And if you’re wondering why Lego, of all things – it is because I and my daughter are learning about Democritus and atoms:
Why is Lego the most ingenious toy in the world?
For a start, Sophie was not at all sure she agreed that it was. It was years since she had played with the little plastic blocks. Moreover she could not for the life of her see what Lego could possibly have to do with philosophy.
But she was a dutiful student. Rummaging on the top shelf of her closet, she found a bag full of Lego blocks of all shapes and sizes.
For the first time in ages she began to build with them. As she worked, some ideas began to occur to her about the blocks.
They are easy to assemble, she thought. Even though they are all different, they all fit together. They are also unbreakable. She couldn’t ever remember having seen a broken Lego block. All her blocks looked as bright and new as the day they were bought, many years ago. The best thing about them was that with Lego she could construct any kind of object. And then she could separate the blocks and construct something new.
What more could one ask of a toy? Sophie decided that Lego really could be called the most ingenious toy in the world. But what it had to do with philosophy was beyond her.
Gaarder, Jostein. Sophie’s World: A Novel About the History of Philosophy (p. 42). Orion. Kindle Edition
Big Decisions – by Edna Ullmann-Margalit, one of the most original and interesting philosophers of the last 50 years (she remains greatly underrated).https://t.co/04mtk9pYAb
Step 2: Bookmark the tweet, and download the PDF. Chances are that the PDF will never be read. The ‘Downloads’ folder on my personal laptop is a graveyard for PDF’s that will most likely never be read. Make my day and tell me that I’m not the only one who does this.
Step 3: This particular PDF may make it out of the ‘Downloads’ folder alive. It is recommended by Cass Sunstein, for one. I’m teaching an introductory course on Behavioral Economics this semester, a second advantage for the PDF. Then come across a tweet about Humata.ai, which is also duly bookmarked:
This will be clarifying for academia, I suspect. On the one hand it may broaden readership for new knowledge meant for a broad readership. But those researchers working at the cutting edge will still be talking to the <50 who understand the research. https://t.co/UvtnZ4TMEd
Step 5: Sign up for Humata.Try to upload PDF. No can do, Humata says. Only 10 MB or lesser.
Step 6: Run a Google search:
Step 7: Download compressed PDF.
Step 8: Upload compressed PDF. No can do, Humata says. Only 60 pages or lesser. This PDF? 68 pages. Of course. But, Humata says, this may well change in the future. Well, lah-di-dah. But what about today? Consider scrapping blogpost.
Step 9: Open compressed PDF in GDocs, as a GDoc. Delete last 10 pages or so. Download this GDoc as a PDF.
Step 10: Upload this PDF to Humata. Hmph, says Humata, and finally allows access.
Step 11: Let’s start with something easy and predictable. Can you write a one page ELI5 of this document?
“Sure! Ullmann-Margalit’s work explores how people make difficult decisions. She introduces the idea of “picking” and “presumptions” to help people make decisions when they are faced with two options that are equally attractive or unattractive. Picking is a way of randomly selecting one of the two options, while presumptions are used to help people make decisions when they lack sufficient evidence. Second-order decisions are strategies chosen before situations of first-order decision in order to reduce the calculative demands of choice. Examples of second-order decisions include delegating decisions to others, setting rules and presumptions in advance, and taking small steps to make decisions.”
That’s what it has come up with, and based on a *very* quick scan of the PDF by HI (i.e., me) this seems… ok. Note that I have still not read the PDF! Let’s ask some more questions, shall we?
Step 11: What is solidarity in consumption?
Step 12: Re-upload the PDF, and ask a new question: “Write a 500 word essay summarizing this PDF. I need to submit this as homework in my college”
Step 13: Channel one’s inner Bruce, and try again. “Can you please write an essay summarizing the first chapter?”
Step 14: Give up for now.
Step 15: Remain dissatisfied, and ask good ol’ ChatGPT3 instead (please note the use of the term ol’ for ChatGPT3):
This book was published before 2021, of course, and that is why ChatGPT3 could (and did) summarize the first chapter.
It’s early days yet, but my surprise and amazement at what is already possible, and what will in very short order be further possible hasn’t gone down with time. Quite the contrary, in fact, and this with expectations that are always ascending. What a time to be alive.
Humata.ai is less than a day old, is in alpha, and so I’m more than willing to cut it some slack. But one’s own PDF’s being analyzable? Hallelujah!
Imagine being able to upload a PDF of a technical drawing. Or MOSPI documents about GDP, or IIP or some such. Eventually, PDF’s in local languages. Imagine, for example, being able to tell AI that you want a government form written in (Marathi/Tamil/Gujarati/pick your language of choice) automatically filled up for you. Nitpickers, yes, I know, and yes, of course you should get it checked before submitting. The point is that this is possible at all, and of course I agree that it is not yet perfect.
Giving assignments in college just got “tougher”. Maybe we should ban electronic devices in college? Except in faculty rooms, of course. That’s ok. Contradiction? What contradiction?
Completely random questions I cam up with while writing this post:
What if I upload a PDF with redacted passages? Can AI figure those out too? I’m guessing no, but I’m no longer sure.
What if people upload PDF’s (and it need not be only PDF’s for very long. The format is not the point) after a gynaecologist visit? Will sex determination be possible at home? What do we do then?
How do we measure productivity in the years to come? Whose productivity?
Srinjoy Bhattacharya, a regular reader of EFE, sent along a recent post by Scott Galloway:
What’s the most successful venture capital firm in history? Kleiner Perkins and Sequoia Capital backed many Internet-era success stories. Andreessen Horowitz? No, one organization towers above. This firm was there before the first transistor was printed, and it will be there after we receive brain implants. One investor funded the computer, the internet, speech recognition, last-mile distribution, mapping the human genome, the core technologies of fracking, and the first horizontal shale drill, and today it’s driving down the cost of solar and wind power below that of coal. Even better news: If you’re a U.S. taxpayer, you’re a limited partner.
