Economic models of the traditional and well-known sense usually describe either manufactured physical goods or services performed, both of which are scarce resources: only so much grain can be grown, for instance—or widgets churned out of an industrial plant, or pipes plumbed by professionals. Short of espionage, even the market for Information was tied to the cost of materials and availability of produced goods such as printed books, pressed records, or spooled movies. In other words, though the Information was created once and itself remained unchanged, the marginal cost of creating copies of that Information was the sum of the materials, labor, and transportation costs used the produce, package, and ship the finished physical good to a store or warehouse.

Since the copyright on these forms of Information lasts for so long, it is more useful to look at the patent system as an economic model of the fixed costs of producing or selling Information. In the pharmaceutical industry, as has been the case for some time, companies can and routinely do spend a billion dollars on the research and development of a new drug (Moran, 2003, p. 25); the protection of a patent, however, is only good for 20 years from the filing date, so the company must attempt to recoup its expenses and produce a profit while it has a monopoly on the particular drug in question. The cost of manufacturing the drug is often vanishingly small, but the medication is priced well above marginal cost—it must be—because its fixed costs are so high, regardless of how many units of the drug it actually sells.

The accelerating migration from the analog storage of Information in the form of printed books or newspapers, pressed records or compacts discs, or boxed movies, to a form of digital storage and networked transmission which can operate independent of a central producer, has not only brought up ethical dilemmas with respect to copyright and media “piracy,” but also hauled into the spotlight the economic model wherein price is set so high above the marginal cost, since this now applies to virtually every good available for purchase (or, for that matter, available for pirating) on the Internet. Of particular concern is digital music, whose placed in the zeitgeist began with Napster in 1999 and remains today with the Apple iTunes Store. As well, “e-book” readers such as Amazon’s Kindle are now bringing the same controversy over marginal cost to the book market, heretofore largely untouched by the move to digital media, the same of which cannot be said for their counterparts in the periodical industry.

In a perfectly competitive economy, price falls toward marginal cost. Since digital goods have a marginal cost near to 0 (as distinct from the cost of the first unit), traditional economic wisdom would indicate that the price of such goods should fall dramatically, taking into account the additional cost of transmission and storage. In “Free!” Chris Anderson asserts that each piece of equipment “does more and more for less and less, bringing the marginal costs of technology in the units that we individuals consume closer to zero” (2008).

Apologists for software and other media piracy, along with more pragmatic technologists with an economic bent, often quote writer Stewart Brand, who once famously opined “Information wants to be free”. Less frequently mentioned is the entire quotation, which is “On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other” (1985, p. 49). In other words, the economic cost of Information is not equal to its marginal cost, but this is not a revelation: no other industry in the world has enjoyed a configuration such as that. Anderson himself admits that attempting to offer a good at a price equal to its marginal cost cannot make (and will likely lose) money in a two-party market system. Only new synergies or “cross-subsidies” can generate an economic profit if these digital products are priced at their marginal cost (2008).

From Edison to Jobs

Though the indisputable leader in digital music sales is iTunes, having sold more than 2 billion songs since 2003, its smaller competitors number in the hundreds, and now include among their number such industry giants as Amazon.com (Feng, Guo, & Chiang, 2009, p. 243). Apple’s decision to charge a flat fee of $0.99 per downloaded song essentially set consumer expectation for price; Amazon, effectively a price-taker when it entered into the market, charges the same (though it offers a slight discount for purchasing whole albums as opposed to individual tracks), if only because attempting to charge any more would virtually guarantee the venture fails.

The low price charged doesn’t necessarily reflect the low marginal cost of producing the digital content in question. In all likelihood, the price point is set to attract those who would otherwise acquire the content illegally—that is, for a price of $0 (Smith, 2005). The ethical aspects of piracy and its causes and effects within the new economics of digital media are well beyond the purview of this paper, but it is clear that consumers who would never steal a physical good from a brick and mortar store are more than happy to acquire digital music without compensating the label or the artist. There exists the possibility that this phenomenon is a strange moral quirk, but more than likely it is a subversive economic reaction to the perceived low marginal cost of the goods. The consumer’s ease in acquiring the good, after all, is some reflection of the publisher’s ease in creating or duplicating the good. RIAA-funded reports to the contrary (which treat each illegal download as a lost sale), there is no good evidence that a consumer willing to “pirate” a song would also be willing to pay for it at any price point, be it $0.99 for a song from iTunes or $20 for an entire physical album. Paradoxically, however, there is evidence that people who illegally download music already spend more on legal music purchases than average (Shields, 2009), which would indicate that the rise of music piracy is simply what happens when the marginal utility of a track is less than the price set by its controlling firm. In the pre-digital era, this would have indicated a non-sale, but now demand for this kind of good can be independent of its price, since supply is effectively infinite.

From Gutenburg to Bezos

Though a relatively recent phenomenon, the rise of e-books is precipitous. Spencer Ante reports that Amazon sold more digital books than printed books last Christmas, which for Amazon entails a relatively small digital download to an electronic reading device that the customer already owns (2010, p. 50). At current prices, publishers net the same profit on both digital and printed books, but economic gravity is already dragging some prices down; in Amazon’s case, some new or best-selling e-books are $8, compared to as much as $35 for the hardback version of the very same Information. Though some of that price difference has to do with the larger marginal costs of the bound book, it’s long been common knowledge that publishers, like record labels and movie studies, exercise heavy price discrimination on new materials. Those willing to pay $35 for a new book do so because they are willing to pay that high amount either for the physical quality of the book or the privilege of reading it now instead of a year later, when the paperback edition is released. Libraries, too, will usually buy their initial stock of the books at an inflated price, quieting cries of alarm that the free use of books will ruin profits. For this reason, publishers such as Harper-Collins are delaying the publication of e-books for several months after a new hardcover’s release. Jeffrey Trachtenberg (2009, p. B2) notes that threat of competition from cheap digital media is a very real one for book publishers; however, this trend appears to be nothing more than market forces at work.

