Archive for June, 2015

The Care and Feeding of a Financial Black Hole


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A while ago I had the pleasure of hearing Sergey Glazyev—economist, politician, member of the Academy of Sciences, adviser to Pres. Putin—say something that very much confirmed my own thinking. He said that anyone who knows mathematics can see that the United States is on the verge of collapse because its debt has gone exponential. These aren\’t words that an American or a European politician can utter in public, and perhaps not even whisper to their significant other while lying in bed, because the American eavesdroppers might overhear them, and then the politician in question would get the Dominique Strauss-Kahn treatment (whose illustrious career ended when on a visit to the US he was falsely accused of rape and arrested). And so no European (never mind American) politician can state the obvious, no matter how obvious it is.

The Russians have that pretty well figured out by now. Yes, maintaining a dialogue and cordial directions with the Europeans is important. But it is well understood that the Europeans are just a bunch of American puppets with no will or decision-making authority of their own, so why not talk to the Americans directly? Alas, the Americans too are puppets. The American officials and politicians are definitely puppets, controlled by corporate lobbyists and shady oligarchs. But here\’s a shocker: these are also puppets—controlled by the simple imperatives of profitability and wealth preservation, respectively. In fact, it\’s puppets all the way down. And what\’s at the bottom is a giant, ever-expanding, financial black hole.

Do you like your black hole? If you aren\’t sure you like it, then let me ask you some other questions: Do you like the fact that your credit cards still work, or that you can still keep money in the bank and even get cash out of an ATM, or that you are either receiving or hope to eventually receive a pension? Do you like the fact that you can get useful things—food, gas, airline tickets—for mere pieces of paper with pictures of dead white men on them? Do you like the fact that you have internet access, that the lights are on, and that there is water on tap? Well, if you like these things, then you must also like the financial black hole, because that\’s what\’s making all of these things possible in spite of your country being bankrupt. Perhaps it\’s a love-hate relationship: you love being able to pretend that everything is still OK even though you know it isn\’t, and you wish to enjoy a bit more of the business-as-usual before it all goes to hell, be it for a few more days or another year or two; but you hate the fact that eventually the black hole will suck you in, after which point things will definitely… suck.

In the United States, so far the black hole has been sucking in individual families (although it does sometimes suck in entire cities, like Detroit, Michigan, or Bakersfield, California, or Camden, New Jersey). With the help of the fraudulent mortgage racket, it sucks in houses, and spits them out again encumbered with bad debt. With the help of the medical industry, it sucks in sick people and spits them out again, bankrupt. With the help of the higher education racket, it sucks in hopeful young people, and spits them out as graduates, with worthless degrees and saddled with mountainous student debt. With the help of the military-industrial complex, it sucks in just about anything and spits out corpses, invalids, environmental damage, terrorists and global instability. And so on.

But the black hole can also suck in entire countries. Right now it\’s busy trying to suck in Greece, but it\’s having a hard time with it, because Greece is, of all things, a democracy. This has the black hole\’s puppets in quite a state at the moment, and starting to clamor for “regime change” in Greece, so that Greece can be made to capitulate before the black hole gets hungry.

The way the black hole sucks in entire countries is as follows. If the black hole doesn\’t have enough to suck in for a period of time, it gets hungry and makes the financial markets go into free-fall. The financial instruments of countries that happen to be farther away from the black hole—out on the periphery—fall faster. In search of a “safe haven,” money floods out of these countries and into the “core” countries that are clustered tightly around the black hole—the US, Germany, Japan and a few others. The black hole gobbles up this money, but is then hungry for more. But since the periphery countries are now financially too weak to resist, they can easily be turned into black hole fodder. This is done by saddling the country with a foreign debt it can never repay, then forcing it to keep making payments against this debt by making it a condition for maintaining a financial lifeline—keeping the banks open, the ATMs stocked, the lights on and so on. To be able to make the payments, the country is forced to dismantle its society and economy through the imposition of austerity, to privatize everything in sight turning it into collateral for more loans, and to surrender its sovereignty to some transnational organizations, such as the IMF and the ECB, which are directly involved in the care and feeding of the black hole.

Who is in charge of all this? you might ask. If all there is is the black hole, the puppets charged with its care and feeding, and its hapless victims, then who is making the decisions? Well, it turns out that the black hole is sentient. But it is also very, very stupid. And the way is enforces its will is by destroying the minds of its puppets—by making them unable to understand certain things. However, stupidity is a double-edged sword, and in enforcing its will in this manner the black hole also thwarts its own purpose.

For example, some time ago the black hole happened upon a rather large item it wanted to suck in, but couldn\’t. The item is called Russian Federation. It controls a huge territory that is full of all sorts of natural resources the black hole would love to turn into loan collateral and suck in. The problem is that it is full of Russians, who are a difficult people for the black hole\’s puppets to deal with. They keep telling the puppets to please keep their toes on the other side of that red line over there, and if they don\’t then click goes the safety on their guns, precluding further discussion.

This situation calls for negotiation, but the black hole, which, as I mentioned, is very, very stupid, has just one negotiating tactic. It makes its demands, and then waits for the other side to capitulate. If that doesn\’t work, it applies pressure: imposes sanctions, attacks the currency, complicates financial transactions, arrests the country\’s foreign assets and so on—and waits for the other side to capitulate. And if that doesn\’t work either, then the country gets bombed to rubble by NATO or, if NATO doesn\’t want to come along, by the US alone. That generally works, but in the case of Russia it doesn\’t. But the black hole, if you recall, is very, very stupid, so it keeps trying anyway. As it does, the minds of its puppets get really warped, to a point where they don\’t understand what\’s going on at all.

