I hadn't noticed that there was an ongoing discussion resulting from this post, and thus had not even read this detailed response to which I am responding. Nor, alas, I did I see the next "I'm taking my toys and going home" post which, apparently, I earned by summarizing points made in the original article in a manner the author of the original article didn't like. Anyone can take their toys and go home at any time, based on any excuse - but in real academic discourse, of course, doing so generally means one lacks the ability to carry their argument forth in any other manner and has essentially chosen to tuck tail and go hide under a table.
Vert said:
Oh boy, this is going to be a long one. But, on the other hand, I'll take it as a compliment that my article has made you so interested that you felt a lengthy reply was necessary!
The article is interesting - both in what is says, and in how it says it. Given that I was not informed prior to reading it that the author is an academic economist by trade, my own initial response to the article was to see it as a perfect representative of some fallacies about digital distribution that are repeated endlessly in many media channels. Now, knowing the academic background of the author, I can place it even more accurately in context of the limitations of academic economics.
Lets take this paragraph one by one, shall we? First off, 'old economic models'? Sorry to break the news, but the economics profession has the tools for analyzing production models where the fixed costs are large, but the marginal cost of producing a single good close to zero for a long time now. I mean, the textbook I used during my first year of my undergrad studies already explicitly took into account such cases and modeled them, and that was back in 2001!
Speaking of sophistry, pointing out that microeconomics has modeled systems where marginal cost is "close to zero" is a bit slippery when we're, in fact, talking about marginal cost of exactly zero, not "close to." Unless I've missed a broad literature in the theoretical economics field on zero-marginal-cost systems in my own reading, such literature is essentially absent. We of course allow for "arbitrarily small" units of measure in thinking about the calculus; that doesn't generalize to a finding that zero and "close to zero" result in identical systemic behaviors.
Second, as can be inferred in my previous paragraph, the economics literature quite obviously has (no less) than textbook models for such cases. And they have applied these models to analyze such cases. The conclusions make for an interesting discussion, one that'll be glad to engage another time.
No, the textbooks do NOT have models for zero marginal cost cases - and if you know of textbooks that do, by all means please feel free to cite them by name. Without doubt, there will be such models in the textbooks of tomorrow - these "zero marginal cost" systems are too important to ignore. However, as your own basic misunderstandings of the most fundamental elements of such models well illustrate, academic economics has a long way to go before such models are widely studied and taught.
Thirdly, I love the double fallacy you commit in the middle. First, you implicitly accuse the economics academia of being responsible for the current credit crisis, which does have a grain of truth, yes, but very much a grain of sand in a beach. And, by doing that, you're making a implicit Ad Hominem attack, accusing the economics profession of being incompetent/stupid/incapable/evil/. Since I'm a part of the economics academia, you're also attacking me, and thus you're trying to weaken my argument by, sadly, making it personal.
Misapplication of a claim of "ad hominem" attack. As I didn't know of your academic background, I couldn't, by definition, be engaging in such a rhetorical tactic. However, even if I did know that in advance, I would not be enjoined from making any criticisms of academic economics whatsoever, simply because it might "make you look bad" given your own academic training. Indeed, it's actually rather relevant that your academic field has racked up such a series of spectacular failures, as a "science," in recent years - in terms of your overall academic credibility. Sorry, that's how the (academic) game works - as you well know. Skinnerian behaviorists aren't much in favor nowadays, either: they were proven wrong, and as a result the whiff of failure clings to them to this day.
Incidentally, I will claim a certain self-criticism right here; given that I also hold a graduate degree in economics from a school which has been at the center of many not-so-successful events in recent years (the University of Chicago), I'm as much poking holes in my own academic background as in yours. My degree in academics is not at a doctoral level, so you could say my "real" field isn't being targeted by my broad criticisms. Still, when I say that academic economics has really stepped on its own dick in terms of actually predicting how economic systems behave (which is unquestionably true, and not very indicative of a genuine "science"), I'm criticizing my own academic training in addition to the field overall.
Fourthly, am I to understand that you're in favor of greater price discrimination? Because that's exactly what you mean when you say you want pricing that "maps intelligently to the demand curve". Fine, so I hope you understand that that means that different countries should pay different prices too, so countries like Brazil should probably pay less than countries like US. Hope you don't mind that. That also means that things like modchips, which allow people to circumvent such restrictions, have to become illegal too.
