Category Archives: Assumptions

Is "We're Not As Smart As We Think We Are" an Infinite Regress?

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A snarky friend asked, how is it possible that We’re Not As Smart As We Think We Are? Isn’t that an infinite regress?

To understand why it isn’t, I’m going to geek out a bit and talk about some lessons a lot of folks – including myself – have learned the hard way about building software:

a) Nonfunctional Prototypes. If I’m managing a project to build a complex piece of software, before the programmers start writing code I often ask them to create a “nonfunctional prototype” – some quick-and-dirty sketches or mockups that the users can react to. Why? Because no matter how well a programmer or I think we understand what users said they want, we almost never get it right the first time – and usually not the second or third or fourth time either. And it’s a hell of a lot cheaper to rip up a quick sketch than to rip up days or weeks or months of coding.

And it’s not just us coders. Someone like Jacob Nielsen, the granddaddy’s of studying “usability,” does the same thing. Why? Because even Nielson isn’t smart enough to know what users want.

Here’s what makes this tricky. When you’re building the first mockups, an awful lot of the time you’re pretty sure you know what users will and won’t like. Even if you’ve been doing this for many years and have been surprised over and over by what users do and don’t find intuitive, some part of your lizard brain thinks you nailed it — or at least a good part of it. And that’s why we have the rule about nonfunctional protos: to put that part of your brain in check.

b) Building Software Iteratively. Rather than trying to build a program all in one swoop, break it into a series of mini projects or “iterations.” Why? Because, as they say in the military, no plan survives first contact with the enemy. It often turns out that users didn’t know what they really wanted – especially if they haven’t used the type of software you’re building. Or halfway through the project, your organization’s needs change. Or you discover that some parts you thought would be straightforward turn out to be a real mess and take three times as long to code. Or after you’ve gotten started, you realize that for a critical facet of the project you’ve been trying to solve the wrong problem. And so on. If you design the whole thing and then build it in one shot, you have to get it exactly right the first time. But if you build it iteratively, each iteration is another chance to respond or recover from the almost inevitable surprises.

When I start a complicated project, one part of my brain knows this. But the other part is whistling, hi ho, hi ho, it’s off to work we go! It’s cheerfully optimistic about how the project will play out. That, ultimately, is why iterations are crucial: they save you from yourself.

And that crazy optimism may be necessary. A developer I know likes to say that new software projects are like giving birth to her second child: if she remembered what it was really like the first time she gave birth, she’d never do it again.

I’ve worked with developers who do remember it all, in vivid detail. These folks don’t tend to get much done. They’re so bogged down by uncertainties and so disillusioned about what’s probably going to happen that they can’t do good work, and they tend to suck the energy out of everybody else.

It takes an insane level of can-do optimism to pull off great software. That’s probably true of a lot of things in life – creating a new company, trying to solve a social problem. That insane optimism is the engine that keeps you running. But you also need a structure that protects you from that optimism, that keeps gently but firmly reminding you, We Aren’t As Smart as We Think We Are.

The Two Audiences I Need to Address

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One thing I’ve realized is that I need to be more clear about who I’m arguing with and what we are arguing about.

At one level, my framework has to respond to economic policy wonks like Krugman. Their argument is essentially that it just ain’t gonna work. As we saw when it came to the government’s role in the climate crisis, Krugman argued that “a ‘command and control’ fix that issues specific instructions in the form of regulations” would run into problems:

But while the direct regulation of activities that cause pollution makes sense in some cases, it is seriously defective in others, because it does not offer any scope for flexibility and creativity…

greenhouse gases are a direct or indirect byproduct of almost everything produced in a modern economy, from the houses we live in to the cars we drive. Reducing emissions of those gases will require getting people to change their behavior in many different ways, some of them impossible to identify until we have a much better grasp of green technology. So can we really make meaningful progress by telling people specifically what will or will not be permitted? Econ 101 tells us — probably correctly — that the only way to get people to change their behavior appropriately is to put a price on emissions so this cost in turn gets incorporated into everything else in a way that reflects ultimate environmental impacts.…

A market-based system would create decentralized incentives to do the right thing. (Emphasis added)

But when you talk to many folks, including some of my friends, their caution about solutions that involve government aren’t based in abstract economic theory. It comes from a gut sense about what’s going on in the world. My framework needs to address these deeper feelings and fears that are based in painful real-world experiences:

1) The World Is out of Control. I can barely keep my head above water. The world is changing – and not for the better. I don’t have a say in it.

