Umair Haque, director of the Havas Media Lab, calls out Silicon Valley entrepreneurs and investors for spending time and money on frivolous projects rather than saving the world from economic doom:

There are huge shocks rolling across the global economic landscape. Here are just a few. Food prices are skyrocketing. The financial system is melting down. Energy, of course, is more and more toxic, and costly. We are all, make no mistake, dancing on the precipice of economic cataclysm.

It is the obligation of radical innovators to create new value by solving these problems - or cede capital and resources to those who can.

But today’s revolutionaries are sheep in wolves’ clothing. They’re lost in the economically meaningless, in the utterly trivial, in the strategically banal: mostly, they’re cutting deals with one another to…try and sell more ads. That is, when they’re not too busy partying.

…

Today’s crop of investors and startups are perhaps even more economically autistic than megacorporations. Too many are willfully blind to today’s deepest and most essential strategic truth: that the path to radical value creation isn’t cutting more deals (dude, high-five!!) - but in rebuilding a flawed, false global economy: one which actively transfers wealth from the poor to the rich, from the sick to the healthy, from productivity to cronyism.

I totally disagree. I’m a firm believer in the “no dollar on the table” principle. If billions could be made by feeding starving Mauritanians, then somebody would be doing it. Idealists like Haque will say that I’m not being creative enough, that surely there’s a “path to radical value creation” that can help the poor and please the shareholders at the same time. Sorry, but it seems that there isn’t.

The reason that people are starving isn’t a lack of innovation and ideas. Take the infamous Haitian mud cakes, for example. It’s terrible and appalling that anyone should be reduced to eating mud. However, it shows that entrepreneurs and innovation abound in even the poorest conditions. And in energy, anyone who can invent a clean renewable energy source that’s cheaper than fossil fuels is going to become a trillionnaire. Suffice to say, people are already working on it.

So rather than blaming Twitter and other frivolous things, how can we fix the economy so that people don’t have to eat mud cakes? If you look at the reasons for rising food prices, many of them can be blamed on economic policies (or a lack of policy). If we really want to help the poor, much more can be done with policy changes than by idealistic hot air aimed at Silicon Valley startups.

(HT: RWW)

I found this picture on David Zetland’s new blog, Aguanomics:

I had a number of different reactions. One was that it’s terrible that this person is so poor that they have to use plastic bottles for shoes. They don’t look very comfy either. But the other reaction was to be highly impressed by the innovation and creativity shown. Did you ever think that plastic bottles could be used for shoes?

I came to the following hypothesis: Human creativity is not limited by poverty. Put another way, the reason why some countries are poor is probably not a lack of ideas and innovation.

Scientific American has a nice article about virtual economies in games like Second Life.

Tyler Cowen is unconvinced about the value for real-world economics, though:

“I’m skeptical about using virtual worlds to do economics, at least as it is now,” says Tyler Cowen, who holds the Holbert C. Harris Chair of Economics at George Mason University. “What you do in experimental economics is you take undergraduates and put them in lab settings and play economics games and you measure the results. It’s like a created world, but it’s not in cyberspace. What makes experimental economics work is that you truly have a controlled experiment. When you have these virtual worlds, as I understand, people are not conducting controlled experiments. They’re running these onetime simulations. Whatever result you get is interesting, but you don’t know what to make of it. You’re stuck.

Personally I think the most interesting thing is figuring out what’s different about virtual economies and why. That might give some insights into how real economies work.

(HT: Lightspeed Venture Partners)

This article in The Economist makes the interesting observation that cross-country growth comparisons are quite different if you use real GDP per capita rather than total real GDP. For example, over the past five years America has done very well in terms of total real GDP and Japan has done not so well, but Japan has performed better than America on a per-capita basis thanks to its shrinking population. Arguably, per-capita income is more important than national income in terms of people’s welfare.

Clearly this means that the remaining people in Japan are increasing their productivity relatively rapidly. Personally I wonder how much this has been due to a reduction in congestion costs with a smaller population. Having lived in Japan for the past year, something that is very obvious to me is how congestion affects daily life, in terms of delays and inefficiencies in moving people and things around. Japanese transport systems are highly efficient, but still, simply walking around often requires spending a significant amount of effort avoiding bumping into other people.

Another factor that may explain the increased productivity is the reducing relative price of land as the population shrinks. Since land is relatively scarce compared to people in Japan, businesses try not to use it intensively, and substitute for labour instead. I suspect that these production techniques are relatively inefficient compared to using a bit more land and a bit less labour per unit of output. This is most obvious at my local supermarket. It is fairly small because of the high cost of land, and a large number of staff are employed to keep restocking the shelves throughout the day. As land becomes relatively cheaper, they can substitute more space for less workers, and total productivity might go up.

I came across this picture recently:

The implication here is that if only we could provide safe drinking water to everyone then 8 million fewer people would die each year. However I think this is not correct. The type of people who do not have access to safe water typically also face many other dangers in their lives, such as bad food, communicable diseases, violence, etc. Having safe water to drink does not take away all these other bad things, and while it may reduce the risk of death somewhat, I suspect that a significant fraction of the 8 million who died from bad water would still die from some of these other causes in a short period of time.

The lesson is that the real issue is poverty, and thinking that a lot of good can be done with quick band-aid solutions like providing clean water is misleading and dangerous. While providing clean water will obviously do some good, a lot more good could probably be done with a more broad approach.