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.

 

 

 

Organizational change and trust

Back to our discussion of Brink Lindey' book, The Age of Abundance.

One point which Lindsey puts across very clearly is how the success of capitalism depended on institutional innovations. Many of the features which seem so dominant and inescapable and natural in our lives today are not, in fact, very old or deep-rooted. Imagine a world without corporations, for example.

Industrialization was as much an organizational as a technological revolution, and at the center of the action was the development of the large-scale business enterprise. Prior to 1850, it didn’t really exist. Nicholas Biddle ran the Second Bank of the United States during the 1820s and 1830s with only two assistants. Around the same time, John Jacob Astor, the richest man in America, employed just a handful of clerks to manage his American Fur Company.

That soon changed, as huge amounts of capital were devoted to large scale enterprises like railways or steel mills. The corporation became one of the central institutions of sociery.

But it was not simply a matter of organizations. It was a mater of cultural norms which encouraged trust. In many ways, a reputation for sober, church-going virtue and commited work ethic was essential to elicit cooperation.

 

Decline of Trust

Cooperation was essential to wealth and affluence.

The stupendous levels of wealth enjoyed today require the ability to pursue large-scale as well as long-term projects. We depend, in other words, on the cooperation if not the kindness of strangers—anonymous millions who somehow trust each other enough to do business together, and even to put their lives in each other’s hands. The Protestant bourgeois ethos greatly facilitated the emergence of such large-scale trust by providing a new and abstract form of unity founded on a shared faith and lifestyle. In their worship, dress, and manners, the members of America’s Protestant establishment ostentatiously advertised their “respectability,” and thus their trustworthiness in business dealings.

But the countercultural trends that developed in the sixties put some of this in doubt.

The continued commitment to the work ethic was also tinged with doubts. With the ebbing of religious zeal, worldly success no longer signaled proof of divine favor. And with the ebbing of scarcity, the once-obvious prudence of hard work and incessant accumulation was no longer unquestionable. Middle-class Americans sensed, if only dimly, that they were now in the realm of freedom—that continued participation in the extended division of labor was a choice, not a necessity.

Americans were steadily less willing to put up with deferral of pleasure, self-restraint or patience.

Now, rather than serving as a balm, affluence acted as instigator and rabble-rouser. The ethos of self-realization, unleashed by prosperity and empowered by the technologies and trust networks of the mass-consumption economy, would follow its own ineluctable logic—and the prudence and self-restraint born of the Depression and war years would soon be swept away.

Society became more socially liberal.

Now that the mass pursuit of happiness had begun in earnest, Americans grew increasingly restive in the face of any obstacle or constraint, no matter how deeply rooted or time-honored. In the logic of affluence, once physical necessity receded, the confinements of conventional necessity—the dictates of custom and established authority—began to crack and crumble.

 

Other people are the challenge

This also meant that for the first time the main obstacle to progress was not indiferent nature, with its storms and famines and floods - but lack of social cooperation with others.

According to Riesman, the rise of the other-directed ethos was a product of growing affluence. “Increasingly,” he wrote, “other people are the problem, not the material environment.” As a result, the pugnacity and intolerance of the old Protestant bourgeoisie had become outdated and dysfunctional. In the kinder, gentler world of the office place and suburban block party, a more genial, tolerant, relativistic frame of mind was needed. “The other-directed person must be able to receive signals from far and near; the sources are many, the changes rapid.

 


This recalls a point we saw Douglass North stressing in his book about understanding economic change. According to North:

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.

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.

The approach of the sixties radicals did not deal successfully with the human environment. It reinforces the core of what North says:

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

The Aquarians did not do that. Our challenge as a society is to adapt to change with new institutions that do. Some of our most familiar institutions, such as corporations, the labor market, and money income, may need to evolve and adapt a bit.

 

Hamiltonians versus Jeffersonians

Here's a review in the NYT of Michael Lind's Land of Promise: An Economic History of the United States. Lind tells the story as a long dispute between small-government and small-business oriented Jeffersonians, and big- organization oriented Hamiltonians. David Leonhardt says in his review:

These cycles have continued, more or less, for 200 years. Lincoln — a state legislator during Jackson’s time who fought for federal investment — was the great Hamiltonian of the 19th century. After the South left the Union, Lincoln, with the backing of Congress, was able to undertake an investment bonanza that Southern representatives had blocked, building rail lines, roads and colleges. Many of these programs would ultimately help industrialize the South.

Lindt advocates the Hamiltonian view, arguing that large-scale investment drives the economy. As the political climate has become more laissez-faire and Jeffersonian since Reagan, growth has slowed too.

The reviewer points out that does not expain why the US has become much richer than other countries that were, if anything, more Hamiltonian. A Jeffersonian culture of small entrepreneurship and risk-taking might have something to do with it.

