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Tim O'Reilly offers some lessons on media economics in the age of the Internet.

Our current distribution systems for books, music, and movies are skewed heavily in favor of the "haves" against the "have nots." A few high-profile products receive the bulk of the promotional budget and are distributed in large quantities; the majority depend, in the words of Tennessee Williams' character Blanche DuBois, "on the kindness of strangers."

Lowering the barriers to entry in distribution, and the continuous availability of the entire catalog rather than just the most popular works, is good for artists, since it gives them a chance to build their own reputation and visibility...

Services like Kazaa flourish in the absence of competitive alternatives. I confidently predict that once the music industry provides a service that provides access to all the same songs, freedom from onerous copy-restriction, more accurate metadata and other added value, there will be hundreds of millions of paying subscribers...

Why would you pay for a song that you could get for free? For the same reason that you will buy a book that you could borrow from the public library or buy a DVD of a movie that you could watch on television or rent for the weekend. Convenience, ease-of-use, selection, ability to find what you want, and for enthusiasts, the sheer pleasure of owning something you treasure.

Discussion Question. How do O'Reilly's views on the economics of media compare to those expressed in my Edge Power article discussed in the post below this one?

I argue that the Internet helps to foster decentralized innovation.

There is a striking generation gap between media empires that were built before the Internet and those that grew up as Web businesses. Companies that were formed on the Internet treat Edge Power as a feature. Traditional media companies treat Edge Power as a bug.

Discussion Question. Do you think that music CD's will continue to be sold in large volume in ten years? (This was the topic of a bet at longbets.org)

The world's economic outlook is still sluggish, according to the World Bank.

The United States will lead the way, expanding 2.3 percent this year and 2.6 percent in 2003. Japan will not grow at all in 2002 and will be able to muster only 0.8 percent growth next year.

The 12-nation euro area will not fare much better, expanding only 0.8 percent this year and growing 1.8 percent in 2003.

It seems that for most of the past fifteen years, "The United States will lead the way" has been the situation. Europe and Japan seem to be a perpetual drag on the world economy.

Discussion Question. If the United States always is the leader in economic activity, how will our trade balance ever get out of the hole?

How should we deal with health care? Sydney Smith writes

An even bigger step in the right direction would be to offer insurance directly to the consumer, by-passing the employer altogether. Much of what's wrong with our current system is that health insurance is linked so strongly to employment. This may have worked fine in the stable corporate culture of the 1950's, but in today's fluid job market, it makes no sense to tie health care insurance inextricably to employment. We would all profit by divorcing the two. Insurance companies would improve their risk pools and their customer base by offering affordable, basic insurance plans to individuals rather than limiting themselves to comprehensive health benefits for corporations. The self-employed could find affordable insurance. The unemployed wouldn't risk losing theirs. And maybe, just maybe, our runaway costs would be contained by introducing financial responsibility to the doctor-patient relationship.

Discussion Question. Compare the economics of the government providing the poor with: (a) cash that they can use any way they want; (b) vouchers for health care; or (c) health insurance coverage.

Lawrence Lindsay, the newly-departed economic adviser, received favorable eulogies left and right. Brad DeLong writes,

So Larry lost in his attempt to get the 2001 tax cut to reduce marginal tax rates where they are highest--among the two-children-$25,000-annual-household-income class...He lost his fight to keep the White House from imposing steel tariffs. He lost his fight to maintain the progress toward freeing trade in farm products and reducing welfare-for-agribusiness

James Pinkerton writes,

The Washington Post reported on Saturday that Bush decided to get rid of Lindsey after the economist told The Wall Street Journal in mid-September that a war with Iraq could cost as much as $200 billion. "That made it clear Larry just didn't get it," one official told the Post. One might ask: "Didn't get what?" Since when do wars—and the nation building, rebuilding, that must follow—come cheap?

For what it's worth, William Nordhaus has estimates of the cost of war that make Lindsay's seem conservative.

Should the government build a database on its citizens? I argue that this might be less intrusive than the alternatives.

Of course, a surveillance database will not work perfectly. However, neither does any other security measure. The criteria for evaluating a security measure should be its costs and benefits. The calculus is bound to be imprecise, but in a world of imperfect alternatives it is irrational to reject one particular approach just because it is imperfect.

Discussion Question. Is cost-benefit analysis an appropriate tool for dealing with issues such as terrorism and individual rights?

Douglas Besharov says that when it comes to fighting hunger in the United States, we may be overdoing it.

About 65 percent of all Americans are overweight, and nearly half of those are obese. The best estimates place the rates for the poor at 5 to 10 percentage points higher. Adolescents from needy families are twice as likely to be overweight. Yet today, low-income families have access to more free or low-cost food than ever before, and many can be enrolled in all three federal feeding programs at the same time...

Discussion Question. Besharov suggests that if we converted food programs to cash grants, poor people would choose more wisely and cut back on food consumption. Does a similar argument apply to other in-kind benefits? Instead of providing health insurance to the poor, should we be providing cash grants and letting them choose?

Is education more beneficial to the individual than to society? If most of the return to education comes from signaling, rather than from actual increases in productivity, then there is a case that the private benefit is higher than the social benefit. However, David Card says,

My reading of the evidence is that education is much more than a rat race, and that signaling effects--if they exist at all--account for only a small fraction of the private return to schooling.

Discussion Question. To justify public funding for education, should not the social benefit for education exceed the private benefit?

MIT Technology Review surveys new digital payment technologies.

No single technology will likely dominate; rather, radio tags, chip buttons, and smart cards will catch on wherever their qualities are best suited.

The payment itself is nothing but a set of instructions from the consumer to the vendor. Those instructions could come from any device--a cell phone, a smart card, or what have you. The challenge is authentication--verifying that the instructions came from you and not from someone else. The trend is to replace alphanumeric authentication techniques (PIN numbers) with biometric techniques (such as fingerprints).

Discussion Question. Which problems will these new systems solve, and what new problems could they create?

According to an article in The New Republic, China's is not growing as quickly as official figures suggest. The article cites economist Thomas Rawski, among others.

Rawski concludes that, between 1998 and 2001, China grew by approximately 4 percent rather than the 7 percent to 10 percent claimed by the government...

The government auditing body has admitted that more than two-thirds of the biggest Chinese companies falsify their accounting...In many cases, corrupt Chinese managers have used funds stolen from SOEs [state-owned enterprises] to build enormous, virtually useless buildings on China's eastern seaboard as showpieces of their newfound wealth. Parts of Pudong, Shanghai's newest commercial district, look like a ghost town. ...gleaming buildings that, having drawn no tenants, were just empty shells staffed by guards who spent their time alternating between marching in circles and conducting spitting contests.

Discussion Question. Should American businesses be in a hurry to invest in China?