Cow Clicker!!

G, who is sitting here beside me in a coffee shop, says I just have to mention this marvelous artifact of the 21st century. Cow Clicker is a game which was invented to satirize the sheer pointlessness of many games. You click on a cow and it moos. You gain a point and you can invite friends to be part of your pasture. That's it. 

To the bemusement and eventually frustration of the game designer, it became a breakout hit. 

People don't understand satire, says G. 

It's now over, because the designer decided the cows would vanish in a "cowpocalypse" and would be raptured away. De-moo. 

The "Ideology of the Future"

Francis Fukuyama, moving past the End of History, asks what the " Ideology of the Future" would look like in Foreign Affairs. 

what if the further development of technology and globalization undermines the middle class and makes it impossible for more than a minority of citizens in an advanced society to achieve middle-class status?

There are already abundant signs that such a phase of development has begun.

Without a middle class, he says, it is difficult to maintain democracy. The left has had no good answers, either:

the deeper reason a broad-based populist left has failed to materialize is an intellectual one. It has been several decades since anyone on the left has been able to articulate, first, a coherent analysis of what happens to the structure of advanced societies as they undergo economic change and, second, a realistic agenda that has any hope of protecting a middle-class society.

The main trends in left-wing thought in the last two generations have been, frankly, disastrous as either conceptual frameworks or tools for mobilization.

So he asks what a viable response to economic change would look like. 

Imagine, for a moment, an obscure scribbler today in a garret somewhere trying to outline an ideology of the future that could provide a realistic path toward a world with healthy middle-class societies and robust democracies. What would that ideology look like?

It would have to have at least two components, political and economic. Politically, the new ideology would need to reassert the supremacy of democratic politics over economics and legitimate anew government as an expression of the public interest. But the agenda it put forward to protect middle-class life could not simply rely on the existing mechanisms of the welfare state. The ideology would need to somehow redesign the public sector, freeing it from its dependence on existing stakeholders and using new, technology-empowered approaches to delivering services. It would have to argue forthrightly for more redistribution and present a realistic route to ending interest groups’ domination of politics.

Economically, the ideology could not begin with a denunciation of capitalism as such, as if old-fashioned socialism were still a viable alternative. It is more the variety of capitalism that is at stake and the degree to which governments should help societies adjust to change. Globalization need be seen not as an inexorable fact of life but rather as a challenge and an opportunity that must be carefully controlled politically. The new ideology would not see markets as an end in themselves; instead, it would value global trade and investment to the extent that they contributed to a flourishing middle class, not just to greater aggregate national wealth.

The existing state of Economics is a barrier.

It is not possible to get to that point, however, without providing a serious and sustained critique of much of the edifice of modern neoclassical economics, beginning with fundamental assumptions such as the sovereignty of individual preferences and that aggregate income is an accurate measure of national well-being. This critique would have to note that people’s incomes do not necessarily represent their true contributions to society. It would have to go further, however, and recognize that even if labor markets were efficient, the natural distribution of talents is not necessarily fair and that individuals are not sovereign entities but beings heavily shaped by their surrounding societies.

I think there is a lot to agree with here. First, he stresses the importance of the position of the middle class as a foundation for broader democracy.  The fundamental democratic challenge is to protect the middle class.

Second, I agree the the left has been intellectually moribund. It clings to the older socialist welfarism vision in economics, while devoting its energies to social liberalism. It is extraordinary that as Europe is wrenched by economic crisis and cuts, almost every left-wing government on the continent has been dumped by the electorate.

If left-wingers cannot make progress when there is mass unemployment, voters see their income plunging and they blame the crisis on rich bankers, the future for the left is bleak. Instead of protecting the middle class, the left has focused on protecting minorities. 

The proposition that people's incomes do not necessarily reflect their "contribution to society" is also a fundamental question for discussion, leading off in many different directions. "Contribution to society" is a contested issue, to say the least. For me, this is where liberalism as political theory goes off the rails, as it can provide no answer to that question. If the state is neutral and all lifestyles are equally worthy of respect (except the 1%, at least those who do not donate to Democrats), then there can be no measure of contribution to society. There can be no reasonable discussion of incentives or behavior.

If he criticizes the left, he also (less explicitly) offers many challenges to Republicans. He favors reform of government, not necessarily shrinking it. He wants to "legitimate anew" government as an expression of the public interest ( although he does not say how.)

He does not believe market outcomes are necessarily desirable or good. He does not see individuals as wholly autonomous, or the distribution of talents as fair. 

He also questions whether aggregate income is a good measure of national well-being. And that of course is easy to answer - clearly not.

Sometimes the most important thing is to identify the important questions. The future of the middle class is a very politically potent, resonant way to talk about the problems we confront. It is tailor-made for election campaigns in 2012. 

But it's striking he has little to say about solutions. So many major thinkers and academics have little to say about that.

So I also love the image of the scribbler in the garrett (or coffee shop) thinking about the future of ideology.

Cameron criticizes "secular neutrality"

Here's an interesting speech by David Cameron, the British Prime Minister, arguing for more engagement from the Church of England in restoring a sense of right and wrong in UK society.

The Prime Minister said that faith helped people to "have a moral code" and that it was correct to pass judgment on others. "Those who advocate secular neutrality in order to avoid passing judgment on the behaviour of others, fail to grasp the consequences of that neutrality, or the role that faith can play in helping people to have a moral code," he said.

It's not entirely surprising for a Tory Prime Minister - even a very socially liberal one like Cameron - to call for a return to traditional values in one form or other. Cameron believes the summer riots in the UK were largely caused by moral failings, not poverty or less social spending or police tactics.

But what is interesting here is he specifically disagrees with the idea of the secular, neutral state which merely referees rights. This is heresy from the point of view of the broad postwar liberal ethos.

