference between what is justifiable and what is sensible.

I'm still not super happy with this because the RIAA is still using ISPs as their enforcement mechanism, but at least it is a lot less heavy handed and it seems to have an actual process around it, and one that protects privacy at least somewhat.

A journey of 1000 miles begins with a single step.

A Music Tax?

Over the past few months there have been a number of proposals for ISPs to assess a fee from users to cover the cost of unauthorized music sharing. One such proposal is discussed here.

The theory behind the proposal sounds reasonable, at least at first blush: by collecting a fee, labels and artists would be compensated for their music and people would not have to worry about being sued. The recording industry and their artists are (arguably - more on this below) losing a lot of money to illegally shared music. This is no different from shoplifting. Retailers cover their shoplifting costs by raising the prices for everyone, so one can see the motivation here.

But this is a seriously flawed idea for a number of reasons. There is a great writeup of why it is a bad idea, but I'll weigh in with my argument.

The biggest problem with this model is that it rewards bad behavior on two levels. At the consumer level, it provides an actual disincentive to legal purchasing of music. After all, if I have to pay the fee, then why should I pay for music a second time? In fact, this model proposes to punish the very people who are the paying customers that the labels and artists should want to encourage while rewarding the very pirates who they have been vilifying and suing. There is only one word to describe this: "stupid."

But the perverse consequences are not limited to consumers: a music tax (and let's be clear, it is in fact a tax) would also reward record labels and musicians who are unskilled and who very rightly deserve to fail in the marketplace by providing them with a revenue stream that is disconnected to whatever value (artistic or otherwise) they provide. I'm hearing the word "stupid" pop into my head again, but this time with a new adjective: "insidious." This is because not only does this proposal reward entities that should rightly fail, but it's actually using independent 3rd party organizations (ISPs, college campuses, etc.) to collect these rewards.

There is a way to avoid this problem, of course. If one wants to ensure that only musicians (and their labels) whose music is being consumed get the rewards, then one simply needs to monitor what is being shared/played and assess fees based on that. But one need only think about this for a moment to realize that the privacy violations and bureaucracy requirements for such a system would make even the North Koreans blush.

All around, this proposal has good intentions but completely misses the mark in solving the "problem." Which brings me to my final point, the source of my quotes around "problem." Namely, I think the RIAA, labels, and many musicians (but not all!) are confusing "problem" with "opportunity." Let me be very clear on one point: illegal sharing of copyrighted material is theft, pure and simple. One can try to prosecute it, which has been the RIAA's favorite tactics to date (and which has not worked very well). One can try to turn illegal into quasi-legal, as this proposal tries to do. But I'd propose that the best solution is to make the illegal legal. That is, give the music away.

Obviously, this is a risky strategy, and it is something that individual musicians and labels must decide whether or not to do, rather than an industry-wide edict of some point. But it could be the most rational strategy for making money. There is a great post on this here, but my argument is quite simple: you can make more money by providing huge distribution for your music and treating it as a marketing tool to get people to attend concerts, buy merchandise, etc., than you can by limiting access to the music itself. This is a model that was not possible in the days of vinyl or CDs because of the costs of producing and distributing plastic. But today digital distribution has driven these costs to zero, so it is for the first time possible to switch from the music being the product to the music being the promotional tool.

This is not just a theoretical argument. Many bands have demonstrated that it can work. Heck, even pre-digital bands like the Grateful Dead got it: they invited their fans to record their concerts and freely trade tapes of the concerts. The net result was an almost cult-like following, and the Grateful Dead was for many years one of the top grossing acts in the country. Phish followed the same model in the 90s and was also incredibly successful, giving their music away.

Is this a threat to the traditional recording label business model? Sure it is. And it frankly shifts even more power to the musicians. The market can adapt by trying to prop-up an inefficient dying model (as the music tax proposal attempts to do), or it can adapt by switching over time to one that better serves musicians and their fans. It's clear to me which is the right model.

The death of newspapers

With the bankruptcy filing of the Tribune company last week I'm hearing a lot of talk about the "death of newspapers" again. The newspaper business has of course been declining for years now, but I think this particular phrase muddies the issue.

In particular, I think we frequently confuse the three things that comprise "the newspaper business":

• Professional journalism (as opposed, for example, to the largely amateur blogosphere) with a set of fairly widely understood principles regarding objectivity, sources, etc.
• A business model built around advertising, the two biggest components of which are ads placed by businesses to attract consumers, and consumer-to-consumer ads (the classifieds).
• A distribution model based on paper, ink, and gasoline.

