Why recession? Culture and perceptions haven't kept up

The discussion about Maslow and the counterculture just below shows that "self-realization" can cause enormous problems and suffering, if we have flawed ideas about what it means in practice.


G sometimes asks me: if we have abundance and a saturation of material goods, why do we have the crash and continuing poverty and recession? And the answer is in essence: because we haven't learned yet to cope with abundance. Abundance means we need an evolution of institutions and incentives and virtues, not a release of the id.

We have not adapted the culture to make the most of abundance. We have not thought enough about what it means if people are no longer working for bare survival. Wants are not as obvious.

We have not insulated the culture by developing new restraints and guidelines to help people avoid mistakes, and help them to work together.

We have not thought about what new incentives we need if some of main systems of incentives are eroding or affected by economic change. We are too reliant on market signals alone, when market signals are not so well suited to higher levels of the pyramid of needs.

We do need to allocate resources efficiently so much as help people navigate choices and flourish in a way which brings benefits to themselves and others.

So people overleverage and miscalculate risk and fail to develop even basic financial literacy. People think about short-term benefits instead of long-term fiscal strains. They leverage up too much and behave badly. They drift, they fail to pay attention to relationships, they rack up credit card debt. They fail to think about the future, or engage in counter-productive rat race behavior.

Abundance does not stop people making bad decisons. In fact, it makes them more likely to make poor choices, as we have not had a chance to evolve cultural norms to help make the right choices.

This is the main point in Avner Offner's brilliant book, The Challenge of Affluence. He says:

The strategies of self-control take time to discover, learn and teach. If these rewards arrive faster than the disciplines of prudence can form, then self-control will decline with affluence.

People need some self-control to be successful and happy and work together. So we have a pattern of overextrapolation, overreaction, denial and indecision.

 

The Bridge

 

This links together two of my main areas of interest - abundance, and perception/decision-making. And that is quite satisfying to me. There is a bridge between abundance and perception.


We need to adapt our institutions to help people make better decisions. We need too help people avoid illusions. We need to help people realize the possibilities of abundance rather than the problems. To do that we need to pay more attention to how people flourish. And that means we need need a return to the virtues.


That could almost be a personal mission statement for me.

 

Only 20% of US population are economic liberals

Here's a perspective on where Americans stand on economic and social issues, fifty years after the upheavals of the sixties we've been discussing in the last few posts. Gallup has done their annual poll on values and beliefs in recent weeks.

Americans are more than twice as likely to identify themselves as conservative rather than liberal on economic issues, 46% to 20%. The gap is narrower on social issues, but conservatives still outnumber liberals, 38% to 28%.

 

20% is quite an improvement, in fact. It was as low as 13% in 2005. Americans are very reluctant to overturn current economic institutions without a very clear and legitimate way forward.

 

 

Maslow and the Sixties: Feverish and unquenchable desire

We're discussing Brink Lindsey's book The Age of Abundance. I was talking about the psychologist Abraham Maslow on the blog recently. I wondered why we did not pay more attention to the potential implications of what he said for the economy, and how it is changing.

Well, Lindsey makes an convincing case that there was overwhelming attention to what Maslow said in the sixties, at least in cultural and political terms. America spent a decade trying out new forms of personal fulfilment and self-realization. Maslow had written his original article in the 1940s, and when the economy boomed it suddenly seemed very relevant.

Maslow was attempting to explain individual psychology, not social development, but his insights went to the very heart of the great changes in American life unleashed by widespread prosperity. Freed from physical want and material insecurity, Americans in their millions began climbing Maslow’s pyramid. They threw over the traditional Protestant ethos of self-denial and hurled themselves instead into an utterly unprecedented mass pursuit of personal fulfillment, reinventing and reinvigorating the perennial quests for belonging and status along the way. The realm of freedom, once imagined as a tranquil, happily-ever-after utopia, turned out to be a free-for-all of feverish and unquenchable desire.

Indeed, some of the best known radicals and reformers in the sixties were directly influenced by the hierarchy of needs. Betty Friedan is an example.

