From: Eliezer S. Yudkowsky (sentience@pobox.com)
Date: Tue Feb 09 1999 - 02:40:06 MST
Amazon.com, Jerry Kaplan and Bill Gross - in that order - have just
kicked the support struts out from under the entire U.S. economy.
Amazon.com has been selling books at a loss for quite some time,
supported by their stock prices (i.e. market capital), in order to build
market share.
Then there's Jerry Kaplan's plan to sell computers at wholesale prices
and make money off of ads (http://www.onsale.com). I told my friends
that this might (but only "might") signify the Impending Collapse And/Or
Transformation of the U.S. Economy, caused by the elimination of the
entire retail and mark-up-supported sector. This wouldn't be quite as
thorough a transformation as my projection that collaborative filtering
will eliminate the entire marketing sector, or that complex barter will
eliminate the entire financial sector, but it would be a good start.
Now, Bill Gross (yes, the idealab! guy) is going to give computers away
and make money by selling ads. Really. http://www.free-pc.com. We
ain't talkin' some wimpy network computer; we're talkin' 333 Mhz,
monitor and free internet access included...
So. It looks like I may have severely underestimated the transformation
of the U.S. economy. Not only are most of the major middleman sectors
going to be eliminated, but whatever's left will be given away for free.
The question now is: Is this kind of economy stable? How can you sell
ads when there's nothing left to buy? And how can you sell stock when
all the companies are operating at a loss?
We have three basic business models here:
Amazon.com is financed by stock prices, which are dependent on market
share. The incentive is therefore to operate at a loss, because the
resulting increase in market share brings more stock-based revenue than
they would get from selling at normal prices.
Onsale's atCost distributes items at cost (not at a loss), and is
planning to make a profit (not operate at a loss) by selling lots of
cheap ads.
Free-PC is distributing items for free, on the theory that they can get
more ad revenue by assembling very thorough marketing profiles and
charging a percentage of sales.
== The Free Economy
The basic transformation may be summarized as follows:
1. The primordial source of money shifts from sales to the equity market.
2. Revenue derives from selling ads, rather than sales margins.
Forget, for a moment, the question of whether the Free Economy is
stable. First, is it theoretically possible?
There are still two reasons to sell ads: One, to build market share;
two, to convince people to buy stocks.
There is still reason to buy stocks: No companies will actually be
issuing dividends, but as long as everyone is still buying stocks, it
makes gambler's sense to buy the ones you think will go up.
==
I'm not entirely sure, but I think this is a bad thing, mostly because
when CF and complex barter eliminate the ad market and the equity
market, that's the whole economy down the toilet. Also, it seems very
probable that the Free Economy will be unstable - it seems far more
grounded in psychology (rather than a deep ontology) than our current market.
>From the Person On The Street's perspective, however, it might be a very
good thing. The Free Economy may make it substantially harder to build
wealth by working rather than shuffling wealth - a trend already grown
too strong in the modern economy. But against this abstract, we must
weigh all the free goodies.
My intuition says that it would still be a very bad thing from the POTS
perspective. Suppose everyone wakes up one morning and decides that
poor people's ad-viewing "eyeballs" are worth less. Then they get fewer
free products, and have even less purchasing power, and the whole thing
spirals. Since it's all supported by stock prices, one suspects that
the stock-owners will be the most valued eyeballs. One suspects that
Free-PC will be giving PCs away to high-income customers, not the
homeless. I could be wrong, however.
On the whole, the Free Economy may be more stable than the current one.
High productivity does not destabilize the Free Economy. Whereas with
this economy, once 10 million people can do the work of 100, the other
90 million starve; only productivity-reducing innovations such as
lawyers, paperwork, the stock market, and Welfare have kept us afloat so far.
However, the Free Economy would be substantially less efficient than a
complex barter network. Furthermore, the difficulty of transitioning to
a complex barter network would be greater from the Free Economy than a
modern one.
Finally, the Free Economy is inherently unstable (being based entirely
on market psychology and circular logic), and any crashes that occur
will be much worse.
Recommendations:
1. Simplify the tax laws to allow for complex barter.
2. I may not deliberately attempt to block the Free Economy, but I
won't help it, either - the same rule I use for nanotech)
3. Try to create a psychology in which the poor are still valued
eyeballs, or in which their increased need for Free Stuff makes them a
more valued, targeted market segment. Discourage the use of
income-based customer profiles as a part of stock valuations.
4. Brace for massive unemployment, perhaps via the creation of
charity-run arcologies. Encourage the use of company-sponsored or
industry-sponsored apprenticeships in computer programming.
5. Somehow get everyone, including welfare children and the homeless,
at least a small equity stake - perhaps one that doesn't "vest" (but
whose investment s/he can still control) until, say, age 65. (As
distinguished from Clinton's suicidal Social Security "investment" plan,
which would be controlled by the government.)
Counterarguments:
1. So far, stock-priced-based companies seem to have substantially
increased the pace of technological development.
2. If the Free Economy does _not_ create an underclass, we should
replace the modern, unstable economy as fast as possible. How can we
know that unless we try it and see?
3. My inability to perceive a deep logic for the Free Economy does not
mean it's all "market psychology and circular logic".
4. I don't understand what's going on and I shouldn't try to intervene.
--
sentience@pobox.com Eliezer S. Yudkowsky
http://pobox.com/~sentience/AI_design.temp.html
http://pobox.com/~sentience/sing_analysis.html
Disclaimer: Unless otherwise specified, I'm not telling you
everything I think I know.
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