What Scottish independence ought to look like

A real bid for Scottish independence needs to have a manifesto, an emotional statement of values that the new country stands for. It might go something like this:What Scottish independence ought to look like“We the Scots want to end all association with the United Kingdom and the British Empire. Scotland will be a democracy and the queen of England will be regarded as a foreign diplomat in our country. We will nationalise crown estates and lease the palaces to the UK government as embassies, with a view to returning them to Scotland as monuments. Scotland will remove all symbolism relating to Britain or the crown from its institutions and replace it with a Scottish identity.

We recognise and wish to undo the damage done in the worst periods of our history, including the clearances. Following independence there will be a reform of large land holdings in Scotland, which will return the land of large estates to local communities and encourage people to settle in areas that are presently sparse.

We assert that the culture of Scotland is predominantly celtic. We will revive and nurture our celtic heritage and seek to form the strongest cultural ties with Ireland, Brittany, Wales, Cornwall and the isle of Man. We feel European as well as Scottish and will pursue a vision of a strong federal Europe composed of regions rather than nation-states.

Our culture is joyful, and the purpose of culture and the state is to allow all people to thrive and enjoy life to the fullest. We reject puritan repression and all forms of discrimination and control over people. We embrace personal freedom, the pursuit of pleasure, inquiry, and industry, responsible participation in society, and democracy as the means to settle all social affairs.

We believe that people are the same one the the other and the world over, and that a good society is defined by its values. Our borders will be open to all who wish to settle in Scotland and live by those value, as long as can be supported by our small country.”

That’s what an inspired call for independence might look like. I’d vote for that. Or people might vote against it for deeply felt reasons. Either way, when setting out on independence you need to nail your colours to the mast like this. It’s not hard to do, you just have to say it.

That’s what I feel is lacking from tomorrow’s bid. Friends who vote yes for these reasons, or who think we’ll get there post-independence, I hear you but I’m not as optimistic.

Marginal contribution nonsense

Jay-and-Ani

Consider two imaginary artists, Jay and Ani. Jay raps about problems not created by women and Ani sings ballads about problems created by men.

Unequivocally Jay is more popular. At almost any time and place more people want to listen to Jay than Ani. Of course popularity is not the only measure of worth. We could make qualitative arguments as to why Ani’s work should be more prominent, and these ultimately translate to predictions about hidden preferences: Maybe everyone will value her more in the future, or some people value her really strongly, or would value her if it weren’t for marketing. We’ll return to these concepts later.  But for now let us concede that the market has ranked Jay’s contribution higher than Ani’s.

How much higher is Jay’s contribution relative to Ani’s? Today, Jay is 50 times richer. Does this mean his contribution to the world through music is 50 times greater? Not so fast!

Suppose our wonderful artists stated their careers in the 1900’s. There’s no amplification and no recording, so all they can do is acoustic concerts in relatively small halls. Jay is still more popular and manages to book 3 times as many gigs. In these circumstances where the artist’s product scales with their labor we can say that yes, Jay’s contribution is 3 times Ani’s or close enough.

Then it’s 1950 and we have amplification. Now people can gather to really big concerts in stadiums. Jay can pull in the big crowd and earns 10 times as much as Ani who’s still doing small gigs. Did Jay just expand his contribution, or did the work of engineers and athletes and builders do that?

Fast forward to 1980 and someone invents CDs. Imagine at first there’s only two CDs on the market, Jay’s work and Ani’s work, and they’re very expensive. Let’s say they’re $100 so consumers can only afford one. Forced to choose, the vast majority of people go for Jay’s CD and he ends up selling 100 times as much as Ani. Is his contribution now 100 times greater? Why? What changed since the acoustic days?

A few years later in the 1990s publishers have figured out how to make CDs cheaply and price them properly, so now they’re $10. Suddenly consumers can afford to buy both Jay’s and Ani’s work, and Jay is now making 50 times Ani’s sales. Did their relative contribution actually change?

Now it’s 2010 and some geeks invented streaming music. They charge $10 a month and let you listen to whatever you like, distributing money to artists according to how often each song is played. Now people have access to both Jay’s and Ani’s work and it turns out that Jay’s work gets played 200 times more than Ani’s. Wait, what happened? Jay now earns 200 times as much as Ani. Does that reflect his contribution, or is his music more everyday entertainment compared to Ani’s deep stuff?

