Cooperation is often ignored by economists and lawmakers and the established powers-that-be when managing resources. This is another aspect of Richistan, the world of the extremely wealthy, where the normal selfishness of everyday humans plays out with a global power structure. When you have everything, it is hard to see why you should give up something, cooperate, in order to get something. Defending your property seems much more appropriate. This is, I think, the source of the bizarre fears of “class warfare” currently being waved about in public by the very rich and the very entitled.

Too many sheep.

Who owns, say, the natural gas deposits that have lain, untapped, under the ocean near Sable Island, a hundred kilometers from my house? Who owns the Gorgon gas field under Barrow Island off Australia’s west coast? Who owns the methane hydrate deposits off the shore of New Jersey? Who owns the limestone deposits under California’s central coast (deposits that yield up some of the world’s sublime wines)? Who owns the great boreal forests of Alaska, Siberia, and Canada? Who owns the rocks of the earth? Who, indeed, owns the air? The birds of the air? The water? The oceans? Fish stocks? Who owns the whales?

 

Who owns nature?

 

And then another set of questions, about another kind of commonwealth: who owns culture? Who owns languages, science, the accumulated genius of technology? Who owns history? Who owns, in short, the human library? Who owns it, and who has the right to sell it?

 

In an empty world, these questions, or at least the ones about nature, didn’t much matter. Nature seemed inexhaustible. Still, natural philosophers, as scientists were once called, have wrestled with the issue for millennia, as have political authorities. In Roman times, the Senate put together a series of laws that classified several aspects of what came to be called “the commons” as explicitly owned by the people collectively. These res communes, common things, included water and the air, but also “bodies of water,” that is lakes, and shorelines generally. Wild animals, as opposed to domesticated ones, were included. After the Roman empire collapsed, overrun by what the Romans were pleased to call barbarians, some aspects of the res communes came into dispute — feudal lords, and then kings, claimed to control them.

National Geographic: too many sheep

The implications of a commons is that since no one owns it, anyone can use it, exploit it, and pollute it at no charge.

So where, in a well-ordered world, do private property rights stop? How best to treat the commons so it survives for the benefit of all?How best to allocate the profits that flow from what exploitation is allowed? Private property is the engine of prosperity. Common property is the backdrop before which private actors perform. Both are necessary. So an answer is critical. We have three economic sectors: the private sector, the public (or state) sector and the commons sector. Only the last has no body of law to protect it, and no accounting systems for its profits or losses.

So the question becomes: if the various natural systems of the earth, especially the air, the water, the land and its minerals, and the complex life systems they sustain, are indeed “the commons,” how do we guard against the “tragedy of the commons?” If no one owns the resource and anyone can use it, how do we protect it from depletion?

 

The tragedy of the commons as a phrase owes its origins to Garrett Hardin’s essay in Science magazine in 1968, though the notion of a social trap involving a conflict between individual interests and the common good goes back, at least, to Aristotle.

…

Hardin’s argument was widely accepted by economists and free-market enthusiasts. The solution to the dilemma, it seemed obvious, was privatization, the enclosure of the commons.

 

But it is not obvious. Hardin’s theory was the purest poppycock, and widely adopted only because it seemed to convey the essence of free market competition. It was a truly corporatist view.

The main error was to adopt a key proposition of the free market, and of Adam Smith’s, that man is a rational being who always acts in his own best interests, and then to assume that those interests automatically involved multiplication of personal assets. But what Hardin was describing was not rational behavior — it was the purest selfishness.

Enough grass

read the whole article including the original text of the Tragedy of the Commons:

The Fallacy of the Tragedy of the Commons « Center for the Advancement of the Steady State Economy.

