The state as entrepreneur: did Uncle Sam invent the iPhone?

December 10, 2017

Our free enterprise system is what drives innovation. But because it’s not always profitable for companies to invest in basic research, throughout our history, our government has provided cutting-edge scientists and inventors with the support that they need. That’s what planted the seeds for the Internet. That’s what helped make possible things like computer chips and GPS. Just think of all the good jobs — from manufacturing to retail — that have come from these breakthroughs. Barack Obama

 The foundational figure in the development of the iPhone wasn’t Steve Jobs. It was Uncle Sam. Every single one of these twelve key technologies was supported in significant ways by governments—often the American government. Tim Harford Fifty Inventions That Shaped the Modern Economy

In my blog post last week featuring my favourite parts of the latest Tim Harford book Fifty Inventions That Shaped the Modern Economy I included part of his essay on the iPhone. What was interesting about this piece was the importance of government spending on this iconic symbol of capitalism. The essay was based on the work of Mariana Mazzucato. This Italian economist, an eloquent exponent for an activist state industrial policy, believes that that the government should play a key role in directing investment. This is what is known in economics as picking winners. She states her case in a famous 2013 book The Entrepreneurial State. Along with other left-leaning economists, such as Joseph Stiglitz, Simon Wren-Lewis, and Thomas Piketty, she also served as an advisor to Jeremy Corbyn.

I think that there are a number of fallacies here. In Obama’s famous “You didn’t build that” speech he asserts that says Government research created the Internet so that all the companies could make money off the Internet. No, the military created the internet as a way of communicating in a nuclear war. It was the genius of the market system that found uses that its inventors would never have imagined. Technological progress in itself does not add new products to the shelves by itself. This is confusing technology with actually bringing a product that consumers will actually want to the market. Entrepreneurship involves much more that inventing technology. The feedback mechanism of the market is what directs investment. Ultimately, as economist Don Boudreaux has pointed out, market entrepreneurship is far scarcer than is infrastructure.

I am not blind to the role that the government can play in correcting market failures. It may well be true that the private sector will be reluctant to invest in the kind of basic research which will not produce immediate results. And I do think that big companies should pay more taxes. They should not be able to get away with the arbitrage; their tax avoidance schemes are an outrage. But beyond this I am sceptical about the further role of the government.

I can think of plenty of examples of governments picking winners. In my youth we had such things as British Leyland and Concorde. Indeed there was a threat to put Marks & Spencer into public ownership. Governments face perverse incentives. In Spain we have had a number of airports with no passengers. This is what happens when you are spending other people’s money. It’s easy to idolize government. You just need to focus on what it claims it will do, rather than what it actually does.

I am not a market fundamentalist. The government does have an important role in creating an environment where ideas can flourish. The kind of basic research I mentioned above is an example of a role a government can play. You could also give companies tax incentives to do their own fundamental research. I am, however, sceptical of the role that those such as Mazzucato want to give government. Her research has undoubtedly been influential. A headline in the Huffington Post last year proclaimed: The Real Creator of the Apple Watch Wasn’t Steve Jobs, It Was Uncle Sam. I would argue that that is fake news.

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Here is Obama’s famous “You didn’t build that” speech:

    If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business — you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.

    The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together. There are some things, just like fighting fires, we don’t do on our own. I mean, imagine if everybody had their own fire service. That would be a hard way to organize fighting fires.

    So we say to ourselves, ever since the founding of this country, you know what, there are some things we do better together. That’s how we funded the GI Bill. That’s how we created the middle class. That’s how we built the Golden Gate Bridge or the Hoover Dam. That’s how we invented the Internet. That’s how we sent a man to the moon. We rise or fall together as one nation and as one people, and that’s the reason I’m running for President — because I still believe in that idea. You’re not on your own, we’re in this together.

 

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Fifty Inventions That Shaped the Modern Economy

December 3, 2017

 

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Recently BBC Radio 4 the series Fifty Inventions That Shaped the Modern Economy finished. There were fifty inventions chosen by the economist Tim Harford and one from the listeners. Harford’s eight-minute, 1200-word audio essays have now been turned into a book. The book is full of fascinating nuggets of trivia and important economic insights. Here is my selection:

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Google

The media’s scramble for new business models is one obvious economic impact of Google search. But the invention of functional search technology has created value in many ways. A few years ago, consultants at McKinsey tried to list the most important. There are time savings. Studies suggest that googling is about three times as quick as finding information in a library, and that’s before you count the time spent travelling to the library. Likewise, finding a business online is about three times faster than using a traditional, printed directory such as the Yellow Pages. McKinsey put the productivity gains into the hundreds of billions.

TV Dinner

American families spend more and more on eating outside the home—on fast food, restaurant meals, sandwiches, and snacks. In the 1960s, only a quarter of food spending was on food prepared and eaten outside the home; it’s been rising steadily since then, and in 2015 a landmark was reached: for the first time in their history, Americans spent more on food and drink consumed outside the home than on food and beverages purchased at grocery stores. In case you think Americans are unusual in that, the British passed that particular milestone more than a decade earlier.

The data are clear that the washing machine didn’t save a lot of time, because before the washing machine we didn’t wash clothes very often. When it took all day to wash and dry a few shirts, people would use replaceable collars and cuffs or dark outer layers to hide the grime on their clothes. But we cannot skip many meals in the way that we can skip the laundry. When it took two or three hours to prepare a meal, that was a job someone had to take the time to do. The washing machine didn’t save much time, and the ready meal did, because we were willing to stink, but we weren’t willing to starve.

