Saturday, June 18, 2011

Internet: Epitome of Anarchy

I was cruising over at the Mises Forums and made the following post about Internet Freedom and regulation. There is concern that the Congress will pass a law allowing people who link to websites that are accused of copyright infringement to be prosecuted under felony charges. Certainly it is absurd and virtually impossible to enforce. Here are my thoughts on internet freedom and the economics of the internet.

First, the internet doesn't fall under normal economic circumstances. Scarcity is a non-issue. Replication of data is free and instant.  Think about that.  Transmitting data is not free, but it takes little effort and replaces traditional physical distribution, I will go through that later.  The only thing left is development.  Development being the actual building of the data (music, movies, games, books, research).  Things like piracy will, in the near future, force a decline in the revenues of publishers and by extension developers. (This goes for music and movies and books as well). The Mises Institute has the right idea with books. Everything, as far as i know, that they publish themselves is on their site for free (I've downloaded hundreds of books and essays from them for my Kindle and buy when i can. Yes i do do it).

Current intellectual property laws are absurd and were written for machine production, or physical production in general, not personal computer data, but that is not how the governments of the world look at it.  They think that if the big corporations decline in value that it is a sign of economic weakness, not for the economic growth which it, in reality, is.  People are making more economic choices because they can.  They are acting because the means of saving, or economic choice, has been made more efficient and therefore more accessible.  The media data that they purchase on the internet, for 1/5th the price of the retail brick and mortar version, frees up the 4/5ths of their money that they would have spent on the same thing.  So, that savings is dispersed elsewhere in the economy and furthers the consumer's standard of living; albeit in a new and more economic direction.  They now have what they would have bought anyway, but paid dramatically reduced prices.  My contention, which is fairly obvious, is that this relationship of scarcity of production goods and super abundance of digital data files, will decrease overall production of the digital data physical equivalents and that the money will be spent on physical luxuries overall, in whatever form they may take.

This may mean that some familiar retail stores go out of business.  The volume of sales of physical goods that are available in digital format will erode the revenues and profitability of brick and mortar stores that make their money around these formats.  We've already seen this, for the most part, in the corporate music industry.  They still make sales, but they are in constant decline and will never recover.  Movie production companies have yet to suffer this fate.  Movies themselves require much more effort and labor be put into their production and this money is usually made back before the it leave the theater.  Maybe, in the future, movies that don't at least break even, before they leave the box office, won't see mass DVD releases, but only online sales.  Retail video games will go the same route as movies, but they will be more able to cope with the declines in revenue.  The game developers that have been successful in the indie development world are setting the stage that all computer software developers will mimic in the near future.  The difference, again, is that indie games are less likely to see mass retail distribution.  So it would follow, that in the future there will be dramatically reduced quantities of the different physical copies of music, movies, and games for sale which would imply that retail stores will be proportionately smaller.  There will simply be less goods that are able to be produced to put on retail shelves.  This is what the internet will do to the "retail service sector" economy in the U.S.  Laws prohibiting people from sharing information are illegitimate and interfere with people's ability to make economic choices.  Because of copyright laws and illegitimate intellectual property regulations the U.S. economy will further spin its way down the toilet.

These new laws are grasping at straws to prevent the big name music, movie, and game publishers from going bankrupt in the long run.  They won't be able to maintain their enormous amount of money so they legislate against options on the internet as a way of making their shit relevant.  All media should basically be free on the internet anyway. Freeware and Shareware (pay if you want) has been around ever since Windows 3.1 and that is the way the internet will equilibrate after the ENTIRE bubble has deflated (assuming the government and our wise overlords let it/us).  

The laws show the true nature of the 'justice' system and the federal regulating agencies as the hyper-corporate fascist ideologues they all are at heart.  "Fascism" or "Corporatism" is, for the most part , but among other things, the form of economy that used to be called "Mercantilism."  Which has, throughout history, been the dominate method of economy.  It is what states strive for; the economy of an empire.  The only difference here is the focus on money rather than exports.  Exports at least ensure there is domestic production occurring.  So in this way, mercantilism would be a little bit better than the twisted system the U.S has, in which, all trade is held together by further expenditure of credit.  The banks underwrite corporate development and keep specific information away from the market.  This allows banks to direct the flow of corporate funds and this allows them to influence the expansion of virtually all economic and governmental activity, assuming debt is involved.  And sometimes they end up getting the nation state armies to go to war over their interests.  Internet regulation produces through law artificial scarcity of an infinitely abundant good. When lobbied for by big name corporations and financial interests, it becomes a modern example of this corporate/government scheme.  In a free market, the companies can't regulate each other, but if they can co-opt a monopolistic lawmaking institution, they can.  This usually results in unofficial cartels formed through the government regulatory agencies, in the guise of State or public interest, and this is why we see this kind of stupidity, corruption and, frankly, overall irresponsibility of our leaders to be so ignorant of the mal-intent behind these kinds of legislation.

