Domain Independence

This tale reminded me a bit of my friends and family. It’s a tale of domain independence.

That means that something that you deem unacceptable in one domain you see as acceptable, and sometimes admirable, in another domain.

This isn’t something like, it’s okay to belch in your home (one domain) but not in public (another domain). It’s more like, you think it’s not okay for a burglar to steal from someone (one domain), but it’s okay for the government to do so (another domain).

The source of domain independence is that those who have it don’t see it that way. They don’t see government taxing as stealing. Or, if they do, they justify it in that at least there was a political process behind it and it wasn’t random.

That may be well and good, but there is a good litmus test that fades this mirage of rationality. That test comes when they see their money being taken and used for something they disagree with.

A family member of mine illustrates this well. He was always for the government taking money and using it for things he supported.

I’d ask, What if someone else disagrees with you, should they be forced to support it? 

His response would typically be, Heck yes. They’re just being irresponsible and I know I’m right. They have to give back. If we don’t make them, they won’t give enough.

That, however, went out the window one day when his city was spending gobs of money on a project that he vehemently opposed. Suddenly, he felt like his money was being stolen from him.

Yet, when I asked him if he could now empathize with the people that he felt should be made to pay for his priorities, the answer was still a resounding no.

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“Netflixed”?

Mark Perry has a nice post about creative destruction in the movie rental business on his blog, Carpe Diem.

Retail jobs in movie rentals declined by 90% in 15 years. Ouch.

Why didn’t politicians push to save those jobs like they do with so many other businesses feeling the effects of creative destruction?

Also, I think it’s misreading what happened to just say that digital beat bricks-and-mortar. I think there was more to it.

I believe Netflix changed the value proposition of renting movies in a way that consumers didn’t expect to be better, but once they tried it they discovered it was.

It was a simple innovation: the queue, subscription and keep-movie-until you’re ready changed the incentives and experience.

Much of my experience with Blockbuster was roaming the aisles that smelled a bit like stinky feet, bumping shoulders with others, trying to decide between two or three movies that I sort of wanted to see, but not really, and weighing that against the $4 fee I would pay to rent it and then have to drive back and return within a couple days.

Netflix improved on that experience. With the subscription service, I no longer evaluated each movie by the $4 fee. Whether a movie was worth $0.50 or $8 to me, it went on my queue.

The queue solved the problem of having to decide in the moment. As soon as I thought about or heard about a movie I wanted to see, it went on my queue. Thinking done.

I received it in the mail and had to watch to it to get my next movie.

Blockbuster could have done all of those things, and tried, but it was too late. They were following by the time they tried it.

The final thing to consider is that Netflix wasn’t solely responsible for the demise of Blockbuster. RedBox put the final nail in the coffin.

My guess is that about 90% of Blockbuster’s revenue came from about 20 – 30 titles at any given time. RedBox found a way to serve that demand much more efficiently. Again, Blockbuster tried to follow that model, but it was too late.

A lesson in value proposition

I’ve been a member of Costco for about 15 years. Yesterday, I also became a member of Sam’s Club.

While going through the warehouse for the first time with my son, he kept saying, This looks an awful lot like Costco. Why did you join Sam’s Club?

I finally said, Yep, but this has one thing that is very different from Costco. Do you know what that is?

He thought for a moment and said, No, what?

This is less than 5 minutes from our house. Costco is 25 minutes. Sam’s Club cares enough about my business to make it convenient for me. Costco doesn’t.

You get what you pay for

Don Boudreaux quotes Tom Miller on Medicare (emphasis mine):

Aside from the basic numbers of budgetary imbalances and continuing fiscal pressures, Medicare’s institutionalization as the dominant payer in US health care also has locked in the worst features of a costly and inefficient fee-for-service delivery system that still rewards providing more volume, instead of better value, in most health care decisions.

Well said. That’s something to think about.

Why do some people deserve a billion dollars?

This Cafe Hayek post discusses an inconsistency in the French culture when it comes to addressing income inequality.

They are fine with using government to address it, through taxation and redistribution, but are oddly opposed when the market addresses it through innovation.

In the comments of that post, there are some typical progressive responses.

Here’s one:

…there is no logical , moral, rational reason why any individual needs a billion dollars. Those people benifitted (sic) form (sic) a time when we had a far more progressive tax base that paid for the infrasturcture (sic), the education and the basic science research funding that allowed them to be so prosperous.

Here’s one logical and rational reason we should be okay with individuals earnings billions: it’s the potential of earning such handsome sums that encourages them and many others who don’t earn billions to take the risks that results in the innovations that make our lives better.

Nobody knows which risks will pay off and actually make life better, so the more trials we can encourage the better off we will all be.

Here’s a moral reason we should be okay with individuals earning billions: they created it and earned it. They didn’t take billions from others that already existed. They created billions in wealth by making making everyone else’s lives better. Those billions would not exist without the risks they took and effort they made.

This is a tough one for people to visualize because wealth creation is abstract. It’s too easy to view wealth as a ‘fixed pie’ to be divided up. But, it’s not.

Wealth is more like a fruit tree. Each new branch bears fruit that didn’t exist before. The more the tree grows, the more fruit it bears.

The commentator’s final points gives us a window into his thinking. He says the innovator doesn’t deserve billions because they really benefited from all the infrastructure and research that was laid before them.

I wonder if he would apply his argument to other fields? A music artist creates a popular hit and becomes wealthy. But, didn’t they just benefit from all the hard work of others who invented instruments, recording equipment and the networks that distribute that music?