BigHook2007 Discussion


BigHook2007: Infrastructure Economics
	Painting by Doug Rugh

BigHook2007 Discussion 27Aug07

I'll be adding BigHook participants' observations on Infrastructure Economics, blog style (most recent on top), as they're sent to me or posted to the bighook2007 list.

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From: Steve.Kamman@fmr.com
Subject: [BigHook2007] RE: What's wrong with this picture?
Date: August 22, 2007 6:01:46 PM EDT (CA)
To: bighook2007@isen.com

"There are interests that transcend political and intellectual bias. The
Net should be one of them. Our job is to make that happen."

I hadn't thought of it that way. Agree there is a real risk in framing
the debate in "economic" terms rather than in terms of the
ends/outcomes created by that infrastructure. The value-added (which is
a whole lotta externality value) gets lost in the background and the
(pathetically small) costs start to loom far larger than they really
are.

I guess I started out a little more in the weeds here - just trying to
figure out how we can most rapidly prise the infrastructure out of the
hands of the trolls currently trying to maintain the same toll structure
without re-investing those tolls in the underlying infrastructure
(except to keep patching the existing, fully-paid-for asset). Can we
tilt the toll structure so the trolls start re-building or do we have to
kill them off and hire new trolls?

From that perspective, I am actually less worried these days (per
comments last year). I am increasingly confident that the usage demands
are outrunning even the most determined patching efforts. The rate of
innovation on the Internet is continuing and, if anything, accelerating
(Did YouTube even come up at Bighook 2005/2004?). Meanwhile, the rate
of innovation on the forces of conservatism remains well behind (and is
probably slowing as they have to shift more resources on day-to-day
survival - the music industry has gone from threat to irrelevance in
about 5 years). As long as that gap keeps opening up, I still think we
will be OK. Of course, this may mean the infrastructure will have break
further before it finally lurches forward, but...

At the least, it looks like Dave has done a good job (again) of
assembling some pretty diverse interests/perspectives. Looking forward
to it.

Steve Kamman

Doc Searls writes . . .
What's the value of gravity? Of atmosphere? Of sunlight? . . .

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From: jeanmrussell@gmail.com
Subject: [BigHook2007] Re: Currencies and Value
Date: August 22, 2007 3:31:56 PM EDT (CA)
To: bighook2007@isen.com

Oh goodie! Currencies! A field of study that deeply fascinates me, and I was hoping we would get to it.

I am by no means an expert on the subject, so I don't want to imply in any way that I know this stuff deeply. Instead, please allow me to use the work of others more brilliant and more informed to get us on the same page.

Money is more than a store of value. See: http://william-king.www.drexel.edu/top/prin/txt/money/funx.html
* medium of exchange
* unit of account
* standard of deferred payment
* store of value
Tom Greco's work: http://reinventingmoney.com/ helps with the issues surrounding money and with creating alternatives to money. Currencies can do all the things money can, plus more, and they can be created to group those things or NOT.

Currencies are more than money. Here is a great explanation of currencies in a metaphor the geeks here can grasp quickly.
http://www.omidyar.net/group/currencies/news/12/?page=3#comment52
and http://www.omidyar.net/group/currencies/news/33/?page=3#comment71

People like Eric Harris Braun and Arthur Brock are pushing "money" talk further to discuss Flows and Currents.

Finally, to see where we can go with this, check out Open Money. http://openmoney.info/sophia/index.html thetransitioner.org is another useful resource.

I hope we will be thinking about value, incentives, and currencies from a well-informed collective understanding of Flows. And I would love to hear your thoughts on this sort of work. We are in the very midst of emerging more complex understandings of these powerful forces in our world.

I see this kind of intellectual infrastructure as extremely critical right now. And it makes me extraordinarily curious.

On 8/22/07, Sara Wedeman <sara@behavioraleconomics.net > wrote:
Steve,

A couple points of clarification:

1. I was arguing for a broader definition of value, and against reductionist thinking. Money is a symbol of value, but to many, the symbol has become the thing itself . . .

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From: doc@searls.com
Subject: [BigHook2007] Re: What's wrong with this picture?
Date: August 22, 2007 1:24:27 PM EDT (CA)
To: bighook2007@isen.com
Cc: bighook2007@isen.com

What's the value of gravity? Of atmosphere? Of sunlight?

Is there any way for an economic description of them *not* to reduce them to something they are not -- namely a finite, measurable "value"?

This is an essential question, because (I believe) our challenge is characterizing the Net as a world, and infrastructure that has more to to with making the world better than it does with private enterprise -- even as it supports that enterprise.

Bear with me as (with help from Davids Reed, Isenberg, Weinberger and others) I build my case.

In an 8/17 email, David Reed wrote,

What we did in creating the Internet was disclose a new world - the world we now live in. It was not inevitable - many parts of it were fought for, tooth and nail, using skills that are collectively ours that relate to envisioning and creating a new world, building it out of the pieces we have today.

It's not a matter of finding the proper /description/ resulting from detachment and analysis. It's about building a new way of seeing the world, and building solidarity around that

Note his use of the word *world*, and his insistence that we come to a new way of seeing that world.

I've been arguing the same thing, in World of Ends (with David Weinberger) <http://www.worldofends.com/>...

In Making a New World ...
<www.searls.com/doc/os2/docchapter.html>

In Saving the Net: How to Keep the Carriers from Flushing the Net Down the Tubes...
<http://www.linuxjournal.com/article/8673>

There I say,

Of course, at its base level the Net is a system of pipes and packets. But it's not only packets, or "content" or anything for that matter). Understanding the Net only in transport terms is like understanding civilization in terms of electrical service or human beings only in terms of atoms and molecules. We miss the larger context.

That context is best understood as a place. When we speak of the Net as a "place" or a "space" or a "world" or a "commons" or a "market" with "locations" and "addresses" and "sites" that we "build", we are framing the Net as a place.

Most significantly, the Net is a marketplace. In fact, the Net is the largest, most open, most free and most productive marketplace the world has ever known. The fact that it's not physical doesn't make it one bit less real. In fact, the virtuality of the Net is what makes it stretch to worldwide dimensions while remaining local to every desktop, every point-of-sale device, every ATM machine. It is in this world-wide marketplace that free people, free enterprise, free cultures and free societies are just beginning to flourish. It is here that democratic governance is finally connected, efficiently, to the governed.

It is on and not just through--prepositions are key here--the Net that governments will not only derive their just powers from the consent of the governed but benefit directly from citizen involvement as well.

As a place, the Net has always been independent of the carriage on which it relies, which is one reason it also encourages and rewards independence. The independence of the Net and its inhabitants is precisely what accounts for countless new businesses and improved old ones.

The architecture of the Net's world is End-to-End (See "End to End Arguments in System Design" by J.H. Saltzer, D.P. Reed and D.D. Clark). In "The Rise of the Stupid Network", which he wrote for the benefit of his employer while he was still at AT&T, David Isenberg says "The Internet breaks the telephone company model by passing control to the end user. It does this by taking the underlying network details out of the picture."

And here we are, guests of Dr. Isenberg, with three days in each others' company, challenged to talk infrastructure. And hopefully get somewhere with it.

I am suggesting that the world is the deepest infrastructure we have, and that pro-Net arguments need to proceed from that fact. In the course of making those arguments, we need to characterize infrastructure as well. This won't be easy. Consider how a parallel challenge has progressed around copyright.

Not coincidentally the quote above follows a visit to the case of Eldred vs. Ashcroft, which Larry Lessig and crew lost by a score of 7-2 in the Supreme Court. About that I wrote,

Hollywood won because they have successfully repositioned copyright as a property issue. In other words, they successfully urged the world to understand copyright in terms of property. Copyright = property may not be accurate in a strict legal sense, but it still makes common sense, even to the Supreme Court. Richard Bennett puts it:

The issue here isn't enumeration, or the ability of Congress to pass laws of national scope regarding copyright; the copyright power is clearly enumerated in the Constitution. The issue, at least for the conservative justices who sided with the majority, is more likely the protection of property rights. In order to argue against that, Lessig would have had to argue for a communal property right that was put at odds with the individual property right of the copyright holder, and even that would be thin skating at best. So the Supremes did the only possible thing with respect to property rights and the clearly enumerated power the Constitution gives Congress to protect copyright.

Watch the language. While the one side talks about licenses with verbs like copy, distribute, play, share and perform, the other side talks about rights with verbs like own, protect, safeguard, protect, secure, authorize, buy, sell, infringe, pirate, infringe, and steal.

This isn't just a battle of words. It's a battle of understandings.

Larry Lessig replied,

Doc has a brilliant and absolutely correct diagnosis at the American Open Technology Consortium website about how we lost in Eldred. Copyright is understood to be a form of simple property. The battle in Eldred thus sounded like a battle for and against property. On such a simple scale, it was clear how the majority of the Court would vote. Not because they are conservative, but because they are Americans. We have a (generally sensible) pro-property bias in this culture that makes it extremely hard for people to think critically about the most complicated form of property out there--what most call "intellectual property." To question property of any form makes you a communist. Yet this is precisely our problem: To make it clear that we are pro-copyright without being extremists either way.

So deep is this confusion that even a smart, and traditionally leftist social commentator like Edward Rothstein makes the same fundamentally mistake in a piece published Saturday. He describes the movement, of which I am part, as "countercultural," "radical," and anti-corporate. Now no doubt there are some for whom those terms are true descriptors. But I for one would be ecstatic if we could just have the same copyright law that existed under Richard Nixon.

Our problem is, as Doc rightly points out, that we have so far failed to make it clear to the world who the radicals in this debate are.

And here we are again. The radicals in this debate are the carriers who regard the Net as nothing more than a billable service -- like telephone and cable TV -- that *they* provide, on *their* property. The framing is the same as it was with copyright. And the challenge is the same.

We need to re-frame the debate. For that it is essential that we characterize the Net as a world, and not as a grace of telco and cableco carriage.

To do that I think we need to characterize infrastructure as something that enhances the world as it is. Water, roads, electricity, gas and waste treatment are essentially public needs that, when satisfied, have enormous private benefits. They are tides that lift all boats.

In some cases (waste collection, electric distribution), infrastructure is provided by private companies, but are essentially public graces.

People can understand that. Regardless of politics, they want the government -- and not just The Market -- to make sure these things work for everybody.

Markets, by any understanding, rely on underlying infrastructure. As Phil Windley, a Republican from Utah and one of the wisest people I know, once said, "Everyone wants the roads fixed."

