Category Archives: Economics

Liveblogging the Berkshire Hathaway Annual Meeting

Economics, Internet Culture, Politics

I’ve been following Berkshire Hathaway’s Warren Buffet’s annual ‘Letters to Shareholders‘ for a number of years now. Amongst other things, he avoided the 1999-2001 tech bubble, and predicted the crash of 2007-08. We were lucky enough to go see him in ‘person’ at the Berkshire Hathaway annual meeting last year. This year, we decided to watch his Q&A on livestream (through Yahoo! Finance). Below are some of my thoughts as the meeting progressed. The format is various people (analysts, journalists, and audience member, in that order) ask questions in rotation until time runs out. This goes from about 9:30 until 3:30 Central, with Warren Buffet and Charlie Munger (his longtime business partner) holding court.

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So again, we see the two (very) old friends up on the screen.

Warren Buffet and Charlie Munger, Berkshire Hathaway Q&A 2016
Warren Buffet and Charlie Munger, Berkshire Hathaway Q&A 2016

Q1: Going from low capital high earnings businesses to high capital moderate earnings businesses (regulated like rail and utilities).

The question asked why Berkshire moved from purchasing companies with low capital requirements and high income to purchasing companies with high capital requirements and moderate income.

The fundamental answer has to do with the size of opportunities available vs. the size of the conglomerate as a whole. (You can read all about it in the shareholder letters.)

Pithy remarks on the subject:

“Increasing capital acts as an anchor on earnings.”

This one I think was a Charlie-ism:
“When our circumstances changed, we changed our minds.”

Q2: Precision Cast, and the huge multiple premium paid
Under Berkshire, Helped make their main asset (the CEO) & made him more productive to the company.
Running a public company distracting vs. being under Berkshire.

“Buy a business that an idiot could manage, because eventually an idiot will have to.”

Q3: What would you do differently?
Warren said he’s ‘doing exactly what [they] like to do with the people [they] love’.

“It’s more fun to do things as a partnership.”

And a Charlie-ism:
“[Learning slowly] is a blessing too. At 92, I still have a lot of ignorance to work on.”

Q4: Munich and Swiss Re divestment
Business is less attractive for the next 10 years, because of low interest rates.

“Supply has gone up but demand has not gone up.”
“Reinsurance is easy to establish a disguised operation in a friendly tax jurisdiction. Couple that with low returns on float…”

Q5: Geico getting ‘whooped’ by Progressive Direct. Why?
Buffet: Diversion to number of car deaths/100M. From 1930 15/100M to 1/100M recently. (40,000)
‘Last year, for the first time, there was more driving, and more distracted driving’
‘Made a bet many years ago on the Geico model over the Progressive model.’
Charlie:
‘I don’t think we have to worry about a competitor having a good quarter.’

Q6: Direct sales -> Search, Push to Pull marketing…
Need to always think about the powerful trend (Amazon) when we make decisions.
‘Doesn’t worry us with Precision Cast.’
‘We were slow on the Internet.’ ‘Mobile and whatever.’
Internet still has much to change…
‘Thought of ourselves as having capital to allocate’, so makes it easier to pivot industries.
‘Amazon has a real advantage, 100s of millions of happy customers.’
Charlie
‘We failed so thoroughly at retail when we were young…[laughter]’ (so not likely to try retail again, and has helped guard them against that particular type of hubris)

Q7: Negative health effects of Coke products, why do you keep dodging the question?
[they dodged the question again]
184k deaths per year…’Declined to invest in cigarettes, why should be proud to own Coke?’
‘I’m about 1/4 coca cola. I’m not sure which quarter, I don’t know if we want to pursue that question.’
‘1.9 billion 8 oz servings per day.’ (Since 1886)
Dodged the question. ‘You have the choice of consuming more than you use.’ Talked about how Coca Cola is not the sole problem.

‘[small town with a constant population] Every time a girl had a baby, a guy had to leave town.’
‘If you want to change your longevity, you should have a sex change.’

