Felix Salmon


Felix Salmon
Apr 9, 2014 11:51 UTC

My article on the wonk bubble, at Politico, came out not only at the same time as the launch of Vox.com, but also, coincidentally, with the release of comments from both Michael Wolff and Marty Baron on the same subject.

Baron is much more constructive and optimistic than Wolff, but he shares with Wolff a certain skepticism when it comes to what Ezra Klein, in particular, is doing. It’s worth quoting Baron at some length:

What Ezra said when he came to senior executives at the Post — and I was the first one he came to, as far as I know — was that he wanted to create an entirely new news organization, something entirely separate from the Post. And that he would be in charge of it — he would be the president, the CEO, the editor-in-chief, he would select the technology, he would select the advertising chief — pretty much everything. And it would exist outside the framework of The Washington Post.

It was not a request for more financing for his venture within the Post called Wonkblog, which we had financed to the tune of millions of dollars over many years — we had grown it. I don’t know how well people knew Ezra before he worked at The Washington Post, but I know that after he worked at The Washington Post, they knew him quite well. It was a great platform for him, and he was great for us as well…

What he had in mind was a separate news organization. And what he really wanted to know — what he wanted to know was whether Jeff Bezos would be willing to finance that.

And that’s fine, and we obviously ran that up the pole. But I don’t have a venture capital fund available to me. I’ve looked all around — I’ve looked in the files. I don’t have a venture capital fund. And our publisher, I don’t believe, has a venture capital fund either. The company is owned 100 percent by Jeff Bezos, so any decision to fund a new venture would be his to make. And, as it turned out, the amount of money that apparently was being sought, you know, was somewhere roughly equivalent to 10 percent of our newsroom budget. And, you know, I think it’s safe to say that I would not have been too happy if 10 percent of my newsroom budget had been earmarked for [this project].

The first thing to note here is that Baron is factually wrong when it comes to whether his publisher has a venture capital fund: Bezos does indeed invest venture capital into news projects, most visibly into Business Insider.* In principle, therefore, there was no particular reason why Bezos might not support Klein with a similar sum of money, especially when that sum would get him 100% ownership of the new product, rather than just a minority stake in somebody else’s business.

But of course there was a much bigger problem than Bezos. Baron was clearly quite offended that Klein would want to set up an arm’s-length business in parallel to WaPo, rather than simply expanding Wonkblog under the existing WaPo umbrella. After all that the Post had done for Klein, all of the millions of dollars it had paid him and his team, all of the brand value it had gifted him, it was downright ungrateful for Klein to want to move as far as he could from the newsroom and the Post’s CMS.

Baron’s reaction was understandable, since Klein was in effect saying, with his proposal, that he didn’t think the Washington Post could really do something revolutionary given its existing architecture and leadership. No boss likes being told that he’s part of the problem.

But here’s the thing: Klein was right. Just as the big sell-side banks proved incapable of keeping up with the small nimble high frequency trading shops, big legacy media organizations are never going to be able to move with the speed and inventiveness of the best new-media shops. Vox is a great case in point: Klein joined on January 26, and launched the new Vox.com on April 6. That’s 15 weeks, which is less than half the amount of time it took Nate Silver to launch fivethirtyeight.com. (Silver joined ESPN on July 19, and launched his site on March 17.) And while both sites are very much still works in progress, Vox.com, at launch, is definitely a more advanced product than fivethirtyeight.com — despite, or perhaps because of, the fact that his corporate parent has almost infinitely deep pockets.

In general, the bigger and more entrenched the media company you’re part of, the harder it is to get stuff done. (I should know.) Klein had intimate, first-hand experience of the Washington Post bureaucracy, and he also saw the way in which Kara Swisher and Walt Mossberg managed to build a world-class franchise in AllThingsD, once they negotiated for themselves almost complete independence from their corporate overlords. They would never have had the same success had they been part of WSJ.com. What Klein wanted — and, ultimately, received, from Vox — was just the freedom to build something new and potentially amazing, outside the strictures of Marty Baron’s newsroom. Baron, and his employer, said no, as was their right. But you can feel the defensiveness in Baron’s remarks.

In case you didn’t notice Baron’s rhetorical sleight of hand, when he says that “the amount of money that apparently was being sought, you know, was somewhere roughly equivalent to 10 percent of our newsroom budget”, he is not saying what he seems to be saying. He’s deliberately conflating stock with flow: while Klein was reportedly asking for a total investment of roughly $10 million, Baron’s newsroom budget is $100 million per year. In other words, for a total investment of 10% of just one year’s budget, Klein was offering to create something which could profoundly change the course of digital journalism — and to keep all of the intellectual property within the Washington Post.

Baron and Bezos, of course, passed on the opportunity, which Vox Media jumped at. And the Posties passed despite being acutely aware of the Politico precedent. That outcome was probably for the best: I’m sure that Klein is much happier at Vox than he ever would have been trying to build something akin to Vox.com from scratch. Vox is a technology product as much as it is an editorial product, and Klein is no technologist: he has been given a massive headstart thanks to Vox’s first-rate technology team and content management system. Insofar as Vox ends up being a success, then, that doesn’t mean that it would have done just as well as part of the Washington Post Company.

Still, Baron’s defensiveness is not a positive sign, if you’re someone who wishes the best for the Washington Post. His newspaper’s natural local-news monopoly is not remotely sufficient to support a $100 million-per-year newsroom, which means that he’s going to have to start getting a substantial national audience somehow. Bezos paid $250 million for the franchise; he’s also beefing up the newsroom’s digital staff, which is a welcome development. But there’s no reason for him to have all of the Washington Post’s eggs in a single basket. The Klein opportunity was a rare one: no one else of Klein’s caliber would have approached Baron with the opportunity to fund their startup. And Baron’s language is a clear indication that he has very little interest in building a sandpit where anything else can thrive, either. At least the old Washington Post had the Slate Group; the new one has nothing.

If Baron is optimistic about the Post’s business, he should read the Michael Wolff interview. Wolff has a blinkered view of the world; he thinks that the only way that journalism will ever generate meaningful revenue is by selling adjacencies to advertisers, just as it has done for decades. And because that business doesn’t work well online, Wolff is a perennial digital bear. I’m much more constructive than Wolff is on the economics of things like Vox, because I know that there are lots of potential revenue streams associated with the format. Just about every company with a reputation problem, for instance, should be jumping at the opportunity to be able to tell their story using Vox’s technology and platform.

But if Baron is going to overcome the Wolff diagnosis and build a sustainable digital franchise for the long term, he — and his new owner — are going to have to take some risks. As I say in my Politico piece, the wonk space is exactly where a huge amount of of news innovation is happening right now, and I’m frankly doubtful that the Post’s newsroom is the best incubator for such ideas. Baron has made some great hires, including my friend and former colleague Ryan McCarthy. But it’s really, really hard to turn a print newsroom into something natively digital. Klein had the right idea: do something at arm’s length first, and then let the technology and ethos trickle back to the mothership. Because if you try to build something new within the mothership, it’s often liable to get suffocated.

*Update: OK, if you want to pick nits, the publisher of the Post is Katharine Weymouth, and Bezos is the proprietor. But since Weymouth is spending Bezos’s money, the distinction doesn’t seem to be hugely important to me.



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Michael Lewis’s high-speed journalism

Felix Salmon
Apr 7, 2014 15:17 UTC

My full review of Flash Boys is now up at Slate. Tl;dr: he’s right for the wrong reasons. HFT is a bad thing, but not because it rips off small investors.

There’s a separate question worth asking, though: why is this book weaker than Lewis’s other books?

Partly, it’s because Lewis took a bet on the unknown. Lewis tells stories by focusing on individuals, and he clearly felt that he hit the jackpot when he found Brad Katsuyama, the founder of IEX. Katsuyama would in any case have been a compelling choice as the person through whom to explain HFT. But in this case Lewis managed to go one better: he caught Katsuyama at a very auspicious time, which meant that he could actually follow him, in person, through the launch of his new company. As a result, Lewis found himself unable to control the arc of his story: from the point of view of the narrative, Flash Boys was going to go wherever IEX went, even if IEX’s future was very unclear at deadline.

And while first-person access should in principle make the book better, because Lewis can add the kind of details which he can never find by talking to participants ex post, in practice, it often doesn’t. Rather, it means that Lewis seemingly felt compelled to, well, add the kind of details which he could never find by talking to participants ex post:

Don leaned with his back against the window, along with Ronan, Schwall, and Rob Park, while Brad stood in front of the whiteboard and took a whiteboard marker out of a bin…

Schwall looked over the desks and shouted, “Whose phone is that?”

“Sorry,” someone said, and the ringing stopped.

This isn’t novelistic color, it’s more akin to the famous drunk looking for his keys under the lamppost. When Michael Lewis knows exactly what story he wants to tell, he can talk to people and piece it together like no one else in the business. But in this case, Lewis chose the story before he knew how it was going to end, and so he ends up writing what he saw. Which is sometimes important, and sometimes isn’t. It’s a common problem when a journalist gets exclusive access to something: just because you’re the only person to witness something, doesn’t mean it’s particularly worth witnessing.