The Pill

The answer is that by giving women control over their fertility, the pill allowed them to invest in their careers. Before the pill was available, taking five years or more to qualify as a doctor or a lawyer did not look like a good use of time and money. To reap the benefits of those courses, a woman would need to be able to reliably delay becoming a mother until she was thirty at least—having a baby would derail her studies or delay her professional progress at a critical time. A sexually active woman who tried to become a doctor, dentist, or lawyer was doing the equivalent of building a factory in an earthquake zone: just one bit of bad luck and the expensive investment would be trashed.

Of course, women could have simply abstained from sex if they wanted to study for a professional career. But many women didn’t want to. And that decision wasn’t just about having fun; it was also about finding a husband. Before the pill, people married young. A woman who decided to abstain from sex while developing her career might try to find a husband at the age of thirty and find that, quite literally, all the good men had been taken.

The pill changed those dynamics. It meant that unmarried women could have sex with substantially less risk of an unwanted pregnancy. But it also changed the whole pattern of marriage. People—particularly people with college educations—started to marry later. Why hurry? Even women who didn’t use the pill found that they didn’t have to rush into marriage, either, because there would still be plenty of single men to marry a little later in life. The babies started to arrive later, and at a time that women chose for themselves. And that meant that women, at least, had time to establish professional careers.

Video games

In 2016, four economists presented research into a puzzling fact about the U.S. labour market: the economy was growing strongly, unemployment rates were low, and yet a surprisingly large number of able-bodied young men were either working part-time or not working at all. More puzzling still, while most studies of unemployment find that it makes people thoroughly miserable, against expectations the happiness of these young men was rising. The researchers concluded that the explanation was . . . well, they were living at home, sponging off their parents, and playing video games. These young men were deciding they didn’t want to be a Starbucks server. Being a starship captain was far more appealing.

Air-conditioning

Without air-conditioning, glass-fronted skyscrapers are not a sensible option: you’d bake on the upper floors. With air-conditioning, old workarounds become irrelevant and new building designs become possible.

Air-conditioning has changed demographics, too. Without it, it’s hard to imagine the rise of cities such as Houston, Phoenix, or Atlanta, as well as Dubai or Singapore. As new housing spread rapidly across America in the second half of the twentieth century, population boomed in the Sun Belt—the warmer south of the country, from Florida to California—from 28 percent of Americans to 40 percent. As retirees in particular moved from north to south, they also changed the nation’s political balance: the author Steven Johnson has plausibly argued that air-conditioning elected Ronald Reagan.

Reagan became president in 1980. Back then, America alone, with just five percent of the world’s population, used more than half the world’s air-conditioning. Emerging economies have since caught up quickly: China will soon become the global leader. The proportion of air-conditioned homes in Chinese cities jumped from under one-tenth to more than two-thirds in just ten years. In countries such as India, Brazil, and Indonesia, the market for air conditioners is expanding at double-digit rates. And there’s plenty more room for growth: from Manila to Kinshasa, eleven of the world’s thirty largest cities are in the tropics.

Bar code

But over time it became apparent that the bar code was changing the tilt of the playing field in favour of a certain kind of retailer. For a small, family-run convenience store, the bar code scanner was an expensive solution to problems the store didn’t really have. But big-box supermarkets could spread the cost of the scanners across many more sales. Such stores value shorter lines at the checkout. They need to keep track of inventory. With a manual checkout, a shop assistant might charge a customer for a product, then slip the cash into her pocket without registering the sale. With a bar code and scanner system, such behaviour can be pretty conspicuous. And in the 1970s, a time of high inflation in America, bar codes let supermarkets change the price of products by sticking a new price tag on the shelf rather than on each item.

It’s hardly surprising that as the bar code spread across retailing in the 1970s and 1980s, big-box retailers also expanded. The scanner data underpinned customer databases and loyalty cards. By tracking and automating inventory, it made just-in-time deliveries more attractive and lowered the cost of having a wide variety of products. Shops in general, and supermarkets in particular, started to generalize—selling flowers, clothes, and electronic products. Running a huge, diversified, logistically complex operation was all so much easier in the world of the bar code.

Perhaps the ultimate expression of that fact came in 1988—when the discount department store Wal-Mart decided to start selling food. It is now the largest grocery chain in America—and by far the largest general retailer on the planet, about as large as its five closest rivals combined.8 Wal-Mart was an early adopter of the bar code and has continued to invest in cutting-edge computer-driven logistics and inventory management.

The cold chain

The cold chain is one of the pillars of the global trading system. As we’ve seen, the shipping container made long-distance commerce cheaper, quicker, and more predictable. The bar code helped huge, diverse retailers keep track of complex supply chains. The diesel engine made huge oceangoing ships amazingly efficient.

The cold chain took all these other inventions and extended their reach to perishables. Now meat, fruit, and vegetables were subject to the economic logic of global specialization and global trade. Yes, you can grow French beans in France—but perhaps you should fly them in from Uganda. Different growing conditions mean this kind of shipping can make both economic and environmental sense. One study found it was eco-friendlier to grow tomatoes in Spain and transport them to Sweden than it was to grow them in Sweden. Another claimed that raising a lamb in New Zealand and shipping it to England emits less greenhouse gas than raising a lamb in England.

