| Tikalon Blog is now in archive mode.
An easily printed and saved version of this article, and a link
to a directory of all articles, can be found below: |
|
This article |
| Directory of all articles |
Too Big to Fail?
September 16, 2011
Dinosaurs were the largest animals on the face of the
Earth. For example, some
Titanosaurs, which lived during the
Late Jurassic through the
Late Cretaceous (156 - 66 million years ago), weighed a hundred
metric tons.
The bottom fell out of the dinosaur
futures market at the
Cretaceous–Tertiary extinction event, which marked the end of the Titanosaurs and all non-
avian dinosaurs. Did
nature dream up a
bail-out plan for the dinosaurs because they were too big to fail? After all, they had successfully dominated the Earth for many millions of years.
Nature isn't all that kind. It functions by the strict
evolutionary principle of
natural selection that may seem harsh at a given time, but they work very well in the long run.
Humans owe their existence to the same process that allowed the dinosaurs to become
extinct. The dinosaurs were replaced by more adaptable species.
Not the Bambi that I knew as a child!
Fossil cast of a Bambiraptor feinbergi skeleton.
(Processed version of an original photograph by 'Ninjatacoshell' via Wikimedia Commons))
In a recent issue of
Science,[1] Daniel J. Rankin of the
Institute of Evolutionary Biology and Environmental Studies,
University of Zürich (
Zürich, Switzerland), and the
Swiss Institute of Bioinformatics (
Lausanne, Switzerland), reviews the book, "Adapt - Why Success Always Starts with Failure," by Tim Harford (Farrar, Straus and Giroux, New York, 2011).[2]
A lot of
common sense about the recent financial bailout is condensed in this quotation that Rankin cites from Harford's book.
"The ideal candidate to receive government support seems to be a company that is very big and very unsuccessful. This is the perfect formula for sustained failure."
There are definite parallels between
evolutionary biology and
economics, the most important is that each concerns agents who try to maximize their fitness. The
biological fitness would be the ability to survive to reproduce, and the economic fitness would be maximal
utility. Since experts have a hard time reaching a consensus on the best economic policy, Harford's thesis is that all economic strategies should compete with each other in order to determine which strategy is the fittest.
Harford claims that the
Edisonian trial and error approach is the only way to make progress when issues are too complex for analysis. Although Harford advocates such a competition of ideas and strategies to separate the weak and strong, he admits that the agents that compete in his economic arena should be able to survive their failed strategy.
Harford further advocates the use of prize competitions as one approach to generating science for the public good. The
Longitude Prize, a prize competition established by the
British government to aid navigation, was the first such competition. It was logically structured to allow a storied tier of monetary awards to encourage participation.
The
Ansari X Prize for sub-orbital human spaceflight is a recent example of a successful competition. Ten million dollars were awarded to the winner,
SpaceShipOne, but it's estimated that the prize generated $100 million in new technology. Harford advocates a multi-billion dollar prize for an
HIV vaccine, but he doesn't realize that that's probably less than the money a
pharmaceutical company stands to make through its invention.
Thorstein Veblen (a.k.a., Torsten Veblen) was an evolutionary economist in the late
nineteenth, and early
twentieth, century. He's best known for writing his 1899 book,
The Theory of the Leisure Class,[3] and coining the term,
conspicuous consumption. Conspicuous consumption is the purchase of lavishly expensive, or ephemeral and impractical, goods and services simply as a way of displaying income or wealth.
Conspicuous consumption is much like a
peacock's feathers. It takes a lot of
energy for a peacock to maintain such a display to attract a mate, but he's advertising the fact that he's strong enough to pull it off.
Thorstein (Torsten) Veblen
Veblen's "The Theory of the Leisure Class" introduced the term, "conspicuous consumption."
(Via Wikimedia Commons))
Corporations with sumptuous headquarters buildings and lavishly ornate boardrooms are a form of conspicuous consumption. They advertise that those corporations can afford such things, since they are doing very well. Companies that count pencils, lock supply cabinets and eliminate employee
perquisites such as free
coffee and food at meetings, are essentially advertising that they aren't doing so well.
If you're working for a pencil counter, it's time to polish
your resume.
References:
- Daniel J. Rankin, "Economics - A Darwinian Approach," Science, vol. 333, no. 6042 (July 29, 2011), p. 526.
- Adapt - Why Success Always Starts with Failure by Tim Harford (Farrar, Straus and Giroux, New York, 2011), 320 pp. (ISBN 978-0374100964, via Amazon).
- Thorstein Veblen, "The Theory of the Leisure Class," 723 kb PDF File, via Pennsylvania State University.
Permanent Link to this article
Linked Keywords: Dinosaur; Earth; Titanosaurs; Late Jurassic; Late Cretaceous; metric ton; futures exchange; futures market; Cretaceous–Tertiary extinction event; avian; nature; Emergency Economic Stabilization Act of 2008; bail-out plan; evolutionary principle; natural selection; human; extinct; Wikimedia Commons; Science; Institute of Evolutionary Biology and Environmental Studies; University of Zürich; Zürich, Switzerland; Swiss Institute of Bioinformatics; Lausanne, Switzerland; common sense; evolutionary biology; economics; biological fitness; utility; Edisonian; trial and error; Longitude Prize; United Kingdom; Ansari X Prize; SpaceShipOne; HIV vaccine; pharmaceutical company; Thorstein Veblen; nineteenth century; twentieth century; The Theory of the Leisure Class; conspicuous consumption; peafowl; peacock; feathers; energy; corporation; perquisite; coffee; Adapt - Why Success Always Starts with Failure; Tim Harford.