Economic Influence & Networked Markets

Equif*cked: The end of credit reporting as we knew it

<![CDATA[After Equifax's epic data breach this week, I did the only sane thing a consumer can do. I froze my credit. When I got to freezing my Equifax credit report I received a failure notice.
Maybe Equifax should have taken their systems offline before the hack.

As of this week, the open credit report should be a thing of the past. And it will change Equifax’s business dramatically. Having been compensated for letting companies access our private credit data, Equifax, Experian, and TransUnion will also be charging consumers to keep their information accessible when they want it to be. This is the so-called “freeze” on a credit reporting account.
Unfortunately, Experian’s protection scheme is deeply flawed, it’s insecure, and we should not have to pay these companies to do their job. We should not be the guardians of the data they store, turning access on and off to control when our credit is visible to companies.
The credit reporting agencies are turning their poor security regimes into an excuse to collect more money from consumers. A radical rethinking of the credit reporting system is due, and the time has come.
And now that it is here, Equifax is already failing to provide consumers with the ability to freeze their accounts.
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[contact-form][contact-field label=”Name” type=”name” required=”true” /][contact-field label=”Email” type=”email” required=”true” /][contact-field label=”Website” type=”url” /][contact-field label=”Message” type=”textarea” /][/contact-form]]]>

Business & Technology Economic

How big can the Local On-Demand Economy Become?

<![CDATA[Over at BIA/Kelsey's Local Media Watch Blog today…. LODE in 2015: Household service and travel market penetration currently at 3.9 percent.
I wanted to lay down a foundational number for the on-demand economy, one that reflects how the economy can grow if the rhetoric of on-demand plays out to allow workers to be paid well enough to exchange some paid household labor for household services.
Based on our analysis, the on-demand market today could be worth up to $465 billion (labor fees inclusive), based only on converting some unpaid labor to paid using on-demand marketplaces. But only $18.5 billion in revenue appears to be headed for on-demand company P&Ls this year, so current addressable market penetration is 3.9 percent. And the current addressable market is only about 16.5 percent of the total U.S. population.
Next up, we’ll start to incorporating competitive industries that may be cannibalized by on-demand. At that point, the clear opportunity for lower transaction and logistics costs for LODE companies will be ridiculously self-evident. We’re talking many new billion-dollar markets, some vertical, some horizontal and some purely geographic.
Join me at BIA/Kelsey NOW: Rise of the Local On-Demand Economy on June 12th in San Francisco! Save $100 off the already reasonably priced tickets with the discount code “MR100,”  for this one-day briefing and discussion on the Local On-Demand Economy.]]>

Business & Technology Economic

What will make local marketing work for local business?

<![CDATA[I'm working on a project with long-time local media research and banking firm, BIA/Kelsey, to create a new series of sponsored white papers that explore key issues in the local media market from an objective perspective, offering new options and approaches to profitable engagement in local markets.
Our first paper, Optimizing Local Marketing: SMB Marketing Needs Do-It-With-Me Models, which is sponsored by Vendasta, published today. We’re leading a discussion at LinkedIn, which I urge you to join. Do download the paper now and share  your thoughts on how to make local marketing work in the LI forum.

The paper examines the pressing need for consultative marketing services that blend easy-to-use digital presence management tools with hands-on marketing expertise for companies that are too large to continue to market on an ad hoc basis and too small to hire and retain full-time marketers while paying for expensive enterprise tools that are often overkill, and over-priced, relative to the SMB’s needs.”
Specifically, it’s the “troubled teens,” when a company is between 10 and 19 employees, that represent the greatest opportunity for local marketing services players to step into a startling gap in success. Even as smaller and larger firms continue to grow, albeit with very high failure rates among the smallest businesses, it is the teen companies that fail at a rate more than an order of magnitude greater than other businesses of any size.


