Fad Fading

“If you want to pick a fight with a free-market economist,” starts a BusinessWeek story [1], “say something nice about the minimum wage.”

I’ve been up against some heavyweight economists about the benefits of unlicensed spectrum uses like Wi-Fi. For most if not all mainline economists, markets are the best way to allocate spectrum; unlicensed, in their view, wastes society’s resources. It’s therefore reassuring to see a story that shows how economic opinion evolves – even though my argument for some unlicensed allocations is based on regulatory balance rather than economic analysis.

Like all conclusions, even ones from the hard sciences, the received wisdom of economics shifts over time. Since the economics used in policy debates belongs more in the Humanities than the Sciences, it shouldn’t surprise anyone when “the obvious” changes – no more than when a food type or lifestyle choice goes from healthy to dangerous and back again.

The punch line of the BW story, and this post:

“But the economics profession is far less united against the minimum wage than it was a generation ago. Since the early 1990s an influential group of economists has poked holes in the once strongly held belief that the minimum wage is a major job killer. And now there's economic research disputing the rest of the conventional wisdom. Some economists are saying that minimum-wage increases have a ripple effect, bumping up the pay of a large portion of the working poor.”

Caveat: the main evidence cited comes from a labor-supported Washington think tank. Cue FX: the sound of an axe being ground. I guess I shouldn't hold my breath for free-market economists to change their minds...

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[1] “More Ammo For A Higher Minimum,” BusinessWeek, 27 Nov 2006, http://www.businessweek.com/magazine/content/06_48/b4011058.htm

OoopPS

New Scientist reports that a Cornell scientist is predicting that solar flares will start drowning out GPS signals by 2011 (Solar flares will disrupt GPS in 2011). The researchers say the problem has escaped detection before because GPS systems have spread in popularity during a time of relatively low solar activity.

A neat little example of our the consequences of assuming that the future will be like the present.

Crossing the Curve

One can buy a decent home PC system for $330 (Dell Dimension E521, checked 11/23/06). Windows Media Center systems start at $360.

The cheapest Windows Vista operating system will retail for $200 (“Home Basic”). An upgrade is $100. (Summary on GMSV.) The Vista replacement for Windows XP Home (“Windows Vista Home Premium”) is $240; an upgrade $160.

PC hardware prices have been steadily coming down for years. Home PCs used to cost $1,500; then $1,000; and now well below $500. The price of Windows has stayed constant.

We’re close to the long-expected inflection point where the Windows operating system costs more than the PC hardware it runs on. It’s an inflection because I expect that hardware prices will continue to drop, while Microsoft will continue to try to maintain the price of the operating system. Microsoft argues that new software features will keep the price of hardware constant, since users will need more fancy systems; I’m not persuaded. Software functionality increases linearly, while hardware price/performance drops exponentially.

The implications are significant. As hardware becomes a smaller and smaller part of the package price, there will be downward pressure on the price of the operating system. If Microsoft cannot resist this, it will erode Microsoft’s mythical profit margins.

Open source software will increase the pressure. As hardware becomes essentially free, the attractiveness of a free operating system grows. Linux is quietly making progress on the desktop. While Linux-on-the-PC is still only geek amusement, the user experience is steadily improving. Its market share growth could be as rapid and substantial as that of Firefox. I’m hearing more and more anecdotes about Ubuntu. For example, take this user report about switching from Windows:

“I installed the Ubuntu Linux 6.10 (Edgy Eft) distribution that I downloaded and burnt to CD on my desktop. Wow. That’s all I can say - Wow. Ubuntu installed like a dream in less than 30 minutes, and everything just worked. My wireless card worked, power management worked, and the DVD burner worked with no tweaking, fidgeting, or fussing.”

Apple’s model looks increasingly attractive. It knows how to make money selling hardware. It sells what Tren Griffin calls “software in a box.” (Bill Gurley got the idea from Tren.) It can flex its system price below the combined software + hardware price in the PC ecosystem, putting pressure on both hardware vendors and Microsoft. Apple has the additional advantage that Mac OS X has an open-source core; it only needs to invest in developing value-added software, whereas Microsoft has to maintain the whole enchilada.

