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Defending the Undefendable: The Scalper

Country music star Eric Church recently took the unprecedented step of cancelling 25,000 tickets to his spring tour that he claims were purchased by scalpers. The cancelled tickets will be up for re-sale so his “true” fans can purchase them. In fact, this effort to curtail scalping harms his fans – who does he think bought or will buy the tickets from scalpers? I recently tried to buy tickets to an event but was barred from buying more than 2 at a time. Ever. Had I bought two and went back and bought two more I would have been branded a scalper and all 4 tickets cancelled. Net effect: I just won’t go; it’s my whole family or none of us. Oh well. So I have no doubt many of those 25,000 were people like me who tried to skirt the stupid rules just so a family or group of friends could all go to a concert and actually sit together.

The idea that scalpers cause high prices is as persistent a ‘cart pushes the horse’ myth as is the notion college education causes success. Scalpers provide an invaluable public service. They identify and solve glaring supply problems. They make it possible for poor planners, the blissfully unaware, and the peripatetic to enjoy a show at a moment’s notice. In my college days I was in Paris for a summer study abroad. Through last minute word of mouth I happened to find out Pink Floyd was in concert one evening. Of course it had been sold out months before I arrived, but that was no problem. I walked up to the venue and in a few seconds had bought a ticket from a scalper. Couldn’t have been easier. Now someone might argue (incorrectly) that had there been no scalpers I could have bought one at the box office for a normal price. Ten minutes before show start? I don’t think so – not with a band as popular as Pink Floyd at the time.

But, that scenario actually could take place (box office purchase) if only the artists would stop ignoring basic economics. If something is in high demand (seating at a show) but the supply is low (seats x shows) the solution is to not to set an artificially low price and cover your eyes and ears and stamp your feet demanding scalpers not buy the tickets. The solution is to (a) raise prices or (b) increase supply (more shows or more seats). If they truly want all their fans to have an opportunity to see them perform they need to stop selfishly withholding their talents and perform more frequently!

The two most vilified economic activities, piracy and scalping, are both the result of producers over or under estimating their own worth. If someone is pirating your goods then you are charging too much. If someone is scalping your goods then you are charging too little. Think about it: if music and movies were priced at a nickel each, all piracy would cease. The irony is the studios would make more money following this model. Riches are obtained more readily not from charging high prices to a few but rather low prices to the many (which is why price based competition, in contrast to quality or service based competition, is the most popular tool at gaining sales).

Looking back to our example of scalping we can see that if performers charged what the scalpers charged, the scalpers would realize no more arbitrage advantage to scalping and would cease. Airlines do this rather well, offering a range of ticket prices all of which are still high enough there is nothing to gain by scalping them (ignoring security issues today, but this was true in the past when tickets had no names on them).

These performers are a “victim” of their own success. There is only one of them, so increasing popularity means more and more will vie for contact. They have no choice but to charge more or devote more time to their fans. Supply and demand is as inexorable as gravity: sooner or later it will win.

Athens voters consider third party presidential candidates

I was recently interviewed by James Thompson a senior in the UGA school of journalism. His final project was featured in Online Athens and you can see the result here or below. My part is only about 10 seconds at most, but hey, it’s something.

Reasons Don’t Matter

Found this quote years ago, anyway, interesting way of explaining by Steve Jobs of the difference between jobs with unlimited potential and those with limited potential. Strive to never make excuses and anticipate all problems and you will go far in this world.

 

Jobs imagines his garbage regularly not being emptied in his office, and when he asks the janitor why, he gets an excuse: The locks have been changed, and the janitor doesn’t have a key. This is an acceptable excuse coming from someone who empties trash bins for a living. The janitor gets to explain why something went wrong. Senior people do not. “When you’re the janitor,” Jobs has repeatedly told incoming VPs, “reasons matter.” He continues: “Somewhere between the janitor and the CEO, reasons stop mattering.” That “Rubicon,” he has said, “is crossed when you become a VP.

Knock, knock – Who’s there?

A pair of nearly identical bills (SB 45, SB 159) has been introduced this session into the Georgia legislature concerning “no-knock” warrants. Apparently all those no-knock raids we’ve heard about recently in Georgia (a toddler nearly killed in Habersham County, the murder of David Hooks in Laurens County) were illegal. Under Georgia law (O.C.G.A 17-5-27) officers must give “verbal notice” before force can be used to execute a warrant. Huh. Imagine that, words on a piece of a paper didn’t stop those in power from doing whatever they wanted – and since there was no accountability in either case, apparently the current law prohibiting no-knocks is of little practical value. So, let’s see, how could we possibly remedy this situation? I’ve got it – make no-knock raids LEGAL! Now when officers engage in this practice they won’t be breaking the law anymore, problem solved.

Why stop there? Why not make rape, murder, and theft legal? That would lower the crime rate in Georgia to the point where there would be no need for no-knock raids. Oh, right that wouldn’t help because no-knock raids aren’t about catching actual criminals (rapists, murders, and thieves). No, they are about nabbing the low hanging fruit of drug “crimes” where mere possession of “stuff” is all that is needed to close a case. Smash, grab, arrest. Wash, rinse, and repeat. Detective work is so tedious – this is much easier. I have a suggestion for these politicians. If you are so keen on legalizing that which was formerly illegal in order to control it better, then try this: repeal all drug laws. Now there is no need for no-knock warrants.

