Saturday, January 31, 2004

For some, the bubble still hasn't popped

After Dean's rout in New Hampshire and that other place, most people have snapped back to their original assessment of his candidacy--some governer from Vermont is not likely to win. He looked good because all the media attention made it seem like people actually liked him, but it turns out they did not so much so it's business as usual.

Some people have not come to this conclusion. They beleive that Dean lost because "old media" did him in. I used to listen to Chris Lydon's Connection program on NPR all the time and thought he was brilliant. Then he starts a weblog and reveals himself to be an idiot. It was better when he was casting the spotlight on someone else.

Friday, January 30, 2004

A blow for Auntie

Most of my experience with the BBC has been via its World Service--scratchy AM broadcasts covering the news, live cricket matches, and the occasional radio play sent all over the planet. Fantastic stuff with no commercial possibility at all. I've also quite enjoyed the BBC International satellite service that is carried by StarTV (I think) in the Middle East, which has great programs like Top Gear and news that is less lobotomized than CNN.

The BBC is biased, but I don't really mind. Anything run by human beings will have its prejudices, and believing that it can be otherwise is foolish. The BBC's biases significantly degraded the quality of their Iraq war coverage, but there were plenty of other sources which I judged better and listened to instead.

So I am saddened by the blow this venerable organization has taken in the Hutton inquiry, even though I agree with the criticism leveled against it.

But their coverage of the war in Iraq was very bad, and it did extend to a very serious libel at home, and that should have consequences. If the BBC were private I'm not sure what problems they would have now (other than perhaps declining revenue through falling ratings). It is their government entanglements that makes the matter so much uglier--when you are a government funded public entity, who do you serve?

My recommendation is to privatize the company but maintain the World Service radio programming. If the BBC is to serve the public, motivate it to care about what they think.

Thursday, January 29, 2004

Are we Bostonites in a housing bubble?

Jane asks if we are in a house bubble. YES WE ARE. The implicit cost of housing calculated by treating rents as an annuity and discounting their sum back to the present generate house prices that are much lower than current house prices -- at least in Boston. This means that house owners are anticipating very rapid capital appreciation, because it is actually cheaper to rent forever than to buy (in Chicago it's the opposite, buying is cheaper than renting). There are excellent reasons to believe that house prices will no longer skyrocket -- like the fact they've been skyrocketing for the past 7 years -- which suggests that these expectations are inflated.

Remember -- buying a house instead of renting a house is just 1) a bet on real estate in your area and 2) the opportunity to consume "owning a house" (for people who are into that thing). It is not a way of saving rent, since you pay the rent in opportunity cost instead of out-of-pocket. A mortgage is just a way of financing the bet, like using a margin account to buy shares on credit.

Labor mobility

In economic models, labor is treated as mobile in the short term, while capital is only mobile in the long term. It's easy to repurpose a worker, but it's hard to repurpose a factory. In the manufacturing sector, when orders slumped and a factory became idle, management would sometimes layoff workers temporarily until orders picked back up again, and then hire them all back.

This idea of laying people off temporarily is baffling to me. In the labor markets I have seen (and participated in), layoffs were generally structural, and therefore permanent. If the company was experiencing some idiosyncratic shock, you would join a competitor. If the whole sector was struggling, you would have to change your sector. The point is that the repurposing involved much more dislocation than the models suggest.

This excellent WaPo story outlines the difference between unemployment caused by cyclical effects and structural changes and argues that the slow job growth we are seeing now is because structural shifts take time. I agree with this, but would also add that the inflated expectations of the bubble years are a poor yard stick to judge anything else by.

Tuesday, January 27, 2004

Dean and Social Software

Shirky wonders if the Internet hurt the Dean campaign. His argument seems to be
We know well from past attempts to use social software to organize groups for political change that it is hard, very hard, because participation in online communities often provides a sense of satisfaction that actually dampens a willingness to interact with the real world. When you're communing with like-minded souls, you feel like you're accomplishing something by arguing out the smallest details of your perfect future world, while the imperfect and actual world takes no notice, as is its custom.
I think this means is that people indulged their feelings online, so did not show up to cast their ballot.

