Karthik's Blog

I'm back!

Hi? Anyone out there? It's been a while since I last posted. The last five months have been kind of busy. Maybe, I'll write more about that later.

In the mean time, let me pay homage to my new hero Nassim Taleb. Boy did he ever call it. In my last post I wrote a quick review of The Black Swan by Taleb. One of the central arguments of that book was that the mathematical models upon which the world's financial markets are built systematically ignore the most improbable and significant events and thus are prone to lead us horribly astray when thing go wrong in ways we don't anticipate.

This argument of course applies perfectly to the credit crunch. The failure of mortgage backed securities, which in hind sight is perfectly understandable, was not, however, contemplated at the time. One of the major reasons why the failure of the securities wasn't considered is because the data that was used to assemble and model these securities encompassed only the last two decade. Consider the following quote from Greenspan’s' 10-24-2008 testimony to Congress:

It was the failure to properly price such risky assets that precipitated the crises. In recent decades, a vast risk management and pricing system has evolved, combining the best insights with mathematicians and finance experts, supported by major advances in computer and communications technology.

A Noblel Prize was awarded for discovery of the pricing model that under pins much of the advance in derivatives markets.  This modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year, because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria.

Anyways, the current melt down reminds me of a metaphor from the Black Swan. Taleb describes a

Turkey

who was born the day after Thanks giving. On the day before Thanks giving, based on 364 days of data he assumes that the farmers who feed him are friendly and would do nothing to hurt him. Of course, he's tragically wrong.

Black Swan

I've long been promising a post on The Black Swan by Nassim Taleb. Here it is.

This book is somewhat complex, there are a number of related arguments which all tie back to a basic tendency of humans--attempting to predict the future from the past and the present. Taleb starts from the proposition that the most important events in human history are "Black Swans": events that unpredictable and highly consequential.  The problem, he argues, is that our way of trying to understand the world does not allow for these types of unpredictable, consequential events to be a regular occurrences. Rather, we treat black swans in one of two ways: (1) predictable had we been looking at the right things; or (2) outliers that occur so infrequently as not to warrant inclusion into our predictive models.

Before I go further, I should note that Taleb is really focusing on social, political, and economic phenomenon. In some ways, his entire book is an argument against the epistemology of the fields that study these phenomenon. He argues that these sciences are guilty of making two epistemological mistakes. First they construct narratives and then seek to find evidence confirming those narratives. Secondly they make unwarranted assumptions about the nature of reality.

Let's examine the first mistake, constructing narratives and seeking confirming evidence. Consider the great historical theories of Marx and others. They constructed these grand narratives of history, and when they looked back in history they found evidence to confirm their theories. However, had they looked harder they would have also found evidence to falsify their theories. According to Taleb our aim should not be to confirm theories but to falsify them.

Taleb is a fan of Karl Popper. Who pointed out that most theories cannot be confirmed just falsified. The most commonly cited example is that of the black swan: To prove the proposition that all swans are white one would have to examine every swan in the universe and verify that it is in fact white; however they proposition that all swans are white can be disproved by finding a single white swan. Likewise, most theories will fall apart if one thing they predict can't happen does happen.

The problem with attempting to seek confirming data rather than looking for data that falsifies a theory, is that confirming data almost always exists. It's the nonconforming data that's of interest.

Part of the problem with constructing narratives or models of the world is that we are forced to make certain assumptions about the nature of reality.  The most pervasive of these is to assumption that the bell curve, the Gaussian distribution, accurately describes a certain phenomenon. Or for that matter to assume that any distribution applies to any phenomenon. In Taleb's mind this is the worst assumption one can make. Because it allows you to write off extreme events as being rare. Now that is not to say that the Gaussian distribution doesn't accurately describe a great many things. However, there are some things that the Gaussian distribution does not describe well, and rather than acknowledge this to be case we often chose to ignore the data that might falsify this assumption.

For example, much of derivatives theory and portfolio theory assume that the movement of stocks prices are Gaussian in nature. That is to say, that the movement of stock prices tend toward some average with extreme fluctuations becoming rarer and rarer the more extreme they are. However, Taleb argues that a close examination of the data will show that extreme fluctuations are much more frequent than they should be, if the stock market was indeed governed by the Gaussian distribution as we assume. Further, he argues that most of the predictive models we have of the market tend not to reflect the realty of the market very well. 