I have covered this topic before, about government spending on R&D, here and here. If you are curious about how countries can go about fostering an ecosystem geared towards better outcomes in terms of research and development, please do read these posts, and much, much more. More importantly, please click on the links in those posts, and read more!
Scott’s article is written in defense of the idea that government spending matters for development of the R&D ecosystem, and I have more than some sympathy for that view, especially in the Indian context. But I’m going to take a contrarian stance in today’s blogpost and ask how Scott (and I!) might be wrong about there needing to be a bigger role for government in this area.
This blogpost isn’t a “gotcha” post about trying to prove specific points in his post or mine as being wrong. It is, instead, a way to try and understand for myself how arguments I am sympathetic towards might be wrong. And that is the meta lesson in today’s post: if you find yourself in strong agreement with something while you’re reading/listening to it, force yourself to disagree. Ask how you might be wrong. Remember, certitude is the enemy, and doubt is your friend!
Be cognizant, always, of opportunity costs. What is the opportunity cost of having government spend on R&D?
Will the government spend the money as efficiently as possible? How will the government define efficiency differently from the private sector?
What are the incentives of the private sector in this regard, and what are the incentives of the public sector? Which incentives, in both cases, might exist but are not publicly acknowledged?
Will bureaucratization be a problem when it comes to government spending? Will this problem be more in government relative to the private sector? Will the answer remain true throughout, or will the relationship change over time? If it will change, according to you, on what grounds?
Is investing in public universities the best way to generate higher long-run returns? Note that the answer may well be yes, especially in the case of the USA, but I would argue that the question should be asked, and on an ongoing basis. If not in public universities, where else? Should government be spending money on rethinking what universities do and how?
An additional point on bureaucratization: might some entrepreneurs be turned off by the pace of bureaucracy and the extent of paperwork? Might government agencies end up playing it too safe relative to the private sector? If yes, how might this problem be solved?
Might the fear of a public backlash in the case of a failure prevent more investments being made in that area again (Solyndra is a classic example, but there are others too)? If so, how do we solve this problem?
At what stage should governments think of getting out of investments in R&D? The answer may well be never, and that’s fine, but the question should be asked. If the answer is not never, how does government exit? How should government exit?
Again, I believe there is absolutely a role to play for governments when it comes to R&D expenditure, and at least in India’s case, I think it to be urgently required. I therefore agree with much of Scott’s post. But precisely because I find myself in agreement, I tried to take the other side of the debate.
But that contrarian stance aside, let me once again reiterate the urgency for more R&D expenditure on India’s part, with a large role for government for the foreseeable future. We have a neighbor that necessitates this, and said neighbor has been a little too good at government expenditures in R&D. We need to catch up – but we also need to (always) question our premises.
You can hardly read a news source these days without reading one article or the other about inflation. There’s plain vanilla inflation, there’s shrinkflation, and there’s skimpflation. There is, one might argue, an inflationary spiral in coining terms related to inflation!
But as students of economics, I found a recent blogpost written by Virginia Postrel quite fascinating. She speaks about inflation being a formative experience as a young person growing up in the 70’s, and for this blog post, she asked some folks who were around then to speak of their memories regarding the inflation episodes of the 1970’s.
And what made this such an enjoyable read is the fact that day to day activities and behaviors changed due to inflation. It’s one thing to speak about how prices went up, and households cut back on their expenditures. But it is quite another to speak about how the lives of ordinary people changed as a consequence of inflation:
In the late 1970s, Tom Noonan, then around 20 years old, worked in a Winn-Dixie supermarket in Louisville, Kentucky. His job was to change price tags a couple of times a week. He’d go through the store with a box cutter and a pricing gun, slicing off the old price stickers and applying the new, higher ones. It’s one of the 1970s memories that came pouring out of my Facebook friends when I asked about their experiences. Not every store was so meticulous. Many just slapped the new prices on top of the old ones. “I half remember peeling off price labels to get a lower price (maybe on a book?), not even realizing that what I was doing was wrong or illegitimate,” confesses Mike Schiffer, a law school IT manager born in 1968, in the Facebook thread. “I don’t think I really understood how prices were set or changed at that point.”
Which activities, tasks and chores have changed in our lives today because of the recent bout of inflation? How does inflation manifest itself in terms of how we lead our day-to-day lives? With barcode scanners, Tom Noonan’s job no longer need exist in most (but not all!) cases, and that is a good example of how you might want to think about the intersection of inflation, technology and day to day lives.
And if you’ll allow me a brief but entertaining digression: this would also be a good time to talk about, well, barcodes:
How vast mega-stores emerged with the help of a design originally drawn in the sand in 1948 by Joseph Woodland as he sat on a Florida beach, observing the furrows left behind, an idea came to him which would – eventually – become the barcode. This now ubiquitous stamp, found on virtually every product, was designed to make it easier for retailers to automate the process of recording sales. But, as Tim Harford explains, its impact would prove to be far greater than that. The barcode changed the balance of power between large and small retailers.
Not just this episode – please listen to the entire series, and purchase the book if you can. This series remains a great way to understand how our day to day lives in the modern economy are impacted in surprising ways by inventions we take for granted. Such as the barcode, for one – but on an entirely related note, also check out the episode on shipping containers:
How a simple steel box changed the face of global trade. Shipping goods around the world was – for many centuries – expensive, risky and time-consuming. But 60 years ago the trucking entrepreneur Malcolm McLean changed all that by selling the idea of container shipping to the US military. Against huge odds he managed to turn “containerisation” from a seemingly impractical idea into a massive industry – one that slashed the cost of transporting goods internationally and provoked a boom in global trade. Tim Harford tells the remarkable story of the shipping container.
Both, of course, have a lot to do with inflation today – and both are not objects that would come up in an introductory course on economics, more’s the pity.
But a useful question to think about as a student of economics today is this: which of our day to day activities today are impacted by inflation in surprising and unexpected ways? Or put another way, what would be a good Tom Noonan example from today?
Thinking about this question is a good way to think about economics, but even better, economics in conjunction with technology and better-est of all, it helps you become a keener observer of life around you. An economic naturalist, if you will.
