Recently reported in the MIT Technology Review was the results of research modeling billions of interactions between buyers and sellers. The data would appear to undermine the argument used to defend invasive regulation, price-fixing, and anti-trust laws, which operate under the assumption that all inconvenient price increases must be the result of shady conspiracies by industry leaders.

The results make interesting reading.  It turns out that a crucial factor is the speed at which buyers and sellers react to the market. When buyers react quickest, sellers are forced to match the best possible value for money and prices tend to drop. By contrast, when sellers react quickest, they are quick to copy others offering poor value for money. This reduces the number of sellers offering good value for money in a vicious cycle that drives prices as high as possible. This is the emergence of a cartel and it happens in these guys’ model without any collusion between sellers. Instead, it is an emergent property of the market place that happens when the sellers outperform buyers in the way they react to market conditions. “This cartel organization is not due to an explicit collusion among agents; instead it arises spontaneously from the maximization of the individual payoffs,” say Peixoto and Bornholdt.

I particularly loved the echoes of “Spontaneous Order” in this quote. Of course, the writers of this particular article are still scratching their heads, unable to conceive of a world without regulatory and punitive market controls. Simply leaving market agents alone would be too radical, but at least they acknowledge that even new strategies would still be subject to the law of unintended consequences:

But this work muddies the waters somewhat. If cartel-like behaviour is an emergent property of an ordinary market, how should it be controlled, regulated and punished? The good news is that various strategies could easily be tested using this kind of agent-based model. The bad is that new strategies may themselves lead to emergent properties that are hard to spot in advance.

The abstract is available at the Cornell University Library. Here’s a direct link to the PDF of the paper published by Tiago P. Peixoto and Stefan Bornholdt of the Institute for Theoretical Physics in Bremen, Germany: No need for conspiracy: Self-organized cartel formation in a modified trust game

This put a smile on my face today. CNN reports that according to the latest statement from the U.S. Treasury, the government had an operating cash balance Wednesday of $73.8 billion. This puts it in second place to Apple Computer’s healthy stash of $76.2 billion in cash and marketable securities.

The article continues to explain why Apple has been so successful lately, and doesn’t mention the current tussle in Washington over the debt ceiling, which has delayed budget funding that would probably put Uncle Sam back on top. Even if Apple seems to be able to “print money” with its wildly popular iPhones and iPads, it’s still far easier to ask the Fed to just type in a few zeroes when necessity demands it. But at least for a moment, credit is given to the “old school” way of making money: creating value for consumers.

This unusual event is ironically as things should always be. One entity creates so much value for people that they willingly stand in line before the doors open to hand over wads of cash. Combined with sound financial practices, you can see why Apple would have so much in the bank. Compare that to the government, which some would claim does “a lot of public good” – yet the only lines of people you see eager to pay the government form at the last possible hour on April 15 – and those are only to avoid the threat of having the IRS show up at the door with handcuffs…

In the words of the classic troll, “I’ll just leave this here”…

Professor Renata Salecl explores the paralysing anxiety and dissatisfaction surrounding limitless choice. Does the freedom to be the architects of our own lives actually hinder rather than help us? Does our preoccupation with choosing and consuming actually obstruct social change?

I’ve always loved the presentation of these whiteboard-animated lectures, though most of the economics pieces are predictably anti-producer/business/etc. I though this one in particular about “choice” might spark some interesting debate among the Austrians.

Discuss…

A stunning video documentary by Dateline (Australia) about the 64 million vacant apartments in China, a result of the government building 10 new cities each year. All this to keep up the appearance of endless economic growth. A classic example of what happens when policy is determined by chasing favorable statistics (reality be damned). It goes without saying that the only thing that makes this possible is the fact that it’s paid for with “public” spending.

Here are some links to Google Maps, where you can see satellite images of some of the cities mentioned in the report:

Zhengzhou New District, Henan
South China Mall, Dongguan
Ordos, Inner Mongolia
Erenhot, Xilin Gol, Inner Mongolia
Dantu, Zhenjiang, Jiangsu
Yunan University Campus, Yunnan, Changgong

Aljazeera has a related report on the questionable growth numbers and the impending real estate bubble. Best quote: “You can’t really move to a city with no economy…”

More reports from other news outlets:

BBC: Work stops on Chinese ghost town
Amazing satellite images show cities meant to be home to millions lying deserted
Photo Gallery – Ordos, China: A Modern Ghost Town

Did you know that now you can get books into your iPhone, iPad or iPod touch without having to download them first in your computer and synchronizing? It’s very easy. Just follow these steps:

1. Go to any site that publishes ePub-format books. Here’s a very good source.

2. Click on the book you want. Let’s say, Economic Controversies

3. Now click on the eBook ePub button. Or just click here!

4. Your iOS device will ask if you want to download it to your iBooks app. Just say yes and enjoy your new book.

This works everywhere, in any application. If someone sends you a book through email or Dropbox, you just have to click on it and be done!

