Felix Salmon

Many thanks to the Kauffman foundation for crunching the numbers on a key part of Jerry Moran’s clumsily-named Startup Act 3.0 — the new visa for immigrant entrepreneurs. I don’t have an opinion on the rest of the bill, but it does have two sections which are something of a no-brainer when it comes to immigration reform. One is the immigrant-entrepreneur visa; the second is the idea of giving green cards to up to 50,000 foreign students who graduate from an American university with an advanced degree in science, technology, engineering, or mathematics — so long as they remain in that field for five consecutive years.

The immigrant-entrepreneur visa is pretty simple. You create a pool of 75,000 such things, available to anybody who’s here already on an H1-B or F-1 visa. When those people switch from their old visa to their new one, they have to start a new company; employ at least two full-time, non-family member employees “at a rate comparable to the median income of employees in the region”, and invest or raise at least $100,000. After that, they have to continue adding employees at a rate of one per year, so that after three years, there must be at least five employees. At the end of three years, you graduate to a green card, and with it the standard path to citizenship.

The visa addresses the main problem which Ross Eisenbrey has with H1-B visas: the fact that people on such visas are “more or less indentured, tied to their job and whatever wage the employer decides to give them”. The new visa would create an employer exit strategy for H1-Bs, allowing workers to leave companies which pay too little or offer too few opportunities, and instead strike out on their own.

And of course — by definition — it would create jobs. The Kauffman foundation’s math is solid, here: they conservatively estimate job creation at somewhere between 500,000 and 1.6 million new jobs after ten years, and possibly substantially more. (Those estimates don’t include jobs created by the new firms after they’ve left the program, for instance.)

I also like the fact that the new immigrants created by this program would go overwhelmingly to the parts of America where immigration is wanted and embraced: big cities and research hubs. This plan is full of positive externalities: it improves tax revenues, from all the new employment and consumption; it improves America’s share of global innovation, and of course it helps to position America once again as the land of opportunity.

The Kauffman foundation is understandably worried that the visa would unfairly punish failure in an inherently risky world, but we’re living in a world of pivots, these days, where a gay social network can become a discount shopping site — and so long as the immigration people are OK with pivoting business plans, I think the failure problem will be manageable.

Most fundamentally, however, this visa is a great idea just because without it, the incentives are all wrong. As Stuart Anderson demonstrates, “in a practical sense, it may be easier to stay in the United States illegally and start a business than to start a business and gain legal temporary status and permanent residence (green card) as the owner of that business”. If we want to reduce illegal immigration, we obviously have to make it less attractive than legal immigration: as Jeb Bush and Clint Bolnick point out, you can only realistically ask illegal immigrants to “return to their native countries and wait in line like everyone else” insofar as there is, actually, a line to wait in. Right now, there isn’t one.

The only real question, when it comes to this visa, is how it’s going to get signed into law. The proponents of immigration reform tend to fall into one of two groups: US employers, on the one hand, who are looking to increase the size and/or quality of the pool of potential employees they’re choosing from; and illegal immigrants, on the other hand, along with their families and friends, who want to stop living in the shadows. Neither group has much incentive to support an immigrant-entrepreneur visa. But let’s hope we manage to get one somehow, anyway.

Restaurants are the natural home of impulse purchases. Would you like a third bottle of that wine? Would you like to see the dessert menu? What the hell, why not. All you need to do is say the word, and it all just appears, fresh and delectable for your consumption, before you’ve so much as paid a penny. Eventually, of course, the bill comes — essentially, it’s an invoice listing everything that you’ve already consumed. Then you pay that invoice, and leave.

This is a very sensible way for restaurants to operate. They don’t all work that way: at fast-food joints, for instance, or coffee shops, you tend to pay for what you’re consuming before you consume it. At that point, if you want more, you have to pay again. Which is just one reason why you rarely see people doing that. But generally, the extra amount that people order before the bill arrives more than makes up for the fact that some tiny percentage of them might try to dine-and-dash. Paying is never very pleasant, and if you force people to do it before they’re get what they want, that’s going to reduce both the number of people who buy things and the number of things that they buy.

When we order food in a restaurant, we know that we’re going to be paying for it, literally, in the future — but thanks in part to hyperbolic discounting, even pushing the moment of truth back half an hour or so makes us more prone to running up a tab right now. Similarly, we spend more on credit cards than we do on debit cards: it’s always easier to spend money in the future than it is to spend money in the present.

Online merchants, especially ones who have a lot of mobile shoppers, face a similar problem to restaurants. They want to encourage impulse purchases, but it’s hard to make an impulse purchase when you’re laboriously typing in your name and address and credit card number. The ideal solution would be for would-be purchasers to be able to just press a button, and presto, the item is ordered: the buyer can worry about exactly how to pay for it tomorrow.

That’s the promise behind Klarna, in Europe, and Affirm, which launched today. You click a button, and the item is ordered and on its way to you; the merchant is actually paid by Klarna or Affirm, and not by the purchaser. It then becomes the job of the intermediary — Klarna, or Affirm — to invoice the buyer and chase down the payment, long after the actual purchase has been made.

The two companies work on slightly different models. Klarna uses credit: it’s essentially lending money to the purchaser, and charging interest. Affirm, by contrast, charges the merchant, rather than the customer. Merchants already pay an interchange fee so that they can accept credit cards as payment; paying a similar fee to Affirm will surely be worth it, if they can convert a greater percentage of shopping carts into actual purchases. Also, Affirm seems to be a lot more mobile-native than Klarna.

At heart, however, the two shops are selling much the same product: a way of making online shopping as painless as possible, with payment pushed off until tomorrow. It’s a pretty good idea. But what’s interesting to me is the way that Affirm founder Max Levchin is touting Affirm’s know-your-customer algorithms: the site will identify who you are using Facebook, pull in lots of other data including your Zip code and your mobile device ID, and use all of that information to predict how likely you are to pay the bill once you receive it.

Levchin’s a big fan of such predictive usage of data:

At PayPal, where I was the CTO, we succeeded because we gained deep understanding of the immense quantities of behavioral data that we captured in processing millions of transactions per day. We learned so much about our customers, that we could predict their intentions, and prevent vast majority of intentional fraud.

This is clever, but it can also be a weakness. The reason why so many fintech startups are aiming at PayPal is that people don’t like PayPal; and the one of the main reasons that people don’t like PayPal is precisely its sophisticated fraud-detection algorithms, which tend to throw up a lot of very annoying false positives.

Obviously, Affirm needs to know who you are, and where to find you, so that it can invoice you for the stuff that you’ve bought online. And if you do end up being rejected when you try paying with the Affirm button, then the worst-case scenario is that you’re just back to the status quo ante, forced to pay with a credit card or similar. Still, people don’t like being instantly profiled as untrustworthy; the problem, of course, is that it’s precisely the untrustworthy people with no intention of paying who are likely to be flocking to Affirm in an attempt to order free stuff.

Affirm is trying to make buying stuff on your phone as easy as two taps, without being sunk by massive coordinated fraud. If it works, merchants will surely love it — and won’t much care about the fees it charges. Also, if it works, it will probably end up being bought by Facebook. Which would only exacerbate the worries that people already have about multi-billion-dollar corporations monetizing their personal data. Buying stuff online might become a lot easier. But there’s bound to be a privacy cost, somewhere.

Remember the force-placed insurance scandal, which first came to light back in 2010? Well, despite being addressed in Dodd-Frank, the problem is still there: loan servicers are buying massively overpriced home insurance on behalf of homeowners, and getting enormous kickbacks from the insurers — if they don’t own the insurers themselves. The victims, here, are usually the investors who own the mortgages in question — which means that the biggest victims of all are Fannie Mae and Freddie Mac.

Fannie alone has seen its hazard insurance costs rise from around $25 million a year before the financial crisis to $631 million in 2012. That’s real money, and so Fannie came up with a plan to save hundreds of millions of dollars. Rather than paying through the nose for the most expensive insurance the servicers could find, Fannie decided to buy the insurance itself.

Fannie ran this idea past its regulator, FHFA, on February 17, 2012, reports Jeff Horwitz in another one of his fantastic articles on this issue today. Back then, the FHFA had no objections. So Fannie put out an RFP, asking 12 insurers for their ideas. The results can be seen here: the winner was a proposal from Overby-Seawell Company, which proposed a system anybody could join.

OSC excelled at program design, Fannie concluded. It had also pulled off a coup by partnering with Zurich Insurance, a Swiss reinsurer with a $400 billion balance sheet, a superior A+ rating from insurance rating company AM Best and historical experience in the force-placed market.

Zurich stood ready to take on all of Fannie’s business if necessary, but under OSC’s model any qualified insurer could take a piece of the GSE’s business by joining a consortium of carriers willing to divide Fannie’s risk. Among the proposal’s attractions were “market driven pricing,” and “one entity fully accountable to Fannie Mae and servicers,” Fannie documents state.

Fannie put thought into preventing excessive market disruption as well, the documents show. Incumbent insurers willing to match Zurich’s prices would be permitted to retain existing business. If they didn’t, banks could still hire them to administer force-placed programs. Insurers were also welcome to join the Zurich consortium.

Fannie showed OSC’s proposal to the FHFA on May 9, and again faced no objections. The “final project recommendations” were then run by the regulator on September 28, as well as on follow-up calls on October 12 and October 22. Everything was in place: the only thing left was formal FHFA approval.

Which never arrived.

Instead, faced with lobbying from the American Bankers Association and others, the FHFA vetoed the whole plan on February 8; once the news was made public, shares in the largest force-placed insurer, Assurant, immediately surged. At this point, Fannie’s plan seems to be definitively dead — replaced with a group of committees whose objective isn’t obvious and which have every incentive to drag things out.

The result is that Fannie has seen at least $150 million of savings evaporate — and homeowners are going to wind up overpaying even more, for insurance their servicers have chosen for them.

So, what does the FHFA think it’s playing at, here? It’s not exactly being forthcoming on the subject: a spokeswoman said only that “FHFA will work with Fannie Mae, Freddie Mac and key stakeholders… to address issues associated with force placed insurance,” although the FHFA’s Meg Burns has said that the regulator has no timeframe and no particular idea what approach it’s going to take on these issues.

