A letter to Sen. Hatch on Common Carriers

Mr. Hatch,

I am aware of the Republican sentiment regarding "Net Neutrality", a sentiment I happen to disagree with. This whole notion of "the government taking over the internet" flies in the face of efforts by the NSA to monitor communications. It has been well documented that during the Bush Administration, the Republican Party was insistent (and spent billions) on complete surveillance of American citizens through internet monitoring. If the Republicans desire complete surveillance of communications in the name of "national security" then Net Neutrality should be no problem.

Few people understand the issue, and even fewer are informed of what is at stake here. To help people understand the issue more clearly I offer the following:

If you are a private entity providing internet service and you pass information from the public internet to your customers, you are a common carrier. If you are a private entity and you connect to your customers, but do not connect to the public internet, then you are not a common carrier. To put it more simply, if you are a closed, self-contained network, providing customer access to that network and do not accept or pass through any outside information, you are not a common carrier.

It's that simple. If you provide customer access to a public network, you're a common carrier. If not, you're not a common carrier.

What are your thoughts? Do you think that the situation is more complex than that? If so, how do you justify your position?

Scott Dunn

Corporate Compensation Tax, On a Curve

As we have seen in the current great economic crisis, aka The Great Recession, executives of very large corporations have proven to be quite willing to take risks that can endanger their organization and the national economy. They must have figured out that they have enough personal net worth to weather the recession and that everyone else will be willing to work for less after that. 

In this situation, there are at least two main incentives that govern the will to take risks: limited liability and rapid wealth accumulation. It should be clear at this point that this kind of behavior should be discouraged. Unfortunately, no amount of regulation will stop it until the financial rewards of flouting the laws are removed. Perhaps this is evidence of the sub-clinical psychopathy induced by the lure of all that free money.

Corporations, as their structure suggests, have limited liability which means that when a corporation makes a mistake, they are only liable for the value of their stock. Only in very rare, extreme cases are officers and shareholders of corporations held personally liable for damages in the event of mistakes or transgressions. It has not always been that way. In the olden days, the following restrictions were set upon corporations (depending upon the state that chartered them):

1. They had a limited term of 20-30 years.

2. Could only deal in one commodity.

3. Could not own shares of other corporations.

4. Their property holdings were limited to only what they needed to get the job done.

5. In most states, it was a criminal offense for a corporation to make a political contribution.

It has been well documented that corporate compensation has shot up dramatically in the last 30 years, particularly so in the last 10 years. The argument for this increase in compensation has been that very high compensation is required to attract the talent needed to maximize profits. Given the track record of the captains of industry in the last 4 years, this argument fails on the merits. If you were watching the news around September 30th, 2008, you would know that the captains of industry didn't have a clue about the economy. Or maybe they did and they were keen on executing one of the largest transfers of wealth in our lifetime.

How did this happen? One factor that gets little press is the humble individual retirement account. Since the time of the adoption of the individual retirement account, corporations have found ways to create vast pools of capital that can be used to implement new methods of making money. This is because the market capital available to corporations has grown dramatically as the use of individual retirement accounts became popular.

While it can be fairly said that there have been great improvements in our standard of living during this time, there has also been a dramatic concentration of power among the most popular corporations with the most widely held stocks. Over time, it appears that corporations have devised methods of separating the common shareholder from the profits of the corporation. It can even be said that corporations have created a sort of private socialism. They privatize the profits while socializing the risks and liabilities.

I might be called a cynic if I said that the original intention of a corporation was to create a system of private socialism. That is not the case as corporations were already acknowledged as sources of evil known as the "moneyed interests" at the time that our country was founded. Of late, the empirical evidence provides strong indications of that evil. In the last 30 years, there has been substantial evidence to show the greatest concentration of income generating power has accumulated among a fraction of the top 1% of income earners in the United States. Almost all of that activity is through the (ab)use of corporations.

To summarize the status of corporations, they provide a way to generate wealth while externalizing costs, limiting liability and concentrating and confining income growth, especially passive income, to the executives of the corporation.

To create a countervailing force to the current trend, it is time to consider taxing corporate officers on a curve. And to prevent circumvention of this force, this new legal regime would apply to all for-profit, limited liability organizations. We must recognize that incorporating a business is a privilege and should be taxed like any other privilege to the point of discouragement. This means that you *don't* have to incorporate. You're not required to do it. 

In 1980, the average corporate executive earned about 30 times the income of the lowest paid employee. At that time, America was considered a world economic power. Now, corporate executives often earn more than 300 times the income of the lowest paid employee - and we have been humbled by an economic crisis. That's an extreme concentration of power. 

Since that time, there has been no concurrent rise in skill, intelligence or ethics for executive positions. In fact, it can be shown, just looking at the games played by executives, that ethics has less consideration now that it did 20 years ago. The only other thing that has changed is the amount of capital flowing to the largest corporations. Perhaps being an executive is nothing more than a video game where the goal is to rack up the points and destroy the competition while locking the customer in.

Here, I propose a new way of thinking about taxation. The goals of this tax structure are designed to return earning power to people who are willing to stand behind their actions. What I mean by that is that they are willing to put their assets at risk by organizing with full liability. Therefore, this tax structure does not apply to independent contractors, sole proprietors - essentially any entity that assumes strict liability for the services they offer will be unaffected. The idea is to reward those who are willing to offer their services naked of the protection offered by a corporation.

The second goal is to provide some form of equalization. This is not to prevent winners, this is to prevent winner-take-all economics and the monopolies they create. When the winner takes all, all other movers in the market are discouraged, reducing or eliminating competition in the markets, and concurrently, consumer choices.

There is empirical evidence to support this proposed model of taxation. It is known as the Board of Equalization - every state has one. Their primary purpose is to provide for the equalization and redistribution of tax funds for all jurisdictions within a state. We need something like that for income to prevent the winners from taking it all and creating monopolies to perpetuate their status.

Some conservatives may recoil at this idea. Fine. Put your best idea out there. And while you're doing that, consider that all that railing against government monopolies completely ignores the dangers of a private monopoly. It is beyond me why conservative pundits seem to think that private monopolies are better than public monopolies since both derive their power from government sanctions.

Here is what I propose:

All limited liability entities are required to pay a marginal tax on all non-hourly employees and executives within the organization. The rate structure is based on the measure of the federal minimum wage in multiples. Here is a simple schedule for the tax rates, where x is the minimum wage:

30x.............30%

60x.............50%

100x...........60%

200x...........80%

300x...........90%

As an example, any income up to and above 30x the minimum wage is taxed at 30%, above 60x, 60%. Clearly, the incentive to try to earn much more after 100x the minimum wage is discouraged. But at 300x, the incentive is almost completely decimated. While lawyers are likely to find a way to work around this, or even to write loopholes into the law for this, with crowdsourcing, abuse of the law can be much more easily deduced and publicized. If you don't believe me, one only need look to Groklaw for evidence that this works.

The point of this tax schedule is that beyond 60x, the public benefits little from the compensation paid for publicly held corporations. Even for privately held corporations, it is hard to see how additional compensation could be helpful in terms of attracting talent or justifying the intelligence, skill and experience any human being can bring to the job. There simply is no "superhuman" qualified to earn that kind of income.