2) The Government Is Not on My Side. When folks say they don’t want big government, they almost never mean they want to get rid of Medicare or Social Security. I think what a lot of folks – or at least the folks I want to talk to, the folks who are sane and unselfish – are really saying is that they don’t think the government is on their side. When the government acts, it only helps out the Big Guys – the bank bailout being Exhibit A. Who stands up for me? And why would I want the government to do anything more if I don’t believe it’s got my interest at heart?

3) Liberals/Elites Are Arrogant and Condescending. These folks think they know best. I shouldn’t get a say, because “the experts” have all the answers. They spend their time implying I’m no good and telling me how I should behave to be a better person. They’re hypnotized by fancy ideas without ever thinking through the real-world consequences (Exhibit A: folks who say the best way to solve the climate crisis is to raise the gas tax). And I can’t really trust them, because they aren’t authentic: they operate – or at least they pretend to operate – at a distance from the raw emotions most folks have.

4) The Government Is Incompetent. A lot of people say they don’t want more government because they think the government is incompetent. That’s certainly what you see in surveys about Americans’ mixed feelings towards government in healthcare. But I think – and this is based on just talking with folks, not any solid evidence – that incompetence is really a proxy for the government isn’t on my side and that I can’t trust policy elites not to hose me. Let me put it this way. If most folks really meant it when they said their biggest problem with government is that they don’t think it’ll do a good job, then efforts to get government to run better would get a lot more traction. More on this later.

In short, my framework has to respond at 2 levels: to the nuts and bolts economic arguments of folks like Krugman, and to the deep-seated, reality-based feelings held by many folks I respect.

Power, Values, and the Economy

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I think a critical piece of a framework for talking about the economy is being able to bypass the “government vs. market” muddle that traps a lot of folks. After reading Markos’ posts on being a Libertarian Democrat I thought I might’ve found a way — by using power as a focus. A little work on it and it became clear that this approach isn’t going to work. But I think there’s something useful here, so here’s a quick dump of what I came up with.

A lot of the issues I’ve been blogging about can be organized into four ways of thinking about power:

Checks, Balances, and Centers of Power: Dig below the “I want small government” rhetoric and you’ll find most folks don’t have a philosophical opposition to big government — especially if it comes in the form of Medicare. But they don’t like getting stepped on or feeling like they’re just a pawn in a game powerful people are planning. They may mention government first — not surprising given the last two decades of relentless right wing ideological attacks. But ultimately they don’t really care whether the boot stomping them is the DMV or their health insurance company.

If we want to ensure everyone gets a say, we need to create checks and balances against any concentrated power. This approach gives us a way of talking matter-of-factly about the central role concentrated power plays in the economy. And it easily incorporates smaller but still important forms of power, like the problems Smart Growth advocates have run into with NIMBYists.

Individual Power vs. Community Power: the differences, trade-offs, and interdependencies between shaping your own destiny and shaping our destiny. For example:

  • The contradictory, mixed feelings many people have around individual versus community power — where “don’t tell me what to do” collides with how tightly interdependent we are, as seen most recently with the spate of conservative, freedom loving communities banning bicycling because they drive some motorists crazy.
  • As our population ages — by 2030 one in five Americans will be over the age of 65 — what does “freedom” mean when someone is dependent on caretakers? And what are our mutual obligations to those caretakers?
  • The difference between strategies based on individual actions — ” ponying up” — versus mobilizing a community.

