Unintended consequences of new technologies

A couple of headlines from today’s Drudge Report caught my eye: 100 tiny robots replaced humans to wait in line… and Police use droid to snatch rifle from barricaded suspect….

I like new technologies. I like the smartphones, flat screen TVs, the satellite radio in the car I recently rented, and the fact that I can drive rather than walk or ride a horse to where I want to go. Technology can be great. But there can also be side effects and unintended consequences. As a trained economist, I think it is appropriate to ask whether the benefits of technologies outweigh the costs. There will always be costs, some of which we won’t recognize immediately.

Today I attended a lecture by a University of Missouri graduate student who did some work this summer in Guatemala with Heifer International. In one village she visited, women cooked food on open fire pits in their thatched houses. The fire pits created a lot of smoke in the homes. Heifer helped households get cooking stoves with ventilation pipes that took the smoke out of the homes. The stoves required less wood than the open fire pits and solved the problem of smoke in the rooms. But there was a side effect. Guatemala has a lot of rain. The open fire pits dried out the thatched roofs. The new stoves do not, hence the unintended consequence. There is also the advantage that smoke clears out mosquitoes and other insects, which doesn’t happen now.

An important problem that new technologies create is our becoming dependent on them. Dependency in turn can result in a loss of skills. Scholars refer to this as “deskilling.” How many people can answer what 7 x 8 equals, boil an egg or orient ourselves on a street without asking Siri?

Reminds me of the scene from the 2012 Avengers movie. SHIELD’s helicarrier is losing altitude because one of its rotors was damaged in an attack. Nick Fury tells the pilot to put the flying ship over the ocean. The pilot responds that they lost their navigation system. Nick Fury tells the pilot, “Is the sun coming? The put it on the left!” Nick didn’t forget how to navigate without GPS, but apparently the pilot did.

Let’s be wise about our use of technology. Before it makes us dumb.

Rent-a-friend

If you do not like your friends or do not have any close friends, should you be able to rent or pay someone to be a friend? Would you want to?

I teach an introductory microeconomics course. After discussing markets and teaching the basics of supply and demand today, I had a conversation with the class about the universal appropriateness of markets. Market, the price mechanism and the profit motive are great. When allowed to function, they offer quite a bit to society and largely account for our growing wealth and increased availability of goods and services, including advanced technologies we have come to enjoy and rely on today. However, do we want or need markets, the price mechanism and the profit motive dominating every aspect of our lives? Are there some things for which markets and prices should not be used?

I asked these questions and then showed a clip from the movie The Truman Show. In the movie, Jim Carrey’s character, Truman, is unaware that he lives in a movie set. His entire life has been displayed on TV. His wife and best friend are actors. The clip I show follows a scene where Truman has become suspicious about his existence. The show’s producer will stop at nothing to keep Truman on set, so he instructs Truman’s best friend, Marlon, to talk to Truman and convince him all is fine, with the words, “The last thing I would ever do it lie to you.” Is he really a best friend for Truman as a paid actor in the role of “best friend”? Should it matter to Truman? As outsiders watching the movie, do we care?

Michael Sandel, a Yale University philosophy professor, has famously written on this topic. See a TED talk he gave here. In his book, What Money Can’t Buy: The Moral Limits of Markets, Sandel writes,

“Today, the logic of buying and selling no longer applies to material goods alone but increasingly governs the whole of life. It is time to ask whether we want to live this way. … The most fateful change that unfolded during the past three decades was not an increase in greed. It was the expansion of markets, and or market values, into spheres of life there they don’t belong. To contend with this condition, we need to do more than inveigh against greed; we need to rethink the role that markets should place in our society. We need a public debate about what it means to keep markets in their place. To have this debate, we need to think through the moral limits of markets. We need to ask whether there are some things money should not buy.”