This equalization may sound like communism. But it's important to remember that for a significant fraction of the history of the United States income tax, the maximum marginal tax rate for income was above 90%. And during that time, this country was well reputed as an economic power. The intent of this proposal is to pay people appropriately for their effort for non-hourly employment.

By now you may have noted that I didn't say anything about the income of the corporation. That can be dealt with by instituting the old rules for the corporation, which I'm happy to repeat here:

1. They have a limited term of 20-30 years.

2. Can only deal in one commodity.

3. Cannot own shares of other corporations.

4. Their property holdings are limited to only what they need to get the job done.

5. Make it a criminal offense for a corporation to make a political contribution or to lobby.

I would like to add a few more for good measure:

6. To prevent interlocking directorates, a member of the board of directors of any corporation cannot sit on another board of directors for any other corporation.

7. Their charter can be revoked by referendum within the jurisdiction of their creation regardless of the location of any of their offices.

8. They are not "persons" under the law, except that they can conduct business, can sue and be sued, and must pay taxes.

This will also help to put an end to risk taking for that great executive lottery for the Ritz-Carlton Lifetime Retirement prize - paid for by the rest of us.

Radical though it may seem, that is what I propose. Your thoughts are welcome.

Pulling Prices from DirecTV

This article could also be called, "Customer Ignorance As A Business Model".

Yesterday I had the most interesting customer service experience with DirecTV. My wife and I were looking at ways to cut our costs with our satellite service. If we want TV, satellite is the only way to go to get all those fun networks. Why? The absolute market failure on my street.

To get more information, I logged onto my account at DirecTV so I can see all the plans. But what do I get? Only *upgrade* plans. The lower cost plans are hidden from my view. More fun. So now I have to contact customer service to get more information.

I work through the menus to get to what I want to do and wait. While I'm waiting for customer service to answer, I get to listen to glib commercials about the great service I'm getting to make the wait a little bit easier. After waiting a couple of minutes, i get a customer service representative. The conversation went something like this:

SCOTT: Hi, I'd like to downgrade my service. I've looked at my account on your website and I don't see any plans that cost less than the one I already have.

CUSTOMER SERVICE: I'm sorry about that, sir. But there are some plans we won't show on the website.

SCOTT: I see. I have to talk to customer service to find a lower cost plan, right? Isn't there some place where I can see all of the plans at the same time so I can make an informed decision about which plan I want to ultimately buy?

CUSTOMER SERVICE: I'm sorry, sir. But if you want that information, you will have to go to www.directv.com and click on feedback. Then you can ask for a list there.

SCOTT: But I'm already talking to you here. Can't I make that request here?

CUSTOMER SERVICE: I'm sorry, sir. I can't do that for you here. You will have to submit feedback to DirecTV in order to make that request.

SCOTT: But I want to see all the plans in writing so I can compare each one and then be able to calculate the pricing myself. This way I can make an informed decision about what I'm going to buy. Isn't there some kind of regulation that requires you to list all the offered plans so that I can compare them with your competitors?

CUSTOMER SERVICE: As I said before, you will have to submit feedback to get that information, sir. I cannot give that to you here. Is there anything else I can do for you, sir?

SCOTT: Yes. What are my options for reducing our costs down to $40 a month?

CUSTOMER SERVICE: We offer the Select Plan with 120 channels at $39.99 a month.

SCOTT: Great. So what is the total cost per month with taxes, fees and discounts?

CUSTOMER SERVICE: I'll have to generate an estimate with our proprietary cost calculation system. I'll need a couple of minutes to access the state tax tables. Can you hold?

SCOTT: Yes.

CUSTOMER SERVICE: The total comes out to $50.92, sir.

SCOTT: Ok, that sounds good, but what about High Definition?

CUSTOMER SERVICE: That's an extra $10 a month, sir.

SCOTT: Ok, but I've been watching the ads from the Dish Network, they are offering free HD.

CUSTOMER SERVICE: We are offering free HD to select customers. You may qualify, but I won't be able to tell you that. You will have to talk to a Advanced Programming Specialist. Would you like me to transfer to that department now sir?

SCOTT: Sure.

ADVANCED PROGRAMMING SPECIALIST: May I help you, sir?

SCOTT: Yes, I'm calling to see how to get HD for free. That's $10 a month I'd like to save. And I see that Dish Network is offering free HD, too.

ADVANCED PROGRAMMING SPECIALIST: We are offering free HD to select customers. Would you like me to check to see if you qualify?

SCOTT: Yes.

ADVANCED PROGRAMMING SPECIALIST: Ok, sir. It looks like you do qualify (what a coincidence!). As long as you retain the automatic payments from your bank account, you will get free HD for up to 24 months.

SCOTT: Whew! Thank you so much!

ADVANCED PROGRAMMING SPECIALIST: Is there anything else I can do for you now?

SCOTT: No, that should do it. Thanks.

As you can see, getting information about how to lower costs is tedious and time consuming. Clearly it is within their business interests to discourage cost cutting as much as possible. DirecTV is at least partially controlled by Rupert Murdoch. I've been reading some of his rants and it's clear that he's old school, old media. The attitude and demeanor of service provided by DirecTV seem to reflect that rather well.

As I work with customer service, and within customer service at my own job, one thing is becoming increasingly and alarmingly clear: customer ignorance isn't just a business model in the US. It is *the* business model among the largest corporations running amok here. Their cavalier attitude towards pricing, options and fee information is about as oblique as the FBI.

Examples like DirecTV prove that a private monopoly is no better than a government monopoly, no matter what the Republicans have to say about it. Sure, they compete with Dish Network, but two competitors do not make a free market.

Here are a couple of remedies for the problem:

1. Tax corporations and executive compensation up to 90% if they aren't willing to lay their assets bare to the market and the legal uncertainties of the business world. If they operate as something other than a limited liability organization, they get taxed at a far lower rate.

2. Require open access for all content carriers. Prohibit *any* ownership interests in content by carriers. That will help to level the playing field.

So when you're talking to customer service at any business, consider the possibility that Customer Ignorance is the primary business model of the company you're working with. That's what' I'm starting to do.

Have a nice, lazy Sunday.

A letter to Sen. Orrin Hatch: ACTA Treaty

Mr. Hatch,

I see that you and the Obama Administration agree upon something: aggressive copyright enforcement. Copyrights now last up to 70 years after the death of the owner, thanks to Disney.

Evidence is emerging that aggressive copyright enforcement is leading to unintended results, particularly with respect to digital media. Kids are using content in ways that were never contemplated when copyrights were first conceived. Even the DMCA does not anticipate every possible use of digital media. And with the hidden negotiation of the ACTA treaty, Fair Use is an obvious target of copyright owners. It is conceivable that with these two acts together, we could see the end of Fair Use.

