Our economy: an institutional problem

A final word on Brink Lindsey's book The Age of Abundance, which I thought was worth a lot of attention, starting here.

He concludes by saying that both sides of the culture war checked each other.

A post-scarcity left developed:

... with the arrival of widespread prosperity, liberal sympathies were redirected to the grievances of “belong-nots”—various groups of dissidents and outsiders that challenged or were excluded from America’s cultural mainstream

And it was checked by a pro-market right, especially after the perceived failures of big government in the seventies.

The accidental default was a kind of libertarianism which few actually chose, socially liberal and economically pro-market.

The implicit libertarian synthesis that today informs the country’s cultural and political center developed, not as the successful program of a self-conscious movement, but as the accidental result of the left-right ideological conflict. Unsurprisingly, that synthesis is therefore hardly a model of consistency.

Lindsey is himself of course formally libertarian, with a long association with the holy of holies of libertarianism, the Cato Institute. But his argument makes sense.

Here is the nub of the matter: America is an exuberantly commercial and intensely competitive society, a fact of which true believers on the left sternly disapprove; it is, simultaneously and not unrelatedly, an exuberantly secular and intensely hedonistic society, to the deep chagrin of true believers on the right. America is the way it is because the vast majority of Americans choose to make it that way, so it should come as no great shock that excessively vigorous condemnation of the contemporary American way of life meets with broad disapproval.

The left won much of the cultural battle; the right won most of the economic battle.

He ends on an optimistic note: that America has deep powers of self-renewal.

The American Babel has thus proved more stable, and more peaceable, than is commonly realized. Yes, the social and cultural dynamism unleashed during the sixties and seventies inflicted significant damage on the bonds that maintain trust and order. In the latest version of an old, old story, liberty once again demonstrated its tendency to degenerate into license. But the story doesn’t end there, for liberty contains within it the seeds not only of its own corruption, but of its self-renewal as well. Confronted with the grim consequences of runaway romantic rebellion, Americans began putting greater emphasis on the personal responsibility that is freedom’s essential complement.

 

Putting it together

 

So how should we put all of this together?

I see it like this: a new politics emerged long before a new economics. Lindsey makes a very persuasive case that post-scarcity politics started emerging in the 1960s, albeit with reversals in the late 1970s and recessionary early 1990s. And in practical terms the Aquarians were premature even politically. Fifty years later they have only achieved some of their political goals. There was only one summer of love.

And politics at present is preoccupied with basic economic issues again, rather than self-realization. Attempts to change the underlying economics quickly led to problems in the 1970s which delegitimized more radical change.

But fifty years has now passed by, of sweeping and profound economic change. Economic institutions have lagged behind, and Lindsey does not really discuss this. He just has faith that an open society and free market will take care of things.

That is a useful faith. Both openness and markets are still necessary. But they might not be sufficient, any more than central planning was a durable solution to the problems of humanity. Market pricing and allocation are not enough of a framework just by themselves, even just to keep innovation going, when many of our needs are shifting outside the scope of the market. You can't simply buy prudence or temperance or happiness.

So let's look at it from an economic angle. The economy grew productive enough by the 1960s to fulfil most basic material needs, at full employment using existing technology. Basic economic institutions were not seriously at risk and did not change much, apart from a hippy commune fringe which soon disappeared.

The labor market, major corporations and banks, the federal government, and property rights all looked broadly similar in the 1970s compared with the 1950s, with the exception, perhaps, of more concern about energy and a larger welfare state.

They still looked broadly the same in the 1990s, albeit with more LBOs and fewer layers of middle management. Even in the late 2000s, our main economic institutions - government, stock market, large banks, corporations - look quite familiar from a 1950s or even 1900 perspective.

Here's the thing, though: the economy's productiveness has grown so much since the 1960s that those basic economic institutions are now under much more strain. They haven't adapted much.

We've had astonishing changes in technology. Think of how different your daily life is since the late 1990s. Google, Google maps, GPS, iPods, digital cameras, iPhones 1 through 4S, three iterations of iPads, Wikipedia, blogging, FaceTime, Netflix, streaming Netflix, Amazon, twitter, Facebook, YouTube.

I was trying to find a DVD among the two hundred or so we bought in the mid-2000s yesterday. They already seem so clunky and archaic, compared to Netflix streaming. Obsolete already. The three or four channel tv world of the early 1970s might as well be pharaonic Egypt, it seems so distant.

These are not small changes, either. One example: Just about everything associated with this blog did not exist twenty years ago. The web barely existed. There were no blogs. There was no amazon books to link to. There was no wifi. There was no 3G or tablets. Even laptops were clunky and relatively new. This blog would just not exist. Multiply that by a million other practical examples.

But - and here's the point - our economic institutions, our big organizations and rules of the game and property rights are almost the same. The federal government is gridlocked. City Hall is still City Hall. The tax system is largely unchanged. Property rights have if anything got gummed up rather than evolved, given the fights over patent rights wich hold back much innovation.

The first glimmers of abundance changed politics. Now the economic changes are so deep that they are shaking up the whole underlying nature of the economy. The deep framework of the economy takes longer to evolve than the news cycles or campaigns of politics.

Impersonal market incentives are no longer enough. We need personalized incentives to flourish and grow. And we haven't caught up with that.

So Lindsey does a wonderful job tracing through the politics of abundance. But the story has barely begun. That was just the first whistle in the distance of an oncoming train. The economy is changing, and that in turn will cause more political turmoil.

It has to be more than just the stale old debate about market versus government. We are far beyond the era of flower power or "morning in America", and we ought to recognize the nature of the economy has changed too. We need more institutions to encourage human flourishing and innovation, not simply efficiency. We need to rethink our incentives. Crises are a sign we've failed to do so.