An alternative explanation is that Dean's online recruitment helped his campaign because although his showing in Iowa was less than some people thought it would be, it is quite possible that Dean did significantly better than an ex-governer from Vermont could hope to do ordinarily. The true comparison is not what people expected, it's what would have actually happened otherwise.

Sadly, you cannot run control experiments in real life, so I don't know how we can answer this question. Behavioral economics however has demonstrated that people think that their ability to recall something is a good indication of how common it actually is (so people believe that dying in a plan crash is quite common because they can recall many plane crashes from the past when in fact air travel is very safe). This bias suggests that Dean's ability to create positive media buzz made people more optimistic about this chances than they should have been. By contrast, the negative buzz now is probably making people too pessimistic.

Friday, January 23, 2004

Geeks = warriors?

First of, let me declare that I am not a regular NRO reader. But someone linked to a post there that argued that geeks = warriors in today's American because they have played war games.

I don't know how much truth there is in that. It is certainly true that DenBeste, an avid wargamer, has written technical pieces about how wars are fought, won, and lost that are far far superior to anything I have found anywhere else. He turned me onto Clauswitz, and you can find some of his good entries here.

He also pointed me to the Belmont Club that also has some very good technical posts, detailing particulars such as the importance of cash (not money) in running an insurgency.

Thursday, January 22, 2004

Arnold on Social Security

Arnold has a great post on why "transition costs" in social security privitization are phony. His point is that these transition costs exist currently as unfunded liabilities, but because government account is cash-based, and therefore Enron like in its veracity, you don't see this as outstanding debt (although it is a future obligation the same way debt is). All "transitioning" from a pay-as-you go system (what the US has now) to a direct savings system does is make it visible instead of invisible.

A friend of mine argues that management costs would eat up too much of a private SS fund, and he has a good point, so I'm not sure if giving people account control would really make them better off. But it would make it impossible for politicians to increase entitlements further and take the politics out of retirement age, which certainly would make us all better off.

Linux in campaigns?

I've argued before that Doc Searl's once excellent Linux for Suits column became irrelevant around the time IBM started airing primetime ads for the little Penguin, but it seems to have gone from irrelevant to ridiculous. If you feel that a political campaign is really where high-power computing is pushing the envelope (snigger) read this latest post on Open Source Software and Howard Dean. Then write in and tell me what it says -- I didn't get any further.

The surprise Iowa results demonstrate either how disconnected media buzz is from reality, or how disconnected the bizarre caucus system is from public sentiment, or maybe both. One clear demonstration is that the echo-chamber web of opinion blogs doesn't do much except generate feelings of camaraderie. But let's be fair, the Iowa election markets were fooled too.

Dean's chances of winning the nomination, never mind the election, are what you would expect a former governor of Vermont's to be if you knew nothing else about him.

Wednesday, January 21, 2004


Arnold Kling has a great long post about the fog of imperfect information we all struggle through in life--we don't really know what reality is and do the best we can. In a recent Slate column where people who usually vote Democrat discussed why they (once) supported the war in Iraq, one of the contributors noted that a reader argued that the decision to invade was good or bad depending on how things turn out. He thought that this was wise way to settle things, but in fact, it is not.

Suppose you have a bet where 90% of the time you will win big, but 10% of the time you will lose a little. On average though, you should expect to come out ahead. Suppose you take that bet and you end up losing--was it a bad decision to take the bet?

Rob Rubin is someone who seems to understand this perfecta well. He also understands that in order to do this type of thing -- weight probabilities, take bets, learn from mistakes, but also understand you can just get unlucky even with perfect information (which you don't have). Michael Lewis takes the easy shot and paints this as an inhuman failing, and while I agree it is a little inhuman, I'm not sure it's a failing at all. The truth is that it takes a certain detachment to tolerate the vertigo that comes with taking bet after bet after bet, knowing that in aggregate you will come out ahead, but that plain old bad luck could push you deep into the red, as could simply being wrong, and it is not clear how you would seperate one from the other.

