Adam Thierer on crony capitalism and technology policy

Lynne Kiesling

Adam Thierer of the Mercatus Center on corporate welfare, and why he doesn’t like the phrase “crony capitalism”:

Here’s Adam arguing against a proposal to nationalize Facebook “to protect user rights”.

Physical and virtual aren’t always substitutes

Lynne Kiesling

Whether the topic is retail sales or higher education (or some other application), the role of digital technology raises the question of how, if at all, online activity substitutes for physical, face-to-face activity. That relationship differs case-to-case; you wouldn’t expect the effects of online shopping on bricks-and-mortar shops to have the same patterns as the effects of digital technology on learning. But digital innovation is having effects on the relationships, outcome patterns, and models that we use regularly. I know, earth-shattering insight …

Analyzing the question of substitutability between online and physical is an important application of the economic way of thinking. One reason why digital technology has different effects in different cases is its varying degrees of substitutability for a face-to-face physical experience. Sometimes, actually a lot of the time, online shopping is a close substitute for going to the store, with that substitutability enhanced by online vendor offers of free returns (thank you Zappo’s for being the innovator on that front!). In education, though, the degree of and pattern of substitutability is different, and I would argue substantially lower in most cases than that in online shopping.

The next step in thinking analytically about the effects of digital innovation is complementarity — does the change prompted by the technological change enhance the product offering, the learning experience, etc.? Here’s my simple hypothesis/model: it’s the differing patterns of substitutability and complementarity of digital technology that leads to differing patterns of outcomes and models across industries and across different applications of digital technology.

If I wanted to add another dimension to that model, the next step I’d take is to acknowledge that many of our actions in these different cases take place within networks, and that digital technology can both extend and deepen the networks in which individuals act and make choices. Whether it’s sending a tweet of those cute boots while shopping (either online shopping or in a store) to get your friends’ reactions, or using discussion forums or video chats to enable collaborative learning and problem-solving, no one acts in isolation. In essence, I could analyze the effects on our social networks of digital technology using this same simple substitutability/complementarity model. But is there a deeper factor that can affect the extent of virtual substitutability and complementarity with an individual activity?

Two things I’m currently reading provoke these simple musings. The first is this insightful article from John Hagel and John Seely Brown arguing that virtual interactions have limits, and that stores and conferences won’t go away (I’d add books to that list). Their argument tackles this substitute/complement question head on, and identifies what I think is one of these deeper factors in determining substitutability and complementarity — trust:

Are we just stubborn creatures of habit who are slow to adopt a better solution? Or, is there a fundamental value to the brick-and-mortar, flesh-and-bone world that cannot be replaced?

There is nothing as compelling as direct human interaction. It strengthens trust, creates serendipity, and fosters community in an irreplaceable way. And although technology is progressing, there will always be a premium placed on meeting in person.

Face to face interactions provide us with a much richer context that helps to build deeper trust. There is a richness and depth of information that comes from physical cues, such as the firmness of a handshake or the sweatiness of someone’s palm, that are invaluable. Even subtle details, such as the state of someone’s office or how stressed their administrative assistant looks, provide context and clues that help us decide how to act, and are impossible to convey virtually.

Then there is also an authenticity that comes from the “off-camera moments” that accompany face-to-face interactions. Small talk before meetings start, coffee breaks, and running into people into the halls all provide a litany of unscripted, unorchestrated interactions that make it difficult for people to package themselves. The resulting mutual transparency inspires a confidence and trust that is much more difficult and time-consuming to develop through other means. Trust-based relationships are fundamental to effectively participating in the knowledge flows that accelerate learning and performance improvement, something that is becoming more and more essential in a world of mounting performance pressure.

They also identify the extent to which serendipity can lead to new value creation more in face-to-face interaction than in virtual interaction, and make a pointed observation that even those who start virtual communities around a shared interest usually strive to find ways to meet in person (this is my experience too).