It has also been observed that the "stakeholders" involved in these hidden negotiations are very large media corporations, not ordinary content producers. Those involved in the negotiations seem to think they can speak for the rest of us by creating a document for an up or down vote without consulting the people they serve. How soon they forget how the courts have ruled. In the eyes of the courts, within the context of the Constitution, the lowest priority is the copyright holder. The copyright laws and the relevant clause in the Constitution were intended to allow for the free flow of information among The People, not just the lowly corporation. For the corporation exists at the pleasure of the State.

The DMCA and the ACTA are clearly designed to impede the flow of information.

You will probably have a chance to consider the ACTA treaty during your possibly final term in Congress. During your considerations, remember that you serve the people, NOT the corporate interests behind aggressive copyright enforcement. Remember that Beethoven wrote his music without copyright protection. Einstein gave us his Theory of Relativity without patent protection.

Information, like light, seeks to be free.

Please vote NO on ACTA if it should EVER come before the Senate AND you are still there.

Sincerely,

Scott Dunn

Drug Testing Only for the Poor?

Here is my letter to Sen. Orrin Hatch in response to his proposal to test welfare recipients for drug use:

Mr. Hatch,

I see in the news that you propose that recipients of government assistance be required to take drug tests. I think you have a good idea, but there are at a few issues that arise from your proposal. First, consider the state of the food supply. The organization and structure of the food supply has a very strong bias towards efficiency over quality. This is evidenced by by films such as "Food, Inc." See link here, http://www.foodincmovie.com/. The movie paints a sordid picture of a food industry bent on efficiency and world domination rather than customer health.

Providing a marketplace that promotes organic, sustainable, GMO-free food, will give people the nutrition they need to make informed decisions about whether or not to take drugs. With proper nutrition, people are less prone to the suggestion that the use of illicit drugs are appropriate under any circumstance. And what about the legal drugs and alcohol? Shouldn't they also be considered when considering the fitness of any recipient of government assistance?

Since farmers receive large amounts of government assistance, especially the large corporations like ADM and Monsanto, they too, should be required to take drug tests. This idea that only the lowest levels of the social strata are the only people who might be inclined to take drugs is a farce at best. it is well documented that drug use is prevalent at all levels of social status and income.

Since we're on the subject, anyone who takes a government loan, grant or other form of financial assistance should be required to take a drug test. Consider the executives at GM, Goldman Sachs and Citigroup to be included. Lets call what is fair, fair. I agree with your idea as long as it is applied equally to *everyone* who gets government aid.

I hope you consider amending your proposals to reflect the ideas in this letter.

Thank you.

Scott Dunn

A Home Remedy for Coughs

Starting around 1993-4, I developed a persistent cough while living in Orange County, California. It was a dry hack sort of cough. The mucus in the back of my throat was hard and difficult to move. I know, too much information. But that is as bad as it gets, so read on. This was evidence of a slow post-nasal drip that persisted in the winter and seemed to go away in the summer. To say the least, this made for unpredictable conversations with sentences often punctuated by a cough. My friends found conversation by phone difficult to endure.

So I started doing some research on the internet. Yes, I was one of those early adopters, using a dialup connection to browse the web, but my research didn't turn up much. I also talked with friends, doctors, acupuncturists, chiropractors, quacks, anyone who would listen who might have a clue. Postulated causes included mold, dust mites, and acid reflux. After 17 years of living with this condition, I've come to the conclusion that it is a combination of seasonal environmental factors and a very mild case of acid reflux.

Along the way, I tried everything I could think of or find to deal with it. I tried drinking lots of water, cough drops, cough syrup, vitamins in liquid form (temporary relief, not sure fire), working with my anger (someone said that coughing is a sign of unresolved anger), changing my diet, eating smaller portions and taking note of things that made me cough. I can't recall all of the things I have tried, but there are two things that seemed to help a lot. Eating smaller portions and less food overall was one of them. I noticed that if I wasn't too full, I tended to cough less, a tremendous weight control benefit, if I ever saw one. I also felt better and maintained a lower weight when I reduced my food intake. Weight control hasn't ever really been a problem since I have a self-image that requires me to be thin. But as I get older, I've noticed some changes.

The other remedy that I found to work, came quite by accident around 2004, I can't remember the exact time. All I know is that back then, I would have coughing fits that lasted for 5, 10 or even 15 minutes. I never knew when they would come and tried very hard to find a pattern to the madness.

I remember the day of discovery. After about 15 minutes of coughing a really dry, hard cough, I was desperate enough to try something else. I had bought some seed oil in the belief that it could help me with my receding hairline. It was Udo's Choice 3-6-9 Oil Blend. While I was coughing for my life, I went to the kitchen, grabbed a spoon and the oil and prepared to give myself two big tablespoons of the stuff. I was coughing uncontrollably at this point and my hands were shaking as I was trying to pour the oil onto the spoon. I was determined to get the the oil into me. I just wanted to see what would happen.

After I managed to get a good dose of oil, I continued to cough and waited to see what would happen. In about 3 minutes the cough was gone. Completely gone. I was amazed and elated at the same time. I had lived with this demon for about ten years at the time that I tried the oil and I finally found what appeared to be the best cough expectorant on earth.

Without my luck, I probably never would have found it. No doctor in his right mind would have prescribed that for me, as the liability would simply be too high. Accupuncturists would be thinking about my Qi rather than my diet. And chiropractors could probably have isolated the cause to my nerves somewhere.

From the beginning, I wanted to avoid any kind of medication believing that food is medicine. I wanted to find a way to use a natural remedy that I could use any time, as often as I needed in order to make the cough go away. The oil was at least one answer. I have determined that this oil has a number of positive effects on my throat. First, it provides nutrition for my throat. The raw tissues, raw from coughing, can absorb nutrients immediately. Second, the oil acts like a lubricant, moving the phlegm up and out and breaking it up. Third, the oil acts as a moisturizer, helping to keep my throat moist so that the phlegm can move more easily and protecting the tissues from dry air, a bonus with really dry air here in Salt Lake City.

I can say unequivocally that Udo's Choice 3-6-9 blend is by far the best cough expectorant I have ever tried. But you will never hear it from any in the medical profession because they can't prescribe it. And they might not want to as it could crimp their revenue stream. You will never see a commercial on TV for this stuff since it's not habit forming and I think it would be pretty hard to explain the benefits in 30 seconds. Not only that, every pharma advertiser would scream bloody murder if news like this were to get out. Besides, you can't patent the oil.

So how did it come to this? Well, we have an entrenched, protected monopoly known as the American Medical Association. They can't compete with home remedies. I'm sure there are some doctors who feel free to recommend more sleep and exercise, but oil? I don't think so. And then there is Big Pharma, they like to talk about free markets and how they should be left free to innovate, but they often fail to mention that they have a protected monopoly. Big pharma wants your doctor to make frequent off-label prescriptions while reaping royalties from the patents on their drugs. They might even give a wink and a nod to the Oxycontin Express, too. At the same time, they don't want you or your doctor reading the studies on their drugs to see how the tests were done, what the results were and what alternatives to consider. They pretty much want to own the pipe that leads to your mouth.

