Category: Uncategorized

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.]

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?

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.

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.

“Secret no-fly zone?” from AOPA arrives just in time to bolster my story about how much wealthy countries spend due to loss aversion. Afraid of a 550 lb. glider damaging a nuclear power plant, about half of all possible law enforcement agencies, including the FBI, geared up to hassle an unarmed 70-year-old citizen. He was arrested and jailed for 24 hours.

The New York Times reports today on a RAND study that found that government-mandated (and taxpayer-subsidized) electronic medical records don’t save money. I predicted this in my health care reform proposal from 2009, under “Scrap Government-mandated Health Care IT”. Because we as a society were going to invest in IT in the dumbest possible way (hundreds of incompatible systems installed nationwide, each one chosen by busy physicians), there was no way that it could be anything other than a huge waste of money.

The report, the industry, and the country refuse to deal with the deeper issue: why did we ever think that this kind of IT would save money and improve care?

There are two ways to do an electronic health record: structured and unstructured.

Let’s consider what an unstructured electronic health record would look like and cost. You’d create a directory in Google Drive or Dropbox and give doctors and hospitals access to this directory. Physicians could type into a shared Google Doc with other physicians or upload scanned output from tests, etc. It would be paperless, organized, and electronic, but not very structured. To figure out what a cholesterol test result was from 2003, for example, one might have to read through a document in English rather than executing an SQL query. What would this cost? Nothing, basically (which is why Google and Dropbox can give you these services more or less for free). How about doctors and nurses? If they can create a Google Doc and type at a computer then they can easily add notes, test results, instructions, etc.

How about structure? A system for a hospital typically costs about $100 million to install. If it serves a community of 100,000 patients that’s $1000 per patient. Physicians and other providers spend a lot of time in training and a lot of time navigating through screens to get the information into exactly the right table, so the ongoing cost in time and effort is enormous. What value in terms of health benefits is delivered for all of that effort? Epidemiologists might be happy because they can now get an answer to the question “What’s the average cholesterol level for patients in this hospital?” by typing a three-line SQL query (assuming they have first hired 10 lawyers to address patient-privacy issues!). But where is the value to the patient? Does it help to have Patient A’s cholesterol information in the same database table when treating Patient B? No. That is fundamentally why little value is delivered in exchange for the $100-200 million cost of using a structured system.

Why is IT so popular in other industries? Consider a bank. There is a lot of value to having all of the accounts in one big structured database. It then becomes easy to ask “How much money is in the bank right now?” An airline can similarly benefit from a centralized and comprehensive reservations database in order to handle queries such as “How many empty seats are there on all of our flights and can we sell an unusual two-stop route from NY to San Francisco at a low price to fill up some of those empty seats?”

Fundamentally there is not as much value to be obtained by having the ability to do a structured query into multiple patients’ data. Nor is there much value in being able to do a structured query into a single patient’s data. Unless you go to the doctor every day of your life, it really isn’t that hard to scan up and down in a big word processing document or spreadsheet and/or use conventional word processing “find in document” tools and/or use Google Drive’s “search a bunch of documents” tool. I did a quick Google search and learned that the average size of an electronic health record, not counting images (which can easily be stored by date as regular files), is between 1 and 40 MB. The absolute top end of the range is 3-5 GB “for a person with several health issues including images”. In other words, your health record could fit into the memory of a modern toaster oven. [A doctor could keep a complete synced copy of all of his or her patients’ records on a mobile telephone.] Anything this small can be searched pretty easily, either by computer programs or humans.

[I actually asked a cardiologist who had recently invested in a $30,000+ system for her solo practice and who liked the system “How would this compare to using Google Docs to share referral letters and reports with the other doctors and hospitals that you work with? And then simply scanning test results and storing those as PDFs?” She replied that the Google Docs/scanned document system would be better for her and the other doctors, both in terms of ease of access and saving time for data entry but that it wouldn’t comply with all of the government regulations for both privacy and “meaningful use”.

Separately, lest anyone think that I am simply hostile to the brave new world of computers on doctors’ desks, note that I built what is believed to be the first Web-based electronic medical record system. This 1994 effort is described in a 1996 journal paper: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC116301/.]

In this posting from two years ago, I wondered anecdotally whether it could possibly be a good idea for the U.S. government to encourage able-bodied people to stay home and play Xbox for 99 weeks rather than work. The crux of my argument was “It seems strange to pay someone for 99 weeks and hope that somehow the employers that didn’t want them when they were fresh out of work would somehow want them after two years of idleness.”

It seems that the academic eggheads have weighed in on the same issue with some actual data. http://economix.blogs.nytimes.com/2013/01/11/why-the-unemployment-rate-is-so-high/ is by a professor at UC Berkeley and a former economist for President Clinton. She concludes that the current unemployment situation is pretty much normal except that “during the current recovery the normal relationship has broken down for the long-term unemployed — the increase in the vacancy rate has produced a smaller-than-expected decline in the long-term unemployment rate” and “Another recent study found that the likelihood that a job applicant receives a call-back for an interview significantly decreases with the duration of his or her unemployment.” I.e., nobody wants to hire someone who has spent the past 99 weeks staying home and playing Xbox.