The second thing I’ve been (re)reading is Clay Shirky’s Here Comes Everybody, which we’ve been discussing over the past two weeks in my freshman seminar. Shirky expands on many of the issues of generating trust and serendipity in physical and virtual networks, and how we use digital technology to broaden and deepen our networks and to organize and coordinate our actions without formal, hierarchical organizations. The fundamental economic question of the substitutability and/or complementarity of digital technology with other aims, goals, products, etc. is at the core of Shirky’s argument.

A tip of the hat to Popehat

Lynne Kiesling

I’d like to offer an enthusiastic hat tip to Popehat for writing the blog post that I had worked on all weekend in my head, but couldn’t pull off that incisively. Over the weekend the Volokh Conspiracy’s resident authoritarian and author of TSA policies, Stewart Baker, wrote a bizarre post expressing his bewilderment at widespread opposition to the TSA, particularly among women. Perhaps his attempt at sexualization of the TSA screening experience, and his confession of his performance anxiety and his Michael Chertoff envy, were some ham-handed and clod-footed attempt at humor. If so, they show Baker’s tone deafness while implementing authoritarian policies that erode our civil liberties with little, if any, benefit arising from the security theater he has helped bring into being.

Popehat says with wit and style what ran through my mind while contemplating Baker’s post:

But there are no real women in his analogy; he dismissed them with a hand-wave: “I can’t explain the women who hate TSA with a passion, though I’m not sure how many there are. Anti-TSA sites and comments have a distinct whiff of testosterone.”

That would be a surprise to, say, Amy Alkon, who was threatened with a lawsuit by a TSA agent for having the temerity to complain about having fingers thrust into her during a search. It would be a surprise to women harassed over their breast milk by TSA agents too stupid or careless to know their own policies, or these women forced to remove prosthetic breasts, or this woman forced to expose her gastric tube to gawking polyster-clad subnormals, or this rape survivor cupped and groped and probed by TSA “professionals,” or this woman told to remove her nipple rings, or any of these women. I’m pretty sure they aren’t critics of the TSA because of some sort of surge of testosterone.

And yet I’m being unfair — to the women. Women don’t just criticize the TSA because some of them are getting groped and harassed and abused. Women, as much as men, love liberty. Women, like men, love America. Women love America, and they’re skeptical if the proposition that, if America is in such grave danger that we must surrender rights to save it, we should be surrendering rights to the sort of people who get recruited by ads on pizza boxes. Women — as you’ll know if you’re in a relationship with one — question things. Among the thing they question: why should we trust the TSA’s statement that these measures are effective, or necessary? Why should we accept the logical fallacy that these measures work because there have been no more terrorist attacks on planes? How do we know this isn’t merely more security theater? Why is the TSA steadily increasing its power over more and more avenues of American travel? How can we possibly yield to an agency that openly believes that it is entitled to unquestioning compliance from Americans? How is the canine obedience of government demanded by “national security conservatives” reconcilable with actual conservatism? What kind of Americans would we be if we just said “sure, Department of Homeland Security, whatever you say?”

I have posed those questions here, several times, from several economic and moral perspectives. Of course the wasteful, invasive, ineffectual, violating TSA procedures affect both men and women, but I appreciate Popehat’s giving voice to the unwritten blog post in my head.

I, Pencil: The Movie

Lynne Kiesling

Whether or not you’ve read Leonard Read’s famous essay I, Pencil, I recommend this short video rendition, courtesy of the Competitive Enterprise Institute.

It captures poetically the fascinating, marvelous coordination that we achieve through markets, enabling prosperity and well-being beyond what we would each individually be able to achieve alone. And at there’s a set of additional commentary videos and other resources for your enjoyment, for use in the classroom, and to share with friends.

Disruptive innovation in education

Lynne Kiesling

The disruptive digital innovations that have transformed music, movies, and news are now changing business models in higher education. This month’s Cato Unbound features a set of essays on the possible effects of changes like universities offering MOOCs (massive online open courses) at zero price. In the lead essay, Alex Tabarrok argues that online courses offer the prospect of excellent learning opportunities while overcoming Baumol’s cost disease (i.e., the traditional education model is not particularly prone to productivity enhancements). Alex is walking the talk here, in the form of his Marginal Revolution University initiative with Tyler Cowen.