I've been arguing that this kind of secular neutrality effectively destroys any real society. It removes any possibility of genuine change in our institutions to take advantage of technological change. The left undermines genuine change.

Society needs incentives for people to do the right thing, and as a sign of what a society values. 

Of course, the word "incentive" sounds very clinical and corporate, the kind of thing overpaid CEOs claim they need from supine board compensation committees. Call it "carrots" instead. 

It is much broader than money, which has been the most successful incentive system in human history.  It is what earns people respect, or nudges them to cooperate or produce things of value to others. It helps restrain bad behavior and predatory selfishness. 

Religion is the oldest way humanity has evolved to deal with these issues - which is no doubt why Cameron is complaining the liberal Church of England is not doing enough of it.

But the older great religions cannot accomplish that task by themselves now. Theocracy has its own problems, which is why the West came up with the idea of a secular state in the first place. 

However, if there are no carrots for doing the right thing, then society withers. 

A neutral state undermines the ability to have the right carrots. It leaves money and trashy celebrity as the main residual incentives. It is a future of reality tv stars and connections and sleaze.

The Descent from Eden

There is a fascinating article in the New Yorker (behind pay wall) about Gobleki Tepe, the oldest religious/ monumental structure yet discovered. It is in southeastern Turkey, and appears to predate the transition to agriculture itself. 

Some German scholars even argue that it is the actual Garden of Eden, as it is filled with natural imagery - including snakes - and it lies between the Tigris and Euphrates rivers, as mentioned in Genesis.

The article dwells at length on Jared Diamond's argument that the transition from hunter-gathering to agriculture is the "worst mistake humanity ever made." People worked far longer hours, were more poorly nourished, prone to disease,  smaller and shorter-lived. Passing on land and property led to all sorts of consequences in later society from enforced monogamy to warfare. Or at least so the argument goes. 

But there were more farmers, and they eventually wiped out the hunter-gatherers.

The point is transitions from one sort of economy to another are very difficult. Agriculture, of course, is the foundation of all later civilizations. But at the time it may have led to millennia of lower standards of living. 

The first great economic transition may have been the descent from Eden.

You're wrong, Mr Nobel Laureate

Joseph Stiglitz has an article in Vanity Fair which argues that although monetary policy helped cause the crisis, it can't fix it. Only a huge new investment program can. He says that his research shows that the Great Depression is better understood as a weakened economy undergoing structural change even before policy errors or trade wars hit.

The trauma we’re experiencing right now resembles the trauma we experienced 80 years ago, during the Great Depression, and it has been brought on by an analogous set of circumstances. Then, as now, we faced a breakdown of the banking system. But then, as now, the breakdown of the banking system was in part a consequence of deeper problems. Even if we correctly respond to the trauma—the failures of the financial sector—it will take a decade or more to achieve full recovery

Fixing the banking system isn't enough, he argues.

The problem today is the so-called real economy. It’s a problem rooted in the kinds of jobs we have, the kind we need, and the kind we’re losing, and rooted as well in the kind of workers we want and the kind we don’t know what to do with. The real economy has been in a state of wrenching transition for decades, and its dislocations have never been squarely faced. A crisis of the real economy lies behind the Long Slump, just as it lay behind the Great Depression.

The problem is his suggested cures are all standard liberal nostrums. He may be a Nobel-winning economist, but his ideas at least in this case lack imagination. Huge new government spending programs for "investment" and higher taxes. More money for education, more money to help the states to close budget shortfalls.

In other words, more money flowing to public service unions that reliably fund Democrats and boost their pensions at the expense of public services.

I agree when he argues we need more money spent on infrastructure. That, at least, is genuine 'investment'. But it has to be sensible investment, not pork.
"Today we are moving from manufacturing to a service economy.", he says. No, we're not. We're moving from a service economy to something which lies beyond an service economy. He doesn't get that the problem is actually deeper than he concedes. And THAT's the problem.

Changing gender roles

Here's an article at RealClearBooks about social changes, especially changes in gender roles that are being driven by technology. Young men are increasingly adrift, it argues, because the economy no longer has as much role for them as providers or security:

Today, however, men are unemployed, and the cause, Mansfield believes, is modernity, which relies on technology more than duty to satisfy our needs and protect us from trouble. The economy's productivity and the government's programs provide the baseline level of safety and security. Security, says Mansfield, is the "very antithesis of manliness." There's the rub. Today's rescue mission is not men jumping from helicopters. It's the Allstate man, or woman, handling your insurance claim. "The entire enterprise of modernity could be understood as a project to keep manliness unemployed."

Agree with it or not, it's an interesting illustration of how changes in the economy and technology can cause much deeper change in social structures - and these have their own consequences. 

We don't have to buy the argument that social features are just "superstructure", as the Marxists would say, determined by the means of production. 

But there is little doubt that major changes in how people make a living and wider social roles can have plenty of consequences for people's sense of purpose, social respect and status, and their happiness in daily life. Changing technology and employment affects much more than just the GDP statistics.

Knowledge and Limits

I'm discussing Douglass North's book Understanding Economic Change. We've looked at uncertainty, institutions and incentives, the dynamics of change, and political transaction costs. 

But of course at the heart of economic change is knowledge.

Knowledge

But knowledge is sensitive to transaction costs, because the more you know about one speciality, the more you are reliant on others' abilities in other areas. Knowledge needs to be integrated.

It is the growth of knowledge about how to get things done that has been the central phenomenon of economic evolution. The greater the specialization and division of labor in a society the more dispersed is the knowledge in a society and the more resources must be devoted to integrating that dispersed knowledge.

