Libra coin and broadband provide a template for increased economic empowerment

The eye catcher: Maxine Waters’ reaction to Facebook’s Libra …

Facebook’s announcement that it is getting closer to releasing a cryptocurrency has regulators in the United States in a wee bit of a tizzy.  For example, U.S. Representative Maxine Waters, chairman of the House Committee on Financial Services, asked that Facebook put a moratorium on activity to release the crypto-coin, known as Libra, in 2020.

“Given the company’s troubled past, I am requesting that Facebook agree to a moratorium on any movement forward on developing a cryptocurrency until Congress and regulators have the opportunity to examine these issues and take action,” Mrs. Waters said.

Facebook’s issues with adequately protecting the behavioral data of its platform’s users is a continued topic of discussion among the consumer protection folks.  As a protector of the American payment system, Mrs. Waters concerns are expected.  A platform that is used by 2 billion people across the globe with a digital payment system overlay should raise concerns for any nation as that new payment systems entrant poses a competitive alternative for people using currency to seek out and purchase goods and services of value to them.  Reducing the transaction fees assessed on currency movement and purchases provide a benefit to consumers and to holders of capital seeking to increase returns.

Privacy. Disposing the non-issue …

I will dispose of the data privacy issue side note before moving on to the more important issue of black political economy empowerment.  If Mrs. Waters is that concerned with saving Americans from the privacy bogeyman, she would bring members across the aisle in the House Committee on Energy and Commerce and the Senate Committee on Science, Commerce and Transportation and offer a comprehensive bill on privacy that encompasses data collection behavior on the part of core providers, such as AT&T, Comcast, and Verizon, and edge providers, such as Facebook and Google.

Democrats have shown no balance on the issue of internet regulation and acting as if Facebook’s cryptocurrency is a surprise only signals to the internet industry that Congress lacks vision and intends to remain hopelessly behind the technology curve.  The privacy issue should not be used to slow down Facebook’s crypto initiative.

Facebook’s Libra is an outline for the African Diaspora’s Next Step ….

What Mrs. Waters and the rest of the black American political elite may not appreciate is the schematic a digital coin tethered to other currencies or securities provides for the African Diaspora community.  For example, a digital payment system provides a conduit between the African Diaspora in the United States and the African continent.  Currency is an information transmitter and if digitized it means that the information currency transmits about wealth and opportunity can be sent without the friction introduced by unneeded intermediaries.

The block chain technology that such a platform would be built on provides transparency in the form of a digital ledger linked by cryptography.  By design, data transmitted in the block chain is resistant to modification.

Reduced friction in transactions facilitates digital data flows.  It means reduced costs for the cross border flow of capital.  Broadband technology would not only enhance the search and confirmation of investment opportunities in Africa, it makes greater use of block chain technology possible.

And while Facebook’s mission is to “connect the world”, Facebook’s priority is not economic empowerment of blacks.  This opens an opportunity for engineers, scientists, technologists, and economists in the African Diaspora to build their own digital platform linking the western and eastern hemispheres with a digital currency designed to run over this platform.  The resulting creation of capital on both continents can be used to build food processing plants that are desperately needed in Ghana and increasing the size, production efficiencies, and marketing efforts of black-owned farms in the United States.

Conclusion: Keep the eyes on empowerment and digital future …

Rather than slowing down Libra, Mrs. Waters and the rest of the black political elite should be asking, “How can we use this platform or the idea of this platform to our benefit?”

 

 

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What should the role of law be in Facebook’s digitally connected world?

The Eye Catcher …

Is it important to human existence that seven billion human beings be digitally connected? Facebook seems to think so.  According to its mission statement, Facebook’s mission is:

” … to give people the power to build community and bring the world closer together.  Our top priority is to build useful and engaging products that enable people to connect and share with friends and family through mobile devices, personal computers, and other surfaces.  We also help people discover and learn about what’s going on in the world around them, enable people to share their opinions, ideas, photos and videos, and other activities with audiences ranging from their closest friends to the public at large, and stay connected everywhere by accessing our products.”

