Bottom-up

'Property Rights' in New York

I was pleased that Jerry Brito invited me back as a repeat guest on his podcast, Surprisingly Free Conversations. We talked about network neutrality, spectrum policy, and software patents. I thought it came out really well, and I encourage you to give it a listen (and subscribe if you’re interested in tech policy).

Jerry and I seemed to be on the same page on two of the topics, network neutrality and software patents. But because disagreements are more interesting, let’s talk about the issue where we didn’t agree: spectrum policy. Longtime Bottom-Up readers may remember the debate Jerry and I had about spectrum policy back in the Spring. The podcast gave us a chance to hash out those disagreements in an interactive format. This sharpened my understanding of his perspective, but didn’t persuade me.

Near the end of the segment about spectrum policy (around minute 43) Jerry concludes that in his ideal world the FCC would auction off the WiFi band and self-deprecatingly describes this as the “market extremist” position. I don’t think auctioning off the WiFi band is a good idea, and I also don’t agree with his framing: there’s nothing about free-market principles that demands that all spectrum be exclusively licensed.

The core issue here is over alternative approaches to dealing with over-use of scarce resources. From a free-market perspective, the best situation is one in which the government doesn’t have to regulate the use of a resource at all. This is how we “regulate” sunlight, for the most part: there’s enough to go around, so (with a few exceptions, like tall buildings in New York) you’re free to as much sunlight as you can find without government restriction.

However, most resources are subject to scarcity or congestion. And the policymaker has several possible approaches to dealing with these problems. One approach is to create a limited number of exclusive property rights of the use of that resource. This is (mostly) how we regulate the use of land, minerals, cars, pencils, and so forth. Another approach is to regulate peoples’ conduct in ways that minimizes congestion. This is (mostly) how we regulate the use of sound waves, public parks, lakes and rivers, etc. Still another approach is to rely on the tort system: have no formal rules in place, but allow neighbors to sue one another if they behave in ways that interfere with their neighbors. Finally, policymakers might decide that all of these “cures” are worse than the disease and decline to regulate at all, in which case we just have to put up with some congestion.

Of course, most resources are controlled using a mix of these techniques. For example, for the most part, pollution is controlled by burdensome regulations of smoke stacks and tail pipes, but some pollutants are controlled by tradable property rights, and (as I pointed out before) the Obama administration’s “cap and trade” proposal is a property-oriented approach to limiting carbon emissions.

Similarly, traffic congestion is mostly handled through regulations—stop lights, congestion tolling, parking rules, etc—but some cities also utilize property rights regimes. The city of New York, for example, uses a property rights system to regulate the number of taxi cabs on the street. There’s a free market in taxi medallions. They’re bought and sold on the open market, and they’ve proven to be a good investment.

Now, you could argue that the “market extremist” position on New York traffic congestion is that the city hasn’t gone far enough in the direction of property rights; that the city should require all vehicles in the city to have medallions. That would relieve congestion while ensuring that the medallions (which represent scarce space on city streets), would go to their highest-valued use.

But of course, most free-market advocates (including this one) don’t make that argument. Because there’s nothing about free-market theory that says that more property rights are always better. Sometimes the creation of a new property right is the most efficient way to regulate the use of a new resource. But in other cases, a government-created property right winds up being more burdensome and intrusive than other approaches (like stoplights or congestion taxes).

The question advocates of free markets (“extreme” or otherwise) need to ask is not: which property rights should we create? Rather, we need to ask: which set of regulations prevents congestion at the lowest cost in liberty? You want the set of rules that maximizes individual freedom; rules that are clear and predictable and give government officials as little opportunity as possible to make mischief. Taxi medallions are property rights of a sort, but they severely distort the market, giving the government, rather than the forces of supply and demand, power over the number of taxi cabs.

