Laws Of Conservation In Economics

A useful feature of physical systems is that they obey conservation laws that are useful and important properties of those systems. The conservation of mass and energy is probably the best known of the conservation laws, a unit of mass directly translates into energy and back. It’s elegant but applying conservation laws to economic systems simply does not make sense.

Economic systems are much different from physical systems in a number of key ways and are simply not comparable. What’s part of an economic system at one point is not necessarily at another point. People are constantly joining the labor force and exiting it, populations is decreasing or increasing, capital depreciates and new investment is made, preferences change and money is created out of thin air. Since all of these variables are dynamic and have no definite relationship to each other. This is a trend that is being seen in econophysics unfortunately, and it is wrong.


Dear Diary, February 8th, 2013

Winter makes my body attack itself, and my general reaction to anything I don’t like is sleep, so I’ve been sleeping more than usual. I don’t mind winter the concept, but cold kills me and snow is cold water that hasn’t melted yet. My walking stops and I eat and get fat indoors. Being born into Canada was probably the worst decisions ever made for me.  Last night we went to an interview of Fran Lebowitz at Massey hall in a terrible snow storm. It had already piled up a foot on the ground when we had left and are less than stellar GM van almost got stuck in the snow a few times. Fran Lebowitz is a New York writer that hasn’t written for about thirty years, but has lingered around due to her sheer wit. She’s mostly a social commentator now, illuminating but so incredibly opinionated. I’ve been digging up all of her old material that I can find, between studying for my two exams which I’m not really studying for.

My mom’s bothering me about getting an economics co-op next year. Being unemployed always seems to coincide with the time you have the least money available. I’ve sent out about 50 resumes, but employers seem less enthusiastic about my three month’s experience I had volunteering at summer camp. It’s difficult knowing what needs to be done and having no means to do it.  Everyone wants the same things, at the same time. Everyone wants money, no one wants to give it. Everyone wants jobs, no one wants to give jobs.

Valentines Day is upcoming and it bums me out beyond anything. Can we not have a holiday for strictly platonic love? I have not yet attained that either, but I think it’s slightly more achievable than romance. I do know that I’m spending it in a bar, which is pretty awesome actually. Last year I got myself two cupcakes at Second Cup and the Barista asked me if she could write a message to my partner on the box they came in, I politely declined(my mom enjoyed the other cupcake).

Dredd 3D Review

Dredd 3d is a sci-fi movie set in dyspepsia future in Megacity One, a city in desperate poverty recovering from nuclear war.  Based on a popular British comic strip, the movie clearly did not draw from the rich source material it was given, all that the director wants the viewer to know is that the city is the dark, grungy and futuristic. Taken by itself the movie is a fantastic action-flick, the dialogue is passable and the visual effects are stunning.

It’s a shame that the movie failed to pick up some the dark satire of the series but it makes for a great hour and a half of mindless fun.


Two Visions of The Future

Keynes dreamed of a future where technological advancement would free us from the harshness of the economy and make it possible for us to work drastically shorter hours while our needs would be fulfilled. We would be free Like Keynes predicted the economic output of factories has increased per-capita several times over since 1930. But we are nowhere near realizing the freedom from work and basic material needs that Keynes imagined. We work slightly less than we did 80 years passed, but the world that exists now hardly looks like the utopia Keynes imagined. 

Right now it may be possible for Canadians to work significantly fewer hours than we do. If Canadians worked something like 30 hours a week instead of 40, you might assume our gdp would drop by one quarter so we would be living on approximately 30,000 dollars a year per person. If the average worker worked 20 hours a week, we would have a gdp 20,000 per capita or the same as Poland. Now this math is naive in the sense that it assumes output scales linearly with labor hours worked, but given reasonable equality of income it is perfectly sensible to assume that 20 hours work per labor worker would give a reasonable quality of living for someone Canadians on average, and certainly more than the output in 1930. 

Assuming people only work to satisfy basic needs, any increase in productivity should be met with a equivalent decrease in labor hours worked. This is not the case for three primary reasons first; inequality of income makes it difficult for many people to survive off 20 hours a week even if they wanted. Also people may actually enjoy work and therefore will work more than they need to subsist themselves at any given level. And more importantly more needs have been created since, 1930.

