These three swashers

There are three types of economics:

1) The philosophical study of what kind of economy it is morally right to have. For lack of a better term, this is usually called "political economy."

2) The science of economics. This includes a broad spectrum of topics: with the study of mathematical optimisation at one end, and the sociology of market microstructure at the other. It is concerned with the objective (insofar as it is possible) study of the economy as it is (or of abstractions of same).

3) The practical discipline of applying the lessons learned in the science of economics (2) in the pursuit of the ends identified in the philosophy of political economy (1).

Too many "economists" do themselves a disservice by doing (3) without having the honesty to admit they do (1), or that doing (1) is even necessary or possible. This means that they do (1) badly and (2) even more so.

More economics, and similar

I left the following comment at this post on Falkenblog, which was itself in response to this post by Paul Krugman:

Krugman contemptuously ridicules Paul Ryan's proposed budget because it freezes discretionary spending in the future, as if this modest fiscal restraint is insane. How is this sustainable?

Government can choose one of two options:

1) The government can reduce spending at the same time as households and businesses (which is what Ryan's plan amounts to), resulting in a fall in aggregate demand and concomitant rise in spending due to increased welfare provision and falls in tax revenue due to falls in GDP.

or

2) The government can borrow to increase spending, thus stimulating demand and increasing GDP, thus increasing tax revenues, allowing the government to service the debt it has incurred.




"In a private company, if you are losing money you cut until revenues meet expenses"

Clearly you have never worked in a high-tech startup.

Many businesses "lose" money for years before they start making profits. They borrow money to invest in future growth, much as the US government can borrow to invest in future growth.

Economics, and similar

I left the following two comments on this post my Mario Rizzo, which was commenting on this post by Brad DeLong:

Brad DeLong is ot making an epistemological point, he is simply saying that there are two kinds of people who call themselves economists:

1) Hacks
2) People who study the economy

He does not claim that economists in sense 2) do not create theories to explain economic behaviour, he is simply claiming that there are are a large number of economists in sense 1) who create models containing assumptions that lead to those models leading to conclusions that are conducive to the desires of powerful individuals.

and

“ot” should be “not”, of course.

And can I confirm, Mario Rienzo, that you think that people who sincerely try to understand things about the world are “pathetic” and of the same order of moral depravity as people who deliberately try to undermine the free and fair discussion of ideas by pushing ideas that favour their own interests whilst knowing these ideas to be wrong?

Go read both posts and tell me what you think.

Low-rent shitheads

There's no other way to say it: Barack Obama, a once-in-a-generation political talent whose graceful conquest of America's racial dragons en route to the White House inspired the entire world, has for some reason allowed his presidency to be hijacked by sniveling, low-rent shitheads.

Read, as they say, the whole thing.

Why the free market is not meritocratic

The price system does not reward ability. If you want people’s earnings to reflect their ability, therefore, you can’t have a free market.

This simple point is both obvious and universally ignored. Consider:

Bonuses for executives and traders have increased over the past 30 years - can anyone really claim that traders and executives now are actually “better” than traders and executives from 30 years ago?

(Traders and execs now have access to better tools, but surely this is an argument for paying the providers of said tools more rather than the people who use them?)

The point about the free market is that it signals demand. It does not reward past performance, but indicates what people *should* do in the future.

As the free market does not reward past performance (90 year old retired executives can’t go back to their former employers and demand more money from them now because they weren’t paid as much 30 years ago as their replacements are now) the free market cannot be a meritocracy.

The best thing about the free market is the way it matches supply to demand. It is this very thing that means it is not meritocratic.

The best social worker in the country probably earns no more than the average taxi driver.

A History of Economics

I forgot to mention I read this book a few weeks ago. Galbraith is an excellent and entertaining writer.

An underlying theme is Galbraith's emphasis on how the economic ideology of different historical periods seems to flatter those who hold power. Hence you have physiocrats in France during the 18th century, mercantilists during the 17th century, and neoliberalism during much of the 20th century, with a dash of Keynesianism for those who like that sort of thing.