There are interests that transcend political and intellectual bias. The Net should be one of them. Our job is to make that happen.

IMHO, etc.

BTW, sorry for not participating more in this thread. We're packing for a family road trip to Cambridge, where we'll be staying this next year. And everything else is being shoved by the wayside as we figure how little we can pack in an old VW station wagon.

Best,

Doc

At 10:24 AM -0400 8/22/07, Sara Wedeman wrote:
Steve,

A couple points of clarification:

1. I was arguing for a broader definition of value, and against reductionist thinking. Money is a symbol of value, but to many, the symbol has become the thing itself . . .

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From: sara@behavioraleconomics.net
Subject: [BigHook2007] Re: What's wrong with this picture?
Date: August 22, 2007 10:24:29 AM EDT (CA)
To: bighook2007@isen.com

Steve,

A couple points of clarification:

1. I was arguing for a broader definition of value, and against reductionist thinking. Money is a symbol of value, but to many, the symbol has become the thing itself. It is not a store of value, because people have to attribute value to the symbol first (being the owner of a huge amount of paper currency from now-defunct countries I know that of which I speak). I am not trying to shoot the messenger, but just as "love" is variegated, ephemeral, and defies most attempts at quantification, so does value. What about the 'currencies' of power, or time, or reputation? Attempts to monetize these are at best deeply unsatisfying, IMHO. I'm sticking with broader definitions, thanks.

2. Perhaps a petri dish is not the most perfect analogy, or maybe it isn't quite as bad as you suggest.....example: lead in paint in toys. If kids are playing with these toys, and lead can cause mental retardation, how will society move forward with a generation suffering from the cognitive effects of lead poisoning? Didn't use of lead in water pipes and in cooking vessels contribute to the fall of Rome? Don't predatory lending practices end up bringing down markets (including those whose practices brought on the fall)? The point is that nothing exists in isolation, and to believe/behave as if it does, is indeed quite batty.

the foundation question of economics is quite sound - the question of how to apportion limited resources within a population/ecosystem/group.

Maybe the question is sound (or maybe it isn't.....), but when one attempts to answer a question using assumptions that are demonstrably incorrect ( e.g. the 'rational man' hypothesis), it's really hard to get to helpful answers.

I will respond to the second part of your post separately--don't want to conflate TCP/IP Stalin, and the 700mhz auction with the above.

Sara

On 8/22/07, Kamman, Steve <Steve.Kamman@fmr.com> wrote:
I have missed a few posts for some reason . . .

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From: Steve.Kamman@fmr.com
Subject: [BigHook2007] Re: What's wrong with this picture?
Date: August 22, 2007 9:38:58 AM EDT (CA)
To: bighook2007@isen.com

I have missed a few posts for some reason (probably my spam filter) so...

Let's please not throw the baby (the need to apportion resources) with the bathwater (our personal discomfort with the consequences of how those resource allocation decisions end up being made and/or the outcomes).

"something entirely batty (technical term) about trying to reduce everything to... dollars and cents"

Can we substitute the term "value" and move on... Money is a store of value (not an outcome - it is useless unless used) and a convenient shorthand for the larger concept. It is not everything and carries cultural baggage (as "love" does) but its still convenient if we aren't just trying to shoot the messenger.

"Moreover, the relationship between producer and consumer need not be an adversarial one. Mostly, since the two sit within the same petri dish..."

Tough to square this with the evidence. Recent examples - lead paint in toys, inappropriate mortgage sales, and stipupidly high cd prices. A petri dish also suggests otherwise. Put most bugs together and they immediately try and find a way to annihalate/eat everything else in the dish. At best, you end up with some sort of predator/prey dynamic like wolves and caribou (a shout out to tim denton here) etc... Some relationships are more symbiotic but by definition, someone/thing is being consum$ed and something is consuming in any sysem involving live beasts.

"As Doc so aptly notes, the framing is all wrong. To accept a frame that sits on a rotten foundation is to doom oneself to invalid - even rotten - conclusions."

I very much agree with doc's dislike of equilibrium models (ie.they often don't work well - believe me, they are pretty useless for thinking about stock markets or the internet) but the foundation question of economics is quite sound - the question of how to apportion limited resources within a population/ecosystem/group. What you/we are trying to protect (the internet's open-ness and freedom) is an "economic" construct. The core of the internet is the tcp/ip protocol and the lessidiscussed tcp part of it is a piece of economic genius - it coordinates/balances resource demands on a system in a very robust, elegant and low-friction manner. It isn't all that much to look at as a technology (versus the huge and fancy edifices of neo-stalinist state-police controls with lots of knobs and buttons built by the telcos) but it is an absolute work of art from an economics perspective. Of course, if you want to load it with negative connotations, you call it "socialistic" (as the telcos like to do) but the fact is that it works.

Meanwhile. EVERYONE on this list should do a quick (google) search on "google and 700 mhz auction) for a very interesting idea from an economics, socuial wlefare, and just plain fun perspective.

Steve Kamman - Analyst
Fidelity Management & Research
617 563-0103

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From: sara@behavioraleconomics.net
Subject: [BigHook2007] Re: What's wrong with this picture?
Date: August 21, 2007 10:20:24 PM EDT (CA)
To: bighook2007@isen.com

Agreed. There is something entirely batty (technical term) about trying to reduce everything to the highly measurable yet insufficiently meaningful 'common denominator' of dollars and cents - or rubles, or yen, or whatever.

Money is an outcome, not an input. It is one of many, and not necessarily the most important, among outcomes. Moreover, the relationship between producer and consumer need not be an adversarial one. Mostly, since the two sit within the same petri dish, it can't be.

As Doc so aptly notes, the framing is all wrong. To accept a frame that sits on a rotten foundation is to doom oneself to invalid - even rotten - conclusions.

On 8/14/07, David P. Reed <dpreed@reed.com> wrote:
Perhaps it can be said more simply. There is a huge problem with
Economics . . . [link to reference]

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From: sara@behavioraleconomics.net
Subject: [BigHook2007] The discussion so far
Date: August 21, 2007 11:07:11 AM EDT (CA)
To: bighook2007@isen.com

Two quick observations:

1. Money is not the only form of currency.

2. It's nice, and often extremely useful, to isolate various predictor variables so that one may ascertain their relationship with an outcome variable, but in life, nothing is isolated, and virtually nothing is linear.

Sara [Wedeman]

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From: odlyzko@dtc.umn.edu
Subject: [BigHook2007] Re: discussion continues...
Date: August 19, 2007 8:40:58 PM EDT (CA)
To: bighook2007@isen.com

Without copyright law, Bill Gates would have had a harder time making
money. But he might still have become very rich, perhaps by pursuing
other business models. As just one example, today, with the nearly
ubiquitous Internet, he could have developed software that was more
of a service. (And isn't that what Windows is becoming? Without
security patches every few days, your machine is very likely to be
taken over by unsavory types. That is one advantage of having an
insecure and unstable operating system.)

While restrictive patent and copyright laws can be dangerous, let's
not forget that they do serve a purpose by preventing certain types
of business practices that can be even worse. The standard example of the
dangers of not having such restrictions is that of obstetrical forceps.
They were invented around 1600, but kept a secret within a family
for several generations, until early in the 18th century, while millions
of women and children died who could have benefited from their wide
usage.

Andrew

On Fri Aug 17, Jorge Ortiz wrote:

Bill succeeded because he was smart, no doubt about it, but that's not
the point I was addressing.

Without copyright law, Bill would have not been able to monetize the
value of his software . . . [link to reference posting]

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From: odlyzko@dtc.umn.edu
Subject: [BigHook2007] Re: discussion continues...
Date: August 19, 2007 8:28:24 PM EDT (CA)
To: bighook2007@isen.com

Indeed, standard economics fails to account for a variety of important
human behaviors (and the slow acceptance of behavioral economics in
standard economics only helps a little to remedy this defect). However,
it does help explain some of the important incentives that do influence
what people do. Altruism should not be underestimated, nor even the
kind of group dynamics that power Linux and other open-source projects.
But let's not exaggerate what it can do. Total donations to charitable
organizations (religious, educational, cultural, ...) in the U.S. are
about 2% of GDP. On the other hand, telecom is (depending on what
you include) between 3 and 4% just by itself. So yes, it is believable
that interesting software and hardware can be developed by altruistic
individuals, but it is harder to believe that a large infrastructure
can be built that way.

My studies of the British Railway Mania of the 1840s provide some interesting
comparisons. That was the only time in modern European history that individual
capitalists, in pursuit of private profit, spent more money building a public
infrastructure than their nation was devoting to the military. (Pax Britannica
was not cheap, British military spending as a fraction of GDP was comparable
to that of the U.S. today.) Part of that Mania (the greatest technology mania
in history) coincided with the Irish Potato Famine. There was a huge private
charitable effort to relieve the hunger (amounting to something comparable to
perhaps $50 billion today) as well as official British government support
amounting to something like $300 billion. Interestingly enough, the accidental
support provided to Ireland by British railway investors (who were spending
over $1,200 billion per year on construction of their lines) through employment
of Irish laborers was probably higher than the $50 billion of explicit charity.

Andrew

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From: odlyzko@dtc.umn.edu
Subject: [BigHook2007] Re: What's wrong with this picture?
Date: August 19, 2007 8:09:58 PM EDT (CA)
To: bighook2007@isen.com

This seems to be the best argument for refuting the Goolsbee and
Klenow study. Compare Internet usage to TV watching. Their
analysis would also show huge value from TV.

As just one example how their analysis seems to miss the mark, in
a footnote on p. 13 Goolsbee and Klenow talk of looking for relations
between price of cable television and Internet usage. But why would
there by any, even if one is the substitute for the other? Both are
bought on a flat-rate basis. What they should have looked for was
correlations between Internet usage and time spent watching TV.

Andrew

On Tue Aug 14, Mark Cooper wrote:

I did not mean to suggest that the neoclassical calculation of consumer
surplus was sufficient, only that it was a start . . . [link to reference posting]

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From: odlyzko@dtc.umn.edu

Subject: [BigHook2007] Re: [savetheinternet] Discussion so far
Date: August 19, 2007 8:03:27 PM EDT (CA)
To: bighook2007@isen.com

Yes, and historically we find societies trying one solution or another,
none working too well.

