Tag: economics

Intangible Assets

The portion of the world’s economy that doesn’t fit the old model just keeps getting larger. That has major implications for everything from tax law to economic policy to which cities thrive and which cities fall behind, but in general, the rules that govern the economy haven’t kept up. This is one of the biggest trends in the global economy that isn’t getting enough attention.

If you want to understand why this matters, the brilliant new book Capitalism Without Capital by Jonathan Haskel and Stian Westlake is about as good an explanation as I’ve seen. They start by defining intangible assets as “something you can’t touch.” It sounds obvious, but it’s an important distinction because intangible industries work differently than tangible industries. Products you can’t touch have a very different set of dynamics in terms of competition and risk and how you value the companies that make them.

Haskel and Westlake outline 4 reasons why intangible investment behaves differently:

It’s a sunk cost. If your investment doesn’t pan out, you don’t have physical assets like machinery that you can sell off to recoup some of your money.
It tends to create spillovers that can be taken advantage of by rival companies. Uber’s biggest strength is its network of drivers, but it’s not uncommon to meet an Uber driver who also picks up rides for Lyft.
It’s more scalable than a physical asset. After the initial expense of the first unit, products can be replicated ad infinitum for next to nothing.
It’s more likely to have valuable synergies with other intangible assets. Haskel and Westlake use the iPod as an example: it combined Apple’s MP3 protocol, miniaturized hard disk design, design skills, and licensing agreements with record labels.

None of these traits are inherently good or bad. They’re just different from the way manufactured goods work.

more of the economy is moving to intangible assets

Rural E-Commerce

Shang was from a family of peanut farmers in rural Henan, and found village life slow and constricting. Men married at 18 and became fathers at 20. “You can see the end of your life at its beginning”. As soon as he finished high school, he left to join the Army. One of his teachers had given him a valuable piece of advice: “The future belongs to those who know English, computers, and their way around a vehicle.” Shang knew that his English was hopeless and his computer skills average at best. That left driving, without which his new career would have been out of reach. On the sidewalk, Shang’s phone rang. Someone who had been planning to pay in cash had suddenly realized that he didn’t have enough on hand. Shang arranged to make the delivery another time. This wasn’t unusual with younger customers, adding that almost everyone he delivered to was under 40.

4x Wealth from Global City

There were time and motion studies in the early 20th century which found that if a city could have 2x the population then productivity would increase and per person income would increase by 7%. Currently the world is 56% urbanized. Only 10% are in megacities with population over 10m. 100% urbanization would 2x world GDP with increased productivity. Another 30% boost in productivity would come from having everyone in megacities.

Capital In The 21th Century

Contrary to the popular consensus today, the American Dream was very real for most of America’s history. This was less due to American ideals and institutions, and more the fact that America (as a new country) had less time to accumulate a rentier class, which takes a couple generations for the fortunes to really multiply. And as a country with a very high population growth rate (remember the average colonial New England family had like 10 kids), any wealth that did get accumulated was quickly diluted over a bunch of children instead of inherited as a chunk. This was at least true in the North and frontier – the South, which inherited a lot of the worst parts of the 1600s English upper-class, got a society along the lines of the European aristocratic model with rentier plantation owners. Traditional models of labor-capital split generally fail to capture this because much Southern wealth was in the form of slaves, ie labor turned into a form of capital, which confuses the models. But as for the rest of the country, Piketty approvingly quotes Tocqueville’s description of America as “a land without capital”.

Medicine Cost Disease

Cheap-O Psychiatry wouldn’t have an office, because offices cost money. You would Skype, from your house to mine. It wouldn’t have a receptionist, because receptionists cost money. You would book a slot in my Google Calendar. It wouldn’t have a billing department, because billing departments cost money. You would PayPal me the cost of the appointment afterwards. How little could Cheap-O charge? Suppose I wanted to earn an average psychiatrist salary of about $200K – the whole point of cost disease is that we should be able to lower prices without anyone having to take a pay cut. And suppose I work a 40 hour week, 50 weeks a year, each appointment takes 15 minutes, and 75% of my workday is patient appointments. That’s 6000 appointments per year. So to make my $200K I would need to charge about $35 per appointment. There would be a few added costs – malpractice insurance would probably run about $10K per year – but this is the best-case scenario.

$35 per appointment isn’t bad. Most existing cash-only psychiatry practices charge at least $150 per (30 minute) appointment, so we would be less than a quarter of the going rate. I think a lot of insurances charge a $40 copay per psychiatrist visit, so even uninsured Cheap-O patients would be paying less cash than insured patients anywhere else. Create Cheap-O style psychiatry offices, primary care offices, etc, all around the country, and maybe (aside from catastrophe insurance, which should be cheap) having health insurance would no longer be such a big deal.

UBI vs Basic Jobs

In my ideal system, we would propose some sort of inherently progressive tax at some fixed %, and say that the basic income was “however much that produces, divided by everybody”. That means that as the economy grows, the basic income increases. At the beginning, the basic income might not really be enough to live off of (especially if I got my calculations wrong). As we get more things like robot labor and productivity increases, so does the income. By the time robots are good enough to put lots of people out of work, they’re also good enough that X% of what the rich robot-owning capitalists make is quite a lot, and everybody can be comfortable.

Then various Congresspeople can debate at what point the UBI is large enough that we can eliminate various welfare programs. On the one hand, welfare programs can be sticky, so we might worry they would be overly cautious. On the other hand, many Congresspeople are Republicans, so they probably wouldn’t be.

Dematerialization

Andrew McAfee argues that the Earth Day environmentalists correctly diagnosed the problem, a worsening environment, but were wrong about the solution, degrowth. In fact, the drive to reduce costs by making better use of resources has led to a dramatic decrease in resource use even as production has increased, a dematerialization. Poverty not prosperity is the enemy of the environment.

Bryan Caplan

We talked about whether any single paper is good enough, the autodidact’s curse, the philosopher who most influenced Bryan, the case against education, the Straussian reading of Bryan, effective altruism, Socrates, Larry David, where to live in 527, the charm of Richard Wagner, and much more