Now, just to clarify, both bills’ proponents claim the bills prohibit no-knock raids. One (SB45) even goes so far as to call itself “Bou Bou’s Law” (after the toddler that nearly had his face blown off). Because both bills would greatly increase the probability of another “Bou Bou” type incident, this particular appellation is about as disconcertingly insulting as naming a rape legalization bill a “Women’s Rights Law”.

What the declaration giveth (“No search warrant shall be issued which contains a no-knock”), the exception clause taketh away (“unless the affidavit or testimony supporting such warrant establishes by probable cause that if an officer were to knock and announce identity and purpose before entry, such act of knocking and announcing would likely pose a significant and imminent danger to human life or imminent danger of evidence being destroyed.”)

“Significant and imminent” are the weasel words that will build the foundation of every manufactured excuse to engage in this practice. Honestly, if the degree of danger is that serious do you really think an extra 5-10 seconds will provide an absolute measure of safety? If the danger level is truly “imminent” no one should be entering, announced or unannounced, if officer safety is the primary concern. Surround and siege is a much less dangerous alternative for all involved. Likewise, the phrase “evidence being destroyed” is code for “drugs flushed down the commode”. Thus upon this rock one may build the excuse for every drug case being a no-knock case.

Opposition to these bills is not “anti-cop”. Quite the contrary. Officers tend to get shot when they break into people’s homes unannounced. That’s just a fact. The goal should be to eliminate such raids, not increase their use through legalization and specious pleading of “oversight.” The only situation where a no-knock raid would ever be warranted is if someone’s life inside the residence is in danger (think serial killer situation). But to risk the lives of officers and innocent bystanders inside in order to potentially get a few grams of dope off the streets – that is simply reckless and the Georgia senate should be ashamed of themselves for attempting to codify under the color of law this outrageous practice. Please contact your Georgia Senator to voice opposition to these bills.

Stop mining!

Yes, I am a big dumb idiot. I, like many others, fell prey to the bitcoin frenzy last fall as the price continued to climb, and climb and climb, and just when I thought it couldn’t go any higher, it did. Although I had managed to purchase a small amount of bitcoin (0.16 BTC)  at the Cryptocurrency conference in Atlanta (October 2013) for the now-unbelievable price of $120/BTC (using a bitcoin ATM they had there), I felt I had for the most part missed the boat on this whole bitcoin thing. But better late than never. I looked into mining equipment. Too expensive and too complicated (I’m an old school Mac guy, I’m not into compiling my own code in Ubuntu just to get some command line miner to work – I want point and click). But this cloud mining thing looked interesting. I knew just enough about Austrian economics to dupe myself into believing the business model of cloud mining companies made sense (“they are simply renting out time on their hardware to make an additional return on it” I thought). I read stories on line about how mining is for suckers, that the difficulty changes too quickly to make anything, but I dismissed those in my fervor to get some bitcoins at a really good price. I did some back of the napkin calculations that showed I could indeed make my investment back and then some. I was convinced! As it turns out, lazy, back of the napkin calculations don’t work. You actually need to do the fully detailed calculations… which I did not do until several months into it at which point it hit me like a ton of bricks, “YOU’RE AN IDIOT!” – it is mathematically impossible to make money in cryptocurrency mining. But so many people are doing it you say? That’s because they are wishful thinkers like I was or simply have not done the math yet.

From a strictly basic economics approach it should have been obvious to me that this business model made no sense. Why would you spend money on a piece of hardware and then you yourself not use it but rather rent it out at a rate of say $100/period even though if you used it yourself you could make $150/period? That’s the premise behind cloud mining: make more than you spent, otherwise what is the point. Intuitively it seems to make sense since we invest in all kinds of assets that produce returns (stocks, bonds, depreciable capital equipment, etc). The key difference here though is that if a stock produces a 2% dividend for me the stock itself still has value (assuming no insane market crashes). I can sell that stock at some later date for as much if not more than what I paid, and even if I sell for less, as long as the loss there does not exceed the dividends produced during that period, I still have realized a profit. But, with crypto currency mining the asset your are purchasing is simply time. As soon as it is used it is gone and worthless. When a mining contract is over there is no underlying asset for you to sell. In other words, for crypto mining to work you have to expect an investment return that approaches Ponzi-esque levels: a minimum 100% return during the holding period (of the contract). Even if we assume the crypto price in terms of fiat is increasing, the numbers still do not work. Why? Because you could have simply bought the crypto on the same day you started the mining contract and would have realized the same gain due to fiat inflation.

For example if it is $1/BTC on day 1 and you spend $1000 to mine for a year, you could have just bought 1000 BTC instead. So let’s say you mine for a year and only mine 500 BTC, but the price has gone to $10/BTC. You think you made out well because you spent $1,000 but now have $5,000… but you must recognize that you could have just bought 1000 BTC on day 1 and would now have $10,000. The loss must be accounted in the crypto currency you are mining relative to what you could have bought at the market price on the date the contract started.

