Wednesday, June 25, 2014

Let Them Eat Beans!

Let Them Eat Beans: Tyler Cowen’s Neofeudal Dystopia – coming to a shantytown near you.

I’ve mentioned the Book Average Is Over many times before, and here, finally, is my review. The author of the book, Tyler Cowen, is an economics professor at George Mason University, and is affiliated with the Mercatus Center, a neoliberal/market oriented think tank (and yes, there is Koch brothers money involved here). He is also maintains the excellent Web Site Marginal Revolution (with Alex Tabarrok), one of the few libertarian blogs worth reading, and considers himself a “small-L” libertarian.

Despite these dubious affiliations, he is an idiosyncratic thinker, and not afraid to wander off the libertarian reservation, which makes him worth reading, unlike many of his peers who are simply courtiers and propagandists. He is best known before this book The Great Stagnation, which argued (against the libertarian party line*) that slower American economic growth results from harvesting the low-hanging fruits of innovation, and new inventions are useful, but don’t add up to as much GDP growth as past innovations**. However, he has the obligatory silver lining, arguing that this is only a temporary rough patch and things will get better in the future (a standard in his work; he will make the same argument in Average, as we shall see). He is usually mentioned in the context of stagnationist arguments, although economists like Robert Gordon have stolen much of his thunder, following such conclusions much further, and being much more pessimistic about future growth.

About that title. It comes from a column by "the pope of globalism," Thomas Friedman (which ought to tell you something right there). I can’t do better than this wry commentary on Thomas Friedman: Tom Friedman: A New Ayn Rand for A Dark Digital Future
 Consider this passage from Friedman’s column:
“In a world where, as I’ve argued, average is over — the skills required for any good job keep rising — a lot of people who might not be able to acquire those skills can still earn a good living now by building their own branded reputations, whether it is to rent their kids’ rooms, their cars or their power tools.”

This paragraph reads like a Zen koan pieced together from cast-away fragments of motivational sales speeches. We’re left to infer the meaning of its more obscure phrases from their context, the same way World War II code breakers cracked particularly difficult passages in enemy telexes. So let’s try to tease out its meaning, phrase by phrase:

“In a world where, as I’ve argued, average is over …” (Emphasis from the original.)

“Average is over”?  Averaging is a mathematical function, inextricably woven into the fabric of reality as we understand it. How can it be over? It’s like saying that subtraction is over, or means and medians are null and void.  (Watch yourself, standard deviation. Thomas Friedman has his eye on you.)

What’s he really saying here? The “as I’ve argued” offers one clue to motivation, if not meaning: Anything self-referential from this author – and that’s a lot – is a signal that he’s floating another potential “The World Is Flat” book title.

But what’s he saying?  Our context-driven code-breaking takes us to the next phrase:

“… the skills required for any good job keep rising …”

Ah, I see. “Average is over” is connected to job skills. Friedman apparently means that you can’t get a good job anymore if your skill level is only average.

Why didn’t he just say so?
Well, Tyler Cowen used the book title, not Tom Friedman, and that is exactly what he's saying. Since most of us, by definition are average (I know I am), we are “over.” What he means is that anyone who is not “above average” can kiss any kind of stable, prosperous existence goodbye in the new world of corporate libertarian capitalism. That is the core message of the book. I found this comment to a recent MR post a good summary:
Consider the bell curve distribution of IQ in the general population. Now consider a curtain being drawn across that graph from stage left. As that curtain, which represents technological advance, blankets a population segment, it renders them useless in terms of economic competitiveness. 
We didn’t much care when this impacted those with an IQ < the mean, but the curtain's leading edge is now at 1 σ above the mean, and accelerating to the right. How long till you and your family are also rendered useless? You will mistakenly overestimate that value.
Basically in addition to Friedman, it rides on the back of the work of MIT economists Brynolfsson and McAfee (and to a lesser extent David Autor), arguing that automation will disrupt much of the workforce through robots and smart machines (the self-driving car gets particular mention). The book dismisses starry-eyed notions of a singularity or post-scarcity, and instead makes the case that people laboring complementarily with machines is the wave of the future, using something called “freestyle chess” as an example*** where teams are allowed to make use of computers in tournaments, yet still make the executive decisions themselves****. Computers will also lead to a lot of low-cost or free services like education. The book claims that people who are conscientious, disciplined, and highly social will prosper due to these developments, while those who are not will experience falling living standards and precariousness. The book provocatively argues that women, who generally rate higher on conscientiousness (I would say docility and malleability) and are generally more sociable will be the big winners and men the big losers (also indicated by falling rates of men graduating from college). In other words, the way he sees it, the benefits of digital technology will not be broadly shared among the American people, as some optimists claim, but instead accrue to a tiny elite that owns the machines, in line with the more pessimistic vision.
"It's clear: The world is demanding more in the way of credentials, more in the way of ability, and it is passing along most of the higher rewards to a relatively small cognitive elite. After all, the first two categories of earnings winners--namely those with advanced degrees--account for only about 3 percent of the US population"
What this means is that a small slice of the American workforce will be wildly successful, living “like today’s millionaires”  – Cowen puts this number as 10-15 percent of the American workforce. As for the rest of us, well, the outlook is not so good. While he never uses the new portmanteau term “precariat” this is exactly what he’s describing. The vast majority will be marginally attached to the workforce with intermittent and temporary employment, enjoy few or no benefits, no upward mobility, little chance to accumulate wealth or savings, or even gain a modicum of stability or job security. Shared prosperity will be a distant memory. Some workers will even be "zero marginal product" workers - unable to be hired at any price. Cowen speculates the arrival of vast shantytowns and slums outside American cities, including “off the grid” living in tents and mobile homes for many. The middle classes will be hollowed out leading to a society of spectacularly rich and oceans of desperate poor, very similar to Latin America or Southeast Asia. In other words, Inequality, already at Great Depression levels, is just getting warmed up, says Cowen.
"We will move from a society based on the pretense that everybody is given an okay standard of living to a society in which people are expected to fend for themselves much more than they do now. I imagine a world where, say 10 to 15 percent of the citizenry is extremely wealthy and has fantastically comfortable and stimulating lives, the equivalent of current-day millionaires albeit with better health care."

"Much of the rest of the country will have stagnant or maybe even falling wages in dollar terms, but a lot more opportunities for cheap fun and also cheap education. Many of these people will live quite well, and those will be the people who have the discipline to benefit from all the free or near-free services modern technology has made available. Others will fall by the wayside."

"It will become increasingly common to invoke "meritocracy" as a response to income inequality, and whether you call it an explanation, a justification, or an excuse is up to you. Since the self-motivated will find it easier to succeed than ever before, a new tier of people from poor or underprivileged backgrounds will claw their way to the top. The Horatio Alger story will be resurrected, but only for those segment of the population with the appropriate skills and values, namely self-motivation and the ability to compliment the new technologies...This framing of income inequality in terms of meritocracy terms will prove self-reinforcing. Worthy individuals will in fact rise from poverty on a regular basis, and that will make it easier to ignore those who are left behind....what does that mix of values mean for actual social choices? We'll pay for as much of a welfare state as we can afford to, and then no more."
There are a few things computers can’t do, he says, and one is come up with good marketing ideas to sell to the new rich class. Because only a small slice of America will have a job or reliable income, everyone will want a piece of them, so Cowen sees marketing to this new elite as a major job of the future. Due to vast disparities in power and wealth, people will be aggressively clamoring for any moment of time or spare dollar from the wallet of the elites – he uses the analogy of a billionaire rolling in a limousine through the streets of Calcutta, and anyone who has stepped off the plane in a poor country and been immediately inundated with salesmen and con artists can relate (except those people will now be us).
"Despite all the talk about STEM fields, I see marketing as the seminal sector for our future economy...If you imagine two wealthy billionaire peers sitting down for lunch, their demands for the attention of the other tend to be roughly equal. After all, each has a billion dollars (or more) to spend and they don't need to court each others for favors so much...Compare it to one of those same billionaires riding in a limousine, with open windows, through the streets of Calcutta. A lot of beggars will be competing for the attention of that billionaire, and yet probably the billionaire won't much need the attention of the beggars. The billionaire may feel overwhelmed by all of these demands, and yet each of these beggars will be trying to find some way to break through and capture but a moment of the billionaire's attention."

"This is in short what the contemporary world is like, except the billionaire is the broader class of high earners and the beggars are wealthier than in India. Instead of begging, there is a large class of people trying to command our attention using modern technologies such as email, spam, AI-targeted advertisements, coupons, Groupons, direct mail, advertising supplements in your credit card bill, and flashing ads on the Internet, among hundreds of other techniques...getting attention will continue to be a critical function in the new world of work and is likely to require ever-greater effort and sophistication."
Billionaires and beggars? Nice analogy for the new economy. Millions clamoring for their attention and table droppings. Doesn't sound like a very "efficient" economy now does it? Does that seem like a good use of natural resources or human capital? Are you ready for even more intense advertising (is that even possible?)

