13
Sep
10

Links to greatness

Still got nothin’.  However, Russ Roberts is on fire today.

——

First, he replies to and elaborates upon Alex Tabarrok’s outstanding Winner-take-all Economics with this gem:

Tabarrok notes:

In a winner-take all economy, however, small differences in skills can mean large differences in returns and we have moved towards a winner take-all economy because technology has increased the size of the market that can be served by a single person or firm.

He compares several greats: Homer (who could reach maybe 50 people a night by leveraging a campfire), Shakespeare (3000, Globe theatre), Tolkien (hundreds of thousands, mass-market publishing), and J. K. Rowling* (“the first billionaire author”, books/movies/games/toys/t3h int4rw3bz).  Roberts first notes that excellence should be celebrated, not vilified:

That’s why focusing on inequality per se is so poisonous. Would the world be a better place if JK Rowling hadn’t dared to write the Harry Potter series–if she’d given up and waited on tables instead of risking so much? Would the world be a better place if Sergey Brin and Larry Page had never created Google? Would the world be a better place without LeBron James? All of these people create inequality. They also make the world a better place.

(Can we at least agree that the world would be a better place without Michael Vick?)

Next, he points out that the same technology (theatres, printing presses, big trucks) that increases inequality by decreasing the cost of access to the best players in a given market (Rowling, Google, &c.) also decreases the lower bound of inequality — that is, raises the fortunes of obscure niche talents — by decreasing the cost of access to the long tail.  He also notes that, y’know, life is pretty good when you can easily and cheaply get to the best in the world rather than having to settle for the best in the neighbourhood:

[I]t’s not really a winner-take-all world. It’s more of a winner-take-lots kind of world. If LeBron James had decided to be a social worker, yes, someone else (Kobe, maybe) would be considered the best player alive and that person would get some extra rents for being the best. But LeBron’s grace (and sometimes lack of it off the court) is unique. The creator of the best search engine gets lots of rents but that creates tremendous opportunities for so many others. JK Rowling’s success opened the door to many other fantasy series (Pendragon for one) that would have been less successful. People still enjoy the second best fantasy series. And some disagree that Harry Potter is the best.

To which I might add that Stone’s Ruination IPA is the best beer in the fucking world**, and thanks to the magic of capitalism you can probably drink it even if you don’t live in Escondido, California.

——

Next, Roberts wonders about the notion that spending money creates wealth.

Does spending create prosperity? It’s a weird idea when you think about it. Spending is consumption. Consumption uses stuff up. How could it create prosperity? If anything, the causation is reversed–it is prosperity that creates spending.

Butbutbut… Keynes and stuff!  Blah blah aggregate demand blah blah blah multiplier blah.  Right?

The standard argument against this story is that the money the government spends has to come from somewhere. […] But the real way to think about it is that the resources have to come from somewhere. And when resources are highly underused (unemployment around 10%, say), this argument is not as compelling as it might be in prosperous times.

[…]

When the economy is broken, why would you think an increase in spending would get it going? Why would it have any impact other than an immediate short-term impact limited to the people who receive the money? Why would it get the whole economy going again?Think of having a lot of wet wood and trying to get it going by lighting newspaper as kindling. There’s a fire for a while, while the newspaper is burning. But once the newspaper is consumed, the wood hasn’t caught. Even burning a lot more newspaper (bigger stimulus package) isn’t going to get the wood dry enough to catch fire.

There’s so much more; read the whole thing.

Arnold Kling comments:

Keynesians think of economic activity as spending in the first place. You measure economic activity as spending by households plus spending by businesses plus spending by government, and then you net out imports and add in exports.

Suppose that we all work at the GDP factory making GDP. Unfortunately, spending is down, so some of us are laid off. The difference between the amount of GDP that the GDP factory could produce using all of us and the amount that is actually demanded is called the Output Gap.

The Output Gap looks like a $20 bill that is being left on the sidewalk. If somebody would just increase spending, it would help close the Output Gap, raising GDP and lowering unemployment. Stimulus certainly must work.

I am not comfortable with the GDP factory picture. We are not all interchangeable inputs producing the identical output. To me, economic activity is patterns of sustainable specialization and trade (PSST). Economic activity takes place only because we produce different things.

Read that whole thing, too.

——

* Yeah, it makes me cringe to put Rowling and Shakespeare on the same pedestal, but it’s tough to argue against demonstrated preference in this context.

** By my standards, of course.

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4 Responses to “Links to greatness”


  1. 1 John
    September 14, 2010 at 10:33

    Stone Ruination IPA is pretty good, as far as IPA’s go. Not my favorite, though. I’ve been through about 15 different brands of IPA’s (if not more, I lost count a while back). My favorite so far has been from a local brewery here in Michigan; sadly I can’t recall the name of it. The striking thing, however, was the fact that it comes in one pint cans. This, at first, seemed like total sacrilege to me — beer should never come in cans; however, after trying it, it was really good. I’ve become completely hooked on the IPA’s that have a certain “grapefruit” (the description of “citrus notes” doesn’t cut it for me) quality to it.

  2. 2 John
    September 14, 2010 at 10:39

    And if I hadn’t been so damned lazy I could have just looked it up. It’s called Cornerstone IPA from Rochester Mills Beer Co.

  3. September 15, 2010 at 02:31

    I’m not convinced that we live in a winner take all economy when it comes to books, and probably not for other “art”. Sure Rowling has got a record sized chunk of the pie, but this may just be because the pie has got bigger rather than Rowling receiving a larger percentage of the pie.

    Between 1998 and 2007 the six Harry Potter books published in that period apparently sold around 4.58 million copies here in Australia. (http://nz.nielsen.com/news/HarryPotter_Jul07.shtml) About 80 million total books where sold in the 2003-2004 financial year. (http://www.abs.gov.au/ausstats/abs@.nsf/mf/1371.0/) Based on that the Harry Potter books only make up about 0.6% of all sales.

    I doubt very much that the most popular book printed during Shakespeares time would make up that small of a percent of sales. Even if it did it’s also worth noting that the UK alone publishes over 200,000 new books a year. (http://en.wikipedia.org/wiki/Books_published_per_country_per_year) I doubt that the total number of new books published world wide during Shakespeare’s entire life would come close to this. Only the top handful (by modern standards) of story tellers would have had any hope of publishing a book, but nowdays around 200,000 people [there won’t be that many people publishing multiple books in one year] a year in the UK get published.

    • September 15, 2010 at 18:31

      (Apologies for the delay in getting your comment posted: the URLs made WordPress suspicious that it might be spam.)

      That’s an outstanding point. What I particularly like about the Homer-Shakespeare-Rowling comparison is the parallel observations that (a) technology makes it easier for the big players (“winners”) to dominate all relevant markets (“people in the world who like Harry Potter” vs. “people in a particular Athenian taverna who like The Iliad”), and (b) the very same technology makes it possible for specialized players to survive in the long tail. Framing that as “winner-take-all” is, as you mention, simply wrong.


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