Charlie:
‘We ought to almost have a law (I’m sounding like Donald Trump), that you have to say the benefits along with the detriments.’

Q8: Coal vs. renewables
Is your goal to get to 100% renewables?
‘We cannot make changes that are not approved by the Public Utility Commissions.’
‘Iowa’s been marvelous at encouraging renewables.’
In Iowa, we can offer lower rates because of it.
(2.3c/kWh federal tax credit)
‘Benefits of reducing carbon emissions are worldwide…’
‘A benefit that accrues to the world.’
Pay a lot of tax, so worth it to make a lot of investments
Iowa has gotten server farms because of cheaper electricity (from wind)
Vs. more expensive public Nebraska power…

Charlie:
‘If the whole rest of the world were behaving as we do, it would be a better world.’
‘I want to conserve the hydrocarbons’, for chemical feedstock…’I’m in their camp, for different reasons.’

Q9: Derivatives:
How do you value the banks you own?
‘If you asked me to describe the derivative position of the BoA…’
‘The great danger in derivatives is discontuinities’
WWI closed the stock market for many months
1987 almost did, but went on the next day
If marked to market and collateralized, most of the problems are okay…
Large quantities and collateral requirements are the most dangerous…
Kuwait went to a six-month stock settlement process, and caused all kinds of problems because of lack of certainty of ownership.
‘If you took the 50 largest banks, we wouldn’t look at [investing in] 45 of them.’
Charlie:
‘We’re in the awkward position of making 20B from those derivatives.’
‘We would have preferred if those derivatives had been illegal to buy. It would have been better for the country.’

One comment Buffet made which received less attention than it should have is about the issue with having an effective oligarchy amongst auditing firms. The specific issue was that the same person from an auditing firm could be rating or valuating the same derivative from both sides of the deal, and they could easily be rating or valuating it differently…

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Those were the first 9 questions (out of a usual 60-ish). Stay tuned for more, comments below!

Cross-Border Taxation and Money Laundering Incentives

Economics, Idle Speculation, Politics

So, there’s an interesting game being played by governments around the world.

From a purely game theory[1] perspective, to optimize tax income, it makes sense for governments to do two things:

1) Find all the people all over the world they can tax and tax them.
2) Convince people from all over the world to move to their jurisdiction for lower taxes

Now, if this is ‘tax avoidance‘, this is still legal[2]. But it seems to often veer into ‘tax evasion‘, which is not legal.

All this is leading up to say that while the United States is talking about tax avoidance and tax evasion around the world, it seems that Congress seems to be one of the largest stumbling blocks to solving the problem[3].

[1]I am informed that from a purely grammar theoretical perspective, ‘From a purely game theoretical perspective’ is incorrect.

[2]Although, when you can purchase laws…

[3]Note that this article tries to get more hits by using the word ‘Rothschild’.

Ethical In-Game Purchases

Economics, Games!, Idle Speculation, Internet Culture

Throughout the history of computer gaming, people have tried many different business models.

Early on, models included rental and sales of coin-operated machines, shareware, mail-order sales, sales through distributors, and doubtless others that I’m forgetting.

Monthly subscriptions were a more recent innovation, for games such as World of Warcraft, in an effort to find a more consistent revenue stream.

More recently, ‘Downloadable Content’ or ‘DLC’, and ‘in-app purchases’ have become de rigeur.

At their heart, they seem to be trying to solve the same problem as monthly subscription fees, but in a more explicit and a-la-carte fashion.

My recollection is that DLC was first, being a model very similar to the old shareware and multi-episode games. You would try the first one for free, or perhaps pay for it (depending on whether it was shareware), then that would entice you to purchase the next episode, and the next.

You knew pretty much what you were getting, the developers got a more consistent revenue, everyone was happy[1].

DLC then started branching out into partially or mostly cosmetic items, like the Oblvion Horse Armour

This still seems reasonable to me. You were playing a single player game, you wanted more features, the developers gave them to you for more money.