To make matters worse, Lewis felt the need to bulk up the book by dropping in, more or less verbatim, his entire Vanity Fair article on Sergei Aleynikov. That story was excellent: one of the best things that Lewis has written, which is a very high bar. But its narrative doesn’t fit with that of Brad Katsuyama; in some ways, the two are diametrically opposed. Aleynikov should probably have appeared in the book somehow, as an example of the way in which the big banks were thrown in panic by the rise of HFT. But that would have required Lewis writing the Aleynikov story all over again, a second time around — when the first time was already such a success. So he simply did a copy-and-paste job, which is not what his bigger story really required.

Overall, a lot of the weaknesses with this book are ironically the same as the weaknesses with the stock market: it’s just too fast. With a bit more time and care, Lewis could have broadened his story a bit, put Aleynikov into better context, and explained the real dangers of HFT rather than just the “you’re being ripped off” hyperbole. He could also have avoided some silly mistakes: Secaucus is west of Weekhawken, for instance, not east.

Then again, maybe Flash Boys is a sign of where book publishing is going. It will probably be read more on electronic devices than in print; it will probably be read mostly in the next few weeks, and become dated very quickly. It’s an event; it’s highly salient right now, but it doesn’t have the legs that, say, Liar’s Poker does. Books used to be objects with permanence; as they become increasingly electronic, they can start moving towards the more disposable model of, say, Vanity Fair style magazine journalism.

Which makes possible what you might call the Reputation Arbitrage. The Newsweek cover story on Satoshi Nakamoto got enormous amounts of attention just because it was a Newsweek cover story, appearing, in print, on the front page of a physical magazine with a storied brand. If exactly the same story had appeared on a lesser-known website, it would have caused much less of a fuss. Similarly, Flash Boys is getting enormous amounts of attention just because it is a book by Michael Lewis. If he had simply written the NYT Magazine story, without a book behind it, the article would still have been shared a lot, but I don’t think we would have seen the same response from, say, US law enforcement.

In the digital age, media are converging faster than people think they are. Certain formats — the magazine cover, the hardback book — retain a certain amount of vestigial reputational capital, which can cause people to write about them more than maybe they should. If only the same amount of attention had been paid to, say, Matt Taibbi’s scoop about SEC document-shredding. That is something to really get angry about.


Michael Lewis… Come on… You have been a great investigative journalist over the last 25 years… But the publication of Flash Boys is no more than a “Mad Man” advertising publication for the IEX exchange which is currently on a road show with Brad and Ronan.

The book is uninteresting, uninformative, and very biased,,, something that I thought you would never be.

IEX Group, the six month-old US stock exchange led by the heroes of Michael Lewis’s controversial new book Flash Boys, is to visit Europe for the first time in June as it seeks to build relationships with trading firms in the region.

Ronan Ryan, one of the heroes of Michael Lewis’ IEX’s chief strategy officer and head of business development, will start a 10-day European roadshow from June 18, and will visit the UK, France, Holland, Germany, Norway and Sweden.

Morgan Stanley, Goldman Sachs and JP Morgan plan to help introduce the exchange to European institutions during the visit, one person said. The banks declined to comment.

Come on Michael…. Whose side of the fence are you really on? How many shares of IEX do you own? You should be as transparent as your journalism has always tried to be.

Good luck…

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Against beautiful journalism

Felix Salmon
Mar 27, 2014 05:22 UTC

Have you seen that site’s gorgeous new redesign? Every article has a nice big headline, huge photos, loads of white space, intuitive and immersive scrolling, super-wide column widths — everything you need to make the copy truly sing.

I’m over it.

Part of this is because I have a long-standing soft spot for ugly. It’s easy, of course, for a web page to become too messy, too noisy — especially when the mess and the noise is mostly ad-related. On the other hand, I grew up in a culture where today’s journalism is tomorrow’s fish-and-chips wrapper, and where in general journalism isn’t taken nearly as seriously as it is in the US. That’s healthy, in many ways, and it encourages a lightness of touch, as well as a gleeful let’s-try-everything approach, and a general feeling that the publisher won’t be offended if you stop reading this and start reading that instead.

The stripped-down, minimal approach to page design has its place — but most of that time, that place isn’t for news stories, which by their nature are mostly snack-sized things written on deadline and designed to be consumed quickly and easily, rather than long meals designed to be slowly savored.

More to the point, news websites have always struggled with any one-size-fits-all approach to stories. A format which works for a 6,000-word feature is not going to work well for a 150-word brief. Web designers have known this for years, but still news sites tend to put all of their stories into exactly the same template — and increasingly that template is designed for ambitious longform storytelling. Which, of course, generally accounts for only a tiny fraction of the material on the site.

For a prime recent example of the disconnect, check out NYT public editor Margaret Sullivan’s recent post on trend stories in general, and that monocle trend story in particular:

Media watchers received the story like a Christmas present, tearing off the wrapping to get at the goods. The fun began on Twitter, after the story went online but well before its print publication. Dustin Gillard tweeted: “NYTimes does a trend piece on monocles. It is about as good/bad as it sounds.” (No one ever said the Internet was good at nuance; the wags ignored that the short piece was tucked inside the Styles section in its “Noted” column, treating it instead as if it were front-page screaming-headline news.)

But here’s the thing: on the internet (which, Sullivan admits, was for a long time the only place where you could read the story), the story wasn’t “tucked” anywhere. Instead, it looks like this:


Everything about the way that this story is presented online screams This Is Important. In the physical paper, I’m sure there were lots of design cues telling the reader not to take the story too seriously; online, they all got stripped away.

I like to flick through the NYT in the morning, and recently I’ve been playing with the replica edition on the iPad, rather than the native iPad app. (All print subscribers get free access to the replica edition, seven days a week, although the NYT doesn’t make it easy to find.) The replica edition is just the newspaper as it is laid out on paper — with different-sized headlines, classifieds, display ads, everything. It has no hyperlinks (although every headline is clickable, to be read more easily) — but instead it provides something the online and iPad editions lack: the large amount of information presented by the fine page designers of the NYT. You can see what’s important, and you can revert to old-fashioned serendipity when it comes to things like stumbling across a wonderful obituary, even when you would never deliberately decide to read the obituary section in the iPad app.

The replica edition is not a replacement for the native app, so much as it’s a complement to it — and something which shows just how good the NYT is at its native medium of print. And the NYT isn’t even close to being the best-designed newspaper out there: I might be biased, but I think it’s generally accepted that most English newspapers are better designed than nearly all US papers. When it comes to the visual display of news, newspapers daily convey vast amounts of information which is simply lost in the translation to digital. At the top of the list: any indication of the importance of any given story.

Today, when you read a story at the New Republic, or Medium, or any of a thousand other sites, it looks great; every story looks great. Even something as simple as a competition announcement comes with a full-page header and whiz-bang scrollkit graphics. The result is a cognitive disconnect: why is the website design telling me that this short blog post is incredibly important, when in reality it’s just a blockquote and a single line of snark? All too often, when I visit a site like Slate or Quartz, I feel let down when I read something short and snappy — something which I might well have enjoyed, if it just took up a small amount of space in an old-fashioned reverse-chronological blog. The design raises my expectations, even as the writers are still expected to throw out a large number of quick takes on various subjects.

This is a problem for user-generated content, too. Look at Medium, for example. It wants to be a self-expression platform, much like Twitter or Facebook — but its design is daunting: for all that it’s easy to use, people intuitively understand that the way that their story looks implies a certain level of quality and importance. That can be a good thing: it encourages contributors to up their game. But equally, it can simply result in people giving up, on the grounds that they don’t particularly want such a grand-feeling venue for their relatively small idea.

It’s time for websites to put a lot more effort into de-emphasizing less important stories, reserving the grand presentation formats only for the pieces which deserve it. In theory, most content management systems these days support various different story templates; in practice, however, there’s a kind of grade inflation going on, and everything ends up getting the A-list treatment.

One of the many small pleasures of reading the New Yorker is the way that it presents its poems: they’re clearly distinguished from the right-justified body text, but mainly just by giving them more white space, more room to breathe. While poems look great that way, however, no one has ever suggested that the magazine would be improved if everything were given so much space. I hope that the web learns that lesson soon, and starts to bring back a little bit of noise and clutter. Which is, after all, the natural state of nearly all journalism.


The aesthetics of Medium and Quartz over-promise & under-deliver on the quality of the content they’re pushing. Without doubt, this is true.

And editors should exercise more vigilance and discrimination over the content they push to their readers. The content-regurgitation-with-snappy-headli ne model of BI and HuffPo is not one Slate or TNR should deign to imitate.

But how readers consume information and how they share it too, figures large. And if you can get a toehold in the smartphone news market early, like Quartz and Medium seem to be doing, there’s some possible value realized there (in having achieved that early mover advantage).

So it’s important for to keep in mind the visual mediums that we or other people imagine the web with too. How content get organized visually – on desktop screens versus tablets versus phones – is a matter of kind, and not just degree.

