Influences on my economics

There are three books which have changed my thinking about economics over the last few years. I originally questioned whether these books are revolutionary but they have added to my thinking in very basic ways. These books all look to address the economics of information, or the wealth unleashed by I.T. and the internet. My thinking about this started in the early 1990’s, Dan Remenyi at Henley Management School introduced me to the ideas that Information was the 4th Factor of Production, that Industrial Age economics was insufficient as it was unable to explain why companies that invested in negative or zero profit IT projects, as measured by ROI, outperformed those that didn’t, and that an industrial age balance sheet was incapable of evaluating an information system asset.

The three books all relate to the evolution of society and its economics, the empowering of knowledge workers and their relationships with Capital, and hence capitalists. …

Let’s take back the Internet

Rebecca Mackinnon previews the arguments for digital liberty, exploring the contention points between people and power. I suspect it needs to be informed by Kondratiev cycles, , she takes her start point as the historical achievement of political liberty but we shouldn’t be looking back 300 years.

The steel, oil,  & silicon technology revolutions have spawned social democracy, enviromentalism and the digital liberty movement respectively. Each of these reactions have spawned political movements to achieve their goals. …

New-ish corporate stakeholders

Peter Drucker & Will Hutton developed and articulated theories of stakeholder constraints on corporate behaviour. Of course, as far as Marx was concerned the only moderator of corporate behaviour was the proletariat, the organised working class; but these later theorists argue that suppliers, consumers and neighbours/regulators are also now inhibiting factors on the company with in my version of the model, neighbours and their law enforcement entities should be having a final word. Law enforcement should be interpreted broadly to include the HSE, HMRC (for low wages and tax compliance), the Equal Opportunities Commission and now the Information Commissioner’s Office. Much of consumer and environmental protection is enforced by local authorities.

The development of feminism, and latterly green (consumerist) responses to companies, including now, campaigns against climate change are new factors in the neighbourly and employee stakeholder constraints upon the company.

Hutton has expressed his views more recently in Hutton 1999,The Stakeholding Society: Writings on Politics and Economics, ISBN: 978-0-745-62078-7 January 1999 Polity.

Drucker’s most famous work might be, Drucker, P.F. (1955) The Practice of Management. Heinemann, London.

 …

Does QE work?

In an article in the Guardian, Will Hutton examines the use of QE and the failure of the Bank and Treasury to use it to stimulate investment. Increasing investment is both an expansion of demand, it creates income for its suppliers, and capacity for the economy. The Government and the Bank’s ideology will not permit them to use QE to buy corporate debt and so is doomed to fail to meet the needs of business investment and productivity improvement.

QE creates asset inflation, including house prices; it does not increase demand. …

The Stern Review on the economics of climate change.

Today, the Stern Review on the economics of climate change was archived into the records of the National Archive. I had created a copy for myself, as I found it easier to read than on a web browser. It’s probably no different today.

It’s most important finding was that early action paid bigger dividends, and that we needed to avoid a 2% increase in the planet’s temperature.

… the less mitigation we do now, the greater the difficulty of continuing to adapt in future.

For more, by wikipedia …

Some insights into managing the cloud

Dave Cliff, Professor of Computer Sci at Bristol spoke to Waters Power:09 in Canary Wharf yesterday. It is clear from many sources that IT is changing and he examined some of these changes. He woke me up by quoting Carlota Perez  who argues that there are five transformational changes since the industrial revolution, Steam, Railways, Electricity, internal combustion and IT. She also argues that the adoption and maturity cycles are similar, and Cliff argues that “money’s out of IT now”. Her book is called “Technological Revolutions and Finance Capital:The Dynamics of Bubbles and Golden Ages”, which gives on an idea of where she’s coming from. Cliff also pointed his audience at Nick Carr’s “The Big Switch”, another pundit that argues that IT is done! …

Free software, fairness and scientists

I have just posted my final blog posts to my Sun blog, including one called Free, the right price for software. (Now republished on this blog,as Free, the right price for software.) This uses a Welfare Economics approach to argue that the correct price for software is free. This is designed to be an abstract for an essay I have promised myself, which will also be the basis for my evidence to the UK Government Consultation on regulating and restricting file sharers. This article briefly looks at economic equity, efficiency and academic publication regimes.

Two points that I failed to put in the abstract, are firstly that economists see equity, as in fairness, as having two dimensions and that paying people with the same skills and abilities different amounts is inefficient and thus sub-optimal but arguing about the fairness of paying differently skilled people different amounts is the domain of politics. Efficiency tries to remove considerations of political equity from the model. It’d be interesting to see if this can be worked into the essay; why is Tom Cruise paid so much?

The second issue is that pure science research has to be published, peer-reviewed and refereed before it is adopted. Sharing knowledge for free is what professionals and scientists have been doing for years, why is software and the media any different. I hope to work these questions into the essay. …

Free, the right price for software

Economic systems are about how to use scarce resources and the Price Mechanism is the way in which a optimal resource allocation occurs. Economists use a branch of theory called “Welfare Economics” to analyse and model the efficiency of the productive economy, and a theoretically maximally efficient set of states can be defined within a model, known as the Pareto-efficiency frontier. A perfectly competitive market meets the efficiency requirements, imperfect or distorted markets do not. Distortions can be caused by the existence of monopolistic markets, taxation, externalities or missing markets.

Traditional Welfare economics rarely considers how copyright and patent law create barriers to entry to markets and thus husband the growth of monopolistic markets, where supply is restricted and prices driven up. It needs to be born in mind that overpricing products such as software which are inputs to the economic process as well as output, means that some otherwise efficient goods will not be produced; they cost too much.

It should also be born in mind that the majority of the world’s software is not licensed or charged for, although much of this free to use software is not traded at all, remaining the proprietary goods of their owners who use them to produce other goods and/or services. Benkler in his book, “the Wealth of Networks”, suggests there are nine business models for pursuing value in software, of which only three of them involve trading rights i.e. charging for software. If there was no software copyright i.e. copying was legal and free the only price, software would still be written. The overpricing of software distorts both today’s market and the innovation creating tomorrow’s. The price mechanism should ensure that resources that are scarce and consumed should be payed for. Software is not scarce, although the people that write it and the machines that run it are. Resources such as software should be free.

This was meant to be an essay based on some slides I have been trailing inside the company, but I discovered how hard it is and how much time it takes to actually put ideas into essay form while preparing the paper behind what became Monopoly & Prices, see below. So this is more of an abstract, I shall upload the essay when finished to my personal site downloads page, actually to a landing page on this blog.

Thanks once again to Beggs, Fischer and Dornbusch, whose Economics 8th Edition reminded me of my Welfare Economics.

ooOOOoo

This is a reprint of an article originally published on my sun blog. It was copied to this site on 3rd August 2013. much earlier than most. …