The Information Economy

From Google's new magazine/book, Think Quarterly:

In 2010, the human race created 800 exabytes of information, from tweets and Facebook updates to PowerPoint presentations and photographs. That’s 800 billion gigabytes, or the amount of data you can fit on 75 billion 16-gig iPads. To put that into context, between the dawn of civilisation and 2003, we only created five exabytes; now we’re creating that amount every two days. By 2020, that figure is predicted to sit at 53 zettabytes (53 trillion gigabytes) – an increase of 50 times.

The rest of the article is about Hal Varian, Google's 441st employee and Chief Economist.

For those in DC, James Gleick is talking about his newest book, The Information, at Politics and Prose at 7 pm. Here's one positive review. I've read the first chapter and so far it is very good.

Reinvisioning High School

By now we all know the Amy Chua story (WSJ):

Western parents try to respect their children's individuality, encouraging them to pursue their true passions, supporting their choices, and providing positive reinforcement and a nurturing environment. By contrast, the Chinese believe that the best way to protect their children is by preparing them for the future, letting them see what they're capable of, and arming them with skills, work habits and inner confidence that no one can ever take away.

In today's NYT, Susan Engel reports on a small group of students who created their own high school curriculum. Despite Chua's depiction, the American school system provides students with virtually no say in curriculum development. Maybe some lazy Western kids will do a school play or have a sleepover, but it rarely occurs to educators to ask students what they want to read and study; there is simply no individuality in American education. As Engel writes (NYT):

The students in the Independent Project are remarkable but not because they are exceptionally motivated or unusually talented. They are remarkable because they demonstrate the kinds of learning and personal growth that are possible when teenagers feel ownership of their high school experience, when they learn things that matter to them and when they learn together. In such a setting, school capitalizes on rather than thwarts the intensity and engagement that teenagers usually reserve for sports, protest or friendship.

It's also worth going back to her article from last year, Playing to Learn, for another interesting take on education reform.

How Seriously Should We Take the Coase Theorem?

Economist Ed Glaeser, in Triumph of the City, writes:

Cities should replace the current lengthy and uncertain permitting process with a simple system of fees. If tall heights create costs by blocking light or views, then form a reasonable estimate of those costs and charge the builder appropriately. If certain activities are noxious to neighbors, then we should estimate the social costs and charge builders for them, just as we should charge drivers for the costs of their congestion. Those taxes could then be given to the people who are suffering, such as the neighbors who lose light from a new construction project.

Planetizen's response (I took the above quote from them as well) sums up the animosity against Coase: "But should developers be able to build whatever they want by giving a one-time payout to the neighbors? That sacrifices comprehensive, intentional planning for a one-time infusion of cash, and later generations may not thank us."

The fact that it sacrifices comprehensive planning is, of course, precisely Glaeser's point. There are generational issues to consider, and how you price the present value of perpetuities can be complicated, but the proposal shouldn't be dismissed outright. Just further proof that the Coase Theorem is an economic idea that's hard to popularize.

The Dispersion of Hourly Wages

CBO just issued a report, Changes in the Distribution of Workers' Hourly Wages Between 1979 and 2009, that contains some interesting data on the economic return to education (Summary, Full Report, blog post), which is pretty easy to see the in the figure below:

Can we Hope for Stable Democracy in Egypt?

As a back of the envelope guide, here's a quick check. According to Przeworski, et al (1996):

If a country, any randomly selected country, is to have a democratic regime next year, what conditions should be present in that country and around the world this year? The answer is: democracy, affluence, growth with moderate inflation, declining inequality, a favorable international climate, and parliamentary institutions.

More specifically:

Poor democracies, those under $1,000, have a 0.22 probability of dying in a year after their income falls (giving them a life expectancy of less than five years) and a 0.08 probability (or an expected life of 12.5 years) if their income rises. Between $1,000 and $6,000--the middle range--democracies are less sensitive to growth but more likely to die if they stagnate: they die at the rate of 0.059 when they decline, so that their expected life is about 17 years, and at the rate of 0.027, with an expected life of about 37 years, when they grow.

Egypt's per capita GDP is estimated at just over $6,000 for 2010.* Therefore, if the transition goes okay over the next few months and genuine, contestable elections are held in the fall, the prospects for continued democratic rule don't look too bad. This is especially true if the new government is able to tap into the large pool of skilled labor and create the opportunities for entrepreneurship and innovation that their people deserve.

* I have not adjusted the data for inflation. Przeworski et al use annual per-capita income, expressed in purchasing power parity (PPP) U.S. dollars in 1985 international prices, as given by version 5.5 of the Penn World Tables. I simply looked up per capita GDP in current international prices, so the data may overstate Egypt's prospects a bit. The IMF maintains the most recent data, available here.

What can we know?

