Category: Web/Tech

The EU “link tax” has been resurrected

And here is commentary from Ben Thompson:

This is why the so-called “link tax” is doomed to failure — indeed, it has already failed every time it has been attempted. Google, which makes no direct revenue from Google News, will simply stop serving Google News to the EU, or dramatically curtail what it displays, and the only entities that will be harmed — other than EU consumers — are the publications that get traffic from Google News. Again, that is exactly what happened previously.

There is another way to understand the extent to which this proposal is a naked attempt to work against natural market forces: Google’s search engine respects a site’s robot.txt file, wherein a publisher can exclude their site from the company’s index. Were it truly the case that Google was profiting unfairly from the hard word of publishers, then publishers have a readily-accessible tool to make them stop. And yet they don’t, because the reality is that while publishers need Google (and Facebook), that need is not reciprocated. To that end, the only way to characterize money that might flow from Google and Facebook (or a €10-million-in-revenue-generating Stratechery) to publishers is as a redistribution tax, enforced by those that hold the guns.

Here is the full post, excellent as always.

The rant against Amazon and the rant for Amazon

Wow! It’s unbelievable how hard you are working to deny that monopsony and monopoly type market concentration is causing all all these issues. Do you think it’s easy to compete with Amazon? Think about all the industries amazon just thought about entering and what that did to the share price of incumbents. Do you think Amazon doesn’t use its market clout and brand name to pay people less? Don’t the use the same to extract incentives from politicians? Corporate profits are at record highs as a percent of the economy, how is that maintained? What is your motivation for closing your eyes and denying consolidation? It doesn’t seem that you are being logical.

That is from a Steven Wolf, from the comments.  You might levy some justified complaints about Amazon, but this passage packs a remarkable number of fallacies into a very small space.

First, monopsony and monopoly tend to have contrasting or opposite effects.  To the extent Amazon is a monopsony, that leads to higher output and lower prices.

Second, if Amazon is knocking out incumbents that may very well be good for consumers.  Consumers want to see companies that are hard for others to compete with.  Otherwise, they are just getting more of the same.

Third, if you consider markets product line by product line, there are very few sectors where Amazon would appear to have much market power, or a very large share of the overall market for that good or service.

Fourth, Amazon is relatively strong in the book market.  Yet if a book is $28 in a regular store, you probably can buy it for $17 on Amazon, or for cheaper yet used, through Amazon.

Fifth, Amazon takes market share from many incumbents (nationwide) but it does not in general “knock out” the labor market infrastructure in most regions.  That means Amazon hire labor by paying it more or otherwise offering better working conditions, however much you might wish to complain about them.

Sixth, if you adjust for the nature of intangible capital, and the difference between economic and accounting profit, it is not clear corporate profits have been so remarkably high as of late.

Seventh, if Amazon “extracts” lower taxes and an improved Metro system from the DC area, in return for coming here, that is a net Pareto improvement or in any case at least not obviously objectionable.

Eighth, I did not see the word “ecosystem” in that comment, but Amazon has done a good deal to improve logistics and also cloud computing, to the benefit of many other producers and ultimately consumers.  Book authors will just have to live with the new world Amazon has created for them.

And then there is Rana Foroohar:

“If Amazon can see your bank data and assets, [what is to stop them from] selling you a loan at the maximum price they know you are able to pay?” Professor Omarova asks.

How about the fact that you are able to borrow the money somewhere else?

Addendum: A more interesting criticism of Amazon, which you hardly ever hear, is the notion that they are sufficiently dominant in cloud computing that a collapse/sabotage of their presence in that market could be a national security issue.  Still, it is not clear what other arrangement could be safer.

Markets in everything

I am surprised issues of this kind have taken so long to surface:

Amazon is investigating claims that employees accepted bribes to disclose confidential data that would give sellers that use its marketplace a competitive advantage. The company confirmed the investigation following a report in the Wall Street Journal that Amazon employees, working through brokers, have sold internal sales data, the email addresses of product reviewers, and the ability to delete negative reviews and restore banned accounts. “We are conducting a thorough investigation of these claims,” an Amazon spokeswoman said.

