Paul Krugman Joins The Infinite Goods Brigade

from the the-concept-is-getting-through dept

It looks like Paul Krugman is the latest economist to join the growing group of folks who recognize the impact of infinite goods on business models -- and how it's not a bad thing, just an inevitable shift in the market. Unfortunately, his writeup on the issue is a little weak. He references Esther Dyson's predictions about this from fourteen years ago and the recent Rolling Stone article we discussed last month. What's disappointing is that, as an economist, he should have been able to look at the fundamental economics and understand why this makes sense, but he chooses not to do so. That leaves him open to criticism. The next stage of this debate is going to be showing, fundamentally, why this inevitable change isn't a bad thing. Some people already recognize this, but it clearly is going to require a lot more convincing evidence.


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  •  
    identicon
    dorpus, Jun 6th, 2008 @ 1:03pm

    What is infinite?

     

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    dorpus, Jun 6th, 2008 @ 1:05pm

    What is infinite?

    Does anybody have infinite storage space? If downloading a song is somehow an "infinite supply", it still takes the finite resources of time, storage space, and labor. If one resource becomes cheaper, then it causes other resources to increase in relative value. If the cheaper resource causes other resources to be used more, then prices go up anyway.

     

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      Anonymous Coward, Jun 6th, 2008 @ 1:53pm

      Re: What is infinite?

      an 'infinite good' is a good that takes little or, more often than not nowadays, zero cost to reproduce and distribute.

      What is the cost to reproduce a track after it is initially recorded? Only the effort of right clicking and saying 'copy' on Windows....

      What about the cost to distribute? Well if you already have an Internet connection it costs you nothing at all. You can distribute it while doing other things on the Internet without noticible performance hits.


      Compare that to CD's. You have to pay for the construction of the CD, maintenence of the mass burners, people to change out CD's or maintenece for robots to do that. Then you have to pay for gas and truck maintenence and people to drive those. The list goes on and on.



      So moron, go back to not posting here because you are A) not a good troll B) most likely serious and C) refuse to accept facts for what they are, FACTS

       

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        dorpus, Jun 6th, 2008 @ 2:17pm

        Re: Re: What is infinite?

        What is the cost to reproduce a track after it is initially recorded? Only the effort of right clicking and saying 'copy' on Windows....

        What is the cost of buying a PC with windows on it, purchasing suitable storage media, the cost of an internet connection, or the cost of electricity? Are any of these costs "tending to zero"? Does the storage media have infinite longevity, or are there high costs associated with buying newer hardware?

        Could it be that in the future, the price of PC's will skyrocket as more places institute "environmental recovery fees"? Will electricity become cheaper, or will it become prohibitively expensive, so that people have to buy expensive home-generating equipment that produces "cheap" energy? I have followed the shell game of "cheap computers" since the 1980s, when "cheap" computers cost $300. In the 1990s, the cost of computing was going down exponentially, which was why a cheap computer cost $300, plus hundreds more for software to do anything useful with it. In 2000, the cost of computing was going down exponentially, which was why a cheap computer cost $300, plus hundreds more for software to do anything useful with it. In 2005, the cost of computing was going down exponentially, which was why a cheap computer cost $300, plus hundreds more for software to do anything useful with it. In 2008, the cost of computing was going down exponentially, which was why a cheap computer cost $300, plus hundreds more for software to do anything useful with it.

         

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      DanC, Jun 6th, 2008 @ 1:57pm

      Re: What is infinite?

      it still takes the finite resources of time, storage space, and labor.

      Storage capacity is constantly increasing due to advances in hard drive technologies and removable media. Additionally, the storage is reusable; everyone who keeps bringing up the "infinite storage" argument seems to operate under the impression that you have to keep everything you ever download. So, storage space is hardly as finite as you believe it is.

       

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        dorpus, Jun 6th, 2008 @ 2:25pm

        Re: Re: What is infinite?

        There is plenty of storage space in the Sahara Desert or Antarctica, but has the price of industrial storage gone to zero because of it? No, the price or industrial storage continues to rise, since space near cities are precious. Whether a USB drive can store 1 megabyte or 10 quadrillion bytes, it does not change the fact that it is a frail piece of plastic that, if lost, costs a lot of labor to replace.