Then the ‘Free to Play’ games started becoming more and more popular. They would start out being free to play, but you would then need to play to continue after a certain point. Almost exactly the same as shareware, no problem. You purchased access after you had tried out the game. Totally reasonable, still very ethical.

But then the ‘Freemium’ games started coming out, the games that which were ostensibly free to play, but you could only play so many turns before you had to wait for your energy or whatever to recharge. However, you could play ‘just one more turn’ if you were to pay a little more money. This has gone from ‘money for content’ to ‘searching out and exploiting addiction‘.

In a somewhat orthogonally unethical category are games which allow you to pay to achieve an unfair advantage over other players in a multiplayer game. One of the games I currently play is an online turn-based strategy game, where you can pay money (about $15CAD) to get unlimited turn undos. This allows you to not pay for scouting units, and know the disposition of all of your enemy’s units, mostly obviating the ‘fog-of-war’ game mechanic. I’m sure it’s also very profitable.

In summary,

Ethical:
– Pay for more content/features
– Pay a subscription fee to keep playing on company-run servers[2]

Not so ethical:
– Pay to take more turns in the game with no ability to unlock as many turns as you want for a reasonable sum of money
– Pay to achieve an unfair advantage over other players

[1]Perhaps not game developers, but that’s a different story.

[2]We haven’t talked about games which stop working when the game company goes under and the server goes down…

A Long Tail of Whales: Half of Mobile Games Money Comes From 0.15 Percent of Players

Tax Freedom Day

Analysis, Economics, Politics

Note: I am choosing to engage the concept of ‘Tax Freedom Day’ on a methodological basis rather than commenting on the fact that it focuses on costs rather than doing a cost/benefit analysis. If you want more on that topic, comment below!

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Tax Freedom Day. A popular phrase and concept, but what is it really measuring?

In Canada, it is published by the Fraser Institute. You can read their report from 2013 here[1].

On its face, it seems like a totally reasonable thing. There are lots of hidden taxes, manufacturing taxes, the employer portion of CPP, QPP, and EI, etc…

They also make the (I think reasonable) statement that the total tax burden on businesses ultimately expresses itself in the goods and services they sell:

“Although businesses pay these taxes directly, the cost of business taxation is ultimately passed onto ordinary Canadians.”

Leaving the main purpose of these taxes as social engineering, implementing the decisions we have made as a society as to how to incentivize people to spend their money. (But then, all taxation decisions do this, and that is a much larger topic.)

They even say nice things like “Most Canadians would have little difficultly determining how much income tax they pay; a quick look at their income tax return or pay stub would suffice.”

1) Capital gains (unknown number of days)

But here’s the catch. They compare ‘Cash Income’ with tax from all sources. For example, they include ‘Income tax’, including all taxes on income, which includes all taxes on capital gains, but not the income from capital gains, or as they put it, in their own words:

“…total income before taxes includes deferred incomes such as investment income accumulated by pension plans, interest accumulated on insurance policies, and corporate retained earnings. While these types of incomes are accumulated, they are not paid to Canadian families in the current year, and thus should not be considered as part of their income for Tax Freedom Day calculations.”

So their conclusion is that any time shifting of income qualifies it as ‘not income’.

Anyways, the point is that their methodology includes capital gains taxes, but not capital gains income.

2) ‘Average’ vs. ‘Median’ (11 days)

The Fraser Institute notes that the ‘Average’ (arithmetic mean) family income is $97,254, and ‘pay[s] a total of $42,400 in taxes’. Note that this is 43.6%. This will be important later.

Combining the report with StatsCan data:

The StatCan Income by Decile:

We can intuit that the median 2+ person ‘economic family’ as an annual cash income of $72,300, or about 7.55% of the total, and pays about 6.85% of the tax burden or about $29,065, or about 40.55% of their ‘cash income’ in taxes. This is a difference of 11 days.