These practices seem to be a particular problem in China, though not only.  Here is more from Shannon Bond at the FT.  Here is further coverage at Verge: “The WSJ also reports that it costs roughly $300 to take down a bad review, with brokers “[demanding] a five-review minimum” per transaction.”

The incidence of tariffs on Chinese goods

…start-ups are likely to be hit hardest, whether their products are made in China or they import components and do the final assembly work in the US.

“Your resistor or diode is already costing you 10 times what you’d pay if you were Apple,” said Mr Kelly. Slapping a tariff on these higher prices will add to the pain, he said. Companies such as Brilliant face the extra challenge of trying to price their products in a way that will generate demand in new markets that have yet to establish themselves.

…breaking into the mass market usually involves cutting the price, something that is now much harder.

Furthermore:

In the technology industry, hardware start-ups face some of the longest odds for success. Until they reach high enough volumes to strike better deals with suppliers and support the costs of brand marketing it is hard to make the economics work, and profit margins are notoriously low. “When you’re in hardware, a 25 per cent tariff can be a death knell to your business,” says Nate Kelly, a supply chain expert who now heads TrackR, a company that makes Bluetooth devices. The lack of a financial cushion or a diversified set of products means many companies will not be able to “ride this out for six months or a year”, he said.

And Mexico will gain, China will lose.  That is from Richard Waters at the FT.

Don’t blame the fake news, it’s the truth that is the problem

That is the topic of my latest Bloomberg column, here is one bit:

The world of the internet – fundamentally a world of information – is reporting on the failures of the elites 24/7. And while pretty much every opinion is available, some have more resonance than others. Is it not the case that, post-2008, most people really are skeptical of the ability of American elites to prevent the next financial crisis? Going even further back, I recall the optimism surrounding the Mideast peace talks of the 1970s or the Oslo accords of the 1990s. Hardly anyone honest has the same positive feelings about today’s efforts at peace talks.

Again, these impressions are based on actual information. An informed populace, however, can also be a cynical populace, and a cynical populace is willing to tolerate or maybe even support cynical leaders. The world might be better off with more of that naïve “moonshot” optimism of the 1960s.

…Instead of today’s swamp of negativism, do you not instead long for a few rousing hymns, a teary rom-com happy ending, a non-ironic exhibit of wonderful American landscape paintings? Yet all these cultural forms are largely on the wane. It’s no accident that the hugely successful romantic comedy “Crazy Rich Asians” is set in Singapore.

Homer > Socrates!

The Economic Effects of Social Networks: Evidence from the Housing Market

That is by Michael Bailey, Ruiqing Cao, Theresa Kuchler, and Johannes Stroebel¶, there is a demonstration effect in consumption, namely you are more likely to buy a house if your friends did well buying homes.  Here is from the working paper version:

We show how data from online social networking services can help researchers better understand the effects of social interactions on economic decision making. We use anonymized data from Facebook, the world’s largest online social network, to first explore heterogeneity in the structure of individuals’ social networks. We then exploit the rich variation in the data to analyze the effects of social interactions on housing market investments. To do this, we combine the social network information with housing transaction data. Variation in the geographic dispersion of social networks, combined with time-varying regional house price changes, induces heterogeneity in the house price experiences of different individuals’ friends. We show that individuals whose geographically distant friends experienced larger recent house price increases are more likely to transition from renting to owning. They also buy larger houses and pay more for a given house. Similarly, when homeowners’ friends experience less positive house price changes, these homeowners are more likely to become renters, and more likely to sell their property at a lower price. We find that these relationships are driven by the effects of social interactions on individuals’ housing market expectations. Survey data show that individuals whose geographically distant friends experienced larger recent house price increases consider local property a more attractive investment, with bigger effects for individuals who regularly discuss such investments with their friends.

Here is the (gated) “forthcoming in the JPE” version.