Amazon appears to pay publishers about half the cost of the new hardcover, regardless of which edition was solid: at first glance, this seems like a losing proposition in the case of digital downloads (Ante, 2010, p. 51). However, while the cost of Amazon’s “supply” of e-books may be close to the marginal revenue of selling them, the company also has little fixed costs associated with storing or shipping the data. As well, in Amazon’s case, the company is receiving revenue from the not-inexpensive Kindle e-book reader. This, then, might be an inverted instance of Chris Anderson’s Gillette-inspired bundling concept (2008). Rather than use cheap hardware and expensive data, Amazon sells expensive hardware and data as close to inexpensive as current economic models will allow.

Books and periodicals, like music, may benefit from an old but upward-trending concept known as bundling. Given a large product pool with a small but non-zero marginal cost of production, they can maximize profit as Hitt and Pei-yu describe in “Bundling with Customer Self-Selection” (2005, p 1481, 1491), citing the well-known marketing schemes of Colombia House as well as the newer pricing models of Netflix. In the case of technical book publisher O’Reilly, the bundling or subscription model has raised profits by about 20% (Ante, 2010, p. 51).

From Scarcity to Abundance

Traditional publishing models are predicated upon the idea that all of its aspects are essentially scarce resources: the physical media upon which Information is disseminated is itself scarce or at least costly, and the Information itself is a scarce resource which, because of its ostensible uniqueness, has no likely substitute good. Digital media not only reduces the marginal cost of goods to near zero, but it also raises the supply to near infinite. Whereas once record labels and publishing imprints decided who or what appeared on the scarce shelf space of stores, these same companies now essentially compete against independent artists or authors who have more power to self-publish, and for lower prices, than ever before. In fact, the lower prices apparent in the digital economy may to some degree reflect the new, more intense competition that has become its hallmark.

The situation now resembles or is coming to resemble a case of monopolistic competition, albeit one in a state of extreme transformation. The number of producers in the market is now effectively infinite (taking traditional firms and self-publishing individuals together, and implying that individuals can act as multiple producing and consuming agents both alone and as organizations), and though some firms are currently exercising their market dominance (such as Apple setting a standard $0.99-per-track price), the ever-present threat of piracy ensures that prices will tend to be set low. A low marginal cost of production and surplus of human creativity insures that market entry and exit are easy. Finally, though it is true that specific songs by specific artists are technically unique, they are ultimately unique in brand, but substitute goods in genre. A consumer looking to purchase ten rock songs may have his or her need met by any ten in a thousand songs available. The result is that consumers discount more heavily when substitute goods are available but not when purchasing unfamiliar products, according to Clemons (2008, p. 13).

Yet another character of monopolistic competition that was impossible ten years ago is now rapidly becoming more realistic: perfect information, wherein consumers know all goods being sold, their differences, their prices, and even what profit a firm makes from them, could not have existed for such a wide array of goods in the years before the Internet generally and powerful search engines specifically. While traditional firms have relied on the popular 20% of products sold (market “fat spots”) to subsidize the less profitable 80%, this latter “long tail” is now the focus of considerable economic and marketing attention, and is the center of Anderson’s argument regard low-margin economies. More to the point, it is also the focus of more consumer attention, now that better information availability has improved access to the long tail.

Clemons (2008) speaks to the changes being wrought by increased access to information. Citing online price-comparison engines, he argues that these services essentially “discover” the correct market price for a good (as opposed to a producer setting it), much like the NYSE (p. 15). The kind and quality of product offerings will also change to reflect the more perfect consumer information. His summary of pricing changes is clear:

[C]onsumers’ willingness to pay is a function of the competition discount, the compromise discount, and the uncertainty discount, all of which have changed because of change in consumers’ informedness. Margins on most commodity offerings have collapsed[.] Pricing strategy has been transformed, and consumer behavior in the presence of informedness has been the principal driver (p. 33).

The implications are large for both consumers and producers alike. In the long term, technology of this sort will change how firms do business; just as the Industrial Revolution radically transformed the developed world from an agrarian economy to an industrial one in a minimal span of years, so too will the move to a digital economy of Information both fast and transformative. Regardless of high fixed costs, lower marginal costs due to improved technological will lower price, especially when products now compete against a growing niche market of goods that are given away for free. Anderson (2008) suggests that pricing in the digital economy will dip drastically low for Information and increase the cost of physical goods. A summer blockbuster movie, for example, may cost pennies, but popcorn will cost as much as ever—until that science-fictionalized day comes when technology gives us an unlimited supply of physical resources, as well. The net effect will be two separate but cross-synergizing economies, one for traditional physical goods with non-negligible marginal cost, and one for digital Information which, once expressed, automatically creates an effectively infinite supply of itself.

