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.

About the author

Mathew 2430 posts

I'm a Toronto-based senior writer with Fortune magazine, and my favorite things to write about are social technology, media and the evolution of online behavior

14 Responses to “Krugman: The economics of abundance”
  1. 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.

  2. deleted and moved up

  3. 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.

  4. 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?

  5. 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.

  6. 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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