The other thing digital technologies aren’t very good at is human interaction and motivation. Thus he sees the rise of a new servile class of motivators and coaches to motivate the one percent to “achieve” even more, along with educational tutors, personal chefs, personal trainers, event planners, and other assorted toadies to the new aristocracy as a major job growth field for the new underclass - just like Downton Abbey, except you live alone and have to pay for everything yourself.
"High-skilled performers, including business executives, will have some kind of coach. There will be too much value at stake to let high performers operate without a steady stream of external advice, even if that advice has to be applied rather subtly. Top doctors will have a coach, just as today's top tennis players (and some of the mediocre ones) all have coaches. Today the coach of a CEO is very often the spouse, the personal assistant, or even a subordinate, or sometimes a member of the board of directors. Coaching is already remarkably important in our economy, and the high productivity of top earners will cause it to become essential."
Pervasive automation will have other knock-on effects. Everyone will be continually monitored and tested by digital overlords, from birth to death. Your productivity will be ruthlessly monitored 24-7 and regularly tested, so that even a slight trip up will cast you down into the underclass if you can’t keep up. If you have visions of a fluorescent-lit digital cubicle sweatshop where employees labor away under a tireless all-seeing eye watching every move for the benefit of the owner class in the executive suites, well, so do I. Since this affects his class, Cowen manages to muster a bit of sympathy for these workers, unlike the rest of us. Even the “winners” will be losers in this new system. I imagine much higher rates of drugs to keep up and ameliorate the psychic effects of this digital tyranny (Adderall, Provigil, Paxil, etc.). This measurement and sorting of the economic sheep and goats will begin frightfully early, so your economic destiny will probably be determined by age 7-8 or so, if not earlier, so if you aren’t a genius by age 7 or don’t fit well into the school system from an early age, well, get ready to stack shelves or work the deep fryer. While obscure prodigies will rise to the top thanks to this (Cowen relies on a sole example of an obscure Mongolian math genius), for most of us, Cowen warns ominously, there will be “far less second chances.” Our “permanent record” will follow us from birth to death, determine everything about our lives, and be uneraseable and inescapable.
"Another development is this: The better the world is at measuring value, the more demanding a lot of career paths will become. That is why I say 'Welcome to the hyper-meritocracy' with a touch of irony. Firms and employers and monitors will be able to measure economic value with sometimes oppressive precision."
But there’s a silver lining here, Cowen assures us. Digital technology means lots of opportunities for “cheap fun and cheap entertainment” for a new class of digital bohemians and vagabonds. Couchsurfing, AirBnb, Uber, Reddit, Wikipedia, Khan Academy, Netflix, Hulu, blogs and podcasts, - there’s plenty to do inside your tarpaper shack or parents’ basement, thanks to the Internet, provided by free municipal wireless. It could even be culturally vibrant, just like Latin America. After all, America’s cultural hub, New York City, has the same income inequality as sub-Saharan Africa. It’s rather bizarre to see a libertarian economist suddenly do a 180 and invoke the “experiences are worth more than money” argument, since libertarian capitalism has depended upon the fact that it provides mountains of inexpensive food and consumer crud for people to buy as its main justification for a century or so. One is reminded of the eighteenth-century English aristocrats who rode through starving villages in their carriages with a perfumed kerchief over their noses, remarking on the jollity of peasant life with their harvest festivals, drinking and merrymaking, ignoring the fact that the peasants also lived in hovels, slept in straw, ate nothing but gruel, and died prematurely.

Extensive in-migration to the Sunbelt leads Cowen to conclude that Texas is the future of America – cheap automobile-dependent suburban sprawl, dilapidated infrastructure, lousy schools, threadbare public services, high user fees, and low, low taxes. Because people are “voting with their feet” by moving to Texas, he concludes that people prefer “more money in their pockets” thanks to low-cost suburban sprawl and low taxes, rather than good government services (or even honest, competent government). I would interject that the increasing “Dixiefication” of America means people have less choice in this matter than ever before. The “race to the bottom” means that states with this philosophy have a comparative advantage, and people will move where the jobs are, regardless of what they may really want, especially if the weather is good. The explosive growth of San Antonio/Ciudad Juarez is touted as an example of how economically vibrant cities attached to impoverished shantytowns can lead to the successful cities of the future.
"Since there is considerable net in-migration to Texas, I conclude that a lot of Americans would rather have some more cash than better public services...Many Americans will end up living in areas with cheaper housing and lower-quality public services, if only to give themselves more cash in their pocket. Some of those areas might be a bit ugly to the eyes, again as a trade-off for lower costs. As a cross-country moving proceeds, and changes what we are, the United States as a whole will end up looking more like Texas."
"When I visit Latin America, I am struck by how many people there live cheaply. In Mexico, for instance, I have met large numbers of people who live on less than $10,000 a year, or maybe even less than $5000 a year. They hardly quality as well-off but they do have access to cheap food and very cheap housing. They cannot buy too many other things. They don't always have the money to bring the kid to the doctor or to buy new clothes. Their lodging is satisfactory, if not spectacular, and of course the warmer weather helps."
"What if someone proposed that in a few parts of the United States, in the warmer states, some city neighborhoods would be set aside for cheap living? We would build some "tiny homes" there; tiny homes that might be about 400 square feet and cost in the range of $20,000 to $40,000. We would build some very modest dwellings there, as we used to build in the 1920s. We would also build some makeshift structures there, similar to the better dwellings you might find in a Rio de Janeiro favela. the quality of the water and electrical infrastructure might be low by American standards, though we could supplement the neighborhood with free municipal wireless (the future version of Marie Antoinette's famous alleged phrase will be "Let them watch Internet!"). Hulu and other web-based TV services would replace more expensive cable connections for those residents. Then we would allow people to move there if they desired. In essence, we would be recreating a Mexico-like or Brazil-like environment in part of the United States....Many people will be horrified at this thought. How dare you propose we stuff our elderly into shantytowns? Maybe they are right to be upset, although recall that no one is being forced to live in these places. Some people might prefer to live there...
"The most extreme low-rent move is to go 'off the grid.' For all the technological progress we have seen, a growing number of Americans are disconnecting from traditional water and electricity backups and making their own way, often in owner-built homes, micro-homes, trailer parks, floating boats, or less elegantly in tent cities, as we find scattered around the United States, including in Portland, Seattle, and Los Angeles. Some of these options are gruesome, but many people are doing it by choice. New technologies, such as powerful local generators and solar power, are making it easier to strike out on one's own."
"There is one final way we will adjust to uneven wage patterns and that is with our tastes. Many of society's low earners will reshape their tastes--will have to reshape their tastes--toward cheaper desires. Caviar is an expensive desire and Goya canned beans is a relatively cheap desire. Don't scoff at the beans: With an income above the national average, I receive more pleasure from the beans, which I cook with freshly ground cumin and rehydrated, pureed chiles, Good tacos and quesadillas and tamales are cheap too, and that is one reason they are eaten so frequently in low income countries."
"Just as some poorer people will do without fancy infrastructure, so will others do without advanced health care. Since we won't be willing to pay for full-benefit Medicare and Medicaid for everyone who will need it, some people will see cut benefits or rationed access to doctors. Our political system will try to construct that rationing so that voters blame the doctors rather than the politicians, but one way or another rationing will increase. Imagine many more millions of people wishing to see a doctor and having to wait weeks or months to do so."
So slums, sprawl and shantytowns with decaying infrastructure will be where people "prefer" to live. Funny how very few Americans "preferred" to live in dilapidated shantytowns and favelas from 1950-1979. Well, I guess tastes change. Remember, nobody's forcing you to sell your plasma to pay the rent.

As the rich get richer they will become even more influential. The political class will increasingly cater to their needs while turning a blind eye to the exploding poverty of most Americans, pretty much as they do now. The realities of automation and robots causes Cowen to be much less hostile to redistribution than most of his libertarian brethren, but he nonetheless doesn’t think it will happen due to the influence of the rich on politicians. Throughout the book, he makes reference to this realpolitik dynamic, saying that, even though it may not lead to the best outcomes, the needs and desires of the elderly and wealthy elites will rule the day to the detriment of everybody else.

Throughout the book, the right-wing belief in ‘Meritocracy” is constantly invoked. This is a standard article of right-wing libertarian belief, arguing that the winners at the top of society deserve their wealth and position through superior talent or merit, and the losers (the vast majority), are less talented, conscientious, motivated, etc.. Thus, it is a just world where people earn exactly what their talents give them, no more and no less, with the most talented benefiting most of all,  Interestingly, on his blog, Cowen has been waging a one-man crusade against Thomas Piketty’s new book, Capital in the Twenty-First Century. This may seem bizarre, since they both paint a picture of the future that is very similar – a tiny fantastically wealthy elite lording over a precarious and immiserated working class, with ever-increasing disparities in wealth. The crucial difference is that Cowen depends on his elite being “deserving” of their elevated status by being smarter, more talented, harder working, etc., while Piketty claims that inherited wealth will be the prime determinant of the new overclass. Cowen’s inequality is caused by income, not wealth as in Piketty, and income is earned by their awesome marginal productivity, and not because of inherited wealth or systemic advantages. Thus, Cowen is not overly bothered by the new social order, since it is a true "hyper-meritocracy."

