Julian Sanchez points out today that chain restaurants are largely an answer to a signaling problem: once cars allowed us to routinely travel to unfamiliar places, we needed a way to avoid truly awful food. Chains may not have offered the best food in a given place, but they guaranteed that you wouldn't get something too horrible.

Branding and marketing in general serve this same signaling purpose, but what happens if consumer rating services like Yelp take over the world?

Imagine [] what effect it might have if, five or ten years hence, augmented reality using sophisticated image recognition were as ubiquitous as Internet-enabled phones are becoming in the developed world. Imagine that, for nearly any product consumers encountered, some kind of aggregate rating—based on whatever criteria the individual has determined are most important—would simply appear, with minimal effort. Simply looking at an aisle of products—or even passing shops on the street—I might effortlessly learn which were deemed most satisfactory by people with tastes similar to mine. My incentive to take the time to rank products would be provided by my desire to give the system a basis for determining which other user’s rankings were most likely to be relevant for me. (Think here of Netflix recommendations or other type of social filtering, where contributing ratings enables the system to make better predictions about what I am likely to enjoy.)

With such information more directly available, marketing would become far less relevant to the buyer—and a far less worthwhile investment for the producer. Products, of course, would still need to be distinguished in some way, but a seller with a superior product would be far better able to compete without investing in a costly national marketing campaign. Advertising might be initially important in raising awareness about a new product and building an initial pool of reviews, but its salience would rapidly diminish.

I'd need to think about this some more to decide if I agree. In general, I feel that the power of corporate marketing is routinely underestimated by internet-centric consumers. Remember the Cluetrain Manifesto? Well, it turned out that to a large extent, corporate America adapted just fine to the power of conversation and ended up controlling large swathes of the internet, not the other way around. I suspect that corporate advertisers will adapt just fine too. Marketing is simply too central to human activity to be reined in significantly.

Will marketing change a lot? Probably so. But my gut feel is that it will remain controlled by gigantic, rich, sophisticated players for a long time. They'll just figure out ever better and subtler ways of keeping us from knowing it.

Matt Yglesias, a longtime Apple junkie, wants to know why the rest of the computing industry sucks so bad:

It always seemed to me, as an Apple fan, that the qualities Apple put together were pretty basic — gadgets that work well, which a lot of people do, paired with good design sense. And in fields that aren’t computers and electronics, lots of people seem to do this....In computing, not so much. Even at the height of Microsoft’s power in the late-’90s, Windows 98 was oddly ugly. Surely the richest company on the planet could hire someone to design a better logo than this, right? Why were the default color combinations on Excel charts so wretched? Why didn’t anyone else bother to design power adaptors that look good?

On the power adapter thing, I've long wondered about that too. This is not exactly rocket science. And I can't believe that Apple's version is really that much more expensive than the brick used by everyone else. It's weird.

But on the broader question, there really is an answer. Make no mistake: Apple under Jobs did a great job. But Steve Jobs chose to keep Apple a niche product, aimed at people who could afford to spend a lot of money for a computer that worked precisely the way he wanted it to, and did so with a nice design aesthetic. There are plenty of people who like this vision, but "plenty" still means about 10% of the market or so.

The rest of the personal computing world took a different turn. No one company controlled everything, the PC was a wide-open environment, and it was both cheap and aimed at the business market, where green eyeshade accountants simply didn't care if the Windows logo was ugly. Yes, the competition over price, features, flexibility, and bringing new applications to market was so frenetic that there was a price to be paid in reliability. But no matter how much you hate it, lots and lots of people decided this was a superior approach. Sure, the parts didn't work together as well as they did on a Macintosh, but there were a lot more parts available. Sure, the design aesthetic was clunky, but lots of people didn't care and the cost was often half of a comparable Macintosh. Sure, the Mac did a few things better in the page makeup and illustration fields, but PCs did a lot of things better in the business software field, in both the front office and the back office.

This whole argument reminds me of the great VHS vs. Betamax controversy. Consumers are stupid! screamed the Beta fans when their format died. Beta was clearly a superior format. Well, no, it wasn't. There's no single continuum of "quality": every piece of technology ever invented is a series of compromises. Beta provided better picture quality, but with short runtimes and relatively high cost. VHS made a different set of compromise: adequate picture quality with higher runtimes and lower cost. That set of compromises turned out to be more popular.