I’ve heard of regulators being captured by the organizations they’re supposed to be regulating — that happens all too frequently. But the situation at the FHFA seems to be even worse: it looks as though it has been captured by the banks which are extracting rents from the regulated organizations.

Indeed, it’s hard to think of a single good reason why the FHFA should exist at all. By all means regulate Fannie and Freddie — but give that job to the same regulators who are in charge of overseeing all the other major financial institutions in the country. The FHFA has been useless and obstructive pretty much from day one, and this latest decision only serves to underscore how counterproductive it’s being. If the Obama administration can’t get rid of its head, Ed DeMarco, maybe it should just abolish the entire thing.

Following a recommendation from Bond Girl on Twitter, I spent a 95-minute chunk of Saturday night on YouTube, watching the first of five Leonard Susskind lectures on cosmology and very much looking forward to the rest. By coincidence, it’s targeted pretty much at exactly my level: you need a decent grounding in Newtonian mechanics and basic calculus, but nothing too sophisticated.

It turns out there are a lot of people like Bond Girl and me out there: a slightly different version of the same lecture already has well over 200,000 views on YouTube. Give people the opportunity to learn interesting material by watching lectures by the best professors in the world, and it turns out they’ll do just that. This is fantastic for the Stanford brand: it gets it out into the world in the best possible way, and will surely, at the margin, drive up demand in terms of the number of people wanting to attend the university. And it’s also fantastic for the hundreds of thousands of people who are learning new and fascinating things by watching these lectures.

The free YouTube content can be considered to be an extra column on the far left side of this chart, which Barry Nolan put together after watching a Fred Wilson video:

YouTube is even more democratic than MOOCs: there’s basically no structure at all, you can drop in and drop out as you please, and the yield is effectively zero, since no one ever “graduates” with any kind of credential from watching videos online. It’s 100% education, 0% credentialing.

This is an important point: even if 99% of the people who enroll in MOOCs never graduate, that doesn’t mean they never learned anything along the way. What you get when you move from left to right, in this chart, is an increase in structure: some kind of organized, disciplined way of getting a group of people to basically experience the same thing at the same time. It’s not so much that the content gets better (although it might); it’s more that the formal architecture surrounding the content becomes increasingly elaborate and expensive.

This phenomenon is not confined to education, of course. Think about the Metropolitan Opera. There’s the real deal, on the far right, where you pay hundreds of dollars for a ticket, sit in a darkened hall with a few thousand other opera-goers, and experience a full-on live performance. Then, one step over to the left, you have the Live in HD performances — you spend a couple of dozen dollars, sit in a darkened cinema with many others, and experience the performance on screen, over an excellent sound system. It’s not exactly the same experience, of course, but in some ways it’s better, especially when compared to the view from the cheaper seats at the Met. Take another step to the left, and you have the storied Metropolitan Opera radio broadcasts — they’re still live, but you lose the visuals, and the physical architecture of the opera house or cinema.

If you’re willing to break the operas up into tiny chunks, you can head over to the Met’s YouTube channel, which has over 1.5 million views already, and allows people to dip in and out at their pleasure — just like they can fire up a DVD they’ve bought or rented, watching it at home. (Netflix, sadly, doesn’t have a lot of opera available for streaming yet, although it does have Zeffirelli’s much-disliked Otello.)

Fred Wilson’s advice to Wharton, then, is basically to be more like the Met: take what you do, and put it out there with varying degrees of structure and architecture, at various price points from $0 to $133,600. The more discoverable you are, the richer your brand will become — and, just like TED discovered when it started putting its talks online for free, the more you give such things away, the more demand there is for the very expensive live product.

In education, the worry isn’t really about the future of schools like Stanford and Wharton, but rather about the future of smaller universities: could their full-price offerings be pushed out of the market by the cheaper versions from elite colleges? It’s possible, but it hasn’t happened yet, and it might not happen at all. After all, my intuition is that people are more likely to want to go see a performance at their local opera house after seeing a Live in HD performance from the Met. And the more Leonard Susskind lectures you watch online, the more you might want to take a proper course at your local college.

It seems to me that the rise of what you might call these “diffusion lines” is the rise of a brand-new marketing platform for the asset class as a whole, be it education or opera or anything else. Up until now, it’s been hard to get many people interested in opera, because the barriers are so high, and because most of us need a bit of structure in order to be able to sit through it and appreciate it. (I love going to see live opera, for instance, but never listen to it on the stereo at home, because I’ll end up getting distracted almost immediately.) Similarly, the arguments for going to college tend to center on the value of the credential, rather than the inherent value of the education itself. Once we bring first-rate educational experiences to everybody, then the proportion of those people who want to go to college can only go up. And that, in turn, will be great for everybody, and for the economy as a whole.

There’s a very simple and cost-free thing that all news organizations can do to make their news better: every time you write about a court filing or judgment, link to it. (And, ideally, make sure it’s been uploaded to Recap, too.) For instance, consider Patricia Cohen’s NYT article about David Mirvish’s lawsuit against the Knoedler gallery. (See what I did there? You’re welcome.)

Cohen’s article is a very interesting view of the lawsuit and its context, but it doesn’t come close to capturing the barminess of the complaint. And because Cohen understands the bigger picture, she actually ends up misrepresenting the suit itself, in which Mirvish is seeking to take possession of two paintings on the grounds that Knoedler, which has now closed, isn’t selling them. Here’s Cohen:

While most of the suits have argued that the paintings Ms. Rosales brought to market were fakes, Mr. Mirvish says his are Modernist masterpieces and that he lost out on millions of dollars in profits when Knoedler failed to sell them.

In reality, Mirvish isn’t suing for “millions of dollars in profits”: he just wants the paintings, is all. Which is pretty aggressive, seeing as how he’s only paid for a 50% share in them.

The case is fascinating because Mirvish was acting as an unabashed speculator in this case: he bought the Pollocks low, knowing that they had dubious provenance, and hoped, with Knoedler’s help, to be able to sell them high and make a tidy profit. Call it provenance arbitrage: Knoedler was a storied and highly-respected gallery, and a painting being represented as genuine Pollock by Knoedler is worth a lot more than a painting being represented as genuine Pollock by a sketchy Long Island dealer by the name of Glafira Rosales.

In the beginning, everything worked out great for both Knoedler and Mirvish, even if Mirvish’s lawyer, Nicholas Gravante, seems to find it incredibly difficult to explain what actually happened. For instance, he writes:

Knoedler purchased the Silver Pollock from Rosales for $950,000 in 2002.

Knoedler paid $475,000 to Rosales from its own funds and contemporaneously sold Mirvish a 50% investment interest in the Silver Pollock for $1.6 million. Thus, the end result of the transaction was that Knoedler held title to the Silver Pollock, and Knoedler recorded a profit of $1.125 million.

This is not easy to understand. On a cashflow basis, if Knoedler buys the painting for $950,000 and then sells a 50% stake in the painting for $1.6 million, then the profit to the gallery is $650,000, not $1.125 million. And on a mark-to-market basis, if the Mirvish deal ratifies a $3.2 million valuation on the painting, then Knoedler has made $650,000 in cash, plus $1.6 million for the value of its own 50% stake, for a total profit of $2.25 million. The only way to get to $1.125 million is to think of the painting in two halves. Knoedler bought both halves for $475,000 apiece, and then sold one of the halves for a profit of $1.125 million, while holding on to the other half for itself.

Now this may or may not be the way that Knoedler thought about the deal; the whole thing is massively complicated by the fact that, as Cohen reports, Gravante also represents Knoedler’s former president, Ann Freedman. Why on earth would Mirvish hire the lawyer who represents the president of the gallery he’s suing?

What’s more, the public version of the lawsuit omits what happened next to the Silver Pollock: Freedman sold it to a London hedge fund manager, Pierre Lagrange, for $17 million, and, according to Cohen, “for four years, the sellers, including Mr. Mirvish, enjoyed the gains from their commercial coup”. Presumably, Mirvish received half of that $17 million, and made a personal profit of $6.9 million; Knoedler also made $6.9 million, plus the $1.125 million it had already made on the Mirvish deal, for a total of $8.025 million.

There is one short paragraph of the lawsuit which has been redacted, which may or may not explain some of what happened after Lagrange declared the painting to be a fake and asked for his money back; it certainly doesn’t seem long enough to explain the whole story. Still, the upshot, at least in Mirvish’s mind, seems to be that Knoedler now possesses the painting; that it’s not attempting to sell the painting; and that if Knoedler isn’t going to try to sell the painting, then Mirvish wants his $1.6 million back.

All of this seems to hinge on a “contract” between Mirvish and Knoedler, under which Mirvish’s payment of $1.6 million was not a once-and-for all purchase of 50% of the painting, but was rather a revocable deal, under which Knoedler had the right to retain the $1.6 million only if it was “marketing and attempting to sell” the painting. Naturally, Mirvish can’t produce a copy of this “contract”. But never mind that: it’s just not fair, what Knoedler did. In probably the most astonishing sentence in the entire complaint, we’re told that

Mirvish’s investment in the Silver Pollock was worthless absent Knoedler’s agreement to market and sell the painting.

Worthless! Remember, here, that Mirvish still believes the Silver Pollock to be a timeless masterpiece. But he, like the White Queen, is clearly one of those people capable of believing six impossible things before breakfast, since he also seems to think that a 50% ownership stake in a significant Pollock painting is worthless — unless, that is, an Upper East Side art gallery is attempting to sell the thing.

Now Mirvish used to be an art dealer in his own right, and I’m sure he never told people buying a painting that their painting would be worthless unless it was consigned for sale somewhere. But for the purposes of this complaint, the money that Mirvish spent on his 50% of the painting amounts to “unjust enrichment” of Knoedler, just because Knoedler (which is no longer operating) isn’t actively trying to sell the thing.

All of which is to say that in this lawsuit, Mirvish has taken the idea of art-as-an-investment to a particularly bonkers extreme. In Mirvish’s world, it seems, artworks have no inherent value, just by dint of being beautiful or genuine or unique. Instead, an artwork is only an investment if it’s being shopped around — if someone’s trying to make a profit on it, by selling it.