I actually also dabbled in some Litecoin mining as well and bought one of those pre-built rigs off of Ebay. It was mostly plug and play… but it was extremely LOUD and HOT. As I considered where I could relocate this rig in my house I decided to run some detailed calculations to determine when I would turn a profit. And that is when I discovered I would never get my money out of what I paid for the rig, let alone all the electricity use as well. So I made the smartest move one can make when mining; I sold the rig. Because I sold it a mere 3 weeks after I had bought it the difficulty level had not changed appreciably and the market rate for the rig was the same. I sold it for exactly what I paid for it and managed to pocket the litecoins produced. So in all I netted about $100. So it is possible to make money mining but you must (a) buy the actual equipment so you have something to sell when done and (b) mine for under a month so difficulty increases do not depreciate your equipment by an amount exceedeing what you made in mining (as denominated in the currency being mined). Of course that is not really practical, but it is possible. The only other way to make money is if you just happen to already own the hardware needed to mine and can build a rig yourself (and live where electricity rates are low). Of course you must factor in the opportunity cost of any other endeavors you could have participated in that could have made more of a return. It wouldn’t make much sense for a neurosurgeon to waste his time building a rig, although for someone in high school or college it might (if they are not employed) in terms of opportunity costs.

So to help people out I have put together a spreadsheet using Google docs where you can estimate mining returns. It is set up for BTC but one could do the same for any crypto currency, the principle is the same. The document shows an example of the currently most expensive Cloudhashing.com mining contract (1 TH for $2999) using the Global Hash rate of 8/19/2014 as the starting point and an average change in difficulty of 20%. With those numbers you can see you lose 75% of what is spent. The only way to make a return is if difficulty changes were 1% or less (or they could cut their price by a factor of 4). The spreadsheet is Read Only on the web but you can download it and then make changes to it offline. Trust me, no matter what mining contract you see, plug it in here and you’ll see it’s a loser. And if it is a winner then you can be sure it is a “pre-order” contract. Don’t do it, trust me. I fell for the pre-order Butterfly Labs mining contract last December. Had they delivered that product on the day I purchased it, I would have made a return. But they knew it would be months before it was delivered so they could price it aggressively such that it appeared to be a money maker. Six months later after no delivery on the contract I luckily qualified for a 100% refund (which I had to wait another 45 days to get). But to their credit they did finally refund all of my money. I made out far better getting my money back than if they had delivered the contract in the February time frame originally promised. Their reputation for taking money and not delivering for months (if ever) suggests to me they are simply using their customers as a source of 0% financing. They collect pre-order money from suckers like me, then hold our money for 7 months, and then finally return it with 0% interest. But like a Ponzi-scheme, this will only work as long as they continue to entice new suckers into doing the same. I will give them the benefit of the doubt and assume it is not a pure Ponzi scheme, but rather that they are using the “loaned” funds to invest in their business and grow it. I’m just glad I got out when I did.

Cloudhashing.com is a bit different from Butteflylabs.com. Cloudhashing actually delivers their contracts when you buy them, it’s just that given their pricing it is not possible to ever make a return. They have a “revenue reinvestment” scheme which sounds like it makes sense; reinvest your mined returns in order to stay ahead of the difficulty changes. But all you’re doing is running to stand still if you participate in the RRP. But in theory and in practice it can’t work as it falls prey to the same problem of mining itself; you’re better off just buying the BTC. Ultimately I think they and all other mining companies operate on the same principal. Instead of investors they have customers who freely give them their money, they use that money (risking none of their own) to buy the equipment, they then charge the customers 10% of their return (and may very well be mining on the side using the equipment paid for by their customers). A parallel would be this: I sell the ability to receive a dividend from some penny stocks. You give me $100, I use that $100 to buy shares of penny stocks. Those stocks pay a $2 dividend per month. I give you $1.80 and I keep $0.20. After 1 year you’ll be lucky to have made $20 (thus an $80 loss), I’ll have $2, and then the “contract” is over. I’m making $2 per account/per year risk free by using your money to buy the stock. After a year the penny stocks are worthless so there is no way to recoup that initial investment. Now all I need to do is scale up to a massive level and make a pretty decent amount of money risk free.

So, this whole essay begs the question, “If it always make more sense to buy than to mine, shouldn’t it be impossible for any crypto currency to get off the ground?” Yes, quite literally that is true. But, fortunately, turning a profit is not the sole motivation behind everyone’s actions. I’m certainly not saying turning a profit is bad, simply that people do things for reasons other than profit. A painter might paint his whole life for pleasure and never realize a profit from that endeavor. Then when he dies his painting shoot up in value and then people are buying and selling them for profit. In a sense that his how crypto mining operates. The miners don’t make anything, but the traders who buy their product do.

Mine because it is fun. Mine because you want to help grow the market. Mine because you want to be a part of history. Mine for any number of reasons, just don’t mine because you want to make a profit. You won’t. The only people that make a profit in the crypto currency game are those that are (a) very lucky and found good deals on hardware or (b) people selling mining equipment or mining contracts. If you just want to make money then just buy what you can afford to lose. It is a purely speculative market so the only profit you’ll see is if the crypto you buy gains value relative to other goods.

