The role of government in innovation

When it comes to productivity, there is one set of rules, which economists have worked on since Adam Smith. Innovation has a different set of rules. Most economists seem barely aware that the two sets of rules often clash — what is good for productivity is bad for innovation. Let me sketch a few of the innovation rules. Innovation needs freedom, of course, and the ability to profit from your invention, which I’ll call benefit. It is also called self-interest. The importance of benefit/self-interest for innovation is the main point of Why Nations Fail by Acemoglu and Robinson. Innovation is also increased by resources, such as skills, knowledge, space, and equipment. After discussing this with Bryan Caplan, I believe many economists are well aware these three factors (freedom, benefit, resources) affect innovation. All three also increase productivity — for example, more resources, more productivity. Far fewer economists realize that two other things, which act against productivity, are also very helpful for innovation:

1. Pain. Not a lot — not debilitating or all-consuming pain — but enough to make you think hard. Necessity is the mother of invention is the aphorism, which isn’t quite right. Pain, not necessity. Government is useful here, as I said. So is war. Many innovations came from wars. A famous example is the greenback, which came from the Civil War.

2. Stability. To innovate, you need free time, which is different from freedom (ask any prisoner). Free time allows painless failure, very helpful for innovation. To have free time, you need a secure job. Government is useful here, too. So is tenure. Pain plus stability = peacetime military spending. The internet came from peacetime military spending. Professors were the first users. Stability also promotes innovation because it makes it easier to detect small improvements. The quieter it is, the better you can detect soft sounds.

More here from Seth Roberts. It's commonly accepted that constraints can spur creativity, but the idea of government as a useful irritant is not something I'd heard before. 

The tradeoff of freedom and pain with government plays out on a smaller scale with employees and companies. Early in your career, you run into more obstacles in a company given your generally lower position in the organization. Some of them are instructive, others are just friction or the usual coordination costs of an organization.

At some point, for some people, those costs become unbearable and they leave for a position higher up, where there are fewer obstacles, or they start their own company and trade one type of challenge for a different type.

Instagram Direct and the crowded messaging space

Instagram found a place in our hearts as an app for broadcasting moments. Take a photo (or later a video) and share it publicly, and specifically, to people who follow you. Now Instagram wants us to use it for private sharing. Take a photo or video and send it to one person or a small group. Those are entirely distinct species of communication.

Convincing a userbase to break their ingrained behavior pattern and use an app for something completely different is a tough sell. And it’s a lot tougher if that “something different” is actually “something you can do elsewhere”.

If I want to share a photo with a few friends, I can text it, email it, or Facebook message it. These each let me get friends’ reactions and have a conversation around the photo. In fact, they’re all more flexible than Instagram Direct in that I can reply with another photo — the absence of that feature is my biggest gripe about IDG. It also suffers from a creation interface that’s too slow for sharing to such a limited audience. Filtering and adding a witty caption bog down the flow, making Instagram Direct too time intensive to be a rapid-fire visual communication tool.

And of course, if I want to private message someone a photo or video, I can Snapchat them. Snapchat has carved out a purpose and following with ephemerality — something that’s actually different. I can’t send a photo that disappears with any other major messaging service, so I go to Snapchat when I have something silly or racy to share.

So really, the problem is that Instagram Direct is too different from Instagram, and not different enough from everything else.
 

Good piece from Josh Constine on a key problem facing Instagram Direct.

Allowing video to be uploaded was a natural extension for Instagram. Instead of broadcasting photos, you were broadcasting video. It felt comfortable right away. 

Instagram Direct felt immediately strange. I'd never used Instagram as a one-to-one photo sharing tool, and the people I'd chosen to follow on the service were not ones I'd chosen with one-to-one sharing in mind. My Instagram graph is much smaller than my graph on other social graph services because I'd chosen who to follow based on who I wanted to see photo broadcasts from, and I think most people who follow me there were looking for my photo broadcasts as well. It will always be easier for me to share photos one-to-one through another app because my graphs are larger there and because, as Josh notes, the interaction flow is much faster.