I think that of these, only the first (professional journalism) is core. It is the only true value that a newspaper company brings to its readers. The advertising-based business model is simply a means to monetize that value, and paper is nothing more than a distribution mechanism. Either of these can (and indeed must!) change for newspapers to survive. But any newspaper company that hopes to survive must recognize that they are not in the "news-paper" business, but rather that they are in the news business.

I suspect that one might argue that I am mistaken, that newspapers are in the advertising business, and one might even go so far as to say that the news is a way of aggregating eyeballs for advertisers. This argument is a valid way to describe how newspapers made money once upon a time, but it is problematic for two reasons.

The first problem is that it puts advertising ahead of news as a core competency. But at the end of the day, newspapers attract readers primarily on the quality of the news (and to a lesser extent the classifieds, which I will come to shortly); they can still be a newspaper if they can monetize the news in alternative ways from advertising, but if they were to jettison the news in favor of other formats to attract eyeballs and advertisers, they would in all but the rarest cases fail because they would be competing with more pure-play advertising platforms and would be in an area outside of their competency.

But the second problem is a larger one: the very reason newspapers were able to make money - particularly in classifieds - is that they were a place of concentrated eyeballs. Once upon a time, huge portions of the population read newspapers regularly, and only had one or two major newspapers from which to choose. Advertising in a newspaper was a sure-fire way to reach a huge population, a one-stop shop. No more. TV and radio, of course, disaggregated a chunk of this a long time ago, but the Internet has disaggregated most of the rest. People get their news from a wide variety of sources, many national. Where people once relied on local broadcasters and local newspapers for all of their news, they now can get much of this from national news providers. This reduces the value to advertisers greatly. And squeezing from the other side are services like Craigslist, which I believe are the biggest threat to the classified advertising model, and which are frankly far more efficient and less expensive than the traditional advertising model.

The net of these trends is that I believe that the traditional advertising model for newspapers is essentially dead, and at the very least cannot support nearly the current number of newspapers. There is a lot of consolidation which must occur, and more companies will need to go out of business.

Ideally, these companies would be able to identify more sustainable business models to support the delivery of news; sadly, this has proven difficult: readers have not been anxious to pay for subscriptions, and few papers have found alternative advertising models that work as well as the old models once did. If I had a brilliant insight for new business models, I'd offer it here. (No, wait - I'd go off and make a mint by implementing it.)

As for the paper-based distribution mechanism, this is simply not core to a newspaper. Some news organizations are reducing or eliminating their print operations in favor of going on-line. My personal prediction is that paper will not go away until there exists low cost, high-resolution durable (i.e., capable of withstanding spilled coffee) screens that people can read at the breakfast table or on the train. (The New York Times on my iPhone actually is starting to come close to this. It's surprisingly legible, well formatted for the screen, and I can read it in all of the traditional newspaper-reading places.) Nevertheless, my point here is that paper and ink are nothing more than a slow and expensive delivery mechanism, and one which will become increasingly irrelevant; nobody should mourn this shrinkage, least of all the smart newspaper companies because printing and delivering all of that paper is a huge expense, and that expense is going down. This actually creates an opportunity to become something that it never really has been previously: a pure-play news delivery business, free to try a wide variety of models for making money. The lowering of capital costs (printing presses, delivery trucks, etc.) should enable many more niche publications to provide more variety of news at lower cost. Yes, it means employing fewer people in the industry as a whole, but there is today a lot of redundancy in this business due to its antiquated models. Just look at a press conference during the presidential race: you'd see dozens of reporters, yet there were not dozens of significantly different stories written.

But none of this means that newspapers as such are dead. Or, more importantly, that professional journalism is dying (another claim I hear all too frequently). It is certainly transforming, and yes, it is also shrinking in the process. But through all of this, I believe that the average person has more professionally reported news available to them now than at any other time in history. That doesn't seem like death to me.

Bailout for homeowners?

A lot of politicians are talking about a bailout for homeowners to match the bailout that is currently underway for the financial sector. This makes me very nervous.

I understand the motivations behind this, particularly when big businesses get a hand out but the little guy who is working hard (and may be losing his job in this recession) doesn't; there's something unseemly and unfair about the asymmetry.

