I am not an economist. I am a software guy. A computer scientist. And while I have not spent my life thinking about economic trends, I have spent an enormous amount of time thinking about complexity. And I know it when I see it. Insane complexity.
We have a market that is driven by debt that no one understands, and by trading activity run by software programs that no one understands. We have created a hive. It operates with a collective mind, but a mind like that of an adolescent or teenager, that cannot be reasoned with. No, it is worse than that. The hive is not even a collection of just people, but also of very inhuman software programs that operate based on rules that are, when executed en masse, totally unpredictable.
It is truly HAL from A Space Odyssey. Our economy is on autopilot and no one knows where the plane is going. And when it gets there, we won’t know why. We will only be able to look back retrospectively to figure out the details using forensic techniques.
But while the details are unclear, the psychology driving the big pattern is obvious: we all want something for nothing.
The truth is our economy has been in trouble for a long time. It is the “too smart for the room” guys that, at some point in, I would imagine the 90’s, figured out how to make money without actually creating any value.
The boom in the financial community economy was always a sham because it produced absolutely nothing. The boom in the real estate market was a sham because it was based on nothing.
There is no reason that moving money from column A to column B should be so disproportionately valuable. In truth it really isn’t that valuable, but we have been willing to pay a lot of money to people who we thought understood what was going on and could protect us from that which we did not understand. But they didn’t understand either. Hence for example, the AIG collapse.
In truth we should be making things that add real value to people’s lives. But in this country we are making less and less as we export real production to countries like China.
But the chickens are coming home to roost.
Ironically, while we are still incredibly expert at producing intellectual property, there is a political and social movement led by wackos like Richard Stallman, and cheer led by wackos like Mike Masnick that want to entirely devalue one of this country’s last great exports by arguing against any protections for intellectual property, and by arguing that even the concept of intellectual property is unjust.
In the tech economy, in the last five years we have produced very little that actually makes any of our lives better. Twitter is cute, but economically unproductive. Ditto Friendfeed. Ditto (fill in the blank with your favorite social media platform). These products are economically neutral. And that is not a good thing. To those of you that would argue with me on this point, I defy you to explain the real world economic value/impact of the social media revolution. How does it help increase the real world GDP even one little tiny bit. I dare you. I double dare you. You can’t do it. Because if all of it went away, the world would be the same the next day. And I don’t want to hear any crap about how we are going to “figure it out”. The time for figuring out how to create value out of economically unproductive concepts has passed. We need to rethink some things.
Just for context, please remember that there is actual precedent for creating value for people with technology. Think of word processors, databases, spreadsheets, web browsers, web publishing, search engines, email, etc. Social media is the first major computing revolution that as far as I can tell, has produced essentially nothing.
But the social media craze is perfectly fitting in a society where producing nothing has been in fashion for years. Mortgages without credit. Profit without product. Riches without risk. Oops.
The truth is that as things have gotten more and more complex it has become easier to abdicate responsibility for understanding. And that has lead us to this incredibly insane place where we can actually believe that things that produce no real value are somehow valuable. Because even if *we* can’t understand it, we assume someone else must. But it just isn’t so. The truth is it is likely if you can’t understand it, no one else can either.
We need to take things back into our own hands. There is safety in really understanding what you are holding in your hand. We need to stop trying to trick each other into buying the pig in the poke. We need to simplify. We need to get back to producing sound products that really do matter. This is as important in the financial community as it is in the tech economy. Because its really all the same fundamental problem. We want to believe you can get something for nothing and it just ain’t so.
Tuesday, September 30, 2008
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19 comments:
I think a lot of this also relates to your post on education yesterday. The trend of decreasing engineering, math and science graduates over the past decade has further exacerbated the problem of reduced value production.
> But the social media craze is perfectly
> fitting in a society where producing nothing
> has been in fashion for years.
The decline of industry in the US is a serious problem. You can't expect to run an economy forever on the basis of other countries relying on the value of the dollar.
Of all our supposed allies and competitors, ironically it's arguable that our best supporter has been China, since they've invested so heavily in our currency during these last few decades of the fake service economy. But if the Yuan and the Euro take over as leading currencies, we'll really be in trouble.
If only it wasn't harming so many people, one might almost think of the credit crash as a blessing in disguise, perhaps refocusing attention on producing things that are actually valuable, but in fact the harm is so great that the silver lining is vanishingly thin, and tarnished.
RMS may be something of a wacko, but on the other hand he just came out with a typically over the top rant against cloud computing and SaaS that has some kernels of truth hidden amongst the peroration.
PS: What's up with this blog software -- no preview mode? I hope the link doesn't have a typo...
Hi Hank!