When I asked my students to give me examples of things they think money should not buy, many mentioned friends, family and love. These make sense. We want friends, family and love to be motivated by intrinsic considerations, not by extrinsic incentives. Money and other extrinsic incentives have a way of crowding out intrinsic motivation, a topic I have written about (here). Other students wanted markets out of education, insurance, health care, and some specifically mentioned textbooks. I can understand their frustration with textbooks, some of which are very, very expensive. But would education, insurance and health care be improved if markets were removed and providers and consumers were only intrinsically motivated? What if we taxed everyone and had the government pay for these services, would that improve things? We do that with national defense, so how about these other considerations? Lest there be confusion, this is not a question about whether goods are public or private but whether money and markets should govern their functions.

If you don’t want to rent-a-friend or meet and talk with real people, then  consider the Tokyo Game Show. As reported by Yahoo! news, attendees can flirt with virtual women. Now, instead of paying someone to be your friend you can buy a machine who will talk with you and ask how your day went. Let’s hear it for the power of market incentives.

Potash peril

Potash refers to a variety of compounds that contain potassium. Plants require potassium (chemical label is K) for their development, along with Nitrogen (N) and Phosphorus (P). These three chemicals are the key ingredients of fertilizers and are thus widely used in plant agriculture.

The largest potash producer in the world in terms of production capacity and market value is Potash Corporation of Canada. It has a market value of roughly $14 billion and controls 15 percent of global production and 19 percent of production capacity, according to the company’s website. There are larger companies in minerals and mining (e.g., the UK’s Rio Tinto Group), but none dominates potash production like Potash Corp.

The Wall Street Journal reports today that Potash Corp is merging with Agrium, also a Canadian fertilizer company, the combination of which will be a company with $21 billion in annual revenue and controlling 23 percent of global potash production capacity but 60 percent of capacity in North America. The two companies justify the merger as we might expect–stabilizing prices, lowering production costs, accessing other markets, etc.

Now, if US farmers want to buy fertilizer, they will likely have to get if from the combined company. Farmers are concerned, as they should be. According to the WSJ, “The deal likely would sow further unease among North American farmers wary of reduced competition and higher prices as top seed and pesticide developers pursue their own tie-ups. Already grappling with a three-year slide in major crop prices, some farmers are concerned that mergers between some of the world’s largest farm-supply companies will consolidate pricing power among fewer players and lead to higher costs at a time when farmers are scrimping to eke out profits.”

Efficiency is good, as are lower costs. But as I noted in a previous post, so is choice. Where do we draw the line when struggling with efficiency versus choice? Will the combined company pass on the cost savings to farmers by lowering prices of fertilizer? I hope so. But then I hope for $100 bills to rain on my home, too.

Academic writing and “intended misdirection”

I teach a research methods class for graduate students studying applied economics. In order to drive certain points about research and academic writing, I often give my students simple puzzles and brain teasers in class. I used the following today, which is widely known as the Missing Dollar Problem (MDP).

Three men walk into a hotel to rent a single room. The manager says the room costs $30, so each man pays $10. Later that day, the manager realizes that he overcharged for the room by $5; the room should have been $25 rather than $30. He gives the bellhop five $1 bills and asks the bellhop to give the money to the three men in the room. The bellhop is a bit dishonest and puts $2 in his pocket. When the bellhop gets to the room, he hands each man $1. Thus, instead of paying $10 each for the room, each man has now paid $9. Now, $9 paid by three men is $27, which added to the $2 in the bellhop’s pocket makes $29. Where did the extra dollar go?

Teachers can use the MDP to talk about the importance of math or why ethics matters. I use it to illustrate the importance of clarity and honesty in academic writing. The MDP is a problem because of a flaw in how the story is told. It is true that the men paid $27 instead of $30 for the room, but the $2 kept by the bellhop should be subtracted from the $27 rather than added to it. (The room cost $25, so the money returned to them means they paid $27; the difference between the cost of the room and the amount paid is the $2 kept by the bellhop.) In other words, an intended misdirection in the telling of the story resulted in readers having an incorrect understanding of reality.

Unfortunately, pressure exists for academics to produce and publish novel and important results, thus creating an incentive for “intended misdirection.” In extreme cases academics engage in “questionable research practices,” as one report of research on the topic noted, and worse–outright fabrication (see the discussion of Academic Integrity by the National Institutes of Health for examples).

