Category: Thinks

Enuma Okoro: “We are all children of someone. And there are ways in which we still carry within us the children we were, the ways in which we were taught to be in the world, and the lessons we learnt, for good and for ill, from parents as human as we find our own adult selves to be. What we do with those teachings and lessons is the parenting we all have to learn to do on ourselves. Sometimes this means revisiting the ways we were raised and recognising which of the lessons we picked up from our parents are keeping us from life-giving patterns and relationships now. Sometimes it means remembering and reclaiming the powerful and positive teachings that remind us of who we can be in the world, despite what the world suggests or demands of us.”

Evan Armstrong: “A media company can drive additional ad revenue by increasing three things: the number of viewers, the number of ads, the price/performance of ads. The most important variable, by far, is the price/performance variable. Being able to target ads based on intent and interest is the holy grail. If you go for mass scale (which is the entire point of keeping your product free), then you’ll need to be able to do additional targeting/enrichment on customers’ data. However, because no media company is where the transaction data and demographic data live, it is unable to do proper attribution/targeting. I’ve written in the past how Twitter and Snapchat are probably screwed for the exact same reason. And if those folks, with hundreds of millions of users and far more demographic data, can’t do it, ye old internet publication will be awful at it. This leaves media companies two very ugly choices. You either go after a niche, high-value audience that big platforms struggle to capture (the Every approach). Or you do mostly brand ads where specific performance isn’t as important (the Axios approach). In both cases, you have to spin up your own salesforce, sell the ad slots, get the copy approved, on and on. It is a miserable process. In both cases, it is a worse ad product for marketers versus the infinitely scalable and easy to use ad platforms like Amazon or Google. The big tech platforms offer better products in basically every way for marketers to use.”

Nitin Pai: “We are now in the Amrit Kaal of Independent India. Few can argue that caste has receded from the public sphere. To its credit, the republic has achieved something unprecedented by declaring all Indians equal and adopting social justice as a goal. Yet in politics, public policy and daily life, caste remains a major factor even if overt discrimination and violence have declined. We unashamedly talk about parties assembling caste-coalitions, picking ministers based on caste identities. Reservations in educational institutions and government jobs are seen as spoils of political power wrapped in the language of social justice. Matrimonial classifieds and online services are flourishing. Even car bumper stickers can speak of caste. It seems as if we have abandoned the vision of a casteless nation of the kind Ambedkar envisioned…We need a fresh public debate on caste, and how the Indian republic should deal with it. Because, as Ambedkar put it so well, castes are anti-national.”

Omkar Goswami about the Indian jobs situation: “What can one do with this huge number of people waiting to get into the workforce? I have seen no real solution worth the name. We haven’t invested sufficiently in education and training since Independence. And technology is rapidly changing the labour-output mix to the detriment of labour. I see more people leaving villages for towns to seek jobs that don’t exist, significantly greater urban underemployment across India, and eventually a groundswell of uncoordinated anger of the poor. This problem predates the present government, and Modi alone cannot solve it. Swathed in our creature comforts, consider this as a massive issue. We are generally pacific people. But faced with this cancer, this is how mass unrest begins.”

Can the World Make an Electric Car Battery Without China?: “China has spent more than $130 billion on research incentives, government contracts and consumer subsidies, according to the Center for Strategic and International Studies. Electric car buyers in China get tax rebates, cheaper vehicle registration, preferential parking and access to an extensive charging network. China’s investments have allowed the country to lead the world in production, equipment and product design. Experts say it is next to impossible for any other country to become self-reliant in the battery supply chain, no matter if it has cheaper labor or finds other global partners. Companies anywhere in the world will look to form partnerships with Chinese manufacturers to enter or expand in the industry. “There is no way anybody is going to become successful in electric vehicles without having some type of cooperation with China, either directly or indirectly,” said Scott Kennedy, a senior adviser at C.S.I.S.”

