Eric Weinstein on economics

I found my way to what he wrote a couple years ago.

So long as public goods make up a minority of a market economy, taxes on non-public goods can be used to pay for the exception where price and value gap. But in the modern era, things made of atoms (e.g. vinyl albums) are being replaced by things made of bits (e.g. MP3 files). While 3D printing is still immature, it vividly showcases how the plans for an object will allow us to disintermediate its manufacturer. Hence, the previous edge case of market failure should be expected to claim an increasingly dominant share of the pie.

This reminds me of my 2002 essay, asymptotically free goods.

An asymptotically free good is a good where almost of all of the cost involved consists of research and development. It differs from a natural monopoly in two ways.

1. In contrast with an amusement park or a utility, the cost of maintaining the capital for an asymptotically free good is relatively low. Once the research is complete and the idea is proven, the costs are trivial. In the absence of patent protection, there is nothing to stop a competititor from taking the idea and driving the price close to zero.

For example, once you have undertaken the research to produce a new miracle drug, the marginal and average costs of producing it are low. To take another example, once devices have been designed and protocols established for a high-speed wireless network, the cost of providing and maintaining the equipment for a network may be low relative to the number of users.

2. Asymptotically free goods are like public goods in that it is costly to exclude someone from enjoying the benefit of an asymptotically free good.

–It is costly to hook someone up to the electric grid. It is costly to keep someone off a wireless network.

–The cost of setting up and maintaining a gate at an amusement park is relatively low. The cost of policing the Internet to stop music swapping is enormous.

Later, Weinstein says,

Advertising and privacy transfer (rather than user fees) have become the business model of last resort for the Internet corporate giants.

We are not in a neoclassical world. In my essay, I conclude

Problems are being solved not by throwing capital and labor at them, but by undertaking research and development which, when completed, leads to solutions that cost relatively little in terms of traditional factors of production. . .

For those who tend to view government as an instrument of the public good whenever the free-market outcome may be flawed, asymptotically free goods provide an excuse for more government intervention. For those who tend to see government as providing an instrument by which status quo interests can impede change, asymptotically free goods are a reason for keeping government hands off.

For his part, Weinstein concludes

Capitalism and Communism which briefly resembled victor and vanquished, increasingly look more like Thelma and Louise; a tragic couple sent over the edge by forces beyond their control. What comes next is anyone’s guess and the world hangs in the balance.

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One Response to Eric Weinstein on economics

  1. Matthew Young says:

    The transaction costs of pricing are dropping as fast, and the central bank is late to the newmoney technology.

    The best view is that micro-pricing works just fine, it unobservable advertising revenue. So the fiat monetary system loses market share rapidly because it is not keeping up with micro-pricing technology; but will eventually adapt.

    There was a time when fiat bankers were late to discover the counterfeit proof paper certificate, late to discover the on line tax payments, late to discover phone networks. Fiat bankers late to discover the effects of broadcast advertising, now late to on line advertising.

    No big deal, all the central bankers are now in hysterics about the onset of micro-pricing technology and fintech. Give them a few months to calm down, they will get it.

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