 
Types of Power : when most folks — even some liberal policy folks — talk about government, they mostly talk about “regulations,” by which they mean the power to ban or require certain actions. But that’s only one way to use power — and a fairly blunt way at that. This approach could help us talk about the range of ways in which we can use power.

  • How can we try to change the economy while still allowing for flexibility, individuality, decentralization, and creativity?
  • When should we use a decentralized vs. centralized approach?
  • How do we avoid a framework that traps us in just one approach, such as nudging?
  • Where do we want to use the power to say yes versus the power to say no?
  • Where is coercion appropriate and where isn’t it? In other words, does it make sense to ban/require behavior versus stacking the odds in favor of the good guys or creating new markets?

 
Power & Values vs. Reality: As I wrote in my critique of Krugman and cap-and-trade:

If you’ve ever heard someone preach the joys of a market-based solution, odds are at some point they’ve said, government regulations/bureaucrats can’t be smarter than the market — the economy’s just too complicated. But as we saw last week, creating a market-based solution runs smack into the same problem.

In short the principle, We Aren’t As Smart As We Think We Are — that we often don’t know what strategies will actually work in the real world or even what’s possible. It’s also a way to talk about managing the tricky balance of dreaming big while getting real.
 

Conclusion: After playing with this piece for a couple of days, I’ve decided that using power as a focus doesn’t work. It’s hard to talk about power without treating power as a negative. Even reframing it — e.g., having the power to shape your own destiny or our having the power to shape our community’s destiny — doesn’t do the trick. But it might be a step in the right direction.

Skeleton of the Framework v0.6

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Now that I’ve used Getting Green Done to flesh out part of my argument, here’s the latest version of my framework.

The conventional economic framework, a.k.a. Econ 101, says the economy can be broken into 3 layers:

  • People are calculators: they rationally pursue their self-interest given near perfect information about the world
  • Organizations are calculators
  • The Market is mostly efficient (with some help from the government)

The RTE framework says, that’s not how the economy works. The economy is like a game with complex rules that shape folks actions at different levels of the economy. In other words, the real world looks like this:

So if you want to make the world a better place, a simple, clean Econ 101 model won’t cut it. You’ve got to get your hands dirty and understand how the economy actually works. To do that, you need 2 perspectives on the economy:

  • Practitioner’s Perspective: Understanding the rules that shape the actions of individuals and organizations in a particular niche of the economy.
  • Movement Perspective: Stepping back, looking at the bigger picture, and forcing yourself to ask not what the most personally satisfying or most comfortable act we can take but what’s the most effective action.

Here’s how the 2 perspectives are related to the 3 levels of the economy:

PE Level Movement Perspective
Organization Level Movement Perspective Practitioner’ s Perspective
Individual Level Practitioner’s Perspective

What feels like it’s working:

  • The 3 levels of the economy
  • The metaphor of economy as a game with rules
  • The ideas/principles embedded in the 2 Perspectives

What’s missing or needs work:

  • Now that the idea of Perspectives has been rattling around in my head for a few weeks, it doesn’t feel like it’s working. I’m not sure why. It might make more sense to focus on the principles underneath the Perspectives rather than the Perspectives themselves. I don’t want to lose the impulse behind the idea of Perspectives. But I need something more fundamental, more bedrock.
  • Issues like the role of race in the economy are implicitly in the framework, but they feel like they are getting buried.
  • There isn’t a clear connection between understanding the mechanics of how the economy works and what really matters to us — our dreams, desires, fears, and overcoming feelings of helplessness. For example, where does a feeling like “we want our country to work again” fit in the framework?

When the Crowd Isn't so Wise

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A great piece by John Cassidy in the New Yorker on one major reason why Wall Street crashed.

According to a common narrative, we have lived through a textbook instance of the madness of crowds. If this were all there was to it, we could rest more comfortably: greed can be controlled, with some difficulty, admittedly; overconfidence gets punctured; even stupid people can be educated. Unfortunately, the real causes of the crisis are much scarier and less amenable to reform: they have to do with the inner logic of an economy like ours. The root problem is what might be termed “rational irrationality”—behavior that, on the individual level, is perfectly reasonable but that, when aggregated in the marketplace, produces calamity.

