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.

 

 

Europe: A Crisis of Legitimacy

David Brooks writes in the NYT:

If you look at the World Values Survey, you see that people in most Western nations are becoming more distrustful of their neighbors, not less. There are huge variations across nations, but levels of social and political trust have been declining almost everywhere except the Nordic countries. If there’s convergence, in other words, it’s in our increasing agreement that we don’t trust each other.

 

Today’s European economic crisis grows directly out of this segmentation. The euro crisis is not a crisis of debt. Total European debt levels are not that high. It’s a crisis of legitimacy. Debt burdens are divergent across nations, and Europeans with one set of habits and values do not want to bail out Europeans with other habits and values.

 

We were talking about political legitimacy in general here, and the problem that abstract liberal principles tend to inspire only thin loyalty and commitment at best.

That may work fine when the pie is growing, but can suddenly turn into a huge problem if there is any call for sacrifice. Clearly, if there is no obvious common good, then people will not sacrifice for the common good. Indeed, the whole rhetoric of "rights" counts against this.

Brooks is right about legitimacy. There are technocratic solutions to the euro crisis, including mutualizing debt in Eurobonds and common deposit insurance. But there is unlikely to be any sustained electoral commitment. The Brussels-focused European elites have lost popular confidence. It is dangerous.

 

No positional competition

 

We're still talking about some of the issues raised in The Age of Abundance.

There's one very important potential problem with arguments about abundance and fulfilling all our material needs. Many of our needs may depend where we stand in the pecking order, and not anything inherent in a material good in itself. Status matters to many people much more than particular goods. And it may be, by definiton, limited. We discussed the argument briefly before here.

Lindsey thinks this is not such a serious problem, however. He argues that the multiplicity of new groups also means that people have many more ways to find status.

And furthermore, the assumption that status seeking is a zero-sum game, in which one contestant’s gain is necessarily and unavoidably another’s loss, makes less and less sense in a culture of plenitude. Every new subculture, every new lifestyle grouping, has created its own little status hierarchy, with rich rewards in esteem and camaraderie for those who participate successfully in this or that little corner of social endeavor.

Sure, owning a ski lodge in Aspen will be a big status marker for most people in most subcultures. Getting into Harvard will impress most people much more than going to the local state college, even if there isn't much difference in the actual classes or education on offer.

But maybe other people will be content to compete for the corner office of one out of ten thousand small companies. Or they will pride themselves on skateboarding ability, or knowledge of Japanese manga, or foodie commitment.

It often isn't so much the status which is the problem as the material rewards that might go with some particular ranks.

It's the alignment of different status hierarchies which can create inherent scarcity. It is when the CEO is also stupendously well-paid, and has the most impressive office, and chairs the local charity board, and has extra influence on the political process.

Multiplicity, on the other hand, tends to separate some of those roles. The CEO no longer is a member of a formally separate class of nobility, for example, as happened in most societies through history.

And many signs of achievement are not inherently limited, anyway. Achievement and pecking order are not the same thing. Life is not graded on a curve. There's no limit to the number of peope who can learn to play electric guitar in a cool way, or level up in World of Warcraft, or own the latest iPhone, or have thousands of followers on Twitter.

And even if people are wired to seek status, it's not the only motivator.

Still, multiplicity may mitigate positional competition - but does not wholly eliminate it. Some people will always be desperate to fit it in with the latest fashions, or win that partnership promotion no matter what it takes to get it .

It is one of the prime sources of drama, for one thing. G has been telling me about a huge controversy this week in the tv series Mad Men on that point. A female character agrees to sleep with a client to make partner.

Status and rivalry are always going to be problems. But they don't have to be gamebreakers or terminal obstacles, when it comes to making abundance work for more people.

(reedited 6/1)

Re-imagination collides with the economy

Here's an insightful presentation by Mary Meeker, the famed tech analyst, on how the Internet is changing a range of industries and society more generally - and the potential next trends which could sweep through many sectors.

The first 27 slides are a little dense with financial numbers, but bear with it. The "re-Imagination" brings home just how fast some very recent innovations are changing whole industries, and how much faster the iPad, for example, has grown compared to even the iPhone.


Change is speeding up.

 

KPCB Internet Trends - 2012 

No bowling alone

A few more comments on Brink Lindsey's book, The Age of Abundance, which has been a fruitful mine of insights.

How much have community and social ties declined? There has been a lot of discussion in recent years about Robert Putnam's book, Bowling Alone: The Collapse and Revival of American Community, which argues that social engagement has declined in the US.

Lindsey does not believe that. He cites research which

..exposed the fundamental flaw in the “bowling alone” thesis—namely, confusing the fortunes of particular organizations with the overall state of American sociability and civic-mindedness. Only such myopia could explain the failure to appreciate the phenomenal profusion of new affinity groups and communities.

The Shiners and the Elks may be in decline. But, instead, a huge variety of new social groups and interests has sprung up. There is little evidence to show that Americans are less inclined to join groups in general, he says.

