winner-take-all economy

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pages: 361 words: 81,068

The Internet Is Not the Answer by Andrew Keen

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3D printing, A Declaration of the Independence of Cyberspace, Airbnb, AltaVista, Andrew Keen, augmented reality, Bay Area Rapid Transit, Berlin Wall, bitcoin, Black Swan, Burning Man, Cass Sunstein, citizen journalism, Clayton Christensen, clean water, cloud computing, collective bargaining, Colonization of Mars, computer age, connected car, cuban missile crisis, David Brooks, disintermediation, Downton Abbey, Edward Snowden, Elon Musk, Erik Brynjolfsson, Fall of the Berlin Wall, Filter Bubble, Francis Fukuyama: the end of history, Frank Gehry, Frederick Winslow Taylor, frictionless, full employment, future of work, gig economy, global village, Google bus, Google Glasses, Hacker Ethic, happiness index / gross national happiness, income inequality, index card, informal economy, information trail, Innovator's Dilemma, Internet of things, Isaac Newton, Jaron Lanier, Jeff Bezos, job automation, Joseph Schumpeter, Julian Assange, Kevin Kelly, Kickstarter, Kodak vs Instagram, Lean Startup, libertarian paternalism, Lyft, Mark Zuckerberg, Marshall McLuhan, Martin Wolf, move fast and break things, Nate Silver, Network effects, new economy, Nicholas Carr, nonsequential writing, Norbert Wiener, Occupy movement, packet switching, PageRank, Paul Graham, Peter Thiel, Plutocrats, plutocrats, Potemkin village, precariat, pre–internet, RAND corporation, Ray Kurzweil, ride hailing / ride sharing, Second Machine Age, self-driving car, sharing economy, Silicon Valley, Silicon Valley ideology, Skype, smart cities, Snapchat, social web, South of Market, San Francisco, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, TaskRabbit, Ted Nelson, telemarketer, the medium is the message, Thomas L Friedman, Tyler Cowen: Great Stagnation, Uber for X, urban planning, Vannevar Bush, Whole Earth Catalog, WikiLeaks, winner-take-all economy, working poor, Y Combinator

“What seems clear is that Amazon is using its market power,” a June 2014 New York Times editorial notes about Amazon’s decision to unstock Hachette’s books, “to get the best deal for itself while it squeezes publishers, annoys its customers and hurts authors by limiting their sales.”56 “Amazon’s Power Play” is how the New York Times summarized this bullying behavior. This is an accurate summary not only of the Internet’s winner-take-all economy, but also of Amazon’s dominant place in it. So much for those “decentralizing, globalizing, harmonizing and empowering” qualities that Nicholas Negroponte promised would be a “force of nature” of the digital age. Jeff Bezos would, of course, disagree, arguing, no doubt, that such a generalization is a narrative fallacy. But he’d be wrong. The real force of nature in the digital age is a winner-take-all economy that is creating increasingly monopolistic companies like Amazon and multibillionaire plutocrats like Bezos himself. The Code Is Cracked Despite the metaphysical promises of digital prophets like Nicholas Negroponte and Kevin Kelly, the early generation of Internet businesses in what is now called the “Web 1.0” age, such as Amazon, Netscape, Yahoo, and eBay, weren’t very innovative.

Unfortunately, the supposed “new rules” for this new economy aren’t very new. Rather than producing more jobs or prosperity, the Internet is dominated by winner-take-all companies like Amazon and Google that are now monopolizing vast swaths of our information economy. But why has this happened? How has a network designed to have neither a heart, a hierarchy, nor a central dot created such a top-down, winner-take-all economy run by a plutocracy of new lords and masters? Monetization In The Everything Store, his definitive 2013 biography of Amazon founder and CEO Jeff Bezos, Brad Stone recounts a conversation he had with Bezos about the writing of his book. “How do you plan to handle the narrative fallacy?” the Internet entrepreneur asked, leaning forward on his elbows and staring in his bug-eyed way at Stone.9 There was a nervous silence as Stone looked at Bezos blankly.

“It’s the obvious destination for the work-hard-play-hard set.”13 Like an express suddenly roaring past a freight train, the second version of the Internet replaced the first with remarkable speed. What is particularly striking is how few people successfully jumped from one train to the other. But one person who did make the leap was Marc Andreessen. Indeed, more than any other single individual, Andreessen was responsible for transforming the nonprofit Internet into a winner-take-all economy. Andreessen had become familiar with the World Wide Web in the early nineties as a computer science student at the University of Illinois, where he was also earning $6.85 an hour working as a programmer at the National Center for Supercomputing Applications (NCSA), a National Science Foundation–funded research center attached to the university. The major problem with Berners-Lee’s WorldWideWeb browser, he recognized, was that it was forbiddingly hard for anyone without advanced programing skills to use.


pages: 339 words: 88,732

The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson, Andrew McAfee

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2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, access to a mobile phone, additive manufacturing, Airbnb, Albert Einstein, Amazon Mechanical Turk, Amazon Web Services, American Society of Civil Engineers: Report Card, Any sufficiently advanced technology is indistinguishable from magic, autonomous vehicles, barriers to entry, Baxter: Rethink Robotics, British Empire, business intelligence, business process, call centre, clean water, combinatorial explosion, computer age, computer vision, congestion charging, corporate governance, crowdsourcing, David Ricardo: comparative advantage, employer provided health coverage, en.wikipedia.org, Erik Brynjolfsson, factory automation, falling living standards, Filter Bubble, first square of the chessboard / second half of the chessboard, Frank Levy and Richard Murnane: The New Division of Labor, Freestyle chess, full employment, game design, global village, happiness index / gross national happiness, illegal immigration, immigration reform, income inequality, income per capita, indoor plumbing, industrial robot, informal economy, inventory management, James Watt: steam engine, Jeff Bezos, jimmy wales, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kevin Kelly, Khan Academy, knowledge worker, Kodak vs Instagram, law of one price, low skilled workers, Lyft, Mahatma Gandhi, manufacturing employment, Mark Zuckerberg, Mars Rover, means of production, Narrative Science, Nate Silver, natural language processing, Network effects, new economy, New Urbanism, Nicholas Carr, Occupy movement, oil shale / tar sands, oil shock, pattern recognition, payday loans, price stability, Productivity paradox, profit maximization, Ralph Nader, Ray Kurzweil, recommendation engine, Report Card for America’s Infrastructure, Robert Gordon, Rodney Brooks, Ronald Reagan, Second Machine Age, self-driving car, sharing economy, Silicon Valley, Simon Kuznets, six sigma, Skype, software patent, sovereign wealth fund, speech recognition, statistical model, Steve Jobs, Steven Pinker, Stuxnet, supply-chain management, TaskRabbit, technological singularity, telepresence, The Bell Curve by Richard Herrnstein and Charles Murray, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, total factor productivity, transaction costs, Tyler Cowen: Great Stagnation, Vernor Vinge, Watson beat the top human players on Jeopardy!, winner-take-all economy, Y2K

But what if a technology arises that lets each seller cheaply replicate his or her services and deliver them globally at little or no cost? Suddenly the top-quality provider can capture the whole market. The next-best provider might be almost as good, but it will not matter. Each time a market becomes more digital, these winner-take-all economics become a little more compelling. Winner-take-all markets were just coming to the fore in the 1990s, when Frank and Cook wrote their remarkably prescient book. They compared these winner-take-all markets, where the compensation was mainly determined by relative performance, to traditional markets, where revenues more closely tracked absolute performance. To understand the distinction, suppose the best, hardest-working construction worker could lay one thousand bricks in a day while the tenth-best laid nine hundred bricks per day.

Like low marginal costs, network effects can create both winner-take-all markets and high turbulence.18 The Social Acceptability of Superstars In addition to the technical changes that have increased digitization, telecommunication, networks, and other factors that create superstar products and companies, there are more aspects at work in boosting superstar compensation for individuals. In some cases, cultural barriers to very large pay packages have fallen. CEOs, financial executives, actors, and professional athletes may be more willing to demand seven- or even eight-figure compensation deals. As more people get those deals, a positive feedback loop emerges: it becomes easier for others to make similar requests. In fact, the concentration of wealth itself can create what Frank and Cook call “deep pocket” winner-take-all markets. As the great economist Alfred Marshall noted, “a rich client whose reputation or fortune or both are at stake will scarcely count any price too high to secure the services of the best man he can get.”19 If mass-market media enables an athlete like O.

As we’ve seen, however, opportunities to create new products don’t necessarily come with big paychecks. A superstar or long-tail economy with low barriers to entry is still one with far more inequality. The Power Curve Nation An economy dominated by winner-take-all markets has very different dynamics than the industrial economy to which we are accustomed. As we discussed at the beginning of the chapter, the earnings of bricklayers will vary a lot less than the winner-take-all earnings of app developers, but that’s not the only difference. Instead of stable market shares, where revenues and income correspond proportionally to differences in talent and effort, competition in winner-take-all markets will be much more unstable and asymmetrical. The great economist Joseph Schumpeter wrote of “creative destruction,” where each innovation not only created value for consumers but also wiped out the previous incumbent.


pages: 452 words: 110,488

The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead by David Callahan

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1960s counterculture, affirmative action, corporate governance, David Brooks, deindustrialization, East Village, forensic accounting, full employment, game design, greed is good, high batting average, housing crisis, illegal immigration, income inequality, job satisfaction, market fundamentalism, McMansion, microcredit, moral hazard, new economy, New Urbanism, offshore financial centre, oil shock, Plutocrats, plutocrats, postindustrial economy, profit maximization, profit motive, RAND corporation, Ray Oldenburg, rolodex, Ronald Reagan, shareholder value, Silicon Valley, Steve Jobs, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, Thorstein Veblen, War on Poverty, winner-take-all economy, World Values Survey, young professional

No stock analyst wants to go on CNBC and hype a stock that every insider knows is a piece of junk. No chief financial officer wants to cook earnings reports, and no accountant wants to rubber-stamp these reports. No journalist wants to make up her sources. But when you look at the effects of inequality in our society, you can understand why respectable people consistently do all of these things. The winner-take-all economy has loaded up the rewards for those who make it into the Winning Class, and left everyone else with little security and lots of anxiety. Inequality has also pulled us apart, weakening our faith that others follow the same rules that we do. Unfortunately it gets worse. Two decades of change in American economic life—and a steady string of victories for laissez-faire ideologues—hasn't just shifted the financial incentives for individuals or the operating strategies of business organizations.

In the same year, Tufts University rejected one in three valedictorians who applied, as well as a number of applicants with perfect 1600 scores on the SAT.14 College admissions directors at the best schools talk about the immense challenge of winnowing down large applicant pools filled with one perfect candidate after the other. Many people scoff at the importance attached to name-brand schools, and it's easy to condemn the less savory motives of parents who want a Harvard kid. But the reality is that in a winner-take-all economy, and a society increasingly obsessed with "branding," a degree from a prestigious college matters more than ever. For example, many recruiters for America's best companies focus their search for entry-level professionals exclusively on the top schools in the nation, and for good reason. As any headhunter will explain, hiring personnel is extremely time consuming and fraught with risk. Because so many hires do not work out, as many as half in some settings, employers are essentially playing a numbers game; the higher the ratio of good hires to bad hires, the less time and money that gets wasted.