Shane Parrish: “The metagame is about understanding the bigger picture and outsmarting the competition by doing something they can’t or won’t do. When you understand why your competitors do the things they do, you can choose to play a game they can’t play.”

WSJ: “Apple’s Messages—the app powered by the company’s iMessage platform—is the most-used communication app for teens in the U.S., according to consumer data-analytics company Measure Protocol. The app comes preinstalled on iPhones and has contributed to the popularity of Apple’s devices among teens. But they mainly use it for contacting family members. Snapchat is number two, used by nearly three-fourths of people ages 16 to 24, according to Measure Protocol. And for interaction among their peers, they tend to prefer it. Snap said its hallmark app had more than 750 million monthly active users worldwide in April, up from 600 million a year ago…The real question is what happens now as Snap’s users start to reach their 30s. Will they stick with each other on the platform or migrate to Apple’s Messages, where their parents and co-workers are?”

FT on the use of AI and ChatGPT in education: “Some educators are instead moving in the opposite direction and cautiously experimenting with ways to use generative AI to enhance their lessons. Many students are keen for them to take this approach. For Lauren and her friends, months of playing around with ChatGPT have convinced them there is more to be gained from generative AI than simply cheating. And with the technology threatening to overhaul the jobs market and become a permanent communication tool in everyday lives, they are anxious to be prepared for the turbulence to come. But these experiments raise the question of whether it is possible to open the door to AI in education without undercutting the most important features of human learning — about what it actually means to be numerate and to be literate. “We don’t yet understand what generative AI is going to do to our world,” says Conrad Wolfram, the European co-founder of AI-driven research platform Wolfram, who has long pushed for an overhaul of the way maths is taught. “So it’s hard to work out yet how it should affect the content of education.””

McKinsey: “Classical computing, the technology that powers your laptop and smartphone, is built on bits. A bit is a unit of information that can store either a zero or a one. By contrast, quantum computing is built on quantum bits, or qubits, which can store zeros and ones. Qubits can represent any combination of both zero and one simultaneously—this is called a superposition. When classical computers solve a problem with multiple variables, they must conduct a new calculation every time a variable changes. Each calculation is a single path to a single result. Quantum computers, however, have a larger working space, which means they can explore a massive number of paths simultaneously. This possibility means that quantum computers can be much, much faster than classical computers.”

Donald Boudreaux: “Were an ancestor from 50,000, or 5,000, or 500 years ago – indeed, in many cases from a mere 50 years ago – to be resurrected and given a tour of the economy as daily seen and experienced today by ordinary Americans, that ancestor would be overwhelmed by the beauty, splendor, and seeming magic of what he or she would behold for the first time. “What a view!” that ancestor would exclaim. And correctly so. But we don’t see it. Or, rather, we see it only with vision distorted by familiarity, as well as by ignorance of the hideous view of economic reality what was – and remains for many people – the norm. We moderns inhabit a world of marvels. This world isn’t perfect (obviously). But many of its avoidable flaws and problems are caused by our failure to appreciate the reality of modern economic marvelousness – a failure that prompts economic interventions that threaten to turn economic reality again into the ugliness that it was for almost all of human existence.”

Naushad Forbes: “Indian industry must see research & development (R&D) as its way of building a future based on proprietary technology. We must increase in-house R&D from 0.3 per cent of gross domestic product (GDP) to match the world’s (and China’s) level of 1.5 per cent. Why does Indian industry lag so far behind the world in in-house investment? Where do the opportunities lie? The top 2,500 firms investing in R&D worldwide account for around 90 per cent of all industrial R&D, and the top 10 sectors account for close to 80 per cent. India has no firms in the top 2,500 in five of these 10 sectors, and just one firm each in two more. Within some sectors, we are much less R&D-intensive: Our software firms, large by world standards of profitability, are small in R&D, investing around 1 per cent of turnover on average, against a world average of 12 per cent (and a Chinese average of 10 per cent). And we are simply missing any giant investors in R&D. The world’s 26th-largest investor in R&D, Bosch, invests more than all Indian firms combined. Where could our big R&D investors come from?”