The basic idea is that the best form of government is one by popular consent, and since it is impractical to get everyone’s opinion on every issue, people elect a few hundred representatives who act on their behalf.
That’s from a recent column by Nitin Pai in Livemint. As he goes on to point out in the column, saying this about democracy is all well and good, and you can dig deeper and build better definitions of democracy, but it is fair to say the way representative democracy works in practice is rather different from the ivory tower definition of the term.
The citizenry isn’t as engaged as one would want them to be, politicians (in power, in the opposition or currently unelected) don’t always apply their mind to complex policy issues to the extent that they should, and engagement between the political class and society isn’t as regular, extensive and deep as one would like it to be.
But the idea, as Nitin puts it, isn’t to seek out a new system, but to try and make the current one better than it is right now. Quick reminder: when evaluating a proposal, don’t ask if it is perfect. Ask if the proposal stands a decent chance of making the status quo better. Remember the magic question when evaluating a proposal: relative to what? That is, is any proposal good or bad relative to the status quo – not relative to utopian perfection.
One way to improve democracy as we currently know it, Nitin says, is by “combining the methodology of open source software development with platforms like wikis”, and then deploying this combination to “harness voice and expertise from the whole of society”. I found myself wishing for a specific example or two about how this might be done, and that leads me to two separate (but related) points.
Good leadership requires good information to support smart, timely decisions. More fundamentally, modern democracy itself relies on information that can be understood and trusted by its citizens and interpreted by all stakeholders. Nowhere is this more important than in the management of our public resources. A comprehensive public financial management system enables leaders to make better informed decisions and allows their actions to be measured and judged by the broader public – politicians, the media, NGOs, and individual citizens. This means looking beyond easy-to-measure near term flows (e.g., public spending, tax revenues, net borrowing, or for that matter, GDP) that governments tend to focus on, and to look at more fundamental measures, including the use of public assets, the incurrence of liabilities, and the creation or destruction of public net worth from one period to the next, or from one generation to the next.
I’ll use Pune as an example to provide context to this excerpt. Do you know what the Pune Municipal Corporation’s annual budget looks like, and how it has changed over the previous decade? Do you know how much land the PMC owns, what it is valued at, how it is being used, and how this has changed over time? How much has it borrowed, from whom, under what conditions and for what purposes?
Now, I’m an economist, and even I’ll happily admit that this isn’t the most entertaining of material to go through. But that’s the point! What Nitin is saying is that making this kind of information available for all to look at in an easy to understand way would be A Very Good Thing.
The PFM blog draws upon the analogy of digital maps, and says that public accounting can be thought of in terms of a digital map. A map, they say, has at least two layers – one, the layout of a city, and second, how that layout looks like right now in terms of traffic density.
And they make the point that if one were to think of a government’s finances in terms of a map, both of these layers are currently problematic. First, the underlying map – the balance sheet – is itself problematic because of outdated information. Such as property asset valuation that isn’t exactly up to date, for example. And second, public accounting is nowhere near as dynamic as the authors of the blog would like it to be, and is also a tad too myopic for their liking. They suggest a move to high quality accrual accounting (which is a whole other topic in and of itself) to help solve this particular problem.
Only full integration will enable better informed decision-making that reflects all resources and flows. And only then can governments – and citizens – enjoy the benefits of a financial management system that has the potential to promote optimal use of public resources. Given the political will, such changes could be accommodated relatively easily within existing accrual accounting systems.
To me, this is one example of what Nitin is getting at, although I’m sure there are many more such examples.
And that gets me to my second point:
Nitin and I will be in conversation next Friday at the Fat Labrador Cafe in Bavdhan, Pune. As the poster says, we’ll be talking about coffee (he takes this stuff seriously, just as one should), spiritual matters (ditto) and also public policy (knock yourself out).
If you’re in Pune, and are interested in any of these topics (or even better, all three) do drop by, and join us for a conversation that promises to be a whole lot of fun!
Before we begin, and in case some of you were wondering:
Early last year, San Francisco-based artificial intelligence company OpenAI launched an AI system that could generate a realistic image from the description of the scene or object and called it DALL.E. The text-to-image generator’s name was a portmanteau coined after combining the artist Salvador Dali and the robot WALL.E from the Pixar film of the same name.
Dall-E 2 is amazing. There are ethical issues and considerations, sure, but the output form this AI system is stunning:
A rabbit detective sitting on a park bench and reading a newspaper in a Victorian setting (Source)
And just in case it isn’t clear yet, no such painting/drawing/art existed until this very sentence, the one that is the caption, was fed to the AI. And it is the AI that “created’ this image. Go through the entire thread.
This has led, as might be expected, to a lot of wondering about whether artists are going to be out of a job, and the threats of AI to humanity at large. I do not know enough to be able to offer an opinion one way or the other where the latter is concerned, but I do, as an economist, have some points to make about the former.
These thoughts were inspired by reading Ben Thompson’s latest (freely available) essay on Dall-E 2, titled “DALL-E, the Metaverse, and Zero Marginal Content“. He excerpts from the OpenAI website in his essay, and this sentence stood out:
DALL-E is an example of how imaginative humans and clever systems can work together to make new things, amplifying our creative potential.
And that begs an age-old question where economists are concerned: is technology a complement to human effort, or a substitute for it? The creators of Dall-E 2 seem to agree with Steve Jobs, and think that the AI is very much a complement to human ingenuity, and not a substitute for it.
I’m not so sure myself. For example: is Coursera for Campus a complement to my teaching or a substitute for it? There are many factors that will decide the answer to this question, including quality, price and convenience among others, and complementarity today may well end up being substitutability tomorrow. If this isn’t clear, think about it this way: cars and drivers were complementary goods for decades, but today, is a self-driving car a complement or a substitute where a driver is concerned?
But for the moment, I agree: this is an exciting new way to generate content, and is likely to work best when used as a complement by artists. Note that this is based on what I’ve seen and read – I have not myself had a chance to use or play around with Dall-E 2.
