Posts filed under 'economics'
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January 6th, 2009, 02:47pm
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(note: you can see the original post here).
For the last few weeks I’ve spent a fair bit of time thinking about the Keynesian “Paradox of Thrift“, which has become particularly relevant in today’s turbulent economy. As everyone knows by now, one of the driving forces of the problems revealed in 2008 was that consumers took on too much debt. The natural anecdote for this is for consumers to stop borrowing, and start saving - but that’s where the paradox lies. If everyone does that, aggregate demand will fall, the economy crashes, and the savings rate falls further still (also noting that when one saves by putting money in bank, it has to become debt for someone else in order to earn interest). Thus, we have a problem.
So it’s a case where doing what looks like the right thing for the long-term success of the economy has some perilous implications - at least in the short-term. In turn, it got me thinking about whether there is a similar, and potentially much larger, “Paradox of Wikinomics” as well. What I mean by this is that while application of the wikinomics principles might appear to be the right thing for many companies and industries acting in their own self-interest, everyone adopting them at once could have similarly dire consequences - again, at least in the short-term.
In order to explain, let’s start again (also used in the wisdom of crowds vs. uniquely qualified minds post) with the first story in the book - GoldCorp. The gist was that the company ran a contest to find the best methods for identifying gold on their property, to great success. In theory, the methods they identified are probably the best for many such potential mines around the world. A logical extension would be that there are probably thousands upon thousands of people employed trying to discover ore deposits, that might very well now be redundant, if all similar companies adopted such approaches - transparency, information sharing, etc. - simultaneously. The old model, while less “efficient”, created more jobs.
Read More »
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December 22nd, 2008, 11:11am
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Last month I wrote about the impact of recession on youth, and in particular, the impact of a severe recession on youth participation in the labour market. Will they get crowded out in the short-term as older workers choose to stay in the workforce longer?
But such immediate questions aside, growing youth unemployment, or underemployment, may have far deeper societal repercussions.
The recent events in Greece where mobs of angry youths rioted in the streets is perhaps a telling example. Triggered by the shooting of a 15-year-old boy, an estimated 8,000 Greek youths joined what soon became an all-out attack against their role in the Greek state. As Nikos Mouzelis, emeritus professor of sociology at London School of Economics, noted: “The death of this young boy was a catalyst that brought out all the problems of society and of youth that have been piling up all these years and left to one side with no solutions. Every day, the youth of this country experiences further marginalisation.”
Or as others noted: “The death of the young boy may just be an excuse for the overqualified, so-called ‘700-euro-generation’, to rage at society. They have a hopeless future, since their degrees do not correspond to the needs of the market…. What a pity it is to see the energy of youngsters lost just because society doesn’t take care of their culture and education, doesn’t encourage them to explore their dreams and at the same time introduce and prepare them for real life.”
So could this mix of economic, political and social marginalisation yield the same violent results in other parts of the world?
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December 3rd, 2008, 08:42am
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SITRA, the Finnish Innovation agency, is a Helsinki-based partner organization of ours that thinks about how new innovations, investment choices and models of governance can help promote the welfare of Finnish society and Finnish competitiveness.
They recently hosted nGenera Chairman Don Tapscott and Cambridge economist Ha-Joon Chang (both of whom I’ve had the pleasure of working with) for a conversation about the Future of the Public Sector. You can view all the videos from this event, and many others, here. Unfortunately I haven’t figured out how to embed these particular presentations so you’ll actually have to go to Sitra’s site to view.
Nonetheless, here’s the lowdown: Don argues that the Net Generation and the Web 2.0 are ushering in a series of fundamental changes to the way governments operate; how they provide services and create policy; how they structure the workplace; and how they increasingly look to citizens to play a role in all of those areas.