Similarly, in Mirvish’s world, if a gallery has a claim to 50% of the value of a painting, but again isn’t actively shopping that painting around, then the gallery’s claim is worthless. That’s basically what Mirvish is saying with respect to the other two Rosales Pollocks he took a 50% stake in.

The deal with these two Pollocks — which are rather hilariously referred to in the complaint as “the Greenish Pollock” and “the Square Pollock” — was slightly different than the deal with the Silver Pollock. The basic facts are similar: Knoedler bought the Greenish Pollock from Rosales for $750,000, and then sold a 50% stake in it to Mirvish for $1.25 million. And after buying the Square Pollock from Rosales for $2.25 million, Knoedler sold a 50% stake in that painting to Mirvish for $2 million.

But these two paintings weren’t split into conceptual halves, in the way that the Silver Pollock was. Instead, a rather complicated arrangement was worked out. Mirvish contracted to buy both paintings in full, outright — but he only paid half of the total purchase price. The other half of the purchase price was lent to Mirvish by Knoedler, in the form of “a non-recourse, non-interest bearing loan”. And just as with the Silver Pollock, Knoedler kept physical possession of the painting, with an eye to flipping it for a profit. Under the terms of the loan, 50% of the sale proceeds would go to Knoedler, and 50% to Mirvish; if all went according to plan, Knoedler’s 50% would be more than enough to pay off the loan and to keep a healthy profit for itself.

This is not easy to follow, but the key word here is “non-recourse”. What it means is that although Knoedler had technically lent Mirvish $3.25 million, Mirvish personally has no legal obligation to ever pay Knoedler that money. If Mirvish ever gets possession of the paintings, then he has title to them already, and never needs to pay the $3.25 million that Knoedler is owed. Economically, the deal is the same as with the Silver Pollock: Mirvish paid a certain amount of money for a 50% economic stake in the artwork, on the understanding that he would receive 50% of the eventual sale proceeds. But legally, at least according to this complaint, Mirvish owns these artworks outright — he has title to both of the paintings in full, rather than just to some kind of 50% investment stake.

In a weird way, the tables are turned, with the Greenish and Square Pollocks: it’s Knoedler, rather than Mirvish, which has the speculative investment interest. And so by the logic of the Silver Pollock, now that the works aren’t being actively shopped any more, Knoedler should be able to retrieve from Mirvish the $3.25 million it lent him, and zero out the whole deal. Except, of course, Mirvish doesn’t see it that way: he has no interest at all in repaying those loans. In fact, he wants to take possession of both paintings without repaying the loans.

Once again, Mirvish conjures up an invisible contract, under which Knoedler was obliged to hand over the paintings to Mirvish if it ever stopped trying to sell the paintings. It’s hard to see why Knoedler would ever enter into such a contract while also being owed $3.25 million in non-recourse loans: after all, the minute it gives Mirvish the paintings, it can basically kiss that $3.25 million goodbye.

Indeed, if there was some kind of implied contract between Mirvish and Knoedler, it was surely that Knoedler would never just hand the paintings over to Mirvish and receive nothing in return for its 50% economic stake in the works. Both parties entered into this deal in a spirit of financial speculation, and both parties thought of themselves as having an equal share in the works. The complaint says that “equity and good conscience require that Knoedler deliver the Greenish Pollock and Square Pollock to Mirvish” — but there’s nothing equitable about that outcome whatsoever, where Mirvish ends up with 100% of the paintings, and Knoedler ends up in the hole to the tune of $3.25 million.

Knoedler is bust, now; it will never reopen. Its liabilities exceed its assets, but among those assets is a 50% economic stake in two Mirvish Pollocks. Those Pollocks are basically unsellable at this point, given their Rosales provenance, and in Mirvish’s eyes, that means the 50% economic stake is worth zero, even though (he says that ) he’s convinced the paintings are genuine.

The whole thing would stink of Mirvish trying to kick Knoedler and Freedman while they’re down — an investor trying to take advantage of their misfortunes by getting 50% of two (alleged) Pollocks for free. Except, that is, for the fact that Mirvish is using Freedman’s lawyer. Which means that the real story is more complicated still.

In any event, this lawsuit is a rare glimpse into a side of the art world which is very rarely seen — a purely mercenary world of co-investments and speculative bets, where stakes in artworks are bought and sold with an eye to making many millions of dollars in profit should a convenient hedge-fund manager turn up brandishing a $17 million check. It’s a world which is deliberately kept very secret from the buyers of the art: if you’re a gallery trying to sell a painting for $17 million, you’re not exactly going to advertise the fact that you bought it for $950,000 just five years earlier. But that’s the thing about the art world: there is literally no limit to how big the mark-ups can get. And it’s a world where the most successful dealers are the ones who can deal in established names like Pollock, and still try to lock in a sale price at a double-digit multiple of what they paid.

Sarah Kliff and Matt Yglesias both have good summaries of Steve Brill’s monster Time article on healthcare costs. Both of them correctly point out that the heart of the piece is about negotiating power: who has it (Medicare); who doesn’t have it (the uninsured); and how the lack of negotiating power on the healthcare-consumer side inevitably leads to sky-high costs.

Yglesias says that the natural conclusion from this is that either Medicare should cover everybody — which would massively increase Medicare costs while massively decreasing overall healthcare costs — or else that rates should be set by the government, even if the bills are paid privately. He also says that Brill “rejects both of these ideas”.

Weirdly, Brill’s rejection of these ideas comes not in his conclusion, but higher up in the piece — a mere 22,000 words in — when he explains that if we reduced the age that people were eligible for Medicare, then that would save a lot of money. He then continues:

If that logic applies to 64-year-olds, then it would seem to apply even more readily to healthier 40-year-olds or 18-year-olds. This is the single-payer approach favored by liberals and used by most developed countries.

Then again, however much hospitals might survive or struggle under that scenario, no doctor could hope for anything approaching the income he or she deserves (and that will make future doctors want to practice) if 100% of their patients yielded anything close to the low rates Medicare pays.

Weirdly, in 24,000 words which include a lot of railing against the large salaries enjoyed by hospital executives, Brill never supports or clarifies this assertion: he never says how much money doctors deserve, how much they actually make, or how high physician salaries would need to be in order to make future doctors want to practice. That last one, in particular, seems very unconvincing to me: the world is full of highly-qualified doctors who would love to be able to practice in the U.S. for much less than the current going rate.

In his conclusion, Brill says — again, without adducing any evidence whatsoever — that “we’ve squeezed the doctors who don’t own their own clinics, don’t work as drug or device consultants or don’t otherwise game a system that is so game able”. It’s a bit weird, the degree to which Brill cares so greatly about keeping doctors’ salaries high: he certainly doesn’t think the same way about teachers.

If the only thing preventing Brill from embracing sensible reform is a worry about doctors’ salaries, then surely the obvious solution is to address doctors’ salaries as part of a broader healthcare-cost reform. Given the path-dependency of such things, my idea — and I’m coming at this from a very naive position, I’m no healthcare wonk — is that we should simply allow insurers to outsource their cost negotiations to Medicare.

For any given medical procedure, Medicare pays the least amount of money, and rich foreigners pay the most, with insurers being somewhere in the middle. Here’s my idea: any healthcare insurer should be allowed to get rid of its cost negotiators, and instead be able to get Medicare to pay for all procedures on its behalf. Medicare would then bill the insurer, which would pay the Medicare-negotiated rate plus a small premium for Medicare’s time and effort, maybe 2% or 3%. (If insurers start defaulting on the amount they owe Medicare, then the premium would have to rise, to cover credit risk.)

The basic idea here is that all Americans should have access to Medicare’s discounted rates — either by being eligible for Medicare, or else by signing up for health insurance with an insurer who allows Medicare to negotiate on its behalf. All of this would be voluntary, of course. If you want your insurance to cover the kind of things that Medicare won’t pay for, then you can do that. But if you think that Medicare-quality coverage is good enough, then you should be able to get it, at only a modest premium to what Medicare itself pays.

Would doctors be paid less, under such as system? Possibly. But that shouldn’t prevent the change from happening, and maybe the government should simply step in to top up doctors’ salaries where necessary. At the very least, I think it’s incumbent upon people like Steve Brill to say exactly how much they think doctors should be paid, and how much is too little. Because of all the problems with U.S. healthcare costs, the problem of underpaid doctors is never likely to be anywhere near the top of the list.

I like index funds, and I believe that the best way to maximize your retirement savings is, simply, to save more money. So I was intrigued to see a press release from Charles Schwab this week, touting its new 401(k) product, which combines index funds with opt-out advice services. The results, according to Schwab, are impressive: investors save 77% on operating expenses, and also tend to put more money into their plans:

Nearly 90 percent of workers in Schwab Index Advantage plans are receiving low-cost, professional, third-party advice to help manage their 401(k) investments. Prior to the transition, only about four percent of these same workers elected to receive advice…

Schwab data shows that employees who have chosen to use independent, professional, point-in-time 401(k) advice services in the past have tended to save twice as much, were better diversified and stuck to their long-term plan, even in the most volatile market environments.

Sounds good! But it really isn’t. The headline of the press release says that “Schwab’s Index-Based 401(k) Offering Cuts Investment Costs by 77%, Delivering on Low-Cost Goal” — but that’s incredibly misleading, precisely because the overwhelming majority of plan participants wind up paying for that “low-cost, professional, third-party advice”.

Here are the numbers: the weighted average operating expense ratio for the new index-fund product is 14.78bp, down from 65.11bp in Schwab’s old actively-managed plans. That’s a handy savings of just over 50bp. But as part of the deal, all the participants in the new plans automatically get enrolled in a plan which gives them something called “independent point-in-time advice”. How much does that advice cost? Turns out, it’s about 45bp. Which means that far from seeing their expenses fall by 50bp, the new savers are actually only saving about 5bp, all-in. (Under the old system, the advice came free, although it did so on an opt-in basis rather than an opt-out basis.)

