Monday, July 28, 2008

Back in the saddle, ruminating on the economics of "free"

I'm back from a nice long vacation, and as usual it was a time of reflection.

I would say that the most interesting and valuable ideas I gained were from reading an excellent book I found on the bookshelf of the home we were doing an exchange at, called The Undercover Economist by Tim Harford.

Mr. Harford layed out in plain and fun English some economic principles I hadn't heard of before that I am still chewing on, including the power of the free market to reveal the truth about what people really value - they put their money where their mouth is - and thus allowing the market to respond in the most efficient way.

But I also liked his descriptions of thing that regularly get in the way of a true free market.  Corruption and influence peddling is one for sure.  Not taking into account external costs, such as the consumption of resources and the dumping of waste, is another important factor.   He argues that when you charge, or "tax", for external costs, it brings more truth into the market, and the market responds.  An example that he cites and which I saw directly was the fees charged to cars entering into the center of London, and how that impacted pollution, noise, and transit services.  It really is quite amazing.

After reading his book, I realized that in technology we often think something is or should be "free" when it's really not.  For example, email has the appearance of being "free", but it actually has a big external cost, particularly managing spam.  Companies spend millions of dollars trying to manage spam; spam management itself consumes large amounts of power and CPU.

If there were nominal charge for sending an email, say 1 cent per email, we would immediately throttle back the insane amount of spam being distributed throughout the system.

The problem is, not only is there no centralized point of control on the Internet, there is also no real identity.  Would it be possible to set up a system where you are required to provide strong identity before you can access a service like email?  You would think this would have been done already if it were possible...

I do think ultimately this problem will need to be solved, and I like the ideas of applying charges for external costs as a way to solve it.

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