Category Archives: Internet

Virginia Postrel on Martin Gurri

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She writes,

As information becomes abundant, he writes, “the regime accumulates pain points.” By this he means that problems like police brutality, economic mismanagement, foreign policy failures and botched responses to disasters “can no longer be concealed or explained away.” Instead, “they are seized on by the newly empowered public, and placed front and center in open discussions. In essence, government failure now sets the agenda.”

She says that Gurri’s thinking is that notwithstanding their greater awareness of failure, people are expecting more from government and other organizations.

In my mind, I keep going back and forth between seeing our political sectarianism as unprecedented on the one hand and seeing it as a replay of 1968 on the other. In the 1968 election, the public, preferring a representative of the existing order against the forces of rebellion, ultimately turned to a familiar face, even though he was widely disliked and viewed as unscrupulous. Thus, although right now I do not know a single person who is positively disposed toward Hillary Clinton (and almost all of my friends are Democrats!), it is conceivable that she will win a landslide.

Read Postrel’s whole essay. I will put Gurri’s book on my list of items to read. And is Martin any relation to Adam?

Matt Ridley’s Latest

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It is called The Evolution of Everything. He contrasts decentralized trial-and-error evolution with top-down control in many arenas, from biology to technology to culture. My first thoughts.

1. He offers full-frontal libertarianism. On money, he cites Selgin. On education, he cites Tooley. etc. Incidentally, on culture he cites Henrich, whose book I interrupted to read Ridley’s and who does not seem to grasp the libertarian implications of his own work.

2. He cites a legal scholar with whom I was not familiar: Oliver Goodenough. Actually, I met Oliver a couple of times through a mutual friend–more than 40 years ago.

3. On the evolution of marriage, he writes that hunter-gatherer societies are mainly monogamous.

But as soon as farming came along, 10,000 years ago, powerful men were able to accumulate the resources to buy off and intimidate other men, and to attract low-status women into harems. . .If only to try to satisfy the low-status men, societies that allowed widespread polygamy tended to be very violent toward their neighbors. This was especially true of pastoral societies reliant on sheep, goats or cattle, whose wealth was mobile and showed scale economies. . .herders from Asia and Arabia not only experienced chronic violence, but kept erupting into Europe, India, China and Africa to kill men and abduct women.

…The transition to monogamy is a big theme of Christianity. . .The winners from the re-emergence of monagamy in late antiquity would have been the high-born women, who got to monopolize their husbands, and the much more numerous low-born men, who got to have sex at all.

4. On the advantage of urbanization for specialization and trade,

In America as a whole, nearly twice as many people work in grocery stores as in restaurants. In Manhattan, nearly five times as many work in restaurants

5. On the inexorable rise of economic well-being,

Stagnationism has its fans in every generation.

6. On technology, he argues strongly for context as a causal factor (“the adjacent possible”) and against individual agency (the heroic inventor). One implication:

having argued for the incremental, inevitable and collective nature of innovation, I am not a fan of patents and copyright laws. They grant too much credit and reward to individuals

7. Speaking of technology’s evolution, when he writes

The internet revolution might have happened ten years earlier if academics had not been dependent on a government network antipathetic to commercial use.

he is blowing smoke. The arrival of the commercial Internet is instead an example of context. Telecommunications pre-internet used circuit-switching networks. The Internet uses packet switching. Until relatively recently, circuit switching was much less expensive (the cross-over point was roughly the year 2000). Packet switching became economical only after sufficient iterations of Moore’s Law had taken place. In 1985, the cost of building out a mass-market Internet would have been astronomical.

The Year I Beat Bill Gates

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Shane Greenstein writes,

Gates misinterpreted the value of the Internet’s commercial prospects. This error would take three interrelated forms in its conventional assessment:

1. Underestimating the Internet’s value to users;
2. Underestimating the myriad and clever ways entrepreneurs and established firms would employ Internet and web technologies to provide that value for users;
3. Underestimating the ability of Internet firms to support applications that substituted for Microsoft’s in ther marketplace.

This is from How the Internet Became Commercial, Greenstein’s new book. I started my business on the Internet in April of 1994. Gates did not become a believer in the Internet until a year later.

