Economics for the ‘Fourth Industrial Revolution’

Presented by CTIA – The Wireless Association: How the next wave of technology is upending the global economy and its power structures

Apr 11, 2022 View in browser   By Ben Schreckinger Presented by CTIA – The Wireless Association With help from Brendan Bordelon and Derek Robertson A woman looks at a piece of art at the Bitcoin 2021 convention. | Joe Raedle/Getty Images I took a break from the grandiose pronouncements at the Bitcoin 2022 conference to get a more scholarly perspective on the blockchain boom from a Miami-based economist who studies it for a living: Cathy Barrera. While earning a PhD in business economics from Harvard and teaching at Cornell, Barrera became convinced her discipline needed to catch up to the realities of a society being transformed by what has been termed a "Fourth Industrial Revolution," driven by technologies like artificial intelligence and robotics. After watching the rise of crypto, she co-founded Prysm Group, a consulting firm that helps blockchain businesses design their economic incentive schemes and counts Nobel laureate Oliver Hart as a senior adviser. Over coffee in the lobby of the Betsy Hotel, she held forth on the future of economics, blockchain's trust-busting potential and what Bitcoin's inventor got wrong. Our conversation below has been condensed and edited for clarity. Why do we need a new economics for the 'fourth industrial revolution'?  Even when these metrics like gross domestic product were created, folks knew at that time this is not a perfect metric and it doesn't capture everything that we care about. GDP is very good at capturing trades, but not other production, like household production. The way that digital technologies evolved over the last two decades has made a bigger gap between GDP and actual economic value produced in the economy. For example?  If you think about things like the music industry, we listen to even more music than when everything was on CDs, but most people are listening to a free streaming service. The portion captured by GDP has been declining even though the amount of music we listen to has been increasing.  [Eds note: It's true, our Spotify playlists lists have been getting a lot of use. ] Could blockchain activity change our understanding of economics and the way we measure economic activity?  I wouldn't rule it out. A lot of experiments in the blockchain space are trying to replicate things that were happening within a firm — organizing activities and resources — that are maybe using markets, using governance, using voting instead. Perhaps having these things happen in a database where we observe it could lead us to aggregate that information into new metrics. The issue is that these activities are quite marginal compared to the overall economy. There would have to be a tremendous change in the adoption of these platforms in order for blockchain data to be used in general policy-making. What about the ability of blockchain to upend industry? Is it going to be harder than blockchain creators think to outcompete existing firms that have monopolies?   In order to replace the monopoly with something better, you have to make sure you are ticking the boxes on the things that the monopoly is doing. Maybe the monopoly is charging too much for its service, but if the monopoly is providing 99 percent 'uptime' you need to provide 99 percent uptime. The mechanisms to do that in a decentralized way can be much more complex than you initially think. How do projects adapt to that challenge?    Designs have multiple layers. You'll see [Decentralized Autonomous Organizations] that have voting by token-holders, but they also have committees. They're decentralized but they also have elements of centralization. That's a response to the reality that there are some activities or services provided by these centralized groups that are important to their value. Do blockchains eliminate the need for the government's antitrust power?  The two things are complementary. If we have the hypothesis that more and more activities are going to have the blockchain as a base layer, we aren't there yet. In the meantime, we need to be using all the tools at our disposal.  How would you rate Satoshi Nakamoto, the pseudonymous inventor of Bitcoin, as a designer of economic incentives?  The Bitcoin white paper describes bitcoin as a peer-to-peer cash system, and that is not what Bitcoin is. It was envisioned as a system where all the participants in the system would participate in securing the system and validating the system. Instead, there are a small number of miners relative to the Bitcoin holders, so I don't think it can be described as peer-to-peer, at least in practice. From an economic perspective, it's clear why the design of the system would lead to consolidation.There's set compensation for a block, and only one of the miners can get that compensation, so there's an incentive to invest in capacity to be able to win that contest. So, if you were trying to sleuth out Satoshi's real identity, you wouldn't go looking in an economics department?  No.   