• Going after piracy costs money.
• Going after piracy as outlined in SOPA/PIPA has a very negative effect on Internet freedom, costs innocent web denizens time and money, and sounds totally unconstitutional to me.
• The industry argument for the damage done by piracy is totally bogus and undocumented.

via SOPA, Internet regulation, and the economics of piracy at Ars Technica

Earlier this month, I detailed at some length why claims about the purported economic harms of piracy, offered by supporters of the Stop Online Piracy Act (SOPA) and PROTECT-IP Act (PIPA), ought to be treated with much more skepticism than they generally get from journalists and policymakers. My own view is that this ought to be rather secondary to the policy discussion: SOPA and PIPA would be ineffective mechanisms for addressing the problem, and a terrible idea for many other reasons, even if the numbers were exactly right. No matter how bad last season’s crops were, witch burnings are a poor policy response. Fortunately, legislators finally seem to be cottoning on to this: SOPA now appears to be on ice for the time being, and PIPA’s own sponsors are having second thoughts about mucking with the Internet’s Domain Name System.

That said, I remain a bit amazed that it’s become an indisputable premise in Washington that there’s an enormous piracy problem, that it’s having a devastating impact on US content industries, and that some kind of aggressive new legislation is needed tout suite to stanch the bleeding. Despite the fact that the Government Accountability Office recently concluded that it is “difficult, if not impossible, to quantify the net effect of counterfeiting and piracy on the economy as a whole,” our legislative class has somehow determined that—among all the dire challenges now facing the United States—this is an urgent priority. Obviously, there’s quite a lot of copyrighted material circulating on the Internet without authorization, and other things equal, one would like to see less of it. But does the best available evidence show that this is inflicting such catastrophic economic harm—that it is depressing so much output, and destroying so many jobs—that Congress has no option but to Do Something immediately? Bearing the GAO’s warning in mind, the data we do have doesn’t remotely seem to justify the DEFCON One rhetoric that now appears to be obligatory on the Hill.

Read whole article at  SOPA, Internet regulation, and the economics of piracy.

The Oil Drum | Obstacles Facing US Wind Energy.

In the United States, we have been working on scaling up wind energy but not getting very far. In 2010, wind energy supplied only 2.3% of electricity purchased.

Such slow progress seems strange for a product that seems to have such great promise. It can reduce CO2 emissions. It doesn’t require fuel. It is at least partly US made. It seems to have promise for protecting against rising fossil fuel prices……

 

One of the big issues with wind is that hopes have been raised for its widespread use, without really working through feasibility issues. If we are already having trouble with the electrical grid not being able to accept more wind energy in popular wind-generating areas when wind energy constitutes only 2.3% of total electricity supply, then wind energy is going to be difficult to scale up quickly. The issues I point out in this article suggest that the cost problem is still large, and the fixes needed to add long-distance transmission are likely to make the cost problem even worse.

read the whole article and check the comments, which are often quite good at The Oil Drum.

Another post I read today used Godzilla as a metaphor and I will too. The banking system, from your FDIC accounts to Goldman Sachs, is a kind of  roving Godzilla, sometimes fertilizing, sometimes destroying,  impervious to argument, out of control. Since Godzilla is a movie metaphor for US defeat and occupation of Japan, and the long-term results of  WWII history are starting to turn sour in Japan, I find it apt. Anyway this post and his previous one are very interesting analyses of what a rationalized “transparent” banking system, a tame Godzilla, might be.

interfluidity » Opaque and stinky logorrhea.

My previous post on opacity in finance attracted a lot of discussion, both in an excellent comment thread and throughout the blogosphere. Thanks. As usual, your comments put my drivel to shame.

I thought I’d follow up (very belatedly, i’m sorry!) with some remarks on opacity in finance. This will be long and very poorly organized, a brain dump of responses I feel I owe people so I can move onto other things. If you actually read it, I am grateful. (I am always grateful that you read my words at all!)