This is something I think about all the time - the stupendous limitless amount of knowledge, far far beyond the ability of anyone to comprehend. People take refuge in specialities, and we all rely on huge volumes of knowledge we barely are aware of, from avionics as an aircraft is on final approach to language skills in international trade and diplomacy, to all those mysterious tech manuals about "Sharepoint" or "CISCO certification" which take up an entire section in the average Barnes and Noble.

And integrating knowledge involves more than just a market and price system. 

The integration of this specialized knowledge with low costs of transacting requires more than an effective price system. Institutions and organizations were necessary to supplement the price system where externalities, information asymmetries, and free rider problems had to be overcome. The increasingly dispersed knowledge of modern societies requires a complex structure of institutions and organizations to integrate and apply that knowledge. The implication is fundamental to this study: The growth of knowledge is dependent on complementary institutions which will facilitate and encourage such growth and there is nothing automatic about such development.

So growth has generally required effective impersonal mechanisms to mediate knowledge as well.  It gets harder and harder to integrate knowledge on an effective way - although tools like Google help.

In fact, there is a more general conclusion:

Growth has been generated when the economy has provided institutional incentives to undertake productivity-raising activities such as the Dutch undertook. Decline has resulted from disincentives to engage in productive activity as a consequence of centralized political control of the economy and monopoly privileges. The failures vastly exceed the successes.

On one level, that is obvious, as most major ideas in the social sciences are.

But on another level it is a distilled insight about what really matters. it is a point of clarity in a dark sea of surging opinion.

Limits to our understanding and limits to change

North had opened the book with a declaration that economic rules are ultimately about human beliefs and intentions. But that does not mean that we have a blank slate to design new societies. 

Social engineering is not easy. We could have guessed that from the results, of course, from the Greek welfare state to Mao's Great Leap Forward. But this helps explain why there are many countries which change their political constitution with limited or even disastrous results.

A mixture of formal institutions, informal institutions, and their enforcement characteristics defines institutional performance; and while the formal institutions may be altered by fiat, the informal institutions are not amenable to deliberate short-run change and the enforcement characteristics are only very imperfectly subject to deliberate control. The reason should be clear from the foregoing chapters. We are continually altering our environment in new ways (and there are also non-manmade alterations), and there is no guarantee that we will understand correctly the changes in the environment, develop the appropriate institutions, and implement policies to solve the new problems we will face. 

And it is all the harder to get it right when we have little experience of the new conditions and challenges and situations we have to grapple with.  

We tend to get it wrong when the accumulated experiences and beliefs derived from the past do not provide a correct guide to future decision making.

That is not good news when change is happening so quickly.

So in the end successful change depends on changing people's beliefs. 

Understanding the cultural heritage of a society is a necessary condition for making “doable” change. We must have not only a clear understanding of the belief structure underlying the existing institutions but also margins at which the belief system may be amenable to changes that will make possible the implementation of more productive institutions. 

It is an interesting combination of both left and right. It is very difficult to deliberately change society - it tends to evolve under a range of different selective pressures. But you can effect some change just by changing the terms of the debate.

The question I am left asking is - can beliefs, culture and therefore institutions and incentives change and evolve fast enough to keep up with technological change? Beliefs tend to change slowly.

The printing press and the cannon changed the world. Automation and AI can do the same thing - in a tenth of the time. Do we get disorder and breakdown, evolving in response to outdated beliefs, or do we get new incentives to make a new shift in the economic axis of the world?

Douglass North's Understanding Economic Change

I warned in the last post another serious book was coming up, and this is a major one. Douglass North is a Nobel-Prize-winning economist, or more specifically, an economic historian. I mentioned him before here. He thinks about the nature of economic change and the factors which make some societies more successful than others. 

He won the Nobel in 1993 for work done in 1982. But in 2005 he published a new book, Understanding the Process of Economic Change. I found it extremely valuable, partly because it organizes and reinforces some of the intuitions I have been gradually developing in this blog. It provides more of a conceptual vocabulary to discuss them. 

Here's the core of the book: You have to think about institutions and incentives.

The ideal economic model comprises a set of economic institutions that provide incentives for individuals and organizations to engage in productive activity. 

That would be tricky enough if society was static. But the nature of those institutions and incentives is always changing in response to growth in knowledge, changing beliefs  and other factors. 

So the success of an economy also depends on how well it adapts to those changes.

And some of these changes can be very broad-ranging. One of the most profound of all changes, he says  - which some societies have still not successfully managed - is when the physical environment is no longer the primary challenge for society. 

 The contrast between the institutions and beliefs geared to confronting the uncertainties of the physical environment and those constructed to confront the human environment is the key to understanding the process of change. 

So that is the outline. Let's look at it in more detail.

Uncertainty

We develop economic and political institutions to try to reduce pervasive uncertainty.   

Standard economics has not properly come to grips with uncertainty, he says. 

Economists have themselves displayed a good deal of ambiguity on the subject, largely proceeding as though uncertainty was an unusual condition and therefore the usual condition, certainty, could warrant the elegant mathematical modeling that characterizes formal economics. But uncertainty is not an unusual condition; it has been the underlying condition responsible for the evolving structure of human organization thioughout history and pre-history. 

We simply do not live in a world which is constant and easily predictable, he says. It is a non-ergodic world. 

 An ergodic economy is one in which the fundamental underlying structure of the economy is constant and therefore timeless. But the world we live in is non-ergodic—a world of continuous novel change; and comprehending the world that is evolving entails new theory, or at least modification of that which we possess. In consequence, there is no implication that we “have it right” despite the awesome advances in science which have enormously reduced uncertainty about the physical environment. 

He notes that Paul Samuelson once said an assumption of an ergodic world was necessary for economics to be a science. Too bad for that hope.