No, I would have referred to mapping DYNAMICALLY to the demand curve if I was specifically referencing price discrimination - which I didn't do, since I wasn't referencing that. Price discrimination is a fertile field, and a complex one - I don't claim to be current on the finer details. For that reason, I'd not cite such as a "solution" to a problem - at least, not without highlighting explicitly my own limitations in the area of research.
So, why aren't the artists doing this? They have no reason to "sell off" to the big companies, no legal obligation, nothing. Why don't they make their own companies, get filthy rich and have the big companies grind to dust? And why aren't the shareholders or owners of these companies asking, nay, demanding the management of their companies that the superfluous is rid off? After all, the objective of a company is to make a profit...
I don't need to continue, do I? Your argument simply does not make any sense.
Actually, you've just fallen into one of the utterly laughable traps of academic economics - conflating idealized/theoretical systems with real-world economic interactions. This is where my own training - and post-graduate experience - allows me to state an obvious fact: industries in transition often retain legacy business models long after blank-slate analyses suggest they should have been overtaken by more efficient competitors. This is a result of the may "frictions" of real-life economic behavior, as well as the realities of human beings as biological, emotional critters - not idealized economic agents. Finally, you ignore the information asymmetries that underlie so much of these "abnormal" systemic behaviors - i.e. Ackerloff and Yellen's work, for which they were awarded the Nobel. I'm sure you are familiar with it.
If you'd like to dip into the literature of real-world econometric analysis of tech industry model transitions, I would suggest Christenson's "The Innovator's Dilemma" as a good starting point.
Lets divide this into two parts, first dealing with fact that piracy does take money from the artists. And a simple way of exemplifying this is like this: lets imagine that the market is now 100% pirate.
This isn't even a common fallacy of academic economics; it is just an example of sloppy thinking. There is no "fact" that states that "piracy does take money from the artists," and indeed there's ample econometric research data suggesting exactly the opposite. Even staying within formal models, stating this as "fact" really suggests you have no broad-based awareness of the complexity of multi-variable systems.
I am sure it's possible to construct systemic configurations that echo your supposed "fact." I'm equally sure that they are exceptions that prove the rule; the equivalent of building regression models by overtraining data sets. I suspect that your entire misunderstanding of the real-life economic questions of zero-marginal-cost distribution systems springs from this central fallacy.
And before you accuse of missing the point, I'm not saying that the production model is perfect or doesn't rip off the artists or anything like that; I'm saying that ALL else equal, more piracy means less money to the artists.
Second, as I said before, the division of power and profits in these companies aren't all that obviously unfair; after all, if an artist sees other artists getting ripped off in one company, he can simply go to another one or, even better, create his own. So either the artists aren't all that valuable (as other artists can do the same job), or they make more money than you believe, or that artists are complete idiots for not taking advantage of their power.
Ah, I take it then that you have "concluded" that there is no such thing as market power, and that the question of monopoly/oligopoly power dynamics is of no relevance whatsoever? Because that's the only way - apart from willed ignorance - that you could ignore such an obvious point: real-life economic systems aren't the perfect, friction-free, efficient-market versions that (we) study in classical economics. They have all sorts of twists and turns, nonlinerities and unexpected kinks created by power grabs that as often or not manifest from outside the realm of economics entirely.
The really poor in a country like Brazil aren't consumers in any case, that is, with or without piracy, but they bear some of the costs associated with it, if you agree with me that there is an increase in violence that stems from the selling, manufacturing and smuggling of pirated goods. Agreeing with this implies that the best for those who really need it would be, at least, stopping organized crime from involving in piracy, right?
Giving away all goods would be the most effective way of "stopping violence" resulting from criminal involvement in economic systems. It's not very practical - nor is the question of criminal violence at all relevant to this discussion. Thanks for bringing it up, but when one resorts to the rhetorical version of saying "what about the CHILDREN," it suggests the actual areas of contested dialog have already been lost. Such is the case here, I suspect.
You'll have noticed until now my civil tone. I always try to focus on making arguments, presenting facts and trying to discuss with those that disagree with me, be it in real life, be it on the internet. However, there are somethings that make me become irrational, make me furious. So please forgive the following paragraph, but such a blatant misrepresentation of my reasoning, for third time in your post, means either your an idiot, you can't read or your trying to misrepresent me to 'win the argument'. In any case:
I find it somewhat disappointing that you take this cowardly "you misrepresented my reasoning" line of argument when, in your detailed responses to my post, not ONCE did you claim I "misrepresented" anything you said - nor did you point to any specific examples, quote any such putative "misrepresentations," etc.