Monday, January 19, 2004

More caveman economics

A while ago, I wrote about how I felt evolutionary theory could help explain the human biases we see in Behavioral Economics. Here is a great long piece by someone who knows more about both topics making a similar point.

Friday, January 16, 2004

Smart Pricing

Apple prices so well. iLife 04, a bundle that includes a new iPhoto, iDVD, iMovie, iTunes, and GarageBand costs $50. I don't use iDVD or iMovie, and I'm quite happy with my current iTunes, but I would like a better iPhoto and GarageBand might be neat also. So it's worth $50 to me.

Somewhere out there we have a movie buff who is excited about iDVD and iMovie, but does not care for any of music stuff Apple does. iLife is worth $50 to him too.

By putting all of these products together Apple raises the overall willingness to pay for the bundle (and makes demand more elastic). This means that overall, people are willing to pay more for the bundle than they would for the pieces, but it's easy to price people out by having the bundle as a whole be too expensive. At $50, I'm not sure how much of a problem that is for iLife. But it's a real problem for $400 MSFT Office.

I wish he were here

An excellent pre-insanity piece by Krugman on why people don't understand economics. He focused on the notion of comparative advantage, that everyone gets wrong. See yesterday's post for an example.

Thursday, January 15, 2004

Academic idiocy

As I read through this idiot piece in WaPo, I was not sure if I was reading a dumb Op-Ed or clueless journalism. It turns out I was reading a piece by some academic. Enough said.

I'm not sure where to begin. Florida (yes, that's his name) says that the US was filled with wonderful creative people producing marvels in an orgy of productivity under Clinton, but then Bush came and they all lost their jobs, and even the non-glamorous jobs (like computer person) are going to India, and the cool film jobs (like Key Grip) are being taken to New Zealand by Lord of the Rings. So while cities like Austin are creating marvels, idiots in Red States like Texas, with their backward traditional ways, are ruining the economy. Yadda yadda yadda -- it gibbers on.

My memories of the 90s were a little different from Florida's. I remember lots of creative young people taking investors money and spending it on wonderful parties and dubious websites. All kinds of people took all kinds of jobs that probably should never have existing in the first place, which is why we now refer to it as a bubble. That bubble popped, we've worked through some of the overhang, and maybe the US will get back to trend growth in 2004. Employment is certainly back at trend levels, but then it never did dip much below trend.

(Yes yes yes, I know that the US's recent high employment rate is generated in part by lots of people dropping out of the labor force. I do not think this is a problem because 1) the US still has extremely high labor force participation and 2) I'm not actually a GDP zealot -- if people want to not work that's fine by me, so long as it's on their own nickel. Productivity from home, or utility from leisure activity, counts in my estimation, even if it never shows up on any books).

And while it is fashionable to lament the draconian visa tightening measures the US has in place, the truth is that things weren't all that great to begin with. Will this mean other countries will catch up? I hope they do. Whatever Florida thinks, economic activity is not a zero sum game, and just as Japan's success in the 80s did not come at America's expense (Detroit suffered, but the rest of us had cars that worked on both cloudy and clear days), other countries success can only benefit us now. If foreigners become better at inventing new things, that's wonderful, and Americans would probably be quite interested in buying many of them.

If you had to rank the manifestations of human competitiveness in order of desirability, striving to make better medicines, movies, and music would come at the very top of the list and flying planes into buildings would come at the bottom. The more the world picks the top over the bottom, the better we will all be. Instead of bemoaning the rest of the world developing, Florida should be pleased. Perhaps what's really bothering him is that his political party is not occupying the White House. The Rise of Wellywood just isn't bad news.

Wednesday, January 14, 2004

Media City Dubai

Although Dubai is popping up more and more in the news these days, it is mercifully quite seperate from what one usually imagines when thinking about the Middle East. (Dubai is usually right next to "Paris Milan New York" in the Fendi adverts between actual stories).