References

• Anderson, C. (2008). Free! Why $0.00 Is the Future of Business. Wired, 16, 3. Retrieved March 5, 2010, from http://www.wired.com/techbiz/it/magazine/16-03/ff_free
• Ante, S. E. (2010, January 11). Trying to Avert a Digital Horror Story. BusinessWeek, 50-52. Retrieved April 2, 2010, from Business Source Elite (47279438).
• Brand, S. (1985, May). Keep Designing. Whole Earth Review, 44-57.
• Clemons, E. K. (2008). How Information Changes Consumer Behavior and How Consumer Behavior Determines Corporate Strategy. Journal of Management Information Systems, 25, 2, 13-40. Retrieved April 3, 2010, from Business Source Elite (34879420).
• Feng, Y., Guo, Z., & Chiang, W. K. (2009). Optimal Digital Content Distribution Strategy in the Presence of the Consumer-to-Consumer Channel. Journal of Management Information Systems, 25(4), 241-270. Retrieved April 2, 2010, from Business Source Elite (38419436).
• Hitt, L. M., & Pei-yu, C. (2005). Bundling with Customer Self-Selection: A Simple Approach to Bundling Low-Marginal-Cost Goods. Management Science, 51(10), 1481-1493. Retrieved April 2, 2010, from Business Source Elite (18676603).
• Moran, M. (2003). Cost of Bringing New Drugs To Market Rising Rapidly. Psychiatric News, 38(15), 25. Retrieved April 2, 2010
• Shields, R. (2009, November 1). Illegal downloaders ‘spend the most on music’, says poll. The Independent. Retrieved April 2, 2010, from http://www.independent.co.uk/news/uk/crime/illegal-downloaders-spend-the-most-on-music-says-poll-1812776.html
• Smith, T. (2005, September 20). Apple CEO blasts ‘greedy’ music labels. The Register. Retrieved April 2, 2010, from http://www.theregister.co.uk/2005/09/20/apple_jobs_piracy_pricing/
• Trachtenberg, J. A. (2009). Harper-Collins Delays E-Books. Wall Street Journal, 254(137), B2. Retrieved April 2, 2010, from Business Source Elite (47053417).

The Wal-Mart Effect by Charles Fishman

It would be virtually impossible to overstate the size, scope, and power of Wal-Mart. It’s the largest retailer in the world, the largest public company of any sort in the world (by revenue), and since opening its Superstores it has also become the largest grocer in the world. Everyone is likely familiar with the most common case made against Wal-Mart: it’s a big, soulless corporation which comes into small towns, drops its brick-and-steel monolith in the middle of a freshly-paved asphalt desert, and proceeds to drive the town’s smaller retailers out of business. Add the various and sundry complaints made against it w.r.t. workers rights, salaries, and shady business practices, and then contrast that against the millions of people who rely on Wal-Mart in order to make ends meet, or those for whom the retailer really is a benevolent, paternal corporation, offering steady employment and decent wages. These conflicting portraits are just a slice of the issues at the heart of Wal-Mart, but it’s the likeliest vector for Charles Fishman to enter the fray in his startlingly well-executed The Wal-Mart Effect.

To understand Wal-Mart and why it does what it does, Fishman argues, you first have to understand what motivates the company. When Wal-Mart’s motto says “Always low prices. Always“, it’s not kidding around. In fact, Wal-Mart’s dedication to offering goods just a little bit cheaper than everybody else was not only the original business intent of Sam Walton in 1962, but it’s also ostensibly the reason for the company’s monumental success. Dispensing with many of the tried-and-true business techniques used by other retails, such as cyclical pricing, Wal-Mart keep pushes to keep relatively consistent low prices that the customer can always count on. Believe it or not, such a tactic isn’t merely a sales technique, or at least doesn’t appear to be: Wal-Mart genuinely wants the lowest possible prices for its customers, and its customers return this effort with a tremendous economic loyalty. Everybody wins, right?

Not so, says Fishman, and this is the side of the Wal-Mart effect rarely portrayed in magazines or news. The arrival of a Wal-Mart in a new area causes the closure of four existing businesses and a net gain of thirty jobs over five years, so the much-touted ruination of the mom-and-pop business culture, while true, is hardly apocalyptic. Of significantly more concern, and the idea to which Fishman spends most of his time, is the effect of Wal-Mart on its own suppliers. He begins on a positive note, detailing and history and business relationship of the owner/manufacturer of the Makin’ Bacon microwave bacon cooker to Wal-Mart. The latter has essentially made the former’s business, which is really quite small and specialized, selling for just under $6 per item. The relationship has been mutually beneficial to both parties—though it doesn’t stop Wal-Mart for selling cheaper, competing bacon cookers for a third of the price. What makes Wal-Mart and the Makin’ Bacon different? In part because the company has brought little to no price pressure to bear; that is, they’ve never told Jon Fleck to sell the Makin Bacon at, say, $5.49 instead of $5.97. That seems like a minor difference, but Wal-Mart is a company that has made its name with the difference of a few pennies, and what may seem like a minor difference in price for one item to one consumer is in fact enough to make or break the business of the manufacturer.

To be clear, Wal-Mart actually operates at very thin profit margins, but when you see a price at Wal-Mart drop even lower (ostensibly cut, bumped, or lassoed by an anthropomorphic smiley face), it is not Wal-Mart absorbing the difference in price; it’s the manufacturer, whom Wal-Mart cajoled or more likely threatened to lower the wholesale price of the item. Wal-Mart does this same dance for every product it sells, and with every manufacturer it deals with. The company’s obsessive attention to detail, to cost and price margins, and to a scientific/statistical study of its own performance has the effect of creating lean and mean businesses…. or eventually gaunt and weak ones. The enormous pressure to lower price either means that a business must stop dealing with Wal-Mart (which often constitutes more than 20% of its businesses), cut the quality of the product, or move its operations to China or Bangladesh in order to lower manufacturing costs—often with a significant deficit of quality.

The sum of Wal-Mart’s pressure on its suppliers and on its own staff and management to lower costs creates a boon for its customers, a slight economic depression for small businesses, and a generally cultural malaise; worse than all of those, however, is the amount of power that Wal-Mart can and does wield over manufacturers drives quality down at the same time as price. In other words, Wal-Mart’s endless drive to be cheap means that it sells cheap crap—and because the cheapness starts with the manufacturer, Wal-Mart makes other retailers of the same product sell cheap crap, too. That, too me, seems like a much greater problem than whether a small-town grocery store can’t stay afloat when Wal-Mart undercuts them on bananas and bulk cheese.

