Thursday, August 26, 2010

Holding WikiLeaks Accountable

The self-styled "intelligence agency of the people," WikiLeaks, has whipped up quite a media dust storm in the last six months, first with a video showing two Reuters journalists being shot at and killed by American forces, and then last month with the release of 91,000+ documents related to the war in Afghanistan. The organization of cryptographers and network specialists -- spread out all over the world and not confined by any kind of physical headquarters -- combines hacker ethics and anti-authoritarian values with a civic pride to defend "the integrity of our common historical record and the rights of all peoples to create new history." Here's more, with my emphasis added:
The power of principled leaking to embarrass governments, corporations and institutions is amply demonstrated through recent history. The public scrutiny of otherwise unaccountable and secretive institutions forces them to consider the ethical implications of their actions. Which official will chance a secret, corrupt transaction when the public is likely to find out? What repressive plan will be carried out when it is revealed to the citizenry, not just of its own country, but the world? When the risks of embarrassment and discovery increase, the tables are turned against conspiracy, corruption, exploitation and oppression. Open government answers injustice rather than causing it. Open government exposes and undoes corruption. Open governance is the most effective method of promoting good governance.
Today, with authoritarian governments in power around much of the world, increasing authoritarian tendencies in democratic governments, and increasing amounts of power vested in unaccountable corporations, the need for openness and transparency is greater than ever. In an important sense, WikiLeaks is the first intelligence agency of the people. Better principled and less parochial than any governmental intelligence agency, it is able to be more accurate and relevant. It has no commercial or national interests at heart; its only interest is the revelation of the truth. Unlike the covert activities of state intelligence agencies, WikiLeaks relies upon the power of overt fact to enable and empower citizens to bring feared and corrupt governments and corporations to justice.
All of this sounds rather heroic and vital: undermining the venal or incompetent impulses of elected and unelected power through "principled leaking" of information by those with proximity to power. As WikiLeaks itself likes to point out, the Pentagon Papers represented just such a leak, and had a real impact by calling into question the honesty of officials orchestrating the Vietnam War. But notice the framing of powerful institutions versus WikiLeaks itself. The former are often "unaccountable," "secretive," "feared," and "corrupt" while the latter is "principled" and not "parochial". Though I take no issue with the notion that powerful organizations get to be that way by, at times, becoming some or all of those bad things, I'm not about to simply take WikiLeaks' word for it that it isn't capable of the same institutional behaviors. In particular, I fail to see how WikiLeaks itself can be defined as "accountable".

The first question we should ask ourselves is, Does WikiLeaks have an agenda? Is it acting on a virtuous philosophy, or does it selectively target particular people or organizations for embarrassment? Julian Assange, the face behind the organization, has voiced opposition to the wars in Iraq and Afghanistan. One would hope that Assange would not think twice of publishing leaked documents showing, say, that COIN was effective in Afghanistan if such a thing were made available. And personal email leaks are something that should perk everyone's privacy antennas up when they occur. Some of Sarah Palin's personal emails were published during the campaign, and I was initially disheartened to hear about this breach. Later, I read that the intention of the hack was to show that Palin was using personal email accounts for governmental business in order to skirt disclosure and archiving requirements, and examined the leak myself. The published disclosure has been handled in a prudent way so far, in my opinion. Still, leaking personal emails should draw a good amount of hesitancy. Personal emails from a Nazi mailing list were also leaked, and contain email addresses of recipients. It stands to reason why a government might want to monitor potentially violent extremist groups (a whole other can of worms), but what right does the general public have to see the members of this list? Where does the line get drawn between the public interest and the privacy rights of individuals, regardless of political beliefs?

This raises another problem: even if WikiLeaks does not have an agenda, its decentralization and nebulous legal liability render it essentially immune to outside pressure. It is an anti-institution in the hinterlands of cyberspace. Like guerrilla factions or even terrorist cells, its effectiveness comes from its mimicry of the just the sort of anarchic mutability and independence that hinder or topple large, traditional organizations. Great for WikiLeaks; it's fully exploiting the playing-field-leveling power of the Internet. But it is certainly no paragon for the democratizing influence of the web. It is true that freedom of information protects democracy by exposing abuses of power and informing the citizenry. But democratic governments (the ones whose authoritarian tendencies WikiLeaks means to check), remember, derive their legitimacy from the consent of the governed, and are accountable for their transgressions when they come to light. Likewise, corporations and businesses -- however unaccountable they may be to the justice and well-being of society, at times -- are subject to the rule of law, as are individuals and nonprofits. WikiLeaks is not. There is no record of who WikiLeaks is, so if it engages in illegal or dangerous activity -- such as endangering the lives of military or intelligence operators in the field -- there is no one or few people who can be brought to justice for it. The same goes for basic public shaming, too.

