Posts Tagged ‘ How the economy works ’

What We Can Do for the Economy

Krugman - How Much Of The World Is In a Liquidity Trap? Technical, but a good overview of the problem.

First of all, we have to recognize that we can do something – and should do something. This in contrary to the conventional wisdom: just do nothing, and hope it works itself out. This is what produced the Great Depression – lest we forget. And not only that: it is common morality – also something we tend to forget.

Another response is “Let the government take care of it!” But this gets us into a political power struggle where the most powerful (and the most stupid) usually win.

The solution seems clear to me: subsidize projects that will improve our competence. Competence is one of my favorite words, it refers to the real world – something, as I have said before, we prefer to avoid.

What I am suggesting is that we improve our technical competence – and in particular: our software competence. This would provide the most “bang for our buck” – the Manhattan Project naturally comes to mind.

I am now reading The Logic of Failure, and am very impressed with it. Chapter Three is about setting goals. I think everyone in the world should be marooned on an island and forced to read it.

He points out that general goals are a necessary evil; if they are not converted to specific goals they can do more harm than good. And I intend to do just that: How do we go about improving our software development skills? Using his Steps in Planning and Action, on page 41. I regret I cannot reproduce it here – but I can provide an outline.

First, get ideas from the experts, who will not be shy in giving them. Next, set up a committee (a huge online one would probably be best).

I am tempted to stop right here. One of our biggest problems is just this: how to increase our group intelligence and decision-making skills.

The problem in question would be the perfect way to test this. And we can expect to spend some time on it – and make plenty of mistakes. One of our biggest goals would be to get everyone involved – achieving that would an incredible win!

I repeat: we need to do something. To quote from Georg Christoph Lichtenberg:

Whether things will be better if they are different I do not know. But that they will have to be different to be better, that I do know.

2011
05/02
CATEGORY
Economy
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Reality Offends Them

People expect reality to behave the way they want it to; if it does not, they become furious and attack it. Instead of people adapting to reality, reality must adapt to them.

People have become so good at creating illusions (movies, videos, TV programs, images of all kinds – and various computer environments) – they assume they are real. And are greatly offended when reality insists on behaving independently.

They have lost interest in reality itself, because their illusions are so much more satisfying. And because illusions are better at manipulating other people. Because they are more powerful.

To them, power is everything. But this obsession with power always has the same consequence: in the end, it destroys them.

2011
04/19
CATEGORY
Business
Political comment
Sociology
Technology
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Cringely on Innovation

I subscribe to the I, Cringely newsletter, and today’s issue is especially interesting. He has been running tours of high-tech startups all over America, avoiding Silicon Valley intentionally – he knows too much about that already.

Remember Startup America is the name of the TV series on tech startups I’ve been making for most of the last year. Startup America is also the name of the recently-announced White House initiative on entrepreneurship. Interesting coincidence or brand hijacking?

It was, of course, just an interesting coincidence but I used it as an excuse to accuse them of brand hijacking. Wouldn’t you? So we’re literally moving toward the White House getting an IP license from me. I am not making this up. And it also means they are listening ever so slightly to my advice, because my Startup America is 14 months older than their Startup America and we’ve learned many lessons along the way.

So if you’ve been wondering what’s up with the Startup Tour and Startup America, this is the first of at least three announcements coming this week and next that will explain the next phases for both. Today’s announcement is that I am advising the Obama Administration on this topic.

He then goes on to explain how Silicon Valley works, and why its model cannot work for the rest of America – or for that matter, the rest of the world.

This is the Silicon Valley innovation model: 1) get a bunch of really smart people and think up ideas for technology startups; 2) choose a dozen of the best ideas and throw some significant money at them for 6-12 months, and; 3) at the end of a year throw even more money at the two surviving ideas knowing that one of those will also be dead before its second birthday. Brainstorming–seed funding–A-round–success, and of course bloodshed along the way — simple as that.

This model works well in Silicon Valley, where everyone knows people who have worked for eight different companies in the last eight years. But for most of America the model doesn’t work well at all. That’s for three reasons:

1) There often isn’t enough technical talent or if there is, that talent is more risk-averse (or less cocky) than the Silicon Valley crowd.

2) There definitely isn’t enough risk capital outside hotspots like Silicon Valley, Boston or Austin or a few other places that are comfortable with a 90+ percent failure rate. Try that argument down at the bank.

3) The strongest difference between Silicon Valley and real America when it comes to tech startups is how the original idea comes to be. In Silicon Valley you decide to start a company then look for ideas. In real America you have an idea that eventually becomes a company.

That third difference may not sound like much but it is critical. Silicon Valley is a boomtown where everyone is looking for the next vein of gold. In the real America founders more often come up simply with ideas they love that morph over time into products. But since no accelerated, laser-zapped, steroid-boosted in vitro fertilization is involved, these ideas take longer to mature than they would be allowed in Silicon Valley, where success is measured in months, not years.