So there you have it, the perspective of a former miner and cloud miner on why neither makes any sense if your sole intention is to make a profit. I hope this information gets out there and helps others to avoid buying mining contracts that are a total loss from Day 1. I was a victim of my own lack of due diligence and placement of trust in companies that I expected to deliver what was implied (net gain) by the nature of the product. That’s the free market, if you aren’t careful you can get hurt. Well now I’m here as part of that market to warn others away from participating in these “products”. Eventually there will be enough of us warning everyone else that these companies will simply go away, but sadly not without having made off with a lot of money. Caveat emptor.

Postscript Jan 9, 2018, Just found this article, guess my speculation on what Butterfly Labs was doing was vindicated:

Ideas are not Property, on dismantling IP

The US Supreme Court ruled unanimously this past week that human genes may not be patented. That was a good decision. However those in support of this ruling are by and large hypocrites. They vociferously decried the negative consequences of upholding such patents (limiting research, higher costs, limited choice) but then fail to acknowledge these same deleterious consequences occur for ALL patents. It’s not like these bad things don’t occur for “legitimate” patents but do occur for “illegitimate” ones. Patents are the problem, not their “legitimacy.”

So what are patents (and copyright) (aka Intellectual Property or IP)? Quite simply they are a state granted monopoly for a fixed period of time during which the presumed creator has an exclusive right to do with their creations as they see fit. The hope is that in providing, as a reward, a period of monopolous profits such entities will be incentivized to expend resources in creation and thereby benefit mankind. This unquestioningly presumes that risk should be subsidized by the state. Risk the right way and the state will support you, risk the wrong way and you’re out in the cold. But that’s ok, because IP helps the “little guy” right? Wrong. The IP holder must enforce their IP. This necessitates enormous financial resources to legally pursue IP violations. Only the “big boys” can afford this and thus it becomes clear for whom the IP system was created. The IP system is nothing more than a symptom of state and business cronyism. One of the hallmarks of cronyism is the arbitrariness of the rules and regulations supporting it and IP is nothing if not arbitrary. IP terms have changed over the years, often in concert with the needs of the large corporations whose IP is threatened by expiration.

Although its cronyist roots are reason enough to withdraw support from the IP system, we find that upon closer inspection the whole raison d’être of IP is actually quite absurd. IP rests on the idea that mere ideas can be considered property. For a proper claim (title) to be made, the material in question must be “scarce.” “Scarcity” means there is some marginal cost of production, e.g. clothing is commonly available but it is scarce because it does not simply pop into existence; obtaining it requires some non-trivial expenditure of resources. Where there is scarcity there exists the potential for rivalry or conflict over some particular good. There are two ways to prevent such conflict: 1) invent a way to make the good non-scarce or (2) establish property rights in such objects.  Property rights are the civilized, non-violent alternative to killing each other in order to determine ownership/possession. But when it comes to ideas or non-scarce goods there can be no conflict because both parties can simultaneously possess the thing in question. Therefore without conflict there is no reason to have property rights. Such rights are entirely absurd – you might as well attempt to establish property rights in looking at the moon or the right to whistle. The only possible conflict is over who can legitimately say they thought or did something “first”. Fine, fight over that if you wish. But that is not a property right; just because you had the name “Greg” before me doesn’t preclude me from also using that name.

The idea of scrapping the entire IP system will raise the ire of those who have fallen sway to the false choice paradigm we are propagandized with our whole lives, namely that without such “protections” people will simply stop being creative and all new literature, music and inventions would dry up. Seriously. Now doesn’t that sound pretty stupid when you say it out loud. Do you really think there are NO other possible ways creators might get remunerated for their work? Do you truly believe that patents and copyright are the ONLY possible way this could work? These types of objections are about as imaginative as the “but who will pick the cotton?” rejoinders thrown at those that desired to end slavery. In other words, one’s lack of imagination does not invalidate my argument. End the shackles of IP and let loose the entirety of human creativity. (For a more in depth discussion please see the godfather of anti-IP, Stephen Kinsella’s “Against Intellectual Property” which can be downloaded, for free.

