Monday, February 07, 2005

Economy for the New Age

The human mind--and most basic human habits--have been formed by the processes of thousands of years of evolution. During 95% of that time we were hunter-gatherers living from meal to meal. Statistically, even magnificent predators like the Siberian Tiger only manage a kill in 1 in 7 tries. We are geared right in our genes toward scarcity and surviving scarcity. We have an inherent urge to gorge when food is available because our genes are telling us it might not be available next time, and that's one reason so many of us are getting fat.

The scarcity economy applies to all sorts of things besides food. There aren't as many houses as people might like, there aren't as many cars, and so forth. Nearly any physical good fits the scarcity model.

The virtual world doesn't fit the model. There seems to be a virtually limitless amount of computational power, bandwidth, and memory so that virtual worlds can be built without limit. And there is a so-called networking effect, so that other people's usage of a certain good--say, the AIM Instant Messager--increases, rather than decreases the value I derive from this product.

In the Twentieth Century it was discovered that very small things such as electrons do not behave like anything comparable in ordinary human experience. They aren't particles and they aren't waves--they're something our genes have not prepared us for in the least. Similarly, we seem to be entering a new realm in the virtual world for which we have nothing in our gut-level feeling to prepare us. The old laws, based on a scarcity economy, no longer seem to be appropriate. The Economist describes this in more detail. Undoubtedly it will take a long time for our thinking to adjust.

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