The Physics of Economics Will Not Be Mocked – Just Ask YouTube

by Jeff Brown

Real Estate Investments Broker

Author website

Don’t know about you, but I’m sick to death of all the propaganda about Free being the future of ideas. Really? Let’s take that to the extreme. Ideas should be free for the asking? Not in my world. But if you listen to all the utopian crack smokers pontificating while enjoying their afternoon expressos at the local Ivory Tower Starbucks, they’ll tell ya — and I swear I’m not making’ this up — you’ve seen it everywhere — ‘information wants to be free’. Information doesn’t want anything. Duh. Folks who don’t/won’t/can’t come up with new ideas/information — they want information to be free.

Allow me a major, albeit, related detour. I promise it’ll swerve back to the whole concept of Free. I’m reading one of the best books I’ve come across in quite some time. Outliers, written by Malcolm Gladwell. In it, among other things, he gives some astounding examples of what he empirically proves are totally erroneous conclusions based upon false assumptions. These false conclusions are then ‘proven’ by future results. In other words, horrible analysis produced WAY wrong conclusions, which were then proven ‘correct’ years later. Confusing? Here’s an example I lived in real time.

Gladwell talked about this in his book, though he chose youth hockey as an example. Their system mirrors Little League exactly. We all know how Little League works. The kids are kept within their own ages more or less, so as to keep things on as even a keel as possible. When it comes time to pick All-Star teams, performance, merit if you will, is the criteria. It’s been the same since before I was born. It’s also been universally accepted as the best system. Why? They simply point to the kids they chose as ‘the elite’. As they grew older, a percentage became stars in high school. From there, some went to college and thrived at that level. Some eventually became Major League players. How much proof do we need, right? Those not chosen didn’t amount to a hill of beans for the most part.

Wrong, analyst breath. The entire theory is built on a foundation of manure tainted sand.

My experience in Little League was that, especially in the majors where 99% of the kids are 11-12 years old, relative age often matters — big time. See, the cutoff for what age they’ll be slotted is July 31st. (It’s January 1st in hockey.) Compare a boy born on August 16th to one born July 4th. They’re almost a year apart, but they’ll both be listed as 12. This makes a huge difference physically at that age. That difference results in better play, stronger bodies, more thoroughly developed skills, superior hand/eye coordination, etc. etc. Bottom line is that the August kid almost always out performs his July teammate easily. Yet LL says they’re both 12.

The August boy makes the elite team at the end of the season. What happens then is what makes this self-fulfilling prophesy come true. As soon as a kid is recognized as special, usually at 8-10 years old, they receive more attention, more coaching, often superior outside coaching, and more playing time. This is only intensified as he ages. He’s often picked to play on traveling teams, the elite of the elite for youth ball. The coaching at that level is almost always very good to excellent. This only serves to widen the gap between him and the ‘younger’ 12 year old.

The trend continues into high school, college, then, if he’s good enough, the pros. See? Those Little League geniuses were right all along. Little Timmy was special. But what about poor Johnny July?

Since he never got picked for post season play, he went on to either play other sports, or stopped participating in sports altogether. He just couldn’t compete with those who’re empirically more physically developed. He never received the higher quality coaching, nor the extra time. Even if he went on to play in the 13-14 leagues like Pony, he was still a likely victim of the same system. Eventually he gives up. Who knows how many Hall of Fame players are now in middle management somewhere simply because their parents were in the mood in November instead of December? 🙂

Confession time

A couple of us here in my neighborhood figured this out long ago. In five years of LL coaching, my teams won four championships and finished second once. Trust me, I was a pretty decent coach, but not that good. 🙂 At the start of the season, while drafting players, when a pick wasn’t a no-brainer we opted for the oldest of the kids in question during that particular round. Several times over the years, quizzically raised eyebrows were aimed our way after one of those picks. We almost always had the last laugh. Older kids are bigger, stronger, more developed, and learn more quickly. Their fastballs are faster, and doubles for others are homers for them.

Here’s the clincher.

When Gladwell analyzed nothing but the birth dates of Youth Hockey All-Stars by the thousands, he found that well over 75%, in some cases way over, were born in the three month window of Jan-Mar. Hockey’s cutoff date is January 1st. Surprise surprise surprise. This was found to be true in Canada, the U.S., and Europe with no exceptions, not one. Universally true.

Guess what month boasts the most birthdays for Major League baseball players? You guessed it, August. They were the most physically mature in the group in which they grew up. Are we shocked at this discovery? Hardly, but Little League still clings to its claim of a merit based system which, as you can now readily see, is hogwash. What makes it more galling is how they can correctly point to the success in the sport of those they labeled as elite when the kids were 12.

If we wanted to remedy this, we could simply slot kids within more narrowly defined age groups, say within four months. Can you see the nightmare? Never gonna happen. So if you want your future son to become the next Willie Mays or Sandy Koufax, wait ’till December to begin production. 🙂

Back to Free, which is, IMHO just as fundamentally flawed as the above example.

YouTube has been tryin’ the Free approach and has been hemorrhaging cash since Day 1. Turns out Free hasn’t gone according to plan. The idea is to give something away while figuring ways to profit around the traffic Free provides. Of course, this ignores Economics 101 which begins with supply/demand. Sometimes Free works, sometimes it doesn’t — hardly an economic law. Ask YouTube how it’s workin’ out for them. Or Google, who could be second guessing their purchase of YouTube. The losses are impressive.

If your idea has real value, actual merit, as perceived by the buying public, it’s worth more than nothing. Of course, if you can be more successful than YouTube in monetizing the traffic generated by Free, more power to ya. Some people are doing just that, most aren’t. But then again, you could be wildly more effective than YouTube and still only break even. Go figure.

Gladwell presents an argument orders of magnitude better than I can here. If you’re considering going the Free route, Gladwell will give you plenty to ponder.

In the end we learn the same lesson over and over, don’t we? The physics of economics will not be mocked.

Oh, and by the way, Gladwell’s post is Free.