Tag Archives: Markets

The Problem With Facebook: Is It Really Out of Room to Grow?

I rarely read the front page of YouTube, but today when I typed in YouTube to my address bar (with the intention of finding some music to listen to while I worked), one of the videos I saw on the front page was titled “The Problem With Facebook.” Truth be told, I thought it was a video by MinutePhysics and thought that there was going to be some scientific explanation of Facebook’s problems, but it turns out the video was by 2veritasium. (I guess MinutePhysics may have liked the video, so that’s why I saw their name or maybe they had just come out with another video, who knows.)

Anyway, if you have Facebook (or had Facebook) or know anything about Facebook, I’d say it’s worth the 6 and a half minutes to watch it:

I’m not sure what the fellow’s name is, but it reminds me of when George Takei went on a bit of a rant about Facebook not letting him reach all of his fans on Facebook. At the time, I think I still had a Facebook profile (rather than the page I have now) and I thought that was strange that your posts weren’t reaching all of your friends — by design.

The fellow in this video makes that same point, but he does it in a more thorough way than I remember Takei doing it (which is not to say Takei didn’t do it), and he also juxtaposes Facebook with YouTube. He makes a rather compelling argument, but something I don’t think he highlights is that he kind of has a vested interest in YouTube being more successful — his videos are hosted on YouTube! Now, this doesn’t really take anything away from the argument — it’s sound — but I think it’s worth noting.

Throughout the video, he talks about the incentives. I wonder what Michael Sandel would say about the incentives in this situation. Would he say that the incentives have been perverted? It’s tough to say because Facebook is trying to make money and there’s nothing inherently wrong with that, but I wonder if maybe they’ve strayed a bit too far from the original purpose of the site.

There’s one last thing I want to highlight from the video — in part — because it dovetails nicely with something that I’ve been trumpeting on here for awhile. He argues that Facebook has already maxed out, with regard to the amount of time people spend on the site per day (approximately 30 minutes) and that Facebook has already reached just about everyone in the developing world. When it comes to online video, however, he argues that there is still lots of room to grow based on the fact that people still don’t watch that much of it when compared to television. I might not put it in those words exactly, but I think he’s on the right track.

If even the President of the United States knows that Facebook is becoming or already is unpopular with young folks, I have to think that the smart people over at Facebook know this, too. As they’ve got a fiduciary duty to their shareholders, I’m sure they’ve been hard at work trying to figure out just how they’re going to capture more value — translation: how they are going to make more money.

Who knows… maybe Facebook will soon go the way of the social networks that have gone before it. Remember MySpace?

Could Markets Have Predicted the Civil Rights Movement?

Author’s note: It’s been quite some time since my last post. In fact, it’s the last day of November and this will be my last post this month. It’s been a bit hectic getting settled in Ottawa, in addition to some other things that have been going on, but I do hope to get back into a regular habit of writing posts again.

I came across an article recently that espoused the value of the efficient-market hypothesis through the success of InTrade — when it was still functioning. In case you’re not familiar, InTrade is a betting site that would post contracts, for instance — “Mitt Romney will be the Republican Presidential nominee” — and then people could ‘buy’ that contract if they thought Romney would be the nominee or (sell) that contract if they thought he wouldn’t. There’d be all kinds of questions, not just political. There are questions about world events (the US will find Saddam Hussein) and questions about awards shows (Avatar will win Best Picture).

In the article, there was a small blurb about futarchy:

The potential of prediction markets to aggregate and reveal information is so great that some have surmised they might remake whole political systems. Robin Hanson, an economist at George Mason University, has endorsed what he calls “futarchy,” a form of government that would use prediction markets extensively as a policymaking tool. If the aggregated predictions of the market are better than the individual predictions of a few appointed experts, why not let citizens bet on, rather than submit to professional opinion on, for example, which tax policy is more likely to bring prosperity?

For the most part, there certainly seems to be something to the argument in favour of the wisdom of the crowds, but as I’ve written before, the wisdom of the crowds can’t always be trusted. When thinking about the wisdom of the crowds in the context of policymaking, I wonder about the crowd’s ability to divine the need for civil rights. That is, I wonder if, during the time leading up to the civil rights movement, the crowd would have accurately predicted it was beyond time to implement a new level of equality in the United States. Or, what about in the time of Lincoln? Would the wisdom of the crowds have decided that black people deserved freedom?

Markets and Morality: Why We Shouldn’t Trust Markets with Our Civic Life

About a month ago, I finished up a series about Michael Sandel’s book, What Money Can’t Buy. I really enjoyed reading through the chapters and chewing on the material. As you may recall, I also highly recommended watching Prof. Sandel’s course: Justice. A few day ago, I noticed that one of Sandel’s more recent TEDTalks was published online. After watching it, I thought I’d pass it along to you as a great way to get a quick understanding of some of the things that Sandel talks about in his book. The talk was filmed this past summer.