This doesn’t make provincial ideas any worse than Silicon Valley ideas; in fact they are often better. Nor does it mean those ideas go through more or less evolutionary steps on their way to eventual product maturity. Ideas are ideas. But not all ideas are also dreams, and most startup founders outside Silicon Valley are living the dream that is their technology, not the dream that is their startup.

The result is that companies outside of Silicon Valley start slower and grow both slower and more cheaply. Our Startup America companies were an average of six years old and had gone through in those six years an average of $40,000. Time is money, think about it. To do the same job in one year would have cost $240,000. To do it in six months would have cost $480,000. That’s Silicon Valley kind of money, but six-year, $40,000 money is Uncle Phil money.

I especially liked this part: In Silicon Valley everyone knows people who have worked for eight different companies in the last eight years. He also mentions a 90+ percent failure rate. Other people have no idea how crazy it is there.

This is a brilliant analysis. Will Obama listen? I doubt it, he is firmly tied into big money.

2011
02/19
CATEGORY
Business
Political comment
Technology
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The Financial Industry is Evil

This is a continuation of my series about how the economy works. I do not claim any originality here: quite the opposite, I only urge you to see the obvious. And it is perfectly clear to everyone that the so-called financial industry is evil. Every poll shows this – although, of course they don’t use the word evil.

Americans are demanding that it be brought under control – but that is unlikely. The reason for this is simple: because it controls the government, not the people. To my simple, moralistic mind, this is evil, because it is destroying the economy.

How can this happen? Consider my first posting in this series The Economy is a Network. I argued that networks can be analyzed, and we can use our networking skills to control the economy. But the Financial Industry is far ahead of us; they have already done this, and figured out ways to game the economy at everybody else’s expense. They hire the smartest brains money can buy and pay them obscene bonuses to do this.

To my mind, the situation is similar that in the late Middle Ages, when the Church became totally corrupt. Northern Europe and Southern Europe were divided on how to solve this.

The North went with the Reformation. For it, the situation was intolerable, and they did something about it. The end result was the Modern World.

The South decided it would do nothing about it, and it became a developmental and economic backwater.

The developed world now seems to doing this same: doing nothing about the corruption that is threatening it. The result will be the same: economic stagnation.

See also:

The Economy is Unstable

2010
05/08
CATEGORY
Economy
3 comments

The Economy is Unstable

This is the second of my series on how the economy works. We have not thought about what the economy really is – only considered it a mysterious force that could not be comprehended by ordinary mortals. I am sure part of it is mysterious, but we should try to reduce our ignorance about it. What I am doing in this series is just stating the obvious.

One of the most obvious facts about the economy is that it is unstable. It has always been subject to panics, booms and busts. The mechanism behind this is simple, but should be made explicit: it is caused by feedback loops that get out of control.

“Fine,” you may say, “Thanks for telling us the obvious. But what is not obvious is what to do about these defective feedback loops.”

The first step is conceptual: we need to decide whether we want to control the economy, or let it control us. If we do decide to get our hands on the throttle, we can work out ways to do that – a process of trial and error.

Some instability is desirable and normal. But too much is too much. We need to find out what that is – again, by trial and error. This will mean accurate up-to-date economic information – much, much better than we have now. Here again, the technology is available: computers talking directly to computers – instead of endless paperwork and bureaucrats.

If we decide to remain helpless, which I suspect will be the case, we can only blame ourselves.

This is part of a larger question: do we want a society that benefits most of the people, or one that only benefits a few? The present trend is obvious: we have decided to favor the few – and to return to a more traditional (or pre-modern) society.

2010
05/07
CATEGORY
Economy
1 comment

The Economy is a Network

I started to explain why the economy was such a mess, thinking perhaps others might be interested in the subject too. But after thinking about it, I decided to break it into chunks that would be easy to digest. This is the first installment.

Just what is this thing we call the economy? The answer will not surprise you, since we now live in a networked world in general: the economy, like everything else, is a network.

And what is a network? Nodes (usually represented by circles) and links (usually represented by lines) on a network diagram. Each node can be connected to other nodes by a link. You get the picture. The whole situation gets complicated in a hurry, with links going all over the place – and that is one reason for our problems: we live in an increasingly complex world, where everything affects everything else.

However, hope is not lost, far from it. Computers and software are all networked, and they have figured out ways of keeping things under control. I have written about this before: when I rhapsodized about the Unified Modeling Language (UML) and things like that. All we have to do is let our new technology save us. But to do that, we have to provide it with the proper inputs. Otherwise: garbage in, garbage out.

This means figuring out what is going on in the economy: how all that money is sloshing around. Which means, whether we like it or not, some kind of Central Clearing House for all major financial transactions. We can’t control the economy unless we know what is going on there.

At this point, the powers that be, will object strenuously to any kind of governmental control – and claim that they, in their infinite wisdom, have everything under control. Ha! They have everything under control, all right, and they are taking us straight to the cleaners.

But that is the subject for another posting down the line: how the financial industry are a bunch of crooks – and how our government is in bed with them. My next posting will be about the dynamics of the economy-as-network: its built-in instabilities.

2010
05/07
CATEGORY
Economy
4 comments
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