I was reminded of this book whilst reading this lengthy thread at Crooked Timber in which Daniel "dsquared" Davis argues that economics should really be split into two disciplines: industrial cybernetics and political economy, with one being based on the development of practical applications of empirical research (like engineering) and the other being based on a discussion of the ethics, morality, and political consequences of different policies (basically a branch of political philosophy).

IIRC Galbraith endorsed this point: the idea that you can separate ideology from reality in political discussions is naive in the extreme (as Daniel argues here). Also Galbraith coined the term "the conventional wisdom" to describe beliefs that are widely assumed to be true for the sake of ideological convenience (think EMH, rational agents, drugs are evil etc)

I was going to write up a lot of quotations but frankly I can't be bothered: I advise you to buy and read a copy of this excellent history of this peculiar science.

[image from here]

A mixed bag of economics

I took this test Are You an Austrian? The actual number of ticks for each economic tradition I got are as follows:

• Keynesian/Neoclassical: 10
• Chicago: 8
• Austrian: 5
• Socialism: 1
• Keynesian: 1

My score was 47/100. So I am nearly half Austrian. Who knew?

Ranting about nothing very much

This Are You an Austrian? [1] quiz has some fail in it. Take question 4:

What is the economic impact of saving?

The first two of four multiple choice answers to this question are:

In normal times, saving is not economically harmful but in a recessionary environment it can cause the economy to spiral downward.

Saving reduces consumer spending and may not be translated into investment spending because of investor pessimism. This will reduce total demand in the economy and lead to unemployment.

One way of correcting this is to expand the money supply to keep interest rates low. This will support private investment and stimulate total spending in the economy.

Fiscal and monetary managers need to implement policies that discourage hoarding and encourage current expenditure. As for saving over the life cycle of individuals, we need a social safety net that will provide for people in their older years.

and

The vast accumulation of wealth within select classes and families creates an economic oligarchy that shuts out those who cannot gain a foothold within the economic system.

Inheritance taxes, and taxes on dividends, are essential to a society that values equality. After all, the yield from vast bank accounts really amounts to unearned income. No society can tolerate some people living off interest while others live paycheck-to-paycheck off the meager sums offered by minimum wages.

The first answer is basically right, but the second seems like a non sequitur straw man version of a raging Marxist. What does inheritance tax have to do with the question of whether saving is good or not?

[1]: Economist, that is.

G20: what was that about?

Since I read The End of Politics by the august Chris Dillow I have become even more sceptical of the capacity of politicians to identify and accomplish worthwhile goals.

So news that the 20 most powerful politicians on this fair globe of ours have got together and have decided that something must be done is not especially comforting, especially as much of what they suggest seems tangential to the main problem of anthropogenic climate change.

This is unsurprising given the other great lesson of The End of Politics is that there is no such thing as a clearly defined national interest or even (within fairly wide parameters) such a thing as a single global interest. Any government policy will result in winners and losers. There will always be tradeoffs between different interests. TANSTAAFL.

And yet rather than focus on the big problem of a powerful, complex, open, and unpredictable system that we also all happen to live inside these 20 individuals chose to focus on a powerful, complex, open, and unpredictable system that we all happen to rely on for ongoing wealth and economic development (I betcha can't tell which one is which!).

Mmm. Tradeoffs at work.

I have not opinion on the credit crunch. I imagine things will be back up and running soon enough. As to the climate it is best to try to tread as lightly as possible and stop pushing the button. We've got a good thing going on here: it would be a damn shame if we continue pissing it up the wall.

And it is not managerialist to desire that governments do something about climate change. Given the potentially huge negative consequences of continuing to vent gas this can be thought of as a case of stopping a crime: one of the few things that it is generally agreed states are pretty good not bad at.

But I repeat: there are always going to be winners and losers.

Which is why it is important that everyone is consulted, everyone's point of view is heard, and the losers are given respect and sympathy for their plight.

That is why the death of one of the protestors at the summit was particularly sad.

The Put People First campaign achieved a couple of it's goals: tougher action on tax havens, and closer regulation of all financial instruments. But there didn't seem to be any particular emphasis on the environment or climate change, undoubtedy the areas where most medium and long-term good can be accomplished.

