Solvation

Why Economics Needs Data Mining

Cosma Shalizi explains eloquently the major issues surrounding the accuracy of economic modeling. He talks about how we don't know whether what happened in the past can be relevant for he future.

Also, listening between the lines (at approximately 4:30), please hear the plea for the idea that if you're going to do models, you need data to validate them.

 

Cosma Shalizi urges economists to stop doing what they are doing: Fitting large complex models to a small set of highly correlated time series data. Once you add enough variables, parameters, bells and whistles, your model can fit past data very well, and yet fail miserably in the future. Shalizi tells us how to separate the wheat from the chaff, how to compensate for overfitting and prevent models from memorizing noise. He introduces techniques from data mining and machine learning to economics -- this is new economic thinking. via ineteconomics.org

 

 

Economic Catastrophe - Maybe It's the Only Way?

OK. Here's a hypothesis I developed after reading this highly disturbing report on the state of the world's oceans.

Hypothesis: It's GOOD that the US middle class (and lower) is becoming desperate, because in order to change behaviors drastically, it's going to require masses of people doing whatever it takes for them to survive, and the uberwealthy will in turn need to set up and financially support the rules so that "doing whatever it takes" actually is survivable.

(My own objection: most of the uberwealthy are too out of touch to understand what needs to be done, how quickly, and how extensively.)

Have I become too cynical?

The Future of Economic Wellbeing

This is simply a quick overview of topics I intend to work up further.

(1) The difference between microfinance and economic development is that microfinance assumes the intangible assets are already there (or easily built), specifically the intangible assets related to health, relationships, and skills. Economic development focuses on building those intangible assets first, without concern about whether a lack of access to capital will mean they stagnate or decay once they've been built.

(2) The way to enable future economic growth is to build intangible assets. "Supply side" economic thought glossed over the fact that when you invest in a business, relationships and knowledge are formed along with an actual product that may or may not make it to market and then be competitively successful. However, stimulus money does the same thing; in particular it builds relationships and guards physical and mental well-being. Just as community development + microfinance need to work together in emergent markets, encouraging the flow of capital and ensuring the maintenance and growth of intangible assets is crucial in the revitalization of mature markets, whether they're distressed or booming.

Most intangible assets are built in families and communities (and intangible liabilities are unfortunately built there too, in the forms of behaviors that limit the development of trust, health, emotional wellbeing, etc.) Specific metrics can be built into community monitoring processes in order to support community and build a framework for future economic value.

(3) Specifically, the way that the innovative environment in Silicon Valley can be "replicated" is by mapping the intangible assets which are used to create the tangible ones, and then thinking about how to build those intangible assets within a new environment. It's a "localization process," requiring replicating and refining that process in other contexts. Based on past research at Ricoh Innovation Labs, I have a system for visually depicting such a map and its change over time.

(4) So, once we've gotten to a point where we can develop intangible assets in the emergent and distressed markets, and we understand how to innovate and to replicate the development of innovative environments, then we can map how to replicate specific, successful programs within that environment, using the same methodology.

(5) Finally even in existing firms who are relatively successful in navigating the fast-changing waters, it's likely they have a Corporate Social Responsibility program. There are many reasons to have such a program, including building internal morale. However, by measuring impact and tying this into community metrics, a significant amount of knowledge can be built, turning CSR programs into strategic assets for firms.

Boosting the US Economy - Social Credit Card

I rarely say "go vote" but I will  now: the social credit card links community activity with financial return. It is CRUCIAL to build bridges between fiscal and social responsibility.

In the immediate term this helps people who are social entrepreneurs monetize their lives.

This doesn't make the tie (yet) but it's intevitable down this path: adjustments in credit score for unpaid community volunteerism. One example that's particularly germane to intangible asset building and reviving the economy: parent participation (particularly parents who are *eager* to help, and particularly fathers) can vastly affect a child's educational engagement and outcomes. And would getting financial score improvements increase parent participation, particularly in lower socio-economic schools? You bet!

In many cases, simply bringing those parents back into the schools can also enable a tremendous amount of community outreach for health and wellbeing, and further education of the parents. It also builds relationships among people  who, as adults are now trying to link their individual goals with their family goals and community - a fundamental community uplift mechanism and an incubator for local social entrepreneurial activity.