Andrew

On Mon Aug 6, Mark Cooper wrote:

In discussing utilities and the economic rationale for regulation Fred Kahn
offered the following . . . [link to reference posting]

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From: odlyzko@dtc.umn.edu
Subject: [BigHook2007] Re: Costs of Exclusion
Date: August 19, 2007 7:59:44 PM EDT (CA)
To: bighook2007@isen.com

An excellent set of questions.

As a start, could we get some solid numbers for U.S. telcos? They
appear to have very high free cash flows from their wireline operations
because the costs there have dropped so much over the last couple of
decades. So they appear to be disinvesting, but how much of that is
real lack of investment in renewal and upgrade of their plant, and
how much simply not having to spend as much?

Andrew

On Mon Aug 6, Steve Kamman wrote:

Back from a vacation - so wrapping up a lot of thoughts/responses into
one posting . . . [link to reference posting]

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From: odlyzko@dtc.umn.edu
Subject: [BigHook2007] Re: [savetheinternet] Discussion so far
Date: August 19, 2007 7:55:14 PM EDT (CA)
To: bighook2007@isen.com

It would be great to see such studies, but I have not seen any.
The best we can do is look at different outcomes in different
countries with different ownership/legal/regulatory regimes,
and the results are of such comparisons are always debatable.

Andrew

On Mon Aug 6, Steve Crandall wrote:

Having grown up in a semi-arid farm state, I'm very sensitive to climatic impacts on the agricultural infrastructure. We have built large flywheels into the system . . . [link to reference posting]

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From: odlyzko@dtc.umn.edu
Subject: [BigHook2007] Re: Lighhouses and Congestions
Date: August 19, 2007 7:52:19 PM EDT (CA)
To: bighook2007@isen.com

(Sorry to bring up ancient issues, I am just now catching up on correspondence.)

I have quite a few nits to pick with the historical descriptions here. While
turnpikes were franchised by various authorities, there was a fair amount of
unhappiness with them. Some (but not all) of this unhappiness came from the
fact that there was extensive discrimination baked into the charters of these
turnpikes. Common carriage does not mean non-discrimination, just some
limitations on it.

As for structural separation, that was tried on canals, and worked pretty well.
(Most canals were barred from being carriers, and could only offer their
waterways for use by boat owners who contracted with customers who had goods
to ship.) But it broke down on railroads, basically because it was too
complicated to enforce. (I have some interesting testimony before Parliament
by a British railway manager in the late 1830s, who explained that while his
charter obliged him to allow carriers to bring their locomotives onto his
rails, he did not have to provide them with water for the locomotives, or
with space to load and unload their shipments.)

As to interconnection, there was some government involvement, but also a
surprising amount of voluntary cooperation (such as the British Railway
Clearing House established in the early 1840s, or standardization of gauge
in both Britain and the U.S.).

Moving forward, it would be nice to bring common carriage back, but that
would not be enough (for most of us). Common carriage allows for far too
much discrimination. Structural separation would be far nicer. But is
that feasible?

Andrew

On Mon Aug 6, Mark Cooper wrote:

The obligation of nondiscrimination under common law, including the
franchising of turnpikes by boroughs to private entities . . . [link to reference posting]

-----------------------------

From: jeortiz@gmail.com
Subject: [BigHook2007] Re: discussion continues...
Date: August 17, 2007 1:29:26 PM EDT (CA)

Bill succeeded because he was smart, no doubt about it, but that's not the point I was addressing.

Without copyright law, Bill would have not been able to monetize the value of his software, that is otherwise a non-rivalous good.
With copyright, the price of software can be made to be much higher the marginal cost of making a copy of that software (almost nil), which is what -theory says- would determine the price of software in the abscence of copyright law.

Of course Bill was not the only one who could have taken advantage of copyright law and the low cost of reproducing software, yet he did that better than anyone else -credit to him- and better yet, he is using a good part of his fortune to make philanthropy cool, and making his friend Buffet join him -all the better-

The main point I was trying to make is that the Internet is a great way to do philanthropy, particularly in non-rivalous knowledge goods, and that the concepts of rivalry, exclusion, infrastructure, etc are useful.

Greed as the driving force of behaivor is a "broken formalism", as greed would explain Bill's drive to make money, but not his philanthropy.
Those who rely on Astrology or Economic formalisms are welcome to continue with their faith in explanatory powers of definitions.
To address that point, I don't believe in Astrology, however that does not make Mathematics, that is used to explain the position of stars broken or useless.
In the same way as mathematic has good uses, economic formalisms can be useful, yet use them explain the world or to predict the future at your own risk 8-)

[Jorge Ortiz]

David P. Reed wrote:
Pardon a skeptic here, but one need not use any economic jargon to explain Bill Gates success or why the Internet succeeded . . . [link to reference posting]

-----------------------------

From: dpreed@reed.com
Subject: [BigHook2007] an alternative to economics as a frame for building a cultural change
Date: August 17, 2007 12:58:14 PM EDT (CA)
To: bighook2007@isen.com

Since I hate being a pure critic, let me suggest a complete change of frame. Not between economics and welfare economics, but instead to a completely different way of thinking about causing action.

I'd suggest reading this (short, short) book:

Charles Spinosa, Fernando Flores, and Hubert L. Dreyfus. Disclosing New Worlds: Entrepreneurship, Democratic Action, and the Cultivation of Solidarity, MIT Press, 1997.

The core idea here is that humans engaged in an activity called "history making" are the source of all change in human lives. That "history making" is a real process, that can be studied and practiced.

From the introduction, slyly rebuking Fukuyama and his faithful in its title: "Introduction: History or the End of History?",

"This book does not present a /theory/ of entrepreneurship, democratic action, and solidarity production. Nor is it a manual that will tell you how to succeed in these domans. Rather, we hope that this book will help you develop a skill that is essential for being an entrepreneur, a virtuous citizen, and a solidarity cultivator--that is, for regularly and as a matter of course seeing yourself and the world anew. Your ability to appreciate and engage in the ontological skill of disclosing new ways of being will, we hope be expanded when you reexamine your old expericence from the perspective of this book's descriptions and analyses. ...

We write in support of entrepreneurial practices within capitalist market economies, of citizens' action groups in modern representative democracies, and of the cutlure figures who cultivate solidarity among diverse peoples in modern nations. Indeed we think that these practices are so important to human life that most of the everyday, conventional aspects of capitalist market economies and modern democratic republics necessary to support them must be preserved. Yet frequently entrepreneurs, citizens in action groups, and culture fitures seem to be locked in venomous dispute. This suggests that the skillful way of being human that brings entrepreneurship, citizen action, and solidarity cultivation together is being lost. ... Our main goal is to show how entrepreneurial practices, the practices of virtuous citizens, and the practices of solidarity cultivation are ultimately grounded in and integrated by a crucial skill that human beings in the West have had for at least 2500 years.

We call the special skill that underlies entrepreneurship, citizen action, and solidarity cultivation /history-making/. ... Something that makes history, we shall argue, changes the way in which we understand and deal with ourselves and with things.

....

So far,we have tried to recall what understanding ourselves as history makers feels like. Westerners, however, no longer seem to see events from the perspective of a grand mission that we are carrying out. ... [now] people live in one of two nonhistorical ways: on the one hand we live as modern subjects in control of an objective world; on the other we are becoming postmodern and ending history."

The point is that both of these nonhistorical ways of being deny our individual roles as actors in changing the way we view the world. The Internet is explained as the inevitable result of economic categories acting in an objective impersonal free market ideal, for example. We become detached spectators - outside the world, and outside history. We watch celebrities and embrace change as if it "just happens" and "is good for its own sake".

What we did in creating the Internet was disclose a new world - the world we now live in. It was not inevitable - many parts of it were fought for, tooth and nail, using skills that are collectively ours that relate to envisioning and creating a new world, building it out of the pieces we have today.

It's not a matter of finding the proper /description/ resulting from detachment and analysis. It's about building a new way of seeing the world, and building solidarity around that.
The book has lots of examples of doing just that, in business, in goverment, in culture. And it is those skills that really matter, and an understanding of how to use them that really matter. But crucial to doing so is to recognize that we are not building a set of tubes that need a pile of money. We are building a new world with other humans, one that we would prefer to inhabit, collectively.

I would thus argue that it's a complete waste of time to focus on "economics" as the central mode of description, or finance as the central mode of action. Each is a walk-on extra in the movie.

-----------------------------

From: Pip@CoburnVentures.com
Subject: [BigHook2007] Re: discussion continues...
Date: August 17, 2007 12:33:16 PM EDT (CA)
To: bighook2007@isen.com

Plse expand on "he was smart, worked w smart people and took actions toward success.."

There are LOTS of smart people so "smart" might be a necessary ingredient but it isn't sufficient... Groups of smart people are typically less effective than smaller groups of smart people or even individuals

Saying "took actions toward success" could use a good bit of rounding out... 3-4 key actions might be helpful.. Further discussing the context and environment in which that happened helps more

Those bullet points - whatever they are - would be good to roll forward into our conversation in a practical fashion I suspect

Pip

David P. Reed wrote:

Pardon a skeptic here, but one need not use any economic jargon to
explain Bill Gates success or why the Internet succeeded . . . [link to reference posting]

-------------------------------

From: dpreed@reed.com
Subject: [BigHook2007] Re: discussion continues...
Date: August 17, 2007 12:08:45 PM EDT (CA)
To: bighook2007@isen.com
Cc: bighook2007@isen.com

Pardon a skeptic here, but one need not use any economic jargon to explain Bill Gates success or why the Internet succeeded. The jargon is merely descriptive.

The idea that Astrology uses formal mathematical calculations, with very precise ephemerises and extremely careful definitions is interesting. And the fact that my horoscope this morning seemed amazingly accurate to me does not tell me that the use of an ephemeris and formulas is why my horoscope was right, or in fact offer any explanation of what happened to me today that will cause me to rely on Astrology tomorrow.

Those who rely on Astrology or Economic formalisms are welcome to continue with their faith in explanatory powers of definitions.

I think Bill succeeded because he was smart and had smart people and took actions to make success happen. Digital Research did not fail because it wasn't protected by copyright laws.

Jorge E Ortiz wrote:
The fact that software is non-rival, and that exclusionary copyright laws turn a non-rival good into property, goes a long way towards explaining why Bill Gates made su much money in a short period of time . . .

