Thoughts on Creating Your Own Economy

Tyler Cowen refers us to his fascinating preview article of his upcoming book, Create Your Own Economy. In the article, he makes the following arguments:

  1. The economic concept of “production” has changed: More and more production is occurring internally, inside one’s mind, rather than in factories. The combination of one’s entries and work on different social networking tools (e.g. Twitter, Facebook, MySpace) results in production of internal “joy, emotion and suspense.” Accordingly, GDP tells us less about human well-being than it previously did.
  2. Since many of these productive web activities are free, they don’t generate jobs and appear to hurt the traditional economy. The fact that only 50 people work for Twitter is an example of this.
  3. Despite this, there is a bright side. Individuals get what Cowen calls a “human capital dividend” by reallocating time in the “free sector” and freeing former manufacturers and intermediaries to do more productive work.
  4. The other part of the “human capital dividend” is that people are A) becoming more socially connected with diverse groups of people and B) better able to keep track of long-term interests and stories because of the ease and low-cost of keeping track with the resources of the Internet. Rather than the Internet causing us to become increasingly impatient, it causes us to develop and maintain long-term interests and connections.

Now, my own thoughts:

  1. John S. previously posted that at this point in Twitter’s nascent stage, we really don’t know what it’s socially useful function is: Cowen provides an interesting answer to this question by saying that Twitter is part of a larger system (it complements other social networking sites, forms, etc.) that deepens and diversifies human connections. Rather than being stuck in the George Mason Economics department only speaking to economists, Cowen can communicate with his peers across the country with ease.                                                                                                                                                                                                                                                              Cowen doesn’t say this, but I think Twitter provides a unique form of social connection in the sense that it more closely resembles brief hallway conversation than it does other forms of personal communication. So, while Facebook and email may be of value for—among other things—allowing people to stay in touch in terms of traditional longform conversations, Twitter allows people to get the benefits of the more mundane and brief interactions with their friends and acquaintances, even if they are not in the same geographic location. This makes it easier to sustain relationships across long distances by allowing multiple aspects of personal friendships to be replicated through Internet tools. My one concern is that while tweeting may crowd out individual interaction by causing people to make general announcements on Twitter rather than chatting with friends about them on the individual level. Rather than sharing a link with a friend who has a common interest in that link, it may become common nature just to post it on twitter.
  2. Cowen’s third argument may be his most interesting. People are spending more time in sectors that do not require much labor in the traditional sense. Inevitably, this is going to result in the elimination of jobs in the sectors in which people are leaving in order to spend more time on the Internet. The most obvious example of this is the shift from print to online journalism and the resulting difficulty of getting a job in the print journalism industry. But, the implication of Cowen’s argument is that people do not need the same level of monetary income that they used to have to reach the same level of well-being. Someone can have a pleasurable day of meaningful reading, video watching, and travel planning for essentially no cost. The tough trade-off is that people whose talents were suited for dying industries (like print journalism) will have to pay the transaction cost of finding other industries suited for their talents and interests. Yet, the overall general human capital dividend increase due to the Internet outweighs the aforementioned transaction cost.
  3. While I generally think Cowen’s arguments here are insightful I do think he overclaims a bit based on his own subjective experiences. If you’ve ever read Marginal Revolution, it is easy to realize that he is an incredibly productive and internally driven individual who would use the Internet in a very rational and beneficial manner. Yet, there are individuals whose Internet activity is not as coherent, people who do not use the Internet primarily to keep track of long-term interests and maintain meaningful social connections. Some people click all of the top Digg links not because they are interested in them, but because they are popular. Some people click on the first Google link even if it is not the ideal Google link. This may make people temporarily satisfied, but I think this is distinct from the long-term well-being from internal production that Cowen describes early in the article. I look forward to seeing if he qualifies more when the whole argument is presented in book form.

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