Dr. Chang on the other hand takes a more cautious approach noting that the most visible and seemingly revolutionary ideas aren’t always the real change agents. Read More »
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November 19th, 2008, 02:17pm
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Last week I spoke to a group of realtors, lawyers and accountants in Kansas City during a seminar organized by CBIZ to assess the economic outlook for 2009. To say that the mood was gloomy would be an understatement.
Most of my talk was about the role of mass collaboration could play in driving the success of small and medium size enterprises. While the focus in Washington has been on organizing bailouts for large enterprises to provide short-term damage control, I argued that it’s more sensible over the long-term to provide stiumlus for SMEs given the critical role they play in innovation and job creation.
What really seemed to intrigue the audience, however, was the few minutes I spent discussing the potential for using prediction markets to make smarter forecasts and decisions. I used intrade’s prediction market for the presidential election as an example. But what the audience wanted to know, more than anything else, was whether a prediction market could help them forecast the end of this economic nightmare.
Well, there is no such prediction market (at least not on intrade.com) but there are plenty of indicators to suggest that the intrade community sees little hope in the months ahead. At todays rates:
- Probability that the US economy will be in recession in 2009 — 90%.
- Probability that the DOW will close on or above 11,000 by December 31, 2008 — 0%.
- Probability that the unemployment will be greater than 5% in December, 2008 — 100%
- Probability that the US economy will go into depression in 2009 — 15%
All of these predictions seem rather obvious now (though one would have done quite well had they bet back in August 08 that the economy would be in recession in 2009) and I don’t see anyone willing to go out on a limb to predict when all of this might end. Given the current state of flux, such reticence is understandable. Maybe someone in our reader community would care to make a prediction? Perhaps you’d like to provide some solace to my friends in Kansas City ;-).
While we’re at it, is there a role for mass collaboration in getting us out of this economic mess. What do you think about the merits of bailing out failing automotive giants versus a longer-term emphasis on stimulating the small and medium size business sector? Or given that large and small enterprises are so intertwined through supply chains, etc., should we be trying to protect both?
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November 11th, 2008, 03:23pm
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There’s an ongoing discussion taking place in the office about the implications of a recession on collaboration in the enterprise. Two schools of thought are emerging:
- Collaboration will help us do more with less. The idea is that collaboration can lead to greater efficiencies and reduce the amount of internal resources required for projects. Collaboration leads to better information which helps make better decisions in terms of how to allocate resources. Collaboration also takes advantage of prosumers and social networks where individuals can help co-innovate with companies at a lower cost than using exclusively internal resources. There’s an assumption underlying this scenario that there’s some surplus capacity in the economy because a) companies are cutting back on projects, but not necessarily eliminating all of the corresponding staff, and b) those employees that are cut will be available for contract work and targeted initiatives. In fact, this may even be a good time to stock up on promising young talent. The pro-collaboration folks suggest that collaboration can lead to new growth opportunities that will help companies differentiate themselves in difficult times. Extra cycle times may also be directed at innovation and R&D; “there’s a lot things you can do during rainy days” and building a pipeline of products and services may be one of them.
- There’s no time for collaboration; doing more with less means we’ve got to hunker down. With an economic downturn companies will not be willing to appoint resources to collaborative projects. Since the return on investment of collaborative initiatives is not always apparent, employees will also not be willing to allocate their time on activities that are not measured in performance reviews or not seen as directly contributing to the bottom line. From an employee perspective, it may make sense to hoard knowledge in tough times and be less collaborative in order to make yourself indispensable (i.e. prevent being eliminated). The “hunkering down” managers believe that collaboration is risky and can lead to wasted resources on dead-end projects. Moreover, they frown upon self-organizing behavior; suggesting that it will result in unfocused initiatives. It’s time to run a tight ship and that means scrutinizing all discretionary pursuits, focusing on internal resources, cutting salary expenses where possible, and getting remaining salaried employees to shoulder the extra weight.
Two opinions; two very different strategies. What do you think?
