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Arguing in My Spare Time, January, 2000 - June, 2000

Title DateStarts WithEnds With
Virtual History of the Internet01-01Niall Ferguson recently edited a book called "Virtual History: Alternatives and Counterfactuals." It gives alternative histories assuming that the American Revolution never took place, or that England did not support France in the first World War, etc.

In that spirit, this essay looks at three ways in which the development of the Internet might have been affected by alternative scenarios

Meanwhile, other Internet companies that tried to sell stock to the public before achieving profitability were given a chilly reception. "Everyoneís looking at Netscape and saying that itís smarter to wait," explained one market analyst. "People want to buy the companies that take their time and build their business. They donít want to throw money at start-ups with no track record of earnings."

Netscape Syndrome01-10"when success depends on being able to convince other people to let you take huge risks with their money, it is not the paranoid but the megalomaniac who survive."

--Paul Krugman, "Tiger's Tale," Slate, Nov. 3, 1999

The effect of the stock market is to create a species that is the opposite of the lean, agile creature that one would think is adapted well to the pace of technology. Instead, we are watching the Internet companies transforming themselves into neo-dinosaurs.
Briefing the President01-13A new nonprofit organization called the Internet Policy Institute has been formed. Its main project is called "Briefing the President," which is described on its web site (www.internetpolicy.org) as "a series of policy memoranda designed to identify and explore the fundamental issues that will affect the development and use of the Internet." Economic depressions, like personal depressions, are frustrating, frightening events. I certainly hope that we can avoid one. However, it seems to me that such a scenario is at least plausible, and indeed highly probable.
Meetings, Centralized Management, and Reed's Law01-26In the following sentence, fill in the blank with either "more" or "fewer."

"In my job, I would be more effective if I had ______ meetings to attend."

If you picked "more," then you may agree with David Reed, a consultant and contributor to Context Magazine, who argues that Metcalfe's Law under-estimates the extent of increasing returns from networks.

