A View From Under the Long Tail

An anonymous reader writes "Here's a funny article by James Boyle in the Financial Times on what it really feels like to be part of the long tail economy." From the article: "Where Amazon's normal customer service seems to be run by suspiciously cheerful MBAs from Stanford, who break off from counting their stock options to write apologies and deliver refunds, 'Amazon Advantage', the ironically named system for selling wares, is clearly based on the last days of the Soviet system. The problem with their representatives is not that their native language is not English, it is that their native planet is not Earth."

Comments

More about Amazon.....

[BWJones]

This is not really an indictment against Chris Anderson or his most excellent work on the Long Tail concept so much as it is a demonstration of Amazon's lack of infrastructure (or management) in their Amazon Advantage program.

I've heard from more than one person of their frustrations in dealing with this program which has lead me to delay efforts to publish a couple of items through them...

Re:More about Amazon.....

[AKAImBatman]

it is a demonstration of Amazon's lack of infrastructure (or management) in their Amazon Advantage program.

I have no idea why people insist on using confusing examples for the Long Tail concept. THIS is the Long Tail. Brand new games created for a system that's 30 years old, with a very specialized fan base. In a traditional market, you would NEVER be able to make money off of this. But in an Internet-enabled environment, you can theoretically reach every member of this esoteric market in every region in the world, with a very small advertising budget.

The only reason why Amazon keeps coming up is that they collectively sell lots of esoteria, thus managing to hit a farther end in the population dropoff (i.e. the longest part of the tail) than a business like AtariAge could reasonably profit from.

Re:More about Amazon.....

[Deb-fanboy]

"find an alternative, and you will see Amazon fix itself." too true. I have had very poor service from Amazon when I have used it as a (customer in the UK.) First I bought a usb thumb drive which arrived late because the vendor claimed "Amazon never passed on the order". Then I ordered a book on Python for my little geeklings (my children) who were showing interest in learning some programming. Strike while the iron is hot I thought. However this thought was not shared by Amazon. After a month I received an email saying that the book would be delayed a further 6 to 8 weeks. So I cancelled and instead went to http://computermanuals.co.uk/ who managed to get me the book delivered to the Scottish highlands next day! Guess who I am using for my tech books now. found my alternative.

Re:More about Amazon.....

[David Off]

> The only reason why Amazon keeps coming up is that they collectively sell lots of esoteria, thus managing to hit a farther end in the population dropoff (i.e. the longest part of the tail) than a business like AtariAge could reasonably profit from.

That is not the example Chris uses though. He sites the author who had been in the doldrums for years then, via Amazon's "readers who bought this book also bought X" is rediscovered. The agregation of lots of small sales is important but also the data mining possibilities it gives between the short and long tail. It may be that lots of stuff on the long tail is there for a reason, it is crap, but there are a few gems hidden away that computers can discover by analyzing customer choice.

Re:More about Amazon.....

[Anonymous Coward]

By way of confirmation of the above reports...
I tried to sign on with another part of the Long Tail economy with bn.com
I found with bn.com many of the same problem as the academic author found with Amazon's program.

Re:More about Amazon.....

[smchris]

Sounds like Amazon hired from within the publishing industry. I only had to order books for a school a couple times to get the impression that the publishing industry has a lot in common with the music biz as far as so-called "organization".

Life sucks, until there's real competition...

[HMC CS Major]

When the Amazon system inserted random hieroglyphics into the description of our comic book it took many e-mails to reach a human - or at least sapient - being. When we did we were told reassuringly that Amazon's system for updating web pages was broken and that there was no prospect of fixing it. For this, we give them 55 cents out of every dollar and an annual fee

Fund/find an alternative, and you will see Amazon fix itself. Until that happens, bend over and grab your ankles.

Re:Life sucks, until there's real competition...

[askegg]

There are alternatives - publish it yourself and cut out the middle men completely. 37 Signals did it with "Getting Real" with great success.

Re:Life sucks, until there's real competition...

[1u3hr]

There are alternatives - publish it yourself and cut out the middle men completely.

I've worked in publishing for 15 years. Producing the books has never been easier. Delivering the books to customers is now the hardest part. If you publish yourself, if you sell any at all (which is a whole other story) you end up with cartons of books in your garage and spend your days packing and posting and processing credit cards and cheques. Companies like Amazon earn their 55% by dealing with that. But Amazon, while admittedly the 800 lb gorilla of the online book market, is far from the only choice despite what TFA says.

Re:Life sucks, until there's real competition...

[askegg]

I can't imagine the challenges you must face in the publishing industry at the moment. It seems anyone with a copy of Illustrator/PageMaker/inDesign/etc can produce a book and try to sell it. But what you are describing here is actual physical copies of the material - this doe snot apply in 37 Signals case. They charge your credit card and automatically produce a PDF document with the purchasers name all over it (probably to prevent piracy). The entire process is automatic and requires no manual intervention besides the initial setup (which does require some in depth technical knowledge). Once this is done all you need to worry about is how to promote and sell the book, which as you mentioned is a whole other problem.

Re:Life sucks, until there's real competition...

[1u3hr]

produce a PDF document ...

Okay, but this is a limited market. Most people want hard copy, especially for fiction and illustrated works.

Wow

[OverlordQ]

The article, which was written by a guy, whose name is James, who shares the first name of a President, who helped create the constituion, which was written a long time ago, which is quite as old as when Communism was envisioned, which we can blame the Greeks for, which make great olive oil, which comes in extra virgin, which covers the majority of the slashdot crowd. . . .

Oh wait, what was I talking about again?

Re:Wow

[CrackedButter]

Your post was funnier than the article as well. I read it looking for the humour which wasn't there.

A Tail of Too Shities!

[dotslashdot]

It sounds like a Tail of Too Shities!

it makes sense, sort of

[macadamia_harold]

Where Amazon's normal customer service seems to be run by suspiciously cheerful MBAs from Stanford, who break off from counting their stock options to write apologies and deliver refunds, 'Amazon Advantage', the ironically named system for selling wares, is clearly based on the last days of the Soviet system.

well, with any service, there are going to be different tiers depending on what sort of customer you are. Obviously, direct Amazon customers get the top-level customer service. However, it doesn't make economic sense for Amazon to provide that same-level service for customers of a low-volume third-party-vendor selling their goods on an Amazon storefront.

I'm not saying it's "right", I'm just saying it makes sense.

Re:it makes sense, sort of

[Anonymous Coward]

The submitter is not a buyer, he is a small publisher selling his book through the mysterious Amazon Advantage program. The customer service for customers who buy books, whether from Amazon directly or from "low volume third parties" is exactly the same people in the same department doing the same work, although the policies that apply are different. When they take a call, they don't even know which of those types of customers will be on the phone until the customer explains why they are calling.

The network effect makes competition impossible

[njdj]

Fund/find an alternative, and you will see Amazon fix itself.

A major point of the article is that this is not possible because of the network effect - people who want to buy a book online go to Amazon, because Amazon has all the books and "just works".

As the article puts it:

As an academic, I am very interested in network effects - the curious economic features of networks, which increase in value as they increase in size. Does this mean that customers will be "locked in" to the system that achieves ubiquity? (...) Does this threaten the efficiency that the networked economy was supposed to provide? As a vendor, I fume and rant, but am unable to convince myself that we can shift distributors: will the people who want our books trust an unfamiliar name?

Re:The network effect makes competition impossible

[Anonymous Coward]

A major point of the article is that this is not possible because of the network effect - people who want to buy a book online go to Amazon, because Amazon has all the books and "just works".

Sp what in reality seems to be happening is that the network effect shifts power from small suppliers towards big purchasers?

This reminds me of the way supermarkets function, they are the ones with major purchasing power and squize producer margins as hard as they can get away with.

Re:The network effect makes competition impossible

[daviddennis]

What's really happening is that it adds some trust to the equation.

Take a random web site that wants to sell a book. You don't know if that book will actually show up, or if they'll just take your money and vanish. You don't know them.

Enter Amazon. You know that if you buy something from Amazon, you'll get it. You have confidence in them. Of course they sometimes make mistakes. I remember when they sent me the wrong book, but it turs out it was an interesting book so I read it anyway. But you know they won't just take your money and run with it, and they'll take the book back if you don't like it.

