The main idea of this book derived from author’s disappointment with Internet as the new media of exchange for goods, services, and ideas. Instead of mass prosperity with dramatic increase of small business included into global market place Internet brought us a few big companies that dominate various areas of internet such as Google for search and advertisement or Amazon for online retail. The great increase in productivity and decrease in transaction costs brought in by Internet caused decrease in jobs for middle class and consequentially change in population breakdown from haves a lot, haves quite a bit, and have nothings into billionaires and nobodies. The remedy proposed is trivial: government regulation and tax increases.
Preface: The Question
At the beginning author catalogues all things good that Internet was supposed to promote: more and better jobs via self-employment with access to global markets, more tolerance through social network, open and direct global communication between people from different countries, cultures, and dramatically decreased costs of business transactions and communication. Then he plainly affirms that none of this happened as predicted, instead Internet brought lots of bad things like loss of jobs to global market, loss of privacy, global monopolies, and such. In short: the Internet is not the answer.
Introduction: THE BUILDING OF THE MESSAGE
The introduction starts with description of the Battery club in San Francisco that represents a special case of culture where young billionaires pretend to be non-elite at the same time boldly waiving their elite credentials. From here author makes his point that after we build the Internet, the Internet start rebuilding us, meaning society and its mores.
Chapter One THE NETWORK
This chapter is very short retelling of the history of Internet creation.
Chapter Two THE MONEY
The main point of this chapter is to demonstrate that far from opening era of distributed capitalism, the Internet created much more concentrated global capitalism with a few monopolies like Google and Amazon outcompeting everybody else in monetizing Internet and creating world of a superrich fraction of 1% versus impoverished everybody else with practically very few in the middle.
Chapter Three THE BROKEN CENTER
This is discussion of disappearing of middle class using example of what used to be super global corporation, but currently bankrupt Kodak. In the old glory days it employed hundreds of thousands of middle class people who did imaging services for billions of consumers. Now much better imagining services at much lower cost are provided by just a few dozens of employees of Internet companies with bulk of revenues going not to rich owners of Kodak and its middle class multitudes of employees, but to superrich owners of internet companies and practically nobody else.
Chapter Four THE PERSONAL REVOLUTION
This is a more detailed look at Instagram as one of substitutes of Kodak in the new era. This company provides instant computer enhanced imagining that allow people to get better than reality images of themselves and everything they would like to imagine. Author seems to believe that such enhancement causes serious damage to out personalities and to overall culture pushing out reality, substituting it with dreams, and pushing people into narcissism.
Chapter Five THE CATASTROPHE OF ABUNDANCE
This chapter is based on author experience as music lover in big records stores of London and then as start up Internet Company owner in music records industry. The big hope of many such companies over time turned into disappointment and frustration. This experience was very tough because initial hope that Internet will expand music business did not materialized. Just the opposite, while consumption of music hugely increased it did not created similar revenues flow for multitude of companies, but rather dramatically decreased amount of money paid for music due to simplicity of legal and/or illegal distribution that become unstoppable because of Internet.
Chapter Six THE ONE PERCENT ECONOMY
This is continuation of discussion of new business model in distribution of all things convertible to digital form. The main point here is that instead of old Pareto rule when 20% of companies produce 80% of everything, digitalization turned into 1% producing 99% with corresponding loss of jobs and business and thousands middle class business owners with millions of employees loosing business to a dozen of billionaires with a couple hundreds employees at most. At the end author points out that with 3D printing even production of all thing material could follow the path of music and books.
Chapter Seven CRYSTAL MAN
This chapter looks at lost of privacy due to Internet and powerful super databases, comparing it to the old East German Stasi that tried to control people with a primitive technology of 1970s. It also brings in Jeremy Bentham and his idea of Panopticon with everybody always being under surveillance, pointing out that that’s where we are getting with companies and government tracing everybody all the time.
Chapter Eight EPIC FAIL
Here author expresses his bitterness directed at all these successful billionaires who made fortune in Internet in their 20s and have gall to promote failure as precondition for success. He obviously believes and probably correctly that failure is far from reliable path to success, but rather station in itself and quite often the final station for many. The final discussion in this chapter is about kind of secession practiced by rich and powerful who practically separate themselves from general population in isolated super luxurious world, leaving everybody else struggle in devastated world of middle class practically destroyed by Internet and its super cheap services.
