Category Archives: Economics

On the harsh reaction to Paul Graham’s post on inequality. Adapting Tyler Cowen’s laws to writing on the internet.

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On January 2, technology investor Paul Graham published two posts. One on Refragmentation, about 20th century mass organizations breaking into pieces. Another on inequality, about why it’d be best to directly fix problems like poverty rather than fix inequality per se. What puzzled me was the visceral hate the inequality post produced, even by a number of tech insiders. Graham went so far as to write a second version using very simple words on Jan 4 (the implication of writing a dumbed down version wasn’t lost on anyone). Then on Jan 8 he wrote a response to Ezra Klein’s take. Now that this has mostly blown over, I remain puzzled. Why did this blow up? What does it mean about writing on the internet, if anything?

Continue reading On the harsh reaction to Paul Graham’s post on inequality. Adapting Tyler Cowen’s laws to writing on the internet.

Since cars replaced horses, won’t robots replace people? The future of technological unemployment.

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My favorite analogy for understanding technological unemployment is “peak horse.” Below is the version told in Greg Clark’s book A Farewell to Alms:

there was a type of employee at the beginning of the Industrial Revolution whose job and livelihood largely vanished in the early twentieth century. This was the horse. The population of working horses actually peaked in England long after the Industrial Revolution, in 1901, when 3.25 million were at work. Though they had been replaced by rail for long-distance haulage and by steam engines for driving machinery, they still plowed fields, hauled wagons and carriages short distances, pulled boats on the canals, toiled in the pits, and carried armies into battle. But the arrival of the internal combustion engine in the late nineteenth century rapidly displaced these workers, so that by 1924 there were fewer than two million. There was always a wage at which all these horses could have remained employed. But that wage was so low that it did not pay for their feed.

Continue reading Since cars replaced horses, won’t robots replace people? The future of technological unemployment.

The current Perez tech cycle is software driven. Which is great, except now monopoly is eating the world.

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I just finished Carlota Perez’s Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages. First thought: not for everyone. It’s big picture tech cycle theorizing about economic history. Yet I found it first rate, and can see why it’s popular with some Silicon Valley investors. In particular Marc Andreessen cites Perez so often, I finally bought the book. It got me thinking. Our current tech cycle is well captured by Andreessen as software is eating the world. And software is highly prone to monopoly. Reading Perez, I found it hard to avoid the conclusion monopoly is eating the world. Attention must be paid.

Continue reading The current Perez tech cycle is software driven. Which is great, except now monopoly is eating the world.

The algorithmic hand is replacing the invisible hand. But Hayek still applies.

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Last week Adam Ozimek posted an interesting piece Big Data Versus Hayek. He noted how centralized algorithmic price setting, for real estate, airlines and hotels, was displacing local and decentralized decision making. Because it works better and is more profitable. And how this development was very “un-Hayekian.” Friedrich Hayek of course famously arguing centralized planning and pricing could never do as well as the man-on-the-spot in taking into account local conditions.

Continue reading The algorithmic hand is replacing the invisible hand. But Hayek still applies.

Internet economics is relentlessly pulling ebooks and libraries towards subscription streaming.

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Amazon’s hard fought battle with book publisher Hachette has been widely covered, as Amazon brutally squeezes their supplier for lower ebook prices. More here. Despite all the coverage, I think the much less discussed Kindle Unlimited announcement is more important. With Kindle Unlimited, Amazon is charging $10/month for all you can read ebooks. Though the terms differ, it’s similar to other ebook subscription services such as Entitle, Scribd, and Oyster. Om Malik says he’s uninterested, since “These services’ book selection is long of total numbers of books, but is short on the books I really wanted to read. Much like Netflix in the early days, you have a lot of indie-content and old catalog content with some new stuff.” I think the Netflix in the early days comparison is exactly right. Not there yet, but a sign of things to come.

Continue reading Internet economics is relentlessly pulling ebooks and libraries towards subscription streaming.

WhatsApp’s first year free model deserves to be emulated

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As widely reported, Facebook acquired messaging service WhatsApp on Feb 19. My preferred take is from Ben Thompson here. For a more skeptical view see Arnold Kling (here and here) or Matthew Yglesias (here). But rather than debate the acquisition, I want to narrowly focus on WhatsApp’s freemium model. You get the first year free and pay $1/year for each subsequent year. Having what’s essentially a super long trial period as a freemium model is a very clever, and I wouldn’t be surprised to see it emulated. Also, it’s worth noting Facebook is likely to modify how WhatsApp monetizes users post acquisition. So let’s focus on the model itself, and its wider applicability.

Continue reading WhatsApp’s first year free model deserves to be emulated

Internet pricing, Dungeon Keeper and the case for Minimum Viable Free Product (MVFP).

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One of the great pleasures of following the tech world is seeing it rocket makers and doers to the top. Brilliant people guided by powerful intuitions, with little tolerance for theory. Never boring! But theory distrust has a downside, as shown by last week’s mixed reaction to the excellent rant about the game Dungeon Keeper “How In-app Purchases Have Destroyed The Industry.” [Update: Follow up here.] Apparently people are shocked (yes shocked!) to find there’s free software on the internet. Less flippantly freemium pricing, giving an entry level free product away, is a big deal. Not just for gaming. So let’s have another go at the topic using what I’ll call the Minimum Viable Free Product (MVFP). With deep apologies owed to Eric Ries for the play on words on his quite distinct and deservedly influential idea of Minimum Viable Product.

Continue reading Internet pricing, Dungeon Keeper and the case for Minimum Viable Free Product (MVFP).

Average is Over could use more focus on the Zero Marginal Cost Economics of software

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Tyler Cowen’s excellent and widely discussed Average is Over argues computers will accelerate our existing trend toward a more stratified society. People adept at teaming up with computers will get richer, while those who aren’t will get left behind. Hence the title. Average is Over. What I found most striking was Cowen’s causal mechanism. He argues stratification comes from the skyrocketing productivity (and relative scarcity) of humans adept at teaming up with computers. Reasonable enough. But what Cowen didn’t emphasize is the odd economics of digital goods, such as digital music, eBooks and most importantly software itself. They have near zero marginal cost. Making copies costs nothing. As computer based digital goods start to dominate the economy, their odd zero marginal cost economics will loom larger and larger. I’ve written about Digital Economics before, so let’s see what it might mean for Cowen’s thesis.

Continue reading Average is Over could use more focus on the Zero Marginal Cost Economics of software

Business Models for Free Software

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The announcement that deservedly got the most attention at the Oct 22 Apple event was Apple dropping the price of their consumer software to zero. iOS was already free, but now the free list includes Mac OS X, iWork (spreadsheet, word processing, presentations), and iLife (photo editing, video editing, music editing). The New York Times incorrectly framed this as “Apple Targets Microsoft Office With Free Apps”. The correct frame comes from the always interesting Ben Thompson. In particular his two posts done prior to the event: “Open Source Apps” and “What Clayton Christensen Got Wrong.”

Continue reading Business Models for Free Software