Must the Rich be Lured into Investing? Who are the Real "Job Creators?"

Why should Mitt Romney and the fabled "one-percent"  pay only a 15% marginal tax on investment income ... half the rate charged to a dentist or auto mechanic on wages earned from work?  This was not the case until recent Republican Congresses slashed taxes on passive, unearned dividends and capital gains.

The rationale for that immense tax cut for (mostly) rich investors was simple and alluring - that super-low rates would entice more of the rich to invest in companies within the U.S., helping them to increase their productive capacity and hire more workers. Moreover, the resulting boom in economic activity would then result in so much new tax revenue, even at low rates, that deficits would disappear.

Let's put this in context with a term you may have heard. "Supply side" economic theory maintained that this flow of investment capital would pump up the factory end of things, increasing the supply of goods and services, offering them cheaper, thus stimulating demand.

In contrast, the standard Keynsian "demand side" model was to fight recession by ensuring that poor and middle class folks had enough cash ("high-velocity" money) in their pockets to buy - or "demand" - goods and services. Whereupon producers would be drawn into greater production.

For a more detailed description of the differences between these two economic models, see my earlier missive  A Primer on Supply-Side vs Demand-Side Economics. (It really is one of the top issues of our day and an informed citizen should know about it.) Here in this place, I'll try to be brief.

Who was right? Blatantly, the Keynsian approach worked in the 1940s, when massive government spending on WWII resulted in a boom that ended the Great Depression.  A boom that then continued for 30 years, till Vietnam crushed it against a wall. Throughout that period, high tax rates and stimulative spending seemed to work, whenever the economy needed a little help. Moreover, during that era, a very flat social structure - (CEOs earned only a few times what factory workers did) - combined with the most rapid growth of the middle class and the most vibrant era of startup capitalism in human history.

That does not make Keynsianism perfect! Critics like Friedrich Hayek, have indeed exposed some faults and blunders that later Keynsians, like Paul Krugman, openly admit and have striven to correct. Still, the Demand Side approach can point to many clearcut successes.

In particular, it is plain that during recessions, when economic activity lags and deflation looms, what you want is "high velocity" money in circulation - money that will pass from buyer to seller and then to another seller and so on.  Not money that just sits.

Does Supply Side have a similar track record? Not even remotely.  Not even once. Simple charts - and hard conclusions from the Congressional Research Service - show that the Supply Side assertion was... and is... utter mythology.  None of its predicted effects ever happened.  And let me reiterate.  Not ever, even once.

Specifically, cuts in tax rates for dividends and capital gains have never had any long-term effects upon capital investment, since records were kept in the United States.  (See this cogent article putting the myth to rest, once and for all. Also my article: A Primer on Supply-Side vs. Demand-Side Economics.)

In fact, this is no surprise, for several reasons:

1) Supply Side assumes that the rich have a zillion other uses for their cash and thus have to be lured into investing it!  Now ponder that nonsense statement. Roll it around and try to imagine it making a scintilla of sense! Try actually asking a very rich person.  Once you have a few mansions and their contents and cars and boats and such, actually spending it all holds little attraction.  Rather, the next step is using the extra to become even richer. Naturally, you invest it.  Whatever the tax rates, you invest it, seeking maximum return.

Instead of enticing the rich to invest, these super low dividend and capital gains rates simply used money taxed from middle class wage earners to give bonuses for speculations wealthy folks were doing anyway.  If anything, the only major effect, other than budget deficits, was a pumping up of asset value bubbles.

2) Now to be sure, some of the rich ... a few... put a fair amount of their wealth into truly bold and risky new enterprises.  I know such men and women, who engage in Venture Capitalism or starting up creative new enterprises. And just so you know that I'm no socialist I believe this kind of investment truly should be encouraged by taxing it at a very low rate!  Not only because of the risk, but also because equity shares that are bought de novo directly from a new firm actually deliver nearly all of that value directly into capitalization and company development.

In contrast, most exchanges through the NYSE or NASDAQ are purchases from other stock-owners who happen to disagree with you about prospects for future capital gains and dividends. It is just as much a betting/gambling system as any Vegas casino, Your trades may marginally raise or lower the posted price, allowing the company to raise a little capital on the side, but almost nothing from your stock transaction actually goes to the company itself, or into new products or plants and equipment.

(Hence, that kind of investing - by far the largest portion - helps industry only at appallingly low levels of efficiency, but diverts management into spending nearly all its time trying to bribe stockholders with short term benefits, ignoring long-term company health.)

No wonder Adam Smith himself expressed contempt for passive investments that he called "rents"... compared to investments in which the owner actually gets involved in starting up or entrepreneurial development of long term company or enterprise health.

3) So what about "targeted investing"?  The towering hypocrisy of supply side tax cuts for the rich is that they are claimed (without a scintilla of evidence) to help create jobs. But then, why treat investments overseas equally to those made in domestic companies? President Obama proposes narrowing the super-low rates to U.S. companies that are (a) startups, or (b) demonstrably adding jobs, or (c) investing directly in new equipment or R&D.  For this he is derided for "picking winners and losers"... even though the list of targeted tax breaks for GOP-favored industries like coal and oil are myriad. (and outrageous.)

4) In fact, we spoke earlier about how stock and equities markets have lately become the tail wagging the dog.  Instead of serving the capital needs of companies, firms like Mitt Romney's Bain Capital show that productive corporations making goods and services are now like cattle, farmed by Wall Street, to be bled or dissected at whim.  Nor is the whim even human anymore! Most trades are now propelled by hyper-aggressive, parasitical "flash trading" computer programs that vastly amplify volatility, sap investor earning potential, and threaten our entire economic system in a dozen ways.

5) The reduction of dividend and capital gains tax rates almost to zero has coincided with the rapid ending of the relatively flat social structure that we inherited from the Greatest Generation of the 1950s and 1960s.  Back then, the rich managers of major corporations earned only ten or twenty times what factory workers got, a situation that still exists in Japan. Only now, American wealth disparities are approaching levels not seen since the American Revolution.

The last thing that the GOP or Fox wants you to do is look across the last 6000 years.  The class that they call "job creators" used to have another name. Lords.

6) The outrageous inherent unfairness of passive dividend-clipping getting far better tax treatment than earned wages is inherently suspect.  It is exactly what you would expect rich and powerful men to lobby for, whether or not their supply side rationalizations were true!  It should be no surprise that, in our money-drenched political system, those with such power and influence have benefited immensely.

But are the arguments and rationalizations valid at all?  At minimum, supply-siders should bear some burden of proof.  Their experiment has been run, now, for more than three decades, and never once has their core predication come true... that cutting taxes on the rich will result in increased overall revenues and a vanishing federal deficit.

Yes, reducing deficits would be good!  Indeed, under Clinton they vanished. The middle class, according to all opinion polls at the time, wanted any surplus to go to buying down debt.  It was the upper caste who used the surpluses as an excuse to demand immediate tax cuts.  So where does maturity reside?

The results are utterly conclusive.

Supply side is disproved, top to bottom.

What we need in this depression - and by most of the metrics it has been a depression, not a recession* - what's needed is what ended the last one. The circulation of high velocity money that goes hand to hand very quickly, generating economic activity with every transaction. Not the exact opposite, money that sits in portfolios, not helping capitalize industry but simply fostering the aggrandizement of a parasitic caste.  One the the founding father of free enterprise - Adam Smith himself - quite despised.

"All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind. As soon, therefore, as they could find a method of consuming the whole value of their rents themselves, they had no disposition to share them with any other persons."

Smith is not talking about charity, but the vigor of trade.  In this case, we "share" by buying from one another.  The middle class is very good at that.  It is the middle class that - assisted prodigiously by technology and science - propelled our economy to be the wonder of the world.

It is the middle class who should get whatever tax benefits can be doled out.  They'll use it to make small startups.  They'll use it to educate bright, competitive kids.  They'll spend it!

They are the real "job creators."

====
Addendum: November 3, 2012 - R.I.P. "supply side economics" 

In a November 1 report we learn that that Senate Republicans applied pressure on the nonpartisan Congressional Research Service (CRS) in September to withdraw a report finding that lowering marginal tax rates for the wealthiest Americans had no effect on economic growth or job creation. 