Greenstein offers a well-judged analysis of the business strategy and Internet governance issues during the first decade of the Internet’s commercialization, starting in 1994. However, I think that there is still plenty of room for someone to write another book on this historical episode. I would like to see a book that makes the dynamics more vivid.

In the introduction, Greenstein sketches a few timelines on which he lists events. I am not clear whether he chooses the events for their significance or to try and help the reader understand the order in which certain developments occurred. In any case, his choices are mostly very different from what mine would have been.

I actually would include several timelines:

–the release date and processing speed of Intel’s chips. Another would show

–the amount of hard disk storage on a top-selling personal computer each year.

–the speed of the most commonly used Internet connection each year. I remember when 28.8 Kilobytes per second was an upgrade.

–the number of people with Web access each year. When I started my business, unbeknownst to me that figure was less than a million. I had read, correctly, that there were 20 million Internet users in the U.S., and I very naively figured that this was approximately the number of people with Web access. The Web did not become a mass-market phenomenon until the fall of 1995, when AOL began offering Web access and Microsoft released Windows 95.

–the total number of web sites and the top five web sites in terms of traffic each year.

–well-hyped businesses that failed, such as MecklerWeb, Web TV, and PointCast Network.

–buzzwords that no longer have meaning, such as portal and push technology.

–creation of important software and protocols, such as JavaScript, Java, Flash, MP3, JPEG, and Linux.

–appearance of iconic web sites, such as Yahoo, Amazon and Google

–fading of once-iconic web sites, such as AltaVista, the NCSA home page, and the Netscape home page.

–Internet IPOs, by year

My point is that the environment evolved very rapidly. Your business strategy could not be based on what was there at the time. It had to be based on a guess about what was coming.

I describe my business experience in those days as a sequence of miscalculations, because I got so many things wrong. But I made some fundamentally good guesses about what was coming, and that was sufficient.

I Think He Wants Betting Markets in Non-profits

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Neerav Kingsland writes,

it is important for there to be a public, meaningful signal against efforts that are likely to fail.

He laments that there is no way to short a non-profit. But you can think of a short sale as a side bet. As Robin Hanson has repeatedly emphasized, betting markets in opinions can be used to extract information of the sort that Kingsland discusses. You could set up a betting market in which participants wager on the likely success of non-profit initiatives. Of course, whether managers of an initiative would heed the opinion of the betting market is another matter.

Quick, Weak Patents

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Joshua Gans writes,

Suppose that patents were granted automatically without examination — beyond some minimal review — but consequently, with less exclusionary power should the patent be at issue in legal proceedings.

How would this work? An inventor submits a patent application and, if they choose, they can receive a ‘weak’ patent immediately. Should they notice someone else commercialising their invention, they could then initiate court proceedings at which time they would need to have the patent examined which could, of course, require all of the changes and uncertainty that comes with that process. Of course, it may be that this is an obvious outcome and could actually be avoided in return for some settlement with the potential infringer of their patent.

I will grant that, taking the amount of patent filings as given, this sounds like an improvement. But I think it would greatly increase the number of patent filings. From an offensive perspective, you want to file patents on anything you can dream of, because you know you are going to get approval. From a defensive perspective, you want to file a patent much sooner than you would have otherwise, for fear of someone else getting a weak patent.

I hope this idea is thought through more carefully before it is implemented.

Paul Romer on Physics and Information

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He writes,

There is a crucial distinction between human capital (stored in neurons), and codified information (stored in some external form, such as printed text or bits on a hard drive.)

Anything stored in neurons is a rival good.

A person’s human capital is fully excludable as long as people have legal control over their own bodies. So there are no human capital “spillovers” and no human capital “externalities.”

As the cost of copying codified information goes to zero, it becomes a pure nonrival good.

Pointer from Mark Thoma. Read the whole thing. It relates to my bumper-sticker saying: Information wants to be free, but people need to get paid.

Brad DeLong on the Public Sector vs. the Private Sector

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He writes,

Now we know that as bad as market failures can be, government failures can be worse. We badly need new effective institutional forms. But the decreasing salience of “Smithian” commodities in the twenty-first century means that rational governance would expect the private-market sphere to shrink relative to the public.