Facebook’s view of the world seems to have gone beyond making sure they provide a platform upon which we can find our seemingly long-lost high school crushes.  Now the company wants to facilitate our abilities to make friends and form more connections by introducing emotion-detecting robotics. Just imagine walking down 7th Avenue in Manhattan, your head hung low.  You feel a tap on your shoulder. You turn, and there is Robby the Robot asking if you need a friend.

Just what should the role of law be in an instance where data is being collected first hand on a public street in any American city? First, what is the role of law?

What is the role of law in the digital age?

In a society where data is being collected sometimes without permission or pursuant to some term and condition that has not been read by a subscriber to digital services, what should be the role of law? In other words, to what extent should the State promulgate a body of rules to regulate the behavior of firms that collect by digital means behavioral data from the State’s citizens?

To answer this question I believe we first have to analyze the State’s role in this political economy.  Then, we need to take a look at the relationship between the State and the business firm in general and the data collecting digital firm in particular. After this analysis, we can provide a more accurate picture of the role of law with the added benefit obtaining some insight on the philosophy underlying the State and the laws it promulgates.

The state as ultimate manager of all resources …

To assess the State’s role in this political economy, I place myself in the role of the original “strong man.” I see land and determine to occupy it and control all its resources for my benefit.  Paraphrasing Murray N. Rothbard from his work, Anatomy of the State, I systemize all my political means of acquisition and control, i.e. law, military to create a mechanism for taking the land, whether occupied or unoccupied and convert it to my property to distribute, again for my benefit, at some point in the future.

At this point of acquisition and conquest I have to decide what is the best method for me to optimize the benefits derived from my new territory. Do I and my small band of conquerors do the work ourselves or do we retain labor to do the job?

Entrepreneurs, privateers, and private firms/trading companies step in, petition for charters giving them license to mine and extract resources which they package in return for a fee from me.  These private “going concerns” may also obtain a license from me, the State, allowing them purchase land and extract and package resources, and convert the resources into goods and services for distribution while making a profit along the way.

In my model of a political economy, I have decided that, while I own and maintain the public rights-of-way through which transportation, energy, and communications networks are deployed, commercial trade, the movement of goods and services, will be managed by the privateers.  As long as the privateers serve the “public interest”, they will be allowed to chase profits.

The definition of “public interest” has always been less than clear, but coming from the perspective of the State, as long as the privateer’s activity creates a taxable event and does not erode the public rights-of-way to the point of maintenance costs exceeding benefit, then the privateer keeps her license and is allowed to continue extracting resources and pursuing a profit.

Is the extraction of digital information in the State’s interest? Yes …

Information is a primary resource. It services all endeavors, from manufacturing, mining, farming, public policy decision-making, baking apple pie, etc.  The State has an interest in how it flows.  In a political economy that rides on a corporate-capitalism platform, the State has an interest in allowing information to flow under the least restrictive conditions so that, like other forms of capital, information can move to its next best use. In the case of digital platforms such as Facebook, the State has made a determination, as manifested in its charter to Facebook, that Facebook meets the public interest by creating a taxable event that involves the efficient and profitable extraction of information.  With over 2 billion users and its dominant position in digital advertising, Facebook is demonstrating that it is meeting the State’s public interest.

So, as to the State’s role in a digital economy, the extent to which the State is expected to promulgate a body of rules to regulate the behavior of firms that collect by digital means behavioral data from citizens should be a minimal one; an extent to where the digital firm can leverage its technology to optimize data collected and the revenue obtained from digital services, while the State maximizes collection of taxes from the digital platform.

So what role should law play in a digital economy?

I see the role of law in a digital political economy as three-fold. First, its role is to “apologize” for the State’s role in exercising jurisdiction over the resource called information.  Second, the role of law is to ensure that information flows freely to its best use by licensing the firms that are best at moving information to its next best use.  Lastly, the role of law is to ensure collection of taxes from entities charted to mine, package, and distribute information while allowing these firms to maximize profits.

 

 

 

Elizabeth Warren’s anti-trust approach to internet companies disregards the autonomy of making a market

Last March, U.S. Senator Elizabeth Warren, Democrat of Massachusetts, made an argument for dismantling three of the internet’s biggest portal companies: Amazon, Facebook, and Google. Ms. Warren asserts that these companies have too much power over the private lives of Americans as well as over the economy.  Through their economic and political behavior, Amazon, Facebook, and Google have, according to Ms. Warren, have stifled the ability of smaller players to enter and innovate in the internet markets.