Today is last chance to vote in SoCap10's impact challenge - please vote for the Social Credit Card. http://bit.ly/bj0y10

Merit Based Teacher Pay

I interrupt my (ir)regularly scheduled postings to put up a conversation that fell out of a facebook thread begun by a friend who is a current teacher after a haitus. The first 8 years of her career were teaching third graders in East Oakland, during which time they went through a principal each year, and she was the senior-most teacher in the school. She is opposed to merit pay, because she perceives a huge problem in the proposals she's been aware of that would increase the current bias that teachers have in favor of bright, intellectually talented students. She's concerned that the neediest kids would be even less desireable as classroom assignments if teachers are financially compensated based on students' test scores.

I normally don't do things like this, but her response to my comment was an outrageously encouraging, "Jessica - can you please start setting educational policy? :) I love the ideas, and I don't know why merit pay has only ever been (at least in the proposals I've heard) tied to test scores." So I thought I'd share!

My response:

There's a perfectly good way to do it. "Merit" doesn't mean absolute test scores, it means improvement from before given a specific human being.

You look at how the kids are coming in; you look at what happens to the kids OUTSIDE OF SCHOOL during the year; you look at how the kids are going out. You do this for several years in order to get a baseline set of data from which to build expectations from.

And when I say "look at how the kids are doing," I mean on not only academic milestones, but on developmental ones too. We all know kids sometimes pause a bit in intellectual development while they "figure out" important things about their social worlds (at any level), or are consumed with awkwardness and self-absorbtion they grow a foot and change their biochemistry.

Also, we can assess on any number of positive/supportive-of-strength personality profiling.

If we did this along with the teachers, we may even have a better way to do classroom assignments. (Every parent knows which parent is "better" or "worse" for their kid, even given a group of great teachers. I know my son performs like crazy for very demanding but extremely logical teachers. I didn't - I performed best for insightful and enlightening teachers; they didn't even have to cover the course material.)

Before we talk about merit, we should know what improvement looks like. It's a return-on-investment kind of metric (how much you get out compared to what you've put in), not an absolute amount.  In fact that would INCREASE the desireability of teaching the needy kids, since improvements in any area count, and there's such a high opportunity for improvement.  You can even incent the pay higher for getting kids below-grade-level to grade-level, assuming that's a harder role because you are likely to have complicating issues, at least self-esteem.

What it will also point out are the kids who are needy in a way a teacher can't possibly meet: they need healthcare or counseling or are chronically underfed. We would have to dovetail this into healthcare or other components, but it would also legitimize (financially) having those resources affiliated with the schools.

Well, do you agree with Bronwyn? Should I be setting educational policy? Before you answer, let me point you to another one of my hare-brained ideas: Education Reconceived where I just completely upend the curriculum taxonomy to make way for more relevant k12 coursework, and to build in a mechanism for change.

The Convergence of Work and Life

 

A friend mentioned, "it just seems like every week is Social Media Week."

I have the same sense. Everyone is trying to position their social media crowd as THE one. The fact is, everyone might have a different sense of how to use/implement social media and what the major issues are. As danah boyd points out many times but particularly in Do you See What I See?: Visibility of Practices through Social Media, we all bring our own filters.

I'm not a social media stragist so much as a marketer who uses social media as a tool. And as a human being, my concern for over a decade has been how financial market "infomation" is decoupled from what human beings value on a personal level. Because of that, social media's strategic relevance becomes, for me, most significant in how it creates and modifies community interactions and health. But more relevant today is the sense of fragmentation amidst the explosive growth in this new industry that requires merging financial and social goals.

In the New Finance space, there are an explosion of new rubrics, labels, approaches, and methodologies, but they are startlingly in alignment: CleanTech, Social Entrepreneurialism, HIP Investment,  Social Capital, B Corporation, various metrics systems (from GMI to GIIRS), new money/barter/gift-economy /post-industrial systems, Microfinance, Crowd-sourced Lending, Socially Responsible Investment (SRI), Intangible Asset Valuation, and of course, Sustainability. And that's not even including what's going on from "the other side of the coin," where communities are beginning to measure their health with novel indicators ("Community Indicators,") and Non-profits and NGOs become more "outcomes-focused" in order to meet the needs of people who are responsible for wisely investing financial resources and realize that a Blended Value investment approach improves their ability to achieve their mission.

So what's underlying this? I think one obvious point is that the original experiment has run its course (and to be fair, we were limited by the computing tools at the time to create several over-simplifications.) Markets do NOT reflect all information, and people are rarely adequately enlightened, but even those that are sometimes act AGAINST their own enlightened self interest. Further, altruism not only exists in animals and people, but is a powerful motivator.

