Wednesday evening was the first “proper” meeting of our Re-Imagining Capitalism seminar, during which we tackled the sticky topic of communication strategy from the comfort of the Dean’s stylish, new meeting room in Kroon Hall .
Most of the preparatory materials assigned for the class had a strategic rather than academic bent. Our goal here, which we stated at the outset of the 3-hour discussion, was to really explore the details of what makes communication effective. How can communication strategies be leveraged not only to transmit ideas, but also to incite action? If we truly believe that our economic system is in need of reform and we’d like to communicate that message, then we need to know:
1. How to structure the message content
2. What medium or method of delivery to use
3. How to penetrate ideological barriers
4. How to reach the broadest or most appropriate audience
Putting strictly economics-related questions aside, we focused on how to engineer effective, targeted, and hopefully “viral” communication regardless of its content. We watched a few YouTube clips to get us warmed up for the discussion, and to give us some concrete material for testing out the hypotheses presented in our readings:
“The Crying Indian”
Launched by Keep America Beautiful on Earth Day, 1971
An insidious video, since the “Indian” isn’t even Native American, and the video was a targeted guilt-trip funded by litter-producing industries. But an enduring classic nonetheless – extremely successful in propagating its anti-littering message. Dean Speth said he recalled the ad’s original appearance, and that though anyone would likely see it as hokey now, it managed to be convincingly touching back then.
“Coal”
by freeloveforum
Hilarious. But though it’s extremely effective at entertaining and galvanizing a target audience of us sustainability-oriented folk, this isn’t a video that’s likely to reach far beyond our circle. It perverts an existing conservative public service announcement “frame”, and turns it into a biting commentary. But to find it funny, you have to be able to draw a parallel to existing “Clean Coal” messaging… and more fundamentally, understand why coal is “bad” to begin with.
“Yes We Can”
Barack Obama Music Video
by will.i.am, February 2008
A tribute to the unprecedented cyber-grassroots effectiveness of the Obama Campaign – perhaps there’s something to mimic there… This video, again, does a great job of mobilizing and inspiring an existing base of supporters. It appeals to progressives, who already buy into the assumptions that a multi-cultural world of equal opportunity is a great idea, but not necessarily to our gun-toting brethren in the boondocks. Oops, was that an offensive way to put it?
“Body Bags”
TV Ad produced by TheTruth.com
The Truth was widely viewed as an effective anti-smoking campaign. Whether it had large-scale impact on the apparent decline in smoking, the individual “Truth” campaign ads were usually at least somewhat shocking – one of the key features of “sticky” messaging, as we learned from Chip and Dan Heath’s book Made to Stick.
Here’s an overview of some of the major points raised in our ensuing discussion – as I saw them – my classmates can feel free to comment and elaborate:
We probably devoted the most time to discussing the issue of “framing” which is wonderfully laid out in George Lakoff’s Don’t Think of an Elephant . He points out that any form of communication is embedded in a frame of reference. Conservatives and progressives have their own mental frames that inform how they use language. For example, using the phrase “tax relief” automatically implies that taxes are some kind of painful affliction. Therefore, when progressives adopt that phrase, they’re automatically falling into the conservative frame, thereby shooting themselves in the foot, so to speak. We also discussed the implications of Lakoff’s proposal that conservatives and progressives operate with worldviews that parallel two distinct family models: the strict patriarchal family and the nurturing family.
Here are a few spin-off points that were made during our discussion of Lakoff and the importance of “framing” communication:
- Some frames appear to be “stronger” than others – particularly in terms of the inverses they imply. For example, if you’re not “Pro-Life” that must mean you’re… “Pro-Death”? Not too appealing.
- The importance of developing a common rhetorical framework – a linguistic ideology of sorts that we could use to start positively encoding the messages we ultimately craft. “Moving toward the Real Wealth economy” was a phrase most of us really liked (courtesy of George). The opposite of “Real Wealth,” which would be “Fake Wealth.” seems to accurately describe the piles of loot that have suddenly vanished into thin air along with the collapse of the financial sector. That’s obviously not the kind of wealth anyone wants. This could be an effective use of inverse framing.