Roberto Unger: “All human beings are born nailed to two crosses. We are crucified, first, in a position within the internal social order of a nation-state. We are born into a particular class, caste or community and are required to spend our lives struggling to emancipate ourselves from the consequences of that crucifixion. But we are crucified the second time by finding ourselves accidentally born into one of these national communities into which humanity is divided. I don’t diminish the significance of this double nightmare. But the alternatives to it are even worse. The idea of evolution toward a world state, a world empire, would be a prison from which we could not escape and in which we would have much less prospect of continuing the ascent of mankind.”

A paper on Venture Predation: “Predatory pricing is a strategy firms use to suppress competition. The predator prices below its own costs to force its rivals out of the market. After they exit, the predator raises its prices to supracompetitive levels and recoups the cost of predation. The  Supreme Court has described predatory pricing as “rarely tried” and “rarely successful” and has established a liability standard that is nearly impossible for plaintiffs to satisfy. We argue that one kind of company thinks predatory pricing is worth trying and at least potentially successful—venture–backed startups. A venture predator is a startup that uses venture finance to price below its costs, chase its rivals out of the market, and grab market share. Venture capitalists (VCs) are motivated to fund predation—and startup founders are motivated to execute it—because it can fuel rapid, exponential growth. Critically, for VCs and founders, a predator does not need to recoup its losses for the strategy to succeed. The VCs and founders just need to create the impression that recoupment is possible, so they can sell their shares at an attractive price to later investors who anticipate years of monopoly pricing. In this Article, we argue that venture predation can harm consumers, distort market incentives, and misallocate capital away from genuine innovations. We consider reforms to antitrust law and securities regulation to deter.“

Shane Parrish: “Everyone is a perfectionist when they care enough. If you’re not obsessed with it, you’ll never master it. The reason you won’t master it is because you won’t care enough to be a perfectionist.”

Business Standard: “India has jumped six ranks to 38th position among 139 countries on the World Bank’s Logistics Performance Index for 2023, the same rank as Turkey, Saudi Arabia, and Portugal, which are much richer countries than India. This is a very positive development because it helps lower the cost of doing business in India. It will help India’s exports and make the country a more attractive destination for investment — especially, but not only, in the manufacturing sector. China is still way ahead at 19th position, Malaysia ranks 26th, and Thailand is just a little ahead at 34th. But India has beaten key ASEAN (Association of Southeast Asian Nations) competitors like Indonesia, Vietnam, and the Philippines, with whom we have a free trade agreement on this important ingredient of competitiveness…India is clearly on the move and the focus of the government to improve our logistics is bearing fruit, but this is a battle that must be fought continuously and smartly. “Logistics is not an expense, it’s an investment,” said business coach Michael Allosso. This is the kind of reforms that lay the foundations for sustained growth to becoming an advanced economy.”

Spencer Stuart: “Executives who decide to shift styles need to recognize that the transformation will be long and difficult — an odyssey requiring humility, self-awareness, patience and resilience. Broadening your repertoire of people skills is not a single event but an involved process that unfolds over time, often uncomfortably, in three predictable stages: The departure — the first stage, when a leader recognizes the need for a change and deliberately starts to leave behind familiar ways of working. The voyage — a time of transition when the leader encounters obstacles and trials that teach important lessons and open the path to transformation. The return — a period during which leaders arrive at a new understanding of who they are and what kind of leader they want to be and start to transfer what they’ve learned to others.”

Numbers every LLM Developer should know. Among them: “It’s important to remember that you pay by the token for responses. This means that asking an LLM to be concise can save you a lot of money. This can be broadened beyond simply appending “be concise” to your prompt: if you are using GPT-4 to come up with 10 alternatives, maybe ask it for 5 and keep the other half of the money.” Also: “LLMs operate on tokens. Tokens are words or sub-parts of words, so “eating” might be broken into two tokens “eat” and “ing”. A 750 word document in English will be about 1000 tokens. For languages other than English, the tokens per word increases depending on their commonality in the LLM’s embedding corpus. Knowing this ratio is important because most billing is done in tokens, and the LLM’s context window size is also defined in tokens.”

