Month: January 2013

I’m co-hosting an Argentina/Antarctica-themed party this evening and trying to shop for Argentine products. It is easy to find Argentine wine but none of the stores in Cambridge have Argentine cheese. I searched a bit and discovered http://www.usitc.gov/publications/docs/tata/hts/bychapter/1210C04.pdf, which gives the import quotas for cheese by country. It turns out the annual aggregate amount is about 50 million kg of cheese from all countries. That works out to about one third of a pound per American. That’s only about 1/100th of total cheese consumption in the U.S., therefore that can legally be from a foreign country.

It is a good thing that we are so eloquent at educating other countries on the benefits of free trade…

[Separately, note the crazy amount of cheese that can come from New Zealand, nearly half as much as from all of the European Community.]

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Back in August 2011, I posted a prediction that Apple’s growth would slow. Today Apple announced flat profits and the stock declined 6 percent in after-hours trading despite the company not having suffered a truly failed product launch (like Windows 8!). One of my follow-up comments on the original posting explained the theory better than the original post:

Mark: “Five years from now you’ll be using some new Apple product that you aren’t even imagining yet.” That’s also true of BMW (1/10th the market cap of Apple) and just about every other company that makes consumer products. The capacity to innovate is already priced into Apple stock, just as it is into BMW’s, and does not have infinite value. Since Apple has been very successful in the past, the stock price reflects investors’ estimate that they will be very successful in the future. So where another company might get a huge lift in value from a new product launch, for Apple it will already have been priced in. By contrast, a failed product launch could bring Apple’s perceived value down.

(The stock price, of course, could still go up if Apple decides to retain earnings or do stock buy-backs rather than pay dividends.)

How would you have done if you’d read my posting, thought about it, and sold Apple in early September 2011? You’d have received about $400 per share and presumably purchased the S&P 500. The stock closed at $514 today but the after-hours trading decline of 6 percent suggests a price of $483. SPY has gone up 26.5 percent since then so you’d have $504. I don’t think that this analysis correctly reflects the difference in dividends paid by the S&P compared to Apple. The fact that the two investments performed so similarly suggests that my hedge fund genius friend Tom is correct when he says that all investment classes should be expected to produce the same return.

Readers: What’s the next act for Apple? Let me start by listing off a partial list of somewhat expensive products that are painful to use, contain at least some electronics, and that would be relatively easy to improve:

• big-screen televisions and Blu-Ray players (whenever I want to use one the device decides that it is time for it to download and upgrade its software)
• cable television (flipping up and down through a list of 1000 channels?!?! How is it that an interface developed for a TV with a rotary knob to select among 10 possible channels was ported to the 1000-channel case?)
• compact digital cameras (a million buttons and menu items, almost none of them relevant to a photographer’s objectives in making a picture)
• Windows 8
• Android tablets other than Amazon’s (I have the Google Nexus 7 and it simply cannot hold a charge so it is essentially limited to being plugged in full time; ridiculously poor power management compared to the iPad)
• automobiles (start with the fact that the speedometer is front an center rather than a moving map; why would I care about my speed if I’m in heavy traffic (which I always am, since I drive in the U.S.) and/or if I am traveling at a legal speed (which the car knows from its navigation system database))
• houses (even a toilet knows when you’re standing in front of it; how come all of the stuff in a recently built house isn’t smart enough to detect the “nobody is home” case and turn down the heat?)

Apple’s superior profitability seems to stem from the spectacular stupidity of other companies and sometimes industries. One would think that this source of profit would dry up as the world economy becomes globalized and market discipline kills off the dullest competitors. However, the examples above show that there is still a tremendous amount of opportunity for a company with enough scale to reach consumers and enough taste not to make something absurdly bad.

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This is the time of year when new members of Congress and new Cabinet Secretaries take to their desks. One thing that most of these folks have in common is that they are pretty old. John Kerry, for example, was born 70 years ago (1943). Chuck Hagel was born 67 years ago (1946).

