Category Archives: Book review

How the market is betraying advanced economies

The idea that ‘the market’ must be the organizing principle for collective decision-making should be abandoned.
By Diane Coyle – Despite ever-improving conditions for millions of people around the world—documented by entities like the University of Oxford’s Our World in Data and highlighted by scholars like Steven Pinker—popular discontent is on the rise in many places.

The reason is simple: whereas the first trend is being driven by low- and middle-income countries, the second is concentrated in high-income countries.

Throughout the developed world, conditions for many workers are deteriorating, with no recovery in sight. Income inequality is near historic highs, wealth inequality is even higher and economic insecurity is widespread.

As the United Kingdom tears itself apart politically and constitutionally over Brexit, many of its citizens struggle with low-quality jobs, inadequate housing and poverty so severe that they rely on food banks.

France’s yellow-vest protests have been hijacked by violent extremists, but they reflect real grievances about the growing challenge of maintaining living standards.

In the United States, the Economic Report of the President touts the supposed elimination of poverty, but life expectancy does not decline in a prosperous country.

In short, the post-World War II social contract in many of today’s developed economies is breaking down. And even more uncertainty and insecurity are on the way, as new technologies such as artificial intelligence and robotics take root.

Given the depth of the transformation ahead, however, it is not just the policies themselves that must change, but the very framework on which they are based. This means abandoning the idea—which has shaped public policy for more than a generation—that the ‘market’ must be the organizing principle for collective decision-making. more>

How digital technology is destroying our freedom

“We’re being steamrolled by our devices” —Douglas Rushkoff
By Sean Illing – There’s a whole genre of literature called “technological utopianism.” It’s an old idea, but it reemerged in the early days of the internet. The core belief is that the world will become happier and freer as science and technology develops.

The role of the internet and social media in everything from the spread of terrorist propaganda to the rise of authoritarianism has dampened much of the enthusiasm about technology, but the spirit of techno-utopianism lives on, especially in places like Silicon Valley.

Douglas Rushkoff, a media theorist at Queens College in New York, is the latest to push back against the notion that technology is driving social progress. His new book, Team Human, argues that digital technology in particular is eroding human freedom and destroying communities.

We’re social creatures, Rushkoff writes in his book, yet we live in a consumer democracy that restricts human connection and stokes “whatever appetites guarantee the greatest profit.” If we want to reestablish a sense of community in this digital world, he argues, we’ll have to become conscious users of our technology — not “passive objects” as we are now.

But what does that mean in practical terms? Technology is everywhere, and we’re all more or less dependent upon it — so how do we escape the pitfalls? more>

Why Some Counties Are Powerhouses For Innovation

By Christopher Boone – By my analysis of data from the U.S. Patent Office, Santa Clara County, California, is sprinting ahead of the country. Between 2000 and 2015, more than 140,000 patents were granted in Santa Clara County. That’s triple the number for second-ranked San Diego County.

Four other counties in California – Los Angeles, San Mateo, Alameda and Orange – make the top 10.

These counties are in large metropolitan areas that are known as technology and innovation centers, including San Francisco, San Diego, Boston and Seattle. The other metro areas in the top 10, not the usual tech-hub suspects, are Greater Los Angeles, Detroit and Phoenix.

Besides large concentrated populations, these metro areas share two other ingredients that support innovation. All of them have one or more leading research universities and a large proportion of college-educated people.

Santa Clara County is home to Stanford University, an institution that has become synonymous with the high-tech and innovation economy of Silicon Valley.

Stanford’s rise as a world-class research university coincided with a rapid increase in federal and military spending during the Cold War. The university’s suburban location gave it an advantage, too, by providing land for expansion and for burgeoning high-tech companies. Stanford’s leadership aggressively courted research opportunities aligned with the priorities of the military-industrial complex, including electronics, computing and aerospace.

Another common trait about most of these centers of innovation is the jaw-dropping cost of housing.

Competition for higher-wage talent pushes up housing and other costs in these innovation centers. Although housing prices increased in greater Boston, Phoenix and Detroit, they remained relative bargains compared to the West Coast.

In my view, one way to unleash innovation would be to tap into the rich diversity of students, faculty and communities at two- and four-year colleges beyond the typical top 100 research institutes. more>

The fundamental problem with Silicon Valley’s favorite growth strategy

By Tim O’Reilly – The pursuit of monopoly has led Silicon Valley astray.