The book ends on an optimistic note. Leonhardt says:

The notion that the United States has stopped making many large-scale investments that bring great returns is not, in Lind’s view, surprising. American economic history tends to run in cycles. Yes, our roads and bridges are dilapidated. Our broadband infrastructure is not quite world-class. Our schools, including many colleges, can no longer claim to be the finest. But the economic need for change will eventually create the political will for it. “Land of Promise” ends on as optimistic a note as the title suggests, though it also acknowledges that failure is an option.

I doubt I'll get round to reading the book for some time. But it sounds interesting. In a way it is comforting to know earlier debates about "internal improvements" eventually were resolved in a way that resulted in rapid growth. I'd incline more to the Hamiltonian side, although with a suspicion of how it can also produce corporatist complacency and bureaucracy.

For me, though, one reason we have stopped making large-scale investments is social transfers, largely to the elderly, have crowded out new infrastructure investment. Even if you accept the liberal case for government investment - and I do, to some extent, when it comes to infrastructure spending at sensible non-Japanese levels - in practice, liberal ideas about "investment" in social programs tend to be one of the main obstacles to finding the money.

It is also the old debate about state versus market at one remove - big organization versus small organization. And as I often say, I think the size of government debate Is a stale distraction. The market is an excellent tool, with some flaws and limits. It is not the only means of coordination and incentivization. Nor is big government.


 

Hamiltonians versus Jeffersonians

Here's a review in the NYT of Michael Lind's Land of Promise: An Economic History of the United States. Lind tells the story as a long dispute between small-government and small-business oriented Jeffersonians, and big- organization oriented Hamiltonians. David Leonhardt says in his review:

These cycles have continued, more or less, for 200 years. Lincoln — a state legislator during Jackson’s time who fought for federal investment — was the great Hamiltonian of the 19th century. After the South left the Union, Lincoln, with the backing of Congress, was able to undertake an investment bonanza that Southern representatives had blocked, building rail lines, roads and colleges. Many of these programs would ultimately help industrialize the South.

Lindt advocates the Hamiltonian view, arguing that large-scale investment drives the economy. As the political climate has become more laissez-faire and Jeffersonian since Reagan, growth has slowed too.

The reviewer points out that does not expain why the US has become much richer than other countries that were, if anything, more Hamiltonian. A Jeffersonian culture of small entrepreneurship and risk-taking might have something to do with it.

The book ends on an optimistic note. Leonhardt says:

The notion that the United States has stopped making many large-scale investments that bring great returns is not, in Lind’s view, surprising. American economic history tends to run in cycles. Yes, our roads and bridges are dilapidated. Our broadband infrastructure is not quite world-class. Our schools, including many colleges, can no longer claim to be the finest. But the economic need for change will eventually create the political will for it. “Land of Promise” ends on as optimistic a note as the title suggests, though it also acknowledges that failure is an option.

I doubt I'll get round to reading the book for some time. But it sounds interesting. In a way it is comforting to know earlier debates about "internal improvements" eventually were resolved in a way that resulted in rapid growth. I'd incline more to the Hamiltonian side, although with a suspicion of how it can also produce corporatist complacency and bureaucracy.

For me, though, one reason we have stopped making large-scale investments is social transfers, largely to the elderly, have crowded out new infrastructure investment. Even if you accept the liberal case for government investment - and I do, to some extent, when it comes to infrastructure spending at sensible non-Japanese levels - in practice, liberal ideas about "investment" in social programs tend to be one of the main obstacles to finding the money.

It is also the old debate about state versus market at one remove - big organization versus small organization. And as I often say, I think the size of government debate Is a stale distraction. The market is an excellent tool, with some flaws and limits. It is not the only means of coordination and incentivization. Nor is big government.


 

The Facebook Illusion

Ross Douhat says he takes dyspeptic pleasure from Facebook's disastrous IPO. It shows, he argues, that there is a more general illusion: that Web 2.0 is a durable new economy.

From the lowbrow to the highbrow, LOLcats to Wikipedia, vast amounts of Internet content are created by people with no expectation of remuneration. The “new economy,” in this sense, isn’t always even a commercial economy at all. Instead, as Slate’s Matthew Yglesias has suggested, it’s a kind of hobbyist’s paradise, one that’s subsidized by surpluses from the old economy it was supposed to gradually replace.

A glance at the Bureau of Labor Statistics’ most recent unemployment numbers bears this reality out. Despite nearly two decades of dot-com enthusiasm, the information sector is still quite small relative to other sectors of the economy; it currently has one of the nation’s higher unemployment rates; and it’s one of the few sectors where unemployment has actually risen over the last year

 

Of course, I'd argue it's a more general phenomenon than just social networking. Other sectors of the economy are going to face steadily more employment pressures too.

I can't help feeling some schadenfreude at Facebook myself, even if Maek Zuckerberg still walks away with $17 billion nonetheless. I have a Faceook account but hardly ever log in. I just don't trust the company. I don't want it to have personal information, and then change its privacy settings in some complicated way yet again.

Why recession? Culture and perceptions haven't kept up

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


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

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

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

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

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

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

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

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

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

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

 

The Bridge

 

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


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


That could almost be a personal mission statement for me.