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Peter Cochrane's Hard Drive 2000 Bricks in an unreal city RICHARD FEYNMAN was one of the most incredible physicists that ever lived, a Nobel Laureate, and a founding father of our most fundamental atomic understanding. During his life he made a number of seminal discoveries and key pronouncements. One of my favourites is the shrewd: "I think we can safely assume that no one understands quantum mechanics." Unfortunately, there has never been a Richard Feynman of economics, nor indeed any theory that comes remotely close to explaining what is happening within markets. Why is it we lack any models or theories of economics that are worth a dime? My guess is the stochastic nature of the relationships. Unlike quantum mechanics, where we are dealing with a physical system that largely stabilised three minutes after the Big Bang that created the universe, economics does not seem to have reached a point of stability yet. It is both probabilistic and dynamic (stochastic) at the same time, and involves the emotions, creativity and greed of humans. Consider, for example, the polarised perception of e-commerce between America and Europe, exemplified by recent events in the entertainment industry. A series of European headlines and reports recently went along the lines: "Time Warner buys AOL", which became within a week: "Time Warner buys AOL and EMI". This was followed by reports expressing some sense of relief that real bricks and mortar money had overcome the unreal and inflated world of internet stocks. Meanwhile, on the other side of the Atlantic, the headline perception was: "AOL buys Time Warner and EMI in just two weeks". And further, unreal money does it again. What is happening? You may think money is money, and that may have been the case a long time ago, but it seems that money is actually perception. Are today's investments in the dotcom world any less credible and long-lasting than the purchase of an Old Master - just paint on canvas - with no intrinsic value, or indeed of antique furniture - just a few sticks of wood? Here we have items fundamentally worth nothing valued in millions of pounds used as inflators and stores for future purchasing power. In contrast the dotcom world has customers, a service base, knowledge and a growing influence over the lives of everyone on the planet. The only uncertainty hinges on the real value of all this, and it comes down to what people are prepared to spend, which we generally count in money terms. A better and wiser choice of metric may well turn out to be time. When the Richard Feynman of Economic Theory does turn up, I suspect his key formulae for value will include knowledge, information, access, reach, relationships, time, product set and customer base as wholly stronger parameters than raw money. If we could understand all of this it would be easier to predict the future. But just looking at dotcom stocks and their rate of growth, where companies are amassing billions in less than five years, it is clear that many of today's bricks and mortar megalyths face a buy-out risk within the next 12 to 18 months. Banks, insurance, telcos, and cable companies are all at risk, but I don't think many of them see it coming. Peter Cochrane holds the Collier Chair for the Public Understanding of Science & Technology at the University of Bristol. His home page is: |
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