synthetic zero


July 30, 2002

Sorry for the lack of updates --- been travelling.

Turned 37 a few days ago --- I liked it quite a bit. When I turned 30, somehow I had the intuitive feeling that my youth was going to disappear suddenly and rapidly, my physical body would deteriorate in a matter of moments, and death was not soon behind. But then year after year slowly moved past... 31, 32, 33... and aging did not kick in with quite that degree of suddenness. By now enough has happened that I feel as though I ought to be at least 65 or 70, yet... I am just 37. Hopefully I will be equally pleased if I make it to 70; if things keep going as they are I ought to be 150 by then.

Are you ready?

July 24, 2002

I've been having some interchanges with Rick Angell of Angell Investments regarding my stated opposition to expensing stock options. Through these conversations I've greatly sharpened my understanding of the technical issues surrounding the issue, and certainly I have a much better understanding for the philosophical (yes, there are philosophical issues here) and other reasons behind what we ordinarily and somewhat blithely call valuation, or price. He is of the opinion that stock options are worth something, and therefore when they are granted they ought to be expensed on the P&L --- after considerable thought I find his arguments persuasive, but I think I still come out on the side of those who oppose it. Whichever one of us is more correct, I think the issues are quite interesting.

Stock options are indeed worth something, in that one can and does sell options on public markets, and people are willing to pay something for them. Thus, when a company gives stock options to employees, why not expense these items at a value which is a good guess of what their market value might be at the time you issue them? After all, if you were to give some other asset to your employee, you would also expense that item, right?

One's initial impulse is to say, okay, suppose I could sell an option on an open market for $30. This means an option is worth $30, right? Yes, in some sense. But here's the key point, the catch, so to speak: if the company were to sell or give away these options to someone, it would matter to the company who they sold or gave those options to in a way that giving an equivalent amount in cash would not. In particular, if an employee owns stock options, they have a set of incentives that they would otherwise not have (the incentive could be to perform better, or the incentive could be to defraud the public, depending...) Assuming the positive incentive outweighs the negative, consider this.

An employee who owns a stock option (under ordinary circumstances) has an ongoing incentive to perform better. This employee has a stake in the company they work for that they would not otherwise have. This incentive persists (unless the option goes deep underwater) as long as the employee is employed and retains the option (or the stock after exercising the option). The persistent quality of this incentive makes it qualitatively different from cash --- if you were to give an employee more cash up front, this would not amount to an incentive of the same kind, because a stock option (and/or stock ownership) provides an unending future incentive for the employee to perform better. Thus, in some sense, by giving a stock option to an employee, the company gets in return an employee incentive, which will presumably benefit the company as long as the employee continues to work for the company (or until the option goes deep underwater).

What's interesting about this is that it is quite peculiar as assets go. In this case, the company receives a sort of asset (an employee incentive) in exchange for GIVING AWAY something --- i.e., by giving away stock options to employees. You cannot model this via the ordinary logic of ownership and value, because ordinarily value inheres in owning something --- in this case, the company receives an ongoing benefit from giving something away --- and the key here is that the benefit is ongoing --- unlike the case of paying an employee cash in exchange for their services. But the asset depends on who owns the option --- giving a stock option to a non-employee would just be an ordinary expense, and this SHOULD go on the balance sheet. But giving an option to an employee should be offset by the value of the incentive they get in return for giving that option away. In fact, if anything, the company ought to expense the options at the time their employee quits the company or sells the stock after exercising the option --- because at this point the company loses this asset --- the employee incentive.

Another way of putting it is this: if a company could buy 1000 units of something, some magical substance X, that would result in the same level of ongoing incentive for their employees as 1000 stock options give them, would that be worth something? How much would it be worth? Is it conceivable that it would be worth as much as the value of the stock options?

I think the peculiarity here occurs because we're talking about the domain of self-reference. Ordinarily we think in terms of third-person arrangements, and in this world it is easy to think of things having a value based on who owns them. But in this case, because the employee works for the company, having them own something can in fact be a sort of asset to the party that gives the asset away. This is a convoluted way of arguing that giving stock options to employees shouldn't be treated in the same way as an ordinary expense, because the company is receiving a long-term asset in exchange for the expense.

July 21, 2002

I came across this quote which somehow inspired me:

united methodist church

Whereas, "Scientific" creationism seeks to prove that natural history conforms absolutely to the Genesis account of origins; and,

Whereas, adherence to immutable theories is fundamentally antithetical to the nature of science; and,

Whereas, "Scientific" creationism seeks covertly to promote a particular religious dogma; and,

Whereas, the promulgation of religious dogma in public schools is contrary to the First Amendment to the United States Constitution; therefore,

Be it resolved that The Iowa Annual Conference opposes efforts to introduce "Scientific" creationism into the science curriculum of the public schools.

Passed June 1984, Iowa Annual Conference of the United Methodist Church.

