4 ms·

Let's see if I can explain it another way. The price of everything eventually reaches $0. There is only a certain period of time from which you can profit fro

by dstein 16y ago

Let's see if I can explain it another way. The price of everything eventually reaches $0. There is only a certain period of time from which you can profit from any particular good. If you make a hamburger, you have probably 2 hours to sell it before it goes bad and is worthless. And likewise, if you create a cell phone, you have maybe 2 years to sell it before nobody will want it. And if you make a movie, you have a few months where you can sell the movie (in a theater) and make money from it. Once the movie hits the internet the ability to make money off it decreases (piracy will happen more in the future, not less). Make a new app for the iPhone and you have a few months where you can make money before a free alternative arises. This is technological deflation. And the pace is increasing. The time you're able to make money is decreasing rapidly. Mathematically, as that time approaches 0, the effective price of everything starts reaching $0. Why buy anything today, when it'll be effectively free tomorrow?

jodrellblank 16y ago
I don't really follow - the hamgurger wont be free tomorrow, it will be mouldy tomorrow and you'll be more hungry. The film may be free but it will be "old", and the app may have a free clone but people (businesses) still pay for old proprietary software now instead of free clones.
- dstein 16y ago
  * the hamgurger wont be free tomorrow, it will be mouldy tomorrow and you'll be more hungry. The price for that particular hamburger will be $0 once it's mouldy. It only reaches $0 when nobody will pay anything for it so it never actually reaches $0. Now imagine McDonald's developed technology that could produce a million hamburgers per second really cheaply. I imagine the price of hamburgers would become practically $0. This is essentially what's happening to most aspects of our technology, information, and digital goods. * The film may be free but it will be "old", and the app may have a free clone but people (businesses) still pay for old proprietary software now instead of free clones. It's not that it instantly drops to $0. It's deflation, the price decays over time. The longer a film is easily available on the internet, or the longer a "good-enough" free app is out the more the price of the film and app fall. The pace of this deflation is increasing as technology makes it easier and cheaper to produce and distribute digital goods.
  - tel 16y ago
    I disagree on structure. This is a everything-argument. For instance, should there be an epic war and a return to levels of knowledge and technology to pre-Industrial Revolution levels, all of your arguments still hold. So what explains the trend that things are getting cheaper? I think it's because people learn more quickly the value of something. I can sell an ignorant person a moldy hamburger if I'm cruel. They may not know, or may be so hungry they'll take the short term reward without being aware of the long term damage. Today, I can hardly make a movie without having every intending consumer become painfully aware of every alternative. It's that value is suddenly more transient. I think it's because the speed of information causes the time constants on those transients to shrink drastically.
lacker 16y ago
This is bad economics. The price of everything does not trend towards $0. Specifically, goods that require a high labor input do not get cheaper over time unless they can be substituted with technology. Wages rise over time, so anything requiring a certain amount of labor will get more expensive. A good example is personal servants. In 1910 a middle class family in England would be able to afford several full-time servants. Nowadays it's far more expensive, because the ratio between middle-class wages and minimum wages is much higher. A similar modern example is education. The cost of education will rise over time unless we can provide the same education with less labor investment. But the cost of providing a given teacher-to-student ratio will go up over time.
- dstein 16y ago
  * The price of everything does not trend towards $0. I think you'd have to agree that any time you apply technology to a particular "problem", the cost of solving that problem goes down. As technology progresses, the problems become cheaper and easier to solve. And now I can go to Walmart and buy a chair for $5 instead of fashioning one out of oak. Or I can buy a $12 electric stand-up lamp, instead of burning whale-oil in a hand lamp. So, although oak and whale-oil is never going to be free, the cost of sitting down and having light at nighttime, is essentially free at this point. * A good example is personal servants. This is not an example of technology. But alas, these days we do not require a servant when I can pop a TV dinner in a microwave and eat a meal in 5 minutes. * A similar modern example is education. The cost of education will rise over time unless we can provide the same education with less labor investment Ever visit http://www.khanacademy.org/ http://www.khanacademy.org/ ?
  - cjy 16y ago
    You miss lacker's point, labor intensive goods actually become more expensive as society becomes more productive. Check out Baumol's Theorem on wikipedia. Basically, as technology makes us more productive in a lot of industries, the opportunity cost of work that cannot be easily made more productive become very high. So, we can expect the cost of things like nursing care to get more expensive over time.