For example, everybody knows by now that pressuring Russia doesn\’t work: according to Newton\’s Third Law, every action produces an equal and opposite reaction, and Russia is big enough that pushing it doesn\’t cause it to move at all—it just causes whoever is pushing it to hurt themselves. It\’s like trying to shift the Earth\’s orbit by jumping off a chair while keeping your knees locked—which is a good ploy if you are clamoring for medical attention. In fact, the Russians are rather grateful for the sanctions, because now they have a reason to finally get serious about investing in domestic economic development and self-sufficiency. But the puppets, having had their minds warped by the black hole, cannot see that, so they just keep pushing, wrecking their own economies in the process.

Since the sanctions don\’t work, it is time to exercise the military option. Doing so requires concocting a casus belli—a reason to go to war. The black hole does this by hallucinating: Russia invaded Crimea!—sure, a few hundred years ago, and has been there ever since, most recently based on an international agreement, but never mind! (Oh, and legally Crimea was never actually made part of the Ukraine because Nikita Khrushchev botched the paperwork when handing it over.) OK, never mind that, but then Russia invades the Ukraine!—on every day that has the letter “D” in it, but it\’s very sneaky and withdraws its troops before anybody can snap a single picture of them there. OK, never mind that either, but then Russia is poised to invade Estonia, Latvia and Lithuania, and maybe Poland too. Invade how? You mean like take a bus to the music festival in Jūrmala? Consider it done, but the festival is already over and the invading music fans are back home. OK, never mind that either. But the puppets keep saying “Russian aggression!” over and over again. It\’s the brain damage caused by proximity to the black hole. Look at this poor guy, for instance. He keeps flapping his lower jaw, going “Russian aggression! Russian aggression!” while trying to self-soothe by fondling the rump of his imaginary pet cow. God help him.

Back to the real world: the poor puppets are unable to understand that there is no military option when it comes to Russia: it\’s a nuclear power with an excellent strategic deterrent, a well-defended territory, and no aggressive intentions against anyone. But the puppets, with their warped minds, cannot see that, and so they pile various kinds of obsolete military junk along Russia\’s borders, and are even threatening to bring into Europe the entirely obsolete Pershing medium-range nuclear missiles. They are obsolete because the Russians now have the S-300 system with which to shoot them all down. The military option just isn\’t going to work, but don\’t tell that to the puppets—they cannot absorb such information without sustaining further neurological damage.

Back to Greece: tiny Greece certainly isn\’t mighty Russia, but it nevertheless refused to capitulate to the demands of the black hole. It was asked to completely wreck its society and its economy as a condition for maintaining its financial lifelines from the IMF and the ECB. Most inconveniently for the black hole and its puppets, Greece is not some obscure “third world” country peopled by dark-skinned people you wouldn\’t want your daughter to marry, but a European nation that is the cradle of European civilization and democracy. Greece managed to elect a government that tried to negotiate in good faith, but the puppets don\’t negotiate—they demand, threaten and cause damage until they get their way—or until their heads explode.

This one will be interesting to watch. If the black hole does succeed in sucking in Greece, then which country is next? Will it be Italy, Spain or Portugal? And, as that process continues, at what point will enough people say that enough is enough? Because when they do, the black hole will shrivel up. It\’s not a real black hole that\’s made up of incredibly dense matter—so dense that its gravitational field traps even light. It\’s a fake black hole, made up of everyone\’s combined greed. It has greed at its core, and fear all around it, and it sustains itself by feeding on fear. If it can continue sucking in people, families and entire countries, it can keep the greed at its core alive, but if it can\’t, then the greed will also turn to fear, and it will shrivel up and die. And I hope that when it dies all of its brain-damaged puppets will snap out of it, realize how deluded they have been, and go find something useful to do—farm sheep, grow vegetables, dig for clams…

Pop goes the Bubble


Running a fundraiser (which, by the way, has been a great success—thank you all very much!) has prompted me to think about money more deeply than I normally do. I am no financial expert, and I certainly can\’t give you investment advice, but when I figure something out for myself, it makes me want to share my insights. I know that many people see national finances as an impenetrable fog of numbers and acronyms, which they feel is best left up to financial specialists to interpret for them. But try to see national finances as a henhouse, yourself as a hen, and financial specialists as foxes. Perhaps you should pay a little bit of attention—perhaps a bit more than one would expect from a chicken?

By now many people, even the ones who don\’t continuously watch the financial markets, have probably heard that the stock market in the US is in a bubble. Indeed, the price to earnings ratio of stocks is once again scaling the heights previously achieved just twice before: once right before the Black Tuesday event that augured in the Great Depression, and again right around Y2K, when the dot-com bubble burst. On Black Tuesday it was at 30; now it\’s at 27.22. Just another 10% is all we need to bring on the next Great Depression! Come on, Americans, you can do it!

These nosebleed-worthy heights are being scaled with an extremely shaky economic environment as a backdrop. If you compensate for the distortions introduced by the US government\’s dodgy methodology for measuring inflation, it turns out that the US economy hasn\’t grown at all so far this century, but has been shrinking to the tune of 2% a year.