However I think there's another component that has made the solution far more obvious to so many people: I'm going to say that this is a longterm positive effect of previous diversity struggles. I believe that the longterm effect of breaking gender stereotypes so that women join the workforce and dads bond deeply with children, and mixing socioeconomic, religious, country-of-origin and other cultures has been to become deeply aware of the impact business practices have on communities, personal health, and children's opportunities.

The traditional economic and financial concepts of capitalism vs. society (or market-driven vs. tax-and-spend) are being replaced by the plausibility of "business-community mashups," where everyone works together to improve the world. It's fascinating to watch, but more importantly it's an important time for the participants to understand their role in the overall portfolio, to recognize that for the world economic models to incorporate sophisticated information that information must be gathered and shared, and to function as a growth industry rather than individual rebel alliances fighting against an entrenched power system.

Because that power system broke, full stop. It's here for us to rebuild, and we'd best do it fast and thoroughly, modeling those very values we treasure: collaboration and transparency.

Differentiating Spiritual from Social

Begin reading at the bottom.

When you finished (or read it the first time), did you feel pain?

Many do. That pain is evidence that we're connected. We imagine these two young men; we imagine or remember our own losses. That's Spiritual. Even those of us who do not know these people nevertheless feel their pain.

I need to pause here. I do also want to say how heartbreaking it was to hear, and express my condolences to those who knew Vijay personally, his family and Mike in particular.

I'm drawing connections into the financial world after the jump.

Socialedge Forum on Wealth

I put up a LinkedIn Question recently:

What do you think "wealth" is? Do you think we make decisions based on what makes us and our community wealthy? How do you see this changing in the future?

I did this specifically to see what the community-at-large is beginning to think about the concept.  SocialEdge invited me to continue the conversation in their forum.

As the community at SocialEdge is quite sophisticated in the topic, I wanted to post excerpts here. I urge anyone who is interested to read the expanded versions -- these are tiny excerpts -- of these very thoughtful posts, and contribute to the topic.  Also, on LinkedIn I've just recently initiated a group Future of Wealth.

Transcript of Shiller on Charlie Rose

I am moderating a week-long forum on Skoll's SocialEdge on "What is Wealth." In that, I refer to the video of the interview Charlie Rose did of Robert Shiller. It was brought to my attention that as broadband is limited in areas where many Skoll participants are, that this would be useless to them.

So I sought to provide a link to the transcript, but unfortunately, Charlie Rose's site has a layout problem, and it's unreadable, at least to me.  So I copied-and-pasted it here and cleaned up the tags until it laid out like it should.

Finding Framework: SoCap09

Last year was the inaugural Social Capital Markets conference. In September 2008, we were amidst the financial meltdown and the 2008 election. The "vibe" conveyed the visceral fear inherent in having to make key decisions while only knowing Worst Practices. "Confusion" was an understatement.

I was honored to participate on a panel about financing trends in the non-profit world -- and it was packed; we didn't know what interest would emerge, yet there it was. The room was packed not only with non-profit folk and funders, but others trying to develop new ways of thinking about solving the social capital growth problems using non-profit infrastructure.  Like the Skoll World Forum, the brilliance in the room can be blinding.

Yet the biggest take-away from me happened when listening to the final panel, moderated by Matthew Bishop of the Economist,

SoCap08 - Financial Return Maximization is Absurd

Last week, I was SoCapO8, a conference that was oversubscribed nearly 3-fold, where most people have signed up in the past few weeks, post-financial catastrophe.

There is a lot going on in the social investment space, but I want to address, specifically, one item, since my for-pay job at the groupery is a bit hectic due to a major upgrade (...and if you run volunteer organizations, you should check it out! It's a powerful product and a great team!).

Back on-topic: on Tuesday evening was The Economist Debate Series:

Motion: This house believes you can maximize social returns by maximizing financial returns. Two voices for, two voices against.

    * Moderator: Matthew Bishop, The Economist
    * Shari Berenbach, Calvert Foundation
    * Elizabeth Funk, Unitus
    * Steve Zuckerman, Self Help
    * Alvaro Rodriguez-Arregui, Ignia Partners LLC

It’s time for Asia to look beyond the dollar

Holiday rebroadcast:  A very interesting interview of Joseph Stiglitz on international post: It’s time for Asia to look beyond the dollar.