Institutions

People set up rules of the game to try to limit the uncertainty they face. Those rules of the game are institutions.

ALL ORGANIZED ACTIVITY by humans entails a structure to define the “way the game is played,” whether it is a sporting activity or the working of an economy. That structure is made up of institutions—formal rules, informal norms, and their enforcement characteristics.

Note those three components, which I think are very important. Where do the rules, informal norms, and for that matter the effectiveness of enforcement, come from? They are derived, he says, from the beliefs humans have. This not physics or mathematics, with unchanging natural laws. 

An institutional framework develops over time.

That institutional framework consists of the political structure that specifies the way we develop and aggregate political choices, the property rights structure that defines the formal economic incentives, and the social structure—norms and conventions—that defines the informal incentives in the economy. 

Zeroing on on the economic rules of the game:

 The formal economic rules are broadly speaking property rights defining ownership, use, rights to income, and alienability of resources and assets as expressed in laws and regulations. There is an immense literature on this subject; there is less on the way informal constraints influence economic performance. 

Institutions are not static, either. They are always changing, partly because the players change their behavior in response to incentives.

Institutions are the rules of the game, organizations are the players; it is the interaction between the two that shapes institutional change 

And here is one of the deepest themes - the more incentives provide for cooperation and productive activity, the better off a society will be. Altering our institutions, our rules of the game, is the main way people change their society.

How does this happen?

 Historically, institutional change has altered the pay-off to cooperative activity (the legal enforcement of contracts, for example), increased the incentive to invent and innovate (patent laws), altered the pay-off to investing in human capital (the development of institutions to integrate the distributed knowledge of complex economies), and lowered transaction costs in markets (the creation of a judicial system that lowers the costs of contract enforcement).

It is easier to change formal rules than informal norms and constraints, however.

History and Change

Institutional change is not easy.  You cannot simply write down an institutional framework on a sheet of paper and hope to enact it easily. Even if economic rules are ultimately a matter of belief and intentionality, they are still not easy to change.

Institutional change is typically incremental and is path dependent. It is incremental because large-scale change will create too many opponents among existing organizations that will be harmed and therefore oppose such change. Revolutionary change will only occur in the case of gridlock among competing organizations which thwarts the ability of organizations to capture gains from trade. 

The importance of informal norms about trust and cooperation means history profoundly matters. Culture matters. Economic change is path dependent. It depends on the existing institutional matrix, he says, as well as the kind of skills and knowledge people have already invested in.

Institutional constraints cumulate through time, and the culture of a society is the cumulative structure of rules and norms (and beliefs) that we inherit from the past that shape our present and influence our future. Institutions change, usually incrementally, as political and economic entrepreneurs perceive new opportunities or react to new threats affecting their well-being. Institutional change can result from change in the formal rules, the informal norms, or the enforcement of either of these. 

Adaptive Efficiency

So we are constrained by the past, by our existing institutions and skills and beliefs. But we must also constantly adapt to the future. So the other main  theme in the book is  the importance of adaptive efficiency. Our institutions and environment are always changing, and incentive systems must change too. 

 Adaptive efficiency—the kind of efficiency that has characterized the United States and western Europe—entails a set of institutions that readily adapt to the shocks, disturbances, and ubiquitous uncertainty that characterize every society over time. Conformity can be costly in a world of uncertainty. In the long run it produces stagnation and decay as humans confront ever new challenges in a non-ergodic world that requires innovative institutional creation because no one can know the right path to survival. Therefore, institutional diversity that allows for a range of choices is a superior survival trait, as Hayek has reminded us.

Indeed, one of the most important transitions in economic history required a fundamental change in belief and incentive systems. 

 Problems posed by the transition of a belief system from one constructed to deal with the physical environment to one constructed to confront the complex problems of the human environment are at the core of the problems of economic development. There is nothing automatic about such a transition being successful. 

This is particularly interesting to me, of course, because I think we are confronting another huge change in the underlying nature of our environment, one which needs significant adaptation in our institutions. 

The previous shift required a change from personal exchange to impersonal exchange, with less reliance on personal and family ties and more on a "formal structure of rules and enforcement mechanisms." Each structure, he says, fostered a set of beliefs, which in turn shaped politics, economics and society as a whole.  Such institutional changes are often difficult stumbling blocks.

 The shift from personal to impersonal exchange has produced just such a stumbling block both historically and in the contemporary world. Personal exchange relies on reciprocity, repeat dealings, and the kind of informal norms that tend to evolve from strong reciprocity relationships. Impersonal exchange requires the development of economic and political institutions that alter the pay-offs in exchange to reward cooperative behavior. 

How does on adapt to large-scale change? The important thing is to experiment and try alternatives, he says. 

 Adaptive efficiency entails an institutional structure that in the face of the ubiquitous uncertainties of a non-ergodic world will flexibly try various alternatives to deal with novel problems that continue to emerge over time. In turn this institutional structure entails a belief structure that will encourage and permit experimentation and equally will wipe out failures. The Soviet Union represented the very antithesis of such an approach. 

This helps explain the failure of the Soviet Union. it may have been statically efficient. But its centrally planned economy found it difficult to experiment and adapt. And that is the secret, he says, of US success.

 The best recipe for confronting such novel situations is the one that Hayek put forth many years ago and that has been the source of U.S. material success, which is the maintenance of institutions that permit trial and error experiments to occur. Such a structure entails not only a variety of institutions and organizations so that alternative policies can be tried but also effective means of eliminating unsuccessful solutions.

Competition helps spur organizations to adapt:

Competition forces organizations to continually invest in skills and knowledge to survive. The kinds of skills and knowledge individuals and their organizations acquire will shape evolving perceptions about opportunities and hence choices that will incrementally alter institutions. 