But there are two key differences between the financial sector and struggling homeowners. The first (and most important) is the collateral damage: when the credit market freezes, the entire economy suffers. (See my previous post on "too big to fail.") The economy can tolerate a single institution failing - which is why Lehman and Bear Stearns were allowed to fail . But when this spreads to the industry as a whole, help is required; this is the goal of the rescue package.

And this gets to the other key difference: there are many homeowners who are in homes that they simply cannot afford or never should have bought in the first place. I hate to say this because it is a coldhearted unsympathetic thing to say, but foreclosure is not only the right outcome for these homeowners, it is a necessary precondition for the housing market and banking sectors in particular and the economy in general to recover. Keeping these people in homes that they cannot afford does no favors to anybody. The homeowners will be perpetually on the brink, the banks will continue to hold high-risk high-defaulting mortgages, and we will have done nothing to correct the overall system.

I need to clarify that I do not believe foreclosure is the right thing for all homeowners that is falling behind or underwater. There are legitimate scenarios where I believe that relief for homeowners can be justified, including:

• Victims of truly fraudulent or predatory lending.
  
• Owners who actually put down 20% and had a good record of payments but are struggling due to the economic downturn.
• Owners who have faced dramatic revisions to ARM rates, far beyond what a "reasonable" person could have expected.

Note that I say relief "can" be justified for these scenarios, not that it "is" justified. My point here is not to advocate for government relief, but rather to say that foreclosure for these sorts of scenarios strikes me as a very undesirable outcome, and if foreclosures can be mitigated through reasonable measures, that seems like a good thing.

In these scenarios, I happen to believe that the best relief is not a government bailout, but rather for the banks which hold the mortgages to renegotiate the terms to something more affordable. The bank should be motivated to do so because losing some money is certainly preferrable to writing off an entire loan, and because selling a foreclosed house in this market is clearly a money loser, and the homeowner is obviously motivated to do this because it keeps them in their house. The government - especially via its bailout - has the opportunity to prod banks here, without mandating specific actions.

On the other hand, it is the homeowners that are only in homes due to overly lax and aggressive lending standards - such as folks who never provided a down payment or who never had the income they claimed to have, and who are not able to reliably make their payments - who I'm afraid simply need to go back to square one. When they are creditworthy to appropriate standards of risk, by all means they should be given loans to buy a house, but not until then.

The problem with solutions such as Obama's proposed blanket ban on foreclosures, though, is that it is indiscriminate: it helps out some truly deserving people, but it also helps forestall foreclosure in many cases where - I'm sorry to say - a very necessary part of the nation's economic healing.

"Too big to fail"

We've heard this phrase a few times, most recently with Fannie Mae, Freddie Mac, and AIG: it is "Too big to fail." I heard it yesterday on a financial show talking about how important the banking sector is to the economy - the commentator said that if a shoe factory fails, it fails and someone else will make shoes, but if the banking sector fails (as the credit freeze demonstrates) then it creates a lot of collateral damage.

I don't have a problem with logic that declares something "too big to fail" as such, but it occurs to me that anytime we use this phrase, there are two implications which we cannot ignore.

The first is that if something is too big too fail, that it must be regulated. I'm not a fan of excessive regulation, and I believe in markets, but markets only work because the risk of failure keeps investors and businesses prudent. I.e., excessive speculation and risk taking are curbed by the possibility of losses. Take away the possibility of failure, and you are creating incentives for reckless behavior - writing bad insurance policies, loaning to people who are not creditworthy, etc. So if we are going to label an entity as being too big to fail, we must compensate for this by replacing the market-based constraints on risk taking with formal regulatory constraints. Otherwise, nothing will prevent the conditions that led to the near-failure in the first place.

The second implication is that if something is too big to fail, then there has been a marketplace breakdown that has concentrated too much market share in that entity. One of the great things about a marketplace is that their distributed nature make them resilient to individual failures - in fact, those failures are a necessary and integral part of the functioning of a marketplace. Risk taking is rewarded when wisely taken; innovation necessarily involves risks. And failure checks excessive risk taking and weeds out bad ideas and weak execution. Without failure, there can be no innovation, no learning. A marketplace that does not have enough diversity of players to suffer a periodic failure of one or more of those players is therefore not a functioning one.

A concentrated market may not rise to the level of illegal monopoly, but I would argue that it's effects can be just as bad. Therefore, per my regulatory argument above, we have a choice in these situations. We can fix the marketplace by finding mechanisms to create the distributed failure-tolerant environment I describe above that is an integral aspect of a functioning market. Or we can decide for one reason or another that we are OK with the market concentration and instead choose to replace the risk of failure with a regulatory regime.