The Billy bookcase

And that’s what seems to explain the enduring popularity of the Billy bookcase. “Simple, practical and timeless” is how Gillis Lundgren once described the designs he hoped to create; and the Billy is surprisingly well accepted by the type of people you might expect to be sniffy about mass-produced MDF. Sophie Donelson edits the interiors magazine House Beautiful. She told AdWeek the Billy is “unfussy” and “unfettered,” and “modern without trying too hard.”

Furniture designer Matthew Hilton praises an interesting quality of the Billy: anonymity. Interior design expert Mat Sanders agrees, declaring that IKEA is “a great place for basic you can really dress up to make feel high-end.” The Billy’s a bare-bones, functional bookshelf if that’s all you want from it, or it’s a blank canvas for creativity: on ikeahackers.net you’ll see it repurposed as everything from a wine rack to a room divider to a baby-changing station.

But business and supply-chain nerds don’t admire the Billy bookcase for its modernity or flexibility. They admire it—and IKEA in general—for relentlessly finding ways to cut costs and prices without reducing the quality of its products. That is why the Billy is a symbol of how innovation in the modern economy isn’t just about snazzy new technologies, but also boringly efficient systems. The Billy bookcase isn’t innovative in the way that the iPhone is innovative. The innovations are about working within the limits of production and logistics, finding tiny ways to shave more off the cost, all while producing something that looks inoffensive and does the job.

Intellectual property

The modern form of intellectual property originated, like so many things, in fifteenth-century Venice. Venetian patents were explicitly designed to encourage innovation. They applied consistent rules: the inventor would automatically receive a patent if the invention was useful; the patent was temporary, but while it lasted it could be sold, transferred, or even inherited; the patent would be forfeited if it wasn’t used; and the patent would be invalidated if the invention proved to be closely based on some previous idea. These are all very modern ideas.

And they soon created very modern problems. During the British industrial revolution, for example, the great engineer James Watt figured out a better way to design a steam engine. He spent months developing a prototype, but then put even more effort into securing a patent. His influential business partner, Matthew Boulton, even got the patent extended by lobbying Parliament. Boulton and Watt used it to extract licensing fees and crush rivals—among them Jonathan Hornblower, who made a superior steam engine yet found himself ruined and imprisoned.

The iphone

Ask yourself: What actually makes an iPhone an iPhone? It’s partly the cool design, the user interface, the attention to details in the way the software works and the hardware feels. But underneath the charming surface of the iPhone are some critical elements that made it, and all the other smartphones, possible.

The economist Mariana Mazzucato has made a list of twelve key technologies that make smartphones work. One: tiny microprocessors. Two: memory chips. Three: solid state hard drives. Four: liquid crystal displays. Five: lithium-based batteries. That’s the hardware.

Then there are the networks and the software.

Continuing the count: Six: fast-Fourier-transform algorithms. These are clever bits of math that make it possible to swiftly turn analogue signals such as sound, visible light and radio waves into digital signals that a computer can handle.

Seven—and you might have heard of this one: the Internet. A smartphone isn’t a smartphone without the Internet.

Eight: HTTP and HTML, the languages and protocols that turned the hard-to-use Internet into the easy-to-access World Wide Web. Nine: cellular networks. Otherwise your smartphone not only isn’t smart, it’s not even a phone. Ten: global positioning systems, or GPS. Eleven: the touchscreen. Twelve: Siri, the voice-activated artificial-intelligence agent.

All of these technologies are important components of what makes an iPhone, or any smartphone, work. Some of them are not just important but indispensable. But when Mariana Mazzucato assembled this list of technologies and reviewed their history, she found something striking. The foundational figure in the development of the iPhone wasn’t Steve Jobs. It was Uncle Sam. Every single one of these twelve key technologies was supported in significant ways by governments—often the American government.

The bank

The Knights Templar were warrior monks: they were a religious order, with a theologically inspired hierarchy, mission statement, and code of ethics. But they were also heavily armed and dedicated to a holy war. How did those guys get into the banking game?

The Templars dedicated themselves to the defence of Christian pilgrims to Jerusalem. In 1099, with the First Crusade, Jerusalem had been captured from the Fatimid Caliphate, and pilgrims began to stream in, travelling thousands of miles across Europe. And if you are a Christian pilgrim, you have a problem: you need to somehow fund months of food and transport and accommodation, yet you also want to avoid carrying huge sums around, because that makes you a target for robbers. Fortunately, the Templars had that covered. A pilgrim could deposit funds at Temple Church in London and withdraw them in Jerusalem. Instead of carrying a purse stuffed with money, he’d carry a letter of credit. The Knights Templar were the Western Union of the Crusades.

We don’t actually know how the Templars made this system work and protected themselves against fraud. Was there a secret code verifying the document and the identity of the traveller? We can only guess. But that wouldn’t be the only mystery to shroud the Templars, an organization sufficiently steeped in legend that Dan Brown set a scene of The Da Vinci Code in Temple Church.

…The Knights Templar did much more than transfer money across long distances. They provided a range of recognizably modern financial services. If you wanted to purchase a nice island off the west coast of France—as King Henry III of England did in the 1200s with Oléron, northwest of Bordeaux—the Templars could broker the deal. Henry paid £200 a year for five years to the Temple in London, and when his men took possession of Oléron, the Templars made sure that the island’s previous owner was paid. Oh, and the Crown Jewels of England, stored today at the Tower of London? In the 1200s, the Crown Jewels were stored at the Temple—security on a loan. That was the Templars operating as a very high-end pawnbroker.

