US Economy

Michael Halcrow mike at halcrow.us
Thu Apr 7 14:40:30 MDT 2005


On Thu, Apr 07, 2005 at 12:48:37PM -0600, Sasha Pachev wrote:
> So after all, as much as we do not like to hear it, the net result
> of the existence of open source might actually be somewhat close to
> zero even if it becomes responsible for close to 100% of all the
> software ever written.

I do not follow your reasoning.

Let's start with a micro model.

Alice has $100 to spend.  She wants to write a poem, brew some coffee,
and have some work done to her landscaping; that is what makes her
both productive and happy.  The net wealth in an economy is not
measured solely in physical capital; it is also measured in happiness
and free time.  A quality standard of living is a primary factor in
any economic model.

Now suppose that Bill wrote a word processor.  Alice wants a word
processor; she can make a copy of Bill's word processor for some time
and effort, but Bill asked the government to punish Alice if she does
so, and the government agreed to do it.  So Alice asks Bill to make
her a copy of the word processor he wrote.  He obliges her, for a $50
fee.

Now notice a couple of attributes of this transaction.  Number one:
Bill spent a large amount of up-front time to produce his word
processor, but he only had to expend very little *additional* effort
to duplicate his word processor.  In other words, marginal sales do
not directly correlate with marginal amounts of work.  This means that
additional sales do not necessarily correlate with a better product.
I'm sure we can all think of some prime examples of this phonomenon
playing out.

Number two: There is no scarcity.  In other words, Alice making a copy
of the word processor does not take away the anyone else's word
processor.  If there are N copies of the word processor, and Alice
makes a copy for herself, there are then N+1 copies of the word
processor.  Since that word processor allows Alice to write her poem,
she is happier, and others benefit from her poem.  The economy is
richer for it.

At this stage, Alice is left with $50 to spend.  A coffee brewing
machine costs $50, and a landscaper costs $50.  Alice must now choose
between the two.  Let's say, for argument's sake, that she purchases
the coffee brewing machine.  The end state of the micro model is this:

Bill
 - Traded his time and effort to produce his word processor
 - Has $50
 - Has a copy of the word processor, with exclusive rights to copy it

Alice
 - Traded her time and effort to produce a poem
 - Has $0
 - Has a copy of the word processor, with no rights to copy it
 - Has a coffee brewing machine

Coffee company
 - Traded their time and effort to produce a coffee brewing machine
 - Has $50

Landscaper
 - Out of a job

So we have two copies of a word processor, a coffee brewing machine, a
poem, and $100 total.  Each of the prior elements in this model have a
monetary value to someone.

Now let's consider the scenario where Free Software is involved.
Alice has $100 to spend.  She wants to write a poem, brew coffee, and
have her landscaping done.  She downloads a copy of OpenOffice.org,
expending a little time and effort, and uses that to write her poem.
Bill downloads the word processor too.  Alice still has $100.  It's
not like that $50 she would have paid Bill is suddenly gone into the
netherworld.  So she buys her coffee brewing machine for $50.  She has
$50 left over, which she spends on the landscaper.  The end state of
the micro model is this:

Lots of people who enjoy writing software in their free time / a
corporate sponsor who paid a one-time fee to a developer / a
government agency / whatever:
 - Traded their time and effort to write a word processor (this is
   where the micro model gets a little hairy, but dang it, it's
   working this way already today)

Bill
 - Out of a job
 - Has a copy of the word processor, with the right to copy it

Alice
 - Traded her time and effort to produce a poem
 - Has $0
 - Has a copy of the word processor, with the right to copy it
 - Has a coffee brewing machine
 - Has a nicely landscaped yard

Coffee company
 - Traded their time and effort to produce a coffee brewing machine
 - Has $50

Landscaper
 - Traded his time and effort to landscape Alice's yard
 - Has $50

So we have two copies (or as many as you please) of a word processor,
a coffee brewing machine, a poem, a landscaped yard, and $100 total.
Each of the prior elements in this model have a monetary value to
someone.  But notice that there is one extra element in this micro
model: the landscaped yard.  In other words, the *second* scenario is
actually *wealthier* than the first scenario.  And that's before we
even consider the theoretically unlimited copies of the word
processor.

The true dynamics of an economic system are much more complicated than
this, but you can see how the concept of ``intellectual property'' can
be displacing wealth without creating any new jobs.  In fact, it very
well could be argued that this paradigm is *costing* us overall
wealth.

I do not expect this to be a very popular position to present to this
audience, since most everyone here finds himself in Bill's shoes, to
some degree or other.  Of course, Bill could always pick up
landscaping -- after all, there's enough extra cash floating around
now to furnish the demand.

;-)

Mike
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