[The author herself is illustrative of why the U.S. is moribund. After staring at data that shows the long-term unemployment problem was pretty much created by government action she does not say “So we should be like Singapore and simply not have unemployment insurance. Then people who lose a job would be motivated to find another one quickly, even if it was not the work that they most liked to do.” Instead she holds out hope for an even bigger government intervention: “… That’s what the Federal Reserve is worried about. It’s too bad that more members of Congress don’t share this concern.”]

Folks: I’ve spent my life reviewing camera bags that are attached to the photographer (me). Now that I’m older and wiser I realize that the correct way to use a camera bag is to have it be attached to an assistant (i.e., someone younger and stronger!). Suppose that I have an assistant who can carry a small photo backpack or similar. Let’s say that bag needs to hold a Canon 5D, 24-70/2.8, 70-200/2.8, 300/4, 1.4 teleconverter, and 16-35/2.8 (to keep the size manageable maybe the 24-70 could be replaced with a 50/1.4). It should have a rain cover in case the weather turns bad. But most importantly I want to be able to put a lens away and take out a new lens while the backpack is still on the assistant’s back.

Has anyone found a good photo backpack to be used like this? There are a lot of good photo backpacks, but the classic ones are designed to be taken off, set down on the ground, and then unzipped for flat access (if you did this while the bag was still attached to someone, the lenses would tend to fall out). The newer designs tend to innovate by trying to make it easier for the person wearing the backpack to get to some part of it, but that’s not quite what I want.

Happy 2013. Time to evaluate investment ideas, particularly in light of the new tax code. The Federal Reserve Bank has announced plans to print money until unemployment rates are reduced to less upsetting levels. They say that they can do this without creating inflation, but these are the same folks who created the 1970s inflation and who missed the problems that led up to the Collapse of 2008. The potential for inflation argues in favor of equities rather than bonds. (Disclosure: I am a child of the 1970s and the Jimmy Carter “malaise” years so I probably have an irrational fear of inflation.) With tax rates on income having been increased, but capital gains rates still being reasonably low, stocks again look more attractive than bonds. The question then becomes… what stocks to buy?

As the Secretary for the MIT Class of 1982, I recently received a report on our school’s $10 billion endowment. It seems that the professional money managers have put just 6 percent of the money into bonds, 8 percent into U.S. equity, and 17 percent into international equity. So it looks as though they are favoring international but the waters are muddied by the fact that the school has 12 percent of its portfolio in real estate (e.g., office buildings in Cambridge) and 8 percent in “real assets” (gold bricks? forests?). There is another 25 percent of private equity (feeding the next Mitt Romney with fat fees) and 23 percent in scary hedge fund-type stuff. MIT seems bullish on its neighborhood (the Cambridge real estate) but bearish on the U.S. as a whole (just 8 percent faith in the S&P 500 and smaller cap stocks). The annualized return of this endowment has been 9.7 percent over the last 10 years. Vanguard says that its Total Stock Market domestic equities fund has returned 8 percent, by contrast.

MIT seems to favor international over U.S. stocks. Is this thumbs down on future U.S. growth reasonable? Naively one would think that the bigger and richer a country is the easier it would be for that country to keep getting bigger and richer. The country has a huge capital base, educated people, fantastic infrastructure, etc., that poorer countries cannot hope to match. Yet we do see Europe and the U.S. both more or less stalled out while much of the rest of the world booms (today’s New York Times: “Unemployment in the euro zone rose to a new record in November”).

Why is it that rich established countries stagnate and leave room for the upstarts? Mancur Olson claimed that it was interest groups tapping into government, e.g., companies, farmers, or unions obtaining favorable regulations that enable them to collect more money than in a market economy. I wonder if his analysis is simultaneously incomplete and overly complex.

Let’s start by considering a primitive economy. The only way to get an income is to work or to get a voluntary contribution from person who is working, e.g., a family member or close friend. As an economy advances, additional mechanisms for earning a cash or cash-equivalent income are developed. Let’s consider some of what we’ve got in the U.S. right now:

• “I am old and worked for at least a few years.” : collect Social Security
• “I drove a city bus from age 18-41.” : collect full pension from Massachusetts public transit system
• “I am disabled.” : collect Social Security Disability Insurance
• “I am able-bodied, ready to work, had a job 1.5 years ago, but don’t have a job now.” : collect unemployment insurance
• “Twenty years ago, I was married.” : collect alimony
• “Twenty two years ago, I had a child.” : collect child support (Massachusetts at least enables a parent to collect child support until a child reaches the age of 23)
• “I am poor.” : collect free or nearly free house, medical care, food, etc. (partial list)

One can argue about the merits of these various schemes, but it seems beyond doubt that in the aggregate they reduce the percentage of people in our economy who are working. Much of this effect, e.g., above-market public employee salaries and pensions, Mancur Olson budgeted for in his analysis.

