 | | The Daily Reckoning | Thursday, February 2, 2012 |
- Pirates of the world unite! It’s time to get copying!
- How the global economy is becoming more and more like a speak-easy...
- Plus, Bill Bonner on gold, the Baltimore property market and more chuckle-inducing wisdom from Thomas Friedman...
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|  | | | | The IP War | | How Piracy Works Against an Unnatural Monopoly | | |  | | Joel Bowman |
Reporting from Buenos Aires, Argentina...
What the market giveth, the state rises to taketh away.
One of the more striking features of this whole modern spectacle must surely be the stark contrast between the state and the free markets that exist stubbornly, gloriously, in spite of its best efforts. Wherever evidence presents itself, it appears to do so with the sole purpose of expressing this juxtaposition in ever-higher relief.
This is no mere coincidence, Fellow Reckoner. The two entities are day and night...white and black...truth and government statistic. To the extent that the former exists, the latter does not. One produces; the other consumes. One adds value and meaning to peoples’ lives; the other subtracts value and feeds on the self-worth of those it engulfs. One is dynamic, responsive, nimble and creative; the other is brittle, deaf, lethargic and breathtakingly inelegant in all its forms. One serves customers, the other serves sentences.
It might well be said that, while the free market bends over backwards to serve the needs and desires of individuals, the state merely bends individuals over backwards.
The latest battle between these diametrically opposed nemeses is today being played out in the theater of intellectual property rights. Thanks to shared, copied articles, you’ve no doubt read all about it here and elsewhere. (In addition to some excellent commentary in these very pages, we would further refer interested Reckoners to this piece, penned by Mr. Stephan Kinsella, a man many consider the libertarian expert on this most important subject).
To be sure, the IP skirmish is just one of many such political hot spots, but it may well be one of the most important.
Free individuals’ ability to copy and learn from each other (without denying anyone else a single atom of realized, tangible or even “ownable” property in the process) is an important — arguably vital — tool in our ongoing struggle against the oppression of the state. It is an advantage, in other words, of immeasurable importance and one we surrender at our peril.
To illustrate the point, here is an excerpt from an excellent article by Kevin Carson that appeared on the Center for a Stateless Society website earlier this week:
Because local nodes in self-organized networks are free to take action or innovate without waiting for permission from an administrative apparatus, and every other node in the network is similarly free to learn by example and adopt the innovations without permission, they fully exploit agility advantages of networked communications in ways that authoritarian hierarchies are unequipped to. [And here is a link to the full article, which we are happy to share with you without permission from the author, in case you’re interested: Why the State Will Fail.]
By larding itself with bureaucracy, inefficiency and structural rigidity — all designed to serve the privileged, politically- connected looter class working the machine behind the curtain — the state positions itself at a considerable disadvantage with respect to the free markets — the self-organized networks — that it seeks to crush.
Happily, we don’t have to follow this path by subscribing to the state’s sinister web of dysphemisms and doublespeak. We can, instead, reject its definition of sharing and learning and emulating as “pirating,” and as something, therefore, to be outlawed. We can likewise reject the state’s logically-circular notion that ideas — non-scarce, un-ownable patterns of knowledge — ought to enjoy violence-backed protection against “aggression”...from a violence- based institution that exists only because of aggression.
Most private citizens would have the decency to feel embarrassed if they had to defend this warped sort of logic. The state, on the other hand, revels in its position...but only because it doesn’t have to defend it. It simply claims the right to enforce it. A big difference, you’ll surely agree.
But here, too, the state’s designs to undo all that humanity has come to enjoy as a result of said copying, emulating and learning from each other comes unstuck. How, exactly, does one grant — much less enforce — an unnatural monopoly on intangible, infinitely reproducible concepts? How does one erect a protective circle around things that have no physical properties?
The state’s strategic efforts (SOPA, PIPA, ACTA and the like) to crack down on the spread of ideas ultimately amount to little more than a woeful, modern day adaptation of the mystical dream snare. Fortunately for us, ideas (and dreams) cannot simply be “caught” in a net...just as they won’t be caught on the net. The brave individuals who daily resist this tyranny ingeniously find workarounds to the state’s feeble-minded aggressions. And bravo to them!
