The Only Republican in San Francisco

Wait wait wait

GM's market capitalization as of today is around $2.1B. They are about to get a (probably illegal) loan for $9.4B.

Why is the government simply not buying them outright? Four times over? Wouldn't that be cheaper?

A need for possibility

I just watched this great video of Adam Savage of Mythbusters about obsession and refinement and it struck many chords. Watch the whole thing, but I was particularly struck by the last line:

...and then, maybe, then I'll achieve the end of this exercise...but then, if we are all being honest with ourselves, we have to admit, achieving the end of the exercise was never the point of the exercise to begin with, was it?

So true. This is why I love markets so much. They are never "done". They are constant discovery and refinement. And I get depressed thinking about the end of those things, not least in the worlds of healthcare (soclialized medicine) and the internet (net neutrality). Those things, to me, represent the declaration of the end of a beautiful exercise whose fruit has just begun to be born.

Network neutrality, the definition problem, and content delivery networks

The WSJ has an article today about declining interest in network neutrality legislation. In reading the article, one will quickly notice the strange bedfellows and the continuing problem of defining "neutrality".

The article states that Google itself, the loudest and largest advocate for net neutrality, is considering creating its own fast lane in conjunction with network providers like AT&T:

Google's proposed arrangement with network providers, internally called OpenEdge, would place Google servers directly within the network of the service providers, according to documents reviewed by the Journal. The setup would accelerate Google's service for users. Google has asked the providers it has approached not to talk about the idea, according to people familiar with the plans.

Asked about OpenEdge, Google said only that other companies such as Yahoo and Microsoft could strike similar deals if they desired. But Google's move, if successful, would give it an advantage available to very few.

On a "definitional" level, this would be a non-neutral arrangement, in the sense that Google is paying to get its bits to consumers more quickly.

However, no one is harmed by it -- Google's competitors still flow at the same speed as they did previous. But because Google has paid to be closer to you, they serve you that much faster.

This is a common arrangement on the Internet: it's called a content delivery network (CDN). Many others already exist, such as Akamai (which delivers your iTunes songs and the pictures on CNN).

I pointed out that CDN's are decidedly non-neutral, while also being good for consumers. It's true that companies with more $$ are more likely to afford such advantages. They helps many, and hurts none. I consider them a good example of why non-neutral arrangements are more likely to help consumers than hurt them.

I was surprised back in the day by those who were advocating such legislation, including Google, Microsoft and Amazon. Why? These companies would be the most likely to be customers of a fast lane on the Internet, as a competitive advantage -- and yet they wanted it to be illegal.

Well, their positions have evolved:

In the two years since Google, Microsoft, Amazon and other Internet companies lined up in favor of network neutrality, the landscape has changed. The Internet companies have formed partnerships with phone and cable companies, making them more dependent on one another.

Microsoft, which appealed to Congress to save network neutrality just two years ago, has changed its position completely. "Network neutrality is a policy avenue the company is no longer pursuing," Microsoft said in a statement. The Redmond, Wash., software giant now favors legislation to allow network operators to offer different tiers of service to content companies.

Microsoft has a deal to provide software for AT&T's Internet television service. A Microsoft spokesman declined to comment whether this arrangement affected the company's position on network neutrality.

[...]

Amazon had withdrawn from the coalition of companies supporting net neutrality, but it recently was listed once again on the group's Web site. It declined to comment on whether carriers should be allowed to prioritize traffic.

Yahoo now has a digital subscriber-line partnership with AT&T. Some have speculated that the deal has caused Yahoo to go silent on the network-neutrality issue.

Instead of a bailout: and open-source A-Prize

I was inspired by a Facebook back-and-forth today about the big 3 bailout. My friend Matt made an excellent point -- wouldn't the $14-25 billion be better used toward creating a new auto company or technology, rather than propping up the old?

Indeed it would. In fact, we'd get a lot more bang for the buck if just a portion of that -- say $1,000,000,000 -- were dedicated toward a new "A-Prize", modeled after the X-Prize.

The basic idea is that a very large prize is awarded to the first person(s) to create a new technology which passes a set of performance goals. For cars, I would suggest it be a formula that considers eco-efficiency, cost and availability of fuel. Something combining "x emissions per mile" with "$y per-car and per-mile" with "z years of available fuel". I leave it to a greater mind to find the right equation (perhaps in the comments).

Let's go further -- maybe the first two or three to achieve the goal would split the prize, with the hope of a diversity of solutions. Or we simply give $1B each for the first three, unique technologies

The catch would be: in exchange for the big $$ up front, the newly-developed technologies would be patent- and royalty-free. This could spur the whole industry to adopt the technology.

Further: while the technology would be public domain in the US, it would not be exportable. Any company manufacturing in the US could use it, thus encouraging more of the world's firms to build plants here. (We'd need some sort of international intellectual property protection, perhaps through the WTO.)

I think this is a combination of free-market entrepeneurialism with political pragmatism. Normally, I would like the developer of such technology to enjoy its fruits long into the future, so the forfeiture of intellectual property is not my normal instinct. But any private investor could offer such a prize, without such strings -- indeed the X-Prize folks are doing just that.

