Tangled banks more than markets

So what do we do if the market and monetary exchange is faltering? One answer to is we need a more sophisticated model, like a tangled bank, to use Darwin's phrase. Instead of thinking about the economy as a market, or factors of production, we need to think of it like an ecosystem. Instead of consumer demand, we think about recycling and diversity and complexity. I'm just really thinking about this ecological metaphor as I go.

The borders of the market can shift over time, of course. Household work was a market good in the nineteenth century, with hired domestic staff paid to cook and clean.

Then for much of the twentieth century it was a non-market good, carried on within the household (mostly by women, using new labor-saving devices to replace some of the earlier drudgery). In the last generation many tasks which used to be performed by households, such as care for the aged or childcare, have been returned to the market or government provision.

Privatization in the UK and other countries returned many stae-owned industries to the private sector in the 1980s.

And it is possible of course that the boundaries of the market could shift again. New goods and services could be invented which people are willing to pay for.

But some things we want lose their value if we have to pay for them. What use is a friend you have to pay for? (Unless it is a dog.) As Michael Sandel argues, we have perhaps already commoditized too many things, treating them in terms of market value.

So it could be hard to extend the boundaries of the market further, to newer needs we want to satisfy once we have material abundance.

And even when new markets are developed, the plunging cost of many services means that they won't necessarily produce large numbers of jobs. I might pay flickr to keep my photos, instead of keeping the prints and negatives in a shoebox. But it is mostly automated. There are few jobs.

I guess in one sense there is a limit to ecosystems as a metaphor. Evolution does not have purpose. It does not care about legitimacy or virtue. It just generates variability and adapts. Whereas we need to consciously design an ecosystem that lets people flourish luxuriantly, like a vivid, colorful coral reef.

 

The Economy and the Good Life

Time to step back slightly. What does this discussion of Aquinas and Democracy and Legitimacy mean for this blog's questions? What do they mean for turning our economy away from deep crises and towards a new phase of growth?

Well, we need a renewed sense of what "the good life" is. It may not be identical for everyone. But there can be a certain family resemblance or clustering. After all, dogs come in all shapes and sizes, from Newfoundlands to chihuahuas to poodles to terriers. But it is still meaningful to talk about the category "dog" and the species "dog" in hard scientific terms. And no-one is going to mistake a dog for a cat or a canary or a Sequoia tree. There is more agreement on what the good life is than we generally recognize.

That is not to say we need a return to medieval Catholic theology or Athenian direct democracy, either. But it does mean we have to ask what makes people flourish, rather than see them as just abstract choosers. We need an aim for the economy, not just an ideology that firing of arrows in unspecified directions will inevitably be a good thing.

Freedom is not simply freedom to choose, or negative freedom in Berlin's sense (see the link here to his famous essay "Two Concepts of Liberty"). That strips away too much of what we know about what gives meaning or purpose or direction to life. Libertarianism is a self-contained and consistent point of view. But it doesn't work.

Freedom is not just a matter of choice. It is freedom to be fully who you really are. It is about developing capacity and character. It is a matter of the kind of choices you make, judged in larger perspective, and helping peope to make better choices. It is not the act or procedure of choice that matters so much as whether you make the right choices and the outcomes of choice.

It is not just freedom from, in Berlin's terms. It is freedom or liberty to.

Yet that has to be positive liberty in a way which develops each individual, not some concept of the "general will" or dialectical materialism or other abstract political ends. Our suspicion of people who advocate single ends or single perfect utopian visions is usually justified. Berlin is wholly right when he says good things sometimes conflict. Neither freedom nor happiness are monistic - just one simple metric, one simple thing.

Instead, you need to balance different ends, to judge what the right thing to do is in particular concrete situations.

It is a little easier to agree about admirable qualities or virtues in people than ultimate ends. What we admire in others clusters together. There is a family resemblance. We have an inherent sense of balance in the concept, which goes all the way back to Aristotle's doctrine of the mean.

The trouble is our current economy is still largely set up to see us as abstract choosers. That is the consequence of two hundred years of liberalism in the broad sense.

