Tuesday, September 13, 2016

How Cheating Spoils Capitalism: the true roots of skyrocketing inequality

== What causes wealth disparity to skyrocket? ==

In a cogent analysis, Brookings fellow Jonathan Rothwell appraises varied explanations for why the top 0.01% have taken in such gushers of wealth in recent years. “Three of the standard explanations—capital shares, skills, and technology—are myths. 

"The real cause of elite inequality is the lack of open access and market competition in elite investment and labor markets. To bring the elite down to size, we need to make them compete.”

This has been my own relentless theme.  The rationalizers of rapacious versions of capitalism claim to be promoting Adam Smith’s competitive markets – while doing everything in their power to demolish any chance those markets will be flat-open-fair-creative, or even Hayekian. 

Unintentionally, they are proving Smith right, who denounced conniving oligarchy as the great enemy of creative markets across all recorded history.

Were they sincere, instead of conspiratorial-rentier cheaters, they would know that their own lavish-gusher incomes should – by capitalist theory – attract talent from every other human field, until the price of financial talent would stop rising and actually go down! Supply and demand, it's called. Elsewhere I show how they explain why this never happens … that they are uber-lord-mutant-great managers! Immune to supply and demand, like basketball stars. 

Only the analogy shatters! NBA players are subject to utter scrutiny by relentless, objective metrics -- points, rebounds, assists per game and all that. In contrast, the CEO caste of 5000 golf buddies appoints each other onto their boards aiming to obscure measures of company health, concocting excuses for why a declining balance sheet or fading product line should be rewarded with higher compensation. They bandy reasons why stock buy-backs that eat a company's seed corn are better than investing in new products or services.

Rothwell’s appraisal is cogent and clear. There is no evidence to support the idea that the top 0.01 percent consists mostly of people of “exceptional talent.” In fact, there is quite a bit of evidence to the contrary.”  

No, it is strictly and purely a matter of which industry you are in. Aside from the quasi-monopolistic mining and utilities sectors, just being in finance gives you a huge – i.e. parasitical – income multiplier, no matter what the actual outcomes of your work. The financial caste is not facing competition.


 Moreover, tellingly, Rothwell rejects calling this a matter of Left or Right. The modern left still too often sees the world through a Marxist lens of capitalist owners trying to exploit people who sell their labor for a living. But that doesn’t help explain rising top incomes. On the other hand, many on the modern right wrongly infer that great earnings must only be generated by great people.

“Before Marx, Adam Smith provided a framework for political economy that is especially useful today. Smith warned against local trade associations which were inevitably conspiring “against the public…to raise prices,” and “restraining the competition in some employments to a smaller number than would otherwise…occasion a very important inequality” between occupations.”

== It grows even clearer ==

In Left and Right Share a Common Enemy: Capitalists Who Corrupt Capitalism, perhaps the best and most important essay yet to be posted on the fast-rising Evonomics site, Professor Lawrence Lessig nails so many powerful points about how desperately capitalism needs to be saved from capitalists. 

Lessig, you may recall, briefly ran for president under a single-issue campaign to get the corrupting tsunamis of Big Money out of U.S. politics.  It think he would have made a better - far more modern-with-it - version of Bernie Sanders. (Though Bernie is almost a pure clone of my own dad.) On this occasion Lessig cogently lays down what’s at stake, showing how market economics is not the enemy of justice.  

Rather, our flat-open-fair-creative markets are the top victims of an ongoing attempted oligarchic putsch. 

Indeed, as Larry clearly shows, the all-too human contradictions that lead so many market winners to then cheat and shut down markets, was recognized and called out by the “founder” of modern enterprise capitalism.

Some of us have been urging for way more than a decade that Adam Smith be rediscovered as an archetype and founder — not just of fads like ”neo-liberalism,” but of the much broader notion that we call Liberalism, itself. The Evonomics site now invokes Smith in almost every-other article and I have hopes that this rediscovery movement will overflow into the nation's bitter discourse, as well.

== The rationale of Supply Side or 'trickle down' ==

Joseph Stiglitz, Nobelist in Economics, explains how Supply Side (SS) economic theory - darling of the American right, despite never once sustaining a successful, major prediction -- seemed so alluring, for so long:

"The reason why these ideas justifying inequality have endured is that they have a grain of truth in them. Some of those who have made large amounts of money have contributed greatly to our society, and in some cases what they have appropriated for themselves is but a fraction of what they have contributed to society. 

"But this is only a part of the story: there are other possible causes of inequality. Disparity can result from exploitation, discrimination and exercise of monopoly power. Moreover, in general, inequality is heavily influenced by many institutional and political factors— industrial relations, labour market institutions, welfare and tax systems, for example— which can both work independently of productivity and affect productivity."

Stiglitz explains how legislation that funneled vast advantages into the upper castes was not only the core reason for the American Revolution (and not 'tea party' rage at taxes), but also how Adam Smith denounced the anti- market effects of "rent seeking." 

He adds -- "rent-seeking means getting an income not as a reward for creating wealth but by grabbing a larger share of the wealth that would have been produced anyway. Indeed, rent-seekers typically destroy wealth, as a by-product of their taking away from others. A monopolist who overcharges for her or his product takes money from those whom she or he is overcharging and at the same time destroys value. To get her or his monopoly price, she or he has to restrict production."

Someone explain how that is flat-fair-competitive capitalism, instead of its opposite. Seriously, after reading Lessig, dive into this wise detailed, and definitive Stiglitz article. For more, see Stiglitz's book, The Price of Inequality: How Today's Divided Society Endangers Our Future.

== The guru of the intelligent right ==


Not only Adam Smith, but Friedrich Hayek, too, can be rediscovered and re-interpreted. While it's true that Hayek despised government-socialist intervention, the reason for his skepticism toward government meddling was actually quite cogent: when too many decisions are made by bureaucrats you reduce economic wisdom by limiting the number of economic players and choosers. 

A fair point, though with complexities the Right chooses to ignore. For example, if 100,000 diverse, accountable and transparent civil servants cannot "allocate" well because they are too few, then isn't the problem even worse when allocation is done by an incestuous, conniving, secretive cabal of only 5,000 CEO-caste golf buddies? Connivers who sully Hayek's name, whenever they mention him?

Which leads us to the Bigger Picture... the one aspect that Lessig, Stiglitz, and apparently everyone else leave out is the great context of large scale history. 

For 6000 years, wherever humans got metals and agriculture, the typical social pattern was a pyramid of inherited hierarchy, loosely called feudalism.  Big men with swords found it appealing to arrange that they would get no competition from those below, and that their sons would inherit ownership of other folk's sons and daughters. 

The pattern, replicated everywhere, reinforced by darwinian reproductive advantage.  And it boiled down to a single, simple word that anyone would understand -- cheating.  Using your high status advantages -- e.g. swords or armies of lobbyists -- to crush any potential competitors from below. The temptation will always be there.

Our brief, 240 year miracle - dating not just from the Declaration of Independence but also the publication of Adam Smith's Wealth of Nations - has been based upon dividing power so that cheating can be limited by competitive accountability. By opponents pointing out and staunching cheats before they get so large that they become self-reinforcing. 

One result has been the world's first Diamond-shaped society, with an empowered middle class that fizzes forth new competitors at rates that should please Smith or Hayek and that delivers real goods. Alas, a diamond is unstable and last year's winners will try to prevent new competition, so they can become next year's lords.

Our parents in the Greatest Generation knew this better than we do, because - like all their ancestors - they knew what class war was. Desperately, with help of fellows like FDR - they sought a solution other than the one most widely offered at the time, Marxian revolution.... choosing instead to empower the working class and flat-fair-creative competition, their Rooseveltean reset was so successful that we boomers grew up imagining “class war” to be quaint, obsolete, a worry to prioritize far below other long-neglected injustices like racism or sexism. 

But human nature hasn't changed and today's wealth disparities are nearing 1930s levels. Some claim the levels of 1789 France. An oligarchic putsch is underway, and Lessig's clarion calls are vital, if we are to perform another moderate, reasonable "reset" that saves and enhances and renews both capitalism and freedom. It will be either that or "tumbrels," which is why all the smart billionaires today - who can look beyond their noses - are democrats.

Larry Lessig's Evonomics missive makes this all very clear (except the history-feudalism part.)  Lessig explores these issues more thoroughly in his book Republic Lost: The Corruption of Equality and the Steps to End It. His quotations are vivid ammo, so copy and use a lot of them! 

But let me add one more, from Will and Ariel Durant's classic The Lessons of History:

“In progressive societies the concentration[of wealth] may reach a point where the strength of number in the many poor rivals the strength of ability in the few rich; then the unstable equilibrium generates a critical situation, which history has diversely met by legislation redistributing wealth or by revolution distributing poverty.”

== Why conservative revisionists should give a Hayek ==


Aw heck. Add one more brilliant mind to this mix. David Sloan Wilson, one of the driving forces behind the dynamic and insightful Evonomics site, has been part of the movement to rediscover and revive interest in Adam Smith, one of the chief founders of the modern enlightenment western experiment. 

Wilson has also called for a rediscovery of another complex thinker who was way-oversimplified by the American right: Friedrich Hayek. Yes, he was more explicitly anti-government  than Smith’s anti-oligarchy. Still, he evolved over time. As Wilson puts it:  “not a single prediction made in The Road to Serfdom materialized and Hayek himself modified his own views." 

Even in The Road to Serfdom Hayek wrote: “Nor is the preservation of competition incompatible with an extensive system of social services—so long as the organization of these services is not designed in such a way as to make competition ineffective over wide fields.” 

110 comments:

Louis Shalako said...

I'm finding Evonomics interesting and useful. Without any prior grounding in economics, I'm not in any position to contradict. But it would appear our agenda is similar.

Laurent Weppe said...

1/2

I arrived after the big fight of the last post, so I'll put my comment here:

***

* "Let me invite you to ponder, for a moment, and contrast the Air Force metaphor vs. one that hearkens up images of the Navy.
In Star Wars, the ships that matter are little fighter planes.  Series creator George Lucas made liberal use of filmed dogfight footage, from both world wars, in some cases borrowing maneuvers like banking slipstream turns, down to the last detail. The heroic image in this case is the solitary pilot, perhaps assisted by his loyal gunner -- or wookie or droid -- companion. It is the modern version of knight and squire. Symbols as old as Achilles.
"

Urk: you're doing it again, twisting the picture to make it fit your distaste for Star Wars.
You're missing the fact that both series ships are in part inspired by pre-industrial period, and that the enterprise captains are way more "aristocratic" than the Falcon & X Wings.

The nature of the ships is defined by the nature of the two series: Star Trek is about the travels of explorers while Star Wars is about a rebellion/civil war happening within an empire's borders.

In Star Wars, the ships are not metaphors for the medieval knight, but metaphors of the chinese junk (the Falcon): lowly, outdated, but nonetheless fast, maneuverable and sturdier enough to give the heavily armed imperial war fleet a run for their money; and metaphors for sappers (x-wings): the combat engineers whose role is to both open roads for the larger army to rejoin the theater of operation and to disrupt the enemy's own operations.
Look at the three major "battles" of the first trilogy: two are about taking down what essentially are fortresses (sure, they blow up the reactors instead of tearing down the walls with shovels and well placed explosive... except that it's exactly what they do in Episode VI) supposed to demonstrate the "invincibility" of the Empire, and one is about smuggling a valuable rebel leader while being pursued by a much better armed war fleet.
The thing which comes closest to a "knightly duel with spaceships" is the short semi-dogfight between Luke and Vader, where Luke may not even be aware of Vader presence, instinctively avoiding his shots while his cortex is focused on the exhaust vent and which ends when Han do the oh-so-ungentlemanly act of shooting Vader in the back.

On the other hand, Star Trek hearkens back the age of exploration, when large (for the time) ships explored the unmapped corners of the world for the glory and prosperity of the crowns of Europe. Sure, the Enterprise serves a democratic utopia and not some inbred Habsburg Emperor, but the genre itself make the ships captains the futuristic version of Lapérouse. (Picard even has a somewhat similar origin, being a french explorer born in a wine-growing region)

And the Enterprises doesn't even work well as proxy for their civilization: these ships are not GSVs: they transport only the "supposed) elite of the Federation, unlike the Culture's worldships which carry everyone: the meek and the brave, the imbeciles and the geniuses, ready to show everything (or nearly everything) of a civilization confident (or arrogant) enough to be convinced that it can put all its quirks on display and still look way better than the competition.