This would unleash the self-interested entrepeneurs while also "protecting" an American industry. Right and left could be satisfied. Thoughts?

...plus the Subaru

h/t Megan McArdle

The media battlespace and paranoia

George Will talks about the absurdity of the fairness doctrine and the prospect of similarly-motivated laws being considered by the incoming Congress. Meanwhile, Matthew Yglesias and others think it absurd that there is even concern over this, that it's a red herring and that no one is seriously considering such legislation.

Such accusations of paranoia are an acceptable price, in my opinion.

Certainly you've seen "inconceivable" ideas amazingly come into reality over a short time, no? As Will points out, the fairness doctrine was the law of the land and upheld by the Supreme Court in recent history.

So is it paranoid to be arguing against the phantom of the fairness doctrine, since no tangible threat exists here in December 2008?

Nope. By pushing the argument now, perhaps even swatting at ghosts, Will makes it harder for those who might consider it one or two or five years from now. Keep the idea mocked and mockable. Define the parameters of the argument.

So, if the likelihood of a new fairness doctrine stands at 10% in 2008, making this argument now helps to ensure that it doesn't grow, and perhaps even shrinks. Let's make sure that interest doesn't start compounding. If the likelihood of the fairness doctrine in 2010 stands at 5% instead of 20 or 30%, then it's paranoia well-spent.

A persistent xenophobia

Over at The New Republic, John Judis offer an excoriation of the Congress and the administration for lack of action on bailing out the big 3 US auto firms. It is so mired in myopia, xenophobia and bad economics that this may get wordy.

On an opening, positive note, he acknowledges the fact that jobs are likely to shift to other more successful firms in the US:

Let’s assume that after the recession eventually lifts, Toyota, Nissan, Hyundai, Honda, BMW and other plants expand their manufacturing in the U.S. So there will be factory floor jobs and also jobs in showrooms and repair shops. But there won’t be as many--these firms will increasingly get their parts from abroad and merely assemble their products in the U.S., and wages will also decline relatively as the threat of the United Auto Workers recedes. But also the administration and the advanced engineering and design of these products will be housed abroad. Some of the brawn will be left; but the brains will be gone.

This ignores the fact that many of the major "foreign" firms are in fact desperate for design talent here in the US:

The Asian cars and trucks developed and designed within a 40-minute drive of Detroit read like a list of the most hated vehicles in Big Three boardrooms: Toyota Camry, Sienna minivan, and Avalon sedan; Nissan's (NSANY ) Titan, Altima, and Versa; and soon vehicles from Hyundai and Kia.

This mimics the computer industry in many ways. Much of the high-end design for computers and services happens here at places like Google and Apple. These firms also open research centers around the world -- wherever the talent is. This is good for us, good for those countries, good for the firms.

Our ability to play higher in the food chain depends on the quality of our talent, not on bailouts.

On the analogy of computer firms, Mr. Judis offers...

You can contrast the fate of autos and trucks with that of the American computer industry in the ‘80s. There was much concern then that the American semiconductor industry was losing its ability to manufacture computer chips. The Reagan administration entered the fray by putting a surcharge on Japanese imports and by subsidizing semiconductor research. The upshot was that the U.S. did lose out to Asia on low-cost semiconductors, but it retained its lead in the most advanced computer technology.

Actually, that "losing out" was of great benefit to US consumers. You may note that this period of losing-out coincided with the wide consumerization of high technology in this country. The consumer benefit of the newly-affordable technologies vastly outweighed the protection of a domestic manufacturing industry. Would that we could lose out more often.

What he calls a "loss", I would call a great win for poorer countries of the world, and poorer consumers here. Those countries' wages and employment improved greatly as they grew into the semiconductor industry. And cheaper, more advanced products here result in greater standards of living, most notably among those who shop on price.

To wit, from Mr. Judis:

Other countries seem to understand this. French President Nicholas Sarkozy announced a $33 billion bailout package yesterday. France is not in as bad shape as the United States, but Sarkozy is worried about the French auto industry and is promising to protect it in exchange for a commitment from it to produce cars in France rather than to outsource the production of them.

No offense, but who buys French cars? This is a teachable moment? And speaking of foreign protectionism:

[H]aven’t Japanese and South Korean auto companies benefited from enormous government help themselves--and subsidies were the least of it. For decades, Japan--and currently South Korea--kept out American car companies. And the United States turned a blind eye, respecting the desires of these countries to have their own industries. Why should we begrudge our own companies a modicum of what we have tolerated from Japanese and South Korean companies?

For these countries to exclude American cars was undoubtedly a bad thing, not least for their consumers and our manufacturers. Unfortunately, Mr. Judis is offering a blatant two-wrongs-make-a-right argument: they did a destructive thing, so let's do the same.

The solution is not to "protect" American car companies, but to make America a great place to design, build and sell cars. Mr. Judis prescriptions would move in exactly the opposite direction.