“New species of social life,” wrote the theorist of plenitude Grant McCracken, “form everywhere in the culture of commotion: around a football team (e.g., Raiders fans), a rock group (e.g., Deadheads), a TV series (e.g., Trekkers), a leisure activity (e.g., line dancing), an economic downturn (e.g., slackers), an economic upturn (e.g., preppies), a means of transport (e.g., Hell’s Angels), a modernist aesthetic (e.g., space-age bachelor-pad music), a sports activity (e.g., Ultimate Frisbee), a movie (e.g., Rocky Horror Picture Show), and a communications technology (e.g., geeks).”

It may be true that American society is not as unified as before, nor does it share so much in the same culture. It has fragmented into many more little subcultures. There has been a vast expansion of social experimentation.

Some of those subcultures may not be admirable (eg slackers). But others do provide enjoyment and purpose to thousands or millions of people.

And systems evolve in any case by generating variation and selection pressures. Some subcultures will grow into common elements of shared culture.

At the same time, the same process of new associations and fragmentation has also led to a breaking up of traditional hierarchical structures and elites, Lindsey argues. Decisions are made less often in smoke-filled rooms by a few experts. Major corporations can no longer easily control their markets, he says.

The parallels between economic and political developments were striking. In both realms, relatively closed and insider-dominated systems were upended by the progress of mass affluence. Concentrations of power dissipated; competition intensified; bold entrepreneurship took advantage of the absence of hemming restraints.

It still might be hard to get people to vote on election day, but the Sierra Club and NRA and AARP are all doing fine. And any CEO of a major corporation who is not terrified his markets will be contested away isn't sane.

So what should we make of this? I think Lindsey's argument about the growth of new social groups is persuasive - although there are obvious qualifications. Many communities of common interest are not the same as actual communities of those who live near each other. Indeed, they can still draw vitality away from those communities. And we tend to rely on geography for at least some needs, if only honest local government and provision of infrastructure. And perhaps we do need some elements of common culture.

Throughout this blog, I have also been arguing we need less of an emphasis on formal income and more of an emphasis on assets and purpose.

There is no doubt that all sorts of purposes bubble up, and people find new ways to pursue interests.

The question is how much we help that to happen through setting the right incentives and rules. And it still matters how much those new activities actually encourage people to stretch themselves and do things which have - if only as a side-benefit - a positive impact on others.

After all, exciting as these things may be, few people can actually make a living out of being Raiders fans, or line-dancing enthusiasts, or Trekkers, or Rocky Horror fans. (Some geeks may admittedly make a living out of C++ skills). Not all particular interests are equally useful or valid.

The multiplicity of interests does not mean you cannot have a core of admired virtues or qualities, either. You can have any number of particular interests that people pursue, but still emphasize some of the core virtues like courage or hope.

So what this underlines for me is that, once again, there is a gap between the interests people naturally pursue - and which generate much of the value in the culture - and our economic infrastructure and signaling. We've allowed our incentives to drift out of alignment with what people actually want and enjoy.

 

Summer

Just a beautiful day here in New York City. Sitting outside on the park and enjoying the air.

Middle-Class Virtue, Chaos and Dysfuction

We're still talking about The Age of Abundance. One point Lindsey stresses is that the decline of traditional restraints has opened up serious class differences. The upper middle classes still have plenty of work ethic and self-discipline. But many people further down the economic scale do not. They were disproportionately harmed by the "anything goes" mentality of the Aquarians. 

The shift in values that took place during the sixties and seventies concentrated its benefits on the upper and middling segments of society. Its harshest consequences, meanwhile, fell disproportionately on the working and lower classes. Why the disparate impact? The answer lies in this paradox: although freedom is experienced as the absence of restraint, it is experienced most fully when particular restraints are vigorously maintained. In other words, contrary to those under the spell of the romantic delusion, not all limitations on choice are the enemies of freedom. Rather, some are ultimately, and crucially, freedom enhancing. For those with the appropriate discipline, the Aquarian quest for self-realization usually led to a fuller, richer exploration of life’s possibilities. But among those without that discipline, the turn toward self-assertiveness too often proved a cruel trap.

Trust, deferral of gains and planning for the future - the bourgeois virtues - are precisely what is often missing.

At the low end of the skills continuum, members of the underclass operate within such narrow time horizons and circles of trust that their lives are plagued by chronic chaos and dysfunction. At the high end, members of the managerial and professional elite amass high levels of human capital in the form of expertise and relationships, which allows them to produce significant economic value and claim commensurate rewards.

This seems to be very much related to what Charles Murray is arguing in his latest book, Coming Apart: The State of White America, 1960-2010. I haven't read it yet. But from the reviews he argues upper-class Americans retain considerable self-discipline for themselves, but fail to embed it as cultural leaders in the broader national culture. Their nonjudgementalism has negative consequences for the rest of society.

This is not a welcome message to many on the left, who see it as "blaming the victim" and who generally downplay cultural explanations. It's nothing that more stimulus or more jobs wouldn't fix, so the response goes.

But I suspect social liberalism has often done massive damage to its intended beneficiaries. Progressive intentions are not enough. A shift in values can have many unintended consequences.