Look no further than the race between Lyft and Uber to dominate the online ride-hailing market.

Most monopolies or duopolies develop over time, and have been considered dangerous to competitive markets; now they are sought after from the start and are the holy grail for investors. If LinkedIn co-founder Reid Hoffman and entrepreneur Chris Yeh’s new book Blitzscaling is to be believed, the Uber-style race to the top (or the bottom, depending on your point of view) is the secret of success for today’s technology businesses.

Many of these businesses depend on network effects, which means that the company that gets to scale first is likely to stay on top. So, for startups, this strategy typically involves raising lots of capital and moving quickly to dominate a new market, even when the company’s leaders may not know how they are going to make money in the long term.

This premise has become doctrine in Silicon Valley. But is it correct? And is it good for society? more>

Moral technology

Self-driving cars don’t drink and medical AIs are never overtired. Given our obvious flaws, what can humans still do best?
By Paula Boddington – Artificial intelligence (AI) might have the potential to change how we approach tasks, and what we value. If we are using AI to do our thinking for us, employing AI might atrophy our thinking skills.

The AI we have at the moment is narrow AI – it can perform only selected, specific tasks. And even when an AI can perform as well as, or better than, humans at certain tasks, it does not necessarily achieve these results in the same way that humans do. One thing that AI is very good at is sifting through masses of data at great speed.

Using machine learning, an AI that’s been trained with thousands of images can develop the capacity to recognize a photograph of a cat (an important achievement, given the predominance of pictures of cats on the internet). But humans do this very differently. A small child can often recognize a cat after just one example.

Because AI might ‘think’ differently to how humans think, and because of the general tendency to get swept up in its allure, its use could well change how we approach tasks and make decisions. The seductive allure that tends to surround AI in fact represents one of its dangers. Those working in the field despair that almost every article about AI hypes its powers, and even those about banal uses of AI are illustrated with killer robots.

It’s important to remember that AI can take many forms, and be applied in many different ways, so none of this is to argue that using AI will be ‘good’ or ‘bad’. In some cases, AI might nudge us to improve our approach. But in others, it could reduce or atrophy our approach to important issues. It might even skew how we think about values.

We can get used to technology very swiftly. Change-blindness and fast adaptation to technology can mean we’re not fully aware of such cultural and value shifts. more>

Updates from Chicago Booth

Raghuram G. Rajan says capitalism’s future lies in stronger communities
By Raghuram G. Rajan – You have a new book out called The Third Pillar. What is the third pillar?

It is the community. Around the world, there is widespread economic anxiety, domestic political tension, strife between countries, and now talk of a cold war reemerging between the United States and China. Why?

I argue that every time there’s a big technological revolution, it upsets the balance in society between three pillars: the political structure—that is, government or the state; the economic structure—that is, markets and firms; and the sociological, human structure—that is, communities.

When that balance is upset, we see anxiety and conflict, a signal that we’re striving for a new balance.

To really understand capitalism’s success, one has to understand the important role of the community. As it voices its concerns through democracy, the community is critical to maintaining the balance between the state and markets. When the community is appropriately motivated and engaged, it enables liberal market societies to flourish.

Recently, some communities have been weakened significantly while others have sped ahead. Technological change is creating a new meritocracy, but one that is turning out to be largely hereditary, denying opportunities to many. The many, in economically disadvantaged and thus socially dysfunctional communities, could turn their backs on markets. The consequent imbalances could undermine liberal democratic society. more>

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Updates from Siemens

New technology in industry is creating a platform economy
By Frank_Fang – Twenty years ago, product-centric companies dominated a list of the most valuable companies in the world. The list was a Who’s Who of automotive, manufacturing, oil and gas, and brick-and-mortar retailers.

Today, platform-based businesses rule.

This new economy forces product-centric manufacturing companies to rethink how they transform digitally to survive and thrive in a data-rich market. It’s no secret that new technology and new approaches eventually supersede the old.

We’re witnessing one of these periods now. As manufacturers look for ways to radically redefine processes through the hype of the sharing economy, online platforms, the end of money and all the other buzzwords people use today, digital twin evolution will lead to platform economy, a state Viktor Mayer-Schönberger foresees in his book Reinventing Capitalism in the Age of Big Data.

