New Paper Takes on the Myth of Free

Zeno’s Paradox describes physical change as an illusion. Zeno of Elea, in the 5th Century BCE, postulated that in order to travel any distance, one had to first travel half that distance, and before that half could be traversed, one had to travel half of the first half, and so on. And because space could be infinitely divided, traveling through space would seem mathematically impossible but for the fact that anyone running headlong toward a brick wall will suddenly realize why we call Zeno’s theory a “paradox.” Or as Professor John M. Newman might put it, apropos his recent paper The Myth of Free, the sudden impact with the wall will be an encounter with the “friction of the real.”

Even a casual observer of the real world can reasonably conclude that we are not heading toward a market utopia in which goods and services are both free and abundant. Yet, despite the empirical evidence all around us, Newman’s new paper in the George Washington Law Review asserts that the Myth of Free is not merely pervasive among academic theorists but has been wreaking havoc in applied law and policy for years. He writes …

“Legal institutions have already begun to grant an undeserved protected status to the suppliers of Free products. Such suppliers have received de facto or de jure immunity from certain laws, as well as favorable treatment in close cases. This is so despite the reality that these firms engage in for-profit transactions that are structurally identical to traditional, positive-price transactions. That unjustified protected status undermines the rule of law and distorts natural market competition, harming total welfare.”

Newman’s paper should be required reading by jurists and policy-makers seeking to understand, in economic terms, many of the same principles that artists and creators—the first victims of Free—have been saying anecdotally for quite some time.

Artists and Creators Know This Story Well

Day-to-day arguments about copyright are apt to be about specific points of conflict, like duration of terms, methods of enforcement, application of fair use, court opinions, etc. But the broader social, academic, and political campaign against copyright’s purpose—advocating changes from radical revision to outright erasure—is largely predicated on this economic belief that once the internet became publicly accessible, we crossed some threshold toward a future in which goods and services will inevitably be be both free and abundant. Where scarcity itself would be eradicated.

Newman’s paper is among the first, if not the first, to formally rebut the Myth of Free based on economic analysis. Covering more ground in his 74 pages than I can adequately summarize here, copyright owners and advocates will immediately identify with Newman’s critique of Free’s “major premise,” which asserts that zero (or near-zero) marginal cost drops the natural price of goods and services to zero (or near zero).

“According to the Myth, once information-based products could be reproduced and distributed digitally, the marginal cost of such products began to map onto the ever-halving cost of trendlines of processing, storage, and bandwidth. Eventually costs became so low that prices inevitably dropped to zero. Free was born.”

Authors of creative works will recognize this “marginal cost” premise as the head-banging gibberish they’ve encountered for years from people like Mike Masnick ‘splaining the alleged zero-cost of digital distribution of works while simply ignoring the high cost of development and production of works.

As Newman puts it, “…the Zero-Cost Premise fails to account for both the stubborn persistence of costs and what is referred to herein as ‘the friction of the real.’” To put that in practical terms creators know very well, even if the distribution cost of a movie really were zero, the cost to produce the movie is never going to approach anything like zero. But Newman doesn’t even need to go there, instead demonstrating that even digital distribution is never going to approach zero cost either …

“Digital processing, storage, and bandwidth do not occur in some abstract realm that transcends scarcity. They occur in the real world, which means they come with real costs. Those cost may be quite low, and may decrease lower still, but they cannot reach zero.”

So, even the premise underlying the premise of Free isn’t true, hence Newman’s reference to Zeno’s Paradox in this part of his paper to describe the fact that the cost of bandwidth itself will not continuously halve itself until it becomes “too cheap to meter,” let alone implicate that all goods and services will soon become both free and abundant as a logical extension of this tech-utopian fallacy. “Those who claim the existence of zero marginal costs fall into the same trap as those who chase the elusive dream of perpetual motion,” Newman writes.

