How the last two centuries led to today’s economy
The best and worst of yesterday has created the economy of today.
ADAM DAVIDSON is the cofounder of NPR's Planet Money podcast and a staff writer at The New Yorker, where he covers economics and business. Previously he was an economics writer for The New York Times Magazine. He has won many of journalism's most prestigious awards, including a Peabody for his coverage of the financial crisis.
ADAM DAVIDSON: I had this thought as I wrote the book that the best of the twenty-first century combines the best of the nineteenth and the best of the twentieth. And then my joke is the worst, combines the worst of those two centuries as well. What I mean by that is if you look at the nineteenth century and pretty much all human history before business was conducted almost entirely locally. You almost all physically made goods. They were made by someone who you didn't just know them your whole life, your great grandparents knew their great grandparents. And in many cases your clothes, your bed, your house were made by you or your family. And to the extent that there were services the equivalent of lawyers and accountants and doctors. Those would also have been produced locally. There's always been long distance trade but that was really just a very small number of luxury goods that had very little impact on the material lives of everyday people.
So you had profound intimacy to the point where if you lived in a certain neighborhood in Brooklyn or a certain village in France, the beer, the bread, the cheese—everything was how we do it here. It was fully intimate. And you go two villages over and they do it some other way that's totally different. And so you had this incredible enmeshment between producers and consumers.
Then you have the twentieth century which is about people in one place producing goods for people all over the world. So you have massive manufacturers in Atlanta or New Jersey or Chicago who are producing soda and candy bars and eventually furniture and cars and all of these goods. And they're made in one place, made in huge volume and then shipped everywhere in the world. And just the nature of that kind of transaction is scale. You can't know all that much about who's buying Coca Cola in some village in Vietnam or what things about a Ford car people in South Carolina like better than people in Alabama do or whatever. You just make, you know, with some variation you make the same set of products and ship them everywhere. And so that's scale and scale brings a lot of benefits that small intimacy doesn't. The benefit is an economy of scale. You can make more stuff more cheaply, spread it to more places.
But now that doesn't work very well. Big scale is in crisis. You look at the big scale consumer goods companies like Proctor & Gamble or Unilever and they're really struggling for growth. They're struggling to basically everyone who wants Tide soap and Oreo cookies already has Tide soap and Oreo cookies. And you sort of go by a candy aisle and you see the problem. Sure, we can have M&M's with pretzels and M&M's with caramel and M&M's with peanuts and M&M's with a million other things but you're not really transforming the experience of eating candy. And we live in a world where people are probably eating as much candy as you want. So you have these companies fighting over market share sort of unable to create really transformative value.
But then you have intimate products. You have products like let's use chocolate. You have entrepreneurs creating new ways of producing lovely chocolate bars but they don't have to only produce for people within walking distance or driving distance of their factory. And they don't have to produce 300 billion a day to get them all over the world. They can produce a reasonable amount of them and they can use the tools that the twenty-first century offer. The internet, of course, but shipping and logistics. There's been revolutions that make it just so much more affordable for a relatively small company to physically get stuff all over the world without owning big trucks, without owning big warehouses. Artificial intelligence is making it increasingly possible to match unique producers with unique buyers to get the, to combine the product with the buyer who most values it. And so that is what I call intimacy at scale, allowing you to do the nineteenth century thing of creating that unique thing. I often talk about candy and bread and beer because you can picture it but the same goes for accounting services and advertising services and medical and a million other, pretty much any kind of business to consumer or business to business product or service you can think of. And it allows you to do those things but do them at scale. Do them where you're reaching people all over the world who most want what you have to offer. That's the key.
We all know the Adam Smith "price is where supply meets demand." And the assumption with Adam Smith in "The Wealth of Nations" is that products are just this undifferentiated thing. Bread is bread and so you, if people start liking bread more and paying more money than new people make bread. And the way economists talk about it is price is actually at the point of indifference, or they call it the curve of indifference for complicated reasons. But basically you're selling to the least interested buyer. That's the price. If a pack of Oreo cookies costs $2.99 that's because they've figured out that if it was $3.05 some people would be like forget it, I'm not going to buy it. So you're targeting the least interested buyer.
The passion economy is about targeting the most interested buyer so the indifference price is rooted in the idea that you need that kind of massive scale to reach everyone. You need that last buyer to buy your thing to make the whole system work. But with the passion economy you could just focus on way up on the demand scale where people so love your product they'll pay far more for it, maybe $6 or $12 or $18, whatever it might be. And that, it's not just that you're getting more money from those people unfairly, it's that you're creating a product that can only exist if you're able to produce a product at that price which you can't do in the old system.
- Adam Davidson, co-founder of NPR's Planet Money, can trace a line through time from homemade clothing and baked goods to today's passion economy. Davidson argues that a combination of the nineteenth and twentieth centuries are how we got to where we are.
- We shifted from an intimate and localized economy of goods and services, to an economy of scale, and finally to what Davidson refers to as "intimacy at scale."