... Friedan made her case in explicitly Maslovian terms. “Despite the glorification of ‘Occupation: housewife,’” she wrote, “if that occupation does not demand, or permit, realization of woman’s full abilities, it cannot provide adequate self-esteem, much less pave the way to a higher level of self-realization.”

But some went far beyond Maslow. Herbert Marcuse took the arguments to a more radical level. And here is where things started getting potentially nihilistic.

“Scarcity,” [Marcuse] wrote, “teaches men that they cannot freely gratify their instinctual impulses, that they cannot live under the pleasure principle.” It therefore followed, Marcuse argued, that the elimination of scarcity made possible the overthrow of repression.

Echoing Marx, Marcuse predicted that “[u]nder the ‘ideal’ conditions of mature industrial civilization, alienation would be completed by general automation of labor, reduction of labor time to a minimum, and exchangeability of functions.” As a result, “the quantum of instinctual energy still to be diverted into necessary labor…would be so small that a large area of repressive constraints and modifications, no longer sustained by external forces, would collapse.” Capitalism’s elaborate, soul-deadening disciplines could then be left behind, and civilization would advance into enlightened neoprimitivism. In Marcuse’s conception, the realm of freedom was to be a playground of uninhibited instinct.

Maslow himself did not go so far. But as I discussed earlier, he did assume a sunny, optimistic view of human nature, and believed little restraint was necessary. As Lindsey says.

Maslow, for his part, did not share Marcuse’s radical antipathy to American consumer capitalism. But his emphasis on self-realization—and, in particular, his belief that the instinctual impulses that lead people up the hierarchy of needs are fundamentally healthy—made him, along with Marcuse, a hero of the gathering romantic rebellion.

And so some of the most extreme of the sixties radicals actually saw Maslow as a hero. Indeed Abbie Hoffman studied under him at Brandeis.

“Most of all, I loved Professor Abe Maslow,” he wrote later. “I took every class he gave and spent long evenings with him and his family.” His exposure to Marcuse, however, led him to see Maslow’s message as incomplete. “Maslow, a true pioneer, was far from a social radical…,” he observed. “Still I’ve found everything Maslow wrote applicable to modern revolutionary struggle in America, especially when corrected by Marcuse’s class analysis.” After college, Abbie Hoffman would apply his own personal touch to the lessons of his two mentors, but he never forgot his intellectual debt. “It doesn’t take a great deal of insight,” acknowledged the clown prince of the student revolt, “to see the entire sixties (myself included) as the synthesis of these two teachers.”

 

The release of the Id

 

So Maslow's insights were joined with a neo-Marxist analysis and a careless assumption that removing restraints would produce a new utopian paradise. Self-realization turned into self-indulgence. Lindsey notes historian Todd Gitlin's analysis :

The new wrinkle,” Todd Gitlin commented in retrospect, “was to assert that the very act of engorging the self, unplugging from all the sacrificial social networks, would transform society. An audacious notion, that id could be made to do the work of superego!”

And here is a great historical irony: the notion of the hierarchy of needs did not have to be a release of the leftist id, a romantic Aquarian explosion. But that was its primary expression, at least in the sixties and seventies.

However, it was not the only expression or consequence or possibility. Even the evangelical counter-reaction expressed itself in Maslowian terms:

Most important, evangelicalism moved decisively to align Christian faith with the central preoccupation of the affluent society: the new Holy Grail, self-realization. Unlike the classic bourgeois Protestantism of the nineteenth century, whose moral teachings emphasized self-restraint and avoidance of worldly temptation, the revitalized version of the old-time religion promised empowerment, joy, and personal fulfillment. A godly life was once understood as grim defiance of sinful urges; now, it was the key to untold blessings. “Something good is going to happen to you!” Oral Roberts proclaimed.

 

And so American society shifted as a whole, at least for a few years, to thinking in terms of personal fulfilment. Lindsey concludes:

.. millions began to think about the choices they faced in explicitly Maslovian terms. Where once they pursued various proxies for personal fulfillment (money, success, family), now they wanted the real thing. And when they saw conflicts between chasing the proxies and chasing the real thing, they were increasingly inclined to opt for the latter. The traditional American quest for self-improvement now became a spiritual quest—a quest to discover the “real me” and dutifully serve its needs. Urged on by group therapy sessions, 12-step recovery programs, support groups, and an endless parade of self-appointed self-help experts, a nation of Jonathan Livingston Seagulls took wing.