There is a clear link here to two books I talked about near the beginning of this blog,   Adapt: Why Success Always Starts with Failure by Tim Harford and Origin of Wealth by Eric Beinhocker. They both talk about the fact that the economy is an evolutionary system. You need a mechanism to generate diversity, as well as a selection mechanism. Together those can produce dazzling complexity and beauty over time. 

 

Politics and Transaction Costs

Much depends on how easy it is to make agreements, monitor adherence and enforce them. This is particularly important in politics. 

Transaction costs - the costs entailed in the measurement and enforcement of agreements, in this case - are a basic economic concept. They can often be very high in the political sphere, because, among other things, 

Imperfect models of the complex environment that the politician (and constituent) is attempting to order, institutional inability to get credible commitment between principal and agent (voter and legislator, legislator and policy implementer), the high cost of information, and the negligible payoff to the individual constituent of acquiring information all conspire to make political markets inherently imperfect.

The political sphere is naturally different to the economic sphere,

 Bargaining strength and the incidence of transaction costs are not the same in the polity as in the economy, otherwise it would not be worthwhile for groups to shift the issues to the political arena. Thus the selection process is one in which the high transaction cost items gravitate to the polity. Madison’s insightful views about the inherent nature of the political process as described in Federalist Paper no. 10—in effect he maintained that polities tend to be captured by special interests and used by them for their own advantage at the expense of the general public and that this was a universal dilemma of polities throughout history—are as pertinent today as they were two centuries ago. 

This means it is critical to have limits on political power.

Well-functioning markets require government, but not just any government will do. There must be institutions that limit the government from preying on the market. 

Order and Disorder

Change does not necessarily produce positive outcomes, however. It can produce much more uncertainty and disorder than before. People want to feel the basic rules are predictable.

Disorder increases uncertainty because rights and privileges of individuals and organizations are up for grabs, implying disruption of existing exchange relationships in both political and economic markets; and conformity disappears as a result of disintegration of norms and/ or change in enforcement. Disorder can result from changes which lead to a reduction of coercive enforcement of rules or from the weakening of norms of cooperation, which induces organizations to attempt radical changes in the rules of the game. One kind of change is an event that dislodges the old mechanisms that provided credible commitment in society without providing adequate substitutes.

This is a serious warning about how weakening old mechanisms can undermine a society. Radical changes in the rules of the game can be destabilizing, and so will therefore bring forward equally fervent opposition.

I think some radical evolution is necessary, simply because economic institutions have not kept up with the extraordinary changes in knowledge and productivity that we have experienced in recent decades. But this underlines how hard it can be to change without undermining the system as well.

 I'll talk more about knowledge and the limits of change in the next post.

The Coffee shop question and books

Here I am in Starbucks on Sunday morning, Pike Place Roast Grande and an Apple Bran muffin to hand. One iPad and a keyboard. Fully equipped for blogging! 

I'm about to launch into a discussion of another book. But before I do, I thought I'd talk about why I have such extensive discussions about books. Why not interviews or stories or anecdotes? I know reading about books is harder going than entertaining little stories, which seem to be the basic formula for much non-fiction. And when the books I am discussing are about philosophy or economics it can be much harder going still. 

So I admit it: the personal book review section is  not prime entertainment. It's not front page revelation.  G tells me she likes the more personal stories about how we are living our lives together above all, which I like as well. But my aim so far is not to build an audience (which is still minimal) 

So why talk about all these ideas? Well, it's in the name of the blog. And the more fundamental answer is what you see depends on what you are looking for. I think much knowledge is just seeing the same things more clearly, and being able to see the things that matter. It is about education of perception. 

You have to know enough about an issue or area to understand what you're looking at. You have to read through some of the previous thinking and discussions to know what the essential questions are, and arrive at the questions which matter most to you. You have to map out the contours of the territory.  You have to watch out for fundamental mistakes, or old, tired refuted points of view.  You have to grapple with some counterarguments to know if what you think makes sense. 

And, to be honest, it all appeals to the intellectual side of me. I like reading new thought-provoking books and deciding what I make of them. I like concrete problems. But I am more thinker than journalistic by nature. 

Some blog about restaurants. Some blog about current politics. Some blog about celebrity gossip or episodes of Gossip Girl. Thinking about how the world is changing in larger perspective is my own passion, my own niche which I want to spend time doing on a Sunday morning. 

Unfortunately, the ability to add photos is temporarily down in both Blogger and the offline program I use, Blogsy, so I can't add change of pace images temporarily, which help break the intellectually more intense stuff. But hopefully that will come back soon. 

I started out with a coffee shop question back in July this year, written at the same Starbucks table I am sitting at now. And I feel I have made a lot of progress, at least to my own satisfaction and pleasure, in working towards some answers. 

More "End of Work"

I'm discussing Jeremy Rifkin's 1995 book, The End of Work.

The postwar model of the American corporation started to run into problems in the 1980s, he says. 

The managerial system of corporate organization was like a lumbering giant, a powerful producer able to turn out a large volume of standardized goods but lacking the flexibility to make the kind of rapid changes necessary to adjust to sudden fluctuations in the domestic or global market. (p94). 

New technology increasingly eliminated what he calls "the increasingly bloated ranks of middle management" who just processed information flow up and down the hierarchy. 

In the information era, "time" is the critical commodity, and corporations bogged down by old-fashioned hierarchical management schemes cannot hope to make decisions fast enough to keep up with the flow of information that requires resolution. (p101)

This is driving re-engineering, and leaner corporations, he says. He then diligently examines the impact of technology and automation on a series of sectors, including agriculture, manufacturing, retail and banking. 

The nation state and government in general is declining. Governents can no longer guarantee market functioning, either.

So what is his answer? There needs to be more growth in "the third sector" - the non-market, non-government, "social economy." 