But now with automation of jobs, it’s possible that productivity might be increased so much that Kenye’s dream might be realized. Surely their is a point where productivity becomes so high, people will finally be content to sit back in the abundance. Keynes underestimated how great our need were. Assuming automation increases future I postulate their are two different routes we can take. The vision Keynes dreamed or the world of Judge Dredd mass unemployment and huge inequality. It all depends on how displaced workers are treated.

With automation the reduction of employment is inevitable, before agriculture jobs transitioned to manufacturing jobs which transitioned to service jobs. Now that service jobs will be replaced by automation there is no place left for low skill workers to transition. Many people think that this now represents the beginning a creative era, where our inner potential is released, but to be creative you need to eat. And at any given point of time, any sort of art or creative output is only a small part of the economy. The economic problems will not be solved by teaching everyone and their Grandma HTML. People want I-Pods and houses, not paintings by your average street artists.Communications major who writes mediocre novels will not be respected more in 20 years when he is even more unemployable then he is now. The market is already flooded with novels and movies. I do think that arts and knowledge are the most important legacies humanity can hope to leave, but our appetite for them relative to other things, is very little in the current economy and its naive to think that our demand for the intangibles will suddenly increase over the practical things like goods and services.

Since capitalism means that those with the capital make the money, those with no skill sets will be able to provide their services for a cost that competes with the computers and robots. Certain people with desired skill sets like programmers will certainly make a killing but at the cost of those making nothing. The unemployed already get treated like shit, how do you think they will be treated in 30 years, exactly the same! In Keynes vision of the the economy would make the situation more bearable, the only way I can imagine this happening is redistribution of taxes. In Judge Dredds world the wealth accumulates at the top and the rest of us rot. If some product replacing physical human labor happened tomorrow this is what would happen. Either way our incentives structures will need a great deal of revisiting, salaries of some will become exponentially higher, and the salaries of most will be lowered.

It is naive to think we can compete computers with in most things forever. We to start considering the day when computers take over the economy, and the implications are startling. 

Thoughts on The Black Monk

The Black Monk is a short story by Anton Chekhov. In it Andrey Kovrin a scholar who goes crazy seeing the hallucinations of a monk dressed in black.  Kovrin is told by the hallucination that he is a genius and has been chosen by god. The hallucination talks to him and they have long discussions about many things. Tragically he is driven in to madness and then death all at the hands of the mysterious monk.

At first it seemed like the monk was perhaps a supernatural being of some sort, but the clues dropped seemed to suggest that instead he was a product of Kovrin’s head. The monk speaks to Kovrin with the same knowledge that he possesses and appeals to the vanities of Kovrin.  Truly he wishes that the monk would be some divine being, but he refuses to accept the monks existence as something other than physiological in origins until his very last moments.

Strangely Kovrin seems to be aware of his madness and seems to enjoy it, for him it is an escape out of mediocrity. Without it he is just another boring scholar. This is an unusual departure from the other portrayals of insanity that treat it as an unwelcome illness.  Probably Macbeth has the most poignant display of this, where each step of insanity was a step closer to death. There’s little doubt that this man had schizophrenia and being a doctor Chekhov had probably a fair bit of experience with the illness. It does not give a realistic portrayal of the mental illness but the character is close enough to reality to seem supremely pathetic, pathetic enough even by the standards of Chekhov characters.

Actually how right-leaning is the republican party?

As a Canadian the politics south of our border has always been a source of wonder and awe. For the cultural similarities we share, it is lucky that our politics have retained their individuality. I suspect a lot of this has to do with the diffrences between the structure of our voting systems  but our separate histories strongly play into this as well.  But it’s probably the Republican party which gives an outlet for the expression of America’s right wing. By all indications Republican party is to the extreme right. From the outsiders perspective the United States is exceptional because of the two party system and the right leaning tendencies of both parties. The United States is the most right leaning country in the western world; the only one that does not offer health-care, has one of the lowest tax rates and is one of the most one traditional of all western countries according to the world values survey.

