Arnold Kling  

You Call this Stagnation?

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Tyler Cowen writes,


The deeper point is that the revenue growth/utility growth gradient has fundamentally changed, due to the "real shock" (as they call it) of the internet. Facebook is fun but it doesn't produce a proportional amount of revenue, and ultimately that has implications for asset pricing.

Nine years ago, I wrote an essay on asymptotically free goods that is pertinent here.

Asymptotically free goods are a new economic force. 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.

I do not see asymptotically free goods as stagnation. Quite the opposite. The creation of bounty works well. It's the distribution of bounty that is questionable. In a world where traditional factors of production matter less, it is possible to create a lot of value without capturing it (think of open source software). Meanwhile, in the expert-hubris industries, it is possible to capture a lot of value without creating it.

...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.

In other words, when it comes to expert-hubris industries, is government the solution or part of the problem?



COMMENTS (2 to date)
Mike Linksvayer writes:

Your 2002 essay on asymptotically free goods is good, and the phrasing "expert-hubris industries" is priceless, but I'm failing to understand how the last quoted paragraph from the former relates to the latter.

There are some ways that EHI are threatened by AFG, but so are lots of things. When it comes to just about anything, the question about whether government is the solution or part of the problem may be asked. I'd enjoy reading an expansion of "In other words..", I suppose is what I'm saying.

I'd also add that there are at least four broad answers to "is government the solution or part of the problem?" Take AFG, yes/yes (taxpayer funding of research/restrictive regulation of drug trials, copyright, etc), no/no (private benefits of research enough/regulatory environment properly balanced), etc, etc.

Doc Merlin writes:

As I pointed out on Tyler's blog, this is a massive problem with GDP formalism.

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