Paul Krugman on new major technology needed to stimulate recovery

Speaking in Abu Dhabi on Monday, May 25, Nobel economist Paul Krugman suggested that economic recovery could come about in the wake of a new major technological breakthrough, one of the size and scope of the IT revolution of the 1990s. Other factors cited by Krugman as candidates for turning things around included more investment by major corporations, and new climate change regulations and policies.

Metrology systems for human, social, and natural capital fit the bill. They are a new technological breakthrough on the scale of the initial IT revolution. They would also be a natural outgrowth of existing IT systems and an extension of existing global trade standards. Such systems would also require large investments from major corporations, and would embody highly significant moves on climate change.

It is well known that precision measurement standards play a vital role in reducing transaction costs across a wide range of industries. What is less well known is the extent to which radically new degrees of precision and objectivity have become available for ratings data. The efficiency of human, social, and natural capital markets will be greatly enhanced by reducing the friction in individual exchanges of information.

The theory primarily involves calibrating instruments that express value in universally uniform metrics that function as common currencies. The new efficiencies come from the reduced friction in transactions, which are made meaningful and comparable via metrological networks not much different from the one connecting all the clocks. It appears that the intangibles of health care, education, social services, and human/natural resource management may not be forever doomed to locally dependent product definitions that defy pricing.

What we need are ways of extending the basic capitalist ethos into the domain of the intangibles. How can we set up  living capital markets so that the invisible hand efficiently promotes social and environmental ends unintended by individuals maximizing their own gains? How might we extend the free play of self-interest into more comprehensively determined returns for the global dividend?

Measurement will inevitably be of central concern in answering these questions. This is the kind of thing that, in previous epochs, was left to itself to evolve in its own time. We no longer have that luxury. Human suffering, sociopolitical discontent, and environmental degradation all demand that we take the bull by the horns and act deliberately, with purpose, now.

It is well known that precision measurement standards play a vital role in reducing transaction costs across a wide range of industries. What is less well known is the extent to which radically new degrees of precision and objectivity have become available for ratings data. The focus of my measurement research is, in effect, on enhancing the efficiency of human, social, and natural capital markets by reducing the friction in individual exchanges of information.

The theory primarily involves calibrating instruments that express value in universally uniform metrics that function as common currencies. The new efficiencies come from the reduced friction in transactions, which are made meaningful and comparable via metrological networks not much different from the one connecting all the clocks. It appears that the intangibles of health care, education, social services, and human/natural resource management may not be forever doomed to locally dependent product definitions that defy pricing.

What we need are ways of extending the basic capitalist ethos into the domain of the intangibles. How can we set up markets so that the invisible hand efficiently promotes social and environmental ends unintended by individuals maximizing their own gains? How might we extend the free play of self-interest into more comprehensively determined returns for the global dividend? Measurement will inevitably be of central concern in answering these questions.

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