To Fishman’s credit, he’s not an anti-Walmart zealot, as is so popular these days despite being such a boring, platitudinous stance. Instead, Fishman’s book embodies what market research says is the most prevalent attitude toward Wal-Mart: we like it with our guts and bowels and viscera, even as we distrust and even loathe it with our front lobes. Good or bad, Wal-Mart is important, and we must be aware of just how impactful its presence is.

Singularity Sky by Charles Stross

Singularity Sky is one of Charlie Stross’ first and most famous works, and therefore predates the other books of his that I have read—namely Accelerando and Halting State. If the two, Singularity Sky more closely resembles the former, being something of a treatise on the economic, political, and cultural effects of a point when technology essentially makes humanity part of a post-scarcity economic; Halting State, by contrast, was a narrower work looking more immediately into our future.

Accelerando was, I think, technologically oriented, taking the reader to the further reaches of the technically possible and back again, with all the ramifications of said technology being simply assumed, alluded to, or—at best—covered briefly. Singularity Sky strikes me as more of a political or cultural commentary made possible in the context of fantastic futuristic technology, or in other words a more classical science fiction novel along the lines of Heinlein.

By way of plot setup, the rapid expanse of both technology and population on Earth led to a singularity and the arrival of a power post-human intelligence called Eschaton, which scattered humanity throughout the galaxy, and whose only basic rule is that you cannot violate causality. In other words, any civilization that attempts to travel back into its own past will be stopped, somehow, by Eschaton, even if that means obliterating the entire civilization.

One far-flung colony on which the story focuses is the New Republic, and essentially a transplant of pre-Soviet Russia, right down to the serfdom, Russian names, and fomenting Marxist resistance movement. The colony is comprised mostly of Luddites who consciously rejected that technology that came with Eschaton (i.e. no economic scarcity) in favoring of regaining the “old ways”. The irony, of course, is that in the course of reestablishing tradition, they also reintroduce death, destruction, and misery for a goodly portion of the population. As we open, a planet called Rochard’s World is visited by a roving band of “infovores” known as Festival: basically, a giant space-faring hard-drive with the uploaded consciousnesses of past civilizations that seeks new information (“Entertain us” with stories, they tell colonists) in exchange for pretty much whatever the colonists want, including Cornucopiae Machines, which are powerful matter generators much like the replicators of the Star Trek universe. This generosity is seized on by the Marxist revolutionaries, who with this new information and technology manage to overthrow the planet’s government….. with the help of an artificial technological singularity occurring within the span of a month. Basically, Rochard’s World is put into the technological and cultural equivalent of a meat grinder.

Meanwhile, our two protagonists are a spy named Martin Springfield and a spy named Rachel Mansour end up on a New Republic ship which attempts to break interplanetary (and Eschaton) law by used closed time-like curves to travel into its own past to arrive at Rochard’s World before the festival gets there. I need hardly tell you that chaos ensues, as well as some romantic subplots.

Aside from the interactions of our heroes, there are a number of themes in the book, all of which are interesting and, I would argue, more important than the character-centric plot (typical Strosser).

The Singularity

A fixture of Stross’ more far-out works is the concept of a singularity, usually of the technological sort but of other varieties as well. Briefly put, a singularity is a point at which recursive self-improvement has made progress so fast as to be unimaginable to us today. The singularity-as-imminent-event meme is most closely associated with the crackpot Ray Kurzweil , but in Stross’ books it tends to refer to a point in time where the collective technological intelligence outpaces collective human intelligence, and by extension the idea of scarcity of information becomes an antiquated notion.

Though Stross may or may not label himself (unlikely) or his books (more likely) as “futurist”, that tendency appears to me in his books. The growth and spread of information is little more than a function of time and energy: hence the inevitability of technological singularities in these worlds. Since the arrival of a singularity also ushered in an era when technological made the whole idea of economic scarcity a laughable one, you could argue that this represents an “economic singularity” as well, in the fast-flowing parlance of Stross’ world.

“Information wants to be free”

Some editions of Singularity Sky include the tagline “Information wants to be free”, the famous half-quote by Stewart Brand, the full text of which is “Information wants to be expensive[.] On the other hand, information wants to be free”. A recurring theme of this book is that information and by extension progress are inexorable: the conflict between the neo-luddite/monarchist New Republic and the post-singularity transhuman culture that contacts them is utterly devastating for the status quo of the former, and our spy heroes are world-weary enough to realize this, exasperated not only by the provincial mindset of the New Republicans (whose various martial bumblings comprise an entire subplot), but their apparent inability to understand that one can no more avoid change than one can avoid breathing. Information is, by whatever mechanism, the phlogiston of said change, providing its vital energies.

In this respect, Singularity Sky, like other books by Stross, contains no real heroes in the traditional sense. Generally speaking, any “protagonist” in such a book is not a virtuous, heroic person (though they may have these qualities), but rather someone cynical enough to realize the indefatigable push of information to spoil our conservatism. Similarly, the young secret policeman, Vasily, is not evil just because he’s a member of the secret police of a repressive dictatorship, but rather because he is patently unable to accept that his chosen beliefs about the nature of technology and cultural do not match either what is common or what is possible.

The Good, The Bad, and the Causal

In fact, it would be difficult to describe “good” and “bad” in this post-singularity world. Stross indicates that only provincial planets such as the New Republican still maintain a religion (a Bible-based one, by the look of it), and that the rest of the galaxy has largely given it up. The Eschaton, the transhuman consciousness I mentioned earlier, disseminated this message after scattering humans across the galaxy:

I am the Eschaton. I am not your God.
I am descended from you, and exist in your future.
Thou shalt not violate causality within my historic light cone. Or else.

