Economics

This essay was originally published on the AIER blog on August 8, 2019.

In a new Atlantic essay, Patrick Collison and Tyler Cowen suggest that, “We Need a New Science of Progress,” which, “would study the successful people, organizations, institutions, policies, and cultures that have arisen to date, and it would attempt to concoct policies and prescriptions that would help improve our ability to generate useful progress in the future.” Collison and Cowen refer to this project as Progress Studies.

Is such a field of study possible, and would it really be a “science”? I think the answer is yes, but with some caveats. Even if it proves to be an inexact science, however, the effort is worth undertaking. 

Thinking about Progress

Progress Studies is a topic I have spent much of my life thinking and writing about, most recently in my book, Permissionless Innovation as well as a new paper on “Technological Innovation and Economic Growth,” co-authored with James Broughel. My work has argued that nations that are open to risk-taking, trial-and-error experimentation, and technological dynamism (i.e., “permissionless innovation”) are more likely to enjoy sustained economic growth and prosperity than those rooted in precautionary principle thinking and policies (i.e., prior restraints on innovative activities). A forthcoming book of mine on the future of entrepreneurialism and innovation will delve even deeper into these topics and address criticisms of technological advancement.

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When it comes to the threat of automation, I agree with Ryan Khurana: “From self-driving car crashes to failed workplace algorithms, many AI tools fail to perform simple tasks humans excel at, let alone far surpass us in every way.” Like myself, he is skeptical that automation will unravel the labor market, pointing out that “[The] conflation of what AI ‘may one day do’ with the much more mundane ‘what software can do today’ creates a powerful narrative around automation that accepts no refutation.”

Khurana marshals a number of examples to make this point:

Google needs to use human callers to impersonate its Duplex system on up to a quarter of calls, and Uber needs crowd-sourced labor to ensure its automated identification system remains fast, but admitting this makes them look less automated…

London-based investment firm MMC Ventures found that out of the 2,830 startups they identified as being “AI-focused” in Europe, 40% used no machine learning tools, whatsoever.

I’ve been collecting examples of the AI hype machine as well. Here are some of my favorites. Continue reading →

– Coauthored with Mercatus MA Fellow Walter Stover

The advent of artificial intelligence technology use in dynamic pricing has given rise to fears of ‘digital market manipulation.’ Proponents of this claim argue that companies leverage artificial intelligence (AI) technology to obtain greater information about people’s biases and then exploit them for profit through personalized pricing. Those that advance these arguments often support regulation to protect consumers against information asymmetries and subsequent coercive market practices; however, such fears ignore the importance of the institutional context. These market manipulation tactics will not have a great effect precisely because they lack coercive power to force people to open their wallets. Such coercive power is a function of social and political institutions, not of the knowledge of people’s biases and preferences that could be gathered from algorithms.

As long as companies such as Amazon operate in a competitive market setting, they are constrained in their ability to coerce customers who can vote with their feet, regardless of how much knowledge they actually gather about those customers’ preferences through AI technology. Continue reading →

A decade ago, a heated debate raged over the benefits of “a la carte” (or “unbundling”) mandates for cable and satellite TV operators. Regulatory advocates said consumers wanted to buy all TV channels individually to lower costs. The FCC under former Republican Chairman Kevin Martin got close to mandating a la carte regulation.

But the math just didn’t add up. A la carte mandates, many economists noted, would actually cost consumers just as much (or even more) once they repurchased all the individual channels they desired. And it wasn’t clear people really wanted a completely atomized one-by-one content shopping experience anyway.

Throughout media history, bundles of all different sorts had been used across many different sectors (books, newspapers, music, etc.). This was because consumers often enjoyed the benefits of getting a package of diverse content delivered to them in an all-in-one package. Bundling also helped media operators create and sustain a diversity of content using creative cross-subsidization schemes. The traditional newspaper format and business is perhaps the greatest example of media bundling. The classifieds and sports sections helped cross-subsidize hard news (especially local reporting). See this 2008 essay by Jeff Eisenach and me for details for more details on the economics of a la carte.

Yet, with the rise of cable and satellite television, some critics protested the use of bundles for delivering content. Even though it was clear that the incredible diversity of 500+ channels on pay TV was directly attributable to strong channels cross-subsidizing weaker ones, many regulatory advocates said we would be better off without bundles. Moreover, they said, online video markets could show us the path forward in the form of radically atomized content options and cheaper prices.

Flash-forward to today. Continue reading →

Why should we really care about technological innovation? My Mercatus Center colleague James Broughel and I have just published a paper answering that question. In “Technological Innovation and Economic Growth: A Brief Report on the Evidence,” we summarize the extensive body of evidence that discusses the relationship between innovation, growth, and human prosperity. We note that while economists, political scientists, and historians don’t agree on much, there exists widespread consensus among them that there is a symbiotic relationship between the pace of innovation and the progress of civilization. Our 27-page paper documenting the academic evidence on this issue can be downloaded on SSRN or from the Mercatus website. Here’s the abstract:

Technological innovation is a fundamental driver of economic growth and human progress. Yet some critics want to deny the vast benefits that innovation has bestowed and continues to bestow on mankind. To inform policy discussions and address the technology critics’ concerns, this paper summarizes relevant literature documenting the impact of technological innovation on economic growth and, more broadly, on living standards and human well-being. The historical record is unambiguous regarding how ongoing innovation has improved the way we live; however, the short-term disruptive aspects of technological change are real and deserve attention as well. The paper concludes with an extended discussion about the relevance of these findings for shaping cultural attitudes toward technology and the role that public policy can play in fostering innovation, growth, and ongoing improvements in the quality of life of citizens.