"The pressure applied to the research service comes amid a broader Republican effort to raise questions about research and statistics that were once trusted as nonpartisan and apolitical," the Times reported. Democrats in Congress resurfaced the report. Republicans objected that it underminde the governing fiscal philosophy of the party, that tax cuts for the wealthy will spur growth and benefit everybody.

Changes over 65 years in the top marginal tax rate and the top capital gains rate do not correlate with economic growth. Reduction in top rates appears to be uncorrelated with saving, investment, and productivity growth. However, top rate reductions do associate with increasing divergence of national income going to the top 0.1%

This is important... and was always obvious.  Even in 1776 Adam Smith described what the rich actually do with sudden cash infusions. They put it to work in "passive rent seeking" and only rarely into capital equipment or risky new products and services. (Risk taking can be rewarded in other ways.) And that cash flow to the rich reduces the velocity of money. If there were ever a time not to do that, it is during a recession, when we want high money velocity, put cash in middle class pockets! (In fairness, during runaway inflation, largesse to the rich - reducing money velocity - actually makes some sense.) 

George H.W. Bush called Supply Side "voodoo economics. It was and is.

Is Libertarianism Fundamentally about Competition? Or about Property?

Some folks have heard me beat this drum. But it’s a fresh-enough thought - going to fundamentals that run deep beneath normal politics - so that I am moved to raise it yet again. In part because someone recently asked me, as author of The Transparent Society:

              “Can transparency and libertarianism complement each other?”

Now let’s have the simple answer first. Yes. A sane, better-focused libertarianism would be utterly compatible with transparency. In fact, it should be the very top priority.

Both Adam Smith and Friedrich Hayek proclaimed that markets are healthy in direct proportion to the number of skilled and knowing player-participants. Indeed, one chief indictment against every  pre-modern economic system is that nearly all of them were based on “allocation” of resources by elites. Allocators are inherently knowledge limited and likely to be delusional, precisely because they are few.

Just to be doubly clear on that: almost all previous cultures used GAR - or Guided Allocation of Resources - as their guiding economic principle. Whether the allocation was done by kings, feudal lords, priests or communist nomenklatura, it was nearly always the same: decisions over how to invest society's surplus, which endeavors to capitalize and which products to produce were made by a small clade of delusional elites, as wrong in their models as they were sure of them.

Starting with Adam Smith - and later fervently preached by others, including Hayek - the notion of FIBM, or Faith In Blind Markets, began to compete against GAR.  The core notion? That the mass wisdom of millions of buyers, sellers, voters and investors will tend to emphasize or reinforce better ideas and cancel or punish bad ones. Delusions - the greatest human tendency - will be quickly discovered because no longer will some narrow group be able to nurse them without question.  Hence, getting back to the original question: the more transparency - and the greater the number of participants - the more people can come up with relatively accurate models and act upon them... or acutely criticize flaws in the models of others.

But let’s extend that thought and ask an even more general question.

Isn’t libertarianism fundamentally an appreciation of competition?

Think about all the core enlightenment processes -- entrepreneurial markets, science, democracy and justice. Each of these modern systems produce the modern miracle of positive-sum games... creating win-win scenarios for everybody. The famous rising tide that lifts all boats.

Now sure, there’s a lot more involved than just competition! There are many cooperative or consensus or even moral aspects... read Adam Smith’s The Theory of Moral Sentiments, to see that "competition" does not mean "cut-throat" or the brutal image of social darwinism. Many of today's libertarians oversimplify, especially the followers of Ayn Rand.

Nevertheless, it is wholly right and proper for a libertarian to emphasize and focus on one main feature of these positive sum processes. The fact that they all arise by harnessing and encouraging fair rivalry among human beings. So let me reiterate.

Competition is the great creative force of the universe.

That's proved. Competition produced all of nature's evolutionary marvels... and us.  By far the most successful human enterprise - science - is an inherently competitive process and scientists tend, by personality, to be extremely assertive in going after rivals.  Moreover the arts, supposedly our "highest" endeavors, are inherently - often ferociously - competitive, even when they are lecturing us about cooperation!  And yes, in professing this vast generalization you can see the libertarian in me - (despite my deep disdain for Ayn Rand.)

But the sane libertarian also knows that competition - in nature and primitive human societies - contains an inherent contradiction. A runaway process of self-destruction that historically always led (and I do mean always) to calamity...

...to the winner turning around and cheating! Victors in ancient combat were never content with incremental or partial success in war. Can you picture the victorious helping their adversaries to their feet and welcoming them to come back to another equal fight the following year? It was human nature, rather, to destroy opponents. The battlefield may have made you great, but you do not want to return there again and again for an endless series of even matches!

Think. In order to have maximum creative output, competition has to go on and on, maximizing innovative aspects and minimizing blood. The clearest example of transforming destruction into endlessly vigorous competition may be the ritualized combat systems called rule-based sports.

Nor is this just about war. Adam Smith saw what had happened in markets and societies for 4000 years. Winners in capitalism tend not to be satisfied with success in the latest market battle, with a cool product or in achieving recent financial or political success. Human nature propels us to use our recent victory to ensure that competitors will fail in future struggles. To bias the next competition. Or to stomp our defeated competitors flat! To absorb their companies. Squat on patents. Create monopolies or cartels to divvy-up markets. Eliminate transparency. Spy on competitors but keep them - and consumers in the dark. Capture regulators and make them work for us. Capture politicians and make the laws favor us.

Suppose that I become rich and powerful. What will I do, if I am one of the 99% who let human nature play out? Then I’ll use wealth and power to game the system so new competitors won't challenge me! If you deny this, you're just being silly. It was the way of oligarchy, in 99% of human cultures. The top priority of the owner-lords in all those nations was one distilled goal - to prevent bright sons of the the peasant class from competing fairly with the children of the rich. Admit it. Go ahead, choose a random decade across the last 60 millennia, in some random locale that had metals. Tell me this wasn't the pattern.

It worked. It’s in our blood. We're all descended from the harems of guys who pulled off that trick.

And here is where Adam Smith came in.  He looked around, saw all the cheating by owner-oligarchs destroying the creative effectiveness of markets.  And - in the seminal year 1776 - he called for something new.  A way to get the best, most creative-competitive juices flowing, in the largest possible variety of human beings, while preventing the old failure mode.  And it turned out there was a way.

As in rule-based sports, competition can only becoming self-sustaining... continuing to deliver its positive-sum outcomes... amid a network of transparent, fine-tuned, relentlessly scrutinized -- and universally enforced -- rules.

The vital importance - and difficult complexity - of “fairness”

Fair competition isn’t just a matter of morality. It is also the way to maximize competitive output, by ensuring that bright people and teams get second, third chances and so on. And creating ever-flowing opportunities for new competitors to keep arising from the population of savvy, educated and empowered folk. That kind of fairness requires rules and careful tending to ensure new competitors can and will always arise to challenge last year's winners. And that earlier winners can't cheat. Because... we've seen... they will.

Let’s be plain here. The founder of both liberalism and libertarianism - Adam Smith - weighed in about both of these reasons for fairness, To him, they were equally important. All right, liberals and libertarians each emphasize different ones. Liberals talk about the moral reasons for fairness and libertarians the practical, competition-nurturing ones.  They tend to forget that - as followers of Smith - they actually want the same end result!

What they share is something deeper that both movements ought to recognize.  They want every child to hit age 21 ready and eager to join the rivalry of work, skill and ideas.

Liberals should recall that fair competition is the driver, the engine of our cornucopia. The source of the wealth that made social progress possible. And libertarians need to pause, amid their dogmatic, “FDR-was-Satan” incantations, and recall that the word “fair” is the only thing that can make competition last.

Ironically, government can play a role there, if carefully watched. e.g. by ensuring that all poor kids get the care and education needed to become adult competitors! By ensuring that social status - whether poor or hyper-privileged - is never the prime determinant of success or failure. In other words, a sane libertarian who loves competition does not scream "Socialism!" at every state intervention. Instead, that grownup libertarian calmly judges every intervention by one standard.

              "Will this help to increase the number of skilled, vigorous competitors?"

And by that standard, suddenly, liberals and libertarians have something to discuss.  Without a scintilla of doubt, measures for civil rights, sanitation and public health, infrastructure, childhood health care  and... yes... the vast increases in literacy wrought by public education... vastly increased the number of citizens capable of independent engagement in markets and innovative goods and services.

