“Freedom lies in being bold.” –Robert Frost
MEDIA
The Future of Decentralized Finance - Silicon Valley Examined 7
On the Silicon Valley Explored podcast, Robert Hendershott and Don Watkins discuss the exciting potential of decentralized finance: the ability to use blockchain technology like Ethereum to engage in financial transactions without centralized financial intermediaries like banks and brokerages. They also discuss the threat to financial innovation posed by increasing DeFi regulation.
INSIGHT
Should government support science?
Robert Hendershott and Don Watkins
Ingenuism recognizes that restrictions on the freedom to experiment and engage in trial-and-error learning hold back progress. We can’t discover new ideas unless we’re free to try out new ideas—even if those ideas don’t seem promising on their face and many fail to pan out.
Silicon Valley entrepreneurs and venture investors do much of this—putting their talents, passion, and capital behind audacious efforts that often crash and burn but, when they succeed, can change the world.
But Silicon Valley is set up to create and commercialize innovative products and services. What about more fundamental knowledge creation? How do we promote basic research—research that doesn’t have obvious immediate commercial use but which, in the long run, can catapult humanity forward?
Basic research generally happens in government agencies, government-sponsored labs, research divisions in large companies, and universities (often financed by governments and/or corporations). These entities have been the critical foundation of progress: in addition to generating new insights, historically they created key connections between scientists and researchers.
What is the optimal way to fund basic research? We all know that when it comes to results, how you spend the money is at least as important as how much you spend.
On one hand, supporting fundamental exploration and discovery seems like a natural role for government. Basic research, a longstanding economic argument goes, is a public good that the market underprovides. Instead of funding foundational research, private companies will find it more profitable to sit around waiting for others to fund research that they can copy and commercialize. But if everyone is making that same calculation, nothing much will get discovered. As Paul Romer put it: “research has positive external effects. It raises the productivity of all future individuals who do research, but because this benefit is non-excludable, it is not reflected at all in the market price.”
On the other hand, there is mixed empirical evidence to support the economic argument for government support. Jeffrey Funk, writing in American Affairs, notes that:
University engineering and science programs are also failing us because they are not creating the breakthrough technologies that America and its start‐ups need. . . .
This decline in technological breakthroughs cannot be attributed to a lack of funding: governments have been funding university research for more than half a century, yet research productivity has declined overall, including research into semiconductors, agriculture, and pharmaceuticals. Other than the internet being commercialized in the 1990s—the technological foundations of which were created in the 1960s and 1970s—few new science‐based technologies have emerged in the last thirty years.
On the flip side, Funk observes, much Nobel Prize-winning research is coming out of corporate labs, rather than (heavily state-funded) university labs:
For instance, among Nobel Prizes for physics and chemistry awarded since 2000 in lithium‐ion batteries, LEDs, charge‐coupled devices, lasers, integrated circuits, and optical fiber, nine of the seventeen recipients did their work at corporate labs. The only high‐impact award that solely involved university research was graphene.
According to Ingenuism, the key criteria for progress are whether people are connected, doing interesting things, and free (or better yet, supported) to apply their ingenuity to whatever problems and opportunities arise.
From this perspective government, private research labs, and universities all come up short because all are susceptible to centralized control and rigid objectives. In a recent Twitter thread, Jason Crawford points to a striking example of how centralized research can stymie good ideas.
Hybrid corn was one of the biggest agricultural breakthroughs of the 20th c. But early research was shut down by the director. It survived only because it was taken to a different state experiment station
The institutions created in the US for agricultural research in the late 19C are an interesting contrast to those created in the mid-20C. In addition to the central USDA, there were experiment stations at the state level (often connected with land-grant colleges) . . . .
Contrast this with NIH and NSF, which are centralized at the national level.
When there are a small number of gatekeepers for research funding, the risk that good ideas don’t get funded skyrockets.
Large organizations naturally trend towards bureaucracy, and for good reasons. Taxpayers want rules and consistent processes to govern the use of public funds. Similarly, shareholders want the same for their private funds. These are not recipes for nimble organizations that foster ingenuity.
Consider this: according to a recent study, only 2% of the $42 billion the NIH spent on research last year went to clinical research on COVID-19. That’s not because the NIH missed out on the fact there was a pandemic, but because it was hamstrung by the rules and processes for distributing taxpayer dollars.
But at the same time, small organizations are not well equipped to do basic research. What might get us out of this conundrum?
Ingenuism’s solution is to let people explore different approaches to figure out what works and what does not. For example, in 2020 Tyler Cowen spearheaded Fast Grants to quickly and nimbly fund ingenious ideas in the face of COVID-19. Exploring different approaches to basic research would unleash the planet’s ingenuity on the question of how to effectively fund science and discovery—likely in ways that will surprise us.
