Coasean firms in the age of digital communication

In honor of Ronald Coase’s 101st birthday, this will be a short post about something he published in November, 1937, his classic article The Nature of the Firm. For those who haven’t read the paper, and don’t want to read it just now, Wikipedia has the summary.

What I want to consider here is the addition of digital communication to the entrepreneur’s toolkit. Information can be sent and acquired much faster than was possible before this, either within a firm or between a firm and an external source. Where previously a company with offices in New York and San Francisco had to communicate “inside” information by telegram, telephone, mail, or in-person verbal delivery, they are now able to coordinate their efforts in real time at very low cost and in a greater range of functions. This is one factor that decreases diseconomies of scale, allowing for firms to be larger than they had been previously when coordination was more costly. At first glance, we might expect firms on average to have become larger over the last twenty years as a result.

But there is another angle to the story. The US Census Bureau says:

About three quarters of all U.S. business firms have no payroll. Most are self-employed persons operating unincorporated businesses, and may or may not be the owner’s principal source of income. Because nonemployers account for only about 3.4 percent of business receipts, they are not included in most business statistics, for example, most reports from the Economic Census.

While people have been doing this for the entire history of the US, their geographical range was limited by the difficulty (i.e. costliness) of doing business outside of their immediate locale. To reach a nationwide audience, one had to advertise in newspapers, magazines, or comic books, and the difficulty of giving enough information about the business in a timely fashion (write for a free booklet!) inevitably hampered business opportunities. The ease with which a small shop owner can put his entire inventory online today, for example on his business website or on eBay, allows these firms to flourish in ways that were unimaginable twenty or thirty years ago. The marginal effect seems pretty clearly that more people would attempt to run small businesses who otherwise might have gone to work for someone else before digital communication was possible.

The data are ought there, but this is more an exercise in economic thinking than a formal treatment. Chew on it for a minute. What do you expect the results to look like?


Map of Congressional SOPA support

Here is a map of the United States indicating where SOPA has Congressional support and opposition. It’s easy to see that the support leans Republican and the opposition leans Democratic. But implicit in the map is that the inhabitants in these geographical areas feel the same way as their representatives. They voted for them, right?

Well, this is tricky. First, SOPA was not an issue when these people were elected, so individual voters could not get a clear idea of where the candidates stood. They might have had a rough estimate, but it would be very rough given that some Democrats favor and some Republicans oppose SOPA.

Second, I doubt that most voters have any idea what SOPA really is. Even if their candidates had given explicit positions on specific points of it, as some have since they were elected, support for it is couched in such terms that it obscures what the real effects of the bill will be and how powerless even the almighty US government is to put the toothpaste back in the tube.

A part of me just wishes SOPA would pass so that people could see what it really meant and what it could and couldn’t really do. It wouldn’t stand for long. The general public and especially the US Congress still doesn’t fully realize what the internet is capable of.

New Mexico’s Gary Johnson to run

I see in the news today that Gary Johnson intends to run for president with the Libertarian Party. I think this is good news. Johnson has vastly more standard political credentials than the average LP candidate, and therefore more respectability with the news media. He also has vastly more libertarian bona fides than the previous candidate, Bob Barr, and should be less divisive within the LP fold. I expect he’ll get their nomination.

[When writing within libertarian circles, one has to put in the standard disclaimer stuff. We don’t expect him to win, or even to really shift the tone of the debates. I don’t see that “Libertarian Party” is an oxymoron as some people do, because when a candidate runs without hope of winning what’s important is that the message gets out, the positions become more visible, and the cultural impact is ultimately what matters. Slow and steady, and all that. As one small sliver of general libertarian outreach, the LP is an overall positive force. I was a Libertarian Party member many years ago but have not been since that membership lapsed and don’t expect to renew it, in case you were wondering.]

That said, there’s yet another good thing about his candidacy: he’s from New Mexico. That means very little in American circles, but in the broader spread of libertarian ideals, that helps. Why? Well, New Mexico is one of the more familiar states to Mexicans. In fact, El Diario has an article about Gary Johnson today. It’s basically just a translation of the first circulating American piece, but even so it’s news about libertarianism, and it presupposes that readers will know what that means. This does not happen much in Mexico. I expect further coverage, at least from El Diario, which represents Ciudad Juárez and El Paso, and regionally represents northern Mexico. Northern Mexico, by the way, is a far more independent region than the rest of Mexico, a place more culturally fertile for the near-term spread of libertarianism.