The Knights Templar weren’t Europe’s bank forever, of course. The order lost its reason to exist after European Christians completely lost control of Jerusalem in 1244; the Templars were eventually disbanded in 1312.

Razors and blades

The model of cheap razors and expensive blades evolved only later, as Gillette’s patents expired and competitors got in on the act. Today two-part pricing is everywhere. Consider the PlayStation. Every time Sony sells one, it loses money: the retail price is less than it costs to manufacture and distribute. But that’s okay with Sony, because Sony coins it in whenever a PlayStation 4 owner buys a game. Or how about Nespresso? Nestlé makes its money not from the machine, but from the coffee pods.

For this model to work you need some way to prevent customers putting cheap, generic blades in your razor. One solution is legal: patent-protect your blades. But patents don’t last forever. Patents on coffee pods have started expiring, so brands like Nespresso now face competitors selling cheap, compatible alternatives. Some companies are looking for another kind of solution: technological. Just as other companies’ games don’t work on the PlayStation, some coffee companies have put chip readers in their machines to stop you from trying to brew a generic cup of joe.

Two-part pricing models work by imposing what economists call “switching costs.” Want to brew another brand’s coffee? Then buy another machine. Two-part pricing is especially prevalent with digital goods. If you have a huge library of games for your PlayStation or books for your Kindle, it’s no small thing to switch to another platform.

Switching costs don’t have to be just financial. They can come in the form of time or hassle. Say I’m already familiar with Photoshop; I might prefer to pay for an expensive upgrade than buy a cheaper alternative to it, which I would then have to learn how to use. That’s why software vendors offer free trials. It’s also why service providers (anything from your gym to your cable provider) offer special “teaser” rates to draw people in: when they quietly raise their prices or make the terms and conditions less attractive, many customers won’t bother to change.

Tax havens

The economist Gabriel Zucman came up with an ingenious way to estimate the wealth hidden in the offshore banking system. In theory, if you add up the assets and liabilities reported by every global financial centre, the books should balance—but they don’t. Each individual centre tends to report more liabilities than assets. Zucman crunched the numbers and found that globally, total liabilities were 8 percent higher than total assets. That suggests at least 8 percent of the world’s wealth is illegally unreported. Other methods have come up with even higher estimates.

The problem is particularly acute in developing countries. For example, Zucman finds that 30 percent of wealth in Africa is hidden offshore. He calculates an annual loss of $14 billion in tax revenue. That would build plenty of schools and hospitals.

Zucman’s solution is transparency: creating a global register of who owns what, to end banking secrecy and anonymity-preserving shell corporations and trusts. That might well help with tax evasion. But tax avoidance is a subtler and more complex problem.

To see why, imagine I own a bakery in Belgium, a dairy in Denmark, and a sandwich shop in Slovenia. I sell a cheese sandwich, making one euro of profit. On how much of that profit should I pay tax in Slovenia, where I sold the sandwich; or Denmark, where I made the cheese; or Belgium, where I baked the bread? There’s no obvious answer. As rising taxes met increasing globalization in the 1920s, the League of Nations devised protocols for handling such questions. They allow companies some leeway to choose where to book their profits. There’s a case for that, but it opened the door to some dubious accounting tricks. One widely reported example may be apocryphal, but it illustrates the logical extreme of these practices: A company in Trinidad apparently sold ballpoint pens to a sister company for $8,500 apiece. The result: more profit booked in low-tax Trinidad; less in higher-tax regimes elsewhere.

Most such tricks are less obvious, and consequently harder to quantify. Still, Zucman estimates that 55 percent of U.S.-based companies’ profits are routed through some unlikely-looking jurisdiction such as Luxembourg or Bermuda, costing the U.S. government $130 billion a year. Another estimate puts the losses to governments in developing countries at many times the amount they receive in foreign aid.

Leaded petrol

And what of the scientist who first put lead in gasoline? By all accounts, Thomas Midgley was a genial man; he may even have believed his own spin about the safety of a daily hand-wash in tetraethyl lead. But as an inventor, his inspirations seem to have been cursed. His second major contribution to civilization was the chlorofluorocarbon, or CFC. It improved refrigerators, but destroyed the ozone layer.

In middle age, afflicted by polio, Midgley applied his inventor’s mind to lifting his weakened body out of bed. He devised an ingenious system of pulleys and strings. One day they tangled around his neck and killed him.

Paper

Today, paper is increasingly made out of paper itself—often recycled, appropriately enough, in China. A cardboard box emerges from the paper mills of Ningbo, 130 miles south of Shanghai; it’s used to package a laptop computer; the box is shipped across the Pacific; the laptop is extracted, and the box is thrown into a recycling bin in Seattle. Then it’s shipped back to Ningbo, to be pulped and turned into another box. The process can be repeated six or seven times before the paper fibres themselves become weak and unusable.

When it comes to writing, though, some say paper’s days are numbered—that the computer will usher in the age of the “paperless office.” The trouble is, the paperless office has been predicted since Thomas Edison in the late nineteenth century. Remember those wax cylinders, the technology that ushered in recorded music and introduced an age of vast inequality of musicians’ incomes? Edison thought they’d be used to replace paper: office memos would be recorded on his wax cylinders instead. Even Thomas Edison wasn’t right about everything—and when it comes to the death of paper, many other prognosticators have been made to look like fools.

