Not clear where Krugman is going in his blog today, and neither is he, but it looks to be somewhere interesting.
But there is at least one important respect in which the 21st-century economy is different in a way that ought to have a significant effect on macroeconomics: the much larger role of rents on intangible assets. This isn’t an original insight, but I haven’t been finding systematic analyses of the point.
What do I mean by the role of rents? Consider the changing identity of the most valuable company in America. For a long time, it was GM, then Exxon, then IBM. These were companies with huge visible production activities: GM had more than 400,000 employees, which was amazing when you consider that the overall national work force was much smaller than the one we have today, Exxon had oil refineries. IBM was an information technology company, but it still had many of the attributes of an old-style manufacturing giant, with many factories and a large, well-paid work force.
But now it’s Apple, which has hardly any employees and does hardly any manufacturing. The company tries, through fairly desperate PR efforts, to claim that it is indirectly responsible for lots of US jobs, but never mind. The reality is that the company is basically built around technology, design, and a brand identity.
There was an old Dilbert in which the pointy-haired boss explained that the company had discovered that despite its slogan, people weren’t its most important asset — money was, and people only came in at #8 or something. Actually, in Apple’s case market position is its most important asset.
There are a couple of obvious implications from this change in the nature of corporate success. One is that profits are no longer anything remotely resembling a “natural” aspect of the economy; they’re very much an artifact of antitrust policy or the lack thereof, intellectual property policy, etc. Another is that a lot of what we consider output is “produced” at low or zero marginal cost.
This jumps out at me. When an economy moves toward where “intangible” assets are the economic driver, the level of reward is tied immensely to the regulatory rules of the reward which limit or allow competition. So, for Apple, most would probably disagree that anyone could completely copy the iPhone from design to software to icon to Apple logo. We might call that theft, and from an economic perspective, it would drive profits to zero and would reduce any incentive to come up with iPhone.
On the other end of the spectrum, many would probably disagree that by coming up with the iPhone, no one else was allowed to see a smartphone with a touchscreen, apps, etc. From an economic perspective, this would make Apple’s profits even larger.
The current situation lies somewhere in between. The rules of the road that govern this are antitrust and intellectual property, as well as some other legal rules. The push and pull determines where we end up in the wide spectrum between those poles.
One question that follows then from Krugman’s question and my analysis is whether it make sense for the same antitrust and IP rules that governed when tangible assets were the key driver to today’s world of intangible assets.
Maybe, maybe not.