Pointer from Tyler Cowen.

I think of Brad DeLong as a Jekyll-Hyde character. The bad Brad DeLong snarks and snarls. The good Brad DeLong is insightful. This post is the good Brad DeLong. Read the whole thing. I am only commenting on part of it now. I would like to comment more on his discussion of the risk premium, but I think I need to see a longer, less hurried version of it.

In the quoted passage, his point is that as the share of the economy that produces stuff decreases and the share that provides health care, education, and information increases, we will see more informational asymmetries and externalities. This might mean that we need an expansion of existing government. However, when I think of “new institutional forms,” I think of the organizations of civil society and entrepreneurs.

Recall that Tyler and Alex see informational asymmetry being conquered by the Internet and entrepreneurs who make use of it. Recall also my comments on reputation systems as regulators.

Recall also my catch-phrase: Markets fail. Use markets.

Reputation Systems as Regulators

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Tyler Cowen and Alex Tabarrok write,

In recent times, information technology has made it easier to observe a seller’s reputation and to contribute to the formation of a seller’s reputation at low cost. Yelp, Angie’s List, and Amazon Reviews all make it easy for past buyers to report their observations on seller quality and for future buyers to observe a seller’s accumulated reputation.

This might mean that we need less regulation. Other possibilities:

1. We have always had the means to use reputation systems as an alternative to regulation. But regulation is the preferred outcome of the political system, perhaps for bootleggers and baptists’ reasons. The advent of better information and technology actually does not change the relative economic and political advantages of regulation.

2. One issue with reputation systems is that there is an ongoing temptation to game them. Consider “search engine optimization” or “social media marketing.” Surely there are folks out there offering to get your business top rankings on Yelp. Given that gaming will work at least sometimes, is an unregulated equilibrium necessarily the best?

3. It becomes harder for new entrants to break into a market governed by reputation than one governed by regulation. Obtaining a license from a regulatory agency might be easier than obtaining visibility in a rating system.

Emergent Anarcho-Capitalism

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“Scott Alexander” reviews David Friedman’s classic, The Machinery of Freedom.

My overall conclusion is that I am delighted by this fascinating and elegant system and would very much like to see it tried somewhere very far away from me.

I might contend that a version anarcho-capitalism is being tried very close to us, in fact right here on the Internet. The Internet’s legal apparatus might be said to be its communication and software protocols. Those emerge in various ways, but not through legislation backed by force.

One might counter that much of what we do on the Internet rests on a layer of commercial practices, and those in turn rest on a layer of government enforcement. This line of reasoning might go: if you took away government, then Google could not enforce its advertising contracts, and then Google would not have revenue, and then we would not have Google.

But I think the argument that we should be afraid of anarcho-capitalism because we lack experience with such a system might not be trumps.

Tyler Cowen vs. the Club Model

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He writes,

In the old days one heard speculation about bundling a great number of newspapers and blogs into a single-price access model, but in retrospect this probably never had much financial potential, for reasons which by now should be clear. What would an “all-you-can-eat buffet for economists” mean? And who if anyone would benefit from it?

What such a buffet would mean would be that by paying one amount per month you could read as much as you want from the NYT, WSJ, existing blogs, plus all of the new economics blogs that would emerge because bloggers would now be directly compensated by getting a share of the subscription money, perhaps in proportion to the number of views of their posts or some other metric. The beneficiaries would be readers who would read more NYT and WSJ articles if there were no paywall and readers of the new blogs that emerge.

And the biggest beneficiaries of all will be people who save time not having to click on the “close” window on all those unwanted pop-up ads!!!! Because with a bundled subscription, we can finally have content without advertising. The current newspaper model is headed toward the opposite.

This “club” might not be the most viable model. I once thought it would be, but over time I have become convinced that the patronage model will win out. That is, in the end, the NYT will be a money-losing enterprise, but some wealthy patron or patrons will be happy to keep it going. Similarly, those bloggers who want money will have to find patrons to support them. Whether content is better under a patronage model or under a club model is not clear.