Archives

Nobel Winner Patiently Shows Adam Smith Wrong

Elinor Ostrom won this year’s Nobel in economics for a lifetime’s careful study of the ways that communities work together to manage shared resources. Her real-world case studies include pastures, ground water, and cleaning the fridge at work. To an optimist of human nature, the idea that people can learn how to cooperate seems so blindingly obvious that it’s not worth writing papers about, yet classic economic theory predicts “the tragedy of the commons” for things that aren’t under centralized control in one way or another. That is what Elinor shows to be false, through decades of careful field work.

The above video is an overview of her work given shortly after she won the prize. Crooked Timber also has a good discussion:

Lin’s work focuses on the empirical analysis of collective goods problems – how it is that people can come up with their own solutions to problems of the commons if they are given enough room to do so. Her landmark book, Governing the Commons, provides an empirical rejoinder to the pessimism of Garret Hardin and others about the tragedy of the commons – it documents how people can and do solve these problems in e.g the management of water resources, forestry, pasturage and fishing rights. She and her colleagues gather large sets of data on the conditions under which people are or are not able to solve these problems, and the kinds of rules that they come up with in order to solve them.

In other words, Elinor went out in the world and studied the use of common resources in real situations, rather than starting with the supposition that everybody acts in purely self-interested fashion all the time. The concept of self-interest has been at the core of economic theory since Adam Smith first postulated the “invisible hand” of the market, and it really does correctly predict a great deal of human economic behavior. But it doesn’t explain everything, and overuse of that assumption leads to predictions that simply aren’t true.  (Besides which, it’s a mistake to conflate a theoretical model with a moral stance, take note Wall Street.)

From a really nice NPR interview with her:

The core is still an individual, but the individual is a little more complex than the caricature of “me first always”. The “me first always” caricature model can be used, mathematically, to predict outcomes when the problem is pure private goods and you have a highly competitive market. But we have to also understand that humans are more complex than immediate material self-interest as the only goal. So humans learn norms and ways of expressing themselves, and the importance of love of brothers and sisters and their spouse, and members of their community. Then, instead of taking my individual interest only into account, an individual outside of a really narrow market situation can take the broader community into account.

Which is something that hippies have been saying since, I don’t know, the invention of sitting around and getting stoned together, but Elinor puts academic rigor behind that — the kind of careful analysis that is necessary if you are government policy maker and it’s your job to figure out how use the natural resources of your country in a sustainable way.

For the immediately curious, here‘s a bit of her thinking:

Analysing the design of long-enduring common pool resource (CPR) institutions, Elinor Ostrom (1990) identified eight design principles which are prerequisites for a stable CPR arrangement:

1. Clearly defined boundaries

2. Congruence between appropriation and provision rules and local conditions

3. Collective-choice arrangements allowing for the participation of most of the appropriators in the decision making process

4. Effective monitoring by monitors who are part of or accountable to the appropriators

5. Graduated sanctions for appropriators who do not respect community rules

6. Conflict-resolution mechanisms which are cheap and easy of access

7. Minimal recognition of rights to organize (e.g., by the government)

8. In case of larger CPRs: Organisation in the form of multiple layers of nested enterprises, with small, local CPRs at their bases.

Analysing the design of long-enduring CPR institutions, Elinor Ostrom (1990) identified eight design principles which are prerequisites for a stable CPR arrangement:
1. Clearly defined boundaries
2. Congruence between appropriation and provision rules and local conditions
3. Collective-choice arrangements allowing for the participation of most of the appropriators in the decision making process
4. Effective monitoring by monitors who are part of or accountable to the appropriators
5. Graduated sanctions for appropriators who do not respect community rules
6. Conflict-resolution mechanisms which are cheap and easy of access
7. Minimal recognition of rights to organize (e.g., by the government)
8. In case of larger CPRs: Organisation in the form of multiple layers of nested enterprises, with small, local CPRs at their bases.

Further revelations await in this 2000 paper of hers, “Collective Action and The Evolution of Social Norms.”

The Structure of Social Journalism

Shortest way I can describe how I think journalism must change: the internet is not just for distribution, but production too. I’m not saying that “citizen journalists” will be making all the news. I suspect a complex collaboration between many people, including something like a newsroom full of pro journalists. In this article I’m going to explore what that might look like, by asking what the component tasks are that make up “journalism”, and thinking about who can do those most efficiently. And I’m going to sketch out the design for a piece of social software to support this.