Most people would find it difficult to imagine a society in which the market sector and government play less of a role in day-to-day affairs. These two institutional forces have come to so dominate every aspect of our lives that we forget how limited their role was in the life of our society just one hundred years ago. Corporations and nation-states are, after all, creatures of the industrial era. ... 

Now, however, that the commercial and public sectors are no longer capable of securing some of the fundamental needs of the people the public has little choice but to begin looking out for itself, once again, by reestablishing viable communities as a buffer against both the impersonal forces of the global market and increasingly weak and incompetent central governing authorities. (p238)

The independent sector includes voluntary activities, tax-exempt organizations and charities, running from "social services to healthcare, education and research, the arts, religion and advocacy" which together are responsible for 9% of total employment.  The third sector creates social capital.  

Community service is a revolutionary alternative to tradtional forms of labor. Unlike slavery, serfdom and wage labor, it is neither coerced or reduced to a fidiuciary relationship.. It is an act entered into willingly and often without expectation of material gain. In this sense, it is more akin to the ancient economics of gift-giving. 

It is also, he argues, very American. Toqueville thought voluntary organization was one of the most distinct and remarkable features of the new American democracy: (Rifkin's quote of Toqueville, p 243)

Nothing, in my view more deserves attention than the intellectual and moral associations in America... In democratic countries, knowledge of how to combine is the mother of all other forms of knowledge; on its progress depends that of all the others.

The third sector, Rifkin says, is an antidote to the excessive materialism that dominated twentieth century industrial thinking. 

He thinks the third sector can restore social services which are being abandoned by over-indebted governments, despite suspicions on the left of what the first President Bush called "a thousand points of light." Interestingly, Rifkin defends himself against being seen as advocating a partisan Republican idea. 

Rifkin argues for a "shadow wage" - a deduction from income tax for volunteer hours given, as well as a "social wage" for those unemployed people who want to do community service full-time as an alternative to welfare. 

It would be a form of guaranteed income, but linked to community service. Interestingly, he notes Lyndon Johnson established a National Commission on Guaranteed Incomes in 1967. It went nowhere as many politicians feared it would undermine the work ethic. But the idea was not confined to the left. Milton Friedman proposed a "negative income tax" as a cash alternative to the mess of bureaucratic welfare dictats which amounted to a guaranteed income in any case.

Rifkin concludes:

finding an alternative to formal work in the marketplace is the critical task ahead for every nation on earth. Preparing for a post-market era will require far greater attention to the building up of the thrid sector and the renewal of community life.. The end of work could spell a death sentence for civilization as we have come to know it. The end of work could also signal the beginning of a great social transformation, a rebirth of the human spirit. The future lies in our hands. (p291,293)

So what should we make of the book? It is detailed, it is diligent, it is in many ways quite moderate. 

It was perhaps premature. Economies have grown substantially since the mid-1990s, but it seems we have done it in part by ever more boom and bust, and with a huge infusion of debt. 

His arguments for the third sector are also well-taken. Indeed, they are strenghhened by new forms of cooperation like open-source software, Wikipedia, and other huge voluntary endeavors at the heart of the new economy. More than ever is being done voluntarily. 

But I don't think the expansion of the voluntary sector in itself is a full solution. For one thing, why will the third sector expand? It needs to be encouraged and supported as well. I think Martin Ford's book, The Lights in the Tunnelwhich I discussed earlier, is more interesting in its emphasis on incentives, and the motivations people might have to do the right thing. 

The growth of voluntary organizations and restraint of exploitative or deviant behavior needs to be explained. 

I fully agree with Rifkin that more government is not the answer. This is where he parts company with liberals. There needs to be a wider range of organization and collective activity than just centralized activity. 

Perhaps the biggest contribution he makes, though, is his history of fears of automation in the twentieth century. So far we have always put such fears behind us, as growth has indeed being a swift incoming tide that raised all boats. 

After the second world war, for example, the huge expansion of the service sector, the vast increase in the scale of government, and the expansion of the market sphere as women went out to work enlarged the scope of the market and consumer demand. Suburbanization led to a huge wave of demand for many goods too. That made up for the increasing automation or loss to foreign markets of heavy industry.

But the fact that we have escaped the problems once does not mean we will inevitably escape them every time, or by using the same tools in the same way. 

Morning coffee on the West Side

I'm sitting here with G having morning coffee at a diner on the Upper West Side, looking out the window at a few cars passing by on Broadway. It is a bright, clear, cold December morning. We came here once about eleven years ago, and it is a nostalgia trip back. 

The markets rose steeply this week, on the back of a swap line agreement between the major central banks and a better-than-expected payrolls number yesterday. But things are still very fragile and volatile out in the world. 

The latest talk is for the ECB to lend several hundred billion - or even a trillion or two - to troubled eurozone sovereigns via the IMF. This would add some strict conditionality to the mix, and make it easier to argue it was not straight monetization of debt. That might help buy time. 

How far we have come since European officials considered any IMF involvement at all an offense to the strength and developed-country status of the eurozone, just two years ago.

G has spotted a nice dog out the window. "What a nice dog", she says, and tries to persuade me to have another slice of her french toast. 

But there is nothing which suggests the broader economic model is not broken. The supercommittee in the US Congress broke down, without making any progress towards resolving American fiscal problems. There is little or no progress in the western world towards a sensible resolution of entitlement programs.

Sometimes it's nice just to sip coffee and watch out for nice dogs. A beagle!

 

The End of Work

I'd like to write about The End of Work by Jeremy Rifkin, which I read last week. It is an older book by the standards of the current debate on labor markets and change. It came out in 1995, and argued that automation was wiping out employment across many industries in a wholly unprecedented way. 