Many of the footnotes in The Myth of Free read like a Who’s Who of “Freeconomics” hucksters—Mike Masnick, Chris Anderson, Mark Lemley, Jeremy Rifkin, Amanda Palmer et al, but I was particularly struck by the attention Newman gives to rebutting the premises of Professor Lemley in context to previous posts on this blog. Readers may remember that Lemley is the academic who has accused some of his colleagues—and by extension advocates like me—of endorsing a “faith-based IP” doctrine that he claims ignores empirical evidence. But as Newman makes quite clear in this paper, proponents of Free are engaged in magical thinking that goes beyond anything we might generously describe as faith and can more accurately describe as denial.

“…those who foresee a coming of age of abundance tend to miss—or misunderstand—a crucial element of the dynamic, long-run view: demand is a moving target. With that element in place, such techno-optimism is revealed as misguided. It is, as those who espouse the Myth of Free rightly recognize, a mistake to view technological innovation solely through the lens of short-run employment effects.”

In other words, when people like musical artists say the math of Free doesn’t add up, it’s not because they’re “clinging to old models,” trying to sell buggy-whips in a market of driverless cars. It’s because the math of Free doesn’t add up.

As mentioned, it’s hard to imagine anyone observing the world today and believing that we are trending toward a post-scarcity utopia. But I suspect this particular idealism happened to emerge during a period when the failure to reign in certain excesses of capitalism demoralized the same generation that was being fed the hip and ebullient economics of Free. Quite simply, because the Napster generation collided with a market that was transparently bloated, corrupt, and offering dwindling opportunities, the conditions were probably ideal for evangelizing a vision of a post-scarcity future. A vision of “sharing” that would somehow transcend market realities by virtue of “free” technology, which isn’t free at all.

Meanwhile, Newman describes in this TEDx talk that Free also has a specific neurological effect, which rewards gluttony and is consequently having a detrimental effect on both human activity and fundamental economics. “We as a society are dumping billions of dollars into developing ever more creative ways to first addict ourselves, then to extract from ourselves as much of our time and attention and personal privacy as possible, and then auction it off to the highest bidder.”

As if to underscore the point, Newman’s talk about the addictive nature of Free has just over 200 views, while Top 100 Viral Videos of 2107 has over 31 million.

Billionaires in Bunkers—The Luxury Apocalypse

Photo by CarlosYudica

Remember that theme “make the world better” that’s been pitched, promoted, and even believed by many a Silicon Valley innovator? Well, according to Evan Osnos, writing for The New Yorker, a considerable number of tech-industry billionaires, rather than ask themselves what they might do as leaders to effect positive social change, are instead preparing for the day we all decide to kill them.

Doomsday planners, referred to as “preppers,” are described in Osnos’s in-depth article covering the history, psychology, and various styles of backup plans pursued by the very wealthy. It is certainly not just internet-industry tycoons who’ve invested in post-apocalyptic, luxury lifeboats; but I was particularly struck by the rationale of those who imagine that mass unemployment through automation could bring about a violent revolution. “The fears vary,” writes Osnos, “but many worry that, as artificial intelligence takes away a growing share of jobs, there will be a backlash against Silicon Valley, America’s second-highest concentration of wealth.”

Among the on-the-record subjects Osnos interviewed was LinkedIn co-founder Reid Hoffman, who estimates that more than fifty percent of Silicon Valley’s billionaires have invested in some form of escape route. Examples cited include property in New Zealand with an emergency flight plan via private plane; a private island off the US coast; or a three-million dollar luxury bunker apartment at the Survival Condo Project, built inside a disused nuclear missile silo in Kansas and guarded by heavily-armed mercenaries.

Personally, when I think about various doomsday scenarios, the first question I ask is whether or not I’d even want to survive, and most of the time the answer is No. I mean I wouldn’t even want to live at a time in human history prior to the invention of the flush toilet, so I don’t maintain active fantasies of slugging it out in a medieval, Mad Max-like world. These are fun thought exercises or the premises of some good fiction writing, but I think it’s adorable that the wealthy “prepper” imagines not only surviving the collapse of civilization but goes so far as to expect a rather comfortable survival at that.

The investment in these plans reveal the kind of arrogance that assumes that in a collapsed civilization, these folks would still maintain their status at the top of the food chain. For instance, I’m not surprised that a private security team is happy to be paid today to guard that bunker; but on the other side of the cataclysmic threshold, where money might become meaningless, those same trained killers may decide the bunker is theirs and that the former billionaires can work for them.