I'm sure I'm not the only one who can read and has access to a history book. Financial panics and recessions happen every few years.

But if there is one good thing politicians can do it is to try to find some way of averting the negative consequences of anthropogenic climate change.

A global $100/barrel all-border tariff on crude oil would be a good start: such a tax would avoid the colossally complicated, inevitably inefficient, bureaucratic corruptofest that any kind of "embedded CO2" tax system would entail whilst encouraging investment in innovative alternatives to our current oil-based infrastructure.

Combine it with a cap 'n' trade system for CO2 emissions and we're well on our way to dodging the climate change bullet.

Fiskal policy

It's not often you get the chance to say you're smarter than the shadow Cabinet Office Minister, from the BBC, we find Gordon Brown has cancelled his email account.

Francis Maude objects:

Mr Maude said: "Gordon Brown is spending taxpayers' money on the latest digital gimmicks, from Twitter to Flickr, but can't be bothered to give out a simple email address.

"The beleaguered Prime Minister is literally retreating to his Downing Street bunker, cutting himself off from an angry and disillusioned electorate.

"In the depths of a recession, it is a waste of taxpayers' cash to be hiring a £160,000 a year head of digital engagement and setting up an office in the virtual world of Second Life."

Now even I know that recessions are caused by falls in aggregate demand. Far and away the worst thing the government can do in a recession is to cut spending on anything.

And as for email I doubt very much it was of any use. I'm with Donald Knuth on this one.

Why I am not a minarchist libertarian

I've been reading Charlotte Gore's wonderful weblog, having being directed there by the sublime People's Republic of Mortimer.

Gore describes herself as a "libertarian liberal democrat." This is fair enough, but she is also a minarchist (and especially here):

I used to think - that the alternative to what we had was Afghanistan or some African style government.

I've changed my tune on that. The most important part of any Government is the rule of law - the ability to enforce contracts, maintain a monopoly on force and be subject to the rule of law themselves.

...

I'm not an anarchist. I want a state - I just want one that acts as nothing more than a framework to make free and honest trade possible and otherwise keeps out of people's lives. Upholding the rule of law is more important than anything - consider Iraq with democracy but without rule of law, for example.

I want this because free trade is the key to creating wealth, which improves the quality of our lives, advances technology and makes things cleaner and more efficient.

Free trade, you see, makes everyone richer because when two people trade in their mutual self interest both are made wealthier as a result.

It is this the implicit assertion that the actions of the state (in addition the maintaining the rule of law) cannot add to the wealth¹ of everyone that I intend to refute.

Consider the following two scenarios:

1. A person living in a minarchist, night-watchman state has a business idea. They know that if their business works they could change the world for the better; create hundreds of rewarding jobs; initiate a whole new industry; and make them famous and wealthy and respected for their inventiveness and brilliance.

But they're smart enough to realise that there is a risk their business could fail. They have a good job at the moment. They have a family to support. One of their children has a disease that, although manageable at the moment, could degenerate at any time into a much more serious condition that will require intensive, and expensive, medical care.

The prospective entrepreneur knows if they succeed they will get 95% of all the profits from their venture to keep for themselves, paying a small 5% tax on the gains to the night-watchman state.

2. A person living in a social democracy has a business idea. They know that if their business works they could change the world for the better; create hundreds of rewarding jobs; initiate a whole new industry; and make them famous and wealthy and respected for their inventiveness and brilliance.

But they're smart enough to realise that there is a risk their business could fail. They have a good job at the moment. They have a family to support. One of their children has a disease that, although manageable at the moment, could degenerate at any time into a much more serious condition that will require intensive, and expensive, medical care.

Taxation in this social democracy is high, to provide for the generous welfare payouts, state-funded R&D, high standards of education, and superbly generous national health service. The prospective entrepreneur knows he will have to pay at least 60% of all the profits he makes from his business to the state.

Now which of these two wannabe entrepreneurs d'you think is most likely to follow their dreams and set up their potentially wealth-creating business?