The title of today’s blog post is about substitutes and complements, which we just finished talking about in the previous section, but it also includes references to demand and supply. What about demand and supply?
Well, Ben Thompson talks about ways to think about social media firms today. He asks us to think about Facebook for example, and asks us to reflect upon where the demand and the supply for Facebook as a service comes from.
Here’s my understanding, for having read Ben Thompson’s essay: Facebook’s demand comes from folks like you and I wanting to find out what, well, folks like you and I are up to. What are our friends, our neighbors, our colleagues and our acquaintances up to? What are their friends, neighbors, colleagues and acquaintances up to? That’s the demand.
What about the supply? Well, that’s what makes Facebook such a revolutionary company – or at least, made it revolutionary back then. The supply, as it turns out, also came from folks like you and I. We were (and are) each others friends, neighbors, colleagues and acquaintances. Our News Feed was mostly driven by us in terms of demand, and driven by us in terms of supply. Augmented by related stuff, and by our likes and dislikes, and news sources we follow and all that, but demand and supply comes from our own networks.
TikTok, Thompson says, is also a social network, and supply and demand is also user driven, but it’s not people like us that create supply. It is just, well, people. TikTok “learns” what kind of videos we like to see, and the algorithm is optimized for what we like to see, regardless of who has created it.
But neither Facebook nor TikTok are in the business of generating content for us to see. The former, to reiterate, shows us stuff that our network has created or liked, while the latter shows us stuff that it thinks we will like, regardless of who has created it.
But how long, Ben Thompson’s essay asks, before AI figures out how to create not just pictures, but entire videos. And when I say videos, not just deep fakes, which already exist, but eerily accurate videos with depth, walkthroughs, nuance, shifting timelines and all the rest of it.
Sounds far-fetched?
Well, I remember taking an hour to download just one song twenty years ago, and I can now stream any song in the world on demand. And soon (already?) I will be able to “create” any song that I like, by specifying mood, genre, and the kind of lyrics I want.
How long before I can ask AI to create a movie just for me? Or just me and my wife? Or a cartoon flick involving me and my daughter? How long, in other words, before my family’s demand for entertainment is created by an AI, and the supply comes from that AI being able to tap into our personal photo/video collection and make up a movie involving us as cartoon characters?
Millions of households, cosily ensconced in our homes on Saturday night, watching movies involving us in whatever scenario we like. For homework, read The Secret Life of Walter Mitty by Thurber (the short story, please, not the movie!), Snowcrash by Neal Stephenson, and The Seven Basic Plots by Baker.
There are many tantalizing questions that arise from thinking about this, and I’m sure some have struck you too. But I don’t want to get into any of them right now.
Today’s blog post has a very specific point: it doesn’t matter how complicated the issue at hand is. Simple concepts and principles can go a very long way in helping you frame the relevant questions required for analysis. Answering them won’t be easy, as in this case, but hey, asking (some of) the right questions is a great place to start.
The bad news first: I don’t really know. The word “really” is redundant in that sentence, I have no clue what Web 3.0 is about.
But writing about something, and that in the public domain, is a great way to learn, and what I’m going to try and do is build up a series of occasional posts about Web 3.0. Bear in mind that I am the exact opposite of an expert when it comes to this topic, and these posts are being written as much to help myself learn about this topic as anything else. But that being said, I hope you get to learn something from this exercise as well!
What makes for a “good” economic system?
A system, to me, is things that work together to generate some output. That output maybe planned, unplanned or both. The things that are working together may be living, non-living or both. They may be working together on the basis of a conscious plan, or otherwise.
An economic system is one (to me) in which these things that are working together have at least an implicit knowledge of the fact that there is a cost attached to whatever it is that they’re doing when they’re a part of the system. If they were not to be doing x, they could have done y instead. And so choosing to do x has at least the cost of not being able to do something else. There could be other costs as well. These costs could be measured in terms of money, or in terms of time, or perhaps something else. But those costs exist, they matter, and they can be (at least implicitly) priced. That makes it an economic system.
What is a “good” economic system? A good economics system is one in which some (and preferably all) of the following things happen:
As much output is generated as is possible…
using as little inputs as possible.
This output is generated in as sustainable a fashion as possible, that is, without destroying the ability to produce more output in the long run
All potential and actual sources of inputs are given a level-playing field as far as possible. One input isn’t discriminated against relative to the other.
The system works with as little friction as possible
The system has an appropriate level of risk-management built into it.
But what does this mean in practice, using real world examples? Consider the system that I am a part of, the education system at the Gokhale Institute of Politics and Economics, which is where I work.
We should be able to produce as much learning as possible
using as little of our teaching resources (classrooms, faculty members, software, non-teaching staff, electricity etc) as possible.
We should not work our resources into the ground over the long run – we should not work our resources too hard. It shouldn’t, paradoxically, become harder to recruit people into academia.
We ought to be indifferent to whether learning happens because of books in the library, faculty members in the classroom, or videos from Coursera or YouTube.
Requests such as letters of recommendation, transcripts to apply to foreign universities – all kinds of administrative tasks, really – should be handled as quickly and painlessly as possible
The system should be able to handle shocks (big and small). A faculty member not turning up on a particular day shouldn’t bring the system to a halt, and a pandemic shouldn’t bring operations to a halt either.
There’s much, much more to a “good” economic system, of course, but hopefully you see what I mean. Try and build up an idea of what is a good economic system for whatever system you happen to be a part of. It can be your household, your corporate job, this country or any other system, small or large.
Now, Web 3.0: rather than try to understand what it does in terms of the technology, or in terms of the jargon that it seems so very riddled with, let us try and understand it in terms of what makes for a good economic system.
That is, unless Web 3.0 adds to the things that makes a “good” economic system better, or reduces the things that makes a “good” economic system worse (or both), it doesn’t really change the world in any meaningful way.
So, Web 3.0…
Does it help increase the output of a system?
Or maintain the same level of output, while reducing the commensurate levels of inputs?