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November 9th, 2008, 11:55am
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“The swooning economy has also poured a cold shower on many Generation Yers, who grew up coddled, courted and figuring they’d have an easy career ride.”
There’s no doubt that the short-term job market prospects for anyone looking for a career change have been disrupted by the last six months of economic upheaval. We’ve gone from touting the war for talent to focusing on the impacts of delayed retirement and decimated pension funds on the workplace.
As a recent McKinsey report notes, “Eighty-five percent of the boomers we surveyed said that it was at least somewhat likely that they would continue to work beyond the traditional retirement age. Nearly 40 percent said that it was extremely likely, and of those, two-thirds emphasized financial reasons.”
Their decisions to either stay in, or re-enter, the workforce may push less-experienced grads and Net Geners further down the HR queue and mark a temporary end to the concept of the much-sought-after Net Gener. Economic growth from 2000 forward had kept job markets buoyant and left new grads feeling as if they were in the drivers seat. A deep recession however may smash that perceived leverage. As one commentator noted, “So it’s the Yers, mostly in their 20s, doted on and over-protected by parents, and aggressively courted by employers, who, will be most psychologically affected by this softening of opportunities. Like boomers, they thought they were special.”
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October 17th, 2008, 01:11pm
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The economic “risk bubble” has broken, and it’s going to take significant changes to restore long-term confidence in the financial services market. In Risk Management 2.0: Overcoming the Current Financial Crisis and Restoring Stability and Prosperity with a New Perspective on Risk, Bob Tapscott and I outline how this industry needs to be redesigned to reflect the principles of Wikinomics. I invite you to read this new research project:
I look forward to reading your thoughts on this new approach to the global marketplace.
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August 11th, 2008, 02:41pm
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Nicholas Carr is a well-respected thought leader who we have agreed and disagreed with in the past (see here and here). A few weeks ago, he posted The Cloud’s Not So Silver Lining as a response to Sarah Lacy’s article in BusinessWeek. Once again, Mr. Carr, we respectfully disagree, and hope to have a spirited debate on the topic and we would appreciate the comments and insights from both our readers and yours.
He describes how the software as a service (SaaS) model and on-demand computing is not a gold mine for software vendors.
Anyone who thinks the software-as-a-service business is a gold mine for vendors is wrong. The economics are fundamentally different from those of the traditional software business - and not in a good way. As Lacy writes, the Web is “just as good at displacing revenue as it is in generating sources of it. Just ask the music industry or, ahem, print media. Think Robin Hood, taking riches from the elite and distributing them to everyone else, including the customers who get to keep more of their money and the upstarts that can more easily build competing alternatives.” Web apps remain a hard sell when it comes to big, conservative enterprises, and the capital and marketing costs are daunting, particularly if you’re running your own data centers. This revolution in business software will play out slowly and, for most suppliers, painfully.
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July 11th, 2008, 09:23am
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As always, check out www.dilbert.com for the original and all the other mash ups - now on to my comment on voting.
I have a group of people that I know who regular read my Dilbert cartoons, and they are extremely blunt in their assessments - whether they’re great, terrible, or somewhere in between. Interestingly enough, whenever they say that I’ve done a “good or better” job lately, I tend to find I have a relatively large number of ratings on the Dilbert site - but the ratings tend to be quite low. One possibility is that everyone I know has equally bad senses of humor, but I’m going to ignore that for now to look at what could be a fundamental flaw in the voting system.
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June 30th, 2008, 06:16pm
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The Harvard Business Review recently published an interesting article called “Should You Invest in the Long Tail?” - to summarize the findings the answer would be a definitive “no”, which is based on a detailed analysis of sales data in relation to DVD rentals and digital music sales. Author Anita Elberse goes on to argue that the blockbuster model still rules, similar to the thinking behind books like The Winner Takes All Society. As one would expect, Chris Anderson has responded on his Long Tail blog, and a fairly interesting (and cordial) debate has ensued.