Elizabeth Warren’s Argument

Ms. Warren asserts that Amazon, Facebook, and Google use two strategies to create dominance on the internet.  The first strategy is the use of mergers by large internet portals to effectively eliminate competition.  Under this strategy, Amazon, Facebook, and Google buy out their competition, at times, according to Ms. Warren, at a discounted price.

The second strategy used by internet portals is to create proprietary marketplaces to limit or eliminate competition.  Under this scenario, a portal like Amazon creates a competitive product for sale on its website and uses its scale to price out a competitive product that is also offered for sale on Amazon’s website.

Ms. Warren believes this dominance can be addressed by by taking two steps.  First, portals such as Amazon, Facebook, and Google would be designated as platform utilities.  This means that Facebook would have to divest itself of a service provider that competes with other service providers that use Facebook’s platform to connect to its consumers.

The Problem with Ms Warren’s Approach

Ms. Warren’s approach is similar to the regulatory approach used in the 1990s where local telephone companies that wanted to provide toll services beyond their local areas had to set up separate subsidiaries.  The two differences between the telecom scenario of the 1990s and Ms. Warren’s platform utility model is that telecoms didn’t have to divest these companies, but operated them separately.

More important, these telecom companies were still utilities exercising monopoly control of local service areas.  Until 1996, their local rates were still regulated and they still needed permission to add certain local services.  Their monopoly power resulted from the inefficiencies that would occur from multiple firms trying to provide the same telecommunications services in limited geographic space. Monopoly power granted by the state to these firms was the response by the State to the problems occurring from congestion.

The Open Internet Eliminates Monopoly Power

Amazon, Facebook, and Google, for all their dominance in the e-commerce space operate in the open internet.  In the open internet, any firm or other association of individuals with the right search algorithms, expert technical knowledge, and adequate capital, can set up servers almost anywhere in the world, and start a competing service or carve out a niche portal service.  The internet’s technical openness is rivaled only by its global nature.  Amazon, Facebook, Google may be dominant in the American e-commerce market, but constant regulatory threats by the European Union and hostility to them from China reduces their perceived dominance.  Ms. Warren has not shown how these firms can dominate a global network of 100,000 interconnected computers that operate on an open architecture.

Internet Portals are Not Utilities

It should also be mentioned that the internet itself is not a utility.  In 2015, Federal Communications Commission member Michael O’Rielly made this point during a speech.  Mr. O’Rielly said the following:

“It is important to note that Internet access is not a necessity in the day-to-day lives of Americans and doesn’t even come close to the threshold to be considered a basic human right. … People do a disservice by overstating its relevancy or stature in people’s lives. People can and do live without Internet access, and many lead very successful lives.  It is even more ludicrous to compare Internet access to a basic human right. In fact, it is quite demeaning to do so in my opinion.”

When we think of utilities, we think of monopolies that, due to their efficient delivery of vital services such as water and energy, are granted an exclusive market within which to provide those services.  As alluded to earlier, because of the open nature of the internet and its global reach, it is near impossible for one firm to have an exclusive market, unless a government decides to grant it, and that move would be irrational because government exclusivity would block the very cross-border data flows facilitated by an open internet.

Acquisition of Apps and Brick and Mortar Stores by an Internet Portal Does Not Create Monopolies

The second step Ms. Warren would take to squelch internet portal dominance would be to designate regulators that would prevent Amazon, Facebook, or Google from merging with other firms and thus eliminating competition.  She provides a couple examples: Facebook and WhatsApp; Google and Waze; Amazon and Whole Foods.  There are two problems with her examples and the conclusion that these “mergers” are not competitive.

First, these were not mergers but acquisitions. Two information portals, Facebook and Google, acquired two information assets.  Given the services these assets provide, Facebook and Google made the business judgment that adding these services to their portfolios made sense from a services and revenue perspective.  Amazon, first and foremost an online retailer, added a retail food service from which Amazon’s subscribers could purchase groceries at a discount.

Ms. Warren failed to argue how Facebook’s ownership of a messaging service keeps other firms from developing their own messaging service.  She failed to explain how Google’s acquisition of Waze keeps other technology firms from creating an app that provides drivers with directions. Ms. Warren also fails to show how Amazon is keeping, say Kroger, from creating its own grocery delivery service.