(Compare with the Fraser Institute report table 9 on page 9, note that unlike the provincial comparison table (table 7, page 7), it does not include the income levels of the deciles)

Looking at their own table 9, their usage of ‘average’ income means that the ‘tax freedom day’ is overstated for roughly 65% of the population.

3) ‘Economic Families’ of two or more people vs. those living alone. (8 days)

This is a smaller point, but in table 6 on page 6, they show that the ‘families with two or more individuals’ tax rate of 43.6% (their headline number), when ‘unattached individuals’ are included is reduced to 42.4%

If they weren’t trying so hard to convince people that taxes are high, it would feel like they’re making the social judgement that families of two or more are the default, and anything else is odd.

Bottom line: Don’t believe everything you read. With very little work, I’ve shaved 19 days off the headline number used by any number of mainstream news publications. I’m sure there’s a lot one could say in addition on this topic, about income redistribution and income sources.

The Fraser Institute has a very specific agenda that they are pushing, however much they proclaim otherwise. Caveat Emptor.

Note: Incidentally, whoever decided that copy-paste from .pdf files should break all the formatting and insert all kinds of line breaks should be made to manually fix all of the files by hand.

[1]I’m using 2013 as a basis, because I can easily find the 2013 StatsCan decile data. If you want to read the 2015 Fraser institute report, you can read it here:

Surplus and Corruption

Economics, Idle Speculation

Today, I was reading about declarations and non-declarations of war in the United States, and changes in law surrounding them.

Many people have bemoaned that as the American Empire has progressed, more and more war powers have been invested in the executive branch, with congress doing little to nothing to try to stop it. In a way, this is a form of corruption, corruption being where someone does not appropriately discharge their fiduciary duty because they will personally gain.

To me, it seems that corruption inevitably arises from surplus. They are two sides of the same coin, like encryption and compression*.

The theory goes that when a eventually-to-be-powerful** country is in its infancy, people like Cincinnatus*** and Washington are more willing to give up power and sacrifice self for the good of the tribe.

As the empire becomes more wealthy, things start to change. There is more surplus, so there is not as much a need for leaders to go back to tend to the farm. The people who are more prone to self sacrifice for the greater good seem to not acquire power for one or more of many reasons.

Perhaps self sacrifice is not encouraged as they are growing up, as the society is too affluent to require it. Perhaps they have it worn away by many years of anti-socialization, the lure of personal wealth is too great, or perhaps it is just not necessary for the empire to do so. The power brokers just don’t see the point in giving up useful power to someone to fix the problem unless the situation is dire.

For the Romans, one of the main counterbalances for this was supposed to be the Tribune of the Plebs. What is the counterbalance supposed to be now? The press? Popular opinion? The conscience of politicians****?

I see the fundamental problem is that all of these require active intervention to solve the problem. There is no concept of ‘fail safe’. The closest I’ve seen is from ‘Yes, Prime Minister‘, where the theory is that the civil service tries to damp out wild swings in popular and political opinion, and tries to run the country stably and competently. This is perhaps combined with the theory that whichever organization is more stable lasts longer, and therefore wins. If you’re a stable democracy or republic, you just need to wait until other countries go through disruptive changes to go in and get what you want*****.

I’m not saying it’s good. I’m just saying it’s what happens. And the survivors tend to write the history books.

*A lot of the math is the same, they use entropy in very similar ways. Look it up! 😀

**There are all sorts of theories of why countries become powerful. I don’t think there’s any consensus about this, and in general they do terrible things on their way up, but this is outside the scope.

***I didn’t know this is where Cincinnati, Ohio got its name!

****Vetinari would remind you that ‘politician’ comes from ‘polis’, implying that they have as much a stake in the city as anyone else.