- It was also noted that the conservative movement has spent millions of dollars funding the development of unified rhetoric and framing, whereas the progressive movement still uses rhetoric that’s splintered along the lines of various individual causes – environment, human rights, etc. This is something to remedy, and something that we should keep in mind.
- The idea of neutral frameworks or common ground. Is the use of pointedly neutral frameworks a good way to reach broad groups? It seems that respect for capitalism/free market economics is a potential neutral framework in the United States. A call to service – couched in terms of moral responsibility – is another fairly neutral framework.
- A point that came up several times in our discussion is the importance of the audience we’re hoping to target. Since our end-goal is to engineer broad social change in the organizational structure of our economy, we obviously need to reach a wide group of people. However is this best done all at once by targeting “the masses”? Or is it best to craft several tailored messages and disseminate them to different target groups? Perhaps it’s best to first mobilize a base of like-minded thinkers – i.e. focus on unifying progressives towards a common goal.
- Someone observed that we would all likely feel discomfort at communicating using the conservative rhetoric. Would using alternative frameworks just to push our point, regardless of how valid, be deceptive and manipulative? That’s another question.
Quite related to Lakoff’s were the points made in Jonathan Haidt’s talk on moral psychology, which we also watched in preparation for the class. Haidt describes a potential socio-biological reason why progressives and conservatives differ so significantly. For a complete overview, watch the talk – it’s under 20 minutes long and pretty illuminating.
These fundamental barriers that we face in communicating with large groups of people then intersect with more the basic problems of human attention span and memory. Chip and Dan Heath, in what is sure to become a marketing industry classic, picked up on terminology coined by Malcom Gladwell in The Tipping Point and came up with the six characteristics of a “sticky” message. Meaning, a message that is easily understood, remembered, and further transmitted. The six features that win out over our natural attention deficits are:
* Simple — find the core of any idea
* Unexpected — grab people's attention by surprising them
* Concrete — make sure an idea can be grasped and remembered later
* Credible — give an idea believability
* Emotion — help people see the importance of an idea
* Stories — empower people to use an idea through narrative
We didn’t discuss these points too extensively, because they seem pretty un-contentious. But we did make note of a couple of interesting examples that came up in both the Gladwell and Heath excerpts, and made a note to “file away” their advice for later use – once we’re actually doing some communicating.
Finally, we took a quick look at an excerpt from Michael Strangelove’s The Empire of Mind to briefly touch on our potential medium of communication. It seems that the Internet is today’s forum for reaching masses par excellence. We discussed whether it’s the appropriate medium for us, loosely concluding that it probably is. We also observed that the internet is a “scale-free” network, which means that if you hit the right nodes of traffic, you have instant access to millions. This kind of communicative power is unprecedented in history, but the sheer volume of online chatter can drown out any messages of “actual importance.” That’s why identifying the right nodes could be crucial. We briefly discussed writing an internet tracking program to determine where key nodes for our group might be found.
In conclusion: we are hoping to go about the communication of our ideas as strategically as possible, and we’re not ashamed to admit it. If it’s not exactly a revolution that we’re hoping to start, then at least something close to it. Let’s see how successful our attempts ultimately prove.
The readings for this class:
* Gladwell, Malcom. The Tipping Point. Chapter 3 – “The Stickiness Factor” (~50 pages)
* Haidt, Jonathan: The real difference between liberals and conservatives. http://www.ted.com/index.php/talks/jonathan_haidt_on_the_moral_mind.html
* Hazen, Don. Don’t Think of an Elephant! Framing 101: How to Take Back Public Discourse pp. 3 – 34
* Heath, Chip and Heath, Dan. Made to Stick: Why Some Ideas Survive and Others Die: “Introduction: What Sticks?” (21 pages)
* Strangelove, Michael. The Empire of Mind: Digital Piracy and the Anti-Capitalist Movement Chapter 7 : “Utopic Capitalism, Global Resistance, and the New Public Sphere.” pp. 199 – 217
Another couple of video gems:
John McCain Parody:
John.he.is
Competitive Enterprise Institute
“We Call it Life”
This video is for real – not a parody.