So to get back to spectrum policy, the ideal regime would be one in which there was no spectrum rules at all and devices self-organized to avoid interfering with one another. Given that that’s not within the realm of technical possibility, the questions we should ask are: which set of regulations maximizes the freedom of individuals to use the spectrum as they choose? And which set of regulations will lead to the most efficient utilization of spectrum? Jerry’s preferred scheme of exclusive licenses for the entire spectrum doesn’t fit the bill because it puts a thumb on the scale in favor of large, capital-intensive firms that can win multi-billion dollar auctions. (Yes, some firm or charity might win an auction and choose to create a WiFi-style band, but such applications would be very much second-class citizens.) Similarly, a “pure” commons regime doesn’t fit the bill because it only leaves room for small-scale, short-range applications like WiFi. What’s needed is a policy that accommodates both uses.

Jerry argues that the government isn’t good at choosing between the two strategies, and so we should let “the market” decide. But the structure of the market—whether frequency bands will be exclusively licensed, or not—is a distinct question from who will own those rights once they’ve been created. The decision that all spectrum will be exclusively licensed is a government choice whose consequences can’t be fully corrected by subsequent market transactions. Jerry’s is an extreme position, to be sure, but it’s not a position that’s dictated by free-market principles.

The Washington City Paper has a profile of David Alpert, who runs the excellent Greater Greater Washington blog (and has been known to read Bottom-Up on occasion). The City Paper says Alpert has used the GGW blog to become “arguably the District’s most important advocate on issues of planning and development.” By focusing on specific local issues like parking mandates and streetcar lines, Alpert has made Jane Jacobs-style urbanism a force to be reckoned with in the DC area.

As Matt Yglesias points out, Alpert represents a new model of political engagement, using the new tools of the Internet to assemble a local political coalition that would have been hard to create using more traditional tools. But I was also struck by this passage:

In 2007, Alpert’s future wife Stefanie got a job in the D.C. office of law firm Wilmer Hale. The couple decided to move, and Alpert left Google behind. “When I started at Google, if you had an idea, you could run it by Larry or Sergey at lunch,” Alpert says, referring to company founders Larry Page and Sergey Brin. “By the time I left, it was 15,000 people, and there was a lot more process…Getting a product done was more about navigating this process and navigating the bureaucracy or the competing interests, as opposed to spending your time coming up with ideas.”

Of course, it wasn’t quite as scary for Alpert to quit his job as it might be for most people: Though he declined to elaborate on his personal finances, let’s just say that six years at Google left Alpert sufficiently well off that he wouldn’t need to scour the want-ads for a long, long time.

This got me thinking about tax policy. I gather that Alpert started at Google around 2001 and presumably made a ton of money when Google had its IPO in 2004. If we still lived under the tax regime of the 1970s, and his payout was large enough, he’d have paid the top marginal rate of 70 percent on most of it. In the 1950s, it would have been 91 percent. In contrast, the top marginal rate in 2004 was just 35 percent.

One of the perverse things about the confiscatory tax levels that prevailed in the mid-20th century is that it created systematic disincentive to do high-risk, high-reward entrepreneurship. Given a choice between a startup with a 20 percent chance of paying $10 million after 5 years, or working a steady corporate job at $100,000/year for 20 years, there’s a good case for taking the former option. But if the $10 million is going to be taxed at 70 percent (so you’d only get $3 million if the business succeeded), young, smart workaholics are far more likely to take the safe corporate job with the lower marginal tax rate. And of course things look even grimmer if the top rate is 91 percent.

Notice also how hard it would be for someone to do what Alpert is doing without being in his financial position. GGW is incredibly successful as a vehicle for citizen involvement, but I doubt it gets enough traffic to pay anyone’s rent. And it would be incredibly difficult to persuade a third party like a foundation or think tank to pay someone to do a niche blog like GGW. Only when the same person has both the relevant knowledge and interests and the financial resources to focus on it full-time is this kind of work possible.

This is a point I’ve made before about people like Mark Shuttleworth and Jimmy Wales. The effectiveness of philanthropic efforts is a function not only of the amount of money being spent but also of who’s spending it. People tend to be most effective when they’re spending their own money on stuff they’re passionate about. Which means that there are large benefits from the fact that, thanks in part to changes in tax law, millions of Americans are now wealthy enough to pursue their idiosyncratic (and maybe not very profitable) passions full-time.