The following is an adjunct to the discussion above . The question “But how will this work?” is not a refutation of the principle that IP as a concept is invalid… however…it can be an interesting intellectual exercise to start from a priori free market principals and imagine how people might conduct themselves in order to accomplish the same goals absent a coercive state influence. I will go through some of the more common objections to dismantling IP.
The most common objection to ending IP is that businesses simply won’t innovate anymore because other businesses (the parasites) will just copy everything they do which in effect results in the innovating business subsidizing the parasitic businesses who have no R&D budget. There is just one problem with this. It only looks at one side of the equation (however in this case it reverses the usual paradigm of the “seen benefit and unseen harm” described by Bastiat into one of the “seen harm and the unseen benefit”).
These assertions always ignore the benefits to both society AND the business from whom the idea was stolen. Obviously society will benefit with lower prices and more choice (just as they do when drugs go off patent and can be made as generics). However all businesses will benefit because now it is “legal” for everyone to “steal” ideas from everyone else and improve upon them. So for every ten businesses “stealing” from Business A, Business A can in turn “steal” the ideas of ten other businesses themselves – often the same one that “stole” their idea to begin with. The playing field is leveled if everyone can participate. Rather than restricting R&D to just one company that happens to hold a patent, the creative R&D resources of thousands of companies can bang away at some idea, sowing improvements at each iteration, each company striving to outdo the others in either price, efficacy or quality.
As an aside here I would like to mention this is not an endorsement of industrial espionage. By that I mean businesses can have their employees sign non-disclosure agreements (contracts) and if such agreements are violated they have full legal grounds to pursue not only those employees but most likely the business they disclosed it to (tainted fruit as it were). Now some might object and say “well technically the business it is revealed to can’t be sued because they are not party to the contract”. True, however in a truly libertarian system (no employment law tying the hands of the employer or employee) any higher level employment situation (i.e. knowledge workers with the potential to bring innovation to the table) would be established under an employment contract and in such contracts only a fool of an employee would sign such a contract that did not stipulate that the employer will indemnify that employee in any lawsuit related to their actions in the course of employment (which would of course cover conveying ideas/processes learned at a former employer that could benefit the new employer). In that situation then the employer would be a fool to not make entirely sure all information they get from the employee is not covered by any sort of non-disclosure agreement since if it is, and they don’t check, the employer opens themselves up to an enormous amount of liability (indirectly via their employment agreement). This system would of course not stop such transfer of proprietary knowledge, but it would greatly mitigate the likelihood and even today’s system does not stop all of it either so to say that people might find a way around it and so therefore it can’t work is to say what we have today can’t work because people today find ways around our current system.
Now, back to trade secrets: If your process is truly novel and inventive then it will not be readily copied as no one will be able to figure it out (because without patents you would not need to disclose to the world how it works). If it is a secret, then keep it secret. However, if you are the inventor of something fairly obvious (i.e. one-click checkout, round edges on a phone) then it will be trivial for others to copy you. But because the invention was trivial you would not have had much invested it in anyway. Therefore in a free system those that invent truly novel things that are difficult to reverse engineer will naturally reap the most reward before competitors finally figure it out (if ever). “First to market” is still a powerful incentive to innovate. And even after others figure out an invention there is still much value in the reputation of being the seller of the “original” or “authentic” version of something.
Next common objection, “Ok Mr. Smarty pants, without IP you’d have even more firms like the Chinese just making cheap knock offs and putting the innovators out of business and since they aren’t innovating there is nothing to copy from in this iterative process you describe”. Think about what those “knock off” companies are doing. They are making stuff efficiently and inexpensively. They are making it less expensively than the makers of the “original” products. Now to the extent the knock offs are sub par in quality and function, there will be little market penetration beyond those who never would have bought the authentic product to begin with because of price – so no real loss there. But to the extent there are such manufacturers that actually are basically making “generics” of whatever product it is, that means they are of nearly equal quality and efficacy but for a lot less. In other words between the two such companies (the R&D company making it for a lot of money vs the Manufacturing company making it for little money) there is a stark difference in comparative advantage. One is really good at making stuff and one is really good at inventing stuff. That means each will tend to specialize and become better and better at what they do. Without a patent system we would tend to see more company specialization. For example today companies are more vertically integrated in that they invent things and then manufacture them and then waste time and resources going after those that copy them. In a system without patents the “inventor” companies would specialize in R&D and inventing things and then they would turn around and sell the information on how to make some hot new thing to the manufacturing companies. Basically it is contract manufacturing – which already exists today. The resources they formally spent fighting them with are now used to make improvements. The manufacturing firms are weak in R&D but great at manufacturing. It is a natural symbiosis where the strengths and weakness of each partner complement each other. So as companies specialize in this way we get better R&D and we get better manufacturing. It doesn’t mean that companies can’t still invent things and then make them and sell them, it just means that market pressures will tend to minimize the number of companies operating this way. Only companies whose products require enormous capital investment (e.g. auto manufacturing) would likely continue to exist in this arrangement or within markets that are too small to justify specialized manufacturing needs. Just because the structure of businesses today may not work under a no patent system does not mean there is not a different way to structure business that is just as good if not better in terms of net benefits for society in terms of total goods produced and the function of such goods. For example, perhaps without IP the variety and innovation in smart phone technology would be much more advanced than what we have today and there would be greater variety and lower prices, all because all parties could copy off each other, incorporating each new innovation.
And since I’m throwing out ideas about how things might work, let us now turn to how artists (musicians, authors, print, cinema, etc) could ensure remuneration under a no copyright system. One approach used today is the license, which I believe would work in many situations although it does not protect against copying from a non-license holder (e.g. occurring from loss or theft from a license holder) or violation of the license that can’t be tracked to the originator. But for most situations it would work.
Another approach is the pricing approach, i.e. make the product so cheap that the marginal cost of actually pirating is higher than just buying it (e.g. if songs were a nickel is it really worth your time to scour the web for some hack site trying to track down that song…is it really worth it for those people to maintain such a site? It does actually cost money to maintain such sites (domain fees, server hosting fees, etc). Maybe you spend just 5 minutes doing so but even at minimum wage you just wasted 60¢ of you’re your life away when with one click in 2 seconds you could have the song you want for a nickel.
In general, if people are pirating things that means they cost too much (the cost to pirate is lower than the cost of just buying) and if people are scalping things then they cost too little (i.e. you’re basically giving it away). The key is to find that sweet spot of price where the costs of pirating are higher than what it is sold for, but the sell price is not so low that someone can actually realize an arbitrage advantage by buying it at that level and reselling it at a higher level. For unknown artists this approach is already used today. Many simply give away their fares for free or for next to nothing. They simply want to become known. Once they are known and in demand, then they can slowly raise their price.
Another approach is one I call the “trickle down” approach. It is somewhat similar to the system we have of publishing houses or record labels although it is certainly not restricted to such entities (i.e. an artist could sell to whomever they wish at the initial high price). Here’s how it would work: The artist would be paid upfront a very high sum that would cover the total of what they want (the more well known they are, the more they can demand up front). So copying of works really doesn’t hurt them insofar as they have already received everything they expected to get for the work. But the basic idea is incentive driven copy protection. So for example lets say some artist comes out with some great new work and in order to ensure they get as much as they need based on the effort that went into it they would sell each copy of the work for say $200,000. So let’s say only 5 people want it at that price – the artist made a million bucks right off the bat, not over decades of trickling in royalties. Now each of those buyers at $200,000 has the right to resell it. They’ve spent $200,000 so they sure as heck are not going to just give it away, they have a great incentive to get back what they paid and possibly more. They are all competing against each other as well so the price they charge will tend to start out high but drop as they compete more and more in trying to squeeze out every bit of value from their investment. They might sell 200 copies at $1,000 each. If you spent $1000 on a book or CD would you just “share” it with your friends? No. But you might sell it to them or others at a level where you hope to perhaps break even or make a little.
At some point the price reaches a level where the marginal costs become low enough that people will start to trade or give away what they bought. So this system is not much different than from what we have with any hot new product that comes to market. The rich will pay exorbitant amounts to have bragging rights to be the first to have something and as more of them buy it, costs come down and then more and more can afford it until eventually all can afford it. Progressives should love this as the “rich” pay disproportionately more for something based on their income level, but they do so willingly. The “poor” end up getting things for next to nothing or for free. The only real penalty being that the “poor” must wait longer, but is it really a tragedy if those of limited means must wait a few months to enjoy the latest hot album or book or movie when compared to the rich that have access to it immediately? One objection might be this would not work for new or unknown artists. True, and I did not say this is the way it must work for everyone. This is just one idea. And that is the point, there could be dozens of different creative and inventive approach’s people will take up. Many artists today sell direct to their consumers and that works well for the small or unknown artists as they tend to have a loyal following and there is little market to pirate the works of unknowns.
So to ask “how would this work?” is a bit silly – obviously people would figure out ways to make it work. I’ve presented only a handful here. In order to answer this question the onus is shifted from the questioner (who can’t justify his position) and onto the questioned party to come up with the outcome of what will take the creative efforts of thousands or millions to come up with. The questioner presumes that if the answer provided might have even one tiny hole poked in it as to how there might be a problem with this approach or that, then the whole idea must be scrapped. Based on that reasoning we should dismantle the IP system as it has dozens of problems. It certainly hasn’t stopped “piracy” has it? The only fixes offered up amount to nothing more than greater and greater intrusions of state control in our lives (PIPA, SOPA, etc). Must we give up all semblances of privacy and private property in order that the state be enabled to guarantee IP “rights”?