The big advantage Amazon has is aggregating shipping costs. Say I find a small vendor who's selling me a book for $15. They tack on $ 5 shipping and make it $20. I can find that book at amazon for $12.50 and buy it together with three other books for $8 in shipping. So my shipping overhead per book is $2 instead of $5, and I got the book for a little less, too. That's a huge win for me and makes it far more likely that I will buy your book.

This phenomenon is why the person in the article is still dealing with Amazon. Buying a $15 book for $20 is prohibitively high overhead, at least for me. Buying a $15 book for $14.50 ($12.50 + $2 shipping) sounds a lot better. And I know I'll get it, usually pretty quickly.

The truth is, it's better than ever to be a small producer of books or seller of merchandise thanks to Amazon and eBay's trust mechanisms, which are effective in spreading a bit of the trust the big guys have to the little guy. That's a huge advantage to bring the little guy.

Would you want to turn back the clock to the days before Amazon? Odds are that your small publishing company wouldn't even be noticed. Amazon and eBay help link you with your customers, and that's a huge advantage over the way things were before.

After all, nothing's stopping you from opening your own online bookstore. You just won't sell as much, or make as much money. And it's a huge distraction from the core business of writing and publishing books, which surely is hard enough without adding the complexities of sales to the equation.

D

"their native language is not English"

[larry bagina]

That sounds like the problem. Everytime I've experienced tech support as egregious and inconsistent as TFA describes, it was outsourced/offshored.

Disintermediation? BAH!

[Crash McBang]

Looks great at first, then you realize they've changed one middleman for a different, 'internet based' one. The only folks who come out ahead on this deal are UPS, FEDEX, and USPS.

Re:Disintermediation? BAH!

[Teflik]

That's the thing. He talks about how cool the Internet is, getting rid of the middle-man, then he starts doing business with a middle-man, Amazon. He's not really participating in the "new" economy: he wants to sell dead trees through a middle-man. (That's fine, if that's what he wants to do.)

But the new economy that he claims to be studying would have him publishing his content directly online, digitally. No dead trees or intermediaries required.

Maybe that's what he wants to do, maybe not. But he's confusing two different things.

The network effect makes competition DIFFICULT

[HMC CS Major]

Competitors to Microsoft exist: Apple, Linux

Competitors to Yahoo exist: Google, etc.

Competitors to MySpace exist: Facebook, etc.

Competitors to YouTube exist: Revver, Vobbo.

The network makes it difficult, but nobody's ever given up because something was difficult. There are always options, and yes - there can be significant barriers to entry, but it's never "impossible".

Re:The network effect makes competition DIFFICULT

[howlingmadhowie]

how about a competitor to ebay :)

Re:The network effect makes competition DIFFICULT

[Anonymous Coward]

Amazon... wait, damnit!

Re:The network effect makes competition DIFFICULT

[Anonymous Coward]

Amazon, of course :)

Re:The network effect makes competition DIFFICULT

[junklight]

There is a house in Steatham on the A11 in the UK that does its own ebaying - whenever I drive past they have a range of goods sitting by the side of the road with hand drawn price boards.

The road transport system = the new ebay. People could club together to sell things and you could call them -- Oh I don't know -- Markets or Shops....

Re:The network effect makes competition DIFFICULT

[bit01]

The network makes it difficult

Difficult, for high levels of difficulty, approximates impossible.

And just because something is difficult rather than impossible doesn't somehow make it okay.

Unbalanced, uncompetitive markets are bad and it's a pity the legal system hasn't really learned to deal with them yet.

---

New game: Spot the lying astroturfer on /.!

Re:The network effect makes competition DIFFICULT

[DarrylKegger]

Well put.

Re:The network effect makes competition DIFFICULT

[ZippyKitty]

The road transport system = the new ebay. People could club together to sell things and you could call them -- Oh I don't know -- Markets or Shops....

Yes but this caters to a very niche market - those who leave the house to buy things :) .

ZK

Re:The network effect makes competition DIFFICULT

[blighter]

nobody's ever given up because something was difficult

Nonsense. I give up on things because they're difficult all the time!

Re:The network effect makes competition DIFFICULT

[Frizzle Fry]

nobody's ever given up because something was difficult.
This statement sounded suspicious to me, so I tried to think up a counter-example, but after twenty minutes I quit because it was too hard. I guess you were right!

Goanna

[MarkRose]

I've heard the view under the long tail can be quite interesting. Not something I want to witness myself though.

Amazon doesn't have stock options..

[Anonymous Coward]

..they give out restricted stock, which is not the same: it's real, it just takes time to vest.

Discrimination!

[premchai21]

I call discrimination against extraterrestrials!

Makes more sense for virtual than physical

[patio11]

I sell software online. Selling software at Best Buy gets you, perhaps, 40% of every sale, and they won't even think of doing it at the number of units I sell. Unless its to guffaw. Shelf space is limited and projects have to be made on the scales of minor nation states.

On the Internet, startup costs are negligible (I had capital investment of $60), and if you've got an aggregator which has a nation-state scale worth of eyeballs (*cough* Google *cough*) then you can pay them a weeee bit of money to send a sliver of those eyeballs over to you. Transactional costs amount to almost nothing: Paypal takes 4% of every sale. If you count the cost of AdWords, that comes out to 20%, but thats still a third of the traditional retail channel and AdWords scales *down* where retail only scales *up*. You might not think there is that much of a market for a one-screen application that makes reading bingo cards for teachers (www.bingocardcreator.com), but way-down-the-tail made $600 gross, $450 net. Not too terrible for an app which took a man-week to write and, literally, 20 minutes of work in September ("Lost your registration key? No problem, have a new one." "No, thank YOU, Ethel." multiplied by handful of emails).

The other beneficiaries besides me? Google (Adwords), Paypal, and Uncle Sam. They'll get $90, $30, and $lots respectively as a result of September, all for doing zero marginal work: they just let the computer systems/country they established continue to operate, and they get more money.

Re:Makes more sense for virtual than physical

[PCM2]

$600 gross, $450 net. Not too terrible for an app which took a man-week to write

Uh... yeah. Not too terrible. You made $15 an hour.

Re:Makes more sense for virtual than physical

[Jedi Alec]

Uh... yeah. Not too terrible. You made $15 an hour.

And quite likely had fun doing it, not to mention he got to work without an incompetent looking over his shoulder.

Re:Makes more sense for virtual than physical

[Secrity]

That $450 net was for one month's sales (and the month is not over yet). I would suspect that because this product is aimed at school teachers that September sales would be a major sales spike. The man-week development cost should be divided by the number of unit sales, which I would hope will be over a period of many months; his actual work during September (and presumably for most months) was or will be a fraction of an hour.

I believe that the point is that the ability to sell this rather specialized program over the internet makes it feasible to market the program. The alternative would be to put classified ads in school teacher oriented magazines and have teachers mail him a check for $25. Ad Sense expands his market as it includes people other than school teachers who may be looking for a product like this.

Re:Makes more sense for virtual than physical

[lawpoop]

"The other beneficiaries besides me? Google (Adwords), Paypal, and Uncle Sam. They'll get $90, $30, and $lots respectively as a result of September, all for doing zero marginal work: they just let the computer systems/country they established continue to operate, and they get more money."

Just *let them* continue to operate? Yeah, maintenance just happens on its own. When things wear out, they just get up and repair themselves.

Have you ever visited a "3rd world" country? Personally, I'm happy to pay my taxes. I think I getting a good deal, comparatively.

Re:Makes more sense for virtual than physical

[gfxguy]

Yes, but I bet he has another job, too, and the fulltime job pays for health insurance, retirement plans, etc.

Those extra (non-primary) jobs people take for extra income don't need to pay a lot to be worthwhile.

Plus, as another reader pointed out, he probably had fun doing it, he was motiviated for some reason (wanted it for himself or a friend), so it's just extra money in his pocket. Nothing wrong with that, and it's a fine example of how a niche market can be worthwhile.

