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December 08, 2012

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It does the other way: Megaupload Shutdown Hurt Box Office Revenues
http://torrentfreak.com/megaupload-shutdown-hurt-box-office-revenues-121124/

Only commercial transactions contribute to GDP. If I clean out my garage and you clean out your garage, there is no effect on GDP. If you hire me to clean out your garage and I hire you to clean out my garage and we pay each other $100 for the labor, GDP is increased by the amounts we pay each other.

So if I download an album without paying for it, there is no commercial transaction and hence no boost to GDP.

When the government steals your money and gives it to a loser who then spends it, that too is counted as an increase in GDP. When the government prints a crapload of money, thus stealing from everyone who owns anything denominated in dollars, and gives it to a loser who spends it, that too is counted as an increase in GDP.

But so what? We already knew that GDP is a lousy way to measure the actual creation of value rather than the transference of value.

I think an accountant would measure the contribution of the illegal copies at cost (zero), not at fair market value from legitimate sales.

I don't know how economists operate, though.

GDP is just a metric. One can argue about whether more wealth is created, but since no money changes hands when the files are downloaded illegally, there is no increase in GDP.

The album may not be worth $10 to those 10 million people. Value is subjective. Most of those 10 million people value the music far less.

When I discovered that I could pirate music in 1997 in my dorm room, I quickly built an enormous music collection that would have cost perhaps ten thousand dollars at retail.

Was that giant collection worth that much to me? Not a chance. As a cash-poor college student, I might have been willing to pay $100 for that collection. In other words it was worth maybe 1% of the retail price to me.

With present income would allow me to easily pay retail for that whole collection. But I don't because its still not worth it to me. I don't steal the music -- I just don't download it at all.

I don't think legitimate music and videos should even count towards GDP. Consider alcohol, tobacco, drugs and gambling. Does getting drunk, getting cancer and blowing your paycheck at the casino really produce anything of value? What if a bunch of nerdlings get together to start a professional gamer league and charge admission to watch them play. Does paying to watch a bunch of dill holes play video games create value? People may be willing to pay but it doesn't produce anything tangible.

To answer your question, legal music and videos are counted towards GDP but illegal activities aren't.

Price is determined as a function of Supply and Demand.

With P2P file sharing etc the supply side of the product approaches infinitity.

We only "value" a music album at say $10 because that is what they used to cost before P2P was so widespread.
Even legit music prices are lower now, the main reasons they have more value that $0 is that there is a certain amount of effort required to source free music and a certain risk of getting caught.

So the value of purely intellectual works is extremely volatile. The benefits are mainly indirect for example making educational information available for free may educate people to produce something with a less volatile value.

@destructure

You seem to argue that anything done for the sake of entertainment is valueless? Either that or you consider certain forms of entertainment invalid?

If someone is paying money for something they must either perceive some value from it or they are being scammed.

An economy that only exists to produce raw utilitarian things that allow us to continue to exist but not provide pleasure would probably feel a lot like prison.

I don't think legitimate music and videos should even count towards GDP. Consider alcohol, tobacco, drugs and gambling. Does getting drunk, getting cancer and blowing your paycheck at the casino really produce anything of value? "


Also, As HS says about family time, spending money on child care increases GDP while staying at home with your kids doesn't.

A better way of measuring quality of life is how free you are from wage labor and how much you are dependent of the market to live. If I can take 2 years off from work and still live then I am freer than someone who can't. The vast majority are completely dependent. On the other hand, Tom Cruise is completely independent. He has a ton of money and can do what he wants. He can do movies if he wants for pure pleasure, but still get paid millions. It would be like as a child you could play baseball in the park anytime you wanted and get paid millions. Tom Cruise and people like him live like a super rich child that doesn't have to go to school.

Cruise lives in a perpetual summer with more money than he knows what to do with that allows him to indulge in almost every whim. He's as free as a human can be, unless he has addictions.

He gets to benefit from everyone else's entrapment.

A real measure of wealth would probably be something like (energy consumed)/(hours worked). So let's say that you use 1000 units of energy and you only have to work 20 hours, then your wealth is 50. This would work better at a country level than at an individual level.

