Jazz at the Village Vanguard on NPR

Lynne Kiesling

A serious shout out to Orin Kerr at Volokh for pointing out NPR’s live broadcasts from the Village Vanguard. I think the KP Spouse and I may have to listen to the Ravi Coltrane Quartet recording over Memorial Day weekend!

No regulator has or will have the information, expertise, or ESP required to do this

Michael Giberson

The title is lifted directly out of Craig Pirrong’s post on the Treasury departments proposal to “crack down on off-exchange trading of exotic financial instruments blamed for sparking last year’s crisis” (in the words of yesterday’s WSJ article).

The Treasury wants derivatives contracts that commonly trade over-the-counter to trade through a centralized clearinghouse offering a common counterparty. Not all derivatives contracts are standardized enough to trade over-the-counter, and the Treasury proposes to not subject customized derivatives to the clearinghouse requirement. That raises the issue of how you prevent interested parties from customizing their otherwise standard contracts “just enough” to avoid the requirement. Treasury proposes to make clearinghouses responsible for ensuring customization doesn’t allow parties to skirt the clearinghouse requirement.

On this last issue Pirrong said, “It suggests a serious failure to think things through” on the part of the Treasury.

More to the point, Pirrong observes:

If they decide to prevent the use of customization to circumvent the clearing requirement, as it almost certainly must if the clearing mandate is to survive, Treasury and Congress will require a regulator to enforce the circumvention ban.  This would require an incredibly intrusive regulator, evaluating the design of every contract, and the intent behind it.  I can state almost categorically that no regulator has or will have the information, expertise, or ESP required to do this.  Moreover, this will just throw us back into the days of pre-CFMA requirement that all “futures” be traded on exchanges.  Not a good thing. This created regulatory uncertainty, legal ambiguity, and served to protect the interests of exchanges.  One can only imagine the Talmudic inquiries that would be involved in determining whether a particular derivative is, or should be cleared, or was designed to escape a clearing mandate.

Exactly so.

The bicycle paved the road for automobiles

Michael Giberson

From Inventing Green, where WIRED writer Alexis Madrigal is blogging his research notes for a forthcoming book The History of Our Future, a discussion of how bicycling may have given the internal combustion engine an early leg up in its competition against steam and electric-powered automobiles (and eventually made the roads unsafe for bicycling). Here is the start:

The bicycle, quite literally, paved the road for automobiles. The explosive popularity of the human-powered, two-wheeled vehicle sparked road construction across the Western world’s cities. The League of American Wheelmen was a major vector for the political will necessary to build better roads with more than one million members (out of a mere 75 million people) at its peak. Sure they engaged in silliness like racing and bicycle polo (!) but at heart, the group was a potent, progressive social force that inadvertently helped bring about its own end by getting roads paved, thus making long distance “touring” possible in automobiles.

Later in the post Madrigal passes along a selection from the League of American Wheelman’s pro-pavement propaganda, The Gospel of Good Roads, in which, as he puts it, “the state of American roads is compared, through a long and hilarious anecdote, to a drunk-ass husband.”

Recently Madrigal has blogged windmill catalogs and the dangers of steamboat travel, explored the work of 19th-century utopian John Adolphus Etzler, reported on just how many buggy whip makers there used to be in Louisville, Kentucky, and tossed a shout out to the American Wind Power Center and Museum.

Fabulous images accompany many of the posts.

Great stuff.

Perennial gale of creative destruction, personal wireless division

Lynne Kiesling

Even if it doesn’t end up being the disruptive innovation that these articles suggest, Verizon’s MiFI personal wifi hotspot device makes my little Schumpeterian heart go pitter-pat. Released yesterday, the Verizon MiFi (device by Novatel) is a credit-card sized 3G wireless router that can provide wireless Internet connection for up to 5 devices. Battery powered, 4 hours of service when not plugged in, reviews suggest that it’s interoperable and easy to set up. Good reviews of the product are at Engadget Mobile and the New York Times.