Danny may yet make it to the majors one day.12 If he does, he will leave behind one of the most impoverished neighborhoods in one of the most unequal cities in America—and join a profession where men feel poor on $200,000 a year and the inequalities between sluggers and benchwarmers are comparable to the contrast between Harlem and the Upper East Side. He will meet a lot of guys from humble backgrounds similar to his own who are under intense pressure to perform at a very high level and keep their toehold in the Winning Class. Danny will also enter a world so rife with cheating that his own past sins will seem laughable in comparison. Consider the San Francisco Giants as one example of the winner-take-all market in sports. On opening day in spring 2002, the Giants paid its starting roster of twenty-six players a total team salary of $78.3 million. Almost a fifth of this pie went to one player: left fielder Barry Bonds, who took home $15 million during the season. Over half of the total team salary in 2002 went to five of the Giants' top players. At the bottom of the salary pyramid were seven team members with salaries of $300,000 or less.


pages: 602 words: 120,848

Winner-Take-All Politics: How Washington Made the Rich Richer-And Turned Its Back on the Middle Class by Paul Pierson, Jacob S. Hacker

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accounting loophole / creative accounting, affirmative action, asset allocation, barriers to entry, Bonfire of the Vanities, business climate, carried interest, Cass Sunstein, clean water, collective bargaining, corporate governance, Credit Default Swap, David Brooks, desegregation, employer provided health coverage, financial deregulation, financial innovation, financial intermediation, full employment, Home mortgage interest deduction, Howard Zinn, income inequality, invisible hand, knowledge economy, laissez-faire capitalism, Martin Wolf, medical bankruptcy, moral hazard, Nate Silver, new economy, night-watchman state, offshore financial centre, oil shock, Ralph Nader, Ronald Reagan, shareholder value, Silicon Valley, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, union organizing, very high income, War on Poverty, winner-take-all economy, women in the workforce

How much, in other words, did they really benefit from the winner-take-all economy? The evidence can be summarized in a two-word answer: Not much. When we look at the DNA evidence on U.S. incomes, we find that most Americans experienced extremely modest gains over the era in which the rewards at the top multiplied. This is true, surprisingly and revealingly, even for the mostly highly skilled individuals just below the very top rungs of the income ladder. But the evidence on income gains actually understates the case—by a lot. When we expand our view beyond income to take in the broader canvas of the winner-take-all economy, the argument for thinking that the gains of America’s top-heavy economic growth “trickled down” becomes even weaker. This is not just a story of relative income erosion. The fallout of the winner-take-all economy has reached broadly and deeply into the security of the middle class—and, as recent events reveal, the entire American economy.

Executives in Quebec do not appear to be competing in the same common labor market that has allowed American pay levels at the top to diffuse to the rest of Canada. Chapter 2 How the Winner-Take-All Economy Was Made The winner-take-all economy—the hyperconcentration of rewards at the top that is the defining feature of the post-1970s American economy—poses three big mysteries: Who did it? How? And why? We have seen that the main suspect fingered by most investigators, Skill-Biased Technological Change, is at most a modest accomplice. Now, it is time to turn to the unusual suspect, American government and politics. No less important, it is time to ask, if American government and politics did it, how? Only after understanding the basic, powerful ways in which government fueled the winner-take-all economy will we be in a position to delve into the “Why” questions: What were the motives behind the public policies that fostered winner-take-all?

United States—Politics and government—1989–. I. Pierson, Paul. II. Title. HN89.S6H33 2010 306.3'42097309045—dc22 2010014515 ISBN 978-1-4165-8869-6 ISBN 978-1-4165-9384-3 (ebook) To our children—Ava and Owen, Sidra and Seth— inheritors of a hopefully stronger America Contents Introduction: The Thirty-Year War Part I: The Puzzling Politics of Winner-Take-All 1 The Winner-Take-All Economy 2 How the Winner-Take-All Economy Was Made 3 A Brief History of Democratic Capitalism Part II: The Rise of Winner-Take-All Politics 4 The Unseen Revolution of the 1970s 5 The Politics of Organized Combat 6 The Middle Goes Missing Part III: Winner-Take-All Politics 7 A Tale of Two Parties 8 Building a Bridge to the Nineteenth Century 9 Democrats Climb Aboard 10 Battle Royale Conclusion: Beating Winner-Take-All Acknowledgments Notes Index About the Authors Introduction The Thirty-Year War For those working on Wall Street, 2009 was a very good year.


pages: 283 words: 85,824

The People's Platform: Taking Back Power and Culture in the Digital Age by Astra Taylor

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A Declaration of the Independence of Cyberspace, Andrew Keen, barriers to entry, Berlin Wall, big-box store, Brewster Kahle, citizen journalism, cloud computing, collateralized debt obligation, Community Supported Agriculture, conceptual framework, corporate social responsibility, cross-subsidies, crowdsourcing, David Brooks, digital Maoism, disintermediation, don't be evil, Donald Trump, Edward Snowden, Fall of the Berlin Wall, Filter Bubble, future of journalism, George Gilder, Google Chrome, Google Glasses, hive mind, income inequality, informal economy, Internet Archive, Internet of things, invisible hand, Jane Jacobs, Jaron Lanier, Jeff Bezos, job automation, Julian Assange, Kevin Kelly, Kickstarter, knowledge worker, Mark Zuckerberg, means of production, Naomi Klein, Narrative Science, Network effects, new economy, New Journalism, New Urbanism, Nicholas Carr, oil rush, Peter Thiel, Plutocrats, plutocrats, pre–internet, profit motive, recommendation engine, Richard Florida, Richard Stallman, self-driving car, shareholder value, sharing economy, Silicon Valley, Silicon Valley ideology, slashdot, Slavoj Žižek, Snapchat, social graph, Steve Jobs, Stewart Brand, technoutopianism, trade route, Whole Earth Catalog, WikiLeaks, winner-take-all economy, Works Progress Administration, young professional

Networked technologies do not resolve the contradictions between art and commerce, but rather make commercialism less visible and more pervasive. The Internet does not close the distance between hits and flops, stars and the rest of us, but rather magnifies the gap, eroding the middle space between the very popular and virtually unknown. And there is no guarantee that the lucky few who find success in the winner-take-all economy online are more diverse, authentic, or compelling than those who succeeded under the old system. Despite the exciting opportunities the Internet offers, we are witnessing not a leveling of the cultural playing field, but a rearrangement, with new winners and losers. In the place of Hollywood moguls, for example, we now have Silicon Valley tycoons (or, more precisely, we have Hollywood moguls and Silicon Valley tycoons).

Thus an independent musician like Rebecca Gates is squeezed from both sides. Off-line, local radio stations have been absorbed by Clear Channel and the major labels control more of the music market than they did before the Internet emerged. And online Gates has to position herself and her work on a monopolists’ platform or risk total invisibility. Monopolies, contrary to early expectations, prosper online, where winner-take-all markets emerge partly as a consequence of Metcalfe’s law, which says that the value of a network increases exponentially by the number of connections or users: the more people have telephones or have social media profiles or use a search engine, the more valuable those services become. (Counterintuitively, given his outspoken libertarian views, PayPal founder and first Facebook investor Peter Thiel has declared competition overrated and praised monopolies for improving margins.30) What’s more, many of the emerging info-monopolies now dabble in hardware, software, and content, building their businesses at every possible level, vertically integrating as in the analog era.

“In theory you can have a few very successful individuals controlling hundreds of millions of people. You can become big fast, and that favors the domination of strong people.” Preferential attachment, network effects, and the power laws they produce matter, in part, because they intensify and epitomize the old inequities we hoped the Internet would overthrow, from the star system to the hit-driven manufacturing of movies, music, and books. Winner-take-all markets promote certain types of culture at the expense of others, can make it harder for niche cultures and late bloomers to flourish, and contribute to broader income inequality.26 More specifically, where cultural production is concerned, the persistence of power laws refutes the myth of independent creators competing on even ground. The most vocal proponent of this myth, Chris Anderson, has declared the end of the “water cooler era” when we “listened, watched, and read from the same relatively small pool of mostly hit content,” for an age when “we’re all into different things.”


pages: 481 words: 120,693

Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else by Chrystia Freeland

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Albert Einstein, algorithmic trading, banking crisis, barriers to entry, Basel III, battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Branko Milanovic, Bretton Woods, BRICs, business climate, call centre, carried interest, Cass Sunstein, Clayton Christensen, collapse of Lehman Brothers, conceptual framework, corporate governance, credit crunch, Credit Default Swap, crony capitalism, Deng Xiaoping, don't be evil, double helix, energy security, estate planning, experimental subject, financial deregulation, financial innovation, Flash crash, Frank Gehry, Gini coefficient, global village, Goldman Sachs: Vampire Squid, Gordon Gekko, Guggenheim Bilbao, haute couture, high net worth, income inequality, invention of the steam engine, job automation, joint-stock company, Joseph Schumpeter, knowledge economy, knowledge worker, linear programming, London Whale, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, NetJets, new economy, Occupy movement, open economy, Peter Thiel, place-making, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, postindustrial economy, Potemkin village, profit motive, purchasing power parity, race to the bottom, rent-seeking, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, self-driving car, short selling, Silicon Valley, Silicon Valley startup, Simon Kuznets, Solar eclipse in 1919, sovereign wealth fund, stem cell, Steve Jobs, The Spirit Level, The Wealth of Nations by Adam Smith, Tony Hsieh, too big to fail, trade route, trickle-down economics, Tyler Cowen: Great Stagnation, wage slave, Washington Consensus, winner-take-all economy

Treasury, crunched the numbers for 2005, they found that even among the top 0.01 percent—true plutocrats who earn at least $10 million a year—wages are far more important than rents. Salary income and business income accounted for 80 percent of their income excluding capital gains and 64 percent including capital gains. And, as with the 1 percent, the shift toward wages has coincided with the emergence of the winner-take-all economy. These figures were a quarter lower in 1979: 61 percent and 46 percent. You can see that change in the life stories of today’s plutocrats. Pete Peterson, for example, is the son of a Greek immigrant who arrived in America at age seventeen and worked his way up to owning a diner in Nebraska; his Blackstone cofounder, Steve Schwarzman, is the son of a Philadelphia-area retailer. Leon Cooperman, a Goldman Sachs veteran and hedge fund billionaire who has become an outspoken critic of the White House, made a point of his own humble background in an open letter to the president that he circulated in the autumn of 2011: “While I have been richly rewarded by a life of hard work (and a great deal of luck), I was not to-the-manor-born.

Economists Thomas Philippon and Ariell Reshef, who have studied the connection between deregulation and soaring incomes in finance, found that the wage premium for a college education increased from 0.382 in 1970 to 0.584 in 2005, an increase of more than 50 percent—a figure that goes a long way in explaining why income inequality has soared. As another economist, Thomas Lemieux, concluded in a 2006 study of the subject, “Most of the increase in wage inequality between 1973 and 2005 is due to a dramatic increase in the return to post-secondary education.” Moreover, broad measures of the return on education understate the rise of the super-smart in one crucial respect. Just as the winner-take-all economy rewards those at the very top much more richly than those one rung beneath them, a super-elite education has outsize rewards. Any middle-class parent living in a city that is home to a significant community of the 0.1 percent—and that means not just the obvious centers of New York, San Francisco, and London, but also emerging metropolises like Mumbai, Moscow, and Shanghai—knows that the perceived high value of an elite education has prompted a Darwinian pedagogical struggle that begins in nursery school.