***

* ""is like arguing whether you prefer "The Hobbit" or Asimov's "Foundation". "

Well, Lord of the Rings vs Foundation, yes.
"

Well, one can find preferable to be a citizen of Terminus rather than a subject of Gondor, yet acknowledge Tolkien as the far superior wordsmith.

***

* "Oh, and Hillary isn't the Emperor. She's the 60-year-old Princess Leia."

That's General Leia now, thankyouverymuch: she earned that title fair and square when she kicked Palpatine's ass by turning Teddy Bears into intergalactic Guerrilleros.

Laurent Weppe said...

2/2

* "The original Star Wars was a Wagnerian masterpiece and the Jedi, Sith and Galactic Empires were really inspired genius. But then Hollywood got their fangs in the franchise and it's been all downhill from there."

Huh, no: Hollywood is (for once) blameless in what went wrong with Star Wars: what happened is that technology progressed enough that when Lucas started working on the prequel trilogy, he basically became a geeky kid given a whole toy store for himself: he wanted to try all the toys, to play all of them at all time, and as a result of this technology-infused orgy Jar-Jar was born.

***

* "If it were a choice between Shatner and Trump, I'd vote for Shatner without thinking twice."

In case you forgot: George Takei is eligible.

***

* "But Aliens 3 was so bloody horrific that I still feel bile today. We had rooted for Ripley to save her adopted daughter in Aliens and were vested in Newt. To betray all that was the act of truly evil men. Truly despicably evil and I mean that deeply. And the rest of A3 demonstrated this down the line."

You really sound like one of these guys sore after Mass Effect 3:
"We invested hundreds of hours in the story, we rooted for her and Liara to have these blue babies. They! Betrayed! Us!"

Besides, when it comes to the Alien franchise, complaining about Alien 3 when there is now Prometheus seems a tad quaint.

***

* "what kind of fool of a playground bully takes Conan the Barbarian seriously as an alternative?"

The kind of tiny fish who doesn't realize he's lording over a very small pond.

***

* "The Force guy can't tell his enemy is his son?"

The Force Guy is known to go deep into denial every time it's convenient for him.

***

* "WAAAAIIT o' minute! Has locum gone all... LEFTIST on us?

An authoritarian right-winger who uses left-wing jargon is to politics what a hack writer who relies on technobabble to peddle bullshit is to science.

***

* "Letting those fools who think they are the übermensch have their "freedom" to do unto others whatever the Hell they want brings us down to the level of the Silverback"

No, they bring us back to the level of the Chimp, where the dominant male is neither the strongest nor the smartest nor the healthiest, but the vicious one who waits until the others have gone to sleep so he can crush his rival's balls with flat stone he brought from the ground just for that.

Paul SB said...

A thought on centralization of power vs. decentralization:

If you look at human history, meaning the time periods in which we have written (historical) records, you see a pattern of social hierarchy pretty much everywhere. Early in ancient times there was a development from relatively wide, flat social pyramids to pyramids that added more levels, and most often increasing centralization of power. There were times when this reversed, then returned to the course of increasing social differentiation. Recent history, within the last couple centuries, has in some ways reversed that trend, although previous reversals were social collapses, while the current reversal has more to do with democracy and a more broad distribution of both power and wealth.

However, if you add prehistory to history, you see a little different picture. The majority of prehistory was small scale, very decentralized. It was only really after the retreat of the last glaciation that tribal and later chiefdom organization began to develop, in conjunction with overall population growth (it's debatable which was the cart and which the horse, with good arguments on both sides). Much of prehistory was quite bloody, with high levels of violence. The growth of the nation state (that pattern that most social scientists call complexity) resulted in the creation of justice systems and police forces that began to dramatically curtail violence, but mainly so the State could assert its own monopoly over violence.

This pattern seems to be breaking down, starting slowly with the Enlightenment and the move toward increasing democracy, which is a way of breaking the old aristocratic monopolies of power. Now science and technology are enabling this decentralizing trend to continue in other venues, like manufacturing (household 3-D printers taking away from centralized manufacturing), power generation (household solar & wind energy) and even potentially agriculture (with vertical farming, which might free us from the extremely centralized system of Big Ag). This decentralization seems to hold the promise of greater freedom. Couple that with a Guaranteed Minimum Income like in Switzerland and we might be able to free ourselves of all manner of tyrannies.

But there is one caveat that has to be kept in mind. Through all of prehistory, decentralization of power meant greatly increased violence. There will still have to be some sort of centralized justice system with enforcement powers to curtail opportunistic violence, otherwise we just return to the Dark Ages. The only way around that I can see still lies in the realm of science-fiction, which would be dramatically altering human nature.

Eray Ozkural said...

There is no reason that competition for competition's sake is applicable to all services and goods necessarily. It simply isn't in the nature of science, art and philosophy, but we can pretend it is. It may be the case for grocery stores and whatnot, but it is intellectual products that truly drive our society. And that is the major failing of capitalist ideology.

Paul SB said...

Laurent,

Gorillas are quite violent themselves. The typical alpha male, who immediately kills all babies of the previous alpha, only lives a couple years because he is usually ganged up on by a pair of beta males, the largest of which generally takes over. And they don't use rocks to smash their rival's testes, they squeeze them out of the scrotum with their powerful hands. I'm not sure which is supposed to make a person wince more. In either case, I just hope the transhumanist/genetic engineers find a way to solve the problem of sperm-tail sensitivity to heat so those organs can be left inside the body, like the ovaries they begin life as, where they are safer, and nobody has to see them.

Eray Ozkural said...

Paul SB, interesting you brought up gorillas. Capitalism codifies violent ape behavior and desires, and that's why it's primitive, uncivilized nonsense.

donzelion said...
This comment has been removed by the author.
donzelion said...

Rothwell's analysis is fascinating, but his prescriptions lacking.

We will not fix the current state of income inequality by empowering mutual funds to invest the same way as hedge funds. Nor is the primary driver of income inequality linked with professional 'trade associations' (lawyers, doctors, dentists), such that the solution of creating more practitioners will alleviate the imbalances.

Access to hedge funds does confer a 2% advantage over stock market returns, for the multi-millionaires able to swim in that pool. The returns are nuanced though: hedge funds charge 2% more than mutual funds, and it's hard to account for the actual wealth of the wealthy to measure what, if any, benefit hedge funds confer upon them from the outside (the traders themselves earn quite a lot though).

A better analysis, such as that offered by our host, would focus on "cheating."

In this game, the cheaters act as bears - mostly territorial, mostly non-cooperative, occasionally amicable when there's plenty of salmon to eat in the river. Alpha predators seldom engage in battle to the death with one another; rather, they test each other's strength, grab territory, and then disengage. Empowering mutual funds to perform hedge fund trading will not alter that general posture among elites.

Consider Adam Smith's signature legal theory: you can't, because he destroyed the manuscript and never finished it. Why would he do something like that, and back away from law? Because a serious attention to cheating is too difficult condense into intelligible principles a la the invisible hand. "Rent-seeking" is a creature far more fundamental than markets, far more essential to daily lives and needs - and the best we've found to address it is to try to induce 'competition' among rent-seekers (to the extent they do not regard us as salmon, and compete to eat more of us).

Rent-seeking is not cheating. But it is the tool of choice of cheaters.

LarryHart said...

Laurent Weppe:

* "WAAAAIIT o' minute! Has locum gone all... LEFTIST on us?

An authoritarian right-winger who uses left-wing jargon is to politics what a hack writer who relies on technobabble to peddle bullshit is to science


Locum's recent assertion--that Newton's law (equal and opposite reaction) means that the left and the right are the same thing--is a telling one. Essentially, he's saying "When you think you're flying north, you're really not, because your plane is pushing an equal amount of mass back south behind you to the south. There is no difference between the mass moving north and the mass moving south. So flying to Toronto is the same thing as flying to Guatemala.

David Brin said...

Eray said: “There is no reason that competition for competition's sake is applicable to all services and goods necessarily. It simply isn't in the nature of science, art and philosophy…”

Sorry, but you do not - it seems - know any scientists, artists or philosophers. They are all among the most competitive humans our species ever produced.

David Brin said...

Sorry Laurent but your exegesis on SW vs Trek doesn’t even make a scintilla of sense. You have your own axes to grind — and I agree that it has been tedious for FOUR SW flicks to be about tiny knightly ships-stallions charging inside a fortress and blowing it up from the inside. So? I agree… but that has ZERO to do with the topic at hand.

So the Enterprise carries an elite? So what? They are relentlessly shown to be above-AVERAGE people. Citizens. Citizens who DO exhibit traits of meekness/bravery, imbecility/genius. You simply are not paying the slightest attention.

As for Prometheus, at least he said it was “off-axis.” Though yes, utter nonsense.

“An authoritarian right-winger who uses left-wing jargon is to politics what a hack writer who relies on technobabble to peddle bullshit is to science.”

Um, was that aimed at me? The same week the Rosetta Mission proved my doctoral dissertation? I’ll hold up one year of my science against your lifetime’s contributions, sir.

But in respect for the Europeans who sent Rosetta, I forgive you. ;-)

Paul SB said...

Ray Ozkural,

I am inclined to agree, but realistically I know that most businesspeople are not lying, cheating scumbags. many certainly are, and both they are the other Great Apes clearly show that being social animals does not necessarily make nice animals. The problem is not so much business itself - I don't know of any better way to distribute the material needs of society than through markets. Certainly command economies have fared pretty badly. The problem, I think, comes when you give business its own special name, attach fame, fortune and glory to it, and turn it into a slogan. Think about the Enron boys, the ones who claimed to be the smartest people in the room. Merchants have always been greedy, but it took the polar extremism of the Cold War to produce that level of hubris in a profession that for most of history was seen as a necessary evil.

Awhile back Alfred was talking about someone named Mccluskey, who postulated that much of the progress the Western world saw in the past few centuries has a lot to do with merchants being accorded an honorable status (if I am parsing it correctly). While that may have been an important factor, turning merchants into something like rock stars is swinging the pendulum way too far. Businesspeople are responsible for all manner of crimes against humanity, and I don't trust anyone who has a profit motive. Rather I trust in the justice apparatus of society to work to keep the most egregious of greedy bastards from doing too much damage. My mother worked for the courts for most of her adult life, so I have some personal experience there. I also have the experience of suffering physical harm that I will probably never know the full extent of, only to see the drug that did it to me go to market soon after its side effects were discovered, so I have personal reasons to share your distrust of capitalism.

Alfred Differ said...

Okay. I'm putting on my Starfleet uniform for a moment and defend this civilization from a despair spill on a previous thread, without inflicting my monomania on the ST conversation itself. Be amazed. 8)


Jeff B,

...if you take away taxes as a tool to limit and control the grown of the oligarchs, then what tools exactly do you have left?

The seeming weakness of the tools you think we have left to us tells an interesting story. They are all social pressures and one of them even dips into religious territory. That you think they are tools of small scale societies suggests you and I have a very different understanding of European history. It also suggests you don't understand why David thinks a transparent society's Little Brother can become dangerous. Social pressure isn't just about a few people getting upset at a few others. It's about rhetoric. This stuff is really, really powerful as evidenced by how the aristocrats and priests kept the masses in their place for thousands of years against the instincts of foragers built into us at a genetic level.

The crux of the issue is that this isn't a hypothetical- the rapid dismantling of Dr. Brin's "social diamond" is happening, right now- wealth continues to accumulate at the top at a nearly unprecedented rate.