If WikiLeaks' raison d'etre is simply leaking information, and not building institutional credibility and integrity in the public eye, then it is unaccountable. Leaking has an impact with or without accountability, though. Were leaks to start happening in an "unprincipled" way, i.e. if WikiLeaks simply became a clearinghouse for all leaked material and published everything without consideration or verification, then the organization would quickly lose all institutional credibility. But the leaks themselves would still possess value for someone (why else would the information be withheld?). So the problem: WikiLeaks behaves true to its philosophy of "principled" leaking, and it has an impact. WikiLeaks loses all sense of principle and propriety, and the leaks still have an impact. That to date the leaks have not egregiously violated principles of privacy or safety is irrelevant. Future violations could conceivably occur arbitrarily and with impunity, and that threatens legally-sanctioned institutions (governments, corporations, individual rights and liberties) without regard to guilt or innocence.

The recent leaking of Afghanistan documents shows that either WikiLeaks recognizes its democratic legitimacy problems, or it at least wants fact-checking help. Prior to publishing the secret documents, they were given to the New York Times, The Guardian, and Der Spiegel with an agreement to withhold articles until the documents were published. (For two good accounts of the agreement and verification process, see the Columbia Journalism Review here and here.) All three of these newspapers are highly respected, legitimized institutions. They have built up credibility over decades, and while they are legally liable for gross abuses (for examples, look under "Update" in this Glenn Greenwald post), a number of protections exist so that they may speak truth to power in the public interest. (In the United States, at least two cases come to mind.) Sure, editors at major newspapers must operate under some personal, moral code of conduct when it comes to publishing, just as WikiLeaks must. But they are beholden to readers, reputation, and the law in a way that the unassailable WikiLeaks is not. It or an organization like it could function as long as someone is willing to fund it. Which, given the demand for anonymous sensitive information, will not be difficult.

It admittedly feels strange to be criticizing an organization whose premise of transparency is something I highly value. I think the war in Afghanistan can be best described as the next generation of technocratic Whiz Kids (both civilian and military) ignoring geopolitical reality and arrogantly soldiering on, literally. And here is WikiLeaks dumping thousands of documents showing how poorly that course of action is going. I think Americans are overly gung-ho for militarization, and, outside of military families, have very little sense of the human cost of war. And here is WikiLeaks providing video evidence that War Is Hell when Western media can't or won't. Isn't WikiLeaks filling a gap in our media and information landscape? Aren't they a check on legitimate power behaving illegitimately? Yes. But when I read about Julian Assange defending WikiLeaks' careful scrubbing of safety-sensitive data -- or read news reports about leaked Afghan informants -- I wonder, Who is the check on WikiLeaks? Unless they work exclusively with traditional media organizations (which seems to run counter to their independent ethos), I'm not sure who will hold them accountable if and when they must be.

Friday, August 13, 2010

Has Monetary Policy Jumped the Shark?

(Sorry for the long absence. But look! A new design! Thank you, point-and-click Blogger templates.)

The last week has been a rough one for the economy and financial markets, and those that love them...or are paid to watch/analyze/capitalize on them. Last Friday's jobs report showed that employment growth has slowed, and the Fed has taken this and other recent indicators as a sign that more needs to be done. In their most recent statement, the members of the FOMC directed the New York Fed to maintain the present level of the Fed's securities holdings by reinvesting principal payments from existing holdings. Not too aggressive, but also more monetary stimulus than was previously being supplied.

For the likes of Paul Krugman, the Fed's paralysis with regard to continued aggressive intervention is reason to get apoplectic. But for perennial FOMC dissenter Thomas Hoenig of the Kansas City Fed, the central bank has already besieged the economic recession with necessarily excessive force, only to find its true enemies (leverage, too-big-to-fail) still standing tall. What's more, he argues that continued stimulus will only aggravate the kinds of debt and risk-taking distortions that prompted the recent financial crisis. Which economist is correct?

First, it's useful to think about what securities purchases by the Fed accomplish. Quite simply, they supply additional loanable funds to the Treasury and Agency MBS markets. Holding the demand for these assets by other investors constant, interest rates on these securities will fall. (Sorry to mix supply and demand here. The supply of loanable funds is the same as saying "demand for these securities".) The hope is that by lowering the yield on the safest non-cash assets, investors who want to take any risk or earn any yield will be forced to look into other asset classes, such as stocks and corporate bonds. If this occurs, funds flow more bountifully to the private sector, and the economy (fingers crossed) heals itself as individuals flock to cheaper mortgages and businesses turn others' savings into productive investments.