Take new, potentially dangerous types of securities:

If Merrill Lynch sets up a hedge fund to invest in collateralized debt obligations, or some other shiny new kind of security, Morgan Stanley will feel obliged to launch a similar fund to keep its wealthy clients from defecting. A hedge fund that eschews an overinflated sector can lag behind its rivals, and lose its major clients. So you can go bust by avoiding a bubble. As [Citigroup's CEO] Charles Prince and others discovered, there’s no good way out of this dilemma. Attempts to act responsibly and achieve a coöperative solution cannot be sustained, because they leave you vulnerable to exploitation by others. If Citigroup had sat out the credit boom while its rivals made huge profits, Prince would probably have been out of a job earlier.

In fact, Prince essentially said so at the height of the bubble:

Prince conceded that a collapse in the credit markets could leave Citigroup and other banks exposed to the prospect of large losses. Despite the danger, he insisted that he had no intention of pulling back. “When the music stops, in terms of liquidity, things will be complicated,” Prince said. “But as long as the music is playing, you’ve got to get up and dance.”

This is hardly a new insight; Keynes pointed it out many decades ago.

Whatever the asset class may be—stocks, bonds, real estate, or commodities—the market will seize up if everybody tries to sell at the same time. Financiers were accordingly obliged to keep a close eye on the “mass psychology of the market,” which could change at any moment. Keynes wrote, “It is, so to speak, a game of Snap, of Old Maid, of Musical Chairs—a pastime in which he is victor who says Snap neither too soon nor too late, who passes the Old Maid to his neighbour before the game is over, who secures a chair for himself when the music stops.”

But it’s one of those lessons that we have a hard time learning — largely because a) it’s a really lucrative game for many players on Wall Street and b) we keep bailing them out with no strings attached.

What do we do about it? For starters, says Cassidy, we need to rein in executive pay. Continue reading →

Propaganda's B Team: Kelloggs' "Smart Choice" Froot Loops

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As we’ve seen, Big Pharma’s very sophisticated in how they pollute the info doctors and patients have take decisions about drugs. Food manufacturers? Not so much.

A new food-labeling campaign called Smart Choices, backed by most of the nation’s largest food manufacturers, is “designed to help shoppers easily identify smarter food and beverage choices.”

Two “Smart Choices”: Cocoa Krispies and Froot Loops.

Eileen T. Kennedy, “president of the Smart Choices board and the dean of the Friedman School of Nutrition Science and Policy at Tufts University,” says, yes, these are smart choices:

“You’re rushing around, you’re trying to think about healthy eating for your kids and you have a choice between a doughnut and a cereal,” Dr. Kennedy said, evoking a hypothetical parent in the supermarket. “So Froot Loops is a better choice.”

If this was a movie, critics would say it was left-wing propaganda, with Dr. Kennedy a straw man.

Speaking of straw, that would probably be a Smart Choice too:

“You could start out with some sawdust, add calcium or Vitamin A and meet the criteria,” Mr. Jacobson [executive director of the Center for Science in the Public Interest] said.

Interestingly, part of the argument folks like Dr. Kennedy are making in favor of Smart Choices is that it’s based on research on how the non-rational ways people actually make decisions:

She said the program was also influenced by research into consumer behavior. That research showed that, while shoppers wanted more information, they did not want to hear negative messages or feel their choices were being dictated to them.

“The checkmark means the food item is a ‘better for you’ product, as opposed to having an x on it saying ‘Don’t eat this,’ ” Dr. Kennedy said. “Consumers are smart enough to deduce that if it doesn’t have the checkmark, by implication it’s not a ‘better for you’ product. They want to have a choice. They don’t want to be told ‘You must do this.’ ”

Ditto for Dr. Clark, another member of the Smart Choices board, who argues

the program’s standard for sugar in cereals was consistent with federal dietary guidelines that say that “small amounts of sugar” added to nutrient-dense foods like breakfast cereals can make them taste better. That, in theory, will encourage people to eat more of them, which would increase the nutrients in their diet.