It was a message that some took, despite its explicit denials, to be from God-with-a-capital-G; others, more pragmatic, assumed it to be a post-human entity from this future which took advantage of time travel. In order to maintain its power, it kills or otherwise dissuades any other civilization looking to use time travel, and by these methods maintains its superiority.

One could go so far as to say that the issue of causality is the central theme of the book—that is, technological progress is what it is, but violating causality has the potential for disastrous consequences, either because the Eschaton obliterates your planet with an asteroid, or because you temporal meddling rips apart the fabric of spacetime. It’s an overall great book; it’s clear that Stross’ talent for pacing has improved since he wrote this book (his first real novel), but even for a debut work, it’s an impressive bit of hard sci-fi.

Oil Panic and the Global Crisis by Steven M. Gorelick

Everybody knows something about the oil industry, or at least they think they do. Every summer, when the cost of gasoline rises in America, watercooler conversations are pregnant with from-the-hip remarks about the cause of high prices. It’s Bush, or it’s the war in Iraq, or it’s the CEO of Exxon—whatsisname, Scrooge McDuck. I’ve also received email forwards about such things as the Bakken formation, which is believed by people who don’t know any better to be a panacea for our oil needs.

In other words, the price of oil is on everybody’s mind, but no one actually seems to know much about it, and misinformation rushes to fill this vacuum, either of the “oil will run out next year” variety or the “nothing to see here; move along” variety. Oil Panic and the Global Crisis is the attempt of Steven Gorelick (a professor at Standford who devotes himself to the study of oil more or less full time) to summarize the state of knowledge about oil into as reader-friendly a format as possible.

I’ve heard it said that while Oil Panic attempts to popularize the topic by virtue of its accessibility, it retains a “rather academic style.” Unfortunately for some readers, Gorelick is no Malcolm Gladwell: Oil Panic doesn’t approach what I would consider the realm of “popular science”, but it’s clear that he’s trying to walk a fine line between the abstrusity of economic jargon and the insult of overly-simplistic writing.

And don’t fool yourself: when I use the word “economics”, I mean it; after all, the science of oil refinement is only peripheral to our discussion of the price and use of oil. What we’re concerned with primarily is how much oil costs, which is a direct result of (a) how much we need/use, and (b) how much there is and how much it costs to produce it. The study of oil is more or less the same as the study of any other market, after all.

But economics can be made readable, right? After all, Tim Harford managed it with The Undercover Economist, didn’t he? To his credit, Gorelick’s book is by far the most clear, coherent, and readable summary of the oil economy that I’ve read thus far, and that’s no mean feat: Gorelick doesn’t get to choose the most interesting examples in the way that Harford does, and still manages an interesting book.

Gorelick starts with the premise that the world is running out of oil, and soon. Some of the common methods of calculating peak oil production (i.e. when production of oil is at a maximum, after which point it declines) would appear to indicate that we could reach that point anywhere between 10 and 40 years. The entire first portion of the book, in fact, fields the notion that we have already reached or will soon reach peak oil production, and the world’s growing use of oil represents a crash waiting to happen. The next section, which fields the opposite assertion—”we have plenty of oil”—is much larger, and, it must be admitted, the more resolute of the two. Not to spoil anything, but Gorelick’s conclusion appears to be that the world likely has plenty of oil resources to fulfill our needs for the foreseeable future, but this should not preclude us from seeking alternative sources of energy.

What is most interesting to me is that the world’s oil reserves are represented by an ever-shifting number. After all, oil that is not currently profitable to drill for today may be profitable in ten years, and that changes how it is reflected in inventories. The Bakken formation, for instance, is one of many instances of oil sands or oil shale which represent a large volume of technically-recoverable oil that no one will bother with until the costs of production decrease or the price of oil increases enough to justify trying. This is a recurring theme in the book, and its one that I don’t hear very often amidst the political or environmental concerns of oil dependence: oil, like everything else, is governed by what we’re willing to pay for the product. However much we may care about the environment, we are unlikely to see much “green” energy until the economic cost of using windmills is lower than drilling for and refining crude oil. Economics makes the world go ’round.

Oil Panic was clearly not meant to be a New York Times bestseller: as much as I believe everyone should read the book, it does not represent the same insipid ease of Dan Brown or the catchy topicality of Malcolm Gladwell. And yes, it does, at times, more closely resemble a college textbook than something you’d pick up at Barnes & Noble. Consider this passage:

The US production of other metals, like iron and lead, has also more or less resembled a bell-shaped curve (Figures 4.14 and 4.15), yet we are not running out of these commodities. In fact, in 2007, US mines produced 52 and 0.12 million metric tons of iron and lead (refined), respectively. Te US reserve base of each of these metals is 15 billion and 19 million metric tons, respectively. Total resource estimates (not just reserves) are much higher. For example, the 2007 iron ore resource estimate for the US was 110 billion metric tons and globally it was 800 billion metric tons. Using the highest historical levels of production, the US resources would last over 900 years and the global resources over 400 years. Worldwide there are an estimated 1.5 billion metric tons of lead, or enough to last more than 400 years at the current global production rate.

