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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Filed Under: business models, economics, infinite goods, paul krugman

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  1. identicon
    dorpus, 6 Jun 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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