Perhaps the way to get more basic research isn’t to throw more money at the existing “research-industrial complex,” but to create a framework for reimagining the system for basic research from the ground up—and to unfetter billions of peoples’ ingenuity so they can create and commercialize insights.
QUICK TAKES
Are those things real?
Remember that viral Tom Cruise deepfake video from a while back? Most of the conversation was about how deepfakes will destroy the world (or maybe not). But the real story is all of the interesting positive applications the technology could have.
Here’s the company who produced the Cruise video explaining how they use deepfake technology for all sorts of very cool, not scary uses. My favorite: incredible restoration of old films. Check this out.
Will somebody please think of the children? Oh…thanks.
We’ve written about how the FDA slowed down the distribution of the COVID-19 vaccine. The frustrating thing is it’s still happening. In what economist Alex Tabarrok calls “a stunning letter,” the American Academy of Pediatrics is urging the FDA to stop blocking children from getting vaccinated.
In our view, the rise of the Delta variant changes the risk-benefit analysis for authorizing vaccines in children. The FDA should strongly consider authorizing these vaccines [Pfizer and Moderna] for children ages 5-11 years based on data from the initial enrolled cohort, which are already available, while continuing to follow safety data from the expanded cohort in the post-market setting. . . .
In addition, as FDA continues to evaluate clinical trial requirements for children under 5 years, we similarly urge FDA to carefully consider the impact of its regulatory decisions on further delays in the availability of vaccines for this age group. Based on scientific data currently available on COVID-19 vaccines, as well as on 70 years of vaccinology knowledge in the pediatric population, the Academy believes that clinical trials in these children can be safely conducted with a 2-month safety follow-up for participants. . . . Waiting on a 6-month follow-up will significantly hinder the ability to reduce the spread of the hyper infectious COVID-19 Delta variant among this age group, since it would add 4 additional months before an authorization decision can be considered. Based on the evidence from the over 340 million doses of COVID-19 doses administered to adults and adolescents aged 12-17,as well as among adults 18 and older, there is no biological plausibility for serious adverse immunological or inflammatory events to occur more than two months after COVID-19 vaccine administration.
Every technology has risks, but all-too-often, we only look at the risks of action and ignore the very deadly risks of inaction. If our priority truly is saving lives, we should leave parents and doctors free to assess the risks and benefits of COVID-19 vaccines, rather than leaving that judgment in the hands of a handful of centralized decision-makers.
No one buys my books, so the printing press has failed
That, anyway, is the argument the New York Times’s Shira Ovide makes to persuade us that the internet, and YouTube in particular, has underperformed expectations.
If you read the work of people like my colleague Taylor Lorenz, who chronicles the internet’s labor force, it’s easy to see that there may be a mismatch between the promise of the internet economy and the reality.
Some people do earn a good living from their creations on YouTube or other apps, but many others are constantly hustling for peanuts and burning out.
It’s hard to stand out in the sea of people making dance videos on TikTok, livestreaming video games on Twitch or hosting YouTube talk shows, and it has always been that way for creative professions. Except digital optimists wanted to believe that the internet would make it easier and more democratic for anyone to find their fans and their calling.
I can’t believe I have to say this, but the fact that many content creators aren’t interesting enough to making a good living doesn’t contradict the (insanely obvious) point that it’s easier than ever to find your true fans.
Yes, it is hard to stand out if you’re doing the same thing everyone else is. The promise of the internet was never that everyone who posted cat videos would be able to live on ad revenue. It was that you would no longer have to win over gatekeepers in order to find your audience, and that your potential fanbase would include the entire world.
And that (I still can’t believe I have to say this) is precisely what has happened.
Everything is easy until you do it
“Why can’t they just--?” Almost every problem seems easy to solve from the outside. But the devil is in the details. Case in point: why don’t we have robot bricklayers? This piece by Brian Potter explores that question and sheds light on the larger challenges of automation.
For example, Potter cites as a major factor holding back robot bricklayers the fact that brick and mortar construction involves…mortar!
There seems to be a few factors at work. One is the fact that a brick or block isn’t simply set down on a solid surface, but is set on top of a thin layer of mortar, which is a mixture of water, sand, and cementitious material. Mortar has sort of complex physical properties - it’s a non-newtonian fluid, and it’s viscosity increases when it’s moved or shaken. This makes it difficult to apply in a purely mechanical, deterministic way (and also probably makes it difficult for masons to explain what they’re doing - watching them place it you can see lots of complex little motions, and the mortar behaving in sort of strange not-quite-liquid but not-quite-solid ways). And since mortar is a jobsite-mixed material, there will be variation in it’s properties from batch to batch.
