A Study in Cyberpunk Economic Philosophy

Saturday, 11 February 2017 09:11 by The Lunatic

How many times have you read a book, or saw a movie, with a monopolistic “mega corporporation” as a primary plot element - a giant company run by a powerful, brilliant, egocentric, multi-gazillionaire?

It’s usually a male character at the helm, either the company founder or the founder's son, and he ruthlessly destroys every competitor and government agency that gets in the way of his quest to own it all and rule the world; It's a common theme in cyberpunk fiction stories.

But I’d like to take a slightly different approach to the idea of the giant company that we’ll just call ... megacorp.

In my scenario, the corporate merger mania that exists today continues unabated, as companies strive for higher efficiencies and economy of scale. Coke and Pepsi merge. Nestle and Tyson Foods do the same. Google and Microsoft and Facebook. Ford and GM and Tesla. FedEx and UPS. Novartis and Pfizer. United and American and Delta airlines. Then slowly they all start merging together. Berkshire Hathaway gets swallowed up along the way.

In the process, the large shareholders of the initial companies end up with smaller and smaller chunks of the combined entities, so the total number of smaller shareholders goes up but no one person owns a significant share. After a few mergers, a previous “majority” shareholder might end up with 5%. They merge again and that shareholder now owns 2.5%. The incredibly large number of individual shareholders suddenly have all the power.

Eventually, the individual shareholders of all these companies realize that the widely distributed ownership structure is actually beneficial, so they vote to put shareholder limits in place: no one person can own more than 1% of the company, with an annual decrease over ten years down to .1% - and then it goes even lower as more mergers take place.

In the end, they all finally merge together to form the almighty, invincible, unstoppable “megacorp”.

But instead of the popularized evil empire, I envision a different outcome: nearly everyone works for megacorp, and nearly everyone is also a shareholder. Employees get bonuses based on performance, and profit sharing is distributed as shares of stock so every employee has an opportunity to increase their shares. Employees are strongly encouraged to invest retirement savings back into the company as well – and if they do, they get matching shares this way as well. Even low level employees who are with the company long enough will have enough dividend income to support them during retirement.

Shareholders vote to do away with the CEO position – no one person should have that much power. Instead, they institute a governing body that has full transparency in every move, with effective oversight and checks and balances. Nothing is hidden, and shareholders – who are now mostly employees – watch the bottom line like a hawk. The higher up in management someone gets, the more they get paid; but limits are set. No one, not even people on the executive governing body, makes more than 100 times in base salary from what a janitor makes (but even with the shareholder limits, they can still own enough shares to be incredibly wealthy). Separate, but similarly structured, governing bodies run all the subsidiary business units – airlines, food service, automobile manufacturing, etc.

All the independent brands of this “magacorp” still exist. When you go to Starbucks to get a coffee, it’s still a Starbucks and that business unit has their own performance goals to meet. Pepsi and Coke still compete. You can go to Walmart or Saks Fifth Avenue to buy clothes, and fly a plane from NY to LA on whatever airline you choose. But in the end, the profits go to the top, and dividends are paid out to shareholders – who are mostly employees.

Now in my fantasy scenario, there are people that don’t want to work for the megacorp. They have innovative ideas for new products or simply want to build their own businesses. Megacorp thinks this is fine, and they don’t try to crush these small innovators. They don’t rush to come out with their own competing products if they didn’t come up with the idea first. However, if the small entrepreneurial company is successful with their new idea and they do hit it big with a viable long term business, it is understood that their “exit strategy” is to eventually sell out to the megacorp. Their innovation is rewarded; the founder will get enough shares from the acquisition to either retire early, or land a sufficiently high level management position within megacorp – maybe on the governing board that acquired his or her company.

Small business owners who have a niche can still run their independent businesses – there is still a need for local services, artisans, craftsman, restauranteurs, home repair specialists and landscapers, doctors and dentists. If they work hard and do well, they can be very successful on their own. They may still be shareholders in megacorp even if they don’t work there.

But employees that do work for megacorp have good jobs, stable employment, retirement, and an equal say in how things are run. Profit is still the goal; an efficient and well-run company generates massive profits – and the profits are distributed to shareholders.

