The Walk

Robert Zemeckis directed a narrative remake of the great documentary Man on Wire. Titled The Walk, it stars Joseph Gordon-Levitt as Philippe Petit, who walked a tightrope between the two towers of the World Trade Center.

I loved the documentary so much that I was lukewarm on a narrative remake, but seeing the trailer yesterday (before the braindead Jurassic World) revealed a new nugget: it's being screened in 3D. Longtime readers know I'm not a huge fan of 3D unless it's real, but joy of joys, The Walk was shot in 3D. And it will be screened at IMAX theaters. Though I highly doubt it was shot in IMAX format (those cameras are enormous), this is one time I'd seek it out in that format, given the subject.

Seeing the inevitable overhead shot of Petit on the tightrope, with the sidewalk of NYC a stomach-dropping 1,800 feet below, with nothing but a one-way fall by way of gravity in between, in 3D, on a giant IMAX screen?

“His palms are sweaty, knees weak, arms are heavy. There's vomit on his sweater already, mom's spaghetti.”

The end of information asymmetry (except when we want it)

Alex Tabarrok and Tyler Cowen of Marginal Revolution fame contemplate the implications of a diminishing information asymmetry.

Might the age of asymmetric information – for better or worse – be over?  Market institutions are rapidly evolving to a situation where very often the buyer and the seller have roughly equal knowledge. Technological developments are giving everyone who wants it access to the very best information when it comes to product quality, worker performance, matches to friends and partners, and the nature of financial transactions, among many other areas.
 

They begin with a great example of how a market increased liquidity by driving down information asymmetry.

The market for used cars, however, has been one of the earlier examples where market institutions largely (albeit not completely) solved the problem of asymmetric information. Even in 1970, the market for used cars was extensive, and some institutions existed to make information more symmetric. Perhaps the most important of these was the odometer. First used by Alexander the Great to measure distances between cities, modern odometers were standard on almost all cars by 1925. The odometer reading is the single most important piece of information about a specific car that determines its value, and that is why used car prices are adjusted for mileage. The law contributes to this solution by making odometer tampering illegal and successive state and federal laws have increased the penalties and enforcement over time. In 1972, for example, the Federal Odometer Act made tampering a federal felony. As with other crimes, punishment doesn’t eliminate tampering but it does reduce it quantity thus making odometer readings more trustworthy and quality information more symmetric. Even more importantly, the Truth in Mileage Act of 1986 requires that sellers disclose and record the odometer reading on the title at every transfer of title. The 1986 Act greatly reduced the benefits of tampering because the odometer could not be rolled back prior to the reading from a previously recorded sale.
 
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Perhaps the most telling fact is that the market for used cars is already some three times larger than the market for new cars (as measured by unit sales, see Bureau of Transportation Statistics). In 2012, for example, there were 40.5 million used car sales compared to 14.5 million new car sales (NIDIA 2013). On average, used cars sell for about a third the price of new cars, so the total size of the two markets is similar with both around $330 billion in sales. There just aren’t that many lemons to sustain such a high transactions volume. In fact both high-quality and low-quality used cars are available in fairly liquid, fairly transparent markets.
Information symmetry about the quality of automobiles is very likely to increase. Almost all vehicles today have “event data recorders” aka “black boxes,” similar to those found in airplanes. Event data recorders record data on vehicle performance and diagnostic checks but also speed, braking, seatbelt use and other information relevant to safety and car crashes. Some car companies, most notably Tesla, can collect such information remotely or stream it in real time. Tesla, for example, collects information on a vehicle’s odometer, service history, speed, location, battery use, charging time, braking, starting and stopping times, air bag deployment—even radio and horn use.[2] When a vehicle is sold the data transfers with the vehicle. It is now possible to prove that a used car really was driven by a grandma just on Sundays.
 

Even for new car purchases, reduced information asymmetry has vastly improved the purchase process, and it might be just as good for car dealerships, too. It's now possible to look up the dealer price for most any car on a variety of free websites. Instead of haggling back and forth with a car salesman, traditionally an unpleasant ordeal, you can simply offer to purchase a car at cost plus whatever margin you want the dealer to make.

I suspect it's only a matter of time before other traditionally unpleasant or inefficient marketplaces become less one-sided. One example, to stay in the automotive space, is purchasing auto insurance. Every time my policy comes up for renewal, I'll check around for better rates, and more often than you'd expect I find one. The insurance companies count on your laziness to minimize churn, and often they withhold discounts they could offer you based on your driving record. Someone is going to come along to either automate that process or offer to take a cut of any savings in exchange for doing the legwork.

I recently purchased my first condo, and shopping for a mortgage was also incredibly painful. Refinancing doesn't sound like much fun either. This is one area where good enough doesn't feel good enough; one always feels taken advantage of if there's money left on the table.