Recent events in Egypt (#Jan25), Tunisia and Jordan remind us that human behavior makes prediction possible over certain dimensions, but not others, such as time. To wit, here are a few great minds on the inevitability of the Egyptian protests:

“The events of the past two weeks in Egypt were not a surprise, but no one could have predicted the timing,” said Osman, one of a few authors whose new Egypt-related books come at a fortuitous time. “A socio-political eruption in Egypt, from within the middle classes, led by the youths, was inescapable."

“I have much to say, and the last chapter in my book talks about my view that neoliberal Cairo under Mubarak is a like a bomb in the tomb of a longer Egyptian history,” AlSayyad wrote in an email. “I predicted in the ‘Cairo’ book, as well as in my ‘The Fundamentalist City’ book released back in November, that it will ultimately detonate. I just could not have expected it to happen so soon.”

Both quotes come from this piece in the Washington Post. And from Twitter, we get the succinct (@auerswald):

How predictable was #Egypt #Jan25? Put heat on, water will boil. Seal lid, pot will explode. Moment unpredictable. Outcome not.

Also see this longer post, which includes a great quote by Gregory Bateson. The CIA expressed similar views (Wired). The inevitability of human freedom has become a resurgent topic given recent events and it is a theme we will explore in future posts.

2010 State Technology and Science Index

From the Milken Institute. The subtitle is: Enduring Lessons for the Intangible Economy. The background:

The 2010 State Technology and Science Index looks at 79 unique indicators that are categorized into five major components: Research and Development Inputs, Risk Capital and Entrepreneurial Infrastructure, Human Capital Investment, Technology and Science Work Force, and Technology Concentration and Dynamism. It is one of the most comprehensive examinations of state technology and science assets ever compiled.

The top 10 (with previous index rankings in 2008):
1. Massachusetts (1)
2. Maryland (2)
3. Colorado (3)
4. California (4)
5. Utah (8)
6. Washington (5)
7. New Hampshire (9)
8. Virginia (6)
9. Connecticut (7)
10. Delaware (14)

The report and executive summary can be found here.

Celebrating Entrepreneurship

If you think the Lemelson Center for the Study of Invention and Innovation is a national treasure that should be expanded and scaled up, then you might want to support The Center for Entrepreneurship and Innovation (@InnovationontheMall). The organizers:

... propose that a new Center for Entrepreneurship & Innovation on the National Mall occupy the now vacant Arts & Industries Building. The Center would restore the building’s original mission: to showcase to the public and encourage excitement about understanding the concepts underlying innovation and the process of invention.

The original purpose of the Arts & Industries building, to showcase and celebrate American ingenuity, will be adapted fluidly for a new mission. Exhibits, educational programs, and convenings will catalyze and convey transformational new ideas creating value for society.

Check it out and spread the word!

Innovation and Competition

Here in DC it is restaurant week, which can be a fun time of year. Normally high priced restaurants offer a three course fixed price (pre fixe if you must) menu for the comparably affordable price of $20/35 for lunch/dinner. I've been looking for a few good vegetarian options since my wife has been a lifelong vegetarian. Flipping through OpenTable's listing I was struck by how little innovation there is in the food industry at the moment.

First, I should say that it is nice that so many restaurants do offer at least some semblance of a veggie option, however the clustering was kind of shocking. Virtually every restaurant, almost regardless of the type of cuisine, is offering a mushroom risotto for its main course. Nothing against this, but would you really want to eat at six different fancy restaurants in search of the perfect mushroom risotto?

This isn't limited solely to vegetarian food of course. Virtually every self-respecting haute cuisine restaurateur is offering a beet salad now. It hits all the trendy points: it's seasonal, local, and in most cases organic. Since chefs are a transient lot they tend to incorporate many of their competitors' best dishes into their new restaurants, with a few modest modifications to avoid allegations of outright theft. Think pork belly too, which is now on the wane but was a de facto requirement on restaurant menus just a bit ago.

What's interesting from an entrepreneurial standpoint is that this situation is only a temporary equilibrium. It won't be long before some enterprising restaurateur recognizes the lack of novelty in restaurant menus today and will come up with something new and great. Or new and terrible - the restaurant industry is nothing if not volatile. Even at a small, local scale, entrepreneurial vision drives change and improves and enlarges the options that we as consumers can choose from. Or to borrow a phrase (thecomingprosperity):

... sustained prosperity depends on novelty. It depends on invention in the face of change. It depends on creativity with limited resources.

More fundamentally--most fundamentally--sustained and sustainable prosperity depends on entrepreneurs.

Some Recent Articles on Innovation

David Warsh's latest article on Economic Principals asks whether a new round of technical innovation can tackle problems of climate change. He answers this by reviewing the contributions of previous innovation theorists like Nelson, Rosenberg, and Arrow. Worth a quick read.

Elsewhere, the Minnesota Fed's quarterly publication The Region has an interesting survey article on the relationship between trade and innovative capabilities:

“For the last decade or so, the idea that international trade might have extra benefits because it stimulates innovation by firms that export has been a strongly held view among economists,” observed Minneapolis Fed consultant Andy Atkeson in a recent interview. “But what we’re finding, in fact, is that these ‘extra benefits’ don’t really exist.”