Surviving a doomsday scenario naturally depends on the causes and the extent of collapse, but it seems to me that most of the possible histories present a world not worth surviving. Even the description of Osnos’s tour of the Survival Condo Project with its founder Larry Hall sounds doomed to me:

The complex is a tall cylinder that resembles a corncob. Some levels are dedicated to private apartments and others offer shared amenities: a seventy-five-foot-long pool, a rock-climbing wall, an Astro-Turf “pet park,” a classroom with a line of Mac desktops, a gym, a movie theatre, and a library. It felt compact but not claustrophobic. We visited an armory packed with guns and ammo in case of an attack by non-members, and then a bare-walled room with a toilet. “We can lock people up and give them an adult time-out,” he said. In general, the rules are set by a condo association, which can vote to amend them. During a crisis, a “life-or-death situation,” Hall said, each adult would be required to work for four hours a day, and would not be allowed to leave without permission. “There’s controlled access in and out, and it’s governed by the board,” he said.

I’m not sure which is my favorite implied folly—the classroom full of Macs for a world that might be devoid of electricity and almost certainly will no longer have a working internet; or Hall’s projection of internal governance and justice maintained by the condo board of the apocalypse. Often, such scenarios end in cannibalism, so I’d rather be taken out with the first strike, thank you.

Alternatively, Osnos writes that the growth industry in supplying the survivalist imaginations of “preppers” also brings out high-profile critics, like PayPal co-founder Max Levchin, who considers his colleagues’ pricey lifeboats a “moral miscalculation”, and whom Osnos quotes thus: “It’s one of the few things about Silicon Valley that I actively dislike—the sense that we are superior giants who move the needle and, even if it’s our own failure, must be spared.”

The best way to survive—indeed probably the only way to survive—the end of civilization is to invest in civilization itself and to hedge against collapse. For all the many millions these people are wasting on exit strategies that would likely end in their grisly deaths anyway, they could put this wealth and their intelligence to better use.

For instance, Van Jones, on CNN last night, hosted a discussion with a group of West Virginia coal miners. They are representative of a large segment of the American population left behind by globalization and generally ignored by both Democrats and Republicans in Washington. Their votes for Donald Trump, in an economic context, sound like a Hail Mary play—a roll of the dice that a man who seems to be an outlier will shake up the system enough to restore some political clout to the “rust belt” and provide them with economic opportunity that has been in decline for decades.

I assume that many of these “prepper” billionaires—be they tech wizards of Silicon Valley or capitalists of New York—are skeptical that Trump’s approach to restoring opportunities for these American workers is in any way realistic. Certainly they imply as much with some of their fears as to how social collapse might occur. As such, perhaps their survivalist dollars and imaginations would be more wisely, to say nothing of more morally, invested in helping to develop solutions to some of the problems their own industries have created. For instance, if there is truly no avoiding the march of automation toward the unemployment of tens of millions of people, these folks might want to devote their resources to meeting that challenge. Because nobody can stockpile that much ammo.

CORRECTION: First publication of this post inadvertently stated that Van Jones visited miners in Pennsylvania.

Are Candidates Even Talking About the 21st Century Economy?

It’s very common to encounter broad complaints saying things like, “Copyright law should not stop me from fixing or altering my technology.” Often, this generalization is made by people who don’t necessarily know they’re referring to Title I of the DMCA but who have read somewhere that copyright law prevents reverse engineering, maintenance, jail-breaking, and overall tinkering with products ranging from personal small electronics to cars, trucks, and tractors.

But as I first discussed in this post, the whole concept of ownership of many of our core products may be waning faster than these apparent conflicts with intellectual property law might ever be addressed. This transformation is highlighted by what seems to be an inexorable march toward an autonomous vehicle transportation system—a change that comes with consequences far more relevant than the matter of a “right” to fiddle with the gadgets we purchase.

With the announcement last week that the federal government officially endorses the development of driverless vehicles, it is noteworthy that no candidate running for any office seems likely to address the radical social and economic implications of this seismic shift in the transportation sector. Although I cannot bring myself to compare and contrast Donald Trump with any other prospective candidate for office, for the purposes of this post, suffice to say that between Trump’s version of trickle-down economics and Hillary Clinton’s version of focusing on the middle-class, it seems to me that neither candidate is talking about the same 21st century economy in which Wall Street is investing.