*****

Tabarrok and Cowen also discuss reduced information asymmetry in reputation in a variety of marketplaces.

Reputation is one very general way to think about solutions to moral hazard problems. A mechanic with a reputation for honest dealing can earn more business at a higher price. Cheating becomes less valuable when the price is a loss of reputation.
 
In recent times, information technology has made it easier to observe a seller’s reputation and to contribute to the formation of a seller’s reputation at low cost. Yelp, Angie’s List, and Amazon Reviews all make it easy for past buyers to report their observations on seller quality and for future buyers to observe a seller’s accumulated reputation. And of course it is not just sellers who are rated but workers too are evaluated in a variety of ways; for instance many employers check a worker’s credit rating, or on-line history, before making a hire. We may be creating some privacy problems with these techniques, but the old school issues of asymmetric information are drying up rapidly.
 
Early reputation mechanisms were one-way, namely that buyers would generate reputations for sellers, but now the ratings often go both ways. Many of the exchanges in the sharing economy, including Uber (transportation), Airbnb (accommodations), and Feastly (cooks) use two-way reputational systems. That is the customer rates the Uber driver, but in turn the Uber driver rates the customer. Dual reputation systems can support a remarkable amount of exchange even in the absence of law or regulation. The Silk Road marketplace for illegal goods, for example, supported millions of dollars of exchange through a dual reputation system. On the Silk Road it was possible to pay for goods in advance of delivery or to buy goods which were delivered before payment was made. In each case, honesty was maintained through reputation even without legal recourse for contract breach.[4] Thus, in these cases reputation maintained quality even when theories of information asymmetry would have predicted the problematic nature of any exchange at all.
 

Tabarrok and Cowen hone in on privacy as one problem with this world of two-way reputation. Privacy concerns and plain old cultural inertia may be the only things holding back more companies from implementing two-way reputation systems. Restaurants, hotels, airlines, car rental services, and almost anyone you transact with could start rating you as a customer and using that to determine whether they want your business in the future. Everyone deserves healthcare, I believe strongly in that, but maybe the jerk who always no-shows at a restaurant can and should live without a reservation.

*****

Given all this, why do we still tolerate so much information asymmetry when it comes to the people in our lives? Take the mating/dating market, for example. People spend money on fancy sports cars, exorbitant prix fixe meals, designer clothing, much of it just to signify wealth. Why not just show someone your bank statement?

How about signaling physical fitness? We spend a lot on gym memberships, Spanx, fad diets, all to look good for potential mates, but why not share the results of our latest physical from the doctor's office, along with a medical history?

Of course many technological advances have already started increasing the efficiency of such status signaling (a cursory scroll through your Facebook news feed would blow the mind of a sociologist from a previous era), but we still tolerate a surprisingly high degree of information opacity if considered purely from a market perspective.

I suspect it's not just cultural inertia, though that plays a part as in all technology dissemination. Instead, I suspect humans value the process of constructing narratives about themselves and about each other, and reducing information opacity to zero would remove all the pleasures of that activity. It would eliminate mystery, and ambling out of the fog of mystery  is one of the great pleasures of life.

That so many of us choose to derive so much of the narrative drama of life through the people around us is either natural or bizarre, depending on your personality. Even with someone you know so well, like your partner or spouse or child, one of the most pleasurable mysteries of life is learning new things about them every day, seeing how they evolve. If we have an insatiable desire for a certain level of narrative entropy, perhaps most of us would prefer to have it from the people in our lives than from, say, a new digital SLR, where we want to read every last bit of research and every last professional and consumer review to ensure we know what we're getting.

Perhaps some baseline level of relationship dissolution will always exist simply because we prefer a gradual diminishment rather than a sudden dissolution of information asymmetry when it comes to the people in our lives. 

Does surge pricing maximize consumer welfare?

Steve Randy Waldman makes one of the more persuasive arguments against surge pricing (a term which may have existed before Uber—the practice certainly did—but which now seems inextricably intertwined with their brand).

