Towards an Economic Understanding of…Ourselves?

If the dominant medium of a culture defines it, what does it mean for us when TV is changing? How will it change, and how will that change us? A couple of MIT academics are discussing the former at here. Good reading, but missing the point.

I’m particularly drawn to the example given by Prof. Jenkins, in which he talks about the culture growing around a not-yet-existing TV show, where the show itself is all about “adhocracies, flash mobs, and collective intelligence among the most wired segments of the … public.” Now that’s some metacircular reflection!

It seems to me that both the networks and these pundits are just tinkering around the edges based on familiar modes and technologies. (Admittedly, they’re talking about the relatively near term. But isn’t predicting the near-term future too chaotic to be done well? Besides, the longer run is far more interesting!) The message is changing, and different ways of green-lighting and distributing the same old medium aren’t going to cut it. I doubt that Croquet is the only technological alternative offering both P2P sharing and edge-created meta-medium content, or that my (or Larry Lessig’s) culture of creative sharing is the only mode different from the broadcast networks’ business as usual.

Indeed, as long they’re called “broadcast” networks, they’re operating on the wrong region. Powered by technology, the mode of production is shifting out from the “Sarnoff” (broadcast) model (value of network directly proportional to number of users), through “Metcalfe” (value proportional to number of connections, which is number of users squared), and on – in some cases! – to “Reed” (value proportional to number of subgroups, which is 2 to the power of N users).

If you read this through a direct RSS feed to me rather than the combined Wetmachine site, you’re missing out on public policy lawyer Harold Feld‘s Tales of the Sausage Factory columns. Yesterday, he described and provided links for an economic story that goes something like this: A hundred years ago, people hadn’t yet realized that corporations would work. (They concentrate power in the hands of the board, despite ownership by a much larger group. Why would any Victorian want to participate in that?) Now we understand that with a modest investment combined with giving up on the idea of retaining all the power, we can take advantage of opportunities for making money (or achieving other goals) that would not otherwise have been possible. That’s the stock corporation. The idea now is that, by giving up on the idea of retaining all the profit, we can take advantage of opportunities that would not otherwise be possible. So what if we don’t get all the money? We still get money we couldn’t have tapped into before. For example, if we have “pirates” or “free riders” handle the distribution of a product or service, then we can afford to distribute to huge numbers that we would not be able to otherwise. This transition gets activated when the task or the technology allows us to get income (value) in a way that rides on a faster curve than expenses.

My feelings are that:

1. Winning curves come most often when the activity is based on not simply having others distribute a product you create, but on having others participate in the distributed production itself. This Cooper fellow that Harold cites talks a bit about this.
2. We will be better able to recognize the value being enabled when economists start measuring the right thing: time.

Let me explain the latter with an analogy to physics. Newton didn’t say F=m*a. He said F=dp/dt. That is, force grows as the change in momentum with time:
F = d/dt [ m * v] = m*dv/dt + v*dm/dt.
When mass is constant as it is in high-school physics, then the second term goes to zero, and we just get:
F=m*dv/dt = m*a.

I think that by tracking money, economists are missing a term.

Intuitively, I’ve always felt that money was an artificial thing that only made sense in comparisons if the right things were held constant. Loosely, if time really is (equal to) money, then traditional economics works.

Both physics and economics are about describing the limitations on converting potential to other values. The current state of physics is that momentum is fundamentally “at issue” (Heisenberg), and that the speed of light is limited. I feel that in economics, something more fundamental than money is at issue, and that human mortality (not land or resources) provides the ultimate limitation. The limitations of time are what’s key. Money is just one of the terms.

A couple of examples:

1. I expect zero monetary benefit from blogging, yet I consider it to be of value to me by developing and propagating ideas and connecting with people in a way that, given my limited time, I could not do through say, publishing books or delivering college lectures. I’m cheating.
2. In our fight against the transmission company trying to put a power line through our neighborhood, we recognize the value of things that keep the momentum of public opinion going in our favor. Dollars don’t enter into it, but doing things like a Web site to speed distribution of information does.

So, the TV guys are still thinking about blockbusters and killer apps, and trying to keep all the money. A hub-and-choke architecture indeed. Instead, the long-term future will feature an entirely new distributed creative process that allows you to tap value that you couldn’t reach before, whether that value be money or the ability to maximize consumer/producer’s time.

Now, this is all still pretty wishy-washy. Back at the height of the dot-com boom, Harvard B-school press published this level of argument purporting to explain the Killer App in terms of Coase (firms get (only) as big as necessary to minimize transaction costs), Metcalfe (above), and Moore (Gordon Moore’s power of commodity chips doubling every N months, as opposed to Geoffrey Moore’s categorization of market success as requiring sufficient numbers to “cross the chasm” of acceptance, which is probably just as relevant to killer-apps). As the industry tanked, they published a similar level of explanation of how this failed to explain the reality we saw. All this is just anecdote, not proper science. A useful theory, rather than just a general explanation, requires an understanding of when the model applies and when it doesn’t. Reed hints at this with his discussion of saturation and open acknowledgement of the obvious fact that not everything is always either Sarnoff, Metcalfe, or Reed. But I do feel that we’re headed in the right direction. Either way, whether we understand and can predict it or not, our culture is clearly going to change. Big time. Hang on to your socks.