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Interesting piece (subscription required) earlier this week in the Wall Street Journal on how independent bookstores are competing successfully against Barnes & Noble and Borders by actually getting bigger.

The 46-year-old bookseller [Neil Van Uum] has managed to prevail thanks to an unusual retailing strategy: combat the giants by being even more giant. His Joseph-Beth Booksellers in Cleveland is bigger than the Borders, sells merchandise ranging from toys to quilted handbags and boasts a restaurant where flank-steak salad goes for $9.95.

He’s one of a hardy group of survivors that has emerged from the independent bookstore shakeout by supersizing. In Michigan, Schuler Books & Music boasts a 35,000-square-foot flagship in Grand Rapids. In West Chester, Pa., Chester County Book & Music Co. owns a 49,000-square-foot store that includes a New Orleans-style restaurant.

The six stores owned by Joseph-Beth average 30,000-square-feet — or 5,000 square feet more than a typical Barnes & Noble.

It isn’t size alone, though. What the really successful independent stores do is combine consumer friendliness in terms of design, space, and amenities with the kind of knowledgeable and dedicated staff that’s traditionally thought of as characteristic of independents. I think there’s a plausible argument that independent stores underestimated initially how important the experience of shopping was to customers. But that’s no longer the case at the stores the Journal’s talking about, a list to which you’d want to add stores like Powell’s in Portland, Tattered Cover in Denver, and Stacey’s in San Francisco.

These stores are also taking advantage of a genuine market opportunity by being active intermediaries between their customers and book publishers. (Amazon does it via collaborative filtering, while brick-and-mortar rely on staff members.) The real challenge for readers today is figuring out which of the tens of thousands (or more) of books published every year is worth their time. Stores that customers can count on for reliable recommendations should be able to build reputational capital and profit from it. It’s a hard business, though: net profit margins rarely get above 3-4%.

From the Rocky Mountain News:

Former Nebraska star [running back] Lawrence Phillips was seen in Las Vegas recently pawning one of his Big Eight championship rings — reportedly for $20. “He said he was stuck in Las Vegas,” pawn shop owner Steve Gibson told the Las Vegas Review-Journal. “He said, ‘I need to get out of town.’ Gibson then sold the ring on eBay for a reported $1,700.

Perhaps that’s the definition of desperate: accepting a price that represents a 99% discount to market value. The inevitable next question is: Has Phillips learned from experience and put his other rings up for auction? (As of now, no.)

Alex’s mention of Richard Posner’s blogging at Larry Lessig’s blog gives me an excuse to bring up one of the stranger examples of intellectual-property appropriation I’ve ever come across. With the exception perhaps of the first two Batman movies, I think the best superhero film ever is Alex Proyas’ brilliant Gothic fable The Crow. The movie’s plot is completely straightforward — it’s a revenge tale — but it’s visually overpowering, and Brandon Lee (who died near the end of filming) is great to watch. Anyway, the basic narrative conceit of the movie is that, after having been murdered, Lee has been brought back to life in order to hunt down the killers. As one of the characters explains, when a person dies, a crow carries away his soul. But if the death needs to be avenged, “Then sometimes, just sometimes, the crow can bring that soul back to make the wrong things right.” It’s hardly T.S. Eliot, but the coda is memorable enough.

I was, then, a little disconcerted earlier this summer to see the trailer for Catwoman — a movie about a woman who, after having been murdered, is brought back to life to hunt down her killers — and hear this: “It’s been said that when a person dies, a cat can bring back their soul to make the wrong things right.” And things got even weirder last week when, watching the trailer for the Zhang Yimou film Hero — which Miramax has finally gotten around to releasing here two years after it came out in China — I heard the the voiceover describing Jet Li’s character as a hero who has returned — you guessed it — “to make the wrong things right.”

Now, I tend to be in the Lessig/Posner camp when it comes to intellectual property, so I’m not suggesting that anyone start talking about legal remedies here. And, to be fair, “make the wrong things right” may not be the most unusual sequence of words imaginable. But is it too much to ask for at least a cursory effort at originality from studios, and perhaps a less blatant lifting of others’ words? On the other hand, maybe the references were intended as clever homages to Proyas’ masterpiece, and I just missed it.

I await the outrage. The Economist recently noted that…

“According to army figures dug up by the New Yorker, over the past three-and-a-half years military surgeons have performed 556 breast enhancements and 1,592 liposuction procedures on soldiers and their close relatives. Soldiers have to pay only the cost of their breast or, potentially, buttock implants; family members must cover other expenses. Face-lifts and nose jobs are also available.”

My take: The military provides lots of valuable training to soldiers in exchange for which soldiers take a pay cut. It is even possible the practice is efficient. Unlike private employers the military can force those it provides a valuable skill to continue working at a wage below their current market wage. I suspect most doctors enter the military to receive a medical education. If that education is more valuable because they can perform plastic surgery and military doctors’ wages are low enough, the service may be beneficial to tax payers as well as the doctors, and one assumes, the soldiers.

A colleague of mine at CMC is valiantly continuing his crusade against the notion of public goods (A public good is not rival in consumption; my using it does not diminish your use of the good and not excludable). My colleague has two issues. First, he has never come across a good that fits the description well enough to deserve the label and second, almost any discussion of public goods inevitably leads to a discussion of the need for government provision. I find his argument persuasive. It doesn’t take long in government to hear about countless public goods crying out for government provision.