As a side note, Taleb argues that many of the phenomenon that we currently believe are best described by the Gaussian distribution are in fact much more accurately described by power laws.  Whether or not he is right about this is irrelevant. His main point is that our models may be giving us a deceptive picture of nature because they make assumptions about reality that are unwarranted.

Taleb would like us to be more empirical in our thinking. Rather than construct models and then try and fit the world to those models. Deal with the world as it is. Be very wary of assigning cause and effect relationships. Attempt to falsify rather than confirm. Most important of all, don't ignore Black Swans!

He even suggests that we can benefit from Black Swans by being extremely aggressive when faced with the possibility of a positive Black Swan, and extremely conservative when faced with negative Black Swans. In short, control the down side and leave your self open to unlimited upsides--even when it means taking a risk that will most likely result in small loss.  Let me expand on that last bit, Taleb argues that when we are faced with a choice that has a small possibility of a huge upside but also has a large possibility of a small down side then we should make that choice. Because, all we need is for one such choice to pay off. Further, it is often possible to make good decisions without making any assumptions about the underlying nature of reality or making an predictions about the future. As long as we learn to maximize the upside of a decision and control the downside.

I really enjoyed reading this book. It gave voice to many ideas that have been simmering in my head for a long time. I highly encourage you to read it!

The early history of American newspapers (1690-1765.)

Marc Anderson has an interesting post up on the early history of news papers. Which makes me feel like revisiting my thesis.

I wrote my thesis on the evolution of the blogosphere and the newspaper industry. I argued that they followed a similar paths. So I thought it might be fun, in the next few posts, to try and summarize both the argument I made in my thesis and the history I drew upon to show it's plausibility.

By the way, my thesis can be found here.

First of all, let's start with the argument that I was trying to make:

The process of commercialization for media industries proceeds in three phases. These phases are best demarcated by shifts in the business models utilized by a medium’s industry. Initially, a new medium’s industry focuses on selling information and cultural artifacts to the public. Over time, its business model shifts to selling the public to politicians and civil society actors. Finally, its business model evolves into selling the public to advertisers.

So let me tell you the history of the news paper industry, for these posts I won't focus on my theories about its evolutions, but  as it applies my theory. Since this is a long history, I'm going to split it up into a few different posts. In this post we'll cover the period from 1690-1765. By the way, most of this text is straight out of my thesis.

The first phase of commercialization in the American newspaper industry began with the publication of Bejamin Harris’ Publick Occurrences[ii] in Boston and ended with the passage of the Stamp Act.  Despite the fact that only one issue was printed before the colonial government abolished it, Publick Occurrences was the first newspaper published in the American colonies.  Between the publication of Publick Occurrences and the passage of the stamp act, newspapers were successfully established in all but two colonies. Most were relatively apolitical. From time to time political squabbles would arise and publishers would be jailed—but this generally helped a newspaper’s circulation.  The passage of the stamp act marked the start of the political period in the history of American newspapers.

Before newspapers appeared in the colonies, news was disseminated through a network of private correspondences.  Initially, these correspondences were carried out between “men who had common interests, financial, political or intellectual.”[iii] Over time this informal private practice became professionalized.

In 1704 one of these professional letter writers, John Cambell, published the initial issue of the first continuous American newspaper—The  Boston News-Letter.  His letters were regularly read by the various governors of the  New England colonies, and widely circulated among the political elite.  When the demand for his letters greatly increased he was forced to utilize the printing press.  He printed the first edition of The Boston News-Letter on Monday April 24, 1704, using two sides of a half-sheet folio, 7x11½ inches.  Generally, two thirds of the paper was taken up by information from Europe, “dealing chiefly with English politics and court and with European wars.”[iv] Following the European news were a number of brief items dealing with “the arrival of ships, deaths, sermons, political appointments, storms, Indian depredations, privateering and piracies, counterfeiting, fires, accidents, court actions, and so on.”[v]  Finally, a few advertisements would usually appear at the bottom of the last column.[vi]

From an economic perspective The Boston News-Letter did not do well.  It was a luxury good targeted at the literate and well-to-do, a very small market. After seven years of publication Campbell complained that he was unable to sell 250 copies of an issue.[vii]  Despite the low readership Campbell continued to publish the News-Letter until 1723, at which point he turned the paper over to Bartholomew Green, whose family published the paper until 1762.