It is easy to dismiss these contortions as nouveau riche excess or a neurotic example of a child-centered culture run amok. But the reality is more disturbing. In a recent essay, University of Queensland economist John Quiggin calculated that the total first-year class of the Ivy League universities—around twenty-seven thousand—is just under 1 percent of the U.S. college-age population of around three million. And in our education-driven, winner-take-all economy, that 1 percent of eighteen-year-olds has a huge edge in forming the 1 percent as adults. “With those numbers in mind,” Quiggin writes, “the ferocity of the admissions race for elite institutions is unsurprising. Even with the steadily increasing tuition fees, parents and students correctly judge that admission to one of the ‘right’ colleges is a make-or-break life event, far more than a generation ago.”


pages: 190 words: 53,409

Success and Luck: Good Fortune and the Myth of Meritocracy by Robert H. Frank

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2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Amazon Mechanical Turk, American Society of Civil Engineers: Report Card, attribution theory, availability heuristic, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, carried interest, Daniel Kahneman / Amos Tversky, David Brooks, deliberate practice, en.wikipedia.org, endowment effect, experimental subject, framing effect, full employment, hindsight bias, If something cannot go on forever, it will stop, income inequality, invisible hand, labor-force participation, labour mobility, lake wobegon effect, loss aversion, minimum wage unemployment, Network effects, Report Card for America’s Infrastructure, Richard Thaler, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Rory Sutherland, side project, sovereign wealth fund, Steve Jobs, The Wealth of Nations by Adam Smith, Tim Cook: Apple, ultimatum game, Vincenzo Peruggia: Mona Lisa, winner-take-all economy

In such markets, the quality difference between best and second best is often barely perceptible, but the corresponding difference in rewards can be enormous. Technology has been creating similar winner-take-all markets in other domains, including law, medicine, sports, journalism, retail, manufacturing, even academia. In these and many other arenas, new methods of production and communication have amplified the effect of chance events, greatly magnifying the gaps between winners and losers. It’s one thing to say that someone who works 1 percent harder than others or is 1 percent more talented deserves 1 percent more income. But the importance of chance looms much larger when such small performance differences translate into thousands-fold differences in earnings. The spread of winner-take-all markets has amplified the importance of chance in a second way. In almost all cases, the prodigious rewards that accrue to a handful of winners in these markets attract enormous numbers of contestants.

Many best sellers are no more worthy, in purely objective terms, than a host of other books that fail to make the list. Winner-take-all markets generally display two characteristic features. One is that rewards depend less on absolute performance than on relative performance. Steffi Graf, one of the best female tennis players of all time, played at a consistently high level throughout the mid-1990s, yet she earned considerably more during the twelve months after April 1993 than during the preceding twelve months. One reason was the absence during the latter period of her rival Monica Seles, who had been forced to leave the tour after being stabbed in the back that April by a deranged fan at a tournament in Germany. Although the absolute quality of Graf’s play didn’t change much during Seles’s absence, her relative quality improved substantially. A second important feature of winner-take-all markets is that rewards tend to be highly concentrated in the hands of a few top performers.

And among that billion minus one Might have chanced to be Shakespeare, another Newton, a new Donne— But the One was Me. Shame to have ousted your betters thus, Taking ark while the others remained outside! Better for all of us, froward Homunculus, If you’d quietly died! —ALDOUS HUXLEY (1920) CONTENTS Preface xi Acknowledgments xix 1 Write What You Know 1 2 Why Seemingly Trivial Random Events Matter 21 3 How Winner-Take-All Markets Magnify Luck’s Role 40 4 Why the Biggest Winners Are Almost Always Lucky 56 5 Why False Beliefs about Luck and Talent Persist 69 6 The Burden of False Beliefs 86 7 We’re in Luck: A Golden Opportunity 109 8 Being Grateful 128 Appendix 1: Detailed Simulation Results for Chapter 4 151 Appendix 2: Frequently Asked Questions about the Progressive Consumption Tax 158 Notes 173 Index 183 PREFACE How important is luck?

The Darwin Economy: Liberty, Competition, and the Common Good by Robert H. Frank

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carbon footprint, carried interest, Cass Sunstein, clean water, congestion charging, corporate governance, deliberate practice, full employment, income inequality, invisible hand, Plutocrats, plutocrats, positional goods, profit motive, Ralph Nader, rent control, Richard Thaler, Ronald Coase, Ronald Reagan, sealed-bid auction, smart grid, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, trickle-down economics, ultimatum game, winner-take-all economy

It’s a matter of simple logic that when people overestimate their chances of winning, too many forsake productive occupations in traditional markets to compete in winner-take-all markets. The Tragedy of the Commons Potential contestants in winner-take-all markets also confront a problem called the tragedy of the commons, an incentive structure that was first invoked to explain overfishing in ocean waters.7 The cod, once abundant in the North Atlantic, saw its population decline by more than 95 percent from overharvesting. The incentives that led to this decline were similar to those that produce excessive entry into many winner-take-all markets. The tragedy of the commons provides a vivid illustration of Darwin’s insight that individual and group interests often diverge sharply. A simple numerical example captures the essence of the conflict.

It’s a feature found to some degree in almost every winner-take-all market. As a practical matter, moreover, almost all markets that generate society’s highest incomes are winner-take-all markets. There are typically a few highly leveraged positions atop each profession—Grammywinning recording artists, all-star shortstops, best-selling novelists, Fortune 500 CEOs, major network news anchors, Academy Award–winning actors, popular radio talk show hosts, leading plaintiffs attorneys, and so on. Because these positions are so lucrative, competition to occupy them is invariably intense. There are literally hundreds—in many cases even thousands—of highly capable, ambitious candidates for each opening. Again, potential contestants in winner-take-all markets tend to overestimate their odds of success and to ignore the fact that their entry into one of these contests would make each existing contestant less likely to succeed.

So if half the people who are currently jockeying for positions in hedge funds and private equity firms were to leave the financial industry tomorrow, there would still be no shortage of extremely qualified candidates to fill those positions. The resulting gains from having more and better engineers, medical researchers, teachers, and family physicians would more than compensate for any lost value from having fewer contestants in winner-take-all markets. If after-tax incomes in winner-take-all markets were lower, fewer THE GREAT TRADE-OFF? 167 contestants would compete for positions in them. So the desired employment shifts could be encouraged simply by raising tax rates on top earners. Referring to proposals to eliminate preferential tax treatment for hedge fund and private equity managers, a finance professor at Columbia Business School objected that “Private equity is a very important part of our economy,” adding that higher taxes will discourage it.9 Others have characterized the proposals as envy-driven class warfare.


pages: 197 words: 60,477

So Good They Can't Ignore You: Why Skills Trump Passion in the Quest for Work You Love by Cal Newport

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Apple II, bounce rate, Byte Shop, Cal Newport, capital controls, cleantech, Community Supported Agriculture, deliberate practice, financial independence, follow your passion, Frank Gehry, job satisfaction, job-hopping, knowledge worker, Mason jar, medical residency, new economy, passive income, Paul Terrell, popular electronics, renewable energy credits, Results Only Work Environment, Richard Bolles, Richard Feynman, Richard Feynman, rolodex, Sand Hill Road, side project, Silicon Valley, Skype, Steve Jobs, Steve Wozniak, web application, winner-take-all economy

Step 1: Decide What Capital Market You’re In For the sake of clarity, I will introduce some new terminology. When you are acquiring career capital in a field, you can imagine that you are acquiring this capital in a specific type of career capital market. There are two types of these markets: winner-take-all and auction. In a winner-take-all market, there is only one type of career capital available, and lots of different people competing for it. Television writing is a winner-take-all market because all that matters is your ability to write good scripts. That is, the only capital type is your script-writing capability. An auction market, by contrast, is less structured: There are many different types of career capital, and each person might generate a unique collection. The cleantech space is an auction market.

career capital markets (introduced in Rule #2): When acquiring career capital in a field, you can envision that you’re acquiring this capital in a specific type of career capital market. There are two types of these markets: winner-take-all and auction. In a winner-take-all market, there is only one type of career capital available and lots of different people competing for it. An auction market, by contrast, is less structured: There are many different types of career capital, and each person might generate their own unique collection of this capital. Different markets require different career capital acquisition strategies. In a winner-take-all market, for example, you need to first “crack the code” on how people master the one skill that matters. In an auction market, by contrast, you might simply emphasize rareness in the skill combinations that you create.

His latest gig was on the stop-motion comedy Glenn Martin, DDS, which he had cocreated with Michael Eisner and had run for two seasons. In other words, there’s no doubt that Alex is an established writer in an industry that allows few through its gates. The question is, how did he do it? How Alex Berger Broke into Hollywood What makes television a hard industry to crack is the fact that it’s a winner-take-all market. There’s only one type of career capital here, the quality of your writing, and there are thousands of hopefuls trying to gain enough of this capital to impress a very small group of buyers. In this respect, however, Alex had an advantage. At Dartmouth College he had been a debater, and a damn good one at that: In 2002 his two-man team arrived at the National Debate Tournament with the country’s highest rank; Alex then went on to win the Best Speaker prize at the tournament.


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Platform Revolution: How Networked Markets Are Transforming the Economy--And How to Make Them Work for You by Sangeet Paul Choudary, Marshall W. van Alstyne, Geoffrey G. Parker

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3D printing, Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, Amazon Web Services, Andrei Shleifer, Apple's 1984 Super Bowl advert, autonomous vehicles, barriers to entry, big data - Walmart - Pop Tarts, bitcoin, blockchain, business process, buy low sell high, chief data officer, clean water, cloud computing, connected car, corporate governance, crowdsourcing, data acquisition, data is the new oil, discounted cash flows, disintermediation, Edward Glaeser, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, financial innovation, Haber-Bosch Process, High speed trading, Internet of things, inventory management, invisible hand, Jean Tirole, Jeff Bezos, jimmy wales, Khan Academy, Kickstarter, Lean Startup, Lyft, market design, multi-sided market, Network effects, new economy, payday loans, peer-to-peer lending, Peter Thiel, pets.com, pre–internet, price mechanism, recommendation engine, RFID, Richard Stallman, ride hailing / ride sharing, Ronald Coase, Satoshi Nakamoto, self-driving car, shareholder value, sharing economy, side project, Silicon Valley, Skype, smart contracts, smart grid, Snapchat, software is eating the world, Steve Jobs, TaskRabbit, The Chicago School, the payments system, Tim Cook: Apple, transaction costs, two-sided market, Uber and Lyft, Uber for X, winner-take-all economy, Zipcar

This made Airbnb far easier to use and enabled the platform to rapidly outgrow the erstwhile category leader. WHEN ADVANTAGE IS SUSTAINABLE: WINNER-TAKE-ALL MARKETS In business, no victory is permanent—but on occasion, a particular firm is capable of enjoying a dominant position within its industry for a decade or longer. When this happens, we can say that the company has maintained a sustained advantage. This happens most often in a winner-take-all market. This is a market in which specific forces conspire to encourage users to gravitate toward one platform and to abandon others. The four forces that most often characterize winner-take-all markets are supply economies of scale, strong network effects, high multihoming or switching costs, and lack of niche specialization. As we explained in chapter 2, supply economies of scale are an industrial-era source of market power driven by the massive fixed costs of production in such industries as railroads, oil and gas exploration, mining, pharmaceutical development, and auto and aircraft manufacture.