If you made your answer purely on the basis of their cost-benefit calculation then you probably agree with me that it would be the denizen of the social democratic state, but probably not for the same reason as I.

Do you think Steve Jobs is as rich as he is because he wanted to be a billionaire or because he loved making computers? Do you think Thomas Edison founded General Electric because he wanted some guy to take it over after he was dead and build the world's second largest company?

No! These geeks and misfits and entrepreneurs and Johnny Appleseeds did it for the love and adventure and sensawunda and because they couldn't help themselves.

Do you think Felix Dennis created Maxim magazine because he wanted a better skinmag for the sarky masses and also to make shedloads of moolah? Well yes, he probably did. But 60% of $240 million is $144 million more than 100% of nothing and a notebook full of good poetry.

A minarchist libertarian disputant would claim that I clearly know nothing of business: the individual entrepreneur may be doing it because they love it, but they need to get capital from somewhere. This will need to come from investors who want large returns to make up for the risky nature of business.

My answer to this is to be point out that in our hypothetical minarchist state where there is less propensity to start businesses there is less propensity to invest in the same. Why not stick it in a vault or buy land? Land isn't risky. Banks vaults are (no deposit insurance), but they're a damn sight less risky than investing in some nobody's idea for a business.

Further these libertarians might point out the bureaucratic monstrosity that social democracies inevitably end up as. The problem is that bureaucracy is not and has never been endemic to the public sector. Large corporations are as liable to it as anyone else.

At this point my hypothetical libertarian opponent might say that the only reason large companies are bureaucratic is because of state regulation. They might also throw in the point that bureaucratic companies will fail in the marketplace, as the costs of maintaining the bureaucracy lead to a lack of profitability.

To the first I say so be it. If bureaucracy is the price you pay for clean water and functioning aircraft then I'm fine with that. To the second I point out that if a company has to deal with particular regulations then so will all it's competitors.

At this point my assumptive adversary will presumably posit that the state is not accountable. Well, this is certainly true. But governments are (that's why they're called social democracies) and governments are nominally in control of the state. If bureaucracy really starts to irritate the people then they will elect a government that aims to put an end to it.

I'm all in favour of markets. They create wealth and foster innovation. And I'm all in favour of making markets as free as possible. But the notion that the state is always inimical to the creation and maintenance of free markets and innovative industry is nonsense. In many cases the state is necessary to foster industry in ways far beyond simply providing for the rule of law.

Look at South Korea in the last century. Look at industrial development in Britain during the Elizabethan period.

In both cases the state stepped in with tariffs and subsidy to protect industry at home².

Look at what came of ARPANET and the World Wide Web. Look at what came of Global Positioning System and the Liverpool and Manchester Railway.

The idea that the state is somehow "getting in the way" of economic growth is absurd.

The state needs to support economic growth through the provision of extensive civil amenities just as a poorly-educated, under-insured, and uncertain entrepreneur is likely to fail whereas a well-educated, healthy, well-informed entrepreneur is likely to succeed.

1: I get the free market, I do. My argument is not that the free market is a bad idea, just that it is wrong to think that there is more to the creation of human happiness than the creation of wealth and more to the creation of wealth than free markets.

2: I also get globalisation and maximum advantage. I won't go into that now as it would be a long and involved conversation that is orthogonal to my main point: a minarchist state is not a state that enhances economic growth OR human happiness.

In praise of failure

I disagree with the following part of In Praise of Idleness by Bertrand Russell:

But, I shall be told, the case is quite different when savings are invested in industrial enterprises. When such enterprises succeed, and produce something useful, this may be conceded. In these days, however, no one will deny that most enterprises fail.

That means that a large amount of human labor, which might have been devoted to producing something that could be enjoyed, was expended on producing machines which, when produced, lay idle and did no good to anyone.

The man who invests his savings in a concern that goes bankrupt is therefore injuring others as well as himself. If he spent his money, say, in giving parties for his friends, they (we may hope) would get pleasure, and so would all those upon whom he spent money, such as the butcher, the baker, and the bootlegger.

