Thursday, August 13, 2009

Too Cheap to Meter

Last month Malcolm Gladwell wrote a snarky review of Chris Anderson's book Free: The Future of a Radical Price for the New Yorker. You will remember that Anderson's last book The Long Tail produced a wide range of reactions and "Free" will be no different. I did not like the Gladwell review. He picks up on a lot of little things while missing the big picture. On the other hand the book is somewhat carelessly written so that it is easy to find little things to criticize.

An example is the discussion of the phrase "too cheap to meter". In the 1950's, Lewis Strauss, then head of the Atomic Energy Commission, predicted that atomic energy would make electricity so cheap to produce that there would be no need for electricity meters. Unfortunately too many people see that phrase and take it to mean that electricity would be free, which is not what Strauss was claiming as I will explain.

The book "Free" has a chapter called "Too Cheap to Matter" that starts with Strauss's claim and goes on to Moore's Law and other laws of shrinking prices. Anderson seems to imply that electricity could be free, and in a long and rambling footnote still does not get to the point. Gladwell in his review of the book picks up on the implication and castigates Anderson for thinking that electricity could ever be free, using his own words against him.

To understand Strauss, you need to look at a utility bill, where you will see that the charges come in two parts, a fixed component for providing the service and a variable component which is your actual metered use of the utility. Strauss was claiming that for electricity there would be no need for the variable part, all that would be needed was a fixed part to cover the cost of fixed generator plant, transmission and billing. Sorry Gladwell and Anderson, Lewis Strauss was not trying to say that electricity would ever be so abundant that it would be free.

It is not unusual for utilities to be unmetered. Here are three examples of unmetered utilities from my personal experience. Firstly, I pay a fixed price for the broadband pipe of my internet service. Secondly, where I grew up, domestic water is plentiful enough that it is not metered, householders pay a fixed price for a 1/2 inch water main connection or somewhat more for a 3/4 inch water main connection. You could say that my garbage is too difficult to meter, so I just pay a fixed price for the weekly emptying of a 32 gallon garbage cart.

Apart from some writing that seems to imply more than is actually there, I found Chris Anderson's new book to be forward looking and full of familiar arguments. Well recommended. I will write more on the subject.

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