And if you ignore the laughable way the US government computes the unemployment rate, it turns out that the real unemployment rate has grown from 10% at the beginning of the century to around 23% today.

So how can an ever-shrinking economy with a continuously rising unemployment rate be producing ever-higher stock valuations?

Simple! The stock prices are being driven up by the actions of the Federal Reserve. Since the great financial crisis of 2007, when the entire financial system almost collapsed, the Federal Reserve, through its Quantitative Easing (QE), has been making funds available at minimal cost to a set of financial institutions deemed “too big to fail.” (What that means is that they cannot be allowed to fail, because that would almost bring down the entire financial system again, but must be artificially propped up no matter what.) This financial life support has dramatically driven up the Fed\’s balance sheet, which now stands at $4.5 trillion (it was less than $1 trillion before the great financial crisis of 2007).

The mechanism by which QE drives up stock prices is indirect, but the connection is easy to trace. The Fed makes money available by buying up various types of securities: lots of mortgage-backed securities (many of them worthless, but the Fed doesn\’t care), lots of US Treasuries (and the Fed should care that they don\’t become worthless), plus a little of this and that.

By doing so, the Fed artificially drives down interest rates on what are traditionally the safest investments—those that people like to put their savings in if they don\’t want to risk losing them. But when the returns on these “safe” investments become lower than the rate of inflation, the risk of loss becomes 100%, and people are forced to choose between other, less “safe” options, and watching their savings slowly evaporate. The pressure to find ways to invest money more gainfully drives money out “safe” investments and into unsafe, speculative ones: stocks, that is. And this has created the bubble in stocks.

At this point, someone might want to ask a perfectly reasonable question: What is the purpose of having a stock market anyway? Well, theoretically, its purpose is to provide public companies with a way to raise money for their operations. Investors look for safe but gainful ways to allocate their capital, and, through their efforts, allocate this capital efficiently, so that it drives an economic expansion, and produces prosperity. But there is no economic expansion, and no prosperity! Maybe that\’s because public companies haven\’t been making use of the stock market to raise funds to invest in productive activities. And what have they been doing instead? They have been taking advantage of very low interest rates to borrow money, and using that money to buy back their own stock:

Why? Because that drives up the price of their stock, and because their chief executives (who already make 300 times more than their employees) are even more hugely rewarded if the stock price goes up. Hearing this causes some people to exclaim: “Hey, that\’s corruption!” No, it\’s just the American way of doing business. But what, pray tell, is the difference? In any case, stock buybacks are now going for a new all-time record. (The previous record was set right around when the entire financial system almost collapsed, in 2007.) According to WSJ, “The rise now puts 2015 on pace to reach $1.2 trillion worth of announced buyback programs, shattering the 2007 record of $863 billion in authorized buybacks, Birinyi said Thursday.”

Now, please note that it is not the purpose of a stock market to keep shareholders happy through borrowing and stock buybacks: this is unproductive for the economy as a whole. Also please note that this can\’t go on forever. The Fed has been lowering interest rates more or less continuously since 1982, when the then Fed Chairman Paul Volcker succeeded in fighting off inflation by briefly hiking the rate up above 18%. Continuously dropping interest rates make it possible for big financial players to gamble with borrowed money almost risk-free. If they gain—great; if they lose—they can still be sure of being able to roll over their debts at a lower rate, and play again.

But then in 2009 the Fed funds rate went to zero, and stayed there. This condition has a fancy name: Zero Interest Rate (Monetary) Policy, or ZIRP. Because it\’s an actual “policy,” that makes it all right; it\’s the difference between falling flat on your face because you tripped and stretching out on the sidewalk just to do some yoga.

The rate would like to go negative, but it can\’t. Because, you know, that\’s the kind of debt even I wouldn\’t turn down (by the way, I don\’t have any debt). It\’s the kind of debt where you give me your money, and then you keep paying me periodically to hold on to it, or spend it, or gamble it away—that\’s none of your business—until forever, because I have no intention of ever paying you back; I\’ll just keep rolling it over at ever more negative interest rates, and you will have to go on lowering them, because if you don\’t I might cut down on my gambling and crash the financial system again. If you agree to these terms, then you might as well also give away your wallet and your car keys—just to see what happens.

The Fed dropping interest rates below zero would be approximately as funny as that. And so the Fed funds rate is stuck at zero: it can\’t go down and it can\’t go up. The Fed keeps making periodic threats about raising it—by a whopping 1/4 of 1%—and this causes a brief swoon in the financial markets each time, but then everything goes back to normal (if you want to call it that). If the Fed ever did raise the rate, that would pop the bubble, and we\’d be right back to collapsing like it\’s 2007.

It is worth noting that these financial shenanigans are having a profound effect on the real economy of jobs and goods and services: they are starving it. Many observers have noted that the Fed\’s actions are driving up wealth inequality to ever-greater heights. But this is just blah-blah-blah: wealth inequality in the US has been on the rise practically forever, with just a few minor setbacks here and there, so there is nothing new here. Ever-increasing wealth inequality is as American as eating out of a bag, neck tattoos, gaudy diamond engagement rings, knee-length swimming trousers and Mickey Mouse. They might as well claim that Fed policies are making Americans fat, lazy and stupid. Are they?