Here’s a list of things that professional journalists do:

  • decide what should be more broadly known
  • decide what should be more deeply investigated
  • collect information from sources both public and private
  • check that information for factual accuracy
  • construct narratives to make sense of that information
  • produce content to convey those narratives
  • publish and market that content

This list is by no means definitive or exhaustive. It’s just illustrative, a starting point for a thought experiment. Who could do each of these things best? And what tools to do they need to do it?

Having a network of people producing journalism around a newsroom is not a new idea. Jeff Jarvis has been discussing networked journalism since at least 2006, and naturally I think he’s on to something. In this essay I want concentrate on process and roles. If cheap networks make new types of collaboration possible, they also set the stage for new types of specialization. I think one of the problems of the traditional, mainstream media newsroom is that it it tries to handle the entire journalistic process internally, even the parts that it’s not actually very good at.

An example

On November 25, a video appeared on YouTube which appears to be the testimonial of a young woman recently fired from the credit card collections division of Bank of America. She had been allowing the bank’s most desperate customers to enroll in fixed-payment debt recovery schemes. Many of these customers are currently paying 30% interest as a result of recent rate hikes, so this was a great kindness. It was also against company policy.

The video is powerful. It’s an amazing first-person testimonial of the greed and heartlessness of large corporations.

So is this journalism?

Continue reading The Structure of Social Journalism

Ever-Smaller Apartments

Before cash, there was land. The family held some, and grew rice on it. It was passed to the children — the sons anyway. Divided among them. They passed it to their sons in turn, and the soil split into fractals. But the people didn’t get smaller too, and so they began to starve. This process is still going on in places like Ethiopia, Bangladesh, Laos.

HowLongWillItLast

Yet we in the industrialized world seem astonished that our parents could afford the houses that we cannot.

The economics of sustenance farming in the face of rising population are immediately clear, yet we do not take the general lesson. We still act like we have infinite resources. Our population is still increasing, yet land, water, oil, and every single mineral is finite and running out. A 2007 article in New Scientist discusses this more cogently than anything I’ve ever seen, including the above chart “How Long Will It Last?”

We need to apply the same thinking to energy. I am not talking about running out of oil. The oil will run out, of course, and not before we do tremendous environmental damage — I, for one, am planning on hitting the world’s great beaches sooner rather than later. But when the oil is gone, it’s simply gone. Unlike copper or plastic, energy cannot be recycled in any way (in fact energy is the limiting input in recycling everything else.) We have no choice but to switch to sunlight for our ongoing power needs. And sunlight, like land, will have to be divided smaller and smaller among more and more of us.

I’m currently looking for an apartment in Hong Kong. On my own I can afford about 200 square feet. I saw a place where the Indonesian nannies live; there were six people in this space, crammed into bunk beds barely narrower than the one tiny room. I was shocked, until I realized that I had arrived in the future. It’s not going to get better. We’re already out of space, but soon we will feel the energy pinch. One day soon, electricity, transport, and hot water are going to be just as rationed as real estate (by each of us individually, because of the cost.)

An engineer named Saul Griffith has done the calculations. To meet the current world population’s current energy requirements, we would need to collect the incident sunlight over an area about the size of Australia. That’s a stupendous amount of solar power to build. It will be a very long time before it is built, if ever. More fundamentally, the physical relationship between incident sunlight and land area brings us right back to passing ever-smaller fields to our children. (By the way, nuclear power won’t help: even without building more power plants we will run out uranium some time in the next century. And wind power, wave power etc. are actually solar driven.)

We will never see the easy material affluence of our parents; we have entered the zero-sum game phase of land- and energy-measured wealth where the only way to get more is to take from someone else (as evidenced by the increasing wealth inequality in industrialized countries over the past few decades.) We can no longer teach our children to expect more than their parents. It’s all a lie; barring insane technological shifts or catastrophic population reduction, the future is high density.

The big house of the American Dream, which is also the big house of the aspiring middle-class everywhere in the world, is over.

Self-Replicating Desktop Manufacturing: Dreams and Reality

The ambition of the RepRap project (“replicating rapid-prototyper”) is undeniably cool: to design a machine which is essentially a self-replicating 3D printer. By building up objects layer by layer, rapid prototyping technology can be used to manufacture the parts for just about any simple object or machine. It would be like having your own little factory in exactly the same way that having a laser printer is like having your own printing press, except that you can use this little factory to make another factory to give to your friend.