The problem, though, is that this strategy -- and the Fed's monetary policy transmission mechanism, generally -- relies primarily on a steady or higher level of overall debt in the system if it is to work quickly.
  • Businesses: With a lower cost-of-capital, projects that had previously not been economically viable may suddenly look profitable. Banks or investors lend them funds, which are used to buy equipment and materials, and to hire employees.
  • Individuals: Lower interest rates persuade would-be homeowners to buy homes, stimulating demand for a larger housing supply (oops, looks like we already have enough of that!) and pushing up home values and property-owner wealth in regional markets. Existing homeowners choose to refinance their home or borrow against the equity they have (oops, where did all that go?) and use the cash they save to consume more.
For individuals, lower borrowing rates aren't going to do much. The housing bust has put serious downward pressure on their homes' values, so their net worth has similarly declined. They're not looking to take on more debt, and banks aren't looking to give them more. Those homeowners who still could have refinanced at lower rates (and those first-time buyers interested in a mortgage) would have refinanced, and probably did, over the last 18 months when rates were at historic lows.

Businesses could save the day, but a lot of them already have large debt loads from the 2004-2007 credit bubble. If a debt-swaddled company is lucky enough to find more credit, it can either (a) use the funds to invest in a new project, or (b) refinance existing debt. If it opts for (a), it further leverages the company at a time when future earnings are uncertain at best: where's the demand going to come from? Consumers are hunkered down trying to cut their expenses and debt burdens. (Note that this is a problem for all companies, including those with healthy balance sheets.) If instead the company refinances old debt, then nothing really happens immediately. Lower interest payments mean that future profits will be higher, ceteris paribus, but those are future profits. They don't help the economy much now, though they may slightly boost the company's equity value. However, if the projects don't pan out, or if the company is actually already too indebted and the refinancing just prolongs its inevitable bankruptcy/restructuring, then the new debt actually just draws out our economic pain.

Finally, the banks. Many financial institutions are still sick (or recovering) from the toxicity of their loan and securities portfolios. As long as individuals and businesses are too heavily indebted to carry on normally in this macroeconomic environment, banks will remain risk-averse. If they behave responsibly, the uncertain economy will prompt risk premiums that wipe out the lower levels seen in the funding markets. And if the economic cycle worsens, the banks' funding costs themselves will rise for those institutions that use interbank funding and capital markets.

The point is that the Fed's transmission mechanism, which uses equilibrium levels in debt markets to nudge all other financial markets and transactions, cannot account for the stock of debt already outstanding in the national economy, which dwarfs levels seen historically. As long as individuals are too indebted to borrow more or consume like they did during those inglorious years past, businesses will be unable to count on strong earnings to justify new projects. And businesses themselves that gorged too heavily on cheap credit will have to forgo new borrowing for new projects, go bankrupt, or slowly pay down their debt, which means fewer resources dedicated to new consumption or investment.

What can the Fed do? At this point, not much. Its low rates probably helped still-financially-viable companies and homeowners refinance their debts, but the scale of over-indebtedness in the economy remains too great for these cash infusions to have an effect that creates enough jobs and investment opportunities to lift us out of low growth or even continued recession. I'm afraid we've already seen the most creative and useful brand of Fed policymaking, and that it will fall to fiscal actors to splurge for direct, immediate intervention (or not) while the bankruptcy lawyers and FDIC receivers slowly extricate us from this colossal mess. Paul Krugman may be right that it's too soon to tighten monetary policy. And Thomas Hoenig may be right to say that economic salvation won't come from low interest rates. But neither leaves us with a clear sense of what the Fed can do if things get worse, or stay, miserably, the same.

UPDATE (Monday, August 16)
On the related note of global imbalances and fiscal intervention vs. austerity, I recommend checking out Paul McCulley's most recent "Global Central Bank Focus" article.

UPDATE II (Monday, August 16)
Also, I just found this very creative post by Steve Randy Waldman today at interfluidity that contemplates various alternatives to traditional Fed policy. Like me, Waldman is concerned that modern monetary policy tools lean too heavily on capital markets and asset pricing, which not only has the effect of promoting asset price bubbles and bursts, but also favors capital over labor. Before you drop the s-word, note that this is relevant to the efficiency of the transmission mechanism as well as politics. Waldman says that central banks could use direct cash transfers to individuals (not reserves invested in fixed-income assets, as is currently the case) to strengthen worker influence while rendering unions less relevant:

That we’ve spent 40 years increasing the bargaining power of capital over labor doesn’t make it “fair”, or good economics. Supplementary incomes are a cleaner way of increasing labor bargaining power than unionization. Unionization forces collective bargaining, which leads to one-size-fits-all work rules and inflexible hiring, firing, and promotion policies, in addition to higher wages. If workers have supplementary incomes, employment arrangements can be negotiated on terms specific to individuals and business circumstances, but outcomes will be more favorable to workers than they would have been absent an income to fall back upon.
I highly recommend this post. It represents a step forward in finding new policy levers that move away from the ambiguities of effectiveness, causality, and fairness in the Fed's traditional tools.