FT’s s Rana Foroohar:  “I ask [Daron] Acemoglu what led him to tackle technology as his latest topic. “Well, in some sense, I’ve been thinking about technology for over 30 years — my graduate research was about the effects of technology on employment and wages. Then, once I realised that I could also study these issues of politics, economy, democracy, conflict and so on, my academic research then progressed along two somewhat separate lanes.” The research shows that major technological disruption — such as the Industrial Revolution — can flatten wages for an entire class of working people. It also points to the distributional conflict and power dynamics inherent in it. “Yes, you got progress,” Acemoglu says, “but you also had costs that were huge and very long-lasting. A hundred years of much harsher conditions for working people, lower real wages, much worse health and living conditions, less autonomy, greater hierarchy. And the reason that we came out of it wasn’t some law of economics, but rather a grassroots social struggle in which unions, more progressive politics and, ultimately, better institutions played a key role — and a redirection of technological change away from pure automation also contributed importantly.””

Simon Johnson (related to the above): “I’ve never been bothered by the top wealth, Tyler. It’s never been a major concern of mine. What bothers me more is lack of good wages, rising wages for people who haven’t completed college, let’s say, or didn’t go to college. I think it’s the stagnation of that since the 1970s, which was quite different, of course, from what happened for the 30 or 40 years before that. I think that’s unnecessary and we can do better, but it’s a very hard process to reverse. It’s not a new process, and it’s a process very rooted in the fact that in early Industrial Revolution, people like Henry Ford — when they brought in automation, they also created a lot of new tasks for workers that didn’t previously exist. Workers even without a lot of skill became much more productive. That productivity was shared with them through higher wages, through unions and other things. That whole mechanism has broken down more recently. I think with AI, there’s a lot of obviously huge discussion about all kinds of dimensions, but the piece that we really focus on and are concerned about is that more workers may be displaced from previously well-paying jobs, and without creating new tasks. Therefore, worker productivity doesn’t go up. You may pay some people — maybe the designers of AI algorithms — more money, but most people may well be paid less in real terms.”

NYTimes on why we listen to sad songs: “We generally don’t enjoy being sad in real life, but we do enjoy art that makes us feel that way. Countless scholars since Aristotle have tried to account for it…Mario Attie-Picker, a philosopher at Loyola University Chicago who helped lead the research, found the results compelling. After considering the data, he proposed a relatively simple idea: Maybe we listen to music not for an emotional reaction — many subjects reported that sad music, albeit artistic, was not particularly enjoyable — but for the sense of connection to others. Applied to the paradox of sad music: Our love of the music is not a direct appreciation of sadness, it’s an appreciation of connection.”

Business India: “Quotas are the new freebies…Moving beyond castes and ethnic groups, the demand for quotas is knocking at the doors of the private sector as well. As India strives towards the position of the world’s third largest economy (from its current fifth largest economy status), the emerging fault-lines pose a danger to our economic trajectory. India Inc, which has been facing flak for not generating enough jobs for our youth, has now to deal with private sector job quota laws being enacted by some state governments…The demand for caste-based quotas has also found salience in the last few years because of farmer distress in the countryside due to agrarian crisis. The forward castes want the benefits given to other backward classes (OBC) category, so that they can shift away from agriculture. With opportunities shrinking in towns and cities, they feel that the only option left for them is government jobs. But, as acquiring normal government jobs entails stiff competition, they are asking for reservation.”