Friday, January 23, 2009
Sunday, January 18, 2009
A Call for Improved Economic Technology
Amidst the Sound and the Fury of the collapse of American capitalism there have been muffled calls for a fundamental re-examination of the academic economics that underpins our economic policies. This impulse is easily understandable; since the collapse of Long Term Capital Management twenty years ago under the management of three Nobel Laureate economists, there has been a growing recognition that "economic science" significantly diverges from the world as it really is. See my article below on economic modeling for just one such critique of traditional or neo-classical economics.
Late last year, a group of authors including a business man, and accountant, a professor of complexity science, and a theoretical quantum physicist put forward a proposal for an Economic Manhattan Project on the online-salon style website edge.org.
In their article, Brown, Kauffman, Palmrose, and Smolin suggest that outside scientists and practitioners should be organized with practicing economists to rebuild the core theories of economics, whose serious limitations, not least their failure to conform to empirical tests, are increasingly easy to see. They suggest that we need to go beyond the incremental modifications suggested by game theory and behavioral science that have adjusted the edges of economic thought over the last twenty years. They particularly point to the emerging science of complexity as a key piece to integrate into the core of economics - bringing with it, for example, better explanations of dynamics, networks, and emergence. (See Eric Beinhocker's The Origin of Wealth for a thorough critique of traditional economics and an explanation of what a complexity economics has to offer). They then set out a wide range of objectives from better and more open accounting standards to empirical tests to research on the dynamics of financial instruments to better reflect their actual risk. Overall though, an improved science of economics is simply the tool; the aim is a better capitalism.
Brown, Kauffman, Palmrose, and Smolin's article was largely panned by the edge.org community. Many of the complaints are serious - for example, the science of complex systems or the mathematics required may not be up to the task of prediction within such a complex system, now or ever. Some arguments are instances of people talking past each other while seeming to actually agree. But overall, I share the reviewers skepticism that a truly predictive, explanatory science of economics will be forth coming for the foreseeable future - the complexity is just too great, the power-law feedbacks too chaotic. Perhaps, as computing technology continues to improve, there will be opportunities in huge agent based simulations. But one review took a very different tack than the others.
That review was written by George Dyson, science historian and author and son of the famous Princeton physicist Freeman Dyson (e.i. Dyson Sphere, for all you trekkies out there, or Orion drives if you are even nerdier).
I have excerpted the first half of Dyson's response here (link to the rest):
As I see it, perhaps we need to focus our efforts on developing innovative economic technologies - alternative capitalisms. In the history of human intellectual endeavor science and technology have by necessity advanced together - new theories create the deductive space for new inventions, and new apparatus opens experimental doors. My response to the post-modernist assertion that we can't know if science is true is to point out that technology works. This is not idle sophistry; the proof of our theories of electromagnetics (indeed of their universality, regardless of linuistics, post-colonialism, or qualia) is that we have reliable electric motors, radios, and lasers. Science is true to the extent that it works.
To take this idea to the field of economic science and integrate Dyson's exhortation to actually start building new business and financial structures, I would propose that our goal should first and foremost be improved economic technology. It may even be the case that without improved economic technology a better economic science may be impossible in the same way that the technology for electricity storage, metal refining, etc. were necessary before the formulation of electromagnetic laws was possible.
Similarly if our modern economics doesn't appear to be working, certainly we must address it's academic failures (a discussion of the difference between reason and empiricism is needed on this blog at some point) but we also need to get to work creating a new economic system, in parallel, along side our current ailing system in the same way that the proto-capitalist economies of medieval Europe grew up in cities alongside a much larger feudal agrarian economy. Fortunately people around the world have already begun designing the institutions of a new capitalism. A few examples:
Certainly none of these ideas are yet fully formed or without problems. But they point a way towards a better approach to the economic crisis than bemoaning the failure of government regulation or academic economics. Let's get out there and create new systems that do actually work.
