I think I very likely misunderstood your post, so some quick thoughts to check for my potential misunderstanding:
I haven’t read the Nordhaus paper, but I assume innovation is a relatively small segment of most companies’ activities.
Whereas this post is treating all of Reddit/this Forum’s employees as contributing to innovation?
No offense to Lizka, JP et.al, but I would not consider most of their work to be innovation
A major caveat here is that iirc economists’ definition of innovation, technology, etc. is very different from the commonsensical definition, so I can totally imagine me being wrong here.
Certainly I would not guess that the typical company has total consumer surplus equivalent to that of 50x their total capital or labor investments.
As a sanity check, I don’t think most users would pay 50x their Netflix subscription fees to access Netflix (even if the counterfactual entails being cut from Netflix’s competitors as well), and I think this generalizes to most companies.
(main exception I can think of is maybe smartphones, maybe internet overall)
I get the impression that you don’t believe this argument too, and are using it as a way to persuade people who are used to working for a much larger audience, without getting into inside-view calculations of impact.
If this is the case, I feel like a more persuasive argument would be to look at differences between consumer and internal or enterprise software, and argue that the value of meta-EA software work is closer to internal company software than consumer software
Note: I literally have a PhD in this specific topic (but my alma mater is Devry Technical College of Alabama. This is different from the canonical EA schools of { Harvard, Yale, Oxford } , so I guess it cancels out the value of this signal).
I think Ben West is just coloring in his argument with the 50x stat from the canonical Nordhaus paper, instead of literally declaring it as modifier. I guess you can view this as an instance of a bad information cascade, but I really think it is OK as it is used. He’s just making the idea of accounting for the externalities more concrete.
I haven’t read the Nordhaus paper, but I assume innovation is a relatively small segment of most companies’ activities.
No offense to Lizka, JP et.al, but I would not consider most of their work to be innovation
It’s a bit of a worldview/ideological thing, but I honestly disagree with this. I think that things commonly used to measure “innovation”, like patents, having a “hot new app”, album release, etc. are just outputs, and are different than the actual work to produce innovation.
The work of the forum team can be genuinely very innovative, even for activity or inputs that can seem mundane at first.
Maybe way of seeing this worldview, is that it’s extremely difficult to find the true original inventors of many important ideas (who actually invented Rock and Roll or Hip Hop? What were the series of steps contributing to powered flight or rocketry?).
As a sanity check, I don’t think most users would pay 50x their Netflix subscription fees to access Netflix (even if the counterfactual entails being cut from Netflix’s competitors as well), and I think this generalizes to most companies.
Note that in the Nordhaus paper, the 50x multiple is comparing company profit to consumer surplus.
We agree that Netflix isn’t getting $9.95 a month (or whatever it is now) in profit. I think they are getting maybe 20%? So with that 0.2X, things work out to $1,000 a year in consumer surplus, I think that’s plausible (maybe a big factor is tail values as with most things, this might be driven by outliers, e.g. the value of Holden Karnofsky examining Beach Boy innovation using streaming media).
Note that the claim of Nordhaus is that companies can’t capture surplus. (So in that framework) it isn’t surprising that Netflix can’t raise it’s prices many times over, which I think is close to what you claim.
Note that the claim of Nordhaus is that companies can’t capture surplus
One minor point: What’s the causal mechanism here? My naive guess would be that companies can’t capture surplus because the surplus will be competed away, which is why I specified “even if the counterfactual entails being cut from Netflix’s competitors as well” as a sanity check.
Note that my comments risks overstating my expertise. My guess is that for the relevant literature involved, you or a RP employee can easily match it with moderate time investment.
One minor point: What’s the causal mechanism here? My naive guess would be that companies can’t capture surplus because the surplus will be competed away, which is why I specified “even if the counterfactual entails being cut from Netflix’s competitors as well” as a sanity check.
Yes, pretty much. So one answer is just quoting from Nordhaus:
(Screenshotting because it’s hard to copy text due to the PDF)
There’s probably many more ideas that are riffs on this, I’m typing this up pretty much as shower thoughts:
Social design: One example is patents, which only have a finite lifespan. So if you actually invented something world changing, it’s not unexpected that you would only harvest a portion of the value, by design.
Private Information: Price discrimination is hard (people have heterogenous demand, it’s not like you can read off their willingness to pay off their forehead, and charge them that)
Investment/Uncertainty/Holdup: A lot of the value might involve risky endeavors, e.g. a new company or project. If an entrepreneur is starting something based on your idea, it’s hard to to charge them 50% or even 20% of their profit due to your invention, without collapsing the whole thing
Assignment of contribution: Ideas and their impact are probably really complicated, maybe involving combinations of existing ideas, so it’s hard to even attribute, much less collect payments on each component.
I think one point of writing up these shower thoughts, is pointing out that it is hard to know.
It’s better to have these ideas out there, than just deferring to Nordhaus.
The work of an economist or even Nordhaus, risks glorifying what are complex, ultimately ideological tinged views of the world. These are hard to be certain of, or even communicate to others with different worldviews.
