The Post Coasean Chaos

I’m writing in response to this article in the nytimes:

It increasingly looks as if something fundamental is broken in the global growth machine — and that the usual menu of policies, like interest rate cuts and modest fiscal stimulus, aren’t up to the task of fixing it (though some well-devised policies could help).

tl;dr: Economic growth is extremely low, and persistently so (especially in the automated west), productivity is low, participation in the workforce is low, demand is low.

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For the last ten years or so, I’ve thought that the progress of tech would become non-economic; we would have a lot of new things that lift all boats, but destroy economic value on their face (like wikipedia, but really like ubiquitous networks). Think of those pictures of desks full of equipment replaced by mobile phones and laptops. Think of millenials who don’t understand why you’d want a license to drive a car.

My prediction was that life would continue to get better, but economic indicators would start moving erratically and/or in firmly negative directions. This would be a problem because Very Serious People would take these indicators Very Seriously and try to fix things, and hilarity would ensue. And by hilarity I mean things that are funny only if viewed from the outside (ie: hilarious to other people but not necessarily to you, if you are being operated on by the VSP).

The article I’ve linked above is an example of the ponderous pondering of the VSP. It’s about the slowdown in economic growth, presenting the idea that modern tech is just not very impactful and that’s why we’re slowing. Also that demand is weak because … no one knows why … and people are mysteriously dropping out of the workforce … no one knows why. It ends with a kind of anaemic shrugged shoulders call for investment in infrastructure, or something, maybe?

Here are my 2 cents:
- The traditional organisational form is structurally unable to produce economic value using the new tech
- The new gains, the new “growth”, is non-economic (ie: non scarce) and is occurring in the “sharing” economy. This is invisible to economic indicators, and will look like missing value, some kind of mysterious malaise.

We all carry astounding tech around in our pockets. We grab the latest cool services and apps, and organize & live our personal lives according to an ad-hoc, tech mediated chaotic rhythm which is, at least to me, a lot of the joy of modern life.

Then at work, we are forced to use that old Windows machine, various services are blocked, no we can’t use that free service to do X, you need to do that on our SharePoint, no we can’t just use Facebook messenger to organise that meeting, no the corporate standard is IE11, you have to put that in the document management system, you have to get that signed off by the manager who can’t really manage his emails properly, you have to make numbers dreamed up from who knows where by some info-poor boomer, etc.

But something new is emerging. At the small end of town people are embracing a semi-economic chaos. Tiny teams and individuals interact via online markets, apps, social media. Groups form for one off projects then disband. Someone gets a contract to make something, hires someone cheap online to help, throws some other bits to a trusted associate. Community groups and tiny local organisations find they don’t need an IT guy any more, they just pick up free tools and cobble together a shifting, ad-hoc IT organisation.

And a lot of these things have no monetary inputs or outputs. If you ask your mate Fred to proof-read your proposal, and he does it gratis because you helped him with that website, and you use google docs and slack and gmail and facebook to talk to each other, no money changes hands.

If work happens in a forest and no money is involved, can an economist hear a sound?

I’ve invoked Coase in the title of this article, because I believe we’ve moved into a Post-Coasean regime. From the wikipedia article:

According to Ronald Coase, people begin to organise their production in firms when the transaction cost of coordinating production through the market exchange, given imperfect information, is greater than within the firm.

Until the advent of modern computing and communications, transaction costs for coordinating economic (or post-economic) activity were high, enough that great coordinated firms (and other forms of large organisation) were required and dominant.

But I think that’s in the past. I think that the ideal (post)economic form is now small groups, coordinating via the (online) market or non-economic exchanges.

It’s a kind of chaos, because it is ad-hoc, order emerges temporarily and then disbands.

The success of startups are an expression of this, because they are one instance of this new form of organisation. We see productive activity (the entrepreneurial startup) moving separately to capital (VCs, angels, private equity) and using technology instead of armies of people. Interestingly, startups are early adopters of and big users of SaaS products and the like, which let them outsource absolutely everything except the core business (usually to other startups).

But startups aren’t the only form of post-coasean organisation, or even the final form.

—

Here’s something that really interests me:

There were five million fewer Americans in the labor force — neither working nor looking — in 2015 than projected.

An analysis by the White House Council of Economic Advisers last year estimated that about half of the decline in labor force participation since 2009 was caused by aging of the population (which was anticipated in the projection), and about 14 percent from the economic cycle. About a third of the decline was a mysterious “residual”: younger people leaving the work force, perhaps because they saw little opportunity or viewed the potential wages they could earn as inadequate.

Almost 2 million people mysteriously are just not in the work force for no reason that anyone can point to. I suspect something very interesting could be happening here. This is something to watch.