The Only Republican in San Francisco

Dvorak and the myth of "free"

John Dvorak has a long tirade about municipal Wi-fi and phone companies' supposed conspiracy to kill it. I like Dvorak's curmudgeonly ways. But the risk of such muckraking is that he gets a lot of things wrong. Let's start with this:

If you take a city the size of San Francisco and give the entire population free high-speed Wi-Fi, think of the applications that will fall into place. That includes VoIP calls galore. Move over, cell phone; hello, Wi-Fi phone.

Mr. Dvorak is committing the common sin of getting people's hopes up while not doing his homework. Let's put aside the fact that the network doesn't yet exist. Here are the incorrect assertions:

1) Free wi-fi will be faster than the phone companies' wireless plans. Dvorak says:

Wi-Fi is currently at 54 Mbps and has been for years. Reaching 100 Mbps is easily achievable thanks to pre-n and other tricks. The cell connections run from 384 Kbps with EDGE up to maybe 2 Mbps on EV-DO, if you're lucky.

All true. Except that in San Francisco, the free Wi-fi offering promises only 300kbps, which is six times slower than the mobile offering above.

And keep in mind that these are theoretical numbers. Add an apartment building -- or a neighbor's microwave oven -- and Wi-fi bandwidth drops a lot. The mobile phone companies have been working around physical barriers for a lot longer than the Wi-fi folks.

In both cases, you'll be sharing that bandwidth with a few hundred thousand of your closest friends. Wi-fi only works within the city limits, while the phoneco's coverage is much broader.

Advantage: phoneco's.

2) The SF wi-fi network will support VoIP. The basic, free, ad-supported service promises around 300kbps. This is theoretically enough for a voice call -- but only if that bandwidth is consistent and glitch-free (see above).

I use Skype over my hard-wired 5-megabit connection here at Casa Republicano. It works fine in most circumstances, but breaks up with some regularity.

Now imagine a wireless network with 1/15th of that bandwidth, and shared by your neighbors. You might be able to achieve an intelligible conversation here and there, but I can't imagine anyone will depend on it.

More importantly, I suspect that free service will not even allow VoIP traffic. Did I mention that it's ad-supported? Google inserts ads into web pages. How do you insert ads into a third-party VoIP call? You don't. So it's a fair bet that Google and Earthlink will only allow traditional web surfing on the free network.

Advantage: phoneco's.

3) The public is interested in switching between mobile and wi-fi. According to this report:

The research firm Ovum predicted in a report released Tuesday that by the end of 2010 only a little more than 2 percent of all mobile subscribers, or fewer than 5.5 million people, will have purchased dual-mode services.

I dig the idea of a phone with Wi-fi capabilities, but it would have to work with a minimum of fuss. I am not gonna tweak network settings all day long. And I'm a geek! Most people's tolerance for the cutting edge is much lower than mine. Of course, these things might improve drastically. But until they do, don't expect a change in that 2% figure.

Advantage: phoneco's.

-----

Now, let's get to the meat of this. Is municipal Wi-fi desirable? Dvorak puts it this way:

Is the public so stupid that if given the choice between that service and free municipal Wi-Fi, they'd want the slower expensive service over the free faster service?

Probably not when the extremes are that broad, but you can be sure that the local politicians will cave on this, and we can forget free municipal Wi-Fi and Skype phones. Free is, by definition, communist! And it hurts free enterprise!

Who needs progress when you have profits?

I appreciate his snark here, but I am afraid that a) it's not faster [see above] b) it's not free and c) it's closer to communist than John thinks.

Municipal wi-fi projects have all been enormously wasteful boondoggles paid for by taxpayers, and largely unused by the public. Here are a few samples from this new report [pdf]:

• Dalton, Georgia: $171.0 million
• Tacoma, Washington: $110.9 million
• Grant County, Washington: $ 76.4 million
• Jackson, Tennessee: $ 63.7 million
• Alameda, California: $ 59.3 million
• Provo, Utah: $ 45.7 million [...]

...and these are just preliminary numbers. The funds have gone to creating new bureaucracies, which will certainly continue to grow. How many teachers you figure those numbers would pay for?

These networks do not need to perform to continue to receive funds. This allows them to work poorly while undercutting commercial offerings on price. So yes, it does hurt free enterprise, which many of us call progress.