Money and trade has been a fabulously productive tool over the centuries. Indeed, the impersonal nature of money and exchange is in many ways the key to the modern world, as Douglass North argues. But it is entirely value-neutral.

Value neutral , but legitimate. Our economic system generally produces outcomes which most people see as broadly legitimate, with reasonably fair rewards for skills and efforts, alhough politics increasingly revolves around the "fairness' of those outcomes at the margin.

People might disagree on how much tax "the 1%" should pay or what their "fair share" might be. But it is largely an argument about a few percentage points here and there. And our current economic system in the US is certainly better than alternatives like central planning or corporatist corruption, like in contemporary Greece.

And that is why we find it so hard to imagine alternatives when we see the economy evolving beyond its twentieth century form. How can we legitimately reward people or allocate status and respect and wealth in society? Every other way of doing it seems worse.

It used to be just a question of birth. You were born a noble or a serf or a king, and that was mostly that. Or it was a question of religious revelation. Or of conquest, or honor,

Then we evolved the market economy, which broke old privileges, for the better. It provided a system of incentives which was positive sum, which rewarded initiative and talent and growth. It was flexible It allowed the talented to rise.

Fortunately modern capitalist economies are much better at giving people the opportunity to realize their talents than most previous systems, where most often you were a serf or agricultural laborer whether you liked it or not. That is much of the explanation of the staggering success of capitalism in the last two hundred years. Resources could be allocated to their best use. Talents could be used.

Yes, it was the market that did that. But it was also largely the right incentives connected to the market- systems of law, education, norms and values, as development economics as increasingly recognized.

But if our economy gives people the incentive to develop their talents or productivelty cooperate, it is mostly indirect, as a highly desirable side-effect to the evolution of the labor market or government programs. What we mostly do is allocate income.

And we have a problem if our system of legitimate rewards, ie earned income connected to the labor market, faces a structural contraction in the labor market and huge downward pressure on prices in other material goods. Income may not be correlated with talent or effort or skill, not because of class differences or social divisions, but because of the evolution of the economy towards goods and services that are either near-free or not easily to break into sellable chunks.


Our incentives are still essentially monetary, and only secondarily to develop talents and skills and purpose. And if the exchange economy is faltering as material goods become abundant, then those incentives don't work well any more. There is a potential short circuit.

So we have to look more deeply at how those incentives came to be, and how they are connected to the good life. How do we incentivize good behavior and developing talents and productive cooperation if our main system of incentives, market exchange, is starting to become outdated? What do we do if people can't earn much through exchanging their labor for money in the marketplace because we have become so efficient, and if our incremental needs for the good life - more relationships, purpose, connectedness - aren't easily rivalrous, or excludable - i.e. monetizable?




 

Via Meadia leading in wrong direction

Walter Russel Mead's blog is one of the most consistently thought-provoking and valuable on the internet, and I find myself referring to it frequently, most recently the other day. I envy his remarkable productivity at producing beautifully crafted commentary. But I persistently disagree with him on some things. So I decided to post a comment on this post here.

He argues that pessimism about manufacturing is overdone. Technology like 3D printing will return much manufacturing activity to the US.

I say:

I have to admire your optimism, which is also admittedly supported by two hundred years of history. But 3D-printers are just as likely to move a lot of production out of the market and back into households. Who needs to buy from the factory if you can use a domestic 3D printer to produce something much more tailored to your own tastes at home? As costs of 3D printing fall, much manufacturing will go the way of travel agencies. You do it yourself, instead of paying others to do it for you.

And importantly, as the historian Joel Mokyr argues, much of the reason factories developed in the first place was because the skills and knowledge needed to produce goods were beyond the ability of households to cope with in the 19th century. Factories facilitated sharing of information. Now with Google and cheap intermediate technologies, that doesn't apply so much. As an example, my little iPad is more useful than vast hot metal newspaper printing presses of the last century, because I can distribute with a mouse click. I don't need a sophisticated knowledge of picas and linotype and newsprint prices. Household production is easier and barriers to entry plunge.

