Letters from our readers.
Nov. 7 1997 3:30 AM

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I Kept My Promise, Don't Keep Your Distance

Re: "Dialogue" on the Promise Keepers, between Marci McDonald and Ron Stodghill.

Could you really not find a single writer who has a problem with the Promise Keepers? Not one with any qualms, or even complicated questions about a right-wing-funded mass organization of fundamentalist Christian men who want to wear the pants at home? Next time, instead of hiring two bored journalists to pooh-pooh feminists, how about one bored journalist and one person who actually believes that equality for women is a meaningful concept. Although you wouldn't know it from the PK publicity mill, there are quite a few of us out here.

--Katha PollittNew York City


Gimme Shelter

The "examples" included in Robert McIntyre's "Tax Shelters: The Video Game" incorporate some highly dubious rate-of-return calculations. Anybody with a fundamental understanding of finance can tell you that return analysis in the absence of accompanying risk analysis is incomplete. That's why investing in stocks (usually) pays better than buying T bills--one outcome includes an element of unpredictability, while the other is relatively certain.

McIntyre, however, presents examples in which leveraged buying of equities generates large rates of return, and then proceeds to throw those numbers into his analysis without any discussion of the leverage and resultant risk involved. That's preposterous--he may as well have used an example with $200,000 in gambling winnings from Vegas. The point is that it's the degree of leverage, not the tax shelters, generating the large and highly volatile rates of return in McIntyre's examples.

In reality, it's practically impossible to buy entirely on margin anyway, which is what McIntyre is describing--you'd need to deposit additional funds with your broker, which would then be included in any rate-of-return calculation. I don't dispute the fact that tax shelters affect rates of return, but McIntyre's decision to use an implausible example in order to come up with some big return numbers (ooh--evil tax shelters!) reveals his own strong bias toward income redistribution.


Slate could have put someone with a reasonable grasp of elementary finance and a balanced viewpoint in charge of writing a tax piece. Too bad it chose to use McIntyre instead.

--Joseph OshaNew York City

Noble Nobels?

Todd Porter, in his article "Ph.D., Model Thyself," draws his main conclusion by misunderstanding a basic tenet of economic theory. His article describes profit maximization as if it were the central behavioral assumption of economics. It isn't. Utility maximization is. While they sound similar, the two principles are extremely different. A Profit Maximizer maximizes the amount of money it has. A Utility Maximizer wants to acquire many things, including cash, but also such things as trips to the beach, time to watch TV, adorable grandkids, and (probably most important in this case) professional prestige.


Porter tries to both make the point that profit maximization doesn't explain all human behavior (of course it doesn't, and no economist thinks it does), and that the Nobel Prize-winning economists were not greedy enough for Porter's own tastes. Things would be simpler if only Black, Scholes, and Merton had been in it for the money: "plain old greed should be adequate to explain nearly everything in finance, because finance is about making money." OK. But associate professors studying financial markets aren't in them, only theorizing about them. Their choice of career should have been the first sign that they have interest in things other than money. In which case, aiming for a Nobel Prize is the kind of behavior any good economist would expect.

--Doug SmithCambridge, Mass.

The Week/The Shill?

No doubt I am not alone in wondering if anyone from Slate's ownership talked to William Saletan before releasing "The Week/The Spin," which covered the Justice Department's antitrust actions aimed at Microsoft. Have we a conflict of interest here? How much of the evidence against Microsoft (anecdotal or otherwise) that is reported in the papers won't make it into any of the stories in Slate? Is online self-censorship any different from the old-fashioned print variety? How will we know if these suspicions are unfounded?


--Bob BardeBerkeley, Calif.

Nattering Naders of Negativity

There must be something soothing and redemptive about publishing Ralph Nader's "The Microsoft Menace" shortly after getting slammed in InfoWeek for slamming Java. Just wish it didn't remind me of public radio's recurrent flirtation with conservative commentators whenever Congress reconsiders its funding.

That's the problem with perceptions. One seemingly sponsor-serving article, and any number of future self-flagellations are written off by a cynical, jaded public. Where do these people get their diet of opinion, anyway?

--Paul NicolettePemberton, N.J.

Nader Redux

In the "Links" section following Ralph Nader's piece ("The Microsoft Menace") on why he is concerned about Microsoft's business practices, you mention how one might meet "other Microsoft bashers" at his Nov. 13-14 conference in Washington. I find this not-so-subtle characterization of Nader as just another "Microsoft basher" off base.

Whether you agree with him or not, Nader has been a constant advocate for the American consumer for more than 30 years now, well before Microsoft came into existence. While some would love to attribute his current courageous (albeit quixotic) stance as some kind of personal vendetta against Microsoft, the diversity of his actions in the past make it plain that his concerns lie with the anti-competitive and monopolistic practices of this or any other company, and not with the company itself (or Bill Gates).

I believe Nader has very good reasons why we should all be concerned about Microsoft's attempts to corner the future of computing, and to belittle him with the "Microsoft basher" label is inappropriate.

--Peter Benson Robbinsdale, Minn.

Yet More Nader

Microsoft does engage in some anti-competitive practices, such as not allowing resellers to disclose contract terms, and the Department of Justice is doing a fair job of policing such activity. But Microsoft bashers such as James Love and Ralph Nader ("The Microsoft Menace") just don't get it. Any honest observer must ask a fundamental question: What if the software business is a natural monopoly?

A natural monopoly means that due to the nature of the product and market, the industry will be dominated by a single player. Roll the clock back 15 years and start over. IBM may dominate the market with OS/2; Macintosh with the Mac OS; even a Novell or a Unix vendor could come out on top. But any honest observer must ask the question: Is the market structured so that one company is likely to have a huge market share? Economics tells us most likely, yes.

On the supply side, for any application, software--unlike industrial goods--is subject to "increasing returns." This simply means that the costs of producing an application always go down as the number sold goes up. Intuitively, consider a market of 100 buyers evenly shared between Microsoft Word, WordPerfect, and AmiPro. Each company must spread out its costs over 33 buyers. If AmiPro dropped out of the market, then Word and WordPerfect could spread their costs out over 50 buyers, and if WordPerfect dropped out, then Word can spread its costs out over all 100 buyers. This result obtains because the cost of producing another unit of software is, for all practical purposes, zero. This doesn't necessarily mean that costs will go down--the extra costs may be taken up by hiring more programmers, doing basic research, or even (gasp) in extra profits. But the point is that Microsoft can get a large market share without engaging in any wrongful behavior. Indeed its actions are generally consistent with consumers doing better.

On the demand side, software is subject to "positive network externalities." This means that users get an extra benefit when others are using the same software. For many years, I used AmiPro because I liked the interface and features better, but I eventually gave it up and switched to MS Word. Why? Because all my colleagues were using MS Word, and messily converting files back and forth just never worked that well. Many people think that there is something illegitimate about this type of cost, but remember, this is a real cost. As consumers, we may not be better off with only one word processor that uses a single file format. But then again, we may be, and it would seem the marketplace has rendered some sort of decision.

These considerations should give pause to those attacking Microsoft. Taking down Microsoft may simply mean exchanging one dominant firm with another. The only other intellectually honest approach is to advocate wholesale government regulation, a strategy that most agree would be a spectacular failure (and is a whole 'nother story).

--Brian McDaniel executive editor, Harvard Journal of Law and Technology Cambridge, Mass.

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