mariahdrx: Making Money System

Submitted by Bo Peng

Making The Last Use Of Reserve Currency Status

I suspect many in the mainstream academia haven't realized what QE2 is.
It is the last use of the dollar's reserve currency status, intended or
otherwise.

In a fiat currency system, inflation should be the
only risk, because fighting deflation should be trivial -- just print
money. This is a fundamental advantage of a fiat system over the old
gold standard. Unfortunately for the US, the dollar's reserve status
means the geopolitical border is not the dam holding the water as in
other countries. As Fed pours in more water, it leaks right out to
lowlands (good investment destinations) all over the world. Given the
current economic prospects in the world, the result is that QE2 cannot
stoke inflation in the US, but causes very unwelcome interference in
exactly the other places in the world where inflation is a big concern.

It's small wonder all the growth EM economies are engaging in the low-grade currency war of capital control.
To them, this is a defensive war for survival against the invading army
of dollars. If the low-grade war proves insufficient, they would
escalate the defensive posture. They have to.

Another
consequence, intended or not, of QE2 + reserve status is that all growth
economies are under tremendous pressure of currency appreciation. Some
may be able to resist it and muddle through until an easier day; others
will have to cave in, therefore caught in the catch 22 of either raging
inflation or shrinking economy, or both. And, of all the growth
economies, China arguably has the most capacity and strongest political
will to resist appreciation. In such a scenario, if the intended target
of Fed's fury is China, as hinted not so subtly by Bernanke, "collateral damage" would once again be the main theme, as has been in all recent offensives launched by the US.

In
summary, Fed's dogged efforts in stoking inflation have caused and will
continue increasing the risk of bringing all growth EM economies to a
halt, significantly increasing policy risks in the rest of the world as
each country tries desperately to deal with the capital tsunami, and all
the while with huge doubt in whether it could reach its domestic goal
of stimulating employment and housing. In other words, Fed is screwing
the world for a slim chance of helping the US economy.

This is
emphatically NOT a moral criticism. But it does represent a significant
abandonment of the responsibilities on Fed's part as the issuer of world
reserve currency.

Let's go back a little in history. Right on
the heels of WWII victory, in 1944 US dictated Bretton Woods that
established the dollar as a proxy for gold in the free world. The
"proxy" part was only convenience, of course, as to be expected and
proven by Nixon in 1971. The arrangement made sense: the US would
provide security blanket, and the rest of free world would pay for it by
accepting and holding the green paper printed by the US. It's the same
idea as gangs collecting protection fee in NY, no cynicism intended.

Fast
forward to Berlin Wall collapse. Now the fundamental premises of the
dollar's reserve status were gone. Europeans quickly realized this
change and created the Euro; why should they continue paying for
protection when there's nothing to protect against? The US has made
numerous fantastic efforts in creating threats (by "creating" I don't
necessarily mean create; often times you just have to doze off for a
second and the enemy will help you out): perpetual terrorism, WMD in
Iraq, perpetual war in Iraq and Afghanistan/Pakistan, Iran, North Korea,
China, even Somali pirates (now it gets really pathetic). But none of
them could ever live up to the high expectations set by USSR.

After
10+ years of trying, it's become clear that this is futile. Nothing
works; none of those idiots could do it. But with the reserve currency
status comes its responsibilities. Win-win is BS-BS; there's no free lunch after all. The time has come to end Bretton Woods II.

Now Zoelick's surprise proposal of a new gold standard makes perfect sense.

With
QE2 the Fed is saying: Ah fuck it, you don't like USD as the reserve
currency? Well guess what? We don't like it, either. So let's drop it
and from now on it's every man on his own. Good luck.

Good luck everybody. We all need it.

A side discussion in my Feds Seize Domain Names post centers on the degree to which “file sharing” and other violations of intellectual property rights should be considered theft. A recent Cory Doctorow piece in The Guardian, “What do we want copyright to do?” sheds some light on this longstanding issue.

In my world, copyright’s purpose is to encourage the widest participation in culture that we can manage – that is, it should be a system that encourages the most diverse set of creators, creating the most diverse set of works, to reach the most diverse audiences as is practical.

That is, I don’t want a copyright system that precludes making money on art, since there are some people who make good art who, credibly, would make less of it if there wasn’t any money to be had. But at the same time, I don’t think that you can judge a copyright system by how much money it delivers to creators – imagine a copyright system for films that allowed only one single 15-minute short film to be made every year, which, by dint of its rarity, turned over £1bn. If only one person gets to make one movie, I don’t care how much money the system brings in, it’s not as good as one in which lots of people get to make lots of movies.

Diversity of participation matters because participation in the arts is a form of expression and, here in the west’s liberal democracies, we take it as read that the state should limit expression as little as possible and encourage it as much as possible. It seems silly to have to say this, but it’s worth noting here because when we talk about copyright, we’re not just talking about who pays how much to get access to which art, we’re talking about a regulation that has the power to midwife, or strangle, enormous amounts of expressive speech.

Here’s something else copyright can’t and won’t do and doesn’t do: deliver a market where creators (or investors) set a price for creative works, and audiences buy those works or don’t, letting the best float to the top in a pure and free marketplace. Copyright has never really worked like this, and it certainly doesn’t work like this today.