Continues Mr. Carson:
We saw this recently with the development of Firefox’s DeSopa circumvention utility before SOPA even came up for a vote, and Anonymous’s massive same-day DDOS attack in response to a federal takedown of MegaUpload that had been months in the planning. Last summer Tor developers released a workaround the very same day Iranian authorities thought they’d shut down the encrypted router network. The second the state constructs a wall, 2...4...8...10,000 copies of the very idea it was built to contain emerge on the other side. They are like ornery little neutrinos, seemingly popping in and out of existence as if only to mock the government’s Neanderthalic, cinder block goals.
Fortunately for us, good ideas don’t need or seek protection, nor do they exist to serve any one master. They are non-scarce entities and, as such, are here to serve us all.
On that last note, if you would like to share, copy or “pirate” any article you see appear in The Daily Reckoning, we’re making it as easy as possible. You can:
1) Go to our website and forward the link to your favorite articles to friends or,
2) Find and “like” us on Facebook, where you can share our articles or,
3) Do likewise by following us on Twitter.
As the author Paulo Coelho recently wrote in a fantastic blog post (which you are free toread here):
“Pirates of the world, unite and pirate everything I’ve ever written!”
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| | The Daily Reckoning Presents | | The Speak-Easy Economy | | |  | | Jeffrey Tucker |
There’s a Mexican restaurant I like (I’m not saying where it is) that seems to thrive in good times and bad. It never has a shortage of servers, cooks and people to bus the tables, even when there are only a few customer cars out front. Actually, it is hard to tell the workers from the customers, and extended family seems to appear from nowhere, people of all ages, sometimes eating, sometimes just visiting and sometimes going back and forth to the kitchen.
How does this place handle the high costs of this labor? It’s the sort of question that is impolite to ask. A passing familiarity with the existing labor regulations, mandates, taxes and edicts on resident documentation permits anyone to figure this out. The place survives and thrives because all these niceties are ignored. The whole arrangement works through quid pro quos, barter, cash, underage labor and undocumented workers.
They know it. We know it. No one is hurt.
Consider another case lately in the news. A report from ABC did some sleuthing on educational institutions all over Australia, where government demands that everyone sign up for public school or officially register as home schooling. The report estimates that 50,000 families completely ignore these rules. Some families don’t believe they should have to register. Others have discerned that there is more risk by going legal than schooling underground.
We all know of such cases. We know a person who bakes cheesecakes in her kitchen and sells them to friends — all while ignoring licenses, health regulations, mandates on oven size, zoning laws and all the rest. Her kids help her in exchange for a weekly allowance — an arrangement that looks a lot like child labor. We know of people who have one normal job but also a job on the side making jewelry, designing websites or tutoring. They prefer cash.
All these small anecdotes — and we know many of them — come from every place in the world, especially with the recession’s intense economic pressures. Faced with the choice of complying with government or making a decent life for themselves, people tend to choose the latter. So it is with hundreds of street vendors in San Francisco. It’s this way for thousands of workers in Shanghai who make licit products in the day and “pirated” products at night.
This will be increasingly true in the digital economy now that the US government has shown its teeth and arrested and destroyed property in the name of enforcing copyright. The Web will not suddenly become the great land of compliance. Instead, those providing gray-area services will become more anonymous, less traceable, more private and obscure.
This is already happening, as ever more people are being forced to use IP-scrambling proxies to surf and put their content behind impenetrable walls. There is a tragic loss here, but it might prompt the final showdown in the great struggle between power and market.
Digital or not, the state can’t make trading, sharing and associating go away. It only inspires the traders and entrepreneurs to avoid risks in different ways.
During Prohibition, the speak-easies sensing a threat would change the passwords to get in the door. With the massive increase in government all over the world, vast swaths of the world economy have begun to operate just like these speak-easies of old. They were zones of freedom, but their operations were distorted because they didn’t have access to law and courts and because the people who ran them were from a class of citizens that was willing to take crazy risks.
We know all of this anecdotally, but what does it all amount to in the macroeconomic sense? I’m right now reading Stealth of Nations by Robert Neuwirth. It is a mind-blowing book because it is the first in our time to attempt a broad look at the meaning of all this unregulated, untaxed, unofficial economic activity. Neuwirth estimates that fully half the world’s workers are involved at some level in what he calls System D.
This is the sector that is variously called the “underground” and the “informal sector.” He prefers System D (the street term derived from the African French word for highly motivated people) because it is nonjudgmental. It refers simply to the sector of economic life that exists “outside the framework of trade agreements, labor laws, copyright protections, product safety regulations, anti-pollution legislation and a host of other political, social and environmental policies.”