No. Absolutely not. Not even close. The rich ARE getting richer, but so are the poor and in terms of basic needs and comforts, the rate is about the same. (Who gives a fig how much jewelry the rich can buy? I don't. Let them waste it on pretty rocks.) The social diamond is not being dismantled. Quite the opposite. In about one more generation (maybe a long generation) there won't be anyone left on the planet who lives at our former subsistence level where essentially ALL our ancestors lived, but especially our agricultural ancestors. If our population peaks at 11 billion (plausible), that's 11 billion participants in a kind of world we should be able to understand as approximately similar to our own right now. Mid-century roughly. We will manage as long as we try to manage and honor those who do it well.

David rightly points out dangers to the unfolding of this future and describes some of the possible ways we can avoid them. Some of his concerns aren't long bets, but a few are. None of them are sure things. Please don't underestimate your own power to shape social forces, but if you do, please don't underestimate ours. Look back at authority and say what you think. Forgive your neighbors their eccentricities, but not their moral lapses.

Alfred Differ said...

A lot of people read The Road to Serfdom as a prediction and fail to understand what Hayek was doing. Hayek tried more than once to explain, but few ever get it. He was describing a social pattern, not an historical pattern. It is a set of links in a chain that lead slowly from a free society to a serf society. It is a slow boiling of the proverbial frog. It is an easy social path along which to slide.

If one reads the whole book, it seems obvious that he as talking about Nazi Germany. Look at the copyright date and the conclusion is easy to draw. He wasn't, but that's how he got it published during the war. He was more concerned with where the British were going. American readers could easily see the pattern in Stalin's Russian empire, but Hayek was concerned about us too. Marxist arguments had essentially won the day even if some of us were a little soft on our socialism. It's not so much that governments were doing things for us, its that the citizenry is turning to government to do things for them that are better done in the seemingly inefficient ways that work in the market. Government might be able to do a particular task or they might not, but asking them is one of the links in the chain. The next link isn't automatic, but it is certainly easier. Marxists construct a number of the links and THAT is what worried Hayek. We make it too easy for well-intentioned civil servants to fail us and get replaced by not-so-well-intentioned people.

Hayek is well known for telling almost everyone who approached him with praise for his work that they didn't understand it any better than the people who opposed him or ignored him. His view of Thatcher's political use of is later book (The Constitution of Liberty) was luke-warm at best. Even people who offered to edit and collect his work later in his life got grilled a bit. He didn't want to wind up with followers like Keynes had after his death who failed to understand the ideas they were supposed to be following.

It is fairly safe, though, to read The Road to Serfdom as a description of a social pattern we had best avoid. There is nothing inevitable about the parts, but the ignorant can easily slide along the path. He delves into political economy in 1960 with The Constitution of Liberty after some side trips in the 50's where he re-grounds himself after realizing his approach to booms and busts in the 30's floated on social science assumptions. Economics IS a social science, but his economics research led him out of the pit where most economists remain. Humans aren't simple optimizers and he learned to write about it during that transition “Mont Pelerin” decade.

Duncan Cairncross said...

Hi Alfred
"The social diamond is not being dismantled."

Once more you fall foul of the actual FACTS -
The Diamond never actually got to diamond shape - at the best there were too many poor and the rich had too much of the wealth

But we have already gone a long way from that! - the rich now have roughly twice as much as they did before and the poor have basically nothing!

Read Piketty's Capital in the 21st Century

Bottom 10% of Society - 0% of Wealth
10% - 20% of Society - 0% of Wealth
20% - 30% of Society - 0% of Wealth
30% - 40% of Society - 0.2% of Wealth
40% - 50% of Society - 2% of Wealth
50% - 60% of Society - 2% of Wealth
60% - 70% of Society - 10% of Wealth
70% - 80% of Society - 10% of Wealth
80% - 90% of Society - 12% of Wealth
90% - 100% of Society - 73% of Wealth

The bottom 30%!!!! have effectively nothing

And that is now a few years old - the rich now have more and the poor have less

Alfred Differ said...

@Paul SB:

...turning merchants into something like rock stars is swinging the pendulum way too far.

Yah. That's too far, but more importantly, it is missing the point. Honor the merchants who do what they do IF they play the game fairly(=virtuously). It doesn't matter how much money they make playing the game as long as the people buying their stuff do so voluntarily in a fair market. That approach ensures we honor the people who survive the test of trade and is the very thing that makes our market an ethical evolution environment. Honor the cheaters and the market is still evolutionary, but you reward the feudal types with offspring. Bad idea. 8)

There are rock stars, though. They are the people who innovate AND survive the test of trade. Lavish them with riches like short-term protections from patents and THEY will get the offspring. Good idea... as long as they don't later try to cheat.

Businesspeople are responsible for all manner of crimes against humanity, and I don't trust anyone who has a profit motive.

Aw. You were doing so good there for a while and then you blew it. 8)

I'll bet you DO trust lots of people who have business profit motives. Next time you are in the supermarket, look at your basket of food and ask yourself if you trust all the people who made it possible for you to buy it. Most of them have a profit motive including employees of corporations responsible for making the market work. After all, few of us employees trade our time for so small a wage that we think we are doing it at a loss. Do you? Now look beyond the basket of food at all the interdependencies into which your life is woven. Many, many, many of the people involved have profit motives and you manage to trust them enough to live a decent life, right?

You don't have to trust them all. Honor them in general, and skewer the individual people who abuse the honor. Whatever you do, though, don't skewer the good people by failing to distinguish them from the bad ones. We will revert to feudalism if a lot of people decide to do that.

Duncan Cairncross said...

Hi Alfred

Nonsense - Total Nonsense

Most of us do a lot of things for other reasons than the "profit motive"

I would be surprised if 5% of innovation came from "the profit motive"

Certainly almost none of the scientific advances in the last 100 years have been "for profit"

Alfred Differ said...

@Duncan:

Garbage. You are looking at the wealth distribution curve again and failing to recognize that the poorest have incomes above the old subsistence line. The poor have MUCH more than they used to have.

Wealth is a residue associated with large incomes thus people with large incomes can certainly have a lot of it. Focus only on wealth, though, and you ignore its source.

Piketty is being taken apart by his peers at the moment. He is a darling of the left who still cling to Marxist interpretations, but his arguments have very serious problems.

Alfred Differ said...

@Duncan:

Most of us do a lot of things for other reasons than the "profit motive"

I would be surprised if 5% of innovation came from "the profit motive"


I would also be surprised, but you are missing the point. Slow down and paraphrase please, because you'll find you aren't reading into what I write what I write into what you read. 8)

Alfred Differ said...

Eray Ozkural,

There is no reason that competition for competition's sake is applicable to all services and goods necessarily.

True enough, but that's not how humans actually organize markets. It isn't all about accumulating the most gold possible without any ethical concerns. Most market participants are real humans who have to convince other real humans to give up something for what they offer. This voluntary aspect of trade is terribly important because it is the lever by which we move people ethically. If I have two otherwise equal trade opportunities, but one person behaves like a jerk, I'm going to pick the nicer one. It is a well known fact that some of us will take a worse trade in order to punish someone else who misbehaves. When enough of us use these levers every day, we make our markets into much more than a place where good and services are traded. We make them into social conditioning arenas.

While there is no reason to believe this is the best way to deliver goods and services, history has shown it is the only one that appears to work in a manner that benefits the poorest among us. Everyone can see how it benefits the richest, but look a little lower at the number of us living in grinding poverty nowadays. As a percentage of humanity, it has been dropping since 1800 slowly and since 1978 very rapidly. As an absolute number of humans, it is also dropping, but only after about 1978. Something very interesting happened in the world in roughly that year. 8)

It simply isn't in the nature of science, art and philosophy, but we can pretend it is. It may be the case for grocery stores and whatnot, but it is intellectual products that truly drive our society. And that is the major failing of capitalist ideology.

Not only do you not understand how science works, you place way too much importance on it. Science as a contributor to the Great Enrichment didn't matter all that much until about 1900. If one broadens it so widely to include Technology, then one can give it credit for the Industrial Revolution, but that is quite a stretch. Science was mostly done by elites back then with a few notable exceptions. The impact of 'commoner' contributions came later and really, really mattered after WWII.

Duncan Cairncross said...

"Science as a contributor to the Great Enrichment didn't matter all that much until about 1900."

You are being way too narrow about "Science" - Science has been making a BIG difference since the days of Rumford and his cannon boring experiment
Or I could go back to the Admiralty navigation tables - or the work of people like Lord Kelvin

Science and it's cohorts engineering and technology created the "Great Enrichment" - despite the attempts of the Aristocracy and the rent seeking merchants to destroy it

Jumper said...

The merchants and the boards of directors lie. Vast edifices of lies. Add that fact to the picture.

Jumper said...

Laurent, I forgot to say "thanks" for the mention of Jean-François de Galaup, comte de Lapérouse, of whom I'd been previously unaware. Napoleon turned down for assignment on the voyage; interesting.

Paul SB said...

Alfred, put down that phaser! Or at least set it to stun.I'm not attacking our civilization, The American Flag, Reified Apple Pie or any of that. I agree with most of what you say here, but because I have to go to work, I don't have time to go into detail right now. I might not until the weekend, depending on how hard I try to keep up with new initiatives where I work. A quick question for you though:

"Businesspeople are responsible for all manner of crimes against humanity, and I don't trust anyone who has a profit motive."

Are you objecting to the first phrase, or the second, or both?

If it's the first phrase, note that it does not specify that all businesspeople are responsible, but there is something in our culture that facilitates those who are.

If it's the second, then you missed my point about trusting institutions that enforce honesty. Business is kept relatively honest by the fear of imprisonment and law suits, a force that at least tries to counter the profit motive that encourages all sorts of cheating. When you go to the grocery store, you can be sure that the products you buy won't kill you right away, because if they did the manufacturers would be sued to oblivion. But if those products slowly damage you without your knowledge, the profit motive almost guarantees that cheaters will get away with it. Most people are decent enough, but when we glorify Capitalism with a capital /C/ we encourage those who get results, however ruthlessly, rather than encouraging human decency.

At this point I'm going to have to explain my Close Encounter of the Pharmaceutical Kind.

Tim H. said...

Up front I'd like to say I'd be uncomfortable with a completely socialist economy, that said, socialism has some concepts that smooth the rough edges of capitalism. Campaign finance reform would be a good place to start, the .01% would always have an outsized voice in policy, but if their access were reduced, they might not so easily drown out little people. An amusing aspect of campaign finance is after LBJ and JFK demonstrated the moral hazard of big money the GOP said "Pass that bottle.", rather than "Reform, sinners!". It is important to tweak society into a place where it's difficult to say that the game is rigged, the support for "The vulgar talking yam" should be ample evidence of that. And if that egalitarian future is achieved, it's inhabitants will identify their economy as "Capitalist".

raito said...

On 'exceptional talent':

It's hardly been my pleasure over the years to work for persons who thought they were exceptional talents. They weren't. Nearly uniformly, those who thought they were were mostly just lucky in knowing the right people.

In 2 cases, friends told them 'I need this thing. You can make it. And I can get you a bunch of money for it.' Not that the thing itself was so difficult, but out of the realm of knowledge of the friend. So the founders of the company were fortunate to have known guys who needed things and would pay for them. They weren't sought out because they were exceptional, they were just the guys that the guys who needed things knew.

And in both cases, those guys weren't able to comprehend the next generation of the things they got paid to build.

And nearly as uniformly, the persons who I know who actually are exceptional talents don't really think of themselves as such.

There's a huge different in attitude between 'I'm great' and 'I've done pretty well'.

There's also a huge difference between 'I'm great' and 'Over here where I am is pretty neat. You should consider coming over here.' (in an intellectual sense)

Jonathan Sills said...

Alfred, you state that "the poorest have incomes above the old subsistence line."

I submit, sir, that you have not been among the poorest, at least not in the past couple of decades. Even here in the United States, there are people living below subsistence level - well, I say "living"; really, it's more like "short-term surviving". For myself, there was a period a couple of decades back when, due to a few poor decisions (and no, none of them had to do with liquids or recreational pharmaceuticals, the first thing most folks think of in this connection), I and my (now) ex-wife and stepson found ourselves falling right through all the cracks. We spent almost a year living in a tent we'd purchased in better times, set up in a spot out in the woods where Weyerhauser wasn't due to harvest for another fifty years. (On reflection, things might have been better if I had been an alcoholic or a drug addict - there are programs for people like that. Nothing for someone who's relatively healthy, and has just trusted the wrong people a few times.) Had there not been a food bank in the only town I could reach from that campsite, times would have gotten pretty lean...