Re:Makes more sense for virtual than physical

[LunaticTippy]

I don't think you know what marginal work means.

Google has to pay its bills and replace broken servers anyway. Uncle Sam has to maintain our first world glory anyway. Selling $600 worth of software over the uberweb didn't mean google had to install a new server farm, nor did a new canal have to be dug.

Re:Makes more sense for virtual than physical

[lawpoop]

I guess I didn't. Thanks for the lession :) !

Amazon - Please Read This

[Ed Almos]

Dear Amazon

Because of your piss-poor service I have not bought anything from you for two years. I use your website to find books and then go to my local English bookstore to place the order. DVDs are obtained in a similar way by browsing your site and then walking round the corner to my local video rental shop. I am sure that I am not the only person who does this.

Ed Almos
Budapest, Hungary

Re:Amazon - Please Read This

[Kris_J]

I am sure that I am not the only person who does this.

Indeed not. I have a printout of my Amazon wishlist that I intend to take to a local bookshop fairly soon.

Re:Amazon - Please Read This

[kevin_conaway]

Well perhaps you living in Hungary has something to do with it. In the US, I've never had a problem with their service. In fact, the one time I had to return an item, it was probably the best experience I've ever had returning something.

I'm the exact opposite of you. I go to the bookstore to browse for books and then order them online, especially for technical books. To each his own though.

Re:Amazon - Please Read This

[CaptnMArk]

I also had a good experience with them (US Amazon).

I received a scratched DVD, and they sent me a new copy even without asking for the return. While I doubt this would be the case if it was a more expensive DVD (it was below $20), it's still nice from them.

And I'm just on the other side of ol' Iron curtain, in Slovenia.

Re:Amazon - Please Read This

[flynt]

Could be regional, US service has been exceptional every time I've ordered, which is often. They've taken back digital cameras no questions asked, and the one time they sent me an incorrect book, they let me keep it and sent me the right one overnight shipping. YMMV.

Re:Amazon - Please Read This

[Mistshadow2k4]

Well perhaps you living in Hungary has something to do with it.

What's your point, exactly? It's okay for them to provide worse service in other countries they do business in since they're based in the US?

Re:Amazon - Please Read This

[B_tace]

Same here and I live in the US. They have screwed up so many of my orders that now I just order from Barnes and Noble. BN never messed up one of my orders. Oh, and it used to be that it was impossible find the phone number for Amazon on their website.

And their supposed MBA support staff, yeah right!

Re:Amazon - Please Read This

[nine-times]

Dear Ed, Amazon probably isn't too upset by this since, if you notice, there are ads on their pages. By browsing their site, you're participating in their business model, which includes ad revenue. Thanks a bunch, me

Re:Amazon - Please Read This

[Blakey Rat]

First of all, yes, I'm sure Jeff Bezos reads Slashdot and he'll get right back to you on that.

Secondly, here in the US at least, Amazon service is incredible-- and here's the catch-- ONCE YOU FIND THEIR PHONE NUMBER. (You can Google for the number.) They sent me a video game box that was missing the DVD inside. This wasn't Amazon's fault, as they're not the company packaging the game DVD inside of the box, but they gladly sent me out a replacement with the quickest shipping and gave me a pre-paid stamp to send the empty box back. The main thing to emphasize was that this screw-up was not Amazon's fault! What they could have done is send me to the publisher of the game, but instead they took care of me as if they actually valued my business.

Re:Amazon - Please Read This

[LunaticTippy]

Does my ad-blocking self contribute to anyone's business model? Sometimes I wonder if browsing some site I don't want to support helps them even if I don't see ads. If their numbers are better they can charge more for ads. I am making their numbers better. Of course, I am costing them a tiny bit for bandwidth etc. Oh yes, if everyone did it the whole system collapses.

Re:Amazon - Please Read This

[alienmole]

What's your point, exactly? It's okay for them to provide worse service in other countries they do business in since they're based in the US?

In some circumstances, yes. There are all sorts of issues which come up when shipping internationally that don't arise for domestic customers, and in particular, returns are much more expensive (not to mention that shipping is slower, in either direction). I don't know the specifics of anyone's bad experience in Hungary, but before blaming Amazon I'd look at whether there might have been reasons outside of their control. After all, someone else just posted what a great experience they had in Slovenia, so clearly Amazon isn't just blowing off its international customers as a matter of course.

Re:Amazon - Please Read This

[fm6]

Either your reading interests are very narrow or Hungarian bookstores are very good. Half the books I order from Amazon are limited-interest titles that local bookstores never carry.

Re:Amazon - Please Read This

[furchin]

Dear local English bookstore,

Because of your high prices I have not bought anything from you for two years. I use your bookstore to find books which are interesting, then go to Amazon.co.uk to place the order. DVDs are obtained in a similar way by browsing your DVD section, then walking back home to my computer. I am sure that I am not the only person who does this.

Furchin
London, England

PS: I think ultimately things balance out.

Economics ... setting the record straight

[argoff]

This is a side issue, but I hear a lot of economics BS out there and every time I hear it I get pissed off.

First off, an efficient high tech economy means that the "business cycle" is going to be more drastic and harsh not magically soft land and smooth out like every body preaches now days. "soft landing?", It is absolutely insane for people to say that.

Second off, during the late 1800s the US economy experienced a period where efficient factory production drove down costs for every year for nearly half a century. This also had the effect of driving down pay and driving down profit margins, but it drove down costs faster than both - so people still did well. Now fast forward to 2006, and the US is going into the information age full blast, and hard drive farms that would cost over a million dollars yesterday, now cost a few hundred and can be held in your hand. In addition, overseas labor is driving down costs even more. But today there is one huge 'bigger than life' problem ... we have TOO MUCH FREAKING DEBT ... and our payment obligations are not going to go down even when pay and profit margins do. Translation: the US is in deep shit. (they will probably have to hyperinflate to stop a systemic collapse)

Third off, having these huge amounts of debt and all these stock market bubbles and all these housing bubbles (today) is not a normal part of a free market economy. They happen specifically because investment is financed thru the banks, which is financed thru the Federal reserve, which is financed by nothing. I mean, when they need money to loan out - they print it up and loan it out. That means that over time, more and more money goes into circulation driving up prices, driving up debt, and driving out private savings. Hey lookie! The US has record high debt, record high housing prices, and record low savings. Hmmmmm.

Fourth off, if we used money like gold that couldn't be printed up out of thin air. That would naturally limit the amount of debt in the economy and force finances to come from savings instead of print-ups. That would kill bubbles, but more importantly put investment power back into the hands of private savers instead of central bankers and government.

In sum, the US economy is about to make a radical shift as the housing bubble violently pops and when it does the US will be in deep shit. This will happen because everything you have been taught about central banking and paper money is BS. Loaning out "modern" paper money (instead of real money like gold) leads to irrational allocation of resources that causes inflation, bubbles, too much debt, and puts investment power into the hands of inefficient central planners (bankers) instead of private individuals. Seriously, name one institution who ever thought they had too much money. At this point it is beond repair, so people would be very wise to collect guns, food storage, and gold like no tomorrow because all freaking satanic hell is about to break loose.

Re:Economics ... setting the record straight

[Anonymous Coward]

Blah blah blah gold standard blah blah

Beware the man of one book.

Re:Economics ... setting the record straight

[guet]

Loaning out "modern" paper money (instead of real money like gold)

The value of Gold is no more real than that of a promissory note. The important thing is scarcity, and paper money, if managed properly, can be just as scarce as any valuable commodity.

Re:Economics ... setting the record straight

[boater rich]

4. They tried that once, it was called the Gold Standard and indirectly led to the great depression and mass unemployment.

Re:Economics ... setting the record straight

[laughingcoyote]

While I agree in principle with some of your points...

This also had the effect of driving down pay and driving down profit margins, but it drove down costs faster than both - so people still did well.

Correction here-those who owned the factories did very well. Do you know what life was like for a 19th century industrial worker? Here's a hint: The labor strife didn't arise because safe working conditions and decent pay made life as a factory worker a desirable one.