Sure, we are finding flaws in our schools! But that judgment (let's remember) is from the higher plateau of expectations and desires that public education created!  It is only because we achieved 99% literacy that - suddenly - 99% literacy is no longer anywhere near enough. Is it time to bring market tools and competition into education?  Sure. Probably. And I am willing to discuss the assertion that teachers' unions have "become a cartel."  Still, when criticism turns into willful dogmatism, a failure to acknowledge the accomplishments and effectiveness of mass society - brought into effect by government, exactly as demanded by Adam Smith(!) - well that's churlish ingratitude and hardly a basis for saying "let's move on to something better."

And there are things government should not do!  Some well-intentioned things that stymie competitive creativity, instead of enhancing it.  "Equalizing all outcomes.  is socialism and I am not on that boat!  But maximizing the number of skilled and ready competitors is a different goal and I am here to hold that conversation. You may be surprised how many liberals and moderates will be willing to discuss it (and occasionally vote libertarian) if you make that the issue, instead of "FDR-was-Satan!"

A Movement based on LOVE of something, not HATE...

Sorry, but this needs to be hammered home, so let me repeat it. Screeching an incantation that government inherently suppresses competition is pure religious cant, disproved by countless counter-examples, from education and public health to the vast stimulative effect of public investments in science and technology and infrastructure. Again, look at 4000 years of history. Instead of simple-minded hatred of government, be more interested in pragmatic ways to enhance creative competition. Then the movement might have the subtlety of a surgeon or mechanic, instead of the sensibility of a berserk lumberjack.  Make it about love of something, not bilious blame and hate.

So... is libertarianism consistent with transparency?

By that standard, transparency is clearly one of the most vital things that libertarians could defend. Hayek himself said that markets (and democracy and science and justice) only work when all participants know as much as possible. Absence of light is death to all four positive-sum games.

Alas, today's libertarians are (I grieve to say it) in-effect quite mad. They worship unlimited private property, even though it was precisely the failure mode that crushed freedom in 99% of human cultures. And they rage against a system that in general resulted in vastly more wealth, freedom and more libertarians than any other.

This is a quasi-religious idolatry. It makes them complicit allies of the enemies of competition. It makes them murderers of the thing that they should love.

Libertarians and Conservatives must choose: Competitive Enterprise or Idolatry of Property

Even conservatives now admit that conservatism has changed.  Take the Ronald Reagan who Republican activists idolize in abstract; in real life he raised taxes, increased regulations, signed environmental laws, and (worst of all) negotiated countless compromise give-and-take, pragmatic measures in tandem with a Congress run by the other party. As did Barry Goldwater and William F. Buckley, giants who argued with genteel courtesy and who revered both knowledge and intellect, especially science.  Even the most fervid Tea Party aficionado would avow that today’s GOP has little room for such things – as Goldwater and Buckley themselves proclaimed, to their dismay, before they died.

In this analysis, I’d like to focus on one of the directions that conservatism has gone a-wandering.  But note first: I’ll try to do this without taking a single position that could fairly be called even slightly left-of center - by the old standards at least.

My entire critique will be from what used to be a completely conservative perspective. You’ll know this by the historical figure whom I cite above all others.

It begins provocatively, with prominent online commentator John Robb, who offers a simple… and clearly-correct… explanation for the gross mismanagement of the U.S. economy in the 21st Century - an appraisal that seems both tragically on-target and stunningly ironic. Ironic in ways I plan to elaborate -- and I expect you'll not look at the hoary old “left-vs-right” axis in the same way, ever again.

For starters, Robb shows that the patron saints of modern libertarianism and conservatism -- including Adam Smith and Friedrich Hayek -- were right in their core message...

.... proving that today’s peculiarly myopic libertarians and conservatives are wrong in theirs.

The Smithian Fundamental

In order to grasp that apparent contradiction, let’s start by asking: what did Smith and Hayek say?

No, it wasn't "laissez faire" or  social darwinism or extolling the virtues of greed. Though both men praised private enterprise and market initiative, they did not share today's idolatry of personal and family wealth as the fundamental sacrament of economics. Those who most-frequently bandy Smith's name appear never to have cracked open a page of "The Wealth of Nations" or 'The Theory of Moral Sentiments."

Rather, Adam Smith essentially founded our modern phase of the Western Enlightenment by anchoring a central postulate -- one that Pericles and Locke discussed earlier, and that others, like Hayek, later embellished. The postulate that human beings are supreme rationalizers and self-deceivers.

Moreover, across 4,000 years we’ve seen that whenever a small group of men become powerful enough to control an economy and command-allocate its resources, they will do so according to biased perceptions, in-group delusions and fatally limited knowledge. Whether they do the normal oligarchic thing -- cheating for self-interest -- or else sincerely try to “allocate for the good of all,” they will generally do it badly. As a blatant recent example, Robb cites the collapse of the Soviet Union.

“The reason for this failure was that the Soviets relied on central planning.  A system of economic governance where small group of people -- in the Soviet Unions case bureaucrats -- had all the decision making power.  They decided what was spent and where.  Even with copious amount of information, they decided badly. Why did they decide badly?  The massive economy of a modern superstate is too complex for a small group of people to manage.  Too much data.  Too many uncertainties.  Too many moving parts."

Indeed, the transformation of modern China from a Maoist calamity to a mercantilist success story began with their abandonment of nit-picking central planning in favor of capitalist-style enterprise.  Of course, the Chinese ruling caste retained overall control, “guiding” categories of credit and investment while executing a grand mercantilist strategy, the same process that Japan accomplished masterfully, during its own rapid primary and secondary phases of export-driven economic development.

Alas, for Japan, (but as a few of us forecast in the 1980s), national development eventually hits a tertiary phase when simple-minded, predatory mercantilism breaks down. If history and human nature are any guide, the Chinese will hit the same “wall” when economic complexity surpasses the ability of any planner-elite to comprehend or manage.  For all his faults - and the many ways he's misinterpreted - Friedrich Hayek understood this well. He showed how an obsession with Guided Allocation of Resources (GAR) eventually turns skilled planners into smug blunderers.

Now this barrier can shift, as computers and sophisticated models let rulers extend their period of competence a bit longer. (It helps, apparently, that nearly all of the top Chinese leaders began their careers as engineers, responsible for actual goods, infrastructure or services, not as lawyers, politicians or “business majors.”) Still, however you look at it, there is no way that the old ruling principle of GAR that held in 99% of human societies could possibly work in a tertiary economy as intricate as the United States. As Robb continues:

“The only way to manage an economy as complex as this is to allow massively parallel decision making.  A huge number of economically empowered people making small decisions, that in aggregate, are able to process more data, get better data (by being closer to the problem), and apply more brainpower to weighing alternatives than any centralized decision making group.”

Now all of this may sound surprisingly well... "libertarian"... given that both Robb and I are highly critical of today's right! But bear with us, because what's at issue is a fundamental conflation and betrayal of the very essence of libertarian and conservative fundamentals ... The ultimate irony and hypocrisy.

What Robb describes here is the central discovery, not only of Smith and Locke, but of Benjamin Franklin and the American framers... as well as Galileo and the founders of modern science.

Ever since civilization began, nearly all societies were dominated by centralized oligarchies, priesthoods or hierarchies who ruled on policy, resource-allocation and Truth for 4,000 years of general incompetence mixed with brutal oppression.

Today, by sharp contrast, all three of the Enlightenment’s great arenas -- democracy, markets and science -- feature a revolutionary structure that broke with the oligarchic past. The old, arrogant, top-down approach was replaced with something else. Something that great Pericles described 2,000 years earlier, during the brief Athenian Renaissance.

That something is the most creative force in the universe. The principle that propels evolution, in nature, and that brought humanity into existence. It is -- 

Competition.

Elsewhere I’ve called the Enlightenment’s principal tool Reciprocal Accountability (RA). But it really is just another way to say "get everybody competing." By dividing and separating power and -- more importantly -- empowering the majority with education, health, rights and knowledge, we enabled vast numbers of people to participate in markets, democracy and science. This has had twin effects, never seen in earlier cultures.

1) It means everybody can find out when a person stumbles onto something cool, better or right, even if that person came from a poor background.

2) It allows us to hold each other accountable for things that are wrong, worse or uncool, even when the bad idea comes at us from someone mighty.

Never perfectly implemented(!) -- this reciprocally competitive system nevertheless dealt far better than any predecessor with that problem of human delusion. None of us can see and correct all our own errors, past a cloud of rationalizations. But when RA is healthy, then criticism flows. And others (your opponents) will happily point out your errors, for you. What a deal! And I’m sure you're happy to return the favor.