I don’t care all that much about Uber’s “surge pricing” — its practice of increasing its usual fare schedule by multiples during periods of high demand. I do, however, care about the damage done by a kind of idiot dogmatism that hijacks the name “economics”. Uber’s surge pricing may or may not serve Uber’s objectives of profit maximization and world domination. It may or may not increase “consumer welfare”. But it is not unambiguously a good practice, either from the perspective of the firm or as a matter of economic analysis. Its pricing practices impose tradeoffs that must be addressed with reference to actual, on-the-ground circumstances. Among prominent academic economists there may well be a (research-free) consensus that surge pricing promotes consumer welfare (ht Adam Ozimek), but that reflects the crude selection bias of the profession much more than actual analysis of the issue. The dogmatism which has arisen in support of Uber’s surge pricing is quite analogous to the case of urban rent regulation, a domain in which there is incredible heterogeneity across localities and nations, both of circumstance and policy, and a wide range of legitimate values that conflict and must be reconciled. (Here’s an interesting case in the news today, in Spain, ht Matt Yglesias.) Almost as a right of passage, economists drone in every intro course that rent controls are bad. By preventing price signals from working their magicks, they prevent the explosion of real-estate supply that a truly free market would deliver. This is stated as uncontroversial fact even while economists who research and opine prominently on housing policy have endlessly documented that housing supply is not in fact price-elastic in the prosperous cities where rent controls are typically imposed. None of this is to say that rent controls are good or bad, or that non-price barriers to construction are good or bad. These are complex questions involving competing values textured by local circumstance. They deserve bespoke analysis, not pat dogma imposed by distant central planners economics professors.
 
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As in the case of rent control, the stereotyped economist’s case for surge pricing is based on a conjectured elasticity of supply. With higher prices, the reasoning goes, more drivers will hit the road, more customers will be served, and the world will be better off. And that’s a good case, as far as it goes. But it doesn’t go very far, without some empirical analysis. It doesn’t justify Uber’s actual practice of surge pricing, which is far from the transparent auction our stereotyped economist seems to imagine. It doesn’t account for the trade-offs imposed by price-rationing (as opposed to time- or lottery- rationing), both between customers and for the public at large.
 
First, how price elastic is driver supply? If we presume that Uber is a Walrasian auctioneer, a disinterested matchmaker of supply and demand, apparently supply is not very elastic. Uber surges prices by multiples, two, three, even four times “typical” pricing in periods of high demand. That’s extraordinary! If supply were in fact elastic, small increases in price would lead to large increases in supply. The supply-centered case for dynamic pricing is persuasive in direct proportion to actual elasticity of supply. Uber’s behavior suggests that the supply-based case is not so strong. Of course, we cannot make very strong inferences about driver supply from Uber’s behavior, because they are not in fact a disinterested Walrasian auctioneer. When Uber surges, it dramatically raises its own prices and earns a lot more money per ride, whether ride supply increases not at all, or whether it spikes so much that drivers end up competing heavily for riders and suffer long vacancies. As a profit maximizer, Uber’s incentives are to impose surges primarily as a function of demand, and say nice things about supply to con economists and journalists.
 

This is one of the paradoxes of surge pricing. It is supposed to attract more drivers to the road, but if you live in SF as I do and have tried to call an Uber at the end of the workday (say 5-8pm), or on a weekend night, you know that Uber will inevitably be in surge pricing. And yet it still happens every day. If surge pricing worked, you'd expect drivers to learn that those are great times to drive to maximize their earnings, and that as more drivers did so surge pricing would wane as supply matched demand.

Perhaps there are still not enough drivers in total to match these spikes in demand. Or perhaps driver supply isn't as price elastic as claimed.

Or perhaps the cost of maintaining even the normal supply of drivers on a Friday night is just higher. Driving in rush hour in San Francisco isn't exactly pleasant work, and more importantly, drivers want to go out on Friday nights, too. The price to get them on the road may just permanently be higher on that night, like how evening movie tickets cost more than matinee tickets, or dinner costs more than lunch at restaurants even if the food is the same, or how Monday morning flights with Friday evening returns cost more to target business travelers. Completely plausible, but different from the story that ride sharing PR departments continue to put out, which is that surge pricing attracts more drivers until supply matches demand.

If that were the case, from a brand perspective, it would be better to just put those higher rates into effect permanently and call them peak rates and call the pricing at other times off-peak rates. Surge pricing is already a dirty word. If for some reason demand was even higher than normal peak demand, then put in surge pricing, and if for some reason it happened to be lower, you could offer a discount off of peak rates (ebb pricing?) and gain some consumer goodwill.

The other argument for surge pricing is, of course, price rationing. That is, by raising prices, we ensure that the scarce resource of Uber drivers goes to those who most need it.

Unfortunately, the argument for price-rationing (as opposed to lottery-rationing, or queue-rationing) of goods as being welfare-maximizing depends (at the very least) upon a rough equality of wealth so that interpersonal dollar values can stand in for interpersonal welfare comparisons. In an unequal society, price rationing ensures disproportionate access by the rich, even when they value a good or service relatively little. There is no solid case that price-rationing is optimal or even remotely a good idea when dispersion of purchasing power is very large. I’ve written about this, as has Matt Yglesias very recently. Matt Bruenig has two excellent posts relating this point to Uber specifically (as well as another post on ethical claims about Uber’s pricing).
 