I don’t want to rehash all of the arguments in their entirety, but rather focus on carving out a middle ground between the two POVs.
One one hand, technology is enabling a such a rapid increase in the volume of “units” being produced in certain categories (think: digital music tracks for sale) that what was previously the long tail is now being pushed into the “head” / blockbuster category based on one commonly used definition - the top 10% or 1%. I don’t think such units really belong in the “head” category.
On the other hand, I also don’t think they fit into the long tail anymore (which Chris defined in relation to availability in bricks and mortar outlets, a definition that needs to evolve in markets where b&m is rapidly decreasing in importance). This leaves them somewhere in the middle. Since the body is in between the head and the tail, I decided to go with that (after an embarrassing foray with the term ‘middle tail’) - could the body end up being more important than either the head or the long tail?
However, I realize what I just wrote might be clear as mud, so let me provide a numerical example that builds on the research.
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June 5th, 2008, 02:39pm
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In yesterday’s blog post about Obama’s victory, Don referenced his conversation with Joseph Stiglitz, who happened to be sitting next to him at the airport in Madrid. Don also met John Newton when he was over at the World Economic Forum, as John mentioned in his recent post on Doing Davos Does Not Help Blogging. It’s an interesting read, but I wanted to highlight it because I find the sequence of pictures so fascinating. Around the middle of the post you will find a sequence of pictures of whom one might traditionally expect to be at such a meeting - Bill Gates, Henry Kissinger, Hamid Karzai, Pervez Musharraf, and others. Before them? A giant YouTuber addressing 1,000 people at the WEF, and Chad Hurley (the founder of YouTube), in addition to people like Marc Benioff that come later on. How quickly the world is changing… if you go back even a few years, could you have imagined a story about the World Economic Forum - described as “the Davos meeting of political and business leaders aims to create the foremost global partnership of business, political, intellectual, and other leaders…” - being led by a picture like this (the giant YouTuber)?
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June 2nd, 2008, 05:54pm
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A recent OECD report has some interesting and somewhat surprising findings on the amount of time people around the world spend working. For years economists have struggled to pin-point the factors that lead a country to become wealthy. Intuitively a country with advanced technology and hard working people would come out on top.
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May 22nd, 2008, 11:56am
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Interesting or unusual examples of visualizations:
(please add your own favorites in the comments below)
Trendalyzer - this software was created by gapminder.org. Google acquired the Trendalyzer software in March 2007 and it is now part of Google’s visualization api. You can see it in use at: http://www.gapminder.org/world/ or a description of Trendalyzer on wikipedia. Here’s a video of Hans Rosling presenting at TED using Trendalyzer.
MySociety.org has created some superb interactive maps that use simple sliders to interactively display how commute time ranges intersect with home prices - all compiled from public data. The map itself was created by Stamen Design (also producers of the Digg Labs visuals)
Share of consumer spending - The New York Times has an interesting breakdown of consumer spending.
3D Via - offers a library of 3D designs (owned by Dessault systemes, a PLM company)
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May 8th, 2008, 12:57pm
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When looking at traditional economic models, there is perfect competition at one end of the spectrum and monopoly at the other. Many economists love the idea of perfect competition, and consider it to enable the efficient allocation of resources and the maximization of social welfare. The rub is that in the perfectly competitive model it is impossible for firms to earn abnormal profits in the long-run - everyone ends up with zero economic profit (or “normal” profit if you prefer). In turn, the strategic objective of many leaders is to get their organization as close to being a monopoly provider as possible without going to jail within the boundaries of a healthy, competitive marketplace (i.e. leverage differentation, economies of scale, barriers to entry, etc.).
This can make the concept of wikinomics a scary thing, as it is far more closely associated with abundance than scarcity, and by extension far more with perfect competition than monopoly. Rather than seeing an opportunity for expansion, many business leaders simply see an explosion of potential competition and margin erosion as new technology (among other things) erodes pillars that have traditionally held barriers to entry in place - so they fight it tooth and nail. But there is definitely an alternative perspective. To quote a good read recently posted on the long tail blog:
Every abundance creates a new scarcity.