Still, it might be worth paying 45bp for advice, if doing so led plan participants to double the amount they are saving. The problem is, there’s no real evidence that it does. The “Schwab data” cited here is based not on the activity of people in Schwab’s new index-fund plan, but rather on the activity of people who took advantage of the old, opt-in plan. And it’s well worth parsing the exact wording of the results of that study:

Approximately 70% of participants that receive and implement 401(k) advice make a change to their deferral rates, and those savings rates nearly double on average as a result, jumping from approximately 5% to 10% of pay.

To recap: when given the opportunity to opt in to advice-giving services, even when they’re free, only a tiny minority of plan participants — about 4% — actually did so. It’s reasonable to assume that most of that 4% of people were thinking about significantly increasing the amount they save, and wanted advice on how best to do that. Now Schwab doesn’t tell us how many people received advice but didn’t ultimately end up implementing it. It does say that of the people who both received and implemented advice, 70% changed their deferral rates. And within that 70%, deferral rates roughly doubled. But at a maximum, we’re still only talking about 70% of 4%, here, which is a by-definition highly unrepresentative 2.8% of participants.

In other words, Schwab has given us no evidence at all that the people enrolled in its new index-based 401(k) plan are saving more money as a result of paying 45bp a year for advice. I’m sure that a small minority of people who want to save more will ask for advice on how to do so — but that doesn’t mean that the advice causes them to save more. Indeed, the causality probably runs exactly in the opposite direction.

It seems to me that Schwab is looking a bit desperate here. It used to be able to make lots of money by charging high amounts for its 401(k) plans, but now that everybody understands the superiority of index funds, Schwab is being forced to offer its own index-based service. Obviously, the only way to sell such a service is to talk about how much participants will save on fees. But Schwab doesn’t want lower fees, it wants higher fees. So while removing management fees with one hand, it simultaneously inserts huge new advice fees with the other — and the advice fees probably have even bigger margins than the management fees did.

What’s more, Schwab’s messaging around this product has always been less than fully honest. Here’s the launch press release:

“Fund operating expenses for index mutual funds and ETFs are typically lower than those associated with most actively managed mutual funds offered in 401(k) plans today. We believe index funds can provide employees with a better opportunity to accumulate more savings for retirement,” said Steve Anderson, head of retirement plan services at Charles Schwab. “Through such low-cost investments, fund operating expenses could be cut significantly. For the average worker in a 401(k) plan, that can mean nearly $115,000 more at retirement.”

The irony here is deeply hidden: in order to end up with $115,000 more at retirement, you would have to opt out of the advice plan that the Schwab index-fund offering automatically enrolls you into. But actually, “the average worker in a 401(k) plan” is never going to wind up with an extra $115,000 at retirement just by switching to index funds.

If you look at the assumptions behind that $115,000 figure, you’ll find that our “average worker” is, in fact, very far from average. For one thing, she starts saving money at age 25, when she’s already earning $50,000 per year. That’s pretty much the median income for a US household, within just a couple of years of entering the workforce. Well done, that person! She then gets a 3% raise every year for the next 30 years — and once she’s in her 30s, she manages to sock away a full 10% of her income into her 401(k) account every year until retirement. Oh, and she managed to save 66bp by switching to index funds: that’s significantly larger than the real-world 50bp that we saw with the Schwab participants. And all the while her investments are growing by 7.5% per year, even when she’s near retirement and ought by rights to have switched largely to bonds.

But all of these assumptions are deeply buried and hard to find. As far as Schwab is concerned, the main thing to do is to come up with a large headline figure, something which will make it easier to sell the new index-fund retirement service to the less-sophisticated end of the HR spectrum. Schwab is pretty well positioned in this market: it’s known mainly as a discount broker, which means that the brand comes with connotations of low fees and low margins. But if you want to sign your employees up for an index-based 401(k) plan, which is a good idea, then the Schwab plan is not the right way to go, since it’s quite possibly the highest-fee index-fund plan out there, once all those advice fees are taken into consideration.

I work for an enormous company with a very financially-literate HR department; they’re not going to fall for this kind of pitch. But we shouldn’t live in a world where every medium-sized company needs to have people who can navigate the hard sell from people like Schwab offering fabulous new 401(k) plans. Right now, it’s incredibly difficult and time-consuming to choose between them, and it’s easy to see why plan administrators might easily just plump for a known name like Schwab. There really should be some reliable and impartial resource for those administrators. But I’m not holding my breath.

Back in December, Peter Kafka summed up the most important question with regards to the future of online advertising. Do advertising dollars ultimately end up where people spend their time, he asked, echoing Kleiner Perkins’ Mary Meeker says, or, pace Bernstein Research’s Todd Juenger, is that a “fallacy”?

I’m with Juenger on this one. As he says, “time spent is supply, advertising spend is demand… Just because there is a large and growing supply of Internet inventory doesn’t mean advertisers have a correspondingly large desire to deliver more Internet impressions.” Indeed, as the price of online inventory continues to fall, it seems just as likely that online ad spend will go down (because the ads being bought are getting cheaper) as that it will go up.

According to Meeker, some 67% of all ad dollars are spent either on TV or in print. And according to Juenger, ad spend on TV actually went up, between 2009 and 2012, even as Americans’ attention moved away from TV and towards other screens. That makes sense to me, mainly because of the point I was making back in 2009, drawing the distinction between brand advertising, on the one hand, and direct marketing, on the other. TV is brand advertising; online ads, by contrast, are closer to direct marketing.

When people like Meeker look at ad spend, they’re looking mainly at brand advertising. Brands are valuable things, and billions of dollars are spent every year to keep them that way, mostly on TV and in print. And if you have a big national brand, there’s really only one way to reach a big national audience: you need to buy ads on TV. Doing so is expensive, but it’s necessary, and it works, which explains the huge sums of money which still flow into TV every year.

As Juenger explains, the audience for network TV has been shrinking by 1.8% per year for the past 20 years — but at the same time, the audience for every other TV channel  has been “atomized into increasingly tinier fragments”, leaving the networks the only game in town for advertisers wanting scale. The result is that network-TV ads have been increasing in price by 4.9% per year on a per-person-reached basis, resulting in total revenues growing, by 3% a year, in a market which is actually shrinking.

The corollary to the continued success of network TV is the utter irrelevance of online ads. Here’s a handy chart from Nielsen, breaking down the amount of time we spend in front of various screens each month:

TV is still the monster, the elephant: for all the talk of cord-cutting, Americans have clearly voted that, given the choice, they’d much rather have cable TV than broadband internet.

And for web-based publishers, the situation is much, much worse even than this chart makes it look. Consider: the number of websites out there is many orders of magnitude greater than the number of TV channels, which means that even as network TV is winning over small cable channels, small cable channels are still in a much better position than just about any website which isn’t called Facebook or Google or Yahoo. Moreover, if you’re running a news site, you’ll be even more sobered to learn that just 2.7% of the time that people spend on the internet is spent on news sites. You think you’re competing against a lot of other news sites to attract advertisers? You don’t know the half of it. In reality, you’re competing against the other 97.3% of websites, and they are competing against TV. It’s a fight you can’t hope to win, especially since non-news websites are so much better at delivering people primed to buy stuff (search) or delivering large numbers of people in narrowly-targeted demographics (Facebook).

The key concept at the heart of Juenger’s fallacy — the thing which Meeker doesn’t seem to understand — is the fact that internet advertising in no way substitutes for TV or print advertising, no matter how often digital ad-sales people bring out their metrics of comparative CPMs.

In 2011, I gave a talk to a group of online ad-sales people who were so full of the multitude of different ways that they could target and quantify their product, they literally no longer understood what brand advertising is, or why it exists, or why brands would be so foolish as to spend so much money on it. They’re quants, living in a world where something only has value insofar as it can be quantified, and where the unquantifiable therefore is perceived to have no value at all. In other words, they’re basically in the direct-marketing business: they’re the digital version of junk mail. As a result, just about every website in the world is in the business of delivering that digital junk mail to our computers and iPhones and iPads.

This, then, is the biggest reason why TV ad dollars are not going to become online ad dollars: online ads simply don’t do what TV ads do. TV ads are large and beautifully produced and expensive, and they’re presented on a beautiful screen without distractions: they fill up the screen, and 30 seconds of time, and they appear often enough that they become part of the world of the people watching 145 hours of TV every month. Online ads don’t behave like that at all: they’re easy to ignore, there’s nothing inherently interesting about them, and insofar as they grab your attention, they tend to do so in a very annoying way, by preventing you from reading or watching the thing you were looking for.

Hence the rise of so-called native ads: things you want to read and look at and click on. There’s a certain amount of promise there, and the native-ad industry is certainly going to grow from its present size. But it’s tough: building these things is a huge amount of work for the advertiser, with no guaranteed payoff. And selling them is even more work for any publisher.

And here’s the next big problem with selling online advertising, especially native advertising: it’s really expensive to do so. While online journalism is still cheap, online ad-sales staffers tend to cost a fortune, especially if they have a clue what they’re doing. This is something the Meekers of the world would do well to remember: the ad dollars spent online are spread across so many sites that a massive proportion of them end up just going straight into the pockets of the people selling those units, or else to the various ad networks and other intermediaries which have popped up in a very busy and messy space.

This kind of thing just doesn’t exist in TV or even in brand advertising more generally — areas which are much simpler, much easier to navigate, and which sit much more comfortably within consumers’ comfort zone. And it’s not going away. I was told this evening that Buzzfeed alone has no fewer than sixty ad-sales people, all of whom are out there, knocking on doors, taking potential clients out to lunch, and generating income one hard-won deal at a time. That doesn’t scale. (Update: BuzzFeed CEO Jonah Peretti says that the actual number is 19.)

Indeed, if you want to get your brand out there on the internet, you can try buying ads on websites, or you can try going native on a site like Buzzfeed, but the fact is that the whole point of the internet is that it disintermediates: it’s great at drawing direct connections. Hence the rise of what’s known as “content marketing”: why buy ad space from a publisher, when you can be the publisher instead? We’re still in the early days of this, but already musicians are discovering that brands are much friendlier — and pay much higher rates — than record labels, while American Express has been employing extremely good journalists for years.