Theoretically, desktop manufacturing technology then spreads exponentially, until everyone can make whatever material objects they need from downloaded plans, for only the cost of feed plastic.

The dream is best explained in this excellent little video:

It’s hard to overstate the fundamental shift that would come with truly widespread desktop manufacturing. Right now all of the objects we use are manufactured somewhere far away and shipped to us, and the designs are expensive and slow to  change. Instead, imagine if everyone had a household appliance, perhaps fed by spools of plastic and metal wire, that could manufacture just about any object from plans downloaded from the internet. It’s hard to see how private designs could compete with millions of amateur object designers geeking out over their widgets for the benefit of humanity, which means that designs for all the basic desirable objects would be freely available.

Want a new phone? Download the latest Android phone plan from the Open Handset Foundation. That’s cool, but the really cool thing is this: everyone in the world could have one for the price of plastic. More to the point, everyone in the world could have e.g. irrigation pumps, car parts, light switches, medical devices, essentially all the trappings of modern technology.

It is of course debatable whether or not an increase in humanity’s use of energy-consuming technology is a good idea at this time. However, it seems to me unconscionable to deny it to the world’s poor just because we got there first. Further, one could also replicate the parts for home biomass reactors, electric cars, and other advanced energy devices — regardless of whether or not anyone can make a profit selling such items commercially.

New versions of the replicator with enhanced production capabilities (now with integrated circuits!) would be designed to be manufacturable using existing models. This means that manufacturing technology would itself spread virally. To bootstrap this, all you need are a few basic self-replicating machines, then the technology passes from friend to friend until the whole world is saturated and capable of producing all future upgrades.

But we are nowhere near that dream. There’s a lot of promise to desktop manufacturing, but I’ve come to believe that the RepRap approach is probably not the right one. And I’m going to try to explain why.

Continue reading Self-Replicating Desktop Manufacturing: Dreams and Reality

Nobody Actually Likes Advertising

ihatebillboards

(graphic from ihatebillboards.com)

You raved about advertising last night, and it was so easy to believe that you were wrong. Now I see that we were standing in the only spot where I could win. Next to a life-size replica of the mousetrap game, you told me that no one works for free. You said Wikipedia is going to fail because experts will never donate their time. Silhouetted in the apocalyptic glow of home-made fire art, you were preaching, saying advertising is the only option we have, saying commerce is the only real thing.

Sure, I said, deadpan. We all gotta eat. 

I was smirking, but today is Monday. At rush hour, I know I’m going against the tide. I spend a lot of time with very busy people who, economically speaking, don’t produce shit. The work I sometimes do has the cachet of underground. You have to know the right warehouses. It’s exclusive, but mostly it’s exclusive because you have to be willing to put your excess wealth into making your own culture. But what we do, it never put up skyscrapers. It has no market. It never built Rome, or railroads. You know better. You put such power into logos that the Khoasan Road bootleggers label their shoes “Nike” and the first hamburger place in Cambodia uses McDonanld’s colors. 

But this isn’t about globalization. It’s about you.

Back when we met, click-through was a means, not an end. We sat on the B-school lawn and told ourselves that the older generation were fools, that they had no idea what was good in life. We would only put our creative energies into projects we believed in, even if we weren’t quite sure what those might be. We were never going to work in a cubicle. We would never pitch a campaign to make insurance sexy. Then you got the offer you couldn’t refuse, and every new offer was a hard line pushed out a little bit further. You began to eat well, to afford health insurance, to think about having a family. The shine came off poverty, the outlines of reality shifted, and with them, the possible.

Now you sit in meetings where people say “monetize” without irony.  

You take in the company meeting and nod your head to the stock price. You tell me that open source is ridiculous, because actually Google funds Firefox and Ubuntu funds Linux. And Web 2.0 is for connecting with people — the people you want money from. And Facebook is for demographics, and viral marketing is culture, and when you did edit Wikipedia, you wrote:

A lifestyle brand provides a powerful supplement to the core identity of the customer.

When I read that, I knew the final person you’d convinced was yourself. You think you’re doing a good thing. And you’re probably right. The world really does work this way, because everywhere I’ve ever been, aspiration means money. And money means getting people to buy.