Sunday, April 11, 2010

Breaking News: Ezra Klein Murders NPR Coolness

I know I haven't posted in a long time, and this isn't going to be any kind of extended post. But I had to take a poke at Ezra Klein's characterization of NPR's and The Economist's success:
For better or worse, carrying the Economist is sort of like wearing a shirt that says "I'm smart and worldly and interested in knowing things about Ghana." But unlike a shirt saying all that, it actually works to convey that impression. An NPR bag, for its part, is a signal of a particular brand of non-confrontational, college-educated, sightly-crunchy liberalism. Is that a stereotype? Sure. But it's working for the station's merchandise department.
Thanks, Ezra, for turning my beloved NPR into the popular purveyor of, to coin a phrase, "Vampire Weekend liberalism."

Tuesday, March 2, 2010

Learning to Live with Professionalization

In his new book, The Marketplace of Ideas, Louis Menand -- Harvard English professor and New Yorker contributor -- confronts four of the most contentious issues in higher education in separate essays: core curriculum reform, the declining influence of humanities departments, interdisciplinarity, and the predominance of liberal political beliefs among professors. All are worth reading, even if they are rather obviously focused on the navel-gazing preoccupations of humanities types rather than the academic community generally. The first essay, on the creation of general education curriculum guidelines for all undergraduate students, was the most interesting.

Menand calls general education "the public face of liberal education," where universities attempt to distill some core beliefs about what it is to educate a college student down into core requirements for all students. Some of the most interesting parts of this essay involve the history of core curriculum development and the establishment of undergraduate education as a unique goal for colleges. One revolutionary change arrived when Charles William Eliot became president of Harvard in 1869. Prior to his tenure, students could enroll in Harvard's law and medical schools with few prerequisites, such as a BA. Eliot pushed through a new framework requiring undergraduate degrees for enrollment in these schools, which both professionalized advanced learning and emphasized a new philosophy of undergraduate education:
The collegiate ideal, [Eliot] explained in his Atlantic Monthly article, is "the enthusiastic study of subjects for the love of them without any ulterior objects." College is about knowledge for its own stake -- hence the free elective system, which let students roam across the curriculum without being shackled to the requirements of a major. And this is the system we have inherited: liberalization first, then professionalization. The two types of education are kept separate.
Today, I'm not so sure this is the case. Some of the recent statistics that Menand cites show a trend away from disinterested learning and toward vocational training. Consider the subjects bachelor's degrees are conferred in: business (22%), education (10%), and health sciences (7%). If engineering students are thrown in, close to half of all undergraduates degrees are already, to a great extent, "professionalized."

Despite being a liberal arts brat (and BA) myself, I don't see this as, prima facie, a bad thing. After all, leaders in every field rarely pass up a chance to remind us that the U.S. is in dire need of more engineers, nurses, and teachers. (Sorry marketing majors, we've already got plenty of you.) Popularity in these fields -- and universities' provision of the majors -- is really a response to technological change and demand for an increasingly professionalized workforce.

But at the same time, the huge shift away from the liberal arts and sciences betrays a lack of intellectual curiosity, a lack of self-confidence, or both. If it's the former, then most students no longer have passion for study without "ulterior objects." And if it's a lack of self-confidence we're seeing, it's manifested in smart students' fear that majoring in something non-professional will undermine their employment prospects or -- if they're really unsure of themselves -- their future productivity. Which is nonsense. The skills and intellectual abilities needed to succeed in the liberal arts (analytical writing, rigorous objective and subjective thought, comfort with abstraction) are necessary and often sufficient for success in all fields. Business majors in particular should read carefully: you can be a bright philosophy major and still become a successful businessperson after graduation.

Which brings us back to the core curriculum idea. Undergraduate cores are dominated by the liberal arts and sciences, which themselves house the suite of general knowledge that all so-called "educated" persons should know and also demand/bolster the reasoning skills most useful in private, professional, and citizen life. Louis Menand, who is an academic, seems to imply at various points in his book that liberal arts are really most useful for educating academics, the "producers of knowledge." (While Menand is intelligent enough to acknowledge the value of undergrads and non-academics, others are not so open-minded. Witness former Columbia provost Jonathan Cole's pitiful performance on Charlie Rose last night, where he all but scoffed at undergraduate education as being a valuable goal for universities.) But knowledge is also produced in vast quantities outside of academia, and therefore even the professionalized majors like education, nursing, and business should require the same liberal arts core as other concentrations. That way, these more specialized, vocational students can still develop abstract reasoning and quantitative skills that will allow them to innovate in their fields.

Speaking to Menand and Jonathan Cole, I would say, "Academics don't produce knowledge, smart people produce knowledge." Universities should be more than factories for producing new professors; they should equip all students with the intellectual self-confidence to handle any profession they might choose. Insofar as professionalized undergraduate programs exist, this muddies the message that mental abilities are more important than a specific stock of knowledge. Forcing these vocational programs to participate in the same liberal arts core as all other students would signal the latter's necessity to a purposeful undergraduate experience, and provide a major lift to the "public face" of higher education.