Old people are more cautious and presumably wise than young people. But they (“we”; I might as well include myself since I will be 50 this year) have some cognitive deficits and one of those is that America is the world’s greatest collection of smart people.

One example is a dinner party that I attended back in 2012 hosted by a couple whose average age was about 70. The husband is a Harvard graduate. The two were fretting about global warming. I said “Well at least we won’t have to worry about continued pollution, including carbon dioxide emissions, from cars. As soon as there is a good battery technology people will very quickly switch to electric cars and they will be a lot more efficient. It might take 10 years, of course.” (I wrote about electric cars in this 2008 posting.) They said “You’re an MIT graduate. Why don’t you design a better battery?”

Their confidence in my ability, simply due to having attended MIT, would have been touching if not for the fact that this was shortly after A123 Systems, the best-known MIT battery spinoff, had filed for Chapter 11 bankruptcy protection. The Boston Globe had been running articles about how they were going to their corporate grave with $400 million in tax dollars plus another $400 million in private capital.

Last year was also tough on Harvard’s reputation for unusual brilliance. The most direct spinoff of Harvard Business School is Monitor Group, whose job was to tell companies how to be more profitable using the unique genius that could only be found among Harvard Business School professors and graduates. Monitor went bankrupt in November 2012 (see this Forbes story).

Leaders who came of age during a period of American dominance have a track record of complacency that has led to whole industries dying. When Kerry and Hagel were in college, for example, RCA and Philco were world leaders in electronics. Samsung had not entered the market.

Maybe the answer is to continue appointing older managers in order to benefit from their wisdom but decorate their offices with photos of the latest products designed and built in the world’s rapidly growing economies and also photos that will remind them of American hubris and the consequences of complacency. (Reader suggestions for the photos would be welcome!)

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I went to see Zero Dark Thirty with a couple of my friends, which is to say with a couple of helicopter pilots (since virtually all of my friends have ratings it seems). We were super-excited to see the helicopter scenes but they ended up looking like someone had pointed an iPhone at an 8-year-old’s elementary school diorama.

Comparing the movie to the Wikipedia page on the operation, it seemed reasonably accurate. The helicopter stuff was horrible, though. A pilot, just before the helicopter crashes, says “We’re losing power.” If the problem had been settling with power or vortex ring state, as officially explained by the government, it seems very unlikely that the pilot would have said that. None of the three of us were satisfied with the helicopter action in the movie or the explanation of the cause of the crash. Further, the replacement helicopter shown was another Blackhawk whereas in real life it was a Chinook.

Speaking of vortex ring state… I’m surprised that there has never been an investigation into the loss of the $21 million Blackhawk during that raid. A theory about the walls of the compound causing vortex ring state has been put forward, but much simpler problems such as being too heavy to hover out of ground effect and/or hitting the tail rotor on a tree or wall are the cause of a lot more crashes. The standard way to get into settling with power is descending relatively fast while not moving forward much, e.g., if you were trying to land in a confined area without giving the folks on the ground a long opportunity to take a shot at you.

It has been nearly two years… why hasn’t a aerodynamics grad student done a simulation of whether or not the walls of the compound could significantly contribute to a settling with power situation? This seems like a great master’s thesis topic!

[Update: I ran into a Blackhawk pilot, who had also served in the Army’s test flight program, and he said that no part of Army helicopter training ever mentions the possibility of terrain shape making settling with power more or less likely. As far as he was trained and had experienced, the only factors in settling with power were the standard ones that civilian pilots are taught to avoid, e.g., moderate vertical sink rate with little to no forward airspeed. He said “It was hot and high and probably they were too heavy.”]

