The power of power laws.

One of the most important ideas one can understand from reading Kurzweil is humans propensity to think of the future as a linear extrapolation of the present when very clearly in many domains the appropriate framework is exponential change – the power law. A good way to get better at thinking in power laws is to look in the rear-view mirror from time to time, a great example of this being Bret Swanson’s recent look back to 1992 (at Forbes.com).

Today, an average consumer can buy a terabyte hard drive (1 million megabytes), on which she might store her family photos, videos and other digital documents for as little as $109.99. In 1992, a terabyte drive, if such a thing had existed, would have cost $5 million. The chief digital storage medium at the time was the 3.5-inch floppy disk, which held 1.4 megabytes. When digital photos came along and consumers found the huge square disk could only hold one photo, it was instantly obsolete.

In mid-2008, the four-gigabyte (or 4,096 megabytes) flash memory chip in an iPod Nano cost $25. Late in 2008, four-gigabyte flash cards and USB drives are selling for $14.99. But back in 1992, four gigabytes of flash memory would have cost $500,000. This means a hypothetical iPod Nano circa 1992 would have set back the teenage Nirvana or Boyz II Men fan around $3 million.

Apart from research scientists and a few early adopters of Compuserve and AOL, the Internet essentially didn’t exist in 1992. Monthly Internet traffic was four terabytes. All the data traversing the global net in 1992 totaled 48 terabytes. Today, YouTube alone streams 48 terabytes of data every 21 seconds.

He goes on to worry about the possible damaging side-effects of the current swing towards massive government intervention in the economy:

But innovation is by definition unexpected. We can’t force it or compel it. Certainly not from Washington. The dramatic centralization of money, power, information and influence now under way seriously threatens the entrepreneurial revelations and technological revolutions that drive long-term growth. If we quasi-nationalize the energy, finance, auto and health care markets, and possibly bar dynamic new business models on the Internet, as with possible network neutrality regulation, we will close off many of the most promising paths to needed efficiencies and, more important, new wealth.

I sympathize with his anxiety; while overall I would grudgingly endorse recent government economic interventions (as lesser evils) I would be much more comfortable if the explicitly stated goal was to facilitate an orderly winding down of the many obsolete corporate institutions in order to make way for a new crop of vibrant, innovative, 21st century-adapted companies and sectors. Basically a giant defeasance scheme for the old economy. (There is precedent for this – Charbonnages de France comes to mind…)

Of course this is what Perez had in mind when she spoke about the disconnect between techno-economic and socio-institutional paradigms…

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