But given the analysis of America’s current system, the Republican party is not that much further right then the democrats. The governmental institutions of  United States are guided mostly by these right wing policies and this has shown up in the welfare system, the education system, the foreign policy and so on. Since history shows both of these parties more or less carry on the status-quo and campaign promises are usually neglected or unable to be carried through. It can be assumed that both parties share very similar positions and that their divisions are political and not ideological.

To get elected politician’s to convince the electorate that they are both mainstream enough and different enough to get elected. Mainstream enough as not to be a serious risk and different enough to justify a vote. In the American system there are only two parties the Democrats and the Republicans. Both get elected by promising to change the system by either making it slightly more left or right leaning. The republicans will not run on a platform to make the system more left leaning because they will lose their distinction from the Democrats, the Democrats cannot become more right leaning for the same reason. The determination of the parties platforms is not so much the actual views of the parties but the current state of the countries laws and it’s institution. Status-quo is god, even in politics and since the America has been built largely on conservative principles, the Republicans cannot do anything other than lean just slightly more right.


Stratfor Leak

Wikileaks has released a series of documents allegedly originating from the Stratfor an intelligence agency. According to wikileaks the documents are supposed to reveal practices of corruption and bribery used by the company. Most of the documents haven’t been leaked yet, but it will be significant. How Stratfor will be affected will become more apparent in the next while, just as important is the impact it will have on their informants, government employees and people high up who give stratfor the information. While the impact remains to be seen I have been enjoying one of the leaked documents: “The Stratfor Glossary of Useful, Baffling and Strange Intelligence Terms” a primer on terms used within Stratfor. I want to share some of the more amusing terms, from here on out it will be snippets of the document:

Background Check: Check of history of someone to determine reliability. Usually meaningless. A perfect credit rating does not mean you aren’t devious scum. Does run up the client’s bill and makes it appear that you are busy.

Backgrounder: General analysis that gives the customer better situational awareness. The customer never actually reads the Backgrounder. Its primary use is as cover when the customer screws something up. Backgrounders are the basic intelligence tool for shifting blame to the customer.

Barium Meal: When there is a leak, feed bits of radioactive (traceable, false) information to suspects. See which bit leaks. You will know who leaked it. The leaker will know you know. Livens up a dull day like nothing else we’ve ever seen. Bring the kids.

Board: When an op gets so badly blown that pretending everything is fine will no longer work, you get a Board. A Board consists of 3 or more WOGs whose job it is to make sure that only you are blamed for what happened. Pulling a board is bad. At Stratfor, it involves talking to David, George or Don. If all three at the same time, very bad. Time to consider an exciting career in the food service industry.

Brief the Times: When the Briefer has obtained zero valuable intelligence from analysis, he finds something in the inside of the morning paper, powers up a view graph, and “Briefs the Times.” Customers are frequently impressed. It’s a hoot.

Businessman: A source that does what he does for money. Businessmen will sell out to the highest bidder so are considered temporary employees. You must find a way to make them scared shitless of you. A high SS quotient is the foundation of a warm, lasting relationship with a Businessman.

CIA Appetite/Botswana budget: A customer with limited resources asking for enormous amounts of intelligence. Defines most of Stratfor’s customers.

Coerced source: Someone who is a source because you have him by the balls. The most rare and prized variety of source. The key here is to make sure that the source thinks that working for you makes more sense than shooting you. Keep an extremely close eye on changing moods.

Contractor: A source that has been placed under contract by the intelligence organization. The contract spells out what he gets, when he gets it, what he must deliver, and where he will find various parts of his body if he jerks you around. The contractor can work for $50 a month or $5 million a year.

Cutout:  To facilitate security and deniability, many ops use cut-outs. These are individuals who manage sources. Ideally, they do not know the organization they are working for. They know only the person they report to—someone who can disappear without a trace if need be, leaving the cut-out hosed. Very nasty thing to do to your own people. That’s why you use contractors. If you are using your own person, make sure that he can disengage without a trace. And make sure he isn’t in love with one of his sources—literally.