Something that Olson did not consider at all, however, if memory serves, is loss aversion and the fact that wealthy societies have much more to fret about losing. Loss aversion is a massive cognitive flaw that leads to a lot of terrible decisions (see Thinking, Fast and Slow by the Nobel laureate Daniel Kahneman for a good overview). In the simplest form, an investor would be reluctant to sell a stock that they believe is likely to go down because to do so would lock in a $10/share loss already suffered. Kahneman cites research showing loss aversion will lead companies to spend millions in legal fees defending lawsuits that they expect to lose, simply because the idea of confronting the loss is too painful (so they end up losing the case, paying twice as much as they would have paid to settle it, and then paying legal fees on top).

Let’s look at where the U.S. has been beefing up spending in recent years. We spend more than any other country on health care though we know that none of it will make us healthier or feel better day to day. So really we are spending because we are afraid of losing our health or our lives. We can say that 1 percent of GDP is spent on actual health care and the other 17 percent is spent on loss aversion (total of 18 percent of GDP is spent on health care in the U.S.). How about military? We spend money because we don’t want someone invading the U.S. and taking everything that we have worked for. We spend money because we are afraid of losing our influence in the world. I think we can chalk up all military spending and all of the spending on the Iraq and Afghanistan wars to loss aversion. That’s somewhere around 5 percent of GDP (worldwide average is closer to 2.5 percent).

We spend a lot on firefighters to prevent the loss of houses and commercial buildings. We spend a lot on police, district attorneys, criminal defense lawyers, and prisons to avoid losses due to crime. A country without such expensive buildings and/or expensive property to steal would probably not invest so much in fire and police protection.

Then let’s look at private security guards (roughly 2 million in the U.S., says Wikipedia). Are you waiting in line at the guard’s desk in the lobby of a skyscraper rather than going in and engaging in a meeting? That’s a drag on potential economic growth both because you’re not working and because the security guard is being paid to make sure that you don’t do something bad to the expensive building or the expensive property inside. We’ve got a lot of fancy airplanes and airports, more so than a up-and-coming country, but then we end up having to spend billions to protect it (more than $8 billion on the Transportation Security Agency plus whatever individual airports and airlines are spending).

Planning, zoning, and environmental delays are all part of loss aversion as well. We don’t want to lose open space, members of an endangered species, or some good feature of our neighborhood. So it took us about 10 years after the 9/11 attacks to begin rebuilding the World Trade Center. By contrast, one construction firm in China “put up a 15-story hotel in just 48 hours back in 2010 and a 30-story tower in 15 days in 2011” (now they are planning to build the world’s largest skyscraper, 220 stories high, in 90 days).

As a society we spend a huge amount of money on insurance (and then billions more to bail out AIG!), but I couldn’t find a good source for property and casualty insurance total revenues.

[It is actually kind of hard to come up with government spending that does not fall into either the “paying someone for doing something other than work” or the “loss aversion” categories. Education is the only sizable government program that comes most easily to mind (parks and recreation are obvious as well, but they are tiny in terms of dollars). Since government is over 40 percent of GDP that means a huge chunk of national income spent on loss aversion even before private expenditures kick in.]

The more that you have, the more than you worry about losing it. It seems to be true for individuals. Not too many college students have renter’s insurance, for example. It also seems to be true of societies and loss aversion may ultimately impose a drag on the economy comparable to the interest groups that Mancur Olson cited.

How as investors can we put this theory into practice? We could invest in countries that are really poor. Congo and Zimbabwe, for example, are at the bottom of the CIA’s list of countries ranked by purchasing power parity. They probably aren’t spending too much on insurance to protect whatever is left of their societies, but on the other hand they aren’t easy places to do business. What about the middle income nations? They should have enough money to support a decent physical and legal infrastructure but not so much money that they spend most of their time and effort protecting what they’ve already got. If we were to say that we wanted to invest in countries that had purchasing-power adjusted incomes of between $5000 and $25,000 per year, what would we have? Nauru and Syria are first on the list. That doesn’t seem very practical. We could further refine our criteria and say that the country has to be big enough to have a stock market, needs to have a government that the inhabitants accept, and cannot have its income based purely on a natural resource of some sort. Now we’re looking at countries such as Jordan, Armenia, Georgia, Belize, China, Ecuador towards the bottom. Brazil, Costa Rica, Panama, and Uruguay are in the middle. Botswana, Russia, Latvia, Chile, Argentina, Croatia, Hungary, Poland, Estonia, Portugal are near the top. Maybe we need some more refinement that the country has to be on its way up rather than on its way down or stagnating. So we get rid of Argentina and Portugal, for example, because workers there will be depressed thinking about the good old days.

Finally we have the challenge as individual investors of finding a way to buy stocks in companies that are headquartered in and/or mostly do business in these countries.

So… questions for the readers:

1. does this theory of why rich countries stagnate make sense/add anything to Mancur Olson’s time-honored analysis?
2. are middle-income countries likely to grow faster than the U.S. and Europe?
3. if so, what’s a reasonable way to invest in that growth?

[This posting is also available in a Czech translation.]

I sent an email recently to a couple of my favorite 17-year-olds (two of three triplets). They’re applying to colleges and anxious about where they’ll be accepted. I thought my email might be of interest to others, so I’m posting it below.