The President
Lawrence Summers, president of Harvard University is retiring this week. He's the guy who made the comment that got distorted and flaunted by the press regarding the differences between men and women in the sciences. Apparently he does a lot more than be misquoted. He was Secretary of the Treasury under Clinton, and is apparently a big economist. Anyway, he came to talk at Google today, and my mentor thought it would be cool, so we both went.
The talk was pretty good. He talked a lot about how economics are quite different now. Smith's economy was correct when we were still agrarian, and when we were industrializing, but things are different now. We've moved to a knowledge-based economy. Production now has a large up-front cost, and a very small manufacturing cost. This means the normal supply-demand curve doesn't really apply. Now the initial investment has to be covered by a monopoly on the product so prices can be raised much higher than the manufacturing cost.
This sounds pretty correct to me, but he seems to conclude some things I'm not quite sure about. He says that now we need public funds and government-funded investments into science because the private sector can't cut it. Certain things are better when they're free for everyone to use. His example was someone patenting quantum mechanics. Now, I'm pretty sure that pattent law won't let somone pattent "laws of nature" or stuff of that sort, which is good, but lets put that aside. His point was that this would really ruin things. I asked him about it afterwards and he said that there couldn't be a license-based resolution to the problem. His reason was that people would "want to use Schrodinger's Equation for free". Not sure how that means anything - every consumer wants the good for free. The way the patent system works now is that people can develop things based on patents, but need to get a license once they have a product or start producing. This seems to work find a lot (never mind the other issues with the patent system in the US). Anyway, his real justification seemed to be that the returns either couldn't be seen by the private sector (the public-funded research was just in random areas, so they didn't care about returns - like research for cures to diseases which are isolated to 3rd world countries), or that the cost was to great to incur. I can conceive that he cost for some research is greater than the reward, but that usually isn't known until after the fact. And there are always things that come later which grow on the previous knowledge. Besides, if it does truly end up that the knowledge wasn't worth the cost, why is the knowledge so important in the first place? Long-term thinking is necessary for innovation and research. Most research isn't into blind things of no consequence. There are reasons certain problems are worked on, and a wise investor knows this. Google, for example, knows that most 20% projects won't succeeed, and those that do won't be as successful as the main products, but that doesn't stop them from investing 20% of their personel resources towards them. So he seems to not give enough credit to corporations and wise investors here.
He said there was a study which asked people: "Would you rather have 2006 healthcare and the 1957 standard of living, or 1957 healthcare and the 2006 standard of living?" Apparently most people choose the 2006 healthcare over the 2006 standard of living. He concluded from this that the pharmacutical industry is providing a very important service/"public good" (ugh), and that the should be investing even more resources if this is so important. I'm not sure what to make of this in particular.
Update: I forgot to mention a great joke someone made. When asked about the licensing of quantum mechanics, Summers said it would be awful to have to pay every time you wanted to use Schrodinger's equation. To which the guy replied "Especially since we'd have to both pay and not pay you". The whole room errupted in laughter, but Summers didn't quite get it. Hehe.
The talk was pretty good. He talked a lot about how economics are quite different now. Smith's economy was correct when we were still agrarian, and when we were industrializing, but things are different now. We've moved to a knowledge-based economy. Production now has a large up-front cost, and a very small manufacturing cost. This means the normal supply-demand curve doesn't really apply. Now the initial investment has to be covered by a monopoly on the product so prices can be raised much higher than the manufacturing cost.
This sounds pretty correct to me, but he seems to conclude some things I'm not quite sure about. He says that now we need public funds and government-funded investments into science because the private sector can't cut it. Certain things are better when they're free for everyone to use. His example was someone patenting quantum mechanics. Now, I'm pretty sure that pattent law won't let somone pattent "laws of nature" or stuff of that sort, which is good, but lets put that aside. His point was that this would really ruin things. I asked him about it afterwards and he said that there couldn't be a license-based resolution to the problem. His reason was that people would "want to use Schrodinger's Equation for free". Not sure how that means anything - every consumer wants the good for free. The way the patent system works now is that people can develop things based on patents, but need to get a license once they have a product or start producing. This seems to work find a lot (never mind the other issues with the patent system in the US). Anyway, his real justification seemed to be that the returns either couldn't be seen by the private sector (the public-funded research was just in random areas, so they didn't care about returns - like research for cures to diseases which are isolated to 3rd world countries), or that the cost was to great to incur. I can conceive that he cost for some research is greater than the reward, but that usually isn't known until after the fact. And there are always things that come later which grow on the previous knowledge. Besides, if it does truly end up that the knowledge wasn't worth the cost, why is the knowledge so important in the first place? Long-term thinking is necessary for innovation and research. Most research isn't into blind things of no consequence. There are reasons certain problems are worked on, and a wise investor knows this. Google, for example, knows that most 20% projects won't succeeed, and those that do won't be as successful as the main products, but that doesn't stop them from investing 20% of their personel resources towards them. So he seems to not give enough credit to corporations and wise investors here.
He said there was a study which asked people: "Would you rather have 2006 healthcare and the 1957 standard of living, or 1957 healthcare and the 2006 standard of living?" Apparently most people choose the 2006 healthcare over the 2006 standard of living. He concluded from this that the pharmacutical industry is providing a very important service/"public good" (ugh), and that the should be investing even more resources if this is so important. I'm not sure what to make of this in particular.
Update: I forgot to mention a great joke someone made. When asked about the licensing of quantum mechanics, Summers said it would be awful to have to pay every time you wanted to use Schrodinger's equation. To which the guy replied "Especially since we'd have to both pay and not pay you". The whole room errupted in laughter, but Summers didn't quite get it. Hehe.
posted by Alden | 22:41
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