Jenny Odell: “For me, there’s the question of why you do anything. That can lead into difficult territory like, What do you want your life to be? Ideally your answers to that question are what guide your decisions about how to spend your time. You would hope that you are spending less time on things that you don’t want to be doing so you can do things that you’ve decided are meaningful to you, and I think that there’s something about that culture of making everything more efficient that risks avoiding that question of why. A life of total efficiency and convenience? Well, why? What is left if you were to make everything superconvenient? It is helpful to make certain things more efficient, but that can tip over into becoming its own end, which moves the focus away from that larger question of why.”

NYTimes: “The [Chinese] government reported [recently] that 20.4 percent of people ages 16 to 24 looking for a job were out of work in April. That is the highest level since China started announcing the statistic in 2018. High youth unemployment has been a dark stain on China’s economy for several years, exacerbated by strict pandemic health restrictions limited travel, decimated small businesses and damaged consumer confidence. The government, facing rare public discontent as young professionals in major cities across China protested the “zero Covid” rules, abruptly announced in December that it would start easing the policies. But the youth jobless rate has remained high, even as the overall rate has ticked down two months in a row…One problem, analysts said, is a mismatch between the jobs that college graduates want and the jobs that are available.”

FT: “1979 was the year of the individual. Thatcherism began. Deng Xiaoping let market forces into China through his “special economic zones”. Meanwhile, in Japan, one of the most liberating consumer goods of the last century went on sale. It allowed people to control their aural environment — and to that extent their mood — at all times. Even the trade name (too gendered to be viable now) suggested a new kind of human being. Neolithic Man. Renaissance Man. Walkman. Portable private sound: I want to hail the spread of this invention, from luxury product to commonplace. But what strikes me more is how far from universal it still is. On the street and the Tube, in airport lounges and bank queues, most people, even if unaccompanied, have naked ears. No AirPods adorn them…If you are among the refuseniks, permit me a question. How can you stand it?”

WSJ: “[The] brainstorming exercise is, in fact, a terrible idea—not only because I can’t hear you. The value of gathering to swap loosely formed thoughts is highly suspect, despite being a major reason many companies want workers back in offices. “You do not get your best ideas out of these freewheeling brainstorming sessions,” says Sheena Iyengar, a professor at Columbia Business School. “You will do your best creative work by yourself.”…Business teams ought to collaborate, of course, but she interprets the evidence to mean that colleagues should compare notes after extensive, independent thinking.”

Dan Shipper: “Education is expensive because you’re paying for more than learning. You’re paying for the status of the degree, the ability to participate in the community, a planned course list and curriculum, the quality control that the university provides, and on and on. You’re paying for a turn-key, minimum effort experience. But if, for some reason, you don’t care about those things and you’re optimizing primarily for learning—you can learn anything 98% better than you would in a class, for significantly less money. The way to do this is through 1-1 tutoring.”

Economist: “The advances of generative-AI platforms, such as ChatGPT, have left just about every investor discussing what to make of the incipient industry, and which firms it might upturn. Mr Son sees parallels with the early period of the internet. Generative ai could provide a new pipeline of initial public offerings—and the foundation for the next generation of mega-cap tech firms. Investors face two questions. The first is which frontier technologies will make market leaders a fortune. That is difficult enough. The second, establishing whether the value will accrue to upstarts backed by venture capital or existing technology giants, is at least as tricky. Nobody knows if it is better to have the best chatbot or plenty of customers—having a head start in a whizzy new tech is not the same as being able to make money from it. Indeed, lots of the value of revolutionary innovation is often captured by existing giants…As things stand, it looks more likely that the market value of the technology will end up as a new string to the bow of already giant tech firms.”

WSJ: “Inflation has been running at its highest rate in decades. American society is restive and divided. There’s a public perception that the country’s glory days are over, that democratic capitalism is a spent force. U.S. standing and influence abroad are in decline. America not long ago withdrew in disgrace from one of the longest wars in its history. A communist superpower appears ascendant and is building up military force at a ferocious pace. William Inboden could be talking about today, but he’s describing the world in 1981, when Ronald Reagan became president. “If you were to do an overall scoreboard in the Cold War at the time,” he says, “it would have looked to most objective observers like the Soviets were winning and the United States was losing. At best it’s a tie, but the previous decade had been by most standards a good one for the Soviet bloc and a bad one for the free world.”…A decade later, the Soviet Union collapsed.”