Excellent post. I recommend you reading "Fear of Freedom" by Fromm. It's kinda boring but gets reaaally interesting by the middle: It explains why is safer for most people to not think at all. To not make decisions at all.
Now, regarding that social media hasn't produced any value, couldn't agree more. This seems as "The era of entertainment", but no one has payed for the ticket cause all of it is free.
As a graphic designer, I trully understand the incredible danger that comes of ignoring and violating intellectual property.
God help us from those freaks!
Anonymous,
Thanks. And yes, this blogging software does suck. Believe it or not, its Google's Blogger system. It blows. I am in the process of moving to wordpress, which I blogged about a week or two ago. But there is a lot of stuff to figure out in the transition. Sorry for the inconvenience.
By the way, in the RMS rant, what do you think are the truth kernels?
Excellent post. I've been writing on this topic for a while, and I really believe that the recession we're currently going thru will separate the wheat (value producers) from the chaff.
Simply put, I believe that many of the services that have been insanely hyped over the last several years (think social networks, Digg, Twitter) are merely features which will eventually add value to larger products. They are not, in and of themselves, value producers--they are novel proofs of concepts of new software features.
The kernel of truth in the RMS rant has to do with ownership and control and the flexibility you get when you can freely alter the source application that implements your business or commercial system.
Since the dawn of time, or at least the dawn of the software industry, every firm has sought to lock customers into that one ISV's (or now service provider's) realm. Whether it's IBM, or SAP, or salesforce.com, once you buy in for however many zillions of dollars, you're stuck until something breaks badly and new CIO comes in with a new zillion dollar bundle to spend.
SaaS and cloud computing is to some extent a legitimate way of reducing costs and providing dynamic and flexible capabilities. But as RMS suggested, it can also be a way of holding customers to ransom. The ultimate "sticky" service is one you can't escape from even if you want to.
"Nice enterprise data you've got there, be a shame if anything happened to it."
What is wrong with entertainment? Social Media provides new forms of interacting with your friends which in the end is a leisure time activity. Nothing wrong with that - I would even argue that it provides value to the individual and hence to society.
Following your argument you would regard TV, literature (fiction) etc. as providing no value?
As with TV & radio & online media, social media provides another channel to market products and services, which is crucial for the real economy selling real goods (with hopefully real value) to consumers.
Nicely put, and this general theme is why I have this 37signals slide on my wall at work and in my home office.
Interesting comments from anonymous, BTW: most of the freetards are so intent on spreading their religion that they obscure essential truths in dogma.
Along similar lines as fabiansiegel, think of the spread of knowledge. Without Reddit I never would have found 75% of the interesting stuff and bloggers I read, including you, Hank. So the question is whether these platforms will ultimately be an advertising outlet or whether they can charge a fee. If they do, the value they create will be recognized in the GDP.
Fabiansigel and Travis,
I am not at all against entertainment. If you look back in my posts you will see that I am a huge defender of the value of music for example. But music and movies and books are still things that people are willing to pay for. My point is that people do not seem to be willing to pay for these social media services and in most case it makes no sense to try to charge because you need scale for the service to have value and you cant get to scale by charging.
But on the advertising side, there are very few social media services that seem to be able to generate *any* advertising revenue, and those that can, including facebook for example, do so at extremely low CPMs. The reason for this is that the ads do not capture enough attention and they do not have a context which allow them to be targeted in the way that search ads do. So while a few will get to scale and be able to make a paltry sum (I consider facebook's revenue stream paltry relative to its size) most simply will not be able to make it. As one commenter said above I think these social services are for the most part features that make make a money making service more valuable, but they are by and large, not stand alone businesses. But particularly in these times, most companies are not interested in services that add features but not substantive revenue potential.
There are about 300 billion people in the U.S.A. and communication amongst them is difficult. For example, how do you get a potential employer together with a potential employee? This is a tough problem that social software helps solve. It is hard to monetize as social software alone, but it does provide net value to the country and to the world.
Jim,
I would agree that there is perhaps some economic value when tied to something else. I would even agree that there is *some* value by itself. But in relative terms the problem is the size relative to the investment in the space.
Nothing of value produced in the last five years? How about Wikipedia?
Interesting post. First of all, I agree wholeheartedly with your indictment of the US financial system and its obsession with financial engineering. It has been exposed as nothing more than a highly elaborate ponzi scheme. However, that really is a policy issue and will have to be dealt with via politics.
Secondly, I will take you up on that double dare... kind of. I'm not an economist either, but it is a plain fact that any investment in businesses resulting in capital expenditures and job creation will increase economic output. That doesn't necessarily mean that the output of the social media businesses directly result in increased GDP, but since the US gross output is composed primarily of consumer spending you could say the same about a lot of business sectors. Have car washes increased GDP?