The long-known inadequacies of GDP have people turning to happiness as a measure of a nation's well-being. This is probably better suited for post-industrialist/post-materialist nations rather than less developed countries. Of course, there will always be reasonable objections and arguments as to what constitutes happiness.

If you're not wealthy, cultivate inexpensive life-long hobbies and interests. Unfortunately, in the social status game, people seem to gravitate toward "travel" and wine snobbery. On this forum, it seems an important part of life-satisfaction is perhaps not being happy but knowing how the world "really" works (or pretending to). The real winners are those who can honestly claim happiness, whether its starting a family and watching professional sports, or having the most "AMAZING" summer in Barcelona.

If I pay a prostitute to have sex with me and give me an orgasm then that does not count for GDP because it is not officially recognized. But if I get a heart attack and go to the hospital to get treated than that definitely increases the GDP because medical services is officially recognized.

I think we all agree that getting an orgasm does much more to increase your standard of living compared to getting a heart attack?

I can think of other absurdities of GDP

A nation where everybody needs to drive an hour a day to get two and from work has a higher GDP than the same country where everyone can walk within five minutes. The driving country has to spend money on gas, car parts, etc. Even accidents contribute.

The Internet only adds a few bucks a month to everyone's value, even though you couldn't have had it for all of the money in the world three years ago.

A question to anyone familiar with the economic literature: if GDP is so obviously absurd as a measure of human well being, why does all national policy seem to be based on increasing it?

Real GDP (living standards) are increased insofar as the illegal copiers are benefited by their consumer surplus - that is - the price at which they would have legally purchased the music. The four problems with analyzing modern digital content sales is that (1) The producer is a monopoly, (2) The Marginal Cost is zero, (3) The Fixed cost is large, (4) The distribution industry cartel keeps prices absurdly standardized.

So the real supply curve simply jumps from zero and then shoots off horizontally into infinity at the point of the market rate of returns from the intersection with the normal demand curve.

There's also the problem that your time to listen to music is more scarce than your money if copies are costless. Listening to one piece of music takes your time and attention away from listening to another when cost isn't the limiting factor - and competing for your attention in marketing can be a zero-sum or negative-sum activity.

Interestingly HS when they estimate GDP, many countries try to guess/estimate how big the "shadow economy" is and include it.

http://www.unescap.org/stat/isie/reference-materials/National-Accounts/Non-Observed-Economy-National-Accounts.pdf

This is a major portion of the GDP of Italy for example.

The U.S however has a policy not to include illegal activity, which means the U.S estimate of GDP is biased downward.

"Does illegal file sharing increase GDP?"

The term you're looking for is "misallocation of capital/malinvestment". So, yes, file sharing helps GDP because anything that diverts money from more productive investments is a negative for GDP. The music industry used to be a waste of money because recording companies had oligarchical power and were able to set prices for albums that were far ahead of their actual value. With file sharing, money that would have gone to the unproductive music industry instead goes elsewhere because consumers can get their music either for free.

Other areas of capital misallocation are:

* Food prices (why is food, which should be easy to produce given modern technology, inflating so rapidly?)

* $1 trillion in student loan debt.

* Energy prices.

Another area of malinvestment (and a good example of how to fight the Cathedral):

Public and Private sector unions

Michigan Governor Announces Support for Right-to-Work Legislation

http://www.breitbart.com/Big-Government/2012/12/06/Michigan-Governor-Announces-Support-for-Right-to-Work-Legislation

National unions spent $23 million trying to pass Proposal 2, which would have added collective bargaining to the state constitution and overruled 170 laws already on the books. But Proposal 2 failed with 58 percent of Michigan voters deciding against it in last month's election.

Now Governor Rick Snyder and the state's Republican legislature have teamed up to push something that once would have been unthinkable in Michigan, right-to-work legislation. For the first two years of his term, Governor Snyder affirmed that he supported collective bargaining and denied any interest in right-to-work legislation. That changed with a video he release this morning. Governor Snyder makes two arguments in support of the legislation. First that it is fair to allow workers to choose whether or not to be part of a union and second that it will help Michigan compete with states like Indiana which recently passed similar legislation:

"Price is determined as a function of Supply and Demand.