Candidates across the political spectrum keep referring to fair trade deals as a common scapegoat as a prelude to their myriad promises to “bring jobs back” to America. This is already a fallacy, pretending that we can reverse globalization through tax policy alone, or without a specific plan for investments—either public or private—that might actually grow domestic jobs. Meanwhile, VCs, Wall Street, and the tech firms are placing big bets on a more generally automated future; and nobody seems to want to talk about the jobs we are, therefore, poised to eliminate over the next decade or two. Not outsource through trade. Just eliminate right here at home.

For instance, a truly driverless future would probably wipe out a minimum of 10 million jobs, beginning with an estimated 8.5 million who work as drivers and at least a few million who work in some capacity related to the current ground transportation industry. Granted there would be jobs created in order to build and maintain a new, driverless infrastructure, but only a fraction of the number that would be lost. And equally if not more challenging is the question of whose investment would build this new infrastructure?

Let’s face it. The United States is bipolar when it comes to great building projects, which I think explains why our infrastructure is antiquated in contrast to other developed—and even developing—nations. As if to emphasize our duality in this context, it’s notable that the two eras when most American infrastructure was built happen to have been based on antithetical models. The first era was a period of unfettered capitalism, which built the foundations of the country’s industrial capacity from the mid-19th to the early 20th; and the second era was a brief period of outright socialism—the New Deal—which built highways, buildings, dams, etc. most of which is still in use today, even if it’s looking a little rusty.

Now that the Obama administration has given a federal fist-bump to the driverless vehicle—and if this does mark a tipping point when we can say this transition is inevitable—then we’re going to have to address the question of ownership (i.e. whose investment it’s going to be). Would Americans allow Google, Uber, Ford, Lyft, and Tesla (GULFT) to own the entire transportation infrastructure for the nation? Or would we build the infrastructure as a public work? Because historically, allowing private industry to make that kind of stranded investment in exchange for monopoly control has not been particularly good for consumers or innovation.

When the nation was first being electrified, there was debate over whether we should build a distributed versus a centralized system. A distributed system of smaller, co-generating plants would have been safer, more energy efficient, and less monopolistic. So, naturally we built a centralized system. This meant massive, stranded investments by the utility companies for which they could only be compensated through monopoly control of the market until those monopolies were finally busted up in the 1990s. Meanwhile, consumers (a.k.a. “rate payers”) had no competitive choices, and the utility owners had zero motivation to innovate. As a result of this legacy, the United States remains a follower rather than a leader in advancing new, non-carbon-based, energy solutions.

So, now we fast-forward a decade or two in the world of ground transportation. We no longer own cars. We hail a driverless vehicle to take us to the grocery store where the goods on the shelves have all been delivered by a driverless cargo vehicle from a distribution center serviced by hundreds of other driverless cargo vehicles. Accidents are very rare, the air is cleaner, and (in theory) consumer costs come down. We no longer have car payments or auto insurance, and the lower cost of transportation could lower the cost of goods.

But those benefits may easily be diminished if we haven’t considered how to address the massive shift of 10-plus million people formerly employed in ground transportation-related jobs. Plus, we now have a more thorough consolidation of transportation service than the railroad monopolies controlled at the turn of the 20th century. Every vehicle trip is now part of a vast, networked system that relies very little on human labor. So who owns that system? We have to assume that the capitalists currently investing in the model expect they will own it. That’s a lot of control to give to GULFT.

Wall Street, Silicon Valley, and now the Obama administration are all projecting a future in which the transportation sector simultaneously sheds millions of jobs and centralizes control of the lifeline of the entire nation—and not one candidate from any party thinks this is significant enough to talk about. Instead, they’re campaigning on traditional, and at times absurd, promises that they know best how to bring 20th century jobs “back.” In this one regard, maybe the future is already here because it doesn’t seem to me like anybody’s driving the bus.

The Illusion of More

Dissecting the digital utopia.

Tag: economics