Tag: economics

“No matter how much evidence exists that seers do not exist, suckers will pay for the existence of seers.”

J. Scott Armstrong, 1980:

People are willing to pay heavily for expert advice. Economists are consulted to tell us how the economy will change, stock analysts are paid large salaries to forecast the earnings of various companies, and political experts command large fees to tell our leaders what the future holds. The available evidence, however, implies that this money is poorly spent. But because few people pay attention to this evidence, I have come up with what I call the “seer-sucker theory”: “No matter how much evidence exists that seers do not exist, suckers will pay for the existence of seers.”

Assume for a moment that the seer-sucker theory is true – that expertise is useless in forecasting change. Is there any rational explanation for why clients continue to purchase worthless information?

One explanation is that the client is not interested in accuracy, but only in avoiding responsibility. A client who calls in the best wizard available avoids blame if the forecasts are inaccurate. The evasion of responsibility is one possible explanation for why stock market investors continue to purchase expert advice in spite of overwhelming evidence that such advice is worthless.

PDF

The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War

Notes from The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War (2016), by Robert J. Gordon:

* Advertising developed in part as a result of mass production; likewise, it was said that advertising made mass production possible. Firms decided that there was a limit to attracting customers through lower prices, and they tried the alternative strategy of increasing volume by brand-centric advertising. Although advertising began in the late nineteenth century with the development of the first branded products, its true explosion came in the 1920s, when it became increasingly tied to the newly invented radio.

* Electric lights are an example of a technology that had a great burst of innovation early, in this case 1880–1920, and then stood still afterwards. Although the fluorescent bulb had come to dominate lighting in commercial and industrial settings by 1950, virtually nothing changed in home illumination from 1920 until the development of the compact fluorescent bulb after 1990.

* The current system of airport security all over the world represents an overreaction to the September 11, 2001, hijackings. There was only one weakness in the U.S. airline security system on September 11, and this was that the cockpit doors were flimsy. Within days, they were replaced by completely secure doors that nobody could break through. Although the security issue was completely solved within a week, fourteen years later billions of dollars per year of passenger time continues to be wasted in unnecessary additional security precautions. The pre-2001 security system, based on a quick walk through an X-ray machine to check for guns and metal weapons, would be enough.

* If any year can be anointed as the beginning of the Internet revolution, it is 1995. The introduction of Windows 95 was a sensation, creating long lines of eager buyers waiting for hours in front of stores that would sell it before the doors opened on August 24, 1995. This version of Windows represented the transitional moment in the history of the Internet in that Microsoft’s Internet Explorer, a web browser derived from Mosaic, was available as an add-on to Windows 95.

* The unrivaled autonomy of the medical profession began to erode after the 1950s. As hospitals became larger and more complex, administrative control fell increasingly into the hands of professional administrators. Patients also began to challenge the authority of the medical profession. While “for the most part, the authority of the doctor was unquestioned” in 1960, with the surgical profession even earning such high praise as being called a “religion of competence,” by the early 1970s patients were demanding greater say in how they were treated. What had always been a tradition of “doctors know best” changed in 1972 when a federal appeals court in Washington, D.C., for the first time established a legal requirement for informed consent. “According to the new standard, the physician had to tell the patient whatever ‘a reasonable person’ would want to know in order to decide whether to accept the treatment.” In 1973, responding to increasing pressure from healthcare consumers, the American Hospital Association came out with a Patients’ Bill of Rights.

* One of the most important improvements in American industrial efficiency was the establishment by Herbert Hoover of the National Bureau of Standards. Its aim was to create a system of uniformly sized parts, down to screws and bolts, aimed at “simplification of practice, elimination of waste, conservation of materials, minimum training of workers, reduction and savings in supply purchasing and unwieldy inventories, defeat of confusion, and speed in production.”

“Taking temporarily high rates of annual exponential growth as indicators of future long-term developments is a fundamental mistake.”

Vaclav Smil, writing in Growth: From Microorganisms to Megacities (2019):

Taking temporarily high rates of annual exponential growth as indicators of future long-term developments is a fundamental mistake—but also an enduring habit that is especially favored by uncritical promoters of new devices, designs, or practices: they take early-stage growth rates, often impressively exponential, and use them to forecast an imminent dominance of emerging phenomena. Many recent examples can illustrate this error, and I have chosen the capacity growth of Vestas wind turbines, machines leading the shift toward the decarbonization of global electricity generation. This Danish maker began its sales with a 55 kW machine in 1981; by 1989 it had a turbine capable of 225 kW; a 600 kW machine was introduced in 1995; and a 2 MW unit followed in 1999. The best-fit curve for this rapid growth trajectory of the last two decades of the 20th century (five-parameter logistic fit with R2 of 0.978) would have predicted designs with capacity of nearly 10 MW in 2005 and in excess of 100 MW by 2015. But in 2018 the largest Vestas unit available for onshore installations was 4.2 MW and the largest unit suitable for offshore wind farms was 8 MW that could be upgraded to 9 MW (Vestas 2017a), and it is most unlikely that a 100 MW machine will be ever built. This example of a sobering contrast between early rapid advances of a technical innovation followed by inevitable formation of sigmoid curves should be recalled whenever you see news reports about all cars becoming electric by 2025 or new batteries having impressively higher energy densities by 2030.