The idea of the paperless office really caught on as computers started to enter the workplace in the 1970s, and it was repeated in breathless futurologists’ reports for the next quarter of a century. Meanwhile, paper sales stubbornly continued to boom: yes, computers made it easy to distribute documents without paper, but computer printers made it equally easy for the recipients to put them on paper anyway. America’s copiers, fax machines, and printers continued to spew out enough sheets of ordinary office paper to cover the country every five years. After a while, the idea of the paperless office became less of a prediction and more of a punchline.

Perhaps habits are finally changing: In 2013, the world hit peak paper. Many of us may still prefer the feel of a book or a physical newspaper to swiping a screen, but the cost of digital distribution is now so much lower, we often go for the cheaper option. Finally, digital is doing to paper what paper did to parchment with the help of the Gutenberg press: outcompeting it, not on quality, but on price.

Paper may be on the decline, but it’s hard to imagine it disappearing any more than the wheel itself is likely to disappear. It will survive not just on the supermarket shelf or beside the lavatory, but in the office, too. Old technologies have a habit of enduring. We still use pencils and candles. The world still produces more bicycles than cars. Paper was never just a home for the beautiful typesetting of a Gutenberg Bible; it was everyday stuff. And for jottings, lists, and doodles, you still can’t beat the back of an envelope.

Paper money

For governments, fiat money represents a temptation: a government with bills to pay can simply print more money. And when more money chases the same amount of goods and services, prices go up. The temptation quickly proved too great to resist. Within a few decades of its invention in the early eleventh century, the jiaozi was devalued and discredited, trading at just 10 percent of its face value.

Other countries have since suffered much worse. Weimar Germany and Zimbabwe are famous examples of economies collapsing into chaos as excessive money-printing rendered prices meaningless. In Hungary in 1946, prices trebled every day. Walk into a Budapest café back then, and it was better to pay for your coffee when you arrived, not when you left.

These rare but terrifying episodes have convinced some economic radicals that fiat money can never be stable: they yearn for a return to the days of the gold standard, when paper money could be redeemed for a little piece of precious metal. But mainstream economists generally now believe that pegging the money supply to gold is a terrible idea. Most regard low and predictable inflation as no problem at all—perhaps even a useful lubricant to economic activity because it guards against the possibility of deflation, which can be economically disastrous. And while we may not always be able to trust central bankers to print just the right amount of new money, it probably makes more sense than trusting miners to dig up just the right amount of new gold.

Insurance

Then, in 1687, a coffeehouse opened on Tower Street, near the London docks. It was comfortable and spacious, and business boomed. Patrons enjoyed the fire; tea, coffee, and sherbet; and, of course, the gossip. There was a lot to gossip about: London had recently experienced the Great Plague, the Great Fire, the Dutch navy sailing up the Thames, and a revolution that had overthrown the king.

But above all, the regulars at this coffeehouse loved to gossip about ships: what was sailing from where, with what cargo—and whether it would arrive safely or not. And where there was gossip, there was an opportunity for a wager. The patrons loved to bet. They bet, for instance, on whether Admiral John Byng would be shot for his incompetence in a naval battle with the French (he was). The gentlemen of Lloyd’s would have had no qualms about taking my bet on my own life.

The proprietor saw that his customers were as thirsty for information to fuel their bets and gossip as they were for coffee, and so he began to assemble a network of informants and a newsletter full of information about foreign ports, tides, and the comings and goings of ships. His name was Edward Lloyd. His newsletter became known as Lloyd’s List. Lloyd’s coffeehouse hosted ship auctions, and gatherings of sea captains who would share stories. And if someone wished to insure a ship, that could be done, too: a contract would be drawn up, and the insurer would sign his name underneath—hence the term “underwriter.” It became hard to say quite where coffeehouse gambling ended and formal insurance began.

Naturally, underwriters congregated where they could be best informed, because they needed the finest possible grasp of the risks they were buying and selling. Eight decades after Lloyd had established his coffeehouse, a group of underwriters who hung out there formed the Society of Lloyd’s. Today, Lloyd’s of London is one of the most famous names in insurance.

 


What Google search tells us about ourselves

May 21, 2017

Discovering what people really think has often proved elusive. Just ask those pollsters who assured us that Donald J. Trump had no chance of becoming the 45th president of the USA. I am fascinated by the gap between what people say and what they really think or do. Sometimes we lie to ourselves – we really do have good intentions, but we do lack self-awareness. Other times we hide what are socially unacceptable views. What social scientists need are ways to get around these biases. I have already blogged about big data and its potential. One key area is Google search. The omniscient Google is our friend, confidante and confessor. We have all googled something that we wouldn’t dream of asking somebody in the flesh. Such search queries are anonymous, or at least that’s how we feel. Every time we type in a search we reveal something about ourselves. It is like a societal x-ray of our collective hopes fears and desires. In particular, Google’s anonymous, aggregate data can also tell us about the dark sides of our thoughts and behaviours. This tool is the subject of a new book by Seth Stephens-Davidowitz, Everybody Lies: Big Data, New Data, and What the Internet Can Tell Us About Who We Really Are

Seth Stephens-Davidowitz created a map of racism based on searches with racial slurs and racist jokes. He then studied how this affected voting across the United States. He used it to analyse how it affected voting in the 2012 presidential election. What he discovered was that in those areas of the country with the highest number of racist searches Obama’s results were markedly worse than those of John Kerry, the unsuccessful white Democratic candidate in 2004. This variable was far more relevant than education levels, age, church attendance, or gun ownership was. Although Obama won, the effect was important. Obama lost roughly 4 percentage points nationwide just from explicit racism. He was, however, able to get back 1% or 2% from higher African-American turnout. In 2012 the conditions were favourable the the Democrats. But this data is also germane to what happened in 2016 and the rise of Trump. According to Nate Cohn, the biggest predictor of Trump support in the Republican primaries was the racist searches. We need to be careful – correlation is not causation. Nevertheless it does provide a partial explanation of the Trump phenomenon.