Perhaps you've been wondering why health care is so ridiculously expensive in America. I offer the preceding as a pretty good indicator of why it is what it is. It's estimated that thanks to their protected monopoly, American doctors earn twice as much as their counterparts in Europe and Japan. On top of that, patent monopolies are estimated to increase the cost of drugs from 200 to 5,000 percent, not to mention all the ripple effects across the economy. And don't forget that patents have been shown to stifle innovation.

I'm writing this article now because I thought I had escaped the cough by moving to Utah. I skated in the first Winter in Utah. But as recently as just a few weeks ago, "The Cough" as I call it, prevailed upon me again. So I went to Whole Foods and Sunflower Market to pick up the oil. If you live in Orange County, you can get it at Mother's Market (Wow! Now with six locations to serve you), too. The cough took me by surprise and over the course of a week, became intolerable. So I started the oil regime again and this time it took a few days to calm down and for the burning sensation in my throat to settle down. I still have a cough here and there, but it's mostly controlled thanks to the help from Udo's oil.

If you have a dry, hard tickle cough that comes out of nowhere from time to time, like with me, then I highly recommend that you give Udo's oil a try. You have nothing to lose and you might even grow hair where you least expect it. Well, maybe not. As for the cough, it works for me.

The State of Internet Access on my Street

In the summer of 2008, I moved to Utah with my wife to escape the gaping maw of the recession in California. While living in an apartment, we were able to secure Internet access from Comcast. We lived there for about 7 months. During that time, on at least one occasion, Internet service failed for one whole day. On more than one occasion, Internet service failed for more than an hour. But at least we had something.

In May of last year, we bought a house. Before we moved, I did a lot of research about Internet access and found that there were 3 potential providers for my area: UTOPIA - municipal broadband, Comcast and Qwest (the bane of Internet access). After we closed the deal on the house, I started calling everyone and checking their websites for availability. Turns out the only one we could get was Qwest.

To their credit, Qwest helped resolve a wiring issue for us in our house so that DSL service would not have wild swings in performance. Xmission couldn't do anything about it because Qwest owned the line. Since then, DSL service has been fairly stable, but we have had outages from time to time.

I had read about and wanted UTOPIA, but they had been stifled by an expensive lawsuit and after it's conclusion, had decided to pursue an expansion in other cities. What's so interesting about UTOPIA is that they were offering 15 mbs for $35 a month. Unfortunately, their cable run stops about a block from my house. That lawsuit? That was from Qwest, a company that seems to think that competition is an aberration in Utah and that it should be quelled at any cost. It's also worth noting here that Qwest is the *only* tier one service provider in the state. Qwest had sued UTOPIA over the use of 28,000 telephone poles in my city. They wanted to do discovery on each pole, one at a time, anything they could do to delay UTOPIA was fine with them. Never mind that they got a great deal on their easements to run their cable.

From the beginning, Comcast revealed that they were not offering Internet access in my area. I used their website to determine if service was available at my address, and according to their website, it was. But when I called their toll-free number to see if access was available, they said that my house was not listed in their database. I've done this several times to no avail.

But what Comcast didn't tell me is that they were servicing my neighbor's house. I came home last Sunday to see that they had two trucks parked in front, one in front of my house, the other in front of my neighbor's house. I talked to the tech and asked him about service. He pointed to a wire above and said that's the one. He said I should call them and check it out. "How long has it been there?," I asked. Ten years.

So, for whatever reason, perhaps it was lack of competition, Comcast has made a decision not to provide service to my house. Now there is still a chance that Comcast may come around, as I'm waiting on a phone call from their rep. I'll provide an update if anything changes.

For now, UTOPIA stopped one block from my house. Comcast could service my house, but won't. And Qwest is selling access at retail prices to competitors like Xmission. So I'm buying from Xmission to make sure there is quality control.

This is the state of Internet access on my street. Selective service has an entirely different meaning here.

Update, 4/27/10, 7pm: No phone call from Comcast. I guess they don't offer service or have any plans to.

Some thoughts on Illegal Immigration

It's all over the news these days that Arizona has passed a controversial law requiring that anyone confronted by the police in their state must prove that they are residing there legally. Sounds good on the surface (to some) until you see how the law is expected (by the rest of us) to be used. Since about half of all illegal immigrants are Mexican nationals, it's really going to be enforced based on skin color. Racial profiling is what they call it.

This new law, if it holds up in court, could have profound implications for our society. Other states will be considering their own version of this law. And prior to the vote, few if any, have openly discussed the potential for social and political backlash, not to mention the possibility for violent revolt and opposition.

Most of the anger and hyperventilation has been directed at the Mexican population with little press or air time devoted to the true source of the problem, which I will get to later. What about the Indians from across The Pond? The Asians? The Africans? The Muslims? They are, with very rare exceptions, people who come here for a better life. Their diversity of backgrounds, history and intellect provide an enormous input stream of ideas for solving problems, a fact that is often overlooked with regard to immigration.

Plenty of lip service has been paid to reform over the years. Many proposals for reform have embraced the idea of amnesty for illegal immigrants already living here. Amnesty might seem like a great idea, but it is totally unfair to people who have played by the rules to get here, or still waiting for their turn. If you want to come to this country, you must play by the rules. I'm probably not going to win too many friends on this one, but I think it is fairly said that if you want to be a law abiding citizen, it helps to start out as one.

There is also the issue of citizenship by birth. I'm personally in favor of a bill in Congress that would deny citizenship to children born here only by illegal immigrants. Just because you're born here doesn't make you a citizen. To be fair, you should have at least one parent who is a citizen to become a citizen by birth. It's a reasonable and fair requirement, but that's not law yet. Even if it were to become law, I'm not so sure it would survive a challenge in court.

Finally, there is dual citizenship. Anyone who maintains dual citizenship with US citizenship is going to have a hard time with loyalty to this country. If you love this country so much that you live here, sorry, you really should drop the other citizenship status. This should be a requirement of naturalization in this country, but for a number of reasons, it is not a strict requirement for all conditions.

For generations, there has been a steady demand for illegal aliens as undocumented workers. There seems to be a quiet air of collusion among some American employers to hire illegal aliens for fun and profit. Sure, one could argue that illegal aliens do work that "lazy" Americans won't do. Probably. But perhaps if these jobs paid a living wage with real benefits, we'd see more Americans in the fields picking strawberries.

By far, the biggest issue, one that is almost entirely missing from the debate is that of economic opportunity in Mexico. Mexico has next to nothing in terms of economic and social mobility (although I must admit that there are some hopeful articles on a growing middle class to be found). They have a tiny elite class, a small middle class and everyone else is in the lower class. If they had a real middle class, they wouldn't feel the need to come here. A cursory search on Google would bear this out.

The dynamic I see here is as follows:

The government of Mexico constrains or severely limits economic opportunities for every other class except for the elite classes. High officials in the government receive payoffs from our government and US corporations as well as politically entrenched constituents in Mexico. Some payoffs are public, some are private, but the result is the same. With few legal means for economic mobility, the majority of the Mexican people are left with the following options: continue to live in poverty, pursue the drug and human trades or cross the border when they can for jobs here in the US. Mexico is one country where the dynamic between economic opportunity and crime are readily apparent. With greater economic opportunity and mobility, there is less incentive to commit a crime.