Two points should be made here. One, Cowen is an academic who, as far as I can tell, has been in academia his entire life. The academic world he has lived his entire life in, and has played so well, is much closer to this meritocratic ideal then most of society (outside of the military), so I think Cowen has a major blind spot here. For example, see this: Secret Handshakes Greet Frat Brothers on Wall Street. American society is based on realities of class and wealth, and the biggest determinant for most people will not be talent (which will play some role, certainly), but who your parents are, leading to a much more sclerotic society with low social mobility, in line with Piketty’s predictions. After all, without jobs, what ladder rungs will there be to raise your status? Somehow I doubt “online classes” will fix this. And, as Thomas Frank has pointed out, colleges, which were designed to ameliorate class distinctions, are now the chief enforcer of class distinctions in America. The stratospheric cost of higher education will make sure that the jobs of the future will only be available to the already wealthy, and a few rare exceptions will be thrown in our face to “prove” this is not the case.

Second, even if we are headed to the meritocracy that Cowen claims, Christopher Hayes' Twilight of the Elites: America After Meritocracy points out that this will probably lead to more incompetence, inferior leadership and corruption, just as it has for the past few decades. The “best and the brightest” have presided over an unprecedented erosion of society, institutions and social trust, along with increasing chaos, wars, dissolution and poverty around the world. Because they are insular, these meritocrats feel that what’s good for them is good for everybody. And because they have been told that they are “superior” their entire lives, they believe they are infallible and entitled to everything. Plus, as Hayes points out, elites will rig the system to keep themselves and their friends and family on top - in other words, to "pull the ladder up after them." We can see that this is already happening.

And won’t the newly impoverished formerly middle classes rise up and revolt in their favelas? Nope, says Cowen, and although I find his arguments incredibly depressing, I also find them convincing. First, the baby bust means that the population is getting older, and older people don’t fight the system. Since America gives benefits disproportionately to the elderly (free health care, social security, etc.), they will have more invested in the status quo. Second, the crime rate has been going down, not up, even as income and wealth inequality has skyrocketed over the past thirty years. Finally, people don’t envy the rich, according to Cowen, they envy their immediate friends and neighbors. Facebook has caused more consternation over inequality than anything else, he claims. The poorest areas of the country are becoming more conservative, he points out, seemingly oblivious to the millions of dollars spent every year to maintain this result.
"For all the prognostications about the American future, the most important single fact, and the easiest to predict, is simply that we will be a lot older. That will make us more conservative, in this case referring to the literal rather than political sense of that term. Revolutions and protests are the endeavors of young hotheads, not sage (or tired) sixty-four year olds. The societies with lots of unmarried young men are the most vulnerable to sudden revolutions and major political changes...Societies have a strong staus-quo bias, particularly if they have high status relative to other parts of the world...If you're trying to measure the scope or potential for social disorder, look at the rate of crime. In the United States crime rates have been falling for decades and in recent times they have surprised researchers by falling even faster than expected. Yet over those same decades income and wealth inequality have been rising significantly in the United States....It's again worth seeing what is happening, politically speaking, in the parts of the United States with relatively stagnant incomes. Political conservatism is strongest in the least well-off, least educated, and most economically hard-hit states...As Richard Florida puts it, 'Conservatism, more and more, is the ideology of the economically left behind.'...If you think about it, we really shouldn't expect rising wealth inequality to lead to revolution and revolt. That is for a very simple psychological reason: Most envy is local...Most of us don't compare ourselves to billionaires."
Obviously, the U.S. government does not share Cowen’s placidity. Since 2001, we’ve witnessed the construction of a vast and unprecedented police/surveillance state in the U.S. and around the world. Many have made the obvious point that governments seem to be preparing to face their own people as adversaries much more than any foreign invasion, and they have pointed to the extreme inequality that Cowen is describing as the chief culprit. For example: Defence officials prepare to fight the poor, activists and minorities (and commies). (The Guardian) And see this:
After the U.S. Postal Service finalizes its purchase of "small-arms ammunition," it will become only the most recent federal agency to make a large purchase of bullets for its armed agents (who are perhaps more numerous than the public realizes). In the last year or so, reports have surfaced that the Social Security Administration ordered 174,000 hollow-point bullets, the Department of Agriculture 320,000 rounds, Homeland Security 450 million rounds (for its 135,000 armed agents), the FBI 100 million hollow-points, and even the National Oceanic and Atmospheric Administration 46,000 rounds. (In May, the Department of Agriculture added an order of submachine guns and body armor.) [Newsmax, 4-14-2014] [Washington Times, 5-16-2014] 
Cowen has been accused by many of “moral indifference” due to his clinical and calloused description of America's future. Cowen argues that a prognostication of the future based on what’s actually happening is best served just by an unemotional interpretation of the facts without trying to interject one’s personal opinions. In this interview, for example, he says:
...I think 'pessimistic' and 'optimistic'--they are words everyone in this debate is applying too quickly. I think in this debate the radical thing to do is to write a book which isn't trying to be too normative; just try to think through what will things be like. And by keeping the evaluation at much more of a distance I think we'll actually get further with the analysis. ... I've had people confront me in outraged fashion: How can you accept all of this? But look: as a writer the point is to try to figure it out as best you can, and at the end of the book if one wants to say, let's not go that route, well that's worth a discussion. But the notion that at every intermediate point you have to inject your emotional outrage I think has become one of the worst features of this whole debate.
I’m sympathetic to this view. I write about a dark future all the time, and it’s not things I want to happen. In fact, it’s mostly things I don’t want to happen. To be fair, Cowen never states that this new world he’s describing is ideal or desirable, just that it’s the scenario that he sees as most likely if current trends continue. I agree, which is why I’m reviewing the book.  It is, however, difficult to escape the conclusion that Cowen’s lack of agitation at this future is due to his class position. This new digital future will be great for him and his family. I imagine the target audience for this book are right-leaning pro-market libertarians who will see themselves as the big winners in the new economy, and naively believe that they and their families will escape falling into the underclass by staying ahead of the curve by following Cowen's sage advice.

But in the end, it will all turn out okay, he assures us, once we've finished sorting ourselves out into our new permanent caste system and fully integrated the new technologies into our social order. The nouveau-poor will learn to live with less and enjoy all the new digital distractions, while the rich, well, they'll be the new benevolent ruling class.
"The American polity is unlikely to collapse, but we'll look back on the immediate postwar era as a very special time. Our future will bring more wealthy people than ever before, but also more poor people, including people who do not always have access to basic public services. Rather than balancing our budget with higher taxes or lower benefits, we will allow the real wages of many workers to fall and thus we will allow the creation of a new underclass. We won't really see how we will stop that. Yet it will be an oddly peaceful time, with the general aging of American society and the proliferation of many sources of cheap fun. We might even look ahead to a time when the cheap or free fun is so plentiful that it will feel a bit like Karl Marx's communist utopia, albeit brought on by capitalism. That is the real light at the end of the tunnel. Such a development, however, will take longer than I am considering in the time frame of this book...One day soon we will look back and see that we produced two nations, a fantastically successful nation, working in the technologically dynamic sectors, and everyone else. Average is over."
Reactions have been predictably hostile from both the left and the right. The left's reaction is obvious. After giving his description of future America on NPR's On Point, the host incredulously asks whether his vision is exactly what European Americans' ancestors came across the ocean to escape. It's a valid question, especially since social mobility and middle class living standards are now higher in "socialist" Europe then in America.

The reaction on the right has been more complicated. A standard tenet of libertarian belief is that 1.)Inequality is not happening, and/or 2.) Capitalism always makes the average person better off, and if it fails to do so, it is always and everywhere due to some sort of government interference in the infallible market (taxes, regulations, subsidies, etc.). In the interview cited above with another libertarian economist from George Mason University (Econtalk is also part of the Koch Brother's empire), the host says early on, "So, I think you know I'm somewhat of a skeptic about the inequality data--that I think it's distorted by changes in family structure, immigration, and other factors...."  One wonders how sheltered a life this man leads. It proves Upton Sinclair's adage that "It is difficult to get a man to understand something when is salary depends on him not understanding it." But the biggest challenge is that Cowen's book makes the case that the natural workings of the capitalist economy, without major government interference, will make most people far poorer and worse off, rather than some big-government bogeyman. It's a direct challenge to the standard right-wing tenet that allowing the rich to accumulate without bound will lead to better lives for all. Hence the hostility.