Given what a sad excuse for propaganda this program is, is it really worth it for the food companies?
Continue reading →

Drug Companies v Moral Hazard Geeks: Why Traditional Econ Models Don't Cut It

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Aside from being truly appalling, the subject of last week’s post is a great example of how traditional economic models don’t work. To recap via the New York Times:

A growing body of evidence suggests that doctors at some of the nation’s top medical schools have been attaching their names and lending their reputations to scientific papers that were drafted by ghostwriters working for drug companies — articles that were carefully calibrated to help the manufacturers sell more products.

If you asked Professor Saviro about the way drug companies infect the information patients and their doctors have to make decisions, I’m sure he’d say yes of course this is bad. But when he and many other smart policy geeks when they write about reforming health care, these appalling facts are never front and center. They’re quietly shoved under the rug.

A good economic framework wouldn’t let that happen. I’m not sure how to diagram this; this is my first draft.

A traditional model emphasizing moral hazard looks like this:

Market rules Government sets taxes to push companies to pay for insurance
Organizations My employer pays most of my health care costs
Individuals Should I get this pill? It doesn’t cost me a lot

The RTE model adds in how drug companies try to shape market rules:

Market rules Government sets taxes to push companies to pay for insurance Big Pharma ghosts articles promoting their drugs
Organizations My employer pays most of my health care costs my doctor’s practice is biased towards these drugs
Individuals Should I get this pill? It doesn’t cost me a lot I am biased towards these drugs

Imagine if any economic discussion of health care was working from a model like this. How much time would these discussions spend trying to come up with ways of jacking up patients to get rid of moral hazard vs. asking how drug companies ended up with this much power and what do we do about it?

More importantly, if every economic argument worked off of a model like this, we might actually be having a debate right now. Because if you’re working from this model, the first question you’re going to ask when “death panels” are injected into the discussion is, which economic actors are pushing the idea of these nonexistent death panels?

Folks like Media Matters, the Rachel Maddow Show, and many blogs are trying to get these facts into the debate, but they dismissed as corporate-hating liberals. Part of the reason the media can get away with this is because traditional models only pay attention to column 2. But with the RTE model, you’re forced also pay attention to column 3.

And as RTE explains, this isn’t about evil behavior. It’s perfectly rational and expected behavior. Unlike lionesses, who can only win by playing by the rules of their ecosystem, corporations can also try to win by changing the rules of their ecosystem.

If policy geeks took seriously the realities that are baked into this model, we’d be looking at a very different kind of discussion.

UPDATE: I’m not naive enough to think that policy geeks determine media coverage. But if everybody who was serious worked from an economic model that didn’t deny reality, I think more reporters — and more importantly, more editors — would have a hard time just running quotes from policy geeks who didn’t use the model. Given the on-the-one-hand, on-the-other-hand style of coverage we’ve got now, the policy geeks who are just shills would still get lots of coverage. But at least the debate would have a little more reality to it.

Healthcare: the Hazards of the Moral Hazard Argument

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In a post on the economic issues around health insurance, Professor Dan Saviro makes the standard “moral hazard” argument:

Consumer demand drives the market, but it is largely the demand of subsidized consumers who are not actually paying at the margin for what they get. Suppose that in the market for groceries or cars we had consumer demand in the driver’s seat (as we do), except that people didn’t actually have to pay for what they purchased (or maybe they just had a small co-pay). Whole Foods and GM might like this, but it wouldn’t be good socially. Yet in healthcare, that’s effectively what we have, much of the time, for people on Medicare, Medicaid, or employer-provided health insurance that overpays at the margin (relative to the optimal insurance level) due to the distorting effect of the tax subsidy.

There are a number of problems with moral hazard arguments in healthcare. For example, the biggest hit in healthcare costs is when choose one sick, and if people were “actually paying at the margin for what they get” such that it would change their behavior when they were really sick, they’d probably go bankrupt.