Now don’t get me wrong, I don’t think this scenario is feasible in the slightest. There are hundreds of reasons as to why it wouldn’t work. Frankly, it’s pretty silly. But I do want to ask one simple question:

Is this megacorp the ultimate in capitalism, or the ultimate in communism?

 

The Arbitrary Nature of Rules and Regulations

Thursday, 11 August 2016 18:24 by The Lunatic

Here’s a question to ponder: Why do we set our kid’s bedtime at a nice round number like 9:30 pm, rather than 9:15 or 9:45? How about 9:41, or 9:22, or some other equally arbitrary time? And is that the time your kids actually have to be in bed with the lights turned off – or the time that they need to start getting ready?

If you think about it, every “rule” has a bit of an arbitrary aspect to it. You have to draw a line in the sand somewhere, but where should that line be? How wide is the “grey area” between being too lenient (an 11:30 bedtime?) or too stringent (how about 8pm sharp)? Both these extremes are arguably out of the question, so the reasonable “grey area” is probably narrower than that. Somewhere between those reasonable limits, however, you need to pick a bedtime for your kids – and 9:30 seems to be a good compromise. But once the rule has been set, how strictly should you enforce it?

How often have we seen this: The kids know as well as you do that 10pm is still within the “reasonable” window … so a little delay here, a little delay there … and after a few weeks, the kids are going to bed at 10pm on a regular basis. But the official rule of the house is still bedtime at 9:30!

I’ve always been fascinated with the arbitrary nature of the actual boundary – how and where the limit is set – for any rule; this is a deep-rooted problem that has vexed humanity for centuries, in every culture and on every continent.

In the USA, our society has determined that kids can’t drink alcohol until they are 21 years old. At that magic day in your life, you are suddenly free to drink as much as you like. There is no “Slop” in that rule, as far as the legal enforcement goes. No “grey area” at all to work with.

On the other hand, the speed limit on a highway might be 65 miles per hour – yet everyone knows that you usually won’t get a ticket unless you are going at least ten miles per hour over the limit. So in our minds we don’t think we are speeding till we get to 75.

Sometimes you may have to ask why a rule was enacted in the first place. One small town in Iowa for example, has an ordinance on the books that proclaims “The Ice Cream Man and his truck are banned”. So I’m wondering, what DID the Ice Cream man do to deserve such a harsh penalty? It must have been quite drastic in order to justify banning EVERY Ice Cream Man (and their trucks) from the town forever!

Of course, we have to have rules. More...

The Etymology Of A Scandalous Suffix

Tuesday, 2 February 2016 00:00 by The Lunatic

Along the western edge of Washington DC, parallel to the Potomac River, runs the historic C&O shipping canal. Stop at Fletcher’s Boathouse, just north of Georgetown, and you can rent kayaks or canoes for a relaxing time on the water – or just enjoy the nice biking/jogging path that accompanies the canal. The water in the C&O is calm and peaceful, you can traverse it without having to battle the strong currents and wild turbulence of the mighty Potomac just a few hundred feet away.

Built in the mid-1800’s, the C&O (which stands for Chesapeake and Ohio) was used to transport much needed goods from northern Maryland and Pennsylvania into Washington D.C. Initially intended to go all the way to Pittsburgh, the C&O canal was only completed up to Cumberland, Maryland – still an impressive 184 miles in total length.

The primary freight that was shipped via the C&O was coal from the Allegheny Mountains, but the canal was also used for transporting building materials (lumber, paving stones, sand and gravel) and foodstuff (pork, wheat, corn, oats – and even whiskey). This was an alternative to shipping goods via railroad – and for a time before it closed, the canal was actually owned by the B&O (Baltimore and Ohio) Railroad Company. The canal was a vital part of Washington DC’s rapid growth following the civil war, and all the way into the early 1920’s.

Initially, the C&O canal was built with 74 locks, used to keep the flow of water stable and to raise and lower barges from one section to the next. The very last of these locks emptied the C&O canal into the Potomac river; it was there, in the Foggy Bottom neighborhood of Washington DC, that all the freight was unloaded from the barges and distributed throughout the city.

There really was never any particular name for this last lock which separated the canal from the river, but in 1942 (18 years after the canal was closed to shipping and the C&O Canal Company went into receivership) a restaurant opened directly across the street – and the restaurant was named “The Water Gate Inn”.