By 1721 the market had grown enough to support a second newspaper. John Cambell, in addition to being a letter writer, was postmaster of Boston.  In 1719, Cambell was removed from his office, and his successor, William Brooker, feeling that publishing a newspaper was one of the duties of his office, wanted to take over as editor/publisher of the News-Letter  When Campbell refused him, Booker started his own paper the Boston Gazette.  The first issue of the Gazette was published on December 21, 1719.  When, less than a year later, Booker was replaced as postmaster he turned the Boston Gazette over to his successor.  The paper was published by the next five postmasters.

Less than a year after the publication of the Boston Gazette, James Franklin launched a third newspaper in Boston.   Franklin had been the printer of the Gazette while Brooker was postmaster.  However, when Booker’s successor chose another printer for the Gazette, Franklin encouraged by a group of wealthy men, published a competing paper, the New England Courant, the first issue of which was released on August 7, 1721.  The Courant only lasted five years, and was radically different from the other two papers; it sought to amuse as much as to be informative. [viii] It was at the Courant, that Benjamin Franklin whet his appetite for the publishing industry.

Philadelphia was the second colony to support a newspaper.  On December 22, 1719 Andrew Bradford established the American Weekly Mercury in Philadelphia.  Like Cambell, Bradford was also postmaster of Philadelphia.   The Mercury stood unopposed until 1728 when James Keimer started The Universal Instructor in all Arts and Sciences: and Pennsylvania Gazette.   The Gazette compared favorably with the Mercury.   However, due to the machinations of Benjamin Franklin, Keimer’s stint as its publisher was relatively short lived.  Franklin, who at the time was an established printer in Philadelphia, wrote a series of articles for the Mercury, the “Busy Body” papers, which satirized Keimer and hastened the demise of the Gazette.Franklin then bought the Gazette from Keimer in the fall of 1729; radically changed its format; and successfully published it until 1766. That year he handed the paper over to David Hall.  Hall, his sons, grandsons and various partners published the paper until 1815.

New York was the third colony to give rise to a newspaper.  William Bradford, the father of Andrew Bradford, established The New York Gazette in 1725. The New York Gazette like all early papers had trouble generating sufficient revenue.[ix] Bradford was only able to keep the Gazette running because of the salary he received as the “Printer to the province of New York

”. Unfortunately, his fear of losing that salary turned the Gazette into an organ of the government. As a result, wealthy men who opposed the ruling powers encouraged John Zenger, a poor printer, to start a rival paper. Zenger established The New-York Weekly Journal in 1733. Zenger’s paper was surprisingly political and extremely critical of the government. The Journal’s critical view of those in power led to Zenger’s eventual arrest for libel. His trial was a watershed moment in American history. His lawyer, Andrew Hamilton, won Zenger’s acquittal by appealing to the jury’s love of freedom and arguing for the freedom of the press.[x]

A number of newspapers were launched between 1725 and 1735s. William Parks established The Maryland Gazette in 1727. Unfortunately, finding it financially impossible to continue the paper, Parks discontinued it first in 1731 and then after a brief revival again in 1733. In 1730 Eleazer Phillips established The South Carolina Weekly Journal. Unable to get enough subscribers, he suspended publication after six months. In 1732, Thomas Whitmarsh established The South Carolina Gazette, which managed to survive through multiple owners, titles, suspensions and revivals until 1802. In 1732, James Franklin, the founder of The New-England Weekly Courant, left Boston, moved to Newport, Rhode Island and established The Rhode Island Gazette, which lasted eight months.

Between 1735 and 1765 the American newspaper industry “matured from a gawky, unsure teenager into a fiery youthful power that saw things from its own perspective.”[xi] By 1765 all the colonies except  Delaware and New  Jersey had newspapers.[xii] There were four papers in Boston, three in New York, and Philadelphia had two English newspapers and two German language newspapers. Connecticut,  Rhode Island, North Carolina, and South Carolina each had two papers. In total there were twenty-three papers published in 1765.[xiii] Sloan and Williams do an excellent job of characterizing this period, as well as capturing the essence of the publisher/editors at the time:

“The colonial press from 1735-1765 was a colorful product of the men and women who forged ahead with a brand news industry, finding guidance first from their own consciences, then from readers, from each other, and from government. Sometimes they felt pressured by outside parties. Sometimes they took advantage of completely new territory to shape the press as they themselves thought it should be. As pioneers in vastly different geographical, governmental and economic environments, colonial printers were forced to figure out what worked best in each individual situation…they had to fight battles and carve their own niches in their various communities in order to survive. From 1735-1765, the American colonial press searched in haphazard directions for prosperity and success.”[xiv]

Based on historical accounts, we can argue that the newspaper publishers/editors of this era were innovators: they were venturesome, risk tolerant, persistent, had access to significant financial resources, and were members of cosmopolite social networks. They were entrepreneurs and, as it was not uncommon for a publisher to run a number of different businesses and they often held a public position such as postmaster. They had access to significant financial resources, either through revenue from their various businesses or through their relationships with the moneyed elite. These financial resources were very necessary because starting a newspaper was a risky business. Many newspapers failed but almost all faced significant financial problems. Newspaper publishers of the era were cosmopolitan as evidenced by their friendships with each other and with the elite, as well as by the primacy that the publishers and readers of this day accorded to news from Europe.