Barry Spookman

Barry Spookman a prominent lawyer known in Canadian intellectual property legal sectors has written an article in the Financial Post regarding the current backlash against C-11. He strongly condemns the current opposition to C-11 as coming from political opportunism and misinformation. Downplaying the DRM provisions of the bill and proposed amendments by the Canadian Independent Music Association that would put C-11 in the same domain as SOPA. But he also says the bill is tremendously progressive, allowing for Canadians to create mash-ups and time-shift. In a sense this is true, although I have argued that it is meaningless to have these provisions if it is illegal to bypass DRM.

Somewhat predictably Barry Spookman is also a registered lobbyist for Canadian Recording Industry Association (now Music Canada), the Motion Pictures Association – Canada, and Canadian Publishers Council. Michael Geist has an extensive retort to this opinion piece and he deconstructs the logic of the bill quite well. Barry Spookman spoke to a parliament committee about the now dead bill C-32 during December 2010 and his views he expresses sound remarkably different from now. It becomes clear that the his views of the bill have evolved or at least changed for his audience since he has written the Op-Ed.

The reality is, that any progressive part of the bill was vehemently opposed by him and less progressive measures. In the op-ed he is enthusiastic about the progressive provisions allowing for mash-ups, this becomes remarkably different listening to his testimony

The bill also contains a new exception that would let individuals take existing content and use it to create user-generated content. The intent is to permit an individual to use content to make a home video or create a mashup of video clips. This is an exception that to my knowledge does not exist anywhere else in the world… They could also create collective works or compilations of works, such as the best of a TV series or their favourite iPod playlist, and post those on the Internet, and they can do a lot more. The result is that the author loses significant control over the uses of his or her work, a fundamental copyright concept.

Mr. Sookman wrote this during his op-ed again in praise of the : “The bill also proposes new exceptions for broadcasters and to support learning and education”. During the testimony he says about the education provisions in C-32

It would affect the market and it would unreasonably prejudice the interests of the authors. The UGC provision as well is not a special case. It applies very extensively. It would undermine the market

Finally Mr. Sookman’s enlightening words on statutory damages:

in relation to statutory damages, you raise a really good point about the interrelationship between statutory damages and behaviour. What this bill does with respect to statutory damages is tell people they can copy as much as they want onto their computer or onto their iPod. It doesn’t matter how many times, because the most they’re going to be liable for is $5,000. Once you’re copying, why not copy as much as possible?

The maximum penalty for sexual assault in Canada is $5000, somehow pirating songs is more important than this.

I’m afraid that as an advocate of C-11 Sookman does not support progressive measures only the passage of the bill. If the SOPA like provisions get passed all the better, he will not mind. If they happen not to be passed, it’s still progress. Mr. Sookman has a right to his own opinion and write it, but he should not flagrantly disregard things he has already said.

Balanced Copyright

To dissect an old problem lets being with an old analogy. If a Canadian were to buy a car, that car would be there’s. They would be allowed to do whatever they wished with the car and modify the car in any way they would have liked. The argument goes that this should apply to every kind of property; if it applies to a car, it should apply to a CD.

This kind of argument relies on the assumption that their is very little difference between physical property and intellectual property. Intellectual property exists to protect ideas or content that can easily copied, a CD falls under intellectual property because it can be easily copied. The car does not need that kind of protection because if I buy a Toyota, I will not replicate another Toyota from that purchased Toyota. If I use that Toyota car and copy it’s design and manufacture a counterfeit via mass production, that would be a concern of intellectual property. But of course this is much harder than burning a CD from a friend.

The protection of intellectual property is ultimately an economic matter. Intellectual property exists to create economic incentive to create ideas and those ideas are protected by the government because it will allow the advancement of society. Economic incentive is not always the reason for creation, but certainly it is a major part of it. Any economist could point out examples of profit motive driving innovations. For instance the diseases get the most research are those which offer the greatest promise of profit. Movies only get made if their budget is justified by their expected returns.

The best kind of intellectual property laws then are those that prevent stagnation of society. This is the best rationalization from a social and a economic point of view. Intellectual property is rarely treated in this way because those who have the greatest say in the making of laws governing intellectual property, do not want to same thing out of intellectual property laws that consumers do. They want to create intellectual property laws that will allow the the maximum profits. The entertainment industry does not have our interest in heart.

What rights is given to a person who purchases a CD, and by extension digital music and movies? That’s what’s up for debate. I suggest three basic rights.

