Netflix and knowledge

Netflix dvd subscribers probably will all relate to this: you can put movies in way faster than you can actually watch them, so it’s easy to spend a few minutes putting movies in that will take you a year to get through. In this case, Netflix tells me I put in the 1966 western Django in the queue on 3/4/12. I’ve been either going through periods where I don’t watch movies much or rearranging the queue so that other movies have higher priority since then. All of a sudden, as a result of Quentin Tarantino’s Django Unchained, the demand for the older movie is through the roof. Netflix now adds a “Very long wait” note in the list. I have never seen this note before, only the “Short wait” note indicating that the Netflix distribution center nearest you does not have the movie in question and that it will take longer than usual because it is being mailed from another center. Undoubtedly, the “Very long wait” status of Django means that it must be in high demand right now even within my distribution zone.

There is a lesson here about equilibrium in the sense given in Friedrich Hayek’s marvelous essay “Economics and Knowledge”. Hayek writes that when equilibrium is described as a condition among multiple people, it must mean that the plans of each person are coordinated with the plans of the others—there must be a general harmony of plans. Disequilibrium happens when people realize that their plans cannot all come to fruition given the plans of others. In the short run of the economy, prices are bid up (or allowed to fall) so that the highest-valued uses end up being the ones to which resources are actually directed, and in the long run production of those is ramped up to meet the demand, attracted by high prices. The key point is that people have to adjust their plans to the reality they face, which they did not know when they made them in the first place. (Given that people don’t all make their plans together, and that the adjustments made to one plan necessitate adjustments to other plans in a continuous process, it is basically impossible ever to attain this kind of equilbrium.)

In the case of Django, it is quite obvious that there is no harmony of plans, and Netflix does the adjustment for you. If the movie is currently at the top of your list, they treat it as a lower priority by sending you the next one down. For customer satisfaction, they treat this fronted movie as a bonus, and the film you were originally waiting on is shipped as soon as it becomes available. The scope of the plans made on Netflix is very small, so it doesn’t really cause a lot of problems. In the economy as a whole, however, the scope of plans is tremendous, too broad even to contemplate. To think that any entity can rearrange the plans as Netflix does with its subscribers’ queues, as many smart people used to, is absurd.

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