Re:Economics ... setting the record straight

[Anonymous Coward]

(instead of real money like gold)

What good is gold? You can't eat it. You could try to make houses or clothes out of it, but it's very poor for that. You can't fuel your car on it, and unlike paper money, you can't burn it to keep you warm.

Gold is useless, except as an arbitrary token of value. And paper is easier, and numbers in bank account easier still.

Re:Economics ... setting the record straight

[Kattspya]

Yes, theoretically fiat currency could be as scarce as gold and not be overproduced. But could you name even one fiat currency that isn't inflating and hasn't been inflating? I didn't think so. Why then would you propose that paper money and gold money is more or less equivalent when they clearly are not other than in theory?

If I'm not mistaken the price of gas measured in gold is lower than it's ever been.
Source: http://gold.unanimocracy.com/2006/05/15/i-bought-g as-for-89-cents-per-gallon-today/
Can this be because theory and practice differs somewhat?

Re:Economics ... setting the record straight

[dwandy]

if managed properly, can be just as scarce as any valuable commodity.

except I agree with argoff (142580) that

Seriously, name one institution who ever thought they had too much money

So I think the point is that you can trust the greed factor will cause it to be impossible for it to be "managed properly". Creating a system with a natural limit (essentially a limit outside of our control) causes the system to work correctly.
This is like saying that a command economy can work if "managed properly"...and we saw how well that worked.

Re:Economics ... setting the record straight

[khallow]

Yes, theoretically fiat currency could be as scarce as gold and not be overproduced. But could you name even one fiat currency that isn't inflating and hasn't been inflating? I didn't think so. Why then would you propose that paper money and gold money is more or less equivalent when they clearly are not other than in theory?

It's not clear to me that lack of inflation is a good thing. One of the problems with a noninflating currency is that isolated communities (hmmm, maybe parts of society with low money velocity?) run out of it. Some parts of the developed world are resorting to their own currencies. A number of massively multiplayer games literally have currrencies that inflate and deflate as sources and sinks are changed in size.

For example, there's a graph of "meat", the food-based currency versus the US dollar over the past year for the web game, Kingdom of Loathing. It shows a period of considerable deflation from September 2005 to January of this year. Since then, it has steadily increased over time. There actually were two periods of inflation that I know of. The first was know as "bugmeat" and was an extraordinary period of hyperinflation that occured over a single day in August 2004. Rather than roll back the game (maybe they didn't have good backups?) to before "Black Sunday", the key developer decided to employ a host of "meatsinks" to drain the excess meat from the game. This period of deflation continued through the end of 2005 (the graph just shows the vestige of it).

This is a good example of a fiat currency that doesn't automatically inflate and actually experienced a substantial period of extreme deflation. It has inflated at points in the past, but that would happen with any current that fluctuates in value and with which it is possible for a bug to generate a few orders of magnitude more meat on one person than existed prior in the game. The game developers had a good deal of control over how meat is created and consumed. Rather than reduce the supply of meat, they introduced new ways that the meat could be consumed. In recent time, the developers have introduced new sinks and reduced substantially one of the most popular meat sources.

Re:Economics ... setting the record straight

[maxume]

Nah, not really. Go to your local mega mart and look around. All that stuff there is tangible wealth. Then go to a gas station and ask them how much gas they can sell you. Probably as much as you can buy. That's tangible wealth. Most of the giant, crappy houses that you are so worried about aren't made of paper. They are tangible wealth.

By far, the most valuable asset that most people possess is their ability to work. This is how you get a loan for a house, the bank expects you to be able to work in the future; most of the time, that bet works out pretty well. When someone who makes $75,000(in today's monopoly money) loses $500,000, it sucks, but it also equates to about 7 years of work. If you are 40, that isn't that huge a deal. It sucks, it makes their life more difficult, but they are perfectly able to soldier on, they have 4 (maybe 5?) times that much labor left in them.

All that will happen if the paper economy collapses is that people with a lot of paper wealth won't have it anymore. It will suck, but it will suck less than the Great Depression.

The primary function of a currency is to engender trade; it is easier to trade with someone if you can trade in some common abstract unit. As long as that unit isn't freely available to market participants(it it 'scarce') it doesn't matter much what it is. As other responses have said, it doesn't matter a whole lot where that scarcity comes from, the fed is just as good as the relative concentration of a particular element in easily reachable parts of the earths crust.

Re:Economics ... setting the record straight

[Secrity]

Most of the giant, crappy houses that you are so worried about aren't made of paper. They are tangible wealth.

Wealth for whom? Most homes in the US are not owned outright by the 'owner', they are mortgaged. If the 'owner' of a house owes less money than it is worth, then the equity may be considered to be wealth. If the housing bubble bursts and the money value of a house is less than what the 'owner' owes on it, to whom is it considered to be wealth? As long as the 'owner' makes as much or more money than they did when the money value of the house declined, it doesn't really matter what the house is actually worth because the 'owner' just keeps paying the mortgage. The problem comes in when the 'owner' no longer has the means to pay the mortgage or the 'owner' needs to move to a different house, perhaps to move to where there is a job.

If a person owns their house outright, it does not really matter what the money value of their house is currently worth, and it really is wealth to the owner. The only time that the outright owner of a house would care about it's current value is when they want to extract money value from it (and for property tax valuation).

Re:Economics ... setting the record straight

[alexgieg]

Even so, it was better than living in rural areas. Were it not and people simply wouldn't go to cities to work in the industry.

Re:Economics ... setting the record straight

[maxume]

Housing is market like anything else. If the current owner defaults, the bank is going to try to minimize their loss, they will(generally) not sit on the house, they will move it at market price, which has an impact on that market. So the house represents wealth to anybody who feels that they are better off paying what it costs to live in they house than they would be otherwise.

The point of the example was that they house has value regardless of how much paper you can exchange for it at a given moment. It is a tangible asset that isn't going to vanish into thin air. The value relative to other goods is certainly likely to change, but it will still have intrinsic value.

Re:Economics ... setting the record straight

[farker haiku]

The important thing is scarcity, and paper money, if managed properly, can be just as scarce as any valuable commodity.

I'm confused. My wife says our paper money is scarce and it's because of poor management. Does this mean we're getting rich?

Re:Economics ... setting the record straight

[alexgieg]

I don't know if I agree or disagree with your reasoning. But I noticed you mentioning the concept of "velocity of money", and I thought you might be interested in this Mises Institute article which tries to show it's a bogus concept: Is Velocity Like Magic?. A pretty interesting reading.

Re:Economics ... setting the record straight

[Anonymous Coward]

Is inflation necessarily an entirely bad thing? The main thing with Inflation is that it makes money worth less over time; the real place this is going to hit is when you use money as a store of value- your value will decline over time, so you have incentives to spend your money, or to invest it.

The US inflation rate is typically quite low.

Re:Economics ... setting the record straight

[spike2131]

But could you name even one fiat currency that isn't inflating and hasn't been inflating?

The Yen was deflating fairly recently. It has since gone back to very modest inflation, which is a good thing because it means the Japanese economy is finally growing again.

Currencies can inflate or deflate based on a number of factors, and the ability of the government to print more money is only one of them.

Inflation isn't just a function of money supply, its a funciton of velocity - how quickly that money changes hands. You could spend gold coins on ten different items, or you could spend one gold coin ten times on each different item.... but the price per item would remain at one gold coin because the change in velocity has negated the change in money supply.

This is to point out but one reason that the notion that there would be no inflation under a gold-backed money regime is clearly wrong. To pick historical examples of inflation in gold-backed economies, there was significant inflation throughout Eurasia during the 12th to 14th centuries, the 16th-17th and centuries, and the later 18th and early 19th century.

Re:Economics ... setting the record straight

[Kattspya]

The Yen was deflating fairly recently. It has since gone back to very modest inflation, which is a good thing because it means the Japanese economy is finally growing again.

Did you not read my question? I'm not saying that fiat currency can't deflate or only inflate at a small pace over shorter periods of time. I'm saying that fiat currency will inflate at a much much higher rate than a gold currency.

Currencies can inflate or deflate based on a number of factors, and the ability of the government to print more money is only one of them.

Yes, another allowing banks to create money out of thin air because they can loan money out against a debt.

