Tenuous link between economics and technology, via sociology

Monday 18th May, 2009

flatironThis morning I read yet another article about why people failed to predict the recent economic turbulence. What baffles me most about it is that I, and many others, knew exactly what was going to happen long before it did. I think the real reason most people failed to predict the crash was that they were blinded by the false security of the herd.

All the classic signs of a bubble were in place:

  • Rapidly increasing asset values
  • Commercial purchases based on future asset gains rather than realistic inc0me (i.e. rent was not increasing along with house prices)
  • The inability of intelligent people to comprehend prices going down (it sounds nuts now, but I heard this opinion so many times my skepticism gland was bled dry and red raw)

The last point is particularly pertinent I think. When participants in a market cannot accept that market prices go both up and down then you know that you’re looking at hysteria at work. All of this is described quite clearly in many books on the subject including Bubbles and How to Survive Them, by John Calverley (Chief Economist & Strategist at American Express) which described the problem long before it happened.

The tenuous tech link

Sometimes it’s hard to go against the grain, like the fund managers fired from their jobs during the Dot Com boom because they sensibly realised that tech stocks were overvalued and pulled their clients out (it’s ironic that “Cassandra” is used to put down those that predict disasters, since Cassandra’s predictions were spot-on).

In the same vein I think it’s sometimes hard to speak out against current trends in terms of development processes, or common wisdom. There are some development teams where criticism of Agile or Scrum would earn you a slow death, bound with CAT45 cable and locked in a server cage. I’ve been at the receiving end of group-think like this myself; I was once reprimanded and sidelined for being generally a bit too quick to suggest open source tools to Microsoft-centric developers. The spread of knowledge is sometimes uncomfortable.

It’s an uphill struggle but for technologists, just as for economists, we have to try and push back against our instinct for the herd-mentality.

In Defence of Technical Debt

Saturday 28th February, 2009

I love metaphors, and this one is great.

Technical Debt is the idea that as you develop software, any corners that you cut can be thought of as borrowing time, which incurs interest (maintenance cost) and must sooner or later be paid back (by refactoring). So, creating crufty code because it’s quicker often results in having to go back and re-do it.

Fine, but why does the metaphor stop there? Everyone loves beautiful code and elegant algorithms, sure. As a profession we don’t like mess, and we respect clever ideas than can do complex things without that mess. Makes sense.

However, debt has a positive side too. If you have a business idea but don’t have the start-up capital, you borrow it from someone who does. It saves you time, and possibly enables you during a window that might be closed 6 months later. Without that debt you would have missed your chance. If you want to buy a home, you either borrow and live in your own home for most of your life, or save up the long way and are only able to afford your home by the time you retire.

The same concepts exist in software.

If you’re developing software you have a window of opportunity which will not last forever. If you tried to sell a competitor to Windows 3.1 in 2009 you’d be laughed out of the industry. If you tried to start a new Javascript framework now that JQuery, Dojo, and the like are mature you’ll have a very hard time. You have to be able to move quickly.

Similarly if you’ve got a project to get out, without being able to predict the future you’ll have a hard time designing some components, as you don’t always know how their use will change over time. By borrowing a small amount of time early on, you can often save yourself from wasting time trying to cover every eventuality and getting lost in a maze of total abstraction. By the time you actually get to the later stages of the project you’ll often find that you were completely mistaken about the likely outcome… and that time you’d spent refactoring early was wasted.

By borrowing time you often gain. Think of it less like ‘technical debt’ and more like ‘technical leverage’. Don’t waste it by paying it off before you’ve had a chance to benefit.

Trust in the Software Market

Sunday 9th November, 2008

So it seems that Spore’s creators are on the receiving end of a couple of law suits for secretly installing unremovable software on customers computers.

While I don’t know exactly what chance these suits have, I wish them the best of luck. Why? Because markets depend on trust, a point that the people who decided to quietly install SecuRom with Spore seem to have missed.

Trust is required between vendors and customers; trust that the price will be fair, trust that the goods will be as described, trust that the payment will be valid, and trust that privacy will be respected. Electronic Arts’ decision to ship this DRM payload breaks that trust because they try to hide it, and because they take the liberty of making dangerous and irreversible modifications to your property.

As George Akerlof highlighted in his seminal 1970 paper ‘The Market for Lemons‘, markets without trust (he describes a car vendor’s hidden knowledge of a vehicle’s state as “information asymmetry“) can be difficult and dysfunctional, with the whole market affected by a few bad eggs.

If trust deteriorates between software vendors and software consumers, the software market will become a worse place for everybody.

Clicks aren’t a tip jar

Friday 22nd August, 2008

I can’t help thinking there’s something missing from Seth Godin’s post “Ads are the new online tip jar“.

If people click through ads to thank the content provider rather than because they’re interested in the product, it seems certain that conversion rates will decline. The value of those clicks will then go down, possibly as far as the level they were at before. Worse still, content providers who didn’t encourage those extra clicks could be worse off because of that decreasing click value.

Perhaps a safer alternative is to ask your readers to look at the ads, and only click through if they’re actually interested.

The Economics of Paper Rounds

Friday 6th June, 2008

When I was a kid I had a paper round. I got up at 6.30, spent around an hour delivering the morning papers on my bike, then went to school.

It kept me fit, gave me unprecedented access to money, and gave me an early lesson in economics.

Paper rounds are not well paid. For the majority of my time as a paperboy I earned £10 per week for six days work. To earn that money I had to deliver papers to roughly 50 houses spread across an urban but hilly area. That works out to about 20p per household per week, or just over 3p per paper.

Some houses had modern, convenient, letterboxes which allow you to get the newspaper in quickly and safely. Others did not. Anyone who’s had a paper delivered through a letterbox that measures 1″ x 6″ knows that papers get torn. Generally the owner asks the newsagent to tell the paperboy to separate out the sections and post them through individually. Anyone who has tried to fit a newspaper full of sections and supplements into a letterbox like that knows that it takes time.

The longer the paperboy spends on a particular paper, the lower the return on time invested. If he delivers 50 papers in just under an hour, that’s roughly 3p per minute, or £1.80 per hour. Depending on the dimensions of paper and letterbox, spending time unpacking the paper and posting sections through carefully can sometimes take around 2 minutes, or more if wind, rain, or cold fingers add complications. Add in the travelling time between houses and that house is paying more like 60p per hour.

Add in the social incentive not to be late for school, and it seems understandable why paperboys sometimes let a paper get mangled rather than spend time “doing it properly”.

Looking at things from the other perspective, households who get a paper in the morning might have to fork out (for the sake of argument) £100 to replace their old letterbox with a larger modern one. Assuming that papers cost 50p, and 10% of the value of the paper is destroyed when the outer layers (usually with more important stories) get mangled by a letterbox, it’d take roughly 6 years to pay back the investment.

Unless the household values a nice clean paper more highly, or has other positive factors pushing them towards replacing their letterbox, going down to the newsagent to complain about yet another paper being torn by a lazy kid seems like the easy option.