Thomas Sowell: “What is called “capitalism” might more accurately be called consumerism. It is the consumers who call the tune, and those capitalists who want to remain capitalists have to learn to dance with it.” [via CafeHayek]

WaPo: “Beneath 1,350 square miles of dense jungle in northern Guatemala, scientists have discovered 417 cities that date back to circa 1,000 B.C. and that are connected by nearly 110 miles of “superhighways” — a network of what researchers called “the first freeway system in the world.” Scientist say this extensive road-and-city network, along with sophisticated ceremonial complexes, hydraulic systems and agricultural infrastructure, suggests that the ancient Maya civilization, which stretched through what is now Central America, was far more advanced than previously thought. Mapping the area since 2015 using lidar technology — an advanced type of radar that reveals things hidden by dense vegetation and the tree canopy — researchers have found what they say is evidence of a well-organized economic, political and social system operating some two millennia ago.”

Anticipating the Unintended: “[Recently], the [Indian] government announced another PLI scheme for “laptops, tablets, all-in-one PCs, servers etc.”, with a budgetary outlay of ₹17000 crores over six years. If the government appreciated technological learning, it would accompany this PLI with a reduction in customs duties. Competitive exports need competitive imports of intermediate components and equipment.”

Dan Wang: “China is achingly aware of its deficiencies in two strategic sectors in particular: semiconductors and aviation. So it has showered these sectors with bountiful money and stern policy attention. Where has that gotten them? Not far. On chips, China has built the basics of the industry, but is at best 10 years behind the leading edge of manufacturing logic chips, and even more on the tools needed to produce chips: lithography equipment and EDA software. On aviation, China’s answer to Airbus and Boeing has been years behind schedule, and is anyway substantially dependent on western engines and avionics systems…I would say that China has caught up with the west on nearly all manufactured products outside of chips and aviation. It is making sophisticated electronics components. It is making boring industrial equipment that rarely grace headlines. And it is making most of the technologies we need for decarbonization. The folks at Bloomberg New Energy Finance estimate that China owns 90% of the solar supply chain: everything from polysilicon production to the tools needed to make photovoltaics to the panels themselves. It’s also doing very well in batteries and has a shot at dominating the hydrogen supply chain as well.”

Rita McGrath on questions a Board should be asking before an acquisition: “What assumptions are we making about future demand? What is the evidence that these are warranted? How will the two companies truly integrate? What are the customer touchpoints that will be valuable for both? How do we make the customer jobs-to-be-done better? And of course, what evidence do we have that there really is synergy between the two operations, so that owning both adds up to more than the cost of making the deal?”

Suzy Welch: “My equanimity was recently tested for the first time in a while, with graduation looming and summer almost upon us, when my students started throwing around the term “funemployment.” As in, “I’ll work when I work, until then, I’ll just do some funemployment…The idea that not having a job, or even the prospect of one, could be pleasant, delightful and, yes, even desirable? This seems a level step up from wanting work-life balance. It makes even quiet quitting—which is really another way of saying, “I want to work 9-to-5 in an 8-to-8 industry”—seem tame.”

FT: “Based on its own research, [Price’s Rajesh] Shukla’s group estimates that there are about 432mn middle-class Indians — about one in every three people. The range of what Price ranks as middle class is large: household income of between 500,000 and 3,000,000 rupees (about $6,700 to $40,000) a year. This is enough, says Shukla to “have achieved economic security and be able to indulge in discretionary consumption”. Shiv Shivakumar, operating partner at private equity firm Advent International, extrapolates the size of the middle class starting from the number of income tax returns and an average household size of 4.4 people. He then adds another 100mn to 200mn non-taxpaying people in agriculture (what he calls the top income layer of the nearly 1bn Indians who live on the land) and reaches an estimate of 356mn to 456mn people.”

