So Facebook filed its IPO papers, and the numbers are eye-popping.  The company appears to be worth about $100 billion, or a bit more than the GDP of Tunisia.  Others shade it a bit lower, but one thing is certain: it’s good to be Facebook.

Facebook is special because, in network economic terms, its product is a platform, and successful platforms are few and far between.  For all its bells and whistles and features and privacy policies, Facebook remains—at heart—a place that people hang out.  As the proprietor of a popular hangout, Facebook gets to write the rules guiding all the folks who think it’s a good place to pitch their businesses or to make some sales.  In network economic terms, these businesses operating inside Facebook’s business comprise an aftermarket.

In a very real sense then, Facebook operates as a private-sector regulator of a vibrant commercial marketplace—the Facebook aftermarket.  Vendors in this marketplace develop and launch “apps,” literally software applications that run atop the Facebook platform.  Facebook has a symbiotic—and asymmetric—relationship with these Facebook app companies (or FBapps).  The symbiosis is clear: the more people who like Facebook, the bigger the potential audience upon which each FBapp can draw; the better the FBapps, the more popular Facebook will become.  The asymmetry is equally clear: each individual FBapp needs Facebook more than Facebook needs it.

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A couple of years ago, after the bubble crashed, my wife and I decided to buy a condo in Vegas.  There were many reasons behind that decision, but Sin City is known for delivering the unexpected.  And so, political junkie that I am, I suddenly found myself eligible to participate in an early, swing-state, caucus.  Las Vegas had taken me into virgin territory.

Being a caucus neophyte, I approached the matter gingerly.  I called the Clark County Republican Party office seeking guidance.  What happens at a caucus?  How long does it run?  What’s the procedure?  No one possessed definitive answers to these complex questions, but we were able to determine that folks in my precinct were caucusing at a nearby High School.  The doors opened at 8:00 AM, with the caucus itself slated to start at 9:00.  Anyone could speak on behalf of any candidate; each speaker would have two minutes.  Beyond that, things got a little vague.  I pre-registered on line “to avoid the crowds” of caucus day.

I arrived at Valley High School at 9:00 AM, impressed to see a sizable packed parking lot.  Perhaps these are the political activists I hear so much about, I thought.  Great to see how many of them show up early on a Saturday morning.  But for a group of activists, the lot seemed singularly inactive.  Where were the Paulistas, gesticulating wildly to emphasize that the Fed is our enemy, while Iran is not?  Where were the Romney and Gingrich surrogates deflating each other’s tires?  Where were Santorum’s nattily-dressed minions?  Where were the folks waving Perry and Bachmann signs, refusing to admit that their party was over?  Two helpful teenagers provided the answers: the caucus was on the other side of campus.  The folks parked in this lot were there for—get this—Valley High School.

I dutifully drove around the block to find the much smaller but equally pacific lot bearing two signs marked “Caucus here,” one sign for Ron Paul, and a TV truck.  I entered the school cafeteria, where a helpful volunteer directed me to the table for pre-registrants.  I surveyed the scene quickly: Fifty or so small tables, broken into groups, and perhaps two hundred people.  No politicking as far as I could tell, no speechifying, just a room full of Americans out enjoying their morning.  The young woman who checked me informed me that my precinct was convening in the gym.  I thanked her for the directions.  Then I told her that it was my first caucus, and asked her what the procedure was.  “It’s my first caucus, too,” she said.  “So I don’t know.”  I thanked her again and headed to the gym.

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It’s hardly a secret that the 2012 election is shaping up as a contest between free markets and big government.  And while the choice seems clear in the current political environment, it’s important to recall that government does play a critical role in the development and maintenance of functioning markets.  Yet, as Tea Partiers, Occupiers, and Ron Paul acolytes all note, government has both abdicated that critical role and inserted itself where it does not belong.

If markets were magical places that flourished whenever government disappeared, Somalia would be the world’s leading economy.  Markets are sophisticated mechanisms that enable informed parties to exchange resources, voluntarily, to mutual benefit.  There’s a lot packed into that sentence.  For markets to work, participants must trust the system.  They must believe that they have—or least can access—the information they need to make informed decisions.  They must feel free from coercion—both explicit coercion and unacceptable take-it-or-leave-it offers.  They must trust the inherent fairness of the system, and they must believe that it is possible to enforce the rules of the marketplace by sanctioning cheaters.  The closer an actual market comes to meeting these needs, the better it will function.  The further a market drifts from these goals, the more likely it is to fail.  It is thus absolutely critical that someone—presumably the government—serve as the market referee and the guarantor of market enforcement.

