Sunday, March 15, 2009

My Econ Professor Never Prepared Me For This...

Russell Roberts posts a bit of a followup to a great bloggingheads.tv appearance with Arnold Kling.
I have argued that economists generally came down on one side or the other of the stimulus package based not on their economic understanding but on their political and philosophical biases. I still believe that. I think we're in macroeconomically uncharted territory.

Give the bloggingheads video a viewing, if you're into macroeconomics.

The real reason I'm posting this here is, at one point, Kling is questioning the ability of econometrics to realistically measure real value. His claim is that much of the growth in the economy in the last 15 years isn't really growth. We have nothing to show for it. Most of that growth came from a rise in home values that weren't really there, and financial market shenanigans that also turned out to be a ponzi scheme. Then, when touting what we *do* have to show for the last 15 years--the very technology that he and Roberts were using to build, share, and host the video dialog (in short, The Internet)--that econometrics largely misses that value entirely.

This hit dangerously close to a train of thought I've been working on (and will continue to work on), largely in relation to Media's failing business model. What if it is difficult to measure the economic value of something like the Internet for the same reason that it's so hard monetize and form a business model around?

Sure, there are business that benefit greatly from the internet, and wouldn't exist without it. Dell and Amazon come to mind. To a large extent, many businesses have gained efficiencies from the Internet in ways large and small. But there are some markets that are going to be broken entirely by it.

The newspaper and recording industries, for starters.

Imagine for a moment, that you own a car. A friend of yours expresses their desire to own one just like it. Further imagine that there is some mechanism in your garage that lets you to, with nothing more than a press of a button, pop out an exact duplicate that your friend could take home. To further extend this analogy, what if there were some mechanism by which you could press a button, and let thousands of friends and strangers alike create a duplicate of your car whenever they felt like it? How long would traditional car companies remain in business?

(A brief aside on the idea of Ford hypothetically copyrighting cars, in the event that such a mechanism is ever built: Copyright is a magnificent creation that introduces market-like forces into the realm of information, where they do not natively exist. Copyright may provide market incentives for the creation of intellectual property, but it must be noted that it is an artificial convention, not a real material one. Furthermore, we can see the problems that this artificial construct has when it rubs up against the real world, as it is doing right now with the Media in all it's forms.)

I'm a strong advocate of free markets, obviously. Markets are the mechanism by which society directs the usage of scarce resources to its best advantage. This works great for material goods, but what happens when resources aren't scarce? What happens when they are near-free, such as the duplication and distribution of music and journalism?

Let's face it, until we get the replicators online, nobody's downloading any cars to their garage. But in a sense, the problem facing the Media is a very special case of the problem facing much of America's economy as a whole (and I mean the kind of economy requiring resources to actually make material goods). In a global market, the resources, particularly labor, are not scarce...they're bountiful. Labor can be had cheaply through automation and foreign markets. What kind of a state does that leave American Labor in in the coming years? Moreover, if we can assume that American manufacturing is dead or dying, and American Labor with it, how do we move America into a post-manufacturing economy?

Lastly, to bring the circle of this train of thought to a close, what happens if a large portion of an American post-manufacturing economy is built to survive only in an environment where the only artificial and difficult to enforce constructs like copyright, going head-to-head with the real world, are its last gatekeeper?

I am strongly encouraging comments on this post, folks. My brain is spinning with this stuff. I need more input.

(Hat tips to Russel Roberts, Arnold Kling, and Clay Shirky today.)

2 comments:

  1. Will need to re-read when I'm not dying of insomnia. (Wow, sounds more drama-rific than I meant.)

    You've talked with me before by the need to train the US work force for the jobs we need to foster on a home-grown basis versus those we do train them for or fail to train them for, e.g. producing functional undergrad and grad level maths and CS folks. Is that the route we need to push, versus a labor force focused on a 'manufactured' good? Or is that too intangible of a product to promote?

    I think the idea has merit and that we don't have enough home grown human capital in these areas. It is probably not the only area. I've read some interesting policy analysis pushing 'green jobs' in the area of re-thinking how we farm and what we do and do not subsidize in our farming programs in order to promote the ideals some sectors of political spectrum. I wonder how sustainable it is practically, but I'll try and dig up the analyses and point you at them.

    Will need to give it some thought when I've actually had a decent night's sleep, but I'd agree in principle that things can't continue to subsist as is.

    ReplyDelete
  2. I was not clear on your position regarding the Internet as a "market" in itself. Could you clarify if you are for or against this? I too have a lot of this "spinning" in my head currently and some of my thoughts are:

    I believe the current model, especially when it comes to the music industry will need to change rapidly or, it will die. The music industry cannot keep up with what is going on out on the interweb any longer. I for one am completely for the sharing of music or other things because I believe it will drive more sales and offer new revenue streams that were not previously possible. Think about this, let's say you copy me a few tunes of one of your favorite bands that I may have not heard of before. I listen to them and begin to like it. When their next record hits, I will be more likely to purchase it as well as see them in concert. I.e. $$ that band or label would not have seen from me since I may never have spent money for the music I received free to start.

    If you look at this type of scenario as a jumping off point to promote a product or "viral market" a person, brand, or thing....could it not be the economic model of the future? Why do companies need to license the shit out of everything and also nickel and dime us every step of the way?

    To touch on the workforce points, I believe that we are currently too focused on labor/production intensive jobs. A stable economy needs a balance of all types of labor but it is obvious that we cannot sustain at this rate. Also, this is not our parent's America. The days of staying at one job for 30yrs are pretty much over. You can pretty much guarantee that constant evolution and training is necessary to survive in even to most basic of jobs as we move into the next several decades.

    ReplyDelete