Suprise! You can’t stop the flow of media piracy with every-more-draconian measures. This stunning conclusion was recently published last week by the Social Science Research Council, as a report called “Media Piracy in Emerging Economies”. The study focused on emerging economies, where media piracy is rampant, like Brazil, India, Russia, South Africa, Mexico and Bolivia. The report argues that efforts to enforce copyright law have largely failed, and that the problem of piracy is better conceived as a failure of affordable access to media in legal markets. Of course, without the state-granted monopoly on copyright, the media commodities being traded on the black market would quickly find the price the market is willing to pay.

What did 35 researchers discover after 3 years of studying the problem? Their answers could have been lifted from an Austrian Scholars Conference (maybe they pirated them…)

The major findings in the report:

• Prices are too high. High prices for media goods, low incomes, and cheap digital technologies are the main ingredients of global media piracy. Relative to local incomes in Brazil, Russia, or South Africa, the retail price of a CD, DVD, or copy of MS Office is five to ten times higher than in the US or Europe. Legal media markets are correspondingly tiny and underdeveloped.
• Competition is good. The chief predictor of low prices in legal media markets is the presence of strong domestic companies that compete for local audiences and consumers. In the developing world, where global film, music, and software companies dominate the market, such conditions are largely absent.
• Antipiracy education has failed. The authors find no significant stigma attached to piracy in any of the countries examined. Rather, piracy is part of the daily media practices of large and growing portions of the population.
• Changing the law is easy. Changing the practice is hard. Industry lobbies have been very successful at changing laws to criminalize these practices, but largely unsuccessful at getting governments to apply them. There is, the authors argue, no realistic way to reconcile mass enforcement and due process, especially in countries with severely overburdened legal systems.
• Criminals can’t compete with free. The study finds no systematic links between media piracy and organized crime or terrorism in any of the countries examined. Today, commercial pirates and transnational smugglers face the same dilemma as the legal industry: how to compete with free.
• Enforcement hasn’t worked. After a decade of ramped up enforcement, the authors can find no impact on the overall supply of pirated goods.

Ironically, the report itself is distributed under a Consumer’s Dilemma license, which “shifts the developing-world consumer’s dilemma onto other geographies and income brackets.” So if you live in a rich country, you pay more, and if you are unfortunate enough to be in the business of enforcing copyrights on media, your price is a cool $2,000. The warning at the bottom of the page reads:

Non-compliance with this license (or with appropriate fair use/fair dealing exceptions and limitations) is an act of piracy, subject to prosecution under applicable national law. For US residents, this includes criminal prosecution under the No Electronic Theft (NET) Act, punishable by up to three years in prison (for a first offense) and $250,000 in fines per act of infringement.

For those who must have it for free anyway, you probably know where to look.

UPDATE

Today CNET published this timely gem, White House wants new copyright law crackdown. It seems the Feds are concerned about falling behind, and they want to get in on this new-fangled “streaming” thingy:

The White House today proposed sweeping revisions to U.S. copyright law, including making “illegal streaming” of audio or video a federal felony and allowing FBI agents to wiretap suspected infringers.In a 20-page white paper (PDF), the Obama administration called on the U.S. Congress to fix “deficiencies that could hinder enforcement” of intellectual property laws.

CNBC is reporting on a proposal by HM Revenue & Customs to overhaul the current inaccurate and inefficient system of tax collection with an even more brilliant system that’s bound to be a big hit:

The UK’s tax collection agency is putting forth a proposal that all employers send employee paychecks to the government, after which the government would deduct what it deems as the appropriate tax and pay the employees by bank transfer.

After all, what better method of demonstrating to the citizenry that it’s not really their money, it’s the state’s? Who could possibly complain? Everyone will eventually get their democratically-assigned allotment when the bureaucrats (divinely-appointed to be the conduits of all resources in society) get around to it…

For some inexplicable reason (for Keynesians, unfamiliar with being out of economic fashion), the recent G-20 meeting resulted in some consensus (at least outside the US) of controlling inflation and curbing deficits. Paul Krugman, dismayed at such at outcome, called the conference “deeply discouraging”. In his anguish at watching the world leaders contort themselves ever-so-slightly towards controlling their budget deficits and reigning in spending, he penned some his dire predictions in the NYT:

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

Krugman points the finger of blame for this nightmare scenario firmly at the “old school”:

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence.