Wednesday, February 10, 2010

Shred the Depositor Safety Net?

Mike over at Rortybomb addresses the thankfully-never-going-to-happen proposal by some calling for the elimation of bank deposit insurance. If only depositors had to worry more about the viability of the banks holding their money, the thinking goes, banks would be more severely disciplined and less inclined to gamble on riskier investments. Besides ignoring the fact that deposit insurance is an essential protection against bank runs in a system of fractional reserve banking, the proposal also stinks of the typical policy solution for libertarians and market fundamentalists: shift the risk on to us, we can handle it.

Problem is, that's not practical for 99% of individual depositors. Being the generous debater and financial engineer that he is, Mike imagines what kind of mathematical gymnastics we ordinary depositors would have to start employing to keep our money safe:
I know the simple way you do it, some techniques that I’ve had some training in: You place out the payment structures using monte-carlo simulations with lognormal random walks; you take a metric of correlation in the market, perhaps in a gaussian copula structure and use that to run correlations at each step between the instruments; you take the distribution you generate and apply a “value-at-risk” logic to it, looking at some piece of the tail distribution.
I love it when earnestness and sarcasm intertwine. Seriously, this is how a high-powered quant analysis would work, by making some basic assumptions about bank cash flows using historical data, possibly applying data on default correlations between asset classes, and then looking for maximum losses in the tails of a simulated distribution. Thank god you got that Applied Mathematics degree; your life savings may yet survive intact.

This intensively computational analysis, though, is subject to the same problem that bedevils all financiers/economists/forecasters/astrologers. You can't know the goddamn future, no matter how nifty your models are or how rich your data is! (And Mike Konczal certainly knows this, but he's not trying to divine, just to show how such a problem might, with trepidation and book-learnin', be approached.) Felix Salmon has already deconstructed the validity of the Gaussian copula in finance, and Joe Nocera took time a year ago to investigate the dubious risk management value of VaR models. So to those financial sophisticates who would tear up the deposit insurance contract: you don't even have the firepower to foresee the black swans out there, so why should everyone else be expected to?

The notion that we should exorcise deposit insurance from our banking system is, I think, symptomatic of the tired policy solutions emanating from a bloc of thinkers itching to shift more risk onto consumers in the name of "incentives." Yes, economic incentives are powerful, but what about those faced by financial institutions themselves? Might those be a better target for reform? We could stand to bear some amount of market inefficiency in the form of a depositor guaranty if we lessened the chances of it being used. Say, with regulation of banks' leverage, size, and scale of interconnectedness. These are the things that make the financial system inherently unstable and susceptible to magnificent collapse.

Conservatives who justify limited government intervention, in all matters, by pointing to uncertainty (like David Brooks) are on to something. We should be humble in the face of uncertainty and acknowledge that this uncertainty is universal. Quants aren't immune to it (though they mistakenly confuse it with "risk" and feel they've pinned it down), and neither are investors, depositors, or regulators. We know that banks will fail in the future, and that at times the system itself will buckle, but we don't know much more than that. The best we can do is limit the damage when it happens. Let's do that by pushing banks to raise new equity, not by transforming depositors into equity investors.

Sunday, January 31, 2010

The Siren Song of Digital Mediocrity

I just finished Jaron Lanier's You Are Not A Gadget, and found its cultural hypothesis interesting and applicable to a whole bunch of undercurrents moving through the real and digital world. The book is swollen with ideas that range from creatively insightful to verging-on-batshit-crazy, but I'll pull out two that I particularly liked (that aren't in the latter category). First is the notion that technology users in general -- and internet/software uses in particular -- should be mindful that our tech-centric culture is increasingly vulnerable to "lock-in," a process whereby the sweet web tools and gizmos we rely on are handicapped by the skills and choices of the programmers who must, necessarily, create them. Put another way, the complexity of modern software may lead designers and programmers to make arbitrary choices that, because ideas can quickly go viral and generate large network effects, become locked in and go on to limit design flexibility in the future.