On top of that, as Liz Gannes and Noah Brier note, nobody “goes online” any more: the internet is becoming an ambient background thing-that’s-always-there, rather than a mass communications medium that people consciously think of themselves as paying attention to. When you pick up a magazine, you do so because you want to read it; similarly, when you turn on the TV. But the internet is different: your phone is always just sitting there, and sometimes it beeps at you; your computer is always on your desk at work, and it’s never not online. In a mobile world, the distinction between being online and not being online is an increasingly silly one to draw. And as a result, the idea of using “time spent online” as a useful metric of anything, really, is equally silly.

So if the internet is not going to displace TV as a medium for mass-market brand advertising, might it at least be good at direct marketing? Can publishers not deliver certain readers, in certain demographics, to marketers who want to reach them? To a certain extent, yes. But the fact is that Google and Facebook, between them, are extremely good at delivering as many of those readers as any advertiser could ever want: all that Facebook needs to do is turn a dial, and billions of new impressions get added to the stock of global inventory, targeted at any demographic that any advertiser could want. Google, similarly, owns search, especially mobile search. It’s conceivable that some marketers might prefer to reach an audience some other way — but this is a race to the bottom, with a finite amount of demand chasing an essentially infinite amount of supply. That’s a buyer’s world, where the sellers have no real leverage at all.

Some very large proportion of the websites on the internet have a pretty basic business model: “we will publish great content; millions of people will want to read or view that content; advertisers will want to reach those people; and so we’ll be able to sell our audience to advertisers and make lots of money”. There are people out there who have succeeded with that model, but the number of successes is dwarfed by the number of failures, and the amount of scale you need to even get your foot in any media buyer’s door has been rising dramatically for years. By the time you’ve paid for your content and for your ad-sales infrastructure, the chances that you’ll have any money at all left over for your shareholders are slim indeed, and getting slimmer year by year.

All of which means that smart online publishers are looking beyond advertising, to other forms of generating revenues. But that story will have to wait for part 2.

Is Google becoming a key arm of the law-enforcement complex? It certainly seems to be so with respect to art thefts. I first came across this idea back in November, when Bloomberg Markets profiled Jeff Gundlach, who was hit by art thieves in September:

The cerebral Gundlach also gave investigators a tip for solving the crime. He says that while he was at home in his family room, it dawned on him that thieves would do a Google search using his grandmother’s name to find out more about the paintings and how much they might be worth.

Gundlach told the authorities that they should check the Internet to see who might have googled the name Helen Fuchs. He says exactly two such searches were executed: one by him and one by the thieves.

Now, another man has been arrested for art theft, and was found in much the same way:

In their investigation into the art theft, [officials] found that Mr. Istavrioglou had searched the Internet for reports about the robbery after it took place but before the story became news.

Law enforcement officials, it seems, have pretty easy and routine access to Google’s search-history database, and this is surely only the beginning when it comes to sifting through huge amounts of data to find evidence of crimes. The SEC, for one, has had a large data-mining team in place for a good five years now, going through enormous quantities of data to look for signs of suspicious activity.

Even journalists are getting in on the act of using data to uncover criminal activity. The Sun Sentinel, in Florida, managed to obtain a year’s worth of SunPass toll records for cop cars. That meant that they had data on the amount of time it took cops to drive from one toll plaza to the next. All they needed to do then was measure those distances, divide the distances by the time taken to drive that length of road, and come up with an average speed, for cops who were often just commuting to or from their houses, out of their jurisdiction. The result? The Sun Sentinel found “almost 800 cops from a dozen agencies driving 90 to 130 mph on our highways” — in a state where speeding cops have caused at least 320 crashes and 19 deaths since 2004.

Part of the reason why it has taken so long to bring Libor prosecutions is that going through millions of email and IM records, looking for smoking guns, is still a laborious and time-consuming process. But as data mining techniques continue to evolve, and as databases become increasingly unified and tractable, and our lives are lived almost entirely online, it’s going to be harder and harder for criminals not to leave a discoverable data trail — especially opportunistic criminals, who break the law when they’re given a chance, as opposed to more considered criminals, who spend a lot of time plotting a crime before committing it.

It stands to reason, given advances in computer power and given the size of the networks that we all involve ourselves in every day, that the kind of data crunching that used to be solely the domain of places like the NSA and GCHQ is now going to be available to local police forces and even ordinary citizens, including journalists. The privacy implications are profound, of course: millions of innocent people are going to have their personal data combed on a real-time basis, every day. But that seems to be inevitable, insofar as it isn’t already a reality.

I wrote something stupid on Friday. I was putting together a follow-up post about Maria Popova and her blog, Brain Pickings, covering a bunch of points I’d failed to make in my original post on the subject. And it turns out that there were a lot of those points: the follow-up post ran to more than 2,400 words, on top of the 1,000-word original.

The second post was written disjointedly, on trains and on strange couches and while sitting in a lecture hall at Yale Law School, half-listening to panel discussions about impact investing in emerging markets. As such, it wasn’t one of those posts where you have something to say, and then you write it down, and then you press “publish”; instead, it was one of those posts where you write a bit, and then you do a podcast, which gives you another idea, which you squeeze in somewhere, and so on. The perfect blog post is exactly one idea long; in that respect, this post was far from perfect. I just didn’t want to spend all week writing about Maria Popova, so I tried to get everything covered in one fell swoop.

As a result, halfway through the post, I made an ill-advised detour into gender politics. (Not that I had any advisers telling me this was a good idea: it was entirely my own mistake.) Here’s what I wrote:

The consistently positive and upbeat tone to Popova’s blog might generate healthy Amazon income as a side-effect, but it’s also genuine: she’s one of those bloggers — Gina Trapani is another very successful example — who have no time for snark and who naturally look for things to celebrate rather than things to tear down. (Just listen to that O’Reilly talk: she dishes out huge amounts of praise to virtually everybody she cites.)

To a certain extent, this is a female thing: positive happy bloggers tend to be female, as do their readers. And when someone like Anne-Marie Slaughter supports Maria Popova to the tune of $300 per year, there’s definitely an element there of supporting the sisterhood. Which is a good thing!

But to many male observers, there’s something a bit off there.

This did not go down well, and I soon ran into a firestorm of criticism on Twitter, accusing me of saying that women are simple and happy. How could I be so sexist? How could I generalize about women, or about women bloggers, in that way?

My first reaction was indignation: I hadn’t generalized about women, or women bloggers. If I say that “brain surgeons tend to be men”, you really haven’t learned anything about men, or about male surgeons. Men don’t tend to be brain surgeons, and neither do male surgeons.

But on reflection, including that passage was pretty obviously stupid. For one thing, my language (“female thing”, “male observers”) naturally and unnecessarily raised a lot of hackles: there’s a line between being plainspoken and being needlessly provocative, and I crossed it. In doing so, I made it far too easy for my readers to miss the precise meaning of “most positive happy bloggers are female”, and to read it instead as “most female bloggers are positive and happy”, or even “most females are positive and happy”.

And then there’s the bigger question of why on earth I thought it was a good idea to bring sex into the blog post at all. It really wasn’t a particularly important part of what I was saying, but it created a situation akin to a long play with a nude scene in the middle: once it’s over, all that anybody remembers is the nude scene. By including this passage, I was effectively doing my best to ensure that people would completely ignore the other 2,300 words of the post.

Finally, and most importantly, I was wrong on the substance of what I said, as well. This one took me longer to work out; I’m indebted to Salon’s Irin Carmon, who spelled things out in an email to me, for explaining something which can’t really be encapsulated in 140 characters:

You seem completely ignorant to the fact that if many women behave in a “positive” fashion, it’s partially because the social costs of being anything else are much, much higher than they are for men. Women who are critical, opinionated etc are still “crazy” or “bitchy” or whatever. Meanwhile, women have socialized to not make too much noise, be nice, make other people feel better about themselves — to enormous professional cost, I would argue, even if they are inherent goods for society. The successful women you write about are clearly threading that needle, and it’s working for them — but the way you described them clearly implied that it made them unserious (“to many male observers”, etc).

In a similar vein, women are often disqualified from serious discourse for writing about things that are become serious when men do them. See: Andrew Sullivan writing about his personal life. Women who do it are navelgazers.

When I talked about “male observers”, I didn’t mean the word “male” as a compliment. Far from it. But Irin’s point is well taken: there’s a societal pressure on women to be pleasant, and the many wonderful snarky female bloggers out there generally face much nastier and much more personal pushback than do those of us who are men. So it’s fine to praise a male blogger for being positive and happy, just as it’s fine to praise a white man for being calm and slow to anger. But talking about positive and happy female bloggers is a bit like talking about calm and controlled black men — it’s something which is incredibly fraught, and which you certainly don’t want to do in passing.

Katha Pollitt, in 1991, coined what she called the “Smurfette Principle” of children’s books:

The message is clear. Boys are the norm, girls the variation; boys are central, girls peripheral; boys are individuals, girls types. Boys define the group, its story and its code of values. Girls exist only in relation to boys.

My “female thing” was a prime example of the Smurfette Principle in action. Snarky and political male bloggers are the norm; happy and positive female bloggers are the peripheral exception. That is pretty offensive, and also untrue. Blogging is a broad and vibrant church, and singling out some random subset of it as being particularly female is very unlikely to be helpful. So: apologies to everybody who was offended by this wholly unnecessary passage. There was no good reason for publishing it, and doing so was entirely my fault.

Azam Ahmed has a report from Kabul’s ‘Car Guantánamo’ today:

Behind these walls are thousands of cars, trucks, vans, motorcycles and even bicycles, lined up in vehicular purgatory after falling afoul of the Kabul traffic police. Things that have landed cars in the slammer: illegal left turns, parking violations, involvement in fender-benders and, perhaps most egregious, failure to pay a bribe.

“I’ve been waiting two months to get my van back,” said Sayed Wahid, whose quest to reclaim it, after it was impounded for an expired international permit, propelled him on an exhausting odyssey through no fewer than six different government agencies…

In November, Mr. Wahid had driven his van from Kunduz down to Kabul when he was pulled over at a checkpoint in the capital. His license and car tags were clean, but a permit to cross international borders, though not needed for that specific trip, had expired.