Google criticism for me but not for thee

“I think Trump’s complaint undid a lot of good and sophisticated thought that was starting to work its way into public consciousness about these issues,” said Siva Vaidhyanathan, a professor of media studies at the University of Virginia who has studied Google and Facebook’s influence on society.

The idea that many of the extant media and academic criticisms of Google are not much better than Trump’s, or that Google might be wrecking us and making us stupid, but the president is the only one not allowed to criticize it…well…Or how about the notion that the public was becoming “good and sophisticated” on the issue, but somehow unable to resist the polemics of Trump?

We need a new word for these kinds of fallacies.  Any nominations?

Here is the full Farhad Manjoo piece.

My Conversation with Claire Lehmann of Quillette

Here is the transcript and audio, definitely recommended.  Here is part of the summary:

She and Tyler explore her ideas about the stifling effect of political correctness and more, including why its dominant form may come from the political right, how higher education got screwed up, strands of thought favored by the Internet and Youtube, overrated and underrated Australian cities, Aussie blokes, and more.

Here is an excerpt:

COWEN: When did political correctness become a major issue, or become a major issue again? And why do you think it happened exactly then?

LEHMANN: That’s a good question, and I don’t know if I have the answer. I know that there were lots of debates around political correctness in the early ’90s, for example.

COWEN: Yes, and it seems to fade away and then come back.

LEHMANN: Yeah. That’s when Camille Paglia was talking about PC, and Robert Hughes had a book, The Culture of Complaint.

I’ve noticed in my own life that I started noticing political correctness around 2007. At the time, I thought it had something to do with the business model of Internet publishing.

That was when Gawker and the blog Jezebel was really popular. It was established in 2007, and then it got very popular over the next couple of years. I thought that there were a lot of clickbait kind of articles promoting these really simplistic black-and-white narratives of oppression.

Unless one had reasonable critical thinking skills, I could see how young people could be influenced by that kind of content coming out. I think there’s something to do with the Internet and the way the media has had to adapt to this new business model where you have to drive . . . You have to get lots of views, lots of hits, millions more than you would with the newspapers.

I think it’s something to do with that, but that’s probably just one variable in many other factors.

COWEN: What do you think of the hypothesis that political correctness is a kind of virus that’s hijacked the left? It’s figured out some kind of weak entry point, and it’s come in and taken over parts of it, and it will bring down many victims with it, but actually, it’s crippling the left.

LEHMANN: Yep, yeah.

COWEN: True or false?

LEHMANN: Probably true.

COWEN: If one objects to that argument, we should in a sense encourage more of it, at least if we’re being pure utilitarians, or not?

And:

COWEN: Probably in the media? In general, intellectual life, but if you take, say, the United States as a whole, do you think it’s left-wing or right-wing political correctness that’s stronger and more destructive?

LEHMANN: Yeah, it’s probably right-wing political correctness.

A question from me:

COWEN: I’ve been speaking about the right in aggregate terms, but if you think of the effect of the Internet, which strands of the right do you think are favored, and which do you think are falling away because of Internet discourse? Because it shouldn’t favor it all equally, correct?

We also cover Australia vs. New Zealand, the masculine ethos of Australia and its origins, why PC is different in Australia, the movie Lantana (which we both strongly recommend), and yes Australian fashion.

eSports update

In case you’ve been sleeping:

Tournament prize pools now rival those for some of the biggest events in traditional sports, and global audiences for some big gaming events have surpassed 100 million viewers, driven largely by esports’ exploding popularity in Asia.

The lion’s share of esports revenue comes from corporate sponsorships, according to industry analysis firm Newzoo, with ticket sales, merchandising and broadcasting rights bringing in additional revenue. Newzoo estimates that esports will generate $345 million in revenue in North America this year, in addition to more than half a billion dollars in revenue overseas.

You will note that total is much less than for major league football or baseball, which exceed $10 billion each.  Still, “more service for less gdp” is a common theme in the internet economy.  Consider this:

The 2017 League of Legends world championship, held in Beijing, drew a peak of over 106 million viewers, over 98 percent of whom watched from within China, according to industry analyst Esports Charts. That’s roughly on par with the audience for the 2018 Super Bowl.