Recent events, such as the housing meltdown costing more than $8 trillion in wealth, suggest that efforts to restore equilibrium are not focused on creating economic opportunity in Mexico. Rather, they are focused on reducing economic opportunities here in the US so that we are more like Mexico. The trend has been observed as an extreme concentration of wealth in America by many in the press, and even by Alan Greenspan (Ayn Rand's greatest fan). The most recent example is from Arianna Huffington in her article, "Shorting the Middle Class." Arianna, through a variety of sources, has demonstrated that what is required to become middle class in America has been reduced to becoming "lucky." That would explain the giant, salivation inducing prizes in game shows, reality shows and Extreme Home Makeover. More on this in another article.

Rather than allow this trend to continue, it could be better to work on ways to encourage the Mexican government to acknowledge the error in their ways. If or when that starts, they are likely to point to us as the reason for their errors. All along, we've been aloof, not really worrying about how they treat their people. The human rights situation in Mexico is taking it's toll, and that is the cause of migration to the US. It's interesting to note how the press has been very quiet on the topic of human rights in Mexico, but quite vocal about illegal immigration. They seem supremely reluctant to give print space and airtime to the topic of human rights violations in Mexico. It's as if they want to set the terms and bounds of the debate.

We should, at the very least, be putting trade pressure on Mexico to create a legal framework for greater economic opportunity and be willing to suspend our trade agreements with them until they do so. In the meantime, we can impose tariffs that would make doing business with them more expensive than not to. In other words, NAFTA isn't working the way it was promised. If and when we send people back to their homeland we could give them a suggestion: fix your own government.

Currently the entire debate is focused on the symptom, illegal aliens, rather than the real problem: lack of economic opportunity in countries that are the source of illegal immigrants. Regardless of how enforcement is performed, unless the source of the problem is addressed, illegal immigration will continue at or more than the current pace, with no end in sight. Please note that Mexico is not the only country to consider here, but since they are neighbors with us, they are the primary concern.

So rather than pass laws which are likely to incite retribution, anger and resentment, we could be focusing our attention on how the Mexican government treats their own people. Do they respect human rights? Do they have sunshine laws for minimizing corruption? And is there economic opportunity for mobility between the classes in their society? If the answer is "no" to any of these questions, then we can frame the debate around how to free Mexico rather than building a wall around it.

Net Neutrality is Dead?

The news is out after an appeals court ruling in favor of Comast: Net Neutrality is dead. Specifics of the ruling indicate that a broad policy written by Congress is not enabling legislation. Seems reasonable to me, but I think the pundits are over-dramatizing things to say the least.

The reality of no net neutrality goes far beyond the pale. When ISPs declare themselves to be the gatekeepers of the Internet, they are treading on thin ice. I'm sure a few of them will come out and say, "Hey, look, let's be reasonable. We're all people here and we don't want to hurt nobody." But behind the scenes they say that they own a private network and they insist on the right to determine how traffic flows across their private network.

Really? Private network you say? Perhaps they haven't read a really old case, Munn v. Illinois that speaks rather precisely to the heart of the matter. The gist? Owners of grain elevators positioned between the lake and the railroad were operating grain elevators without a license. The ruling? If you put your private property for hire to the public, be they grain elevators or Internet access network, you're subject to the police power. That makes you a common carrier.

There's something very special about the status of common carrier. You can't discriminate against any traffic and you must allow all the traffic through. For an example, think of a taxi. The taxi driver can't discriminate from black or white without running afoul of the laws. Same thing is true for a private network for public hire. A privately owned network connected to the Internet is acting as a common carrier and cannot favor BitTorrent over their own special video service.

The point can be made finer with the distinction of interconnection status. If you have a private network and you're not interconnecting with any other network, then yes, you can determined the priority of packets on your network. But if you interconnect with the rest of the world, you're a public network and you are prohibited from shaping traffic as a common carrier.

There is a simple solution to this: reclassify every single ISP as a communications network, like the phone companies. You will have instantly turned every ISP into an open access common carrier, but probably not without a fight.

Cable Network operators would have a choice. They could close up all their connections like goosebumps in a cold, wet breeze - or they could accept their new status as common carriers and play nice with the rest of the world.

Without that interconnection between networks, there would be no Internet. The giant ISPs want it both ways. They want to be the taxi cab and discriminate against certain traffic.

My hope is that governments worldwide will see the solution as a fair one to preserve and open and free Internet for all.

The Citizen's Patent Police

I've received news of a recently introduced Senate amendment to current patent law that would eliminate qui tam actions on false patent markings except by competitors. I wrote to my representatives in Congress to urge them to reconsider this amendment for the reasons set forth below:

I have just finished reading this press release from the PubPatent Foundation. Here are a few quotes of interest:

"The false patent marking law imposes a fine on companies that label unpatented products as patented 'for the purpose of deceiving the public.' Currently, the law allows any citizen to sue false markers on behalf of the federal government and any fine awarded by the court is split between the citizen who brought the case and the government. Such 'qui tam' suits, which have been part of our country since its founding and originally derived from custom in England, provide an incentive for citizens to spend time and money to bring such cases so that the government does not have to do so itself. While not burdening government officials, the suits nonetheless also supply the federal government with income."

From their press release, we can see that qui tam actions on false patent markings provide a public good, allowing citizens to enforce a law when the government fails to see an interest, or lacks funding to do so. This provision of the law helps to spur innovation as well by freeing up the "land grabs" patentees attempt to make with broad, ambiguous language in their patents.

The amendment only allows "competitors" to sue for false marking, when there may be no competition at all. Further, there may even be collusion by incumbents in the market to prevent newcomers from entering the market.

The most troubling news in this press release is as follows:

"The Senate has held no hearings or debates on the effects of the current false marking law or the proposed change."

So, the so-called "back-room deals" and obscure provisions of the healthcare reform bills circulating Congress by the Democrats are bad. But for the Senate to make such an important change to patent law with no hearings or debate is "OK"?

I'm very disappointed in Congress. (When am I not? Hopefully, today.)

I hope that Congress will strike any change to the qui tam provisions of the patent laws. They have a long history going all the way back to England and they perform an important function in our Intellectual Property laws. Anyone that enjoy the benefits of patents should also perform the duties associated with patents. That is, to take due diligence and care in marking products correctly so as not to stifle innovation in the marketplace, and to pay the fines for their mistakes.

I have urged my representatives in Congress to leave the provisions for qui tam actions in the patent laws alone and let the great citizens of this land police the false patent markings wherever they may find them, and let them be rewarded for their finds as the law permits.

I hope they're listening.

Some observations on corporations

Corporations are easy to part with jobs. Remember the merger of HP and Comaq? At least 10,000 jobs lost in that deal. But the executives got fat bonuses. Corporations will layoff employees if they think that would increase their stock value for the short term. You know, pump and dump.