But the ever more bloated financial sector is definitely crowding out the other sectors of the economy—ones which actually produce goods and services that people use. No matter how easy monetary policy becomes, the opportunities to invest in the real economy just aren\’t there. Consider:

• You want to invest in agribusiness? Well, Americans are already fat as pigs; the last thing they need is more high fructose corn syrup.

• You want to invest in the automotive industry? Well, the people are already spending an average of 14% of their waking hours driving mostly short distances, sitting in traffic, breathing carbon monoxide and giving themselves mild but progressive brain damage; where do you want to go with that?

• You want to invest in gadgets? Well, Americans are already glued to a screen of one sort or another throughout most of their waking hours. Sure, there are lots of business plans out there, but most of them look a lot like this:

1. Monetize sexting (or whatever)
2. ???
3. Profit!

(By the way, I think that\’s called Snapchat, and its valuation is around $15 billion.) But none of them seem like real breakthroughs, because they still require people to be glued to their little screens 24/7, and we have already achieved that. We\’d need to make gadgets for their gadgets to play with, to free up their time so that they can get something useful accomplished, but nobody has figured out how to do that yet.

• You want to invest in military hardware? Well, nobody wants tired old American stuff; just about everybody—even our friends the Iraqis, and now even the Saudis—are interested in buying Russian. Plus the Americans don\’t even know what to do with the stuff they already have. Accidentally give some more of it to ISIS or to the Yemenis? Abandon it in Afghanistan for the Taliban to play with? The latest plan is to stockpile it on Russia\’s borders, so that the Russians can use it for target practice, blowing it up with their long-range artillery without having to invade anyone.

And so on.

And so all that Americans can do with all this free money is gamble with it. There are lots of worthwhile ways to spend money—build public transportation, for instance—but the problem is that none of them make money. And that, stupid though it seems, is a requirement. But creating a huge, wasteful financial casino alongside the real economy doesn\’t help the real economy—it crowds it out. And it doesn\’t really make money either; it makes bubbles. This should in some measure explain the more or less continuous economic shrinkage that has been happening in the US so far this century.

It is also worth noting that, dire though these negative effects already seem, Americans have by no means seen the worst of it yet. The story one commonly hears is that the US is the richest country on earth. Well, that may be true, on average, if you include financial wealth (which tends to be rather ephemeral), overvalued real estate (which is another great big bubble), promises that won\’t be kept (such as the various retirement schemes that will never pay out) and much else that isn\’t quite real. But it is definitely true that the US also has the largest group of incredibly poor people—much poorer than the poorest person in the poorest country on Earth.

Their wealth is measured in the hundreds of thousands of dollars—but with a negative sign in front. They are deep in debt from investing in overvalued real estate (most houses in the US aren\’t really worth the skinny little sticks that hold up their roofs), or from getting an overpriced higher education (which has qualified them to serve coffee), or from running up other kinds of debt. Some of them may still look rich and prosperous for the moment, but that\’s only because… you guessed it, four whole decades of ever-lower interest rates! Once interest rates start ticking up, and their entire incomes are gobbled up by interest payments, they will start looking as destitute as they actually are.

How might this transition come about? Well, it might be catastrophic: some day some fat pig of a trader comes back from his 1000-calorie buffet lunch and passes a massive volume of gas. His explosive flatulence causes his colleagues to either faint, projectile vomit all over their trading terminals, or run for the exits. In the meantime, their high-frequency trading algorithms, left unattended, flash-crash the entire financial system to kingdom come.

But let\’s not wax apocalyptic here, because a much more mundane scenario will do just as well. Some day soon the stock market suffers a wee drop. This causes a little bit of a shuffle toward the exits and into “safe” investments in the form of US government debt. But that day there are a few more sellers of US government debt than usual, and the price of it drops. That\’s because over a third of it is held by foreign entities, many of which have been working hard to get out of the US dollar for some time now. China is at the top of the list with $1.3 trillion in US Treasuries, and has been busy signing bilateral trade agreements that circumvent the dollar system. Spooked by the sudden drop, foreigners start dumping US Treasuries. The traders see an advantage in getting out of stocks and into the suddenly much cheaper Treasuries, the trickle turns into a stampede, and stocks and Treasuries both crash because there are now many more sellers than buyers of either.

Next, the sellers of Treasuries rush to sell off their hoard of US dollars for other currencies—the ones they now use to trade with each other—and the dollar drops in value. The resulting scene looks like this. The stock market has cratered (so it\’s time to break open your child\’s piggybank and buy her a handful of railroad and utility stocks). US Treasuries are trading at a fraction of their face value, promising huge gains once they reach maturity—but to be paid out in worthless dollars. The Fed is helpless to do much of anything except print-print-print more worthless dollars as long as there is more paper and the lights are still on. The US Treasury starts trying to issue debt denominated in foreign currencies—with poor results, because foreign investors think that the US is too risky. The terms “capital controls” and “national default” are thrown around, just like they are in Greece at this very moment.

Regardless of what the Fed tries to do or say, the effective new interest rates are much higher, and most borrowers are no longer able to roll over, never mind expand, their debt. This includes the federal government, US states and municipalities, and corporations: kiss your benefits and your retirements good-bye. For importers, securing access to imports, such as oil, now involves borrowing in foreign currencies—at exorbitant rates of interest because the US is now a bad credit risk.