As the hardware price continues to drop below the operating system price, Microsoft will face increasing pressure to sell a “Microsoft PC,” with all that entails for its relationships with hardware vendors and its operating margins. It’s been learning how to do this for some time. The X-Box is “software in a box,” and Zune is a clone of the iPod model. (Imitation is the sincerest form of flattery.)

(Thanks to Brad G. for the fascinating conversation that inspired and informed this post.)

Being a mayfly

Everyone we see gets old faster than we do. Our parents, not to mention our children, age before our eyes. The self behind our eyes doesn’t age as fast as human bodies do, so we see other people aging past us.

The animals around us age more rapidly than we do. Pets go from puppies to tired old dogs while we feel hardly a change. It’s a matter of life span: humans live longer than most animals. We don’t encounter the exceptions, like the Galapagos tortoise which lives for more than 150 years.

What’s it like to be, say, a dog that ages and dies while its human companions hardly seem to change?

One can get a sense by looking at the world around us, which changes on geological time – Gaia, if you will. A cycle of the seasons is like the world breathing in and out. Our lives flash by in just a few of Gaia’s breaths.

NETI@Home

Network neutrality nightmare scenarios are largely hypothetical: Bad thing X could happen if a network operator did Y. Activist outrage and some media attention is one reason we’re still in the realm of conjecture. Even if network operators were minded to do Y, they'd rather not draw the spotlight. How to keep the klieg lights shining?

Since discrimination, in the neutral sense of making distinctions, can have both good and bad outcomes [1], regulations will also have to make subtle distinctions. It’s even harder to make law about subtle hypotheticals. I’m therefore inclined against detailed legislation in advance of facts. Legislation, if any, can lower the risk of unintended side effects by simply establishing principles that a regulatory agency can apply to alleged bad behavior. But agencies don’t have the means to gather data. Even companies with an interest in the matter operate in the dark; I’ve heard that Vonage found out about the discrimination against their VOIP service in the Madison River case only by accident. How to find bad behavior?

The answer is millions of volunteer PCs on the net sending test payloads to each other to characterize what happens to traffic on the net. This would yield an inventory of how different kinds of traffic are carried across all the different segments of the net. Software could identify potential problems, and volunteer people could scan them to identify cases that need more attention.

Anybody could download small applications that would run tests when they’re not using their machines. Just as SETI@Home uses spare CPU cycles to search radio data for the signature of extra-terrestrial intelligence, so this code would use space cycles and spare bandwidth to search for signatures of net neutrality exceptions. SETI for the net… NETI@Home: Neutrality Exception Tracking Infrastructure.

NETI@Home would use peer-to-peer technology like bittorrent; there would be no single repository of data, and no central organization directing the work. People could select the kinds of test payload they want to run; to make it easy for the majority, various recognizable organizations might recommend payload sets, or one could find popular sets on sites like digg. Volunteers would write the software, and parse the results. The tests could change quite quickly to meet changing network operator strategies, while the underlying software would change more slowly.

Citizens and regulators need good data if they’re to get the best out of the Internet. Finding the balance Jon Peha describes between allowing discrimination that benefits users, and preventing market power abuses, will be a lot easier with real-time tracking of network operator behavior.

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[1] Jon M. Peha, “The Benefits and Risks of Mandating Network Neutrality, and the Quest for a Balanced Policy,” 34th Telecommunications Policy Research Conference, Sept. 2006, at http://web.si.umich.edu/tprc/papers/2006/574/Peha_balanced_net_neutrality_policy.pdf

Colonialist Misconceptions

The Great Powers’ carve-up of the Middle East in 1914-1922 is a sorry tale of misconceptions that range from poor intelligence up to cross-cultural ignorance, wonderfully told in David Fromkin’s A Peace to End All Peace: The Fall of the Ottoman Empire and the Creation of the Modern Middle East. (I’m indebted to Michael Kleeman for giving me this book.) I’m particularly interested in the cultural biases since they show the power of hidden mental models at work.