For a moment, he said, he considered bribing the officer. He has regretted every day for the past two months his decision not to.

Ahmed explains that when it comes to Kabul’s traffic police, “the rules are unevenly applied, punitive to those who can least afford it, and mostly irrelevant to those with money and power.”

The point here is that it’s the poor, like Sayed Wahid, who are hit hardest by Kabul’s endemic corruption. Either they do the sensible thing, and pay a bribe they can ill afford, or else they’re at real risk of losing their livelihood. Meanwhile, the rich and powerful aren’t even asked to pay bribes: the police know better than to try this stunt on someone who could easily get them fired. It’s safe to solicit a bribe from a guy from Kunduz in a van; you’d have to be much braver to try it with a man in a suit driving a Mercedes.

It’s not that the rich don’t pay bribes at all; of course they do. But in general when the rich pay bribes, they tend to get even richer. That’s the deal: that’s business. When the poor pay bribes, by contrast, it’s a deadweight loss: it’s just money disappearing into the pockets of a corrupt official, never to be seen again.

A new paper by Shahe Emran, Asadul Islam, and Forhad Shilpi is instructive and sobering in this respect. Entitled “Admission is Free Only If Your Dad is Rich! Distributional Effects of Corruption in Schools in Developing Countries”, it looks at the cost, in bribes, of sending your kid to “free” school in Bangladesh. Exactly the same pattern is seen there as the one that Ahmed found in Kabul:

The results reported above in Tables 3 and 4 show that the poor are more likely to pay bribes. The estimates of Table 3 imply that a one percent lower income leads to a 0.73 percent increase in the propensity to pay bribes. The negative effect of income of propensity to pay bribe points to important role of a household’s “bargaining strength”. The richer households – with better bargaining power – are less likely to pay bribes than the poorer households. This is a depressingly perverse outcome given that the goal of free public schooling is to help the poor households, not to provide free schooling for the children of rich and influential only!!

Overall, households which paid a bribe to educate their children earned Taka 1930 per month, on average, while households which didn’t pay a bribe earned an average of Taka 2560 per month. And the bribes were large, too.

Among the households who reported positive amount of bribe payment, on average a household paid about Taka 241 during the survey year. To get a better sense of the financial burden imposed on the poor, it is instructive to look at the average bribe paid as a proportion of the household savings. The average bribes paid in schools is 9 percent of average annual household savings, while for the first and second quintile it amounts to 61 percent and 27 percent of annual household savings respectively.

The most famous line in Withnail and I is the point at which Withnail procures the key to his rich uncle’s cottage, explaining: “Free to those that can afford it, very expensive to those that can’t.” That phenomenon is well known: the richer you are, the more likely you are to be invited out to lunch, or dinner, or the Hamptons. But as we can see in Afghanistan and Bangladesh, the phenomenon doesn’t just apply to desirable luxuries such as the swag bags given out to celebrities at the Oscars. In the developing world, it applies to much more basic things, too, like the right to drive your car around Kabul, or the right to send your kid to a free school. And it’s not at all clear what if anything can be done about it.

By a curious coincidence, Maria Popova was scheduled to give a speech about blog business models the day after Tom Bleymaier and I wrote about hers. I went along to hear what she had to say, and caught up with her afterwards.

Popova is making changes to her site. Without revealing how much money she makes from Amazon links, she is going to improve her disclosure: every page now has a footer talking about how “Brain Pickings participates in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising commissions by linking to Amazon.”

That’s Amazon’s language, as mandated in section 10 of the Associates Program Operating Agreement. (It’s easy to miss, and it’s kinda buried in the agreement, so I’m sure a lot of other Amazon affiliates are also technically in breach of that part of the contract.) Unfortunately for Popova, it uses the word “advertising” twice in one sentence. That’s a problem, for Brain Pickings, because Popova doesn’t consider her affiliate links to be advertising, and she still says on her tip jar and on her donations page that the site is ad-free. Here’s how Popova sees the difference:

I’d be writing about the books I read anyway, whether or not they “generate a sale,” and that’s not true of an ad, which simply wouldn’t exist then.

There is a certain logic to this. It’s even reasonable to say that she’d be linking to the Amazon page for each book anyway; I, for instance, link to Amazon most of the time that I write about a book, without any affiliate link. In that sense, even the link to Amazon is a natural part of what one expects from a blog, and is not intrusive advertising which is only there because it generates revenue for the advertiser.

On the other hand, the fundamental property of advertising is that it advertises, not that it’s intrusive or gratuitous. (In glossy luxury magazines, for instance, the advertising is a necessary and fundamental part of the editorial product, just as much as it is the main source of income for the publisher.) So it’s understandable that many people, including Amazon, consider affiliate links to be advertising (as opposed to, say, some kind of biz-dev relationship). What’s more, many such links — especially when they’re accompanied by photographs of the product in question, and live permanently in the right rail of a website — are unambiguously advertisements.

It’s easy to overstate the importance of this point. The question here is just whether Popova can or should continue to describe her site as “ad-free” if she uses Amazon affiliate links: it’s not some kind of existential threat to her dual-income model.

The way I see it, Popova has three reasons for including that language. The first, which I’ll get to in a minute, is to imply in some sense that if she’s not making money from ads, she has to make money some other way. The second is to remind readers that they’re having a more pleasant experience just because Brain Pickings is unsullied by banner ads. And the third is Popova’s more general distaste for the ad-supported model, which she sees as leading to sites which lose their integrity as they whore for pageviews. I don’t share that distaste, especially as we move into a world where publishers are increasingly looking for unique visitors and engagement rather than raw traffic. Ultimately, Popova’s incentives are not that different from those of today’s ad-supported online properties: in both cases, income rises with readership and engagement.

The presence of Amazon ads is not some kind of existential threat to Popova’s tip jar: there’s absolutely no reason why she can’t have income from both sources. Just look at public radio and television: individual shows, and individual stations, and national networks all ask for donations even as they also receive substantial income from advertising. (Which is presented as “sponsorship”, but it’s the same thing.)

The conflict, then, if there is one, isn’t between having ads and asking for donations. So where might it be? Daniel Davies says that book reviewers shouldn’t get commission sales, and that he’s been disappointed in the books he’s bought after seeing her recommend them; is that the conflict?

Popova’s reply to Davies is that she doesn’t review books: that she only writes about books she loves, and that if she doesn’t like books, she simply won’t write about them.

It’s surely true that Popova’s success is in large part a function of how well-read she is, and how positive she is about what she reads. At the same time, however, she has a clear financial interest, on a site suffused with Amazon affiliate links, to write about a lot of books (as opposed to, say, online writing); and to say such nice things about those books that her readers are going to go out and buy them as a result. If she didn’t have the affiliate links, there would be less of a question about her recommendations, and whether it’s really possible for that many books to be that good.

Affiliate links do produce a conflict, then: they give an incentive to write positively about books for sale which might not actually be particularly worth buying. But there are conflicts all over media, and as conflicts go, this one’s relatively minor — especially for someone with Popova’s readership. Because here’s the thing: Popova isn’t a journalist, and her loyalties are only to her readers, who genuinely don’t seem to care about things like this. The consistently positive and upbeat tone to Popova’s blog might generate healthy Amazon income as a side-effect, but it’s also genuine: she’s one of those bloggers — Gina Trapani is another very successful example — who have no time for snark and who naturally look for things to celebrate rather than things to tear down. (Just listen to that O’Reilly talk: she dishes out huge amounts of praise to virtually everybody she cites.)

To a certain extent, this is a female thing: positive happy bloggers tend to be female, as do their readers.* And when someone like Anne-Marie Slaughter supports Maria Popova to the tune of $300 per year, there’s definitely an element there of supporting the sisterhood. Which is a good thing!

But to many male observers, there’s something a bit off there. I was on the MediaTwits podcast with Andrew Sullivan today, for instance, and he went to some length to explain that his paywall is not a tip jar, like Popova has. The difference between a paywall and a tip jar, to Sullivan, is that tip jars have connotations of being an amateur, or a charity, while he is a professional looking to get paid for what he does. His paywall has already visibly reduced the number of people who read beyond the home page, but he’s sticking with it: he clearly wants his subscribers to be paying for something which they wouldn’t otherwise be able to receive.

To Joe Weisenthal, too, Popova’s tip jar has connotations of charity: he considers it the digital version of “panhandling”. Again, Popova doesn’t see it that way: I asked her if there was any level of Amazon affiliate income at which she would be making so much money that she would take the tip jar down, and she said that there wasn’t. To Popova, the tip jar is not about pleading poverty or neediness: it’s about giving readers the opportunity to support a site they find valuable.

The tip jar and the affiliate links are pretty similar, in Popova’s mind: they’re both ways that her readers can help support the site, either directly or indirectly. (A hint, for Popova’s supporters: if you’re buying something expensive on Amazon, follow a link from her blog first, and then add that expensive item to your cart. That way she’ll get about 7% of the proceeds.)

The affiliate links provide Popova with more than just money. There’s a whole extra layer of value there: Popova can see what books her readers are buying, and thereby see what her readers are interested in, or what she too should maybe be reading. In that sense, the Amazon data is bit like the emails that pour into the inboxes of high-profile bloggers like Andrew Sullivan and Tyler Cowen: a useful and efficient back-channel way of crowdsourcing material for the blog.

So the links are great for Popova. But, now that she’s disclosing their existence on every page, is that going to put a dent in her tip jar income? Will Popova’s readers still donate the same amount of money now that it is more obvious that Popova is running a “clearly commercial site”? Popova’s language — the way that she combines a request for donations with a statement that she doesn’t accept advertising — suggests that she fears they might not, as does the whole Björk episode.

But really, Björk failed in her fundraising not because she’s commercially successful but rather because she hasn’t built up a strong two-way relationship with her fans. The difference between Björk, on the one hand, and Amanda Palmer, on the other, who raised over $1 million on Kickstarter, is that Palmer has an astonishingly strong relationship with her fans — a relationship which feels personal. If I say “I like Björk”, what I mean is “I like Björk’s music”. If I say “I like Amanda Palmer”, on the other hand, I’m much more likely to mean “I like Amanda Palmer”.