It is only at this point that I imagine an appreciably large number of Americans will put down whatever they happen to be mindlessly stuffing into their faces, pull their eyeballs away from the nearest screen, look at each other and ask: “Why did this happen?” Well, I am no financial expert, and yet I was able to piece all of this together based on freely available information, much of it from the US Government and the Federal Reserve, the rest from sources such as, which I know and trust, and from having watched things collapse at other times and in other places.

So, let me ask you some questions: What, if anything, is unclear to you about any of this? Does any of this come as a surprise? Why do you think this is this so difficult for so many people to understand? and, What are you waiting for?

Fundraiser Update

The fundraiser…

…is over! Many thanks to all 506 of you who donated, and especially to William who generously gave $217 just now to drive it to exactly 100%.

The Magical Content Tree


A long, long time ago books were very expensive. They were produced by copying them by hand, page by page, onto parchment, by very poor monks toiling in their monastic scriptoria, but the books they produced turned out to be expensive anyway. The aristocracy could afford them, and, of course, the clergy, but the laymen had little access to the written word.

Things were somewhat better in other, more technologically advanced parts of the world. The Chinese invented paper shortly before 200 BC, and by 200 AD lots of Buddhist texts were being mass produced using wood block printing. This know-how slowly diffused west, reaching Moslem Spain a few centuries later. By 1400 AD the art of paper-making made it all they way to the most backward of European provinces—Germany.

But then came a surprise: a German craftsman by the name of Johannes Gutenberg introduced moveable type: the ability to compose printed pages using reusable letters cast from lead. His legacy is still with us: the people who compose text for printing are still called “typesetters,” because once upon a time they physically set type, and the gaps between lines of text are still referred to as “leading,” because they used to be produced by inserting thin strips of lead. This innovation reduced the cost of producing books by orders of magnitude, making it possible for people of modest means to acquire a library. Gutenberg\’s breakthrough is one of the most important bits of disruptive technology to come around, along with the steam engine and the nuclear bomb.

But an even bigger disruptive transformation occurred with the advent of the internet, which entirely decoupled the act of reproducing a work from the act of producing it in the first place. In effect, by investing in computing hardware and by paying for an internet connection, everybody gets access to a printing press. Once the equipment has been paid for, the incremental cost of producing another copy of something is zero. The overall cost is, of course, higher than ever; there is a good reason why Microsoft made fantastic fortunes with their mediocre, buggy products, or why Apple Computer is the public company with the highest market capitalization.

If you look at cost versus utility, many families now spend hundreds of dollars a month on smartphones, tablet computers, laptops, e-book readers, internet services, cellular phone services and so on. Were they to spend an equivalent amount on paper books and periodicals, they would amass a fantastically huge library in no time. Some people also pay for content—they purchase e-books, subscribe to premium services and so on—but most of the “content” they “consume” is free, paid for by advertising, or by promises of future revenue or increased market share, or by some other intangible, or—the most important category of all—by nothing at all.

If an equivalent arrangement prevailed during the age of scribes toiling in scriptoria, most of the money would be allocated to the makers of ink and quill pens, and parchment would have to be free, with the scribes featuring as unpaid labor. During the age of moveable type such an arrangement would mean that only the press-makers would be paid well, with the typesetters and the pressmen working as slaves. But, odd though such an arrangements would have been, they would not have precluded the authors of the works so produced from earning something from their mental exertions, because the fruits of their labor would still be bound, in some tangible, immediate sense, to their physical embodiments, and because there would still be a stock-in-trade involved: a book, a column of newsprint or a section in a periodical.

But now, once an author clicks “post” or “send,” the work instantly enters the public domain as an ephemeral string of binary digits: anybody can republish it or circulate it free of charge. There are a few methods available for avoiding this scenario, but they all have severe limitations. Let\’s enumerate them:

1. Sell advertising. The easiest way to do this is to incorporate banner ads into a web site. On a reasonably popular web site, such as this one, this produces a few hundred dollars a month. Earnings seem to be in the neighborhood of $1 per 1000 impressions (ads shown) but results vary. But this scheme is rather limited, because a web site that publishes works by a single author can never be as popular as a web site that combines the works of multiple authors without paying them. For instance, I may get 10,000 reads on an article I write on this site, but when it gets re-published free of charge on any number of other, more popular sites, it gets read 30,000-50,000 times on each one, and the ad revenue (if any) goes to them, not to me.

2. Sell self-published books. The new technology has made this a relatively easy proposition, and a popular blog provides a good marketing venue for self-published books. But there is a problem here as well: many people are used to finding things they want to read without having to pay for them. Out of a thousand web site visitors, perhaps a single one will order a paper book.

3. Sign up with a publisher. This has a few advantages over self-publishing, especially for people who don\’t have experience with self-publishing, but the publisher gets to keep 90% of the revenue. In general, this makes sense only for extremely popular authors. I have tried this before, and I doubt that I will try it again. I just started Club Orlov Press, which uses a new model that leverages print-on-demand in a way that allows the author to keep 80% of the net royalties. Time will tell whether or not this is a breakthrough.

4. Sell premium services. Once popular scheme is to provide a free teaser, but make people subscribe or pay per view to read the entire piece. This isn\’t necessarily a bad scheme, but it can\’t be the only scheme, because of a catch-22 problem: one doesn\’t become popular by publishing teasers, and if one isn\’t already popular, few people will want to pay to read the rest. I intend to do some experiments and see if I can make it work.

