Monthly Archives: November 2017

The AI productivity paradox

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Erik Brynjolfsson, Daniel Rock, and Chad Syverson write,

Systems using artificial intelligence match or surpass human level performance in more and more domains, leveraging rapid advances in other technologies and driving soaring stock prices. Yet measured productivity growth has declined by half over the past decade, and real income has stagnated since the late 1990s for a majority of Americans. We describe four potential explanations for this clash of expectations and statistics: false hopes, mismeasurement, redistribution, and implementation lags. While a case can be made for each, we argue that lags have likely been the biggest contributor to the paradox. The most impressive capabilities of AI, particularly those based on machine learning, have not yet diffused widely. More importantly, like other general purpose technologies, their full effects won’t be realized until waves of complementary innovations are developed and implemented. The required adjustment costs, organizational changes, and new skills can be modeled as a kind of intangible capital. A portion of the value of this intangible capital is already reflected in the market value of firms. However, going forward, national statistics could fail to measure the full benefits of the new technologies and some may even have the wrong sign.

That is from the abstract. I cannot find a free ungated version of the full paper. Meanwhile, my thoughts:

1. I don’t have enough confidence in productivity data to believe a statement like “productivity growth has declined by half.” I’ve already explained why. I already think that the national statistics are misleading.

2. As to the diffusion explanation, maybe we’re in a situation today where AI and machine learning are like mainframe computers, with seemingly only a few giant firms able to take advantage. Maybe if somebody comes up with “AI and machine learning for the rest of us” the story will be different.

Handle predicts a shakedown

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He writes,

That is, the capitalists will try to purchase respectability and pay off potential critics that could create real trouble for their businesses by buying ‘indulgences’ in the form of funding donations for certain prominent anti-capitalists, conspicuously and prominently towing the party line in public on the most important ideological commitments, and hiring the right number of the right people for cushy sinecures. If they show they are reliable allies instead of potential threats or rivals, and put enough money where their mouths are, and use their platforms, technological savvy, and expertise to help progressives win elections (e.g. Eric Schmidt wearing his “Staff” badge at Clinton campaign HQ), then in exchange, they will be left alone, and maybe even get some special treatment, favorable coverage, and promotion instead of demonization.

This strikes me as a very plausible scenario. Universities have pacified radicals in this way.

In the mid-1980’s, Freddie Mac made a number of bad loans on multifamily properties in poor neighborhoods. Some of them were cash-out refinances (someone from another company later confided in me that no other multifamily lender did cash-out refis), where the property owners took the money to spend on themselves, did zero maintenance on the properties, and then defaulted on the loans.

The agitation group ACORN saw this as an opportunity to go after Freddie. They organized demonstrations on the theme that Freddie was ruining the dwelling places of poor people. That was indeed one of the unintended consequences of the misguided lending practices, but what ACORN was really after was a big grant from Freddie that amounted to hush many paid to ACORN.

The thing about this shakedown tactic is that it is like paying ransom in a kidnapping. It relieves your problem, but it increases the chances that there will be other victims. In the case of a shakedown by activists, giving them hush money relieves our problem but it hands the group more resources to go and shake down the next corporate victim.

Scott Galloway on the four

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I watched the video. My sense is that now I don’t have to read the book. (And I don’t feel bad about that. For consultants, books are loss leaders.) I recommend the video to all of you (and, yes, some of you recommended it to me before, but I didn’t get around to it until a few days ago).

But I would be wary about getting overly awed by market capitalization numbers. For example, Galloway says that after Amazon announced that it was purchasing Whole Foods, Amazon’s market cap went up by more than the cost of the acquisition, and to Galloway this says that the acquisition was “paid for.” But having a higher stock price does not give Amazon more capital to deploy. It makes it cheaper to float new stock, but unless and until they do that, I do not think you can say that they acquired Whole Foods for nothing.

There is a disconnect between Amazon’s share value and its near-term profit prospects. It will be interesting to see how this plays out. To me, it looks like a consensual-hallucination Ponzi scheme. Galloway thinks otherwise. In any case, Amazon certainly refutes the notion that having to answer to shareholders necessarily creates “short termism.”