The result? An Enlightenment Civilization fostered by Smith, Locke, Franklin etc., but propelled by tens of millions of eager participants. Inarguably the most successful of all time, cutting through countless foolish notions that held sway for millennia -- like the assumption that your potential is predetermined by who your father was -- while unleashing creativity, knowledge, freedom, and positive-sum wealth to a degree that surpassed all other societies, combined.

Even the most worrisome outcomes of success, like overpopulation, wealth stratification and environmental degradation, come accompanied by good news -- the fact that so many of us are aware, involved, reciprocally critical, and eager to innovate better ways. 

Lip Service to Wisdom

So, what’s that irony I spoke of, earlier? How does this central principle turn around and bite today's libertarians and conservatives, proving many of them fools?

Clearly, Everything I’ve said, so far, ought to make a libertarian or conservative happy!  Indeed, my nonfiction book The Transparent Society: Will Technology Force us to Choose Between Privacy and Freedom, is all about how open information flows can empower reciprocal accountability and competition, the things that make democracy and markets and science great. (There have never been humans more inherently competitive than scientists; try talking to one, some time.)

So where’s the problem? The problem is that it’s all lip service on the right! Those who most-loudly proclaim Faith In Blind Markets (FIBM) are generally also those proclaiming idolatry of private property as a pure, platonic essence, a tenet to be clutched with religious tenacity, as it was in feudal societies. Obdurate, they refuse to see that they are conflating two very different things.

Private property - as Adam Smith made clear - is a means for encouraging the thing he really wanted: fair and open competition.  Indeed, the propertarian reforms that Peru instituted under the guidance of Hernando de Soto, vesting the poor in the land they had always farmed, resulted in a boom that delighted both libertarians and socialists.  Safe and secure property rights are a boon... up to a point.

But anyone who actually reads Adam Smith also knows that he went on and on about that "fair and open" part! Especially how excessive disparities of wealth and income destroy competition. Unlike today's conservatives, who grew up in a post-WWII flattened social order without major wealth-castes, Smith lived immersed in class-rooted oligarchy, of the kind that ruined markets, freedom and science across nearly 99% of human history. He knew the real enemy, first hand and denounced it in terms that he never used for mere bureaucrats.

When today's libertarians praise the creative power of competition, then ignore the unlimited propertarianism that poisoned it across the ages, we are witnessing historical myopia and dogmatic illogic, of staggering magnitude. 

The Irony of Faith in Blind Markets

When Adam Smith gets over-simplified into a religious caricature, what you get is "faith in blind markets" - or FIBM - a dogma that proclaims the state should have no role in guiding economic affairs, in picking winners of losers, or interfering in the maneuvers or behavior of capitalists.  Like many caricatures, it is based on some core wisdom. As Robb points out, the failure of Leninism shows how state meddling can become addictive, excessive, meddlesome and unwise.  There is no way that 100,000 civil servants, no matter how well-educated, trained, experienced, honest and well-intentioned, can have enough information, insight or modeling clarity to replace the market's hundreds of millions of knowing players.  Guided Allocation of Resources (GAR) has at least four millennia of failures to answer for.

 But in rejecting one set of knowledge-limited meddlers -- 100,000 civil servants -- libertarians and conservatives seem bent on ignoring market manipulation by 5,000 or so aristocratic golf buddies, who appoint each other to company boards in order to vote each other titanic "compensation packages" while trading insider information and conspiring together to eliminate competition. Lords who are not subject to inherent limits, like each bureaucrat must face, or rules of disclosure or accountability. Lords who (whether it is legal or not) collude and share the same delusions.

Um... in what way is this kind of market "blind"? True, you have gelded the civil servants who Smith praised as a counter-balancing force against oligarchy.  But the 5,000 golf buddies -- despite their free market rhetoric -- aren't doing FIBM at all! They reverting to GAR. To guided allocation, only in much smaller numbers, operating according to oligarchic principles of ferocious self-interest that go back at least to Nineveh.

If you want to explore this further, including how the notions of "allocation" and "faith in blind markets" get weirdly reversed, and how Smith and Hayek are betrayed by the people who tout them the most, see my article: Guided Allocation vs. Markets: An Ancient Struggle.


Hence, at last, the supreme irony.  Those who claim most-fervent dedication to the guiding principle of our Enlightenment: competition, reciprocal accountability and enterprise -- our neighbors who call themselves conservative or libertarian -- have been talked into conflating that principle with something entirely different. Idolatry of private wealth, sacred and limitless. A dogmatic-religious devotion that reaches its culmination in the hypnotic cantos of Ayn Rand. Or in the Norquist pledge to cut taxes on the rich under all circumstances -- during war or peace, in fat years or lean -- without limit and despite the failure of any Supply Side predictions ever, ever, ever coming true.

An idolatry that leads, inevitably to the ruination of all competition and restoration of the traditional human social order that ruled our ancestors going back to cuneiform tablets -- Feudalism. 

Growing past the "left-right axis"

Let's be clear. Every aspect of my argument, today, was from the perspective of an admirer of Adam Smith, of market enterprise, science and freedom. It has been a paean to competition. Not a single argument even referred to socialist or left-wing parts of the spectrum.  Sure, I hinted that some liberal endeavors -- e.g. mass education, civil rights, child nutrition and national infrastructure etc. -- empowered greater numbers of citizens to join the fair and open process of Smithian competition. It's a truth we can discuss another time. But then, Adam Smith was called "the first liberal" and liberalism isn't "lefty" anyway.

No. This indictment of today's right was made entirely from the core postulates of the libertarian right.  Indeed, what Robb points out - and that I elaborated here - is a reason for sincere libertarians and conservatives to awaken and rebel against the hijacking of their movements by an old enemy.

This is an internal matter, a cancer within libertarianism and conservatism. If there are still honest-smart men and women within those old and noble traditions, they should think carefully, observe and diagnose the illness.  They should face the contradiction. Discuss the conflation. And then do as Warren Buffett and Bill Gates and many others have done....

Choose the miracle of creative competition over an idolatry of cash.

They should stand up.

=====    =====    ======

==See also:

Guided Allocation vs. Markets: An Ancient Struggle with strange modern implications

Defending Enterprise from its defenders

More Thoughts on Libertarianism: Finding a New Path

and Articles on the Economy: Past, Present and Future


-- David Brin
davidbrin.com
@DavidBrin

"Allocation vs Markets" - an ancient struggle with strange modern implications

The ancient mythology of "economic allocation" takes on strange modern camouflage... as a defense of "free market wisdom"

Warning! This is a long ‘un! (Perhaps making up for the long hiatus to follow, while I go hermit for a while... Though I am sure you'll all keep things lively in comments!) So fetch a snack. Settle down. Gird yourself for a very long and very intricate exercise in re-appraising everything that you ever believed about economics and politics! (Is Brin arrogant, or what? ;-)

As most of you know, I have long inveighed against the hoary and almost-meaningless so-called "left-right political axis," a metaphor to which (absurdly) countless millions of people still cling, 250 years after the French (of all people) thought it up -- a "spectrum" that mindlessly narrows and channels all political debate. A tidy model that halves every political IQ, forcing sophisticated, 21st Century minds into enmity with folk who may share many values, and compels you into alliance with others who want a world very different than you do.

(See a Questionaire that pokes away and explores underlying assumptions of ideology, at: http://www.davidbrin.com/questionnaire.html)

I have made tidy sums, over the years, wagering that no two (unwarned) individuals in a group (of almost any size) will write down definitions of "left" or "right" that much resemble each other, let alone offer cogent description of the complex quandaries that we face in modern times. In frustration, I have occasionally tried to serve up alternative metaphorsthat might better reflect real, contemporary problems, issues and divisions -- or at least divide up the political landscape more sensibly. (The word "arrogant" isn't strong enough!)

To view a few examples of these audacious re-appraisals, see:

* The earliest, from a talk given in 1987; this model, based on a meme-psychology metaphor, predicted the fall of the USSR and an era of conflict with “macho” cultures. Spot on forecasts. In fact, just about the ONLY spot-on forecast.

* This one attempted to trace underlying motives of some of today’s players in a viciously artificial "culture war."