There are two aspects to the potential commercial success of this product: the technical features of the device, and the service contract under which Verizon is willing to offer it. For now Verizon is offering it at two different capacity levels (250 MB and 5GB per month), and pricing it at somewhat more than contracts for other air card wireless services.

But for my part Derek Thompson at the Atlantic made what is the most intellectually interesting point in this new development:

It could signal the end of cell phones.

That’s a big statement, so let’s back up a second. Three weeks ago, I cited an argument that VoIP (“voice over internet protocol”) could replace cell phones because dialing over the internet is much cheaper than dialing through a national cell phone network. The problem was, if you need the Internet to make calls, you’re going rely on Cosi shops and other hotspots for service. Three weeks ago, you couldn’t live in a permanent wifi cloud. Two weeks from now, you can.

That means that you won’t need a cell phone — or at least a cell phone plan. As long as you have a device with a speaker and audio that can connect to the Internet, like an iPod Touch, you can use Skype to make all your calls because the service provider (the Internet) is always in your pocket. Verizon plans to charge $40 a month for basic service. Not a bad deal for all-you-can-eat browsing and calling over the Internet.

It’s interesting to think about whether or not Verizon’s got a long-run strategy here relating to whether or not this kind of device will make their mobile phone business obsolete. I don’t have a particular answer, but raising the question is important. One potential future path involves the growth of their MiFi contracts while their phone contracts fall, implying that the MiFi and the phone are substitutes. Another potential future path would be if their MiFi contracts grow while they sell devices for browsing and calling over the Internet; in this case their phone business could morph into a device business. And I’m sure there are other options beyond my imagination.

But here’s why I think that Verizon possibly sowing the seeds of their own creative destruction is interesting — the convergence of all different communication platforms to the Internet. Over the past 25 years we’ve been moving from an analog telephony platform based on copper wires to a combination of wires/wireless digital telephony separate from the Internet, and now we may be seeing the beginning of the convergence of our formerly separate communication platforms into an Internet-based digital platform. Verizon has been installing fiber optic cable for digital backbone and for consumer applications (such as their FIOS offerings in the mid-Atlantic). Thus I see Verizon’s long-term strategy as one based on their investment in fiber optic to create a single digital communication platform using Internet protocol, on which voice becomes just another application.

So if they are sowing the seeds of the creative destruction of their mobile phone business, I think it’s because they’ve already got another business model in their sights, in which their phone business transitions over to being another application on their fiber optic platform.

Gasoline retailer opposes a zone pricing ban in Connecticut

Michael Giberson

An effective zone pricing ban in Connecticut would have the effect of equalizing the wholesale price to gasoline retailers in the state. As such, it would benefit some retailers and harm others.

TheDay.com presents commentary from an owner of a retail gasoline station who expects to be harmed by the zone pricing ban currently under debate in the state:

Like the cost of living, the cost of doing business in Connecticut varies widely depending on your location…Retailers are given the flexibility to price their goods as a reflection of their overhead, as well as recognizing what their competitor down the street may be charging. The same system is used for the sale of gasoline…

If distributors are required to sell gas to dealers like us at the same price regardless of what external marketing conditions might be, we will not be able to compete and will very quickly go out of business.

A bill against zone pricing would benefit a very small, wealthy population and would have a devastating impact on eastern Connecticut’s residents. We have managed to keep our doors open in the midst of a financial crisis… Now, as the summer travel season approaches and the light at the end of the tunnel nears, our livelihood is once again in jeopardy as a result of a short-sighted attempt to cut gas prices for a select group of Fairfield County residents.

As I said of the New York zone pricing ban which went into effect last November, in essence a zone pricing ban is consumer protection for the affluent. This “protection,” if it has any effect at all, will come primarily at a cost of higher prices and poorer service in less affluent neighborhoods.

NOTE: Search for all zone pricing posts at Knowledge Problem.