It can also be argued that the newspaper readers of this era were also innovators.  They were professionals, politicians, and entrepreneurs. They were well educated and moneyed, with strong personal and professional ties to Europe In some cases, these early readers were also authors. Not surprisingly, early newspaper publishers often relied on their readers to regularly contribute material; and many readers did –they would pass on correspondences from friends and associates in Europe for publication and/or write articles on social and political matters.[xvii]

By relying on their readers, each other, and foreign newspaper publishers for content, early newspaper publishers were able to control their first-copy costs. During this era it was common for master-printers to print and edit their own newspapers to supplement their printing business. Although they did not regularly write for their newspapers, they would occasionally pen an editorial or a short local news items.[xviii]  The rest of the material was compiled from foreign newspapers, correspondence that the editors/publishers or their associates received, other colonial newspapers, contributions from their readers, government announcements and advertisements.

While advertising existed, it accounted for a small portion of a papers’ revenues.  There were very few advertisements in the earliest papers; but by the middle of the eighteenth century successful printers were able to fill three to five full pages with advertisements.[xix] The most successful paper of the era, The Pennsylvania Gazette, generated, between 1748 and 1766, a third of its revenue from advertising.[xx]

The vast majority of the revenues of these early newspapers were from selling subscriptions. Newspapers were considered luxury goods and purchased primarily by the well-educated, moneyed elite. Early in this period, many newspaper publishers had trouble getting subscribers, much less getting them to pay up. It was not uncommon for publishers to take their payments in livestock, fuel, or other goods. Notwithstanding these difficulties, the circulation of newspapers constantly increased during this phase. By 1765, it is estimated that five percent of the white families in the colonies received a newspaper weekly.

---

Refrences: /p>

1. EVERETT M. ROGERS, DIFFUSION OF INNOVATION 267-92 (5th ed. 2003)
2. FRANK L. MOTT, AMERICAN JOURNALISM 7(3rd ed. 1962)
3. 3. JAMES M. LEE , HISTORY OF AMERICAN JOURNALISM  (1917)
4. 4.  WM. DAVID SLOAN & JULIE HEDGEPETH WILLIAMS, THE EARLY AMERICAN PRESS, 1690-1783 (1994)

---

[ii] Lee at 9

[iii]Mott at 7

[iv]Mott at 11

[v] Mott at 11

[vi]Mott at 11

[vii] Mott at 13

[viii] Mott at 16

[ix] Lee at 38

[x] For a discussion of freedom of the press in this era see Sloan & Williams at 73

[xi] Sloan & Williams at 118

[xii]For an accounting of all papers that opened and closed between 1735-1765 see Sloan & Williams at 103-05

[xiii] Mott at 43

[xiv] Sloan & Williams at 98

[xv] For a discussion of the roll of the post in the fostering the early press see Richard B. Kielbowicz, The Pres, Post Office, and Flow of News in the Early Republic, 3 Journal of the Early Republics 255 (1983);

[xvi]Mott at 12

[xvii]Mott at 47

[xviii] Mott at 47

[xix] Mott at 56

[xx] Lee at 35

[xxi] Mott at 59 (“This is on the basis of somewhat less than one and a half million white population, and an aggregate newspaper circulation of about 14,000 weekly” Id. at 59 ft. nt. 34).

Willpower and Bloodsugar.

On Wednesday the NYT ran an interesting piece on Willpower. The writer's argued that recent research seems to indicate that we have a finite amount of will power per some unit of time (let's say a day.) So, if we exercise restraint and don't buy a donut in the morning, we'll be less able to fend off a post lunch craving for a candy bar:

The brain’s store of willpower is depleted when people control their thoughts, feelings or impulses, or when they modify their behavior in pursuit of goals. Psychologist Roy Baumeister and others have found that people who successfully accomplish one task requiring self-control are less persistent on a second, seemingly unrelated task.