In summer of 1914, Britain was looking for a way to undermine the Ottoman Empire. The Sultan was the Caliph of Islam, and the British were worried that he would use this position to sow discontent among the many Moslems in India, including the disproportionately large Moslem part of the Indian Army.

They decided to offer the Caliphate to Hussein, the Emir of Mecca, because they believed that whoever controlled the person of the Caliph, Muhammad’s successor, controlled Islam. (They stumbled into the notion of Arab nationalism as a front for British power, but that’s a different part of Fromkin’s story.) Hussein was plausible candidate, the British thought, because he was the guardian of the Moslem Holy Places.

Hussein read Britain’s approach as an offer to make him the ruler of a vast kingdom, which is what the caliphate signifies. The British were surprised when he replied to their overtures by asking for details of the additional kingdoms he would gain. The core British misconception was that the split between temporal and spiritual authority that pitted the Pope against the Holy Roman Emperor in medieval Europe was alien to Islam.

Fromkin summarizes the story thus: “The British intended to support the candidacy of Hussein for the position of “Pope” of Islam – as position that (unbeknown to them) did not exist; while (unbeknown to them too) the language they used encouraged him to attempt to become ruler of the entire Arab world – though in fact [Ronald Storrs, a leading British bureaucrat] believed that it was a mistake for Hussein to aim at extending his rule at all.”

The relationship between church and state is different in every culture, and is a consequence of its history. However, it is so deeply embedded in cultural consciousness that it goes without saying. More importantly, it goes without thinking. The assumption is revealed – if one is lucky; too often it remains a hidden source of misunderstanding – when someone of another culture behaves in an unexpected way.

The “marrying out” gene

My father came from good Protestant Afrikaner stock, so it came as a surprise to his family when he married an English-speaking Catholic woman. His children held true to form; even though we grew up in an Afrikaans town, both his sons and his daughter married English-speaking people. In my case, I married an English woman.

There’s evolutionary advantage for children to marry in the same way their parents did – something must’ve worked, since the parents evidently reproduced successfully – but in this case I suspect there’s a more specific trait.

A recessive gene for marrying out could be strengthened by Like Loves Like. When I look at my in-laws, there’s quite a lot of the same behavior at one or even two removes. In my brother’s wife’s family, one sister married an Afrikaner, one married an American, and one a German. My wife’s brother married a Japanese woman; and her brother married a Chinese. If there is a genetic basis for xenophilia, there’s a cross-cultural minority that’s doing its best to keep it strong.

Giving feels Good – It’s Official

The Economist reports that anonymous benevolence makes people feel good [1]. Researchers at the National Institute of Neurological Disorders and Stroke in Bethesda, Maryland used MRI to explore the neurological basis of charity [2].

They found that a variety of brain centers were involved. Donating money activated the brain center associated with sex, money, food and drugs – the mesolimbic pathway, mediated by dopamine. The warm glow of giving is the same as some other warm glows. Donating also engaged the part of the brain that plays a role in the bonding behaviour between mother and child, mediated by the hormone oxytocin.

Making complex trade-offs where self-interest and moral obligations conflict activated yet a third part of the brain, the anterior prefrontal cortex, which is thought to be unique to humans. It seems that giving makes many animals feel good, but grappling with ethical dilemmas seems to be part of what makes us human.

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[1] The joy of giving, Economist, 14 October 2004, at http://www.economist.com/science/displaystory.cfm?story_id=E1_RDNPPDS (subscription may be required)

[2] Jorge Moll, Frank Krueger, Roland Zahn, Matteo Pardini, Ricardo de Oliveira-Souza, and Jordan Grafman, “Human fronto–mesolimbic networks guide decisions about charitable donation,” PNAS 2006 103: 15623-15628, at http://www.pnas.org/cgi/content/full/103/42/15623.