Anyway here goes:

• I, personally, detest opaque finance. I would prefer we eliminate whole sectors of status quo finance, replacing the existing skein of deceptive institutions with very simple arrangements that make it absolutely clear who bears what risks. Banks, money market funds, and pension funds are the first institutions we’d reform out of existence. They wouldn’t be the last. I became interested in financial systems as a large scale information system. It is with great unhappiness and reluctance that, after devoting years of my life to thinking about finance, I’ve concluded that financial systems are better characterized as large-scale disinformation systems and that disinformation is at the core of how they function, not some tumor that can be excised to restore the patient to good health.
• I am still an idealist. I think we should try to develop financial systems that are honest and transparent, that do not combine kleptocracy and effectiveness into a bundle that’s both impossible to refuse and debilitating to accept. But that is a larger and very different project from, say, increasing capital and liquidity ratios at status quo banks.
• We must give the devil her due. It pissed a lot of readers off and pisses me off too, but the argument I offered in the previous post is true. Over the broad scope of history, societies with financial systems that mobilize capital opaquely and at very large scale have completely dominated those that have relied only upon consenting risk assumption by well-informed individuals. Industrialization occurs in societies with corrupt and fragile big banks, or else in societies where the state coerces and obscures risk-bearing and reward-shifting on a large-scale, or (more usually) both. China is a great present day example. That does not mean it would be impossible to develop a set of institutions that would be both effective and transparent. But it does mean developing such a system is an ambitious and ahistorical project, not a mere matter of “fixing what’s broken”. Under present arrangements, transparency and what we perceive as effectiveness stand in opposition to one another. It is incoherent to demand transparency and expect “more” macroeconomically stimulative intermediation from our current financial system.
• A lot of responses to the previous post were of the form, “You are wrong, and like, duh! Look around! Look at where opaque finance has gotten us! No one trusts anyone, we can’t mobilize risk capital at any scale, etc. etc.” That’s all true! But it’s the exception that proves the rule…..

Read the rest at interfluidity » Opaque and stinky logorrhea.

Why Is Finance so Complex?

Why does the Godzilla of Finance roam the land bringing wealth and destruction?

The response to comments is great too.

Why is Finance so complex?

Lisa Pollack at FT Alphaville mulls a question: “Why are we so good at creating complexity in finance?” The answer she comes up with is the “Flynn Effect“, basically the idea that there is an uptrend in human intelligence. Finance, in this view, gets more complex over time because financiers get smart enough to make it so.

That’s an interesting conjecture. But I don’t think it’s right at all.

Finance has always been complex. More precisely it has always been opaque, and complexity is a means of rationalizing opacity in societies that pretend to transparency. Opacity is absolutely essential to modern finance. It is a feature not a bug until we radically change the way we mobilize economic risk-bearing. The core purpose of status quo finance is to coax people into accepting risks that they would not, if fully informed, consent to bear.

Financial systems help us overcome a collective action problem. In a world of investment projects whose costs and risks are perfectly transparent, most individuals would be frightened. Real enterprise is very risky. Further, the probability of success of any one project depends upon the degree to which other projects are simultaneously underway. A budding industrialist in an agrarian society who tries to build a car factory will fail. Her peers will be unable to supply the inputs required to make the thing work. If by some miracle she gets the factory up and running, her customer-base of low capital, low productivity farm workers will be unable to afford the end product. Successful real investment does not occur via isolated projects, but in waves, forward thrusts by cohorts of optimists, most of whom crash and burn, some of whom do great things for the world and make their investors wealthy. But the winners depend upon the existence of the losers: In a world where there was no Qwest overbuilding fiber, there would have been no Amazon losing a nickel on every sale and making it up on volume. Even in the context of an astonishing tech boom, Amazon was a pretty iffy investment in 1997. It would have been an absurd investment without the growth and momentum generated by thousands of peers, some of whom fared well but most of whom did not.

One purpose of a financial system is to ensure that we are, in general, in a high-investment dynamic rather than a low-investment stasis. In the context of an investment boom, individuals can be persuaded to take direct stakes in transparently risky projects. But absent such a boom, risk-averse individuals will rationally abstain. Each project in isolation will be deemed risky and unlikely to succeed. Savers will prefer low risk projects with modest but certain returns, like storing goods and commodities. Even taking stakes in a diversified basket of risky projects will be unattractive, unless an investor believes that many other investors will simultaneously do the same.