I thought the article was extremely interesting, with a few point sticking out in particular. Firstly,  the authors point out that there are some studies which seem to indicate that there is a relationship between willpower and blood sugar:

What limits willpower? Some have suggested that it is blood sugar, which brain cells use as their main energy source and cannot do without for even a few minutes. Most cognitive functions are unaffected by minor blood sugar fluctuations over the course of a day, but planning and self-control are sensitive to such small changes. Exerting self-control lowers blood sugar, which reduces the capacity for further self-control.

Further they argue that willpower is something that can be cultivated over time:

Focusing on success is important because willpower can grow in the long term. Like a muscle, willpower seems to become stronger with use. The idea of exercising willpower is seen in military boot camp, where recruits are trained to overcome one challenge after another.

Finally and perhaps most interestingly, they note that there seems to be a  relationship between willpower and exercise:

People who stick to an exercise program for two months report reducing their impulsive spending, junk food intake, alcohol use and smoking. They also study more, watch less television and do more housework.

It seems to me that, in many ways, this recent research dovetails nicely with some of the ideas articulated by Csikszentmhaly in his theory of flow; which I will write about more in the future.

Asking the right questions.

Scott Berkun, who I should mention is a CMU alumni, has another excellent essay up: Essay 58 - How to innovate right now

Basically he argue that the best place to start innovating is by asking questions:

The easiest place to start is with things you do every day. Simply ask: Who else does this, and how do they do it differently? If you only know one way to do something, you’re making a big assumption. You’re betting that of the infinite ways there are to do it, the single one you know is the best. I’m a gambling man myself, but I wouldn’t make that bet, as those odds, one against infinity, are embarrassingly bad...

It's worth noting, as a circuitous way of tying this post to a previous post, that the first step of the scientific method is formulating a question.

Technorati Tags: Berkun, Innovation

The importance of working for small companies.

VC, essayist, and computer scientist Paul Graham has another excellent essay up entitled "You weren't meant to have a Boss." The main gist of the essay is that programmers are happiest working in small groups at start ups. Why? Freedom and the ability to build new things:

The restrictiveness of big company jobs is particularly hard on programmers, because the essence of programming is to build new things. Sales people make much the same pitches every day; support people answer much the same questions; but once you've written a piece of code you don't need to write it again. So a programmer working as programmers are meant to is always making new things. And when you're part of an organization whose structure gives each person freedom in inverse proportion to the size of the tree, you're going to face resistance when you do something new.

I've been thinking about this topic a lot recently and I've come to a similar conclusions, but not just for programmers. Working for a small organization has a significant number of advantages to working for a large company.  These advantages include both financial and psychic advantages.

One big advantage of working for a small firm is ability to be significant. In a large organization the contribution of any single individual to the success of the organization is small. This is a reflection of the nature of averages, when a large number of people are contributing to an organizations bottom line it become harder and harder to be an outlier. The larger the sample the smaller the variance. On the other hand, in a small organization the contribution of each individual is more significant. Since each individual has a greater say in the ultimate success of the organization, employees in small organizations should have a greater sense of job satisfaction. 

When I say significant here I mean significant in both the cultural sense and the financial sense. When an organization is small almost any individual can start valuable traditions and set the tone for an organization. For example, in a small organization someone may decide to organize brown bag lunch sessions, these session can over time become a significant element of that firms culture. Also, in a small firm an individual can contribute in a meaningful way to the companies financial success. An good salesman an single handedly double a firms sales. A good programmer can build a product that generates all of the firms revenues.

Another advantage is the ability to learn. Small organizations are almost chronically understaffed, as a result people are always being forced to learn how to do new things. In a small organization a programmer maybe drafted as a salesman (or vice versa.) While such cross functional learning opportunities carry with them risks and costs, they carry with them huge benefits as well.  I think learning new skills sets is almost always a good idea. So is getting a better understanding of what it takes to make your organization tick.

Working for a small company also allows you benefit from the firms future growth.  If you're an early employee at a startup there is a small but real chance that you will become wealthy.  A significant portion of that wealth will derive from your efforts. But another significant portion will come from the work of all those who come after you.

Social Sciences and Dogmas

A series of recent conversations along with Taleb's Black Swan have lead me to a sudden and dramatic realization: a huge difference between those of us in the hard science/engineer and those who are literary is an understanding of the importance of trail and error. Of course by trail and error, I really mean the the scientific method.

