On Saturday, Tyler Cowen posted a 62-word blog entry, of which 29 words constituted a quote from Dan Ariely’s Predictably Irrational. It was a throwaway "fact of the day" post, comparing the cost of robberies in the United States ($525 million) to the cost of employees’ theft and fraud ($600 billion).
Cowen probably didn’t think twice about posting that entry. But it’s one of the ironclad rules of blogging that you never know which blog entries are going to turn out to be great. This one is fantastic, entirely because of the comments thread, which is sharp and fascinating and entirely on-topic, and features not only Cowen but also Ariely himself.
I have to admit that I’m bad at reading comment threads: because I consume most of my blogs through an RSS reader, I often miss the great conversations that can result. I followed this one because I was a participant in it: I jumped in relatively early on to pour scorn on the $600 billion figure (it reminded me very much of those counterfeiting statistics).
It turns out that the $600 billion figure came from the Association of Certified Fraud Examiners, which polled its members and asked them what percentage of revenue they thought was lost to fraud. A few of them answered, and then the ACFE applied that percentage to the entire GDP of the USA to come up with a number of $638 billion. As Cowen himself pointed out, that’s ridiculous: it fails to make the incredibly important distinction between gross and value added.
But there were lots of other astute insights as well. Bernard Yomotov did the math to work out that $600 billion is $2,000 per capita, he also looked at the ACFE’s methodology and discovered not only that only 10% of members responded to the questionnaire, but that they were asking their examiners to report on the largest fraud they investigated over a two-year period.
PK tried to defend Ariely by saying that the difference would be huge "even if the fraud number is off by an order of magnitude" – which seems to me to be a good argument that the fraud number might be off by even more than that.
Rob brought up the concept of comparing dead-weight losses by measuring how much is spent each year to prevent fraud and/or theft.
DanC made the excellent point that the low cost of theft reflects a system working successfully to prevent theft, while businesses can be seen as maximizing their net profits and being agnostic on how much fraud that entails.
Van jumped in to talk about the non-monetary costs of theft, and Vincent Clement added uncounted monetary costs, too, such as repairing damaged property or repeatedly checking credit to safeguard against identity theft. He also pointed out that the original comparison was apples-to-oranges: theft should be compared to theft, and employee fraud to non-employee fraud.
And all through the thread winds a lighter-hearted sub-plot, if you will, about employees stealing ballpoint pens.
I go into some detail about this discussion because it’s relevant to a point that Yves Smith makes today. "Very high traffic blogs enjoy network effects," he says. "Readers come to chat among themselves." If what you want is a lot of pageviews, then comment threads are wonderful: they bring people back again and again, with no extra work from the blogger at all.
But Smith’s post is also instructive in that it provides a finance professional’s view of the money to be made from blogging:
A top blogger makes a teeny fraction of what J.K. Rowling or Tom Cruise earns. The oft-repeated example of a successful blog is mongabay.com, which reportedly earns $15,000-$18,000 a month, which is a nice level of income for a stay-at-home job that one could pursue out of a low-cost location. But if that is as good as it gets, it is hardly an exciting number.
It’s worth revisiting the WSJ article that number comes from:
"The rainforest has always been my passion, but I never expected to make a living off of it," says Mr. Butler, who quit his job as a product manager in 2003 when he realized he could make a living off his site.
The key point here is that $15,000 a month for blogging, or even half that, is great money compared to the life and salary of a product manager. If someone with a remotely normal job finds himself with a very popular blog, then it’s entirely conceivable that the blog might be able to pay more than the job.
But on Wall Street $15,000 a month is a rounding error; as Smith says, it’s certainly nothing that anybody’s likely to get excited about. Not, that is, unless they want to leave their Wall Street life anyway. In that case, blogging might be a nice addition to the income from their savings, or might allow those savings to be tied up in longer-term, more illiquid investments.
There are certainly examples of Wall Streeters who have quit their jobs to become full-time bloggers: Brownstoner, who used to work at Merrill Lynch, is a prime example. His philosophy seems reasonable:
“If your goal in life is to do something you love and to get, hopefully, reasonably well-compensated at some point for it, it’s great. I didn’t pick it as a profit-maximizing decision.”
If Yves Smith were to ask for my advice on making money blogging, my answer would be simple: if you’re not going to be happy making $15,000 a month, just quit. Some bloggers might get there; the vast majority do not. In the econoblog space specifically, I think there is only one blog which has made anything like that kind of money: Freakonomics, which was bought by nytimes.com. Marginal Revolution and the Big Picture probably bring in a nice marginal income, but I doubt that their authors could live on their blogging income alone.
Blogging remains a labor of love for nearly everyone who does it. There are lots of possible ancillary benefits, most of which are not available to bloggers who wish to remain anonymous. But if all you’re interested in is potential income, and you’re used to earning Wall Street money, blogging will never be for you.