The correlation between social welfare and innovation

I was refreshing a bit in the R programming language today, and to do so I did some exploratory data analysis on countries’ innovative capacities and measures of human welfare.

Not surprisingly, innovativeness correlates with GDP per capita and with measures of social progress. Combining those measures predicts innovativeness better than either measure on its own.

This sort of exploratory analysis is too simple to mean much, but intuitively it makes sense to expect a causal relationship in both directions. We’d expect innovative countries to be wealthier, and even better off by other measures, since innovation drives all sorts of progress, not all of which is captured in GDP. Likewise, we’d expect countries that rank highly in measures of human progress to be more innovative, since innovation depends on human capital.

And, of course, there is all sorts of research on this stuff. Nonetheless, nice to see it shows up in a simple correlational analysis. Code is here.

Which countries are ready for the effects of AI?

I was at an AI conference in France last week and there was lots of talk about which countries will lead in the creation of AI. Most of the talk focused on the U.S. and China and, given the venue, what role Europe might play. But which countries are ready for the effects of AI? Like digital technology more generally, AI will, in whatever form it takes, put social pressure on societies. It will require societies to retool education, to redistribute income, to provide social insurance, and to revise laws. Of the countries that excel in technology, which are also ready to do that?

I decided to compare two rankings of countries on innovation with a ranking of countries by social progress. The idea is that to succeed with AI and digital in general countries need both to be good at technology (innovation), and to be good at inclusion — at ensuring that their citizens are taken care of, even in the face of social disruption.

To save time, I simply took the top 10 countries from Bloomberg’s and WEF’s innovation rankings, and the top 20 from the Social Progress Index. And then I looked for countries that made at least one of the innovation rankings, but also the social progress ranking.

Notably, Sweden and Finland are in the top 10 on all three lists. The U.S. and the UK make both innovation lists and the top 20 in social progress (though not the top 10).

Others to make one of the innovation top 10’s and the social progress top 20 included: Switzerland, the Netherlands, Denmark, Germany, France, Japan, and Ireland.

Countries that made one of the innovation top 10s but not the social progress top 20 include: Singapore (which made both innovation top 10’s), South Korea, and Israel.

Finally, countries that made the social progress top 20 but not either innovation top 10 include: Iceland, Norway, Australia, New Zealand, Austria, Belgium, Spain, and Portugal.

A successful society must be both innovative and inclusive, and the digital revolution illustrates the importance of doing both at once. The countries that manage that will be able to deliver rising living standards for their citizens. The ones that don’t will have a harder time.

Of course, some countries may have it harder than others. Here’s one estimate of how automation will affect different countries.

Federal welfare spending, state innovation

An interesting paper:

We suggest that increased federal welfare spending increases state government performance in the “new economy” development policy areas by helping states minimize welfare costs and divert more own-source resources into economic development… The authors find that federal welfare spending stimulates state new economy development directly, but also indirectly through its positive impact on both state fiscal comfort and administrative capacity. The findings suggest that federal intergovernmental transfers continue to be an important policy mechanism with spillover effects for state economies.

Pocket, WordPress, and what comes after social media

In March, I wrote a draft of a post but never published it (I don’t recall why) about how WordPress should get into the next-gen-RSS-reader game. I’m reminded of that by two recent headlines.

First:

How Firefox is using Pocket to try to build a better news feed than Facebook

And, second:

After years of growth, the use of social media for news is falling across the world

If social media is in fact fading — or at least stagnating — then there’s a tremendous opportunity to figure out what’s next. Pocket, like WordPress, is one of the companies that can make a real difference here. (I wrote about Pocket about a year ago as an example of the “good internet”, and I subsequently wrote about how we need more ways to learn, not just more ways to communicate.)

Here’s the draft that I wrote in March but for some reason never published, headline and all:

What WordPress (or Pocket) Could Be

Kinsey Wilson’s move from The New York Times to Automattic, the company behind WordPress, has me thinking about how they might save the internet. Right now, the internet suffers from, among other things, two problems: social media has turned out to be somewhere between problematic and toxic; and a few companies control too much of the experience. Together, they’ve made many of us nostalgic for the era of blogging, which is where WordPress comes in.

Right now if you go to wordpress.com and you aren’t signed in, you see website hosting offers, which makes sense — that’s Automattic’s business model. But if you’re signed in, you see basically an RSS reader — a way to follow websites that you like.

Right now is a great moment for someone to offer something like the RSS reader of the future, framed explicitly as an alternative to social media. But few companies are in a position to do it.

Candidates to do this include the makers of actual RSS readers like Feedly (Digg is apparently shutting its reader down), as well as Pocket/Mozilla, Flipboard, and others operating in related spaces.

Closed platforms like Medium or even — stretching here — Twitter might conceivably get in the game, but likely in a closed way, which wouldn’t solve one of the let problems.

But WordPress a) already has a reader, b) has an incentive to help the people running WordPress and WordPress.com-hosted sites get discovered, and c) has a history of supporting open source projects.

Why can’t they invent the RSS reader of the future? It’d have to offer the ability to follow websites, of course, but might also involve more advanced filtering options along the lines of MIT’s Gobo. It might also offer recommendations, which are hard to do well, and which is an area where Pocket already seems to have an advantage.