Continue reading →

Martin Gurri update

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1. In a recent talk, he says,

The question has been posed at this conference whether we are witnessing the rise of authoritarian or fascist governments. Among the old democracies at least, I believe the opposite is closer to the truth. Democratic governments are terrified of the public’s unhappiness. They know that heroic actions are expected of them, but also that every initiative will be savaged and every failure amplified. Their behavior is the opposite of authoritarian. It’s a drift to dysfunction: to paralysis.

Look at the Republicans on Obamacare.

Other provocative passages:

Rhetorical aggression defines the political web. By embracing Trump in significant numbers, the public has signaled that it is willing to impose the untrammeled relations of social media on the fragile forms of American democracy.

Information, it turned out, has authority in proportion to its scarcity – the more there is, the less people believe.

I recommend the whole thing.

2. Read his account of the controversy over allowing a representative of a far-right German party to speak at the conference.

3. I continue to recommend The Revolt of the Public more often than any other book. But I also recommend my review of it. Near the end of my very long review, I wrote,

The dominant strategy of the outsiders is to focus on the negative, exposing and denouncing the failures, imperfections, and corruption of the insiders. On the left, this means heaping blame on the institutions of capitalism and free markets. On the right, this means heaping blame on the institutions of government. Neither side will propose, much less implement, an effective reform agenda.

I could have included academia and professional media as institutions disparaged by the outsider right.

Maybe a publisher would want to produce a print version of the book, with my review as an introduction.

On law, legislation, and Leoni

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From my latest essay.

The legal setting differs from the market setting in that the legal setting is an arena of conflict. If I need someone to fix my car, I enter the market arena. The mechanic and I agree on a price, and ordinarily both of us walk away happy: my car is fixed, and the mechanic has been paid. The transaction involves mutual satisfaction.

But suppose that my car is still not working properly when I go to the mechanic to pick it up. The mechanic claims to deserve to be paid, and I claim otherwise. Now we are in the arena of conflict. The legal system is there to provide a peaceful, fair way to resolve this conflict.

This means that a key virtue of a legal system is legitimacy. The legal system does not need to be perfect. What it needs is acceptance, so that a court ruling ends the conflict, peacefully. So you cannot prove that common law is superior to legislation, or conversely. You cannot know until you know which system has the most public acceptance.

The O’Reilly Cycle

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One of the ideas in Tim O’Reilly’s new book is about a cycle in technology. I describe it this way.

Phase 1: a new hardware platform opens up (personal computers in the late 1970s; the Web in the mid-1990’s’; smart phones in this century) Lots of entrepreneurs try to play with it, figure out what to do with it.

Phase 2: competition to become a dominant infrastructure player within the platform: operating systems in personal computers (came down to Windows vs. Mac); the Web portal (came down to Google vs. AOL vs. Yahoo); capturing user attention in mobile phones (still up for grabs, I think, but with Facebook and Twitter as prominent examples today). In this phase, being more “open” is a competitive advantage. Having a bigger ecosystem of other people adding value to your platform is the winner. For example, Google won because it did the best job of incorporating the entire Web into its ecosystem. Amazon has opened its platform to just about any seller.

Phase 3: cannibalization. The winner in phase 2 decides that its revenue has maxed out in just being an agnostic open platform, so it starts to take over profitable niches within the ecosystem. Microsoft creates Excel. Google captures ad revenue from content providers. In some sense, the winner in phase 3 backs away from the “open” strategy and instead tilts the playing field to favor its own offerings in the most profitable areas. But cannibalizing your ecosystem helps to drive ambitious entrepreneurs to move on to the next hardware platform, where they can have more opportunity.

There is a widespread perception that Apple, Facebook, Google, and Amazon are moving to the cannibalization phase. For example, Amazon is creating some of its own brands. Along these lines, commenter Handle and Tyler Cowen recommend this piece by Andre Staltz. I recommend it, also, and I plan to post on it after I read it again.

Social media and polarization

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Levi Boxell, Matthew Gentzkow, and Jesse M. Shapiro write,

If access to the Internet or social media use is a primary driver of political polarization among the U.S. electorate, we would expect to see greater changes in polarization among young adults (18–39) than among the old (65 and older). The data, however, tell a different story. The change in our index of political polarization in the past 20 years is twice as large for the old as for young adults, despite the older group using social media and obtaining political information online at substantially lower rates.