*****There are many recent colonial examples, if you want them.

The Luxury of ‘Picking Your Battles’

Economics, Idle Speculation, Thoughts on Thoughts

“He who knows when he can fight and when he cannot will be victorious.”
– Sun Tzu

Choosing which battles you fight and do not fight has been a cornerstone of strategy probably for as long has strategy has existed. One can look at the history of military strategy* as a sequence of wrestling** matches writ large, with each of the opponents trying to force the other to fight on their terms.

More recently, the strategy of ‘Picking your battles’ has been applied to many other, more mundane confrontations. When someone accosts you on the street, when the phone company charges you two dollars extra, when that person bumps into you in the supermarket.

And this makes sense. You don’t want to go through your life fighting or arguing with everyone all the time.

But what if you don’t have a choice?

What if every time you walk downtown near your office by yourself, people make sexual comments about you? What if you’re never selected for a job interview because of your name? What if every time you express yourself online, you receive death threats?

Yes, you could avoid doing all those things, or you could do them and simply endure, but is that really picking your battles? You’re having wars of attrition waged against you every day.

Huge parts of the modern reading of ‘pick your battles’ implies that you can win some, or some substantial portion of them.

If you can’t win most, or even any of them, can you really be said to be ‘picking your battles’?

Having battles that you can win is a privilege. Choosing which battles to fight is a privilege. Even choosing which battles to choose from is a privilege.

A privilege that not everyone has.

*This is assuming they knew what they were doing…History is rife with examples of belligerent parties who did not know what they were doing***.

**Perhaps more ‘push hands’ than wrestling…

***Of course, this is often difficult to know with certainty, as the victors generally write the history books…

It takes privilege to be able to do this…

Resisting Regulatory Capture

Economics, Nostalgia, Organizing Systems, Politics

Most people, if you asked them, would agree that corruption is a bad thing, and should be reduced or avoided. Most of them will not have heard about Regulatory Capture, though.

‘Regulatory Capture’ is the process by which an industry ‘captures’ the governmental bodies which are assigned to regulate that industry. It is generally thought to happen because of two factors:
– The people who are assigned to perform the regulatory tasks spend most of their time talking to people in the industry they’re regulating
– There are huge financial incentives for the industry to persuade the regulators to change the rules in their favour

These rule changes can take many forms. They can be laws, regulations, even constitutional changes.

The rule changes can diminish penalties, replace jail time with company-paid fines, make it more difficult for new competitors to disrupt oligopolies or monopolies, lessen oversight or protections against fraud, and many other forms.

The bribery or coercion of regulators can also take many forms. Most countries have rules in place which make it difficult to perform the obvious ‘money in brown paper bags’, but there are many other ways to induce regulators to rule* in your favour:
– Many industries have laws about the amount of time between when you can work in an industry and when you can regulate it (and vice versa), but this does not seem to have stopped anyone
– Many industry consortia write the regulations** which regulate them, so the regulator (who may feel overworked and underpaid) doesn’t have to spend the time to do so.
– Most people have family or other tribal associations of some sort. A spouse’s job has been suggested to influence even supreme court justices
– The politicians who are in charge of the regulators are often persuaded by campaign contributions
– Various illegal inducements such as drugs or ‘favours’
– Threats, extortion, etc. may also come into play

So, how do we solve this? The closest we seem to have come to this is an interlocking set of checks and balances, including freedom of speech, lobbying laws, freedom of information acts, and the occasional incorruptible investigator.

We haven’t solved this yet, and it might not be solvable, given the power dynamics. Next time, we’ll talk about some current and possible solutions.

*Ha!

**There is a lot to be said for including industry as major stakeholders when regulations are written, as for the same goal, there may be very different ways to implement them, which would have vastly different costs.