And there’s huge growth potential in the developing world. Their primary point of entry for the internet will be the mobile phone:

http://mashable.com/2011/02/04/web-devel oping-world/

How to effectively present information through that narrow medium of visualization will be a continuing challenge. And there’s a huge market out there for those developers addressing it, since the physical means by which people interface with and consume their news is by no means a settled process.

If only 10 years ago, our primary physical medium was the actual newspaper, who’s to say what our primary medium will be 10 years hence?

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Trish Regan, Einhorn apologist

Felix Salmon
Mar 24, 2014 17:56 UTC

Ever since the story first broke, more than five weeks ago, that David Einhorn was suing Seeking Alpha, the Israeli financial website has been very, very quiet on the topic. Sometimes they have simply failed to respond at all to requests for comment (including mine); other times, as with Andrew Ross Sorkin, a spokesman will formally decline to comment.

So it was a big deal when Seeking Alpha president David Siegel appeared on Bloomberg TV today, and answered Trish Regan’s questions about the Einhorn lawsuit. Or, at least, it would have been a big deal, if Regan had actually bothered to ask him any of the obvious questions. Like, for instance, whether he’s going to fight it, or what he thinks of the merits of the case.

Instead, however, Regan decided that the best use of her time would be to deliver to Siegel a lecture on (and, presumably, an example of) Proper Journalism:

Trish Regan: David Einhorn has expressed his concern. He would like to know the name of the Seeking Alpha blogger who revealed one of his investments. Who was it?

David Siegel: (laughs, in a WTF kind of way) Well, we’re not going to tell you right now. But, um…

TR (interrupting, just as Siegel might be about to say something newsworthy): Why — Why hide behind anonymity? Why not put your name on something?

DS: We vehemently believe that it’s critical to have an open platform, where everyone can discuss, and debate, without necessarily having any repercussions to that. With that said, we have 24/7 monitoring on everything… it’s incredibly important to us to create the right forum, and we believe that that forum is —

TR: But why, why…

DS: — is a, anonymous…

TR (pushing over anything Siegal might want to say, because she has something more important of her own to declaim): I know but why — why not reveal — I mean, to me, and call me old-fashioned, but part of journalism is when you write an article, you put your name on it. You don’t hide behind anonymity. Why allow your bloggers to do that?

DS: It’s part of our philosophy. We need to have an open environment, and a flexible environment, for people to feel comfortable posting what they need to. We have a very, very rigorous background check process.

TR (giving Siegel four seconds to answer the big question, and burying it under another one): You can understand why David Einhorn would be upset, why he’d want us to actually know who this person is. I mean ultimately will you guys be held responsible?

DS: David Einhorn is a legend, and we have tremendous respect for him, absolutely.

The whole interview is just bizarre. I have no problem with aggressive, adversarial journalism, but the proper place for that is when your interlocutor is refusing to give a straight answer to a straight question. Seeking Alpha has always been very open about offering anonymity (or, more precisely, pseudonymity) to bloggers who request it, for very simple and obvious reasons: many of them are financial professionals whose jobs might be at risk if their identity were made public. Journalists like Regan give anonymity to their own sources on a regular basis, for exactly the same reason.

What’s more, anonymity is hardly unheard-of even among very mainstream publications: the Economist, for instance, has no bylines at all, while even the NYT will occasionally withhold a byline from a reporter in a dangerous country, if revealing that person’s identity would put them at risk.

Let’s say that the blogger in question had phoned up Regan and told her (off the record, but with Regan knowing her source’s identity) that Einhorn was buying up shares of Micron Technology. That might have turned into a nice little scoop for Regan, if she had confirmed it with other sources — all of whom would themselves surely have insisted on anonymity as well.

If Regan had published that story, Einhorn would surely have been annoyed, since he was taking great care to accumulate his stake in Micron as quietly as possible. But here’s the thing: Einhorn would never have dared take Regan and Bloomberg to court, trying to force them to reveal her sources. If a journalistic organization finds out a true fact and publishes it, that might inconvenience a hedge-fund manager, but it’s not going to result in a court case.

In the Micron case, however, Einhorn saw an outlet which was small enough to bully. If he wins, as Sorkin says, “the case could have a chilling effect on the free flow of information to traditional news outlets” — it would damage not only Seeking Alpha and its pseudonymous blogger, but also Trish Regan and all other journalists with confidential sources. Einhorn wants to be able to keep his own information confidential; he just doesn’t want Seeking Alpha to have a similar right.

If anybody deserves a lecture on journalism in this case, then, it’s not Siegel, it’s Einhorn. Meanwhile, Siegel is faced with a very hard decision. Einhorn is not the kind of person to back down from a fight: he has essentially bottomless resources, and will happily spend millions of dollars on lawyers just to make Seeking Alpha’s life miserable and expensive for the foreseeable future. Big media organizations are set up to fight such threats; smaller startups aren’t.

So the big question here is not whether Einhorn is right or wrong: of course Einhorn is wrong, Regan’s misplaced self-righteousness notwithstanding. Rather, the question is whether Seeking Alpha can and will be able to afford to fight him. That’s the big question which every non-enormous media company wants to know the answer to — and that’s exactly the question which Regan didn’t ask.

Ensconced as she is within the massive Bloomberg borg, Regan doesn’t need to worry about the cost of defending her journalistic operation against litigious hedge fund managers. But even Bloomberg benefits from a diverse media ecosystem. And so it’s rather worrying that Bloomberg TV should spend its energies defending Einhorn in this case, rather than finding out whether we’re facing a very real threat to media freedom.

Update: David Einhorn has dropped the suit, after finding out through other means who the blogger in question is. Trish Regan covered that development, too:

We’re in an interesting time in journalism, because bloggers are in the blogosphere, and there’s a lot of information out there that’s not always necessarily with someone’s name on it… Is that a danger, nowadays, that we’re in an environment where people can have a very big effect on securities, on the markets, and do so anonymously?

Yes, Trish, bloggers are in the blogosphere. And sometimes market moves happen in reaction to pseudonymous information sources. Or even to fully anonymous sources, in things like Bloomberg articles. I don’t see the problem with this. Unless you’re just upset that Valuable Insights has his own outlet, now, instead of having to bring his story to you.


SeekingAlpha published this statement about Greenlight dropping its suit:
http://seekingalpha.com/article/2106353- seeking-alpha-and-david-einhorn-the-real -story

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Satoshi: Why Newsweek isn’t convincing

Felix Salmon
Mar 10, 2014 04:18 UTC

I had a 2-hour phone conversation with Leah McGrath Goodman yesterday. Goodman wrote the now-notorious Newsweek cover story about Dorian Nakamoto, which purported to out him as the inventor of bitcoin. At this point, it’s pretty obvious that the world is not convinced: in that sense, the story did not do its job.

As Anil Dash says, the geek world is the most skeptical. Almost all of the critiques and notations attempting to show that Dorian is not Satoshi are coming from geeks, which makes sense. If the world is what you perceive the world to be, then there is almost no overlap between the world of geeks in general, and bitcoin geeks in particular, on the one hand, and the world of a magazine editor like Jim Impoco, on the other hand. As a result, there’s a lot of mutual incomprehension going on here, which has resulted in an unnecessarily adversarial level of aggression.

As befits a debate which is centered on bitcoin, a lot of the incomprehension comes down to trust and faith. Bitcoin is a protocol which requires faith in no individual, institution, or state — all you need to believe in is cryptography. Dorian Nakamoto could have told Goodman explicitly that yes, he invented bitcoin — and still a lot of the bitcoin faithful would not be fully convinced unless and until Dorian proved that assertion cryptographically.

Goodman, on the other hand, is a proud journalist, who gets personally offended whenever anybody raises questions about her journalism, her techniques, or her reporting. In a reporter’s career, she says, “you check facts, you are building trust and building a reputation”. Goodman feels that her own personal reputation, combined with the institutional reputation of Newsweek, should count for something — that if Newsweek and Goodman stand behind a story, then the rest of us should assume that they have good reason to do so. There’s no doubt that a huge amount of work went into reporting this story, very little of which is actually visible in the magazine article itself.

In aggregate, says Goodman, an enormous amount of evidence, including evidence which is not public, persuaded her that Dorian Nakamoto was her man. Goodman has not decided whether or how she might publish that evidence. When she appeared on Bloomberg TV, she said that she would love for people to look at the “forensic research” and the public evidence in the case — but, talking to me, she made it clear that she didn’t consider it her job to help out other journalists by pointing them to that evidence. What’s more, she also made it clear that she was in possession of evidence which other journalists could not obtain.

In other words, Goodman spent two months following leads and gathering evidence, both public and private. Eventually — after confronting Dorian Nakamoto in person, and getting what she considered to be a confirmation from him, both she and her editors felt that she was able to say, on the front cover of Newsweek, that he was the guy. The article itself was the culmination of that process, but it did not — could not — contain every last piece of evidence, both positive and negative, public and private, about both Dorian Nakamoto and every other candidate she looked at. The result is not the process, and Goodman feels that she should be given the respect due a serious and reputable investigative journalist, working for a serious and reputable publication.