Among the methods that platforms use to compete with one another are preventing multihoming by limiting platform access; fostering innovation, then capturing its value; leveraging the value of information; nurturing partnerships rather than pursuing mergers and acquisitions; platform envelopment; and enhanced platform design. Winner-take-all markets exist in certain platform markets. They are driven by four main factors: supply economies of scale, network effects, multihoming and switching costs, and the lack of niche specialization. In winner-take-all markets, competition is apt to be particularly fierce. 11 POLICY How Platforms Should (and Should Not) Be Regulated In the fall of 2014, the New York City subways were suddenly filled with ads for a business many city residents were just beginning to learn about—Airbnb. These were not ordinary ads aimed at convincing potential customers to try out the room rental services provided by Airbnb.

The tendency of an idea or brand to be circulated rapidly and widely from one Internet user to another. Virality can attract people to a network, but network effects keep them there. Virality is about stimulating growth among people off-platform, while network effects are about increasing value among people on-platform. Winner-take-all market. A market in which specific forces conspire to encourage users to gravitate toward one platform and to abandon others. The four forces that most often characterize winner-take-all markets are supply economies of scale, strong network effects, high multihoming or switching costs, and lack of niche specialization. NOTES CHAPTER 1: TODAY 1. Bill Gurley, “A Rake Too Far: Optimal Platform Pricing Strategy,” Above the Crowd, April 18, 2013, http://abovethecrowd.com/2013/04/18/a-rake-too-far-optimal-platformpricing-strategy/. 2.


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With Liberty and Dividends for All: How to Save Our Middle Class When Jobs Don't Pay Enough by Peter Barnes

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Alfred Russel Wallace, banks create money, Buckminster Fuller, collective bargaining, David Ricardo: comparative advantage, declining real wages, deindustrialization, diversified portfolio, en.wikipedia.org, Fractional reserve banking, full employment, hydraulic fracturing, income inequality, Jaron Lanier, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, land reform, Mark Zuckerberg, Network effects, oil shale / tar sands, profit maximization, quantitative easing, rent-seeking, Ronald Coase, Ronald Reagan, Silicon Valley, sovereign wealth fund, the map is not the territory, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, Tyler Cowen: Great Stagnation, Upton Sinclair, winner-take-all economy

Which means that, over time, our economic system will necessarily create a small upper crust and a shrunken middle. This is a crucial point. We know that people have different capacities and drives. Some are smarter than others, and some work harder. But those different abilities don’t explain the far greater differences in rewards. Rather, extreme reward differences are driven by the compounding effects of our winner-take-all economy. If extreme inequality is a built-in property of our present economic system, we’ve got some deep thinking to do. For this means that even if we educated our children till the cows came home, inspired or cajoled them to work harder, and got them all jobs, we wouldn’t sustain a large middle class over time. Upward income flow would remain self-reinforcing, ending only when the system crashed (and maybe not even then, as 2008 showed).

Infotopia: How Many Minds Produce Knowledge by Cass R. Sunstein

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affirmative action, Andrei Shleifer, availability heuristic, Build a better mousetrap, c2.com, Cass Sunstein, cognitive bias, cuban missile crisis, Daniel Kahneman / Amos Tversky, Edward Glaeser, en.wikipedia.org, feminist movement, framing effect, hindsight bias, Isaac Newton, Jean Tirole, jimmy wales, market bubble, market design, minimum wage unemployment, prediction markets, profit motive, rent control, Richard Stallman, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, slashdot, stem cell, The Wisdom of Crowds, winner-take-all economy

Traders have been able to bet on the market capitalization that Google will achieve in its initial public offering, the price of Microsoft stock at a future date, and Federal Reserve monetary policy, in addition to the outcomes of a range of U.S. elections.12 For presidential elections—still the most popular markets that IEM operate—traders have recently been permitted to choose from two types of markets. In the “winner-take-all” market, traders win $1 for each “future” in the winning candidate that they own; they receive nothing for shares of the losing candidate. In a “vote-share” market, traders in “candidate futures” win $1 multiplied by the proportion of the popular vote that the candidate receives. Thus, in a winner-take-all market, a “Dukakis future” was worth nothing after the election, whereas in a vote-share market, each Dukakis future paid $0.456. In a winner-take-all market, the market price reflects traders’ perceptions of the likelihood that each candidate will win the election. More interestingly, observers can use the prices in a vote-share market much as they might use a poll.

Consider the 2004 presidential election. On the day of the vote, dramatic news of pro-Kerry exit polls produced not only a huge switch in the conventional wisdom in the media and on blogs, but also a great deal of volatility in election Money, Prices, and Prediction Markets / 141 markets, with a wild swing in the direction of Senator Kerry at the expense of President Bush. “Suddenly, Kerry’s stock in the Winner Take All market shot up to 70 cents and Bush stock was in the cellar.”79 The rumors affected investors, not just onlookers. Large-scale errors are always possible when apparently relevant news leads numerous investors to buy or sell. Indeed, election day in 2004 may well have been a cascade, with investors responding to one another’s judgments, even though they were based on misleading information. But for those enthusiastic about prediction markets, there is some favorable evidence: The erroneous figures were able to last for only a few hours, after which the numbers returned to their previous state of accuracy.


pages: 265 words: 69,310

What's Yours Is Mine: Against the Sharing Economy by Tom Slee

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4chan, Airbnb, Amazon Mechanical Turk, asset-backed security, barriers to entry, Berlin Wall, big-box store, bitcoin, blockchain, citizen journalism, collaborative consumption, congestion charging, Credit Default Swap, crowdsourcing, data acquisition, David Brooks, don't be evil, gig economy, Hacker Ethic, income inequality, informal economy, invisible hand, Jacob Appelbaum, Jane Jacobs, Jeff Bezos, Khan Academy, Kibera, Kickstarter, license plate recognition, Lyft, Mark Zuckerberg, move fast and break things, natural language processing, Netflix Prize, Network effects, new economy, Occupy movement, openstreetmap, Paul Graham, peer-to-peer lending, Peter Thiel, pre–internet, principal–agent problem, profit motive, race to the bottom, Ray Kurzweil, recommendation engine, rent control, ride hailing / ride sharing, sharing economy, Silicon Valley, Snapchat, software is eating the world, South of Market, San Francisco, TaskRabbit, The Nature of the Firm, Thomas L Friedman, transportation-network company, Uber and Lyft, Uber for X, ultimatum game, urban planning, WikiLeaks, winner-take-all economy, Y Combinator, Zipcar

It’s an issue that other industries face, such as construction, and the root cause is always the same: classification as an independent contractor relieves the hiring company (Uber in this case) from having to pay employment insurance premiums, sick leave, and from having to abide by employment standards. The risk is pushed entirely onto the subcontractor. If cities decide to put taxi regulations to one side for ridesharing companies, many important decisions are handed over to the company. As shown in Chapter 7, technology industries are often a winner-take-all market, where the winner has significant market power, so it matters what kind of company Uber is. It’s a company that has experienced a lot of controversy. Among the most high profile events was a dinner in which Uber executive Emil Michael told journalist Ben Smith that he had considered investigating the private life of Sarah Lacy, a journalist who had criticized Uber. (Unlike a driver with a bad rating, Michael was forgiven by the company).78 Uber is a company that spies on its customers using what it calls its “God View” of company data, which it has shown at company events for entertainment79 and posted about on its web site.80 It’s a company whose New York general manager Josh Mohrer is being investigated internally for tracking a female journalist without her consent.81 It’s a company whose employees have warned another female journalist that “company higher-ups might access [the journalist’s] rider logs.” 82 I emphasize “female journalist” here because the culture of the company is a big part of the problem.

As a result, he catches a key aspect of the comparison that Anderson misses: variety in a world subject to “the tyranny of geography” was always supplied by a variety of institutions, each capable of working at different scales. In the world of books, variety was supplied by a combination of chain stores, specialist bookstores who focused on one genre or another (especially in big cities), independent stores, and second-hand stores, whereas in the digital world winner-take-all market structures are more common. By looking only at the big chains and missing these smaller institutions, Anderson guaranteed that his comparisons would show the digital world to be more diverse and full of variety. OPEN DATA Other movements and businesses have been built around digital openness and sharing, such as open access publishing for research journals, open source hardware, and open education (including massively open online courses or “MOOCs”).

One lesson of cultural economics is that creative works for which there is significant demand in a small market can be swamped by near-zero-marginal cost exports from large markets. It is more profitable for TV stations in smaller markets to broadcast cheap American shows than it is to broadcast more expensive home-grown material, even in cases where the latter would draw a bigger audience, because cultural producers seek to cover their costs in their home market and typically sell at discounted rates elsewhere.53 To maintain cultural diversity in the face of winner-take-all markets, governments in smaller countries have designed a toolbox of interventions. The contents include production subsidies, broadcast quotas, spending rules, national ownership, and competition policy. In general, such measures have received support from those with a left-leaning outlook. Unfortunately, the open data movement demands that data be provided without borders and in a uniform way: machine processable, available to anyone, and license-free.


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How to Fix Copyright by William Patry

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A Declaration of the Independence of Cyberspace, barriers to entry, big-box store, borderless world, business intelligence, citizen journalism, cloud computing, crowdsourcing, death of newspapers, en.wikipedia.org, facts on the ground, Frederick Winslow Taylor, George Akerlof, Gordon Gekko, haute cuisine, informal economy, invisible hand, Joseph Schumpeter, Kickstarter, knowledge economy, lone genius, means of production, new economy, road to serfdom, Ronald Coase, Ronald Reagan, semantic web, shareholder value, Silicon Valley, The Chicago School, The Wealth of Nations by Adam Smith, trade route, transaction costs, trickle-down economics, web application, winner-take-all economy

My view is that copyright laws can serve valuable purposes: while they do not cause people to create in the first place and do not create economic or critical success, they do ensure that once works are created, those who wish to protect them and economically benefit can. We all should support this goal. At the same time, proponents of ever-expanding rights have greatly over-promised what copyright laws can accomplish, and 12 HOW TO FIX COPYRIGHT hide how copyright inflation adversely affects consumers and other sectors of the economy. My conclusions are that copyright laws successfully support investments in winner-take-all markets dominated by superstars, but do not help the majority of authors and artists in making a living. I also conclude that copyright laws have failed to keep up with fundamental changes in markets and technologies: Revenues for the core copyright industries, studied granularly, show a fundamental shift away from the selling of physical objects as possessions—CDs, DVDs and other hard copies—toward a world in which we listen and watch temporary streams of music and movies, and increasingly read books stored elsewhere.