When I was there a couple of summers ago, I visited Dubai Internet City, which was the government's attempt to ride some of the Internet wave that had crested a year earlier. I'm not sure how it's doing now (maybe fine), but I neglected to visit Dubai Media City, which is right next door. Slate has a good article about how Al-Aribiya is developing a reputation for more realistic news, and how this is valued in the region. I'm skeptical about how much people really value news that isn't a frothy, but if there is one Arab country that has embraced Mammon, it would be Dubai. (Technically, Dubai is merely one of seven Kingdoms within the country of the United Arab Emirates, but the other five Emirates are puny and Abu Dhabi, the capital, mostly just funds Dubai these days). I'm going back in Feb -- and am looking forward to it.

Union split

I was reading a WSJ piece today (in paper! and since they charge for the web version I don't have a link) about how old-skool manufacturing unions were working hard to get out the vote for Dick Gephardt. The article discussed how manufacturing unions disliked government/service sector unions because they were 1) jealous of how much influence they had and 2) disdained their work since it did not involve hammering sheet metal.

I don't follow the ins and outs of union politics, so this was news to me. What's interesting is that the decline of the manufacturing union is a straight forward consequence of their success. The truth of the matter is that US manufacturing output as continued to increase (and is at an all-time high) while US manufacturing employment has dwindled. This rise in output comes from productivity gains as well as capital deepening, but the falling employment statistic indicates that the capital is, well, capital, not labor. So manufacturers are substituting capital for labor as they increase total output (incidentally, as capital and labor are complements, those who remain in manufacturing probably get paid more than they did 30 years ago).

Unions are motivated by headcount -- the more people the unions have, the better they are (by contrast, public corporations are motivated by absolute profit per unit of invested capital). Unions also increase the price of labor by negotiating for higher wages and better benefits. If the price of labor increases faster than its productivity, it becomes optimal to, at the margin, start substituting capital for labor. This means that the labor input to manufacturing will shrink, even as manufacturing output grows. Shrinking labor inputs mean fewer union jobs in manufacturing. Overseas competition exacerbates this trend.

Government labor unions tend to be in services, which are 1) more protected and 2) harder to import, even if they were not protected. This means that a higher price of labor does not do much to demand for the end service, and so there is no substitution of capital for labor. Over time, this means that government service labor unions will not face the numbers problem that manufacturing unions are dealing with now.

Tuesday, January 13, 2004

Paul O'Neill

Ex-US Treasury Secretary Paul O'Neill has some book out critisizing the Bush administration for various things. I have not read the book, so will not comment on that, but I did hear Paul speak at U Chicago about a year or so ago. He was an idiot, incapable of answering the simplest question about accounting regulations, fiscal policy, or structural trade deficits. At one point, he begged us to ask him about this trip to Africa with Bono. Unimpressive.

Monday, January 12, 2004

The hidden benefit of cheap DVD players

Gizmodo (great site) clips this rant about how people can make and sell perfectly good DVD players for less than $50. It moans about:
But there are hidden costs. Horrific working conditions on assembly lines in China, heightened trade tensions with Asian nations and Wal-Mart store clerks paid so little they qualify for food stamps, are partially related to relentless pressure to sell popular products at eye-popping low prices.
What the article completely misses is the obvious benefit of cheap DVD players -- a technology which 10 years ago was unknown, and 5 years ago was a luxury, can now be bought by someone on food stamps. How this does not help people I do not know.

Sunday, January 11, 2004

Open source has gone mainstream

I used to write about open source software often. I no longer do because I think, essentially, that it's won. I occasionally get emails from "Linux for Suits" or some such mailing list talking about how regular companies are slowly coming to understand the benefits of OSS and switching, but from my perspective, businesses already understand OSS well and if they aren't using it it's because of some business reason, such as technical shortcomings, lack of support, no budget for migration costs etc. You'll note that all of these are temporary complaints -- the software keeps getting better, more and more people are trained to support the systems, and budgets get renewed every year. The point is that whenever businesses are having a discussion about adopting a new system, OSS options have a seat at the table in those discussions. To me, that's "victory". The software itself rises or falls on its merits, which include the support community it has around it.

Apache now seems to be an extremely solid substitute for MSFT IIS. Looking at the graphs (and I'm not sure if the totals are cumulative), essentially all the growth in the server market since mid 2002 has come from Apache, probably on cheap Lintel boxes. IIS on Wintel has hit saturation already. Sad. (via /.)

