Archive for July 27th, 2009

Chris Anderson talks to Stephen Colbert about the rise of “freeconomics,” the reputation economy, and the gift economy.

More on youtube:

And an article:

Enabled by the miracle of abundance, digital economics has turned traditional economics upside down. Read your college textbook and it’s likely to define economics as “the social science of choice under scarcity.” The entire field is built on studying trade-offs and how they’re made. Milton Friedman himself reminded us time and time again that “there’s no such thing as a free lunch.

“But Friedman was wrong in two ways. First, a free lunch doesn’t necessarily mean the food is being given away or that you’ll pay for it later — it could just mean someone else is picking up the tab. Second, in the digital realm, as we’ve seen, the main feedstocks of the information economy — storage, processing power, and bandwidth — are getting cheaper by the day. Two of the main scarcity functions of traditional economics — the marginal costs of manufacturing and distribution — are rushing headlong to zip. It’s as if the restaurant suddenly didn’t have to pay any food or labor costs for that lunch.

Surely economics has something to say about that?

It does. The word is externalities, a concept that holds that money is not the only scarcity in the world. Chief among the others are your time and respect, two factors that we’ve always known about but have only recently been able to measure properly. The “attention economy” and “reputation economy” are too fuzzy to merit an academic department, but there’s something real at the heart of both. Thanks to Google, we now have a handy way to convert from reputation (PageRank) to attention (traffic) to money (ads). Anything you can consistently convert to cash is a form of currency itself, and Google plays the role of central banker for these new economies.


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Patents may not bolster innovation, as commonly thought:

A new study challenges the traditional view that patents foster innovation, suggesting instead that they may hinder technological progress, economic activity and societal wealth. These results could have important policy implications, because many countries count on patent systems to spur new technology and promote economic growth.


PatentSim features an abstract model of the innovation process, a database of potential innovations and a network through which users can interact with one another to license, assign, buy, infringe and enforce patents. The software allows players to simulate the innovation process under a traditional patent system; a “commons” system, in which no patent protection is available; or a system with both patents and open-source protection.

“In PatentSim, we found that the patent system did not work to spur innovation,” said Tomlinson, associate professor of informatics. “In fact, participants were more likely to innovate when there was no intellectual property protection at all, or when they could open-source their innovations and share them with other people.”

Read the article here.

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Michael Perelman, who blogs at EconoSpeak, has posted an essay (pdf) called “An Idiosyncratic Road to Crisis Theory” (actually, he posted it last sunday, and I’ve been too lazy to blog about it). He manages to cover a lot of ground in ten pages, particularl with regards to capital theory. His introduction may be the most provoking part, however:

As an undergraduate, introductory microeconomics didn’t make any sense. After a few weeks, I realized that it was easy to get a good grade until by working backwards. Since the goal was to show that everything worked out perfectly, all you have to do on an exam is to start with the answer that the market creates the best outcome, then work backward to figure out what would make it occur. Economics soon became my easiest class. Although I do not follow that procedure anymore, I am convinced that much of the economics profession still does. Eventually, some seemingly obvious questions began to trouble me.

Economics, which purports to explain the nature of a capitalist system motivated by profit maximization, lacks a theory of capital as well as any coherent explanation of the determination profits. One of reasons is simple: economics generally deals with a static conception of the world, yet fixed capital, which becomes increasingly important with the maturation of capitalism, calls out for a dynamic analysis, even with a static conception of the world.


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Hint: it might not be the “poverty trap”…

Jeffrey Sachs has a new article about…the same thing he always talks about:

The G-8’s $20bn initiative on smallholder agriculture, launched at the group’s recent summit in L’Aquila, Italy, is a potentially historic breakthrough in the fight against hunger and extreme poverty. With serious management of the new funds, food production in Africa will soar.

Indeed, the new initiative, combined with others in health, education, and infrastructure, could be the greatest step so far toward achieving the Millennium Development Goals, the internationally agreed effort to reduce extreme poverty, disease, and hunger by half by 2015…

…One cornerstone of the project was “smallholder farmers”,  meaning peasant farm families in Africa, Latin America, and Asia – working farms of around one hectare (2.5 acres) or less. These are some of the poorest households in the world, and, ironically, some of the hungriest as well, despite being food producers.

They are hungry because they lack the ability to buy high-yield seeds, fertiliser, irrigation equipment, and other tools needed to increase productivity.

As a result, their output is meagre and insufficient for their subsistence. Their poverty causes low farm productivity, and low farm productivity reinforces their poverty. It’s a vicious circle, technically known as a poverty trap.

Is that really the reason why these farmers are  “some of the poorest households in the world, and, ironically, some of the hungriest”?  Sachs likes to talk about “history’s lessons,” but hasn’t history also taught us that hunger doesn’t happen in isolation?  Surely, these farmers aren’t just hungry because they lack industrial farming technology.  What’s the bigger picture look like?  (here’s one look, and another)

And has anybody else noticed that everything aid-related seems to be an “historic breakthrough” for Sachs, even while poverty is still rampant, abroad and at home?  Maybe Sachs is missing something…

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