But there’s a more basic problem with this argument. Saviro assumes consumers have meaningful info about the healthcare “product” they’re considering buying. If you want to buy a car from GM, you can see what Consumer Reports or Road & Track said about it. But what about the pill your doctor just recommended you take?

Let’s assume that unlike many folks, you’ve got the high-level reading skills and the time needed to read up about it. Here’s the catch: you can’t trust what you read. According to the New York Times,

A growing body of evidence suggests that doctors at some of the nation’s top medical schools have been attaching their names and lending their reputations to scientific papers that were drafted by ghostwriters working for drug companies — articles that were carefully calibrated to help the manufacturers sell more products.

Got that? Drug companies aren’t just paying doctors to do research. They’re also helping the lazy bums who can’t even be bothered to write the paper themselves. A case in point from a hormone drug lawsuit:

The [deposed] documents offer a look at the inner workings of DesignWrite, a medical writing company hired by Wyeth to prepare an estimated 60 articles favorable to its hormone drugs. In one publication plan, for example, DesignWrite wrote that the goal of the Wyeth articles was to de-emphasize the risk of breast cancer associated with hormone drugs, promote the drugs as beneficial and blunt competing drugs. The articles were published in medical journals between 1998 and 2005 — continuing even though a big federal study was suspended in 2002 after researchers found that menopausal women who took certain hormones had an increased risk of invasive breast cancer and heart disease.

One lazy physician who was assisted by DesignWrite was Columbia professor Dr. Michelle P. Warren.

Her article was published in The American Journal of Obstetrics and Gynecology in 2004, when women feared that Wyeth’s brand of hormone drugs could be causing particular problems. The thesis of the article was that no one hormone therapy was safer than another.

The published article acknowledged help from four people. But it did not disclose that DesignWrite employed two of those people and the other two worked at Wyeth. Court documents show DesignWrite sent a prepublication copy to Wyeth for vetting and charged Wyeth $25,000 for the article, information not disclosed in the paper.

When the Times contacted Dr. Warren, here’s how she defended herself:

She said she worked on the project in phone conversations and in meetings — contributions not reflected in the court documents, she added. She said that it was a mistake not to have disclosed the writers’ payment and affiliations in the acknowledgment; articles published today involve more detailed disclosures, she said. DesignWrite scoured the scientific literature on hormone therapy for the article, she said. “I would never undertake this without some help,” said Dr. Warren, who is the Wyeth-Ayers Professor of Women’s Health at Columbia. “It’s too much work. I am not getting paid for it.”

Holy crap…

Next week: what this means for building a better economic model.

Richard Thaler Wimps out (or, the Limits of Behavioral Economists)

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Richard Thaler is a very smart guy. He’s one of the founders of Behavioral Economics — the folks who argue that people aren’t calculators. So when he jumped into the healthcare debate over the public option, I was eager to see his take on the debate.

Unfortunately, he turned off his behavioral economist brain and delivered a boilerplate pro-free-market argument:

Here is a thought experiment: Can you think of a domain where a government-run business competes successfully with private-sector companies? … More generally, it is hard to find examples where government-run businesses compete with private companies and win. One reason is that governments are not very good at innovation….

But what about the often-stated fact that Medicare has much lower operating costs than private insurance companies?… this is not an apt comparison because the new public plan would have marketing and other administrative costs that don’t apply to Medicare with its captive market.

All of this leads me to conclude that if we impose sensible rules on the public option [e.g., that it isn't subsidized], it will neither save nor destroy the health care system because it will simply not get much market share. And if we do not impose those rules, the public option will hurt rather than help.

I’ll let other bloggers bang on his argument against government. There’s a more interesting issue here: why did Thaler ignore the strange role of Medicare in this debate?

As Thaler says,

We hear from the right that an insurance plan run by the government will drive all private-sector insurers out of business and be the first step toward socialism, if not communism.

And yet nobody on the right is saying boo about the biggest, baddest government-run insurance plan — Medicare.