Anonymous said...

Ahistorical and far too simplistic as ever; Francis Fukuyama by contrast holds that the diamond "is a misnomer, insofar as the social structure of modern democracies still resembles the classic pyramid, rather than a Christmas ornament bulging in the middle." (End of History and the Last Man, p. 290) But it's a nice propaganda point, to contrast those evil, nasty brutish feudalists who aren't actually feudalists (but are) with the rugged, handsome & above all most competitive scientists on that Shining City on the Hill. I suppose that Harvard sugar study is something like the noblesse oblige of your dreaded feudalism (or is that word a thought-stopper?), and while one can find examples of brutes being brutes back in the day, one can just as easily find well-regarded kings (or queens!) in contrast to, say, the Tuskegee syphilis experiment and other such modern machinations. Quite a poor rock to stand on, what with the planes screaming about, the eternal torture of the night-lights, and the angry car stroads…

Jonathan Sills said...

Laurent, I'm not sure what Star Trek you've been watching, but Capt. Kirk and company were "elite" only in the sense that they were highly trained professionals. They met plenty of non-"elite" people, from Commodore Fox (who took command of the Enterprise and ordered it into the Romulan Neutral Zone in violation of treaty, in "The Deadly Years") to Agriculture Undersecretary Barriss in "The Trouble With Tribbles", who called a top-level emergency, generally reserved for things like stars going nova, when a Klingon ship arrived to take shore leave at a station in neutral space. ("Kirk, you take this entire situation far too lightly!" "On the contrary, sir, I take this situation quite seriously. It is you I take lightly.")

The crew had their issues as well, including a tad of racial prejudice in "Balance of Terror", when the crew got their first look at a Romulan - and found that they were identical to Vulcans. The helm officer started making snide insinuations about Spock's loyalty at that point.

TNG had some impossibly-perfect people in the first three seasons, due in large part to Roddenberry's insistence that there could be no interpersonal conflict on the show. (Imagine trying to write drama with no personal conflicts!) Later, though, we got to meet people like Lt. Barclay, a brilliant engineer with terrible anxiety, who we first found avoiding people by withdrawing into holodeck fantasies about those same people. (Counselor Troi was not amused.) Later, Barclay's anxieties helped solve a few issues, including his hypochondria leading to the discovery of a new disease and his fear of transporters helping the crew rescue another ship's crew who had gotten trapped in the pseudospace the transporter uses.

The other series were hardly "elite" - Sisko was first assigned to DS9 because after the battle of Wolf 359, he hardly did anything except mope about his late wife, and at the time DS9 was regarded as a backwater where he could serve out the rest of his career without messing up anything important. Most of the other people there were there for similar reasons. After Voyager was shunted to the Delta Quadrant, half the crew were Maquis, members of an organization that disliked the Federation in general and Starfleet in particular for, in their view, "abandoning" those colony worlds that wound up in the Demilitarized Zone after the Cardassian War. And in Star Trek: Enterprise - well, between Archer's arrogance, Tucker's provincialism, and Reed's "shoot first, hit hard" philosophy, the wonder wasn't that Earth wound up fighting the Xindi and the Romulans, the wonder is that they weren't at war with the rest of the quadrant.

The point remains, however, that the crews of the various ships (and station!) weren't perfect, they weren't "elite" - they were just trying. Anyone willing to put in the effort could potentially reach the upper echelons of Starfleet; Jim Kirk wasn't born to privilege, he worked his butt off to get into that center seat, and served in lesser positions with distinction along the way. (In "Where No Man Has Gone Before" Gary Mitchell described him as having been "a pile of books with legs" at the Academy, and we know that Lt. Kirk served as the navigator of the Farragut some ten years before the events of "Obsession".) (to be continued)

Jonathan Sills said...

(continued)
Jedi, on the other hand, are born into the job; you only get to be one if you're born with the Force in you. And your eventual success in the Jedi is determined entirely by how strongly the Force is born into you. You can't work out and become stronger - your Force potential is determined before you even begin. All you can do is train your abilities as far as they will go. If you're not among the elite, you don't get to join them, no matter how badly you want it or how hard you work at it. They even invoke the concepts in their own names - a Jedi who is judged able to go out on his own among people (and take on a squire, or "padawan") is a "Knight", who is answerable only to a Jedi "Master". Is it any wonder they tend to be corrupted into Sith? At least the Sith have a competitive method of advancement (if you can kill your teacher, you get his job).

David Brin said...

Good discussion! I side with Alfred up to a point. Much of our advancement has arisen from personal and group ambition to excel and to benefit from that. You all know that I praise competition as a propelling human force.

But competition’s benefits only rise to prodigious levels when the utterly inevitable cheating is constrained. The bigger the rewards, the more ferocious and imaginative the efforts to cheat. Smith spoke of this clearly, if in a primitive context. Hayek floundered and denounced some kinds of cheating while blind to others.

I do not glorify “capitalism.” I find the word unhelpful and distracting, with millions dismissing it as evil, reflexively, when capitalist flat-open-fair enterprise markets are among the top VICTIMS of oligarchic cheating.

The two “c-words” I promote are Competition vs Cheating. Peoplke seem to get that. You only get the former when the latter is repressed. And that only happens with regulation.

And yes, regulation can be CAPTURED! (Another c-word) and turned back into cheating! So? We have to stay agile and smart and remember what it’s all about!

occam's comic said...

This pot is not stirred enough.

If we want competition in the market place do we limit any corporation to a maximum of say 10% of the marketplace?

We would need to break up a whole lot of corporate ameriaca.
Wallmart needs to be broken up
so does Amazon, Google, Apple, Comcast, Time warner etc. etc.


What do we do about foreign companies that dominate a marketplace?

How about we eliminate patents on all medical treatments. and pay for the research development and testing of new medical treatments from tax dollars. A free market can provide the drugs and services but not with the monopoly protection that comes from patents.

How about copyright reform? The length of the copyright should be reduced to the minimum length necessary to encourage that type of activity. Lets end the rent seeking behavior by copyright holders. We could do it empirically, for example (with made up numbers) if most books make ~ 80% of their total income in ~ 10 years we should reduce copyrights to about 10 years. It may be different for movies, or music or poetry but the same type of evaluation can be done for them.

David Brin said...

Occam does it surprise you that I deem every suggestion of yours to be a reasonable point of discussion? All of them need to move in your suggested direction... we can argue over how far.

Foremost, a huge international treaty on

- transparency of ownership

- tax havens

occam's comic said...

Lets also kill broadcast radio and TV and set up standards so that all of us can use this valuable spectrum rather than granting monopolies to broadcasters.

to insure competition in the marketplace we will need limit how successful a business can be and provide some protection for competitors who are not as successful. Just like we do in baseball ;-)

occam's comic said...

Dave,
It doesn't surprise me that much that you agree with a lot of the points I made, although I was trolling you a little bit on copyrights. I am glad you are willing to talk about reform there.

Laurent Weppe said...

1/2

* "“An authoritarian right-winger who uses left-wing jargon is to politics what a hack writer who relies on technobabble to peddle bullshit is to science.”

Um, was that aimed at me?
"

No it was aimed at Locum. I do get the feeling that you stopped paying attention to my prose after I said that Star Trek relies on aristocratic tropes (as well).

Also sappers weren't noblemen buying their charges, they were combat engineers: during the XVIIth century, Vauban spent twenty years trying to convince Louis XIV that the french army needed companies of dedicated military engineers to truly be efficient, fighting tooth and nail against the king's court's traditionalist view of warfare: "La guerre est affaire de gentilshommes" and one cannot asks gentlemen to dig holes with shovels like some bipedal mole or -perish the though- lowly miners.

An actual aristocrat from the pre-industrial era brought from his time to watch Star Wars would say: "When will the young lord Skywalker be finally given a rank befitting his station? What? Never? What a disgrace!"

***

* "Laurent, I'm not sure what Star Trek you've been watching, but Capt. Kirk and company were "elite" only in the sense that they were highly trained professionals."

I never said otherwise.
Note that my comment about Trek's spaceships has two paragraphs: in the first I point the similarities between the Enterprises and the ships commissioned by monarchs during the age of exploration, which were commanded either by aristocrats or very well connected commoners, with Starfleet playing the same role as the old european crowns sans the nepotism; and in the second I point out that since the Enterprises are supposed to carry the elite (in the meritocratic sense of the term: the best, brightest and bravest) of the Federation, they can't act as valid proxies for their civilization: two separate arguments are being made here.

***

* "your eventual success in the Jedi is determined entirely by how strongly the Force is born into you"

Hu... Vader?
Anakin is repeatedly stated to surpass everyone in term of sheer raw power, and he's an utter failure a Jedi. He's the space version of Gregor Clegane* (without the unrepentant rapist part): someone who lacks the mettle to gain a supposedly honorable title but receive it anyway because he's obviously useful on the battlefield and there's a bloody war going on, so the people in charge lower their standards.

* Or, to be precise, Clegane is probably an expy of Vader

***

* "You can't work out and become stronger - your Force potential is determined before you even begin. All you can do is train your abilities as far as they will go"

And, in which way is it different from any other form of athletic or martial training?
You may train as much as you want, chances are you'll never be as formidable a judoka as Teddy Riner unless you happen to also be a six feet eight juggernaut of a man.
You may join a shooting club and train to improve your aim, you're not going to get a buzzard's eyesight, ever.
Everyone is limited to training their abilities as far as they will go.

***

* "a Jedi who is judged able to go out on his own among people (and take on a squire, or "padawan") is a "Knight", who is answerable only to a Jedi "Master""

The Jedi system isn't inspired by medieval knighthood -even if it uses the terms- but by medieval guilds: the Apprentice/Padawan travels with the Jedi/Journeyman who answers to a Jury/Council of Masters bound to each others by a common oath.

Besides, knight is not necessarily a feudal term: Republican France has been knighting people left and right ever since its inception: My mother was a knight, and she was a teacher turned schoolmarm, not a warrior turned lord.

Laurent Weppe said...

2/2

* "The bigger the rewards, the more ferocious and imaginative the efforts to cheat."

Which is why the rewards themselves must be curtailed.
That means taxing wealth when it starts to accumulate to much, that means heavily taxing inheritance to avoid the appearance of parasitic dynasties, and that means stop pretending that billionaires (even those who funded the company that made them billionaires) are meritocratic wunderkinder

Jonathan Sills said...

I am, physically, quite unprepossessing. However, I could, if I chose, work out regularly (there's a gym near here, were I so inclined); past experience tells me that I could pack on quite a bit of muscle that way.

I could even study fencing, or judo, and become quite adept over time. That's how I learned to drive, after all - I wasn't born "strong in the Driving", I learned how over time, and improved with practice.

In the Star Wars universe, however, no matter how much time I spent wearing a metal blindfold while waving a lethal weapon around, or practicing my handstands while an oven mitt with an attitude yelled at me, I would never, ever be able to use the Force. Even were I one of the lucky, born with a slight grasp of its mysteries, I could never increase the strength of my Force connection; one has it or one does not. It's a matter of your blood, not your inclinations.

Anakin Skywalker was supposed to become a Big Deal, until the Jedi started discriminating against him because he was "too old" to learn their ways; that made him an easy target for a Sith. However, he was still powerful in the ways of the Force, because he was born that way. Not because he worked to master them, but because it was his Birthright. And his son was the same way - granted enormous power, given a little half-assed training in its use, and sent on his way. It was sheer luck that Luke grew up away from the whole Jedi/Sith mess, and didn't have a big old Order to mess with his mind and tell him he was "too old" and unworthy of their precious attention. (Imagine Starfleet turning down a cadet because he didn't apply until he was an adult, like McCoy!)

LarryHart said...

raito:

There's a huge different in attitude between 'I'm great' and 'I've done pretty well'.


Someone needs to explain this to Donald Trump.

Alfred Differ said...