Late last year, a group of authors including a business man, and accountant, a professor of complexity science, and a theoretical quantum physicist put forward a proposal for an Economic Manhattan Project on the online-salon style website edge.org.
In their article, Brown, Kauffman, Palmrose, and Smolin suggest that outside scientists and practitioners should be organized with practicing economists to rebuild the core theories of economics, whose serious limitations, not least their failure to conform to empirical tests, are increasingly easy to see. They suggest that we need to go beyond the incremental modifications suggested by game theory and behavioral science that have adjusted the edges of economic thought over the last twenty years. They particularly point to the emerging science of complexity as a key piece to integrate into the core of economics - bringing with it, for example, better explanations of dynamics, networks, and emergence. (See Eric Beinhocker's The Origin of Wealth for a thorough critique of traditional economics and an explanation of what a complexity economics has to offer). They then set out a wide range of objectives from better and more open accounting standards to empirical tests to research on the dynamics of financial instruments to better reflect their actual risk. Overall though, an improved science of economics is simply the tool; the aim is a better capitalism.
Brown, Kauffman, Palmrose, and Smolin's article was largely panned by the edge.org community. Many of the complaints are serious - for example, the science of complex systems or the mathematics required may not be up to the task of prediction within such a complex system, now or ever. Some arguments are instances of people talking past each other while seeming to actually agree. But overall, I share the reviewers skepticism that a truly predictive, explanatory science of economics will be forth coming for the foreseeable future - the complexity is just too great, the power-law feedbacks too chaotic. Perhaps, as computing technology continues to improve, there will be opportunities in huge agent based simulations. But one review took a very different tack than the others.
That review was written by George Dyson, science historian and author and son of the famous Princeton physicist Freeman Dyson (e.i. Dyson Sphere, for all you trekkies out there, or Orion drives if you are even nerdier).
I have excerpted the first half of Dyson's response here (link to the rest):
Brown, Kauffman, Palmrose, and Smolin have hit the nail on the head. But is it the right nail? When the patient needs first aid, do you ask "is there a modeler in the house?"
Financial systems exhibit the Gödelian incompleteness characteristic of all (sufficiently powerful) formal systems: within the given system it is possible to construct statements (or financial instruments) whose value appears to be sound, but cannot be proved within the system itself. The same limitations apply to models of financial systems.
There is good news and bad news in this. No financial system (or model of such a system) can ever be completely secure and closed. On the other hand, there is no limit to the level of concepts that an economy (or a model of that economy) is able to comprehend.
So, what should we do? Assigning an international team of experts to formulate a global economic model is a worthy undertaking, but can the rest of us afford to hold our breath and wait? We also need Plan B, just in case. Plan B is to nurture new, grassroots economic systems that directly (and honestly) couple the flow of currencies to the flow of goods, services, and information—down to the last bit, and the last dollar, from the bottom up.
"Ten years ago I started a company based on the assumption that people are basically good," argued E-Bay founder Pierre Omidyar (at the Santa Fe Institute) in 2004. "And now I have the data to prove it." Instead of putting a dozen scientists in a room to come up with a better model of the existing global financial system, we should put a dozen Pierre Omidyars, Elon Musks, Salar Kamangars, and Jeff Bezoses in a room (with Danny Hillis) and let them actually build one (a new financial system, not another model). (emphasis mine)
As I see it, perhaps we need to focus our efforts on developing innovative economic technologies - alternative capitalisms. In the history of human intellectual endeavor science and technology have by necessity advanced together - new theories create the deductive space for new inventions, and new apparatus opens experimental doors. My response to the post-modernist assertion that we can't know if science is true is to point out that technology works. This is not idle sophistry; the proof of our theories of electromagnetics (indeed of their universality, regardless of linuistics, post-colonialism, or qualia) is that we have reliable electric motors, radios, and lasers. Science is true to the extent that it works.