Conclusion THE ANSWER
As one could expect, author sees the answer in big and powerful government that will stop libertarian juggernaut of Internet and tax superrich 1% into decency, distributing resources to 99% who were hurt by Internet.
MY TAKE ON IT:
I found factual part of this book that is describing fate of musical industry, author interactions in Silicon Valley interesting and curious, but analytical part is missing a lot. Author spends lots of space lamenting losses of middle class from disappearance of old style monopolies like Kodak and its hundred of thousands of jobs, but pays very little on other side of equation: dramatic decrease of prices and increase in functionality for all kinds of imagining service not available before that improve lives of everybody who is using these services including middle and lower classes. One thing I completely agree with author thou, is that Internet is not the Answer. I believe it is just a tool, nothing more and nothing less and tools change society, but do not define how it would change. Finally ideal of big government, big regulation, and big taxes, in my opinion is even less of an answer than Internet. This ideal is nothing more than a way to decrease quality of live for everybody except of a small cadre of politicians and bureaucrats, which would not help middle class in any way, shape, or form. The evil billionaires at least produced real goods and services that made them billionaires, while bureaucrats and politicians are purely parasitic creatures who only impede production of goods and services.
People’s political views and differences are not result of their psychological predisposition, but rather expression of their deep interests created by their belonging to specific racial, social, and economic groups within society, their religious and philosophical background, and their lifestyles. With all these circumstances being not easily changeable, the chance of reconciliation on many of current political differences are very small so the struggle will continue as long as there is no significant changes in underlying parameters for enough people on one side of the disputes acquire overwhelming majority and to be able settling issues the way they want.
PART I: Political Minds
Chapter 1: Agendas in Action
This chapter starts with review of 2012 election and Romney’s evaluation of his defeat as result of Obama’s ability to give out government goodies to supporters in form of welfare and other programs. From there it goes to confirmation with statistical data that self-interest does play a big role in voters behavior, only analysts often miss complexity of this self-interest. Authors provide an interesting name for this: Direct Explanation Renaming Syndrome (DERP), which means circular explanation of behavior based on answers to questions describing this behavior.. For example people who respond that they prefer to be with other people assigned label of extraverts with following explanation of their behavior directed to meet others explained by them being extraverts. The DERP syndrome if widely used in explanations of political behavior. Authors define their objective as to find explanations to political behavior in real interests of individuals and avoid labeling that leads to DERP.
Chapter 2: Investigating Interests
This is about what it means to advance individual’s interest and how much more complicated it is in reality than in academic and analytical writings where interest defaulted to narrow economic gain. At the beginning of the chapter authors review 5 claims that seemingly deny self-interest as an engine of political attitudes and action. They find that only one is actually true, 3 clearly false and one unclear. After that authors discuss nature of self-interest and find that it is extremely complex and very difficult to identify. Consequently they suggest substituting “interest” with “fitness” – something that advances person in his/her family everyday goals. Finally author point out that humans are social animals and live is a team sport environment so individual interest is highly correlated with advancement of group that individual belongs to and, since individual belongs to multiple groups sometimes with conflicting interests, the final combined vector of political action could be quite difficult to reconcile with separate components.
Chapter 3: Machiavellian Minds
This chapter starts with analysis of how mind works based on the latest achievement of neuroscience leading to conclusion that our conscious understanding of our own actions is often incorrect and is similar to works of public relations department, which main activity is not decision making, but rather decision justification for ourselves and external world. In reality our mind always directs our political positions and actions to be consistent with our self-interest. As example author reviews abortion issue trying to demonstrate that anti-abortion forces are driven not by purely religious or humanitarian motivation, but rather by self-interest of Ring-bearers, people who want to protect their monogamous way of live from supporters of free love by increasing cost of free love lifestyle. Correspondingly pro-abortion forces are not really that much care about women right to choose as about decreasing cost of free love lifestyle.
PART II: Political Issues
In this part authors look at specific political issues searching for underlying self-interest that defines positions of sides on these issues
Chapter 4: Fighting over Sex: Lifestyle Issues and Religion.
