Comments on: Two Dimensions of Economic Growth: GDP and Useful Knowledge

By: Paul N

Paul N — Sun, 28 Oct 2012 17:22:05 +0000

Seth,

That’s a great explanation – in response to Thomas.
I have seen in my community the results of “government stimulus” – the workers hired to exploit do indeed want more, and see that as the best way forward. Even worse, the community starts to buy into it as it seemed to work better than explore – in the short term anyway.

I think of it as the economic equivalent of sugar/empty calories. It has a short term benefit of increased activity and usually little long term gain.

Explore has an inherent risk component and no one – governments, corporations, people seems to want to take that on. Even universities and research institutions suffer this, as their funding mechanisms often seem to favour exploit.

Can you give an example of someone hired to “explore”?

Seth: Thanks! To answer your question, someone hired by an innovative small business. When something’s new, there’s a lot to learn about how to make it, sell it, improve it.

By: Thomas Colthurst

Thomas Colthurst — Sat, 27 Oct 2012 21:12:02 +0000

Interesting post. I’m confused about one part, though: why do you think $2 trillion of additional infrastructure spending would effect the explore/exploit balance? I don’t believe any federal research budgets were being cut to fund the $2 trillion, so explore would stay the same; almost all of the resources would either come from re-allocating things already in the “exploit sector” (such as private sector construction workers) or from unused resources (such as unemployed workers).

In computer science, we often think about the explore/exploit distinction in the context of the “multi-armed bandit” model and we try to prove theorems like such-and-such algorithm does this good of a job of managing the trade-off in such-and-such situations. It isn’t just useless theorizing, though: at Google (where I work), we use multi-armed bandits to optimize the ads and websites we show to our users. (See http://support.google.com/analytics/bin/answer.py?hl=en&answer=2677320 for example).

Seth: Why would $2 trillion of infrastructure spending affect the exploit/explore balance? Because it would all go toward exploit, creating a large number of people (everyone who gets the money) whose interests lie in more exploit, less explore. Unemployed workers drift between explore and exploit — they will do what they are hired to do. Once they are hired, they start to become committed. An unemployed worker hired to exploit will want more exploit; an unemployed worker hired to explore (after working in exploit) will begin to see why the country needs more explore.

By: shtove

shtove — Thu, 04 Oct 2012 20:00:34 +0000

Last place I thought I’d find gold-buggery!

My view is we’ve run up against resource limitations, so tilting the balance toward exploration is vital. Even so I reckon we’ve seen the end of GDP growth – peak exploitation and peak-debt are already behind us, the age of making money off money is over.

Perhaps we’re moving into a steady state economy – not a disaster, but certainly far removed from the expectation that it’s just a matter of time before we get back “on course”.

As usual, the hard-science bloggers provide the best insight on areas outside their disciplines because they can apply maths and stats – try this one for the steady-state hypothesis:
http://liminalhack.wordpress.com/

And anyone interested in the Chinese debt disaster has to follow Michael Pettis:
http://www.mpettis.com/

By: anand srivastava

anand srivastava — Wed, 03 Oct 2012 07:05:37 +0000

Have you read FOFOA? He has a very interesting theory of the current crisis.
He thinks that we will not move into Gold Standard after this Fiat crisis. We will instead move to something like Euro. Where Gold is the major reserve but it does not back the currency directly. Also all Paper claims to gold will disappear. The currency in gold standard is also a paper claim to gold. Which depresses the price of gold.

It makes so much sense.

FOFOA’s dilemma: When a single medium is used as both store of value and medium of exchange it leads to a conflict between debtors and savers. FOFOA’s dilemma holds true for both gold and fiat, the solution being Freegold, which incidentally also resolves Triffin’s dilemma.

http://fofoa.blogspot.in/2011/05/return-to-honest-money.html

By: Bryan

Bryan — Tue, 02 Oct 2012 06:34:23 +0000

>>If you’ve ever been sick, or gone to college, and have a sense of history, you will have noticed the profound stagnation in two unavoidable sectors (health care and education) of our economy. That are growing really fast.

Case in point: http://www.theatlantic.com/entertainment/archive/2012/10/why-there-needs-to-be-a-real-grad-school-of-rock/262802/

By: Patrik

Patrik — Tue, 02 Oct 2012 05:42:28 +0000

Just want to note, the exploration/exploitation continuum roughly maps to the The Innovation Spectrum spanning from Sustaining to Disruptive.

Image here: http://vlskvts.co/Ne04U1

By: Bob

Bob — Mon, 01 Oct 2012 14:20:55 +0000

You probably already know this Seth, but the Austrian economists have been stressing the market as discovery procedure for a long time, particularly Hayek’s “Competition as a Discovery Process” and Israel Kirzner’s work on entrepreneurial discovery. Perhaps there is an Austrian textbook that covers exploration/exploitation, though I’ve not encountered it in exactly this form that I can recall.

By: Chuck

Chuck — Mon, 01 Oct 2012 13:14:52 +0000

I like it.

By: Nancy Lebovitz

Nancy Lebovitz — Mon, 01 Oct 2012 12:12:32 +0000

To the extent that microcredit increases individual security, it increases the likelihood of exploration. Also, even a conventional business has room for some exploration, even if most don’t use it.

Seth: By its nature, taking on debt decreases security, if you must pay back the debt. And taking on debt at high interest — microcredit loans tend to have interest rates on the order of 70%/year — decreases security even more. Less security, less risk-taking, as you say.