To take this idea to the field of economic science and integrate Dyson's exhortation to actually start building new business and financial structures, I would propose that our goal should first and foremost be improved economic technology. It may even be the case that without improved economic technology a better economic science may be impossible in the same way that the technology for electricity storage, metal refining, etc. were necessary before the formulation of electromagnetic laws was possible.
Similarly if our modern economics doesn't appear to be working, certainly we must address it's academic failures (a discussion of the difference between reason and empiricism is needed on this blog at some point) but we also need to get to work creating a new economic system, in parallel, along side our current ailing system in the same way that the proto-capitalist economies of medieval Europe grew up in cities alongside a much larger feudal agrarian economy. Fortunately people around the world have already begun designing the institutions of a new capitalism. A few examples:
Creative Commons and Wikipedia - Information yearns to be free. The Creative Commons Project shows that people will work on creative projects without an expectation of monetary return - out of pride or curiosity or community belonging. These community solutions to property and creativity may provide answers to the pressing problems of "over ownership" identified by Michael Heller in The Gridlock Economy.
Economic Gardening - An experiment in endogenous economic development pioneered in Littleton Colorado which seeks to nurture local entrepreneurs.
Community Banking - Models such as micro-finance in the developing world and credit unions in the united states suggest alternative banking solutions for disadvantaged people who face much higher economic costs for financial services, e.g. payday loans, or lack banking services entirely. Local banks have weathered the financial storm in most cases intact.
New Economic Performance Indices - "You Get What You Measure." From Bhutan's Index of Gross National Happiness to the Green GDP or the Environmental Performance Index changing the way we measure our economy or our well being can alter our policy choices and our economic models.
Social Businesses - Proposed by Muhammad Yunus, social businesses would operate like for-profit businesses but would work towards social goals and reinvest profits into their organization in an effort to become self sufficient rather than returning dividends. Capital would be attracted from philanthropy and move to firms that are achieving the greatest social goods.
Islamic Banking - Perhaps the oddest consequence of the financial collapse has been the emerging interest in the alternative system of Islamic banking. Based on the tenants of traditional Islamic law, Islamic banking has avoided the financial collapse because of the moral strictures under which it operates. Perhaps there are lessons that can be learned from this parallel banking system about how we should reconstruct our own - or even create another from scratch.
Corporate Personhood - Perhaps the cruelest irony of constitutional law following the American Civil War, the ability of corporations to sue, lobby congress, and shield decision makers from liability stems from choices made in state and federal governments about how corporate charters should be written. Corporations are a human construction, they have not always been thus, should we wish too, we can change that structure.
Restructuring Tax Codes - A large scale overhaul of the tax code in developed countries could create massive changes to existing incentive structures. Target taxes on things that are undesirable, like pollution, carbon extraction, or over consumption rather than on incomes, homes, or productive capital.
Certainly none of these ideas are yet fully formed or without problems. But they point a way towards a better approach to the economic crisis than bemoaning the failure of government regulation or academic economics. Let's get out there and create new systems that do actually work.
Saturday, January 10, 2009
Our Class Gets Underway
Well, Monday January 12th will mark the beginning of our project course: Re-Imagining Capitalism, and our first meeting with Gus Speth, Dean of the Yale School of Forestry and Environmental Studies. Our first class will be devoted to discussing the syllabus and the structure of the class going forward, brainstorming for our communications projects, and discussing the ongoing developments in the financial crisis.
Here's the schedule of our classes for the next 13 weeks:
1. Introduction, Project Planning, The Current Crisis
2. History and Future of Social Change
3. Communication
4. Traditional Economics & the Emerging Synthesis
5. Complexity Economics and Systems Theory
6. Corporations
7. Government, Law, & Policy
8. The Role of Growth in the Current System
9. Post-Growth: Implications & Strategies
10. Culture & Consumerism
11. Human Nature and Creating a Better World
12. Tying things together: A vision of a Better World
13. Where do we go from here
The articles that we are reading for class on Monday are from the New York Times last week, "The End of the Financial World" and "How to Repair a Broken Financial World" by hedge fund manager David Einhorn and investment writer Michael Lewis.