Now let’s revisit the qualitative questions about worth that we parked at the start. Is it correct to reward artists according to how many times their songs get played? What if people value listening to Ani’s songs occasionally, or just having the option to listen? Remember people don’t pay per listen, they pay a flat fee. What if artists were rewarded progressively, say by the log or square root of play counts? What if the money was apportioned by listener ratings, or an even more direct listener choice to support specific artists? Changing the model of what’s essentially interpretation of the subscriber’s preferences completely changes the valuation of each artist’s work.

The moral for economists is that marginal contribution is nonsense. A meritocratic market can rank contributions with plausible veracity but says nothing about the magnitude of contributions. Earnings are an emergent result of technology, ownership, legal structures, trust, marketing, and other factors. These factors determine the shape of the earnings curve – how much winners win and losers lose. A meritocracy, at best, defines who the winners are.

23 better things than Right to be Forgotten

The recent EU legislation called “Right to be Forgotten” is idiotic. The legislators who drafted it are clueless about digital matters, and this as well as the previous “cookie alert” fiasco reduces the EUs standing in any substantial debate. Who is even going to listen to the EU negotiator’s arguments if we’ve just passed such farcical laws. Just to put this in perspective, here’s 23 better things the EU could be legislating in the digital domain. There’s probably many more but 23 was a good number to think of.

Consumer rights:

  • One copyright region: Treat the EU as one region with respect to book, music, movie, etc. rights so that buying across member states is allowed, all products are available everywhere, and people can keep their purchases and subscriptions when they move.
  • One communications region: Treat the EU as one with respect to mobile, land phone, and internet providers. No roaming charges, no long distance pricing per country, no other per-country differentiation.
  • Net neutrality: Treat all data equally irrespective of content or source. The same principle that has long been held in the US, and is currently under threat, should be legally guaranteed also in the EU.
  • Open data standards: Products that achieve significant market share in consumer markets (such as office, photo management, etc) must allow import and export of the customer’s data in a format not controlled by any vendor.
  • Own your data: Online services, including ones that are provided free, must allow each user to delete or migrate (download, upload) their data in a format not controlled by any vendor.
  • Buy means buy: Vendors of digital rights such as books, music, movies etc. must use words such as “rent” or “subscription” to indicate rights that are time limited. Words like “buy” or “own” must apply only to permanent and transferrable rights. The selling of other kinds of rights such as “lifetime subscription” must be approved by regulators and labelled on a case by case basis.
  • Commitment for loyalty: Providers of online services that achieve broad market share (such as gmail, facebook, online games, music streaming etc.) must at any time provide a public guarantee that the service will remain available for a minimum of 5 years, or must set a binding date for termination of the service within 5 years.
  • After we’re gone: Providers or permanent, lifetime, or other long-term digital rights (such as iTunes, Google Play, Kindle, Steam) must provide a transition plan in case of service termination, where a customer’s rights either become DRM-free data or are transferred to an equivalent provider free of charge.

Identity, anonymity, and pseudonymity:

  • Open identity: Services that provide a digital identity to the general public (such as facebook, google+, twitter, etc.) must interoperate so that a person can use the identity provided by one service to participate fully in any other service. Log in to facebook with google+ and vice versa, merge feeds, post across services, etc.
  • Pseudonymity: Services that provide an online identity must allow members to register without revealing their true identity to the provider. Services must display whether an identity is verified but otherwise the service treats identities equally (what google+ does).
  • Straight privacy: Online services must display prominently in plain language and less than 1000 words whether the service provides the following guarantees: No revealing the member’s identity; no tolerance for “outing” by a third party; a mechanism to stop impersonation; a means to block unwanted contact; and no revealing a member’s identity or contact details indirectly through pictures, location, social links, etc. Once set, privacy guarantees may never be reduced, even after the service is discontinued.
  • Proper names: Services that provide an online identity must accept member’s names according to the same criteria, if any, accepted by society and must not impose length, word number, format, or other arbitrary restrictions.