         

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          DanC, Jun 6th, 2008 @ 3:34pm

          Re: Re: Re: What is infinite?

          Whether a USB drive can store 1 megabyte or 10 quadrillion bytes, it does not change the fact that it is a frail piece of plastic that, if lost, costs a lot of labor to replace.

          As I said, storage technology continues to evolve, allowing more data to fit into the same amount of space. For instance, in the world of disc media, we've gone from CDs to DVDs to Dual Layer DVDs to Blu-Ray to Dual Layer Blu-Ray.

          So now you're saying storage capacity doesn't matter, because resources will be consumed to create the additional storage, thus driving prices up. Of course, this can only be supported by relying on a "snapshot in time", because storage media changes, both in form and capacity.

          Storage capacity at any given moment in time is a finite resource, but it is constantly increasing over time, and will continue to do so. The resources consumed to create storage today will change as the technology changes. Your example relies on a saturated market where the required resources are approaching scarcity. Advances in storage technology constantly ensure we don't reach that point.

           

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            dorpus, Jun 6th, 2008 @ 11:39pm

            Re: Re: Re: Re: What is infinite?

            As I said, storage technology continues to evolve, allowing more data to fit into the same amount of space. For instance, in the world of disc media, we've gone from CDs to DVDs to Dual Layer DVDs to Blu-Ray to Dual Layer Blu-Ray.

            Meaning that people are forced to continue buying new storage technology products, because the old ones stop working, become "obsolete", and cannot be replaced. Thus, the cost of storage technology is at a constant $30-$100 or so for a unit of the latest product. The labor costs of transferring data remain the same, while obtaining old and hard-to-find data remains expensive.


            The resources consumed to create storage today will change as the technology changes. Your example relies on a saturated market where the required resources are approaching scarcity. Advances in storage technology constantly ensure we don't reach that point.

            For the foreseeable future, the electronics industry will rely absolutely on rare-earth metals whose prices continue to rise year after year. There is no reason to believe that Palladium, Gadolinium, etc. will not have OPEC-like cartels in the future. And as we have seen with agriculture, it is entirely possible for everyone to assume that agriculture is unprofitable, therefore the supply dwindles massively, and suddenly the world is stuck with skyrocketing prices and food riots. Electronic factories are not built overnight; they cost billions, take years to build, and they are increasingly unattractive investments with razor-thin profit margins. When there comes a point when rising labor costs in China, Malaysia, etc. make electronics unprofitable, the world may suddenly see a shortage of electronic devices, and no easy way to ramp up production. There is no reason to believe electronic prices will fall forever, anymore than the early days of the automobile industry when prices went downward in its early phases. Future electronics devices will be subject to scarcer physical resources, greater environmental regulation, and higher labor costs throughout the world. Any falling prices we see today are merely an artifact of newly modernized countries. In several years, the newly modernized countries will have high wages, while other countries such as Afghanistan or Rwanda that are more resistant to modernization will not be useful sources of low-cost labor.

             

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              DanC, Jun 7th, 2008 @ 8:53am

              Re: Re: Re: Re: Re: What is infinite?

              Meaning that people are forced to continue buying new storage technology products, because the old ones stop working, become "obsolete", and cannot be replaced.

              The last time I checked, I could still buy 3.5 floppies and hard drives. You're simply banking on your future predictions to "prove" your point, because history doesn't support your accusations.

              Future electronics devices will be subject to scarcer physical resources, greater environmental regulation, and higher labor costs throughout the world. Any falling prices we see today are merely an artifact of newly modernized countries.

              Or the falling prices are the natural reaction due to the new products emerging.

              There really isn't any point in continuing this discussion, because you're using your predictions to back up your claims.

               

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    some old guy, Jun 6th, 2008 @ 1:17pm

    yes, dorpus

    wow, I had actually forgotten about dorpus... for sham, he returned.

    anyways, you are correct dorpus, nothing is infinite, and Mike has (historically) declared he was speaking of goods whose reproduction costs were "approaching" zero. So the goods he is discussing are "near infinite" goods, as the act of charging for it is usually higher than the cost of reproduction itself. The only way it can be considered profitable to charge for it, is a model that includes artificial scarcity.

    only Mike says it so much more eloquently than I..

