Change can go faster than our commitment devices to cope with it

In other words, (below), economic and social change can run faster than society's ability to evolve mechanisms to cope with it. We will tend to make narrow, short-term and selfdefeating choices if we do not have social commitment devices to help us.

The Challenge of Affluence

I said earlier that people often make mistakes in their preferences and plans for the future. And we also saw a nobel laureate in Economics, Joseph Stiglitz, talk about how mainstream economics simply assumes preferences are fixed.

One very brilliant recent exploration of how people cope with change and look at the future comes from Avner Offer of Nuffield College, Oxford (near Oxford Ralway Station and the bus terminal of course. Something they didn't have to consider when they founded Merton or New College). His book, The Challenge of Affluence: Self-Control and Well-Being in the United States and Britain since 1950 is a remarkable study of some of the limitations of how we cope with change and think about the future.

His most basic ides is "Affluence breeds impatience, and impatience undermines well-being."

The paradox of affluence and its challenge is that the flow of new rewards can undermine the capacity to enjoy them. All experiences are ultimately in the mind. They demand attention and time. Attention can be taken as the ultimate currency of well-being. At any given moment we can "consume" it, by focusing on one or more pleasant and enjoyable activities. Or we can "invest" in some activity which holds out the presence of more satisfaction in the future.

Well-being is not measured merely in the abundance of goods and services. It requires a sustainable balance between the present and the future. This requires a personal capacity for commitment. Call this capacity "prudence". Prudence is not easy.

The opposite of prudence, imprudence, is also pervasive, but nevertheless presents a puzzle to social scientists. If people know their own interests, why should they make self-defeating choices? When choices imply adverse consequences, they are called "time-inconsistent." More colloquially, I call them "myopic choice."

At any given time.. the capacity and exercise of self-control increases with social standing and wealth. But with the passage of bistorical time .. and as affluence has risen overall the capacity for commitment and for prudence has declined. Prudence has built up affluence, but affluence has undermined prudence. What accounts for this reversal is myopic choice. 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.

Among other things, Offer shows how our view of the future does not display the present value discounting assumed by economic and financial theory, but rather "hyperbolic discounting"- there is a kink in the curve which makes us undervalue the medium-term.

Also note (although Avner does not say this ) we should expect negative consequences like this from an evolutionary process. Parasites are always evolving faster than the target species. Change always presents opportunities - but also opportunities for negative forces.

Earthquake in NYC

So a mild earthquake feels like a gentle swaying on a boat. I'd never felt an earthquake before. I was sitting at my desk, just after lunch, when there was a strange sensation of motion, almost like being gently rocked. Nothing fell. But the world felt just ever so slightly liquid. I thought it was some kind of constrction - we used to get occasional blasts from deep excavation for water tunnel three, It didn't occur to me to duck and cover. And then it was over.

It certainly added a bit of excitement to the afternoon. I was surprised the epicenter was so far away, in Virginia.

The intellectual collapse of left and right

An article in the FT (firewall) arguing neither the GOP nor the Democrats have a coherent case.

Democrats and Republicans alike are failing to convince the American people that they have the answer to their country’s problems. Underneath, however, lies a deeper intellectual confusion. The two most plausible visions developed by the US centre-left and centre-right – the “knowledge economy” and the “ownership society” – lie in tatters, leaving a void in America’s discussion of its economic future.

Coffee tables and the economy

The problem we have as a society is not how to produce more stuff.

Of course we personally like stuff. G and I went out and bought a beautiful new coffee table over the weekend. It will replace a wobbly old IKEA table we bought ten years ago and only kept because we didn't see anything else we liked. The old IKEA one was just the right size to balance wine glasses and food and candles and too many books. The new one will be almost the same size, but elegant - and not in danger of collapse. We did our little bit for the consumer durables numbers.

In general, thouggh, our personal problem is we have too MUCH stuff, especially for a small New York apartment. If we want something new, usually something old has to go. (Bye bye, prefabricated Swedish table!)

Somehow, we can't apply that to books, which multiply on the shelves like rabbits. We just hope Kindle books wil save us by being pleasingly immaterial and giving the shelves a break.

Everyone seems to buy up to the point there isn't enough closet space, the kitchen drawers are filled to overflowing with tools, the garage is filled with junk if you have one, and there's no more space for furniture. No matter how large a house you have, people seem to fill it. People go into debt almost without realizing it to buy clothes and shoes and gadgets and kncik-knacks they don't even have space for.


Maybe what we need as a scoiety is not to generate new goods and services, but new ends.... new purposes.

But this is not purpose as moral crusade either. By that I mean something which tries to change norms of social acceptability alone, and stigmatizes anyone whom does not get with the program. Or a big cause for which everything and everyone must be sacrificed, or some general abstraction like equality or liberty. That sort of political movement has proven very dangerous, and leads from everything from civil society sanctimoniousness up to Maoism. New semi-utopian social movements are just as likely to produce famine and tyranny as progress.

We also need to think more about where new purposes and new needs come from. This is the heart of the issue of economic change - and also the faith that many economists have that somehow new markets and demand will open up as old ones are filled.

The assumption is entrepreneurs will somehow find those new needs and markets. But traditional mainstream economics does not know very much about entrepreneurs, even if they play a major role in Schumpeter's view of the economy.

It all means I need to look at entrepreneurship and how anythingnew gets started as well. How do we discover and satisfy new needs, especially when the future is so unpredictable and uncertain?

The Elusive Big Idea

This article in the NYT on August 14 argues society does nor pay attention to big ideas any more. Hmm mm.

We have everests of information, but we do not think much about it any more.

But if information was once grist for ideas, over the last decade it has become competition for them. We are like the farmer who has too much wheat to make flour. We are inundated with so much information that we wouldn’t have time to process it even if we wanted to, and most of us don’t want to.

In effect, we are living within the nimbus of an informational Gresham’s law in which trivial information pushes out significant information, but it is also an ideational Gresham’s law in which information, trivial or not, pushes out ideas.

We prefer knowing to thinking because knowing has more immediate value. It keeps us in the loop, keeps us connected to our friends and our cohort. Ideas are too airy, too impractical, too much work for too little reward. Few talk ideas. Everyone talks information, usually personal information. Where are you going? What are you doing? Whom are you seeing? These are today’s big questions.

So this means ....

Money is not as simple as the coins or notes in your pocket.

It has a history; it has constantly evolved, together with related social technologies like credit, banking, accountancy and the state;

It is very different to even fifty years ago ; a world system of fixed exchange rates and restricted capital flows has changed into an unstable interlinked, complex web;

We are not very good at understanding its nature, as shown by inflation - the cancer of money- asset bubbles and financial disasters.

Money depend on institutions and trust and confidence.

If the whole economy is changing, the nature of money inevitably is too.

We use money to keep the score ... But what is it for?