More proof of the sad influence of the Green Party on American politics: A Republican offers the Green Party $250,000 to field candidates in close Congressional races in New Mexico. As I've often said, in the winner-takes-all electoral system we have in this country, the only possible effect the Green Party can have on national politics is to drive the country towards the political right. Anyone who votes Green shouldn't be fooled: they're voting to help their enemies win and maintain control of the country. It's perhaps not the way it should work, but it is the way it does work in a winner-takes-all system. If you want to have a viable Green Party, lobby to change our electoral system to proportional representation. If you can't do that, then get Green Democrats elected. Aside from those two strategies, I can't see any beneficial impact to a Green Party --- the stronger the Green Party, the farther right our country will go.

What worries me about the current political debate surrounding the war on terror is that Republicans are being portrayed as tough guys and Democrats as bleeding hearts too concerned about the rights of terrorists. But the fact is, the problem with this administration is that their policy is too weak and ineffectual: going after Iraq, one of the least of our worries, insufficiently paying attention to the need to help stabilize Afghanistan and deal with the situation in Pakistan and other Islamic nations, proposing a toothless "Homeland Security Department" which will not have the authority to order the CIA or FBI to divulge information, blowing political capital and international goodwill on a spurious fight against the War Crimes Tribunal, etc. It seems the Bush Administration is more concerned about going after political targets that are bugaboos of the wacko right than it is about really focusing on actual national security. It is not necessary to run roughshod over the Constitution to ensure national security --- but it is necessary to be serious and deal with real as opposed to imaginary threats. Bombing Iraq without international support would only create a much more volatile security situation for the United States without actually buying us much. I am concerned that not only is the administration infringing on our civil rights, but it is doing so at the expense of real security.

July 18, 2002

Readers of this page may have noticed that I rarely make comments about financial matters. Today, I'm going to say a few things about it.

What has happened with Enron and other corporate disasters is indeed terrible, but the answer is not, not, not to force companies to expense the granting of stock options. Aside from the fact that most options are never exercised because they end up underwater, I have to agree with the investment bankers here (I never thought I'd say something like that) --- options are a very good way to spread ownership around in a company. Do people really believe that expensing stock options will stop companies from granting options to high executives? Of course not. The only thing that this illogical and irrational policy will do is discourage the granting of stock options, which means they will end up only going to the fat cats at the top, and not to the secretaries and other middle- and lower-end employees. Stock options are a way of democratizing the ownership of capitalist enterprises, and they ought to be encouraged, not discouraged. Expensing stock options will go in exactly the wrong direction, and won't fix anything important. It will merely increase the centralization of ownership, which is only a bad thing for the long-term health of the economy.

I want to say another thing, though, which is that I don't believe that stock or ownership is really a very sensible model for economic compensation overall. It seems to me that a more logical way to apportion "ownership" is on a per-project basis. I.e., if someone actually works on something, they ought to be given some credit and some compensation, if appropriate, for the fruits of their labor. Of course, how to determine this is difficult to do --- one would have to work this idea out more fully.

I've been thinking a bit more about free software and the economics of apportioning economic resources for intellectual work. On the one hand, I agree that sharing of information is crucial for the long-term viability of an information society, which we are fast becoming. On the other hand, the default model of releasing source code that can be used by anyone for any purpose they like without compensating the original authors --- I don't think this model will necessarily lead to the highest-quality software in the long run, because it tends to starve the people who build the software of economic resources. Yes, some free software companies survive by selling service contracts, or selling compilations, but I think this is not sufficient. Although Linux is a powerful server operating system, it still falls short in many ways when it comes to usability, consistency, and simplicity.

Why is this? I suspect one reason is insufficient resources. It seems to me that more software ought to be released under a license which allows people access to source code, and allows people to use the code for any purpose, even commercial, but if it is used for commercial purposes it requires some sort of licensing fee paid to the author or authors.

There are several architectural issues here: software tends to rot over time --- there ought to be a time limit or decreasing amount paid as time goes on if the software ceases to be maintained by the original authors. Also, if someone extends or modifies some software, their contribution should be acknowledged and compensated. What if someone creates a major new software package that incorporates some of the source code from the project? On the other extreme, what if someone contributes a single feature or bug fix? Should they be added to the list of people to be compensated, and by how much? How would you track or measure how much someone has contributed to a given piece of software? Lines of code don't measure this well, for example. But perhaps these problems could be worked out somehow.

July 17, 2002

Senator Charles Grassley complains that Army personnel used government credit cards to buy $38,000 in lap dances. In the same breath he complains that an Army office bought $30,000 in Palm Pilots (odd that everyone still calls them Palm Pilots --- Palm dropped the "Pilot" moniker years ago --- which I never really understood, since it is so embedded in public awareness). The implication seems to be that Palm Pilots are equivalent to lap dances in some way --- what does Grassley know that we don't? He must have found a way to use the Palm which I haven't yet discovered.