Ditto for PCs. By hook or by crook, PCs and Macintoshes simply represent a different set of compromises. If you're primarily a writer or an artist, aren't too price sensitive, don't care about setting up an office network, and value good design, then a Macintosh is a great computer. But don't kid yourself: you're accepting a certain set of compromises, not picking an objectively better product. If you're primarily a financial analyst or a product manager, want lots of choices of computing platform and software, work primarily on a corporate network, don't want to spend a lot of money, and don't really care about design aesthetics, then a PC is a better choice for you. This was especially true in the 80s and 90s, when PCs and Macintoshes were initially duking it out for market share. You can laugh at those old Compaq sewing machines all you want, but in 1983 they were revolutionary and it was many years before Apple had anything to compete with it.

A lot of these differences are less pronounced now than they used to be. Although price is still a big difference, Macs are more network friendly and have a broader range of software than they did in the past. Likewise, PCs have a better design sense and work better than they used to. To a large extent, PC market share today is just an artifact of the inertia PCs gained in the 80s and 90s. Still, that inertia happened for a reason, and only part of it was the famous Microsoft marketing juggernaut. The PC market and the Macintosh market evolved as a different set of compromises to address a similar set of problems, and in the end, the PC's compromises attracted more buyers. Neither one was better or worse. They were just — as Steve Jobs might have said — different.

It's prediction time. Do you think that President Obama, in the reasonably near future, will embrace the Occupy Wall Street movement? Cast your vote in comments. 

Will Bunch is exactly right about this:

One of the biggest myths about the Tea Party is that a driving force in its creation was anger over bank and Wall Street bailouts. It's true that some rank-and-file joiners did feel that way at first, but they were quickly co-opted by the movement leaders — including radio talkers and groups funded by the Koch Brothers — into worshipping the rich instead.

The tea partiers really do hate TARP, and they hate the auto bailout, and they hate the Fed and its money debasing ways. But the tea party's leaders have always been careful to give those things plenty of lip service while channeling all the movement's real energy into the issues that its big-dollar funders have always cared about most: lowering taxes on the wealthy, reducing regulations on corporations, and cutting spending on the poor.

After all, tea partiers could have poured their energy into protesting the AIG bailout. They could have poured their energy into insisting that Dodd-Frank be tightened up. They could have poured their energy into demands that the Fed be reformed and made more transparent.

But those were never more than side issues. The real issues for the tea partiers have always been healthcare reform, tax cuts, deficit fever, and EPA bashing. And in the most obvious tell of all, they were actively opposed to Dodd-Frank, a bizarre stand for an allegedly anti-bailout movement. The tea party, in the end, simply isn't anything new. It's the same old right-wing fluorescence we see every couple of decades or so, with all the same hobbyhorses. The media really should have figured that out by now.

I've got a piece coming up in the next issue of the magazine about five economic memes that deserve to die. By the time it was done, it had actually turned into six memes, but apostate Republican David Frum goes me seven better today by listing 13 — yes, 13! — ways in which the Republican consensus on the economy is wrong, wrong, wrong:

  1. It is wrong in its call for monetary tightening.
  2. It is wrong to demand immediate debt reduction rather than wait until after the economy recovers.
  3. It is wrong to deny that “we have a revenue problem.”
  4. It is wrong in worrying too much about (non-existent) inflation and disregarding the (very real) threat of a second slump into recession and deflation.
  5. It is wrong to blame government regulation and (as yet unimposed) tax increases for the severity of the recession.
  6. It is wrong to oppose job-creating infrastructure programs.
  7. It is wrong to hesitate to provide unemployment insurance, food stamps, and other forms of income maintenance to the unemployed.
  8. It is wrong to fetishize the exchange value of the dollar against other currencies.
  9. It is wrong to believe that cuts in marginal tax rates will suffice to generate job growth in today’s circumstance.
  10. It is wrong to blame minor and marginal government policies like the Community Reinvestment Act for the financial crisis while ignoring the much more important role of government inaction to police overall levels of leverage within the financial system.
  11. It is wrong to dismiss the Euro crisis as something remote from American concerns.
  12. It is wrong to resist US cooperation with European authorities in organizing a work-out of the debt problems of the Eurozone countries.
  13. It is wrong above all in its dangerous combination of apocalyptic pessimism about the long-term future of the country with aloof indifference to unemployment.

I have to say, once people break with the Republican Party these days, they really break. They don't become Democrats or anything, but if anything, they actually savage their former comrades more than Democrats do. I'd love to see something this pithy from, say, Barack Obama. It's inspiring.

Sarah Palin made it official today: she's not going to run for president. I'm posting about this just in case anyone out there was still unsure about Palin's prospects.