As I think about markets and morals, I can’t help but seem to agree with much of what Sandel is saying. I’m also aware that not everyone shares his opinion about markets and morality. Do you agree? Do you think that allowing markets to decide everything is crowding out morals? I’d be really interested to hear your opinions.

I do as best I can to take in opinions and information that is contrary to my opinions, but it can be difficult. Especially in the internet environment, it’s quite easy to get caught up in the echo chamber of your own thoughts and beliefs. That’s part of the reason that I try to write posts that provide a new perspective on issues.

On this matter in particular, I’d like to your opinions on Prof. Sandel’s idea of markets and morality. In fact, I’m hoping that some of you disagree with Prof. Sandel and you think that markets are truly the answer to everything. I’m hoping that you think that markets should operate in every part of our lives. I’m hoping that you think what Prof. Sandel is saying is wrong. Most of all, I’m hoping that you can offer a cogent response that’s at least half as well-sourced as Prof. Sandel’s book.

Twitter vs. Tweeter and the Efficient-Market Hypothesis

This past Friday, I didn’t spend much time in front of the computer, but when I happened to pop onto Twitter to see if there was any news, I noticed a couple of tweets that were rather alarming:

Some folks may look at that and laugh or think it’s funny. I don’t. I think it’s embarrassing. First, I’m hoping that “investors” doesn’t necessarily mean people who manage other people’s money. If that’s the case, I would be very sorry for those people who happened to have someone managing their money that didn’t know the different between Twitter and Tweeter. Yes, I realize they’re very close, but when you’re investing money, don’t you want to be sure you know what you’re doing? Second, how can this mistake even be happening? I could see maybe a few people making this mistake, but for the stock to be up 489%? I wonder if maybe much of that extra trading was people realizing that other people think that it’s the Twitter stock, so they start buying the stock.

That last point really doesn’t make sense, though, because Twitter’s IPO just went public.

Another disheartening thing to think about as a result of Tweeter is the efficient-market hypothesis. This is a fancy way of saying that the stock market (or financial markets) should have the most current information. Meaning, if someone hears good news about company X, they’ll begin to buy that stock (which will make the stock rise and more people will hear the news and the stock will rise some more). This process continues until, theoretically speaking, the stock has reached the price that people are no longer willing to continue buying the stock.

Well, if we think about what happened on Friday, it certainly blows the efficient-market hypothesis out of the water. So, I ask again — how could so many people get that wrong?

 

Is Joe Girardi Really the Second Best Manager in Baseball?

Yesterday, I saw a headline that Joe Girardi was to get a “very generous” contract offer from the New York Yankees. I thought to myself, that’s strange. I thought that the Yankees didn’t make the playoffs this year. That’s right, the Yankees didn’t make the playoffs this year. In fact, the Yankees had their fewest win total since 1992 and missed the playoffs for only the 2nd time in the last 19 season. Do you know who the manager was the last time the Yankees missed the playoffs? Joe Girardi.

Now, before I go on, I want to be clear that I have nothing against Joe Girardi. From everything I’ve read about the guy (and seen), he seems really great. While my favourite team is the Toronto Blue Jays, that doesn’t mean that I have to dislike the managers of opposing teams.

As I was saying, Girardi and the Yankees missed the playoffs this year. They also missed the playoffs in 2008 (Girardi’s first year as a manager of the Yankees). As an aside, I guess it goes to show you just how successful Joe Torre was as the manager of the Yankees. He was the manager from 1996 through 2007 and the Yankees went to the playoffs every year. In Joe Girardi’s tenure as the manager of the Yankees, they’ve gone to the playoffs 4 times (out of 6 seasons) and won the World Series once.

Of particular note, are the last three years for Girardi. Why? Because he signed a new 3-year contract after the 2010 season. So, how’s Girardi fared over the last 3 years? In 2011, the Yankees won their division and made the playoffs, but lost to the Detroit Tigers in the division series. In 2012, the Yankees won their division (again) and made the playoffs. This time, they won the division series against the Baltimore Orioles. However, in the league championship series against the Detroit Tigers, the Yankees lost. In 2013, the Yankees finished tied for third in the division and didn’t make the playoffs.

Just for comparison’s sake, let’s take another American League manager over the last three years. Since the Yankees have lost to the Tigers two years in a row, let’s look at how they’ve performed behind the leadership of Jim Leyland. In 2011, the Tigers finished first in their division and made the playoffs. As I mentioned, they beat the Yankees in the league division series. During the league championship series, the Tigers lost to the Texas Rangers. In 2012, the Tigers finished first in their division. They beat the Oakland Athletics in the league division series and then beat the Yankees in the league championship series. However, they couldn’t beat the San Francisco Giants in the World Series. In 2013, the Tigers finished first in their division and are currently playing in the league division series against the Oakland Athletics. In Game 1, they won 3-2. Game 2 of the series is tonight. While the Tigers still have a ways to go before they return to the World Series, they’re a lot closer than Joe Girardi’s Yankees.

