Capitalism Without Capital

The Rise of the Intangible Economy

[Amazon Link]

Tyler Cowen listed it as one of his best non-fiction books of 2017. Arnold Kling put it on his much shorter list. Those are high recommendations, and so I did that Interlibrary Loan thing with the University Near Here, and it showed up all the way from the University of Connecticut. And…

Well, it turns out those guys are economists, and I'm not. And the authors, Jonathan Haskel and Stian Westlake, get really deep into the economic weeds. As a result, my enjoyment was limited. (But, caveat lector, Bill Gates, also not an economist, recommended it too. So don't necessarily take my word for it.)

The punchy title could have been less punchy. This is a book describing the increasing importance of intangible assets to businesses, and (hence) the overall economy. We're talking software, business methods, patents, designs, etc. As opposed to tangibles: trucks, buildings, blast furnaces, etc.

It should be clear that the intangibles are like capital. They cost money to acquire or develop, they (hopefully) are part of the mix by which the firm makes money. And yet they, in many cases are (literally) not accounted for as capital investments, which can mislead decision-makers both internal and external.

Haskel and Westlake ably list four factors in which intangibles differ from normal capital. In one of their (further) nods to punchy writing, they call them the four S's.

  1. Intangible assets are more likely to be scalable;
  2. their costs are more likely to be sunk;
  3. they are inclined to have spillovers;
  4. and they exhibit synergies with each other.

Dumbed down to my level: scalability means that once you acquire an intangible asset, you can often spread it around to the entire company at little additional cost. (You can't do that with trucks; if you need more trucks… you have to buy more trucks.)

Sunk costs: sometime assets don't work out. Tangible assets are relatively easy to dispose of on the market—someone will always buy your trucks if the price is right. But intangibles are often useless to anyone else, so you have to eat them.

Spillover refers to the difficulty of keeping your intangibles within the firm. Once you've demonstrated that something "works" to make money, people in other companies—your competitors!—will tend to notice and copy, "adapt", or (from your point of view, if not theirs) steal. Either gulp and accept this, or spend some money on lawyers.

Finally, synergies: the authors cite Matt Ridley's concept of innovation: "ideas having sex". Once the firm has a fertile breeding ground of intangibles, they can interact and combine in ways originally unexpected. (Apple, of course, is a prime example.)

All this has capital-I Implications. The inconsistent handling of intangibles vs. tangibles can cause the appearance of stagnation. They might contribute to growing inequality. A country's financial system might not handle them adequately, let alone efficiently. Infrastructure decisions can be misguided (roads and bridges vs. networks and servers). Management practices need adjustment. And government policies will almost certainly need to be dinked, although it's hard to know how to do that correctly. (Duh.)

So, it's good, very in depth. Much of it is accessible to the dilettante (me), but a lot I confess was skimmed over. I learned a lot, and one of the things I learned was: I wouldn't pass a test on the subject.

URLs du Jour


[Amazon Link]

  • At Reason, Matt Welch and Todd Krainin obituize: John McCain, the Senate's Most Influential Hawk, Is Dead.

    John McCain, the last great active American political figure of the 20th century, has lost his battle with cancer at age 81.

    For both good and ill, McCain helped shape the purpose and application of Washington's considerable power for nearly half a century. Partly because of that mixed track record, his passing leaves as an open question what kind of future that McCain-style politics—with its robust, moralistic interventionism both at home but especially abroad—has in a political party and country that elected his rhetorical tormentor, Donald Trump.

    A balanced treatment. As a politician, McCain had little to offer those of us with libertarian leanings. As a tough patriot, he was unexcelled.

  • Given recent developments, is there anything, well, illegitimate about Brett Kavanaugh's nomination to the Supreme Court? Fortunately, David Harsanyi has an answer: There Is Nothing ‘Illegitimate’ About The Brett Kavanaugh Nomination.

    Perhaps one day a court will find that Donald Trump had conspired with his personal lawyer Michael Cohen to pay non-disclosure agreements meant to silence his mistresses. Perhaps one day the House will impeach Trump for breaking those campaign finance laws, and then, maybe the Senate will also remove him from office.

    Those are the mechanisms that have been provided by the Constitution to thwart a president from nominating justices to the Supreme Court. I’m afraid there’s no clause in the document that empowers angst-y liberal pundits and politicians to question the legitimacy of duly confirmed justices.

    Things are getting pretty desperate in the sinestrosphere when (as reported in the Washington Examiner) the New York Times is freedom-of-informationing 911 call records made by, or about, Kavanaugh, his wife, or… well, whatever else you got.

    Did they try this during the Sotomayor or Kagan nominations? That's a rhetorical question, friendo.

  • Jonah Goldberg's column this week compares and contrasts: Trump’s Self-Interest vs. the Public Interest. Jonah looks at the arguments of Rudy Giuliani, who would like President Trump to not have to testify under oath to Special Counsel Robert Mueller. Those arguments are weak. But:

    But my point here isn’t really to demonstrate the weaknesses of Giuliani’s legal and political arguments. Nor is it to point out that he zigzags between making legal arguments for political purposes and political arguments disguised as legal ones. Rather, it’s to illuminate the fact that while Giuliani is right to keep Trump from testifying, he’s not making an argument on behalf of the public interest. Like Tom Hagen in The Godfather, Giuliani has a special practice with only one client.

    Giuliani is doing whatever he can to protect that client. Where he draws moral or ethical lines to that end is between him and his conscience. But the rest of us are not obliged to argue like we’re Trump’s legal water-carriers. Refusing to testify might make total sense as a matter of Trump’s personal self-interest — which is Giuliani’s concern — but it is not obvious that such a refusal would be in the public interest. We deserve to know all of the relevant facts. If that makes the president’s job harder, so be it. The Constitution makes every president’s job harder in myriad ways, but we don’t say that we should therefore get rid of the Constitution.

    I'd quibble about the "We deserve to know all of the relevant facts" bit: there's one big relevant fact here, and it's that Trump is a lying, corrupt, bucket of sleaze. We knew that already.

    OK, so maybe additional relevant facts might make that clearer. Is that in the "public interest"? Yeah, maybe.

  • For some reason, this story kind of jumped out at me: Lilly Diabetes pulls sponsorship from Conor Daly because of what his FATHER said 30 years ago.

    The word and thought police have reached brand new levels of crazy. Professional race car driver Conor Daly has lost a sponsorship because his father reportedly uttered a racial slur in the 1980’s. To put this in some perspective, Conor wasn’t born until 1991, yet he is paying for the sins of his father.

    Hm. The way things are going…

    To Pun Son and Daughter: sorry if you get professionally dinged for something I blogged, Facebooked, Tweeted, Usenetted or BIXed.