Contemporary tech criticism displays an anti-nostalgia. Instead of being reverent for the past, anxiety about the future abounds. In these visions, the future is imagined as a strange, foreign land, beset with problems. And yet, to quote that old adage, tomorrow is the visitor that is always coming but never arrives. The future never arrives because we are assembling it today.  

The distance between the now and the future finds its hook in tech policy in the pacing problem, a term describing the mismatch between advancing technologies and society’s efforts to cope with them. Vivek Wadhwa explained that, “We haven’t come to grips with what is ethical, let alone with what the laws should be, in relation to technologies such as social media.” In The Laws of Disruption, Larry Downes explained the pacing problem like this: “technology changes exponentially, but social, economic, and legal systems change incrementally.” Or, as Adam Thierer wondered, “What happens when technological innovation outpaces the ability of laws and regulations to keep up?”

Here are three short responses. Continue reading →

Over at the Mercatus Center Bridge blog, Trace Mitchell and I just posted an essay entitled, “A Non-Partisan Way to Help Workers and Consumers,” which discusses the new Federal Trade Commission’s (FTC) Economic Liberty Task Force report on occupational licensing.

We applaud the FTC’s calls for greater occupational licensing uniformity and portability, but regret the missed opportunity to address root problem of excessive licensing more generally. But while FTC is right to push for greater occupational licensing uniformity and portability, policymakers need to confront the sheer absurdity of licensing so many jobs that pose zero risk to public health & safety. Licensing has become completely detached from risk realities and actual public needs.

As the FTC notes, excessive licensing limits employment opportunities, worker mobility, and competition while also “resulting in higher prices, reduced quality, and less convenience for consumers.” These are unambiguous facts that are widely accepted by experts of all stripes. Both the Obama and Trump Administrations, for example, have been completely in league on the need for comprehensive  licensing reforms. Continue reading →

In recent essays and papers, I have discussed the growth of “innovation arbitrage,” which I defined as, “The movement of ideas, innovations, or operations to those jurisdictions that provide a legal and regulatory environment more hospitable to entrepreneurial activity.” A new Economist article about “Why startups are leaving Silicon Valley,” discusses innovation arbitrage without calling it such. The article notes that, for a variety of reasons, Valley innovators and investors are looking elsewhere to set up shop or put money into new ventures. The article continues:

Other cities are rising in relative importance as a result. The Kauffman Foundation, a non-profit group that tracks entrepreneurship, now ranks the Miami-Fort Lauderdale area first for startup activity in America, based on the density of startups and new entrepreneurs. Mr Thiel is moving to Los Angeles, which has a vibrant tech scene. Phoenix and Pittsburgh have become hubs for autonomous vehicles; New York for media startups; London for fintech; Shenzhen for hardware. None of these places can match the Valley on its own; between them, they point to a world in which innovation is more distributed.

If great ideas can bubble up in more places, that has to be welcome. There are some reasons to think the playing-field for innovation is indeed being levelled up. Capital is becoming more widely available to bright sparks everywhere: tech investors increasingly trawl the world, not just California, for hot ideas. There is less reason than ever for a single region to be the epicentre of technology. Thanks to the tools that the Valley’s own firms have produced, from smartphones to video calls to messaging apps, teams can work effectively from different offices and places.

That’s the power of innovation arbitrage at work.  Continue reading →

A curious thing happened last week. Facebook’s stock, which had seem to have weathered the 2018 controversies, took a beating.

In the Washington Post, Craig Timberg and Elizabeth Dwoskin explained that the stock market drop was representative of a larger wave:

The cost of years of privacy missteps finally caught up with Facebook this week, sending its market value down more than $100 billion Thursday in the largest single-day drop in value in Wall Street history.

Jeff Chester of the Center for Digital Democracy piled on, describing the drop as “a privacy wake-up call that the markets are delivering to Mark Zuckerberg.”

But the downward pressure was driven by more fundamental changes. Simply put, Facebook missed its earnings target. But it is important to peer into why the company didn’t meet those targets. Continue reading →

The White House has announced a new effort to help prepare workers for the challenges they will face in the future. While it’s a well-intentioned effort, and one that I hope succeeds, I’m skeptical about it for a simple reason: It’s just really hard to plan for the workforce needs of the future and train people for jobs that we cannot possibly envision today.

Writing in the Wall Street Journal today, Ivanka Trump, senior adviser to the president, outlines the elements of new Executive Order that President Trump is issuing “to prioritize and expand workforce development so that we can create and fill American jobs with American workers.” Toward that end, the Administration plans on:

  • establishing a National Council for the American Worker, “composed of senior administration officials, who will develop a national strategy for training and retraining workers for high-demand industries.” This is meant to bring more efficiency and effectiveness to the “more than 40 workforce-training programs in more than a dozen agencies, and too many have produced meager results.”
  • “facilitat[ing] the use of data to connect American businesses, workers and educational institutions.” This is meant to help workers find “what jobs are available, where they are, what skills are required to fill them, and where the best training is available.”
  • launching a nationwide campaign “to highlight the growing vocational crisis and promote careers in the skilled trades, technology and manufacturing.”

The Administration also plans on creating a new advisory board of experts to address these issues, and the administration is also “asking companies and trade groups throughout the country to sign our new Pledge to America’s Workers—a commitment to invest in the current and future workforce.” They hope to encourage companies to take additional steps “to educate, train and reskill American students and workers.”

Perhaps some of these steps make sense, and perhaps a few will even help workers deal with the challenges of our more complex, fast-evolving, global economy. But I doubt it.

Continue reading →