5. Run fundraisers. This, it turns out, is a viable option, but it only works in extreme situations. This is not a viable way of producing a steady income, or for getting paid for one\’s work. In my case, a few million readers translate into a few hundred donors. I expect that I will only resort to this technique exactly once.

And that, my friends, is the situation. I\’ve discussed it at length with many people over the years, and there just isn\’t much to add. My friend Will came up with a good explanation for the shift that has occurred as print went digital and the work of writers became relabeled with the generic word “content.” He said that in the new scheme of things “content” is expected to grow on a mythical “Magical Content Tree.” “Content” just happens, and the internet, using “wisdom of the crowds,” will automatically sort good “content” from bad. Good “content” floats to the top while bad “content” sediments out, and all will be well.

But there seem to be a few problems with this plan. Again, let\’s enumerate.

1. The ratio of good, worthwhile writers to readers is perhaps a million to one. I believe that this is about the right order of magnitude for topics of general interest; it may be as low as one to a dozen in some very specialized domains, but these are special cases. The difference between writing and reading is about the same as between flying a Boeing 777 or an Airbus A-380, and sitting in an isle seat munching on tiny pretzels.

2. Nor is the average pretzel-muncher able to tell a competent Boeing 777 or Airbus A-380 pilot, who will get her there safely, from an incompetent or a mentally deranged one, who will fly the plane into a mountain. The ratio of good, worthwhile authors to readers who are capable of passing qualified judgement on their works is perhaps a hundred thousand to one.

3. The people who are supposed to pass judgement, allowing good writing to float to the top and bad writing to sink to the bottom, do not usefully sort themselves by their ability to do so in any manner. Instead, a completely different phenomenon prevails: those who are the most active, and the most vociferous, are usually the least clued in.

4. The venues offered by social media, where “links” and “posts” can be sorted by using “likes” or “up-votes,” are conducive to a general dumbing-down: worthwhile, original material that requires more effort to understand will not do as well as something dumb but transparent. For example, yesterday I looked at a linguistics blog, and there were two posts. One tried to explain why Russian is closer to Bulgarian than Ukrainian is due to the greater influence on Russian of Church Slavonic. The other claimed that all the Russian words that start with “ukr-” are of Ukrainian origin. The former is interesting but requires special knowledge to evaluate, while the latter is preposterous but, for the utterly ignorant, provocative. Guess which one was the most up-voted and the most discussed?

5. If discussions on social media are to play some sort of role in determining whether “content” is good or bad, then, I am sorry, but that\’s not going to work at all. You see, social media is a poor substitute for normal, healthy human contact, and a symptom of a generalized social sickness: people are alienated, and technology funnels them into these venues in search of something—anything at all—resembling human interaction, so that they can continue to feel that they exist. The people who float to the top in this environment are the sickest: the most alienated, the most insecure, the most adrift. And the people most capable of appreciating good, original work are the least likely to want to participate. People sometimes tell me that, most surprisingly, the comments sections on this blog are actually worth reading. My secret? The “delete” button gets no rest—and neither do I. My apologies to all the trolls, the passive-aggressives, the abusive, the crypto-fascists, crypto-racists and crypto-bigots, the alienated, the lonely, the depressed, the suicidal… But they do not provide good “content.” They are not writers, and they may not even be readers: some of them clearly only read the title of an article, and then see it fit to comment about it. Since many of my titles are puns or plays on words, their comments are sometimes hilariously wrong-headed.

But this is the new lay of the land; we can\’t change it, and we can\’t ignore it. And so, instead, I will be trying a few experiments. There is already Club Orlov Press, with a pipeline that looks healthy, which will take already worthwhile “content,” improve it as much as possible, and make it available in book form, with most of the revenues going to the author. I also plan to do some experiments with paid premium content and with featuring visiting authors. I can\’t promise that any of this will work as well as I think it should. But I can promise that I won\’t be running any more fundraisers.

Spineless, brainless organisms that feed on detritus

View of Boston Harbor on the morning of June 13, 2015

I think this phrase pretty well describes the mainstream media landscape in the US, to which I try to provide an alternative via this blog.

Coincidentally, this is also what most of Boston Harbor looks like at the moment. I snapped this picture minutes ago.

I\’d like to sail to a place that isn\’t brimming with moon jellies, but to do that my sailboat needs a working engine, and I don\’t have one yet. I am running a fundraiser to raise the funds to buy one; if you haven\’t donated yet,

please do so now.

I am very grateful to the almost 300 people who donated anywhere between 13 cents (that\’s 0.0006 BTC) and $1000. But this blog has had 1,813,026 readers, and so far only 0.0165% of them have contributed. That\’s 165 parts per million: low even for an atmospheric CO2 concentration!

Perhaps you believe that good internet content grows on a Magical Content Tree?

Vladimir Ponomarev et alia

No, actually, what you get for free is two-party puppet theater blasted at you 24/7, plus celebrity gossip and pictures of cute kittens playing with yarn. If you are happy with that intellectually nourishing diet, fine; if not,

here is a link for you to click.

Please do so, so that we can return to our regularly scheduled blogging. Thank you.

A new engine for my boat


My boat needs a new engine

A Sad Story—but with a Happy End?