But if he spends it (let us say) upon laying down rails for surface card in some place where surface cars turn out not to be wanted, he has diverted a mass of labor into channels where it gives pleasure to no one.

Nevertheless, when he becomes poor through failure of his investment he will be regarded as a victim of undeserved misfortune, whereas the gay spendthrift, who has spent his money philanthropically, will be despised as a fool and a frivolous person.

What Bertie is missing is the value of the deductive tinkering in any new business endeavour.

What reading The Origin of Wealth has taught me is that the value of free markets lies in their ability to generate many new and interesting ideas, then apply a selection process to them, and then amplify the successful ideas.

Innovation does not just emerge from one Big Man with a Plan but rather from the collective efforts of thousands of competing enterprises, businesses, startups, and university faculties, all deductively tinkering their way around idea space.

Laying out surface car tracks, as in Russell's example, may not end up being economically useful, but if the business were (for example) to develop a slightly more efficient way of laying down track then there would be a positive outcome for humanity, if not for the erstwhile entrepreneur ¹.

The core lesson of The Origin of Wealth is that knowledge is value, and finding things out by trying and failing is a worthwhile activity, if not in the narrow rationally self-interested sense.

Update 02/03/2009:

Chris Dillow has a post up that has relevance to this point:

Labour is not just a cost, to minimized. It is - or can be - a form of satisfaction in itself - a way of asserting who we are.
It is on this point, of course, that Marxism starkly confronts neoclassical economics. Marx’s gripe with capitalism was that it transformed work from a means of expressing one’s nature into a force for oppressing and demeaning people. So great has been capitalism’s triumph that many of us don’t even appreciate the possibility that Marx could have been right. It’s just taken for granted that work must be alienated drudgery.

So not only is Russell missing the value of failure in business he also misses the fact that certain kinds of labour are enjoyable and that it is extremely difficult to determine beforehand what will make us happier and what will make us richer (in all senses of the word).

Hence trying and failing is good. Trying is good. And some kinds of work are good.




1. Unless he had the forsight to patent his improved track-laying process, then he could licence the method for profit. Humanity as a whole would still benefit from increased speed of track-laying and the innovation would become widely available after the patent expires.

On The Origin of Wealth

After a brief hiatus I have started reading this book again. Everything Taleb has written, sans the epistemic philosophy and general snark, can be seen as a subset of this book.

As I read Beinhocker is discussing how the observation that businesses evolve in the marketplace can be applied to practical strategy. He makes the point that for the most part conventional strategy and long-term planning is futile in the face of the complex non-linearities of the marketplace.

Beinhocker grounds his descriptions of economic activity in modern physics itself, rather than attempting to ape physics as many early economists (like Jevons and Walras) did.

Beinhocker defines wealth as useful order. And order is information, and useful information is knowledge. So knowledge is wealth.

Beinhocker says that value is created by:

• Irreversible actions
• Local reductions of entropy and
• Fitness

Fitness is determined by an evolutionary process, the free market, which can be thought of as a knowledge-generating machine.

Beinhocker advocates ideas similar to Alex Harrowell of the Yorkshire Ranter (who I suspect is familiar with the book), stating that we need to build institutions that evolve more effectively.

This sentiment runs counter to many traditional conceptions of Big Man, top down, authoritarianism. Politicians are praised for ignoring evidence and not adapting to circumstances.

The scientific method and free markets work so well because they lead to the creation of a large number of ideas and then subject each idea to testing, selecting the most successful ones, replicating and recombining these successful ideas, then repeating the whole process continuously.

The outcome is a an increase in knowledge, and hence wealth.

Timewasting

Since I made a conscious decision to stop reading newspapers a la Taleb I've found that I spend more time reading blogs, most especially the Yorkshire Ranter, Stumbling and Mumbling, and DSquared.

In fact the amount of time I've freed up by reading fewer newspapers has been entirely consumed by additional blog reading.

My attention span seems to be subject to its own version of Jevon's Paradox. Increases in the efficiency and quality of my text consumption are immediately swallowed up by an overall increase in the amount of text consumed.

