Musings

Lisa Dusseault lisa@xythos.com
Sun, 14 Oct 2001 14:30:19 -0700


> -----Original Message-----
> Adam L. Beberg
>
> A. The free flow of information eliminates middlemen.
> B. The american economy is primarily built on middlemen.
Services isn't just middlemen.  The guy who cuts your hair or your lawn is
directly providing his service.  Both he and middlemen are lumped into the
service sector.

> A + B = Danger Will Robinson, we're screwed.
>
> A - Lets say I want a device that does f(x). With the free flow of
> information - not nessecarily free information, I can fire up
> some searches
Yes, but.  Although admittedly some information flows more freely, much is
still unshared.  That topic is what the latest Nobel Prize for Economics was
granted for.
(http://www.nobel.se/economics/laureates/2001/public.html)
"Countless applications extend from traditional agricultural markets in
developing countries to modern financial markets in developed countries."
My favourite is the used-car salesman, who knows much more about any used
car than his customers will.  This stuff is good reading.

> The government labor statistics say 26M people make stuff, 107M
> people do services. Services can almost universally be performed by either
> someone WAY WAY cheaper, or be automated. Not to mention their complete
> vulnerability to the above.

OK, piece by piece here.

(1): "services can .. be performed by.. someone way way cheaper"
Huh?  If services could be performed by someone cheaper, they would be, to
the extent that we have a certain amount of free trade.  Take a look at
_any_ job that pays higher than minimum wage.  If somebody was available to
take the job at minimum wage, then that would be the wage.  Yet even
pimply-faced kids behind the counter at In-N-Out burger are paid
significantly more than min.

(2) "services can ... be automated"
Why do we have waiters and waitresses rather than automats?  Sales clerks?
Phone support?  Yes, phone support can move overseas but many call centers
are still in N.A.  Is your car mechanic going to be replaced soon by someone
cheaper?  Is your gardener or house-cleaner or postal worker automated away?
Who stocks the shelves at Safeway and who packs the book boxes at Amazon?
Picking fruit, driving buses and delivery vans, shining shoes and cars,
making sandwiches at Lee's.  Moving companies, movie theaters, peanut
sellers in baseball stadiums.  Some of these jobs are some of the most
menial in our economy.  They're not disappearing.  "can be " isn't "is".

(3) [services have a] complete vulnerability to [free flow of information].
I take it you mean that middlemen -- those who buy from one and sell to
another -- are the ones vulnerable.  The vulnerability, such as it is, is
not that great, because middlemen have expertise that takes time for others
to achieve.  That time is what they get their cut for.

Do you have time to research every purchase you make?  Your car and your
stereo system, I suppose, if you're like most people I know.  (In another
email you claim anything over $100) But I'm sure you also walk into Target
or CostCo and walk out with something like a $15 garbage can, without
researching the purpose more than the 2 minutes you spend standing in front
of their selection.  Clearly aggregators of cheap goods provide a valuable
middleman service: Target, Safeway or Macy's all have a bunch of related
things under one roof, even though those things come from all over the
world.

Even large purchases are subject to assistance from middlemen.  If you don't
have the time to sell your old car yourself, you might be willing to sell
the car for $300 less to a lot.  The lot may even be able to clean it up and
sell it for more than you would have been able to, because it's worth
somebody else's extra $300 to walk onto a lot with a wide selection and a
decent reputation (rather than visit random individuals selling random used
vehicles).

Expertise (different from information!), convenience, economies of scale,
time-saving -- middlemen provide all sorts of value that ensures their
continued existence in many realms.

To the extent that you're right: I agree, some traditional advantages of
middlemen are being eroded due to increased availability of information.
This isn't particularly problematic though, because it leads to a more
efficient economy.  Back when we needed a physical store and parking lot and
sales clerks just in order to buy a video game, it cost more.  Now that I
can buy a used Gauntlet Playstation disk from Half.com for $14, I'm getting
more value for my money.  Is that store vacated, the parking lot littered
and the sales clerks unemployed?  Nope -- it's replaced by a Trader Joes,
making their value add on gourmet packaged food and drinks.  Now I get
trader joes closer to my home AND a cheaper used copy of Gauntlet.  Given
enough flexibility in adapting to change -- who loses?

>   The focus right now is on someone cheaper.

Really? So wages are dropping, right?  A big worry during the recent boom
was rising wages.  But are they dropping, even now -- and are they dropping
to levels lower than before the boom?  I'm not sure all the data is in yet,
but it isn't too discouraging.  Don't Chicken Little on us, now.
http://www.dismal.com/economy/releases/release_2k.asp?r=usa_eci
http://www0.mercurycenter.com/business/top/065838.htm
"Wages are also showing signs of rising faster than expected. Unit labor
costs, one gauge of rising wages, increased by 2.7 percent, not 2.1 percent,
in the second quarter compared with the first. Unit labor costs are rising
at 5.1 percent rate among manufacturers, much faster than in the rest of the
economy. " Sept 2001


> Japanesse were doing this before their ongoing 10 year depression weren't
> they?
By "this" you restricting information and convincing people to overpay for
everything?  But, if that's the problem, then why do you think opening up
information sources will hurt?

What I've read about Japans problems, in the Economist, Foreign Affairs and
online, seems that Japan had a major bubble.  A lot of that bubble was
propped up by bad loans from banks or between businesses.

> So which way will we go? unions + restricted information, or do we follow
> japan into the death spiral?

Personally, I don't think those are the only choices.  There are many other
differences between Japan and US.  People in the US are more likely to
participate in the economy, and more flexible in moving between companies
and even locations.  Banks are more open and competitive.

Here's a start:  Krugman's good at discussing reasons, approaches, and
comparisons between US and Japan.
http://slate.msn.com/Dismal/99-03-11/Dismal.asp - japan's "ossified
management culture"
http://web.mit.edu/krugman/www/jpage.html  - more from Krugman on the issue.

"Japan is in the dreaded "liquidity trap", in which monetary policy becomes
ineffective because you can't push interest rates below zero. "

Hope this helps the discussion,

Lisa