We might describe this as a game with two Nash Equilibria (“ROW” means “rest of world”):

If only everyone would invest, there’s a pretty good chance that we’d all be better off, on average our investments would succeed. But if an individual invests while the rest of the world does not, the expected outcome is a loss. (Colored values wearing tilde hats represent stochastic payoffs whose expected value is the number shown.) There are two equilibria, a good one in the upper left corner where everyone invests and, on average, succeeds, and a bad one in the bottom right where everybody hoards and stays poor. If everyone is pessimistic, we can get stuck in the bad equilibrium. Animal spirits are game theory.

This is a core problem that finance in general and banks in particular have evolved to solve. A banking system is a superposition of fraud and genius that interposes itself between investors and entrepreneurs. It offers an alternative to risky direct investment and low return hoarding. Banks guarantee all investors a return better than hoarding, and they offer this return unconditionally, with certainty, without regard to whether other investors buy in or not. They create a new payoff matrix that looks like this:

Under this new set of payoffs, there is only one equillibrium, the good one on the upper left. Basically, the bankers promise everyone a return of 2 if they invest, so everyone invests in the banks. Since everyone has invested, the bankers can invest in real projects at sufficient scale to generate the good expected payoff of 3. The bankers keep 1 for themselves, pay their investors the promised 2, and everyone is made better off than if the bad equilibrium had obtained. Bankers make the world a more prosperous place precisely by making promises they may be unable to keep. (They’ll be unable to honor their guarantee if they fail to raise investment in sufficient scale, or if, despite sufficient scale, projects perform more poorly than expected.)…

read the rest at interfluidity Why Is Finance so Complex?

Apple’s mind-bogglingly greedy and evil license agreement

I read EULAs so you don’t have to. I’ve spent years reading end user license agreements, EULAs, looking for little gotchas or just trying to figure out what the agreement allows and doesn’t allow.

I have never seen a EULA as mind-bogglingly greedy and evil as Apple’s EULA for its new ebook authoring program.

… Imagine if Microsoft said you had to pay them 30% of your speaking fees if you used a PowerPoint deck in a speech.

I’ve downloaded the software and had a chance to skim the EULA. Much of it is boilerplate, but I’ve read and re-read Section 2B, and it does indeed go far beyond any license agreement I’ve ever seen….

read entire article
from Ars Technica:

Apple announces iBooks 2, iBooks Author to “reinvent textbooks”.

(edited) lots more from Tidbits:
Examining iBooks Author from the Publisher Perspective

previously from Tidbits:
Apple Goes Back to School with iBooks 2, iBooks Author, and iTunes U

Immediately this strikes me as both potentially wonderful, and potentially Stalinist in the way that only Apple can be.

‘Who are you?’ said the Caterpillar.This was not an encouraging opening for a conversation. Alice replied, rather shyly, ‘I — I hardly know, sir, just at present — at least I know who I WAS when I got up this morning, but I think I must have been changed several times since then.’  from Alice’s Adventures in Wonderland

Could be wonderful:

The textbook system in K-12 and college is just plain awful. Other than the content, there is nothing right about it. School districts and students pay far too much, can’t get partial sections of giant books, can’t exercise Fair Use as intended, and are stuck with heavy, frequently out-of-date, and fragile paper. Authors have to indenture to a very small number of publishers, and don’t make enough money. Good graphics and audio and linking and full-text search are impossible. Textbooks stink.

Apple is famously good at designing creative apps, and I guess most think they’ll do a good job here with authoring applications. So all the problems with textbooks may well be solved here by Apple. A future where textbooks are cheap, colorful, noisy, linked, up-to-date, and light looks very good. But that leads to what makes me think this is a dangerous situation.