Economic Technic

Sea-Level Economy Mapping: A big data project for future equality

Economic Life & Everything Else

Picketty, Rifkin and the future of prosperity

<![CDATA[Thomas Picketty's Capital in the 21st Century is drawing much deserved praise. I’ve also been reading Jeremy Rifkin’s The Zero Marginal Cost Society, an envisioning of a post-Capitalistic collaborative commons, which deals with a scenario Picketty describes but cannot project in his economic analysis, because it assumes unlikely progress in clean energy and technological gains that, even after all we’ve seen in our lives, may not be plausible. Rifkin’s vision, which proved extremely compelling in The Third Industrial Revolution and his popular writings on the impact of the Internet, may be an important element of the future economy. Picketty’s analysis suggests we need that vision if we are to sustain anything close to the prosperity we are used to in the West as economic opportunity spreads.
Picketty’s findings that inequality is a structural feature of capitalistic societies suggests that, if we do not put policies in place to modulate the level of inequality, the economy will eventually collapse in social unrest. Equality of opportunity — access to knowledge, education, and the basic requirements of life — is the soundest foundation for an unequal but fair outcome. I wholeheartedly agree with Picketty that the U.S. in particular has failed to continue to invest in providing that fair start to its citizens.
In Rifkin’s model, the cost of producing the next copy of virtually anything, except for the cost of materials, will be negligible in the future, because of the increased efficiency of production, logistics and support systems due to digitization, transportation and communications innovations. Meanwhile, the cost of inventing the next new thing will remain high, and it is in that innovation space that fortunes will be made, as investment and risk are part and parcel of any innovation. So, someone may discover a new drug at a very high cost, but the cost of reproducing that drug, once it is discovered, will be very low. Wealth will be made in volume, so to speak, selling lots of copies of that initially expensive design for the drug in the form of pills or injectables, a little each time the product is delivered. The paydays for those innovations happen before the wealth is actually earned, as the startup is sold to the public, which can harvest the projectable, but still uncertain, profits of distributing that innovation.  Sounds very much like what we have today, right?
But it is not, it represents a segmentation of economic activity into innovation and reproduction. Rifkin’s innovators will continue to have huge paydays, the copiers of innovation — even within the company doing the inventing — will be living on marginal improvements in their income and what they can reap in terms of improved standard of living and buying power due to the efficiencies. A new organizational model, the collaborative collective, in which costs and benefits are shared, sometimes literally in the sense that a purchase may be shared by many people, will fill in the “gap” between wealth and sustenance. Think car-sharing or serial re-use of products. I would call this “public hand-me-downs” as a kind of shorthand for the idea that someone buying a car may pass it along in a structured agreement to others; one may buy a new car every year for the enjoyment of it, but the car comes with a built-in sharing network that will distribute the residual value of the vehicle to others as the first buyer moves on to the next car.
Here’s where Picketty’s findings come back to present the real challenge. If inequality is a structural feature of markets — and it is, Picketty shows as incontrovertibly as an economist can — the innovators will increasingly separate themselves from the other citizens of their countries in order to increase the efficiency of their capital investments — they will seek out low-tax or special tax situations for physical plants and ethereal innovative thinking will no longer have a home in a nation. Vast differences in pay today will continue to translate into growing inequality in the future. Rifkin’s notion of a collaborative commons co-existing with an innovation economy describes what will happen to the ordinary person in any country: They’ll be left to fend for themselves as the wealthy pursue innovative opportunities anywhere on the planet. In those local lobes of the Marginal Cost Society, poorer citizens will have to share goods they could not afford alone. I think Rifkin’s projection of the collaborative commons is a picture of the post-national capitalism that will give the wealthiest people a perpetual and increasingly closed range of options that others do not share, even if that is not his intention — he’s simply projecting the economic model that is emerging in response to pervasive inequity. The new transnational aristocracy  will get these options without sharing their fair share of the cost of sustaining a nation, its legal system, its rights and the burdens of citizenship.
Wealth is going trans-national, beyond the control of any organizational model. Picketty’s inequality leads to the necessity of Rifkin’s  collaborative commons, because everyone in today’s upper middle-class down to the poorest of people will be competing only for a fraction of the marginal cost of production while innovation becomes the province of the super-wealthy. The gains from innovation will continue to accrue to the wealthy and economic mobility will be a very rare phenomenon.