It would be one thing to say that these firms monopolized physical infrastructure to the point where other firms would see increasing costs of entry, but the internet’s openness, combined with access to technical talent and expertise and cheap capital means that the assets purchased by Amazon, Facebook, and Google are themselves subject to competition.

Conclusion: Internet Openness and its Global Nature Keeps Monopoly Power in Check

The open and global nature of the internet combined with access to expertise, talent, and cheap capital works to mitigate monopoly behavior.  As technology evolves and entrepreneurs innovate, the services rivaling WhatsApp, Waze, or even Facebook will emerge.  Given the current make-up of the Congress and the low probability of Elizabeth Warren winning the Democratic nomination, the likelihood of her proposals being enacted via law or administrative fiat is close to zero. This does not mean that internet portals concerned about this type of overreach should stay less than vigilant in preparing to push back against them.

Does Facebook’s business model disrupt the political information markets?

Facebook is engaging in a war against misinformation and divisiveness in the United States as perpetrated via social media, according to published reports by Bloomberg and The Atlanta Journal Constitution. Having done a 180 degree turn from its position last year that its platform was not used to cause a disruption of public opinion leading up to the 2016 presidential election, Facebook is using artificial intelligence tools to identify inauthentic posts and user behavior.  With teams comprised of data scientists, policy experts, and engineers, Facebook is blocking fake accounts and vetting news stories posted on its site.

Critics doubt that Facebook’s attempts to thwart future social media influence will outweigh its incentives to distribute fictional political stories that keep people glued to Facebook while providing advertisers with millions of pairs of eyeballs.  Facebook, according its 10-K annual report, garners almost of its revenues from advertising.  In 2017, advertising made up 98% of Facebook’s revenues.  According to Facebook’s 10-K, at the top of the list of factors that could adversely impact advertising revenues: decreases in user engagement, including a decline in the time spent using the company’s products.

Having used Facebook for eleven years, I witnessed the increase in the use of the platform as a tool for political engagement.  Facebook has expanded opportunities for voters to vet politicians and their policies.  I have seen a significant number of posts, including memes and video, that got the facts wrong; that showed no knowledge of process, politics, or economics.  Cynicism, fear, passion, inaccuracies, sincerity, patriotism, anarchy, and indifference all run rampant on Facebook.  But do I buy the argument that messages placed on Facebook by Russian agents spread so much misinformation that America became suddenly divided overnight? That “Russian interference led to a Trump victory?

No.  The divisiveness was already there.  Giving a couple hundred million Americans the ability to quickly share their thoughts, accurate or not, on the political news of day simply tore away the scab.

Further evidence of divisiveness in American politics: print, broadcast, and cable media.  American media is meeting the demand of a divided public, with Fox News occupying the Right and MSNBC and CNN serving the frenzied Left.

What Washington may truly be afraid of is that politicians have less control over the channels through which they are vetted.  On the one hand, Jeffrey Rosen, president of the Constitution Center, shared the following with The Atlantic’s Jeffrey Goldberg:

“Twitter, Facebook, and other platforms have accelerated public discourse to warp speed, creating virtual versions of the mob.  Inflammatory posts based on passion travel farther and than arguments based on reason.  We are living, in short, in a Madisonian nightmare.”

On the other hand, Americans may be taking to Facebook, YouTube and Twitter in search of alternative opportunities to criticize the political packages and action plans that politicians offer in exchange for votes and increases in taxes.  The divisiveness may be stemming from an increased lack of enchantment with democracy itself.  After all, according to Professor Yuval Harari, democracies are “blips in history” depending on “unique technological conditions” and losing credibility as democracy faces more questions about its inability to provide for and maintain a middle class.

Democracy is hard up to explain why almost all the nine million jobs created post recovery from the 2007-2009 recession have been “gig work” paying little to no benefits.  Democracy has yet to come up with a solution to a wealth gap that the Left invests time in describing, laying blame at the feet of the rich yet coming up with no solutions for a society that prides itself on equal access to the ballot but still comes up short on adequate access to capital.