But you’re safe here, tonight. No one is watching. They don’t care if you believe, only if you deliver. So have another drink and let’s say it out loud, together, cut through and admit it: nobody actually likes advertising.

Bank Bailout in Pictures

bailout

LOL! Worth staying with it until the end.

Other references I’ve found today in trying to understand what the hell the US government is doing:

Jeffrey Sachs (possibly best known as the author of The End of Poverty) discusses Geithner’s asset buying plan here: 

There are countless preferable and more transparent courses of action. The toxic assets could be sold at market prices, not inflated prices, making the bank shareholders bear the costs of the losses of the toxic assets. If the banks then need more capital, the government could invest directly into bank shares. This would bail out the banking system without bailing out the bank shareholders. The process would be much fairer, less costly, and more transparent to the taxpayer.

And I have finally, finally found a detailed, clear, and well-documented primer on how we got into this mess in the first place. In fact it’s an entire online supplementary chapter to Stanford Professor Charles Jones’ macroeconomics textbook. It clearly explains basic concepts like bank balance sheets, liquidity crises, the role of the federal interest rate, leverage, etc. and goes through a detailed history of the last two years from a macro-economic point of view. Lots of graphs too, the recession in pictures! Highly recommended.

We Can’t Learn About Economics

fundamentals_economics

Despite spending the last several days reading up on Treasury Secretary Geithner’s plan to buy bad bank assests, I now feel only marginally better prepared to judge whether this is a good idea or not. Of course, no one is asking me, but I still think it’s a big problem that I can’t evaluate this plan, because the fact that we live in a democracy means that citizens need to be able to understand what their government is doing. 

Now, I am no economist and I have no idea how to run a bank — much less all the banks. However, I am smart, interested, and I’ve done my homework, including previously reading a first year economics textbook (covering both micro- and macro-economics) and several other interesting books (1,2,3) on how markets work or don’t. In short I have been the model of a concerned citizen, and I still have no idea what is going on. This is partially because the situation is very complex, but it is also because there is no way a private citizen can get access to the data that would clarify matters — large banks will barely share their balance sheets with the government, much less me.

This is a problem. It means that the government, financial, and academic communities have not paid nearly enough attention both to basic economics education, and to transparency in real-world business. It is therefore impossible for anyone else to check their assumptions and restrain their huge power. Lest this sounds like unhelpful complaining, I promise to make a concrete suggestion for improvement by the end of this post.

Continue reading We Can’t Learn About Economics

Are They Right?

I’ve been reading StopTheACLU.com, because I want to get into their heads, because I want to avoid the classic mistake of intellectual isolation, and because I want to be challenged. Sure, they’re weirdos, but that doesn’t mean they don’t make sense. But there’s at least one thing in the StopTheACLU worldview that I find very hard to method-act: in their universe, global warming is a myth.

Okay, but how did I end up on this side and not that side?

Continue reading Are They Right?

Stories About the Economy

There are days when I think economics is indistinguishable from voodoo. The famous village health-care handbook “Where There Is No Doctor“, written for people who have never been exposed to science, includes a section on distinguishing superstition from medicine. “The more remedies there are for any one illness,” the authors write, “the less likely it is that any of them works.”

And so it is with us, and the many stories about what happened to our economy and how it might be fixed. It’s not that an event like the current financial meltdown is not understandable; it’s just that really understanding what happened and how to make it better requires a lot of training and knowledge that most people lack. Without this background, anything we might be able to say about our economic problems is necessarily a fable, a narrative about one-dimensional heroes and villains with names such as “GDP” and “sup-prime loan.” But if we must have stories, they should be good stories. We want stories that have some relationship to reality, that will expand fractally into the right explanations if we choose to look deeper into any particular point

With that caveat, I present to you the best short explanations I’ve been able to find about the current crisis.

Continue reading Stories About the Economy

Access to Knowledge and the Banality of Evil

It pisses me off that there is a huge body of very important information that most people can’t get at. I’m not talking about books, the poor paper things, but the world’s academic and scientific journals, which are already online.

Most people don’t even know that the world’s academic journals exist, but this is the master record, the huge source that all those science blogs and mis-representative popular articles draw from. These research journals are the collective output of every professional researcher in the world, in all subjects — only you’re not allowed to read them.

Continue reading Access to Knowledge and the Banality of Evil