All countries could use a good hearty dose of libertarianism, but Mexico ought to rank very high on the list. Right now the Drug War is a literal term there, as you’ve no doubt heard. As I’ve written elsewhere, the only way out of the violence is legalization. Earlier Mexicans moves towards legalization were canceled under U.S. pressure, but I think ultimately not even U.S. pressure will be strong enough to hold back the tide. To hear that a semi-respectable candidate in their pushy northern neighbor urges the legalization of marijuana and many other libertarian positions can only help.

Whether we know it or not, what the U.S. does is highly visible to foreigners. Most educated Americans know nothing about Mexico or Mexicans, but educated Mexicans are much better informed about us. Gary Johnson will be a very visible candidate there, especially in contrast to the two major party candidates. Many Americans don’t know and many Mexicans do know that Obama presides over record deportations. Whoever the Republican candidate ends up being—whose name will not be Ron Paul—he will be strongly anti-immigration. They will know this. Gary Johnson’s position on immigration is much better, and they will know this too.

Will it get him more votes? That’s the wrong question to ask. Will it spread the libertarian message? That’s the right question, and the answer is yes.

On a completely irrelevant note, I once found a cave in the Organ Mountains in southern New Mexico with the name “Gary Johnson” among many others scratched onto the wall. I’ve always wondered if it’s the same one. This Gary Johnson is an avid athlete and has climbed Mount Everest, so maybe it is.

Collins in space

Neil Armstrong and Buzz Aldrin are the famous astronauts from the first lunar landing. The third member of that mission was Michael Collins, who was the Command Module Pilot—the man who orbited the moon while Armstrong and Aldrin landed on it. Think about that for a moment: Collins was all alone in the command module Columbia behind the moon, almost 400,000 miles from earth. During this time he could neither send nor receive signals to or from NASA or anybody else. For 48 minutes at a time, many times, Collins was as utterly alone as it is possible for a human to be. Wikipedia says:

During his day of solo flying around the Moon, Collins never felt lonely. Although it has been said that “not since Adam has any human known such solitude”, Collins felt very much a part of the mission. In his autobiography he wrote that “this venture has been structured for three men, and I consider my third to be as necessary as either of the other two”. During the 48 minutes of each orbit that he was out of radio contact with Earth, the feeling he reported was not loneliness, but rather “awareness, anticipation, satisfaction, confidence, almost exultation”.

This is quite a testament to his professional training. My first thought would be how terrifying that must feel, to be in outer space, literally without the possibility of contact with anybody at all. It’s inspiring to think of Collins out there, feeling confident, almost exultant.

The decline in radio voice quality

The economic method of thinking is highly fruitful in many other areas outside of the usual things that come to mind when people think about economics: money, interest rates, taxes, etc. There are certain topics that are part of the territory, but beyond that it’s a broad investigative approach to the world of human behavior. Let me try this one on you.

I’m a fan of several old-time radio shows, and I’ve listened to a lot of old radio performances as well, such as the Hank Williams “Mother’s Best” series. One thing anybody would notice from listening to any of them is how great the radio voices were back then. Whether voice actors, announcers, or news anchors, every voice you heard sounded great unless it was a character who was meant to be comical or harsh. That was simply one of the necessary conditions for having a radio job. Listening the radio nowadays you still find plenty of mellifluous voices. But you also find voices that are just plain awful, that aren’t a pleasurable experience in and of themselves. (I think specifically of the host of This American Life, whose voice and delivery are godawful. Nothing personal, guy.) Of course, the other side of the coin is that there are probably thousands of places to hear radio that weren’t available back in the golden age.

For any specialized job, a person with natural talents rarely steps right in. Very few people have the natural talent to become NFL quarterbacks, for instance, and those few who do become NFL quarterbacks have inevitably spent years in preparation. Likewise for master carpenters, professors of microbiology, five-star chefs, or anything else. Even though I consider Jackson Pollock’s work to be a talent-free blight on civilization, he still spent years developing it.

On top of that, there’s motivation. Nobody will ever know how far my grandfather could have gotten in baseball, since he declined to try out for the New York Giants when they invited him. Many great writers never existed because the people who could have been great writers never wrote. There’s probably a skill that you have that you never developed, and that by now it’s probably too late to get any monetary gain from. That doesn’t mean it’s not worth working on, but it’ll be a hobby beside your career.

Moving this point further, in a highly developed economy the number of specialized positions gets very large. One of the many reasons public infrastructure projects are not the economic shot in the arm they’re made out to be by politicians is that skilled construction workers cannot simply move from one construction project to the next. Building a skyscraper takes a different set of skills than building a highway does, and both of these are different from building a bridge. Even though it seems to outsiders that these should be close enough, they are not.