Medicare hasn’t just turned into the third rail. It’s become non-government. At town hall meetings, in between denouncing imaginary government plans to kill off grandma people are yelling, “keep your government hands off my Medicare!”

For a Behavioral Economist, this should be like catnip. It’s about as un-calculator-like behavior is you can get. But Thaler doesn’t touch it. Why?

It may be because he’s conservative. But I think it’s also a sign of a fundamental flaw in most Behavioral Economist work.

Behavioral Economists are fascinated by the impact of our brains on how we think. But they’re mostly silent about the equally critical impact of other people’s brains — the institutions we work in, the political efforts to shape public debate.

If a Behavioral Economist like Thaler took political economy seriously, he’d have to make a very different argument. For example, he’d have to explain why if the public option won’t “get much market share,” are insurance companies pouring millions into strategies that, among other things, tries to convince people that Medicare isn’t really government? Because it isn’t just a lone nutjob at one town hall meeting who’s said it; this strange outburst has happened often enough that it’s probably on somebody’s list of talking points. And can’t be the insurance companies’ strategy to ensure they’ll still be able to compete; there are much less bizarre ways to argue for “sensible rules on the public option.”

You can certainly be a free-market cheerleader and take political economy seriously. But you have to work a hell of a lot harder than Thaler does here. And that’s why I think it’s crucial for liberals and progressives to force Behavioral Economists to take the next step in exploring how people aren’t calculators.

The Complicated Emotional Map of a Good Economic Model

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In my last post, I complained Robert Kuttner didn’t really capture the government’s role in the market. Ironically, he also didn’t capture what I love about the market.

Kuttner, Dean Baker, Jamie Galbraith, they’ll all write that “markets accomplishments much superbly,” “the market is an incredibly powerful force,” etc. But they sound like a little kid who’s been forced to say thank you for the socks she got for Christmas.

Here’s what’s missing: the feeling I got when I bought my iPhone.

I’m not going to irritate/bore you to death with a ten-page rave about my iPhone. I’m sure you already got enough of that from your friends when it first came out — or maybe you are one of those cruel people who splattered friends with iPhone-love drive-by’s. Let’s just say the iPhone was the shiny red bike I’ve been waiting for. And that it feels like Round 2 of the Net, where the Net is no longer deskbound and instead it & all the people on it are with you wherever you go.

But as an economy geek and a one-time small-business owner, it wasn’t just the iPhone itself that blew me away. It was the business model behind it (once Steven Jobs came to his senses and opened up the iPhone a little).

Many a bright software idea has crashed and burned because its inventors couldn’t hack the business side. With the iPhone’s App Store, getting credit cards to work, providing tech support if someone had trouble downloading your app, and a dozen other business problems that could sink a software company — these daunting problems mostly disappeared in exchange for 30% of sales. And since apps could be sold for as little as ninety-nine cents, buying an app wasn’t a big risk for a customer who didn’t know you. The idea of this business model been kicked around for a long time. But Apple was the first to figure out how to execute it flawlessly.

If you’re writing about economy, I think you’ve got to be able to capture this feeling — the delight in the creation of a new product as well as the brilliance of a new way producing and marketing a product to turn it into a profitable success. It’s a feeling Wired captures better than just about anybody else.

Maybe I’m being a bit unfair. If you’re reading a book called The Squandering of America, do you really expect to find a love song to entrepreneurship? But I think the fact that you find almost no trace of the exhilaration of the market in books like this points to a weakness in our side. We do outrage really well. But owning up to more complex feelings? Not so much.

An economic model that captures the excitement of entrepreneurship and the power of solidarity — that’s not an easy thing to pull off. But if the model’s going to succeed, I think it’s got to do it.

UPDATE: between this and the last entry on Kuttner’s book, it might sound like I didn’t think much of it. That’s not the case. I’m just using my reaction to a few elements in the book as a springboard to figuring out the RTE model. Squandering America is smart and nuanced, and Kuttner’s managed to pack an amazing amount of interesting economic history details into a very readable story. It’s definitely worth checking out.