Most of all, though, as society gets richer the nature of needs is likely to change, away from the rivalrous, excludable goods which are easily sold in markets. The upper end of Maslow's hierarchy of needs - connectedness, self-actualization, purpose - are harder to handle in markets because they are not easily attached to property rights. As we satisfy basic needs through the remarkable efficiency of capitalist production, those higher levels of needs and demand become more salient. And problematic from a marketing point of view.

So even if new needs will arise, they may not work that well with our current consmer demand or labor market institutions.

I love your blog, but the big point I think you miss is the nature of needs can change over time.

 

Doing what it is your thing to do - circa 1270

All right, I admit sometimes I get a little too philosophical on this blog. It just creeps up on me because I read through so much to figure out what is important to me and what matters. And some of it might start to appear a little remote from what I am most interested in, namely how to rethink the economy so it delivers for people, rather than just lurching from crisis to crisis.

So here with a little reservation - and briefly - is a book I read last week: Thomas Aquinas: A Very Short Introductionby Fergus Kerr.

The reason I read it - and it is indeed mercifully short - is my growing interest in virtue ethics, which can be traced through a number of discussions on this blog. The potential value of virtue ethics is it gets around some of the biggest blockages we have in talking about how we should incentivize people, or what purposes individuals or society should have.

Instead of ultimate ends or universal rules or procedural rules, virtue ethics is about cultivation of character and judgment. And it may be the key way out of the trap of liberal neutrality about values and purposes which block us even talking about how to move forward as a society.

Mainstream Economics is based on a shallow Benthamite utilitarianism, after all. Mainstream psychology is only just reemerging from three generations of positivistic narrowness. Mainstream contemporary liberalism cares much more about identiy and redistribution and equality than purpose.

We can't get to the bottom of what has gone wrong with the economy unless we rethink some of our assumptions. Some of the ethical foundations underlying our liberal (in the broad sense) structures that are crumbling under weight they were never meant to bear.

As we saw, virtue ethics starts with Aristotle's Nichomachean Ethics, and it was a predominant way of thinking about ethics in the west for two thousand years.

Aquinas is one of the main figures in that tradition. He was a Dominican monk who reinterpreted Aristotle through a Christian perspective in the 1260s and 1270s. He adds Christian virtues of faith, hope and charity to four older "cardinal virtues" - courage, justice, temperance and prudence, embedded in a huge theological treatise, the Summa Theologica.

Deirdre McCloskey takes Aquinas seriously. I admired her book. So I decided I needed to read a little more about this set of virtues.

Aquinas is a significant extenstion of Aristotle and remains an important part of Catholic teaching to this day. As Kerr says of Aquinas,

What his students should have taken away, and what we might highlight today, is an account of the good life for human beings, including reflections on the ultimate end, action, intention and choice, virtue and character - in short, what philosophers have recently labelled `virtue ethics'.

I'm not a Catholic so this tradition is largely new to me. And the Summa Theologica is a vast edifice of theology which is far beyond the scope of what I want to do.


But I do like the teleological or purposeful focus of what he is saying. To be horribly simplistic, the meaning of life is for people to take action on "what it is their thing to do." According to Kerr,

Creatures most resemble God simply in that they are, and in doing what it is their thing to do, so to speak. In effect, Thomas seems to be recommending a contemplative attitude towards things if we are to know anything about what God is like. ..

The notion of being - of what it means to be - is that being is intrinsically self-communicative and relational through action: `every substance exists for the sake of its operation', as Thomas often says, in some form or another. This runs all through Thomas's thought. Being is not a state but an act, being is dynamic, it's energy, it's act - finite beings are relational because they depend on one another, they lack so much; but also because they have a certain innate drive to self-communication, to enrich others, so to speak.

And in that sense, Aquinas is a prime example of this deeper, older tradition in the West. Once we lost a sense of what people's purpose is - and ruled it out of order as a question in many cases - it became harder to discuss some of the main challenges of society.

Democracy and the importance of Legitimacy

I read Democracy: A Historyby John Dunn, who is Professor of Political Philosophy in Cambridge. He traces how the word "democracy" has been used historically since its beginnings in classical Athens. Of course, we think of it as the fundamental legitimizing principle for states today.