Certainly, academia is not the only industry where “intended misdirection” happens (think lawyers, and politicians, and used car salesmen, and …). But surely academia can do better and should hold to a higher standard. Academic writing needs to be clear, precise and accurate … and honest.

Vulnerabilities

News stories about children dying from handguns or alleged abuses by the TSA are inevitably followed by debates in the media about the tradeoff between safety and civil liberties. If we restrict handguns in the name of protecting our children, for example, then doing so entails a reduction in Constitutionally-protected rights.

This is a false tradeoff. The debate really ought to be about vulnerabilities we face in society, and what to do about them.

The problem with the safety-liberties debate is that it perpetuates the belief that vulnerabilities decline as safety measures increase. They do not; they only shift. Instead of being vulnerable to terrorist attacks, increased security measures at airport screening stations make us vulnerable to incompetent and corrupt screening processes (think groping and misuse of scanner images). Instead of being vulnerable to dying by gunfire, we become vulnerable to intruders who invade our homes not expecting armed resistance.

Vulnerabilities are ubiquitous in life. Too often we overlook this fact. Even more, we tend to think vulnerabilities are a bad thing. On the contrary, vulnerabilities are necessary, because without vulnerabilities there is no basis for trust, which forms the foundation for all economic, political, social and personal relationships.

For instance, we trust banks by putting our money in their institutions, knowing there is a chance banks will misappropriate or mismanage the money, resulting in the loss of our wealth. The fact that government insures banking deposits only shifts our vulnerability somewhere else. We trust the government’s ability and willingness to make good on their commitment to insure our deposits (up to $100,000, as most banking institutions tell us).

We trust public corporations by purchasing stocks and bonds, making ourselves vulnerable to the loss of our investment. The 50 percent decline in the price of Facebook shares following its IPO several years ago illustrates why vulnerability is central to all economic activity. Economic growth only occurs if individuals and organizations take risks. I will invest in you in the hope that you will turn that investment into a good or service that makes money for me, but sometimes that trust is misplaced. When people are trustworthy – that is, when people don’t take advantage of the vulnerability of others – Adam Smith’s invisible hand ensures that such investments improve society.

Vulnerability and trust are the foundation of effective political relationships. When facing a potential military adversary, showing one’s empty hands is a universal signal of vulnerability and a crucial step toward the establishment of peace. Of course, sometimes such vulnerable actions are misplaced, and the opposing side takes advantage of the peace signal by attacking. But this only illustrates why peace offerings are fundamentally about making oneself vulnerable. Will Israel and Iran avert war? Only if one side first takes a vulnerable position and the other side follows by not taking advantage of the vulnerability.

Vulnerability is pervasive in social interactions. A friend is someone in whom one can confide, which means that the foundation of friendship is a willingness to be vulnerable. Social ties are superficial when one does not make him or herself vulnerable to others. This is why talking about the weather is an easy way to initiate a conversation with someone you don’t know, but it is not the basis for a long-lasting friendship. For trust to develop between potential friends, one needs to offer something more vulnerable than an opinion about the chance of rain.

Vulnerability and trust are fundamental to the development of a healthy and long-lasting marriage. Married couples can sense the quality of their marriage based on the perceived willingness of partners to make themselves vulnerable to each other. While extramarital affairs are harmful to marriage, they need not be sexual to exploit the trust of one’s marriage partner. For instance, what kind of signal does a married man send if he regularly confides personal concerns or details about himself to someone other than his wife?

Social conservatives decry the decline in public morality, but they have not been clear in explaining why this is a problem. Social and personal relationships are enhanced when one person first places him or herself in a vulnerable position with respect to someone else, and then when the second person reciprocates by honoring and respecting the trust placed in him or her. This leads to a greater willingness of the first to make a vulnerable commitment, thus perpetuating a deepening and virtuous cycle of trust and mutual respect. But declining public morality clouds our sense of vulnerability and makes it difficult for others to respond with honor and respect.

This is why pornography is so damaging to society. Pornography breaks the cycle. Although one could say that by exposing one’s body to others through pictures or video is a vulnerable action, it is only a counterfeit vulnerability, because that vulnerability does not result in a reciprocal response of honor and respect to the person making the vulnerable offering.