As Mr. Pareles observed, the purpose of subjecting yourself to such hardships is to be noticed, and to be noticed among everyone else who is vying to be noticed too. There has always been an overabundance of those who wish to make their livelihood from creative endeavors, relative to the opportunities to do so. As Robert Frank and Philip Cook wrote in their book The Winner-Take-All Society: Winner-take-all markets attract too many contestants in part because of a common human frailty with respect to gambling—namely our tendency to overestimate our chances of winning. Becoming a contestant in a winnertakes-all market entails a decision to pit one’s own skills against a large field of adversaries. An intelligent decision obviously requires a well-informed estimate of the odds of winning.Yet people’s assessments of these odds are notoriously inaccurate.13 We ignore the odds not only because the potential payout is so big but also because of the “optimism bias”: the systematic tendency to overestimate the likelihood of positive outcomes and to 82 HOW TO FIX COPYRIGHT downplay the likelihood of negative events, especially failure.14 The market for creative works, like all markets, is structured to take advantage of this phenomenon.

It is a zero sum game, where the more people vie for the top, the fewer make it, but the rewards are disproportionately greater.36 Since rare talent must, by definition, be uncommon, there can only be a few who succeed. Those who succeed take it all: superstars get all the product endorsements, the clothing and perfume lines, the magazine covers, the television appearances, and most of our money. The winner-take-all market dominated by superstars also plays out in the argument that superstars need protection from those WHAT ARE COPYRIGHT LAWS SUPPOSED TO DO? 89 imitators who would, by copying from them, try to pull themselves up by pulling the lone geniuses down. If we permit others to copy from lone geniuses, the argument goes that we will have fewer of them. We therefore need the strongest copyright laws possible in order to provide the strongest protection for our superstars.


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Third World America: How Our Politicians Are Abandoning the Middle Class and Betraying the American Dream by Arianna Huffington

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American Society of Civil Engineers: Report Card, Bernie Madoff, Bernie Sanders, call centre, carried interest, citizen journalism, clean water, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, extreme commuting, Exxon Valdez, full employment, greed is good, housing crisis, immigration reform, invisible hand, knowledge economy, laissez-faire capitalism, late fees, market bubble, market fundamentalism, Martin Wolf, medical bankruptcy, microcredit, new economy, New Journalism, offshore financial centre, Ponzi scheme, Report Card for America’s Infrastructure, Richard Florida, Ronald Reagan, Rosa Parks, single-payer health, smart grid, The Wealth of Nations by Adam Smith, too big to fail, transcontinental railway, trickle-down economics, winner-take-all economy, working poor, Works Progress Administration

Closing this outrageous loophole would bring in close to $20 billion in revenue—money desperately needed at a time when teachers and nurses and firemen are being laid off all around the country.48 But the two sets of rules—and the clout of corporate lobbyists—leave even commonsense, who-could-argue-with-that proposals in doubt, and leave the middle class shouldering an unfair share of a very taxing burden. Indeed, the double standard was famously ridiculed by Warren Buffett in 2007 when he noted that his receptionist paid 30 percent of her income in taxes, while he paid only 17.7 percent on his taxable income of $46 million.49 HOMER SIMPSON HAS IT TOO GOOD: SNAPSHOTS FROM THE MIDDLE-CLASS BATTLEFIELD The numbers don’t lie: We increasingly live in a “winner take all” economy. Indeed, we’ve arrived at a point where even Homer Simpson—created as a classic American Everyman character—is now living a middle-class fantasy. After all, how many American middle-class families do you know where the family’s sole breadwinner, a safety inspector at a nuclear power plant, can still comfortably support a family of five on a single income? A more accurate snapshot of a modern middle-class family can be found in Nan Mooney’s book (Not) Keeping Up with Our Parents.50 One person profiled in the 2008 book is Diana, thirty-six, a licensed psychologist with a doctorate in clinical psychology.


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The Inner Lives of Markets: How People Shape Them—And They Shape Us by Tim Sullivan

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Airbnb, airport security, Al Roth, Andrei Shleifer, attribution theory, autonomous vehicles, barriers to entry, Brownian motion, centralized clearinghouse, clean water, conceptual framework, constrained optimization, continuous double auction, deferred acceptance, Donald Trump, Edward Glaeser, experimental subject, first-price auction, framing effect, frictionless, fundamental attribution error, George Akerlof, Goldman Sachs: Vampire Squid, helicopter parent, Internet of things, invisible hand, Isaac Newton, iterative process, Jean Tirole, Jeff Bezos, Johann Wolfgang von Goethe, John Nash: game theory, John von Neumann, Joseph Schumpeter, late fees, linear programming, Lyft, market clearing, market design, market friction, medical residency, multi-sided market, mutually assured destruction, Nash equilibrium, Occupy movement, Peter Thiel, pets.com, pez dispenser, pre–internet, price mechanism, price stability, prisoner's dilemma, profit motive, proxy bid, RAND corporation, ride hailing / ride sharing, Robert Shiller, Robert Shiller, Ronald Coase, school choice, school vouchers, sealed-bid auction, second-price auction, second-price sealed-bid, sharing economy, Silicon Valley, spectrum auction, Steve Jobs, Tacoma Narrows Bridge, technoutopianism, telemarketer, The Market for Lemons, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, two-sided market, uranium enrichment, Vickrey auction, winner-take-all economy

It might help explain why, in the year 2000, nineteen internet start-ups spent millions buying advertising time during the Super Bowl. It’s also telling that eight of the nineteen—including, famously, Pets.com, with its sock puppet mascot—no longer exist. Ironically, their efforts to signal they had the deep pockets and quality offerings that would allow them to be one of the survivors in the internet’s winner-take-all economy may have helped to drive these big spenders into bankruptcy.10 You might think that such a failure rate would discourage a repeat, but the trend is back: during the 2015 Super Bowl, start-ups, including Wix.com (a company that helps users build websites), and Loctite (a glue maker) spent $4.5 million for each thirty-second spot.11 Whether this all has the desired effect on someone in the market for a new truck or soft drink is another matter.


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Buying Time: The Delayed Crisis of Democratic Capitalism by Wolfgang Streeck

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banking crisis, Bretton Woods, capital controls, Carmen Reinhart, central bank independence, collective bargaining, corporate governance, David Graeber, deindustrialization, Deng Xiaoping, Eugene Fama: efficient market hypothesis, financial deregulation, financial repression, full employment, Gini coefficient, Growth in a Time of Debt, income inequality, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, labour mobility, late capitalism, means of production, moral hazard, Occupy movement, open borders, open economy, Plutonomy: Buying Luxury, Explaining Global Imbalances, profit maximization, risk tolerance, shareholder value, too big to fail, union organizing, winner-take-all economy, Wolfgang Streeck

Genschel, ‘Taxation and Democracy in the EU’, Journal of European Public Policy, vol. 15, 2008, pp. 58–77; P. Genschel and P. Schwarz, ‘Tax Competition and Fiscal Democracy’, in Schäfer et al. (eds), Politics in the Age of Austerity. 34 Ganghof, Wer regiert in der Steuerpolitik?, esp. pp. 98–117. 35 Hacker and Pierson (Winner-Take-All Politics) examine in impressive detail the role that tax cuts played in shaping the American ‘winner takes all’ economy and the high public debt that came with it in the 1990s and early 2000s. 36 R. Kuttner, Revolt of the Haves: Tax Rebellions and Hard Times, New York: Simon & Schuster, 1980; I. Martin, The Permanent Tax Revolt: How the Property Tax Transformed American Politics, Stanford, CA: Stanford University Press, 2008; D. Tarschys, ‘The Scissors Crisis in Public Finance’, Policy Sciences, vol. 15/3, 1983, pp. 205–24. 37 The German situation is very similar, in that the budget would have been balanced before 2008 had it not been for Schröder’s tax reform.


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Race Against the Machine: How the Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy by Erik Brynjolfsson

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Amazon Mechanical Turk, Any sufficiently advanced technology is indistinguishable from magic, autonomous vehicles, business process, call centre, combinatorial explosion, corporate governance, crowdsourcing, David Ricardo: comparative advantage, easy for humans, difficult for computers, Erik Brynjolfsson, factory automation, first square of the chessboard, first square of the chessboard / second half of the chessboard, Frank Levy and Richard Murnane: The New Division of Labor, hiring and firing, income inequality, job automation, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Khan Academy, Kickstarter, knowledge worker, labour mobility, Loebner Prize, low skilled workers, minimum wage unemployment, patent troll, pattern recognition, Ray Kurzweil, rising living standards, Robert Gordon, self-driving car, shareholder value, Skype, too big to fail, Turing test, Tyler Cowen: Great Stagnation, Watson beat the top human players on Jeopardy!, winner-take-all economy

Each city might have its own local stars, with a few top performers touring nationally, but even the best singer in the nation could reach only a relatively small fraction of the potential listening audience. Once music could be recorded and distributed at a very low marginal cost, however, a small number of top performers could capture the majority of revenues in every market, from classical music’s Yo-Yo Ma to pop’s Lady Gaga. Economists Robert Frank and Philip Cook documented how winner-take-all markets have proliferated as technology transformed not only recorded music but also software, drama, sports, and every other industry that can be transmitted as digital bits. This trend has accelerated as more of the economy is based on software, either implicitly or explicitly. As we discussed in our 2008 Harvard Business Review article, digital technologies make it possible to replicate not only bits but also processes.


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How Will Capitalism End? by Wolfgang Streeck

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accounting loophole / creative accounting, Airbnb, Ben Bernanke: helicopter money, Bretton Woods, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, Clayton Christensen, collective bargaining, conceptual framework, corporate governance, credit crunch, David Brooks, David Graeber, debt deflation, deglobalization, deindustrialization, en.wikipedia.org, eurozone crisis, failed state, financial deregulation, financial innovation, first-past-the-post, full employment, Gini coefficient, global reserve currency, Google Glasses, haute cuisine, income inequality, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, labour mobility, late capitalism, market bubble, means of production, moral hazard, North Sea oil, offshore financial centre, open borders, pension reform, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, post-industrial society, private sector deleveraging, profit maximization, profit motive, quantitative easing, reserve currency, rising living standards, Robert Gordon, savings glut, secular stagnation, shareholder value, sharing economy, sovereign wealth fund, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Uber for X, upwardly mobile, winner-take-all economy, Wolfgang Streeck

As pointed out in Chapter 1 of this book, and partly elaborated in the rest of this introduction, I anchor this condition in a variety of interrelated developments, such as declining growth intensifying distributional conflict; the rising inequality that results from this; vanishing macroeconomic manageability, as manifested in, among other things, steadily growing indebtedness, a pumped-up money supply, and the ever-present possibility of another economic breakdown;19 the suspension of post-war capitalism’s engine of social progress, democracy, and the associated rise of oligarchic rule; the dwindling capacity of governments and the systemic inability of governance to limit the commodification of labour, nature and money; the omnipresence of corruption of all sorts, in response to intensified competition in winner-take-all markets with unlimited opportunities for self-enrichment; the erosion of public infrastructures and collective benefits in the course of commodification and privatization; the failure after 1989 of capitalism’s host nation, the United States, to build and maintain a stable global order; etc., etc. These and other developments, I suggest, have resulted in widespread cynicism governing economic life, for a long time if not forever ruling out a recovery of normative legitimacy for capitalism as a just society offering equal opportunities for individual progress – a legitimacy that capitalism would need to draw on in critical moments – and founding social integration on collective resignation as the last remaining pillar of the capitalist social order, or disorder.20 Moving Disequilibrium In my own recent work, much of it assembled in this volume, I have argued that OECD capitalism has been on a crisis trajectory since the 1970s, the historical turning point being when the post-war settlement was abandoned by capital in response to a global profit squeeze.