Inflation isn't just a function of money supply, its a funciton of velocity - how quickly that money changes hands. You could spend gold coins on ten different items, or you could spend one gold coin ten times on each different item.... but the price per item would remain at one gold coin because the change in velocity has negated the change in money supply.

Read the mises link someone posted and tell me why it's wrong. It makes alot more sense than you do

This is to point out but one reason that the notion that there would be no inflation under a gold-backed money regime is clearly wrong. To pick historical examples of inflation in gold-backed economies, there was significant inflation throughout Eurasia during the 12th to 14th centuries, the 16th-17th and centuries, and the later 18th and early 19th century.

Of course there would be some fluctuations in a gold economy but they would be alot smaller because you can't make gold out of thin air.
You can't seriously propose that fiat money and gold money are even near each other in stability.

Re:Economics ... setting the record straight

[Kattspya]

Would it be bad if someone took away a few percent of your house every year? I mean it gives incentives to spend money (for house repairs).

Re:Economics ... setting the record straight

[argoff]

FYI, the federal reserve act happened in 1911, the great depression in 1930. The great depression was caused precicely because they could loan out more money than they had gold to back it up. The solution to the great depression was not to pay off the overbearing debt by printing up money, but to avoid the oversupply of debt. With gold, you can't loan out more gold than there is gold - you can only do that with paper.

Re:Economics ... setting the record straight

[DeadSea]

Would it be bad if someone took away a few percent of your house every year?

You mean like property tax?

Re:Economics ... setting the record straight

[Dolly_Llama]

And his point is the house isn't a tangible asset for you the mortgage holder until you have enough equity to ride out potential dips in the market. For the bank, yes, but not for you.

Re:Economics ... setting the record straight

[caramuru]

An efficient high tech economy produces a less drastic - not a more drastic business cycle as stated in your first point, your other points notwithstanding.

Most economic crashes resulted from excessive inventory buildups. The crash of 1873 is a classic example of this. In such a crash, firms forecast increasing demand for their goods and, consequently, ramp up production to meet this perceived demand. When the demand fails to appear, the firms (1) slash prices in the hope of unloading their inventories, (2) stop producing goods so as to not exacerbate their inventory problems, and (3) stop buying materials and services needed for production. The affected parties, including the firms' suppliers and the firms' employees, in turn, reduce their purchases of goods and services and, ultimately, the entire economy suffers. The behavior of the firms and the affected individuals is addressed by microeconomic theory.

The high tech economy dampens the business cycle because it reduces excessive inventories. It does so in three ways. First, modern forecasting methods are much more accurate than the rough methods of forecasting used earlier (say prior to WW II). Second, the quantity, quality, and timeliness of the data going into modern forecasting models is much better than available previously. Finally, modern manufacturing is much more adaptable to changing product mixes forecasted by these models.

A review of economic history shows that the modern business cycle is less volatile than older business cycles. I'm sorry that you are pissed off, but the evidence supports the "economics BS" cited in your post.

Re:Economics ... setting the record straight

[Kattspya]

I mean like inflation. Property Tax is not usually argued to be good for the economy but inflation for some reason is. I blame Keynes.

Re:Economics ... setting the record straight

[maxume]

Who happens to own the house isn't particularly relevant to the 'economic collapse' stuff of top post of the thread. If there is a housing bubble and it were to burst, things would suck mightily, especially for those who lost their homes, but as long as the house doesn't get burned down, it is there for someone to use, so we probably won't end up with guns and anarchy like the post I first replied to seems to think.

I don't have a mortgage btw, can't afford one. I am pretty disappointed about missing out on the runup. People who have owned their houses since 1990 are the real winners.

Re:Economics ... setting the record straight

[argoff]

Nah, not really. Go to your local mega mart and look around. All that stuff there is tangible wealth. Then go to a gas station and ask them how much gas they can sell you. Probably as much as you can buy. That's tangible wealth. Most of the giant, crappy houses that you are so worried about aren't made of paper. They are tangible wealth.

So what, there is industry and business in a gold based system too. Half the industrial revolution happened on gold. This "lets print up money and create wealth" attitude might actually work if printing up money didn't water down the supply that is already out there, if it didn't take control from private savers and put in into the hands of central planners, if it didn't increase the general debt load ... but by definition it does.

By far, the most valuable asset that most people possess is their ability to work. This is how you get a loan for a house, the bank expects you to be able to work in the future; most of the time, that bet works out pretty well. When someone who makes $75,000(in today's monopoly money) loses $500,000, it sucks, but it also equates to about 7 years of work. If you are 40, that isn't that huge a deal. It sucks, it makes their life more difficult, but they are perfectly able to soldier on, they have 4 (maybe 5?) times that much labor left in them.

Well, if you rape someone they will probably come out a stronger person in the end. So waht are you saying?

All that will happen if the paper economy collapses is that people with a lot of paper wealth won't have it anymore. It will suck, but it will suck less than the Great Depression.

No it will be far worse than the great depression. During the great depression, you had destruction of debt based wealth, but not distruction of money. During this one, you will have both. Buddy, you have no clue what you're in for. When paper money dies, all jobs will die with it, but most property will likely be confiscated by creditors long beforehand. In sum, nobody will have property, nobody will have savings, and nobody will be able to invest.

The primary function of a currency is to engender trade; it is easier to trade with someone if you can trade in some common abstract unit. As long as that unit isn't freely available to market participants(it it 'scarce') it doesn't matter much what it is. As other responses have said, it doesn't matter a whole lot where that scarcity comes from, the fed is just as good as the relative concentration of a particular element in easily reachable parts of the earths crust.

No, the function of money is also a store of value, a unit of account, and a way of keeping track of things. When you kill those, then it predestines it to loose it's function to engender trade. It tells people lies eg. "buying a house is a good investment", when it actually is a poor allocation of resources. Lies like, "this money has this much value" when it doesn't and won't. The more it gets watered down, the more it forces people to get rid of it immediately, even if it would otherwise be in their best interest to save for a while. It eventually makes rational trade and investment impossible.

Re:Economics ... setting the record straight

[DerekLyons]

This will happen because everything you have been taught about central banking and paper money is BS.

As soon as I read/hear a line like this - the author thereof goes automatically in the 'barking lunatic' bin, right beside the inventors of perpetual motion machines and magic braclets that increase your gas mileage by 10%.

Re:Economics ... setting the record straight

[argoff]

The high tech economy dampens the business cycle because it reduces excessive inventories. It does so in three ways. First, modern forecasting methods are much more accurate than the rough methods of forecasting used earlier (say prior to WW II). Second, the quantity, quality, and timeliness of the data going into modern forecasting models is much better than available previously. Finally, modern manufacturing is much more adaptable to changing product mixes forecasted by these models.

That is a wonderfull explanation of why it would dampen the business cycle under a gold based system. But under a paper based system, that means that production immediately stops as soon as the system is saturated with too much debt. And if they print up money, it immediately raises prices faster than pay.

A review of economic history shows that the modern business cycle is less volatile than older business cycles.

You need to read up on the great depression.

Re:Economics ... setting the record straight

[maxume]

So what, there is industry and business in a gold based system too. Half the industrial revolution happened on gold. This "lets print up money and create wealth" attitude might actually work if printing up money didn't water down the supply that is already out there, if it didn't take control from private savers and put in into the hands of central planners, if it didn't increase the general debt load ... but by definition it does.

None of the things I talked about would change in value if the dollar collapsed. Food for a day is food for a day, gas for a mile is gas for a mile, a roof for the night is a roof for the night.

Well, if you rape someone they will probably come out a stronger person in the end. So waht are you saying?

If I am 30 and have enough gold set aside to feed myself for 5 years, and enough future labor to feed myself for 60 years, losing the gold sucks, but isn't a huge problem, especially in the long term. It works just the same for paper money.

No it will be far worse than the great depression. During the great depression, you had destruction of debt based wealth, but not distruction of money. During this one, you will have both. Buddy, you have no clue what you're in for. When paper money dies, all jobs will die with it, but most property will likely be confiscated by creditors long beforehand. In sum, nobody will have property, nobody will have savings, and nobody will be able to invest.