In other words, the nation without the traditional “locked in” major sport franchises is choosing to jump to eSports.  And:

This year’s total DOTA 2 championship audience was roughly the same size as the total number tuning into the Kentucky Derby, and considerably larger than the peak Wimbledon, Daytona 500, U.S. Open or Tour de France audiences.

All of a sudden, more and more of the world is “stuff I never really heard of before.”

Here is more from Christopher Ingraham at Wonkblog.

What should I ask Eric Schmidt?

I will be doing a Conversation with Eric, in San Francisco, September 19.  It is not an open event, but you can apply to attend.  It is sponsored by Village Global, which is connected with Ben Casnocha and Erik Torenberg.

In case you have been living under a rock, here is the opening bit of Wikipedia on Eric:

Eric Emerson Schmidt (born April 27, 1955) is an American businessman and software engineer. He is known for being the Executive Chairman of Google from 2001 to 2015[ and Alphabet Inc. from 2015 to 2017.

Not everyone knows that Eric is the son of Wilson Schmidt, a well-known economist at Virginia Tech and Johns Hopkins, who wrote on currency matters and also worked with Jim Buchanan.

So what should I ask Eric?

Is Facebook causing anti-refugee attacks in Germany?

Here is the key result, as summarized by the NYT:

Wherever per-person Facebook use rose to one standard deviation above the national average, attacks on refugees increased by about 50 percent.

Here is the underlying Müller and Schwarz paper.  They consider 3,335 attacks over a two-year period in Germany.  But I say no, their conclusion has not been demonstrated.  Where to start?

Here is one picture showing a key correlation:

It is difficult to see if there is causation in the correlationThat looks pretty strong, doesn’t it?  Nein!  That is not how propaganda works, as an extensive literature in sociology and political psychology will indicate.  That is how it looks when you measure what is essentially the same variable — or its effects — two different ways.  For instance, that very big spike in the middle of the distribution?  As Ben Thompson has pointed out, it represents the New Year’s harassment attacks in Cologne.  Maybe that caused both Facebook activity and other attacks to spike at the same time?  Will you mock me if I resort to the “blog comment cliche” that correlation does not show causation?

To continue with the excellent Ben Thompson (he is worth paying for!), the identification method used in the paper is suspect, and he focuses on this quotation from the authors:

In our setting, the share of a municipality’s population that use the AfD Facebook page is an intuitive proxy for right-wing social media use; however, it is also correlated with differences in a host of observable municipality characteristics — most importantly the prevalence of right-wing ideology. We thus attempt to isolate the local component of social media usage that is uncorrelated with right-wing ideology by drawing on the number of users on the “Nutella Germany” page. With over 32 million likes, Nutella has one of the most popular Facebook pages in Germany and therefore provides a measure of general Facebook media use at the municipality level. While municipalities with high Nutella usage are more exposed to social media, they are not more likely to harbor right-wing attitudes.

The whole result rests on assumptions about Nutella?  What if you used likes for Zwetschgenkuchen?  Has a robustness test been done?  Was a simple correlation not good or not illustrative enough?  I’ll stick with the simple hypothesis that some municipalities have both more Facebook usage, due to high AfD membership, and also more attacks on refugees, and furthermore both of those variables rise in tense times.  AfD is the German party with the strongest presence on Facebook, I am sorry to say.

You will note by the way that within Germany the Nutella page has only verifiable 21,915 individual interactions, including likes (32 million is the global number of Nutella likes…die Deutschen are not that nutty), and that is distributed across 4,466 municipal areas.  (If you are confused, see p.12 in the paper, which I find difficult to follow and I suspect that represents the confusion of the authors.)  That should make you more worried yet about the Nutella identification strategy.  They never tell us what they would have without Nutella, a better tasting sandwich I would say.

I also would note the broader literature on propaganda once again.  Consider the research of Markus Prior: “…evidence for a causal link between more partisan messages and changing attitudes or behaviors is mixed at best.”  These Facebook results are simply far outside of what we normally suppose to be true about human responsiveness — so maybe the company is undercharging for its ads!

