I just posted after hearing a talk by economic journalist Tim Harford at LSE. At the end of that post, I linked to a critical review of Harford’s latest book, Adapt – Why Success Always Starts with Failure, by Whimsley. This review quotes Harford talking about markets as feedback mechanisms:
To identify successful strategies, Harford argues that “we should not try to design a better world. We should make better feedback loops” (140) so that failures can be identified and successes capitalized on. Harford just asserts that “a market provides a short, strong feedback loop” (141), because “If one cafe is ordering a better combination of service, range of food, prices, decor, coffee blend, and so on, then more customers will congregate there than at the cafe next door“, but everyday small-scale examples like this have little to do with markets for credit default swaps or with any other large-scale operation.
Yes, indeed. The lead-time between undertaking initial business planning in order to raise early capital investments and the launching of services to the public for global satellite communications networks is in the order of 10 years (since satellites, satellite networks and user devices need to be designed, manufactured, approved by regulators, deployed, and connected before they can provide service). The time between initial business planning and the final decommissioning of an international gas or oil pipeline is about 50 years. The time between initial business planning and the final decommissioning of an international undersea telecommunications cable may be as long as 100 years. As I remarked once previously, the design of Transmission Control Protocol (TCP) packets, the primary engine of communication in the 21st century Internet, is closely modeled on the design of telegrams first sent in the middle of the 19th century. Some markets, if they work at all, only work over the long run, but as Keynes famously said, in the long run we are all dead.
I have experience of trying to design telecoms services for satellite networks (among others), knowing that any accurate feedback for design decisions may come late or not at all, and when it comes may be vague and ambiguous, or even misleading. Moreover, the success or failure of the selected marketing strategy may not ever be clear, since its success may depend on the quality of execution of the strategy, so that it may be impossible to determine what precisely led to the outcome. I have talked about this issue before, both regarding military strategies and regarding complex decisions in general. If the quality of execution also influences success (as it does), then just who or what is the market giving feedback to?
In other words, these coffees are not always short and strong (in Harford’s words), but may be cold, weak, very very slow in arriving, and even their very nature contested. I’ve not yet read Harford’s book, but if he thinks all business is as simple as providing fmc (fast-moving consumer) services, his book is not worth reading.
Once again, an economist argues by anecdote and example. And once again, I wonder at the world: That economists have a reputation for talking about reality, when most of them evidently know so little about it, or reduce its messy complexities to homilies based on the operation of suburban coffee shops.