I now use the following multitude of apps to message other people on an almost daily basis: email, Twitter, Twitter DM, Facebook, WhatsApp, Line, Snapchat, iMessage, SMS. One would think using so many different messaging apps would be annoying, that the shape of social graphs would see one of these services winning out through network effects.

But now that all of these messaging apps can easily piggyback off of my mobile contact book to easily find the people I already know on those services, the switching costs are very low. The interfaces are all easy to learn and largely equivalent (the other person's message in a chat bubble on one side of the screen, mine on the other side) so the learning curve is also negligible. Finally, since my phone sends me a notification anytime I receive a message through any of these services, I can launch any of the apps with one click and tap out a reply just as easily as I would on the next app.

For those reasons, It's not clear this has to be a winner-take-all space. That makes it challenging for investors in this area. If some other messaging app came along that was somewhat better and some of my friends flocked to it, I could switch in no time, and if for some reason one of these apps became unfashionable, I could delete it without too much regret.

Hierarchy of innovation

Nicholas Carr hypothesizes that we're seeing a stagnation in transformative innovation because we've shifted towards the top of a sort of Maslow's hierarchy of innovation.

As with Maslow’s hierarchy, you shouldn’t look at my hierarchy as a rigid one. Innovation today continues at all five levels. But the rewards, both monetary and reputational, are greatest at the highest level (Technologies of the Self), which has the effect of shunting investment, attention, and activity in that direction. We’re already physically comfortable, so getting a little more physically comfortable doesn’t seem particularly pressing. We’ve become inward looking, and what we crave are more powerful tools for modifying our internal state or projecting that state outward. An entrepreneur has a greater prospect of fame and riches if he creates, say, a popular social-networking tool than if he creates a faster, more efficient system for mass transit. The arc of innovation, to put a dark spin on it, is toward decadence.

One of the consequences is that, as we move to the top level of the innovation hierarchy, the inventions have less visible, less transformative effects. We’re no longer changing the shape of the physical world or even of society, as it manifests itself in the physical world. We’re altering internal states, transforming the invisible self. Not surprisingly, when you step back and take a broad view, it looks like stagnation – it looks like nothing is changing very much. That’s particularly true when you compare what’s happening today with what happened a hundred years ago, when our focus on Technologies of Prosperity was peaking and our focus on Technologies of Leisure was also rapidly increasing, bringing a highly visible transformation of our physical circumstances.

If the current state of progress disappoints you, don’t blame innovation. Blame yourself.

More on Vegas and yield

I wrote last week about learning from Las Vegas and its ability to maximize yield from its flow of visitors.

Recommended by Alexis Madrigal and Tyler Cowen, the book Addiction by Design: Machine Gambling in Vegas covers much of that topic and more in a really gripping fashion. Given how much time we all spend plugged into the internet through our devices now, it's a very timely and important issue. I'm about a quarter of the way through the book and am, pun intended, addicted.

New knee ligament

Doctors have discovered a new knee ligament, the anterolateral ligament. It doesn't seem possible that with years of medical research and millions of cadavers studied and knee surgeries performed that it would be possible to discover a new knee ligament, but there you go.

Whether a similar process occurs in living people who injure and don’t treat an A.L.L. — because they don’t know they have one — is unknown, Dr. Claes said, but is potentially the weightiest question raised by this new research. “We think that it’s quite likely many people who tear an A.C.L. also tear an A.L.L,” he said, and that lingering injury or weakness in this overlooked ligament could leave joints unstable.

But at the moment, that possibility is speculative, although Dr. Claes said that he and his colleagues had re-examined scans of some of the knees that they had operated on to repair A.C.L. injuries and identified concomitant A.L.L. tears in many of them.

He and his colleagues have begun planning and practicing surgical procedures for treating A.L.L. tears, but at the moment, so much remains unknown about the ligament, including whether it can heal without surgery.

I tore my ACL, MCL, and meniscus in one basketball incident, and now I'm wondering if I still have an ALL or if it's just dangling there. Someone should make sure Derrick Rose's ALL is in good shape.