In this chapter issue under review is abortion and sides that support it and/or fight it directly linked to Freewheelers who are trying to protect their lifestyle and Ring-Bearers who are trying protecting their families from sexual predators. Authors extensively use these two morally incompatible groups and here is their definition:
Chapter 5: Rules of the Game: Group Identifies and Human Capital
This chapter is about another set of hot issues: group identities and related discrimination and affirmative actions that authors being liberal could not possibly recognize as being the same thing. However the bottom line here is that they link it to human capital with logic of interest working in such way: individuals with low level of human capital support group based discrimination if their group have advantage because it improves their chances, while individual with high level of human capital prefer equality because their human capital supports their chances of winning in fair competition. Being complex creatures people could have different interest in different areas so they could support discrimination in one are and fight for equality in another without feeling the slightest remorse from contradiction.
Chapter 6: Money Matters: Redistribution and Hard-Times Programs
This chapter reviews economic interests of different groups and political positions derived from these interests. Here is a nice summary they provide:
Authors also discuss here American exceptionalism represented by different break down between liberals and conservatives in USA and other countries depending on wealth and education with Americans of low wealth and education being materially more conservative than people at the same station in other countries.
PART III: Political Coalitions
Chapter 7: The Many Shades of Red and Blue
This chapter is about what makes people democrats or republicans and it is based on review of Harvard class of 1977. These are all rich and prosperous people and authors seem to find it paradoxical that they are 6 to 1 Democrats. Authors’ explanation is that these people are high human capital individuals and such people are inclined to be Democrats. Here result of their analysis as to predictive parameters to be a democrat:
Another set of predictive parameters is income and church attendance:
Chapter 8: The Republican Coalition
Here authors review republican coalition that they believe consist of partial inclusion from these groups:
Chapter 9: The Democratic Coalition
Here authors similarly review democratic coalition collected from the following groups:
PART IV: Political Challenge
Chapter 10: An Uncomfortable Take on Political Positions
This final chapter summarizes authors main thesis that political views are derived from direct interests of individuals whether they are consciously recognized or not and therefore generally these views are quite predictable based on economic position, human capital possession, and lifestyle of individual. The main inference from this analysis is that first and foremost that we cannot “all get along” and reconcile our difference because they based on deeply seated and not easily modifiable substance of our lives.
MY TAKE ON IT:
I completely agree with idea that we all have political view based on our position in society and lifestyle. I also agree that we all driven by self-interest disguised as noble reasons by our self-deception. The only issue I have with this analysis is authors’ position on human capital as direct function of education. I see human capital as much more complicated parameter related not that much to educational credentials, but rather to individual ability to successfully sell intellectual services. This approach would allow understand that seemingly paradoxical situation when very rich graduates of Harvard 77 are overwhelmingly democrats is no paradox at all because ability of these individuals to sell their services as highly paid lawyers, corporate and government officials, and such is highly dependent on government intervention, with democrats as party of big government clearly protecting well being of these people by expanding government. Even doctors and educators who are seemingly provide direct services to people are highly dependent on government intervention to force healthy people without children in school to pay high taxes so these professionals could charge exorbitant prices for their services. Without government intervention these services would be priced by market pretty much within financial abilities of people who actually require such services and these people would be inclined to drive hard in search of bargains. With government intervention force is used to confiscate money through tax and bureaucrats who allocate loot for acquisition of these services also benefit from high prices because it increases their share.
Similarly paradoxical issue with Kansas when low income working people prefer republicans would be better explained not by religious believes of these groups, but rather by their much higher ability to obtain wealth via selling their non-credentialed services and produced goods on free market without government intervention than on market limited by government intervention with its licensing, reporting, and compliance requirements they find very difficult to satisfy.
The main idea of this book is that markets are not necessarily intrinsically effective when they are created spontaneously and quite often they fail in fulfilling their function of supporting efficient exchange of good and services, especially in a case of matching markets when subjects of exchange have unique parameters that should match for exchange to occur. Consequently in such cases of complex matching markets the conscious design of market place and its processes is required. It leads to main point of this book that the new and very important area of applied economics should be developed for markets design and implementation.
MARKETS ARE EVERYWHERE: Introduction: Every Market Tells a Story
This is review of markets as the places of exchange real or virtual with stress on difference between commodities market and matching markets. Very important point is that markets effectiveness and efficiency highly dependent on market design that often done informally without clear understanding what needs to be achieved and how. Author stresses 2 parameters of the market: thickness and congestion. Well-designed market should be thick and uncongested.
Markets for Breakfast and Through the Day.