Confiscation by a creditor doesn't destroy wealth, it transfers it. The accessibility and availability of things like houses is likely to go down in a collapse, but a bank wants to sell mortgages, not own empty houses.

No, the function of money is also a store of value, a unit of account, and a way of keeping track of things. When you kill those, then it predestines it to loose it's function to engender trade. It tells people lies eg. "buying a house is a good investment", when it actually is a poor allocation of resources. Lies like, "this money has this much value" when it doesn't and won't. The more it gets watered down, the more it forces people to get rid of it immediately, even if it would otherwise be in their best interest to save for a while. It eventually makes rational trade and investment impossible.

There is no need for money to store value. It might be a good thing, but as long as you can exchange money for something with real value, it has value. The fact that gold seems valuable doesn't make it different than paper money, as long as that paper money seems valuable. There is very little intrinsic value in a pound of gold; I guess you could use it as a paperweight. Yeah, it has uses in industry, but when that goes away... The point is that agreement among a group of people to use a currency is a lot more important than the actual form of the currency. There are certainly debatabe issues about what constitutes good policy and good currency, but the consequences of paper money are not as terrible as you think.

Re:Economics ... setting the record straight

[caramuru]

I only addressed your first point on the business cycle. Other posters refuted your ill-conceived gold standard argument. The great depression is another example of an inventory-induced depression, later exacerbated by poor policy including tariffs. Prior to the great depression, money supply did not significantly increase. During the great depression, restrictive monetary policy was pursued resulting in significant and painful disinflation.

Excessive debt can occur in a gold-based or a paper-based currency. I assume that, in addition to government debt and private debt, you are also considering our balance of payments deficit as problems. They are, but allowing the market to sort these out will be much less painful than your solution to the problem - hyperinflation.

You've got both your microeconomics and your macroeconomics wrong.

Re:Economics ... setting the record straight

[Anonymous Coward]

Inflation isn't just a function of money supply, its a funciton of velocity - how quickly that money changes hands.

You really should read what Murray Rothbard says about "velocity" in "Man, economy, and State". He basically shows that the famous economic equation, "MV = PT", is a steaming pile of BS. Here's an excerpt:

"Let us consider the other side of the equation, E = MV, the average quantity of money in circulation in the period, multiplied by the average velocity of circulation. V is an absurd concept. ...in the case of V, what is the velocity of an individual transaction? Velocity is not an independently defined variable. Fisher, in fact, can derive V only as being equal in every instance and every period to E/M. If I spend in a certain hour $10 for a hat, and I had an average cash balance (or M) for that hour of $200, then, by definition, my V equals 1/20. I had an average quantity of money in my cash balance of $200, each dollar turned over on the average of 1/20 of a time, and consequently I spent $10 in this period. But it is absurd to dignify any quantity with a place in an equation unless it can be defined independently of the other terms in the equation. Fisher compounds the absurdity by setting up M and V as independent determinants of E, which permits him to go to his desired conclusion that if M doubles, and V and T remain constant, P--the price level--will also double. But since V is defined as equal to E/M, what we actually have is: M x (E/M) = PT or simply, E = PT, our original equation. Thus, Fisher's attempt to arrive at a quantity equation with the price level approximately proportionate to the quantity of money is proved vain by yet another route."

-- The Fallacy of the Equation of Exchange, from "Man, Economy, and State" by Murray Rothbard

Re:Economics ... setting the record straight

[Anomalyst]

right beside the inventors of perpetual motion machines and magic braclets that increase your gas mileage

Do you mean COPPER magic bracelets or CRYSTAL magic bracelets? Please be specific.

Re:Economics ... setting the record straight

[khallow]

Hmmm, I don't buy their reasoning here, but we start by disagreeing on axiom sets. I don't think that's the problem here. For example, they claim that the purchasing power of money cannot be established. In a series of three transactions, one dollar is exchanged for a loaf of bread, half a kg of potatoes, and a kg of sugar. Then the claim is that an average value of a dollar cannot be established because the three goods aren't commensurable. But my take is that the acts of the transactions does make them commensurable. Ie, the amounts of the three goods in the amounts above are to the best of our knowledg worth one dollar each. The transactions are measurements in an economic sense.

Also, I think the author overstates the importance of velocity of money to traditional economists. For example, two people trade with each other endlessly and use $10 in the trade, say trader 1 exchanges a unit of good A for $10 then trader 2 exchanges a unit of good B for $10 endlessly once each day (the money just ends up bouncing back and forth between the two traders). Then the velocity of money (well the $10 in the exchange) would be measurable, it would be two exchanges per day. If the number of exchanges are doubled to four exchanges per day (and assuming the price of the goods remain constant with each trade), then there's a range of stable patterns. Namely, they make n exchanges each of X dollars for 1/n amount of the appropriate good where X is less than the ten dollars available and X*n = 2. The overall price for both a unit of good A and B is $20. I think everyone would agree that the fundamental transaction hasn't changed, but still you can measure the velocity of money in this case and see that the amount of goods that a dollar could purchase has dropped by half as predicted by the model of velocity of money.

Re:Economics ... setting the record straight

[JakartaDean]

But could you name even one fiat currency that isn't inflating and hasn't been inflating?

> The Yen was deflating fairly recently. It has since gone back to very modest inflation, which is a good thing because it means the Japanese economy is finally growing again.

Thank you for inserting some sense into "economics by sociology majors".

Inflation isn't just a function of money supply, its a funciton of velocity - how quickly that money changes hands.

Good point. I'm not an expert, but I believe it's somewhat difficult to measure velocity directly -- we tend to infer it from the other variables?

This is to point out but one reason that the notion that there would be no inflation under a gold-backed money regime is clearly wrong. To pick historical examples of inflation in gold-backed economies, there was significant inflation throughout Eurasia during the 12th to 14th centuries, the 16th-17th and centuries, and the later 18th and early 19th century.

True, but inflation did increase dramatically after the USA adopted fiat currency -- 240% in seven years after 1933 http://www.financialsense.com/editorials/2005/0429 .html. I think this is the source of much of the disinformation cited by the GP.

Re:Economics ... setting the record straight

[alexgieg]

(...) they claim that the purchasing power of money cannot be established. In a series of three transactions, one dollar is exchanged for a loaf of bread, half a kg of potatoes, and a kg of sugar. Then the claim is that an average value of a dollar cannot be established because the three goods aren't commensurable. But my take is that the acts of the transactions does make them commensurable. Ie, the amounts of the three goods in the amounts above are to the best of our knowledg worth one dollar each. The transactions are measurements in an economic sense.

What actually happens is that for each pair of "transactors" (sorry if this word doesn't exist, English isn't my primary language), what the other obtained has more value than that which he gave up. For example: A has a loaf of bread. B has one dollar. They exchange. Why they did so? Because for A, the one dollar that B had was more valuable than keeping his loaf of bread, while for B, the loaf of bread that A had was more valuable than keeping his one dollar. If the loaf of bread and the one dollar had the exact same value for both, then the exchange wouldn't have happened, because act of exchanging both wouldn't be worth the trouble.

Then when A, with his new shinning one dollar bill goes and exchanges it for a kg of potatoes with C, the same applies. And this further complicates the matter. From the point of view of A, potatoes is more valuable than one dollar, which is more valuable than a loaf of bread. From the point of view of C, the dollar is more valuable than the potatoes, and we still have no idea what he thinks about loafs of bread. Samewise, we have no idea what B thinks of potatoes. What if B thinks his loaf of bread is more valuable than potatoes?

The whole point is that an exchange medium has no actual value outside an actual exchange. Outside an exchange, the exchange medium has a potential value which is wholly subjective and full of uncertainties. It's something akin to the quantum analogue: once you put the exchange medium to work, then its broad range of potential valuations colapse into one, and even so still with a certain weak level of reality, but as soon as the exchange ends it goes back to fuzzy status.

This characteristic of exchange mediums make it very uncertain that the amount of goods purchaseable by one dollar, in your example, would change in the way you suggest. That might happen, yes, but other outcomes are possible, all of them depending on the status of the subjectives valuations of the exchanging subjects at the exact moment of the transaction.