The apparent implication of the mathematical model of group-formation is that large-sized companies will succeed, because they will own a large span of customers within which groups may be formed. The alternative economic model sketched here has implications that are quite the opposite. If the economic value of group formation is due to trial-and error learning fostered by the rapid formation and dissolution of teams, then small companies, which can take advantage of this capability, will have the edge.
IMpersonalization02-11People age quickly on the Internet. Clifford Stoll, who became a major icon of the Net with his book "The Cuckoo's Egg" (a great read, by the way), today is viewed as an old, cranky has-been because he refuses to bow down to the all-powerful deities of Silicon Valley Creativity and Distance Learning. In the next twelve months, if you are home between 6 and 8 PM, I would strongly suggest that you get caller ID or an answering machine. If the IMpersonalization trend is headed where I think it is, you won't want to pick up the phone yourself.
WebMethods in WebMadness02-18WebMethods is a stock that went public earlier this month. I immediately entered WebMethods into the Internet Bubble Monitor calculator, replacing my sentimental favorite, MusicMaker, whose price from now on cannot fall by more than $5, since that is where it currently is trading. In fact, it is competence in these areas that has made Computer Associates what it is today. I am not saying that WebMethods does not have those skills. But they have not been tested. Even with all the right buzzwords going for it, a 150-person firm in the computer services field with a market cap in the billions is just more air inside a bubble.
JAKOB: A Way to Overcome Bad Web Design03-02My father has no concept of what I did for a living when I produced homefair.com. When Central Newspapers purchased 80 percent of our company in 1997, I told him that our new owners included the Quayle-Pulliam family. His eyes lit up, a smile of relief came to his face, and he said, "Maybe you'll become a speechwriter for Dan Quayle." With enough search-and-replace rules, JAKOB could be successful in overcoming bad web design. The browser would do this by using rules that replace user-hostile design elements with better alternatives. If JAKOB existed, then I believe that my father could use the Web.
What's the Web for?03-14I've always maintained that a metaphor for the Internet is rock music, with trends and stars emerging in unexpected ways. Last week, I attended an event called "Live Cluetrain," which reinforced this metaphor in many respects. Overall, I believe that my proposal to say that "the web is for decentralized collaboration in the dissemination and organization of information" is a good working answer. My prediction is that companies that align themselves with this model will do much better than companies that try to fight it.
Life after the Death of the Dumb Buyer03-18The future of the software industry finally is starting to come into focus. It will be much less monopolistic and much more constrained in its profits than what we have been used to seeing. Most importantly, generic tool developers will suffer from the relative absence of dumb buyers. The Microsoft model will not be reconstituted.
The Bubble and the Immaculate Expansion04-03The stock market bubble coincides with what has been termed "the immaculate expansion," meaning high growth with low inflation. The immaculate expansion is a puzzle for the traditional theory of aggregate supply. That theory states that as growth increases, the economy runs into capacity constraints, particularly in the labor market, resulting in higher inflation. When the bubble pops, we will get a better idea of how stock prices affect aggregate supply. If we truly are in a "new economy," then even when the bubble pops we will see low inflation. On the other hand, if an overvalued stock market artificially lowers inflation for a given level of unemployment, then when the bubble pops we could see the kind of stagflation that we saw in the 1970's.
Ideological Anachronisms04-14Our political rhetoric is geared toward class struggles and to arguing over what the government ought to regulate. Meanwhile, the relevance of these issues is questionable. But the conventional arguments about government regulation, pro and con, all start from the assumption that any and all regulation is feasible. Given the Internet, we may need to scale back our assumption of what it is feasible to regulate. Doing so would tend to shift the terms of the debate.
Peanut Butter, Jelly, and the Antitrust Knife04-27Assuming that Microsoft has monopoly power both in the market for operating systems and in the market for applications software, would consumers be better off if those divisions of the company were split from one another, as the government's antitrust lawyers reportedly propose? Paul Krugman's column in the New York Times on Wednesday, April 26, addressed this issue. He applied some basic economics. Even thinking in terms of this extended metaphor, I do not believe that the case for breaking Microsoft into an operating system company and an applications company is particularly strong. However, it is not as weak as Krugman suggests.
Outside the Box05-13When the Internet bubble pops, there will be calls for reform. My guess is that the result will be too much, too soon. Politicians will have to show that they are "doing something," and a careful, deliberative approach will not be popular. In conclusion, there are policy options available to try to prevent future bubbles. If the current bubble collapses as much as I fear, these policy ideas will deserve study.
Money, Prices, and the New Economy05-24As the Fed starts to take away the punch bowl, naturally there are some party-goers who are displeased. Among the most vocal complainers are some champions of the "New Economy." In particular, the New Economy partisans have not explained why wage inflation has remained subdued with 4 percent unemployment. Therefore, it is pretty difficult to argue that we can be confident that such wage moderation will continue. As a case for keeping the punch bowl at the party, the New Economy argument is more grandstanding than substance.
Farmers and Parasites06-05Many people, including economists, get hung up over the issue of how social security is financed. Looking at the financial aspects of the program creates considerable confusion, which is evident in the opinion pieces that have been written about Republican Presidential candidate Bush's plan for partial privatization. I believe that partial privatization may be a way of locking in a higher level of national savings. But that is based on my assessment of the politics of the government budget. The economic analysis is not definitive.
Rewriting the Book06-14The economics profession does not move in Internet time. Academic economists still seem to be wrestling with many of the same issues that occupied them when I was in graduate school. If the high-level debates change only slowly, the introductory course moves glacially. Macroeconomics still matters. However, it seems reasonably clear that its relative value has declined in the thirty years since I first took freshman macro. Rather than tinkering with how to teach it, perhaps we ought to be looking for topics that can be substituted which have a greater marginal return.
Compassionate Libertarianism06-26The other evening, I met Tom Masterson, a very creative entrepreneur who happens to be an M.D. At one point, he mentioned that managed health care companies have a disincentive to treat diabetes effectively. "They don't want to be known as the diabetes experts," he contended, because then they will attract a large population of diabetes patients, who have high treatment costs. Masterson does not have a revenue model for the dialysis treatment center locator web site. He just put it up because, to him, it was the right thing to do.