A message from CTIA – The Wireless Association: 5G Home Broadband is bringing competition to cable and fast, reliable, affordable home internet service to millions of Americans. With this new, easy-to-use, home broadband solution the entire household can stream, video conference, learn, game and more with great speeds and performance. More than 30 million America homes are covered today, with millions more expected in the years to come. Learn more about fast, affordable 5G Home Broadband. www.ctia.org/5gbroadband   The Chipmakers' Coattails With microchip makers poised to receive big money from a Congress eager to onshore production of advanced electronics, manufacturers of related products like circuit boards are clamoring for their own handout. Now lawmakers may be ready to deliver, with a draft bill that could be introduced as soon as this week. The global share of printed circuit boards produced in the U.S. has collapsed, falling from 30 percent to just 4 percent in the last three decades — and the majority of that production has since gone to China, according to chip industry leaders. "China has made a strategic decision to support the growth of this industry," said Chris Mitchell, the vice president of global government relations at microelectronics trade association IPC. He lamented that the U.S. has not made even a "modest commitment" to counterbalance Beijing's investments. A Chinese microchip is seen through a microscope. | Ng Han Guan, File/AP Photo That's why microelectronics lobbyists have been arguing for months that Washington needs to go beyond the $52 billion it's expected to shell out for chip manufacturing and research through the House and Senate's competitiveness bills. Mitchell said he's working with members of Congress to craft legislation that would subsidize the production of printed circuit boards in the U.S. A separate industry representative, who requested anonymity to discuss draft legislation, said Rep. Anna Eshoo (D-Calif.) is putting together a bill that would provide unspecified support for the printed circuit board industry, which could be introduced as soon as this week. An Eshoo spokesperson confirmed that a bill is in the works, but did not provide additional details. — Brendan Bordelon Afternoon Snack It might not be immediately obvious to you why a child would need to be educated about a new and esoteric form of electronic property ownership. Zigazoo would disagree. The self-proclaimed "world's largest social network and NFT platform for kids" released its first "drop" last week, of tokens featuring the colorful art of the 13-year-old artist Nyla Hayes. Twitter Some might reflexively cringe at the idea of promoting NFTs, which critics have likened to a Ponzi scheme, to children. But Zigazoo argues that the digital trinkets can give kids "the opportunity to express themselves through art and practice essential financial literacy skills that are at the core of the Web3 experience and their future economy." And it's not just them — there's a growing contingent of Web3 boosters like Beatriz Acevedo, founder and CEO of the Latinx-focused financial education platform SUMA, who in an email to DFD said that child-friendly NFTs could help empower communities traditionally under-served by the world of finance. Whether or not that prediction ends up as our shared financial reality, for now the decision to involve your kids in it is up to you — a welcome low-stakes call to make in the increasingly heated "parents' rights" conversation. — Derek Robertson The Future In Five Links Some crypto execs are a little friendlier to regulators than one might expect from the onstage sturm-and-drang at last week's Bitcoin 2022. The blockchain game that recently suffered a $650 million-dollar heist attributed it to "some trade-offs" in the development process. The New Atlantis has dedicated its spring issue to the concept of "reality," both virtual and otherwise. (Here's DFD's suggested soundtrack.) A New York architect is dreaming up methods for using biological materials in large-scale construction. Yet more Epic news: the gaming/metaverse company scored a whopping $2 billion investment from Sony and the investment group behind Lego.   A message from CTIA – The Wireless Association:   Stay in touch with the whole team: Ben Schreckinger (bschreckinger@politico.com); Derek Robertson (drobertson@politico.com); Konstantin Kakaes (kkakaes@politico.com);  and Heidi Vogt (hvogt@politico.com). If you've had this newsletter forwarded to you, you can sign up here. And read our mission statement here.   A message from CTIA – The Wireless Association: 5G is shaking up home broadband – bringing new competition and choice to millions of homes and businesses across the country, and expanding access to high speed, affordable broadband. Households outfitted with 5G Home Broadband can do everything they do with cable, with great speed and performance including streaming, video conferencing, homework, gaming and more. This new, wireless alternative boasts competitive pricing and tremendous ease-of-use – just plug it in and turn in on. More than 30 million homes are covered today, with millions more expected by 2025. Learn more about fast, affordable 5G Home Broadband. www.ctia.org/5gbroadband     Looking for in-depth and actionable technology policy news? The Morning Tech newsletter is exclusively available to POLITICO Pro subscribers, please visit our website tolearn more about the benefits of a subscription.       Follow us on Twitter Ben Schreckinger @SchreckReports Derek Robertson @afternoondelete Konstantin Kakaes @kkakaes Heidi Vogt @HeidiVogt   Follow us

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