Whether or not an investment in say, facebook, was particularly wise vs. an investment in what we all would agree has tangible value, like say a new power plant, is something we (generally) let the markets sort out. Besides, where else would you have the thousands of bright-eyed stanford grads and their ilk working? Wall street?
Lastly, "over investment" as you put it is a loaded term. There is a very serious argument to be made, and made very well by Daniel Gross in this article http://www.slate.com/id/2165929/, that investment bubbles (not the financial kind) are actually necessary precursors to new and vital industries. I would argue that the evidence is clear that they are part and parcel of the creative destruction process.
Ah here we go again, once more you make derogatory comments against people who's views you don't agree with in order to bolster your oft inaccurate claims. Not only that but you further confuse the situation by refering to intellectual property which is not a Thing but a series of laws and legal rights surrounding copyright, trademark, patents, etc.
Once more I say: I think you should read more of Stallman's work before you comment on it. You obviously have the wrong end of the stick.
More often than people realise one of Stallman's main calls is to stop people using the term Intellectual Property as it is a misnomer reflecting instead several distinct and separate classes of law: patent, trademark, etc. In his own words "[the term] operates as a catch-all to lump together disparate laws [which] originated separately, evolved differently, cover different activities, have different rules, and raise different public policy issues."
Furthermore, it is the patent and copyrights that have exacerbated misery and disadvantagement in developing countries; remember the huge battle to try and let African pharmaceuticals produce their own version of an existing but unaffordable HIV drug for Africans with HIV. Similar cases have occured in India.
I'm not saying there should be zero rights for the creator, but these rights do not equate to being for the common good. Nor does Stallman, otherwise he'd just release everything without license. Arguably some of the terms of some of the licenses he has produced are quite restrictive (but usually only if you want to sell your product), however many other open source licenses exist to meet your needs while being far less restrictive than your standard proprietory copyright agreeement. These cover everything from software, books, music, and even integrated chip designs.
In my eyes any business that uses copyright and patents to subjugate its customers and/or supress its competion is being protectionist to the degree of imperialism. Whether this is the music business or drugs companies, its time for us to rethink our ideas about the free sharing of ideas, not tighten up the DMCA and copyright laws, or telling users what they want ("no you can't have social networking sites because they generate no direct income, doesn't matter that the webstore got double the hits because we're offering something for free. Nor does it matter that it could make us look more established so we can sell out for a couple of million")
I think that the weakness you're seeing could more adequately be described as a lack of good capitalization strategies. I posted a resume to Dice.com and found an employer. Now that is value to me, my employer, and national GDP, but I never gave Dice or any of it's advertising lines a penny! Dice made no money off me directly, and if they wanted to charge me so much as 5 dollars, I would have used something else. I could easily find that same value somewhere else.
I enjoyed this post. You make valid points about the lack of productivity of a lot of web apps. I might add, the developers often overstate their importance in the grand scheme of things. Those of us who are regular web consumers might notice or care, but the 'average' person -- who represent part and parcel of the global economy -- could care less.
Making web apps more relevant to ordinary people would be a huge step forward in developing products that matter.
People like Stallman may be a bit whacky and take their ideas too far, but keep in mind that the real world of open source is very much free-market driven and is inherently based on IP protections. With OSS, companies voluntarily give up *some* of their protections in order to realize a net gain through collaboration. Part of the reason they are willing to do this is that the licenses enforce fair-play among the parties involved. This is pragmatically no different than cross-licensing agreements -- but without the bureaucratic overhead and enormous legal expenses.
Since you are talking about real vs. fake value in products and services, consider that open source significantly reduces the amount of duplicate effort in the software industry. Duplicate efforts in producing (basically indistinguishable) intangible goods are detrimental to production efficiencies. So open source helps to get the costs of the boring commodity stuff out of the way. This frees up more resources for true innovation on top of it, much of which is often a proprietary product or service. One could even argue that open source is a free market response to excessive copyright lengths. IP only promotes innovation if protections are reasonably short. (The founding fathers of the US understood this and wrote the Constitution accordingly) Otherwise, it quickly becomes impossible to innovate because every idea is grandfathered by an earlier idea, perhaps centuries old, that you have to pay rights for before you can add your own contribution.
Where Stallman goes wrong is in insisting that *everything* be free from day one. In reality, there will always be a free-market-regulated balance of free and proprietary software until the day when AI lets computers write their own software.
According to your logic, we should not have telephones because providing the service of allowing people to talk to each other at a distance is not economically productive. After all, if all telephones suddenly disappeared, people would still be able to talk to each other.
"Social media" is just another step in the evolution of communication technology. Some like it, some hate it. It'll eventually be replaced by something better. Who cares.
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