The Usefulness of Bubbles

Businessweek is out with a great article on the current tech bubble. The article asserts that this bubble, built around social media and online advertising, is wasting a generation of talent and channelling innovative capitol towards a category of technology whose social benefits are ambiguous.

An economic bubble is basically a localized trend of inflated asset prices. Since prices are the conventional measurement of a thing's social utility, inflated prices result in misallocation of productive forces, like money, talent, or even social prestige. Most bubbles quietly deflate before anybody notices, but sometimes they continue to grow and end up popping suddenly. This usually causes financial turmoil and triggers broader economic hardship.

On the surface, this article's premise is straightforward: bubbles are terrible for the economy, and the current tech craze is exhibiting disturbingly bubble-like behavior. Thus the current tech craze is terrible for the economy. I generally agree with this logic, but it does paint diverse economic situations with a very broad brush. Within the framework of "bubbles are bad," what's the best way to compare potential bubbles (e.g. bubble A is worse than bubble B)?

Magnitude is important, but if we're looking at potential bubbles instead of past bubbles, this can be difficult. Given the extreme uncertainty of future economic events, I'd argue that one good test would focus on a candidate bubble's social usefulness. All bubbles, in varying degrees, maul the economy and ruin countless lives. Yet when the dust settles, they always leave behind certain new technologies or structural changes. Even if we can't predict how damaging a bubble will be, we can still ruminate on and compare these after-effects.

Think about it: after the financial crisis of 2007-8, what were we left with? Tons of arcane financial "instruments," ridiculously flawed arbitrage markets, and lots of cracked-out quantitative risk models. Some legacy, huh? Now consider the railroad bubble of the 1880s. When it popped, the U.S. economy was badly damaged. But we were left with a massive intranational network of railroads, establishing the infrastructure base for future development and growth.

Consider an environmental technology or energy efficiency bubble. It might pop and crash the economy, but at least we'd have made enormous social progress. By the same token, some people have suggested that we're currently in a higher education bubble, with the cost of college ridiculously high relative to it's value. That may be, but at least colleges and universities are building awesome new facilities and research infrastructure that has tons of lasting value. All bubbles hurt, but it's nice to know that, at the end of the day, our economy's persistent drunken crazes are at least doing something useful.

Information Nexus

1. Plumbing Matters
2. Do Greens Need a New Strategy?
3. The Life of a Death Star Stormtrooper
4. Six Reasons Google Books Failed
5. Clever Visual Wordplay

Quote of the Week

Milton Meuller at The Technology Liberation Front on the AT&T/T Mobile merger:

Let’s begin at the beginning and ask why this merger is happening. It’s not as if AT&T is gaining dominance the way Google gained it in search and advertising, or the way Intel did in chips: i.e., through low prices, superior products and customer loyalty. No, last time I looked AT&T was the carrier with the lowest customer satisfaction ratings, some of the highest prices and one of the weakest network performance metrics. In my opinion there is no reason for this merger to take place other than to make life easier for AT&T by reducing competitive pressures on it. AT&T seems to be driven by the following calculus. It can either grow its services and its network under the harsh constraints of market pricing and competition, or it can attempt to reduce the field to an oligopoly with tacit price controls by using its size and financial bulk to eliminate a pest who keeps downward pressure on pricing and service requirements. I think it is rational for AT&T to try to get away with the latter. I think it’s insane for free market oriented thinkers to support it.

Free e-Book!

Okay, it's a public policy textbook, but it's still worth checking out: Policy and Choice: Public Finance through the Lens of Behavioral Economics by William Congdon, Jeffrey King, and Sendhil Mullainathan.

Behavioral economics has been criticized as being a "negative" theory, meaning it focuses more on breaking down the rational-actor assumption of classical economics than explaining social phenomenon. While I think that's somewhat unfair, it does seem that applying psychology to normative questions of policy and economics is a better fit. I loved Nudge, which popularized the idea of government policy using lessons from psychology to help people make better decisions. Conversely, Identity Economics, which tried to incorporate psychology into more traditional explanatory theories of economics and management, totally failed at building useful models. I'm interested to see how Policy and Choice addresses these two realms of theory, and whether it succeeds in both.

Watch Sendhil Mullainathan talk about psychological nudges.