Lanier offers the example of MIDI, an interface used to synchronize electronic music components. MIDI was originally created to synch up multiple synthesizers, and didn't include parameters such as note phrasing, intensity, and all of the ineffable elements of performance that make music so unique to each musician. A guy just wanted to connect some synths, so all he needed was the equivalent of "note on" and "note off." Well, MIDI caught on in a huge and international way, and became the standard for electronic music. And while some artists have used music technology to create some very bodacious stuff (I'm partial to Aphex Twin myself), they're limited in their expression by the arbitrary-yet-intentional programming of the original author. This larger idea has cultural as well as philosophical significance; here's Lanier early on, on page 10:
Lock-in removes ideas that do not fit into the winning digital representation scheme, but it also reduces or narrows the ideas it immortalizes, by cutting away the unfathomable penumbra of meaning that distinguishes a word in natural language from a command in a computer program.
For those digital companies looking to build market share (and maximize the network effect), the best choice is to simplify and homogenize our interfacing with their software. So all topics we don't understand fall into their respective Wikipedia entries; all movies must somehow be shoehorned into Netflix's five-star rating system; and our personas too often stand upon a rigidly-defined profile and database of connections on Facebook. This is not to say that these digital services and others can't be or aren't great -- they are! Yet they are only models of a particular idea or relationship, and they can be shoddy and inadequate. For all the attention (mine included) that Facebook siphons from other activities, it's really one of the least innovative services out there and grants very little room to paint your own little corner of the site.

We should imagine, then, that Facebook's banality should give free license to those would-be competitors who can dream up something better and more respectful of the individual's digital "right" to flexible self-definition. Things haven't turned out this way. Yes, MySpace is out there, but even people with MySpace pages had better damn well have a complementary Facebook profile lest their friends and family think they're antisocial weirdos. The unique ability of the Internet to lock in and propagate mediocrity brings me to the second, more important and overarching point that I drew from Lanier's book: the "wisdom of crowds" ideology.

Mr. Lanier addresses this issue within the context of the Web 2.0 leadership. In a nutshell, a major part of this new technological religion (which Lanier frequently refers to as "cybernetic totalism," although I'm not sure how much sex appeal and staying power that has) is the worship of the "hive mind" -- the collective intelligence represented by our individual minds all connected in cyberspace -- over the works of individual minds. It almost recalls that most horrible word of corporate jargon, synergy. As if combining the efforts of individual humans we will somehow transcend our own humanity. This is cult-ish stuff, but since technology is cool and useful we tend to give it a free pass (sort of like we did for finance over the last 25 years). Besides, we only catch glimpses of it in oblique ways. "Information/content wants to be free." (Tell that to those who have to create it.) "The Web is an idealization of democratic values." (Maybe, but that brings with it all of the pandering to selfish wants of the lowest common denominator that political democracy has. Based on Web usage, that probably means we should be focusing most of our innovative efforts on porn and piracy.)

The hive mind's elevation of collective intelligence is visible both in the world of software and of wetware. Online, the most dominant service is Google's search engine, whose algorithm bases its search results hierarchy for a given word or phrase based on how often it is linked to. Sometimes this is useful, but it (a) does not attempt to understand the semantic intent of the searcher, but assumes that the hive will take care of that itself, and (b) subjects itself to lock-in. On the latter point, Wikipedia is the easy example. As more and more people use Wikipedia and link to it, the Wikipedia entry for a given search phrase is invariably the top-ranked search result. Google co-founder Larry Page has said that the engineering challenge of search is essentially the most important one to solve, because the best tool we can create is one that points us to the correct answer for every possible question. This rings true, but a search algorithm that brings me straight to Wikipedia every time clearly signals complacency in the engineering pursuit that Google most prides itself on.

In the real world, the wisdom of crowds fetish has preceded the denigration of authors and editors. So goes the increasingly conventional wisdom: Newspapers are dead. I'll just search for news online. Books are dead. I'll get my information from other sources. Albums are dead. I'll download the single I'm looking for and that's it. This kind of thinking assumes that our culture's institutions survive and progress on the wheels of some abstract motor of crowdthink, rather than through the vision and willpower of individuals. This is a reversal of the previous synergy idea: the pieces are all that matter, not the whole presentation, and those pieces have many (and free) substitutes. But there is professional editorial and artistic value in the whole, and dissecting it not only removes the authors' intentional form, but often undermines the economic viability of the work for its creators. It is the training, experience, intuition, wisdom, and creativity of individual people across disciplines that has given us the rich cultural mosaic that many now see fit to push off into digital obsolescence. If the hive-minders think we can replace these people and their work with the crap that makes up 95% of YouTube and Facebook, they need to unplug for a bit to reconsider.

(Actually, the digital world itself offers one of the best examples of a mensch who reshapes the world through individual creativity. Steve Jobs' repeated successes has prompted discussion about the usefulness, at times, of closed culture in innovation.)

So those are two of Jaron Lanier's (many) ideas that I found most exciting in his new book. One, be wary of lock-in, and understand that the design of the software tools that everyone seems to use aren't necessarily the best or even that good. Consequently, we as users need to demand (and create!) better tools with more flexibility wherever we can, rather than simply debasing our own standards. Second, be wary of the dehumanizing "wisdom of crowds" ideology, which neglects the value of individual experience and effort that goes into our cultural artifacts and institutions. Together, these two principals seem to cry out, Authorship Matters! That is true of the software engineers and the newspaper editors alike, and both should be held to a high standard. And we should be looking for digital design methods that foster community and interoperability without devaluing creative and/or professional work.