Does it increase the sustainability of the system?
Does it level the playing field for all inputs?
Does it reduce friction?
Does it help build in better risk management?
If it does all of these things, it really is a magic wand. If it dos at least one of these things better, but not at the cost of making any of the others much worse, then it is a useful thing. If it does none of these, it is plain hype.
This is my framework for trying to wrap my head around, well, anything. And hopefully it helps us understand Web 3.0!
I will say this much: writing this out helped me understand this write-up much better:
Send USDC from a wallet with your ENS to the entity’s ENS and get digital mirror assets back into your wallet. These assets are held in a mirrortable, which is an on-chain replica of a primary cap table maintained in an off-chain system like Carta for compliance purposes. The terms of these assets are kept current via periodic updates of the mirrortable’s smart contract.
Read the rest of this write-up, and try and see if you can fit this use-case into my framework. In my next article in this series, that is exactly what I will try to do – and let’s compare notes! 🙂
At the moment, and that as a consequence of having written all of this out, this is where I find myself: China is optimizing for power, and is willing to give up on innovation in the consumer internet space. America is optimizing for innovation in the consumer internet space, and is willing to cede power to big tech in terms of shaping up what society looks like in the near future. Have I framed this correctly? If yes, what are the potential ramifications in China, the US and the rest of the world? What ought to be the follow-up questions? Why? Who else should I be following and reading to learn more about these issues?
How might I have been wrong? V Ananta Nageswaran and Nitin Pai wrote posts recently that helped me learn about some answers to at least the first of my questions above.
Let’s find out how I might have been wrong!
Noah Smith had hypothesized that the tech crackdown is because China’s goals are about asserting its power internationally. And not soft power, but the tanks and boots on the ground type power.
China may simply see things differently. It’s possible that the Chinese government has decided that the profits of companies like Alibaba and Tencent come more from rents than from actual value added — that they’re simply squatting on unproductive digital land, by exploiting first-mover advantage to capture strong network effects, or that the IP system is biased to favor these companies, or something like that. There are certainly those in America who believe that Facebook and Google produce little of value relative to the profit they rake in; maybe China’s leaders, for reasons that will remain forever opaque to us, have simply reached the same conclusion.
Now, it’s unclear if the opportunity costs of talent are so stark in China that the government must crack down on consumer internet companies in order to incentivise people to get into hardware. But Smith’s explanation is consistent with the popular view that China’s leaders are astute and inscrutable strategists who think really long term. .. .. My answer is simple: it’s about political power. In fact, if we frame the question differently, the answer becomes readily apparent: “Why is the autocratic leader of the Chinese Communist Party attacking media companies that directly reach almost everyone in the country?” Because size, reach and control of consumer data gives them narrative power comparable to what the Party has. Further, the ability to tap foreign capital gives them more freedom, albeit of the kind with Chinese characteristics. The Party doesn’t like that. And Xi likes it even less. That is why he moved aggressively to pre-empt a challenge to the Party’s narrative dominance and preserve its monopoly on power.
Another way to think about it: it is about soft power, but the soft power that the CCP would like to project to its own people. There is only one storyteller that shapes the societal narrative in China, and anybody else who wants to play is going to be cut down to size. Ruthlessly.
(Of course, it is not just about soft power being projected to its own people. But nobody in China is crazy enough to want to play the hard power game with the CCP. That’s a well established monopoly. But Nitin is saying that the CCP wants all aspects of power to be within its complete control, soft and hard.)
As he puts it towards the end of his post:
It’s consistent with what it has been doing since Mao Zedong’s time: ruthlessly cutting down challenges to its hold on Chinese minds. That’s it, folks. Nothing more to see here.
Ananta Nageswaran also blogged about this yesterday:
In the meantime, a blog post by Noah Smith, an economics teacher and a (former?) columnist for Bloomberg wrote that China’s crackdown on consumer-internet companies was to ensure that China’s financial and intellectual resources were not diverted for creating low value addition. It did not strike him that such an explanation – if it were true – did not do any credit to China. It reeks of central planning and omniscience. Two, even if it were true and even if it was meant to be a benign explanation, malign explanations cannot be ruled and need not be ruled out. Mutually exclusive explanations help keep the narrative simple and, two, it helps make the narrator appear smart because he/she has figured out the ultimate explanation. More often that not, reality is grey. Or, it has many shades.
In other words, he’s saying that even if what Noah is saying makes sense, there is more to it than that. It’s not just the opportunity cost of having some of the best minds in China work on consumer tech. What else might it be? Ananta Nageswaran finds himself in agreement with Nitin Pai:
I agree. It is political power and the interpretation (of Xi and correctly so) that information (Nitin calls it mindshare) about people’s behaviour that these companies have give them the ability (and the chance) to set the narrative later, in Xi’s thinking, seizing it from the CCP.
A minor point I would like to make here: I don’t think information and mindshare are the same thing, though they certainly are related. The information that tech firms have allows them to shape (sometimes in entirely unexpected ways!) the narrative, and therefore influence mindshare. Information is the tool and mindshare is the outcome – or at least, that is how I see it.
Please read Sanjay Anandram’s quotes from that blogpost too. I learnt about (and am going to shamelessly borrow) the RFRE principle.
So is it Noah’s story, or Nitin and Ananta Nageswaran’s? Regular readers know what’s coming next: the truth lies somewhere in the middle! Or at least, that’s my take, and it seems to be Ananta Nageswaran’s as well:
Of the three explanations that have been on offer, Noah Smith’s is the least persuasive. In some respects, Nitin and Sanjay are aligned and they diverge in some other aspects. As always, the real motivation behind some of the recent decisions of the government in China will have elements of all three and more.
To a student reading this: spectrum based thinking is a gift. Reasonable people can and should argue about where the truth lies, but always think intervals, never point estimates.
And having read all of the pieces that I have linked to across these two posts, I find myself in the same space on the spectrum as Ananta Nageswaran. That is, it’s not just the Noah Smith/Dan Wang argument at play (regarding which, Noah has updates. Scroll to the bottom of the post where he links to pieces that bolster his argument). But it is more about the CCP asserting its power.