Interesting. Some possibilities:

1. Their constructed index of polarization may be more sensitive to picking up changes in the elderly than in young people.

2. Cable news may be the most polarizing medium these days, and old people probably watch more cable news.

3. We can look forward to a less polarized politics once the crotchety old people die off. (I don’t believe this.)

Speaking of crotchety, here comes another rant against politics on social media.

I grant that all forms of media can be sensationalist. The term “sensationalist” was first applied to newspapers.

But it seems to me that what we call social media cannot be anything but sensationalist. When it comes to political issues, the sensation that people cannot resist is anger validation. Cable news has provided that for years. I am willing to believe that cable news, rather than social media, is the biggest contributor to our anger validation addiction. (I never see cable news, except at the airport, which is not often.) But other media seem to have degenerated to the Cable News level. Using social media, the ordinary person tries to imitate the worst of the talking-heads smackdowns.

As I have said before, although I am “on” Twitter, I do not use it. The software echoes my blog posts to twitter in some fashion.

And as far as Facebook goes, I am about as thrilled to see politics there as I am at seeing it in pro football. The difference is that I had mostly tuned out pro football years ago, and I have only recently dialed back my time spent on Facebook.

Complex problems are best discussed in slow conversations. In a slow conversation, many people contribute. People think out loud. Contrary viewpoints are expressed, if not by representatives of those viewpoints, then by people making a sincere attempt to play devil’s advocate, not to paint other points of view as stupid or deranged.

Blogging for me is part of a slow conversation, not a rapid-fire reaction to the topic du jour. Most of my posts are riffs on other people’s thoughts.

When blogging first got going, there were “trackbacks” that encouraged thick conversations. That might have been the golden age of blogging. The trackback feature was killed by spammers, who polluted it. There was comment spam, too, but there are effective programs to filter it out. If somebody developed a filter for trackback spam, it was too late to save the trackback feature.

I might suggest that one format that has not been completely corrupted by the contemporary media environment is the book review. I think that people who write book reviews tend to to take their time thinking about what they are going to write. And writing about a book means writing about a topic that has a longer shelf life than what you find on cable news.

Post-election tech guilt

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The un-conference that I attended in San Francisco is over. I found it very stimulating. I am grateful to have been able attend. The format, which was very light on presentations and much heavier on discussions and informal conversation, was congenial to me.

This was my first opportunity to encounter the San Francisco tech scene. Many attendees displayed a combination of high energy and impressive intelligence. I found myself feeling captivated by their spirit and creativity. But this is also a time of collective self-doubt there, like a cloud hanging over.

Some thoughts:

1. One might roughly divide the attendees into capitalists and anti-capitalists. The capitalists are entrepreneurs and VC’s. The anti-capitalists are tech journalists, leaders of non-profits working in the tech field, or leftist heterodox economists. Of course, this is over-generalizing. For example, some in the non-profit sector fell into what I am calling the capitalist camp. But bear with me.

2. The anti-capitalists want the capitalists to feel badly about: (a) the wealth and power of Google, Facebook, Apple, and Amazon; (b) the election of Donald Trump. The capitalists seemed ready to feel guilty about (b) but were not ready to join an assault on (a).

3. Some of the capitalists wanted to want to deal with their disappointment about the election by trying to connect with disaffected Americans in the heartland. They spoke with pride of taking Silicon Valley entrepreneurs to meet with people in the Midwest. They discussed ideas like having Stanford set up satellite campuses there or promoting economic development there.

4. The anti-capitalists were the ones who wanted to re-write the economic rules. Possibilities included breaking up the tech giants or nationalizing them or organizing the tech work force to make demands on them. The idea of government regulation did not come up so much, but perhaps that is because the anti-capitalists cannot picture themselves having infuence with Mr. Trump and a Republican Congress. I found the self-assured certainty of the anti-capitalists frightening. At one small breakout session that included a lot of what I am calling the anti-capitalist thinking, I introduced the expression “fantasy despot.” That term comes from Kenneth Minogue, but when I search for fantasy despot syndrome, I mostly come up with my own previous writing. I tried to explain that the desire to control the tech companies could be seen as a desire to take on the role of a despot. I doubt that I expressed this clearly, and the discussion passed over what I had to say. But my sense of the group dynamics reinforced my thinking. I had visions of a leader emerging reminiscent of Lenin.