Another example of corruption can be found among political leaders who upon leaving office sell their inside knowledge and public goodwill, and especially the connections they acquired while presumably serving the public interest, to private consulting, lobbying and, above all, financial firms.54 Corruption is also rampant in professional athletics, which has in recent decades become a huge global industry, financed by mushrooming marketing activities for sports equipment and fashion goods. In major disciplines, including swimming and track and field, not to mention cycling, one can safely assume that top competitors routinely employ the services of expensive specialists providing them with illegal, performance-enhancing treatment. Doping among athletes competing for ever-increasing sums of prize money and even more lucrative advertising contracts in worldwide winner-take-all markets is accompanied by corruption among officials of international sports associations, some of whom are reported to have been paid huge sums by athletes and their management for suppressing the results of positive doping tests, and by corporations and governments for locating events in places they prefer. Officials also own firms that sell television rights in the events their associations organize.55 Finally, take a global corporation like Volkswagen (which, incidentally, around 2010 raised the salary of its CEO, Martin Winterkorn, to an, in German terms, hitherto unimaginable €15 million per annum).

In fact, one can say that even more than capitalism in its heyday, the entropic society of disintegrated, de-structured and under-governed post-capitalism depends on its ability to hitch itself onto the natural desire of people not to feel desperate, while defining pessimism as a socially harmful personal deficiency. This is, thirdly, where doping comes in. Doping helps with both coping and hoping, and it takes many forms. Where it involves substance use and abuse, one may distinguish two kinds, performance-enhancing and performance-replacing. Performance-enhancing drugs are taken whenever the rewards of success are high, obviously in the winner-take-all markets of today’s showbusiness, including sports. But they are also used far down the income scale in middle-class professional and occupational life where competitive pressures have been intensifying for decades, as well as in educational institutions where test results may decide a person’s future career and earnings prospects. Here as elsewhere, doping is closely connected to corruption. Most of the substances used to enhance performance one way or other are highly profitable legal products of the pharmaceutical industry.


pages: 292 words: 85,151

Exponential Organizations: Why New Organizations Are Ten Times Better, Faster, and Cheaper Than Yours (And What to Do About It) by Salim Ismail, Yuri van Geest

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23andMe, 3D printing, Airbnb, Amazon Mechanical Turk, Amazon Web Services, augmented reality, autonomous vehicles, Baxter: Rethink Robotics, bioinformatics, bitcoin, Black Swan, blockchain, Burning Man, business intelligence, business process, call centre, chief data officer, Clayton Christensen, clean water, cloud computing, cognitive bias, collaborative consumption, collaborative economy, corporate social responsibility, cross-subsidies, crowdsourcing, cryptocurrency, dark matter, Dean Kamen, dematerialisation, discounted cash flows, distributed ledger, Edward Snowden, Elon Musk, en.wikipedia.org, ethereum blockchain, Galaxy Zoo, game design, Google Glasses, Google Hangouts, Google X / Alphabet X, gravity well, hiring and firing, Hyperloop, industrial robot, Innovator's Dilemma, Internet of things, Iridium satellite, Isaac Newton, Jeff Bezos, Kevin Kelly, Kickstarter, knowledge worker, Kodak vs Instagram, Law of Accelerating Returns, Lean Startup, life extension, loose coupling, loss aversion, Lyft, Mark Zuckerberg, market design, means of production, minimum viable product, natural language processing, Netflix Prize, Network effects, new economy, Oculus Rift, offshore financial centre, p-value, PageRank, pattern recognition, Paul Graham, Peter H. Diamandis: Planetary Resources, Peter Thiel, prediction markets, profit motive, publish or perish, Ray Kurzweil, recommendation engine, RFID, ride hailing / ride sharing, risk tolerance, Ronald Coase, Second Machine Age, self-driving car, sharing economy, Silicon Valley, skunkworks, Skype, smart contracts, Snapchat, social software, software is eating the world, speech recognition, stealth mode startup, Stephen Hawking, Steve Jobs, subscription business, supply-chain management, TaskRabbit, telepresence, telepresence robot, Tony Hsieh, transaction costs, Tyler Cowen: Great Stagnation, urban planning, WikiLeaks, winner-take-all economy, X Prize, Y Combinator

This process of constant learning can be accomplished in just a couple of weeks or months, at minimal cost. Best of all, it usually becomes clear early on if a product is doomed to failure. A good way of looking at this is that when you move from point A to point B, you can then see point C. But you can’t see point C from point A. Iteration/experimentation is the only way. As Eric Ries explains, “The modern rule of competition is whoever learns fastest, wins.” Most digital markets are winner-takes-all markets due to network effects. This makes a culture of continuous experimentation even more important. The Martin Trust Center for MIT Entrepreneurship uses a Lean Startup process for corporate innovation that is similar to the one used at Adobe. It’s called the 5x5x5x5 method (54). Five corporate teams with five complementary team members compete for five weeks (one to two days a week), spending no more than $5,000 to produce one innovation.

This “going digital” is fundamentally shifting the competitive landscape in many sectors, allowing new entrants from unexpected places. In some countries, banks are getting into the travel business. We’re also seeing travel agents moving into insurance and retailers into media (Amazon, Netflix). As a result, whatever business you are in, chances are your competitors are not what they used to be. A final outcome of this trend is that we seem to be entering an era of “winner-takes-all” markets. There’s really only one search engine (Google), one auction site (eBay) and one e-commerce site (Amazon). Network effects and customer experience lock-in seem to be at the root of this fundamental change in the nature of competition. 2. Drive To Demonetization One of the most important—and least celebrated—achievements of the Internet during the last decade was that it cut the marginal cost of marketing and sales to nearly zero.


pages: 209 words: 89,619

The Precariat: The New Dangerous Class by Guy Standing

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8-hour work day, banking crisis, barriers to entry, Bertrand Russell: In Praise of Idleness, call centre, Cass Sunstein, centre right, collective bargaining, corporate governance, crony capitalism, deindustrialization, deskilling, fear of failure, full employment, hiring and firing, Honoré de Balzac, housing crisis, illegal immigration, immigration reform, income inequality, labour market flexibility, labour mobility, land reform, libertarian paternalism, low skilled workers, lump of labour, marginal employment, Mark Zuckerberg, means of production, mini-job, moral hazard, Naomi Klein, nudge unit, pensions crisis, placebo effect, post-industrial society, precariat, presumed consent, quantitative easing, remote working, rent-seeking, Richard Thaler, rising living standards, Ronald Coase, Ronald Reagan, science of happiness, shareholder value, Silicon Valley, The Market for Lemons, The Nature of the Firm, The Spirit Level, Tobin tax, transaction costs, universal basic income, unpaid internship, winner-take-all economy, working poor, working-age population, young professional

This can only produce a pandemic of status frustration. At present, the average lifetime monetary gain from going to a college or university is substantial – £200,000 for men in the United Kingdom (Browne, 2010). Imposing high fees may thus seem fair. But fees risk marginalising university subjects that offer no financial return and ignore the fact that the return is a mean average. In a market society, winner-takes-all markets proliferate, which is why income differentials have grown way beyond what would be justifiable on productivity grounds. A shrinking number of students gain the high income returns that produce the mean average. More will gain jobs paying well below the mean. 68 THE PRECARIAT Now factor in what is happening in the labour market. Economies generate new types of job all the time, but we know the direction they are taking.

Scott McNealy, chairman of Sun Microsystems and an investor in the Western Governors University, which delivers degrees online, argued that teachers should re-position themselves as ‘coaches, not content creators’, customising materials to students while piping in others’ superior teaching. This commodification and standardisation is cheapening education, denuding the profession of its integrity and eroding the passing on of informal knowledge. It is strengthening winner-takes-all markets and accelerating the dismantling of an occupational community. A market in human capital will increase emphasis on celebrity teachers and universities, and favour norms and conventional wisdom. The Philistines are not at the gates; they are inside them. International financial institutions such as the World Bank demand that ‘inappropriate curricula’ unrelated to the economy should be removed.


words: 49,604

The Weightless World: Strategies for Managing the Digital Economy by Diane Coyle

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barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, blue-collar work, Bretton Woods, clean water, computer age, Corn Laws, cross-subsidies, David Ricardo: comparative advantage, dematerialisation, Diane Coyle, Edward Glaeser, everywhere but in the productivity statistics, financial deregulation, full employment, global village, hiring and firing, Howard Rheingold, income inequality, informal economy, invisible hand, Jane Jacobs, Joseph Schumpeter, knowledge economy, labour market flexibility, laissez-faire capitalism, lump of labour, Marshall McLuhan, McJob, microcredit, Network effects, new economy, Nick Leeson, night-watchman state, North Sea oil, offshore financial centre, pension reform, pensions crisis, Ronald Reagan, Silicon Valley, spinning jenny, The Death and Life of Great American Cities, the market place, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tobin tax, two tier labour market, very high income, War on Poverty, winner-take-all economy, working-age population

Frank and Cook point out that superstar status increasingly applies outside the conventional areas of sport and entertainment. A global brand will make its manufacturer far, far more money than a very similar product that does not achieve the same recognition in the market place. That means that there are superstar product designers, engineers, advertising executives and so on — anybody with a proven record of success will become a celebrity in his or her own field. The authors write: ‘The winner-take-all markets ... have become an increasingly important feature of modern economic life. They have permeated law, journalism, consulting, medicine, investment banking, corporate management, publishing, design, fashion, even the hallowed halls of academe.’ (The two professors modestly omit to mention that they fall into this last category following the success of their book.) In my language, it is the increasing weightlessness of the economy that is taking the superstar phenomenon into ever wider areas of activity.