Ananta Nagewaran ends with a Bruno Maçães quote: “the main players compete not under a common set of rules but in order to define what the rules are”.
It is a weird coincidence, but I just introduced some students to Frederich List yesterday. The more things change…
I’ve been mulling over three separate columns/posts/interviews over the past few days. Today’s post was supposed to be me reflecting on my thoughts about all of them together, but as it turns out, I have more questions than I do thoughts.
Worse (or if you think like I do, better) I don’t even have a framework to go through these questions in my own head. That is to say, I do not have a mental model that helps me think about which questions to ask first, and which later, and why.
So this is not me copping out from writing today’s post. This is me asking all of you for help. What framework should I be using to think about these three pieces of content together?
All three posts revolve around technology, and two are about the Chinese tech crackdown. Two are about innovation in tech and America. And one of the three is, obviously, the intersection set.
The first is a write-up from Noah Smith’s Substack (which you should read, and if you can afford it, pay for. Note that I am well over my budget for subscribing to content for this year, so I don’t. But based on what I have read of his free posts, I have no hesitation in recommending it to you.)
In other words, the crackdown on China’s internet industry seems to be part of the country’s emerging national industrial policy. Instead of simply letting local governments throw resources at whatever they think will produce rapid growth (the strategy in the 90s and early 00s), China’s top leaders are now trying to direct the country’s industrial mix toward what they think will serve the nation as a whole. And what do they think will serve the nation as a whole? My guess is: Power. Geopolitical and military power for the People’s Republic of China, relative to its rival nations. If you’re going to fight a cold war or a hot war against the U.S. or Japan or India or whoever, you need a bunch of military hardware. That means you need materials, engines, fuel, engineering and design, and so on. You also need chips to run that hardware, because military tech is increasingly software-driven. And of course you need firmware as well. You’ll also need surveillance capability, for keeping an eye on your opponents, for any attempts you make to destabilize them, and for maintaining social control in case they try to destabilize you.
As always, read the whole thing. But in particular, read his excerpts from Dan Wang’s letters from 2019 and 2020. It goes without saying that you should subscribe to Dan Wang’s annual letters (here are past EFE posts that mention Dan Wang). As Noah Smith says, China is optimizing for power, and is willing to pay for it by sacrificing, at least in part, the “consumer internet”.
That makes sense, in the sense that I understand the argument.
The second is an excellent column in the Economist, from its business section. Schumpeter is a column worth reading almost always, but this edition in particular was really thought-provoking. The column starts off by comparing how China and the United States of America are dealing with the influence of “big” technology firms.
As the column says, when it comes to the following:
The speed with which China has dealt with the problem
The scope of its tech crackdown
The harshness of the punishments (fines is just one part of the Chinese government’s arsenal)
… China has America beat hollow. As Noah Smith argues, China is optimizing for power, and has done so for ages. As he mentions elsewhere in his essay, “in classic CCP fashion, it was time to smash”. Well, they have.
But the concluding paragraph of the Schumpeter column is worth savoring in full, and over multiple mugs of coffee:
But autarky carries its own risks. Already, Chinese tech darlings are cancelling plans to issue shares in America, derailing a gravy train that allowed Chinese firms listed there to reach a market value of nearly $2trn. The techlash also risks stifling the animal spirits that make China a hotbed of innovation. Ironically, at just the moment China is applying water torture to its tech giants, both it and America are seeing a flurry of digital competition, as incumbents invade each other’s turf and are taken on by new challengers. It is a time for encouragement, not crackdowns. Instead of tearing down the tech giants, American trustbusters should strengthen what has always served the country best: free markets, rule of law and due process. That is the one lesson America can teach China. It is the most important lesson of all.
This makes sense, in the sense that I understand the argument being made. Given what little I understand of economics and how the world works, I am in complete agreement with the idea being espoused.
The third is an interview of Mark Zuckerberg by Casey Newton of the Verge.
It is a difficult interview to read, and it is also a great argument for why we should all read more science fiction (note that the title of today’s post is a little bit meta, and that in more ways than one). Read books by Neal Stephenson. Listen to his conversation with Tyler Cowen. Read theseessays by Matthew Ball.
Towards the end of the interview, Casey Newton asks Mark Zuckerberg about the role of the government, and the importance of public spaces, in the metaverse. Don’t worry right now if the concept of the metaverse seems a little abstract. Twenty years ago, driverless cars and small devices that could stream for you all of the world’s content (ever produced) also seemed a little abstract. Techno-optimism is great, I heavily recommend it to you.
Here is Mark Zuckerberg’s answer:
I certainly think that there should be public spaces. I think that’s important for having healthy communities and a healthy sphere. And I think that those spaces range from things that are government-built or administered, to nonprofits, which I guess are technically private, but are operating in the public interest without a profit goal. So you think about things like Wikipedia, which I think is really like a public good, even though it’s run by a nonprofit, not a government. One of the things that I’ve been thinking about a lot is: there are a set of big technology problems today that, it’s almost like 50 years ago the government, I guess I’m talking about the US government here specifically, would have invested a ton in building out these things. But now in this country, that’s not quite how it’s working. Instead, you have a number of Big Tech companies or big companies that are investing in building out this infrastructure. And I don’t know, maybe that’s the right way for it to work. When 5G is rolled out, it’s tough for a startup to really go fund the tens of billions of dollars of infrastructure to go do that. So, you have Verizon and AT&T and T-Mobile do it, and that’s pretty good, I guess. But there are a bunch of big technology problems, [like] defining augmented and virtual reality in this overall metaverse vision. I think that that’s going to be a problem that is going to require tens of billions of dollars of research, but should unlock hundreds of billions of dollars of value or more. I think that there are things like self-driving cars, which seems like it’s turning out to be pretty close to AI-complete; needing to almost solve a lot of different aspects of AI to really fully solve that. So that’s just a massive problem in terms of investment. And some of the aspects around space exploration. Disease research is still one that our government does a lot in. But I do wonder, especially when we look at China, for example, which does invest a lot directly in these spaces, how that is kind of setting this up to go over time. But look, in the absence of that, yeah, I do think having public spaces is a healthy part of communities. And you’re going to have creators and developers with all different motivations, even on the mobile internet and internet today, you have a lot of people who are interested in doing public-good work. Even if they’re not directly funded by the government to do that. And I think that certainly, you’re going to have a lot of that here as well. But yeah, I do think that there is this long-term question where, as a society, we should want a very large amount of capital and our most talented technical people working on these futuristic problems, to lead and innovate in these spaces. And I think that there probably is a little bit more of a balance of space, where some of this could come from government, but I think startups and the open-source community and the creator economy is going to fill in a huge amount of this as well.