1. Replication for personal purposes: The content can be replicated in order to back-up it or be consumed. Companies obviously don’t want a person to be able to replicate content because the more limited you can make something, the more  power you have over consuming it. If a consumer has to purchase the same game for both his PC and PS3. Why wouldn’t the companies want to prevent this.

2. Free use: The content can be used in any way they choose. This includes showing the content to friends. Entertainment companies don’t want this because they want to charge for each new way something is consumed.  Another profit maximization scheme.

3. Right to modify or use in new material of non-commercial nature:  Culture is a combination of new and old ideas, it stagnates culture if these ideas can’t be reused.

4. The right to resell that media: You can sell a car, then you can sell a CD. Why is it that songs can’t be treated the same as commodities? It’s absurd to treat them any differently.

5. The right to own that product indefinitely. Once it’s bought, it belongs to you forever.

DRM can prevent all of these rights and it is in the companies interest to use DRM to prevent these rights because they prevent profit maximization. When a law is passed that prevents circumvention of DRM it essentially negates these rights.

The justification of DRM has always been it prevents piracy but it does much more then that. DRM allows companies to impose business schemes that otherwise not be feasible. Assume for a second that we can assume the lock on the IPhone as a kind of DRM lock. It allows for the IPhone to be locked to a certain network. By restricting this behavior, it allows for anti-competitive behavior and removes the choice from the consumer. DRM is not preventing piracy of the IPhone, it exists for Apple to make money. As a result Apple also has control over the kinds of apps that go on the IPhone, preventing certain applications from being used(the grooveshark application for instance). Even after you have bought the Iphone Apple is telling you how to use it.

DRM is not always fair to the consumer nor is it beneficial to anyone other than the people wanting these laws. DRM is trivial to get around if you have the expertise. One movie free of DRM is all that is needed for an item to be pirated. Only legitimate use is prevented.

ACTA and The Internet

The latest attempt at censoring the internet has now met with fierce resistance from Europe. Widespread protests have already been seen in Poland and on February 11th a Europe wide protest against ACTA is expected. ACTA began it’s existence in the secrecy of backroom meetings, it was only during a leaked version of the agreement that ACTA came into public sight. Many have been of the opinion that ACTA has largely been partly a result of lobbying by the entertainment industry and the final version of the already signed treaty has received a great reception from the MPAA. Something must be wrong then.

I’m not entirely against ACTA, some of it’s ideas are legitimate and maybe necessary in the global market place. But it’s bad parts would be terrible for the internet and the treaty has far to many potential consequences. Issues have been brought up about it limiting the ability of third world countries to manufacture generic drugs, unfair criminal proceeding’s against unintentional copyright infringers are a potential consequences of this bill. These are very concerning but this article is going to limit it’s scope and try determine it’s potential impact on the internet.

The digital provisions are draconian, it makes circumventing DRM illegal and tools which help circumvent these measures as illegal. Unlocking your I-Phone is illegal under these measures. Much like bill C-11 it will limit the ability to consume content. DVD’s use DRM, games use DRM, computer programs use DRM. And open-source programs would find themselves incredibly limited by this measure. VLC might even be illegal under these provisions.

When the first copy of ACTA was leaked, it was widely speculated that it would require the signer’s to implement some sort of three strike rule, which forces ISP’s to disconnect alleged infingers from the internet. In the final version of the treaty this policy was no where to be found.  That doesn’t mean,  it will not return in some other form though. ACTA creates a  committee which is free to pass more amendments, the treaty does not limit what those amendments would require. The three strikes law could still be implemented at another date, this is what makes the treaty so concerning, once the treaty is passed it can continue to pass more amendments. It would act as a body to press countries into laws that they might not agree with. Anti-piracy measures would almost guaranteed become more draconian in Canada. Just because the document does not explicitly mention internet piracy does not mean it is not one of the biggest reasons for passing ACTA.

The European Commission’s says “ACTA ensures people everywhere can continue to share non-pirated material and information on the web”. What is concerning is what that will mean for ‘pirated-material’. Free-flow of information is not possible if your blocking it, especially when that information is blocked by a treaty that’s been created with little transparency and approved by heavily lobbied bureaucrats.