The End of The Financial World as We Knew It
Lewis and Einhorn describe how the most recent Madoff scandal is characteristic of the lack of checks and balances within our financial system. The mistrust of American capitalism that has proliferated in the months since the collapse of major American financial services firms goes beyond localized instances of greed to a lack of confidence in the structural underpinnings of our current form of capitalism. Thus, the current financial crisis and the resulting recession/depression is an example of the importance of the questions we are asking in this class. In this case, the structural features of capitalism are tearing itself apart but the same structural features are having an ongoing deleterious effect on the earth's biosphere and climate.
One problem is that the institutions and regulations meant to be a check and balance on the system were co-opted by that system. In particular, how to protect the system from greed, when greed is in an individuals local best interests? Over time local self interest can chip away at a larger social interest. Sort of like a tragedy of the commons but of social capital rather than natural resources.
Apparently there is an old joke in Washington, there's no institutions that liberals can set up that republican's can't corrupt. Perhaps it could be generalized: the self-interested can co-opt any institution the altruistic set up. So where does that leave us?
In the end, Lewis and Einhorn propose a number of technical solutions - good ones to be sure. But I'm not sure they address enough of the underlying structure to represent an enduring solution. Trying to understand the structures of modern capitalism, the academic economics that reinforces them, and identifying possible alternatives or solutions is the goal of our class.
Transformational change is often most possible at moments of crisis. As Milton Friedman, wrote:
Here's the schedule of our classes for the next 13 weeks:
1. Introduction, Project Planning, The Current Crisis
2. History and Future of Social Change
3. Communication
4. Traditional Economics & the Emerging Synthesis
5. Complexity Economics and Systems Theory
6. Corporations
7. Government, Law, & Policy
8. The Role of Growth in the Current System
9. Post-Growth: Implications & Strategies
10. Culture & Consumerism
11. Human Nature and Creating a Better World
12. Tying things together: A vision of a Better World
13. Where do we go from here
The articles that we are reading for class on Monday are from the New York Times last week, "The End of the Financial World" and "How to Repair a Broken Financial World" by hedge fund manager David Einhorn and investment writer Michael Lewis.
The End of The Financial World as We Knew It
Lewis and Einhorn describe how the most recent Madoff scandal is characteristic of the lack of checks and balances within our financial system. The mistrust of American capitalism that has proliferated in the months since the collapse of major American financial services firms goes beyond localized instances of greed to a lack of confidence in the structural underpinnings of our current form of capitalism. Thus, the current financial crisis and the resulting recession/depression is an example of the importance of the questions we are asking in this class. In this case, the structural features of capitalism are tearing itself apart but the same structural features are having an ongoing deleterious effect on the earth's biosphere and climate.
One problem is that the institutions and regulations meant to be a check and balance on the system were co-opted by that system. In particular, how to protect the system from greed, when greed is in an individuals local best interests? Over time local self interest can chip away at a larger social interest. Sort of like a tragedy of the commons but of social capital rather than natural resources.
Apparently there is an old joke in Washington, there's no institutions that liberals can set up that republican's can't corrupt. Perhaps it could be generalized: the self-interested can co-opt any institution the altruistic set up. So where does that leave us?
In the end, Lewis and Einhorn propose a number of technical solutions - good ones to be sure. But I'm not sure they address enough of the underlying structure to represent an enduring solution. Trying to understand the structures of modern capitalism, the academic economics that reinforces them, and identifying possible alternatives or solutions is the goal of our class.