The three response essays make varying critiques of Alex’s claims for the benefits of online education — Alan Ryan contends that the traditional model’s benefits have been robust to other innovations, so we should be wary of claiming too much for online disruption; Siva Vaidhyanathan thinks Alex engages in hyperbole and doesn’t account for the diversity of classroom experience and its benefits; and Kevin Carey thinks that Alex doesn’t go far enough, and that online education technology may be truly disruptive and transformative.

The one area where I think all of the authors would agree (as do I) is with Kevin Carey’s statement that “… as with so many things, Neal Stephenson got there first” (if you haven’t read Stephenson’s The Diamond Age: Or, A Young Lady’s Illustrated Primer, you should; it’s my favorite book of one of my favorite authors, and he sure did get there first).

This collection of essays is a thoughtful set of analysis of some of the issues in online education. Clay Shirky also analyzed the potential implications of online technology for education recently, and thoughtfully. He analogizes higher education to the music industry in the 1990s, and how in the face of Napster the music industry members did not imagine that digital innovation would ever make the album format obsolete. And yet it did, with a mix of implications, good and bad, that are still playing out — advertising or subscription as a revenue model? Artists selling music, or giving it away and selling concerts and other merchandise to make a living? It’s an analogy worth considering, and it’s going to require faculty, administrators, and students to think more consciously and creatively about the benefits and values in education, the various ways to generate those benefits, and the relationship of cost and benefit in those various methods of generating value.

I don’t have a good answer for this, and I take Yogi Berra’s caution seriously that prediction is hard, especially about the future. Both individually and at the university level I am thinking about these changes and how best to use technology to improve my teaching and the value of what I contribute to the residential higher education model, and lots of other faculty are doing the same. There are ways that online resources are complements for classroom learning, and ways that they are substitutes. When they are substitutes for what we do in the classroom, that should push us to be creative and think differently about how to improve learning, thoughtfulness, habits of mind, and critical thinking in face-to-face learning.

Two new blogs of note

Lynne Kiesling

I hope you are enjoying a fun and relaxing holiday weekend! I’ve been using it, among other things, to catch up on my reading, made more enjoyable by two new additions to the rotation:

askblog: Arnold Kling has started blogging again, this time at his own new site. Given that his tagline is “taking the most charitable view of those who disagree”, I look forward to more of the same insightful and civil discourse that has made Arnold one of the most valuable and appreciated economist voices among public intellectuals.

Political Entrepreneurs: Ed Lopez and Wayne Leighton have a brand-new book out, Madmen, Intellectuals, and Academic Scribblers, and this blog is a companion to that work. From the publisher’s website:

Madmen, Intellectuals, and Academic Scribblers offers up a simple, economic framework for understanding the systematic causes of political change. In order to distill the smorgasbord of scholarship on political evolution, Madmen takes up three fundamental, interrelated questions: Why do democracies generate policies that impose net costs on society? Why do such policies persist over long periods of time, even though they may be widely known to be socially wasteful and even though better alternatives could be implemented? And why do certain wasteful policies eventually get repealed (e.g., airline rate and route regulation), while others endure (e.g., sugar subsidies and tariffs)?

Authors Wayne A. Leighton and Edward J. Lopez examine these questions through familiar policies in contemporary American politics, but also to draw on examples from around the world and throughout history to paint a lively picture and illustrate the pervasiveness of these quandaries.

Both the book and the blog look like a worthwhile read, and have moved to the top of my list.

Which states have price gouging laws?

Michael Giberson

A graphic illustrating states with price gouging laws (blue) and states without them (gold). For a list of the states with citations and related notes, see my earlier “List of States With Anti-Price Gouging Laws.”



So far as I know, the only serious attempt to explain why some states do have price gouging laws and others do not is Cale Wren Davis’s thesis,  “An analysis of the enactment of anti-price gouging laws,” Montana State University, (2008).

Davis makes some progress, but there is still a lot of work to be done on the political economy of price gouging.