Newsweek, it’s fair to say, has not been getting that respect, although it has been getting a lot more attention than most purely-digital publications would have received had they published the same story. Jim Impoco, cornered at a SXSW party, said that he finds criticism of his story to be “phenomenally offensive”, and then went on to make the highly ill-advised remark that “we eliminated every other possible person”. But that’s really a messaging failure: he was on the back foot (SXSW is, after all, geek HQ this week, and the geeks are gunning for Impoco right now). Clearly, this was not the time or the place for a considered discussion of evidentiary standards.

That said, both Impoco and Goodman should have been smarter about how they talked about the story, post-publication. Both have been largely absent from Twitter and Reddit and RapGenius and other online places where the debate is playing out; instead, they have been giving interviews to mainstream media organizations, which are often unhelpful. TV interviews devolve into stupid fights; interviews with print or online journalists result in just a couple of quotes.

Goodman spent a lot of time, with me, walking me through her journalistic technique: she started, for instance, by trying to track down the person who initially registered the bitcoin.org domain name, and then followed various threads from there. And yes, she did consider and reject the individuals who are considered more likely candidates by the geek squad. Nick Szabo, for instance, might well look like a good candidate if you’re looking only at the original bitcoin paper, and asking who is most likely to have written such a thing. But when she looked at Szabo’s personal life, nothing lined up with what she knew about Satoshi Nakamoto and his communications. Instead, she found the Dorian Nakamoto lead — and didn’t think much of it, at first. But the more she kept trying to dismiss it, and failing to do so, the more she wondered whether Dorian’s very invisibility — “contextual silence”, she called it — might not be sending her a message.

Towards the end of Goodman’s investigation, when she was preparing to try to meet with Dorian Nakamoto in person, Goodman told Impoco that if it didn’t turn out to be Dorian, then “we’ve got nobody”. That’s what Impoco was most likely talking about, when he talked about eliminating people. Goodman — and Impoco, more recently — was just saying that this was her last open thread, and that if Dorian didn’t pan out as the guy, then they didn’t have a story.

From my perspective, then, there’s a big disconnect between what I now know about Goodman’s methodology, on the one hand, and how that methodology is generally perceived by the people talking about her story on the internet, on the other. With hindsight, I think that Goodman’s story would have elicited much less derision if she had framed it as a first-person narrative, telling the story of how she and her team found Dorian and were persuaded that he was their man. The story would surely have been more persuasive if she had gone into much more detail about the many dead ends she encountered along the way. The fateful quote would then have come at the end of the story, acting as a final datapoint confirming everything that the team had laboriously put together, rather than coming at the beginning, out of the blue.

That storytelling technique would not persuade everybody, of course: nothing would, or could. And, more importantly, it isn’t really what Impoco was looking for. Even the piece as it currently stands was cut back a few times: the final version was pared to its absolute essentials, and, like all longform magazine journalists, Goodman wishes that she might have had more space to tell a fuller story.

But here’s where one of the main areas of mutual incomprehension comes into play. Impoco and Goodman are mainstream-media journalists producing mainstream content for a mass audience; Goodman’s article was probably already pushing the limits of what Impoco felt comfortable with, given that he couldn’t reasonably assume that most of his readers had even heard of bitcoin. Impoco was interested in creating a splashy magazine article, for the print reincarnation of a storied mass-market newsweekly. Of course, seeing as how this is 2014, the article would appear online, and would reach the people who care a lot about bitcoin, who were sure to make a lot of noise about it. But they weren’t the main audience that Impoco was aiming for. Indeed, in early 2012, when Impoco was editing a much smaller-circulation magazine for Reuters, I sent him a draft of what ultimately became this article for Medium. He passed: it was too long, too geeky. Even if it would end up reaching a large audience online (it has had over 200,000 page views on Medium), it didn’t have broad enough appeal to make it into a magazine.

Similarly, while Goodman has done a lot of press around her article, most of it looks like a tactical attempt to reach the greatest number of people, and build the most buzz for her article. So she’s been talking to a lot of journalists, especially on TV, while engaging relatively little on a direct basis with her online critics. There’s no shortage of substantive criticism of Goodman’s article online, and of course there is no shortage of venues — including, but not limited to, Newsweek.com — where Goodman could respond to that criticism directly, were she so inclined. But instead she has decided in large part not to join the online debate, and instead is pondering whether or not to write a self-contained follow-up article which might address some of the criticism.

There’s a good chance that follow-up article will never come, and that Goodman will simply cede this story to others. And you can’t necessarily blame her, given how vicious and personal much of the criticism has been, and given how many of her critics seem to have made their minds up already, and will never be persuadable. Goodman has said her piece, and there are surely greatly diminishing returns to saying a great deal more.

Still, it’s just as easy to sympathize with the frustration being felt by the geeks. Appeals to authority don’t work well on this crowd — and neither should they. If the US government can lie about the evidence showing that there were weapons of mass destruction in Iraq, it’s hard to have much faith in an institution which, 18 months ago, slapped “HEAVEN IS REAL” all over its cover. (That story, interestingly enough, was demolished by another mass-market magazine, Esquire.)

Indeed, both sides here have good reason to feel superior to the other. From Newsweek’s point of view, a small amount of smart criticism online has been dwarfed by a wave of name-calling, inchoate anger, and terrifying threats of physical violence. And from what you might call the internet’s point of view, Newsweek is demonstrating a breathtaking arrogance in simply dropping this theory on the world and presenting it, tied up in a bow, as some kind of fait accompli.

The bitcoin community is just that — a community — and while there have been many theories as to the identity of Satoshi Nakamoto, those theories have always been tested in the first instance within the community. Bitcoin, as a population, includes a lot of highly-intelligent folks with extremely impressive resources, who can be extremely helpful in terms of testing out theories and either bolstering them or knocking them down. If Newsweek wanted the greatest chance of arriving at the truth, it would have conducted its investigation openly, with the help of many others. That would be the bloggy way of doing it, and I’m pretty sure that Goodman would have generated a lot of goodwill and credit for being transparent about her process and for being receptive to the help of others.

What’s more, a bloggy, iterative investigation would have automatically solved the biggest weakness with Goodman’s article. Goodman likes to talk about “forensic journalism”, which is not a well-defined phrase. Burrow far enough into its meaning, however, and you basically end up with an investigation which follows lots of leads in order to eventually arrive at the truth. Somehow, the final result should be able to withstand aggressive cross-examination.

At heart, then, forensic analysis is systematic, scientific: imagine an expert witness, armed with her detailed report, giving evidence in a court of law. Goodman’s Newsweek article is essentially the conclusion of such a report: it’s not the report itself, and it’s not replicable, in the way that anything scientific should be. If Goodman thinks of herself as doing the work of a forensic scientist, then she should be happy to share her research — or at least as much of it as isn’t confidential — with the rest of the world, and allowing the rest of the world to draw its own conclusions from the evidence which she has managed to put together.

A digital, conversational, real-time investigation into the identity of Satoshi Nakamoto, with dozens of people finding any number of primary sources and sharing them with everybody else — that would have been a truly pathbreaking story for Newsweek, and could still have ended up with an awesome cover story. But of course it would lack the element of surprise; Goodman would have to have worked with other journalists, employed by rival publications, and that alone would presumably suffice to scupper any such idea. (Impoco was not the only magazine editor to turn down my big bitcoin story: Vanity Fair also did so, when the New Yorker story came out, on some weird intra-Condé logic I never really bothered to understand. Competitiveness is in most magazine editors’ blood; they all want to be first to any story, even if their readers don’t care in the slightest.)

Instead, then, Newsweek published an article which even Goodman admits is not completely compelling on its own terms. “If I read my own story, it would not convince me,” she says. “I would have a lot of questions.” In other words, Goodman is convinced, but Goodman’s article is not going to convince all that many people — not within the congenitally skeptical journalistic and bitcoin communities, anyway.

Goodman is well aware of the epistemic territory here. She says things like “you have to be careful of confirmation bias”, and happily drops references to Russell’s teapot and Fooled by Randomness. As such, she has sympathy with people like me who read her story and aren’t convinced by it. But if there’s one lesson above all others that I’ve learned from Danny Kahneman, it’s that simply being aware of our biases doesn’t really help us overcome them. Unless and until Goodman can demonstrate in a systematic and analytically-convincing manner that her forensic techniques point to a high probability that Dorian is Satoshi, I’m going to remain skeptical.



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The Satoshi Paradox

Felix Salmon
Mar 7, 2014 08:06 UTC

Newsweek wanted a scoop for its relaunch cover story, and boy did it deliver: it uncovered the identity of Satoshi Nakamoto, the inventor of bitcoin. Who then promptly came out and denied everything. Which means that one of the two is wrong: either Nakamoto is lying through his teeth, or Newsweek has made what is probably the biggest and most embarrassing blunder in its 81-year history.

But before we try to work out what the answer is, it’s important to separate out the various different questions:

  1. Is Dorian Nakamoto the inventor of bitcoin, Satoshi Nakamoto?
  2. Do we, and/or Newsweek, have enough evidence to conclude, with certainty, that Dorian Nakamoto is the inventor of bitcoin?
  3. Is it reasonable to believe that Dorian Nakamoto is the inventor of bitcoin?