Read More »
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April 21st, 2008, 10:51pm
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Carried by the ever-popular Wii, Nintendo Corporation (still) enjoys the position of top dog in the video game console market (sorry, Denis). With more console units sold (and climbing) than its flashier counterparts, Microsoft’s XBOX 360 and Sony’s Playstation 3, Nintendo has managed to revive itself from the dark years of the late 90s and early 2000s. As reported before on the Wikinomics blog, one of the most interesting components behind the Nintendo revival story is just where they have managed to drum up their new-found success.
Shunning the highly sought after “hardcore gamer”, Nintendo’s marketing genius has been in expanding the gaming world to capture the minds of millions of non-traditional gamers, which includes more women, parents and older purchasers, and even younger children than ever before – almost completely avoiding the Wizard teenage boys. Read More »
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March 31st, 2008, 07:10am
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A few readers might have seen these quotes in last week’s press release, but I wanted to post them here as well:
“The old-school way of doing business hides problems and creates inefficiencies. Radical collaboration solves those problems. It brings the best minds together, exposes hidden risks, and accelerates innovation and growth. We’ve seen how it transforms industries, such as music and entertainment. But now it’s time to take the same approach to the most serious problems – problems with the gravest consequences for the economy and society. Leaders need to change their habits and open the curtain.”
“The subprime mess happened because big financial players hid the risks – they weren’t found until it was too late. If the same players had taken the radical step of sharing information about the bets they were structuring, the best minds – including economic policymakers – could have seen what was happening and taken steps to avert it.”
Does anyone have any thoughts on this argument that they’d like to share?
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March 13th, 2008, 09:53am
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On this particularly gloomy Thursday, I thought it would be fitting to blog on a subject that’s more a personal area of interest - the economy. With the impending collapse of Carlyle Capital, chances for a new Fed rate cut, and record gold prices nearing $1000 (and oil at $110), it’s important to take a quick look at the bigger picture.
One of the most interesting things going on is the Feds apparent battle against deflation. To stem the credit crisis, at the end of February the Fed had auctioned off loans to banks totaling $160 billion. Then the amount per auction was increased to $50 billion (implying $100 billion would go out this month), and then this Tuesday the Fed announced a new $200 billion lending facility which could offer loans based on pledged securities. Non-trivial interventions to say the least.
To understand the logic behind some of these interventions it’s worth looking at a 2002 speech by Federal Reserve Chairman Ben S. Bernanke… Read More »
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March 2nd, 2008, 09:38pm
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I have found myself bouncing back and forth between two very different worlds over the last year. On one hand, I’m pursuing a Masters in Economics in a very traditional academic setting; on the other, I’m researching wikinomics in a very non-traditional type of company. I spend a lot of time thinking about how to apply some of the core economics principles to some of the wikinomics theories, and perhaps even more about how much better the formal education process would be if it integrated some of the wikinomics principles (but that’s a subject for another time).
It’s quite, quite rare that I come across words from the same person, in both “worlds”, on the same day - with one notable exception. That would be Hal Varian, the author of one of my microeconomics textbooks, and the Chief Economist for Google (who was recently interviewed on the Freakonomics blog).
Now I’m going to wager that more of you would be interested in what he said on the interview than how he explained the discrete version of the Slutsky equation, so I’ll focus on it. Read More »
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February 17th, 2008, 08:16pm
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Amongst the key issues for governments in the Web 2.0/Gov 2.0 era is how these new means of economic and social organization will impact their ability to compete in the global knowledge economy. Dr. Žiga Turk, Minister of the Office of Growth for the Slovenian Government, and also the country’s National Lisbon Strategy Co-ordinator, as well as professor and researcher at the University of Ljubljana, shares some of his thoughts on the issue at his blog.