Technology means I can diagnose and treat patients around the world, and that I will be known around the world. Here I part company sharply with Professors Frank and Cook who go on to argue that this is inefficient in economic terms. They make a series of The Weightless World 116 arguments. First, superstar economies generate income inequality, which is a social bad. True, but not necessarily an economic inefficiency. Secondly, winner-takes-all markets cause effort to be mis-allocated. For everybody wants to be a superstar and therefore too many people pile into professions where the winner-takes-all conditions apply. They write: ‘In increasing numbers our best and brightest graduates pursue top positions in law, finance, consulting and other over-crowded arenas, in the process forsaking careers in engineering, manufacturing, civil service, teaching and other occupations in which an infusion of additional talent would yield greater benefit to society’.


pages: 351 words: 100,791

The World Beyond Your Head: On Becoming an Individual in an Age of Distraction by Matthew B. Crawford

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airport security, Cass Sunstein, choice architecture, collateralized debt obligation, David Brooks, delayed gratification, dematerialisation, deskilling, digital Maoism, Google Glasses, hive mind, index card, informal economy, Jaron Lanier, large denomination, new economy, new new economy, online collectivism, Plutocrats, plutocrats, Richard Thaler, Rodney Brooks, self-driving car, Silicon Valley, Silicon Valley ideology, the built environment, the scientific method, The Wisdom of Crowds, theory of mind, Walter Mischel, winner-take-all economy

What is demanded is an all-purpose intelligence, the kind one is certified to have by admission to an elite university, not anything in particular that you might have learned along the way. You have to be ready to reinvent yourself at any time, like a good democratic Übermensch. And while in Calvin’s time the threat of damnation might have been dismissed by some as a mere superstition, with our winner-take-all economy the risk of damnation has acquired real teeth. There is a real chance that you may get stuck at the bottom. MOBILITY AND THE DEMOCRATIC SOCIAL CONDITION When Tocqueville came to America in the 1830s, he was struck by our “democratic social condition,” in which “new families are constantly springing up, others are constantly falling away, and all that remain change their condition.” Social mobility represents a possibility, a powerful idea of equality that carries psychic force even if you find yourself (for now) near the bottom.


pages: 170 words: 51,205

Information Doesn't Want to Be Free: Laws for the Internet Age by Cory Doctorow, Amanda Palmer, Neil Gaiman

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Airbnb, barriers to entry, Brewster Kahle, cloud computing, Dean Kamen, Edward Snowden, game design, Internet Archive, John von Neumann, Kickstarter, optical character recognition, Plutocrats, plutocrats, pre–internet, profit maximization, recommendation engine, rent-seeking, Saturday Night Live, Skype, Steve Jobs, Steve Wozniak, Stewart Brand, transfer pricing, Whole Earth Catalog, winner-take-all economy

Every time you sold a ten-dollar book through Walmart, that would be ten dollars’ worth of investment in this Walmart ecosystem your readers would feel beholden to, even if you and all their other favorite authors were later offered a better deal at Barnes and Noble (meanwhile, you’d only get fifty cents of that ten dollars in royalties, if that!). It’s easy to understand why Walmart would love this—it creates a winner-takes-all market, where a small advantage quickly grows into an unbridgeable gap. The question is, why should authors or publishers want to have anything to do with a scheme like this? Digital locks are roach motels: copyrighted works check in, but they don’t check out. Creators and investors lose control of their business—they become commodity suppliers for a distribution channel that calls all the shots.


pages: 179 words: 43,441

The Fourth Industrial Revolution by Klaus Schwab

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3D printing, additive manufacturing, Airbnb, Amazon Mechanical Turk, Amazon Web Services, augmented reality, autonomous vehicles, barriers to entry, Baxter: Rethink Robotics, bitcoin, blockchain, Buckminster Fuller, call centre, clean water, collaborative consumption, conceptual framework, continuous integration, crowdsourcing, disintermediation, distributed ledger, Edward Snowden, Elon Musk, epigenetics, Erik Brynjolfsson, future of work, global value chain, Google Glasses, income inequality, Internet Archive, Internet of things, invention of the steam engine, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, life extension, Lyft, megacity, meta analysis, meta-analysis, more computing power than Apollo, mutually assured destruction, Narrative Science, Network effects, Nicholas Carr, personalized medicine, precariat, precision agriculture, Productivity paradox, race to the bottom, randomized controlled trial, reshoring, RFID, rising living standards, Second Machine Age, secular stagnation, self-driving car, sharing economy, Silicon Valley, smart cities, smart contracts, software as a service, Stephen Hawking, Steve Jobs, Steven Levy, Stuxnet, The Spirit Level, total factor productivity, transaction costs, Uber and Lyft, Watson beat the top human players on Jeopardy!, WikiLeaks, winner-take-all economy, women in the workforce, working-age population, Y Combinator, Zipcar

As discussed further below, a world of greater connectivity and higher expectations can create significant social risks if populations feel they have no chance of attaining any level of prosperity or meaning in their lives. Today, a middle-class job no longer guarantees a middle-class lifestyle, and over the past 20 years, the four traditional attributes of middle-class status (education, health, pensions and house ownership) have performed worse than inflation. In the US and the UK, education is now priced as a luxury. A winner-takes-all market economy, to which the middle-class has increasingly limited access, may percolate into democratic malaise and dereliction which compound social challenges. 3.4.2 Community From a broad societal standpoint, one of the greatest (and most observable) effects of digitization is the emergence of the “me-centred” society – a process of individuation and emergence of new forms of belonging and community.


pages: 494 words: 116,739

Geek Heresy: Rescuing Social Change From the Cult of Technology by Kentaro Toyama

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Albert Einstein, Berlin Wall, Bernie Madoff, blood diamonds, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, cognitive dissonance, computer vision, conceptual framework, delayed gratification, Edward Glaeser, en.wikipedia.org, epigenetics, Erik Brynjolfsson, Francis Fukuyama: the end of history, fundamental attribution error, germ theory of disease, global village, Hans Rosling, happiness index / gross national happiness, income inequality, invention of the printing press, invisible hand, Isaac Newton, Khan Academy, Kibera, knowledge worker, libertarian paternalism, M-Pesa, Mahatma Gandhi, Mark Zuckerberg, means of production, microcredit, mobile money, Nicholas Carr, North Sea oil, pattern recognition, Peter Singer: altruism, Peter Thiel, post-industrial society, randomized controlled trial, rent-seeking, RFID, Richard Florida, Richard Thaler, school vouchers, self-driving car, Silicon Valley, Simon Kuznets, Steve Jobs, Steven Pinker, technoutopianism, The Fortune at the Bottom of the Pyramid, Upton Sinclair, Walter Mischel, War on Poverty, winner-take-all economy, World Values Survey, Y2K

In short, Amazon and its digital ways are an extrapolation – an amplification – of pre-digital patterns. On the one hand, more books of greater variety are being published. There is a growing population of writers, and publishing is being commoditized.5 On the other hand, the books that receive widespread attention and land on best seller lists are a dwindling proportion of the total. The first trend is sometimes called “the long tail”; the second represents a “winner-take-all” economy.6 Commentators tend to highlight one or the other of these phenomena, but both are happening at once. Together they cause the shrinking middle that is the hallmark of any industry – music, movies, manufacturing – whose product can be replicated and distributed cheaply. Indeed, in the book business it is widely acknowledged that fewer and fewer authors are able to make a living through writing.


pages: 209 words: 80,086

The Global Auction: The Broken Promises of Education, Jobs, and Incomes by Phillip Brown, Hugh Lauder, David Ashton

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affirmative action, barriers to entry, Branko Milanovic, BRICs, business process, business process outsourcing, call centre, collective bargaining, corporate governance, credit crunch, David Ricardo: comparative advantage, deindustrialization, deskilling, Frederick Winslow Taylor, full employment, future of work, glass ceiling, global supply chain, immigration reform, income inequality, industrial robot, job automation, Joseph Schumpeter, knowledge economy, knowledge worker, labour market flexibility, low skilled workers, manufacturing employment, market bubble, market design, neoliberal agenda, new economy, pensions crisis, post-industrial society, profit maximization, purchasing power parity, QWERTY keyboard, race to the bottom, Richard Florida, Ronald Reagan, shareholder value, Silicon Valley, sovereign wealth fund, stem cell, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, transaction costs, trickle-down economics, winner-take-all economy, working poor

Gary Becker, awarded a Nobel Prize for his work on human capital, has highlighted what he sees as the “upside of income inequality,” arguing that the earning gap has widened “because the demand for educated and other skilled persons is growing.”27 These inequalities, he argues, reflect the new realities of a global economy that offer exceptional rewards to those with scarce skills, knowledge, and talent at the same time as penalizing those with poor marketable skills or mediocre records of performance. In The Winner-Takes-All Society, Frank and Cook are less sanguine about widening income inequalities in America, as they 122 The Global Auction believe them to be unjust and a cause of economic inefficiency. They explain these inequalities in terms of winner-takes-all markets because they make “the most productive individuals more valuable, and at the same time have led to more open bidding for their services.”28 In line with Becker, they take for granted that the market value of the most talented is worth more due of their contribution to productivity. The problem with this approach is that it continues to peddle the view that those who receive huge salaries deserve them, and the only thing stopping other people from doing the same thing is their failure to invest in their employability or to up their game.


pages: 237 words: 64,411

Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial Intelligence by Jerry Kaplan

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Affordable Care Act / Obamacare, Amazon Web Services, asset allocation, autonomous vehicles, bank run, bitcoin, Brian Krebs, buy low sell high, Capital in the Twenty-First Century by Thomas Piketty, combinatorial explosion, computer vision, corporate governance, crowdsourcing, en.wikipedia.org, Erik Brynjolfsson, estate planning, Flash crash, Gini coefficient, Goldman Sachs: Vampire Squid, haute couture, hiring and firing, income inequality, index card, industrial robot, invention of agriculture, Jaron Lanier, Jeff Bezos, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, Loebner Prize, Mark Zuckerberg, mortgage debt, natural language processing, Own Your Own Home, pattern recognition, Satoshi Nakamoto, school choice, Schrödinger's Cat, Second Machine Age, self-driving car, sentiment analysis, Silicon Valley, Silicon Valley startup, Skype, software as a service, The Chicago School, Turing test, Watson beat the top human players on Jeopardy!, winner-take-all economy, women in the workforce, working poor, Works Progress Administration

A 2005 University of Pennsylvania research report discusses how grocery store loyalty card programs offer differently valued discount coupons at checkout depending on such factors as how brand-loyal you appear to be.5 In other words, if you were inclined to buy the item anyway, why almost literally give away the store? The problem here is that all this wonderful laissez-faire is a prelude to à prendre ou à laisser—take it or leave it.6 The free flow of information around the Internet creates winner-take-all markets, and online retailing is no exception.7 Before the Internet, there were two points of friction that enabled a retailing market vigorous enough to profitably accommodate multiple sellers of identical goods. The first was information. How much more difficult was it to comparison shop, when you had to drive to a competitor’s store or search for their ads in the local newspaper, hoping to find the same item?


pages: 240 words: 73,209

The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment by Guy Spier

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Albert Einstein, Atul Gawande, Benoit Mandelbrot, big-box store, Black Swan, Checklist Manifesto, Clayton Christensen, Daniel Kahneman / Amos Tversky, Exxon Valdez, Gordon Gekko, housing crisis, Isaac Newton, Long Term Capital Management, Mahatma Gandhi, mandelbrot fractal, NetJets, pattern recognition, pre–internet, random walk, Ronald Reagan, South Sea Bubble, Steve Jobs, winner-take-all economy, young professional

At the time, he was researching K-Swiss, a manufacturer of athletic shoes. I had done a lot of research into Nike and had looked at the impact of its sponsorship on tennis and soccer. Instead of telling Shai that I thought K-Swiss was an also-ran in the sneaker business, I suggested that he produce a list of the top 20 tennis players, see who sponsored them, then estimate which of those players attracted the most viewers in what is typically a winner-take-all market. In the process, he discovered that K-Swiss had only one player on the list, while Nike had six or seven—an indication that K-Swiss faced an all but insuperable challenge to win market share away from Nike. At no point did we discuss whether Shai already owned the stock or was thinking of buying it. But I’m guessing that our discussion helped to clarify that it wasn’t the best place for him to invest.