The Grand Perhaps

Most of us are probably familiar with the so-called "New Athiests," the club of popular writers and thinkers that function as anti-religion attack dogs, intent on giving atheism a backbone, using aggressive language whenever possible. Evolutionary biologist Richard Dawkins, philosopher Daniel Dennett, writer Christopher Hitchens, and neuroscientist Sam Harris are typically described as core members of the club.

Each member inevitably has had to carve out their own unique niche in order to sell books and gain popularity. Most focus on demolishing religion and explaining why God probably doesn't exist, in addition to being as cantankerous as possible. Although Richard Dawkins is by far the most accomplished and brilliant, Sam Harris is the most creative and interesting.

With training in both moral philosophy and neuroscience, Harris strings together a complex argument over three books about the role of scientific rigor in moral and ethical reasoning. His recent TED Talk nicely summarizes his conclusion:

Harris focuses on the moral and ethical fitness of religion, science, and public reasoning, rather than simply rehashing old arguments for why God probably doesn't exist. Additionally, he attempts to construct something new by sketching out a possible basis for a secular morality. Employing neuroscience in philosophical discourse is refreshing and potent, and Harris' message that moral and ethical domains should not be off-limits to scientists is spot-on. The current intellectual holding pattern of avoiding moral questions and respecting diversity at all costs must end: next time you're at a fancy dinner, perhaps be a little rude and speak your mind.

Heller

Gear Up for Bike Weather

Spring is upon us, and in cities nationwide armies of bicyclists are once again greasing their chains and pumping their tires after a long winter of restricted transportation options. It was a feisty season for bicycles, with Washington D.C. launching a new bikeshare program and one new bike lane in Brooklyn sparking a national conversation about the utility of bike-oriented urban policy. But don't worry, the idea of a 'complete street' is here to stay. Critics of bike lanes rely on generally pathetic arguments, and even complex scientific modeling favors bikers.

Creative thinking to enhance bicycle usage is everywhere, but the best new idea I've seen is probably public bike pumps. The Urban Bikeway Design Guide catalogues the more traditional set of strategies. Minneapolis, Bicycling Magazine's 2010 Best Bike City, is preparing for its most bike-friendly spring yet with some cool innovations. Happy riding!

Statistical Regression, MD

The Science-Based Medicine blog has an interesting post about the role of experience in medicine:

Before we had EBM (evidence-based medicine) we had another kind of EBM: experience-based medicine. Mark Crislip has said that the three most dangerous words in medicine are “In my experience.” I agree wholeheartedly. On the other hand, it would be a mistake to discount experience entirely. Dynamite is dangerous too, but when handled with proper safety precautions it can be very useful in mining, road-building, and other endeavors.

 I don't think describing experiential expertise and intuition as risky-yet-rewarding medical strategies fully appreciates the historical trajectory of evidence-based medicine. While it's true that deep personal experience and intuition in doctors is currently essential to their provision of healthcare, computerized medical records and new diagnostic algorithms will soon change what medical services doctors provide. With the possible exception of new surgical techniques, doctors are no longer in the business of developing treatments or evaluating what works and what doesn't (biostatisticians are the great unsung heroes). Data-crunching, made possible through computerized records, will once again begin to encroach on a realm currently under doctors' jurisdiction: diagnosing ailments. Atul Gawande's checklist idea goes a step further, identifying healthcare implementation (even down to specific details like hand-washing) as another area being systematically blighted by decisionmaking driven by "experience," intuition and routine. The information revolution is changing what doctors do by enforcing precision and rigor, in the process saving millions of lives. This is all very good for humanity, but possibly not not for young med school students salivating about their future social cache. But I'm sure providing a nice bedside manner to patients is one duty that won't be disturbed by computer innovation. Although...

The Worst Jobs in History

From Lapham's Quarterly:

The Nonfiction Short Story

The National Magazine Awards are out with their 2011 finalists, recognizing the best in long-form journalism. For a complete list of finalists, including article links, check out Longform.org.

Long-form journalism allows for a much richer presentation--arguments can include more information, profiles can contain multiple illuminating anecdotes, etc. While many successful journalists also write non-fiction books, the long-form medium is great exactly because of its relative concision. Sometimes a topic is too specific or obscure to deserve (or more importantly, adequately market) a full-length book or biography, and so long-form articles in magazines and newspapers allow detailed inquiry on a much broader range of topics.

Economist Tyler Cowen's The Great Stagnation, an ebook about the size of two long New Yorker articles, is a fantastically successful attempt at experimentation with an unusual length. I hope we see more of these nonfiction novellas in the future.