One often reads in financial news about companies in search of CEO’s. This is a costly procedure, and it’s very important to the shareholders that it be done right. Even then, there are plenty of disappointing CEO’s who get booted. Likewise with NFL coaches. There’s a position waiting to be filled, and with large amounts of money on the line, somebody will be found to fill it. Hopefully someone who will excel, but sometimes it’s a roll of the dice. These are high-profile examples, but really this is happening on less visible levels every day.

Back to broadcasting. To succeed in broadcasting, the aspiring broadcaster must put in a lot of time and energy into the job. Start in high school or college at the latest. Intern. Get that first low-paying job. Work the night shift. Laugh at the superiors’ dumb jokes. Jump at the chance, whatever it is, as soon as it comes up. It’s not as though someone can just jump right in, no matter how good his/her presentation is. Even the golden age broadcasters had to work hard for it.

Tying this all together, when there’s a broadcast position open these days, and with so many radio outlets (including satellite and internet) there must be positions opening up quite frequently, that perfect candidate with the velvet voice is not always going to be the one who’s most qualified. The best candidate might be a marginal candidate, the kind whose career as a broadcaster is only due to our having more radio now than was possible in the golden age, the kind who simply would not have made it when voice quality was so important. One might think of the golden age of radio with a Venn diagram, with the overlap of the “quality voice” circle and the “put the effort in” circle being the ones we can find in radio archives today. Nowadays, there are simply more positions than that sliver can account for, and professionalism is the more important of the two.

The JFK assassination, pt. 6: The TSBD’s electricity

According to the official version of the assassination of John Kennedy, Lee Oswald shot from the “sniper’s nest” in the southeast corner of the sixth floor of the Texas School Book Depository, wiped his fingerprints off the gun and then hid it among stacks of boxes (although he left three shell casings in the “sniper’s nest”), then left the sixth floor by the stairs in the northwest corner down to the second floor. Nobody saw him going down the stairs. He was then encountered by Officer Marion Baker and TSBD Supervisor Roy Truly in the lunch room on the second floor. Baker was the first policeman into the building after the assassination, and Truly went with him to show him around the building. Because the elevator was not working, they took the stairs. In the lunch room, Truly identified Oswald as an employee to Baker, who then went on, leaving Oswald temporarily free from suspicion and allowing him to leave the TSBD. Truly and Baker recount this here.

I emphasized that Oswald took the stairs rather than the elevator. We have no way of knowing if he tried to take the elevator or if he purposely wanted to take the stairs (assuming the official version is correct that he was the shooter on the sixth floor). But it’s worth thinking about the elevator for a moment. Four witnesses, two policemen and two employees of the TSBD, said that the elevator was not working. Another employee says that it was not moving, which is different from saying that it was not working but at least does not contradict this idea.

Geneva Hine was an employee at the TSBD, and her testimony to the Warren Commission can be found here (quote on page 395).

Miss HINE. Yes, sir: I was alone until the lights all went out and the phones became dead because the motorcade was coming near us and no one was calling so I got up and thought I could see it from the east window in our office.

Elsewhere in her testimony she says that she was covering the phone for some of the other employees so that they could go outside and see the president, so she’s believable when she says that the phone wasn’t working. She also says “the lights all went out”. All. Nowhere is it given that this is standard procedure when a presidential motorcade drives by. She later said that when she returned to the building there were telephone calls beginning to come in again.

[EDIT: I wanted to add a little extra here. A commenter to this post suggests this probably means the lights on the switchboard went out, i.e. nobody was calling, which is consistent with the quoted part of Hine’s statement. I gave this a lot of consideration, but something still seems fishy to me. As Jerry Organ notes, “[t]he Texas School Book Depository…was a privately-owned company charged with fulfilling book orders from schools all over the Southwest.” There’s no reason why phone calls would stop coming in from “all over the Southwest” on account of the motorcade. It’s fair to assume most callers wouldn’t have had any idea the president was near the building at that time.]

Luke Mooney was a deputy sheriff, one of the early responders to the building. He first ran from approximately the intersection of Main and Houston towards the grassy knoll, believing the shots to have come from there, and once he was up at the railyard he was ordered to the TSBD. His testimony to the WC can be found here (quote from page 284).