And here in San Francisco, socialism is alive and well:

IN SAN FRANCISCO, says Ross Mirkarimi, one of 11 members of the city's elected Board of Supervisors and a co-founder of California's Green Party, “suspicion of corporate interests flows as thick as the fog.” So it has come naturally for the Board, the city's legislature, to force a delay on a plan, signed in January by the mayor, Gavin Newsom, and two technology companies, Earthlink and Google, to let the firms blanket the city with free or cheap wireless internet access by putting little “Wi-Fi” antennae on lamp-posts.

[The] reason appears to be that fog-like suspicion. If “big business”—ie, Earthlink and Google—is so keen on that wireless network, “we should consider doing it ourselves,” says Jake McGoldrick, another supervisor. He wants to study other options, including a network financed, owned and run by the city.

This is quite the opposite of Dvorak's concern. He seems to think that free-market types like me are the barrier to municipal Wi-fi. In San Francisco, the primary barrier is that the current proposal is not socialist enough.

h/t Glenn, who has more.

Environmental heresies

An environmentalist (and SF legend) named Stewart Brand is beginning to imbue some rationalism into his environmental politics.

Stewart Brand has become a heretic to environmentalism, a movement he helped found, but he doesn’t plan to be isolated for long. He expects that environmentalists will soon share his affection for nuclear power. They’ll lose their fear of population growth and start appreciating sprawling megacities. They’ll stop worrying about “frankenfoods” and embrace genetic engineering.

My biggest fear about environmentalism is what I see as a certain Luddism -- that problems are best solved by moving to old ways. Organic farming is one example, resistance to nuclear power, empowering government to make more economic decisions. What all these have in common is a strong traditionalism and change aversion. They show a lack of confidence in humanity's ability to adapt and make choices.

It is very much the opposite of my view of the world. I think that humanity's prospects are greatly improved by people making more of their own decisions, especially economic ones.

Mr. Brand seems to understand this. He almost sounds libertarian, not by having moved across the spectrum from left to right, but perhaps by wrapping around the back. After all, "left" at one time was a position of rationalism -- not so these days, of course. But guys like Brand are hoping to reclaim the mantle and righties should welcome it.

Some examples of Mr. Brand's new rationalism:

“Sure, nuclear waste is a problem, but the great thing about it is you know where it is and you can guard it. The bad thing about coal waste is that you don’t know where it is and you don’t know what it’s doing. The carbon dioxide is in everybody’s atmosphere.” [...]

He sees genetic engineering as a tool for environmental protection: crops designed to grow on less land with less pesticide; new microbes that protect ecosystems against invasive species, produce new fuels and maybe sequester carbon. [...]

He now looks at the rapidly growing megacities of the third world not as a crisis but as good news: as villagers move to town, they find new opportunities and leave behind farms that can revert to forests and nature preserves. Instead of worrying about population growth, he’s afraid birth rates are declining too quickly, leaving future societies with a shortage of young people. [...]

Give the whole thing a read.

US broadband mythology

Cynthia over at IP Democracy has an analysis (of an analysis) of US broadband in comparison with the world, to which I will add an analysis.

She contends that the US is falling behind in broadband and implies that we are in bad shape and need more government involvement. She makes some cogent points, but doesn't dig deep enough.

The first and most predictable example she points to is South Korea, and she claims that they have 100Mb/s upload and download speeds. I will make the equally predictable point that population density does matter (scroll down), but the real question is: how does she know that they actually get 100Mb up and down? She doesn't, and the original article doesn't -- it's just a meme that gets reported a lot.

An outfit called Analysys looked at actual network performance vs advertised performance [pdf], and found that South Koreans only get around 40% of what they pay for, at least for the "fast" plans, while the US gets over 90%. Their actual bandwidth is around 20Mb on the high end, while in the US we get around 13Mb.

Yes, Korea is still faster, but with 10 times the population density and the drum beat of a Korean miracle, shouldn't we expect something more miraculous?

Due to this inefficiency, the South Koreans pay around $3/Mb for connectivity vs around $5/Mb in the US. Since laying a mile of fiber will reach 10x as many people in Korea, shouldn't their prices be around 10x lower? Or even 5x? In fact, it sounds like the Koreans are getting ripped off, considering the efficiencies available to them.

Further, our actual throughput is well ahead of all of the European countries included in the Analysys survey. In working with colleagues at my company's European offices, I know this to be the case. I will take real bandwidth over advertised bandwidth any day.

Richard Hoffman (author of the original analysis) attempts to take apart the population density argument by pointing to countries with lower densities than ours who have better broadband penetration:

That argument falters, however, when one considers that five of the 11 nations that lead the U.S. in per capita broadband penetration, including Iceland, Finland, Norway, Sweden, and Canada, have significantly lower population densities than the U.S.