When I hear pessimists warn that robots are going to take away all our jobs in a decade, my first thought is that they’re ignoring history and economics. But my second thought is going to be: wait until robots put bricklayers out of work, then get back to me.
Quick, someone launch an entrepreneur exchange program
Here’s one facet of connection I hadn’t thought of: the more connected you are to entrepreneurs, the more likely you are to become an entrepreneur.
Two different teams of scientists make substantially the same discovery at roughly the same time. One of the teams goes on to found a startup based on the idea; the other does not. Why? . . .
One such factor is if one of the scientists who made the discovery has a history of commercialization - no surprise there. Scientists who have commercialized their research before are probably more likely to do it again. But more intriguing, [researchers] also find that if one of the scientists making the discovery has previously collaborated with a scientist with a history of commercialization, the discovery is more likely to be commercialized, even if the discovering scientist does not have a history of commercialization themselves. It’s as if the entrepreneurship bug jumped from one coauthor to another.
Upon reflection, this finding shouldn’t have surprised me. One thing I’ve learned talking to a lot of people with usual jobs—writers, athletes, artists—is that they often had a friend or family member in the field growing up. Partly, that gave them a leg up in terms of skills and industry knowledge. But partly it simply gave them the idea that “this is something I could realistically do.”
In a connected world, more and more people will know (or “know”) entrepreneurs. I wouldn’t be surprised if that leads a higher proportion of people to give entrepreneurship a shot.
RECOMMENDATIONS
The Laws of Disruptionby Larry Downes
Legal thinking works through analogy. This situation is similar to some earlier one, and therefore we should apply the same legal principles. But how should the law cope with a new phenomenon, like the online world?
In The Laws of Disruption: Harnessing the New Forces that Govern Life and Business in the Digital Age, Larry Downes examines the difficulty policymakers and judges have in responding to rapidly evolving digital technologies. There are real challenges posed by these technologies that seem to demand a response—and yet all too often government solutions don’t solve the problem or even make things worse. “[T]echnology changes exponentially, but social, economic, and legal systems change incrementally.”
Downes’s most important insight is that many of the problems the internet has created can’t easily be solved by policymakers—but they don’t need to be. Markets, he argues, “generally work better than traditional forms of government in establishing rules for disruptive technologies.” And while “market forces may seem a poor choice to drive the creation of a new code of digital life,” it turns out that “the alternatives are worse.”
Take privacy. We say we value privacy. But the modern internet is built on us surrendering our information to advertisers so that we can enjoy things like YouTube, Facebook, and Gmail for free. Laws aimed at protecting our privacy are often popular—but only because the costs of such laws are hidden from us.
Downes argues that the real issue is not that we want privacy per se, but that we want control over how our information is used—and we want to benefit from the economic value of our information. In most cases, we are able to navigate these waters just fine. We give away our information (e.g., our email, address, or credit card information) only when it’s necessary to get something we want, and only when we understand why someone is asking for the information. “If it’s not obvious why a piece of information is being requested, I’m not likely to give it up—in fact, I become suspicious of the entire interaction.”
But there are many cases today where our information is being used without our knowledge and without us benefiting. Here Downes thinks the market can, should, and ultimately will be the solution.
To resolve the privacy problem, business and governments need to recognize that it is not violations of their “right to be left alone” that people object to, but unfair exchanges of value. The problem is not one of privacy, in other words, but of propriety. The solution to that problem is to establish markets for buying and selling information . . . that put consumers on even ground with everyone else, allowing them to market their information based on their own priorities and preferences.
The government does have a role—Downes is not an anarchist who thinks every problem can be solved purely through voluntary decision-making. But its role is highly delimited.
Since the dawn of capitalism, policymakers have proven adept at creating the necessary infrastructure for new markets. The existence of police and courts, for example, largely deters participants from cheating, keeping enforcement costs low. Rather than micromanage the emerging market for information exchange whenever something goes wrong, legislators and regulators should focus on establishing standard contracts, clear definitions of what is and is not PII [Personal Identifying Information], and simple and cheap mechanisms for resolving breakdowns and punishing destructive—that is, criminal—behavior.
I’m not necessarily in favor of all of Downes’s recommendations. But his book brings to the forefront of digital policy debates two crucial facts that often get ignored: the deep challenges for policymakers in effectively setting rules for rapidly evolving new technologies—and the underappreciated ability of private individuals to find solutions to the problems new technologies create.
Until next time,
Don Watkins
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