On Voluntaryism, Stateless Societies and Contract Slavery

Recently I got involved an interesting philosophical discussion on Facebook (where else!) concerning taxation and the proposition that if you don’t pay your taxes men with guns will come and take you to jail or kill you (all true). One participant brought some focus to the conversation by distilling down the core argument to one of a) should we have government (b) how shall we pay for it (c) constitutions are like contracts. All good points, however embedded in each one is either a false choice or a fallacious assumption. So below I will reproduce his post and then my follow up as I address some of the main fallacies. 

here is the quoted content from the post I will be responding to:

This conversation, and every conversation about the scope of govt comes back to the same place. The first division is you are either an anarchist or you want some kind of law. The moment you say you want some kind of law, you are agreeing that at some point in the process of enforcing the law, a dude from the govt with a gun will come take you away. And I am okay with that – no point in pretending we have laws if they are not going to be enforced.I am willing to listen to discussion, but anarchy is probably not for me, or most of us. So then it’s like the old joke about the prostitute – we’ve already established what you are (pro-govt of some kind), now we’re just haggling over price. Where is the line in the sand as far as your philosophy of the proper scope of the law?I would suggest that the only useful argument by a libertarian about government is that it ought only exist to prevent one adult from using force or fraud to gain from another adult – whether that gain is via money or to forward an agenda. Situations involving children and the mentally impaired are naturally given to tighter governance.So to me, the idea that we’re arguing over whether or not you must / ought pay federal taxes so the govt can fund its activities is a little pointless. The only real argument for strict Constitutionalists or libertarians ought to be about the USE of the money, not the government’s right to take it. The law of tooth and claw was used to appropriate the land upon which I sit and afterward to create the govt that exists here – the RIGHT is almost irrelevant. Were I to be successful in dissolving this (formerly) useful govt, it is most likely a worse govt would take its place. There is no perfect freedom on this side of heaven, so the notion that no entity can curb my inclinations or bind my freedom is almost childish.We can get into a lot of philosophical discussions about man being created free and whatnot, but the fact is that there will be some govt, and we enter into “contracts” (the Constitution, say) with other free people to create these govts that will enforce our individual rights to property and to secure freedom from invasion, etc. With our ancestors having agreed to some form of these contracts, and most of us agreeing that they ought to exist in one form or another, we should be focused on the quality of the contracts, not the terms of enforcement.