For example, it’s been more than a century since legal systems around the world took away songwriters’ ability to control who performed their songs. This began with the first records, which were viewed as a form of theft by the composers of the day. You see, composers back then were in the sheet-music business: they used a copying device (the printing press) to generate a product that musicians could buy.

When recording technology came along, musicians began to play the tunes on the sheet music they’d bought into microphones and release commercial recordings of their performances. The composers fumed that this was piracy of their music, but the performers said: “You sold us this sheet music – now you’re telling us we’re not allowed to play it? What did you think we were going to do with it?”

The law’s answer to this was a Solomonic divide-the-baby solution: performers were free to record any composition that had been published, but they had to pay a set rate for every recording they sold. This rate was paid to a collective rights society, and today, these societies thrive, collecting fees for all sorts of “performances” where musicians and composers get little or no say. For example, radio stations, shopping malls, and even hairdressers buy licences that allow them to play whatever music they can find. The music is sampled by more or less accurate means and dispersed to artists by more or less fair means.

So the best copyright isn’t the one that lets every creator license every use of her work piecemeal. Instead, it’s the system that allows for such licensing, except where other forms of licensing – or no licensing at all – makes sense. For example, in the US, which has the largest, most profitable broadcast and cable industry in the world, the law gives no compensation rights to rightsholders for home recording of TV shows. There’s no levy on blank cassettes or PVRs in exchange for the right to record off the telly. It’s free, and it has conspicuously failed to destroy American TV.

How would this apply to the internet? Take music downloads. By the music industry’s own account, the pay-per-download systems only capture a minute fraction of the music traded on the net. But a blanket licence that ISPs could opt into that entitled the ISP’s customers to download and share all the music they wanted would deliver evergreen profits to the record industry – without necessitating spying, lawsuits, and threats of disconnection from the internet.

If the price was right, practically every ISP would opt into the system, since the cost of the legal headaches attending the operation of a service without such a licence would be more expensive than getting legit. Then we could focus on making the collection and dispersal of fees and the sampling of music downloading as transparent as possible, bringing 21st century metrics to bear on making sure that artists are fairly compensated (rather than spending vast sums figuring out which music fans to send legal threats to this month).

He proposes something similar for movies as well. It’s not a perfect system but meets his standard of balancing the rights of content creators with those of consumers and those who make derivative creations.

The current system produces absurdities. The idea that someone should get paid every time “Happy Birthday” gets sung is ludicrous; even moreso when you consider that the various people who had a hand in writing the song are long since dead. But we do want people who produce valuable art to get compensated for their work.

Congress went way too far with the Digital Millennium Copyright Act, which allows the stifling of expression online by mere assertion. It’s simply too cumbersome and expensive to fight against takedown notices, so most site owners are at the mercy of those who maliciously misuse takedown notices. At the same time, however, wholesale theft of intellectual property is rampant online and there has to be some recourse.

As a blogger, I’m at the nexus of this debate.

On the one hand, I’m a content creator seeking to profit from my work online — originally in terms only of pageviews and psychic reward, now also in financial terms from advertising. There are a bevy of unscrupulous operators out there stealing my content and repurposing it for their own gain. Not only am I not compensated for it, but their actions actually harm OTB’s search engine rankings and traffic.

On the other, I’m a content consumer, piggybacking on the creative work of others. Many news organizations, with the Associated Press the most vociferous, complain bitterly that bloggers use their content to drive traffic to our sites without paying for it. Bloggers argue that we’re making Fair Use of material that’s out there and actually provide benefit to AP and others by linking and driving traffic to the originating source. Both sides have a point here and there are no bright lines.

There are many ways of doing this, and I think OTB’s is both more transparent and better for the original sources than most. Some sites — the Gawker chain, HuffPo, and the Daily Caller most notoriously — rewrite stories from other sites with mere mention of who did the original reporting. Indeed, many big name news enterprises do the same thing, with their readers seldom aware that the newspaper they’re reading didn’t do the legwork. At least at OTB, we clearly delineate the work we’re commenting on with links and blockquotes. Regardless, though, neither Cory Doctorow nor The Guardian directly benefit from this blog post unless readers click through the above link — and most readers don’t.

Nor do I know how to apply Doctorow’s proposed fix to this problem. People use the Internet for a whole variety of purposes. Should everyone really have to pay a huge surcharge on their monthly bill that gets distributed to various content providers based on some ratings system? Should The Guardian get some money because people are benefiting from their reporting and columns without actually visiting the site and increasing their pageviews? Should OTB get some money, too? Some teenager’s MySpace page?

I don’t think so. The fact of the matter is that there’s no evidence that this problem matters to anyone not seeking to profit from the production of news and commentary. That is, there’s no shortage of news and commentary out there. If The Guardian, OTB, and Cory Doctorow all went out of business tomorrow, there would still be more than enough news, commentary, and philosophizing available to the public to meet the available demand. So, the problem of figuring out how to profit from our little contribution to the vast flow is one for us to figure out.

But that doesn’t mean that there’s not a theoretical government role in protecting our intellectual property. While I can’t imagine Doctorow has any problem with me quoting him — even rather generously — as the basis for my own commentary on the same subject, he’d have a legitimate gripe if I were repacking large amounts of his content as my own. While he’s not directly profiting from this post, he does at least get some tiny benefit from my citing him as an authority. And both The Guardian and OTB deserve some protection from wholescale theft and redistribution of our original material.

eric seiger do

Wednesday, December 1, 2010

Making Money System

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