Alex Massie of Britain’s Spectator offers a European perspective on the future of liberalism:

Libertarians dreaming of nirvana – or conservatives who think libertarians can’t possibly forge any meaningful, if even temporary, alliances with the left – are starting from the wrong place. At some point you have to deal with the world as it is, not how it might be had everything been different from the beginning.

So, sure, you wouldn’t start with something like the NHS. And you might not sign on to every aspect of German labour laws. But that doesn’t mean there can’t be liberal (in a classical, european sense) advances in Britain or Germany. Indeed, both countries are currently governed by socially-liberal, economically-conservative coalitions. If you want to see whether “liberaltarianism” is possible then you might look to these countries.

Germany’s Free Democrats and, to a lesser extent, some Liberal Democrats in Britain would probably come within a US definition of “liberaltarian”. Rock-ribbed libertarians can find plenty to be unhappy with in each instance but these governments are much, much closer and friendlier to what I’d term real liberalism than anything on offer from either party in the US or from any of the alternatives in the UK and Germany.

American thought tends to be confused on this score because the peculiarities of our electoral process has left us with just two political parties. That means that if you want to participate in mainstream politics, you have to choose one of the two major parties to do it. The modern libertarian movement allied itself with the Republican party in the mid-20th century, and since then the process of partisan polarization have exerted a steady rightward tug on the libertarian movement.

Multi-party electoral systems like those in the UK and Germany leave room for parties that are (relative to the altnernatives, at least) socially liberal and fiscally conservative. And what ends up happening is exactly what Brink Lindsey describes in his excellent book The Age of Abundance: libertarians (or liberals, as they’re known in Europe) occupy a kind of “centrist” position, acting as junior coalition partners and moderating the big-government tendencies of both the left and the right. At a minimum, the Britian and German experiences show that there’s nothing inherently contradictory about a left-libertarian movement.

The British and German experiences also provide support for the Boaz/Kirby argument about the libertarian vote in the US. The FDP and Lib Dems have historically gotten around 10 percent of the vote, on par with Boaz and Kirby’s estimates of the size of the libertarian vote in the United States. Boaz and Kirby also argued that the political effectiveness of libertarians is maximized when libertarians aren’t too closely tied to either end of the political spectrum. A credible threat to walk away from the Republican Party and support Democrats will give both major parties an incentive to take libertarian voters. That certainly seems to be confirmed by recent developments in the UK, where the Liberal Democrats were able to push their coalition government in a direction more friendly to civil liberties.

The other key conservative reaction to the Lindsey/Wilkinson departure from Cato is this piece by the always-insightful Tim Carney:

Lindsey’s project – building political alliances between libertarians and liberals – is (or was) a bold one, and not impossible in theory. Cato and the Left generally agree on constraining federal surveillance powers, reforming detention of terror suspects, and humanizing our criminal justice system. Gay marriage, abortion, and embryo research also provide common ground. Lindsey coined “liberal-tarian” in 2006, and many Beltway libertarians vocally supported Obama in 2008.

But then Obama’s presidency happened. Obama immediately passed the largest spending bill in history, and then he fired an aide who was trying to close Guantanamo.

He nationalized General Motors and stuck his hands into Chrysler’s bankruptcy while escalating the war in Afghanistan. Obama required every American to buy health insurance and increased government control over health care. He’s increased federal control over finance, mortgages, tobacco and food while fighting to get his hands on political speech, energy, and manufacturing. Obama is the greatest enemy of economic liberty most Americans have ever seen.

I’m not sure what the point of this analysis is supposed to be. The fact that Barack Obama isn’t a libertarian no more discredits left-libertarianism than the fact that George Bush was a lousy president discredits fusionism. The actions of politicians are a lagging indicator of intellectual trends. Politicians are short-sighted, reactive creatures. To a first approximation they do and say whatever they think will please their existing political base and get them re-elected. And it’s obviously true that right now, there isn’t a significant “liberaltarian” faction within the Democratic Party (or the electorate more generally), so Barack Obama doesn’t need to pander to their views.

But the fact that there are few self-identified left-libertarians is the reason the Lindsey/Wilkinson project is needed. The point is to create a community of intellectuals, then voters, and finally politicians, who care about, and identify with, left-libertarian politics. This is not something that can be accomplished in a single election cycle.

