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.

  • http://www.whydoeseverythingsuck.com Hank Williams

    Wow, I guess this stuff gets so heated that, like politics, people can't construct logical arguments. Sort of like Hillaryites arguing that Michigan should count and all the delegates should go to her.

    The point is the Krugman article has a bunch or predictions and opinion from himself and Esther Dyson that are not of concern to me. Everyone is entited to their own opinion and I am fine with that. They are not entited to their own facts. The Rolling Stone article is used to establish a *fact* basis for his argument.

    But the Rolling Stone quote is ridiculous. Krugman is a world class economist. Sourcing Rolling Stone to establish an economic argument about current the state of the market is not up to a Princeton economics professor's standards. This is problematic both because rolling stone is wrong, and because Rolling Stone is not a proper source for economic data whether they are right *or* wrong, unless you know something about them that I don't. There would be little debate about that from anyone actually concerned with the truth who actually thinks about such issues. So If you wish to disagree with me, fine, but at least address the topic of my piece. For example:

    Are you arguing that the Rolling Stone piece is right or that it is a proper source? Or are you just arguing that since you agree with Krugman (Musnick, Arrington, et. all), that any argument construction is fair game? The ends justify the means? The imprimatur of a world class scholar means nothing in terms of standards?

    Oh, and regarding my supposed “selective quoting” of Masnick, that is just pure B.S. I guess your position is if someone disagrees with you and they write long enough, say 10,000 words or so, then if you don't address every single one of their accusations then you are selectively quoting?

    Beyond the fact that some of his points were, worthy of a separate post, the bottom line is I can't write a single, infinitely long piece in Alley Insider. They actually care about being interesting and readable. That said, to suggest that I took anything out of context or twisted his meaning in any way is absolutely false, dishonest, incredibly offensive, and below where I actually *thought* your standards were.

  • http://www.mathewingram.com/work mathewi

    Whoa, Hank — let's relax and take this a step at a time. First of
    all, the Rolling Stone article isn't used to “establish a fact basis
    for his argument.” It's not a master's thesis at Princeton, it's a
    column in a newspaper, which is often filled with opinion (but you say
    that's not of concern to you). In any case, I would argue both that
    the Rolling Stone article was “right” — so far as it goes — and that
    it is a proper source for supporting commentary of the kind Krugman
    was clearly engaged in.

    As for Mike Masnick (whose name you seem to be incapable of spelling
    properly for some reason), you appeared to deliberately ignore the
    examples that he referred to in his piece, so yes, I thought that was
    unfair. Obviously you can't comment on every single point, but to
    leave out examples that support his case — and then to claim that he
    has no supporting evidence — I think is pretty offside.

  • http://www.whydoeseverythingsuck.com Hank Williams

    This is really getting silly. First you start off with “(but you say that's not of concern to you)”. You throw that sarcastic or snarky point in, I guess, to skirt or dismiss my clearly stated point that I am not attacking Krugman for his opinions but for his methods.

    The fact that you don't see the problem with this sort of presentation is telling. There is a difference between an opinion debate and an opinion debate masquerading as a fact debate. The latter is what you and Mike are engaged in. Amusingly, even Masnick agrees that Krugman's article's sourcing was weak so you seem to be alone on that one.

    In the category of how petty, “As for Mike Masnick (whose name you seem to be incapable of spelling properly for some reason).” As if you have never mistyped a name, word or whatever. Its just childish. I misspelled his name once in a comment. God forbid.

    And finally, I am not sure what you are talking about when you say “you appeared to deliberately ignore the examples that he referred to in his piece,” But I am going to guess you are referring to the fact that I did not address Flo Rida, or Maria Schneider. The reason I did not is I chose to address the issue of whether or not there were any blockbuster artists from the Internet. In this case, he cited the Arctic Monkeys as a potential blockbuster, and though I don’t really consider them Blockbusters, they are certainly closer than the others he mentioned which are clearly not. He couldn't name a blockbuster. That was the point. As I see it, given the amount of stuff that Mike throws out that is bull, selectively debunking his stuff is more than sufficient. I can’t get to all of it.

    In any case, Flo Rida is an Atlantic Records artist, and while Maria Schneider sounds like, potentially someone worth researching for the Free Music Research Project, note that I said “more than a handful” regarding my assessment of the number of artists making a living as internet artists. My point is that the number is, I believe, statistically insignificant. Amusingly though, this is really a side point since all of this is, at its core, about whether or not artists need copyright. Mike thinks not, and yet all of Masnick's example artists definitively rely on copyright. Go figure.

  • http://www.mathewingram.com/work mathewi

    Hank, I don't see how Krugman's piece was an “opinion debate
    masquerading as a fact debate,” except that you've defined it that
    way. He certainly never claimed to be building a case for a thesis
    based solely on a Rolling Stone article — which is what you implied
    in your post — and now that I've called you on it you're trying to
    make his column into something it was never intended to be.