Could be awful:

Publishers, who currently own the content, are notoriously clueless about the digital world. They, like the movie types who pushed SOPA, are infamously attached to a monopoly/closed market business model. Schools are notoriously clueless about the digital world and strongly tend to one-size-fits-all canned solutions. And which digital company is also attached to a closed market model? Apple of course. Apple who only allows access to its music store through Apple applications that don’t run on Linux. Apple who requires developers pay them for the right to sell software for Apple hardware, and decides whether they are allowed into the store. Apple who turns your iPhones into a brick if you load somebody else’s software onto it. Apple who refuses to allow Flash on its mobile platforms (arguable pros and cons technically, but they do it for anti-competitive reasons).

Will Apple software only make textbook applications that  run on iPads? If so all students in the new system will have to buy one brand of hardware, Apple. And Apple will sell an extra gazillion iPads. Hooray for Apple shareholders, they’ve found a market thats not saturated, and they intend to colonize it. But public schools would never require all students to be driven to school in one make of car, or wear one make of sneaker or backpack, so why would they ever require students to use one brand of tablet? I fear they are clueless enough to rush heedlessly into a monopoly situation without consideration.

by Tenniel

What do the experts say on format?

Tidbits editor Adam Engst:

iBooks Author can export three types of files: text, PDF, and iBooks. The text export is likely only for extracting text from an existing file, the PDF export appears to be useful only for a certain level of proofing, and the iBooks format is apparently EPUB, with a slightly different MIME type (drop one on BBEdit if you want to look inside). You can export directly to a connected iPad for testing, which is far easier than the normal convoluted process for syncing ebooks to the iPad.

However, don’t get your hopes up for being able to use iBooks Author for EPUB in general — the license agreement states that files created with iBooks Author must either be made available for free or sold only through the iBookstore, and they will likely display only in iBooks on the iPad without some hacking. In short, if TidBITS wanted to create an enhanced Take Control ebook using iBooks Author, the only way for readers to purchase it would be through the iBookstore, which makes it much harder for us to communicate with readers and provide outside-the-book features as we do now. It would also make it harder for us to provide a similar ebook in other formats, such as one that can be read directly on the Mac or on the Kindle….

So the authoring software is OK, but not brilliant. Tellingly they haven’t bothered  to put forth a technical excuse for the blocking of other platforms.

What about ownership?

Here’s a report on the seizure of rights by Apple mentioned by Engst at Tidbits (above): publish on iBooks and lose your rights to publish elsewhere.

from  Venomous Porridge   The Unprecedented Audacity of the iBooks Author EULA

This restriction — that iBooks can be sold only in the iBookstore — isn’t enforced on a technical level. You can save the document, move it to your iPad in any of the usual ways (including just emailing it to yourself), and it happily opens in the iBooks app.

But if you look at the end-user license agreement (EULA) for iBooks Author, accessible via the app’s About box, the following bold note appears at the top:

IMPORTANT NOTE:
If you charge a fee for any book or other work you generate using this software (a “Work”), you may only sell or distribute such Work through Apple (e.g., through the iBookstore) and such distribution will be subject to a separate agreement with Apple.

There’s more at that site.

What about distribution?

again Tidbit’s Adam Engst

…Debates are already raging on Twitter about how iBooks Author doesn’t allow works created with it to be sold anywhere but the iBookstore, and we publisher types are already trying to imagine how we can justify the extra effort and expense of creating enhanced ebooks for a single retail outlet….I’ll give Apple this — they don’t think small. These apps set a new standard for electronic books and online courses, and the apps are all available for free. The problem is that Apple also wants to own the entire pie, and in the process say exactly what is and is not possible.

On thing seems clear, whether Apple gets its monopoly, or a duopoly with Amazon or Google, or a real market with all of the above and Wikipedia, traditional publishers are that much closer to being roadkill. They really aren’t needed in the digital world, once their salespeople and contracts are rendered obsolete by an influx of digital books. For them to partner with any of the big digital players like Apple, is like playing the turkey who helps the farmer design the menu at Thanksgiving.

‘O Oysters,’ said the Carpenter, ‘You’ve had a pleasant run.! Shall we be trotting home again?’ But answer came there none – And this was scarcely odd, because They’d eaten every one.”

My conclusions: greedy power-mad monopoly bearing benefits.