The service is still scaling (incredibly), so it may not be fair to judge the validity of the price-rationing argument. However, based on the three times I've seen crazy surge pricing multiples for Uber (I'm talking 8X to 9X, for example during a blizzard in NYC the day after the Super Bowl two years ago), price rationing meant Uber was only available to price-insensitive wealthy folks. Great for maximizing Uber's profits, but not exactly what people claim when they say the market is the best way to allocate scarce resources during times of peak demand, for example an emergency. Unless you want to argue that because the wealthy were willing to pay more, they deserved or needed the service more than poorer folks. Pursue that line and next thing you know, you're dancing with a woman in a mask at your masquerade ball and she's whispering in your ear:

There's a storm coming, Mr. Wayne. You and your friends better batten down the hatches, because when it hits, you're all gonna wonder how you ever thought you could live so large and leave so little for the rest of us.
 

Matt Bruenig explains this with a very clear example:

Suppose that, in a given location, 10 people will normally hail an Uber cab, and 10 drivers will normally be cruising about to accept them. Now suppose that, because of an emergency, the number of people trying to hail a cab shoots to 100 people. In response, Uber jacks up prices very high, which has the effect of bringing 10 additional drivers on to the road. That means there are now 20 drivers (a doubling of supply) and 20 of the 100 people trying to hail an Uber cab succeeds in doing so.
 
Under Econ 101 analysis, you say that there was a welfare increase here. See, there were 20 people who got Uber cabs rather than 10 people. But, as I keep pointing out, this argument is not determinative if we assume the 100 people vying for Uber cabs have unequal economic resources. Further, the more unequal the resources are among those people, the more likely using prices like this actually decreases aggregate utility.
 
To see why, consider these two scenarios:
 
Non-Surge
  • Rider Demand: 100
  • Cab Supply: 10
  • Chance of Getting a Cab: 10% for all 100 riders
Surge
  • Rider Demand: 100
  • Cab Supply: 20
  • Chance of Getting a Cab: 100% for wealthiest 20 riders, 0% for other 80 riders
From a glance, you can immediately see that for the bottom 80 riders, the rational preference should be the Non-Surge. In Non-Surge, their odds of getting a cab are 10%. In Surge, their odds of getting a cab are 0%. Don’t let stupid journalists confuse you on this point.
 

Did more cars hit the road in response to the 8x or 9x surge pricing that snowy night in NYC? Without data from Uber, it's impossible to say. Given that Uber has been under a bit of a public relations siege, at least in the tech press and locally here in the Bay Area, if surge pricing increased supply of drivers in any meaningful manner in times where demand outstrips supply, I would've thought they would've released data proving that point.

This isn't to say I'm not a fan of Uber and other ride-sharing services. I love ride sharing, I use Uber and Lyft all the time. They've undoubtedly produced a great deal of surplus consumer and societal welfare, especially in this time of a heavily subsidized price war for market share. What taxi drivers and the government are doing in Paris to fight off Uber is just one more reason I've fallen deeply out of love with what was once one of my favorite places in the world.

And I don't doubt some of the grumbling about surge pricing is just the usual consumer noise greeting any price increases, however reasonable. It would be more bizarre if consumers didn't complain simply as another signal to suppliers of their preferences.

But the argument that surge pricing always maximizes consumer welfare is a more complex one, and not a premise that should be accepted at face value.

Moments in tech history: surge pricing

According to this site which claims to be able to surface the first tweet on any subject, the first two tweets about Uber surge pricing were these:

The first wonders what surge pricing is, and then the second, coming just five minutes later, complains about it. A succinct and perfect summary of the public reception to surge pricing for the history books.

We live in glorious times, when the time to the inevitable backlash approaches zero.

The Hollywood Labor Model

I saw the title of Adam Davidson's piece “What Hollywood Can Teach Us About the Future of Work” and thought he was going to draw a specific conclusion, but instead he drew another.

I was there as a “technical adviser”: The movie involved some financial events that I’ve reported on, and the filmmakers wanted to ask me questions as they set up their scenes. But I spent much of the day asking questions of my own, trying to figure out something that mystified me as the day went on: Why was this process so smooth? The team had never worked together before, and the scenes they were shooting that day required many different complex tasks to happen in harmony: lighting, makeup, hair, costumes, sets, props, acting. And yet there was no transition time; everybody worked together seamlessly, instantly. The set designer told me about the shade of off-­white that he chose for the walls, how it supported the feel of the scene. The costume designer had agonized over precisely which sandals the lead actor should wear. They told me all this, but they didn’t need to tell one another. They just got to work, and somehow it all fit together.
 