My tentative answers to the three questions are “we don’t know”; no; and yes.

One way to look at this problem is to try to calculate probabilities, and do some kind of Bayesian analysis of the question, given that either Dorian is Satoshi, or he isn’t. (To make matters even more complicated, Dorian’s given name is, actually, Satoshi. But you know what I mean.) But here’s the problem: if you believe either of the two possibilities, you have to believe in a reasonably long series of improbable propositions. Call it the Satoshi Paradox: the probability that Dorian is Satoshi would seem to be very small, and the the probability that Dorian is not Satoshi would seem to be just as small — and yet, somehow, when you add the two probabilities together, the total needs to come to something close to 100%.

The place to start is the Newsweek article, which brooks no doubt about the matter, and which is told using all the power of narrative journalism. The author, Leah McGrath Goodman, has constructed her 4,700-word article as a case for the prosecution, taking us with her on her quest for evidence and ultimately trying to persuade us that there can be no doubt: Dorian is Satoshi.

Goodman adduces lots of evidence, starting with the crazy coincidence of Satoshi’s name. Dorian’s name is Satoshi Nakamoto. He is an accomplished engineer and mathematician: “brilliant”, according to his brother. He was happy to correspond with Goodman until she asked him about bitcoin — at which point he stopped replying to emails and even called the cops on her. Dorian’s brother even predicted his response to Goodman’s article: “He’ll deny everything. He’ll never admit to starting Bitcoin.”

Goodman says that Dorian, “for most of his life, has been preoccupied with the two things for which Bitcoin has now become known: money and secrecy”. He’s a libertarian, whose daughter says that he is “very wary of the government, taxes and people in charge”. He’s 64, which would help explain slightly old-fashioned aspects of Satoshi, like his use of reverse Polish notation and his worrying about saving disk space. And then there’s the smoking gun — the quote that he gave to Goodman when she arrived at his doorstep.

“I am no longer involved in that and I cannot discuss it,” he says, dismissing all further queries with a swat of his left hand. “It’s been turned over to other people. They are in charge of it now. I no longer have any connection.”

This fits exactly with what we know about Satoshi: that he was deeply involved in bitcoin at the beginning, but has had basically nothing to do with it in recent years. It’s well short of an outright confession, of course — but if you add up all of the circumstantial evidence, it’s pretty hard to believe that everything is some bizarre coincidence. Goodman has presented a lot of pieces of the puzzle — and they fit elegantly together, at least at first glance.

On the other hand, even within the article there are signs that it’s not as clear cut as all that. There’s Goodman’s admission, in the article, that she “plainly needed to talk to Satoshi Nakamoto face to face” — something she never really did, except for a few quick words spoken in front of police officers while he was trying to make her go away. Goodman also quotes Gavin Andresen, the person most publicly associated with the development of bitcoin, as saying that even in the early days, Satoshi “went to great lengths to protect his anonymity”. Which hardly squares with the thesis that he was using his real name.

Then there are the duff notes in the piece. “This is the guy who created Bitcoin? It looks like he’s living a pretty humble life.” That, supposedly, is a verbatim quote from a Temple City cop: it’s possible that a cop uttered those words, but that doesn’t stop them from sounding like very bad expository dialogue. And Goodman can certainly overstretch, as for instance here:

There is also the chance “Satoshi Nakamoto” is a pseudonym, but that raises the question why someone who wishes to remain anonymous would choose such a distinctive name.

Remember that the pseudonym theory was not a mere theory, up until yesterday — it was almost universally accepted as the truth. In terms of Bayesian priors, you need very strong evidence to be persuaded that “Satoshi Nakamoto” is not a pseudonym. And this argument doesn’t even come close.

There’s also the whole question of Satoshi’s English, where Goodman can be seen placing a very hard thumb on the scales. Dorian’s English is not good: you can see that in his Amazon reviews, or in the letter he sent about a proposed Los Angeles rail project: “good secruity system against usage of rail as a get away means from the low income generated theives/criminals from area of east LA et. al must be also put in place regardless of the rail passage chosen.”

That kind of language can be seen too in Dorian’s email correspondence with Goodman: “I do machining myself, manual lathe, mill, surface grinders.” Goodman uses this as evidence for her case: she characterizes Satoshi’s original bitcoin proposal as being “somewhat stiffly written”. She also says, reading the original bitcoin paper, that “the punctuation in the proposal is also consistent with how Dorian S. Nakamoto writes, with double spaces after periods and other format quirks.”

But in fact the proposal is written in deeply fluent English:

Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party.

What is needed is an electronic payment system based on cryptographic proof instead of trust.

How is it possible that Goodman would notice double spaces after the periods, here, but would not notice that the sheer fluency of the language is quite incompatible with everything we know about how Dorian writes and speaks? She even quotes an email from Satoshi to Andresen: “I wish you wouldn’t keep talking about me as a mysterious shadowy figure. The press just turns that into a pirate currency angle. Maybe instead make it about the open source project.” This is breezy, colloquial English — and it’s entirely incompatible with Dorian’s language. The discrepancy is hard to square — and is all the more glaring for the fact that Goodman doesn’t even attempt to address it directly.

Then there’s the whole question of finances. Dorian “fell behind on mortgage payments and taxes” in the 1990s, reports Goodman, and lost his home to foreclosure; what’s more, he doesn’t seem to have had a steady job in well over a decade. And yet, famously and notoriously, he has never sold a single one of the million bitcoins he’s credibly assumed to own, despite the fact that, according to Goodman, he and his family “could really use the money”.

Because all bitcoin transactions are public, and because the specific coins Satoshi owns have been identified, selling or spending those coins would give the world a huge clue as to Satoshi’s identity. But with hundreds of millions of dollars at stake, it begs credibility to believe that Dorian couldn’t have found a way to sell at least some of his coins.

Even within Goodman’s piece, then, there are reasons to doubt her thesis. And in the wake of Dorian’s interview with the AP, there are more. His lack of fluency in English is clearly real; he has a credible explanation for the words he said in front of Goodman; and he has a guilelessness to him which would be very hard to fake, especially over the course of many hours with a skeptical reporter.

Put all that together, along with various other problems surrounding things like the time zone of Satoshi’s postings, and there would seem to be a lot of doubt that Dorian is, in fact, Satoshi.

At this point, it’s easy to fall down a rabbit hole of second-order second-guessing. It’s not particularly credible, for instance, that a libertarian engineer named Satoshi Nakamoto would never have heard of bitcoin until three weeks ago, and would, even after today’s news, “mistakenly” call it “bitcom”. What’s more, Dorian’s deny-everything reaction (and the official denial from Satoshi) is entirely consistent with Goodman’s article.

But the fact is that if you believe that Dorian is Satoshi, you have to accept that there are still a lot of things which don’t really add up. And conversely, if you believe that Dorian is not Satoshi, then you at the very least have to wonder at the astonishing number of coincidences that Goodman has uncovered.

Which means that the responsible thing to do, from Newsweek’s perspective, would have been to present a thesis, rather than a fact. For instance, when Ted Nelson attempted to reveal Satoshi’s identity last May, he put together a video where he put forward a theory which he said was “consistent, plausible, and, I believe, compelling”. He then took a step back, and let the bitcoin community more generally come to their own conclusions about whether or not to believe him; in the end, they (generally) didn’t.

Newsweek could have done that. It could have said “here’s a theory”, and then let the world decide. Many people would have believed the theory; others wouldn’t. And lots of us would probably have changed our minds a few times as we weighed the evidence and as Dorian’s own words came out.

But Newsweek didn’t want a theory, it wanted a scoop. And so, faced with what was ultimately only circumstantial evidence, it went ahead and claimed that it had uncovered Satoshi — that, basically, it was 100% certain.

That decision was ill-advised. Newsweek certainly got lots of buzz for its return to print — but it’s now getting just as much buzz for going to press with what is looking increasingly like a half-baked theory. Personally, I don’t know whether Dorian is Satoshi — but I think I can be pretty safe in saying that the probability is somewhere in the range of, say, 10% to 90%. In other words, it’s possible; it might even be probable; but it’s not certain. And anybody who says that it is certain is wrong.

I believe that Goodman believes that Dorian is Satoshi. I believe that Jim Impoco, my ex-boss, who’s now the editor of Newsweek, also believes that Dorian is Satoshi. But belief is not enough. Dan Rather believed that the Killian documents were genuine; Hugh Trevor-Roper believed that the Hitler diaries were genuine; Lara Logan believed that Dylan Davies was telling the truth about Benghazi. Big scoops are dangerous things.

It would have been less satisfying, for Newsweek, to leave a bit of wiggle room — to present the Dorian-is-Satoshi theory as just a theory, rather than as fact. But it is only a theory. And ultimately, it’s always better to be Ariel Dorfman than it is to be Paulina Salas.


It’s hard to say who created BTC. In time, I think we’ll get the true answer.