I recommend checking out Jaron Lanier's book for the other interesting things he has to say, as well. At times it feels like he could have used a wise editor of his own to reign in his scatterbrainedness, but perhaps, like some other mad geniuses out there, that is simply an integral part of his charm and value.

Wednesday, January 20, 2010

The Return of the Pay Wall

Today the New York Times announced that it will reconstitute a pay wall for its online content, something it tried unsuccessfully to do years ago. Here's the plan:
Starting in early 2011, visitors to will get a certain number of articles free every month before being asked to pay a flat fee for unlimited access. Subscribers to the newspaper’s print edition will receive full access to the site without extra charge.
According to the Times, the pay wall that existed from 2005 to 2007 attracted 210,000 subscribers paying $50 a year. Considering that the paper has a monthly readership of 17 million, that's a highly insignificant number of people who are willing to pay for full access. However, the original pay wall applied only to certain content, notably Op-Ed pages. Perhaps readers will be more willing to pony up for the full assortment of articles and archives, but that stuff is free now, and Felix Salmon has already attempted to break down the economics of the idea to show that the article gate (which closes after the ambiguous "certain number of articles") is an unwise proposal. But the Times is giving itself a year to figure out the logistics.

For those that don't follow the ongoing discussion about online news, the problem is not that people are no longer reading the news -- 17 million unique visitors is material -- but that online advertising brings in only a minor fraction of what print advertising does. Readers are just too finicky online, and don't page through news like their hard-copy counterparts. So newspapers will have to start getting compensated by their online viewers somehow or else significantly scale back their reporting efforts. The Wall Street Journal and Financial Times both have pay walls in place already, and seem to be doing ok. But theirs are niche business readers with similar interests, income and levels of sophistication. The Times' audience is assuredly more diverse and harder to target ads to.

I share the conviction of others I've read today that a pay wall as it is currently imagined will probably drive large numbers of readers to other news sources that are free online, or perhaps look to bloggers to post longer source quotes. Even if these alternative sources are of lesser quality than the Times, their substitution is understandable in some ways. Subscribing to a bunch of newspapers and magazines is tedious to keep track of, and differs from our experience with other types of media. When we buy a book, movie, CD, or iTunes mp3, we are purchasing an experience that can be repeated or at least drawn out. But buying news is closer to the transient experiences of cable TV, magazines, and the internet: we are paying for a constant stream of new content with a relatively short shelf life, to be experienced and then discarded. As such, people are less inclined to make impulse buys. That n+1 article which suddenly requires a subscription would have to feel awfully valuable for me to buy it.

Since most online content seems to have this transient feel, viewers and readers may be more inclined to pay if the payment mechanism was closer to a utility bill, like cable and internet. Rather than taking an a la carte approach, media providers could create or support media "utility companies" that allowed for monthly budgeting, bundling, and billing. For instance, maybe I decide that I will budget $60 per month for major newspapers, and that grants me access to any article at the NYT, WSJ, or FT websites as well as delivered to my tablet reader. And then I put up another $20 for magazines, and I'm given the choice of any articles from 10-20 magazines that month. And so on to get access to TV networks' full series, movies on-demand, etc. But all of it would be allocated and paid for through a single entity. The goal is to pay for the convenience of constantly refreshed net content, like we pay to have things piped into our TVs and cable modems -- with an all-in-one budget -- instead of managing dozens of individual subscriptions.

Such an approach would require cooperation between and within industries, and already we have seen coordinated efforts to build new viewing and payment platforms in the cases of Hulu, iTunes, and the ongoing effort to make DVD purchases portable. Tablet readers and similar viewing devices will also make the digital reading experience much more pleasurable and comparable to print. The point, then, is that a combination of a new payment mechanism and technology (devices) can force a rethink for consumers about how they consume digital media. (The iTunes example shows that with enough convenience and quality consistency, people will gladly pay for what they used to expect for free online.) Newspapers like the Times should work with competitors and technologists to build a platform that improves and redefines the experience of digital content, smoothing readers' transition to paying for it.

Wednesday, January 13, 2010

Do The Right Thing, Google

It looks like Google may have found a reason to backslide (for ungated, try NYT) on one of its (only) stupid commitments: providing search in China at the expense of censoring some searches the Chinese government deems too morally offensive for consumption. Like Tiananmen Square.

Google's servers came under heavy cyber attack from Chinese sources, including efforts to hack the Gmail accounts of human rights activists in the country. Additionally, attempts were made to steal information from 34 other companies, many of which hail from Silicon Valley. Now Google is saying it will desist in censoring content on its China affiliate,, and may exit the country altogether. Unsurprisingly, some of this news was itself censored in China.