I've also been watching a corporation, called The SCO Group, sue IBM over software code that it doesn't even own. 7 years of litigation for a company that spent two years in discovery to find 230 lines out of millions of lines of code in Linux. All they really want is to get in front of a jury to exhibit a drama about a small company against a big company for a big fat award. SCO thinks it can hide behind the corporate veil. And during this litigation, board members and executives took bonuses, sold stock, and profited very well at the expense of everyone else.

Corporations are socialism, pure and simple. They socialize their liabilities and privatize their profits. Have you heard of the phrase, "externalizing costs"? Walmart is famous for that sort of behavior. And now that the courts think that corps can donate to political causes because they're "persons", it's only going to get more interesting. In my opinion, if you enjoy the privilege of limited liability, then you're NOT a person. End of story. You simply can't morally have limited liability and the same rights as real persons.

But then again, I could be wrong.

Patenting the Environment

It seems that Bill Gates would like to have a patent on the idea of cooling off the oceans to prevent hurricanes. I find it interesting that he would want to do that. I can imagine that his team of attorneys want to patent the idea in the broadest of terms, rather than just the technique he has envisioned. And by the way, if you want to know how Bill Gates likes to do business, you should read this. And this.

There is one very interesting point that seems to be missing from the discussion. From my understanding, patent applications are not required to include a reduction to practice or a working invention. Instead, potential patentees can essentially use a diagram and a few notes. Here, Gates doesn't even have what would have to be a very expensive prototype. You know, a fleet of ships. All he's got is an idea. And as in many cases, the patent is on the very idea, rather than the method. It's sort of like patenting a bridge and applying the patent to any bridge rather than the specific method used to support the bridge.

But that's what the patent people want. They want to patent an idea and sit on their butt collecting royalties and suing people rather than making something real. Inventors make their inventions because they want to do something better than what is already out there. They don't sit around in brainstorming sessions thinking of ideas and finding ways to lock everyone else out of the market unless they pay a licensing fee. That takes them away from tinkering with stuff.

Imagine then, for a moment, that people like Gates believe themselves to be the saviors of the world. That they can solve this giant problem on their own, and because they feel pity for the rest of us, they will license this idea to us on reasonable and non-discriminatory terms (RAND). "Gee, that's a really nice shoreline you got there. I'd hate to see anything bad happen to it." That means if you buy insurance, Gates will let you use his idea.

And it's not just Gates. It seems that negotiators representing the US want to "protect" their intellectual property when it comes to solving the problem of Global Warming. As if we could do it all ourselves, and of course, since we're the United States, we have the best ideas and nobody else can borrow or improve them without paying up. They want a corner on the market for the solutions to this global crisis, and tell us that everything will be alright if they get paid.

I think it's fair to say that problems as big as global warming, ocean acidification, the rise of the slime, and a number of other issues we will have to solve cannot be solved by a single entity - other than the world. Patents create another problem that many people are not aware of: people who want to solve the problem and implement their solution, will have to check to see if their solution doesn't infringe on Bill's patents. If it infringes, we're out of luck or money. If it doesn't, Bill is likely to sue anyway just to make sure there isn't any competition for his idea.

Far fetched you think? You should see how Microsoft is handling competition with Linux, a free, open source operating system that anyone could use, if they wanted to. This blog is written on a workstation running Linux.

This is what I hate about patent trolls. Litigation. Killing trees by the thousands. And the guy in the linked article in this paragraph does this for a living. That's all he does. He sues people until they pay. And they do pay.

And now comes Toyota with their own patent thicket for hybrid cars. As the linked article suggests, they want to block competition. Some people wonder if this is right. Some defend Toyota saying that they should be able to recoup their research and development costs. I think that Toyota will achieve plenty of profit with the first mover advantage. Shouldn't that be enough for any inventor? Besides, every inventor is influenced and is a product of the culture that he lives in. He does not acquire his ideas in a vacuum. To say that he came up with his own ideas by his wit and his alone, is a far stretch.

So if you're worried that without patents, inventors will no longer invent, think again. Look at Linux. It's used everywhere because it's free. It drips with inventive genius as it works in the major stock exchanges, on your cell phones, in your TVs, on IBM's Blue Gene, one of the fastest computers in the world. They donate their innovations without any request for a patent. Many of the developers are paid for their work, too. It's estimated that 75% of code submitted to the Linux project is by paid developers. Even Vint Cerf, inventor of the internet, did not apply for a patent. Why? Because he wanted everyone to be able to use the protocols he invented. As far as I know, there are no patents encumbering Linux. That is, unless you work for a company called Microsoft.

My point is, inventors invent because that is what they love to do. What stops them from inventing? Doing patent searches. It's not just that they hate doing patent searches, they lose time that could be spent tinkering around. If we're going to solve the global warming problem (and other bigger-than-puny-humans-problems), we can't encumber the ideas that could save the world with patents.

On Health Care Reform

This is my letter to Representative Jason Chaffetz:

Mr. Congressman,

I see that Republicans like yourself are unwilling to vote for bills on health care reform proposed by the Democrats. You might recall that when former President Bush called on all of you to vote for the war in Iraq, many if not all Democrats heeded the call. I opposed the war, but conceded the majority voted.

When it comes to health care, you're not there. Republicans seem to think that having 40 million Americans without a viable health care option is the American Way. It's capitalism and if you don't have health care insurance, find a way to make more money. That appears to be the attitude of conservatism today.

It is worth noting that doctors here make twice as much money on average as the other industrialized countries. We absorb well over $300 billion in patent royalty costs as a part of health care every year. While the privileged few have all you can eat health care, the rest of us are one accident, or one illness away from bankruptcy.

I am willing to give Obama's plan a chance. Your job is the vote conscience of the people you represent, not just your own conscience. I am one of those people.

Please vote for Obama's plan.

Thank you.

Scott Dunn
One of your constituents

The Internet Tax

I see that the LA Times is really, really upset about the lack of enthusiasm exhibited by Internet retailers when it comes to collecting sales or use tax. Their opinion piece for July 3rd makes the claim that the State of California is owed about a billion in spare change. It's an interesting claim in a recession, that people should pay an extra 9.5% in California for everything they buy from out of state retailers. What for? It's called the use tax. Everything you use is subject to the use tax.

The use tax and the sales tax are nearly synonymous. The sales tax is something you're already very familiar with - it's what you pay when you buy something at at brick and mortar store, like Target or Sears. The use tax is the same thing, except that you are required to pay it directly to the state when it's required to be paid. Instead of the retailer computing, collecting and paying it to the state, you do it. You usually pay the use tax when you buy something from out of state. At least, that's what the Times is saying people are required to do, but they don't.

The article points out that since about 1992, The Quill ruling from the U.S. Supreme Court has been a roadblock to the collection of sales or use taxes on Internet and out of state sales. Quill, Inc. is a corporation based in Delaware that was conducting interstate commerce with the people in the state of North Dakota. The state of North Dakota determined that Quill should have collected use taxes on the merchandise sold in that state. Quill refused, so the state of North Dakota sued.

In that case, the court rejected the notion that states could collect taxes on interstate commerce for a variety of reasons. Not just sales or use tax, they excluded *any* tax in their language. The decision runs through a number of issues relating to the due process and commerce clause of the Constitution. The ruling can be summarized as simply saying that Congress has exclusive power to regulate commerce among the states, and that no matter how the court thinks about it, they must defer to Congress.