Another 18 years went by. In 1960, The Water Gate Inn closed its doors and sold out to an Italian real estate developer, Società Generale Immobiliare (known simply as “SGI”). SGI didn’t just buy out the restaurant – they purchased the entire ten acres of land that was owned by the remaining vestiges of the C&O Canal Company. SGI outlined their plans for a major real estate development, and named the proposed building complex after the little restaurant that had been on the corner of the property; thus was born “The Watergate”.

Right from the start, SGI had grand plans and a big budget for The Watergate. It was to be a mixed use complex More...

Categories:   Miscellaneous
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The Quantum Quandary

Wednesday, 4 February 2015 00:46 by The Lunatic

I’ve discussed “The Immutable Laws of Physics” a few times in previous articles. Every shred of evidence we have indicates that the interactions between matter, energy, time, and space, are themselves the very nature of the universe, and nothing we (or anything/anyone else) can do will ever change these interactions. Whenever we’ve observed or discovered something new that we don’t understand, it reminds us that we have incomplete understanding of the laws of physics – but the physical world is still immutable.

Quantum mechanics is a “relatively new” branch of physics that was discovered roughly 100 years ago, and it has certainly enhanced our understanding of these physical interactions. It has also made things quite a bit more complicated, as quantum mechanics embodies concepts which are quite difficult to grasp. The concepts are not as elegant as the pure logic behind classical “Newtonian physics”, or the mind-bending beauty of Einstein’s discovery of relativity.

One of the problems is that quantum mechanics have a large component that has to do with randomness. Changes in quantum states are thought to be the only truly random physical interactions in the whole universe!

One question that often comes up is this: how do we account for the randomness of quantum mechanics if the fundamental laws of physics are so perfect and so immutable? Why don’t our traditional laws of physics clash with the crazy and unpredictable nature of this randomness, the particle/wave duality, and Heisenberg's uncertainty principle? And while we’re at it, what do we feed to Schrödinger’s much maligned cat?

Quantum mathematics are somewhat abstract, yet exceedingly precise. The math has been verified experimentally to within one part in many billions; the measured data agrees with the theoretical equations to the limits of our measurement technology. This is a very key point. 

As a practical example, every time a transistor switches on and off in a computer, there is a “quantum band gap” that each electron goes through. If we could somehow “see” each electron that is pushed up against the junction of a transistor, we would not be able to tell which specific electrons would make it through the gap and which ones wouldn’t. The quantum state of each individual electron is completely random. However, we can say – very, very precisely – how many in total will go through and at what energy levels.

Advancements in manufacturing technologies, resulting in less impurities (i.e. stray molecules of unwanted substances) in the silicon junction, More...

Categories:   Science
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An Overview of the U.S. Patent System

Thursday, 31 July 2014 01:07 by The Lunatic

(Note: This was a term paper I wrote for an MBA class in 2012. I recently ran across it in my files and thought it would be a good addition to my blog. Enjoy!)

An Overview of the U.S. Patent System
David M. H. Workman

Introduction

A Patent is a form of legal protection for an invention, allowing the patent holder to have exclusive rights to make, use, or sell the invention for a specific period of time (typically either 14 or 20 years in the U.S., depending on the type of patent).

To secure a patent, a Patent Application is submitted to the U.S. Patent and Trademark Office (USPTO); the application consists of two major elements: a description of the invention, and certain claims (which define the scope of protections desired under the patent application). The USPTO may grant the patent for the invention, but allow or disallow each of the claims individually. “Broad” claims mean that the applicant is asking for the invention to be protected in a wide range of uses, and are more likely to be rejected (and if allowed, are more likely to be challenged by competitors). “Narrow” claims mean that the invention has very focused and well defined commercial applications, which are less likely to be challenged.

For a patent application to be approved, it must meet a certain bar for (1) Novelty, (2) Non-Obviousness, and (3) either Utility, Distinctiveness, or Ornamentality (depending on whether it is a “Utility”, “Plant”, or “Design” patent, respectively). The USPTO reviews the patent application to ensure that the patent, and each of the claims, meets the bar for each criterion.