5. I could not help but think that the dynamics of the conference would have been completely different had the the election swung the other way. If Ms. Clinton were in office, I think that the anti-capitalists would have been much less central. The anti-capitalists were given some pushback, but I think that with a different election result they would have been met with something close to dismissal.

6. As it is, I still would not bet on the anti-capitalists getting very far. But if they do, it could be as a consequence of the chance result of the election. And I, for one (and at this conference I did feel like the only one) do not buy the narrative that fake news and social media ads accounted for the election outcome. Perhaps the SF tech crowd over-estimates the extent that the world revolves around them. Or perhaps I am making the opposite mistake.

7. If the anti-capitalists do get some traction, my guess is that it will come from influencing the tech work force. I could see the social justice causes eating away at the entrepreneurial drive and eroding the elan of the tech bros. I can imagine this having a devastating effect on the famous Silicon Valley ecosystem. I estimate the probability of this as low. It depends on the extent to which tech grads coming out of college these days are susceptible to the leftist politics on campuses, and I have no basis for gauging that. Have a nice day.

8. For all of my concern with the anti-capitalists, I do take the view that the Internet did not turn out the way that many of us hoped for twenty years ago. See my previous posts Thoughts on Internet Censorship and Did the suits win the Internet?. For a deeper discussion, see Professor Fred Turner’s 15-minute video (he has a book on the topic as well). There was a breakout session on this topic, and it was enjoyable, but we spent a lot of time discussing the incorrect assumptions that we made twenty years ago and much less time coming up with possible explanations for how things turned out as they did.

9. I am rooting for the Internet giants to be disrupted, but by market forces, not by self-appointed activist reformers. Even if the market fails to disrupt the giants, I would rather live with them than see the anti-capitalists in charge.

Peter Diamindis on reinventing education

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He wrote,

I just returned from a week in China meeting with parents whose focus on kids’ education is extraordinary. One of the areas I found fascinating is how some of the most advanced parents are teaching their kids new languages: through games. On the tablet, the kids are allowed to play games, but only in French. A child’s desire to win fully engages them and drives their learning rapidly.

He also puts in a plug for the “illustrated primer” of Neal Stephenson’s The Diamond Age.

Read the whole thing. Plenty of interesting ideas, but keep in mind the null hypothesis.

Being disagreeable

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I am currently attending an “un-conference.” To the extent that there is a focus, it is on improving prospects for exploiting technology for economic growth and human flourishing,

Here are a few ideas that have come up so far in conversation, suggested by interesting people.

1. Science is stagnating because we are not providing the right environment for disagreeable people. The thinking is that breakthroughs tend to come from people whose personality registers very low on agreeableness. But you have to give them a lot of freedom and support, with enough enforcement of social norms to keep them from undermining each other but not so much that their creativity is stifled.

With that in mind, let me disagree with two other ideas.

2. Using a universal wage subsidy instead of a universal basic income. The idea is that work creates human capital (and human satisfaction), so we want to subsidize work rather than idleness. I get that, and I might even adopt that point of view, but:

What do you do with people who are severely disabled (think of a schizophrenic)?

Do you want to simultaneously tax labor (payroll tax) and subsidize it? Seems very inefficient.

What about people who claim that they are “self-employed” (wink, wink)? For example, does blogging qualify one for a subsidy?

3. “Re-writing the rules of the economy in the digital age.”

That one scares me. Good rules are not written by experts. They emerge organically. Think of common law (or norms in general) as law that evolves gradually through trial and error. Think of “re-writing the rules” as legislation and top-down regulation. I trust the common-law process more. Yes, it might entrench some bad precedents that might best be overturned by legislation, but I would rather live with that risk than the risk that the people “re-writing the rules” are not as clever as they think they are. And at this un-conference, that risk is rather high, in my opinion. Lots of strong leftists who have more faith than I do in the power of their (our) form of intelligence.