First and foremost, market participants must believe that courts will honor contracts and property rights fairly, dispassionately, and smoothly.  Contracts allow strangers to exchange promises; property allows people to focus on matters in front of them without worrying about possessions that may be out of sight.  In the absence of enforceable contracts and property rights, people could never travel far from home, leverage their assets, or exchange current payment or performance for a promise of future delivery with anyone unfamiliar.  In short, a society that distrusts its courts cannot progress beyond a tribal or a village economy—even if it employs tribal or village markets.

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I’ve grown weary reading about the disappointing nature of the Republican field for President.  So allow me to take a contrarian view: We have a solid field of candidates that seems to be leading to an exciting choice.

First, a disclaimer.  Way back when there were twenty or thirty names being tossed about, Newt Gingrich was my first choice—largely because of the clarity with which he sees the civilizational challenge from the Islamic world.  So it may appear cheap and easy for me to laud a process that has resurrected my candidate after I (and almost everyone else) had left him for dead.

Next, a concession.  There are plenty of great candidates who bowed out of the race.  Personally, as a fourth generation Brooklynite, there is something I find refreshingly familiar about Chris Christie.  It would have been a real pleasure to have a President who understands the difference between arrogance and chutzpah.  Perhaps some other time.

Finally, the field we do have.  As we head towards the political hiatus also known as Christmas, the two leading candidates appear to be Newt Gingrich and Mitt Romney.  It is hard to imagine two more different politicians:

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The Stop Online Piracy Act (SOPA), currently the subject of hearings in the House Judiciary Committee, has generated interest far beyond the community of copyright lawyers.

To its proponents, SOPA is a critical addition to copyright law, necessary to help creative Americans protect their legitimate property rights from foreign attackers, and thus to preserve the numerous American jobs in our world-class creative industries.

To its opponents, SOPA is an unprecedented attack on civil liberties that threatens to destroy free speech, the Internet, and the thriving American technology sector—not to mention the many American jobs that it creates.

Who is right?  It turns out that they both are: SOPA will help copyright holders protect the rights that copyright law grants them by suppressing free speech and impeding the functioning of the Internet, with predictable consequences on American jobs.

This result is hardly an anomaly.

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Burning Man has entered the mainstream.  Not only did the event sell out for the first time in its history, but the Wall Street Journal and New York Times both gave it prominent coverage.

What is Burning Man? For the still uninitiated: “Once a year, tens of thousands of participants gather in Nevada’s Black Rock Desert to create Black Rock City, dedicated to community, art, self-expression, and self-reliance.  They depart one week later, having left no trace whatsoever.  Burning Man is also an ever-expanding year-round culture based on the Ten Principles.”  Those ten principles, in turn, are: (i) Radical Inclusion; (ii) Gifting; (iii) Decommodification; (iv) Radical Self-Reliance; (v) Radical Self-expression; (vi) Communal Effort; (vii) Civic Responsibility; (viii) Leaving No Trace; (ix) Participation; and (x) Immediacy.

According to the WSJ, this “mantra is so compelling that some 50,000 participants have gathered in this rustic setting for the 25^th annual rite,” but a more honest count might conclude that it draws about 1,000 people eager to explore the philosophical implications of alternative socioeconomics, and 49,000 people looking for a good party.  Yet, with all the potential to report about alternative events and lifestyles, both papers focused on the incursion of capitalist trappings into this supposedly non-capitalist venue: the NYT wrote about the for-profit nature of the parent corporation, while the WSJ described the emergence of a class structure among Burners.  The irony falls equally on the newspapers and the Burners, however, because far from presenting an alternative to capitalist socioeconomics, Burning Man is a glorious, joyful expression of them.  And therein lies the true story.

Three years ago, I attended Burning Man for the first (and so far only) time.  Like many virgins, I was unaware precisely what to expect—or how I could contribute to the community.  After all, as a professional technology lawyer and an avocational political philosopher, the demand for my skills in an alternative art city appeared somewhat unclear.  Fortunately, a chain of telephone referrals led me to a long-time Burner organizing an “academic style” conference on The Future of Art.  I volunteered a presentation on contemporary copyright issues, reasoning that the ways that we regulate art would have a profound effect on the art we get.

On my second day on the Playa (as the grounds of Black Rock City are known), I thus found myself in a scorching shade structure addressing a scantily clad crowd curious about art and its future.  I spent my twenty minutes running the crowd through a series of hypotheticals designed to illustrate the profound effect that the regulation of art can have on determining whom we motivate and what we motivate them to do.  The next speaker, a fine Marxist graduate student in I forget what at I forget where U, read a paper to the crowd extolling the gift culture at Burning Man as an appropriate curative to the rapacious excesses of capitalism—as exemplified by that most imperialistic of all evil empires, the United States.