This approach to business is sometimes called the “Hollywood model.” A project is identified; a team is assembled; it works together for precisely as long as is needed to complete the task; then the team disbands. This short-­term, project-­based business structure is an alternative to the corporate model, in which capital is spent up front to build a business, which then hires workers for long-­term, open-­ended jobs that can last for years, even a lifetime. It’s also distinct from the Uber-­style “gig economy,” which is designed to take care of extremely short-­term tasks, manageable by one person, typically in less than a day.
 
With the Hollywood model, ad hoc teams carry out projects that are large and complex, requiring many different people with complementary skills. The Hollywood model is now used to build bridges, design apps or start restaurants. Many cosmetics companies assemble a temporary team of aestheticians and technical experts to develop new products, then hand off the actual production to a factory, which does have long-­term employees. (The big studios, actually, work the same way: While the production of the movie is done by temps, marketing and distribution are typically handled by professionals with long-­term jobs.)
 
Our economy is in the midst of a grand shift toward the Hollywood model. More of us will see our working lives structured around short-­term, project-­based teams rather than long-­term, open­-ended jobs. There are many reasons this change is happening right now, but perhaps the best way to understand it is that we have reached the end of a hundred-­year fluke, an odd moment in economic history that was dominated by big businesses offering essentially identical products. Competition came largely by focusing on the cost side, through making production cheaper and more efficient; this process required businesses to invest tremendous amounts in physical capital — machines and factories — and then to populate those factories with workers who performed routine activities. Nonmanufacturing corporations followed a similar model: Think of all those office towers filled with clerical staff or accountants or lawyers. That system began to fray in the United States during the 1960s, first in manufacturing, with the economic rise of Germany and Japan. It was then ripped apart by Chinese competition during the 2000s. Enter the Hollywood model, which is far more adaptable. Each new team can be assembled based on the specific needs of that moment and with a limited financial commitment.
 

I agree we'll continue to see more projects handled by teams that come together and then disband. In tech this is already a trend within companies, teams of product managers, designers, and software engineers coming together for one project, then disbanding and scattering to other projects. Technology advances arrive faster than in the past for a variety of reasons including Moore's Law and the heavy overlap in the Venn diagram of where the tech giants compete. Everyone wants the biggest cut of the finite pool of user attention, and all those companies have a lot of similar resources in terms of software engineers, PM's, designers.

Small teams of specialists collaborating for finite periods tends to be the most efficient way to move quickly enough to keep pace with this unrelenting tempo, unless you're working on larger scale projects with longer timelines, like self-driving cars or a new form of mobile computer.

Movement of specialists between companies has heightened, too. California doesn't enforce non-competes, heavy equity compensation plans tend to see a huge dropoff in annual value after four or five years (with accelerated vesting after a year or two), and identifying people from other companies with the skills you need is easier than ever in the age of LinkedIn, and with lots of companies offering employee referral bonuses. HR departments learned long ago that the success rate and cost efficiency of recruiting through referrals to be superior to other methods.

But in the last paragraph quoted above, I think Davidson is off when he equates the Hollywood model with being an evolution away from what he terms the end of a hundred-year fluke, an era of “making production cheaper and more efficient” and an ear in which workers “performed routine activities.”

In fact, anyone who's ever worked on a movie production and been on a movie set knows that the efficiency Davidson observes in the first paragraph quoted above is precisely because Hollywood learned a series of processes to transform a complex creative endeavor into something akin to a factory line of repeatable tasks.

If you've ever stayed to watch the end credits of a Hollywood production (and if you've seen any Marvel movies in recent history, you probably have), you've probably been stunned by the sheer number of people involved. For several minutes, names scroll up the screen in fine print, and your mind boggles at the cost of employing so many people. Is it really necessary to have so many specialists?

In fact, it is only by employing so many people that Hollywood productions can keep their production costs to a minimum. It sounds like a paradox, but it makes perfect sense when you realize the distribution of costs on a production. One tiny fraction of people among that long list make up a disproportionately massive slice of the production costs, and those are the movie stars. These are the people playing Iron Man, or your gorgeous romantic lead who just can't meet Mr. Right because she's so wrapped up in her job, or the bodyguard of the President who has to save the day when terrorists break into the White House posing as cable TV repairmen (it is a crutch of Hollywood screenwriting that any repair person can show up unannounced and then get in by just by asking if the security guard if they really want to bother some bigwig who will be really upset at that minor intrusion into their schedule).

If you're lucky enough to have Robert Downey Jr. or Jennifer Lawrence or some such movie star in your production, they make many multiples of what your $35/hr union gaffer makes. Also, that movie star is likely committed to their next movie already, so you have them for a finite number of shooting days, too. In almost every way, they are the financial and logistical long pole of your production, so you have to make the most of their time, whatever it takes. You've mapped out what pages of the script will be shot on which days in which locations, and the actors are told in advance which days they'll be needed where.