This is discussion of commodities market and history of their development. Author using history of grain and coffee markets to demonstrate that it typically starts as matching market when every farmer sells specific batch of grain that overtime develops into commodity market when batches are mixed and grain sorted by some relevant parameters into trenches of consistent grades, making it a lot easier to trade. Author also discusses how contemporary communication technology such as Internet and mobile devices made very thick market for just about everything conceivable.
This chapter is about a very specific market that author helped to design: non-monetary market of kidney exchange. The problem was that it is highly complex matching marked severely impeded by government ban on organ sales. As result kidney provided exclusively on voluntary basis, typically by people who want to save their relatives. The problem of medical compatibility between donors and recipients makes this process highly complicated. Author describes in details challenges and solutions that allowed developing sophisticated multistep and multilayer market place effectively supporting kidney exchanges.
THWARTED DESIRES: HOW MARKETPLACES FAIL: Too Soon
Part two is dedicated to market failures and their typical causes. In this chapter author uses history of Oklahoma land rush and its sooners to look at market failure caused by timing issues when market participants arrive at different times causing exchanges to occur too soon, consequently being by far less efficient than if all participants were present at the same time. Another interesting example of too soon exchange is marriage market for women that dramatically changed from 1950s to our time. Similar issues are demonstrated for doctors versus residents matching exchanges. Author also demonstrates how cultural preferences specific for doctors’ specialty lead to different outcome for similar market design that worked fine for one specialty, but not for another.
Too Fast: The Greed for Speed
This is about market failure caused by being to fast. This is discussed using NYSE and CME exchanges when at one point it was possible to make money by cutting millisecond from speed of exchange. Another interesting example discussed is matching market for court judges and students when students are looking for the most prestigious judge to clerk for, while judges look for the best students. Interesting detail is exploding clerkship offers, which are issued with expiration time that sometime counted in minutes.
Congestion: Why Thicker Needs to Be Quicker
This chapter is about search for goldilocks point when market designed to be not too fast and not too slow. It reviewed using example of Airbnb, which brings to the market underutilized living space and StubNub, which brought to the market old staff from the attics and basements. However most interesting is review of New York school placement matching market and how similar markets should handle congestion.
Too Risky: Trust, Safety, and Simplicity
This chapter is about key characteristics of the market without which it has hard time to stay open, especially trust and safety. It goes through discussion of value of good name and necessity to maintain information flow within effective parameters because too little information would prevent transactions from happening and too much would limit privacy, consequently creating safety issues. It also reviews Boston School assignment market that works differently from New York.
DESIGN INVENTIONS TO MAKE MARKETS SMARTER, THICKER, AND FASTER The Match: Strong Medicine for New Doctors
This is review of algorithms used to create market for new doctors assignments, which mathematically proved to produce optimum solution for individuals. However when encountering real live complexity such as assignment of couples, it requires quite a bit of tinkering and can deliver only good enough, but not necessarily optimal results. There is also an interesting discussion about centralized marketplaces versus central planning. As result the Rural Hospital Theorem was developed proving that it is not possible achieve stable outcome by changing market rules to achieve predetermine result if people do not want it.
Back to School
This is another recap of school assignment market functioning in New York and Boston with inevitable conclusion that no market design could compensate for insufficient supply of good schools.
This chapter is about very important part of any matching market: Signaling. The signals or, in other words, broadcasting information about possibility of match and most important probability that effort invested into exploring such match should not be wasted. Author reviews signaling in such important market as college admissions, job search, and love and marriage. Quite a bit of space assigned to analysis of auctions as signaling systems for matching markets.
FORBIDDEN MARKETS AND FREE MARKETS: Repugnant, Forbidden… and Desired
This chapter looks at legality and morality of some transactions that majority finds repugnant. An interesting point is made that sometimes transactions are considered to be fine as long as they are conducted in non-monetary form, but become repugnant when money added. Obviously kidney exchange is one of such transactions and author reviews implication of this attitude.
Free Markets and Market Design
This chapter is kind of summary of the book with inference that free markets are the best we have, but not perfect and therefore prone to failure from time to time. However it should not be the reason to switch from market to central planning, which is consistently inferior to the market. It rather reason to consciously design market to meet requirements of its participants in effectiveness and efficiency of exchange process. Author sees role of economists as market design engineers because market is not some natural phenomenon, but rather human artifact most often developed spontaneously. The conscious design quite possibly could provide for significant improvement in market design.