Rather, you've simply become uncomfortable because I disagree with the CONCLUSIONS of your line of reasoning - and turned that around as if it was somehow a failure of honesty on my part. No, it's not misrepresenting anything - I think the core line of argument you take in your article is WRONG. I've stated where I think you have gone off-track. I've cited what "facts" you claim that are anything but, and I've highlighted the areas where you are lacking in apparently academic familiarity, in suggesting more accurate alternative perspectives.
None of this is "misrepresenting" anything you've written. It's simply saying I find you argument to be wrong. If you can't handle someone saying "you're wrong, and here's why" - then are you really an "academic" at all? In the academic world I call home, we disagree all the time - that doesn't mean someone is "lying" or is inherently evil. It's called "academic discourse."
YOU BLOODY MORON! IN MY ARTICLE, NOT ONCE, NOT A SINGLE DAMMED TIME DO I SAY THAT PEOPLE ARE CONSUMING PIRATE GOODS BECAUSE OF BAD MORALS! OR JUDGING THEM! ON THE CONTRARY, I STATE IN MY ARTICLE THAT "individual consumers who opt to purchase pirated goods largely benefit" ("the short term" that follows was added by editing on part of the escapist). IN FACT, ITS COMPLETELY OBVIOUS TO ANYONE WITH A BRAIN THAT CONSUMERS OF PIRATE GOODS HAVE MORE BENEFITS THAN COSTS, OTHERWISE THEY'D BE UTTER IDIOTS FOR DOING THAT! THE WHOLE POINT OF MY ANALYZES WAS TO SHOW THAT SOCIETY, AS A WHOLE, BEAR THE COSTS OF THESE CONSUMERS! YOU PATRONIZING SOPHIST!
Not to poke a hole in such a righteous rant, but you've constructed an obvious, straw-man false dichotomy here - one I neither suggested myself, nor will I accept now. There's no either/or when it comes to "morality" and "self-interest." In fact, suggesting there is such a duality is rather, well, bizarre and small-minded. Human beings do things for their own self-interest all the time that are morally flawed; it's hardly an exceptional case.
Beyond that, I do think you've drank the Kool Aid of "self-optimizing rational economic consumers" a bit too much to have anything of substance to say about actual, biological human beings engaging in actual, everyday commerce. Those neutered, theoretical "economic agents" might be ok for articles intended for the JOE, but in terms of actually discussing the kinds of things that real companies - and human beings - do in their daily economic lives, those oversimplified, bizarrely self-righteous models are worse than irrelevant. I'd say they've proven to be absolutely pernicious, in terms of being willfully and widely mis-applied to real-world economic systems as if they were viable representations thereof.
In short, I suspect you find yourself trapped in an intellectual corner where your academic training leads you to state "facts" that you were taught on the basis of overly simplistic economic models - models which have embedded in them a host of known-false assumptions, implicitly interrelated variables, and an entire penumbra of normative expectations of how "things are supposed to be." Note that none of these things are to be expected in a real "science" - which is what economics claims to be, correct?
A real science looks at reality and tries to model it, in order to understand it, predict it, and perhaps shape it. A pundit says how things "should" be, and writes arguments designed solely to support that a priori expectation. Note that there's little overlap between the two. As an example of punditry, your article is both representative and relatively effective; as a statement of academic investigation or scientific "analysis," it's broken 9 ways to Sunday.
. . . and, no, that's not a "misrepresentation" of anything. It's a point-by-point refutation of the numerous flawed assumptions on which the entire conceptual framework of your article's main thrust is based. If you choose not to respond to those refutations, and instead find it less intimidating to cry "misrepresentation" and go home, so be it. Let it be said that your decision to do so might be somewhat viable as a face-saving gesture, but it's surely not something that adheres to the general standards of academic dialog.
Given that, I won't use my time anymore with you, I've spent enough.
Let me rephrase that for you: "I've repeated a canned series of non sequiturs, warmed-over "facts," discredited academic fallacies, and logical canards and now I don't want to face the consequences of my sloppy argumentation - so I give up." Insofar as that's what you've actually said, I will concur. As to whether your "time" is too valuable to respond to refutations of badly-flawed arguments you've made, well, that's your call. Most of the time when I hear that excuse, from practitioners and students alike, it's a sure sign someone is in over their head and doesn't have the commitment to dig their way out. So be it.
Fausty (MBA, University of Chicago - finance | PhD, pending, Systems Science)