The Tragically Neglected Economics of Abundance

March 06, 2005

By Chris Anderson/The Long Tail...

Blogger Reference Link http://www.p2pfoundation.net/Transfinancial_Economics

I'm preparing for my talk on Long Tail economics at O'Reilly's Emerging Technology conference in ten days, and I've run into a slight problem. The Long Tail is all about abundance: the economic effects of infinite shelf space. Unfortunately, neoclassical economics has virtually nothing to say about abundance. Indeed, the economics of abundance is almost exclusively the domain of extropians, a few other transhumanists, and science fiction writers. How can this be?
Well, for starters the classic definition of economics is "the science of choice under scarcity". That's a warning sign right there. From Adam Smith on, economics has focused almost exclusively on behavior within constraints. My college textbook, Gregory Mankiw's otherwise excellent Principles of Economics, doesn't mention the word abundance.  And for good reason: if  you let the scarcity term in most economic equations go to nothing, you get all sorts of divide-by-zero problems. They basically blow up.
But clearly abundance (AKA "plentitude") is all around us, especially in technology. Moore's Law is a classic example. What Carver Mead recognized in 1970 when he encouraged his students to "waste transistors" was that transistors were becoming abundant, which is to say effectively free. The shift in thinking from making the most of scarce computing resources to "wasting" cycles by, say, drawing windows and icons on the screen led to the Mac and the personal computing revolution. To say nothing of the scandalous profligacy--a supercomputer used for fun!--of a Playstation 2.
We also have similar abundance laws working in storage and bandwidth and virtually everything else digital. Outside of technology, the green revolution brought abundance to much of agriculture (so now, to prop up prices, we pay farmers not to plant their crops).  And what is the motive force behind China and India's rise if it is not abundant labor, allowing them to, in a sense, waste people?
Even ideas can on some level be considered abundant, because they can propagate without limit due to their "non-rivalrous" nature (a feature they share with fire and digital media). As Thomas Jefferson, the father of the US patent system, put it, "He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me."

More than a decade ago George Gilder, the apostle of abundance, offered a good way to think about all this. In an interview (in Wired, as it happens) he said:

"In every industrial revolution, some key factor of production is drastically reduced in cost. Relative to the previous cost to achieve that function, the new factor is virtually free. Physical force in the industrial revolution became virtually free compared to its expense when it derived from animal muscle power and human muscle power. Suddenly you could do things you could not afford to do before. You could make a factory work 24 hours a day churning out products in a way that was just incomprehensible before the industrial era. It really did mean that physical force became virtually free in a sense. The whole economy had to reorganize itself to exploit this physical force. You had to "waste" the power of the steam engine and its derivatives in order to prevail, whether in war or in peace."

That suggests a way to put this in an economic context. If the abundant resources are just one factor in a system otherwise constrained by scarcity, they may not challenge the economic orthodoxy. They are then like learning curves and minimized transaction costs--drivers of production effeciency that serve to lower prices and increase productivity but do not upend the economy as a whole.
And, indeed, the abundance of the Long Tail, for all its power, is surrounded by such constraints. Although there may be near infinite selection of all media, there is still a scarcity of human attention and hours in the day. Our disposable income is limited. On some level, it's still a fixed-pie game. Offer a couch potato a million TV shows and they may end up watching no more television than they did before; just different television, better suited to them.
By analogy, Moore's Law just shifted the scarcity bottlenecks from the CPU to the user. Now the limits of productivity are not instructions per second but ease of use, which is why that's where those transistors are being so wastefully deployed on the desktop today. The consequence is that our productivity increases, a phenomenon entirely compatible with economic theory. But that happens at a pace of 2-4% a year, not the annual 60-70% increase of Moore's Law. In other words, there are still limits to growth.
There's still a lot to be said about the economics of the Long Tail, from how the shape of the head changes as the tail opens up to the question of whether tails have a nested heirarchy of mini-tails. I hope to have enough data to answer those questions by Etech, or at least phrase them well enough so that I have the answers in the book. I'll certainly be further along than I am today; I've got some interviews with good economists next week, and they're sure to be of help.
In the meantime, it's worth noting that the fact that economics doesn't have a good theory for something doesn't mean that it isn't real. For instance, economics is still struggling to explain growth itself. Seriously.