MY TAKE ON IT:
As far as I am concern it is the great book filled with very good ideas and interesting examples of implementation of these ideas in real live. I think that development of market engineering for complex matching market has great future as practical area of application for economic and psychological knowledge currently being developed on the large scale. I’d like to see multitude of well-designed markets substituting cumbersome bureaucratic mechanisms of big government and big corporations, eventually pushing out of our lives these monstrosities.
The idea of this book is to present statistical research showing increasing division of America into classes of people with unequal opportunities and support this research with real live stories from lives of people belonging to different classes in order to demonstrate that this separation is relatively new phenomenon practically unknown in America of 1950s and 1960s. Author believes that this process is very unhealthy for wellbeing of the society and threatens not only to economic development, but also to democratic political system.
Chapter I: THE AMERICAN DREAM: MYTHS AND REALHTIES
This chapter starts with author’s recollection of his high school town in Port Clinton Ohio and brief review of several live stories of his classmates some of them from rich and some from poor families. This review demonstrates one of the main points of this book that America of 1950s provided clear path to success as achievement of solid middle class live for everybody, providing they worked hard and played by the rules. After that author compares it with similar lives of people in XXI century and concludes that it is not the case anymore because country clearly divided into rich and poor with poor having very little chance to improve their lives. He provides comparative maps for this town showing that instead of mixing rich as it used to be in 1950s, poor moved to separate place geographically:
He traces this separation to income inequality, which is highly correlated with education and family structure:
Chapter 2: FAMILIES
In this chapter author uses another small town Bend, Oregon to discuss changes in family structures demonstrating that sexual revolution destroyed family structures of uneducated people, but did not have such impact on family structures of educated people, creating huge difference in lives of children whose chances for good live are dramatically decreasing without support of strong families. Here are data provided for children in complete families depending on education of parents:
Chapter 3: PARENTING
This chapter is a very interesting review of differences between parenting of educated and successful versus uneducated and unsuccessful. The graphs provided demonstrate that educated parents raise children in traditions of American culture with high value put on self-reliance and self-control, while uneducated poor transfer values of welfare state: obedience and external control by authority figures:
Chapter 4: SCHOOLING
This chapter is about education with explicit assumption that higher education means higher income and better life. It includes comparison of two high schools on of them rich and another poor:
Interesting fact is that money per student are pretty much the same, teacher per student ratio is the same, quality of teachers also the same, but outputs are dramatically different. This difference is persistent throughout total range of educational achievement indicating its dependence on family:
Chapter 5: COMMUNITY
This chapter looks at another parameter: social network outside of family and quality of this network with inescapable inference that it also has significant impact on outcome:
Chapter 6: WHAT IS TO BE DONE?
This is discussion about causes and recommendation and author seems to believe that one of the most important is separation of classes into different communities that do not communicate with each other and do not know how other part lives. Author is making case that it results in unequal opportunity and that this situation has do be fixed because it represents problem for economic development and for democracy itself, besides it is moral obligation of upper classes. Author provides list of areas and what he believes should be done in each of them.
MY TAKE ON IT:
I believe that process of country breaking down is well underway and could not be stopped without significant changes in the whole way of how we create and allocate resources. America of 1950s become much more egalitarian country than it was at the beginning of XX century due to two very special circumstances. One was ongoing process of substitution of plutocrats by bureaucrats as main force of society when plutocrats were on the way down in their ability to grab wealth, while bureaucrats still were on their way up in such ability so both these groups were somewhere above middle class, but not to such extent as it was before 1930 for plutocracy when government intervention was small and after 1960s for bureaucracy when government intervention become huge. Another one was the fact that Europe and world was practically in ruins after WWII and everybody everywhere desperately needed everything, so America, being untouched by destruction, had very good jobs for everybody who wanted to work and did not have or need welfare state for people who did not want to. Both these circumstances are long gone. Bureaucrats are firmly in control of government, which in turn is in control of just about everything with plutocrats playing just supporting secondary role. Plus the world expanded dramatically with free trade and dissolution of socialist model, bringing in huge amounts of cheap labor and pushing out of productive activities uncompetitive low skills Americans to such extent that their children find themselves in isolated communities with environment not conductive for skills acquisition. The key to solution would be such change in the system that would provide people with additional resources directly linked to their effort so the way up would be unimpeded. The current welfare state that provide resources independently of effort is bound to fail because humans are not animals and need much more than food and protection from elements.