Digital twins, which evolve from decades of simulation and analysis in engineering, are high fidelity models for actual physical objects such as a product or production process. Using computer aided-design, model-based system engineering and multiphysics simulation tools, a designer or engineer creates a digital representation for a physical object or process.

The digital twin is no longer science fiction. For example, NASA used this approach to design, engineer and produce two Mars rovers: Curiosity and InSight.

Since you can’t build a Mars environment on earth, you simply bring Mars to the computer and digitally test your Mars rover. more>

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Updates from Chicago Booth

Purely evidence-based policy doesn’t exist
By Lars Peter Hansen – Recently, I was reminded of the commonly used slogan “evidence-based policy.”

Except for pure marketing purposes, I find this terminology to be a misnomer, a misleading portrayal of academic discourse and the advancement of understanding. While we want to embrace evidence, the evidence seldom speaks for itself; typically, it requires a modeling or conceptual framework for interpretation.

Put another way, economists—and everyone else—need two things to draw a conclusion: data, and some way of making sense of the data.

That’s where modeling comes in. Modeling is used not only to aid our basic understanding of phenomena, but also to capture how we view any implied trade-offs for social well-being. The latter plays a pivotal role when our aim is to use evidence in policy design.

This is intuitive if you think about the broad range of ideas and recommendations surrounding macroeconomic policy and the spirited, sometimes acrimonious way in which they’re debated.

If everything were truly evidence based, to the extent we can agree on the accuracy of the evidence, why would there be such heterogeneity of opinion? The disagreement stems from the fact that people are using different models or conceptual frameworks, each with its own policy implications.

Each of them might be guided by evidence, but policy conclusions can rarely be drawn directly from the evidence itself. more>

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When the monsoon goes away

By Sunil Amrith – More than 70 per cent of total rainfall in South Asia occurs during just three months each year, between June and September. Within that period, rainfall is not consistent: it is compressed into a total of just 100 hours of torrential rain, spread across the summer months. Despite advances in irrigation, 60 per cent of Indian agriculture remains rain-fed, and agriculture employs around 60 per cent of India’s population. No comparable number of human beings anywhere in the world depend on such seasonal rainfall.

Both before and after independence, the imperious power of the monsoon troubled India’s rulers. In the first decade of the 20th century, the finance minister in the imperial government declared that ‘every budget is a gamble on the rains’ – a statement that is still quoted regularly in the Indian media.

In the late 1960s, India’s prime minister Indira Gandhi said: ‘For us in India, scarcity is only a missed monsoon away.’ The foreboding remains.

The scale of the monsoon system exists far beyond human intervention. If technology could intervene, it was on the landscape, in the form of infrastructure. By the early 20th century, engineers around the world were confident that they could neutralize the risk of climatic variability by constructing dams that would fuse water storage, flood control, irrigation and power generation. India was no exception. more>

What Happens When You Believe in Ayn Rand and Modern Economic Theory

The reality of unfettered self-interest
By Denise Cummins – “Ayn Rand is my hero,” yet another student tells me during office hours. “Her writings freed me. They taught me to rely on no one but myself.”

As I look at the freshly scrubbed and very young face across my desk, I find myself wondering why Rand’s popularity among the young continues to grow.

The core of Rand’s philosophy — which also constitutes the overarching theme of her novels — is that unfettered self-interest is good and altruism is destructive. This, she believed, is the ultimate expression of human nature, the guiding principle by which one ought to live one’s life. In “Capitalism: The Unknown Ideal,” Rand put it this way:

Collectivism is the tribal premise of primordial savages who, unable to conceive of individual rights, believed that the tribe is a supreme, omnipotent ruler, that it owns the lives of its members and may sacrifice them whenever it pleases.

By this logic, religious and political controls that hinder individuals from pursuing self-interest should be removed.

The fly in the ointment of Rand’s philosophical “objectivism” is the plain fact that humans have a tendency to cooperate and to look out for each other, as noted by many anthropologists who study hunter-gatherers. These “prosocial tendencies” were problematic for Rand, because such behavior obviously mitigates against “natural” self-interest and therefore should not exist. more>