One of the most hostile reviews came from, or all places, The Wall Street Journal. The reviewer writes:
If this were Swiftian satire, Mr. Cowen could retire the Best Deadpan Award. But it isn't. It's a prediction coupled with the injunction that resistance is futile. There's nothing we can do, says Mr. Cowen, to avert a future in which 10% to 15% of Americans enjoy fantastically wealthy and interesting lives while the rest slog along without hope of a better life, tranquilized by free Internet and canned beans.

Bread and circuses is not the policy of a republic, but rather of an empire entering moral senescence. Nonetheless, Mr. Cowen seems untroubled by his hyperpolarized vision....Whether by accident or design, Mr. Cowen's book represents a fundamental challenge. To government-hating, market-worshiping conservatives, it poses a question: If this is the consequence of your creed, are you prepared to endorse it? To liberals and progressives: What are you going to do about it? And to all of us: Is this a country you would want to live in? I know I wouldn't.
Finally, I have been struck by certain similarities between Cowen’s vision of the future and Ran Prieur’s latest thoughts on the future of America. It’s hard to think of two more different prognosticators, yet their visions seem to be converging, although to be sure Ran places much more emphasis on Peak Oil and resource scarcity, while Cowen has apparently bought into the shale-gas and fracking revolution hype.

Both predict continual improvement in digital technology and automation, with most people getting poorer and poorer, as the middle class vanishes. Both predict a future in which downtrodden Americans will live on a few thousand dollars a year in Latin-American style poverty in slums and shantytowns at the margins of society, yet have access digital gadgets straight out of Star Trek. Both predict a future of mass unemployment where people work outside the money system to survive via barter, tent cities, and dumpster diving. Both predict that the system is locked down tightly, and mass uprising is unlikely, if not impossible. Both predict a future where working a “conventional” job gets more and more oppressive as digital technologies monitor workers like feedlot cattle. Both predict that people will be desperate to somehow sell stuff to, get the attention of, or become some sort of servant, to the upper class, because they will be the only ones with money. Both predict that accumulating "stuff" will fall by the wayside compared to experiences, and that digital technology will lead to a new class of bohemian/hippie types who will live on the fringes of society using the Web to entertain themselves and seek out low/cost free stuff. Both predict that people will anesthetize themselves from their poor and meaningless lives by retreating into an increasingly virtual reality while turning their back on the real one which offers them so little. No word on Ran's position on canned beans, however:
I expect artificial intelligence and biotech to spice up a decades-long economic depression as the global system muddles through climate change and the end of nonrenewable resources. Low quality manufactured items and industrial food will remain affordable, but good food, transportation, and services from actual humans will be more expensive. I think the best place to live is in a small house with a big yard in a city with a seaport or railroad hub. You want to be close to the supply lines, but have enough land to grow luxury foods like blueberries and good tomatoes. As you move farther into the country, the money you save by growing more of your own food will be less than the money you spend on transportation and shipping. Total self-sufficiency would be a good thing to write a novel about.

My generation was the first in American history to be poorer than our parents. Now the Millennials are poorer than us, and this trend will continue until the global infrastructure adapts to feed from a growing base of renewable resources, maybe around 2060. Meanwhile, if you can stay out of debt and find a low-stress job to build up savings, you'll be relatively well off. "Debt" is exactly as real as we believe it is. Mostly it's a trick to make people feel ashamed that they have no political power. Not that it would work any better if we felt angry. The system is totally locked down, and the most revolutionary political change of the 21st century, the unconditional basic income, will be necessary to keep the system stable, to turn the unemployed majority from hungry militants back into consumers.

Technology will promise revolution, but in practice ninety percent of the new powers will be used to keep the remaining ten percent from doing anything dangerous. By the year 2200 there will be no poverty, no disease, and no opportunity for anyone to make a difference, except by more quickly closing off the opportunity for anyone to make a difference. Reasonable people will know that they're better off than we were, but still fantasize about living in our time. Suicide will be the leading cause of death, and by 2300, any death not from suicide will be global news. By 3000 we will either be extinct or moved to another level of reality through some technology of consciousness that would seem completely loony if you described it today.
Ten years ago, when I imagined "collapse", it was interesting: industrial collapse means there are no factories and everything new is made by hand. Infrastructure collapse means there are no electric grids and we're riding horses on the ruined freeways. Economic collapse means the banks are just gone, cash is worthless, and economies are gift and barter. Political collapse means you don't have to pay taxes, kids don't have to go to school, and there are no police. Now it's increasingly clear that none of these things are going to happen, even slowly over 100 years...

Now, there are possible technologies that are truly revolutionary. But my fear is that they will all be stopped, that the increasing power of the tech system will be used to keep the world stable and predictable, and to make us happy in the shallowest and least satisfying way. To avoid this dreadful fate, we need a cultural shift in which we gain a deeper understanding of quality of life, and we need to apply this understanding to technology, and start using it to increase danger and pain. I know, people in Africa would love to have the problem of not enough danger and pain. Don't worry -- in a hundred years, they will, and we'll have it worse than we do now.
If the tech system can adapt to resource exhaustion, we might emerge into a high-tech utopia/dystopia, in which it's easy to be comfortable but difficult to be happy. Social class will no longer be about power or even standard of living, but valuable activity. The upper class will hold the few important jobs that still require humans. The middle class will be hobbyists, practicing difficult skills that are not necessary for society. And the lower class will be content to consume entertainment. 
 I no longer expect any kind of tech crash, except that resource-intensive benefits like driving and eating meat will become more expensive and less available to poor people. Economies will collapse as they adjust to decades of zero or negative growth, weaker nations and businesses will fail, but computers will continue to get stronger, and automation will adapt to resource decline by becoming more efficient and better able to compete with human workers. At the same time, no government that can possibly avoid it will allow its citizens to starve, so there will be even more subsidies for industrially produced human dog food.
Over the next few decades I see the global system passing through a bottleneck as it shifts from nonrenewable to renewable resources...I imagine an airtight sci-fi utopia/dystopia, where almost everything will be automated, nobody will have to do any work, everyone will be comfortable and safe, and we will have amazing powers to entertain ourselves. Other than that, we will have less power than any people in history or prehistory. The world will be lifeless and meaningless, a human museum, a suicide machine.
I expect global economic collapse and decades of poverty while we switch from fossil fuels to renewable energy. Extreme poverty will cause political upheavals, but not such a deep political collapse that you won't have to pay taxes. And I expect little or no technological collapse. Even energy-intensive technologies like cars will not disappear, just shrink to serve the elite. And I think information technology will continue its present course, so people with gadgets out of Star Trek will be digging up cattail roots for food.
I'm going to say that liquid fuels continue to decline, renewable energy cannot replace them nearly fast enough, and everything that now depends on liquid fuels gets much more expensive. This contributes to decades of zero or negative economic growth. Another contributor is the de-monetization of labor: a lot of the economic growth of the 20th century came from taking labor that used be outside the money economy, like child care and food preparation, and bringing it into the money economy. This is going to reverse as people lose their jobs, do stuff at home for free instead of paying other people to do it, those people lose their jobs, and so on.

New money-making opportunities will be snatched by whoever is in the best position: mostly the already rich. So wealth inequality will increase, and the cost of good food and human labor will continue to rise, until only the rich can afford to buy much of either. Meanwhile manufactured items and low-quality industrial food will remain cheap.

So you won't be in danger of starving, but you're likely to find yourself deep in unpayable debt, squeaking by on government assistance, and struggling to find something to sell to the rich so you can afford to buy small luxuries to make your life tolerable.