The way I see it, the corporations are trying to create situations of asymmetric information flows so that people will rely on them for things. And it really is as simple as that. Yes, we need to buy things in order for production of the software, music, and movies to be continued, but the reality of it is that it will just have to be done for cheaper. What is referred to today as "user-made" will soon just mean "made" because there will be no centralized or dominant forces of development. (This all excludes the machines that the programs run on, obviously. I don’t know anyone who can pull together the silicon, copper, lasers, etc. that are required for the creation of a microprocessor or a cell phone).

Streaming music and videos is a joke if you plan on "owning" the material for use on your own terms, or simply if the internet is out and you've "purchased" it. The only way this can be circumvented is if the EULA's explicitly say, "YOU DO NOT OWN THIS," which, of course, some of them do. Others allow you to copy the disc or make image files for backup purposes.  The only cost for anything on the internet (which is just INFORMATION) is the infrastructure to bring the internet into your home. You know, the monthly bill you pay to Comcast or Verizon et al. Software development and data distribution don't need to be centralized.  Unfortunately, the incessant push for centralization comes to us in the form, courtesy of some of the biggest names in technology, in the form of the cloud.
The 'cloud' concept is also a desperate way to keep control over the internet and personal information and make the end-user dependent. "Store your data with us on our servers that way if they go down or get hacked your PC or tablet or laptop is worthless!" Yea, good thinking Jobs... Make my PC, "just a device." Sure thing, Google... Right on, Amazon... thanks for keeping my privacy in mind while selling all of my info to...whoever (or giving it to the government).  Really, the cloud concept is similar to old neighborhood phone lines; if someone picked up the phone in their house and some one down the block was on at the same time it would be like a chat room.  You could hear other households conversations without them knowing.  It is very similar to hacking.  The only difference being, that it was once actual chatting.  They even claim that this will cut down on computer and software prices.  Trying to make computers cheaper by not giving them substantial hard drives is a crazy idea.  Clearly, the big name tech companies don't want us storing our own data.  Because we can distribute it outside of their observation.  If they are trying to lower prices they need to see that physical media is the poison.  Not the hardware.

Think about what it takes to produce a DVD for sale at Best Buy. You need heavy metals for the ink for the cover, wood for the paper, petroleum for the plastic,then stamp it all together, shipping (from China) (on a boat) and then you can't even count on all of the units produced being sold. That is why movies cost $20 or $30 bucks, CD's $15, and games $60! And to be fair, games are sold on contract for the most part with Microsoft, Nintendo, and Sony because they must purchase a development license for the consoles and the console manufacturers rely on third party sales to even make a profit on the game hardware. Another check-mark in the positive column for PC gaming is indie game development like Super Meat Boy or AmnesiaThe developers of Dead Cyborg have attempted the pay-what-you-want model.  They are relatively low cost production and low retail priced games.  Prices for PC games can fall because they are not encumbered by contractual arrangements with the hardware developers.  The freedom that independent computing allows for is incredible in its scope.

For instance, if you look at the company VaLVE, they make computer games (Half-life, Portal, Counter-Strike, Team Fortress) and are very successful, you'll see that they used to make 5-7 dollars profit per unit at the brick and mortar. However, when they began to sell games, still fully priced, on their online service, Steam, their profit margin moved up to 34-39 dollars per unit! (I am having trouble finding the interview where I read this =/ when I do I'll link) (also Forbes said that VaLVE is worth more than Apple. They only employ something like 250 people and are valued around 4 billion! However, that is only an estimate as they don't publish full numbers and aren't publicly traded.  *In terms of human productivity, as translated into dollars, VaLVE is worth more than Google and Apple.*) VaLVE also understands that if you drop the price the market becomes larger,
"During the Holiday sales:
  • 10% (off) sale = 35% increase in sales (real dollars, not units shipped)
  • 25% sale = 245% increase in sales
  • 50% sale = 320% increase in sales
  • 75% sale = 1470% increase in sales."
This helps to exemplify (a pretty simple economic axiom) that more people will attempt to obtain the product as the price decreases (my guess is that the internet market, piracy, indie development, and hacking will force the price decline).  It's too bad that the FED doesn't get this when it comes to housing markets...
The internet really is the epitome of anarchy. Free association with friendly cooperative development and distribution, all for very little resources.
The old market is useless and is only running up the U.S. trade deficit (that link/[pictured right] shows the MONTHLY numbers and what's worse is that those numbers have been growing for 30 years!) and sending our money overseas to the real production facilities and for some reason, our government wants to continue this. Piracy is healthy (at least for the U.S. consumer's perception of economy or what is actually economic) because the internet means, not just freeDOM, but FREE. These RIAA types are making last ditch efforts to restructure the entire Internet to the ‘cloud’ service to prevent my scenario from god...I think I know how Peter Schiff feels.

I'll stick with bit-torrent because:

There are no advertisements

There is only a limit in quantity based on your bandwidth (buy more if you want more)


After complaints, revised and, hopefully, clarified on 7/10/11