What can Google tell us about Sex lies and videos? One revealing fact is that in 2015 2.5 billion hours of porn were seen on Pornhub, the largest pornography site on the Internet. To put this number in perspective, it is more than the entire history of our species on Planet Earth. And in surveys 2.5% of men say they are gay. But Google tells another story; 5% of male porn searches are for gay porn. There are more gay searches in tolerant areas, such as California, than in places like Mississippi. But the difference is not that high 5.2% compared to 4.8%

We parents do tend to want to project things onto our kids. In fact, of all Google searches starting “Is my 2-year-old…” the most common next word is “gifted.” We like to think that as parents we have equivalent expectations and dreams for our sons and daughters. But the abovementioned question is not asked equally about young boys and young girls. Parents are two and a half times more likely to ask “Is my son gifted?” than “Is my daughter gifted?” They show similar biases when using other phrases related to intelligence. Stephens-Davidowitz asks if the parents are simply picking up on legitimate differences between young girls and boys. In fact, at this age girls tend to have larger vocabularies and use more complex sentences. In American schools, girls are 11% more likely than boys to be in gifted programs. Nevertheless, parents seem to find that their male progeny are the gifted ones. With their daughters their concerns are more about appearance. “Is my daughter overweight?” is googled approximately twice as much as is “Is my son overweight?” this is despite the fact that whereas 30% of girls are overweight the corresponding figure for boys is a little higher- 33%.

A team of researchers from Columbia University and Microsoft analysed data from tens of thousands of anonymous users of Bing, Microsoft’s search engine. They coded a user as having recently been given a diagnosis of pancreatic cancer based on unmistakable searches, such as “just diagnosed with pancreatic cancer” or “I was told I have pancreatic cancer, what to expect.” The researchers wanted to discover what symptoms were strong predictors of a diagnosis. They examined the searches that had been made before the actual diagnosis, comparing the few who were finally diagnosed with the cancer to those who weren’t. Here’s how Stephens-Davidowitz explains what were remarkable results:
“Searching for back pain and then yellowing skin turned out to be a sign of pancreatic cancer; searching for just back pain alone made it unlikely someone had pancreatic cancer. Similarly, searching for indigestion and then abdominal pain was evidence of pancreatic cancer, while searching for just indigestion without abdominal pain meant a person was unlikely to have it. The researchers could identify 5 to 15 percent of cases with almost no false positives. Now, this may not sound like a great rate; but if you have pancreatic cancer, even a 10 percent chance of possibly doubling your chances of survival would feel like a windfall.”

In Everybody Lies Stephens-Davidowitz talks about the digital truth serum. The truth about what we think is so hard to find that we need every tool at our disposal. As a sceptic of opinion polls and surveys I like the idea of using proxies. However, as I pointed out in my post about big data there is a danger of finding spurious correlations, with cherry picking on an industrial scale. Nevertheless, I do feel that this book has hit on something.


Filter Bubbles, post-truth politics and the rise of populism

January 15, 2017

I know that there are other ways of seeing the world, and I’m happy that people have them, but I just don’t want to be in their world.”  Contribution to BBC Seriously podcast – Bursting the Social Network Bubble

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What a fascinating time it must be to be studying politics. Although for university academics it must be somewhat disconcerting too. Indeed maybe they well have to bin the traditional textbooks. There is a convergence of factors – filter bubbles, our post-truth world and the rise of populism – that are convulsing modern politics.

I remember hearing about a book called The Filter Bubble when it came out in 2011. Author Eli Pariser’s central thesis was that social media algorithms are selectively shaping what a user sees on their feeds based on information about them. Consequently, we are in a bubble in which the news we receive serves to confirm what we already believe:

The filter bubble tends to dramatically amplify confirmation bias – in a way, it’s designed to. Consuming information that conforms to our ideas of the world is easy and pleasurable; consuming information that challenges us to think in new ways or question our assumptions is frustrating and difficult. This is why partisans of one political stripe tend not to consume the media of another. As a result, an information environment built on click signals will favour content that supports our existing notions about the world over content that challenges them.”

Pariser’s premise did seem to ring true, but I didn’t pay that much attention to it. But the events of the last twelve months have validated Pariser’s work. We have seen the effects of these echo chambers. There are two negative aspects to this phenomenon. Firstly, we are failing to exercise our critical faculties. We do tend to want to only hear views and facts that confirm our worldview. But these filter bubbles go beyond this; opposing ideas are not just wrong, they are totally alien. We just cannot imagine where they could even come from. This is why I criticised the use of safe spaces and no- platforming at universities. This is not just a problem of dumb people being taken in by dumb ideas. Sometimes the worst offenders can be the highly educated. Being articulate, they are better able to justify their prejudices.