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The New York Times on January 12, 2013 published an article “Darwin was Wrong about Dating”. It says that the evolutionary biologists were wrong when they said that men were interested in spreading their genes by having casual sex whereas women were more interested in a stable relationship with a companion who will help rear their cihldren:

“Lately, however, a new cohort of scientists have been challenging the very existence of the gender differences in sexual behavior that Darwinians have spent the past 40 years trying to explain and justify on evolutionary grounds.”

If you’re a man and have had any difficulty in getting women to agree to sleep with you, reading this article would be a good way to feel worse about yourself. According to the eggheads with clipboards, it is not that women typically say “no”; they just happen to say “no” most of the time to you.

[On a more serious note, the article fails to consider changes in the incentive structure for women who have children without the continued voluntary assistance of the father. First of all, the social stigma of raising a fatherless child has been mostly removed. At lower paternal income levels, a variety of forms of government assistance will provide the single mother with roughly $45,000 per year in tax-free benefits, depending on the state (see this chart). That is more than the average American worker’s take-home pay. At higher paternal income levels, court-ordered child support payments may provide the non-working single mother with a substantially higher (tax-free) income than working at an average wage. Whereas an unplanned pregnancy would have at one time been a significant “cost” of a night of casual sex, both in terms of social stigma and financially, today in American society a pregnancy that results from casual sex may be a net benefit. After the obvious benefit that children are wonderful companions and a lot of fun (almost all the time anyway), the most notable part of this benefit is the cash component, yielding more than $1 million tax-free prior to the child reaching adulthood. There are a lot of things that Homo sapiens did not evolve to do while roaming the savanna of the East African Rift that today, for $1 million, you can get a Homo sapiens to do. So potentially there is no contradiction between the Darwinists and the scientists quoted in the New York Times article.]

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Peter van den Hamer, a Dutch physicist, has written a very interesting four-section (see the navigation buttons at the top) article looking at DxOMark’s sensor tests. This independent analysis indicates that the DxO guys are doing a pretty good job. My big Canon system, sadly, ends up in the “losers” category along with medium-format sensors. Nikon, Sony, and other users of the Sony sensors are crushing everyone else. van den Hamer notes that Olympus is beginning to close the gap. What he didn’t say is that they did this by buying sensors from… Sony (source).

[Separately, DxOMark has tested a new Nikon D5200 APS-C (smallish) sensor camera and the result was a 14 f-stop dynamic range (Canon SLRs manage between 11 and 12). What’s unusual about this test is that the sensor is made by Toshiba. So now there are at least two sensor manufacturers that can easily outperform anything that Canon makes in-house. As DxO says in their conclusion: “The new sensors comfortably out-perform the current Canon offerings in practically every metric.”]

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My latest brilliant idea was to purchase a $200 Acer C7 Google Chromebook, which includes a 320 GB hard drive, and use it to back up a digital camera while traveling. “So much lighter than a laptop” I thought and also cheap enough not to worry about. (In fact, if you factor in the included 100 GB of Google Drive storage for two years plus the airline WiFi passes, the Chromebook is actually free.)

The device includes an SD card reader but not a CF card reader. I thought “This will still be easy. I’ll just hook up the Canon 5D III digital SLR via a USB cable and both the CF and SD cards (each a whopping 128 GB) will show up as additional disks on the Chromebook.” I tried that and nothing happened. To verify that the Canon was working properly I plugged it into a Windows 7 desktop computer and in fact both cards showed up. I tried the same thing with a Sony NEX-6 camera and the Chromebook said that the device was not supported. The Windows machine had no trouble mounting the camera as an external disk drive.