A similar argument can be made about modesty in dress and appearance. Over the years women’s fashions have become more revealing. Plunging necklines, exposed midriffs, and hip-hugging jeans send a socially damaging signal about one’s willingness and ability to be vulnerable to others. By exposing herself in public through the clothing she wears, a woman is saying that she has nothing to hide, which is another way of saying that she does not perceive herself as vulnerable. Some may claim that fashion is about signaling personal strength and confidence, but it is really just the opposite. A woman who dresses modestly recognizes her vulnerability, exposing herself only when she has good reason to believe that such trust will be honored. That takes real courage and strength.

Of course, some men’s fashions deserve the same criticism. Men who wear underwear-exposing baggy jeans send the same signal as women who expose cleavage or midriff. Modesty in dress by men and women preserves one’s vulnerability, which is essential to the development and maintenance of trust in personal and marriage relationships.

Which is why the marriage honeymoon used to be a significant event. But not anymore. Couples who have already seen each other naked and have been intimate before marriage have little to gain from the marriage relationship, aside from the legal and tax benefits that marriage provides. Marriage is an institution where two individuals can share the most sacred, intimate and personal vulnerabilities they have with someone else. When offerings of vulnerability are made within a marriage, by removing of one’s clothing and presenting oneself in an intimate way to a spouse, for example, the trust needed as the foundation of a healthy marriage can develop. The definition of marriage as a union between a man and woman has been weakened because the honeymoon has lost its significance as a stark contrast between being unmarried and married.

In our quest for greater security, we should not become complacent about the vulnerabilities we face. Failure to recognize and respect vulnerabilities can result in mistrust – trusting when one shouldn’t (such as telling a secret to a known gossip) or not trusting when one should (such as not confiding a personal struggle to a faithful spouse).

Consolidation in the agricultural seed and chemical industry

The Wall Street Journal reported that German company Bayer increased its share-price offer for the purchase of Monsanto. If (or when) the merger happens, the combined company will dominate an already-concentrated agricultural seed and chemical industry. I don’t have current figures on global industry concentration ratios, but the main players in agricultural seed and chemicals are Monsanto, Syngenta, DuPont, Dow Chemical, BASF and Bayer. According to the WSJ article, Monsanto previously tried taking over Syngenta but failed, DuPont and Dow Chemical are merging, and China’s National Chemical is buying out Syngenta. Monsanto is also seeking an alliance with BASF.

These companies are already tightly aligned. For example, all participate in cross-licensing agreements with each other in a host of technology sharing arrangements, most notably in genetically-engineered seed traits. Phil Howard, a sociologist at Michigan State University, graphically documented these relationships in 2013 (see his cross-licensing agreements and seed industry structure graphics). The Farm Journal provides a similar report (here), with graphics for the top five seed companies in each year from 2010 to 2014.

Many economists support mergers like these in the name of increased efficiency. Often there are economies of scale associated with the development and distribution of technologies, such as genetically modified crops and agricultural chemicals, which can lower costs for firms and, in theory, for buyers of the companies’ products. This is a good thing. But when choice is reduced in the name of efficiency, I wonder whether it is always worth it. Having options is powerful. Limiting choices has the potential to create dependencies and redistribute power. Are farmers’ and consumers’ interests really served by having fewer companies serve them? Some may say that choices and options will not be affected, since the products offered by the companies would still be available. But when they are offered by one firm rather than many, is that really the same?

Efficiency is good, but so is choice. Can we seek a balance of efficiency and choice?

Another three-peat

Continuing the theme of my previous post, a former doctoral student of mine, Heidi Stallman, has had the third essay of her three-essay dissertation published online. Heidi’s essay, “Farmers’ Willingness to Cooperate in Ecosystem Service Provision: Does Trust Matter?” was just published in the journal Annals of Public and Cooperative Economics. Her other two essays, “Ecosystem Services in Agriculture: Determining Suitability for Provision by Collective Management,” and “Determinants Affecting Farmers’ Willingness to Participate in Cooperative Pest Control,” were published in the journal Ecological Economics. Congratulations, Dr. Stallman!