During the application process, the patent may be rejected if “prior art” (i.e. any published diagrams or descriptions which show that the invention is not original) is found by the USPTO, or if any aspect of the invention was publicly disclosed by the inventor before the filing date. Even after the patent has been granted, others may challenge the validity of the patent (or any of the individual claims) if prior art is presented which is proven to have been publicly available before the application date.

Patents cover an amazingly diverse range of ideas – from describing the optimal radius of the bend in a wire paper clip, to More...


Categories:   Economics | Miscellaneous
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I Believe That Belief Is Irrelevant

Tuesday, 15 April 2014 16:44 by The Lunatic


In a previous article titled I’m a believer!, I proposed we should swap the traditional definition of who’s a believer and who isn’t – I suggested that a believer is someone who believes that the laws of physics are immutable and a non-believer is someone who doesn’t.

In this post, I’ll take a little different approach. I’ll go on record and say that what people believe in is irrelevant. I don’t care what you believe in. Heck, I don’t even care about what I believe in myself! Simply having a belief in something does not make it true.

What if I go around the world and convince everyone that the universe is governed by a Grand Orange Duck. And what the Grand Orange Duck really wants is for everyone to donate their ear wax to the famed Diamond Crucible. I know it sounds crazy, but hear me out ... I really believe this is the truth! Once we have ear wax from every person on Earth, and the Diamond Crucible is full to the brim, the Grand Orange Duck will reveal himself to us and we will be allowed to marvel at his magnificent wings. It will be a glorious day indeed!

Even if I can get everyone to believe in the Grand Orange Duck (let’s just call it “GOD” for short), and convince every single person on Earth that they need to contribute some ear wax to the Diamond Crucible, that still doesn’t make it the truth.

Is this scenario really that far-fetched? How about this: The Mormons are very good at getting people to believe that there were white people on Earth before black people (Mormon scripture says that Cain, who killed his brother Abel, was so evil that God "cursed" him with black skin), and that More...


The Lunatic’s take on Daylight Savings Time

Sunday, 4 November 2012 08:24 by The Lunatic

Twice a year, once in the spring and once in the fall, we move our clocks either forwards or backwards to accommodate the change in Daylight Savings Time.

And twice a year, there are the requisite news articles written about Daylight Savings Time, explaining to everyone why we go through all this hassle. Then there are the cutesy and often misguided Facebook posts with statements like: “only the government would believe that you could cut a foot off the top of a blanket, sew it to the bottom, and have a longer blanket.” (which is what prompted me to write this particular article in the first place!)

So let’s get to the bottom of what Daylight Savings really is. First of all, however, we have to understand what midnight is. That’s right: midnight, the time that we’ve decided each day should start.

Technically, midnight is the time that is halfway between sunset and sunrise. It’s simple enough, but that definition needs some clarification. As the Earth revolves around the Sun, the Earth’s tilt causes daylight hours to shift with the seasons.

A better definition is that midnight is the time that is halfway between sunset and sunrise, at the equator, on either the fall or spring equinox (the only two days of the year when the sun is directly overhead at the equator).

Now we’re getting somewhere, but there’s one more wrinkle in this definition.

You see, the Earth is just over 24,000 miles around and More...

Raising Kids To Be Good Eaters

Friday, 4 May 2012 01:00 by The Lunatic

When my kids were born, in 1999 and 2000, I decided to conduct some scientific experiments on them.

Oh, don’t worry, it wasn’t anything too gruesome; all their limbs and internal organs are still intact. I just wanted to put some personal child-rearing philosophies to the test and see if I could turn them into healthy and conscientious eaters without any odd phobias or irrational dislikes of certain foods.

Fundamentally, I believe that kids’ eating habits are mostly formed between the ages of two and five, and having a pro-active methodology to respond to the typical food related tantrums that every kid goes through would help get through those critical years and make them better eaters.

Primarily, my belief was that all kids naturally go through short cycles of not wanting to eat certain foods, not liking certain flavors or spices, and that many times (not always) this is due to external influences – not being hungry, tummy upsets, a particular mood, or just being enamored with something that tasted good last week and not wanting anything else. One of the key ideas is that these usually are “short” cycles of likes and dislikes, but having an inappropriate response can extend the cycles or even artificially create a lifelong dislike of one certain food.

What I wanted to avoid was the typical parental response of coming to the conclusion that “my kids don’t like ... xxx”, when “xxx” really isn’t the problem.