With P2P file sharing etc the supply side of the product approaches infinitity.

We only "value" a music album at say $10 because that is what they used to cost before P2P was so widespread."

The music industry used price fixing to overcharge customers for music. It was only technology that broke their cartel.

"Based on the first sentence, pirated music does not increase GDP because it’s not “official recognized,” but that’s really circular reasoning because maybe it should be officially recognized."

Let's you "officially recognize" it, and include the illegal downloads in your GDP calculation. To be consistent, you should also recalculate a "true market price" of the album, taking into account both legal and illegal downloads. So if 10 million people download it for $0, and 10 million people download it for $10, then the average download price -- the "true market price" is $5. And since $5 x 20 million is the same as $10 x 10 million, it would be no different from the officially recognized contribution to GDP.

Which makes sense: illegal downloads don't expand GDP because they don't increase the market value of downloads. Heck, they probably don't even increase happiness, because they lead to a surfeit of music, decreasing the perceived value of each song and album.

Siggy, you're old enough to remember when kids bought vinyl albums, and you probably knew some music fans growing up, even if you weren't one yourself. Remember how they would prize favorite albums, and listen to them over and over? One album by their favorite band was worth much more to them in happiness terms than a random album is to someone who has downloaded hundreds of thousands of them.

GDP sucks when it's based on keynesian economics.

One interesting thing about music is that the people who care the most about it (the young) have the least wealth to spend on it.

I spent a lot of what money I had as a teenager on popular CD's that I almost never listen to anymore. I mostly listen to classical music on the radio now but other than that music is not important to me.

It's sort of like teenage boys being the horniest people there are but (on average) having little or no access to sex.

If no one pays for music then how will musicians earn a living? Maybe people will stop producing good quality music eventually if they can't sell it. That will cause the standard of living to go down.

Or maybe people will just keep making music in their spare time and work a day job to pay the rent.

[HS: People are willing to pay LOTS of money to see famous musicians play live, so people will have just as much incentive as always to create great music so they become become super-rich by giving concerts.

So music is a really bad example. There might be other areas, such as software, where copyright protection is more important, but even on that front there exists free and open-source software.]

"A question to anyone familiar with the economic literature: if GDP is so obviously absurd as a measure of human well being, why does all national policy seem to be based on increasing it?" -- HAR

I'm not an economist but I'd imagine its used because it pretty much includes just about all legal commerce in new production. If they started cherry-picking what went into it then you'd likely get quite a bit of disagreement over what should be included.

*

"The term you're looking for is "misallocation of capital/malinvestment". So, yes, file sharing helps GDP because anything that diverts money from more productive investments is a negative for GDP." -- TUJ

Good point. And it's in line with my thinking of what SHOULD constitute real productivity.

There's a mistaken assumption: that illegal downloading is not a commercial transaction. But it is. Otherwise the guys from the Pirate Bay wouldn't have any money. Last time I visited Pirate Bay, there were tons of pop-up ads for gambling websites and Russian mail-order brides.

With music, either you sell your music to your audience; or you sell your audience to someone else. The pre-filesharing economic model was mostly music-to-audience sales. The only exception was commercial radio. The audience didn't pay to listen to their favourite songs, because the radio station sold their ears to advertisers.

In the new economy, music is no longer the Ding an sich. It's purely the bait to hook the punter and sell him something else. Music videos are now so full of product placements, they look more like adverts than adverts do. Jimmy Iovine makes far more money off Beats headphones than off the music sales of his Interscope-Geffen label; every new artist on that label is required to wear Beats headphones in studio photo shoots etc.

Does this new economic model increase GDP or merely redistribute it? It's a complex calculation. It's probably changing the character of the pop music we're exposed to.

"People are willing to pay LOTS of money to see famous musicians play live, so people will have just as much incentive as always to create great music so they become become super-rich by giving concerts."

Judging from the comments of the semi-prominent musicians I follow on Twitter, the economics of touring aren't so great, and very few musicians have become super-rich by giving concerts. Most of the ones who can still reliably pack big venues probably built their followings when music was scarcer, before the era of illegal downloads. There were fewer bands played on the radio, more fans per band. And people who like a band during their formative years tend to like it for life.