To be fair, I think some of the confusion on this point is due to Lindsey himself, whose original essay on the subject focused too much on short-term political considerations. His more recent writings show more recognition that building a left-libertarian alliance will have to be a long-term project.

If we take a longer view and look beyond the next election cycle, the prospects for left-libertarian collaboration look much better. Political, economic, and social trends since the 1970s have pushed liberals closer to libertarian policy positions and conservatives further from them. As Scott Sumner points out, the left has accepted many of the key economic reforms of the 1970s and 1980s. Few liberals want to go back to 70 percent marginal tax rates, double-digit inflation, wage and price controls, economic regulation of trucking and airlines, and so forth. At the same time, the fear of communism, one of the key forces holding libertarians and conservatives together, is gone. And since the 9/11 attacks the right has become much more focused on warmongering and nativism.

Political categories are not fixed. Today’s Republican Party would be almost unrecognizable to Thomas Dewey or Prescott Bush, to say nothing of Teddy Roosevelt. There’s no reason to think that American political coalitions can’t continue evolving in a way that leaves the next generation of libertarians feeling more comfortable on the Democratic side of the fence. Barack Obama’s illiberalism no more dooms a 21st-century left-libertarian alliance than Dwight Eisenhower’s support for the welfare state precluded a fusionist alliance in the late 20th century.

My friend Will Wilkinson has announced that he and his boss Brink Lindsey are leaving the Cato Institute. Because Brink and Will were the standard-bearers for liberaltarianism at Cato, their departure has prompted discussion of whether their departure constitutes a “purge” of left-leaning scholars at the Institute. I’m not in a position to comment on those rumors, but their departure has inspired a number of writers to declare the failure of the liberaltarian project. Probably the most thoughtful take from the conservatives is this piece by Joseph Lawler:

Ron Paul, of course, is one of the very few libertarian officeholders with any national cachet at all. And the Tea Party is the most dynamic anti-big government political movement in modern American politics. For better or for worse, Ron Paul and the Tea Parties represent the best things going for the libertarian movement of which Cato is a key institution. That Lindsey is not able to find common cause with best successes of libertarianism in the national arena suggests that Cato is probably wise to want to distance its brand from Lindsey’s liberaltarianism, if that is in fact what it is doing.

Is the Tea Party “the most dynamic anti-big government political movement in modern American politics?” I think it’s helpful here to unpack the concept of “anti-big government,” because the right uses it in a peculiar and rather perverse fashion.

In the conservative (and fusionist) worldview, government activities are evaluated using a simplistic “size of government” metric that treats every dollar of government spending as equally bad, regardless of how it’s used. This has some unfortunate results. It means that cutting children’s health care spending is just as good as cutting a dollar from subsidies for wealthy corporations. And since wealthy corporations typically have lobbyists and poor children don’t, the way this works out in practice is that conservative politicians staunchly oppose the former while letting the latter slide.

Worse, mainstream conservatives give programs involving the military and law enforcement a free pass. Conservatives vociferously (and correctly) oppose giving the FCC expanded power over the Internet, but they actively supported the NSA’s much more comprehensive and intrusive scheme of domestic surveillance. Conservatives support a massive expansion of government power at our southern border to restrict the freedom of Mexican migrants. They seem unconcerned by the fact that we have more people in government-run prisons than any other nation on Earth.

This distinction makes no sense. When American soldiers gun down Iraqi civilians and blow up a van that comes to rescue the survivors, that’s a government program. When a SWAT team conducts a military-style raid on the home of an innocent Maryland mayor and kills his dogs, that’s a government program too. Obviously, law enforcement and national defense are important functions of government, but these highly coercive government programs should be the subject of more public scrutiny, not less.

Personally I’m not interested in “limited government” as an end in itself, but as a means to greater individual liberty. I’m opposed to government programs that waste taxpayer dollars because higher taxes restrict my freedom. But I’m much more opposed to government programs that use taxpayer dollars to restrict freedom directly. I’m not interested in joining a “limited government” movement that considers the two equivalent. And I’m definitely not interested in being part of a movement that gives torture and preemptive war a free pass under the heading of “national defense” while it focuses instead on fighting the tyranny of SCHIP and unemployment insurance.