Economist: “Mr Kissinger has some opening advice to aspiring leaders: “Identify where you are. Pitilessly.” In that spirit, the starting-point for avoiding war is to analyse China’s growing restlessness. Despite a reputation for being conciliatory towards the government in Beijing, he acknowledges that many Chinese thinkers believe America is on a downward slope and that, “therefore, as a result of an historic evolution, they will eventually supplant us.” He believes that China’s leadership resents Western policymakers’ talk of a global rules-based order, when what they really mean is America’s rules and America’s order. China’s rulers are insulted by what they see as the condescending bargain offered by the West, of granting China privileges if it behaves (they surely think the privileges should be theirs by right, as a rising power). Indeed, some in China suspect that America will never treat it as an equal and that it’s foolish to imagine it might.”

Eliot Peper: “Notes are short. You’ve got to be able to fold them into a paper airplane you can throw to a friend when the teacher isn’t looking, or, you know, fit them into a tweet, adapt them into a TikTok, or post them as an Instagram story. Notes are about one thing, although they can be about anything: gossip, advice, ideas, doodles, quotes, lists, questions, insults, insights, etc. Notes are written for specific people, not for everyone. You write notes to friends, crushes, enemies, and frenemies, but never to some abstract “audience.” Often, the more specific your note, the farther it travels, because there are other people like your friend, crush, enemy, and frenemy on the internet, and they will feel like it was written just for them. Whether you’re on Reddit, iMessage, Discord, Gmail, YouTube, Notion, or Mastodon, the internet is a place for passing notes—a giant note router.”

FT: “Higher interest rates have so fundamentally shifted the financial environment that investors must focus on a company’s ability to maintain margins rather than just its growth prospects, veteran private equity executive Chip Kaye said. “This moment is different than anything we have had in the 40 years before . . . with inflation proving stickier and interest rates higher than currently expected — and more complicated great-power politics adding to that dynamic,” said Kaye, who started at Warburg Pincus in 1986 and has been its chief executive for two decades. “If you could pick one characteristic of a business and that’s how you decide whether to invest, it would be pricing,” he told the Financial Times. “Lean into businesses that feel like they have the ability to adapt to a higher-inflation environment.””

Bloomberg: “[Robert] Lucas’s primary contribution was to insist that all assumptions about expectations be spelled out and tested to see if they were consistent with all other parts of the argument. For instance, if you wanted to assert that people would respond to one set of government actions but not another, you had to outline why that might be the case. In retrospect it seems simple, but Lucas (with co-authors, notably Nancy Stokey) was the person who showed how to do it. The end result was a reworking of virtually everyone’s macroeconomic arguments — monetarist, Keynesian or otherwise. The “Lucas critique” showed that policy changes alter how people behave, and thus affect the operation of the economy. Policy, in other words, should not be thought of as manipulating a fixed target: There is always an economic response to any policy, and so doing good macroeconomics is harder than previously thought.”

Economist: “The Lucas critique can be explained with the help of an analogy—one he offered to students graduating from the University of Chicago, where he spent many years as both a student and professor. Imagine a fairground that sells tokens at the entrance for the rides inside, all of which are independently run. Suppose the cashier abruptly doubles the number of tokens per dollar. Fairgoers, flush with tokens, will flock to the rollercoaster, fun house and other attractions. Some ride operators will assume their rides are more popular than they thought. They might even extend workers’ hours in order to handle the additional custom. A statistically minded economist looking at the park’s data might conclude that an increase in the token supply leads to heightened activity and employment. They might even advise other fairgrounds to try the same trick. But of course this “policy” only works because ride-operators do not anticipate it. As they realise what is going on, they will raise the number of tokens they require per ride. Prices will rise and activity will return to normal.”