Saturday, May 26, 2007

Emergence, unanticipated consequences, and hidden inflation

I've been interested lately in emergence and natural selection in non-biologic systems. There are surprisingly common applications in every day life. In the corporate world technical accounting rules and cash flow incentives can cause an emergent attack on an entire product line -- without anyone realizing why they're making bad choices.

In academia certain kinds of results are highly grantable, so the research program is pursued even though many believe it's misdirected. In time papers spawn papers and a new, regrettably false, dogma is born.

In all these cases the behavior is a result of incentives changing the "ecosystem", and organisms (people) evolving (adapting) to the new environment.

Which brings me to our X-ACTO electric pencil sharpener. It never worked properly, and after months of chewed up pencils we came to our senses and tossed it out. Another defective product, broken by design. Just like our DVD/VCRs, toasters, etc.

If we were to replace the X-ACTO with a similar model, our yearly cost of pencil sharpening would double or triple. Gee, that sounds like inflation -- except, of course, the price of the sharpener is stable or falling. Hmm. Rising cost of pencil sharpening, falling costs of sharpeners ... So is inflation really 3.5%, or is it perhaps 7%?

Imagine a system in which all the economic pressures that once created inflation still exist, but we've figured out how to block the traditional expression of inflation. Pressure. No outlet. Where will it go? It will find a way out, an emergent solution. A solution like products that are cheap but have very short lifespans.

The Federal reserve, of course, is oblivious. Their instruments can't spot the problem, they're looking in the wrong direction. In the meantime the cost of sharpening keeps rising ...

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