What is not a viable option, though, is to choose not to choose. If something is too big to fail, we cannot rescue it and then do nothing to either fix the market concentration or regulate it. Otherwise, we are simply inviting more of the same problems.

Income Gap

There was a story in this morning's paper about Obama's and McCain's plans to reduce the income gap in this country. In particular, it referred to the income gap as a "problem." That word choice struck me as the problem.

In particular: is the income gap a "problem?" And if so, is it something that is a proper goal of government to fix?

I would assert that the income gap is decidedly not a problem per se. After all, if it is a problem, then eliminating it would be a good thing. But if we think about a world where there is no income gap, it is a world where everyone - by definition - earns the same amount; anything else means that there is some sort of gap. Even ignoring the socialist/communist overtones of that "utopia," it clearly flies in the face of the obvious fact that different people with different skills bring different values to the table. There is a reason that some people are paid more in some jobs than others are paid, and that's simply not a problem. And there is certainly something very disturbing about the notion that upside for innovation, entrepreneurship, or investment should be capped.

No, I think the right way to look at the income gap is that it is a symptom, an indicator of something else, which may or may not itself be a problem.

For example, I'd argue that the greater concentration of wealth in society over the past 10 years or so is indicative of a failure to invest in opportunities for broad-based wealth generation at the lower levels. When the wealthiest Americans are seeing 10% growth in earnings while the average earnings for the rest are small or stagnant, the problem is not that the wealthy are making money; it's that the rest aren't.

Is this something for government to fix? To some degree, yes: government is responsible for education, for ensuring a proper regulatory environment for jobs and growth, etc. If this leads to increased economic growth and opportunities, that's terrific. But here's the thing: that may or may not narrow the income gap, and that's OK. The most important things are total growth and that the opportunities for growth are fairly distributed; it is NOT a goal that the growth itself be evenly distributed. If the richest Americans are grow (say) 10% over some period of time while the rest of America is grows 8%, then we should be thrilled at the overall growth rather than worrying about the fact that the rich outperformed the poor.

I should also note that the financial crisis is undoubtedly affecting the richest Americans more than average Americans if only because the richest Americans have the highest percentage of their wealth in stocks and real-estate. So I predict that in the current 1-3 year period, the income gap will actually decrease. Nobody is feeling sorry for the rich because of this (nor should they), but if one is going to complain about the rich getting ahead of the rest during good times, one should in fairness acknowledge the hit when bad times arrive.

Colorado Initiative 48

Voters in Colorado next week will be voting on Initiative 48, which defines a person as beginning at the moment of conception.

I think this is terrific to get this on the ballot. Not because of the merits of the question, but because I think that this question is precisely the elephant in the room in the abortion debate (see my previous commentary on this issue). The abortion debate will continue to consist of people talking past each other so long as either side refuses to recognize that this very question is the core of the debate: nobody advocates murder or infanticide, not even the most ardent pro-choice advocate. The pro-choice argument boils down to an argument about triage (in the case of the life of the mother/incest/rape), or a personal choice unencumbered by "murder" issues precisely because the fetus is, in the mind of a pro-choice advocate, not yet a person.

So this initiative finally puts the key issue front and center. We define a moment of personhood, and from that all else will follow.

Now, of course, I think this is a case of "be careful what you ask for, you just might get it." If one defines a person - with all of the legal implications that entails - as beginning at the moment of conception, then I think there will be a raft of unintended consequences. Of course, the abortion question does indeed get somewhat settled (to the degree that it follows from the definition, even if many people do not believe it to be a wise decision), which I presume is the motivation for Initiative 48. But conferring upon a fertilized egg all of the rights of a person also necessarily means that the embryo must be protected: miscarriages, some forms of birth control, in-vitro fertilization, etc. could all very likely generate criminal scenarios where none exists today (and for which there is no controversy today).

For these reasons (and those of my earlier post), I do not believe that this is a good amendment. The definition of when personhood begins is essentially arbitrary. Frankly, I'd ask why conception as the point is a matter of religious faith for so many people when I'm not aware that any holy text address this point specifically.

Personally, I think that it's a "person" from a moral point of view sometime in the middle of the gestation (and that's about as specific as I know how to be), and from a legal point of view at birth. But I cannot defend that opinion as "fact"; it's essentially a judgment call, and a matter of consensus.

At least this ballot measure will decide what that consensus is - or what it is not.