In-ear headphones

One new iPod accessory that has received no coverage are the in-ear headphones. In-ear headphones extend into the ear canal and place their speakers just a few millimeters from your eardrum. This has the dual effect of cutting out most ambient noise and making the music sound like it is inside your skull. Just the thing for noisy commutes.

I own a pair of Shure E2c in-ear headphones, which I would have called "fantastic" and "the best ear phones I have ever used" except they developed terrible line noise after a couple of months. I've sent them in to be replaced, but I have to do without them in the interim. I replaced my iPod battery about 2 days before the headphones stopped working, so I feel particularly robbed. I don't know if I just recieved a duff pair, or if it's endemic in Shure's products -- we'll have to wait and see.

Apple's headphones are a mere $40 compared to Shure's $100. I can't speak for quality, but I don't think there are cheaper in-ear phones on the market. If they had been available when I bought mine, I would definitely have checked them out.

Saturday, January 10, 2004

Bush and Immigration

I have not read the new Bush immigration policy, so won't comment about it in particular. Instead, Catallaxy Files has a reasonable post outlining the main objections on the left ("it will bring down local wages!") and the right ("I don't like fur-ners!").

Philip Greenspun has a post arguing that the US's economic success is because it attracts smart immigrants. I believe that the US does well because it is meritocratic, and that happens to attract people with merit but not opportunity who were born in countries without that type of mobility.

I will add that I've heard people say how Draconian US INS regulations became since 9/11, and while they have become worse, the truth is that they were pretty Draconian before. The US immigration system is an insane hodge-podge of conflicting and asinine rules that clearly betray 1) the extremely muddled and conflicted thinking regarding immigrants in the US and 2) lack of bureaucratic accountability in general. The rules stunk long before Bush was elected, they became worse post-9/11, and they may or may not be less asinine now

U Chicago economist and Nobel Prize-winner Gary Becker cut through the immigration hoopla and proposed a simple auction of slots. The price could be paid out of salary, a system that would attract people who had the most to gain by moving to the US (ie. had many years of high earning potential in front of them). This is a rational position, but it will never happen, because people are deeply conflicted on the topic of immigration.


I've been reading reports from the Consumer Electronics Show with half and eye, because it's good to be fore-armed against whatever ill conceived gadgets are being cooked up for your living room.

The number one story for me is how PC makes are entering the consumer electronics market and vica versa.

In my mind, much of this is desperation on the part of HP, Gateway, and other PC OEMs (and MSFT). The commodity PC story is an old one, Dell built a company to make boxes are cheaply as possible, Windows became good enough, and the rest is history.

Another part of the story is how new consumer electronic functionalities require PC bits such as harddrives, 802.11x connectivity, networking, and some sort of organizational software. Folks believe that digital content is going to drive adoption, and the hardware makers are trying to make deals with the content owners to 1) put in DRM strong enough to make content immune to Napster while 2) still making a machine someone wants to buy.

The most prevalent form of content restriction to date has been regional encording, whereby a DVD/VHS tape/console game bought in one country would not function in another (as far as I know, CDs never had any such restriction). Most people did not care because everything they did with that content was regional, and the industry could price discriminate between countries without too much trouble. It's actually remarkable to find how many things are incompatible across national borders.

The DRM schemes the content industry are asking for now are much more invasive, and will absolutely damage the adoption of new devices. Manufacturers need "open content" to make the devices valuable again, but I don't see a market for that developing until closed content is well and truly closed. I am glad to see the RIAA going after consumers to enforce current copyright laws because the alternative is more idiot legislation like the DMCA (I think this also suggests that the Content industry knows it can pass no more Copyright Extension acts or DMCA IIs. No legislator wants to be associated with suing children).

Fox and media concentration

The least cogent argument I have heard against liberalizing media ownership rules in the US is "media diversity is very important because we want political diversity, and look at how bad Fox News is." The field was crowded, but this one is clearly the best at being the wooliest.

