The Ghost of Economics Past
Ebenezer’s turnaround
A few years ago I finally read E.F. Schumacher’s Small is Beautiful. Whilst I found the arguments engaging, I didn’t think it came close to fulfilling the anticipation about it that I had garnered from my (elder) peers. In my view, his collection of essays amounts to a love letter for smallholdings and their manageable social, economic and political environments. Attractive sentiments perhaps, but somewhat in denial of the irreversible complexity that we have (to a point necessarily) created in this world. A little rose-tinted shall we say. Apologies for the glib example: it’s a bit like when you fly from a small airport that is run so very efficiently and arrive in an international hub — let’s say Chicago O’Hare — and wonder where it all went wrong. Yes, we took some wrong steps along the way. Yes, maybe we lacked a bit of foresight. Nevertheless, all things told, the big bad wolf of complexity eventually came to the fore and O’Hare happened.
We have gone a some way to addressing this problem of complexity through technology. Automation has allowed us to hide some of the large, messy, rough edges of manual process. Tech advances have spilled into and been forced into every aspect of our lives. This has had some unintended consequences — not least on our interactions with one another but also on the classic model of capitalist economics i.e. demand, supply and equilibrium in a free market.
Before I go further, I have to credit Thorstein Veblen’s work on conspicuous consumption, @RickWebb and @umairh for their unknowing contributions to my little article.
Technology has connected us in ways that we never before thought possible. Our interconnectedness and our ability to create and influence news through social media and increasingly ubiquitous smartphones is a rapid innovation. This picture of the last two Popes’ inauguration ceremonies serves as a nice example.
This increased level of knowledge about each other has led to some not particularly surprising outcomes. Generally speaking, us humans like what each other like. If we are honest with ourselves, the vast majority follow trends rather than create them. I concede that improved technology, the Internet and increased interconnectedness has dis-intermediated industry from consumers in many areas thereby allowing more people to influence trends. Nonetheless, the fact remains that each one of our uniquenesses is typically bound to our personality rather than our wants and needs. In our brave new world, we are more aware than ever of what we all want and crave. It can be interpolated through 140 characters, Snapchatted for two seconds or broadcast through WhatsApp but we can all know what each other thinks, wants and needs with an astonishing immediacy.
At this point, you may be thinking “we can get in touch with each other super-quick and buy things that we like (maybe because we saw someone else with it) with ease…so what?!”. Well, it has had a profound effect on modern capitalist economics. I’d like to front-run you with an @jessicahagy style illustration:
“Normal” in this scenario is described where demand decreases with a good/service’s price, whilst the amount producers are willing to supply increases with price. The two forces of demand and supply meet, and this is called equilibrium. But, I see this breaking down all around me and maybe you do too.
Conspicuous consumption is evidenced by increasing levels of demand with increasing levels of price. Like any theory, there are a number of exceptions that one has to allow for. Conspicuous consumption theory was originally conceived to explain the demand for luxury goods where the very price of the item was an attraction through demonstration of one being able to acquire such a scarce/expensive/insert-word-here item. In this way it defied established economic models.
What do we see today? A rampant accumulation of goods formerly known as luxuries? As far as is possible in a lot of cases, and sometimes beyond one’s means. A need to convey status by converting ourselves into our own personal brand associated with these luxuries? Often — see Instagram for more information. We are driving each other crazy with wanting what we believe other people want. But for the time being the tautology of this model isn’t out in the open. In the meantime we pay far over the odds for items which fulfill this remit of ‘desire’ goods rather than true luxuries. These competitive, unstable equilibriums move with trends and are nigh-on impossible to track, map and understand.
Let’s look toward the future. I like to think that the world doesn’t get worse every day and everything won’t have fallen apart by the time that I wake up in the morning. I’m pretty sure that we’re going to get over this new facet of consumerism. After all, it has been fuelled by an unprecedented proliferation in technology of which the leaps and bounds associated with it are becoming fewer and further between.
That’s not to say that there won’t be some clever people slowing the moving-on process down; evil corporations in their evil corporation buildings, big data analysts, quants, digital biotech, marketers and the like will all play their parts. As a result, it’s going to take something big to overcome our new trend. Something really big.
There is a time and place for economic doomsaying, usually it’s all too depressing by half, but I think that there’s something in the idea of ‘The Big Reset’. I won’t go into details about bond yield curves, growth rates and GDP : Debt ratios but it certainly seems to me that we are acting unsustainably from an economic, social and environmental perspective. Something will give and it’s likely to be painful. But there will be a tremendous opportunity for us all.
I’m half British, half American and recently I was a post-grad student at a great school in Durham, NC. In one of my lectures the professor addressed the class and asked “What is the working environment like in Europe?”. Almost immediately three people loudly responded “Socialist!”. Thankfully my shock stopped me from laughing. I talked to some of the students after the class and was told — with some hubris — about the small state in America and the cushy, mothering, huge state apparatuses in Europe. It isn’t a bad comparison, but it isn’t exactly fair. The universal health services in Europe and safety-net support for the needy are, by and large, things to be proud of. They are some faint silver linings to the cloud of the World Wars. Aside from this, all states (as far as I know) exhibit some aspects of central planning at certain levels e.g. police forces and rubbish disposal. Public goods exist and are catered for, albeit at differing levels in different countries.
It’s certainly true that the quantity of cross-border and intra-state government interventions makes it hard for classic economic models to be descriptive, let alone prescriptive. The current exhibition of demand based on desire further muddies the waters. So what will this reset opportunity afford us? It will give us the chance to rethink how we approach the state, how we approach labor and how we approach economics given our known inputs of people, technology and existing levels of wealth.
This mind can’t imagine a world of Star Trek Federation Credits a la @RickWebb but I can see some ‘best in practice’ ideas being adopted on a more widespread basis. Perhaps there will finally be some breathing room to replicate the Scandinavian education model and hope to enjoy the much-observed correlation with low levels of social problems. Maybe government will take a more explicit and active role in supporting venture as if it were a public good.
This new world won’t be without it’s challenges however. Tech substitution of manual labor is already happening. FX traders have been replaced by uncorruptible (let’s say less corruptible) computers, cars are put together by robots, main street shops are being decimated by online goods aggregators. This substitution will continue unabated. It’s not inconceivable that a new wave of Luddite terrorism will occur. But when we reach this point I can see that the welfare safety net which Europe is famous for actually becoming an economic policy rather than a derided/admired self-fulfilling fiscal accident. The amount of goods and services that we need and want in this post desire-demand world should be easily catered for by a far smaller workforce than that which we have today. Indeed the hard and soft money supply and its method of creation can be changed to reflect this. This could be a world where if you didn’t want to work, you wouldn’t have to.
In this scenario, I simply cannot imagine 95% of us sitting down on our standardized arm-chairs enjoying whatever drug has been newly legalized. Our desire for desires could be channeled in a more productive way. Given the right incentives I suspect, much like Rick, that most of us would want to work anyway, and if we had been given the incentive of a centrally funded education which equipped us with all the tools that we needed to do so — well so much the better.
I’m now flirting with the concept of enlightened self-interest and utilitarianism in too utopian a way, but it’s worth us all thinking what we’d do or what we’d like to happen given the chance to change.