Actors are sensitive instruments, too, so when they're in the moment, ready to pull off a delicate scene, when they stroll over from their trailer on to set, you had best have everything ready to go. Remember that recording of Christian Bale chewing out someone on set for moving a light while he was performing a scene? I'm not saying that wasn't excessive, but I've also been on enough sets to understand where he was coming from. It's like a CEO chewing out someone for doing email on their laptop during a crucial meeting.

It turns out the most fast and efficient way to maximize the number of shots you can complete is to break the massive and complex effort of dressing and lighting a set into a huge number of discrete, specialized tasks. You have one person whose entire job is to rig up one light. One person whose sole job is to track script continuity. One person who takes photos of each shot to make sure props are returned to the same spot before each take. One person whose sole job it is to drive Scarlett Johansson over to the shot from her trailer in a golf cart.

Could you do it with fewer people? Could one person set up multiple lights and dress the set and hold the boom mic? Yes, but that's what you call a student or independent film. That style of shooting takes longer to set up each shot, and while you're in the midst of prepping for the next shot, your star is sitting around in the trailer playing on their iPhone, running up your production budget way more than if you just hired a few more arms/legs to get the set ready more efficiently. When movie stars take a much lower wage to work on an indie film, it's not just so they can expand their acting chops, it's also out of financial necessity.

It's the tech equivalent of doing a keynote involving someone like a Tim Cook, Mark Zuckerberg, Jeff Bezos, or Larry Page. Their time is the most precious and expensive resource in the room. Could a handful of people handle all the logistics of reserving and dressing the facility, setting up the A/V, producing all the marketing collateral, sending out invites, etc.? Sure, but it's not an efficient use of resources for that small team to be the long pole when it's Tim Cook's time that is most precious. Anyone who's ever presented to the CEO intuitively understands whose time is most precious in the room, who to make the most eye contact with.

In fact, if tech was to learn anything from the Hollywood model, it should be that maximum efficiency is achieved when there are very few to zero overlapping responsibilities among members of a team. The vogue in tech now is that designers aren't just designers, engineers aren't just engineers, product managers aren't just project managers. Everyone on the team is talented across disciplines, everyone's opinion should be heard.

If you hire talented people, it's very often the case that they're smart on multiple vectors, but a team consisting of people who all overlap across a wide surface area of decision making is a team with high coordination costs and more frequent disagreements. It may produce better results, but it may take longer.

On a film set, even the number of communication channels is restricted so that the number of potential interface possibilities doesn't rise exponentially with the number of people on set. The only person who can speak to the actors is the director and maybe the assistant director. The director doesn't speak to a grip, he speaks to the cinematographer who speaks to the gaffer who may speak to the best boy who then tells the grip how to adjust a light.

When Adam Davidson marveled at how so many people on set could work so quietly and efficiently, as if one coordinated team, it's because decades of producing hundreds of movies per year forced Hollywood to create a very battle-tested process for most efficiently cranking out the high production value films we see on the silver screen.

This is one of those cases where a metaphor can be stretched too far, as intellectually tidy as it may be. Unlike software production, movie production is one area when throwing more people at a problem, as long as they're the right specialists with very discrete responsibilities, can lead to greater productivity at higher efficiency.

Why, then, are there so many lousy movies? The same reason there are so many lousy apps or websites. Once you know what you want to do, production can be reasonably efficient. However, the creative piece of figuring out what to do has not yet been reduced to some reproducible process. Creative work remains, for the most part, a high failure rate endeavor.

Not that people haven't tried. One recent book on the subject was Creativity, Inc., whose very title promises to unlock the secrets of Pixar's strong track record of success in an industry not known for its high batting average. Lots has been written about the book, and about Pixar, a company shrouded in an almost mystical (and mythical) aura, not just in Hollywood but in the business world at large. I have almost finished the book, and it has much of interest on the topic of managing creative people, how to get them to collaborate best.

One thing which really benefits Pixar and hasn't received enough attention, however, is how it increases the feedback frequency and volume from the marketplaces both internal and external. One of the problems of filmmaking in general is that the final product, the completed movie, isn't finished until long after the actual filming on set. Making a movie is such a long process that it is broken into three stages: pre-production (all the stuff before the actual shooting of the movie, like financing, writing or purchasing a script, signing movie stars and the  director, etc.), production (actually filming the actors, with all that encompasses), and post-production (editing, sound editing and mixing, color correction, etc.)