The book finds its way into just about recent bibliography on the issue of how the labor market has changed. It attracted a huge flurry of attention in the post-recessionary, business re-engineering world of the mid-1990s with its massive layoffs in corporate America and feeble economy. 

Then, in the huge boom of the late 1990s, the book seemed to fall from attention. The world moved on, and quickly.  One of the fascinating things about the book is it has only one entry in the index for "internet" - and that is a specific dial-up data provider for abstracts of books and journals. 

To be sure, it talks about the "information superhighway" here and there in a peripheral way. But it is usually very difficult to see what is just around the corner. 

And that was of course the wild internet boom of the late 1990s, which turned capitalism on its head for a few years. Pets.com and kozmo.com were just a few years away. Google and Amazon.com were just ideas when Rifkin finished the book. Soon, everyone thought they were getting rich, until the NASDAQ crashed. 

I think this highlights one fundamental issue with the whole nature of change. We can see some things coming from a long way off, but it sometimes takes a very long time for them to get enough computing power or momentum or support to take off. Artificial intelligence has been a major field since the 1970s, for example. But Apple's new Siri on iPhones is one of the first major consumer applications which begins to approximate some of the hopes of the 1970s. And even that is a long way from Hal in the movie 2001.

Things happen much slower than you think. And things also happen much faster than you think - when you look back cumulatively.  You can get the right trend - but much too soon. 

And that is what I think happened to Rifkin's book. His basic argument is (from the introduction):

For the whole of the modern era, people's worth has been measured by the market value of their labor. Now that the commodity value of human labor is becoming increasingly tangential and irrelevant in an ever more automated world, new ways of defining human worth and social relationships will need to be explored. 

The history of an idea

One of the most interesting things about the book is several chapters talking about the previous history of the idea. In the 1920s, as productivity soared, there were fears that demand would be insufficient. Businesses urged consumers not to go on a "buyer's strike." The press talked about "limited markets."

But business evolved away from a focus on production to consumption and consumer behavior. Advertising and consumer credit helped to stimulate new demand. The tale of "trickle-down technology", as Rifkin called it, seemed to work. Falling prices meant consumers had more money to spend on new goods. 

 After the second world war the same fears resurfaced. In 1947 Forbes mahazine ran an article called "Machines without Men" which announced that "the threat and promise of laborless machines is closer than ever." (p66). 

But the service sector boomed and military spending also boosted demand for four decades. The public sector expanded and employed millions. 

And so by the late 1980s people still believed that, as one official report put it, "historically, and we believe for the foreseeable future, reductions in labor requirements per unit of output resulting from new process technologies have been and will continue to be outweighed by the beneficial employment effects of the expansion in total output that generally occurs." (p40) 

Indeed, there was a long tradition of what Rifkin calls "visions of techno-paradise", with celebrations of engineering and technology, at least until in the wake of the shuttle disasters and Three Mile Island technology looked fallible as well. But. he says,

Ironically, the closer we come to the technologival fruition of the utopian dream, the more dystopian the future itself appears. That's because the forces of the marketplace continue to generate production and profit, with little thought of generating additional leisure for the millions of working people whose labor is being displaced. 

Not everyone benefitted from automation, of course. In one particularly interesting chapter Rifkin traces the impact of just one new technology - the automated cotton picker - on African Americans. "In 1949, only 65 of the cotton in the south was harvested mechanically; by 1964, it was 78%." (p71). A few years later it was 100%.  Five million people were pushed off the land and migrated north, just as a new wave of mechanization to displace unskilled labor in factories hit. When Detroit increasingly automated, blacks were disproportionately affected. 

I'll discuss what the book says about the situation in the 1990s in the next post. 

Sleep No More

One other thing I meant to write about is the theatrical production Sleep No More, which we went to in New York last week. 

It is a loose retelling of Macbeth, set in a wonderful warren of spaces in an old warehouse in Chelsea. The building is converted into the "McKittrick Hotel", which supposedly closed just before the second world war and has never been touched since.  It is a remarkable stage spreading over five floors and a hundred rooms. 

You put on a mask, and then follow the actors or explore the space by yourself.  The feeling of anonymity is itself interesting and destabilizing, as you move through rooms with twenty or thirty other people, none of whom can be recognized. That alone makes it feel like a different world. 

There are moors and baths and ballrooms and candy shops and hospitals and bedrooms. You are enveloped by the space, and its mists, and the subtle lighting, and evocative music. 

There are cinematic crescendoes of sound, and incidentals, and distorted echoes of twenties hits and ballroom music. You explore rooms with letters left on tables, hotel lobbies, chapels, statues standing amidst rubble and ruins, and forests of white birch. You pass through secret passages concealed in closets. 

There are touches of influence from movies, too, especially Hitchcock's Rebecca and Vertigo. There is an Edwardian grandeur to many of the spaces, only enhanced when the actors pass through in turn-of-the-century finery.  

The whole warehouse is like an art installation. The actors move around and up and down the stairs as if the surrounding audience is barely there. Macbeth sits in a bathtub washing the blood off his hands. Lady Macduff is murdered. The Royal Court sits at table in dramatic flood-lit slow motion. Banquo gets ready for a night out in his suit and tails. There are set piece balls and more intimate dances between couples in jazz clubs and bars. 

And you finish by emerging into a turn of the century jazz club with live performances and absinthe punch. 

In short, it is immersive experience, not passive theater, and that is just fascinating. We've never seen anything quite like it, and it has lingered in our minds over the past week. 

G thinks it should be permanent, part of the New York experience. I agree.  It should run for years. 