Late last year, as I was sailing my boat south for the winter, the engine failed. I had only made it as far as the Cape Cod Canal, and was able to get a tow back to Boston. By then it was too late in the season to do anything about the engine, so I let it sit. This year, when I tried to fix it, I discovered extensive internal corrosion.

It turns out that the raw water pump had blown its seal and had flooded the engine block with seawater. This is a catastrophic failure: when seawater mixes with engine oil, it forms a corrosive emulsion with the consistency of mayonnaise which inundates every part of the engine. Amazingly, the engine can still be fixed; diesels can be overhauled endlessly. But this engine is a 35-year-old antique, spare parts for it are expensive, it wouldn\’t be as good as new even after a rebuild, and the repair bill would be close to the price of a new, modern replacement engine that is lighter, quieter, more fuel-efficient and much less polluting.

I normally don\’t try to make any significant amount of money from my writing/editing/publishing activities—because I don\’t have to: a combination of frugality and resourcefulness is what keeps us afloat. But once in a great while an unexpected expense, such as this one, pops up, and makes it necessary for me to reach out to my many readers for help. I am happy to continue to do what I do at little or no cost to them, provided I can raise the funds to repower my boat. But if I can\’t, then I\’ll have to curtail my writing/editing/publishing in order to concentrate on making money to pay off the engine.

The target amount of this fundraiser is the cost of the replacement engine, delivered, with all the options that are needed to make it work with my boat. It does not include the week or two of labor it will take to install it, since I plan to do all of the work myself.

To date, my blog has been read by 1,813,026 people. If each of my readers donated just one penny, that would more than cover the cost of the new engine. But of course most of them will not donate anything, so it\’s up to you.

The new engine will increase the value of my boat, a venerable Pearson 365 called Prince Kropotkin, by more than the cost of the engine, and when I sell it (as I eventually will) the money will come back to me, and will enable me to give you more essays and books. So, please don\’t think of it as an expense: think of it as an investment—in me and in my work.



[En français]

A long time ago—almost a quarter of a century—I worked in a research lab, designing measurement and data acquisition electronics for high energy physics experiments. In the interest of providing motivation for what follows, I will say a few words about the job. It was interesting work, and it gave me a chance to rub shoulders (and drink beer) with some of the most intelligent people on the planet (though far too fixated on subatomic particles).

The work itself was interesting too: it required a great deal of creativity because the cutting edge in electronics was nowhere near sharp enough for our purposes, and we spent our time coming up with strange new ways of combining commercially available components that made them perform better than one had the right to expect. But most of my time went into the care and feeding of an arcane and temperamental Computer Aided Design system that had been donated to the university, and, for all I know, is probably still there, bedeviling generations of graduate students. With grad students just about our only visitors, the atmosphere of the lab was rather monastic, with the days spent twiddling knobs, pushing buttons and scribbling in lab notebooks.

And so I was quite pleased when one day an unexpected visitor showed up. I was busy doing something quite tedious: looking up integrated circuit pin-outs in semiconductor manufacturer\’s databooks and manually keying them into the CAD system—a task that no longer exists, thanks to the internet. The visitor was a young man, earnest, well-spoken and nervous. He was carrying something wrapped in a black trash bag, which turned out to be a boombox. These portable stereos that incorporated an AM/FM radio and a cassette tape player were all the rage in those days. He proceeded to tell me that he strongly suspected that the CIA was eavesdropping on his conversations by means of a bug placed inside this unit, and he wanted me to see if it was broadcasting on any frequency and to take it apart and inspect it for any suspicious-looking hardware.

He also told me that he was regularly picking up transmissions from what could only be visiting flying saucers, which showed up in the static between AM stations, and he was wondering if it would be possible to modify his unit so that he could transmit messages back to them, because, you see, he wanted to hitch a ride.

I told him that this is all quite possible; putting a radio transmitter “bug” inside his boombox is something that could have been done, and while I wasn\’t aware of anything in peer-reviewed scientific journals concerning visiting flying saucers, absence of evidence should never be accepted as evidence of absence. As far as converting a receiver into a transciever—we\’d have to think about it. But in order to get any work authorized, he\’d have to talk to my boss, who was sitting right over there, doing something equally tedious, and could probably use a distraction and some amusing company right about then.

The young man thanked me, walked over and sat down next to my boss. I went back to looking up and keying in pin-outs, but looked over at them periodically, and after a while I noticed that their conversation was really dragging on. My boss, somewhat exasperatedly, was trying to explain to him that building an AM transmitter into his boombox for the purpose of communicating with flying saucers is not something our lab could do for him because we worked on government research grants and he didn\’t have one. Eventually the young man left, rather frustrated, and my boss came over to me, looking uncharacteristically furious, and said: “You owe me, buddy!”

All of this happened around the time when Ronald Reagan\’s administration decided to improve the country\’s finances by closing mental hospitals and sending the inmates out into the world to stumble about the streets and stand ranting and raving on street-corners. Our young man was perhaps one such administrative casualty. Back then, such “crazy people” (pardon the non-PC term, but that\’s what we all called them then) were easy to spot. They were disorganized, defocused, addled by some drug, and, in all, behaving strangely. Often they could be overheard talking to themselves, or ranting at no-one in particular, or be seen looking intently at objects that were not there.