Bitcoin Faucet List

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Monopolizing bandwidth

Felix Salmon
Feb 17, 2014 19:04 UTC

Paul Krugman makes a simple but powerful point about Comcast’s acquisition of Time Warner Cable:

One puzzle about recent U.S. experience has been the disconnect between profits and investment. Profits are at a record high as a share of G.D.P., yet corporations aren’t reinvesting their returns in their businesses. Instead, they’re buying back shares, or accumulating huge piles of cash. This is exactly what you’d expect to see if a lot of those record profits represent monopoly rents.

Broadband is the area which Krugman, and most other opponents of the Comcast-Time Warner tie-up, are most worried about. It can’t be a good idea to give a single company 37% of the market in broadband, especially when its real monopoly power would be much stronger still:

The reason this deal is scary is that for the vast majority of businesses in 19 of the 20 largest metropolitan areas in the country, their only choice for a high-capacity wired connection will be Comcast. Comcast, in turn, has its own built-in conflicts of interest: It will be serving the interests of its shareholders by keeping investments in its network as low as possible — in particular, making no move to provide the world-class fiber-optic connections that are now standard and cheap in other countries — and extracting as much rent as it can, in all kinds of ways. Comcast, for purposes of today’s public , is calling itself a “cable company.” It no longer is. Comcast sells infrastructure subject to neither competition nor a cop on the beat.

The argument from Comcast is, essentially, that it doesn’t matter whether it has a national monopoly, because it (and Time Warner Cable) already have local monopolies. If individuals and businesses don’t have any choice of broadband providers right now, then what difference does it make if the existing providers consolidate?

The argument does have a little bit of merit, if you believe that the main reason not to have monopolies is to encourage competition. But take a step back, and it’s abundantly clear that the US has something approaching a national broadband crisis on its hands.


In comparison with the rest of the developed world, the US has slower broadband speeds and higher broadband prices than just about anybody. When you do find exceptions, they always turn out to be cases of a very clear monopoly: Carlos Slim more or less owns broadband in Mexico, for instance, while a company called Southern Cross controls all of the bandwidth into New Zealand.

What’s more, in cases like Mexico and New Zealand, the rule of supply and demand at least still obtains. Broadband prices are high — but in large part that’s because the supply is constrained. The supply is constrained mainly because the monopolist sees no particular reason to increase it: they’re already charging monopoly prices, which means that they wouldn’t make more money by providing better service.

The US, by contrast, is unique in that it has very high broadband prices and an abundance of bandwidth. The country as a whole — or at least its urban centers — has no shortage of bandwidth at all. But if you want to connect your home or business to the major internet backbones, the cable-company gatekeepers will charge you an arm and a leg for doing so.

Farhad Manjoo has the explanation for why this should be. Internet service is very cheap for the cable companies to provide, and it’s also price-sensitive: if you reduce the price, more people will sign up. As a result, the cable companies would make more money from their broadband offerings if they reduced the price. So why don’t they? Because right now, 91% of Americans with broadband also have cable TV (I think, I can’t find the link for that right now), and the cable companies make their real money from TV, not broadband. The cable companies therefore have every incentive to price broadband as high as possible, so as to make the marginal extra cost of getting TV as well as small as possible.

In the US, cable TV rates are very high; as such, the best way to prevent cord-cutting is to ensure that broadband rates are also very high. That’s bad for broadband adoption, but it’s reasonably effective at keeping people paying very large sums for TV every month. In other words, high broadband rates are a bit like most newspaper paywalls: they’re not so much a way of making lots of money themselves, as they are a way of persuading you to pay lots of money for something else. (Physical newspaper delivery, or cable TV.)

If Comcast is allowed to buy Time Warner Cable, that model won’t change — but it will be reinforced. The cable companies will continue to price broadband at uneconomically high rates, in order to protect their cable TV cash cows. And as Krugman notes, they will have essentially no incentive to improve their own broadband infrastructure, since providing high-quality broadband is not how they make money. Instead, they will just continue to extract monopoly rents, which is good for their shareholders, but bad for everybody else.

There isn’t a market solution, here: there’s only a regulatory solution. The US government regulates the amount that the post office can charge, so that everybody has access to the mail; it also regulates the maximum amount that phone companies can charge for basic landline telephone service. Both of those regulations are beginning to look increasingly anachronistic, in an era where the internet has replaced both mail and telephony. But the obvious regulatory response — to mandate that utilities provide universal access to low-price, high-quality broadband — seems as far away as ever. If Comcast is allowed to buy Time Warner Cable, the current model will become even more entrenched. And the USA will slide ever further backwards in the global connectivity race.



Ah, but they wouldn’t be providing broadband. They would be providing wires/fibers/cables (OSI Layer 1). The stuff that goes on the wires (OSI Layer 2+) would be provided by some sufficiently corrupt capitalist entity.

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How should John Arnold approach pension reform?

Felix Salmon
Feb 16, 2014 00:23 UTC

The other shoe has dropped in the case of the $3.5 million which the Laura and John Arnold Foundation donated to a PBS series on “pensions in peril”. The recipient of the money, New York PBS affiliate WNET, has given it back. Understanding what’s really going on here, however, isn’t easy, so bear with me on this one.

If you go to the WNET website to learn more about the Arnold funding, you won’t find any announcement about the station giving the money back. There is a statement, but it’s not easy to find: it seems to have been emailed to news organizations as a PDF. Tellingly, the filename on the PDF is STATEMENTFINALFINAL2: it clearly went through a lot of revisions.

The one web page I can find with the statement is at the PBS ombudsman’s post on the subject, which was mostly written before the decision to return the money had been announced. As far as the WNET website is concerned, the only post is their original, defensive one — their initial high-dudgeon response to David Sirota’s original article.

At this point, it’s important to make a distinction between PBS, on the one hand, and WNET, on the other. I’ll quote the ombudsman:

This is more an issue of what the New York station, the well-known Channel Thirteen, did than what PBS or even the PBS NewsHour did. PBS does not produce television programs. It distributes programs produced by member stations, all of which are independent, or by independent filmmakers. The PBS NewsHour is produced at WETA just outside Washington, D.C. For all of its almost 40-year history, the NewsHour has been a five weekday-night program. In September of last year, it added a Saturday and Sunday night weekend edition. That program comes under the PBS NewsHour rubric but it is produced by WNET in New York and, as far as I can tell, none of the “Pension Peril” segments have been aired by the weeknight NewsHour.

In light of this distinction, the joint statement from PBS and WNET makes a bit more sense: the statement from the mothership is just that “PBS stands by WNET’s reporting in this series”, while the apologies and sword-falling are confined to the New York affiliate.

“We made a mistake, pure and simple,” said Stephen Segaller, Vice President of Programming at WNET. “The PBS NewsHour Weekend is a new production and while we thought we were following the guidelines and the correct vetting processes, we were incorrect.”

There’s a whole world of subtext in that phrase, “we thought we were following the guidelines” — a lot of which my former boss Jim Ledbetter teased out in his 1997 book Made Possible By…: The Death of Public Broadcasting in the United States. The big problem is that public broadcasting has become dependent on corporate financing — and has become very good at coming up with programming which represents corporate interests. The issue with the Arnold Foundation deal, in today’s PBS, was not that the content of the Pensions in Peril series was too aligned with corporate interests. Rather it was — well, let’s go back to what WNET’s Segaller told the NYT:

On Thursday, before the statement came out, he said in a telephone interview that WNET believed the funding did not violate PBS’s “perception” rule, because the foundation’s goals of encouraging public discussion were separate from Mr. and Mrs. Arnold’s desire for reform.

By telephone Friday, he said WNET officials reversed course after discussions with PBS “about both the facts and the optics. We all take very, very seriously any suggestion that there’s a perception problem about the integrity of our work or the sources of our funding, and we came to the conclusion that it’s better to err on the side of caution.”

He added that the grant had been solicited with “absolute conviction” that the foundation was an acceptable funder.

In other words, WNET still doesn’t believe that there was any actual conflict here — it just believes that there’s “a perception problem”. He’s returning the money because of “the optics” — which is to say, because Sirota’s article came out, and it made PBS look bad.

What Segaller told the NYT on Friday is surely closer to his real beliefs than the words put into his mouth in version “final final 2″ of the official PBS/WNET statement. And yet, the conflict here is, in reality, clear as day.

Firstly, The Laura and John Arnold Foundation was the only sponsor of the Pensions in Peril series. (This despite the fact that, as LJAF spokeswoman Leila Walsh told me, “the grant to WNET was made with the explicit understanding that WNET would secure multiple funders for the project”.) Secondly, the Pensions in Peril series covered a California ballot initiative on pensions being run by San Jose mayor Chuck Reed. Thirdly, the ballot initiative was directly funded by John Arnold, and Reed himself thanked “people from the Arnold Foundation” for putting him in touch with other funders. In other words, the TV program covering the initiative got all of its funding from someone with an unapologetic dog in the fight. It’s hard to come up with a clearer conflict than that.