As you can see, it’s not quite Economics for Dummies, but neither does it even approach the level of abstrusity you would see in a survey of papers submitted to peer-reviewed economics journals. I’ve come to the conclusion, in fact, that Gorelick includes so many facts and figures not because you necessarily need see them, but because he thinks it would be an insult to your intelligence to dumb the concepts down any further. As committed as Gorelick may be to popular science of the Richard Feynman variety, he is also a serious academician, and has little truck with condescension. Though this may exclude from his likely readers some of those ill-informed people who need it the most, I think this speaks highly of his integrity as a writer and as an intellectual. I think it is perfect, in fact, as an economics textbook focused on one particular market, or even for the sort of petrochemical-specific economics courses that Gorelick teaches at Stanford.

My own grasp of economics being limited to what I’ve gleaned from my graduate work, I can’t pretend as though I completely understand everything Gorelick says; nor am I enough of an authority to comment definitively on the relative validity of his conclusions. I can say it appears even-handed, extraordinarily well-researched and well-cited, and an overall excellent piece of scholarship.

Full Disclosure: I received a review copy of Oil Panic and the Global Crisis from the publisher, gratis. I am not receiving any compensation, monetary or otherwise, for my review of the book; neither was the provision of the review copy contingent upon the content of my review. The opinions expressed here are entirely my own, and do not reflect the opinions or expectations of the publisher.

Confessions of an Economic Hitman by John Perkins

I don’t recall at what point I became aware of John Perkin’s tell-all exposé on the seedy underworld of global politics, but while the idea was intriguing, it sounded a bit too exaggerated for my tastes, and I left it well enough alone. Finally, I could not resist the temptation to read this tome by Perkins, who is referred to as a “frothing conspiracy theorist” (more on this later) but praised by a multitude of readers.

First, the story as Perkins tells it. After being evaluated by the NSA, Perkins is offered a lucrative position by the firm Chas. T. Main, whom Perkins thereafter refers to as MAIN, as though it’s a secret criminal organization like SPECTRE. Taught by a mysterious woman named Claudine, he is told upfront that he will be an “Economic Hit Man,” thereinafter referred to as EHM. The modus operandi of such people is to act as economic advisers to developing nations, convincing them to invest millions or billions of dollars into infrastructure, the creation of which will be contracted out to rich American firms like Chas. T. Main, Halliburton, Brown and Root, and all those other semi-governmental private industries that have come into such prominence in the last decade or so. This, however, was the early 70s, and the US was locked in a Cold War with the Soviet Union, and trying to stave off the encroachment of—gasp!—socialism by propping up rightwing dictators in Latin America, and generally engaging in all kinds of general skullduggery of the clock-and-dagger variety. Perkins takes to his job, visiting such locales as Equador, Iran, Indonesia, Panama, and Saudi Arabia. Most of the time, he is plagued by a feeling of guilt that what he’s doing is right. Eventually, he resigns, founds a successful energy company, sells it, and is eventually prompted to finish and publish this book by the events of 11 September 2001.

There are a number of different aspects to consider about this story. First of all: is it true? That’s difficult to say. Perkins relies solely on his authorial voice to win over his audience. There is, after all, no paper trail or mountain of evidence or stolen documents that he produces which gives any concreteness to his claims. Narrator reliability becomes a critical issue for readers, especially as the size and scope of Perkins’ accusations grow and become more wide-eyed and hysterical. It doesn’t help that the whole thing sounds like the plot of a cheesy Ian Fleming impersonator: when Perkins talks about the arsenal of economic hitmen, he doesn’t stop at merely making inflated economic forecasts (which he did), but also likes to throw around lists that include “sex and murder,” as though writing copy for the dustjacket flaps of airport bookstore inventory. Then, too, are the not-quite-accusations that the CIA or some other nefarious government agency was responsible for the deaths of —among others—Jaime Roldós Aguilera, the reformist president of Ecuador, and Omar Torrijos, president of Panama. It’s no secret that the United States was involved in some pretty terrible things in Latin America at this time, and so Perkins’ accusations in this regard are not terribly far-fetched, though he ultimately ties everything back to what he calls the “corporatocracy”: a shifting conglomerate of politicians and business leaders who exercise both legal and illegal control over world affairs through a variety of means.

We know that there is a revolving door between the private sector and the halls of government in America; but Perkins’ contention is that, for instance, he was evaluated by the NSA prior to his hiring by “MAIN,” and that even though his paycheck came from Chas. T. Main, he was in essence working for the government, or some governmental-industrial complex which Perkins envisions. One sympathizes with the man, since his accusations resonate with our cynicism about the government, but he ultimately sounds so histrionic that I’m tempted to dismiss him as a quack. I’m sure the events he described happened in some capacity or another, but my guess is that minor discrepancies between his recollections/narrative and the truth make all the difference in the world.

Sebastian Mallaby wrote a scathing critique of the book several years ago. Its thrust was that Perkins is either a raving conspiratorial nutcase with flecks of spittle on his tinfoil hat, or else an opportunist, tapping the guilt of the hysterical left to sell his book. Surprisingly, Mallaby takes the most issue not with Perkins’ position that we swept through developing countries and convincing them to farm out millions of dollars of work to American firms, but rather with Perkins’ bitter note that these infrastructural improvements did not help poor people. Of course they helped the poor people, Mallaby proclaims, as though that is the fine line between fraud and aid. Perhaps he’s missing the point. Or perhaps he is simply an “apologist” for the current “system of exploitation,” as Perkins asserts.