I've seen discussion of state taxation of Internet sales since I've started using the Internet in 1994. Every few years or so since then, there has been grand talk of a unified tax code that all states can use to tax Internet sales. But it never happens. They need unification so that there can be no discrimination between in-state sales and interstate sales, as required by numerous court rulings and the Constitution. This is important because the framers of the Constitution recognized that if the states started charging tax on commerce between them, trade wars would emerge.

Even in the LA Times opinion piece, they discuss the California Board of Equalization. Why does the BOE even exist? The agency exists because the various counties within the state collect tax at different rates. They "equalize" the tax by collecting all of the sales tax due to the state from all of the counties and redistribute that tax among all the counties. Even the state of California has some concern for economic stability by regulating commerce among their counties. Apparently, some editors fail to see the need for equalization on a national level.

The Supreme Court also recognized that unless there was a physical nexus, and a minimal contact between the taxing state and the retail business, that the state couldn't impose a tax on commerce with another state. Just because the product is available through a mail order catalog, or a common carrier (the phone company or US Mail, and nowadays, the Internet), doesn't make it subject to a state's power of taxation. The reason for this is that taxation of this kind could become an undue burden on interstate commerce. This is also important in a recession, as we were in 1992. Take note that the lack of taxes on interstate commerce is what makes our economic system so strong as a union of states.

The Times article has noted a trend among the states, that several states are advancing their efforts to find some way to tax Internet sales. As if taxing more would fix their problem. The Times noted that Amazon has terminated affiliations with New York to remove their physical presence from that state so as to avoid in personam jurisdiction for sales tax liability. Overstock.com has terminated affiliations with 4 states, including California, to avoid being required to collect the sales/use tax, as well. They are terminating these affiliations even before a law is passed. This push for Internet tax legislation is disruptive to the economy and will only alienate the various state governments from their constituencies. And since only a few states at this time are bold enough to do it, a trade war among the states could ensue.

Some people have noticed that the State of California, like many other states, is in a constant battle regarding their budget, since there never seems to be enough money. Their budget dramas have been relatively constant since the late 70's, save for the rise in property tax revenue during the real estate bubble and the collapse of it. Notice that the bubble states were happy, sated and silent during the bubble. Now they want more money. I dare say that more money is not the solution to their problem. And imposing this tax, the use tax, in the manner that they seek to do, will only damage their economy further. They are again, attempting to circumvent the commerce clause of the US Constitution.

Even if all the states were to get their act together now, and come up with a uniform plan of taxation of interstate sales, I doubt very much that Congress would cede that jurisdiction to them anytime soon, if at all. This would create another level of bureaucracy, killing hundreds of trees in the process, and contribute to global warming.

This union of states has been together now for well over 200 years, and in all that time, the states could never cooperate enough, or have incentive enough, to put together a consistent plan of interstate taxation. If they haven't done it by now, I can't see it happening in the near future. I also find the timing of the LA Times article rather ironic. They are calling for more taxation a day before Independence Day, the American Revolution, with taxation without representation being one of the motives for declaring independence. As if we don't already have enough taxation.

Get over it, California, and any other state daring to traverse this path alone. Imposing taxes on Internet commerce may not be the answer, and could even become a problem. It's not going to happen in time to fix your budget, maybe not even in our lifetimes. So relax and find some other tax to collect.

About those patents...

I've been following the case of In Re: Bilski since it hit the headlines last October. What came out of that court last year was no less than astounding: business ideas cannot be patented unless they transform an article or are attached to a particular machine. Finally, we see a crack in the wall of entrenched interests against competition. Now that Bilski, et. al., have managed to get a willing ear from the Supreme Court next fall, the legal news and blogosphere is agog with all kinds of predictions.

What Bilski and his friends did was to patent nothing more than an idea. Not really an invention, just an idea about how to hedge risks in commodities trading related to weather. As Bilski describes it, they conceived of a series of mental steps used to mitigate risk in commodities trading in response to and in anticipation of changes in weather patterns. Such a series of steps could be implemented in software as a computer program. When his appeal was denied in the federal circuit court of appeals, patentees all over the country realized that tens of thousands of their patents and patent applications were at risk. This decision is said to threaten not just business method patents, but also software patents. Undeterred, Bilski has been granted certiorari in the US Supreme Court. But even in the Supreme Court, there are some rumblings that Bilski will be even less welcome there.

On the side of the patent holders, we see so much concern for all that investment and how a decision against Bilski could "stifle competition" and destroy the value of existing patent portfolios. But not a single tear is shed for the humble consumer, faced with an ever limited choice of products, manufacturers and vendors to choose from. Add to that the reduction of investment in research and development in the software industry, as found by James Bessen, et. al. Patents are monopoly power and can be used to wipe out any encroaching competition. As we have seen with Amazon's one-click patent, the fighting over intellectual property land grabs is reaching the heights of pettiness. All this for 20 years of royalties.

On the side of the rest of us, people who don't own any patents and have little power to sway the proceedings, other than to voice our concerns, we see people extolling the virtues of a freer market. Try the Free Software Foundation. Or Against Monopoly. To them, a market unconstrained by patent barriers, is a market free to innovate.

The book "Against Intellectual Monopoly", makes some very pointed observations about the relationship of patents to maturing industries. When an industry is young, innovation proceeds at an amazing pace, as innovators rush to get their products out in front as first movers. Young industries are also under the radar when it comes to regulation. Governments tend to move slowly to develop a regulatory regime in response to new technology.

But when an industry matures, the incumbents start to run out of ideas and think that somehow, they need more encouragement. I know, lets dangle patents in front of their noses! That should keep them moving. But the sad reality is that patents only hinder and stifle innovation, protecting the incumbents.

As someone who works with software, I have noticed another trend. You are all aware of the concept of the computer virus, or, in more general terms, "malware." Malware is what you get when you click on links from people you don't know. They could be in email or on a web page, it doesn't matter. It's out there. Subprime mortgages, health insurance, MLM, male enhancement advertisements, and the whimsical, the Nigerian treasure chest from a recently deceased leader. Malware is not just about advertising, it's also about stealing your personal information, taking down websites and storing child porn on your personal computer without your knowledge.

Now look at the malware industry. No court will protect them. They seek no copyright or patent protection. They are quite simply an unfettered market that has adapted to the conditions surrounding it. Since they are not busy applying for patents or copyrights, nor are they suing anyone to grind them into dust for want of a licensing fee or injunction, they are very busy innovating. Please note, I'm not saying they are right in what they are doing, I'm just making an observation.

Now look at the antivirus industry. They are collecting patents by the hundreds if not thousands. They are suing each other. They copyright their works. They seek government protection in what is supposed to be a free market. How are they succeeding? I wonder, if the product they offer is so superior, why would they need patent protection from competition?