I don’t mind if Apple sells some great software that only runs on Apple computers. They have always done that, and other developers have written great software that runs everywhere including Apple computers. I care that Apple will give away the software through deals with publishers and schools in order to lock everybody, authors and students, into an Apple-only ecology.

I do care that Apple controls the developer’s access to their hardware – that’s anti-competitive. I do care that Apple forces an author to give them exclusive rights – that’s restraint of trade. And I do care if Apple offers a luscious juicy package to the dim and unsuspecting Adams and Eves of the digital textbook garden, only to have those Adams and Eves wake up to discover that Apple controls all the fruit.

The Solution:

It’s simple, schools should specify only that digital books they buy, distribute, or require have versions to run on all the standard hardware/software, Android/Linux, Kindle, iPad, Nook, and whatever Microsoft settles on. In practice that might mean epub or HTML5, but it would probably be a mistake to specify a format because our long experience as users is that formats come and go, and authors should be free to use a better solution.

Some more details: Ars says, in part:

 

“iBooks” are no longer old Apple laptops made out of white plastic, nor are they simply e-books to be purchased within Apple’s iBookstore. Apple announced what it’s calling “iBooks 2″ during its media event in New York on Thursday, a textbook software program that allows textbook-makers and instructors to create rich, interactive teaching media for the iPad. As we first reported earlier this week, the announcement is akin to “GarageBand for e-books,” giving authors access to easy-to-use tools on the computer in order to create multimedia content for the iPad.

Books created for iBooks 2 can have all manner of media attached, complete with multitouch capabilities. The company listed numerous ways in which iBooks 2 authors can create engaging content for students, including multiple-choice questions with immediate feedback within the text, the ability to make notes and highlights that can be found in a single location as note cards or sprinkled throughout the text, ways to explore embedded graphics and 3D animations, full-motion movies, and more.

iBooks 2 itself is an app for the iPad, but books for the application can be found within the already existing iBookstore under a new “textbook” category, with free samples available to those who want to try out the books first. Students can use codes to redeem them for books and can re-download them whenever they need to.

But how does one create a textbook for iBooks 2? Apple also announced a Mac application on Thursday called “iBooks Author,” which Apple Senior VP of Worldwide Marketing Phil Schiller described as “powerful and feature-rich.” The interface, as demoed to the audience, is similar to Apple’s iWork applications and allows authors to format books through WYSIWYG interaction and format the pages in a variety of ways. (It’s worth noting that news broke on Wednesday that Apple had commandeered its VP of productivity applications Roger Rosne to head up this project.)

In addition to the WYSIWYG interface, authors can further customize their books with HTML5 or JavaScript, and the application provides live previews so that authors can see what the final result will be before publishing. The price of the books is capped at $14.99 or less (the company specifically said “high school” books, so it’s unclear as to whether the cap applies to all books), though instructors can sell individual chapters at what Schiller described as a “very aggressive price.”

available at Amazon

via Science needs a universal symbol – opinion – 06 January 2012 – New Scientist.

SCIENCE is under assault. In the US and throughout the world, rhetoric about evolution, stem cells, global warming and other controversial and cutting-edge technologies often transcends legitimate disagreement to challenge the work of scientists.

Less visible is the community of those who believe deeply in the integrity of the endeavour, who defend the need for rigorous objectivity in politics and education, and who – even if they are sympathetic to religion or religious themselves – believe in the need for clear jurisdictional boundaries between religion, ideology and science.

They are passionate about science and see themselves as sharing a mission to defend the enterprise. Yet they lack a sign of their position, something that could unite their effort – in short, a symbol that stands for science, in much the same way as the Christian fish symbol declares adherence to that faith on car bumpers worldwide.

A single, unified symbol would have many uses. It could be displayed to represent a position: opposition to the politicising of science in government, support for increased research spending, or concern about global warming and species loss. It could be displayed by an astronomer or geologist or sociologist or teacher as a symbol of their allegiance to science. It could be used on car bumpers and web pages, and in public venues.