In summation, what fascinates me about the book is that it is so–far the best and most thought-out description of the future we have termed Neofeudalism. If you want to give someone a description of what the Neofuedal society looks like, hand them this book. Barring change in course, this is where I believe we’re headed as a society. In short:
  • 10-15% fabulously wealthy, vast majority living an ephemeral, precarious existence.
  • Most people desperately fighting over table scraps and crumbs dropped from the tables of the wealthy.
  • A vast servant class dedicated to catering to the needs of the wealthy in some form and dependent upon their largess. (servants, coaches, tutors, gardeners, consultants, baristas, musicians, etc.). These will not be live-in servants, but wage earners in businesses that depend on the enormous incomes of a small class of privileged people - think service industries in San Francisco.
  • All of society’s wealth is funneled to a small wealthy stockholding elite. Little to no savings or wealth accumulation for most people. Low social mobility enforced by stringent educational requirements, credentialism, low economic growth and saturated markets.
  • No health care or retirement for most people.
  • An ineffective and incompetent government that provides very little for the common general welfare, but exists mainly to uphold elite interests (armies, police, intelligence, contract enforcement, corporate subsidies, banks, patents, bare-bones infrastructure, etc.)
  • The poor left mainly to fend for themselves. Slums, shantytowns, favelas, tent cities, trailer parks and hovels abound. Suburbia will become “Slumburbia”
  • Urban areas either decay (Detroit, Gary, Flint) or become 'elite citadels' (San Francisco, L.A, Manhattan). Urban income inequality at sub-Saharan African levels or worse.
  • Elites outside cities in gated exurban communities protected by heavily armed police.
  • Weak nation states depleted of funds. Corporations will rule. Most wealth will be offshore and untaxable.
  • Everything owned by wealthy elites and appropriated though the market rather than common goods. Public libraries, transportation, museums, parks etc. abolished. Most people will pay through the nose to rent these services from the 10-15% wealthy elites. Those who can’t afford them will go without.
  • More social dysfunction due to lack of opportunities.
  • Municipal services curtailed or abolished except in wealthy areas.
  • Employees will get their needs (health care, dental transportation, etc.) by contract through their employer (e.g. Google campus and buses). Those without employers will have nothing.
Notable differences from feudalism:
  • Warring corporations rather than warring states. Combat will be done in the boardroom, not the battlefield. Battles will be for market share rather than territory. Wealth will be stocks and bonds rather than land.
  • Elites will be transnational and have more common interests than in the past. It will be their own fellow citizens they will need to violently contend with.
  • Living standards for the poor will be higher than the middle ages. In wealthy countries, few will starve. Most will still have some sort of shelter, although less and less people will own their property.
  • People will not be tied to the land, as with serfdom. They may end up tied to their jobs, however, to keep their benefits, especially since there will be few options to change jobs thanks to oligopolies, cartels, non-compete clauses, and extreme specialization. Less job mobility outside of the 10-15% due to fear of unemployment.
  • Lower family formation and decreased birthrates.
  • People will be watched and continually monitored (drones, cell phones, etc.) far beyond the wildest imagination of the most absolutist czar, monarch or emperor.
  • Most people will be economically “redundant” i.e. they will not be needed to produce food and fodder for the elites.
  • Vast prisons, which were unfeasible in medieval times, but less outright torture and general lawlessness.
  • People will live longer than their medieval counterparts, but with more chronic diseases.
  • Obviously, much more entertainment, activities, geographical mobility, and so on. As long as you don’t threaten elite power or control, you will be mostly left alone.
  • Relations between people mediated by money and the market rather than webs of reciprocity.
  • People will not live off the land – land will be owned by the wealthy.
It's not so far-fetched. Cowen himself says on pp.253-54, "There are many other historical periods, including medieval times, where inequality is high, upward mobility is fairly low, and the social order is fairly stable, even if we as moderns find some aspects of that order objectionable."

Serf's up!


* Libertarians use as their justification for the low taxes and unlimited accumulation by the wealthy elite the fact that this leads to “growth' and that if the wealthy pay taxes like the rest of us, growth will be diminished and we all be hurled into poverty. In addition, making the pie bigger is used to avoid any question of redistribution. The richer the rich get, the better off even the poorest will be, the argument goes. Thus to question growth goes against the standard libertarian party line.

** To make his point, he initially published the book only in eBook format. eBooks are very useful – cheap to download, easy to carry around with a Kindle or Nook, but don’t really add much more to GDP than a “conventional” book.

*** This is off-topic, but Cowen picks this example because he was a youth chess prodigy. Many prominent economists are chess players. It’s easy to see why chess as the ultimate training for economic thinking. Human beings are treated simply as abstractions who behave according to predictable laws (pawns, knights, bishops, queens, etc.), and whose actions follow predicable rules. A chess game, like an economy, although it exhibits a degree of uncertainty, can be regularly determined by mathematical laws, hence chess-playing computers. Thus the kind abstract mathematical reasoning that leads people to be good at chess also motivates them to become economists, where they see the economy as one giant chess board, with all of us as mere interchangeable pieces making predictable moves that can be abstracted through sufficient mathematical equations.

**** A superior example would be from my own field of architecture. We used to draw on paper by hand. Then we drew digital lines on computers. Now, small teams can visualize and model entire buildings in 3D and build off of that. The shift is to less people with higher levels of building/construction knowledge. Consequently, there is much less need for "drafters," entry-level jobs are harder to come by, and the well-connected can do more work with less labor than ever before.

Monday, June 23, 2014

Globalization and Its Consequences

There is a fascinating article in the NYT about a subject that may not sound very interesting – fish. But it shows the strange effects of our bizarre globalized economy, and how believing our food simply comes from the supermarket rather than nature is causing a disconnect with our own environment: ”Globalization, that unseen force that supposedly eliminates inefficiencies through the magic of trade, has radically disconnected us from our seafood supply...We can have no more intimate relationship with our environment than to eat from it. During the last century that intimacy has been lost... It is our obligation to reclaim this intimacy..”

As I’ve noted before, fish were the last food we were hunters-and-gathers of; they were the last wild animals raised in their natural environment, eating their natural, wild diet, that most people could regularly partake of. Not any more. Now we’ve domesticated those too in order to feed the masses. In his book Pandora’s Seed, Spencer Wells journeys to a fish farm to relate current events to the food shortages that led to the domestication of grains and animals that occurred 10,000 years ago in the Fertile Crescent and spread from there. Of course, this was partly in response to the killing off of the megafauna centuries earlier, which is increasingly seen as caused by human overharvesting leding to a collapse in population that was exacerbated by climate change. Now, over ten millenia later, we're doing the same thing to fish.

But the thing is, once we become dependent on artificial sources rather than natural ones, a few things tend to happen with disturbing regularity. One is that these resources, rather than be available to all, are only enjoyed by the richest members of society. Fish used to feed the poor, now it feeds the rich. Second, the quality of the resource tends to go down. A lot of farmed salmon are fed on GMO corn, which leads to salmon which is much less nutritious (and is now often full of antibiotics). Both the animals and the people eating them get a lot sicker. And finally, since no artificial system can be as integrated or efficient as a natural one, we must work harder and devote much more resources to keep the resource available, or else lose the resource forever. This is the ratchet effect and the Vicious Circle Principle. I've pointed out before, with the demise of Sweet Water organics here in Milwaukee, the dangers of relying on complex technological systems for your food. One of the owners of SWO pointed out that fish flown in from China can be bought in the store for less than fish raised sustainably literally in our own neighborhood. What sense does that make?

So here are the results of domestication and overexploitation:
In 1982 a Chinese aquaculture scientist named Fusui Zhang journeyed to Martha’s Vineyard in search of scallops. The New England bay scallop had recently been domesticated, and Dr. Zhang thought the Vineyard-grown shellfish might do well in China. After a visit to Lagoon Pond in Tisbury, he boxed up 120 scallops and spirited them away to his lab in Qingdao. During the journey 94 died. But 26 thrived. Thanks to them, today China now grows millions of dollars of New England bay scallops, a significant portion of which are exported back to the United States. As go scallops, so goes the nation. According to the National Marine Fisheries Service, even though the United States controls more ocean than any other country, 86 percent of the seafood we consume is imported. But it’s much fishier than that: While a majority of the seafood Americans eat is foreign, a third of what Americans catch is sold to foreigners. 
The seafood industry, it turns out, is a great example of the swaps, delete-and-replace maneuvers and other mechanisms that define so much of the outsourced American economy; you can find similar, seemingly inefficient phenomena in everything from textiles to technology.
So, we sell the stuff we catch overseas, and then import our stuff from China. Of course I’m sure economists will beat us over the head with Ricardian Equivalence to explain how this shipping of seafood thousands of miles across the globe every day is economically “efficient,” and that our silly little common sense it totally wrong. After all, economics is 'science!' But does anyone think this energy efficient? How much fossil fuels are used in this system?
Once upon a time, most American Atlantic estuaries (including the estuary we now call the New York Bight) had vast reefs of wild oysters. Many of these we destroyed by the 1800s through overharvesting. But because oysters are so easy to cultivate (they live off wild microalgae that they filter from the water), a primitive form of oyster aquaculture arose up and down our Atlantic coast. Until the 1920s the United States produced two billion pounds of oysters a year. The power of the oyster industry, however, was no match for the urban sewage and industrial dumps of various chemical stews that pummeled the coast at midcentury. Atlantic oyster culture fell to just 1 percent of its historical capacity by 1970.
Just as the half-shell appetizer was fading into obscurity, the shrimp cocktail rose to replace it, thanks to a Japanese scientist named Motosaku Fujinaga and the kuruma prawn. Kurumas were favored in a preparation known as “dancing shrimp,” a dish that involved the consumption of a wiggling wild shrimp dipped in sake. Dr. Fujinaga figured out how to domesticate this pricey animal. His graduate students then fanned out across Asia and tamed other varieties of shrimp. Today shrimp, mostly farmed in Asia, is the most consumed seafood in the United States.
Destroy a local industry and ecosystem, then just import the problem away. ‘Problem solved!’ say economists and cornucopians. This complete disconnect from natural ecosystems and dependence upon the Market is the sleight-of-hand they use to convince us that everything is just getting better and better. Don’t you love your shrimp?
Most seafood eaters know the sad story of the Atlantic cod. The ill effects of the postwar buildup of industrialized American fishing are epitomized by that fish’s overexploitation. Gorton’s fish sticks and McDonald’s Filets-o-Fish all once rode on the backs of billions of cod. The codfish populations of North America plummeted and have yet to return. 
Beginning in the 1990s two new white fish started coming to us from Asia: tilapia, which grows incredibly fast, and the Vietnamese Pangasius catfish, which grows even faster (and can breathe air if its ponds grow too crowded). These two are now America’s fourth- and sixth-most-consumed seafoods, respectively...Alongside them, a fishery arose for an indigenous wild American Pacific fish called the Alaskan, or walleye, pollock. In just a few decades, pollock harvests went from negligible to billions of pounds a year. Pollock is now the fish in McDonald’s Filet-o-Fish...In fact, there is so much pollock that we can’t seem to use it all: Every year more than 600 million pounds is frozen into giant blocks and sent to the churning fish processing plants of Asia, Germany and the Netherlands.
And even native species like salmon, which sustained well-developed, sedentary fish-forger cultures in the Pacific Northwest for millennia, is now subject to the manic logic of globalism:
...most wild Atlantic salmon populations have been fished to commercial extinction, and today a majority … comes from selectively bred farmed salmon, with Chile our largest supplier. This is curious, given that salmon are not native to the Southern Hemisphere. But after Norwegian aquaculture companies took them there in the ’80s, they became so numerous as to be considered an invasive species. 
The prevalence of imported farmed salmon … is doubly curious because the United States possesses all the wild salmon it could possibly need. Five species of Pacific salmon return to Alaskan rivers every year, generating several hundred million pounds of fish flesh every year. Where does it all go? 
...Increasingly to Asia. Alaska, by far our biggest fish-producing state, exports around three-quarters of its salmon. To make things triply strange, a portion of that salmon, after heading across the Pacific, returns to us: Because foreign labor is so cheap, many Alaskan salmon are caught in American waters, frozen, defrosted in Asia, filleted and boned, refrozen and sent back to us. Pollock also make this Asian round trip, as do squid — and who knows what else?
The writer of the article makes the connection between globalism and our total disconnect from our own native ecosystems:
I’d argue that with so much farmed salmon coming into the country, we turn a blind eye to projects like the proposed Pebble Mine in Alaska, which would process 10 billion tons of ore from a site next to the spawning grounds of the largest wild sockeye salmon run on earth...I’d maintain that farmed shrimp inure us to the fact that the principal rearing ground of Gulf shrimp, the Mississippi River Delta, is slipping into the sea at a rate of a football field an hour. I’d venture that if we didn’t import so much farmed seafood we might develop a viable, sustainable aquaculture sector of our own.
Why Are We Importing Our Own Fish? (New York Times)