I've ranted about the unreliability of movie reviews before, but I'll do it again now. I went to see Men in Black II the other night, despite the generally negative reviews, and, somewhat to my surprise, I enjoyed it. The reviewers seem to think it was tremendously worse than the original --- but the original, if we remember, was just an amusing fluffy romp, and so was this one. Neither film is a cinematic classic, and both are, to my eyes, about equivalently amusing. Plus the second one has a funny-philosophical ending which I particularly liked. On the other hand, how can one explain the delirious reviews of Lord of the Rings? Reviewers didn't just like this film, they LOVED it: better than Gone with the Wind, Star Wars, blah blah blah. It was, to me, pretty much a ho-hum rendition of the original book, not surprising in any way, straightfoward, nerdy, dull. I did not feel exhilirated by any means coming out of the theater. Another reviewer darling, Minority Report, gets just a lukewarm "not bad for a Spielberg film" from me. In general, I must conclude that any major film that gets close to 100% tomatometer readings can't possibly be as good as they say --- but if it gets close to 50%, it could be a pretty good film.

July 14, 2002

Failure is good.

July 12, 2002

One thing Portland really does well is french fries. They're always well done, thick, tasty. It's a city cultural thing. Another thing Portland restaurants have is (at least very often) at least one relatively good choice of root beer.

Been fiddling around with Mac OS X and Linux recently (I find it difficult to bring myself to say "GNU/Linux" --- it sounds awkward and pedantic to me. I suppose I've never been one to pick up sloganeering or political phrases of this kind, unless they sound natural --- which GNU/Linux just doesn't, to my ear). I have to say that the biggest problem with Linux is X Windows. X Windows is horribly slow, ugly, hard to program, inelegant, and inconsistent. There should be ONE clipboard standard that everyone agrees upon (for example --- having multiple clipboard standards really hampers interoperability.) The fact that it is both slow and hard to use will severely hamper X Windows as a commercial desktop interface. It is kind of cool to get X applications running under OS X, but it just emphasizes how crappy X Windows is compared to, say, Aqua/Carbon, as you see how sluggish the X Windows app is by comparison, how it doesn't interoperate with Aqua apps correctly, or even with other X Windows apps in a consistent manner. Even with autocutsel running, cutting and pasting between X applications and Aqua applications doesn't work properly. This is not the way to write software... you can't win users just because it is cool that it is free --- it has to also work well, reliably, and simply. There's far too little care being put into making simple things simple for the user. I love the idea of free software, but the reality is much more needs to be done on the usability front. I personally believe the only real solution is to either chuck X Windows out entirely, or reimplement it so it is at least moderately fast and has some unified UI standards. It's too bad Aqua isn't free...

July 7, 2002

My dad was here for the opening of his friend Ed Bereal's show at the Elizabeth Leach Gallery. One of their old friends, Joe Goode, also came. They walked around Portland a little like laughing demigods, which is sort of what I've come to expect of those Chouinard guys. My dad said while he was here that one of the secrets of life is not caring about success... success is all right, but not something one ought to pursue. He quoted Vonnegut who once said something to the effect that writing is too important to make a living at... ironic, since Vonnegut himself did end up making a living at it --- however, that's exactly why he was able to say it and not make it sound like sour grapes, my father pointed out. "Life isn't positive or negative," my dad went on, "it just is."

He also said a lot about seeing, and the importance of seeing, the importance of more direct perception, as opposed to overconceptualization. "Use your intuition!" he advised an artist friend of mine (brad adkins). I myself believe it is better to generalize this to perception in general --- including every modality. Even the idea that we are perceivers perceiving things out there I think is misleading. We're participators in the world, and we can only effectively participate by scaling back our urge to appropriate, and emphasizing the alternative --- participation.

July 5, 2002

I have difficulty understanding verbose tutorials: it's much easier for me to read and understand terse definitions and mathematical descriptions than it is for me to wade through most tutorials designed to "introduce" a subject. The tutorial always assumes a particular way of understanding something, and they often skip important fundamental principles or blur past them in a way that leaves me feeling uncertain; whenever I read anything I always think of the subject matter in context, in terms of its connections, deep and shallow, to everything else that I know. However, a tutorial which glosses over the depths of a subject in favor of a vague "overview" leaves me feeling confused --- I cannot connect it, I don't know how to hang what I am reading in a lattice of other things. The words sit there, flat and meaningless.

July 2, 2002

Philip Whalen RIP.

As I was driving around my neighborhood here in Gardena, I realized how virtual Los Angeles really is, at least as compared with other cities (like Portland, or New York), which actually have neighborhoods where space and time have a clear meaning. Growing up in Southern California is more a process of getting to know individual points in a widely separated, far-flung reality --- the intervening space is transformed into time in the car, and it has little or no impact, psychological or otherwise, on you. This leads one to experience the city not as extended in space, but rather as hyperlinked, connected by the broadband arteries of the freeways, with each location one visits just a point in the set, without very much psychological connection to the immediately surrounding points in space. You relate to all the places you go, as though those were your "neighborhood", regardless of how far apart they are.