In this polarised world we are also have different people accessing different facts. This is what is known as the post-truth world, the realm of fake news. In the pilot programme of The Colbert Report on October 17, 2005, American television satirist Stephen Colbert coined the term truthiness. According to Wikipedia, it refers to a truth that a person making an argument or assertion claims to know intuitively from the gut or because it feels right without regard to evidence, logic, intellectual examination, or facts. It may be a fake word invented by a fake person, but it does capture something. Both the Brexit campaign and Trump campaigns were characterised by extreme mendaciousness, but it goes beyond right-wing populism. Liberals and the left can live in a fantasy world too. I did like that quote from Kellyanne Conway, Donald J Trump’s campaign manager:

The most fake piece of news I heard all along up until Election Day and still hear from some people is that Donald Trump couldn’t win. How’s that for fake news?”

Trump is the ultimate manifestation of the rise of populism, especially right-wing populism. It’s not just the Donald and Brexit; Marine Le Pen may yet become the National Front President of France. Similar populist revolts can be seen in Austria, in Germany and the Netherlands. On the left we have the rise of left wing populism in Greece and Spain, and of course the rise of Jeremy Corbyn and Bernie Sanders. It does seem that the right have been more successful at the populist game.

I view populism, whether it be of the left or right, as a nightmare. What I hate about it is the way they peddle simple solutions, a vision of the world which denies the existence of divisions of interests and opinions within the people. It sees a Manichean world of pure people and the corrupt elite. Political opponents lack legitimacy and there are always scapegoats to blame for the country’s ills. Populism tends to get ugly when it gets into power. I have chronicled the horrible failures of Chavismo and Peronism in Venezuela and Argentina respectively. Apart from all the all obvious things to dislike about Trump, I am horrified by his views on trade, many of which he shares with Bernie Sanders. I think the populists will be found out once in power, but they might have done a lot of damage by then

I am a bit pessimistic. There is no doubt that liberal democracy is in crisis. There are problems with globalisation and inequality can have toxic effects on society. You can’t understand the success of Berlusconi and Putin without looking at the chaos and failure that preceded them. Of course there is nothing unprecedented about any of this. Yes, we have new technology but we have still seen many of these phenomena. People have always tended to follow the news that reflects their ideology. Fake news is nothing new. And populist movements have arisen before. The comparison between Trump and Hitler is ridiculous. Historian Niall Ferguson found a better analogy with the now forgotten figure of Denis Kearney, leader of the Workingmen’s Party of California. Kearney belonged to a movement of nativist parties and Anti-Coolie” clubs whose goal was to end Chinese immigration into the United States. Indeed, he was behind the slogan “The Chinese Must Go!” Curiously he was an Irish immigrant himself. But then Trump is he son of a Scottish immigrant and grandson of a German.

I often quote that Chinese curse: May you live in interesting times – I fear that we are about to experience this at first hand.


A couple of videos

January 15, 2017

Here are a couple of videos related to this week’s topic:

Beware online “filter bubbles – Eli Pariser

  

Johan Norberg – Identity Politics on the Left and Right

 
 

Noise, damned noise and leaf-blowers

December 11, 2016

brian-may-leaves

A few centuries ago, someone invented a brilliant device: a long pole with bristles attached to one end. They called it a broom. It has been refined over the years, but it serves the same purpose for which it was designed. It sweeps up fallen leaves into nice neat piles so they can be collected and dumped elsewhere. Leaf-blowers cannot do that.

The clue is in the name. They blow leaves. They redistribute them. They shift them from one place to another. In fact, they are extremely good at that. If you are a little leaf just lying there quietly you stand no chance. You and all your companions will be swept up into the air with great force and deposited somewhere else.

What they cannot do is blow the leaves into nice neat piles so that the what they cannot do is blow the leaves into nice neat piles so that they can be taken away. For that you need a broom or, if we’re talking grass and borders, that other ingenious invention: a rake. John Humphries writing in The Daily Mail

Let’s find the guy who invented the leaf blower. Let’s follow that guy to a peaceful spot he loves and then let’s blow some fucking leaves. Bill Weir, ABC newsreader in a tweet.

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Last week’s No Such Thing as a Fish podcast featured this fascinating fact about leaf-blowers:

Running a leaf-blower for 30 minutes creates more emissions than driving a Ford F-150 pickup truck 3800 miles. According to the Fish panellists, enough to get from Covent Garden, where the show is recorded, to Jerusalem. I didn’t know whether to call this a fact or factoid. It does seem to be barely credible. I ought to send it off to the BBC’s More or Less podcast to be fact-checked, as is the fashion these days.

The Fish fact came from James Fallows, national correspondent for the prestigious magazine, The Atlantic Monthly.  Fallows, has led an ongoing campaign against what he calls “the Leaf-blower Menace.” Leaf-blowers certainly provoke strong reactions. BBC journalist John Humphries is not alone in his opprobrium of these devices. Brian May, the Queen guitarist protested about “leaf madness” after being woken and disturbed by blowers in his Kensington and Chelsea borough. Rock stars never used to complain about blowers in the sixties, but I suppose May is 69 now.

The anti-blower community is extremely active on social media. Facebook has groups such as Ban All Leaf-blowers, Death to Leaf-blowers and Million People Against Leaf-blowers. What strikes me about all this is how impassioned the language is. One critic invoked Satre: “Hell is other people, with leaf blowers”, whereas another went for the Freudian angle: “Give a guy a leaf blower and he wields it like an oversized penis.”

Being a bit lazy myself, I can see the attraction of leaf-blowers; I think convenience is a good thing. However, I am sceptical about their value, but I can’t say that they make my blood boil. I live in a flat in Madrid, so my neighbours don’t tend to use leaf-blowers. What we do have are the municipal workers who do visit our street of a morning. How can we explain the rise of this machine?