That’s when the real fun started.

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Is Obama Smart?  It’s a question that more and more people are asking.  His devoted fans like to note that he made it through Columbia and Harvard—supposedly a stark contrast to Rick Perry’s less-than-stellar transcript from Texas A&M, though Obama’s refusal to release his own transcripts does blunt the comparison.

More to the point though, the evidence seems conflicting.  On the one hand, he ran a remarkable campaign in 2008.  He sensed what the American people needed to hear, and he emerged from nowhere to defeat vastly more qualified opponents.  On the other hand, his performance as President has been dismal.  Most Americans recognize that his policy preferences range from the irrelevant to the counterproductive, and leftists contend that he has been ineffectual in pursuit of their agenda.

So is Obama smart?  Yes.  Obama is a certain kind of smart.  Unfortunately, it’s the wrong kind.  President Obama is the sort of smart that our finest institutions recognize, promote, and reward.  There is no surer path to academic success than learning the orthodoxy of your field and the particular bent of your professor; explaining why only those blessed with suitable experience, training, and insight can comprehend the complex problem under consideration; and then parroting the professor’s previously articulated answers shortly before he or she reveals them to the class.  Mastery of this skill continues to pay dividends in the real world, most prominently among business consultants versed in telling corporate boards what they want to hear, and attorneys capable of tailoring their arguments to the predispositions of the judges before whom they appear.

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Last week, Google announced its plans to acquire Motorola Mobility, effecting a vertical integration from the Android operating system into hardware.  Investors responded by shaving roughly 13% off Google’s value—roughly twice as much as the NASDAQ lost and three times as much as the Dow.

A few days later, HP announced its plans to shed its PC division and acquire a software company.  The combined effect will be a shift from hardware—long HP’s mainstay—towards software.  Investors responded by knocking close to 20% from its value in a single day.

So what, one may wonder, do tech investors want?  Apparently neither integration nor refocusing can please them.  While it is certainly true that few companies posted big wins in the equity markets this week, it remains striking that Google underperformed Oracle, IBM, Apple, Microsoft, and Yahoo! (all of whom posted losses much closer to those of NASDAQ) and HP did even worse.  Is there an underlying message in their declines?  And if so, what is it?

Perhaps the message has to do with a judgment about the state of the tech sector.  Technology industries tend to evolve in a Darwinian fashion.  A new foundational technology—such as the PC, the Internet, or cell phones—crosses a certain level of usefulness, and a race ensues.  A handful of platform providers launch competitive tweaks designed to make the foundational technology broadly functional, and many aftermarket players arise in their wake.

Eventually, the platform competitors winnow themselves down to a small number of winners, each of whom shifts its focus from the direct platform competition to the organization of the aftermarket ecosystem spawned in its wake.  Competition within those ecosystems then accelerates, as each one begins to claim unique advantages.  A generation or two down the road, few advantages remain unique; the remaining platforms begin to converge.  Until, suddenly, a new technology arises to restart the system

We have seen this pattern repeat itself several times.

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Google is one of the worlds most intriguing companies.  From its humble beginnings as a search engine company, Google has leveraged its mastery of the elusive formula for monetizing web traffic into a force capable of tangling with China—making it considerably stronger than our own State Department by some measures.  Its recent announcement that it plans to acquire Motorola Mobile makes it heir to a grand tradition of American manufacturing—not to mention possessor of a valuable trove of intellectual property, and a sudden direct competitor to stylish hardware king, Apple.

Along the way, Google has managed to wander into numerous areas of public policy, including privacy, data security, and telecommunications regulation.  It has attracted antitrust scrutiny, patent challenges, and copyright suits—along with the standard collection of business litigation.  It has become a significant contributor to election campaigns and an active bidder for government IT contracts.  Above all, Google has riveted the attention of both devoted fans and committed opponents.

What does it all mean?  How can we make sense of such a company?  And how can the answers to these questions inform contemporary political debate?

Of the many axes that define twenty-first century American politics, one economic split pits fans of the public sector against fans of the private sector.  While the vocal members of these warring camps tend to point to different virtues for the public and private sector, they each point to a similar vice: much of the political left is inherently distrustful of corporations, while much of the political right is inherently distrustful of government.  Why?  Those who trust government tend to believe that elections and constitutions constrain abuses of power, while corporations are slaves to profit-seeking shareholders and greedy board members.  Those who trust companies tend to believe that competition and market dynamics constrain abuses of power, while vocal, well-funded interest groups corrupt even the best meaning of government officials.