Firstly, if you want diveristy in your media, and diversity in your political opinions, Fox should clearly be your most favorite station. It's view point is clearly different from ABC, NBC, CBS, and WB, and it's also clearly political, meaning it inject lashings of diversity and political awareness into a medium where people claim they value such things. You may not agree with it's point of view, but hey, diversity of opinion pretty much *requires* you to hear something you don't agree with every now and again.

Secondly, it seems ludicrous to expect a perfectly diverse information stream from a single source. I know that journalists claim they endeavour to tell "both sides of the story", but this is something that people just aren't very good at, and I don't see why amateurs under deadlines should be any better at this than the rest of us. The "multiple sources, multiple viewpoints, pick what you like" approach seems much better -- the reporters do their work already knowing what the thematic elements of the story are, and people can pick and choose whatever their id requires at that moment.

People abroad like to claim that media in the US is of low quality. I sort of have to agree, although I disagree also. Pick up a copy of the Khaleej Times or Gulf News (my local papers growing up) and you'll see lots of hard-hitting international news, and very little "neighbourhood man trapped underneath pile of frozen dinners -- recovering in neighbourhood hospital, suing Frozen Dinner company". And the cheap sensationalism of TV news is an embarassment. The regard accorded to the New York Times has always confused me, as I never thought it was much good and still don't.

With that said, the proliferation of papers, TV channels, cable channels, magazines, web sites etc. etc. give people choice which is unparalleled anywhere else. The upshot of this, I assume, is that individual outlets can specialize in catering to a particular type of person, or more realistically, a particular type of person in a particular mood (GQ, the Economist, and the New Yorker undoubtedly have some cross readership). This means that you can carve high-brow stuff entirely out of the whatever you use to distract yourself on the daily commute and publish "Foreign Affairs" instead.

Oh -- someone over at Reason has done a little math looking at media concentration. Worth reading.



A buddy of mine at Yale tells me that Amy Chua is not well regarded for her intellect, but that she does wear leather trousers when speaking publically. Given the broadly low level of intellect once often finds at academic lectures, the leather can only be seen as an improvement.

Wednesday, January 07, 2004

No longer so interesting

I'm trying hard to quit Dave Farber's "Interesting People" mailing list. I originally signed on because they covered current technology issues with an expert perspective, but the list has degenerated into an echo chamber of America-hating propaganda. There is no evil that Bush, or Capitalism, or Trade is incapable of, and there is no rumor too outrageous, or argument too garbled, that he will not spam the list with it. Enough.

Tuesday, January 06, 2004

Man bites Dog

Yale prof. Amy Chua has a piece on how "Exporting Free Market Democracy Breeds Ethnic Hatred and Global Instability". I could summarize it more, but the title pretty much says it all.

I think this is just one more in a long line of articles claiming that "wet pavements cause rain". A much better title would be "people are filled with ethnic hatred, free markets make people much less poor, and democracy makes people slightly less poorly governed, sometimes".

The places most ethnically intolerant tend to be those least connected to the rest of the world. This makes sense because if you are isolated, the cost of prejudice is lower. Lawrence Keeley actually went through the trouble to catalogue war among indigenous people and came to the remarkable conclusion that, in terms of % of male population killed, the wars these folks got into were 10-100 times more destructive than World War I and World War II put together.

The truth of the matter is that ethnic hatred comes easily to people, they just need an excuse, and the only thing you can really do to reduce this is increase the cost of ethnic hatred and the benefit of not having ethnic hatred. This means you punish bigotry, especially violent bigotry, and give people as much opportunity to benefit from trade and cooperation with folks not like them as possible (this is also known as Globalization). Chua argues that appeasing bigotry makes it go away, and isolation soothes the nerves. I'm glad she's in academia.


The new, tiny, 4G iPod retails for $250, $50 more than 256MB solid state players and $50 less than the (larger) $300 15G iPod. I think that this is the correct pricing -- it's slightly too much than what I would be willing to pay and feel I had gotten a bargain, but not high enough that I can dismiss the product out of hand.

Behavioral economics has this game called the "Ultimatum Game" where the first player offers some fraction of $1 to the second player. The second player can accept the offer, in which case the first player gets to keep what's left, or the second player can reject the offer, in which case both players get 0.