When parents come to the conclusion that “my kid doesn’t like xxx”, they usually stop giving their child that particular food and let everyone know at school and at play dates that their kid won’t eat it – or they make a big deal about it at home and try to forcefully cajole their kid to eat the food in question. Both responses perpetuates the cycle and just makes it worse. Furthermore, I truly believe that it gives positive reinforcement and the child realizes that they get extra attention when they don’t like something.

So I would never say “My kids don’t like xxx”.  In fact, in their entire lives, they have never heard me say that to anyone. Instead, I would say “My kids eat everything, but I didn’t cook the xxx right the last time. I’ll make it better next time.”

The next time I’d make the offending dish, I’d change it a little bit and do something different.  I’d ask More...

I'm A Believer!

Friday, 27 April 2012 07:39 by The Lunatic

There is a pervasive and somewhat lopsided tendency in our society to separate fellow humans into the categories of being either “believers” or “non-believers”. The not-so-subtle implication is usually that there is something wrong with you if you are a “non-believer”.

Let’s play a little game; I’ll take the position that there really is something wrong with non-believers. But first, let’s swap the traditional idea of who is a believer and who is a non-believer.

For example, if I have a ball in my hand and I hold my arm straight out from my body and I drop the ball, I believe that the ball will always fall “down” – towards the ground. In our game, non-believers are the people who will say that god can make the ball go up, or sideways, or turn into a flying cheeseburger and flap its wings at the moon.

If we get all the non-believers on Earth to PRAY really hard, and ask god to make the ball go “up” when I let go of it, I still believe it will go down.

If you ask a believer why the ball will go down instead of up, the typical explanation you will get is that “gravity is a force that attracts two objects proportional to their mass”. In general, the answers that believers give you will have something to do with gravity, and the answers will be relatively consistent on average. Without some external physical force (a blast of air, or someone swatting it with a tennis racket for example), believers will say that the ball will drop “down” even if you conduct the experiment hundreds of billions of times, as long as the Earth and the ball have mass.

However, if you ask all the non-believers why praying to god doesn’t ever change the fact that the ball goes down when dropped, you will get a bunch of different, inconsistent, and largely contradictory answers.

One of the answers you might get is that ‘god doesn’t work that way’. I love that answer, I hear it all the time. I keep asking all the non-believers how god does work, and no one really seems to know. The fallback response, however, is this: “you have to have faith.”

Ok, I’ll accept that. I am a person of absolute unwavering faith, and I will gladly put the full conviction More...

Categories:   Religion | Science | Social Issues
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Black-Scholes’ Dirty Little Secret

Tuesday, 6 September 2011 06:35 by The Lunatic

Back in 1973, two mathematicians named Fischer Black and Myron Scholes wrote a paper entitled "The Pricing of Options and Corporate Liabilities".  This became known as the “Black-Scholes option pricing model”, which earned them a coveted Nobel Prize in economics in 1997 (technically, Myron Scholes shared the prize with Robert Merton, another collaborator, since Fischer Black had passed away by that time).

The Black-Scholes option model serves as the benchmark for setting the price of a common stock option. All you need to know is the stock price, the strike price of the option, the time left to expiration, the current interest rate, and this tricky little thing called the volatility of the stock.

Ahhh, the volatility. There’s the rub. The volatility of a stock is calculated using an iterative process called a “cumulative normalized distribution function”. Basically, it looks at the variations of a stock’s up and down movement over a certain time period and offers up a percentage of the average movement. The volatility is an absolute measurement, which is different from a stock’s “beta” – the beta is a ratio of that particular stocks’ volatility as compared to the rest of the market, which is actually much easier to measure.

In my definition of volatility, I said that it relies on the variation of a stock price over a certain period of time. But what period of time should you use? One week? A month? Three months? Six months? A year? Maybe two years? The time period that you use can make a huge difference in the value of the option, but there’s no general recommendation for what period to use.

All of the other factors (stock price, strike price, time to expiration, etc.) are quantifiable values that can be specifically defined. The volatility, however, requires a bit of artistic interpretation.  If the stock was highly volatile nine months ago, but is more stable now, then measuring the historic volatility over the last six months is probably a good choice. Or not. More...

Categories:   Economics
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