Transformational change is often most possible at moments of crisis. As Milton Friedman, wrote:
“Now, you never have real changes unless you have a time of crisis. And when you have a time of crisis what happens depends on what ideas are floating around, and what ideas have been developed, and thought through, and are made effective. And I believe the role that people like myself have played in the transformation of public opinion has been by persistently presenting a different point of view, a point of view which stresses the importance of private markets, of individual freedom, and the distorting effect of governmental policy. That may not persuade anybody, in one sense, but it provides an alternative when the time comes that you have a crisis and people realize that you have to change.”Now, I'm afraid we may be a bit too late to effect this current economic crisis. But if The Bridge at the End of World is anything to go by, the coming decades will likely see a series of crises that eventually force us to re-evaluate capitalism for human and environmental sustainability. Creating that "alternative" and having it ready at the moment of some future crisis should be our, ultimate, ongoing, goal...
Wednesday, January 7, 2009
Borders Books: A Case Against Maximization
Local bookstores have one thing to cheer for in these economic hard times. It looks like Borders Books is on the rocks. The bookstore behemoth's holiday sales fell 12% over last year's. Earlier this week they replaced their management team and there have been rumors of bankruptcy if things can't be improved. Cost cutting and debt reduction are the words of the moment.
In any event, the thing that strikes me is how fragile these companies are. The modern business model is so maniacal about maximizing efficiency, and thus profits that everything is drawn as taut as possible. It uses leverage to grow to fill it's market maximally, instead of holding back and leaving some cash on hand and some unmet demand. Then, when sales start to fall by five, ten, fifteen percent the company suddenly finds itself struggling to stay above water. It seems kind of crazy, at least compared to biological systems. You won't die if your normal diet is suddenly restricted by 10%, you'll even be okay at 50% less if you are resting.
In the natural world redundancy, abundance, and excess are the rules of the game. As Bill McDonough once remarked, "nobody looks at a cherry tree and asks: just how many blossoms does it take!" Redundancy takes many forms: stored body fat, swarms of young, large herds. Borders Books is like an animal that must eat every 6 hours; one minute late, and it dies. It can't hibernate through bad seasons, it can't rest in the shade until worthwhile prey happens by, it can't subsist on body fat. There's precious give in the system, it's very fragile.
Jared Diamond noted something similar in his book Collapse when discussing the likely cause of the fall of the Maya. Their agriculture was so efficient and their population so efficient at filling up their agricultural capacity that when conditions changed (a long term drought) there was no slack in the system to take up the short fall.
But the trouble is that a company that didn't leverage its growth, that kept cash on hand, that didn't over build it's market would be disadvantaged in the short term race for maximum profits. A Maya king seeking better food security faces the same problem. If he leaves land fallow and enforce surplus then his population will not grow as large and he will be economically and militarily weaker than his maximizing neighbors. So in the short term, where market evolution plays out, redundancy (and thus long term survival) is structurally disadvantaged - I would guess that environmental sustainability follows the same pattern.
Economics would suggest that if people were rational, then, faced with a 12% loss in sales, everyone at Borders should take a 12% pay cut, they can order 12% fewer books, reduce dividends by 12%, and so on (rent is a harder one, but we'll pass on it for now). In that scenario, no one gets laid off, the stores stay open, and the company survives. Under this scenario, maximizers do fine. But people aren't rational that way. The manager doesn't take a pay cut, she lays off a cashier. The firm doesn't contract and hibernate, slowing its metabolism, it crashes: its store fronts empty, surrounding properties lose value, all its employees buy much less and the contagion of unemployed capacity spreads.
So how then do we restructure the market to avoid the problem of fragile maximizers? I don't know, nor does anyone else I think. That is one of the questions we'll face in our course this spring.
In any event, the thing that strikes me is how fragile these companies are. The modern business model is so maniacal about maximizing efficiency, and thus profits that everything is drawn as taut as possible. It uses leverage to grow to fill it's market maximally, instead of holding back and leaving some cash on hand and some unmet demand. Then, when sales start to fall by five, ten, fifteen percent the company suddenly finds itself struggling to stay above water. It seems kind of crazy, at least compared to biological systems. You won't die if your normal diet is suddenly restricted by 10%, you'll even be okay at 50% less if you are resting.