On the sanity check: Reddit makes about four cents in revenue per user per month. It doesn’t seem crazy to me that the average user gets two dollars of value per month, but a lot of this would depend on things like how many of their users are diehard versus casual users.
I think I very likely misunderstood your post, so some quick thoughts to check for my potential misunderstanding:
I haven’t read the Nordhaus paper, but I assume innovation is a relatively small segment of most companies’ activities.
Whereas this post is treating all of Reddit/this Forum’s employees as contributing to innovation?
No offense to Lizka, JP et.al, but I would not consider most of their work to be innovation
A major caveat here is that iirc economists’ definition of innovation, technology, etc. is very different from the commonsensical definition, so I can totally imagine me being wrong here.
Certainly I would not guess that the typical company has total consumer surplus equivalent to that of 50x their total capital or labor investments.
As a sanity check, I don’t think most users would pay 50x their Netflix subscription fees to access Netflix (even if the counterfactual entails being cut from Netflix’s competitors as well), and I think this generalizes to most companies.
(main exception I can think of is maybe smartphones, maybe internet overall)
I get the impression that you don’t believe this argument too, and are using it as a way to persuade people who are used to working for a much larger audience, without getting into inside-view calculations of impact.
If this is the case, I feel like a more persuasive argument would be to look at differences between consumer and internal or enterprise software, and argue that the value of meta-EA software work is closer to internal company software than consumer software
Note: I literally have a PhD in this specific topic (but my alma mater is Devry Technical College of Alabama. This is different from the canonical EA schools of { Harvard, Yale, Oxford } , so I guess it cancels out the value of this signal).
I think Ben West is just coloring in his argument with the 50x stat from the canonical Nordhaus paper, instead of literally declaring it as modifier. I guess you can view this as an instance of a bad information cascade, but I really think it is OK as it is used. He’s just making the idea of accounting for the externalities more concrete.
It’s a bit of a worldview/ideological thing, but I honestly disagree with this. I think that things commonly used to measure “innovation”, like patents, having a “hot new app”, album release, etc. are just outputs, and are different than the actual work to produce innovation.
The work of the forum team can be genuinely very innovative, even for activity or inputs that can seem mundane at first.
Maybe way of seeing this worldview, is that it’s extremely difficult to find the true original inventors of many important ideas (who actually invented Rock and Roll or Hip Hop? What were the series of steps contributing to powered flight or rocketry?).
Note that in the Nordhaus paper, the 50x multiple is comparing company profit to consumer surplus.
We agree that Netflix isn’t getting $9.95 a month (or whatever it is now) in profit. I think they are getting maybe 20%? So with that 0.2X, things work out to $1,000 a year in consumer surplus, I think that’s plausible (maybe a big factor is tail values as with most things, this might be driven by outliers, e.g. the value of Holden Karnofsky examining Beach Boy innovation using streaming media).
Note that the claim of Nordhaus is that companies can’t capture surplus. (So in that framework) it isn’t surprising that Netflix can’t raise it’s prices many times over, which I think is close to what you claim.
Thanks, your reply and expertise is helpful.
One minor point: What’s the causal mechanism here? My naive guess would be that companies can’t capture surplus because the surplus will be competed away, which is why I specified “even if the counterfactual entails being cut from Netflix’s competitors as well” as a sanity check.
Note that my comments risks overstating my expertise. My guess is that for the relevant literature involved, you or a RP employee can easily match it with moderate time investment.
Yes, pretty much. So one answer is just quoting from Nordhaus:
(Screenshotting because it’s hard to copy text due to the PDF)
There’s probably many more ideas that are riffs on this, I’m typing this up pretty much as shower thoughts:
Social design: One example is patents, which only have a finite lifespan. So if you actually invented something world changing, it’s not unexpected that you would only harvest a portion of the value, by design.
Private Information: Price discrimination is hard (people have heterogenous demand, it’s not like you can read off their willingness to pay off their forehead, and charge them that)
Investment/Uncertainty/Holdup: A lot of the value might involve risky endeavors, e.g. a new company or project. If an entrepreneur is starting something based on your idea, it’s hard to to charge them 50% or even 20% of their profit due to your invention, without collapsing the whole thing
Assignment of contribution: Ideas and their impact are probably really complicated, maybe involving combinations of existing ideas, so it’s hard to even attribute, much less collect payments on each component.
I think one point of writing up these shower thoughts, is pointing out that it is hard to know.
It’s better to have these ideas out there, than just deferring to Nordhaus.
The work of an economist or even Nordhaus, risks glorifying what are complex, ultimately ideological tinged views of the world. These are hard to be certain of, or even communicate to others with different worldviews.
On the sanity check: Reddit makes about four cents in revenue per user per month. It doesn’t seem crazy to me that the average user gets two dollars of value per month, but a lot of this would depend on things like how many of their users are diehard versus casual users.
Ah yeah that seems pretty reasonable, sure.