The Economics of Magic

From: CircleID

By Bruce Levinson

Arthur C. Clarke said any sufficiently advanced technology is indistinguishable from magic. Milton Friedman said there’s no such thing as a free lunch. The validity of the former statement does not invalidate the later. From this we can see that even magic has a price. Hence, its application is subject to cost-benefit analysis.

There are many developing technologies that may eventually qualify as magic. Quantum computing, large-scale carbon capture and sequestration (CCS), and the unbounded Internet of Everything (IoE) are a few examples of potential future magic.

Attempts to regulate the security of the IoE provide a quick example of how cost-benefit analysis could be applied to emerging magic technologies. The Federal Trade Commission is one of the regulatory agencies that are looking at various bits and pieces of the question of how information can be securely stored and transported across a boundaryless network and how the ill-defined network itself should be protected. The federal government’s leading expert on the matter has explained, however, that an effective defense is impossible.

Since the cost of effectively securing the IoE is essentially infinite, any costs imposed on industry by a new regulation would likely be wasted no matter how magical the IoE’s potential. At a minimum, the disconnect between what agencies are capable of regulating and what they are attempting to regulate needs to be recognized and rationally addressed as there is a difference between magic and magical thinking. Although an agency can attempt to require the impossible, it’s an effort unlikely to succeed.

Because the IoE can’t be defended, it’s reasonable to assume that it can and probably will collapse. Thus we derive a second law of magic, it’s fragile.

Because magic is fragile, it also temporary, having, at least in retrospect, both a beginning and an end. While the IoE provides an example of how magic can expire, quantum computing and large-scale CCS are promising examples of future magic. Both technologies are currently undergoing experimental development. Because the application of magic is subject to the laws of economics, it is not possible today to build economically sustainable applications of either technology at its intended scale.

Applications of quantum computing and CCS may operate today in very specialized settings but the magic doesn’t exist until its application becomes broadly accessible. Smartphones are a wonderful example of how advanced technologies have developed to the point of being magic in full bloom. Since even magic doesn’t last forever, we’ll have to see what, if anything beyond their Hollywoodesque sequels, replaces the devices.

In summary, there are three laws of magic,

1. Magic is subject to the laws of economics,
2. Magic is fragile, and
3. Magic is temporary.

However, just because magic has limitations doesn’t mean it isn’t tremendously powerful. Whoever holds the next magic will be Wizard.

By Bruce Levinson, SVP, Regulatory Intervention – Center for Regulatory Effectiveness

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