This newfound backbone toward China is admirable, even if it comes after an initial cave-in to Chinese censors in 2006. But the backbone is also necessary for business. As Google has told numerous people, its business model becomes untenable the instant people no longer trust the company with oodles of personal data. For Chinese activists, the dissemination of such information could easily lead to their arrest and imprisonment.

But even if their is a sensible economic reason for leaving China, that fact should not erode the superior value of the moral reason. Here's a quote from the initial Times article:

“The consequences of not playing the China market could be very big for any company, but particularly for an Internet company that makes its money from advertising,” said David B. Yoffie, a Harvard Business School professor. Mr. Yoffie said advertising played an even bigger role in the Internet in China than it did in the United States.
And the WSJ also makes sure to give a sense of China's strategic importance:
Google's revenue in China is relatively small, with analysts estimating only a few percentage points of Google's nearly $22 billion in 2008 revenue came from the nation. But the country's massive number of Internet users has made it strategically important for Google, as it tried to extend its dominance in search and search advertising around the globe.
No surprises here: China has a billion-plus people, who will be increasingly linked in to the web and in need of search services (although Baidu currently has a massive market share there). That is, there are a billion-plus potential advertising consumers to be tapped. So what. It is about time for the worldwide business class to decelerate the growing wave of Sinophilia. We know, guys, you're enamored with the country's explosive growth rate -- assuming the numbers aren't too manufactured -- and deep market for future goods and services. But forget illiberal democracy; China has a straight-up authoritarian regime that imprisons human rights proponents and is happy to endorse genocidal/authoritarian states like Sudan if it means access to natural resources. (In all fairness, so does the United States.) If non-Chinese companies choose not to bless the Chinese government with everything necessary to build its rich-authoritarian economic utopia, so be it.

There will be consequences to a Google withdrawl. Chinese citizens will lose access to the most efficient aggregator of information the world has ever known. But Google -- unlike most international companies -- had to break its hallowed "Don't Be Evil" mission statement and sell part of its idealistic soul to operate there. It's about time China stops getting everything it wants by virtue of its economic potential and starts giving a little. Perhaps Google-like exits by other companies -- such as those that came under assault last week --  will further couch personal and economic choice arguments within the higher aspiration of human rights. The more China grows, the more inextricable these aims become.

Monday, January 4, 2010

New Tricks for Old Media

New York Times media columnist David Carr has a wish list for the Apple e-reader tablet alleged to be announced this month (to be called the iSlate). The device would provide readers with a lightweight, color version of a Kindle. Why does Carr find the digital tablet to be so revolutionary? Here's his admittedly optimistic view:
The tablet represents an opportunity to renew the romance between printed material and consumer. Think of sitting in your living room, in your bed or on a plane with a publication you really adore nestled into your lap. Since print was first conceived, people have had an intimate relationship with the text, touching, flipping and paging back and forth.
The tablet, properly executed, will be an iPhone on steroids, and anybody who has spent any time with that device knows that much of its magic lies in replicating that intimate offline navigation. It is a very human, almost innate, urge — readers want to touch what they are seeking to learn.
I'm skeptical that a digital reader can truly replicate the Old World intimacy of print media (even if a computer purrs and warms your lap), but his point is compelling. Other than retina burn, the least satisfying part of reading on a computer is being unable to lay back and flip through the text. There's a charming serendipity to catching a newspaper or magazine article buried in the midde of an issue, one that you surely wouldn't have caught as links blazed past you on the webpage. A digital tablet may let these lucky finds continue, and allow a greater immersion and interactivity with topics by connecting them with other media, be it video, images, or web links. But where Carr really thinks something like the iSlate can be useful is in resuscitating the revenue streams of old media companies.
But even if I am right, what good does that do print providers? Well, for one thing it helps magazines and newspapers enter a world where they can measure consumer engagement with ads, which is pretty much the only game in town going forward. But even so, why would people suddenly be compelled to pay for something that they’ve gotten for free? That’s where Apple comes in. A simple, reliable interface for gaining access to paid content can do amazing things: Five years ago, almost no one paid for music online and now, nine billion or so songs sold later, we know that people are willing to pay if the price is right and the convenience is there.
So whereas a static print advertisement relays no information as to how useful consumers found it, a clickable (or touchable) tablet ad can provide deeper insight into its consumption for the purposes of viewer targeting. But I don't see how this is a game-changer for print providers. Their problem isn't information on engagement with a particular ad, it's that print media has come to rely on advertising as its primary source of funding content, rather than asking readers to chip in more than a nominal amount. (Most of my magazine subscriptions come to around a dollar or two an issue, if that.) So while an Apple e-reader signals progress for readers of digital content -- with a reading experience that more closely approximates print -- it doesn't solve the issue of adequately compensating the creators of that content. It just makes for more enjoyable online reading.

Note: I'm not going to discuss it here (yet), but this article about portable movie files also appeared in today's NYT and is certainly germane to the new media discussion. More to come...