Of note, he explains, “The communications revolution changes the way we live together. They change culture, innovation, technology and the political process. We are at the middle of the second communication revolution. Internet is unleashing the human potential, the creativity, and allows the participation of the masses. Governments should exploit this as part of an updated Lisbon strategy for growth and jobs.”
Here’s one of his recent slideshows on the topic where he expands on these thoughts and the general Gov 2.0 concept (which, by the way, is very congruent with our own thoughts on the topic):
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January 10th, 2008, 10:49pm
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At some point in the past 20 years the interested amateur began to struggle to keep up with economic theory. It was just too hard to enjoy the latest academic work unless you had a head for higher mathematics. Recently, however, some writers, notably Paul Krugman in the New York Times, have been trying to drag economics back into the mainstream. The subject needs to stay there. As Thomas Sowell, a professor at Stanford University’s Hoover Institution, argues, economics lies at the heart of many political issues. - quoted from “The importance of economics: A black and white case”, The Economist, January 5th 2008
As someone who is in a somewhat frusturating pursuit of a Masters in Economics right now, this quote struck a chord. Not only does it seem you need a head for higher mathematics to keep up with the subject, those that study it can been forgiven for asking if that is all you need - sometimes it seems that class after class tests and rewards hopeful economists on little more than their ability to manipulate ever more complicated equations, in hypothetical situations that seem to get further and further from reality rather than closer to it as time goes on. While there are certain benefits that can come from this particular approach, there are also many costs - particularly in relation to all the bright people that flee from the field in terror and/or boredom, and the lack of development in reading, writing, communication, and interpretation skills for those that trudge through.
But that’s all part of a story for another time - at this point I bet you are asking what the heck it has to do with Google’s prediction markets. Well, online prediction markets are something that many economists absolutely love for a number of reasons - notably, set up properly they can create an accurate picture of “market” expectations for any any number of future events (economists tend to love markets), in addition to perfect information on each person’s bets within the market, which can be cross-tabbed with all kinds of other information about the market participants, which let’s you test all kinds of crazy things and make many inferences about why and what people do.
At the same time, normal (I thought about putting this word in quotes, than decided against it 
people not only easily understand prediction markets, many love them - gotta dig the Kristanna Loke Starbond going up $2.66 today, non? But even if you don’t participate in the Hollywood Exchange, most can understand prediction markets with one word - gambling - and who doesn’t understand gambling?
In turn, studies on prediction markets can not only teach us all kinds of new things about human behavior and (say) how networks operate, they can help bridge the gap that’s divided economic research and the mainstream, and while I’m not directly emphasizing it in this post there are rather obvious business implications. This paper on a huge Google experiment with prediction markets is the biggest and best to come along yet on the topic. I was going to summarize it, but this NY Times article does a great job so it seemed like a waste.
Actually, I’ll list some of the more interesting findings anyway (jist of the experiment - Google folks bet on stuff that would happen in the company and the people running the experiment looked for patterns in the predictions in relation to other variables):
- internal markets overpriced securities tied to optimistic outcomes by 10% - and this optimistic bias was significantly higher on days that followed Google’s stock going up
- securities tied to extreme outcomes were underpriced slightly (something the author of the Black Swan knows all about)
- corporate prediction markets appear to perform better as collective experience increases
- most measures of demographic similarities seemed to have no effect, but sharing a common non-English native language appears to count for something
- proximity matters - to a point. Those that share an office have highly correlated prediction patterns, while those on different floors might as well be in different cities.
If you want to dig a bit deeper into this topic, the Wikipedia links and the studies that come up on the first few pages of a simple Google search for “prediction markets” will take you a long way, and Inkling is a great place/ company to look at in terms of how a business can harness the power of prediction markets - now I’ve got to get back to totally differentiating some funny looking equations.
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