Cesar Hidalgo

The Evolution of Order, from Atoms to Economies

Why Information Grows

Danté

A mind-expanding book!

Main takeaways:
- 3 things required for information to grow in a universe moving towards entropy: 1. energy. 2. solid state. 3 computation (think DNA). 
- Country economies can be ranked according to the knowledge required to make particular export products (think of how much information is required to produce a certain type of product e.g. personbyte and firmbyte). Some countries are more varied e.g. America creates both silicon chips as well as minerals while Chile is mostly mining. 	
- importance of trust in reducing transaction costs in networks and economies	

Highlights:

In our universe, there is no past, and no future, but only a present that is being calculated at every instant.

This world is but a canvas to our imagination. —HENRY DAVID THOREAU

I ask audience members to keep their hands up only if they know how to synthesize sodium fluoride. As you can imagine, all hands go down. This shows that products give us access not only to embodied information but also to the practical uses of the knowledge that is required to make them. That is, products give us access to the practical uses of the knowledge and knowhow residing in the nervous systems of other people.

Going back to our toothpaste example, we can note that when we are buying toothpaste we are not simply buying paste in a tube. Instead, we are buying access to the practical uses of the creativity of the person who invented toothpaste, the scientific knowledge informing the chemical...

So a good reason for humans to desire products is that products augment our capacities by providing us with access to the practical uses of the knowledge and knowhow that is embodied in the nervous system of other people.

Without our ability to crystallize imagination, the practical uses of knowledge would not exist, because that practicality does not reside solely in the idea but hinges on the tangibility of the implementation.

This is an interpretation of the economy as a knowledge and knowhow amplifier, or a knowledge and knowhow amplification engine: a complex sociotechnical system able to produce physical packages containing the information needed to augment the humans who participate in it.1 Ultimately, the economy is the collective system by which humans make information grow.

Our ability to crystallize imagination teaches us an important lesson about the complexity of economies: markets do not make us richer but wiser, since they produce wealth as long as they give us indirect access to the practical uses of the knowledge and imagination that our species has been able to accumulate.

Incentives work to motivate intermediaries and traders, but makers, who are the ones that provide the substance of what is traded, need more than an incentive to make something. They need to know how to do it.
		
the ability of a society to form large networks is largely a reflection of that society’s level of trust.

Trust, which is an essential form of social capital, is the “glue” needed to form and maintain large networks. It is different from the knowledge and knowhow that we accumulate in these networks.

Fukuyama: “Certain societies can save substantially on transaction costs because economic agents trust one another in their interactions and therefore can be more efficient than low trust societies, which require detailed contracts and enforcement mechanisms.”
	
Trust contributes to network size by reducing the cost of links, but also by providing porous boundaries that allow these networks to adapt to changes in markets and technologies.

Social networks help discriminate among strangers by separating complete strangers from those with whom we share mutual friends or acquaintances. That’s what makes a house party different from a bar. In a house party people know that they must have friends in common.

labor market example, we can now explain why employers are keen on hiring referrals. Employers prefer people who are referred to them by acquaintances and employees because it is easier to trust someone with whom you share a friend or acquaintance than it is to trust a complete stranger.
				
In most cases, variations between individuals are larger than variations between groups of individuals.

important to use both the ubiquity of a product and the diversity of its exporters, as this allowed us to differentiate between products that had low ubiquity because they were rare (such as uranium ore) and products that had low ubiquity because they were complex (such as optical instruments). Now I will use a similar argument to characterize economies.

Another way to think about this dynamic is that each industry and occupation gravitates toward its own level of income. For instance, skilled software developers are paid well, no matter where they are located, and fruit pickers are paid poorly, no matter where they are picking fruit. This does not mean that the salaries for each occupation and industry are the same across all countries, since they are clearly not; rather, international differences in salaries pull the salaries of those working in the same industries toward a similar value, even if this pull works slowly and is not very strong.

The personbyte theory implies that (1) simpler economic activities will be more ubiquitous, (2) that diversified economies will be the only ones capable of executing complex economic activities, (3) that countries will diversify toward related products, and (4) that over the long run a region’s level of income will approach the complexity of its economy, which we can approximate by looking at the mix of products produced and exported by a region, since products inform us about the presence of knowledge and knowhow in a region.

Chris Aldrich

A great little popular science book covering information theory and economics. A more thorough review to come shortly...

Why Information Grows The Evolution of Order, from Atoms to Economies

Reviews