Update: To address James Poulos’s point here and Lawler’s tweets, I’m obviously guilty of generalizing here. Some conservatives, such as Ron Paul, really are committed to limited government with just a few blind spots. It’s a mistake to treat conservatism as monolithic. Point taken. But remember that the original subject of discussion was the viability of a left-libertarian alliance. Lawler wrote that libertarianism is “clearly more marketable to conservatives, even social conservatives, than it is to liberals.” But of course, the reality is that the liberal side of the political spectrum is just as diverse as the conservative side. And libertarians can make common cause with sympathetic liberals just as they can with like-minded conservatives.

I first wrote about seasteading two years ago, shortly after the Seasteading Institute launched. The brainchild of Patri Friedman (grandson of Milton) and others, seasteading is a program for political reform based on a proliferation of self-governing ocean colonies. As I described it in 2008:

A key advantage of seasteads is what Friedman calls “dynamic geography,” the fact that any given seasteading unit is free to join or leave larger units within seasteading communities. Seasteading platforms would likely band together to provide common services like police protection, but with the key difference that any platform that was dissatisfied with the value it was receiving from such jurisdictions could leave them at any time. [Friedman] argues that this would “move power downward,” giving smaller units within society greater leverage to ensure the interests of their members are being served.

Seasteading is based on a delightfully bottom-up argument: that the problem with government is the lack of choice. If I don’t like my job, my apartment, or my grocery store, I can easily pick up and go somewhere else. The threat of exit induces employers, landlords, and store owners, and the like to treat us well without a lot of top-down oversight. In contrast, switching governments is hard, so governments treat us poorly. Seasteaders aim to change that.

The pragmatic incrementalism of seasteading is also appealing. Friedman doesn’t have to foment a revolution, or even win an election, to give seasteading a try. If he can just a few hundred people of the merits of his ideas, they can go try it without needing assistance or support from the rest of us. If the experiment fails, the cost is relatively small.

Yet seasteading is a deeply flawed project. In particular, the theory of dynamic geography is based on a fundamental misunderstanding of the relationships among mobility, wealth creation, and government power. In a real-world seasteading community, powerful economic forces would cripple dynamic geography and leave seasteaders no freer than the rest of us.

To see the problem, imagine if someone developed the technology to transform my apartment building in Manhattan into a floating platform. Its owners could, at any time, float us out into the Hudson river and move to another state or country. Would they do it? Obviously not. They have hundreds of tenants who are paying good money to live in Manhattan. We’d be furious if we woke up one morning and found ourselves off the coast of South Carolina. Things get more, not less, difficult at larger scales. Imagine if Long Island (which includes the New York boroughs of Queens and Brooklyn and a lot of suburbs) were a huge ocean-going vessel. The residents of Long Island would overwhelmingly oppose moving; most of them have jobs, friends, familiy, churches, favorite restaurants, and other connections to the rest of the New York metro area. The value of being adjacent to Manhattan swamps whatever benefits there might be to being part of a state with lower taxes or better regulations.

Successful cities need a variety of infrastructure—roads, electricity, network connectivity, water and sewer lines, and so forth. At small scales you could probably design this infrastructure to be completely modular. But that approach doesn’t scale; at some point you need expensive fixed infrastructure—multi-lane highways, bridges, water mains, subway lines, power plants—that only make economic sense if built on a geographically stable foundation. Such infrastructure wouldn’t be feasible in a “dynamic” city, and without such infrastructure it’s hard to imagine a city of even modest size being viable.

I think the seasteaders’ response to this is that the advantages of increased liberty would be so large that people would be willing to deal with the inconveniences necessary to preserve dynamic geography. But here’s the thing: The question of whether the advantages of freedom (in the “leave me alone” sense) outweigh the benefits of living in large urban areas is not a theoretical one. If all you care about is avoiding the long arm of the law, that’s actually pretty easy to do. Buy a cabin in the woods in Wyoming and the government will pretty much leave you alone. Pick a job that allows you to deal in cash and you can probably get away without filing a tax return. In reality, hardly anyone does this. To the contrary, people have been leaving rural areas for high-tax, high-regulation cities for decades.