@Duncan: I wouldn’t suggest that Science didn’t matter to the world before 1900. I’m saying it didn’t matter much to the poorest (and the enrichment underway) until after 1900. Elite level Science matters to civilization, but not to a poor person living in a mud hut until we started delivering medical theories and products that changed the child mortality rate or the maternal mortality rate at child birth or something else they saw at their level. See what I’m driving at?

I think the pictures of Pluto are mesmerizing, but I think the elimination of the guinea worm matters more. Science is important, but Technology touches everyone in a way that brings comfort to those worst off.

raito said...

LarryHart,

Someone needs to explain that to a lot of people.

LarryHart said...

Laurent Weppe:

Besides, knight is not necessarily a feudal term: Republican France has been knighting people left and right ever since its inception


England too. They've now given us Sir Paul McCartney and Sir Elton John, among others.

Alfred Differ said...

@Jonathan Sills: You are using a goal post that has been moved. In an earlier post, I explained my situation in 1987 and how in US terms, I was living in poverty (by choice) when I was in grad school. My income was about 10x the old subsistence line, though. The old line that applied to most of humanity for most of our existence is about $3/day denominated in 2016 US dollars. Imagine trying to get by on that each day. Some still do in the world (around 1 billion left to go… maybe 1.5), but most manage a higher income.

From your story, it sounds like you and your family were getting buy on less than I was. I managed to keep a roof over me using parental donations and I was in my situation by choice, so I’ll bow to your greater experience. However, it doesn’t change my argument. Around 1800, the people at the old subsistence line or below added up to about 95% of humanity. That number is down around 15% now world-wide. There are a lot of people above the line that we still consider to be poor, but that is relative to a moved goal post. I won’t argue against moving the goal post, but I want to keep track of the old measures too. Progress is being made and at quite a clip lately. We should give credit where it is due.

Alfred Differ said...

@Paul SB: I was mostly reacting to the second part of your sentence about trust. I think you are mistaken about what keeps businesses honest most of the time. It isn’t about threats of law suits or imprisonment. The vast majority of the businesses with which you interact (and probably never know about) do what they do in order to keep your business (even though they probably don’t know you either). Prudence is enough to guide the Invisible Hand, but if they want repeat business in a competitive world, they must pay attention to other virtues. If they focus too much on prudence, you’ll see them as greedy (too much of a virtue is a vice if it comes at the expense of other virtues) and you’ll shift your business elsewhere. The Invisible Hand discourages them, therefore, from over-optimizing for prudence.

Sure. Some manage to trick the game and leave you with no options but to keep doing business with them after they prove to be jerks or worse. These are the cheaters upon whom we should deliver a TV wrestling style smack down.

The slow damage scenario you describe is a tricky one. I’ll freely admit that. I’m way overweight and on dark days I want to blame cheap carb producers. On lighter days, though, I can’t imagine them willfully hurting me because it is stupid for business. Reality might be somewhere in between and dripping with unintended consequences, but my first line of defense should be my choice to change my spending habits.

As for glorifying capitalism, some of you guys get kinda bent out of shape over that. I’m not one of the ‘greed is good’ clowns wearing an Adam Smith tie who doesn’t understand what a moral philosophy professor does let alone that Adam Smith was one. Unfortunately, capitalism is misnamed by people who thought the enrichment was about the accumulation of capital. The got cause and effect wrong. Capital accumulates if you become richer, but capital accumulations don’t cause you to be richer. I don’t know a good name for what is actually going on, but it’s more about the accumulation of innovations that survive the tests of trade. Innovationism? Innovism? Meh. When people do it right, I AM tempted to sing their glories, but all I really have to do is buy their stuff, honor their effort, and leave them free enough to try again once their competitors arrive on stage for act two.

David Brin said...

Occam I need and deserve copyrights and patents. But their purpose is to LURE Transparency and sharing! Patent holders should have 3 years to find 2+ competing licesees or see escalating pressure. And the Undead (Mickey) Mouse Act was pure oligarchy in action.

Alfred Differ said...

@David: Using the stage/play analogy, any cheater who tries to constrain competition is stalling the play in act one where the innovator continues to capture extraordinary profits. Some cheating occurs in act two among competitors trying to clear the field and revert to act one as if they were the innovator, but their effort can be cast as an innovation itself of a kind that we should not tolerate. Market rule innovations that reduce competition should receive a full dose of sneers and maybe a criminal charge or two.

From the perspective of our civilization, we want these plays to advance into act three at a reasonable pace, so we should be suspicious of anyone (government or business) who wants to change the script.

Act One: Innovator introduces improvement, it survives the test of trade, and he/she becomes filthy rich.

Act Two: Innovator faces unruly competition, reduces prices, and everyone who survives the test of trade becomes richer.

Act Three: If competition remains fair, prices fall to where the market for the improvement can survive, and the good or service becomes a commodity of a sort. The poorest among us begin to have access to the improvement and the vast majority of the value of the improvement to our civilization is finally delivered. (For example: cheap electricity and lighting impacts education level among the poor.)

If the Play is allowed to finish, creative destruction enriches us all at the cost of initial inequality. This Play is the only known antidote to mass poverty.

Duncan Cairncross said...

Present situation

Act One: Innovator introduces improvement, The guys with the money buy the rights and they becomes filthy rich. - the innovator him/her self gets the crumbs

Act Two: Rich Guy/girl faces unruly competition, fends it off because he/she is filthy rich and can buy "protection" - if not from the Government than from Al Capone

Act Three: The filthy rich continue to get richer and grind the rest of us into the dust

Alfred Differ said...

@Duncan: If the original innovator sells their idea to someone else, that doesn’t really change the script. Many entrepreneurs do this willingly because they specialize in the early ideas and leave the growth phase to people who know how to recognize a good idea and run with it. The original innovator should try to keep about 2%, though, as part of their sell-out price. It will get diluted when other investors arrive, but it won’t be crumbs.

Your Act Two description usually occurs during Act One. By the second act, unruly completion has arrived and is by definition un-ruled. The common failure mode in the second act involves collusion among the unruly where they effectively choose to rule themselves at our expense.

There is no third act if the tide does not rise lifting all our boats. 8)


Pyramid shaped societies become diamonds with the accumulated benefits of the third acts of a lot of different plays.

Duncan Cairncross said...

"Capital accumulates if you become richer, but capital accumulations don’t cause you to be richer."

WRONG
The more capital you have - the higher the RATE of return!
I was amazed at how much higher - back to Piketty whose data is unquestionable even if the defenders of the rich disagree with his conclusions

As well as all of the doors it opens - with the Donald being a superb example

Duncan Cairncross said...

Alfred

Your play would be very nice BUT it does NOT happen
Most innovators get their wages - that's all - or maybe a $50 bonus and your name on a patent (I got a few of those)

This is another part where a UBI would be magic! - with a UBI people COULD think up ideas and try and sell them as opposed to the current situation where you need a job (for your family's sake) and all ideas that you think of belong to your employer.

This would also change the game in politics - currently you need the financial resources to be able to take a couple of years off work in order to go into politics - with a UBI lot more people could enter politics

Alfred Differ said...

No. Piketty did not deal properly with the decay of capital. Material things decay in value.


I'll admit I haven't read his book. Have you? I'll go buy a copy if you have.

I HAVE read (cover to cover) some of the books of his peers who have issues with his book. We can do a proxy battle if you like. 8)

donzelion said...

Alfred - I'll reiterate my endorsement of "How we got to now" - the innovation process you're describing actually doesn't work that way for most of the most important innovations.

Most innovation is incremental; most innovators are not positioned to profit from their innovations (and most aren't even patentable). Most innovators do not become filthy rich as a result of innovation per se; if they do, their wealth comes from tapping into rentier strategies faster than their competitors.

A more accurate script:
Act One: Innovator develops something; rentier discovers innovation and determines how to disseminate it through existing rentier capabilities
Act Two: Innovator raises funds to go to market; rentier raises funds to lock existing customers using the innovation
Act Three: competition drives down the value of the innovation as it spreads - BUT when prices are tested, it turns out the rentier has a substantial lead over competing innovations built on a model that locks in those customers

This is why even the most innovative companies seldom invest more than 5-10% of their profits into innovation - 90-95% goes into reinforcing the lock-in strategies adopted by that company.

I have no problem with this script: it can mitigate mass poverty so long as the rentier calculates greater profits flow from dispersing an innovation, rather than stifling competition.

However, such a calculation cannot be assumed. A rentier may determine that stifling competition is more likely to result in safer, long-term profits (until the stifled competitor can be purchased at a discount).

Consider the landlord who buys up all 'low-rent' properties in distress, attaches debt to those assets, strips value from them, and ultimately causes their removal from the market.
The rentier (who has to either be a billionaire, or have access to billions to play the game this way) ceases to offer something innovative that enriches the mass: rather, they reshape the board, taking a larger piece of a preexisting pie (and ultimately, choking off innovation).

Such a pattern, left unchecked, will impoverish the mass and reverse gains they previously enjoyed. The "social diamond" can revert to a "social pyramid." The poor may carry a mobile phone, but that's less of a lifestyle improvement than a mechanism by which the rich impose terms upon them through their day.

donzelion said...

TLDR version -

Alfred argues: "Pyramid shaped [may] societies become diamonds with the accumulated benefits of the third acts of a lot of different plays." [I insert the 'may' there - because this is not a certainty...I've lived and worked in regimes where this did not play out this way, even as Act 1, 2, and 3 unfolded.] But that doesn't challenge the basic premise, which I find generally sound.

That said, a "diamond shaped society" MAY revert to a pyramid shaped one, by disruptions that occur alongside Alfred's Innovation Gospel narrative. Just as innovations, like water works in agrarian societies, initially lifted all boats - they can also empower those who obtain control, who can use them to stifle all rivals and own all the boats (then rent them back to users).

The trick typically used to obtain that control will involve legal controls over risk allocations, mediated through a financial structure that rewards position over innovation.

Laurent Weppe said...

* "I could never increase the strength of my Force connection"

You'd never increase your maximum potential, by a constant in the series is the older and more experienced force sensitive people get, the more formidable they become: it is quite clear that from the onset, mastery of the force was envisioned as similar to any real world discipline: there's a point where you just won't progress anymore, but also a fairly large margin between your beginner self and that point.

***

* "Anakin Skywalker was supposed to become a Big Deal, until the Jedi started discriminating against him because he was "too old" to learn their ways"

And... that's right: he was too old...
and too young as well.
He was a pre-teen, at the beginning* of the period where you start having your own personal opinions, are excessively sensitive to perceived unfairness, and be prone to rather extreme mood swings. Basically the worst age to begin an education centered on dispassionateness.
Add in the fact that he didn't hail from the core of the Republic like Obi Wan (the place where ships warp in on time every hour of every day and society still functions as it's supposed to even though civilization is starting to break down at the margins and one can reasonably expect their loved ones to live their live in safety) and was eaten from the inside by fear for his mother and anger at the slave system he was born in... Yeah, definitely not the right age.

* Although, if it had been up to me, I'd have written Jake Lloyd as playing a slow-blooming 15 years old... or used an older actor

***

* "However, he was still powerful in the ways of the Force, because he was born that way"

Except it still got a decade of training to get him from "has fast reflexes and heightened luck" to "proficient fighter".
Same deal with Luke: before he started training as a young adult, he was good at sport hunting and depicted as a talented leisure pilot... and outside his x-wing, he remained a mediocre fighter at best until RoTJ.

Laurent Weppe said...

* "It was sheer luck that Luke grew up away from the whole Jedi/Sith mess"

I don't think it was sheer luck, but time and environment that safeguarded Luke from falling to the Dark Side: he was already a young adult, past the worst moments of puberty, and having spent until then his life as a farmboy, had been forced to learn patience from the get go.
As a slave, Anakin always was supposed to be fast: work fast for his owner so he could have time to tinker with the circuits & gadgets he brought from the garbage heap, drive his pod-racer fast to win the race... Different backgrounds with different demands produced different temperaments: nurture trumping nature regardless of Midichlorians density.