Analysis: Fractional Home Ownership II

Analysis, Economics

EDIT: The previous post: http://nayrb.org/~blog/2016/01/18/analysis-fractional-home-ownership/ got the most feedback ever (other than the immediately preceding one about facebooking pictures of your kids). It turns out that all you need to do to get lots of comments is to make a post with an incorrect and not-completely-thought-out graph, and everyone eagerly posts corrections and ideas. (It was actually a really fun discussion… 😀 )

– SG mentioned that the curve of the graph is likely off, suggesting a convex curve and swapping the axes, also suggested looking up Michael Raynor and Clayton Christensen.
– AB asked exactly where fractional ownership fit on the graph (my statement was it could fit anywhere on the graph, but that’s not really that helpful, is it. 😀 )
– PD (among others) pointed out that I somehow missed labeling the X-axis (it’s ‘ownership’, which is not quite correct, it should be ‘negative ownership’ or something similar, and it got lost in the .dwg to .png translation)
– DR brought up a kind of ownership which exists in Montreal called ‘divided ownership’, which is a form of co-ownership where a group of people own a building

So, to address these comments:

Interestingly, I had always pictured tradeoff diagrams like so:

cost_vs_one_over_benefit_with_isoscience_lines

Where your goal was to get as close to the line which represented the current best technology. (I’ve called these ‘iso-science lines’, for lack of a better term. More on these later.) This way of looking at it also suggests that there’s a ‘good enough’ for your application, that your science/technology may get you closer and closer to infinity, but most of your users will likely not care. (This may be most useful for consumer commodities.)

You might find the following graph more useful. It jibes better with my mental model of commodity CPU performance curves from when I was growing up.:

cost_vs_benefit_with_isoscience_lines

This has benefit increasing without bound, which may be more useful for many other applications. You could also see how the curves could have technological advances more in the cost or benefit directions, such as how the 787 looks very much like the 767. It’s much more fuel efficient, but travels at about the same speed:

http://idlewords.com/talks/web_design_first_100_years.htm

Anyways, back to fractional house ownership. I’m not entirely sure how to measure the utility of different types of housing ownership…You could look at financial benefits over time, but what horizon do you look over? You could look at the ‘pride of ownership’, but that is difficult to quantify.

But I had to quantify it somehow, so I put a condo at about twice the ‘utility’ as an apartment, then townhouse, semi-detached, detached linearly improving from there*.

house_prices

As you can see, you get a similar diminishing returns curve as we saw before, but that could just be because we were looking for/expecting that.

Let me know what you think in the comments! 😀

Data from:
5-year variable rate of 2.7% from:
https://www.tangerine.ca/en/borrowing/tangerine-mortgage/index.html

Average rental rates of 1 bedroom $1085 and 2 bedroom $1269 from:

Average apartment rental rates across Canada

Average house prices of:
– Condo 410k (1878/mo @ 2.7%+ condo fees of about $600/mo)
– Townhouse 520k (2382/mo @ 2.7%)
– Semi-detached 660k (3023/mo @ 2.7%)
– Detached 1.0M (4580/mo @ 2.7%)
http://www.thestar.com/business/2015/09/04/average-gta-house-price-up-10-in-august.html
http://www.huffingtonpost.ca/2015/02/19/condo-fees-toronto-canada_n_6714396.html

*Utility:
– Renting 1-bedroom apartment: 2
– Renting 2-bedroom apartment: 3
– Purchase of Condo: 5
– Purchase of Townhouse: 6
– Purchase of Semi-detached: 7
– Purchase of Detached: 8

Analysis: Fractional Home Ownership

Analysis, Economics, Idle Speculation

EDIT: This post got the most feedback ever (other than the immediately preceding one about facebooking pictures of your kids). It turns out that all you need to do to get lots of comments is to make a post with an incorrect and not-completely-thought-out graph, and everyone eagerly posts corrections and ideas. (It was actually a really fun discussion… 😀 )

I’ve followed up here:

Analysis: Fractional Home Ownership II

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So, one of my former students just started a company doing fractional home ownership. Their theory is that there’s some middle ground between fully renting and fully owning property that they’d like to facilitate. Here’s why I think they might be right:

This is your standard engineering/product/tradeoff/price-features/etc graph that people/your customers are used to.