The misesian theory on money is very interesting because it strongly avoids abstracting the human element from its analyzes. Actually, it deals so much with this aspect that it's also called "subjective theory of value", in opposition to all the other theories that see valuation as an objective entity. If you're interested I'd suggest you download the free ebooks by Ludwig von Mises in the website. I've read some of them and they offer a very strong reasoning. His main work is this one: The Human Action.

Re:Economics ... setting the record straight

[Anonymous Coward]

Hahahahaha...

The gold standard is just not happening. It's a joke and just mentioning it is a sure sign of being a crazy more interested in weird conspiracy theories than actual economics. I'd love to hear your plan for getting the developing world to abide by the gold standard - not to mention Japan, or actually every single nation which doesn't currently have a gold supply proportional to its economic status. Not to mention the US - gold standards imply pegged exchange rates, you think the US is happy with China's pegged exchange rate? It's a system that doesn't allow for relative changes in national prosperity.

And it's amazing that you (a random person) are able to predict the future of economy, when study after study has shown that it's impossible, and expert after expert has failed at doing just that! Although hey, if you really have the ability to predict the future of the economy you should be investing every single dollar you have, and specifically not warning other people about it.

The most notable supporters of a modern gold standard are Pravda (still in print) and Islamicists. And weirdoes in the Internet who don't know what they're talking about.

Re:Economics ... setting the record straight

[JakartaDean]

Third off, having these huge amounts of debt and all these stock market bubbles and all these housing bubbles (today) is not a normal part of a free market economy.

Really? I would have thought that regulation of a free market economy would arise from three concerns, in rough order:

1. fraud, including insider trading, etc.

2. excessive debt

3. market bubbles.

I think the two 'aberrations' from a free market economy you raise are two of the three most common charasterics of such an economy (along with competition, common information, etc.). Why do you think they are abnormal?

Finally, the rest of your post indicates either a poor understanding of economics or an interesting new framework for economic analysis. If you wish us to abandon everything we believe to be true about a discipline, however, you need to back up your arguments. Can you?

Dean

Re:Economics ... setting the record straight

[Secrity]

A house may be a tangible asset, but it doesn't necessarily have value unless somebody wants it and is able to pay for it. If a bank holds a house that can't be sold, it may be costing the bank money to hold it. One example I saw was in Seattle when the SST project was canceled, all of the houses in entire neighborhoods were empty, for sale, and many were in default. Currently, those same houses are probably worth a fortune; but at that time, nobody wanted to buy them at any price that the owners considered reasonable. Another example are the houses in any of several 'ghost towns' in the Rocky Mountains. The houses in some old ghost towns may now have value, but a great many of them sat empty for many years, with nobody wanting to buy them.

Disregarding a mortgage or other encumberances, any objects that have a finite supply and have a use at the time can be considered to be wealth. The value of certain items would vary depending upon the current situation. At certain times, various items could represent wealth, such as; preserved food, clean water, tools, medicine, practical clothing, boots, weapons, fuel.

Re:Economics ... setting the record straight

[JakartaDean]

I would say you're right, and it seems to me (a non-economist) that someone is trying, erroneously, to apply a macroeconomic concept to a microeconomic case. Sometimes it's better to keep the two separate.

Re:Economics ... setting the record straight

[JakartaDean]

Oops, losing karma here. Put good post (IMHO) in wrong place. Time for bed. Sorry to all

Re:Economics ... setting the record straight

[taradfong]

Make sure your conclusions are based on how the world works more than personal aversions to debt and a modern monetary system.

The economy won't grow without debt.

The US economy is not perfect but it is not teetering toward disaster. Read the Economist if you want to see the world the way it really is.

And while housing prices might drop substantially, the term 'bubble' doesn't make much sense. Houses will never be worth zero. Having lots of people overextended on something is bad, but a house is a good thing to be chained to. Owning a house is not going out of style - renting sucks. There isn't enough land near where people want to live - the coasts. Owning a house is the only real way for most people to keep up with inflation. In a sense owning a house is about as close as most people can get to owning the gold you wish we all traded with.

Re:Economics ... setting the record straight

[KZigurs]

IF managed properly.

Now with gold there is that little issue that there is no alchemists working for the US government. With money, on the other hand... Let's just say that the government went to iraq what in itself is insane act from a sanity perspective. And now try to guess where the financial backing for that came from? You can look up the national debt amount per citizen in the internet. It will take a year or two for all of this money to come back into circulation, but when it will the terrorists will be the least worry an average family will be forced to thing of (not quite like now where media still manages to scare joe sixpacks with boogieman-tali-paki-terrorist).

Re:Economics ... setting the record straight

[Mark of THE CITY]

Louis Rukeyser, the originator and first host of PBS' "Wall Street Week," explained in one of his books that a gold-backed currency was no protection against economic meddling, especially when (this was around 1980) the Soviet Union was the world's biggest gold producer. Rukeyser quoted someone (sorry, don't remember who) as saying "The Russians would buy us out."

Econ is too big and too serious an issue to reduce to a blog post, so I suggest you educate yourself beyond blind belief in what used to be called "gold bugs."

Re:Economics ... setting the record straight

[Mark of THE CITY]

Milton Freedman's "Free to Choose" (book and PBS series) discussed the cause of the Great Depression from a monetarist point of view. Balance of payments were settled by transferring gold among nations. The United States had a huge trade surplus with Europe and did not issue money proportional to the increase. This triggered a deflationary spiral that reduced prices and wages by something like two-thirds between 1930 and 1932.

The Crash of 1929 merely cleared a lot of debt and returned stock prices to realistic levels, relative to earnings. The Great Depression was really caused by the deflation, or so monetarists say.

Re:Economics ... setting the record straight

[Mark of THE CITY]

Cisco was famous for claiming they had inventories under control, but ended up writing off something like $2.5 billion in excess inventory. There were also plans for campus expanion that were shelved. Oops.

Re:Economics ... setting the record straight

[Valar]

"They happen specifically because investment is financed thru the banks, which is financed thru the Federal reserve, which is financed by nothing. I mean, when they need money to loan out - they print it up and loan it out. That means that over time, more and more money goes into circulation driving up prices, driving up debt, and driving out private savings."

D. While student acknowledges that inflation is a monetary phenomena, he fails to understand that the federal reserve typically manipulates the money supply through open market operations, which adjust volume in the bond market. They don't print money. That's the mint, which has essentially no role on monetary policy. Additionally, student fails to recognize that money and gold, like all commodities have values regotiated by supply and demand-- gold is NOT an unshakable store of value. It has a price that goes up and down relative to other commodities, like anything else.

Re:Economics ... setting the record straight

[khallow]

Macroscopic concepts like "velocity of money" are a lot like frequentist statistics. It's applied to an economy with a lot of similar actors like frequentist statistics is a collection of methods applied to a large sample of similar statistical events. Neither need be correct and they usually don't make sense when applied to a small sample or group of economic actors. Nor are these methods universally accepted. But they don't need to be always correct or accepted in order to be useful.

This characteristic of exchange mediums make it very uncertain that the amount of goods purchaseable by one dollar, in your example, would change in the way you suggest. That might happen, yes, but other outcomes are possible, all of them depending on the status of the subjectives valuations of the exchanging subjects at the exact moment of the transaction.

A supermarket or retail store is a great counterexample. Attempting to figure what you can get in currency for a good from one transaction is pretty dubious, but doing so based on thousands of transactions is something that is routinely done. It doesn't matter if it's right. What matters is that it generates a model that works.

Customers don't always get great service.

[nica]

I'm getting a worried about this assumption that Amazon customer service is always good. I have generally, but not always received excellent customer service from Amazon. I have at times had the impression of things not fully under control at Amazon. One rather comical situation arose when I ordered a book, and then a few days later was informed there would be a delay. OK...no problem. A couple of weeks later, another email, another delay on the same order. Amazon.com still had the book being sold as "shipping within 24hrs" so it all seemed weird. I decided to just cancel the order and buy the book from a local bookstore. But then the system told me it couldn't cancel the order because the book was being prepared for shipping. "Great!" I thought, soon I'm getting my book! Then I got another email saying my order as been delayed. I emailed customer service and they informed me all is well because they are preparing my book for shipping and I will receive it soon. A few days later I get another email saying my order has been delayed. I email customer service and explain the problem. I get a response saying that everything is OK, they're preparing my book to ship and I will receive it soon. I respond and say that I've been down this road before, and it's getting tiresome and I didn't believe that I was about to get my book. Sadly I couldn't reply to the same customer service, so it took a few emails to break this loop of customer service just checking my order status and responding that I have nothing to worry about because my book was about to be shipped.