Jim Leyland has been making $2 million a year since he signed with the Tigers and has agreed to maintain that salary moving forward. During Girardi’s last contract, he was making $3 million a year. This new offer is said to make him the second highest paid manager in baseball. The current highest paid manager makes $5 million a year.

I realize that some folks will want to take into account different things like playing in a high-profile market like New York, but others would simply say it’s all about winning the World Series. In looking at all of this, the question then becomes: is Girardi really the second best manager in baseball?

Chapter 5 – The Commercialization of Everything: What Money Can[’t] Buy, Part 5

About a week ago, I got back to the series I was doing about the chapters in Michael Sandel‘s book, What Money Can’t Buy. In the first chapter, we looked at things like when it’s okay to jump the line. In the second chapter, we looked at the difference between fines and fees. In the third chapter, we looked at fairness and inequality. In last week’s post, the fourth chapter, we looked at corporate-owned life insurance and placebos. In today’s post, the fifth and final chapter, we’ll look at the commercialization of everything.

I wasn’t expecting to come across sports in this book, so I was pleasantly surprised when the first few pages were about stadiums being renamed by corporate sponsors. I didn’t realize that this was a fairly new thing. In 1988 only three sports stadiums had been renamed by corporate sponsors. Sixteen years later, in 2004, there were sixty-six. The amount of money went up significantly, too. In 1988, the deals totaled $25 million, while in 2004, the amount came to a whopping $3.6 billion! In 2010, over 100 stadiums in the United States were named for corporate sponsors. So, in the span of less than 25 years, we went from 3 corporate-sponsored stadiums to more than 100.

Having grown up in Toronto, I still find myself referring to Rogers Centre as Skydome. 

This chapter also discussed the idea of athletes selling their autograph. In the old days, this wasn’t even something to be considered. Many athletes willingly signed cards and sports equipment (i.e. baseball, hockey pucks, etc.) for fans. Near the same time that stadiums were being renamed, some athletes were beginning to sell their autographs rather than giving them away. This may seem greedy at first, but consider that athletes from before the 80s weren’t necessarily making lucrative contracts. In fact, athletes back then were not only often paid much worse than athletes today, but they were more on par with what you’d be paid to be an employee at a “normal job.”

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The chapter then moves into a discussion of — in my words — the commercialization of everything.We’re now seeing advertisements and commercials in places we wouldn’t have ever imagined. For instance, when you pump gas, there’s a TV above the pump feeding you advertisements. Or how about when you’re driving down the highway. It’s kind of hard to ignore some of those catchy billboards, isn’t it? Then, there’s the always in vogue idea of product placement. Some of the places you find product placement was a bit surprising. I didn’t know that police stations were in talks to have cars with advertisements on them nor did I realize that in some state parks around the US are there advertisements for things like North Face.

I was surprised to read about some of the commercialization in the US, especially when I know that in some states, there’s a ban on billboards (Alaska, Hawaii, Maine, and Vermont). Moving outside of the US, I know that some countries (or maybe the citizens of those countries) have a real aversion to commercials seeping into unwanted places. For instance, São Paulo in Brazil hasn’t allowed public advertising since 2006. I also know that TV commercials in Germany aren’t nearly as frequent as they are in the US. On most German TV stations, there can’t be more than 20 minutes of commercials (before 8pm).

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The last part of the chapter ends the book almost exactly the way I would have [Emphasis added]:

Once we see that markets and commerce change the character of the goods they touch, we have to ask where markets belong — and where they don’t. And we can’t answer this question without deliberating about the meaning and purpose of goods, and the values that should govern them.

Such deliberations touch, unavoidably, on competing conceptions of the good life. This is terrain on which we sometimes fear to tread. For fear of disagreement, we hesitate to bring our moral and spiritual convictions into the public square. But shrinking from these questions does not leave them undecided. It simply means that markets will decide them for us. This is the lesson of the last three decades. The era of market triumphalism has coincided with a time when public discourse has been largely empty of moral and spiritual substance. Our only hope of keeping markets in their place is to deliberate openly and publicly about the meaning of the goods and social practices we prize.

In addition to debating the meaning of this good or that good, we also need to ask a bigger question, about the kind of society in which we wish to live…

At a time of rising inequality, the marketization of everything means that people of affluence and people of modest means lead increasingly separate lives. We live and work and shop and play in different places. Our children go to different schools. You might call it the skyboxification of American life. It’s not good for democracy, nor is it a satisfying way to live.