Ben adds:

I am bothered by the paper’s robustness section in two ways: first, every single robustness test confirmed the results. To me that does not suggest that the initial result must be correct; it suggests that the researchers didn’t push their data hard enough. There is always a test that fails, and that is a good thing: it shows the boundaries of what you have learned. Second, there were no robustness tests applied to one of the more compelling pieces of evidence, that Internet and Facebook outages were correlated with a reduction in violence against refugees. This is particularly unfortunate because in some ways this evidence works against the filter bubble narrative: after all, the idea is the filter bubbles change your reality over time, not that they suddenly inspire you to action out of the blue.

The authors do present natural experiments from Facebook and internet outages.  They find that “…for a given level of anti-refugee sentiment, there are fewer attacks in municipalities with high Facebook usage during an internet outage than in municipalities with low Facebook usage without an outage.” (p.28).  Again I find that confusing, but I note also that “internet outages themselves…do not have a consistent negative effect on the number of anti-refugee sentiments.”  That is the simple story, and it appears to exonerate Facebook.  pp.28-30 then present a number of interaction effects and variable multiplications, but I am not sure what to conclude from the whole mess.  I’m still expecting internet outages to lower the number of attacks, but they don’t.

Even if internet or Facebook outages do have a predictive effect on attacks in some manner, it likely shows that Facebook is a communications medium used to organize gatherings and attacks (as the telephone once might have been), not, as the authors repeatedly suggest, that Facebook is somehow generating and whipping up and controlling racist sentiment over time.  Again, compare such a possibility to the broader literature.  There is good evidence that anti-semitic violence across German regions is fairly persistent, with pogroms during the Black Death predicting synagogue attacks during the Nazi time.  And we are supposed to believe that racist feelings dwindle into passivity simply because the thugs cannot access Facebook for a few days or maybe a week?  By the way, in their approach if there is an internet outrage, mobile devices do not in Germany pick up the slack.

I’d also like to revisit the NYT sentence, cited above, and repeated many times on Twitter:

Wherever per-person Facebook use rose to one standard deviation above the national average, attacks on refugees increased by about 50 percent.

That sounds horrible, but it is actually a claim about variation across municipalities, not a claim about the absolute importance of the internet.  The authors also reported a very different and perhaps more relevant claim to the Times:

…this effect drove one-tenth of all anti-refugee violence.

I would have started the paper with that sentence, and then tried to estimate its robustness, without relying on Nutella.

As it stands right now, you shouldn’t be latching on to the reported results from this paper.

The decline of private ownership in America

That is the topic of my latest Bloomberg column,.  After a discussion of Spotify, Netflix, Kindle, and Uber, I move to the more general point:

Each of these changes is beneficial, yet I worry that Americans are, slowly but surely, losing their connection to the idea of private ownership. The nation was based on the notion that property ownership gives individuals a stake in the system. It set Americans apart from feudal peasants, taught us how property rights and incentives operate, and was a kind of training for future entrepreneurship. Do we not, as parents, often give our children pets or other valuable possessions to teach them basic lessons of life and stewardship?

We’re hardly at a point where American property has been abolished, but I am still nervous that we are finding ownership to be so inconvenient. The notion of “possessive individualism” is sometimes mocked, but in fact it is a significant source of autonomy and initiative.

And as software continues to “eat the world,” we often have fewer ownership rights when it comes to revisions, upgrades, and repairs.  The piece closes with this:

Does that sound like something our largely agrarian Founding Fathers might have been happy about? The libertarian political theorist might tell you that arrangement is simply freedom of contract in action. But the more commonsensical, broad libertarian intuitions of the American public encapsulate a more brutish and direct sense that some things we simply own and hold the rights to.

Those are intuitions which are growing increasingly disconnected from reality, and no one knows what lies on the other side of this social experiment.

Do read the whole thing.