Mr. MOONEY. It was a push button affair the best I can remember. I got hold of the controls and it worked. We started up and got to the second. I was going to let them off and go on up. And when we got there, the power undoubtedly cut off, because we had no more power on the elevator. So I looked around their office there, just a short second or two, and then I went up the staircase myself.

This is slightly different. Assuming everybody remembered correctly and told the truth to the WC, the power came back on and then went back off. He doesn’t say anything about the lights, however, which he surely would have noticed.

Victoria Adams was another employee at the TSBD. She observed the assassination from the fourth floor with three other women, and then she and one of them went down the stairs. Her testimony can be found here (quote from page 389).

Mr. BELIN. Let me ask you this. As you got to the stairs on the fourth floor, did you notice whether or not the elevator was running?
Miss ADAMS. The elevator was not moving.
Mr. BELIN. How do you know it was not moving on some other floor?
Miss ADAMS. Because the cables move when the elevator is moved, and this is evidenced because of a wooden grate.
Mr. BELIN. By that you mean a wooden door with slats in it that you have to lift up to get on the elevator?
Miss ADAMS. Yes.
Mr. BELIN. Did you look to see if the elevator was moving?
Miss ADAMS. It was not; no, sir.
Mr. BELIN. It was not moving?
Miss ADAMS. No.

She remarks she did not see anybody while they were going down the stairs. She also says she did not hear anybody on the stairs either. Certainly somebody fleeing a crime scene would make some kind of noise. She makes no mention of any power outage, but notes that the elevator was not moving.

This excerpt of the Alyea film shows the elevator in motion at 0:36. This video shows a light on in the entrance to the TSBD at the 2:03 mark. This same light is not on a few minutes prior in the Altgens photo, taken during the assassination. This is consistent with Geneva Hine’s testimony.

What does this all add up to? It’s mighty strange that the power wasn’t working when somebody on the sixth floor was busy assassinating the president. This could be a lucky coincidence for the shooter (or team, or however it played out), making it even less likely that somebody would come upstairs in time to witness the act. It becomes more eerie when one learns that the building was owned by D.H. Byrd, an associate of Lyndon Johnson’s, although this by itself is not necessarily significant.

If it’s unlikely that Oswald would have had time to shoot, clean, and hide the gun, and run downstairs quickly enough to be calmly drinking (or purchasing) a Coke when Officer Baker found him in the second floor, it’s even less likely that he would have had time to do all that and get away unnoticed by the police when he also had to throw the power off and on. Perhaps the TSBD just had a bad electrical system, although the implication of Hine’s testimony is that this was not a common occurrence.

Since it’s clear that there was at least some minimal kind of conspiracy, as I noted in a previous post, I could see this fitting in. Maybe not. I wouldn’t make too big a fuss about it, but it’s strange and worth taking note of. The shooter, whether Oswald or someone else, had a little extra insurance during the act and then afterwards. The odds of that happening without somebody making it happen are pretty slim.

The UNESCO World Heritage Site game

Before reading further, try to guess which countries have the most UNESCO World Heritage Sites. I’ll mention that Greece has 17, and finding that out is what prompted me to look into this.

[O.K., think for thirty seconds.]

What did you come up with? My first three guesses were Italy, China, and Iran. India and Egypt surely should have some as well.

As it turns out, Italy tops the list with 47 sites. This makes sense, as Ancient Rome is basically the legal and cultural foundation of modern Europe and its offshoots. China comes in third with 41 sites. Iran, the country formerly known as Persia, the crossroads of the ancient world, is in 17th place with 13 sites. Egypt has only seven (!), and is way down on the list.

The second-place country surprised me a little. Spain has 43 sites. [“Site” is a fairly broad term, and even includes the godawful and culturally atrocious “Works of Antoni Gaudí” in Barcelona.] I know that there are still impressive Roman structures there, and that there are Moorish and prehistoric sites as well that deserve to be on the list if anything does. But second most in the world? I like Spain as much as the next guy, but I’m skeptical.

I don’t really know the process by which something can become a WHS. It’s outlined here, but the details not given are probably important as well. I’m fairly certain that in this, as in all things done by national governments and the United Nations, politics has a great deal to do with it. A quick look at this makes it seem as though the Spanish government and UN representation are particularly good at emphasizing the significant sites it has—maybe too good. (Españoles, tengan la libertad de corregirme.)