Transparency and data security:

  • No back doors: Vendors of digital equipment such as computers, system software, mobile devices etc. guarantee the equipment is free of back doors that would allow a vendor, government authority, or other party to gain access to the user’s data. Vendors must offer return and refund of all affected equipment regardless of age, and may be liable to damages.
  • No recording: Vendors of consumer equipment that can record or transmit audio, video, location, or other data in its vicinity must include physical switches, visual signals, or simple software controls to ensure any recording has the consent of the owner and people nearby.
  • Know your spy: Providers of online services such as cloud computing, social networks, etc. must clearly indicate one country or jurisdiction that a particular user’s data is legally subject to. Surveillance, censorship, etc. may be carried out by that country only. Providers must publish a quantitative anonymised report of such incidents within 31 days.
  • Competent security: Vendors of digital equipment and providers of communication or online services must exercise competent care to ensure that user data is not intercepted by personnel other than those with a technical need to know, by other users of the service, or by outsiders. Providers must inform the public of any data breaches within 3 days and publish a record of all past breaches.

Public service education, self-help, and awareness of limitations:

  • Encrypt it: Governments and telecommunications providers must inform the public that communications, especially email, may be under surveillance and allow and encourage the use of encryption for all communications. Public authorities should educate people, especially young adults, on basic encryption and password discipline.
  • Do not track: Authorities, employers, ISPs, and system software vendors must inform the public that web activity is typically tracked and provide opt-outs such as private browsing. The limitations of these opt outs must be made clear (like Google does).
  • Insecurity questions: Banks and online services must not use demographic information (such as date of birth, mother’s maiden name) or non-secret personal information (such as pet’s name, first school) to unlock customer accounts. Such information is easily captured by attackers. In-person identification with government-issued ID, or strong passwords must be used.
  • Smell the fish: Corporations,and other entities that deal with the public must publish, within one link of their front page, a complete list of web addresses (domains), phone numbers, brand names, or any other channels through which they interact with the public. Authorities must educate the public to check all communications against this list to recognise phishing attempts.
  • Sharing is forever: Authorities and online services such as facebook, blogs, forums, etc. must educate the public, especially young people, that any material posted online is effectively permanent and may be seen by people beyond the intended audience. Everyone has a moral right to renounce their past opinions or behaviour and a legal right to be protected from discrimination on that basis, but people have no right to erase their past from the public record.
  • No suppression: Governments and online services must inform the public that once data such as pictures, recordings, facts, etc. is published online, rightly or wrongly, there is no way to suppress such data. Authorities may pursue a few criminal or politically significant cases, and individuals and rights holders may have civic recourse to “take down” data from specific sites, but there isn’t and there should not be a mechanism of total suppression.
  • Delete is not enough: Vendors of digital devices such as computers, mobile devices, cameras, etc. must provide a simple and usable method to erase unwanted data from the device securely (like Macs do). Authorities and device vendors must educate the public that “delete” is not enough and they must use the secure erase option whenever dealing with sensitive or embarrassing data.

Legislators, in the EU or elsewhere, could perhaps concentrate on a modern and realistic set of digital principles like these instead of retrograde efforts such as fearing cookies and abetting the “reputation management” industry.

Income from capital is where the fun is

I’m half way through Piketty’s book but have a methodological criticism.In keeping with convention, Piketty classifies the income of top professionals such as managers as “income from labour” if it’s paid as salary. He classifies as “income form capital” only overtly financial income such as rents, dividends, capital gains on shares, etc. I agree in accounting terms but not in economic terms, and as such I feel Piketty’s conventional approach paints a more optimistic picture of the ratio of income from capital vs. income from labour than is actually pertinent.

Arguably it’s more correct in terms of economic analysis to treat upper middle class incomes, especially the incomes of managers and professionals in tech, pharma, banking, and other sectors with highly concentrated capital structures as deriving from capital, even if these people receive their income through salaries. The justification is twofold:

Firstly, if we also assume the conventional notion that salary for labour is compensation for one’s time, that implies the intrinsic worth of a top professional’s time is several times higher than that of an ordinary worker. That reveals an extremely discriminatory conception of human worth, which is also implausible. Much more likely, top professionals are highly compensated for something that they have, human capital, and not for yielding their Marxian capacity for labour. Arguments about diligence or laziness are about yielding a different capacity for labour, say 90 vs. 30 hours a week, and they may have some truth but however generously they don’t account for more than a 2x or 3x pay difference.

So the high pay of top managers and professionals must derive from a kind of human capital. What kind of capital would that be? I speculate it’s a mixture of skill and trust, with the major difference deriving from trust. Skill is things like being a good lawyer or a fabulous programmer, largely the result of practice and education. Trust is who you know and how you are perceived, and in particular the perception as to how faithfully you’ll serve the interests of capital. Trust, not skill, in my view is what distinguishes CEOs and VPs from mere mortals and what gets them invited and placed into these roles in the first place. But it is a resource. Trust is something that an elite enjoys and the multitude doesn’t automatically have, so it’s capital, not labour in the sense of capacity to do work.