The problem with this process is that by the time the actual final cut is ready to watch by an audience, the feedback is so late that only minimal corrections can be made if the movie isn't working. Your actors and have moved on to other projects and probably unavailable for reshoots, which just add to costs. Reshoots are very rare in Hollywood, and when you hear about a movie going into a reshoot it's often a harbinger of doom, like a tech company raising a down round. It can feel like good money chasing after bad.

Pixar has several advantages on this front. One is that it works in animation, so costly actors are less of a financial and scheduling crutch. An animator costs less than an actor, so if a performance isn't working, it isn't as costly to fix. And even if Tom Hanks wants a fortune to do the voice of Woody in Toy Story, it's not as dire a situation to swap a voice out as it is to change your lead actor (though I can't imagine Woody sounding any other way).

Second, in animation you can fairly quickly produce rough cuts of a script, with voices and sound and a watchable edit. So you can test scenes much earlier and much more cheaply than you can with, say, a live action scene between Ryan Gosling and Scarlett Johansson. As with prototyping in tech, suddenly you can push market feedback earlier in the production process rather than pushing it all the way to the end, when it's often too late.

Additionally, Pixar has put in an internal quality control group called the Braintrust, consisting of its top creatives and storytellers like John Lasseter, Andrew Stanton, Brad Bird, and Pete Docter. The Braintrust provides regular feedback to Pixar filmmaking teams, and their status as a group external to the project provides the objectivity that the teams themselves may lack because of their personal involvement and investment. This is an advantage to Pixar's existence as a firm, in contrast to most Hollywood movies which are made by teams assembled on the fly. A live action film typically can't get access to a creative Braintrust because a studio like Warner Bros is largely just a financing vehicle, it hires directors and actors to shoot movies one project at a time. The people at a studio like Warner Bros who can provide feedback are mostly suits, not storytellers, so their feedback is seen as useless and intrusive.

Pixar takes quality control so seriously that they've shelved several high profile projects after having gone into production, and they've rebooted others like Toy Story 2 with new teams. That is not cheap, but it's cheaper than just plowing forward, sinking more money into a project that isn't working, and releasing it.

The last factor enabling Pixar to incorporate so much quality control in its production process is that its hits have paid out enough to support the ongoing business of the firm. Even with its stellar record, however, it hasn't been all smooth sailing. When you only put out one movie a year (about Pixar's pace in its history), it had damn well better be a hit or the firm will feel the impact. This is a high cost, high investment process in every way, like tech firms putting out their new flagship cell phone once a year. 1

Pixar movies take many years to produce, much longer than live action films, and their budgets are in the hundreds of millions of dollars, even without really expensive movie stars on the budget. One middling box office success like Brave can lead to layoffs and office closures. The whole endeavor is more precarious than many would believe given Pixar's track record, but such is life when you invest so much in so few products.

Because of its status as an actual firm with some continuity in leadership (of course many of its employees work project to project) and its focus on animation, Pixar's magic is not easily replicable by traditional movie studios, especially those who work largely in live action. It's analogous to companies that try to emulate Apple; it's a dangerous game in which it's very easy to choose to copy the wrong things, or not enough of the right things, to less than stellar results.

Ronald Coase would have much to say on the topic.

  1. Samsung had a window, before Apple put out its iPhone 6 and 6 Plus, to get two new high end handset to market, the S5 and later the Galaxy Note 4. The two phones failed to capitalize on that brief window to steal high end marketshare, and instead the iPhone 6 and 6 Plus turned the tables and stole a bunch of market share from Samsung they debuted in late 2014. It was always unlikely for Samsung to leapfrong successfully given Apple's prowess in high end handsets, but you don't get many such windows. Accelerated evolution is exciting but unforgiving.

Is there less training in the knowledge economy?

I am very much an Uber fan, but if you are looking for drawbacks that passage expresses one potential problem.  Pre-Uber, acquiring worker talent required lumpier investments on the part of the employer.  You would hire a bunch of people, with the expectation of keeping them around for a while, and then train them to do a bunch of things.  Some of them would work their way up the proverbial ladder, based on what you had taught them, many would not.  But you would train and teach them quite a bit, if only because there was no alternative for getting things done.

In a “sharing economy,” a pre-trained worker is very often on call for a short stint, when needed.  The employer thus has less need to invest in option value from the full-time work force and that means less training.  The result is that more workers will have to teach and train themselves, whether for their current jobs or for a future job they might have later on.

I submit many people cannot train themselves very well, even when the pecuniary returns from such training are fairly strongly positive.  The “at work social infrastructure” for that training is no longer there, and so many sharing economy workers will stay put at their ex ante levels of knowledge.

Tyler Cowen on the deficit of training in the sharing economy.

It's not just the sharing economy, though. The whole knowledge economy sector seems to put less into employee training. Is this different than in decades past? I've worked my whole career in this space, I have no basis for comparison to a bygone era.