Reading in piles

Tyler Cowen on the Ezra Klein podcast, as written up on Vox:

As to what he’s currently reading, Cowen is in a deep classics period. Well, classics and books on tennis. He revisited Plato’s Symposium in preparation for an interview on his own podcast, and recently read Andre Agassi’s autobiography, which Ezra also loved. Cowen is reluctant to recommend any one of the books he mentions, though, wondering, “Why listen to what I think is the book you should read?” Instead, he suggests reading “piles of books.” “Pick a pile you love and don’t obsess over any of the individual books in it.”

That’s quite similar to advice we published at HBR recently:

Focus the majority of your information consumption on a single topic for several months. Rather than letting the headline tides pull you along, pick a topic and focus your reading and viewing on that topic. In addition to the obvious benefit of making it possible for new information to build on previously consumed information, there is another important benefit, which is anchored in how our brains work. In a recent interview neuroscientist Adam Gazzaley shared from his book, The Distracted Mind, that “the highest level of performance in this domain of working memory is dictated more so by how well you filter all the irrelevant information. If you process information around you that is irrelevant to your goals, it will create interference…. Our success at filtering that] is critical for our ability to perceive information, to remember it and then to make decisions about it.” Spreading your consumption habits too thin has real consequences.

This is good advice, and something I’ve been trying to do a bit more recently. With books, you can create a literal “pile”, but I think there’s potential to create more ways to do this sort of topic-based reading more easily digitally. Sure, you can just go searching on Google based on a topic and, after some hunting, come up with a good list. And plenty of places curate articles by topic. But more could be done to help synthesize all that’s out there, rather than just listing stuff to read. This is something I’ve been tinkering with. More to come.

 

The microeconomics of wisdom

Research suggests that both knowledge and thinking style contribute to better forecasts, and likely to more accurate empirical beliefs more generally.* Lately I’ve been thinking about how microeconomics might help explain how those two inputs fit together.

(Disclosure 1: I’m sure papers have been written about this and I’d love to hear about them! Disclosure 2: I’m not an economist. Just someone who’s taken microeconomics and thinks too much about the research on belief accuracy. Apologies if I got something wrong!)

In an introductory microeconomics course you learn about production functions, where the amount a firm produces varies as a function of just two inputs: labor and capital. Such a function could in theory take many shapes, but here’s one example:

q(L,K) = √(LK)

What if we think about a production function for accurate forecasts or understanding of the empirical world more generally? We could think about understanding of the world as a function not of labor and capital but of knowledge and thinking style (wisdom), per the research by Philip Tetlock mentioned above. In this model, “understanding” isn’t a classic belief-accuracy measure, but a level of production. You’re choosing how many “units of understanding” you want to produce. (I’m imagining an individual as the producer, even though this model is typically used to represent firms.) You can always choose to invest more and get some marginal additional return to your understanding. Here’s how such a function might look:

U(K,W) = √(KW)

(Yes, my letters here are terrible, overlapping as they do with commonly used ones in economics.)

  • U = Understanding (not utility)
  • K = Knowledge
  • W = Wisdom (thinking style)

What does this model suggest that might be interesting when pondering the nature of rationality and accurate beliefs?

First, in these models the “firm” sets marginal revenue equal to marginal cost, and in a competitive market marginal revenue is the same as price Here, the individual keeps producing understanding until the marginal cost of doing so equals the price someone is willing to pay for that understanding. More intuitively, the higher the payoff to understanding something, the more you’ll invest in understanding it. The more expensive the inputs — acquiring more knowledge and a better thinking style (wisdom) — the less you’ll invest.

Second, I picked the formula above because it has both overall diminishing returns — every unit is less efficient to produce than the last one — and diminishing relative returns between the two inputs. You’d rather have an equal mix of knowledge and wisdom than lots of knowledge and no wisdom, or vice versa. I don’t know of any research suggesting how these two variables interact, but the idea of balancing them rather than going “all in” on one or the other seems interesting.

Third, the assumption when you learn this model is that capital is fixed in the short term, meaning that in the short term firms only decide how much labor to employ. Only over the long-run are they free to invest in more capital, and the freedom to mix the two usually results in greater efficiency.**

This set up seems to have a parallel in terms of understanding and belief accuracy. For an individual, thinking style (wisdom) is fixed in the short run, but not in the long run. If you want to understand a topic more by tomorrow, you really only have one choice: try to learn more about it. But if you want to have a greater understanding by next year, you might invest in improvements to your thinking style — your “mindware” in Keith Stanovich’s terminology — by learning a bit of probability or taking “calibration” quizzes to calibrate your confidence in your beliefs to your accuracy.

This is all speculative, of course. Just because you can write down a model doesn’t mean it’s how things actually work. The reasons people acquire understanding (or don’t) can’t be explained solely by markets and economic self-interest. But thinking about forecasting and beliefs in the context of microeconomics at least yields some interesting ideas and hypotheses.

*Other things, like intelligence, help, too. But I’m leaving them out for simplicity.

**Depending on the shape of the production function and input prices.