Can Someone Teach The New Malthusians About Infinite Goods?

from the well-here-we-go dept

When we talk about economics and business models concerning "infinite goods" it may seem like we focus almost entirely on the entertainment industry. However, the reason for doing so isn't an infatuation with that particular industry, but simply the fact that it's the best "natural experiment" for showing how these infinite goods work to grow a market. But "infinite goods" impact every market and help them grow. Yet, every time there's some sort of larger financial crisis, people spring up and deny that economic growth can occur any more. It dates back to Malthus' incorrect belief that people were growing exponentially while food supplies grew linearly -- meaning we'd run out of food. The problem, of course, was that he failed to take into account economic growth. That economic growth came from new ideas and new technologies (infinite goods) that made the production of food much more efficient.

The Wall Street Journal at least admits that every previous "Malthusian" has been proved wrong (other than very limited, pre-technology societies) before diving headlong into a discussion of whether or not the latest generation of Malthusians might just have a point this time. The article includes lots of fear mongering about various resources running out -- but those were the same fears that proved overblown in past Malthusian outbursts. My favorite example of this is William Stanley Jevons, who predicted the end of British economic growth thanks to coal running out (four years before oil was discovered) and when he died, his study was found filled stacked high with scrap paper -- since he believed that the country was running out.

That isn't to say things just "work out," but that it's these new ideas and new technologies -- these "infinite goods" -- that help to solve the problems. But they can only do so if they aren't locked down and artificially limited. Every time we lock down these ideas, we cause more problems and actually limit growth. If you could invent a solution to creating drinkable water (which the article frets about, but which Dean Kamen believes he's done), you could patent it and make it expensive. Or you could give it away, and recognize how you've just created a booming market for goods in places previously decimated by drought and disease. Rather than selling the water cleaning device, I would think there's a much bigger market in giving it away free to trouble spots and then helping to sell everything else that a healthy population would then want. Unfortunately, it's not clear that this is what Kamen will do. He is, after all, one of the folks protesting against any kind of patent reform in Congress.

So, again, this isn't to brush off the concerns of the Wall Street Journal piece. The environmental and resource challenges described are real challenges. But resource constraints can be solved through growth, and that growth is supplied by new ideas (new infinite goods) that increase the pie by creating resources that are infinite, and which make other scarce goods more valuable. We've pointed to Paul Romer's excellent explanation of economic growth before, but it bears repeating:

Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material.

Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. The difficulty is the same one we have with compounding. Possibilities do not add up. They multiply.

So, when we're discussing infinite goods, and using the entertainment industry as a model, it's not just about entertainment. It's about dealing with all kinds of challenges that the world faces, and doing so through spreading infinite goods that multiply and make existing resources more valuable.

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