...and that's fine. But notice that four of these five countries are Scandinavian welfare states. Really, he is offering a single counter-example with a number of different names.

These countries do not refute the population density argument. Rather, they illuminate what I have said before: that socialism can only succeed in a homogeneous population. These countries are among the least diverse in the world -- so much so that the Human Genome Project chose Scandinavia because of its limited gene pool.

If the goal is broadband penetration in a non-diverse economy, Scandinavia offers a good example. The government can make spending decisions with which a majority of the population will agree. The rest of world, especially the US, requires a little more diversity of opinion and priorities.

In fact, we can combine all of Scandinavia, call it a country and still be smaller than a single US state --  say, Florida, which is a leader in broadband. In just one year, the US added more new broadband users (24 million) than the total populations of Richard's Scandinavian examples. So what are we comparing, exactly?

So while Cynthia's and Richard's articles offer some interesting insights, they are not blowing the lid off of any broadband myths. In fact, they are often simply repeating them.

----

Look, we can consider broadband policy to be about keeping up with some mythical Joneses, or we can consider broadband policy to be about making the best choices for our citizens and our economy.

The idea that our state of broadband is hurting our economy is betrayed by the facts: a look at our job creation, unemployment, per capita incomes and growth rates tell a very different story. None of this should be taken for granted, of course, but the "broadband = competitiveness" meme is not borne out. How many jobs is Iceland creating, by the way?

If broadband penetration in the US is relatively low, we might consider the possibility that citizens have given it a certain priority in their lives. We'll get higher rates over time -- Richard notes 24 million new US broadband users over the course of a year, a 40% increase. But to have the government setting policy on this is to impose a priority on citizens that they have not chosen for themselves.

Of course I would like to see more and faster broadband. We are building a lot of it in this country, and broadband use and availability are growing apace. Let's focus on doing the right thing, instead of making a superficial top-10 list.

----

Related: Martin Geddes asks us not to panic:

If we separately ranked US states, or divided the UK up into regions, the picture would change radically. London and southeast England would look great. So would a few US states like Virginia.

Some of those little regions with greater connectivity have familiar name tags. Like ‘Norway’, and ‘Luxembourg’. Yes, they’re real countries. [...] Yet their position in the rankings is an artificial by-product of how we divide up the statistics. It means nothing to the median European or North American.

If North and South Korea had a massive reconcilliation tomorrow, and thus the Unified Korean Republic plummeted to #102 in the world, do you think things are getting better, or worse? (Hint: begins with ‘b’.)

That's the question. We can easily point out that California and Florida have broadband rates that exceed those of the cited "leaders", with similar populations. So aren't they on the list?

If we want a meaningful list, let's talk apples to apples: compare actual, usable broadband across a number of large and diverse economies. How about North America vs the Euro area? Or versus the greater Far East?

Minimum wage begins to bite in the AZ

Arizona has recently instituted a 30% raise in the minimum wage, and they are already beginning to see the effects:

Oh, for the days when Arizona's high school students could roll pizza dough, sweep up sticky floors in theaters or scoop ice cream without worrying about ballot initiatives affecting their earning power.

That's certainly not the case under the state's new minimum-wage law that went into effect last month.

Some Valley employers, especially those in the food industry, say payroll budgets have risen so much that they're cutting hours, instituting hiring freezes and laying off employees.

This stands to reason, of course. For a business that depends on minimum-wage labor, a 30% spike in costs can only result in efforts to reduce those costs. There is no magic way for a company, especially a small one, to spend that much more money and expect to stay in business.

(Unless, of course, they magically become 30% more profitable -- but if that were possible, wouldn't they have done so already? :)

What is especially pernicious about the minimum wage is that it is younger people being put out of work. Besides the social strains that come from young people being idle, this sort of unemployment delays a kid's ability to gain work experience for use later in life. A study by David Neumark indicates that the effect is measurable 10 years later:

The evidence indicates that even as individuals reach their late 20's, they work less and earn less the longer they were exposed to a higher minimum wage, especially as a teenager. The adverse longer-run effects of facing high minimum wages as a teenager are stronger for blacks.

Put bluntly, a higher minimum wage is a force toward perpetuating an underclass.

I don't dispute that there are beneficiaries of a higher minimum wage -- many Arizonans will see their wages rise by up to 30%. However, many peoples' wages will drop by approximately 100%, as jobs disappear. And those who are hurt in this way are the ones we will never hear about.