Here is my response:

Your points I think have helped to focus the discussion, however the underlying assumptions simply reinforce the false dichotomous choice that is beaten into us from day one (by our educators, our literature and the state media) – namely that one has a choice of either being ruled by others (in the form of this thing we call government) OR absolute and total chaos with no laws or order whatsoever. Obviously with a choice like that who would pick the latter? And to an extent I think part of the failure for the proper alternative being made understood falls at the feat of us libertarians – we (or some of us) throw the word “anarchy” around and do not explain at all what is intended by the use of that phrase. I personally prefer “voluntaryism” – it’s enough of a neologism that it carries none of the associated emotional baggage of “anarchy”. We want the freedom of choice. Not the freedom to state our choice and have it vetoed by a “majority”, but to actually be allowed to execute our choice.


When we libertarians speak of “freedom from government” we do not intend a lawless, chaotic, anything goes sort of wild west world. Far from it. We want government. We want order. It’s just that we want to pick our own government to associate with. And we do not believe that simply because I happen to live next door to you and you want to associate with a government that establishes rules that promote Ideology A and I want to associate with one that promotes Ideology B, your choice should have any bearing on my choice. 

Think about it for a minute. I’m proposing something no more controversial than what we currently practice today – freedom of religion. If I’m Catholic and I live in a town full of Baptists it would seem ludicrous to anyone to suggest that “well since a majority of people who live here are Baptist, well, you have to be Baptist too, or at the least you have to do all the things the Baptists require” – and that if I didn’t comply I would be throw in jail. That’s insane – and rightly so, and everyone would agree that that would be insane. And so it is no different with government. This type of governance is not unknown. It is sometimes referred to as a “clan” system. In more “primitive” stateless societies families had a self-interest in protecting each other. They came to each other’s defense and helped each other in times of need. In time it became customary for non-family members to join a family or clan for such protection purposes (voluntarily paying or contributing something in return – i.e. truly voluntary “taxation”). However all members of the clan were responsible for the behavior of its members. If one member injured someone in another clan then all members must make restitution. They then obviously had a self-interest in preventing such behavior from those they knew to be the most troublesome. Eventually if a member behaved badly enough consistently enough they were thrown out of the clan and thus had no protection of any kind from any group. They were an “outlaw” – which meant that anyone could kill them, rob them whatever without any consequence whatsoever. That’s a pretty big incentive to not become an outlaw and behave as directed by the customs and laws of your clan. (For a brief discussion of this system in Ireland please see this interview with Gerard Casey by Tom Woods ). In order for all clans to get along they tended to adopt the same basic “common laws” against violence, theft, rape, etc. So in this way we can see how “law” can exist without an over arching state. Everybody is against rape and murder. But not everyone might be for space exploration, or green energy, etc. Essentially each clan is a government, the only difference being they did not have specific geographical boundaries. Members of multiple clans could all live in the same city and get along just fine. There is no reason such a system could not operate today on a larger scale, one where entities very similar to insurance carriers took the place of the role of government in dispute resolution, restitution, crime mitigation (less crime, less to pay out in losses). If such an entity does not provide what people want, they will go elsewhere. Without a barrier to entry imposed by outside regulations no one could ever “take over” such an industry, the market would always be providing those that could do it better, faster, cheaper, etc.

This has gotten a lot longer than I intended, but let me just touch on another point you made. The one of contracts is germane, however you again accept the “party line” that the fact that our ancestors freely entered into a contract (the Constitution) somehow morally binds us to that same contractual obligation in perpetuity. How can it? Are we bound by the contracts our parents sign? If your parents had a huge amount of debt and then died would you want to suddenly be saddled with that? What if I could vote myself out of the contract, but my siblings wanted to remain party to it, and thus I was then bound by their vote – why should I be bound by their choice? There really is no difference between that and the idea that we are all still adhering (or pretending to adhere) to a contractual document signed by people that have all been dead for nearly 200 years. I talk about this idea of contractual slavery more here

Debate info

For those that attended the debate at UGA (Feb 25 – The Debate that Never Happened) here is a link to the books I discussed. I will post additional links and citations for any facts cited if anyone would like to review the data for themselves. Please see this page.

Permission to live

The state of Georgia has officially made it illegal to make a living UNLESS you are willing to ask your master for permission first (namely the state & federal government). To wit: I discovered today that in order to maintain the extreme privilege of operating a business in Georgia one must now sign a sworn affidavit and provide documentary evidence that one is a US citizen.

So now not only are business owners drafted into being unwilling arms of the state apparatus by being required to make their employees prove they are US citizens, but now business owners themselves must prove to the state they are US citizens (because clearly that is a real problem, undocumented illegal aliens coming to this country to establish self-sustaining businesses).