But riddle me this: why did she make this announcement through the lamestream media? What's up with that?

UPDATE: Ah, I see. Jay Newton-Small misled me. Palin actually made her announcement on the Mark Levin show.

Financial transaction taxes are getting some attention again, and Megan McArdle is against them:

Myself, I don't really see the charms. Tiny taxes on high-volume transactions raise a lot of money, but they also cost money to record, collect, and audit, which is why few jurisdictions have 0.25% sales taxes. And I'm not clear on what problem taxing financial transactions is supposed to solve. It's not as if our woes were caused by legions of high-frequency traders wrecking the markets with their tiny, tiny spreads.

I'm going to take this opportunity to write something potentially really ignorant. But hey — how else do you learn new things aside from putting yourself in a position to get viciously called an idiot in the blogosphere?

So then: when we talk about FTTs, the usual topic is, as Megan implies, high-frequency traders who make money by executing millions of computerized trades that each produce only a tiny profit. Introduce an FTT and they'd become unprofitable and high-frequency trading might go away. I'm perfectly fine with this, since I'm on record as having a dim view of high-frequency trading, but by itself I agree that it isn't enough of a reason to mount an FTT. Besides, if we really think high-frequency trading is dangerous, we should just ban it and move on.

So here comes the possibly ignorant part. One of the most dangerous aspects of the financial system of the aughts — not the only one, but one of them — came from the virtually frictionless nature of modern money flows. That prompted traders to follow a strategy similar to the one that blew up Long Term Capital Management in the 90s: seek out trades that are only barely profitable, and then lever them up enormously. Even a spread of a tenth of a percent is a money spinner if you can lever it up 30:1 or 100:1 with mountains of cheap money.

My question, then, is whether an FTT would slow this down. Basically, any trade with a spread of less than 0.25% would automatically be unprofitable. There would still be plenty of marginally profitable trades, of course, but they'd tend to be a little less exotic. Lots of people can spot an arbitrage opportunity of 0.4%, so they wouldn't last long. The real problem lies in the clever, minuscule trades that stay hidden long enough to be profitable at high levels of leverage but that blow up spectacularly when they go bad. If we had fewer of them, the entire system would be a little more stable.

I can think of several reasons why I might be wrong about this. I don't know, for example, how this would affect big banks, or how it would affect the construction of rocket-science securities like the subprime CDOs that brought down Wall Street in 2008. Maybe the small-spread trades I'm thinking of aren't really as widespread as I think. Or maybe the danger would simply get transferred wholesale from trades with 0.1% spreads to trades with 0.35% spreads.

Hopefully someone who actually knows how high finance works will see this and provide some kind of definitive answer. I've long thought that aside from limiting leverage, which is clearly Job 1 for a more stable financial system, we also need to throw just a little bit of sand in the gears and slow things down slightly. Capital controls, for example, might be a good idea for a lot of countries if they're kept small: just enough to prevent massive hot money flows but not big enough to seriously affect capital formation. An FTT seems like something along these lines.

But I'm open to being swatted down. I'm looking at you, Economics of Contempt.

Over at The Corner, Andrew Stiles recounts a conversation he overheard this morning about the Occupy Wall Street protest. The speaker wasn't especially lucid and ended up explaining that he was just generally opposed to greedhead capitalists:

Sure. Because we all know splendidly greed- and corruption-free socialist government is, and how "the 99 percent" of Americans are just clamoring for it. Certainly, this one fellow doesn't speak for all the protesters, but being familiar with how a (frighteningly) large portion of my generation thinks—and in many cases, has been taught to think—this seems like a fairly accurate distillation of their collective mindset: vague, incoherent, idiotic.

Funny, isn't it? Conservatives sure get plenty offended when people use language like this to talk about tea partiers. But find some guy in a coffee shop who dislikes bankers but can't really articulate a fully fleshed out worldview to explain it, and suddenly an entire generation is a bunch of morons.

I'm going to continue to allow other people to follow OWS more closely than me—Andy Kroll has a good piece about union involvement here, and Michelle Goldberg has another here—but I do find it sort of fascinating. The lack of a clear message has never bothered me, any more than the lack of a clear message in the early days of the tea party bothered conservatives. If OWS continues to grow, messages will start to germinate organically. Some of them will spring from the anarchist roots of the founders, but they'll become fringe issues pretty quickly and shouldn't scare off the rest of us—sort of like tea party demands to repeal the 17th amendment. Others will be more mainstream: repeal of the Bush tax cuts on the rich, stricter financial regulations, more stimulus spending, etc. These will become the equivalent of tea party demands for lower taxes and reduced spending.