----

How about a few more implications. Both Wal-Mart and CostCo have come out in favor of a higher federal minimum wage. Why would they do that? That is, besides scoring the obvious PR points...

Well, these companies already pay above the proposed minimum wage, for the most part, and so will not be affected in a major way by the change. The businesses they compete with -- Mom and Pops in myriad towns around the country -- often do. So a higher minimum wage really just puts weaker competitors in a more difficult position. Expect big-box dominance to accelerate after the federal mandate passes.

(Not that I object to the big-boxes, I think they provide a substantial net benefit to our standard of living. It's just that a feel-good idea like the minimum wage might not comport well with other ideological goals.)

New Deal back-and-forth

Here is an interesting back-and-forth between Arnold Kling and Brad DeLong, a couple of econ bloggers I read with some regularity. They discuss the New Deal, and while I am tempted to make some ideological points here, these two guys are far more expert than I will ever be, so I suggest you just click through.

DeLong is one of the few lefty bloggers that I take seriously, even though I rarely agree with him. And by serious, I think he believes what he does for real, logical, empirical reasons. Economics, like medicine, is at its heart both prescriptive and speculative, and so while we can agree on basic science, informed people can disagree on the way forward.

Sarbanes-Oxley chases away Silicon Valley legend

Jim Clark, one of the founders of Netscape, has resigned his position as chairman of the board at Shutterfly, saying that Sarbanes-Oxley has removed his incentive to be in that position:

In his resignation letter, he cited "the constraints imposed by Sarbanes-Oxley on (his) having any significant role on the board" as one of the primary reasons for departure.

This is becoming increasingly common in the venture capital-driven technology world. Ultimately, companies will act according to their interests, and for small startups, going public is no longer their best choice.

Restrictions on public companies' activity can be so stringent for an entrepreneurial culture like Silicon Valley's that some tech insiders think that the average company is better off not going public in the first place.

"Clearly being public today is a greater burden on younger companies and their executives, so it's probably better for everyone that these companies stay private," said blogging entrepreneur Jason Calacanis, former head of Weblogs Inc. and current "Entrepreneur in Action" at investment firm Sequoia Capital.

The implications of this are manifold. Not least, it makes it much harder to capitalize small companies. Imagine if Google (or Netscape or Microsoft or Intel or Apple) had never gone public. Would we be where we are today?

Further, when companies decide to go (or stay) private, many fewer people participate in their financial success. Right now, tens of thousands of regular, middle-class people own a piece of Google, due to their participation in public markets (via 401k's, mutual funds, etc).

For companies that stay private, a much smaller fraction is able to be part of it, and those people are limited to well-heeled private investors.

----

On a more personal note, I report to the Chief Technology Officer at my firm of ~800 people, which in turn is owned by a large publicly-traded company. When he first hired me 8 years ago, we did technology, and we changed our company in big ways.

Since the advent of Sarbanes-Oxley, I do technology and he does paperwork. He's paid six figures to ensure compliance with laws that have little to do with the business we are in. His considerable creative skills are wasted.

Not only does this remove any ambitions I might have had to become a CTO, it also means that our company has become less competitive due to the effective loss of a talented executive.

Multiply this out to other industries, and you understand the problem: in 2006, the NY Stock Exchange fell to third in the world:

As a result of the law's costly regulatory burdens and stiff civil and criminal penalties for unintentional corporate behavior, American capital markets have seen a competitive decline marked by a steady flow of foreign initial public offerings. The year 2006 marked a milestone in the decline of American capital market supremacy — the New York Stock Exchange, the world's leader before Sarbanes-Oxley, dropped to third in the global market for initial public offerings, behind London and Hong Kong. The financial secretary of Hong Kong, Henry Tang, recently thanked Messrs. Sarbanes and Oxley for sending so much business his way.

Always an advocate of clarity, here is my man Milton:

Sarbanes-Oxley says to every entrepreneur, "For God's sake, don't innovate. Don't take chances because down will come the hatchet. We're going to your head off." We want a risk-taking society, not a society afraid of taking risk.

Minimum wage cartoon: raising the bar

The great thing about a higher minimum wage is that it raises the bar for workers. I mean, the bottom rung.

Minimum wage for thee, but not for me -- or my district

SF Rep. Nancy Pelosi seems to have a strong enough grasp of arithmetic to understand that minimum-wage laws are damaging, especially to poor people. The problem is that she wants it both ways: advocate a minimum wage hike loudly for a national audience, while protecting her district quietly:

On Wednesday, the House voted to raise the minimum wage from $5.15 to $7.25 per hour.