Still, the fixation on age shows that the Jedi Order was, in fact, quite the fossilized institution: they followed their millennia-old protocols and customs without asking why such customs existed in the first place. (know what the smart thing would have been? To send Anakin to a normal school on Coruscant and start his Jedi Training after he turned twenty: that way he would have gone through his troubled teenage years with no more power than the capacity to beat a larger-than-him bully in a fist fight, probably experienced a couple of heartburns before reconnecting with Padme, and become an overall more balanced individual when Ben & all started teaching him how to crush skulls with the mind.)

***

* "Elite level Science matters to civilization, but not to a poor person living in a mud hut until we started delivering medical theories and products that changed the child mortality rate or the maternal mortality rate at child birth or something else they saw at their level."

Technically, the first product which significantly changed the child mortality rate predates modern medicine by several dozens centuries: it's cow milk, the stuff which allowed our mutant levantine ancestors to outbreed and eventually genocide Cro-Magnon so they could successfully colonize Europe.

Alfred Differ said...

@Donzelion: I’ll watch the series you named soon. On first glance, though, I have probably seen material like it. I’m a big fan of James Burke.

I understand that most innovation is too small to fit the stage play formula. I’m even inclined to believe that most of the innovation that has contributed to the lion’s share of our enrichment might be of this sort. I don’t worry about this sort, though, because it is flying under the radar of my Marxist friends. It is the innovations that lead to someone becoming filthy rich that they notice. It is that sort that leads them to sneer on the belief that the innovator must have stolen something that wasn’t rightfully theirs.

The alt.formula you describe, though, demonstrates an innovation that fails the test of trade. You have also mashed a bit of act two into act one on the assumption that the innovator fails to maintain early secrecy or acquire protectable patents. I’m not that inclined to protect innovators who fail the test of trade. Not all innovations are worthy in the market and those that aren’t should die.

Your alt.formula might also point to unfair competition which invalidates a test of trade. I’m with you in wanting to squish such cheaters, but on a case by case basis until you can demonstrate the general rule worthy of regulation.

This is why even the most innovative companies seldom invest more than 5-10% of their profits into innovation - 90-95% goes into reinforcing the lock-in strategies adopted by that company.

Protecting their market positions doesn’t make them cheaters. It makes them competitors. I have no issue with this until you can demonstrate actual unethical behavior. Breaking into a market is one of the parts of the test of trade. Failure to break in does not imply cheating.

Ultimately, though, it is the folks with pitchforks and torches who have to protect the entry options for innovators from the guys you describe buying up distressed properties. I remember getting offers on my house after the last meltdown had recovered a bit. It was obvious which requests came from companies looking to soak up assets from buyers in distress. I didn’t sell because I knew the tactic after working for a subprime lender. Uneducated, emotional buyers and sellers make such a mess in the markets. 8)

Alfred Differ said...

@Donzelion: I was describing a stage act formula, not a piece of historical determinism. I agree that [may] should be inserted whenever one examines how things work in the real world. I would argue that the formula fails most often in the real world when your rentiers find a way to prevent act three in every play that doesn't enrich them first and maybe those too.

I also agree that diamond shaped societies may revert to pyramids. There is nothing guaranteed except that cheaters will arise from cultural diversity. What social institutions we have had best be robust enough to cope with them and anti-fragile enough to learn from them. The surest way I know to undo the enrichment we have now is to sneer at the innovators. It would work slowly and fly under the radar of those who would defend this civilization.

Duncan Cairncross said...

Hi Alfred
I have Capital in the 21st Century on my Kindle - and I have read it
it is the only book (so far) that I have had to re-charge the Kindle to finish!

Alfred Differ said...

@Laurent Weepe: Cows milk? How about domestication of wolves as dogs?

Heh. You make my point, though. The people who adapted milk from cows weren't scientists. They innovated more in the engineer's style and got filthy rich in terms of the number of their offspring. 8)

Alfred Differ said...

@Duncan: Cool. I'll go get a copy for myself then. En Garde! 8)

David Brin said...

I believe beer changed us, genetically, more than cow's milk or even dogs. The death rate among males must have been prodigious for us to be a species 2/3 of whom can say "Okay, that's enough."

Duncan Cairncross said...

Hi Alfred

I suspect that the people who domesticated wolves and adapted to cows milk were at the bottom of their tribes food chain
And after they had done their innovation they stayed at the bottom with all of the main benefits going to the "Big Men" - and only a tiny benefit to the actual innovators

Laurent Weppe said...

* "Cows milk? How about domestication of wolves as dogs?"

That allowed us to outcompete Neanderthal, but I don't count that as a purely or even mostly human invention, but as a partnership between two species of smart social mammals with enough similarities that they could easily learn to understand one another.

***

* "I suspect that the people who domesticated wolves and adapted to cows milk were at the bottom of their tribes food chain
And after they had done their innovation they stayed at the bottom with all of the main benefits going to the "Big Men" - and only a tiny benefit to the actual innovators
"

I suspect that the "Big Men" stupid and arrogant enough to try to take the first dogs away from their human friends got kicked out of the gene pool early on.

Duncan Cairncross said...

Laurent

You don't "take the dogs away" - you just continue to feast on the fruits of the dog handlers labour while throwing them the odd scrap

Alfred Differ said...

Beer! I should have thought of that. My ancestor's ghosts will drop by tonight to jeer at me for my lack of faith in them. 8)

@Duncan: Heh. Doubtful. The domestication of dogs occurred while we were still foragers. Big Men came later when we turned to agriculture. Men who tried to be big men before that more often ran into trouble around women and beta males who disagreed.

@Laurent: If I recall correctly, the portion of the Arctic where one currently finds the Inuit was populated by a predecessor people who did not have dogs. The Inuit displaced them using dogs and a more specialized division of labor the predecessors couldn't hope to match.

Innovations associated with dogs are large in number. While I think the domestication story is a little fuzzy as to when it started, the last version I read didn't have it play large in the demise of the Neanderthal.

Innovations associated with beer are also large in number and I must now go appease my ancestors by recalling them with reverence. g'night!

Jumper said...

You guys reminded me that I used to practice "the force" before that movie ever came out. At sundown start throwing frisbee and by pitch blackness still catching them.

LarryHart said...

Alfred Differ:

Unfortunately, capitalism is misnamed by people who thought the enrichment was about the accumulation of capital. The got cause and effect wrong. Capital accumulates if you become richer, but capital accumulations don’t cause you to be richer. I don’t know a good name for what is actually going on, but it’s more about the accumulation of innovations that survive the tests of trade. Innovationism? Innovism? Meh. When people do it right, I AM tempted to sing their glories, but all I really have to do is buy their stuff, honor their effort,


One more thing, though. In order to buy their stuff, you have to have your own money (capital?). Which means you can't just be a self-sufficient family farmer, but you have to make a profit somewhere, as does everyone else who is going to be a customer of that innovator. And the liquidity of the customers' wealth required to buy the innovator's stuff happens independently of the innovator's skill itself.

LarryHart said...

Alfred Differ:

Piketty did not deal properly with the decay of capital. Material things decay in value.


I was trying to get at that a few posts back. You can't store food forever and expect it to retain its value, because it gets stale and/or spoils over time. Refrigeration slows but does not stop that process.

Other commodities also go bad over time. Abstract money and a financial-based economy try to pretend that money does not follow this rule--that it can be stored indefinitely and retain its value for all time. But money is only a representation of the other stuff, and therefore is not immune to entropy. A person or a society have to keep producing value in order to prosper. They can't just sit on their cash forever without depreciation.

LarryHart said...

donzelion:

A rentier may determine that stifling competition is more likely to result in safer, long-term profits


Epi-pen, anyone?

Duncan Cairncross said...

Hi Larry/ Alfred

Money does decay in value - we call this "inflation"

Piketty handles this by looking at interest after deducting inflation

Alfred Differ said...

@LarryHart: In order to buy their stuff, you have to have your own money (capital?).

A lot of 'money' is actually debt. I can buy stuff by going into debt as long as the other trader trusts me enough to make a deal. What capital is involved in that kind of transaction?

While capital is really useful to get things started, it isn't necessary. That's why we probably shouldn't call this thing we do 'capitalism.'

Alfred Differ said...

@Duncan: There is more to it than inflation. Money's value is denominated in commodities, goods, and services. More than one translation price is involved, so an average-type inflation rate is only one measure.

If the measure can decay, so can what it measures. Larry says it better, though.

What McCloskey points out about Piketty, though, is that even if one ignores this decay, it doesn't grow the way he described. For money to 'make' money, people are involved arranging for voluntary transactions. A compounding interest rate implies background innovation in which the money is either invested or gleaning from other investments. I'll dig out a quote for you shortly.

Duncan Cairncross said...

"it doesn't grow the way he described."

But it does!
Or more to the point it does NOW - as Piketty says it didn't use to - values used to stay the same
And that rate of change will vary - Piketty thinks that we have eaten the low hanging fruit and that it will increase slower in the future
But that is not one of the key findings

While I agree that "somebody" has to do the innovation/hard yards - it DOES NOT have to be and almost never is the owner of the capital
He/She can (and does) just sit back and watch his/her money grow

LarryHart said...

Duncan Cairncross:

Money does decay in value - we call this "inflation"


Which does make sense. But remember how many people think inflation is "theft", or at least some sort of government scam. What I said was that people (especially of the rentier variety) expect to be able to sit on money as an indefinite store of value, and demand laws that enforce this expectation. In reality, guaranteeing the value of one stash of money has to come at the expense of someone else.

Paul SB said...

Jonathan,

Your tent experience brought me back to a land survey I once did in the mountains not far from Denver, in a little place with the rustic name of "Lair O'the Bear." We came across several large pits that had been dug in the ground, and were grown over enough to suggest they might be historic. We dropped a couple test trenches and came up with artifacts dating from the 1930s. It turns out that unemployment had gotten so bad during the Great Depression that many people abandoned the cities to revert to hunting and gathering to survive. We found historical photos of pits covered over with tents that served as homes for families that could not get food in the cities. Our research suggested this was pretty widespread, not just in the Rockies. It can be hard to imagine just how bad things were back then. Well, maybe you can! : / Glad you escaped that life!

Paul SB said...

Okay, Alfred, I think it’s time I told about my close encounter with Pharma, which gives you my personal reasons for distrusting anyone who has a profit motive. This isn’t a story I tell often (and it’s not like more than a couple hundred people might be reading this, right? That would multiply the number of people who have heard this by quite a figure.) But then, if you can’t be candid with people, what can you be?

I think I may have been around 8 when it started, though my usual caveat about my poor memory applies. For this I do have the memory of my mother and other family members to help keep my story straight. Anyway, when I was little I somehow acquired a strange skin condition that only affected the soles of my feet. The skin would dry up so badly that they would crack open and bleed, leaving me unable to walk at times when it was most severe. I was never told a name for the condition, and I still don’t know to this day. Since my father was in the Air Force and we lived close to the Air Force Academy, we went there to have the problem looked at. The doctors were baffled and ran me through test after test for a couple years. In one they taped several dozen little patches of known allergens to my back to see if any of them would cause the same reaction on my skin – a test that itched for a week. Nothing they tried could explain it, so they decided that it must be genetic – the default explanation for anything they couldn’t explain back then.

While they were testing me, they were also trying all sorts of medicines on my feet. One I remember was a liquid that smelled a bit like alcohol and stung like hell when they dripped it into the cracks in my feet. They tried several different drugs and ointments and for a few years nothing worked. Then they suggested a new drug, one that was experimental but they thought was promising, but my parents had to sign a waiver. It was an ointment that seemed to work very well. Within weeks of starting to slather the stuff on my feet I was up and walking again.

I was on that medication until I was 14, though I don’t remember how old I was when I started, but it was before Star Wars, so probably around 10. Then one day an AFA doctor called my mother (that was after my father had died) and told her to throw my medicine away and never let me touch that stuff again. She explained to me that they had told her they had been testing it on hundreds of people, and were finding dangerous side effects. What she said was that the drug stopped my skin cells from being able to make new ones, so over time as skin cells naturally died they weren’t being replaced, making my skin get thinner and thinner. Now I don’t blame the doctors for this. They were trying to treat a sick kid any way they could, and when they found out there was a problem, they stopped the treatment.