I would prefer to spend my time reading substantive literature, both novels and textbooks, rather than blogs. However because I spend so much of my time sitting in front of an Internet connected screen I inevitably end up getting distracted by them.

Realisable fusion power

I commented on this fusion-fission hydrid reactor design on Futurismic a while ago.

Researchers at the university of Texas are developing a means to process spent nuclear fuel using fusion:

The scientists propose destroying the waste using a fusion-fission hybrid reactor, the centerpiece of which is a high power Compact Fusion Neutron Source (CFNS) made possible by a crucial invention.

The CFNS would provide abundant neutrons through fusion to a surrounding fission blanket that uses transuranic waste as nuclear fuel. The fusion-produced neutrons augment the fission reaction, imparting efficiency and stability to the waste incineration process.

The reason this is exciting is that it raises the possibility of a way of developing fusion technologies incrementally and economically. Instead of going all-out to build a nuclear fusion reactor in one step, putative nuclear fusion companies could market their wares as a means of processing the nasty transuranic waste output of conventional fission reactors.

This would provide fusion companies with a source of revenue to develop more advanced magnetic containment methods, and many of the other technical requirements of fusion electricity production.

The problem with fusion technology in the form of the ITER project is it's a massive, expensive, centralised, all-or-nothing endeavour.

I entirely support ITER: but it I'd love to see some this fission-fusion hybrid fuel cycle implemented in practice.

Charles Stross makes this point about incremental development but concerning the LiftPort group, a consortium that have made the mistake (as Stross sees it) of focusing on the development of an elevator system under the assumption that the revenue-generating fullerene cable technology would appear from somewhere else.

May Almighty illuminate our intellect and inspire us towards the righteous graph...

At the moment I'm reading The Origin of Wealth by Eric D. Beinhocker because Amazon kept bugging me with it every time I bought Taleb.

And those Amazon algorithms know their stuff: Beinhocker is like Taleb only more polite, less bombastic, and generally more interesting.

TOoW leaves out most of the epistemological stuff and concentrates on wealth. So far Beinhocker has gone over why neoclassical economics is nonsense (it treats the economy as a closed, non-dynamic system, which it isn't, and treats people as perfectly rational, which they aren't).

Beinhocker is working his way towards describing complex adaptive systems of the Murray Gell-Mann variety...

In the meantime he also writes about non-linear equations and deterministic chaos: like this equation here:

B_t+1 = r * B_t * ( 1 + B_t)

Where B is the value of something at time t, and r is some other number.

When r is set to 1:


Now if you set r to 2:




Now if you set r to 3.3:


Now if you set r to 4:


Which is, apparently, chaotic.

I had always thought that in mathematical terms chaos meant "randomness", but in fact the two are very separate ideas.

A system is chaotic if it:

1. Is sensitive to initial conditions,
2. Is topologically mixed, and
3. Has dense periodic orbits.

Now I understand the first of those points, but not the second or third.

More reading to do methinks...

Mystic double D

Reading a post on D-squared by David Davies is amazingly prophetic:

This is the doctrine of the "wealth effect", and if you can dig up a few factoids and linear regressions to illustrate it and avoid using the word "shit", you can make a quite decent living as a pundit by repeating the paragraph above. On the other hand, if you had been placing bets on a US double-dip recession so far, you'd have lost them, because Alan Greenspan and his merry gang at the Fed have a solution to this problem. Basically, the solution's pretty simple and it involves screwing interest rates down to the floor until mortgage rates follow them down to Low Low Prices levels, and pointing out to the Great American Consumer that it's "Bye-Bye, Magic Stock Market Bubble Money!" but "Hello, Magic Housing Market Bubble Money!". Marvellous.

This is pretty impressive.

What I'm reading now

• M150 Data, Computing and Information: Unit 5 Storing, getting and sending your data, OU.


• T173 Block 3 Patents: The engineer as innovator, OU.


• The Quark and the Jaguar: Adventures in the Simple and the Complex by Murray Gell-Mann.


• Sams Teach Yourself Java 6 in 21 Days by Rogers Cadenhead and Laura Lemay.