The bill also extends for the first time the federal minimum wage to the U.S. territory of the Northern Mariana Islands. However, it exempts American Samoa, another Pacific island territory that would become the only U.S. territory not subject to federal minimum-wage laws.

Normally, I wouldn't much care about the vagaries of a bill in relation to a small US territory. Except that in this case...

One of the biggest opponents of the federal minimum wage in Samoa is StarKist Tuna, which owns one of the two packing plants that together employ more than 5,000 Samoans, or nearly 75 percent of the island's work force. StarKist's parent company, Del Monte Corp., has headquarters in San Francisco, which is represented by Mrs. Pelosi.

At the same time the Dems are struggling to get their weak earmarks legislation through, since those damn Republicans want to make it stronger.

The Senate's new Democratic leaders, the fragility of their thin majority on display for the first time, were set back Thursday when nine Democrats joined with Republicans in support of stricter House-passed rules on lawmakers' pet projects [...]

The measure, an amendment to an ethics and lobbying bill, would have adopted a wider definition of "earmarks," specific projects inserted in bills, to include Corps of Engineer water projects, Pentagon weapon systems and items from other federal entities.

Understand that earmarks legislation is not in most politicians' interest. It's not that they are "bad people", it's that earmarks are an important way for a politican to show the folks back home that s/he is working on their behalf. So while a constituent, when asked, might object to "earmarks", they probably enjoy that federally-funded bike path even more.

Earmarks win more votes than ethics reform, I am sorry to say. Or at least that's my calculation. Maybe it will change someday.

(h/t Instapundit)

----

Here is the buzz on Memeorandum.

Upcoming Milton Friedman documentary

PBS will be broadcasting a new documentary on the life and thinking of Milton Friedman, to be called The Power of Choice. Looks like a must-watch.

(h/t Mankiw)

The suspension of reason, minimum wage edition

Our new Democratic overlords are in full swing on bunch of utterly irrational ideas, with the supine press happily carrying water. Today the NY Times parrots the quasi-religious talking points on the minimum wage without an ounce of reason. Starting here:

House Democrats are expected to vote today to increase the minimum wage for the first time in a decade, to $7.25 an hour, in a move that economists say will raise pay for 13 million workers.

Which economists are those? They neglected to say, because only economists on the fringe would support such an idea. And note that they don’t mention any of those who will lose their jobs due to a 40% increase in the price of labor.

But the larger problem is the unempirical assumption that minimum wage earners are poor:

“Minimum-wage workers desperately need a raise,” said Representative George Miller, Democrat of California and chairman of the House Education and Labor Committee. “It is a moral outrage that millions of Americans who work full time still live in poverty.”

The good congressman fails to mention that over 80% of people who earn the minimum wage are not in poverty, according to the Congressional Budget Office:

...about 18 percent of the 12 million workers who were paid an hourly wage rate between the federal minimum wage of $5.15 and $7.24 were in families that had a total cash income below the federal poverty threshold in 2004. Had all of the workers in that wage range, instead, received $7.25 per hour, they would have gotten about $11 billion in additional wages in that year. About 15 percent of those additional wages ($1.6 billion) would have been received by workers in poor families.

How can this be? The short answer is that most people earning minimum wage fall into a few major categories:

- Suburban, middle-class teenagers and other young people just entering the workforce
- Foodservice workers who earn tips which take them well above minimum wage
- Part-timers who don’t depend on the job for a living

I earned minimum wage for a while in my teens and early twenties. I showed up in those statistics, yet I was never poor or deserving of gov’t help. I had a college degree was willing to live cheap, gain experience and have some fun.

Furthermore, earning minimum wage is a temporary condition for those who earn it. As George Will points out:

Two-thirds of those earning the federal minimum today will, a year from now, have been promoted and be earning 10 percent more.

Seems to me that if we want to improve the situation for poor people in this country, we should be passing laws that actually have something to do with poverty.

What is most onerous about a high minimum wage is that it effectively removes the bottom rung from the ladder, for those trying to work their way up. A $5/hour job becomes illegal. It defies reason to think that an employer will retain the same number of jobs if those jobs cost 40% more.

The primary beneficiaries of minimum wage laws are our Democratic politicians, who are beholden to their union constituencies. The only other beneficiary is the privileged liberal who needs to feel like a better person.

Sadly, both of these groups are smart enough to know the pros and cons of the minimum wage, but continue to believe in its virtue in the same way that others believe in the healing power of crystals. It is a selfish fantasy.