-------------------------------

From: rmchase@gmail.com
Subject: [BigHook2007] Re: discussion continues...
Date: August 17, 2007 11:57:58 AM EDT (CA)
To: bighook2007@isen.com

Aww. I was ready to leave all societal troubles in the competent hands
of warren and bill

On 8/17/07, David P. Reed <dpreed@reed.com> wrote:
The rather strange fascination with definitional issues of "rival vs.
non-rival" goods . . . [link to reference posting]

-----------------------------

From: bfrischmann@gmail.com
Subject: [BigHook2007] Re: discussion continues...
Date: August 17, 2007 11:37:06 AM EDT (CA)
To: bighook2007@isen.com
Cc: bighook2007@isen.com

This is helpful, Jorge, thanks. Sorry for being out of the loop, but
I have been on vacation with no access to modern communications (twas
nice).

Rather than attempt to deal with all of the objections to economics as
a discipline, let me just say that I am not an economist, and I'll not
bother to defend the discipline. Whether a resource is
nonrival/rival, cheap or costly to control /exclude others, useful
primarily as an input or not, and so on are functional variables that
do not really depend much on the extent to which people are fully
informed, rational beings. Of course, they do depend on the
functional relationships between the resource in question and human
beings.

One struggle I had early on with this project concerned the degree to
which I wanted to use economic concepts or frame everything in broader
functional terms and then make a variety of noneconomic normative
arguments. After much deliberation and consultation with various
peers and mentors, I decided to use welfare economic concepts to
challenge the dominant economic mindset; still, as is abundantly clear
in much of my work, in my opinion, building and sustaining
infrastructure commons can be both efficient and socially desirable
from a variety of other perspectives.

Jorge made the connection with philanthropy nicely; gift economies and
commons often work well together, and a nondiscriminatory
infrastructure enables many diiferent philanthropic activities. The
Internet is a great example, and of course, there are many others.

OK, back to the inbox ... perhaps more later

Brett

On 8/17/07, Jorge E Ortiz <jeortiz@gmail.com> wrote:
The fact that software is non-rival, and that exclusionary copyright laws
turn a non-rival good into property, goes a long way towards explaining why
Bill Gates made su much money in a short period of time . . . [link to reference posting]

-----------------------------

From: jeortiz@gmail.com
Subject: [BigHook2007] Re: discussion continues...
Date: August 17, 2007 10:41:32 AM EDT (CA)

The fact that software is non-rival, and that exclusionary copyright laws turn a non-rival good into property, goes a long way towards
explaining why Bill Gates made su much money in a short period of time.

The fact that software, ideas, etc -knowledge in general- are non-rival, goes a long way towards explaining why the Internet (a mostly non-rival digital transport network) is so full of philanthropic concepts (Wikipedia, Blogs, Flikr, GPL, Copyleft and other Creative Commons Licences, etc)

So the Internet is a perfect way to share or give to the world knowledge ( I don't like the "Intelectual Property" label, it's unatural, knowledge is not naturaly property, it's only via the state and exclusionary laws that knowledge has become "property").

So philantrophy can be particularly effective with non-rival goods, and the internet has become the perfect infrastructure to better philanthropicaly give or share non-rivalous goods.

So there you have it, Internet, non-rival, infrastructure, exclusionary and philanthrophy are all closely related ;-)

jean russell wrote:
Thank you to everyone posting, I really appreciate having the time to reflect and digest . . .

-----------------------------

From: dpreed@reed.com
Subject: [BigHook2007] Re: discussion continues...
Date: August 17, 2007 10:02:12 AM EDT (CA)
To: bighook2007@isen.com
Cc: bighook2007@isen.com

The rather strange fascination with definitional issues of "rival vs. non-rival" goods in trying to determine if economics tells us how to get people behind supporting the Internet shows a fascination, not with celebrity, but with a broken, very broken concept of economic validity.

When economics cannot explain group cooperative behavior HARDLY AT ALL, turning to its definitions and broken models as a tool for encouraging one of the biggest *examples* of group cooperation we have - the Internet - is going to be like trying to farm a salt desert.

Instead of looking at the grand Milton-Friedman-consensus, at least let us look at economic frames that don't start with those busted assumptions and try to patch it with a few little philanthropic gestures by greedy elites.

I agree with Robin that a better formulation might be to understand how celebrities can *actually* cause scaled-up change on a very large, societal scale. Influence and social modeling is a huge effect that is not understood by analyzing the busted categories of formal economic theory.

So there's nothing wrong with celebrity, but don't expect to discharge your responsibility for altruism by saying Bill Gates is doing it for you.

Robin Chase wrote:
I'd like to agree with david about the mystery and reality of
altruismand collaborative behavior . . .

-----------------------------

From: rmchase@gmail.com
Subject: [BigHook2007] Re: discussion continues...
Date: August 17, 2007 8:35:40 AM EDT (CA)
To: bighook2007@isen.com

I'd like to agree with david about the mystery and reality of
altruismand collaborative behavior. They do happen and they do exist.

But we humans also seem to have this inexplicable weakness for
celebrity, and coolness (maybe a weird negative side effect of positve
peer modeling).

We've also managed as a society to have gotten really really good at
marketing and shaping people's behaviors through it (witness 2004
presidential election).

When you put these realities together, there is this sick logic that
emerges that if you are really clever and have the know how, you want
to make your altruistic behavior aas cool as possible if you want to
maximize the number of people who will model it. Caring about africa
is 'cool' so now more people do it. Being green is 'cool' so more
people care and try to participate.

As a smart informed altruistic person :) it behooves me to make my
causes seem as cool as possible and I do that through marketing and if
necessary self promotion

How this fits in to financing the internet is slightly unclear to me.

Robin.

On 8/17/07, David P. Reed <dpreed@reed.com> wrote:
Philanthropy doesn't fit the "selfish rational person" paradigm that is
the "new economic consensus" framed by radical business and political
leaders . . .

-----------------------------

From: dpreed@reed.com
Subject: [BigHook2007] Re: discussion continues...
Date: August 17, 2007 8:02:35 AM EDT (CA)
To: bighook2007@isen.com
Cc: bighook2007@isen.com

Philanthropy doesn't fit the "selfish rational person" paradigm that is the "new economic consensus" framed by radical business and political leaders.

But the real problem for them is not the trivial in scale issue of elite philanthropists. The Bill and Melinda Gates foundation is awfully cool, but ultimately it thrives on what Paris Hilton thrives on - People Magazine and Wired Magazine's celebrity-is-everything focus.

The bigger problem for the radical folks is that they can't account for the pervasive value of two things: cooperative behavior (where individuals seek group benefit which devolves to all, rather than being sucked into tragedies of the commons) and altruism (when an individual takes an action that benefits others rather than himself or more than himself).

Modern economics presumes to explain *all* action based on individual selfish actors. Group action and altruism is, to them, a bug. And like Ayn Rand's convoluted attempt to explain how John Galt's puissant power leads to group gain because he is just so, so male and attractive and individually alpha, they try to explain group action and altruism by convoluted theories that try to do *anything* other than acknowledge that their theories cannot be made to work!

There is no doubt that reductionism is a useful tool in science. It eliminates flab and garbage that otherwise persists. But as the old quote goes: Make your theory as simple as you can, but no simpler.

By being in thrall to those who take a methodological stance (grand unified simple reductionistic theory) for an adequate and correct explanation, our entire culture suffers.

Of course people in rural communities do "barn raising". They don't do it out of pure selfishness. They do it because they actually are members of a group that has a REAL existence. It is not just a collective swarming behavior of ants.

-----------------------------

From: jeanmrussell@gmail.com
Subject: [BigHook2007] discussion continues...
Date: August 16, 2007 3:03:26 PM EDT (CA)
To: bighook2007@isen.com

Thank you to everyone posting, I really appreciate having the time to reflect and digest all this great information. And there seems to be some deep brain crunching going on. I have a few simple questions.

There is intense discussion about what exactly is rival/non-rival, infrastructure/non-infrastructure, exclusionary/non-exclusionary. I am curious what --making those distinctions clear-- is going to get for us? It would help me see some framing of the discussion better.

I see no mention of philanthropy. We often forget the "invisible" gift of philanthropy--without which we would not all be able to fly to Big Hook--as it was a philanthropic gift that facilitated the development of the airplane among *many* other things we are enabled by. Whether you believe in the power of philanthropy or not, it does play a pervasive role in our world, in our economy, and our infrastructures. Is there a reason philanthropy is not being mentioned?

Thank you all. Looking forward to seeing you/meeting you!

--
Jean Russell
309.262.6629
nurturegirl.net

-----------------------------

From: isen@isen.com
Subject: [BigHook2007] Good Capitalism, Bad Capitalism
Date: August 16, 2007 8:10:34 PM EDT (CA)
To: bighook2007@isen.com

Has anybody read Good Capitalism, Bad Capitalism, by Baumol, Litan & Schram?
I just heard a review of it on All Things Considered, and it seems exceedingly
germane to this year's theme.

I've ordered a copy.

Have any BigHook2007 participants read it? Impressions? A review, perhaps?

David I

-----------------------------

From: "Pip Coburn" <Pip@CoburnVentures.com>
Date: August 14, 2007 9:54:29 AM EDT (CA)
To: bighook2007@isen.com, <bighook2007@isen.com>
Subject: [BigHook2007] Re: What's wrong with this picture?

I will take a crack at it as a finance and recovering-economics sort -- economics is rooted in the notion that humans knowingly make decisions in their economic best interest and that such decisions are "rationale" and any others decisions are not rationale but rather are quirky exceptions..

I am thankful the world doesn't actually operate this way. We would be in even worse shape than we are.

I do not think that an "economic model" is a good place to even start at all and a good starting point is pretty important in figuring out where we might get to go.

Pip

-----------------------------

From: "David P. Reed" <dpreed@reed.com>
Date: August 14, 2007 9:41:12 AM EDT (CA)
To: bighook2007@isen.com,
Cc: bighook2007@isen.com
Subject: [BigHook2007] Re: What's wrong with this picture?

Perhaps it can be said more simply. There is a huge problem with Economics. Once you have sat at the feet of the economic greats, dutifully learned their complex mathematics, etc. which is beautiful, you realize that the foundations are rotten. Predictions don't match observation.

In physics (other than String Theory), the fact that predictions don't match observation is a reason to throw out the theory, or at least treat its results as contingent, and to encourage scientists to pursue other models. Most economic theory applies only to a narrow set of circumstances - closed systems close to equilibrium where human psychology doesn't matter, for example. And economists who pursue other models are thrown out of the field (like has happened with String Theory).