• Economics for Dummies by Sean Masaki.


• Four Laws That Drive the Universe by Peter Atkins.

I recently (and finally) finished reading Arthur Koestler’s The Sleepwalkers. It was referenced in The Black Swan by Nassim Nicholas Taleb.

Taleb said that Koestler highlighted how the idea that science has progressed in a straightforward fashion is wrong. Science has evolved through a series of sudden breakthroughs, and with much time wasted in intellectual dead-ends.

Taleb describes the most valuable property of the scientific method and the free market as “stochastic tinkering.” Having lots of people messing around with different ideas and business models increases your exposure to potential breakthroughs.

The idea that history is a series of clear and well defined developments inevitably leading to some outcome is a canard. History is a random and chaotic process.

Science and the free market are also random and chaotic. However it is precisely because of this randomness that science and the free market are so powerful.

Because the free market encourages new ideas and methods and allows successful ideas to achieve success at the expense of less successful ideas the ultimate outcome is a system that maximises the potential for good ideas to achieve widespread adoption.

Similarly with science. Good ideas succeed at the expense of bad ones. However in the scientific method the ideas are judged on the basis of the successful predictions they make, or the fact that they have yet to be disproved by experiment.

In the free market good ideas are judged on the basis of how profitable they are (theoretically).

Gell-Mann touches on many of the same ideas as Taleb, particularly regarding complexity and what Gell-Mann refers to as “complex adaptive systems.”

Discussion of ethics, capitalism, the environment, and what I should do with my life

I have been reading The Business by Iain Banks. It is an engaging read, despite the treacle-slow plot, and has plenty of the kind of feats of imagination that I like about Banks’ writing.

The main protagonist is a mid-to-high-level manager in “the business” – a generation-spanning organisation that supposedly bought the Roman Empire (but only for 66 days), owns several sets of crown jewels, and is as ubiquitous as it is unnoticed.

The internal set-up of the business is explored in some detail; it is vehemently rationalist, secular, meritocratic, and organised to avoid corruption, nepotism, and dynasty-building as these things are seen to get in the way of effective money-making.

As ever Banks’ imagination and prose add a great deal to the story, and his politics shines through as clearly as usual. Several pages are given over to debates about inequality, opportunity, capitalism, and the pros and cons of free markets and the state.

I am currently at 312/392 pages. I don’t know if there will be a twist at the end or not, but the book has already given me food for thought on a subject that has been worrying me for some time now.

I am currently 19 years old and in the very fortunate position of being able to choose how, where, and in what manner I wish to live my life. This is not a choice most people are offered. As such, I have been vacillating over the appropriate direction to take. Do I want to dedicate my life to the service of some greater good, or do I want to pursue my own aims and personal ambitions?

Reading A.C. Grayling’s The Choice of Hercules: Pleasure, Duty, and the Good Life in the 21st Century has helped a little. In the book Grayling argues that the idea that we have to choose whether to devote our lives to vice or virtue is a false one. At the same time H.J. Blackham’s Humanism suggests that I have a responsibility to myself, and a responsibility to everyone else by virtue of our common experience of humanity. Balancing the two is addressed by Grayling quite well in his book.

In any case the real cause of my concern over what path to take stems from the ideas explored in The Business. Is acquisitiveness good? Is greed good? Is it better to seek to grow and expand your wealth or persue other interests entirely?

Quite often this argument is subsumed by other arguments about capitalism vs. socialism; of free markets vs. state control; traditional morality vs. human nature; and arguments over the best way to raise people out of poverty and end tyranny and bloodshed.

These kind of political, economic and social arguments devolve to deciding whether or not our current system of liberal democratic capitalism (as typified by the USA, Japan, and the EU) is the best resource/scarcity-allocating system.

The definition of “best” is open for debate as well. Anyone asking for my beliefs on what is best should read the Universal Declaration of Human Rights, then read up on utilitarian philosophy and the golden rule. For the purposes of the rest of this essay I will assume “best” means that all resources are allocated in a manner which leads to an ending of human poverty ASAP, an ending to war, and provision for ensuring sustainable use of finite resources (read: avoiding anthropogenic climate change, preserving and enhancing biodiversity, repairing some of the damage we have already done to the environment and ensuring that in the long run human activity has a neutral effect on the environment).