* An alternative political “map” breaks away from standard cliches and especially the flaw of tendentiousness. Some insights about the dangers of aristocratism. Aimed at a specialized audience, I'm afraid. But it does expose the pitfalls of all political "mapmaking."

* "Horizon Theory" sorts people out according to how readily they allow themselves to notice when improved safety and prosperity call for an expansion of horizons. This natural trend seems to occur everywhere that humans have established societies -- allowing lower fear levels to translate into farther perspectives in worry, time, and inclusion. But some people and cultures are better at this than others. (Far better at explaining "red-blue differences" than cliches of left or right.)

In every case, the effort was not so much to be right -- proposing some Grand New All-Encompassing Theory -- as much as to try on new ways of viewing familiar things. Groping at the elephant from different angles (to put it allegorically.)

The essential truth is that metaphors can only illustrate and offer insights! The map is NOT the territory. If we should have learned anything from the calamities of Marx and Freud -- from communism to every other kind of 'ism -- the lesson is that human beings are far too complex to describe in pat words, even as individuals, let alone in vast societies.

That doesn't mean we should stop creating models. We are the model making animal.

It does mean that we should learn the maturity to view each model as... well... a model.

==ANOTHER FOOLISH ATTEMPT TO MAKE SENSE OF STUFF==

Now I am provoked to do it yet again. Because this damnfool left-right thing has yet another aspect that I haven't addressed before. Yet another part of a dismal dichotomy that badly needs debunking, at long last.

I am talking about the struggle between those preaching “prudent sustainability” and those who claim that market forces will solve all looming crises of poverty, pollution, energy depletion and so on.

We’ve all grown familiar with these apparently rigid “sides”, and so let me avow something from the start. If I am forced to choose between them, you can bet that I will side with the New Puritans of the sustainability crowd! They, at least, want somemodernist attention paid to assertive problem-solving, instead of preaching an indolent, pollyanna faith that some grand and superior external force will come to our rescue, averting calamity in the nick of time.

(Did it, ever, in the past? I repeat that challenge. Did such a thing happen? Ever?)

But that’s the point. I will not choose sides between the extreme poles of yet another absurd "devil's dichotomy." As I say in my review of Jared Diamond's Collapse and my comments on the War on Science...we don’t have to pick between two perfectly opposite positions! In fact, that kind of inflexibility is the surest way to guarantee our failure as a civilization.

So let’s pull back from our immediate troubles, once again, and ponder how these two viewpoints may reflect assumptions that are far older and more similar than any of the adversaries think, reflecting habits of thought going back thousands of years.

In fact, there are certain ways in which doctrinaire leftists are taking up old-time feudalist positions while today’s neo-feudalists of the right seem, at first, to be standing up for the Enlightenment... only to show their truer, reactionary colors when we dig a little deeper.

It all begins by re-examining the sunny optimism of those who think that everything is gonna be just hunky dory. That we’re all certain to come out of these times in and great shape, simply by trusting to the blind hand of commerce.

Warning: do not read on unless you feel prepared to curb normal political reflexes. Every single time that you react to a statement by diagnosing it (or me) in terms of left or right, YOU WILL BE WRONG. Sometimes diametrically! It will be a wild ride. Now enjoy.

==BLIND BELIEVERS VS THE NEW PURITANS==

Let's start by looking at a book that was touted recently by the legendary economics/investment guru, John Mauldin -- "The Bottomless Well" by Peter Huber and Mark P. Mills, provocatively sub-titled "The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy."

Sayeth Mauldin: “Huber and Mills take a hard look at the way we normally think about energy and turn conventional thinking on its head, offering what they call seven great energy heresies.

1. The cost of energy has less to do with the cost of fuel.... (than) the hardware we use to refine, process and use the fuel.

2. "Waste" is virtuous. We use up most of our energy refining energy itself. Waste lets us do more life-affirming things better, more cleanly, and safely.

3. The more efficient our technology, the more energy we consume. More efficient technology lets more people do more, and faster - and more/more/faster invariably swamps all the efficiency gains.

4. The competitive advantage in manufacturing is swinging back to the U.S.. Steam engines launched the first industrial revolution; internal combustion engines and electric generators kicked off the 2nd. The 3rd, desktop computing, is now propelling American labor productivity far ahead.

5. Human demand for energy is insatiable in the tireless battle against dispersion and decay.

6. Energy supplies are infinite, even if petroleum is not.

7. If energy policies similar to ours can be implemented worldwide, our grandchildren will inhabit a planet with less pollution, a more stable biosphere, and better-balanced carbon books than at any time since the rise of agriculture some five thousand years ago."

Wow! Heretical? Yes. Deliberately provocative? You bet...

...and at the top layer, Huber and Mills are also jibbering what amounts to stark, raving lunacy! None of these statements follow, even from their stated or implicit premises! Nor do they represent the way that prudent people have ever behaved in the past. Ever.

Don't you find it stunning how few bright fools compare their prescriptions to 4,000 years of actual human experience? I could cite dozens of historical examples of eras when imprudent waste, inefiiciency, resource depletion and heedless lack of planning resulted in civilization-wide calamity (see Jared Diamond’s book: Collapse), whereas there is not a single example, in all of the human past, when proposals such as Huber & Mills offer actually resulted in a society’s success.

Not one. Yet, people with high IQs are actually able to speak such absurd nostrums and convince themselves that they are not only true, but self-evident. Moreover, with a straight face they call themselves "conservative."

(A side question: How did “spendthrift liberals” ever become the ones pushing puritan values of thrift on the grand scale -- from budget-balancing to smaller government to international restraint to "waste-not" efficiency -- while “conservatives” preach against saving anything for a rainy day? More to the point, are we really too obstinate in our cliches to comment or even notice?)

==AND YET...==

And yet, if you read these deliberately provocative proposals (by Huber & Mills and others like them) only with reflexive disdain or automatic, dismissive loathing, then you are missing the point at many levels.

First - guys like this thrive on provoking apoplexy. I know. I recognize fellow contrarians... though rigid ones.

Second - bright fools are not only fools. They are also... bright!
. . Hence, even when they are clearly acting as shills for Exxon/Murdoch, is that any reason not to read and listen carefully, seeking value?
. . Dig this. Recent scientific studies have shown that we are at our most distrustworthy and addictively delusional while in the act of dismissing evidence presented by our foes! Our brains secrete reward chemicals every time we skim and shrug and sneer at opponents.
. . In contrast, isn't it a sign of true wisdom to instead sift through your adversary's meanings, in order to separate wheat from chaff?

Consider. Such people are often very clever at lining up both facts and trends that exploit the weakest parts of the argument for prudent efficiency and sustainability. . . . Nu? Don't we want those weakest portions exposed? So that the argument for sustainability can be improved? Again, the principle is CITOKATE. (Criticism is the only known antidote to error.)

Third - and most important - these authors absolutely miss the point of what we are all arguing about. Indeed, I think their opponents miss the key point, as well.

In fact, everybody does.

==MORE LAYERS THAT LIE (AND LIE) UNDERNEATH THE LEFT-RIGHT AXIS==

Unfortunately, the surface issues that Huber and Wills and their fellow cornucopians raise -- (e.g. whether certain technological advances may or may not rescue sustainable growth) -- distract from a layer that is much more meaningful... and far less explored. This is one more case where the underlying psychology and personal agenda are vastly more interesting than specific details of argument.

See my article on "Singularities and Nightmares,"
There I try to put in perspective the psychological phenomenon called “techno transcendentalism.” Here's an excerpt:

Depending on whatever decade you happen to live in, techno-transcendentalism has shifted from one fad to another, pinning fervent hopes upon the scientific flavor of the week. For example, a hundred years ago, Marxists and Freudians wove compelling models of human society — or mind — predicting that rational application of these models and rules would result in far higher levels of general happiness. Subsequently, with popular news about advances in agriculture and evolutionary biology, some groups grew captivated by eugenics — the allure of improving the human animal. On occasion, misguided and even horrendous undertakings prompted widespread revulsion. Yet, this recurring dream has lately revived in new forms, with the promise of genetic engineering and neurotechnology.

Enthusiasts for nuclear power in the 1950's promised energy too cheap to meter. Some of the same passion was seen in a widespread enthusiasm for space colonies, in the 1970' s and 80's, and in today's ongoing cyber-transcendentalism, which promises ultimate freedom and privacy for everyone, if only we just start encrypting every Internet message, using anonymity online to perfectly mask the frail beings who are typing at a real keyboard. Over the long run, some hold out hope that human minds will be able to download into computers or the vast new frontier of mid-21st Century cyberspace, freeing individuals of any remaining slavery to our crude and fallible organic bodies.