The second justification is considering where the efforts of different kinds of waged employees go. The daily efforts of an ordinary worker, such a delivery driver, industrial worker, sales clerk, customer service attendant, and so on unequivocally go into production. That accords to the familiar production function of a firm, combining labour, capital, and other factors to achieve production. But crucially, the efforts of ordinary workers do not change the capital stock of the firm or the coefficients of the production function. In that sense labour is a dispensable commodity and its return scales linearly with the turnover of the firm all other things being equal. This activity, I argue, is correctly captured by the classical term “labour”.

The efforts of highly paid managers and professionals, in contrast, overwhelmingly go into capital formation. A Google employee who creates the company’s next innovation, a pharmaceutical researcher, or a financial deal maker are not contributing labour as an input into production. They work to increase the capital stock of the firm, and they do so qualitatively, so that the increase in the coefficients of the firm’s production function compounds exponentially. Top professionals are directly rewarded for their multiplicative effect on the production function, which arguably means their income should be properly classified as income from capital however the money is actually paid.

If we account for top professional incomes as incomes from capital as opposed to labour we will arrive, I think, at an even more alarming picture concerning the yield of capital vs. the yield of labour than Piketty already paints. And I think that truly reflects reality as we observe the relative bargaining powerlessness of capital (who cares if your strike if capacity to do work vastly outstrips demand) compared to the leverage enjoyed by the class of people who work in capital formation.

Beyond the economics, metaphysically it’s worth noting that all the good jobs, in the sense of initiative, sense of achievement, intrinsically rewarding activity, and so on today are in capital formation. Tech workers tend to have an optimistic view of the state of the world because, by and large, we work in capital formation, an experience that even at the lowest level is qualitatively different from those who truly work in production. All the fun jobs are in capital formation and that is a very serious problem in many dimensions.

Economies are graphs, study them as graphs

Economies are graphs. The workings of economies would be better illuminated if economics were developed as a study of graphs, the things with nodes and edges, instead of aggregate stocks and flows.

A person is a node in the graph. Real value (goods and services) flows from one person to the other in a direction that we label with an arrow, and sometimes money flows in the opposite direction. The purpose of money is to shortcut loops or debts of value reciprocity that would otherwise take too long to balance. When you want interdependence you don’t settle in cash, which is why you don’t pay for gifts or for the services of family members and co-workers.

An artisan is a person who delivers value directly to customers and gets paid immediately or soon along the same arc. In a market, like a Sunday fruit market, arcs are transient but in other situations arcs are long lived and capture trade relationships including trade debt. Customers can put up money at the end of arcs to motivate them, and we call this demand. The social function of money is largely to motivate value arcs that would otherwise be hard to negotiate. The fact that money sometimes accumulates is an aberration.

A market is a device for arc formation. A variety market such as a bazaar or department store serves to reveal and create the value arcs that meet demand, by rewarding certain links among the vast space of possible production. It’s a network phenomenon with persistence, like learning in the brain. The kind of commodity market much loved by economists is a much lesser creature. It aims to create and destroy arcs instantly, in atomic transactions, to avoid long term graph formation and only accumulate the money imbalance. At best it’s an inefficient method for optimising aggregates.

Companies and families are structurally the same, in that individuals send value to each other according to internal relationships without getting paid by the receivers. They’re explicitly not markets. Money arrives at some distinguished nodes and gets shared along different arcs than the value flow. People tend to identify and be invested with their outgoing value arc, not the incoming money arc – this is what I do, not that’s what I get paid – and when the opposite happens it’s a dysfunction.

People pass incoming value as well as add their own, such as when a leader or seller delivers a finished item, or when an academic synthesises the wisdom of others. Value creation is a graph process quite distinct from money capture. Everyone understands value creation by aggregating flow on their graph and most approach it with a well-developed moral sense, egalitarian or biased. Few people have the inclination or low morals to monopolise money capture in the opposite direction.

Value flows will in general be unbalanced, from the more to the less productive, in an economy or any meaningful subgraph or time period. They have to be unbalanced if they are optimally large. Debt will maintain unbalanced flows that may be desirable, but is not a device to achieve balance or fairness. We have to set up, as societies, the value flows that we want including unbalanced transfers for education, misfortune, or old age.

