Re: [unrev-II] Digest Number 11

From: Mike Taylor (
Date: Mon Jan 24 2000 - 17:50:26 PST

From: Mike Taylor <>

In response to Eric Armstrong:

>In other words, a single organization is not the answer, in your view
>(for this problem, at least). Your claim would be the market is either
>(a) wise enough to handle the problem well or (b) at least no worse than
>a single organization, and probably a lot better.

Yes on (b), certainly. Whether the market is wise enough remains to be
seen, I would say. Markets do make mistakes and serious ones at that. So
(a) is too strong a claim for me.

>So it is not totally clear that information will *not* be
>shared in the future -- only that the "survival mentality" of the past
>has mitigated against it.
>Now, competition is good. But if one is competing for respect and pride
>of place, rather than for food and shelter, one "wins" by publishing and
>contributing more, rather than less. That appears to be true for
>individuals, at least. Once basic human needs are met, one is free to
>pursue loftier ambitions. Perhaps there is a way to foster that same
>kind of attitude among corporations?

Well I have heard Eric Raymond's theories on this subject too. But I think
the people who compete for recognition as open-source competitors also have
their day jobs which are a very different matter. Linus Torvalds has a "day
job" at Transmeta, for example, which pays his bills. I don't see
Transmeta's chip design information posted on their website :-) I think the
open source movement is a social and recreational activity. The "basic
human needs" - food, shelter, etc. of the participants are met, by and
large, by their activities in the commercial, competitive domain. Just
because Bill Gates makes a big charitable donation doesn't mean he is one
whit less of a tough competitor in the software business.

>(Along those lines, I keep wondering: What happens to the world if all
>corporations are required to be "non-profit"? They still compete in
>order to
>pay salaries, but not to amass billions. Would we be better off? Or

Well today there are three basic business models in the world:

1. The "commercial" business model where people voluntarily pay for
products and services which they consume themselves. The benefits of
product or service success are shared between investors and employees while
the penalties for failure are levied primarily on the investors.
2. The "nonprofit" business model where people voluntarily pay for products
and services which are consumed by others. The benefits accrue to employees
and there are no failures because the consumers of the product or service
are, if necessary, paid to consume it.
3. The "government" business model where people are coerced to pay for
products and services which are consumed by others. The benefits accrue to
employees. As above, there are no failures.

Models 2 and 3 exist only because Model 1 permits a small number of people
to amass enough money to support them. Remember that 1% of the population
accounts for 40% of federal income tax revenues and 10% account for 80% of
revenues. If you eliminate the amassing of money by those folks then the
other models will collapse. The reason that they collapse is because there
is no feedback between the "paying" and "consuming" parts to regulate their
actions by eliminating businesses that do not add value. Therefore more and
more businesses destroy value - the value of their aggregate output is less
than that of the the aggregate input. And so the whole economy slowly winds
down - in the absence of fresh capital from the outside. For a completed
example, see the now-defunct Soviet Union.

We would not be better off.

>But the "tragedy of the commons"
>says that a common resource (like oil) is quite likely to be overworked
>and overused for individual financial gain! An oil company, in fact, has
>no incentive to conserve oil except insofar as it drives up prices.

Well yes but that is the absolutely most important incentive. First of all,
oil is not a "tragedy of the commons" example. All the oil has owners, you
can't simply stick a straw in the ground and start sucking up oil, you need
to obtain the right to do so from the owner. That takes it our of the
tragedy of the commons situation right there. The owner is motivated to
maximize the present value of the oil in the ground (or tank or wherever)
which means conservation if he or she thinks it will be worth more in the

 Whenever there is an
>advantage to all, but no potential reward for any individual -- be it a
>person or organization -- then that is an area where government *should*
>be active. Roads are an example: We all benefit, but no one organization
>would profit from building one for free. So we have the government take
>charge of building and maintaining them.

And as a result we have gridlock! It is because roads are a common good
that we have the traffic problems we do. If roads were priced and treated
as any other market good, we would be much better off. Nobody is motivated
to manage their use of the roads cost-effectively and so they are treated
as a free good, when they are not. This means that supply/demand management
is suppressed and we have unmitigated demand and arbitrary supply. Central
planning doesn't work!

>Taking oil as a great example: What will the oil supply curve look like
>in the future? My mental simulation suggests that market forces drain it
>at a steady
>rate right up to almost the end, when there is a sharp drop off in
>supply and prices skyrocket. Disagreements erupt. Economic retaliation
>and wars ensue.
>If not oil, such a scenario might develop over water, food, or some
>critical resource.

Well people keep predicting this and it hasn't happened. I think you
underestimate the power of markets as a tool for collective intelligence.

>The alternative, in my mind, is a forward-looking government that sees
>the problem on the horizon, and begins working proactively -- raising
>prices a dollar a gallon each year for 10 years, for example -- despite
>the adverse economic impact that such a move would entail. The result
>*might* be to flatten out the oil-availability curve so that we run out
>more slowly, with more chance to adjust, and more opportunity to develop

Well this might achieve something except that the government could not
resist the temptation to tax the profits (for an example, remember the
"Windfall Profits" tax the last time the government got involved in this?)
and divert them into the pockets of the bureacracy. This would mean that
the profits would not be invested in developing alternate supplies, but in
increasing the size of government. So the net result is no solution becasue
you still run out of oil but develop no alternatives. You've got to let the
market work.

(Alan Greenspan appears to have a magnificent grasp on how
>seemingly minor "anticipatory" adjustments can prevent major swings in
>the country's economic fortunes.)

Huh. Wait and see. Alan Greenspan has laid the foundation for a worldwide
depression. Save this for future reference. As a scholar, Alan Greenspan
did good analysis on the causes of the 1929 crash and subsequent
depression. He has repeated virtually all the mistakes he pointed out, that
were originally made by his predecessor, Andrew Mellon. When Herbert Hoover
became President in March of 1929, he reappointed the 76-year-old Mellon,
who was dubbed 'the greatest Secretary of the Treasury since Alexander
Hamilton'. Just call me Mikey-the-Bear.

>Granted that an organization has a much keener interest in developing
>such a thing (DKR). Hopefully we can get General Motors to build one that
>improves it's automobile-developing capabilities, while at the same time
>producing the means for governments to function with a simulation of
There is hope for the former. Better co-operation and teamwork on complex
projects can lead us all to great things. But not for the latter. All IMO.
Mike T.

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