These days, of course, such behavior is considered perfectly normal, and the streets are full of people who appear to be talking to themselves (they might be talking on their cell phone, or not; it is hard to tell). A lot of them look defocused or addled by some drug, and that\’s probably because they are on some psychoactive medication—legal or illegal—this being one of the most highly medicated countries on earth, and also the one with the largest, best-developed illegal drug market. Although the prevalence of public ranting doesn\’t seem to have gone up appreciably, perhaps it only appears so due to a shift of venue: plenty of internet forums and social media sites are full of mad rants on any number of subjects.

One may surmise that, beyond providing the mentally ill with a safe and supportive environment, mental hospitals previously served an important additional function: they helped define what\’s normal. When, thanks to Ronald Reagan\’s cost-cutting initiative, it became normal for the mentally ill to walk the streets and mingle with the rest of the people, this eroded the entire concept of normality.

If our encounter were to happen today, the young man probably wouldn\’t have been able to penetrate the lab, which is now behind doors that only open for those with a key fob and under the gaze of security cameras. You see, if your streets are awash with “crazy people,” you need to take security much more seriously. But let\’s suppose that he did somehow manage to breach the perimeter. To be sure, he would be bringing us something other than an old-fashioned boombox. Most likely, it would be the gadget du jour: a smartphone, with a 50% chance of it running Google\’s Android and a 40% chance of it running Apple\’s iOS.

The young man would voice his suspicion that the CIA is using his phone to eavesdrop on his conversations. I would patiently explain to him that the organization in question is the NSA (National Security Agency), not the CIA and that, yes, the NSA is recording the metadata from every single phone call he makes (source number, destination number, time and duration). They can also record his actual conversations, and if they did there wouldn\’t be any telltale clicks, buzzes, echos or static on the line, because it would all be done digitally.

Also, I would helpfully point out that the NSA can use his phone to record his location and track his movements. “But I keep GPS turned off!” the young man would protest, and I would respond that if he has a SIM card in his phone, then the phone emits roaming signals which allow its position to be determined with surprisingly good accuracy by using multilateralization—measuring its relative signal strength at several of the surrounding cell phone towers. To hide his position, he would have to turn the phone off.

As far as communicating with visiting flying saucers, I would simply tell him that “There\’s probably an app for that.”

Do you see the curious role reversal that has occurred in the intervening years? Whereas previously it was “crazy people” who wondered if the CIA was spying on their conversations using their boomboxes, now it is the rest of the country that is crazy: the NSA is indeed spying on all of them, but they consider this to be perfectly normal, and continue to walk into voting booths and, like well-trained lab animals, repeatedly pull the lever for the same people who had instituted this insane, purposeless, yet very expensive surveillance regime. Whereas before such people were locked up in mental hospitals while the rest of us walked around freely, now it is the few remaining relatively sane people who are locked up inside security perimeters and behind locked doors, with entry granted only to the select few and always under the ever-watchful all-seeing eye of the security camera, while the “crazy people”—the population at large, that is—is kept outside.

Uncontrolled ranting—previously suppressed through confinement in mental institutions and medication—is now encouraged via social media, with an ever-expanding menu of rantworthy topics just a click away:

• 9/11 inside job
• global warming a government conspiracy
• contrails
• peak oil
• MMR vaccine causing autism
• rising ocean levels
• Obama being a space lizard
• the Federal Reserve undermining the country\’s financial system
• the plastics plague
• Putin taking over the USSR
• near-term human extinction due to Arctic methane release

Pick and choose, mix and match—it doesn\’t matter which of these have a basis in consensual reality, and which don\’t, because, you see, you are all “crazy people” now, and everything you say (on social media, because unmediated face-to-face access to other humans is now a rarity) is automatically a mad rant.

Taken to its logical conclusion, this progression ends in the gadgetization of the human brain itself—through neural implants. Then the choice of rantworthy topics, such as the ones listed above, would be controllable through a centralized administrative interface. So, for instance, if it turned out that Obama were indeed a space lizard (how embarrassing!) the administrator would simply click on “conspiracy theories,” click on the checkbox next to “Obama is a space lizard,” and click “uninstall.” Suddenly, Obama would no longer be a space lizard, or so the “crazy people” (the population at large) would be forced to immediately admit.

One problem is that “crazy people” tend to be rather unpredictable, but here too we should expect technological improvements. They would be transported in driverless cars which would tell them where they want to go rather than allow them to make potentially incorrect decisions, and, pièce de résistance, when traveling on foot, there would be a way of putting your entire body in “slave mode”: instead of your brain potentially disobeying commands from your integral GPS unit\’s voice inside your head (“at the next corner turn right, etc.”) it would be your legs that would be doing the obeying. Your brain could be otherwise engaged: watching porn, listening to hip-hop or simply vegetating in a state of chemically induced rapture. This feature would be particularly useful on election day: voters would automatically march to poling stations and always be sure to pull the correct lever, improving voter turn-out and making the country more democratic than ever.

And if a young man were to breach the security perimeter and sneak into the lab to tell me that his cat is feeding him coded messages in Swahili, I\’d just connect wirelessly to his neural implant, bring up his page in the admin interface, say something like “Wow, that\’s a weird bug!” and a few clicks later the faulty app would be uninstalled, and he would no longer have a cat, or even remember that he ever had one.

And that, my crazy friends, is how better living through technology will be achieved in our country-sized open-air insane asylum.