Saturday, June 21, 2014

Saturday Night Music - Brazilian Edition

Since there's some sort of soccer tournament going on in Brazil right now, I suppose I should include some Brazilian music:

Friday, June 20, 2014

Innovation and Cargo Cults

Before we go any further, I should explain what exactly a cargo cult is.

During the Second World War, the Allied forces who were fighting against the Japanese Empire stationed forces in the Melanesian islands, a cluster of islands  in the South Pacific to the west of Australia. 300,000 American troops were stationed on New Caledonia (today called Vanuatu), and along with them came massive amounts of manufactured goods - matches, clothing, medicines, tents, tarpaulins, knives, axes, rifles, pots and pans, portable radios, wristwatches, flashlights, motorcycles, jeeps, canned foods, tobacco, and so on. Most of these goods were airlifted to the islands via heavy transport planes or airdropped from the sky.

The islanders, who mostly lived in chiefdoms in a hunter/horticultural society and were largely separate from the wider world until the late nineteenth century, now had a front-row seat in a massive technological war raging across the planet between the world's most advanced industrial nations. The Americans, like the Japanese occupiers of the islands before them, shared the goods with the native peoples in return for their compliance and cooperation. The cargo flowed like magic, and the chiefs distributed the cargo to the people.

Then, one day the war ended, and the cargo planes stopped coming. The Americans went home, the bases were abandoned, and the cargo mysteriously stopped coming from the sky.

The native inhabitants of New Caledonia were profoundly confused by this state of affairs. They wanted to bring the cargo back. The natives rationalized that cargo was not manufactured goods created in European and Asian factories, but rather gifts from ancient ancestors created by spiritual means intended for them but being held back from them by the machinations of the outsiders. They did not know that the four years of Allied occupation was part of a much larger world, one that they had no true conception of, but part of the normal state of affairs - the exception, not the rule, in other words.  They felt that "cargo" was their birthright.

Certain charismatic native leaders promised to bring the cargo back. They rallied others to their cause, and soon so-called "cargo cults" began forming throughout the islands of Melanesia (in truth, some of these existed before the war, but gained more importance after). The leaders of the Cargo Cults combined the materialism of cargo with prophecies of Millenialist revival and promised a return to a past golden age for the peoples of the islands where the dead would return, drudgery would be abolished, and whites removed forever (a myth of progress, if you will). You just had to believe and pray hard enough, and in some cases revive native traditions and eschew European influence and religion. An unknown black American soldier called John Frum was anointed as a new Messiah who would bring back the cargo. In this hope, many native followers of cargo cults  slaughtered their pigs and abandoned their garden plots in anticipation of the second coming, in the manner of the Seventh Day Adventists of 1844 (The Great Disappointment) or the inhabitants of Münster, Germany in 1534.

These cargo cults were later studied by anthropologists to gain an insight into the formation of new religions. Peter Lawrence wrote a book about the cargo cults entitled Road Belong Cargo, and they came to popular attention via anthropologist Marvin Harris' 1974 book, Cows, Pigs, Wars and Witches: The Riddles of Culture.

Native leaders saw the cargo had been brought to the island mostly by airplanes, and so constructed elaborate rituals in which the exact behavior of the white soldiers and sailors was imitated in the hopes that this might magically bring the cargo back. Marvin Harris describes the scene:
"The scene is a jungle airstrip high in the mountains of New Guinea. Nearby are thatched-roof hangars, a radio shack, and a beacon tower made of bamboo. On the ground is an airplance made of sticks and leaves. Their airstrip is manned twenty-four hours a day by a group of natives wearing nose ornaments and shell armbands. At night they keep a bonfire going to serve as a beacon. They are expecting the arrival of an important flight: cargo planes filled with canned food, clothing, portable radios, wrist watches, and motorcycles. The planes will be piloted by ancestors who have come back to life. Why the delay? A man goes inside the radio shack and gives instructions into the tin-can microphone. The message goes out over an antenna constructed of string and vines: 'Do you read me? Roger and out.' From time to time they watch a jet trail crossing the sky; occasionally they hear the sound of distant motors. The ancestors are overhead! They are looking for them. But the whites in the towns below are also sending messages. The ancestors are confused. They land at the wrong airport."
Steve Randy Waldman gives an excellent description of cargo cult thinking:
"A cargo cult is a particularly colorful way of mistaking cause for effect. Airplanes do not actually come to remote Pacific Islands because of rituals performed by soldiers at airports. But absent other information, to someone with no knowledge of the larger world, it might well look that way. So when the soldiers leave and the airplanes full of valuable stuff no longer come, it’s forgivable in its way that some islanders populated the abandoned tarmacs with wooden facsimile airplanes and tried to reenact the odd dances that used to precede the arrival of wonderful machines. It is forgivable, but it didn’t work. The actual causes of cargo service to remote Pacific Islands lay in hustle of industries vast oceans away and in the logistics of a bloody war, all of which were invisible to local spectators. Soldiers’ dances on the tarmac were an effect of the same causes, not an independent source of action. That is not to say those dances were irrelevant to the great bounty from the skies. An organized airport is part of the mechanism through which the deeper causes of cargo service have their effect, so something like those dances would always be correlated with cargo service. But even a perfectly equipped and organized airport will not cause airplanes sua sponte to deliver valuable goods to islanders. A mock facsimile even less so."
Nassim Taleb also refers to this mode of thinking in his book Fooled by Randomness:
Just as one day some primitive tribesman scratched his nose, saw rain falling, and developed an elaborate method of scratching his nose to bring on the much-needed rain, we link economic prosperity to some rate cut by the Federal Reserve Board or the success of a company with the appointment of the new president “at the helm.”
I contend that "growth" and "innovation" have become the cargo cults of the modern age. For example, here is a recent article in the Harvard Business Review entitled, The Capitalist's Dilemma:
We’re happy to report that we think we’ve figured out why managers are sitting on their hands, afraid to pursue what they see as risky innovations. We believe that such investments, viewed properly, would offer the surest path to profitable economic and job growth...In our view the crux of the problem is that investments in different types of innovation affect economies (and companies) in very different ways—but are evaluated using the same (flawed) metrics. Specifically, financial markets—and companies themselves—use assessment metrics that make innovations that eliminate jobs more attractive than those that create jobs. We’ll argue that the reliance on those metrics is based on the outdated assumption that capital is, in George Gilder’s language, a “scarce resource” that should be conserved at all costs. But, as we will explain further, capital is no longer in short supply—witness the $1.6 trillion in cash on corporate balance sheets—and, if companies want to maximize returns on it, they must stop behaving as if it were...Before we get to the solutions, let’s look more closely at the different types of innovation.
Investment, innovation, growth, jobs; investment, innovation, growth, jobs... It's almost like a chant. If you read between the lines, you'll see that we require generic "innovation" to produce generic "growth" (in what?) to produce the appropriate quantity of generic "jobs (doing what?)." This is the mantra of modern capitalism. Thus, what they are really saying is, we need innovation not to solve any particular problem, but to create enough full-time jobs so that people can earn wages to support themselves. Does this strike anyone else as a bit odd in terms of reasoning?