Deep Work: Rules for Focused Success in a Distracted World by Cal Newport

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8-hour work day, Albert Einstein, barriers to entry, business climate, Cal Newport, Capital in the Twenty-First Century by Thomas Piketty, Clayton Christensen, David Brooks, deliberate practice, Donald Trump, Downton Abbey, en.wikipedia.org, Erik Brynjolfsson, experimental subject, follow your passion, Frank Gehry, informal economy, information retrieval, Internet Archive, Jaron Lanier, knowledge worker, Mark Zuckerberg, Marshall McLuhan, Merlin Mann, Nate Silver, new economy, Nicholas Carr, popular electronics, remote working, Richard Feynman, Richard Feynman, Silicon Valley, Silicon Valley startup, Snapchat, statistical model, the medium is the message, Watson beat the top human players on Jeopardy!, web application, winner-take-all economy

(This reality does matter, however, to the less-skilled local programmers living in Des Moines and in need of a steady paycheck.) This same trend holds for the growing number of fields where technology makes productive remote work possible—consulting, marketing, writing, design, and so on. Once the talent market is made universally accessible, those at the peak of the market thrive while the rest suffer. In a seminal 1981 paper, the economist Sherwin Rosen worked out the mathematics behind these “winner-take-all” markets. One of his key insights was to explicitly model talent—labeled, innocuously, with the variable q in his formulas—as a factor with “imperfect substitution,” which Rosen explains as follows: “Hearing a succession of mediocre singers does not add up to a single outstanding performance.” In other words, talent is not a commodity you can buy in bulk and combine to reach the needed levels: There’s a premium to being the best.


pages: 364 words: 102,528

An Economist Gets Lunch: New Rules for Everyday Foodies by Tyler Cowen

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agricultural Revolution, big-box store, business climate, carbon footprint, cognitive bias, cross-subsidies, East Village, en.wikipedia.org, food miles, guest worker program, haute cuisine, illegal immigration, informal economy, iterative process, oil shale / tar sands, out of africa, pattern recognition, Peter Singer: altruism, price discrimination, refrigerator car, The Wealth of Nations by Adam Smith, Tyler Cowen: Great Stagnation, Upton Sinclair, winner-take-all economy, women in the workforce

I am a relatively active cook, experimenting with a wide diversity of dishes and cuisines, and still well over half of my cooking equipment sits dormant. I don’t use the plastic bowl or that whisk or that CorningWare tray. I would throw them away, except that my wife does not like it when I throw things away. Second, most people have a few favorite items which they use again and again and again, until they wear them out and have to buy new ones. Most kitchens function as a “winner-take-all” market, where a few items receive all the use and most are neglected and left alone. For me, the winning items are a very-good-at-conducting-heat frying pan, a wok, a large blue casserole, a small pot for cooking rice, an all-purpose Cuisinart/spice grinder, a large boiling pot for pasta, and a baking tray. Add a few sharp knives to that list and two long wooden spoons for tossing in the wok.


pages: 523 words: 111,615

The Economics of Enough: How to Run the Economy as if the Future Matters by Diane Coyle

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accounting loophole / creative accounting, affirmative action, bank run, banking crisis, Berlin Wall, bonus culture, Branko Milanovic, BRICs, call centre, Cass Sunstein, central bank independence, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation does not imply causation, Credit Default Swap, deindustrialization, demographic transition, Diane Coyle, disintermediation, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Financial Instability Hypothesis, Francis Fukuyama: the end of history, George Akerlof, Gini coefficient, global supply chain, Gordon Gekko, greed is good, happiness index / gross national happiness, Hyman Minsky, If something cannot go on forever, it will stop, illegal immigration, income inequality, income per capita, invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labour market flexibility, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Ronald Reagan, Silicon Valley, South Sea Bubble, Steven Pinker, The Design of Experiments, The Fortune at the Bottom of the Pyramid, The Market for Lemons, The Myth of the Rational Market, The Spirit Level, transaction costs, transfer pricing, tulip mania, ultimatum game, University of East Anglia, web application, web of trust, winner-take-all economy, World Values Survey

So these performers will be much more popular than the next rank than any objective difference in their talents might justify. Demand to see the top rank feeds on itself. Modern technologies also amplify the potential reach of talented people—the best performers are in demand not only for live performance but for CDs and downloads too. Both technology and globalization increase hugely the potential demand for talent. These “winner take all” markets have spread superstar pay to many other sectors of the economy, outside sport and the performing arts where they were originally observed.35 Moreover, this trend means that the increase in inequality due to skills and technology has what is known as a “fractal” character, which means that it is occurring within categories as well as in the overall income distribution: top lawyers’ pay has risen relative to those on low incomes; but the top top lawyers have pulled further ahead of the average top lawyer too.36 So to sum up, structural changes in the economy driven by new technologies are the fundamental driver of greater inequality, in much the same way that the wave of innovation of early capitalism in the nineteenth century led to great inequality until the workforce as a whole developed the new skills that were needed.


pages: 297 words: 89,206

Social Class in the 21st Century by Mike Savage

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call centre, Capital in the Twenty-First Century by Thomas Piketty, Clapham omnibus, Corn Laws, deindustrialization, deskilling, Downton Abbey, financial independence, gender pay gap, Gini coefficient, income inequality, Mark Zuckerberg, megacity, New Urbanism, Occupy movement, precariat, psychological pricing, The Spirit Level, unpaid internship, upwardly mobile, very high income, winner-take-all economy, young professional

This is because when there is a highly competitive education system and labour market, it is those who can maximize every possible advantage and who start from the most advantaged positions who are best able to succeed within this meritocratic structure. We see this syndrome operating very actively in the search for ‘talent’ embarked upon by leading companies and organizations acting to ‘hothouse’ their star performers in ‘Winner takes all’ markets. Meritocracy is not a curb to escalating inequality; it is actually implicated within it. In this respect, conventional images of George Osborne and David Cameron in their Bullingdon Club Oxford days, with the implication that the closed, old-fashioned elite world continues to look after its own, are misleading. Such images – for instance of an ‘Establishment’ – can be mobilized to suggest that if only we could have ‘true’ meritocracy and break down those remaining status barriers at the top, then we might be able to address the inequities of social class.


pages: 324 words: 92,805

The Impulse Society: America in the Age of Instant Gratification by Paul Roberts

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2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, accounting loophole / creative accounting, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, asset allocation, business process, Cass Sunstein, centre right, choice architecture, collateralized debt obligation, collective bargaining, corporate governance, corporate social responsibility, crony capitalism, David Brooks, delayed gratification, double helix, factory automation, financial deregulation, financial innovation, full employment, game design, greed is good, If something cannot go on forever, it will stop, impulse control, income inequality, inflation targeting, invisible hand, job automation, Joseph Schumpeter, knowledge worker, late fees, Long Term Capital Management, loss aversion, low skilled workers, new economy, Nicholas Carr, obamacare, Occupy movement, oil shale / tar sands, performance metric, postindustrial economy, profit maximization, Report Card for America’s Infrastructure, reshoring, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Rodney Brooks, Ronald Reagan, shareholder value, Silicon Valley, speech recognition, Steve Jobs, technoutopianism, the built environment, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, Tyler Cowen: Great Stagnation, Walter Mischel, winner-take-all economy

We can no longer ignore the absurdity that, in the richest nation in history, the average citizen is increasingly insecure and fearful of being left behind. Nor can we any longer persuade ourselves that our market and political systems will somehow reform themselves: the system is so broken that we no longer have the luxury of denial and apathy. More and more of us recognize that the pessimistic story lines that make the Impulse Society seem so intractable—the entrenched political dysfunction, the permanently myopic winner-take-all market, the chronic self-absorption of individuals—are themselves part of the Impulse Society, a meta brand that has made real reform seem impossible. But more of us see through this brand and know that reform is possible. Now, even as technocrats and academics and a few reform-minded politicians and businesspeople grapple with the myopia of the political system and the business world, the rest of us need to put that knowledge into action and step into the fray.


pages: 383 words: 81,118

Matchmakers: The New Economics of Multisided Platforms by David S. Evans, Richard Schmalensee

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Airbnb, big-box store, business process, cashless society, Deng Xiaoping, if you build it, they will come, Internet Archive, invention of movable type, invention of the printing press, invention of the telegraph, invention of the telephone, Jean Tirole, Lyft, M-Pesa, market friction, market microstructure, mobile money, multi-sided market, Network effects, Productivity paradox, profit maximization, purchasing power parity, ride hailing / ride sharing, sharing economy, Silicon Valley, Snapchat, Steve Jobs, Tim Cook: Apple, transaction costs, two-sided market, Uber for X, Victor Gruen, winner-take-all economy

The Betamax, which some claim was the better technology, was left in the dustbin of history. Many writers on business strategy took this apparent lesson to heart and emphasized the importance of first-mover advantages in industries with network effects.5 They drew two conclusions. The first was that network effects meant that one firm, or standard, would control the market, since bigger was always better in the eyes of consumers. These were, therefore, winner-take-all markets. The second was that, if you wanted to be the winner who took all, you had better start first and keep your lead. Since direct network effects would magnify the effects of even the slightest of leads, there’s always a first-mover advantage. One can see the influence of this work from a Google Ngram that shows the frequency of these phrases in books published after 1950. There was a surge in the term network effects in the early 1970s following the publication of Rohlfs’s paper, references died down, and then grew explosively after 1995 (see figure 2-1).6 References to the first-mover advantage started increasing rapidly in the early 1990s and then grew explosively after 1995 as well.


pages: 455 words: 133,322

The Facebook Effect by David Kirkpatrick

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Andy Kessler, Burning Man, delayed gratification, demand response, don't be evil, global village, happiness index / gross national happiness, Howard Rheingold, Jeff Bezos, Mark Zuckerberg, Marshall McLuhan, Menlo Park, Network effects, Peter Thiel, rolodex, Sand Hill Road, sharing economy, Silicon Valley, Silicon Valley startup, Skype, social graph, social software, social web, Startup school, Steve Ballmer, Steve Jobs, Stewart Brand, the payments system, The Wealth of Nations by Adam Smith, Whole Earth Review, winner-take-all economy, Y Combinator

But the reason it’s funny is that it evokes a surprising truth. Zuckerberg realized a long time ago that most users are not going to take the time to create multiple profiles for themselves on multiple social networks. He also knew from his endless bull sessions at Harvard and in Palo Alto about “network effects” that once consolidation begins on a communications platform it can accelerate and become a winner-take-all market. People will join and use the communications tool that the largest number of other people already use. He therefore made it a goal to create a tool not for the United States but for the world. The objective was to overwhelm all other social networks wherever they are—to win their users and become the de facto standard. In his view it was either that or disappear. Other social networks have more users than Facebook in a number of key countries, including Brazil, China, Japan, Korea, Russia, and a few other places.


pages: 524 words: 143,993

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

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air freight, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, Bretton Woods, call centre, capital asset pricing model, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, forward guidance, Fractional reserve banking, full employment, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen: Great Stagnation, very high income, winner-take-all economy

This is because the economies of some big poor countries (China and India, above all) grew faster than high-income countries, offsetting the general rise in inequality within almost all countries. Indeed, it appears from work at the World Bank that the clear losers from the economic developments of the last three decades have been the lower and middle classes of the high-income countries, whose incomes fall between the 75th and 95th percentiles from the bottom of the global income distribution.59 The forces driving the rise in inequality are complex. Technology helped create ‘winner-takes-all markets’ in which the most successful and productive participants could reap the lion’s share of the gains. This became notably true in the high-tech sector and in finance, which emerged as the most dynamic industries in high-income economies. Technology also increased the relative demand for skilled workers and lowered the demand for less-skilled ones. Globalization directly affected the supply of relatively high-waged, but only modestly skilled jobs, particularly in manufacturing.