Almost no one’s goal in life is to maximize their liberty in this abstract sense. Rather, liberty is valuable because it enables us to achieve other goals, like raising a family, having a successful career, making friends, and so forth. To achieve those kinds of goals, you pretty much have to live near other people, conform to social norms, and make long-term investments. And people who live close together for long periods of time need a system of mechanisms for resolving disputes, which is to say they need a government.

The power of governments rests not on the immobility of real estate, but from the fact that people want to form durable relationships with other people. The residents of a seastead city would be no more enthusiastic about dynamic geopgrahy than the residents of Brooklyn. Which means that the government of the city would have the same kind of power Mayor Bloomberg has. Indeed, it would likely have more power, because the seastead city wouldn’t have New Jersey a few hundred yards away ready to take disaffected residents.

A few months ago I did a post about the role top-down decision-making played in the financial crisis. I wasn’t super satisfied with my finished product, and it turns out I should have just waited a few weeks for this amazing article from Amar Bhidé to come out:

In recent times, though, a new form of centralized control has taken root—one that is the work not of old-fashioned autocrats, committees, or rule books but of statistical models and algorithms. These mechanistic decision-making technologies have value under certain circumstances, but when misused or overused they can be every bit as dysfunctional as a Muscovite politburo. Consider what has just happened in the financial sector: A host of lending officers used to make boots-on-the-ground, case-by-case examinations of borrowers’ creditworthiness. Unfortunately, those individuals were replaced by a small number of very similar statistical models created by financial wizards and disseminated by Wall Street firms, rating agencies, and government-sponsored mortgage lenders. This centralization and robotization of credit flourished as banks were freed from many regulatory limits on their activities and regulators embraced top-down, mechanistic capital requirements. The result was an epic financial crisis and the near-collapse of the global economy. Finance suffered from a judgment deficit, and all of us are paying the price.

As we rebuild from the economic crisis, we must renew the search for the appropriate balance—in finance and in other endeavors—not just between centralization and decentralization but also between case-by-case judgment and standardized rules. The right level of control is an elusive and moving target: Economic dynamism is best maintained by minimizing centralized control, but the very dynamism that individual initiative unleashes tends to increase the degree of control needed. And how to centralize—whether through case-by case judgment, a rule book, or a computer model—is as difficult a question as how much. But these are questions that we cannot afford to stop asking…

Over the past several decades, centralized, mechanistic finance elbowed aside the traditional model. Loan officers made way for mortgage brokers. At the height of the housing boom, in 2004, some 53,000 mortgage brokerage companies, with an estimated 418,700 employees, originated 68% of all residential loans in the United States. In other words, fewer than a third of all loans were originated by an actual lender. The brokers’ role in the credit process is mainly to help applicants fill out forms. In fact, hardly anyone now makes case-by-case mortgage credit judgments. Mortgages are granted or denied (and new mortgage products like option ARMs are designed) using complex models that are conjured up by a small number of faraway rocket scientists and take little heed of the specific facts on the ground.

It’s one of those essays that’s hard to excerpt because the whole thing is good. Check it out.

It’s a common trope in urban planning debates to cast the car-centric suburban lifestyle as the result of an unregulated free market in contrast to urban development patterns, which are often portrayed as the result of explicit government policy. I’ve already pointed out one way that reality doesn’t fit this narrative: the decision by government policy makers to run freeways through the heart of many urban downtowns made suburban living relatively more pleasant and urban living relatively less so.

In Saturday’s New York Times, Tyler Cowen offers another example:

Many suburbanites take free parking for granted, whether it’s in the lot of a big-box store or at home in the driveway. Yet the presence of so many parking spaces is an artifact of regulation and serves as a powerful subsidy to cars and car trips. Legally mandated parking lowers the market price of parking spaces, often to zero. Zoning and development restrictions often require a large number of parking spaces attached to a store or a smaller number of spaces attached to a house or apartment block.

If developers were allowed to face directly the high land costs of providing so much parking, the number of spaces would be a result of a careful economic calculation rather than a matter of satisfying a legal requirement. Parking would be scarcer, and more likely to have a price — or a higher one than it does now — and people would be more careful about when and where they drove.