The part of Popova’s response to me which has resonated most strongly is undoubtedly the bit where she says of her blog “it’s MY LIFE, Felix”. For Popova, there’s basically no distinction between her blog and her life — she is Brain Pickings. What’s more, her supporters understand that, and they’re wholly aware that when they support the blog, they’re supporting Popova, personally. If Brain Pickings were published by Time Inc, its tip jar wouldn’t fill up very quickly: that would be weird, a bit like Reddit running a pledge drive while being owned by Condé Nast. (That turned out quite well in the end, but it was still weird.)

Because there’s not much of a distinction between supporting Popova and supporting Brain Pickings, there is a sense in which it would be fine for donations to start falling if Popova was making enormous amounts of money from other sources. If Brain Pickings were written by Bill Gates, for instance, rather than Maria Popova, it’s hard to imagine that many people would place $10 per month in his tip jar. And that’s why it makes sense for Popova to be a little bit more forthcoming with regard to the amount of money she makes from Amazon.

At the margin, it probably doesn’t make a huge amount of difference: Popova’s donation base is pretty strong, and indeed is likely to continue to rise from its current level, as her readership and fan base expands. But if you look at Popova’s examples, in her speech, of all the various people who are making money online from sources other than advertising, a trend emerges. To the extent that donations are voluntary, they tend to be based on an interpersonal desire to help somebody out. Twitter is the new radio, in that sense: both mediums feel particularly intimate, and can be very powerful in creating an audience of people who feel that they really know and like the person they’re following or listening to. The more of a personal relationship that readers feel with authors, the more they’re willing to give. Where there’s less of a personal relationship, publishers have to create other kind of incentives: withholding content from people who won’t pay, giving goodies to those who do.

I suspect that’s why Andrew Sullivan plumped for a paywall rather than a tip jar: while he’s very open about his personal life and his finances, he also wants his commercial relationship with his readers to be a professional one, based on mutually-beneficial trade, rather than a personal one. While people supporting Amanda Palmer are clearly supporting Amanda Palmer, for instance, Sullivan prefers to see his supporters as people who are buying access to his pro-quality website. A professional like Sullivan feels more comfortable asking people to pay for his professional services than he does asking people to just support him voluntarily.

And this is where the tension underlying Popova’s business model reveals itself. Popova has made the decision that there are certain types of things she doesn’t want to write about:

Andrew and I have very different styles. He writes about his partner. I don’t. He writes about his health. I don’t. He writes about his financials and other meta-topics. I don’t. Please understand this is out of an impulse of being “opaque” about it – it simply isn’t the kind of writing I do.

That’s fair enough — but the internet, just like television, has a habit of rewarding those who overshare. And the less you talk about yourself, the more room you leave for people like Tom Bleymaier to try to reverse-engineer the stuff that isn’t public from the stuff that is. In a slightly different world, this wouldn’t be an issue at all: if Popova had set Brain Pickings up as a non-profit, for instance, then her income would be public on her form 990, while if she lived in Sweden, it would be public on her tax return. But Brain Pickings isn’t a non-profit, and isn’t Swedish, and is very successful — which is naturally going to result in a lot of people being interested in just how much money it makes, and whether it might make sense for them to follow a similar strategy.

In a world where all media business models are precarious, having two separate income streams is entirely sensible. And in general, the more money that bloggers can make, the better. Popova might not be making $400,000 a year yet, but I hope she does in future — and what’s more, I hope she does so while retaining a substantial tip-jar income stream. That would be a great sign of what’s possible in the ideas-blogging space. What’s more, as she moves in that direction, I hope she gets over her reticence and celebrates her good fortune with her readers and the public at large. It’s possible that she might lose a little bit of her tip-jar income. But it would be pretty easy to more than make up for those losses by monetizing the inspirational story of how an impoverished Bulgarian became an iconic role model for the new information economy.

*Update: This sentence has not gone down well in the Twittersphere. Just to make it clear, there’s a huge difference between “most A are B”, on the one hand, and “most B are A”, on the other. I believe that women, in general, make better bloggers than men, even if that means they are less likely to appear on op-ed pages. But, I might well be wrong about that!

Brazilian multi-billionaire Jorge Paulo Lemann’s cunning plan seems to have worked. In 2008, when his InBev announced that it was buying Anheuser-Busch, there was an immediate uproar: sites like Drink American and SaveAB immediately appeared to protest the deal. (“With your help we can fight the foreign invasion of A-B. We will fight to protect this American treasure. We will take to the Internet, to the streets, to the marble halls of our capitals, whatever it takes to stop the invasion.”)

This time around, Lemann has decided that he wants to be the American — and he’s done it by teaming up with an American icon even more beloved than Budweiser or Heinz ketchup: Warren Buffett. This is a takeover of Heinz by 3G, make no mistake: Lemann approached Buffett with the idea in December. But look at how this is playing on, say, the NYT homepage: the headlines are all about Buffett and Berkshire, not about Brazil.  This is a leveraged buy-out, just like most other private equity deals, but it’s getting none of the bad press that LBOs often receive, and no one’s talking about “corporate raiders”. (The headline isn’t even accurate: Buffett is paying only half of the $23 billion, with the other half coming from Lemann and his partners in 3G. And it’s unclear what mergers are included in this “revival”.)

It’s easy to see why both 3G and Buffett love this deal. $23 billion is a lot of money, quite possibly more than 3G could comfortably stretch to on its own. So having a partner is attractive to them — especially when the partner is Warren Buffett. On the other side, Buffett gets to buy in to a storied franchise — one, what’s more, which will now be run by the best operators in the world. The 3G folks know the fast-moving consumer goods industry intimately, and can run companies in that industry more effectively and efficiently than anybody else in the world. Pair them up with brands as strong as Heinz’s, and it’s reasonable to assume that Buffett is going to see some gratifying profits from this deal.

This, then, is not a Buffett deal: it’s a 3G deal, with Buffett being brought in as a kind of guest GP. Neither is it, as Peter Lattman says, an indication of “the rise of Brazil as an economic power”, or of the strength of the Brazilian economy. 3G’s principals might be Brazilian nationals, but really they’re part of the global plutocracy, and are as happy with a Belgian brewery as they are with a Brazilian bank.

In a world where private-equity shops are desperate to put their money to work, and where stock-market investors are more conservative than aggressive financiers, we’re going to continue to see more of these high-profile LBOs. Which in turn is going to make the stock market even less relevant than it is today.

Back in May, Kickstarter looked as though it was moving upmarket. Following Bob Lefsetz’s lead, I said that “while Kickstarter was originally embraced by the undiscovered and impecunious, its greatest potential, in the music industry, is actually with established acts who already have a large following”.

I said that in the first days of the now-famous Amanda Palmer Kickstarter campaign — something which not only massively exceeded its target, but which also got Palmer a key slot on the TED 2013 roster. But there have been few established music-industry acts following in Palmer’s footsteps. Indeed, when Björk recently tried something similar, she quickly discovered that she was never going to get anywhere near her £375,000 goal, and pulled the plug. There were various reasons why the Björk project failed, but one of them was undoubtedly the fact that Björk is a rich person and therefore doesn’t “need” £375,000.

It’s entirely natural to want to funnel money where the need is greatest. Andrew Sullivan’s readers are supporting him, for instance, because they know that the the only source of income keeping his blog going. And Maria Popova’s readers are also reportedly quite generous. Anne-Marie Slaughter, for instance, is on the record as giving $25 per month — that’s $300 per year — to Popova, saying that doing so is “a lot like giving to your public radio station”.

Popova doesn’t claim poverty. But she does have a tip jar, prompting her readers to give between $7 and $25 per month (that’s a lower bound of $84 per year, well above the cost of, say, the New Yorker). And she explains on every page that “Donating = Loving”, and that “bringing you (ad-free) Brain Pickings takes hundreds of hours each month”. The tip jar is more explicit, saying that “Brain Pickings remains ad-free and takes 450+ hours a month to curate and edit”, and Popova has said in the past (although not recently) that Brain Pickings is “not for profit”.

The messaging here is clear: I work hard, I put all my time into this, and I have no other source of income, so please give generously to support what I do. And Popova does work hard. But she also has another job, editing Explore, and it’s hard to see how she can spend 450 hours a month on any job and still have time left over for that. More importantly, while Brain Pickings might technically be ad-free, it also provides a substantial income to Popova before she gets any money at all from donations.

The secret is affiliate links: if you follow a link from Brain Pickings to Amazon.com, then a big chunk of any money you end up spending on Amazon that session is going to make its way back to Popova. Affiliate links can be very lucrative: the Wirecutter, for instance, makes $50,000 per month, with that number “doubling every quarter”, according to David Carr; it gets that money from a readership of less than 350,000 unique visitors per month.

Brain Pickings claims 1.2 million readers, and while they surely don’t buy as much stuff on Amazon as the Wirecutter’s readers do, even if they only spend one fifth as much, that would still work out to an income to Popova of more than $400,000 per year from Amazon alone. An anonymous blogger on Tumblr (update: he has now named himself as Tom Bleymaier) has done the math a couple of different ways: one comes out to $432,000 per year, and the other comes in at $240,000 per year. However you estimate it, Popova’s Amazon income would seem to be more than enough to keep her blogging even if all her tip-jar income dried up entirely.

The blogger, who will say only that his name is Tom and that he Bleymaier, who runs a startup in Palo Alto, is not offended by Popova’s income: rather, he’s offended by the way in which Popova is being deliberately opaque about what she’s doing. Affiliate links are a form of advertising, which does somewhat put the lie to Popova’s claims of being ad-free. And as Tom says, if you’re making hundreds of thousands of dollars a year from such things, that gives authors a pretty strong incentive to “to change their tone such that they convince the reader to go all the way through with the purchase” of the book (or whatever) that they’re writing about.

