Standards Of Living Archives - Center for Individualism

Human wealth should be defined by the widely shared ability to use things that help us flourish. It’s hard to aggregate these “things” in any shared measure, since wealth includes owning a nice car or being able to use Wikipedia immediately and for free. If I buy, or even rent, the car, it counts toward GDP; using Wikipedia counts for nothing in the National Income Accounts, but it’s pretty useful in terms of increasing my utility.

One thing that this means, of course, is that the idea that price-based “standards of living” have been stagnating is just misguided. New measures of GDP would help, but the larger problem is that any purely market-focused metric will miss the ability, and in fact the desire, of human beings to cooperate in groups.To paraphrase Adam Smith, the diversity of things that can be shared is limited by the extent of the cooperation horizon. In the case of Wikipedia, this means that the community working on providing informative entries should be worldwide, to encompass as much expertise as possible.

But that is not always the case, because larger “cooperation horizons” may be associated with higher transaction costs. In the case of sharing physical products or tools rather than information, there is a problem of delivery and return of the physical items.But there are still possibilities for sharing.

For one thing, the software or app that makes the platform work can be shared. It can be “open source,” in fact, with systems of access to editing and credit for improvements that work for Wikipedia. Ironically, investigating the history of open source illustrates some of the problems and paradoxes at work. One of the ur-texts of the history is “Computers: Software Is for Sharing,” published by Time magazine on July 30, 1984. If you can get access to it, you’ll see that the article describes the problem of splitting software from the physical electronic platform for which it was created.The irony is that this article about how information wants to be free is itself trapped behind Time’s paywall. The notion of “open source” is generally associated with software, but observers in a variety of fields have recognized the underlying problem: economic efficiency would seem to dictate that price equals marginal cost, but for software and other kinds of information the marginal cost is essentially zero. In economic terms, information “wants” to be free.“Free” could mean libre, or exempt from restrictions, meaning that there are no restrictions on publication or dissemination. But “free” also has the literal meaning of gratis, being available without charge, and available for adaptation to contexts quite different from its creation or original use. One advantage of making information free is that it connects with “permissionless innovation,” by making it possible for entrepreneurs, inventors, and people who have a problem to take something someone has devised for use in one setting and use it for their own purposes. Cooperation is useful, because we can’t know what innovations will be useful, either in their first form or in their subsequent forms.All of this is clearly an argument for using “open source” conventions, wherever that’s possible. The phrase “open source,” and the sentiment it embodies, is ancient. But the modern use in the context of software and widely disseminated information is usually dated to 1984, when Stewart Brand told Steve Wozniak:

It seems like there’s a couple of interesting paradoxes that we’re working here… On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other.

Wozniak replied, “Information should be free but your time should not.”

Brand reportedly responded: “But then, at what point of amplification is your time being so well rewarded that it’s getting strange or so under-rewarded that it’s strange? There’s problems there with the market.”

Open source software is freely available, freely reproducible, freely editable, and technology neutral. Where does it come from? Clearly, society needs inventors to discover new information and programmers to create new software. We must cover the average costs of this valuable service. But once that new information exists and is available to anyone, the cost of sharing is negligible.

The cost of dissemination is a few keystrokes, an internet connection, and space to store the digital content. Information needs to be libre, but it can’t be gratis. Open source software, managed by a cooperative system that solves problems of triangulation, transfer, and trust, is one answer. Wikipedia, for example, doesn’t pay anyone, but it can provide incentives through giving public credit for doing good work.

Economists call this “voluntary provision of public goods.” The mystery, in traditional neoclassical economics, is not why there is so little of this kind of cooperation, but why there is so much. To be fair, Adam Smith and other “founders” of political economy were quite aware of the diversity of human cooperative capacity, but we have lost sight of this sphere of activity in favor of a narrow focus on markets.

Alexis de Tocqueville famously highlighted this general capacity for cooperation by forming voluntary groups, for humans in general but with a focus on the USA in particular. Tocqueville was no fan of using majority rule for everything. The problem with political democracy, he said, is that citizens are isolated and “enfeebled.” They can do hardly anything by themselves, and they can’t force others to help them. He admired the American solution to this problem: Organize into private groups, and leave government out of it. As Tocqueville put it:

The political associations which exist in the United States are only a single feature in the midst of the immense assemblage of associations in that country. Americans of all ages, all conditions, and all dispositions constantly form associations. They have not only commercial and manufacturing companies, in which all take part, but associations of a thousand other kinds — religious, moral, serious, futile, extensive, or restricted, enormous or diminutive. The Americans make associations to give entertainments, to found establishments for education, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; and in this manner they found hospitals, prisons, and schools. If it be proposed to advance some truth, or to foster some feeling by the encouragement of a great example, they form a society. Wherever, at the head of some new undertaking, you see the government in France, or a man of rank in England, in the United States you will be sure to find an association….

[The people] all, therefore, become powerless if they do not learn voluntarily to help one another. If men living in democratic countries had no right and no inclination to associate for political purposes, their independence would be in great jeopardy, but they might long preserve their wealth and their cultivation: whereas if they never acquired the habit of forming associations in ordinary life, civilization itself would be endangered.

An interesting recent example, one that is largely operating at a level below public recognition, but which is nonetheless quite widespread, is “tool libraries.” It’s not pure ownership, it’s not renting, but it is cooperative sharing. And it doesn’t appear at all in GDP, even though voluntary private associations like this dramatically increase our wealth.

Suppose there are 30 of us, all of whom live in a small neighborhood, or even in a single block of a densely populated city. What we share is that each of us has a tool, a different tool, for woodworking or car repair, or some specialized activity we are all very interested in. Then the 30 of us collectively have an extensive tool “shop,” though the shop doesn’t exist in any one place. LocalTools.org provides software for groups of people to use to share tools, and to do it in a way that dramatically reduces the cost of having a well-stocked workshop.

After all, good tools, especially specialized tools, are expensive, and it is the nature of highly specialized tools that most of us don’t need them very often. But the right tool, exactly the right tool, is often indispensable for doing a task well. Maybe that tool is a compound miter saw, and maybe that tool is open source software to adapt to local conditions for sharing a compound miter saw; many things are now possible.

If a local group can solve the problems of finding each other, registering which tools are available and when, making it possible to reserve one or several tools, effecting the delivery and return of the tool, and using sensors connected to software that measures abuse or damage to the tool, with a time stamp to attribute responsibility, then a group of people can each have better tools than any of them could have afforded individually. This kind of organized sharing is enormously beneficial, because it also reduces storage costs dramatically. There are problems to be solved, but rapid progress is being made in solving sharing problems.

Centralized ownership with sharing, or distributed ownership with sharing, simultaneously increases wealth and decreases measured GDP. We shouldn’t let our inability to measure increased wealth convince us that we aren’t making progress. Because if there are opportunities to cooperate, people who are allowed to help each other will find ways to do it. The misguided focus on outdated metrics based on price rather than cooperation is leading to concerns about a “growth recession,” when we are actually in a golden age of rapidly increasing wealth.

Michael Munger is Professor of Economics at Duke University and Senior Fellow of the American Institute for Economic Research. This article appeared at aier.org.

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