A well-functioning market will make everyone better off than they were when trading began—but better off compared to what they were, not compared to everyone else. On the other hand, better off is better off.” Page 107It is always a pleasure to read a book featuring the work of economists that doesn’t imply we are idiots. (For an endless tirade against economists read The Black Swan by Nassim Taleb—but more on his book in a later post.) Surowiecki clearly understands the research he writes about and interprets it in an entertaining and easy to understand way. He is much like Malcolm Gladwell in that regard. (Come to think of it both of these guys wrote for the New Yorker so it might be the influence of their editors.) According to the book, ordinary markets are a great example of the wisdom of crowds. (Preaching to the choir here.) The results of ordinary markets give us insight into why they are created for unusual things. Surowiecki gives us many examples of this: election markets can predict a presidency, sports markets can predict the outcome of the big game, and decision markets can decide if a particular product will make it in the business market place. I found his example of how a conventional market like the stock market predicted who was really to blame for the Space Shuttle Challenger explosion within minutes of the explosion fascinating.
(See Cocktail Party Economics Chapter 4 p 48)
Invention is the mother of necessity ~Thorstein Veblen (1857-1929) American economist and sociologistThe implications of A Dozen Facts about Innovation by Michael Greenstone and Adam Looney published as part of the Hamilton Project by The Brookings Institution worries me. A lot actually. You can find the article here or here in PDF format.)
Major ThemesLet me give you an overview of the policy memo’s major themes.
- Innovation and inventions (as measured by total factor productivity) are a major source of growth for the United States which is a good thing. It leads to a higher standard of living, a longer life span and more leisure. (No worries yet.)
- Since 1973 total factor productivity (TFP) has slowed down in the USA. The annual growth rate fell from 1.9% to 0.7%. In other words, if the growth rate hadn’t fallen, worker’s conpensation would be 51% higher than it is now. (Some anxiety now.)
- Prospects don’t look good for the future if things don’t change. Why you ask? First, not enough students choose Science, Technology, Engineering and Math (STEM) majors that feed innovation. Furthermore, women who have increased their participation in undergraduate education, tend to drop out of these innovation inducing majors. Lastly, close to half of the folks who do choose STEM PhD’s are foreign students and are not allowed to stay in the USA once they are done their degree. Therefore, the US doesn’t get to keep the fruit of their educational investments. (Brooding fears.)
- Change is possible but politically difficult. This requires significant changes in US immigration, education and R & D policies. (Ominous feelings of gloom.)
A single book at the right time can change our views dramatically, give a quantum boost to our knowledge, help us construct a whole new outlook on the world and our life. Isn’t it odd that we don’t seek those experiences more systematically?
- Steve Leveen, The Little Guide to Your Well-Read Life (2005), p. 11
In the highest civilization, the book is still the highest delight. He who has once known its satisfactions is provided with a resource against calamity.
- Ralph Waldo Emerson, Letters and Social Aims: Quotation and Originality (1876)