And yet WNET and LJAF are both convinced that there was no real conflict. WNET’s Segaller draws a distinction between the Arnold Foundation, on the one hand, and “Mr. and Mrs. Arnold’s desire for reform”, on the other: it seems that taking money from the Arnolds themselves would have been a clear no-no, but that taking money from their foundation was quite different. Similarly, the foundation’s Walsh was at pains to tell me that “LJAF is not funding the California ballot initiative. We are a 501(c)(3) private foundation. As such, we do not participate in political activities, make political contributions, or advocate for the passage or defeat of legislation.”

This invisible-to-the-naked eye distinction, between John Arnold, on the one hand, and John Arnold’s foundation, on the other, was all that WNET needed to go after the foundation for funding. And it was all that the foundation needed to convince itself that there was no conflict involved and that it could happily write a $3.5 million check to WNET. No one seems to have stopped to ask whether such Clintonian niceties created, in words that pension reformers might understand, a substantial, if contingent, reputational liability. Even though similar concerns have been raised in the past.

That said, the Arnold Foundation has a do-over now: it has its $3.5 million back, and says that “we are going to keep working to educate the public” about pension reform. And after speaking to Josh McGee, the Arnold Foundation’s policy guy on the subject, I’m convinced that there’s more to the foundation’s policy stance than a cackling, plutocratic desire to impoverish the elderly. McGee’s “solution paper” on the subject lays out four goals for pension reform, all of which are laudable:

Sound pension reform meets four general criteria: (1) establish transparency with respect to the true cost of the benefits promised to public employees; (2) mandate that the pension plan sponsor pay the full cost of accrued benefits each year; (3) mandate that the pension plan sponsor pay down the unfunded accrued liability over a reasonable time horizon and (4) improve the generational equity, portability and security of benefits for public employees.

I don’t love the paper as a whole, which happily enumerates all the problems with defined-beneft pensions, without going into any detail about the equally big problems with defined-contribution pensions. The paper concentrates on state and local pensions, for instance, yet ignores the fact that those governments are still responsible for their elderly citizens’ wellbeing, even (especially) if they’re paying those retired citizens very little.

Pension reform is a bit like education reform: the facile solutions are not the correct solutions. In education, reformers tend to point to bad teachers, complain about how difficult they are to fire, and then propose that the necessary course of action is to test those teachers, evaluate them, and fire them at will if they’re not performing up to snuff. With pensions, reformers tend to point to firefighters or policemen who retired at age 50 with a fat pension after 25 years’ service, and who then happily work elsewhere for another couple of decades while simultaneously drawing a pension for much longer than they were actually working. On this view, the necessary reform is to roll back the plans which allow such behavior.

Take a step back, however, and what really needs to be done, in both cases, is a much bigger project — a project where there’s no need to take aim right now at public-sector employees. Start at the top, with the way the schools and the pension funds are structured; once you’ve fixed that, then maybe start moving down the ladder a little, if it’s still necessary — which it might not be.

In the case of pensions, McGee’s criteria are a good place to start. Insofar as there’s a pensions problem, it’s in large part a function of how labor negotiations work in the real world. Local governments, operating on a tight budget, can’t offer the kind of pay rises that the unions demand — and so the unions accept juicier pension benefits in lieu. The present value of the pension benefits is invariably larger than the amount of money the unions would accept as a simple raise — but so long as the current government doesn’t need to pay anything, both the government and the unions are happy. The unions get valuable rights for life, while the government gets to leave for its successors the question of how to pay for them.

So before we start talking about allowing governments to default on their pension obligations (which is the goal of the California ballot initiative being supported by Arnold), let’s start by shoring up the pensions system as a whole. Make sure firstly that pension plans are funded, or on a path to get that way, and secondly that any future pension promises are funded as well — that an actuarially-derived sum of cash is put into pension funds whenever a local-government employer makes a pension promise. (The federal government is a bit different, since it has a lot more latitude in terms of being able to find the money to service future pension obligations.) Finally, start working on making local-government pension plans more portable, so that people don’t feel forced to stay in the same town and the same job for decades, and so that people who work for local government for five or six years can leave their jobs with some improved retirement security.

None of this will be easy: the whole reason why pension obligations started ballooning in the first place was that local governments didn’t have the money to hand out pay raises. So the unions will push back against these ideas: they like any system which makes it easier for them to accrue valuable benefits at negligible up-front cost to the government. But if you want to guarantee vocal opposition which is almost impossible to overcome, then your best way of doing that is to combine or replace these kind of reforms with an attempt to renege on governments’ existing pension obligations.

Again, it’s easy to draw attention to outliers — the handful of municipalities which have literally gone bankrupt, and where pensioners are reduced to the status of unsecured creditors. The argument you hear from the pension reformers is that if we don’t take relatively modest action now, there will be a much more drastic reckoning — involving a spate of bankruptcies — down the road. They might be right, but this is the point at which they start to sound like Meredith Whitney.

Most municipal bonds are still trading at very low yields, and there’s no reason to consider pension obligations to be any less, well, obligatory than bond obligations. Governments have to make good on them, so let’s push hard to increase the degree to which pension plans in general are being funded. If the Arnold Foundation confined itself to that, and didn’t simultaneously support plans making it easier for governments to default on existing promises, it would still face opposition. But there would be much less of it, and the foundation’s chances of achieving real legislative success would surely rise substantially.


Something has to give, eventually. TFF make’s, IMO, a very salient point. Plan funding growth assumptions are a large part of this problem.

Rosy plan return assumptions wallpaper over outsized promised benefits. Which as you point out Felix, are often granted in lieu of current compensation.

I argue that again in this case the issue is that as a society we place very little emphasis on personal responsibility and even less on a delay of gratification. We want it all and we want it now for the most part. Don’t give it up now and you’ll pay dearly.

I’m fortunate to participate in a private pension plan (with COLA’s) that is fully funded and always has been. My previous employer drummed into the staff that retirement finances were a “three legged stool”. One leg pension, one leg social security and one leg…..are you ready? Personal savings. Wow, how radical.

Those of us who listened are doing quite well in spite of all the financial angst.

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Content economics, part 5: news

Felix Salmon
Feb 11, 2014 16:53 UTC

Have you heard the news? Janet’s pregnant!

There’s a reason that the first thing you see when you log in to Facebook — the product around which everything else on Facebook revolves — is called the News Feed. And yet, only a relatively small proportion of what you see in your News Feed can really be considered journalism.

It is almost impossible to exaggerate the degree to which Facebook has changed the news business. For centuries, news has been based on a broadcasting paradigm: a small group of journalists creates a product — a self-contained news bundle — which is then consumed by a very large group of viewers or readers or listeners. Various different bundles competed for your attention: you might get your news from the New York Times, or the Economist, or NPR, or the NBC Nightly News, or Newsweek, or any of a thousand other outlets. In any case, the atomic unit of news, from the consumer’s perspective, was the bundle, not the story. Any given individual would get her news from only a handful of outlets in any given week — quite frequently, only one or two.

The result was a mentality perfectly summed up in the NYT slogan of “all the news that’s fit to print”. News outlets could not assume that their readers were getting any news elsewhere, so they had to aspire to being comprehensive. They also had to appeal to a very broad audience: every story in a prime-time newscast, for instance, had to be understood by nearly everybody watching it.

Finally, the news had to be new. If you published a story yesterday, you couldn’t republish the same story today. The news was therefore incremental: the bundle informed you of how the world had changed in the past day, or week. The daily bundles were therefore at their best covering events which happened over the course of a single day, and the weekly bundles were best at covering bigger events which happened over the course of a single week. Longer-duration stories were harder to cover — wars, for instance, or the civil rights movement. On the one hand, you didn’t want to bore your readers with old news; on the other hand, you didn’t want to assume that they knew everything that had previously been reported on the subject. It was a hard line to walk. In general, the more heavily-covered the story, the more that the public would be forced to piece together the big picture from a long series of incremental developments. If you hadn’t been following the story from the beginning, you would feel a bit like someone starting a TV series on season 3, episode 5.

In the early days of the web, these constraints were not serious handicaps. The web wasn’t (yet) replacing the old bundles as the main place where people got their news. And, in any case, the portals were recreating the bundle strategy of trying to be all things to all people. But then the dot-com bust arrived, and in its wake the web became atomized. Where once there were portals, now there was search — along with a new phenomenon called blogs.

Search and blogs, between them, helped to usher in a huge change in how we consume news, and turned the atomic unit of news from the bundle to the story. New outlets, like the Huffington Post, still aspired to bundle the news, but the bundling was no longer the top priority. Instead, such sites put enormous amounts of effort into ensuring that their stories — on an individual level — would get lots of traffic from Google. Later, outfits like Demand Media gave up on the bundle idea entirely, and just tried to manufacture the kind of stories that people were searching for. And all the while, blogs were acting as rebundlers, linking to the best content from all over the web. The special value of the bundle — the whole point of a news product, and something only a major media company could ever put together — was starting to die. Simultaneously, the value of the individual story, which might attract hundreds or even thousands of inbound links, started to rise substantially.