Yet the grand economic constructs are viewed as true without reservation when it comes to law and politics. Perhaps because economists are largely coin-operated. They can be bought by politicians, unlike most scientists.

-----------------------------

From: MarkCooper@aol.com
Date: August 14, 2007 9:20:44 AM EDT (CA)
To: bighook2007@isen.com,
Subject: [BigHook2007] Re: What's wrong with this picture?

I did not mean to suggest that the neoclassical calculation of consumer surplus was sufficient, only that it was a start. Let's understand what welfare economics does and does not do.

We must distinguish between use value and exchange value. The classical economists (from Smith to Marx) understood this well and many Europeans still do (I will provide some reading when I get back to town), but the neoclassicals have ignored the distinction and quantitative type monetize everything at exchange value using (typically) the prevailing wage rate.

I have not read the Goolsbee paper, but the underlying concept goes something like this.

The average user spends 2 hours a day on the Internet or 60 hours a month. At $30 per hour (including benefits) that is the equivalent of $1800 in time. Presumably that could have been spent working, but man does not live by bread alone so the valuation method may be dubious.

Since the consumer only pays $35 a month on Internet access and relatively little to obtain the applications that are used during the time on line (there may be a cost in being exposed to advertising), the consumer surplus appears to be large compared to the cost of connectivity (as in the graph).

Sometimes this is done with an estimated demand curve (as in the graph), but the underlying logic is the monetization of use value.

We can see that this is an inadequate framework if we apply the same argument to television. The average American spends 5 hours a day watching television, or 150 hours a month. At $30 per hour, that is $4500 of value. The cost, is TV ads and promos, which consumers hate. Let's say one-fifth of the time to keep the math easy. That is $900 of cost. The surplus is huge $3600.

We could definitely value active production time (maybe not e-mail and chat, since those are just new variants on the telephone call) higher than passive consumption (which is just a new variant of watching television). Thus, blogging , wikis, and other similar activities deserve a higher value. This is the noncommercial space.

There is also the semi-commercial space. The recording industry sold more singles last year than albums, a development made possible by the Internet. Of course, the recording industry hated that development. They preferred the 1990s model of fixing prices and selling albums. The Napster rebellion destroyed their anti-competitive and anticonsumer model, which I estimate saved consumers $4 billion in consumer surplus last year, based only on the record label sales of singles.

For every single sold by a record label, there were two or three sales of singles by "unsigned artists." These are folks who have discovered a whole new means of distribution. My son sells about $500 per month of songs through iTunes and can make a living as an artist without a contract (sometimes you need a billing relationship to make a living). Indeed, the battle in the recording indusry is paragigmatic for "consumer" goods. An physical space album sells for $17 (a market power inflated price). The cost of physical production and distribution are about $10, while the centralized star based systems ads another $2.5. In other words, $12.50 of costs are threatened by the Internet. Exercising their market power, the recording inudsry hoped to keep prices high and therefore realize the full "value" of their product. Since consumers were willing to pay $17, then that was the value. As costs fall, by keeping the price up, record labels increase producer surplus(see graph).

This process takes place throughout the commercial sector. Where there is effective competition consumer surplus expands. Where there is not, producer surplus increases. thus, all of the other transactions and cost savings made possible by the Internet should be counted.

Then there are the externalities that never get counted. Some may be captured in the above categories, but some are not.

-----------------------------

From: Doc Searls <doc@searls.com>
Date: August 12, 2007 2:57:07 PM EDT (CA)
To: "David S. Isenberg (Netidentity)" <isen@isen.com>, bighook2007@isen.com
Subject: Re: [BigHook2007] What's wrong with this picture?

The problem (as always, even when there isn't a problem) is with the framing.

The word "consumption" appears 17 times in the paper. The word "consumer" appears 26 times.

The word "product" appears 13 times.

The word "demand" appears 26 times.

The words "producer," "production" and "supply" appear zero times, each.

To the authors, the Net is nothing more than a consumer good. That's how they framed their study.

As guidance for conversation about infrastructure, it offers no help.

As a guide to economic thinking about the Internet, it provides a negative example.

IMHO, of course. IANAE.

Doc

-----------------------------

From: MarkCooper@aol.com
Date: August 12, 2007 2:27:09 PM EDT (CA)
To: bighook2007@isen.com,
Subject: [BigHook2007] Re: What's wrong with this picture?

There is nothing wrong with it. Think about calculating the value of residential streets. Remember, the consume sutplus is equal to the difference between the height of the demand curve and (in a competitive market), the marginal cost of supply. This does not mean that the supplier should get a cut of that surplus. In a competitive market the producer surplus is the difference between the supply curve and the marginal cost of supply (a rough graph is ~~attached~~[below -- David I]).

-----------------------------

From: "David S. Isenberg (Netidentity)" <isen@isen.com>
Date: August 12, 2007 1:40:48 PM EDT (CA)
To: bighook2007@isen.com,
Subject: [BigHook2007] What's wrong with this picture?

BigHook2007 participants,

Economists Austan Goolsbee and Peter J. Klenow calculate
a "consumer surplus" of several thousand dollars per
Internet user per year for each residential Internet
connection.

Reference:
Valuing Consumer Products by the time spent using
them: an application to the Internet
Austan Goolsbee and Peter J. Klenow
http://siepr.stanford.edu/papers/pdf/05-10.html

Question: What's wrong with this picture? My intuition
is that they're seeing the Internet as an end-user
good, rather than infrastructure, but I wish I had
deeper insight into where these economists have
gone wrong . . . your help greatly appreciated!

David I

-----------------------------

From: dpreed@reed.com
Subject: [BigHook2007] Discussion so far
Date: August 6, 2007 9:59:59 PM EDT (CA)
To: bighook2007@isen.com
Cc: bighook2007@isen.com

Interesting. However, there are two meanings of communications implicit in your (and others') comments.

For Sen. Stevens and you: the Internet is a series of "tubes". That is, communications *is* the plumbing.

Water is not the pipes. Water utilities are *pipe* utilities. But the water resource (which involves the evaporation-rain cycle, and thus the issue of global climate change and air pollution) is a different beast than the pipe utility called the water utility.

AT&T would have us believe (Whitacre) that the pipes come first, and the bits are owned by whomever owns the pipes.

But Shannon told us bits are bits. Communications in that sense is NOT a natural monopoly. Not hardly. Carrier pigeons substitute for trucks, and trucks substitute for wires, and radio substitutes for all of the above.

We don't need regulation of bits because bits are carried over wires. Wires may be a natural monopoly, but we've gone past the time when bits can ONLY be carried over wires.

It's so early 20th century to still believe that bit delivery is unsubstitutable and inherently a natural monopoly.

Let's have a Federal Wire Commission, if there is a need to regulate the thing that has a natural monopoly. Instead, as my friend Bob Frankston likes to say, we have a Federal Speech Commission, since the politicians like to control speech - something for which there is no argument there is a natural monopoly.

And, by the way, just as we can multiplex radio, we can multiplex wires. Who says the guys who own the wires should own the switches and modulators on the ends?

The essential natural monopoly is only the copper or the fiber, if that. Not the terminations or the switching.

MarkCooper@aol.com wrote:
> In discussing utilities and the economic rationale for regulation
> Fred Kahn offered the following, which I used in my WSIS talk and
> [s]everal paper on collaborative production:
[snip, see below -- di]

-----------------------------

From: MarkCooper@aol.com
Subject: Re: [BigHook2007] [savetheinternet] Discussion so far
Date: August 6, 2007 6:44:10 PM EDT (CA)
To: isen@isen.com, bighook2007@isen.com
In discussing utilities and the economic rationale for regulation Fred Kahn offered the following, which I used in my WSIS talk and everal paper on collaborative production:

1."the importance of the industries, as measured not merely by their own sizeable share in total national output, but also by their very great influence , as suppliers of essential inputs to other industries, on the size and growth of the entire economy. These industries constitute a large part of the "infrastructure" uniquely prerequisite to economic development. On the one hand, they condition the possibilities of growth (a Adam Smith recognized, the division of labor is limited by the extent of the market, and the latter depends in turn on the availability and price of transportation). On the other hand, because many of these industries are characterized by great economies of scale, their own costs and prices depend in turn on the rate at which the economy and its demand for services grows. As general economic growth proceeds, the contribution of these industries to further expansion is thus enhanced by their own realization of those economies of scale, in a cumulative and self-reinforcing process.

2. That many of them are "natural monopolies:" their costs will be lower if they consist they consist in single supplier. This creates the efficiency case for monopolistic organization and, along with the importance of the service and the consequent inelasticity of demand, the need for regulation to protect the consuming public.

3. That for one reason or another of many possible reasons, competition simply does not work very well.

Although Khan spent most of his career (as Chairman of the NY PSC, the CAB and being Jimmy Carter's inflatin Czar) arguing for deregulation, the rationale identifies eky characteristics: Food may have some of the demand-side characteristics, but it lacks the supply-side characteristics.

	Communications	Food
Prerequisite for economic growth	Y	Y
Essential input to other industries	Y	N
Importance of the services	Y	Y
Consequent inelasticity of demand	Y	N High degree of substitutibility
Extreme economies of scale (leading to natural monopoly or duopoly	Y	N
Positive feedback loop	Y	Not Really
Competition does not work very well	Y	N

The demand-side alone is not sufficient to compel the conclusion. It is the combination of demand and supply-side factors.

-----------------------------

From: Steve.Kamman@fmr.com
Subject: [BigHook2007] RE: Costs of Exclusion
Date: August 6, 2007 12:19:26 PM EDT (CA)
To: bighook2007@isen.com

Back from a vacation - so wrapping up a lot of thoughts/responses into
one posting.

First - REALLY PSYCHED to be back for my 7th (eeek) bighook. And
particularly psyched by the topic. IMHO this is the single most
important question/issue in telecom/tech past and future.

One observation on the debate is we need to keep the non-us perspective
in mind. For example, France has had a mostly private water utility
system for pretty much the whole system's history. I am not quite sure
how they do it, but it seems to work farley well. Likewise, France also
has one of the most competitive telecom markets out there (have a look
at Iliad's "Freebox" product - 20mb DSL, 30 TV channels, and free voice
calling for $30 euros a month). So we have alternative schema to
contemplate - especially in telecom where the US lags most developed
countries in every aspect except the lucky accident of cable
competition.

MY BIG TOPIC/INTEREST: How do we ensure the renewal/replacement of
critical infrastructure systems? I used my 3 minute card on this topic
last year.