To the question whether Facebook’s business model has disrupted the political information markets, I would, for now, answer yes.  Facebook has contributed to bringing unreasonable, uninformed voices into the arena. I for one do not want to be lead or have policy fed by impassioned, unreasonable voices, no matter what part of the spectrum they fall on.  What the political class may have to look at for in the near term is that democracy may be less of a facilitator of a peaceful transfer of power between its factions as the mob continues to peel away the scab.

 

 

The State’s role in integrating artificial intelligence into America’s economy

Artificial intelligence has the capability of creating another resource that can be optimized or consumed by a nation-state.  Increases in computing power and better designed algorithms along with access to increasing amounts of data translates into an increased amount of information that can be extracted via machine learning.

Venture capitalist Nick Hanauer postulates that a nation’s prosperity is a function of the rate at which we solve problems.  If he is correct, then problem solving requires that we maximize the amount of available information to find the best answer.

If information is the jet fuel for a Fourth Industrial Revolution economy, data is the oil that has to be extracted and refined. Companies such as Amazon, Facebook, and Google are using machine learning to provide better customer and subscriber experiences with their product.  They are among the largest of the data miners.  Their efforts, along with those of other technology companies is expected to contribute to economic growth beyond a baseline (no-artificial intelligence) scenario.

For example, Accenture reports that labor will see an increase in productivity of 35% by the year 2035 due to the application of artificial intelligence.  Annual growth rates in value added to gross domestic product are approximated at 4.6% by 2035. With capital and labor (due to a cap on the capacity of cognitive ability) reaching their limits as contributors to increased economic growth, artificial intelligence, taking its place along capital, labor, and entrepreneurship as a factor of production, is expected to help the economy exceed its current limits in three ways:

  1. Automating physical tasks as a result of artificial intelligence’s ability to self-learn;
  2. Augmenting labor by giving labor the opportunity to focus on creativity, imagination, and innovation; and
  3. Diffusing innovation through the economy.

With these promises of growth comes the fear on the part of labor that artificial intelligence will eliminate the need for a substantial portion of current jobs.  Even while experts and academics tout artificial intelligence as a complement to labor; as an augmenter of labor’s cognitive skills, there is still the fear that this emerging technology will create a valueless human workforce.  This perception creates a dilemma for a government that sees democracy under the attack globally.  Is artificial intelligence going to exclude millions in the name of efficiency? If so, what use is there from participating equally in an electoral process of the economy leaves you out?

Government will have to prepare a messaging campaign if it is to maintain its legitimacy as a distributor of economic equity in the face of an increasingly digitized economy and society. The potential destructive nature of artificial intelligence is scarier than what has been presented in movies like “2001: A Space Odyssey” or “Terminator.” Immediate benefits of artificial intelligence may flow first to those who already have high tech skills or hold or have access to great amounts of capital. In other words, AI is the ultimate nail in the coffin for the capital gap. Those with access to or control of capital will only see their control over the data and information that feeds it get larger. If you can’t process data or package useful information, you are nonexistent. Just useless furniture. It won’t be some AI robot that kills you off. It will be a human with money and enhanced cognitive skills that decide we are valueless.

As Erik Brynjolfsson, Xiang Hui, and Meng Liu pointed out last month in an article for The Washington Post last month, “No economic law guarantees that productivity growth benefits everyone equally.  Unless we  thoughtfully manage the transition, some people, even a majority, are vulnerable to being left behind even as others reap billions.”

As Professor Yuri Harari notes, technology is not deterministic, however.  It is people who make decisions as to how their political economy will shift and change.  Brynjolfsson, Hui, and Liu note that voters need to urge policymakers to “invest in research that will design approaches to human learning for an era of machine learning.”

The evidence does not show that policymakers are being prodded to move on the issue of artificial intelligence. Not surprising since voters are not knowledgeable about the issue either.  Artificial intelligence is not on the top of any poll responses from voters.  As regards to Congress, the only major action has been companion bills S.2217 and HR4625 where Congress wants the Secretary of Commerce to establish a federal advisory committee on the development and implementation of artificial intelligence.  While the bills provide good working definitions of artificial intelligence and machine learning and has among its concerns economic productivity, job growth, and labor displacement, allowing a bill to sit in committee for ten months is not the kind of speedy intelligence that artificial intelligence needs to be complemented by.