Some of you will be screaming “Marxist” or “Leftist” by this point, but I want you to suspend that for a moment. I am not calling for any particular program to respond to this phenomenon, rather I am saying we need to recognize it and factor it into our thinking. If reasoning based on well documented historical data is not allowed because it suggests an ideology, we’re never going to make any progress. We’ll just argue over ideological ghosts. Communism was a spent notion before the Soviet Union, even if it seems to be threatening to rise again in the Age of Putin. Put that behind us and begin to reason about how to establish a fair foundation for competition from any economic level of society, which will increase economic and mobility, and you have a chance to stem the tide if inequity. Why?
Because inequity can eventually destroy our societies. The Economist argues effectively for aiming for a measure of overall material well-being, as it both acknowledges inequity and dismisses the inevitability of revolution due to inequity. I think the editors at The Economist are being a bit glib about the impact of inequality; our memories are conditioned by extraordinary progress in technology, organization, energy production and much, much more, and they minimize what it would be like to recognize stark inequity in one’s own life. But stark inequity is what all but the top .06 percent or so of the population experience as a growing reality in their lives. Yes, the quality of our lives may be improving overall, but the disparities are increasing, too. An accurate measure of material well-being, even one predicated on the buying power of a population relative to the value of their currency, as Picketty suggests, would be a far better basis for policy analysis.
In the long run, we’ll all be dead, Johnny Depp’s transcendence notwithstanding. But I worry for my children and children’s children that, if inequality continues to expand from today’s near-historically high levels, they will be relegated to something similar to slavery. They will have choices, but they will be property of the innovators’ influence, having to endure the kind of capricious and arbitrary exercises of power and wealth that we are familiar with today. Donald Sterling’s an example of it — because he has money, he feels entitled to denigrate blacks without remorse. Fortunately, the NBA did not grant him a pass, as he has been granted during thirty-plus years of documented racism. This time, inequality was not rubber-stamped. However, we see this kind of personal expression of indifference to the values of anyone with less money across society. Sterling, or the idiotic pro-slavery rantings of Cliven Bundy, a Nevada rancher who succeeded in avoiding payment for use of public property but thinks blacks would be better off if they were still slaves, down to the local bigotry of the Boy Scouts against gays, and calls for the wealthy to have a greater say in politics than others (one-dollar-one-vote and venture capitalist Tom Kleiner’s ridiculous arguments that the rich are persecuted) to the imposition of religious tenets on the employees of private companies, which is headed to the Supreme Court in the case of Hobby Lobby, where the owners insist everyone should live by their moral decisions; all these are not isolated examples of poor judgment or bad taste. They are evidence that inequity is rising and the most fortunate of today’s families are seeking to ensure they are always on top of the economic pile. Surely, that’s rational at one level, but when it becomes ideology it becomes poison to society.
The crisis will come when wealth divorces nation, building its own systems for enforcing contracts and seeking to avoid any cost not directly related to the product they want to invent or manufacture. At this point, national investment in opportunity, which is one of capitalism’s greatest features, will be undercut completely. High personal wealth will exist extra-nationally and we’ll hear howls about the unfairness of paying any taxes at all, but wealth will still want everything it can get for free from the nations where it chooses to do business. The only logical solution is policy that establishes a baseline of opportunity, with completely free access to education and information for anyone at any stage of life, because, as capitalism has proven, we never can predict where the next great idea will come from. This is not an argument for life-long welfare, just lifelong education, which is a tenet of post-industrial civilization. Policy can ensure opportunity is (more) equally distributed, that it not retreat to become the playground of a very few families. If we fail in this effort, we would complete our return to pre-Industrial life, but with television to entertain us.
Read together, Piketty and Rifkin paint a range of potential economic outcomes we may see in the future, but it is certain that the disappearance of inequity in opportunity will not come to pass without the political courage to stand up for an equal start, even as we accept unequal outcomes. Bully for the innovators, who should profit from their hard work. Yet  let’s remember that Teddy Roosevelt, a conservative, finally had to recognize and stand up to the inequality of his time in order to lay the foundation for a century of unprecedented growth with less inequality than at any time in history.]]>