- There are, of course, positive attributes to this hybrid economic system, but it also comes with some of the flaws of its predecessors.
- Why It's Better to Study History Than Economics - Big Think ›
- How is the passion economy changing the way we look at jobs ... ›
Younger Americans support expanding the Supreme Court and serious political reforms, says new poll.
- Americans under 40 largely favor major political reforms, finds a new survey.
- The poll revealed that most would want to expand the Supreme Court, impose terms limits, and make it easier to vote.
- Millennials are more liberal and reform-centered than Generation Z.
A 2020 study published in the journal of Psychological Science explores the idea that fake news can actually help you remember real facts better.
- In 2019, researchers at Stanford Engineering analyzed the spread of fake news as if it were a strain of Ebola. They adapted a model for understanding diseases that can infect a person more than once to better understand how fake news spreads and gains traction.
- A new study published in 2020 explores the idea that fake news can actually help you remember real facts better.
- "These findings demonstrate one situation in which misinformation reminders can diminish the negative effects of fake-news exposure in the short term," researchers on the project explained.
Previous studies on misinformation have already paved the way to a better understanding<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNDU1NzQ4NC9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYxNjE2Mjg1Nn0.hs_xHktN1KXUDVoWpHIVBI2sMJy6aRK6tvBVFkqmYjk/img.jpg?width=1245&coordinates=0%2C800%2C0%2C823&height=700" id="fc135" class="rm-shortcode" data-rm-shortcode-id="246bb1920c0f40ccb15e123914de1ab1" data-rm-shortcode-name="rebelmouse-image" alt="fake news concept of misinformation and fake news in the media" />
How does misinformation spread?
Credit: Visual Generation on Shutterstock<p><strong>What is the "continued-influence" effect?</strong></p><p>A challenge in using corrections effectively is that repeating the misinformation can have negative consequences. Research on this effect (referred to as "continued-influence") has shown that information presented as factual that is later deemed false can still contaminate memory and reasoning. The persistence of the continued-influence effect has led researchers to generally recommend avoiding repeating misinformation. </p><p>"Repetition increases familiarity and believability of misinformation," <a href="https://engineering.stanford.edu/magazine/article/how-fake-news-spreads-real-virus" target="_blank" rel="noopener noreferrer">the study explains</a>.</p><p><strong>What is the "familiarity-backfire" effect?</strong></p><p>Studies of this effect have shown that increasing misinformation familiarity through extra exposure to it leads to misattributions of fluency when the context of said information cannot be recalled. <a href="https://journals.sagepub.com/doi/10.1177/0956797620952797#" target="_blank" rel="noopener noreferrer">A 2017 study</a> examined this effect in myth correction. Subjects rated beliefs in facts and myths of unclear veracity. Then, the facts were affirmed and myths corrected and subjects again made belief ratings. The results suggested a role for familiarity but the myth beliefs remained below pre-manipulation levels. </p>
New research into fake news has uncovered something interesting about misinformation<span style="display:block;position:relative;padding-top:56.25%;" class="rm-shortcode" data-rm-shortcode-id="ddeac998508e09fb9d1b4691d6c20d28"><iframe type="lazy-iframe" data-runner-src="https://www.youtube.com/embed/bJ5qUx1WOsg?rel=0" width="100%" height="auto" frameborder="0" scrolling="no" style="position:absolute;top:0;left:0;width:100%;height:100%;"></iframe></span><p>A 2020 study published in the journal of <a href="https://journals.sagepub.com/doi/10.1177/0956797620952797" target="_blank">Psychological Science</a> explores the idea that fake news can actually help you remember real facts better.</p><p>Fake news exposure can cause misinformation to be mistakenly remembered and believed. In two experiments, the team (led by Christopher N. Wahlheim) examined whether reminders of misinformation could do the opposite: improve memory for and beliefs in corrections to that fake news. </p><p>The study had subjects reading factual statements and then separate misinformation statements taken from news websites. Then, the subjects read statements that corrected the misinformation. Some misinformation reminders appeared before some corrections but not all. Then, subjects were asked to recall facts, indicate their belief in those recalls, and indicate whether they remembered the corrections and misinformation. </p><p>The results of the study showed that reminders increased recall and belief accuracy. These benefits were greater both when misinformation was recalled and when the subjects remembered that corrections had occurred. </p><p>Researchers on the project <a href="https://journals.sagepub.com/doi/10.1177/0956797620952797" target="_blank" rel="noopener noreferrer">explained</a>: "These findings demonstrate one situation in which misinformation reminders can diminish the negative effects of fake-news exposure in the short term."</p><p><strong>The conclusion: fake-news misinformation that was corrected by fact-checked information can improve both memory and belief accuracy in real information.</strong></p><p>"We examined the effects of providing misinformation reminders before fake-news corrections on memory and belief accuracy. Our study included everyday fake-news misinformation that was corrected by fact-check-verified statements. Building on research using fictional, yet naturalistic, event narratives to show that reminders can counteract misinformation reliance in memory reports," <a href="https://journals.sagepub.com/doi/10.1177/0956797620952797" target="_blank" rel="noopener noreferrer">the researchers</a> explained.</p><p>"It suggests that there may be benefits to learning how someone was being misleading. This knowledge may inform strategies that people use to counteract high exposure to misinformation spread for political gain," <a href="https://www.eurekalert.org/pub_releases/2020-10/afps-rtf101620.php" target="_blank">Wahlheim said</a>.</p>
The theory could resolve some unanswered questions.