He documents the amazing workings of System D and demonstrates that it is the world’s second-largest economy, amounting to economic productivity of $10 trillion, which is probably a low estimate. At the pace at which government is growing, System D is set to employ as many as two of three workers by 2020. My own sense is that Neuwirth actually underestimates the size since he overlooks sectors like health, education and finance — which are surely three of the fastest-growing components of System D.
Neuwirth himself is not a libertarian or a free market thinker in any sense. He is a reporter with a lefty bias — a genuine leftist who believes in exalting the contribution of the poor and the working classes to the social and economic order. His reporting led him to discover that a main driving force for the classes is the need for economic relationships, and then also to notice that the state itself is the main barrier to their advancement.
He remains ideologically conflicted throughout the book. For example, he rails against child labor on one page, but then notes that were it not for child labor, many kids around the world would not be able to buy clothes, food and education and would likely turn to prostitution or some form of subjugation. But ideology is not the main contribution here. It is framing up the reality in a way that we can become conscious of the whole.
Reflecting on the sheer vastness of this sector of life, one realizes the fiction, for example, embodied in official government statistics that record only the on-the-books sector of economic life. These agencies are pumping out half-truths and whole myths every day. One further realizes the immense damage that would be done to humanity in general should there come a time when government actually managed to enforce all its edicts. It would be catastrophic. We owe much of our prosperity to people’s willingness to enter the rebel class.
Regards,
Jeffrey Tucker
for The Daily Reckoning
Joel’s Note: Reckoners interested in delving into the System D world may wish to visit Laissez-Faire Books, where Jeffrey has recently added Mr. Robert Neuwirth’s Stealth of Nations to the bookshelf.
In addition to being the publisher and executive editor of Laissez- Faire Books, Mr. Tucker is himself the author of Bourbon for Breakfast: Living Outside the Statist Quo and It’s a Jetsons World: Private Miracles and Public Crimes.
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| | | | | Bill Bonner | | Investment Alternatives in a No-Growth Market | | |  | | Bill Bonner |
Reckoning from Baltimore, Maryland...
Baltimore...best bet for investors?
We drove back into town on Sunday night. People moped around in front of bars. Groups walked uptown from the stadium, their shoulders down, the chins dragging. The city was dark...and unhappy.
There was no joy in Baltimore on Sunday night. Baltimore is a sports town. The Ravens — the only team we know named after a poem — had lost. They would not be going to the Super Bowl.
Baltimore is a funny place. We were happy to leave it for 15 years when we lived in Europe. And we are happy to be back. Living in Europe was hard. Here it is easy. Living in Europe was chic and fashionable. Here, moving to a trailer park would be moving up in the world. Living in Europe was expensive. Baltimore, meanwhile, is one of the cheapest cities in the world.
But we’ll come back to Baltimore in a minute...
What’s in the news today? The Dow rose 83 points yesterday. The 30- year, ‘long’ bond yield dropped below 3%. The price of gold rose to $1,749.
Bond yields signal a recession. Stocks hint at a recovery... Gold? The correction in the gold market didn’t go nearly as far as we expected. And now it’s over. What to make of it? Do people expect inflation? Why are they buying gold?
We know why the Syrians are buying gold. There’s a war on. Gold has always been the thing to own in a war zone. But here, people think the economy is recovering.
The public and the investoriat seem to think all is well. We’ve just had one of our best months in stock market history. Many investors are convinced that it is the beginning of something big.
Our old friend Mark Hulbert, for example, tells us that some of the oldest and wisest of the newsletter gurus are now bullish on stocks.
We don’t have any opinion about stocks. We just don’t like them. And we figure that if they were as valuable as people think, the owners wouldn’t be in such a hurry to unload them. At least, not to us. Instead, they’d hold on.
But some people are always selling. Others always seem to be buying. Prices go up...and down...the world goes ’round and ’round...
..and who are we to argue with it?
The trouble is, the economy is not nearly as strong as most people think. There is no growth to speak of. And without growth, it doesn’t make sense to pay so much for stocks. Forbes:
The Q4 2011 GDP reading of +2.8% produced what may appear to be a respectable headline number, a full percentage point above Q3 GDP growth of 1.8%. On the surface, the Q4 report also compared favorably to an increase in real GDP of 1.7% for all of 2011. But 2.8%, even at first look, is still softer than the 3.0% gain in real GDP logged for 2010, repeating a pattern that we’ve seen over the past few years: GDP rises, only to drop off again.