What’s more, the affiliate links don’t end at Popova’s website: she links to Fab sales from her Twitter feed as well (here, for instance), and gets a percentage of all those revenues too. With more than 300,000 followers on Twitter, a 0.1% conversion rate means 300 sales, and potentially thousands of dollars of income from just one tweet. On top of that, as recently as a couple of months ago, Popova was found to be behind skeevy SEO sites like curesleepapnea.com, gastricbypassrisk.com, and liposuctionrisksinfo.com.

All of which makes the tip jar on Brain Pickings seem less like an honest request for readers to help keep the site going, and much more a cynical attempt to maximize income from a business which is already extremely lucrative. Andrew Sullivan is being very open about how much money he’s making, and where it’s coming from; Popova, by contrast, is being very opaque.

That’s sad, because Popova provides a valuable service to the web, and she also seems to have worked out a highly-successful business model. We should be celebrating the kind of money that Popova is making — I certainly don’t begrudge it — rather than seeing her try very hard to make it seem that she’s less successful than she is. If Popova is up there with John Gruber as a one-person operation making half a million dollars a year from blogging, and if she’s managed to get to that position by the age of 28, that achievement is just as impressive as Brain Pickings itself. The problem, of course, is that if she’s outed as a member of the 1%, her donation income might dry up quite quickly, and she doesn’t want that. Does she ever wonder, though, whether her readers might need that tip-jar money more than she does?

Update: Popova, who says there are “lots of factual errors” in this piece, has responded at length, via email. Here’s the whole thing.

Hey Felix,

A few thoughts on the whole Amazon situation.

Tom Bleymeier emailed me about a year ago with some seemingly polite but decidedly passive-aggressive questions about the affiliate links. I wrote him back and answered as patiently, honestly, and completely as I could, over a series of several exchanges. (I’ll forward you those in a second if I can dig them out – there’s nothing to hide, but I was very miffed by his complete lack of basic journalistic hygiene in making out-of-context quotes from private emails, which are by default always off the record, public.)

At some point, however, I had to disengage – in part because it was becoming enormously time-consuming, but mostly because it became painfully clear that this was a person who had projected his villain image onto me and had absolutely no interest in understanding my motives, my reality, who I am, or why I get up in the morning.

Regarding his Tumblr article – first of all, those numbers are ludicrous! If Amazon gave me even a tenth of that a year after Uncle Sam takes his fair share, I’d be delighted. Delighted!

A biographical note for context – I’ve spent most of my life in what constitutes poverty by American standards. When I came to America for college, I worked up to four jobs at a time to pay my way through, and graduated with student debt. Not much changed until 2010. When I moved to New York late that year, the security deposit my landlord required (in a non-fancy part of Brooklyn) was more than all my scattered savings combined – $80 more, to be precise. So I went to an ATM across the street, took $80 out of my credit card, deposited it into my checking account, and handed the whole big check to the landlord. While I’ve come a long way since the end of 2010, and I’m proud and relieved to report that for the first time in my life I’m not perpetually broke, to peg me as a member of the 1% – “outed” as one – is not only absolutely ludicrous but also quite hurtful.

Semi-relatedly, on motives: Brain Pickings is a record of what I, the subjective person, care about, what excites and inspires and stimulates me. A lot of that happens to be books, because I spend the majority of my life reading books, but I would do that anyway, whether 5 or 500,000 people shared in it. And I would do it whether those people clicked the Amazon link or the public library link I provide for each book I write about. (A fact, oddly, never made mention of – I suppose that would discredit the depiction of me as some dollar-sign-eyed monster trying to mercilessly “sell” people books…) I don’t mean to be passive-aggressive myself, I’m just having a very hard time with such depictions that run so counter to who I know I am.

Regarding the incorporation – that happened last spring, after a few readers alerted me that a company in Israel had incorporated under the name Brainpickin’, by someone named Ariel something-or-other per WHOIS, and was even using my old logotype. My studiomate Tina, who runs the Swiss Miss blog and had dealt with such issues, advised me to incorporate immediately and put me in touch with her IP lawyer, Jerald Tennenbaum. He said an LLC would be best and fastest for trademark purposes, filed the paperwork, billed me, I got a couple of official-looking envelopes from the government, and that was the end of it. I hadn’t even thought of it since, until this week’s quasi-scandal. If you’d like to reach out to Jerald to confirm, I’m happy to connect you.

Regarding transparency and comparisons to Andrew: I love Andrew, read him daily, and supported his indie move the first day he announced it. But Andrew and I have very different styles. He writes about his partner. I don’t. He writes about his health. I don’t. He writes about his financials and other meta-topics. I don’t. Please understand this is out of an impulse of being “opaque” about it – it simply isn’t the kind of writing I do. I’ve been completely honest about the Amazon links with anyone who’s ever asked – and have many, many, many emails I’m happy to forward – and have brought it up myself multiple times in talks and on Twitter.

There are many things I don’t write about simply because I don’t think they’re relevant to readers, but gladly disclose them when asked. For example, I don’t tell people how much it costs to actually run the site – which, when you add up web hosting, email newsletter delivery, the money I spend on books, TypeKit, VaultPress, proofreader, developer, designer, and various data plans, adds up to about $3,600 a month. That doesn’t include my hours which, if paid at minimum working wage – so if I were cleaning toilets instead of, say, poring through Edison’s diaries – would bring the total up to about $7,000 a month.

I also don’t mention that I send a good chunk of the donations and such I receive to other things I want to support – sites like It’s Okay To Be Smart and Ed Yong’s science blog (until he discontinued the donations a few weeks ago), Radiolab, The New York Public Library, A Room of Her Own (a foundation supporting women writers), and various KickStarter projects in the science/history/storytelling space. I don’t write about this partly because it’s my own business and thus irrelevant to readers, and partly because it’s simply cheesy to brag about altruism.

Regarding hours, actually – to anyone who knows me, questioning how much time I put into what I do would be laughable. Brain Pickings is not how I make a living – it’s MY LIFE, Felix. Every waking moment goes into it one way or another – the enormous amount of time it takes to read books, to research, to meet with people, to interview, and even to do this right now, and of course to write 3 articles a day Monday through Friday, between 300 and 3000 words each. (Add to that the time of my proofreader and any intern at any given time, plus designer and developer when needed.) And here’s the thing – I do it not to “build an audience” or “generate revenue” or any of that, but because it gives me enormous joy and stimulation. It makes me excited to wake up and fulfilled to go to bed. And I guess what it boils down to is that the fraction of the world that’s ever come across Brain Pickings and cares will just have to take my word for it. Those who don’t are free to ask me questions, which I will always answer as honestly as I can and as completely as time permits, or they’re free to move on. But Brain Pickings is my home – and people interested in hostile takedowns, like Tom seems to be, rather than in understanding what moves me or having an intelligent conversation about things, are simply not welcome in it.

Thanks for reading. Sorry this is so long.

// maria

As befits a company backed by a Who’s Who of Wall Street names, Relationship Science has tapped Andrew Ross Sorkin as the vehicle of choice for its big public unveiling.

The idea behind RelSci is that if you’re one of the 2 million most important people in the business world, there’s a huge amount of public knowledge out there already regarding the people you know and are connected to. You don’t need to connect with them on Twitter or Facebook or LinkedIn; RelSci knows who you know anyway, just like IMDB knows who has appeared in a movie with Kevin Bacon.

What’s essentially happening here is that the network which connects us all — the true, real-world social network, which has existed as long as humanity — is now being mapped without our consent, and being sold back to masters of the universe for the low, low price of $3,000 a year. As Mark Zuckerberg will tell you, there’s enormous value in networks. And although RelSci can’t control the real world in the way that Zuckerberg controls Facebook, it has the advantage that it includes the most powerful and important people you could ever want to get in touch with, from Lloyd Blankfein to the president of the United States.

Of course, there are no guarantees here. I’m friends with Ezra Klein on Twitter (or whatever it’s called when two people follow each other) — I’m sure that’s in the RelSci database. And Ezra, as Julia Ioffe says today, talks to the president: that’s public too. So does that mean I’m just one degree of separation from the president? Not really. I’d never ask Ezra to tell the president anything on my behalf, and if I did ask, he’d say no.

But for some relationships, RelSci could be very effective. Once you get to friends of friends of friends — two degrees of separation or more — I think it’s pretty useless. But friends of colleagues? That can be very powerful. If I’m a relationship banker, say, and I want to sit down with a CEO, I need someone to effect an introduction, and it’s possible — probable, even — that I’m quite unaware how many of my friends are directly connected to that CEO. Alternatively, if I’m in the midst of fraught deal negotiations, and talks are breaking down, RelSci could be invaluable in finding someone who’s close to, and trusted by, the principals on both sides of the table.

RelSci is initially targeting its product at Wall Street and the nonprofit sector, which has long spent enormous amounts of time and effort putting together detailed dossiers on potential donors and the people who might be able to influence them. But I suspect that DC lobbyists are going to be lining up to subscribe, if only for the way that RelSci might be able to turbocharge their opposition research. “Privacy by obscurity” isn’t working for Julia Angwin any more on Facebook, and it’s not going to work for politicians and business leaders in real life much longer, either. It used to be that our web of personal connections was known only to ourselves; those days are over, whether we like it or not.

My guess is that RelSci won’t last as an independent company for long: it will probably be acquired, with Facebook, LinkedIn, and Bloomberg at the top of the list of possible buyers. My own employer, too, might be interested: we already have a product called Westlaw PeopleMap which is not dissimilar. If Google buys RelSci, it might even open up the entire database to the world for free. But even if it doesn’t, it’s clear that we’re still at the early days of drawing real-world connections between real-world people. Over time, the RelSci network, or the companies which try to copy it, will get bigger, and the price of accessing it is likely to fall to zero surprisingly quickly.

Which means that even if you unfriend everybody on Facebook, and you never join Twitter, and you don’t have a LinkedIn profile or an About.me page or much else in the way of online presence, you’re still going to end up being mapped and charted and slotted in to your rightful place in the global social network that is life. People are going to make money from your social connections whether you like it or not. Unfortunately, it seems that in the first instance, those people are going to have names like Henry Kravis, Ron Perelman, and Ken Langone.