It should be simple and versatile, instantly recognisable and encompass all of science – a double helix alone, say, won’t do as it does not take in astronomy or particle physics.

….

more… Science needs a universal symbol 

you can also get it in its entirety here.

The Jawfish page explains RSS and new feeds, if you are not familiar, I urge you to try them. The process is simple and elegant, and provides a lot of interesting reading you can’t get from the newspaper or magazines.

Paywalls are widely despised in the digital world as “not getting it,” meaning failing to understand the Internet culture with terminal lack of hipness. Interlopers like Rupert Murdoch are ridiculed for trying to bring old-media hyper-controlling mega-conglomerate ways to a flexible, personal, mash-up of ideas. Fundamentally I agree with these critiques, but let’s note that there is probably room for all kinds of experiments, hip, unhip, and totalitarian on the Web. And everybody recognizes the professional journalism crisis.

What struck me while I was being sapped by the miniature saga through Conde Nast, was that their paywall worked, but not the way they probably intend. I do pay for a subscription to the New Yorker, and I read the article. But I am not going to pass it on, dissect it, engage in discussion with others about it, or generally enhance its visibility. The author’s intellectual property ( I suspect the NYer sees this as their IP) has been protected from copying, and in the process doomed to a smaller and less energetic audience. There are just too many accessible articles and books to share to bother with difficult-to-reach-and-handle information.

Notable magazines and proper journals were once the pinnacle of intellectual life. They appeared as islands on a dumb, unknowing sea. Once upon a time authors could only publish on one of these discrete islands where their work was marooned. But now the sea itself is a bloom of information, discussion, and publishing. It’s as if one can publish directly to the main library, without waiting for publishing, printing, distribution and purchase. But those publishing on desert islands are not wetted by the nutrient bath of seawater, nor do their works easily slip down the beach into the mix. However there is a corrosive effect from the Web on these notable islands – their once-prized editing and thoughtful, definitive writing is being dumbed-down even as the publishers try ineffectually to get into the nutrient-rich seawater using paywall submarines and editorial gimmicks.

Just how they can monetize their magazine franchise I don’t know. Possibly subscribers get the latest edition before it goes public in the archives. Possibly they can sell podcast subscriptions on the coming wave of iPads and Android tablets for a few bucks annually. I do know that some of the most topical, thoughtful writing I read is free on the Web, complete with discussions, digressions, occasional hostile critiques, and more or less moderation. It’s understood on these sites that authors are subject to direct critique from anyone who cares to write. True, the quality of Web comments varies wildly from the too-inane-for-10-year-old-boys to thoughtful expansion on the original entry. But learning to dismiss poor sites and information quickly is a part of the library science of the Web age, just as it was with books in the stacks, it’s just a lot easier now.

I have examples of web articles I thought good on my feed if you care to look. Warning: popular culture is mostly ignored.

The Situation
Many of us have been stunned by the size of the banking collapse and bailout. First, old pinstripe investment banks turn out to be mountains of toxic paper and leverage, run by con men, then vast amounts of taxpayer money are thrown at the banking system overnight to no effect, only to be followed by literally trillions of unaccounted dollars from the Fed. Then, when actual manufacturing businesses, the automakers, come to Washington, the New York set couldn’t care less.

Without repeating the details covered elsewhere, let’s just say that the heretofore academic and obscure critique of American business as too little manufacturing and far too much F.I.R.E. ( finance insurance real estate) has become a commonplace in the media. Now we are in real danger of losing the domestic part of the auto industry to bankruptcy.

Some Introspection
Who are we, this nation whose wealth is based on financial transactions? Where is the economy built on farmers, ranchers, and mechanics? Who are these frightened fat people who buy buy buy at Walmart, and have no town pharmacy or clothing store? When did bankers become PT Barnums running a gigantic Ponzi scheme? Is there really no one left outside the Berkshire-Hathaway empire and the computer biz that builds a business year by year?