This long tradition — of bright people pouring faith and enthusiasm into transcendental dreams — eerily resembling the way previous generations clasped salvation tales that were more religious or magical. This recurring theme tells us a lot about one aspect of our nature, a trait that crosses all cultures and all centuries. Are techno-transcendentalists really all that different, deep-down, than Saint Francis or Buddha - or kabbalist rabbis - vesting what amounts to sacred devotion upon unproved assumptions, almost as articles of trascendant faith?

Let’s be clear. I am not saying that any... or even all... of these fields of social or physical science did not contribute to our growing edifice of understanding, or, ultimately, to future great expansions of human power and maturation. No, what I want to point to is the psychological qualities of quasi-religious EXCLUSIVITY and PURITY true believers would routinely invest in one area, calling their chosen path central. That “this is it.”

Reiterating; might all of this be less a matter of technology than of personality?

==GUIDED ALLOCATION VS FAITH IN BLIND MARKETS==

Returning closer to the topic at hand, how does any of this apply to the cornucopian mythology of Huber and Mills? Of Julian Symon and Bjorn Lomberg? The supreme rationalization of those in the elite who do not want governments, legislatures, universities or other publicly accountable institutions to deliberate or plan strategies for dealing with onrushing change.

Let’s step back. Consider what these authors (and their benefactor/patrons) are preaching. The deliberately provocative title “Bottomless Well” forecasts a coming feast of both energy and human empowerment -- a predicted perfect storm of human problem-solving creativity -- arising from a combination of mass education, freedom and fecund market forces. It is, deep down, yet another expression of what’s recently been called the Copenhagen Doctrine or, more generally, the precept of Faith in Blind Markets (FIBM)

Now first let me put aside any notion that I’m an adherent of the opposite principle -- the general notion called Guided Allocation of Resources (GAR). As you will see below, I most definitely am not!

What I will show is that this dispute goes back a long way. It is an ancient dichotomy... and one that’s deeply misunderstood.

==WHAT IS 'GUIDED ALLOCATION’?==

Before we appraise the modern fetishism called Faith in Blind Markets (FIBM), it is essential that we cover the older fallacy of GAR, or guided allocation. This notion contends that society’s best, brightest and wisest should decide how capital will be invested, which goods will be produced, and who will work at what tasks.

To those who were raised in the 20th Century, this description surely sounds like socialism. But that is a narrow and parochial view of GAR. A glaring logical and historical fallacy. An absurdity, in fact. (As a test of your own flexibility and sagacity, stop here and ponder for a moment why I call this reflex association preposterous. Why do I say that socialism is NOT the foremost or exclusive exemplar of guided allocation? Think "history" and stretch your assumptions a bit, before reading on.)


In fact, GAR has been the fundamental principle of governance and economics in nearly all human societies -- not just socialistic ones -- ever since the discovery of agriculture! Take the cabals of kings, nobles, and clerics that ruled over most of them. Those oligarchs felt just as sure of their superior ability to manage and allocate resources -- including human labor -- as the Soviet nomenklatura commissars were. Perhaps more so!

(In fact, the parallels between these two groups -- between commissars and feudalists -- are far greater than their differences! This should come as no surprise, since both groups were power-grabbers and both groups were human. Duh.)

Think. Isn’t this the obvious way that most human societies will tend to become organized? Whichever sub-group is already powerful, that group will USE their power to get MORE power! It’s simple Darwinism, borne out by the fact that this process of collusive authority-grabbing normally led to greater reproductive success. Success for the rulers, that is. (Recent evidence shows that fully 8% of modern Chinese are descended from the harem of Ghengiz Khan! Ponder that a bit. And he was just one among thousands of kings. Face it. We are ALL descended from guys like that.)

Seriously, can anybody plausibly argue that this was not the recurring pattern from continent to continent, in nearly all complex human societies? Of course, organized religion often played a vital role. Clerics all-too often strove to justify this power-gathering, to chant and rationalize and convince peasants that allocation by the mighty was best for all. (Do not take this as an anti-religious rant. Justification of hierarchy was a priestly role quite independent of the more honorable, pastoral and religious tasks performed by sincere holy men and women. Alas, lamentably, these separate roles tended to get bunched together in many cultures.)

Hence, GAR (guided allocation of resources) was not unique to socialism -- not a matter of "left versus right." Rather, it appears to be the principal pattern of historical economies around the world. A pattern that spanned at least 40 centuries, during which real markets seldom lasted very long without profound and relentless interference, favoritism and meddling “from above.”

(This, indeed, was the greatest complaint of Adam Smith and the biggest reason why the patron saint of capitalism was a "liberal.")

Tragically, one effect seemed nearly always to result from this pattern. That which benefits the leadership class seldom correlates with good statecraft. When given a choice between progress for everybody and enrichment of the oligarchy, which policy do you think was implemented in ancient Egypt, Babylon, Mycennae, Chin, Kamakura, Rome, Zimbabwe, Tahiti, Russia, Great Britain...?

Again, I do not have to prove any of this. All I have to do is put forward a challenge. Find exceptions! Across twenty years of making this one point, in public and in print far and wide, I have only heard mentioned THREE potential exceptions -- brief and minor ones -- to this relentless pattern, across the entire human historical record. And a sad story it is.

==GUIDED ALLOCATION - TOO TEMPTING TO RESIST?==

I should point out that collusive cheating is only the first of several flaws, inherent in the notion of guided allocation.

The second flaw was almost as great -- imperfect human knowledge of complex systems. Even when ruling elites tried to govern judiciously, for the the good of all, generation after generation of wise guys fell for the same alluring trap... the same delusion... believing that they understood society, morality, physical law, and economics well enough to allocate effectively.

But history shows they were all mistaken. Every last one of them. Complexity and imperfect knowledge are the gremlins that haunted kings, even when societies were far simpler than they are now.

Of course, I am not the first to point this out. Nobel-winning economist F.A. Hayek dealt decisively with the problem of imperfect knowledge, offering a convincing line of explanation for why reliable command over any economy always wriggles and slips out of our grasp.

This lesson applies not only to ancient Greece and China... or to the calamities of Soviet-style state planning... but even to sophisticated modern managers. Take the recent history of “Japan Inc.” Back in their heyday, the Lords of MITI pursued that ancient dream of top-down allocation with a vengeance. Moreover, it sure seemed successful for a while! Using techniques far more sophisticated than the Politburo and incorporating many capitalist tools, they assumed that their economic models, and especially thoughtful allocation of bottomless lines of credit to favored industries, would succeed far better than “random” open markets. Indeed, those sophisticated models and plans worked... for a while.

Till complexity and imperfect knowledge wreaked inevitable vengeance. (I was among the few, in the 1980s, to predict this.)

Here is a sad sermon taught by the ages:
GAR may be a natural way for societies to organize. But GAR does not deal well with surprise.

Still, the ancient dream of guided allocation will not die. The neo-confucian leaders of China are following it today, attempting to rise above the mistakes made earlier by feudal, communist and MITI allocating castes. Indeed, let us all admit that they are achieving respectable wonders, so far. Impressive stuff.

Still, are they human?

Then it seems all-but certain that complexity and surprise will play their old tricks at some point,
yanking the rug out from under even the cleverest allocators, once again.

==THE MARKET ALTERNATIVE==

In contrast to guided allocation, genuinely liberated markets have a very short history.

Yes, great Pericles spoke in their favor, and not only of economic markets, but also markets of knowledge, ideas, policy and law (e.g. democracy.) Alas, the notion was new and difficult to implement in lasting ways. It was also deeply unpopular among tyrants and oligarchs, who unleashed every weapon against that fragile, early experiment. Moreover, once the pericleans were quashed, aristocrats in every subsequent culture relentlessly subsidized and promulgated Plato and his followers, who made it their business to defend top-down hierarchy with utter tenacity, for close to 2500 years.

Guided allocation remained king - literally - during all that time. A long and daunting epoch of failure and pain.

That is, until Adam Smith and John Locke began drawing our eyes once again toward the Periclean dream. Toward what we moderns might call the “wisdom of empowered crowds.”