Thus it is with some trepidation that I mention a candidate for the textbook public good. The Global Positioning System, GPS, which provides location information for both military and civilian uses, is currently provided by the US government at no direct cost to users. GPS was constructed to be non-rival and non-excludable. The way the GPS system works is that a series of signals allow a receiver to triangulate the user’s location without the user needing to communicate back to the satellite. The military nature of the system means that users do not actually want to be found; hence GPS is designed for passive use only. It also makes it very difficult to charge end users for using the signals.

The US government has picked up the cost of providing the system and, according to the Economist

“…after spending $20 billion, the Pentagon has built a global system that is a key ingredient of NATO defense. But it is also an essential prop to countless civil applications: for every military user, there are now 100 civilian users. GPS provides not only satellite-navigation systems in cars and boats; it is used by internet service providers, by banks and by surveyors. One day it might be used by air traffic control systems to permit “free flight”, in which pilots of commercial aircraft find their own route and stay clear of other aircraft, without the cumbersome business of radio telephone contact with controllers on the ground.”

So is this a lighthouse or not? The debate is currently more than academic. The Economist details the European Union’s solution to the provision of position navigation and timing services. The EU’s proposed system,

“…will be in part a commercial system. A concessionaire will get the right to operate the system for a fixed period in return for plunking down two-thirds of the deployment costs–around $2.8 billion.”

I look forward to the day when a Principles of Economics textbook uses GPS as an example of public good. Whether Pigou or Coase wins this one I cannot predict.

In the weeks leading up to Google’s IPO, few people had anything good to say about the company or its decision to go public using a modified Dutch auction. (Here’s one notable exception.) But now we’re seeing a welcome backlash to the anti-Google backlash, with a host of articles arguing that, glitches notwithstanding, the IPO worked. (My take is here, but unfortunately you need to subscribe to the Financial Times to read it.)

Most discussions of the IPO have focused, appropriately, on the fact that Google maximized the amount of money it raised by reducing the commissions it paid its investment bankers and by getting itself a fairer price than it would have under the traditional system. (Even though Google’s price did jump 18% on the first day, that was a relatively reasonable discount given all the fear and uncertainty Wall Street had tried to sow about the company and the offering.) As Alex wrote last week, the true test of the success of an IPO is the “cost per dollar of raised funds,” and by that standard Google did well.

But the offering was also a success for another reason, which is that it forced institutional investors to compete, for once, on a level playing field. The problem with the current IPO system isn’t just that companies end up leaving billions of dollars on the table when they go public, but that select mutual-fund and hedge-fund managers (as well as well-connected individuals) are handed what amounts to free money. In a traditional IPO, the investment bank underwriting the offering controls the allocation of shares. In the late 1990s in particular, that allocation process became a way of doling out favors and securing future business. For instance, if you were a mutual-fund manager who funneled a lot of trades through an investment bank — or who agreed to do so — then you were more likely to get a hefty allocation of IPO shares.

This made money managers look a lot smarter than they were — even if you set the bubble aside, there are lots of fund managers whose returns from the late nineties need an asterisk next to them — and it wrecked the price-setting process, since there was no real attempt to let the price reflect the real demand for a stock. It also sabotaged one of the best things about capital markets, which is that in theory they aggregate the opinions of anyone with enough capital and enough risk tolerance to participate, and not just the opinions of those with the right connections. (There should be no velvet ropes in capital markets: if you can pay, you can play.) Google turned all this around: the only way to get shares in the Dutch auction was to do the valuation work and make a reasonable bid. The traditional IPO relies on the power of cronyism. Google’s IPO, flawed as it was, relied on the power of markets. Bad for the Street, good for everyone else.

At this point, it seems clear that Venezuelan president Hugo Chavez won a definitive victory in the recall referendum that the country held a week ago Sunday. The opposition, though, continues to insist that there was massive fraud. There doesn’t seem to be any proof of this, but one piece of evidence that Chavez’s opponents seized on almost immediately was the curious fact that at hundreds of polling stations around the country more than one voting machine recorded the exact same number of “yes” votes (“yes” was a vote for Chavez’s removal). For instance, the Wall Street Journal reported that at one polling station in Bolivar, two machines each recorded 153 “yes” votes while recording 215 and 237 “no” votes.

The opposition argued that this was proof that the number of “yes” votes had been “capped,” so that after a certain number of votes had been recorded, every additional “yes” vote was changed to a “no” vote instead. (Venezuela uses computerized touch-screen voting machines.) And at first glance, this might seem suspicious. But at second glance, it seems like a simple product of chance, as the Journal pointed out:

Aviel Rubin, a computer-science professor at Johns Hopkins University, said he calculated odds of roughly one in 17 that two of three computers at a voting table would have identical results. That compares to about one in 15 that so far have shown similar results in Venezuela’s referendum.

In other words, with twelve thousand voting “tables,” many with multiple machines, it was inevitable that some would end up with matching scores. (It’s similar to the fact that if there are 23 people in a room, the chances are 50-50 that two of them have the same birthday.) Not surprisingly, then, when international observers audited a sample of the results, they found that while there were 402 tables with matching anti-Chavez votes, there were 311 tables with matching pro-Chavez votes, too. What seemed to be proof of fraud was most likely just a statistical artifact.

This is a classic example of what Nassim Taleb calls being “fooled by randomness,” in his intriguing book of the same name. We think that randomness means there will be no clusters or sequences of similar behavior, and therefore when we see them we assume they’re evidence of some hidden pattern. (You can see this in the way people interpret everything from clusters of cancer cases to hitting streaks in baseball.) But they’re really just evidence of the numbers working themselves out.