What pray tell could be the rationale for this: Well according to OCGA §50-36-1 any “public benefit” one might receive requires said recipient to prove they are a US citizen. However their definition of “public benefit” is quite odd insofar as it includes “benefits” that the state itself REQUIRES business owners to obtain from the state, namely business or other occupational licenses. If a business license given to me by the state is a “benefit” that is causing them so much distress is doling out, I’ll be the first to volunteer that they can keep it. Somehow I think businesses would run just fine absent a framed piece of paper on the wall.

To those not familiar with the regulatory hurdles one must go thorough to operate a business in this state (and I assume most states): this is not merely a one time annoyance, i.e. get your license and you’re done. Oh no, this is an annual event, every year I must prove to my overlords that I was a US citizen last year and oddly enough 12 months later I’m still a US citizen. I need to provide copies of citizenship records, I need an affidavit signed and notarized.  A few years ago it was one form, last year it was 2, now it is 3 this year and I will be shortly required to obtain the not so euphemistically named “Federal work authorization user identification number” in order to enjoy the simple privilege of operating a business and being permitted to hire employees.

But I’m a good little slave to the state and I signed my document with tail tucked between my legs knowing that if I refused to the bitter end I would ultimately be dragged from my home or office at gunpoint – all because I simply see no reason any human being should ask for permission of another human being whether they can work or not. Here’s a copy of the form to which I attached my own “Signing Statement”. If it’s a bit hard to read, here’s what I said:

“Signing statement: I sign this document under duress owing to the implied threat of violence resulting from non-compliance. OCGA §50-36-1 is morally unsound law. My inalienable right to peacefully engage in trade is not predicated or dependent on the prior approval of another person or persons. The state has no authority to say I have no right to work or trade unless I kiss their ring.”

Breaking Bad

I’m old enough that I now find most entertainment to be fairly derivative and predictable. However the TV series “Breaking Bad” is a welcome exception. If you are not familiar with it but enjoy solidly unpredictable drama you owe it to yourself to look into it. The August 12 episode’s ending left the audience in a state of numbed denial [spoiler alert: stop here if you have not seen the episode yet]. The main characters have just clandestinely robbed a train of a key chemical needed to prepare crystal meth when a young boy on a motorbike happens them upon. Without a word one of them pulls out a gun and simply dispatches the boy as blithely as one would a troublesome fly. Why? Because the boy might say something which could lead to their arrest.

After the shock of witnessing the senseless onscreen (albeit fictional) death of a young innocent wore off I came to realize why this scene was so disturbing: this type of violence occurs routinely. The boy’s death is iconic of the reprehensible loss of civilian life in wars. In “traditional” wars civilians usually know where the front line is and can avoid it. Today that is impossible. The wars on “terror” and drugs occur on a global battlefield from which there is no escape. Innocence is no defense: you are just one street address typo away from no-knock raid carried out by machine gun festooned goons.

Apropos to the “preventive” murder depicted, the US repeatedly goes to war upon the same principal of “potential threat neutralization” (Spain-1898, Korea-1950, Vietnam-1965, Iraq-2003). Unsurprisingly the neocons and chicken hawks are now rattling their swords to do the same to other countries (Iran, Syria). We as a nation are engaging in the same onscreen behavior as the thieves in “Breaking Bad”: shooting first for fear of what might happen. This behavior is reprehensible at the individual level and at the national level. The moral validity of actions does not change based on the numbers that simultaneously engage in those actions.

The moral validity of actions does not change based on the numbers that simultaneously engage in those actions.

For parents there is no greater fear than contemplating the untimely death of your child. So consider what kind of a country would inflict on foreign parents our most horrid nightmare. The US has killed both directly (drone strikes) and indirectly (sanctions) hundreds of thousands of children through the cold indifference of our leaders. Former Secretary of State Madeline Albright in a 1996 interview with 60 Minutes stated that “we think the price is worth it” when asked if the confirmed deaths of half a million Iraqi children due to UN sanctions was “worth it” in relation to the goals of those sanctions. The Bush administration fares no better: he (and Congress) restarted the Iraq war (of which even low estimates are 100,000 Iraqi civilian casualties and authorized the use of torture. Likewise Obama has failed to live up to his 2009 Nobel Peace Price. He acts as a remote executioner via the deployment of the “judge, jury, and executioner” drone strikes that have killed countless civilians who are written off as “collateral damage.” Ah, yes, the ends always justify the means. Wake up America. We have “broken bad” and are now the “bad guys.” Would we tolerate Chinese drone strikes of Americans because China deemed them to be a potential “threat” ?

In terms of this country’s meddling, interventionist, blow-back prone foreign policy it doesn’t matter whether Obama or Romney wins; they will both continue our current wars and will have no qualms about starting new ones. If you are tired of the endless wars (drug and terror) and have no more desire for the blood of innocents to be on your hands by way of voting for the “lesser of two evils” (“hmmm… who should I vote for, Hitler or Stalin…”) then consider the alternative that the media is so afraid you might hear about they won’t even include him in national polls: Libertarian Party candidate for president Gary Johnson.