Illegal downloads have probably made music more of a winner-take-all field than it was before.

TUJ,

Re Michigan's proposed right-to-work legislation, I generally support it, with some reservations. Reservations first:

The logic of mandatory union dues is that the union negotiated higher wages for workers, so "right to work" laws let new workers free-ride off of those gains by not paying union dues. Similarly, well-paid non-union workers in right-to-work states have also benefited from union collective bargaining, since one of the reasons their employers treat them so well is to obviate workers' demand for unions. And we're better off if workers can make a living in blue collar jobs. It means they won't be dependent on government assistance, and won't automatically vote for Dems. It makes for a healthier society.

On the other hand, here's why I support the right-to-work laws in Michigan:

1) The unions themselves have undermined the rationale of mandatory union dues by screwing over new workers with two-tier wage deals.

2) If any state's unions deserve to be gutted, it's Michigan's UAW, which helped bankrupt what were once America's largest companies and inflicted crappy cars on their fellow citizens for years.

3) Right-to-work laws will help Michigan compete for jobs with other states, and Michigan needs help competing.

GDP is a crappy measure, so yeah, you may be right.

"Good point. And it's in line with my thinking of what SHOULD constitute real productivity."

Most of the misallocation of capital occurs in sectors of the economy where the incumbents enjoy monopoly or oligopolistic powers such as the college creditentialing cartel, agriculture, and the old music industry. Price competition is the best way to break these things up.

"Illegal downloads have probably made music more of a winner-take-all field than it was before."

I think you're right. In the current Top Forty, a small number of producers and writers are responsible for almost all of the hit records. Doctor Luke, Max Martin, Stargate - they basically produce everyone. Was there a previous period where it was this concentrated?

Current pop gives the impression of ruthlessly efficient, streamlined, military-grade crassness. Teams of super smart producers and writers applying intense cognitive effort to one purpose: making sure the music's dumb enough to appeal to Jersey Shore fist-pumping idiots.

It takes a lot of cleverness to make music sound this stupid.

"Similarly, well-paid non-union workers in right-to-work states have also benefited from union collective bargaining, since one of the reasons their employers treat them so well is to obviate workers' demand for unions."

Possibly, but as you pointed out, the economic and political benefits of RTW greatly outweigh any of the arguable benefits of unionization.

Also, the article mentions that this legislation affects PUBLIC sector unions, i.e., the most indefensible type of unions.

"So music is a really bad example. There might be other areas, such as software, where copyright protection is more important, but even on that front there exists free and open-source software."

Computer game development has much more clear spillover benefits to the economy than music. Some benefits are that computer game developers gain excellent programming skills which they take with them to other industries because computer games are among the very, very hardest types of all programming to do well. Computer games encourage more software and hardware development to support the special needs of computer game programmers. They also encourage development of better programming languages that can perform very complex operations games have to be able to do to become a hit.

"When the government steals your money and gives it to a loser who then spends it, that too is counted as an increase in GDP. When the government prints a crapload of money, thus stealing from everyone who owns anything denominated in dollars, and gives it to a loser who spends it, that too is counted as an increase in GDP."

Transfer payments are not included in the GDP.

[HS: The commenter you are quoting meant that it's counted as GDP after the transferee spends the money.]

"If no one pays for music then how will musicians earn a living?"

A 70s/80s era musician once said: "In the old days we used to do concerts to sell albums. Now we make albums to help sell concert tickets."

Nevertheless, you're not going to be seeing quite as many Paul McCartney/Andrew Lloyd Webber-sized fortunes in the future. I've spent less on music in the last 5 years than I used to spend in the course of a single month, and most of those purchases were for still struggling up-and-coming acts whose concerts I attended.

"[HS: The commenter you are quoting meant that it's counted as GDP after the transferee spends the money.]"

Of course, why shouldn't it? It doesn't matter who spends the money, and GDP can be adjusted to the extent that printing money causes inflation. So I don't think this is a relevant criticism of GDP.

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