The more pressing concern, in my mind, is that readers have no real reason to believe that anything Perkins’ says is true; he could, by all rights, be lecturing that the moon landings were faked, the president is a robot, or the world exists on the back of a giant turtle. The only way you would be likelt to accept it as gospel is if it feels true, and Perkins makes every attempt to write the book that way. He cakes on the liberal guilt, spending a lot of time in each new locale ruminating about how much he hates himself for ostensibly cheating the poor and the innocent, ruining the environment, or participating in the sort of brutish cultural and economic imperialism that would raise Noam Chomsky’s hackles. It’s a simplistic binary system: the poor are always innocent and downtrodden, and the rich are always part of oligopolies, corrupt governments, and shadowy corporatocracies whose fat, suited leaders smoke cigars in back rooms and laugh big booming laughs about grinding the impoverished masses under their boot-heel in order to make a few more dollars. To whatever extent such characterizations are true, Perkins stresses them in order to fan the flames of his readers’ paranoia, but he also fails to place any sort of logical limit on corruption. One half-expects him to bellow a cry for class warfare and call for Dick Cheney to be roasted like a suckling pig.

Confessions of an Economic Hitman has a kernel of truth to it, somewhere, but it ultimately falls victim to its own excesses, wallowing in likely exaggeration and embellishment. I wouldn’t go quite so far as to call Perkins a “a vainglorious peddler of nonsense” like Mallaby does, but there’s definitely dimensions to his story that make me uncomfortable—and not in the way he intends.

SuperFreakonomics by Steven D. Levitt and Stephen J. Dubner

When Steven Levitt and Stephen Dubner published Freaknomics several years ago, they gained a bit of mainstream fame as popular science writers (think Malcolm Gladwell). They also stirred up controversy with their assertion that abortion lowers the crime rate, which also raised a ruckus for poor Bill Bennett, who didn’t deserve it for once.

For better or worse, Levitt and Dubner have drummed up a sequel, dubbed—faster, better, stronger—SuperFreakonomics, a title that is preposterous and sensationalist, but which the authors readily admit.

Though experience has taught us to ignore most prefaces, the one included in this tome is important, because it seeks to partially address some of the concerns and legacy of the first book. It begins with some witty banter about how the first book’s title came to be, and then delves into the question of the book’s overriding theme—which, apparently, was a pressing concern to many readers, though I can’t for the life of me think of why. Levitt and Dubner’s answer is that [Super]Freaknomics is about how people respond to incentives, which is both an accurate and silly answer, since that’s what all economics is. What Freaknomics started and SuperFreakonomics continued is to apply the merciless (there’s a reason economics is called the “dismal science”), statistical analysis of economics to situations that wouldn’t normally get it.

Prostitution for instance. In one of the better chapters, Levitt and Dubner tackle the economy of prostitution, namely how the market has changed in the last half-century (premarital sex’s stigma faded and it became a viable alternative to prostitution), and why, financially, it’s better to have a pimp than to work solo. And, since the authors feel the need to live dangerously, you will also learn what percentage of sex-for-sale in Chicago involves anal sex. You can see why the authors cop to the title: economics is amoral, and allows us to view things outside our own biases of moral outrage or attachment, such as (sort of) encouraging the use of pimps.

At their best, Levitt and Dubner are engaging and interesting, if somewhat facile. At their worst, however, they represent a trend of contrarian writing that’s lazy and disingenuous. I talked about it briefly in my review of Freakonomics, and I’m dismayed but not surprised to see them still exhibiting the behavior. First, take either a common perception or a scientific consensus, such as global warming. Then find one smart-sounding person who disagrees or qualifies that consensus in a way which undermines it. Present that person’s theory as fact, and pretend as those you’ve just put the freak in freakonomics.

This tactic is particularly obvious in the now-infamous chapter on global warming, which is this sequel’s version of aborted black babies, I suppose. Excepting that the chapter is full of errors and egregious misrepresentations, anyway. After briefly summarizing and acknowledging the climate problem, the authors introduce a couple of characters, specifically Nathan Myhrvold and Ken Caldeira, whose views they represent as having that same contrarian character. Because Myhrvold is, like, really smart, we swear, his contrariness as the head of a brain trust and patent firm is now placed on a pedestal of equal height to that of the 98% of the scientific community which asserts otherwise. It’s a cheap trick, used all too often in situations like these.

All of this is, of course, assuming that the authors got their facts right in the first place. It would appear that they missed Caldeira’s actual views by a wide margin, for instance. What’s more, few of the topics that the authors cover have to do with traditional economics, usually branching out into other areas in which Levitt (an economist) and Dubner (a journalist) have no real knowledge, and must therefore rely entirely on the authority of their sources—whom, as we’ve seen, are not necessarily good or correct. It’s a problem: assuming good input, Levitt and Dubner could churn out some interesting economics, if still less entertaining than Tim Harford. Dubner’s penchant for writing smarmy things like “Any religion, meanwhile, has its heretics, and global warming is no exception” cues an endless succession of facepalms from his hapless readers, who I expect are all better aware what things make you sound like a complete asshole.

For every instance where SuperFreakonomics seems to shine, it has another three where it devolves into these ridiculous plays from authority, or odd nonsequiturs that are supposed to be edgy but are really just distracting and uneven. The reality is that the publisher’s perfect pairing of a journalist and an economist doesn’t make for nearly as accurate or interesting a product as we’d all like to think it would…. unless you’re a shallow James Frey fan and don’t mind a little inaccuracy, dishonesty/disingenuity, and bad writing.

If you want better pop econ, read Tim Harford and ignore the hype about SuperFreakonomics or, for that matter, its predecessor. You’ll be better served by a more grounded treatment of the subject.

The Post-American World by Fareed Zakaria

This book briefly flared into the limelight this campaign season when Barack Obama was seen reading it. It also inspired yet another dumbshit chain email asserting that the book was “a Muslim’s view of a defeated America!” Like most of the dreck which comes out of this specious subculture of conservative email forwarding, it’s utter nonsense.

Fareed Zakaria was born in India and raised Muslim, though he says he is “not a religious guy.” He’s an American citizen, and, among other things, was an editor of Newsweek magazine in 2000.