Economic crisis and malaise in the 1970s drove some of that feeling underground. And the 1980s went back to a more capitalist ethos of yuppies and Gordon Gecko. And certainly now the culture is more preoccupied with making it through the hard times rather than dreaming of possibilities.

But capitalism itself absorbed much of the "bobo" cultural message. Gone was the "organization man" ideal of the 1950s, replaced by the tech hippie cool of Steve Jobs and Apple in the 2000s. Bourgeois bohemians, in David Brooks' phrase, came to dominate much of the professions and business. And, as we'll see, all kinds of new groups flourished and possibilities opened up.

There's a larger point here, before we go on to look at other aspects of the book. I've often argued on this blog that we need to talk more about ends as a society, and not just means. This explanation of the sixties just reinforces the point. Liberals did not believe they had to think hard about what kind of society they wanted to see. All that mattered was to remove restraints, and all would work out to the good.

That didn't work. And it also opened the door to more radical new leftists who did have a vision of particular ends - a negative overthrow of most of the current social structure.

So the first efforts at understanding the possibilities of abundance did not work out well. But first tries are not the last word. The social erosion of the sixties is not the only outcome.

We have another chance now, to do it right this time. In fact, the economy is evolving in a way that leaves us little choice but to confront the need to adapt our institutions and values to cope with affluence and abundance.

Abundance can erode many of the social institutions that support human flourishing, and undermine abundance itself. Institutions do not automatically keep up with changes in the underlying economy. And that can lead to turmoil and breakdown.

 

 

Age of Abundance

Here's a book I should definitely have read before this, but I only discovered it two weeks ago: Brink Lindsey's The Age of Abundance. It is meticulously historically researched and it could not be more relevant to what I have been discussing on this blog. It is stimulating and intelligent. I could hardly put the iPad down.

Lindsey has spent most of his career at the Cato Institute in DC, a well-known libertarian thinktank. His book is an account of the political and social consequences of abundance, published at a moment when the economy felt distinctly better: 2007. He argues not just that the impact of abundance has been overwhelming, but it started much earlier: the sixties. The baby boomers were the first generation in history to grow up with widespread material abundance, and that made them very different to anything that had gone before.

In fact, he has a compelling and articulate retelling of American postwar political history. It is very persuasive. The story is that the late fifties and sixties marked the first time ever that the bulk of a population had fulfilled most of its immediate material survival needs. This was a sudden new moment in history.

In the years after World War II, America crossed a great historical threshold. In all prior civilizations and social orders, the vast bulk of humanity had been preoccupied with responding to basic material needs. Postwar America, however, was different. An extensive and highly complex division of labor unleashed immense productive powers far beyond anything in prior human experience. As a result, the age-old bonds of scarcity were broken. Concern with physical survival and security was now banished to the periphery of social life.

So his starting point is very much the same as mine - how abundance means we have to rethink the way we see the economy and society. But he sees the cultural impact starting fifty years ago. And he argues it simply has not been fully understood yet.

This ongoing revolution cries out for greater attention and understanding. The liberation from material necessity marks a fundamental change in the human condition, one that leaves no aspect of social existence unaffected. As a result, many age-old verities no longer apply: truths and rules that arose and obtained during the 10 millennia when subsistence agriculture was the main business of mankind have been rendered obsolete. We are in uncharted territory. Consequently, we are in need of new maps.

Naturally, I agree with this. That is the whole point of the blog. But from the viewpoint of 2012, the productive forces of the economy are so much stronger and changing rapidly that the problems are appearing in a different way - as a frightening undermining of many existing economic institutions. If the social revolutions of the 1960s can be understood as one response to the first glimmers of abundance, surely it is all the more important to focus on the implications of abundance when change is happening much more rapidly.

Step back to the sixties, though. Why did American society have such sudden convulsions, social change and utopian aspiration?

