RE: ECON: Everything's free.

Billy Brown (
Tue, 9 Feb 1999 06:51:42 -0600

Eliezer S. Yudkowsky wrote:
>, Jerry Kaplan and Bill Gross - in that order - have just
> kicked the support struts out from under the entire U.S. economy..
> So. It looks like I may have severely underestimated the transformation
> of the U.S. economy. Not only are most of the major middleman sectors
> going to be eliminated, but whatever's left will be given away for free..
> The question now is: Is this kind of economy stable? How can you sell
> ads when there's nothing left to buy? And how can you sell stock when
> all the companies are operating at a loss?

I think you overestimate what is happening here. has simply pioneered a new form of borrowing - they are spending equity to build market share now, but they will have to start making a profit within a few years. Otherwise investors will decide they aren't such a hot buy after all, causing both the stock price and the company to crash and burn. Other companies may emulate them, but they will face the same limitation - stock prices are ultimately based on expectations of future profitability, after all.

Jerry Kaplan and Bill Gross seem to be pioneering a new economic niche - companies that make a profit by rapidly building a high-value customer base, then selling their information. This is really just a variation on what newspapers, magazines and television have been doing for decades. First you figure out a way to attract lots of eyeballs, then you charge advertisers for the attention.

> I'm not entirely sure, but I think this is a bad thing, mostly because
> when CF and complex barter eliminate the ad market and the equity
> market, that's the whole economy down the toilet. Also, it seems very
> probable that the Free Economy will be unstable - it seems far more
> grounded in psychology (rather than a deep ontology) than our
> current market..

I can see how successful CF could make most advertising useless (although I would expect press releases, paid product comparisons, and other modest remnants to survive). However, I don't see how any sort of 'complex barter' system could even be competitive with a modern financial system.

The problem here is the same as that of translating between a large number of data formats. Barter is equivalent to directly translating between each possible pair of formats, which is a O(N^2) problem. Using money is equivalent to translating between each format and a universal meta-format, which is only a O(N) problem. Using computers to facilitate more complex transactions simply amplifies this difference by making N a larger number. Besides, what possible advantage would there be?

> On the whole, the Free Economy may be more stable than the current one.
> High productivity does not destabilize the Free Economy. Whereas with
> this economy, once 10 million people can do the work of 100, the other
> 90 million starve; only productivity-reducing innovations such as
> lawyers, paperwork, the stock market, and Welfare have kept
> us afloat so far.

How does high productivity destabilize capitalism? Very rapid change can do it, by requiring people to shift jobs faster than they can re-train themselves. High productivity just encourages people to do something about desires they never had time to bother with before. Maybe there would be a problem if we were so rich that everyone could live like a rock star without bothering to work, but that's still a good way down the road.

IMO, the real problem will come when automation becomes good enough, and cheap and flexible enough, that it is easier to automate a new job than to hire a human to do it. Then the connection between economic growth and human employment will be severed, and the system is likely to start producing unexpected results.

Billy Brown, MCSE+I