Not Everyone Should Own a Home. Amen. What the Australians, the Europeans, and those who actually have to make their living in banking all get is that many, many people lack the means and others the responsibility to own their own homes. What was lacking in the run-up to the current bubble was not regulation. On the contrary, what was lacking was a free market – lenders were pressured more and more forcefully into suicidal maneuvers; most of them, facing oppressive government in the short term, opted for the long-term risk, held their noses, and took the plunge. And here we are, having inflated credit and the nominal money supply beyond all reasonable bounds, watching institutions which weathered two world wars and the Great Depression fold on a weekly basis. Methinks the problem was not leaving them alone too much of the time…
As a math major, law school grad, and economic policy wonk, I’m not sure which aspect of this stupidity by the New York Times horrifies me most. Is it: that people think we do tax at those rates, that some people think we should, that no editor caught the logical flaws before publication, or that this kind of thing happens all the time in other circumstances and goes undetected more often than not?
Economics professor Greg Mankiw shares some interesting thoughts, citing Paul Krugman, on why Bush’s tax cuts may result in smaller government in the next administration than we would get otherwise. This is likely true, no matter which candidate wins. Krugman, however, calls this a “poison pill,” a way of sabotaging a takeover or transfer of control, lamenting that, “looking at the tax proposals of the two presidential candidates, it’s remarkable and disheartening to see how effective President Bush’s fiscal poison pill has been in restricting the terms of debate.”
As Mankiw points out, though, the situation is not “entirely negative.” Indeed, for those of us who are classical liberals or – gasp – conservatives, a restricted debate in terms of how and how much the federal government can spend is not necessarily a bad thing. Tax increases of the type Obama plans will not cure deficit spending. This is true both because of something called a Laffer curve (higher tax rates do not always equal proportionally higher tax revenues, since capital often goes elsewhere or stops working) and because governments are greedy beasts – the more food you give them to cure their shortages, the bigger they get. This is why despite tripling tax revenues between 1932 and 1940, that period saw not a reduced deficit, but a 33% deficit growth.
Thankfully, the Republican party, for all its failings in the last few years, has still some concept of fundamental principles of economics. The Senate blocked a windfall profits tax on oil companies, a tax much like many of the taxes that prolonged the Great Depression in America long past its end elsewhere. Thank goodness for small blessings.
Or rather, 230,000 of them? That’s the promise (and achievement) of Ning, the latest effort by serial entrepreneur Marc Andreessen. The principle is simple: let people create their own social networks, for whomever and whatever reason. The results are amazing: the site is growing at 0.4% per day and aiming to host 4 million networks by the end of 2010, with billions of daily page views. That is a lot of users and a fortune in potential revenue.
Now, this is all information you could get elsewhere, like this excellent article from Fast Company. Andreessen is arguably the greatest entrepreneur of our generation, maybe of the entire Information Age to date (John Rodkin, my Business of Entrepreneurship for Lawyers seminar lecturer, thinks so). He is not the richest, of course, but Andreessen has a remarkable string of entrepreneurial successes. He co-founded Netscape (with Jim Clark, one of the founders of Silicon Graphics), which went public and was later purchased by AOL for $4.2 billion. He then founded the web hosting services company Loudcloud, which went public, sold a division, and was acquired for approximately $1.6 billion. That’s quite the record. Ning now has a valuation over half a billion dollars. Taking that into account, Andreessen has a simply amazing record.
Part of the reason for Andreessen’s success is his use of “viral expansion loops” (like viral marketing, but on crack). From the Fast Company article:
Here’s something you probably don’t know about the Internet: Simply by designing your product the right way, you can build a billion-dollar business from scratch. No advertising or marketing budget, no need for a sales force, and venture capitalists will kill for the chance to throw money at you.
The secret is what’s called a “viral expansion loop,” a concept little known outside of Silicon Valley (go ahead, Google it — you won’t find much). It’s a type of engineering alchemy that, done right, almost guarantees a self-replicating, borglike growth: One user becomes two, then four, eight, to a million and beyond. It’s not unlike taking a penny and doubling it daily for 30 days. By the end of a week, you’d have 64 cents; within two weeks, $81.92; by day 30, about $5.4 million.
Viral loops have emerged as perhaps the most significant business accelerant to hit Silicon Valley since the search engine. They power many of the icons of Web 2.0, including Google, PayPal, YouTube, eBay, Facebook, MySpace, Digg, LinkedIn, Twitter, and Flickr. But don’t confuse a viral loop with viral advertising or videos such as Saturday Night Live’s “Lazy Sunday” or the Mentos-Diet Coke Bellagio fountain. Viral advertising can’t be replicated; by definition, a viral loop must be.
Ning takes this a step further with “double viral loops;” a social network, by definition, is a kind of viral loop (think Facebook, MySpace, etc.), while a network of (or platform for) social networks gives each user the opportunity to create their own viral loop. Thus, the double viral loop, perhaps the most fiendishly clever marketing device yet thought of, is born.
Andreessen is probably as good a model as the enterprising web geek could want. If this is interesting to you, I strongly recommend checking out Andreessen’s blog and soaking it all in. Meanwhile, think you can build a community around your obscure hobbies? Ning has you covered.
Both Sarah and I are going to be blogging and commenting at Professor Picker’s Antitrust & Intellectual Property seminar blog (called, for some reason, the Tech Policy Seminar blog) this quarter. The current topic of discussion is Jean-Noël Jeanneney‘s Google and the Myth of Universal Knowledge, translated from the French Quand Google défie l’Europe: Plaidoyer pour un sursaut (“When Google Challenges Europe: A Wake-Up Call”) by Teresa Lavender Fagan. This paranoid little work of eighty-nine pages from the now-former president of the French Bibliothèque Nationale was written less as a “wake-up call” to Europeans than as an assertion of the importance of Europe in the face of its declining influence on the world. Nonetheless, the blog features some interesting discussion.
I am, I admit, a paleocapitalist and (mostly a) paleoconservative. That said, I do not think oil company executives – or any other corporate executives – should have to defend their company’s profits, unless illegally gained. For that reason, this meddling strikes me as ridiculous. Lest we forget, oil is among the most volatile and fragile commodities markets, and one in which extremely large players necessarily dominate (at least on the transportation and distribution sides, if not necessarily in exploration). Large companies + large demand = large profits + large risks. There is always the risk, if not the certainty, that much of the profits major oil companies set aside today will disappear tomorrow due to actions by OPEC or Chavez, diminishing supply, or some other forces beyond any executive’s control.
Part of living in a capitalist society means accepting this state of affairs as generally good. We allow – even embrace and reward – those who are willing to take risks and build socially productive enterprises, because they reduce inefficiencies in a given market in ways that governments, time and time again, have been proven incapable of doing.
Meeting a demand with a legally obtained supply at a legally determined price the consumer is willing to pay is called being a good business person. That never should require defending one’s rational actions to the government.