And just like the tea party, mainstream logistical support will be key. The tea party movement thrived partly because of genuine grass roots anger, but also because it got lots of publicity from Fox News and plenty of money and organizational support from national conservative groups. Likewise, on our side, union support is key because, even in their current emaciated state, unions are still the only big, institutional pressure groups in America focused almost entirely on economic issues. Jon Cohn puts it pretty well:

During my lifetime, the activist left has gone through several incarnations, focusing on a series of different causes. For much of the 80s and 90s, very generally speaking, the focus was largely on identity politics. Then attention moved to globalization and then, during the Bush presidency, to wars abroad.

As far as I can tell, this is the first time the activist left has focused seriously on issues of economic opportunity at home. In fact, I think it's the first time such issues have been front and center since the 1930s, although I'll defer to the historians on that one. Either way, this movement has a chance to help shape the debate over economic policy in this country—not merely about the financial industry, which is the object of protests right now, but also about inequality generally.

This is a point I was trying to get across in my article earlier this year about unions and plutocracy. My main takeaway was: With unions in a state of decline, what will take their place as a big, organized, persistent source of left-wing pressure on economic issues? I didn't know the answer then, and I still don't. But Occupy Wall Street has a chance—a fighting chance, anyway—of becoming that.

Andrew Sullivan reacts to Jon Stewart's evisceration of Mitt Romney's flip-flopping:

If Romney's shifts were connected to new facts, or new arguments, they would have some punch. But what's amazing about him is that all of them seem clearly caused purely by opportunism in a party lurching toward fundamentalism in religion (the Bible), economics (no revenue increases ever) and politics (the Constitution, as viewed by someone in the late eighteenth century).

OK, sure. Point taken. Romney is a shameless panderer. He'll do whatever you want him to do as long as you'll promise to vote for him.

It's not a pretty sight. But it also makes him the perfect tea party candidate. Don't they see this? With a guy like Rick Perry, you never know. The right person whispers in his ear and suddenly he decides that he hates cancer so much that he doesn't care about conservative principles. Cancer is more important. Do you think Mitt Romney would ever do that? No siree. He'd run that baby dispassionately through the Computron 9000 that passes for a brain and then he'd do exactly what you want him to do. Because he wants you to vote for him. So as long as you keep the pressure on, Romney will never disappoint you.

Romney's big problem, of course, is that tea partiers won't necessarily figure this out on their own — they just think he's an unreliable flip-flopper — and it's hard to figure out how to get the message across to them. It's not like he can give a speech saying he doesn't care about principle and will just abjectly do whatever the tea party wants him to do, so help him God. Still, good politicians always figure out how to get messages like this across with a wink and a nudge in just the right place. Romney can do it too if he devotes enough CPU cycles to the problem.

Sorry for the late start this morning. Here in the third-world city-state of Irvine the power went off yet again last night, and this morning my computer was corrupted in some strange way. I have since tossed some garlic at it, shaken some oracle bones in its vicinity, and used my ISP's web interface to delete a bunch of email. This has produced conditional success. If everything continues working after a restart later today, I'll declare victory over Windows and Southern California Edison. Wish me luck.

Anyway. Speaking of online education — isn't that what we were just speaking about? — Matt Yglesias makes a point so obvious today that I've long wondered why I so seldom hear anyone acknowledge it:

There’s just a basic problem with the general incentives-focused view of the world. Investing some time during the years 15-22 to equip yourself with a quantitative analysis toolkit is something that’s definitely rewarded in the marketplace. And you can find all the relevant textbooks, lectures, information, etc. online already. And yet the number of people who’ve self-taught calculus is tiny. 

Right. Professors lecturing in front of whiteboards may not seem very whiz bang in the era of Facebook, but the medium is definitely not the message here. Aside from the social virtues of a physical college campus, its real virtue is that it sets up a commitment structure: you feel obligated to go to class, and once you're in class you feel obligated to do the homework, etc. Even at that lots of students don't go to class and don't do the homework, but lots do. But if you're studying online, you have to self-motivate at a much higher level. And it's a level that, frankly, most of us just aren't capable of.

I'm sure that eventually someone will come up with a solution to this. Until then, though, this is really the key issue, not the quality or widespread acceptance of online learning. We have to figure out a way to make even average students willing to sit through hours and hours of instruction alone in their rooms. That's not something the human brain was really evolved to do.