Every country’s list I looked at has some questionable choices on it, but with “national pride” at stake I’m sure the governments sometimes gave them the extra push. There might be moderating tendencies. The most common is probably being a poorer country—how else would Europe and North America have 73 natural sites and Africa only 35? Low budgets dictate having other priorities. Islamic countries with important pre-Islamic sites might not push for them so hard. (Rather like the Buddhas of Bamiyan, not merely ignored but actually destroyed in 2001 by the cultural terrorist regime in Afghanistan. It was the U.S. client regime that got them onto the list posthumously in 2003.)

There are some countries whose governments we would expect not to care so much about having a high WHS count. For example I’m surprised Uruguay has even one, although it’s a fantastic country that could easily have a few more listed. Malaysia is another one I’d not expect to push so hard. Likewise, there are some we’d expect to care very much, and Spain definitely comes to mind.

The JFK assassination, pt. 5: Robert Groden’s “JFK: The Case for Conspiracy”

I’ve had little time lately to spare for JFK assassination-related reading, but I have a few minutes to spare here. I watched Robert Groden’s “JFK: The Case for Conspiracy” a while back, and I’d recommend it highly. Not without a reservation here and there, of course, but the overall theme of it is sound.

The video does not delve into who the conspirators were, as it has a more basic mission: to show that there was a conspiracy. And a cover-up. It seemed obvious to me when I wrote the first post on this subject a few months ago that there was indeed a conspiracy before the fact and a cover-up after the fact, but it is not obvious to everybody. Basically, as I tweeted at the time:

Robert Groden’s “JFK: The Case for Conspiracy” should be a standard part of every high school U.S. history class.

We’ve been lied to. By powerful people. For some mysterious purpose. I have a feeling that I know what the purpose was, but even if I’m wrong there was some other purpose that’s also not acknowledged publicly.

“Forensic economics”: Insider trading with the CIA

I can’t remember where I saw this link, but Slate has a fascinating article about an economics paper about insider trading prior to CIA-orchestrated coups. Because of finals coming up I might have to read the paper later, but the article has quite a bit of juicy information.

In 1951, Jacobo Árbenz Gúzman became Guatemala’s second democratically elected president. Árbenz’s authoritarian predecessors had been very sympathetic to American business interests, particularly those of the United Fruit Co. (now Chiquita), which had bought up land titles on the cheap from Guatemala’s corrupt elite for its ever-expanding banana empire. Once in office, Presidente Árbenz sought to take it all back, nationalizing UFC’s Guatemalan assets and redistributing them to the poor.

But UFC had friends in very high places—the assistant secretary of state for inter-American affairs, John Moor Cabot, was the brother of UFC President Thomas Cabot. The secretary of state himself, John Foster Dulles, had done legal work for UFC, and his brother Allen Dulles was director of the CIA and also on UFC’s board. Thanks to the Freedom of Information Act, we now know that the various Cabots and Dulleses had a series of top-secret meetings in which they decided that Árbenz had to go and sponsored a coup that drove Árbenz from office in 1954.

With a U.S. puppet back in the president’s mansion, UFC’s profits were safe. But it appears the company wasn’t the only beneficiary of this Cold War cloak-and-dagger diplomacy: A recent study by economists Arindrajit Dube, Ethan Kaplan, and Suresh Naidu argues that those in on the planning process also profited handsomely. By tracking the stock prices of UFC and other politically vulnerable firms in the months leading up to CIA-staged coups in Guatemala, Chile, Cuba, and Iran, the researchers provide evidence that someone—perhaps one of the Dulleses, Cabots, or others in the know—was trading stocks based on classified information of these coups-in-the-making.

Government aid to business comes in many forms. Recently there’s that whole $7.7 trillion to the banks, 90.9% of which was hidden from the public. But it’s not always so direct. There are also licensure requirements, the National Labor Relations Board, subsidies, patents, and a slew of other methods by which the government favors already-powerful firms.

There’s a very popular view out there that the government is really in the employ of powerful business interests, but I think this misses the main point. The government obviously supports them, but they couldn’t exist without the government. I can’t think of any large-scale situation in which some malevolent concentration of corporate power existed without a government behind it, although I can think of situations in which there was a malevolent government without powerful corporations. This in itself is not proof but it points in that direction.

Moreover, what’s the point of all that power? For some, wielding power is everything. For the slightly more crafty, it’s also a way to get rich. Once a person is in a position like the Dulles brothers were in, it’s natural to use the advantages to extend favors to your friends, relatives, and former (and possibly future) business associates. A man would help his family and friends out of simple human feeling. And a man would help people who could be called on to support him.

If the CIA didn’t have the power to overthrow foreign leaders, this wouldn’t be an issue.