Bill Gates writes on Gates Notes: The Blog of Bill Gates that when he entered Harvard in 1973, the drawing below "was basically how the global economy worked."
The big picture: "There are two assumptions you can make based on this chart. The first is still more or less true today: as demand for a product goes up, supply increases, and price goes down. If the price gets too high, demand falls. The sweet spot where the two lines intersect is called equilibrium. ... Everyone wins."
- "The second assumption this chart makes is that the total cost of production increases as supply increases. ... Software doesn’t work like this. Microsoft might spend a lot of money to develop the first unit of a new program, but every unit after that is virtually free to produce."
Why it matters: "The portion of the world's economy that doesn't fit the old model just keeps getting larger."
- "That has major implications for everything from tax law to economic policy to which cities thrive and which cities fall behind."
- "[T]he rules that govern the economy haven’t kept up. This is one of the biggest trends in the global economy that isn’t getting enough attention."
"If you want to understand why this matters, the brilliant new book Capitalism Without Capital by Jonathan Haskel and Stian Westlake is about as good an explanation as I’ve seen."
- "What the book reinforced for me is that lawmakers need to adjust their economic policymaking to reflect these new realities."
Be smart: "Measurement isn’t the only area where we’re falling behind — there are a number of big questions that lots of countries should be debating right now."
- "Are trademark and patent laws too strict or too generous? Does competition policy need to be updated? How, if at all, should taxation policies change? What is the best way to stimulate an economy in a world where capitalism happens without the capital?"
- "We need really smart thinkers and brilliant economists digging into all of these questions."