House_Ownership

What they’re suggesting is that the graph is really only populated at the edges* (with condominiums allowing lesser monetary costs with a reduction of ownership).

Airbnb and Uber/Lyft have monetized the space for unused housing and vehicle resources. Fractional and micro lending have started to do this for banking. Why not do this for the actual ownership of property?

People have been jointly owning property since there was the concept of property. The difference now is that we can do it in smaller tranches, and perhaps we can streamline the legal process. I think this streamlining is what will make the most difference. Condos are the closest we have in the consumer market (REITs are somewhat similar, but don’t let you own a part of the dwelling you actually live in).

It feels like there’s somewhere where this will make sense/take off, and it will have to do with the ratio between rent prices and ownership prices. A larger difference between these would give a larger space for partial ownership to work.

However, it feels like it needs a simple(r) set of easily enforceable rules, with benefits and reasons to comply for those buying and selling. I don’t know what these are yet, but I do know that all of the rules about condos are there for a reason, so it’ll have to be a really innovative contract to incentivize everyone to comply.

*Yes, I know that ownership is not absolute, but within the scope of this post, the space to the left of the graph is unreachable.

The 0.6th world

Analysis, Economics, Internet Culture, Politics

One of my fondest memories from high school is learning about different types of infinities. The Cantor Diagonal proof is a as beautiful piece of argument as exists anywhere. Also present in that course was discussion of fractional dimensions, especially as to how they pertained to fractals.

Those who are familiar with the Gamma Function, or the Kardashev Scale will know of the technique of interpolating between the integer points of a numerical scale. (The Kardashev scale is cool enough to deserve its own post, and beyond the scope today.)

I was originally planning to talk about the First World/Second World/Third World model most often talked about in the media, but Mao’s Three Worlds Theory feels like it offers a slightly more linear progression between the three worlds.

The question is: What numbering would you give the world of the Internet? Of 4chan? Is this even a sensical question?

There are a number of different ways* you can try and quantify this. Using the West’s ‘Three-world Model’:

– “Alignment with ‘The West'”: This is where the ‘1st world’ is ‘The West’, the ‘2nd world’ is aligned opposite to ‘The West’, the ‘3rd world’ is not aligned with respect to the ‘West’. A ‘4th world’ or ‘0th world’ might be against the entire concept of ‘Alignment’ (Nations with multiple internal factions or with governments not exclusively beholden to one of the blocs might be part of the ‘1.3 world’. This becomes difficult with nations which are partially non-aligned, and partially aligned with the ‘1st world’, as the math doesn’t work out. You’d want a numerical Venn diagram** for this.)

– “Economic Development”: (This is problematic, as you have one of the groups deciding on its own the hierarchy of the groups, and for many other reasons.) In this case, though, you might be able to have worlds which have sprung up since the Three Worlds Theory was conceived be put on the chart. In this case, the Internet might indeed be the 0.6th world…

Using Mao’s ‘Three Worlds Theory’:

– You could classify Internet opinion and culture as a new lesser power, or perhaps even superpower. I think the Internet is not quite organized, and probably still too easily manipulated, to be a superpower. More like a regional power, with its region being spread around most of the world. Thinking about it like this, it might qualify as a 2.0 or 2.1 power.
– If you think about the division as ‘Imperial Superpowers’, ‘Lesser Powers’, and ‘Exploited nations’, the Internet is somewhat ‘Imperial’, in that its culture permeates and is conquering and eating entire industries. To qualify as a ‘Lesser Power’, it must be at least nominally be independent. Under this definition, the Internet might qualify as 1.6 power, higher or lower depending on how much ‘The Internet’ includes Internet companies

*I tried my best to 4-box this (in best business book fashion), but couldn’t come up with anything reasonable. The ‘unaligned’ nature of the ‘3rd world’ fills up two of the four boxes with most models. The closest I could get was to have Switzerland and maybe a few others in the 4th box, with the axes being GDP and alignment.

**Stay tuned for a later post…This is a fun concept!