The rise of the blogs also meant the erosion of what Ezra Klein calls “the constraint of newness”. Some blogs, especially in the tech space, competed hard on speed. But almost all of them found a huge audience of people who wanted them to take content which had already been published elsewhere, and then republish it in their own voice, on their own site. A punchier headline here, a snarkier take there; often the copy proved more popular than the original.

With this change, the economics of the news business started shifting dramatically. Before, the locus of value creation was fundamentally corporate: only big media companies could hire hundreds of journalists and put their work together into a comprehensive and valuable bundle. But online, bundling is cheap. Any blogger can start finding and linking to the best content out there, and many did. The real value, now, started being pushed down a couple of levels, to the individuals who were writing the content which would garner those all-important inbound links. What’s more, as we saw in part 2 of this series, those individuals tend to command more reader loyalty than their corporate owners do.

It was never going to be easy for legacy media companies to adjust to these new realities. But then came social, which accelerated everything, and sent the whole news ecosystem spiraling out of the old publishers’ control.

The main reason why the blogosphere never managed to overtake legacy media was the fact that it required quite a lot of work on the part of readers, who had to put significant effort into seeking out the blogs, or the set of blogs, which best reflected their own interests. The most avid news consumers would do that work, and be well rewarded for doing so. But most people aren’t particularly avid news consumers, and so they never bothered.

Similarly, the “daily me” products which were occasionally launched by big media companies tended to need a lot of laborious personalization effort up front, in return for dubious benefits down the road. Even if you went to the trouble of customizing one of these sites so that it would deliver personalized content, you’d still end up being served only material produced by a single media company. After many years of trying, only one personalization product got any mass traction at all, and eventually that one too — iGoogle — got killed.

But then social media arrived. Twitter and Facebook take a very basic bloggy format — the reverse-chronological news feed — and serve it up in as many different flavors as they have users. Personalization isn’t a way of taking an existing product and refining it; it is the product. This is personal personalization, too. Rather than trying to refine what you see by specifying subject headings like “dance” or “Miami Dolphins” or the tickers in your stock portfolio, social websites are based in the first instance on the real-life human beings you care about the most.

In the era of blogs, if a certain blogger shared a news story you were interested in, that would help increase the attention you paid to the blogger. In the era of social media, if one of your friends shares a news story, that helps increase the attention you pay to the news story. People started caring more about the news, not because the news had suddenly become more interesting, but just because they saw that their friends cared about it, and it’s only human to care about what your friends care about.

Social media didn’t just create newly-engaged readers; it also created millions of newly-engaged aggregators. The most enjoyable part of blogging, in the early days, was putting things up on the internet and seeing people respond to them — by clicking on your links, or linking to you, or engaging you in the comments section. But it wasn’t easy. Twitter and Facebook — and Pinterest, for that matter, and the rest of the social media universe — did two important things. Firstly they made publishing incredibly easy; and secondly they rewarded publishing by giving contributors immediate likes and replies and favs and other evidence that people really cared about what you were publishing. It was the endorphin rush familiar to old-school bloggers, democratized and accelerated.

Now, everybody is a journalist, or at least a contributor to other people’s news feeds. There are still a few individuals whose links matter a lot — Matt Drudge, most obviously, or John Gruber. They have an ability to provide the kind of links that millions of people want to follow. But the traffic they drive is dwarfed by the aggregated power of Facebook, where millions of links, and other snippets of information, are shared every minute.

The result is that Twitter and Facebook have become the new indispensable bundles — and in doing so have changed the nature of what news is. Imagine opening up the New York Times and seeing pictures of your friend’s birthday party: that would be personalization. And that’s exactly what Facebook provides, with the help of millions of unpaid editors. Those editors might care a little bit about stuff being new — but they don’t care nearly as much as journalists do. They do care a lot about interests which have historically been too narrow for mass-media outlets to cover. And they also care about stuff which is silly, or cute, or funny, or all of the above.

This might come as depressing news to high-minded editors who extol the wonders of investigative journalism and who disdain cat videos as being beneath them. But most news bundles have always included their fair share of fluff, and in a disaggregated world, there’s no need for the investigative journalists to work for the same employer as the people curating cat videos. (Although, they can.)

The new dominance of social media in the news business is not depressing at all: it’s excellent news. Just as most news consumers were never avid enough to seek out blogs, most Americans were never avid enough to seek out news at all. They didn’t buy newspapers; they didn’t watch the nightly news on TV; it just wasn’t something which interested them. But now the news comes at them directly, from their friends, which means that the total news audience has grown massively, even just within the relatively stagnant US population. Globally, of course, it’s growing faster still — the ubiquitous smartphone is a worldwide phenomenon.

We’re at an excitingly early stage in working out how to best produce and provide news in a social world. There are lots of business models that might work; there are also editorial models that look like they work until they don’t. But if you look at the news business as a whole, rather than at individual companies, it’s almost impossible not to be incredibly optimistic. Media used to be carved up along geographic grounds, because of the physical limitations of distributing newspapers or broadcasting TV signals. Now, there are thousands of communities and interest groups that gather together on Twitter and Facebook and share news with each other, which means there are thousands of new ways to build an audience.

Meanwhile, on the back end, technology is evolving fast, and giving individual journalists astonishing power to tell stories in compelling and highly visual ways. Posts like this one — wordy strings of paragraphs, without much structure or narrative — are inherently off-putting; there are much more efficient and effective ways for people like me to communicate what we want to say, and there are dozens of new-media companies devoted to giving us the tools to do just that.

Now is a particularly exciting time in the news business. One journalist recently told me that it has changed more in the past eight months than it changed in the previous five years, and I think he’s right about that. One big reason is that the technologists are getting involved: people like Vox Media and Medium and BuzzFeed and First Look Media are making multi-million-dollar bets that they can build the CMS of the future, and that they can use their software advantage to win the battle for consumer attention. David Carr says that it costs about $25 million these days to compete in the digital media space — that’s a lot lower than the $50 million cost of launching a magazine, or the $200 million cost of launching a cable network. And it’s lower still than the billions of dollars that newspaper companies — including the New York Times Company — spent on color printing presses. In other words, the barriers to entry have never been lower, while the potential rewards have never been higher.

Right now might also be a very brief window of opportunity for roll-up strategies. The idea behind such things is simple: if you have a powerful CMS, then it makes sense to take existing sites (like, say, the Curbed Network) and move them onto a more powerful system (like, say, Vox Media’s Chorus). Everybody wins. But as web technology becomes increasingly sophisticated, and sites start looking very different depending on the device used to view them, it becomes increasingly difficult to port an entire website over to a brand-new platform. You can’t just import the HTML and tweak the CSS any more. Up until very recently, there hasn’t been the money available to prosecute such a strategy; it won’t be all that long before such a strategy becomes technically much more difficult. (I can’t imagine, for instance, merging the Vox Media and BuzzFeed back ends without enormous headaches and difficulty.) So if you’re going to do it, then you should waste no time.

On the other hand, journalists themselves are becoming much more portable than they ever used to be. It used to be that if you left the NYT or WSJ or ABC News or some other storied news brand, you lost a lot of power and reach. But as the media universe fragments, that’s not nearly as true any more. Just in the past few months, Nate Silver and David Pogue have left the NYT; Walt Mossberg and Kara Swisher have left the WSJ; Katie Couric has left ABC; Ezra Klein has left the Washington Post; Glenn Greenwald has left the Guardian; and so on and so forth. All of those were high-profile, big-dollar deals, but there are lots of other journalists moving around right now too, and it has never been less obvious that if you get a job offer from a big legacy-media company then you should take it.

The reflected glory of the established brand is still there, to be sure — “I’m calling from the New York Times” still gets your calls returned a lot faster than “I’m calling from Medium”. But legacy companies tend to move more slowly, and have more cumbersome technology, and are less likely to win the technology arms race, if only because their editorial technology has to support not only digital publishing but also the old-media formats. The result is what you might call the journalist arb: a digital company can pay its journalists significantly more than (say) the NYT, while still having a significantly lower total editorial budget per journalist. The journalists get more money, more freedom, more tools to tell their story, and get to work for a more nimble employer which isn’t burdened with a massive legacy cost basis. They might lose a certain amount of reputational capital, but the loss involved there has never been smaller, and is decreasing by the week.

So even if it’s soon going to be difficult for digital media companies to aggregate websites onto a single platform, it is only going to get easier to aggregate journalists. The most efficient platforms, with the greatest reach and the best tools, will have a natural advantage in terms of talent acquisition and retention. Which in turn is going to make life more difficult still for legacy media companies.

We’re only just beginning to get an idea of the kind of journalism — and the kind of news — these new platforms are going to produce. Certainly, the conception of what counts as news is going to get broader. It will include living articles of the kind that Klein is talking about; it will include personal stories of the kind that do so well on Medium; it will include discursive conversations and opinionated video; it will be fast, and slow, and funny, and serious, and personal, and universal, and hyper-local, and global, and everything in between. And, for the companies which get it right, it will be extremely profitable.

(This is part 5 of an irregular series; it comes in the wake of part 1: advertising, part 2: payments, part 3: costs, and part 4: scale.)