How do we create innovation? By doing what we've always been doing, of course. Construct more of those thatched roof hangars and wooden log airplanes! How we do know this will work? Well it's always worked before. After all, it's worked for the past 150 years, hasn't it? But isn't this the same line of thinking as those natives in Melanesia?

I think it’s self-evident that waiting for generic “innovations” that “we can’t even imagine” to fix our mounting social and economic problems is cargo cult-like behavior. As Wikipedia states, “The term "cargo cult" has been used metaphorically to describe an attempt to recreate successful outcomes by replicating circumstances associated with those outcomes, although those circumstances are either unrelated to the causes of outcomes or insufficient to produce them by themselves.”

Just like those natives, we’re replicating the same behavior in the hopes the good times will come back. Let's get lets of scientists in white lab coats to stare through microscopes and fund research universities. Let's let wealthy fat cats accumulate billions and hope investment trickles down to produce technological miracles. Let's remove taxes on corporations so they will "innovate" more and create jobs for the rest of us. Let's funnel more and more money to "startups," and turn entrepreneurs into superhuman rainmakers. Why isn't any of this working? we're wondering just like the confused Melanesians.

Apparently innovation has taken over the role of progress in earlier generations, as this article points out:
The idea of progress—the notion that human history is the history of human betterment—dominated the world view of the West between the Enlightenment and the First World War. It had critics from the start, and, in the last century, even people who cherish the idea of progress, and point to improvements like the eradication of contagious diseases and the education of girls, have been hard-pressed to hold on to it while reckoning with two World Wars, the Holocaust and Hiroshima, genocide and global warming. Replacing “progress” with “innovation” skirts the question of whether a novelty is an improvement: the world may not be getting better and better but our devices are getting newer and newer.

The word “innovate”—to make new—used to have chiefly negative connotations: it signified excessive novelty, without purpose or end. Edmund Burke called the French Revolution a “revolt of innovation”; Federalists declared themselves to be “enemies to innovation.” George Washington, on his deathbed, was said to have uttered these words: “Beware of innovation in politics.” Noah Webster warned in his dictionary, in 1828, “It is often dangerous to innovate on the customs of a nation.”

The redemption of innovation began in 1939, when the economist Joseph Schumpeter, in his landmark study of business cycles, used the word to mean bringing new products to market, a usage that spread slowly, and only in the specialized literatures of economics and business. (In 1942, Schumpeter theorized about “creative destruction”; Christensen, retrofitting, believes that Schumpeter was really describing disruptive innovation.) “Innovation” began to seep beyond specialized literatures in the nineteen-nineties, and gained ubiquity only after 9/11. One measure: between 2011 and 2014, Time, the Times Magazine, The New Yorker, Forbes, and even Better Homes and Gardens published special “innovation” issues—the modern equivalents of what, a century ago, were known as “sketches of men of progress.”

The idea of innovation is the idea of progress stripped of the aspirations of the Enlightenment, scrubbed clean of the horrors of the twentieth century, and relieved of its critics. Disruptive innovation goes further, holding out the hope of salvation against the very damnation it describes: disrupt, and you will be saved.
And just like progress became a secular religion, we're waiting for technological innovation to bring the rains back to our parched desert of a society. Just like those natives, we’re assuming that time we lived in was not unique, that it’s a permanent condition that will continue forever, and that what has happened in the past will continue indefinitely into the future. Our cult-like faith in innovation and progress is reaching ludicrous proportions. By sheer coincidence, this landed in my inbox as I was writing this: Note that Steve Wozniak (like his late business partner Steve Jobs) is regarded as some sort of divinely inspired rainmaker who will confer magic on the attendees to create new startups that will change everything. It’s basically a religious revival in secular drag.

Of course, just like those natives didn't understand the vast trade networks and factories powered by fossil fuels that made cargo possible, the modern cult of economics does not recognize the role of fossil fuels in our modern world. They do not realize that a number of one-time discoveries have made our world possible, that there are diminishing returns to technological innovation, and that we are reaching environmental constraints and resource limits. No, rather than recognize that, we're just going to keep repeating the behaviors of the past 150 years and hope the good times will come back without understanding the root causes of our good fortune. While science has certainly led to many great things in the modern world, one of its central conclusions is that there are limits. Yet this is consistently ignored. For example – it’s impossible to move faster than the speed of light (recent attempts at warp drives notwithstanding). A big one is the laws of thermodynamics – energy cannot be created nor destroyed, and it can only be used once. An engine has a maximum efficiency determined by the Carnot efficiency. Nothing can be colder than absolute zero. There are only 24 hours in the day and the earth is a bounded sphere. These things cannot change.

We like to pride ourselves on our "rational" societies and our "scientific" thinking. But are we really so much smarter and more rational than those cargo cult worshippers waiting for John From on Vanuatu? Don't bet on it.

Tuesday, June 17, 2014

The Growth Debate Continues

Last year I wrote some posts about contrasting views about future growth between Robert Gordon and Joel Mokyr. 

Today, The Wall Street Journal did a story on the contrasting views of these two men that summarizes the debate in a nutshell. I don't think it's any secret which view I subscribe to. Hopefully the article is available (if not, do what I did and Google those two names):
If anything, [Robert Gordon's] family should have made him an optimist. Mr. Gordon's father grew up grindingly poor, at one point supporting three younger brothers after his own father died; his eventual success mirrored the larger transformation of the U.S. into the world's richest country.

"His generation saw the move from crowded tenements in the 1920s to suburbia in the 1950s—with everyone having a yard and a car," Mr. Gordon said, a leap showing how much progress has since slowed.

Mr. Gordon sees a hobbled U.S. economy ahead. Americans are getting older, leaving too few workers to support the aging population. The problem is even worse in other Western economies.

An aging citizenry is among a list of troubles, including the declining share of working-age men with jobs; stagnant rates of Americans earning college degrees; jobs lost abroad and high government debt. The biggest obstacle, he said, is growing income inequality.

To compensate, Mr. Gordon said, economies need technological advances. The problem is that the biggest breakthroughs—like electrification or the discovery of antibiotics—are behind us. Electricity changed how people lived and worked, and it spawned hundreds of new industries. The technology that allowed people to communicate instantly or travel quickly over long distances were 19th- and 20th-century innovations.

More recent inventions—including the Internet—won't pack the same punch, he said: "The rapid progress made over the past 250 years could well turn out to be a unique episode in human history."

Cellphones, he said, are just a refinement of the telephone. "Look at what an ideal kitchen looked like in 1955—it's not that different than today," Mr. Gordon said. "It's nothing like moving from clothes lines to clothes dryers."

Cars also illustrate how rapid advances have petered out in recent decades. A century ago, the Ford Model T, with its 20-horse-power engine, reached a top speed of 45 miles an hour. By the mid-1950s, Mr. Gordon said, his father had a Chevrolet station wagon that was five times as powerful. More than 50 years later, Mr. Gordon said, he has a Subaru station wagon that is comparable with his father's Chevy in size, speed and cargo capacity.

"Everyone has looked for a big overarching factor to explain this," he said. "But it occurred to me, it could be as simple as that we'd run out of the great inventions."

Mr. Gordon said his ideas evolved from there. In 2000, he published a paper saying that computer technology, hailed as the driver of the "new economy," was far less impressive than earlier big inventions. He generated more controversy with a 2012 academic paper titled "Is U.S. Economic Growth Over?"