Kahneman and thinking

We went to an event last night featuring Nobel Laureate Daniel Kahneman talking to David Brooks of the New York Times. It was entertaining. Kahneman, of course, is a psychologist, who won a Nobel in Economics for experimenting with the ways in which people do not match the homo economicus model of mainstream economics. He was wry, ironic and funny.

One of the main things that struck me was a discussion of how his original paper with his co-author, Amos Tversky, attracted morre attention when it was published in Science in 1974. 

We included examples as inserts, he says, and people could recognize themselves in those in a way they would not in statistical tests. The mind finds it very easy to go from the particular to the general. You can tell a story and people will immediately jump to the generalized points that a story makes, the lessons for other areas. 

But when it comes to applying generals to particulars, people are much more reluctant. They don't think psychological findings apply to them, for instance. Or they forget generalized facts they know. Or they are overconfident. 

So going from generalized statistical findings to actually applying it in real life, or abstraction to particulars, is very hard.

That is a fascinating little insight into communication. People respond to stories more than theories. 

The Splendors of the East

We also walked through the Met's newly restored Islamic Galleries, which are fresh, impressive and beautiful. I was particularly taken by an Andalusian silk curtain of dating back to the 15th century. Only four examples of such curtains remain, but they must have been a pervasive features of the great palaces, rippling in soft breezes. 

I never knew such things existed. When we saw the Alhambra in Granada earlier this year, there were no fabrics or carpets in the main halls, of course. The original appearance must have been very different.

 It often happens that way. In the frieze of Sant' Apollinare Nuovo from the late Roman Empire in Ravenna, the colonnade of the Roman porticoes is filled with beautiful hangings, rather than just the severe white marble piillars of our own imagination.  And the bare walls of medieval castles had their lavish tapestries. 

All mostly lost.  Just the bare stones remain.

It is often the small things that make a difference. 

I also was amazed by the illustrated leaves from the Tahmasp Shahnameh, a remarkably illuminated sixteenth century version of the Persian epic. 

At the same time, the sheer dazling profusion of intricate luxury art in the Islamic wing leaves one wondering what happened to the average Iraqi or Egyptian peasant. The fabled riches of the East lie, at least in small part, here for view. But only as museum pieces. 

The wealth and vigor of Abbasid Islam has gone, replaced at best by Dubai shopping malls. 

I did get sufficiently intrigued by the script to try to learn to make out a few arabic letters. It makes it feel that more intelligible. 

The Land of Cockaigne

We visited the Met on Saturday, and wandered through the exhibition Infinite Jest. It is about the development of satire, and it features a range of 17th and 18th century cartoons, including Gilray.

One of cartoons referred to the old medieval idea of Cockaigne, which got me thinking. It was a medieval peasant's idea of utopia. Food rained from the sky and authority was reversed. Abbots were whipped by monks, and lords insulted by peasants.                          

These ancient yearnings are interesting. How far does a modern supermarket satisfy that ancient dream? It is filled with kinds of food in vast plenitude which peasants could not even have imagined, let alone daydreamed about. 

After several days of Thanksgiving overindulgence, we have probably eaten better than the average king in the twelfth century, who had expensive spices to conceal rotting meat.. 

I read Fernand Braudel's book Civilization and Capitalism, 15th-18th Century, Vol. I: The Structure of Everyday Life (Civilization & Capitalism, 15th-18th Century) a few years ago, and I was struck by how thin and bare medieval existence could be. People were cold in the winter, very cold. Firewood was in short supply, and out of reach of much of the peasantry for long periods on France.  Famine was frequent. 

One thing I've talked a lot about in this blog is the fact that we have achieved satisfaction of physical and survival needs. People in developed countries do not yearn for hams to fall from the sky, nor shiver in the cold as medieval peasants did. 

And although there is still plenty of authority, little of it bears down quite as hard as serfdom.  Yesterday's "famous-for-being-famous" celebrity gets more public attention than most minor lords ever did. 

We live in a post-Cockaigne world. 

The Age of the Superfluous Worker

Here's another op-ed worrying about rapid destruction of jobs, this time by a Columbia sociology professor in the NYT. It is a rather grim little piece. 

In the old days — before Social Security, welfare and mediciaid - poverty-caused illnesses killed off or incapacitated some of the people who could not find jobs. Even earlier, some nations sold their surplus workers as slaves, while the European countries could send them to the colonies. In addition, wars were once labor-intensive enterprises that absorbed the surplus temporarily, and sufficient numbers of those serving in the infantry and on warships were killed or seriously enough injured so that they could not add to the peacetime labor surplus. 

 The old ways of reducing surplus labor are, however, disappearing. Decades of medical and public health advances, as well as Medicare and Medicaid, have reduced the number of poverty-related deaths. The Iraq and Afghanistan wars have left many more service members injured than killed.

Add to this the cost of imprisoning "dark-skinned men for actual and  invented offenses".

Sigh. This really is the old left. Capitalism, he argues, will continue to eliminate as many or more jobs than it creates. So what is the solution?

America will have to finally get serious about preserving and creating jobs — and on a larger, and more lasting, scale than Roosevelt’s New Deal. Private enterprise and government will have to think in terms of industrial policy, and one that emphasizes labor-intensive economic growth and innovation. Reducing class sizes in all public schools to 15 or fewer would require a great many new teachers even as it would raise the quality of education.

In the long run, reducing working time — perhaps to as low as 30 hours a week, with the lost income made up by unemployment compensation — would lead to a modest increase in jobs, through work sharing. New taxes on income and wealth are unavoidable, as are special taxes on the capital-intensive part of the economy. Policies that are now seemingly utopian will have to be tried as well, and today’s polarized and increasingly corporate-run democracy will have to be turned into a truly representative one.

In other words, traditional liberalism, but even more so. Job-sharing and industrial policy. Hiring more unionized teachers.

 

That world has passed as well.