The economy doesn’t (always) tend towards equilibrium as classical economics textbooks suggests. But things are worst when things tend towards an equilibrium that doesn’t benefit the society in general, many social phenomena that I’ve described in a previous post. The social/market forces are pushing the situation towards something no one wants; without an authority mandating stuff, no one have the incentive to help reach the collectively beneficial outcome.
In a recent article by James Surowiecki in The New Yorker, he discusses how success of big banks builds upon success and bring about the mega big banks that results in a concentrated banking system. It is thus possible that we allowed banks to grow big and stay so because the market naturally tends towards that and we have problems assessing the welfare gains from increasing bank sizes, as suggested by Surowiecki:
The trouble is that the “market” for banking is so distorted—by switching costs, by government subsidies and guarantees, and by the banks’ market power—that it’s hard to know whether big banks are adding value or are simply exploiting their oligopolistic positions.
The only problem that we know with the concentrated banking system is that they increase financial risk. That being said, regulations will have to start moving towards managing the risk that is contained in the financial system and if this really do result in policies that have to limit the size of banks then so be it. The government is the only one who can act as a dam holding up the floodwaters of market forces.
This week’s package of video, audio and reads is a little more on the lighter side, starting with a short 3-minute talk by Dr Laura Trice about asking for praise. After that you might like to listen to Dan Ariely‘s talk on our buggy moral code, a topic I’ve always been interested in.
In news, you might be encouraged to understand that Genius and talent is overrated and social forces can manipulate the motivations to create genius sheerly through encouragement as argued by Steven Levitt in SuperFreakonomics.
I’ll like to take the chance to introduce Knowledge@Wharton, which offers high quality content as well as podcast on economics and business issues of the day. You might like to listen about questions posed on Net Neutrality.
Intellectual Property is becoming an important area of contention that needs to be closely studied by lawyers, economists and governments around the world. Every IP case have deep implications for the general welfare of the society (for important innovations and inventions), the meaning of property and the ways laws can protect them. From Free Exchange Blog at The Economist, I learnt the story of Ralph Anspach’s battle against Parker Brothers, the owners of the world famous Monopoly game.
Professor Ralph invented Anti-Monopoly, a game much like the Monopoly with its principles somewhat reversed where in its original version, players start off with monopolies and try to get to the free market state. In the latest version of the game, players get to choose to be either free-marketters or monopolist. In any case, he spent a lifetime battling Parker Brothers and researching the origins of the true, original Monopoly game (and how the capitalists were indeed true to the principles of the game).
Governments have to engage in design of laws that allows for Intellectual Property rights to be enforced but in a way that allows further innovation so that there are incentives to make improvements to existing innovations or discover mash-ups that utilizes stuff under IP protection. Economists have to consider the balancing of these incentives and how different ways of enforcing IP laws would alter the innovation patterns of the environments governed. Joseph Stiglitz happened to pen some of his musings on this issue on Project Syndicate.
It is interesting to note, as the Free Exchange Blog entry mentioned, that board games are countercyclical products. This is true for comfort foods as well, ranging from chocolates, candies to lollipops and other treats for those with a sweet tooth as mentioned in the recent Fortune Magazine.
What I Know Is this book took me almost a year to finish but in actual days, I only spent a week or so reading it. Wikinomics by Don Tapscot and Anthony Williams was published in 2006 more or less as a study of this new emerging business model that surrounds most of Google’s free products, social tools like Facebook and Twitter as well as other more business-oriented networks where mass collaboration is used to produce products, free or commercial.
The book definitely isn’t an easy read and after reading the first half of the book I got pretty sick of the fact that the authors were merely packaging the case studies into different categories of models and repeating their theory of how mass collaboration is going to change the way goods are produced all around the world. That explains the gap of so many months before I picked the book up a week ago and continued from where I left it. The case studies were mostly fascinating, like the story of Goldcorp Mining and InnoCentive but others seem to be overly used, like for the case of Second Life and that makes the author seem like they’re overhyping the phenomenon.
As the Wikipedia entry for the book quoted from Harvard Business Review, “like its title, the book’s prose can fall into breathless hype.” Indeed, the hype over mass collaboration seems a little overwhelming and when one is more of the skeptic the book becomes quite a disaster, especially when the book was first published in 2006 and 3 years on, you don’t quite see how the subtitle ‘How Mass Collaboration Changes Everything’ manifest itself in the real world at all. Yes I know mass collaboration did help people and changed things but then it wasn’t that breathtaking and mostly, life just went on as usual. Perhaps more important was the fact that this Subprime Financial Crisis seemed to be the working of a ‘mass collaboration’ of stupid people. In other words, Tapscott and Williams thought nothing of the risk of Groupthink in mass collaboration.
The prose is rather academic, starting with their ‘hypothesis’, which is the subtitle of the book somewhat and then the authors goes on to show how mass collaboration is being played out in different sectors, industries, different markets and such. To be fair, Wikinomics is a business sort of book, it focuses on the methods to harness the benefits of mass collaboration, possibly the mechanics of motivation that drives this phenomenon and discuss the success of these various means. It’s the business sort of academic compared to what I generally prefer, the intellectual sort of academic. I believe students of A Levels would be way more intrigued by Wisdom of the Crowds by James Surowiecki, which I gladly finished almost a year ago.
The book discusses Coase’s Law, which is basically an explanation of why firms expand to organize transactions within the firms. The Nobel Laureate for Economics in 2009, Oliver Willamson got his prize through his study and refinement of this theorem by Ronald Coase.
Wikinomics is definitely a book for business students and businessmen interested in working on projects that involves profiting from mass collaborations and setting up of networks. It is likely that some projects are more adapted to mass collaboration than others and some products will forever be provided by traditional manufacturing or services.
Just a couple of updates the field of practical science, Albert Mihranyan from Sweden built a thin lightweight battery from cellulose that holds 1 volt of electricity. It is interesting to note that the battery would then be essentially like a piece of paper and The Economist concludes suggesting how the invention “would represent a neat reversal of the idea that technology will lead inevitably to the paperless office”.
The news of artificial black holes reported both on Popular Science and New Scientist reflects how different the 2 sites/magazines are. While Popular Sciencecovered briefly the scientific aspects of the invention and the potential applications, New Scientist offers details of the theory behind this artificial black holes and the developments building up to this invention.
In the area of environment, I always thought that Global Warming is going to cause more extreme weathers and thus stronger winds but things turned out to be a little different from what was expected.
Anyways, just as an after note for students studying for the A Levels, having enough sleep does contribute to your studies.
Kevin Low 