KEY QUESTIONS: Argument fleshed out in the section below.
1. After a huge way of post-war investment in public goods, a lot of
assets with 30-50 year working lives are coming up for replacement and
are hitting the end of their useful/designed lives (with ever-increasing
returns to their owners being the best indicator that is true).
However, we don't seem to have any coherent approach to
encouraging/forcing the replacement of that infrastructure - positive
externalities notwithstanding. Look at recent news. The Minneapolis
bridge collapse last week, Brazilian airport crash (due to short
runways) the week before, refinery capacity shortages drignv up gas
prices (and refiner profits), electrical grid failures, etc... The
Telco network is Cleary another case - with Verizon's FIOS build coming
only in response to cable competition and SBC still trying to pretend
the copper has the same value in real life that it has on its books.

2. Unsurprisingly, this also comes after a multi-decade
privatization/deregulation trend in "public" infrastructure. While this
can have its positives, a lot of it can be boiled down to taking an
asset built with public dollars and selling it off to someone once its
paid off its financing costs and is immensely profitable. So instead of
the public authorities reinvesting those "profits" into a fund to pay
for the asset's replacement, they sell the profit stream off to someone
else, take the money as a lump sum, and spend it on current needs. As
examples. Privatization of the Indiana toll road, airport
privatizations, Telco deregulation, utility deregulation, etc...

3. So we find ourselves facing a range of often private owners of
critical infrastructure that needs to be replaced. However, they have
every incentive in the world to use exclusionary pricing to prolong the
life of the asset rather than re-invest in replacing it. Consider the
hypothetical privatized traffic light. The guy running the traffic
light company will respond to congestion by raising the price to change
the light until 100% of users are paying for the privilege of crossing
the intersection. Only when someone gives birth in the slow lane while
waiting for the light to change will public protest increase to the
point that the traffic light operator invests in faster light-switching
technology etc...

So how do we deal with this. It is clearly a problem in telecom, but it
is not only a problem there.

More on the main argument/thoughts:
1. As infrastructure ages, the cost to operate it drop significantly
and it becomes immensely profitable (ie. A telecom network once the
initial copper plant is built, a toll bridge once the initial "build the
bridge" bonds are paid off, an electrical/water grid once it is built.)
2. The economics are simple, the current owners (public or private)
only have to pay for ongoing operations/maintenance. Its like owning a
rental property when you finally pay off the mortgage. You go from
charging $1,000 in rent and paying out $900 to the mortgage lender (net
profit of $100 less maintenance costs) to keeping the full $1,000. Your
tenant doesn't even know that your profits in the transaction have gone
up by 9x.
3. The natural offset to this huge profit stream is that increased
demand will inevitably require a re-build after some suitably long
period of time (ie - copper must be replaced with fiber, re-building the
electrical/water grid top handle larger population densities, replacing
the bridge as traffic increases). In the house case, you eventually
willl have to rebuild/replace the house as tenant expectations increase
and/or maintenance costs go up. Alternativelyy, you just accept lower
and lower rents and become a slumlord. Either way, the profits
eventually go away.
4. The infrastructure owner, however, has every incentive to prolong
this state ofaffairss for as long as possible. So if you own a telecom
network, you slow roll broadband and offer speeds well below the current
state of the art. If you are a bridge owner, you raise tolls
(congestion pricing anyone?) to avoid having to build a new bridge.
5. More perniciously, your investment priorities become centered about
prolonging the life of the existing asset, NOT replacing it with
something better that is sized appropriately for current demand. This
is the classic sunk cost fallacy - investing more $$ in an asset that is
past its useful life because you don't/can't admit that it is indeed
past its useful life. The best example of this is billions sent on DSL
gear, which has allowed the copper network to limp along for maybe
another 5-10 years. All well and good, but the equivalent $$ invested
in putting fiber deeper would have yielded a 30 year asset. More
generally, it is al the little tweaks and upgrades that deliver small
incremental capacity increases to the system, but don't really deliver a
major step-function increase. In house-owning terms, we all know there
comes a point where it is cheaper to just rebuild a building rather than
keep renovating it. However, most of us are less familiar with the
alternative strategy (which assumes its fully paid off and you don't
have to live in it). Become a slumlord. Stall every tenant's repair
request and rely on tenant inertia and regulatory lassitude to deliver
profits for as long as possible.
6. If you are a really big slumlord, of course the other rational
investment is in influencing the regulatory process. If you can keep
minimum standards low and/or co-opt your regulator, then you are able to
keep the cash rolling in for that much longer. This is particularly
easy if you have a de facto monopoly - e.g. defining broadband as a few
megabit per second so that an increase from 3mb to 7 mob sounds like a
big deal (sure other countries are getting 100mb, but happily most
Americans don't travel...)

Anyway, I worry about this stuff but am not sure I have any great ideas
about how to resolve it beyond some good old-fashioned "creative
destruction" (which Cable appears thankfully to be doing to the telcos,
but that doesn't help as much with highway bridges).

Steve Kamman, Fidelity Management & Research
Direct 617 563-0100

-----------------------------

From: esc@mac.com
Subject: Re: [BigHook2007] Discussion so far
Date: August 6, 2007 10:49:59 AM EDT (CA)
To: isen@isen.com
Cc: bighook2007@isen.com

Having grown up in a semi-arid farm state, I'm very sensitive to climatic impacts on the agricultural infrastructure. We have built large flywheels into the system after disasters seven decades ago, but they are poorly targeted (why have expensive flywheels for corn, cotton and sugar) and may not adjust to climate change. They certainly have proven stable with respect to political change.

I suspect these mostly forgotten infrastructures only become obvious when something breaks (like the dust bowl) and impinge on areas of the economy where measurements are easy.

For what it is worth I recently attended t a conference on climate change and the impact on food crops. The takeaway was the changes are likely to be extremely non-linear.

___

But a question about communications. Has anyone worked through a serious of scenarios to understand the impact of various types of networks across economic segments? Usually the focus is very narrow - e.g. what is the impact on telecom. But (for example) what is the difference between service based carriers and transport only carriers across the economy? I'm sure many metastable states lurk (after all, that is why lobbyists get paid). I'm guessing globally optimal states aren't the telco optimized flavor, but would love to see solid work.

Steve [Crandall]

-----------------------------

From: dpreed@reed.com
Subject: [BigHook2007] Re: Lighhouses and Congestions
Date: August 6, 2007 10:47:27 AM EDT (CA)
To: bighook2007@isen.com
Cc: bighook2007@isen.com

What I was objecting to was the "clean" and utterly empty reductionism of economic theory, which eliminates the "problem" from its discourse by classifying "goods" in terms that miss the essential properties of those goods in the human ecosystem.

Thus using the idiom of contemporary economic theory (Friedman or pretty much any Economics Dept. in a major university) embodies a fundamentally *political* move. It rules out those who would discuss the REAL problems of real economies as "out of bounds", exchanging the discourse for an excessively formal discourse in which one can "prove" (in a verasimulacrum of mathematics similar to the math formalisms used to prove Astrology or by J.B. Rhine, to "prove" ESP).

That said, there are economists who resist this reductionism. Many are exiled to finance departments, law schools, and various heterodox departments where the attraction of pure formalism does not hold, Of course, such departments lack the friendly, selective support of favored theories that come from extremist Fascist and Marxist governments supporting formalisms as fig leaves for ignoring humanity and politics in their sterile "calculus" of power. The political power in economics comes from control of the formalism and language. One should always question its inherent assumptions and narrowing of scope.

> Andrew Odlyzko wrote:
> And it was also around 1840 that British railroad were allowed to be
> exclusive shippers, breaking the foundational assumption behind all
> early British and American railroad charters, which had a structural
> separation built in.
>
> And note that it took over four decades from that to the
> Interstate Commerce Act of 1887! This suggests strongly that
> there is no clean
> and feasible solution to the problem.
>
> Andrew

-----------------------------

From: isen@isen.com
Subject: [BigHook2007] Discussion so far
Date: August 6, 2007 9:48:05 AM EDT (CA)
To: bighook2007@isen.com

BigHook2007 participants,

I'm delighted to hear from Mark Cooper, Andrew Odlyzko,
David Reed, Brett Frischmann, Chad Jones, and Pip Coburn
so far. They're some of the best minds in the business.

For those who might be feeling that the discussion so far
is irrelevant to their concerns or beyond the scope of
what's important, I have two items. First, I'm going to
try to get these experts to adopt a more tutorial mode
for at least the first few sessions of BigHook. Second,
I always try to make BigHook expand the current circle
of concerns, and this year is a bit more of a stretch
than usual. That's why I've suggested more pre-readings
than usual -- there's a lot of potentially new concepts
in the "Infrastructure Economics" groundwork.

I'm especially sympathetic to David Reed's complaint that
we have no economic concept for goods that are essential
to life. These goods seem to include both rival goods
like food and [partially, mostly] non-rival goods like
water, air and the planetary climate system, and, as Reed
points out, the communications infrastructure on which
our culture is built. Just as the concept of GDP is blind
to barter and community sharing, but counts the event
where I do your wash and you do my wash, and each of us
pays the other, as productive activity, I can't help but
think the economists are *still* missing something very
important when they think about infrastructure.

And, while part of me gets the discussion so far, another
part says, "WTF? Food isn't part of the infrastructure of
life, but ideas ARE?"

Let the discussion continue!!!
David I

-----------------------------

From: MarkCooper@aol.com
Subject: [BigHook2007] Re: Lighhouses and Congestions
Date: August 6, 2007 7:39:15 AM EDT (CA)
To: bighook2007@isen.com

The obligation of nondiscrimination under common law, including the franchising of turnpikes by boroughs to private entities subject to the obligation, worked pretty well under common law (helping to give us the capitalist mode of production). Structural separation worked well in both railroads and telecom for a long period, as did common carrier obligations. The transition periods are bloody, but I suggest the enduring principle is that a regime of non-discrimination is crucial. The railroads, who invented the concept of corporate General Councils, overwhelmed the common law approach because the individual shippers, small farmers, were complete out gunned. The obligation of nondiscrimination under common law, including the franchising of turnpikes by boroughs to private entities subject to the obligation, worked pretty well under common law (helping to give us the capitalist mode of production). Structural separation worked well in both railroads and telecom for a long period, as did common carrier obligations. The transition periods are bloody, but I suggest the enduring principle is that a regime of non-discrimination is crucial. The railroads, who invented the concept of corporate General Councils, overwhelmed the common law approach because the individual shippers, small farmers, were complete out gunned. The state had to enter to restore the principle, as it had to enter to ensure that interconnection would take place in telecom.