Malware is a very profitable industry. Estimates of how many computers are infected, or get infected vary, and no precise number can be found. Reliable estimates hover around 15% of computers worldwide. But it is fair to say that the number is large enough to support an opposing antivirus software industry who's primary purpose is to protect the rest of us for a fee. Many pundits say that we are losing the war against malware. Why? It's hard for me to say without pointing the finger at the lust for monopoly power in patents and copyrights.

While these antivirus companies are "innovating", their lawyers are trying to make sure their products don't infringe on someone else's patent. Or they are trying to make sure their patent claims cover every other product that could compete with theirs. There are so many software and business method patents that we have what is known as a patent thicket. It is now widely acknowledged to be impossible to write software without infringing any patents.

There is also the issue of customer service. A company with a stack of patents doesn't have to worry about competition. They don't have to smile when they meet you. They don't have to be friendly when they greet you on the phone, either. A patent holder could be the sole supplier of the product you seek. Lucky you. Customer service? The estimated wait time for this call is 20 minutes, please hold and listen to some advertising.

Here are some things that have patents. You use them every day. All of them are software patents and all of them use math. You might have heard of the book, "Math You Can't Use." This case is just about that. The patenting of logical expressions.

MP3 music file format
MP4 a video file format
DVD encoding
encryption
one-click for amazon
certain features of the Microsoft Office Open XML file format (OOXML)
The FAT32 file system from Microsoft (using long file names to substitute 8.3 filenames)

This court case, In Re: Bilski, has the potential to clear the field and make way for real innovation. Hopefully, the court will see that the social surplus provided by software and business method patents is completely overwhelmed by the costs of these patents. What costs? Narrowing of and/or lack of consumer choice, reduced R&D investment, vendor arrogance and grandiosity, litigation, litigation contingency planning, trees, trees and more trees.

It is my hope that, over the next few years, the power of business method and software patents will be decimated so that all of us can innovate, copy ideas, improve on them and pass them on to the next generation or even the next person we share it with, without a single encumbrance.

Credit Bias

I'm in the market for a house. I'm resolved to not incur unsecured debt in any form, intent on saving money for the rainy day or the house that I want - or both. Is this the right way to go? Common sense would say "yes". But conventional wisdom says "no".

There is some anecdotal evidence to support this contention. I've heard a few stories that go something like this: I know this guy see, he pays cash for everything and has no debt. He works as an employee and he's saved up enough for a down payment on a house. But he doesn't have a credit history, so he couldn't qualify for a loan - any loan. He had otherwise sterling credentials, but since he never borrowed money, he was an unknown credit risk and didn't present the possibility for a profit for a lending institution. Can you say "FICO"?

So I've been talking to loan agents to see what I could qualify for in terms of a loan for a house. And what I've learned is that, essentially, unless we're willing to pay the banker interest, we cannot build a good credit score.

Never mind that I pay my bills on time. Never mind that I keep a prudent reserve. No, good behavior doesn't count unless it pays interest.

What were those economists and policy wonks saying again? "We need to get the banks to loan money again." Do you think if we had money in savings, that the banks would have money to loan?

There are huge systemic problems in our economy, and this is one of them: the need to use debt financing to generate profit. I used to work retail. How that happened when my trade is IT? I decided to do it just as an experiment to see if I could do sales. It was in an upscale home improvement store that was a subsidiary of a much larger corporation.

When I started there, I had to go through training. The training had a strong emphasis on the requirement to ask every single customer the following question: Would you like to put that on your (name of company here) credit card? And the follow up, "Oh, you don't have one? Would you like to open one? It will only take a few minutes."

The reason for this is that the company I worked for relied upon debt financing to make up for the low margins on the products they sold. The numbers were rather startling. For every $100 sold, they would earn $1-2 if paid in cash, $2-3 if paid by a third party credit card, and up to $8 by a company issued credit card.

The widespread use of credit cards has transformed capitalism in the US. Remember the traditional method of making a profit? (Maybe you don't because you can only read about it in history books.) You know, buy supply, or manufacture and deliver products efficiently at a cost below the sales price of your product? Instead, multinational corporations buy a huge amount of inventory to sell at a very low margin on their own lines of credit, usually in the form of commercial paper. Then they sell that inventory to their customers with a higher rate of finance. It seems that the art of selling a product for a profit is almost completely lost on the ability to use financing as a means of increasing or sustaining margins.

Or maybe that's a sign of globalization. If we can't compete domestically with imported goods, then it's a race to the bottom on price with debt maintenance payments creating the margins necessary to sustain the business.

Setting that aside, here's an interesting question: why isn't financial behavior, like paying the bills on time reported and/or given the same weight as making payments on a line of credit? Probably because the money isn't there, there's no incentive if you're not paying debt maintenance charges - you know, like interest. Which means that unless you get into debt, you can't get the credit rating needed to qualify for a home loan at a reasonable rate based on your perceived risk to the bank.

We've all heard about the meltdown and the Federal Government's effort to help out. Most of the help has strings attached. Some bank officials are worried that the compensation caps required by acceptance of this help would prevent banks from attracting real talent. With thinking like that, I'd hate to think of what real talent could do to the country.

I guess they're not that worried now. It seems that the major credit rating agencies want to be lenient on AIG. They're worried that if the rating cuts for AIG are too big, then AIG will have to put up a lot more collateral and pay a lot more in financing costs. It's nice to see how members of the financial industry can be so helpful to each other. What about the rest of us? When was the last time your health insurer gave you a break? Or your bank?

There is also the question of lobbying. The bank and finance committees in both houses took in well over $26 million in campaign finance contributions last year. Nice. So, really, what the banks want is firm control over the economy:

• You don't get a credit history unless you borrow money and pay interest.
• If banks make a mistake, taxpayers get to pay for or assume the risk for it, while executives get bonuses.
• Banks can use interest rates to manage the economy in their favor.

Basically, what we're looking at is the top of the kleptocracy created by the banks. They get to sit on their bum and collect principal with interest while the rest of us work for our money.

It's clear to me at this point that public policy must change with regard to standards used for assessing risk for secured loans, such as for a home. A person or company that seeks to borrow money for a secured loan is a far lower risk than for an unsecured loan. Yet, the measurements used to assess the risks rely almost completely on the record of payments for unsecured loans, usually credit cards. In other words, you have to start with unsecured credit first before you can qualify for the really big stuff like cars and houses, which are used as collateral in a loan.

This is so totally wrong. The weight of emphasis should be on payment of day to day bills, not payments on credit cards. We need to reverse the emphasis and place it on paying the bills on time and saving money as the basis for assessing the risk for secured debts like houses or cars.

This just in: Now Experian doesn't want you to get access to your credit score. It's bad enough that we have to pay for our own information (if we want it more than once a year), collected by agencies that will sell the same information to other companies. But it could get to the point where ordinary people cannot get access to their credit files. Gone is the time where you could dispute information on Experian's files because you can no longer see it. Seems like I should be paid everytime my information is disclosed to someone.

I want to leave you with one last thing. This is courtesy of NPR. Go to this page and you will see a chart. Here, we see the comparison of Debt vs GDP. There are only two years in the last century to date that debt was 100% of GDP: 2007 and 1929. Can you sense the sea change?