Their core notion? That human beings -- all of us -- are inherently delusional self-deceivers, rationalizers and cheaters. (Duh!) Hence, no elite group can be trusted to allocate resources fairly, or to rule wisely with unbalanced or unaccountable monopolies of power. No, not even the elites YOU happen to admire. Not even them. Not even you. Not even me.

Rather, Smith, Locke, Franklin and their enlightenment peers offered a radical notion. If you empower the masses to act individually, as fully knowledgeable citizens, each person transacting on his or her own behalf, then their differences may add up to strength. The strength and creative power of reciprocal accountability (RA) -- applied en masse -- to detect and counter a great many foolish errors. Unwise and immature individuals can be be much wiser in aggregate, especially when a dollop of mutual suspicion lets them cancel out each others' worst tendencies -- the malignant, predatory devils of human nature -- leaving the angels of fair competition and cooperation to thrive. The guiding concept? To escape the era of kingly delusion, replacing it with an open give-and-take. Above all, letting no one escape criticism.

(Pause: Which is more "naive"... the idealization I just described? Or an obstinate refusal to recognize that this plan worked? Not perfectly. But far, far better than every other kingly, priestly or ritual-laden prescription since humanity lived in trees?)

Not only is this innovation the wellspring of “suspicion of authority” -- a central foundation of the US Constitution. (And a lot of mass media!) It is also the the basic wisdom underlying modern markets. Instead of a single, coherent economic plan, declared top-down by fallible leaders, a market deals with the problems of complexity by unleashing a tool that is... well... complex! A whole society of sovereign individuals.

(For a rather intense look at how "truth" is determined in science, democracy, courts and markets, see the lead article in the American Bar Association's Journal Aug. 2000, "Disputation Arenas: Harnessing Conflict and Competition for Society's Benefit."

This is the core premise underpinning our pragmatic or "liberal" wing of the Enlightenment. A suspicion toward hierarchy and belief in dispersed authority that has proved its effectiveness during a narrow, 200 year window when -- coincidentally? -- humanity has managed to multiply its knowledge, wealth, health, prosperity and happiness by orders of magnitude beyond what had been achieved by all the kings and priests and command allocators of old.

Putting aside deluded romantic-nostalgia about the "wisdom of ancient tribes," there can be no rational doubt that the notions of Pericles and Smith and Locke and Hayek are proved.


Well? Are you confused yet? One moment I seem to be veering left, then right! I may seem fickle and inconsistent...

...but that is an illusion. There is a very consistent story here. Hang in there... and shrug off the cliches.

So Brin rejects the "guided allocation" practiced by kings and commissars. Does that mean we should all pray instead to the inherent wisdom of blind markets? Have I picked sides in the furious modern debate between FIBM and GAR, choosing Huber and Mills and Simon and Lomberg?

Gah! Fie upon dichotomies!

I refuse to be pigeonholed. Especially when the dichotomy is a trick. When it is a trap

==IS IT REALLY A MATTER OF WISE MARKETS VS FOOLISH ALLOCATORS?==

All right, then. Let's take a closer look at this great dichotomy. One that (we're told) maps neatly upon the hoary old “left-right political axis”. A dichotomy between the standard human modus operandi - guided allocation - and the newcomer - faith in blind markets.

My claim? That we have been distracted, far too long, by a failure to parse this great debate properly. So let me try to offer a set of encsapsulated key points. And then I’ll kick over the chessboard, pointing out that it was never a dichotomy at all!

==Point #1. Reiterating: the approach called Guided Allocation of Resources (GAR) is not specifically socialistic. Rather, it is essentially oligarchic. In principle, communist commissars were no better - or worse - than any other narrow conspiratorial elite of power grabbing cheaters.

==Point #2. The fallacy is just as severe in the opposite direction! Any true historian of both economics and politics will tell you that open markets and liberated citizen accountability are the greatest liberal inventions. They were radical, revolutionary, anti-monarchy, anti-oligarchic and reformist. In other words, we are all better off dropping the "left-right" nonsense, when comparing guided allocation to faith in markets. It is simply a poison to clear thinking.

==Point #3. Thus, when "market promoters" rightly point out the great flaws of GAR, aren't they hypocrites to wag their fingers in just one direction? They should shine that critical light on all economy-controlling cabals. Are collusive, price-fixing monopolists more inherently wise and trustworthy than commissars, or feudal lords, or other narrow groups of would-be “allocators”? Aren’t all types more similar to each other than radicals of left or right would ever choose to admit?

==Point #4. Even more generally, are not large corporations, in themselves, examples of top-down allocation hierarchies, replicating in-miniature, the rigidity, poor modeling and frequent self-interested cheating that were displayed by kings and commisars? Picture an imperious CEO as royalty! Isn't the parallel creepy and also... well... rather banal? Even unsurprising?

Yes, competition between major corporations should keep these allocation-centers lean, mean and efficient, while markets supply the essential element of wisdom via supply and demand. (Historians believe that competition between fractious and divided European nations had the same effect during and after the Renaissance, leading to their rapid technological innovation and subsequent conquest of the world. Still, that did not make them internally open. Or intrinsically wise.)

Anyway, note the word “should.” No matter how well-motivated a company is, driven by external competition, a dilemma remains: if corporations utilize command hierarchies similar to kingdoms, won’t they -- don't they -- emulate some of the same faults? From leader-egomania and leader conflict-of-interest to relying on a single mind (or small group of minds) to deal with ineffable complexity?

==Point #5. Those who (correctly) see the flaws and faults of guided allocation can easily fall into a logical trap -- positing that the wise opposite of GAR is Faith in Blind Markets (FIBM).

Indeed, some take the notion of market "blindness" quite seriously, propounding that societies should never meddle in the free interaction of market players (corporations and individuals). Any attempt at "guidance" -- by (for example) government regulation -- must automatically be rejected, as a matter of basic principle.

In other words, because we have learned that GAR (all capital letters) stinks as a general system, that means we must flee as far as we can, to extremes in the diametric direction! We should reject any use of "gar" (lower case) tools to help markets work better. In extremum, this teaching calls upon us to reject the entire suite of problem-solving methodologies that involve political deliberation, prioritizing and allocating a certain fraction of social resources toward the accomplishment of thoroughly considered and democratically-chosen consensus goals.

Not only is blindness good -- (goes this hyper-libertarian concept) -- but any attempt by society to "see" -- and to act upon that foresight -- is automatically dismissed as bad.

Um, has anyone else pondered the unbelievable reductio meaning of this cult incantation? That an ideal human society should make little or no use of our great facility for planing and foresight?

Individuals may peer ahead. Corporations are allowed to do so. Aristocrats may do so in small collusive groups and in secret. But en-masse we must spurn our hard-won propensity for gedankenexperiment and precautionary action!

Astonishingly, those who seek a fetishistic opposite to GAR seem to be declaring faith and fealty to a new godhead. A non-promethean deity who demands quiet from humanity's collective prefrontal lobes. In blithe and devout expectation of externally-delivered salvation, they pray to an idol of mass-social unsapience.

==Point #6. True, what I just described is an extreme version of FIBM. Even Huber and Mills would call for some government-led allocation, I presume. Space telescopes and medical research. Certainly public assumption of countless liabilities so that profits can be privatized.

Still, the devil is not in the details. He lurks in the passion and extreme attitudes of these partisans... and in their cryptic loyalties. As I alluded earlier, when I spoke of techno-transcendentalists who pledge faith in simplistic models, there is clearly something going on here at the level of personality. A desperate need for some all-encompassing magical and simplistic formula.

Take the popular libertarian slogan: “market laws are natural laws.” Alas, like most slogans, it is poorly supported in the light of history or human nature. When challenged, supporters can cite few examples of thriving markets that existed in the past, free of oligarchic GAR. Market laws are natural laws? One might imagine that something so natural would have actually happened at least once, during those long dark ages before the Enlightenment.

==Point #7. Yes, fecund markets have happened since the Enlightenment. Not only markets of commerce, but other “accountability arenas” of science, democracy and law have all successfully diverted the incessant human penchant for competition, channeling it away from cheating and predation, instead harnessing it toward the pursuit of factual truth, justice and unprecedented creativity in the delivery of goods and services.

Rather than manifestations of natural law, these four creative arenas far more closely resemble finely tuned machines that have been hand-built by countless sincere men and women, across several centuries. These machines are not "unguided." Rather, they are guided with a new goal in mind -- the empowerment of individual competitive and cooperative opportunity.