Democracy does not require perfect equality, but it does require that citizens share a common life. What matters is that people of different backgrounds and social positions encounter one another, and bump up against one another, in the course of everyday life. For this is how we learn to negotiate and abide by our differences, and how we come to care for the common good.

So, if you prefer not to get too deep into a discussion of inequality that focuses on wealth, then I’d encourage you to think about the ideas that Prof. Sandel is talking about here at the end of the book. He’s just spent the last 200 pages explaining how markets (in some places), to some people, are corroding the value of these goods. Regardless of which side of the fence you fall down on, maybe it’s time we start talking about this. Maybe it’s time to have a dialogue in the public square of more moral and spiritual substance. Of course, this might not be as easy as it sounds, as he says, the last three decades have been void of this.

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If you liked this paper/series, you might want to check out some of the other papers/series I’ve posted.

 

Chapter 3 – Fairness and Inequality: What Money Can[‘t] Buy, Part 3

It’s been a couple of weeks since I last finished a chapter in Michael Sandel’s book, What Money Can’t Buy. I recently completed chapter 3 a couple of nights ago and there were some intriguing things to think about. Let’s get right to it!

For me, there were two important parts to the chapter. The first is the explanation of the two objections to markets. Prof. Sandel explains that the two kinds of objections to markets are fairness and inequality:

The fairness objection points to the injustice that can arise when people buy and sell things under conditions of inequality or dire economic necessity. According to this objection, market exchanges are not always as voluntary as market enthusiasts suggest… [The corruption objection] points to the degrading effect of market valuation and exchange on certain goods and practices. According to this objection, certain moral and civic goods are diminished or corrupted if bought and sold. [Emphasis added]

A few pages later, Prof. Sandel explains further what he means:

The fairness and corruption objections differ in their implications for markets: The fairness argument does not object to marketizing certain goods on the grounds that they are precious or sacred or priceless; it objects to buying and selling goods against a background of inequality severe enough to create unfair bargaining conditions… The corruption argument focuses on the character of the goods themselves and the norms that should govern them. So it cannot be met simply by establishing fair bargaining conditions. [Emphasis added]

Reading this was a bit tough to swallow. It seemed unlikely that all arguments against markets could be filtered into one of two categories. Then, I thought about his course that I watched last year, “Justice,” and how many of the students seemed to want to argue for nuance around the edges. While there was still nuance, the arguments they put forth still, for the most part, seemed to fall into a way of thinking that had already been espoused by a philosopher.

Later in the chapter, Prof. Sandel discusses three cases where the marketization of a good crowds out nonmarket norms. That was a bit wordy. Prof. Sandel shares cases where adding a market-like aspect (where there previously wasn’t), changed the way people interacted with the good. One of these cases I found particularly surprising (at least at first).

The case comes from Switzerland in the early 1990s. The country was looking for a place to store its nuclear waste. Of course, no town really wanted to house the nuclear waste, but there was a small village that was picked. Some economists surveyed the village to see if they’d accept it, if the Swiss parliament decided that it was the place to put the waste. Fifty-one percent of residents said they’d accept it. The economists then asked another question. If the parliament also paid each resident, would you then accept it? The idea being that, money is the king incentive for everyone, so adding money to this equation should only get more people accepting of the waste, right? Wrong. By adding the monetary sweetener, support collapsed from 51% to 25%! Even when they added more money, that didn’t seem to affect the outcome. Why?

For many villagers, willingness to accept the nuclear waste site reflected public spirit — a recognition that the country as a whole depended on nuclear energy and that the nuclear waste had to be stored somewhere. If their community was found to be the safest storage site, they were willing to bear the burden. Against the background of this civic commitment, the offer of cash to residents of the village felt like a bribe, an effort to buy their vote.

This seemed like an incredible story with an important lesson — money isn’t always the solution. There were two other examples, but none that were as powerful for me as this one.

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The second important part of this chapter is the explanation of the “two tenets of market faith”:

The first is that commercializing an activity doesn’t change it. On this assumption, money never corrupts, and market relations never crowd out nonmarket norms… The second tenet of market faith is that ethical behavior is a commodity that needs to be economized. The idea is this: we should not rely too heavily on altruism, generosity, solidarity, or civic duty, because these moral sentiments are scarce resources that are depleted with use. [Emphasis added]

Prof. Sandel already showed earlier in the chapter that money can crowd out nonmarket norms. After this above quoted section, he goes on to show that things like altruism and generosity are not scarce resources and that they are not depleted with use. In fact, it’s quite the opposite. Fields like positive psychology have done research on these areas and shown that there’s almost a multiplier effect with things like altruism and generosity.

If you liked this post, you might like one of the other posts in this series: