Law in the Internet Society

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Mechanization, Disintermediation, and Service as Currency in the Transitional Economy


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Fixed Cost in Transition

 
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-- By MatthewCollins - 16 Oct 2012
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Mechanization, Disintermediation, and Service as Currency in the Transitional Economy

 
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As we continue in our progression to the internet economy, hallmarked by the marginal cost of information equaling zero, the issue of fixed costs remains. Discussed to some extent in class, I wish to delve further into the issues of fixed cost.
 
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Fixed Cost

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-- By MatthewCollins - 28 Jan 2013
 
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With marginal cost at zero, information goods should be priced at zero; they should be free. But this application of a basic economic principle rubs many the wrong way, not simply current holders of vast information stockpiles. Most people are aware of a person’s investment in a creation and, even if they don’t believe in the need for a return on that investment, are at least aware that the investment needs to be recouped lest their favorite musician/writer/director (“artist” from here on) not be able to create again.
 
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Decreasing Cost of Inputs

 
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What is fortunate is that the investment itself is decreasing. Discussed briefly in class, changes in technology and the organization of the internet economy itself lead to a cheapening of inputs. That technology is decreasing is an idea so near ubiquity that I simply acknowledge its effect here. As an example, as recording technology lessens in price (both hardware and software), a musical act could record and promote (and ultimately distribute) an album for hardly more than the cost of their instruments.
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What Is a Job?

 
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The second major input is of course the labor itself. Artists are putting in time and skilled effort – both salable in the labor market (the former as a Starbucks employee, the latter, in the case of a musician, as a wedding singer). Based on time alone, usually sold at minimum wage, each hour an artist puts into his creation is worth $7.25 in New York. If factoring in the skilled effort – value added is usually reflected with higher compensation – the hours invested would be worth much more in the traditional economic view. This cost is mitigated, however, by the nature of the internet. Although the free software movement is unconcerned with quid pro quo when creating, a free “bartering” system allows for labor inputs to need less compensation. If a person spent a third of their income on other now-free works, that third of income no longer needs compensation and mediating transactions are removed.
 
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Zero Marginal Cost’s Impact on Low Fixed Cost Goods

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“Jobs” have taken a curious meaning in the American lexicon. Jobs are not simply roles we need served in order to tend to a large society with high product/service demand and complicated products and services. Jobs measure a president’s success. Jobs are a way to distribute wealth to the poor. Jobs fill some basic human need to contribute to society (thus maintaining a “strong workforce”). Jobs are the path to one’s personal larger share of society’s resources.
 
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In the traditional model, low fixed cost goods were less frequently produced. If a producer was going to make the same percent margin on either of two goods, he was more likely to begin the complex machinery of production and distribution for a $20 good than a $5 one. So we saw feature films over shorts (notice that shorter video programming – television content – was distributed via communications technology), albums over singles, “AAA” video games over simple ones.
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In many lines of argument relating to America’s recent economic problems, jobs qua jobs are the solution. It is irrelevant that the jobs may be an inefficient use of our human capital; all that matters is that they get wealth (in its economic meaning only) to the poor without nasty “redistribution,” that basic human to work need is filled and a strong workforce is maintained, and people are set on the path of the American dream.
 
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This led to a culture of big budget, tech-forward products designed to appeal to a large audience’s taste. But the internet economy allows for low fixed cost products to get into the market and provides for the possibility of niche tastes being catered.
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But of course, jobs are just roles we need filled. If one primitive human could gather enough food, water, and shelter for the rest of his social group, the others needed not work simply for the sake of working. The resources were there regardless, and they could pursue other things (say, discover fire or invent the wheel). Given that menial work in service of a higher individual has never adequately distributed resources between laborers and owners (and especially isn’t doing so today), that no expressly individual need is fulfilled by performing boilerplate and menial work in service of another, and that the American dream is measurably more existent in countries not named “America” than it is here, creating jobs that aren’t necessary roles does no good. The cavemen are not better off with another of their number hunting, and notably worse off when it costs them the warmth and advancement of fire.
 
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The popularity of the video game Angry Birds demonstrates the impact of marginal cost on these types of goods. The game was designed by a team under 28 for just $128,000 (a figure well above what it could be, but 1/10 of popular console video game Grand Theft Auto IV 's budget, released a year earlier) and was brand new IP. Such a product would be hardly worth it in a world of nonzero marginal cost – it is not substantive enough to sell for much more than $10 (at which price it would not match its $.99 sales figures) and, presuming an identical percent margin per unit, would be less desirable than a $60 game with identical marginal cost. But in the internet economy, this small creation can make its way to consumers’ hands and establish an audience. Although it is true that Angry Birds became a (somewhat inexplicable) cultural phenomenon, had the game found a niche audience of just over 100,000 users the designers could have covered their fixed cost selling the game at the music industry’s price for a song.
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Mechanization and Disintermediation

 
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Impact on Taste

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For some time, we needed many roles filled. But two forces have worked to hamper labor demand in America in recent years – mechanization and its similarly technology-driven brother, disintermediation. The former has gone some way to removing the need for our most basic labor jobs – construction, mining, product assembly – by replacing human workers with machines. Not only does this save human health and dignity, but it’s more efficient – and thus makes purchase price cheaper – to have a $160,000 robot with a ten-year lifespan doing the job of an hourly worker (that’s even assuming equivalent output).
 
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A common response when I run the zero marginal cost argument by my peers is concern. They wonder, in this internet economy, would they still have video games as immersive as Fallout 3? Television as well-written as How I Met Your Mother? Albums as grand as My Beautiful Dark Twisted Fantasy?
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Disintermediation, meanwhile, has done away with even white collar jobs. With the communications potential of network technology, those who formerly brokered the exchange and distribution of goods are no longer necessary. We hardly need the print newspaper when its content can be endless reproduced at zero marginal cost, and its very content-aggregating purpose is less necessary when those closely connected to the news can simply communicate about it directly to everyone instantly. The machination of the record industry – talent evaluators who know what people like and thus what is worth investing in, distribution teams working on the logistics of getting recorded music into consumers’ hands, transactional attorneys – is moot when a musician can record and distribute an album using increasingly cheap hardware, free editing software, and a post to the internet for all to access. Even universities, intermediaries of knowledge, are beginning to face the realities of disintermediation in the internet society.
 
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This is a somewhat conservative response. It is clear from sales data that substantially more people are interested in Angry Birds (over 100 million downloads as of 2011 than in Fallout 3 (just under 4 million as of 10/12). While shows like How I Met Your Mother are popular with young adults, almost anyone in my generation would be dishonest to say incidental YouTube? watching has not replaced some amount of channel-surfing, a trend clearly continuing. And although Kanye West’s expensive-sounding music may still be popular, it’s worth noting that 16-year old rapper Chief Keef’s first self-made single chartered higher than two of West’s four singles this year. That is to say, in sum, that tastes are changing because of the internet economy’s impact on creation and distribution.
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What this means, then, is that many of the roles we used to need filled are no longer necessary. A large part of our economy was creating capital-intensive (human or otherwise) goods and distributing them. As these roles are filled by machines (both robotic and networked) it does us no good to work solely for the sake of working. But in the misunderstood concept of “jobs” there lies a kernel from which an approach to finding roles in the transitional economy can be created.
 
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Taste in Celebrities

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A New Way to Make a Living

That idea: that humans have a desire to uniquely contribute. Not worded so by those who understand working qua working to be a good thing – those who think that any contribution is fulfilling – the idea that humans desire to contribute still lies at the core of making a living in the internet society. There is, of course, no fulfillment in simply doing a mechanical task, being a replaceable piece earning you and your family a small slice of resources in hopes of a promotion. That promotion, though, offers the potential of fulfillment, not simply an increased share of resources; it offers the possibility for distinctly human and distinctly individual decisions and behaviors to have meaningful ramifications.

Humans don’t simply wish to contribute – they crave to contribute in a way that is not only unique to them as humans but unique to them as an individual member of the species. By offering unique services, humans can work as individuals offering something only they can offer. In doing so, they can earn compensation not present for endlessly reproducible goods with average costs fast approaching zero. Eben has discussed how Madonna now works with LiveNation? , a concert promoter, as opposed to a standard record label; although her music “product” has an average cost approaching zero, her performances are still experiences impossible to capture and distribute. Lawyers are more valuable as counselors than as transaction costs or knowledge banks as websites like legalzoom.com and Google become even better embraced. Teachers are better-suited to add value to information rather than simply broker its distribution to students.

In economic terms, this is more efficient – resources are not allocated improperly and goods can be as cheap as they should be. In sociological terms, individuals are acting in ways more fulfilling to them, the ultimate goal of any society (if some read economic efficiency as the means to that goal). And in temporal terms, this economy can bridge the gap to a more complete realization of the sociological potential of network technology.

 
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Chief Keef’s “I Don’t Like,” however, became popular after a Kanye West remix of it. West himself is one of a number of celebrities – among them Neil Patrick Harris, Shaquille O’Neil, and Kim Kardashian – who successfully transitioned into the internet age by understanding its attention economy. Although in some ways reminiscent of the retardataire stars of the 90s – impeccably perfect to today’s eyes – they draw influence from “internet stars” like Jenna Marbles and Tao Lin, whose appeal is in their openness (however genuine) and connection to the audience. The internet is causing a change in taste of idolized personalities, a good that requires no "distribution" -- just attention.
 
You are entitled to restrict access to your paper if you want to. But we all derive immense benefit from reading one another's work, and I hope you won't feel the need unless the subject matter is personal and its disclosure would be harmful or undesirable.

MatthewCollinsFirstPaper 1 - 16 Oct 2012 - Main.MatthewCollins
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Fixed Cost in Transition

-- By MatthewCollins - 16 Oct 2012

As we continue in our progression to the internet economy, hallmarked by the marginal cost of information equaling zero, the issue of fixed costs remains. Discussed to some extent in class, I wish to delve further into the issues of fixed cost.

Fixed Cost

With marginal cost at zero, information goods should be priced at zero; they should be free. But this application of a basic economic principle rubs many the wrong way, not simply current holders of vast information stockpiles. Most people are aware of a person’s investment in a creation and, even if they don’t believe in the need for a return on that investment, are at least aware that the investment needs to be recouped lest their favorite musician/writer/director (“artist” from here on) not be able to create again.

Decreasing Cost of Inputs

What is fortunate is that the investment itself is decreasing. Discussed briefly in class, changes in technology and the organization of the internet economy itself lead to a cheapening of inputs. That technology is decreasing is an idea so near ubiquity that I simply acknowledge its effect here. As an example, as recording technology lessens in price (both hardware and software), a musical act could record and promote (and ultimately distribute) an album for hardly more than the cost of their instruments.

The second major input is of course the labor itself. Artists are putting in time and skilled effort – both salable in the labor market (the former as a Starbucks employee, the latter, in the case of a musician, as a wedding singer). Based on time alone, usually sold at minimum wage, each hour an artist puts into his creation is worth $7.25 in New York. If factoring in the skilled effort – value added is usually reflected with higher compensation – the hours invested would be worth much more in the traditional economic view. This cost is mitigated, however, by the nature of the internet. Although the free software movement is unconcerned with quid pro quo when creating, a free “bartering” system allows for labor inputs to need less compensation. If a person spent a third of their income on other now-free works, that third of income no longer needs compensation and mediating transactions are removed.

Zero Marginal Cost’s Impact on Low Fixed Cost Goods

In the traditional model, low fixed cost goods were less frequently produced. If a producer was going to make the same percent margin on either of two goods, he was more likely to begin the complex machinery of production and distribution for a $20 good than a $5 one. So we saw feature films over shorts (notice that shorter video programming – television content – was distributed via communications technology), albums over singles, “AAA” video games over simple ones.

This led to a culture of big budget, tech-forward products designed to appeal to a large audience’s taste. But the internet economy allows for low fixed cost products to get into the market and provides for the possibility of niche tastes being catered.

The popularity of the video game Angry Birds demonstrates the impact of marginal cost on these types of goods. The game was designed by a team under 28 for just $128,000 (a figure well above what it could be, but 1/10 of popular console video game Grand Theft Auto IV 's budget, released a year earlier) and was brand new IP. Such a product would be hardly worth it in a world of nonzero marginal cost – it is not substantive enough to sell for much more than $10 (at which price it would not match its $.99 sales figures) and, presuming an identical percent margin per unit, would be less desirable than a $60 game with identical marginal cost. But in the internet economy, this small creation can make its way to consumers’ hands and establish an audience. Although it is true that Angry Birds became a (somewhat inexplicable) cultural phenomenon, had the game found a niche audience of just over 100,000 users the designers could have covered their fixed cost selling the game at the music industry’s price for a song.

Impact on Taste

A common response when I run the zero marginal cost argument by my peers is concern. They wonder, in this internet economy, would they still have video games as immersive as Fallout 3? Television as well-written as How I Met Your Mother? Albums as grand as My Beautiful Dark Twisted Fantasy?

This is a somewhat conservative response. It is clear from sales data that substantially more people are interested in Angry Birds (over 100 million downloads as of 2011 than in Fallout 3 (just under 4 million as of 10/12). While shows like How I Met Your Mother are popular with young adults, almost anyone in my generation would be dishonest to say incidental YouTube? watching has not replaced some amount of channel-surfing, a trend clearly continuing. And although Kanye West’s expensive-sounding music may still be popular, it’s worth noting that 16-year old rapper Chief Keef’s first self-made single chartered higher than two of West’s four singles this year. That is to say, in sum, that tastes are changing because of the internet economy’s impact on creation and distribution.

Taste in Celebrities

Chief Keef’s “I Don’t Like,” however, became popular after a Kanye West remix of it. West himself is one of a number of celebrities – among them Neil Patrick Harris, Shaquille O’Neil, and Kim Kardashian – who successfully transitioned into the internet age by understanding its attention economy. Although in some ways reminiscent of the retardataire stars of the 90s – impeccably perfect to today’s eyes – they draw influence from “internet stars” like Jenna Marbles and Tao Lin, whose appeal is in their openness (however genuine) and connection to the audience. The internet is causing a change in taste of idolized personalities, a good that requires no "distribution" -- just attention.


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Revision 3r3 - 23 Aug 2014 - 19:31:21 - EbenMoglen
Revision 2r2 - 28 Jan 2013 - 05:47:41 - MatthewCollins
Revision 1r1 - 16 Oct 2012 - 15:34:28 - MatthewCollins
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