Do you believe in the Exodus Recession?

” Since 1800, technological advance has been associated with economic growth. The new stuff being built saved labor input, which was then put into the construction of other things. However, the most recent technological advances may not be growth-inducing. As Samuelson puts it, “Gordon sees the Internet, smartphones and tablets as tilted toward entertainment, not labor-saving.””

Professor Edward Castronova, who once wrote a book about the exodus to virtual worlds, sees some more evidence of an exodus recession. 

He’s not just talking about virtual worlds however, but also about your average digital stuff such as tablets and smartphones. It makes us want less ‘real’ things and so it makes it harder for the economy to grow. One might say, let’s measure growth in a different way, taking into account this digital shift. But then again, our social security for instance depends on the economy and the money which is actually earned there. 

So will we all hide into virtual worlds to forget the misery of the recession-ridden ‘real world’? Or is this speculation very wrong, as the digital evolution is now affecting the ‘world of the atoms’ in a radical way (think 3D printers, hardware and bio-hacking). 
via Diigo

MRUniversity: it’s not a massive open online course, but it could be used to create one

Tyler Cowen and Alex Tabarrok, two economics professors at George Mason University, launch Marginal Revolution University. They’ll deliver free, interactive courses in the economics space, so I read on Open Culture.
Tyler Cowen and Alex Tabarrok run the blog Marginal Revolution. Some years ago, Cowen also was a guest at the Metanomics-show in Second Life.
Users are invited to submit content. The professors don’t call their courses a MOOC, but “it can be used to create a MOOC, namely a massive, open on-line course.”

The economics of video games

“Bloomfield is working on a platform, called the Synthetic Economy Research Environment, that could enable economists to produce games that simulate large-scale economic phenomenon like a central bank.”

I often wondered whether professor Robert Bloomfield (Johnson School of Management at Cornell University) was still involved in virtual worlds research. He was the charismatic host of the rather high-brow Metanomics talk-show in Second Life. Now I got my answer, via Brad Plumer who published a post about the economics of video games on Wonkblog at The Washington Post. 
via Diigo

Another professor known for his virtual worlds research, Edward Castronova, reacted on the WaPo-post on Terra Nova. The Metanomics-site still exists, but it seems there are no more updates.

Another kind of innovation

Are we sure this is a time of major, disruptive, history-changing technological innovation? Professor Tyler Cowen in his book The Great Stagnation remembers his readers how the period from 1880 to 1940 brought us electricity, electric lights, powerful motors, automobiles, airplanes, household appliances, the telephone, indoor plumbing, pharmaceuticals, mass production, the typewriter, the tape recorder, the phonograph, radio and television. If you look at a longer timeframe and include the Industrial Revolution, the changes are even more impressive – essentially a story of combining advanced machines with powerful fossil fuels which brought unprecedented change to humanity.


Today, in contrast, apart from the seemingly magical internet, life in broad material terms isn’t so different from what is was in 1953. We still drive cars, use refrigerators, and turn on the light switch, even if dimmers are more common these days.

But what about the internet? That surely must be the big innovation of our day and age?

the great stagnation coverProfessor Tyler Cowen is not dismissive of the internet. “Unlike electricity, the internet hasn’t changed everyone’s life, but it has changed a lot of lives, and its influence will be even stronger for the next generation.”

What is special about the internet, for an economist, is that so many of its products are free. People can tweet, read blogs, browse on eBay, watch music videos, experience adventures in some gaming universe, attend a concert in a virtual environment, all for free.

Cowen: “… the new low-hanging fruit is in our minds and in our laptops and not so much in the revenue-generating sector of the economy.”

“Innovation hasn’t ceased, but it has taken new forms and it has come in areas we did not predict very well. A lot of the internet is a free space for intellectual and emotional invention, a kind of open-ended canvas for enriching our interior lives.”

“Basically, we have a collective historical memory that technological progress brings a big and predictable stream of revenue growth across most of the economy.”

Cowen gives a similar argument about the employment. While in the past breakthrough innovations resulted in lots of new jobs, the now famous internet companies such as Facebook, Twitter and even Google can’t be compared to the automobile behemoths of Detroit.

In a sense, we’re getting away from materialism, but that really hurts the economy and the social institutions funded by that economy. However, not everything is ugly:

  • The interest in science and engineering in India and China, their growing importance as markets for innovative products and services.
  • The internet facilitates scientific learning and communication.
  • More interest in a more efficient education policy.

Cowen also has a recommendation: raise the social status of scientists while at the same time being realistic as far as technological progress is concerned: we’re living in the new normal, or so it seems because the rate of technological progress never has been easily predictable.


What’s my take on all this? The internet is putting into question more than one aspect of our societies and economies. The most obvious changes concern education and work. In both cases the relevance of factory-like institutions is diminishing rapidly, in favor of one-person enterprises working on a collaborative basis.

There is more individualism in this sense that people will choose their own curricula, taking into account their interests and particular situation. Sometimes it will be necessary to have a certificate acknowledging a certain expertise, often the value of training or education will be evaluated by the student herself when she tries to apply what she has learned.

macrowikinomics cover

The individual will participate in shifting collaborations, project-based. Some of these collaborations will be based on non-monetary reciprocity (for instance in group learning), others will be market-oriented.

Innovation will happen in various flavors, but as the boundaries of the enterprise will become deconstructed, open innovation will gain traction. Sometimes this innovation will be like in open source, but often various degrees of compensation will be sought: using Creative Commons or more traditional licenses, copyrights and patents.