I was able to get an 8 GB USB drive to be recognized by the Chromebook, but not either an 8 GB or 128 GB SD card, exFAT format, plugged into a USB reader. The only card that the Chromebook could recognize was an 8 GB FAT32 card. Then I moved the 8 GB card into the Sony NEX-6 and the Chromebook was able to recognize the camera as an external drive. Then I had the brilliant idea of removing the SD card, in exFAT format, from the 5D Mark III, leaving only the FAT32-formatted CF card. The Chromebook still would not recognize the camera as a USB device, though again it worked fine on the Windows machine.

http://code.google.com/p/chromium-os/issues/detail?id=37266 indicates that Google is not supporting exFAT in their operating system, which makes the Chromebook pretty much useless in combination with modern digital cameras. It would be nice if they beefed up their operating system enough to recognize exFAT and say “This card is in exFAT format, which we don’t support. You probably don’t want to reformat it.” (instead of a cryptic error message and an offer to reformat, which will of course delete all of the owner’s cherished photos)

It seems that one fix would be to reformat the 128 GB cards as FAT32 rather than exFAT. Does anyone have any thoughts about whether that is a good idea? Does exFAT provide greater data security? Wikipedia lists a bunch of “advantages” for exFAT, but none of them seem relevant to a card inside a digital camera. The free space allocation stuff doesn’t seem relevant given that the card will be reformatted by the camera, probably, every month or so. The Canon manual says “Cards with 128 GB or lower capacity will be formatted in FAT format. Cards with a capacity higher than 128 GB will be formatted in exFAT format.” Both cards have been formatted by the camera, so the SD card should not still be in exFAT format, but perhaps that is because I’ve never done “low-level” formatting (an option on the 5D Mark III only for SD cards).

Considering that the Chromebook is supposed to be “computing that just works” for not-very-tech-savvy users, the failures to support a Canon-brand camera and a popular format for memory cards seem like huge ones. A person who was willing to go to the effort of figuring out FAT versus FAT32 versus exFAT and why a camera plugged in won’t mount is a person who is capable of running Linux.

[Separately, the Chromebook seems like a pretty nice device. Offline editing of a Google Doc worked well and the software was able to merge some changes made to an online version with the offline version. It didn’t do exactly what I expected but no text was lost. Power management is odd. The device does not seem to sleep when idle. If opened up, typed on for a bit, and then walked away from for hours… the device will still be awake, with a nearly dead battery, after 4 or 5 hours.]

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A few journalists have called recently to ask about Aaron Swartz. Some have asked for my personal thoughts on whether I thought MIT was right to cooperate with the Secret Service in investigating and arresting Aaron. I didn’t know the facts well enough to offer an opinion but I began wondering why MIT, with its $10 billion in the bank, and JSTOR, with its thousands of paying customers, need assistance from the government in pursuing alleged copyright violators?

It is easy to see why murder cannot be efficiently addressed by a civil lawsuit. Money damages won’t replace a lost human life. The survivors of a murder victim may not have enough money to file a lawsuit. A copyright violation, however, never involves someone’s death or physical injury. A publisher claims to have lost some money because of an individual’s or a company’s action. Copyright holders can be some of the wealthiest individuals (J.K. Rowling!) and enterprises (Disney) on the planet. They have drawers full of lawyers and it is not obvious why they need taxpayer-funded government lawyers to fight their battles for them.

Yet ever since 1998, when Bill Clinton signed the Digital Millennium Copyright Act (see this analysis for some things that are illegal under this law alone), taxpayer-funded attorneys and investigators have been tasked with ferreting out and stopping an ever-broader range of conduct. If you buy a DVD, copy it to your laptop so that you can watch it on a plane, and never show it to anyone else… you are a felon.

Copyright owners, such as Disney, grew to fabulous riches during an era [pre-1998] when they had to pursue copyright violations mostly as civil matters. Why not scale back on some of these criminal laws and let copyright holders pay their own costs of enforcement via civil lawsuits?

One argument against this proposal of re-privatizing copyright enforcement is that small publishers don’t have the drawers full of lawyers that MIT and Disney have. But in fact the federal government’s massive armamentarium is not available to small publishers. If I call up the U.S. Attorney’s office here in Boston and say “A publisher in Framingham has stolen my 2003 posting about why we don’t need friends [I intended it as humor, but 68 commenters took it seriously!]”, I seriously doubt that they would send the Secret Service over to the evildoer’s house.