I don't think we can go back to a common law regime. Even the big bit shippers on today's telecom network (Google, et. al) are outgunned by the telcos and cable in terms of political muscle. The little shippers (especially start ups) would have no chance in a world where litigation precedes innovation. The available solutions are governmentally enforced obligations of nondiscrimination, or complete separation of transport from ownership of shipped goods, in which case the economic incentive is to move the most cars (packets) regardless of the content of the packages, or more likely both. Drawing the line on "due" and "undue" discrimination is always difficult, but it is better than having no line at all.

-----------------------------

From: odlyzko@dtc.umn.edu
Subject: [BigHook2007] Re: Lighhouses and Congestions
Date: August 6, 2007 12:02:50 AM EDT (CA)
To: bighook2007@isen.com

And it was also around 1840 that British railroad were allowed to be
exclusive shippers, breaking the foundational assumption behind all
early British and American railroad charters, which had a structural
separation built in.

And note that it took over four decades from that to the Interstate
Commerce Act of 1887! This suggests strongly that there is no clean
and feasible solution to the problem.

Andrew

-----------------------------

From: MarkCooper@aol.com
Subject: [BigHook2007] Re: Lighhouses and Congestions
Date: August 5, 2007 11:23:51 PM EDT (CA)
To: bighook2007@isen.com

It was in the 1840 in America that railroads began to eschew their role as pure carriers and began to become shippers as well, the process that ultimately led to the conclusion by the Collum Committee that "the paramount evil chargeable against the operation system of the United states as now conducted is unjust discrimination between persons, places, commodities, or particular descriptions of traffic," The Interstate Commerce Act was passed the next year.

-----------------------------

From: odlyzko@dtc.umn.edu
Subject: [BigHook2007] Re: Lighhouses and Congestions
Date: August 5, 2007 11:14:53 PM EDT (CA)
To: bighook2007@isen.com

Well, private ownership of water supply systems is not a novel idea.
It is quite common (for example, in the area where I used to live in
New Jersey), and even in many places that today have municipal supplies,
originally it was private companies that provided this service.

I recently ran into the following passage in the London newspaper
"Daily News" (Dickens was the first editor, although only for a few
weeks) in 1846:

But any attempt to substitute the action of the central government for
private enterprise in the construction of new or the extension of old
lines of railway, or in the management of them, would inevitably retard
the extension of railways throughout the country, and the invention of
improved methods of working them. It is the nature of the British people
to do by private enterprise what less energetic and less self-dependent
nations leave to their governments to do for them. ... Our towns and
cities have been lighted with gas and supplied with water by the
instrumentality of private companies. ... There is more of energy and
inventiveness in the enterprise of individuals than in the martinet
discharge of routine duties by salaried officials. ...

As you can tell, that was an era that worshipped private enterprise and
"the sacred right of property." But yet that was an era that took
lighthouses out of the hands of private owners, and abolished the
semi-private turnpikes. An interesting period!

Andrew

-----------------------------

From: odlyzko@dtc.umn.edu
Subject: [BigHook2007] Coase's lighthouse fable
Date: August 5, 2007 11:05:11 PM EDT (CA)
To: bighook2007@isen.com

Coase's fable has been debunked quite thoroughly. For references,
see my papers "The evolution of price discrimination in transportation
and its implications for the Internet,"

http://www.rnejournal.com/articles/odlyzko_RNE_sept_2004.pdf

and "Too expensive to meter: The influence of transaction costs in
transportation and communication" (with David Levinson),

http://www.dtc.umn.edu/~odlyzko/doc/metering-expensive.pdf

One of the most astonishing things for me is that it took so long (about
two decades, in 1993 by van Zandt) before the debunking occurred, and
that the fable lives on. The key factor that Coase does not mention
is that the coercive power of the state was used to enforce payments,
even though lighthouses were privately owned. (But then, during that
period, that is until the mid-1830s, when British lighthouses were
placed under quasi-public ownership, commissions as officers in the
army were privately owned, too.)

Andrew
-----------------------------

From: MarkCooper@aol.com
Subject: [BigHook2007] Re: Lighhouses and Congestions
Date: August 5, 2007 7:18:49 AM EDT (CA)
To: bighook2007@isen.com

So we have both demand-side and supply-side reasons that unregulated, private investment will not meet the needs of people. One can launch the discussion of communications policy from the demand side premise that "water/communications is a necessity to which humans should have access." (Benkler goes a long way toward demonstrating this) We can always add that those need should be met efficiently, within the bounds of that principle. The key is to never forget that the primary constraint is the equity principle. Twenty-five years of policy work has proven to me that the ideological economists who rule in Washington are not very kind to this approach and its not only the theorists who are the problem.

I was invited to attend the World Summit on the Information Society to debate someone from the World bank on the question "Is communications Infrastructure?" Needless to say, I took the affirmative. It seems that in the mid-1990s the World Bank had decided to stop funding communications projects, as they were considered to be adequately dealt with in the private sector. After a decade of failure of that policy, they were reconsidering that position. I was brought in by a former Communications Minister from Morocco who had overseen the liberalization of communications in his country, but resigned when the decision was made to privatize the industry. He thought it would be neat to have an America argue with the World Bank.

During the course of the debate, the World Bank official pointed out that in evaluating projects they counted only business use of the communications network, refusing to count social uses (which he admitted constitute about 80 percent of the total usage). When one considers that the modernization of social relations is, perhaps, the most important ingredient for economic development, this is a particularly odd position for the World Bank to take. Needless to say, no communications project could pass his cost-benefit test. My response was, "If the microeconomic bean counters at the World Bank had been the midwives at the birth of capitalism, we would all still be serfs on feudal manors." The social relations of capitalist production would never have come into existence and the stream of positive externalities that are the lifeblood of accumulation would never have been created.

-----------------------------

From: dpreed@reed.com
Subject: [BigHook2007] Re: Lighhouses and Congestions
Date: August 4, 2007 7:47:11 PM EDT (CA)
To: bighook2007@isen.com
Cc: bighook2007@isen.com

So, there is a movement abroad to privatize the water supply systems.
I have real trouble dealing with this in the abstractions common to economic theorists. The reason I have trouble with this is that clean water is crucial to living systems, and it is not obvious that granting a monopoly on water distribution is a proper role of a social institution like a government.

We humans cannot live without water. Thus it is different from "rivalrous" goods that can be done without. Yet economists don't have a category analogous to "rivalrous" that describes essential for human life "goods". This impoverishes the pure economic theory types, who want only to write equations and win their Nobel Economics prizes by being so goddamn smart that they are idiots.

Thus we end up with an ideology that leads the World Bank to demand that governments privatize their water systems in order to qualify for loans, those loans being the economic abstraction of human beings offering to help others (and the contributions to the World Bank come from the people of various countries wanting to *help*, not because those people want to enslave other people, I presume).

As a result of this, I wonder if the need of humans to have a culture (i.e. a communications system's purpose - to facilitate the communications among people that create cooperative bahavior), is as necessary to human life as is water.

Privatizing the right to speak and to associate seems to me to be something that goes beyond a reductionist concept of "rivalrous" goods, and the allocation of same according to markets or to need or to whatever.

The easiest way for smart people to become stupid is to get screwed up in abstractions that deny our common human reality.

That's why, though I am as good as anyone at doing mathematics and abstraction, I tend to be suspicious of theoretical economists knowing any damn thing at all.

-----------------------------

From: bfrischmann@gmail.com
Subject: Re: [BigHook2007] Costs of Exclusion
Date: August 3, 2007 11:46:55 AM EDT (CA)
To: isen@isen.com

Your last sentence hits the nail on the head.

For those less familiar with the economics and interested in learning
more about (non)rivalry and (non)excludability, skimming pages 942-56
of the Minnesota Law Review article might help. Skip the footnotes
and it isn't really that long.

I am happy to dive in and defend and explain the demand-side
definition I've developed, but I think it may be more fruitful to let
others discuss.

Brett

-----------------------------

From: isen@isen.com
Subject: [BigHook2007] Costs of Exclusion
Date: August 3, 2007 9:46:55 AM EDT (CA)
To: bighook2007@isen.com

Jorge hits the nail on the head when he concludes that
excludability -- and the costs of exclusion mechanisms --
are key.

One of the most instructive stories I've come across is
in a footnote on P. 25 of Frischmann's original 114 pager
in the Minnesota Law Review
http://isen.com/bighook/2007/Infrastructure-frischmann.pdf
that says:
Consider the humble traffic light. It does a remarkable job of
coordinating motorists' actions at busy intersections. True,
there are times when a motorist who is not in a great hurry
is allowed to pass straight through, while another, in danger
of missing a vital meeting, and hence with a higher marginal
cost associated with waiting, fumes and frets at the red light.
However, given the current state of technology, it is difficult
to imagine how a more efficient method of coordination
could be achieved through more-market-oriented devices.

Lessig refines the point a bit further. He weighs the costs of
free riders against the benefits of non-exclusion to society here
http://isen.com/bighook/2007/Infrastructure-Lessig.doc
When an infrastructure provides wide-ranging inputs to public
and non-market goods, the costs of exclusion are likely to be
large, hugely positive and unknowable-in-advance.

David I
-------

-----------------------------

From: jeortiz@gmail.com
Subject: [BigHook2007] Re: What BigHook2007 is about
Date: August 2, 2007 6:06:15 PM EDT (CA)
To: bighook2007@isen.com

The paper by Frischmann that David quotes, actually discusses partially (non)rival goods as infrastructure, here is a more extensive quote form that paper:

Defining Infrastructure from the demand-side
Infrastructure resources are resources that satisfy the following demand-side criteria:
1. The resource may be consumed nonrivalrously;
2. Social demand for the resource is driven primarily by downstream productive activity that requires the resource as an input; and,
3. The resource is used as an input into a wide range of goods and services, including private goods, public goods and/or non-market goods.
Traditional infrastructure, such as roadways, telephone networks, and electricity grids, satisfy this definition, as do a wide range of resources not traditionally considered as infrastructure resources, such as lakes, ideas, and the Internet.
The first criterion captures the consumption attribute of nonrival and partially (non)rival goods. In short, this characteristic describes the "sharable" nature of infrastructure resources. Infrastructures are sharable in the sense that the resources can be accessed and used by multiple users at the same time. Yet infrastructure resources vary in their capacity to accommodate multiple users, and this variance in capacity differentiates nonrival (infinite capacity) resources from partially (non)rival (finite but renewable capacity) resources. Simply put, nonrivalry opens the door to widespread access and productive use of the resource. For nonrival resources of infinite capacity, the marginal costs of allowing an additional person to access the resource are zero. For partially (non)rival resources of finite capacity, the cost-benefit analysis is more complicated because of the possibility of congestion.

