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This book review has a few economic fallacies and was probably not written by Gates. But, these points are interesting-- "It" refers to "intangible investment"

by rcdmd 8y ago

This book review has a few economic fallacies and was probably not written by Gates. But, these points are interesting-- "It" refers to "intangible investment" here-- 1. It’s a sunk cost. If your investment doesn’t pan out, you don’t have physical assets like machinery that you can sell off to recoup some of your money. 2. It tends to create spillovers that can be taken advantage of by rival companies. Uber’s biggest strength is its network of drivers, but it’s not uncommon to meet an Uber driver who also picks up rides for Lyft. 3. It’s more scalable than a physical asset. After the initial expense of the first unit, products can be replicated ad infinitum for next to nothing. 4. It’s more likely to have valuable synergies with other intangible assets. Haskel and Westlake use the iPod as an example: it combined Apple’s MP3 protocol, miniaturized hard disk design, design skills, and licensing agreements with record labels.

jerf 8y ago
"This book review has a few economic fallacies and was probably not written by Gates." Dunno if they're fallacies so much as oversimplifications. But the oversimplifications aren't really the point; they're just meant to reference the concepts and give a hyper-quick overview if you've never heard of them. The rest of the review remains a valid point if you substitute more realistic economic concepts. This is my pre-emptive reply to the inevitable dozens of posts arguing about the oversimplifications. None of it matters to the point the author wanted to make. Note I say "valid", not correct. Whether economists are undervaluing intangible assets is a rich and interesting question that I have only vague opinions about personally. I'm just pointing out that the argument itself does not depend on the oversimplified economic concepts used to introduce the point.
- rcdmd 8y ago
  You're right to say it's mostly oversimplifications. The fallacy was the first economic concept introduced in the article-- > The first is still more or less true today: as demand for a product goes up, supply increases, and price goes down. Classic econ teaches as demand increases, prices go up. The exception is if the supply curve is flat (for instance, 0 marginal cost).
  - jerf 8y ago
    Sorry, yes, you have a point there. I missed that.
- losvedir 8y ago
  > Dunno if they're fallacies so much as oversimplifications. No, they're far enough off of correct that I wouldn't even call them oversimplifications. The statement of the problem is wrong: The second assumption this chart makes is that the total cost of production increases as supply increases. That's simply not what the curve says at all. The curve isn't about any one producer making more of an item (as the Ford example given), it's about how producers with different costs are able to profitably add to the supply or not, based on the price they can get for the product. The review might be fine otherwise, but there's no reason to throw supply & demand under the bus to motivate it. In fact, if you frame it correctly (say, technical innovations have enabled more people to more easily write software, thereby shifting the supply curve to the right and lowering prices), you can still meaningfully analyze these situations with those curves.

by rcdmd 8y ago

jerf 8y ago

"This book review has a few economic fallacies and was probably not written by Gates." Dunno if they're fallacies so much as oversimplifications. But the oversimplifications aren't really the point; they're just meant to reference the concepts and give a hyper-quick overview if you've never heard of them. The rest of the review remains a valid point if you substitute more realistic economic concepts. This is my pre-emptive reply to the inevitable dozens of posts arguing about the oversimplifications. None of it matters to the point the author wanted to make. Note I say "valid", not correct. Whether economists are undervaluing intangible assets is a rich and interesting question that I have only vague opinions about personally. I'm just pointing out that the argument itself does not depend on the oversimplified economic concepts used to introduce the point.

rcdmd 8y ago
You're right to say it's mostly oversimplifications. The fallacy was the first economic concept introduced in the article-- > The first is still more or less true today: as demand for a product goes up, supply increases, and price goes down. Classic econ teaches as demand increases, prices go up. The exception is if the supply curve is flat (for instance, 0 marginal cost).
- jerf 8y ago
  Sorry, yes, you have a point there. I missed that.
losvedir 8y ago
> Dunno if they're fallacies so much as oversimplifications. No, they're far enough off of correct that I wouldn't even call them oversimplifications. The statement of the problem is wrong: The second assumption this chart makes is that the total cost of production increases as supply increases. That's simply not what the curve says at all. The curve isn't about any one producer making more of an item (as the Ford example given), it's about how producers with different costs are able to profitably add to the supply or not, based on the price they can get for the product. The review might be fine otherwise, but there's no reason to throw supply & demand under the bus to motivate it. In fact, if you frame it correctly (say, technical innovations have enabled more people to more easily write software, thereby shifting the supply curve to the right and lowering prices), you can still meaningfully analyze these situations with those curves.