Copyright infringement is taken seriously only in those cases where the material infringed was valuable. If the copyrighted material was valuable, by definition the owner was wealthy. If an owner of property is wealthy, by definition he she or it has enough wealth to protect those property rights via a civil lawsuit. Does it make sense to tax a Walmart cashier in Alabama to pay a federal prosecutor and Secret Service team to do a job that was formerly done and paid for by private sector workers?

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An interview with Aaron Swartz‘s defense attorney reveals that, though the government was threatening Aaron with between 30 and 50 years in prison if he went to trial and was convicted, a prison sentence of as little as six months was being discussed as part of a plea bargain (Wall Street Journal; Boston Globe). This reminded me of the classic “Torture and Plea Bargaining” by John H. Langbein (University of Chicago Law Review 1978). Back around 1995 I wrote a summary of Langbein’s paper:

The Catholic Church decided in the Middle Ages that too many people were getting convicted of crimes that they hadn’t committed. They instituted a rule that said nobody could be convicted without either two eyewitnesses or a confession. Convictions became difficult to obtain. Since it was not possible to obtain extra witnesses, the Church decided to torture defendants until they confessed.

Today we have a legal system with many safeguards for defendants’ rights. However, in our heart of hearts, we don’t believe that we could convict enough defendants if we actually gave all of them all of their rights. Consequently, we set nominal penalties for crimes at absurdly high levels, e.g., “life plus 100 years.” The actual penalty received by 95% of the people who commit such crimes is in fact 12-15 years. This is what they get if they agree to a plea bargain. However, if they choose to exercise their right to trial, they face the nominal penalty of life plus 100.

Having these really high penalties is more subtle than physical torture, but the basic idea is the same and probably a fair number of sensible people are pleading guilty to crimes they didn’t commit.

See also: A 2003 look at plea bargaining by the Cato Institute.

 

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I was saddened today when a friend told me that Aaron Swartz had died. A committee of programmers had selected Aaron from among several hundred applicants and nominees for the ArsDigita Prize in the summer of 2000. Starting at age 12, Aaron had built an information system using the Oracle RDBMS and our open-source toolkit and the intent of the prize was to encourage and enable them to do more. Aaron was just 13 years old at the time and seemingly less than 5′ tall. Whenever anyone complained that our software and/or Oracle was too hard to install I would say “Well, a 12-year-old in Chicago managed to do it. With your bachelor’s in computer science and team of assistants I hope that you’ll also be able to get everything working.”

As a 14-year-old, Swartz worked with Dave Winer and other Weblog technology pioneers to co-author the RSS 1.0 specification. The experience so scarred Winer that he wrote a blog posting (I can’t find it now) saying that he was not going to talk to Aaron anymore. This led me to remark to a friend “Don’t let me complain about anyone in my blog unless he or she is at least 18 years old.” (for fear that I would be judged by the size/age of my enemies!)

My next interaction with Aaron was in the winter of 2005-2006 at Y Combinator where Aaron was part of the team building Reddit (Andrew Grumet and I were invited over there to offer advice to the 21-year-olds but everyone ignored us). Swartz wrote his own web.py framework for Python and explains his philosophy here.

In January 2007 I got an email from Rebecca, one of my MIT friends:

