Saturday, August 29, 2009

China, Apple and the economics of free

Apple recently announced that it has reached a deal to bring the iPhone and its Apps Store to China. This is a very interesting and potentially very insightful proving ground for technology and economics which was actually made possible by the Chinese government keeping the masses poor.

The iPhone handsets will be purchased by China Unicom, who will not share subscription revenue with Apple. This means, for Apple to capitalize on this opportunity to reach such a huge market, they have to sell Apps, lots and lots of Apps.

But, that huge marketplace is made up mainly of very low income individuals. Apple, and its army of application developers must come up with highly desired software at a price point that’s agreeable to poor people. In many cases that price point may be zero, or close to zero. The game will be to figure out how to get a little money from an enormous amount of people, consistently. New streams of revenue related to applications may have to subsidize the production and distribution of the applications. It could be advertising, data collection, storage, establishing networks, or some function nobody has imagined yet. There are further challenges. The iPhones in China will not be WiFi enabled. It sounds like a tough bed to grow in, but the parallel processing nature of the world of iPhone application development should make it up to the challenge.

Some believe the “economics of free” is a threat to capitalism. It’s not. Capitalists adapt and continue to find ways to improve their own lot by improving the lot of others. Government can change the rules, but they can’t kill the game. That’s because capitalism takes advantage of and works with human nature, whereas socialism aims to suppress it.

Of course, I don’t endorse repressive dictatorships as a means of market-testing ideas, but there it is. Americans, through commerce, have the opportunity to try to improve the quality of life of people across the globe, under severe restriction. Demonstration of the power of free markets and free people is a far more effective tool than either diplomacy or force in making the most of such an opportunity.

Thursday, August 13, 2009

It's the volume stupid!

In response to lower revenues and budget shortfalls due to the recession, many state and local governments and agencies have resorted to raising fees, taxes, fines and whatever else they can think of. In my neck of the woods, the City of Fountain is contemplating a sales tax increase to pay for infrastructure projects. While I applaud the proponents for getting their plan before the public well in advance of even attempting to get it on the ballot, I think the focus is in the wrong direction.

It seems to me a better strategy would be to look for ways to increase sales volume rather than the sales tax rate. Government should be looking for opportunities to get out of the way. If government needs to cut spending, how about cutting in areas that make doing business cumbersome. Look for paperwork to eliminate, outdated or unnecessary codes or regulations. Less bureaucracy means fewer man hours. There's your savings.

Yes, that would mean a reduction in government's work force, but I believe those jobs would be made up many times over in a more vibrant private sector. Business doesn't want advisory boards, cheerleaders, commissions or more government assistance. It just wants you out of the way.

Saturday, August 8, 2009

Cash for Clunkers for housing?

The Senate has added another $2 billion to the Cash for Clunkers program. This is in addition to the original $1 billion allocated to the program. In all, that's enough to subsidize the purchase of about 750,000 new cars. The program was originally supposed to run through November, but consumers jumped on the deal and even with the new money, it will probably be done within a week or so.

A major component of the program is that the cars traded in to qualify for the rebate must be destroyed. This takes used cars off the road and is allegedly good for the environment (although I don't know if building an entirely new car uses less energy than just keeping your old one). If this program is deemed a success, why not apply it in other areas?

In the housing market, we could reduce inventories and increase energy efficiency by offering a $20,000 rebate on the purchase of a new house when you agree to have your current home destroyed. It would be the end of the housing glut right? One could also apply it to electronics. Smash your old TV, get $100 off a new one. This could be the silver bullet we've been looking for. To get out of an economic downturn, all the government has to do is pay people to destroy their stuff and buy new stuff! It could be applied to services as well. Throw some mud on your car and the government will give you a voucher toward a car wash. Bring a steak to a restaurant and get a voucher toward a meal, providing the steak is destroyed. Show proof that you've destroyed an mp3 file and get half off your next song purchase. Divorce your spouse and get $3,000 toward your next wedding.

This does more than create economic activity. It allows the government to determine which economic activity to create. Instead of individuals running around allocating resources all willy nilly, the much more intelligent and wise experts in Washington D.C. can ensure that you're spending your money on what's best for society as a whole and not just wasting it on yourself and your family.

Sure it will be expensive, but with the government's new policy of actually printing on both sides of paper, the raw materials cost of printing more money should come down. No problem there. Crank up the presses!

Friday, August 7, 2009

Sorry Big Brother, Technology Favors Freedom

Some politicians have had more success than others putting new information and communication technology to work for themselves. Ron Paul has used the internet very effectively to get out his message. Obama far out-manuevered his opponents on the net as well. Until recently, it was a matter of being the first to know what was available and how to use it. All that is about to change.

The internet, Twitter, Facebook, MySpace and other mass collaboration/communication networks are no longer a mystery to any one group of activists. In fact, the ability to communicate in real time with like minded people across the country and across the globe has made activists out of people who never felt like they had any control over the social-political landscape. This is bad news for collectivists and statists.

The new reality is that interest groups no longer need be a formal organization or even come with a long term commitment. Like minded individuals can band together for a rally this afternoon, and be on opposite sides of a different barricade later the same evening.

This type of "free radical" association favors those who tend to frown on central control in general. For people who truly value the preservation of individuality, free association and free markets, this mode of operating is right in their wheelhouse. It's actually a real life demonstration of the principals they espouse.

The White House is frantically trying to put the genie back in the bottle in response to the ad hoc association of people opposed to the health care overhaul. They've put out a call for people to report "fishy" information put out in emails, blog posts, even casual conversation. If they think that's going to stifle open communication, they couldn't be more wrong. I imagine the inbox at "" contains more angry and sarcastic emails than "fishiness" reports.

Monitoring and manipulating groups of neatly organized citizens is far easier than trying to corral 300,000,000 "free radicals". Some are panicked by the emerging social trends enabled by mass communication technology. They would refer to it as chaos. I believe the founders would refer to it as beautiful.