Companies like Google—along with Facebook and Apple, and in earlier times Standard Oil, IBM, or AT&T—confuse the issue.

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Gold has a long history of being many things to many people.  To some, it is a shiny bauble, to others a commodity, and to still others a currency.  To financial economists, gold is the traditional hedge against inflation.  This month, however, it appears to have assumed a new role: The gold market is now the mirror image of the broad equity markets. And while the tight inverse correlation in day-to-day trading is unlikely to persist for long, this general relationship may be around for quite some time.  Why?  Because headlines notwithstanding, the rapid rise in gold prices is not a short-term speculative bubble, but rather a necessary consequence of our previous bubbles and an appropriate response to the shakiness of sovereign debt.

Contrary to convenient metaphor, financial bubbles do not “burst” when they end.  They unwind.  Consider the plight of the “Internet Bubble” of a decade ago.  As 1999 drew to a close, all seemed rosy in the world of dotcoms.  Christmas shopping brought droves of new consumers into the world of e-commerce, as the amount of business conducted on the Internet skyrocketed, along with e-tailer revenues.  But that revenue growth, while significant, fell far short of the amount necessary to pay outstanding bills.  In other words, folks who had relied upon future revenues to pay past bills were unable to do so.

The suddenly underfunded e-tailers, beset with disastrous balance sheets, had no choice but to defer their IPOs.  Even worse, within a few months they had to turn to their suppliers, mostly web developers and software companies, and offer them a choice: Either defer due dates on all outstanding receivables and allow them to age gracefully, or sue for collections and risk a countersuit.  With their eyes on their own IPOs, the web developers and software companies had little choice but to age their receivables—and pass the dilemma onto their own suppliers, including web hosting services and ISPs.  They too had assumed that future revenues would cover past bills, and they too were disappointed.  As month followed month, the problem flowed outward with each turn of unpaid receivables.  From software it spread to hardware and eventually to telecom.

The demise of large, well-funded companies like Global Crossing and Worldcom—roughly two years into the unwind—finally diffused the losses sufficiently for the broader economy to swallow them.  Investment picked up again, and the economy recovered—with a disproportionate share of the investment flowing into real estate.  Why real estate?  Largely because government policies arising from numerous corners and serving numerous goals made real estate investing appear to combine low risks with high rewards, and low down payments with sizable future debts.  The specific causes of the real estate bubble—like those of the Internet bubble—form a fascinating tale, but one that is tangential to understanding its unwind.  The key to both unwinds was the assumption that lager revenues tomorrow could fund today’s spending, or in a word, leverage.

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“The full faith and credit of the United States Government.” That’s what backs up our currency—and that’s all that backs up our currency. Throughout most of history, governments had to back their currency with something tangible, typically a fixed quantity of gold. In fact, most coins actually contained the requisite quantity of gold because many of the folks who used those coins in commerce didn’t particularly trust the King whose likeness they bore. It’s good to be king and all, but if you wanted to add a ducat’s worth of wheat to the royal granary, you had to put up an actual gold ducat.

Paper currency required people to place a bit more trust in their governments, though the rule remained—at least in theory—that anyone holding the note could take it to the official treasurer and exchange it for the specified amount of gold. Roughly forty years ago, when Nixon took the U.S. off the gold standard, we dropped every last pretense of convertible dollars. From that day forward, the only thing backing up our currency was two simple words: “trust us.”

Imagine that. Richard Nixon—of all people—stared at the world and said “trust us,” and the world complied. Through seven Presidents of both parties, the world—from multinational corporations to anti-American drug dealers and terrorists—has trusted us to stand behind our currency and our debt. In an uncertain world filled with violent disagreement, the one point on which all could agree was that the U.S. remained uniquely trustworthy.

So when Standard & Poor’s downgraded our credit rating on Friday, the message was both stark and clear: the United States is a little bit less trustworthy than anyone had thought. Why? What happened? Who is to blame? The White House, of course, is quick to point fingers everywhere but the Oval Office. Yet this perceived decline in America’s trustworthiness is eerily familiar to those who have paid attention to the Obama Administration.

In foreign policy, Obama failed to stand behind anti-regime protestors in Iran or pro-democracy moves by the Honduran Congress and Supreme Court; he canceled missile defense systems that we had promised to Poland and the Czech Republic; he abandoned a deeply flawed but longstanding ally in Egypt; and he has taken every opportunity to embarrass Israel. From Colombia to Saudi Arabia, Obama has put our allies on notice: prepare to act unilaterally, because the United States is a bit less trustworthy than you might have thought.

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