- Most stars begin in binary systems, why not ours?
- Puzzles posed by the Oort cloud and the possibility of Planet 9 may be solved by a new theory of our sun's lost companion.
- The sun and its partner would have become separated long, long ago.
If most stars form in binary pairs, what about our Sun? A new paper presents a model supporting the theory that the Sun may have started out as one member of a temporary binary system. There's a certain elegance to the idea — if it's true, this origin story could resolve some vexing solar-system puzzles, among them the genesis of the Oort Cloud, and the presence of massive captured objects like a Planet Nine.
The paper is published in Astrophysical Journal Letters.
The Oort cloud
Image source: NASA
Scientist believe that surrounding the generally flat solar system is a spherical shell comprised of more than a trillion icy objects more than a mile wide. This is the Oort cloud, and it's likely the source of our solar system's long-term comets — objects that take 200 years or more to orbit the Sun. Inside that shell and surrounding the planets is the Kuiper Belt, a flat disk of scattered objects considered the source of shorter-term comets.
Long-term comets come at us from all directions and astronomers at first suspected their origins to be random. However, it turns out their likely trajectories lead back to a shared aphelion between 2,000 astronomical units (AU) from the Sun to about 100,000 AU, with their different points of origin revealing the shell shape of the Oort cloud along that common aphelion. (An astronomical unit is the distance from the Sun to the Earth.)
No object in the Oort cloud has been directly observed, though Voyager 1 and 2, New Horizons, and Pioneer 10 and 11 are all en route. (The cloud is so far away that all five of the craft will be dead by the time they get there.) To derive a clearer view of the Oort cloud absent actually imagery, scientists utilize computer models based on planetary orbits, solar-system formation simulations, and comet trajectories.
It's generally assumed that the Oort cloud is comprised of debris from the formation of the solar system and neighboring systems, stuff from other systems that we somehow captured. However, says paper co-author Amir Siraj of Harvard, "previous models have had difficulty producing the expected ratio between scattered disk objects and outer Oort cloud objects." As an answer to that, he says, "the binary capture model offers significant improvement and refinement, which is seemingly obvious in retrospect: most sun-like stars are born with binary companions."
"Binary systems are far more efficient at capturing objects than are single stars," co-author Ari Loeb, also of Harvard, explains. "If the Oort cloud formed as [indirectly] observed, it would imply that the sun did in fact have a companion of similar mass that was lost before the sun left its birth cluster."
Working out the source of the objects in the Oort cloud is more than just an interesting astronomical riddle, says Siraj. "Objects in the outer Oort Cloud may have played important roles in Earth's history, such as possibly delivering water to Earth and causing the extinction of the dinosaurs. Understanding their origins is important."
Image source: Caltech/R. Hurt (IPAC)/NASA
The gravitational pull resulting from a binary companion to the Sun may also help explain another intriguing phenomenon: the warping of orbital paths either by something big beyond Pluto — a Planet 9, perhaps — or smaller trans-Neptunian objects closer in, at the outer edges of the Kuiper Belt.
"The puzzle is not only regarding the Oort clouds, but also extreme trans-Neptunian objects, like the potential Planet Nine," Loeb says. "It is unclear where they came from, and our new model predicts that there should be more objects with a similar orbital orientation to [a] Planet Nine."
The authors are looking forward to the upcoming Vera C. Rubin Observatory (VRO) , a Large Synoptic Survey Telescope expected to capture its first light from the cosmos in 2021. It's expected that the VRO will definitively confirm or dismiss the existence of Planet 9. Siraj says, "If the VRO verifies the existence of Planet Nine, and a captured origin, and also finds a population of similarly captured dwarf planets, then the binary model will be favored over the lone stellar history that has been long-assumed."
Missing in action
Lord and Siraj consider it unsurprising that we see no clear sign of the Sun's former companion at this point. Says Loeb, "Passing stars in the birth cluster would have removed the companion from the sun through their gravitational influence. He adds that, "Before the loss of the binary, however, the solar system already would have captured its outer envelope of objects, namely the Oort cloud and the Planet Nine population."
So, where'd it go? Siraj answers, "The sun's long-lost companion could now be anywhere in the Milky Way."
Logic puzzles can teach reasoning in a fun way that doesn't feel like work.
- Logician Raymond Smullyan devised tons of logic puzzles, but one was declared by another philosopher to be the hardest of all time.
- The problem, also known as the Three Gods Problem, is solvable, even if it doesn't seem to be.
- It depends on using complex questions to assure that any answer given is useful.