Politically speaking, Zakaria is best described as a moderate, unless you’re a liberal/conservative who things that anybody to the right/left of you is necessarily an extremist conservative/liberal. Mostly, Zakaria tends to be a realist and pragmatist (similar to economists), which puts him on the wrong side of liberals when he starts talking about free trade and globalization and such; otherwise, he falls afoul of conservatives when he’s not their cheerleader.

The Post-American World might raise the ire of knee-jerk nationalists who don’t do so much as read the jacket flap. In fact, one of the first things Zakaria does is qualify the somewhat sensational title by warning his readers that the book is not about the decline of America, but rather the rise of everyone else. Especially in Asia (and to a lesser extent Africa and South America), countries which are beginning to build up strong economies and relatively free, democratic societies (this is all relative, mind you). In the last few decades, countries that the West had long relegated as somewhat Third-World had quietly become major economic contenders—and, as is generally the case, strong free-market economies tend to encourage democracy (tend, mind you). Suddenly, the United States is sharing global economic power with many more countries than ever before, and that changes the political landscape as well. It is no wonder that Zakaria’s conclusions from this arouse ire from the aforementioned nutty conservatives: the sort of people who like to engage in dick-shaking contests w.r.t. their gods and governments don’t like being told that maybe a “Eh, Fuck You!” foreign policy maybe isn’t the best tactic now that we can no longer afford to be politically and economically solipsistic. The passive-aggressive Bush approach to global political support doesn’t fly with Zakaria, and he makes no secret of it, though his general agreement with the power of free markets and self-directed governments in developing countries ought to at least earn a nod of approval from orthodox conservatives.

I finished Post-American World, however, feeling as though I had just waded through a book of bullet points, politics and economics abstracted of all their nuance—similar to the way I must analogize and speak slowly when explaining complicated computer concepts to unsavvy people. I suppose such a book needed to be written, but I wish I had known beforehand that it would be as broadly-termed (and, honestly, just a bit jingoistic) as it was. I’m a little surprised that Obama read it.

In his latest article, he pontificates that the recent economic downturn is a death knell for community-supported or community-built programs/sites/&c.

So how will today’s brutal economic climate change the Web 2.0 “free” economy? It will result in the rise of online media businesses that reward their contributors with cash; it will mean the success of Knol over Wikipedia, Mahalo over Google, TheAtlantic.com over the HuffingtonPost.com, iTunes over MySpace, Hulu over YouTube Inc., Playboy.com over Voyeurweb.com, TechCrunch over the blogosphere, CNN’s professional journalism over CNN’s iReporter citizen-journalism… The hungry and cold unemployed masses aren’t going to continue giving away their intellectual labor on the Internet in the speculative hope that they might get some “back end” revenue. “Free” doesn’t fill anyone’s belly; it doesn’t warm anyone up.

There are really two broad fallacies that need addressing here. The first is Keen’s use of the word “open source,” which here is a misnomer. He never mentions Linux, Apache, or other open source programs which always have and will continue to have a dedicated base of programmers, most of whom work on it in their spare time, without any remuneration except personal pride and the esteem of their peers. It need hardly be noted that an economic downtown is likely to increase interest in open-source software, as it likely reduces operating costs for businesses.

No, what Keen means when he says “open source” is free-as-in-beer services, often serving liberally-licensed content; Wikipedia’s content is not open source (there’s no source to open), but it is available under the GNU Free Documentation License, which is something like a liberal Creative Commons license. Perhaps Keen has a sheet of words vaguely associated with Web 2.0 and just likes to throw them around in case his readers are too stupid to know better.

But then comes the bigger fallacy—i.e. in an economic depression, the things that motivated people to contribute to social sites and content servers will vanish entirely. Nevermind the fact that most of these services don’t necessarily imply the forfeiture of copyright; or that many already include ways to monetize one’s content. No, Keen fundamentally misunderstands why people contribute to things like Wikipedia. This isn’t a recent phenomenon borne on the largess of the Web 2.0 bubble; people didn’t start contributing to Wikipedia simply because they were so rich from their day jobs that they felt like giving something back. No, people like being a part of something. They like attaching their name to good work, free or not.

This is all a very roundabout way of saying that Keen couldn’t be more wrong; he apparently is crass enough to believe that anything one does can and should be tied to monetary compensation. I imagine he gets paid for his articles for Internet Evolution (if he was doing them pro bono, it would certainly speak volumes about his argument); perhaps he overestimates the value of his labor.

With all the national hullabaloo lately about America’s economy going down the shitter, Wall Street brokers rending their garments and gnashing their teeth, and the term “subprime mortgage” acquiring an opprobrium usually reserved for choice monosyllables with a surplus of dentals and velar plosives. But “mortgage” has been one of those words that is surprisingly unknown in an etymological sense.

Old French morgage, from mort gaige, literally means “dead pledge.” Mort is easy enough, traced back to the Latin mori, “to die.” Gage is a slightly less obvious root that came to Old French through Frankish from P.Gmc. *wadiare. This is the same transformation which produced our modern “wage,” which is literally a pledge to pay (a salary).

Our English “pledge,” however, is from an entirely different origin. It’s from the 14th-century plege, meaning a “surety” or “bail,” once again from Frankish (*plegan) and ultimately from Germanic. It had early connotations of a promise made by drinking, though ironically it later became (“The Pledge”) a term of Temperance.

1. A bailout plan, created in the White House and pushed extensively by President Bush, is sent to Congress.
2. A majority (≈60%) of Democrats voted for the bill.
3. A majority (≈67%) of Republicans voted against the bill.
4. “Republicans blamed [Nancy Pelosi]… for the vote’s failure.”

What?