Combatting Technology Hype

Back to  measures and risks,  often economical.    And then their reasonable forward prediction.

Issues in Science and Technology
Combatting Tech Hype

VOL. XXXVI, NO. 2, WINTER 2020

By BRENT GOLDFARB, DAVID A. KIRSCH, CARLOTA PEREZ, MARTIN KENNEY ...

We enjoyed Jeffrey Funk’s “What’s Behind Technological Hype?” (Issues, Fall 2019). However, as authors of a recent book on financial speculation arising from the commercialization of new technology, Bubbles and Crashes: The Boom and Bust of Technological Innovation (Stanford, 2019), we take issue with a few of Funk’s interpretations.

First, Funk points in several instances to the “lack of good economic analysis” as a critical factor leading to hype. However, what’s really needed is different economic analysis. Understanding technology calls for economic analysis that engages what Robert Shiller called “narrative economics.” Traditional economic approaches are not much help when confronting the fundamental uncertainty that arises from the introduction and potential adoption of a new technology or system. To understand choices at that margin, we need to be sensitive to the sources and impacts of narratives. Narratives are a double-edged sword: carefully deployed, they can coordinate collective action and funnel resources into risky but ultimately profitable ventures, but narratives can also lead to hype, speculation, and damaging bubbles. Unfortunately, in spite of Shiller’s call to action, most economists would not recognize the study of narratives as central to the study of booms and busts, so we need more than “good” economic analysis.

Second, once we accept the intractability of uncertainty, it is not realistic to expect to be able to entirely soften the blow of failure. Indeed, failure may be good, and not in some milquetoast, learning-from-failure way. Awful, terrible, value-destroying failure is good because it signals that our local instance of late-entrepreneurial capitalism is still capable of taking big risks. The implications of this logic are far-reaching: what if the risk that we stop failing (because we stop placing big, transformational bets) is more dangerous than the cost of a little too much hype? This is a hard question to answer, partly because the costs and benefits are incommensurable and partly because they accumulate across time in messy, discontinuous ways. From our perspective, the critical issue is not minimizing failure, but maximizing the categories and numbers of people who can afford to fail. Unfortunately, recent macroeconomic developments suggest that we are doing little to redress the “Lost Einsteins” problem, thereby losing even more of the bold, if risky, ideas that we need in order to support meaningful economic experimentation.

A more critical, narrative economic analysis would focus on how much of the imagined future builds on only imagined elements of the new technological system. Knowing how much is imagined might counteract hype that glosses over these elements.

Brent Goldfarb   Associate Professor
David A. Kirsch Associate Professor    Robert H. Smith School of Business   University of Maryland