In the natural world redundancy, abundance, and excess are the rules of the game. As Bill McDonough once remarked, "nobody looks at a cherry tree and asks: just how many blossoms does it take!" Redundancy takes many forms: stored body fat, swarms of young, large herds. Borders Books is like an animal that must eat every 6 hours; one minute late, and it dies. It can't hibernate through bad seasons, it can't rest in the shade until worthwhile prey happens by, it can't subsist on body fat. There's precious give in the system, it's very fragile.
Jared Diamond noted something similar in his book Collapse when discussing the likely cause of the fall of the Maya. Their agriculture was so efficient and their population so efficient at filling up their agricultural capacity that when conditions changed (a long term drought) there was no slack in the system to take up the short fall.
But the trouble is that a company that didn't leverage its growth, that kept cash on hand, that didn't over build it's market would be disadvantaged in the short term race for maximum profits. A Maya king seeking better food security faces the same problem. If he leaves land fallow and enforce surplus then his population will not grow as large and he will be economically and militarily weaker than his maximizing neighbors. So in the short term, where market evolution plays out, redundancy (and thus long term survival) is structurally disadvantaged - I would guess that environmental sustainability follows the same pattern.
Economics would suggest that if people were rational, then, faced with a 12% loss in sales, everyone at Borders should take a 12% pay cut, they can order 12% fewer books, reduce dividends by 12%, and so on (rent is a harder one, but we'll pass on it for now). In that scenario, no one gets laid off, the stores stay open, and the company survives. Under this scenario, maximizers do fine. But people aren't rational that way. The manager doesn't take a pay cut, she lays off a cashier. The firm doesn't contract and hibernate, slowing its metabolism, it crashes: its store fronts empty, surrounding properties lose value, all its employees buy much less and the contagion of unemployed capacity spreads.
So how then do we restructure the market to avoid the problem of fragile maximizers? I don't know, nor does anyone else I think. That is one of the questions we'll face in our course this spring.
Thursday, January 1, 2009
Happy New Year
What will 2009 bring? Will the price of oil be up or down in a year? Will the Obama Administration be the change we need? Or were hoping for? Will the economy crash and burn, flatten out, or begin to recover? Will geopolitical wrangling in Gaza or Iraq and Iran, Eastern Europe or Pakistan spill over into larger scale instability or violence? Will people get serious?
I'll go ahead and say I don't really have the foggiest. I think it's becoming increasingly clear that prediction itself is something we don't understand. That's one of the things I take away from Nassib Taleb and from Philip Tetlock's 'Expert Political Judgement' - an epistemological look at political prediction.
I think the only safe bet is that climate change and the human forcings driving it will get worse; and most in the wealthy world will remain oblivious to the scale of personal material sacrifice required by the coming resource and environmental constraints.
Anyway, those musings aside: a couple fun things to begin the year on. First a parody coal industry commercial from freeloveforum and the second is an (unintentional?) self-parody from the coal industry association called "Frosty the coal man." Yes.
I'm going to take a break for a week or so till the start of the semester and then pick up as our class get started.
~SZ
I'll go ahead and say I don't really have the foggiest. I think it's becoming increasingly clear that prediction itself is something we don't understand. That's one of the things I take away from Nassib Taleb and from Philip Tetlock's 'Expert Political Judgement' - an epistemological look at political prediction.
I think the only safe bet is that climate change and the human forcings driving it will get worse; and most in the wealthy world will remain oblivious to the scale of personal material sacrifice required by the coming resource and environmental constraints.
Anyway, those musings aside: a couple fun things to begin the year on. First a parody coal industry commercial from freeloveforum and the second is an (unintentional?) self-parody from the coal industry association called "Frosty the coal man." Yes.
I'm going to take a break for a week or so till the start of the semester and then pick up as our class get started.
~SZ
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