Don’t Mess With Murdoch
The Guardian reports that News of the World whistleblower Sean Hoare has been found dead in his home. (HT2 EPJ) Check out this comment, which I can explain and find suspicious:
Hertfordshire police would not confirm his identity, but the force said in a statement: “At 10.40am today [Monday 18 July] police were called to Langley Road, Watford, following the concerns for the welfare of a man who lives at an address on the street. Upon police and ambulance arrival at a property, the body of a man was found. The man was pronounced dead at the scene shortly after.
“The death is currently being treated as unexplained but not thought to be suspicious. Police investigations into this incident are ongoing.”
Of course, what the spokesperson means is, “We haven’t yet ascertained the exact cause of death, but we have no reason to think this is a homicide.”
Even so, isn’t the statement odd? By definition, if you don’t know why somebody is dead–let alone somebody who just screwed over some of the world’s most powerful people–then isn’t his death suspicious?
Could it go the other way? Could you have a suspicious death that was explained? I don’t think so. We can explain exactly how Lee Harvey Oswald died, and that’s why there’s nothing suspicious about it.
My Heretical and Pathbreaking Work on Austrian Interest Theory
By popular demand, here are two things that are extremely geeky:
(A) My doctoral dissertation.
(B) A long paper I wrote for a recent Liberty Fund conference on Austrian business cycle theory.
I realize how obnoxious this sounds, but it’s just possible that I mapped out enough work to occupy the careers of three productive Austrians in the second paper. So some of you should glance over it to see if I’m nuts or onto something.
(Oh, be careful: I think footnote 4 in the 2nd paper is a little bit off. I noted a discrepancy between Sraffa’s discussion and a standard result in financial economics, but I think my suggested resolution is wrong. We discussed this issue on Free Advice back when I was writing the paper, and I haven’t fixed the footnote yet.)
Supply Curves for Digital Goods
[UPDATE below…]
A very sharp guy emails me (slightly edited):
When a company makes an ebook, they pay for it to be made. Then they make it available. It can be purchased 1 time, 1 millions times, 1 trillion times, with no further expenditure on the company’s part. They do not produce more of the product at a higher price than a lower price. They don’t even have to develop the delivery mechanism more. They make one good only, and rest on their laurels or failures forever regardless.
So too with software, apps, MP3 downloads. This is clearly where the future of vast amounts of commerce is headed.
So my question: what does the supply curve of a digital good look like?
The part I put in bold will turn out, I think, to be a stumbling block in the correct analysis. So here are my quick thoughts:
(1) Once the expenditures have been made, at that point the company sets the retail price in order to maximize the present discounted value of expected revenue. This will involve guesses about the demand for the digital good. E.g. suppose the company predicts that if it charges $0 it will sell 10 million copies, if it charges $1 it will sell 5 million, and if it charges $10 it will sell 2,000 copies. (Assume it’s a novel and sales will collapse after one year.) If those are the only options, the company will set the price at $1 and sell all that the market will bear at that price.
(2) Armed with the above information, the company in question would only develop the digital good if the company could do so by spending less than the PDV of the annual stream of revenues. So in our example, if it’s a book by Stephen King and he’s asking for an advance of $6 million, then the company won’t produce the good at all, given the demand.
(3) Like my correspondent, I’m hitting a brick wall when trying to graph the “supply curve” of a digital good in this context. I think the major problem is that the company can’t say, “At a price of $x we want to sell y units.” (The company can only answer that, once you specify a demand curve. Normally we think the supply and demand curves are independent of each other, and see where they cross to figure out the market-clearing price.) The thing that is troubling me, is that I would have thought we could draw a supply curve for a monopolist who has a constant unit cost of production. So why does the world blow up when the unit cost is $0?
UPDATE: Duh, no mystery here, even with tangible goods, we can’t construct a supply curve for a monopolist. When I wrote the above, I was thinking of how we (easily) figure out the monopolist’s supply decision–you check where the Marginal Revenue and Marginal Cost curves intersect. But duh, you can’t derive the MR curve without knowing the demand curve, meaning you can’t specify the output decision of the monopolist independently of the demand curve. Thus there is no such thing as the supply curve for a monopolist.