These ideas are explored by Don Tapscott and Anthony D. Williams in their books and presentations about Wikinomics. They analyze how the market and also non-market external collaboration are often more effective that in-company solutions. Those companies which are dominated by bureaucracies wanting to keep each and every process inside the company walls, will perish while those which reach out to external collaboration (market based or not), make a much better chance to be successful (also read my previous post about Don Tapscott at the LIFT conference, commenting on the Arab uprisings).

The more difficult aspects of Cowen’s thinking seem to be almost spiritual. Even though he points out the practical problems related to a less materialistic society (who will pay for the old, the sick, the needy, for public services), he also seems to appreciate this evolution.


Related - Seth Godin says: “What’s actually happening is this: we’re realizing that the industrial revolution is fading. The 80 year long run that brought ever-increasing productivity (and along with it, well-paying jobs for an ever-expanding middle class) is ending.”

How the internet changes the practice of macro-economics

A number of blogs did very well in describing the problems in the subprime market – even before most professional economists realized the problems. This fascinates me, like for instance the fact that in order to get cutting edge information about technology one rather consults blogs than major mainstream media. Of course, the smarter mainstream media now incorporate blogs in their operations, even allowing them a great deal of autonomy. It seems to be an illustration of how efficient those small, nimble entities can be, using the internet and network effects.

Edward Hugh gave an interesting talk about blogs and the internet at the London School of Economics: how the internet changes the practice of macro-economics.

Via Edward Harrison on Credit WriteDowns.

You can follow Hugh on Twitter, on his blog Global Economy Matters and on Facebook.

Roland Legrand

When game theorists become scary

Games, especially video games and online games, are incredibly fascinating. They can be beautiful, intriguing, social, but in order to become a success, they need to be engaging.

There is a kind of gold rush to games by marketing specialists, human resources experts, experimental economists, psychologists, neurologists, educators, and they all want to find what makes individual and groups tick. Games are being played by hundreds of millions, and staggering amounts of data are being collected about human behavior.

Experts point out how interesting and useful it would be to apply core gaming principles to make people more engaged. They give noble examples such as environmental awareness campaigns. But of course, it’s also a matter of making people addicted to your product or service.

Gaming experts can be so convincing they become scary. Are they really unlocking ways which almost inevitably make people engage? Is this a good thing, or is it a sophisticated way of manipulating people so that they spend time and effort for projects the game masters deem important?

In a TED video released today, game theorist Tom Chatfield explains how games engage the brain. He is the author of the new book Fun, Inc about the gaming industry and how it is altering our society.

Hat tip to Chris Clark on NspireD² for posting about this video.

Thinking the unthinkable

A strange sequence of events: last Saturday I was on a personal finance event (I’m a financial journalist) in Brussels, Belgium, and the day after I went to the Photo Museum of Antwerp (Belgium). I visited the exposition of the work of Willy Kessels (1898-1974), who is considered as one of the most important Belgian representatives of a new, ‘modernistic’ photography which came to the foreground from the end of the 1920’s onward. His body of works is particularly illustrative of the practise of the professional photographer in the 1930’s, so the museum site explains. Strangely enough, visiting that exposition made me muse about futurism.

Maybe it was not that strange after all: in the thirties Kessels made pictures of the modernist headquarters of the socialist newspaper Le Peuple, of the at the time very modern installations of the national broadcasting organization NIR, of new installations of factories and breweries. The pictures show us an optimistic, modern wold which seems very familiar to us, even in this day and age.

It was that familiarity which made me feel uneasy. The people in those modern interiors and buildings, would they have realized what horror and collapse of civilization would take place a few year later (the Second World War, the holocaust… )?

Kessels’ career was rather strange. He made those modernist pictures, and also pictures of the making of the movie Misère au Borinage about the suffering of workers. But he would also befriend Joris Van Severen of the Verdinaso, a very right-wing organization. Kessels would become a photographer of rural Flanders, trying to capture a sense of authenticity.

While many observers think Kessels was an opportunist, he also demonstrates an important cultural tension in the West: on the one hand the optimism, a belief in progress (economically, socially, politically, technologically) and on the other hand a Romantic rejection of all this in favor of the (often imaginary) virtues of the past, of local roots versus cosmopolitanism and globalization.

This tension increases when the social fabric of society is threatened. This was one of the themes we discussed at the investment seminars the day before and it is one of the big underlying issues in the trade discussions between the US and China: which of both countries will end up with an unemployment of 10 percent to 20 percent of the labor force? About 42 million people, more than one in eight Americans, are now on food stamps.

It’s rather difficult to have constructive political debates in such a context – on the contrary, it’s an ideal environment for extremists.

All of which explains my rather depressing thoughts: will museum visitors of the future look at pictures of our time, with our technological dreams and our modernist buildings and interiors, and wonder whether we realized what horror would happen to us a few year later?

As financial experts said during the seminar, the shift toward the East of the world economy is not that strange. Before the Industrial Revolution about 70 percent of the world economy was non-Western, so the fact that we return to that situation should not surprise us.

The road toward that new world order will be bumpy. How bumpy, we cannot know at this point in time. Will discussion about trade and exchange rates lead to war? Will extremists and fundamentalists use of the technological empowerment of the individual in order to commit horrible acts of mass destruction?

It’s strange that experts these days often work in ignorance of each other’s work. While security experts study issues like nuclear- cyber- and bio-terrorism, urbanists and economists often just don’t take these dreadful possibilities into account in their risk assessments. It’s one of the reasons that I like near-future science fiction so much: it constitutes one of the few accessible places where scenarios are developed and knowledge from various fields is combined into possible futures. It helps us imagine the unthinkable, so that we can try to prevent it.

Roland Legrand