The paper included a dire prediction: The economy will grow less than half as fast as the remarkable 2% average it notched between 1870 and 2007. "Americans got used to their standard of living doubling from that of their parents. No more," he told investment managers in Germany this year:

If he is right, the standard of living for the average American—measured in per capita income—will in the future take 78 years to double, compared with the 35 years it took between 1972 and 2007. The wealthiest 1%, on the other hand, could double their standard of living in as little as 23 years, he said.
Can I interject here? Can someone explain to me what it means for the American standard of living to “double”? What does that even mean? Do I own twice as much stuff? Most people have to rent storage units to keep all their crap and have rummage sales to get rid of it all right now. Does it mean I have twice as many cars? I can only drive one at a time, and they take up a lot of space. Does it mean I make twice as much money? If so, what do I buy with it? Is my food twice as good? Our overall food quality is lower now thanks to the industrialized food system than it was a hundred years ago. Do I live twice as long? Unlikely – human lifespans have not increased much since ancient times (rather sources of mortality have decreased). Do I just spend twice as much on the same things? Or does it mean I work half as many hours for those things? Somehow I doubt the latter, although that would make the greatest impact on my standard of living. Anyway, back to the article:
Other economists have voiced worries about stagnating growth, but none quite as sweeping. Tyler Cowen of George Mason University in a 2011 book described a technological plateau that slowed U.S. growth. Mr. Cowen has softened his stance lately, noting that such developments as the shale gas boom have improved the long-term outlook.
So Mr. Cowen got suckered in by the shale gas "boom" eh? Sad.
Larry Summers, former chief economic adviser to President Obama, told a gathering of the International Monetary Fund last year that the U.S. and other advanced economies faced a prolonged period of extremely slow growth known as secular stagnation.

But in an interview, Mr. Summers said he didn't share Mr. Gordon's belief that innovation has stalled. He agreed, however, that the benefits of meager economic growth "will not be hugely felt by the middle class."

Other experts side with Mr. Mokyr. Timothy Taylor, an economist at Macalester College and editor of the Journal of Economic Perspectives, said, "People like Bob Gordon are making an argument that's been heard repeatedly for the last 150 years."

Mr. Gordon countered that many of the innovations Mr. Mokyr anticipates—such as new technology to clean air and water pollution—will solve problems created by past economic growth. Those shouldn't be counted the same way as breakthroughs that add to output, he said.

"Maybe the problem is that we didn't measure growth in the past correctly," Mr. Mokyr retorted, "because we didn't account for the costs."
Economists Duel Over Idea That Technology Will Save the World (WSJ)

As I've said before, a self-driving car isn't as fundamental an invention as the internal combustion engine, a thermostat hooked up to the Internet is not as important as safe, reliable indoor heating, a $4000 refrigerator that cools your beverage in 5 minutes is not as fundamental as discovering the heat pump principle, and flying from New York to London in an hour less time is not as fundamental as the ability of human flight. What is so hard to understand about this?

One thing Mr. Mokyr does get right is that the benefits of certain inventions to our lives is not always accurately measured in economic growth or GDP. The examples he often cites are Wikipedia, which is tremendously useful but does not add to the stock market or GDP, and anesthetics, which contribute far more to human well being than their dollar value would suggest.

But I would remind Mr. Mokyr that this cuts both ways. A lot of things that have created much of the economic growth over the past thirty years or so have little to no effect on human happiness, whether new brands of candy, soda, or detergent; to monetizing services we used to do for ourselves; to digital distractions like Facebook, not to mention all the imaginary debt money floating around. Their effect on economic growth has been far in excess of what they contribute to human well-being. As Gordon says, would you rather give up indoor heat or Facebook?

This article also makes the same debating points. This time, it's between writers at The Week Magazine: John Aziz and Sean McElwee:
...Aziz argues that "those who predict stagnant [economic] growth today due to falling population growth are overlooking the changing technological dynamics of our time." Aziz forecasts that revolutions in robotics and renewable energy will fuel the economy of the future, even as population (and thus the labor force) remains static. I really do hope that Aziz is right. But the realist in me is skeptical. I do not believe that we will be able to continue to enjoy rocket-ship levels of post-war growth, largely because of environmental constraints. And I do not believe robots are as revolutionary as Aziz thinks.

Aziz argues that "while the human population may level off, we are swiftly moving toward a world where humans are not the only productive agents." This is already true, and has been for millennia. Even before the industrial revolution, animals and simple tools have been used by humans to increase their economic output. Indeed, one of the more confusing aspects of the "robot" debate is how utterly banal robots are. Back in 1891 Oscar Wilde noted, "One man owns a machine which does the work of five hundred men." The question now, just as it was back then, is how these benefits are distributed. Wilde writes, "The one man secures the produce of the machine and keeps it, and has five hundred times as much as he should have, and probably, which is of much more importance, a great deal more than he really wants."

This, sadly, is the case now, too. Productivity increases due to technological gains have increasingly accrued to the wealthiest. In fact, the only time that Wilde's observation was not true was in the immediate post-war era, when rapid economic growth, diminished capital stocks, wartime solidarity, massive investment in education and infrastructure, and a powerful left combined to create rapid growth and lowering inequality.

Robots will certainly increase human productivity, supplant much human labor, and perform numerous important tasks. But I still struggle to imagine a world in which they replicate the massive improvements from our first two industrial revolutions: steam, railroads, electricity, internal combustion engine, running water, indoor toilets, communications, entertainment, chemicals, and petroleum. Even if they do, it seems unlikely that these benefits will be broadly shared, given the demise of an organized left and capital's increasingly globalized nature. The robot revolution may well be, like the recovery, one of rabid progress for a small few.

Today, Big Finance has deprived the real economy of much-needed investment. Public infrastructure is in decay, government investment in research and development is reaching historic lows, and state education budgets are being cut. The Financial Times reports that "public investment in the U.S. has hit its lowest level since demobilization" after World War II. Given that many of the most important inventions have been subsidized by either monopolistic companies (Bell Labs) or the government (Human Genome Project, the internet), this low spending is not a harbinger of rapid growth in emerging technologies like robotics and renewables.
The limits of techno-optimism (The Week)

While Gordon gets a lot of attention, his argument has been made before. Richard Heinberg in The End of Growth cited a similar view in a book by a Swedish economist named Mats Larsson:
A remarkable book appeared in 2004 to almost no fanfare and little critical notice. The author was Mats Larsson, a Swedish business consultant, and his book was titled The Limits of Business Development and Economic Growth.[1]Unlike the thousands of business books published each year that promise to help managers become more effective, or that hint at new opportunities for profit, Larsson’s conveyed a sobering message—one that the business community evidently didn’t want to hear: Our human ability to invent genuinely new activities is probably limited, and most recent inventions have consisted merely of finding ways to speed up activities that humans have been performing for a very long time—communicating, transporting themselves and their goods, trading, and manufacturing. These processes can only be taken to the limits where things can be done at almost no time and at a very low cost, and we are fast approaching those limits.

“Through centuries and millennia,” Larsson writes, “humans have struggled to simplify production and make tools and products less expensive and easier to manufacture.” Possible examples are legion from virtually every industry—from telecommunications to air travel. “Now we are finally in a situation where many things can be done in close to no time and at a very low cost.” He goes on:

[A]t close scrutiny we do not seem to have done anything except gradually automate activities that human beings have been performing for a few hundred, and sometimes thousand, years already. The development of a large number of different technologies that help us to automate these tasks has driven economic development and business proliferation in the past. Now, technological progress is at the stage where a number of these technologies and products have been developed to a point where we cannot realistically expect them to develop much further. And, despite widespread belief of the opposite, we cannot be certain that there are enough new products or technologies left to be developed for companies to be able to make use of the resources that are going to be freed from existing industries.
For the skeptical reader such sweeping statements bring to mind the reputed pronouncement by IBM former president Tom Watson in 1943, “I think there is a world market for maybe five computers.” Fortunes continue to be made from new products and business ideas like the iPad, Facebook, 3D television, Blu Ray DVD, cloud computing, biotech, and nanotech; soon we’ll have computer-controlled 3D printing. However, Larsson would argue that these are in most cases essentially extensions of existing products and processes. He explicitly cautions that he is not saying that further improvements in technology and business are no longer possible—rather that, taken together, they will tend to yield diminishing returns for the economy as a whole as compared to innovations and improvements years or decades ago.
Business Development: The cavalry’s on the way (

Next time, we'll make an analogy between our beliefs in technological "innovation" and the Cargo Cults of the South Pacific.

BONUS: Also from the WSJ:  Has the wave of innovation that transformed the world over the past century fizzled out?...One of the more unusual books on the subject is “The American Technological Challenge” by Jan Vijg, a Dutch-born molecular geneticist at the Albert Einstein College of Medicine in New York.

“I wrote this more out of frustration than anything else,” says Mr. Vijg, who emphasizes that he is not an economist. He was inspired by an airplane trip in 2006—when he noticed that the plane to Amsterdam wasn’t much different from the one that brought him to the U.S. for the first time in 1984. “I just asked myself, how is this possible?” he says.

In his book, Mr. Vijg compiled a list of more than 300 “macro-inventions” that were made between 500 BC and 2010. A macro-invention is a major breakthrough—like the invention of the windmill—that opens the way for other refinements. In the case of windmills, for instance, that would include modern wind turbines. Mr. Vijg says he borrowed the concept from Northwestern economist Joel Mokyr, subject of a story in today’s Wall Street Journal.

Mr. Vijg found inventions accumulated rapidly in the last century. But tellingly, the uptrend stopped and turned downward around 1970 and hasn’t recovered yet. “What we’re seeing is not technological decline—it’s deceleration,” he says.