Archive for February, 2010

A world without newspapers

Sunday, February 28th, 2010

Pundits endlessly debate who the survivors will be among traditional news sources.

It’s quite possible the answer is none.  No for-profit survivors at all.  An economist should agree this is a realistic possibility for a perfectly competitive industry with marginal costs of zero.

We have forgotten why newspapers first arose:  printing and delivery are expensive.  This meant an aggregator like the New York Times had much lower costs than a lowly pamphleteer.

This has been turned on its head.  The pamphleteer now has the lower costs, because he needn’t employ an office, printing press, trucks and union labor, as the NYT must.

In the future, news may instead be gathered mainly by nonprofits or individuals.  It may be edited by respected, subject-specific independent editors — some sophisticated future variant of today’s best bloggers, e.g. CalculatedRisk.

This particular outcome is not certain — not as certain as death, taxes and the inevitable collapse of the Los Angeles Times print edition.  But it is realistic.

Nonsensical vox populi

Sunday, February 21st, 2010

When neither political party represents the public interest, you get nonsensical divide-by-zero errors in public sentiment.

For example, it seems the American people are so angry about the biggest wealth disparity in a century that they — suddenly are starting to like Republicans again.

You can’t make this stuff up.

The sad decline of “refute”

Saturday, February 20th, 2010

From the 16th century until about 40 years ago, “refute” had only one definition:  ”to disprove by reasoned argument or evidence.”

Linguists began to complain in the 1960’s that “refute” was increasingly used as a synonym for “deny.”  Evidence or argument was no longer required.

The latter usage became widespread in the news media in the past decade — so widespread, in fact, that it is now included as a second definition in many dictionaries.

Of course, plenty of errors and malapropisms have found their way into common English over the same period.  The nonsensical malapropism “hone in” (sharpen inward?) is now universally substituted for the original “home in.”  The misspelled “supercede” is now an acceptable substitute for the original “supersede.”  Words ending in “own” are increasingly pronounced as two syllables, i.e. “known” sounds like “knowen,” “shown” sounds like “showen.”

But unlike those harmless cases, the redefinition of “refute,” which conflates reasoned argument with simple denial, can be seen to symbolize the general decline of reasoned argument in the Anglophone world over the past generation.

How to create 5 million jobs overnight

Friday, February 12th, 2010

The previous post on modular bureaucracy can be summed thus:  to instantly reduce unemployment, radically simplify small business employment rules to make hiring effortless. Here is a specific suggestion.

For businesses with less than $500k gross receipts and fewer than 3 employees, all of whom are paid less than $80k/yr:

  • No federal withholding (employee is responsible for his own taxes).
  • Payroll tax, social security and medicare are a flat $300 per month per employee, payable by monthly automatic ACH (supported by all US banks), no paper checks.
  • Federal govt provides first $100k of liability and worker’s comp insurance.

This is a classic 80/20 optimization, or more like 95/5.  Small business hiring would explode. I suspect it would bring some of the shadow economy (cash employment off the books) back into the legitimate system.

People do not appreciate the scale of the benefit this change would bring.  A huge percentage of total employment in the US is from the smallest businesses.  This move could prompt millions of sole proprietorships to hire their first employee.

Yes, it would turn worker’s comp into even more of a fraud machine — but that is a problem with worker’s comp law, not with insurance or employment law.  A properly modular bureaucracy would solve that problem separately.

The power of modular bureaucracy

Tuesday, February 9th, 2010

The news story du jour is to muse about why small businesses are not hiring.  Talk of tax credits, in my view, totally misses the point.

Nostradoofus essentially answered this question some time ago:  the problem is not cost, but red tape, both government and private.

The non-salary costs of hiring employees (chiefly health insurance, worker’s comp, liability insurance, legal work and tax filings) have grown far more complex and unpredictable in the past 15 years, yet are almost entirely outside the control of both employer and employee.

The problem is not so much the expense, but the trend toward ever greater UNCERTAINTY and COMPLEXITY of employing workers — the thousand small details that constantly change and that are outside the employer’s control.

This problem falls disproportionately on small business, which lacks the scale to employ specialized human resources staff to handle the complexity and unpredictable change.  Small business also lacks the financial depth to handle unpredictable changes in cost.

Repeat:  the costs themselves are not the problem.  Health insurance and pensions, for example, are both good and necessary. The problem is the UNCERTAINTY of those costs, and the COMPLEXITY of compliance.

This trend also helps explain offshoring.

To bring the problem into better focus, consider the fact that most small businesses have 0 or 1 employees.  As a result, to move the unemployment needle significantly would require that we convince a lot of solo businesspeople to hire their first employee.  This, in turn, would require convincing each of those prospective employers to do all of the following.

  • File weekly, monthly and quarterly employment tax reports with at least 3 different taxing agencies.
  • Expose themselves to huge penalties if they file anything incorrectly.
  • Educate themselves about insurance (liability, worker’s comp, medical) and pensions.
  • Shop for insurance at least once a year.
  • Take on “single unknowns” like unpredictable growth in health insurance costs.
  • Take on the “double unknown” of unpredictable liability exposure to employees.

Balanced against this commitment of hundreds of hours a year and a totally unpredictable financial commitment, the prospective employer has a simple alternative:  bid the work out on  If the employer can engage someone outside the US, they eliminate all tax filings, insurance and pensions, and almost all legal liability.  They just send cash by PayPal when the job is done.

From the perspective of the harried, overworked solo businessperson, this simplification is much more compelling than any mere cost advantage from offshoring.  Other things equal (cost and quality), offshoring is by far the better deal for the small business, because it is so much simpler.

The only policy solution here is for the US to get serious about streamlining its sclerotic employment system.  For example, one of the best arguments for nationalized health care and pensions is that they are simple and modular.  You just pay into them and get the services.  This allows both worker and employer to focus their attention on other things.

Independent modules, by their nature, offer lower performance than purpose-optimized solutions.  Viewed in isolation, modules are suboptimal.  But what they lack in efficiency, they more than make up for in simplicity and maintainability.  This is as true with government and bureaucracy as it is with software development.

It would be irrational to argue that optimization is always more important than simplicity, just as it would be irrational to argue we should write all software in assembly language, just because it will run faster.