len @leonidkozhukh: do you think the fb ipo will trigger inflation?
ANSWER:
If you are in San Francisco then the Facebook IPO will trigger inflation of houses and furniture stores. $100 billion has just been added to the economy there. But, of course, that’s not a bad thing. Money has a multiplier effect. So suddenly the people who work for the furniture stores will have more money. And they will spend it , maybe, on new cars. Now the people who have cars will have more money. And so on.
But in the rest of the world, Facebook has a deflationary effect. For instance, where else can I potentially advertise to a billion people for a penny. If I want to advertise to 40mm people (the Superbowl) for 30 seconds I’d have to spend $4-5 million after production costs. But on Facebook: I might pay 1/1000 of that to reach the same number of people.
And when my marketing costs are lower, my product costs can be lower. The Internet in general has a powerful deflationary effect.
For instance, I will take a completely different examples. The value of your neighbors has just deflated considerably. It used to be if someone wanted to be your friend they simply had to live near you. Now they were your friend. They didn’t really have to do much else.
But Facebook connects me to people all over the world. I CHOOSE to only be around people who really like me and who I really like. So now my neighbors have to step it up a bit. The value of their actions has deflated so their actions have to be better, nicer, kinder, more inspiring.
There’s going to be deflation in rudeness, in the lack of caring that pervades our different societies for the weak and helpless and for the countries that are not as well off. Why? Because now we are connected to them. Now we are friends with them.
And friends don’t overcharge each other.