by dstein 16y ago

jodrellblank 16y ago

I don't really follow - the hamgurger wont be free tomorrow, it will be mouldy tomorrow and you'll be more hungry. The film may be free but it will be "old", and the app may have a free clone but people (businesses) still pay for old proprietary software now instead of free clones.

dstein 16y ago
* the hamgurger wont be free tomorrow, it will be mouldy tomorrow and you'll be more hungry. The price for that particular hamburger will be $0 once it's mouldy. It only reaches $0 when nobody will pay anything for it so it never actually reaches $0. Now imagine McDonald's developed technology that could produce a million hamburgers per second really cheaply. I imagine the price of hamburgers would become practically $0. This is essentially what's happening to most aspects of our technology, information, and digital goods. * The film may be free but it will be "old", and the app may have a free clone but people (businesses) still pay for old proprietary software now instead of free clones. It's not that it instantly drops to $0. It's deflation, the price decays over time. The longer a film is easily available on the internet, or the longer a "good-enough" free app is out the more the price of the film and app fall. The pace of this deflation is increasing as technology makes it easier and cheaper to produce and distribute digital goods.
- tel 16y ago
  I disagree on structure. This is a everything-argument. For instance, should there be an epic war and a return to levels of knowledge and technology to pre-Industrial Revolution levels, all of your arguments still hold. So what explains the trend that things are getting cheaper? I think it's because people learn more quickly the value of something. I can sell an ignorant person a moldy hamburger if I'm cruel. They may not know, or may be so hungry they'll take the short term reward without being aware of the long term damage. Today, I can hardly make a movie without having every intending consumer become painfully aware of every alternative. It's that value is suddenly more transient. I think it's because the speed of information causes the time constants on those transients to shrink drastically.

lacker 16y ago

This is bad economics. The price of everything does not trend towards $0. Specifically, goods that require a high labor input do not get cheaper over time unless they can be substituted with technology. Wages rise over time, so anything requiring a certain amount of labor will get more expensive. A good example is personal servants. In 1910 a middle class family in England would be able to afford several full-time servants. Nowadays it's far more expensive, because the ratio between middle-class wages and minimum wages is much higher. A similar modern example is education. The cost of education will rise over time unless we can provide the same education with less labor investment. But the cost of providing a given teacher-to-student ratio will go up over time.

dstein 16y ago
* The price of everything does not trend towards $0. I think you'd have to agree that any time you apply technology to a particular "problem", the cost of solving that problem goes down. As technology progresses, the problems become cheaper and easier to solve. And now I can go to Walmart and buy a chair for $5 instead of fashioning one out of oak. Or I can buy a $12 electric stand-up lamp, instead of burning whale-oil in a hand lamp. So, although oak and whale-oil is never going to be free, the cost of sitting down and having light at nighttime, is essentially free at this point. * A good example is personal servants. This is not an example of technology. But alas, these days we do not require a servant when I can pop a TV dinner in a microwave and eat a meal in 5 minutes. * A similar modern example is education. The cost of education will rise over time unless we can provide the same education with less labor investment Ever visit http://www.khanacademy.org/ http://www.khanacademy.org/ ?
- cjy 16y ago
  You miss lacker's point, labor intensive goods actually become more expensive as society becomes more productive. Check out Baumol's Theorem on wikipedia. Basically, as technology makes us more productive in a lot of industries, the opportunity cost of work that cannot be easily made more productive become very high. So, we can expect the cost of things like nursing care to get more expensive over time.