     

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      dorpus, Jun 6th, 2008 @ 1:40pm

      Re: yes, dorpus

      If the production cost of a given good approaches zero, then the cost of goods with finite supply that are consumed in association with the good will approach infinity.

      Whether it costs $50 or $0 to produce a copy of music, it does not affect the cost of oil. The oil necessary for the plastic USB storage device still costs $130/barrell. If people want to make infinite copies of music on USB drives, then the cost of plastic will go up to infinity, as the finite supply of the world's oil is used up making trillions of USB drives.

       

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        Joe Smith, Jun 6th, 2008 @ 1:51pm

        Re: Re: yes, dorpus

        If the production cost of a given good approaches zero, then the cost of goods with finite supply that are consumed in association with the good will approach infinity.

        If the cost is going to zero and the usage is going to infinity, the total cost will depend on which is going "faster". In truth, consumption is subject to a physical upper limit and consumption is probably rising slower than cost is falling so the total amount spent on that good will tend to fall over time.

         

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          dorpus, Jun 6th, 2008 @ 2:10pm

          Re: Re: Re: yes, dorpus

          If the cost is going to zero and the usage is going to infinity, the total cost will depend on which is going "faster". In truth, consumption is subject to a physical upper limit and consumption is probably rising slower than cost is falling so the total amount spent on that good will tend to fall over time.

          So are you arguing that the price of oil is falling over time?
          Is there evidence that consumption of oil is rising slower than the supply?

           

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        Chronno S. Trigger, Jun 6th, 2008 @ 1:56pm

        Re: Re: yes, dorpus

        The music may be a near infinite good but the people who will download the good are finite. There are only so many people who will download any one song so, threw the theory of supply and demand, the cost of that near infinet item will drop to near $0.

        The cost of the HDD douse not come into play in that calculation. The cost of the HDD comes into play to determent the finite number of people who will download the music. As the price of the finite good (the USB HDD) goes up the number of people who are willing to purchase that device, and in turn download the song, will drop.

         

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          dorpus, Jun 6th, 2008 @ 2:19pm

          Re: Re: Re: yes, dorpus

          The music may be a near infinite good but the people who will download the good are finite. There are only so many people who will download any one song so, threw the theory of supply and demand, the cost of that near infinet item will drop to near $0.

          There are only so many people who buy barrels of crude oil. Does that mean the cost of a barrel of oil is near $0?

           

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            Noah Callaway, Jun 6th, 2008 @ 3:27pm

            Re: Re: Re: Re: yes, dorpus

            There are only so many people who buy barrels of crude oil. Does that mean the cost of a barrel of oil is near $0?

            No, it means the price of crude oil will eventually be pushed to it's marginal cost. Which is not near $0. There are costs associated with drilling that oil per unit of oil. That is, the must drill the oil and you must transport the oil. These things compose the MC of oil. Over time, oil ends up being priced at that MC.

            It's exactly the same in the infinite goods case. In a competitive market the price of a digital song is pushed to its marginal cost. Exactly like every other competitive market. The only different in this case is that the marginal cost of the digital song happens to be very very close to $0.

             

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              dorpus, Jun 6th, 2008 @ 11:23pm

              Re: Re: Re: Re: Re: yes, dorpus

              It's exactly the same in the infinite goods case. In a competitive market the price of a digital song is pushed to its marginal cost. Exactly like every other competitive market. The only different in this case is that the marginal cost of the digital song happens to be very very close to $0.

              Is it truly $0? What is the cost of buying instruments, the years of training, the expensive audio equipment for making a good recording, the rent for an audio studio? One might as well argue that the cost of pushing the "start" button on an oil rig is $0. Just as oil is consumed and more must be produced, so people do not want to listen to the exact same song for eternity. More music is demanded, with its nonzero costs of production. The argument that music must be inherently free holds no more water than Nigerian bandits who "liberate" oil. Until this year, people in the economics world argued long and hard that grains are an example of "infinite competition", therefore its cost is inherently $0. Now we are seeing skyrocketing costs of grains, mass hunger, and food riots.