[Thanks for giving me a bottle of wine to take to the next party. I should have gotten my own…] But it was cold and I was already late, and didn’t have my cell phone with me to call ahead to get let in. Aaron Swartz (whose party it was. Remember him? Arsdigita Prize guy, the 13 year old who could set up the ACS all by himself) apparently has no doorbell, and assumes everyone has a cellphone, charged and with them at all times. Anyway, the resulting scene was worth it for the story alone: we were in the abandoned apartment of his old startup, which just got sold to Wired and made him rich at age 20. This apartment is a total hole, there’s nothing there, nobody brought anything except me. Aaron had some sugar cookies to entertain his guests with, but they hadn’t been baked yet, so they were still a roll of slice-and-bake sugar cookie dough. There’s nothing there, literally nothing, except this one bottle of wine, which I admitted to them is really yours and not even mine, so we all get out an incredible mismatched assortment of chipped shoestring-startup-style mugs and glasses and drink “Philip Greenspun’s wine,” and talk loudly about how we disagree with Lessig, how Javascript used to be an impossible pain but miraculously has become actually useful, how Aaron Swartz started using Mozilla at age 6, whether Google has lost their spark, and other such fantastically earnest geek party talk. The wine I had brought that wasn’t even mine completed the feeling. It made me happy.

I haven’t seen Swartz since those early Reddit days but he would occasionally email me to correct mistakes in my Weblog. Sometimes the mistakes were typos. At other times the mistakes, in Swartz’s view, were mental. In response to my “Economy Recovery Plan” of November 2008, Swartz wrote “Wow, this article is so ignorant of basic economics it deserves another email.” (America’s politicians apparently agreed with Swartz because in the 4+ years since I wrote that article they have done the exact opposite of what I suggested!) Swartz was a passionate Keynesian:

Let’s start at the beginning. Depressions are caused by a slight increase in people’s preference to hold onto cash, which causes a downward spiral where the economy slows and then people want to hold onto cash more.

The first thing you try to do in this instance is increase the money supply, but we’ve gone as far as we can go on that — the Fed has sent the interest rate to zero and it can’t go any lower.

So, as Keynes said, the second thing you try to do in that scenario is let government spending pick up the slack and take advantage of the productive capacity that isn’t being used on anything to get the economy moving again.

You claim this won’t work because “a lot more globalized today and there is much more competition among countries.” First, we’ve only recently caught up to the levels of international integration we had during the first wave of globalization, starting in 1870. Second, countries don’t compete with each other. The fundamental well-being of a country is determined by simply its domestic productivity. What would we be competing for?

You seem to suggest that we’re competing for international investment dollars. But then why do you think government investment won’t work? Why is international investment this magical thing we must attract to start businesses?

Swartz did not like my reviews/summaries of The Forgotten Man: A New History of the Great Depression (see “U.S. economy may not be tough enough to survive incompetent government” from July 2008; also “Parallels between our current economic times and the Great Depression” from July 2008 and “Black Unemployment”): “Really? You’re going to take advice form a hack and a liar like Amity Shlaes? No wonder your advice is off the rails.”

More than a trillion dollars in deficit spending year after year did not shake Swartz’s faith in Keynes. Early in 2010 he responded to my “Looking back at 2009” posting with “[you are] missing Keynesianism, which seems like the obviously correct answer”.

Email records suggest that I have not corresponded with Aaron since then. My next interaction was with his criminal defense lawyers. Aaron was charged with parking a server on the MIT campus and accumulating a database of journal articles that were accessible to computers with MIT IP addresses. The lawyers asked me “Why would someone download a huge body of academic journal articles?” (my response was “I would be guessing but my best guess would be that they wanted to experiment with some kind of text processing algorithm. Machine understanding of text is part of the current research frontier. Consider that what you want when you type a question into Google is not a link to an article that you can read and maybe find the answer but an actual answer to the question.” (and in fact Swartz had a history of doing analysis on large bodies of text, e.g., Wikipedia back in 2006)

I asked the lawyers “Suppose that the government’s case is completely frivolous and Swartz is guaranteed to be acquitted. What would he expect to spend in legal fees to defend the case?” They didn’t want to reveal anything particular to Aaron’s case but said “Generally the minimum cost to defend a federal criminal lawsuit is $1.5 million.”

A daunting prospect for anyone. Apparently too daunting for a 26-year-old.

Aaron leaves us his weblog.

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