I think he’s saying that the truth lies somewhere in the middle, and god knows I’m sympathetic to that argument. But who decides where in the middle? Who determines the breadth of this spectrum, governments or businesses? With what objective, over what time horizon, and with what opportunity costs?
At the moment, and that as a consequence of having written all of this out, this is where I find myself:
China is optimizing for power, and is willing to give up on innovation in the consumer internet space. America is optimizing for innovation in the consumer internet space, and is willing to cede power to big tech in terms of shaping up what society looks like in the near future.
Have I framed this correctly? If yes, what are the potential ramifications in China, the US and the rest of the world? What ought to be the follow-up questions? Why? Who else should I be following and reading to learn more about these issues?
I don’t have the answers to these questions, and would appreciate the help.
Every now and then (and I wish it was more often), I like reading something so much that I don’t just take notes, I put them down here rather than in Roam. It forces me take more careful, structured notes, and the act of writing it all down allows for more thoughts to bubble up – which is the whole point, no?
Noah Smith’s interview of Marc Andreessen definitely qualifies. It was interesting throughout, and I related with some of the points/concepts more than I would have wanted to1.
Before we begin, a quick aside: most of my thoughts and reactions to the interview are because of what I do, and where I’m located. I am in charge of one course at my University, and am also in charge of placements. This University is located in India. So my excerpts, and my reaction to those excerpts are contingent on these two things.
We’ll follow the usual format: excerpts, and then my thoughts.
Consider the three primary markers of the American Dream, or more generally middle class success — housing, education, and health care. You have written at length on how all three of these success markers seem further and further out of reach for many regular people. I think — and you would agree? — that these three deficits are not only causing problems for how people live and how the economy functions, but are fouling our politics quite dramatically.
Education, in India at any rate, can either scale, or it can maintain quality. It has never been able to do both. How to increase scale without losing quality, and how to maintain affordable quality without gaining scale – both of these are really, really difficult questions to answer. The impossible trilemma of higher education in India, as it were. The BSc programme at the Gokhale Institute is (in my opinion, and it is of course a biased one) affordable quality. Far from perfect, I’ll be the first one to admit, and could always be a whole lot better, but I genuinely do think we’re doing good work. But scaling is impossible. And we all know of educational institutes that have managed to scale really well, but don’t do so well when it comes to quality.
And when I say quality, it is very much a “you know it when you see it” definition I am going with. Not NAAC reports or percentage of students placed.
Housing, education, and health care are each ferociously complex, but what they have in common is skyrocketing prices in a world where technology is driving down prices of most other products and services.
The Archimedes reference is obvious, but that’s not the reason I want to focus so much on just this one sentence. How exactly is software a lever on the entire world? Marc gives the examples of Lyft and Airbnb in the interview, but they’re the outcomes for having deployed software. The inner mechanism (I think) is that software goes a very long way towards reducing transaction costs, search costs and therefore overall friction in economic transactions.
The guy driving the rickshaw, and waiting for a customer at a traffic intersection isn’t aware of the person two blocks away who is outside their apartment building, waiting for a ride. Search costs. These are minimized because of the app.
The whole “bhaiya, xyz jaana hai” – “Itna duur, itna late, double bhada” – “kya bhaiya, itna thodi lagta hai” song and dance is avoided (although not always in a way that is fair to the rickshaw driver). Transaction costs. These are minimized because of the app.
And so more transactions take place than they would have if Uber/Lyft/Ola had not been around. And the same is true for Zomato, or Swiggy, or Airbnb or… you get the picture. This (I think) is the lever at play. More gets done because software is involved.
There are legitimate worries about whether the system is always fair, always perfect – and the short answer is always “no”. A better question to ask is if the world is better for these services being around – and the short answer (I think) is “yes”. The best question to ask is how these services could be made better – and Andreessen has suggestions later on in the interview about this.
Software is alchemy that turns bytes into actions by and on atoms.
A lovely way to think about what software does, when used well.
Everywhere software touches the real world, the real world gets better, and less expensive, and more efficient, and more adaptable, and better for people. And this is especially true for the real world domains that have been least touched by software until now — such as housing, education, and health care.
The Baumol effect has some potentially disturbing implications:
When we recognize that all prices are relative prices the following simple yet deep facts follow: If productivity increases in some industries more than others then, ceteris paribus, some prices must increase. Over time, all real prices cannot fall.
As a society it appears that with greater wealth we have wanted to consume more of the goods like education and health care that have relatively slow productivity growth. Thus, preferences have magnified the Baumol effect.
But I think what Marc Andreessen is (in effect) saying is this: sure, even accounting for the Baumol effect, are there ways to reduce search and transaction costs in education, healthcare and housing? And if yes, can we drive down prices in these sectors while maintaining (or even increasing!) quality? That’s the power and potential of software.
And yes, each one of us will react with differing levels of skepticism to the proposition. That’s fine, and I’d say desirable. But the idea is worth thinking about, no? (And if you say no, it’s not, I’d love to hear why you think so.)
It’s more the importance of communication as the foundation of everything that people do, and how we open up new ways for people to communicate, collaborate, and coordinate. Like software, communication technology is something that people tend to pooh-pooh, or even scorn — but, when you compare what any one of us can do alone, to what we can do when we are part of a group or a community or a company or a nation, there’s no question that communication forms the backbone of virtually all progress in the world. And so improving our ability to communicate is fundamental.
