Krugman: The economics of abundance

by Mathew on June 6, 2008 · 14 comments

New York Times columnist and economist Paul Krugman started a bit of a scuffle with his column about how “freeconomics” is affecting various content industries, including music and books. In a post at Silicon Alley Insider, Hank Williams slams Krugman for joining what he calls “the freetards” — and says that he expected better from the NYT columnist because he’s an economist, and accusing Krugman of basing his theories on an article in Rolling Stone magazine (about the Grateful Dead and their use of free music to drive sales of other merchandise).

Of course, Krugman isn’t basing all of his comments on an article about the Dead. But then, Hank seems to have a way of selectively quoting from things in order to make a point, to judge by his response to Mike Masnick of Techdirt, after Mike dismantled Hank’s earlier post on copyright. In any case, Krugman is making the same point that many people have made (including Masnick and Long Tail author Chris Anderson in his new book Free, which is about the “economics of abundance”).

For example, Paul refers to the excellent and prescient essay by Esther Dyson in Wired magazine almost 15 years ago — when many of those who are now running music companies and movie studios weren’t even aware that the Internet existed — in which she talked about the future of much “intellectual property” in the digital age (Rex Hammock also references this essay in his post):

“The problem for providers of intellectual property in the future is this: although under law they will be able to control the pricing of their own products, they will operate in an increasingly competitive marketplace where much of the intellectual property is distributed free and suppliers explode in number.”

and she went on to say:

“What should content makers do in such an inverted world? The likely best course for content providers is to exploit that situation, to distribute intellectual property free in order to sell services and relationships. The provider’s vital task is to figure out what to charge for and what to give away.”

Mike Masnick made a similar point during his presentation at mesh 2008, in which he described how the abundance of digital goods — goods whose cost of production and/or distribution has fallen to the point where they are effectively free, or are perceived by users or consumers as free — can actually be a beneficial thing for an industry, if it chooses to adapt rather than spending all of its time moaning about how things aren’t the same any more and people are stealing from it.

Newspapers are actually a pretty good example, I think. Their product is given away effectively for free (or, in the case of commuter papers, actually for free), but the publisher still makes money because of the relationship that is created between the reader and the advertiser. Are the people who pick up those papers “freetards” who are “stealing” the news? Hardly. And as I said to Hank in a comment on his blog, if more musicians could find ways of eating into the vast overhead of the record industry — in other words, make it more efficient — then the transition wouldn’t be nearly as hard as he makes it out to be.

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