Economic Influence & Networked Markets

Shiller's insight is generalizable to all markets, perhaps into biology

<![CDATA[A few years ago I had the good fortune to interview Robert Shiller of Princeton University (Listen to the audio interview.) His name will probably be familiar to you. Shiller won the Nobel Prize for Economics, along with Eugene Fama and Lars Peter Hansen of the University of Chicago this past week. Shiller is an influential economist whose housing index is a valuable leading indicator of home prices. We spoke about documenting human capital.
He’s also the man who coined the phrase “irrational exuberance” that described the behavior of investors during the dotcom and housing bubbles. The upshot of this is that there are huge variations in the price of an asset compared to its intrinsic value, but that prices will return to an average price over time. In the long run, the markets win, which was the contribution of Shiller’s co-Nobelists, Fama and Hansen.
I’ve been thinking about bubbles. They seem to occur at the outset of every market, a bubble unto itself, in essence, that will make or break a new industry. It is clear a market can be organized around anything, and within any market there is opportunity to profit by jumping aboard. Within those nascent markets, firms act like individual investors (and firms) that drive exaggerated valuations. I think this describes all fad behaviors and the market organized around them. Likewise, as a vet of the trade and financial press, I’ve seen whole industries form around, and that intense activity dissipate, a market as it grows until it reaches maturity. From inception to maturity, markets act erratically. Investors put money into the wrong places, and at the same time more investors enter the market, exacerbating the chaos of early growth. Some bubbles actually die out, like the pet rock of the gasoline automobile, but others become part of the sedimentary history of an economy.
This occurred to me because I read about the explosion of scientific papers published annually, which is resulting in very high degree of findings which cannot be reproduced. Eugene Samuel Reich, writing in Nature this week, quoted Henk Mode of scientific publisher Elsevier:

He notes that some institutional rankings, such as the Academic Ranking of World Universities, compiled by Shanghai Jiao Tong University, give explicit weight to the number of Nature and Science papers an institution has produced — making it likely that some universities would then begin to rank prospective faculty by the same measure. “There is more and more evaluation, and a need for researchers to prove their quality,” Moed says. “Journal reputations play a role, and that role has increased.”

That is the description of what happens in the early stages of growth, too, as intermediary players pile into a new market. Publishers of key data and news fructify around the mass of investors in the market, whether for dotstocks or housing derivatives or, as I see here in Washington State with the nascent marijuana market. All the missed investments will be recaptured by the market aggregator that eventually triumphs. This is why the greatest wealth is almost always from a reorganization of the economy, not simply innovation. The Walton and Gates fortunes, for example, come from aggregating markets in the wake of early broad innovations, which are consolidated and made normal, in the sense the product becomes a commodity.
The chaos at the core of the market, where the most investment exists in the form of capital and labor working in close order, is also analogous to the hot center of a bee colony, where the queen and the genetic investment exist in a perpetual swarming, while the bee colony as a whole maintains an equilibrium. In markets, the rapid early growth will end, consolidation will occur, and prices will settle down to at or near their intrinsic value, so that the only action in the markets come as long options chains.
Shiller’s insight will be discovered to be richer by each generation for millennia to come.]]>