A myriad rules and procedures have been enacted, in much the same way that automotive engineers invented valves and cams and pulleys and gears... that are now being replaced in our cars by computer-controlled injectors and actuators. A similar process of fine-tuning and replacement takes place in a modern society as outdated laws and regulations get replaced. Some of these arena rules were (and are) overly-ornate. Some are even deeply stupid. Others are pragmatic, having arisen out of hard experience, with the aim of helping to harness human competitive-cooperative energy better than before.

Oh, it isn't pretty. An excessive plethora of parts. Feedback loops that struggle and shove against each other. Filthy, corruption-ridden contradictions. Parasites abound and oh, the steering mechanism! Don't get me started on the steering mechanism. Anyone who has a sense of style must be regularly shocked and offended by our messy civilization.

Ah, but anybody with awareness of human history or human nature, has to be amazed that the machinery works at all.

No wonder extreme ideologues of both GAR and FIBM have no patience for all this gritty complexity. The former want the engine put under total conscious control. The latter cling to a magical notion that we got our motors of commerce, science and law without any vision or planning at all.

The core point that must emerge -- that the rest of us must deal with, in coming years -- is just how deeply unhelpful both of these extreme world views really are. How fixated, inflexible... and borderline insane.

==Point #8. And profoundly, prodigiously dishonest!

Not only do radical preachers of FIBM try desperately to divert attention from history's great fact -- that guided allocation of resources (GAR) is just as relentlessly a fault of aristocratism and capitalism, as it is of socialism. Far worse, Huber and Mills -- along with others like Julian Simon and Bjorn Lomborg -- appear to be either willingly complicit or pathetically unaware that FIBM has become a mantra in service of those who want state authority removed... so that decisions about resource and production allocation can be taken over by other oligarchies.

By other groups that are inherently even less accountable than elected governments. Groups bent on re-creating patterns of hierarchy that are as old as human civilization.

Indeed, it is precisely in the area that most interests Huber and Mills -- energy policy -- that we have lately seen narrow groups of powerful and well-connected men seizing secretive and collusive allocation-authority, free of almost any kind of accountability. Men who decry governmental allocators... then apply every trick of bribery and influence to use government as a tool for power and wealth accumulation. Men who call themselves geniuses, yet have proved themselves to be little better than Louis XVI at guiding civilization on the path of foresight, innovation, error-correction and success.

Men who would read the previous paragraph and instantly hurl cries of "socialist!" in my direction, in order to distract from the paragraph's blatant, obvious - and essentially apolitical - truth. (But you know I'm no socialist.)

This is the central hypocrisy of today's pulpit-thumpers and preachers of Faith in Blind Markets. If they were sincere, they would not only want to lessen government's hand on the economy. They would also be fervent devotees of anti-trust action to disperse every bloated, conspiratorial accumulation of power, knowing that GAR is an enemy of market wisdom, even (especially!) when the hands wielding it are corporate and aristocratic, instead of do-gooder liberal regulators.

Alas, the myopia of FIBM has gone so far that the Cato Institute, supposedly a bastion of pro-market libertarian thought, has turned into the central locus of jesuitical rationalization for a return to feudal aristocratism. There is no market distortion too obscene to support, so long as the beneficiaries are oligarchs, rather than liberal paternalists.

==Point #9. And yet, lest I seem unbalanced, let me turn the other way and make clear that the FIBM rightwing has no monopoly on desperately self-serving myopia and oversimplification!

If FIBM is a betrayal of Smith and Locke, what can we say about the would-be world-savers who would ignore every lesson that we have learned about the fallacy of GAR? Many on the left truly are far-socialistic in their inclinations. They see the abuses and feral power-grubbing of aristocratic cheaters and conclude that capitalism itself is at fault... when those cheaters are the very worst enemies of true free enterprise!

Why are many reformers unable to make this distinction?

Again, I believe it is a matter of personality, far more than fact or evidence. They see a world that is filled with folly and pain. They sincerely believe that this folly and pain can be solved simply by allocating resources, tasks, capital, labor and endeavor in the right ways. I mean, what could be more obvious? Wasn't this obvious to the rulers of every other civilization?

It would take wit, insight and incredible perspective for many of them to pull back and admit: "Wait... I am prescribing the very thing I should hate. What I really ought to want are genuinely liberal markets, in which the state ensures that all players get to know and negotiate and play the great creative game from a level playing field. Yes, that will mean some "allocating" to raise up poor children to be ABLE to compete well. And yes we must allocate to take into account the needs of generations yet to come. But the thing I am devoted to is not allocation, per se! The thing I am dedicated to is giving all people (including those yet to come) a fair chance to play."

==point 10. What can we conclude?

It is a pretty rough and devastating denunciation.

=====     ======     ========
   
THE "WAR" BETWEEN FIBM AND GAR IS A SPAT BETWEEN COUSINS
WHO SHARE THE SAME PERSONALITY FLAW.
THE SAME WRONGHEADED ASSUMPTION.

If you are confused, don't be daunted. We have been trying hard to look at familiar cliches afresh, from unusual points of view. And what we have seen is perplexing, complicated, maybe even a bit scary.

Please. I am not saying that all enterprise capitalists are hypocrites. Nor are all liberal reformers deep-down socialist meddlers. Indeed, a vast majority on both sides are not!

Most of us are trying hard to keep faith with the Enlightenment goal of pragmatic problem solving, using an eclectic mix of "right and left-handed tools" from competitive market innovation to reasonable social cooperation. From the quasi-random, supply-demand stimulation of goods and services to the kind of government regulations that tune markets, so that all reasonable costs are paid by the same generation that reaps the immediate benefits. (Instead of passing those costs on to our descendants.)

Indeed, it is that quiet and earnest majority who I am addressing in this article. Because the radicals of FIBM and GAR will not have lasted up to this point. Because they will have already dismissed this as a rant that evades accepted terminology. This essay proves me to be a "socialist"... or else a libertarian "tool of plutocrats." Or a wishy-washy oscillator, rudderless and without principles.

But, again, you know better.

==HERE'S THE CRUX:==

Huber and Mills are probably right that the creativity of millions of unleashed human minds will be applied to problem-solving in the years ahead, to an extent that we’ll find unprecedented and dazzling. Perhaps even enough to bring the positive singularity.

On the other hand, history shows that we have absolutely no basis for blindly trusting that creative cornucopia explosion to happen all by itself! The engendering of those creative millions is too serious and important a task to leave to such a simple dogma! Especially to a blithe nostrum, that has no support in the long history of nations.

True, hierarchical guided allocation proved dangerous and stupid countless times in the past. But not when it has been applied toward well-focused tasks that enhance the capability of millions of human beings to become sagacious individual citizens and market participants! Our universities and internets and democracies and civil rights and commercial codes and free education and subsidized roads and nutrition programs and countless other measures that mitigated the tendency of society to slump into a pyramidal hierarchy of inherited privilege. By helping each generation of kids to believe - in some confidence - that they are able to innovate and cooperate and joyfully compete, we created the world's first diamond-shaped society.

And we did it using judicious dollops of carefully considered gar... (lower case)... not GAR.

If the left is never satisfied in pushing for such things, sometimes forgetting what they are for, the right has no claim to be smug. They take all of these things (like civil rights) for granted, glad to accept the benefits, forgetting that conservatives fought against every last one of them, and now resist every new fine-tuning that might help the great cornucopian machine to work better.

Indeed, while I am a passionate believer in the reciprocal accountability principle of Pericles and Smith and Locke - (as evidenced by my book The Transparent Society: Will Technology Force Us to Choose Between Privacy and Freedom?) - I cannot turn this pragmatic appreciation into cult belief in a quasi religious version, a caricature of what they taught.

Faith in Blind Markets (FIBM) is neither scientific nor steadfast to the essentially pragmatic mindset of the Lockean Enlightenment.

Nor is the recurring notion of socialist allocation a suitable replacement for a dismally predictable oligarchic conspiracy.

All of these are just slightly re-clothed versions of GAR.

They are crutches for weak thinkers... or else manipulative tools exploited by those who want to be our masters.

They are dismal tales that grab and clutch at us out of the past, unsuitable for sophisticated citizens of an agile and complex and fast-moving Third Millennium.

===

See more: The Economy Past, Present and Future

David Brin

http://www.davidbrin.com

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