The Critical Flaw in Keynes’ System
Just when the Austrians were getting ready to purge me for my “Keynesian” thoughts on interest theory, I confuse everyone by writing this. An excerpt:
So even if we mechanically assumed that a fall in labor’s money-wages would translate into a proportional fall in retail prices, labor would nonetheless have the power to reduce its real wages. For example, if laborers received a cut of 10 percent in their money-wages, then the prices of the goods they produce would only fall between 5 and 6 percent. Labor would be cheaper, even in real terms, and employers would move out along their demand curve and hire more workers.
But there are other problems with Keynes’s analysis. Consider: What is the actual mechanism through which falling costs lead to falling retail prices? We start in an initial equilibrium, where workers earn (say) $10 per hour, and the retail good sells for $100. Firms are happy with the number of workers they have employed at $10 per hour, and the amount of goods they can sell at $100 each.
Now, because unemployment is very high, the firms can get away with cutting their workers’ pay to $9 per hour. Holding everything else constant, they are making more profit than before. What would induce them to lower their retail price from $100?
The obvious answer is that they want to capture a larger share of the market. That is, they want to sell more units of the retail good to their customers. They can’t do this with their original labor force. No, in order to make it profitable to cut their retail price, they need to hire more workers and boost output. Then, in order to move the larger quantity of product, they cut prices from $100 to (say) $98. Even though they make less revenue per unit, they nonetheless make more total profit.
Other firms do the same thing, of course, until the new equilibrium settles down with wage rates at $9 per hour and the retail price at (say) $95 per unit. Thus a large part of the workers’ wage cuts have been passed along to the consumers in the form of lower retail prices. Nonetheless, in the new equilibrium, each firm is producing more units, and thus is carrying a larger workforce than before the wage reduction.
Turn That Frown Upside Down
If you are getting worried and stressed about things, keep these words from Jesus in mind:
1 “Let not your heart be troubled; you believe in God, believe also in Me. 2 In My Father’s house are many mansions; if it were not so, I would have told you. I go to prepare a place for you. 3 And if I go and prepare a place for you, I will come again and receive you to Myself; that where I am, there you may be also. 4 And where I go you know, and the way you know.”
WordPress Messes With My Comment Settings Again
Sorry, don’t know why the comments were closed on some of the recent posts. As always, that wasn’t conscious on my part. I can’t stand it when bloggers post something provocative and then close the comments. (But maybe now I have to be less judgmental; maybe WordPress is messing with those people too.)
We’re #75! We’re #75!
I’m extrapolating, but that’s my guess from these rankings of libertarian websites. LRC is of course #1, with the Mises Institute at #3.
I’d like to thank all of you for making this possible. Just the other day, I got a fat check from Google Adsense, which Bob Wenzel would not classify as savings by any stretch.
Checkmate
I lied when I said I was done posting on this topic. But now I’m truly done. If the following doesn’t convince you folks that Wenzel/Major Freedom got off on the wrong footing, I don’t know what else would.
Major Freedom in one thread writes: “Investment and consumption, THOSE are commensurable concepts. They are both stock concepts…”
But then in the other thread he writes:
Income is flow, because it compares (say, yearly) revenues to (say, yearly) expenses over a time period.
Consumption spending is stock, because it is just the act of spending not for the purposes of making subsequent sales. Sure, you can look at consumption events over time, just like you can look at cash balances over time. But so what.
Investment is flow, because it is spending for the purpose of making subsequent sales.
I think we should all take a breather and collect our thoughts. I have now provided a quotation from Mises establishing that (a) savings is “the surplus of goods produced over goods consumed,” and (b) people can choose to save by enlarging their cash balances. I have provided a quotation from Rothbard explicitly defining saving as “the amount by which a person’s income exceeds his consumption.”
My definition is also the one used in any financial economics or macroeconomics textbook, and it is consistent with standard accounting (though accountants talk about “expenses,” not “consumption”).
Finally, as I just showed above, Major Freedom in one thread thought it advantageous in his argument with me to classify investment as a stock concept, yet in the other thread he decided to thwart my point by classifying it as a flow concept.
There is nothing more I can say on this. Best of all, if you agree with me (and Mises and Rothbard and accountants and econ textbook writers) that saving = income – consumption, and that a saver can invest in higher cash balances just as surely as he can invest in, say, T-bills, then you can still be a libertarian. Scout’s honor.
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