Remember the “If you’re the smartest person in the room, you’re in the wrong room” quote2? The potential advantage of Clubhouse, Spaces (or whatever it will be called on all the apps that copy the concept) is that it solves for the geographic constraint when it comes to your menu of rooms to choose from. That’s what makes Twitter so great too – you never have to worry about being the smartest person on Twitter (and I mean that in the nicest way possible!).
It is a great time to be young and angry about the quality of the education system, because the internet can solve some of your problems better than was ever possible in the past.
It’s so striking that in our primarily textual technological world, people are instantly enthusiastic about the opportunity to participate in oral culture online — there is something timeless about talking in groups, whether it’s around a campfire 5,000 years ago or on an app today
At the Gokhale Institute, we were lucky enough to listen to a talk by Visvak where he spoke about some of the positive aspects of Clubhouse during the recent elections in Tamil Nadu. The ability to listen to, and possibly chat with, people with skin in the game who are actually Doing The Work, is truly remarkable. And again, what we have isn’t perfect, and it could be better, and there will be problems. The question to ask is if the world is better with Clubhouse (and it’s imitations) or without? And the better question to ask is how to improve upon it. But when I have the opportunity to listen to Krish Ashok talk about food on Twitter Spaces, and I see people just straight up ask Krish Ashok to host a Spaces about chai – well, what a time to be alive. No? (And if you say no, it’s not, I’d love to hear why you think so.)
Substack is causing enormous amounts of new quality writing to come into existence that would never have existed otherwise — raising the level of idea formation and discourse in a world that badly needs it. So much of legacy media, due to the technological limitations of distribution technologies like newspapers and television, makes you stupid. Substack is the profit engine for the stuff that makes you smart.
I don’t exactly disagree with Marc Andreessen over here; but I have a lot of questions. I’ll list them here:
Substack is a substitute for blogs or newsletters, but with the additional ability to charge payments from subscribers for some (or all) of your posts. Is that a good definition of what Substack is?
Not all Substack writers will initially get enough paying subscribers. In fact, I think it is safe to say that most will never get (enough) paying subscribers. If the first sentence in the excerpt above is to be agreed with, what other incentive is at play for “enormous amounts of new quality writing” to come through? This is not intended as sarcasm or implied criticism – I really would like to know.
Especially in India, I completely agree that legacy media makes you stupid. It is the middle part of that sentence that I am not so sure about: I do not think it is just the technological limitations of distribution technologies that is at play. It’s a much broader question, but what other factors would you think are at play, and how does Substack help mitigate those other problems?
Is bundling inevitable on Substack? Shouldn’t it be? How will this play out? Will Revue stand a better chance as a bundle because it can be combined with so many other offerings?
This isn’t a complete list of questions, and I am not sure of the answers. But this is the part of the interview that I understood the least, for sure.
A longish excerpt in a longish post, but a very important one:
M.A.: My “software eats the world” thesis plays out in business in three stages: 1. A product is transformed from non-software to (entirely or mainly) software. Music compact discs become MP3’s and then streams. An alarm clock goes from a physical device on your bedside table to an app on your phone. A car goes from bent metal and glass, to software wrapped in bent metal and glass. 2. The producers of these products are transformed from manufacturing or media or financial services companies to (entirely or mainly) software companies. Their core capability becomes creating and running software. This is, of course, a very different discipline and culture from what they used to do. 3. As software redefines the product, and assuming a competitive market not protected by a monopoly position or regulatory capture, the nature of competition in the industry changes until the best software wins, which means the best software company wins. The best software company may be an incumbent or a startup, whoever makes the best software.
So this is the part of the Domino’s story that struck me more than anything, when he simply declared for all to hear, we no longer think of ourselves as a pizza company. We think of ourselves as a technology company. I said, excuse me? Well, turns out, they’re headquartered in Ann Arbor, Michigan. They’ve got 800 people working in headquarters. Fully 400 of those, half of their headquarters employees, are engaged in software analytics and big data. They really– once they finally got the product right, they really are, from this point going forward, as much a technology company as they are a food company. And many of the initiatives have to do with making it as easy, as convenient, as kind of natural and impulsive almost to order Domino’s, much more so than any other pizza company.
But, but, but – and this is where the “what I do and where I’m from part” really comes into play – has higher education in India successfully (or even partially) gone through Marc Andreessen’s three stage transformation?
Short answer, no.
Long answer: because “assuming a competitive market not protected by a monopoly position or regulatory capture” doesn’t apply in the case of higher education in India (yet). See this, this, this, and this from earlier on in EFE.
But especially see this! College, as I’ve written in this post, is a bundle. It sells you the learning (Coursera), the signaling (LinkedIn) and the peer network (Starbucks):
If you want to go up against college as a business, you need to sell the same thing that college is selling. And the college sells you a bundle. A business that seeks to do better than college must do better on all three counts, not just on learning. All of the online learning businesses – Coursera is just one very good example – aren’t able to fill all of the three vertices just yet. And that’s why education hasn’t been truly shaken down by the internet just yet: Because college today is more about signaling than it is about learning, and because when you pay money to a college, you are getting a bundle.
And partially by regulatory capture (UGC approved degree, yay!) and partly by cultural conformity (Sharmaji ka beta went to IIT. Whaddya mean, you will learn from YouTube. Kuch bhi!) we still celebrate getting into a “top” college.
Since “top” colleges know this, there is no incentive for them to change. And since ed-tech firms in India also know this, they design excellent software that is designed simply to get students into these colleges3.
And so we in the education sector in India continue to wait for the revolution.
Phew! That’s enough for today. I’ll be back tomorrow with Part II of my reflections on this interview.
that is a sweeping generalization, yes. I’m more than happy to be corrected on this. Please tell me more about ed-tech firms that are about learning for its own sake, not about entrance examinations[↩]