We Need a Standard
Clearly there are jobs that must be done, like firefighter, cop, and doctor. There are jobs that can make other jobs more efficient or valuable, like sales, accounting, and insurance. There is a powerful fast-moving global financial system that can underwrite world-wide trade. And then there are jobs that make something. These are the jobs that produce real wealth. These are the jobs that provide the raison d’etre for the supporting jobs. The current crisis makes it clear that runaway FIRE business not only detracts from real wealth and prosperity by rerouting resources that should have gone into valuable jobs, but can actually reach a toxic level where it destroys the financial infrastructure. Put differently, we can afford a few residents of Richistan, but turning over the whole banking sector to them leads to a looting of the nation’s wealth.

The nation is in for some tough times restructuring the economy. We need a value standard to use when planning new business and government spending. What jobs are valuable and what are a drain on the society? We can’t go with my personal list or with yours: we need a general way of evaluating work that we can all agree on. For instance, we have to decide what banks will be allowed to do, and what they will be required to do.

Value Added
Here’s a simple way of looking at the value of economic work: Value Added. Value Added simply means that your work took some raw materials and made them into something more valuable. Whether you added dollar value or social value is irrelevant, you made something better. It’s as simple as that, value added is good, value consumed is bad. Any individual job is hard to quantify, and all of us backslide some days and march forward others. But maybe when you are deciding to call your next meeting, you might think, ” Will we lose more production by taking these people off-line, than we gain by meeting?” When you invest, ask, ” Is this a company that makes something, or are they just moving paper around?” When we examine governmental health care proposals, lets ask, “Will this help us compete with foreign sources, will it make health delivery more efficient, will it allow people to work for small companies and start-ups with no insurance?”

Parasitic Work
There has been a ubiquitous de-coupling of wealth from value-creation. We folks outside the inner financial circle hardly knew how much before this collapse, but people of real wealth no longer feed it like the Founding Fathers on trade and agriculture, or like the rust-belt barons on steel and cars. Real wealth today is built like the Robber Barons, on sleazy governmental give-aways and land deals and stock manipulations, and now complex computer-generated pseudo-money-contracts. And giant retailers like Walmart are just growing by squeezing out the smaller competitors, they aren’t making anything new. Or making anything at all.

“The Kept Dollar is a Stinking Fish”
This free-floating wealth is parasitic, it is not beholden or dependent on a region, a nation even. It does not rely on a workforce or raw material. And worst of all, it’s not available capital for businesses: it’s locked up in credit-default swaps, insurance on insurance on paper, and other abstruse and dubious entities. When the wealth has no social ties, it naturally encourages a kind of rich-man’s anarchy. In the past, wealth was based on agriculture, manufacturing, and trade. Sure there were plenty of sleazy deals, swindles, and usury, but they weren’t the majority of the economy. Now, wealth is based on swooping in, and making a bet, gathering up the chips and vanishing.

Let’s test the idea of Value Added:
Farmer – takes soil, and seeds and makes food. Value added.
Hedge fund manager – takes capital, borrows more capital, and risks it all in an attempt to make more capital. The capital never goes to work, nothing is created, so this behavior is parasitic. Value depleted.
Venture capitalist – takes capital and funds new business with it. Value added.
Traditional banker – Lends for housing, construction, manufacturing plant and equipment. Businesses are built, jobs created. Value added.
New style bonus-driven banker – Constantly searching for new and bigger short-term wins to make his annual bonus bigger. Never invests in long-term projects. Nothing created except risk. Parasite. Value depleted.
Corporate raider, CEO, investment banker – they may improve efficiency of system by reorganizing sick companies, but almost always they just spend on non-productive mergers, or loot current value-added assets. Usually parasitic. Value depleted.

Conclusion:
Sure there are lots of edge conditions where its hard to say what value is added or subtracted. Environmental and social costs are not well accounted for in our system, but that’s a subject for the Green Economic Revolution. But two simple words express the general idea- Value Added. If you are not adding value, you are a net cost rather than an asset. Think about it.

References:

Niall Ferguson article on the immense size of F.I.R.E
Chris Martenson series on the whole enchilada of financial upheaval.