Friday, May 7, 2010

How Is Facebook Like the U.S. Dollar?

Dan Drezner has the answer.

My view: Drezner's analogy is a clever one, but I think the differences he notes in how the two entities achieved and maintain their current positions are more important than the similarities between them. Facebook is popular as a forum for online social interaction because more than any other social networking site, it has succeeded in making itself popular as such, and in the beginning at least, that was because its features were superior to those of its competitors. It's a question of consumer choice, albeit on a very diffuse mass scale. If the site continues to experience controversies over privacy and security breaches of the sort it has recently, the trickle of people abandoning it because of these issues will increase to a steady flow, and the tipping point at which its hegemony collapses will come quickly.

The dollar, on the other hand, functions as the global reserve currency because it is the only world currency that is viable as a currency of exchange on a worldwide basis as of right now. The yen might be competitive around the Pacific Rim, and the euro in Eurasia (though that will be less so once the Greek debt crisis shakes out), but only the dollar has unquestionable economic utility everywhere - until that becomes true of another major currency (something which I, contra Drezner, tend to suspect we should be able to see coming), nothing the U.S. government does to abuse holders of dollars will change that.

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