    As for Mike's name, I will admit there is some pettiness there, except
    that you spelled it wrong not just in your comment, but in the
    headline of your post about him, and I brought it up in part because I
    thought you were concerned with facts.

    There's not much point in my addressing the parts of Mike's post you
    chose to leave out — as you've already made clear, your argument is
    structured in such a way so that you get to exclude evidence that
    doesn't fit the theory, since you're only looking for a “blockbuster”
    act that has only used the Internet and never had anything to do with
    the traditional label system. That's a figment of someone's
    imagination. It's like saying Mike and others are describing a unicorn
    and then proudly arguing that unicorns don't exist.

  • http://www.whydoeseverythingsuck.com Hank Williams

    You havent “called me” on anything. In fact, again I point out, even Masnick agrees in his post about this that citing Rolling Stone let alone a 15 year old article from Esther Dyson is incredibly weak.

    Thank you for admitting the pettiness. I'll take it. But if you had wanted to actually help me out with facts, it would indeed have been helpful to hear initially that I had misspelled it in the headline of my post so that I could correct it.

    As for your final point, first you say I “of course” don't have to address every point. Then you complain that I don't address every point. I am sure this is some kind of blogosphere rhetorical technique (I am new to this), but it really doesn't seem focused on seeking the truth. Yeah yeah, I know that's not really the point of all of this anyway is it? Ok you guys win. Lets just do away with copyright, and see what happens. No one needs it anyway (oh except all the examples everyone cites).

  • http://www.mathewingram.com/work mathewi

    Perhaps it's best if we move on, Hank. We're now arguing about how to
    argue, which is a sure sign of circularity. I do find it interesting
    that nowhere in any of your comments have you addressed any of the
    parts of my post that actually had something to do with the point
    you're supposedly interested in pursuing.

  • http://www.whydoeseverythingsuck.com Hank Williams

    deleted and moved up

  • http://www.whydoeseverythingsuck.com Hank Williams

    Hmm… “you're supposedly interested in pursuing”. As you may or may not know, I have written extensively about my perspectives (and will continue to do so) both on my blog and at Alley Insider. I therefore prefer to develop these points in those places rather than in blog comments.

  • Daedalus

    As usual the argument about free or not free is more about the obsession with finding/supporting a simplistic model for things rather than paying attention to reality or getting the assumptions right. This tends to lead to masturbatory argumentation rather than any clarity.

    Guess what: free and not free product models are *both right*, depending on the situation. Even scarier – one seller could choose the free model, the other a non-free model *in the same market* and all four possible outcomes for long term survival are possible (A and B fail, A fails – B succeeds, A succeeds – B fails, A and B succeed).

    Is it possible to know which one applies? Yes, I think so. Up to a point.

    Why do people argue about it ad nauseum? 1) their math and systems thinking skills stink, 2) they pontificate in a vacuum rather than from actual experience (how many have started or run a businesses themselves? 99% not – yes I'm in the 1%, serially), and 3) they often follow an overly simplistic view of Occam's Razor primarily due to #1 IMO.

    The low down is this: some products, some markets and some periods of time allow either (free or non-free) to be the optimal price-value model. Neither model is universal over the entire 3-space.

  • http://www.mathewingram.com/work mathewi

    Thanks for the comment, Daedalus. I agree that the two models are by
    no means mutually exclusive, and that which one is appropriate has a
    lot to do with the specific situation and market.

  • http://liveatthewitchtrials.blogspot.com/ davidc

    What happens when freeconomics moves from information to physical goods? We already have freeconomics on things like razors and blades but what happens when physical good creation becomes as easy as sharing a file?
    The reprap project http://reprap.org/bin/view/Main/WebHome has created a rapid prototyper that can replicate its own plastic parts. So such a “download your living room” world may not be that far away. What are the economics of everyone having a rapid prototyper?

  • http://www.socialcapitalvalueadd.com Michael Cayley

    The only point that I would insert is that the relationship is not primarily between the reader and the advertiser. The relationship (or social capital) is between the newspaper and the reader or the author and the reader and advertiser, rents a spot.

    Good post Matt.

  • http://www.mathewingram.com/work mathewi

    Thanks, Michael — yes, you are quite right. The advertiser has a
    relationship with the reader, but it's a secondary relationship
    created by the bond between the newspaper and the reader, or the
    author and the reader.

  • http://www.mathewingram.com/work mathewi

    Thanks, Michael — yes, you are quite right. The advertiser has a
    relationship with the reader, but it's a secondary relationship
    created by the bond between the newspaper and the reader, or the
    author and the reader.

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