Such behaviour by politicians, who for decades have been the willing zombies of Keynesian thought, is, for Krugman, the abandonment of Reason and a return to the dark magic of economic principles which have clouded their otherwise rational fiscal minds with the archaic ritual of austerity:

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.

So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

You heard it here first, folks. Now sit back, eat your popcorn and watch the destruction of the world economy at the hands of the otherwise faithful statist, collectivist, Keynesian world leaders who decided to experiment a little with balanced budgets and slightly-less-insane monetary policies…

The WSJ re-posted an excerpt from Milton Friedman’s original article “A Way Out of Soviet-Style Health Care” a few days before the passage of the behemoth bill now known as ObamaCare. The mentality behind the legislation, of course, is hardly novel; attempts to insulate people from the costs of health care have been infecting public policy debates for as long as politicians have been deciding “public” policy. In Friedman’s piece, he quotes from the novel by Alexander Solzhenitsyn to demonstrate a vision of the consensual relation between the patient and the physician.

It is this freedom of association, the right to choose with whom one will exchange that is at the heart of matter of healthcare “reform”, yet this principle is conspicuously absent from the public discussion. Friedman follows this fictional scenario with an historical account of how the healthcare industry (and the nature of the relationship between provider and receiver of services) has been transformed over the years by political manipulation to become the distorted private/public healthcare system that is today condemned on both ends of the political spectrum.

In the words of Dr. Oreschenkov in conversation with Lyudmila Afanasyevna, a longtime patient and herself a physician in the cancer ward: “In general, the family doctor is the most comforting figure in our lives. But he has been cut down and foreshortened. . . . Sometimes it’s easier to find a wife than to find a doctor nowadays who is prepared to give you as much time as you need and understands you completely, all of you.”

Lyudmila Afanasyevna: “All right, but how many of these family doctors would be needed? They just can’t be fitted into our system of universal, free, public health services.”
Dr. Oreschenkov: “Universal and public—yes, they could. Free, no.”

Lyudmila Afanasyevna: “But the fact that it is free is our greatest achievement.”

Dr. Oreschenkov: “Is it such a great achievement? What do you mean by ‘free’? The doctors don’t work without pay. It’s just that the patient doesn’t pay them, they’re paid out of the public budget. The public budget comes from these same patients. Treatment isn’t free, it’s just depersonalized. If the cost of it were left with the patient, he’d turn the ten rubles over and over in his hands. But when he really needed help he’d come to the doctor five times over…

“Is it better the way it is now? You’d pay anything for careful and sympathetic attention from the doctor, but everywhere there’s a schedule, a quota the doctors have to meet; next! . . . And what do patients come for? For a certificate to be absent from work, for sick leave, for certification for invalids’ pensions: and the doctor’s job is to catch the frauds. Doctor and patient as enemies—is that medicine?”

“Depersonalized,” “doctor and patient as enemies”—those are the key phrases in the growing body of complaints about health maintenance organizations and other forms of managed care. In many managed care situations, the patient no longer regards the physician who serves him as “his” or “her” physician responsible primarily to the patient; and the physician no longer regards himself as primarily responsible to the patient. His first responsibility is to the managed care entity that hires him. He is not engaged in the kind of private medical practice that Dr. Oreschenkov valued so highly.

When the talking heads decry the “death panels”, “rationing” and “lack of choice” they fear will come from this bill, their argument would be better served by acknowledging the fundamental principle of free exchange that has been methodically eliminated from the healthcare debate. Such freedom results in a infinite number of possible outcomes in each transaction between provider and consumer. The purveyors of socialist thought, however, keen to win favor (and thus democratic political power) with the masses, have sought to equalize those outcomes through their long quest for “universal” healthcare.

As economic freedom is still widely valued (at least in spirit), healthcare has been necessarily painted as a “special case”, where the normal rules (and outcomes) of free exchange ought not apply. Just like a “gravity-free” zone, enacted by political decree and enforced by police action would be an obvious farce in the middle of an airport, the idea that a doctor-patient relationship could possibly be more effective and efficient absent the freedom of both parties to set their own terms is laughable. The consequences of ignoring principles are unavoidable, but the economic illusionists seeking nirvana in price controls and regulations are apparently as happy to live in denial of those consequences as they are to preach their gospel to the willing participants who make their rational denial possible.