Re: Shoppers in your Palm

Mike Masnick (
Sat, 12 Jun 1999 07:23:54 -0700

At 02:44 PM 6/11/99 -0700, Rohit Khare wrote:

>I've tried to argue time and again that the "IT productivity paradox"
>was a myth: that a few years ago, when no one believed in the "New
>Economy" it was still widely held that computers didn't produce more
>stuff per year than they cost -- it wasn't contributing to net
>productivity growth.

The productivity paradox is explained easily (from my point of view): some
people knwo what they're doing, some don't. Lots of people spend tons of
money on IT, but only some of them do a good enough job to raise their
productivity. Those that don't lessen their company's productivity. Net
results? Nothing noticeable. However, on a company to company basis there
are definite results. Don't think that just because some people don't know
how to execute that the whole IT industry is a sham.

>I'd say what you're saying: it's not that GM products the
>million-and-first Bonneville, but that they can produce it in purple,
>just for me, increasing my customer satisifaction. That the
>revolution is in 24 hour customer service, customization -- in
>general, more consumer *happiness*, and tough beans if it isn't in
>the GDP.
>But as an economist, I keep coming back to the ground truth: money is
>money, and nothing else is. If I'm so damn thrilled to get a purple
>Bonneville, I should put at least a dime on the table for the
>privilege -- to say nothing of the $3,000 for a Ford holographic
>blue-purple paint job :-)
>But if I'm not willing to pay for it -- i.e. that prices have been
>flat throughout this era of exploding consumer choice -- then there's
>something else mysterious at work here. Maybe it's that I could
>always walk out on GM and go somewhere else to get my purple
>transportation. That means that even after a trillion dollars of IT,
>industry hasn't gained any pricing power.

Or... that GM has made their internal processes more efficient and it
doesn't cost them as much to make a new purple Bonneville for you.
However, you're still paying the same cost that you could have paid a while
ago. Who wins? Both you and them. There are two sides to the equation:
cost to make, price to sell. Price doesn't have to increase if the cost to
build is going down...

>And if it doesn't have pricing power, it doesn't have fundamentally
>increased profits, which means more money doesn't end up in your
>pocket, either. It's a race to the bottom, as each industry
>computerizes straight into a perfectly competitive market, reaping no
>excess earnings.

Not necessarily true. See above.

>If there's no more money on the table, then something very fishy is going on.
>Like an engineered stock-market bubble papering over the rotting
>weakness of a genuinely deflationary economy.

See, the problem here is once again mixing up the aggregate and the
individual players. I, honestly, don't believe that we're facing a
deflationary economy. I think that we are generally in a good economic
situation. I do think the stock market has overreacted, but for the same
basic reasons you're putting forward, which is they naturally assume that
*all* companies have made productivity advances at the same rate. This I
don't believe. I believe there are plenty of people out there who have
executed poorly and who's companies are decreasing their productivity. I
also believe that it's tough to hide that long term, and those companies
will be flushed out sooner or later. However, there's certainly no reason
to dump on the whole economy, or (especially) the companies who have done a
good job increasing productivity while others have failed.

Of course, my economics might just be a little rusty, and what the hell am
I trying to do *thinking* at 7:30 am on a Saturday morning. Actually, what
the hell am I doing *awake* at 7:30am on a Saturday morning.