So in his own discussion he is really changing his own definition of Infrastructure as:
1 The resource may be consumed nonrivalrously The resource that can be accessed and used by multiple users at the same time (i.e. "shared")

In the discussion of infrastructure, rivalrously, nonrivalrosuly, and sharable goods, a related issue is that of "Excludability"

Quoting the current wikipedia definition of Excludibility:

Excludability is defined in economics as whether or not it is possible to exclude people who have not paid for a good or service from consuming it. Where it is impossible to prevent an individual who does not pay for that thing from enjoying the benefits of it, the good is termed non-excludable

Ideas (and lighthouses) are nonrivalrous, and tend to be non-excludable, yet legislation and goverment action, can turn non-excludable goods into private goods or private monopolies (patents, copyright, toll highways, etc)

Spectrum (specially at high frequencies with short propagation and low power) is close to non-rivalrous, and with proper rules and protocols can be turned into a sharable, non-excludable good (i.e. WiFi)
However "open spectrum bands" a relatively "new"
At low frequencies and high power (AM, FM, TV) spectrum is rivalrous, at some very low bands and high power some bands propagate across a contintent, the lower frequency bands are the ones where radio started, as that were transmitters and receivers could be built, so most of telecom regulation and frequency assignment comes form times when spectrum use was rivalrous.

Rights of way, when properly designed and managed, can be "sharable".
The internet itself and the congestion mechanisms that it has used historicaly (best effort, and random packet drops on congestion), is a design that shares bandwidth in a fair way among all users.
QoS mechanisms try to favor or exclude certain uses at the cost of other uses, in a way QoS is a way to exclude in order to monetize what was original a fair sharing resource.
QoS is like regulation, quoting Lessig "code is law", in this case carriers are coding into the sharing rules, in order to exclude or prioritize packets,�� to be able to monetize the scarcity of a shared good.

So rivalry, rules for sharing, exlcusion (via code or via law) are at the heart of telecom policy

An interesting topic for BigHook once more

Jorge

-----------------------------

From: MarkCooper@aol.com
Subject: [BigHook2007] Re: Lighhouses and Congestions
Date: August 2, 2007 5:38:55 PM EDT (CA)
To: bighook2007@isen.com

I agree entirely and have written about this at great length.�� The vast majority of investment necessary resides in the device, which decentralizes and privatizes investment. The irony, I argue,��is that��the need for public action is greater in the design of protocols and rules for sharing the commons.��

-----------------------------

From: rmchase@gmail.com
Subject: [BigHook2007] Re: Lighhouses and Congestions
Date: August 2, 2007 5:18:54 PM EDT (CA)
To: bighook2007@isen.com

"it rations scarcity, rather than creates abundance." I'm on prolonged the ad hoc mesh networking love affair. The infrastructure is not lumpy, but added to in very small increments by end users, each of whom add more capacity than they use. This method of infrastructure building creates abundance.

And yes, I know that we will still need the 15% of the infrastructure requirements that are fiber cables or satellites for long haul capacity, and that'll have the characteristics you cite. And now that we've enormously diminished the lumpy infrastructure requirements, perhaps it will be less onerous for the public sector to finance.

Robin

-----------------------------

From: MarkCooper@aol.com
Subject: [BigHook2007] Lighhouses and Congestions
Date: August 2, 2007 3:21:52 PM EDT (CA)
To: bighook2007@isen.com

Coase's argument on lighthouses has been challenged, since the right to charge a fee to enter the harbor was backed by the power of the state. The one lane bridge that might be built by the private sector reflects only the economics that can be internalized by the (relatively) short term (relatively) narrow view of the private investor. It foregoes all of the externalities that would be created by the six lane bridge that might be built as a public good. It rations scarcity, rather than created abundance.
��
The key point is that infrastructure is super lumpy. Over a long period of time and range of demand, it is not congested, but eventually it become so. The private micro-economists come along and say, see, we need to ration scarcity with congestion pricing, when the��right answer may be to throw more infrastructure at the problem. The biggest mistake is to assume that since it now appears feasible to privatize part of the problem, we could have built the whole thing in the private sector.

-----------------------------

From: "Chad Jones" <chad@econ.berkeley.edu>
Date: August 2, 2007 1:22:32 PM EDT (CA)
To: bighook2007@isen.com,
Subject: [BigHook2007] Re: What BigHook2007 is about

Hi David, (Following your advice, I'm sending this to the group)

I haven't had a chance to read through all the links, but I thought I'd mention one thing that I plan to think more about.

One view of nonrivalry (e.g. Paul Romer holds this view, I believe) is that the only goods that are nonrivalrous are ideas, for basically the reasons that you've given. Many other public-type goods like bridges, or air, or national defense are clearly rivalrous if enough people try to use them, and as long as there are enough people trying to use them, private markets probably work pretty well. Ronald Coase (Nobel Prize-winning economist) famously applied this kind of reasoning to lighthouses: many economists used to casually use a lighthouse as an example of a public good that the government should provide. When Coase looked into the details of how actual lighthouses worked, he found that the government was usually not involved, at least in historical England. (See http://en.wikipedia.org/wiki/The_Lighthouse_in_Economics for the cite.)

One can argue that when the good is not being used to its full capacity, some elements of nonrivalry (maybe "local nonrivalry") creep in. However, my instinct is that this issue is probably not important in most cases. In particular, the scale at which the good is provided (a huge six-lane bridge versus a one-lane bridge) is a choice variable, and one suspects that it is efficient to provide the good at a scale such that rivalry takes over.

I've thought a lot about ideas, but not much about bridges and infrastructure, so I could be wrong about this. But I thought I'd pass on my first thoughts. I look forward to learning more.

Best,

Chad

-----------------------------

From: "Pip Coburn" <Pip@CoburnVentures.com>
Date: August 2, 2007 12:21:14 PM EDT (CA)
To: <isen@isen.com>
Subject: Fw: [BigHook2007] What BigHook2007 is about

Fwd as you wish...

Great topic

When we talk of infrastructure we may wish to talk of supply

That includes core technology, network, devices, suppliers of svcs... Thinking in parts may be easier but I don't think advances us much

I think these ecosystems are only valuable to consider (even then) in the context of local regulation

The outcomes in korea, US, Egypt, Russia, UK are as much a function of culture driving government as they are of technology

Then - considering cultural usage roadmaps (demand) that begin to get at what people will want to do with such an ecosystem and the wonderful interactions of supply and demand

I would love for us to aim to be holistic in this pursuit because the economics can not be considered in a causal straight line in any sort of useful fashion so far as I can see.

Pip

-----------------------------

From: sob@harvard.edu
Subject: [BigHook2007] Re: What BigHook2007 is about
Date: August 2, 2007 11:26:55 AM EDT (CA)
To: bighook2007@isen.com

you can also take a look at
http://www.sobco.com/papers/ieeecon.uneconomic.pdf

-----------------------------

From: isen@isen.com
Subject: [BigHook2007] What BigHook2007 is about
Date: August 2, 2007 11:23:53 AM EDT (CA)
To: bighook2007@isen.com

BigHook2007 Participants,

The theme of BigHook2007 is Infrastructure Economics.

It is based on the premise that the economics of
infrastructure is different from the economics of
other goods. At BigHook2007, I'd like to get my mind
around what these differences are and what they imply
for the building, operation, management and regulation
of infrastructure.

Doc Searls offers that infrastructure is different due to
"the because effect." That is, if y happens because of
x, then x is infrastructure. This is intuitive, but
not rigorous enough. It is true that if I get to work
because of roads, roads are infrastructure. But if
I'm healthy because I eat apples, are apples
infrastructure? (Answer: No! Apples are end user goods.)

(Note: Doc was not trying to be rigorous -- he'd be the
first to say IANAE -- he was merely sharing his thinking
to date on the topic, and I look forward to hearing more
from him.)

Brett Frischmann attempts a more rigorous definition.
(By the way, I strongly recommend Frischmann's First
Monday paper, Infrastructure Commons in Economic
Perspective -- http://tinyurl.com/2fc7w2 ) He offers
this definition of infrastructure resources:
(a) the resource may be consumed non-rivalrously,
(b) demand is driven by downstream productive activity,
and (c) the resource is an input to a wide range of
economic activity.

This is not entirely satisfying to me either.
"May be consumed nonrivalrously," is an intriguing
characteristic. It seems to me that most of the
really interesting infrastructure issues occur where
there **IS** rivalry, for example, when a river
is the source for so much irrigation that it dries
up, or a router gets hogged by one guy downloading
movies, or when the atmosphere is subject to so much
use that its characteristics change.

I suppose one could say that the river, the router,
and the atmosphere are not infrastructures, but I
think this deflects the point. On the BigHook2007
Home Page http://isen.com/bighook/2007
(username == bighook, password == smart) I say that
ideas are the purest form of infrastructure, but to
me a river, a router, and the atmosphere are more
intuitively infrastructure-like than an idea.

I've got questions about other aspects of Frischmann's
definition too. Isn't a factory, e.g. a steel mill,
infrastructure? It seems to me -- IANAE, to be sure --
that a steel mill is clearly rivalrous, in that it has
a fixed capacity for producing steel. And the goods
produced are not used "for a wide range of economic
activity" -- they're used for building. Or at least
they're used for one thing at a time.

If we can get our minds around some of these concepts
before BigHook starts, we'll be ahead of the game.
I would welcome other ideas on the goodness of Brett's
definition, and proposals for other definitions. I'll
post them in blog-like form on the BigHook2007 discussion
page, http://isen.com/bighook/2007/discussion.html

And I'd like to spend some time at BigHook itself talking
about what infrastructure is without tying the discussion
too tightly to the Internet, at least not at first.
As Brett says, "infrastructure plays a critical role in
economic development, but exactly why there is demand,
how it manifests, how it should be measured, and how it
contributes to human well-being is not fully understood."

It is my hope that the BigHook2007 discussion will add
to our own understanding of the Internet as infrastructure,
as well as the world's.

See you in Woods Hole on September 5.
David I
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