At this point in time I already had a special little folder just for my many emails from amazon concerning this one order for one book. I decided to have customer service phone me. I ask customer service to cancel my order because their system constantly thinks my book is about to be shipped and won't let me cancel my order, but they explain they cannot cancel the order. They explain that I should probably order the book again and if I eventually end up with both orders going through, just return one the books. They offered to send me the book with free overnight shipping on a separate order. Nice! though I'm on Amazon Prime and I get free 2-day shipping anyway, but nice nevertheless.

I got my book the next day, and months later I got the book again via my orginal order. I think what was most annoying was having to re-explain things over and over. Often after explaining there was a technical problem with the order, they would then say "You can always check the status of your order by clicking the Your Account link" which I had just explained to them ALWAYS says that my order is about to ship. There was one point that a customer service rep wrote:
> I sympathize with your frustration in this matter. However,please
> understand that the information provided in our last message correctly
> represents our policy at this time.
> As my colleague previously mentioned, the shipment of your order is
> still being delayed by a system error. This same error prevents us
> from being able to cancel the order.

I asked what "policy" was in reference to, but didn't get a response, and I didn't really care at that point I suppose.

Mind you, I like using Amazon, I just don't believe their customer service is as perfect as is sometimes touted.

Re:Customers don't always get great service.

[Mark of THE CITY]

If paying by credit card, take it up with the issuer. You have rights under law.

Not so good service

[Anonymous Coward]

Amazon's service is quite overrated actually. It usually works fine, and if there is a problem they usually fix it, but there are times when talking to amazon's rep is like talking to a wall.

An example: For large orders, Amazons usually splits the items in several boxes - at no cost for the customer. This is usually fine, except for the fact that each box lists the contents of the whole order.

If you are overseas, this means that you will have to pay taxes for the value of the whole order for each box.

Last time my order was split in 3 boxes. I have to pay 16% VAT, so the net result is that I had to pay 48%.

Add to this that UPS has a policy of dealing with customs without talking to the customer first - they pay the taxes (VAT, custom fees, etc), and then you pay them upon delivery. So talking to the customs officials is not an option, since by the time you know about this the boxes are already out for the delivery. Refusing to pay taxes is not an option, since UPS will not deliver. You can't tell UPS to return everything to Amazon, since they paid for the taxes and will keep the stuff hostage.

In the end, I had to pay triple taxes. And still, Amazon refuses to acknoledge that the problem is that they don't write the actual contents of each box in the sleave.

Re:Not so good service

[5KVGhost]

Interesting. I suspect the reason Amazon operates like that is because their ordering and billing system is agnostic about what each box contains, or which warehouse it is shipped from. I think most companies think of the packing slips as a purchase reference for the recipient, not an inventory for the customs office or the shipping company. They probably should change it, but it might be a harder fix than you'd expect.

The VAT system also sounds like it's designed to fail in a way that's more expensive for the customer. Why don't the customs people take an overall packing list and the number of boxes that make up the order (as indicated by a bunch of identical packing lists associated with the same purchase) and just call it a day?

Re:Not so good service

[Blakey Rat]

I see your complaint, but why complain about Amazon about this? Almost every company does the exact same thing. I'd complain about your local tax office and UPS about being so bone-headed. Maybe in the first month Amazon did business in your country, you could expect a screw-up like this, but Amazon's been around for ages now and the fact that your tax office/UPS hasn't figured this out by now is plain pathetic.

WRONG

[Anonymous Coward]

That Atari site isn't an example of the "Long Tail", it's just a niche market. True long tail market effects are seen in the examples Anderson (you know, the guy who came up with the idea of using the term "Long Tail" as a proper noun) provides in his book: sites like eBay and Amazon.

The only reason the "Long Tail" exists as a buzzword, and isn't just some obscure statistical term, is because of Anderson (he's full of shit, by the way) and his book.

Just an Advantage thing

[dmoynihan]

Common issue for small publishers--you get a purchase order from Amazon for 1 copy of the book, then a week later, 9 copies... then the book goes "out of stock... deliver in 3-4 months," then they order from you again, but if you ship too many copies, Amazon might bill you for stuffing the channel with 12 copies...

A small press is pretty much guaranteed to lose money on Advantage, 'cuz you have to pay for shipping, etc. yourself to Amazon, then give the standard 55% discount, and there's no way of predicting needed quantities.

What most indies do (admittedly, not Duke law professors), is say "screw it" to the Advantage program and sell themselves through marketplace.

In my lifetime I've met one person who was happy with Advantage, but he was a famous man who has since died...

Re:Just an Advantage thing

[kira23]

I sell my CGI books through Amazon, and I've been quite happy with the Advantage program. They clearly use an automated system to determine how many books to order. If demand is constant, orders are (usually) constant too. When they place a small order (for 2 books, say), I just send it via media mail to save on shipping. Larger orders go by UPS. It's worked out well for me.

Of course, after having gone through the hassle of working with "regular" distributors, Amazon's been a dream. They order consistently, they pay a month after the sales are made, and they never return anything! Compare that to Ingram, who would order WAY too many books, return half of them (most of them damaged), and take forever to pay. No thanks, I'll take Amazon any time.

A two-tiered system is NOT the "long tail"

[wsanders]

So, it's a free country - you can sit on your ass and blame it on The Man or start your own distribution system. As others in this thread point out, you can do this yourself. THAT's the point of the "long tail" argument: "Quit Whining and Do It Yourself Online.".

Amazon seems to have a two-tiered system that brings out the worst in the long tail principle: Flawless, reliable service for fairly common items - I have returned several shipments or gotten them late and I have never had trouble working things out, and because I live on the west coast I usually get stuff in three days or less. Then, a low budget operation outsourced to who knows where for the "long tail" stuff.

FedEx did the same thing when they acquired RPS and changed it to FedEx Ground. A top-shelf service with premium prices that picks up anywhere and delivers on time anywhere, and a shambling low-priced service for those of us not living in Central Business Districts (that's still cheaper and better than UPS though.)

Is that really a surpise?

[SuperKendall]

We all know what you get if you stand under the tail of anything, long or otherwise.

There's profit...and then there's profit.

[Anonymous Coward]

But since the centre I run also sells its publications online, (not for profit, I hasten to add)

Admittedly, I take-home all $500,000 a year as "salary", so after paying out all that, the centre is 'not for profit', a title which seems to encourage purchases from nice, altruistic, naive customers.

OMG Goatseeee?

[Hurricane78]

OMG... a long tail from below...? I DON'T want to see THAT..!

tell me please...

[krell]

Where do the Bildeburgers fit into this?

That alternative isn't an option, actually

[patio11]

See, its not just the AdWords (AdSense is for content publishers, AdWords is for advertisers like myself) gives me an additional channel... its that AdWords* gives me *a* channel. I theoretically *could* put a classified advertisement in a magazine devoted to, say, elementary school teaching. And that would cost me hundreds of dollars, without guaranteeing that a single live soul ever saw my website or downloaded my trial. There are plenty of educational publishers which can afford to advertise on paper, but they're the sort that sell at Best Buy and measure their advertising spend in the thousands of dollars.

* A paid channel. I also get a lot of organic search engine traffic, but AdWords was pretty critical during the run-up phase. Hard to get folks to link you if they don't know you exist.

Re:That alternative isn't an option, actually

[Secrity]

That was exactly my point, AdWords is going to work much better for products such as yours than the traditional advertising in magazines, and the on-line distribution system is much faster and easier (and is less work for you) than somebody mailing you a check and you mailing them a CD. Mea culpa for typing AdSense instead of AdWords.