The social sciences, the literary pursuits, and the artistic pursuits, are all dedicated to narrative. What is important in this pursuits is a cogent narrative that is internally consistent and cohesive. This is the power of the theories of Marx and others: they provide narrative/cause and effect structure to history.

Of course science also, to some extent attempts to impose a narrative structure on the universe. The main divergence between the sciences and the social science is in what happens next. In science, once a theory has been developed the goal of science is to verify the predictions made by model through carefully controlled experiments. In social science, once a theory has been developed the goal becomes convincing others of it's inherent correctness.

It is in the effort to convince others of the rightness of the model that social science loses its way. Social scientific, literary and artistic methodologies to confirmation bias, by looking only at data or, more often, anecdotes that confirm the theory at hand. Often, any data or anecdotes that don't fit the theory are ignored. In extreme cases anyone that doesn't fit the theory is made to fit by force or social pressure.

In science its okay for your theories to be partially correct, and even completely incorrect. This is not the case in the social sciences/liberal arts. In these fields theories quickly rise to the level of dogma, people become too heavily invested to accept contrarian data.

As I write this, I'm thinking of two political theories: socialism and neo-conservatism. The socialist narrative, untestable, unprovable, and completely inconsistent with all available data rose to the level of dogma in some parts of the world. Likewise, neo-conservatism has rise to the level of dogma. Data no longer matters. But, of course, data should matter. Both these political theories are models of the world. They ascribe cause and effect relationships that can be observed.

Okay, that was one long, unfunny post.

Safari

So, I have Safari on my computer now. I wasn't entirely sure how that happened, but I have now found an explanation:

Apple caused quite a controversy over the weekend when the company made good on its promise to use iTunes as a way of pushing the Safari web browser on unsuspecting Windows users. The controversy arises from Apple's decision to bundle the Safari web browser as a "update" for iTunes on Windows — despite the fact that Safari is a totally new, and potentially unwanted, application.

Software Update, Apple's means of distributing iTunes updates on Windows, has previously only offered to update existing software. However, late last week that practice changed, and Apple began listing Safari for Windows as a "update," which clearly, it is not.

Malthus

The WSJ has a very good article on whether or not the finiteness of natural resources will effective limit economic development.

The article starts with the tremendous run up in the price of many commodities and the price of oil in the recent past and asks two questions: (1) are these price increases indicative of the fact that demand is far outstripping the ability of supply to keep up; and (2) what would be the broader effects of a constraint in supply of basic resources such as arable land, oil, and water. The authors of the article take a refreshing, yet slightly disturbing, broad historical view in answering these questions. They point out that in the past humans have a generally good record of innovate their way out of resource crunches:

In the past, economic forces spurred solutions. Scarcity of resource led to higher prices, and higher prices eventually led to conservation and innovation. Whale oil was a popular source of lighting in the 19th century. Prices soared in the middle of the century, and people sought other ways to fuel lamps. In 1846, Abraham Gesner began developing kerosene, a cleaner-burning alternative. By the end of the century, whale oil cost less than it did in 1831.

However, the authors are quick to point out that this time we may not be able to innovate our way out of impending doom. Why? Because we maybe, through our policy decisions, skewing certain markets:

[Joseph Stiglitz] is concerned that oil is underpriced relative to the cost of carbon emissions, and that key resources such as water are often provided free. "In the absence of market signals, there's no way the market will solve these problems," he says. "How do we make people who have gotten something for free start paying for it? That's really hard. If our patterns of living, our patterns of consumption are imitated, as others are striving to do, the world probably is not viable."

For me, this was the main take away from this piece. When government subsidize resources such as land, water, food, etc.. They are drastically skewing the market. People depend up on price information to make decisions about resource utilization. When the government provides a resource for free or subsidizes it, it is effectively removing people's incentives to utilize the resource efficiently.

This of course comes into direct contradiction with the paternalistic tendencies of many governments: when the people lack something, it is the governments role to fill the gap. For example, Saturday was world water day and the goal of many water activists is to ensure that everyone has access to free, clean drinking water. While on one level this is a noble goal, what it fails to take into account is the efficient utilization of water. If we give water away to everyone, people will over use it; this--of course--could have disastrous consequences.

Wow

According to the economist:

Goldman Sachs is using about $40 billion of equity as the foundation for $1.1 trillion of assets. At Merrill Lynch, the most leveraged, $1 trillion of assets is teetering on around $30 billion of equity.

That's an amazing amount of leverage.