The subsidies are largely invisible to drivers who park their cars — and thus free or cheap parking spaces feel like natural outcomes of the market, or perhaps even an entitlement. Yet the law is allocating this land rather than letting market prices adjudicate whether we need more parking, and whether that parking should be free. We end up overusing land for cars — and overusing cars too. You don’t have to hate sprawl, or automobiles, to want to stop subsidizing that way of life.

A key point to emphasize here is that parking mandates aren’t just a subsidy to car ownership, they’re also a burden on pedestrians, who must trek across parking lots to get to almost any building. So not only does walking mean giving up the state-mandated subsidy of free parking, but it also means walking significantly further than you’d have to in a city where the availability of parking was determined by market forces.

And this results in the opposite of the virtuous cycle I wrote about a few weeks ago: as density falls, you get fewer pedestrians, which depletes the market for small, pedestrian-friendly establishments. And fewer pedestrian-friendly businesses establishments means that even fewer people walk. The result is the situation in most cities in the Midwest and the Sun Belt, where even people who strongly prefer to live in a “walkable” neighborhood find there are few if any neighborhoods that cater to that preference.

Paul Graham, who made his fortune by selling a startup to Yahoo! during the dot-com bubble, has a new essay speculating on why the company is so lame. He tells a story about an early discussion with Yahoo execs about an algorithm for ranking search ads:

The reason Yahoo didn’t care about a technique that extracted the full value of traffic was that advertisers were already overpaying for it. If they merely extracted the actual value, they’d have made less.

Hard as it is to believe now, the big money then was in banner ads. Advertisers were willing to pay ridiculous amounts for banner ads. So Yahoo’s sales force had evolved to exploit this source of revenue. Led by a large and terrifyingly formidable man called Anil Singh, Yahoo’s sales guys would fly out to Procter & Gamble and come back with million dollar orders for banner ad impressions.

The prices seemed cheap compared to print, which was what advertisers, for lack of any other reference, compared them to. But they were expensive compared to what they were worth. So these big, dumb companies were a dangerous source of revenue to depend on. But there was another source even more dangerous: other Internet startups.

By 1998, Yahoo was the beneficiary of a de facto pyramid scheme. Investors were excited about the Internet. One reason they were excited was Yahoo’s revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in. When I realized this one day, sitting in my cubicle, I jumped up like Archimedes in his bathtub, except instead of “Eureka!” I was shouting “Sell!”

Essentially, this is the story of the innovator’s dillemma: a company growing fat and lazy on an easy revenue source and failing to anticipate a catastrophic shift in the market. The weird thing about this is that the innovator’s dilemma usually strikes old, established companies. Yet Yahoo! was just 3 years old at the time Graham was telling this story.

The problem is that although Yahoo! was not an old company, it decided to act like one. It thought of itself as a media company, rather than a technology company, and as a consequence it hired mediocre programmers and put non-geeky executives in charge of them. And so when the tech bubble collapsed they found that the “media company” culture they’d cultivated didn’t serve them well against foes like Google and Facebook that saw themselves as software companies.

Tim Sandefur has an interesting post about the law of birthright citizenship. He argues that it’s not necessarily the case that birthright citizenship is as firmly established by the Constitution as both supporters and critics assume. I’m not a lawyer so I’ll defer to Sandefur’s expertise on the legal merits. But I think this is orthogonal to the argument I was making. Limiting birthright citizenship is a bad idea regardless of whether it can be done by statute or requires a constitutional amendment.

Meanwhile, Jason Kuznicki chimes in with another strong argument for birthright citizenship:

I don’t imagine that anti-immigration activists are going to be bought off so easily. Instead, a permanent, multi-generational class of non-citizens would just be fuel for the fire. Twenty years on, immigration foes will look at all the second- and third-generation non-citizens we’ve created, and the mass arrests and deportations will really begin in earnest…

The genius of birthright citizenship is that it changes the incentives for everyone involved. It says to all populations: You’ve got roughly twenty years to figure out how to live with one another, as citizens. Now get to work.