Game theory predicts that the first player should only offer a penny, and that the second player should accept it because hey, 1 cent is better than 0 cents. In reality, an offer that low is almost always rejected. The optimum split, the split that gets you the highest expected value as player one, is a 60/40 cut in your favor. 40% is too high for player 2 to reject, and yeah he would like at least 50%, but he will probably accept 40 cents over zero cents. The moral of this story is that rational agents insist on their 60%.

Sunday, January 04, 2004

Man Bites Dog

Nice article here about how little CD sales have changed even as online file sharing has grown. In Australia, about 62M CDs worth of music are created from mp3s, and 63M CDs has been the (2001) record for CD sales.

It turns out that mp3s are a poor substitute for CDs, and that people are downloading music that they would not have bought in a store.

Saturday, January 03, 2004

Long live the single

The splendidly titled "Chicago Boyz" have a good article on the return of the single. It comes from a Dallas News piece that notes, among other things,
Unlike brick-and-mortar record stores that deal mostly in full-length CDs, the Internet stores focus on songs. At iTunes, single downloads are outselling albums roughly 15-to-1.

"It's a song economy now," says iTunes spokesman Chris Bell. "Consumers have come to expect it through illegal file sharing and CD burning, and we're making sure every song is available for individual downloading."

The company's slogan – "iTunes is designed for instant gratification" – points to the biggest reason why albums may be withering. With attention spans shrinking and music outlets multiplying (on TV, satellite radio and in cyberspace), people aren't as willing to sit through an entire album as they were in the past.
A more plausible reason than a general degredation in people's mental ability (especially those darn young people!) is that singles offer better value than albums, so why not get those instead (note -- albums provide better value than singles for CD shops because of physical distribution costs, but online it's different).

The piece also has this quote for dear old Lars Ulrich
Some high-profile musicians insist that the album – not the song – is the be-all of pop music, and they argue that fans shouldn't be able to carve random pieces off an album any more than readers should be able to buy one chapter of a book.

"We have to be the ones who decide what happens to our music," says Lars Ulrich of Metallica. "We conceive entire albums, and I'm not gonna give it to you in any other form than the one I conceive. ... You can dissect it after that if you want, but at least you have to respect our choice."
The idea that the artist has some sort of inalienable right to his work, a right which cannot be sold, actually has some legal teeth in Europe where it is referred to as an artist's "moral right". IIRC, under "moral rights" you could not buy a painting off an artist and then modify the painting by, say, touching it up with a markerbelieveeive that some artists feel that their moral right extends to the frame the painting comes in. Needless to say, artists can add whatever clauses they wish when selling their work, but the law establishing an inalienable right, which cannot be bartered away, impoverishes artists who don't give a damn what frame their painting is in, especially if that means they can get the buyer to pay a little more for it. Or musicians who don't care if their work is sold as singles, or in album sized blocks.

Linux and Microsoft

Microsoft sells Windows much higher than it needs to do breakeven (much higher than marginal cost). This means it loses sales in some low willingness-to-pay customers through piracy. People might pay $10 for an original MSFT CD, but not $hundreds. In the past, Microsoft winked at these pirates because at least they were standardizing on Windows, and may end up paying more in the future.

Poorer countries, such a Thailand, are often havens for this sort of software copying. In the past, Microsoft did not enforce its copyright there the way it does in the US. But now that sales are slowing and the world has standardized, they are trying to price discriminate between countries (and customers) -- charging a high price in the rich US and a low price in poor Thailand. That's the thinking behind $37 Windows/Office in Thailand.

Linux made all of this possible because customers could claim it was a viable alternative to Windows and so give Microsoft some real competition. I am guessing that, right now, Windows *thinks* OpenOffice/Linux is more of a threat than it really is (I'm not sure if push came to shove, the same people who were threatening to defect actually would) and so is perhaps a little too willing to drop their price. Whatever the degree of actual substituability between Windows and Linux, there is at least some now and there will be more in the future. Look for more scuffles like the current one between MSFT and the Israeli government in 2004.