The Pioneer project: finding “the lost Einsteins”

Silicon Valley has created a model for identifying and nurturing high-potential young companies…Pioneer… hopes to do much the same thing for high-potential people.

The group, which is being announced on Thursday, plans to use the internet-era tools of global communication and crowdsourcing to solicit and help select promising candidates in a variety of fields, along with evaluations by experts. Its goal is to put more science and less happenstance into the process of talent discovery — and reach more people, wherever they are in the world.

“We’re trying to build a kind of search engine for finding great people with talent, ambition and potential,” said Daniel Gross, 27, the group’s founder…

Selecting “pioneers” will begin with a monthlong online tournament. Candidates will submit their project ideas. Each week, the projects will be updated. The candidates will vote on each other’s projects, points will be awarded and there will be leader board. Subject experts will also vote, with their votes counting somewhat more than the candidates’.

That is from Steve Lohr at The New York Times, with much more at the link.  Here is the account from Daniel Gross at Pioneer.  I am pleased and honored to be an (informal) advisor to this project.

Why does tech have so many political problems?

These are originally derived from written notes, a basis for comments by somebody else, from a closed session on tech.  I have added my own edits:

  1. Most tech leaders aren’t especially personable. Instead, they’re quirky introverts. Or worse.
  2. Most tech leaders don’t care much about the usual policy issues. They care about AI, self-driving cars, and space travel, none of which translate into positive political influence.
  3. Tech leaders are idealistic and don’t intuitively understand the grubby workings of WDC.
  4. People who could be “managers” in tech policy areas (for instance, they understand tech, are good at coalition building, etc.) will probably be pulled into a more lucrative area of tech. Therefore ther is an acute talent shortage in tech policy areas.
  5. The Robespierrean social justice terror blowing through Silicon Valley occupies most of tech leaders’ “political” mental energy. It is hard to find time to focus on more concrete policy issues.
  6. Of the policy issues that people in tech do care about—climate, gay/trans rights, abortion, Trump—they’re misaligned with Republican Party, to say the least. This same Republican party currently rules.
  7. While accusations of deliberate bias against Republicans are overstated, the tech rank-and-file is quite anti-Republican, and increasingly so. This limits the political degrees of freedom of tech leaders. (See the responses to Elon Musk’s Republican donation.)
  8. Several of the big tech companies are de facto monopolies or semi-monopolies. They must spend a lot of their political capital denying this or otherwise minimizing its import.
  9. The media increasingly hates tech. (In part because tech is such a threat, in part because of a deeper C.P. Snow-style cultural mismatch.)
  10. Not only does tech hate Trump… but Trump hates tech.
  11. By nature, tech leaders are disagreeable iconoclasts (with individualistic and believe it or not sometimes megalomaniacal tendencies). That makes them bad at uniting as a coalition.
  12. Major tech companies have meaningful presences in just a few states, which undermines their political influence. Of states where they have a presence — CA, WA, MA, NY — Democrats usually take them for granted, Republicans write them off.  Might Austin, TX someday help here?
  13. US tech companies are increasingly unpopular among governments around the world. For instance, Facebook/WhatsApp struggles in India. Or Google and the EU. Or Visa and Russia. This distracts the companies from focusing on US and that makes them more isolated.
  14. The issues that are challenging for tech companies aren’t arcane questions directly in and of the tech industry (such as copyright mechanics for the music industry or procurement rules for defense). They’re broader and they also encounter very large coalitions coming from other directions: immigration laws, free speech issues on platforms, data privacy questions, and worker classification on marketplaces.
  15. Blockchain may well make the world “crazier” in the next five years. So tech will be seen as driving even more disruption.
  16. The industry is so successful that it’s not very popular among the rest of U.S. companies and it lacks allies. (90%+ of S&P 500 market cap appreciation this year has been driven by tech.) Many other parts of corporate America see tech as a major threat.
  17. Maybe it is hard to find prominent examples of the great good that big tech is doing. Instagram TV. iPhone X. Amazon Echo Dot. Microsoft Surface Pro. Are you impressed? Are these companies golden geese or have they simply appropriated all the gold?