This is a tall order for any prospective resource-allocation system, but I am confident it can be accomplished. The best book I’ve read on the subject of ensuring continuing and growing prosperity for all whilst maintaining the environment is The Meaning of the 21st Century: A Vital Blueprint for Ensuring Our Future by James Martin. In the book Martin argues for something called “eco-affluence.” Martin believes that with a combination of freer markets, more education (especially for women), and advanced technologies (most notably extensive use of genetic engineering, nuclear power, and hydroponics) we will be able to simultaneously solve our environmental and humanitarian problems. He makes an excellent case for the fact that they are one and the same problem, and that attempting to solve one whilst disregarding the other will end up exacerbating both.

From an objective perspective it is clear that if a better resource/scarcity-allocating system than liberal democratic capitalism ever emerged then we should immediately adopt it. Some might point to China’s model of state capitalism as an alternative solution, but they miss the point that what matters is quality of life. Most evidence suggests dictatorships are simply institutionally incapable of behaving in a benign manner.

Can you do good simply by aiming to become rich? You create jobs, you increase public tax revenues and hence the amount of money spent on welfare, hospitals, schools, etc. If you do it properly you create an environmentally sustainable business that provides people with a good service. You will probably have a lot of fun once you acquire wealth and then you can give it all away before you die.

There are a couple of ways of looking at problems in the world. One argument would be to say that the problem is corporatism. Whenever the needs and desires of an abstract collective are put above the needs and desires of individuals you get problems. An example that springs to mind is that of environmentalism. Environmentalists have an unfortunate habit of treating people as “the problem” rather than the only reason it is worth solving the problem.

In The Business “the Business” is a mechanism for allowing the flourishing of individuals – or is it a controlling corporate regime?

John Marnard Keynes, the economist whose theories of fiscal stimulus are currently being implemented by our politicians saw capitalism as a means to an end, a multi-generational project for creating wealth, growth, and technological innovation. His concept of capitalism was that it is a necessary evil; a mechanism for creating a greater good.
In his essay The Economic Possibilities of Our Grandchildren Keynes writes that:

The strenuous purposeful money-makers may carry all of us along with them into the lap of economic abundance. But it will be those peoples, who can keep alive, and cultivate into a fuller perfection, the art of life itself and do not sell themselves for the means of life, who will be able to enjoy the abundance when it comes.

It could be said that Keynes is too utopian – and that he doesn’t realise that humanity is inherently acquisitive and irrational. Maybe markets emerge naturally in all human societies?

To return to Iain Banks – A Few Notes on the Culture is well worth reading on the subject of what (I hope) a post-scarcity civilisation looks like.

And also (via Ken MacLeod) this libertarian commentary on the idea of "success" from Brian Micklethwait.

And finally, because this is a blog after all, what about me? What should I do? Start a business? Go study bioinformatics? Go study economics? Go study systems engineering? Write novels?

Private loss, public gain?

Since the credit crunch began in earnest I've been swotting up on economics. It's a fascinating study, fully of feedback loops and intuitively peculiar realisations.

For example: at the moment the average citizen of the UK owes a lot of money on mortgages, personal loans, and credit cards.

Intuitively you would suppose that high levels of debt are a bad thing and, taken to extremes, they are.

However what if everyone were to suddenly start saving? Anatole Kaletsky says this would be bad as well:

The main reason comes down to a simple proposition that almost nobody in politics seems to understand: for every saver there has to be a borrower.

This means that whenever people feel like they have borrowed too much and want to increase their savings, somebody else in the economy must increase borrowing to match the extra savings, pound for pound. Because every pound of savings is a claim on a pound of somebody's wealth - and the only way to acquire such a claim is either to invest directly in a house, a factory or a business asset, or to lend money to someone else who will do this for you. Putting money in the bank is just another form of lending, in this case to the bankers.

From what I can gather economic theory suggests doing all things in moderation.