But the irony is "democracy" was mostly used as a term of condemnation and an example of chaos and failure for two thousand years, right into the late eighteenth century.

And now it also means something almost entirely different from its original meaning of the citizens of Athens direcly ruling themselves. There is a "chasm", Dunn says, between that and our modern representative democracies.

Indeed, it was Robespierre more than anyone else who brought the term back into circulation, and the left wing of the French revolution such as Babeuf who wanted it to mean equality.

Democracy has altered its meaning so sharply since Babeuf because it has passed definitively from the hands of the Equals to those of the political order of egoism.

By egoism Dunn means the modern self-interested capitalist world of Alexander Hamilton and the Manchester Liberals. In the second world war and cold war, however, that was a thin basis for loyalty. In the fight against fascism and communism, western leaders needed something more - a renewed stress on democracy as an ideal.

In the last instance, and in the face of intense suffering, they needed it above all to focus their citizens' allegiance, and to define a cause worth fighting to the death for in a way that the order of egoism could never hope to provide for a good many.

And the horrors of revolution from Mao to North Korea to the Khmer Rouge elimated other serious competitors for forms of state and principles of legitimacy.

In these later episodes, in all their desolation, the rage for equality becomes for a time something very close to a rage against the reality of other human beings or the very idea of a society.

And in the meantime democracy as a value undermines most other claims to power or privilege, as Obama or Cameron or Merkel know.

It dissolves the pretensions of intellectuals and corrodes the claims to authority of all who happen at the time to exercise political authority anywhere in particular.

It is an observant and trenchant book. What stays with me, though, and which is relevant to this blog project, is a renewed focus on the basis of legitimacy. Why do we see current arrangements as legitimate? In large part because that 'egoist' self-interest capitalist framework has delivered.

In order to durably shift the nature of the economy, however, the basis of legitimacy would likely have to shift again. And that is a difficult and dangerous matter.

It reminds me of Phillip Bobbit's book The Shield of Achilles, which traces the history of the states system over the last five hundred years. He sees it as a story of successive principles of legitimacy - and therefore forms of state - evolving with epochal wars dividing them. He sees the "market state" as the culmination of that process in our own time.

But if, as I think, we are reaching the limits of the market as a device which can underpin the economy, then that spells potential trouble. As always, it is not because there is anything wrong with the market. It is just that it is a tool which cannot accomplish all our human purposes if we largely have material abundance and the nature of our needs starts to shift.

So this suggests more room for blogging on legitimacy and the potential for disorder if we are seeing a phase shift in the nature of the economy and the state.

 

The Magical Chorus

A quick word about Magical Chorus: A History of Russian Culture from Tolstoy to Solzhenitsyn (Vintage) by Solomon Volkov, which I read because someone kindly bought it for me as a gift. It is a good read but there are so many tragic stories.

The book revolves around the Russian intelligentsia - writers, film-makers, dancers, composers - and their fate during the upheavals of the twentieth century.

Much of it is the usual gossip and catty rivalry between different artistic groups, as one faction rises and another falls, from Tolstoy through Gorky, Eisenstein, and Sholokhov, Pasternak, to Yevtushenko, and Solzhenitsyn. It is a book about Russian modernism in the 1920s and socialist realism in the 30s and 40s, and it makes for a constellation of great names in the arts.

But it is against the backdrop of violent revolution, exile, purges, the camps, and the terror.

Stalin was well-read and kept up with the latest literary periodicals. High culture gratifyingly received attention at the highest levels of state - but sometimes with grave results. And not even great talent was a protection against the knock on the door.


One story is that of the artist Alexander Drevin and his wife Nadezhda Udaltsova. Drevin was arrested in February 1938. According to Volkov,

..he was exectuted ten years later in a Stalinist prison. Udaltsova was not told of her husband's death, and she continued submitting appeals for his pardon for almost twenty years, before she learned the horrible truth in 1956.

But the intelligentsia was important to the state, and to the wider culture.

That did not last. The book concludes in the 1990s, when society opened up - but official money for high culture collapsed. And Russia become more interested in gameshows than poetry.