It’s what happened a year later that flipped me out. That was when my mother and I started seeing the same drug I had been warned not to use ever again for sale in drug stores and grocery stores. And no, it wasn’t the Air Force selling the stuff, it was Big Brother Business.

Paul SB said...

The drug is called hydrocortisone, and it would not surprise me at all if you had some in your medicine cabinet. If you look this stuff up, you’ll get a long list of possible side effects. Of course, most people would not use the stuff often enough for those side effects to become noticeable. But that’s most people. We all know people who pop aspirin or Tylenol virtually every day. You know that there will be people who will mishandle it, because the warnings about side effects are insufficiently stressed for a product that makes a whole lot of money.

As I got older and learned more about biology, I started to realize that the actual affects of this stuff could be much more than we currently know, and maybe we won’t even know all the things this stuff can do to a person in my lifetime. It’s a cortical steroid, which means that it can pass through both cell membranes and nuclear membranes with ease. That last is important, because steroids can then mess with the methylation switches of your DNA, doing the gods only know what. It is structurally very similar to cortisol, one of our primary stress hormones, and the long-term effects of chronic cortisol release are wide and can be quite severe. Look up J.M Barrie, the author of Peter Pan. He was quite the freak, as a result of Stress Dwarfism, and in his case the problems were perfectly natural. With hydrocortisone, an artificial stress hormone, you can not feel stressed out in any way, but cells in your body are reacting to the chemical as if you were at the Battle of Verdun.

One of the things stress hormones do is shrink your hippocampus, causing you to have memory problems. That’s the story of my life. Everything I do takes twice as long because I can’t remember what I am doing. I’m like Dory without the fins. Is this somehow genetic? No one else in the family ever got the epithet “absent-minded professor,” but I can’t really prove anything. One effect I am sure came from the hydrocortisone is the fact that my hands get cuts extremely easily, no doubt because of rubbing the stuff on my feet with my hands. Since I wear shoes most of the time, the feet aren’t as big a deal. But when I was young my interest in soccer went right out the window. I picked up an avid reading habit, was always the last kid picked for teams in gym, and generally went down a path of low social acceptance in those formative years.

I know, the tiny violins are coming. The purpose of this is not to start a pity fest. No one wants that. The purpose is to get you to see why I have so little trust where there is a profit motive. I doubt I am an isolated case. I might just be more reflective than most, or maybe had more severe consequences. But hydrocortisone is just one of thousands of medicines, I don’t know how many might be isomers of stress hormones, or any of who knows what other slow killers. Do corporate execs give a rat’s ass what happens to their customers? As long as they don’t die right away, and the side effects are nebulous enough that they can’t be proven beyond a shadow of a doubt in a court of law, they can Cheat and get away with it. This is why I see capitalism as a self-defeating system. As soon as a business gets so large that its leaders are completely isolated from its customers, the cheating becomes much more profitable than honesty, big companies snowball into too big too fail corrupters of nations and screw the human race. (Okay, maybe I’m indulging in a little hyperbole.)

Sorry, that was really long! But I did warn you...

donzelion said...

LarryHart: EpiPen is a great illustration of a sadly, much broader phenomenon, but health care is the ultimate illustration of my point (in response to Alfred).

Alfred: "You have also mashed a bit of act two into act one on the assumption that the innovator fails to maintain early secrecy or acquire protectable patents."
The vast majority of innovation is not patentable, and once an innovation reaches public, almost any can be reverse engineered in minutes. Patent rights occasionally give some innovators a chance to play in the big leagues, but almost as often, they work to keep innovators out of the game.

"I’m with you in wanting to squish such cheaters, but on a case by case basis until you can demonstrate the general rule worthy of regulation."
I'm not even talking about cheaters. Any good rentier does his best to restrict competitors - that's a mandatory component of going from millions to billions. Restricting competition is lousy play, but to me, 'cheating' consists of shifting costs onto others that they were not aware of (easiest to do when you have monopoly power behind you, but there are many other ways to do it).

"Ultimately, though, it is the folks with pitchforks and torches who have to protect the entry options for innovators from the guys you describe buying up distressed properties."
The "slum lord strut" is only one of many ways of doing this. The point is that people with large capital (either theirs, or within reach through intermediaries) have means to play by a totally different rule book, and an incentive to do so (esp. if others bear the costs).

The pitchfork crowd is better served hiring someone to police the misconduct, rather than attacking. Ideally, they can compel those who benefited most from the regime to pay the most for that police force.

"I was describing a stage act formula, not a piece of historical determinism."
Well, you did say it's the only formula for mass enrichment, implying a fair bit of determinism there. ;-)

"The surest way I know to undo the enrichment we have now is to sneer at the innovators."
Innovators will do their thing, left to themselves, simply because their thing is rewarding regardless of financial incentive. That said, perhaps the folks who 'sneer' loudest are the ones who take an innovation from them (or at least, the benefits thereof), and deploy it to their own ends (typically as a tool to lock-in, or crowd-out, rivals).

Paul SB said...

Okay, this is really strange. I have now posted the first few paragraphs twice, and on coming back to the site it isn't up there. Maybe if I break it up into 2? Either way, it will get confusing reading out of order.

Alfred, while I generally espouse having optimistic views for their health benefits, there is such thing as swinging too far into the Gullibility Zone. It might just be that I have overdosed on AGF (Anti-Gullibility Factor), but I have logical as well as emotional reasons for rejecting the level of trust you place in business. Yes, businesses need customers to trust that they will make good, reliable and safe products and not totally fleece them in the process. As a general rule, that is true. But when the scale gets big enough, the rules change. It’s like what happens to gravity at relativistic speeds. Newton’s Theory is perfect for the ordinary conditions we are used to encountering, but once you start accelerating near light speed you kiss Newton goodbye and say hello to Einstein.

When human habitation sites are small (farms, hamlets, villages) everyone knows everyone and social norms, expectations and peer pressure have an enormous influence on behavior. At such scales those mechanisms are usually sufficient to curtail most dishonesty and Cheating (I’m capitalizing to point that this is a theme of this blog post and a theme of our host). When a human habitation site reaches the size of a town, the number of social interaction partners goes so far beyond the scalar stress number that the society has to start creating institutions to enforce norms of justice and curtail Cheating, because once you have gone that far beyond the scalar stress tolerances of individuals and families, it becomes easier for cheats to do something dishonest, then find other victims to sucker who have not heard their reputation. Cities populated by hundreds of thousands to millions of people facilitate cheating like no one’s business for exactly this reason. You don’t know who you are dealing with and what reputation they have earned. Cheats abound in large-scale societies, because they can so often get away with it by simply targeting a population within the society that has no way of knowing what they did to other people.

Duncan Cairncross said...

I agree with donzelion

innovators do their thing - not because of the profit motive but because it's what they do

The ones "sneering at innovators" are the 0.1% who sneer at everybody who is less wealthy than they are

Paul SB said...

This much should be easy enough. Sure, your average grocery store clerk is probably a decent enough human being, as are the ordinary workers who packed and shipped the products you are buying. But the executives that make the big decisions, like how much to charge for a new HIV treatment or an Epi-pen, are people we will never see, never meet, and never have any influence over whatsoever. Without an apparatus that can address Cheating at that level – and actively does so, as opposed to the slap-on-the-wrist tokenism we have seen with the too big to fail – not only becomes possible, it is selected for. Companies that can create products that appear to be reliable and effective will sell their goods. But they only have to appear to be reliable and good, they don’t actually have to be good, if the damage they do is slow and can be readily blamed on the customers themselves. If you make a product for consumption, most governments require some sort of test for safety. But those tests take time, cost money, and delay getting a product to market, which ultimately costs the company money. Those companies that cheat on safety tests, bypassing them either illegally through bribes or by corrupting the rules themselves, have a financial advantage over those that play by the rules. For those execs at that level, greed really is good. It is a credit to humanity that most people saw the Christopher Walken character as a monster, but as long as the structure allows those people ample opportunity to Cheat, they are heroes in the business world.

Laurent Weppe said...

* "The ones "sneering at innovators" are the 0.1% who sneer at everybody who is less wealthy than they are"

That's where I have a very hard time to not go armchair psychologist and assume that the sneer is, in itself, a defense mechanism: rich people who own their wealth to the labour and ideas of people smarter and/or more hardworking than themselves and who use their wealth and clout to make sure that said smarter/hardworking people never get above them in the food chain... sneer to distract themselves from looking into the abyss of their own parasitism.

Jumper said...

Most economists see deflation as a real possibility. Thus inflation is not necessarily baked in. I don't understand why if the monetary supply was perfectly matched to growth, inflation would be still mandated by either choice or necessity. After all, someone who did want to sit on a pile of cash, if not forever but say 20 years, and did so during a mild deflation and then a mild inflation, could in theory lose nothing.

Paul SB said...

Laurent, your armchair psychology is part of Thorsten Veblen's argument in his 1899 book "The Theory of the Leisure Class." It ultimately boils down to ego and the ability of the human mind to rationalize anything to protect it.

Paul SB said...

Another book surfaced to my memory, thinking about upper-crust contempt for the innovator, and a book that is much easier reading than Veblen, whose prose is difficult. Mary Helms' 1993 book "Craft and the Kingly Ideal" is a cross-cultural look at the relationship between those who have power and those who have skill. A major theme of the book is that in small-scale societies, where leadership roles are fluid, temporary and based on perceived merit, leaders are chosen based on their skills. For instance, in many small, sub-Saharan societies a man is not taken seriously as a leader if have cannot dance well. This sounds silly to us, but these are people who believe that dance has magical powers, healing being principal among those powers. But as soon as power and wealth become inherited at the chiefdom level (a chiefdom is just a nascent state) then the relationship changes. Leaders become patrons of the arts and coordinators of craftsmen, not producing anything of value themselves but directing the actions of those who do. And in state-level societies, those inherited leaders, aristocrats, come to have contempt of the very innovators and craftspeople they patronize.

The fact that society, in its shift from aristocracy and despotism to democracy and freedom, is coming to value the innovators over the merely wealthy is a good sign, and fits with that pattern I was talking about up at the top. In some ways we are returning to some prehistoric patterns of living. Democracy, and now technology, are facilitating a shift away from the pattern that human civilizations have followed for the last several thousand years.But there are those who are trying to make themselves into a new aristocracy, the Enron "smartest people in the room" types who look down their long noses at all the rest of us in exactly the same way the old aristocracy did. How they justify their hubris hardly matters, expect that if we are going to preserve freedom, we have to be able to shout back against their propaganda.

Will Shetterly said...

If you want real competition, you need socialism so all the competitors start equally. Under capitalism, in the 100 yard dash, the 1% start at the 99th yard.

Tacitus2 said...

Ah, Epi Pens. A subject I know a fair bit about. The "drug" is ancient. Epinephrine has been around a very long time indeed. We used to draw it up and inject it subcutaneously with a syringe that cost about a penny. The medicine not much more.
It is the new delivery system that is tricksy. It has to be dummy resistant for use by minimally trained and understandably panicked patients. But the device has tech that is well established. An exceedingly smart individual who has overcome the liability of having 50% of my DNA designs the robotic assembly machinery that makes such delivery systems. They have had two perfectly fine generic versions ready to rock and roll pretty much by throwing a switch and shoveling polymer into the injector machines. The only hold up is FDA thumbs up.

There are two possible reasons why this has not happened (until recently).

Reason One. The FDA does have an obligation to be sure the darn things "deliver". It would not do to count on a device that failed you. Counter: right now there are a lot of people who are not carrying any device, or are using outdated ones because of the obscene cost. THOSE folks will be less well served, to put it mildly.

Reason Two. It is my understanding that the head of Mylan, the company that makes the brand name epi pen, shares 50% of the DNA of a US Senator. This is no liability whatsoever.

In the spirit of non partisanism I won't Name-n-Shame today.

Tacitus

raito said...

Duncan Cairncross,

Yes, the sneering. Some time back, I was watching a video of some 'successful' business person deigning to impart her wisdom to those ignorant engineers, most of whom had ideas their current employers were loathe to implement.