Born of blogging and the return of a blogger

<![CDATA[I note in The Economist that there is a school of economic thought that was “born in the blogosphere,” neo-chartalism (represented by and, which is really only a way of saying that the ideas were not incubated in the mainstream media. See Heterodox economics: Marginal revolutionaries in The Economist.
A few years ago, in Extreme Democracy, I was fortunate to work with a group of authors who examined how the forging of political movements could be influenced by the Internet and agile programming concepts. The Economist’s unbilined column is generally positive on the phenomenon of economics concocted outside the mainstream, because, it concludes, economic theory is often distilled from the less refined ideas from the fringes. Okay, but is it not the case that all movements — well-thought through and those built on whack-o assumptions alike — are always talked up from oblivion to prominence?
For what it’s worth, Extreme Democracy can be sold back to Amazon for $0.54 after all these years, though it’ll still cost you $13.48 to buy it used (or $28 new). Consider this my $0.54 on the following….
“Forged in the Blogosphere” is only a way of saying that the ideas were developed through the most contemporary form of discussion available, just as Enlightment thinking grew on branches of the early mail networks that carried private letters to and fro across Europe, North America and Latin American, Asian and African colonies. It’s good to see ideas developing from the ferment of the blogosphere, but they also need to develop in academy, the “mainstream” (e.g., something still printed or delivered via television) press and elsewhere.
The challenge neo-Chartalists face is not so different from any prior school of economics or Web political campaign, to “cross the chasm” into widespread contemporary thought.
And that is hard.
But this is all a way of saying, by the by, that I am going to be participating in the blogosphere, again, after a break of a few years. Something about writing became very difficult for me during my neck problems — probably due to all the Percoset I was chowing down on — but it got no better in the first couple years that I’ve worked at Microsoft, either. So, it’s time that I just churn it out and see what happens. The worst that could happen is that I remain a movement of one, I guess, but that’s always been the way it is with writing.
I’ll be starting to chew on things here. Please stay tuned and give me your feedback.]]>

Economic Social & Political

Rationale for a nightmare

<![CDATA["This notion that the economy is self-stabilising is usually right but it is wrong a few times a century. And this is one of those times…." Lawrence Summers, Obama economic advisor in today’s Financial Times.
This is the wrong argument, one that supports unregulated markets most of the time. Rather, we’ve learned that the balance of market and regulatory power is something that cannot remain static over time, that constant retooling is needed. IF we want to think differently, it’s time to acknowledge that mixed markets are the healthiest and that, once this crisis is over, there is no “going back,” because the unregulated economy has demonstrated it is a ruinous economy.
Warren Buffett agrees: “We want to err on the side next time of not allowing big institutions to get as unchecked on leverage as we have allowed them to do.”]]>

Economic Social & Political

What if we just declare "jubilee"?

<![CDATA[I've been thinking about something a realtor friend told me last night. Yesterday, three homeowners called a banker she knows and said that, if the banks were going to be bailed out, they weren't going to pay their mortgage. These were regular mortgage payers with no history of credit problems. They have simply given up on the relationship between the economy and themselves that they've believed all their lives.
So, I looked into the total US debt, the total of debt owed by low-income countries, the total mortgage debt in the United States and other factors, such as total consumer debt, in the clusterf*^%$k we call the economy.
The United States has $10.2 trillion dollars of national debt as of today. Only $5.9 trillion of that is held by the public, the rest is intragovernmental debt, held by various government entities as part of borrowing conducted to keep things going.
As of August, there was $2.5 trillion in U.S. consumer revolving and nonrevolving debt. Low-income nations owe about $523 billion to rich countries, including the United States.
What if we call it all even? Just erase all debts, including all debts owed by developing nations, except those U.S. Treasury notes held by the public

Economic Social & Political

Legislators from both sides agree: Rip-off

<![CDATA[It may be needed, but the bail-out shouldn't come in the form of a give-away to the banks, Congress says.
This is when the vaunted “bipartisanship” Republicans demand at every turn actually becomes a real debate and negotiation. In this case, the only people in favor of the bail-out in its current form are the Bushies. This is why we need a strong Congress, not a unitary executive.]]>