Abundance means a shift in values, Lindsey says, very much echoing Maslow. In fact, as we shall see, he marshals evidence to show that many sixties radicals consciously thought in terms of Maslow's self-actualization, although their idea of what that meant was much more radical.

Lindsey looks at studies carried out by Ronald Inglehart, a political scientist who investigates "post-materialism".

Once material accumulation is no longer a matter of life and death, its diminished urgency naturally allows other priorities to assert themselves. “This change of direction,” Inglehart concludes, “reflects the principle of diminishing marginal utility.” Meanwhile, material security reduces stress, and thus the appeal of inflexible moral norms. “Individuals under high stress have a need for rigid, predictable rules,” Inglehart observes. “They need to be sure what is going to happen because they are in danger—their margin for error is slender and they need maximum predictability. Postmodernists embody the opposite outlook: raised under conditions of relative security, they can tolerate more ambiguity; they are less likely to need the security of absolute rigid rules that religious sanctions provide.”

This makes sense. Indeed, it reminds me of one of the main reasons militaries tend to have strict discipline. The confusion and uncertainty of the battlefield means they have to have embedded routine and instinct to fall back on when the fog of war covers everything. More unpredictable and unsettled societies, confronted with dangers and threats, tend to be more rigid.

But the loosening of rules creates its own unpredictability and insecurity.

The process of cultural adaptation has been anything but smooth. For his part, Inglehart notes that the “Postmodern shift” is frequently accompanied by an “authoritarian reflex.” “Rapid change leads to severe insecurity, giving rise to a powerful need of predictability…,” he writes.

 

And this, says Lindsey, explains the politics and culture wars of the last fifty years.

Abundance created the new left, with new looser, less inhibited ideas of self-actualization. And the new left created the new right as a counter-reaction.

And it also leads to the argument that abundance can undermine itself, by eroding the values of deferral of pleasure and bourgeois trust which created the material abundance in the first place.

We'll look at some more themes in turn.

 

 

Housekeeping

 

This is a little housekeeping thing to make this blog searchable on technorati. Please ignore.PMF9JW6W8DHZ 

Crowdfunding new business

We've seen that the venture capital industry had had difficulty achieving any positive returns in recent years, partly because it's tended to engage in "me-too" incremental investment in the latest trends.

Now here's a huge development. A new law throws open the doors to raising money online from small investors.

 

One of the most controversial provisions of the JOBS Act allows for crowdfunding, a way for entrepreneurs to solicit capital from non-accredited investors. This provision allows for companies to raise up to $1 million in capital per year via Web sites from individual investors without registering with the Securities and Exchange Commission (SEC). Prospective investors with an annual income less than $100,000 may invest up to $2,000 or 5 percent of their income to a single issuer.

Investors with an annual income greater than $100,000 may invest up to 10 percent of their income up to $100,000 in a single issuer. While the companies themselves will not be subject to SEC regulations, the trading platform Web sites will be heavily regulated. The SEC has 270 days to define what these regulations will be. All companies that receive crowdfunding will be required to issue financial statements annually, at a minimum. Financial statement requirements are based on the amount of capital raised.

Small business owners are not excited about it yet, partly because it's not yet clear how it will work. And it could raise the risk of scammers and small investors losing a lot of money. It is going to take some time for this to shake out properly.

But it could be one more way in which the role of gatekeepers in the economy is reduced. It's also possible that it could work better than VC expertise in many cases, because if there is one thing that markets are very good at, it's rapidly aggregating views.

 

 

US ranks first in wealth, twelfth in happiness

So says the OECD, according to this report:

It seems the old adage holds true: Money can't buy happiness.At least that's according to the Better Life Index released Tuesday by the Paris-based think tank Organisation for Economic Co-operation and Development. The OECD ranked the United States No. 1 in terms of household wealth and 12th in life satisfaction out of 36 countries tracked.Denmark--which ranked 16 in household wealth--took the prize for the happiest OECD nation, while Hungary--listed at 29 in terms of income--ranked the lowest.Americans' household wealth is about $102,000 on average, significantly higher than those in many other developed countries. Only Switzerland comes close, at about $95,000 on average.

 

More at the OECD's own very interesting site here (although it needs Flash).