She sneered at every single idea they had. Because the obvious and only way to go into a business was to pay other people to do everything, including coming up with the ideas. Unless you could get away with not paying them, or at least deferring payment until you sold the company, by which time it's not your headache.

Deuxglass said...

Dr. Brin,

It is quite possible that the choice of changing to a sedentary lifestyle came about as a way to better make and protect alcoholic beverages. It looks like people in the ME settled down in villages before farming came along and not because of it. It could even have been a valuable trade item between tribes and may I point out that even today, alcoholic drinks are major export/import articles. I would go as far as to say that alcohol and civilization are intimately entwined and that alcohol use encouraged civilization. Ancient China, Sumer, Egypt, India, Persia, Greece all used and abused alcohol from their beginnings. Alcohol was not used as a ritual drug but as an everyday drink and in that it is different from most other recreational drugs. Alcohol is a drug that facilitates communication (if used moderately) and can enhance group cohesion and adoption of new ideas. It’s a lubricator. The ancient Persians, when they had to make an important decision, would get very drunk and have a scribe write their ideas down. The next day they would review what was written and glean it for ideas. The Greeks would discuss and debate their ideas during drinking parties. Most of the Founding Fathers were liberal drinkers of wine, port, rum and whisky. By the end of the day they were more than tipsy. Alexander Hamilton who often had stomach problems was advised by his doctor to stop drinking. His doctor’s definition of “stopping to drink” was to drink only three glasses of wine a day! The deliberations, compromises and debates were made while they were “under the influence” and I think that facilitated their task. The Islamic Civilization became wine drinkers soon after they conquered their empire and started to discuss philosophy, mathematics and art. After four hundred years of brilliance, the Islamic hardliners came to power, abolished alcohol and their civilization shriveled. I would go out on a limb and claim that alcoholic beverages are necessary for civilization.

Robert said...

What I find interesting is that some innovator hasn't come up with a reusable Epi-Pen.

Think of it. The reason the Epi-Pen has to be replaced is that the drug inside loses potency over time. But the drug itself costs pennies. We're paying for a drug delivery system.

So why not have an Epi-Pen where the drug cartridge itself can be reused? Once the Epi-Pen itself has been used, that's it, of course - reusing needles isn't a good idea. But this would allow people to have an Epi-Pen and once a year, if they've not used the Epi-Pen, spend a couple dollars for a new cartridge instead of replacing the entire Epi-Pen.

And seeing that the Epi-Pen itself still needs replacing once used, it even allows for product replacement rather than producing a product that puts the company out of business because of its durability!

Rob H.

Tacitus2 said...

Robert

That would be a three cent syringe with a short 25 gauge needle. In a small plastic box that I could whip up in Solidworks in two minutes. Packed inside is a little glass ampule of epinephrine. Snap the top, draw it up, jam it into any available large muscle. Every six months or so swap out a new amp.

The auto injectors are nice but not really any improvement on this. When seconds count I guess they save you a few. All militaries have beefier versions for nerve gas protection, we could borrow their design I guess.

Of course now we have wonderous new versions including I believe one that will talk you through the process. It would be easy to sync it to your cell phone and auto call 911. But in terms of saving your life the TaciTech version at about five bucks ('cause I am a capitalist too), would work just as well thanks.

Tacitus

LarryHart said...

Jumper:

Most economists see deflation as a real possibility. Thus inflation is not necessarily baked in. I don't understand why if the monetary supply was perfectly matched to growth, inflation would be still mandated by either choice or necessity. After all, someone who did want to sit on a pile of cash, if not forever but say 20 years, and did so during a mild deflation and then a mild inflation, could in theory lose nothing.


Caveat emptor...pure intuition here...no economist training...

No, inflation is not an absolute necessity. But in order for a steady money supply not to become inflated, it's not sufficient for all the "stuff" out there to buy with it sit still. The "stuff" will become less valuable over time due to entropy, and so the money supply either has to shrink or become inflated.

A healthy economy has to keep producing more stuff, or at least replacing its older stuff with fresher stuff, in order not to be inflationary.

Which means there is no magic number where you can say "Once I have x dollars stuffed away in my mattress, I'll never need to work again!" Because if (for a ridiculously simple example) there comes a point where all of the food has spoiled and no one has created new food to replace it, your money won't save you from starvation. Someone has to do the production, and if no one else is willing to do it in exchange for your money, then you have to do it yourself.

Deuxglass said...

As to the Star Trek vs Star Wars debate, I believe there are many scientists and engineers who were inspired to become what they are thanks to Star Trek. However I am not aware of any who decided to follow the science road because of Star Wars. What I found interesting with Star Trek were the moral questions which kept popping up and caused me to think and ponder. Star Trek is gone now. The latest movies are just imitations of Star Wars. Kirk has become a Jedi in all but name and acts as immature as a 16 year-old. Hollywood can come up with genius but more often plays follow the latest big money-maker. Nevertheless I do enjoy them but I don’t take them seriously.

Deuxglass said...

An Aside:

Here in France, Spring was exceptionally wet with rainfalls up to 5 times normal and very cold on top. The consequence is that grain yields are down by 50% and vegetable and fruit yields are down by 30%.In old times, about 200 years ago, we would be facing famine so I am very happy I live in the Modern world or should I say the Developed world. If I were in the Third world and poor, then I would be facing starvation.

Jeff B. said...

Alfred,

[my original, cited by you way upthread]...if you take away taxes as a tool to limit and control the grown of the oligarchs, then what tools exactly do you have left?

[Your response] The seeming weakness of the tools you think we have left to us tells an interesting story. They are all social pressures and one of them even dips into religious territory. That you think they are tools of small scale societies suggests you and I have a very different understanding of European history.

Several things going on here:
1. While one can assert as you do later in the same post that wealth for all parties is increasing, not just the .01%ers, this misses my point. The incontestable evidence (cited by Duncan later) is that the percentage of total wealth controlled by the proto-oligarchy is huge, the highest it has been in modern times, and growing.

2. Whether this constitutes a threat to democracy and a stable social order is a matter of opinion, but given their propensity of "big money" to buy influence, lobby for favorable outcomes, and otherwise put their thumbs (or whole hands) on the scales of legislators and regulators, such a threat should I think be obvious. (enough) money buys influence and status, influence and status buy power, power tilts the scales.

3. Your response focused on the several ideas I postulated for limiting/controlling the power of the proto-oligarchs if we removed the tools of law/government and taxation- but you left unanswered the original question. So:

If (as I advocate) the power and influence and wealth of the proto-oligarchy is a. growing, and b. a threat to a stable democracy and social order, and we pursue as you seem to advocate the elimination of the use of taxation and regulation as tools to limit the power and influence and wealth of said proto-oligarchy, then how do you propose we set up needed safeguards or checks?

I'm extremely enthusiastic about Dr. Brin's sousveillance society. But that is years into the future, and to get there, we have to survive the present and all the threats we now face; descent into oligarchy/plutocracy appears to be one of the largest midterm threats on the list.

If, though, you are suggesting that oligarchy doesn't pose a threat, I'd like to see the data behind such a position. Trusting the wealthiest and the megacorps without effective limitations is as questionable as trusting government without effective checks and balances.

Jeff B. said...

Jumper,
You guys reminded me that I used to practice "the force" before that movie ever came out. At sundown start throwing frisbee and by pitch blackness still catching them.

I don't know why we were allowed such free time, but a few of the guys would use a 20x20 wrestling room in high school to do something similar. Except we took the long 80s-style gym socks knotted at the end, and after turning out the lights would throw them at each other in the dark. Most've us couldn't throw anything worth a darn but got quite good at it.

Nerd-sport. But ended quickly when a gym teacher spotted us leaving one day and gave us the raised eyebrow...

Robert said...

Tacitus, I had considered your approach (swapping out the syringe). Then I realized the drawback as it could be used for illicit drug use and then the government would ban it and people would be arrested for carrying it because drugs *waves fingers in a scary/spooky fashion*.

And let's be honest. Your mechanism would basically provide little profit to a drug company and thus not be produced. Having a specific system that was one-shot but which could be kept over the long term (because the only thing that needs to be swapped out is the medication itself if the Epi-Pen isn't used) would eliminate the scare of its use in illegal drugs while giving a small profit motive to a drug company to manufacture it, and even to insurance companies to cover it since it's not a yearly cost (unless used).

Of course, a system that is more electronic and walks you through it (much like the current generation of defibrillators) would undoubtedly be a big sale item. But when you get down to it, all you really need is a smartphone app to explain the product's use and contact the proper authorities if it needs to be used. Thus you don't need to even upgrade the Epi-Pen in that situation (outside of being able to swap out old medication for fresh medication).

Rob H.

occam's comic said...

One of the worst things about wine consumption in historical periods is that lead was routinely added to wine in order to sweeten it. So wine consumption equaled lead poisoning. Drinking wine reduced intelligence, and self control while simultaneously increasing the levels of violence.

LarryHart said...

Deuxglass:

Ancient China, Sumer, Egypt, India, Persia, Greece all used and abused alcohol from their beginnings. Alcohol was not used as a ritual drug but as an everyday drink and in that it is different from most other recreational drugs.


Until relatively recently in human history, water wasn't necessarily safe to drink. My understanding is that beer and wine were common beverages because they were purified of the pathogens carried in river water, and that Jesus's miracle of "turning water into wine" was not so much "turning lead into gold" as "making the water drinkable".

I've even heard, and am inclined to credit, the idea that England came to outpace other European powers in colonization when they began to drink tea and coffee, thereby sobering up, while France, Spain, and Italy still favored wine.


I would go out on a limb and claim that alcoholic beverages are necessary for civilization.


That makes for an intersting view on Prohibition.

;

LarryHart said...

Robert:

And let's be honest. Your mechanism would basically provide little profit to a drug company and thus not be produced.


Well, you wouldn't expect the current monopolistic company to produce a cheaper product, but one would hope that a competitor would find it profitable to do so. The obstacle, as Tacitus described it, is congressional approval. With all of the public outrage over the EpiPen price hike, that might not be as difficult as it once seemed.

Deuxglass said...

LarryHart,

It was mostly ale that people drank at the time in Europe. Generally beer and ale do not contain enough alcohol to kill pathogenic bacteria. However the preparation of both required the boiling of the water which definitely does kill pathogenic bacteria. I am sure people knew that not only was beer more fun but that they also got sick less.

Where did you see this about the British? It would be interesting to either confirm or debunk this idea. I will have to dig up the economic figures when I get the time. In my experience with the Brits they seem to like drink still.

Catfish N. Cod said...

Hi Dr. Brin:

Off topic but I knew you'd want to be alerted:

FWIW: Mainstream media have finally noticed your thesis.

America's Cultural Civil War

Tacitus2 said...

LarryHart

You misspoke. A generic epi pen does not need Congressional approval it needs regulatory approval. Elected officials actually answer to their constituents albeit intemittently, imperfectly and not perhaps as their highest priority.

A Conservative sentiment is that unaccountable apparatchiks should be limited to the lowest number and scope of action as is consistent with public safety. And sensible people can of course hold differing parameters on those points.

Actually an equally great shame for the FDA is their connivance at drug companies extending patents. When a cash cow drug is getting close to expiration they will find ways to get extentions on it by new indications, new formulations. "Hey, it's a Gummi Bear version, nix that generic approval!"

Tacitus

Duncan Cairncross said...

Tacitus2

I don't understand your "extending patents"
A patent lasts for 20 years,
If you formulate a new improved drug surely the new patent is on the new drug and after the 20 years the old drug is now public domain and anybody can make it??

David Brin said...

onward


onward

Tacitus2 said...

Duncan

http://www.biopharminternational.com/strategies-extending-life-patents

Tacitus

Duncan Cairncross said...

Hi Tacitus2

Just read the article you referenced
And it is talking about NEW formulations - NEW applications

The original formulation for its original condition still becomes public domain and open to all

To me it seems to be a that making a generic can be profitable - but cornering the market is PROFITABLE so they go that way

I do agree that the patent system is knackered - re-formulating for slower release so that you take the drug less frequently does NOT strike me as passing the originality test

ImissWalter34 said...

What do you think of the reports on dolphin conversations?

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