Although it may be tempting to look at the economy as a glass that’s half full, I’m afraid it’s far emptier than it looks. Diving into the Q4 GDP report, we see that two-thirds of the amount of growth reported (1.9%) was due to private inventory build-up. (According to standard accounting practice, growth in inventory increases GDP, while sales of inventory reduces it.) Drilling further, the stat that is most meaningful is the real final sales of domestic product — GDP minus the change in private inventories. This data point eked out only a 0.8% increase in Q4 2011, compared with an increase of 3.2% in Q3 2011. That is very telling.
Another weakness in consumer spending was reported by the Commerce Department: Personal income grew by 0.5% in December, up from a 0.1% rise in November. Spending was flat, however. The personal saving rate, meanwhile, was 4.0% in December, compared to 3.5% in November. Saving instead of spending may be good for consumers’ personal balances sheets, but it doesn’t do much good for an economy that needs to gain traction. Additionally, sales increases still appear to be driven by increases in debt which is not sustainable. Without growth, the average stock will go nowhere. How could it? There’s nowhere to go. No growth means that the economy is no larger at the end of the year than it was at the beginning. So, for any company to grow, it would have to take sales and profits from some other company. For one to grow another must shrink. Overall, there would be no growth, and no capital gains for investors.
Trouble is the dividend yield of the stock market is only around 2%. That’s not enough. Take inflation and taxes into account, says our Family Office strategist, Rob Marstrand, and you need more than an 8% return just to break even.
So, if you’re buying stocks in a no-growth market...with a 2% dividend yield...you’re losing 6% on your money.
Heck, you’re much better off buying gold...or property in Baltimore.
Gold has been up every year for the last 11. Even last year, when it supposedly suffered a big correction, it still ended the year up about $300 — which is what you would have paid for a whole ounce of gold in 1999.
As for Baltimore real estate...
We’ve been looking at apartment buildings in B’more. This city is unusual, so you probably shouldn’t generalize. But we’re seeing buildings with “cap rates” of 10% and more...and return on cash as high as 20%. Interest rates are so low you can finance much of the purchase price at low cost...and leverage your investment to get a higher return.
How does that work? Well, the building we just looked at had 5 units. The sales agent explained it to us.
“You get gross rents of about $100,000 and you can buy the building for $800,000. You put down $100,000 and borrow the other $700,000. Then, you pay off your mortgage, pay the upkeep, property taxes, utilities and so forth... You also have to pay management...leave an allowance for vacancies and major repairs...and you end up with about $20,000.
“That’s your return on cash. Not bad, huh?”
Well, it’s about 10 times what you can expect from the stock market.
Trouble is...trouble. Being a landlord in an inner city is trouble. You get trouble from the tenants. Trouble from the city. Trouble from the pipes, the roof, the wires...lead...asbestos — everything. Buy city apartment buildings and you are asking for trouble.
But if you can handle the trouble, hey...see you in Charm City.
And more thoughts...
We got a chuckle out of Thomas Friedman. Maybe he would be good as a brick mason. Or maybe a baker. Shame he got caught up in journalism. He has no talent for it.
In a recent column he tells us that “Average is over.” Typically, it makes no sense. What Friedman seems to mean is that an average person can’t expect to do very well in today’s America. He says average guys are being replaced by robots and Chinese people.
There’s even a new device that will make waiters obsolete. You go into a restaurant. You find a computer at your table. You use it to order your food.
Okay, so what?
Friedman strings together words into things that look like sentences that sound as though they have meaning. But if you stop to think about them, even for a second, you realize that there is no meaning there.
Perhaps he might be replaced by a computer. It could be programmed to create things that resembled real thoughts.
“Everyone needs to find their [sic] extra — their unique value contribution that makes them stand out in whatever is their field of employment.
“Average is over.”
So, let’s imagine that people take this advice, whatever it is. They find their extra. They all stand out. Then, what have you got? You have a different average, don’t you? The average fellow has an extra. So, if the average guy has an extra...he has no extra at all, does he? He can’t stand out in a field of outstanding guys.
Average isn’t over. Extra is over.
But Freidman persists. He notices statistics that purport to show that the average college graduate suffers less unemployment than the average high school graduate. This leads him to propose that the feds spend billions more to send more people to college.
But wait a minute. Does the job pool expand just because you’ve fluffed up the average resume? Or do you merely have more people with college degrees competing with computer programs to wait on tables?
We don’t know. But we’re damned sure Friedman has no clue either.
Regards,
Bill Bonner
for The Daily Reckoning
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