The usual caveats about causation/correlation apply, but with employee tenures being so short in the knowledge economy, perhaps it's not surprising that employee training has diminished. The pace of change, the dynamic competition, the rapid growth, and the constant organizational reconfigurations are other factors that lower the return on investment to on-the-job training. Though it may be cheaper to groom someone from within, it's tempting for the leaders in tech to just poach talent from other companies, never has it been so easy to identify top people within other company walls (thanks to services like LinkedIn and the generally higher connectedness of tech employees in this networked age). 

There are exceptions, of course, but it's best to head into tech assuming you'll need to invest heavily in self-training and be pleasantly surprised if things turn out differently. Most tech executives I know are stretched so thin that actively training others can't even find room on the bottom of the list.

When I speak to most younger students and recent grads, I advise them to think of their education as a lifelong endeavor and not something that ends when they palm their college diploma. Especially in technology, many people will likely acquire new skills multiple times in their career, a college degree serving just as the first notable signal that they're responsible learners.

The positive is that the internet and web have created a vast reservoir of free knowledge. The difficulty is making sense of it all. White collar job knowledge, especially in tech, is either trapped inside specific people or company's heads or it's out there but badly archived and organized.

Reservoir of goodness

As a poetic companion to Justice Kennedy's majority opinion for marriage equality for SCOTUS today, read Andrew Sullivan's piece on the momentous ruling. A recollection, an appreciation, a victory lap, beautiful throughout.

In fact, we lost and lost and lost again. Much of the gay left was deeply suspicious of this conservative-sounding reform; two thirds of the country were opposed; the religious right saw in the issue a unique opportunity for political leverage – and over time, they put state constitutional amendments against marriage equality on the ballot in countless states, and won every time. Our allies deserted us. The Clintons embraced the Defense of Marriage Act, and their Justice Department declared that DOMA was in no way unconstitutional the morning some of us were testifying against it on Capitol Hill. For his part, president George W. Bush subsequently went even further and embraced the Federal Marriage Amendment to permanently ensure second-class citizenship for gay people in America. Those were dark, dark days.
 
I recall all this now simply to rebut the entire line of being “on the right side of history.” History does not have such straight lines. Movements do not move relentlessly forward; progress comes and, just as swiftly, goes. For many years, it felt like one step forward, two steps back. History is a miasma of contingency, and courage, and conviction, and chance.
 
But some things you know deep in your heart: that all human beings are made in the image of God; that their loves and lives are equally precious; that the pursuit of happiness promised in the Declaration of Independence has no meaning if it does not include the right to marry the person you love; and has no force if it denies that fundamental human freedom to a portion of its citizens.
 
...
 
We are not disordered or sick or defective or evil – at least no more than our fellow humans in this vale of tears. We are born into family; we love; we marry; we take care of our children; we die. No civil institution is related to these deep human experiences more than civil marriage and the exclusion of gay people from this institution was a statement of our core inferiority not just as citizens but as human beings. It took courage to embrace this fact the way the Supreme Court did today.
 

I turned on CNN in my hotel here in Italy after dinner tonight. I've watched maybe 15 minutes of television this entire month I've been traveling, distance and the preoccupations of exploring a foreign country have a way of making all news seem too local, but tonight I happened to catch Obama in the midst of his eulogy in Charleston, live. I will always stop to watch Obama speak in a black church, just to hear the cadence of the call and response, the ebb and flow, the dialogue of a communal consciousness.

In his speech, a remarkable and moving one, he referenced Marilynne Robinson's phrase “reservoir of goodness.” If we could just tap into that reservoir of goodness, he both urged and wondered, if we could just tap into that grace, what might be possible?

On this day of all days, the answer seemed to be: more than even Andrew Sullivan expected in his lifetime.

It is so ordered

Everyone is posting the same final two paragraphs from Justice Kennedy's majority opinion (page 33 in this PDF) affirming marriage equality. I will as well, because sometimes legalese rises beyond the mundane and ascends to the lyrical.

No union is more profound than marriage, for it embodies the highest ideals of love, fidelity, devotion, sacrifice, and family. In forming a marital union, two people become something greater than once they were. As some of the petitioners in these cases demonstrate, marriage embodies a love that may endure even past death. It would misunderstand these men and women to say they disrespect the idea of marriage. Their plea is that they do respect it, respect it so deeply that they seek to find its fulfillment for themselves. Their hope is not to be condemned to live in loneliness, excluded from one of civilization’s oldest institutions. They ask for equal dignity in the eyes of the law. The Constitution grants them that right.
 
The judgment of the Court of Appeals for the Sixth Circuit is reversed.
 
It is so ordered.