Wikipedia defines a leaf blower as “a gardening tool that propels air out of a nozzle to move debris such as leaves and grass cuttings.” It is basically a reverse vacuum cleaner, blowing instead of sucking. They have traditionally been powered by two-stroke gasoline engines. It must be said that leaf blowers aren’t the only garden tools that use a two-stroke engines; many lawn mowers also rely on this technology.  Although you now have what is known as a blower vac, which can suck in leaves and small twigs via a vacuum, and shred them into a bag.

The first recorded example of people using air pressure to remove leaves is said to come from Japan in the 19th century. Gardeners employed bellows to clean up the mossy ground of their landscape gardens. But, for the modern machine there is some uncertainty about who invented it. According to Wikipedia, the leaf blower was invented by Dom Quinto in the late 1950s. It had originally been introduced to the United States as part of an agricultural chemical sprayer. But the manufacturers soon discovered that many consumers were removing the chemical dispensing parts from the device, leaving only the blower. The manufacturers realised it had a lot of potential as a common lawn and garden maintenance tool. The Wikipedia entry does say “citation needed”, so we need to be cautious. Indeed, The New Yorker claims leaf-blowers originated in Japan, in the 1960s as a tool for dispersing pesticides onto fields and fruit trees. I side with the online encyclopaedia in this dispute, but I thought I would put it out there. Curiously, when they first started becoming popular in the 1970s, leaf-blowers were seen as an environmental godsend in California, as drought conditions there meant that the use of water for many garden clean-up tasks was banned.

It is true that they are faster than using a rake. But, there are far more downsides. First is the noise. They are incredibly loud and the noise has spikes, which makes it more irritating. Then you have the pollution. The use of fossil fuels is, as we saw above, profligate. Fallows claims that around one-third of the petrol that goes into this sort of engine is spewed out, unburned, in an aerosol that has been mixed with oil in the exhaust.  This leaves a horrible stench of petrol in the air. They are needlessly blowing dust, allergens, toxins, pollutants and pathogens into the air we all breathe, especially harmful for small children or those with allergies.

I’m no technophobe, but I can’t really defend leaf-blowers. Maybe in the future they will be quieter and more eco-friendly. For professional gardeners and landscapers there is the Mean Green Blast Battery Powered Backpack Leaf Blower. With the blower and the battery the backpack weighs over eleven kilos. They lithium battery, which takes three hours to charge, gives it an autonomy of 65 minutes. They claim it is super quiet, which is 56 db. It creates zero emissions and requires no gas and little maintenance. What’s not to like?

mean-machine

The price – it comes in at $1,695.95. Maybe we should indeed go bake to the rake and broom for the moment.


Ads, damned ads and online advertising

October 22, 2016

This week I heard a fascinating interview with Columbia Law School professor Tim Wu on NPR’S Fresh Air. An open Internet advocate, Wu is increasingly worried about the direction in which the World Wide Web is heading – advertising just keeps getting heavier and heavier and heavier. Wu has just written a history of advertising: The Attention Merchants: The Epic Scramble To Get Inside Our Heads.

Many of the founders of Internet were utopians. According to Stewart Brand, we owe it all to the hippies:

Forget antiwar protests, Woodstock, even long hair. The real legacy of the sixties generation is the computer revolution

But as time has gone on it has gone what has taken place has diverged from this vision. The internet has lost its innocence.  Yes, a lot of content is free, but this comes at a price. We are constantly being bombarded with advertising. Not only is it ubiquitous, it is becoming increasingly difficult to close. We like the idea that that we can get stuff for free. This is a notion that is particularly prevalent on the internet. Newspapers are caught in this dilemma. Going behind a paywall doesn’t seem to be a particularly viable option. You lose a lot of influence this way; newspapers have traditionally wanted to be at the heart of the debate. But giving everything away doesn’t work either. Advertising just doesn’t bring in enough revenue for newspapers. There are some companies making money from online advertising – the Internet powerhouses Google, Facebook and Twitter.

Wu describes Google as the most profitable attention merchant in the history of the world. They began as a very idealistic company, but what they didn’t have was a business model. Their route to wealth would be with advertising. What is particularly ironic about this is Google’s founders, Larry Page and Sergey Brin actually hated advertising, which they thought would corrupt the goal of the search engine, which is to try to give you the most important information, not what someone paid to be there. They wrote all this in a paper, The Anatomy of a Large-Scale Hypertextual Web Search Engine, which they wrote while studying at Stanford in 1998.

We are in what is known as the attention economy. Human attention is indeed a scarce commodity. As we have such digital overload, companies struggle to get into our brains. To attract interest one of the online marketer’s most potent weapons is clickbait. Merriam Webster defines this as:

online material (such as headlines) designed to make readers want to click on hyperlinks especially when the links lead to content of dubious value or interest.

The earliest citation on the Wordspy website goes back to 1999. In reality what they are doing is using many of the techniques perfected by tabloid journalists. All we have is a 21st century version of The Sun’s notorious Freddy Starr ate my pet hamster.

Wu’s central idea is that if we really care about content, we should be willing to pay for it. He gives food for thought. An ad-free version, he claims, would cost $12 a year. I don’t take such an alarmist view. True, it can be irritating when you are on the mobile phone. But I don’t find Facebook ads particularly irritating. I see it as a reasonable trade-off. I’m still in awe at everything that you can get on the web. There has been a loss of idealism, but I have never been a cyber-utopian. I know that they are looking to find my weaknesses, but I don’t think that we are such passive victims.