Combatting Tech Hype

We enjoyed Jeffrey Funk’s “What’s Behind Technological Hype?” (Issues, Fall 2019). However, as authors of a recent book on financial speculation arising from the commercialization of new technology, Bubbles and Crashes: The Boom and Bust of Technological Innovation (Stanford, 2019), we take issue with a few of Funk’s interpretations.

First, Funk points in several instances to the “lack of good economic analysis” as a critical factor leading to hype. However, what’s really needed is different economic analysis. Understanding technology calls for economic analysis that engages what Robert Shiller called “narrative economics.” Traditional economic approaches are not much help when confronting the fundamental uncertainty that arises from the introduction and potential adoption of a new technology or system. To understand choices at that margin, we need to be sensitive to the sources and impacts of narratives. Narratives are a double-edged sword: carefully deployed, they can coordinate collective action and funnel resources into risky but ultimately profitable ventures, but narratives can also lead to hype, speculation, and damaging bubbles. Unfortunately, in spite of Shiller’s call to action, most economists would not recognize the study of narratives as central to the study of booms and busts, so we need more than “good” economic analysis.

Second, once we accept the intractability of uncertainty, it is not realistic to expect to be able to entirely soften the blow of failure. Indeed, failure may be good, and not in some milquetoast, learning-from-failure way. Awful, terrible, value-destroying failure is good because it signals that our local instance of late-entrepreneurial capitalism is still capable of taking big risks. The implications of this logic are far-reaching: what if the risk that we stop failing (because we stop placing big, transformational bets) is more dangerous than the cost of a little too much hype? This is a hard question to answer, partly because the costs and benefits are incommensurable and partly because they accumulate across time in messy, discontinuous ways. From our perspective, the critical issue is not minimizing failure, but maximizing the categories and numbers of people who can afford to fail. Unfortunately, recent macroeconomic developments suggest that we are doing little to redress the “Lost Einsteins” problem, thereby losing even more of the bold, if risky, ideas that we need in order to support meaningful economic experimentation.

A more critical, narrative economic analysis would focus on how much of the imagined future builds on only imagined elements of the new technological system. Knowing how much is imagined might counteract hype that glosses over these elements.

Brent Goldfarb

David A. Kirsch

Jeffrey Funk has written a provocative and wide-ranging treatise on the impacts of technological hype in society. Many of his observations are trenchant. The article is particularly timely in the current environment within which profitless firms such as Wework, Uber, Lyft, Peloton, and so many others have been hyped as “technology” firms, rather than as more prosaic office space rentals, algorithmically dispatched taxis, and home athletic equipment suppliers. As my colleague John Zysman and I have shown, we are again in a technological bubble of seemingly limitless capital and paroxysms of hyperbole regarding “disruption.” It is also clear that platform firms such as Apple, Amazon, Facebook, Google, Microsoft, and numerous start-ups are investing enormous sums and hiring many PhD data scientists in a bid to build better algorithms and even “quantum computers” to transform global society. In an earlier article in Issues (“The Rise of the Platform Economy,” Spring 2016), we concluded that the digital technologies were driving a transition to what we termed a “platform economy.” Three years later, we are more convinced that such a transformation is taking place—and this is a direct result of technological improvement.

What Funk very effectively points out is that so many newly developing fields of science are overstated far beyond all reason. These propaganda campaigns are often directed at various naïve actors including politicians or investors, but may fool the public as well. Scientists and firms exaggerate the potentials of their inventions because there will be no consequences if, after getting the funds, their supposed sure thing fails. This exaggeration has led the federal and state governments to invest huge sums into the newest hyped technology, be it nanotechnology, superconductivity, embryonic stem cells, or, most recently, artificial intelligence. Almost invariably, these excesses lead to inefficient and, unfortunately, wasteful investments in research and development. Is the situation today worse than in the dot.com bubble? Perhaps. There is more capital than ever, and ever greater promises to disrupt this industry or that. However, technological hype is not new and has always been a way of separating the naïve from their funds. Yet, sometimes to be a successful innovator it is important to have unreasoning and blind faith—it is necessary to overcome those people who say something cannot be done. The line between fool and visionary can be fine.

Funk laments the fact that companies or inventors make hyperbolic claims about their particular technology. But companies’ overblown assertions should not be surprising. Firm founders and executives are seeking more funds to realize their vision or build their careers and thus exaggerate or even prevaricate—there is no punishment for wild exaggeration. In the interests of selling their consulting services, McKinsey and other such companies likewise pursue this strategy. For them, new “disruptive” technologies, whether ultimately disruptive or not, provide the entrée for their sales teams. Companies and consultants can also recruit the media to assist, as they too stand to profit from the hype. The interests of each of these actors are aligned for hyperbole.

Funk’s wide-ranging article provides much to ponder and is a much-needed caution about the unrestrained science and technology hype that sometimes appears to overwhelm reason. It is important to maintain healthy skepticism regarding the claims by scientists, venture capitalists, university administrators, and consultants; but also to recognize that enthusiasm is also an important contributor to technological development.

Martin Kenney

Jeffrey Funk is right in worrying about the hype and the lack of serious innovation—but perhaps not about what’s behind it.

The main source of the hype is the massive distortion of incentives created by the financial casino that has resulted from market fundamentalism and the resistance to state action. New technologies and new products have become a financial end in themselves rather than a way to profitably provide products and services for a population capable of paying for them. Profound inequality has deprived the majority of consumers of the means to satisfy their needs. Cheap products from China have kept the consumerism of the “American Way of Life” still defining the patterns of consumption.

The socially useful products and the productivity increases that could come from new technologies will actually come only when government provides a set of policies that involve a clear directionality and a win-win game between business and society. Information technologies would be capable of transforming most products into services, as they have been doing with films, music, and books, and as they could do with durables by renting them as a service (and reviving maintenance) rather than selling products, from automobiles to refrigerators and furniture.

Other potential productivity increases refer to materials and energy. If these categories were taxed, together with transport, there would be an incentive to innovate in new biomaterials, less material content, turning products into services, sustainable housing, and many other serious new ways of fulfilling needs, many of them produced nearer to the consumer to avoid the transport costs (and the climate consequences).

But the current tax system and the accompanying regulations were designed for the world of mass production, mass consumption, and waste, and the globalized economy has been superimposed on the old regime, making it worse.

Funk is right to worry about the hype. But the solution is not in improving forecasting or the measure of organizational success or the education of scientists and decision-makers, although all those things would be useful. The real solution lies in radically changing the policy context, beginning with the incentive system to finance, which facilitates a betting casino world and taxes short-term capital gains at far less than half of what hard-earned incomes must pay. Once the playing field is better aligned, serious innovation will be made and the hype will end.

Carlota Perez