               

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                identicon
                DanC, Jun 7th, 2008 @ 9:05am

                Re: Re: Re: Re: Re: Re: yes, dorpus

                What is the cost of buying instruments, the years of training, the expensive audio equipment for making a good recording, the rent for an audio studio?

                Those are called initial production costs, not the cost of reproduction. Once the music is released on a digital format, it is essentially an infinite good, thereby moving the price towards zero.

                grains are an example of "infinite competition", therefore its cost is inherently $0.

                Now you're using physical goods to attempt to disprove the economics of infinite goods? Infinite competition is not the same thing as an infinite good. Your example likewise "holds no water."

                 

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    some old guy, Jun 6th, 2008 @ 11:06pm

    pathetic dorpus

    dorpus, I'm disappointed. You can't be the real dorpus. The real dorpus actually knows how to troll. Your illogical babblings aren't even remotely as inciteful as the real dorpus's. It takes true insight to truly incite. You fail.

     

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    JayB00, Jun 7th, 2008 @ 9:27am

    So ... anyone on topic?

    'Cause I thought this was about the Krugman piece (which has nothing to do with oil or storage capacity). Shrug.

     

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    Disparishun, Jun 7th, 2008 @ 9:13pm

    It looks like Paul Krugman is the latest economist to join the growing group of folks who recognize the impact of infinite goods on business models

    This is not a "latest economist" thing. This is an "economic literacy" thing.

    What feels to you like a great discovery is a fairly elementary concept in economics. There's no "brigade" to join. Just, well, a read through any one of a number of textbooks. Google "public good" or "media commodity" or something. It's really not that hard.

     

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      Kiba, Jun 8th, 2008 @ 7:03am

      Re:

      But for most people, it is a fantastical proposition. If it weren't, people wouldn't be arguing with Mike day and night.

      For you, most of us are indeed economically illiterate. But also for most of us, it is fantastical and outright crazy to propose the ideas that Mike proposed.

      Now, I am not dazed by Mike's theories. But I am dazed by the fact that his opponents aren't anyway convincing.

       

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      Mike (profile), Jun 9th, 2008 @ 3:31am

      Re:

      What feels to you like a great discovery is a fairly elementary concept in economics.

      Yes and no. While it's based on elementary concepts in economics, most economists ignored how it would play out on infinite goods in a market.

      Just, well, a read through any one of a number of textbooks. Google "public good" or "media commodity" or something. It's really not that hard.

      No, it goes well beyond classical theory on public goods and media commodities. Read Paul Romer's research, and the research that has come since then.

      Yes, much of it is built on that theory, but it goes beyond that. If you focused just on the classical theories of a "public good" you wouldn't recognize what Krugman points out in his piece: which is that this isn't necessarily a bad business model for a private entity. That's NOT the case with classical public goods economic theory.

      So, while the core of this is based on classical theory, it's coming to new conclusions, mainly by not being scared away by the "zero" in the equation -- which classical economics was scared of.

       

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      Lawrence Sinclair, Jun 10th, 2008 @ 6:22pm

      Re: Public Goods

      I agree with Disparishun (June 7, 2008 @ 9:13pm), we're just talking about "Public Goods", a type of good with a long history of economic thought. A classic example that seems relevant is a radio broadcast.

       

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        Mike (profile), Jun 11th, 2008 @ 3:12am

        Re: Re: Public Goods

        I agree with Disparishun (June 7, 2008 @ 9:13pm), we're just talking about "Public Goods", a type of good with a long history of economic thought. A classic example that seems relevant is a radio broadcast.

        Not quite. As I explained above, while it is *based* on classical economic theory, it does go beyond that. That's because there are some implicit assumptions in public goods economic theory, that turn out not to necessarily be true -- which is much of what Paul Romer's research has shown.

         

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    identicon
    bowerbird, Jun 8th, 2008 @ 1:51pm

    > Some people already recognize this,
    > but it clearly is going to require
    > a lot more convincing evidence.

    why? who cares if the dinosaurs are convinced?

    reality will take care of them in the long run.

    i'm increasingly thinking it's a waste of time
    to spend any energy trying to "convince" them,
    that it's better to go off and make it happen...

    -bowerbird

     

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