Money accumulates because the settlement of transactions is not perfect and economic graphs such as firms are set to aggregate this imbalance, though not as a direct mirror of value flow. Wealth aggregates to different people and more unequally than their value contribution, because graphs have evolved to make it so. There’s no guarantee or even tendency for wealth to mirror value creation in the long run; there are just emergent graph effects and motives to steer them.

Value flows matter. Money flows in the end should not, although today they do. In the short run and all other things being equal, money and finance serve to motivate and adjust value flows differentially. Beyond that, any large accumulation of wealth or debt is emergent and arbitrary. It should not be treated as power or bondage, but as a relative claim to future flows made self-limiting by inflation.

Someone who is unemployed has no outgoing arcs. No-one wants their value output, perhaps because they have no incoming arcs either: No training, no colleagues or equipment, etc. A menial service worker or someone in a predatory profession like a spammer recognises that they transmit zero or negative value. All are unhappy, in the psychological sense of lacking purpose or value, even if some money somehow flows in their direction by other means.

What about a person who cultivates themselves, through erudition or physical training? In graph theory that’s a node with an arc pointing to itself, and can be formalised the same as other value transfers. Perhaps value towards self will later join output for others, such as when studying before publishing. Leisure is then either a restorative value transfer, i.e. useful, or if it achieves nothing it’s the absence of value flow.

In either case, utility is a relatively transient attribute of the self. It’s things like energy, joy, hunger, tiredness, sleep, etc. People consume value including leisure to increase their utility and partly damage it by working, mostly in a daily or weekly cycle. Work is a disutility insofar as it damages us, and a utility when it makes us greater. In a graph theory of the economy utility is more of a temporary, limiting but also self-correcting, state of individuals than something that could be amassed, precisely calculated, or time shifted.

Incidentally a lazy person is someone who, for one reason or another, needs to consume more leisure to restore their utility. To be more productive, learn to rest more efficiently. Firms that emphasise the quality of the work experience recognise this. Grim dwellings for the poor destroy utility.

Most value flow is not in markets with transient arcs and immediate settlement but along economic relationships that have some permanence: Family, work, knowledge, reputation, trust, social contribution. People like to adjust their graph connections to gain higher status, but they don’t seek an extemporaneous, fully market disciplined existence.

Although utility and value transfers are in the here and now, people desire security for the future. The need for security is a preference for being included in the value graph of the future. People invest in their position in the graph of the present, by and large the outgoing value arcs, during their productive years, and expect some reciprocity i.e. to receive flows value in young and old age.

Ordinarily we treat these as social value-debts shared by the immediate graph neighbourhood: Family, professional guild, nation or other social group. Increasingly we’ve treated these time shift problems as money-debts: Student loans, private savings. Since the purpose of money is explicitly to avoid permanence or long-term reciprocity, this fails to engender security. Far too much money is amassed to achieve security for a few, creating a massive loss of utility. And that, too, is an aberration.

Economies are graphs. Study them as graphs.

On Bitcoin

My thoughts on Bitcoin, originally a comment here: http://rwer.wordpress.com/2014/03/22/bitcoins/

Bitcoins are virtual gold, or maybe palladium. The have low use value, high scarcity, can’t be forged, and aren’t controlled by any government. They’re clearly designed to facilitate payments and store value. People aren’t obliged to accept them, but they do so voluntarily. Very few real-world vendors accept Bitcoins, making their use value low and uncertain, but the speculation is that acceptance will grow making them valuable. Currently they’re like an obscure precious metal, say palladium. Proponents hope they’ll become mainstream like gold, silver, money.

So are they money? They’re clearly an attempt at commodity money, like gold. Let’s assume the proponents/speculators are correct and they achieve broader acceptance. What are the implications? Continue reading

Why I’ll vote against Scottish independence

I’ll be voting against Scottish independence this year. Here’s why. In Summary:

  • The cultural vision is weak
  • The specifics are bad
  • It’s a terrible time to be doing it
  • I don’t trust the offer, especially in this political climate

Background: I’m Greek and have lived in Scotland since 1988. I’d be in favour of Scotland becoming an independent Celtic state like Ireland, or joining Ireland. But I think the offer on the table by Alex Salmond and the SNP is bad in the specifics, and since we can only say yes or no to specifics it’s a no. Missed opportunity. I’d like to see a better offer by someone else.

Continue reading